<PAGE> 1
As filed with the Securities and Exchange Commission on November 1, 1996
Registration No. 333-14097
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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APAC TELESERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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ILLINOIS 36-2777140
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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ONE PARKWAY NORTH CENTER, SUITE 510
DEERFIELD, ILLINOIS 60015
(847) 945-0055
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S EXECUTIVE OFFICES)
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THEODORE G. SCHWARTZ
CHAIRMAN, PRESIDENT & CHIEF EXECUTIVE OFFICER
APAC TELESERVICES, INC.
ONE PARKWAY NORTH CENTER, SUITE 510
DEERFIELD, ILLINOIS 60015
(847) 945-0055
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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STANLEY H. MEADOWS, P.C. MICHAEL A. CAMPBELL
MCDERMOTT, WILL & EMERY MAYER, BROWN & PLATT
227 WEST MONROE STREET 190 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60606-5096 CHICAGO, ILLINOIS 60603
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
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If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION ACTING PURSUANT
TO SAID SECTION 8(A), MAY DETERMINE.
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EXPLANATORY NOTE
This registration statement contains two forms of prospectus: one to be
used in connection with an offering in the United States and Canada (the "U.S.
Prospectus") and one to be used in a concurrent international offering outside
the United States and Canada (the "International Prospectus"). The complete U.S.
Prospectus follows immediately. Following the U.S. Prospectus are certain pages
of the International Prospectus, which include an alternate front cover page, an
alternate underwriting section and an alternate back cover page. All other pages
of the U.S. Prospectus and the International Prospectus are identical.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 1, 1996
PROSPECTUS
4,100,000 SHARES
APAC TELESERVICES, INC.
COMMON SHARES APEC LOGO
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Of the 4,100,000 Common Shares of APAC TeleServices, Inc., an Illinois
corporation (the "Company" or "APAC"), being offered hereby, 3,280,000 shares
are being offered in the United States and Canada by the U.S. Underwriters (the
"U.S. Offering") and 820,000 shares are being offered in a concurrent
international offering outside the United States and Canada by the International
Managers (the "International Offering", and together with the U.S. Offering, the
"Offerings"). The public offering price and the aggregate underwriting discount
per share are identical for each of the Offerings. See "Underwriting."
All of the Common Shares offered hereby are being sold by certain
shareholders of the Company (the "Selling Shareholders"). The Company will not
receive any proceeds from the sale of Common Shares by the Selling Shareholders.
The Common Shares are quoted on the Nasdaq National Market under the symbol
"APAC." The last reported sale price of the Common Shares on the Nasdaq National
Market on October 30, 1996 was $46 per share. See "Price Range for Common Shares
and Dividend Policy."
SEE "RISK FACTORS" ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON SHARES OFFERED
HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PROCEEDS TO
PRICE UNDERWRITING SELLING
TO PUBLIC DISCOUNT(1) SHAREHOLDERS
<S> <C> <C> <C>
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Per Share......................... $ $ $
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Total(2).......................... $ $ $
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(1) The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933. See "Underwriting."
(2) Certain Selling Shareholders have granted the U.S. Underwriters and the
International Managers options, exercisable within 30 days of the date
hereof, to purchase up to an aggregate of 492,000 and 123,000 additional
Common Shares, respectively, on the same terms as set forth above, to cover
over-allotments, if any. If all such additional shares are purchased, the
total Price to Public, Underwriting Discount and Proceeds to Selling
Shareholders will be $ , $ and $ ,
respectively. See "Underwriting."
------------------------
The Common Shares are offered by the several Underwriters, subject to prior
sale, when, as and if issued to and accepted by them, subject to the approval of
certain legal matters by counsel for the Underwriters and to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Common Shares will be made in New York, New York on or about
, 1996.
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MERRILL LYNCH & CO.
LEHMAN BROTHERS
SMITH BARNEY INC.
WILLIAM BLAIR & COMPANY
------------------------
The date of this Prospectus is , 1996.
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[Graphic Description: A series of six pictures depicting various individuals
performing teleservice operations.]
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON SHARES
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON SHARES OF THE COMPANY ON THE NASDAQ
NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT
OF 1934. SEE "UNDERWRITING."
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the financial statements
and notes thereto appearing elsewhere in, or incorporated by reference into,
this Prospectus. Except as otherwise indicated, all information in this
Prospectus (a) has been adjusted to reflect a 2-for-1 stock split in the form of
a stock dividend that was completed on May 15, 1996 and (b) assumes no exercise
of the Underwriters' over-allotment options. See "Underwriting."
This Prospectus contains certain forward-looking statements that involve
substantial risks and uncertainties. When used in this Prospectus, or in the
documents incorporated by reference herein, the words "anticipate," "believe,"
"estimate," "intend" and "expect" and similar expressions are intended to
identify such forward-looking statements. The Company's actual results,
performance or achievements could differ materially from the results expressed
in or implied by these forward-looking statements. Factors that could cause or
contribute to such differences include those discussed in "Risk Factors."
THE COMPANY
APAC is one of the largest and fastest growing providers of outsourced
telephone-based sales, marketing and customer management services. The Company's
client base is comprised of large companies with growing needs for
cost-effective means of contacting and servicing current and prospective
customers. The Company operates approximately 8,000 workstations in 56 telephone
call centers located primarily in the Midwest. The call centers are centrally
managed through the application of extensive telecommunications and computer
technology to promote the consistent delivery of quality service. The Company
believes its innovative approach to providing quality service distinguishes it
from its competitors and has led to the Company's rapid growth rate and its
retention of key clients. The Company's net revenue and net income for the first
twenty-six weeks of fiscal 1996 were $113.2 million and $11.8 million,
representing increases of 179% and 258%, respectively, when compared to the
Company's net revenue and pro forma net income for the first twenty-six weeks of
fiscal 1995.
The Company has two primary service offerings: Outbound Sales and Marketing
Solutions ("Sales Solutions") and Inbound Customer Service Solutions ("Service
Solutions").
Sales Solutions. Sales Solutions provides telephone-based sales to
consumers and businesses, database analysis and management, market research,
targeted marketing plan development and customer lead generation, acquisition
and retention. Sales Solutions generated approximately $62.2 million of net
revenue, or approximately 55% of the Company's total net revenue, in the first
twenty-six weeks of fiscal 1996, an increase of 92% when compared to the first
twenty-six weeks of fiscal 1995. Sales Solutions currently specializes in three
industries:
Telecommunications--APAC provides Sales Solutions services to the
telecommunications industry, primarily servicing long distance, regional
and wireless telecommunication companies. The Company's services include
new account acquisition, direct sales of custom calling features,
personalized "800" and long distance services and other customer retention
services in both the business and consumer market segments. The Company's
most significant relationship in this industry is with AT&T Corporation
("AT&T"), which accounted for approximately 35.4% of the Company's Sales
Solutions net revenue in the first twenty-six weeks of fiscal 1996.
Insurance--APAC is a major marketer of insurance products throughout
the United States. The Company works with large consumer insurance
companies and their agents, marketing products such as life, accident,
health, and property and casualty insurance. The Company employs
approximately 250 insurance agents licensed to sell insurance in a total of
49 states. APAC has sold approximately 4.0 million insurance policies for
its clients since 1991. Significant relationships in this industry include
Mass Marketing Insurance Group, J.C. Penney Life Insurance Company and
American Bankers Insurance Group, which clients accounted for approximately
14.5%, 8.8% and 4.5%, respectively, of the Company's Sales Solutions net
revenue in the first twenty-six weeks of fiscal 1996.
Financial Services--APAC provides sales and marketing services to many
of the largest U.S. credit card issuers. The Company's services include
customer account acquisition, credit line expansion, balance
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consolidation, cardholder retention and sales of other banking products and
services. Significant relationships in this industry include Chevy Chase
Bank and Discover Card Services, which clients accounted for approximately
2.9% and 2.0%, respectively, of the Company's Sales Solutions net revenue
in the first twenty-six weeks of fiscal 1996.
Sales Solutions also offers business-to-business sales source services.
These services include obtaining customer record updates, conducting customer
satisfaction and preference surveys and cross-selling client products. Sales
source services are designed to provide pro-active customer management with the
objective of account expansion and enhanced customer retention. Sales source
services accounted for approximately 3.0% of the Company's Sales Solutions net
revenue in the first twenty-six weeks of fiscal 1996.
Service Solutions. Service Solutions provides inbound customer service,
direct mail response, "help" line support and catalog order processing. The
target market for Service Solutions is large companies with inbound annual call
volume in excess of 500,000 calls and inefficient or expensive customer service
operations. Certain Service Solutions clients rely upon the Company to provide
specialized telephone service representatives such as insurance agents and
computer technicians, capable of responding to specific customer inquiries.
Service Solutions, which became a full-scale offering in late fiscal 1993,
generated approximately $51.0 million of net revenue, or approximately 45% of
the Company's total net revenue, in the first twenty-six weeks of fiscal 1996,
an increase of 522% when compared to the first twenty-six weeks of fiscal 1995.
Significant relationships include United Parcel Service ("UPS"), Western Union
and Quill Corporation, which clients accounted for approximately 75.7%, 3.4% and
3.3%, respectively, of the Company's Service Solutions net revenue in the first
twenty-six weeks of fiscal 1996. As of July, 1995, the Company entered into an
agreement to operate and manage four of UPS' customer service facilities on an
outsourced basis until January, 2000. In August, 1996 the Company entered into a
five-year agreement to receive and process customer orders for John H. Harland
Corporation, a leading supplier of checks, database marketing services and loan
automation software to the financial services industry. APAC believes
significant opportunities to generate new business in Service Solutions exist as
more companies outsource all or a portion of their telephone-based customer
service functions.
BUSINESS STRATEGY
APAC's strategy is to be the premier provider to the large and growing
market for outsourced telephone-based services. The Company seeks to
differentiate itself from other providers by offering customized solutions that
address the specialized needs of its clients, while improving the effectiveness
and reducing the cost of their marketing and customer service operations. APAC
seeks to continue to expand its business by leveraging the following competitive
strengths:
Specialized Technology--The Company's technological capabilities and
expertise allow APAC to serve as a "seamless extension" of each client's
business while handling approximately 9.5 million inbound and outbound
calls per week. The Company has developed a UNIX-based, open architecture
computer system which provides APAC with the flexibility to integrate its
system with the variety of systems maintained by its clients. Through such
integration, APAC is able to receive calls and data directly from clients'
systems, forward calls to clients' in-house telephone representatives when
appropriate, and report, on a real-time basis, the status and results of
the Company's services. By utilizing APAC's services, clients are able to
cost-effectively access the Company's specialized technological
capabilities.
Call Center Development--The Company has developed a systematic
approach to locating, equipping and staffing call centers, enabling it to
have a typical call center operational in approximately 90 days. APAC
locates call centers primarily in small to mid-sized communities in an
effort to lower its operating costs and attract a high quality, dedicated
work force. Since the beginning of fiscal 1996, APAC has opened 23 new call
centers and expanded certain existing call centers adding approximately
3,700 new workstations. The Company intends to continue to add call centers
and workstations as required by demand for its services.
Human Resource Management--APAC's ability to hire, train and manage
employees is critical to its ability to provide high quality service to its
clients. Once hired, each new telephone representative
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receives on-site training lasting from three to 17 days, depending on the
complexity of the sales or service offering. APAC believes that by
employing a significant number of full-time personnel it is able to
maintain a more stable work force and reduce the Company's recruiting and
training expenditures.
GROWTH OPPORTUNITIES
The Company has grown rapidly over the past several years by utilizing its
competitive strengths to participate in the growth in its industry and the
ongoing trend towards outsourcing. Industry sources estimate telephone-based
direct marketing expenditures have doubled over the last ten years and were
approximately $81 billion in 1995. Telephone-based contact with customers is
increasing as more companies realize its benefits, which include high response
rates, low cost per transaction, direct interaction with customers and on-line
access to detailed customer or product information allowing immediate responses
to customer inquiries. Additionally, with the proliferation of toll-free "800"
and "888" numbers, the telephone is becoming a principal means of providing
customer service. APAC believes that large companies increasingly will outsource
these activities in order to focus internal resources on their core
competencies, while improving quality, increasing productivity and reducing
costs. Moreover, the Company believes that well-capitalized, experienced
organizations such as APAC will benefit due to increasing demand for
multi-location, high volume, technologically-advanced call center operations.
The Company seeks to capitalize on these trends through expanding existing
client relationships, adding new clients, developing new markets and promoting
new services. The Company believes that the telecommunications industry will
continue to provide significant opportunities for Sales Solutions as a result of
on-going industry deregulation, the emergence of personal communications
services ("PCS") technology and new industry participants. The Company also
believes opportunities exist to provide additional Sales Solutions services to
the financial services and insurance industries. Furthermore, the Company plans
to continue to market its business-to-business sales source services to new and
existing clients. The Company believes Service Solutions will continue to grow
significantly as certain contracts come fully on-line through fiscal 1996 and
fiscal 1997. APAC intends to pursue additional Service Solutions opportunities
as more companies expand and outsource their telephone-based customer service
functions.
THE OFFERINGS
Common Shares offered by the Selling
Shareholders(1)................... 4,100,000 shares
Common Shares to be outstanding
after the Offerings(2).............. 46,521,260 shares
Use of proceeds..................... All proceeds from the Offerings will be
received by the Selling Shareholders.
Nasdaq National Market symbol....... APAC
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(1) Assumes no exercise of the over-allotment options granted by certain Selling
Shareholders to the Underwriters. Of the 4,100,000 Common Shares to be sold
in the Offerings, 3,280,000 Common Shares are being offered in the United
States and Canada by the U.S. Underwriters and 820,000 Common Shares are
being offered in a concurrent offering outside the United States and Canada
by the International Managers.
(2) Does not include (a) 2,325,916 Common Shares issuable upon exercise of
outstanding options, and (b) 3,479,753 Common Shares available for future
grants under the Company's Stock Plans and for future issuance under the
Company's Employee Stock Purchase Plan. See "Management--Employee Stock
Plan and Director Stock Plan."
The Company's principal executive office is located at One Parkway North
Center, Suite 510, Deerfield, Illinois 60015 and its telephone number is (847)
945-0055.
5
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SUMMARY FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
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TWENTY-SIX WEEKS
ENDED
FISCAL YEAR(1) --------------------
---------------------------------------------------- JULY 2, JUNE 30,
1991 1992 1993 1994 1995 1995 1996
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INCOME STATEMENT DATA:
Net revenue............... $13,748 $13,529 $28,912 $46,618 $101,667 $40,642 $113,243
Income from operations.... 1,320 1,335 4,052 6,630 13,287 6,060 19,285
Net income as
reported(2)............ 1,791 1,204 3,849 5,966 8,153 5,498 11,836
======= ======= ======= ======= ======== ======= ========
PRO FORMA DATA(2)(3):
Income before taxes as
reported............... 1,791 1,204 3,849 5,966 12,483 5,498 19,564
Provision for
income taxes........... 700 360 1,500 2,070 5,000 2,153 7,728
------- ------- ------- ------- -------- ------- --------
Net income................ $ 1,091 $ 844 $ 2,349 $ 3,896 $ 7,483 $ 3,345 $ 11,836
======= ======= ======= ======= ======== ======= ========
Net income per share...... $ 0.03 $ 0.02 $ 0.06 $ 0.10 $ 0.18 $ 0.08 $ 0.25
======= ======= ======= ======= ======== ======= ========
Weighted average common
shares outstanding..... 40,086 40,086 40,086 40,086 41,624 40,086 47,869
OPERATING DATA (AT END OF
PERIOD):
Number of workstations.... 368 480 934 1,630 4,210 2,244 7,602
Number of call centers.... 5 6 12 17 33 25 55
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AT JUNE 30, 1996
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BALANCE SHEET DATA:
Cash and short-term investments............................................... $ 5,714
Working capital............................................................... 24,265
Total assets.................................................................. 92,119
Long-term debt, less current maturities....................................... 1,380
Shareholders' equity.......................................................... 65,840
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(1) The Company has a 52/53 week fiscal year that ends on the Sunday closest to
December 31. Fiscal 1992 is the only period presented that consisted of 53
weeks. As used in this Prospectus, the terms "fiscal 1991," "fiscal 1992,"
"fiscal 1993," "fiscal 1994", "fiscal 1995" and "fiscal 1996" refer to the
Company's fiscal years ended December 29, 1991, January 3, 1993, January 2,
1994, January 1, 1995, December 31, 1995 and December 29, 1996,
respectively.
(2) Prior to the Company's initial public offering of Common Shares (the
"Initial Public Offering"), the Company was an S corporation and not subject
to Federal (and some state) corporate income taxes. On October 16, 1995, the
Company changed its tax status from an S corporation to a C corporation,
recorded deferred income taxes totalling $3,780,000 and began providing for
Federal and state corporate income taxes.
(3) Net income and net income per share for periods prior to October 16, 1995
presented under Pro Forma Data include a pro forma provision for income
taxes determined as if the Company had been taxed as a C corporation. The
provision for income taxes represents a combined Federal and state tax rate
of 43%, less applicable Federal and state job creation tax credits, which
resulted in effective rates ranging from 30% to 40%. See Note 2 to the
Company's Financial Statements included elsewhere in this Prospectus.
See "Recent Developments" for a discussion of the Company's financial
results for each of the thirteen weeks and thirty-nine weeks ended September 29,
1996.
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RISK FACTORS
In addition to the other information set forth in, or incorporated by
reference into, this Prospectus, the following risk factors should be considered
carefully in evaluating the Company and its business before purchasing any of
the Common Shares offered hereby.
RELIANCE ON MAJOR CLIENTS AND KEY INDUSTRIES
Because a substantial portion of the Company's revenue is generated from
relatively few clients, the loss of a significant client or clients could have a
materially adverse effect on the Company. The Company's ten and four largest
clients collectively accounted for approximately 72.0% and 46.4%, respectively,
of the Company's net revenue in fiscal 1995, and approximately 81.5% and 68.0%,
respectively, of the Company's net revenue in the first twenty-six weeks of
fiscal 1996. The Company's largest clients in the first twenty-six weeks of
fiscal 1996 were UPS and AT&T. UPS and AT&T accounted for approximately 14.1%
and 7.9%, respectively, of the Company's net revenue in fiscal 1995 and
approximately 35.7% and 19.5%, respectively, of the Company's net revenue in the
first twenty-six weeks of fiscal 1996. The Company's largest client in fiscal
1995 and third largest client in the first twenty-six weeks of fiscal 1996 was
Mass Marketing Insurance Group, which accounted for approximately 15.6% and 8.0%
of the Company's net revenue during these periods, respectively. The insurance
products sold by Mass Marketing Insurance Group are currently underwritten by
J.C. Penney Life Insurance Company. During fiscal 1995 and the first twenty-six
weeks of fiscal 1996, J.C. Penney Life Insurance Company was the third and
fourth largest client of the Company, respectively, accounting for approximately
8.8% and 4.8% of the Company's net revenue, respectively. Many of the Company's
clients are concentrated in the parcel delivery, telecommunications, consumer
insurance and financial services industries. A significant downturn in any of
these industries or a trend in any of these industries not to use, or to reduce
their use of, telephone-based sales, marketing or customer management services
could have a materially adverse effect on the Company's business. The Company
generally operates under contracts which may be terminated on short notice, some
of which do not have minimum volume requirements. See "Business."
FACTORS AFFECTING ABILITY TO MANAGE AND SUSTAIN GROWTH
The Company has experienced rapid growth over the past several years and
anticipates continued growth to be driven primarily by industry trends towards
outsourcing of telephone-based sales, marketing, and customer service operations
and increased penetration by the Company of new and existing clients and
markets. Future growth will depend on a number of factors, including the
effective and timely initiation and development of client relationships, opening
of new call centers, and recruitment, motivation and retention of qualified
personnel. Sustaining growth will also require the implementation of enhanced
operational and financial systems and will require additional management,
operational and financial resources. There can be no assurance that the Company
will be able to manage its expanding operations effectively or that it will be
able to maintain or accelerate its growth. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business."
COMPETITIVE AND FRAGMENTED INDUSTRY; POTENTIAL FUTURE COMPETING TECHNOLOGIES AND
TRENDS
The industry in which the Company competes is very competitive and highly
fragmented. APAC's competitors range in size from very small firms offering
special applications or short term projects to large independent firms and the
in-house operations of many clients and potential clients. A number of
competitors have capabilities and resources equal to, or greater than, the
Company's. Some of the Company's services also compete with direct mail,
television, radio and other advertising media. There can be no assurance that,
as the Company's industry continues to evolve, additional competitors with
greater resources than the Company will not enter the industry (or particular
segments of the industry) or that the Company's clients will not choose to
conduct more of their telephone-based sales, marketing or customer service
activities internally. See "Business--Competition."
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The development of new forms of direct sales and marketing techniques, such
as interactive home shopping through television, computer networks and other
media, could have an adverse effect on the demand for the Company's Sales
Solutions services. In addition, the increased use of new telephone-based
technologies, such as interactive voice response systems, and increased use of
the Internet could reduce the demand for certain of the Company's Service
Solutions offerings. Moreover, the effectiveness of marketing by telephone could
also decrease as a result of consumer saturation and increased consumer
resistance to this direct marketing tool. Although the Company attempts to
monitor industry trends and respond accordingly, there can be no assurance that
the Company will be able to anticipate and successfully respond to such trends
in a timely manner. See "Business."
RELIANCE ON TECHNOLOGY
The Company has invested significantly in sophisticated and specialized
telecommunications and computer technology, and has focused on the application
of this technology to provide customized solutions to meet its clients' needs.
The Company anticipates that it will be necessary to continue to select, invest
in and develop new and enhanced technology on a timely basis in the future in
order to maintain its competitiveness. The Company's future success will also
depend in part on its ability to continue to develop information technology
solutions which keep pace with evolving industry standards and changing client
demands. In addition, the Company's business is highly dependent on its computer
and telephone equipment and software systems, and the temporary or permanent
loss of such equipment or systems, through casualty or operating malfunction,
could have a materially adverse effect on the Company's business. See
"Business--Technology Resources."
DEPENDENCE ON KEY PERSONNEL
The success of the Company depends in large part upon the abilities and
continued service of its executive officers and other key employees. There can
be no assurance that the Company will be able to retain the services of such
officers and employees. The loss of key personnel could have a materially
adverse effect on the Company. The Company has non-competition agreements with
certain of its existing key personnel. However, courts are at times reluctant to
enforce such agreements. In order to support its growth, the Company will be
required to effectively recruit, develop and retain additional qualified
management personnel. See "Management."
DEPENDENCE ON LABOR FORCE
The Company's industry is very labor intensive and has experienced high
personnel turnover. Many of the Company's employees receive modest hourly wages
and a significant number are employed on a part-time basis. A higher turnover
rate among the Company's employees would increase the Company's recruiting and
training costs and decrease operating efficiencies and productivity. Some of the
Company's operations, particularly insurance product sales and technology-based
inbound customer service, require specially trained employees. Growth in the
Company's business will require it to recruit and train qualified personnel at
an accelerated rate from time to time. There can be no assurance that the
Company will be able to continue to hire, train and retain a sufficient labor
force of qualified employees. A significant portion of the Company's costs
consists of wages to hourly workers. An increase in hourly wages, costs of
employee benefits or employment taxes could materially adversely affect the
Company. See "Business--Personnel and Training."
DEPENDENCE ON TELEPHONE SERVICE
The Company's business is materially dependent on service provided by
various local and long distance telephone companies. A significant increase in
the cost of telephone services that is not recoverable through an increase in
the price of the Company's services, or any significant interruption in
telephone services, could have a materially adverse impact on the Company.
8
<PAGE> 11
GOVERNMENT REGULATION
The Company's business is subject to various Federal and state laws and
regulations. The Company's industry has become subject to an increasing amount
of Federal and state regulation in the past five years. The Federal
Communications Commission's (the "FCC") rules under the Federal Telephone
Consumer Protection Act of 1991 (the "TCPA") limit the hours during which
telemarketers may call consumers and prohibit the use of automated telephone
dialing equipment to call certain telephone numbers. The Federal Telemarketing
and Consumer Fraud and Abuse Prevention Act of 1994 (the "TCFAPA") broadly
authorizes the Federal Trade Commission (the "FTC") to issue regulations
prohibiting misrepresentation in telephone sales. In August, 1995, the FTC
issued regulations under the TCFAPA which, among other things, require
telemarketers to make certain disclosures when soliciting sales. The Company's
operating procedures comply with the telephone solicitation rules of the FCC and
FTC. However, there can be no assurance that additional Federal or state
legislation, or changes in regulatory implementation, would not limit the
activities of the Company or its clients in the future or significantly increase
the cost of regulatory compliance.
Several of the industries in which the Company's clients operate are
subject to varying degrees of government regulation, particularly the insurance
and financial services industries. Generally, compliance with these regulations
is the responsibility of the Company's clients. However, the Company could be
subject to a variety of enforcement or private actions for its failure or the
failure of its clients to comply with such regulations. APAC telephone
representatives who sell insurance products are required to be licensed by
various state insurance commissions and participate in regular continuing
education programs, thus requiring the Company to comply with the extensive
regulations of these state commissions. As a result, changes in these
regulations or their implementation could materially increase the Company's
operating costs. See "Business--Government Regulation."
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company could experience quarterly variations in net revenue and
operating income as a result of many factors, including the timing of clients'
marketing campaigns and customer service programs, the timing of additional
selling, general and administrative expenses to acquire and support such new
business and changes in the Company's revenue mix among its various service
offerings. In connection with certain contracts, the Company could incur costs
in periods prior to recognizing revenue under those contracts. In addition, the
Company must plan its operating expenditures based on revenue forecasts, and a
revenue shortfall below such forecast in any quarter would likely adversely
affect the Company's operating results for that quarter. The effects of
seasonality on APAC's business have historically been obscured by its growing
net revenue. However, the Company's business tends to be slower in the first and
third quarters due to client marketing programs which are typically slower in
the post-holiday and summer months. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
POTENTIAL VOLATILITY OF PRICE OF COMMON SHARES
The market price of the Common Shares has risen substantially since the
Initial Public Offering in October, 1995. The Common Shares are quoted on the
Nasdaq National Market, which market has experienced, and is likely to
experience in the future, significant price and volume fluctuations which could
adversely affect the market price of the Common Shares without regard to the
operating performance of the Company. In addition, the trading price of the
Common Shares could be subject to significant fluctuations in response to actual
or anticipated variations in the Company's quarterly operating results and other
factors, such as the introduction of new services or technologies by the Company
or its competitors, changes in other conditions or trends in the Company's
industry or in the industries of any of the Company's significant clients,
changes in governmental regulation, changes in securities analysts' estimates of
the Company's, or its competitors' or industry's, future performance or general
market conditions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Quarterly Results." General market price
declines or market volatility in the future, or future declines or volatility in
the prices of stocks for companies in the Company's industry or sector, could
also affect the market price of the Common Shares.
9
<PAGE> 12
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of a substantial number of Common Shares in the public market
following the Offerings, or the perception that such sales could occur, could
adversely affect the market price of the Common Shares. After completion of the
Offerings, an aggregate of 46,521,260 Common Shares will be outstanding, of
which 20,981,260 will be freely tradeable. All remaining shares may be sold
under Rule 144 under the Securities Act of 1933 (the "Securities Act"), subject
to the volume, manner of sale and other restrictions of Rule 144. The Company
and the Selling Shareholders have, subject to certain exceptions, agreed not to,
directly or indirectly, sell, offer to sell, grant any option for sale of, or
otherwise dispose of, any capital stock of the Company, or any security
convertible or exchangeable into, or exercisable for, such capital stock, or, in
the case of the Company, file any registration statement with respect to any of
the foregoing, for a period of 180 days after the date of this Prospectus,
without the prior written consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Merrill Lynch International. Pursuant to an agreement between
Mr. Schwartz, the trustees of certain trusts and the Company, Mr. Schwartz and
the trusts are entitled to certain registration rights with respect to their
Common Shares, one of which registration rights is being exercised in connection
with the Offerings. If such shareholders, by exercising such remaining
registration rights upon expiration of the lock-up agreement described above,
cause a large number of shares to be registered and sold in the public market,
such sales could have an adverse effect on the market price of the Common
Shares. In addition, the Company has filed a registration statement under the
Securities Act registering an aggregate of 5,915,034 Common Shares reserved for
issuance in connection with outstanding options, the Company's Stock Plans and
the Company's Employee Stock Purchase Plan. See "Management--Employee Stock Plan
and Director Stock Plan," "Description of Capital Stock," "Shares Eligible for
Future Sale" and "Underwriting."
CONTROL BY PRINCIPAL SHAREHOLDER
Following completion of the Offerings, Mr. Schwartz, the Company's
Chairman, President and Chief Executive Officer, will beneficially own
approximately 42.3% of the outstanding Common Shares. As a result, Mr. Schwartz
will continue to be able to exercise significant control over the outcome of
substantially all matters requiring action by the Company's shareholders. Such
voting concentration may have the effect of discouraging, delaying or preventing
a change in control of the Company. In addition, following completion of the
Offerings, two trusts will each beneficially own approximately 5.6% of the
outstanding Common Shares. See "Management" and "Principal and Selling
Shareholders."
EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS
The Company's Amended and Restated Articles of Incorporation (the "Amended
Articles") and Amended and Restated Bylaws (the "Amended Bylaws") contain
certain provisions that could discourage potential takeover attempts and make
attempts by the Company's shareholders to change management more difficult. Such
provisions include the requirement that the Company's shareholders follow an
advance notification procedure for certain shareholder nominations of candidates
for the Board of Directors and for new business to be conducted at any meeting
of the shareholders. In addition, the Amended Articles allow the Board of
Directors to issue up to 50 million preferred shares and to fix the rights,
privileges and preferences of those shares without any further vote or action by
the shareholders. The rights of the holders of Common Shares will be subject to,
and may be adversely affected by, the rights of the holders of any preferred
shares that may be issued by the Company in the future. While the Company has no
present intention to issue preferred shares, any such issuance could have the
effect of making it more difficult for a third party to acquire a majority of
the outstanding voting stock of the Company. In addition, the Company is subject
to certain anti-takeover provisions of the Illinois Business Corporation Act,
which could have the effect of discouraging, delaying or preventing a change of
control of the Company. See "Description of Capital Stock--Certain Charter and
Bylaw Provisions" and "--Certain Statutory Provisions."
10
<PAGE> 13
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of Common
Shares in the Offerings. All such proceeds will be received by the Selling
Shareholders.
PRICE RANGE FOR COMMON SHARES AND DIVIDEND POLICY
The Company completed the Initial Public Offering on October 10, 1995 at a
price of $8.00 per share. Since the Initial Public Offering, the Company's
Common Shares have been quoted on the Nasdaq National Market under the symbol
"APAC." Prior to the Initial Public Offering, the Common Shares were not listed
or quoted on any organized market system. The following table sets forth for the
periods indicated the high and low sale prices of the Common Shares as reported
on the Nasdaq National Market during such period.
<TABLE>
<CAPTION>
HIGH LOW
----- -------
<S> <C> <C>
Fiscal 1995:
Fourth Quarter (from October 11, 1995)................. $17 7/16 $8 15/16
Fiscal 1996:
First Quarter.......................................... 36 1/8 13 5/16
Second Quarter......................................... 43 7/8 30 1/4
Third Quarter.......................................... 58 32 1/4
Fourth Quarter (through October 30, 1996).............. 59 45 1/2
</TABLE>
On October 30, 1996, the last reported sale price of the Common Shares
reported on the Nasdaq National Market was $46 per share. As of October 28,
1996, there were 107 holders of record of the Common Shares.
The Company currently intends to retain future earnings to finance its
growth and development and therefore does not anticipate paying any cash
dividends in the foreseeable future. In addition, the Company's Credit Facility
restricts the payment of cash dividends by the Company. Payment of any future
dividends will depend upon the future earnings and capital requirements of the
Company and other factors which the Board of Directors considers appropriate.
The Company has previously made shareholder distributions related to its S
corporation status. See Notes 2 and 11 to the Company's Financial Statements
included elsewhere in this Prospectus.
11
<PAGE> 14
CAPITALIZATION
The following table sets forth the current maturities of long-term debt and
capitalization of the Company at June 30, 1996. This table should be read in
conjunction with the Company's Financial Statements and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------
(IN THOUSANDS)
<S> <C>
Current maturities of long-term debt........................................... $ 393
=======
Long-term debt, less current maturities........................................ $ 1,380
Shareholders' equity:
Preferred shares, $0.01 par value per share, 50,000,000 shares authorized,
none issued and outstanding............................................... --
Common Shares, $0.01 par value per share, 200,000,000 shares authorized;
46,276,708 shares issued and outstanding(1)............................... 463
Additional paid-in capital................................................... 50,368
Retained earnings............................................................ 15,009
-------
Total shareholders' equity................................................ 65,840
-------
Total capitalization...................................................... $ 67,220
=======
</TABLE>
- ------------
(1) Does not include 2,447,337 Common Shares issuable upon exercise of
outstanding options. See "Management--Employee Stock Plan and Director Stock
Plan."
12
<PAGE> 15
SELECTED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
The following selected financial and operating data should be read in
conjunction with the Financial Statements of the Company and notes thereto
included elsewhere in this Prospectus. The income statement and balance sheet
data for and as of the end of each of the fiscal years in the five-year period
ended December 31, 1995, are derived from the audited Financial Statements of
the Company. The income statement and balance sheet data for and as of the end
of each of the twenty-six week periods ended July 2, 1995 and June 30, 1996 have
been derived from the unaudited Financial Statements of the Company and in the
opinion of management include all adjustments (consisting of normal and
recurring adjustments) which are necessary to present fairly the results of
operation and financial position of the Company for the periods and at the dates
presented. The selected financial and operating data for the twenty-six weeks
ended June 30, 1996 are not necessarily indicative of the results to be expected
for the full year.
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS
ENDED
FISCAL YEAR(1) ------------------
------------------------------------------------ JULY 2, JUNE 30,
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenue............................. $13,748 $13,529 $28,912 $46,618 $101,667 $40,642 $113,243
Cost of services........................ 10,256 9,662 19,790 30,666 71,982 27,190 80,174
Selling, general and administrative
expenses.............................. 2,172 2,532 5,070 9,322 16,398 7,392 13,784
------- ------- ------- ------- -------- ------- --------
Total operating expenses................ 12,428 12,194 24,860 39,988 88,380 34,582 93,958
------- ------- ------- ------- -------- ------- --------
Income from operations.................. 1,320 1,335 4,052 6,630 13,287 6,060 19,285
Other income(2)......................... 675 -- -- -- -- -- --
Interest income (expense), net.......... (204) (131) (203) (664) (804) (562) 279
Provision for income taxes(3)........... -- -- -- -- 4,330 -- 7,728
------- ------- ------- ------- -------- ------- --------
Net income as reported(3)............... 1,791 1,204 3,849 5,966 8,153 5,498 11,836
======= ======= ======= ======= ======== ======= ========
PRO FORMA DATA(3)(4):
Income before taxes as reported......... 1,791 1,204 3,849 5,966 12,483 5,498 19,564
Provision for income taxes.............. 700 360 1,500 2,070 5,000 2,153 7,728
------- ------- ------- ------- -------- ------- --------
Net income.............................. $ 1,091 $ 844 $ 2,349 $ 3,896 $ 7,483 $ 3,345 $ 11,836
======= ======= ======= ======= ======== ======= ========
Net income per share.................... $ 0.03 $ 0.02 $ 0.06 $ 0.10 $ 0.18 $ 0.08 $ 0.25
======= ======= ======= ======= ======== ======= ========
Weighted average common shares
outstanding........................... 40,086 40,086 40,086 40,086 41,624 40,086 47,869
SELECTED OPERATING DATA (AT END OF
PERIOD):
Number of workstations.................. 368 480 934 1,630 4,210 2,244 7,602
Number of call centers.................. 5 6 12 17 33 25 55
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR (END OF PERIOD)
------------------------------------------------- JUNE 30,
1991 1992 1993 1994 1995 1996
------ ------ ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and short-term investments................ $ 270 $ 699 $ 58 $ 1 $30,186 $ 5,714
Working capital................................ 594 1,064 454 2,877 33,045 24,265
Total assets................................... 4,374 6,026 11,501 21,181 74,332 92,119
Long-term debt, less current maturities........ 691 1,094 3,073 8,218 1,474 1,380
Shareholders' equity........................... 2,294 2,745 4,183 5,722 52,707 65,840
</TABLE>
- ------------
(1) The Company has a 52/53 week fiscal year that ends on the Sunday closest to
December 31. Fiscal 1992 is the only period presented that consisted of 53
weeks.
(2) Other income recorded in fiscal 1991 represents the settlement of a dispute
over services performed in fiscal 1990.
(3) Prior to the Initial Public Offering, the Company was an S corporation and
not subject to Federal (and some state) corporate income taxes. On October
16, 1995, the Company changed its tax status from an S corporation to a C
corporation, recorded deferred taxes totalling $3,780,000 and began
providing for Federal and state corporate income taxes.
(4) Net income and net income per share for periods prior to October 16, 1995
presented under Pro Forma Data include a pro forma provision for income
taxes determined as if the Company had been taxed as a C corporation. The
provision for income taxes represents a combined Federal and state tax rate
of 43%, less applicable Federal and state job creation tax credits, which
resulted in effective rates ranging from 30% to 40%. See Note 2 to the
Company's Financial Statements included elsewhere in this Prospectus.
