<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 MARCH 31, 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
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ATC COMMUNICATIONS GROUP, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 75-2050538
- ------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
5950 BERKSHIRE LANE, SUITE 1650, DALLAS, TEXAS 75225
-----------------------------------------------------
(Address of principal executive offices, Zip Code)
Registrant's telephone number, including area code: (214) 361-9870
- -------------------------------------------------------------------------------
(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.
<TABLE>
NUMBER OF SHARES OUTSTANDING
TITLE OF EACH CLASS ON MAY 8, 1998
------------------- ----------------------------
<S> <C>
COMMON STOCK $.01 PAR VALUE 21,839,624
</TABLE>
<PAGE>
ATC COMMUNICATIONS GROUP, INC.
MARCH 31, 1998
TABLE OF CONTENTS
<TABLE>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1998 and June 30, 1997 . . . . . . . . . 3-4
Consolidated Statements of Operations
Three Months Ended March 31, 1998
and March 31, 1997 . . . . . . . . . . . . . . . . 5
Nine months Ended March 31, 1998
and March 31, 1997 . . . . . . . . . . . . . . . . 6
Consolidated Statements of Cash Flows
Nine months Ended March 31, 1998
and March 31, 1997 . . . . . . . . . . . . . . . . 7
Notes to Consolidated Financial Statements. . . . . . . 8-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . 10-14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . 15
Item 5. Other Information . . . . . . . . . . . . . . . . . . . 15
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . 16-17
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ATC COMMUNICATIONS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND JUNE 30, 1997
<TABLE>
MARCH 31, 1998 JUNE 30, 1997
(UNAUDITED) (AUDITED)
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 55,491 $ 632,826
Accounts receivable -- trade, less allowance
for doubtful accounts of $73,826 17,052,447 14,527,440
Notes receivable -- related parties 4,141,956 3,809,658
Notes receivable -- other 158,219 157,693
Current deferred tax asset 918,066 3,037,066
Prepaid expenses and other current assets 374,212 763,361
----------- -----------
Total current assets 22,700,391 22,928,044
Property and equipment, net of accumulated
depreciation of $11,206,624 and $8,211,046
at March 31, 1998 and June 30, 1997,
respectively 14,310,911 14,447,962
Cost in excess of net assets acquired, net of
accumulated amortization of $1,107,867
and $1,046,475 at March 31, 1998 and
June 30, 1997, respectively 1,661,927 1,723,319
Deferred tax assets 5,998,760 1,998,531
Other assets 422,633 124,930
----------- -----------
$45,094,622 $41,222,786
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
3
<PAGE>
ATC COMMUNICATIONS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND JUNE 30, 1997
<TABLE>
MARCH 31, 1998 JUNE 30, 1997
(UNAUDITED) (AUDITED)
-------------- -------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving line of credit $ 5,162,302 $ -
Current portion of long-term debt 1,455,505 1,395,304
Accounts payable - trade 3,297,110 821,187
Unearned revenues and customer deposits 120,630 573,922
Accrued compensation expense 3,003,656 1,524,954
Accrued telephone expense 823,989 659,949
Other accrued liabilities 3,553,991 2,872,596
------------ ------------
Total current liabilities 17,417,183 7,847,912
Long-term debt 3,706,267 4,753,613
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000
shares authorized; 29,778 convertible,
$.36 cumulative Series B shares issued
and outstanding 298 298
Common stock, $.01 par value, 27,500,000
shares authorized; 21,839,624 and
21,793,122 shares issued and
outstanding at March 31, 1998 and
June 30, 1997, respectively 218,396 217,931
Treasury stock (1,420,921) (420,921)
Additional paid-in capital 18,278,878 18,204,685
Retained earnings 6,894,521 10,619,268
------------ ------------
Total shareholders' equity 23,971,172 28,621,261
------------ ------------
$ 45,094,622 $ 41,222,786
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
4
<PAGE>
ATC COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
1998 1997
------------- -------------
<S> <C> <C>
Revenues $ 21,125,330 $ 24,480,347
Cost of services, excluding depreciation and
amortization shown below 15,734,113 16,781,122
------------- -------------
Gross profit 5,391,217 7,699,225
Selling, general and administrative expenses 5,484,219 6,048,327
Depreciation and amortization 1,089,735 920,451
------------- -------------
Total expenses 6,573,954 6,968,778
------------- -------------
Income (loss) from operations (1,182,737) 730,447
Interest expense 272,241 139,418
Interest income 61,706 25,020
------------- -------------
Income (loss) from operations before income taxes (1,393,272) 616,049
Income tax expense (benefit) (457,151) 203,349
------------- -------------
Net income (loss) $ (936,121) $ 412,700
------------- -------------
------------- -------------
Earnings (loss) per share:
Basic $ (0.04) $ 0.02
------------- -------------
------------- -------------
Diluted $ (0.04) $ 0.02
------------- -------------
------------- -------------
Weighted average common shares outstanding 21,478,294 19,225,323
Weighted average common and common
equivalent shares outstanding 21,478,294 21,871,609
</TABLE>
See accompanying notes.
5
<PAGE>
ATC COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
1998 1997
----------- -----------
<S> <C> <C>
Revenues $64,765,553 $76,139,785
Cost of services, excluding depreciation and
amortization shown below 48,870,434 52,489,652
----------- -----------
Gross profit 15,895,119 23,650,133
Selling, general and administrative expenses 17,816,602 15,601,656
Depreciation and amortization 3,124,308 2,593,501
----------- -----------
Total expenses 20,940,910 18,195,157
----------- -----------
Income (loss) from operations (5,045,791) 5,454,976
Interest expense 738,508 395,576
Interest income 178,318 73,802
----------- -----------
Income (loss) from operations before income taxes (5,605,981) 5,133,202
Income tax expense (benefit) (1,881,229) 1,748,711
----------- -----------
Net income (loss) $(3,724,752) $ 3,384,491
----------- -----------
----------- -----------
Earnings (loss) per share:
Basic $ (0.17) $ 0.19
----------- -----------
----------- -----------
Diluted $ (0.17) $ 0.14
----------- -----------
----------- -----------
Weighted average common shares outstanding: 21,484,012 16,964,022
Weighted average common and common
equivalent shares outstanding: 21,484,012 22,230,419
</TABLE>
See accompanying notes.
6
<PAGE>
ATC COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
1998 1997
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $(3,724,752) $ 3,384,491
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 3,124,308 2,593,501
Other 1,324 -
Changes in operating assets and liabilities:
Accounts and notes receivable -- related parties (332,298) (1,489,736)
Accounts and notes receivable -- other (2,525,533) 2,132,430
Prepaid expenses and other current assets 389,149 (610,890)
Deferred taxes (1,881,229) -
Other assets (353,836) (39,287)
Accounts payable 2,475,923 (1,377,575)
Unearned revenue and customer deposits (453,292) (643,676)
Accrued liabilities 2,385,913 (1,811,655)
----------- -----------
Net cash provided by (used in) operating activities (894,323) 2,137,603
Cash flows from investing activities:
Capital expenditures (2,780,058) (3,155,304)
----------- -----------
Net cash used in investing activities (2,780,058) (3,155,304)
Cash flows from financing activities:
Proceeds from (payments on) line of credit, net 5,162,302 (1,421,662)
Payments on long-term debt (250,002) (250,002)
Payments on capital lease obligations (815,254) (672,612)
Proceeds from exercise of stock options - 2,190,750
Purchases of treasury stock (1,000,000) -
----------- -----------
Net cash provided by (used in) financing activities 3,097,046 (153,526)
Net change in cash and cash equivalents (577,335) (1,171,227)
Cash and cash equivalents at beginning of period 632,826 1,723,702
----------- -----------
Cash and cash equivalents at end of period $ 55,491 $ 552,475
----------- -----------
----------- -----------
Supplemental information on non-cash transactions:
Tax benefit of stock options exercised - 763,035
Capital lease obligations entered into 78,111 3,805,828
</TABLE>
See accompanying notes.
7
<PAGE>
ATC COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
1. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued FAS
No. 128 ("SFAS 128"). The Company adopted SFAS 128, which establishes
standards for computing and presenting earnings per share ("EPS"), in the
second quarter of fiscal 1998. 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.
Net income applicable to common stock for the three and nine month
periods ended March 31, 1997 was adjusted to reflect the income attributable
to the minority ownership interest, including stock options issued to certain
key employees and officers, in Advanced Telemarketing Corporation d/b/a ATC
Communications, Inc. ("Advanced"), the operating subsidiary of the Company.
Net loss applicable to common stock for the three and nine month periods
ended March 31, 1998 was not adjusted to reflect the net loss attributable to
the minority ownership interest, including stock options issued to certain
key employees and officers, in Advanced because minority interest holders in
Advanced are under no obligation to fund their proportionate share of losses
incurred by Advanced.
Basic and diluted weighted average shares outstanding for the three and
nine month periods ending March 31, 1998 and 1997 were computed as follows:
<TABLE>
THREE MONTHS ENDED MARCH 31, NINE MONTHS ENDED MARCH 31,
------------------------------ ------------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
BASIC
Weighted average common shares outstanding 21,839,294 19,231,323 21,826,896 16,970,022
Treasury shares (361,000) (6,000) (342,884) (6,000)
---------- ---------- ---------- ----------
Shares used in Basic EPS computation 21,478,294 19,225,323 21,484,012 16,964,022
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
DILUTED
Weighted average common shares outstanding 21,478,294 19,225,323 21,484,012 16,964,022
Common stock equivalents:
Dilutive stock options and warrants, net of
shares assumed repurchased with exercise
proceeds - (1) 588,952 - (1) 1,740,915
Common Stock assumed issued on
conversion of dilutive preferred stock - (1) 2,057,334 - (1) 3,525,482
---------- ---------- ---------- ----------
Shares used in Diluted EPS computation 21,478,294 21,871,609 21,484,012 22,230,419
---------- ---------- ---------- ----------
</TABLE>
8
<PAGE>
Basic and diluted earnings (loss) per share for the three and nine month
periods ended March 31, 1998 and 1997 was computed as follows:
<TABLE>
THREE MONTHS ENDED MARCH 31, NINE MONTHS ENDED MARCH 31,
---------------------------- ----------------------------
1998 1997 1998 1997
--------- -------- ----------- ----------
<S> <C> <C> <C> <C>
BASIC
Net income (loss) $(936,121) $412,700 $(3,724,752) $3,384,491
Less: net income (loss) attributable to
Advanced minority interest - (2) (58,700) - (2) (184,646)
Less: preferred stock dividends (2,680) (2,680) (8,040) (8,040)
--------- -------- ----------- ----------
Net income (loss) used in Basic EPS calculation $(938,801) $351,320 $(3,732,792) $3,191,805
--------- -------- ----------- ----------
--------- -------- ----------- ----------
Net income (loss) per share $ (0.04) $ 0.02 $ (0.17) $ 0.19
--------- -------- ----------- ----------
--------- -------- ----------- ----------
DILUTED
Net income (loss) $(936,121) $412,700 $(3,724,752) $3,384,491
Less: net income (loss) attributable to
Advanced minority interest - (2) (61,350) - (2) (328,410)
--------- -------- ----------- ----------
Net income (loss) used in Diluted EPS calculation $(936,121) $351,350 $(3,724,752) $3,056,081
--------- -------- ----------- ----------
--------- -------- ----------- ----------
Net income (loss) per share $ (0.04) $ 0.02 $ (0.17) $ 0.14
--------- -------- ----------- ----------
</TABLE>
Net income (loss) applicable to Advanced minority interest for the three
and nine month periods ended March 31, 1998 and 1997 was computed as follows:
<TABLE>
THREE MONTHS ENDED MARCH 31, NINE MONTHS ENDED MARCH 31,
---------------------------- ----------------------------
1998 1997 1998 1997
--------- -------- ----------- ----------
<S> <C> <C> <C> <C>
BASIC
Advanced net income (loss) after income
tax allocation $(665,049) $702,749 $(2,352,921) $3,730,630
Minority interest - (2) 8.35% - (2) 4.95%
--------- -------- ----------- ----------
Net income applicable to Advanced
minority interest $ - $ 58,700 $ - $ 184,646
--------- -------- ----------- ----------
--------- -------- ----------- ----------
DILUTED
Advanced net income (loss) after income
tax allocation $(665,049) $702,749 $(2,352,921) $3,730,630
Minority interest - (2) 8.73% - (2) 8.80%
--------- -------- ----------- ----------
Net income applicable to Advanced
minority interest $ - $ 61,350 $ - $ 328,410
--------- -------- ----------- ----------
--------- -------- ----------- ----------
</TABLE>
- -------------------------------------------------------------------------------
(1) For the three and nine month periods ended March 31, 1998, common stock
equivalents are not included in diluted EPS calculations because their
inclusion would have an anti-dilutive effect.
(2) Net losses applicable to common stock for the three and nine month periods
ended March 31, 1998 were not adjusted to reflect the income attributable
to the minority ownership interest in Advanced because minority interest
holders in Advanced are under no obligation to fund their proportionate
share of losses incurred by Advanced.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 March 31, 1998. The consolidated results
of operations for the period reported are not necessarily indicative of the
results to be experienced for the entire current fiscal year.
RESULTS OF OPERATIONS
The Company experienced a loss from operations of $1,182,737 on revenues
of $21,125,330 for the quarter and a loss from operations of $5,045,791 on
revenues of $64,765,553 for the nine months ended March 31, 1998. In the
previous fiscal year, the Company earned income from operations of $730,447
on revenues of $24,480,347 in the comparable three month period and income
from operations of $5,454,976 on revenues of $76,139,785 in the comparable
nine month period.
For the quarter ended March 31, 1998, revenues decreased $3,355,017, or
13.7%, from revenues generated in the corresponding quarter of the previous
fiscal year and decreased $11,374,232, or 14.9%, for the nine month period
ended March 31, 1998 compared to the prior year nine month period. The
decrease in revenues in the three and nine month periods ended March 31, 1998
was due primarily to a price reduction and decreases in service volumes from
the Company's historically largest client. Revenue from this client declined
$6,931,230, or 64.7%, and $23,309,728, or 64.5%, for the three and nine month
periods, respectively, versus comparable prior year periods.
Management remains focused on growing other segments of its business in
order to reduce dependence on any one client. Approximately 17.9% of the
Company's revenues during the quarter and 19.8% during the nine months ended
March 31, 1998 were generated by the Company's historically largest client as
compared to approximately 43.7% in the quarter and 47.6% in the nine months
ended March 31, 1997. Excluding this client, revenues increased
approximately 26.0% in the quarter and 30.5% in the nine months ended March
31, 1998 versus the prior year periods. The Company's three largest clients
accounted for 69.8% of the Company's revenues during the quarter and 63.5%
during the nine months ended March 31, 1998 as compared to 72.4% and 74.0%,
respectively, in the prior year periods.
Gross profit earned on revenues decreased $2,308,008, or 30.0%, for the
quarter and $7,755,014, or 32.8%, for the nine month period ended March 31,
1998 versus the prior year periods. As a percentage of revenues, gross
margins for the quarter and nine months ended March 31, 1998 were 25.5% and
24.5%, respectively, versus 31.5% and 31.1% in the comparable three and nine
month periods of the prior year, respectively. Both the decrease in gross
profit and in gross margin as a percentage of revenues for the nine months
ended March 31, 1998 as compared with the comparable prior year period were
due to lower capacity utilization resulting from additional decreases in
service volumes during the first fiscal quarter from the Company's
historically largest client, a price reduction from this client and increased
labor rates in the markets in which the Company has traditionally operated.
Selling, general and administrative expenses ("SG&A") decreased
$564,108, or 9.3%, in the quarter ended March 31, 1998 versus the prior year
quarter. The decrease in SG&A in the current year quarter was primarily the
result of a decrease in compensation-related expenses associated with
management's efforts to improve operating efficiencies through a reduction in
operations management and administrative staff. SG&A expenses increased
$2,214,946, or 14.2%, in the nine months ended March 31, 1998 versus the
comparable prior year period as a result of the recording of
10
<PAGE>
severance expense and other non-recurring charges of approximately $633,000
in the Company's first fiscal quarter, and significant increases in
recruiting, marketing and administrative costs compared to the prior year
period.
Management is continuing to reduce operating costs, a key element of
which is ATC's previously-announced new site strategy which focuses on
smaller call centers outside of the Dallas labor market. During the quarter
ended March 31, 1998, the Company opened a new 330-station call center in
Joplin, Missouri, which is now fully operational. The Company plans to open
comparable new centers later in calendar 1998 and in 1999. Management
believes these new centers should continue to lower the Company's operating
costs as demonstrated thus far by the Company's experience in Joplin.
The increase in depreciation and amortization expense of $169,284, or
18.4%, in the quarter and $530,807, or 20.5%, in the nine months ended March
31, 1998 versus the comparable prior year periods is primarily the result of
the enhancement of internal systems during the fiscal year ended June 30,
1997 and additional capital expenditures related to the opening of the new
call center facility in Joplin, Missouri. The decrease in revenues in the
current year periods versus the prior year magnified the impact of the
increase in depreciation and amortization expense on the Company's operating
margin as a percentage of revenues. As a percentage of revenues,
depreciation and amortization expense for the three and nine months ended
March 31, 1998 was 5.2% and 4.8%, respectively, versus 3.8% and 3.4% in the
comparable prior year periods.
Net interest expense increased for the three and nine month periods
ended March 31, 1998 $96,137, or 84.0%, and $238,416, or 74.1%, respectively,
versus the same periods in the previous fiscal year due to increased
utilization of the Company's working capital line of credit.
The Company's effective state and federal income tax rates for the three
and nine month periods ended March 31, 1998 were approximately 32.8% and
33.6%, respectively, versus 33.0% and 34.1%, respectively, for the three and
nine month periods ended March 31, 1997. The effective tax rates were lower
in the current year periods due to a decrease in state income tax liabilities
resulting from the losses incurred by the Company for the three and nine
month periods ended March 31, 1998.
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.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain information from the Company's
statement of cash flows for the periods indicated:
<TABLE>
THREE MONTHS ENDED MARCH 31,
--------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Net cash provided by (used in) operating activities $ 846,893 $(1,361,483)
Net cash used in investing activities (1,353,714) (738,201)
Net cash provided by (used in) financing activities (351,310) 665,408
----------- -----------
Net increase in cash and cash equivalents $ (858,131) $(1,434,276)
----------- -----------
----------- -----------
NINE MONTHS ENDED MARCH 31,
1998 1997
------------ ------------
Net cash provided by (used in) operating activities $ (894,323) $ 2,137,603
Net cash used in investing activities (2,780,058) (3,155,304)
Net cash provided by (used in) financing activities 3,097,046 (153,526)
----------- -----------
Net increase in cash and cash equivalents $ (577,335) $(1,171,227)
----------- -----------
----------- -----------
</TABLE>
The Company has historically utilized cash flow from operations and
available borrowing capacity under credit facilities to meet its liquidity
needs. Despite experiencing negative cash flow from operating activities in the
nine month period ended March 31, 1998, management believes the Company
currently has the liquidity and access to working capital to meet its near-term
cash flow demands through (i) its $12.0 million working capital line of credit
and (ii) $2.0 million of additional financing made available to the Company in
connection with entering into a merger agreement with IQI, Inc. ("IQI") (see
further discussion of the merger agreement below). If the Company is unable to
reduce its operating costs or resume revenue growth in accordance with
management's expectations and continues to use cash in operating activities,
however, the Company may experience difficulty in meeting its liquidity demands.
In such an event, the Company may need to explore other means of financing its
operations, including without limitation, negotiating a new and expanded loan
facility, raising funds through debt or equity financing, or entering into other
arrangements.
On April 7, 1998, the Company entered into a definitive agreement, which
set forth the terms and conditions of a merger, with IQI. The merger agreement
contains a provision whereby the majority shareholder of IQI agreed to provide a
$2.0 million financial accommodation to the Company to fund the Company's
working capital needs (the "Financing Commitment"). On May 4, 1998, the Company
entered into a new credit facility with the commercial bank that provides its
$12.0 million working capital line of credit whereby the bank provides $2.0
million in additional financing secured by a letter of credit provided by the
majority shareholder of IQI. The new credit facility bears interest at the
bank's prime rate and matures on the earlier of (i) consummation of the merger
with IQI, (ii) repayment of the $12.0 million line of credit, or (iii) January
29, 1999. In connection with the financial accommodation and for additional
consideration of $110,000, the Company issued to the IQI majority shareholder
warrants to purchase 1,100,000 shares of the Company's Common Stock at an
exercise price of $1.96 (the "First Warrant"). In addition, the Company granted
to the IQI majority shareholder a second warrant to purchase a number shares of
Common Stock at an exercise price of $2.00 per share based on the amount, if
any, of funds drawn on the letter of credit provided to secure the $2.0 million
in additional financing, up to 1,000,000 shares (the "Second Warrant"). The
merger agreement also
12
<PAGE>
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 Chairman, to March 31, 1999. At April 30, 1998, the principal
and accrued but unpaid interest on the note totaled $3,809,158.
The Company operates in a fast-growing, highly competitive industry. As
such, the Company began implementation of its new site strategy, which focuses
on smaller call centers in what management believes are more economically
attractive markets than those in which the Company has traditionally operated,
by opening a new 330-station teleservicing center in Joplin, Missouri in
February 1998. Company growth and continued implementation of the new 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. Management anticipates opening new centers
comparable to the Joplin facility later in calendar 1998 and in 1999.
In addition to traditional growth strategies, management has been pursuing
opportunities for growth through acquisition of other call center companies. As
mentioned above, on April 7, 1998 the Company entered into a merger agreement
with IQI. See Item 5. "Other Information". Under terms of the merger, the
Company will issue shares of its Common Stock to shareholders of IQI utilizing
an exchange ratio of 9.7513 shares of the Company's Common Stock for each share
of IQI common stock, which will result in IQI's shareholders owning
approximately 57.5% of the Company's Common Stock assuming exercise and
conversion of all common stock equivalents. Upon consummation of the merger, ATC
and IQI will have equal representation on the combined company's board of
directors. The merger agreement is subject to regulatory and shareholder
approvals and other customary closing conditions. Management anticipates
consummation of the merger in July 1998 subject to such approvals and
satisfaction of such conditions.
In April 1997, the Company's Board authorized the implementation of a stock
repurchase program of up to five million shares of the Company's Common Stock on
the open market and through privately negotiated transactions. To date, the
Company has used available cash flow to repurchase 355,000 shares at an average
cost of $3.98 per share. Based on the Company's current liquidity position and
the pending merger with IQI, the Company does not anticipate making any further
repurchases in the near-term.
The $12.0 million accounts receivable credit facility, the $2.0 million
credit facility, and $1.0 million equipment term loan with the same major bank
contain various covenants which limit, among other things, the operating
subsidiary's indebtedness, capital expenditures, investments, payments and
dividends to the Company and requires the operating subsidiary to meet certain
financial covenants. Similarly, under the terms of the Company's guaranty of
its operating subsidiary's obligations, the Company is subject to certain
covenants limiting, among other things, its ability to incur indebtedness, enter
into guaranties, and acquire other companies. These credit facilities are
secured by liens on the operating subsidiary's accounts receivables, furniture
and equipment, and are guaranteed by the Company.
Although no assurances can be made in this regard, management anticipates
that, based on its ability to secure such financing to date, the Company should
be able to secure debt or equity funding for the capital equipment requirements
of future call center facilities or acquisition opportunities.
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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 ability to
achieve cost savings through a reduction-in-force; the amount of cost savings
effected through a renegotiated tariff with the Company's telecommunications
carrier; the Company's ability to achieve cost savings through its new site
strategy; 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; obtaining shareholder, third party and
regulatory approvals and satisfying the other conditions to closing the merger
with IQI, Inc. by the end of July 1998; realizing anticipated synergies as a
result of the merger; 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 on the
Company's labor force; reliance on technology; telephone service dependence; and
other operational, financial or legal risks or uncertainties detailed in the
Company's SEC filings from time to time.
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PART II
ITEM 1. LEGAL PROCEEDINGS
Other than ordinary routine litigation incidental to its business, neither
ATC nor its operating subsidiary is party to, nor are their properties the
subject of, any material pending legal proceedings. From time to time, ATC is
involved in litigation incidental to its business. ATC 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. ATC, its board and IQI have all determined that the case is without
merit, and each intends to defend itself against the claims.
ITEM 5. OTHER INFORMATION
On April 7, 1998 the Company entered into a merger agreement, which sets
forth the terms and conditions of a merger with IQI. Under the terms of such
agreement, the Company will issue shares of its common stock to stockholders of
IQI utilizing an exchange ratio of 9.7513 shares of ATC Common Stock for each
share of IQI common stock, which will result in IQI's stockholders owning
approximately 57.5% of ATC Common Stock assuming exercise and conversion of all
common stock equivalents. Upon consummation of the merger, ATC and IQI will
have equal representation on the combined company's board of directors.
The merger agreement 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 Chairman, to March 31, 1999. At April 30,
1998, the principal and accrued but unpaid interest on the note totaled
$3,809,158. In addition, the merger agreement contains provisions whereby the
majority shareholder of IQI agreed to provide the Financing Commitment and the
Company issued the First Warrant and the Second Warrant. The merger agreement
is subject to regulatory and shareholder approvals and other customary closing
conditions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
Exhibit 4.6 Agreement and Plan of Merger among IQI, Inc., ATC
Communications Group, Inc., and ATC Merger Sub, Inc.
dated April 7, 1998, filed herewith.
Exhibit 4.7 Securities Purchase and Registration Rights
Agreement by and between ATC Communications Group,
Inc. and Thayer Equity Investors III, L.P. dated
April 7, 1998, filed herewith.
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Exhibit 4.8 Warrant to Purchase Shares of Common Stock of ATC
Communications Group, Inc. dated April 7, 1998,
filed herewith.
Exhibit 4.9 Form of Stockholders Agreement by and among ATC
Communications Group, Inc., Thayer Equity Investors
III, L.P., ITC Services Company, Edward Blank, The
Edward Blank 1995 Grantor Retained Annuity Trust,
Codinvest Limited, Michael G. Santry and Darryl D.
Pounds, filed herewith.
Exhibit 4.10 Irrevocable Proxy Agreement by and among ITC Service
Company, The Edward Blank 1995 Grantor Retained
Annuity Trust, Thayer Equity Investors III, L.P.,
and Edward Blank, filed herewith.
Exhibit 4.11 Form of Escrow Agreement between ATC Communications
Group, Inc., the representative of the shareholders
of IQI, Inc., and Harris Trust and Savings Bank,
filed herewith.
Exhibit 4.12 Letter of Amendment, dated April 7, 1998, of
Promissory Note by Michael G. Santry in favor of ATC
Communications Group, Inc., filed herewith.
Exhibit 4.13 Stock Pledge Agreement between Michael G. Santry and
ATC Communications Group, Inc., dated April 7, 1998,
filed herewith.
Exhibit 10.22 Subordination and Intercreditor Agreement between
Thayer Equity Investors III, L.P. and Bank One,
Texas, N.A. dated May 4, 1998, filed herewith.
Exhibit 10.23 Promissory Note between Advanced Telemarketing
Corporation and Bank One, Texas, N.A. dated May 4,
1998, filed herewith.
Exhibit 10.24 First Amendment to Pledge Agreement between ATC
Communications Group, Inc., Bank One, Texas, N.A.,
and Bank One Leasing Corp. dated May 4, 1998, filed
herewith.
Exhibit 10.25 Reimbursement and Indemnification Agreement by and
among Advanced Telemarketing Corporation, ATC
Communications Group, Inc., and Thayer Equity
Investors III, L.P. dated May 4, 1998, filed
herewith.
Exhibit 10.26 Promissory Note by and among Advanced Telemarketing
Corporation, ATC Communications Group, Inc., and
Thayer Equity Investors III, L.P. dated May 4, 1998,
filed herewith.
Exhibit 10.27 Security Agreement between Advanced Telemarketing
Corporation and Thayer Equity Investors III, L.P.
dated May 4, 1998, filed herewith.
Exhibit 10.28 Pledge Agreement between ATC Communications Group,
Inc. and Thayer Equity Investors III, L.P. dated May
4, 1998, filed herewith.
Exhibit 10.29 Second Warrant to Purchase Shares of Common Stock of
ATC Communications Group, Inc. dated May 4, 1998,
filed herewith.
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Exhibit 10.30 Registration Rights Agreement between ATC
Communications Group, Inc. and Thayer Equity
Investors III, L.P. dated May 4, 1998, filed
herewith.
Exhibit 27.1 Financial Data Schedule, filed herewith.
(B) Reports on Form 8-K
The Company filed a Form 8-K on April 9, 1998 to report the press
release announcing the Company's entering into a merger agreement with
IQI on April 7, 1998.
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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.
ATC COMMUNICATIONS GROUP, INC.
(The Registrant)
Dated: May 14, 1998 By: /s/ MATTHEW S. WALLER
------------------------------
Matthew S. Waller
Chief Financial Officer
3/31/98 Quarter
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EXHIBITS INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- ----------------------
Exhibit 4.6 Agreement and Plan of Merger among IQI, Inc., ATC
Communications Group, Inc., and ATC Merger Sub,
Inc. dated April 7, 1998, filed herewith.
Exhibit 4.7 Securities Purchase and Registration Rights
Agreement by and between ATC Communications Group,
Inc. and Thayer Equity Investors III, L.P. dated
April 7, 1998, filed herewith.
Exhibit 4.8 Warrant to Purchase Shares of Common Stock of ATC
Communications Group, Inc. dated April 7, 1998,
filed herewith.
Exhibit 4.9 Form of Stockholders Agreement by and among ATC
Communications Group, Inc., Thayer Equity
Investors III, L.P., ITC Services Company, Edward
Blank, The Edward Blank 1995 Grantor Retained
Annuity Trust, Codinvest Limited, Michael G.
Santry and Darryl D. Pounds, filed herewith.
Exhibit 4.10 Irrevocable Proxy Agreement by and among ITC
Service Company, The Edward Blank 1995 Grantor
Retained Annuity Trust, Thayer Equity Investors
III, L.P., and Edward Blank, filed herewith.
Exhibit 4.11 Form of Escrow Agreement between ATC
Communications Group, Inc., the representative of
the shareholders of IQI, Inc., and Harris Trust
and Savings Bank, filed herewith.
Exhibit 4.12 Letter of Amendment, dated April 7, 1998, of
Promissory Note by Michael G. Santry in favor of
ATC Communications Group, Inc., filed herewith.
Exhibit 4.13 Stock Pledge Agreement between Michael G. Santry
and ATC Communications Group, Inc., dated April 7,
1998, filed herewith.
Exhibit 10.22 Subordination and Intercreditor Agreement between
Thayer Equity Investors III, L.P. and Bank One,
Texas, N.A. dated May 4, 1998, filed herewith.
Exhibit 10.23 Promissory Note between Advanced Telemarketing
Corporation and Bank One, Texas, N.A. dated May 4,
1998, filed herewith.
Exhibit 10.24 First Amendment to Pledge Agreement between ATC
Communications Group, Inc., Bank One, Texas, N.A.,
and Bank One Leasing Corp. dated May 4, 1998,
filed herewith.
Exhibit 10.25 Reimbursement and Indemnification Agreement by and
among Advanced Telemarketing Corporation, ATC
Communications Group, Inc., and Thayer Equity
Investors III, L.P. dated May 4, 1998, filed
herewith.
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EXHIBITS INDEX (CONTINUED)
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- ----------------------
Exhibit 10.26 Promissory Note by and among Advanced
Telemarketing Corporation, ATC Communications
Group, Inc., and Thayer Equity Investors III, L.P.
dated May 4, 1998, filed herewith.
Exhibit 10.27 Security Agreement between Advanced Telemarketing
Corporation and Thayer Equity Investors III, L.P.
dated May 4, 1998, filed herewith.
Exhibit 10.28 Pledge Agreement between ATC Communications Group,
Inc. and Thayer Equity Investors III, L.P. dated
May 4, 1998, filed herewith.
Exhibit 10.29 Second Warrant to Purchase Shares of Common Stock
of ATC Communications Group, Inc. dated May 4,
1998, filed herewith.
Exhibit 10.30 Registration Rights Agreement between ATC
Communications Group, Inc. and Thayer Equity
Investors III, L.P. dated May 4, 1998, filed
herewith.
Exhibit 27.1 Financial Data Schedule, filed herewith.
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") is entered into as of
April 7, 1998 by and among IQI, Inc., a New York corporation (the "COMPANY"),
ATC Communications Group, Inc., a Delaware corporation ("BUYER"), and ATC Merger
Sub, Inc., a New York corporation and wholly-owned subsidiary of Buyer
("NEWCO").
R E C I T A L S
A. Buyer owns all of the outstanding shares of capital stock of Newco.
B. The Board of Directors of each of Newco and the Company have determined
that it is fair to, and in the best interests of, their respective corporations
and stockholders for Newco to be merged with and into the Company upon the terms
and subject to the conditions set forth herein (the "Merger"). It is the
intention of the parties hereto that the Merger be treated as a tax-free
reorganization pursuant to Section 368(a)(2)(E) of the Code, and that the Merger
be accounted for under the "reverse purchase" method of accounting whereby the
Company will be treated as the acquiring entity for accounting purposes.
C. The Board of Directors of each of Newco, the Buyer and the Company have
approved the Merger in accordance with the General Corporation Law of the State
of Delaware or the Business Corporation Law of the State of New York, as
applicable.
D. Concurrently with the execution and delivery of this Agreement and as a
condition and inducement to Buyer's willingness to enter into this Agreement,
certain holders of the outstanding shares of common stock of the Company which
own approximately 85% of such outstanding common stock are entering into
agreements with Buyer, pursuant to which such shareholders will agree to grant
an irrevocable proxy coupled with an interest to representatives of Buyer to
vote such shares of common stock in favor of the Merger.
E. Concurrently with the execution of this Agreement, a principal
shareholder of the Company has provided a commitment letter to Buyer (the
"COMMITMENT LETTER") pursuant to which such shareholder has committed, subject
to the terms and conditions set forth in such letter, to extend financial
accommodations to Buyer in an amount of up to $2.0 million.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties herein contained, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
Unless the context otherwise requires, the terms defined in this Article I
shall have the meanings herein specified for all purposes of this Agreement,
applicable to both the singular and plural forms of any of the terms herein
defined. All accounting terms defined in this Article I and those accounting
terms used in this Agreement and not defined in this Article I shall, except as
otherwise provided for herein, be construed in accordance with GAAP.
"AAA" shall have the meaning assigned to such term in Section 11.08.
"ACTION" shall mean any actual or threatened claim, action, suit,
arbitration, hearing, inquiry, proceeding, complaint, charge or investigation by
or before any Governmental Entity or arbitrator and any appeal from any of the
foregoing.
"ACQUISITION PROPOSAL" shall have the meaning assigned to such term in
Section 8.08.
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"ADDITIONAL SHARES" shall have the meaning assigned to such term in Section
10.02(e).
"AFFILIATE" shall mean any Person which directly or indirectly controls, is
controlled by, or is under common control with, the indicated Person.
"AGREEMENT" shall have the meaning assigned to such term in the introductory
paragraph of this Agreement.
"BALANCE SHEET" and "BALANCE SHEET DATE" shall have the respective meanings
assigned to such terms in Section 3.04(a).
"BUSINESS DAY" shall mean any day excluding Saturday, Sunday or any day
which shall be in the State of New York a legal holiday or a day on which
banking institutions are authorized by law to close.
"BUYER" shall have the meaning assigned to such term in the introductory
paragraph of this Agreement.
"BUYER BALANCE SHEET" shall mean the unaudited balance sheet of Buyer as of
the Buyer Balance Sheet Date included in Buyer's quarterly report on Form 10-Q
for the fiscal quarter ended on the Buyer Balance Sheet Date.
"BUYER BALANCE SHEET DATE" shall mean December 31, 1997.
"BUYER COMMON STOCK" shall mean the Common Stock, par value $.01 per share,
of Buyer.
"BUYER ERISA AFFILIATE" shall mean any Person which is (or at any relevant
time was) a member of a controlled group of corporations within the meaning of
Code Section 414(b), all trades or businesses under common control within the
meaning of Code Section 414(c), and all affiliated service groups within the
meaning of Code Section 414(m), of which Buyer is (or at any relevant time was)
a member.
"BUYER LEASED PROPERTY" shall have the meaning assigned to such term in
Section 4.19.
"BUYER PLAN" shall mean any "employee benefit plan" within the meaning of
Section 3(3) of ERISA and any other written or oral employee benefit plan,
arrangement, practice, contract, policy, or program (other than arrangements
merely involving the payment of wages) which are or at any time have been
established, maintained, or contributed to by Buyer or any of its Subsidiaries
or any Buyer ERISA Affiliate for the benefit of current or former employees,
with respect to which Buyer or any of its Subsidiaries or a Buyer ERISA
Affiliate has or may in the future have any liability or obligation to
contribute or make payments of any kind.
"BUYER PREFERRED STOCK" shall mean the Preferred Stock, par value $.01 per
share, of Buyer.
"BUYER REPORTS" shall have the meaning assigned to such term in Section
4.06.
"CERTIFICATES" shall have the meaning assigned to such term in Section
2.08(a).
"CERTIFICATE OF MERGER" shall have the meaning assigned to such term in
Section 2.12.
"CLAIM NOTICE" shall have the meaning assigned to such term in Section
10.03(a).
"CLOSING" and "CLOSING DATE" shall have the respective meanings assigned to
such terms in Section 2.13.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMISSION" shall mean the United States Securities and Exchange
Commission.
"COMMITMENT LETTER" shall have the meaning assigned to such term in Recital
E.
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"COMMON STOCK" shall mean the common stock, par value $.001 per share, of
the Company.
"COMPANY" shall have the meaning assigned to such term in the introductory
paragraph of this Agreement.
"CONFIDENTIALITY AGREEMENT" shall have the meaning assigned to such term in
Section 8.03(b).
"CONSTITUENT CORPORATIONS" shall have the meaning assigned to such term in
Section 2.01.
"DAMAGES" shall mean any and all losses, liabilities, obligations, costs,
expenses, damages or judgments of any kind or nature whatsoever (including
reasonable attorneys', accountants' and experts' fees, disbursements of counsel,
and other costs and expenses incurred pursuing indemnification claims under
Article X hereof).
"DELAWARE LAW" shall mean the Delaware General Corporation Law, as amended.
"DISSENTERS' SHARES" shall have the meaning assigned to such term in Section
2.07(a).
"EFFECTIVE TIME" shall have the meaning assigned to such term in Section
2.02.
"ENVIRONMENTAL LAWS" shall mean all Legal Requirements pertaining to the
protection of the environment, the treatment, emission and discharge of gaseous,
particulate and effluent pollutants and the use, handling, storage, treatment,
removal, transport, transloading, cleanup, decontamination, discharge and
disposal of Hazardous Substances.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA AFFILIATE" shall mean any Person which is (or at any relevant time
was) a member of a controlled group of corporations within the meaning of Code
Section 414(b), all trades or businesses under common control within the meaning
of Code Section 414(c), and all affiliated service groups within the meaning of
Code Section 414(m), of which the Company is (or at any relevant time was) a
member.
"ESCROW AGENT" shall mean Harris Trust and Savings Bank.
"ESCROW AGREEMENT" shall mean that certain Escrow Agreement to be executed
by the Escrow Agent, the Representative and Buyer at the Closing, in
substantially the form of Annex J hereto.
"ESCROW SHARES" shall have the meaning assigned to such term in Section
2.06(a).
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
"EXCHANGE AGENT" shall mean Harris Trust and Savings Bank.
"EXCHANGE RATIO" shall have the meaning assigned to such term in Section
2.06(a).
"EXCHANGED OPTION SHARES" shall have the meaning assigned to such term in
Section 2.06(b).
"EXCHANGED WARRANT SHARES" shall have the meaning assigned to such term in
Section 2.06(c).
"FINANCIAL STATEMENTS" shall have the meaning assigned to such term in
Section 3.04(a).
"GAAP" means generally accepted accounting principles in the United States
consistently applied.
"GOVERNMENTAL ENTITY" shall mean any local, state, federal or foreign (i)
court, (ii) government or (iii) governmental department, commission,
instrumentality, board, agency or authority, including the IRS and other taxing
authorities.
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"HAZARDOUS MATERIAL" shall mean any flammable, ignitable, corrosive,
reactive, radioactive or explosive substance or material, hazardous waste, toxic
substance or related material and any other substance or material defined or
designated as a hazardous or toxic substance, material or waste by any
Environmental Law.
"HSR ACT" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"INDEBTEDNESS" shall mean, when used with reference to any Person, without
duplication, (i) any liability of such Person created or assumed by such Person,
or any Subsidiary thereof, (A) for borrowed money, (B) evidenced by a bond,
note, debenture or similar instrument (including a purchase money obligation,
deed of trust or mortgage) given in connection with the acquisition of, or
exchange for, any property or assets (other than inventory or similar property
acquired and consumed in the Ordinary Course), including securities and other
Indebtedness, (C) in respect of letters of credit issued for such Person's
account and interest rate swap agreements and currency exchange rate agreements
(and other interest and currency exchange rate hedging agreements) to which such
Person is a party or (D) for the payment of money as lessee under leases that
should be, in accordance with GAAP, recorded as capital leases for financial
reporting purposes; (ii) any liability of others described in the preceding
clause (i) guaranteed as to payment of principal or interest by such Person or
in effect guaranteed by such Person through an agreement, contingent or
otherwise, to purchase, repurchase or pay the related Indebtedness or to acquire
the security therefor; (iii) all liabilities or obligations secured by a Lien
(other than a Permitted Lien) upon property owned by such Person and upon which
liabilities or obligations such Person customarily pays interest or principal,
whether or not such Person has not assumed or become liable for the payment of
such liabilities or obligations; and (iv) any amendment, renewal, extension,
revision or refunding of any such liability or obligation; PROVIDED, HOWEVER,
that Indebtedness shall not include any liability for compensation of such
Person's employees or for inventory or similar property acquired and consumed in
the Ordinary Course or for services.
"INDEMNIFICATION CLAIM," "INDEMNIFIED PARTY" and "INDEMNIFYING PARTY" shall
have the respective meanings assigned to such terms in Section 10.03(a).
"INITIAL SHARES" shall have the meaning assigned to such term in Section
2.06(a).
"IRS" shall mean the United States Internal Revenue Service.
"KNOWLEDGE" shall mean, with respect to the Company, the actual knowledge,
after due inquiry, of any of the officers or directors of the Company, and with
respect to Buyer, the actual knowledge, after due inquiry, of any of the
officers or directors of Buyer.
"LEASED REAL PROPERTY" shall have the meaning assigned to such term in
Section 3.21.
"LEGAL REQUIREMENT" shall mean any statute, law, ordinance, rule,
regulation, permit, order, writ, judgment, injunction, decree or award issued,
enacted or promulgated by any Governmental Entity or any arbitrator.
"LIEN" shall mean all liens (including judgment and mechanics' liens,
regardless of whether liquidated), mortgages, assessments, security interests,
easements, claims, pledges, trusts (constructive or other), deeds of trust,
options or other charges, encumbrances or restrictions.
"MATERIAL ADVERSE EFFECT" shall mean, with respect to the Company or the
Buyer, as applicable, a material adverse effect on the business, financial
condition, properties, profitability, business prospects or operations of the
Company and its Subsidiaries, or the Buyer and its Subsidiaries, as the case may
be, taken as a whole.
"MERGER" shall have the meaning assigned to such term in Recital B hereof.
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"MERGER SHARES" shall have the meaning assigned to such term in Section
2.06(a).
"NEWCO" shall have the meaning assigned to such term in the introductory
paragraph of this Agreement.
"NEW YORK LAW" shall mean the Business Corporation Law of the State of New
York.
"OPTIONS" shall mean all outstanding options, warrants and other rights to
acquire Common Stock.
"OPTION SHARES" shall have the meaning assigned to such term in Section
2.06(b).
"ORDINARY COURSE" shall mean, when used with reference to the Company or
Buyer, the ordinary course of the Company's or Buyer's business (including their
respective Subsidiaries), respectively, consistent with past practices.
"PERMITTED LIENS" shall mean (a) Liens for ad valorem real or personal
property taxes or assessments not at the time due and (b) Liens in respect of
pledges or deposits under workers' compensation laws or similar legislation,
carriers', warehousemen's, mechanics', laborers' and materialmen's, landlord's
and similar liens, if the obligations secured by such Liens are not then
delinquent.
"PERSON" shall mean any natural person, corporation, business trust,
association, company, partnership, limited liability company, joint venture,
Governmental Entity and any other entity.
"PLAN" shall mean any "employee benefit plan" within the meaning of Section
3(3) of ERISA and any other written or oral employee benefit plan, arrangement,
practice, contract, policy, or program (other than arrangements merely involving
the payment of wages) which are or at any time have been established,
maintained, or contributed to by the Company or any of its Subsidiaries or any
ERISA Affiliate for the benefit of current or former employees, with respect to
which the Company or any of its Subsidiaries or an ERISA Affiliate has or may in
the future have any liability or obligation to contribute or make payments of
any kind.
"PLAN OPTIONS" shall have the meaning assigned to such term in Section
2.06(b).
"PROXY STATEMENT/PROSPECTUS" shall have the meaning assigned to such term in
Section 5.01.
"REGISTRATION STATEMENT" shall have the meaning assigned to such term in
Section 5.01.
"REPRESENTATIVE" shall mean Thayer Equity Investors III, L.P.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SHAREHOLDER" shall mean an owner of the Shares, as set forth in Annex A
hereto, as amended as of the Closing Date.
"SHAREHOLDERS AGREEMENT" shall mean a Shareholders Agreement to be entered
into at the Closing by Thayer Equity Investors III, L.P., ITC Services Company,
Edward Blank, The Edward Blank 1995 Grantor Retained Annuity Trust, Codinvest
Limited, Michael G. Santry and Darryl D. Pounds in substantially the form of
Annex K hereto.
"SHARES" shall mean the issued and outstanding shares of Common Stock.
"STOCK PLANS" shall mean all stock option plans and other stock or
equity-related plans of the Company.
"SUBSIDIARY" of a Person shall mean any corporation, partnership,
association or other business entity at least 50% of the outstanding voting
power of which is at the time owned or controlled directly or indirectly by such
Person or by one or more of such subsidiary entities, or both.
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"SURVIVING CORPORATION" shall have the meaning assigned to such term in
Section 2.01 hereof.
"TAX" shall mean any Federal, state, local or foreign income, gross
receipts, license, payroll, unemployment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including, without limitation, taxes
under Code Section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), employment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated tax or other tax, assessment or charge
of any kind whatsoever, including, without limitation, any interest, fine,
penalty or addition thereto, whether disputed or not.
"TAX RETURN" shall mean any return, declaration, report, claim for refund or
information, or statement relating to Taxes, and any exhibit, schedule,
attachment or amendment thereto.
"WARRANTS" shall have the meaning assigned to such term in Section 2.06(c).
"WARRANT SHARES" shall have the meaning assigned to such term in Section
2.06(c).
ARTICLE II
THE MERGER
SECTION 2.01 MERGER. Upon the terms and subject to the conditions of this
Agreement, Newco shall be merged with and into the Company in accordance with
the applicable provisions of the New York Law. The Company and Newco are herein
sometimes referred to as the "CONSTITUENT CORPORATIONS." At the Effective Time,
the identity and separate corporate existence of Newco shall cease and the
Company shall be the surviving corporation in the Merger (sometimes hereinafter
referred to as the "SURVIVING CORPORATION"). The Merger shall have the effects
set forth in Section 906 of the New York Law.
SECTION 2.02 EFFECTIVE TIME. The Merger shall become effective on the date
and at the time the Certificate of Merger referred to in Section 2.10 hereof is
filed with the Secretary of State of the State of New York in accordance with
Section 104 of the New York Law. The time at which the Merger shall become
effective as aforesaid is referred to hereinafter as the "EFFECTIVE TIME."
SECTION 2.03 CERTIFICATE OF INCORPORATION, BYLAWS, DIRECTORS AND OFFICERS,
NAME.
(a) The Certificate of Incorporation of Newco, as in effect immediately
prior to the Effective Time, shall be the Certificate of Incorporation of
the Surviving Corporation, from and after the Effective Time until amended
in accordance with applicable law.
(b) The Bylaws of Newco, as in effect immediately prior to the Effective
Time, shall be the Bylaws of the Surviving Corporation from and after the
Effective Time until amended in accordance with applicable law, the
Surviving Corporation's Certificate of Incorporation and such Bylaws.
(c) The directors and officers of Newco in office immediately prior to
the Effective Time shall be the directors and officers of the Surviving
Corporation, and each shall hold his or her respective office or offices
from and after the Effective Time until his or her successor shall have been
elected and shall have qualified or as otherwise provided in the Bylaws of
the Surviving Corporation.
(d) The name of the Surviving Corporation from and after the Effective
Time shall be "IQI, Inc." until changed in accordance with applicable law.
SECTION 2.04 ASSETS AND LIABILITIES. At the Effective Time, the Surviving
Corporation shall possess all the rights, privileges, powers and franchises of a
public as well as of a private nature, and be subject to all the restrictions,
disabilities and duties of each of the Constituent Corporations; and all the
rights, privileges, powers and franchises of each of the Constituent
Corporations, and all property, real, personal and mixed, and all debts due to
any of the Constituent Corporations on whatever account, as well
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as for stock subscriptions and all other things in action or belonging to each
of the Constituent Corporations, shall be vested in the Surviving Corporation;
and all property, rights, privileges, powers and franchises, and all and every
other interest shall be thereafter as effectually the property of the Surviving
Corporation as they were of the several and respective Constituent Corporations,
and the title to any real estate vested by deed or otherwise under the laws of
any jurisdiction, in any of the Constituent Corporations, shall not revert or be
in any way impaired by this Article II; but all rights of creditors and all
liens upon any property of any of the Constituent Corporations shall be
preserved unimpaired, and all debts, liabilities and duties of the respective
Constituent Corporations shall thenceforth attach to the Surviving Corporation,
and may be enforced against it to the same extent as if said debts, liabilities
and duties had been incurred or contracted by it.
SECTION 2.05 FURTHER ASSURANCES. If, at any time after the Effective Date,
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments or assurances or any other acts or things are necessary,
desirable or proper (i) to vest, perfect or confirm, of record or otherwise, in
the Surviving Corporation, its right, title or interest in, to or under any of
the rights, properties or assets of the Constituent Corporations acquired or to
be acquired as a result of the Merger, or (ii) otherwise to carry out the
purposes of this Agreement, the Surviving Corporation and its proper officers
and directors or their designees shall be authorized to execute and deliver, in
the name and on behalf of the Constituent Corporations, all such deeds, bills of
sale, assignments and assurances and do, in the name and on behalf of the
Constituent Corporations, all such other acts and things necessary, desirable or
proper to vest, perfect or confirm its right, title or interest in, to or under
any of the rights, properties or assets of the Constituent Corporations acquired
or to be acquired as a result of the Merger and otherwise to carry out the
purposes of this Agreement.
SECTION 2.06 CONVERSION OF SECURITIES.
(a) By virtue of the Merger and without any action on the part of the
holder thereof, at the Effective Time each share of Common Stock issued and
outstanding immediately prior to the Effective Time (other than Dissenters'
Shares and other than as provided in Section 2.06(d)) shall be converted
into the right to receive, and become exchangeable for, 9.7513 (the
"EXCHANGE RATIO") validly issued, fully paid and nonassessable shares of
Buyer Common Stock (collectively, the "MERGER SHARES"). If after the date
hereof and prior to the Effective Time Buyer shall have declared a stock
split (including a reverse split) of Buyer Common Stock or a dividend
payable in Buyer Common Stock, then the Exchange Ratio shall be
appropriately adjusted to reflect such stock split or dividend of
securities. At the Effective Time, the holders of Common Stock shall be
entitled to receive, in the aggregate, such number of shares of Buyer Common
Stock as is equal to the Merger Shares less the Escrow Shares. For the
purposes hereof, the "ESCROW SHARES" shall mean 1,506,092 shares of Buyer
Common Stock. The shares of Buyer Common Stock which the holders of Common
Stock shall be entitled to receive at the Effective Time are hereinafter
referred to as the "Initial Shares." The Escrow Shares shall be deposited
into escrow pursuant to Section 2.10 and shall be held and disposed of in
accordance with the terms of the Escrow Agreement.
(b) As of the Effective Time, by virtue of the Merger and without any
action on the part of the holders thereof, each Option that is outstanding
under the Company's 1996 Incentive Stock Option Plan (each a "PLAN OPTION,"
and, collectively, the "PLAN OPTIONS") immediately prior to the Effective
Time shall be assumed by Buyer in such a manner that each such Plan Option
shall be exercisable upon the same terms and conditions as under the
Company's 1996 Incentive Stock Option Plan and the applicable Plan Option
agreement issued thereunder, except that (i) each such Plan Option shall be
exercisable for that number of shares of Buyer Common Stock (rounded up to
the nearest whole share) equal to the product of the number of shares of
Common stock subject to such Plan Option immediately prior to the Effective
Time multiplied by the Exchange Ratio (the "OPTION SHARES"), and (ii) the
Plan Option price per share of Buyer Common Stock shall be an amount equal
to the product of the Plan Option price per share of Common Stock subject to
such Plan Option immediately prior to
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the Effective Time divided by the Exchange Ratio (rounded up to the nearest
whole cent); PROVIDED, HOWEVER, that in the case of Plan Options intended to
qualify as "incentive stock options" pursuant to Section 422 of the Code,
any such adjustment shall be made in such manner as not to disqualify such
Plan Options as "incentive stock options." For purposes of this Agreement,
"EXCHANGED OPTION SHARES" shall mean the number of shares of Buyer Common
Stock as is equal to the aggregate number of Option Shares. As soon as
practicable after the Effective Time, Buyer shall file a registration
statement on Form S-8 (or any successor form) under the Securities Act with
respect to all of the Exchanged Option Shares that may be issued pursuant to
the Plan Options and shall use its best efforts to cause and maintain the
effectiveness of such registration statement.
(c) As of the Effective Time, by virtue of the Merger and without any
action on the part of the holders thereof, each Option that is outstanding
(other than under the Company's 1996 Incentive Stock Option Plan) (each a
"WARRANT," and, collectively, the "WARRANTS") immediately prior to the
Effective Time shall be assumed by Buyer in such a manner that each such
Warrant shall be exercisable upon the same terms and conditions as under the
applicable Warrant agreement issued thereunder, except that (i) each such
Warrant shall be exercisable for that number of shares of Buyer Common Stock
(rounded up to the nearest whole share) equal to the product of the number
of shares of Common Stock subject to such Warrant immediately prior to the
Effective Time multiplied by a the Exchange Ratio (the "WARRANT SHARES"),
and (ii) the Warrant price per share of Buyer Common Stock shall be an
amount equal to the product of the Warrant price per share of Common Stock
subject to such Warrant immediately prior to the Effective Time divided by
the Exchange Ratio (rounded up to the nearest whole cent). For purposes of
this Agreement, "EXCHANGED WARRANT SHARES" shall mean the number of shares
of Buyer Common Stock as is equal to the aggregate number of Warrant Shares.
(d) By virtue of the Merger and without any action on the part of the
holder thereof, at the Effective Time each share of Common Stock held by the
Company as a treasury share immediately prior to the Effective Time shall be
canceled and no payment of any consideration shall be made with respect
thereto.
(e) By virtue of the Merger and without any action on the part of the
holder thereof, at the Effective Time each share of common stock of Newco
that is issued and outstanding immediately prior to the Effective Time shall
be converted into one newly issued share of common stock of the Surviving
Corporation, par value $.01 per share.
SECTION 2.07 DISSENTING SHARES.
(a) Each outstanding share of Common Stock held by Shareholders who
shall have properly perfected appraisal rights with respect thereto under
Section 623 of the New York Law ("DISSENTERS' SHARES") shall not be
converted into the right to receive the consideration specified in Section
2.06, but shall be entitled to receive payment of the fair value of such
shares of Common Stock in accordance with the provisions of Sections 623 and
910 of the New York Law, except that any Dissenters' Shares held by a
Shareholder who shall thereafter withdraw its, his or her demand for payment
of fair value of such shares of Common Stock in accordance with the
provisions of such Section 623, or lose its, his or her right to such
payment, shall be converted, as of the Effective Time, into the right to
receive the applicable consideration specified in Section 2.06.
(b) The Company shall give Buyer (i) prompt notice of any written
demands for payment of fair value of any shares of Common Stock, withdrawals
of such demands, and any other instruments that relate to such demands
received by the Company and (ii) the opportunity to direct all negotiations
and proceedings with respect to demands for payment of fair value of such
shares under New York Law. The Company shall not, except with the prior
written consent of Buyer, make any payment with respect to any demands for
appraisal of shares of Common Stock or offer to settle any such demands.
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SECTION 2.08 EXCHANGE OF SHARES.
(a) Prior to the Effective Time, Buyer shall appoint the Exchange Agent
to effect the exchange of Shares for Initial Shares. On the Closing Date,
Buyer shall deliver to the Exchange Agent, in trust for the benefit of the
Shareholders, a stock certificate (issued in the name of its Exchange Agent
or its nominee) representing the Initial Shares. Each holder of a
certificate or certificates (the "CERTIFICATES") which immediately prior to
the Effective Time represented outstanding shares of Common Stock will be
entitled to receive, upon surrender to the Exchange Agent of such
Certificates for cancellation, shares of Buyer Common Stock in the amount
calculated in accordance with Section 2.06 hereof. Until properly
surrendered, each such Certificate shall be deemed for all purposes to
evidence only the right to receive such shares of Buyer Common Stock and any
distributions paid to the holders of Buyer Common Stock after the Effective
Time.
(b) If any shares of Buyer Common Stock are to be issued to a Person
other than the Person in whose name the Certificates surrendered are
registered, it shall be a condition of such issuance that the Certificates
so surrendered shall be properly endorsed or otherwise in proper form for
transfer and that the Person requesting such transfer shall pay any transfer
or other taxes required by reason of the payment to a Person other than the
registered holder of the Certificates surrendered or establish to the
satisfaction of the Surviving Corporation that such tax has been paid or is
not applicable.
(c) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed, the Exchange
Agent shall issue in exchange for such lost, stolen or destroyed Certificate
the number of Initial Shares issuable in exchange therefor pursuant to
Section 2.06. Buyer may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
Certificate to give Buyer indemnity against, or post a bond for, any claim
that may be made against Buyer with respect to the Certificate alleged to
have been lost, stolen or destroyed.
(d) Prior to the Effective Time, Buyer will cause the Exchange Agent to
deliver or mail to each record holder of Certificates a form of letter of
transmittal (which will specify that delivery will be effected, and risk of
loss will pass, only upon proper delivery of the Certificates to the
Exchange Agent) and instructions for use in effecting surrender of
Certificates for payment therefor.
(e) From and after the Effective Time, the holders of shares of Common
Stock outstanding immediately prior to the Effective Time shall cease to
have any rights with respect to such shares of Common Stock, except as
otherwise provided herein or by law.
(f) After the Effective Time, there shall be no transfers on the stock
transfer books of the Surviving Corporation of any shares of Common Stock
which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Corporation,
they shall be canceled and promptly exchanged for Initial Shares as provided
in this Section 2.08, or subject to applicable law in the case of
Dissenters' Shares.
(g) If the holder of any shares of Common Stock shall become entitled to
receive payment for such shares pursuant to Section 910 of the New York Law,
such payment shall be made by the Surviving Corporation.
(h) No certificates or scrip representing fractional shares of Buyer
Common Stock shall be issued to the Shareholders upon the surrender for
exchange of Certificates. In lieu of any fractional shares of Buyer Common
Stock that would otherwise be issued, each Shareholder that would have been
entitled to receive a fractional share of Buyer Common Stock shall, upon
proper surrender of such person's Certificates, receive one share of Buyer
Common Stock for such fractional share.
(i) No dividends or distributions that are declared on shares of Buyer
Common Stock will be paid to persons entitled to receive certificates
representing shares of Buyer Common Stock hereunder
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until such persons surrender their Certificates. Upon such surrender, there
shall be paid to the person in whose name the Certificates representing such
shares of Buyer Common Stock shall be issued, any dividends or distributions
with respect to such shares of Buyer Common Stock which have a record date
after the Effective Time and shall have become payable between the Effective
Time and the time of surrender. In no event will the Person entitled to
receive such dividends or distributions be entitled to receive interest
thereon.
