<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
Amendment No. 1
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended SEPTEMBER 30, 1998.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____________________
to ______________________
Commission File Number: 0-14315
AEGIS COMMUNICATIONS GROUP, INC.
--------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 75-2050538
-------- ----------
(State of Incorporation) (I.R.S. Employer Identification No.)
7880 BENT BRANCH DRIVE, SUITE 150, IRVING, TEXAS 75063
------------------------------------------------------
(Address of principal executive offices, Zip Code)
Registrant's telephone number, including area code: (972) 830-1800
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [x] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
TITLE OF EACH CLASS NUMBER OF SHARES OUTSTANDING
------------------- ON NOVEMBER 9, 1998
--------------------
COMMON STOCK $.01 PAR VALUE 52,284,374
REASON FOR AMENDMENT
The undersigned registrant hereby amends in its entirety Part I of its
quarterly report on Form 10-Q for the quarterly period ended September 30,
1998.
The Company has restated its September 30, 1998 and subsequent financial
statements in accordance with Emerging Issues Task Force Topic No. D-60 to
reflect a beneficial conversion feature contained in the subordinated debt
issued in July 1998. This beneficial conversion feature resulted in a
non-cash interest expense charge of $3.1 million at the issuance date of the
debt. See Note 3 to the financial statements included herein.
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
SEPTEMBER 30, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
December 31, 1997 and September 30, 1998 (Restated)
(unaudited). . . . . . . . . . . . . . . . . . . . . . . . 3-4
Unaudited Consolidated Statements of Operations
Three and Nine Months Ended September 30, 1997
and September 30, 1998 (Restated) . . . . . . . . . . . . . . 5
Unaudited Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1997
and September 30, 1998 (Restated) . . . . . . . . . . . . . . 6
Notes to Unaudited Consolidated Financial Statements. . . . .7-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . 14-20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . .21
Item 4. Submission of Matters to a Vote of Security Holders . . . . 21-22
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . 22-23
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AEGIS COMMUNICATIONS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(Restated)
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,288 $ 7,020
Accounts receivable, less allowance for doubtful accounts 21,209 54,014
Unbilled accounts receivable, net 4,367 4,590
Notes receivable -- related parties - 2,157
Current deferred tax assets 1,415 1,632
Prepaid expenses and other current assets 2,720 3,145
------------- -------------
Total current assets 34,999 72,558
Property and equipment, net of accumulated depreciation
of $11,813 in 1997 and $17,924 in 1998 21,623 33,770
Cost in excess of net assets acquired, net of accumulated
amortization of $1,647 in 1997 and $3,650 in 1998 43,558 72,310
Deferred tax assets - 6,398
Deferred financing costs, net 1,242 1,987
Other assets 314 2,127
------------- -------------
$ 101,736 $ 189,150
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
3
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(Restated)
(Unaudited)
<S> <C> <C>
LIABILITIES & SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portions of long-term obligations $ 1,101 $ 2,313
Due to shareholders 1,908 -
Deferred income 3,262 2,290
Accounts payable and other accrued liabilities 5,535 17,550
Accrued compensation expense 4,543 10,577
Other current liabilities 1,026 571
------------- -------------
Total current liabilities 17,375 33,301
Revolving line of credit 15,000 27,100
Long-term obligations, net of current portions 35,257 36,503
Subordinated indebtedness due to affiliates 1,000 11,885
Other long-term liabilities 2,531 3,043
Commitments and contingencies - -
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized; 29,778, $.36 cumulative Series B shares
issued and outstanding in 1998 - 0
Common stock, $.01 par value, 100,000,000 shares
authorized; 29,865,951 and 52,284,374 shares
issued and outstanding at December 31, 1997
and September 30, 1998, respectively 3 523
Treasury stock - (1,421)
Additional paid-in capital (Restated-Note 3) 28,321 81,120
Cumulative translation adjustment 13 32
Retained earnings (deficit) (Restated-Note 3) 2,236 (2,936)
------------- -------------
Total shareholders' equity 30,573 77,318
------------- -------------
$ 101,736 $ 189,150
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
4
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ---------------------
1997 1998 1997 1998
----------- -------- -------- ---------
(Restated) (Restated)
<S> <C> <C> <C> <C>
Revenues $ 39,278 $ 73,337 $ 91,764 $ 162,393
Cost of services, excluding depreciation
and amortization shown below 25,947 49,666 59,880 107,056
-------- -------- -------- ---------
Gross profit 13,331 23,671 31,884 55,337
Selling, general and administrative expenses 10,437 17,063 24,900 40,764
Depreciation 1,174 3,114 2,919 6,894
Acquisition goodwill amortization 600 803 1,036 2,020
Restructuring and other charges - 3,624 - 3,624
-------- -------- -------- ---------
Total operating expenses 12,211 24,604 28,855 53,302
-------- -------- -------- ---------
Operating income (loss) 1,120 (933) 3,029 2,035
Interest expense, net 1,130 1,723 2,307 4,152
Non-cash interest expense (Restated-Note 3) - 3,092 - 3,092
-------- -------- -------- ---------
Income (loss) before income taxes (Restated-
Note 3) (10) (5,748) 722 (5,209)
Income tax expense (benefit) 292 (695) 870 (37)
-------- -------- -------- ---------
Net loss (Restated-Note 3) $ (302) $ (5,053) $ (148) $ (5,172)
-------- -------- -------- ---------
-------- -------- -------- ---------
Basic and diluted loss per common share
(Restated-Note 3) $ (0.01) $ (0.10) $ (0.01) $ (0.14)
-------- -------- -------- ---------
-------- -------- -------- ---------
Basic and diluted weighted average
common shares outstanding 28,797 51,726 26,560 37,154
</TABLE>
See accompanying notes.
5
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1997 1998
--------- --------
(Restated)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (Restated-Note 3) $ (148) $ (5,172)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 3,955 8,914
Assets written-off - 2,503
Non-cash interest expense (Restated-Note 3) - 3,092
Other - 42
Changes in operating assets and liabilities (1,964) (8,140)
--------- ---------
Net cash provided by operating activities 1,843 1,239
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,722) (7,403)
Acquisition costs, ATC - (3,943)
Net cash acquired from ATC - 296
Acquisition of InterServ (15,776) -
--------- ---------
Net cash used in investing activities (19,498) (11,050)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit, net 24,963 3,822
Proceeds from affiliate debt - 10,772
Principal payments on long-term debt (6,200) (1,397)
Payments on capital lease obligations (181) (1,025)
Proceeds from exercise of stock options - 239
Deferred financing costs (650) (888)
--------- ---------
Net cash provided by financing activities 17,932 11,523
Effect of exchange rate on cash - 20
Net increase in cash and cash equivalents 277 1,732
Cash and cash equivalents at beginning of period 2,250 5,288
--------- ---------
Cash and cash equivalents at end of period $ 2,527 $ 7,020
--------- ---------
--------- ---------
Supplemental information on non-cash transactions:
Issuance of stock to effect acquisition of ATC $ - $ 45,320
</TABLE>
See accompanying notes.
