<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended MARCH 31, 2000.
[ ] 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.
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NUMBER OF SHARES OUTSTANDING
------------------- ON MAY 5, 2000
----------------------------
<S> <C>
COMMON STOCK $.01 PAR VALUE 52,046,051
</TABLE>
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
MARCH 31, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
December 31, 1999 and March 31, 2000 (unaudited).............3
Unaudited Consolidated Statements of Operations
Three Months Ended March 31, 1999 and March 31, 2000.........5
Unaudited Consolidated Statements of Cash Flows
Three Months Ended March 31, 1999 and March 31, 2000.........6
Notes to Unaudited Consolidated Financial Statements...............7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.....................11
Item 3. Quantitative and Qualitative Disclosures about Market Risk........16
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders...............17
Item 5. Other Information.................................................18
Item 6. Exhibits and Reports on Form 8-K..................................18
SIGNATURES...........................................................................19
</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, MARCH 31,
1999 2000
------------ ------------
(UNAUDITED)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 6,043 $ 1,249
Accounts receivable - trade, less allowance for doubtful
accounts of $1,058 in 1999 and $790 in 2000 54,839 63,212
Current deferred tax assets 715 715
Prepaid expenses and other current assets 2,417 2,016
------------ ------------
Total current assets 64,014 67,192
Property and equipment, net of accumulated depreciation
of $32,175 in 1999 and $35,103 in 2000 33,488 35,095
Cost in excess of net assets acquired, net of accumulated
amortization of $5,461 in 1999 and $6,055 in 2000 48,203 47,609
Deferred tax assets 12,884 12,751
Deferred financing costs, net 1,762 1,635
Other assets 234 233
------------ ------------
$ 160,585 $ 164,515
============ ============
</TABLE>
See accompanying notes.
3
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ ------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Current portions of long-term obligations $ 2,243 $ 1,943
Accounts payable 6,332 6,909
Accrued compensation expense and related liabilities 5,629 6,764
Accrued interest expense 250 487
Other accrued expenses 10,464 9,534
Other current liabilities 2,380 2,009
------------ ------------
Total current liabilities 27,298 27,646
Revolving line of credit 32,334 36,333
Long-term obligations, net of current portions 1,554 1,195
Subordinated indebtedness due to affiliates 9,801 10,074
Commitments and contingencies - -
Redeemable convertible preferred stock 41,970 43,093
46,750, 9.626% cumulative Series F shares issued and outstanding in 1999
and 2000
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized; 29,778
convertible, $.36 cumulative Series B shares issued and outstanding in
1999 and 2000; 83,206 and 86,309, 15% cumulative Series D shares issued
and outstanding in 1999 and 2000, respectively; and, 47,381 and 49,148,
15% cumulative Series E shares issued and
outstanding in 1999 and 2000, respectively 2 2
Common stock, $.01 par value, 100,000,000 shares
authorized; 52,492,616 and 52,560,616 shares issued and
outstanding in 1999 and 2000, respectively, including
761,000 treasury shares in 1999 and 2000 525 525
Additional paid-in capital 92,882 93,438
Treasury shares, at cost (1,918) (1,918)
Cumulative translation adjustment 88 88
Retained deficit (43,951) (45,961)
------------ ------------
Total shareholders' equity 47,628 46,174
------------ ------------
$ 160,585 $ 164,515
============ ============
</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 MARCH 31,
----------------------------
1999 2000
------------ ------------
<S> <C> <C>
Revenues $ 61,815 $ 72,569
Cost of services, excluding depreciation
and amortization shown below 43,827 51,200
------------ ------------
Gross profit 17,988 21,369
Selling, general and administrative expenses 16,695 16,776
Depreciation 3,140 3,055
Acquisition goodwill amortization 873 594
Non-cash asset impairment charge 20,399 --
Restructuring and other non-recurring charges 541 --
------------ ------------
Total operating expenses 41,648 20,425
------------ ------------
Operating income (loss) (23,660) 944
Interest expense, net 1,741 1,193
------------ ------------
Loss before income taxes (25,401) (249)
Income tax expense (benefit) (1,571) 148
------------ ------------
Net loss (23,830) (397)
Preferred stock dividends -- 1,612
------------ ------------
Net loss after preferred stock dividends $ (23,830) $ (2,009)
============ ============
Basic and diluted loss per share of common stock $ (0.46) $ (0.04)
============ ============
Weighted average shares of common stock outstanding 51,950 51,754
</TABLE>
See accompanying notes.
5
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 2000
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (23,830) $ (397)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 4,013 3,649
Deferred income taxes (1,571) 133
Non-cash asset impairment charge 20,399 --
Other 8 (3)
Changes in operating assets and liabilities:
Accounts receivable (2,710) (8,373)
Notes receivable -- related parties (27) --
Prepaid and other current assets (548) 401
Other assets (97) --
Accounts payable and other accrued liabilities 3,024 1,020
Other current liabilities (882) (372)
------------ ------------
Net cash used in operating activities (2,221) (3,942)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,012) (4,534)
------------ ------------
Net cash used in investing activities (3,012) (4,534)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable, net -- 4,000
Proceeds from affiliate debt 6,092 273
Principal payments on long-term debt (2,921) --
Payments on capital lease obligations (533) (659)
Proceeds from exercise of stock options -- 68
------------ ------------
Net cash provided by financing activities 2,638 3,682
------------ ------------
Net decrease in cash and cash equivalents (2,595) (4,794)
Cash and cash equivalents at beginning of period 10,701 6,043
------------ ------------
Cash and cash equivalents at end of period $ 8,106 $ 1,249
============ ============
SUPPLEMENTAL INFORMATION ON NON-CASH FINANCING
ACTIVITIES:
Conversion of dividends into preferred instruments $ -- $ 1,612
</TABLE>
See accompanying notes.
6
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS AND WHERE NOTED)
1. SIGNIFICANT ACCOUNTING POLICIES
The accompanying unconsolidated financial statements of Aegis
Communications Group, Inc. and its subsidiaries (the "Company") for the three
month periods ended March 31, 1999 and 2000, have been prepared in accordance
with generally accepted accounting principles and, 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 periods
indicated. Significant accounting policies followed by the Company were
disclosed in the notes to the consolidated financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999. The
consolidated results of operations for the periods reported are not necessarily
indicative of the results to be experienced for the entire current year.
2. SALE OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
On December 10, 1999, the Company completed the sale of 46,750 shares
of newly issued Preferred F senior voting convertible preferred stock to Questor
Partners Fund II, L.P., Questor Side-by-Side Partners II, L.P., and Questor
Side-by-Side Partners II 3(c)(1), L.P. (collectively the "Questor Investors")
for an aggregate purchase price of $46,750. The Questor Investors obtained the
funds used to acquire the Series F Preferred Stock through capital contributions
by their partners. The Company used the net proceeds from the sale of the
Preferred F Shares to repay outstanding bank debt and pay transaction expenses.
The dividends on the Preferred F Shares, to the extent that dividends have not
been paid, are added to the investment value of such shares. The Preferred F
Shares are convertible into shares of Common Stock on the basis of one share of
Common Stock per $1.00 of investment value of the Preferred F Shares. The
Preferred F Shares have a liquidation preference equal to the investment value
of such shares. As a result of the sale of the Preferred F Shares and subsequent
increases to the investment value of such shares, on an as-converted basis, the
Questor Investors collectively beneficially own approximately 48% of the
Company's issued and outstanding Common Stock and approximately 38% of the
Company's Common Stock and Common Stock equivalents outstanding at March 31,
2000. The Preferred F Shares vote on an as-converted basis and represent
approximately 48% of the voting equity stock. Because the Preferred F Shares are
redeemable at the option of the Questor Investors in the event of a change of
control, the Series F Preferred Stock is classified as neither a debt nor an
equity instrument on the balance sheet at March 31, 2000.
3. PREFERRED STOCK DIVIDENDS
Shares of the Company's Series B Voting Convertible Preferred Stock
(the "Preferred B Shares") earn dividends payable in cash at the annual rate of
$0.36 per share. The Company's Series D and E Preferred Stock earn cumulative
dividends payable in-cash or in-kind in additional shares of the respective
series of Preferred Stock at the annual rate of 15%. Shares of the Company's
Series F Senior Voting Convertible Preferred Stock (the "Preferred F Shares")
are entitled to receive dividends, in preference to all other capital stock of
the Company, except for the Preferred B Shares, at the rate of 9.626% per annum,
which accrue and cumulate from their original issue date. The dividends on the
Preferred F Shares accrue on each share from its issuance on a daily basis,
whether or not earned or declared. To the extent that dividends have not been
paid in-cash on any March 31, June 30, September 30 or December 31 of any year,
all such dividends are added to the investment value of each share. The
7
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS AND WHERE NOTED)
Preferred F Shares also participate, on an as-converted basis, with the Common
Stock in any dividends that may be declared and paid after the payment of
preferential dividends. For the three months ended March 31, 2000, accrued
dividends on the Series D and E Preferred Stock were paid in-kind and accrued
dividends on the Preferred F Shares were added to the investment value of such
shares.
4. SEGMENTS
The Company has adopted SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." The Company classifies its operations
into two segments, customer solutions and marketing research, which are
managed separately because each provide different services. The accounting
policies of the operating segments are the same as described in the summary
of significant accounting policies disclosed in the notes to the consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1999. The customer solutions segment provides
large corporations as well as emerging e-commerce companies with
multi-channel customer interaction support including Internet-enabled
customer care and inbound and outbound call handling services including
customer service, help desk, customer acquisition and retention, multilingual
communications programs, facilities management, order provisioning, and
database management. The marketing research segment provides its clients,
representing a broad range of industries, with customized marketing research
including customer satisfaction studies, quantitative and qualitative
research, new product development, data management and field marketing
services such as mystery shopping. Business segment information is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------
1999 2000
------------ ------------
<S> <C> <C>
REVENUES:
Customer solutions $ 56,108 $ 65,959
Marketing research 5,707 6,610
------------ ------------
Total $ 61,815 $ 72,569
============ ============
OPERATING INCOME (LOSS):
Customer solutions $ (2,186) $ 1,736
Marketing research (534) (792)
Non-cash asset impairment charge (20,399) --
Restructuring and other charges (541) --
------------ ------------
Total $ (23,660) $ 944
============ ============
DEPRECIATION AND AMORTIZATION:
Customer solutions $ 2,970 $ 2,943
Marketing research 170 112
Acquisition goodwill amortization 873 594
------------ ------------
Total $ 4,013 $ 3,649
============ ============
TOTAL ASSETS:
Customer solutions $ 145,618 $ 149,892
Marketing research 15,884 14,623
------------ ------------
Total $ 161,502 $ 164,515
============ ============
</TABLE>
8
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS AND WHERE NOTED)
5. RESTRUCTURING AND OTHER NON-RECURRING CHARGES
On July 9, 1998, ATC Communications Group, Inc. ("ATC") completed
the acquisition of IQI, Inc., a New York corporation ("IQI") to form Aegis
Communications Group, Inc. ("Aegis"). The acquisition was effected through
the merger (the "Merger") of a wholly-owned subsidiary of ATC with and into
IQI pursuant to an Agreement and Plan of Merger, dated as of April 7, 1998
(the "Merger Agreement"). On July 29, 1998, the Company announced that it
would record pre-tax restructuring charges of $13,000 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 was recorded to the extent the related amounts had 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 were not accrued, but were recognized as the
related expenses were incurred. Accordingly, the Company recorded pre-tax
charges of approximately $8,395 ($5,247, net of taxes) in the year ended
December 31, 1999 and approximately $541 ($330, net of taxes) in the quarter
ended March 31, 1999, as a part of the total restructuring. These charges
were primarily attributable to one-time write-offs of redundant hardware and
software, severance costs and the consolidation of certain administrative
functions including costs to relocate offices and employees.