13
<PAGE> 16
RECENT DEVELOPMENTS
On October 17, 1996, the Company announced record revenue of $75.4 million
for the thirteen weeks ended September 29, 1996, an increase of 213% from $24.1
million in the same period in fiscal 1995. Net income increased 514% to $8.6
million for the third quarter of fiscal 1996 compared to $1.4 million on a pro
forma basis for the third quarter of fiscal 1995. Earnings per share in the
third quarter of fiscal 1996 increased 500% to $0.18 from $0.03 in the third
quarter of fiscal 1995.
For the thirty-nine weeks ended September 29, 1996, the Company reported
record revenue of $188.6 million, an increase of 191% from the prior year's
revenue of $64.8 million for the same period. Net income for the first three
quarters of fiscal 1996 was $20.5 million, compared to $4.7 million for the same
period in fiscal 1995, a 336% increase. Earnings per share for the three
quarters ended September 29, 1996 was $0.43, an increase of 258% from $0.12 for
the same period in fiscal 1995.
The following table sets forth certain summary information regarding the
Company's results of operations for each of the thirteen weeks and thirty-nine
weeks ended September 29, 1996 and October 1, 1995. The summary information is
unaudited, and in the opinion of management includes all adjustments (consisting
of normal and recurring adjustments) which are necessary to present fairly the
Company's results of operations. The operating results for each of the thirteen
weeks and thirty-nine weeks ended September 29, 1996 are not necessarily
indicative of results to be expected for the full year.
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED THIRTEEN WEEKS ENDED
--------------------------- ---------------------------
SEPTEMBER 29, OCTOBER 1, SEPTEMBER 29, OCTOBER 1,
1996 1995 1996 1995
------------- ---------- ------------- ----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net revenue..................................... $ 188,604 $ 64,785 $75,361 $ 24,143
Income from operations.......................... 33,295 8,557 14,010 2,497
-------- ------- ------- -------
Income before income taxes...................... 33,535 7,729 13,971 2,231
Provision for income taxes(1)................... 13,079 3,030 5,351 877
-------- ------- ------- -------
Net income(1)................................... $ 20,456 $ 4,699 $ 8,620 $ 1,354
======== ======= ======= =======
Net income per share(1)......................... $ 0.43 $ 0.12 $ 0.18 $ 0.03
======== ======= ======= =======
Weighted average Common Shares outstanding...... 47,815 40,086 48,116 40,086
======== ======= ======= =======
</TABLE>
- ------------
(1) Income taxes, net income and net income per share for the thirty-nine weeks
and thirteen weeks ended October 1, 1995, are presented on a pro forma basis
and assume that the Company was subject to Federal and state income taxes
for the periods presented.
14
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Company's historical results of operations
and of its liquidity and capital resources should be read in conjunction with
the Selected Financial and Operating Data and the Financial Statements of the
Company and related notes thereto appearing elsewhere in this Prospectus.
RESULTS OF OPERATIONS
APAC's business has grown significantly, resulting in increases in net
revenue, income from operations and pro forma net income during each of the last
two fiscal years and the first twenty-six weeks of fiscal 1996. The increase in
net revenue from $28.9 million in fiscal 1993 to $101.7 million in fiscal 1995
and to $113.2 million in the first twenty-six weeks of fiscal 1996 was largely
driven by an increase in call volume from existing Sales Solutions and Service
Solutions clients and the addition of new clients. Income from operations
increased from $4.1 million in fiscal 1993 to $13.3 million in fiscal 1995 and
to $19.3 million in the first twenty-six weeks of fiscal 1996. This increase was
the result of net revenue growth and the reduction of selling, general and
administrative expenses as a percentage of net revenue. Net income, which for
periods prior to October 16, 1995 (the date of the Initial Public Offering)
includes a pro forma provision for income taxes as if the Company had been
treated as a C corporation, increased from $2.3 million in fiscal 1993 to $7.5
million in fiscal 1995 and to $11.8 million in the first twenty-six weeks of
fiscal 1996.
The following table sets forth income statement and other data as a
percentage of net revenue from services provided by the Company for the periods
indicated.
<TABLE>
<CAPTION>
TWENTY-SIX
WEEKS ENDED
FISCAL YEAR --------------------
------------------------- JULY 2, JUNE 30,
1993 1994 1995 1995 1996
----- ----- ----- ------- --------
<S> <C> <C> <C> <C> <C>
Net revenue
Sales Solutions................................ 97.5% 86.3% 71.5% 79.8% 54.9%
Service Solutions.............................. 2.5 13.7 28.5 20.2 45.1
----- ----- ----- ----- -----
Total net revenue........................... 100.0 100.0 100.0 100.0 100.0
Cost of services................................. 68.4 65.8 70.8 66.9 70.8
Selling, general and administrative expenses..... 17.6 20.0 16.1 18.2 12.2
----- ----- ----- ----- -----
Income from operations........................... 14.0 14.2 13.1 14.9 17.0
Interest income (expense), net................... (0.7) (1.4) (0.8) (1.4) 0.3
----- ----- ----- ----- -----
Net income before taxes.......................... 13.3 12.8 12.3 13.5 17.3
Provision for income taxes(1).................... 5.2 4.4 4.9 5.3 6.8
----- ----- ----- ----- -----
Net income(1)............................. 8.1% 8.4% 7.4% 8.2% 10.5%
===== ===== ===== ===== =====
</TABLE>
- ------------
(1) Prior to the Initial Public Offering, the Company was an S corporation and
not subject to Federal (and some state) corporate income taxes. The income
statement data for all periods prior to the twenty-six weeks ended June 30,
1996 reflects a pro forma provision for income taxes as if the Company were
subject to Federal and state corporate income taxes during such periods. The
provision for income taxes for periods prior to October 16, 1995 reflected
above includes a pro forma provision for income taxes determined as if the
Company had been taxed as a C corporation. The provision for income taxes
represents an effective combined Federal and state tax rate of 43%, net of
applicable Federal and state job creation tax credits, which resulted in
effective rates ranging from 34% to 40%. See Note 2 to the Company's
Financial Statements included elsewhere in this Prospectus.
TWENTY-SIX WEEKS ENDED JUNE 30, 1996 COMPARED TO TWENTY-SIX WEEKS ENDED JULY 2,
1995
Net Revenue. Net revenue increased to $113.2 million in the twenty-six
weeks ended June 30, 1996 from $40.6 million in the twenty-six weeks ended July
2, 1995, an increase of $72.6 million, or 179%. Sales Solutions net revenue
increased to $62.2 million in the 1996 period from $32.4 million in the 1995
period, an
15
<PAGE> 18
increase of $29.8 million, or 92%, as a result of higher Sales Solutions call
volume from existing clients and the addition of new clients from within the
telecommunications industry. Service Solutions net revenue increased to $51.0
million in the 1996 period from $8.2 million in the 1995 period, an increase of
$42.8 million, or 522% primarily as a result of the commencement of services
under the Company's agreement with UPS in the fourth quarter of fiscal 1995 and
the first quarter of 1996. As a result of this growth, Service Solutions
represented 45.1% of the Company's total net revenue in the 1996 period, as
compared to 20.2% in the 1995 period.
Cost of Services. Cost of services increased to $80.2 million in the
twenty-six weeks ended June 30, 1996 from $27.2 million in the twenty-six weeks
ended July 2, 1995, an increase of $53.0 million, or 195%. As a percentage of
net revenue, cost of services increased to 70.8% in the 1996 period from 66.9%
in the 1995 period. The increase reflects additional business with UPS which has
a lower gross margin compared to the Company's other service offerings.
Recruiting, training and facility costs incurred in advance of full-scale
operations on the start up of twenty-one new Sales Solutions call centers during
the first half of fiscal 1996 also contributed to the higher service costs.
Selling, General & Administrative. Selling, general and administrative
expenses increased to $13.8 million in the twenty-six weeks ended June 30, 1996
from $7.4 million in the twenty-six weeks ended July 2, 1995, an increase of
$6.4 million, or 86%. Approximately seventy-five percent of the increase was due
to investments in systems and management to support the Company's increased
revenue base, with the balance due primarily to expenses associated with the new
UPS business. As a percentage of net revenue, selling general and administrative
expenses decreased to 12.2% in the 1996 period from 18.2% in the 1995 period,
primarily as a result of economies of scale associated with spreading fixed and
semi-variable costs over a larger revenue base.
Interest Income (Expense). The Company generated $0.3 million in net
interest income in the twenty-six weeks ended June 30, 1996 compared to $0.6
million of net interest expense in the twenty-six weeks ended July 2, 1995. This
change resulted from income earned on short-term investments in fiscal 1996 and
the reduction of average outstanding borrowings as a result of debt retired in
fiscal 1995 with cash raised from the Initial Public Offering.
Net Income. Net income increased to $11.8 million for the twenty-six weeks
ended June 30, 1996 compared to net income of $3.3 million for the twenty-six
weeks ended July 2, 1995, an increase of $8.5 million, or 258%. The $7.7 million
provision for income taxes recognized in the 1996 period is based upon the
Company's effective tax rate of 39.5% in fiscal 1996. Net income for the 1995
period includes a pro forma provision for Federal and state income taxes at an
effective rate of 39.2%. The effective tax rate reflects Federal taxes at the
statutory rate of 35% plus state taxes, net of Federal benefit and state job
creation credits.
FISCAL YEAR ENDED DECEMBER 31, 1995 COMPARED TO FISCAL YEAR ENDED JANUARY 1,
1995
Net Revenue. Net revenue increased to $101.7 million in fiscal 1995 from
$46.6 million in fiscal 1994, an increase of $55.1 million, or 118%. Sales
Solutions net revenue increased to $72.7 million in fiscal 1995 from $40.2
million in fiscal 1994, an increase of $32.5 million, or 81%, primarily as a
result of increased call volume from existing clients and the addition of new
clients, principally in the telecommunications industry. Service Solutions net
revenue increased to $29.0 million in fiscal 1995 from $6.4 million in fiscal
1994, an increase of $22.6 million, or 353%, the result of both new client
relationships and expansion of call volumes with existing clients. As a result
of this growth, Service Solutions represented 28.5% of the Company's total net
revenue in fiscal 1995, as compared to 13.7% in fiscal 1994.
Cost of Services. Cost of services increased to $72.0 million in fiscal
1995 from $30.7 million in fiscal 1994, an increase of $41.3 million, or 135%.
As a percentage of net revenue, cost of services increased to 70.8% in fiscal
1995 from 65.8% in fiscal 1994. This increase was primarily the result of costs
incurred prior to the commencement of full-scale operations under the Company's
new agreement with UPS.
Selling, General & Administrative. Selling, general and administrative
expenses increased to $16.4 million in fiscal 1995 from $9.3 million in fiscal
1994, an increase of $7.1 million, or 76%. The increase was
16
<PAGE> 19
principally the result of additional administrative personnel and related
corporate expenses associated with the Company's growth. However, as a
percentage of net revenue, selling, general and administrative expenses
decreased to 16.1% in fiscal 1995 from 20.0% in fiscal 1994, primarily as a
result of the spreading of certain fixed costs over a larger revenue base.
Interest expense. Net interest expense increased to $0.8 million in fiscal
1995 from $0.7 million in fiscal 1994. This increase reflects higher average
outstanding borrowings during the first half of fiscal 1995, which were used to
finance working capital needs, to open new facilities and to purchase new
equipment. As a percent of net revenue, interest expense decreased to 0.8% in
fiscal 1995 from 1.4% in fiscal 1994, primarily as a result of the repayment of
all amounts outstanding under the Company's then existing credit facilities and
certain bank installment notes from the proceeds of the Initial Public Offering.
Net Income. Net income increased to $7.5 million in fiscal 1995 from $3.9
million in fiscal 1994, an increase of $3.6 million, or 92%. Net income includes
a pro forma provision for Federal and state income taxes at an effective rate of
40.1% and 34.7%, respectively. These rates reflect the combined Federal and
state income tax rate of 43% as if the Company had been treated as a C
corporation, less applicable Federal and state job creation tax credits.
FISCAL YEAR ENDED JANUARY 1, 1995 COMPARED TO FISCAL YEAR ENDED JANUARY 2, 1994
Net Revenue. Net revenue increased to $46.6 million in fiscal 1994 from
$28.9 million in fiscal 1993, an increase of $17.7 million, or 61%. Sales
Solutions net revenue increased to $40.2 million in fiscal 1994 from $28.2
million in fiscal 1993, an increase of $12.0 million, or 43%, primarily as a
result of increased calling volume from existing clients and the addition of new
clients, principally in the financial services industry. Service Solutions net
revenue increased to $6.4 million in fiscal 1994 from $0.7 million in fiscal
1993, an increase of $5.7 million, or 814%, due to the full-scale introduction
of Service Solutions in late 1993.
Cost of Services. Cost of services increased to $30.7 million in fiscal
1994 from $19.8 million in fiscal 1993, an increase of $10.9 million, or 55%. As
a percentage of net revenue, cost of services decreased to 65.8% in fiscal 1994
from 68.4% in fiscal 1993. This decrease was primarily the result of an increase
in billable hours as a percentage of total telephone representative hours.
Selling, General & Administrative. Selling, general and administrative
expenses increased to $9.3 million in fiscal 1994 from $5.1 million in fiscal
1993, an increase of $4.2 million, or 82%. The increase was principally the
result of additional administrative personnel and related corporate expenses
associated with the Company's growth and the full-scale introduction of Service
Solutions. As a percentage of net revenue, selling, general and administrative
expenses increased to 20.0% in fiscal 1994 from 17.6% in fiscal 1993.
Interest Expense. Interest expense increased to $0.7 million in fiscal 1994
from $0.2 million in fiscal 1993. This increase reflects higher average
outstanding borrowings which were used to finance working capital needs, to open
new facilities and to purchase related equipment. The rate paid on these
borrowings averaged 8.4% and 8.0% during fiscal 1994 and fiscal 1993,
respectively.
Net Income. Net income increased to $3.9 million in fiscal 1994 from $2.3
million in fiscal 1993, an increase of $1.6 million, or 70%. Net income includes
a pro forma provision for Federal and state income taxes at effective rates of
34.7% and 39.0% for fiscal 1994 and fiscal 1993, respectively. These rates
reflect the combined Federal and state income tax rate of 43% as if the Company
had been treated as a C corporation, less applicable Federal and state job
creation tax credits.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity have historically been cash flow
from operating activities and available borrowing capacity under credit
facilities. In fiscal 1995, the Company obtained additional liquidity from the
net proceeds of the Initial Public Offering. At June 30, 1996, the Company had
cash and short-term investments totalling $5.7 million.
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<PAGE> 20
The following table sets forth certain information from the Company's
statement of cash flows for the periods indicated.
<TABLE>
<CAPTION>
TWENTY-SIX
WEEKS ENDED
------------------
FISCAL YEAR JUNE
------------------------------ JULY 2, 30,
1993 1994 1995 1995 1996
------- ------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided (used) by operating
activities.................................. $ 4,260 $ 2,871 $ 15,200 $ 6,154 $(2,023)
Net cash used by investing activities......... (2,314) (6,526) (42,626) (9,552) (4,874)
Net cash provided (used) by financing
activities.................................. (2,588) 3,599 31,610 3,442 2,726
</TABLE>
From the beginning of fiscal 1993 through June 30, 1996, the Company
generated $20.3 million in cash from operating activities. During this period,
$42.0 million of cash was generated from net income plus depreciation and
amortization, which was reduced by $21.7 million of cash used for working
capital (excluding cash and current maturities of long-term debt). The
additional working capital was principally related to the increase in accounts
receivable resulting from the increase in net revenue over the same period. The
net cash used by operating activities for the twenty-six weeks ended June 30,
1996 was primarily due to an increase in accounts receivable generated through
larger sales volumes.
Historically, cash used in investing activities has been expended for
equipment and other capital to support expansion of the Company's call center
operations, including additions to the Company's data management systems,
telephone systems and management information systems. From the beginning of
fiscal 1993 through June 30, 1996, APAC has opened 49 new call centers and
expanded certain existing call centers adding approximately 7,100 workstations.
Capital expenditures during this period of $50.6 million were funded with excess
cash from operations, borrowings and proceeds from the Initial Public Offering.
Financing activities have included distributions to shareholders, borrowing
activity under the Company's equipment and revolving credit facilities, the sale
of Common Shares through the Initial Public Offering and the exercise of
outstanding stock options. Cash distributions to shareholders from the beginning
of fiscal 1993 through June 30, 1996 of $16.2 million represented dividends to
cover shareholder taxes related to the Company's S corporation status and the
payment of the Company's previously undistributed S corporation taxable income.
In June, 1996, APAC entered into new unsecured credit facilities with a
group of three banks. These facilities consist of a $20 million committed
revolving credit facility (the "Revolving Facility") and a $20 million revolving
credit facility which may be converted into a term loan (the "Convertible
Revolving Facility" and together with the Revolving Facility, the "Credit
Facility"). The Credit Facility is available for general working capital
purposes. The Credit Facility contains certain covenants, including financial
covenants and restrictions on the Company's ability to pay dividends on the
Common Shares. As of September 29, 1996, no amounts were outstanding under the
Credit Facility.
Advances under the Credit Facilities bear interest at optional borrowing
rates based on the agent bank's domestic rate or LIBOR. A basis point spread
(ranging from 0% to 1 3/4%) is determined by the maintenance of certain levels
of the Company's ratio of total liabilities to its book net worth. The Revolving
Facility terminates on May 31, 1999, with two one-year options to extend subject
to lender acceptance. The Convertible Revolving Facility terminates on May 31,
2000. If the Convertible Revolving Facility is converted to a Term Loan, the
Term Loan matures in quarterly installments beginning on the last day of the
calendar quarter during which the Term Loan was made and continuing until the
earlier of the third anniversary date of the relevant commencement date or May
31, 2001.
During fiscal 1993, 1994 and 1995, APAC purchased approximately 66,000
square feet of office space in a 12 story building in downtown Cedar Rapids,
Iowa. The purchases were financed substantially through the assumption of
Industrial Revenue Bonds and the issuance of certain bank installment notes (the
"Notes") secured by the building. The Industrial Revenue Bonds mature in varying
installments through 2008, bearing interest adjustable semi-annually to 71% of
the average yield of U.S. Treasury bonds with a floor of 7.0%. As
18
<PAGE> 21
of June 30, 1996, the Industrial Revenue Bonds had an outstanding balance of
$1.4 million. The Notes were repaid with a portion of the net proceeds of the
Initial Public Offering.
During the periods prior to fiscal 1994, the Company financed certain
equipment purchases through capital leases with various lending institutions
secured by the related equipment. These obligations are payable in varying
installments through fiscal 1998 with a weighted average interest rate of 8.5%.
Outstanding obligations under these capital leases as of June 30, 1996, totaled
$0.3 million. See "Business--Facilities" for a description of the Company's real
property leases.
The Company intends to use funds generated from operations and available
credit under its Credit Facility to finance its planned capital expenditure
requirements of approximately $27.5 million for the remainder of fiscal 1996.
INFLATION
Inflation has not had a material impact upon operating results, and the
Company does not expect it to have such an impact in the future. To date, in
those instances where the Company has experienced cost increases, it has been
able to increase its rates to offset the costs. There can be no assurance,
however, that the Company's business will not be so affected by inflation or
that it can continue to increase its rates and remain competitive.
QUARTERLY RESULTS
The Company could experience quarterly variations in net revenue and
operating income as a result of many factors, including the timing of clients'
marketing campaigns and customer service programs, the timing of additional
selling, general and administrative expenses to acquire and support such new
business and changes in the Company's revenue mix among its various service
offerings. In connection with certain contracts, the Company could incur costs
in periods prior to recognizing revenue under those contracts. In addition, the
Company must plan its operating expenditures based on revenue forecasts, and a
revenue shortfall below such forecast in any quarter would likely adversely
affect the Company's operating results for that quarter. While the effects of
seasonality on APAC's business have historically been obscured by its growing
net revenue, the Company's business tends to be slower in the first and third
quarters of its fiscal year due to client marketing programs which are typically
slower in the post-holiday and summer months.
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<PAGE> 22
BUSINESS
GENERAL
APAC is one of the largest and fastest growing providers of outsourced
telephone-based sales, marketing and customer management services. The Company's
client base is comprised of large companies with growing needs for
cost-effective means of contacting and servicing current and prospective
customers. The Company operates approximately 8,000 workstations in 56 telephone
call centers located primarily in the Midwest. The call centers are centrally
managed through the application of extensive telecommunications and computer
technology to promote the consistent delivery of quality service. The Company
believes its innovative approach to providing quality service distinguishes it
from its competitors and has led to the Company's rapid growth rate and its
retention of key clients. The Company's net revenue and net income for the first
twenty-six weeks of fiscal 1996 were $113.2 million and $11.8 million,
representing increases of 179% and 258%, respectively, compared to the Company's
net revenue and pro forma net income for the first twenty-six weeks of fiscal
1995.
BUSINESS STRATEGY
APAC's strategy is to be the premier provider to the large and growing
market for outsourced telephone-based services. The Company seeks to
differentiate itself from other providers by offering customized solutions that
address the specialized needs of its clients, while improving the effectiveness
and reducing the cost of their marketing and customer service operations. APAC
seeks to continue to expand its business by leveraging the following competitive
strengths:
Specialized Technology--The Company's technological capabilities and
expertise allow APAC to serve as a "seamless extension" of each client's
business. The Company has developed a UNIX-based, open architecture
computer system which provides APAC with the flexibility to integrate its
system with the variety of systems maintained by its clients. Through such
integration, APAC is able to receive calls and data directly from clients'
systems, forward calls to clients' in-house telephone representatives when
appropriate, and report, on a real-time basis, the status and results of
the Company's services. In addition, the Company utilizes relational
database management systems, automated call distributors, computer-
telephone integration, interactive voice response, fax-on-demand,
predictive dialer and universal (combined inbound and outbound) workstation
technologies that are integrated into a centrally managed wide-area
network. These technologies combine to manage the flow of approximately 9.5
million inbound and outbound calls per week; pass appropriate script and
database information to telephone representatives; and capture, transmit
and report data collected during each call. By utilizing APAC's services,
clients are able to cost-effectively access the Company's specialized
technological capabilities.
Call Center Development--The Company has developed a systematic
approach to locating, equipping and staffing call centers. APAC locates
call centers primarily in small to mid-sized communities in an effort to
lower its operating costs and attract a high quality, dedicated work force.
In addition, the geographic proximity of these call centers allows the
Company to centrally manage and expand its call center system. APAC's
ability to have a typical call center fully operational in approximately 90
days enables the Company to provide a rapid response to a client's needs.
Since the beginning of fiscal 1996, APAC has opened 23 new call centers and
expanded certain existing call centers adding approximately 3,700 new
workstations. The Company intends to continue to add call centers and
workstations as required by demand for its services.
Human Resource Management--APAC's ability to hire, train and manage
employees is critical to its ability to provide high quality service to its
clients. Once hired, each new telephone representative receives on-site
training lasting from three to 17 days, depending on the complexity of the
sales or service offering. APAC believes that by employing a significant
number of full-time personnel it is able to maintain a more stable work
force and reduce the Company's recruiting and training expenditures.
Employee performance is continuously monitored through on-site supervision,
remote and on-site call monitoring and on-line performance tracking. In
addition, the Company has developed a three-month management training
program designed to provide a timely source of well-trained managers.
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<PAGE> 23
INDUSTRY OVERVIEW
The telephone-based marketing and customer service industry is comprised of
a large number of captive and independent organizations. The industry is highly
fragmented and many organizations in the industry provide only a limited number
of services. Industry sources estimate that telephone-based direct marketing
expenditures have doubled over the last ten years and were approximately $81
billion in 1995. Until the mid-1980's, telephone-based services were primarily
performed in single center, low technology environments. With the aid of
significant developments in computer and telephone technologies, independent
full-service organizations have emerged and grown by developing multi-location,
high volume telephone operations. Many large companies are outsourcing their
telephone-based marketing and customer service activities in order to access the
experience and specialized capabilities of large-scale,
technologically-sophisticated service providers such as APAC. Utilizing such
providers enables these companies to concentrate on their core businesses and
improve the quality and cost-effectiveness of their telephone-based customer
contact functions. APAC believes that the economics of outsourcing
telephone-based services are compelling and will lead to an acceleration of the
outsourcing trend in the industry.
GROWTH OPPORTUNITIES
The Company has grown rapidly over the past several years by utilizing its
competitive strengths to participate in the growth in its industry and the
ongoing trend towards outsourcing. Telephone-based contact with customers is
increasing as more companies realize its benefits, which include high response
rates, low cost per transaction, direct interaction with customers and on-line
access to detailed customer or product information allowing immediate responses
to customer inquiries. Additionally, with the proliferation of toll-free "800"
and "888" numbers, the telephone is becoming a principal means of providing
customer service. APAC believes that large companies increasingly will outsource
these activities in order to focus internal resources on their core
competencies, while improving quality, increasing productivity and reducing
costs. Moreover, the Company believes that well-capitalized, experienced
organizations such as APAC will benefit due to increasing demand for
multi-location, high volume, technologically advanced call center operations.
The Company seeks to capitalize on these trends through expanding existing
client relationships, adding new clients, developing new markets and promoting
new services. The Company believes that the telecommunications industry will
continue to provide significant opportunities for Sales Solutions as a result of
on-going industry deregulation, the emergence of PCS technology and new industry
participants. The Company also believes opportunities exist to provide
additional Sales Solutions services to the financial services and insurance
industries. Furthermore, the Company plans to continue to market its
business-to-business sales source services to new and existing clients. The
Company believes Service Solutions will continue to grow significantly as
certain contracts come fully on-line through fiscal 1996 and fiscal 1997. APAC
intends to pursue additional Service Solutions opportunities as more companies
expand and outsource their telephone-based customer service functions.
SALES SOLUTIONS
Services. Sales Solutions provides telephone-based sales to consumers and
businesses, database analysis and management, market research, targeted
marketing plan development and customer lead generation, acquisition and
retention. Sales Solutions generated approximately $62.2 million of net revenue,
or approximately 55% of the Company's total net revenue, in the first twenty-six
weeks of fiscal 1996, an increase of 92% when compared to the first twenty-six
weeks of fiscal 1995.
Sales Solutions activities typically begin when APAC calls a consumer or
business customer targeted by one of its clients to offer the client's products
or services. Customer information, which APAC typically receives electronically
from its clients, is selected to match the demographic profile of the targeted
customer for the product or service being offered. APAC's data management system
sorts the customer information and assigns the information to one of its Sales
Solutions call centers. Computerized call management systems utilizing
predictive dialers automatically dial the telephone numbers, determine if a live
connection is made and present connected calls to a telephone sales
representative who has been trained for the client's program.
21
<PAGE> 24
When a call is presented, the customer's name, other information about the
customer and the program script simultaneously appear on the telephone sales
representative's computer screen. The telephone sales representative then uses
the script to solicit an order for the client's product or service or to request
information which will be added to the client's database. APAC's advanced
systems permit on-line monitoring of marketing campaigns allowing its clients to
refine programs while in progress.
Clients. APAC targets those companies with large customer bases and the
greatest potential to generate recurring revenues because of their ongoing
telephone-based direct sales and marketing needs. Sales Solutions currently
specializes in three industries:
Telecommunications--APAC provides Sales Solutions services to the
telecommunications industry, primarily servicing long distance, regional
and wireless telecommunication companies. The Company's services include
new account acquisition, direct sales of custom calling features,
personalized "800" and long distance services and other customer retention
services in both the business and consumer market segments. The Company's
most significant relationship in this industry is with AT&T, which
accounted for approximately 35.4% of the Company's Sales Solutions net
revenue in the first twenty-six weeks of fiscal 1996. Sales Solutions net
revenue from telecommunications industry clients represented approximately
2.3%, 12.9% and 41.6% of the Company's total Sales Solutions net revenue in
fiscal years 1994 and 1995 and the first twenty-six weeks of fiscal 1996,
respectively.
Insurance--APAC is a major marketer of insurance products throughout
the United States. The Company works with large consumer insurance
companies and their agents, marketing products such as life, accident,
health, and property and casualty insurance. The Company employs
approximately 250 insurance agents licensed to sell insurance in a total of
49 states. APAC has sold approximately 4.0 million insurance policies for
its clients since 1991. Significant relationships in this industry include
Mass Marketing Insurance Group, J.C. Penney Life Insurance Company and
American Bankers Insurance Group, which clients accounted for approximately
14.5%, 8.8% and 4.5%, respectively, of the Company's Sales Solutions net
revenue in the first twenty-six weeks of fiscal 1996. Sales Solutions net
revenue from insurance industry clients represented approximately 52.0%,
52.0% and 33.9% of the Company's total Sales Solutions net revenue in
fiscal years 1994 and 1995 and the first twenty-six weeks of fiscal 1996,
respectively.
Financial Services--APAC provides sales and marketing services to many
of the largest U.S. credit card issuers. The Company's services include
customer account acquisition, credit line expansion, balance consolidation,
cardholder retention and sales of other banking products and services.
Significant relationships in this industry include Chevy Chase Bank and
Discover Card Services, which clients accounted for approximately 2.9% and
2.0%, respectively, of the Company's Sales Solutions net revenue in the
first twenty-six weeks of fiscal 1996. Sales Solutions net revenue from
financial service industry clients represented approximately 40.7%, 28.4%
and 21.5% of the Company's total Sales Solutions net revenue in fiscal
years 1994 and 1995 and the first twenty-six weeks of fiscal 1996,
respectively.
Sales Solutions provided services to 36 clients in the first twenty-six
weeks of fiscal 1996. Sales Solutions generally operates under contracts which
may be terminated or modified on short notice. However, the Company tends to
establish long-term relationships with its clients and approximately 43% of
Sales Solutions net revenue in the first twenty-six weeks of fiscal 1996 was
generated from companies which have been clients of the Company since at least
1993. The Company is generally paid a fixed fee for each hour that it provides a
telephone sales representative under its Sales Solutions contracts. Except for
Mass Marketing Insurance Group in fiscal 1995 and AT&T in the first twenty-six
weeks of fiscal 1996, no Sales Solutions client of the Company accounted for
more than ten percent of the Company's total net revenue in fiscal 1994, fiscal
1995 or the first twenty-six weeks of fiscal 1996. See "Risk Factors--Reliance
on Major Clients and Key Industries."
Sales Solutions also offers business-to-business sales source services.
These services include obtaining customer record updates, conducting customer
satisfaction and preference surveys and cross-selling client products. Sales
source services are designed to provide pro-active customer management with the
objective of account expansion and enhanced customer retention. Sales source
services accounted for approximately 3.0% of the Company's Sales Solutions net
revenue in the first twenty-six weeks of fiscal 1996.
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<PAGE> 25
SERVICE SOLUTIONS
Services. Service Solutions provides inbound customer service, direct mail
response, "help" line support and catalog order processing. Certain Service
Solutions clients rely upon the Company to provide specialized telephone service
representatives such as insurance agents and computer technicians, capable of
responding to specific customer inquiries. Service Solutions, which became a
full-scale offering in late fiscal 1993, generated approximately $51.0 million
of net revenue, or approximately 45% of the Company's total net revenue, in the
first twenty-six weeks of fiscal 1996, an increase of 522% when compared to the
first twenty-six weeks of fiscal 1995. APAC believes significant opportunities
to generate new business in Service Solutions exist as more companies move to
outsource all or a portion of their telephone-based marketing and customer
service functions.
Service Solutions involves the receipt of a call from a client's customer,
the identification of the call and the routing of the call to the appropriate
APAC telephone service representative. The customer typically calls a toll-free
"800" number to request product or service information, place an order for a
product or service or obtain assistance regarding a previous order or purchase.
APAC utilizes automated call distributors and digital switches to identify each
inbound call by "800" number and route the call to an APAC telephone service
representative trained for the client's program. Simultaneously with receipt of
the call, the telephone service representative's computer screen displays
customer, product and service information relevant to the call. The Company
reports information and results captured during the call to its client for order
processing, customer service and database management.
Clients. Service Solutions directs its marketing efforts toward large
companies with inbound annual call volume in excess of 500,000 calls. Within
this market segment, APAC targets those companies that operate in high-cost
metropolitan areas or that are currently utilizing inefficient or expensive
technology in their customer service operations. Service Solutions provided
services to 26 clients in the first twenty-six weeks of fiscal 1996. The
Company's significant relationships include UPS, Western Union and Quill
Corporation, which clients accounted for approximately 75.7%, 3.4% and 3.3%,
respectively, of the Company's Service Solutions net revenue in the first
twenty-six weeks of fiscal 1996. As of July 1995, the Company entered into an
agreement to operate four of UPS's new customer service facilities on an
outsourced basis. The Company began operating three such facilities in Newport
News, Virginia, Fort Worth, Texas and High Point, North Carolina pursuant to
this agreement in fiscal 1995, and began operating the fourth such facility in
Boynton Beach, Florida in February, 1996. In August, 1996 the Company entered
into a five-year agreement to receive and process customer orders for John H.
Harland Corporation, a leading supplier of checks, database marketing services
and loan automation software to the financial services industry.
Service Solutions operates under contracts with terms up to 5 years.
Typically, these contracts may be terminated or modified on short notice. The
Company is generally paid a fixed fee for each hour that it provides a telephone
service representative under its Service Solutions contracts, regardless of the
number of calls handled. The client works with the Company to determine the
number of telephone representatives which are necessary to efficiently handle
the expected volume of inbound calls. As of July 10, 1995, the Company entered
into a four and one-half year contract with UPS which differs substantially from
its other Service Solutions contracts. The UPS agreement required significantly
greater up-front expenditures by the Company which were not specifically
reimbursed. The UPS agreement is not terminable except upon breach by the
Company or upon a change of control (as defined) of the Company. The Company
provides services under the contract in dedicated facilities which are located
and owned by UPS and used exclusively to service this contract. Employees who
provide services under this contract are trained by both APAC and UPS personnel.
Certain employees are exclusively dedicated to this contract and may not be used
by the Company for any other purpose. Upon termination or expiration of the
contract, UPS has the option to offer employment to all APAC employees dedicated
to the contract. If UPS does not hire these employees and APAC decides to
continue their employment, it would be necessary to relocate and retrain these
employees at a substantial cost in order for such employees to effectively
perform services for other clients. The Company is paid a fixed fee for each
hour that it provides a telephone service representative under the UPS
agreement, regardless of the number of calls handled. However, the amount of net
revenues which will be generated under this agreement cannot be projected by the
Company with certainty. Except for UPS in fiscal 1995 and the first twenty-six
23
<PAGE> 26
weeks of fiscal 1996, no Service Solutions client of the Company accounted for
more than ten percent of the Company's total net revenue in fiscal 1994, fiscal
1995 or the first twenty-six weeks of fiscal 1996. See "Risk Factors--Reliance
on Major Clients and Key Industries."
TECHNOLOGY RESOURCES
APAC's management information and call and database management systems have
been designed to provide quality service to its clients and to effectively
manage and control all aspects of APAC's business. APAC utilizes approximately
170 technicians who are dedicated to maintaining, expanding and upgrading the
Company's systems. The Company has invested approximately $30.4 million to
purchase these systems since the beginning of fiscal 1993.
The UNIX-based computer system which the Company has developed utilizes a
"hub and spoke" configuration to electronically link each call center's systems
to the Company's operational headquarters. This open architecture system
provides APAC with the flexibility to integrate its client server and mid-range
systems with the variety of systems maintained by its clients. By integrating
with its clients' systems, APAC is able to receive calls and data directly from
its clients' in-house systems, forward calls to its clients' in-house telephone
representatives when appropriate, and report, on a real-time basis, the status
and results of the Company services. APAC's custom software is built on
relational database technology that enables the Company to quickly design
tailored software applications that enhance the efficiency of a client's call
services, while providing flexible scripting and readily accessible screen
navigation.
In order to provide efficient and effective services, the Company's calling
systems also utilize sophisticated technology such as automated and predictive
dialers, automated call delivery systems, call management systems and
interactive voice response systems which are integrated with minicomputer-based
database management systems, universal workstations, local area networks and
wide area networks. The Company believes its computer security system and
off-site disaster back-up storage sufficiently protect the integrity and
confidentiality of its computer systems and data. See "Risk Factors--Reliance on
Technology."
SALES AND MARKETING
The Company seeks to differentiate itself from other providers of
telephone-based services by offering customized solutions that address the
specialized needs of its clients. The Company has developed a targeted approach
to identifying new clients and the potential additional needs of existing
clients. Often, APAC initially develops a pilot program for a new client to
demonstrate the Company's abilities and the effectiveness of telephone-based
marketing and customer service. The Company's sales personnel also assist
clients in identifying target customers and developing programs to reach those
customers, communicate results of the program and assist clients in modifying
programs for future use. The Company also acquires new clients and markets its
services by attending trade shows, advertising in industry publications,
responding to requests for proposals, pursuing client referrals and
cross-selling to existing clients. The Company believes its increasingly
consultative approach will enhance its ability to successfully identify
additional business opportunities and secure new business.
PERSONNEL AND TRAINING
The Company believes a key component of APAC's success is the quality of
its employees. Therefore, the Company is continually refining its systematic
approach to hiring, training and managing qualified personnel. APAC locates call
centers primarily in small to mid-sized communities in an effort to lower its
operating costs and attract a high quality, dedicated work force. The Company
believes that by employing a significant number of full-time personnel it is
able to maintain a more stable work force and reduce the Company's recruiting
and training expenditures. At each call center, the Company utilizes a
management structure designed to ensure that its telephone representatives are
properly supervised, managed and developed.
