<PAGE> 1
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 DECEMBER 31, 1997.
[ ] 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
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.
Title of Each Class Number of Shares Outstanding
------------------- at February 6, 1998
----------------------------
COMMON STOCK $.01 PAR VALUE 21,833,400
<PAGE> 2
ATC COMMUNICATIONS GROUP, INC.
DECEMBER 31, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
December 31, 1997 and June 30, 1997.......................................... 3-4
Consolidated Statements of Operations
Three Months Ended December 31, 1997
and December 31, 1996.......................................................... 5
Six Months Ended December 31, 1997
and December 31, 1996.......................................................... 6
Consolidated Statements of Cash Flows
Six Months Ended December 31, 1997
and December 31, 1996.......................................................... 7
Notes to Consolidated Financial Statements........................................ 8-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................................... 11-14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................................... 15
SIGNATURES.................................................................................................. 16
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ATC COMMUNICATIONS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND JUNE 30, 1997
<TABLE>
<CAPTION>
DECEMBER 31, 1997 JUNE 30, 1997
(UNAUDITED) (AUDITED)
----------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 913,622 $ 632,826
Accounts receivable - trade, less allowance for
doubtful accounts of $73,826 15,957,943 14,527,440
Notes receivable -- related parties 4,092,909 3,809,658
Notes receivable -- other 156,311 157,693
Current deferred tax asset 918,066 3,037,066
Other current assets 465,065 763,361
----------- -----------
Total current assets 22,503,916 22,928,044
Property and equipment and other assets:
Property and equipment, net of accumulated
depreciation of $10,159,596 and $8,211,046 at
December 31, 1997 and June 30, 1997, respectively 14,003,869 14,447,962
Cost in excess of net assets acquired, net of
accumulated amortization of $1,095,075
and $1,046,475 at December 31, 1997 and
June 30, 1997, respectively 1,686,282 1,723,319
Deferred tax assets 5,541,609 1,998,531
Other assets 461,970 124,930
----------- -----------
$44,197,646 $41,222,786
=========== ===========
</TABLE>
See accompanying notes.
3
<PAGE> 4
ATC COMMUNICATIONS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND JUNE 30, 1997
<TABLE>
<CAPTION>
DECEMBER 31, 1997 JUNE 30, 1997
(UNAUDITED) (AUDITED)
----------------- -------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,443,294 $ 1,395,304
Revolving line of credit 5,217,198 --
Accounts payable - trade 2,240,845 821,187
Unearned revenues and customer deposits 174,974 573,922
Accrued compensation expense 1,682,013 1,524,954
Accrued telephone expense 718,576 659,949
Other accrued liabilities 3,802,411 2,872,596
------------ ------------
Total current liabilities 15,279,311 7,847,912
Long-term debt 4,014,892 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; 21,833,400 and 21,793,122 shares
issued and outstanding at December 31, 1997
and June 30, 1997, respectively 218,334 217,931
Treasury stock (1,420,921) (420,921)
Additional paid-in capital 18,275,090 18,204,685
Retained earnings 7,830,642 10,619,268
------------ ------------
Total shareholders' equity 24,903,443 28,621,261
------------ ------------
$ 44,197,646 $ 41,222,786
============ ============
</TABLE>
See accompanying notes.
4
<PAGE> 5
ATC COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Revenues $ 23,115,360 $ 25,114,364
Cost of services, excluding depreciation and
amortization shown below 17,417,002 18,243,480
------------ ------------
Gross profit 5,698,358 6,870,884
Selling, general and administrative expenses 5,870,540 4,720,677
Depreciation and amortization 1,034,613 863,854
------------ ------------
Total expenses 6,905,153 5,584,531
------------ ------------
Income (loss) from operations (1,206,795) 1,286,353
Interest expense 272,850 137,585
Interest income 57,956 29,769
------------ ------------
Income (loss) from operations before income taxes (1,421,689) 1,178,537
Income tax expense (benefit) (483,374) 328,007
------------ ------------
Net income (loss) $ (938,315) $ 850,530
============ ============
Earnings (loss) per share:
Basic $ (0.04) $ 0.05
============ ============
Diluted $ (0.04) $ 0.04
============ ============
Weighted average common shares outstanding 21,471,681 16,485,199
Weighted average common and common
equivalent shares outstanding 21,471,681 22,501,911
</TABLE>
See accompanying notes.
5
<PAGE> 6
ATC COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Revenues $ 43,640,222 $ 51,659,438
Cost of services, excluding depreciation and
amortization shown below 33,136,321 35,708,530
------------ ------------
Gross profit 10,503,901 15,950,908
Selling, general and administrative expenses 12,332,383 9,677,909
Depreciation and amortization 2,034,573 1,673,050
------------ ------------
Total expenses 14,366,956 11,350,959
------------ ------------
Income (loss) from operations (3,863,055) 4,599,949
Interest expense 466,267 256,158
Interest income 116,612 48,782
------------ ------------
Income (loss) from operations before income taxes (4,212,710) 4,392,573
Income tax expense (benefit) (1,424,078) 1,420,782
------------ ------------
Net income (loss) $ (2,788,632) $ 2,971,791
============ ============
Earnings (loss) per share:
Basic $ (0.13) $ 0.17
============ ============
Diluted $ (0.13) $ 0.12
============ ============
Weighted average common shares outstanding: 21,482,547 15,827,372
Weighted average common and common
equivalent shares outstanding: 21,482,547 22,409,825
</TABLE>
See accompanying notes.