6. NON-CASH ASSET IMPAIRMENT CHARGE
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS No. 121"), which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are
present and the estimated future cash flows (undiscounted and without
interest charges) estimated to be generated by those assets are less than the
assets' carrying value. SFAS No. 121 also requires that when a group of
assets being tested for impairment was acquired as part of a business
combination that was accounted for using the purchase method of accounting,
any goodwill that arose as part of the transaction must be included as part
of the asset grouping. In accordance with SFAS No. 121, the Company reviews
long-lived assets whenever events or changes in facts and circumstances
indicate that the carrying value of the assets may not be recoverable. As a
result of the performance of the Company's Elrick & Lavidge ("E&L") marketing
research division since its acquisition (in a purchase accounting
transaction) by IQI in July 1997, in the first quarter of 1999, the Company
performed an analysis (based on E&L's estimated future cash flows) of the
carrying value of the goodwill associated with the purchase of E&L. As a
result of this evaluation, it was determined that the carrying value of the
goodwill associated with the purchase of E&L was impaired. Accordingly, in
the quarter ended March 31, 1999, the Company adjusted the carrying value of
E&L's long-lived assets to their fair value resulting in a non-cash asset
impairment charge of $20,399, which reduced the amount of goodwill on the
Company's balance sheet. This reduction has resulted in a decrease in the
Company's goodwill amortization expense of approximately $1,100 annually.
9
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS AND WHERE NOTED)
7. EFFECT OF RESTATEMENT
The Company has restated its September 30, 1998 through September 30,
1999 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 Investors III, L.P. ("Thayer Equity")
in July 1998. This beneficial conversion feature, which was not originally
recognized, resulted in a non-cash interest expense charge of $3,092 at the
issuance date of the debt in the September 30, 1998 restated financial
statements.
In connection with the restatement, the Company determined the fair
value of the beneficial conversion feature to be $3,092 based on its fair value
at the issuance date and recorded the discount for the beneficial conversion
feature as paid in capital. As the $8,700 in subordinated debt was immediately
convertible upon issuance, the Company recognized $3,092 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.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The accompanying unaudited 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 periods
indicated. 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 certain statements of operations data as
a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------
1999 2000
------------ ------------
<S> <C> <C>
Revenues 100.0% 100.0%
Cost of services, excluding depreciation
and amortization shown below 70.9% 70.6%
------------ ------------
Gross profit 29.1% 29.4%
Selling, general and administrative expenses 27.0% 23.1%
Depreciation 5.1% 4.2%
Acquisition goodwill amortization 1.4% 0.8%
Non-cash asset impairment charge 33.0% --
Restructuring and other non-recurring charges 0.9% --
------------ ------------
Total operating expenses 67.4% 28.1%
------------ ------------
Operating income (loss) (38.3)% 1.3%
Interest expense, net 2.8% 1.6%
------------ ------------
Loss before income taxes (41.1)% (0.3)%
Income tax expense (benefit) (2.5)% 0.2%
------------ ------------
Net loss (38.6)% (0.5)%
Preferred stock dividends -- 2.2%
------------ ------------
Net loss after preferred stock dividends (38.6)% (2.7)%
============ ============
</TABLE>
We experienced a net loss after preferred stock dividends of $2.0
million, or 2.7% of revenues, for the quarter ended March 31, 2000 as compared
to a net loss of approximately $23.8 million, or 38.6% of revenues, for the
quarter ended March 31, 1999. Excluding an approximately $20.4 million non-cash
asset impairment charge ($20.4 million, net of taxes) and $0.5 million ($0.3
million, net of taxes) of restructuring and other non-recurring charges, the net
loss after preferred stock dividends was approximately $3.1 million, or 5.0% of
revenues, in the first quarter of 1999.
Total revenues generated during the quarter ended March 31, 2000 were
$72.6 million as compared to $61.8 million in the first quarter a year ago,
representing an increase of approximately $10.8 million, or 17.4%. The increase
in revenues for the quarter is due primarily to inbound customer solutions
revenues, which increased approximately $18.0 million, or 72%. This increase was
somewhat offset by a decline in outbound customer solutions revenues of
approximately $8.1 million, or 26%.
11
<PAGE>
Marketing research revenues increased approximately $0.9 million, or 16% versus
the prior year period. For the quarters ended March 31, 1999 and 2000, our
actual mix of revenues was as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------------------------
1999 % 2000 %
----------- ---------- ----------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Inbound customer solutions $ 25.0 40.5% $ 43.0 59.2%
Outbound customer solutions 31.1 50.3% 23.0 31.7%
----------- -----------
Customer solutions total 56.1 90.8% 66.0 90.9%
Marketing research 5.7 9.2% 6.6 9.1%
=========== ===========
Total revenues $ 61.8 100.0% $ 72.6 100.0%
=========== ===========
</TABLE>
For the quarter ended March 31, 2000, approximately 31% of our revenues
were generated by our largest telecommunications client and approximately 14% by
our largest financial services client, as compared to approximately 23% and 15%,
respectively, for the quarter ended March 31, 1999.
Aegis seeks to secure recurring revenues from long-term relationships
with targeted corporate clients that utilize telecommunications and marketing
research strategies as integral, ongoing elements in their marketing and
customer service programs. In addition to providing services on an outsourcing
basis, in which we provide all or a substantial portion of a client's customer
solutions and/or marketing research needs, we also continue to perform
project-based services for certain clients. 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 increased approximately $3.4 million, or 18.8%, to
approximately $21.4 million in the first quarter of 2000 from approximately
$18.0 million in the first quarter of 1999. The increase in gross profit was
primarily due to the increase in revenues over 1999. Gross profit as a
percentage of revenues ("gross margin") for the first quarter of 1999 was 29.4%
as compared to 29.1% in the year earlier period. The increase in gross margin
was primarily due to lower operating costs resulting from the implementation of
our site migration plan, which we began in the first quarter of 1999 and
completed in the third quarter of 1999.
As part of our site migration plan, we closed our Addison, Texas
facility in August 1999. Work being performed at this center was migrated to two
new client service centers in St. Joseph, Missouri and Sierra Vista, Arizona
during the second quarter of 1999. Our site strategy and center migration plan
focuses on locating client service centers in what management believes are
markets offering lower wage rates, better employee retention and generally lower
operating costs.
Selling, general and administrative ("SG&A") expenses increased
approximately $0.1 million, or 0.5%, from $16.7 million in the first quarter of
1999 to approximately $16.8 million in 2000. SG&A expenses remained relatively
unchanged compared to the first quarter of 1999 due to cost containment
initiatives implemented in the third quarter of 1999. As a percentage of
revenues, SG&A expenses for the first quarter of 2000 were 23.1% versus 27.0% in
the first quarter of 1999. The decrease in SG&A expenses as a percentage of
revenues is primarily attributable to the small increase in SG&A expenses
detailed above coupled with a more pronounced increase in revenues of 17.4%.
Depreciation and amortization expenses decreased approximately $0.4
million, or 9.1%, to $3.6 million in the first quarter of 2000 from $4.0 million
in the first quarter of 1999. As a percentage of revenues, depreciation and
amortization expense was 5.0% in the first quarter of 2000 versus 6.5% in
12
<PAGE>
1999. The decrease in depreciation and amortization expenses as a percentage of
revenues is due primarily to the reduction of acquisition goodwill amortization
expense resulting from a non-cash asset impairment charge taken at March 31,
1999, which reduced acquisition goodwill on the Company's balance sheet by $20.4
million. See "Notes to Unaudited Consolidated Financial Statements - Non-Cash
Asset Impairment Charge."
We recorded pre-tax restructuring charges related to the Merger of $0.5
million ($0.3 million, net of taxes) in the first quarter of 1999. These charges
were primarily attributable to one-time write-offs of redundant hardware and
software, severance costs and the consolidation of certain administrative
functions including costs to relocate offices and employees.
Net interest expense decreased $0.5 million, or 31.5%, in the first
quarter of 2000 versus the first quarter of 1999 due to the reduction of
long-term debt resulting from the use of proceeds from the Company's sale of
$46.75 million of convertible preferred stock on December 10, 1999.
Our statutory state and federal income tax benefit rate for the
quarters ended March 31, 1999 and 2000 was approximately 40.0%. Our effective
tax rate on reported taxable income or loss differs from the statutory rate due
primarily to the non-deductibility, for tax purposes, of our goodwill
amortization expense and of the non-cash asset impairment charge taken at March
31, 1999.
The Company experienced a net loss after preferred stock dividends
of $2.0 million, or $0.04 per share, for the first quarter of 2000 as
compared to a net loss of $23.8 million, or $0.46 per share, in the first
quarter of 1999. Dividends on the Preferred F Shares were not paid in cash,
but were added to the investment value of such shares. See "Notes to
Unaudited Consolidated Financial Statements - Sale of Redeemable Convertible
Preferred Stock." Excluding a non-cash asset impairment charge of $20.4
million ($20.4 million, net of taxes, or $0.39 per share), and restructuring
and other non-recurring charges of $0.5 million ($0.3 million, net of taxes,
or $0.01 per share), the Company experienced a net loss of $3.1 million, or
$0.06 per share, for the period ended March 31, 1999.