SECTION 2.09 REQUISITE SHAREHOLDER APPROVAL.
(a) The Company will take all action necessary in accordance with
applicable law and its Certificate of Incorporation and Bylaws to convene a
special meeting of the Shareholders to consider and vote upon, or solicit
the written consent of the Shareholders for, the approval of the Merger and
adoption of this Agreement. The Company hereby represents and warrants to
Buyer and Newco that the approval of the Merger and the adoption of this
Agreement will require, under the New York Law and the Company's Certificate
of Incorporation, the approval of the holders of a majority of the
outstanding Shares.
(b) The Buyer will take all action necessary in accordance with
applicable law and its Certificate of Incorporation and Bylaws to convene a
special meeting of the stockholders of the Buyer to consider and vote upon
the approval of the Merger and adoption of this Agreement. The Buyer hereby
represents and warrants to the Company that the adoption of this Agreement
will require under the Delaware Law, the rules of the NASDAQ National Stock
Market and Buyer's Certificate of Incorporation, the approval of the holders
of a majority of the outstanding Buyer Common Stock, voting as a single
class.
SECTION 2.10 ESCROW. On the Closing Date, Buyer shall deliver to the
Escrow Agent a certificate (issued in the name of the Escrow Agent or its
nominee) representing the Escrow Shares, for the purpose of securing the
indemnification obligations of the Shareholders set forth in Article X of this
Agreement. The Escrow Shares shall be held by the Escrow Agent under the Escrow
Agreement pursuant to the terms thereof. The Escrow Shares shall be held as a
trust fund and shall not be subject to any lien, attachment, trustee process or
other judicial process of any creditor of any party, and shall be held and
disbursed solely for the purposes, and in accordance with the terms, of the
Escrow Agreement. The adoption of this Agreement and the approval of the Merger
by the Shareholders shall constitute approval of the Escrow Agreement and all of
the arrangements relating thereto, including without limitation the placement of
the Escrow Shares in escrow and the appointment of the Representative.
SECTION 2.11 REPRESENTATIVE. In order to efficiently administer the
transactions contemplated hereby, including (i) the defense and/or settlement of
any claims for which the Shareholders may be required to indemnify Buyer
pursuant to Article X hereof and (ii) entering into the Escrow Agreement, the
Shareholders, by their adoption of this Agreement and the approval of the
Merger, agree to the appointment of the Representative. The Representative is
hereby authorized to take any and all action as is contemplated to be taken by
the Shareholders by the terms of this Agreement and the Escrow Agreement. All
decisions and actions by the Representative shall be binding upon all of the
Shareholders and no Shareholder shall have the right to object, dissent, protest
or otherwise contest the same. By their adoption of this Agreement and the
approval of the Merger, the Shareholders further agree that:
(a) Buyer shall be able to rely exclusively on the instructions and
decisions of the Representative as to the settlement of claims for
indemnification by Buyer pursuant to Article X hereof, or any other actions
taken by the Representative hereunder, and no party hereunder shall have any
cause of action against Buyer in reliance upon the instructions or decisions
of the Representative;
(b) all actions, decisions and instructions of the Representative shall
be final, conclusive and binding upon the Shareholders;
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(c) the provisions of this Section 2.11 are independent and severable,
are irrevocable and coupled with an interest, and shall be enforceable
notwithstanding any rights or remedies that any Shareholder may have in
connection with the transactions contemplated by this Agreement and the
Escrow Agreement; and
(d) the provisions of this Section 2.11 shall be binding upon the
executors, heirs, legal representatives and successors of each Shareholder,
and any references in this Agreement to a Shareholder shall mean and include
the successors to the Shareholders' rights hereunder, whether pursuant to
testamentary disposition, the laws of descent and distribution or otherwise.
SECTION 2.12 CONSUMMATION OF MERGER. As soon as practicable after
satisfaction of the conditions set forth in Article VI hereof, the Company and
Newco shall execute and deliver to the Secretary of State of New York a duly
executed and verified Certificate of Merger (the "CERTIFICATE OF MERGER"), and
the parties shall take all such other and further actions as may be required by
law to make the Merger effective.
SECTION 2.13 CLOSING. The closing of the Merger and the other transactions
contemplated hereby (the "CLOSING") shall take place at the offices of Paul,
Hastings, Janofsky & Walker LLP, Thirty-First Floor, 399 Park Avenue, New York,
New York 10022 (or such other place as the parties may agree), at 10:00 A.M.
local time on June 30, 1998, or, if all conditions appearing in Article VI
hereof to the obligations of the parties hereto to consummate the transactions
contemplated hereby have not been satisfied or waived by such date, as promptly
as practicable upon satisfaction of such conditions as Buyer and the Company may
mutually establish (such time and date being referred to herein as the "CLOSING
DATE").
SECTION 2.14 ACTIONS AT THE CLOSING. At the Closing:
(a) The Company shall deliver or cause to be delivered to Buyer and
Newco all of the documents, certificates and instruments required to be
delivered to Buyer or Newco pursuant to Section 6.01 or 6.02.
(b) Buyer and Newco shall deliver or caused to be delivered to the
Company all of the documents, certificates and instruments required to be
delivered to the Company pursuant to Section 6.01 or 6.03.
(c) The Company and Newco shall file the Certificate of Merger with the
Secretary of State of the State of New York.
(d) Buyer shall deliver to the Exchange Agent certificates representing
the Initial Shares.
(e) Buyer, the Representative and the Escrow Agent shall enter into the
Escrow Agreement, and Buyer shall deliver to the Escrow Agent a certificate
representing the Escrow Shares.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
REGARDING THE COMPANY
The Company hereby represents and warrants to, and covenants and agrees
with, Buyer and Newco that:
SECTION 3.01 ORGANIZATION AND GOOD STANDING; AUTHORIZATION.
(a) Each of the Company and its Subsidiaries has been duly organized and
is existing as a corporation in good standing under the laws of its
jurisdiction of incorporation with full power and authority (corporate and
other) to own and lease its properties and to conduct its business as
currently conducted. Each of the Company and its Subsidiaries has been duly
qualified as a foreign corporation
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for the transaction of business and is in good standing under the laws of
each jurisdiction in which the nature of its business or location of its
properties requires such qualification and in which the failure to so
qualify would have a Material Adverse Effect on the Company.
(b) The Company has the corporate power and authority to execute and
deliver this Agreement, to consummate the transactions contemplated hereby
and to perform its obligations under this Agreement. The execution and
delivery by the Company of this Agreement, and the consummation by the
Company of the transactions contemplated hereby, have been duly authorized
by all necessary corporate action by the Company, subject to obtaining the
requisite shareholder approval. This Agreement, upon its execution and
delivery by the Company (assuming the due authorization, execution and
delivery hereof by the other parties hereto), will constitute the legal,
valid and binding obligation of the Company, enforceable against the Company
in accordance with its terms.
SECTION 3.02 NO CONFLICTS. Except as set forth on Schedule 3.02, subject
to compliance with the applicable requirements of the Securities Act and any
applicable state securities laws, the HSR Act and the filing of the Certificate
of Merger as required by the New York Law, the execution, delivery and
performance of this Agreement and the consummation by the Company of the
transactions contemplated hereby will not (a) conflict with or result in a
breach or violation of any term or provision of, or constitute a default under
(with or without notice or passage of time, or both), or otherwise give any
Person a basis for accelerated or increased rights or termination or
nonperformance under, any indenture, mortgage, deed of trust, loan or credit
agreement, lease, license or other agreement or instrument to which the Company
or any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound or affected or to which any of the property or assets of
the Company or any of its Subsidiaries is bound or affected, (b) result in the
violation of the provisions of the Certificate of Incorporation or Bylaws of the
Company or any Legal Requirement applicable to or binding upon the Company or
any of its Subsidiaries, (c) result in the creation or imposition of any Lien
upon any property or asset of the Company or any of its Subsidiaries or (d)
otherwise adversely affect the contractual or other legal rights or privileges
of the Company or any of its Subsidiaries. Schedule 3.02 set forth a list of all
agreements to which the Company or any of its Subsidiaries is a party requiring
the consent of any party thereto to any of the transactions contemplated hereby.
SECTION 3.03 CAPITALIZATION. The authorized capital stock of the Company
consists solely of (A) 4,000,000 shares of Common Stock, of which 3,089,006 are,
and immediately prior to the Effective Time (other than those resulting from any
exercised Options between the date hereof and the Effective Time) will be,
issued and outstanding, and (B) 1,000,000 shares of preferred stock, par value
$.001 per share, of which no shares are, and immediately prior to the Effective
Time will be, issued and outstanding. Annex A hereto sets forth a complete and
accurate list of (i) the Shareholders, indicating the type and number of Shares
held by each Shareholder, (ii) all holders of Options, indicating the type and
number of shares of Common Stock subject to each Option, the name of the plan
and the vesting schedule and the exercise price thereof, and (iii) all of the
Stock Plans. All of the issued and outstanding shares of Common Stock are, and
all shares of Common Stock that may be issued upon exercise of Options after the
date hereof and prior to the Effective Time will be, duly authorized, validly
issued, fully paid, nonassessable and free of all preemptive rights. Other than
as set forth on Annex A (i) there are no existing options, warrants, rights,
calls or commitments of any character relating to shares of Common Stock, (ii)
there are no outstanding securities or other instruments convertible into or
exchangeable for shares of the Company's capital stock and no commitments to
issue such securities or instruments and (iii) no Person has any right of first
refusal, preemptive right, subscription right or similar right with respect to
any shares of the Company's capital stock. The offer, issuance and sale of the
Shares were (i) exempt from the registration and prospectus delivery
requirements of the Securities Act, (ii) registered or qualified (or exempt from
registration or qualification) under the registration or qualification
requirements of all applicable state securities laws and (iii) accomplished in
conformity with all other Legal Requirements. Except as set forth on Schedule
3.03, there are no voting agreements, voting trusts or similar arrangements or
understandings
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to which the Company or any of its Subsidiaries is a party or is bound with
respect to the voting of the capital stock of the Company or its Subsidiaries.
Except as set forth in Schedule 3.03, none of the awards, grants or other
agreements pursuant to which Company stock options or warrants were issued have
provisions which accelerate the vesting or right to exercise such options or
warrants upon the execution of this Agreement, the consummation of the
transactions contemplated by this Agreement or any "change of control" events.
SECTION 3.04 FINANCIAL STATEMENTS.
(a) Schedule 3.04(a) contains true and complete copies of (i) the
unaudited balance sheet of the Company (the "BALANCE SHEET") at December 31,
1997 (the "BALANCE SHEET DATE"), and the related unaudited statements of
income, shareholders' equity and cash flows for the year then ended, and
(ii) the audited balance sheet of the Company at December 31, 1996, and the
related audited statements of income, shareholders' equity and cash flows
for the year then ended, together with the opinion thereon of Ernst & Young
LLP, the Company's independent accountants (the financial statements
described in this subparagraph (a) collectively, the "FINANCIAL
STATEMENTS").
(b) The Financial Statements present fairly the financial condition of
the Company as of the Balance Sheet Date and the results of operations and
changes in financial position of the Company for the years then ended, have
been prepared in conformity with GAAP during the period covered thereby and
prior periods, have been derived from the accounting records of the Company
and represent only actual, bona fide transactions. Since December 31, 1997,
there has been no change in accounting (including tax accounting) policies,
practices or procedures of the Company or any of its consolidated
Subsidiaries. The Company is neither aware of, nor does it anticipate, any
material audit adjustments to its financial statements for the year ended
December 31, 1997.
SECTION 3.05 INDEBTEDNESS. Neither the Company nor any of its Subsidiaries
has any liability or obligation for Indebtedness other than as set forth on
Schedule 3.05, and true and complete copies of all instruments and documents
evidencing, creating, securing or otherwise relating to such Indebtedness have
been delivered to Buyer heretofore. Except as described in Schedule 3.05, no
event has occurred and no condition has become known to the Company (including
the transactions contemplated hereby) that constitutes or, with notice or
passage of time, or both, would constitute a default or a basis of force majeure
or other claim of accelerated or increased rights, termination, excusable delay
or nonperformance by the Company or any other Person under any instrument or
document relating to or evidencing Indebtedness that would entitle any Person to
require the Company or any of its Subsidiaries to pay any portion of the
principal amount of such Indebtedness prior to the scheduled maturity thereof.
Except as set forth in Schedule 3.05, no instrument or document evidencing,
creating, securing or otherwise relating to Indebtedness of the Company or any
of its Subsidiaries will require the consent of any Person to or as a result of
the consummation of the transactions contemplated by this Agreement.
SECTION 3.06 JUDGMENTS; LITIGATION. Except as set forth on Schedule 3.06:
(a) There is no (i) outstanding judgment, order, decree, award,
stipulation, injunction of any Governmental Entity or arbitrator against or
affecting the Company or any of its Subsidiaries or their respective
properties, assets or businesses or (ii) Action pending against or affecting
the Company or any of its Subsidiaries or their respective properties,
assets or businesses.
(b) To the Company's knowledge, there is no (i) outstanding judgment,
order, decree, award, stipulation, injunction of any Governmental Entity or
arbitrator against or affecting any officer, director or employee of the
Company or any of its Subsidiaries relating to the Company or any of its
Subsidiaries or their respective businesses, (ii) Action threatened against
the Company or any of its Subsidiaries or their respective properties,
assets or businesses, (iii) Action pending or threatened against the
Company's or any of its Subsidiaries' officers, directors or employees
relating to the Company or any of its Subsidiaries or their respective
businesses or (iv) basis for the institution of any
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Action against the Company or any of its Subsidiaries or their respective
officers, directors, employees, properties or assets which, if decided
adversely, would have a Material Adverse Effect on the Company.
SECTION 3.07 CORPORATE RECORDS. The copies or originals of the Certificate
of Incorporation or Articles of Incorporation, Bylaws, minute books and stock
records of the Company and its Subsidiaries previously delivered to, or made
available for inspection by, Buyer are true, complete and correct.
SECTION 3.08 EMPLOYEE BENEFIT MATTERS.
(a) Schedule 3.08(a) is a complete list of all Plans. True and complete
copies of each of the following documents (and any amendments thereto),
where applicable, have been delivered previously to Buyer: (i) the Plan
documents; (ii) a written description of any Plan which is not in writing;
(iii) if the Plan is funded through a trust or any third-party funding
vehicle, the trust or other funding agreement; (iv) the Plan's most recent
financial statements; (v) the two most recent annual reports (including all
schedules and attachments thereto) required by ERISA; (vi) the most recent
actuarial report and valuation; (vii) the most recent determination letter
received from the IRS with respect to each Plan that is intended to be
qualified under Code Section 401 or to be recognized as tax-exempt under
Code Section 501(c); (viii) the most recent summary plan description and
each summary of material modifications required by ERISA; (ix) any agreement
providing for the provision of administrative or investment management
services with respect to the Plan; and (x) all documents and correspondence
received from or provided to the Department of Labor, IRS, and Pension
Benefit Guaranty Corporation during the past two years.
(b) Each Plan and related trust, annuity, or other funding agreement
complies and has been maintained in compliance with all applicable Legal
Requirements. No non-exempt prohibited transaction (as defined in Code
Section 4975 and ERISA Sections 406 and 408) has occurred and no "fiduciary"
(as defined in ERISA Section 3(21)) has committed any breach of duty which
could subject the Company, any ERISA Affiliate, or any director, officer, or
employee thereof to liability under Title I of ERISA or to tax under Code
Section 4975. All material obligations required to be performed by the
Company and any other Person under the terms of each Plan and applicable
Legal Requirements have been performed.
(c) All required reports and descriptions, including, without
limitation, annual reports (Form 5500), summary annual reports, and summary
plan descriptions, have been filed and distributed timely. With respect to
each Plan which is a welfare plan (as defined in ERISA Section 3(1)), the
requirements of Part 6 of Subtitle B of Title I of ERISA and of Code
Sections 162(k) and 4980B have been satisfied.
(d) All contributions, premiums, and other payments, including, without
limitation, employer contributions and employee salary reduction
contributions, have been paid when due or accrued in accordance with the
past custom and practice of the Company and any ERISA Affiliate. No Plan
that is subject to Part 3 of Subtitle B of Title I of ERISA or to Code
Section 412 has incurred any accumulated funding deficiency, whether or not
waived, and no other actual or contingent liability for any other expenses
or obligations of any Plan exists.
(e) There are no pending or, to the Company's knowledge, threatened
Actions (other than routine claims for benefits) asserted or instituted
against any Plan or the assets of any Plan, or against the Company, or any
ERISA Affiliate, trustee, administrator, or fiduciary of such Plan, and the
Company has no knowledge of any facts that could form the basis of any such
Action.
(f) The Company (or, if applicable, an ERISA Affiliate) may terminate,
suspend, or amend each Plan at any time, except to the extent otherwise
required by Code Section 4980B, without the consent of the participants or
employees covered by such Plan. Neither the Company nor any ERISA Affiliate
has announced any intention, made any amendment or binding commitment, or
given any
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written or oral notice providing that the Company or an ERISA Affiliate (i)
will create additional Plans covering employees of the Company or any ERISA
Affiliate, (ii) will increase benefits promised or provided pursuant to any
Plan, or (iii) will not exercise after the Closing Date any right or power
it may have to terminate, suspend, or amend any Plan.
(g) Neither the Company nor any ERISA Affiliate maintains or has
maintained at any time, or contributes to or has contributed to or is or was
required to contribute to, any (i) Plan subject to Title IV of ERISA,
including, without limitation, any multi-employer plan (as defined in ERISA
Section 3(37)), within the past five years, or (ii) funded or unfunded
medical, health, accident, or life insurance plan or arrangement for current
or future retirees or terminated employees or their spouses or dependents
(except to the extent required by Code Sections 162(k) or 4980B).
(h) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will constitute a
termination of employment or other event entitling any Person to any
additional or other benefits, or that would otherwise modify benefits or the
vesting of benefits, provided under any Plan.
(i) No event has occurred which could subject the Company or any ERISA
Affiliate to any material liability (i) under any Legal Requirement relating
to any Plan, or (ii) resulting from any obligation of the Company or an
ERISA Affiliate to indemnify any Person against liability incurred with
respect to or in connection with any Plan.
(j) Each Plan which is intended to be qualified under Code Section 401
has received, within the last three years, a favorable determination letter
from the IRS. No event has occurred and no facts or circumstances exist
which may cause or result in the loss or revocation of such determination.
(k) There are no material unfunded liabilities with respect to any Plan,
and each Plan could be terminated as of the date of the Closing with no
liability to Buyer, the Company or any ERISA Affiliate.
(l) There are no agreements of the Company or any of its Subsidiaries
which will or may provide payments to any officer, employee, shareholder, or
highly compensated individual of the Company or any of its Subsidiaries
which will be "parachute payments" under Code Section 280G that are
nondeductible to the Company or its Subsidiaries or subject to tax under
Code Section 4999 for which the Company or any ERISA Affiliate would have
withholding liability.
SECTION 3.09 INCOME AND OTHER TAXES. Except as set forth on Schedule 3.09:
(a) All Tax Returns required to be filed through and including the date
hereof in connection with the operations of the Company are true, complete
and correct in all respects and have been properly and timely filed. The
Company has not requested any extension of time within which to file any Tax
Return, which Tax Return has not since been filed. Buyer has heretofore been
furnished by the Company with true, correct and complete copies of each Tax
Return of the Company with respect to the past three taxable years, and of
all reports of, and communications from, any Governmental Entities relating
to such period. The Company has disclosed on its Federal income Tax Returns
all positions taken therein that could give rise to a substantial
understatement of income Taxes for federal income tax purposes within the
meaning of Code Section 6662.
(b) All Taxes required to be paid or withheld and deposited through and
including the date hereof in connection with the operations of the Company
have been duly and timely paid or deposited by the Company. The Company has
properly withheld or collected all amounts required by law for income Taxes,
employment Taxes and withholding Taxes relating to its employees, creditors,
independent contractors and other third parties, and for Taxes on sales, and
has properly and timely remitted such withheld or collected amounts to the
appropriate Governmental Entity. The Company has no liabilities for any
Taxes for any taxable period ending prior to or coincident with the Closing
Date.
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(c) The Company has made adequate provision on its books of account for
all Taxes with respect to its business, properties and operations through
the Balance Sheet Date, and the accruals for Taxes in the Balance Sheet are
adequate to cover all liabilities for Taxes of the Company for all periods
ending on or before the Closing Date.
(d) The Company has not heretofore (i) had a tax deficiency proposed,
asserted or assessed against it, (ii) executed any waiver of any statute of
limitations on the assessment or collection of any Taxes, or (iii) been
delinquent in the payment of any Taxes.
(e) No Tax Return of the Company has been audited or the subject of
other Action by any Governmental Entity. The Company has not received any
notice from any Governmental Entity of any pending examination or any
proposed deficiency, addition, assessment, demand for payment or adjustment
relating to or affecting the Company or its assets or properties, and the
Company has not any reason to believe that any Governmental Entity may
assess (or threaten to assess) any Taxes for any periods ending on or prior
to the Closing Date.
(f) The Company (i) has not filed any consent or agreement pursuant to
Code Section 341(f), and no such consent or agreement will be filed at any
time on or before the Closing Date; (ii) has not made any payments, is not
obligated to make any payments and is not a party to any agreement that
under certain circumstances could obligate the Company to make any payments
that will not be deductible under Code Section 280G; (iii) is not a United
States real property holding corporation within the meaning of Code Section
897(c)(2); (iv) is not a party to a tax allocation or sharing agreement; (v)
has never been (or does not have any liability for unpaid Taxes because it
was) a member of an affiliated group with the meaning of Code Section
1504(a); (vi) has never applied for a tax ruling from a Governmental Entity;
(vii) has never filed or been the subject of an election under Code Section
338(g) or Code Section 338(h)(10) or caused or been the subject of a deemed
election under Code Section 338(e); (viii) has not participated in, or
cooperated with, an international boycott within the meaning of Section 999
of the Code; and (ix) has not issued or assumed any acquisition indebtedness
as defined in Section 279(b) of the Code.
(g) Set forth on Schedule 3.09(g) is the amount, as of the most recent
practicable date, of any net operating loss, net capital loss, unused
investment or other credit, unused foreign tax or excess charitable
contribution.
SECTION 3.10 HAZARDOUS MATERIALS. Except as set forth on Schedule 3.10:
(a) To the Company's knowledge, no Hazardous Material (i) has been
released, placed, stored, generated, used, manufactured, treated, deposited,
spilled, discharged, released or disposed of on or under any real property
currently or previously owned or leased by the Company or any of its
Subsidiaries, (ii) is presently maintained, used, generated, or permitted to
remain in place by the Company or any of its Subsidiaries in violation of
any Environmental Law, (iii) is required by any Environmental Law to be
eliminated, removed, treated or mitigated by the Company or any of its
Subsidiaries, given the nature of its present condition, location, nature,
material or maintenance, or (iv) is of a type, location, material, nature or
condition which requires special notification to third parties by the
Company or any of its Subsidiaries under Environmental Law or common law, in
any such cases which would have a Material Adverse Effect on the Company.
(b) No notice, citation, summons or order has been received by the
Company or any of its Subsidiaries, no notice has been given by the Company
or any of its Subsidiaries and no complaint has been filed, no penalty has
been assessed and no investigation or review is pending or, to the Company's
knowledge, threatened by any Governmental Entity, with respect to (i) any
alleged violation by the Company or any of its Subsidiaries of any
Environmental Law, or (ii) any alleged failure by the Company or any of its
Subsidiaries to have any environmental permit, certificate, license,
approval, registration or authorization required in connection with its
business or properties,
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or (iii) any use, possession, generation, treatment, storage, recycling,
transportation, release or disposal by or on behalf of the Company or any of
its Subsidiaries of any Hazardous Material.
(c) Neither the Company nor any of its Subsidiaries has received any
request for information, notice of claim, demand or notification that it is
or that indicates that it may be a "potentially responsible party" with
respect to any investigation or remediation of any threatened or actual
release of any Hazardous Material.
(d) No above-ground or underground storage tanks, whether or not in use,
are or have ever been located at any property currently owned or leased by
the Company or any of its Subsidiaries.
(e) No notice has been received by the Company or any of its
Subsidiaries with respect to the listing or proposed listing of any property
currently or previously owned, operated or leased by the Company or any of
its Subsidiaries on the National Priorities List promulgated pursuant to
CERCLA, CERCLIS or any similar state list of sites requiring investigation
or cleanup.
(f) There have been no environmental inspections, investigations,
studies, tests, reviews or other analyses conducted in relation to any real
property currently owned or leased by the Company or any of its
Subsidiaries.
(g) Neither the Company nor any of its Subsidiaries has released,
transported, or arranged for the transportation of any Hazardous Material
from any property currently or previously owned, operated or leased by the
Company or any of its Subsidiaries.
SECTION 3.11 ACCOUNTS RECEIVABLE. All accounts receivable of the Company
reflected in the Balance Sheet and all accounts receivable of the Company that
have arisen since the Balance Sheet Date (except such accounts receivable as
have been collected since such date) are valid and enforceable claims against
the account debtor, and the goods and services sold and delivered that gave rise
to such accounts were sold and delivered in conformity with all applicable
express and implied warranties, purchase orders, agreements and specifications.
Such accounts receivable of the Company are subject to no valid defense, offset
or counterclaim and are fully collectible in the Ordinary Course, except to the
extent of the allowance for doubtful accounts reflected on the Balance Sheet.
SECTION 3.12 MATERIAL CONTRACTS. All material contracts, leases,
agreements and arrangements to which the Company or any of its Subsidiaries is a
party are legally valid, binding and enforceable in accordance with their terms
and in full force and effect, and the Company has provided Buyer with the
opportunity to review and copy all such documents. The Company and, to the
knowledge of the Company, all parties to such contracts, leases, agreements and
arrangements have complied with the provisions of such contracts, leases,
agreements and arrangements, and neither the Company nor any of its Subsidiaries
and, to the knowledge of the Company, no other party is, in default thereunder,
and no event has occurred which, but for the passage of time or the giving of
notice or both, would constitute a default thereunder. Set forth on Schedule
3.12 is a list of all such material contracts, leases, agreements and
arrangements, including those contracts to which the Company or any of its
Subsidiaries is a party which cannot be terminated or do not terminate within 12
months or less without cause or obligate the Company or any of its Subsidiaries
for amounts in excess of $50,000.00. Except as set forth on Schedule 3.12, none
of such contracts or agreements will, by its terms, terminate as a result of the
transactions contemplated hereby or require any consent from any obligor thereto
in order to remain in full force and effect immediately after the Effective
Time.
SECTION 3.13 NO UNDISCLOSED LIABILITIES. Except (i) to the extent set
forth or provided for in the Balance Sheet, (ii) as set forth on Schedule 3.13
or (iii) for non-material current liabilities incurred since the Balance Sheet
Date in the Ordinary Course, as of the date hereof the Company and its
Subsidiaries have no liabilities, whether accrued, absolute, contingent or
otherwise, whether due or to become due and whether the amounts thereof are
readily ascertainable or not, or any unrealized or anticipated losses from any
commitments of a contractual nature.
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SECTION 3.14 CONSENTS. No consent, approval, authorization, license,
permit or other action by, or filing with, any governmental or regulatory
authority is required in connection with the execution and delivery of this
Agreement by the Company or the consummation by the Company of the transactions
contemplated hereby, except for such consents, approvals, authorizations,
licenses, permits, actions or filings as will have been obtained, taken or filed
at or prior to the Closing.
SECTION 3.15 ABSENCE OF CERTAIN CHANGES. Since the Balance Sheet Date,
neither the Company nor any of its Subsidiaries has made or suffered any change
in, or condition affecting, their respective condition (financial or otherwise),
properties, profitability, prospects or operations other than changes, events or
conditions in the Ordinary Course, none of which (individually or in the
aggregate) has had, or which the Company can now reasonably foresee will have, a
Material Adverse Effect on the Company.
SECTION 3.16 AFFILIATIONS. Except as disclosed on Schedule 3.16, none of
the officers, directors or key employees of the Company or any of its
Subsidiaries or any associate or Affiliate of the Company or any of such Persons
has, directly or indirectly, (i) an interest in any Person that (A) furnishes or
sells, or proposes to furnish or sell, services or products that are furnished
or sold by the Company or any of its Subsidiaries or (B) purchases from or sells
or furnishes to, or proposes to purchase from or sell or furnish to, the Company
or any of its Subsidiaries any goods or services or (ii) a beneficial interest
in any contract or agreement to which the Company or any of its Subsidiaries is
a party or by which the Company or any of its Subsidiaries or any of the assets
of the Company or any of its Subsidiaries are bound or affected.
SECTION 3.17 BROKERS' FEES. No broker, finder or similar agent has been
employed by or on behalf of the Company in connection with this Agreement or the
transactions contemplated hereby, and the Company has not entered into any
agreement or understanding of any kind with any person or entity for the payment
of any brokerage commission, finder's fee or any similar compensation in
connection with this Agreement or the transactions contemplated hereby.
SECTION 3.18 SEVERANCE ARRANGEMENTS. Except as set forth on Schedule 3.18,
neither the Company nor any of its Subsidiaries is subject to any agreement with
any employee (i) the benefits of which (including severance benefits) are
contingent, or the terms of which are materially altered, upon the occurrence of
a transaction of the nature of that contemplated by this Agreement or the
Merger, or (ii) providing for severance benefits beyond those described in
Schedule 3.18, or which are conditioned upon a change in control of the Company,
after the termination of employment of such employee regardless of the reason
for such termination of employment, and neither the Company nor any of its
Subsidiaries is a party to any employment agreement or compensation guarantee
for a period longer than one year from the date hereof. Schedule 3.18 sets forth
all employment agreements and compensation guarantees, regardless of duration,
to which the Company or any of its Subsidiaries is a party.
SECTION 3.19 SUBSIDIARIES. All the Company's Subsidiaries are set forth on
Schedule 3.19. Except as set forth on Schedule 3.19, the Company does not own
any shares of capital stock, partnership interests or other beneficial ownership
interests in any other Person.
SECTION 3.20 TITLE TO AND CONDITION OF ASSETS. Except as otherwise set
forth on Schedule 3.20 and except for assets and properties that are leased by
the Company or its Subsidiaries, the Company and its Subsidiaries hold good and
marketable title to their respective assets and properties, free and clean of
all Liens, except Permitted Liens. The assets and properties of the Company and
its Subsidiaries consisting of structures, fixtures and equipment are
structurally sound with no material defects and are in sufficient operating
order, condition and repair, ordinary wear and tear excepted, for the operation
of the Company's business as currently conducted, and none of such structures,
fixtures or equipment are in need of maintenance or repairs except for ordinary,
routine maintenance and repairs consistent with the age and use of such assets
and properties, which are not, either individually or in the aggregate,
material.
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SECTION 3.21 LEASED REAL PROPERTY.
(a) Schedule 3.21 describes the real property currently leased by the
Company or any of its Subsidiaries (the "LEASED REAL PROPERTY").
(b) Neither the Company nor any of its Subsidiaries owns any real
property. The Company and its Subsidiaries have good leasehold interests in,
and possession of, all Leased Real Property, subject to the terms of the
applicable leases. All of the leases for Leased Real Property are valid,
binding and in full force and effect, and there has been no breach, which
breach has not been cured or waived, of any such lease by the Company, or to
the Company's knowledge, the lessors thereunder.
(c) To the Company's knowledge, no fact or condition exists which could
result in the termination or reduction of the current access to or from the
Leased Real Property to existing roads or the electrical, telephone, sewer
or other utility services presently serving the Leased Real Property.
(d) To the Company's knowledge, the Leased Real Property is properly
zoned for its current use or uses, and there are presently no Legal
Requirements applicable to any parcel of Leased Real Property which prohibit
the use of such Leased Real Property for such purpose or purposes.
(e) No written notices have been received by the Company or its
Subsidiaries from any insurance company issuing any policy of insurance
covering the Leased Real Property regarding the performance of any work,
restoration or repair with respect to the Leased Real Property with which
compliance, to the satisfaction of such insurance company, has not been
made.
(f) To the Company's knowledge, the Leased Real Property is not subject
to any current use or special use assessment or any ad valorem tax
abatement.
(g) To the Company's knowledge, with respect to the improvements on the
Leased Real Property, such improvements are in conformity in all material
respects with all applicable Legal Requirements and no variances or other
waivers were obtained or are required to assure such conformity.
SECTION 3.23 COMPLIANCE WITH LAW. The Company and its Subsidiaries are in
compliance in all material respects with all Legal Requirements in connection
with the operation of their businesses and the ownership and maintenance of
their assets and properties. To the Company's knowledge, all filings and notices
required to be made by the Company and its Subsidiaries with any Governmental
Entity in connection with the operation of their businesses or the ownership and
maintenance of their assets or properties have been made or given in a timely
fashion.
SECTION 3.24 LABOR MATTERS. There is no labor strike, slowdown, stoppage
or other labor difficulty actually pending or, to the Company's knowledge,
threatened against the Company or any of its Subsidiaries. There is no
collective bargaining agreement or union contract binding upon the Company or
any of its Subsidiaries, and there has not been any such agreement or contract
in effect at any time during the preceding three years.
SECTION 3.25 CUSTOMERS. Schedule 3.25 lists the 10 largest customers of
the Company and its Subsidiaries for the most recent fiscal year and sets forth
opposite each name the percentage of total consolidated revenues attributable to
such customer for such year. Except as set forth on Schedule 3.25, no such
customer has terminated, or to the Company's knowledge, threatened to terminate,
its relationship with the Company or its Subsidiaries, and the Company believes
its relationship with such customers is good.
SECTION 3.26 DISCLOSURE. Except as set forth on Schedule 3.26, no
representation or warranty of the Company in this Agreement and no information
contained in any Schedule or other writing delivered by the Company pursuant to
this Agreement or at the Closing contains or will contain any untrue statement
of a material fact or omits or will omit to state a material fact required to
make the statements
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herein or therein not misleading. There is no fact that the Company has not
disclosed to Buyer or Newco in writing that has had or, insofar as the Company
can now foresee, may have a material adverse effect on the ability of the
Company to perform fully this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to, and covenants and agrees with, the
Company that:
SECTION 4.01 ORGANIZATION AND GOOD STANDING OF BUYER. Each of Buyer and
its Subsidiaries has been duly organized and is existing as a corporation in
good standing under the laws of the State of its jurisdiction of incorporation
with full power and authority (corporate and other) to own and lease its
properties and to conduct its business as currently conducted. Each of Buyer and
its Subsidiaries has been duly qualified as a foreign corporation for the
transaction of business and is in good standing under the laws of each
jurisdiction in which the nature of its business or location of its properties
requires such qualification and in which the failure to so qualify would have a
Material Adverse Effect on Buyer.
SECTION 4.02 SUBSIDIARIES. All of Buyer's Subsidiaries, including Newco,
are set forth on Schedule 4.02. Except as set forth on Schedule 4.02, Buyer does
not own any shares of capital stock, partnership interests or other beneficial
ownership interests in any other Person.
SECTION 4.03 AUTHORIZATION. Each of Buyer and Newco has the corporate
power and authority to execute and deliver this Agreement, to consummate the
transactions contemplated hereby and to perform its obligations under this
Agreement. The execution and delivery by each of Buyer and Newco of this
Agreement, and the consummation by each of them of the transactions contemplated
hereby, have been duly authorized by all necessary corporate action on the part
of each of Buyer and Newco, subject to obtaining the requisite shareholder
approval. This Agreement, upon its execution and delivery by each of Buyer and
Newco (assuming the due authorization, execution and delivery hereof by the
other parties hereto), will constitute the legal, valid and binding obligation
of each of Buyer and Newco, enforceable against each of Buyer and Newco in
accordance with its terms.
SECTION 4.04 NO CONFLICTS. Subject to compliance with the applicable
requirements of the Securities Act and any applicable state securities laws, the
HSR Act and the filing of the Certificate of Merger as required by the New York
Law, the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby by Buyer and Newco will not
(a) conflict with or result in a breach or violation of any term or provision
of, or constitute a default under (with or without notice or passage of time, or
both), or otherwise give any Person a basis for accelerated or increased rights
or termination or nonperformance under, any indenture, mortgage, deed of trust,
loan or credit agreement, lease, license or other agreement or instrument to
which Buyer or any of its Subsidiaries is a party or by which Buyer or any of
its Subsidiaries is bound or affected or to which any of the property or assets
of Buyer or any of its Subsidiaries is bound, (b) result in the violation of the
provisions of the Certificate of Incorporation or Bylaws of Buyer or any of its
Subsidiaries or any Legal Requirement applicable to or binding upon Buyer or any
of its Subsidiaries, (c) result in the creation or imposition of any Lien upon
any property or asset of Buyer or any of its Subsidiaries or (d) otherwise
adversely affect the contractual or other legal rights or privileges of Buyer or
any of its Subsidiaries. Schedule 4.04 set forth a list of all agreements to
which the Buyer or any of its Subsidiaries is a party requiring the consent of
any party thereto to any of the transactions contemplated hereby.
SECTION 4.05 CAPITALIZATION. The authorized capital stock of Buyer
consists solely of (i) 27,500,000 shares of Buyer Common Stock, of which
21,478,624 are issued and outstanding and 5,114,940 are reserved for issuance
upon exercise of outstanding options and warrants and conversion of Buyer
Preferred Stock, and (ii) 1,000,000 shares of Buyer Preferred Stock, of which
29,778 shares are issued and outstanding. All of the issued and outstanding
shares of Buyer Common Stock and Buyer
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Preferred Stock are duly authorized, validly issued, fully paid, nonassessable,
and free of all preemptive rights. All of the Merger Shares and Additional
Shares, if any, to be issued pursuant to this Agreement, when issued in
accordance with this Agreement, will be duly authorized, validly issued, fully
paid, nonassessable, free of all preemptive rights and, subject to official
notice of issuance, authorized for listing on the NASDAQ National Market System.
The authorized capital stock of Newco consists solely of 1,000 shares of common
stock, $.01 par value per share, 100 of which are, and on the Closing Date will
be, issued and outstanding. All of the issued and outstanding shares of capital
stock of Newco are, and on the Closing Date will be, owned beneficially and of
record by Buyer. Other than as set forth on Schedule 4.05 (i) there are no
existing options, warrants, rights, calls or commitments of any character
relating to shares of Buyer Common Stock , (ii) there are no outstanding
securities or other instruments convertible into or exchangeable for shares of
Buyer's capital stock and no commitments to issue such securities or instruments
and (iii) no Person has any right of first refusal, preemptive right,
subscription right or similar right with respect to any shares of Buyer's
capital stock. The offer, issuance and sale of the outstanding shares of Buyer
Common Stock and Buyer Preferred Stock were issued in compliance with the
registration and prospectus delivery requirements of the Securities Act (or
exemptions therefrom), the requirements of all applicable state securities laws,
and accomplished in conformity with all other Legal Requirements. Except as set
forth on Schedule 4.05, there are no voting agreements, voting trusts or similar
arrangements or understandings to which Buyer or any of its Subsidiaries is a
party or is bound with respect to the voting of the capital stock of Buyer or
its Subsidiaries. Except as set forth in Schedule 4.05, none of the awards,
grants or other agreements pursuant to which Buyer stock options or warrants
were issued have provisions which accelerate the vesting or right to exercise
such options or warrants upon the execution of this Agreement, the consummation
of the transactions contemplated by this Agreement or any "change of control"
events.
SECTION 4.06 BUYER REPORTS AND FINANCIAL STATEMENTS. Buyer has previously
furnished to the Company complete and accurate copies, as amended and
supplemented, of its (a) Annual Report on Form 10-K for its fiscal year ended
June 30, 1997, (b) Quarterly Reports on Form 10-Q for its fiscal quarters ended
September 30, 1997 and December 31, 1997, (c) Proxy Statement related to its
annual stockholders' meeting held on March 6, 1996, each as filed with the
Commission, and (d) all other reports filed by Buyer under Section 13 of the
Exchange Act with the Commission since June 30, 1997 (such reports are
collectively referred to herein as the "BUYER REPORTS"). The Buyer Reports
include all of the documents required to be filed by Buyer under the Exchange
Act with the Commission since June 30, 1997. As of their respective dates, the
Buyer Reports did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading. The audited financial statements and
unaudited interim financial statements of Buyer included in the Buyer Reports
(i) comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the Commission with
respect thereto, (ii) have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby (except as may be
indicated therein or in the notes thereto, and in the case of quarterly
financial statements, as permitted by Form 10-Q under the Exchange Act), (iii)
fairly present the consolidated financial condition, results of operations and
cash flows of Buyer and its Subsidiaries as of the respective dates thereof and
for the periods referred to therein subject, in the case of unaudited financial
statements, to normal, recurring year-end adjustments and any other adjustments
described therein, and (iv) are consistent with the books and records of Buyer.
SECTION 4.07 JUDGMENTS; LITIGATION. Except as set forth on Schedule 4.07:
(a) There is no (i) outstanding judgment, order, decree, award,
stipulation, injunction of any Governmental Entity or arbitrator against or
affecting Buyer or any of its Subsidiaries or their respective properties,
assets or businesses or (ii) Action pending against or affecting Buyer or
any of its Subsidiaries or their respective properties, assets or
businesses.
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(b) To Buyer's knowledge, there is no (i) outstanding judgment, order,
decree, award, stipulation, injunction of any Governmental Entity or
arbitrator against or affecting any officer, director or employee of Buyer
or any of its Subsidiaries relating to Buyer or any of its Subsidiaries or
their respective businesses, (ii) Action threatened against Buyer or any of
its Subsidiaries or their respective properties, assets or businesses, (iii)
Action pending or threatened against the officers, directors or employees of
Buyer or its Subsidiaries relating to Buyer or any of its Subsidiaries or
their respective businesses or (iv) basis for the institution of any Action
against Buyer or any of its Subsidiaries or any of their respective
officers, directors, employees, properties or assets which, if decided
adversely, would have a Material Adverse Effect on Buyer.
SECTION 4.08 EMPLOYEE BENEFIT MATTERS.
(a) Schedule 4.08(a) is a complete list of all Buyer Plans. True and
complete copies of each of the following documents (and any amendments
thereto), where applicable, have been delivered previously to the Company:
(i) the Buyer Plan documents; (ii) a written description of any Buyer Plan
which is not in writing; (iii) if the Buyer Plan is funded through a trust
or any third-party funding vehicle, the trust or other funding agreement;
(iv) the Buyer Plan's most recent financial statements; (v) the two most
recent annual reports (including all schedules and attachments thereto)
required by ERISA; (vi) the most recent actuarial report and valuation;
(vii) the most recent determination letter received from the IRS with
respect to each Buyer Plan that is intended to be qualified under Code
Section 401 or to be recognized as tax-exempt under Code Section 501(c);
(viii) the most recent summary plan description and each summary of material
modifications required by ERISA; (ix) any agreement providing for the
provision of administrative or investment management services with respect
to the Buyer Plan; and (x) all documents and correspondence received from or
provided to the Department of Labor, IRS, and Pension Benefit Guaranty
Corporation during the past two years.
(b) Each Buyer Plan and related trust, annuity, or other funding
agreement complies and has been maintained in compliance with all applicable
Legal Requirements. No non-exempt prohibited transaction (as defined in Code
Section 4975 and ERISA Sections 406 and 408) has occurred and no "fiduciary"
(as defined in ERISA Section 3(21)) has committed any breach of duty which
could subject Buyer, any Buyer ERISA Affiliate, or any director, officer, or
employee thereof to liability under Title I of ERISA or to tax under Code
Section 4975. All material obligations required to be performed by Buyer and
any other Person under the terms of each Buyer Plan and applicable Legal
Requirements have been performed.
(c) All required reports and descriptions, including, without
limitation, annual reports (Form 5500), summary annual reports, and summary
plan descriptions, have been filed and distributed timely. With respect to
each Buyer Plan which is a welfare plan (as defined in ERISA Section 3(1)),
the requirements of Part 6 of Subtitle B of Title I of ERISA and of Code
Sections 162(k) and 4980B have been satisfied.
(d) All contributions, premiums, and other payments, including, without
limitation, employer contributions and employee salary reduction
contributions, have been paid when due or accrued in accordance with the
past custom and practice of Buyer and any Buyer ERISA Affiliate. No Buyer
Plan that is subject to Part 3 of Subtitle B of Title I of ERISA or to Code
Section 412 has incurred any accumulated funding deficiency, whether or not
waived, and no other actual or contingent liability for any other expenses
or obligations of any Buyer Plan exists.
(e) There are no pending or, to Buyer's knowledge, threatened Actions
(other than routine claims for benefits) asserted or instituted against any
Buyer Plan or the assets of any Buyer Plan, or against Buyer, or any Buyer
ERISA Affiliate, trustee, administrator, or fiduciary of such Buyer Plan,
and Buyer has no knowledge of any facts that could form the basis of any
such Action.
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(f) Buyer (or, if applicable, a Buyer ERISA Affiliate) may terminate,
suspend, or amend each Buyer Plan at any time, except to the extent
otherwise required by Code Section 4980B, without the consent of the
participants or employees covered by such Buyer Plan. Neither the Company
nor any Buyer ERISA Affiliate has announced any intention, made any
amendment or binding commitment, or given any written or oral notice
providing that Buyer or a Buyer ERISA Affiliate (i) will create additional
Plans covering employees of Buyer or any Buyer ERISA Affiliate, (ii) will
increase benefits promised or provided pursuant to any Buyer Plan, or (iii)
will not exercise after the Closing Date any right or power it may have to
terminate, suspend, or amend any Buyer Plan.
(g) Neither Buyer nor any Buyer ERISA Affiliate maintains or has
maintained at any time, or contributes to or has contributed to or is or was
required to contribute to, any (i) Buyer Plan subject to Title IV of ERISA,
including, without limitation, any multi-employer plan (as defined in ERISA
Section 3(37)), within the past five years, or (ii) funded or unfunded
medical, health, accident, or life insurance plan or arrangement for current
or future retirees or terminated employees or their spouses or dependents
(except to the extent required by Code Sections 162(k) or 4980B).
(h) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will constitute a
termination of employment or other event entitling any Person to any
additional or other benefits, or that would otherwise modify benefits or the
vesting of benefits, provided under any Buyer Plan.
(i) No event has occurred which could subject Buyer or any Buyer ERISA
Affiliate to any material liability (i) under any Legal Requirement relating
to any Buyer Plan, or (ii) resulting from any obligation of Buyer or a Buyer
ERISA Affiliate to indemnify any Person against liability incurred with
respect to or in connection with any Buyer Plan.
(j) Each Buyer Plan which is intended to be qualified under Code Section
401 has received, within the last three years, a favorable determination
letter from the IRS. No event has occurred and no facts or circumstances
exist which may cause or result in the loss or revocation of such
determination.
(k) There are not unfunded liabilities with respect to any Buyer Plan,
and each Buyer Plan could be terminated as of the date of the Closing with
no liability to Buyer, the Company or any Buyer ERISA Affiliate.
(l) There are no agreements of Buyer or any of its Subsidiaries which
will or may provide payments to any officer, employee, shareholder, or
highly compensated individual of Buyer or any of its Subsidiaries which will
be "parachute payments" under Code Section 280G that are nondeductible to
Buyer or its Subsidiaries or subject to tax under Code Section 4999 for
which Buyer or any Buyer ERISA Affiliate would have withholding liability.
SECTION 4.09 INCOME AND OTHER TAXES. Except as set forth on Schedule 4.09:
(a) All Tax Returns required to be filed through and including the date
hereof in connection with the operations of Buyer are true, complete and
correct in all respects and have been properly and timely filed. Buyer has
not requested any extension of time within which to file any Tax Return,
which Tax Return has not since been filed. The Company has heretofore been
furnished by Buyer with true, correct and complete copies of each Tax Return
of Buyer with respect to the past three taxable years, and of all reports
of, and communications from, any Governmental Entities relating to such
period. Buyer has disclosed on its Federal income Tax Returns all positions
taken therein that could give rise to a substantial understatement of income
Taxes for federal income tax purposes within the meaning of Code Section
6662.
(b) All Taxes required to be paid or withheld and deposited through and
including the date hereof in connection with the operations of Buyer have
been duly and timely paid or deposited by
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Buyer. Buyer has properly withheld or collected all amounts required by law
for income Taxes, employment Taxes and withholding Taxes relating to its
employees, creditors, independent contractors and other third parties, and
for Taxes on sales, and has properly and timely remitted such withheld or
collected amounts to the appropriate Governmental Entity. Buyer has no
liabilities for any Taxes for any taxable period ending prior to or
coincident with the Closing Date.
(c) Buyer has made adequate provision on its books of account for all
Taxes with respect to its business, properties and operations through the
Buyer Balance Sheet Date, and the accruals for Taxes in the Buyer Balance
Sheet are adequate to cover all liabilities for Taxes of Buyer for all
periods ending on or before the Closing Date.
(d) Buyer has not heretofore (i) had a tax deficiency proposed, asserted
or assessed against it, (ii) executed any waiver of any statute of
limitations on the assessment or collection of any Taxes, or (iii) been
delinquent in the payment of any Taxes.
(e) No Tax Return of Buyer has been audited or the subject of other
Action by any Governmental Entity. Buyer has not received any notice from
any Governmental Entity of any pending examination or any proposed
deficiency, addition, assessment, demand for payment or adjustment relating
to or affecting Buyer or its assets or properties and Buyer has not any
reason to believe that any Governmental Entity may assess (or threaten to
assess) any Taxes for any periods ending on or prior to the Closing Date.
(f) Buyer (i) has not filed any consent or agreement pursuant to Code
Section 341(f), and no such consent or agreement will be filed at any time
on or before the Closing Date; (ii) has not made any payments, is not
obligated to make any payments and is not a party to any agreement that
under certain circumstances could obligate Buyer to make any payments that
will not be deductible under Code Section 280G; (iii) is not a United States
real property holding corporation within the meaning of Code Section
897(c)(2); (iv) is not a party to a tax allocation or sharing agreement; (v)
has never been (or does not have any liability for unpaid Taxes because it
was) a member of an affiliated group with the meaning of Code Section
1504(a); (vi) has never applied for a tax ruling from a Governmental Entity;
(vii) has never filed or been the subject of an election under Code Section
338(g) or Code Section 338(h)(10) or caused or been the subject of a deemed
election under Code Section 338(e); (viii) has not participated in, or
cooperated with, an international boycott within the meaning of Section 999
of the Code; and (ix) has not issued or assumed any acquisition indebtedness
as defined in Section 279(b) of the Code.
(g) Set forth on Schedule 4.09(g) is the amount, as of the most recent
practicable date, of any net operating loss, net capital loss, unused
investment or other credit, unused foreign tax or excess charitable
contribution.
SECTION 4.10 HAZARDOUS MATERIALS. Except as set forth on Schedule 4.10:
(a) To Buyer's knowledge, no Hazardous Material (i) has been released,
placed, stored, generated, used, manufactured, treated, deposited, spilled,
discharged, released or disposed of on or under any real property currently
or previously owned or leased by Buyer or any of its Subsidiaries, (ii) is
presently maintained, used, generated, or permitted to remain in place by
Buyer or any of its Subsidiaries in violation of any Environmental Law,
(iii) is required by any Environmental Law to be eliminated, removed,
treated or mitigated by Buyer or any of its Subsidiaries, given the nature
of its present condition, location, nature, material or maintenance, or (iv)
is of a type, location, material, nature or condition which requires special
notification to third parties by Buyer or any of its Subsidiaries under
Environmental Law or common law, in any of such cases which would have a
Material Adverse Effect on Buyer.
(b) No notice, citation, summons or order has been received by Buyer or
any of its Subsidiaries, no notice has been given by Buyer or any of its
Subsidiaries and no complaint has been filed, no
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penalty has been assessed and no investigation or review is pending or, to
Buyer's knowledge, threatened by any Governmental Entity, with respect to
(i) any alleged violation by Buyer or any of its Subsidiaries of any
Environmental Law or (ii) any alleged failure by Buyer or any of its
Subsidiaries to have any environmental permit, certificate, license,
approval, registration or authorization required in connection with its
business or properties, or (iii) any use, possession, generation, treatment,
storage, recycling, transportation, release or disposal by or on behalf of
Buyer or any of its Subsidiaries of any Hazardous Material.
(c) Neither Buyer nor any of its Subsidiaries has received any request
for information, notice of claim, demand or notification that it is or that
indicates that it may be a "potentially responsible party" with respect to
any investigation or remediation of any threatened or actual release of any
Hazardous Material.
(d) No above-ground or underground storage tanks, whether or not in use,
are or have ever been located at any property currently owned or leased by
Buyer or any of its Subsidiaries.
(e) No notice has been received by Buyer or any of its Subsidiaries with
respect to the listing or proposed listing of any property currently or
previously owned, operated or leased by Buyer or any of its Subsidiaries on
the National Priorities List promulgated pursuant to CERCLA, CERCLIS or any
similar state list of sites requiring investigation or cleanup.
(f) There have been no environmental inspections, investigations,
studies, tests, reviews or other analyses conducted in relation to any real
property currently owned or leased by Buyer or any of its Subsidiaries.
(g) Neither Buyer nor any of its Subsidiaries has released, transported,
or arranged for the transportation of any Hazardous Material from any
property currently or previously owned, operated or leased by Buyer or any
of its Subsidiaries.
SECTION 4.11 ACCOUNTS RECEIVABLE. All accounts receivable of Buyer
reflected in the Buyer Balance Sheet and all accounts receivable of Buyer that
have arisen since the Buyer Balance Sheet Date (except such accounts receivable
as have been collected since such dates) are valid and enforceable claims
against the account debtor, and the goods and services sold and delivered that
gave rise to such accounts were sold and delivered in conformity with all
applicable express and implied warranties, purchase orders, agreements and
specifications. Such accounts receivable of Buyer are subject to no valid
defense, offset or counterclaim and are fully collectible in the Ordinary
Course, except to the extent of the allowance for doubtful accounts reflected on
the Buyer Balance Sheet.
SECTION 4.12 MATERIAL CONTRACTS. All material contracts, leases,
agreements and arrangements to which Buyer or any of its Subsidiaries is a party
are legally valid, binding and enforceable in accordance with their terms and in
full force and effect, and Buyer has provided the Company with the opportunity
to review and copy all such documents. Buyer and, to the knowledge of Buyer, all
parties to such contracts, leases, agreements and arrangements have complied
with the provisions of such contracts, leases, agreements and arrangements, and
neither Buyer nor its Subsidiaries is and, to the knowledge of Buyer, no other
party is, in default thereunder, and no event has occurred which, but for the
passage of time or the giving of notice or both, would constitute a default
thereunder. Set forth on Schedule 4.12 is a list of all such material contracts,
leases, agreements and arrangements, including those contracts to which Buyer or
any of its Subsidiaries is a party which cannot be terminated or do not
terminate within 12 months or less without cause or obligate Buyer or any of its
Subsidiaries for amounts in excess of $50,000.00. Except as set forth on
Schedule 4.12, none of such contracts or agreements will, by its terms,
terminate as a result of the transactions contemplated hereby or require any
consent from any obligor thereto in order to remain in full force and effect
immediately after the Effective Time.
SECTION 4.13 NO UNDISCLOSED LIABILITIES. Except (i) to the extent set
forth or provided for in the audited financial statements and unaudited interim
financial statements of Buyer included in the Buyer
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Reports, (ii) as set forth on Schedule 4.13 or (iii) for non-material current
liabilities incurred since December 31, 1997 in the Ordinary Course, as of the
date hereof the Buyer and its Subsidiaries have no liabilities, whether accrued,
absolute, contingent or otherwise, whether due or to become due and whether the
amounts thereof are readily ascertainable or not, or any unrealized or
anticipated losses from any commitments of a contractual nature.
SECTION 4.14 CONSENTS. No consent, approval, authorization, license,
permit or other action by, or filing with, any governmental or regulatory
authority is required in connection with the execution and delivery of this
Agreement by Buyer or the consummation by Buyer of the transactions contemplated
hereby, except for such consents, approvals, authorizations, licenses, permits,
actions or filings as will have been obtained, taken or filed at or prior to the
Closing.
SECTION 4.15 ABSENCE OF CERTAIN CHANGES. Since the Buyer Balance Sheet
Date, neither Buyer nor any of its Subsidiaries has made or suffered any change
in, or condition affecting, their respective condition (financial or otherwise),
properties, profitability, prospects or operations other than changes, events or
conditions in the Ordinary Course, none of which (individually or in the
aggregate) has had, or which Buyer can now reasonably foresee will have, a
Material Adverse Effect on Buyer.
SECTION 4.16 BROKERS' FEES. Except as disclosed on Schedule 4.16, no
broker, finder or similar agent has been employed by or on behalf of Buyer in
connection with this Agreement or the transactions contemplated hereby, and
Buyer has not entered into any agreement or understanding of any kind with any
person or entity for the payment of any brokerage commission, finder's fee or
any similar compensation in connection with this Agreement or the transactions
contemplated hereby.
SECTION 4.17 COMPLIANCE WITH LAW. Buyer is in compliance in all material
respects with all Legal Requirements in connection with the operation of its
business and the ownership and maintenance of its assets and properties. To
Buyer's knowledge, all filings and notices required to be made by Buyer with any
Governmental Entity in connection with the operation of its business or the
ownership and maintenance of its assets or properties have been made or given in
a timely fashion.
SECTION 4.18 CUSTOMERS. Schedule 4.18 lists the 10 largest customers of
Buyer and its Subsidiaries for the 12 months ended December 31, 1997, and sets
forth opposite each name the percentage of total consolidated revenues
attributable to such customer for such year. Except as set forth on Schedule
4.18, no such customer has terminated, or to Buyer's knowledge, threatened to
terminate, its relationship with Buyer or its Subsidiaries, and Buyer believes
its relationship with such customers is good.
SECTION 4.19 SEVERANCE ARRANGEMENTS. Except as set forth on Schedule 4.19,
neither Buyer nor its Subsidiaries is subject to any agreement with any employee
(i) the benefits of which (including severance benefits) are contingent, or the
terms of which are materially altered, upon the occurrence of a transaction of
the nature of that contemplated by this Agreement or the Merger, or (ii)
providing for severance benefits beyond those described in Schedule 4.19, or
which are conditioned upon a change in control of Buyer, after the termination
of employment of such employee regardless of the reason for such termination of
employment, and neither Buyer nor its Subsidiaries is a party to any employment
agreement or compensation guarantee for a period longer than one year from the
date hereof. Schedule 4.19 sets forth all employment agreements and compensation
guarantees, regardless of duration, to which Buyer or any of its Subsidiaries is
a party.
SECTION 4.20 DISCLOSURE. Except as set forth on Schedule 4.20, no
representation or warranty of Buyer in this Agreement and no information
contained in any Schedule or other writing delivered by Buyer pursuant to this
Agreement or at the Closing contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact required to make
the statements herein or therein not misleading. There is no fact that Buyer has
not disclosed to the Company in writing that has had or, insofar as Buyer can
now foresee, may have a material adverse effect on the ability of Buyer to
perform fully this Agreement.
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ARTICLE V
PREPARATION OF PROXY STATEMENT AND
REGISTRATION OF MERGER SHARES
SECTION 5.01 REGISTRATION STATEMENT. The Company and Buyer, as promptly as
practicable, shall prepare, and Buyer shall file with the Commission, a
registration statement under the Securities Act, on Form S-4, registering the
offer and sale of the Merger Shares, the Additional Shares and the Warrant
Shares, which shall include the Proxy Statement/Prospectus (defined below)
relating to the offer and sale of the shares of Buyer Common Stock which
complies in form with applicable Commission requirements (such registration
statement, as the same may be amended or supplemented, being referred to herein
as the "REGISTRATION STATEMENT"), and the Company and Buyer shall use
commercially reasonable efforts to cause the Registration Statement to become
effective as soon as practicable after the receipt of final comments from the
Commission thereon. As soon as practicable after the execution of this
Agreement, Buyer, with the cooperation of the Company, shall prepare a
Prospectus, Notice of Meeting of Stockholders and Proxy Statement (collectively,
the "PROXY STATEMENT/PROSPECTUS") for the shareholders of Buyer and the Company
in connection with their approval of the Merger, the adoption of this Agreement,
the approval of any other matters required to be approved by them in accordance
with the terms of this Agreement, and the issuance of the Merger Shares, the
Additional Shares and the Warrant Shares. The Proxy Statement/Prospectus shall
include a proposal to Buyer's stockholders to amend Buyer's certificate of
incorporation to (i) change its name to a name to be agreed upon by Buyer and
the Company, and (ii) provide for a staggered board of directors consisting of
three classes, with the Class I directors to serve for an initial one-year term,
the Class II directors for an initial two-year term, and the Class III directors
for an initial three-year term, and each director, after his or her initial
term, to serve for successive three-year terms. The Proxy Statement/Prospectus
shall constitute a disclosure document for the offer and sale of the shares of
Buyer Common Stock to be received by the Shareholders pursuant to the Merger.