6
<PAGE> 7
ATC COMMUNICATIONS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $(2,788,632) $ 2,971,791
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 2,034,573 1,673,050
Other (2,528) --
Changes in operating assets and liabilities:
Accounts and notes receivable -- related parties (283,251) 1,960,567
Accounts and notes receivable -- other (1,429,121) (3,900)
Other current assets 298,296 (1,019,891)
Deferred taxes (1,424,078) --
Other assets (374,463) (36,957)
Accounts payable 1,419,658 (76,066)
Unearned revenue and customer deposits (398,948) (540,925)
Accrued liabilities 1,207,278 (1,428,583)
----------- -----------
Net cash provided by (used in) operating activities (1,741,216) 3,499,086
Cash flows from investing activities:
Capital expenditures (1,426,344) (2,417,103)
----------- -----------
Net cash used in investing activities (1,426,344) (2,417,103)
Cash flows from financing activities:
Proceeds from (payments on) line of credit, net 5,217,198 (2,367,586)
Payments on long-term debt (166,667) (166,667)
Payments on capital lease obligations (602,175) (403,116)
Proceeds from exercise of stock options -- 2,118,975
Purchases of treasury stock (1,000,000) --
----------- -----------
Net cash provided by (used in) financing activities 3,448,356 (818,394)
Net change in cash and cash equivalents 280,796 263,589
Cash and cash equivalents at beginning of period 632,826 1,723,702
----------- -----------
Cash and cash equivalents at end of period $ 913,622 $ 1,987,291
=========== ===========
Supplemental information on non-cash transactions:
Tax benefit of stock options exercised -- 636,640
Capital lease obligations entered into 78,111 --
</TABLE>
See accompanying notes
7
<PAGE> 8
ATC COMMUNICATIONS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
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 six month periods
ended December 31, 1996 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 six month periods ended
December 31, 1997 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 month
periods ending December 31, 1997 and 1996 were computed as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
BASIC
Weighted average common shares outstanding 21,832,681 16,491,199
Treasury shares (361,000) (6,000)
----------- -----------
Shares used in Basic EPS computation 21,471,681 16,485,199
=========== ===========
DILUTED
Weighted average common shares outstanding 21,471,681 16,485,199
Common stock equivalents:
Dilutive stock options and warrants, net of shares
assumed repurchased with exercise proceeds -- (1) 1,757,156
Common Stock assumed issued on conversion of
dilutive preferred stock -- (1) 4,259,556
=========== ===========
Shares used in Diluted EPS computation 21,471,681 22,501,911
=========== ===========
</TABLE>
8
<PAGE> 9
Basic and diluted weighted average shares outstanding for the six month
periods ending December 31, 1997 and 1996 were computed as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
BASIC
Weighted average common shares outstanding 21,816,373 15,833,372
Treasury shares (333,826) (6,000)
----------- -----------
Shares used in Basic EPS computation 21,482,547 15,827,372
=========== ===========
DILUTED
Weighted average common shares outstanding 21,482,547 15,827,372
Common stock equivalents:
Dilutive stock options and warrants, net of shares
assumed repurchased with exercise proceeds -- (1) 2,322,897
Common Stock assumed issued on conversion of
dilutive preferred stock -- (1) 4,259,556
=========== ===========
Shares used in Diluted EPS computation 21,482,547 22,409,825
=========== ===========
</TABLE>
Net income (loss) applicable to common stock for the three and six month
periods ended December 31, 1997 and 1996 was computed as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
--------------------------------- ---------------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income (loss) $ (938,315) $ 850,530 $(2,788,632) $ 2,971,791
Less: subsidiary income (loss)
attributable to minority interest in
subsidiary's stock and stock options -- (2) 59,837 -- (2) 264,334
----------- ----------- ----------- -----------
Net income (loss) applicable to
common shareholders -- diluted $ (938,315) $ 790,693 $(2,788,632) $ 2,707,457
=========== =========== =========== ===========
Less: preferred stock dividends 2,680 2,680 5,360 5,360
----------- ----------- ----------- -----------
Net income (loss) applicable to
common shareholders -- basic $ (940,995) $ 788,013 $(2,793,992) $ 2,702,097
=========== =========== =========== ===========
Basic earnings per share ($ 0.04) $ 0.05 ($ 0.13) $ 0.17
=========== =========== =========== ===========
Diluted earnings per share ($ 0.04) $ 0.04 ($ 0.13) $ 0.12
=========== =========== =========== ===========
</TABLE>
9
<PAGE> 10
Net income (loss) applicable to Advanced minority interest for the three
month periods ended December 31, 1997 and 1996 was computed as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------------------- ------------------------------------
1997 1996 1997 1996
---------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Advanced net income (loss) after
income tax allocation $ (610,143) $ 679,200 $(1,687,872) $ 2,993,600
Minority interest -- (2) 8.81% -- (2) 8.83%
---------- ----------- ----------- -------------
Net income applicable to Advanced
minority interest $ -- $ 59,837 $ -- $ 264,334
========== =========== =========== =============
</TABLE>
- --------------------------------------------------------------------------------
(1) For the three and six month periods ended December 31, 1997, 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 six month periods
ended December 31, 1997 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.
10
<PAGE> 11
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 six
months ended December 31, 1997. 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 $1,206,795 on revenues of
$23,115,360 for the quarter and a loss from operations of $3,863,055 on revenues
of $43,640,222 for the six months ended December 31, 1997. In the previous
fiscal year, the Company earned income from operations of $1,286,353 on revenues
of $25,114,364 in the comparable three month period and income from operations
of $4,599,949 on revenues of $51,659,438 in the comparable six month period.
For the quarter ended December 31, 1997, revenues decreased $1,999,004, or
8.0%, from revenues generated in the corresponding quarter of the previous
fiscal year and decreased $8,019,216, or 15.5%, for the six month period ended
December 31, 1997 compared to the prior year six month period. The decrease in
revenues in the three and six month periods ended December 31, 1997 was due
primarily to a price reduction and decreases in service volumes from the
Company's historically largest client. Revenue from this client declined
$7,976,377, or 64.1%, and $16,528,498, or 64.6%, for the three and six month
periods, respectively, versus comparable prior year periods. During the quarter
ended December 31, 1997, business volumes with this client were maintained
approximately at the level of the previous quarter ended September 30, 1997.
Management, however, does remain focused on growing other segments of its
business in order to reduce dependence on this client.
19.4% of the Company's revenues during the quarter and 20.8% during the six
months ended December 31, 1997 were generated by the Company's historically
largest client as compared to 49.5% in the quarter and six months ended December
31, 1996. Excluding this client, revenues increased 47.2% in the quarter and
32.6% in the six months ended December 31, 1997 versus the prior year periods.