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>
THREE MONTHS ENDED MARCH 31,
---------------------------
1999 2000
---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Net cash used in operating activities $ (2.2) $ (3.9)
Net cash used in investing activities (3.0) (4.5)
Net cash provided by financing activities 2.6 3.7
---------- ----------
Net change in cash and cash equivalents $ (2.6) $ (4.8)
========== ==========
</TABLE>
We have historically utilized cash flow from operations, available
borrowing capacity under our credit facilities, subordinated indebtedness
provided by certain of our shareholders (primarily Thayer Equity and the Questor
Investors) and the issuance of convertible preferred stock to meet our liquidity
needs. Thayer Equity has previously provided Aegis with financial support
through subordinated debt financing, the conversion of subordinated debt into
preferred stock, and providing loan guarantees; however, there can be no
assurance, should we experience future liquidity issues, that Thayer Equity will
continue to provide such financial support. We anticipate that the funding
provided
13
<PAGE>
in the Questor Transaction and the resulting increase in our revolving line of
credit availability will enable us to meet our liquidity needs through the end
of the year 2000. See "Questor Transaction" and "Credit Facility" below.
During the quarter ended March 31, 2000, we used $3.9 million in net
cash in our operating activities primarily due to increases in the Company's
accounts receivable resulting from an increase in revenues over the quarter
ended December 31, 1999.
Cash used in investing activities during the first quarter of 2000
increased $1.5 million, or 50.5%, from the same period in 1999 primarily due to
capital expenditures on two new telecommunications switches put into service in
the first quarter of 2000. Capital expenditures primarily have consisted of new
telecommunications equipment and information technology hardware and software
required in the maintenance, upgrade and expansion of our operations including
the build-out of new client service centers and the upgrade or replacement of
workstations in our existing facilities. Capital expenditures during the first
quarter of 2000 were funded with proceeds from bank borrowings under an expanded
revolving line of credit. See "Credit Facility" below.
During the quarter ended March 31, 2000, financing activities consisted
primarily of proceeds of $4.0 million from our bank revolving line of credit and
payments of capital lease obligations of approximately $0.7 million. See "Credit
Facility" below.
QUESTOR TRANSACTION
In an effort to reduce outstanding debt on our balance sheet, thereby
providing us the needed flexibility to renegotiate our bank revolving credit
agreement (and cure then outstanding defaults), and provide access to working
capital to fund future operations, on December 10, 1999, we completed the sale
of 46,750 shares of newly issued Series F Senior Voting Convertible Preferred
Stock (the "Preferred F Shares") to Questor Partners Fund II, L.P., Questor
Side-by-Side Partners II, L.P., and Questor Side-by-Side Partners II 3(c)(1),
L.P. (the "Questor Investors") for an aggregate purchase price of $46.75
million. The Preferred F Shares are entitled to receive dividends, in preference
to all other capital stock of the Company, except for the Company's Series B
Voting Convertible Preferred Stock, par value $0.01 per share (the "Preferred B
Shares"), at the rate of 9.626% per annum, which accrue and cumulate from their
original issue date. The dividends on the Preferred F Shares accrue on each
share from its issuance on a daily basis, whether or not earned or declared. To
the extent that dividends have not been paid in-cash on any March 31, June 30,
September 30 or December 31 of any year, all such dividends are added to the
investment value of such share. The Preferred F Shares also participate, on an
as-converted basis, with the Common Stock in any dividends that may be declared
and paid after the payment of preferential dividends. The Preferred F Shares
vote on an as-converted basis. We used the proceeds from the sale of the
Preferred F Shares to repay outstanding bank debt and pay transaction expenses.
For the three months ended March 31, 2000, accrued dividends on the Preferred F
Shares were added to the investment value of such shares.
As a result of the sale of the Preferred F Shares and subsequent
increases to the investment value of such shares, on an as-converted basis, the
Questor Investors collectively beneficially own approximately 48% of the
Company's issued and outstanding Common Stock and approximately 38% of the
Company's Common Stock and Common Stock equivalents outstanding. The Preferred F
Shares vote on an as-converted basis and represent approximately 48% of our
voting equity stock.
CREDIT FACILITY
In conjunction with the December 10, 1999 closing of the Questor
Transaction and the associated repayment of bank debt, we entered into the Third
Amended and Restated Credit
14
<PAGE>
Agreement with Bank of Nova Scotia ("Scotiabank") and Credit Suisse First Boston
("CSFB"), thereby curing all outstanding defaults. Under the amended agreement,
our lenders expanded their aggregate revolving credit facility commitments from
$30.0 million to $45.0 million at closing. We met certain financial targets in
the fourth quarter of 1999, which resulted in a $1.5 million increase in the
commitment under the credit facility, and we met certain financial targets in
the first quarter of 2000, which resulted in an additional $2.5 million increase
in the commitment. At March 31, 2000 our borrowing availability under the
amended agreement was approximately $10.2 million.
NOTE RECEIVABLE
As of March 31, 2000, Michael G. Santry, one of our directors, owed the
Company approximately $2.1 million, including accrued interest, under a secured
promissory note dated September 16, 1997. The note bears interest at an annual
rate of 7% and is secured by 7,000 shares of our Common Stock, options to
purchase 1,750,000 shares of our Common Stock held by Mr. Santry and other
collateral. The Company has extended the term of the loan until March 31, 2001
and is currently negotiating the terms of such extension with Mr. Santry.
Because Mr. Santry is an affiliate of the Company and the amount of the loan has
been outstanding for more than one year, the balance of the note receivable was
reclassified as a reduction to additional paid-in capital in shareholders'
equity in the fourth quarter of 1999.
GROWTH STRATEGIES
We primarily compete in the customer solutions market that provides
large corporations, as well as emerging e-commerce companies, with outsourced
multi-channel support (customer interaction support across multiple
communications channels including the Internet, e-mail and the telephone). The
customer solutions market is a component of the customer relationship management
("CRM") industry and is spread among many competitors including a large number
of in-house organizations and numerous independent providers like Aegis. The
customer solutions market is very competitive. In order to compete more
effectively in this market, in March 2000, we introduced the Aegis
E.CARE.PLUS-SM- suite of web-enabled customer care capabilities that will
transform a number of our production workstations into multi-channel capable
workstations able to handle a variety of customer interactions, especially
those originating from the Internet. The transformation of such workstations
into e-care stations will require will require capital expenditures and may
require additional borrowing under the Company's existing credit facility.
We also anticipate the continued implementation of our site strategy
and center migration plan, which focuses on locating client service centers in
what we believe are markets offering lower wage rates, better employee retention
and generally lower operating costs. Our growth and continued implementation of
our growth strategies may necessitate additional client service centers and such
facilities will have furniture, equipment and technological requirements
consistent with our existing facilities. Any additional client service centers
will require capital expenditures and may require additional borrowing under the
Company's existing credit facility. In addition, expenses associated with such
centers may temporarily dampen operating income.
Although no assurances can be made in this regard, based on our ability
to secure such financing to date, our current credit facility and anticipated
cash flow from operations, management anticipates that for the foreseeable
future we should be able to sufficiently fund the combination of our future
working capital needs, expenditures associated with the roll-out of our e-care
capabilities, the capital equipment requirements of future client service center
facilities, which we anticipate will be needed in 2000 to meet the capacity
requirements of anticipated growth, and potential acquisition opportunities.
15
<PAGE>
YEAR 2000 ISSUE
The inability of software and computers and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
two-digit year is commonly referred to as the Year 2000 problem. The Year 2000
problem arises from the way dates are recorded and computed in most
applications, operating systems, hardware and embedded chips. If the problem is
not corrected, systems that use a date in its prescribed function may have
failed or produced erroneous results before or on the year 2000 or may fail or
produce erroneous results after the year 2000.
All Year 2000 remediation efforts for our business were completed on
time and within budget estimates without any material adverse impact on our
operations. Through December 31, 1999, we incurred and expensed approximately
$2.3 million in remediation costs associated with our Year 2000 compliance
activities. The total cost associated with required modifications to become Year
2000 compliant has not been material to our financial position to date.
Our internal operations and business are also dependent upon the
computer-controlled systems of third parties such as our suppliers, clients and
other service providers. While problems may arise in the future and we cannot
assure you that we will not have a Year 2000 problem, we are unaware of any
material impact on our business caused by a Year 2000 problem either in our
systems or those of third parties.
The above description of the Year 2000 Issue contains forward-looking
statements including, without limitation, statements relating to our
expectations that are made pursuant to the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. Readers are cautioned that
forward-looking statements contained in the Year 2000 Issue should be read in
conjunction with the Company's disclosures under the heading:
"FORWARD LOOKING STATEMENTS" beginning below.
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: Aegis' reliance on
certain major clients; the successful combination of anticipated revenue growth
with operating expense reduction to result in improved profitability and cash
flow; government regulation and tax policy; economic conditions, competition and
pricing; dependence on Aegis' labor force; reliance on technology, telephone
service dependence; and other operational, financial or legal risks or
uncertainties detailed in Aegis' SEC filings from time to time.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For the period ended March 31, 2000, the Company did not experience any
material changes in market risk exposures that affect the quantitative and
qualitative disclosures presented in the Company's Annual Report on Form 10-K
for the year ended December 31, 1999.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of stockholders on May 4, 2000, at
which there were 38,455,764 common shares and 46,750 Preferred F Shares (the
Preferred F Shares are entitled to vote on an as-converted basis and thus
represented 47,021,242 shares of voting power as of the Company's March 24, 2000
record date) present or represented by proxy, which totaled 85,477,006
as-converted shares, or approximately 86.5% of the shares entitled to vote. At
such meeting, the following matters were approved by the requisite vote:
1. The following 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>
Dean Anderson 85,385,039 91,967
John R. Birk 85,383,239 93,767
Edward Blank 85,366,375 110,631
Robert D. Denious 85,386,539 90,467
Henry L. Druker 85,386,339 90,667
Peter D. Fitzsimmons 85,386,339 90,667
Frederic V. Malek 85,385,939 91,067
Kevin J. Prokop 85,386,339 90,667
Michael G. Santry 84,883,856 593,150
Hugh E. Sawyer 85,362,539 114,467
Paul G. Stern 84,905,192 571,814
David M. Wathen 85,386,339 90,667
</TABLE>
2. An amendment to the 1998 Stock Option Plan to increase the number of
options available for grant under the Plan and increase the annual
limit on the number of option shares issuable to an individual
executive officer under the Plan was approved by the affirmative
vote of 84,865,201 shares, with 555,727 shares voting against,
91,967 shares abstaining and no broker non-votes. Such matter
required a majority vote of all shares represented at the annual
meeting in person or by proxy.
3. The ratification of the Company's selection of
PricewaterhouseCoopers LLP to serve as Aegis's independent
accountants for the 2000 fiscal year by the affirmative vote of
85,434,578 shares, with 32,528 shares voting against, 9,900 shares
abstaining and no broker non-votes.