The Company shall furnish to Buyer all information concerning the Company and
the Shareholders and take such other actions as may be reasonably requested by
Buyer in connection with any action contemplated by this Section 5.01.
Notwithstanding the foregoing, the Proxy Statement/Prospectus may be filed as
preliminary proxy material pursuant to Rule 14a-6 under the Exchange Act until
such time as Buyer and the Company shall have responded to all comments of the
Commission thereon, at which time the Proxy Statement/Prospectus shall be filed
as part of the Registration Statement pursuant to the Securities Act.
SECTION 5.02 PREPARATION OF REGISTRATION STATEMENT.
(a) Each of Buyer and Company agrees to provide promptly to the other
such information concerning its business and financial statements and
affairs as, in the reasonable judgment of the providing party or its
counsel, may be required or appropriate for inclusion in the Registration
Statement, or in any amendments or supplements thereto, and to cause its
counsel and auditors to cooperate with the other party's counsel and
auditors in the preparation of the Registration Statement. Buyer and Company
shall each use their commercially reasonable efforts to cause the
Registration Statement to comply with applicable federal and state
securities laws requirements. The Company will promptly advise Buyer, and
Buyer will promptly advise the Company, in writing if at any time prior to
the Effective Time either the Company or Buyer shall obtain knowledge of any
facts that might make it necessary or appropriate to amend or supplement the
Registration Statement in order to make the statements contained or
incorporated by reference therein not misleading or to comply with
applicable law. The Registration Statement shall contain the recommendation
of the board of directors of Buyer that the shareholders of Buyer approve
the Merger and the adoption of this Agreement and the conclusion of the
board of directors of Buyer, based in part on its reliance on the fairness
opinion referred to in Section 6.02(e), that the terms and conditions of the
Merger are fair and reasonable to the shareholders of Buyer from a financial
point of view.
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(b) None of the information supplied or to be supplied by or on behalf
of the Company, for inclusion in the Registration Statement, will, at the
date such information is supplied and, as thereafter amended or
supplemented, contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein,
in light of the circumstances under which they are made, not misleading or,
as thereafter amended or supplemented, will at the time the Registration
Statement becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading.
(c) None of the information supplied or to be supplied by or on behalf
of Buyer, for inclusion in the Registration Statement, will, at the date
such information is supplied and, as thereafter amended or supplemented,
contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading or, as
thereafter amended or supplemented, will at the time the Registration
Statement becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading.
SECTION 5.03 REGISTRATION OF SHARES UNDER STOCK OPTION PLAN. Prior to the
Closing Date, the Board of Directors of Buyer shall adopt a 1998 Stock Option
and Restricted Stock Option Plan and, prior to the Effective Time, shall cause
such plan to be submitted to the stockholders of Buyer for their approval. All
options to purchase shares of Buyer Common Stock issued in exchange for Plan
Options pursuant to Section 2.06(b) shall be issued under such newly adopted
plan. As soon as practicable after the Effective Time, Buyer shall register on a
Form S-8 registration statement under the Securities Act the shares of Buyer
Common Stock which are authorized for issuance under such newly adopted plan, as
contemplated by Section 6.03(i).
ARTICLE VI
CONDITIONS TO CONSUMMATION OF MERGER
SECTION 6.01 CONDITIONS TO EACH PARTY'S OBLIGATIONS. Notwithstanding any
other provision of this Agreement, the obligations of each party hereto to
consummate the Merger and the other transactions contemplated hereby shall be
subject to the satisfaction, at or prior to the Closing Date, of the following
conditions:
(a) The holders of shares of Buyer Common Stock and the Shareholders
each shall have approved the adoption of this Agreement and any other
matters required by be approved by them by requisite vote under applicable
Legal Requirements and Exchange or NASDAQ rules, and in accordance with the
terms of this Agreement.
(b) The number of Dissenters' Shares shall not exceed five percent (5%)
of the aggregate number of issued and outstanding shares of Common Stock as
of the Effective Time.
(c) Any Person required in connection with the transactions contemplated
hereby to file a notification and report form in compliance with the HSR Act
shall have filed such form and the applicable waiting period with respect to
each such form (including any extension thereof by reason of a request for
additional information) shall have expired or been terminated.
(d) No Governmental Entity (including a federal or state court) of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, injunction
or other order (whether temporary, preliminary or permanent) which is in
effect
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and which prevents or prohibits consummation of the Merger or any material
transaction contemplated by this Agreement; PROVIDED, HOWEVER, that the
parties shall use their reasonable efforts to cause any such order, decree,
judgment, injunction or other order to be vacated or lifted.
(e) Buyer shall have received all material permits and other
authorizations, if any, required under applicable securities laws for the
issuance of the Merger Shares.
(f) The Registration Statement shall have been declared effective in
accordance with the provisions of the Securities Act, and no stop order
suspending such effectiveness shall have been issued and remain in effect.
(g) All authorizations, consents, waivers and approvals by or from third
parties required for the consummation of the transactions contemplated
hereby shall have been obtained.
(h) Buyer, the Escrow Agent and the Representative shall have executed
and delivered the Escrow Agreement.
(i) Thayer Equity Investors III, L.P., ITC Services Company, Edward
Blank, The Edward Blank 1995 Grantor Retained Annuity Trust, Codinvest
Limited, Michael G. Santry and Darryl D. Pounds shall have entered into the
Shareholders Agreement.
SECTION 6.02 CONDITIONS TO OBLIGATIONS OF BUYER AND NEWCO. Notwithstanding
any other provision of this Agreement, the obligations of Buyer and Newco to
consummate the Merger and the other transactions contemplated hereby shall be
subject to the satisfaction, at or prior to the Closing Date, of the following
conditions:
(a) The representations and warranties of the Company in this Agreement
shall be true and correct in all material respects on and as of the Closing
Date with the same effect as if made on the Closing Date and the Company
shall have complied with all covenants and agreements and satisfied all
conditions on the Company's part, as applicable, to be performed or
satisfied on or prior to the Closing Date.
(b) Buyer shall have received from Paul, Hastings, Janofsky & Walker
LLP, counsel for the Company, a written opinion dated the Closing Date and
addressed to Buyer and Newco, in substantially the form attached as Annex B
hereto;
(c) Buyer shall have received the following under cover of a certificate
of Secretary of the Company dated the Closing Date in substantially the form
attached as Annex C hereto:
(i) Copies of resolutions of (A) the board of directors of the
Company authorizing and approving the execution, delivery and performance
of this Agreement and all other documents and instruments to be delivered
by the Company pursuant hereto and thereto, and (B) the Shareholders
evidencing the approval of the Merger and the adoption of this Agreement;
(ii) A certificate of incumbency certifying the names, titles and
signatures of the officers authorized to execute the documents referred
to in subparagraph (i) above and further certifying that the Certificate
of Incorporation and Bylaws of the Company delivered to Buyer at the time
of, or prior to, the execution of this Agreement have been validly
adopted and have not been amended or modified; and
(iii) Such additional supporting documentation and other information
with respect to the transactions contemplated hereby as Buyer or its
counsel may reasonably request.
(d) Buyer shall have received a certificate of the President of the
Company in substantially the form attached as Annex D hereto.
(e) Buyer shall have received a fairness opinion from CIBC Oppenheimer
Corp., financial advisor to Buyer, addressed to the board of directors of
Buyer to the effect that the Exchange Ratio is
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fair to the shareholders of Buyer from a financial point of view, and such
fairness opinion shall not have been withdrawn prior to the Closing Date.
(f) Buyer shall have received the resignations, effective as of the
Effective Time, of each of the directors of the Company.
(g) No act, event or condition shall have occurred after the date hereof
which Buyer determines has had or could reasonably be expected to have a
Material Adverse Effect on the Company.
(h) Buyer shall have received from Hughes & Luce, L.L.P., counsel for
Buyer, a written opinion, in form and substance reasonably satisfactory to
Buyer, dated as of the Effective Time, substantially to the effect that the
Merger will constitute a reorganization within the meaning of Section 368(a)
of the Code and that, accordingly, no gain or loss will be recognized by the
Company, Buyer or Newco as a result of the Merger.
(i) The Company and TC Management L.L.C. shall have terminated that
certain Management and Consulting Agreement between them.
(j) Up to $2.0 million in financial accommodations contemplated by the
Commitment Letter shall have been rendered.
SECTION 6.03 CONDITIONS TO OBLIGATIONS OF THE COMPANY. Notwithstanding any
other provision of this Agreement, the obligations of the Company to consummate
the Merger and the other transactions contemplated hereby shall be subject to
the satisfaction, at or prior to the Closing Date, of the following conditions:
(a) The representations and warranties of Buyer in this Agreement shall
be true and correct in all material respects on and as of the Closing Date
with the same effect as if made on the Closing Date, and Buyer shall have
complied with all covenants and agreements and satisfied all conditions on
its part to be performed or satisfied on or prior to the Closing Date.
(b) The Company shall have received from Hughes & Luce, LLP, counsel for
Buyer and Newco, a written opinion dated the Closing Date and addressed to
the Company, in substantially the form attached as Annex E hereto.
(c) The Company shall have received the following under cover of a
certificate of the Secretary of Buyer dated the Closing Date in
substantially the form attached as Annex F hereto:
(i) Copies of resolutions of (A) the Board of Directors of Buyer
authorizing and approving the execution, delivery and performance of this
Agreement and all other documents and instruments to be delivered by
Buyer pursuant hereto and thereto, and (B) the stockholders of Buyer
evidencing the approval of the Merger and the adoption of this Agreement;
(ii) A certificate of incumbency certifying the names, titles and
signatures of the officers authorized to execute the documents referred
to in subparagraph (i) above and further certifying that the Certificate
of Incorporation and Bylaws of Buyer delivered to the Company at the time
of, or prior to, the execution of this Agreement have been validly
adopted and have not been amended or modified; and
(iii) Such additional supporting documentation and other information
with respect to the transactions contemplated hereby as the Company or
its counsel may reasonably request.
(d) The Company shall have received from Paul, Hastings, Janofsky &
Walker LLP, counsel for the Company, a written opinion, in form and
substance reasonably satisfactory to the Company, dated as of the Effective
Time, substantially to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code and that,
accordingly, no gain or loss will be recognized by the Company or the
Shareholders as a result of the Merger.
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(e) The Company shall have received a certificate of the President of
Buyer in substantially the form attached as Annex G hereto.
(f) The Company shall have received the following under cover of a
certificate of the Secretary of Newco dated the Closing Date in
substantially the form attached as Annex H hereto:
(i) Copies of resolutions of (A) the Board of Directors of Newco
authorizing and approving the execution, delivery and performance of this
Agreement and all other documents and instruments to be delivered by
Newco pursuant hereto and thereto, and (B) the shareholder of Newco
evidencing the approval of the Merger and the adoption of this Agreement;
(ii) A certificate of incumbency certifying the names, titles and
signatures of the officers authorized to execute the documents referred
to in subparagraph (i) above and further certifying that the Certificate
of Incorporation and Bylaws of Newco delivered to the Company at the time
of, or prior to, the execution of this Agreement have been validly
adopted and have not been amended or modified; and
(iii) Such additional supporting documentation and other information
with respect to the transactions contemplated hereby as the Company or
its counsel may reasonably request.
(g) The Company shall have received a certificate of the President of
Newco in substantially the form attached as Annex I hereto.
(h) The Certificate of Incorporation of Buyer shall have been amended to
increase the number of authorized shares of Buyer Common Stock in an amount
sufficient to enable Buyer to consummate the transactions contemplated by
this Agreement, including without limitation the issuance of the Merger
Shares, the Exchanged Option Shares and the Exchanged Warrant Shares.
(i) Buyer shall have adopted a 1998 Stock Option and Restricted Stock
Option Plan with the number of shares of Buyer Common Stock available
thereunder in an amount sufficient to provide for the issuance of the
Exchanged Option Shares.
(j) No act, event or condition shall have occurred after the date hereof
which the Company determines has had or could reasonably be expected to have
a Material Adverse Effect on Buyer.
(k) The Merger Shares shall have been authorized for listing on the
NASDAQ National Market upon official notice of issuance.
(l) Michael G. Santry shall have made a payment of not less than
one-half of the principal, together with all accrued and unpaid interest,
under the terms of that certain promissory note dated September 16, 1997
made by Michael G. Santry in favor or Buyer, as amended by that certain
Letter Agreement dated as of the date hereof.
ARTICLE VII
CONDUCT OF BUSINESS PENDING CLOSING
During the period commencing on the date hereof and continuing through the
Closing Date, each of the Company and Buyer covenants and agrees (except as
expressly contemplated by this Agreement or to the extent that the other party
shall otherwise expressly consent in writing) that:
SECTION 7.01 QUALIFICATION. It and each of its Subsidiaries will use its
commercially reasonable efforts to maintain all qualifications to transact
business and remain in good standing in the foreign jurisdictions in which it
owns or leases any property, or conducts any business, so as to require such
qualification, and in which the failure to be so qualified and be in good
standing would have a Material Adverse Effect.
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SECTION 7.02 ORDINARY COURSE. It and each of its Subsidiaries will use
commercially reasonable efforts to conduct its business in, and only in, the
Ordinary Course and shall preserve intact its current business organizations,
keep available the services of its current officers and employees and preserve
its relationships with customers, suppliers and others having business dealings
with it to the end that its goodwill and going business value shall be
unimpaired at the Closing Date, and it and each of its Subsidiaries will use its
commercially reasonable efforts to maintain its properties and assets in good
condition and repair.
SECTION 7.03 ORGANIC CHANGES. It and each of its Subsidiaries will not (a)
amend its Certificate of Incorporation or Bylaws (or equivalent documents), (b)
acquire by merging or consolidating with, or agreeing to merge or consolidate
with, or purchase substantially all of the stock or assets of, or otherwise
acquire any business or any corporation, partnership, association or other
business organization or division thereof, (c) enter into any partnership or
joint venture, (d) declare, set aside, make or pay any dividend or other
distribution in respect of its capital stock or purchase or redeem, directly or
indirectly, any shares of its capital stock, (e) issue or sell any shares of its
capital stock of any class or any options, warrants, conversion or other rights
to purchase any such shares or any securities convertible into or exchangeable
for such shares except in connection with Ordinary Course option exercises under
existing employee stock option plans, or (f) liquidate or dissolve or obligate
itself to do; PROVIDED, HOWEVER, that Buyer may amend its Certificate of
Incorporation to increase the number of authorized shares of Buyer Common Stock
in order to enable Buyer to consummate the transactions contemplated by this
Agreement.
SECTION 7.04 INDEBTEDNESS. Other than in the Ordinary Course, it and each
of its Subsidiaries will not incur any Indebtedness, sell any debt securities,
lend money to or guarantee the Indebtedness of any Person or restructure or
refinance its existing Indebtedness.
SECTION 7.05 ACCOUNTING. It and each of its Subsidiaries will not make any
change in the accounting principles, methods, records or practices followed by
it or depreciation or amortization policies or rates theretofore adopted by it,
and it and each of its Subsidiaries will maintain its books, records and
accounts in accordance with GAAP.
SECTION 7.06 COMPLIANCE WITH LEGAL REQUIREMENTS. It and each of its
Subsidiaries will comply promptly in all material respects with all requirements
that applicable law may impose upon it and its operations and with respect to
the transactions contemplated by this Agreement, and will cooperate promptly
with, and furnish information to, the other parties in connection with any such
requirements imposed upon such other party, or upon any of its affiliates, in
connection therewith or herewith.
SECTION 7.07 DISPOSITION OF ASSETS. It and each of its Subsidiaries will
not sell, transfer, license, lease or otherwise dispose of, or suffer or cause
the encumbrance by any Lien (other than Permitted Liens) upon any of, its
properties or assets, tangible or intangible, or any interest therein, except in
the Ordinary Course.
SECTION 7.08 COMPENSATION. It and each of its Subsidiaries will not (a)
adopt or amend in any material respect any collective bargaining, bonus,
profit-sharing, compensation, stock option, pension, retirement, deferred
compensation, employment or other plan, agreement, trust, fund or arrangement
for the benefit of employees (whether or not legally binding) other than to
comply with any Legal Requirement or (b) pay, or make any accrual or arrangement
for payment of, any increase in compensation, bonuses or special compensation of
any kind, or any severance or termination pay to, or enter into any employment
or loan or loan guarantee agreement with, any of its current or former officers,
directors, employees or consultants.
SECTION 7.09 MODIFICATION OR BREACH OF AGREEMENTS; NEW AGREEMENTS. It and
each of its Subsidiaries will not terminate or modify, or commit or cause or
suffer to be committed any act that will result in breach or violation of any
term of, or (with or without notice or passage of time, or both) constitute a
default under or otherwise give any person a basis for nonperformance under, any
indenture, mortgage,
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deed of trust, loan or credit agreement, lease, license or other material
agreement, instrument, arrangement or understanding, written or oral, and it and
each of its Subsidiaries will refrain from becoming a party to any contract or
commitment other than in the Ordinary Course and will meet all of its
contractual obligations in accordance with their respective terms.
SECTION 7.10 CAPITAL EXPENDITURES. Except for capital expenditures in an
amount of which shall not exceed $3.5 million in the aggregate for the Company
and its Subsidiaries and which shall not exceed $750,000 in the aggregate for
Buyer and its Subsidiaries, it and each of its Subsidiaries will not purchase or
enter into any contract to purchase any capital assets.
SECTION 7.11 MAINTAIN INSURANCE. It will use its commercially reasonable
efforts to maintain its insurance policies and bonds and self insurance
arrangements in full force and effect.
SECTION 7.12 DISCHARGE. It and each of its Subsidiaries will not cancel,
compromise, release or discharge any material claim of such party upon or
against any person or waive any of its rights of material value, and will not
discharge any Lien (other than Permitted Liens) upon any of its material assets
or compromise any of its debts or other obligations to any person other than
Liens, debts or obligations with respect to its current liabilities.
SECTION 7.13 ACTIONS. It and each of its Subsidiaries will not institute,
settle or agree to settle any Action before any Governmental Entity.
SECTION 7.14 PERMITS. It and each of its Subsidiaries will maintain in
full force and effect, and comply with, all franchises, licenses, permits,
certificates, authorizations, rights and other approvals of Governmental
Entities necessary to conduct its business as currently conducted or proposed to
be conducted, the loss of which would have a Material Adverse Effect.
SECTION 7.15 TAX ASSESSMENTS AND AUDITS. It and each of its Subsidiaries
will furnish promptly to each of the other parties a copy of all notices of
proposed assessment or similar notices or reports that are received from any
taxing authority and which relate to its operations for periods ending on or
prior to the Closing Date.
ARTICLE VIII
ADDITIONAL COVENANTS
SECTION 8.01 COVENANTS OF THE COMPANY. During the period commencing on the
date hereof and continuing through the Closing Date, the Company (on behalf of
its and, where applicable, its Subsidiaries) agrees to:
(a) comply promptly with all requirements that applicable Legal
Requirements may impose upon it with respect to the transactions
contemplated by this Agreement, and shall cooperate promptly with, and
furnish information to, Buyer in connection with any such requirements
imposed upon Buyer or upon any of its affiliates in connection therewith or
herewith;
(b) use its commercially reasonable efforts to obtain (and to cooperate
with Buyer in obtaining) any consent, authorization or approval of, or
exemption by, any Person required to be obtained or made by the Company in
connection with the transactions contemplated by this Agreement;
(c) use its commercially reasonable efforts to bring about the
satisfaction of the conditions precedent to Closing set forth in Sections
6.01 and 6.02 of this Agreement;
(d) promptly advise Buyer orally and, within three business days
thereafter, in writing of any change in the Company's business or condition
that has had or may have a Material Adverse Effect on the Company; and
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(e) deliver to Buyer prior to the Closing a written statement disclosing
any untrue statement in this Agreement or any Schedule hereto (or supplement
thereto) or document furnished pursuant hereto, or any omission to state any
material fact required to make the statements herein or therein contained
complete and not misleading, promptly upon the discovery of such untrue
statement or omission, accompanied by a written supplement to any Schedule
to this Agreement that may be affected thereby; PROVIDED, HOWEVER, that the
disclosure of such untrue statement or omission shall not prevent Buyer from
terminating this Agreement pursuant to Section 9.01(g) hereof at any time at
or prior to the Closing in respect of any original untrue or misleading
statement.
SECTION 8.02 COVENANTS OF BUYER. During the period commencing on the date
hereof and continuing through the Closing Date, Buyer (on behalf of itself and,
where applicable, its Subsidiaries) agrees to:
(a) comply promptly with all requirements that applicable Legal
Requirements may impose upon it with respect to the transactions
contemplated by this Agreement, and shall cooperate promptly with, and
furnish information to, the Company in connection with any such requirements
imposed upon the Company or upon any of the Affiliates of the Company in
connection therewith or herewith;
(b) use its commercially reasonable efforts to obtain (and to cooperate
with the Company in obtaining) any consent, authorization or approval of, or
exemption by, any Person required to be obtained or made by Buyer in
connection with the transactions contemplated by this Agreement;
(c) use its commercially reasonable efforts to bring about the
satisfaction of the conditions precedent to Closing set forth in Sections
6.01 and 6.03 of this Agreement;
(d) promptly advise the Company orally and, within three business days
thereafter, in writing of any change in Buyer's business or condition that
has had or may have a Material Adverse Effect on Buyer; and
(e) deliver to the Company prior to the Closing a written statement
disclosing any untrue statement in this Agreement or any Schedule hereto (or
supplement thereto) or document furnished pursuant hereto, or any omission
to state any material fact required to make the statements herein or therein
contained complete and not misleading, promptly upon the discovery of such
untrue statement or omission, accompanied by a written supplement to any
Schedule to this Agreement that may be affected thereby; provided, however,
that the disclosure of such untrue statement or omission shall not prevent
the Company from terminating this Agreement pursuant to Section 9.01(h)
hereof at any time at or prior to the Closing in respect of any original
untrue or misleading statement.
SECTION 8.03 ACCESS AND INFORMATION; CONFIDENTIALITY.
(a) Between the date hereof and the Closing Date, (i) the Company will
permit, and will cause the Company's officers, directors, key employees and
advisors to permit, Buyer and its representatives and agents reasonable
access to the Company's books and records, facilities, key personnel,
customers, suppliers, independent accountants and attorneys, as requested by
Buyer; and (ii) Buyer will permit, and will cause Buyer's officers,
directors, key employees and advisors to permit, the Company and its
representatives and agents reasonable access to the books and records,
facilities, key personnel, customers, suppliers, independent accountants and
attorneys, as requested by the Company.
(b) The Confidentiality Agreement dated April 30, 1997 and entered into
by the Company and Buyer (the "CONFIDENTIALITY AGREEMENT") shall survive the
execution and delivery of this Agreement.
SECTION 8.04 EXPENSES. Except as otherwise specifically provided herein,
each party to this Agreement shall bear its own direct and indirect expenses
incurred in connection with the negotiation and preparation of this Agreement
and the consummation and performance of the transactions contemplated hereby,
including, without limitation, all legal fees and fees of any brokers, finders
or similar agents;
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PROVIDED, HOWEVER, that any fees payable to any Governmental Entity in
connection with the transactions contemplated hereby (including, without
limitation, any fee to be paid by an "acquiring person" under the HSR Act and
any filing fees paid to the Commission in connection with the Proxy
Statement/Prospectus or Registration Statement) shall be paid one-half by the
Company and one-half by Buyer.
SECTION 8.05 CERTAIN NOTIFICATIONS. At all times from the date hereof to
the Closing Date, each party shall promptly notify the others in writing of the
occurrence of any event that will or may (i) render any statement,
representation or warranty of such party in this Agreement (including the
Schedules hereto) inaccurate or incomplete in any material respect or (ii)
constitute or result in the breach by such party of, or a failure to comply
with, any agreement or covenant in this Agreement applicable to such party or
(iii) result in the failure by such party to satisfy any of the conditions
specified in Article VI hereof.
SECTION 8.06 PUBLICITY; EMPLOYEE COMMUNICATIONS. At all times prior to the
Closing Date, each party shall obtain the prior consent of the other parties
hereto prior to making, or permitting its directors, officers, partners,
employees, representatives and agents to make, any public statement or press
release with respect to the transactions contemplated hereby or otherwise
disclose to any person or entity the existence, terms, content or effect of this
Agreement; PROVIDED, HOWEVER, that no party shall be prohibited from supplying
any information to any of its representatives, agents, attorneys, advisors,
financing sources and others to the extent necessary to complete the
transactions contemplated hereby so long as such representatives, agents,
attorneys, advisors, financing sources and others are made aware of and agree to
be bound by the terms of this Section 8.06; provided, further, that if, upon
advice of counsel, a disclosure is required by law, the party required to make
such disclosure shall be permitted to make such disclosure but shall make a good
faith effort to consult with the other parties hereto before making the required
disclosure. Nothing contained in this Agreement shall prevent any party to this
Agreement at any time from furnishing any required information to any
Governmental Entity or authority pursuant to a Legal Requirement or from
complying with its legal or contractual obligations.
SECTION 8.07 FURTHER ASSURANCES.
(a) Subject to the terms and conditions of this Agreement, each of the
parties hereto agrees to use all reasonable efforts to take, or cause to be
taken, all action, and to do, or cause to be done, all things necessary,
proper or advisable under applicable Legal Requirements, to consummate and
make effective the transactions contemplated by this Agreement.
(b) If at any time after the Closing any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers
or directors of the Company, Buyer or Newco, as the case may be, shall take
or cause to be taken all such necessary or convenient action and execute,
and deliver and file, or cause to be executed, delivered and filed, all
necessary or convenient documentation.
SECTION 8.08 COMPETING OFFERS; MERGER OR LIQUIDATION. Each of the Company
and Buyer agrees it will not, and it shall use its best efforts to cause its
Affiliates and each of its officers, directors, employees, representatives and
agents not to, directly or indirectly, (a) encourage or solicit any inquiry
concerning, or initiate any discussions or negotiations with any Person (other
than the Company or Buyer, as the case may be) concerning, any merger,
consolidation, sale of material assets, tender offer, recapitalization, purchase
or accumulation of shares, proxy solicitation or other business combination
involving the Company or Buyer, as the case may be, or any of its divisions (any
of the foregoing, an "ACQUISITION PROPOSAL"), or (b) provide any non-public
information concerning the business, properties or assets of the Company or
Buyer, as the case may be, to any Person (other than the Company or Buyer, as
the case may be) in connection with an Acquisition Proposal; provided however,
that in the event Buyer receives any unsolicited inquiry concerning an
Acquisition Proposal and, after consultation with counsel, is advised by its
counsel that its board of directors has a fiduciary obligation to respond to
such Acquisition Proposal in order for its directors to properly discharge their
fiduciary obligations to the Buyer's stockholders, then the Buyer may respond to
such Acquisition Proposal. In any event, the Company or Buyer, as the case may
be,
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shall immediately notify the other of, and shall disclose all details of, any
Acquisition Proposal. Each of the Company and Buyer further agrees that it will
not engage any broker, financial advisor or other consultant (other than CIBC
Oppenheimer Corp. in the case of Buyer) on a basis which might provide such
broker, financial advisor or consultant with an incentive to initiate or
encourage any Acquisition Proposal.
SECTION 8.09 INCONSISTENT ACTION. The Company shall not take, or suffer to
be taken, any action that would cause any of the representations or warranties
of the Company in this Agreement to be untrue, incorrect, incomplete or
misleading. Buyer shall not take, or suffer to be taken, any action that would
cause any of the representations or warranties of Buyer in this Agreement to be
untrue, incorrect, incomplete or misleading.
SECTION 8.10 HSR ACT. Each of the parties hereto shall promptly file any
Notification and Report Forms and related material that it may be required to
file with the Federal Trade Commission and the Antitrust Division of the United
States Department of Justice under the HSR Act, shall use its reasonable best
efforts to obtain an early termination of the applicable waiting period, and
shall make any further filings or information submissions pursuant thereto that
may be necessary, proper or advisable.
SECTION 8.11 DIRECTORS AND OFFICERS OF BUYER UPON THE EFFECTIVE TIME. The
Proxy Statement/ Prospectus shall include the nomination of a slate of 12
directors for Buyer, five of whom will be proposed by Buyer, five of whom will
be proposed by the Company, and two of whom will be mutually agreed upon (but
one of such two shall be Stephen A. McNeely). Upon the Effective Time, Paul G.
Stern and Michael G. Santry shall be the Co-Chairmen of the Board of Buyer and
Stephen A. McNeely shall be its Chief Executive Officer.
SECTION 8.12 BYLAW AMENDMENT. The parties agree that Buyer will amend its
bylaws, effective upon the Closing, to require the approval of seven of 12
directors before Buyer may: (i) sell, abandon, transfer, lease or otherwise
dispose of all or a material portion of its properties or assets other than in
the ordinary course of business; (ii) make any payment on account of the
purchase, redemption or other retirement of any shares of Buyer Common Stock or
preferred stock, except as required by agreements, charter or bylaw provisions
in effect prior to the date of this Agreement; (iii) merge or consolidate with
or into, or permit any subsidiary to merge or consolidate with or into, any
other corporation or other entity (except as contemplated by this Agreement);
(iv) dissolve, liquidate or wind-up or carry out any partial liquidation or
distribution or transaction in the nature of a partial liquidation or
distribution; (v) purchase or otherwise acquire or permit any Subsidiary to
acquire (whether by purchase or lease of assets or stock or by merger or
consolidation) any tangible or intangible assets having a value of $500,000.00
or more; (vi) in any manner authorize, create, issue or sell any class of
capital stock of Buyer ranking, whether as to payments of dividends, redemptions
or distributions of assets, prior to or on a parity with, the Buyer Common
Stock, or having voting rights superior to or inconsistent with or adverse to
the Buyer Common Stock; (vii) in any manner authorize, create, issue or sell any
debt security or other debt instrument convertible into or exchangeable for any
capital stock of Buyer; (viii) take any action to cause any amendment,
alteration or repeal of any of the provisions of its certificate of
incorporation or bylaws; (ix) enter into any transaction with an Affiliate of
Buyer with a value in excess of $50,000.00; (x) issue, sell or exchange, agree
to issue, sell or exchange, or reserve or set aside for issuance, sale or
exchange, any equity security (or any debt security or other obligation with an
equity feature) of any Subsidiary; (xi) remove or elect a Chief Executive
Officer, President or Chief Financial Officer; (xii) approve compensation
increases for executive officers; (xiii) approve an operating or capital budget,
or capital expenditures exceeding $250,000.00; or (xiv) take any action with
respect to any of the foregoing matters.
SECTION 8.13 COMPANY'S 1997 AUDIT FINANCIAL STATEMENTS. The Company will
complete the audit of its financial statements for its fiscal year ended
December 31, 1997 not later than April 20, 1998 and not later than such date
will deliver a copy thereof to Buyer, together with the opinion thereof of the
Company's independent accountants.
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SECTION 8.14 SANTRY NOTE. Buyer shall not, without the prior written
consent of the Company, amend, renew, supplement, extend or otherwise modify the
terms of that certain Promissory Note dated September 16, 1997 in the original
principal amount of $3,661,505.39 by Michael G. Santry in favor of Buyer, as
amended by that certain Letter Agreement of even date herewith or waive any term
or provision thereof.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.01 TERMINATION. This Agreement may be terminated at any time
prior to the Closing:
(a) by mutual consent of Buyer and the Company;
(b) by the Company or by Buyer, if, upon a vote at a duly held meeting
of stockholders of Buyer or the Company, or any adjournment thereof, any
approval of the holders of Buyer Common Stock, or the Shareholders,
necessary to consummate the Merger and the transactions contemplated hereby
shall not have been obtained;
(c) by the Company, by written notice to Buyer, if, prior to the meeting
of stockholders of Buyer, the board of directors of Buyer, in the exercise
of its fiduciary duties under applicable law (i) withdraws or modifies in
any manner adverse to the Company its approval or recommendation of this
Agreement or the Merger, (ii) approves or recommends any Acquisition
Proposal by a party other than the Company or (iii) resolves to take any of
the actions specified in clauses (i) or (ii);
(d) by Buyer, by written notice to the Company, if the board of
directors of Buyer, in its good faith exercise of its business judgment,
determines (after consultation with, and upon the advice of, its counsel)
that continuing to recommend to the stockholders of Buyer the approval of
this Agreement or the Merger would be reasonably likely to be a breach of
the fiduciary duties of the board of directors of Buyer to the stockholders
of Buyer;
(e) by the Company if there has been a material breach by Buyer of
Section 8.08;
(f) by the Company, on the one hand, or by Buyer, on the other hand, by
written notice to the other party or parties hereto, if the Merger shall not
have been consummated on or before July 31, 1998 (or such later date as
Buyer and the Company may agree), provided that in the case of a termination
under this clause (f), the party or parties terminating this Agreement shall
not then be in material breach of any of its obligations under this
Agreement;
(g) by Buyer if (i) there has been a material misrepresentation, breach
of warranty or breach of covenant by the Company under this Agreement or
(ii) any of the conditions precedent to Closing set forth in Sections 6.01
or 6.02 have not been met on the Closing Date, and, in each case, Buyer is
not then in material default of its obligations hereunder; or
(h) by the Company if (i) there has been a material misrepresentation,
breach of warranty or breach of covenant by Buyer under this Agreement or
(ii) any of the conditions precedent to Closing set forth in Sections 6.01
or 6.03 have not been met on the Closing Date, and, in each case, the
Company is not then in material default of its obligations hereunder.
SECTION 9.02 EFFECT OF TERMINATION.
(a) In the case of any termination of this Agreement, the provisions of
Sections 8.03(b), 8.04 and 8.06 shall remain in full force and effect.
(b) In the event of termination of this Agreement as provided in Section
9.01(a) or 9.01(b) or 9.01(f), this Agreement shall forthwith become void
and there shall be no liability or obligation on the
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part of any party hereto or their respective directors, officers, employees,
agents or other representatives.
(c) In the event of termination of this Agreement as provided in
Sections 9.01(c) or 9.01(d) or 9.01(e) or 9.01(g) or 9.01(h) hereof, subject
to Section 9.05 hereof, such termination shall be without prejudice to any
rights that the terminating party or parties may have against the breaching
party or parties or any other Person under the terms of this Agreement or
otherwise.
SECTION 9.03 AMENDMENT. This Agreement may be amended only by a written
instrument executed by each of the parties hereto. Any amendment effected
pursuant to this Section 9.03 shall be binding upon all parties hereto.
SECTION 9.04 WAIVER. Any term or provision of this Agreement may be waived
in writing at any time by the party or parties entitled to the benefits thereof.
Any waiver effected pursuant to this Section 9.04 shall be binding upon all
parties hereto. No failure to exercise and no delay in exercising any right,
power or privilege shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege preclude the exercise of any
other right, power or privilege. No waiver of any breach of any covenant or
agreement hereunder shall be deemed a waiver of any preceding or subsequent
breach of the same or any other covenant or agreement. The rights and remedies
of each party under this Agreement are in addition to all other rights and
remedies, at law or in equity, that such party may have against the other
parties.
SECTION 9.05 BREAKUP FEE. In the event that this Agreement is terminated
pursuant to Sections 9.01(c), (d) or (e), then Buyer shall promptly pay to the
Company in immediately available funds a breakup fee equal to One Million
Dollars ($1,000,000.00) plus the Company's reasonable out-of-pocket expenses
(including legal, accounting, consulting and investment banking fees) incurred
in connection with this Agreement, the Merger and the transactions contemplated
hereby, up to a maximum of $500,000.00. The parties hereby acknowledge that the
fee payable pursuant to this Section 9.05 in the event of a termination solely
pursuant to Section 9.01(c), (d) or (e) hereof constitutes the sole and
exclusive remedy of the Company for such termination, and as such, represents
the Company's liquidated damages as compensation for such termination of this
Agreement.
ARTICLE X
INDEMNIFICATION AND SURVIVAL
SECTION 10.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
(a) The representations and warranties of the parties hereto contained
in this Agreement or in any certificate delivered pursuant hereto at the
Closing shall survive the execution and delivery of this Agreement and the
Closing and the consummation of the transactions contemplated hereby (and
any examination or investigation by or on behalf of any party hereto) until
the date which is the later of 60 days after completion of the audited
consolidated financial statements of Buyer and the Company for the fiscal
year ending December 31, 1998 or April 30, 1999 (except for claims in
respect thereof pending at such time, which shall survive until finally
resolved or settled). Buyer agrees to promptly deliver a copy of such
audited financial statements to the Representative.
(b) No Action may be commenced with respect to any representation,
warranty, covenant or agreement in this Agreement, or in any writing
delivered pursuant hereto, unless written notice, setting forth in
reasonable detail the claimed breach thereof, shall be delivered to the
Buyer or the Representative, as the case may be, pursuant to Section 11.01
hereof on or before the termination of the survival period specified in
Section 10.01(a).
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<PAGE>
SECTION 10.02 INDEMNIFICATION.
(a) The Shareholders covenant and agree to defend, indemnify and hold
harmless Buyer, each person who controls, is controlled by or is under
common control with Buyer within the meaning of the Securities Act, and each
director, officer, employee or agent of Buyer (collectively, "BUYER
INDEMNIFIED PARTIES") from and against any Damages arising out of or
resulting from: (i) any inaccuracy in or breach of any representation,
warranty, covenant or agreement made by the Company in this Agreement or in
any certificate delivered pursuant to this Agreement at the Closing; or (ii)
the failure of the Company to perform or observe fully any covenant,
agreement or provision to be performed or observed by the Company pursuant
to this Agreement.
(b) Buyer covenants and agrees to defend, indemnify and hold harmless
the Shareholders, and each person who controls, is controlled by or is under
common control with any Shareholder within the meaning of the Securities
Act, from and against any Damages arising out of or resulting from: (i) any
inaccuracy in or breach of any representation, warranty, covenant or
agreement made by Buyer in this Agreement or in any certificate delivered
pursuant to this Agreement at the Closing; or (ii) the failure of Buyer to
perform or observe fully any covenant, agreement or provision to be
performed or observed by Buyer pursuant to this Agreement.
(c) The Shareholders' liability under this Section 10.02 shall be
allocated among them pro rata in accordance with the number of Shares owned
by each of them as set forth on Annex A hereto. In the event that the
Shareholders are required to satisfy a claim for indemnification by any
Buyer Indemnified Party, such claim shall be satisfied by delivery of Escrow
Shares (valued, for such purpose, at $1.78125 per share) in accordance with
the terms of the Escrow Agreement. No Shareholder shall have any right of
contribution or equitable indemnification against the Company or the
Surviving Corporation for the Shareholders' obligations under Section
10.02(a).
(d) Notwithstanding anything in this Agreement to the contrary,
including this Article X, the indemnification obligations of the
Shareholders under Section 10.02(a) hereof and the Buyer under Section
10.02(b) hereof (i) shall apply only to the extent that the amount of
Damages suffered by the Buyer Indemnified Parties or the Shareholders,
respectively, exceeds an accumulated total of $500,000.00 in the aggregate,
at which point the obligations of the Shareholders or the Buyer, as the case
may be, shall be to indemnify only for the Damages in excess of such
accumulated total; (ii) shall be limited, in the case of the Shareholders,
to the Escrow Shares, and the Buyer Indemnified Parties shall have no
recourse against the Shareholders pursuant to this Agreement beyond recovery
of the Escrow Shares; and (iii) shall be limited, in the case of Buyer, to
the Additional Shares, and the Shareholders shall have no recourse against
Buyer pursuant to this Agreement beyond recovery of the Additional Shares.
(e) Except as otherwise expressly provided in this Agreement, all claims
by any Buyer Indemnified Party for indemnification from the Shareholders
shall be satisfied in accordance with the terms of the Escrow Agreement.
(f) In the event that Buyer is required to satisfy a claim for
indemnification by the Shareholders, such claim shall be satisfied by
dividing the amount thereof by $1.78125 (the same valuation per share set
forth in the Escrow Agreement) and issuing to the Shareholders, pro rata in
accordance with the number of Shares owned by each of them as set forth on
Annex A, a number of shares of Buyer Common Stock equal to such quotient;
provided however, that Buyer shall not be obligated to issue an aggregate
number of shares of Buyer Common Stock in excess of 1,506,092, a number
equal to the number of Escrow Shares (the "ADDITIONAL SHARES"), in
satisfaction of all its indemnification obligations under this Agreement.
(g) The indemnification provided for in this Article X shall constitute
the exclusive remedies of the Buyer Indemnified Parties, on the one hand,
and the Shareholders, on the other hand, for any post-Closing claims against
the other under this Agreement.
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<PAGE>
(h) Notwithstanding anything in this Agreement to the contrary,
including this Article X, the indemnification obligations of the
Shareholders under Section 10.02(a) hereof and the Buyer under Section
10.02(b) hereof shall not apply to any consequential, incidental, exemplary
or punitive Damages, including but not limited to lost profits, suffered by
any Buyer Indemnified Party, on the one hand, or by the Shareholders, on the
other hand.
SECTION 10.03 THIRD PARTY CLAIMS.
(a) If any party entitled to be indemnified pursuant to Section 10.02
(an "INDEMNIFIED PARTY") receives notice of the assertion by any third party
of any claim or of the commencement by any such third party of any Action
(any such claim or Action being referred to herein as an "INDEMNIFIABLE
CLAIM") with respect to which another party hereto (an "INDEMNIFYING PARTY")
is or may be obligated to provide indemnification, the Indemnified Party
shall promptly notify the Indemnifying Party in writing (the "CLAIM NOTICE")
of the Indemnifiable Claim; provided, however, that the failure to provide
such notice shall not relieve or otherwise affect the obligation of the
Indemnifying Party to provide indemnification hereunder, except to the
extent that the Indemnifying Party is materially prejudiced by such failure.
(b) The Indemnifying Party shall have thirty (30) days after receipt of
the Claim Notice to assume defense of the Indemnifiable Claim; PROVIDED,
HOWEVER, that the Indemnifying Party will be required to consult with the
Indemnified Party with respect thereto. If the Indemnifying Party assumes
the defense of such Indemnifiable Claim, it will take all steps necessary to
investigate, defend or settle such claim and will, subject to Section 10.01,
hold the Indemnified Party harmless from and against any and all Damages
caused by or arising out of any settlement approved by the Indemnifying
Party or any judgment in connection with such Indemnifiable Claim. The
Indemnified Party will have the right to employ counsel separate from
counsel employed by the Indemnifying Party in any such action and to
participate in the defense thereof, but the fees and expenses of such
counsel employed by the Indemnified Party will be at the expense of the
Indemnified Party. Without the written consent of the Indemnified Party,
which consent will not be unreasonably withheld, the Indemnifying Party will
not consent to entry of any judgment or enter into any settlement that (a)
provides for non-monetary relief or (b) does not include an unconditional
and complete release of the Indemnified Party by the claimant or plaintiff
making the Indemnifiable Claim. Failure by the Indemnifying Party to notify
the Indemnified Party of its election to assume the defense of any
Indemnifiable Claim within 30 days after its receipt of notice thereof will
be deemed a waiver by the Indemnifying Party of its right to assume the
defense of such Indemnifiable Claim if the Indemnified Party is materially
prejudiced by such failure. In such event, the Indemnified Party may defend
against such Indemnifiable Claim in any manner it deems appropriate and may
settle such Indemnifiable Claim or consent to the entry of any judgment with
respect thereto, provided that it acts reasonably and in good faith.
(c) Buyer shall advance the costs and expenses required to defend any
Indemnifiable Claim. If the Indemnified Party is the Buyer, such costs and
expenses shall constitute Damages recoverable from the Escrow Shares. If the
Indemnified Parties are the Shareholders, such costs and expenses shall
constitute Damages for which Additional Shares shall be issued to the
Shareholders.
(d) If the Indemnifying Party does not notify the Indemnified Party
within thirty (30) days after receipt of the Claim Notice that it elects to
undertake the defense of the Indemnifiable Claim described therein, or if
the Indemnifying Party undertakes such defense but thereafter ceases to
defend such Indemnifiable Claim, the Indemnified Party shall have the right
to contest, settle or compromise the Indemnifiable Claim in the exercise of
its reasonable discretion and acting in good faith and the Indemnified Party
may recover its Damages from the Indemnifying Party, subject to the
limitations, and in the manner, set forth in this Article X; provided,
however, that the Indemnified Party shall notify the Indemnifying Party of
any compromise or settlement of any such Indemnifiable Claim.
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<PAGE>
ARTICLE XI
GENERAL PROVISIONS
SECTION 11.01 NOTICES. All notices and other communications under or in
connection with this Agreement shall be in writing and shall be deemed given (a)
if delivered personally, upon delivery, (b) if delivered by registered or
certified mail (return receipt requested), upon the earlier of actual delivery
or three days after being mailed, or (c) if given by telecopy, upon confirmation
of transmission by telecopy, in each case to the parties at the following
addresses:
(a) If to the Company, addressed to:
IQI, Inc.
1645 North Vine Street
Los Angeles, California 90028
Telecopy: (213) 848-5758
Attention: Chief Executive Officer
With copies to:
Thayer Equity Investors III, L.P.
1455 Pennsylvania Avenue, N.W.
Suite 350
Washington, D.C. 20004
Telecopy: (202) 371-0391
Attention: Mr. Rick Rickertsen
Mr. Douglas Gilbert
and to:
Paul, Hastings, Janofsky & Walker LLP
Twenty-Third Floor
555 South Flower Street
Los Angeles, California 90071
Telecopy: (213) 627-0705
Attention: Robert A. Miller, Jr., Esq.
(b) If to Buyer or Newco, addressed to:
ATC Communications Group, Inc.
5950 Berkshire Lane
Suite 1650
Dallas, Texas 75225
Telecopy: (214) 361-9874
Attention: Mr. Michael G. Santry
With a copy to:
Hughes & Luce, L.L.P.
1717 Main Street
Suite 2800
Dallas, Texas 75201
Telecopy: (214) 939-5849
Attention: Kenneth G. Hawari, Esq.
A-41
<PAGE>
SECTION 11.02 SEVERABILITY. If any term or provision of this Agreement or
the application thereof to any circumstance shall, in any jurisdiction and to
any extent, be invalid or unenforceable, such term or provision shall be
ineffective as to such jurisdiction to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable such term or
provision in any other jurisdiction, the remaining terms and provisions of this
Agreement or the application of such terms and provisions to circumstances other
than those as to which it is held invalid or enforceable.
SECTION 11.03 ENTIRE AGREEMENT. This Agreement, including the annexes and
schedules attached hereto and other documents referred to herein, and the
Confidentiality Agreement, contain the entire understanding of the parties
hereto in respect of their subject matter and supersede all prior and
contemporaneous agreements and understandings, oral and written, among the
parties with respect to such subject matter, including, without limitation, the
letter of intent dated as of February 24, 1998 between Buyer and the Company.
SECTION 11.04 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of each of the parties hereto and their respective
successors, heirs and assigns; PROVIDED, HOWEVER, that no party may assign
either this Agreement or any of its rights, interests or obligations hereunder
in whole or in part without the prior written consent of the other parties
hereto (other than to the Surviving Corporation as a result of the Merger), and
any such transfer or assignment without said consent shall be void, AB
INITIO.Subject to the immediately preceding sentence, this Agreement is not
intended to benefit, and shall not run to the benefit of or be enforceable by,
any other person or entity other than the parties hereto and their permitted
successors and assigns.
SECTION 11.05 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same Agreement.
SECTION 11.06 SCHEDULES AND ANNEXES. The schedules and annexes to this
Agreement are incorporated herein and, by this reference, made a part hereof as
if fully set forth at length herein.
SECTION 11.07 CONSTRUCTION.
(a) The article, section and subsection headings used herein are
inserted for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement.
(b) As used in this Agreement, the masculine, feminine or neuter gender,
and the singular or plural, shall be deemed to include the others whenever
and wherever the context so requires.
(c) For the purposes of this Agreement, unless the context clearly
requires, "or" is not exclusive.
SECTION 11.08 ARBITRATION. To the extent that the parties hereto are
unable to resolve their disputes or controversies arising out of or relating to
this Agreement, or the performance, breach, validity, interpretation or
enforcement of this Agreement, through discussion and negotiation, all such
disputes and controversies will be resolved by binding arbitration in accordance
with Title 9 of the U.S. Code (United States Arbitration Act) and the Commercial
Arbitration Rules of the American Arbitration Association (the "AAA"), and
judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. A party hereto may initiate arbitration by sending
written notice of its intention to arbitrate to the other parties hereto and to
the AAA office located in Dallas, Texas (if initiated by the Company) or Los
Angeles, California (if initiated by Buyer). Such written notice will contain a
description of the dispute and the remedy sought. The arbitration will be
conducted at the offices of the AAA in Dallas, Texas (if initiated by the
Company) and the AAA office located in Los Angeles, California (if initiated by
Buyer) before an independent and impartial arbitrator acceptable to Buyer and
the Company. The party initiating arbitration shall pay the costs and expenses
of the arbitration, unless otherwise determined by the arbitrator. The decision
of the arbitrator will be final and binding on the parties hereto and their
successors and assignees. The parties intend that this agreement to arbitrate be
irrevocable.
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<PAGE>
SECTION 11.09 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws (and not the law of conflicts) of
the State of New York.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on their behalf as of the day and year first above written.
IQI, INC.
By: /s/ Stephen A. McNeely
-----------------------------------------
Name: Stephen A. McNeely
---------------------------------------
Title: Chief Executive Officer and President
-------------------------------------
ATC COMMUNICATIONS GROUP, INC.
By: /s/ Michael G. Santry
-----------------------------------------
Name: Michael G. Santry
---------------------------------------
Title: President and Chief Executive Officer
-------------------------------------
ATC MERGER SUB, INC.
By: /s/ Michael G. Santry
-----------------------------------------
Name: Michael G. Santry
---------------------------------------
Title: President and Chief Executive Officer
-------------------------------------
A-43
<PAGE>
SECURITIES PURCHASE AND REGISTRATION RIGHTS AGREEMENT
THIS SECURITIES PURCHASE AND REGISTRATION RIGHTS AGREEMENT (this
"AGREEMENT") is entered into as of April 7, 1998, by and between ATC
Communications Group, Inc., a Delaware corporation (the "COMPANY"), and Thayer
Equity Investors III, L.P., a Delaware limited partnership ("THAYER").
RECITALS
A. On the date hereof, Thayer has delivered its commitment letter (the
"COMMITMENT LETTER") to the Company and Advanced Telemarketing Corporation, the
Company's wholly owned subsidiary ("ADVANCED"), pursuant to which Thayer has
committed to either guaranty up to $2.0 million of Advanced's indebtedness or,
in lieu thereof and under certain circumstances, to make a loan to Advanced in
the amount of up to $2.0 million.
B. It is a condition to the issuance of Thayer's commitments under the
Commitment Letter that the Company execute and deliver this Agreement to Thayer.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. DEFINITIONS. Unless the context otherwise requires, the terms defined
in this Section 1 shall have the meanings herein specified for all purposes of
this Agreement, applicable to both the singular and plural forms of any of the
terms herein defined.
"AGREEMENT" means this Securities Purchase and Registration Rights
Agreement.
"BOARD" means the Board of Directors of the Company.
"COMMON STOCK" means the common stock, $.01 par value, of the Company.
"COMMISSION" means the Securities and Exchange Commission.
"EQUITY SECURITY" means any stock or similar security of the Company or any
security (whether stock or indebtedness for borrowed money) convertible or
exchangeable, with or without consideration, into or for any stock or similar
security, or any security (whether or not indebtedness for borrowed money)
carrying any warrant or right to subscribe to or purchase any stock or similar
security, or any such warrant or right.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
<PAGE>
"HOLDER" of any security means the record or beneficial owner of such
security. A Holder of the Warrant shall be treated as the Holder of the
Registrable Securities underlying such Warrant.
"HOLDERS OF A MAJORITY OF THE REGISTRABLE SECURITIES" means the Person or
Persons who are the Holders of greater than 50% of the shares of Registrable
Securities then outstanding.
"INITIATING HOLDERS" means with respect to a registration effected pursuant
to Section 4 hereof the Holders of at least 200,000 shares of the Registrable
Securities.
"LIEN" means any mortgage, pledge, security interest, encumbrance,
community property interest, trust, option, lien or charge of any kind,
including, without limitation, any conditional sale or other title retention
agreement, any lease in the nature thereof and the filing of or agreement to
give any financing statement under the Uniform Commercial Code of any
jurisdiction and including any lien or charge arising by statute or other law.
"MERGER AGREEMENT" means that certain Agreement and Plan of Merger dated
April 7, 1998 by and among the Company, ATC Merger Sub, Inc. and IQI, Inc.
"PERSON" includes any natural person, corporation, trust, association,
company, partnership, limited liability company, joint venture and other entity
and any government, governmental agency, instrumentality or political
subdivision.
The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"REGISTRABLE SECURITIES" means (1) shares of the Common Stock issued or
issuable upon exercise or conversion of the Warrant issued pursuant to this
Agreement, so long as they are owned by Thayer, any limited partner of Thayer or
any affiliate (as defined under the Securities Act) of Thayer or Thayer's
general partner, and (2) any securities issued or issuable with respect to the
Common Stock referred to in clause (1) above by way of a stock dividend or stock
split or in connection with a combination of shares, reclassification,
recapitalization, merger or consolidation or reorganization; provided, however,
that such shares of Common Stock shall only be treated as Registrable Securities
if and so long as they have not been (i) sold to or through a broker or dealer
or underwriter in a public distribution or a public securities transaction, or
(ii) sold in a transaction exempt from the registration and prospectus delivery
requirements of the Securities Act under Section 4(1) thereof so that all
transfer restrictions and restrictive legends with respect to such Common Stock
are removed upon the consummation of such sale and the seller and purchaser of
such Common Stock receive an opinion of counsel for the Company, which shall be
in form and content reasonably satisfactory to the seller and buyer and their
respective counsel, to the effect that such Common Stock in the hands of the
purchaser is freely transferable without restriction or registration under the
Securities Act in any public or private transaction.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
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<PAGE>
"THAYER" has the meaning assigned to it in the introductory paragraph of
this Agreement.
"WARRANT" means the warrant to purchase Common Stock which has been issued
to Thayer by the Company pursuant to this Agreement, and any warrant issued upon
transfer or substitution thereof.
"WARRANT CERTIFICATE" means the certificate dated April 7, 1998, held by
Thayer and evidencing the right to purchase up to 1,100,000 shares of Common
Stock.
"WARRANT SHARES" means the Common Stock issued or issuable upon exercise of
the Warrant.
2. PURCHASE AND SALE OF WARRANT.
(a) AUTHORIZATION OF SECURITIES. The Company has authorized the
issuance and sale of the Warrant to purchase ONE MILLION ONE HUNDRED THOUSAND
(1,100,000) shares of Common Stock of the Company, having the terms set forth
herein and in the Warrant Certificate attached hereto as Exhibit A.
(b) SALE AND PURCHASE OF WARRANT. Concurrently herewith, the Company
hereby sells to Thayer and Thayer hereby purchases from the Company the Warrant
to purchase up to ONE MILLION ONE HUNDRED THOUSAND (1,100,000) shares of Common
Stock of the Company for a purchase price of ONE HUNDRED TEN THOUSAND DOLLARS
($110,000). Thayer hereby acknowledges receipt of the Warrant, and the Company
hereby acknowledges receipt of the purchase price therefor.
3. COMPANY REPRESENTATIONS AND WARRANTIES. In connection with the
purchase of the Warrant hereunder, the Company represents and warrants to Thayer
the following:
(a) ORGANIZATION, STANDING, ETC. The Company is a corporation duly
organized and validly existing under the laws of the State of Delaware, and has
all requisite power and authority to carry on its business, to own and hold its
properties and assets, to enter into this Agreement, to issue the Warrants and
the Warrant Shares and to carry out the provisions hereof.
(b) WARRANT. The Warrant is duly authorized and, when issued and
paid for in accordance with the terms hereof, will be duly authorized, validly
issued, fully paid and nonassessable, free and clear of all Liens and
restrictions, other than Liens that might have been created by Thayer and
restrictions imposed by the Securities Act.
(c) WARRANT SHARES. The Warrant Shares have been duly authorized and
reserved for issuance upon exercise of the Warrant, and, when issued and paid
for in accordance with the terms hereof and the Warrant Agreement, will be duly
authorized, validly issued, fully paid and nonassessable Common Stock, free and
clear of all Liens
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<PAGE>
and restrictions, other than Liens that might have been created by Thayer and
restrictions imposed by the Securities Act.
(d) CORPORATE ACTS AND PROCEEDINGS. All corporate acts and
proceedings required of the Company for the authorization, execution, delivery
and performance of this Agreement and each other agreement or instrument
contemplated hereby, and the issuance and delivery of the Warrant and the
Warrant Shares, have been lawfully and validly taken.
(e) BINDING OBLIGATIONS. This Agreement and the Warrant constitute
the legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with their respective terms, except as such enforcement is
limited by bankruptcy, insolvency, moratorium, fraudulent conveyance, fraudulent
transfer and other similar laws affecting the enforcement of creditors' rights
generally, and by general equitable principles.
(f) SECURITIES LAWS. The offer, issue and sale of the Warrant and
the Warrant Shares are and will be exempt from the registration and prospectus
delivery requirements of the Securities Act, and have been registered or
qualified (or are exempt from registration and qualification) under the
registration, permit or qualification requirements of all applicable state
securities laws.
(g) DISCLOSURE. There is no fact which the Company has not disclosed
to Thayer in writing which materially and adversely affects nor, insofar as the
Company can now foresee, will materially and adversely affect, the properties,
business, prospects, results of operation or condition (financial or other) of
the Company or the ability of the Company to perform this Agreement.
4. REQUIRED REGISTRATION.
(a) Commencing on the date and at the time the Certificate of Merger,
duly executed by ATC Merger Sub, Inc. and IQI, Inc., is filed with the
Secretary of State of New York pursuant to the Merger Agreement, if and whenever
the Company shall receive a written request therefor from Initiating Holders,
the Company agrees to prepare and file promptly a registration statement under
the Securities Act covering the shares of Registrable Securities which are the
subject of such request and agrees to use its best efforts to cause such
registration statement to become effective as expeditiously as possible. Upon
the receipt of such request, the Company agrees to give promptly written notice
to all Holders of Registrable Securities that such registration is to be
effected. The Company agrees to include in such registration statement such
shares of Registrable Securities for which it has received written requests to
register such shares by the Holders thereof within thirty (30) days after the
receipt of written notice from the Company.
(b) The Company shall be obligated to prepare, file and cause to
become effective only one registration statement pursuant to this Section 4 on a
form other than S-3, plus three additional registration statements on Form S-3.
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<PAGE>
(c) A registration under this Section 4 shall be on a form selected
by the Company and reasonably acceptable to the Holders of a majority of the
shares of Registrable Securities to be included in such registration.
(d) If the Holders initiating a request for the registration of
Registrable Securities pursuant to this Section 4 intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they agree to provide the Company with the name of the managing underwriter or
underwriters (the "managing underwriter") that a majority interest of the
Initiating Holders requesting such registration propose to employ, as a part of
their request made pursuant to this Section 4, which managing underwriter shall
be reasonably acceptable to the Company. Furthermore, the Company agrees to
include such information regarding the managing underwriter in its written
notice referred to in Section 4(a). In such event the right of any Holder to
registration pursuant to this Section 4 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent requested (unless
otherwise mutually agreed by the Holders of a Majority of the Registrable
Securities initiating such request for registration and such Holder) to the
extent provided herein. All Holders proposing to distribute their securities
through such underwriting agree to enter into (together with the Company) an
underwriting agreement with the underwriter or underwriters selected for such
underwriting, in the manner set forth above, provided that such underwriting
agreement is in customary form and is reasonably acceptable to the Company and
the Holders of a majority of the shares of Registrable Securities to be included
in such registration.