The Company offers extensive classroom and on-the-job training programs for
its personnel including instruction on the industries which APAC serves and
proper telephone-based sales or customer service
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<PAGE> 27
techniques. Once hired, each new telephone representative receives on-site
training lasting from three to 17 days. The amount of initial training each
employee receives varies depending upon whether the employee will be performing
outbound or inbound services and the nature of the services being offered. In
addition, the Company offers one and two week courses to its telephone
representatives who are preparing for the insurance agent license exam. The
Company has also developed a three-month management training program designed to
provide a timely source of well-trained managers. The Company continues to
develop "APAC University," an educational program for employees which will
provide a variety of supplemental training classes.
The number of telephone representatives employed by the Company has
increased from approximately 2,400 on January 1, 1995 to approximately 9,500 on
September 27, 1996. On September 27, 1996, the Company had over 11,000 full and
part-time employees. None of APAC's employees are subject to a collective
bargaining agreement. The Company considers its relations with its employees to
be good.
QUALITY ASSURANCE
Because APAC's services involve direct contact with its client's customers,
the Company's reputation for quality service is critical to acquiring and
retaining clients. Therefore, the Company and its clients monitor the Company's
telephone representatives for strict compliance with the client's script and to
maintain quality and efficiency. The Company also regularly measures the quality
of its services by benchmarking such factors as sales per hour, level of
customer complaints, call abandonment rates and average speed of answer. The
Company's information systems enable APAC to provide clients with reports on a
real-time basis as to the status of an ongoing campaign and can transmit summary
data and captured information electronically to clients. Access to this data
enables APAC's clients to modify or enhance an ongoing campaign to improve its
effectiveness. In addition to daily contact with its clients, APAC asks each
client to rate the Company's performance quarterly using numerous quality
measures.
COMPETITION
The industry in which the Company operates is very competitive and highly
fragmented. APAC's competitors range in size from very small firms offering
specialized applications or short term projects, to large independent firms and
the in-house operations of many clients and potential clients. A number of
competitors have capabilities and resources equal to, or greater than, the
Company's. The market includes non-captive telemarketing and customer service
operations such as MATRIXX Marketing, SITEL Corporation, ITI Marketing Services,
West Teleservices Corporation, TeleService Resources, Precision Response
Corporation, Electronic Data Systems Corporation and TeleTech Holdings, Inc., as
well as in-house telemarketing and customer service organizations throughout the
United States. In-house telemarketing and customer service organizations
comprise by far the largest segment of the industry. In addition, some of the
Company's services also compete with other forms of direct marketing such as
mail, television and radio. The Company believes the principal competitive
factors in the telephone-based marketing and customer service industry are
reputation for quality, sales and marketing results, price, technological
expertise, and the ability to promptly provide clients with customized solutions
to their sales, marketing and customer service needs.
GOVERNMENT REGULATION
Telephone sales practices are regulated at both the Federal and state
level. The FCC's rules under the TCPA prohibit the initiation of telephone
solicitations to residential telephone subscribers before 8:00 a.m. or after
9:00 p.m., local time, and prohibit the use of automated telephone dialing
equipment to call certain telephone numbers. In addition, the FCC rules require
the maintenance of a list of residential consumers who have stated that they do
not want to receive telephone solicitations and avoidance of making calls to
such consumers' telephone numbers.
The TCFAPA broadly authorizes the FTC to issue regulations prohibiting
misrepresentation in telephone sales. In August, 1995, the FTC issued rules
under the TCFAPA. These rules generally prohibit abusive telephone solicitation
practices and impose disclosure and record keeping requirements.
25
<PAGE> 28
The Company believes that it is in compliance with the TCPA and the FCC
rules thereunder and with the FTC's rules under the TCFAPA. The Company trains
its telephone sales representatives to comply with the FTC and FCC rules and
programs its call management system to avoid telephone calls during restricted
hours or to individuals maintained on APAC's "do-not-call" list. Subject to
certain limitations, APAC generally undertakes to indemnify its clients against
claims and expenses resulting from any failure by APAC to comply with federal
and state laws regulating telephone solicitation practices.
A number of states have enacted or are considering legislation to regulate
telephone solicitations. For example, telephone sales in certain states cannot
be final unless a written contract is delivered to and signed by the buyer and
may be cancelled within three business days. At least one state also prohibits
telemarketers from requiring credit card payment and several other states
require certain telemarketers to obtain licenses and post bonds. From time to
time, bills are introduced in Congress which, if enacted, would regulate the use
of credit information. The Company cannot predict whether this legislation will
be enacted and what effect, if any, it would have on the Company or its
industry.
The industries served by the Company are also subject to varying degrees of
government regulation. Generally, the Company relies on its clients and their
advisors to develop the scripts to be used by APAC in making consumer
solicitations. The Company generally requires its clients to indemnify APAC
against claims and expenses arising in connection with a client's failure to
provide products or services to customers, any defect or deficiency in such
products and services or any written or oral presentation furnished by the
client to APAC. The Company has never been held responsible for regulatory
noncompliance by a client. APAC employees who complete the sale of insurance
products are required to be licensed by various state insurance commissions and
participate in regular continuing education programs, which are currently
provided in-house by the Company.
FACILITIES
The Company's corporate headquarters are located in Deerfield, Illinois in
leased facilities consisting of approximately 16,500 square feet of office
space. The term of this lease expires in March, 2001. The Company's operational
headquarters are located in approximately 80,000 square feet of office space in
Cedar Rapids, Iowa. This office space is located on seven floors which are owned
and/or leased by the Company and is part of an office condominium. The Company
also leases office space in Atlanta, Dallas and Denver.
26
<PAGE> 29
The Company also leases the facilities listed below, except for the Newport
News, Fort Worth, High Point and Boynton Beach facilities which are not leased
by the Company, but are managed, staffed and operated by the Company on behalf
of a client.
SALES SOLUTIONS CALL CENTERS
<TABLE>
<CAPTION>
CURRENT NUMBER OF
LOCATION DATE OPENED WORKSTATIONS
--------------------------------------- ------------------ -----------------
<S> <C> <C>
Dubuque, Iowa.......................... September, 1990 80
Clinton, Iowa.......................... October, 1990 80
Burlington, Iowa....................... October, 1991 80
Oskaloosa, Iowa........................ September, 1992 96
Waterloo, Iowa......................... February, 1993 96
Cedar Falls, Iowa...................... February, 1993 64
Iowa City, Iowa........................ March, 1993 64
Mt. Pleasant, Iowa..................... September, 1993 64
Ottumwa, Iowa.......................... November, 1993 144
Decorah, Iowa.......................... January, 1994 80
Marshalltown, Iowa..................... February, 1994 80
Fort Madison, Iowa..................... March, 1994 96
Keokuk, Iowa........................... May, 1994 80
Mason City, Iowa....................... December, 1994 80
Newton, Iowa........................... March, 1995 64
Knoxville, Iowa........................ March, 1995 80
Fort Dodge, Iowa....................... March, 1995 80
Woodlawn, Maryland..................... April, 1995 96
Muscatine, Iowa........................ April, 1995 96
Estherville, Iowa...................... April, 1995 64
Spencer, Iowa.......................... May, 1995 64
Indianola, Iowa........................ July, 1995 80
Hiawatha, Iowa......................... July, 1995 176
Algona, Iowa........................... September, 1995 64
Webster City, Iowa..................... September, 1995 64
Davenport, Iowa........................ February, 1996 448
Maquoketa, Iowa........................ February, 1996 80
Kewanee, Illinois...................... February, 1996 96
Dixon, Illinois........................ February, 1996 96
Quincy, Illinois....................... February, 1996 96
Kalamazoo, Michigan.................... February, 1996 48
Danville, Illinois..................... February, 1996 96
Freeport, Illinois..................... March, 1996 96
Normal, Illinois....................... March, 1996 80
Rock Falls, Illinois................... March, 1996 96
Waverly, Iowa.......................... March, 1996 64
Decatur, Illinois...................... April 1996 80
Jacksonville, Illinois................. April, 1996 96
Canton, Illinois....................... May, 1996 80
Lincoln, Illinois...................... May, 1996 80
Pekin, Illinois........................ May, 1996 80
Peoria, Illinois....................... May, 1996 96
Galesburg, Illinois.................... June, 1996 80
Mount Vernon, Illinois................. June, 1996 80
Vincennes, Indiana..................... June, 1996 80
Washington, Indiana.................... June, 1996 80
-----
Total Sales Solutions................................. 4,240
=====
</TABLE>
27
<PAGE> 30
SERVICE SOLUTIONS CALL CENTERS
<TABLE>
<CAPTION>
CURRENT NUMBER OF
LOCATION DATE OPENED WORKSTATIONS
-------------------------------------- ------------------ -----------------
<S> <C> <C>
Cedar Rapids, Iowa--22nd Avenue....... January, 1994(1) 145
Cedar Rapids, Iowa--3rd Avenue........ August, 1994 203
Cedar Rapids, Iowa--Park Place I...... January, 1995 126
Cedar Rapids, Iowa--Park Place II..... November, 1995 162
Newport News, Virginia................ August, 1995 746
Fort Worth, Texas..................... October, 1995 787
High Point, North Carolina............ November, 1995 591
Boynton Beach, Florida................ February, 1996 506
Kalamazoo, Michigan................... February, 1996 144
Marion, Iowa.......................... February, 1996(1) 96
Waterloo, Iowa........................ October, 1996(2) 135
Corpus Christi, Texas................. December, 1996(3) 32
Columbia, South Carolina.............. January, 1997(3) 32
-----
Total Service Solutions.............................. 3,705
=====
</TABLE>
- ------------
(1) The Cedar Rapids-22nd Avenue and Marion call centers were originally opened
as Sales Solutions centers in June, 1990 and December, 1993 respectively.
The Cedar Rapids center was converted to a Service Solutions center in
January 1994 while the Marion center was converted in September, 1996.
(2) As of October 25, 1996, 135 workstations at this center were staffed. This
center is expected to operate approximately 300 workstations when fully
staffed by the end of 1996.
(3) At their anticipated dates of opening, the Corpus Christi and Columbia call
centers are each expected to staff 32 workstations. Corpus Christi is
expected to contain approximately 725 workstations and Columbia is expected
to contain approximately 550 workstations when fully staffed in 1997.
The leases of these facilities have an average length of three years and
typically contain early termination buyouts and renewal options. The Company
believes that its existing facilities are suitable and adequate for its current
operations, but additional facilities will be required to support growth. The
Company intends to continue to add call centers and workstations as required by
demand for its services. APAC believes that suitable additional or alternative
space will be available as needed to expand its business on commercially
reasonable terms.
LITIGATION
From time to time, the Company is involved in litigation incidental to its
business. In the opinion of the Company, no litigation to which the Company is
currently a party is likely to have a materially adverse effect on the Company's
results of operations or financial condition.
28
<PAGE> 31
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
All directors hold office until the next annual meeting of shareholders and
until their successors have been duly elected and qualified. Executive officers
are elected by, and serve at the discretion of, the Board of Directors. The
executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------- --- --------------------------------------------------
<S> <C> <C>
Theodore G. Schwartz 43 Chairman, President, Chief Executive Officer
and Director
Marc S. Simon 48 Chief Financial Officer and Director
Donald B. Berryman 38 Senior Vice President/General Manager--Operations
Kenneth G. Culver 51 Senior Vice President--Facilities
John C. Dontje 52 Senior Vice President/General Manager--Operations
Robert C. Froetscher 38 Senior Vice President/General Manager--Operations
Beverly S. McIntosh 50 Senior Vice President--Business Development
James M. Nikrant 57 Senior Vice President/General Manager--Operations
Thomas M. Collins 68 Director
Morris R. Shechtman 54 Director
George D. Dalton 68 Director
Paul G. Yovovich 42 Director
</TABLE>
Theodore G. Schwartz has served as the Company's Chairman, President and
Chief Executive Officer since its formation in May 1973.
Marc S. Simon joined the Company as Chief Financial Officer in June 1995
and was elected as a Director of the Company in August 1995. Prior to joining
the Company, Mr. Simon was a partner practicing corporate and business law at
the law firm of Neal, Gerber & Eisenberg for more than 7 years. Mr. Simon is a
certified public accountant.
Donald B. Berryman joined the Company as Vice President/General
Manager--Service Solutions in March 1993 and became Senior Vice
President/General Manager--Operations in October 1995. From August 1990 until
March 1993, Mr. Berryman was the Director of National Reservations and Customer
Service at Ryder Truck Rental, Inc. Prior to joining Ryder Truck Rental, Mr.
Berryman was employed by Gannett Co., Inc. where he served as Director of
National Customer Service for USA Today.
John C. Dontje joined the Company as Senior Vice President/General
Manager--Operations in May, 1996. From November 1994 to May 1996 Mr. Dontje was
Regional Manager of a division of Electronic Data Systems Corporation ("EDS")
that operated multi-location inbound and outbound call centers. From March 1991
to November 1994, Mr. Dontje was a managing director of Bernard C. Harris
Publishing Company, Inc.
Robert C. Froetscher joined the Company as Senior Vice President/General
Manager--Operations in August, 1996. Prior to joining the Company, Mr.
Froetscher was Vice President of Sales and Service for Ameritech's Consumer
Service business unit from May 1994 to August 1996. From August 1993 to May
1994, Mr. Froetscher was the National Director of Operator Services at MCI
Communications Corporation, where he had served as Director of Consumer Sales
and Services (East Region) from May 1992 to August 1993. From May 1991 to May
1992, Mr. Froetscher served as Vice President--Marketing and Client Services at
Videocart, Inc.
Kenneth G. Culver joined the Company as Vice President--Operations and
Marketing in March 1990 and became Senior Vice President--Facilities in October
1995. Prior thereto, he served as Senior Director/Product Manager at Western
Union for its electronic mail service offering.
Beverly S. McIntosh joined the Company as Senior Vice President--Business
Development in January 1996. Prior to joining the Company, Ms. McIntosh was the
principal for the Customer Care/Call Center Consulting Practice at A.T. Kearney,
an EDS company. From April 1994 until January 1996, Ms. McIntosh served as Vice
President of Sales and Marketing for Customer Service Technologies, a division
of EDS' Core
29
<PAGE> 32
Capabilities. From June 1980 to April 1994, Ms. McIntosh was the Vice President
of Sales and Marketing for the Telemarketing Division of TeleService Resources,
a subsidiary of American Airlines.
James M. Nikrant joined the Company as Senior Vice President/General
Manager--Operations in May 1996. From July 1993 to February 1996 Mr. Nikrant was
with Montgomery Ward and Company, Inc. where he most recently served as Senior
Vice President Logistics/Product Service. From 1989 to July 1993 Mr. Nikrant was
President and Chief Executive Officer of SafeMasters Company Inc. From 1962 to
1989, Mr. Nikrant was with General Electric where he most recently served as
Head of Eastern U.S. Customer Service functions.
Thomas M. Collins became a director of the Company in August 1995. He has
been Chairman of Shuttleworth & Ingersoll, P.C., a law firm in Cedar Rapids,
Iowa, for more than five years and has practiced with the firm for more than 40
years. Mr. Collins was Chairman of the Board of Life Investors, Inc., a
financial services holding company, from 1980 to 1988. Mr. Collins serves on the
board of directors of McLeod, Inc.
Morris R. Shechtman became a director of the Company in September 1995. He
has been the Chief Executive Officer and Managing Director of The Shechtman
Group, a management consulting firm, since January 1996. From December 1993
through December 1995, Mr. Shechtman was the Managing Director of the Insite
Institute, a management consulting firm and prior to joining the Insite
Institute, he was an independent management consultant through his company,
Morris R. Shechtman & Associates Ltd.
George D. Dalton became a director of the Company in July 1996. Mr. Dalton
has been Chairman of the Board and Chief Executive Officer of Fiserv, Inc., a
provider of account processing and integrated information management systems for
financial institutions, since its founding in 1984. Mr. Dalton also serves on
the board of directors of ARI, Inc.
Paul G. Yovovich became a director of the Company in July 1996. At this
time Mr. Yovovich was also hired as an employee of the Company to assist
management in the Company's strategic efforts. From June 1993 to May 1996, Mr.
Yovovich was President of Advance Ross Corporation, which merged with CUC
International Inc. in January 1996. Prior to joining Advance Ross Corporation,
Mr. Yovovich was employed by Centel Corporation and was President of Centel
Corporation's Central Telephone Company from January 1990 to December 1992. Mr.
Yovovich serves on the boards of U.S. Robotics Corporation, Comarco, Inc., and
Illinois Superconductor Corporation. Mr. Yovovich is a certified public
accountant.
BOARD COMMITTEES
The Board of Directors has established two standing committees: the Audit
Committee and the Compensation Committee. The Audit Committee, which consists of
Messrs. Collins, Shechtman and Simon, recommends the appointment of auditors and
oversees the accounting and audit functions of the Company. The Compensation
Committee, which consists of Messrs. Collins and Dalton, determines executive
officers' salaries and bonuses and administers the Employee Stock Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During its last fiscal year, the Company established a Compensation
Committee chaired by Mr. Shechtman. The compensation of the Company's executive
officers was determined by Mr. Schwartz through fiscal 1995.
DIRECTOR COMPENSATION
Directors who are not employees or officers of the Company receive an
annual retainer of $12,000 and an option to purchase 5,000 Common Shares upon
initial election and annually upon each re-election as a Director at the
Company's annual meeting of shareholders. Directors may also be reimbursed for
certain expenses in connection with attendance at Board and committee meetings.
Other than with respect to reimbursement of expenses, Directors who are
employees or officers of the Company will not receive additional compensation
for service as a director. See "Employee Stock Plan and Director Stock Plan"
below.
30
<PAGE> 33
EXECUTIVE COMPENSATION
The following table sets forth information with respect to all compensation
paid or earned for services rendered to the Company in 1993, 1994 and 1995 by
the chief executive officer and four of the Company's other executive officers
(together, the "Named Executive Officers"). The Company does not have a pension
plan or a long-term incentive plan and has not issued any restricted stock
awards.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ---------------------
-------------------- SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS AWARDED COMPENSATION
- ---------------------------------------------- -------- -------- --------------------- ------------
<S> <C> <C> <C> <C>
Theodore G. Schwartz
Chairman, President and Chief Executive
Officer
1995...................................... $312,000 $ 0 0 $2,170(1)
1994...................................... 312,000 0 0 1,269
1993...................................... 312,000 0 0 1,269
Marc S. Simon
Chief Financial Officer
1995...................................... 139,423 140,000 565,034 174(2)
1994...................................... 0 0 0 0
1993...................................... 0 0 0 0
Donald B. Berryman
Senior Vice President/
General Manager--Operations
1995...................................... 169,231 38,875 182,470 647(3)
1994...................................... 119,231 50,000 0 0
1993...................................... 76,731 15,000 0 0
Kenneth G. Culver
Senior Vice President--Facilities
1995...................................... 126,923 25,000 182,470 108(2)
1994...................................... 120,385 37,500 0 0
1993...................................... 85,000 112,587 0 0
Thomas E. Chaplin(5)
1995...................................... 173,077 42,000 182,470 670(4)
1994...................................... 112,346 50,000 0 0
1993...................................... 17,446 0 0 0
</TABLE>
- ------------
(1) Represents $1,246 with respect to group life insurance premiums paid and
$924 contributed by the Company on behalf of Mr. Schwartz to the Company's
401(k) plan.
(2) Represents group life insurance premiums paid.
(3) Represents $41 with respect to group life insurance premiums paid and $606
contributed by the Company on behalf of Mr. Berryman to the Company's 401(k)
plan.
(4) Represents $64 with respect to group life insurance premiums paid and $606
contributed by the Company on behalf of Mr. Chaplin to the Company's 401(k)
plan.
(5) Mr. Chaplin resigned as Senior Vice President--Sales Solutions as of May 31,
1996.
EMPLOYEE STOCK PLAN AND DIRECTOR STOCK PLAN
The Company has adopted a 1995 Incentive Stock Plan (the "Employee Stock
Plan") and a 1995 Nonemployee Director Stock Option Plan (the "Director Stock
Plan;" together with the Employee Stock Plan, the "Stock Plans"). Officers, key
employees and non-employee consultants may be granted non-qualified stock
options, incentive stock options, stock appreciation rights and stock awards
under the Employee Stock Plan. The Company has reserved 4,600,000 Common Shares
for issuance under the Employee Stock
31
<PAGE> 34
Plan and 150,000 Common Shares for future issuance under the Director Stock
Plan, subject in each case to anti-dilution adjustments.
The Director Stock Plan provides for initial and subsequent annual grants
of a non-qualified stock option to each non-affiliated Director of the Company.
The option will allow such Directors to purchase 5,000 Common Shares at an
exercise price equal to the fair market value of a Common Share on the date of
grant. These options have a term of ten years and vest in equal installments
over three years.
The Employee Stock Plan is administered by the Compensation Committee of
the Board of Directors (the "Committee"). The Committee is authorized to
determine, among other things, the key employees to whom, and the times at
which, options and other benefits are to be granted, the number of shares
subject to each option, the applicable vesting schedule and the exercise price
(provided that the exercise price may not be less than 85% of fair market value
of the Common Shares at the date of grant). The Committee also determines the
treatment to be afforded to a participant in the Employee Stock Plan in the
event of termination of employment for any reason, including death, disability
or retirement. Under the Employee Stock Plan the maximum term of an incentive
stock option is ten years and the maximum term of a nonqualified stock option is
fifteen years.
The Board of Directors has the power to amend the Employee Stock Plan from
time to time. Shareholder approval of an amendment is only required to the
extent that it is necessary to maintain the Employee Stock Plan's status as a
protected plan under applicable securities laws.
As of the date of this Prospectus, 1,825,882 stock options are outstanding
under the Employee Stock Plan at a weighted average exercise price of $16.62 per
share and 35,000 stock options are outstanding under the Director Stock Plan at
a weighted average exercise price of $20.95 per share.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth the number of incentive stock options
granted to the Named Executive Officers during 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED
ANNUAL RATES OF STOCK PRICE
INDIVIDUAL GRANTS APPRECIATION FOR OPTION TERM (4)
---------------------------------------------------------- ---------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED(#)(1) FISCAL YEAR(2) ($/SH)(3) DATE 5% ($) 10% ($) 0% ($)
- -------------------------- ------------- -------------- --------- ---------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Theodore G. Schwartz...... -- -- -- -- -- -- --
Marc S. Simon............. 471,428 25.1% 3.74 5/31/05 1,110,312 2,813,749 N/A
Marc S. Simon............. 93,606 5.0% 0 5/31/05 1,219,791 1,942,317 748,848
Donald B. Berryman........ 182,470 9.7% 6.31 8/23/05 724,674 1,836,466 N/A
Thomas E. Chaplin......... 182,470 9.7% 6.31 8/23/05 724,674 1,836,466 N/A
Kenneth G. Culver......... 182,470 9.7% 6.31 8/23/05 724,674 1,836,466 N/A
</TABLE>
- ------------
(1) Options are not exercisable during the first twelve months from the date the
options are granted. Thereafter, the options become exercisable at the rate
of 20% of the total shares subject to the option on and after the first day
of each anniversary of the date on which option was awarded. The term of the
options is ten years.
(2) Based on 1,877,818 total options granted to employees, including the Named
Executive Officers, in 1995.
(3) The exercise price was equal to the estimated fair market value of the
Common Stock on the date of grant except for 93,606 shares for Mr. Simon
which were granted pursuant to the terms of his option with no increase in
the aggregate exercise price.
(4) The potential realizable value is calculated based on the term of the option
at its time of grant (ten years). It is calculated by assuming the stock
price on the date of grant appreciates at the indicated annual rate
compounded annually for the entire term of the option and that the option is
exercised and sold on the last day of its term for the appreciated stock
price.
32
<PAGE> 35
FISCAL YEAR END OPTION VALUES
The following table provides information regarding exercisable and
unexercisable incentive stock options held by the Named Executive Officers as of
December 31, 1995.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
YEAR-END(#) FISCAL YEAR-END($)(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Theodore G. Schwartz........................... -- -- -- --
Marc S. Simon.................................. -- 565,034 -- 7,664,300
Donald B. Berryman............................. -- 182,470 -- 1,892,670
Thomas E. Chaplin.............................. -- 182,470 -- 1,892,670
Kenneth G. Culver.............................. -- 182,470 -- 1,892,670
</TABLE>
- ------------
(1) Value is calculated by subtracting the exercise price per share from the
estimated fair market value at December 31, 1995 of $16.688 per share and
multiplying by the number of shares subject to the stock option. See
"--Option Grants in Last Fiscal Year" above.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Amended Articles contain a provision eliminating the personal
liability of its directors for monetary damages resulting from breaches of their
fiduciary duty to the extent permitted by the Business Corporation Act of
Illinois. This provision in the Amended Articles does not eliminate the duty of
care and, in appropriate circumstances, equitable remedies such as an injunction
or other forms of non-monetary relief would remain available under Illinois law.
Each director will continue to be subject to liability for breach of a
director's duty of loyalty to the Company or its shareholders, for acts or
omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for any transaction from which the director derived an
improper personal benefit and for improper distributions to shareholders. This
provision also does not affect a director's responsibilities under any other
laws, such as the Federal securities laws or state or Federal environmental
laws.
The Company's Amended Bylaws provide that the Company will indemnify its
directors, and may indemnify its officers, employees and other agents, to the
fullest extent permitted by law. The Company's Amended Bylaws also permit it to
secure insurance on behalf of any person it is required or permitted to
indemnify for any liability arising out of his or her actions in such capacity,
regardless of whether the Amended Bylaws would permit indemnification. The
Company maintains liability insurance for its directors and officers.
The Company has entered into agreements to indemnify its directors and
certain of its executive officers, in addition to the indemnification provided
for in the Company's Amended Bylaws. These agreements, among other things, will
indemnify the Company's directors and such officers for all direct and indirect
expenses and costs (including, without limitation, all reasonable attorneys'
fees and related disbursements, other out of pocket costs and reasonable
compensation for time spent by such persons for which they are not otherwise
compensated by the Company or any third person) and liabilities of any type
whatsoever (including, but not limited to, judgments, fines and settlement fees)
actually and reasonably incurred by such person in connection with either the
investigation, defense, settlement or appeal of any threatened, pending or
completed action, suit or other proceeding, including any action by or in the
right of the corporation, arising out of such person's services as a director,
officer, employee or other agent of the Company, any subsidiary of the Company
or any other company or enterprise to which the person provides services at the
request of the Company. The Company believes that these provisions and
agreements are necessary to attract and retain talented and experienced
directors and officers.
33
<PAGE> 36
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding that might result in a claim for such indemnification.
EMPLOYMENT AGREEMENTS
In May 1995, the Company entered into an employment agreement with Mr.
Simon providing for payment of an annual base salary of $250,000. Mr. Simon will
be eligible to receive bonuses from the Company through the Company's Management
by Objective Bonus Plan ("MBO Bonus Plan"). In addition, Mr. Simon will receive
an additional payment for each calendar year during the term of the agreement
equal to the excess, if any, of $500,000 over Mr. Simon's salary plus bonus. If
Mr. Simon's salary plus bonus in any given year exceeds $500,000, the additional
payment for the following year shall be reduced by the amount of such excess.
The Company granted Mr. Simon an option to purchase 565,034 Common Shares. This
option has a term of 10 years and an exercise price of $1,764,705. The option
vests 20% on May 31 of each year through 2000. If Mr. Simon is terminated for
cause or resigns without substantial reason, the unvested portion of the option
is forfeited. The option fully vests upon Mr. Simon's death or disability or if
his employment agreement is terminated without cause or Mr. Simon terminates
such agreement for substantial reason. In the event of a sale of substantially
all of the Company's assets or stock, Mr. Simon has the right to sell this
option back to the Company for an amount determined with reference to the amount
received in such sale. The agreement terminates at the earlier of May 31, 2000
or any of the following events: (1) death or disability of Mr. Simon; (2) mutual
agreement; (3) the Company's election to terminate for cause; (4) Mr. Simon's
election to terminate for substantial reason with 30 days notice; or (5) Mr.
Simon's election to terminate without substantial reason. If the agreement
terminates due to death, disability or mutual agreement, the Company has agreed
to pay Mr. Simon his salary as accrued through the termination date and any
amounts accrued and vested with respect to the MBO Bonus Plan. If Mr. Simon's
employment is terminated for cause or Mr. Simon elects to terminate without
substantial reason, he will receive only his salary up to the date of
termination. If Mr. Simon terminates the agreement with substantial reason or
the Company terminates without cause, Mr. Simon shall receive his salary,
bonuses and execution payments up to the termination date and any amounts
accrued and vested, but not covered by the bonus, under the MBO Bonus Plan.
These amounts will be paid in equal monthly installments, without interest,
through the scheduled termination date of the agreement. During such period, Mr.
Simon has agreed to assist the Company in transitioning his former
responsibilities to other employees and shall serve as advisor and consultant to
the Company for approximately 10 hours per week. The agreement also contains
non-competition and confidentiality commitments.
In March 1994, the Company entered into an employment agreement with Mr.
Berryman providing for payment of a minimum annual base salary of $125,000. Mr.
Berryman will be eligible to receive bonuses from the Company through its MBO
Bonus Plan. The employment agreement terminates at the earlier of December 31,
1998 or any of the following events: (1) death or disability of Mr. Berryman;
(2) mutual agreement; (3) the Company's election to terminate for cause; or (4)
60 days prior written notice by either party. If the agreement terminates due to
death, disability, mutual agreement or 60 days written notice by Mr. Berryman,
the Company has agreed to pay Mr. Berryman his salary as accrued through the
termination date and any amounts accrued and vested with respect to the MBO
Bonus Plan. If Mr. Berryman's employment is terminated with or without cause, he
will receive only his salary up to the date of termination. The agreement also
contains non-competition and confidentiality commitments.
The Company has also entered into non-competition and confidentiality
agreements with Messrs. Culver, Dontje, Froetscher and Nikrant and Ms. McIntosh.
34
<PAGE> 37
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information as of October 28, 1996
regarding the beneficial ownership of Common Shares by: (1) each shareholder
beneficially owning more than five percent of the outstanding Common Shares;
(ii) each director of the Company; (iii) each Named Executive Officer; (iv) all
directors and executive officers of the Company as a group and (v) each Selling
Shareholder. Except as otherwise indicated, the Company believes that the
beneficial owners of the Common Shares listed below, based on information
provided by such owners, have sole investment and voting power with respect to
such shares, subject to community property laws where applicable. The address of
each of the shareholders named below is the Company's principal executive
office.
<TABLE>
<CAPTION>
SHARES NUMBER OF SHARES
BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO THE OFFERINGS BEING OFFERED AFTER THE OFFERINGS(1)
----------------------- ------------- -----------------------
NAME NUMBER PERCENT(2) NUMBER NUMBER PERCENT(2)
- --------------------------------------- ---------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Theodore G. Schwartz,
Chairman, President, Chief
Executive Officer and
Director........................ 20,610,000 44.4% 900,000 19,710,000 42.3%
Schwartz 1996
Charitable Remainder Unitrust... 1,700,000 3.7 1,100,000 600,000 1.3
Trust Seven Hundred Thirty U/A/D
4/2/94(3)....................... 3,615,000 7.8 1,000,000 2,615,000 5.6
Trust Four Hundred Thirty U/A/D
4/2/94(4)....................... 3,615,000 7.8 1,000,000 2,615,000 5.6
M. Christine Schwartz(3)(4)(5).... 8,932,680 19.2 3,100,000 5,832,680 12.5
Marc S. Simon(6)(7)............... 121,007 * 100,000 21,007 *
Donald B. Berryman(7)............. 27,994 * -- 27,994 *
Kenneth Culver(7)................. 31,699 * -- 31,699 *
Thomas M. Collins(7).............. 6,333 * -- 6,333 *
Morris R. Shechtman(7)............ 3,883 * -- 3,883 *
George D. Dalton.................. 2,000 * -- 2,000 *
Paul D. Yovovich.................. 5,000 * -- 5,000 *
Thomas E. Chaplin(8).............. 45,854 * -- 45,854 *
All directors and executive
officers as a group (12
persons)(7)..................... 20,809,416 44.7% 1,000,000 19,809,416 42.4%
</TABLE>
- ------------
* less than 1%.
(1) The Schwartz 1996 Charitable Remainder Unitrust and Marc S. Simon have
granted the Underwriters options to purchase up to 600,000 and 15,000
additional Common Shares, respectively, to cover over-allotments.
Information set forth in the table assumes no exercise of the
Underwriters' over-allotment options.
(2) Percentage of beneficial ownership is based on 46,421,260 Common Shares
outstanding as of October 28, 1996 and 46,521,260 Common Shares to be
outstanding after the Offerings.
(3) Includes 3,615,000 Common Shares prior to the Offerings and 2,615,000
Common Shares after the Offerings held directly by Trust Seven Hundred
Thirty U/A/D 4/2/94 ("Trust Seven Hundred Thirty"). M. Christine
Schwartz, Robert H. Wicklein, John J. Abens and Heidi Schoeffer serve
as trustees (the "Trustees") of Trust Seven Hundred Thirty. All
decisions regarding the voting and disposition of shares held by Trust
Seven Hundred Thirty must be made by a majority of all Trustees.
(4) Includes 3,615,000 Common Shares prior to the Offerings and 2,615,000
Common Shares after the Offerings held directly by Trust Four Hundred
Thirty U/A/D 4/2/94 ("Trust Four Hundred Thirty"). The Trustees of
Trust Seven Hundred Thirty also serve as trustees of Trust Four Hundred
Thirty. All decisions regarding the voting and disposition of shares
held by Trust Four Hundred Thirty must be made by a majority of all
Trustees.
35
<PAGE> 38
(5) Includes 1,700,000 Common Shares prior to the Offerings, and 600,000
Common Shares following the Offerings, held by the Schwartz 1996
Charitable Remainder Unitrust for which M. Christine Schwartz is
Trustee and has voting and investment control.
(6) Includes 3,000 Common Shares held in trust for the benefit of Mr.
Simon's children for which Mr. Simon is Co-Trustee and shares voting
and investment control. In addition, Mr. Simon has options to acquire
615,034 Common Shares, of which options for 100,000 shares are intended
to be exercised and such shares sold in the Offerings.
(7) Includes Common Shares which may be acquired pursuant to options which
are exercisable within 60 days as follows: Mr. Simon (113,007 shares);
Mr. Berryman (27,994 shares); Mr. Culver (26,494 shares); Mr. Collins
(3,333 shares); Mr. Schechtman (3,333 shares); and all directors and
executive officers as a group (174,161 shares).
(8) Mr. Chaplin resigned as Senior Vice President--Sales Solutions as of
May 31, 1996.
36
<PAGE> 39
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 250 million shares,
of which 200 million shares are Common Shares, par value $.01 per share, and 50
million shares are preferred shares, par value $.01 per share. At October 28,
1996, there were 46,421,260 Common Shares outstanding, held of record by 107
shareholders, and no preferred shares outstanding.
The following description of the capital stock of the Company and certain
provisions of the Company's Amended Articles and Amended Bylaws is a summary and
is qualified in its entirety by the provisions of the Amended Articles and
Amended Bylaws, which are exhibits to the Company's Registration Statement, of
which this Prospectus is a part.
COMMON SHARES
The issued and outstanding Common Shares, including the Common Shares
offered hereby, have been validly issued and are fully paid and nonassessable.
Subject to the right of holders of preferred shares, the holders of outstanding
Common Shares are entitled to receive dividends out of assets legally available
therefore at such times and in such amounts as the Board of Directors may from
time to time determine. See "Price Range of Common Shares and Dividend Policy."
The Common Shares are neither redeemable nor convertible, and the holders
thereof have no preemptive or subscription rights to purchase any securities of
the Company. Upon liquidation, dissolution or winding up of the Company, the
holders of Common Shares are entitled to receive, pro rata, the assets of the
Company which are legally available for distribution, after payment of all debts
and other liabilities and subject to the prior rights of any holders of
preferred shares then outstanding. Each outstanding Common Share is entitled to
one vote on all matters submitted to a vote of shareholders. There is no
cumulative voting in the election of Directors.
PREFERRED SHARES
The Company's Amended Articles authorize the Board of Directors to issue
the preferred shares in classes or series and to establish the designations,
preferences, qualifications, limitations or restrictions of any class or series
with respect to the rate and nature of dividends, the price and terms and
conditions on which shares may be redeemed, the terms and conditions for
conversion or exchange into any other class or series of shares, voting rights
and other terms. The Company may issue, without approval of the holders of
Common Shares, preferred shares which have voting, dividend or liquidation
rights superior to the Common Shares and which may adversely affect the rights
of holders of Common Shares. The issuance of preferred shares, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could, among other things, adversely affect the voting power of the
holders of Common Shares and could have the effect of discouraging, delaying,
deferring or preventing a change in control of the Company. The Company has no
present plan to issue any preferred shares.
CERTAIN STATUTORY PROVISIONS
The Company is subject to Section 7.85 of the Business Corporation Act of
Illinois ("Section 7.85"). Section 7.85 prohibits a publicly held Illinois
corporation from engaging in a "business combination" with an "interested
shareholder," unless the proposed "business combination" receives (i) the
affirmative vote of the holders of at least 80% of the combined voting power of
the then outstanding shares of all classes and series of the corporation
entitled to vote generally in the election of directors (the "Voting Shares"),
voting together as a single class and (ii) the affirmative vote of a majority of
the combined voting power of the then outstanding Voting Shares held by
disinterested shareholders voting together as a single class. For purposes of
Section 7.85 and Section 11.75 described below, a "business combination"
includes a merger, asset sale or other transaction resulting in a financial
benefit to the interested shareholder, and an "interested shareholder" is a
person who, together with affiliates and associates, owns (or within the prior
two years, did own) 10% or more of the combined voting power of the outstanding
Voting Shares.