During the quarter ended December 31, 1997, the Company entered into new
contracts with two regional Bell operating companies ("RBOCs"), including an
RBOC in the Northeast and the Interconnect division of U S WEST Communications
Group, and signed a new agreement with National Tele-Communications ("NTC"), a
national reseller of long distance services. Management does not expect the
Company to begin providing services to the northeastern RBOC until the beginning
of the fourth fiscal quarter; however, the Company has begun providing services
to U S WEST's Interconnect division and to NTC. In addition, the Company signed
a long-term renewal of its existing agreement with Western Union Financial
Services and entered into the third extension of the Company's long-standing
relationship with the Chicago Regional Transit Authority ("RTA"). Subsequent to
the end of the quarter, the Company signed an agreement with Omnipoint
Communications, a leading provider of digital PCS communications services in the
New York and Philadelphia metropolitan areas. By mutual agreement, the Company
and one of its new financial services clients terminated their contract after
the client announced its decision to discontinue operations of the business unit
for which the Company was to provide services. In addition to providing services
on an outsourcing basis, in which the Company provides all or a substantial
portion of a client's telemarketing needs, the Company also continues to perform
project-based services for certain customers. Project-based services, however,
are frequently short-term and there can be no assurance that these clients will
continue existing projects or provide new ones.
11
<PAGE> 12
Gross profit earned on revenues decreased $1,172,526, or 17.1%, for the
quarter and $5,447,007, or 34.1%, for the six month period ended December 31,
1997 versus the prior year periods. As a percentage of revenues, gross margins
for the quarter and six months ended December 31, 1997 were 24.7% and 24.1%,
respectively, versus 27.4% and 30.1% in the comparable three and six month
periods of the prior year, respectively. Both the decrease in gross profit and
in gross margin as a percentage of revenues for the six months ended December
31, 1997 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") increased $1,149,863,
or 24.4%, in the quarter ended December 31, 1997 versus the prior year quarter.
The increase in SG&A in the current year quarter was primarily due to
significant increases in recruiting, marketing and administrative costs compared
to the prior year quarter. SG&A expenses increased $2,654,474, or 27.4%, in the
six months ended December 31, 1997 versus the comparable prior year period. This
increase in SG&A was primarily due to the recording of a reserve for 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. Subsequent to the end of the quarter
ended December 31, 1997, the Company opened a new 330-station call center in
Joplin, Missouri. The Company plans to open comparable new centers later in
fiscal 1998 and in fiscal 1999. Management believes these new centers should
provide cost, savings over the Company' current centers due to decreased
recruiting costs, lower average wages and lower employee turnover. Subsequent
to the end of the current quarter, management also reduced operations
management and administrative staff by approximately 11% which should result in
annual cost savings of more than $1.5 million, and renegotiated the Company's
tariff with its telecommunications carrier which is expected to reduce these
costs by approximately 10% on an annual basis.
The increase in depreciation and amortization expense of $170,759, or
19.8%, in the quarter and $361,523, or 21.6%, in the six months ended December
31, 1997 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 implementation of the Company's
new site strategy. 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 six months ended December 31, 1997 was 4.5% and 4.7%,
respectively, versus 3.4% and 3.2% in the comparable prior year periods.
Net interest expense increased for the three and six month periods ended
December 31, 1997 $107,078, or 99.3%, and $142,279, or 68.6%, 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 six month periods ended December 31, 1997 were approximately 34.0% and
33.8%, respectively versus 27.8% and 32.3%, respectively for the three and six
month periods ended December 31, 1996. The effective tax rates were higher in
the current year periods due to a decrease in federal tax credits earned.
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.
12
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain information from the Company's
statement of cash flows for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31,
---------------------------------
1997 1996
------------ -----------
<S> <C> <C>
Net cash provided by (used in) operating activities $(1,741,216) $ 3,499,086
Net cash used in investing activities (1,426,344) (2,417,103)
Net cash provided by (used in) financing activities 3,448,356 (818,394)
----------- -----------
Net increase in cash and cash equivalents $ 280,796 $ 263,589
=========== ===========
</TABLE>
Historically, the Company's primary sources of liquidity have been cash
flow from operating activities and available borrowing capacity under credit
facilities. The Company has experienced negative cash flow from operations in
the last fiscal quarter and in the six months ended December 31, 1997, and
management believes the Company may experience negative cash flow from
operations for the quarter ending 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 receivables-based working capital
line of credit, to the extent permitted by the credit facility, up to $15
million; and, ii) its ability to raise additional funds through debt or equity
financings. If the Company is unable to reduce its operating costs or resume
revenue growth in accordance with management expectations and continues to use
cash in operating activities, however, the Company may experience difficulty in
meeting its liquidity requirements. 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 additional
debt or equity financings, or entering into other arrangements.
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 fiscal 1998 and
in fiscal 1999.
In addition to traditional growth strategies, management is currently
pursuing opportunities for growth through the acquisition of other call center
companies. From time to time, the Company engages in discussions with
acquisition candidates. Although there can be no assurances that any proposed
acquisition will be successfully completed, management believes that any
acquisition candidates would fit the Company's corporate and operating
strategies.
In April 1997, the Company's Board of Directors authorized management to
pursue the implementation of a stock repurchase program for the repurchase 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 purchase 355,000 shares at an average cost of $3.98 per
share. The Company anticipates that any future purchases of shares as part of
this repurchase program will be dependent upon available cash flow from
operations and borrowings under its
13
<PAGE> 14
working capital credit facility. Based on its current liquidity position, the
Company does not anticipate making any such purchases in the near-term.
The $15 million accounts receivable credit facility and a $1.5 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. At December 31,
1997, the Company was not in compliance with certain financial covenants under
the credit facility and is currently in discussions with its bank lender
regarding waivers of these covenant provisions. 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.
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
conclude contracts with companies with which it is currently negotiating; 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;
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.
14
<PAGE> 15
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<S> <C>
(A) Exhibits
Exhibit 10.21 Release and Separation Agreement by and among Advanced
Telemarketing Corporation, ATC Communications Group,
Inc. and Arthur Chavoya (filed herewith).
Exhibit 27.1 Financial Data Schedule (filed herewith).
(B) Reports on Form 8-K
None.