6
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1998
1. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued SFAS
128. Aegis Communications Group, Inc. ("Aegis" or "the Company") has adopted
SFAS 128, which establishes standards for computing and presenting earnings
per share ("EPS"). This statement requires dual presentation of basic and
diluted EPS on the face of the income statement for entities with complex
capital structures and requires a reconciliation of the numerator and the
denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation. Basic and diluted EPS are computed by dividing
net income applicable to common stock by the weighted average number of
shares of common stock and common stock equivalents outstanding during the
period. Basic EPS excludes the effect of potentially dilutive securities
while diluted EPS reflects the potential dilution that would occur if
securities or other contracts to issue common stock were exercised, converted
into or resulted in the issuance of common stock. Common stock equivalents
consist of common stock issuable under the assumed exercise of stock options
and warrants, computed based on the treasury stock method, and the assumed
conversion of the Company's issued and outstanding preferred stock. Common
stock equivalents are not included in diluted EPS calculations to the extent
their inclusion would have an anti-dilutive effect.
Basic and diluted weighted average shares outstanding for the three and
nine month periods ending September 30, 1997 and 1998 were computed as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ----------------
1997 1998 1997 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
BASIC AND DILUTED (1)
Weighted average common shares outstanding:
IQI (2) 28,797 30,126 26,560 29,954
ATC - 21,961 - 7,320
------ ------ ------ ------
28,797 52,087 26,560 37,274
Weighted average treasury shares - (361) - (120)
------ ------ ------ ------
Shares used in EPS calculation 28,797 51,726 26,560 37,154
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
- -------------------------------------------------------------------------------
(1) For the three and nine month periods ended September 30, 1997 and 1998,
common stock equivalents are not included in diluted EPS calculations
because their inclusion would have an anti-dilutive effect.
(2) The weighted average shares outstanding for IQI have been adjusted to
reflect the effects of the Merger by multiplying the historical weighted
average shares by the Merger exchange ratio of 9.7513. The weighted
average shares do not include common stock equivalents because their
effect would be anti-dilutive.
7
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1998
2. THE MERGER
On July 9, 1998, Aegis, formerly known as ATC Communications Group, Inc.
("ATC"), completed the acquisition of IQI, Inc., a New York corporation
("IQI"). The acquisition was effected through the merger (the "Merger") of
ATC Merger Sub, Inc., a New York corporation and wholly-owned subsidiary of
the ATC ("Sub"), with and into IQI pursuant to an Agreement and Plan of
Merger dated as of April 7, 1998 (the "Merger Agreement") by and between ATC,
Sub and IQI.
Pursuant to the Merger Agreement, each former holder of common stock,
$.001 par value, of IQI ("IQI Common Stock") received, in exchange for each
such share, 9.7513 shares of the common stock, par value $0.01 per share, of
the Company ("ATC Common Stock"). As a result of the Merger, ATC issued
approximately 34.2 million shares of ATC Common Stock and Common Stock
equivalents to holders of IQI Common Stock and IQI stock options and warrants
in a tax-free exchange. The acquisition has been accounted for as a reverse
purchase, meaning that for accounting purposes, IQI is the surviving
corporation and is treated as having acquired ATC in a purchase accounting
transaction. Accordingly, the pre-Merger consolidated financial information
reported is that of IQI. Effective upon the Merger, the Company formally
changed its name to Aegis Communications Group, Inc. and its Nasdaq National
Market System symbol to "AGIS".
The following unaudited pro forma financial data (the "Unaudited Pro
Forma Financial Data") of Aegis have been derived by the application of pro
forma adjustments to the historical financial statements of IQI and ATC for
the periods indicated. The pro forma adjustments are described in the
accompanying notes. The "IQI As Adjusted" data reflect IQI's acquisition of
InterServ Services Corporation (the "InterServ Acquisition") as if it had
occurred on January 1, 1997. The historical IQI data for the year ended
December 31, 1997 and the historical InterServ data for the six months and
eleven days ended July 11, 1997 have been derived from the audited financial
statements of such companies. The historical ATC data for the twelve months
ended December 31, 1997 have been derived from the audited financial
statements for the fiscal year ended June 30, 1997, adjusted to a calendar
year basis using the unaudited financial data for the six-month periods ended
December 31, 1997 and 1996. The historical IQI data and historical ATC data
for the nine months ended September 30, 1998 have been derived from the
unaudited financial statements of such companies, which in the opinion of
management of the Company, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for
the unaudited periods.
The unaudited pro forma statement of operations data for the nine months
ended September 30, 1998 and the year ended December 31, 1997 give effect to
the Merger and the related transactions described under the heading "Other
Transactions Related to the Merger" as if they had occurred at the beginning
of the periods presented. The unaudited pro forma statement of operations
data for the year ended December 31, 1997 also gives effect to the InterServ
Acquisition as if it had occurred on January 1, 1997. The Unaudited Pro
Forma Financial Data are provided for informational purposes only and do not
purport to represent the results of operations or financial position of Aegis
had such transactions in fact occurred on such dates, nor do they purport to
be indicative of the financial position or results of operations as of any
future date or for any future period.
The Unaudited Pro Forma Financial Data and accompanying notes should be
read in conjunction with the financial statements and accompanying notes
thereto.