Further, the Company is subject to Section 11.75 of the Business
Corporation Act of Illinois ("Section 11.75") which prohibits "business
combinations" with "interested shareholders" for a period of 3 years
37
<PAGE> 40
following the date that such shareholder became an "interested shareholder,"
unless (i) prior to such date, the Board of Directors approved the transaction
which resulted in the shareholder becoming an "interested shareholder," or (ii)
upon consummation of such transaction, the "interested shareholder" owned at
least 85% of the Voting Shares outstanding at the time such transaction
commenced (excluding shares owned by directors who are also officers and shares
reserved under an employee stock plan), or (iii) on or after such date, the
"business combination" is approved by the Board of Directors and authorized at a
meeting of the shareholders by 66 2/3% of the outstanding Voting Shares not
owned by the "interested shareholder." For purposes of Section 11.75, an
"interested shareholder" is a person who, together with affiliates and
associates, owns (or within the prior three years, did own) 15% of the Voting
Shares.
CERTAIN CHARTER AND BYLAW PROVISIONS
The Company's Amended Articles and Amended Bylaws contain a number of
provisions related to corporate governance and to the rights of shareholders. In
particular, the Amended Bylaws provide that shareholders follow an advance
notification procedure for certain shareholder nominations of candidates for the
Board of Directors and for certain other shareholder business to be conducted at
any meeting of the shareholders. The existence of these provisions in the
Company's Amended Articles and Amended Bylaws may have the effect of
discouraging a change in control of the Company and limiting shareholder
participation in certain transactions or circumstances by limiting shareholders'
participation to annual and special meetings of shareholders and making such
participation contingent upon adherence to certain prescribed procedures. The
affirmative vote of the holders of at least 66 2/3% of the outstanding capital
stock is required to amend or repeal these provisions.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Shares is Harris Trust and
Savings Bank.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Shares in the public market, or the
perception that such sales could occur, could depress the prevailing market
price of the Common Shares.
Upon completion of the Offerings, 20,981,260 Common Shares will be freely
tradeable. All other outstanding Common Shares were issued by the Company in
private transactions not involving a public offering, are treated as "restricted
securities" for purposes of Rule 144, and may not be resold unless they are
registered under the Securities Act or are resold pursuant to an exemption from
registration, including the exemption provided under Rule 144 of the Securities
Act.
In general, Rule 144, as currently in effect, provides that a person (or
persons whose sales are aggregated) who is an affiliate of the Company or who
has beneficially owned shares which are issued and sold in reliance upon
exemptions from registration under the Securities Act ("Restricted Shares") for
at least two years is entitled to sell within any three-month period a number of
shares that does not exceed the greater of 1% of the then outstanding Common
Shares or the average weekly trading volume in the Common Shares during the four
calendar weeks preceding the filing of a notice of the sale is filed with the
Securities and Exchange Commission (the "Commission"). Sales under Rule 144 are
also subject to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. However, a person
who is not deemed to have been an "affiliate" of the Company at any time during
the three months preceding a sale, and who has beneficially owned Restricted
Shares for at least three years, would be entitled to sell such shares under
Rule 144 without regard to volume limitations, manner of sale provisions, notice
requirements or the availability of current public information about the
Company.
The Company and the Selling Shareholders have, subject to certain
exceptions, agreed that they will not, directly or indirectly, sell, offer to
sell, grant any option for the sale of, or otherwise dispose of, any capital
stock of the Company or any security convertible or exchangeable into or
exercisable for, such capital stock, or, in the case of the Company, file any
registration statement with respect to the foregoing, for a period of 180
38
<PAGE> 41
days after the date of this Prospectus, without the prior written consent of
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Merrill Lynch
International. See "Underwriting." The Company has filed a registration
statement under the Securities Act registering an aggregate of 5,915,034 Common
Shares reserved for issuance in connection with outstanding options, under the
Stock Plans and the Company's Employee Stock Purchase Plan, thus permitting the
resale of such shares by non-affiliates in the public market without restriction
under the Securities Act. Options to acquire 1,825,882 Common Shares under the
Employee Stock Plan and options to acquire 35,000 Common Shares under the
Director Stock Plan are currently outstanding. See "Management--Employee Stock
Plan and Director Stock Plan."
Pursuant to an agreement among Mr. Schwartz, the trustees of certain trusts
and the Company, Mr. Schwartz and the trusts are entitled to certain rights with
respect to the registration of their Common Shares under the Securities Act. If
the Company proposes to register any of its securities under the Securities Act,
Mr. Schwartz and the trusts are entitled to notice of such registration and are
entitled to include at the Company's expense all or a portion of their shares
therein, subject to certain conditions. Such shareholders also may, subject to
certain conditions, require the Company at the Company's expense to register
their shares on Form S-2 or S-3, as applicable, on not more than two occasions
in any fiscal year (the Offerings constituting the first such registration in
fiscal 1996).
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States Federal tax
consequences of the acquisition, ownership, and disposition of Common Shares by
a holder that, for United States Federal income tax purposes, is not a "United
States person" (a "Non-United States Holder"). This discussion is based upon the
United States Federal tax law now in effect, which is subject to change,
possibly retroactively. For purposes of this discussion, a "United States
person" means a citizen or resident of the United States; a corporation,
partnership, or other entity created or organized in the United States or under
the laws of the United States or of any political subdivision thereof; an estate
whose income is includible in gross income for United States Federal income tax
purposes regardless of its source; or a "United States Trust". A United States
Trust is (a) for taxable years beginning after December 31, 1996, or if the
trustee of a trust elects to apply the following definition to an earlier
taxable year, any trust if, and only if, (i) a court within the United States is
able to exercise primary supervision over the administration of the trust and
(ii) one or more U.S. trustees have the authority to control all substantial
decisions of the trust, and (b) for all other taxable years, any trust whose
income is includible in gross income for United States Federal income tax
purposes regardless of its source. This discussion does not consider any
specific facts or circumstances that may apply to a particular Non-United States
Holder. Prospective investors are urged to consult their tax advisors regarding
the United States Federal tax consequences of acquiring, holding, and disposing
of Common Shares, as well as any tax consequences that may arise under the laws
of any foreign, state, local, or other taxing jurisdiction.
DIVIDENDS
Dividends paid to a Non-United States Holder will generally be subject to
withholding of United States Federal income tax at the rate of 30% unless the
dividend is effectively connected with the conduct of a trade or business within
the United States by the Non-United States Holder (or if certain tax treaties
apply, is attributable to a United States permanent establishment maintained by
such Non-United States Holder), in which case the dividend will be subject to
the United States Federal income tax on net income on the same basis that
applies to United States persons generally. In the case of a Non-United States
Holder which is a corporation, such effectively connected income also may be
subject to the branch profits tax (which is generally imposed on a foreign
corporation on the repatriation from the United States of effectively connected
earnings and profits). Non-United States Holders should consult any applicable
income tax treaties that may provide for a lower rate of withholding or other
rules different from those described above. A Non-United States Holder may be
required to satisfy certain certification requirements in order to claim treaty
benefits or otherwise claim a reduction of or exemption from withholding under
the foregoing rules.
39
<PAGE> 42
GAIN ON DISPOSITION
A Non-United States Holder will generally not be subject to United States
Federal income tax on gain recognized on a sale or other disposition of Common
Shares unless (i) the gain is effectively connected with the conduct of a trade
or business within the United States by the Non-United States Holder or, if tax
treaties apply, is attributable to a United States permanent establishment
maintained by the Non-United States Holder, (ii) in the case of a Non-United
States Holder who is a nonresident alien individual and holds the Common Shares
as a capital asset, such holder is present in the United States for 183 or more
days in the taxable year of disposition and either such individual has a "tax
home" in the United States or the gain is attributable to an office or other
fixed place of business maintained by such individual in the United States,
(iii) the Company is or has been a "U.S. real property holding corporation" for
United States Federal income tax purposes (which the Company does not believe
that it is or is likely to become) and the Non-United States Holder holds or has
held, directly or indirectly, at any time during the five-year period ending on
the date of disposition, more than 5 percent of the Common Shares or (iv) the
Non-United States Holder is subject to tax pursuant to the Internal Revenue Code
of 1986, as amended, provisions applicable to certain United States expatriates.
Gain that is effectively connected with the conduct of a trade or business
within the United States by the Non-United States Holder will be subject to the
United States Federal income tax on net income on the same basis that applies to
United States persons generally (and, with respect to corporate holders, under
certain circumstances, the branch profits tax) but will not be subject to
withholding. Non-United States Holders should consult any applicable treaties
that may provide for different rules.
FEDERAL ESTATE TAXES
Common Shares owned or treated as owned by an individual who is not a
citizen or resident of the United States at the date of death will be included
in such individual's estate for United States Federal estate tax purposes,
unless an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the Internal Revenue Service and to
each Non-United States Holder the amount of dividends paid to, and the tax
withheld with respect to, such holder, regardless of whether any tax was
actually withheld. This information may also be made available to the tax
authorities of a country in which the Non-United States Holder resides.
Under temporary United States Treasury regulations, United States
information reporting requirements and backup withholding tax will generally not
apply to dividends paid on the Common Shares to a Non-United States Holder.
Payments by a United States office of a broker of the proceeds of a sale of the
Common Shares are subject to both backup withholding at a rate of 31% and
information reporting unless the holder certifies its Non-United States Holder
status under penalties of perjury or otherwise establishes an exemption.
Information reporting requirements (but not backup withholding) will also apply
to payments of the proceeds of sales of the Common Shares by foreign offices of
United States brokers, or foreign brokers with certain types of relationships to
the United States, unless the broker has documentary evidence in its records
that the holder is a Non-United States Holder and certain other conditions are
met, or the holder otherwise establishes an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be refunded or credited against the Non-United
States Holder's United States Federal income tax liability, provided that the
required information is furnished to the Internal Revenue Service.
These information reporting and backup withholding rules are under review
by the United States Treasury and their application to the Common Shares could
be changed by future regulations. On April 15, 1996, the Internal Revenue
Service issued proposed Treasury Regulations concerning the withholding of tax
and reporting for certain amounts paid to non-resident individuals and foreign
corporations. The proposed Treasury Regulations, if adopted in their present
form, would be effective for payments made after December 31, 1997. Prospective
investors should consult their tax advisors concerning the potential adoption of
such proposed Treasury Regulations and the potential effect on their ownership
of the Common Shares.
40
<PAGE> 43
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"U.S. Purchase Agreement") among the Company, each of the Selling Shareholders
and each of the underwriters named below (the "U.S. Underwriters"), and
concurrently with the sale of 820,000 Common Shares to the International
Managers (as defined below), the Selling Shareholders have agreed to sell to
each of the U.S. Underwriters, and each of the U.S. Underwriters severally has
agreed to purchase from the Selling Shareholders, the number of Common Shares
set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITER SHARES
-------------------------------------------------------------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.....................................
Lehman Brothers Inc. .........................................
Smith Barney Inc. ............................................
William Blair & Company, L.L.C................................
---------
Total............................................. 3,280,000
=========
</TABLE>
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"),
Lehman Brothers Inc., Smith Barney Inc. and William Blair & Company, L.L.C. are
acting as representatives (the "U.S. Representatives") of the U.S. Underwriters.
The Company and the Selling Shareholders have also entered into a purchase
agreement (the "International Purchase Agreement" and, together with the U.S.
Purchase Agreement, the "Purchase Agreements") with certain underwriters outside
the United States and Canada (collectively, the "International Managers," and
together with the U.S. Underwriters, the "Underwriters"), for whom Merrill Lynch
International, Lehman Brothers International (Europe), Smith Barney Inc. and
William Blair & Company, L.L.C. are acting as representatives (the
"International Representatives" and, together with the U.S. Representatives, the
"Representatives"). Subject to the terms and conditions set forth in the
International Purchase Agreement, and concurrently with the sale of 3,280,000
Common Shares to the U.S. Underwriters pursuant to the U.S. Purchase Agreement,
the Selling Shareholders have agreed to sell to the International Managers and
the International Managers have severally agreed to purchase from the Selling
Shareholders, an aggregate of 820,000 Common Shares. The public offering price
per Common Share and the underwriting discount per Common Share are identical
under the U.S. Purchase Agreement and the International Purchase Agreement. The
respective percentages of the Common Shares to be sold by each of the Selling
Shareholders will be identical in the U.S. Offering and the International
Offering.
In the U.S. Purchase Agreement and the International Purchase Agreement,
the several U.S. Underwriters and the several International Managers,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the Common Shares being sold pursuant to each such
Agreement if any of the Common Shares being sold pursuant to such Agreement are
purchased. Under certain circumstances involving a default by an Underwriter,
the commitments of non-defaulting U.S. Underwriters or International Managers
(as the case may be) may be increased or the U.S. Purchase Agreement or the
International Purchase Agreement (as the case may be) may be terminated. The
sale of Common Shares to the U.S. Underwriters is conditioned upon the sale of
Common Shares to the International Managers and vice versa.
The U.S. Underwriters and the International Managers have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") providing for the
coordination of their activities. The Underwriters are
41
<PAGE> 44
permitted to sell Common Shares to each other for purposes of resale at the
initial public offering price, less an amount not greater than the selling
concession. Under the terms of the Intersyndicate Agreement, the U.S.
Underwriters and any dealer to whom they sell Common Shares will not offer to
sell or sell Common Shares to persons who are non-U.S. or non-Canadian persons
or to persons they believe intend to resell to persons who are non-U.S. or
non-Canadian persons, and the International Managers and any dealer to whom they
sell Common Shares will not offer to sell or sell Common Shares to U.S. persons
or to Canadian persons or to persons they believe intend to resell to U.S.
persons or Canadian persons, except in the case of transactions pursuant to the
Intersyndicate Agreement.
The U.S. Representatives have advised the Company and the Selling
Shareholders that the U.S. Underwriters propose initially to offer the Common
Shares to the public at the public offering price set forth on the cover page of
this Prospectus, and to certain dealers at such price less a concession not in
excess of $ per share. The U.S. Underwriters may allow, and such dealers
may reallow, a discount not in excess of $ per share on sales to certain
other dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
Certain Selling Shareholders have granted an option to the U.S.
Underwriters, exercisable within 30 days after the date of this Prospectus, to
purchase up to an aggregate of 492,000 additional Common Shares at the public
offering price set forth on the cover page of this Prospectus, less the
underwriting discount. The U.S. Underwriters may exercise this option only to
cover over-allotments, if any, made on the sale of the Common Shares offered
hereby. To the extent that the U.S. Underwriters exercise this option, each U.S.
Underwriter will be obligated, subject to certain conditions, to purchase a
number of additional Common Shares proportionate to such U.S. Underwriter's
initial amount reflected in the foregoing table. Such Selling Shareholders also
have granted an option to the International Managers, exercisable within 30 days
after the date of this Prospectus, to purchase up to an aggregate of 123,000
additional Common Shares to cover over-allotments, if any, on terms similar to
those granted to the U.S. Underwriters. If purchased, the Underwriters will
offer such additional shares on the same terms as those on which the 4,100,000
shares are being offered.
The Company and the Selling Shareholders have, subject to certain
exceptions, agreed that they will not for a period of 180 days from the date of
this Prospectus, without the prior written consent of Merrill Lynch and Merrill
Lynch International, directly or indirectly, sell, offer to sell, grant any
option for the sale of, or otherwise dispose of, any capital stock of the
Company or any security convertible or exchangeable into, or exercisable for,
such capital stock, or, in the case of the Company, file any registration
statement with respect to any of the foregoing, except that the Company may,
without such consent, issue options and Common Shares pursuant to the Stock
Plans and the Employee Stock Purchase Plan.
In connection with the Offerings, certain Underwriters or their respective
affiliates who are qualified market makers on Nasdaq may engage in "passive
market making" in the Common Shares on the Nasdaq National Market in accordance
with Rule 10b-6A under the Exchange Act. Rule 10b-6A permits, upon the
satisfaction of certain conditions, underwriters and selling group members
participating in a distribution that are also Nasdaq market makers in the
security being distributed to engage in limited market making transactions
during the period when Rule 10b-6 under the Exchange Act would otherwise
prohibit such activity. Rule 10b-6A prohibits underwriters and selling group
members engaged in passive market making generally from entering a bid or
effecting a purchase at a price that exceeds the highest bid for those
securities displayed on Nasdaq by a market maker that is not participating in
the distribution. Under Rule 10b-6A, each underwriter or selling group member
engaged in passive market making is subject to a daily net purchase limitation
equal to 30% of such entity's average daily trading volume during the two full
consecutive calendar months immediately preceding the date of the filing of the
registration statement under the Securities Act pertaining to the security to be
distributed.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the Underwriters may be required to
make in respect thereof.
42
<PAGE> 45
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Shares to
be sold in the Offerings are being passed upon for the Company and the Selling
Shareholders by McDermott, Will & Emery, Chicago, Illinois. Mayer, Brown &
Platt, Chicago, Illinois, is acting as counsel for the Underwriters in
connection with certain legal matters relating to the sale of the Common Shares
to be sold in the Offerings.
EXPERTS
The financial statements of the Company as of January 1, 1995 and December
31, 1995 and for each of the three fiscal years ended December 31, 1995 included
in this Prospectus and elsewhere in the Registration Statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected at the public reference facilities maintained by
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices at 500 West Madison Street, Chicago, IL 60661, and
7 World Trade Center, New York, NY 10048. Copies of such material can also be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Registration
Statement (as defined below) is also available on the Commission's web site at
http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments, schedules and exhibits thereto, and all
documents incorporated by reference therein, the "Registration Statement") under
the Securities Act with respect to the Common Shares to be sold in the
Offerings. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Shares to be sold in the Offerings, reference is made to
the Registration Statement. Statements made in the Prospectus as to the contents
of any contract, agreement or other document are not necessarily complete; with
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1995, its Quarterly Reports on Form 10-Q for the quarters ended March 31 and
June 30, 1996, its Current Report on Form 8-K dated October 17, 1996 and the
description of the Common Shares contained in the Company's Registration
Statement on Form 8-A for such securities, have been filed by the Company with
the Commission pursuant to the Exchange Act and are incorporated herein by
reference. All documents filed by the Company with the Commission pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the Offerings shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date such documents were filed. Any statement contained in this Prospectus, or
in a document incorporated or deemed to be incorporated by reference herein,
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus. The Company will provide without charge to
each person to whom a copy of this Prospectus is delivered, upon the written or
oral request of such person, a copy of any and all of the documents incorporated
by reference herein (other than exhibits to such documents, unless such exhibits
are specifically incorporated by reference in such documents). Requests for such
copies should be directed to Investor Relations, APAC TeleServices, Inc., One
Parkway North Center, Suite 510, Deerfield, Illinois 60015, telephone number
(847) 945-0055.
43
<PAGE> 46
APAC TELESERVICES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----------------
<S> <C>
Report of Independent Public Accountants.................................. F-2
Balance Sheets as of January 1, 1995, December 31, 1995 and June 30,
1996.................................................................... F-3
Statements of Income for the Fiscal Years Ended January 2, 1994, January
1, 1995, and December 31, 1995 and for the Twenty-Six Weeks Ended July
2, 1995 and June 30, 1996............................................... F-4
Statements of Shareholders' Equity for the Fiscal Years Ended January 2,
1994, January 1, 1995, and December 31, 1995 and for the Twenty-Six
Weeks Ended June 30, 1996............................................... F-5
Statements of Cash Flows for the Fiscal Years Ended January 2, 1994,
January 1, 1995, and December 31, 1995 and for the Twenty-Six Weeks
Ended July 2, 1995 and June 30, 1996.................................... F-6
Notes to Financial Statements............................................. F-7 through F-16
</TABLE>
F-1
<PAGE> 47
APAC TELESERVICES, INC.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of APAC TeleServices, Inc.:
We have audited the accompanying balance sheets of APAC TeleServices, Inc.
(an Illinois corporation) as of January 1, 1995 and December 31, 1995, and the
related statements of income, shareholders' equity and cash flows for the years
ended January 2, 1994, January 1, 1995, and December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of APAC TeleServices, Inc. as
of January 1, 1995 and December 31, 1995, and the results of its operations and
its cash flows for the years ended January 2, 1994, January 1, 1995, and
December 31, 1995 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 1, 1996
F-2
<PAGE> 48
APAC TELESERVICES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31, JUNE 30,
1995 1995 1996
----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
- ------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents........................... $ 1,186 $ 4,185,916 $ 14,169
Short-term investments.............................. -- 26,000,000 5,700,000
Accounts receivable:
Trade, less allowance for doubtful accounts of
$240,000 at December 31, 1995 and $385,000 at
June 30, 1996.................................. 9,740,215 18,735,590 40,850,740
Shareholder/officer.............................. 299,073 -- --
Prepaid expenses.................................... 77,214 651,845 325,155
Deferred preoperating costs......................... -- 1,142,219 323,969
----------- ----------- -----------
Current assets................................. 10,117,688 50,715,570 47,214,033
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization....................... 11,062,926 23,616,367 44,905,068
----------- ----------- -----------
Total assets................................... $21,180,614 $ 74,331,937 $92,119,101
=========== =========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
- ------------------------------------------------------
CURRENT LIABILITIES
Current maturities of long-term debt................ $ 2,822,258 $ 845,397 $ 393,069
Revolving credit facility........................... -- -- 2,000,000
Book overdraft...................................... 1,310,000 -- 2,784,165
Accounts payable.................................... 272,509 2,222,347 2,822,191
Income taxes payable................................ -- 1,263,000 1,629,520
Accrued expenses:
Payroll, bonuses and related items............... 1,690,482 5,209,868 9,468,056
Telecommunications............................... 223,189 1,734,036 2,326,269
Other............................................ 922,561 3,007,215 1,406,063
Deferred income taxes............................... -- 580,000 120,000
Dividends payable................................... -- 2,809,000 --
----------- ----------- -----------
Current liabilities............................ 7,240,999 17,670,863 22,949,333
----------- ----------- -----------
LONG-TERM DEBT, less current maturities............... 8,217,882 1,473,715 1,380,061
----------- ----------- -----------
DEFERRED INCOME TAXES................................. -- 2,480,000 1,950,000
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES......................... -- -- --
SHAREHOLDERS' EQUITY:
Preferred Shares, $0.01 par value; 50,000,000 shares
authorized; none issued and outstanding.......... -- -- --
Common Shares, $0.01 par value; 100,000,000 shares
authorized at January 1, 1995 and December 31,
1995 and 200,000,000 shares authorized at June
30, 1996; 39,600,000, 46,200,000 and 46,276,708
shares issued and outstanding at January 1, 1995,
December 31, 1995 and June 30, 1996,
respectively..................................... 396,000 462,000 462,767
Additional paid-in capital.......................... -- 49,071,750 50,367,831
Retained earnings................................... 5,325,733 3,173,609 15,009,109
----------- ----------- -----------
Total shareholders' equity..................... 5,721,733 52,707,359 65,839,707
----------- ----------- -----------
Total liabilities and shareholders' equity..... $21,180,614 $ 74,331,937 $92,119,101
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 49
APAC TELESERVICES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE TWENTY-SIX WEEKS
FOR THE FISCAL YEARS ENDED ENDED
------------------------------------------ ---------------------------
JANUARY 2, JANUARY 1, DECEMBER 31, JULY 2, JUNE 30,
1994 1995 1995 1995 1996
----------- ----------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue................... $28,911,450 $46,618,487 $101,666,470 $40,642,346 $113,242,812
Operating expenses:
Cost of services............ 19,789,288 30,665,996 71,981,814 27,189,966 80,174,411
Selling, general and
administrative
expenses................. 5,070,454 9,322,212 16,397,608 7,392,167 13,783,727
----------- ----------- ------------ ----------- ------------
Total operating
expenses............... 24,859,742 39,988,208 88,379,422 34,582,133 93,958,138
----------- ----------- ------------ ----------- ------------
Income from
operations.......... 4,051,708 6,630,279 13,287,048 6,060,213 19,284,674
Investment income............. -- -- 284,252 -- 423,912
Interest expense.............. (202,223) (663,801) (1,088,196) (562,517) (145,086)
----------- ----------- ------------ ----------- ------------
Income before income
taxes............... 3,849,485 5,966,478 12,483,104 5,497,696 19,563,500
Income taxes:
Income tax provision on C
corporation income
subsequent to October 16,
1995..................... -- -- 550,000 -- 7,728,000
Deferred income taxes
recorded in conjunction
with termination of S
corporation election on
October 15, 1995......... -- -- 3,780,000 -- --
----------- ----------- ------------ ----------- ----------
Total income taxes....... -- -- 4,330,000 -- 7,728,000
----------- ----------- ------------ ----------- ------------
Net income............. $ 3,849,485 $ 5,966,478 $ 8,153,104 $ 5,497,696 $ 11,835,500
=========== =========== ============ =========== ============
Pro forma income data
(unaudited):
Income before income taxes
as reported.............. $ 3,849,485 $ 5,966,478 $ 12,483,104 $ 5,497,696
Provision for income
taxes.................... -- -- 4,330,000 --
Pro forma adjustment to
recognize C corporation
provision for income
taxes.................... 1,500,000 2,070,000 670,000 2,153,000
----------- ----------- ------------ -----------
Pro forma net income... $ 2,349,485 $ 3,896,478 $ 7,483,104 $ 3,344,696
=========== =========== ============ ===========
Net income per share (pro
forma for Fiscal 1993,
1994 and 1995)........... $0.06 $0.10 $0.18 $0.08 $0.25
=========== =========== ============ =========== ============
Weighted average number of
shares outstanding....... 40,086,000 40,086,000 41,624,000 40,086,000 47,869,000
=========== =========== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 50
APAC TELESERVICES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON SHARES
---------------------- ADDITIONAL TOTAL
SHARES PAID-IN RETAINED SHAREHOLDERS'
ISSUED AMOUNT CAPITAL EARNINGS EQUITY
---------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, January 3, 1993......... 39,600,000 396,000 -- $ 2,348,681 $ 2,744,681
Net income..................... -- -- -- 3,849,485 3,849,485
S corporation distributions
paid........................ -- -- -- (2,410,858) (2,410,858)
---------- -------- ----------- ---------- -----------
BALANCE, January 2, 1994......... 39,600,000 396,000 -- 3,787,308 4,183,308
Net income..................... -- -- -- 5,966,478 5,966,478
S corporation distributions
paid........................ -- -- -- (4,428,053) (4,428,053)
---------- -------- ----------- ---------- -----------
BALANCE, January 1, 1995......... 39,600,000 396,000 -- 5,325,733 5,721,733
Net income..................... -- -- -- 8,153,104 8,153,104
S corporation distributions
paid or accrued............. -- -- -- (9,374,489) (9,374,489)
Capitalization of undistributed
S corporation earnings in
conjunction with termination
of S corporation election on
October 15, 1995............ -- -- 897,739 (897,739) --
Issuance of common shares...... 6,600,000 66,000 48,174,011 (33,000) 48,207,011
---------- -------- ----------- ---------- -----------
BALANCE, December 31, 1995....... 46,200,000 462,000 49,071,750 3,173,609 52,707,359
Net income..................... -- -- -- 11,835,500 11,835,500
Exercise of employee stock
options, net of related tax
benefit..................... 76,708 767 1,296,081 -- 1,296,848
---------- -------- ----------- ---------- -----------
BALANCE, June 30, 1996
(Unaudited).................... 46,276,708 $462,767 $50,367,831 $15,009,109 $ 65,839,707
========== ======== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 51
APAC TELESERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE TWENTY-SIX
FOR THE FISCAL YEARS ENDED WEEKS ENDED
------------------------------------------- ---------------------------
JANUARY 2, JANUARY 1, DECEMBER 31, JULY 2, JUNE 30,
1994 1995 1995 1995 1996
----------- ----------- ------------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income.............................. $ 3,849,485 $ 5,966,478 $ 8,153,104 $ 5,497,696 $ 11,835,500
Adjustments to reconcile net income to
cash from operating activities:
Depreciation and amortization......... 1,098,947 2,265,161 4,072,370 1,713,264 4,756,577
Deferred income taxes................. -- -- 3,060,000 -- (990,000)
Change in assets and liabilities:
Accounts receivable................. (2,061,113) (5,491,525) (8,696,302) (5,548,736) (22,115,150)
Prepaid expenses.................... (29,452) 16,775 (574,631) (173,426) 326,690
Deferred preoperating costs......... -- -- (1,142,219) (273,750) (52,580)
Accounts payable.................... 42,831 (356,375) 1,949,838 1,104,887 599,844
Income taxes payable................ -- -- 1,263,000 -- 366,520
Accrued expenses.................... 1,359,156 470,168 7,114,887 3,834,045 3,249,269
----------- ----------- ------------ ----------- ------------
Net cash provided (used) by
operating activities............ 4,259,854 2,870,682 15,200,047 6,153,980 (2,023,330)
INVESTING ACTIVITIES
Sale (purchase) of short-term
investments........................... -- -- (26,000,000) -- 20,300,000
Purchase of property and equipment,
net................................... (2,313,517) (6,526,401) (16,625,811) (9,551,658) (25,174,448)
----------- ----------- ------------ ----------- ------------
Net cash used by investing
activities...................... (2,313,517) (6,526,401) (42,625,811) (9,551,658) (4,874,448)
FINANCING ACTIVITIES
Proceeds from refinanced credit
facilities............................ -- -- 11,787,520 -- --
Retirement of credit facilities......... -- -- (11,787,520) -- --
Proceeds from long-term debt............ 748,190 8,164,937 6,702,149 6,690,265 --
Payments on long-term debt.............. (674,701) (1,448,022) (15,423,177) (1,366,025) (545,982)
Net proceeds (payments) under Revolving
Facility.............................. (250,206) -- -- -- 2,000,000
Increase (decrease) in book overdraft... -- 1,310,000 (1,310,000) 184,959 2,784,165
Proceeds from sale of common shares..... -- -- 48,207,011 -- --
Exercise of employee stock options...... -- -- -- -- 1,296,848
S corporation distributions paid........ (2,410,858) (4,428,053) (6,565,489) (2,067,086) (2,809,000)
----------- ----------- ------------ ----------- ------------
Net cash provided (used) by
financing activities............ (2,587,575) 3,598,862 31,610,494 3,442,113 2,726,031
----------- ----------- ------------ ----------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................. (641,238) (56,857) 4,184,730 44,435 (4,171,747)
Cash and cash equivalents at beginning of
period.................................. 699,281 58,043 1,186 1,186 4,185,916
----------- ----------- ------------ ----------- ------------
Cash and cash equivalents at end
of period....................... $ 58,043 $ 1,186 $ 4,185,916 $ 45,621 $ 14,169
=========== =========== ============ =========== ============
SUPPLEMENTAL DISCLOSURES
Cash flow information--cash paid during
the period for
Interest.............................. $ 207,163 $ 664,170 $ 1,099,309 $ 562,517 $ 208,342
Income taxes.......................... $ -- $ -- $ -- $ -- $ 7,581,408
=========== =========== ============ =========== ============
Non-cash investing activities--capital
lease obligations used to purchase
equipment............................. $ 2,811,951 -- -- -- --
=========== =========== ============ =========== ============
Non-cash financing activities--dividend
payable to S corporation shareholders
representing undistributed taxable
income prior to conversion to a C
corporation on October 16, 1995....... -- -- $ 2,809,000 -- --
=========== =========== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 52
APAC TELESERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
The financial statements and related notes thereto as of June 30, 1996, and
for the twenty-six weeks ended July 2, 1995 and June 30, 1996, are unaudited and
have been prepared on the same basis as the audited financial statements
included herein. In the opinion of management, such unaudited financial
statements include all adjustments (consisting of normal recurring adjustments)
necessary to present fairly the information set forth herein. Operating results
for the twenty-six weeks ended June 30, 1996 are not necessarily indicative of
results that may be expected for the fiscal year ended December 29, 1996. The
principal accounting policies of APAC TeleServices, Inc. (the "Company") are as
follows:
(a) Fiscal Year. The Company has a 52/53 week fiscal year that ends on the
Sunday closest to December 31.
(b) Industry Information. The Company provides high volume telephone-based
sales, marketing and customer management solutions for corporate clients
operating in the telecommunications, insurance, financial, and business and
consumer industries throughout the United States. The nature of the industry is
such that the Company is dependent on several large clients for a significant
portion of its annual revenues. The Company had four, one, two and two client(s)
which each accounted for more than ten percent of the Company's net revenue for
the fiscal years ended January 2, 1994, January 1, 1995 and December 31, 1995
and the twenty-six weeks ended June 30, 1996, respectively. For the periods
ended (a) January 2, 1994, such four clients accounted for 20%, 12%, 10% and 10%
of the Company's net revenue, respectively, (b) January 1, 1995, such client
accounted for 24% of the Company's net revenue (c) December 31, 1995, such two
clients accounted for 16% and 14% of the Company's net revenue, and (d) June 30,
1996, such two clients accounted for 36% and 20% of the Company's net revenue,
respectively. The loss of one or more of these major clients could have a
materially adverse effect on the Company's business.
(c) Cash and Cash Equivalents. Cash and cash equivalents consist of cash in
banks and overnight securities.
(d) Short-term Investments. The Company invests excess operating cash in
instruments with maturities of twelve months or less. The Company intends to
hold such investments, which may consist of short-term municipal preferred
securities, certificates of deposits, U.S. Treasury and Agency securities,
repurchase agreements, and others, to maturity. At December 31, 1995 and June
30, 1996, short-term investments consist of municipal preferred securities with
maturities of less than 50 days. The market value of such investments (including
interest) is equal to the cost basis.
(e) Property and Equipment. Property and equipment are stated at cost less
accumulated depreciation. Major improvements are capitalized and charged to
expense through depreciation. Repairs and maintenance are charged to expense as
incurred. General and administrative costs associated with the opening of new
Company call centers are expensed as incurred. Upon sale or retirement, the
related cost and accumulated depreciation are removed from the accounts, and any
gain or loss is recorded in the statement of income. Depreciation is determined
using the straight-line method for financial reporting purposes and accelerated
methods for income tax reporting purposes over the estimated useful lives of the
respective assets. Equipment recorded under capital leases is amortized on a
straight-line basis over the shorter of the estimated useful life of the assets
or the lease term.
(f) Revenue Recognition. The Company recognizes revenue on programs as
services are performed for its clients, generally based upon hours incurred.
(g) Deferred Preoperating Costs. Effective July 10, 1995 the Company
entered into a four and one-half year contract to provide telephone-based
services from a number of client-owned facilities. The Company incurred
preoperating costs directly associated with the contract. Preoperating costs
include training and other associated costs for new personnel who will be
providing service under the contract during its term and are
F-7
<PAGE> 53
APAC TELESERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
amortized over a 12-month period beginning on the date the facility to which
they relate is staffed and ready for operations.
(h) Concentration of Credit Risk. Concentration of credit risk is limited
to trade accounts receivable and is subject to the financial conditions of
certain major clients described in Industry Information above. Two of these
clients are engaged in transactions with each other and represent a single
credit risk to the Company. The Company does not require collateral or other
security to support clients' receivables. The Company conducts periodic reviews
of its clients' financial conditions and vendor payment practices to minimize
collection risks on trade accounts receivable.
(i) Management's Estimates. Management has made certain estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent liabilities during the preparation of the financial
statements. Actual results could differ from these estimates. However,
management does not believe they would have a material effect on operating
results.
(j) Net Income Per Share. Pro forma and actual net income per share amounts
are computed based upon the weighted average number of common shares and common
share equivalents outstanding during each period presented after retroactive
adjustments for stock splits and all options granted. Supplementary, pro forma
net income per common share and common share equivalents would not have been
materially different than that reflected on the accompanying income statement
for the years ended January 1, 1995 and December 31, 1995 had the debt
retirement in connection with the Company's initial public offering taken place
January 2, 1994.
(k) Training costs. The Company maintains ongoing training programs for its
employees. The cost of this training is expensed when incurred. In addition,
certain contracts require clients to reimburse the Company for specific
training. These costs are billed to clients and expensed as incurred.
(l) Accounting for Stock-Based Compensation. The Company currently utilizes
Accounting Principles Board Opinion No. 25 in its accounting for stock options.
In October, 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 ("Statement 123"), "Accounting for
Stock-Based Compensation." The accounting method as provided in the
pronouncement is not required to be adopted; however, it is encouraged. The
Company does not anticipate adopting the accounting provisions of Statement 123.
Had the Company accounted for its stock options in accordance with Statement
123, pro forma net income and pro forma net income per share would have been
approximately $7,310,000 and $0.18 in fiscal 1995 and approximately $11,175,000
and $0.23 in the first twenty-six weeks of fiscal 1996. The pro forma disclosure
is not likely to be indicative of pro forma results which may be expected in
future years because of the fact that options vest over several years,
compensation expense is recognized as the options vest and additional awards may
also be granted.