</TABLE>
15
<PAGE> 16
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: February 13, 1998 By: /s/ Matthew S. Waller
--------------------------
Matthew S. Waller
Chief Financial Officer
16
<PAGE> 17
EXHIBITS INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ----------------------
<S> <C>
Exhibit 10.21 Release and Separation Agreement by and
among Advanced Telemarketing Corporation,
ATC Communications Group, Inc. and Arthur
Chavoya, filed herewith
Exhibit 27.1 Financial Data Schedule, filed herewith
</TABLE>
<PAGE> 1
EXHIBIT 10.21
RELEASE AND SEPARATION AGREEMENT
This Release and Separation Agreement (this "Agreement") is made and
entered into to be effective as of October 1, 1997 by and among Advanced
Telemarketing Corporation, a Nevada corporation doing business as ATC
Communications, Inc. (the "Company"), ATC Communications Group, Inc., a Delaware
corporation and the Company's parent corporation (the "Parent"), and Arthur
Chavoya, a resident of the State of Texas ("Employee").
RECITALS
Employee is presently employed by the Company and the Parent and the
continuation of that employment relationship is no longer desired by Employee,
on the one hand, or the Company and Parent, on the other hand.
Employee, the Company and the Parent have engaged in negotiations and
exchanged proposals and counterproposals over how to end that relationship
through their respective representatives, and Employee, the Company and the
Parent mutually wish to fully and finally resolve all existing or potential
disputes arising out of the employment relationship among Employee, the Company
and the Parent.
Employee agrees and acknowledges that the Company and the Parent have
special expertise in their businesses that has enabled them to provide unique
career opportunities for their employees, and their growth depends, to a
significant degree, on their possession of more and better information than that
available to their competitors concerning a number of matters, including but not
limited to, research, systems, development, marketing, management and other
information not generally known to others in their industry. To obtain such
information and use it successfully, the Company and the Parent have made
significant investments in research, business development, customer satisfaction
methods and techniques, business process improvements and other developments in
marketing methods and providing services to their customers.
Employee agrees and acknowledges that a covenant not to compete and a
restriction on disclosure of confidential information is essential to the
continued growth and stability of the Company's and the Parent's business and to
the continuing viability of such businesses as expressly permitted under the
terms and limitations of this Agreement.
NOW, THEREFORE, in consideration of the mutual acts, payments and
promises described and agreed to be performed herein, Employee, the Company and
the Parent agree as follows:
- ------ ------ ------
Initials
<PAGE> 2
AGREEMENT
1. Resignation. Employee tenders his resignation of employment to each
of the Company and the Parent, which will be effective as of October 1, 1997
(the "Resignation Date"). Each of the Company and the Parent accepts Employee's
resignations.
2. Severance from Employment. It is understood and agreed that with the
full and complete agreement of Employee, the Company and the Parent, Employee's
employment by each of the Company and the Parent has ceased as of the
Resignation Date. Employee has resigned, and does hereby resign, from all
positions that he held with either the Company or the Parent, including without
limitation his positions as President and Chief Executive Officer and director
of the Company and the Parent. Except as otherwise expressly provided for herein
or in the "Revised Stock Option Agreement" (as defined in Section 8 of this
Agreement), as of the Resignation Date, Employee shall cease to accrue any
rights under any pension or compensation plan of either the Company or the
Parent (including without limitation any stock option plan, grant or agreement
entered into by Employee at the inception of his employment with the Company and
Parent). Notwithstanding the foregoing, for the period beginning on the
Resignation Date and ending on the earlier of September 30, 1998 or the date of
Employee's employment with another entity, Employee shall serve as a consultant
to the Company and the Parent and provide such consulting services to the
Company and Parent as the boards of directors or the executive officers of the
Company or the Parent may reasonably requested from time to time, including,
without limitation, assistance and support with respect to the prosecution or
defense of legal proceedings (including providing deposition testimony,
testifying in court, assisting the Company and Parent in discovery and in
preparing for such prosecution or defense of such proceedings, and taking such
other actions in connection therewith as are requested by the Company and Parent
from time to time). Notwithstanding the foregoing, Employee shall in no case be
deemed to be an employee of the Parent or the Company but instead shall serve as
an independent contractor for all purposes. Employee will not act or attempt to
act or represent himself, directly or by implication, as an agent of either the
Company or the Parent or in any manner assume or create, or attempt to create,
any obligation on behalf of, or in the name of either the Company or the Parent.
In the event that either Parent or Company requests Employee to incur any
expenses in connection with the services to be rendered by Employee to Parent or
Company as set forth in this Section 2 ("Services"), Parent or Company agree to
pay, in accordance with Parent's and Company's normal reimbursement policies,
all reasonable expenses actually incurred by Employee in connection with
providing the Services, including without limitation, travel, meals and lodging
expenses.
3. Acknowledgment of Full Payment of Wages and Earned Benefits.
Employee acknowledges the receipt of all wages, expense reimbursements, vacation
pay, and sick pay to which Employee is entitled as of the date of execution of
this Agreement, and further acknowledges that he has been fully paid for all
hours worked. Any outstanding reimbursable
2
- ------ ------ ------
Initials
<PAGE> 3
expenses will be paid to Employee upon submission and approval of those expenses
in accordance with the Parent's customary practices.
4. Severance Payments to Employee. In consideration of this Agreement,
the Parent agrees to pay Employee severance pay at his last annualized salary
level of $400,000, payable in accordance with the Parent's standard payroll
practices (but not less than two times each month), at the address specified in
Section 16 of this Agreement, up to and including September 30, 1998. Such
severance payments shall be less applicable withholding for social security,
Medicare, and income taxes. Until the earlier of September 30, 1998 or the date
of Employee's employment with another entity, the Parent shall provide Employee
with medical and dental benefits (including coverage for Employee's immediate
family) on the same terms and conditions as provided to Employee immediately
prior to the Resignation Date. After September 30, 1998, Employee shall be
entitled to COBRA continuation benefits at his expense.
On or before February 15, 1998, the Parent will pay Employee $65,000,
which represents the annual bonus due and owing to Employee and accrued as of
June 30, 1997, less applicable withholding for social security, Medicare and
federal income taxes. Upon Employee's execution of this Agreement, the Parent
shall transfer to Employee title to the Cadillac STS, fax machine and portable
personal computer currently provided to Employee by the Parent.