(e) Notwithstanding any other provision of this Section 4, if the
managing underwriter of an underwritten distribution advises the Company and the
Holders of Registrable Securities participating in such registration in writing
that in its good faith judgment the number of shares of Registrable Securities
requested to be included in such registration exceeds the number of shares of
Registrable Securities which can be sold in such offering, then (i) the number
of shares of Registrable Securities so requested to be included in such
registration shall be reduced to that number of shares which in the good faith
judgment of the managing underwriter can be sold in such offering and (ii) this
reduced number of shares shall be allocated among all Holders thereof in
proportion, as nearly as practicable, to the respective number of shares of
Registrable Securities held by such Holders at the time of filing the
registration statement.
(f) To the extent all shares of Registrable Securities of the
Initiating Holders are not included in the registration statement due to the
underwriter cutbacks described above, such registration shall not count as the
demand registration to which the Initiating Holders are entitled pursuant to
subparagraph (b) of this Section 4.
(g) If the managing underwriter has not limited the number of
Registrable Securities to be underwritten, the Company may include securities
for its own account in such registration if the managing underwriter so agrees
and if the number of Registrable Securities which would otherwise have been
included in such registration and underwriting will not thereby be limited.
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<PAGE>
(h) Notwithstanding any of the foregoing, the Company may delay
filing a registration statement and may withhold efforts to cause the
registration statement to become effective, if the Company reasonably determines
in good faith that such registration might (i) interfere with or affect the
negotiation or completion of any transaction that is being contemplated by the
Company (whether or not a final decision has been made to undertake such
transaction) at the time the right to delay is exercised, or (ii) involve
initial or continuing disclosure obligations that might not be in the best
interest of the Company's stockholders. If, after a registration statement
becomes effective, the Company advises the holders of the registered shares that
the Company considers it appropriate for the registration statement to be
amended, the holders of such shares shall suspend any further sales of their
registered shares until the Company advises them that the registration statement
has been amended.
5. INCIDENTAL REGISTRATION.
(a) Each time the Company shall determine to file a registration
statement under the Securities Act (other than (i) pursuant to Section 4 hereof,
(ii) on Form S-8 or a registration statement on Form S-1 covering solely an
employee benefit plan and (iii) on Form S-4) in connection with the proposed
offer and sale for money of any of its securities either for its own account or
on behalf of any other security holder, the Company agrees to give promptly
written notice of its determination to all Holders of Registrable Securities.
Upon the written request of a Holder of any shares of Registrable Securities
given within thirty (30) days after the receipt of such written notice from the
Company, the Company agrees to cause all such Registrable Securities, the
Holders of which have so requested registration thereof, to be included in such
registration statement and registered under the Securities Act, all to the
extent requisite to permit the sale or other disposition by the prospective
seller or sellers of the Registrable Securities to be so registered.
(b) If the registration of which the Company gives written notice
pursuant to Section 5(a) is for a public offering involving an underwriting, the
Company agrees to so advise the Holders as a part of its written notice. In
such event the right of any Holder to registration pursuant to this Section 5
shall be conditioned upon such Holder's participation in such underwriting and
the inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their Registrable
Securities through such underwriting agree to enter into (together with the
Company and the other holders distributing their securities through such
underwriting) an underwriting agreement with the underwriter or underwriters
selected for such underwriting by the Company, provided that such underwriting
agreement is in customary form and is reasonably acceptable to the Holders of a
majority of the shares of Registrable Securities requested to be included in
such registration.
(c) Notwithstanding any other provision of this Section 5, if the
managing underwriter of an underwritten distribution advises the Company and the
Holders of the Registrable Securities participating in such registration in
writing that in its good faith judgment the number of shares of Registrable
Securities exceeds the number of shares of Registrable Securities which can be
sold in such offering, then (i) the number of shares of Registrable Securities
so requested to be included in the offering
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<PAGE>
shall be reduced to that number of shares which in the good faith judgment of
the managing underwriter can be sold in such offering (except for shares to
be issued by the Company in an offering initiated by the Company, which shall
have priority over the shares of Registrable Securities), and (ii) such
reduced number of shares shall be allocated among all participating Holders
of Registrable Securities in proportion, as nearly as practicable, to the
respective number of shares of Registrable Securities by such Holders at the
time of filing the registration statement.
6. REGISTRATION PROCEDURES. If and whenever the Company is required by
the provisions of Section 4 or 5 hereof to effect the registration of
Registrable Securities under the Securities Act, the Company, at its expense and
as expeditiously as possible, agrees to:
(a) In accordance with the Securities Act and all applicable rules
and regulations, prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective until the securities
covered by such registration statement have been sold, and prepare and file with
the Commission such amendments and supplements to such registration statement
and the prospectus contained therein as may be necessary to keep such
registration statement effective and such registration statement and prospectus
accurate and complete until the securities covered by such registration
statement have been sold;
(b) If the offering is to be underwritten in whole or in part, enter
into a written underwriting agreement in form and substance reasonably
satisfactory to the managing underwriter of the public offering, the Holders of
a majority of the Registrable Securities participating in such offering, and the
Company;
(c) Furnish to the Holders of securities participating in such
registration and to the underwriters of the securities being registered such
number of copies of the registration statement and each amendment and supplement
thereto, preliminary prospectus, final prospectus and such other documents as
such underwriters and Holders may reasonably request in order to facilitate the
public offering of such securities;
(d) Use its best efforts to register or qualify the securities
covered by such registration statement under such state securities or blue sky
laws of such jurisdictions as such participating Holders and underwriters may
reasonably request within ten (10) days prior to the original filing of such
registration statement, except that the Company shall not for any purpose be
required to execute a general consent to service of process or to qualify to do
business as a foreign corporation in any jurisdiction where it is not so
qualified;
(e) Notify the Holders participating in such registration, promptly
after it shall receive notice thereof, of the date and time when such
registration statement and each post-effective amendment thereto has become
effective or a supplement to any prospectus forming a part of such registration
statement has been filed;
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<PAGE>
(f) Notify such Holders promptly of any request by the Commission for
the amending or supplementing of such registration statement or prospectus or
for additional information;
(g) Prepare and file with the Commission, promptly upon the request
of any such Holders, any amendments or supplements to such registration
statement or prospectus which, in the opinion of counsel for such Holders, is
required under the Securities Act or the rules and regulations thereunder in
connection with the distribution of the Registrable Securities by such Holders;
(h) Prepare and file promptly with the Commission, and promptly
notify such Holders of the filing of, such amendments or supplements to such
registration statement or prospectus as may be necessary to correct any
statements or omissions if, at the time when a prospectus relating to such
securities is required to be delivered under the Securities Act, any event has
occurred as the result of which any such prospectus or any other prospectus as
then in effect would include an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading;
(i) In case any of such Holders or any underwriter for any such
Holders is required to deliver a prospectus at a time when the prospectus then
in circulation is not in compliance with the Securities Act or the rules and
regulations of the Commission, prepare promptly upon request such amendments or
supplements to such registration statement and such prospectus as may be
necessary in order for such prospectus to comply with the requirements of the
Securities Act and such rules and regulations;
(j) Advise such Holders, promptly after it shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by the Commission
suspending the effectiveness of such registration statement or the initiation or
threatening of any proceeding for that purpose and promptly use its best efforts
to prevent the issuance of any stop order or to obtain its withdrawal if such
stop order should be issued;
(k) Not file any registration statement or prospectus or any
amendment or supplement to such registration statement or prospectus to which
the Holders of a majority of the Registrable Securities included or to be
included in a registration have reasonably objected on the grounds that such
registration statement or prospectus or amendment or supplement thereto does not
comply in all material respects with the requirements of the Securities Act or
the rules and regulations thereunder, after having been furnished with a copy
thereof at least five (5) business days prior to the filing thereof; provided,
however, that the failure of such Holders or their counsel to review or object
to any registration statement or prospectus or any amendment or supplement to
such registration statement or prospectus shall not affect the rights of such
Holders or their respective officers, directors, partners, legal counsel,
accountants or controlling Persons or any underwriter or any controlling Person
of such underwriter under Section 8 hereof;
(l) Make available for inspection upon request by any Holder of
Registrable Securities covered by such registration statement, by any managing
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<PAGE>
underwriter of any distribution to be effected pursuant to such registration
statement and by any attorney, accountant or other agent retained by any such
Holder or any such underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause all of the
Company's officers, directors and employees to supply all information reasonably
requested by any such Holder, underwriter, attorney, accountant or agent in
connection with such registration statement; and
(m) At the request of any Holder of Registrable Securities covered by
such registration statement, furnish to such Holder on the effective date of the
registration statement or, if such registration includes an underwritten public
offering, at the closing provided for in the underwriting agreement, (i) an
opinion dated such date of the counsel representing the Company for the purposes
of such registration, addressed to the underwriters, if any, and to the Holder
or Holders making such request, covering such matters with respect to the
registration statement, the prospectus and each amendment or supplement thereto,
proceedings under state and federal securities laws, other matters relating to
the Company, the securities being registered and the offer and sale of such
securities as are customarily the subject of opinions of issuer's counsel
provided to underwriters in underwritten public offerings, and such opinion of
counsel shall additionally cover such legal matters with respect to the
registration as such requesting Holder or Holders may reasonably request, and
(ii) letters dated each of such effective date and such closing date, from the
independent certified public accountants of the Company, addressed to the
underwriters, if any, and to the Holder or Holders making such request, stating
that they are independent certified public accountants within the meaning of the
Securities Act and dealing with such matters as the underwriters may request, or
if the offering is not underwritten that in the opinion of such accountants the
financial statements and other financial data of the Company included in the
registration statement or the prospectus or any amendment or supplement thereto
comply in all material respects with the applicable accounting requirements of
the Securities Act, and additionally covering such other accounting and
financial matters, including information as to the period ending not more than
five (5) business days prior to the date of such letter with respect to the
registration statement and prospectus, as such requesting Holder or Holders may
reasonably request.
7. EXPENSES.
(a) With respect to each inclusion of shares of Registrable
Securities in a registration statement pursuant to Section 4 or 5 hereof, the
Company agrees to bear all fees, costs and expenses of and incidental to such
registration and the public offering in connection therewith; provided, however,
that security holders participating in any such registration agree to bear their
pro rata share of the underwriting discount and commissions and the fees and
expenses of their own counsel.
(b) The fees, costs and expenses of registration to be borne as
provided in paragraph (a) above, shall include, without limitation, all
registration, filing and NASD fees, printing expenses, fees and disbursements of
counsel and accountants for the Company, fees and disbursements of counsel for
the underwriter or underwriters of such securities (if the Company and/or
selling security holders are otherwise required to bear such fees and
disbursements), all legal fees and disbursements and other expenses of
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<PAGE>
complying with state securities or blue sky laws of any jurisdictions in
which the securities to be offered are to be registered or qualified, and the
premiums and other costs of policies of insurance against liability arising
out of such public offering.
8. INDEMNIFICATION.
(a) The Company hereby agrees to indemnify and hold harmless each
Holder of Registrable Securities which are included in a registration statement
pursuant to the provisions of this Agreement and each of such Holder's officers,
directors, partners, members, legal counsel and accountants, and each Person who
controls such Holder within the meaning of the Securities Act and any
underwriter (as defined in the Securities Act) for such Holder, and any Person
who controls such underwriter within the meaning of the Securities Act, from and
against, and agrees to reimburse such Holder, its officers, directors, partners,
members, legal counsel, accountants and controlling Persons and each such
underwriter and controlling Person of such underwriter with respect to, any and
all claims, actions (actual or threatened), demands, losses, damages,
liabilities, costs and expenses to which such Holder, its officers, directors,
partners, legal counsel, accountants or controlling Persons, or any such
underwriter or controlling Person of such underwriter may become subject under
the Securities Act or otherwise, insofar as such claims, actions, demands,
losses, damages, liabilities, costs or expenses arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in such registration statement, any prospectus contained therein, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, that the Company will not be liable in any such case to the extent that
any such claim, action, demand, loss, damage, liability, cost or expense is
caused by an untrue statement or alleged untrue statement or omission or alleged
omission so made in strict conformity with written information furnished by such
Holder, such underwriter or such controlling Person specifically for use in the
preparation thereof.
(b) Each Holder of shares of Registrable Securities which are
included in a registration statement pursuant to the provisions of this
Agreement hereby agrees to indemnify and hold harmless the Company, its
officers, directors, legal counsel and accountants and each Person who controls
the Company within the meaning of the Securities Act, from and against, and
agrees to reimburse the Company, its officers, directors, legal counsel,
accountants and controlling Persons with respect to, any and all claims,
actions, demands, losses, damages, liabilities, costs or expenses to which the
Company, its officers, directors, legal counsel, accountants or such controlling
Persons may become subject under the Securities Act or otherwise, insofar as
such claims, actions, demands, losses, damages, liabilities, costs or expenses
are caused by any untrue or alleged untrue statement of any material fact
contained in such registration statement, any prospectus contained therein or
any amendment or supplement thereto, or are caused by the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was so made in reliance upon and in strict conformity with
written information furnished
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<PAGE>
by such Holder specifically for use in the preparation thereof.
Notwithstanding the foregoing, no Holder of Registrable Securities shall be
obligated hereunder to pay more than the net proceeds realized by it upon its
sale of Registrable Securities included in such registration statement.
(c) Promptly after receipt by a party indemnified pursuant to the
provisions of subsection (a) or (b) of this Section 8 of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions, such indemnified party will, if a claim therefor is to be
made against the indemnifying party pursuant to the provisions of subsection (a)
or (b), notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to an indemnified party otherwise than under this
Section 8 and shall not relieve the indemnifying party from liability under this
Section 8 unless such indemnifying party is prejudiced by such omission. In
case any such action is brought against any indemnified party, and it notifies
the indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying parties similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party; provided, however,
that if the defendants in any such action include both the indemnified party and
the indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel (in which case the indemnifying party shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties). Upon the permitted assumption by the indemnifying party of the
defense of such action, and approval by the indemnified party of counsel, the
indemnifying party shall not be liable to such indemnified party under
subsection (a) or (b) for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof (other than
reasonable costs of investigation) unless (i) the indemnified party shall have
employed separate counsel in connection with the assertion of legal defenses in
accordance with the proviso to the next preceding sentence, (ii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time,
(iii) the indemnifying party and its counsel do not actively and vigorously
pursue the defense of such action, or (iv) the indemnifying party has authorized
the employment of counsel for the indemnified party at the expense of the
indemnifying party. No indemnifying party shall be liable to an indemnified
party for any settlement of any action or claim without the consent of the
indemnifying party and no indemnifying party may unreasonably withhold its
consent to any such settlement. No indemnifying party will consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability with respect to such claim or
litigation.
(d) If the indemnification provided for in subsection (a) or (b) of
this Section 8 is held by a court of competent jurisdiction to be unavailable to
a party to be indemnified with respect to any claims, actions, demands, losses,
damages, liabilities, costs or expenses referred to therein, then each
indemnifying party under any such
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<PAGE>
subsection, in lieu of indemnifying such indemnified party thereunder, hereby
agrees to contribute to the amount paid or payable by such indemnified party
as a result of such claims, actions, demands, losses, damages, liabilities,
costs or expenses in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the statements or omissions
which resulted in such claims, actions, demands, losses, damages,
liabilities, costs or expenses, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. Notwithstanding the
foregoing, the amount any Holder of Registrable Securities shall be obligated
to contribute pursuant to this subsection (d) shall be limited to an amount
equal to the per share public offering price (less any underwriting discount
and commissions) multiplied by the number of shares of Registrable Securities
sold by such Holder pursuant to the registration statement which gives rise
to such obligation to contribute (less the aggregate amount of any damages
which such Holder has otherwise been required to pay in respect of such
claim, action, demand, loss, damage, liability, cost or expense or any
substantially similar claim, action, demand, loss, damage, liability, cost or
expense arising from the sale of such Registrable Securities).
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution hereunder
from any person who was not guilty of such fraudulent misrepresentation.
9. REPORTING REQUIREMENTS UNDER THE EXCHANGE ACT. The Company shall
timely file such information, documents and reports as the Commission may
require or prescribe under Section 13 of the Exchange Act. The Company
acknowledges and agrees that the purposes of the requirements contained in this
Section 9 are (a) to enable the Holders of Registrable Securities to comply with
the current public information requirement contained in paragraph (c) of Rule
144 should any such Holder ever wish to dispose of any of the Restricted Stock
without registration under the Securities Act in reliance upon Rule 144 (or any
other similar exemptive provision) and (b) to qualify the Company for the use of
registration statements on Form S-3.
10. STOCKHOLDER INFORMATION. The Company may request each Holder of
Registrable Securities as to which any registration is to be effected pursuant
to this Agreement to furnish the Company with such information with respect to
such Holder and the distribution of such Registrable Securities as the Company
may from time to time reasonably request in writing and as shall be required by
law or by the Commission in connection therewith, and each Holder of Registrable
Securities as to which any registration is to be effected pursuant to this
Agreement agrees to furnish the Company with such information.
11. FORMS. All references in this Agreement to particular forms of
registration statements are intended to include, and shall be deemed to include,
references
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to all successor forms which are intended to replace, or to apply to similar
transactions as, the forms herein referenced.
12. GENERAL PROVISIONS.
(a) INTEGRATION. This Agreement, together with the Warrant
Certificate, constitute the entire agreement of the parties with respect to the
subject matter hereof.
(b) NOTICES. All notices and other communications which are required
or permitted to be given pursuant to the terms of this Agreement shall be in
writing and shall either be personally delivered or mailed first class, postage
prepaid, registered or certified mail (return receipt requested), to the person
for whom they are intended at the address shown on the signature pages of this
Agreement for such party. Each notice or other communication shall for all
purposes of this Agreement be treated as being effective or having been given
when delivered, if delivered personally, or, if sent by mail, at the earlier of
actual receipt or five (5) days after the same has been deposited in the United
States mail, addressed and postage paid as aforesaid. The addresses for the
purposes of this Section 12(b) may be changed by giving written notice to all
parties of such change in the manner provided herein for giving notice. Unless
and until such written notice is received, the addresses as provided herein
shall be deemed to continue in effect for all purposes hereunder.
(c) CHOICE OF LAW. This Agreement shall be governed by and construed
in accordance with the internal laws (and not the law of conflicts of law) of
the State of Delaware.
(d) SEVERABILITY. The parties hereto agree that the terms and
provisions in this Agreement are reasonable and shall be binding and enforceable
in accordance with the terms hereof and, in any event, that the terms and
provisions of this Agreement shall be enforced to the fullest extent permissible
under law. In the event that any term or provision of this Agreement shall for
any reason by adjudged to be unenforceable or invalid, then such unenforceable
or invalid term or provision shall not affect the enforceability or validity of
the remaining terms and provisions of this Agreement, and the parties hereto
hereby agree to replace such unenforceable or invalid term or provision with an
enforceable and valid arrangement which, in its economic effect, shall be as
close as possible to the unenforceable or invalid term or provision.
(e) EXPENSES. The Company agrees to pay and hold Thayer and Holders
of the Registrable Securities harmless from liability for the payment of (i) the
fees and expenses incurred in connection with any requested waiver of the right
of Thayer or the consent of Thayer to contemplated acts of the Company not
otherwise permissible by the terms of this Agreement, (ii) the reasonable fees
and expenses incurred with respect to any amendment to this Agreement proposed
by the Company (whether or not the same becomes effective), (iii) the reasonable
fees and expenses incurred in respect of the enforcement by Thayer of its rights
granted under this Agreement, and (iv) all costs of the Company's performance of
and compliance with this Agreement.
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<PAGE>
(f) PARTIES IN INTEREST. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective permitted successors and assigns of the parties hereto,
whether so expressed or not and, in particular, shall inure to the benefit of
and be enforceable by the Holder or Holders at the time of any of the
Registrable Securities. Subject to the immediately preceding sentence, this
Agreement shall not run to the benefit of or be enforceable by any Person other
than a party to this Agreement and its successors and assigns.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties in separate counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
(h) MODIFICATION, AMENDMENT AND WAIVER. This Agreement may be
amended only in writing with the written consent of all the Holders of the
Registrable Securities and the Company. Neither this Agreement nor any
provision hereof may be changed, waived, discharged or terminated orally or by
course of dealing, but only by a statement in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought, except to the extent provided in this Section 12. Specifically, but
without limiting the generality of the foregoing, the failure of Thayer at any
time or times to require performance of any provision hereof by the Company
shall in no manner affect its right at a later time to enforce the same. No
waiver by any party of the breach of any term or provision contained in this
Agreement, in any one or more instances, shall be deemed to be, or construed as,
a further or continuing waiver of any such breach, or a waiver of the breach of
any other term or covenant contained in this Agreement.
(i) FURTHER ASSURANCES. The parties agree to execute such further
instruments and to take such further action as may reasonably be necessary to
carry out the intent of this Agreement, and the Company specifically agrees to
cooperate affirmatively with Thayer, if any, to the extent reasonably requested
by Thayer, to enforce the rights of Thayer and its assignees hereunder.
(j) HEADINGS. The headings of the Sections and paragraphs of this
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
(k) GENDER AND NUMBER. As used in this Agreement, the masculine,
feminine or neuter gender, and the singular or plural, shall be deemed to
include the others whenever and wherever the context so requires. Additionally,
unless the context requires otherwise, "or" is not exclusive.
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[SIGNATURE PAGE OF SECURITIES PURCHASE
AND REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, or caused this Agreement to be duly executed on their behalf, as of
the day and year first above written.
COMPANY:
--------
ATC COMMUNICATIONS GROUP, INC.,
a Delaware corporation
By:
------------------------------------
Name:
Title:
Address: ATC Communications Group, Inc.
5950 Berkshire Lane
Suite 1650
Dallas, Texas 75225
THAYER:
-------
THAYER EQUITY INVESTORS III, L.P.,
a Delaware limited partnership
By: TC Equity Partners L.L.C.,
Its General Partner
By:
------------------------------------
Name:
Title:
Address: Thayer Capital Partners
1455 Pennsylvania Ave., N.W.
Washington, D.C. 20004
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<PAGE>
WARRANT
TO PURCHASE SHARES OF COMMON STOCK
OF
ATC COMMUNICATIONS GROUP, INC.
THIS WARRANTS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AND NEITHER THESE WARRANTS NOR ANY INTEREST
THEREIN MAY BE TRANSFERRED, HYPOTHECATED OR OTHERWISE DISPOSED OF WITHOUT
REGISTRATION UNDER THAT ACT OR AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
No. W -- 1 Warrant to Purchase One Million One Hundred Thousand (1,100,000)
April 7, 1998 Shares of Common Stock, $.01 Par Value
WARRANT TO PURCHASE COMMON STOCK
of
ATC COMMUNICATIONS GROUP, INC.,
a Delaware corporation
This certifies that, for value received, Thayer Equity Partners
III, L.P. ("THAYER"), or registered assigns (Thayer or any such assign being
referred to herein as "HOLDER") is entitled, subject to the terms set forth
below, to purchase from ATC Communications Group, Inc., a Delaware
corporation (the "COMPANY"), one million one hundred thousand (1,100,000)
shares of Common Stock, $.01 par value, of the Company (such class of stock
being referred to herein as "COMMON STOCK"), as constituted on April 7, 1998
(the "ISSUE DATE"), upon surrender of this Warrant, at the principal office
of the Company referred to below, with the subscription form attached hereto
duly executed, and simultaneous payment therefor in the consideration
specified in Section 1 hereof, at the price of $1.96 per share (the "PURCHASE
PRICE"). The shares of Common Stock issued or issuable upon exercise of this
Warrant are sometimes referred to as the "WARRANT SHARES." The term
"WARRANTS" as used herein shall include this Warrant and any warrants
delivered in substitution or exchange therefor as provided herein. This
Warrant is issued pursuant to the terms of, and is the Warrant referenced in,
that certain Securities Purchase Agreement dated as of April 7, 1998 by and
between the Company and Holder.
<PAGE>
1. EXERCISE AND PAYMENT OF PURCHASE PRICE. This Warrant may be
exercised at any time or from time to time, on any business day, on or after
the later to occur of (i) 90 days after the Issue Date or (ii) the date of
the filing of the Certificate of Merger, duly executed by ATC Merger Sub,
Inc. and IQI, Inc. with the Secretary of State of New York (the "EFFECTIVE
TIME") pursuant to that certain Agreement and Plan of Merger dated April 7,
1998 (the "MERGER AGREEMENT") by and among the Company, ATC Merger Sub, Inc.
and IQI, Inc., in either case for all or part of the full number of shares of
Common Stock during the period of time called for hereby, by surrendering it
at the principal office of the Company, 5950 Berkshire Lane, Suite 1650,
Dallas, Texas 75225, with the subscription form duly executed, together with
payment for the Warrant Shares payable in cash or cash equivalents and/or by
cancellation and delivery of notes evidencing any indebtedness of Company or
any of its subsidiaries. No other form of consideration shall be acceptable
for the exercise of this Warrant. This Warrant shall be deemed to have been
exercised immediately prior to the close of business on the date of its
surrender for exercise as provided above, and the person entitled to receive
the shares of Common Stock issuable upon such exercise shall be treated for
all purposes as the holder of such shares of record as of the close of
business on such date. As soon as practicable on or after such date, and in
any event within 10 days thereof, the Company shall issue and deliver to the
person or persons entitled to receive the same a certificate or certificates
for the number of shares of Common Stock issuable upon such exercise. Upon
any partial exercise, the Company will issue and deliver to Holder a new
Warrant or Warrants with respect to the shares of Common Stock not so
transferred. No fractional shares of Common Stock shall be issued upon
exercise of this Warrant. In lieu of any fractional share to which Holder
would be entitled upon exercise, the Company shall pay cash equal to the
product of such fraction multiplied by the Purchase Price.
2. COMPANY REDEMPTION OF WARRANT. In the event that the Merger
Agreement is terminated for any reason pursuant to Article IX of the Merger
Agreement and the transactions contemplated by the Merger Agreement are not
consummated, the Company shall have the right at any time thereafter to
redeem this Warrant by (i) delivering to Holder written notice of such
redemption and (ii) simultaneously paying Holder an amount equal to ONE
HUNDRED TEN THOUSAND DOLLARS ($110,000) by cashier's check or bank wire
transfer.
3. HOLDER SALE OF WARRANT. In the event that the Merger
Agreement is terminated for any reason pursuant to Article IX of the Merger
Agreement and the transactions contemplated by the Merger Agreement are not
consummated, Holder shall have the right at any time thereafter to require
the Company to redeem this Warrant by (i) delivering written notice to the
Company of Holder's election to require such redemption and (ii) requiring
the Company to pay Holder an amount equal to ONE HUNDRED TEN THOUSAND DOLLARS
($110,000) by cashier's check or bank wire transfer as soon as practicable on
or after the date of such delivery, and in any event within five days thereof.
2
<PAGE>
4. PAYMENT OF TAXES. All shares of Common Stock issued upon the
exercise of this Warrant shall be duly authorized, validly issued and
outstanding, fully paid and non-assessable. Holder shall pay all taxes and
other governmental charges that may be imposed in respect of the issue or
delivery thereof and any tax or other charge imposed in connection with any
transfer involved in the issue of any certificate for shares of Common Stock
in any name other than that of the registered Holder of this Warrant
surrendered in connection with the purchase of such shares, and in such case
the Company shall not be required to issue or deliver any stock certificate
until such tax or other charge has been paid or it has been established to
the Company's satisfaction that no tax or other charge is due.
5. TRANSFER AND EXCHANGE. This Warrant and all rights hereunder
are transferable, in whole or in part to any limited partner of Thayer or any
affiliate (as defined under the Act) of Thayer or Thayer's general partner;
PROVIDED, HOWEVER, that in no event shall the transfer of this Warrant be
effected prior to the Effective Time. If a transfer is effected, this
Warrant is transferable on the books of the Company maintained for such
purpose at its principal office referred to above by Holder in person or by
duly authorized attorney, upon surrender of this Warrant properly endorsed
and upon payment of any necessary transfer tax or other governmental charge
imposed upon such transfer. Each taker and holder of this Warrant, by taking
or holding the same, consents and agrees that this Warrant, when endorsed in
blank, shall be deemed negotiable and that when this Warrant shall have been
so endorsed, the Holder hereof may be treated by the Company and all other
persons dealing with this Warrant as the absolute owner hereof for any
purpose and as the person entitled to exercise the rights represented hereby
or to the transfer hereof on the books of the Company, any notice to the
contrary notwithstanding; but until such transfer on such books, the Company
may treat the registered Holder hereof as the owner for all purposes.
6. CERTAIN ADJUSTMENTS.
6.1 ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER. 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 exercise
of this Warrant) after 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 exercise hereof as
provided in Section 1 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 exercise of this Warrant
prior to such consummation, the stock or other securities or property to
which such Holder would have been entitled upon such consummation if such
Holder had exercised this Warrant immediately prior thereto.
3
<PAGE>
6.2 ADJUSTMENTS FOR DIVIDENDS IN COMMON STOCK. 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 Purchase Price then in effect shall be decreased as of
the time of such issuance or, in the event such record date is fixed, as of
the close of business on such record date, by multiplying the Purchase 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 Purchase Price shall be recomputed accordingly as of the close
of business on such record date and thereafter the Purchase Price shall be
adjusted pursuant to this Section 6.2 as of the time of actual payment of
such dividends.
6.3 STOCK SPLIT AND REVERSE STOCK SPLIT. If the Company at
any time or from time to time after the Issue Date effects a subdivision of
the outstanding Common Stock, the Purchase Price then in effect immediately
before that subdivision shall be proportionately decreased and the number of
shares of Common Stock theretofore receivable upon the exercise of this
Warrant 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 Purchase Price then in
effect immediately before that combination shall be proportionately increased
and the number of shares of Common Stock theretofore receivable upon the
exercise of this Warrant shall be proportionately decreased. Each adjustment
under this Section 6.3 shall become effective at the close of business on the
date the subdivision or combination becomes effective.
6.4 ACCOUNTANTS' CERTIFICATE AS TO ADJUSTMENT. In each case
of an adjustment in the shares of Common Stock receivable on the exercise of
the Warrants, 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 the Warrants 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 each holder of a Warrant at the time outstanding.
7. LOSS OR MUTILATION. Upon receipt by the Company of evidence
satisfactory to it (in the exercise of reasonable discretion) of the
ownership of and the loss, theft, destruction or mutilation of any Warrant
and (in the case of loss, theft or destruction) of indemnity satisfactory to
it (in the exercise of reasonable discretion), and
4
<PAGE>
(in the case of mutilation) upon surrender and cancellation thereof, the
Company will execute and deliver in lieu thereof a new Warrant of like tenor.
8. RESERVATION OF COMMON STOCK. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the exercise of this
Warrant, such number of its shares of Common Stock as shall from time to time
be sufficient to effect exercise of this Warrant; and if at any time the
number of authorized but unissued shares of Common Stock shall not be
sufficient to effect such exercise, the Company will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose.
9. NOTICES OF RECORD DATE. In the event of (i) any taking by the
Company of a record of the holders of any class of securities for the purpose
of determining the holders thereof who are entitled to receive any dividend
or other distribution, or (ii) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company, any
merger or consolidation of the Company with or into any other corporation
(other than a merger of a wholly owned subsidiary into the Company), or any
transfer of all or substantially all of the assets of the Company to any
other person or any voluntary or involuntary dissolution, liquidation or
winding up of the Company, the Company shall mail to the Holder at least
thirty (30) days prior to the record date specified therein, a notice
specifying (1) the date on which any such record is to be taken for the
purpose of such dividend or distribution and a description of such dividend
or distribution, (2) the date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation
or winding up is expected to become effective, and (3) the date, if any, that
is to be fixed, as to when the holders of record of Common Stock (or other
securities) shall be entitled to exchange their shares of Common Stock (or
other securities) for securities or other property deliverable upon such
reorganization, reclassification, transfer, consolidation, merger,
dissolution, liquidation or winding up.
10. INVESTMENT REPRESENTATION AND RESTRICTION ON TRANSFER.
10.1 SECURITIES LAW REQUIREMENTS.
(a) By its acceptance of this Warrant, Holder hereby
represents and warrants to the Company that this Warrant and the Warrant
Shares will be acquired for investment for its own account, not as a nominee
or agent, and not with a view to the sale or distribution of any part
thereof, and that it has no present intention of selling, granting
participations in or otherwise distributing the same. By acceptance of this
Warrant, Holder further represents and warrants that it does not have any
contract,
5
<PAGE>
undertaking, agreement or arrangement with any person to sell, transfer or
grant participations to any person, with respect to this Warrant or the
Warrant Shares.
(b) By its acceptance of this Warrant, Holder
understands that this Warrant is not, and the Warrant Shares will not be,
registered under the Securities Act of 1933, as amended (the "ACT"), on the
basis that the issuance of this Warrant and the Warrant Shares are exempt
from registration under the Act pursuant to Section 4(2) thereof, and that
the Company's reliance on such exemption is predicated on Holder's
representations and warranties set forth herein.
(c) By its acceptance of this Warrant, Holder
understands that this Warrant and the Warrant Shares may not be sold,
transferred, or otherwise disposed of without registration under the Act, or
an exemption therefrom, and that in the absence of an effective registration
statement covering this Warrant and the Warrant Shares or an available
exemption from registration under the Act, this Warrant and the Warrant
Shares must be held indefinitely. In particular, Holder is aware that this
Warrant and the Warrant Shares may not be sold pursuant to Rule 144
promulgated under the Act unless all of the conditions of Rule 144 are
satisfied. Among the conditions for use of Rule 144 are the availability of
current information about the Company to the public, prescribed holding
periods which will commence only upon Holder's payment for the securities
being sold, manner of sale restrictions, volume limitations and certain other
restrictions. By its acceptance of this Warrant, Holder represents and
warrants that, in the absence of an effective registration statement covering
this Warrant or the Warrant Shares, it will sell, transfer or otherwise
dispose of this Warrant and the Warrant Shares only in a manner consistent
with its representations and warranties set forth herein and then only in
accordance with the provisions of Section 10.1(d).
(d) By its acceptance of this Warrant, Holder agrees
that in no event will it transfer or dispose of any of the Warrants or the
Warrant Shares other than pursuant to an effective registration statement
under the Act, unless and until (i) Holder shall have notified the Company of
the proposed disposition and shall have furnished the Company with a
statement of the circumstances surrounding the disposition, and (ii) if
reasonably requested by the Company, at the expense of the Holder or
transferee, it shall have furnished to the Company an opinion of counsel,
reasonably satisfactory to the Company, to the effect that (A) such transfer
may be made without registration under the Act and (B) such transfer or
disposition will not cause the termination or the non-applicability of any
exemption to the registration and prospectus delivery requirements of the Act
or to the qualification or registration requirements of the securities laws
of any other jurisdiction on which the Company relied in issuing this Warrant
or the Warrant Shares.
6
<PAGE>
10.2 LEGENDS; STOP TRANSFER.
(a) All certificates evidencing the Warrant Shares shall
bear a legend in substantially the following form:
The securities represented by this certificate have not been
registered under the Securities Act of 1933. These securities have
been acquired for investment and not with a view to distribution and
may not be offered for sale, sold, pledged or otherwise transferred in
the absence of an effective registration statement for such securities
under the Securities Act of 1933 or an opinion of counsel reasonably
satisfactory in form and content to the issuer that such registration
is not required under such Act.
(b) The certificates evidencing the Warrant Shares shall
also bear any legend required by any applicable state securities law.
(c) In addition, the Company shall make, or cause its
transfer agent to make, a notation regarding the transfer restrictions of
this Warrant and the Warrant Shares in its stock books, and this Warrant and
the Warrant Shares shall be transferred on the books of the Company only if
transferred or sold pursuant to an effective registration statement under the
Act covering the same or pursuant to and in compliance with the provisions of
Section 10.1(d).
11. NOTICES. All notices and other communications from the
Company to the Holder of this Warrant shall be mailed by first-class
registered or certified mail, postage prepaid, to the address furnished to
the Company by Holder.
12. CHANGE; WAIVER. Neither this Warrant nor any term hereof may
be changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
13. HEADINGS. The headings in this Warrant are for purposes of
convenience in reference only, and shall not be deemed to constitute a part
hereof.
14. GOVERNING LAW. This Warrant shall be construed and enforced
in accordance with and governed by the internal laws, and not the law of
conflicts, of the State of Delaware.
7
<PAGE>
[SIGNATURE PAGE TO WARRANT]
ATC COMMUNICATIONS GROUP, INC.,
A DELAWARE CORPORATION
By:
---------------------------------------
Its:
--------------------------------------
8
<PAGE>
SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
The undersigned, registered owner of this Warrant, irrevocably
exercises this Warrant and purchases ____________ of the number of shares of
Common Stock, $.01 par value, of ATC COMMUNICATIONS GROUP, INC., a Delaware
corporation, purchasable with this Warrant, and herewith makes payment
therefor, all at the price and on the terms and conditions specified in this
Warrant.
DATED:
---------------
---------------------------------------
(Signature of Registered Owner)
---------------------------------------
(Street Address)
---------------------------------------
(City) (State) (Zip)
<PAGE>
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT (the "AGREEMENT") dated June ___, 1998 is
entered into by and among ATC Communications Group, Inc., a Delaware
corporation (the "Company") and the stockholders of the Company identified
on the signature pages hereto ("Stockholders").
1. DEFINITIONS. The following terms shall have the following meanings
for the purposes of this Agreement:
(a) "COMMON STOCK" means the common stock, par value $0.01 per share,
of the Company.
(b) "THE COMPANY" means ATC Communications Group, Inc.
(c) "PERSON" means any individual, firm, corporation, partnership,
limited liability company, trust, joint venture, pension fund, governmental
authority, or other entity.
(d) "STOCKHOLDER" means any Person that is, as of the date of this
Agreement, or becomes, at any subsequent time, a party to this Agreement.
The Stockholders as of the date of this Agreement are listed on the signature
pages hereto.
(e) "THAYER" means Thayer Equity Investors III, L.P.
(f) "IQI PARTIES" means Thayer Equity Investors III, L.P., ITC Services
Company, Edward Blank and The Edward Blank 1995 Grantor Retained Annuity
Trust.
(g) "ATC PARTIES" means Michael G. Santry, Darryl D. Pounds and
Codinvest Limited.
(h) "IQI REPRESENTATIVE" means Rick Rickertson, or, in the event of his
death or legal incapacity or replacement as the IQI Representative, that
individual who is identified by written notice by the IQI Parties to the ATC
Parties as the IQI Representative.
(i) "ATC REPRESENTATIVE" means Michael G. Santry, or, in the event of
his death or legal incapacity or replacement as the ATC Representative, that
individual who is identified by written notice by the ATC Parties to the IQI
Parties as the ATC Representative.
2. VOTING.
The Stockholders agree that until the second anniversary of this
Agreement or its earlier termination by the mutual agreement of the parties
hereto, the IQI Parties shall vote their shares
<PAGE>
of Common Stock for the election of the nominees to the Board of Directors of
the Company identified by the ATC Representative, and the ATC Parties shall
vote their shares of Common Stock for the election of the nominees to the
Board of Directors of the Company identified by the IQI Representative.
3. MISCELLANEOUS.
(a) NOTICES. Except as otherwise expressly provided in this Agreement,
all notices, requests, and other communications to any party hereunder shall
be in writing (including a facsimile or similar writing) and shall be given
to such party at the address or facsimile number specified for such party on
the signature pages hereto or as such party shall hereafter specify for that
purpose by notice to the other parties. Each such notice, request, or other
communication shall be effective (i) if given by facsimile, at the time such
facsimile is transmitted and the appropriate confirmation is received (or, if
such time is not during a business day, at the beginning of the next such
business day), (ii) if given by mail, three business days (or, if to an
address outside the United States, seven calendar days) after such
communication is deposited in the mails with first-class postage prepaid,
addressed as aforesaid, or (iii) if given by any other means, when delivered
at the address specified pursuant to this Section 3(a).
(b) NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to
confer any rights or remedies hereunder upon, and shall not be enforceable
by, any Person other than the parties hereto.
(c) WAIVER. No failure by any party to insist upon the strict
performance of any covenant, agreement, term, or condition of this Agreement
or to exercise any right or remedy consequent upon a breach of such or any
other covenant, agreement, term, or condition shall operate as a waiver of
such or any other covenant, agreement, term, or condition of this Agreement.
Any Person by notice given in accordance with Section 3(a) may, but shall not
be under any obligation to, waive any of its rights or conditions to its
obligations hereunder, or any duty, obligation, or covenant of any other
Person. No waiver shall affect or alter the remainder of this Agreement, but
each and every covenant, agreement, term, and condition hereof shall continue
in full force and effect with respect to any other then existing or
subsequent breach. The rights and remedies provided by this Agreement are
cumulative, and the exercise of any one right or remedy by any party shall
not preclude or waive its right to exercise any or all other rights or
remedies.
(d) INTEGRATION. This Agreement constitutes the entire agreement among
the parties to this Agreement pertaining to the subject matter of this
Agreement and supersedes all prior agreements and understandings of the
parties in connection with the subject matter of this Agreement, and no
covenant, representation, or condition not expressed in this Agreement shall
affect, or be effective to interpret, change, or restrict, the express
provisions of this Agreement.
(e) COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which,
taken together, shall constitute one and the same instrument, which may be
sufficiently evidenced by one counterpart.
2
<PAGE>
(f) SEVERABILITY. Each provision of this Agreement shall be considered
separable and if for any reason any provision or provisions hereof are
determined to be invalid and contrary to any existing of future law, such
invalidity shall not impair the operation of or affect those portions of this
Agreement that are valid.
(g) APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware without giving effect to
the conflicts of law principles thereof.
(h) NON-ASSIGNABILITY. All of the rights and obligations of the
parties to this Agreement are intended to be exercisable and fulfilled by the
parties themselves, as presently constituted. None of those rights or
obligations may be assigned, assumed, or transferred without the written
informed consent of the counterparties.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
as of the day and year first above written.
THAYER EQUITY INVESTORS III, L.P.
By:
--------------------------
Title:
-----------------------
Date:
------------------------
ITC Services Company
By:
--------------------------
Title:
-----------------------
Date:
------------------------
- -----------------------------
Edward Blank
THE EDWARD BLANK 1995 Grantor Retained Annuity Trust
By:
--------------------------
Title:
-----------------------
Date:
------------------------
Codinvest Limited
By:
--------------------------
Title:
-----------------------
Date:
------------------------
3
<PAGE>
- ------------------------------
Michael G. Santry
- ------------------------------
Darryl D. Pounds
4
<PAGE>
IRREVOCABLE PROXY AGREEMENT
Each undersigned stockholder of IQI, Inc., a New York corporation (the
"COMPANY"), hereby irrevocably appoints Michael G. Santry and Matthew Waller,
and each of them, or any other designee of ATC Communications Group, Inc.,
Inc., a Delaware corporation ("BUYER"), the attorneys-in-fact and proxies of
such stockholder, each with full power of substitution:
(a) to attend any meeting (whether annual, special or both) of the
stockholders of the Company, including any adjournment or postponement
thereof, on behalf of such stockholder, and at such meeting, with respect
to all shares of common stock of the Company, $.001 par value per share
("COMPANY COMMON STOCK"), owned by such stockholder on the date hereof or
acquired hereafter that are entitled to vote at such meeting or over which
such stockholder has voting power (and any and all shares of common stock
of the Company or other securities issued on or after the date hereof in
respect of any of such shares), including, without limitation, the shares
of Company Common Stock indicated following such stockholder's signature at
the end of this proxy:
(i) to vote in favor of the Merger (as such term is defined in
the Agreement and Plan of Merger (the "MERGER AGREEMENT") among the
Company, Buyer and ATC Merger Sub, Inc. Acquisition Corp., a New York
corporation and wholly-owned subsidiary of Buyer ("SUB"), dated as of
the date hereof) as set forth in the Merger Agreement or on
substantially the same terms, and otherwise to act with respect to
such shares as each such attorney and proxy or his substitute shall
deem necessary or appropriate for such purpose;
(ii) to vote and otherwise act with respect to such shares in
such manner as each such attorney and proxy or his substitute shall
deem proper, with respect to (x) proposals or offers (other than the
Merger) relating to (1) any proposed sale, lease or other disposition
of all or a substantial amount of the assets of the Company or any of
its subsidiaries, (2) any proposed merger, consolidation or other
combination of the Company or any of its subsidiaries with any other
entity other than Buyer or a subsidiary of Buyer, (3) any sale, lease
or other disposition of the shares of any subsidiary of the Company,
(4) any other proposed action of the Company or any of its
subsidiaries requiring stockholder approval that would conflict with
or violate the Company's representations, warranties, covenants or
obligations under the Merger Agreement, adversely affect the Company's
ability to consummate the transactions contemplated by the Merger
Agreement or otherwise impede, interfere with or discourage the Merger
(each of the actions described in (1) through (4) above, an
"ACQUISITION PROPOSAL"), and (y) any procedural matters presented at
any such meeting at which any action is scheduled to be taken with
respect to the Merger or any Acquisition Proposal;
<PAGE>
(b) to execute and deliver one or more consents in writing (pursuant
to the New York Business Corporation Law (the "NYBCL")) in lieu of such
meeting or adjournment thereof;
(c) if no such meeting of stockholders is scheduled in accordance
with the Merger Agreement, or any such meeting is canceled or adjourned,
and no action is taken by written consent in lieu thereof, to call a
special meeting of the stockholders of the Company or to act by written
consent for the purpose of (i) approving the Merger or any action with
respect thereto or (ii) taking action with respect to any Acquisition
Proposal; and
(d) to waive for the term of this proxy any and all rights of such
stockholder to exercise any rights as an objecting or dissenting
stockholder to the Merger under the NYBCL.
Each undersigned stockholder agrees (a) (i) to take all action necessary
to call or cause the Company to call a meeting of the stockholders of the
Company, to be held no later than forty-five days after the date on which the
Registration Statement on Form S-4 with respect to the shares of Buyer common
stock, $.01 par value per share ("BUYER COMMON STOCK"), to be issued in the
Merger is declared effective, for the purpose of approving the Merger, and
shall use its best efforts to cause such meeting to be held on its scheduled
date, or (ii) to take such action by written consent in lieu thereof as is
necessary to effect such approval; (b) not to deposit any of its shares of
Company Common Stock into a voting trust or enter into a voting agreement
with respect to such shares; (c) not to sell, transfer or otherwise dispose
of or pledge or otherwise encumber any shares of Company Common Stock or
options or warrants to purchase such shares owned by such stockholder, unless
the purchaser or transferee of such shares or rights agrees in writing (a
copy of which shall be delivered by such stockholder to Buyer) prior to such
sale, transfer or disposition to be bound by and subject to the provisions
contained in this Proxy Agreement; and (d) not, in its capacity as
stockholder, to actively approach any third party regarding any Acquisition
Proposal.
Each undersigned stockholder affirms that this Proxy Agreement is issued
in connection with the Merger Agreement to facilitate the transactions
contemplated thereunder and in consideration of Buyer entering into the
Merger Agreement and as such is coupled with an interest and is irrevocable.
This Proxy Agreement will terminate upon the earlier to occur of (a) the
closing of the transactions described in the Merger Agreement or (b) the
termination of the Merger Agreement in accordance with its terms. For
purposes of this Proxy Agreement, any notice of any stockholders' meeting and
any written consent shall be deemed delivered to such attorneys and proxies
and their substitutes when delivered to Buyer in accordance with the Merger
Agreement, and any written consent shall be deemed delivered to the Company
when delivered to it in accordance with the Merger Agreement.
By execution and delivery of this Proxy Agreement to the designees of
Buyer, each undersigned stockholder confirms that such stockholder has
received a copy of a substantially final form of the Merger Agreement, and
that all other information deemed necessary by such
<PAGE>
stockholder concerning the Merger, the Merger Agreement and the transactions
contemplated thereunder or any other matters considered by such stockholder
to be relevant to the decision to execute this Proxy Agreement has been made
available to such stockholder.
All authority herein conferred or agreed to be conferred shall survive
the death, dissolution, liquidation or incapacity of any undersigned
stockholder and any obligation of any undersigned stockholder hereunder shall
be binding upon the heirs, personal representatives, successors and assigns
of such undersigned stockholder. This Proxy Agreement revokes any and all
other proxies and options heretofore granted by each and any undersigned
stockholder to vote or otherwise to act with respect to any of the shares to
which this Proxy Agreement relates. No undersigned stockholder will give any
subsequent proxy or option (any such proxy or option if given will be deemed
not to be effective) with respect to such shares that purports to grant
authority within the scope of authority hereby conferred, except on the
express condition that such proxy or option shall not be effective unless and
until this Proxy Agreement shall have terminated in accordance with its
terms.
Each undersigned stockholder acknowledges that money damages would be
both incalculable and an insufficient remedy for any breach of this Proxy
Agreement by it and that any such breach would cause Buyer and Sub
irreparable harm. Accordingly, each undersigned stockholder agrees that in
the event of any breach or threatened breach of this Proxy Agreement, Buyer,
in addition to any other remedy available at law or in equity, shall be
entitled, without the requirement of posting a bond or other security, to
equitable relief, including injunctive relief and specific performance.
The invalidity or unenforceability of any provision of this Proxy
Agreement in any jurisdiction shall not affect the validity or enforceability
of any other provision of this Proxy Agreement in such jurisdiction, or the
validity or enforceability of any provision of this Proxy Agreement in any
other jurisdiction.
THIS PROXY AGREEMENT SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE
OF NEW YORK.
Each undersigned stockholder represents and warrants that, as of the
date hereof, such stockholder owns or possesses voting power with respect to
the number of shares of Company Common Stock set forth such stockholder's
name below, free and clear of all liens, claims and encumbrances of any kind.
This Proxy Agreement may be executed in one or more counterparts, each
of which shall be deemed an original and all of which together shall
constitute one and the same instrument.
[remainder of page intentionally left blank]
<PAGE>
Dated to be effective as of March ___, 1998.
---------------------------------
By:
-----------------------------
Its:
----------------------------
Shares of Common Stock:
---------
---------------------------------
By:
-----------------------------
Its:
----------------------------
Shares of Common Stock:
---------
---------------------------------
By:
-----------------------------
Its:
----------------------------
Shares of Common Stock:
---------
<PAGE>
DRAFT
4/3/98
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") dated June __, 1998 is entered
into by and among ATC Communications Group, Inc., a Delaware corporation
("Buyer"), _______________ (the "Representative"), as representative of the
shareholders ("Shareholders") of IQI, Inc. (the "Company") and Harris Trust
and Savings Bank as escrow agent hereunder (the "Escrow Agent").
RECITALS:
Pursuant to that certain Agreement and Plan of Merger dated as of April
__, 1998 by and among Buyer, the Company and ATC Merger Sub, Inc. (the
"Merger Agreement"), the Company is merging with ATC Merger Sub, Inc. and
becoming a wholly-owned subsidiary of Buyer, and in connection with the
merger, the Shareholders are receiving common stock of the Company.
The Merger Agreement provides that an escrow fund comprised of shares of
Buyer Common Stock to be issued to the Shareholders in the merger shall be
established to secure the Shareholders' obligation to indemnify Buyer (and
its officers, directors, employees and agents) against certain Damages under
ARTICLE X of the Merger Agreement. For purposes of this Agreement, Buyer and
such other parties entitled to indemnification under ARTICLE X are
collectively referred to as "Buyer."
Accordingly, Buyer, Shareholders and the Escrow Agent have agreed to
enter into this Agreement relating to the Escrowed Shares (as defined below).
For convenience, the Shareholders have named the Representative as their
representative and have given the Representative the authority to take
certain actions on their behalf with respect to the Escrowed Shares and the
matters referred to in this Agreement.
NOW, THEREFORE, for good, valid and binding consideration, the receipt
and adequacy of which is hereby acknowledged, the parties hereto, intending
to be legally bound, hereby, agree as follows:
1. Except as otherwise defined herein, the capitalized terms used in
this Agreement shall have the meanings ascribed to them in the Merger
Agreement.
2. Pursuant to the terms and conditions of the Merger Agreement,
__________ shares of Buyer Common Stock issued in the name of the Escrow
Agent have been delivered to the Escrow Agent to secure the Shareholders'
indemnification obligations under ARTICLE X of the Merger Agreement (the
"Escrowed Shares"). The Escrowed Shares shall be held by the Escrow Agent
upon the terms and conditions contained herein and shall be released by the
Escrow Agent in
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<PAGE>
accordance with this Agreement. The Escrow Agent agrees that it does not and
shall not have any right of set-off or other rights or claims with respect to
the Escrowed Shares, except as set forth specifically in this Agreement.
3. (a) The Escrow Agent, upon receipt of a certificate from Buyer in
substantially the form of EXHIBIT I attached hereto (a "Certificate of
Instruction"), shall, not later than the business day next following its
receipt of such Certificate of Instruction, give written notice to the
Representative of its receipt, together with a copy, of such Certificate of
Instruction. Concurrent with the delivery of the Certificate of Instruction
to the Escrow Agent, Buyer shall deliver to the Representative written notice
setting forth in reasonable detail the facts giving rise to the claim
contained in the Certificate of Instruction.
(b) If the Escrow Agent (i) shall not, within twenty (20) days after it
shall have given such notice to the Representative, have received from the
Representative a certificate in substantially the form of EXHIBIT II attached
hereto (an "Objection Certificate") in respect of the Certificate of
Instruction to which such notice relates or (ii) shall have received such an
Objection Certificate within such twenty (20) days and shall thereafter have
received a copy of a joint notice signed by the Representative, and by Buyer,
or an award of an arbitrator pursuant to SECTION 3(c) of this Agreement to
the effect that the Owed Amount (as defined in the Certificate of
Instruction) referred to in such Certificate of Instruction or a specified
portion thereof, constitutes Damages against which Buyer may apply all or a
portion of the Escrowed Shares (valued, for this purpose, at $_____ per share
(the "Share Price")), then the Escrow Agent shall, on the business day next
following the expiration of such twenty (20) days or the receipt by the
Escrow Agent of such award, as applicable, release to Buyer from the Escrowed
Shares a number of shares of Buyer Common Stock equal to the applicable Owed
Amount (or portion thereof) divided by the Share Price.
(c) Upon receipt of an Objection Certificate, the Escrow Agent shall,
not later than the business day next following receipt thereof, give written
notice to Buyer of its receipt together with a copy of said Objection
Certificate. In the event that the Representative and Buyer are unable to
informally resolve any dispute with respect to all or a specified portion of
an Owed Amount through discussion and negotiation within thirty (30) days
after the date of the Objection Certificate, such dispute for all or a
specified portion, as applicable, of an Owed Amount shall be referred by
Buyer to binding arbitration in accordance with SECTION 11.08 of the Merger
Agreement. All of Escrow Agent's reasonable fees and expenses incurred in
connection with any such dispute resolution process or arbitration shall be
paid by the parties in the same manner as the arbitrator's fees and expenses
as set forth in SECTION 11.08 of the Merger Agreement.
(d) Upon receipt by the Escrow Agent of a copy of a joint notice from
Buyer and the Representative, or an award of an arbitrator to the effect that
the Owed Amount (or a specified portion thereof) referred to in a Certificate
of Instruction in respect of which the Escrow Agent had received an Objection
Certificate is not an amount properly payable as Damages against which the
Escrowed Shares may be applied, such Certificate of Instruction (or such
specified portion of the
2
<PAGE>
Owed Amount set forth therein) shall be deemed canceled. Escrow Agent shall
have no duty to determine if the arbitrator's award is final or binding, but
may act in accordance therewith.
(e) Upon determining that it has no claim or has released its claim
with respect to an Owed Amount referred to in a Certificate of Instruction or
a specified portion of the Owed Amount set forth therein, Buyer shall
promptly give notice in writing to the Escrow Agent to cancel such
Certificate of Instruction (or such specified portion).
4. As soon as practicable after the 60th day following delivery of the
audit opinion and audited consolidated financial statements of Buyer and the
Company for the fiscal year ending December 31, 1998, the Escrow Agent shall
release to Shareholders any remaining Escrowed Shares in accordance with the
written instruction of the Representative; PROVIDED, HOWEVER, that if Buyer
has notified the Representative on or prior to the Expiration Date of Damages
sustained or the assertion of any claim or the commencement of any action or
proceeding with respect to which Damages are expected to occur, Buyer and the
Representative shall notify the Escrow Agent with a Certificate of Claim (in
substantially the same form as EXHIBIT III attached hereto), and the Escrow
Agent shall retain a number of Escrowed Shares that, based on the good faith
estimate of the Representative and Buyer of the maximum amount that is
reasonably likely to become such Damages, would be adequate to recompense
Buyer if such Damages were incurred, all as set forth in the Certificate of
Claim (which Certificate of Claim shall not constitute an acknowledgment of
the Representative that the amount set forth therein represents Damages
actually incurred by Buyer). Any dispute regarding the amount necessary to
recompense Buyer shall be resolved as set forth in SECTION 3(c) hereof. When
the amount of such Damages is paid, payment is provided for or the claim is
otherwise resolved and the Escrow Agent has been given notice thereof, any
remaining Escrowed Shares still held in escrow in respect of such Damages
shall be released promptly to Shareholders in accordance with the written
instructions of the Representative. Upon the release by the Escrow Agent to
Shareholders of the balance remaining of the Escrowed Shares, this Agreement
shall automatically terminate, except for the provisions of the Agreement
affecting the reimbursement of expenses, indemnity and fees of Escrow Agent.
Cash dividends distributable in respect of the escrowed shares, if any, shall
be promptly distributed by the Escrow Agent to Shareholders in accordance
with the written restrictions of the Representative.
5. The duties and obligations of the Escrow Agent shall be determined
solely by the provisions of this Agreement, and the Escrow Agent shall not be
liable except for the performance of such duties and obligations as are
specifically set forth in this Agreement and there are no implied duties
herein. In furtherance and not in limitation of the foregoing:
(i) the Escrow Agent shall be fully protected in relying in good
faith upon any written certification, notice, direction, request, waiver,
consent, receipt or other document that the Escrow Agent believes to be
genuine and duly authorized, executed and delivered;
(ii) the Escrow Agent shall not be liable for any error of judgment,
or for any act done or omitted by it, or for any mistake in fact or law, or
for anything that it may do or refrain from doing in connection therewith,
including its own mere negligence; PROVIDED,
3
<PAGE>
HOWEVER, that notwithstanding any other provision of this Agreement, the
Escrow Agent shall be liable for its willful misconduct, recklessness or
gross negligence; Shareholders, and Buyer, jointly and severally agree to
indemnify Escrow Agent for, and to hold it harmless against, any damages,
liability or expense (including, without limitation, reasonable attorneys'
fees) incurred by it without gross negligence, recklessness or willful
misconduct on its part arising out of or in connection with its entering
into this Agreement and the carrying out of its duties hereunder, including
the costs and expenses of defending itself against any claim of liability
arising out of this Agreement, it being the express intent to indemnify and
hold the Escrow Agent harmless against its own mere negligence. The costs
and expenses of enforcing the right of indemnification shall also be paid
by Buyer and Shareholders, jointly and severally. This right of
indemnification shall survive the termination of this Escrow Agreement, and
the removal or resignation of the Escrow Agent;
(iii) the Escrow Agent may seek the advice of legal counsel in the
event of any dispute or question as to the construction of any of the
provisions of this Agreement or its duties hereunder, and it shall incur no
liability and shall be fully protected in respect of any action taken,
omitted or suffered by it in good faith in accordance with the opinion of
such counsel;
(iv) in the event that the Escrow Agent shall in any instance in good
faith be uncertain as to its duties or rights hereunder, it shall be
entitled to refrain from taking any action in that instance and its sole
obligation, subject to those of its duties hereunder as to which there is
no such uncertainty, shall be to keep safely all property held in escrow
until it shall be directed otherwise in writing by the Representative and
Buyer or by a final order or judgment of a court of competent jurisdiction
which shall be accompanied by a legal opinion of the presenting party
satisfactory to the Escrow Agent to the effect that such opinion or
judgment is final and enforceable and is not subject to further appeal;
(v) the Escrow Agent shall not be required to institute legal
proceedings of any kind and shall not be required to initiate or defend any
legal proceedings which may be instituted against it in respect of the
subject matter of these instructions; PROVIDED, HOWEVER, in the event of
any conflicting or inconsistent claims or demands being made in connection
with the subject matter of this Agreement, or in the event that Escrow
Agent is in doubt as to what action it should take hereunder, Escrow Agent
is hereby authorized to petition any court of competent jurisdiction for
instructions or to interplead the funds or assets so held into such court.