2. INCOME TAXES
Prior to the initial public offering of the Company's Common Shares
completed on October 16, 1995 the Company included its income and expenses with
those of its shareholders for Federal and certain state income tax purposes (an
S corporation election). Accordingly, the Statements of Income for the fiscal
years ended January 2, 1994, and January 1, 1995, do not include a provision for
Federal income taxes. In connection with the Company's initial public offering
in October, 1995, the Company terminated its S corporation election and
accordingly recorded a deferred income tax liability and corresponding income
tax expense of $3,780,000, arising from a change in the Company's tax status and
a change from the cash basis to the accrual basis of accounting for tax
purposes. Beginning October 16, 1995, the Company provides for deferred income
taxes under the asset and liability method of accounting. This method requires
the recognition of deferred income taxes based upon the tax consequences of
"temporary differences" by applying enacted statutory tax rates
F-8
<PAGE> 54
APAC TELESERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
applicable to future years to differences between the financial statements
carrying amounts and the tax basis of existing assets and liabilities.
The provision for income taxes for the year ended December 31, 1995 and the
twenty-six weeks ended June 30, 1996, consists of the following:
<TABLE>
<CAPTION>
TWENTY-SIX
YEAR ENDED WEEKS ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
Current:
Federal..................................... $ 920,000 $7,218,000
State....................................... 350,000 1,500,000
---------- ----------
Total current provision................ 1,270,000 8,718,000
Deferred:
Federal..................................... (582,000) (801,000)
State....................................... (138,000) (189,000)
---------- ----------
Total deferred provision............... (720,000) (990,000)
Initial recognition of deferred income taxes
resulting from change in tax status............ 3,780,000 --
---------- ----------
Total income tax provision............. $4,330,000 $7,728,000
========== ==========
</TABLE>
A reconciliation of statutory Federal tax rate to the pro forma and actual
effective income tax rate for the year ended December 31, 1995 and the
twenty-six weeks ended June 30, 1996, is as follows:
<TABLE>
<CAPTION>
YEAR ENDED TWENTY-SIX
DECEMBER 31, 1995 WEEKS ENDED
------------------- JUNE 30,
PRO-FORMA ACTUAL 1996
--------- ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Statutory rate.............................. 35.0% 35.0% 35.0%
========== =========== ==========
State taxes, net of Federal benefit and
state credits............................. 5.3 1.7 4.4
Tax-exempt investment income................ (0.6) (0.6) (0.6)
Targeted Jobs Tax Credit.................... (1.1) -- (0.1)
Income taxes recognized as a result of a
change in tax status...................... -- 30.3 --
S corporation income taxed to its
shareholders.............................. -- (33.2) --
Other....................................... 1.5 1.5 0.8
------- ----- -----
Effective rate.................... 40.1% 34.7% 39.5%
======= ======= =======
</TABLE>
The pro forma income data in the Statements of Income provides information
as if the Company had been treated as a C corporation for income tax purposes
for all periods presented.
F-9
<PAGE> 55
APAC TELESERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The significant components of deferred income tax assets and liabilities as
of December 31, 1995 and June 30, 1996, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ ----------
(UNAUDITED)
<S> <C> <C>
Deferred income tax assets:
Payroll and related......................... $ 397,000 $ 674,000
Allowance for doubtful accounts............. 110,000 172,000
Other....................................... 176,000 68,000
---------- ----------
Total deferred income tax assets....... 683,000 914,000
Deferred income tax liabilities:
Change in tax accounting method (cash to
accrual).................................. 2,756,000 2,297,000
Preoperating costs.......................... 303,000 78,000
Fixed assets................................ 272,000 204,000
Other....................................... 412,000 405,000
---------- ----------
Total deferred income tax
liabilities.......................... 3,743,000 2,984,000
========== ==========
Net deferred income tax liabilities......... $3,060,000 $2,070,000
========== ==========
</TABLE>
No valuation allowance for deferred income tax assets at December 31, 1995
and June 30, 1996 has been recorded as the Company believes it is more likely
than not the deferred tax assets will be realized in the future.
In connection with the initial public offering, the Company and certain of
its shareholders entered into a tax agreement. The agreement provides that the
Company will indemnify such shareholders against additional income taxes
resulting from adjustments made (as a result of a final determination made by a
competent tax authority) to the taxable income reported by the Company as an S
corporation for the periods prior to the initial public offering, but only to
the extent those adjustments result in a decrease in income taxes otherwise
payable by the Company.
As of December 31, 1995, the Company had accrued dividends of $2,809,000,
based upon the undistributed taxable income attributable to the Company's tax
status as an S corporation prior to the initial public offering. These dividends
were paid in fiscal 1996 to the Company's S Corporation shareholders of record
prior to its initial public offering when the Company finalized its corporate
income tax returns.
3. PROPERTY AND EQUIPMENT
At January 1, 1995, December 31, 1995 and June 30, 1996, property and
equipment along with corresponding estimated useful lives consists of the
following:
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31, JUNE 30, ESTIMATED
1995 1995 1996 LIFE
----------- ------------ ------------ ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Building and leasehold improvements....... $ 3,320,545 $ 7,214,706 $ 10,876,989 2-39 years
Telecommunications equipment.............. 9,538,305 16,648,311 31,691,407 5-7 years
Furniture and office equipment............ 2,614,933 6,175,863 8,683,623 5-7 years
Construction in progress.................. 159,787 2,065,989 6,027,300 --
----------- ----------- ------------
Total property and equipment......... 15,633,570 32,104,869 57,279,319
Less accumulated depreciation............. (4,570,644) (8,488,502) (12,374,251)
----------- ----------- ------------
Property and equipment, net.......... $11,062,926 $ 23,616,367 $ 44,905,068
=========== =========== ============
</TABLE>
F-10
<PAGE> 56
APAC TELESERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The gross cost of equipment capitalized under capital lease obligations
included above is $4,426,032 at January 1, 1995, December 31, 1995 and June 30,
1996.
4. DEBT
In August, 1995, the Company refinanced its line-of-credit facilities with
a syndicate of banks. Proceeds from refinancing were used to retire outstanding
credit facilities in the amount of $11,787,520. As of December 31, 1995, the
Company had three separate line-of-credit facilities in place. The credit lines
consisted of a revolving facility of $10,000,000 and two capital expenditure
facilities totaling $21,212,480. At any time during the term of the capital
expenditure facilities, the Company could elect to convert all or part of the
outstanding draws into a term loan which would mature in 2000 provided that the
amount being converted was equal to or greater than $1,000,000. Amounts borrowed
and repaid in full under the capital expenditure facilities permanently reduced
the borrowing availability under these facilities. The credit lines were secured
by substantially all of the Company's non-real estate business assets. At
December 31, 1995, the Company had no borrowings under these lines of credit.
In June 1996, the Company entered into a new unsecured line-of-credit
facilities agreement (the "Credit Facility") with a syndicate of banks, and
terminated all prior line-of-credit facilities. As of June 30, 1996, the Company
had two separate line-of-credit facilities in place. The credit lines consist of
a revolving facility of $20,000,000 (the "Revolving Facility") and a $20,000,000
revolving credit facility which may be converted into a term loan (the
"Convertible Revolving Facility"). At June 30, 1996, the Company had borrowings
of $2,000,000 under the Revolving Facility.
The Revolving Facility matures in May 1999, with two one year renewal
options which is subject to the lenders acceptance. At June 30, 1996, the
Company had $18,000,000 of unused availability under the Revolving Facility. The
effective interest rate on outstanding borrowings was 8.25% at June 30, 1996.
The Convertible Revolving Facility expires in May 2000, unless converted to
a term loan. At any time during the term of the Convertible Revolving Facility,
the Company may elect to convert all or part of the outstanding draws into a
term loan which matures in quarterly installments beginning on the last day of
the calendar quarter during which the term loan was made and terminates the
earlier of the third anniversary of the relevant commencement date or May 31,
2001. The minimum amount which can be converted at any one time is $1,000,000.
As of June 30, 1996, the Company had $20,000,000 of unused availability under
the Convertible Revolving Facility.
The Company has several interest rate options available under the Credit
Facility. The options include a domestic rate, an adjusted LIBOR rate, a
treasury rate and a fixed rate. The actual interest rate charged is based on the
existing market rate at the time the rate is selected by the Company, plus a
specified level of basis points, depending on the maintenance of certain
financial covenants. At June 30, 1996, the Company's effective borrowing rate
using the adjusted LIBOR rate would have been 5 1/2%. The Company is required to
maintain certain financial covenants, and is restricted in its ability to pay
dividends on Common Shares under terms of the Credit Facility. At June 30, 1996,
the Company was in compliance with all covenants.
F-11
<PAGE> 57
APAC TELESERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Long-term debt at January 1, 1995, December 31, 1995 and June 30, 1996
consists of the following:
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31, JUNE 30,
1995 1995 1996
----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Convertible revolving facility.................. $ -- $ -- $ --
Bank notes, secured by related equipment,
bearing interest at the bank's prime interest
rate.......................................... 4,000,000 -- --
Bank installment note, personally guaranteed by
a shareholder, payable in monthly installments
of $50,000 plus accrued interest through
September, 1999, at the bank's prime interest
rate.......................................... 2,850,000 -- --
Bank installment notes, secured by a building,
payable in varying installments through
October, 1999, with a weighted average
interest rate of 9.3%......................... 301,182 -- --
Industrial Revenue Bonds, collateralized by a
building, payable in varying monthly
installments through June, 2008, bearing
interest at 7.0% adjustable semiannually
thereafter to 71% of the average yield rate of
U.S. Treasury Bonds with a floor of 7.0% (7.0%
at December 31, 1995 and June 30, 1996)....... 1,528,364 1,466,412 1,433,045
Capital lease obligations, secured by related
equipment, payable in varying monthly
installments through 1998, with a weighted
average interest rate of 8.5%................. 2,360,594 852,700 340,085
----------- ---------- ----------
Total long-term debt..................... 11,040,140 2,319,112 1,773,130
Less current maturities......................... (2,822,258) (845,397) (393,069)
----------- ---------- ----------
Long-term debt, net...................... $ 8,217,882 $1,473,715 $ 1,380,061
=========== ========== ==========
</TABLE>
The principal payments of long-term debt mature as follows:
<TABLE>
<S> <C>
Remainder of 1996............................................. $ 301,245
1997.......................................................... 146,474
1998.......................................................... 78,759
1999.......................................................... 85,502
2000.......................................................... 92,842
2001 and thereafter........................................... 1,068,308
----------
Total long-term debt..................................... $1,773,130
==========
</TABLE>
F-12
<PAGE> 58
APAC TELESERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. LEASE COMMITMENTS
The Company leases administrative offices and telephone call centers at
several locations through 2001. Rent expense for the fiscal years ended January
2, 1994, January 1, 1995, December 31, 1995 and the twenty-six weeks ended July
2, 1995 and June 30, 1996 was $533,944, $1,011,185, $1,567,493, $625,967, and
$1,362,316, respectively. In addition, the Company has several capital leases
covering certain operating equipment. Minimum future rental payments at June 30,
1996 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
---------- ---------
<S> <C> <C>
Remainder of 1996...................................... $1,642,609 $ 274,815
1997................................................... 2,971,082 76,384
1998................................................... 2,033,064 --
1999................................................... 983,098 --
2000................................................... 565,016 --
2001................................................... 84,853 --
---------- ---------
Total........................................... $8,279,722 351,199
==========
Less amount representing interest at an average effective rate of
8.5%.............................................................. (11,055)
---------
Present value of net minimum rent payments.......................... 340,144
---------
Less amounts due within one year.................................... (293,847)
---------
Amounts due beyond one year......................................... $ 46,297
=========
</TABLE>
6. CAPITAL STOCK
Effective March 31, 1994, the Company authorized and issued a 60,000-for-1
stock split of Common Shares. On September 8, 1995, the Company completed a
3.3:1 stock split. On May 15, 1996, the Company completed a 2-for-1 stock split
in the form of a stock dividend. All per share information included in these
financial statements has been adjusted to reflect these splits retroactively.
On October 16, 1995, the Company issued 6,600,000 Common Shares in
connection with an initial public offering.
At June 30, 1996, the Company had reserved 5,915,034 Common Shares for
issuance in connection with the exercise of stock options or purchases under the
Company's employee stock purchase plan.
7. STOCK OPTIONS
The Company has granted options to purchase Common Shares under several
plans. In 1995, the Company adopted an Incentive Stock Plan and a Nonemployee
Director Stock Option Plan. Officers, key employees and non-employee consultants
may be granted non-qualified stock options, incentive stock options, stock
appreciation rights, performance shares and stock awards under the Incentive
Stock Plan. A committee of the Board of Directors administers the Incentive
Stock Plan and is authorized to determine the key employees to whom, and the
times at which, the options and other benefits are to be granted, the number of
shares subject to each option, the applicable vesting schedule, and the exercise
price provided that the exercise price may not be less than 100% and 85% of the
fair market value of the Common Shares at the date of grant for incentive stock
options and non-qualified stock options, respectively. The Nonemployee Director
Stock Option Plan provides for annual grants of non-qualified stock options to
each non-affiliated Director of the Company. The option will allow such
Directors to purchase 5,000 Common Shares at an amount equal to the fair market
value of the Common Shares on the date of grant. These options vest equally over
a three year period. Options under both plans expire at periods between ten and
fifteen years after issuance.
F-13
<PAGE> 59
APAC TELESERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
On May 26, 1995, the Company granted an officer an option to purchase
565,034 Common Shares at an aggregate price of $1,764,705, with an average
exercise price of $3.12 per share. Upon sale of all or substantially all its
assets or stock prior to May 1998, the officer has the right to sell this option
back to the Company for an amount determined with reference to the amount
received in such sale. The option vests 20% on May 31 of each year through 2000
and has a term of 10 years. The weighted average fair value of this option at
the date of grant was $1.83 per share, based upon the assumptions described
below using the Black-Scholes option pricing model. At June 30, 1996, 113,007 of
these options were vested.
Stock option activity for the Company's stock option plans for the year
ended December 31, 1995 and the twenty-six weeks ended June 30, 1996, is as
follows:
<TABLE>
<CAPTION>
WEIGHTED NONEMPLOYEE DIRECTOR WEIGHTED
INCENTIVE STOCK PLAN AVERAGE STOCK OPTION PLAN AVERAGE
------------------------- EXERCISE --------------------- EXERCISE
SHARES PRICE RANGE PRICE SHARES PRICE RANGE PRICE
--------- ------------- -------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding as of January
2, 1995................ -- -- -- -- -- --
Granted................ 1,312,784 $6.31-$15.44 $ 6.43 30,000 $ 8.00 $ 8.00
Exercised.............. -- -- -- -- -- --
Cancelled.............. -- -- -- -- -- --
--------- -------
Outstanding as of
December 31, 1995...... 1,312,784 $6.31-$15.44 $ 6.43 30,000 $ 8.00 $ 8.00
========= =======
Granted................ 727,000 13.44-38.38 22.66 10,000 38.12 38.12
Exercised.............. (74,346) 6.31-8.00 6.50 -- -- --
Cancelled.............. (113,135) 6.21-22.44 7.95 (10,000) 8.00 8.00
--------- -------
Outstanding as of June
30, 1996 (Unaudited)... 1,852,303 6.31-38.38 13.18 30,000 8.00-38.12 18.04
========= =======
Stock options exercisable
at December 31, 1995... 9,120 6.31 --
========= =======
at June 30, 1996
(Unaudited)......... 91,235 6.31 --
========= =======
</TABLE>
The fair value of each option is estimated on the date of grant based on
the Black-Scholes option pricing model assuming among other things, no dividend
yield, a risk free interest rate of 6.5%, expected volatility of 70% and
expected life of 7.5 years.
The weighted average fair value of options granted under the Company's
stock option plans for the periods ended December 31, 1995 and June 30, 1996 was
$2.64 and $13.00, respectively. As of June 30, 1996, the remaining contractual
life of all options was approximately ten years.
8. COMMITMENTS AND CONTINGENCIES
During the fiscal years ended January 1, 1995 and December 31, 1995 and the
twenty-six weeks ended June 30, 1996, the Company received funds from several
community colleges under various job-training agreements. These funds are
provided to subsidize the Company for costs it incurs in creating new job
positions. The community colleges raise these funds through the issuance of
bonds, which have varying maturity dates through June 1, 2003. Under the terms
of the agreements, the Company deposits amounts into a bond escrow account based
upon a percentage of gross payroll dollars associated with the new job positions
created and receives a state tax credit equivalent to the amounts deposited. The
Company has guaranteed that sufficient funds are in escrow to meet the bond
maturities. At January 1, 1995, December 31, 1995 and
F-14
<PAGE> 60
APAC TELESERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
June 30, 1996, the Company had guaranteed the repayment of $900,000, $974,000
and $892,000 respectively, of the remaining outstanding bond obligations. At
June 30, 1996, it is the Company's best estimate that the deposits made into
escrow will be adequate to cover the cost of the maturing bonds.
9. BENEFIT PLANS
In October, 1995 the Company adopted a 401(k) savings plan. Employees,
meeting certain eligibility requirements, as defined, may contribute up to 15%
of pre-tax gross wages, subject to certain restrictions. The Company makes
matching contributions of 25% of the first 6% of employee wages contributed to
the plan. Company matching contributions vest 20% per year over a five year
period. For the year ended December 31, 1995 and the twenty-six weeks ended June
30, 1996, the Company made matching contributions of approximately $16,000 and
$48,000 to the plan, respectively.
In 1996, shareholders of the Company adopted an employee stock purchase
plan. The plan is administered by the Compensation Committee and permits
eligible employees to purchase an aggregate of 600,000 Common Shares at 85% of
the lesser of the current market closing price of the Company's Common Shares at
the beginning or end of a quarter. Employees may annually purchase Common Shares
up to the lesser of 15% of their gross wages or $25,000.
10. QUARTERLY DATA (UNAUDITED):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH FULL
FOR THE FISCAL YEARS ENDED QUARTER QUARTER QUARTER QUARTER YEAR
- ----------------------------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
January 1, 1995
Net revenue................ $ 9,352,335 $11,350,747 $10,610,087 $15,305,318 $ 46,618,487
Gross profit............... 2,645,195 3,770,026 3,126,008 6,411,262 15,952,491
Net income................. 615,415 952,096 1,052,246 3,346,721 5,966,478
Pro forma net income....... 399,481 618,030 688,657 2,190,310 3,896,478
Pro forma net income per
share................... $ 0.01 $ 0.02 $ 0.02 $ 0.05 $ 0.10
=========== =========== =========== =========== ============
December 31, 1995
Net revenue................ $17,864,765 $22,777,581 $24,142,850 $36,881,274 $101,666,470
Gross profit............... 6,383,646 7,068,734 6,706,080 9,526,196 29,684,656
Net income................. 2,526,099 2,971,597 2,231,587 423,821 8,153,104
Pro forma net income....... 1,536,832 1,807,864 1,354,656 2,783,752 7,483,104
Pro forma net income per
share................... $ 0.04 $ 0.05 $ 0.03 $ 0.06 $ 0.18
=========== =========== =========== =========== ============
December 29, 1996
Net revenue................ $48,144,496 $65,098,316
Gross profit............... 13,757,657 19,310,744
Net income................. 4,714,901 7,120,588
Net income per share....... $ 0.10 $ 0.15
=========== ===========
</TABLE>
11. TRANSACTIONS WITH RELATED PARTIES
The Company made distributions to its S corporation shareholders of record
prior to the Company's initial public offering. Such payments related to
shareholder tax obligations and undistributed S corporation taxable income.
F-15
<PAGE> 61
APAC TELESERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In January, 1996, the Company hired The Shechtman Group, a management
consulting firm, to provide various human resource consulting related services.
The chief executive officer and Managing Director of The Shechtman Group is also
a director of the Company. At June 30, 1996, the Company has incurred consulting
expenses of approximately $445,000 relating to the services provided by The
Schechtman Group. These consulting expenses are classified under selling,
general and administrative expenses as of June 30, 1996.
In February 1996, several shareholders of the Company sold an aggregate of
3,385,000 Common Shares in an underwritten public offering pursuant to a
registration rights agreement which was entered into by the Company and such
shareholders prior to the Company's initial public offering. The offering costs,
totalling approximately $360,000, were paid by the Company and have been
classified under selling, general and administrative expenses during the
twenty-six weeks ended June 30, 1996. The Company did not receive any proceeds
from the sale of these Common Shares.
F-16
<PAGE> 62
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING SHAREHOLDERS OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
COMMON SHARES IN ANY JURISDICTION WHERE, OR TO ANY PERSON WHOM, IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 11
Price Range for Common Shares and
Dividend Policy..................... 11
Capitalization........................ 12
Selected Financial and Operating
Data................................ 13
Recent Developments................... 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 15
Business.............................. 20
Management............................ 29
Principal and Selling Shareholders.... 35
Description of Capital Stock.......... 37
Shares Eligible for Future Sale....... 38
Certain United States Federal Tax
Consequences to Non-United States
Holders............................. 39
Underwriting.......................... 41
Legal Matters......................... 43
Experts............................... 43
Additional Information................ 43
Incorporation of Certain Documents by
Reference........................... 43
Index to Financial Statements......... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
4,100,000 SHARES
[APAC LOGO]
APAC TELESERVICES, INC.
COMMON SHARES
---------------------------
PROSPECTUS
---------------------------
MERRILL LYNCH & CO.
LEHMAN BROTHERS
SMITH BARNEY INC.
WILLIAM BLAIR & COMPANY
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 63
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
[ALTERNATE INTERNATIONAL PROSPECTUS PAGE]
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 1, 1996
PROSPECTUS
4,100,000 SHARES
APAC TELESERVICES, INC.
COMMON SHARES APEC LOGO
------------------------
Of the 4,100,000 Common Shares of APAC TeleServices, Inc., an Illinois
corporation (the "Company" or "APAC"), being offered hereby, 820,000 shares are
being offered outside the United States and Canada by the International Managers
(the "International Offering") and 3,280,000 shares are being offered in a
concurrent offering inside the United States and Canada by the U.S. Underwriters
(the "U.S. Offering," and together with the International Offering, the
"Offerings"). The public offering price and the aggregate underwriting discount
per share are identical for each of the Offerings. See "Underwriting."
All of the Common Shares offered hereby are being sold by certain
shareholders of the Company (the "Selling Shareholders"). The Company will not
receive any proceeds from the sale of Common Shares by the Selling Shareholders.
The Common Shares are quoted on the Nasdaq National Market under the symbol
"APAC." The last reported sale price of the Common Shares on the Nasdaq National
Market on October 30, 1996 was $46 per share. See "Price Range for Common Shares
and Dividend Policy."
SEE "RISK FACTORS" ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON SHARES OFFERED
HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
PROCEEDS TO
PRICE UNDERWRITING SELLING
TO PUBLIC DISCOUNT(1) SHAREHOLDERS
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Per Share......................... $ $ $
- ------------------------------------------------------------------------------------------------
Total(2).......................... $ $ $
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933. See "Underwriting."
(2) Certain Selling Shareholders have granted the International Managers and to
the U.S. Underwriters options, exercisable within 30 days of the date
hereof, to purchase up to an aggregate of 123,000 and 492,000 additional
Common Shares, respectively, on the same terms as set forth above, to cover
over-allotments, if any. If all such additional shares are purchased, the
total Price to Public, Underwriting Discount and Proceeds to Selling
Shareholders will be $ , $ and $ ,
respectively. See "Underwriting."
------------------------
The Common Shares are offered by the several Underwriters, subject to prior
sale, when, as and if issued to and accepted by them, subject to the approval of
certain legal matters by counsel for the Underwriters and to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Common Shares will be made in New York, New York on or about
, 1996.
------------------------
MERRILL LYNCH INTERNATIONAL
LEHMAN BROTHERS
SMITH BARNEY INC.
WILLIAM BLAIR & COMPANY
------------------------
The date of this Prospectus is , 1996.
<PAGE> 64
[ALTERNATE INTERNATIONAL PROSPECTUS PAGE]
UNDERWRITING
Subject to the terms and conditions set forth in an international purchase
agreement (the "International Purchase Agreement") among the Company, each of
the Selling Shareholders and each of the underwriters named below (the
"International Managers"), and concurrently with the sale of 3,280,000 Common
Shares to the U.S. Underwriters (as defined below), the Selling Shareholders
have agreed to sell to each of the International Managers, and each of the
International Managers severally has agreed to purchase from the Selling
Shareholders, the number of Common Shares set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL MANAGERS SHARES
--------------------------------------------------------------- ---------
<S> <C>
Merrill Lynch International....................................
Lehman Brothers International (Europe) ........................
Smith Barney Inc. .............................................
William Blair & Company, L.L.C.................................
---------
Total.............................................. 820,000
=========
</TABLE>
Merrill Lynch International, Lehman Brothers International (Europe), Smith
Barney Inc. and William Blair & Company, L.L.C. are acting as representatives
(the "International Representatives") of the International Managers.
The Company and the Selling Shareholders have also entered into a purchase
agreement (the "U.S. Purchase Agreement" and, together with the International
Purchase Agreement, the "Purchase Agreements") with certain underwriters in the
United States and Canada (collectively, the "U.S. Underwriters," and together
with the International Managers, the "Underwriters"), for whom Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Lehman Brothers Inc.,
Smith Barney Inc. and William Blair & Company, L.L.C. are acting as
representatives (the "U.S. Representatives" and, together with the International
Representatives, the "Representatives"). Subject to the terms and conditions set
forth in the U.S. Purchase Agreement, and concurrently with the sale of 820,000
Common Shares to the International Managers pursuant to the International
Purchase Agreement, the Selling Shareholders have agreed to sell to the U.S.
Underwriters, and the U.S. Underwriters have severally agreed to purchase from
the Selling Shareholders, an aggregate of 3,280,000 Common Shares. The public
offering price per Common Share and the underwriting discount per Common Share
are identical under the International Purchase Agreement and the U.S. Purchase
Agreement. The respective percentages of the Common Shares to be sold by each of
the Selling Shareholders will be identical in the U.S. Offering and the
International Offering.
In the International Purchase Agreement and the U.S. Purchase Agreement,
the several International Managers and the several U.S. Underwriters,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the Common Shares being sold pursuant to each such
Agreement if any of the Common Shares being sold pursuant to such Agreement are
purchased. Under certain circumstances involving a default by an Underwriter,
the commitments of non-defaulting International Managers or U.S. Underwriters
(as the case may be) may be increased or the International Purchase Agreement or
the U.S. Purchase Agreement (as the case may be) may be terminated. The sale of
Common Shares to the International Managers is conditioned upon the sale of
Common Shares to the U.S. Underwriters and vice versa.
The International Managers and the U.S. Underwriters have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") providing for the
coordination of their activities. The Underwriters are permitted to sell Common
Shares to each other for purposes of resale at the initial public offering
price, less an amount not greater than the selling concession. Under the terms
of the Intersyndicate Agreement, the International Managers and any dealer to
whom they sell Common Shares will not offer to sell or sell Common Shares to
persons who are U.S. or Canadian persons or to persons they believe intend to
resell to persons who are U.S. or Canadian persons, and the U.S. Underwriters
and any dealer to whom they sell Common Shares will not offer to sell or sell
Common Shares to non-U.S. persons or to non-Canadian persons or to persons they
believe intend to resell to non-U.S. persons or non-Canadian persons, except in
the case of transactions pursuant to the Intersyndicate Agreement.
41
<PAGE> 65
[ALTERNATE INTERNATIONAL PROSPECTUS PAGE]
The International Representatives have advised the Company and the Selling
Shareholders that the International Managers propose initially to offer the
Common Shares to the public at the public offering price set forth on the cover
page of this Prospectus, and to certain selected dealers at such price less a
concession not in excess of $ per share. The International Managers may
allow, and such dealers may reallow, a discount not in excess of $ per share
on sales to certain other dealers. After the initial public offering, the public
offering price, concession and discount may be changed.
Each International Manager has agreed that (i) it has not offered or sold,
and will not for a period of six months following consummation of the Offerings
offer or sell, in the United Kingdom by means of any document, any Common Shares
offered hereby, other than to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or agent)
for the purposes of their businesses or otherwise in circumstances that do not
constitute an offer to the public within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied with and will comply with all
applicable provisions of the Financial Services Act of 1986 with respect to
anything done by it in relation to the Common Shares in, from or otherwise
involving the United Kingdom and (iii) it has only issued or passed on and will
only issue or pass on to any person in the United Kingdom any document received
by it in connection with the issue of the Common Shares if that person is of a
kind described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996, as amended, or is a person to whom the
document may otherwise lawfully be issued or passed on.
Purchasers of the shares offered hereby may be required to pay stamp taxes
and other charges in accordance with the laws and practices of the country of
purchase, in addition to the offering price set forth on the cover page hereby.
Certain Selling Shareholders have granted an option to the International
Managers, exercisable within 30 days after the date of this Prospectus, to
purchase up to an aggregate of 123,000 additional Common Shares at the public
offering price set forth on the cover page of this Prospectus, less the
underwriting discount. The International Managers may exercise this option only
to cover over-allotments, if any, made on the sale of the Common Shares offered
hereby. To the extent that the International Managers exercise this option, each
International Manager will be obligated, subject to certain conditions, to
purchase a number of additional Common Shares, proportionate to such
International Manager's initial amount reflected in the foregoing table. Such
Selling Shareholders also have granted an option to the U.S. Underwriters,
exercisable within 30 days after the date of this Prospectus, to purchase up to
an aggregate of 492,000 additional Common Shares to cover over-allotments, if
any, on terms similar to those granted to the International Managers. If
purchased, the Underwriters will offer such additional shares on the same terms
as those on which the 4,100,000 shares are being offered.
The Company and the Selling Shareholders have, subject to certain
exceptions, agreed that they will not for a period of 180 days from the date of
this Prospectus, without the prior written consent of Merrill Lynch and Merrill
Lynch International, directly or indirectly, sell, offer to sell, grant any
option for the sale of, or otherwise dispose of, any capital stock of the
Company or any security convertible or exchangeable into, or exercisable for,
such capital stock, or, in the case of the Company, file any registration
statement with respect to any of the foregoing, except that the Company may,
without such consent, issue options and Common Shares pursuant to the Stock
Plans and the Employee Stock Purchase Plan.
In connection with the Offerings, certain Underwriters or their respective
affiliates who are qualified market makers on Nasdaq may engage in "passive
market making" in the Common Shares on the Nasdaq National Market in accordance
with Rule 10b-6A under the Exchange Act. Rule 10b-6A permits, upon the
satisfaction of certain conditions, underwriters and selling group members
participating in a distribution that are also Nasdaq market makers in the
security being distributed to engage in limited market making transactions
during the period when Rule 10b-6 under the Exchange Act would otherwise
prohibit such activity. Rule 10b-6A prohibits underwriters and selling group
members engaged in passive market making generally from entering a bid or
effecting a purchase at a price that exceeds the highest bid for those
securities displayed on Nasdaq by a market maker that is not participating in
the distribution. Under Rule 10b-6A, each underwriter or selling group member
engaged in passive market making is subject to a daily net purchase limitation
equal to 30% of such entity's average daily trading volume during the two full
consecutive calendar months immediately preceding the date of the filing of the
registration statement under the Securities Act pertaining to the security to be
distributed.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the Underwriters may be required to
make in respect thereof.
42
<PAGE> 66
[ALTERNATE INTERNATIONAL PROSPECTUS PAGE]
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING SHAREHOLDERS OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
COMMON SHARES IN ANY JURISDICTION WHERE, OR TO ANY PERSON WHOM, IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 11
Price Range for Common Shares and
Dividend Policy..................... 11
Capitalization........................ 12
Selected Financial and Operating
Data................................ 13
Recent Developments................... 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 15
Business.............................. 20
Management............................ 29
Principal and Selling Shareholders.... 35
Description of Capital Stock.......... 37
Shares Eligible for Future Sale....... 38
Certain United States Federal Tax
Consequences to Non-United States
Holders............................. 39
Underwriting.......................... 41
Legal Matters......................... 43
Experts............................... 43
Additional Information................ 43
Incorporation of Certain Documents by
Reference........................... 43
Index to Financial Statements......... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
4,100,000 SHARES
[APAC LOGO]
APAC TELESERVICES, INC.
COMMON SHARES
---------------------------
PROSPECTUS
---------------------------
MERRILL LYNCH INTERNATIONAL
LEHMAN BROTHERS
SMITH BARNEY INC.
WILLIAM BLAIR & COMPANY
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 67
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the estimated expenses (other than the SEC registration
fee and NASD filing fee) of the issuance and distribution of the securities
being registered, all of which will be paid by the Company.
<TABLE>
<S> <C>
SEC registration fee............................................... $ 77,155
NASD filing fee.................................................... 25,961
Printing expenses.................................................. 55,000
Fees and expenses of counsel....................................... 50,000
Fees and expenses of accountants................................... 50,000
Transfer agent and registrar fees.................................. 5,000
Blue sky fees and expenses......................................... 10,000
Miscellaneous...................................................... 6,884
--------
Total......................................................... $280,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Illinois law, a corporation may indemnify any person who was or is a
party or is threatened to be made a party to an action (other than an action by
or in the right of the corporation) by reason of his service as a director or
officer of the corporation, or his service, at the corporation's request, as a
director, officer, employee or agent of another corporation or other enterprise,
against expenses (including attorneys' fees) that are actually and reasonably
incurred by him ("Expenses"), and judgments, fines and amounts paid in
settlement that are actually and reasonably incurred by him, in connection with
the defense or settlement of such action, provided that he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was unlawful.
Although Illinois law permits a corporation to indemnify any person referred to
above against Expenses in connection with the defense or settlement of an action
by or in the right of the corporation, provided that he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the corporation's
best interests, if such person has been judged liable to the corporation,
indemnification is only permitted to the extent that the adjudicating court (or
the court in which the action was brought) determines that, despite the
adjudication of liability, such person is entitled to indemnity for such
Expenses as the court deems proper. The determination as to whether a person
seeking indemnification has met the required standard of conduct is to be made
(1) by a majority vote of a quorum of disinterested members of the board of
directors, or (2) by independent legal counsel in a written opinion, if such a
quorum does not exist or if the disinterested directors so direct, or (3) by the
shareholders. The Business Corporation Act of Illinois also provides for
mandatory indemnification of any director, officer, employee or agent against
Expenses to the extent such person has been successful in any proceeding covered
by the statute. In addition, the Business Corporation Act of Illinois provides
the general authorization of advancement of a director's or officer's litigation
expenses in lieu of requiring the authorization of such advancement by the board
of directors in specific cases, and that indemnification and advancement of
expenses provided by the statute shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any bylaw, agreement or otherwise.
The Company's Amended Bylaws provide that the Company shall indemnify its
directors, and may indemnify its officers, employees and other agents to the
fullest extent permitted by Illinois law.
The Company entered into agreements to indemnify its directors and certain
of its officers, in addition to the indemnification provided for in the
Company's Amended Articles and Amended Bylaws. These agreements, among other
things, indemnify the Company's directors and officers for all direct and
indirect expenses and costs (including, without limitation, all reasonable
attorneys' fees and related disbursements,
II-1
<PAGE> 68
other out of pocket costs and reasonable compensation for time spent by such
persons for which they are not otherwise compensated by the Company or any third
person) and liabilities of any type whatsoever (including, but not limited to,
judgments, fines and settlement fees) actually and reasonably incurred by such
person in connection with either the investigation, defense, settlement or
appeal of any threatened, pending or completed action, suit or other proceeding,
including any action by or in the right of the corporation, arising out of such
person's services as a director, officer, employee or other agent of the
Company, any subsidiary of the Company or any other company or enterprise to
which the person provides services at the request of the Company. The Company
believes that these provisions and agreements are necessary to attract and
retain talented and experienced directors and officers.
The Company has liability insurance for the benefit of its directors and
officers.
Under the terms of the Purchase Agreements, the Underwriters have agreed to
indemnify, under certain conditions, the Company, its directors, certain of its
officers and persons who control the Company within the meaning of the
Securities Act of 1933, as amended (the "Securities Act") against certain
liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Company has not issued or sold any unregistered securities within the
past three years.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ---------------------------------------------------------------------------
<S> <C>
1.1* Form of U.S. Purchase Agreement
1.2* Form of International Purchase Agreement
3.1+ Amended and Restated Articles of Incorporation of APAC TeleServices, Inc.,
as amended
3.2 Amended and Restated Bylaws of APAC TeleServices, Inc. is incorporated
herein by reference to Exhibit 3.2 to APAC TeleServices, Inc.'s
Registration Statement on Form S-1, as amended, Registration No. 33-95638
3.3 Amendment to Amended and Restated Articles of Incorporation of APAC
TeleServices, Inc. is incorporated herein by reference to Exhibit 3.3 to
APAC TeleServices, Inc.'s Registration Statement on Form S-1, as amended,
Registration No. 33-95638
4.1 Specimen Common Stock Certificate is incorporated herein by reference to
Exhibit 4.1 to APAC TeleServices, Inc.'s Registration Statement on Form
S-1, as amended, Registration No. 33-95638
5.1* Opinion of McDermott, Will & Emery regarding legality
10.1 Amended and Restated APAC TeleServices, Inc. 1995 Incentive Stock Plan is
incorporated herein by reference to Exhibit 10.1 to APAC TeleServices,
Inc.'s Registration Statement on Form S-1, as amended, Registration No.