8
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1998
AEGIS COMMUNICATIONS GROUP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
IQI
-----------------------------------------------------
Pro Forma Adjustments Merger
--------------------- As ATC Adjust- Aegis
Historical InterServ(1) Other Adjusted Historical ments Pro Forma
---------- ------------ ------ --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $133,832 $25,321 $ - $159,153 $89,610 $ - $248,763
Cost of services 88,190 16,785 - 104,975 65,710 - 170,685
-------- ------- ------ -------- ------- ------- --------
Gross profit 45,642 8,536 - 54,178 23,900 - 78,078
Operating expenses 36,312 8,340 (588)(2) 43,486 25,625 - 69,111
(578)(2)
Depreciation 4,501 772 - 5,273 3,894 - 9,167
Acquisition goodwill amortization 1,592 164 504 (3) 2,260 87 1,143 (6) 3,490
-------- ------- ------ -------- ------- ------- --------
Operating income (loss) 3,237 (740) 662 3,159 (5,706) (1,143) (3,690)
Interest expense, net 3,626 221 665 (4) 4,512 640 633 (7) 5,785
-------- ------- ------ -------- ------- ------- --------
Loss before income taxes (389) (961) (3) (1,353) (6,346) (1,776) (9,475)
Income tax expense (benefit) 595 220 (35)(5) 780 (2,015) (237)(8) (1,472)
-------- ------- ------ -------- ------- ------- --------
Net income (loss) $ (984) $(1,181) $ 32 $ (2,133) $(4,331) $(1,539) $ (8,003)
======== ======= ====== ======== ======= ======= ========
Net loss per share $ (0.04) $ (0.07) $ (0.21) $ (0.16)
======== ======== ======= ========
Weighted average shares
outstanding (9) 27,233 29,259 20,905 50,164
======== ======== ======= ========
</TABLE>
(FOOTNOTES APPEAR ON FOLLOWING PAGE)
9
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1998
AEGIS COMMUNICATIONS GROUP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Historical Aegis
IQI ATC Adjustments Pro Forma
-------- ------- ----------- ----------
(Restated) (Restated)
<S> <C> <C> <C> <C>
Revenues $136,337 $74,000 $ - $210,337
Cost of services 87,955 53,806 - 141,761
-------- ------- -------- --------
Gross profit 48,382 20,194 - 68,576
Operating expenses 35,015 17,702 - 52,717
Depreciation 5,787 3,225 - 9,012
Acquisition goodwill amortization 1,713 62 861 (6) 2,636
Restructuring and other charges - - 3,624 3,624
-------- ------- -------- --------
Operating income (loss) 5,867 (795) (4,485) 587
Interest expense, net 3,835 902 475 (7) 5,212
Non-cash interest expense (Restated-
Note 3) 3,092 - - 3,092
Litigation settlement - 1,900 - 1,900
-------- ------- -------- --------
Loss before income taxes (Restated-
Note 3) (1,060) (3,597) (4,960) (9,617)
Income tax expense (benefit) 1,498 (1,270) (1,537)(8) (1,309)
-------- ------- -------- --------
Net loss (Restated-Note 3) $ (2,558) $(2,327) $ (3,423) $ (8,308)
======== ======= ======== ========
Loss per share (Restated-Note 3) $ (0.09) $ (0.11) $ (0.16)
======== ======= ========
Weighted average shares
outstanding (9) 29,954 21,519 51,473
======== ======= ========
</TABLE>
- -------------------------------------------------------------------------------
(1) The InterServ Acquisition occurred on July 12, 1997. This data
represents the historical results of operations of InterServ for the
period from January 1, 1997 through July 11, 1997.
(2) In connection with the InterServ Acquisition, during the year ended
December 31, 1997, InterServ incurred certain non-recurring expenses.
These expenses have been deducted for purposes of the Unaudited Pro Forma
Financial Data. These expenses include:
(a) Transaction expenses incurred by InterServ in connection with the
InterServ Acquisition totaling approximately $0.6 million.
(b) Expenses relating to the vesting of stock options to purchase
shares of InterServ totaling approximately $0.6 million.
(3) Had the InterServ Acquisition occurred on January 1, 1997, amortization
of goodwill would have increased by approximately $0.5 million for the
year ended December 31, 1997.
10
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1998
(4) In connection with the InterServ Acquisition, IQI incurred approximately
$22.0 million of debt. Had such debt been incurred as of January 1, 1997,
interest would have increased by approximately $0.7 million for the year
ended December 31, 1997.
(5) Reflects adjustment to income tax provision as a result of the pro forma
adjustments described in items (2) and (4) above.
(6) Had the Merger occurred at the beginning of the periods presented,
amortization of goodwill would have increased as follows:
<TABLE>
<S> <C>
Merger purchase price $ 45,320
ATC book value at Merger closing (22,843)
ATC goodwill balance at Merger closing 2,057
--------
Goodwill resulting from Merger 24,534
Goodwill related to stock options of ATC 2,090
Goodwill related to Merger transaction costs 4,131
--------
Total increase to goodwill $ 30,755
Estimated life 25 years
--------
Annual amortization of additional acquisition goodwill $ 1,230
--------
--------
</TABLE>
<TABLE>
<CAPTION>
YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -----------
<S> <C> <C>
Amortization of additional acquisition goodwill $1,230 $923
Actual amortization of goodwill recorded by ATC (87) (62)
------ ----
Net increase in amortization of acquisition $1,143 $861
------ ----
------ ----
</TABLE>
(7) Concurrent with the Merger, IQI entered into a new loan agreement with
its lenders and borrowed an additional $4.6 million. Thayer provided
subordinated financing of $6.8 million to Aegis. Proceeds from these
financing transactions were used to refinance $8.6 million of existing
indebtedness of ATC's operating subsidiary and repay the subsidiary's
term loan of $0.2 million. As a result, pro forma indebtedness increased
by $2.6 million. Had such debt transactions occurred at the beginning of
the periods presented, interest expense would have increased and deferred
financing costs associated with the issuance of the debt would have been
amortized during the period. Additionally, had the Chairman of ATC repaid
borrowings of approximately $2.0 million at the beginning of the periods
presented, interest income would have decreased. Total interest expense,
net, would have increased as follows:
11
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1998
<TABLE>
<CAPTION>
INTEREST EXPENSE
--------------------------------
AMOUNT YEAR NINE MONTHS
AVERAGE OUTSTANDING ENDED ENDED
INTEREST AT CLOSING DECEMBER 31, SEPTEMBER 30,
RATE OF MERGER 1997 1998
-------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Additional bank loan to IQI 8.25% $ 4,600 $ 379 $ 285
Additional subordinated indebtedness 12.00% 6,827 819 614
Refinance indebtedness of Advanced 8.75% (8,623) (754) (566)
Repay Advanced term loan 9.00% (222) (20) (15)
Additional amortization of deferred
financing costs 99 74
----- -----
Increase in interest expense $ 523 $ 392
Decrease in interest income related to
repayment of borrowings by
Chairman of ATC 110 82
----- -----
Net increase in interest expense $ 633 $ 474
----- -----
----- -----
</TABLE>
(8) As a result of the pro forma adjustments, Aegis would record an income
tax benefit of $0.2 million for the year ended December 31, 1997 and
$1.5 million for the nine months ended September 30, 1998.
(9) The weighted average shares outstanding for IQI have been adjusted to
reflect the effects of the Merger by multiplying the historical weighted
average shares by the Merger exchange ratio of 9.7513. The weighted
average shares do not include common stock equivalents because their
effect would be anti-dilutive.