The parties agree to the jurisdiction of such court over their persons as
well as the Escrowed Shares, waive personal service of process, and agree
that service of process by certified or registered mail, return receipt
requested, to the business addresses set forth in this Agreement shall
constitute adequate service. Shareholders, on the one hand, and Buyer, on
the other hand, jointly and severally agree to indemnify and hold Escrow
Agent harmless from any liability or damages occasioned thereby and to pay
any and all of its cost, expenses, and reasonable attorneys' fees incurred
in any such action and agree that, upon the filing of such petition or
interpleader action, Escrow Agent, its servants, agents, employees or
officers will be relieved of further liability; and
4
<PAGE>
(vi) it is strictly understood that Escrow Agent has no duty to
disburse any Escrowed Shares to any person until such Escrowed Shares have
been received by Escrow Agent and those Escrowed Shares are available for
disbursement. All parties acknowledge and agree that Escrow Agent is
acting solely and exclusively as a custodian hereunder.
6. Escrow Agent is entitled to its reasonable fees and costs,
including reasonable attorneys' fees, as set forth in ATTACHMENT A. Fees are
payable in advance as compensation for the ordinary administrative services
to be rendered hereunder and the Buyer and Shareholders agree to pay all fees
and expenses, jointly and severally. To the extent such fees and expenses
are not paid by the undersigned, the Buyer and Representative will jointly
instruct the Escrow Agent to sell a portion of the Escrowed Shares at their
fair market value in an amount sufficient to pay any such fees or expenses.
The Escrow Agent shall provide written notice to Buyer and the Representative
of any such sale.
7. The Representative and Buyer severally agree to provide to the
Escrow Agent all instruments and documents within their respective powers to
provide which may be necessary for the Escrow Agent to perform its duties and
responsibilities hereunder.
8. Any notices or other communication required or permitted under this
Agreement shall be in writing and shall be delivered personally, sent by
facsimile transmission or sent by certified, registered or express mail,
postage prepaid. Notices shall not be deemed to be given until actually
received.
(a) If to Buyer to:
------------------
------------------
------------------
------------------
------------------
with a copy to:
Hughes & Luce, L.L.P.
1717 Main Street, Suite 2800
Dallas, Texas 75201
(214) 939-5500 (telephone)
(214) 939-6100 (telecopy)
Attention: Kenneth G. Hawari
5
<PAGE>
(b) If to the Representative as follows:
------------------
------------------
------------------
------------------
with a copy to:
Paul, Hastings, Janofsky & Walker LLP
Twenty-Third Floor
555 South Flower Street
Los Angeles, California 90071
Attention: Robert A. Miller, Jr.
(c) If to Escrow Agent to:
Harris Trust and Savings Bank
311 West Monroe Street, 12th Floor
Chicago, Illinois 60606
(312) 461-2420 (telephone)
(312) 461-3525 (telecopy)
Attention: Escrow Division/[Marianne Tinerella]
Any party may by notice given in accordance with this SECTION 8 to the other
parties designate another address or person for receipt of notices hereunder.
9. The Escrow Agent may at any time resign hereunder by giving written
notice of its resignation to the parties hereto at their addresses set forth
in this Agreement, at least 10 business days prior to the date specified for
such resignation to take effect. Upon the effective date of such
resignation, all property then held by the Escrow Agent hereunder shall be
delivered by it to such person as may be designated in writing by each of the
other parties hereto (and the parties shall use reasonable best efforts to
name a successor escrow agent prior to the date specified for the Escrow
Agent's resignation to take effect), whereupon all the Escrow Agent's
obligations hereunder shall, except as hereinafter provided, cease and
terminate. If no such person shall have been so designated by such date, all
obligations of the Escrow Agent hereunder shall nevertheless, except as
hereinafter provided, cease and terminate. The Escrow Agent's sole
responsibility thereafter shall be to keep safely all property then held by
it and to deliver the same to a person designated by each of the other
parties hereto or in accordance with the directions of a final order or
judgment or a court of competent jurisdiction. A termination under this
paragraph shall in no way discharge the provisions of this Agreement
affecting the reimbursement of expenses, indemnity and fees of Escrow Agent.
6
<PAGE>
10. The Representative shall have the right, in its sole discretion, on
behalf of, and as directed by, the Shareholders, to direct the Escrow Agent
in writing as to the exercise of any voting rights pertaining to the Escrowed
Shares, and the Escrow Agent shall comply with any such written instructions.
[(a) Except as expressly provided herein and to the extent created under
the Merger Agreement, neither Shareholders nor Buyer shall have any legal or
equitable right, title or interest, either actual or contingent, in or to the
Escrowed Shares, and the Escrowed Shares shall not constitute the legal or
equitable property of either Shareholders or Buyer. Neither Shareholders nor
Buyer shall have the right or ability to transfer, pledge, convey, hypothecate
or grant, either outright or as security, the Escrowed Shares except as
expressly provided herein. If either Shareholders or Buyer is determined to
have any right, title or interest in or to the Escrowed Shares, Shareholders' or
Buyer's, as applicable, right, title and interest shall be limited to, at most,
bare legal title to the Escrowed Shares; provided, further, that in the event of
the commencement of a bankruptcy case or cases wherein a Shareholder or Buyer is
the debtor, the applicable Escrowed Shares shall not constitute property of the
debtor's estate within the meaning of 11 U.S.C. Section 541. No creditor of
either Shareholders or Buyer shall have any right to have or to hold the
Escrowed Shares in satisfaction of any claim or as collateral for any
obligation, and shall not be able to obtain a security interest in the Escrowed
Shares.]
[(b) Solely in the event that Shareholders are deemed to have any right,
title or interest in or to the Escrowed Shares, Shareholders hereby grant to
Buyer a security interest in (i) Shareholders' right, title or interest in or to
the Escrowed Shares, and (ii) Shareholders' right, title or interest in or under
this Agreement. Solely in the event that Buyer is deemed to have any right,
title or interest in or to the Escrowed Shares, Buyer hereby grants to
Shareholders a security interest in (y) Buyer's right, title or interest in or
to the Escrowed Shares, and (z) Buyer's right, title or interest in or under
this Agreement. Buyer and Shareholders may perfect the security interest so
granted herein, and each shall cooperate with any reasonable request of the
other in connection therewith. Notwithstanding the foregoing, the Escrow Agent
shall not be obligated to agree to anything concerning perfection which modifies
this Agreement or increases its duties hereunder without its express written
consent.]
11. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE SUBSTANTIVE LAWS (BUT NOT THE CHOICE OF LAW PROVISIONS) OF THE STATE
OF NEW YORK.
12. The obligations of the parties hereto (including the Escrow Agent)
are unique in that time is of the essence, and any delay in performance
hereunder by any party will result in irreparable harm to the other parties
hereto. Accordingly, any party may seek specific performance and/or
injunctive relief before any court of competent jurisdiction in order to
enforce this Agreement or to prevent violations of the provisions hereof, and
no party shall object to specific performance or injunctive relief as an
appropriate remedy. The Escrow Agent acknowledges that its obligations, as
well as the obligations of the Representative and Buyer hereunder, are
subject to the equitable remedy of specific performance and/or injunctive
relief.
7
<PAGE>
13. This Agreement may be amended, superseded, canceled, renewed or
extended, and the terms hereof may be waived, only by a written instrument
executed by the parties, or in the case of a waiver, by the party waiving
compliance. No delay on the part of any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof, nor shall any
waiver on the part of any party of any such right, power or privilege, or any
single or partial exercise of any such right, power or privilege, preclude
any further exercise thereof or the exercise of any other such right, power,
or privilege. No waivers of or exceptions to any term, condition or provision
of this Agreement, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such term, condition or
provision.
14. This Agreement shall be binding upon and inure to the benefit of
the parties and their respective successors and permitted assigns and legal
representatives. Neither this Agreement nor any of the rights, interests, or
obligations hereunder shall be assigned by any of the parties hereto without
the prior written consent of the other parties. No person or entity shall be
deemed a third party beneficiary of this Agreement and the Escrow Agent shall
have no duties or obligations to any such person, and Escrow Agent may
disregard any instruction from such person.
15. This Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the
same instrument. Counterpart signature pages may be executed and delivered
pursuant to facsimile transmission.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
8
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement on the
day and year first above written.
ATC COMMUNICATIONS GROUP, INC.
By:
------------------------------------
Its:
-----------------------------------
[REPRESENTATIVE]
By:
------------------------------------
Its:
-----------------------------------
[ESCROW AGENT]
By:
------------------------------------
Its:
-----------------------------------
9
<PAGE>
EXHIBIT I
CERTIFICATE OF INSTRUCTION
TO
________________________,
AS ESCROW AGENT
The undersigned, ATC Communications Group, Inc., a Delaware corporation
("Buyer"), pursuant to SECTION 3 of the Escrow Agreement dated as of June __,
1998 (the "Escrow Agreement"), by and among Buyer, the Representative and you
as the Escrow Agent (terms defined in the Escrow Agreement have the same
meanings when used herein), hereby:
(a) certifies that (i) $________ (the "Owed Amount") has been
incurred by Buyer as Damages against which Buyer may apply the Escrowed
Shares pursuant to the Escrow Agreement and (ii) Buyer has given the
Representative written notice thereof and its intent to apply the Escrowed
Shares against such Damages, which written notice sets forth in reasonable
detail the facts giving rise to the liability for such payment; and
(b) instructs you to release to Buyer from the Escrowed Shares a
number of Shares of Buyer Common Stock equal to the Owed Amount divided by
the Share Price as provided in Section 3 of the Escrow Agreement.
ATC COMMUNICATIONS GROUP, INC.
By:
------------------------------------
Its:
-----------------------------------
Dated:
----------------
<PAGE>
EXHIBIT II
OBJECTION CERTIFICATE
TO
________________________,
AS ESCROW AGENT
The undersigned, [Representative], pursuant to SECTION 3 of the Escrow
Agreement dated as of June __, 1998 (the "Escrow Agreement"), by and among
ATC Communications Group, Inc., the Representative, and you as the Escrow
Agent (terms defined in the Escrow Agreement have the same meanings when used
herein), hereby:
(a) certifies that (i) the [Owed Amount/$_____ of the Owed Amount]
referred to in the certificate to you of Buyer dated ______________, 19___,
is not Damages against which Buyer may apply the Escrowed Shares in
accordance with the Escrow Agreement and (ii) the undersigned has delivered
to Buyer a written statement dated _____________, 19___, setting forth in
reasonable detail the facts supporting the statement contained in clause
(i) above; and
(b) object to your making payment to Buyer of the [Owed
Amount/$_______ of the Owed Amount] as provided in such certificate of
Buyer.
Dated:
----------------
[REPRESENTATIVE]
By:
------------------------------------
Its:
-----------------------------------
<PAGE>
EXHIBIT III
CERTIFICATE OF CLAIM
TO
________________________,
AS ESCROW AGENT
Each of the undersigned, ATC Communications Group, Inc., a Delaware
corporation ("Buyer"), and the Representative, pursuant to the Escrow
Agreement dated as of June __, 1998 (the "Escrow Agreement"), by and among
the Representative, Buyer and you as the Escrow Agent (terms defined in the
Escrow Agreement have the same meanings when used herein) hereby:
(a) certifies that Buyer has given a written notice dated _____________,
19____, to the Representative setting forth in reasonable detail facts which
in Buyer's good faith judgment are reasonably likely to result in Buyer
incurring Damages against which Buyer may apply the Escrowed Shares in
accordance with the Escrow Agreement, and
(b) the Representative's and Buyer's good faith estimate of the maximum
amount that is reasonably likely to become such Damages as a result of the
foregoing claim is $__________.
[REPRESENTATIVE]
By:
------------------------------------
Its:
-----------------------------------
ATC COMMUNICATIONS GROUP, INC.
By:
------------------------------------
Its:
-----------------------------------
Dated:
---------------
<PAGE>
April 7, 1998
ATC Communications Group, Inc.
5950 Berkshire Lane
Suite 1650
Dallas, Texas 75225
Re: Promissory Note (the "NOTE") dated September 16, 1997 in the original
principal amount of $3,661,505.39 by Michael G. Santry in favor of ATC
Communications Group, Inc. ("ATC")
Ladies and Gentlemen:
This letter is written to you in connection with that certain
Agreement and Plan of Merger dated as of the date hereof among ATC, ATC
Merger Sub, Inc. and IQI, Inc. (the "MERGER AGREEMENT"). The purpose of this
letter is to set forth the agreement of the undersigned and you with respect
to the following matters:
1. The third paragraph of the Note is hereby amended to read in
its entirety as follows:
"The accrued but unpaid interest on this Note shall be payable in
quarterly installments, payable on the last business day of each calendar
quarter until all indebtedness under this Note has been paid in full. A
principal payment equal to not less than $1,830,573 shall be paid on or
prior to June 30, 1998, together with all accrued but unpaid interest
thereon. All remaining principal and accrued but unpaid interest shall be
due and payable on March 31, 1999."
2. The sixth paragraph of the Note is hereby amended to read in
its entirety as follows:
"Under the terms of the Pledge Agreement, as security for payment of
Maker's obligations hereunder, Codinvest Limited has granted to the Company
a security interest in 4,672,897 shares of the Common Stock of Computer
Integration Corp., a Delaware corporation (the "CIC SHARES"). In addition,
under the terms of that certain Stock Pledge Agreement dated as of April 7,
1998 between Maker and the Company, Maker has granted to the Company a
security interest in all shares of Common Stock of the Company over which
Maker shall
<PAGE>
ATC Communications Group, Inc.
April 7, 1998
Page 2
obtain legal or beneficial ownership (the "COMPANY SHARES"). The CIC
Shares and the Company Shares are collectively referred to herein as the
"COLLATERAL."
3. The amendments to the Note set forth in paragraphs 1 and 2 of
this letter are expressly conditioned on the consummation of the transactions
contemplated by the Merger Agreement on or before June 30, 1998. In the
event that such transactions are not consummated by such date, this letter
shall be null and void and cease to have any further force or effect.
If the foregoing comports with your understanding of our agreement
with respect to the matters set forth herein, please so acknowledge by
signing this letter in the space provided below.
Very truly yours,
Michael G. Santry
ACKNOWLEDGED AND AGREED:
ATC Communications Group, Inc.
By:
-----------------------------
Its:
----------------------------
Date:
---------------------------
<PAGE>
STOCK PLEDGE AGREEMENT
This STOCK PLEDGE AGREEMENT dated as of April 7, 1997 (the
"Agreement"), by and between Michael G. Santry, an individual having an address
at _____ (the "Pledgor"), and ATC Communications Group, Inc., a Delaware
corporation, having an address of 5950 Berkshire Lane, Suite 1650, Dallas, Texas
75225 (together with all successors and assigns, the "Lender"):
W I T N E S S E T H:
WHEREAS, Pledgor has borrowed $3,661,505.39 from Lender (the "Loan")
evidenced by a Promissory Note dated September 16, 1997 made by Pledgor and
payable to Lender in the principal amount of $3,661,505.39 (the "Note"), as
amended by that certain Letter Agreement dated as of the date hereof; and
WHEREAS, the Pledgor has agreed to pledge the Pledged Stock (as
defined in Section 1(a) of this Agreement) to Lender as collateral security for
the repayment of the Loan, all upon the terms and subject to the conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency whereof are hereby acknowledged, the parties hereby
agree as follows:
Section 1. GRANT OF SECURITY INTERESTS. The Pledgor hereby
pledges, assigns, transfers and delivers to Lender a continuing security
interest in all shares of Common Stock, par value $.01 per share, of Lender
("Lender Common Stock") which the Pledgor owns now or over which the Pledgor in
the future obtains legal or beneficial ownership, including without limitation
all shares of Lender Common Stock received by the Pledgor upon the exercise of
options to acquire shares of Lender Common Stock which have been granted to the
Pledgor on or prior to the date hereof or which may be granted to Pledgor in the
future, together with the proceeds thereof and any other property or money held
hereunder or any part thereof (collectively, the "Pledged Stock"), all upon the
terms and subject to the conditions set forth herein. The Pledged Stock shall
constitute security for the timely and full payment of all amounts due and
payable under the Loan.
Section 2. PLEDGED STOCK DELIVERY AND DOCUMENTATION. Upon the
acquisition by the Pledgor of any Pledged Stock, the Pledgor shall promptly
deliver to
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<PAGE>
Lender the original certificates representing the Pledged Stock, endorsed in
blank (which endorsement shall be undated) or with an undated stock
assignment power endorsed in blank.
Section 3. FURTHER ASSURANCES. The Pledgor agrees to do such
further acts and things and to execute and deliver such additional documentation
as Lender from time to time may reasonably request in connection with the
administration or enforcement of this Agreement, or to perfect Lender's security
interest in the additional collateral that constitutes Pledged Stock under this
Agreement, whether related to the Pledged Stock or any part thereof, to
evidence, confirm, perfect or protect any security interest granted or required
to have been granted hereunder or in order better to assure and confirm unto
Lender its rights, powers and remedies hereunder.
Section 4. REPRESENTATIONS AND WARRANTIES. To induce the Lender
to enter into this Agreement, the Pledgor represents and warrants to the Lender
that:
(a) the execution, delivery and performance by him of this
Agreement (i) will not violate or be in conflict with any applicable law
(including, without limitation, any applicable federal or state securities or
similar law) and (ii) will not violate, be in conflict with, result in a breach
of or constitute, with the giving of notice, the passage of time, or both, a
default under any material indenture, agreement or other instrument to which he
is a party or by which he or any of his properties or assets is or may be bound
or subject;
(b) this Agreement constitutes the legal, valid and binding
obligation of the Pledgor, enforceable against the Pledgor in accordance with
its terms;
(c) none of the Pledged Stock is now, or will be in the future,
subject to any security interest, lien or other encumbrance or any adverse claim
of any kind or nature whatsoever, except for the security interest granted
hereunder to Lender, and any assignee of all or any portion of the Pledged Stock
is entitled to receive payments with respect thereto without any defense,
counterclaim, set-off, abatement, reduction, recoupment or other claim of any
kind or nature whatsoever;
(d) there are no actions, suits or proceedings (whether or not
purportedly on behalf of the Pledgor) pending or threatened against the Pledgor
and related to the Pledge Stock or the Pledgor's equity interest therein;
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<PAGE>
(e) all consents or approvals, if any, required as a condition
precedent to or in connection with the due and valid execution and delivery by
the Pledgor of this Agreement have been obtained;
(f) the Pledged Stock will only be transferrable under an
effective registration statement under the Securities Act of 1933, as amended,
in compliance with Rule 144 of the rules and regulations under such Act, or
pursuant to any other applicable exception under such Act;
(g) the Pledgor is not engaged principally in, nor has as one of
his important activities, the business of extending credit for the purpose of
purchasing or carrying any "margin stock" (within the meaning of Regulations G,
T, U and X of the Board of Governors of the Federal Reserve System of the United
States of America, as amended to the date hereof) and, if requested by Lender,
the Pledgor will furnish to Lender a statement on Federal Reserve Form U-1; and
(h) no part of the proceeds of the Loan were used, whether
directly or indirectly, and whether incidentally or ultimately, (i) to purchase
or to carry margin stock or to extend credit to others for the purpose of
purchasing or carrying margin stock, or to refund indebtedness originally
incurred for such purposes, or (ii) for any purpose which violates or is
inconsistent with the provisions of Regulations G, T, U and X of the Board of
Governors of the Federal Reserve System.
Section 5. COVENANTS. The Pledgor covenants and agrees that, from
the date hereof and until payment and performance in full of all amounts due
under the Loan, the Pledgor shall not sell, transfer or otherwise dispose or
agree to dispose of (other than by operation of law, as in the case of Pledgor's
death) all or any portion of the Pledged Stock, without first obtaining the
written consent of Lender to such sale, transfer or disposition; shall not
further pledge, assign or deliver a security interest in the Pledged Stock, or
amend, modify, supplement or waive any provisions of the Pledged Stock; and
shall not suffer or permit any lien or encumbrance to be created upon or with
respect to any of the Pledged Stock, except for the security interest granted
hereunder to Lender.
Section 6. LITIGATION RESPECTING PLEDGED STOCK. In the event any
action, suit or other proceeding at law, in equity, in arbitration or before any
other authority relating to the Pledgor, the Pledged Stock, or the Pledgor's
equity interest therein is contemplated by the Pledgor or is otherwise
commenced, the Pledgor shall give the Lender immediate notice thereof and shall
furnish Lender with such indemnity as may reasonably be requested by Lender.
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Section 7. RIGHTS AND DUTIES OF THE PLEDGOR WITH RESPECT TO THE
PLEDGED STOCK. Subject to the provisions of this Agreement and unless there
shall have occurred an Event of Default pursuant to the Note:
(a) The Pledgor shall be entitled to exercise any and all
voting, waiver or consensual rights and powers relating or pertaining to the
Pledged Stock or any part thereof for any purpose not inconsistent with the
terms of this Agreement.
(b) The Pledgor shall be entitled to receive and retain any and
all cash dividends payable on the Pledged Stock, but any and all stock or
liquidating dividends or other distributions of cash or other assets or
properties made on, in respect of, upon, in redemption of, in exchange for or in
payment of principal of the Pledged Stock (whether resulting from a subdivision,
combination or reclassification of the outstanding capital stock or any issuer
thereof, any merger, consolidation, acquisition or other exchange of assets or
securities to which any such issuer may be a party, any conversion, call or
redemption, or otherwise) shall be and become part of the Pledged Stock pledged
under this Agreement, and, if received by the Pledgor, shall be delivered
immediately to the Lender or its designee (accompanied by the documentation
required under this Agreement) to be held as Pledged Stock pursuant to this
Agreement.
(c) The Lender shall execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies, powers of attorney,
dividend orders, interest coupons and other instruments as the Pledgor may
reasonably request for the purpose of enabling the Pledgor to exercise the
voting or consensual rights and powers that it is entitled to exercise pursuant
to subsection (a) of this Section 7 and to receive the dividends and interest
payments that it is authorized to receive and retain pursuant to subsection (b)
of this Section 7.
Section 8. RIGHTS OF LENDER TO THE PLEDGED STOCK.
(a) In the event of an occurrence of an Event of Default under
the Note, the Lender in its sole and absolute discretion may take any or more of
the following actions:
(i) further notify all parties, if any, interested in any
of the Pledged Stock of the interest of the Lender therein and of any
action proposed to be taken with respect thereto, and inform any of those
parties that all payments otherwise payable to the Pledgor with respect
thereto shall be made to the Lender until all amounts due under the Loan
have been paid in full;
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(ii) receive and retain all payments of any kind with
respect to any and all of the Pledged Stock;
(iii) take such action with respect to the sale, assignment
and delivery of the whole of, or from time to time anyone or more items
of, the Pledged Stock, including, without limitation, to sell, assign and
deliver the whole of, or from time to time any part of, the Pledged Stock
at any private sale or at public auction, for cash, for credit or for other
property, for immediate or future delivery, and for such price or prices
and on such terms as the Lender in its sole and absolute discretion may
determine, and the Lender may bid for and purchase the whole or any portion
of the Pledged Stock so sold free from any right or equity of redemption;
to adjourn any such sale or cause the same to be adjourned at the time and
place fixed for the sale; and to carry out any agreement to sell all or
any portion of the Pledged Stock in accordance with the terms of such
agreement, any requirement of reasonable notice imposed by law to be
deemed met if such notice is in writing and is mailed, telegraphed or
hand delivered to the Pledgor at least three days prior to the sale,
disposition or other event giving rise to such notice requirement;
(iv) otherwise use or deal from time to time with the
Pledged Stock, in whole or in part, in all respects as if the Lender were
the outright owner thereof; and
(v) in addition to, and not by way of limitation of, any of
the rights specified above, exercise any and all rights and remedies
afforded to the Lender as a secured party in possession of collateral or
otherwise, under any and all provisions of applicable law, including, but
not limited to, the Uniform Commercial Code as adopted by the State of
Texas.
(b) The Lender shall collect the cash proceeds received from any
sale or other disposition or from any other source contemplated by subsection
(a) of this Section 8 and shall apply the full proceeds in accordance with the
provisions of this Agreement.
(c) If all amounts due and payable under the Note have not been
repaid to Lender on or prior to March 31, 1999, Pledgor, upon the written
request of Lender (which written request may be delivered any time after March
31, 1999), shall exercise all options to purchase shares of Lender Common Stock
which (i) have vested as of the date of such written request and (ii) have an
exercise price per share which is lower than the market price per share on the
date of such written request; PROVIDED, HOWEVER,
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that any such exercise of a stock option shall only be required only to the
extent that terms of the relevant option agreement or related stock option
plan permit the "cashless exercise" of such stock option. All shares of
Lender Common Stock received upon any such exercise of a stock option shall
be delivered to Lender in accordance with the provisions of this Agreement.
(d) Notwithstanding the foregoing, none of the provisions of
this Section 8 shall confer on the Lender any rights or privileges that are not
permissible under applicable law.
(e) In connection with the provisions of this Agreement, the
Pledgor from time to time shall promptly execute and deliver, or cause to be
executed and delivered, to the Lender such reasonable documents and instruments,
shall join in such notices and shall take, or cause to be taken, such other
reasonable and lawful action as the Lender shall deem necessary or desirable to
enable it to exercise any of the rights with respect to the Pledged Stock
granted to it pursuant to this Agreement.
Section 9. APPLICATION OF FUNDS. In the event that an Event of
Default has occurred under the Note and all amounts due thereunder have not been
paid in full by the Pledgor, any funds received from or on behalf of the Pledgor
under this Agreement by the Lender shall be applied to the following items:
(a) to payment of all amounts due under the Loan; and
(b) to return any remainder to the Pledgor.
Section 10. POWER OF ATTORNEY. With respect to the Pledged Stock
that the Lender or its designee holds hereunder, the Pledgor hereby irrevocably
makes, constitutes and appoints, effective upon the occurrence of an Event of
Default under the Note and all amounts due thereunder being declared due and
payable and not being paid by the Pledgor, the Lender and each of the Lender's
officers and each of them, with full power of substitution, as the Pledgor's
true and lawful attorneys-in-fact with full power, from time to time, in the
Pledgor's name, place and stead, subject to Section 8 hereof, to (a) transfer
the Pledged Stock on the books of Lender, in whole or in part, to the name of
the Lender or such other person or persons as the Lender may designate; (b) take
possession of an endorse any one or more checks, drafts, bills of exchange,
money orders or any other documents received on account of the Pledged Stock;
(c) collect, sue for and give acquittances for monies due on account of the
foregoing; (d) withdraw any claims, suites or proceedings pertaining to or
arising out of the foregoing; (e) execute and record or file on behalf of the
Pledgor any evidence of a security interest contemplated by this
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Agreement or any refiling, continuation or extension thereof; (f) take any
other action contemplated by this Agreement; and (g) sign, execute,
acknowledge, swear to, verify, deliver, file, record and publish any one or
more of the foregoing. This power of attorney is hereby declared to be
irrevocable, with full power of substitution and coupled with interest. This
power of attorney shall survive the bankruptcy of the Pledgor and shall
extend to and be binding upon the Pledgor's successors or assigns. This
power of attorney may be exercised by any one of the above named
attorneys-in-fact, or by an substitute designated by any of those
attorneys-in-fact. A facsimile signature shall be effective if so affixed.
Section 11. TERMINATION OF SECURITY INTEREST. The security
interest of the Lender hereunder shall terminate when all amounts due and
payable under the Loan shall have been fully paid and satisfied. Upon such
complete satisfaction Lender shall reassign, release and/or deliver to the
Pledgor all Pledged Stock then held by the Lender.
Section 12. NOTICES. All notices, certificates or other
communications permitted or required to be given hereunder shall be sufficiently
given and shall be deemed given when delivered or when mailed by registered or
certified mail, postage prepaid to the addressee thereof at their respective
addresses as set forth below or at such other address as either party hereto may
designate to the other party hereto by notice given in accordance with this
Section 12.
If to the Pledgor: Michael G. Santry
--------------------------------
--------------------------------
--------------------------------
--------------------------------
If to the Lender: ATC Communications Group, Inc.
5950 Berkshire Lane
Suite 1650
Dallas, Texas 75225
Attn: Chief Financial Officer
Section 13. SECTION HEADINGS; DEFINITIONS. The Section headings
contained in this Agreement are for reference purposes only and shall not affect
the meaning or interpretation of this Agreement.
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Section 14. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas and applicable
federal law, without regard to principles of conflict of laws.
Section 15. SEVERABILITY. In the event that any provision of this
Agreement shall be determined to be superseded, invalid or otherwise
unenforceable pursuant to applicable law, such determination shall not affect
the validity of the balance of this Agreement, and the remaining provisions of
this Agreement shall be enforced as if the invalid provisions were deleted.
Section 16. SURVIVAL OF REPRESENTATIONS, ETC. All representations,
warranties, covenants and other agreements made herein shall survive the
execution and delivery of this Agreement and shall continue in full force and
effect until all amounts due and payable under the Loan shall have been paid in
full. This Agreement shall remain and continue in full force and effect without
regard to any modification, extension, renewal, amendment or waiver of any
provision of the Note.
Section 17. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
Section 18. SUCCESSORS AND ASSIGNS. Whenever in this Agreement
reference is made to any party, such reference shall be deemed to include the
successors and assigns of that part, and, without limiting the generality of the
foregoing, all covenants, agreements, representations and warranties made by or
on behalf of the Pledgor in this Agreement shall inure to the successors and
assigns of the Lender; provided, however, that nothing herein shall be deemed to
authorize or permit the Pledgor to assign any of his rights or obligations
hereunder to any other person or entity and the Pledgor agrees that he shall not
make any such assignment.
Section 19. NO WAIVER BY INACTION, ETC. Any waiver or consent
respecting any covenant, representation, warranty or other term or provision of
this Agreement shall be effective only in the specified instance and for the
specific purpose for which given and shall not be deemed regardless of frequency
given, to be a further or continuing waiver or consent. The failure or delay of
the Lender at any time or times to require performance of, or to exercise its
rights with respect to any representation, warranty, covenant or other term or
provision of this Agreement in no manner shall affect its right at a later time
to enforce any such provision. No notice to or demand on a party in any case
shall entitle such party to any other or further notice or demand in the same,
similar or other circumstances.
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Section 20. MODIFICATION, AMENDMENT, ETC. Each and every
modification and amendment of this Agreement shall be in writing and signed by
the parties hereto and each and every waiver of, and consent to any departure
from, any covenant, representation, warranty or other provision of this
Agreement shall be in writing and signed by the party adversely affected by such
waiver or consent.
Section 21. ENTIRE AGREEMENT. This Agreement contains the entire
agreement of the parties and supersedes all other representations, agreements
and understandings, oral or otherwise, between the parties with respect to the
matters contained herein.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first written above.
PLEDGOR:
-------------------------------
Michael G. Santry
LENDER:
ATC Communications Group, Inc.
By:
----------------------------
Title:
-------------------------
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SUBORDINATION AND INTERCREDITOR AGREEMENT
BETWEEN
THAYER EQUITY INVESTORS III, L.P.
AND
BANK ONE, TEXAS, N.A.
This Subordination and Intercreditor Agreement (herein called the
"Subordination Agreement" or the "Agreement"), dated May 4, 1998 is executed by
THAYER EQUITY INVESTORS III, L.P. ("THAYER") and BANK ONE, TEXAS, N.A.("BANK
ONE").
R E C I T A L S
WHEREAS, Advanced Telemarketing Corporation, a Nevada corporation
(together, with its successors and assigns and any receiver, trustee or
debtor-in-possession of any such Person, the "BORROWER") and Bank One have
entered into that certain Loan and Security Agreement dated February 8, 1996, as
amended, in respect to loans in the principal sum of up to $13,000,000. ATC
Communications Group, Inc., a Delaware corporation ("PARENT") and the owner of
98.94% of all of the issued and outstanding capital stock of Borrower, has
granted to Bank One a first priority security interest and pledge in and to the
capital stock (the "PLEDGED STOCK") of Borrower described in that certain Pledge
Agreement dated March 31, 1998, as amended, executed by Parent to secure all
indebtedness, now or hereafter existing, of Borrower to Bank One.
WHEREAS, Parent, ATC Merger Sub, Inc. and IQI, Inc. have entered into an
Agreement and Plan of Merger dated April 7, 1998 (the "PLAN OF MERGER"); and
WHEREAS, Borrower has requested a $2,000,000 bridge loan (the "BRIDGE
LOAN") from Bank One to finance working capital requirements pending the merger
contemplated by the Plan of Merger (the "MERGER"); and
WHEREAS, Thayer has agreed to cause an irrevocable standby letter of credit
to be issued by The Bank of Nova Scotia in the amount of $2,000,000 of which the
Bank One will be the beneficiary to secure the repayment of the Bridge Loan
requested by Borrower (the "LETTER OF CREDIT"); and
WHEREAS, Borrower is granting to Thayer junior security interests in all of
its assets to secure the obligations of Borrower to Thayer under that certain
Reimbursement and Indemnification Agreement between Borrower and Thayer and
dated on or about the date hereof (the "REIMBURSEMENT AGREEMENT"). Parent is
granting to Thayer a junior security interest and pledge in
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the Pledged Stock and a promissory note made by Michael Santry to the order of
Parent to secure the obligations of Borrower to Thayer under such
Reimbursement and Indemnity Agreement; and
WHEREAS, Bank One will hold the certificates representing the Pledged Stock
for itself pursuant to the pledge by Parent and, with respect to Thayer, Bank
One will hold such certificates for perfection purposes only and otherwise only
as set forth under this Agreement.
NOW, THEREFORE, Bank One and Thayer agree to the following terms and
provisions:
AGREEMENT
1. Capitalized terms used herein and not otherwise defined shall have the
meanings given to such terms in SECTION 20 herein.
2. With respect to the Letter of Credit, Senior Creditor and Junior Creditor
agree as follows:
(a) The Letter of Credit shall be in the amount of $2,000,000 and have an
expiration date of no earlier than February 28, 1999. Bank One shall be
the beneficiary of the Letter of Credit.
(b) Senior Creditor may draw on the Letter of Credit only if it has
determined in good faith that an Event of Default has occurred and is
existing under the Loan Agreement either (i) as an Event of Default under
Section 16(a) of the Loan Agreement (a "PAYMENT DEFAULT") or (ii) as an
Event of Default arising under any one or more of the following subsections
of Section 16(n) of the Loan Agreement: subsection (i), (ii), (iii), (iv),
(v), (vi), (x), (xi) or (xii) (a "FINANCIAL COVENANT DEFAULT"). Senior
Creditor shall have no liability whatsoever to Junior Creditor for making
any draw under the Letter of Credit if it made a determination in good
faith that a Payment Default or a Financial Covenant default had occurred
and was existing even if a court of competent jurisdiction later finds that
such determination was incorrect.
(c) Any draws that Senior Creditor makes on the Letter of Credit will be
applied to principal and accrued interest outstanding under the Bridge
Loan.
(d) If the Operations Manager of the Asset Based Lending Group of Bank One
receives a written notice from Thayer prior to 10:30 a.m. Dallas, Texas
time on any Business Day stating that it is exercising its right, under the
terms of the Reimbursement Agreement, to direct Bank One to cease making
Bridge Loans under the Loan Agreement, then that part of any draw
thereafter made on the Letter of Credit for principal outstanding under the
Bridge Loan shall not exceed the principal outstanding on the Bridge Loan
as of end of business on the Business Day immediately preceding the
Business Day on which such notice is actually received by such Manager. If
such notice is received by the Manager of the Asset Based
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Lending Group of Bank One after 10:30 a.m., Dallas, Texas time on any
Business Day, then that part of any draw thereafter made on the Letter of
Credit for principal outstanding under the Bridge Loan shall not exceed
the principal outstanding on the Bridge Loan as of end of business on the
Business Day on which such notice is actually received by such Manager,
including, without limitation, any advances on the Bridge Loan made on
such Business Day after receipt of such notice.
(e) Senior Creditor agrees to provide to Junior Creditor a copy of any
demand for payment of, or notice of intent to accelerate, the Senior
Obligations contemporaneously with sending such demand or notice to
Borrower. Junior Creditor agrees to provide to Senior Creditor a copy of
any demand for payment of, or notice of intent to accelerate, the
Subordinated Obligations contemporaneously with sending such demand or
notice to Borrower.
3 Except as otherwise provided herein, during the term hereof, Junior
Creditor agrees to subordinate and does hereby subordinate payment and
performance by Borrower of all or any part of the Subordinated Obligations
(except as provided in SECTION 5), together with all Liens of Junior Creditor in
any Assets owned by Borrower and in the Pledged Stock securing the payment and
performance of the Subordinated Obligations, to the prior payment and
performance in full in cash to Senior Creditor of any and all Senior Obligations
and any Liens granted to Senior Creditor therefor.
4 Except as otherwise provided herein and as otherwise permitted by Senior
Creditor by a prior written consent, during the term hereof, Junior Creditor
agrees (i) not to receive or accept payment or prepayment of all or any part of
the Subordinated Obligations, (ii) not to enforce Junior Creditor's rights to
any security for the Subordinated Obligations (other than as permitted in
SECTION 6(b)), (iii) not to ask for, demand, take or receive any security for
the Subordinated Obligations (other than as permitted in SECTION 6(b)), (iv)
not to commence any action against Borrower or any other Person now or hereafter
liable for any of the Subordinated Obligations (other than as permitted in
SECTION 6(b)(ii)), (v) not to commence or join with any creditor in bringing any
Proceeding against Borrower or any other Person now or hereafter liable for any
of the Subordinated Obligations, and (vi) that it shall not be entitled to
exercise any right of subrogation or contribution with respect to Senior
Obligations.
5 (a) Notwithstanding any other provision herein and as long as no Event of
Default has occured and is continuing under the Loan Agreement, Junior Creditor
may accept and retain for its own account regularly scheduled payments of
interest and principal on the Subordinated Obligations on or after February 28,
1999.
(b) In the event that the Senior Obligations have been accelerated
(whether upon maturity or otherwise), Senior Creditor shall have no obligation
to Junior Creditor to liquidate the collateral securing the Senior Obligations
but may, without affecting or impairing the subordination set forth herein,
accept payments from Borrower over any time period deemed reasonable by Senior
Creditor
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in its sole discretion during which period Senior Creditor may, in its sole
discretion, continue to finance the operations of Borrower.
6. (a) Borrower and Junior Creditor acknowledge and agree that the
Subordinated Obligations are not secured by any Asset of Borrower except the
Second Lien Properties and, during the term hereof, with respect to the
Subordinated Obligations, Junior Creditor shall not acquire, by subrogation,
contract or otherwise, any Lien or other right, title or interest upon any
estate, right, title and/or interest in the Assets of Borrower other than the
its junior Lien in the Second Lien Properties (including but not limited to (i)
any which may arise in respect to taxes, assessments or other governmental
charges and (ii) any right, claim or Lien which Junior Creditor may acquire by
subrogation as a result of the reimbursement of The Bank of Nova Scotia for
draws made under the Letter of Credit) which is or may be prior in right to, or
pari passu with, the Liens therein of Senior Creditor. Any Lien granted in
violation hereof shall be null and void.
(b) Senior Creditor has agreed, subject to the terms of this Agreement,
that Borrower may grant to Junior Creditor a second and subordinate Lien in all
assets of Borrower and that Parent may grant to Junior Creditor a second and
subordinate Lien in the Pledged Stock and that certain promissory note dated as
of September 16, 1997 from Michael Santry to Parent in the original principal
amount of $3,661,505.39 (such assets of Borrower, Pledged Stock and such note
are referred to herein as the "SECOND LIEN PROPERTIES"). Junior Creditor agrees
(1) that its Lien in the Second Lien Properties (whether acquired directly from
Borrower or Parent, acquired by subrogation or otherwise) shall at all times be
subordinate and junior to the Lien of Senior Creditor, (2) that the terms and
provisions of this Agreement shall be applicable to Junior Creditor in its
status as a junior lienholder as well as in its status as the holder of the
Subordinated Obligations (such as, by way of example, but not limitation, the
waiver of marshalling set forth in SECTION 12) and (3) that Junior Creditor
also agrees to the following:
(i) Junior Creditor's Liens in and to the Second Lien Properties
(including, without limitation, Liens acquired by subrogation as a result
of the reimbursement of The Bank of Nova Scotia for draws made under the
Letter of Credit or otherwise) shall at all times be and remain second and
subordinate to Senior Creditor's Liens therein, whether Senior Creditor's
Lines are now existing or are hereafter created, (as such senior Liens may
be extended, amended or modified from time to time), regardless of the
order of creation, attachment, perfection, filing, recording, execution or
delivery of such Liens and regardless of any law, rule or regulation which
can be varied by agreement. Junior Creditor agrees to take such further
action and to execute and record such agreements as Senior Creditor shall
at any time request to confirm that the Senior Creditor's Liens are first
and prior to Junior Creditor's Liens. In the event that any agreement
creating any Lien held by Senior Creditor is declared void or unenforceable
so that with respect to any of the Second Lien Properties, Junior
Creditor's Lien becomes the first Lien, Junior Creditor agrees (i) that any
subsequent Lien in such Asset granted to Senior Creditor shall be first and
prior and agrees to execute and record such agreements as may be requested
by Senior Creditor to establish that such new Lien held by Senior Creditor
is first and prior and that the Lien held by Junior Creditor is
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second and junior and (ii) that any proceeds Junior Creditor receives by
virtue of its Lien will be held in trust for Senior Creditor and promptly
paid to Senior Creditor for application on the Senior Obligations until
the Senior Obligations are paid in full in cash.
(ii) Except as permitted by this subsection (ii), Junior Creditor agrees
that it will not take any action to enforce its junior Liens against the
Second Lien Properties, or any part thereof, until all of the Senior
Obligations have been paid in full in cash to Senior Creditor and the Loan
Agreement has been terminated. Furthermore, Junior Creditor will not take
any action (including without limitation pursuing any action or filing any
motion or pleading before any judicial tribunal) to hinder or obstruct
Senior Creditor from exercising any of its rights as a secured creditor or
lienholder against the Second Lien Properties or any part thereof.
Nevertheless, if the Letter of Credit is drawn upon by Senior Creditor and
Borrower fails to reimburse Junior Creditor in full, on or before the later
of (i) March 30, 1999 or (ii) thirty (30) days after Junior Creditor
demands payment from Borrower (the "DEMAND"), for all amounts Junior
Creditor has paid or owes to The Bank of Nova Scotia as a result of such
draw on the Letter of Credit, then Junior Creditor may exercise its rights
as a junior secured creditor against the Pledged Stock of Borrower; the
exercise of any of such rights shall not alter or impair Senior Creditor's
first and prior Lien in the Pledged Stock. Furthermore, commencing on that
date which is 360 days after Junior Creditor makes the Demand, Junior
Creditor may exercise any of its rights as a secured creditor against the
Second Lien Properties; the exercise of any of such rights shall not alter
or impair Senior Creditor's first and prior Lien in the Second Lien
Properties.
(iii) Junior Creditor agrees that until the Senior Obligations have
been paid in full in cash to Senior Creditor and the Loan Agreement has
been terminated, Junior Creditor will not exercise any of its rights or
remedies as the holder of a Lien in the Second Lien Properties (other than
as permitted by subsection (ii) immediately preceding) and Junior
Creditor's only right as the holder of a Lien in the Second Lien Properties
shall be to receive the excess, if any, of the proceeds of the Second Lien
Properties after payment in full in cash of the Senior Obligations.
(iv) JUNIOR CREDITOR AGREES THAT SENIOR CREDITOR MAY ACT WITH RESPECT TO
THE SECOND LIEN PROPERTIES AS IF JUNIOR CREDITOR'S LIENS THEREIN DID NOT
EXIST AND WILL HAVE NO OBLIGATIONS TO JUNIOR CREDITOR AS THE HOLDER OF A
SECOND LIEN, AND JUNIOR CREDITOR EXPRESSLY WAIVES AND RELEASES ANY AND ALL
CLAIMS AND CAUSES OF ACTION THAT IT MAY AT ANY TIME HAVE AGAINST SENIOR
CREDITOR THAT RELATE IN ANY WAY TO THE SECOND LIEN PROPERTIES OR ANY PART
THEROF OR THE LIEN OF JUNIOR CREIDTOR THEREIN OR THE ACTIONS OF SENIOR
CREDITOR WITH RESPECT TO THE SECOND LIEN PROPERTIES, WHETHER SUCH CLAIMS OR
CAUSES OF ACTION ARISE IN CONTRACT, TORT OR OTHERWISE. SENIOR CREDITOR
WOULD NOT HAVE AGREED TO THE GRANT OF THE JUNIOR LIENS TO JUNIOR CREDITOR
WITHOUT ALL OF THE PROVISIONS OF THIS AGREEMENT AND IN PARTICULAR THE
WAIVER OF CLAIMS AND CAUSES OF ACTION SET FORTH HEREIN.
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7 In the event of any Proceeding involving Borrower, all amounts payable
under or on account of the Senior Obligations shall first be paid in full in
cash before Junior Creditor shall be entitled to receive any Distribution on
account of the Subordinated Obligations.
8 During the term hereof, if any Distribution is received by Junior Creditor
for application on the Subordinated Obligations which Junior Creditor is not
entitled to retain under the terms of this Subordination Agreement, Junior
Creditor will hold such Distribution in trust for Senior Creditor and will
deliver same to Senior Creditor not later than five (5) business days following
(a) Junior Creditor's determination that it has received any such Distribution
or (b) a written request therefor from Senior Creditor.
9 Junior Creditor irrevocably authorizes and empowers Senior Creditor, and
appoints Senior Creditor as attorney-in-fact, effective upon the institution of
any Proceeding in which Borrower is a debtor to file a proof of claim in the
name and stead of Junior Creditor with respect to the Subordinated Obligations
if thirty (30) days before the bar date in any such Proceeding, Junior Creditor
has not filed a proof of claim describing the Subordinated Obligations.
10 No right or remedy of any present or future holder of any Senior
Obligation, and no covenant, agreement, obligation or liability hereunder of any
present or future holder of any Subordinated Obligations, shall at any time in
any way be discharged, prejudiced, impaired or otherwise affected by any of the
following, regardless of any knowledge of any of the following that any holder
of the Senior Obligations or any holder of the Subordinated Obligations may or
may not have or otherwise be charged with: (i) any act or failure to act on the
part of the Borrower and/or any of its affiliates or any act or failure to act,
or any waiver, consent or acquiescence by any holder of any of the Subordinated
Obligations or any noncompliance by Borrower and/or any of its affiliates with
the terms, provisions and covenants of this Subordination Agreement, the Senior
Obligations or the Subordinated Obligations, or (ii) as applicable, any
consolidation, merger or amalgamation of, or the effectuation of any other
change whatever in the name, membership, constitution or place of formation of,
Borrower and/or any of its affiliates. Without in any way limiting the
generality of the foregoing sentence, the Senior Creditor may, at any time and
from time to time, with or without the consent of or notice to the Junior
Creditor, without incurring responsibility to the Junior Creditor and without
impairing or releasing the subordination provided herein or the obligations of
the Junior Creditor to the Senior Creditor, do any one or more of the following:
(w) change the manner, place or terms of payment of, or renew, extend or alter,
any of the Senior Obligations, accept partial payment thereon, or otherwise
amend, supplement, modify or increase in any manner any of the Senior
Obligations or any Loan Document; (x) take, add, substitute, sell, exchange,
release or otherwise deal with any property pledged, mortgaged, or otherwise
securing any of the Senior Obligations; (y) add, substitute or release any
Person liable in any manner for the colection of any of the Senior Obligations
other than Borrower; and (z) exercise or refrain from exercising any rights
and/or remedies against Borrower and/or any of its affiliates and/or any other
Person or any collateral for any of the Senior Obligations.
6
<PAGE>
11. Senior Creditor shall have no liability to Junior Creditor with respect to,
and Junior Creditor waives any claim or defense which Junior Creditor may now or
hereafter have against Senior Creditor with respect to the Subordinated
Obligations or this Subordination Agreement arising from (i) any and all actions
which Senior Creditor takes or omits to take (including, without limitation,
actions with respect to the creation, perfection or continuation of Liens in any
collateral securing any of the Senior Obligations, actions with respect to the
occurrence of any default under any Loan Document, actions with respect to the
foreclosure upon, sale, release of, depreciation of or failure to realize upon
any of such collateral, and actions with respect to the collection of any claim
for all or any part of the Senior Obligations from any account debtor, guarantor
or any other Person) with respect to the Senior Obligations or the valuation,
use, protection or release of any collateral now or hereafter securing same;
(ii) any right, now or hereafter existing, to require the Senior Creditor to
proceed against or exhaust any collateral at any time securing the Senior
Obligations or to marshal any assets in favor of Junior Creditor; (iii) any
notice of the incurrence of Senior Obligations, it being understood that Senior
Creditor may make advances under the Loan Agreement and increase the
indebtedness due under the Loan Agreement, or any other Loan Document, now or
hereafter relating to the Senior Obligations, without notice to or authorization
of Junior Creditor, in reliance upon these subordination provisions, subject to
the cap on the principal amount of Senior Obligations contained in the
definition thereof; and/or (iv) any defense based upon or arising by reason of
(a) any disability or other defense of Borrower or any other Person; (b) any
lack of authority of any agent or any other Person acting or purporting to act
on behalf of Borrower; (c) any act or omission by Senior Creditor which directly
or indirectly results in or aids the discharge of Borrower with respect to
any of the Senior Obligations by operation of law or otherwise, except any
act or omission which arises from the gross negligence or willful misconduct
of Senior Creditor; or (d) any failure by Senior Creditor to properly perfect
any Lien in any Asset of Borrower, which Senior Creditor purports to now or
hereafter have as security and collateral for the payment and performance of
any of the Senior Obligations.
12. This is a continuing agreement of subordination and Senior Creditor may
continue, without notice to Junior Creditor, to extend credit or other
accommodation or benefit and lend moneys to or for the account of Borrower.
Junior Creditor hereby expressly waives notice of acceptance by Senior Creditor
of the subordination and other provisions of this Subordination Agreement,
notice of the creation of any indebtedness or liability of Borrower to Senior
Creditor, notice of the giving or extension of credit by Senior Creditor to
Borrower, notice of protest and default, notice of acceleration or intent to
accelerate, and notice of foreclosure or payment and performance of the Senior
Obligations. Junior Creditor consents and agrees that Senior Creditor shall be
under no obligation to marshal any assets in favor of Junior Creditor or against
or in payment of any or all of the Senior Obligations.
13. No course of dealing between Borrower and/or Junior Creditor and/or Senior
Creditor and no delay or omission by Senior Creditor or Junior Creditor in
exercising any right or remedy hereunder shall operate as a waiver thereof or of
any other right or remedy, and no single or partial exercise thereof shall
preclude any other or further exercise thereof or the exercise of any other
right or remedy. All rights and remedies of Senior Creditor or Junior Creditor
hereunder are cumulative.
7
<PAGE>
14. Junior Creditor agrees not to assign, grant a participation interest in or
transfer at any time while this Subordination Agreement remains in effect any
rights, claim or interest of any kind in or to any of the Subordinated
Obligations, either principal or interest, unless such assignment is made
expressly subject to this Subordination Agreement.
15. Junior Creditor agrees that Senior Creditor has made no warranties or
representations with respect to the due execution, legality, validity,
completeness or enforceability of any Loan Document, or the collectability or
enforceability of the Senior Obligations, that Senior Creditor shall be entitled
to manage and supervise the Senior Obligations with Borrower in accordance with
its usual practices, modified from time to time as it deems reasonably
appropriate under the circumstances, without regard to the existence of any
rights that Junior Creditor may now or hereafter have (except such rights as are
expressly provided herein).
16. Senior Creditor agrees that Junior Creditor has made no warranties or
representations with respect to the due execution, legality, validity,
completeness or enforceability of any documents evidencing the Subordinated
Obligations, or the collectability or enforceability of the Subordinated
Obligations, that, except as provided in this Agreement, Junior Creditor shall
be entitled to manage and supervise the Subordinated Obligations with Borrower
in accordance with its usual practices, modified from time to time as it deems
reasonably appropriate under the circumstances.
17. Junior Creditor hereby assumes responsibility for keeping itself informed
of the financial condition of Borrower and of all other circumstances bearing
upon the risk of nonpayment of the Subordinated Obligations that diligent
inquiry would reveal, and Junior Creditor hereby agrees that Senior Creditor
shall have no duty to advise Junior Creditor of information known to Senior
Creditor regarding such condition or any such circumstances.
18. Senior Creditor hereby assumes responsibility for keeping itself informed
of the financial condition of Borrower and of all other circumstances bearing
upon the risk of nonpayment of the Senior Obligations that diligent inquiry
would reveal, and Senior Creditor hereby agrees that Junior Creditor shall have
no duty to advise Senior Creditor of information known to Junior Creditor
regarding such condition or any such circumstances.
19. This Subordination Agreement is binding on and shall inure to the benefit
of the parties hereto and their respective successors and assigns. Whenever
reference is made in this Subordination Agreement to Borrower, such term shall
include any successor or assign of Borrower, including, without limitation, a
receiver, trustee or debtor-in-possession. This Subordination Agreement is and
is intended solely for the purpose of defining the relative rights of Senior
Creditor and Junior Creditor and there are no third party beneficiaries hereof,
including, without limitation, the Borrower. Nothing contained herein shall
impair Borrower's obligations to Junior Creditor, which obligations are
unconditional, affect the relative rights against Borrower of Junior Creditor
and other creditors of Borrower or prevent the exercise of Junior Creditor's
rights or remedies, subject to the express terms of this Subordination
Agreement.
8
<PAGE>
20. When used herein, the following terms shall have the following meanings:
"ASSETS" means, as applied to any Person, any interest of such Person
and/or any of its subsidiaries in any kind of right, interest, property or
asset, whether real, personal, or mixed real and personal, or whether tangible
or intangible, or whether cash, securities or other property.
"BORROWER" means Advanced Telemarketing Corporation, a Nevada corporation,
together, with its successors, transferees and assigns and any receiver, trustee
or debtor-in-possession of any such Person.
"BUSINESS DAY" means any day other than a Saturday, Sunday or holiday on
which Bank One is open for all or substantially all of its domestic and
international commercial banking business in Dallas, Texas.
"DISTRIBUTION" means, as applied to any Person, any distribution of Assets
of such Person of any kind or character, whether in cash, property, or
securities, and whether in respect of repayment or prepayment of indebtedness or
otherwise, and whether direct or indirect, by setoff, or otherwise, including,
but not limited to, (i) any payment or prepayment of Assets on account of the
Subordinated Obligations made by Borrower and/or any of its subsidiaries, (ii)
any redemption, purchase, or other acquisition of the Subordinated Obligations
by Borrower and/or any of its subsidiaries, (iii) the granting of any Lien on or
in any Assets of Borrower and/or any of its subsidiaries for the benefit of
Junior Creditor or (iv) any dividends or other payments payable with respect to
any Proceeding; provided, however, with respect to Junior Creditor,
"Distribution" shall not include any right it may have to receive any warrants
or other equity securities in Borrower.
"EVENT OF DEFAULT" means an Event of Default as defined in the Loan
Agreement.
"JUNIOR CREDITOR" means Thayer Equity Investors III, L.P., together with
any and all of its assigns or transferees, any other present or future holders
of any Subordinated Obligations, any Person refinancing, refunding or replacing
all or any part of any Subordinated Obligations and any and all successors,
assigns or transferees of any such Persons and any receiver, trustee or debtor-
in-possession of any such Person.
"LIEN" means any lien, mortgage, pledge, or security interest.
"LOAN AGREEMENT" means that certain Loan and Security Agreement dated
February 8, 1996, as amended, in respect to loans in the principal sum of
$13,000,000 by and between Bank One, Texas, N.A. and Borrower, as amended,
modified, increased, renewed, extended or supplemented from time to time.
"LOAN DOCUMENTS" is as defined in the Loan Agreement.
9
<PAGE>
"PARENT" means ATC Communications Group, Inc., a Delaware corporation.
"PERSON" means and includes natural persons, corporations, limited
partnerships, general partnerships, limited liability companies, joint stock
companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts, or other organizations, irrespective of
whether they are legal entities, and governments and agencies and political
subdivisions thereof.
"PROCEEDING" means with respect to any Person (i) any insolvency,
bankruptcy, receivership, liquidation, reorganization, readjustment, composition
or other similar proceeding relating to such Person or substantially all of its
property or creditors as such, (ii) any proceedings for any liquidation,
dissolution or other winding-up of such Person, voluntary or involuntary,
whether or not involving insolvency or bankruptcy proceedings, (iii) any
assignment for the benefit of creditors of such Person or (iv) any marshaling of
the assets of such Person.
"SENIOR CREDITOR" means Bank One, Texas, N.A., together with any other
Persons who may from time to time be parties to and lenders under, or acquire a
participation interest in, the Loan Agreement, any other present or future
holder of the Senior Obligations, any Person refinancing, refunding or replacing
all or any part of any of the Senior Obligations and any successors, assigns or
transferees of any such Persons.
"SENIOR OBLIGATIONS" mean any and all indebtedness, obligations and
liabilities for which Borrower may now or hereafter be obligated to Senior
Creditor with respect to the Loan Agreement, together with interest and fees
accruing thereon and costs and expenses (including attorneys' fees and costs of
litigation) of collection thereof and including, without limitation, interest
thereon at the rate provided in the Loan Agreement which, but for the
commencement of any Proceeding relating to Borrower, would have accrued and been
payable with respect to such indebtedness, whether or not otherwise permitted by
law; together with any and all renewals, amendments, modifications, increases,
supplements, extensions, replacements, refinancing and refunding thereof; and
the amount of any indebtedness hereafter owing to any Person who extends credit
to Borrower to the extent such indebtedness was incurred by Borrower and used to
refund, replace or refinance any such indebtedness, and indebtedness for which
Borrower may now or hereafter be obligated to Bank One Leasing Corporation;
provided, however, that the principal amount of Senior Obligations and
indebtedness due to Bank One Leasing Corporation entitled to the benefits of
this Agreement shall not exceed $16,000,000.00, and interest entitled to the
benefits of this Agreement shall be limited to interest on principal not
exceeding such $16,000,000 cap; such limitation on the principal and interest
shall not limit the amount of fees, costs and expenses (including attorneys'
fees and costs of litigation) that are included in "Senior Obligations" and
entitled to the benefits of this Agreement.
"SUBORDINATED OBLIGATIONS" means any and all obligations and indebtedness
of Borrower to Junior Creditor, whether now existing or hereafter arising, and
including, without limitation, the obligations of Borrower to Junior Creditor
arising from any draws made by Senior Creditor under the Letter of Credit or any
rights with respect thereto that Junior Creditor may have under the
10
<PAGE>
Reimbursement and Indemnity Agreement between Borrower and Junior Creditor dated
on or about the date hereof, together with interest and fees accruing thereon
and costs and expenses (including attorneys' fees and costs of litigation) of
collection thereof; together with any and all amendments, renewals, extensions,
and any replacements, refinancings or refundings thereof and the amount of any
indebtedness now or hereafter owing to any Person who extends credit to Borrower
for the purpose of refunding, refinancing or replacing any such indebtedness.
21. Any notice or notification required, permitted or contemplated hereunder
shall be in writing, shall be addressed to the party to be notified at the
address set forth below or at such other address as each party may designate for
itself from time to time by notice hereunder, and shall be deemed to have been
validly served, given or delivered (i) three (3) days following deposit in the
United States mails, with proper first class postage prepaid, (ii) the next
business day after such notice was delivered to a regularly scheduled overnight
delivery carrier (such as Federal Express) with delivery fees either prepaid or
an arrangement, satisfactory with such carrier, made for the payment of such
fees, or (iii) upon receipt of the notice given by telecopy, mailgram, telegram,
telex, or personal delivery:
To Senior Creditor: Bank One, Texas, N.A.
1717 Main Street, 3rd Floor
Dallas, Texas 75201
Attn: Asset Based Lending
Telecopy No.: 214-290-5382
With a copy to: Little, Pedersen, Fankhauser & Cox, L.L.P.
901 Main Street
Suite 5050
Dallas, Texas 75202
Attention: John T. Mitchell, Esq.
Telecopy No.: 214-573-2323
To Junior Creditor: Thayer Equity Investors III, L.P.