33-95638
10.2 Amended and Restated APAC TeleServices, Inc. 1995 Nonemployee Director
Stock Option Plan is incorporated herein by reference to Exhibit 10.2 to
APAC TeleServices, Inc.'s Registration Statement on Form S-1, as amended,
Registration No. 33-95638
10.3 Employment Agreement with Marc S. Simon, as amended, is incorporated herein
by reference to Exhibit 10.3 to APAC TeleServices, Inc.'s Registration
Statement on Form S-1, as amended, Registration No. 33-95638
</TABLE>
II-2
<PAGE> 69
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ---------------------------------------------------------------------------
<S> <C>
10.4 Employment Agreement with Donald B. Berryman is incorporated herein by
reference to Exhibit 10.4 to APAC TeleServices, Inc.'s Registration
Statement on Form S-1, as amended, Registration No. 33-95638
10.5+ Credit Agreement
10.6 Agreement with United Parcel Service General Services Inc. is incorporated
herein by reference to Exhibit 10.6 to APAC TeleServices, Inc.'s
Registration Statement on Form S-1, as amended, Registration No. 33-95638
10.7 Registration Rights Agreement is incorporated herein by reference to
Exhibit 10.7 to APAC TeleServices, Inc.'s Registration Statement on Form
S-1, as amended, Registration No. 33-95638
10.8 Tax Agreement is incorporated herein by reference to Exhibit 10.8 to APAC
TeleServices, Inc.'s Registration Statement on Form S-1, as amended,
Registration No. 33-95638
10.9 Agreement with J.C. Penney Insurance Company, dated November 1, 1994 is
incorporated herein by reference to Exhibit 10.9 to APAC TeleServices,
Inc.'s Registration Statement on Form S-1, as amended, Registration No.
33-95638
10.10 Agreement with Health Benefit Services, Inc., dated July 1, 1994 is
incorporated herein by reference to Exhibit 10.10 to APAC TeleServices,
Inc.'s Registration Statement on Form S-1, as amended, Registration No.
33-95638
10.11 Amendment No. 1 to Amended and Restated APAC TeleServices, Inc. 1995
Incentive Stock Plan is incorporated herein by reference to Exhibit 10.11
to APAC TeleServices, Inc.'s Registration Statement on Form S-1, as
amended, Registration No. 33-95638
10.12 Employment Agreement with Beverly S. McIntosh is incorporated herein by
reference to Exhibit 10.12 to APAC TeleServices, Inc.'s Registration
Statement on Form S-1, as amended, Registration No. 333-1236
10.13 Agreement between the Registrant and The Shechtman Group, L.L.C. is
incorporated herein by reference to Exhibit 10.13 to APAC TeleServices,
Inc.'s Registration Statement on Form S-1, as amended, Registration No.
333-1236
10.14+ Employment Agreement with John C. Dontje
10.15+ Employment Agreement with Robert C. Froetscher
10.16+ Employment Agreement with James M. Nikrant
23.1 Consent of Arthur Andersen LLP
23.2* Consent of McDermott, Will & Emery (included in Exhibit 5.1)
24.1+ Power of Attorney (included with the signature page to the registration
statement)
</TABLE>
- ------------
+ Previously filed
* Filed herewith
(B) FINANCIAL STATEMENT SCHEDULES:
Schedule II -- Schedule of Valuation and Qualification Accounts
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In
II-3
<PAGE> 70
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered hereunder, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(b) The undersigned Registrant hereby undertakes that for purposes of
determining any liability under the Securities Act, (i) the information omitted
from the form of prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this Registration Statement as of the time it was
declared effective and (ii) each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 71
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets the
requirements for filing on Form S-3 and has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Deerfield, Illinois on October 30, 1996.
APAC TeleServices, Inc.
By /S/ THEODORE G. SCHWARTZ
------------------------------------
Theodore G. Schwartz
Chairman of the Board of Directors,
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ------------------------------- -----------------
<C> <S> <C>
/S/ THEODORE G. SCHWARTZ Chairman of the Board of October 30, 1996
- ------------------------------------- Directors, President and
Theodore G. Schwartz Chief Executive Officer
(Principal Executive Officer)
* Chief Financial Officer and October 30, 1996
- ------------------------------------- Director, (Principal
Marc S. Simon Financial Officer)
* Senior Vice President--Finance October 30, 1996
- ------------------------------------- (Principal Accounting
Robert D. Mitchum Officer)
* Director October 30, 1996
- -------------------------------------
Thomas M. Collins
* Director October 30, 1996
- -------------------------------------
Morris R. Shechtman
* Director October 30, 1996
- -------------------------------------
George D. Dalton
* Director October 30, 1996
- -------------------------------------
Paul Yovovich
*By: /s/ THEODORE G. SCHWARTZ
- -------------------------------------
Theodore G. Schwartz
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 72
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of APAC TeleServices, Inc.:
We have audited in accordance with generally accepted auditing standards,
the financial statements of APAC TeleServices, Inc. included in this
registration statement and have issued our report thereon dated February 1,
1996. Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule of Valuation and Qualifying
Accounts is presented for purposes of complying with the Securities and Exchange
Commissions rules and is not a part of the basic financial statements. This
schedule has been subject to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 1, 1996
S-1
<PAGE> 73
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN C
----------
COLUMN B ADDITIONS
------------ ---------- COLUMN D COLUMN E
COLUMN A BALANCE AT CHARGED TO ---------- --------------
- ----------------------------------------------- BEGINNING OF COSTS AND DEDUCTIONS- BALANCE AT END
DESCRIPTION PERIOD EXPENSES DESCRIBE(A) OF PERIOD
- ----------------------------------------------- ------------ ---------- ---------- --------------
<S> <C> <C> <C> <C>
Allowance deducted from assets to which it
applies:
Allowance for doubtful accounts:
Year ended January 2, 1994................ $0 $ 0 $ 0 $ 0
Year ended January 1, 1995................ 0 1,167 (1,167) 0
Year ended December 31, 1995.............. 0 246,061 (5,561) 240,500
</TABLE>
- ---------------
(A) Uncollected receivables written off.
S-2
<PAGE> 74
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------------ ----
<S> <C> <C>
1.1* Form of U.S. Purchase Agreement
1.2* Form of International Purchase Agreement
3.1+ Amended and Restated Articles of Incorporation of APAC TeleServices, Inc., as
amended
3.2 Amended and Restated Bylaws of APAC TeleServices, Inc. is incorporated herein
by reference to Exhibit 3.2 to APAC TeleServices, Inc.'s Registration
Statement on Form S-1, as amended, Registration No. 33-95638
3.3 Amendment to Amended and Restated Articles of Incorporation of APAC
TeleServices, Inc. is incorporated herein by reference to Exhibit 3.3 to
APAC TeleServices, Inc.'s Registration Statement on Form S-1, as amended,
Registration No. 33-95638
4.1 Specimen Common Stock Certificate is incorporated herein by reference to
Exhibit 4.1 to APAC TeleServices, Inc.'s Registration Statement on Form S-1,
as amended, Registration No. 33-95638
5.1* Opinion of McDermott, Will & Emery regarding legality
10.1 Amended and Restated APAC TeleServices Inc. 1995 Incentive Stock Plan is
incorporated herein by reference to Exhibit 10.1 to APAC TeleServices,
Inc.'s Registration Statement on Form S-1, as amended, Registration No.
33-95638
10.2 Amended and Restated APAC TeleServices, Inc. 1995 Nonemployee Director Stock
Option Plan is incorporated herein by reference to Exhibit 10.2 to APAC
TeleServices, Inc.'s Registration Statement on Form S-1, as amended,
Registration No. 33-95638
10.3 Employment Agreement with Marc S. Simon, as amended, is incorporated herein by
reference to Exhibit 10.3 to APAC TeleServices, Inc.'s Registration
Statement on Form S-1, as amended, Registration No. 33-95638
10.4 Employment Agreement with Donald B. Berryman is incorporated herein by
reference to Exhibit 10.4 to APAC TeleServices, Inc.'s Registration
Statement on Form S-1, as amended, Registration No. 33-95638
10.5+ Credit Agreement
10.6 Agreement with United Parcel Service General Services Inc. is incorporated
herein by reference to Exhibit 10.6 to APAC TeleServices, Inc.'s
Registration Statement on Form S-1, as amended, Registration No. 33-95638
10.7 Registration Rights Agreement is incorporated herein by reference to Exhibit
10.7 to APAC TeleServices, Inc.'s Registration Statement on Form S-1, as
amended, Registration No. 33-95638
10.8 Tax Agreement is incorporated herein by reference to Exhibit 10.9 to APAC
TeleServices, Inc.'s Registration Statement on Form S-1, as amended,
Registration No. 33-95638
10.9 Agreement with J.C. Penney Insurance Company, dated November 1, 1994 is
incorporated herein by reference to Exhibit 10.9 to APAC TeleServices,
Inc.'s Registration Statement on Form S-1, as amended, Registration No.
33-95638
10.10 Agreement with Health Benefit Services, Inc., dated July 1, 1994 is
incorporated herein by reference to Exhibit 10.10 to APAC TeleServices,
Inc.'s Registration Statement on Form S-1, as amended, Registration No.
33-95638
10.11 Amendment No. 1 to Amended and Restated APAC TeleServices, Inc. 1995 Incentive
Stock Plan is incorporated herein by reference to Exhibit 10.11 to APAC
TeleServices, Inc.'s Registration Statement on Form S-1, as amended,
Registration No. 33-95638
</TABLE>
<PAGE> 75
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------------ ----
<S> <C>
10.12 Employment Agreement with Beverly S. McIntosh is incorporated herein by
reference to Exhibit 10.12 to APAC TeleServices, Inc.'s Registration
Statement on Form S-1, as amended, Registration No. 333-1236
10.13 Agreement between the Registrant and the Shechtman Group, L.L.C. is
incorporated herein by reference to Exhibit 10.13 to APAC TeleServices,
Inc.'s Registration Statement on Form S-1, as amended, Registration No.
333-1236
10.14+ Employment Agreement with John C. Dontje
10.15+ Employment Agreement with Robert C. Froetscher
10.16+ Employment Agreement with James M. Nikrant
23.1 Consent of Arthur Andersen LLP
23.2* Consent of McDermott, Will & Emery (included in Exhibit 5.1)
24.1 Power of Attorney (included with the signature page to the registration
statement)
</TABLE>
- ------------
+ Previously filed
* Filed herewith
<PAGE> 1
EXHIBIT 1.1
3,280,000 Shares
APAC TELESERVICES, INC.
(an Illinois corporation)
Common Shares
(Par Value $.01 Per Share)
U.S. PURCHASE AGREEMENT
-----------------------
______________, 1996
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
LEHMAN BROTHERS INC.
SMITH BARNEY INC.
WILLIAM BLAIR & COMPANY, L.L.C.
as Representatives of the several U.S. Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281
Dear Sirs:
APAC TeleServices, Inc., an Illinois corporation (the "Company"), and
each of the shareholders of the Company named in Schedule B hereto (the
"Selling Shareholders"), confirm their respective agreements with you and each
of the other underwriters named in Schedule A hereto (collectively, the "U.S.
Underwriters", which term shall also include any underwriter substituted as
hereinafter provided in Section 10), for whom you are acting as representatives
(in such capacity, the "Representatives"), with respect to the sale by the
Selling Shareholders, acting severally and not jointly, and the purchase by the
U.S. Underwriters, acting severally and not jointly, of the respective number
of Common Shares, par value $.01 per share, of the Company (the "Common
Shares") set forth in said Schedules
<PAGE> 2
A and B hereto and with respect to the grant by certain of the Selling
Shareholders to the U.S. Underwriters, acting severally and not jointly, of the
option described in Section 2(b) hereof to purchase all or any part of 492,000
additional Common Shares to cover over-allotments, if any, in each case except
as may otherwise be provided in the U.S. Pricing Agreement, as hereinafter
defined. The 3,280,000 Common Shares (the "Initial U.S. Securities") to be
purchased by the U.S. Underwriters and all or any part of the 492,000 Common
Shares subject to the option described in Section 2(b) hereof (the "U.S. Option
Securities") are collectively hereinafter called the "U.S. Securities".
It is understood that the Company and the Selling Shareholders are
concurrently entering into an agreement dated the date hereof (the
"International Purchase Agreement") providing for the offering by the Selling
Shareholders of 820,000 Common Shares (the "Initial International Securities")
through arrangements with certain underwriters outside the United States (the
"Managers") for which Merrill Lynch International, Lehman Brothers
International (Europe), Smith Barney Inc. and William Blair & Company, L.L.C.
are acting as lead managers (the "Lead Managers") and the grant by certain of
the Selling Shareholders to the Managers, acting severally and not jointly, of
an option to purchase all or any part of the Managers' pro rata portion of up
to 123,000 additional Common Shares solely to cover over-allotments, if any
(the "International Option Securities" and, together with the U.S. Option
Securities, the "Option Securities"). The Initial International Securities and
the International Option Securities are hereinafter called the "International
Securities". It is understood that the Selling Shareholders are not obligated
to sell, and the U.S. Underwriters are not obligated to purchase, any Initial
U.S. Securities unless all of the Initial International Securities are
contemporaneously purchased by the Managers.
The U.S. Underwriters and the Managers are hereinafter collectively
called the "Underwriters", the Initial U.S. Securities and the Initial
International Securities are hereinafter collectively called the "Initial
Securities" and the U.S. Securities and the International Securities are
hereinafter collectively called the "Securities".
Prior to the purchase and public offering of the U.S. Securities by
the several U.S. Underwriters, the Company, the Selling Shareholders and the
Representatives, acting on behalf of the several U.S. Underwriters, shall enter
into an agreement substantially in the form of Exhibit A hereto (the "U.S.
Pricing Agreement"). The U.S. Pricing Agreement may take the form of an
exchange of any standard form of written telecommunication among the Company,
the Selling Shareholders and the Representatives and
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shall specify such applicable information as is indicated in Exhibit A hereto.
The offering of the U.S. Securities will be governed by this Agreement, as
supplemented by the U.S. Pricing Agreement. From and after the date of the
execution and delivery of the U.S. Pricing Agreement, this Agreement shall be
deemed to incorporate the U.S. Pricing Agreement. The initial public offering
price and the purchase price with respect to the International Securities shall
be set forth in a separate instrument (the "International Pricing Agreement"),
the form of which is attached to the International Purchase Agreement.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (No. 333-14097) and related
preliminary prospectuses for the registration of the Securities under the
Securities Act of 1933 (the "1933 Act"), has filed such amendments thereto, if
any, and such amended preliminary prospectuses as may have been required to the
date hereof, and will file such additional amendments thereto and such amended
prospectuses as may hereafter be required pursuant to this Agreement, the 1933
Act or otherwise. Such registration statement (as amended, if applicable) and
the two prospectuses constituting a part thereof (including in each case all
documents incorporated or deemed to be incorporated therein by reference and
the information, if any, deemed to be part thereof pursuant to Rule 430A(b) or
Rule 434 of the rules and regulations of the Commission under the 1933 Act (the
"1933 Act Regulations")), as from time to time amended or supplemented pursuant
to the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934
Act"), or otherwise, are hereinafter referred to as the "Registration
Statement", the "U.S. Prospectus" and the "International Prospectus",
respectively, and the U.S. and International Prospectuses are hereinafter
together called "Prospectuses" and, each individually, a Prospectus except that
if any revised prospectuses shall be provided to the U.S. Underwriters or the
Managers by the Company for use in connection with the offering of the
Securities which differs from the Prospectuses on file at the Commission at the
time the Registration Statement becomes effective (whether or not such revised
prospectus is required to be filed by the Company pursuant to Rule 424(b) of
the 1933 Act Regulations), the terms "U.S. Prospectus" and "International
Prospectus" shall refer to each such revised prospectus from and after the time
it is first provided to the U.S. Underwriters or the Managers, as the case may
be, for such use. If the Company elects to rely on Rule 434 under the 1933 Act
Regulations, all references to the Prospectuses shall be deemed to include,
without limitation, the form of prospectuses and the term sheets, taken
together, provided to the U.S. Underwriters and the Managers by the Company in
reliance on Rule 434 under the 1933 Act (the "Rule 434 Prospectuses"). If the
Company files a registration statement to register a portion of the Securities
and relies on Rule 462(b)
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for such registration statement to become effective upon filing with the
Commission (the "Rule 462 Registration Statement"), then any reference to
"Registration Statement" herein shall be deemed to include both the
registration statement referred to above (No. 333-14097) and the Rule 462
Registration Statement, as each such registration statement may be amended
pursuant to the 1933 Act, the 1934 Act, or otherwise. For purposes of this
Agreement, all references to the Registration Statement, any preliminary
prospectuses, the Prospectuses or any term sheets or any amendment or
supplement to any of the foregoing shall be deemed to include the copy filed
with the Commission pursuant to its Electronic Data Gathering, Analysis and
Retrieval system ("EDGAR").
All references in this Agreement to financial statements and schedules
and other information which is "contained", "included", "described" or "stated"
in the Registration Statement, any preliminary prospectus or the Prospectuses
(or other references of like import) shall be deemed to mean and include all
such financial statements and schedules and other information which is
incorporated by reference in the Registration Statement, any preliminary
prospectus or the Prospectuses, as the case may be; and all references in this
Agreement to amendments or supplements to the Registration Statement, any
preliminary prospectus or the Prospectuses shall be deemed to mean and include
the filing of any document under the 1934 Act which is or is deemed to be
incorporated by reference in the Registration Statement, such preliminary
prospectus or the Prospectuses, as the case may be.
The Company and the Selling Shareholders understand that the U.S.
Underwriters propose to make a public offering of the U.S. Securities as soon
as the Representatives deem advisable after the Registration Statement becomes
effective and the U.S. Pricing Agreement has been executed and delivered. The
price per share for the International Securities to be purchased by the
Managers pursuant to the International Purchase Agreement shall be identical to
the price per share for the U.S. Securities to be purchased by the U.S.
Underwriters hereunder.
SECTION 1. Representations and Warranties.
(a) The Company represents and warrants to each of the U.S.
Underwriters as of the date hereof and as of the date of the U.S. Pricing
Agreement (such latter date being hereinafter referred to as the "U.S.
Representation Date") as follows:
(i) The Company meets the requirements for use of Form S-3
under the 1933 Act. At the respective times the Registration
Statement and any post-effective amendments thereto become effective
and at the U.S. Representation Date, the Registration Statement will
comply in all material
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respects with the requirements of the 1933 Act and the 1933 Act
Regulations and will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. The
Prospectuses, at the U.S. Representation Date (unless the term
"Prospectuses" refers to prospectuses which have been provided to the
U.S. Underwriters and the Managers by the Company for use in
connection with the offering of the Securities which differ from the
Prospectuses on file at the Commission at the time the Registration
Statement becomes effective, in which case at the time such
prospectuses are first provided to the U.S. Underwriters and the
Managers for such use) and at Closing Time referred to in Section 2
hereof, will not include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that the representations
and warranties in this subsection shall not apply to statements in or
omissions from the Registration Statement or Prospectuses made in
reliance upon and in conformity with information furnished to the
Company in writing by any U.S. Underwriter through Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") expressly for use in the Registration Statement or the
Prospectuses.
(ii) The documents incorporated or deemed to be
incorporated by reference in the Prospectuses, at the time they were
or hereafter are filed with the Commission, complied and will comply
in all material respects with the requirements of the 1934 Act and the
rules and regulations of the Commission thereunder (the "1934 Act
Regulations") and, when read together with the other information in
the Prospectuses, at the time the Registration Statement and any
post-effective amendments thereto become effective and at the Closing
Time will not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading.
(iii) The accountants who certified the financial statements
and supporting schedules included or incorporated by reference in the
Registration Statement are independent public accountants as required
by the 1933 Act and the 1933 Act Regulations.
(iv) The historical financial statements included or
incorporated by reference in the Registration Statement and the
Prospectuses, together with the related schedules and
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<PAGE> 6
notes, present fairly the financial position of the Company at the
dates indicated and the statement of operations, stockholders' equity
and cash flows of the Company for the periods specified; except as
otherwise stated in the Registration Statement, said financial
statements have been prepared in conformity with generally accepted
accounting principles ("GAAP") applied on a consistent basis
throughout the periods involved. The supporting schedules, if any,
included in the Registration Statement present fairly in accordance
with GAAP the information required to be stated therein. The
historical Income Statement Data and Balance Sheet Data contained in
the Registration Statement under the captions "Summary Financial and
Operating Data" and "Selected Financial and Operating Data" and the
historical Income Statement Data under the caption "Recent
Developments" in the Registration Statement have been compiled on a
basis consistent with that of the audited financial statements
included in the Registration Statement.
(v) Since the respective dates as of which information is
given in the Registration Statement and the Prospectuses, except as
otherwise stated therein, (A) there has been no material adverse
change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in
the ordinary course of business, (B) there have been no transactions
entered into by the Company or any of its subsidiaries, other than
those in the ordinary course of business, which are material with
respect to the Company and its subsidiaries considered as one
enterprise, and (C) there has been no dividend or distribution of any
kind declared, paid or made by the Company on any class of its capital
stock.
(vi) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Illinois and has the corporate power and authority to own, lease
and operate its properties and to conduct its business as described in
the Prospectuses and to enter into and perform its obligations under
this Agreement, the U.S. Pricing Agreement, the International Purchase
Agreement and the International Pricing Agreement; the Company is duly
qualified as a foreign corporation to transact business and is in good
standing in the State of Iowa; and the Company is duly qualified as a
foreign corporation to transact business and is in good standing in
each other jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify or to be
in good standing would not have a material adverse effect on the
condition, financial
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or otherwise, or the earnings, business affairs or business prospects
of the Company and its subsidiaries considered as one enterprise.
(vii) Each subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has corporate
power and authority to own, lease and operate its properties and to
conduct its business and is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in
which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except
where the failure so to qualify or to be in good standing would not
have a material adverse effect on the condition, financial or
otherwise, or the earnings, business affairs or business prospects of
the Company and its subsidiaries considered as one enterprise; all of
the issued and outstanding capital stock of each such subsidiary has
been duly authorized and validly issued, is fully paid and
non-assessable and is owned by the Company, directly or through
subsidiaries, free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity; none of the outstanding
shares of capital stock of the subsidiaries was issued in violation of
the preemptive or similar rights of any stockholder of such
corporation arising by operation of law, under the charter or by-laws
of any subsidiary or under any agreement to which the Company or any
subsidiary is a party. Except for the shares of capital stock of each
of the subsidiaries owned by the Company and such subsidiaries,
neither the Company nor any such subsidiary owns any shares of stock
or any other equity securities of any corporation or has any equity
interest in any firm, partnership, association or other entity, except
as described in or by the Prospectuses. The only subsidiaries of the
Company are APAC TeleServices of Michigan, Inc., a Michigan
corporation, APAC TeleServices of Illinois, Inc., an Illinois
corporation, and APAC Insurance Services Agency, Inc., an Illinois
corporation. Such subsidiaries, considered in the aggregate as a
single subsidiary, do not constitute a "significant subsidiary" as
defined in Rule 1-02 of Regulation S-X.
(viii) Each of the contracts and agreements between the
Company and the clients of the Company listed on Schedule C hereto
(each, a "Contract" and collectively, the "Contracts") and the
Employment Agreement, dated May 26, 1995, as amended on October 3,
1995, between the Company and Marc S. Simon (the "Simon Agreement")
has been duly authorized, executed and delivered by the Company and,
to the knowledge of the Company (with respect to each
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<PAGE> 8
Contract), by the other parties thereto, is enforceable in accordance
with its terms and is in full force and effect, without termination or
cancellation provisions having been exercised by any of the parties
thereto; to the knowledge of the Company, no exercise of termination
or cancellation provisions of any of the Contracts or the Simon
Agreement is contemplated or has been threatened by any of the parties
thereto; and the consummation of the transactions contemplated in each
of the Contracts and the Simon Agreement has been duly authorized by
all necessary corporate action. The Company has not received any
notice or is otherwise aware of any material infringement of or
material dispute arising out of the rights or obligations of the
Company or the other parties to such Contracts or the Simon Agreement
under the terms of any of the Contracts or the Simon Agreement.
(ix) The authorized, issued and outstanding capital stock of
the Company is set forth in the Prospectuses under the caption
"Capitalization" (except for subsequent issuances, if any, pursuant to
employee benefit plans referred to in the Prospectuses, pursuant to
the exercise of options referred to in the Prospectuses or pursuant to
the employee stock purchase plan referred to in the Prospectuses); the
issued and outstanding Common Shares, including the Securities to be
purchased by the Underwriters from the Selling Shareholders, have been
duly authorized and validly issued and are fully paid and
non-assessable; none of the outstanding Common Shares, including the
Securities to be purchased by the Underwriters from the Selling
Shareholders, was issued in violation of the preemptive or other
similar rights of any securityholder of the Company arising by
operation of law, under the charter or by-laws of the Company or under
any agreement to which the Company or any of its subsidiaries is a
party; the Common Shares conform in all material respects to all
statements relating thereto contained in the Prospectuses; and the
Securities are not subject to preemptive or other similar rights of
any securityholder of the Company arising by operation of law, under
the charter and by-laws of the Company or under any agreement to which
the Company or any of its subsidiaries is a party.
(x) Neither the Company nor any of its subsidiaries is in
violation of its charter or in material default in the performance or
observance of any obligation, agreement, covenant or condition
contained in any material contract, indenture, mortgage, deed of
trust, loan or credit agreement, note, lease or other agreement or
instrument to which the Company or any of its subsidiaries is a party
or by which it or any of them may be bound, or to which any of
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<PAGE> 9
the material property or assets of the Company or any of its
subsidiaries is subject, including any of the Contracts; and the
execution, delivery and performance of this Agreement, the U.S.
Pricing Agreement, the International Purchase Agreement and the
International Pricing Agreement and the consummation of the
transactions contemplated herein and therein and compliance by the
Company with its obligations hereunder and thereunder have been duly
authorized by all necessary corporate action and do not and will not,
whether with or without the giving of notice or the passage of time or
both, conflict with or constitute a material breach of, or material
default or Repayment Event (as defined below) under, or result in the
creation or imposition of any lien, charge or encumbrance upon any
material property or assets of the Company or any of its subsidiaries
pursuant to, any material contract, indenture, mortgage, deed of
trust, loan or credit agreement, note, lease or other instrument to
which the Company or any of its subsidiaries is a party or by which it
or any of them may be bound, or to which any of the material property
or assets of the Company or any of its subsidiaries is subject,
including any of the Contracts, nor will such action result in any
violation of the provisions of the charter or by-laws of the Company,
any applicable law, statute, rule, regulation, judgment, order, writ
or decree of any government, government instrumentality or court,
domestic or foreign, having jurisdiction over the Company or any of
its subsidiaries or any of their assets or properties or the terms and
conditions of any material Governmental License (as defined below).
As used herein, a "Repayment Event" means any event or condition which
gives the holder of any note, debenture or other evidence of
indebtedness (or any person acting on such holder's behalf) the right
to require the repurchase, redemption or repayment of all or a portion
of such indebtedness by the Company or any of its subsidiaries.
(xi) Other than disputes incidental to the Company's business
that could not reasonably be expected to result in a material adverse
effect on the condition, financial or otherwise, or the earnings,
business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, no labor dispute with the
employees of the Company or any of its subsidiaries exists or, to the
knowledge of the Company, is imminent; and the Company is not aware of
any existing or imminent labor disturbance by the employees of any of
its principal suppliers, manufacturers or contractors or any party to
a Contract which in either case might be expected to result in any
material adverse change in the condition, financial or otherwise, or
in the earnings, business affairs or business
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<PAGE> 10
prospects of the Company and its subsidiaries considered as one
enterprise.
(xii) There is no action, suit, proceeding, inquiry or
investigation before or by any court or governmental agency or body,
domestic or foreign, now pending, or, to the knowledge of the Company,
threatened, against or affecting the Company or any of its
subsidiaries, which is required to be disclosed in the Registration
Statement (other than as disclosed therein), or which the Company,
acting reasonably, believes is likely to result in any material
adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and
its subsidiaries considered as one enterprise, or which the Company,
acting reasonably, believes is likely to materially and adversely
affect the properties or assets of the Company or any of its
subsidiaries or the consummation of this Agreement or the
International Purchase Agreement or the performance by the Company of
its obligations hereunder or thereunder or under any of the Contracts;
the aggregate of all pending legal or governmental proceedings to
which the Company or any of its subsidiaries is a party or of which
any of their respective property or assets is the subject which are
not described in the Registration Statement, including ordinary
routine litigation incidental to the business, could not reasonably be
expected to result in a material adverse change in the condition,
financial or otherwise, or the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one
enterprise.
(xiii) There are no contracts or documents which are required
to be described in the Registration Statement, the Prospectuses or the
documents incorporated by reference therein or to be filed as exhibits
thereto by the 1933 Act, the 1933 Act Regulations, the 1934 Act or the
1934 Act Regulations which have not been so described and filed as
required.
(xiv) The Company and its subsidiaries own or possess, or
reasonably believe they can acquire on reasonable terms, the patents,
patent rights, licenses, inventions, copyrights, know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service
marks and trade names (collectively, "patent and proprietary rights")
presently employed by them in connection with the business now
operated by them, and, other than as explicitly disclosed in writing
to the Representatives, neither the Company nor any of its
subsidiaries has received any notice or is otherwise aware of any
infringement of or conflict
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with asserted rights of others with respect to any such patent or
proprietary rights, or of any facts which would render any such patent
and proprietary rights invalid or inadequate to protect the interest
of the Company or any of its subsidiaries therein, and which
infringement or conflict (if the subject of any unfavorable decision,
ruling or finding) or invalidity or inadequacy, singly or in the
aggregate, would result in any material adverse change in the
condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company and its subsidiaries
considered as one enterprise.
(xv) No filing with, or authorization, approval, consent,
license, order, registration, qualification or decree of, any court or
governmental authority or agency is necessary or required for the
performance by the Company of its obligations hereunder or under the
International Purchase Agreement, or in connection with the offering,
issuance or sale of the Securities hereunder or under the
International Purchase Agreement or the consummation of the
transactions contemplated by this Agreement, the International
Purchase Agreement, the U.S. Pricing Agreement and the International
Pricing Agreement, except such as have been already obtained or as may
be required under the 1933 Act or the 1933 Act Regulations or state
securities laws.
(xvi) The Company, its subsidiaries and their respective
telephone representatives who sell insurance-related products possess
such certificates, authorities, permits, licenses, approvals, consents
and other authorizations (collectively, "Governmental Licenses")
issued by the appropriate state, federal, local or foreign regulatory
agencies or bodies necessary to conduct the business now operated or
conducted by them except where the failure to possess such
Governmental Licenses would not, singly or in the aggregate, have a
material adverse effect on the condition, financial or otherwise, or
the earnings, business affairs or business prospects of the Company
and its subsidiaries considered as one enterprise; the Company, its
subsidiaries and their respective telephone representatives who sell
insurance-related products are in compliance with the terms and
conditions of all such Governmental Licenses, except where the failure
so to comply would not, singly or in the aggregate, have a material
adverse effect on the condition, financial or otherwise, or the
earnings, business affairs or business prospects of the Company and
its subsidiaries considered as one enterprise; all of the Governmental
Licenses are valid and in full force and effect, except where the
invalidity of such Governmental Licenses or the failure of such
Government Licenses to be in full force and effect would not have a
material adverse
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effect on the condition, financial or otherwise, or the earnings,
business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise; and neither the Company nor
any of its subsidiaries has received any notice of proceedings
relating to the revocation or modification of any such Governmental
Licenses which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would materially and
adversely affect the condition, financial or otherwise, or the
earnings, business affairs or business prospects of the Company and
its subsidiaries considered as one enterprise.
(xvii) This Agreement and the International Purchase
Agreement have been, and, at the U.S. Representation Date, the U.S.
Pricing Agreement and the International Pricing Agreement will each
have been, duly authorized, executed and delivered by the Company.
(xviii) Except as set forth in the Prospectuses, the Company
and its subsidiaries are in compliance in all material respects with
all applicable laws, statutes, ordinances, rules or regulations, the
enforcement of which, individually or in the aggregate, would be
reasonably expected to have a material adverse effect on the
condition, financial or otherwise, or the earnings, business affairs
or business prospects of the Company and its subsidiaries considered
as one enterprise.
(xix) The Company and its subsidiaries have good and
marketable title to all material properties (real and personal) owned
by the Company and its subsidiaries, free and clear of all mortgages,
pledges, liens, security interests, claims, restrictions or
encumbrances of any kind except such as (a) are described in the
Prospectuses or (b) do not, singly or in the aggregate, materially
affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company or any of
its subsidiaries; and all properties held under lease by the Company
or its subsidiaries are held under valid, subsisting and enforceable
leases.
(xx) Except as disclosed in the Prospectuses, there are no
persons with registration or other similar rights to have any
securities registered pursuant to the Registration Statement or
otherwise registered by the Company under the 1933 Act.
(xxi) Except as disclosed in the Prospectuses, there are no
outstanding options, warrants, or other rights calling for the
issuance of, and no commitments, plans or
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arrangements to issue, any shares of capital stock of the Company or
any of its subsidiaries or any security convertible into or
exchangeable for capital stock of the Company or any of its
subsidiaries.
(xxii) The Company has complied with, and is and will be in
compliance with, the provisions of that certain Florida act relating
to disclosure of doing business with Cuba, codified as Section 517.075
of the Florida statutes, and the rules and regulations thereunder
(collectively, the "Cuba Act") or is exempt therefrom.
(xxiii) The Company is not, and upon the sale of the
Securities as contemplated herein and in the International Purchase
Agreement will not be, an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in
the Investment Company Act of 1940, as amended (the "1940 Act").
(xxiv) The Company and its subsidiaries have filed all
federal, state, local and foreign tax returns that are required to be
filed or has duly requested extension thereof and has paid all taxes
required to be paid by them and any related assessments, fines or
penalties except for any such tax, assessment, fine or penalty that is
being contested in good faith and by appropriate proceedings; and
adequate charges, accruals and reserves have been provided for in the
financial statements referred to in Section 1(a)(iv) above in respect
of all federal, state, local and foreign taxes for all periods as to
which the tax liability of the Company or any of its subsidiaries has
not been finally determined or remains open to examination by
applicable taxing authorities.
(xxv) The Company and its subsidiaries carry or are entitled
to the benefits of insurance in such amounts and covering such risks
as they reasonably believe is adequate to protect them against the
occurrence of such events, (i) against the risk of which insurance is
available and (ii) the occurrence of which would reasonably be likely
to materially and adversely affect the condition, financial or
otherwise, or the earnings, business affairs or business prospects of
the Company and its subsidiaries considered as one enterprise, and all
such insurance is in full force and effect.
(xxvi) The Company and its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with
management's general and specific authorizations; (ii) transactions
are recorded as necessary
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to permit preparations of financial statements in conformity with GAAP
and to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorizations; and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(xxvii) The Company and its subsidiaries have not (i) taken
directly or indirectly, any action designed to cause or result in, or
that has constituted or which might reasonably be expected to
constitute, the stabilization or manipulation of the price of any
security of the Company to facilitate the sale of the Securities or
(ii) since the initial filing of the Registration Statement (A) bid
for, purchased or paid anyone any compensation for soliciting
purchases of, the Securities, or (B) paid or agreed to pay to any
person any compensation for soliciting another to purchase any other
securities of the Company.
(xxviii) The Company has not distributed and, prior to the
later to occur of (i) the Closing Time and (ii) completion of the
distribution of the Securities, will not distribute any prospectus (as
such term is defined in the 1933 Act and the 1933 Act Regulations) in
connection with the offering and sale of the Securities other than the
Registration Statement, any preliminary prospectus filed with the
Commission, the Prospectuses or other materials, if any, permitted by
the 1933 Act or by the 1933 Act Regulations and approved by the
Representatives and Lead Managers.
(xxix) No relationship, direct or indirect, exists between or
among any of the Company or any affiliate of the Company, on the one
hand, and any director, officer, stockholder, customer or supplier of
any of them, on the other hand, which is required by the 1933 Act or
the 1934 Act or by the 1933 Act Regulations or the 1934 Act
Regulations to be described in the Registration Statement or the
Prospectuses which is not so described or is not described as
required.
(b) Each Selling Shareholder severally and not jointly represents
and warrants to, and agrees with, each of the U.S. Underwriters as follows:
(i) All authorizations, approvals and consents (other than
the issuance of the order of the Commission declaring the Registration
Statement effective and such authorizations, approvals or consents as
may be necessary under state securities laws) necessary for the
execution and
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<PAGE> 15
delivery by such Selling Shareholder of this Agreement, the U.S.
Pricing Agreement, the International Purchase Agreement and the
International Pricing Agreement and the sale and delivery of the
Securities to be sold by such Selling Shareholder hereunder and under
the International Purchase Agreement have been obtained and are in
full force and effect; such Selling Shareholder has the full right,
power and authority to enter into this Agreement, the U.S. Pricing
Agreement, the International Purchase Agreement and the International
Pricing Agreement and to sell, transfer and deliver the Securities to
be sold by such Selling Shareholder hereunder and under the
International Purchaser Agreement; and the trustees of each Selling
Shareholder which is a trust and their successor or successors (the
"Trustees") are duly and validly authorized to take each such action
without the approval of any other person or court and the execution
hereof and of the U.S. Pricing Agreement, the International Purchase
Agreement and the International Pricing Agreement by the Trustees
shall be an act which validly binds each Selling Shareholder which is
a trust to the terms of this Agreement, the U.S. Pricing Agreement,
the International Purchase Agreement and the International Pricing
Agreement, respectively.