3. EFFECT OF RESTATEMENT
The Company has restated its September 30, 1998 and subsequent financial
statements in accordance with Emerging Issues Task Force Topic No. D-60 to
reflect a beneficial conversion feature contained in the subordinated debt
issued to Thayer Equity in July 1998. This beneficial conversion feature,
which was not originally recognized, resulted in a non-cash interest expense
charge of $3.1 million at the issuance date of the debt.
In connection with the restatement, the Company determined the fair
value of the beneficial conversion feature to be $3.1 million based on its
fair value at the issuance date and recorded the discount for the beneficial
conversion feature as paid-in capital. As the $8.7 million in subordinated
debt was immediately convertible upon issuance, the Company recognized $3.1
million in non-cash interest expense in the quarter ended September 30, 1998.
There was no impact to the Company's tax provision for the quarter ended
September 30, 1998 as the beneficial conversion feature represents a
permanent difference for tax purposes.
The restatements of the 1998 financial statements for the matter
described above had no effect on the Company's total assets or total
liabilities and shareholders' equity. The Company's additional paid-in
capital, retained earnings, net loss and basic and diluted loss per common
share for the three and nine months ended September 30, 1998, as previously
reported and as restated, are as follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1998
------------- --------------
<S> <C> <C>
Net loss - previously reported $ (1,961) $ (2,080)
Adjustment related to beneficial
conversion feature on convertible subordinated debt (3,092) (3,092)
------------- --------------
As restated $ (5,053) $ (5,172)
------------- --------------
------------- --------------
Net loss per share (basic and diluted) - previously reported $ (0.04) $ (0.06)
------------- --------------
------------- --------------
Net loss per share (basic and diluted) - as restated $ (0.10) $ (0.14)
------------- --------------
------------- --------------
<CAPTION>
September 30,
1998
-------------
<S> <C>
Additional paid-in capital - previously reported $ 78,028
Adjustment related to beneficial conversion
feature on convertible subordinated debt 3,092
-------------
As restated $ 81,120
-------------
-------------
Retained earnings - previously reported $ 156
Adjustment related to beneficial conversion
feature on convertible subordinated debt (3,092)
-------------
As restated $ (2,936)
-------------
-------------
</TABLE>
12
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1998
4. RESTRUCTURING AND OTHER CHARGES
On July 29, 1998, the Company announced that it would record a pre-tax
restructuring reserve of $13.0 million related to the Merger. Current and
future expenses related to the restructuring decision which meet the specific
generally accepted accounting principles ("GAAP") criterion for accrual have
been referred to herein as "restructuring" charges, and a restructuring
accrual has been recorded to the extent the related amounts have not been
paid. Expenses related to the restructuring decision which do not meet the
specific GAAP criterion for accrual have been referred to herein as "other"
charges. "Other" charges have not been accrued, but are recognized as the
related expenses are incurred. Accordingly, the Company has recorded pre-tax
charges of $3.6 million ($2.3 million, net of taxes) in the quarter ended
September 30, 1998, as a part of the total restructuring. These charges are
primarily attributable to one-time write-offs of redundant software,
severance costs and the consolidation of certain administrative functions
including costs to relocate offices and employees. The Company expects to
recognize additional restructuring and other charges, as previously
announced, through the first quarter of 1999 as restructuring related efforts
continue.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Restated - Note 3)
The Merger has been accounted for as a reverse purchase, meaning that
for accounting purposes, IQI is the surviving corporation and is treated as
having acquired ATC in a purchase accounting transaction. Reported financial
results reflect the Merger and are those of IQI for the periods ending
September 30, 1997 and of the combined company on a purchase accounting basis
for the periods ending September 30, 1998. See "Notes to Unaudited Consolidated
Financial Statements -- 2. The Merger."
The accompanying consolidated financial statements, in the opinion of
the Company's management, contain all material, normal and recurring
adjustments necessary to present accurately the consolidated financial
condition of the Company and the consolidated results of its operations for
the quarter and nine months ended September 30, 1998. The consolidated
results of operations for the periods reported are not necessarily indicative
of the results to be experienced for the entire current year.
RESULTS OF OPERATIONS
The following table sets forth statements of operations data as a
percentage of revenues for the periods indicated:
<TABLE>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
1997 1998 1997 1998
------ ------ ------ ------
(Restated) (Restated)
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of services, excluding depreciation
and amortization shown below 66.1% 67.7% 65.3% 65.9%
------ ------ ------ ------
Gross profit 33.9% 32.3% 34.7% 34.1%
Selling, general and administrative expenses 26.6% 23.3% 27.1% 25.1%
Depreciation 3.0% 4.3% 3.2% 4.3%
Acquisition goodwill amortization 1.5% 1.1% 1.1% 1.2%
Restructuring and other charges - 4.9% - 2.2%
------ ------ ------ ------
Total expenses 31.1% 33.6% 31.4% 32.8%
------ ------ ------ ------
Operating income (loss) 2.8% (1.3%) 3.3% 1.3%
Interest expense, net 2.9% 2.3% 2.5% 2.6%
Non-cash interest expense (Restated-Note 3) - 4.2% - 1.9%
------ ------ ------ ------
Income (loss) before income taxes (Restated-Note 3) (0.1%) (7.8%) 0.8% (3.2%)
Income tax expense (benefit) 0.7% (1.0%) 1.0% (0.0%)
------ ------ ------ ------
Net income (loss) (Restated-Note 3) (0.8%) (6.9%) (0.2%) (3.2%)
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
The Company experienced a net loss of approximately (Restated) $5.1
million, or 6.9% of revenues, for the quarter and a net loss of approximately
$5.2 million, or 3.2% of revenues, for the nine months ended September 30,
1998. Excluding $3.6 million ($2.3 million, net of taxes) in merger-related
restructuring and other charges and $3.1 million in non-cash interest
expense, the Company experienced net income of $304,000 in the quarter and
14
<PAGE>
$184,000 during the nine months ended September 30, 1998 as compared to net
losses of $302,000 and $148,000 in the prior year periods.
Revenues generated during the quarter increased approximately 87% to
$73.3 million from $39.3 million in the third quarter a year ago. The
increase in revenues for the quarter was due primarily to the impact of
revenues contributed by ATC subsequent to the merger of IQI and ATC
on July 9, 1998 (the "Merger"). For the nine months ended September 30,
1998, revenues increased $70.6 million, or 77%, to $162.4 million during the
nine months ended September 30, 1998 as compared to revenues of $91.8 million
generated in the prior year period. The increase in revenues for the nine
month period was principally attributable to the impact of revenues
contributed by ATC and by InterServ, which was acquired by IQI on July 12,
1997.