17
<PAGE>
ITEM 5. OTHER INFORMATION
On April 17, 2000, Hugh E. Sawyer joined the Company as President and
Chief Executive Officer of the Company. On such date, the Company and Mr. Sawyer
agreed to amend his employment agreement such that Mr. Sawyer agreed to purchase
from the Company 160,400 shares of the Company's Common Stock at a price per
share of $0.9375 (the closing price on April 17, 2000), for a total cash
consideration of $150,375.
On May 8, 2000, Michael J. Graham joined Aegis as Executive Vice
President and Chief Financial Officer. Mr. Graham most recently served as Vice
President and Chief Financial Officer of Club Sports International, the nation's
third largest owner and operator of athletic clubs with over 45 locations. Prior
to that, Mr. Graham was Vice President of Finance and Marketing and Group Chief
Financial Officer for a $500 million subsidiary of Sunbeam Corporation. From
1989 to 1996, he held various management positions with the Quaker Oats Company,
including Controller - U.S. Operations of Quaker's $4 billion U.S. division,
Director of International Treasury, and divisional director of finance. Prior to
that, Mr. Graham was an Audit Manager with Coopers & Lybrand where he led
multi-location, international financial audits. Mr. Graham is a CPA and earned
an MBA in Finance from the University of Chicago and a bachelor's degree in
accounting from DePaul University.
Subsequent to the end of the quarter, the Company was informed that its
appeal for continued listing on the Nasdaq National Market System was denied by
the Nasdaq review board. Accordingly, the Company's common stock will continue
to be traded over-the-counter on the National Association of Securities Dealers
Electronic Bulletin Board. Aegis intends to reapply for listing with the
Nasdaq-Amex Market Group at the appropriate time.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
3.1 Amended and Restated Certificate of Incorporation (Incorporated by
reference to Exhibit 3.1 of the Company's Form 10-K Annual Report filed
on March 31, 2000).
3.2 Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.2
of the Company's Form 8-K Current Report filed on December 20, 1999).
10.39 Employment Agreement between Hugh E. Sawyer and the Company dated March
29, 2000, as amended (filed herewith).
10.40 Amended and Restated 1998 Stock Option Plan (filed herewith).
27.1 Financial Data Schedule (filed herewith).
(B) Reports on Form 8-K
None.
18
<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: May 15, 2000 By: /s/ Michael J. Graham
--------------------------------------------
Michael J. Graham
Executive Vice President and Chief Financial Officer
3/31/2000 Quarter
19
<PAGE>
EXHIBITS INDEX
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
3.1 Amended and Restated Certificate of Incorporation (Incorporated by
reference to Exhibit 3.1 of the Company's Form 10-K Annual Report filed
on March 31, 2000).
3.2 Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.2
of the Company's Form 8-K Current Report filed on December 20, 1999).
10.39 Employment Agreement between Hugh E. Sawyer and the Company dated March
29, 2000, as amended (filed herewith).
10.40 Amended and Restated 1998 Stock Option Plan (filed herewith).
27.1 Financial Data Schedule (filed herewith).
20
<PAGE>
EMPLOYMENT AGREEMENT
as amended
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
as of March 29, 2000, to be effective as of April 17, 2000, by and among Aegis
Communications Group, Inc., a Delaware corporation (the "Parent"), Advanced
Telemarketing Corporation, a Nevada corporation ("ATC"), IQI, Inc., a New York
corporation ("IQI") (together, ATC and IQI are referred to as the "Company"),
and Hugh E. Sawyer ("Employee").
R E C I T A L S:
The Company and the Parent desire to employ Employee under the terms
and conditions of this Agreement. Employee represents that Employee is free
from any other obligation of continuing employment with his former employer.
Employee desires employment by the Company and the Parent under the
terms and conditions of this Agreement and further desires to be granted
access to the Company's and the Parent's proprietary information.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, the parties agree as follows:
1. EMPLOYMENT. Subject to the terms and conditions set forth in
this Agreement, each of the Company and the Parent employ Employee, and
Employee accepts such employment by the Company and the Parent.
2. DUTIES OF EMPLOYEE.
(a) Employee will serve in the capacities of President and
Chief Executive Officer of each of the Company and the Parent, subject in each
case to the reasonable supervision of the Board of Directors of such
corporation. In such capacities, Employee will have all necessary powers to
discharge his responsibilities, subject in each case to the respective Board's
supervision and control. Employee will have all the powers granted by the
Bylaws of each of the Company and the Parent to the President and Chief
Executive Officer of such corporation, and Employee will report to the Board
of Directors of such corporation. In addition, Employee will be elected to the
Board of Directors of each of the Company and the Parent.
(b) Commencing April 17, 2000 (the "Effective Date") and
during the remaining term of this Agreement, Employee will devote his full
business time and effort to the performance of his duties and responsibilities
as President and Chief Executive Officer of the Company and the Parent;
provided, however, Employee may continue his service as a director of TWS,
Inc. and Hometown Communities, LLC and other directorships from time to time
to the extent such service does not materially interfere with the performance
of his duties and responsibilities to the Company and the Parent.
Notwithstanding the foregoing, Employee may spend reasonable amounts of time
on his
<PAGE>
personal civic and charitable activities that do not materially interfere with
the performance of his duties and responsibilities to the Company and the
Parent. Employee acknowledges that the Parent's headquarters are currently
located in Irving, Texas and hereby commits that he will perform his duties
and responsibilities by officing in and physically working from these
headquarters on a full-time equivalent basis, except to the extent that
ordinary and necessary business travel obligations require otherwise or to
address family emergencies.
(c) Employee will comply with the written rules and
regulations of the Company and the Parent respecting their businesses and
perform the directives and policies of the Company and the Parent as they may
from time to time be stated to Employee verbally or in writing by the Board of
Directors of each corporation.
(d) Employee will maintain accurate business records as may
from time to time be required by the Company or the Parent. Such records may
be examined by the Company or the Parent, as the case may be, at all
reasonable times after written request is delivered to Employee. Any such
document will be delivered to the Company or the Parent, as the case may be,
promptly upon request.
(e) Employee agrees not to solicit or receive any income or
other compensation from any third party in connection with his employment with
the Company and the Parent. The Employee agrees, upon written request by the
Company or the Parent, to render an accounting of all transactions relating to
his business endeavors during the term of this employment hereunder.
(f) Within ten days of the Effective Date, Employee will
purchase from the Company 160,400 shares of the Company's common stock at a
price per share of $0.9375, for a total cash consideration of $150,375.
3. TERM. The term of this Agreement (the "Term") will commence
effective as of April 17, 2000 (the "Effective Date") and continue until
terminated in accordance with Section 8 of this Agreement.
4. SALARY. Commencing on April 17, 2000, the Parent will pay
Employee an annual base salary during the term of this Agreement for his
services as President and Chief Executive Officer of the Parent of $375,000,
which will be payable in accordance with the Parent's standard payroll
practice, but not less than monthly. Such base salary will not include any
benefits made available to Employee or any contributions or payments made on
his behalf pursuant to any employee benefit plan or program of the Parent,
including any health, disability or life insurance plan or program, 401K
plan, cash bonus plan, stock incentive plan, retirement plan or similar plan
or program of any nature. Employee's performance and base salary shall be
reviewed by the Board of Directors annually (at the regularly scheduled board
meeting occurring nearest in time to each anniversary of the Effective Date)
and, in the discretion of the Board of Directors or the compensation committee
thereof, may be increased, but not decreased without
- ---------- -----------
Employee Parent & Co.
2
<PAGE>
Employee's consent, by such amount as the Board of Directors or such committee
shall determine. The Company will have no separate salary obligation to
Employee, but shall be jointly and severally liable with Parent for the prompt
payment of the salary obligations set forth herein.
5. BONUS COMPENSATION.
(a) The Parent will pay Employee a signing bonus of $250,000,
$125,000 of which is payable within ten days of the Effective Date and
$125,000 of which is payable by July 31, 2000. If Employee voluntarily
terminates his employment with the Parent or the Company (other than upon an
Employee Termination Event) or is terminated for Cause (as defined in Section
8 of this Agreement) within one year of the Effective Date, Employee agrees to
repay promptly such signing bonus to the Parent. If Employee voluntarily
terminates his employment with the Parent or the Company (other than upon an
Employee Termination Event) or is terminated for Cause within the second year
following the Effective Date, Employee agrees to repay promptly one-half of
the signing bonus. If Employee terminates his employment as a result of the
Employee Termination Event defined in Section 8(ii)(g) below, then the second
installment of the signing bonus (if it has not already been paid) shall be
due and payable to the Employee within ten (10) days following the effective
date of such termination. Provided, however, in the event Employee resigns
from his employment with the Parent and Company for any reason following a
Change in Control, Employee shall have no obligation to repay or refund to the
Parent any portion of the signing bonus. For purposes of this Agreement, a
"Change in Control" will be deemed to occur in the following events:
(i) The acquisition in one or more transactions by any "Person" (as
the term person is used for purposes of Section 13(d) or 14(d)
of the Securities Exchange Act of 1934, as amended (the "1934
Act"), of "Beneficial Ownership" (within the meaning of Rule
13d-3 promulgated under the 1934 Act) of a majority of the
combined voting power of the Corporation's then outstanding
voting securities (the "Voting Securities"), PROVIDED, HOWEVER,
that for purposes of this subsection (i), the Voting Securities
acquired directly from the Corporation by any Person shall be
excluded from the determination of such Person's Beneficial
Ownership of Voting Securities (but such Voting Securities
shall be included in the calculation of the total number of
Voting Securities then outstanding), and PROVIDED FURTHER,
HOWEVER, that for purposes of this subsection (i), Person shall
in no event include Questor Partners Fund II, L.P., Thayer
Equity Investors III, L.P., or any of their affiliates; or
(ii) Approval by stockholders of the Corporation of (A) a merger or
consolidation involving the Corporation if the stockholders of
the Corporation immediately before such merger or consolidation
do not own, directly or indirectly immediately following such
merger or consolidation, at least a majority of the combined
voting power of the outstanding voting
- ---------- -----------
Employee Parent & Co.
3
<PAGE>
securities of the corporation resulting from suchmerger or
consolidation in substantially the same proportion as their
ownership of the Voting Securities immediately before such
merger or consolidation or (B) a complete liquidation or
dissolution of the Corporation or an agreement for the sale or
other disposition of all or substantially all of the assets of
the Corporation.