(ii) The execution, delivery and performance of this
Agreement the U.S. Pricing Agreement, the International Purchase
Agreement and the International Pricing Agreement and the sale and
delivery of the Securities to be sold by such Selling Shareholder and
the consummation of the transactions contemplated herein and therein
and compliance by such Selling Shareholder with its obligations
hereunder and thereunder have been duly authorized by such Selling
Shareholder and do not and will not, whether with or without the
giving of notice or passage of time or both, conflict with or
constitute a material breach of, or material default under, or result
in the creation or imposition of any tax, lien, charge or encumbrance
upon the Securities to be sold by such Selling Shareholder or any
material property or assets of such Selling Shareholder pursuant to,
any treaty, law, regulation or decree or material contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, license,
lease or other agreement or instrument to which such Selling
Shareholder is a party or by which such Selling Shareholder may be
bound, or to which any of the material property or assets of such
Selling Shareholder is subject, nor will such action result in any
violation of the trust agreement or other organizational or governing
instrument of such Selling Shareholder, if applicable, or any
applicable treaty, law, statute, regulation, judgment, order, writ or
decree of any government, government instrumentality or court, foreign
or domestic; and in the case of each Selling
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<PAGE> 16
Shareholder that is a trust, the trust agreement or other
organizational or governing instrument applicable thereto previously
provided to the Representatives and the Lead Managers is a valid,
binding and enforceable agreement under the laws of the State of
Illinois and such agreement or other instrument has not been modified
or revoked and is in full force and effect and the powers granted
thereby and thereunder to the Trustees to take the actions referred to
in (b)(i) above were validly granted and have not been modified or
revoked and are in full force and effect; and no legal action is
pending or threatened that challenges the validity of such trust
agreement or other organizational or governing instrument or such
powers granted to the Trustees.
(iii) Except as described in the Prospectuses, such Selling
Shareholder has (or in the case of Marc S. Simon, such Selling
Shareholder has the right to acquire pursuant to the Simon Agreement)
and will at Closing Time referred to in Section 2(c) hereof and, if
any U.S. Option Securities are purchased, on each Date of Delivery
referred to in Section 2(b) hereof, have good and marketable title to
the Securities to be sold by such Selling Shareholder hereunder and
under the International Purchase Agreement, free and clear of any
security interest, mortgage, pledge, lien, encumbrance, claim or
equity other than pursuant to this Agreement or the International
Purchase Agreement; and upon delivery of the U.S. Securities and
payment of the purchase price therefor as herein contemplated, each of
the U.S. Underwriters will receive good and marketable title to the
U.S. Securities purchased by it from such Selling Shareholder, free
and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equity.
(iv) Such Selling Shareholder has not taken, and will not
take, directly or indirectly, any action which is designed to or which
has constituted or which might reasonably be expected to constitute
the stabilization or manipulation of the price of any security of the
Company to facilitate the sale of the Securities; and such Selling
Shareholder has not distributed and will not distribute any prospectus
(as such term is defined in the 1933 Act and the 1933 Act Regulations)
in connection with the offering and sale of the Securities other than
any preliminary prospectus filed with the Commission or the
Prospectuses or other material permitted by the 1933 Act or the 1933
Act Regulations.
(v) No filing with, or consent, approval, authorization,
order, registration, qualification or decree of, any governmental
authority or body is necessary or required for the performance by such
Selling Shareholder of
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<PAGE> 17
its obligations hereunder or under the International Purchase
Agreement or in connection with the sale of the Securities hereunder
or under the International Purchase Agreement or the consummation of
the transactions contemplated by this Agreement, the U.S. Pricing
Agreement, the International Purchase and the International Pricing
Agreement, except such as may have previously been made or obtained or
as may be required under the 1933 Act or the 1933 Act Regulations or
state securities laws.
(vi) Such Selling Shareholder (or, if the Selling Shareholder
is a trust, the Trustees thereof) has reviewed and is familiar with
the Registration Statement; to the best knowledge of such Selling
Shareholder such Registration Statement does not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; such Selling Shareholder (or, if the Selling Shareholder
is a trust, the Trustees thereof) is not prompted to sell the
Securities to be sold by such Selling Shareholder hereunder or under
the International Purchase Agreement by any information concerning the
Company or any subsidiary of the Company which is not set forth in the
Prospectuses.
(vii) Such parts of the Registration Statement as
specifically refer to such Selling Shareholder do not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading.
(viii) During a period of 180 days from the date of the U.S.
Pricing Agreement, such Selling Shareholder will not, without the
prior written consent of Merrill Lynch, directly or indirectly, sell,
offer to sell, grant any option for the sale of, or otherwise dispose
of, any shares of capital stock of the Company or any security
convertible or exchangeable into or exercisable for such capital stock
owned by such Selling Shareholder or with respect to which such
Selling Shareholder has the power of disposition, other than to (A)
the U.S. Underwriters or the Managers pursuant to this Agreement or
the International Purchase Agreement, (B) members of such Selling
Shareholder's immediate family, (C) a trust or trusts the
beneficiaries of which are exclusively such Selling Shareholder, a
member or members of the Theodore G. Schwartz family or other
entities controlled by such Selling Shareholder or members of the
Theodore G. Schwartz family, or (D) family limited partnerships which
are controlled by such Selling Shareholder or members of the Theodore
G. Schwartz family, provided that each transferee pursuant to
subclauses (B), (C) and (D) above agrees in
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<PAGE> 18
writing to be bound by the restrictions described above in b(viii).
(ix) Neither such Selling Shareholder nor any of its
affiliates directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, or has
any other association with (within the meaning of Article 1, paragraph
(q) of the By-laws of the National Association of Securities Dealers,
Inc. (the "NASD")), any member firm of the NASD.
(x) Such Selling Shareholder agrees to deliver to the
Representatives and the Lead Managers at or prior to the Closing Time
a properly completed and executed United States Treasury Department
Form W-9 (or other applicable form or statement specified by Treasury
Department regulations in lieu thereof).
(c) Any certificate signed by any officer of the Company and
delivered to the Representatives or to counsel for the U.S. Underwriters
pursuant to the terms of this Agreement shall be deemed a representation and
warranty by the Company to each U.S. Underwriter as to the matters covered
thereby; and any certificate signed by any Selling Shareholder as such and
delivered to the Representatives or to counsel for the U.S. Underwriters
pursuant to the terms of this Agreement shall be deemed a representation and
warranty by such Selling Shareholder to each U.S. Underwriter as to matters
covered thereby.
(d) The liability of the Selling Shareholders for breach of the
representation and warranty set forth in clause (b)(vi) above is limited as set
forth in Section 6(a).
SECTION 2. Sale and Delivery to U.S. Underwriters; Closing.
(a) On the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, each
Selling Shareholder, severally and not jointly, agrees to sell to each U.S.
Underwriter, severally and not jointly, and each U.S. Underwriter, severally
and not jointly, agrees to purchase from each Selling Shareholder, at the price
per share set forth in the U.S. Pricing Agreement, that proportion of the
number of Initial U.S. Securities set forth in Schedule B opposite the name of
such Selling Shareholder which the number of Initial U.S. Securities set forth
in Schedule A opposite the name of such U.S. Underwriter (plus any additional
number of Initial U.S. Securities that such U.S. Underwriter may become
obligated to purchase pursuant to the provisions of Section 10 hereof) bears to
the total number of Initial U.S. Securities (except as otherwise provided in
the U.S. Pricing Agreement), subject to such adjustments as the U.S.
Underwriters
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<PAGE> 19
in their discretion shall make to eliminate any sales or purchases of
fractional securities.
(1) If the Company has elected not to rely upon Rule 430A
under the 1933 Act Regulations, the initial public offering price and
the purchase price per share to be paid by the several U.S.
Underwriters for the U.S. Securities have each been determined and set
forth in the U.S. Pricing Agreement, dated the date hereof, and an
amendment to the Registration Statement and the Prospectuses will be
filed before the Registration Statement becomes effective.
(2) If the Company has elected to rely upon Rule 430A under
the 1933 Act Regulations, the initial public offering price and the
purchase price per share to be paid by the several U.S. Underwriters
for the U.S. Securities shall be determined by agreement among the
Representatives, the Company and the Selling Shareholders and, when so
determined, shall be set forth in the U.S. Pricing Agreement. In the
event that such prices have not been agreed upon and the U.S. Pricing
Agreement has not been executed and delivered by all parties thereto
by the close of business on the fourteenth business day following the
date of this Agreement, this Agreement shall terminate forthwith,
without liability of any party to any other party, unless otherwise
agreed to by the Company, Selling Shareholders and the
Representatives, except that Sections 1, 6, 7 and 8 shall remain in
effect.
(b) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth,
certain of the Selling Shareholders as set forth on Schedule B hereto, acting
severally and not jointly, hereby grant an option to the U.S. Underwriters,
severally and not jointly, to purchase up to an additional 492,000 Common
Shares at the price per share set forth in the U.S. Pricing Agreement. The
option hereby granted will expire 30 days after (i) the date the Registration
Statement becomes effective, if the Company has elected not to rely on Rule
430A under the 1933 Act Regulations, or (ii) the U.S. Representation Date, if
the Company has elected to rely upon Rule 430A under the 1933 Act Regulations,
and may be exercised in whole or in part from time to time only for the purpose
of covering over-allotments which may be made in connection with the offering
and distribution of the Initial U.S. Securities upon notice by the
Representatives to such Selling Shareholders setting forth the number of U.S.
Option Securities as to which the several U.S. Underwriters are then exercising
the option and the time and date of payment and delivery for such U.S. Option
Securities. Any such time and date of delivery for the U.S. Option Securities
(a "Date of Delivery") shall be determined by the Representatives,
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<PAGE> 20
but shall not be, unless otherwise agreed upon by the Representatives and the
Selling Shareholders granting such option, later than seven full business days
after the exercise of said option, and in no event prior to Closing Time, as
hereinafter defined. If the option is exercised as to all or any portion of
the U.S. Option Securities, the U.S. Option Securities shall be sold by the
Selling Shareholders granting such option substantially in proportion to the
respective number of U.S. Option Securities set forth opposite their names in
Schedule B hereto and each of the U.S. Underwriters, acting severally and not
jointly, will purchase from each such Selling Shareholder that proportion of
the total number of U.S. Option Securities set forth in Schedule B opposite the
name of such Selling Shareholder as may be adjusted on a pro rata basis to
reflect the aggregate number of U.S. Option Securities then being purchased
which the number of Initial U.S. Securities set forth in Schedule A opposite
the name of such U.S. Underwriter bears to the total number of Initial U.S.
Securities.
(c) Payment of the purchase price for the Initial U.S. Securities
shall be made at the office of Merrill Lynch & Co., 5500 Sears Tower, Chicago,
Illinois 60606, and delivery of the certificates for the Initial U.S.
Securities shall be made against payment therefor at the office of Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Merrill Lynch World Headquarters,
North Tower, World Financial Center, New York, New York 10281-1305, or (in
either case) at such other place or places as shall be agreed upon by the
Selling Shareholders and the Representatives, at 10:00 A.M. on the third
business day (unless postponed in accordance with the provisions of Sections
10) following the date the Registration Statement becomes effective (or, if the
Company has elected to rely upon Rule 430A of the 1933 Act Regulations, the
third business day after execution of the U.S. Pricing Agreement, unless the
U.S. Pricing Agreement is executed after 4:30 P.M., in which case on the
fourth business day thereafter), or such other time not later than ten business
days after such date as shall be agreed upon by the Selling Shareholders and
the Representatives (such time and date of payment and delivery being herein
called "Closing Time"). In addition, in the event that any or all of the U.S.
Option Securities are purchased by the U.S. Underwriters, payment of the
purchase price for, and delivery of certificates for, such U.S. Option
Securities shall be made at the offices set forth above, or at such other place
as shall be agreed upon by the Representatives and the Selling Shareholders
that granted such option to the U.S. Underwriters, on each Date of Delivery as
specified in the notice from the Representatives to such Selling Shareholders.
Payment shall be made to the appropriate Selling Shareholders by wire transfer
of, or certified or official bank check or checks drawn in, same day funds
payable to the order of the appropriate Selling Shareholders against delivery
to the
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Representatives, for the respective accounts of the U.S. Underwriters of
certificates for the U.S. Securities to be purchased by them. Certificates for
the Initial U.S. Securities and the U.S. Option Securities, if any, shall be in
such denominations and registered in such names as the Representatives may
request in writing at least two business days before the Closing Time or the
relevant Date of Delivery, as the case may be.
(d) It is understood that each U.S. Underwriter has authorized the
Representatives, for its account, to accept delivery of, receipt for, and make
payment of the purchase price for, the Initial U.S. Securities and the U.S.
Option Securities, if any, which it has agreed to purchase. Merrill Lynch,
individually and not as representative of the U.S. Underwriters, may (but shall
not be obligated to) make payment of the purchase price for the Initial U.S.
Securities or the U.S. Option Securities, if any, to be purchased by any U.S.
Underwriter whose funds have not been received by the Closing Time or the
relevant Date of Delivery, as the case may be, but such payment shall not
relieve such U.S. Underwriter from its obligations hereunder. The certificates
for the Initial U.S. Securities and the U.S. Option Securities, if any, will be
made available for examination and packaging by the Representatives not later
than 11:00 A.M. on the last business day prior to the Closing Time or the
relevant Date of Delivery, as the case may be.
SECTION 3. Covenants of the Company. The Company covenants with each
of the U.S. Underwriters as follows:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective (as and when requested by
the Representatives) and will notify the Representatives immediately,
and confirm the notice in writing, (i) when the Registration
Statement, or any post-effective amendment to the Registration
Statement, shall become effective, or any supplement to the
Prospectuses or any amended Prospectus shall have been filed, (ii) of
the receipt of any comments from the Commission, (iii) of any request
by the Commission for any amendment to the Registration Statement or
any amendment or supplement to the Prospectuses or for additional
information, and (iv) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or of
any order preventing or suspending the use of any preliminary
prospectus, or of the suspension of the qualification of the
Securities for offering or sale in any jurisdiction, or of the
initiation or threatening of any proceeding for any such purpose. The
Company will make every reasonable effort to prevent the issuance of
any stop order and, if any stop order is issued, to obtain the lifting
thereof at the
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<PAGE> 22
earliest possible moment. If the Company elects to rely on Rule 434
under the 1933 Act Regulations, the Company will prepare a term sheet
that complies with the requirements of Rule 434 under the 1933 Act
Regulations. If the Company elects not to rely on Rule 434, the
Company will provide the U.S. Underwriters with copies of the form of
Prospectuses, in such number as the U.S. Underwriters may reasonably
request, and timely file with the Commission such Prospectuses in
accordance with Rule 424(b) of the 1933 Act by the close of business
in New York on the business day immediately succeeding the date of the
U.S. Pricing Agreement. If the Company elects to rely on Rule 434,
the Company will provide the U.S. Underwriters with copies of the
forms of Rule 434 Prospectuses, in such number as the U.S.
Underwriters may reasonably request, and timely file with the
Commission the form of Prospectuses complying with Rule 434(b)(2) of
the 1933 Act in accordance with Rule 424(b) of the 1933 Act by the
close of business in New York on the business day immediately
succeeding the date of the U.S. Pricing Agreement.
(b) The Company will give the Representatives notice of its
intention to file or prepare any amendment to the Registration
Statement (including any post-effective amendment) or any amendment or
supplement to the Prospectuses, whether pursuant to the 1933 Act, the
1934 Act or otherwise, (including any revised prospectuses which the
Company proposes for use by the U.S. Underwriters or the Managers in
connection with the offering of the Securities which differs from the
prospectuses on file at the Commission at the time the Registration
Statement first becomes effective, whether or not any such revised
prospectus is required to be filed pursuant to Rule 424(b) of the 1933
Act Regulations or any term sheet prepared in reliance on Rule 434 of
the 1933 Act Regulations), will furnish the Representatives with
copies of any such amendment or supplement a reasonable amount of time
prior to such proposed filing or use, as the case may be, and will not
file any such amendment or supplement or use any such prospectus to
which the Representatives or counsel for the U.S. Underwriters shall
have reasonably objected; provided, however, that such objection shall
not prevent the filing of any such amendment or supplement which, in
the opinion of counsel for the Company, is required to be filed,
pursuant to the 1933 Act, the 1933 Act Regulations, the 1934 Act or
the 1934 Act Regulations.
(c) The Company has furnished or will deliver to the
Representatives and counsel for the U.S. Underwriters, without charge,
signed copies of the Registration Statement as originally filed and of
each amendment thereto (including
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<PAGE> 23
exhibits filed therewith or incorporated by reference therein and
documents incorporated or deemed to be incorporated by reference
therein) and signed copies of all consents and certificates of
experts, and will also deliver to the Representatives a conformed copy
of the Registration Statement as originally filed and of each
amendment thereto (without exhibits) for each of the U.S.
Underwriters. The copies of the Registration Statement and each
amendment thereto furnished to the U.S. Underwriters will be identical
to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(d) The Company will deliver to each U.S. Underwriter,
without charge, from time to time until the effective date of the
Registration Statement (or, if the Company has elected to rely upon
Rule 430A, until such time the U.S. Pricing Agreement is executed and
delivered), as many copies of each preliminary prospectus as such U.S.
Underwriter may reasonably request, and the Company hereby consents to
the use of such copies for purposes permitted by the 1933 Act. The
Company will furnish to each U.S. Underwriter, without charge, from
time to time during the period when the Prospectuses are required to
be delivered under the 1933 Act or the 1934 Act, such number of copies
of the U.S. Prospectus (as amended or supplemented) as such U.S.
Underwriter may reasonably request for the purposes contemplated by
the 1933 Act or the 1934 Act or the respective applicable rules and
regulations of the Commission thereunder; provided, that, in the event
that a U.S. Underwriter is required to deliver a U.S. Prospectus in
connection with sales of any of the U.S. Securities at any time nine
months or more after the time of issuance of the U.S. Prospectus, upon
the request of such U.S. Underwriter but at such U.S. Underwriter's
expense, the Company will prepare and deliver to such U.S. Underwriter
as many copies as it may request of a U.S. Prospectus (as amended or
supplemented) complying with Section 10(a)(3) of the 1933 Act. The
U.S. Prospectus and any amendments or supplements thereto furnished
to the U.S. Underwriters will be identical to the electronically
transmitted copies thereof filed with the Commission pursuant to
EDGAR, except to the extent permitted by Regulation S-T.
(e) The Company will comply with the 1993 Act and the 1933
Act Regulations and the 1934 Act and the 1934 Act Regulations so as to
permit the completion of the distribution of the Securities as
contemplated by this Agreement, the International Purchase Agreement
and the Prospectuses. If, during the period in which a prospectus is
required to be delivered by an U.S. Underwriter under the
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<PAGE> 24
1933 Act, any event shall occur as a result of which it is necessary
to amend the Registration Statement or amend or supplement any
Prospectus in order that the Prospectuses will not include any untrue
statements of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading in
the light of the circumstances existing at the time it is delivered to
a purchaser, or if it shall be necessary during such period to amend
the Registration Statement or amend or supplement any Prospectus in
order to comply with the 1933 Act or 1933 Act Regulations, the Company
will promptly prepare and file with the Commission, subject to Section
3(b), such amendment or supplement as may be necessary to correct such
statement or omission or to make the Registration Statement or the
Prospectuses comply with such requirements, and the Company will
furnish to the U.S. Underwriters such number of copies of such
amendment or supplement as the U.S. Underwriters may reasonably
request.
(f) If, at the time that the Registration Statement becomes
effective, any information shall have been omitted therefrom in
reliance upon Rule 430A of the 1933 Act Regulations, then following
the execution of the U.S. Pricing Agreement, the Company will prepare,
and timely file with the Commission in accordance with such Rule 430A
and Rule 424(b) of the 1933 Act Regulations, copies of amended
Prospectuses, or, if required by such Rule 430A, a post-effective
amendment to the Registration Statement (including amended
Prospectuses), containing all information so omitted and will use its
best efforts to cause such post-effective amendment to be declared
effective as promptly as practicable.
(g) The Company will endeavor, in cooperation with the
U.S. Underwriters and their counsel, to qualify the Securities for
offering and sale under the applicable securities laws of such
jurisdictions as the Representatives may designate; provided, however,
that the Company shall not be obligated to qualify as a foreign
corporation in any jurisdiction in which it is not so qualified or to
take any action that would subject the Company to general service of
process or taxation in any jurisdiction where it is not so subject at
the date of this Agreement. In each jurisdiction in which the
Securities have been so qualified, the Company will file such
statements and reports as may be required by the laws of such
jurisdiction to continue such qualification in effect for a period of
not less than one year from the effective date of the Registration
Statement.
(h) The Company will make generally available to its security
holders as soon as practicable, but not later than
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<PAGE> 25
45 days after the close of the period covered thereby, an earnings
statement (in form complying with the provisions of Rule 158 of the
1933 Act Regulations) covering a twelve month period beginning not
later than the first day of the Company's fiscal quarter next
following the "effective date" (as defined in said Rule 158) of the
Registration Statement.
(i) [intentionally omitted]
(j) During a period of 180 days from the date of the U.S.
Pricing Agreement, the Company will not, without the prior written
consent of Merrill Lynch, directly or indirectly, sell, offer to sell,
grant any option for the sale of, or otherwise dispose of, any capital
stock of the Company or any security convertible or exchangeable into
or exercisable for such capital stock (except for Common Shares issued
pursuant to employee benefit plans referred to in the Prospectuses,
pursuant to the exercise of options referred to in the Prospectuses or
pursuant to the employee stock purchase plan of the Company referred
to in the Prospectuses) or file any registration statement under the
1933 Act with respect to any of the foregoing (except for registration
statements on Form S-8 with respect to employee benefit plans referred
to in the Prospectuses or the employee stock purchase plan of the
Company referred to in the Prospectuses).
(k) In accordance with the Cuba Act and without
limitation to the provisions of Sections 6 and 7 hereof, the Company
agrees to indemnify and hold harmless each U.S. Underwriter from and
against any and all loss, liability, claim damage and expense
whatsoever (including fees and disbursements of counsel), as incurred,
arising out of any violation by the Company of the Cuba Act.
(l) The Company, during the period when the Prospectuses
are required to be delivered under the 1933 Act or the 1934 Act, will
file all documents required to be filed with the Commission pursuant
to the 1934 Act within the time periods required by the 1934 Act and
the 1934 Act Regulations.
SECTION 4. Payment of Expenses. The Company will pay all expenses
incident to the performance of its obligations under this Agreement, including
(i) the printing and filing of the Registration Statement as originally filed
and of each amendment thereto, (ii) the preparation, copying and delivery to
the U.S. Underwriters of this Agreement, the U.S. Pricing Agreement, any
Agreement among Underwriters and such other documents as may be required in
connection with the offering, purchase, sale, issuance or delivery of the
Securities, (iii) the preparation and
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<PAGE> 26
delivery of the certificates for the Securities to the Underwriters, including
any capital duties, stamp duties and stock or other transfer taxes payable upon
the issuance, sale or delivery of the Securities to the Underwriters, and the
transfer of the Securities between the U.S. Underwriters and the Managers, (iv)
the fees and disbursements of the Company's counsel, accountants and other
advisors, the Selling Shareholders' respective counsel, accountants and other
advisors and the Trustees and their respective counsel, (v) the qualification
of the Securities under securities laws in accordance with the provisions of
Section 3(g) hereof and Section 3(g) of the International Purchase Agreement,
including filing fees and the fees and disbursements of counsel for the
Underwriters in connection therewith and in connection with the preparation of
the Blue Sky Survey and any supplement thereto, provided that the Company's
obligations with respect to the amounts included in this clause (v) and clause
(v) of Section 4 of the International Purchase Agreement shall not
exceed $10,000 in the aggregate, (vi) the printing and delivery to the
Underwriters of copies of the Registration Statement as originally filed and of
each amendment thereto, of each preliminary prospectus, and of the Prospectuses
and any amendments or supplements thereto including any term sheet delivered by
the Company pursuant to Rule 434 of the 1933 Act Regulations, (vii) the
preparation, copying and delivery to the Underwriters of copies of the Blue Sky
Survey and any supplement thereto, (viii) the fees and expenses of any transfer
agent or registrar for the Securities, and (ix) the filing fees in connection
with the review by the NASD of the terms of the sale of the Securities.
(b) The Selling Shareholders, jointly and severally, will pay all
expenses incident to the performance of their respective obligations under, and
the consummation of the transactions contemplated by this Agreement, including
any stamp duties, capital duties and stock transfer taxes, if any, payable upon
the sale of the Securities to the Underwriters, and their transfer between the
U.S. Underwriters and the Managers.
(c) If this Agreement is terminated by the Representatives in
accordance with the provisions of Section 5, Section 9(a)(i) or Section 11
hereof, the Company and the Selling Shareholders, jointly and severally, shall
reimburse the U.S. Underwriters for all of their reasonable out-of-pocket
expenses relating to the transactions contemplated hereby, including the
reasonable fees and disbursements of counsel for the U.S. Underwriters.
(d) The provisions of this Section shall not affect any agreement
among the Company and the Selling Shareholders with respect to such costs and
expenses.
SECTION 5. Conditions of U.S. Underwriters' Obligations. The
obligations of the several U.S. Underwriters hereunder are
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<PAGE> 27
subject to the accuracy of the representations and warranties of the Company
and the Selling Shareholders herein contained, to the performance by the
Company and the Selling Shareholders of their obligations hereunder, and to the
following further conditions:
(a) The Registration Statement shall have become effective
not later than 5:30 P.M. on the date hereof, or with the consent of
the Representatives, at a later time and date, not later, however,
than 5:30 P.M. on the first business day following the date hereof, or
at such later time and date as may be approved by a majority in
interest of the U.S. Underwriters; and at Closing Time no stop order
suspending the effectiveness of the Registration Statement shall have
been issued under the 1933 Act or proceedings therefor initiated or
threatened by the Commission, and any request on the part of the
Commission for additional information shall have been complied with to
the reasonable satisfaction of counsel to the U.S. Underwriters. If
the Company has elected to rely upon Rule 430A of the 1933 Act
Regulations, the price of the Securities and any price-related
information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to
the Commission for filing pursuant to Rule 424(b) of the 1933 Act
Regulations within the prescribed time period and prior to Closing
Time the Company shall have provided evidence satisfactory to the
Representatives of such timely filing, or a post-effective amendment
providing such information shall have been promptly filed and declared
effective in accordance with the requirements of Rule 430A of the 1933
Act Regulations.
(b) At Closing Time the Representatives shall have received:
(1) The favorable opinion, dated as of Closing Time,
of McDermott, Will & Emery, counsel for the Company and the
Selling Shareholders, in form and substance reasonably
satisfactory to counsel for the U.S. Underwriters, to the
effect that:
(i) The Company has been duly incorporated
and is validly existing and in good standing under
the laws of the State of Illinois.
(ii) The Company has corporate power and
authority to conduct its business as described in the
Registration Statement and to execute and deliver and
perform its obligations under this Agreement, the
U.S. Pricing Agreement, the International Purchase
Agreement and the International Pricing Agreement.
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<PAGE> 28
(iii) The Company is duly qualified to
transact business and is in good standing as a
foreign corporation in the States of Florida,
Indiana, Iowa, Maryland, Michigan, North Carolina,
South Carolina, Texas and Virginia (in rendering such
opinion such counsel shall be entitled to rely solely
on certificates of public officials of such States).
(iv) The authorized and outstanding
capital stock of the Company is as set forth in the
Prospectuses under the caption "Capitalization" and
under the caption "Description of Capital Stock"; the
issued and outstanding Common Shares, including the
Securities to be purchased by the U.S. Underwriters
and the Managers from the Selling Shareholders, have
been duly authorized and validly issued and are fully
paid and non-assessable; and none of the outstanding
shares of capital stock of the Company was issued in
violation of the preemptive rights of any stockholder
of the Company arising by operation of law, under the
charter or by-laws of the Company or any of its
subsidiaries or, to the knowledge of such counsel,
under any agreement to which the Company or any of
its subsidiaries is a party.
(v) The shareholders of the Company do not
have any preemptive rights with respect to the
Securities to be purchased by the U.S. Underwriters
and the Managers from the Selling Shareholders.
(vi) Except as disclosed in or specifically
contemplated by the Prospectuses, to the knowledge of
such counsel, there are no outstanding options,
warrants or other rights calling for the issuance of
any shares of capital stock of the Company or any
security convertible into or exchangeable for capital
stock of the Company. The stock option plans of the
Company described in the Prospectuses have been duly
authorized by the Company and the descriptions of the
stock option granted to Mr. Simon and the stock
option plans of the Company contained in the
Prospectuses are accurate in all material requests.
(vii) This Agreement, the U.S. Pricing
Agreement, the International Purchase Agreement and
the International Pricing Agreement have each
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<PAGE> 29
been duly authorized, executed and delivered by the
Company.
(viii) Such counsel has been advised by the
Commission that the Registration Statement has been
declared effective under the 1933 Act; any required
filing of the Prospectuses pursuant to Rule 424(b)
has been made in the manner and within the time
period required by Rule 424(b); and, to the knowledge
of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been
issued under the 1933 Act or proceedings therefor
initiated or threatened by the Commission.
(ix) The Registration Statement, the
Prospectuses and each amendment or supplement to the
Registration Statement and Prospectuses as of their
respective effective or issue dates appeared on their
face to be appropriately responsive in all material
respects to the requirements of the 1933 Act and the
1933 Act Regulations, except that such counsel need
not express any opinion as to the financial
statements, schedules and other financial data
included therein or excluded therefrom, or the
exhibits to the Registration Statement (except to the
extent set forth in the next sentence of this
paragraph) and such counsel need not assume
responsibility for the accuracy, completeness or
fairness of the statements contained in the
Registration Statement and the Prospectuses. To the
knowledge of such counsel without having made any
independent investigation and based upon
representations of officers of the Company as to the
factual matters, there were no contracts or documents
required to be described or referred to in, or to be
filed as exhibits to, the Registration Statement as
of its Effective Date which were not so described,
referred to or filed or incorporated by reference as
exhibits thereto.
(x) The Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995, its
Quarterly Reports on Form 10-Q for the quarters ended
March 31 and June 30, 1996, its Current Report on
Form 8-K dated October 17, 1996 and the description
of the Common Shares contained in the Company's
Registration Statement on Form 8-A for such
securities, as of their respective filing or
effective dates, appeared on their face to be
appropriately responsive in all material respects
29
<PAGE> 30
to the requirements of the applicable provisions of
the 1934 Act, the 1934 Act Regulations, the 1933 Act
and the 1933 Act Regulations, except that such
counsel need not express any opinion as to the
financial statements, schedules and other financial
data included therein or excluded therefrom or the
exhibits to such documents (except to the extent set
forth in the last sentence of paragraph (ix) above)
(xi) The Common Shares conform in all
material respects to the description thereof under
the caption "Description of Capital Stock" in the
Prospectuses, and the form of certificate used to
evidence the Common Shares is in due and proper form
and complies with all requirements of the Illinois
Business Corporation Act and with any applicable
requirements of the charter and by-laws of the
Company.
(xii) To the knowledge of such counsel there
are no legal or governmental actions, suits or
proceedings pending or threatened against the Company
or any of its subsidiaries that are required to be
described in the Prospectuses that are not described
as required.
(xiii) The information in the Prospectuses
under "Description of Capital Stock," "Certain United
States Federal Tax Consequences to Non-United States
Holders" and in the Registration Statement under Item
15 of Form S-3 to the extent that it constitutes
matters of law, summaries of legal matters, documents
or proceedings, or legal conclusions, has been
reviewed by them and is correct in all material
respects; to the knowledge of such counsel, there are
no Illinois, New York or United States statutes or
regulations that are required to be described in the
Prospectuses that are not described as required.
(xiv) All descriptions in the Prospectuses
of contracts and other documents to which the Company
or any of its subsidiaries is a party are accurate in
all material respects.
(xv) No authorization, approval, consent or
order of any governmental authority or agency or, to
the knowledge of such counsel, any court (other than
under the 1933 Act and the 1933 Act Regulations,
which have been obtained, or as may be required under
the securities or blue sky laws of the various
states, as to which such counsel
30
<PAGE> 31
need express no opinion) is required under the laws
of the United States or the States of Illinois or New
York (except that such counsel need not express any
opinion regarding matters relating to the regulation
of insurance companies as such or consumer credit
laws) to be obtained by the Company for the due
authorization, execution and delivery of this
Agreement, the U.S. Pricing Agreement, the
International Purchase Agreement and the
International Pricing Agreement or in connection with
the offering, issuance or sale of the U.S. Securities
to the U.S. Underwriters and the International
Securities to the Managers; and, except as otherwise
stated in such opinion (the form of which has
previously been provided to Mayer, Brown & Platt,
counsel for the U.S. Underwriters), the execution,
delivery and performance of this Agreement, the U.S.
Pricing Agreement, the International Purchase
Agreement and the International Pricing Agreement,
and the consummation of the transactions contemplated
herein and therein and compliance by the Company with
its obligations hereunder and thereunder will not,
whether with or without the giving of notice or lapse
of time or both, (A) constitute a breach of, or
default or Repayment Event by the Company under, or
result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of
the Company or any of its subsidiaries pursuant to,
any contract, credit agreement, note, or any other
agreement or instrument listed on Schedule D hereto,
(B) violate the provisions of the charter or by-laws
of the Company, (C) contravene any applicable law,
statute, rule or regulation of the United States or
the States of New York or Illinois, or (D) to the
knowledge of such counsel violate any, judgment,
order, writ or decree of any New York, Illinois or
federal executive, legislative, judicial,
administrative or regulatory body applicable to the
Company or any of its subsidiaries or any of their
respective properties.
(xvi) To the knowledge of such counsel,
except as disclosed in the Prospectuses, there are no
persons with registration or other similar rights to
have any securities registered pursuant to the
Registration Statement or otherwise registered by the
Company under the 1933 Act.
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<PAGE> 32
(xvii) The Company is not an "investment
company" or an entity "controlled" by an "investment
company," as such terms are defined in the 1940 Act.
(xviii) No authorization, approval, consent
or order of any governmental authority or agency or,
to the knowledge of such counsel, any court (other
than under the 1933 Act and the 1933 Act Regulations,
which have been obtained or as may be required under
the securities or blue sky laws of the various
states, as to which such counsel need express no
opinion) is required under the laws of the United
States or the States of Illinois or New York (except
that such counsel need not express any opinion
regarding matters relating to the regulation of
insurance companies as such or consumer credit laws)
to be obtained by the Selling Shareholders for the
execution and delivery of this Agreement, the U.S.
Pricing Agreement, the International Purchase
Agreement and the International Pricing Agreement, or
in connection with the offer or sale of the U.S.
Securities hereunder and the International Securities
pursuant to the International Purchase Agreement or
the consummation of the transactions contemplated by
this Agreement, the U.S. Pricing Agreement, the
International Purchase Agreement and the
International Pricing Agreement; and the Trustees are
duly and validly authorized to take each such action
without the approval of any other person or court and
the execution hereof and of the U.S. Pricing
Agreement, the International Purchase Agreement and
the International Pricing Agreement by the Trustees
is an act which validly binds each Selling
Shareholder which is a trust to the terms of this
Agreement, the U.S. Pricing Agreement, the
International Purchase Agreement and the
International Pricing Agreement, respectively.
(xix) This Agreement, the U.S. Pricing
Agreement, the International Purchase Agreement and
the International Pricing Agreement have each been
duly executed and delivered by or on behalf of each
Selling Shareholder.
(xx) The execution, delivery and performance
of this Agreement, the U.S. Pricing Agreement, the
International Purchase Agreement and the
International Pricing Agreement and the sale and
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<PAGE> 33
delivery of the Securities and the consummation of
the transactions contemplated herein and therein and
compliance by the Selling Shareholders with the terms
of this Agreement and the International Purchase
Agreement have been duly authorized by all necessary
action on the part of the Selling Shareholders and do
not and will not, whether with or without the giving
of notice or passage of time or both, violate, or
result in the creation or imposition of any tax,
lien, charge or encumbrance upon the Securities
pursuant to, any treaty, law, statute, regulation or
decree, nor will such action result in any violation
of the provisions of the trust agreement or other
organizational or governing instruments of the
Selling Shareholders, if applicable, or any
applicable treaty, law, statute or regulation under
the laws of the United States or the States of
Illinois or New York, or, to the knowledge of such
counsel, violate any judgment, order, writ or decree
of any government, government instrumentality or
court, foreign or domestic, having jurisdiction over
any Selling Shareholder; with respect to the Selling
Shareholders that are trusts, the trust agreement or
other organizational or governing instrument relating
to such trust is a valid, binding and enforceable
agreement under the laws of the State of Illinois
and, to such counsel's knowledge, such agreement or
other instrument has not been modified or revoked and
is in full force and effect and the powers granted
thereby and thereunder to the Trustees were validly
granted and have not been modified or revoked and are
in full force and effect; and, to the knowledge of
such counsel, no legal action is pending or
threatened that challenges the validity of such trust
agreement or other organizational or governing
instrument or such powers granted to the Trustees.
(xxi) Based solely upon a review of the
Company's stock transfer book, to the knowledge of
such counsel, each Selling Shareholder other than
Marc S. Simon is, and immediately prior to Closing
time will be, the sole registered owner of the U.S.
Securities to be sold by such Selling Shareholder;
the Simon Agreement has been duly authorized,
executed and delivered by the Company and Marc S.
Simon, and to the knowledge of such counsel, the
Simon Agreement is in full force and effect, without
termination or cancellation
33
<PAGE> 34
provisions having been exercised by either party
thereto, and is enforceable in accordance with its
terms except that enforcement may be limited by
applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors'
rights generally and by general principles of equity
(regardless of whether enforcement is sought in
equity or at law); upon payment for the U.S.