Reported financial results reflect the Merger and are those of IQI for
the periods ending September 30, 1997 and of the combined company on a
purchase accounting basis for the periods ending September 30, 1998. Pro
forma statements of operations are also included for the year ended December
31, 1997, as if the Merger had occurred January 1, 1997, and the nine months
ended September 30, 1998, as if the Merger had occurred January 1, 1998 (See
"Notes to Unaudited Consolidated Financial Statements -- 2. The Merger."). On
a pro forma basis, revenues grew approximately 21% and 15% for the three and
nine month periods ended September 30, 1998, respectively, versus the prior
year periods. The growth in revenues on a pro forma basis was primarily
attributable to growth in volumes from certain existing clients and services
performed for new clients.
Approximately 26% of the Company's revenues during the quarter and the
nine month period ended September 30, 1998 were generated by the Company's
largest client as compared to approximately 25% in the quarter and 37% in the
nine months ended September 30, 1997. On a pro forma basis, approximately
26% of the Company's revenues during the quarter and 27% in the nine months
ended September 30, 1998 were generated by the Company's largest client as
compared to approximately 31% in the quarter and 35% in the nine months ended
September 30, 1997.
Subsequent to the end of the quarter, the Company was notified by its
largest client that volumes under certain of its outbound telemarketing
programs would be curtailed in the Company's fourth quarter. Management
believes this reduction will be mitigated by additional services being
performed for this client in new and existing programs and by additional
volumes from certain of the Company's other clients.
During the quarter, the Company was selected by Sony Computer
Entertainment America ("Sony") as the inbound technical support provider for
its products. Subsequent to the end of the quarter, Aegis began providing
services under the agreement with Sony. In addition, the Company signed an
agreement during the quarter to provide customer acquisition services to
NationsCredit, which provides a full array of consumer finance products to
more than half a million customers nationwide.
The Company was also awarded a three-year renewal of its long-standing
relationship with American Express. Under this agreement, Aegis will continue
to provide a variety of services to American Express and its cardholders
including customer care and customer acquisition.
The Company's objective is to secure recurring revenues from long-term
relationships with targeted, large corporate clients that utilize
telecommunications strategies as an integral, ongoing element in their
marketing and customer service programs. In addition to providing services
on an outsourcing basis, in which the Company provides all or a substantial
portion of a client's telemarketing needs, the Company also continues to
perform project-based services for certain
15
<PAGE>
customers. Project-based services, however, are frequently short-term and
there can be no assurance that these clients will continue existing projects
or provide new ones.
Gross profit earned on revenues increased $10.3 million, or 77.6%, for
the quarter and $23.5 million, or 73.6%, for the nine month period ended
September 30, 1998 versus the prior year periods. The increases in gross
profit are primarily due to the addition of ATC's revenues as a result of the
Merger. Gross profit as a percentage of revenues ("gross margin") for the
quarter and nine months ended September 30, 1998 was 32.3% and 34.1%,
respectively, versus 33.9% and 34.7% in the comparable three and nine month
periods of the prior year, respectively. The decreases in gross margin for
the three and nine months ended September 30, 1998 as compared with the
comparable prior year periods were primarily due to the impact of the
addition of ATC's revenues which are characterized by lower gross margins
than those of IQI.
During the quarter ended September 30, 1998, the Company renegotiated
its tariff with its primary telecommunications carrier and consolidated the
prior contract tariffs of the combined company. The new tariff went into
effect subsequent to the end of the quarter and is expected to reduce the
Company's cost of services as a percentage of revenues.
Selling, general and administrative expenses ("SG&A") increased $6.6
million, or 63.5%, in the quarter and $15.9 million, or 63.7% in the nine
months ended September 30, 1998 versus the prior year periods. The increases
in SG&A are primarily attributable to the Merger with ATC. As a percentage
of revenues, SG&A expenses for the quarter and nine months ended September
30, 1998 were 23.3% and 25.1%, respectively, versus 26.6% and 27.1% in the
comparable three and nine month periods of the prior year, respectively. The
decreases in SG&A as a percentage of revenues were primarily the result of
efficiencies of scale derived from growth in business volumes.
Depreciation expense increased $1.9 million, or 165.2%, in the quarter
and $4.0 million, or 136.2%, in the nine months ended September 30, 1998
versus the comparable prior year periods. As a percentage of revenues,
depreciation expense for the three and nine months ended September 30, 1998
was 4.2% versus 3.0% and 3.2% in the comparable prior year periods. The
increases in depreciation expense as a percentage of revenues were due to
additional depreciation expense resulting from investments in three new
client service centers, information technology and infrastructure.
Amortization expense increased $0.2 million, or 33.8%, in the quarter
and $1.0 million, or 95.0%, in the nine months ended September 30, 1998
versus the comparable prior year periods as a result of the additional
goodwill recorded in the Merger and in the InterServ Acquisition. As a
percentage of revenues, amortization expense for the three and nine months
ended September 30, 1998 was 1.1% and 1.2%, respectively, versus 1.5% and
1.1% in the comparable prior year periods.
In connection with the Merger, the Company recorded restructuring and
other charges of $3.6 million ($2.3 million, net of taxes) in the quarter
ended September 30, 1998. These charges are primarily attributable to
one-time write-offs of redundant software, severance costs and the
consolidation of certain administrative functions including costs to relocate
offices and employees. Management expects the majority of restructuring
efforts to be achieved by December 31, 1998, with completion of the remainder
anticipated by March 31, 1999.
Net interest expense increased for the three and nine month periods
ended September 30, 1998 by $0.6 million, or 52.4%, and $1.8 million, or
80.0%, respectively, versus the same periods in the previous year due to
increased utilization of the Company's revolving line of credit and the
assumption of additional subordinated indebtedness.
Non-cash interest expense related to the beneficial conversion feature
in the subordinated debt financing provided by the Thayer-led group in July
1998 was recognized in July 1998. Non-cash interest expense of $3.1 million
was recorded at the issuance date. See "Notes to Unaudited Consolidated
Financial Statements -- 3. Effect of Restatement".
16
<PAGE>
The Company's effective state and federal income tax rates for the three
and nine month periods ended September 30, 1998 was approximately 37.5%
versus 49.5% for the three and nine month periods ended September 30, 1997.
Fluctuations in the Company's effective tax rate were primarily due to the
impact of income-based state taxes on periods with a taxable loss versus
periods with taxable income. The Company's expense for acquisition goodwill
amortization is not deductible for income tax purposes, thus the effective
tax rate exceeds the statutory rate for corporations. Fluctuations in the
Company's effective tax rates were primarily due to income-based state taxes.