The cash and other consideration paid to Employee under this Section 4
shall also constitute sufficient consideration for the consulting services
Employee renders to the Company and Parent after the Resignation Date, and
neither the Company nor the Parent shall have any other compensation obligations
to Employee with respect to such services.
5. Complete Releases. In consideration of the promises made in this
Agreement, Employee RELEASES, ACQUITS, and FOREVER DISCHARGES the Company and
the Parent from ANY and ALL causes of action, claims, damages, including
attorney's fees, Employee may have against either the Company or the Parent
which could have arisen out of Employee's employment or separation from
employment with either the Company or the Parent or his service as an officer or
director of the Company or the Parent or any other matter related to his
association with either the Company or the Parent, whether known or unknown.
Employee hereby irrevocably, unconditionally and fully releases, acquits and
forever discharges the Company and the Parent, and their respective officers,
directors, partners, shareholders, employees, attorneys, and agents, past and
present, from any and all charges, complaints, claims, liabilities, obligations,
costs, losses, debts, and expenses (including attorney's fees and costs actually
incurred), of any nature whatsoever (excluding any felonious acts) known or
unknown, suspected or unsuspected, including without limitation any rights
arising out of alleged violations of any contract, express or implied, written
or verbal, any covenant of good faith and fair dealing, express or implied, any
tort, any legal restrictions on the right of either the Company or the Parent to
terminate, discipline, or
3
- ------ ------ ------
Initials
<PAGE> 4
otherwise manage employees, or any federal, state or other governmental statute,
regulation, or ordinance.
These releases and waivers include, but are not limited to, Title VII
of the Civil Rights Act of 1954, the Civil Rights Act of 1991, The Age
Discrimination in Employment Act, the Employee Retirement Income Security Act of
1974, the Americans with Disabilities Act, the Rehabilitation Act of 1973, the
Equal Pay Act, the False Claims Act, the Civil Rights Act of 1866, the Fair
Labor Standards Act, the Occupational Safety and Health Act, the Family and
Medical Leave Act, the Texas Commission on Human Rights Act, the Texas Payday
Law, the Texas Workers' Compensation Act any causes of action or claim arising
under analogous state laws or local ordinances or regulations, any common law
principle or public policy, including all suits in tort or contract, or under
either the Company's or the Parent's personnel policies or any contract of
employment that may exist between Employee and either the Company or the Parent.
Employee knowingly and voluntarily waives any existing rights he may
have pursuant to the Age Discrimination in Employment Act of 1967 and the Older
Workers Benefit Protection Act. Further, Employee acknowledges the receipt of
good and valuable consideration set forth in this Agreement in exchange for this
waiver of potential claims.
In consideration of the promises made in this Agreement, each of
Company and Parent RELEASES, ACQUITS, and FOREVER DISCHARGES Employee from ANY
and ALL causes of action, claims and damages, including attorney's fees, Company
or Parent may have against Employee which could have arisen out of Employee's
employment or separation from employment with either the Company or the Parent
or his service as an officer or director of the Company or the Parent or any
other matter related to his association with either the Company or the Parent,
whether known or unknown. Each of Company and Parent hereby irrevocably,
unconditionally and fully releases, acquits and forever discharges Employee from
any and all charges, complaints, claims, liabilities, obligations, costs,
losses, debts and expenses (including attorney's fees and costs actually
incurred), of any nature whatsoever (excluding any felonious acts) known or
unknown, suspected or unsuspected, including without limitation any rights
arising out of alleged violations of any contract, express or implied, written
or verbal, any covenant of good faith and fair dealing, express or implied, or
any tort, or any federal, state or other governmental statute, regulation, or
ordinance. Notwithstanding the foregoing, nothing herein shall constitute a
release of Employee from causes of action, claims, or damages, including
attorney's fees, that may arise after the Resignation Date relating to
Employee's service as a consultant of the Parent.
It is expressly agreed and understood by Employee, the Company and the
Parent that this Agreement is a general release.
6. Promise Not to Sue. Employee represents that Employee has not
heretofore filed any charges or complaints against either the Company or the
Parent with any federal, state or local governmental agencies. Employee further
agrees that Employee will not file any
4
- ------ ------ ------
Initials
<PAGE> 5
charges or complaints against either the Company or the Parent based on
Employee's employment with either the Company or the Parent or the severance
therefrom.
In consideration of the promises made by each of the Company and the
Parent in this Agreement, Employee promises and agrees never to voluntarily join
in, or commence any action, or proceeding on behalf of himself, or any other
person, or entity before any court, administrative agency, or other forum
against either the Company or the Parent, pertaining in any way to or arising
out of his employment or association with either the Company or the Parent, his
resignation or employment, or any other event that occurred on or before the
date of this Agreement, except as may be necessary to enforce: (a) this
Agreement; (b) Employee's rights under state worker's compensation laws (for
occupational illness or injury only) or unemployment compensation laws; or (c)
Employee's rights under the Parent's medical or dental benefit plans.
Further, Employee agrees to withdraw with prejudice any previously
filed charges or suits arising out of his employment or association with or
resignation and termination from the Company and the Parent. Employee further
agrees not to actively or materially encourage or aid any person in
contemplating, filing, or prosecuting any action or proceeding against either
the Company or the Parent in any way related to matters that occurred during the
course of Employee's employment or association with the Company and the Parent
prior to the date of this Agreement.
The Company and the Parent each represents that neither has heretofore
filed any charges or complaints against Employee with any federal, state or
local governmental agencies. The Company and the Parent further agree that
neither will file any charges or complaints against either the Company or the
Parent based on Employee's employment with either the Company or the Parent or
the severance therefrom.
In consideration of the promises made by Employee in this Agreement,
each of the Company and the Parent promise and agree never to voluntarily join
in, or commence any action, or proceeding on behalf of itself, or any other
person, or entity before any court, administrative agency, or other forum
against the Employee, pertaining in any way to or arising out of Employee's
employment or association with either the Company or the Parent, his resignation
or employment, or any other event that occurred on or before the date of this
Agreement, except as may be necessary to enforce this Agreement.
Further, each of the Company and the Parent agrees to withdraw with
prejudice any previously filed charges or suits arising out of Employee's
employment or association with or resignation and termination from the Company
and the Parent. Each of the Company and the Parent further agrees not to
actively or materially encourage or aid any person in contemplating, filing, or
prosecuting any action or proceeding against Employee in any way related to
matters that occurred during the course of Employee's employment or association
with the Company and the Parent prior to the date of this Agreement.