1455 Pennsylvania Avenue, N.W.
Suite 350
Washington, D.C. 20004
Attn: Douglas Gilbert
Telecopy No.: 202-371-0391
With a copy to: Paul, Hasting, Janofsky & Walker LLP
Twenty-Third Floor
555 South Flower Street
Los Angeles, California 90071
Attn: Robert A. Miller, Jr., Esq.
Telecopy No.: 213-627-0705
11
<PAGE>
22. Notwithstanding any other provision in this Agreement, this Agreement shall
remain in full force and effect and shall not terminate until (i) the Senior
Obligations have been indefeasibly paid in full in cash or (ii) Senior Creditor
and Junior Creditor agree in writing to terminate this Subordination Agreement;
the subordinations, agreements and priorities set forth in this Agreement shall
remain in full force and effect regardless of whether any party hereto in the
future seeks to rescind, amend, terminate, or reform, by litigation or
otherwise, its respective agreements with Borrower.
23. This Subordination Agreement may be signed in any number of counterparts,
each of which will constitute an original, and all of which, taken together,
shall constitute but one and the same agreement with the same effect as if the
signatures thereon were upon the same instrument.
24. Borrower agrees by its acknowledgment hereof that Junior Creditor and
Senior Creditor may discuss any matters affecting Borrower in any way and
exchange whatever information either Junior Creditor and Senior Creditor may
have concerning Borrower.
25. Bank One agrees that (a) in addition to holding the Pledged Stock on behalf
of itself as Senior Creditor, it will hold the Pledged Stock for as long as it
is a Senior Creditor on behalf of the Junior Creditor but only for purposes of
perfecting the security interests of the Junior Creditor under the Subordinated
Pledge Agreement that Parent has executed for the benefit of Junior Creditor on
or about the date hereof (the "SUBORDINATED PLEDGE AGREEMENT"), (b) Bank One
will deliver the Pledged Stock to Junior Creditor under the Subordinated Pledge
Agreement upon the payment in full of the Senior Obligations and all other
amounts owing to Bank One by Borrower, provided that Bank One is then the Senior
Creditor and has not previously foreclosed upon the Pledged Stock, (c) Bank One
will not release any Pledged Stock to Parent or Borrower without the prior
written consent of Junior Creditor (other than in connection with a foreclosure
or other exercise of remedies against the Pledged Stock by Bank One as Senior
Creditor), and (d) in the event that Senior Creditor releases any Pledged Stock
to any other Senior Creditor, Bank One (or such other Senior Creditor) will
obtain such Senior Creditor's agreement to comply with the obligations of Bank
One (or such other Senior Creditor) under this Section 25 with respect to such
Pledged Stock and, upon obtaining such agreement, Bank One (or such other Senior
Creditor) shall be released from any obligation under this Section 25 with
respect to any Pledged Stock released to another Senior Creditor that has agreed
to hold such Pledged Stock in accordance with this Section 25. In no event will
Bank One be liable or responsible for the compliance or noncompliance by any
such Senior Creditor with this Section 25. Nothing contained in this Section 25
or elsewhere in this Agreement is intended to or should be deemed to limit or
restrict any of Senior Creditor's rights or remedies following a default or an
event of default under the Loan Agreement or the Loan Documents to the extent
permitted by applicable law, all of which are expressly reserved, including,
without limitation, the right to foreclose out Junior Creditor's interest in the
Pledged Stock or to transfer the Pledged Stock by private or public sale free
and clear of any claims of Junior Creditor to the extent permitted by applicable
law. Any such foreclosure or sale will extinguish and cancel all obligations
and undertakings under this
12
<PAGE>
Section 25 to the extent permitted by applicable law. Parent is executing this
Agreement solely for the purpose of evidencing its agreement to the terms and
provisions of this Agreement relating to the Pledged Stock.
26. The rights granted to Senior Creditor hereunder are solely for its
protection and nothing herein contained shall impose on Senior Creditor any
duties with respect to any property of Parent, Borrower or Junior Creditor
received hereunder, except as expressly provided in Section 25 with respect to
the holding of the Pledged Stock on behalf of the Junior Creditor for perfection
purposes only. Senior Creditor shall have no duty to preserve rights against
prior parties in any instrument or chattel paper received hereunder.
Notwithstanding any other provision of this Agreement, Senior Creditor shall
have no fiduciary duty or fiduciary obligation to and shall not be deemed to be
the agent of Parent, Borrower or Junior Creditor. In the event that Junior
Creditor seeks to foreclose on the Pledged Stock prior to such foreclosure by
Senior Creditor, Senior Creditor will cooperate with Junior Creditor to the
extent necessary to effect a sale of the Pledged Stock pursuant to Junior
Creditor's rights as a junior secured creditor but in no event will Senior
Creditor be required to release possession of the Pledged Stock or do any other
act that would jeopardize the perfection or priority of its first priority
security interest in the Pledged Stock. Junior Creditor agrees to indemnify and
hold Senior Creditor harmless from any and claims, causes of action, damages,
expenses, costs and fees (including fees of Senior Creditor's legal counsel)
arising out of or related to any sale, whether public or private, of the Pledged
Stock conducted by or on behalf of Junior Creditor. Without in any manner
limiting the scope of the foregoing indemnity, Senior Creditor will have no
obligation to take any action with respect to any such sale unless it has
received from Junior Creditor such cash deposit or collateral as Senior Creditor
may reasonably require to assure itself that Junior Creditor will promptly
perform under the foregoing indemnity with respect to expenses and fees that
Senior Creditor anticipates it will incur in connectio with such sale.
27. The parties hereto shall in good faith undertake to exercise their rights
and perform their obligations under this Subordination Agreement.
28. THE VALIDITY, ENFORCEABILITY AND CONSTRUCTION OF THIS SUBORDINATION
AGREEMENT SHALL BE DETERMINED IN ACCORDANCE WITH THE SUBSTANTIVE LAW OF THE
STATE OF TEXAS, EXCLUDING ANY CONFLICTS OF LAW RULE OR PRINCIPLE THAT MIGHT
OTHERWISE REFER CONSTRUCTION OR INTERPRETATION OF THIS SUBORDINATION AGREEMENT
TO THE SUBSTANTIVE LAW OF ANOTHER JURISDICTION.
29. SENIOR CREDITOR AND JUNIOR CREDITOR EACH HEREBY WAIVES TRIAL BY JURY WITH
RESPECT TO ANY ACTION, CLAIM, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF
THIS SUBORDINATION AGREEMENT AND/OR THE CONDUCT OF THE RELATIONSHIP BETWEEN
SENIOR CREDITOR AND JUNIOR CREDITOR.
30. THIS SUBORDINATION AGREEMENT SETS FORTH EXHAUSTIVELY THE COMPLETE
UNDERTAKING AND AGREEMENTS OF SENIOR CREDITOR AND JUNIOR
13
<PAGE>
CREDITOR WITH RESPECT TO THE SUBJECT MATTER HEREOF, AND THERE ARE NO OTHER
AGREEMENTS OR UNDERSTANDINGS BINDING UPON THEM WITH RESPECT TO THE
SUBORDINATED OBLIGATIONS AS DEFINED HEREIN.
IN WITNESS WHEREOF, this Subordination Agreement has been duly executed by
Junior Creditor as of May 4, 1998.
THAYER EQUITY INVESTORS III, L.P.
By: T.C. Equity Partners L.L.C.
General Partner
By
-------------------------------
Name:
----------------------------
Title:
---------------------------
Accepted as of May 4, 1998.
BANK ONE, TEXAS, N.A.
By
-----------------------------
Name:
--------------------------
Title:
-------------------------
STATE OF ________________ )
) ss.
COUNTY OF __________________ )
Before me, ______________________________, a Notary Public in and for said
County and State, on this ____ day of May, 1998, personally appeared _________
_________________________, known to me to be the ______________ of T.C. Equity
Partners L.L.C., the general partner of Thayer Equity Investors III, L.P., and
acknowledged to me that he executed this Agreement for the considerations and
purposes therein set forth, on behalf of said limited liability company as
general partner of said limited partnership.
Given under my hand and seal of office this ____ day of May, 1998.
---------------------------------
NOTARY PUBLIC
MY COMMISSION EXPIRES:
- -----------------------------
14
<PAGE>
STATE OF TEXAS )
) ss.
COUNTY OF DALLAS )
Before me, ______________________________, a Notary Public in and for said
County and State, on this ____ day of May, 1998, personally appeared ________
_____________________ known to me to be the ____________________ , of Bank One,
Texas, N.A., and acknowledged to me that he executed this Agreement for the
considerations and purposes therein set forth on behalf of said banking
association.
Given under my hand and seal of office this ____ day of May, 1998.
---------------------------------
NOTARY PUBLIC
MY COMMISSION EXPIRES:
- -----------------------------
15
<PAGE>
ACKNOWLEDGMENT BY BORROWER
Borrower hereby acknowledges receipt of a copy of the foregoing
Subordination Agreement and agrees that Borrower will not pay any indebtedness
subordinated by the foregoing Subordination Agreement (except as otherwise
permitted by the Subordination Agreement) until all indebtedness of Borrower to
Senior Creditor now existing and hereafter arising shall have been paid in full
in cash and Senior Creditor's financing arrangements with Borrower are
terminated. In the event of any breach of the provisions of the foregoing
Subordination Agreement, Borrower agrees that, in addition to any other rights
and remedies Senior Creditor may have, all of Borrower's obligations and
liabilities to Senior Creditor shall, without notice or demand, become
immediately due and payable, unless Senior Creditor shall otherwise elect. By
execution of this acknowledgment, Borrower agrees to the terms of such
Subordination Agreement.
DATED: May __, 1998
ADVANCED TELEMARKETING CORPORATION
By
-------------------------------
Name:
----------------------------
Title:
---------------------------
CONSENT
The undersigned executes this Consent to evidence its consent to the
foregoing Agreement and in particular Section 24 thereof.
DATED: May __, 1998
ATC COMMUNICATIONS GROUP, INC.
By
-------------------------------
Name:
----------------------------
Title:
---------------------------
16
<PAGE>
PROMISSORY NOTE
$2,000,000.00 May 4, 1998
FOR VALUE RECEIVED, on or before the earliest of (i) January 29, 1999 (ii)
the effective date of the merger contemplated in that certain Agreement and Plan
of Merger between IQI, Inc., Group and ATC Merger Sub, Inc. dated as of April 7,
1998 or (iii) the payment in full or refinancing of the Revolving Loans as
defined in the Loan Agreement (such earliest date is referred to herein as the
"MATURITY DATE"), the undersigned and if more than one, each of them, jointly
and severally (hereinafter referred to as "BORROWER"), promises to pay to the
order of BANK ONE, TEXAS, NATIONAL ASSOCIATION ("BANK") at its offices in Dallas
County, Texas, at 1717 Main Street, 3rd Floor, Dallas, Texas 75201, the
principal amount of TWO MILLION AND NO/100 DOLLARS ($2,000,000.00) ("TOTAL
PRINCIPAL AMOUNT"), or such amount less than the Total Principal Amount which is
outstanding from time to time if the total amount outstanding under this
Promissory Note ("NOTE") is less than the Total Principal Amount, together with
interest on such portion of the Total Principal Amount which has been advanced
to Borrower from the date advanced until paid at a fluctuating rate per annum
which shall from day to day be equal to the lesser of (a) the Maximum Rate (as
hereinafter defined), or (b) a rate ("CONTRACT RATE"), calculated on the basis
of the actual days elapsed but computed as if each year consisted of 360 days,
equal to the sum of (i) the Base Rate of interest ("BASE RATE") as established
from time to time by Bank (which may not be the lowest, best or most favorable
rate of interest which Bank may charge on loans to its customers), each change
in the rate to be charged on this Note to become effective without notice to
Borrower on the effective date of each change in the Maximum Rate or the Base
Rate, as the case may be; provided, however, that if at any time the Contract
Rate shall exceed the Maximum Rate, thereby causing the interest on this Note to
be limited to the Maximum Rate, then any subsequent reduction in the Base Rate
shall not reduce the rate of interest on this Note below the Maximum Rate until
the total amount of interest accrued on this Note equals the amount of interest
which would have accrued on this Note if the Contract Rate had at all times been
in effect. The term "MAXIMUM RATE," as used herein, shall mean at the
particular time in question the maximum rate of interest which, under applicable
law, may then be charged on this Note. If such maximum rate of interest changes
after the date hereof and this Note provides for a fluctuating rate of interest,
the Maximum Rate shall be automatically increased or decreased, as the case may
be, without notice to Borrower from time to time as of the effective date of
each change in such maximum rate. If applicable law ceases to provide for such
a maximum rate of interest, the Maximum Rate shall be equal to eighteen percent
(18%) per annum. All capitalized terms used herein that are not defined herein
shall have the meaning given them in that certain Loan and Security Agreement,
dated as of February 28, 1996, by and between Borrower and Bank (as the same has
been and may be amended, restated, renewed, extended, or otherwise modified, the
"LOAN AGREEMENT").
The principal of and all accrued but unpaid interest on this Note shall be
due and payable as follows:
AMENDED AND RESTATED PROMISSORY NOTE - Page 1
<PAGE>
(a) interest shall be due and payable monthly as it accrues, commencing on
the first day of June, 1998, and continuing on the first day of each successive
month thereafter during the term of this Note; and
(b) the outstanding principal balance of this Note, together with all
accrued but unpaid interest, shall be due and payable on the Maturity Date.
To the extent that any interest is not paid on or before the first day of
each month, Bank may, at its option, add such accrued interest to the principal
of this Note or to the principal of the Revolving Loans. Notwithstanding
anything herein to the contrary, three business days after an Event of Default
or maturity of this Note, whether by acceleration or otherwise, all principal of
this Note shall, at the option of Bank, bear interest at the Default Rate until
paid.
This Note evidences obligations and indebtedness from time to time owing by
Borrower to Bank pursuant to the Loan Agreement and evidences the Bridge Loans
made pursuant to the Loan Agreement. This Note, the Loan Agreement, and all
other documents evidencing, securing, governing, guaranteeing and/or pertaining
to this Note are hereinafter collectively referred to as the "LOAN DOCUMENTS."
The holder of this Note is entitled to the benefits and security provided in the
Loan Documents.
Under the Loan Agreement, Borrower may request advances and make payments
hereunder from time to time, provided that it is understood and agreed that the
aggregate principal amount outstanding from time to time hereunder shall not at
any time exceed the Total Principal Amount. The unpaid balance of this Note
shall increase and decrease with each new advance or payment hereunder, as the
case may be. This Note shall not be deemed terminated or canceled prior to the
Maturity Date, although the entire principal balance hereof may from time to
time be paid in full. Borrower may borrow, repay and reborrow hereunder in
accordance with the provisions of the Loan Agreement. All regularly scheduled
payments of the indebtedness evidenced by this Note and by any of the other Loan
Documents shall be applied first to any accrued but unpaid interest then due and
payable hereunder or thereunder and then to the principal amount then due and
payable. Prior to the occurrence of a Payment Default or a Financial Covenant
Default (as such terms are defined in that certain Subordination and
Intercreditor Agreement dated as of the date hereof between Thayer Equity
Investors III, L.P. and Bank One, Texas, N.A.), all non-regularly scheduled
payments shall be applied to such indebtedness in such order as designated by
Maker. After the occurrence of a Payment Default or a Financial Covenant
Default, all non-regularly scheduled payments shall be applied to such
indebtedness in such order and manner as the holder of this Note may from time
to time determine in its sole discretion. All payments and prepayments of
principal of or interest on this Note shall be made in lawful money of the
United States of America in immediately available funds, at the address of Bank
indicated above, or such other place as the holder of this Note shall designate
in writing to Borrower. If any payment of principal of or interest on this Note
shall become due on a day which is not a Business Day (as hereinafter defined),
such payment shall be made on the next succeeding Business Day and any such
extension of time shall be included in computing interest in connection with
such payment. As used herein, the term "BUSINESS DAY" shall mean any day other
than any day on which commercial banks in the State of Texas are
AMENDED AND RESTATED PROMISSORY NOTE - Page 2
<PAGE>
authorized to be closed. The books and records of Bank shall be PRIMA FACIE
evidence of all outstanding principal of and accrued and unpaid interest on
this Note.
Borrower agrees that no advances under this Note shall be used for
personal, family or household purposes, and that all advances hereunder shall be
used solely for business, commercial, investment or other similar purposes.
Borrower agrees that upon the occurrence of any one or more Events of
Default (as defined in the Loan Agreement), the holder of this Note may, at its
option, without further notice or demand, (i) declare the outstanding principal
balance of and accrued but unpaid interest on this Note at once due and payable,
(ii) refuse to advance any additional amounts under this Note, (iii) foreclose
all liens and security interests securing payment hereof, (iv) pursue any and
all other rights, remedies and recourses available to the holder hereof,
including but not limited to any such rights, remedies or recourses under the
Loan Documents, at law or in equity, or (v) pursue any combination of the
foregoing.
The failure to exercise the option to accelerate the maturity of this Note
or any other right, remedy or recourse available to the holder hereof upon the
occurrence of an Event of Default shall not constitute a waiver of the right of
the holder of this Note to exercise the same at that time or at any subsequent
time with respect to such Event of Default or any other Event of Default. The
rights, remedies and recourses of the holder hereof, as provided in this Note
and in any of the other Loan Documents, shall be cumulative and concurrent and
may be pursued separately, successively or together as often as occasion
therefore shall arise, at the sole discretion of the holder hereof. The
acceptance by the holder hereof of any payment under this Note which is less
than the payment in full of all amounts due and payable at the time of such
payment shall not (i) constitute a waiver of or impair, reduce, release or
extinguish any right, remedy or recourse of the holder hereof, or nullify any
prior exercise of any such right, remedy or recourse or (ii) impair, reduce,
release or extinguish the obligations of any party liable under any of the Loan
Documents as originally provided herein or therein.
This Note and all of the other Loan Documents are intended to be performed
in accordance with, and only to the extent permitted by, all applicable usury
laws. If any provision hereof or of any of the other Loan Documents or the
application thereof to any person or circumstance shall, for any reason and to
any extent, be invalid or unenforceable, neither the application of such
provision to any other person or circumstance nor the remainder of the
instrument in which such provision is contained shall be affected thereby and
shall be enforced to the greatest extent permitted by law. It is expressly
stipulated and agreed to be the intent of the holder hereof to at all times
comply with the usury and other applicable laws now or hereafter governing the
interest payable on the indebtedness evidenced by this Note. If the applicable
law is ever revised, repealed or judicially interpreted so as to render usurious
any amount called for under this Note or under any of the other Loan Documents,
or contracted for, charged, taken, reserved or received with respect to the
indebtedness evidenced by this Note, or if Bank's exercise of the option to
accelerate the maturity of this Note, or if any prepayment by Borrower results
in Borrower's having paid any interest in excess of that permitted by law, then
it is the express intent of Borrower and Bank that all excess amounts
theretofore collected by Bank be credited on the principal balance of this Note
(or, if this Note and all other indebtedness arising
AMENDED AND RESTATED PROMISSORY NOTE - Page 3
<PAGE>
under or pursuant to the other Loan Documents have been paid in full,
refunded to Borrower), and the provisions of this Note and the other Loan
Documents immediately be deemed reformed and the amounts thereafter
collectable hereunder and thereunder reduced, without the necessity of the
execution of any new document, so as to comply with the then applicable law,
but so as to permit the recovery of the fullest amount otherwise called for
hereunder or thereunder. All sums paid, or agreed to be paid, by Borrower
for the use, forbarance, detention, taking, charging, receiving or reserving
of the indebtedness of Borrower to Bank under this Note or arising under or
pursuant to the other Loan Documents shall, to the maximum extent permitted
by applicable law, be amortized, prorated, allocated and spread throughout
the full term of such indebtedness until payment in full so that the rate or
amount of interest on account of such indebtedness does not exceed the usury
ceiling from time to time in effect and applicable to such indebtedness for
so long as such indebtedness is outstanding. To the extent federal law
permits Bank to contract for, charge or receive a greater amount of interest,
Bank, will rely on federal law instead of the Texas Finance Code, as
supplemented by Texas Credit Title for the purpose of determining the Maximum
Rate. Additionally, to the maximum extent permitted by applicable law now or
hereafter in effect, Bank may, at its option and from time to time, implement
any other method of computing the Maximum Rate under the Texas Finance Code,
as supplemented by Texas Credit Title, or under other applicable law by
giving notice, if required, to Borrower as provided by applicable law now or
hereafter in effect. Notwithstanding anything to the contrary contained
herein or in any of the other Loan Documents, it is not the intention of Bank
to accelerate the maturity of any interest that has not accrued at the time
of such acceleration or to collect unearned interest at the time of such
acceleration.
In no event shall Chapter 346 of the Texas Finance Code (which regulates
certain revolving loan accounts and revolving tri-party accounts) apply to this
Note. To the extent that Chapter 303 of the Texas Finance Code is applicable to
this Note, the "weekly ceiling" specified in Chapter 303 is the applicable
ceiling; provided that, if any applicable law permits greater interest, the law
permitting the greatest interest shall apply.
If this Note is placed in the hands of an attorney for collection, or is
collected in whole or in part by suit or through probate, bankruptcy or other
legal proceedings of any kind, Borrower agrees to pay, in addition to all other
sums payable hereunder, all costs and expenses of collection, including but not
limited to reasonable attorneys' fees.
Borrower and any and all endorsers and guarantors of this Note severally
waive presentment for payment, notice of nonpayment, protest, demand, notice of
protest, notice of intent to accelerate, notice of acceleration and dishonor,
diligence in enforcement and indulgences of every kind and without further
notice hereby agree to renewals, extensions, exchanges or releases of
collateral, taking of additional collateral, indulgences or partial payments,
either before or after maturity.
AMENDED AND RESTATED PROMISSORY NOTE - Page 4
<PAGE>
THIS NOTE HAS BEEN EXECUTED UNDER, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, EXCEPT AS SUCH LAWS ARE
PREEMPTED BY APPLICABLE FEDERAL LAWS.
BORROWER:
ADVANCED TELEMARKETING
CORPORATION
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
AMENDED AND RESTATED PROMISSORY NOTE - Page 5
<PAGE>
FIRST AMENDMENT TO
PLEDGE AGREEMENT
THIS FIRST AMENDMENT TO PLEDGE AGREEMENT (this "AMENDMENT"), dated as of
May 4, 1998, is made and entered into between ATC COMMUNICATIONS GROUP, INC., a
Delaware corporation (hereinafter called "PLEDGOR"), and BANK ONE, TEXAS,
NATIONAL ASSOCIATION ("BANK"), as agent for itself and BANK ONE LEASING
CORPORATION.
RECITALS
A. Bank and Pledgor entered into that certain Pledge Agreement, dated
March 31, 1998 (the "PLEDGE AGREEMENT").
B. Bank and Pledgor desire to amend the Pledge Agreement as herein set
forth.
NOW, THEREFORE, in consideration of the premises herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. DEFINITIONS. Capitalized terms used in this Amendment, to
the extent not otherwise defined herein, shall have the same definitions
assigned to such terms in the Pledge Agreement, as amended hereby.
ARTICLE II
AMENDMENTS TO THE PLEDGE AGREEMENT
Section 2.01 AMENDMENT TO SCHEDULE "A". From and after the date hereof
Schedule "A" to the Pledge Agreement shall be deleted in its entirety and in
place thereof shall be a new Schedule "A" in the form attached hereto. The
purpose of amending Schedule "A" is that Pledgor desires to, and does hereby,
pledge and grant a security interest to Bank in 98.94% of all of the outstanding
capital stock of Advanced Telemarketing Corporation, a Nevada corporation, in
accordance with the terms and provisions of the Pledge Agreement, as amended
hereby.
Section 2.02 AMENDMENT TO SECTION 5. From and after the date hereof
Section 5 of the Pledge Agreement is amended by adding thereto at the end
thereof the following:
"Pledgor has, with the consent of Secured Party, granted to Thayer Equity
Investors III, L.P. ("THAYER"), a security intererst, junior in priority
to the security interest therein of
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<PAGE>
Secured Party, in the Collateral consisting of shares of common stock of
Borrower (the "PLEDGED STOCK"). Thayer and Secured Party have entered
into a Subordination and Intercreditor Agreement dated on or about
April 30, 1998 (the "SUBORDINATION AGREEMENT") with respect to indebtedness
owed by Borrower to, and liens and security interests granted to, Thayer
and Secured Party. The Subordination Agreement contains terms providing
that Secured Party will hold the Pledged Stock for itself as a secured
creditor and for Thayer but only for purposes of perfecting the security
interests of Thayer in the Pledged Stock and that Secured Party will
deliver the Pledged Stock to Thayer upon the occurrence of certain events
and other terms relating to the Pledged Stock. Pledgor has consented to
the terms and provisions contained in the Subordination Agreement relating
to the Pledged Stock, and if there is any conflict or inconsistency between
any terms in this Pledge Agreement and the terms and provisions of the
Subordination Agreement relating to the Pledged Stock, the terms and
provisions of the Subordination Agreement shall control."
ARTICLE III
CONDITIONS PRECEDENT
Section 3.01. CONDITIONS PRECEDENT. The effectiveness of this Amendment
is subject to the satisfaction of the following conditions precedent, unless
specifically waived in writing by Bank:
(a) Pledgor shall have executed this Amendment and delivered the
same to Bank.
(b) All corporate proceedings taken in connection with the
transactions contemplated by this Amendment and all documents,
instruments and other legal matters incident thereto shall be
satisfactory to Bank and its legal counsel in their sole discretion.
ARTICLE IV
RATIFICATIONS, REPRESENTATIONS, AND WARRANTIES
Section 4.01. RATIFICATIONS BY PLEDGOR. The terms and provisions set
forth in this Amendment shall modify and supersede all inconsistent terms and
provisions set forth in the Pledge Agreement and, except as expressly modified
and superseded by this Amendment, the terms and provisions of the Pledge
Agreement are ratified and confirmed and shall continue in full force and
effect. The Pledge Agreement as amended by this Amendment shall continue to be
legal, valid, binding and enforceable in accordance with its terms.
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<PAGE>
Section 4.02. RENEWAL AND EXTENSION OF SECURITY INTERESTS AND LIENS.
Pledgor hereby renews and affirms the liens and security interests created and
granted in the Pledge Agreement, as amended hereby.
Section 4.03. REPRESENTATIONS AND WARRANTIES. Pledgor represents and
warrants to Bank that the execution, delivery and performance of this Amendment
have been authorized by all requisite corporate action on the part of Pledgor
and will not violate the articles or bylaws of Pledgor or any agreement to which
Pledgor is a party.
ARTICLE V
MISCELLANEOUS
Section 5.01. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made in the Pledge Agreement shall survive the
execution and delivery of this Amendment, and no investigation by Bank or any
closing shall affect such representations and warranties or the right of Bank to
rely thereon.
Section 5.02. SEVERABILITY. Any provision of this Amendment held by a
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
SECTION 5.04. APPLICABLE LAW. THIS AMENDMENT SHALL BE DEEMED TO HAVE BEEN
MADE AND TO BE PERFORMABLE IN AND SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
Section 5.04. SUCCESSORS AND ASSIGNS. This Amendment is binding upon and
shall inure to the benefit of the parties hereto and their respective
successors, assigns, heirs, executors, and legal representatives, except that
none of the parties hereto other than Bank may assign or transfer any of its
rights or obligations hereunder without the prior written consent of Bank.
Section 5.05. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
EXECUTED as of the date first written above.
BANK ONE, TEXAS, N.A.
By:
-----------------------------------------
Kathleen S. Robertson, Senior Vice President
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<PAGE>
ATC COMMUNICATIONS GROUP, INC.
By:
-----------------------------------------
Its:
----------------------------------------
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<PAGE>
SCHEDULE "A"
TO
PLEDGE AGREEMENT
DATED MARCH 31, 1998
BY AND BETWEEN
BANK ONE, TEXAS, NATIONAL ASSOCIATION
AND
ATC COMMUNICATIONS GROUP, INC.
The following property is a part of the Collateral as defined in Subsection
1(c):
Promissory Note dated September 16, 1997, executed by Michael Santry and
payable to the order of Pledgor in the original principal amount of
$3,661,505.39.
98.94% of all outstanding capital stock of Advanced Telemarketing
Corporation, as evidenced by Certificate No. 257 for 3,388,764 shares
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<PAGE>
CONFORMED COPY
REIMBURSEMENT AND INDEMNIFICATION AGREEMENT
This REIMBURSEMENT AND INDEMNIFICATION AGREEMENT (the
"Reimbursement Agreement") is entered into as of May 4, 1998 by and among
ADVANCED TELEMARKETING CORPORATION, a Nevada corporation ("Company"), ATC
COMMUNICATIONS GROUP, INC., a Delaware corporation ("Parent"), and THAYER
EQUITY INVESTORS III, L.P. ("Thayer"), a Delaware limited liability company.
R E C I T A L S:
A. WHEREAS, pursuant to that certain Third Amendment to Loan and
Security Agreement dated May 4, 1998, which amends that certain Loan and
Security Agreement dated February 8, 1996 (the "Amendment") Bank One, Texas,
National Association (in its capacity as Agent or Lender, together with its
participants, successors or assigns in such capacities, "Bank") has agreed to
make certain advances of up to TWO MILLION DOLLARS ($2,000,000.00) to Company
(the "Bridge Loan").
B. WHEREAS, in order to induce Bank to execute the Amendment and
make the Bridge Loan, Bank has required Thayer to arrange for a letter of
credit in the amount of TWO MILLION DOLLARS ($2,000,000.00) (the "Letter of
Credit") from The Bank of Nova Scotia ("Issuing Bank") to repay the principal
amount of the Bridge Loan in the event Company is unable to repay the Bridge
Loan.
C. WHEREAS, Thayer has required that Parent and Company reimburse
and indemnify against any draws on the Letter of Credit and all expenses in
connection therewith, and Parent and Company have jointly and severally
agreed to reimburse and indemnify Thayer against any draws on the Letter of
Credit and all expenses in connection therewith.
D. NOW, THEREFORE, in consideration of the premises and the
covenants contained herein and to induce Thayer to provide certain financial
accommodations to Company and Parent:
A G R E E M E N T
1. DEFINITIONS. Unless otherwise defined herein, these terms
shall have the following meaning (such meanings being equally applicable to
both the singular and plural form of the terms defined). All capitalized
terms used but not otherwise defined herein have the meanings provided for by
Article 9 of the Texas Uniform Commercial Code ("Code") to the extent the
same are used or defined therein.
<PAGE>
"ACCOUNT DEBTOR" shall mean any Person who may become
obligated to Parent or Company under, with respect to, or on account of, an
Account.
"ACCOUNTS" shall mean all "accounts," as such term is defined
in the Code, now owned or hereafter acquired by Parent or Company and, in any
event, including (a) all accounts receivable, other receivables, book debts
and other forms of obligations (other than forms of obligations evidenced by
Chattel Paper, Documents or Instruments) now owned or hereafter received or
acquired by or belonging or owing to Parent or Company, whether arising out
of goods sold or services rendered by it or from any other transaction
(including any such obligations which may be characterized as an account or
contract right under the Code), (b) all of each of Parent's and Company's
rights in, to and under all purchase orders or receipts now owned or
hereafter acquired by it for goods or services, (c) all of each of Parent's
and Company's rights to any goods represented by any of the foregoing
(including unpaid sellers' rights of rescission, replevin, reclamation and
stoppage in transit and rights to returned, reclaimed or repossessed goods),
(d) all monies due or to become due to Parent and Company, under all purchase
orders and contracts for the sale of goods or the performance of services or
both by such entity or in connection with any other transaction (whether or
not yet earned by performance on the part of such entity) now or hereafter in
existence, including the right to receive the proceeds of said purchase
orders and contracts, and (e) all collateral security and guarantees of any
kind, now or hereafter in existence, given by any Person with respect to any
of the foregoing.
"BASIC DOCUMENTS" shall mean this Reimbursement Agreement, the
Letter of Credit, the Subordination and Intercreditor Agreement, the Note,
the Second Warrant, the Registration Agreement, the Security Agreement, the
Pledge Agreement, and the Merger Agreement.
"BUSINESS DAY" shall mean any day that is not a Saturday, a
Sunday, or a day on which banks are required or permitted to be closed in the
State of Texas.
"CHATTEL PAPER" shall mean any "chattel paper," as such term
is defined in the Code, now owned or hereafter acquired by Parent or Company,
wherever located.
"CLOSING DATE" shall mean May 4, 1998.
"COLLATERAL" shall mean (i) all Accounts; (ii) all Chattel
Paper; (iii) all Contracts; (iv) all Documents; (v) all Equipment; (vi) all
Fixtures; (vii) all General Intangibles; (viii) all Goods; (ix) all
Instruments; (x) all Inventory; (xi) all Investment Property; (xii) all
Deposit Accounts and other bank accounts and all deposits therein; (xiii) all
money, cash or cash equivalents of Grantor; (xiv) to the extent not otherwise
included, all Proceeds and products of the foregoing and all accessions to,
substitutions and replacements for, and rents and profits of, each of the
foregoing, and (xv) to the extent not otherwise included, all books, records,
software programs, computerized disks and other management and information
systems, data and technology related to any of the foregoing or to the
business of Parent or Company.
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<PAGE>
"CONTRACTS" shall mean all "contracts," as such term is
defined in the Code, now owned or hereafter acquired by either Parent or
Company, in any event, including all contracts, undertakings, or agreements
(other than rights evidenced by Chattel Paper, Documents or Instruments) in
or under which either Parent or Company may now or hereafter have any right,
title or interest, including any agreement relating to the terms of payment
or the terms of performance of any Account.
"COPYRIGHTS" shall mean all of the following now owned or
hereafter acquired by either Parent or Company: (a) all copyrights and
general intangibles of like nature (whether registered or unregistered), now
owned or existing or hereafter adopted or acquired, all registrations and
recordings thereof, and all applications in connection therewith, including
all registrations, recordings and applications in the United States Copyright
Office or in any similar office or agency of the United States, any state or
territory thereof, or any other country or any political subdivision thereof,
and (b) all reissues, extensions or renewals thereof.
"DEFAULT" shall mean any event which, with the passage of time
or notice or both, would, unless cured or waived, become an Event of Default.
"EQUIPMENT" shall mean all "equipment," as such term is
defined in the Code, now owned or hereafter acquired by either Parent and
Company, wherever located and, in any event, including all such entity's
machinery and equipment, including processing equipment, conveyors, machine
tools, data processing and computer equipment with software and peripheral
equipment (other than software constituting part of the Accounts), and all
engineering, processing and manufacturing equipment, office machinery,
furniture, materials handling equipment, tools, attachments, accessories,
automotive equipment, trailers, trucks, forklifts, molds, dies, stamps, motor
vehicles, rolling stock and other equipment of every kind and nature, trade
fixtures and fixtures not forming a part of real property, all whether now
owned or hereafter acquired, and wherever situated, together with all
additions and accessions thereto, replacements therefor, all parts therefor,
all substitutes for any of the foregoing, fuel therefor, and all manuals,
drawings, instructions, warranties and rights with respect thereto, and all
products and proceeds thereof and condemnation awards and insurance proceeds
with respect thereto.
"DOCUMENTS" shall mean any "documents," as such term is defined
in the Code, now owned or hereafter acquired by Parent or Company, wherever
located.
"FINANCIAL STATEMENTS" shall mean the consolidated and
consolidating income statements, statements of cash flows and balance sheets
of Parent and Company.
"FIXTURES" shall mean any "fixtures" as such term is defined
in the Code, now owned or hereafter acquired by either Parent or Company.
"GAAP" shall mean generally accepted accounting principles in
the United States of America consistently applied.
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<PAGE>
"GENERAL INTANGIBLES" shall mean any "general intangibles," as
such term is defined in the Code, now owned or hereafter acquired by Parent
or Company, and, in any event, including all right, title and interest which
such entity may now or hereafter have in or under any Contract, all customer
lists, Licenses, Copyrights, Trademarks, Patents, and all applications
therefor and reissues, extensions or renewals thereof, rights in Intellectual
Property, interests in partnerships, joint ventures and other business
associations, licenses, permits, copyrights, trade secrets, proprietary or
confidential information, inventions (whether or not patented or patentable),
technical information, procedures, designs, knowledge, know-how, software,
data bases, data, skill, expertise, experience, processes, models, drawings,
materials and records, goodwill (including the goodwill associated with any
Trademark or Trademark License), all rights and claims in or under insurance
policies (including insurance for fire, damage, loss and casualty, whether
covering personal property, real property, tangible rights or intangible
rights, all liability, life, key man and business interruption insurance, and
all unearned premiums), uncertificated securities, choses in action, deposit,
checking and other bank accounts, rights to receive tax refunds and other
payments, rights of indemnification, all books and records, correspondence,
credit files, invoices and other papers, including without limitation all
tapes, cards, computer runs and other papers and documents in the possession
or under the control of such entity or any computer bureau or service company
from time to time acting for such entity.
"INSTRUMENTS" shall mean any "instrument," as such term is
defined in the Code, now owned or hereafter acquired by Parent or Company,
wherever located, and, in any event, including all certificated securities,
all certificates of deposit, and all notes and other, without limitation,
evidences of indebtedness, other than instruments that constitute, or are a
part of a group of writings that constitute, Chattel Paper.
"INTELLECTUAL PROPERTY" shall mean any and all Licenses,
Patents, Copyrights, Trademarks, trade secrets and customer lists.
"INVESTMENT PROPERTY" shall have the meaning ascribed thereto
in Section 9-115 of the Code in those jurisdictions in which such definition
has been adopted and shall include (i) all securities, whether certificated
or uncertificated, including stocks, bonds, interests in limited liability
companies, partnership interests, treasuries, certificates of deposit, and
mutual fund shares; (ii) all securities entitlements of Parent or Company,
including the rights of Parent and Company to any securities account and the
financial assets held by a securities intermediary in such securities account
and any free credit balance or other money owing by any securities
intermediary with respect to that account; (iii) all securities accounts held
by Parent or Company Party; (iv) all commodity contracts held by Parent or
Company; and (v) all commodity accounts held by Parent or Company.
"LETTER OF CREDIT" shall mean that certain Letter of Credit
dated as of the Closing Date in the amount of $2,000,000.00 issued by The
Bank of Nova Scotia in favor of Bank, for the account of Thayer.
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<PAGE>
"LICENSE" shall mean any Copyright License, Patent License,
Trademark License or other license of rights or interests now held or
hereafter acquired by Parent or Company.
"LIEN" shall mean any mortgage or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, easement or encumbrance, or preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including any lease or title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the
filing of, or agreement to give, any financing statement perfecting a
security interest under the Code or comparable law of any jurisdiction).
"LOAN AND SECURITY AGREEMENT" shall mean that certain Loan and
Security Agreement dated February 8, 1996, by and between Bank One, Texas,
National Association and Advanced Telemarketing Corporation, as previously
amended.
"LOANS" shall mean collectively the Primary Loan and the
Bridge Loan.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse
effect on (a) the business, assets, operations, prospects or financial or
other condition of the Parent and Company, taken as a whole (b) Parent's and
Company's ability to pay any of the Obligations in accordance with the terms
of the Reimbursement Agreement, (c) the Collateral or Liens on the
Collateral or the priority of such Liens, or (d) Thayer's rights and remedies
under the Reimbursement Agreement and the other Basic Documents.
"MERGER AGREEMENT" shall mean that certain Merger Agreement
dated April 7, 1998 by and among Parent, ATC Merger Sub, Inc., a New York
corporation, and IQI, Inc., a New York corporation.
"NOTE" shall mean that certain subordinated promissory note in
the principal amount of $2,000,000.00 executed by Parent and Company in favor
of Thayer.
"OBLIGATION" shall mean all loans, advances, debts,
liabilities and obligations, whether for indemnity, reimbursement, the
performance of covenants, tasks or duties or for payment of any monetary
amounts (whether or not such performance is then required or contingent, such
amounts are liquidated or determinable or such amounts arise under this
Reimbursement Agreement, under any other Basic Document, by subrogation or
otherwise) now or hereafter due from or owing by Parent and/or Company to
Thayer, and all covenants and duties regarding such amounts, of any kind or
nature, present or future, whether or not evidenced by any note, agreement or
other instrument, including all those arising under this Reimbursement
Agreement, under any of the other Basic Documents, as a matter of law or
agreement, by subrogation or otherwise. The term "Obligation" includes all
principal, interest (including all interest which accrues after the
commencement of any case or proceeding in bankruptcy after the insolvency of,
or for the reorganization of Parent and/or Company, whether or not allowed in
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<PAGE>
such proceeding), fees, charges, expenses, attorneys' fees and any other sum
chargeable to Parent and/or Company under the Reimbursement Agreement or any
of the other Basic Documents.
"PATENT LICENSE" shall mean rights under any written agreement
now owned or hereafter acquired by Parent or Company granting any right with
respect to any invention on which a Patent is in existence.
"PATENTS" shall mean all of the following in which Parent or
Company now holds or hereafter acquires any interest: (a) all letters patent
of the United States or any other country, all registrations and recordings
thereof, and all applications for letters patent of the United States or any
other country, including registrations, recordings and applications in the
United States Patent and Trademark Office or in any similar office or agency
of the United States, any State or Territory thereof, or any other country,
and (b) all reissues, continuations, continuations-in-part or extensions
thereof.
"PERMITTED ENCUMBRANCES" shall mean the following
encumbrances: (a) Liens for taxes or assessments or other governmental
charges not yet due and payable; (b) pledges or deposits of money securing
statutory obligations under workmen's compensation, unemployment insurance,
social security or public liability laws or similar legislation (excluding
Liens under ERISA); (c) pledges or deposits of money securing bids, tenders,
contracts (other than contracts for the payment of money) or leases to which
Parent and Company is a party as lessee made in the ordinary course of
business; (d) inchoate and unperfected workers', mechanics' or similar liens
arising in the ordinary course of business, so long as such Liens attach only
to Equipment, Fixtures and/or real estate; (e) carriers', warehousemen's,
suppliers' or other similar possessory liens arising in the ordinary course
of business and securing liabilities in an outstanding aggregate amount not
in excess of $ 100,000.00 at any time, so long as such Liens attach only to
Inventory; (f) presently existing or hereinafter created Liens in favor of
Thayer; and (g) Liens in favor of Bank securing the Loans.
"PERSON" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, limited liability company, institution, public benefit
corporation, other entity or government (whether federal, state, county,
city, municipal, local, foreign, or otherwise, including any instrumentality,
division, agency, body or department thereof).
"PLEDGE AGREEMENT" shall mean that certain Pledge dated as of
the Closing Date, by and between Parent and Thayer.
"PRIMARY LOAN" shall mean the obligations owed from time to
time by Company and Parent to Bank pursuant to the Loan and Security
Agreement dated February 8, 1996, as amended through the Closing Date, by and
between Company and Bank up to the principal amount of $16,000,000.
"REGISTRATION RIGHTS AGREEMENT" shall mean that certain
Registration Rights Agreement dated as of the Closing Date, by and between
Parent and Thayer.
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"SECOND WARRANT" shall mean that certain warrant dated May 4,
1998 to purchase up to one million shares of common stock, $.01 par value
issued by Parent to Thayer.
"SECURITY AGREEMENT" shall mean that certain Security
Agreement dated as of the Closing Date, by and between Company and Thayer.
"SUBORDINATION AND INTERCREDITOR AGREEMENT" shall mean that
certain Subordination and Intercreditor Agreement dated as of the closing
date by and between Bank and Thayer.
"TRADEMARK LICENSE" shall mean rights under any written
agreement now owned or hereafter acquired by Parent or Company granting any
right to use any Trademark.
"TRADEMARKS" shall mean all of the following now owned or
hereafter acquired by Parent or Company: (a) all trademarks, trade names,
corporate names, business names, trade styles, service marks, logos, other
source or business identifiers, prints and labels on which any of the
foregoing have appeared or appear, designs and general intangibles of like
nature (whether registered or unregistered), now owned or existing or
hereafter adopted or acquired, all registrations and recordings thereof, and
all applications in connection therewith, including registrations, recordings
and applications in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any state or territory
thereof, or any other country or any political subdivision thereof; (b) all
reissues, extensions or renewals thereof; and (c) all goodwill associated
with or symbolized by any of the foregoing.
2. INDEMNIFICATION.
(a) Parent and Company shall jointly and severally indemnify
and hold harmless Thayer and its respective officers, directors, employees,
attorneys, agents, successors, assigns and representatives (each, an
"INDEMNIFIED PERSON"), from and against any and all suits, actions,
proceedings, claims, damages, losses, liabilities and expenses (including any
attorneys' fees and disbursements, expert and other witness fees, consultant
fees and other costs of investigation or defense, including those incurred
upon any appeal) (i) which may be instituted or asserted against or incurred
by any such Indemnified Person as the result of the financial accommodations
having been extended, suspended or terminated under this Reimbursement
Agreement or the other Basic Documents; (ii) incurred in connection with the
administration of enforcement of this Reimbursement Agreement or any other
Basic Document; (iii) incurred in connection with or arising out of the
transactions contemplated under this Reimbursement Agreement or any other
Basic Document or any actions or omissions in connection therewith; in each
case, including any and all legal costs and expenses arising out of or
incurred in connection with disputes between or among ANY PARTIES to any of
the Basic Documents (collectively, "INDEMNIFIED LIABILITIES"); PROVIDED, that
neither Parent nor Company shall be liable for any indemnification to an
Indemnified Person to the extent that any such suit, action, proceeding,
claim, damage, loss, liability or expense results from that Indemnified
Person's own gross negligence or willful misconduct. NO INDEMNIFIED PERSON
SHALL
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BE RESPONSIBLE OR LIABLE TO ANY OTHER PARTY TO ANY BASIC DOCUMENT, ANY
SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OF SUCH PERSON OR ANY OTHER
PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT,
PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT
OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED UNDER ANY BASIC
DOCUMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR
THEREUNDER.
(b) To induce Thayer to arrange for the Letter of Credit, if
the Letter of Credit is drawn down in whole or part, Parent and Company shall
jointly and severally indemnify and hold harmless Thayer from and against all
losses, costs and expenses resulting from or arising from any of the
foregoing and from any draws under the Letter of Credit or payments made by
The Bank of Nova Scotia or Thayer in connection therewith. Such
indemnification shall include any loss (including loss of margin) or expense
(including costs, fees and other charges payable to The Bank of Nova Scotia
for the Letter of Credit) arising from the reemployment of funds obtained by
Thayer or from fees payable to terminate deposits from which such funds were
obtained.
(c) The indemnification and other provisions of this section
2 shall survive the termination of this Reimbursement Agreement or any other
Basic Document.
3. REIMBURSEMENT AND PAYMENT TERMS.
(a) Parent and Company shall pay to Thayer:
(i) immediately after (and on the same Business Day as)
any amount drawn under the Letter of Credit in such
amount;
(ii) upon notice from Thayer of the amount thereof, any
and all reasonable expenses which Thayer may pay or
incur relative to the Letter of Credit; and
(iii) when due, all fees, expenses and charges payable to
The Bank of Nova Scotia for or under the Letter of
Credit.
(b) Parent and Company shall pay to Thayer interest on any
and all amounts unpaid by Parent and Company when due hereunder or under the
Note (in the case of amounts in respect of interest, to the maximum extent
permitted by law) for each day from the date such amounts became due until
payment in full, payable on demand, at a rate of 12% per annum; and
(c) All payments by Parent and Company to Thayer hereunder and
under the Note shall be made in lawful currency of the United States and in
immediately available funds at Thayer's principal office located at 1455
Pennsylvania Avenue, N.W. Suite 350 Washington, D.C. 20004 or, at such other
address or by such other means as may be
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designated by Thayer in writing to Company and Parent. Whenever any payment
hereunder or under the Note shall be due on a day which is not a business
day, the date for payment thereof shall be extended to the next succeeding
Business Day.
4. NOTE AND SECURITY.
(a) To secure the prompt and complete payment, performance
and observance of all the Obligations, Company hereby concurrently grants to
Thayer a Lien upon all of its right, title and interest in, to and under all
of its assets and property, tangible or intangible, whether now owned by or
owing to, or hereafter acquired by or arising in favor of Company (including
under any trade names, styles or derivations thereof), and whether owned or
consigned by or to, or leased from or to, Company, and regardless of where
located, as more specifically set forth in the Security Agreement.
(b) To secure the prompt and complete payment, performance,
and observance of all of the Obligations, Parent hereby currently pledges to
Thayer the stock of Company now or hereafter owned by Parent, as more
specifically set forth in the Pledge Agreement
(c) Parent and Company's obligations hereunder shall be
evidenced by the Note, in the form of Exhibit A attached hereto. Thayer
shall record the date and amount of each drawing on the Letter of Credit and
the date and amount of each payment of principal by Parent and/or Company
with respect thereto; provided that, the failure of Thayer to make any
recordation shall not affect the obligations of the Parent and Company
hereunder or under the Note.
5. REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained in the Pledge Agreement and Security Agreement are
hereby incorporated by reference as though fully set forth herein. Company
and Parent each hereby further represent and warrant that:
(a) Each of the representations and warranties contained in
the Pledge Agreement and Security Agreement are true and correct.
(b) Parent and Company each affirm each of the
representations and warranties made by Buyer, as that term is defined in the
Merger Agreement, and warrant that those representations and warranties are
true and correct as of the date hereof.
(c) Each of Company and Parent has been duly organized, and
is existing as a corporation in good standing under the laws of the state of
its jurisdiction of incorporation, with full power and authority (corporate
and other) to own, lease, pledge, mortgage or otherwise encumber its
properties and to conduct its business as currently conducted. Each of
Company and Parent has been duly qualified as a foreign corporation for the
transaction of business and is in good standing under the laws of each
jurisdiction in which the
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nature of its business or location of its properties requires such
qualification and in which the failure to so qualify would have a Material
Adverse Effect.
(c) As of the Closing Date, the current location of Company
and Parent's chief executive office and principal place of business is set
forth below:
Company: Advanced Telemarketing Corporation
7880 Bent Branch Drive, Suite 150
Irving, Texas 75063
Parent: ATC Communications Group, Inc.
5950 Berkshire Lane
Suite 1650
Dallas, Texas 75225
and none of such locations have changed within the twelve (12) months
preceding the Closing Date.
(d) The execution, delivery and performance by Company and
Parent of the Basic Documents to which they are a party and the creation of
all Liens provided for therein: (i) are within such Person's corporate power;
(ii) have been duly authorized by all necessary or proper corporate and
shareholder action; (iii) do not contravene any provision of such Person's
charter or bylaws; (iv) do not violate any law or regulation, or any order or
decree of any court or governmental authority; (v) do not conflict with or
result in the breach or termination of, constitute a default under or
accelerate or permit the acceleration of any performance required by, any
indenture, mortgage, deed of trust, lease, agreement or other instrument to
which such Person is a party or by which such Person or any of its property
is bound; (vi) do not result in the creation or imposition of any Lien upon
any of the property of such Person other than those in favor of Bank and
Thayer pursuant to the Basic Documents; and (vii) do not require the consent
or approval of any governmental authority or any other Person, except that of
Bank, which has been obtained. On or prior to the Closing Date, each of the
Basic Documents shall have been duly executed and delivered by Company and
Parent thereto and each such Basic Document shall then constitute a legal,
valid and binding obligation of Company and Parent enforceable against it in
accordance with its terms.
(e) As of their respective dates, the Financial Statements of
Company and Parent and the other financial information previously delivered
to Thayer or its representatives did not contain any untrue statements of a
material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading. The audited
financial statements and unaudited interim financial statements of Company
and/or Parent have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby (except as may be
indicated therein or in the notes thereto, and in the case of quarterly
financial statements, as permitted by Form 10-Q under the Exchange Act),
fairly present the consolidated financial condition, results of operations
and cash flows of
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Company and/or Parent as of the respective dates thereof and for the periods
referred to therein subject, in the case of unaudited financial statements,
to normal, recurring year-end adjustments and any other adjustments described
therein, and are consistent with the books and records of Company and Parent.
(f) Parent owns 98.94% of the issued and outstanding shares
of Company.
(g) Neither Company nor Parent has any plans qualified or
regulated under the Employee Retirement Income Securities Act of 1974, except
those disclosed in Section 4.08 of the Merger Agreement.
(h) Except as set forth in Section 4.07 of the Merger
Agreement or on Exhibit B to the opinion letter of Hughes & Luce delivered
concurrently with this Reimbursement Agreement, there is no action, claim,
lawsuit, demand, investigation or proceeding now pending or, to the knowledge
of Company and Parent, threatened against Company or Parent, before any
governmental authority or before any arbitrator or panel of arbitrators
(collectively, "Litigation"), (a) which challenges the right or power of
Company or Parent to enter into or perform any of its obligations under the
Basic Documents to which it is a party, or the validity or enforceability of
any Basic Document or any action taken thereunder, (b) which has a
reasonable risk of being determined adversely to Company and Parent and
which, if so determined, could have a materially adverse effect on the
Collateral or the ability of either Company or Parent to satisfy its
Obligations, or (c) which seeks damages in excess of $100,000 or injunctive
relief or alleges criminal misconduct of Company or Parent.
(i) No information contained in this Reimbursement Agreement,
any of the other Basic Documents, any financial statements or other reports
from time to time delivered hereunder or any written statement furnished by
or on behalf of Company or Parent to Thayer pursuant to the terms of this
Reimbursement Agreement contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact necessary to
make the statements contained herein or therein not misleading. The Liens
granted to Thayer pursuant to the Security Agreement and Pledge Agreement
will at all times be fully perfected Liens in and to the Collateral described
therein, subject, as to priority, only to Permitted Encumbrances.
(j) Company and Parent each undertake and agree to transmit
to Thayer copies of all borrowing base certificates, notices, projections,
reports, documents and other information transmitted to Bank, otherwise
requested by Bank, or required under the Loan and Security Agreement.
Company and Parent each undertake and agree to immediately transmit to Thayer
copies of all notices received from Bank or any other Person under or
relating to the Loan and Security Agreement. Company and Parent each
undertake and agree to provide Thayer with copies of any and all requests,
correspondence, proposals, commitments, drafts or documentation relating to
(i) any amendments to, modifications or extensions of the Loan and Security
Agreement; or (ii) forbearances, defaults or waivers under the Loan and
Security Agreement. Company and Parent agree to provide Thayer with copies of
all of the documents
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specified in this paragraph 5(j) by facsimile and overnight delivery
contemporaneously with the transmission of such documents to Bank or within
one Business Day following the receipt of such documents from Bank.
(k) Company and Parent authorize Thayer to communicate
directly with its independent certified public accountants including Price
Waterhouse, and authorizes and hereby instructs those accountants and
advisors to disclose and make available to Thayer any and all Financial
Statements and other supporting financial documents, schedules and
information relating to Company and Parent (including copies of any issued
management letters) with respect to the business, financial condition and
other affairs of Company and Parent.
(l) As of the Closing Date, Parent has delivered to Thayer a
complete and correct copy of the Merger Agreement (including all schedules,
exhibits, amendments, supplements, modifications, assignments and all other
documents delivered pursuant thereto or in connection therewith). Neither
the Company nor Parent and no other Person party thereto is in default in the
performance or compliance with any provisions thereof. The Merger Agreement
complies with, and the Merger has been consummated in accordance with, all
applicable laws. The Merger Agreement is in full force and effect as of the
Closing Date, has not been terminated, rescinded or withdrawn. All requisite
approvals by governmental authorities having jurisdiction over the parties
thereto, with respect to the transactions contemplated by the Merger
Agreement, have been obtained, and no such approvals impose any conditions to
the consummation of the transactions contemplated by the Merger Agreement or
to the conduct by Company and Parent of its business thereafter. To the best
of Company and Parent's knowledge, none of the Parent's representations or
warranties in the Merger Agreement contain any untrue statement of a material
fact or omit any fact necessary to make the statements therein not
misleading. Each of the representations and warranties given by each
applicable Company and Parent in the Merger Agreement is true and correct in
all material respects.
(m) As of the Closing Date, Parent has delivered to Thayer a
complete and correct copy of the Loan and Security Agreement (including all
schedules, exhibits, amendments, supplements, modifications, assignments and
all other documents delivered pursuant thereto or in connection therewith).
Neither the Company nor Parent and no other Person party thereto is in
default in the performance or compliance with any provisions thereof, and no
"Default" or "Event of Default" (as defined in the Loan and Security
Agreement) exists as of the Closing Date. The Loan and Security Agreement is
in full force and effect as of the Closing Date, has not been terminated,
rescinded or withdrawn, and the Primary Loan amount outstanding thereunder is
not in excess of $13,000,000.00.
6. COVENANTS. The covenants contained in the Security Agreement
and Pledge Agreement are hereby incorporated by reference as though fully set
forth herein. Company and Parent, each hereby further covenant and agree:
(a) Each of Company and Parent will comply with all
provisions of the Basic Documents and the Loan and Security Agreement
applicable to it.
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<PAGE>
(b) Neither Company nor Parent shall create, incur, assume
or permit to exist any Lien on or with respect to its Accounts or any of its
other properties or assets (whether now owned or hereafter acquired) except
for Permitted Encumbrances. In addition, neither Company and Parent shall
become a party to any agreement, note, indenture or instrument, or take any
other action, which would prohibit the creation of a Lien on any of its
properties or other assets in favor of Thayer as additional collateral for
the Obligations, except leases or Licenses which prohibit Liens upon the
assets that are subject thereto. Company and Parent will not create, permit
or suffer to exist, and will defend the Collateral against, and take such
other action as is necessary to remove, any Lien on the Collateral except
Permitted Encumbrances.
(c) Neither Company nor Parent shall authorize, negotiate, or
agree to modify, alter or amend any provision of the Loan and Security
Agreement without Thayer's prior written consent.
(d) Neither Parent nor Company will cause or permit any
distributions, dividends, or stock issuances to be made except as expressly
provided in the Merger Agreement and dividends not to exceed an aggregate of
$11,000 per year.
(e) Neither Company nor Parent shall (1) change its corporate
name, or (2) change its chief executive office, principal place of business,
corporate offices or warehouses or locations at which Collateral is held or
stored, or the location of its records concerning the Collateral, in any case
without at least thirty (30) days prior written notice to Thayer and after
Thayer's written acknowledgment that any reasonable action requested by
Thayer in connection therewith, including to continue the perfection of any
Liens in favor of Thayer in any Collateral, has been completed or taken.
Without limiting the foregoing, neither Company nor Parent shall change its
name, identity or corporate structure in any manner which might make any
financing or continuation statement filed in connection herewith seriously
misleading within the meaning of Section 9-402(7) of the Code or any other
then applicable provision of the Code except upon prior written notice to
Thayer and after Thayer's written acknowledgment that any reasonable action
requested by Thayer in connection therewith, including to continue the
perfection of any Liens in favor of Thayer in any Collateral, has been
completed or taken.
(f) Except as expressly permitted by the Merger Agreement,
neither Company nor Parent shall make any changes in any of its business
objectives, purposes or operations which could in any way materially
adversely affect the repayment of the Obligations or could reasonably be
expected to have or result in a materially adverse effect on the repayment of
the Obligations.
(g) Each of Company and Parent shall: (1) do or cause to be
done all things necessary to preserve and keep in full force and effect its
corporate existence and its rights and franchises; (2) continue to conduct
its business substantially as now conducted or as
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otherwise permitted hereunder; and (3) at all times maintain, preserve and
protect all of its assets and properties used or useful in the conduct of its
business, and keep the same in good repair, working order and condition in
all material respects (taking into consideration ordinary wear and tear) and
from time to time make, or cause to be made, all necessary or appropriate
repairs, replacements and improvements thereto consistent with industry
practices.
(h) Each of Company and Parent shall keep adequate books and
records with respect to its business activities in which proper entries,
reflecting all financial transactions, are made in accordance with GAAP.
(i) Company and Parent shall comply with all federal, state,
local and foreign laws and regulations applicable to it.
(j) From time to time as may be requested by Thayer, Company
and Parent shall supplement any representation herein or in any other Basic
Document with respect to any matter hereafter arising which, if existing or
occurring at the date of this Reimbursement Agreement, would be an exception
to such representation or which is necessary to correct any information in
such representation which has been rendered inaccurate thereby; provided that
(1) no such supplement to any such representation shall be or be deemed a
waiver of any Default or Event of Default resulting from the matters
disclosed therein, except as consented to by Thayer in writing; and (2) no
supplement shall be required as to representations and warranties that relate
solely to the Closing Date.