Management knows of no trends or uncertainties other than those
mentioned above that are expected to have a material favorable or unfavorable
impact on operating results.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain information from the Company's
statements of cash flows for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1997 1998
-------- --------
<S> <C> <C>
Net cash provided by operating activities $ 1,843 $ 1,239
Net cash used in investing activities (19,498) (11,050)
Net cash provided by financing activities 17,932 11,523
Effect of exchange rate on cash - 20
-------- --------
Net decrease in cash and cash equivalents $ 277 $ 1,732
-------- --------
</TABLE>
The Company has historically utilized cash flow from operations and
available borrowing capacity under credit facilities to meet its liquidity
needs. Management believes the Company currently has the liquidity and
access to working capital to meet its near-term cash flow demands through
operating income and borrowings under the Credit Agreement.
During the nine months ended September 30, 1998, net cash provided by
operating activities decreased $0.6 million, or 32.8%, versus the nine months
ended September 30, 1997, primarily due to a pre-tax loss of $2.1 million in
the nine months ended September 30, 1998 as compared to a pre-tax profit of
$0.7 million in the nine months ended September 30, 1997. The decline in
pre-tax income was due primarily to a $1.8 million increase in interest
expense.
Cash used in investing activities during the nine months ended September
30, 1998 totaled $11.1 million, representing a 43.3% decrease from the nine
months ended September 30, 1997. These expenditures primarily consisted of
new telecommunications equipment and information technology hardware and
software required in the maintenance, upgrade and expansion of the Company's
operations including the build-out of new client service centers and the
upgrade or replacement of workstations in the Company's existing facilities.
Capital expenditures during the last two years totaled $13.9 million and have
been funded with proceeds from bank borrowings, subordinated indebtedness and
excess cash from operations.
During the nine months ended September 30, 1998, financing activities
included borrowing activity under the Company's credit facilities, bridge
financing guaranteed by Thayer Equity Investors III, L.P. ("Thayer") and the
securing of capital lease obligations.
17
<PAGE>
In connection with the Merger, IQI entered into a Second Amended and
Restated Credit Agreement dated as of July 9, 1998 (the "Credit Agreement")
with The Bank of Nova Scotia ("Scotiabank") and Credit Suisse First Boston
("CSFB") whereby Scotiabank and CSFB rolled over and continued their loan
commitments to IQI aggregating $53.0 million and Scotiabank committed to
provide IQI an additional $12.0 million in revolving loans, resulting in a
total facility of $65.0 million. The proceeds of the additional loan were
used to refinance the bank indebtedness of Advanced Telemarketing
Corporation, a wholly-owned subsidiary of ATC ("Advanced"), to pay
transaction expenses, and for general corporate and working capital needs of
IQI and Advanced. As part of the amendment of the Credit Agreement, the
Company and Advanced agreed to guarantee the IQI indebtedness and grant
blanket security interests in their assets to secure repayment of the banks'
loans. The Company also pledged its shares of Advanced common stock to the
banks to secure repayment of the banks' loans.
The Credit Agreement contains various covenants that limit, among other
things, the operating subsidiaries' indebtedness, capital expenditures,
investments, payments and dividends to the Company and requires the operating
subsidiaries to meet certain financial covenants. Similarly, under the terms
of the Company's guaranty of its operating subsidiaries' obligations, the
Company is subject to certain covenants limiting, among other things, its
ability to incur indebtedness, enter into guaranties, and acquire other
companies. The Credit Agreement is secured by liens on the operating
subsidiaries' accounts receivable, furniture and equipment, and is guaranteed
by the Company.
In connection with the Merger, Thayer provided $6.8 million in
subordinated indebtedness (the "Subordinated Indebtedness") as well as a
guarantee for $2.0 million in bridge financing to assist in funding the
Company's working capital needs. This subordinated indebtedness is
convertible into shares of the Company's Common Stock at a conversion price
of $2.00 per share. In connection with the guarantee, and for additional
consideration of $110,000, the Company issued to Thayer warrants to purchase
1,100,000 shares of the Company's Common Stock at an exercise price of $1.96.
See Note 3 to the Unaudited Consolidated Financial Statements regarding the
existence of a beneficial conversion feature related to this debt.
On July 6, 1998, the Company received an additional financing commitment
from Thayer and certain other shareholders of IQI. Under the commitment, the
Thayer-led group agreed to lend the Company, at its election, up to an
additional $4.0 million in subordinated indebtedness at any time within 90
days after the Merger. In connection with this commitment and effective upon
the Merger, the Company issued the Thayer-led group additional warrants to
purchase up to 350,000 shares of the Company's Common Stock at an exercise
price of $2.375 per share and provided certain anti-dilution protection. The
Thayer-led group's obligation to fund the debt and the Company's obligation
to issue the warrants are subject to customary conditions. The additional
indebtedness, when and if drawn, is convertible into the Company's Common
Stock at a conversion price of $2.375 per share. See Note 3 to the Unaudited
Consolidated Financial Statements regarding the existence of a beneficial
conversion feature related to this debt. Such debt would be in addition to,
and on the same basic terms as, the subordinated debt that Thayer had
previously committed to lend to the Company. As of October 23, 1998, the
Company had drawn the full commitment amount of $4.0 million.
The Merger Agreement also contains a provision extending the maturity
date of one-half of the principal amount of the promissory note payable to
the Company by Michael G. Santry, the Company's Co-Chairman, to March 31,
1999. At September 30, 1998, the principal and accrued but unpaid interest
on the note totaled approximately $1.9 million.
The Company operates in a fast-growing, highly competitive industry. As
such, the Company continues to implement its site strategy, which focuses on
smaller call centers in what management
18
<PAGE>
believes are more economically attractive markets than those in which the
Company has traditionally operated. Company growth and continued
implementation of the site strategy will necessitate additional call center
facilities and such facilities will have furniture, equipment and
technological requirements consistent with the Company's existing facilities.
In November 1998, the Company opened a new client service center in Elkins,
West Virginia. Management anticipates opening additional new centers and
expanding existing facilities in calendar 1999.
In addition to traditional growth strategies, management has been
pursuing opportunities for growth through acquisition of other teleservices
companies. The Company believes that the Merger evidences management's
commitment to the Company's strategy of growth through acquisition. From
time to time, Aegis engages in discussions with potential acquisition
candidates. Although there can be no assurances that any proposed
acquisition will be successfully completed, management requires that any
acquisition candidate fit the Company's corporate and operating strategies.