5
- ------ ------ ------
Initials
<PAGE> 6
7. No Admission. Each of Employee, the Company and the Parent
understands and acknowledges that by entering into this Agreement, none of
Employee, the Company or the Parent admits to any unlawful conduct or wrongdoing
in connection with Employee's employment with the Company and the Parent or the
termination thereof.
8. Stock Options. Pursuant to that certain ATC Communications Group,
Inc. Non-Qualified Stock Option Agreement, dated as of September 5, 1996 (the
"Option Agreement"), Employee has been granted an option to acquire 600,000
shares of common stock of the Parent at an exercise price of $16.1875 per share,
of which 200,000 shares of common stock are vested as of the Resignation Date
(the "Options"). Upon Employee's execution of this Agreement, the Option
Agreement will be deemed amended to (a) extend the expiration of the Options to
the earlier of September 30, 2002 or twelve (12) months after the death of
Employee, (b) reduce the exercise price of the Options to $4.00 per share and
(c) reflect that the options to purchase 400,000 shares of common stock that
were unvested as of the date hereof have expired (the "Revised Stock Option
Agreement").
9. Non-Competition Agreement. Employee understands that during the
course of his employment by the Company and the Parent, Employee had access to
and the benefit of the information referred to in the Recitals above, and
represented the Company and the Parent and their affiliates and developed
contacts and relationships with other persons and entities on behalf of such
entities, including but not limited to customers, potential customers and other
employees of such entities. To protect such entities' interest in this
information and in these contacts and relationships and in consideration of the
promises made by the Company and the Parent in this Agreement, Employee agrees
and covenants that for a period beginning on the Resignation Date to the later
of September 30, 1998 or the date of expiration or exercise of all of the
Options, without the prior written approval of the Company and the Parent,
Employee will not, in connection with any business that is engaged in, or is
about to be engaged in, by the Company or the Parent, which includes but is not
limited to inbound and outbound telecommunications-based marketing services and
customer service functions, telesourcing (as the Company or the Parent has used
such term), and the consulting, design and implementation of these services,
including organization and investment in related industries or professions (the
"Business"), directly or indirectly, either as an individual or as an employee,
partner, officer, director, shareholder, advisor, or consultant or in any other
capacity whatsoever, of any person (other than ownership of less than 5% of the
issued and outstanding voting securities of a publicly held corporations): (a)
recruit, hire, assist others in recruiting or hiring, discuss employment with,
or refer to others for employment any person who is, or within the one (1) year
period immediately preceding the date of any such activity was, an employee of
the Company or the Parent or their affiliates; or (b) conduct or assist others
in conducting any business or activity that competes with the Business in the
United States, its territories or possessions.
Employee understands and agrees that the scope of the foregoing
covenant is reasonable as to time, area and persons and is necessary to protect
the legitimate business interests of the Company, the Parent and their
affiliates. Employee further agrees that such covenant will be regarded as
divisible and will be operative as to time, area and persons to the extent that
it may
6
- ------ ------ ------
Initials
<PAGE> 7
be so operative, and if any part of such covenant is declared invalid,
unenforceable, or void as to time, area or persons, the validity and
enforceability of the remainder will not be affected.
If Employee violates the restrictive covenants of this Section 9 and
the Company or the Parent brings legal action for injunctive or other relief,
neither the Company nor the Parent shall be deprived of the benefit of the full
period of the restrictive covenant as a result of the time involved in obtaining
the relief. Accordingly, Employee agrees that the regularly scheduled expiration
date of such covenant shall be extended by the same amount of time that Employee
is determined to have violated such covenant.
10. Confidentiality. Employee acknowledges that he has learned
Confidential Information (as defined below) relating to the business conducted
and to be conducted by the Company, the Parent or their affiliates. In
consideration of the promises made in this Agreement by the Company and the
Parent, Employee agrees that he will not disclose or use or authorize any third
party to disclose or use any such Confidential Information, without prior
written approval of the Company or the Parent. As used in this Section 10,
"Confidential Information" shall mean information disclosed to or known to
Employee as a direct or indirect consequence of or through his employment with
the Company or the Parent, about any customer's, supplier's or the Company's or
the Parent's business, methods, business plans, operations, products, processes,
and services, including, but not limited to, information relating to research,
development, inventions, recommendations, programs, systems, and systems
analyses, flow charts, finances, and financial statements, marketing plans and
strategies, merchandising, pricing strategies, merchandise sources, client
sources, system designs, procedure manuals, automated data programs, financing
methods, financial projections, terms and conditions of arrangements of any
business, computer software, terms and conditions of business arrangements with
clients or suppliers, reports, personnel procedures, supply and services
resources, names and addresses of clients, the Company's or the Parent's
contacts, names of professional advisors, and all other information pertaining
to clients and suppliers, including, but not limited to assets, business
interests, personal data and all other information pertaining to the Company or
the Parent, clients or suppliers whatsoever, including all accompanying
documentation therefor. All information disclosed to Employee, or to which
Employee had access during the period of his employment, for which there is any
reasonable basis to be believed is, or which appears to be treated by either the
Company or the Parent as Confidential Information, shall be presumed to be
Confidential Information hereunder. Confidential Information shall not, however,
include information that (a) is publicly known or becomes publicly known through
no fault of Employee, or (b) is generally or readily obtainable by the public,
or (c) constitutes general skills, knowledge and experience acquired by Employee
during his employment with the Company and the Parent .
Employee agrees that all documents of any nature pertaining to
activities of the Company, the Parent or their affiliates, or that include any
Confidential Information, in his possession now or at any time during the term
of his employment, including without limitation, memoranda, notebooks, notes,
data sheets, records and computer programs, are and shall be the property of
such entity and that all copies thereof shall be surrendered to the appropriate
entity simultaneously with Employee's execution of this Agreement.
7
- ------ ------ ------
Initials
<PAGE> 8
11. Inventions; Developments. Employee represents and warrants that he
has notified the Company and the Parent of all discoveries, inventions,
innovations, or improvements which are related to the Business or to the
business of any customer or supplier (collectively called "Developments")
conceived or developed by Employee during the term of the Employee's employment.