(k) Company and Parent executing this Reimbursement Agreement
agrees that it shall and shall cause each other, at Company's and Parent's
expense and upon request of Thayer, duly execute and deliver, or cause to be
duly executed and delivered, to Thayer such further instruments and do and
cause to be done such further acts as may be necessary or proper in the
reasonable opinion of Thayer to carry out more effectively the provisions and
purposes of this Reimbursement Agreement or any other Basic Document.
7. OBLIGATIONS ABSOLUTE. Company and Parent acknowledge and
agree that Thayer has obligated itself to Issuing Bank concurrently with the
issuance of the Letter of Credit. The obligations of Parent and Company
under this Reimbursement Agreement, the Note and other Basic Documents are
and shall be absolute, unconditional and irrevocable, and shall be performed
strictly in accordance with the terms hereof and thereof, under all
circumstances whatsoever, including without limitation the following:
(a) any lack of validity or enforceability of this
Reimbursement Agreement, the Note, or any of the Basic Documents; or any
lack of perfection, release, or discharge in whole or in part, of any
collateral security provided or purported to be provided to any Person by any
Person;
(b) any amendment or waiver of or any consent to departure
from the terms of this Reimbursement Agreement, the Note, or all or any of
the Basic Documents;
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(c) the existence of any claim, set-off, defense or other
rights which the Company, the Guarantor or any other Person may have at any
time against the Bank, the Issuing Bank or any other Person, whether in
connection with this Reimbursement Agreement, the Basic Documents or any
unrelated transaction;
(d) any statement or any other document presented under the
Letter of Credit proving to be forged, fraudulent or invalid or insufficient
in any respect or any statement therein being untrue or inaccurate in any
respect whatsoever;
(e) payment by the Issuing Bank under the Letter of Credit
against presentation of a draft or certificate which does not comply with the
terms thereof; and
(f) any other circumstance or happening whatsoever, whether
or not similar to any of the foregoing.
8. EVENTS OF DEFAULT. The occurrence of any one or more of the
following events (regardless of the reason therefor) shall constitute an
"Event of Default" hereunder:
(a) Either Parent or Company (i) fails to make any payment of
principal of, or interest on, or fees owing in respect of, the Obligations
when due and payable, or (ii) fails to pay or reimburse Thayer for any
expense reimbursable hereunder or under any other Basic Document within three
(3) days following Thayer's written request for such reimbursement or payment
of expenses.
(b) Company or Parent shall fail or neglect to perform, keep
or observe any of the provisions of Section 6.
(c) Company and Parent shall fail or neglect to perform, keep
or observe any other provision of this Reimbursement Agreement or of any of
the other Basic Documents and the same shall remain unremedied for ten (10)
days or more following notice thereof.
(d) A default or breach shall occur under any other
agreement, document or instrument to which Company or Parent is a party or
the occurrence of any Event of Default as defined in the Loan and Security
Agreement which is not cured within any applicable grace period in each
instance.
(e) Any representation or warranty herein or in any
Basic Document or in any written statement, report, financial statement or
certificate made or delivered to Thayer by Company and Parent is untrue or
incorrect in any material respect as of the date when made or deemed made or
any representation or warranty made herein or in any Basic Document is untrue
or incorrect as of the date of any request for an advance under the Bridge
Loan.
(f) Assets of Company or Parent with a fair market value of
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$50,000.00 or more shall be attached, seized, levied upon or subjected to a
writ or distress warrant, or come within the possession of any receiver,
trustee, custodian or assignee for the benefit of creditors of Company and
Parent and such condition continues for thirty (30) days or more.
(g) A case or proceeding shall have been commenced against
Company or Parent seeking a decree or order in respect of Company or Parent
(i) under Title 11 of the United States Code, as now constituted or hereafter
amended or any other applicable federal, state or foreign bankruptcy or other
similar law, (ii) appointing a custodian, receiver, liquidator, assignee,
trustee or sequestrator (or similar official) for Company or Parent or of any
substantial part of any such Person's assets, or (iii) ordering the
winding-up or liquidation of the affairs of Company or Parent, and such case
or proceeding shall remain undismissed or unstayed for sixty (60) days or
more or such court shall enter a decree or order granting the relief sought
in such case or proceeding
(h) Company or Parent (i) shall file a petition seeking
relief under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other applicable federal, state or foreign
bankruptcy or other similar law, (ii) shall fail to contest in a timely and
appropriate manner or shall consent to the institution of proceedings
thereunder or to the filing of any such petition or to the appointment of or
taking possession by a custodian, receiver, liquidator, assignee, trustee or
sequestrator (or similar official) of Company or Parent or of any substantial
part of any such Person's assets, (iii) shall make an assignment for the
benefit of creditors, (iv) shall take any corporate action in furtherance of
any of the foregoing; or (v) shall admit in writing its inability to, or
shall be generally unable to, pay its debts as such debts become due.
(i) A final judgment or judgments for the payment of money in
excess of $100,000 in the aggregate at any time outstanding shall be rendered
against Company or Parent and the same shall not, within thirty (30) days
after the entry thereof, have been discharged or execution thereof stayed or
bonded pending appeal, or shall not have been discharged prior to the
expiration of any such stay.
(j) Any material provision of any Basic Document shall for
any reason cease to be valid, binding and enforceable in accordance with its
terms (or Company or Parent shall challenge the enforceability of any Basic
Document or shall assert in writing, or engage in any action or inaction
based on any such assertion, that any provision of any of the Basic Documents
has ceased to be or otherwise is not valid, binding and enforceable in
accordance with its terms), or any security interest created under any Basic
Document shall cease to be a valid and perfected security interest or Lien
(except as otherwise permitted herein or therein) in any of the Collateral
purported to be covered thereby, with priority subject only to the Permitted
Encumbrances.
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9. REMEDIES.
(a) If any Event of Default shall have occurred and be
continuing, Thayer in its sole and absolute discretion may, without notice to
Company or Parent, (i) suspend or terminate the Bridge Loan facility with
respect to further advances; (ii) declare all or any portion of the
Obligations to be immediately due and payable, without presentment, demand,
protest or further notice of any kind, all of which are expressly waived by
each of Company and Parent; and (iii) exercise any rights and remedies
provided to Thayer under the Basic Documents and/or at law or equity,
including all remedies provided under the Code.
(b) Whether or not any Event of Default shall have occurred
or be continuing under the Reimbursement Agreement, if a Default under the
Loan and Security Agreement (as defined therein) shall have occurred and be
continuing or if the Merger Agreement is terminated, Thayer in its sole and
absolute discretion may, without notice to Company or Parent, suspend or
terminate the Bridge Loan facility with respect to further advances.
(c) Except as otherwise provided for in this Reimbursement
Agreement or by applicable law, each of Company and Parent waives: (i)
presentment, demand and protest and notice of presentment, dishonor, notice
of intent to accelerate, notice of acceleration, protest, default,
nonpayment, maturity, release, compromise, settlement, extension or renewal
of any or all commercial paper, accounts, contract rights, documents,
instruments, chattel paper and guaranties at any time held by Thayer on which
Company and Parent may in any way be liable, and hereby ratifies and confirms
whatever Thayer may do in this regard, (ii) all rights to notice and a
hearing prior to Thayer's taking possession or control of, or to Thayer's
replevy, attachment or levy upon, the Collateral or any bond or security
which might be required by any court prior to allowing Thayer to exercise any
of its remedies, and (iii) the benefit of all valuation, appraisal,
marshaling and exemption laws.
10. SURVIVAL. This Reimbursement Agreement shall survive, and
shall not be affected, by any modifications or amendments to the Bridge Loan
or any documents relating to the Loans.
11. SUCCESSORS AND ASSIGNS. This Reimbursement Agreement and
other Basic Documents shall be binding on and shall inure to the benefit of
each of Parent, Company and Thayer and their respective successors and
assigns. Neither Parent nor Company may assign, transfer hypothecate or
otherwise convey its rights, benefits, obligations hereunder or under any of
the other Basic Documents without the prior written consent of Thayer.
12. AMENDMENT AND WAIVER. No amendment, modification, termination
or waiver of any provision of this Reimbursement Agreement or any other Basic
Document, or any consent to any departure from Thayer therefrom, shall in any
event be effective unless the same shall be in writing and signed by Thayer,
Parent and Company.
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<PAGE>
13. CUMULATIVE REMEDIES. Thayer's rights and remedies under this
Reimbursement Agreement shall be cumulative and nonexclusive of any other
rights and remedies which Thayer may have under any other Basic Document, by
operation of law or otherwise. Recourse to the Collateral shall not be
required.
14. NO WAIVER. Thayer's failure, at any time or times, to require
strict performance by either Parent or Company of any provision of this
Reimbursement Agreement and any of the other Basic Documents shall not waive,
affect, or diminish any right of Thayer thereafter to demand strict
compliance and performance therewith. Any suspension or waiver of an Event
of Default shall not suspend, waive or affect any other Event of Default
whether the same is prior or subsequent thereto and whether the same or of a
different type. None of the undertakings, agreements, warranties, covenants
and representations of Parent or Company contained in this Reimbursement
Agreement or any other Basic Document and Default or Event of Default by
either Parent or Company shall be deemed to have been suspended or waived by
Thayer, unless such waiver or suspension is by an instrument in writing
signed by an officer of or other authorized employee of Thayer and directed
to Parent or Company specifying such suspension or waiver.
15. ADVICE OF COUNSEL. Each of the parties represents to each
other party hereto that it has discussed this Reimbursement Agreement with
its counsel
16. NOTICES. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval,
declaration or other communication shall or may be given to or served upon
any of the parties by any other party, or whenever any of the parties desires
to give or serve upon any other a communication with respect to this
Agreement, each such notice, demand, request, consent, approval, declaration
or other communication shall be in writing and either shall be delivered in
person or sent by registered or certified mail, return receipt requested,
with proper postage prepaid, or by facsimile transmission and confirmed by
delivery of a copy by personal delivery or United States Mail as otherwise
provided herein:
B0 If to Thayer, at:
Thayer Equity Investors III, L.P.
1455 Pennsylvania, N.W.
Suite 350
Washington, D.C. 20004
Attention: Susan Gallagher
Fax No.: (202) 371-0391
With copies to:
Paul, Hastings, Janofsky & Walker LLP
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555 South Flower Street
Twenty-Third Floor
Los Angeles, CA 90071
Attention: Robert A. Miller, Esq.
Fax No.: 213-627-0705
C0 If to Pledgor, at:
ATC Communications Group, Inc.
5950 Berkshire Lane
Suite 1650
Dallas, Texas 75225
Attention: Matt Waller
Fax No.: 214-361-9874/972-868-0396
With copies to:
Hughes & Luce, LLP
1717 Main Street
Suite 2800
Dallas, Texas 75201
Attention: Ken Hawari, Esq.
Fax No.: 214-939-6100
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in
writing by the party entitled to receive such notice. Every notice, demand,
request, consent, approval, declaration or other communication hereunder
shall be deemed to have been duly served, given or delivered (a) upon the
earlier of actual receipt and three (3) Business Days after deposit in the
United States Mail, registered or certified mail, return receipt requested,
with proper postage prepaid, (b) upon transmission, when sent by telecopy or
other similar facsimile transmission (with such telecopy or facsimile
promptly confirmed by delivery of a copy by personal delivery or United
States Mail as otherwise provided in this SECTION 16, (c) one (1) Business
Day after deposit with a reputable overnight courier with all charges
prepaid, or (d) when delivered, if hand-delivered by messenger. Failure or
delay in delivering copies of any notice, demand, request, consent, approval,
declaration or other communication to the persons designated above to receive
copies shall in no way adversely affect the effectiveness of such notice,
demand, request, consent, approval, declaration or other communication.
17. COUNTERPARTS. This Reimbursement Agreement may be executed in
any number of counterparts and all counterparts taken together shall
represent one and the same Reimbursement Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
REIMBURSEMENT AND INDEMNIFICATION AGREEMENT as of the day and year first
above written.
"Company"
ADVANCED TELEMARKETING CORPORATION
By: /s/ Jerry L. Sims, Jr.
------------------------------------
Name: Jerry L. Sims, Jr.
Title: Secretary
"Parent"
ATC COMMUNICATIONS GROUP, INC.
By: /s/ Jerry L. Sims, Jr.
------------------------------------
Name: Jerry L. Sims, Jr.
Title: Senior Vice President
THAYER EQUITY INVESTORS III, L.P.
By: /s/ Carl T. Rickertsen
------------------------------------
Name: Carl T. Rickertsen
Title: Member
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<PAGE>
CONFORMED COPY -- NON-NEGOTIABLE
THE INDEBTEDNESS EVIDENCED BY THIS INSTRUMENT IS SUBORDINATED TO THE PRIOR
PAYMENT IN FULL OF THE SENIOR OBLIGATIONS AS SUCH TERM IS DEFINED IN THE
SUBORDINATION AND INTERCREDITOR AGREEMENT DATED AS OF MAY 4, 1998 BY AND
BETWEEN BANK ONE, TEXAS, N.A. AND THAYER EQUITY INVESTORS III, L.P.
PROMISSORY NOTE
$2,000,000 May 4, 1998
Dallas, Texas
FOR VALUE RECEIVED, each of the undersigned, ADVANCED TELEMARKETING
CORPORATION ("Company"), a Nevada corporation and ATC COMMUNICATIONS GROUP,
INC., a Delaware corporation (each a "Maker"), jointly and severally, HEREBY
PROMISE TO PAY to the order of THAYER EQUITY INVESTORS III, L.P., a Delaware
limited partnership ("Lender"), at its address at 1455 Pennsylvania Avenue,
N.W., Suite 350, Washington D.C. 20004, or at such other place as Lender may
designate from time to time in writing, in lawful money of the United States
of America and in immediately available funds, the amount of TWO MILLION
DOLLARS AND NO CENTS ($2,000,000.00) or, if less, the aggregate unpaid
amounts drawn down on the Letter of Credit, upon the terms set forth below.
All capitalized terms used but not otherwise defined herein have the meanings
given to them in that certain Reimbursement and Indemnification Agreement
dated as of May 4, 1998 by and among Makers and Lender (including all
annexes, exhibits and schedules thereto, and as from time to time amended,
restated, supplemented or otherwise modified, the "REIMBURSEMENT AGREEMENT").
1. PAYMENTS AND MATURITY. All amounts due under this Promissory Note shall
be due and payable on demand, together with all losses, expenses and costs
due under the Reimbursement Agreement. If any payment on this Promissory
Note becomes due and payable on a day other than a Business Day, the maturity
thereof shall be extended to the next succeeding Business Day.
2. SECURED NOTE. This Promissory Note is secured by a security interest in
substantially all of Makers' assets, as evidenced by the Security Agreement
and the Pledge Agreement.
3. OBLIGATIONS JOINT AND SEVERAL: SUCCESSORS AND ASSIGNS. The term "Maker"
shall include each person and entity now or hereafter liable hereunder,
whether as maker, principal, surety, guarantor, endorser or otherwise, each
of whom shall be jointly, severally and primarily liable for all of the
obligations set forth herein. This Promissory Note shall bind and inure to
the benefit of the parties hereto and their respective successors and assigns
1
<PAGE>
4. WAIVERS. Time is of the essence of this Promissory Note. Demand,
presentment, protest and notice of nonpayment and protest are hereby waived
by Makers.
5. HEADINGS. All headings in this Note are for convenience of reference
only and do not affect the meaning of any provision.
6. 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.
THIS PROMISSORY NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS APPLICABLE TO CONTRACTS MADE
AND PERFORMED IN THAT STATE.
ATC COMMUNICATIONS GROUP, INC.
"MAKER"
By: /s/ Jerry L. Sims, Jr.
------------------------------------
Title: Senior Vice President
----------------------------------
ADVANCED TELEMARKETING CORPORATION
"MAKER"
By: /s/ Jerry L. Sims, Jr.
------------------------------------
Title: Secretary
----------------------------------
2
<PAGE>
CONFORMED COPY
THE INDEBTEDNESS EVIDENCED BY THIS INSTRUMENT IS SUBORDINATED TO THE PRIOR
PAYMENT IN FULL OF THE SENIOR OBLIGATIONS AS SUCH TERM IS DEFINED IN THE
SUBORDINATION AND INTERCREDITOR AGREEMENT DATED AS OF MAY 4, 1998 BY AND
BETWEEN BANK ONE, TEXAS, N.A. AND THAYER EQUITY INVESTORS III, L.P.
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of May 4, 1998, between Advanced
Telemarketing Corporation, a Nevada corporation ("GRANTOR"), and Thayer
Equity Investors III, L.P., a Delaware limited partnership ("THAYER").
W I T N E S S E T H:
WHEREAS, Thayer has agreed to provide certain financial
accommodations to Grantor and ATC Communications Group, Inc., a Delaware
corporation ("Parent") and Grantor, Thayer and Parent have entered into that
certain Reimbursement and Indemnity Agreement dated May 4, 1998 (including
all annexes, exhibits and schedules thereto, as from time to time amended,
restated, supplemented or otherwise modified, the "REIMBURSEMENT AGREEMENT");
WHEREAS, in order to induce Thayer to enter into the Reimbursement
Agreement and the other Basic Documents, Grantor has agreed to grant a
continuing Lien on the Collateral (as hereinafter defined) to secure the
Obligations;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. DEFINED TERMS. All capitalized terms used but not otherwise
defined herein have the meanings given to them in the Reimbursement
Agreement. All other undefined terms contained in this Security Agreement,
unless the context indicates otherwise, have the meanings provided for by
Article 9 of the Texas Uniform Commercial Code ("Code") to the extent the
same are used or defined therein.
2. GRANT OF LIEN.
(a) To secure the prompt and complete payment, performance and
observance of all of the Obligations, Grantor hereby grants, assigns,
conveys, mortgages, pledges, hypothecates and transfers to Thayer a Lien upon
all of its right, title and interest in, to and under all of its personal
property, tangible or intangible, whether now owned by or owing to, or
hereafter acquired by or arising in favor of Grantor (including under any
trade names, styles or derivations thereof), and whether owned or consigned
by or to, or leased from or to, Grantor, and regardless of where located,
including the following (all of which being hereinafter collectively referred
to as the "COLLATERAL"):
<PAGE>
(i) all Accounts;
(ii) all Chattel Paper;
(iii) all Contracts;
(iv) all Documents;
(v) all Equipment;
(vi) all Fixtures;
(vii) all General Intangibles;
(viii) all Goods;
(ix) all Instruments;
(x) all Inventory;
(xi) all Investment Property;
(xii) all Deposit Accounts and other bank accounts and all
deposits therein;
(xiii) all money, cash or cash equivalents of Grantor;
(xiv) to the extent not otherwise included, all Proceeds and
products of the foregoing and all accessions to, substitutions and
replacements for, and rents and profits of, each of the foregoing; and
(xv) in addition all books, records, software programs,
computerized disks and other management and information systems, data or
technology related to any of the foregoing or to the business of Grantor as
a whole.
(b) In addition, to secure the prompt and complete payment,
performance and observance of the Obligations and in order to induce Thayer
as aforesaid, Grantor hereby grants to Thayer a right of set-off against the
property of Grantor held by Thayer, consisting of property described above in
SECTION 2(a) now or hereafter in the possession or custody of or in transit
to Thayer, for any purpose, including safekeeping, collection or pledge, for
the account of Grantor, or as to which Grantor may have any right or power.
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<PAGE>
3. THAYER'S RIGHTS; LIMITATIONS ON THAYER'S OBLIGATIONS.
(a) It is expressly agreed by Grantor that, anything herein to the
contrary notwithstanding, Grantor shall remain liable under each of its
Contracts and each of its Licenses to observe and perform all the conditions
and obligations to be observed and performed by it thereunder. Thayer shall
not have any obligation or liability under any Contract or License by reason
of or arising out of this Security Agreement or the granting herein of a Lien
thereon or the receipt by Thayer of any payment relating to any Contract or
License pursuant hereto. Thayer shall not be required or obligated in any
manner to perform or fulfill any of the obligations of Grantor under or
pursuant to any Contract or License, or to make any payment, or to make any
inquiry as to the nature or the sufficiency of any payment received by it or
the sufficiency of any performance by any party under any Contract or
License, or to present or file any claims, or to take any action to collect
or enforce any performance or the payment of any amounts which may have been
assigned to it or to which it may be entitled at any time or times.
(b) Subject to the Subordination and Intercreditor Agreement,
Thayer may at any time after a Default or an Event of Default shall have
occurred and be continuing, without prior notice to Grantor, notify Account
Debtors, parties to the Contracts and obligors in respect of Instruments and
Chattel Paper, that the Accounts and the right, title and interest of Grantor
in and under such Contracts, Instruments and Chattel Paper have been assigned
to Thayer and that payments shall be made directly to Thayer. Subject to the
Subordination and Intercreditor Agreement, upon the request of Thayer after
the occurrence and during the continuance of any Event of Default, Grantor
shall so notify Account Debtors, parties to Contracts and obligors in respect
of Instruments and Chattel Paper.
(c) Thayer may at any time in Thayer's own name or in the name of
Grantor communicate with Account Debtors, parties to Contracts, obligors in
respect of Instruments and obligors in respect of Chattel Paper to verify
with such Persons, to Thayer's satisfaction, the existence, amount and terms
of any such Accounts, Contracts, Instruments or Chattel Paper. If a Default
or Event of Default shall have occurred and be continuing, Grantor, at its
own expense, shall cause the independent certified public accountants then
engaged by Grantor to prepare and deliver to Thayer at any time and from time
to time promptly upon Thayer's request after the occurrence and during the
continuance of any Event of Default, the following reports with respect to
Grantor: (i) a reconciliation of all Accounts; (ii) an aging of all Accounts;
(iii) trial balances; and (iv) a test verification of such Accounts as Thayer
may request. Grantor, at its own expense, shall deliver to Thayer the
results of each physical verification, if any, which Grantor may in its
discretion have made, or caused any other Person to have made on its behalf,
of all or any portion of its Inventory.
4. REPRESENTATIONS AND WARRANTIES. Grantor represents and
warrants that:
(a) Grantor is the sole owner of each item of the Collateral upon
which it purports to grant a Lien hereunder, and has good and marketable
title thereto free and clear of any and all Liens other than Permitted
Encumbrances.
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<PAGE>
(b) No effective security agreement, financing statement,
equivalent security or Lien instrument or continuation statement covering all
or any part of the Collateral is on file or of record in any public office,
except such as may have been filed (i) by Grantor in favor of Thayer pursuant
to this Security Agreement or the other Basic Documents, and (ii) in
connection with any other Permitted Encumbrances.
(c) This Security Agreement is effective to create a valid and
continuing Lien on and, upon the filing of the appropriate financing
statements in the jurisdictions listed on SCHEDULE I hereto, a perfected Lien
in favor of Thayer on the Collateral with respect to which a Lien may be
perfected by filing pursuant to the Code. Such Lien is prior to all other
Liens, except Permitted Encumbrances, and is enforceable as such as against
any and all creditors of and purchasers from Grantor (other than purchasers
of Inventory in the ordinary course of business). All action by Grantor
necessary or desirable to attach and perfect such Lien on each item of the
Collateral has been duly taken.
(d) SCHEDULE II hereto lists all Instruments and Chattel Paper of
Grantor. All action by Grantor necessary or desirable to protect and perfect
the Lien of Thayer on each item set forth on SCHEDULE II (including the
delivery of all originals thereof to Thayer and the legending of all Chattel
Paper as required by SECTION 5(b) hereof) has been duly taken. The Lien of
Thayer on the Collateral listed on SCHEDULE II hereto is prior to all other
Liens, except Permitted Encumbrances, and is enforceable as such against any
and all creditors of and purchasers from Grantor.
(e) Grantor's chief executive office, principal place of business,
corporate offices, all warehouses and premises where Collateral is stored or
located, and the locations of all of its books and records concerning the
Collateral are set forth on SCHEDULE III hereto.
(f) With respect to the Accounts, except as specifically disclosed
to Thayer (i) they represent bona fide sales of Inventory or rendering of
services to Account Debtors in the ordinary course of Grantor's business and
are not evidenced by a judgment, Instrument or Chattel Paper; (ii) there are
no setoffs, claims or disputes existing or asserted with respect thereto and
Grantor has not made any agreement with any Account Debtor for any extension
of time for the payment thereof, any compromise or settlement for less than
the full amount thereof, any release of any Account Debtor from liability
therefor, or any deduction therefrom except a discount or allowance allowed
by Grantor in the ordinary course of its business for prompt payment and
disclosed to Thayer; (iii) to Grantor's knowledge, there are no facts,
events or occurrences which in any way impair the validity or enforceability
thereof or could reasonably be expected to reduce the amount payable
thereunder as shown on Grantor's books and records and any invoices or
statements delivered to Thayer with respect thereto; (iv) Grantor has not
received any notice of proceedings or actions which are threatened or pending
against any Account Debtor which might result in any adverse change in such
Account Debtor's financial condition; and (v) Grantor has no knowledge that
any Account Debtor is unable generally to pay its debts as they become due.
Further with respect to the Accounts (x) the amounts shown on such records
and all invoices, statements which may be delivered to Thayer with respect
thereto are actually and absolutely owing to Grantor as indicated thereon and
are not in any way contingent; (y) no
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<PAGE>
payments have been or shall be made thereon except payments immediately
delivered to the Thayer as required pursuant to the terms the Agreement; and
(z) to Grantor's knowledge, all Account Debtors have the capacity to contract.
(g) With respect to any Inventory, (i) such Inventory is located
at one of Grantor's locations set forth on SCHEDULE III hereto, (ii) no
Inventory is now, or shall at any time or times hereafter be stored at any
other location without Thayer's prior consent, and if Thayer gives such
consent, Grantor will concurrently therewith obtain, to the extent required
by the Agreement, bailee, landlord and mortgagee agreements, (iii) Grantor
has good, indefeasible and merchantable title to such Inventory and such
Inventory is not subject to any Lien or security interest or document
whatsoever except for the Lien granted to Thayer and except for Permitted
Encumbrances, (iv) except as specifically disclosed to Thayer, such Inventory
is of good and merchantable quality, free from any defects, (v) such
Inventory is not subject to any licensing, patent, royalty, trademark, trade
name or copyright agreements with any third parties which would require any
consent of any third party upon sale or disposition of that Inventory or the
payment of any monies to any third party as a precondition of such sale or
other disposition, and (vi) the completion of manufacture, sale or other
disposition of such Inventory by Thayer following an Event of Default shall
not require the consent of any Person and shall not constitute a breach or
default under any contract or agreement to which Grantor is a party or to
which such property is subject, other than Permitted Encumbrances.
(h) Grantor does not have any interest in, or title to, any
Patent, Trademark or Copyright except as set forth in SCHEDULE IV hereto.
This Security Agreement is effective to create a valid and continuing Lien on
and, upon filing of the Copyright Security Agreements with the United States
Copyright Office and filing of the Patent Security Agreements and the
Trademark Security Agreements with the United States Patent and Trademark
Office, perfected security interests in favor of Thayer in Grantor's Patents,
Trademarks and Copyrights and such perfected security interests are
enforceable as such as against any and all creditors of and purchasers from
Grantor. Upon filing of the Copyright Security Agreements with the United
States Copyright Office and filing of the Patent Security Agreements and the
Trademark Security Agreements with the United States Patent and Trademark
Office and the filing of appropriate financing statements in the
jurisdictions listed on SCHEDULE I hereto, all action necessary or desirable
to protect and perfect Thayer's Lien on Grantor's Patents, Trademarks or
Copyrights shall have been duly taken.
5. COVENANTS. Grantor covenants and agrees with Thayer that from
and after the date of this Security Agreement and until payment in full of
the Obligations:
(a) FURTHER ASSURANCES; PLEDGE OF INSTRUMENTS. Subject to the
Subordination and Intercreditor Agreement, at any time and from time to time,
upon the written request of Thayer and at the sole expense of Grantor,
Grantor shall promptly and duly execute and deliver any and all such further
instruments and documents and take such further actions as Thayer may deem
desirable to obtain the full benefits of this Security Agreement and of the
rights and powers herein granted, including (i) using its best efforts to
secure all consents and approvals necessary or appropriate for the assignment
to or for the benefit of Thayer of any License or Contract held
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<PAGE>
by Grantor or in which Grantor has any rights not heretofore assigned, (ii)
filing any financing or continuation statements under the Code with respect
to the Liens granted hereunder or under any other Basic Document, (iii)
transferring Collateral to Thayer's possession if such Collateral consists of
Chattel Paper, Instruments or if a Lien on such Collateral can be perfected
only by possession, or if requested by Thayer, and (iv) obtaining, or using
its best efforts to obtain, waivers of Liens, if any exist, from landlords
and mortgagees in accordance with the Reimbursement Agreement, other than
Permitted Encumbrances. Grantor also hereby authorizes Thayer to file any
such financing or continuation statements without the signature of Grantor to
the extent permitted by applicable law. If any amount payable under or in
connection with any of the Collateral is or shall become evidenced by any
Instrument, such Instrument, other than checks and notes received in the
ordinary course of business, shall be duly endorsed in a manner satisfactory
to Thayer immediately upon Grantor's receipt thereof.
(b) MAINTENANCE OF RECORDS. Grantor shall keep and maintain, at
its own cost and expense, satisfactory and complete records of the
Collateral, including a record of any and all payments received and any and
all credits granted with respect to the Collateral and all other dealings
with the Collateral. Grantor shall mark its books and records pertaining to
the Collateral to evidence this Security Agreement and the Liens granted
hereby. All Chattel Paper shall be marked with the following legend: "This
writing and the obligations evidenced or secured hereby are subject to the
security interest of Thayer Equity Investors III, L.P."
(c) Covenants Regarding Patent, Trademark and Copyright Collateral.
(i) Grantor shall notify Thayer immediately if it knows or
has reason to know that any application or registration relating to any
Patent, Trademark or Copyright (now or hereafter existing) may become
abandoned or dedicated, or of any adverse determination or development
(including the institution of, or any such determination or development in,
any proceeding in the United States Patent and Trademark Office, the United
States Copyright Office or any court) regarding Grantor's ownership of any
Patent, Trademark or Copyright, its right to register the same, or to keep
and maintain the same.
(ii) In no event shall Grantor, either directly or through any
agent, employee, licensee or designee, file an application for the
registration of any Patent, Trademark or Copyright with the United States
Patent and Trademark Office, the United States Copyright Office or any
similar office or agency without giving Thayer prior written notice
thereof, and, upon request of Thayer, Grantor shall execute and deliver any
and all Patent Security Agreements, Copyright Security Agreements or
Trademark Security Agreements as Thayer may request to evidence Thayer's
Lien on such Patent, Trademark or Copyright, and the General Intangibles of
Grantor relating thereto or represented thereby.
(iii) Grantor shall take all actions necessary or requested by
Thayer to maintain and pursue each application, to obtain the relevant
registration and to maintain the registration of each of the Patents,
Trademarks and Copyrights (now or hereafter
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existing), including the filing of applications for renewal, affidavits
of use, affidavits of noncontestability and opposition and interference and
cancellation proceedings, unless Grantor shall determine that such Patent,
Trademark or Copyright is not material to the conduct of its business.
(iv) In the event that any of the Patent, Trademark or
Copyright Collateral is infringed upon, or misappropriated or diluted by a
third party, Grantor shall notify Thayer promptly after Grantor learns
thereof. Grantor shall, unless it shall reasonably determine that such
Patent, Trademark or Copyright Collateral is in no way material to the
conduct of its business or operations, promptly sue for infringement,
misappropriation or dilution and to recover any and all damages for such
infringement, misappropriation or dilution, and shall take such other
actions as Thayer shall deem appropriate under the circumstances to protect
such Patent, Trademark or Copyright Collateral.
(d) INDEMNIFICATION. In any suit, proceeding or action brought by
Thayer relating to any Account, Chattel Paper, Contract, Document, General
Intangible or Instrument for any sum owing thereunder or to enforce any
provision of any Account, Chattel Paper, Contract, Document, General
Intangible or Instrument, Grantor will save, indemnify and keep Thayer
harmless from and against all expense (including reasonable attorneys' fees
and expenses), loss or damage suffered by reason of any defense, setoff,
counterclaim, recoupment or reduction of liability whatsoever of the obligor
thereunder, arising out of a breach by Grantor of any obligation thereunder
or arising out of any other agreement, indebtedness or liability at any time
owing to, or in favor of, such obligor or its successors from Grantor, except
in the case of Thayer, to the extent such expense, loss, or damage is
attributable solely to the gross negligence or willful misconduct of Thayer
as finally determined by a court of competent jurisdiction. All such
obligations of Grantor shall be and remain enforceable against and only
against Grantor and shall not be enforceable against Thayer.
(e) COMPLIANCE WITH TERMS OF ACCOUNTS, ETC. In all material
respects, Grantor will perform and comply with all obligations in respect of
its Accounts, Chattel Paper, Contracts and Licenses and all other agreements
to which it is a party or by which it is bound relating to the Collateral.
(f) LIMITATION ON LIENS ON COLLATERAL. Grantor will not create,
permit or suffer to exist, and will defend the Collateral against, and take
such other action as is necessary to remove, any Lien on the Collateral
except Permitted Encumbrances, and will defend the right, title and interest
of Thayer in and to any of Grantor's rights under the Collateral against the
claims and demands of all Persons whomsoever, other than holders of Permitted
Encumbrances.
(g) LIMITATIONS ON DISPOSITION. Grantor will not sell, lease,
transfer or otherwise dispose of any of the Collateral, or attempt or
contract to do so except as permitted by the Reimbursement Agreement.
(h) FURTHER IDENTIFICATION OF COLLATERAL. Grantor will, if so
requested by Thayer, furnish to Thayer, as often as Thayer requests,
statements and schedules further
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identifying and describing the Collateral and such other reports in
connection with the Collateral as Thayer may reasonably request, all in such
detail as Thayer may specify.
(i) NOTICES. Grantor will advise Thayer promptly, in reasonable
detail, (i) of any Lien (other than Permitted Encumbrances) or claim made or
asserted against any of the Collateral, and (ii) of the occurrence of any
other event which would have a material adverse effect on the aggregate
value of the Collateral or on the Liens created hereunder or under any other
Basic Document.
6. REMEDIES; RIGHTS UPON DEFAULT.
(a) In addition to all other rights and remedies granted to it
under this Security Agreement, the Reimbursement Agreement, the other Basic
Documents and under any other instrument or agreement securing, evidencing or
relating to any of the Obligations, if any Event of Default shall have
occurred and be continuing, Thayer may exercise all rights and remedies of a
secured party under the Code. Without limiting the generality of the
foregoing, Grantor expressly agrees that in any such event Thayer, without
demand of performance or other demand, advertisement or notice of any kind
(except the notice specified below of time and place of public or private
sale) to or upon Grantor or any other Person (all and each of which demands,
advertisements and notices are hereby expressly waived to the maximum extent
permitted by the Code and other applicable law), may forthwith enter upon the
premises of Grantor where any Collateral is located through self-help,
without judicial process, without first obtaining a final judgment or giving
Grantor or any other Person notice and opportunity for a hearing on Thayer's
claim or action, and may collect, receive, assemble, process, appropriate and
realize upon the Collateral, or any part thereof, and may forthwith sell,
lease, assign, give an option or options to purchase, or sell or otherwise
dispose of and deliver said Collateral (or contract to do so), or any part
thereof, in one or more parcels at a public or private sale or sales, at any
exchange at such prices as it may deem acceptable, for cash or on credit or
for future delivery without assumption of any credit risk. Thayer shall have
the right upon any such public sale or sales and, to the extent permitted by
law, upon any such private sale or sales, to purchase the whole or any part
of said Collateral so sold, free of any right or equity of redemption, which
equity of redemption Grantor hereby releases. Such sales may be adjourned
and continued from time to time with or without notice. Thayer shall have
the right to conduct such sales on Grantor's premises or elsewhere and shall
have the right to use Grantor's premises without charge for such time or
times as Thayer deems necessary or advisable.
Grantor further agrees, at Thayer's request following the
occurrence and during the continuation of an Event of Default, to assemble
the Collateral and make it available to Thayer at places which Thayer shall
select, whether at Grantor's premises or elsewhere. Until Thayer is able to
effect a sale, lease, or other disposition of Collateral, Thayer shall have
the right to hold or use Collateral, or any part thereof, to the extent that
it deems appropriate for the purpose of preserving Collateral or its value or
for any other purpose deemed appropriate by Thayer. Thayer shall not have
any obligation to Grantor to maintain or preserve the rights of Grantor as
against third parties with respect to Collateral while Collateral is in the
possession of Thayer. Thayer may, if it so elects, seek the appointment of a
receiver or keeper to take
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<PAGE>
possession of Collateral and to enforce any of Thayer's remedies with respect
to such appointment without prior notice or hearing as to such appointment.
Thayer shall apply the net proceeds of any such collection, recovery,
receipt, appropriation, realization or sale to the Obligations as provided in
the Reimbursement Agreement, and only after so paying over such net proceeds,
and after the payment by Thayer of any other amount required by any provision
of law, need Thayer account for the surplus, if any, to Grantor. To the
maximum extent permitted by applicable law, Grantor waives all claims,
damages, and demands against Thayer arising out of the repossession,
retention or sale of the Collateral except such as arise solely out of the
gross negligence or willful misconduct of Thayer as finally determined by a
court of competent jurisdiction. Grantor agrees that ten (10) days prior
notice by Thayer of the time and place of any public sale or of the time
after which a private sale may take place is reasonable notification of such
matters. Grantor shall remain liable for any deficiency if the proceeds of
any sale or disposition of the Collateral are insufficient to pay all
Obligations, including any attorneys' fees and other expenses incurred by
Thayer to collect such deficiency.
(b) Except as otherwise specifically provided herein, Grantor
hereby waives presentment, demand, protest or any notice (to the maximum
extent permitted by applicable law) of any kind in connection with this
Security Agreement or any Collateral.
7. GRANT OF LICENSE TO USE INTELLECTUAL PROPERTY. For the
purpose of enabling Thayer to exercise rights and remedies under SECTION 7
hereof (including, without limiting the terms of SECTION 7 hereof, in order
to take possession of, hold, preserve, process, assemble, prepare for sale,
market for sale, sell or otherwise dispose of Collateral) at such time as
Thayer shall be lawfully entitled to exercise such rights and remedies,
Grantor hereby grants to Thayer an irrevocable, non-exclusive license
(exercisable without payment of royalty or other compensation to Grantor) to
use, license or sublicense any Intellectual Property now owned or hereafter
acquired by Grantor, and wherever the same may be located, and including in
such license access to all media in which any of the licensed items may be
recorded or stored and to all computer software and programs used for the
compilation or printout thereof.
8. LIMITATION ON THAYER'S DUTY IN RESPECT OF COLLATERAL. Thayer
shall use reasonable care with respect to the Collateral in its possession or
under its control. Thayer shall not have any other duty as to any Collateral
in its possession or control or in the possession or control of any agent or
nominee of Thayer, or any income thereon or as to the preservation of rights
against prior parties or any other rights pertaining thereto.
9. REINSTATEMENT. This Security Agreement shall remain in full
force and effect and continue to be effective should any petition be filed by
or against Grantor for liquidation or reorganization, should Grantor become
insolvent or make an assignment for the benefit of any creditor or creditors
or should a receiver or trustee be appointed for all or any significant part
of Grantor's assets, and shall continue to be effective or be reinstated, as
the case may be, if at any time payment and performance of the Obligations,
or any part thereof, is, pursuant to applicable law, rescinded or reduced in
amount, or must otherwise be restored or returned by any obligee of the
Obligations, whether as a "voidable preference," "fraudulent conveyance," or
otherwise, all as though such payment or performance had not been made. In
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<PAGE>
the event that any payment, or any part thereof, is rescinded, reduced,
restored or returned, the Obligations shall be reinstated and deemed reduced
only by such amount paid and not so rescinded, reduced, restored or returned.
10. NOTICES. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval,
declaration or other communication shall or may be given to or served upon
any of the parties by any other party, or whenever any of the parties desires
to give and serve upon any other party any communication with respect to this
Security Agreement, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing and shall be given in
the manner, and deemed received, as provided for in the Reimbursement
Agreement.
11. SEVERABILITY. Whenever possible, each provision of this
Security Agreement shall be interpreted in a manner as to be effective and
valid under applicable law, but if any provision of this Security Agreement
shall be prohibited by or invalid under applicable law, such provision shall
be ineffective to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or the remaining provisions of
this Security Agreement. This Security Agreement is to be read, construed
and applied together with the Agreement and the other Basic Documents which,
taken together, set forth the complete understanding and agreement of Thayer
and Grantor with respect to the matters referred to herein and therein.
12. NO WAIVER; CUMULATIVE REMEDIES. Thayer shall not by any act,
delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing, signed by
Thayer and then only to the extent therein set forth. A waiver by Thayer of
any right or remedy hereunder on any one occasion shall not be construed as a
bar to any right or remedy which Thayer would otherwise have had on any
future occasion. No failure to exercise nor any delay in exercising on the
part of Thayer, any right, power or privilege hereunder, shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, power
or privilege hereunder preclude any other or future exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies
hereunder provided are cumulative and may be exercised singly or
concurrently, and are not exclusive of any rights and remedies provided by
law. None of the terms or provisions of this Security Agreement may be
waived, altered, modified or amended except by an instrument in writing, duly
executed by Thayer and Grantor.
13. LIMITATION BY LAW. All rights, remedies and powers provided
in this Security Agreement may be exercised only to the extent that the
exercise thereof does not violate any applicable provision of law, and all
the provisions of this Security Agreement are intended to be subject to all
applicable mandatory provisions of law that may be controlling and to be
limited to the extent necessary so that they shall not render this Security
Agreement invalid, unenforceable, in whole or in part, or not entitled to be
recorded, registered or filed under the provisions of any applicable law.
14. TERMINATION OF THIS SECURITY AGREEMENT. Subject to
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<PAGE>
SECTION 10 hereof, this Security Agreement shall terminate upon payment in
full of the Obligations.
15. SUCCESSORS AND ASSIGNS. This Security Agreement and all
obligations of Grantor hereunder shall be binding upon the successors and
assigns of Grantor (including any debtor-in-possession on behalf of Grantor)
and shall, together with the rights and remedies of Thayer hereunder, inure
to the benefit of Thayer, all future holders of any instrument evidencing any
of the Obligations and their respective successors and assigns. No sales of
participations, other sales, assignments, transfers or other dispositions of
any agreement governing or instrument evidencing the Obligations or any
portion thereof or interest therein shall in any manner affect the Lien
granted to Thayer hereunder. Grantor may not assign, sell, hypothecate or
otherwise transfer any interest in or obligation under this Security
Agreement.
16. COUNTERPARTS. This Security Agreement may be executed in any
number of separate counterparts, each of which shall collectively and
separately constitute one and the same agreement.
17. GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY
OF THE BASIC DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS SECURITY AGREEMENT AND THE
OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN THAT STATE AND ANY APPLICABLE LAWS OF THE
UNITED STATES OF AMERICA.
18. WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION
WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY
RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE
STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES
DESIRE THAT DISPUTES ARISING HEREUNDER OR RELATING HERETO BE RESOLVED BY A
JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST
COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE
PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR
PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT,
TORT, OR OTHERWISE, BETWEEN THAYER AND GRANTOR ARISING OUT OF, CONNECTED
WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED IN CONNECTION
WITH, THIS SECURITY AGREEMENT OR ANY OF THE OTHER BASIC DOCUMENTS OR THE
TRANSACTIONS RELATED HERETO OR THERETO.
19. SECTION TITLES. The Section titles contained in this Security
Agreement are and shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreement between the parties hereto.
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<PAGE>
20. NO STRICT CONSTRUCTION. The parties hereto have participated
jointly in the negotiation and drafting of this Security Agreement. In the
event an ambiguity or question of intent or interpretation arises, this
Security Agreement shall be construed as if drafted jointly by the parties
hereto and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Security Agreement.
21. ADVICE OF COUNSEL. Each of the parties represents to each
other party hereto that it has discussed this Security Agreement and,
specifically, the provisions of SECTION 18 and SECTION 19, with its counsel.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Security Agreement to be executed and delivered by its duly authorized
officer as of the date first set forth above.
ADVANCED TELEMARKETING CORPORATION, as Grantor
By: /s/ Jerry L. Sims, Jr.
-------------------------------------------
Name: Jerry L. Sims, Jr.
Title: Secretary
THAYER EQUITY INVESTORS III, L.P.,
By: /s/ Carl J. Rickertsen
-------------------------------------------
Name: Carl J. Rickertsen
Title: Member
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<PAGE>
SCHEDULE I
to
SECURITY AGREEMENT
FILING JURISDICTIONS
Secretary of State of Texas
Secretary of State of Missouri
Jasper County, Missouri
<PAGE>
SCHEDULE II
to
SECURITY AGREEMENT
INSTRUMENTS
AND
CHATTEL PAPER
None
<PAGE>
SCHEDULE III
to
SECURITY AGREEMENT
SCHEDULE OF OFFICES, LOCATIONS OF COLLATERAL
AND RECORDS CONCERNING COLLATERAL
I. Chief Executive Office and principal place of business of Grantor:
7880 Bent Branch Drive, Suite 150
Irving, Texas 75063
II. Corporate Offices of Grantor:
7880 Bent Branch Drive, Suite 150
Irving, Texas 75063
III. Warehouses: None
IV. Other Premises at which Collateral is Stored or Located:
10935 Estate Lane, Suite 375
Dallas, Texas 75238
7801 Mesquite Bend Drive
Irving, Texas 75063
7803 Mesquite Bend Drive, Suite 100
Irving, Texas 75063
7880 Mesquite Bend Drive, Suite 200
Irving, Texas 75063
8001 Bent Branch Drive
Irving, Texas 75063
4135 Beltline Road
Addison, Texas 75244
802 High Street, Suite 100
Joplin, Missouri 64801
V. Locations of Records Concerning Collateral:
7880 Bent Branch Drive, Suite 150
<PAGE>
Irving, Texas 75063
<PAGE>
SCHEDULE IV
to
SECURITY AGREEMENT
PATENTS, TRADEMARKS AND COPYRIGHTS
Patent Application Number 08/814,492 filed March 10, 1997, titled "DATA
TRANSFER PROTOCOL;" Inventor is Lin Song, application is assigned of record
to Advanced Telemarketing Corporation.
-18-
<PAGE>
CONFORMED COPY
--------------
THE INDEBTEDNESS EVIDENCED BY THIS INSTRUMENT IS SUBORDINATED TO THE PRIOR
PAYMENT IN FULL OF THE SENIOR OBLIGATIONS AS SUCH TERM IS DEFINED IN THE
SUBORDINATION AND INTERCREDITOR AGREEMENT DATED AS OF MAY 4, 1998 BY AND BETWEEN
BANK ONE, TEXAS, N.A. AND THAYER EQUITY INVESTORS III, L.P.
PLEDGE
This PLEDGE, dated as of May 4, 1998 (together with all amendments, if
any, from time to time hereto, this "AGREEMENT") between ATC Communications
Group, Inc., a Delaware corporation (the "PLEDGOR"), and Thayer Equity Investors
III, L.P., a Delaware limited partnership ("THAYER").
W I T N E S S E T H:
WHEREAS, Thayer has agreed to provide certain financial accommodations
to Pledgor and Advanced Telemarketing Corporation, a Nevada corporation
("Company") and Pledgor, Thayer and Company have entered into that certain
Reimbursement and Indemnity Agreement dated May 4, 1998 (including all annexes,
exhibits and schedules thereto, as from time to time amended, restated,
supplemented or otherwise modified, the "REIMBURSEMENT AGREEMENT");
WHEREAS, Pledgor is the record and beneficial owner of the shares of
stock listed in Part A of SCHEDULE I hereto and the owner of the promissory
notes and instruments listed in Part B of SCHEDULE I hereto;
WHEREAS, Pledgor benefits from certain financial accommodations
provided by Thayer under the Reimbursement Agreement;
WHEREAS, in order to induce Thayer to enter into the Reimbursement
Agreement and other Basic Documents, Pledgor has agreed to pledge the Pledged
Collateral to Thayer in accordance herewith;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained and to induce Thayer provided certain financial
accommodations under the Reimbursement Agreement, it is agreed as follows:
1. DEFINITIONS. Unless otherwise defined herein, capitalized terms
used in this Agreement shall have the meaning ascribed to such terms in the
Reimbursement Agreement and are used herein as therein defined, and the
following terms shall have (unless otherwise provided elsewhere in this
Agreement) the following respective meanings (such meanings being equally
applicable to both the singular and plural form of the terms defined):
"BANKRUPTCY CODE" means title 11, United States Code, as amended from
time to time, and any successor statute thereto.
"PLEDGED COLLATERAL" has the meaning assigned to such term in SECTION
2 hereof.
<PAGE>
"PLEDGED ENTITY" means an issuer of Pledged Stock or Pledged
Indebtedness.
"PLEDGED INDEBTEDNESS" means the Indebtedness evidenced by promissory
notes and instruments listed on Part B of SCHEDULE I hereto;
"PLEDGED SHARES" means those shares listed on Part A of SCHEDULE I
hereto.
"SECURED OBLIGATIONS" has the meaning assigned to such term in SECTION
3 hereof.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar statute then in effect.
2. PLEDGE. Pledgor hereby pledges to Thayer, and grants to Thayer
a security interest, subject to the Permitted Encumbrances, in all of the
following (collectively, the "PLEDGED COLLATERAL"):
(i) the Pledged Shares and the certificates representing the
Pledged Shares, and all dividends, distributions, cash, instruments
and other property or proceeds from time to time received, receivable
or otherwise distributed in respect of or in exchange for any or all
of the Pledged Shares; and
(ii) such portion, as determined by Thayer as provided in
SECTION 6(d) below, of any additional shares of stock of a Pledged
Entity from time to time acquired by Pledgor in any manner (which
shares shall be deemed to be part of the Pledged Shares), and the
certificates representing such additional shares, and all dividends,
distributions, cash, instruments and other property or proceeds from
time to time received, receivable or otherwise distributed in respect
of or in exchange for any or all of such Stock; and
(iii) the Pledged Indebtedness and the promissory notes or
instruments evidencing the Pledged Indebtedness, and all interest,
cash, instruments and other property and assets from time to time
received, receivable or otherwise distributed in respect of the
Pledged Indebtedness; and
(iv) all additional Indebtedness arising after the date hereof
and owing to Pledgor and evidenced by promissory notes or other
instruments, together with such promissory notes and instruments, and
all interest, cash, instruments and other property and assets from
time to time received, receivable or otherwise distributed in respect
of that Pledged Indebtedness.
3. SECURITY FOR OBLIGATIONS. This Agreement secures, and the
Pledged Collateral is security for, the prompt payment in full when due, whether
at stated maturity, by acceleration or otherwise, and performance of all
Obligations of any kind under or in connection with the Reimbursement Agreement
and the other Basic Documents and all obligations of Pledgor now or hereafter
existing under this Agreement including, without limitation, all fees, costs and
expenses whether in connection with collection actions hereunder or otherwise
(collectively, the "SECURED OBLIGATIONS").
2
<PAGE>
4. DELIVERY OF PLEDGED COLLATERAL. All certificates and all
promissory notes and instruments evidencing the Pledged Collateral shall be
delivered to Bank One, Texas, N.A., to hold in accordance with the Subordination
and Intercreditor Agreement, and thereafter to be held by or on behalf of Thayer
pursuant hereto. All Pledged Shares shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to Thayer and all promissory notes or other instruments evidencing
the Pledged Indebtedness shall be endorsed by Pledgor.
5. REPRESENTATIONS AND WARRANTIES. Pledgor represents and warrants
to Thayer as of the date hereof, that:
(a) Pledgor is, and at the time of delivery of the Pledged Shares to
Thayer will be, the sole holder of record and the sole beneficial owner of
such Pledged Collateral pledged by Pledgor free and clear of any Lien
thereon or affecting the title thereto, except for any Lien created by this
Agreement and Permitted Encumbrances; Pledgor is and at the time of
delivery of the Pledged Indebtedness to Thayer will be, the sole owner of
such Pledged Collateral free and clear of any Lien thereon or affecting
title thereto, except for any Lien created by this Agreement and Permitted
Encumbrances;
(b) All of the Pledged Shares have been duly authorized, validly
issued and are fully paid and non-assessable; the Pledged Indebtedness has
been duly authorized, authenticated or issued and delivered by, and is the
legal, valid and binding obligations of, the Pledged Entities, and no such
Pledged Entity is in default thereunder;
(c) Pledgor has the right and requisite authority to pledge, assign,
transfer, deliver, deposit and set over the Pledged Collateral pledged by
Pledgor to Thayer as provided herein;
(d) None of the Pledged Shares or Pledged Indebtedness has been
issued or transferred in violation of the securities registration,
securities disclosure or similar laws of any jurisdiction to which such
issuance or transfer may be subject;
(e) All of the Pledged Shares are presently owned by Pledgor, and are
presently represented by the certificates listed on Part A of SCHEDULE I
hereto. As of the date hereof, there are no existing options, warrants,
calls or commitments of any character whatsoever relating to the Pledged
Shares and no options, warrants, calls or equity commitments whatsoever
relating to the Company except as set forth in the Merger Agreement;
(f) No consent, approval, authorization or other order or other
action by, and no notice to or filing with, any governmental authority or
any other Person is required (i) for the pledge by Pledgor of the Pledged
Collateral pursuant to this Agreement or for the execution, delivery or
performance of this Agreement by Pledgor, or (ii) for the exercise by
Thayer of the voting or other rights provided for in this Agreement or the
remedies in respect of the Pledged Collateral pursuant to this Agreement,
except as may be required in connection with such disposition by laws
affecting the offering and sale of securities generally and except for
filing financing statements and consents that have been obtained;
3
<PAGE>
(g) The pledge, assignment and delivery of the Pledged Collateral
pursuant to this Agreement will create a valid Lien on and a perfected
security interest in favor of Thayer for the benefit of Thayer, in the
Pledged Collateral and the proceeds thereof, securing the payment of the
Secured Obligations, subject to no other Lien except for the Permitted
Encumbrances;
(h) This Agreement has been duly authorized, executed and delivered
by Pledgor and constitutes a legal, valid and binding obligation of Pledgor
enforceable against Pledgor in accordance with its terms;
(i) The Pledged Shares constitute [98.94%] of the issued and
outstanding shares of Stock of the Company; and
(j) Except as disclosed on Part B of SCHEDULE I, and except for the
Subordination and Intercreditor Agreement, none of the Pledged Indebtedness
is subordinated in right of payment to other Indebtedness or subject to the
terms of an indenture.
The representations and warranties set forth in this SECTION 5 shall
survive the execution and delivery of this Agreement.
6. COVENANTS. Pledgor covenants and agrees that until the payment
in full of the Obligations:
(a) Without the prior written consent of Thayer, Pledgor will not
sell, assign, transfer, pledge, or otherwise encumber any of its rights in
or to the Pledged Collateral, or any unpaid dividends, interest or other
distributions or payments with respect to the Pledged Collateral or grant a
Lien in the Pledged Collateral, unless otherwise expressly permitted by the
Reimbursement Agreement;
(b) Pledgor will, at its expense, promptly execute, acknowledge and
deliver all such instruments and take all such actions as Thayer from time
to time may request in order to ensure to Thayer the benefits of the Liens
in and to the Pledged Collateral intended to be created by this Agreement,
including the filing of any necessary Code financing statements, which may
be filed by Thayer with or (to the extent permitted by law) without the
signature of Pledgor, and will cooperate with Thayer, at Pledgor's expense,
in obtaining all necessary approvals and making all necessary filings under
federal, state, local or foreign law in connection with such Liens or any
sale or transfer of the Pledged Collateral;
(c) Pledgor has and will defend the title to the Pledged Collateral
and the Liens of Thayer in the Pledged Collateral against the claim of any
Person and will maintain and preserve such Liens subject to the Permitted
Encumbrances; and
(d) Pledgor will, upon obtaining ownership of any additional Stock or
promissory notes or instruments of a Pledged Entity or Stock or promissory
notes or instruments otherwise required to be pledged to Thayer pursuant to
any of the Basic Documents, which stock, notes or instruments are not
already Pledged Collateral, promptly (and in any event within three (3)
Business Days) deliver to Thayer a Pledge Amendment, duly executed by
Pledgor, in substantially the form of SCHEDULE II hereto (a "PLEDGE
AMENDMENT") in respect of any such additional stock, notes or instruments,
pursuant to which Pledgor shall pledge to Thayer all
4
<PAGE>
of such additional stock, notes and instruments. Pledgor hereby authorizes
Thayer to attach each Pledge Amendment to this Agreement and agrees that
all Pledged Shares and Pledged Indebtedness listed on any Pledge Amendment
delivered to Thayer shall for all purposes hereunder be considered Pledged
Collateral.
7. PLEDGOR'S RIGHTS. As long as no Event of Default shall have
occurred and be continuing and until written notice shall be given to Pledgor in
accordance with SECTION 8(a) hereof:
(a) Pledgor shall have the right, from time to time, to vote and give
consents with respect to the Pledged Collateral, or any part thereof for
all purposes not inconsistent with the provisions of this Agreement, the
Reimbursement Agreement or any other Basic Document; PROVIDED, HOWEVER,
that no vote shall be cast, and no consent shall be given or action taken,
which would have the effect of impairing the position or interest of Thayer
in respect of the Pledged Collateral or which would authorize, effect or
consent to (unless and to the extent expressly permitted by the
Reimbursement Agreement):
(i) the dissolution or liquidation, in whole or in part, of a
Pledged Entity;
(ii) the consolidation or merger of a Pledged Entity with any
other Person, other than pursuant to the Merger Agreement;
(iii) the sale, disposition or encumbrance of all or
substantially all of the assets of a Pledged Entity, except for
Permitted Encumbrances;
(iv) any change in the authorized number of shares, the stated
capital or the authorized share capital of a Pledged Entity or the
issuance of any additional shares of its stock; or
(v) the alteration of the voting rights with respect to the
stock of a Pledged Entity; and
(b)(i) Pledgor shall be entitled, from time to time, to collect and
receive for its own use all cash dividends and interest paid in respect of
the Pledged Shares and Pledged Indebtedness to the extent not in violation
of the Reimbursement Agreement OTHER THAN any and all: (A) dividends and
interest paid or payable other than in cash in respect of any Pledged
Collateral, and instruments and other property received, receivable or
otherwise distributed in respect of, or in exchange for, any Pledged
Collateral; (B) dividends and other distributions paid or payable in cash
in respect of any Pledged Shares in connection with a partial or total
liquidation or dissolution or in connection with a reduction of capital,
capital surplus or paid-in capital of a Pledged Entity; and (C) cash paid,
payable or otherwise distributed, in respect of principal of, or in
redemption of, or in exchange for, any Pledged Collateral; PROVIDED,
HOWEVER, that until actually paid all rights to such distributions shall
remain subject to the Lien created by this Agreement; and
(ii) all dividends and interest (other than such cash dividends
and interest as are permitted to be paid to Pledgor in accordance with
CLAUSE (i) above) and all other distributions in respect of any of the
Pledged Shares or Pledged Indebtedness, whenever paid or made, shall,
subject to the
5
<PAGE>
Subordination and Intercreditor Agreement, be delivered to Thayer to
hold as Pledged Collateral and shall, if received by Pledgor, be
received in trust for the benefit of Thayer, be segregated from the
other property or funds of Pledgor, and be forthwith delivered to
Thayer as Pledged Collateral in the same form as so received (with
any necessary indorsement).
8. DEFAULTS AND REMEDIES.
(a) Upon the occurrence of an Event of Default and during the
continuation of such Event of Default, and concurrently with written notice
to Pledgor, subject to the Subordination and Intercreditor Agreement,
Thayer is hereby authorized and empowered to transfer and register in its
name or in the name of its nominee the whole or any part of the Pledged
Collateral, to exchange certificates or instruments representing or
evidencing Pledged Collateral for certificates or instruments of smaller or
larger denominations, to exercise the voting and all other rights as a
holder with respect thereto, to collect and receive all cash dividends,
interest, principal and other distributions made thereon, to sell in one or
more sales after ten (10) days' notice of the time and place of any public
sale or of the time at which a private sale is to take place (which notice
Pledgor agrees is commercially reasonable) the whole or any part of the
Pledged Collateral and to otherwise act with respect to the Pledged
Collateral as though Thayer was the outright owner thereof, Pledgor hereby
irrevocably constituting and appointing Thayer as the proxy and
attorney-in-fact of Pledgor, with full power of substitution to do so, and
which appointment shall remain in effect until the Obligations have been
fully paid; PROVIDED, HOWEVER, Thayer shall not have any duty to exercise
any such right or to preserve the same and shall not be liable for any
failure to do so or for any delay in doing so. Any sale shall be made at a
public or private sale at Thayer's place of business, or at any place to be
named in the notice of sale, either for cash or upon credit or for future
delivery at such price as Thayer may deem fair, and Thayer may be the
purchaser of the whole or any part of the Pledged Collateral so sold and
hold the same thereafter in its own right free from any claim of Pledgor or
any right of redemption. Each sale shall be made to the highest bidder,
but Thayer reserves the right to reject any and all bids at such sale
which, in its discretion, it shall deem inadequate. Demands of
performance, except as otherwise herein specifically provided for, notices
of sale, advertisements and the presence of property at sale are hereby
waived and any sale hereunder may be conducted by an auctioneer or any
officer or agent of Thayer.