Due to the known risk of computational errors with respect to computer
systems utilizing dates after December 31, 1999, the Company is currently in
the process of assessing its information technology infrastructure to prepare
for any potential Year 2000 impact with its clients and suppliers. The
Company expects to complete its assessment of potential Year 2000 impact in
the fourth quarter of 1998. Although the Company has yet to finalize its
estimate of the total costs needed for Year 2000 compliance, it does not
expect that these costs will have a material impact on its results of
operations and financial position. Although Aegis is committed to making its
information technology infrastructure Year 2000 compliant as soon as
practical, it is uncertain as to the extent its clients and suppliers may be
affected by Year 2000 issues that may cause disruptions in their businesses.
As a part of its program to achieve Year 2000 compliance, the Company is
contacting its clients and suppliers to determine the nature and scope of
their Year 200 issues and their potential impact on the Company, if any. The
Company will seek to work with its clients and suppliers to resolve any such
issues. The success of the Company's efforts will depend, in significant
part, upon factors outside the control of the Company, such as the level of
client or supplier cooperation and the status of the clients' own Year 2000
compliance programs. Thus, there can be no assurance that all such problems
will be resolved. The occurrence of Year 2000 related failures in the
computer and information systems of any of the Company's significant clients
or suppliers could have a materially adverse effect on the business, results
of operations, and financial condition of the Company. The Company has not
yet prepared a contingency plan to handle a most reasonably likely worst case
scenario as its assessment has not progressed sufficiently to identify the
breadth of potential Year 2000 issues.
Although no assurances can be made in this regard, management
anticipates that, based on the Company's ability to secure such financing to
date, the Company should be able to secure debt or equity funding for its
future working capital needs, the capital equipment requirements of future
client service center facilities and potential acquisition opportunities.
19
<PAGE>
FORWARD LOOKING STATEMENTS
The following is a "safe harbor" statement under the Private Securities
Litigation Reform Act of 1995: Statements contained in this document that are
not based on historical facts are "forward-looking statements". Terms such
as "anticipates", "believes", "estimates", "expects", "plans", "predicts",
"may", "should", "will", the negative thereof and similar expressions are
intended to identify forward-looking statements. Such statements are by
nature subject to uncertainties and risks, including but not limited to: the
Company's reliance on certain major clients; the successful combination of
revenue growth with operating expense reduction to result in improved
profitability and cash flow; realizing anticipated synergies as a result of
the Merger; the Company's ability to complete its restructuring by March 31,
1999; avoiding unexpected accounting charges or other costs that would make
the Merger dilutive to earnings; government regulation and tax policy;
economic conditions; competition and pricing; dependence; and other
operational, financial or legal risks or uncertainties detailed in the
Company's SEC filings from time to time.
20
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
Other than ordinary routine litigation incidental to its business, and as
described below, neither the Company nor its operating subsidiary is party to,
nor are their properties the subject of, any material pending legal proceedings.
From time to time, the Company is involved in litigation incidental to its
business. The Company believes that such litigation, individually or in the
aggregate, is not likely to have a material adverse effect on the Company's
results of operations or financial condition.
On April 14, 1998, a complaint was filed in the Court of Chancery in
Delaware by Dore Kreisler against ATC, the directors of ATC and IQI seeking
"injunctive and other appropriate relief" in connection with the proposed
merger between ATC and IQI. The plaintiff alleges that ATC's directors
breached their fiduciary duties to plaintiff and the class of ATC
shareholders by, among other things, not conducting "an auction process or
active market check" and that consequently, the exchange ratio set forth in
the merger agreement between ATC and IQI is unfair to ATC's shareholders.
IQI is included as a defendant for allegedly aiding and abetting the ATC
board's alleged breach of fiduciary duties. The Company believes the
case is without merit and intends to defend itself against the claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of stockholders on July 9, 1998, at
which there were 16,601,867 shares present or represented by proxy, which was
equal to approximately 75.9% of the shares entitled to vote. At such
meeting, the following matters were approved by the requisite vote:
1. The Merger of Sub with and into IQI, pursuant to the terms and
subject to the conditions of the Merger Agreement, which resulted in
IQI becoming a wholly-owned subsidiary of ATC, was approved by the
affirmative vote of 5,593,576 shares, with 145,451 shares voting
against, 42,155 shares abstaining and 10,820,685 broker non-votes;
2. An amendment to the ATC Amended and Restated Certificate of
Incorporation (the "ATC Charter") to increase the number of authorized
shares of ATC Common Stock from 27,500,000 to 100,000,000 was approved
by the affirmative vote of 15,916,448 shares, with 587,867 shares
voting against, 97,522 shares abstaining and no broker non-votes;
3. An amendment to the ATC Charter changing the name of the company
from ATC Communications Group, Inc. to "Aegis Communications Group,
Inc." was approved by the affirmative vote of 16,267,433 shares, with
251,827 shares voting against, 82,607 shares abstaining and no broker
non-votes;
4. The ATC 1998 Stock Option Plan was approved by the affirmative vote
of 4,510,023 shares, with 1,106,253 shares voting against, 164,906
shares abstaining and 10,820,685 broker non-votes;
5. The selection of PricewaterhouseCoopers LLP to serve as ATC's
independent auditors for the 1998 fiscal year was ratified by the
affirmative vote of 16,459,883 shares, with 65,256 shares voting
against, 76,728 shares abstaining and no broker non-votes; and
21
<PAGE>
6. The following board of directors of the Company were elected to
serve until each of their respective successors shall have been duly
elected and qualified. The number of votes cast for and withheld for
each director were as follows:
<TABLE>
<CAPTION>
VOTES CAST
---------------------------
NOMINEE FOR WITHHELD
- ---------------------------- ---------- --------
<S> <C> <C>
Michael G. Santry 16,293,071 308,796
Paul G. Stern 16,325,067 276,800
Stephen A. McNeely 16,325,067 276,800
Matthew S. Waller 16,325,067 276,800
Edward Blank 16,325,067 276,800
Daniel H. Chapman 16,325,067 276,800
Drew Lewis 16,325,067 276,800
David L. Malcolm 16,325,067 276,800
Frederic V. Malek 16,325,067 276,800
William G. Moore, Jr. 16,325,067 276,800
Darryl D. Pounds 16,293,071 308,796
Peter V. Ueberroth 16,325,067 276,800
</TABLE>
In addition, at the annual meeting, the proposed amendment to the ATC
Charter to classify the board of directors into three classes of four
directors each failed, with 5,039,983 shares voting for, 785,785 shares
voting against, 113,251 shares abstaining and 10,662,848 broker non-votes.
Such matter required a majority vote of all shares eligible to vote at the
annual meeting rather than a simple majority of votes cast.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
Exhibit 3.1 Amended and Restated Certificate of Incorporation
(Incorporated by reference from the Company's Form 10-K
Annual Report for the year ended June 30, 1998).