(iii) Notwithstanding the foregoing, a Change in Control shall not be
deemed to occur solely because a majority or more of the then
outstanding Voting Securities is acquired by (i) a trustee or
other fiduciary holding securities under one or more employee
benefit plans maintained by the Corporation or any of its
subsidiaries or (ii) any corporation that, immediately prior to
such acquisition, is owned directly or indirectly by the
stockholders of the Corporation in the same proportion as their
ownership of stock in the Corporation immediately prior to such
acquisition;
(iv) Moreover, notwithstanding the foregoing, a Change in Control
shall not be deemed to occur solely because any Person (the
"Subject Person") acquired Beneficial Ownership of more than
the permitted amount of the outstanding Voting Securities as a
result of the acquisition of Voting Securities by the
Corporation which, by reducing the number of Voting Securities
outstanding, increases the proportional number of shares
Beneficially Owned by the Subject Person, provided that if a
Change in Control would occur (but for the operation of this
sentence) as a result of the acquisition of Voting Securities
by the Corporation, and after such share acquisition by the
Corporation, the Subject Person becomes the Beneficial Owner of
any additional Voting Securities which increases the percentage
of the then outstanding Voting Securities Beneficially Owned by
the Subject Person, then a Change in Control shall occur.
(b) The Parent will also pay Employee annual performance based cash
bonuses in accordance with Exhibit A attached to this Agreement and the bonus
plan adopted by the Board of Directors for each applicable year. As an
example, the Aegis Communications Group, Inc., 2000 Variable Incentive
Compensation ("VIC") Program is attached as part of Exhibit A. The Company
will have no separate bonus obligation to Employee, but shall be jointly and
severally liable with Parent for the prompt payment of the bonus obligations
set forth herein.
6. EMPLOYEE BENEFITS. During the term of this Agreement, the
Parent will provide Employee with all benefits made available from time to
time by the Parent to its employees generally and to Executives who hold
positions similar to that of Employee (including the benefits granted to other
officers of the Parent), such benefits to be in accordance with the Parent's
policies. Specifically, Employee's benefits will include participation in
medical and dental benefit plans or programs (providing coverage for
- ---------- -----------
Employee Parent & Co.
4
<PAGE>
Employee's immediate family); disability insurance with premiums paid by the
Company; 401-K plans as soon as Employee is eligible to participate in such
plans; company-paid term life insurance payable to Employee's designated
beneficiary in the amount of $1 million; officer and director liability
insurance; a $600 monthly car allowance; sick leave; and four weeks' paid
vacation. The Company will have no separate obligations to Employee with
respect to employee benefits, but shall be jointly and severally liable with
Parent for the prompt payment of the benefit obligations set forth herein.
7. REIMBURSEMENT OF EXPENSES. The Parent will reimburse Employee,
in accordance with Parent and Company policy, for all expenses actually and
reasonably incurred by him in the business interests of the Parent or the
Company. The Parent will also reimburse Employee for all expenses actually and
reasonably incurred by Employee in relocating his family to the Dallas-Fort
Worth metropolitan area, including reasonable and customary real estate
commissions and closing costs incurred in selling Employee's current principal
place of residence in Atlanta and reasonable and customary closing costs
incurred in buying a principal place of residence in the Dallas-Fort Worth
metropolitan area, exclusive of financing "points". Reimbursement will be made
to Employee upon appropriate documentation of such expenditures in accordance
with the Company's written policies. The Parent will also reimburse Employee
for all expenses actually and reasonably incurred by Employee for temporary
living and commuting costs and expenses for the first 60 (sixty) days
following the Effective Date, and Employee will be responsible for all such
costs and expenses thereafter. Employee agrees to establish a residence in the
Dallas-Fort Worth metropolitan area as soon as practicable, but no later than
60 (sixty) days following the Effective Date, and will maintain such residence
during the term of this Agreement. For purposes of greater clarity, the
parties acknowledge and agree that Employee shall satisfy the foregoing
obligation by securing an apartment or other living arrangements acceptable to
Employee in the Dallas-Fort Worth metropolitan area and that Employee need not
establish a permanent family residence in the area.
8. EARLY TERMINATION. It is the desire and expectation of each
party that the employer-employee relationship will continue as specified
herein and be a pleasant and rewarding experience for the parties hereto. The
Company or the Parent will, however, be entitled to terminate Employee's
employment at any time with or without Cause (as defined in this Section 8).
Likewise, Employee may terminate his employment at any time for any or no
reason. If the Parent or the Company terminate Employee's employment without
Cause or Employee terminates such employment following occurrence of an
Employee Termination Event, however, the Parent will pay Employee twenty-four
months' salary as severance compensation (based on Employee's then current
annual base salary) in accordance with the Parent's standard payroll practice,
but not less than monthly; provided, however, that to the extent Employee is
able to mitigate (provided, Employee shall have no duty to attempt to so
mitigate) the amount of such severance compensation by earning compensation
through other employment during the twenty-four months following such
termination, the Parent's severance payment
- ---------- -----------
Employee Parent & Co.
5
<PAGE>
obligation shall be reduced accordingly; provided further, however, that the
Parent will pay Employee at least twelve months' salary as severance
notwithstanding any such mitigation, the "Minimum Severance Amount." The
Company will have no separate obligation to Employee with respect to severance
compensation, but shall be jointly and severally liable with Parent for the
prompt payment of the salary obligations set forth herein.
If Employee dies, is unable to perform his duties and
responsibilities as a result of disability that continues for 120 consecutive
days or more ("Disability"), voluntarily resigns from the Company or the
Parent (other than a termination by Employee following occurrence of an
Employee Termination Event), or is terminated for Cause, the Parent will pay
Employee (or his estate, executor or legal representative, as appropriate) any
salary that has accrued to the date employment ceases, and the Parent's
obligations to pay additional salary or cash compensation or benefits will
terminate as of such date.
(i) "Cause," for the purpose of this Agreement, will mean the
occurrence of any of the following events:
(a) Performance by Employee of any willful misconduct relating to
the activities of the Company or the Parent, or commission by Employee of any
illegal or fraudulent acts or criminal conduct which in the opinion of the
Parent's Board of Directors will have or is reasonably likely to have a
material adverse effect on the profitability, reputation or goodwill of the
Company or Parent;
(b) A conviction of or NOLO CONTENDERE plea by Employee for any
criminal acts involving moral turpitude having or reasonably likely to have a
material adverse effect upon the Company or the Parent, including, without
limitation, upon their profitability, reputation or goodwill;
(c) Willful or grossly negligent failure by Employee to perform his
duties in a manner consistent with the Company's or the Parent's best
interests which he fails to cure within thirty (30) days after receiving
written notice thereof;
(d) Willful refusal by Employee to carry out reasonable
instructions of the Company's or the Parent's Boards of Directors not
inconsistent with the provisions of this Agreement;
(e) Employee's failure to honor his obligations referred to in the
last sentence of Section 2(b) or the last sentence of Section 7;
(f) Violation by Employee of any of Employee's covenants and
agreements contained in Sections 9, 10 or 11 of this Agreement; or
(g) Any other material breach of Employee's obligations hereunder,
which he fails to cure within thirty (30) days after receiving written notice
thereof.
- ---------- -----------
Employee Parent & Co.
6
<PAGE>
(ii) "Termination without Cause" shall mean termination by Parent or
the Company for a reason other than "Cause" and "Employee Termination Event"
shall mean termination by Employee, as a consequence of any of the following
events, if such event occurs without Employee's prior consent:
(a) Employee's base salary is reduced or Parent fails to make
available to Employee a performance bonus plan with a target bonus of at least
100% of Employee's base salary based upon full achievement of the goals
established in the plan;
(b) Employee's responsibilities, functions or duties as the Chief
Executive Officer and President of the Corporation are materially reduced;
(c) Employee's title or reporting relationships change;
(d) Employee is forced to transfer his principal place of residence
to or subsequently from the Dallas-Fort Worth area;
(e) Employee is forced to transfer his principal office from the
Dallas-Fort Worth area;
(f) any failure to elect or reelect Employee as a member of the
Board of Directors of Parent and the Company;
(g) (1) the failure of the Parent's shareholders at the May 4, 2000
shareholder meeting to approve the amendment of the Aegis Communications
Group, Inc. 1998 Stock Option Plan ("Plan") to permit the grant of all options
to Employee contemplated by the Nonqualified Stock Option Agreement vesting
upon achieved internal rates of return (the IRR options) executed on even date
herewith under the terms specified therein, or in the event of such failure,
the failure of the Company to provide within forty-five (45) days the
functionally economic equivalent to the grant of such options in a form and
substance mutually agreeable to the parties, or (2) the failure of the Parent
to amend Section 9 of the Plan to permit, under each stock option grant to
Employee, the exercise of options in excess of 299% of the Employee's base
amount as defined in Section 280G(b)(3) of the Internal Revenue Code; or
(h) any other material breach of Parent's or Company's obligations
hereunder, which such party fails to cure within thirty (30) days after
receiving written notice thereof.
9. NON-COMPETITION AGREEMENT. Employee understands that during the
course of his employment by the Company and the Parent, Employee will (i) have
access to and receive the benefit of special training and unique information,
including, but not limited to, research, systems, development, marketing,
management, business development, customer satisfaction methods and
techniques, business process
- ---------- -----------
Employee Parent & Co.
7
<PAGE>
improvements and other developments in marketing methods and providing
services to their customers, and (ii) represent the Company and the Parent and
their affiliates and develop 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, Employee agrees and covenants that during the term of his
employment by the Company and the Parent, and for a period of two years after
the termination of such employment for any reason, without 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 (as evidenced by
documented business or development plans), by the Company or the Parent, which
includes, but is not limited to, providing to third parties inbound and
outbound telecommunications- or internet-based marketing services and customer
service functions, market research services, and the consulting, design and
implementation of any of these services (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 12 month
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.
It is understood and agreed 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.
It is further agreed that such covenant will be regarded as divisible and will
be operative as to time, area and persons to the extent that it may 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 will 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 restricted period
following the term of employment will have a duration of two years, and the
regularly scheduled expiration date of such covenant will 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 and
will learn Confidential Information (as defined herein) relating to the
business conducted and to be conducted by the Company, the Parent or their
affiliates. Employee agrees that he will not, except in the normal and proper
course of his duties hereunder, disclose or use or authorize any third party
to disclose or use any such Confidential Information, without
- ---------- -----------
Employee Parent & Co.
8
<PAGE>
prior written approval of the Company or the Parent. As used in this Section
10, "Confidential Information" will 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 has access during the period of his employment, which is
treated by the Employer as Confidential Information, will be presumed to be
Confidential Information hereunder. Confidential Information will not,
however, include information that (i) is publicly known or becomes publicly
known through no fault of Employee, or (ii) is generally or readily obtainable
by the public, or (iii) constitutes general skills, knowledge and experience
acquired by Employee before and/or during his employment with the Company and
the Parent or (iv) otherwise compelled in order not to violate applicable law
or order of court (provided, however, Employee shall give the Parent or
Company reasonable notice prior to such disclosure in order to give the Parent
or Company an opportunity to object to such order or to assert any applicable
privilege.).