(b) If, at the original time or times appointed for the sale of the
whole or any part of the Pledged Collateral, the highest bid, if there be
but one sale, shall be inadequate to discharge in full all the Secured
Obligations, or if the Pledged Collateral be offered for sale in lots, if
at any of such sales, the highest bid for the lot offered for sale would
indicate to Thayer, in their discretion, that the proceeds of the sales of
the whole of the Pledged Collateral would be unlikely to be sufficient to
discharge all the Secured Obligations, Thayer may, on one or more occasions
and in its discretion, postpone any of said sales by public announcement at
the time of sale or the time of previous postponement of sale, and no other
notice of such postponement or postponements of sale need be given, any
other notice being hereby waived; PROVIDED, HOWEVER, that any sale or sales
made after such postponement shall be after five (5) days' notice to
Pledgor.
6
<PAGE>
(c) If, at any time when Thayer shall determine to exercise its right
to sell the whole or any part of the Pledged Collateral hereunder, such
Pledged Collateral or the part thereof to be sold shall not, for any reason
whatsoever, be effectively registered under the Securities Act, as amended
(or any similar statute then in effect), Thayer may, in its discretion
(subject only to applicable requirements of law), sell such Pledged
Collateral or part thereof by private sale in such manner and under such
circumstances as Thayer may deem necessary or advisable, but subject to the
other requirements of this SECTION 8, and shall not be required to effect
such registration or to cause the same to be effected. Without limiting
the generality of the foregoing, in any such event, Thayer in its
discretion (x) may, in accordance with applicable securities laws, proceed
to make such private sale notwithstanding that a registration statement for
the purpose of registering such Pledged Collateral or part thereof could be
or shall have been filed under said Securities Act (or similar statute),
(y) may approach and negotiate with a single possible purchaser to effect
such sale, and (z) may restrict such sale to a purchaser who is an
accredited investor under the Securities Act and who will represent and
agree that such purchaser is purchasing for its own account, for investment
and not with a view to the distribution or sale of such Pledged Collateral
or any part thereof. In addition to a private sale as provided above in
this SECTION 8, if any of the Pledged Collateral shall not be freely
distributable to the public without registration under the Securities Act
(or similar statute) at the time of any proposed sale pursuant to this
SECTION 8, then Thayer shall not be required to effect such registration or
cause the same to be effected but, in its discretion (subject only to
applicable requirements of law), may require that any sale hereunder
(including a sale at auction) be conducted subject to restrictions:
(i) as to the financial sophistication and ability of any
Person permitted to bid or purchase at any such sale;
(ii) as to the content of legends to be placed upon any
certificates representing the Pledged Collateral sold in such sale,
including restrictions on future transfer thereof;
(iii) as to the representations required to be made by each
Person bidding or purchasing at such sale relating to that Person's
access to financial information about Pledgor and such Person's
intentions as to the holding of the Pledged Collateral so sold for
investment for its own account and not with a view to the distribution
thereof; and
(iv) as to such other matters as Thayer may, in its discretion,
deem necessary or appropriate in order that such sale (notwithstanding
any failure so to register) may be effected in compliance with the
Bankruptcy Code and other laws affecting the enforcement of creditors'
rights and the Securities Act and all applicable state securities
laws.
(d) Pledgor recognizes that Thayer may be unable to effect a public
sale of any or all the Pledged Collateral and may be compelled to resort to
one or more private sales thereof in accordance with CLAUSE (c) above.
Pledgor also acknowledges that any such private sale may result in prices
and other terms less favorable to the seller than if such sale were a
public sale and, notwithstanding such circumstances, agrees that any such
private sale shall not be deemed to have been made in a commercially
unreasonable manner solely by virtue of such sale being private. Thayer
shall not be under any obligation to delay a sale of any of
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<PAGE>
the Pledged Collateral for the period of time necessary to permit the
Pledged Entity to register such securities for public sale under the
Securities Act, or under applicable state securities laws, even if Pledgor
and the Pledged Entity would agree to do so.
(e) Pledgor agrees to the maximum extent permitted by applicable law
that following the occurrence and during the continuance of an Event of
Default it will not at any time plead, claim or take the benefit of any
appraisal, valuation, stay, extension, moratorium or redemption law now or
hereafter in force in order to prevent or delay the enforcement of this
Agreement, or the absolute sale of the whole or any part of the Pledged
Collateral or the possession thereof by any purchaser at any sale
hereunder, and Pledgor waives the benefit of all such laws to the extent it
lawfully may do so. Pledgor agrees that it will not interfere with any
right, power and remedy of Thayer provided for in this Agreement or now or
hereafter existing at law or in equity or by statute or otherwise, or the
exercise or beginning of the exercise by Thayer of any one or more of such
rights, powers or remedies. No failure or delay on the part of Thayer to
exercise any such right, power or remedy and no notice or demand which may
be given to or made upon Pledgor by Thayer with respect to any such
remedies shall operate as a waiver thereof, or limit or impair Thayer's
right to take any action or to exercise any power or remedy hereunder,
without notice or demand, or prejudice its rights as against Pledgor in any
respect.
(f) Pledgor further agrees that a breach of any of the covenants
contained in this SECTION 8 will cause irreparable injury to Thayer, that
Thayer shall have no adequate remedy at law in respect of such breach and,
as a consequence, agrees that each and every covenant contained in this
SECTION 8 shall be specifically enforceable against Pledgor, and Pledgor
hereby waives and agrees not to assert any defenses against an action for
specific performance of such covenants except for a defense that the
Secured Obligations are not then due and payable in accordance with the
Reimbursement Agreement and instruments governing and evidencing such
obligations.
9. WAIVER. No delay on Thayer's part in exercising any power of
sale, Lien, option or other right hereunder, and no notice or demand which may
be given to or made upon Pledgor by Thayer with respect to any power of sale,
Lien, option or other right hereunder, shall constitute a waiver thereof, or
limit or impair Thayer's right to take any action or to exercise any power of
sale, Lien, option, or any other right hereunder, without notice or demand, or
prejudice Thayer's rights as against Pledgor in any respect.
10. ASSIGNMENT. Thayer may assign, indorse or transfer any
instrument evidencing all or any part of the Secured Obligations as provided in,
and in accordance with, the Reimbursement Agreement, and the holder of such
instrument shall be entitled to the benefits of this Agreement.
11. TERMINATION. Immediately following payment in full of the
Obligations, Thayer shall deliver to either Pledgor or to such other party as
may be entitled to receive the Pledged Collateral pledged by Pledgor at the time
subject to this Agreement or other agreement executed by both Thayer and Pledgor
and all instruments of assignment executed in connection therewith, free and
clear of the Liens hereof and, except as otherwise provided herein, all of
Pledgor's obligations hereunder shall at such time terminate.
8
<PAGE>
12. LIEN ABSOLUTE. All rights of Thayer hereunder, and all
obligations of Pledgor hereunder, shall be absolute and unconditional
irrespective of:
(a) any lack of validity or enforceability of the Agreement, any
other Basic Document or any other agreement or instrument governing or
evidencing any Secured Obligations;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any part of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from the
Reimbursement Agreement, any other Basic Document or any other agreement or
instrument governing or evidencing any Secured Obligations;
(c) any exchange, release or non-perfection of any other Collateral,
or any release or amendment or waiver of or consent to departure from any
guaranty, for all or any of the Secured Obligations;
(d) the insolvency of Company or Pledgor; or
(e) any other circumstance which might otherwise constitute a defense
available to, or a discharge of, Pledgor.
13. RELEASE. Pledgor consents and agrees that Thayer may at any
time, or from time to time, in its discretion:
(a) renew, extend or change the time of payment, and/or the manner,
place or terms of payment of all or any part of the Secured Obligations;
and
(b) exchange, release and/or surrender all or any of the Collateral
(including the Pledged Collateral), or any part thereof, by whomsoever
deposited, which is now or may hereafter be held by Thayer in connection
with all or any of the Secured Obligations; all in such manner and upon
such terms as Thayer may deem proper, and without notice to or further
assent from Pledgor, it being hereby agreed that Pledgor shall be and
remain bound upon this Agreement, irrespective of the value or condition of
any of the Collateral, and notwithstanding any such change, exchange,
settlement, compromise, surrender, release, renewal or extension, and
notwithstanding also that the Secured Obligations may, at any time, exceed
the aggregate principal amount thereof set forth in the Reimbursement
Agreement, or any other agreement governing any Secured Obligations.
Pledgor hereby waives notice of acceptance of this Agreement, and also
presentment, demand, protest and notice of dishonor of any and all of the
Secured Obligations, and promptness in commencing suit against any party
hereto or liable hereon, and in giving any notice to or of making any claim
or demand hereunder upon Pledgor. No act or omission of any kind on
Thayer's part shall in any event affect or impair this Agreement.
14. REINSTATEMENT. This Agreement shall remain in full force and
effect and continue to be effective should any petition be filed by or against
Pledgor or any Pledged Entity for liquidation or reorganization, should Pledgor
or any Pledged Entity become insolvent or make an assignment for the benefit of
creditors or should a receiver or trustee be appointed for all or any
significant part of Pledgor's or a Pledged Entity's assets, and shall continue
to be effective or be reinstated, as the case may be, if at any time payment and
performance of the Secured Obligations, or any part thereof, is,
9
<PAGE>
pursuant to applicable law, rescinded or reduced in amount, or must otherwise
be restored or returned by any obligee of the Secured Obligations, whether as
a "voidable preference", "fraudulent conveyance", or otherwise, all as though
such payment or performance had not been made. In the event that any
payment, or any part thereof, is rescinded, reduced, restored or returned,
the Secured Obligations shall be reinstated and deemed reduced only by such
amount paid and not so rescinded, reduced, restored or returned.
15. MISCELLANEOUS.
(a) Thayer may execute any of its duties hereunder by or through its
agents or employees and shall be entitled to advice of counsel concerning
all matters pertaining to its duties hereunder.
(b) Pledgor agrees to promptly reimburse Thayer for all fees, losses,
costs and expenses, including, without limitation, attorneys fees and
expenses incurred by Thayer in connection with the administration and
enforcement of this Agreement.
(c) Neither Thayer, nor any of its respective officers, directors,
employees, agents or counsel shall be liable for any action lawfully taken
or omitted to be taken by it or them hereunder or in connection herewith,
except for its or their own gross negligence or willful misconduct as
finally determined by a court of competent jurisdiction.
(d) THIS AGREEMENT SHALL BE BINDING UPON PLEDGOR AND ITS SUCCESSORS
AND ASSIGNS (INCLUDING A DEBTOR-IN-POSSESSION ON BEHALF OF PLEDGOR), AND
SHALL INURE TO THE BENEFIT OF, AND BE ENFORCEABLE BY, THAYER AND ITS
SUCCESSORS AND ASSIGNS, AND SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN THAT STATE, AND NONE OF THE TERMS OR
PROVISIONS OF THIS AGREEMENT MAY BE WAIVED, ALTERED, MODIFIED OR AMENDED
EXCEPT IN WRITING DULY SIGNED FOR AND ON BEHALF OF THAYER AND PLEDGOR.
16. SEVERABILITY. If for any reason any provision or provisions
hereof are determined to be invalid and contrary to any existing or future law,
such invalidity shall not impair the operation of or effect those portions of
this Agreement which are valid.
17. NOTICES. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon any of the
parties by any other party, or whenever any of the parties desires to give or
serve upon any other a communication with respect to this Agreement, each such
notice, demand, request, consent, approval, declaration or other communication
shall be in writing and either shall be delivered in person or sent by
registered or certified mail, return receipt requested, with proper postage
prepaid, or by facsimile transmission and confirmed by delivery of a copy by
personal delivery or United States Mail as otherwise provided herein:
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<PAGE>
(a) If to Thayer, at:
Thayer Equity Investors III, L.P.
Suite 350
Washington, D.C. 20004
Attention: Susan Gallagher
Fax No.: (202) 371-0391
With copies to:
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Twenty-Third Floor
Los Angeles, CA 90071
Attention: Robert A. Miller, Esq.
Fax No.: 213-627-0705
(b) If to Pledgor, at:
ATC Communications Group, Inc.
5950 Berkshire Lane
Suite 1650
Dallas, Texas 75225
Attention: Matt Waller
Fax No.: 214-361-9874/972-868-0396
With copies to:
Hughes & Luce, LLP
1717 Main Street
Suite 2800
Dallas, Texas 75201
Attention: Ken Hawari, Esq.
Fax No.: 214-939-6100
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been duly served, given or delivered (a) upon the earlier of actual
receipt and three (3) Business Days after deposit in the United States Mail,
registered or certified mail, return receipt requested, with proper postage
prepaid, (b) upon transmission, when sent by telecopy or other similar facsimile
transmission (with such telecopy or facsimile promptly confirmed by delivery of
a copy by personal delivery or United States Mail as otherwise provided in this
SECTION 17, (c) one (1) Business Day after deposit with a reputable overnight
courier with all charges prepaid, or (d) when delivered, if hand-delivered by
messenger. Failure or delay in delivering copies of any notice, demand,
request, consent, approval, declaration or other communication to the persons
designated above to receive copies shall in no way adversely affect the
effectiveness of such notice, demand, request, consent, approval, declaration or
other communication.
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<PAGE>
18. SECTION TITLES. The Section titles contained in this Agreement
are and shall be without substantive meaning or content of any kind whatsoever
and are not a part of the agreement between the parties hereto.
19. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, which shall, collectively and separately, constitute one
agreement.
20. BENEFIT OF THAYER. All security interests granted or contemplated
hereby shall be for the benefit of Thayer, and all proceeds or payments realized
from the Pledged Collateral in accordance herewith shall be applied to the
Obligations in accordance with the terms of the Reimbursement Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first written above.
ATC COMMUNICATIONS GROUP, INC.
By: /s/ JERRY L. SIMS, JR.
----------------------------------
Name: Jerry L. Sims, Jr.
Title: Senior Vice President
THAYER EQUITY PARTNERS III, L.P.
By: /s/ CARL J. RICKERTSEN
----------------------------------
Name: Carl J. Rickertsen
Its Duly Authorized Signatory
13
<PAGE>
SCHEDULE I
PART A
PLEDGED SHARES
<TABLE>
- --------------------------------------------------------------------------------------------
Class Stock Certificate Number Percentage of
Pledged Entity of Stock Number(s) of Shares Outstanding Shares
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Advanced Telemarketing Common 257 3,388,764 98.94%
Corporation
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
PART B
PLEDGED INDEBTEDNESS
- --------------------------------------------------------------------------------------------
Initial
Pledged Entity Principal Amount Issue Date Maturity Date Interest Rate
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michael Santry $3,661,505.39 September 16, 1997 June 30, 1998 6%
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
SCHEDULE II
PLEDGE AMENDMENT
This Pledge Amendment, dated ________________, ___ is delivered
pursuant to SECTION 6(d) of the Pledge Agreement referred to below. All defined
terms herein shall have the meanings ascribed thereto or incorporated by
reference in the Pledge Agreement. The undersigned hereby certifies that the
representations and warranties in SECTION 5 of the Pledge Agreement are and
continue to be true and correct, both as to the promissory notes, instruments
and shares pledged prior to this Pledge Amendment and as to the promissory
notes, instruments and shares pledged pursuant to this Pledge Amendment. The
undersigned further agrees that this Pledge Amendment may be attached to that
certain Pledge Agreement, dated May 4, 1998, between undersigned, as Pledgor,
and Thayer Equity Investors III, L.P., as Thayer, (the "Pledge Agreement") and
that the Pledged Shares and Pledged Indebtedness listed on this Pledge Amendment
shall be and become a part of the Pledged Collateral referred to in said Pledge
Agreement and shall secure all Secured Obligations referred to in said Pledge
Agreement. The undersigned acknowledges that any promissory notes, instruments
or shares not included in the Pledged Collateral at the discretion of Thayer may
not otherwise be pledged by Pledgor to any other Person or otherwise used as
security for any obligations other than the Secured Obligations.
ATC COMMUNICATIONS GROUP, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
- -------------------------------------------------------------------------------
Name and Class Certificate Number
Address of Pledgor Pledged Entity of Stock Number(s) of Shares
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Initial
Pledged Entity Principal Amount Issue Date Maturity Date Interest Rate
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CONFORMED COPY -- NON-NEGOTIABLE
--------------------------------
SECOND WARRANT
TO PURCHASE SHARES OF COMMON STOCK
OF
ATC COMMUNICATIONS GROUP, INC.
THIS WARRANTS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AND NEITHER THESE WARRANTS NOR ANY INTEREST THEREIN MAY
BE TRANSFERRED, HYPOTHECATED OR OTHERWISE DISPOSED OF WITHOUT REGISTRATION UNDER
THAT ACT OR AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
No. W -- 2 Warrant to Purchase Up To One Million (1,000,000)
May 4, 1998 Shares of Common Stock, $.01 Par Value
SECOND WARRANT TO PURCHASE COMMON STOCK
of
ATC COMMUNICATIONS GROUP, INC.,
a Delaware corporation
This certifies that, for value received, Thayer Equity Partners III,
L.P. ("THAYER"), or registered assigns (Thayer or any such assign being referred
to herein as "HOLDER") is entitled, subject to the terms set forth below, to
purchase from ATC Communications Group, Inc., a Delaware corporation (the
"COMPANY"), up to one million (1,000,000) shares of Common Stock, $.01 par
value, of the Company (such class of stock being referred to herein as "COMMON
STOCK"), as constituted on May 4, 1998 (the "ISSUE DATE"), upon surrender of
this Warrant, at the principal office of the Company referred to below, with the
subscription form attached hereto duly executed, and simultaneous payment
therefor in the consideration specified in Section 1 hereof, at the price of
$2.00 per share (the "PURCHASE PRICE"). The exact number of shares of Common
Stock for which this Warrant is exercisable shall be determined in accordance
with Section 1 hereof. The shares of Common Stock issued or issuable upon
exercise of this Warrant are sometimes referred to as the "WARRANT SHARES." The
term "WARRANTS" as used herein shall include this Warrant and any warrants
delivered in substitution or exchange therefor as provided herein.
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<PAGE>
1. DETERMINATION OF NUMBER OF SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE OF WARRANT. This Warrant may be excercised for a number of shares of
Common Stock equal to (a) the Funded Indebtedness (defined below), if any,
divided by (b) two (2), up to a maximum of one million (1,000,000) shares of
Common Stock. For purposes of this Warrant, the term "FUNDED INDEBTEDNESS"
shall mean the aggregate amount of all Obligations as such term is defined in
that certain Reimbursement and Indemnification Agreement dated as of May 4, 1998
among Thayer, the Company and Advanced Telemarketing Corporation.
2. EXERCISE AND PAYMENT OF PURCHASE PRICE. This Warrant may be
exercised at any time or from time to time, on any business day, for all or any
part of the full number of shares of Common Stock issuable hereunder, on or
prior to the tenth anniversary of the date hereof, by surrendering it at the
principal office of the Company, 5950 Berkshire Lane, Suite 1650, Dallas, Texas
75225, with the subscription form duly executed, together with payment for the
Warrant Shares; provided however, that the Purchase Price may be paid only by
cancellation and delivery of notes or other documentation evidencing any Funded
Indebtedness pursuant to the Basic Documents, and no other form of payment for
exercise of this Warrant will be acceptable. This Warrant shall be deemed to
have been exercised immediately prior to the close of business on the date of
its surrender for exercise as provided above, and the person entitled to receive
the shares of Common Stock issuable upon such exercise shall be treated for all
purposes as the holder of such shares of record as of the close of business on
such date. As soon as practicable on or after such date, and in any event
within 10 days thereof, the Company shall issue and deliver to the person or
persons entitled to receive the same a certificate or certificates for the
number of shares of Common Stock issuable upon such exercise. Upon any partial
exercise, the Company will issue and deliver to Holder a new Warrant or Warrants
with respect to the shares of Common Stock not so transferred. No fractional
shares of Common Stock shall be issued upon exercise of this Warrant. In lieu
of any fractional share to which Holder would be entitled upon exercise, the
Company shall pay cash equal to the product of such fraction multiplied by the
Purchase Price.
3. PAYMENT OF TAXES. All shares of Common Stock issued upon the
exercise of this Warrant shall be duly authorized, validly issued and
outstanding, fully paid and non-assessable. Holder shall pay all taxes and
other governmental charges that may be imposed in respect of the issue or
delivery thereof and any tax or other charge imposed in connection with any
transfer involved in the issue of any certificate for shares of Common Stock in
any name other than that of the registered Holder of this Warrant surrendered in
connection with the purchase of such shares, and in such case the Company shall
not be required to issue or deliver any stock certificate until such tax or
other charge has been paid or it has been established to the Company's
satisfaction that no tax or other charge is due.
4. TRANSFER AND EXCHANGE. This Warrant and all rights hereunder are
transferable, in whole or in part to any limited partner of Thayer or any
affiliate (as defined under the Act) of Thayer or Thayer's general partner;
PROVIDED, HOWEVER, that in
2
<PAGE>
no event shall the transfer of this Warrant be effected prior to the
Effective Time. If a transfer is effected, this Warrant is transferable on
the books of the Company maintained for such purpose at its principal office
referred to above by Holder in person or by duly authorized attorney, upon
surrender of this Warrant properly endorsed and upon payment of any necessary
transfer tax or other governmental charge imposed upon such transfer. Each
taker and holder of this Warrant, by taking or holding the same, consents and
agrees that this Warrant, when endorsed in blank, shall be deemed negotiable
and that when this Warrant shall have been so endorsed, the Holder hereof may
be treated by the Company and all other persons dealing with this Warrant as
the absolute owner hereof for any purpose and as the person entitled to
exercise the rights represented hereby or to the transfer hereof on the books
of the Company, any notice to the contrary notwithstanding; but until such
transfer on such books, the Company may treat the registered Holder hereof as
the owner for all purposes.
5. CERTAIN ADJUSTMENTS.
5.1 ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER. 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 exercise of this
Warrant) after 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 exercise hereof as provided in Section 2 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 exercise of this Warrant prior to such consummation, the stock or other
securities or property to which such Holder would have been entitled upon such
consummation if such Holder had exercised this Warrant immediately prior
thereto.
5.2 ADJUSTMENTS FOR DIVIDENDS IN COMMON STOCK. 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 Purchase Price then in effect shall be decreased as of the time of
such issuance or, in the event such record date is fixed, as of the close of
business on such record date, by multiplying the Purchase 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 Purchase Price shall
be recomputed accordingly as of the close of
3
<PAGE>
business on such record date and thereafter the Purchase Price shall be
adjusted pursuant to this Section 5.2 as of the time of actual payment of
such dividends.
5.3 STOCK SPLIT AND REVERSE STOCK SPLIT. If the Company at any
time or from time to time after the Issue Date effects a subdivision of the
outstanding Common Stock, the Purchase Price then in effect immediately before
that subdivision shall be proportionately decreased and the number of shares of
Common Stock theretofore receivable upon the exercise of this Warrant 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 Purchase Price then in effect immediately before
that combination shall be proportionately increased and the number of shares of
Common Stock theretofore receivable upon the exercise of this Warrant shall be
proportionately decreased. Each adjustment under this Section 5.3 shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
5.4 ACCOUNTANTS' CERTIFICATE AS TO ADJUSTMENT. In each case of
an adjustment in the shares of Common Stock receivable on the exercise of the
Warrants, 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 the Warrants 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 each holder of a Warrant at the time outstanding.
6. LOSS OR MUTILATION. Upon receipt by the Company of evidence
satisfactory to it (in the exercise of reasonable discretion) of the ownership
of and the loss, theft, destruction or mutilation of any Warrant and (in the
case of loss, theft or destruction) of indemnity satisfactory to it (in the
exercise of reasonable discretion), and (in the case of mutilation) upon
surrender and cancellation thereof, the Company will execute and deliver in lieu
thereof a new Warrant of like tenor.
7. RESERVATION OF COMMON STOCK. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the exercise of this Warrant, such
number of its shares of Common Stock as shall from time to time be sufficient to
effect exercise of this Warrant; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect such exercise,
the Company will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
4
<PAGE>
8. NOTICES OF RECORD DATE. In the event of (i) any taking by the
Company of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, or (ii) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company, any
merger or consolidation of the Company with or into any other corporation (other
than a merger of a wholly owned subsidiary into the Company), or any transfer of
all or substantially all of the assets of the Company to any other person or any
voluntary or involuntary dissolution, liquidation or winding up of the Company,
the Company shall mail to the Holder at least thirty (30) days prior to the
record date specified therein, a notice specifying (1) the date on which any
such record is to be taken for the purpose of such dividend or distribution and
a description of such dividend or distribution, (2) the date on which any such
reorganization, reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding up is expected to become effective, and (3) the date, if
any, that is to be fixed, as to when the holders of record of Common Stock (or
other securities) shall be entitled to exchange their shares of Common Stock (or
other securities) for securities or other property deliverable upon such
reorganization, reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding up.
9. INVESTMENT REPRESENTATION AND RESTRICTION ON TRANSFER.
9.1 SECURITIES LAW REQUIREMENTS.
(a) By its acceptance of this Warrant, Holder hereby
represents and warrants to the Company that this Warrant and the Warrant Shares
will be acquired for investment for its own account, not as a nominee or agent,
and not with a view to the sale or distribution of any part thereof, and that it
has no present intention of selling, granting participations in or otherwise
distributing the same. By acceptance of this Warrant, Holder further represents
and warrants that it does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participations to any
person, with respect to this Warrant or the Warrant Shares.
(b) By its acceptance of this Warrant, Holder understands
that this Warrant is not, and the Warrant Shares will not be, registered under
the Securities Act of 1933, as amended (the "ACT"), on the basis that the
issuance of this Warrant and the Warrant Shares are exempt from registration
under the Act pursuant to Section 4(2) thereof, and that the Company's reliance
on such exemption is predicated on Holder's representations and warranties set
forth herein.
(c) By its acceptance of this Warrant, Holder understands
that this Warrant and the Warrant Shares may not be sold, transferred, or
otherwise disposed of without registration under the Act, or an exemption
therefrom, and that in the absence of an effective registration statement
covering this Warrant and the
5
<PAGE>
Warrant Shares or an available exemption from registration under the Act,
this Warrant and the Warrant Shares must be held indefinitely. In
particular, Holder is aware that this Warrant and the Warrant Shares may not
be sold pursuant to Rule 144 promulgated under the Act unless all of the
conditions of Rule 144 are satisfied. Among the conditions for use of Rule
144 are the availability of current information about the Company to the
public, prescribed holding periods which will commence only upon Holder's
payment for the securities being sold, manner of sale restrictions, volume
limitations and certain other restrictions. By its acceptance of this
Warrant, Holder represents and warrants that, in the absence of an effective
registration statement covering this Warrant or the Warrant Shares, it will
sell, transfer or otherwise dispose of this Warrant and the Warrant Shares
only in a manner consistent with its representations and warranties set forth
herein and then only in accordance with the provisions of Section 9.1(d).
(d) By its acceptance of this Warrant, Holder agrees that
in no event will it transfer or dispose of any of the Warrants or the Warrant
Shares other than pursuant to an effective registration statement under the Act,
unless and until (i) Holder shall have notified the Company of the proposed
disposition and shall have furnished the Company with a statement of the
circumstances surrounding the disposition, and (ii) if reasonably requested by
the Company, at the expense of the Holder or transferee, it shall have furnished
to the Company an opinion of counsel, reasonably satisfactory to the Company, to
the effect that (A) such transfer may be made without registration under the Act
and (B) such transfer or disposition will not cause the termination or the
non-applicability of any exemption to the registration and prospectus
delivery requirements of the Act or to the qualification or registration
requirements of the securities laws of any other jurisdiction on which the
Company relied in issuing this Warrant or the Warrant Shares.
9.2 LEGENDS; STOP TRANSFER.
(a) All certificates evidencing the Warrant Shares shall
bear a legend in substantially the following form:
The securities represented by this certificate have not been
registered under the Securities Act of 1933. These securities have
been acquired for investment and not with a view to distribution and
may not be offered for sale, sold, pledged or otherwise transferred in
the absence of an effective registration statement for such securities
under the Securities Act of 1933 or an opinion of counsel reasonably
satisfactory in form and content to the issuer that such registration
is not required under such Act.
(b) The certificates evidencing the Warrant Shares shall
also bear any legend required by any applicable state securities law.
6
<PAGE>
(c) In addition, the Company shall make, or cause its
transfer agent to make, a notation regarding the transfer restrictions of this
Warrant and the Warrant Shares in its stock books, and this Warrant and the
Warrant Shares shall be transferred on the books of the Company only if
transferred or sold pursuant to an effective registration statement under the
Act covering the same or pursuant to and in compliance with the provisions of
Section 9.1(d).
10. NOTICES. All notices and other communications from the Company
to the Holder of this Warrant shall be mailed by first-class registered or
certified mail, postage prepaid, to the address furnished to the Company by
Holder.
11. CHANGE; WAIVER. Neither this Warrant nor any term hereof may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
12. HEADINGS. The headings in this Warrant are for purposes of
convenience in reference only, and shall not be deemed to constitute a part
hereof.
13. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with and governed by the internal laws, and not the law of conflicts,
of the State of Delaware.
7
<PAGE>
[SIGNATURE PAGE TO WARRANT]
ATC COMMUNICATIONS GROUP, INC.,
A DELAWARE CORPORATION
By: /s/ Jerry L. Sims, Jr.
---------------------------------
Its: Senior Vice President
---------------------------------
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<PAGE>
SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
The undersigned, registered owner of this Warrant, irrevocably
exercises this Warrant and purchases ____________ of the number of shares of
Common Stock, $.01 par value, of ATC COMMUNICATIONS GROUP, INC., a Delaware
corporation, purchasable with this Warrant, and herewith makes payment therefor,
all at the price and on the terms and conditions specified in this Warrant.
DATED:
-----------------
-------------------------------------
(Signature of Registered Owner)
-------------------------------------
(Street Address)
-------------------------------------
(City) (State) (Zip)
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED the undersigned, registered owner of this Warrant,
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under the within Warrant, with respect to the number
of shares of Common Stock, $.01 par value, set forth below:
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
- ---------------- ------- -------------
and does hereby irrevocably constitute and appoint _________________________
_________________________________________________ Attorney to make such transfer
on the books of ATC COMMUNICATIONS GROUP, INC., a Delaware corporation,
maintained for the purpose, with full power of substitution in the premises.
DATED:
--------------------
-------------------------------------
(Signature)
-------------------------------------
(Witness)
<PAGE>
CONFORMED COPY
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") is entered into as
of May 4, 1998, by and between ATC Communications Group, Inc., a Delaware
corporation (the "COMPANY"), and Thayer Equity Investors III, L.P., a
Delaware limited partnership ("THAYER").
RECITALS
A. On the date hereof, Thayer has entered into that certain
Reimbursement and Indemnification Agreement (the "REIMBURSEMENT AGREEMENT")
with the Company and Advanced Telemarketing Corporation, the Company's wholly
owned subsidiary ("ADVANCED"), pursuant to which Thayer has agreed to arrange
for the letter of credit in the amount of TWO MILLION DOLLARS ($2,000,000.00)
from Nova Scotia Bank.
B. In connection with the Reimbursement Agreement, the Company has
agreed to execute and deliver this Agreement to Thayer.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. DEFINITIONS. Unless the context otherwise requires, the terms
defined in this Section 1 shall have the meanings herein specified for all
purposes of this Agreement, applicable to both the singular and plural forms
of any of the terms herein defined.
"AGREEMENT" means this Registration Rights Agreement.
"BOARD" means the Board of Directors of the Company.
"COMMON STOCK" means the common stock, $.01 par value, of the Company.
"COMMISSION" means the Securities and Exchange Commission.
"EQUITY SECURITY" means any stock or similar security of the Company or
any security (whether stock or indebtedness for borrowed money) convertible
or exchangeable, with or without consideration, into or for any stock or
similar security, or any security (whether or not indebtedness for borrowed
money) carrying any warrant or right to subscribe to or purchase any stock or
similar security, or any such warrant or right.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"HOLDER" of any security means the record or beneficial owner of such
security. A Holder of the Warrant shall be treated as the Holder of the
Registrable Securities underlying such Warrant.
<PAGE>
"HOLDERS OF A MAJORITY OF THE REGISTRABLE SECURITIES" means the Person
or Persons who are the Holders of greater than 50% of the shares of
Registrable Securities then outstanding.
"INITIATING HOLDERS" means with respect to a registration effected
pursuant to Section 2 hereof the Holders of at least 200,000 shares of the
Registrable Securities.
"LIEN" means any mortgage, pledge, security interest, encumbrance,
community property interest, trust, option, lien or charge of any kind,
including, without limitation, any conditional sale or other title retention
agreement, any lease in the nature thereof and the filing of or agreement to
give any financing statement under the Uniform Commercial Code of any
jurisdiction and including any lien or charge arising by statute or other law.
"PERSON" includes any natural person, corporation, trust, association,
company, partnership, limited liability company, joint venture and other
entity and any government, governmental agency, instrumentality or political
subdivision.
The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"REGISTRABLE SECURITIES" means (1) shares of the Common Stock issued or
issuable upon exercise or conversion of the Warrant issued pursuant to this
Agreement, so long as they are owned by Thayer, any limited partner of Thayer
or any affiliate (as defined under the Securities Act) of Thayer or Thayer's
general partner, and (2) any securities issued or issuable with respect to
the Common Stock referred to in clause (1) above by way of a stock dividend
or stock split or in connection with a combination of shares,
reclassification, recapitalization, merger or consolidation or
reorganization; provided, however, that such shares of Common Stock shall
only be treated as Registrable Securities if and so long as they have not
been (i) sold to or through a broker or dealer or underwriter in a public
distribution or a public securities transaction, or (ii) sold in a
transaction exempt from the registration and prospectus delivery requirements
of the Securities Act under Section 4(1) thereof so that all transfer
restrictions and restrictive legends with respect to such Common Stock are
removed upon the consummation of such sale and the seller and purchaser of
such Common Stock receive an opinion of counsel for the Company, which shall
be in form and content reasonably satisfactory to the seller and buyer and
their respective counsel, to the effect that such Common Stock in the hands
of the purchaser is freely transferable without restriction or registration
under the Securities Act in any public or private transaction.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"THAYER" has the meaning assigned to it in the introductory paragraph of
this Agreement.
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<PAGE>
"WARRANT" means the Second Warrant to Purchase Common Stock which has
been issued to Thayer by the Company on the date hereof pursuant to the
Reimbursement Agreement, and any warrant issued upon transfer or substitution
thereof.
"WARRANT CERTIFICATE" means the certificate dated May 4, 1998, held by
Thayer and evidencing the right to purchase up to 1,000,000 shares of Common
Stock.
"WARRANT SHARES" means the Common Stock issued or issuable upon exercise
of the Warrant.
2. REQUIRED REGISTRATION.
(a) If and whenever the Company shall receive a written request
therefor from Initiating Holders, the Company agrees to prepare and file
promptly a registration statement under the Securities Act covering the
shares of Registrable Securities which are the subject of such request and
agrees to use its best efforts to cause such registration statement to become
effective as expeditiously as possible. Upon the receipt of such request,
the Company agrees to give promptly written notice to all Holders of
Registrable Securities that such registration is to be effected. The Company
agrees to include in such registration statement such shares of Registrable
Securities for which it has received written requests to register such shares
by the Holders thereof within thirty (30) days after the receipt of written
notice from the Company.
(b) The Company shall be obligated to prepare, file and cause to
become effective only one registration statement pursuant to this Section 4
on a form other than S-3, plus three additional registration statements on
Form S-3.
(c) A registration under this Section 2 shall be on a form
selected by the Company and reasonably acceptable to the Holders of a
majority of the shares of Registrable Securities to be included in such
registration.
(d) If the Holders initiating a request for the registration of
Registrable Securities pursuant to this Section 2 intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they agree to provide the Company with the name of the managing underwriter
or underwriters (the "managing underwriter") that a majority interest of the
Initiating Holders requesting such registration propose to employ, as a part
of their request made pursuant to this Section 2, which managing underwriter
shall be reasonably acceptable to the Company. Furthermore, the Company
agrees to include such information regarding the managing underwriter in its
written notice referred to in Section 2(a). In such event the right of any
Holder to registration pursuant to this Section 2 shall be conditioned upon
such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent requested
(unless otherwise mutually agreed by the Holders of a Majority of the
Registrable Securities initiating such request for registration and such
Holder) to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting agree to enter into (together with
the Company) an underwriting agreement with the underwriter or underwriters
selected for such underwriting, in the manner set forth above, provided that
such underwriting agreement is in customary form and is
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<PAGE>
reasonably acceptable to the Company and the Holders of a majority of the
shares of Registrable Securities to be included in such registration.
(e) Notwithstanding any other provision of this Section 2, if the
managing underwriter of an underwritten distribution advises the Company and
the Holders of Registrable Securities participating in such registration in
writing that in its good faith judgment the number of shares of Registrable
Securities requested to be included in such registration exceeds the number
of shares of Registrable Securities which can be sold in such offering, then
(i) the number of shares of Registrable Securities so requested to be
included in such registration shall be reduced to that number of shares which
in the good faith judgment of the managing underwriter can be sold in such
offering and (ii) this reduced number of shares shall be allocated among all
Holders thereof in proportion, as nearly as practicable, to the respective
number of shares of Registrable Securities held by such Holders at the time
of filing the registration statement.
(f) To the extent all shares of Registrable Securities of the
Initiating Holders are not included in the registration statement due to the
underwriter cutbacks described above, such registration shall not count as
the demand registration to which the Initiating Holders are entitled pursuant
to subparagraph (b) of this Section 2.
(g) If the managing underwriter has not limited the number of
Registrable Securities to be underwritten, the Company may include securities
for its own account in such registration if the managing underwriter so
agrees and if the number of Registrable Securities which would otherwise have
been included in such registration and underwriting will not thereby be
limited.
(h) Notwithstanding any of the foregoing, the Company may delay
filing a registration statement and may withhold efforts to cause the
registration statement to become effective, if the Company reasonably
determines in good faith that such registration might (i) interfere with or
affect the negotiation or completion of any transaction that is being
contemplated by the Company (whether or not a final decision has been made to
undertake such transaction) at the time the right to delay is exercised, or
(ii) involve initial or continuing disclosure obligations that might not be
in the best interest of the Company's stockholders. If, after a registration
statement becomes effective, the Company advises the holders of the
registered shares that the Company considers it appropriate for the
registration statement to be amended, the holders of such shares shall
suspend any further sales of their registered shares until the Company
advises them that the registration statement has been amended.
3. INCIDENTAL REGISTRATION.
(a) Each time the Company shall determine to file a registration
statement under the Securities Act (other than (i) pursuant to Section 2
hereof, (ii) on Form S-8 or a registration statement on Form S-1 covering
solely an employee benefit plan and (iii) on Form S-4) in connection with the
proposed offer and sale for money of any of its securities either for its own
account or on behalf of any other security holder,
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<PAGE>
the Company agrees to give promptly written notice of its determination to
all Holders of Registrable Securities. Upon the written request of a Holder
of any shares of Registrable Securities given within thirty (30) days after
the receipt of such written notice from the Company, the Company agrees to
cause all such Registrable Securities, the Holders of which have so requested
registration thereof, to be included in such registration statement and
registered under the Securities Act, all to the extent requisite to permit
the sale or other disposition by the prospective seller or sellers of the
Registrable Securities to be so registered.
(b) If the registration of which the Company gives written notice
pursuant to Section 3(a) is for a public offering involving an underwriting,
the Company agrees to so advise the Holders as a part of its written notice.
In such event the right of any Holder to registration pursuant to this
Section 3 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to
distribute their Registrable Securities through such underwriting agree to
enter into (together with the Company and the other holders distributing
their securities through such underwriting) an underwriting agreement with
the underwriter or underwriters selected for such underwriting by the
Company, provided that such underwriting agreement is in customary form and
is reasonably acceptable to the Holders of a majority of the shares of
Registrable Securities requested to be included in such registration.
(c) Notwithstanding any other provision of this Section 3, if the
managing underwriter of an underwritten distribution advises the Company and
the Holders of the Registrable Securities participating in such registration
in writing that in its good faith judgment the number of shares of
Registrable Securities exceeds the number of shares of Registrable Securities
which can be sold in such offering, then (i) the number of shares of
Registrable Securities so requested to be included in the offering shall be
reduced to that number of shares which in the good faith judgment of the
managing underwriter can be sold in such offering (except for shares to be
issued by the Company in an offering initiated by the Company, which shall
have priority over the shares of Registrable Securities), and (ii) such
reduced number of shares shall be allocated among all participating Holders
of Registrable Securities in proportion, as nearly as practicable, to the
respective number of shares of Registrable Securities by such Holders at the
time of filing the registration statement.
4. REGISTRATION PROCEDURES. If and whenever the Company is required
by the provisions of Section 2 or 3 hereof to effect the registration of
Registrable Securities under the Securities Act, the Company, at its expense
and as expeditiously as possible, agrees to:
(a) In accordance with the Securities Act and all applicable rules
and regulations, prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause
such registration statement to become and remain effective until the
securities covered by such registration statement have been sold, and prepare
and file with the Commission such amendments and supplements to such
registration statement and the prospectus contained therein as may be
necessary to
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<PAGE>
keep such registration statement effective and such registration statement
and prospectus accurate and complete until the securities covered by such
registration statement have been sold;
(b) If the offering is to be underwritten in whole or in part,
enter into a written underwriting agreement in form and substance reasonably
satisfactory to the managing underwriter of the public offering, the Holders
of a majority of the Registrable Securities participating in such offering,
and the Company;
(c) Furnish to the Holders of securities participating in such
registration and to the underwriters of the securities being registered such
number of copies of the registration statement and each amendment and
supplement thereto, preliminary prospectus, final prospectus and such other
documents as such underwriters and Holders may reasonably request in order to
facilitate the public offering of such securities;
(d) Use its best efforts to register or qualify the securities
covered by such registration statement under such state securities or blue
sky laws of such jurisdictions as such participating Holders and underwriters
may reasonably request within ten (10) days prior to the original filing of
such registration statement, except that the Company shall not for any
purpose be required to execute a general consent to service of process or to
qualify to do business as a foreign corporation in any jurisdiction where it
is not so qualified;
(e) Notify the Holders participating in such registration,
promptly after it shall receive notice thereof, of the date and time when
such registration statement and each post-effective amendment thereto has
become effective or a supplement to any prospectus forming a part of such
registration statement has been filed;
(f) Notify such Holders promptly of any request by the Commission
for the amending or supplementing of such registration statement or
prospectus or for additional information;
(g) Prepare and file with the Commission, promptly upon the
request of any such Holders, any amendments or supplements to such
registration statement or prospectus which, in the opinion of counsel for
such Holders, is required under the Securities Act or the rules and
regulations thereunder in connection with the distribution of the Registrable
Securities by such Holders;
(h) Prepare and file promptly with the Commission, and promptly
notify such Holders of the filing of, such amendments or supplements to such
registration statement or prospectus as may be necessary to correct any
statements or omissions if, at the time when a prospectus relating to such
securities is required to be delivered under the Securities Act, any event
has occurred as the result of which any such prospectus or any other
prospectus as then in effect would include an untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading;
-6-
<PAGE>
(i) In case any of such Holders or any underwriter for any such
Holders is required to deliver a prospectus at a time when the prospectus
then in circulation is not in compliance with the Securities Act or the rules
and regulations of the Commission, prepare promptly upon request such
amendments or supplements to such registration statement and such prospectus
as may be necessary in order for such prospectus to comply with the
requirements of the Securities Act and such rules and regulations;
(j) Advise such Holders, promptly after it shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by the Commission
suspending the effectiveness of such registration statement or the initiation
or threatening of any proceeding for that purpose and promptly use its best
efforts to prevent the issuance of any stop order or to obtain its withdrawal
if such stop order should be issued;
(k) Not file any registration statement or prospectus or any
amendment or supplement to such registration statement or prospectus to which
the Holders of a majority of the Registrable Securities included or to be
included in a registration have reasonably objected on the grounds that such
registration statement or prospectus or amendment or supplement thereto does
not comply in all material respects with the requirements of the Securities
Act or the rules and regulations thereunder, after having been furnished with
a copy thereof at least five (5) business days prior to the filing thereof;
provided, however, that the failure of such Holders or their counsel to
review or object to any registration statement or prospectus or any amendment
or supplement to such registration statement or prospectus shall not affect
the rights of such Holders or their respective officers, directors, partners,
legal counsel, accountants or controlling Persons or any underwriter or any
controlling Person of such underwriter under Section 6 hereof;
(l) Make available for inspection upon request by any Holder of
Registrable Securities covered by such registration statement, by any
managing underwriter of any distribution to be effected pursuant to such
registration statement and by any attorney, accountant or other agent
retained by any such Holder or any such underwriter, all financial and other
records, pertinent corporate documents and properties of the Company, and
cause all of the Company's officers, directors and employees to supply all
information reasonably requested by any such Holder, underwriter, attorney,
accountant or agent in connection with such registration statement; and
(m) At the request of any Holder of Registrable Securities covered
by such registration statement, furnish to such Holder on the effective date
of the registration statement or, if such registration includes an
underwritten public offering, at the closing provided for in the underwriting
agreement, (i) an opinion dated such date of the counsel representing the
Company for the purposes of such registration, addressed to the underwriters,
if any, and to the Holder or Holders making such request, covering such
matters with respect to the registration statement, the prospectus and each
amendment or supplement thereto, proceedings under state and federal
securities laws, other matters relating to the Company, the securities being
registered and the offer and sale of such securities as are customarily the
subject of opinions of issuer's counsel provided to
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<PAGE>
underwriters in underwritten public offerings, and such opinion of counsel
shall additionally cover such legal matters with respect to the registration
as such requesting Holder or Holders may reasonably request, and (ii) letters
dated each of such effective date and such closing date, from the independent
certified public accountants of the Company, addressed to the underwriters,
if any, and to the Holder or Holders making such request, stating that they
are independent certified public accountants within the meaning of the
Securities Act and dealing with such matters as the underwriters may request,
or if the offering is not underwritten that in the opinion of such
accountants the financial statements and other financial data of the Company
included in the registration statement or the prospectus or any amendment or
supplement thereto comply in all material respects with the applicable
accounting requirements of the Securities Act, and additionally covering such
other accounting and financial matters, including information as to the
period ending not more than five (5) business days prior to the date of such
letter with respect to the registration statement and prospectus, as such
requesting Holder or Holders may reasonably request.
5. EXPENSES.
(a) With respect to each inclusion of shares of Registrable
Securities in a registration statement pursuant to Section 2 or 3 hereof, the
Company agrees to bear all fees, costs and expenses of and incidental to such
registration and the public offering in connection therewith; provided,
however, that security holders participating in any such registration agree
to bear their pro rata share of the underwriting discount and commissions and
the fees and expenses of their own counsel.
(b) The fees, costs and expenses of registration to be borne as
provided in paragraph (a) above, shall include, without limitation, all
registration, filing and NASD fees, printing expenses, fees and disbursements
of counsel and accountants for the Company, fees and disbursements of counsel
for the underwriter or underwriters of such securities (if the Company and/or
selling security holders are otherwise required to bear such fees and
disbursements), all legal fees and disbursements and other expenses of
complying with state securities or blue sky laws of any jurisdictions in
which the securities to be offered are to be registered or qualified, and the
premiums and other costs of policies of insurance against liability arising
out of such public offering.
6. INDEMNIFICATION.
(a) The Company hereby agrees to indemnify and hold harmless each
Holder of Registrable Securities which are included in a registration
statement pursuant to the provisions of this Agreement and each of such
Holder's officers, directors, partners, members, legal counsel and
accountants, and each Person who controls such Holder within the meaning of
the Securities Act and any underwriter (as defined in the Securities Act) for
such Holder, and any Person who controls such underwriter within the meaning
of the Securities Act, from and against, and agrees to reimburse such Holder,
its officers, directors, partners, members, legal counsel, accountants and
controlling Persons and each such underwriter and controlling Person of such
underwriter with respect to, any and all claims, actions (actual or
threatened), demands, losses, damages, liabilities, costs and
-8-
<PAGE>
expenses to which such Holder, its officers, directors, partners, legal
counsel, accountants or controlling Persons, or any such underwriter or
controlling Person of such underwriter may become subject under the
Securities Act or otherwise, insofar as such claims, actions, demands,
losses, damages, liabilities, costs or expenses arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in such registration statement, any prospectus contained therein,
or any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading;
provided, however, that the Company will not be liable in any such case to
the extent that any such claim, action, demand, loss, damage, liability, cost
or expense is caused by an untrue statement or alleged untrue statement or
omission or alleged omission so made in strict conformity with written
information furnished by such Holder, such underwriter or such controlling
Person specifically for use in the preparation thereof.
(b) Each Holder of shares of Registrable Securities which are
included in a registration statement pursuant to the provisions of this
Agreement hereby agrees to indemnify and hold harmless the Company, its
officers, directors, legal counsel and accountants and each Person who
controls the Company within the meaning of the Securities Act, from and
against, and agrees to reimburse the Company, its officers, directors, legal
counsel, accountants and controlling Persons with respect to, any and all
claims, actions, demands, losses, damages, liabilities, costs or expenses to
which the Company, its officers, directors, legal counsel, accountants or
such controlling Persons may become subject under the Securities Act or
otherwise, insofar as such claims, actions, demands, losses, damages,
liabilities, costs or expenses are caused by any untrue or alleged untrue
statement of any material fact contained in such registration statement, any
prospectus contained therein or any amendment or supplement thereto, or are
caused by the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not
misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was so made in reliance upon and in strict conformity with written
information furnished by such Holder specifically for use in the preparation
thereof. Notwithstanding the foregoing, no Holder of Registrable Securities
shall be obligated hereunder to pay more than the net proceeds realized by it
upon its sale of Registrable Securities included in such registration
statement.
(c) Promptly after receipt by a party indemnified pursuant to the
provisions of subsection (a) or (b) of this Section 6 of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions, such indemnified party will, if a claim therefor is to
be made against the indemnifying party pursuant to the provisions of
subsection (a) or (b), notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not
relieve it from any liability which it may have to an indemnified party
otherwise than under this Section 6 and shall not relieve the indemnifying
party from liability under this Section 6 unless such indemnifying party is
prejudiced by such omission. In case any such action is brought against any
indemnified party, and it notifies the indemnifying
-9-
<PAGE>
party of the commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, jointly with any
other indemnifying parties similarly notified, to assume the defense thereof,
with counsel satisfactory to such indemnified party; provided, however, that
if the defendants in any such action include both the indemnified party and
the indemnifying party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those available
to the indemnifying party, the indemnified party or parties shall have the
right to select separate counsel (in which case the indemnifying party shall
not have the right to direct the defense of such action on behalf of the
indemnified party or parties). Upon the permitted assumption by the
indemnifying party of the defense of such action, and approval by the
indemnified party of counsel, the indemnifying party shall not be liable to
such indemnified party under subsection (a) or (b) for any legal or other
expenses subsequently incurred by such indemnified party in connection with
the defense thereof (other than reasonable costs of investigation) unless (i)
the indemnified party shall have employed separate counsel in connection with
the assertion of legal defenses in accordance with the proviso to the next
preceding sentence, (ii) the indemnifying party shall not have employed
counsel satisfactory to the indemnified party to represent the indemnified
party within a reasonable time, (iii) the indemnifying party and its counsel
do not actively and vigorously pursue the defense of such action, or (iv) the
indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party. No indemnifying
party shall be liable to an indemnified party for any settlement of any
action or claim without the consent of the indemnifying party and no
indemnifying party may unreasonably withhold its consent to any such
settlement. No indemnifying party will consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of
a release from all liability with respect to such claim or litigation.
(d) If the indemnification provided for in subsection (a) or (b)
of this Section 6 is held by a court of competent jurisdiction to be
unavailable to a party to be indemnified with respect to any claims, actions,
demands, losses, damages, liabilities, costs or expenses referred to therein,
then each indemnifying party under any such subsection, in lieu of
indemnifying such indemnified party thereunder, hereby agrees to contribute
to the amount paid or payable by such indemnified party as a result of such
claims, actions, demands, losses, damages, liabilities, costs or expenses in
such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions which resulted in such claims,
actions, demands, losses, damages, liabilities, costs or expenses, as well as
any other relevant equitable considerations. The relative fault of the
indemnifying party and of the indemnified party shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the indemnifying party or by
the indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
Notwithstanding the foregoing, the amount any Holder of Registrable
Securities shall be obligated to contribute pursuant to this
-10-
<PAGE>
subsection (d) shall be limited to an amount equal to the per share public
offering price (less any underwriting discount and commissions) multiplied by
the number of shares of Registrable Securities sold by such Holder pursuant
to the registration statement which gives rise to such obligation to
contribute (less the aggregate amount of any damages which such Holder has
otherwise been required to pay in respect of such claim, action, demand,
loss, damage, liability, cost or expense or any substantially similar claim,
action, demand, loss, damage, liability, cost or expense arising from the
sale of such Registrable Securities).
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution
hereunder from any person who was not guilty of such fraudulent
misrepresentation.
7. REPORTING REQUIREMENTS UNDER THE EXCHANGE ACT. The Company shall
timely file such information, documents and reports as the Commission may
require or prescribe under Section 13 of the Exchange Act. The Company
acknowledges and agrees that the purposes of the requirements contained in
this Section 7 are (a) to enable the Holders of Registrable Securities to
comply with the current public information requirement contained in paragraph
(c) of Rule 144 should any such Holder ever wish to dispose of any of the
Restricted Stock without registration under the Securities Act in reliance
upon Rule 144 (or any other similar exemptive provision) and (b) to qualify
the Company for the use of registration statements on Form S-3.
8. STOCKHOLDER INFORMATION. The Company may request each Holder of
Registrable Securities as to which any registration is to be effected
pursuant to this Agreement to furnish the Company with such information with
respect to such Holder and the distribution of such Registrable Securities as
the Company may from time to time reasonably request in writing and as shall
be required by law or by the Commission in connection therewith, and each
Holder of Registrable Securities as to which any registration is to be
effected pursuant to this Agreement agrees to furnish the Company with such
information.
9. FORMS. All references in this Agreement to particular forms of
registration statements are intended to include, and shall be deemed to
include, references to all successor forms which are intended to replace, or
to apply to similar transactions as, the forms herein referenced.
10. GENERAL PROVISIONS.
(a) INTEGRATION. This Agreement constitutes the entire agreement
of the parties with respect to the subject matter hereof.
(b) NOTICES. All notices and other communications which are
required or permitted to be given pursuant to the terms of this Agreement
shall be in writing and shall either be personally delivered or mailed first
class, postage prepaid, registered or certified mail (return receipt
requested), to the person for whom they are intended at the address shown on
the signature pages of this Agreement for such party. Each notice or other
communication shall for all purposes of this Agreement be treated as being
-11-
<PAGE>
effective or having been given when delivered, if delivered personally, or,
if sent by mail, at the earlier of actual receipt or five (5) days after the
same has been deposited in the United States mail, addressed and postage paid
as aforesaid. The addresses for the purposes of this Section 10(b) may be
changed by giving written notice to all parties of such change in the manner
provided herein for giving notice. Unless and until such written notice is
received, the addresses as provided herein shall be deemed to continue in
effect for all purposes hereunder.
(c) CHOICE OF LAW. This Agreement shall be governed by and
construed in accordance with the internal laws (and not the law of conflicts
of law) of the State of Delaware.
(d) SEVERABILITY. The parties hereto agree that the terms and
provisions in this Agreement are reasonable and shall be binding and
enforceable in accordance with the terms hereof and, in any event, that the
terms and provisions of this Agreement shall be enforced to the fullest
extent permissible under law. In the event that any term or provision of
this Agreement shall for any reason by adjudged to be unenforceable or
invalid, then such unenforceable or invalid term or provision shall not
affect the enforceability or validity of the remaining terms and provisions
of this Agreement, and the parties hereto hereby agree to replace such
unenforceable or invalid term or provision with an enforceable and valid
arrangement which, in its economic effect, shall be as close as possible to
the unenforceable or invalid term or provision.
(e) EXPENSES. The Company agrees to pay and hold Thayer and
Holders of the Registrable Securities harmless from liability for the payment
of (i) the fees and expenses incurred in connection with any requested waiver
of the right of Thayer or the consent of Thayer to contemplated acts of the
Company not otherwise permissible by the terms of this Agreement, (ii) the
reasonable fees and expenses incurred with respect to any amendment to this
Agreement proposed by the Company (whether or not the same becomes
effective), (iii) the reasonable fees and expenses incurred in respect of the
enforcement by Thayer of its rights granted under this Agreement, and (iv)
all costs of the Company's performance of and compliance with this Agreement.
(f) PARTIES IN INTEREST. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective permitted successors and assigns of the parties
hereto, whether so expressed or not and, in particular, shall inure to the
benefit of and be enforceable by the Holder or Holders at the time of any of
the Registrable Securities. Subject to the immediately preceding sentence,
this Agreement shall not run to the benefit of or be enforceable by any
Person other than a party to this Agreement and its successors and assigns.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties in separate counterparts, each of which
shall be deemed an original, but all of which together shall constitute one
and the same instrument.
-12-
<PAGE>
(h) MODIFICATION, AMENDMENT AND WAIVER. This Agreement may be
amended only in writing with the written consent of all the Holders of the
Registrable Securities and the Company. Neither this Agreement nor any
provision hereof may be changed, waived, discharged or terminated orally or
by course of dealing, but only by a statement in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought, except to the extent provided in this Section 10. Specifically, but
without limiting the generality of the foregoing, the failure of Thayer at
any time or times to require performance of any provision hereof by the
Company shall in no manner affect its right at a later time to enforce the
same. No waiver by any party of the breach of any term or provision
contained in this Agreement, in any one or more instances, shall be deemed to
be, or construed as, a further or continuing waiver of any such breach, or a
waiver of the breach of any other term or covenant contained in this
Agreement.
(i) FURTHER ASSURANCES. The parties agree to execute such further
instruments and to take such further action as may reasonably be necessary to
carry out the intent of this Agreement, and the Company specifically agrees
to cooperate affirmatively with Thayer, if any, to the extent reasonably
requested by Thayer, to enforce the rights of Thayer and its assignees
hereunder.
(j) HEADINGS. The headings of the Sections and paragraphs of this
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
(k) GENDER AND NUMBER. As used in this Agreement, the masculine,
feminine or neuter gender, and the singular or plural, shall be deemed to
include the others whenever and wherever the context so requires.
Additionally, unless the context requires otherwise, "or" is not exclusive.
-13-
<PAGE>
[SIGNATURE PAGE OF REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, or caused this Agreement to be duly executed on their behalf, as
of the day and year first above written.
COMPANY:
ATC COMMUNICATIONS GROUP, INC.,
a Delaware corporation
By: /s/ Jerry L. Sims, Jr.
--------------------------------------
Name: Jerry L. Sims, Jr.
Title: Senior Vice President
Address: ATC Communications Group, Inc.
5950 Berkshire Lane
Suite 1650
Dallas, Texas 75225
THAYER:
THAYER EQUITY INVESTORS III, L.P.,
a Delaware limited partnership
By: TC Equity Partners L.L.C.,
Its General Partner
By: /s/ Carl J. Rickertsen
--------------------------------------
Name: Carl J. Rickertsen
Title: Member
Address: Thayer Capital Partners
1455 Pennsylvania Ave., N.W.
Washington, D.C. 20004
-14-
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