Exhibit 3.2 Amended and Restated Bylaws (Incorporated by reference
from the Company's Form 10-K Annual Report for the year
ended June 30, 1998).
Exhibit 4.1 Specimen of Share Certificate of Company's Common Stock
(filed herewith).
Exhibit 4.2 Form of Series B Preferred Stock certificate, as
amended. (Incorporated by reference from the Company's
Form 10-K Annual Report for the year ended June 30,
1994).
22
<PAGE>
Exhibit 4.3 Form of Series C Preferred Stock certificate issued to
Codinvest Limited with attached designations.
(Incorporated by reference from Company's Form 8-K
Current Report dated June 16, 1994).
Exhibit 4.4 1992 Stock Option Plan as amended (Incorporated by
reference from Company's Form S-8 Registration
Statement - File No. 333-01131).
Exhibit 4.5 1996 Stock Option Plan as amended (Incorporated by
reference from Company's Form S-8 Registration
Statement - File No. 333-01131).
Exhibit 4.6 1998 Stock Option Plan (Incorporated by reference from
Company's Form S-4 Registration Statement - File No.
333-53887 - Appendix D to the Joint Proxy/Prospectus).
Exhibit 10.20 Promissory Note by and between Aegis Communications
Group, Inc. and Thayer Equity Investors III, L.P. dated
July 9, 1998 in the original principal amount of
$6.8 million (filed herewith).
Exhibit 10.21 Promissory Note by and between Aegis Communications
Group, Inc. and Thayer Equity Investors III, L.P. dated
July 29, 1998 in the original principal amount of
$1.9 million (substantially identical in all material
respects, except for dates and principal amount, to
the Promissory Note referred to in Exhibit 10.20).
Exhibit 10.22 Promissory Note by and between Aegis Communications
Group, Inc. and Thayer Equity Investors III, L.P. dated
October 23, 1998 in the original principal amount of
$2.1 million (substantially identical in all material
respects, except for dates and principal amount, to
the Promissory Note referred to in Exhibit 10.20).
Exhibit 27.1 Financial Data Schedule (Restated) (filed herewith).
(B) Reports on Form 8-K
On July 7, 1998, the Company filed a report on Form 8-K reporting, under
"Item 5. - Other Events", that it had received an additional financing
commitment from Thayer Equity Investors III, L.P., a private investment fund
and majority shareholder of ATC's proposed merger partner, IQI, Inc., and
certain other shareholders of IQI. Under the commitment, the Thayer-led
group agreed to lend the combined company, at its election, up to an
additional $4.0 million in subordinated indebtedness at any time within 90
days after the merger.
On July 24, 1998, the Company filed a report on Form 8-K reporting: (i)
under "Item 2. - Acquisition or Disposition of Assets", that on July 9, 1998,
ATC completed the acquisition of IQI; (ii) under "Item 5. - Other Events",
that in connection with the consummation of the Merger, the Company changed
its corporate name to Aegis Communications Group, Inc., which became
effective with the filing of its Amended and Restated Certificate of
Incorporation on July 9, 1998. In addition, the Company changed its Nasdaq
National Market System ticker symbol to "AGIS," effective July 13, 1998; and
(iii) under "Item 5. -- Other Events", that in connection with the Merger,
IQI entered into a Second Amended and Restated Credit Agreement dated as of
July 9, 1998 with The Bank of Nova Scotia and Credit Suisse First Boston.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
AEGIS COMMUNICATIONS GROUP, INC.
(The Registrant)
Dated: November 8, 1999 By: /s/ Matthew S. Waller
-------------------------------
Matthew S. Waller
Chief Financial Officer
9/30/98 Quarter
24
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EXHIBITS INDEX
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<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
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Exhibit 3.1 Amended and Restated Certificate of Incorporation
(Incorporated by reference from the Company's Form 10-K
Annual Report for the year ended June 30, 1998).
Exhibit 3.2 Amended and Restated Bylaws (Incorporated by reference from
the Company's Form 10-K Annual Report for the year ended
June 30, 1998).
Exhibit 4.1 Specimen of Share Certificate of Company's Common Stock
(filed herewith).
Exhibit 4.2 Form of Series B Preferred Stock certificate, as amended.
(Incorporated by reference from the Company's Form 10-K
Annual Report for the year ended June 30, 1994).
Exhibit 4.3 Form of Series C Preferred Stock certificate issued to
Codinvest Limited with attached designations. (Incorporated
by reference from Company's Form 8-K Current Report dated
June 16, 1994).
Exhibit 4.4 1992 Stock Option Plan as amended (Incorporated by reference
from Company's Form S-8 Registration Statement - File No.
333-01131).
Exhibit 4.5 1996 Stock Option Plan as amended (Incorporated by reference
from Company's Form S-8 Registration Statement - File No.
333-01131).
Exhibit 4.6 1998 Stock Option Plan (Incorporated by reference from
Company's Form S-4 Registration Statement - File No.
333-53887 - Appendix D to the Joint Proxy/Prospectus).
Exhibit 10.20 Promissory Note by and between Aegis Communications Group,
Inc. and Thayer Equity Investors III, L.P. dated July 9, 1998
in the original principal amount of $6.8 million (filed
herewith).
Exhibit 10.21 Promissory Note by and between Aegis Communications Group,
Inc. and Thayer Equity Investors III, L.P. dated July 29,
1998 in the original principal amount of $1.9 million
(substantially identical in all material respects, except
for dates and principal amount, to the Promissory Note
referred to in Exhibit 10.20).
Exhibit 10.22 Promissory Note by and between Aegis Communications Group,
Inc. and Thayer Equity Investors III, L.P. dated October 23,
1998 in the original principal amount of $2.1 million
(substantially identical in all material respects, except
for dates and principal amount, to the Promissory Note
referred to in Exhibit 10.20).
Exhibit 27.1 Financial Data Schedule (Restated) (filed herewith).
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 7,020
<SECURITIES> 0
<RECEIVABLES> 60,761
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 72,558
<PP&E> 51,694
<DEPRECIATION> 17,924
<TOTAL-ASSETS> 189,150
<CURRENT-LIABILITIES> 33,301
<BONDS> 75,488
0
0
<COMMON> 523
<OTHER-SE> 76,795
<TOTAL-LIABILITY-AND-EQUITY> 189,150
<SALES> 0
<TOTAL-REVENUES> 162,393
<CGS> 0
<TOTAL-COSTS> 107,056
<OTHER-EXPENSES> 53,302
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,244
<INCOME-PRETAX> (5,209)
<INCOME-TAX> (37)
<INCOME-CONTINUING> (5,172)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,172)
<EPS-BASIC> (0.14)
<EPS-DILUTED> (0.14)
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