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 will be the property of
such entity and that all copies thereof will be surrendered to the appropriate
entity upon termination of his employment.
11. INVENTIONS; DEVELOPMENTS. Employee agrees to notify the Company
and the Parent of any discovery, invention, innovation, or improvement which
is 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 will include, without
limitation, 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, will be the exclusive property of the Company or the Parent, as the
case may be, and will be considered Confidential Information subject to the
terms of this Agreement. Employee agrees that when appropriate, and upon
written
- ---------- -----------
Employee Parent & Co.
9
<PAGE>
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 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. EXIT INTERVIEW. To insure a clear understanding of this
Agreement, including, but not limited to, the protection of the Company's and
the Parent's business interests, Employee agrees, at no additional expense to
the Company and the Parent, at a mutually acceptable time and place to engage
in an exit interview with the Company and the Parent prior to Employee's
departure from the Company and the Parent.
13. RIGHT OF SETOFF. The Company and the Parent will be entitled,
at their option and not in lieu of any other remedies to which they may be
entitled, to set off any amounts due Employee or any affiliate of Employee
against any amount due and payable by Employee or any affiliate of Employee to
the Company and the Parent ("Set-Offs") pursuant to this Agreement or
otherwise, provided that the Set-Offs are set forth in detail in writing with
supporting evidence to substantiate each Set-Off.
14. MISCELLANEOUS.
(a) Any notice, demand or request required or permitted to
be given or made under this Agreement will be in writing and will be deemed
given or made when delivered in person, when sent by United States registered
or certified mail, or postage prepaid, or when telecopied to a party at its
address or telecopy number specified below:
If to the Parent or the Company:
Aegis Communications Group, Inc.
7880 Bent Branch Drive
Suite 150
Irving, Texas 75063
Telecopy number: (972) 830-1800
With a copy to:
Hughes & Luce, L.L.P.
1717 Main Street
Suite 2800
Dallas, Texas 75201
Attn: Jim Hunter Birch
Telecopy number: (214) 939-6100
- ---------- -----------
Employee Parent & Co.
10
<PAGE>
If to Employee:
Hugh E. Sawyer
3800 Falls Landing Drive
Alpharepta, Georgia 30022
With a copy to:
Smith, Gambrell & Russell, L.L.P.
Suite 3100, Promenade II
1230 Peachtree Street, N.E.
Atlanta, Georgia 30309-3592
Attn: John R. Schneider
Telecopy number: (404) 815-3509
The parties to this Agreement may change their addresses for notice
in the manner provided above.
(b) All section titles and captions in this Agreement are
for convenience only, will not be deemed part of this Agreement, and in no way
will define, limit, extend or describe the scope or intent of any provisions
hereof.
(c) Whenever the context may require, any pronoun used in
this Agreement will include the corresponding masculine, feminine or neuter
forms, and the singular form of nouns, pronouns and verbs will include the
plural and vice versa.
(d) The parties will execute all documents, provide all
information and take or refrain from taking all actions as may be reasonably
necessary or appropriate to achieve the purposes of this Agreement.
(e) This Agreement will be binding upon and inure to the
benefit of the parties hereto, their representatives and permitted successors
and assigns. Except for the provisions of Sections 9, 10 and 11 of this
Agreement, which are intended to benefit the Company's and the Parent's
affiliates as third party beneficiaries, or as otherwise expressly provided in
this Agreement, nothing in this Agreement, express or implied, is intended to
confer upon any person other than the parties to this Agreement, their
respective representatives and permitted successors and assigns, any rights,
remedies or obligations under or by reason of this Agreement.
(f) This Agreement, together with option agreements and the
indemnity agreement, constitutes the entire agreement among the parties hereto
pertaining to the specific subject matter hereof and supersedes all prior
agreements and understandings pertaining thereto.
- ---------- -----------
Employee Parent & Co.
11
<PAGE>
(g) None of the provisions of this Agreement will be for the
benefit of or enforceable by any creditors of the parties, except as otherwise
expressly provided herein.
(h) No failure by any party to insist upon the strict
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof will
constitute waiver of any such breach or any other covenant, duty, agreement or
condition.
(i) This Agreement may be executed in counterparts, all of
which together will constitute one agreement binding on all the parties
hereto, notwithstanding that all such parties are not signatories to the
original or the same counterpart.
(j) THIS AGREEMENT WILL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO THE PRINCIPLES
OF CONFLICTS OF LAW. 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. A party may initiate
arbitration by sending written notice of its intention to arbitrate to the
other party 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 independent and impartial
arbitrators, of whom each party 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. 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
arbitrator(s) will be final and binding on all parties and their successors
and permitted assignees. The judgment upon the award rendered by the
arbitrator(s) may be entered by any court having jurisdiction thereof. The
arbitrator(s) 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 arbitrator(s) is selected. The arbitrator(s) 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 equally by the parties.
- ---------- -----------
Employee Parent & Co.
12
<PAGE>
(k) If any provision of this Agreement is declared or found
to be illegal, unenforceable, or void, in whole or in part, then the parties
will be relieved of all obligations arising under such provision, but only to
the extent that it is illegal, unenforceable or void, it being the intent and
agreement of the parties that this Agreement will be deemed amended by
modifying such provision to the extent necessary to make it legal and
enforceable while preserving its intent or, if that is not possible, by
substituting therefor another provision that is legal and enforceable and
achieves the same objectives.
(l) No supplement, modification or amendment of this
agreement or waiver of any provision of this Agreement will be binding unless
executed in writing by all parties to this Agreement. No waiver of any of the
provisions of this Agreement will be deemed or will constitute a waiver of any
other provision of this Agreement (regardless of whether similar), nor will
any such waiver constitute a continuing wavier unless otherwise expressly
provided.
(m) Employee acknowledges and agrees that the Company and
the Parent would be irreparably harmed by any violation of Employee's
obligations under Sections 9, 10 and 11 hereof and that, in addition to all
other rights or remedies available at law or in equity, the Company and the
Parent will be entitled to apply for injunctive and other equitable relief to
prevent or enjoin any such violation in a court of competent jurisdiction,
without regard to subparagraph (j) above. The provisions of Sections 9, 10 and
11 hereof will survive any termination of this Agreement, in accordance with
their terms.
(n) No party may assign this Agreement or any rights or
benefits thereunder without the written consent of the other parties to this
Agreement. Provided , however, in the event of a Change of Control, Parent
will use its commercially reasonable best efforts to induce the acquiring
entity or successor to assume this Agreement.
EXECUTED as of the date first above written.
AEGIS COMMUNICATION GROUP,INC.
By:
---------------------------------------
John R. Birk,
Chairman of the Board
- ---------- -----------
Employee Parent & Co.
13
<PAGE>
ADVANCED TELEMARKETING CORPORATION
By:
---------------------------------------
John R. Birk,
Chairman of the Board
IQI, INC.
By:
---------------------------------------
John R. Birk,
Chairman of the Board
------------------------------------------
Hugh E. Sawyer
- ---------- -----------
Employee Parent & Co.
14
<PAGE>
EXHIBIT A
In each year of the Employment Agreement, Employee will be entitled
to receive a targeted base cash bonus of 100% of his annualized salary
(pro-rated for any partial year of employment in the year 2000) upon the full
attainment by the Parent, the Company and their consolidated subsidiaries of
the annual bonus plan objectives stipulated by the Board of Directors from
year to year. Such annual cash bonus will be payable within 30 (thirty) days
of the completion of the audit for the applicable year. The Year 2000 Variable
Incentive Compensation (VIC) annual bonus plan is attached hereto. As an
example, Employee's Year 2000 VIC Program is based only on EBITDA. For
example, if Parent obtains 100% of EBITDA, Employee's bonus would equal 100%
of annual salary on a pro rated basis. If Parent obtains 120% of EBITDA goal,
Employee's bonus would equal 150% of annual salary on a pro rated basis.
Conversely, under the 2000 VIC Program, if the Parent does not attain 70% of
its EBITDA goal, no bonus would be due.
- ---------- -----------
Employee Parent & Co.
15
<PAGE>
AEGIS COMMUNICATIONS GROUP, INC.
AMENDED AND RESTATED
1998 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN. This Plan shall be known as the Aegis
Communications Group, Inc. Amended and Restated 1998 Stock Option Plan. The
purposes of the Plan are (i) to attract and retain the best available personnel
for positions of substantial responsibility, (ii) to attract and retain
directors and advisory directors with a high degree of training, experience and
ability and (iii) to provide incentives to such personnel, directors and
advisory directors to promote the success of the business of Aegis
Communications Group, Inc. and its subsidiaries.
Certain options granted under this Plan are intended to qualify as
"incentive stock options" pursuant to Section 422 of the Internal Revenue Code
of 1986, as amended from time to time, while certain other options granted under
the Plan will constitute nonqualified options.
2. DEFINITIONS. As used herein, the following definitions shall
apply:
(a) "Board" means the Board of Directors of the Corporation.
(b) "Common Stock" means the Common Stock, $.01 par value per
share, of the Corporation. Except as otherwise provided herein, all Common
Stock issued pursuant to the Plan shall have the same rights as all other
issued and outstanding shares of Common Stock, including but not limited to
voting rights, the right to dividends, if declared and paid, and the right to
pro rata distributions of the Corporation's assets in the event of
liquidation.
(c) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(d) "Committee" means the committee described in Section 18(a)
that administers the Plan.
(e) "Corporation" means Aegis Communications Group, Inc., a
Delaware corporation.
(f) "Date of Grant" means the date on which an Option is
granted pursuant to this Plan or, if the Committee so determines, the date
specified by the Committee as the date the award is to be effective.
(g) "Director" means any director, advisory director or
consultant of the Corporation or one of its Subsidiaries, but excluding any
director, advisory director or consultant who is also an officer or employee
of the Corporation or one of its Subsidiaries.
(h) "Employee" means any officer or other key employee of the
Corporation or one of its Subsidiaries, including any director who is also an
officer or key employee of the Corporation or one of its Subsidiaries.
<PAGE>
(i) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(j) "Executive" means an Employee who is, or in the judgment
of the Committee may become, the Chief Executive Officer of the Corporation or
one of the other four most highly compensated executive officers of the
Corporation.
(k) "Fair Market Value" means the closing sale price (or
average of the quoted closing bid and asked prices if there is no closing sale
price reported) of the Common Stock on the trading day immediately prior to the
date specified as reported by The Nasdaq Stock Market or by the principal
national stock exchange on which the Common Stock is then listed. If there is no
reported price information for the Common Stock, the Fair Market Value will be
determined by the Committee, in its sole discretion. In making such
determination, the Committee may, but shall not be obligated to, commission and
rely upon an independent appraisal of the Common Stock.