Developments shall include, without limitation, the term "telesourcing,"
business activities, strategies and tactics that comprise telesourcing,
developments in computer software, logical systems, algorithms, and any or all
other intellectual properties related to the Business. All Developments,
including but not limited to all written documents pertaining thereto, shall be
the exclusive property of the Company or the Parent, as the case may be, and
shall be considered Confidential Information subject to the terms of this
Agreement. Employee agrees that when appropriate, and upon written request of
the Company or the Parent, as the case may be, the Employee will acknowledge
that Developments are "works for hire" and will file for tradenames, trademarks,
patents or copyrights with regard to any or all Developments and will sign
documentation necessary to evidence ownership of Developments in the Company or
the Parent, as the case may be.
12. No Disparagement. In consideration of the promises made by the
Company, the Parent and Employee in this Agreement, the parties hereto agree not
to, directly or indirectly, or in any individual or representative capacity
whatsoever, make any statement, oral or written, or perform any act or omission
that is or could be detrimental in any material respect to the goodwill of any
of the Company, the Parent or Employee for a period of at least one (1) year
from the Resignation Date. Any of the Company, the Parent or Employee, however,
may give truthful and nonmalicious testimony if properly subpoenaed to testify
under oath.
Each of the Company and the Parent agrees not to, directly or
indirectly, in any individual or representative capacity whatsoever, make any
statement, oral or written, or perform any act or omission that is or could be
detrimental in any material respect to the good will of Employee; provided that
any truthful statement made by either the Company or the Parent in good faith
shall not violate this subsection. Similarly, each of the Company and the Parent
agrees to use reasonable efforts to ensure that its employees do not, directly
or indirectly, in any individual or representative capacity whatsoever, make any
statement, oral or written, or perform any act or omission that is or could be
detrimental in any material respect to the goodwill of Employee; provided that
any truthful statement made by either the Company or the Parent or any of its
employees in good faith shall not violate this subsection.
13. Remedies for Breach. In the event that any party breaches this
Agreement in any material respect, each non-breaching party's fulfillment of any
of its promises herein shall be deemed sufficient consideration for the promises
made, and each non-breaching party may enforce these promises as if it had fully
satisfied every one of its obligations.
A partial, nonmaterial breach of this Agreement by any party hereto
shall not render the entire Agreement unenforceable, and, in the event of such
breach, the remainder of this
8
- ------ ------ ------
Initials
<PAGE> 9
Agreement shall continue in full force and effect. A failure by any party to
enforce its rights with respect to a breach of a provision of this Agreement
shall not constitute a waiver of the entire Agreement.
Each of the Company, the Parent and Employee here acknowledges that a
violation or attempted violation of any of the covenants contained in this
Agreement will cause irreparable damage to the other party, and accordingly each
party agrees that the other parties shall be entitled as a matter of right to an
injunction, out of any court of competent jurisdiction, restraining any
violation or further violation of such agreements by the violating party or any
employees, partners or agents of the violating party; such right to an
injunction, however, shall be cumulative and in addition to whatever other
remedies the injured party may have.
14. Nature of the Agreement. This Agreement and all its provisions are
contractual, not mere recitals, and shall continue in permanent force and
effect, unless revoked as provided herein. In the event that any portion of this
Agreement is found to be unenforceable for any reason whatsoever, the
unenforceable provision shall be severed and the remainder of the Agreement
shall continue in full force and effect.
15. Reliance. The Company and the Parent advised Employee to seek the
advice of legal counsel prior to signing this Agreement. The parties hereto
acknowledge, warrant and represent that (a) they have relied solely on their own
judgment and that of their attorneys and representatives regarding the
consideration for, and the terms of this Agreement, (b) they have been given a
reasonable period to consider this Agreement, (c) they have read and understand
the Agreement, (d) they understand that it includes a general release of claims
against each other, and (e) no statements made by the other have in any way
coerced or unduly influenced the execution of this Agreement.
Furthermore, Employee acknowledges that in accordance with the Age
Discrimination in Employment Act and the Older Workers Benefit Protection Act,
he has been given the opportunity to review this Agreement for at least
twenty-one (21) days and if Employee executes this Agreement prior to the end of
such twenty-one (21) day period, Employee knowingly and voluntarily waives any
rights he may have with respect thereto. The Company and the Parent further
advises Employee that in accordance with the Age Discrimination in Employment
Act and the Older Workers Benefit Protection Act, he has seven (7) days after
execution of this Agreement to revoke this Agreement.
16. Notices. Any notice, demand or request required or permitted to be
given or made under this Agreement shall be in writing and shall be deemed given
or made when delivered in person, when sent by United States registered or
certified mail, or postage prepaid, or when faxed to a party at its address or
facsimile number specified below:
9
- ------ ------ ------
Initials
<PAGE> 10
If to the Company: Advanced Telemarketing Corporation,
dba ATC Communications, Inc.
7880 Bent Branch Drive
Suite 150
Irving, Texas 75063
Facsimile number: (972) 830-1801
If to the Parent: ATC Communications Group, Inc.
5950 Berkshire Lane
Suite 1650
Dallas, Texas 75225
Facsimile number: (214) 361-9874
If to Employee: Arthur Chavoya
7 Southern Hills Court
Frisco, Texas 75034
Facsimile number: (972)-625-6662
The parties to this Agreement may change their addresses for notice in
the manner provided above.
17. Counterparts and Photocopies. This Agreement may be executed in
counterparts and each executed counterpart shall be as effective as a signed
original. Photographic copies of such signed counterparts may be used in lieu of
the originals for any purpose.
18. Paragraph Titles Not Binding. The use of paragraph titles in this
Agreement is for ease of reference only. Such titles are not to be considered
terms of this Agreement.
19. Governing Law; Arbitration.
(a) THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO THE PRINCIPLES OF
CONFLICTS OF LAW.