(l) "Non-Employee Director" means an individual who is a
"non-employee director" as defined in Rule 16b-3 under the Exchange Act and also
an "outside director" within the meaning of Treasury Regulation Section
1.162-27(e)(3).
(m) "Nonqualified Option" means any Option that is not a
Qualified Option.
(n) "Option" means a stock option granted pursuant to Section
6 of this Plan.
(o) "Optionee" means any Employee or Director who receives an
Option.
(p) "Participant" means any Employee or Director who receives
an Option pursuant to this Plan.
(q) "Plan" means the Aegis Communications Group, Inc. 1998
Stock Option Plan, as amended from time to time.
(r) "Qualified Option" means any Option that is intended to
qualify as an "incentive stock option" within the meaning of Section 422 of the
Code.
(s) "Rule 16b-3" means Rule 16b-3 of the rules and regulations
under the Exchange Act, as Rule 16b-3 may be amended from time to time, and any
successor provisions to Rule 16b-3 under the Exchange Act.
(t) "Subsidiary" means any now existing or hereinafter
organized or acquired company of which more than fifty percent (50%) of the
issued and outstanding voting stock is owned or controlled directly or
indirectly by the Corporation or through one or more Subsidiaries of the
Corporation.
<PAGE>
3. TERM OF PLAN. The Plan was initially adopted by the Board
effective as of April 7, 1998. To permit the granting of Qualified Options
under the Code, and to qualify awards of Options hereunder as "performance
based" under Section 162(m) of the Code, the Plan was approved by the
shareholders of the Corporation on July 9, 1998. On March 29, 2000, the Board
approved the following amendments to the Plan:
(a) increase in the number of shares issuable upon the exercise of
Options pursuant to this Plan from 7,500,000 to 9,000,000; and
(b) increase in the annual limit on the number of option shares
issuable to an individual executive officer from 1,500,000 to
3,000,000.
On May 4, 2000, these amendments to the Plan were approved by the shareholders
of the Corporation. In addition, on March 29, 2000, the Compensation Committee
approved an amendment to Section 9 of the Plan relating to Section 280(g) of the
Code to permit more flexibility in the tax treatment of awards under this Plan.
The Plan, as amended, shall continue in effect until terminated pursuant to
Section 18(a).
4. SHARES SUBJECT TO THE PLAN. Except as otherwise provided in
Section 17 hereof, the aggregate number of shares of Common Stock issuable
upon the exercise of Options pursuant to this Plan shall be 9,000,000 shares;
provided, however, that on January 1 of each year (commencing on January 1,
1999), the aggregate number of shares of Common Stock then issuable upon the
exercise of Options shall be increased by the same percentage that the total
number of issued and outstanding shares of Common Stock increased from the
preceding January 1 to the following December 31 (if such percentage is
positive). For example, if the total number of issued and outstanding shares
of Common Stock on January 1, 1999 were 50,000,000, the total number of
issued and outstanding shares of the Corporation on December 31, 1999 were
55,000,000, and the aggregate number of shares of Common Stock then issuable
upon the exercise of Options pursuant to this Plan were 2,500,000, the
aggregate number of shares of Common Stock issuable under the Plan effective
January 1, 2000 would be 2,750,000 (a 10% increase). Notwithstanding the
above, the aggregate number of shares of Common Stock issuable upon the
exercise of Qualified Options pursuant to this plan shall not exceed
9,000,000 shares. Shares issuable upon the exercise of Options may either be
authorized but unissued shares or treasury shares. The Corporation shall,
during the term of this Plan, reserve and keep available a number of shares
of Common Stock sufficient to satisfy the requirements of the Plan. If an
Option should expire or become unexercisable for any reason without having
been exercised in full, then the shares that were subject thereto shall,
unless the Plan shall have terminated, become immediately available for the
grant of additional Options under this Plan, subject to the limitations and
adjustments set forth above. In addition, for purposes of calculating the
aggregate number of shares that may be issued under this Plan, only the net
shares issued (including the shares, if any, withheld for tax withholding
requirements) shall be counted when shares of Common Stock are used as full
or partial payment for shares issued upon exercise of a Qualified Option or a
Nonqualified Stock Option. Shares tendered by a Participant as payment for
shares issued upon such exercise shall be available for reissuance under the
Plan.
<PAGE>
5. ELIGIBILITY. Qualified Options may be granted under Section 6
of the Plan to such Employees of the Corporation or its Subsidiaries as may
be determined by the Committee. Nonqualified Options may be granted under
Section 6 of the Plan to such Employees or Directors of the Corporation or
its Subsidiaries as may be determined by the Committee. Subject to the
limitations and qualifications set forth in this Plan, the Committee shall
also determine the number of Options to be granted, the number of shares
subject to each Option grant, the exercise price or prices of each Option,
the vesting and exercise period of each Option, whether an Option may be
exercised as to less than all of the Common Stock subject thereto, and such
other terms and conditions of each Option as are consistent with the
provisions of this Plan. In connection with the granting of Qualified
Options, the aggregate Fair Market Value (determined at the Date of Grant of
a Qualified Option) of the shares with respect to which Qualified Options are
exercisable for the first time by an Optionee during any calendar year (under
all such plans of the Optionee's employer corporation and its parent and
subsidiary corporations as defined in Section 424(e) and (f) of the Code, or
a corporation or a parent or subsidiary corporation of such corporation
issuing or assuming an Option in a transaction to which Section 424(a) of the
Code applies (collectively, such corporations described in this sentence are
hereinafter referred to as "Related Corporations")) shall not exceed $100,000
or such other amount as from time to time provided in Section 422(d) of the
Code or any successor provision. In the event that the Participant's total
Qualified Options exceed the $100,000 limit in any calendar year (whether due
to acceleration of exercisability, miscalculation, error or otherwise) the
amount of Qualified Options that exceed such limit shall be treated as
Nonqualified Options. The Qualified Options granted earliest (whether under
this Plan or any other agreement or plan) shall be applied first to the
$100,000 limit. In the event that only a portion of the Qualified Options
granted at the same time can be applied to the $100,000 limit, the
Corporation shall issue separate share certificates for such number of shares
as does not exceed the $100,000 limit, and shall designate such shares as
Qualified Option stock in its share transfer records.
6. GRANT OF OPTIONS. Except as provided in Section 18(c), the
Committee shall determine the number of shares of Common Stock to be offered
from time to time pursuant to Options granted hereunder and shall grant
Options under the Plan. Notwithstanding the foregoing, each member of the
Committee shall be eligible to receive Options only if the Board unanimously
(except for such Committee member) grants such Option to such member. The
grant of Options shall be evidenced by Option agreements containing such
terms and provisions as are approved by the Committee and executed on behalf
of the Corporation by an appropriate officer. In connection with the granting
of any Options under the Plan, the aggregate number of shares of Common Stock
with respect to which Options may be granted to any single Executive in any
one calendar year shall not exceed 3,000,000. Solely for this purpose,
Options that lapse or are canceled continue to count against such limit.
7. TIME OF GRANT OF OPTIONS. The date of grant of an Option under
the Plan shall be the date on which the Committee awards the Option or, if
the Committee so determines, the date specified by the Committee as the date
the award is to be effective. Notice of the grant shall be given to each
Participant to whom an Option is granted promptly after the date of such
grant.
<PAGE>
8. PRICE. The exercise price for each share of Common Stock
subject to an Option (the "Exercise Price") granted pursuant to Section 6 of
the Plan shall be determined by the Committee at the Date of Grant; provided,
however, that (a) the Exercise Price for any Option shall not be less than
100% of the Fair Market Value of the Common Stock at the Date of Grant, and
(b) if the Optionee owns on the Date of Grant more than 10 percent of the
total combined voting power of all classes of stock of the Corporation or its
parent or any of its subsidiaries, as more fully described in Section
422(b)(6) of the Code or any successor provision (such shareholder is
referred to herein as a "10-Percent Shareholder"), the Exercise Price for any
Qualified Option granted to such Optionee shall not be less than 110% of the
Fair Market Value of the Common Stock at the Date of Grant.
9. VESTING. Subject to Section 11 of this Plan, each Option award
under the Plan shall vest or be subject to forfeiture in accordance with the
provisions set forth in the applicable Option agreement. The Committee may,
but shall not be required to, permit acceleration of vesting or termination
of forfeiture provisions upon any sale of the Corporation or similar
transaction. In the event that the acceleration of any Option hereunder upon
a change of control of the Corporation or similar transaction would result in
an "excess parachute payment" (as defined in Section 280G of the Code), the
Participant's Option agreement shall specify whether the exercisability of
the full number of shares shall be accelerated. In the event that the Option
agreement does not specify whether the exercisability of the full number of
shares shall be accelerated and the Committee determines that an excess
parachute payment would result if acceleration occurred (when added to any
other payments or benefits contingent on a change of control under any other
agreements, arrangements or plans), then the number of shares as to which
excercisability is accelerated shall be reduced so that total parachute
payments do not exceed 299% of the Optionee's "base amount," as defined in
Section 280G(b)(3) of the Code. A Participant's Option agreement may contain
such additional provisions with respect to vesting as the Committee may
specify.
10. EXERCISE. A Participant may pay the Exercise Price of the
shares of Common Stock as to which an Option is being exercised by the
delivery of (a) cash, (b) check, (c) at the Corporation's option, by the
delivery of shares of Common Stock having a Fair Market Value on the date
immediately preceding the exercise date equal to the Exercise Price and have
been held by the Optionee at least six (6) months prior to the date of
exercise, or (d) at the Corporation's option, any other consideration that
the Corporation determines is consistent with the Plan's purpose and
applicable law. If the shares to be purchased are covered by an effective
registration statement under the Securities Act of 1933, as amended, any
Option granted under the Plan may be exercised by a broker-dealer acting on
behalf of an Optionee if (i) the broker-dealer has received from the Optionee
or the Corporation a fully- and duly-endorsed agreement evidencing such
Option, together with instructions signed by the Optionee requesting the
Corporation to deliver the shares of Common Stock subject to such Option to
the broker-dealer on behalf of the Optionee and specifying the account into
which such shares should be deposited, (ii) adequate provision has been made
with respect to the payment of any withholding taxes due upon such exercise,
and (iii) the broker-dealer and the Optionee have otherwise complied with
Section 220.3(e)(4) of Regulation T, 12 CFR Part 220, or any successor
provision.
<PAGE>
11. WHEN QUALIFIED OPTIONS MAY BE EXERCISED. No Qualified Option
shall be exercisable at any time after the expiration of ten (10) years from
the Date of Grant; provided, however, that if the Optionee with respect to a
Qualified Option is a 10-Percent Shareholder on the Date of Grant of such
Qualified Option, then such Option shall not be exercisable after the
expiration of five (5) years from its Date of Grant. In addition, if an
Optionee of a Qualified Option ceases to be an employee of the Corporation or
any Related Corporation for any reason, such Optionee's vested Qualified
Options shall not be exercisable after (a) three (3) months following the
date such Optionee ceases to be an employee of the Corporation or any Related
Corporation, if such cessation of service is not due to the death or
permanent and total disability (within the meaning of Section 22(e)(3) of the
Code) of the Optionee, or (b) twelve (12) months following the date such
Optionee ceases to be an employee of the Corporation or any Related
Corporation, if such cessation of service is due to the death or permanent
and total disability (as defined above) of the Optionee. Upon the death of an
Optionee, any vested Qualified Option exercisable on the date of death may be
exercised by the Optionee's estate or by a person who acquires the right to
exercise such Qualified Option by bequest or inheritance or by reason of the
death of the Optionee, provided that such exercise occurs within both the
remaining option term of the Qualified Option and twelve (12) months after
the date of the Optionee's death. This Section 11 only provides the outer
limits of allowable exercise dates with respect to Qualified Options; the
Committee may determine that the exercise period for a Qualified Option shall
have a shorter duration than as specified above.
12. OPTION FINANCING. Upon the exercise of any Option granted under
the Plan, the Corporation may, but shall not be required to, make financing
available to the Participant for the purchase of shares of Common Stock
pursuant to such Option on such terms as the Board or the Committee may
specify.
13. WITHHOLDING OF TAXES. The Committee shall make such provisions
and take such steps as it may deem necessary or appropriate for the
withholding of any taxes that the Corporation is required by any law or
regulation of any governmental authority to withhold in connection with any
Option including, but not limited to, (a) withholding the issuance of all or
any portion of the shares of Common Stock subject to such Option until the
Participant reimburses the Corporation for the amount it is required to
withhold with respect to such taxes, (b) withholding any portion of such
issuance in an amount sufficient to reimburse the Corporation for the amount
of taxes it is required to withhold, (c) allowing the Participant to deliver
Common Stock as payment for the amount the Corporation is required to
withhold for taxes or (d) taking any other action reasonably required to
satisfy the Corporation's withholding obligation.
14. CONDITIONS UPON ISSUANCE OF SHARES.
(a) The Corporation shall not be obligated to sell or issue
any shares upon the exercise of any Option granted under the Plan unless the
issuance and delivery of shares comply with all provisions of applicable federal
and state securities laws and the requirements of The Nasdaq Stock Market or any
stock exchange upon which shares of the Common Stock may then be listed.
<PAGE>
(b) As a condition to the exercise of an Option, the
Corporation may require the person exercising the Option to make such
representations and warranties as may be necessary to assure the availability
of an exemption from the registration requirements of applicable federal and
state securities laws.
(c) The Corporation shall not be liable for refusing to sell
or issue any shares covered by any Option if the Corporation cannot obtain
authority from the appropriate regulatory bodies deemed by the Corporation to be
necessary to sell or issue such shares in compliance with all applicable federal
and state securities laws and the requirements of The Nasdaq Stock Market or any
stock exchange upon which shares of the Common Stock may then be listed. In
addition, the Corporation shall have no obligation to any Participant, express
or implied, to list, register or otherwise qualify the shares of Common Stock
covered by any Option.
(d) No Participant will be, or will be deemed to be, a holder
of any Common Stock subject to an Option unless and until such Participant has
exercised his or her Option and paid the purchase price for the subject shares
of Common Stock.
15. RESTRICTIONS ON TRANSFER.
(a) Options issued pursuant to the Plan shall be nontransferable
except by will or the laws of descent and distribution, and may only be
exercisable during the Participant's lifetime only by the Participant.
(b) Shares of Common Stock issued pursuant to the Plan may be
subject to restrictions on transfer under applicable federal and state
securities laws. The Committee may impose such additional restrictions on the
ownership and transfer of shares of Common Stock issued pursuant to the Plan as
it deems desirable; any such restrictions shall be set forth in any Option
agreement entered into hereunder.
16. MODIFICATION OF PLAN AND OPTIONS.
(a) The Committee may from time to time and at any time alter,
amend, suspend, discontinue or terminate this Plan; provided, however, that no
such action of the Committee may, without the approval of the shareholders of
the Corporation, alter the provisions of the Plan so as to (i) increase the
maximum number of shares of Common Stock that may be subject to Qualified
Options under this Plan (except as provided in Section 17 of this Plan), (ii)
change the class of employees eligible to receive Qualified Options pursuant to
this Plan, or (iii) change the annual limit on the number of Options granted to
an Executive in Section 6 above.
(b) At any time and from time to time, the Committee may
execute an instrument providing for modification, extension or renewal of any
outstanding Option, provided that no such modification, extension or renewal
shall impair the Option without the consent of the holder of the Option.
Notwithstanding the foregoing, (i) in the event of such a modification,
substitution, extension or renewal of a Qualified Option, the Committee may
increase the
<PAGE>
exercise price of such Option if necessary to retain the qualified status of
such Option, and (ii) the Committee may, in its discretion and without the
holder's consent, convert, any Qualified Option into a Nonqualified Option.
17. EFFECT OF CHANGE IN STOCK SUBJECT TO THE PLAN. In the event that
each of the outstanding shares of Common Stock (other than shares held by
dissenting shareholders) shall be changed into or exchanged for a different
number or kind of shares of stock of the Corporation or of another corporation
(whether by reason of merger, consolidation, recapitalization, reclassification,
split-up, combination of shares or otherwise), or in the event a stock split or
stock dividend occurs, then the Corporation may either (a) substitute for each
share of Common Stock then subject to Options or available for Options the
number and kind of shares of stock into which each outstanding share of Common
Stock (other than shares held by dissenting shareholders) shall be so changed or
exchanged, or the number of shares of Common Stock as is equitably required in
the event of a stock split or stock dividend, together with an appropriate
adjustment of the Exercise Price, or (b) cancel all such Options as of the
effective date of any merger, consolidation, recapitalization, reclassification,
split-up or combination of shares by giving written notice to each holder
thereof or his personal representatives of its intention to do so and by
permitting the exercise of all such Options, without regard to determinations of
periods or installments of exercisability during the thirty (30) day period
immediately preceding such effective date. The Committee may, but shall not be
required to, provide additional anti-dilution protection to a Participant under
the terms of the Participant's Option agreement.
18. ADMINISTRATION.
(a) Notwithstanding anything to the contrary herein, to the
extent necessary to comply with the requirements of Rule 16b-3, the Plan shall
be administered by the Board, if each member is a Non-Employee Director, or by a
committee comprised solely of two or more Non-Employee Directors appointed by
the Board (the group responsible for administering the Plan is referred to as
the "Committee"). Options may be granted under Section 6 only by majority
agreement of the members of the Committee. Option agreements, in the form as
approved by the Committee, and containing such terms and conditions consistent
with the provisions of this Plan as are determined by the Committee, may be
executed on behalf of the Corporation by the Chairman of the Board, the
President or any Vice President of the Corporation. The Committee shall have
complete authority to construe, interpret and administer the provisions of this
Plan and the provisions of the Option agreements granted hereunder; to
prescribe, amend and rescind rules and regulations pertaining to this Plan; to
suspend, discontinue or terminate this Plan; and to make all other
determinations necessary or deemed advisable in the administration of the Plan.
The determinations, interpretations and constructions made by the Committee
shall be final and conclusive. No member of the Committee shall be liable for
any action taken, or failed to be taken, made in good faith relating to the Plan
or any award thereunder, and the members of the Committee shall be entitled to
indemnification and reimbursement by the Corporation in respect of any claim,
loss, damage or expense (including attorneys' fees) arising therefrom to the
fullest extent permitted by law.
<PAGE>
(b) Members of the Committee shall be specified by the Board,
and shall consist solely of Non-Employee Directors. Non-Employee Directors may
not possess an interest in any transaction for which disclosure is required
under Section 404(a) of Regulation S-K under the Exchange Act or be engaged in a
business relationship that must be disclosed under Section 404(a) and must
qualify as `outside directors' as defined in Section 162(m) of the Code and
regulations thereunder.
(c) Although the Committee may suspend, discontinue or
terminate the Plan at any time, all Qualified Options must be granted within ten
(10) years from the effective date of the Plan or the date the Plan is approved
by the shareholders of the Corporation, whichever is earlier.
19. CONTINUED EMPLOYMENT NOT PRESUMED. Nothing in this Plan or any
document describing it nor the grant of any Option shall give any Participant
the right to continue in the employment of the Corporation or affect the right
of the Corporation to terminate the employment of any such person with or
without cause.
20. LIABILITY OF THE CORPORATION. Neither the Corporation, its
directors, officers or employees or the Committee, nor any Subsidiary which is
in existence or hereafter comes into existence, shall be liable to any
Participant or other person if it is determined for any reason by the Internal
Revenue Service or any court having jurisdiction that any Qualified Option
granted hereunder does not qualify for tax treatment as an incentive stock
option under Section 422 of the Code.
21. GOVERNING LAW. THE PLAN SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF STATE OF DELAWARE AND THE UNITED STATES, AS
APPLICABLE, WITHOUT REFERENCE TO THE CONFLICT OF LAWS PROVISIONS THEREOF.
22. SEVERABILITY OF PROVISIONS. If any provision of this Plan is
determined to be invalid, illegal or unenforceable, such invalidity, illegality
or unenforceability shall not affect the remaining provisions of the Plan, but
such invalid, illegal or unenforceable provision shall be fully severable, and
the Plan shall be construed and enforced as if such provision had never been
inserted herein.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,249
<SECURITIES> 0
<RECEIVABLES> 63,212
<ALLOWANCES> 790
<INVENTORY> 0
<CURRENT-ASSETS> 67,192
<PP&E> 35,095
<DEPRECIATION> 35,103
<TOTAL-ASSETS> 164,515
<CURRENT-LIABILITIES> 27,646
<BONDS> 0
43,093
2
<COMMON> 525
<OTHER-SE> 45,647
<TOTAL-LIABILITY-AND-EQUITY> 164,515
<SALES> 0
<TOTAL-REVENUES> 72,569
<CGS> 0
<TOTAL-COSTS> 51,200
<OTHER-EXPENSES> 20,425
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,193
<INCOME-PRETAX> (249)
<INCOME-TAX> 148
<INCOME-CONTINUING> (397)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (397)
<EPS-BASIC> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