(b) All claims, disputes, and controversies arising out of or
relating to this Agreement or the performance, breach, validity, interpretation,
application or enforcement hereof, including any claims for equitable relief or
claims based on contract, tort, statute, or any alleged breach, default, or
misrepresentation in connection with any of the provisions hereof, will be
resolved by binding arbitration. Notwithstanding the foregoing, any party to
this Agreement shall have the right, at its option, to bring any claims for
injunctive or other equitable relief before the State and Federal Courts of the
State of Texas, and each of Employee, the Company and the Parent hereby accepts
and irrevocably submits itself to the non-exclusive jurisdiction of such courts
and agrees and consents that service of process
10
- ------ ------ ------
Initials
<PAGE> 11
may be made upon it in any such legal proceeding relating to this Agreement by
any means allowed under Texas or Federal law, as applicable. Venue for any such
legal proceeding shall be in Dallas County, Texas.
(c) A party may initiate arbitration by sending written notice
of its intention to arbitrate to the other parties and to the American
Arbitration Association ("AAA") office located in Dallas, Texas (the
"Arbitration Notice"). The Arbitration 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 before an independent and impartial arbitrator who
is selected by mutual agreement, or, in the absence of such agreement, before
three (3) independent and impartial arbitrators, of whom the Company and the
Parent will appoint one and Employee will appoint one, with the third being
chosen by the two appointed by the parties. In no event may the demand for
arbitration be made after the date when the institution of a legal or equitable
proceeding based on such claim, dispute, or other matter in question would be
barred by the applicable statute of limitations.
(d) The arbitration and any discovery conducted in connection
therewith will be conducted in accordance with the Commercial Rules of
arbitration and procedures established by AAA in effect at the time of the
arbitration, including without limitation the expedited procedures set forth
therein (the "AAA Rules"). The decision of the arbitrators will be final and
binding on all parties and their successors and permitted assignees. The
judgment upon the award rendered by the arbitrators may be entered by any court
having jurisdiction thereof. The arbitrators will be selected no later than 30
days after the date of the Arbitration Notice. The arbitration hearing will
commence no later than 60 days after the arbitrators is selected. The
arbitrators will render a decision no later than 30 days after the close of the
hearing, in accordance with AAA Rules. The arbitrator's fees and costs will
conform to the then current AAA fee schedule and will be borne by the parties as
the arbitrators shall direct.
20. Death of Employee. In the event that Employee should die before the
Parent pays Employee the full amount of the $400,000 payment set forth in
Section 4 of this Agreement, then Parent agrees to continue to make the
severance payments to Employee's spouse, or if the Employee's spouse predeceases
Employee, to Employee's estate.
21. Assignment. The obligations and duties of the parties set forth in
this Agreement may not be assigned or delegated; provided, however, that nothing
in this Agreement shall preclude either the Parent or the Company from
consolidating or merging with, or transferring all or substantially all of its
assets to, another corporation, person or entity ("Entity"). Upon such a
consolidation, merger or transfer of assets, the terms the "Parent" and the
"Company" shall mean such other Entity or Entities that the Parent and/or the
Company consolidate or merge into or with, or transfer all or substantially all
of the assets of the Parent and/or the Company to, and in any such event, the
Entity or Entities shall be bound and automatically assume, without any specific
action on the part of the Entity or Entities, this Agreement and all obligations
and undertakings of the Parent and/or the Company set forth in this Agreement,
and this Agreement shall continue in full force and effect, including but not
11
- ------ ------ ------
Initials
<PAGE> 12
limited to the obligation of Parent to make the severance payments set forth in
Section 4 of this Agreement, and the right of Employee to exercise the Options
set forth in Section 8 of this Agreement. The obligations and duties of Employee
hereunder shall be personal and not assignable or delegable by the Employee in
any manner whatsoever.
22. Entire Agreement. This Agreement constitutes the entire and
exclusive statement of the agreement between the parties with respect to its
subject matter and there are no oral or written representations, understandings
or agreements relating to this Agreement which are not fully expressed herein.
The parties agree that any other terms or conditions included in written or
verbal exchanges or representations made by the parties shall not be
incorporated herein or be binding unless expressly agreed upon in writing by
authorized representatives of the parties subsequent to the Resignation Date.
Employee, the Company and the Parent agree and acknowledge that upon execution
of this Agreement, all terms and conditions of the Employment Agreement, dated
September 5, 1996, by and among Employee, the Parent and the Company are null
and void and such Employment Agreement is no longer in effect.
PLEASE READ THIS AGREEMENT CAREFULLY. IT CONTAINS A RELEASE OF ALL
KNOWN AND UNKNOWN CLAIMS.
THE UNDERSIGNED ACKNOWLEDGE THAT WE HAVE CAREFULLY READ THE FOREGOING
AGREEMENT, THAT WE UNDERSTAND ALL OF ITS TERMS, AND THAT WE ARE ENTERING INTO IT
VOLUNTARILY.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
12
- ------ ------ ------
Initials
<PAGE> 13
Executed at Dallas, Texas by Employee, acting in his individual
capacity, and by an authorized representative of each of the Company and the
Parent as of the Resignation Date.
ADVANCED TELEMARKETING CORPORATION,
dba ATC Communications, Inc.
By: /s/ Jerry L. Sims, Jr.
---------------------------------
Name: Jerry L. Sims, Jr.
Title: Secretary
ATC COMMUNICATIONS GROUP, INC.
By: /s/ Jerry L. Sims, Jr.
---------------------------------
Name: Jerry L. Sims, Jr.
Title: Senior Vice President
/s/ Arthur Chavoya
----------------------------------------
Arthur Chavoya
13
- ------ ------ ------
Initials
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 913,622
<SECURITIES> 0
<RECEIVABLES> 20,207,163
<ALLOWANCES> 73,826
<INVENTORY> 0
<CURRENT-ASSETS> 22,503,916
<PP&E> 24,163,465
<DEPRECIATION> 10,159,596
<TOTAL-ASSETS> 44,197,646
<CURRENT-LIABILITIES> 15,279,311
<BONDS> 0
0
298
<COMMON> 218,334
<OTHER-SE> 24,684,811
<TOTAL-LIABILITY-AND-EQUITY> 44,197,646
<SALES> 43,640,222
<TOTAL-REVENUES> 43,640,222
<CGS> 33,136,321
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 14,366,956
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 349,655
<INCOME-PRETAX> (4,212,710)
<INCOME-TAX> 1,424,078
<INCOME-CONTINUING> (2,788,632)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,788,632)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