Securities and when the U.S. Underwriters take
delivery of the certificates representing the U.S.
Securities and, assuming such certificates are
registered in the names of the U.S. Underwriters and
the U.S. Underwriters purchased such U.S. Securities
for value in good faith (as defined in Section 1-201
of the Illinois Uniform Commercial Code (the "UCC"))
and without notice of any adverse claim (as defined
in Section 8-302 of the UCC), each U.S. Underwriter
will have acquired such U.S. Securities free of any
adverse claim; and such Selling Shareholder has the
full right, power and authority (A) to enter into
this Agreement, the U.S. Pricing Agreement, the
International Purchase Agreement and the
International Pricing Agreement and (B) to sell,
transfer and deliver the Securities to be sold by
such Selling Shareholder under this Agreement and the
International Purchase Agreement.
(2) The favorable opinion, dated as of Closing Time,
of Mayer, Brown & Platt, counsel for the U.S. Underwriters,
with respect to the matters set forth in (i) (as to the
Company's existence and good standing), (v) (solely as to
preemptive rights arising by operation of law or under the
charter or by-laws of the Company), (vii), (viii), the first
sentence of (ix), (xi) and (xiii) (solely as to the
information in the Prospectus under "Description of Capital
Stock -- Common Shares") of subsection (b)(1) of this Section.
(3) In giving their opinions required by subsections
(b)(1) and (b)(2), respectively, of this Section, McDermott,
Will & Emery and Mayer, Brown & Platt shall each additionally
state that such counsel has participated in conferences with
officers and representatives of the Company, the Selling
Shareholders and representatives of the independent
accountants of the Company and the Underwriters, at which the
contents of the Registration Statement and the Prospectuses
were discussed, and that although such counsel is not required
to pass upon or assume any responsibility for the accuracy,
completeness or
34
<PAGE> 35
fairness of the statements contained in the Registration
Statement or the Prospectuses (except to the extent
specifically set forth in subsections (b)(1) and (b)(2)
respectively) and are not required to make an independent
check or verification thereof, except to the extent otherwise
set forth in their opinion, based upon the foregoing, no facts
have come to their attention to lead them to believe that as
of its effective date, the Registration Statement, contained
an untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to
make the statements therein not misleading or the Prospectuses
as of their dates (unless the term "Prospectuses" refers to a
prospectus which has been provided to the U.S. Underwriters by
the Company for use in connection with the offering of the
Securities which differs from the Prospectuses on file at the
Commission at the time the Registration Statement becomes
effective, in which case at the time it is first provided to
the U.S. Underwriters for such use) and as of the Closing Time
contained or contain an untrue statement of a material fact or
omitted or omit to state a material fact necessary in order to
make the statements therein, in light of the circumstances
under which they were made, not misleading, except that such
counsel need not express any opinion or belief as to the
financial statements, schedules and other financial data
included or incorporated by reference therein or excluded from
the Registration Statement or the Prospectuses or the exhibits
to the Registration Statement.
(c) At Closing Time there shall not have been, since the date
hereof or since the respective dates as of which information is given
in the Prospectuses, any material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as
one enterprise, whether or not arising in the ordinary course of
business, and the Representatives shall have received a certificate of
the Company signed by the President or a Vice President of the Company
and the chief financial or chief accounting officer of the Company,
dated as of Closing Time, to the effect that (i) there has been no
such material adverse change, (ii) the representations and warranties
of the Company contained in Section 1(a) are true and correct with the
same force and effect as though expressly made at and as of Closing
Time, (iii) the Company has complied with all agreements and satisfied
all conditions on its part to be performed or satisfied under this
Agreement at or prior to Closing Time, and (iv) no stop order
suspending the
35
<PAGE> 36
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been initiated or threatened by the
Commission. As used in this Section 5(c), the term "Prospectuses"
means the Prospectuses in the form first used to confirm sales of the
Securities.
(d) At Closing Time the Representatives shall have
received a certificate of each of the Selling Shareholders, dated as
of Closing Time, to the effect that (i) to the knowledge of such
Selling Shareholder (or, if such Selling Shareholder is a trust, to
the knowledge of the Trustees thereof), there has been no material
adverse change as described in Section 5(c), (ii) the representations
and warranties of such Selling Shareholder contained in Section 1(b)
are true and correct with the same force and effect as though
expressly made at and as of Closing Time and (iii) such Selling
Shareholder has complied in all material respects with all agreements
and satisfied all conditions on its part to be performed under this
Agreement at or prior to Closing Time.
(e) At the time of the execution of this Agreement, the
Representatives shall have received from Arthur Andersen LLP a letter
dated such date, in form and substance satisfactory to the
Representatives, to the effect that (i) they are independent public
accountants with respect to the Company within the meaning of the 1933
Act, the 1933 Act Regulations, the 1934 Act and the 1934 Act
Regulations; (ii) in their opinion, the financial statements and
financial statement schedules, if any, audited by them and included or
incorporated by reference in the Registration Statement comply as to
form in all material respects with the applicable accounting
requirements of the 1933 Act, the 1933 Act Regulations, the 1934 Act
and the 1934 Act Regulations; (iii) based upon limited procedures set
forth in detail in such letter (which shall include, without
limitation, the procedures specified by the American Institute of
Certified Public Accountants for a review of interim financial
information as described in SAS No. 71, Interim Financial Information,
with respect to the Company's unaudited balance sheet as of June 30,
1996, and the Company's unaudited statements of income, shareholders'
equity and cashflows for the twenty-six weeks ended June 30, 1996, and
the Company unaudited statements of income and cash flows for the
twenty-six weeks ended July 2, 1995, included in the Registration
Statement and the Company's condensed financial statements for the
same periods included in the Company's quarterly report on Form 10-Q
for the quarter ended June 30, 1996 and incorporated by reference in
the Registration Statement (collectively, the "Unaudited Financial
Statements")), nothing has come to their attention which
36
<PAGE> 37
causes them to believe that (A) any material modifications should be
made to the Unaudited Financial Statements for them to be in
conformity with generally accepted accounting principles or (B) the
Unaudited Financial Statements do not comply as to form in all
material respects with the applicable accounting requirements of the
1933 Act, the 1933 Act Regulations, the 1934 Act and the 1934 Act
Regulations or (C) at a specified date not more than three days prior
to the date of this Agreement, there has been any change in the
capital stock of the Company or any increase in the long-term debt or
any decrease in the working capital or stockholders' equity of the
Company as compared with the amounts shown in the June 30, 1996
balance sheet included in the Registration Statement or, during the
period from July 1, 1996 to a specified date not more than three days
prior to the date of this Agreement, there were any decreases as
compared with the corresponding period in the preceding year, in
revenues, income from operations, net income or net income per share
of the Company, except in all instances for changes, increases or
decreases which the Registration Statement and the Prospectuses
disclose have occurred or may occur or which such letter discloses
have occurred; (iv) in addition to the examination referred to in
their opinions and the limited procedures referred to in clause (iii)
above, they have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts, percentages
and financial information which are included or incorporated by
reference in the Registration Statement and Prospectuses and which are
specified by the Representatives, and have found such amounts,
percentages and financial information to be in agreement with the
relevant accounting, financial and other records of the Company
identified in such letter; and (v) they have compared the information
included or incorporated by reference in the Prospectuses under
selected captions with the disclosure requirements of Regulation S-K
and on the basis of limited procedures specified in such letter
nothing came to their attention as a result of the foregoing
procedures that caused them to believe that this information does not
conform in all material respects with the disclosure requirements of
Items 301 and 402, respectively, of Regulation S-K.
(f) At Closing Time the Representatives shall have received
from Arthur Andersen LLP a letter, dated as of Closing Time, to the
effect that they reaffirm the statements made in the letter furnished
pursuant to subsection (e) of this Section, except that the specified
date referred to shall be a date not more than three days prior to
Closing Time and, if the Company has elected to rely on Rule 430A of
the 1933 Act Regulations, to the further effect that they have carried
out procedures as
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<PAGE> 38
specified in clause (iv) of subsection (e) of this Section with
respect to certain amounts, percentages and financial information
specified by the Representatives and deemed to be a part of the
Registration Statement pursuant to Rule 430(A)(b) and have found such
amounts, percentages and financial information to be in agreement with
the records specified in such clause (iv).
(g) At the Closing Time the Securities shall have been
approved for inclusion in the Nasdaq National Market and such approval
shall not have been withdrawn or limited.
(h) At Closing Time and at each Date of Delivery counsel for
the U.S. Underwriters shall have been furnished with such documents
and opinions as they may require for the purpose of enabling them to
pass upon the offer and sale of the U.S. Securities as contemplated
herein and the International Securities as contemplated in the
International Purchase Agreement and related proceedings, or the
fulfillment of any of the conditions herein or therein contained; and
all proceedings taken by the Company or the Selling Shareholders in
connection with the sale of the U.S. Securities as contemplated herein
and the International Securities as contemplated in the International
Purchase Agreement shall be reasonably satisfactory in form and
substance to the Representatives and counsel for the U.S.
Underwriters.
(i) In the event that the U.S. Underwriters exercise their
option provided in Section 2(b) hereof to purchase all or any portion
of the U.S. Option Securities, the representations and warranties of
the Company and the Selling Shareholders contained herein and the
statements in any certificates furnished by the Company and the
Selling Shareholders hereunder shall be true and correct as of each
Date of Delivery and, at the relevant Date of Delivery, the
Representatives shall have received:
(1) Certificates, dated such Date of Delivery, of
(x) the President or a Vice President of the Company and of
the chief financial or chief accounting officer of the Company
and (y) the Selling Shareholders confirming that the
certificates delivered at the Closing Time pursuant to Section
5(c) and 5(d) hereof, respectively, remain true and correct as
of such Date of Delivery.
(2) The favorable opinion of McDermott, Will &
Emery, counsel for the Company and the Selling Shareholders,
in form and substance satisfactory to counsel for the U.S.
Underwriters, dated such Date of
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<PAGE> 39
Delivery, relating to the U.S. Option Securities to be
purchased on such Date of Delivery and otherwise to the same
effect as the opinion required by Sections 5(b)(1) and 5(b)(3)
hereof.
(3) The favorable opinion of Mayer, Brown & Platt,
counsel for the U.S. Underwriters, dated such Date of
Delivery, relating to the U.S. Option Securities to be
purchased on such Date of Delivery and otherwise to the same
effect as the opinion required by Sections 5(b)(2) and 5(b)(3)
hereof.
(4) A letter from Arthur Andersen LLP, in form and
substance satisfactory to the Representatives and dated such
Date of Delivery, substantially the same in form and substance
as the letter furnished to the Representatives pursuant to
Section 5(e) hereof, except that the "specified date" in the
letter furnished pursuant to this Section 5(i)(4) shall be a
date not more than three days prior to such Date of Delivery.
If any condition specified in this Section shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be
terminated by the Representatives by notice to the Company and the Selling
Shareholders at any time at or prior to Closing Time, and such termination
shall be without liability of any party to any other party except as provided
in Section 4 and except that Sections 1, 3(k), 6, 7 and 8 shall survive any
such termination and remain in full force and effect.
SECTION 6. Indemnification.
(a) The Company and the Selling Shareholders jointly and severally
agree to indemnify and hold harmless each U.S. Underwriter and each person, if
any, who controls any U.S. Underwriter within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement
or alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the
information deemed to be part of the Registration Statement pursuant
to Rule 430A(b) or Rule 434 of the 1933 Act Regulations, if
applicable, or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the
statements therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact included in
any preliminary prospectus or prospectus, including the Prospectuses
(or any amendment or supplement
39
<PAGE> 40
thereto), or the omission or alleged omission therefrom of a material
fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or
threatened, or of any claim whatsoever based upon any such untrue
statement or omission, or any alleged untrue statement or omission;
provided that (subject to Section 6(d) below) any such settlement is
effected with the written consent of the indemnifying party and
parties; and
(iii) against any and all expense whatsoever, as incurred
(including, subject to the third sentence of Section 6(c) hereof, the
fees and disbursements of counsel chosen by Merrill Lynch), reasonably
incurred in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim whatsoever based
upon any such untrue statement or omission, or any such alleged untrue
statement or omission, to the extent that any such expense is not paid
under (i) or (ii) above;
provided, however, that (A) this indemnity agreement shall not apply to any
loss, liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to the
Company by any U.S. Underwriter through Merrill Lynch expressly for use in the
Registration Statement (or any amendment thereto) or any preliminary prospectus
or the Prospectuses (or any amendment or supplement thereto), (B) this
indemnity agreement, with respect to any preliminary prospectus, shall not
apply to any loss, liability, claim, damage or expense if a copy of the U.S.
Prospectus (as then amended or supplemented, if the Company shall have
furnished any amendments or supplements thereto to such U.S. Underwriter) was
not sent or given by or on behalf of such U.S. Underwriter to the person
asserting any such loss, liability, claim, damage or expense if such is
required by law at or prior to the written confirmation of the sale of such
U.S. Securities to such person and if the U.S. Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss, liability,
claim, damage or expense, and (C) the obligations of each Selling Shareholder
for indemnification pursuant to this Section 6, for contribution pursuant to
Section 7 and for any breach of the representation and warranty of such Selling
Shareholder set forth
40
<PAGE> 41
in Section 1(b)(vi) of this Agreement (to the extent such breach does not also
constitute a breach of any other representation and warranty of such Selling
Shareholder) (together with any liability of such Selling Shareholder under
Section 6 of the International Purchase Agreement or for any breach of the
representation and warranty set forth in Section 1(b)(vi) of the International
Purchase Agreement (to the extent such breach does not also constitute a breach
of any other representation and warranty of such Selling Shareholder)) shall be
limited to the net proceeds received by such Selling Shareholder from the sale
of his or its Securities pursuant to this Agreement and the International
Purchase Agreement.
In making a claim for indemnification under this Section 6 or
contribution under Section 7 hereof by the Company or the Selling Shareholders,
the indemnified parties may proceed against either (1) both the Company and the
Selling Shareholders jointly or (2) the Company only, but may not proceed
solely against the Selling Shareholders. In the event that the indemnified
parties are entitled to seek indemnity or contribution hereunder against any
loss, liability, claim, damage and expense incurred with respect to a final
judgment from a trial court then, as a precondition to any indemnified party
obtaining indemnification or contribution from any Selling Shareholder, the
indemnified parties shall first obtain a final judgment from a trial court that
such indemnified parties are entitled to indemnity or contribution under this
Agreement with respect to such loss, liability, claim, damage or expense (the
"Final Judgment") from the Company and the Selling Shareholders and shall seek
to satisfy such Final Judgment in full from the Company by making a written
demand upon the Company for such satisfaction. Only in the event such Final
Judgment shall remain unsatisfied in whole or in part 30 days following the
date of receipt by the Company of such demand shall any party entitled to
indemnification hereunder have the right to take action to satisfy such Final
Judgment by making demand directly on the Selling Shareholders (but only if and
to the extent the Company has not already satisfied such Final Judgment,
whether by settlement, release or otherwise). The indemnified parties shall,
however, be relieved of their obligation to first obtain a Final Judgment, to
seek to obtain payment from the Company with respect to such Final Judgment or,
having sought such payment, to wait such 30 days after failure by the Company
to immediately satisfy any such Final Judgment if (A) the Company files a
petition for relief under the United States Bankruptcy Code (the "Bankruptcy
Code"), (B) an order for relief is entered against the Company in an
involuntary case under the Bankruptcy Code, (C) the Company makes an assignment
for the benefit of its creditors, or (D) any court orders or approves the
appointment of a receiver or custodian for the Company or a substantial portion
of its assets. The foregoing provisions of this paragraph are not intended to
41
<PAGE> 42
require any indemnified party to obtain a Final Judgement against the Company
or the Selling Shareholders before obtaining reimbursement of expenses pursuant
to clause (a)(iii) of this Section 6. However, the indemnified parties shall
first seek to obtain such reimbursement in full from the Company by making a
written demand upon the Company for such reimbursement. Only in the event such
expenses shall remain unreimbursed in whole or in part 30 days following the
date of receipt by the Company of such demand shall any indemnified party have
the right to receive reimbursement of such expenses from the Selling
Shareholders by making written demand directly on the Selling Shareholders (but
only if and to the extent the Company has not already satisfied the demand for
reimbursement, whether by settlement, release or otherwise). The indemnified
parties shall, however, be relieved of their obligation to first seek to obtain
such reimbursement in full from the Company or, having made written demand
therefor, to wait such 30 days after failure by the Company to immediately
reimburse such expenses if (I) the Company files a petition for relief under
the Bankruptcy Code, (II) an order for relief is entered against the Company in
an involuntary case under the Bankruptcy Code, (III) the Company makes an
assignment for the benefit of its creditors, or (IV) any court orders or
approves the appointment of a receiver or custodian for the Company or a
substantial portion of its assets.
(b) Each U.S. Underwriter severally agrees to indemnify and hold
harmless the Company, its directors, each of its officers who signed the
Registration Statement, each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, each
Selling Shareholder and each Trustee against any and all loss, liability,
claim, damage and expense described in the indemnity contained in subsection
(a) of this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto) or any preliminary U.S. prospectus or the
U.S. Prospectus (or any amendment or supplement thereto) in reliance upon and
in conformity with written information furnished to the Company by such U.S.
Underwriter through Merrill Lynch expressly for use in the Registration
Statement (or any amendment thereto) or such preliminary prospectus or the U.S.
Prospectus (or any amendment or supplement thereto).
(c) Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder, but failure
to so notify an indemnifying party shall not relieve such indemnifying party
from any liability hereunder to the extent it is not materially prejudiced as a
result thereof and in any event shall not relieve it from any liability which
it may have otherwise than on account of this indemnity agreement.
42
<PAGE> 43
If it so elects within a reasonable time after receipt of such notice, an
indemnifying party may assume the defense of such action, with counsel chosen
by it, unless the indemnified parties reasonably object to such assumption on
the grounds that there are legal defenses available to them which are different
from, or in addition to, those available to such indemnifying party. If the
indemnifying party assumes the defense of such action, the indemnifying parties
shall not be liable for any fees and expenses of counsel for the indemnified
parties incurred thereafter in connection with such action. In no event shall
the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances. No indemnifying party shall, without the
prior written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever in respect of which indemnification or
contribution could be sought under this Section 6 or Section 7 hereof (whether
or not the indemnified parties are actual or potential parties thereto), unless
such settlement, compromise or consent (i) includes an unconditional release of
each indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of
any indemnified party.
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 6(a)(ii) effected without its
written consent if (i) such settlement is entered into more than 45 days after
receipt by such indemnifying party of the aforesaid request, (ii) such
indemnifying party shall have received notice of the terms of such settlement
at least 30 days prior to such settlement being entered into and (iii) such
indemnifying party shall not have reimbursed such indemnified party in
accordance with such request prior to the date of such settlement.
Notwithstanding the immediately preceding sentence, if at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, an indemnifying party shall
not be liable for any settlement of the nature contemplated by Section 6(a)(ii)
effected without its consent if such indemnifying party (i) reimburses such
indemnified party in accordance with such request to the extent it considers
such request to be reasonable and (ii) provides written notice to the
indemnified party substantiating
43
<PAGE> 44
the unpaid balance as unreasonable, in each case prior to the date of such
settlement.
(e) The provisions of this Section shall not affect any agreement
among the Company and the Selling Shareholders with respect to indemnification.
SECTION 7. Contribution. If the indemnification provided for in
Section 6 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Shareholders on the one hand and the U.S. Underwriters
on the other hand from the offering of the U.S. Securities pursuant to this
Agreement or (ii) if the allocation provided by clause (i) is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault
of the Company and the Selling Shareholders on the one hand and of the U.S.
Underwriters on the other hand in connection with the statements or omissions
which resulted in such losses, liabilities, claims, damages or expenses, as
well as any other relevant equitable considerations.
The relative benefits received by the Company and the Selling
Shareholders on the one hand and the U.S. Underwriters on the other hand in
connection with the offering of the U.S. Securities pursuant to this Agreement
shall be deemed to be in the same respective proportions as the total net
proceeds from the offering of the U.S. Securities pursuant to this Agreement
(before deducting expenses) received by the Selling Shareholders and the total
underwriting discount received by the U.S. Underwriters, in each case as set
forth on the cover of the U.S. Prospectus, bear to the aggregate initial public
offering price of the U.S. Securities as set forth on such cover.
The relative fault of the Company and the Selling Shareholders on the
one hand and the U.S. Underwriters on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Company or the Selling
Shareholders or by the U.S. Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company, the Selling Shareholders and the U.S. Underwriters agree
that it would not be just and equitable if
44
<PAGE> 45
contribution pursuant to this Section 7 were determined by pro rata allocation
(even if the U.S. Underwriters were treated as one entity for such purpose) or
by any other method of allocation which does not take account of the equitable
considerations referred to above in this Section 7. The aggregate amount of
losses, liabilities, claims, damages and expenses incurred by an indemnified
party and referred to above in this Section 7 shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged
untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no U.S. Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the U.S. Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such U.S. Underwriter has otherwise been required to pay by reason of any such
untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls a
U.S. Underwriter within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act shall have the same rights to contribution as such U.S.
Underwriter, each director of the Company, each officer of the Company who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act shall have the same rights to contribution as the Company and each
Trustee shall have the same rights to contribution as the Selling Shareholder
that is a trust of which such Trustee is a Trustee. The U.S. Underwriters'
respective obligations to contribute pursuant to this Section 7 are several in
proportion to the number of Initial U.S. Securities set forth opposite their
respective names in Schedule A hereto and not joint.
Notwithstanding the provisions of this Section 7, each Selling
Shareholder's liability for contribution shall be limited as specified in
clause (C) of the proviso to Section 6(a). Any claim for contribution
pursuant to this Section 7 against any of the Selling Shareholders may be made
only in accordance with the last paragraph of Section 6(a).
45
<PAGE> 46
The provisions of this Section shall not affect any agreement among
the Company and the Selling Shareholders with respect to contribution.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement and the U.S. Pricing Agreement, or contained in certificates of
officers of the Company or the Selling Shareholders submitted pursuant hereto,
shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of any U.S. Underwriter or controlling
person, or by or on behalf of the Company or the Selling Shareholders, and
shall survive delivery of the U.S. Securities to the U.S. Underwriters.
SECTION 9. Termination of Agreement.
(a) The Representatives may terminate this Agreement, by notice to
the Company and the Selling Shareholders, at any time at or prior to Closing
Time (i) if there has been, since the time of execution of this Agreement or
since the respective dates as of which information is given in the U.S.
Prospectus, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, or (ii) if there has occurred any
material adverse change in the financial markets in the United States or the
international financial markets, any outbreak of hostilities or escalation
thereof or other calamity or crisis or any change or development involving a
prospective change in national or international political, financial or
economic conditions, in each case the effect of which is such as to make it, in
the judgment of the Representatives, impracticable to market the Securities or
to enforce contracts for the sale of the Securities, or (iii) if trading in the
Common Shares has been suspended or materially limited by the Commission or the
Nasdaq National Market, or if trading generally on the American Stock Exchange
or the New York Stock Exchange or in the Nasdaq National Market has been
suspended or materially limited, or minimum or maximum prices for trading have
been fixed, or maximum ranges for prices for securities have been required, by
any of said exchanges or by such system or by order of the Commission, the NASD
or any other governmental authority, or (iv) if a banking moratorium has been
declared by either Federal, New York or Illinois authorities. As used in this
Section 9(a), the term "U.S. Prospectus" means the U.S. Prospectus in the form
first used to confirm sales of the U.S. Securities.
(b) If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party
46
<PAGE> 47
to any other party except as provided in Section 4 hereof. Notwithstanding any
such termination, the provisions of Sections 1, 3(k), 6, 7 and 8 hereof shall
remain in effect.
SECTION 10. Default by One or More of the U.S. Underwriters. If one
or more of the U.S. Underwriters shall fail at Closing Time or a Date of
Delivery to purchase the Securities which it or they are obligated to purchase
under this Agreement and the U.S. Pricing Agreement (the "Defaulted
Securities"), the Representatives shall have the right, within 24 hours
thereafter, to make arrangements for one or more of the non-defaulting U.S.
Underwriters, or any other underwriters, to purchase all, but not less than
all, of the Defaulted Securities in such amounts as may be agreed upon and upon
the terms herein set forth; if, however, the Representatives shall not have
completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10%
of the number of U.S. Securities to be purchased on such date, each of
the non-defaulting U.S. Underwriters shall be obligated, severally and
not jointly, to purchase the full amount thereof in the proportions
that their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting U.S. Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
number of U.S. Securities to be purchased on such date, this Agreement
or, with respect to any Date of Delivery which occurs after the
Closing Time, the obligation of the U.S. Underwriters to purchase and
of the relevant Selling Shareholders to sell the Option Securities to
be purchased and sold on such Date of Delivery shall terminate without
liability on the part of any non-defaulting U.S. Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
U.S. Underwriter from liability in respect of its default.
In the event of any such default which does not result in a
termination of this Agreement or, in the case of a Date of Delivery which is
after the Closing Time, which does not result in a termination of the
obligation of the U.S. Underwriters to purchase and the relevant Selling
Shareholders to sell the relevant U.S. Option Securities, as the case may be,
either (i) the Representatives or (ii) the Company and any Selling Shareholder
shall have the right to postpone Closing Time for a period not exceeding seven
days in order to effect any required changes in the Registration Statement or
Prospectuses or in any other documents or arrangements. As used herein, the
term "U.S.
47
<PAGE> 48
Underwriter" includes any person substituted for a U.S. Underwriter under this
Section 10.
SECTION 11. Default by One or More of the Selling Shareholders. If a
Selling Shareholder shall fail at Closing Time or at a Date of Delivery to sell
and deliver the number of U.S. Securities that such Selling Shareholder or
Selling Shareholders are obligated to sell hereunder, and the remaining Selling
Shareholders do not exercise the right hereby granted to increase, pro rata or
otherwise, the number of U.S. Securities to be sold by them hereunder to the
total number to be sold by all Selling Shareholders as set forth in Schedule B
hereto, then the U.S. Underwriters may, at the option of the Representatives,
by notice from the Representatives to the Company and the non-defaulting
Selling Shareholders, either (a) terminate this Agreement without any liability
on the part of any non-defaulting party except that the provisions of Sections
1, 3(k), 4, 6, 7 and 8 shall remain in full force and effect or (b) elect to
purchase the U.S. Securities which the non-defaulting Selling Shareholders have
agreed to sell hereunder. No action taken pursuant to this Section 11 shall
relieve any Selling Shareholder so defaulting from liability, if any, in
respect of such default.
In the event of any default by any Selling Shareholder as referred to
in this Section 11, each of the Representatives, the Company and the
non-defaulting Selling Shareholders shall have the right to postpone Closing
Time or Date of Delivery for a period not exceeding seven days in order to
effect any required change in the Registration Statement or Prospectuses or in
any other documents or arrangements.
SECTION 12. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the U.S.
Underwriters shall be directed to the Representatives at Merrill Lynch & Co.,
5500 Sears Tower, Chicago, Illinois 60606, attention of Jeffrey C. Neal;
notices to the Company shall be directed to it at APAC TeleServices, Inc., One
Parkway North Center, Suite 510, Deerfield, Illinois 60015, attention of Marc
S. Simon; notices to any Selling Shareholder which is not a trust shall be
directed to Theodore G. Schwartz and Marc S. Simon, One Parkway North Center,
Suite 510, Deerfield, Illinois 60015; and notices to the Selling Shareholders
which are trusts shall be directed to M. Christine Schwartz c/o TCS Group,
L.L.C., 1200 Shermer Road, Suite 212, Northbrook, Illinois 60062.
SECTION 13. Parties. This Agreement and the U.S. Pricing Agreement
shall each inure to the benefit of and be binding upon the U.S. Underwriters,
the Company and the Selling Shareholders and their respective successors, heirs
and legal representatives.
48
<PAGE> 49
Nothing expressed or mentioned in this Agreement or the U.S. Pricing Agreement
is intended or shall be construed to give any person, firm or corporation,
other than the U.S. Underwriters, the Company and the Selling Shareholders and
their respective successors, heirs and legal representatives and the
controlling persons, officers and directors and Trustees referred to in
Sections 6 and 7 and their respective successors, heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or the U.S. Pricing Agreement or any provision herein
or therein contained. This Agreement and the U.S. Pricing Agreement and all
conditions and provisions hereof and thereof are intended to be for the sole
and exclusive benefit of the U.S. Underwriters, the Company and the Selling
Shareholders and their respective successors, heirs and legal representatives
and said controlling persons, officers and directors and Trustees and their
respective successors, heirs and legal representatives, and for the benefit of
no other person, firm or corporation. No purchaser of U.S. Securities from any
U.S. Underwriter shall be deemed to be a successor by reason merely of such
purchase.
SECTION 14. GOVERNING LAW AND TIME. THIS AGREEMENT AND THE PRICING
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK. SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
49
<PAGE> 50
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to each of the Company and the Selling
Shareholders, a counterpart hereof, whereupon this instrument, along with all
counterparts, will become a binding agreement among the U.S. Underwriters, the
Company and the Selling Shareholders in accordance with its terms.
Very truly yours,
APAC TELESERVICES, INC.
By:
-------------------------------------
Title:
----------------------------------------
Theodore G. Schwartz
----------------------------------------
M. Christine Schwartz, not individually,
but solely as Co-Trustee of the Trust
Seven Hundred Thirty U/A/D 4/2/94
----------------------------------------
Robert H. Wicklein, not individually,
but solely as Co-Trustee of the Trust
Seven Hundred Thirty U/A/D 4/2/94
----------------------------------------
John J. Abens, not individually, but
solely as Co-Trustee of the Trust Seven
Hundred Thirty U/A/D 4/2/94
----------------------------------------
Heidi Schoeffer, not individually,
but solely as Co-Trustee of the Trust
Seven Hundred Thirty U/A/D 4/2/94
----------------------------------------
M. Christine Schwartz, not individually,
but solely as Co-Trustee of the Trust
Four Hundred Thirty U/A/D 4/2/94
50
<PAGE> 51
----------------------------------------
Robert H. Wicklein, not individually,
but solely as Co-Trustee of the Trust
Four Hundred Thirty U/A/D 4/2/94
----------------------------------------
John J. Abens, not individually, but
solely as Co-Trustee of the Trust Four
Hundred Thirty U/A/D 4/2/94
----------------------------------------
Heidi Schoeffer, not individually, but
solely as Co-Trustee of the Trust Four
Hundred Thirty U/A/D 4/2/94
----------------------------------------
M. Christine Schwartz, not individually,
but solely as Trustee of the Schwartz
1996 Charitable Remainder Unitrust
----------------------------------------
Marc S. Simon
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
LEHMAN BROTHERS INC.
SMITH BARNEY INC.
WILLIAM BLAIR & COMPANY, L.L.C.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
----------------------------------------
Authorized Signatory
For themselves and as Representatives of the other
U.S. Underwriters named in Schedule A hereto.
51
<PAGE> 52
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Initial U.S.
Name of U.S. Underwriter Securities
------------------------ ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated . . . . . . . . . . . . . . . . . .
Lehman Brothers Inc. . . . . . . . . . . . . . . . . . . . . .
Smith Barney Inc. . . . . . . . . . . . . . . . . . . . . .
William Blair & Company, L.L.C. . . . . . . . . . . . . . . . .
---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,280,000
=========
</TABLE>
Sch A - 1
<PAGE> 53
SCHEDULE B
<TABLE>
<CAPTION>
Number of Maximum
Initial Number of
U.S. U.S. Option
Securities Securities
Name to be sold to be sold
---- ---------- ----------
<S> <C> <C>
Theodore G. Schwartz . . . . . . . . . . . . . . . . . . . . . 720,000
Schwartz 1996 Charitable
Remainder Unitrust . . . . . . . . . . . . . . . . . . . . . 880,000 480,000
Trust Seven Hundred Thirty
U/A/D 4/2/94 . . . . . . . . . . . . . . . . . . . . 800,000
Trust Four Hundred Thirty
U/A/D 4/2/94 . . . . . . . . . . . . . . . . . . . . 800,000
Marc S. Simon . . . . . . . . . . . . . . . . . . . . . 80,000 12,000
--------- --------
Total . . . . . . . . . . . . . . . . . . 3,280,000 492,000
========= ========
</TABLE>
Sch B - 1
<PAGE> 54
SCHEDULE C
Certain Clients of the Company
J.C. Penney Life Insurance Company (each contract with J.C.
Penney Life Insurance Company includes an exhibit thereto
regarding the services to be performed for Mass Marketing
Insurance)
American Bankers Life Assurance Company
Discover Card Services, Inc.
Western Union Financial Services, Inc.
United Parcel Service General Services Company
Chevy Chase Bank
Quill Corporation
John H. Harland Corporation
AT&T
Sch C - 1
<PAGE> 55
SCHEDULE D
Certain Contracts and Other Agreements
1. Credit Agreement, dated as of June 5, 1996, among APAC TeleServices,
Inc., the Lenders party thereto and Harris Trust and Savings Bank.
2. APAC TeleServices, Inc. Revolving Note (Facility A) dated as of _____,
19 __.
3. APAC TeleServices, Inc. Revolving Note (Facility B) dated as of _____,
19 __.
4. APAC TeleServices, Inc. Facility B Term Note dated as of _____, 19 __.
5. All Industrial Revenue Bonds described in the "Notes to Financial
Statements" contained in the Prospectus.
6. Registration Rights Agreement dated as of October 3, 1995 between APAC
TeleServices, Inc., Theodore G. Schwartz and the Co-Trustees of the
1994 Schwartz Family Trust No. 1 u/a/d April 2, 1994 and the 1994
Schwartz Family Trust No. 2 u/a/d April 2, 1994, as co-trustees.
7. Tax Agreement dated as of October 2, 1995 between APAC TeleServices,
Inc., Theodore G. Schwartz and the Co-Trustees of the 1994 Schwartz
Family Trust No. 1 u/a/d April 2, 1994 and the 1994 Schwartz Family
Trust No. 2 u/a/d April 2, 1994, as co-trustees.
8. Each contract and agreement between the Company and the following
clients of the Company:
J.C. Penney Life Insurance Company (each contract with J.C.
Penney Life Insurance Company includes an exhibit thereto
regarding the services to be performed for Mass Marketing
Insurance)
American Bankers Life Assurance Company
Discover Card Services, Inc.
Western Union Financial Services, Inc.
United Parcel Service General Services Company
AT&T
John H. Harland Corporation
Chevy Chase Bank
Quill Corporation
Sch D - 1
<PAGE> 56
Exhibit A
3,280,000 Shares
APAC TELESERVICES, INC.
(an Illinois corporation)
Common Shares
(Par Value $.01 Per Share)
PRICING AGREEMENT
-----------------
_______, 1996
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
LEHMAN BROTHERS INC.
SMITH BARNEY INC.
WILLIAM BLAIR & COMPANY, L.L.C.
as Representatives of the several U.S. Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281-1209
Dear Sirs:
Reference is made to the U.S. Purchase Agreement dated _______, 1996
(the "U.S. Purchase Agreement") relating to the purchase by the several U.S.
Underwriters named in Schedule A thereto, for whom you are acting as
representatives (the "Representatives"), of the above Common Shares (the
"Initial U.S. Securities"), of APAC TeleServices, Inc., an Illinois corporation
(the "Company").
Pursuant to Section 2 of the U.S. Purchase Agreement, the Company and
the Selling Shareholders named in Schedule B to the U.S. Purchase Agreement
(the "Selling Shareholders") agree with each U.S. Underwriter as follows:
Exh. A - 1
<PAGE> 57
1. The initial public offering price per share for the Initial
U.S. Securities, determined as provided in said Section 2, shall be
$_________________.
2. The purchase price per share for the Initial U.S. Securities
to be paid by the several U.S. Underwriters shall be $ ,
being an amount equal to the initial public offering price set forth
above less $ per share.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York applicable to agreements made and to be
performed in said State.
Exh. A - 2
<PAGE> 58
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company and the Selling Shareholders,
a counterpart hereof, whereupon this instrument, along with all counterparts,
will become a binding agreement among the U.S. Underwriters, the Company and
the Selling Shareholders in accordance with its terms.
Very truly yours,
APAC TELESERVICES, INC.
By:
-------------------------------------
Title:
----------------------------------------
Theodore G. Schwartz
----------------------------------------
M. Christine Schwartz, not
individually, but solely as
Co-Trustee of the Trust Seven
Hundred Thirty U/A/D 4/2/94
----------------------------------------
Robert H. Wicklein, not
individually, but solely as
Co-Trustee of the Trust Seven
Hundred Thirty U/A/D 4/2/94
----------------------------------------
John J. Abens, not
individually, but solely as
Co-Trustee of the Trust Seven
Hundred Thirty U/A/D 4/2/94
----------------------------------------
Heidi Schoeffer, not
individually, but solely as
Co-Trustee of the Trust Seven
Hundred Thirty U/A/D 4/2/94
Exh. A - 3
<PAGE> 59
----------------------------------------
M. Christine Schwartz, not
individually, but solely as
Co-Trustee of the Trust Four
Hundred Thirty U/A/D 4/2/94
----------------------------------------
Robert H. Wicklein, not
individually, but solely as
Co-Trustee of the Trust Four
Hundred Thirty U/A/D 4/2/94
----------------------------------------
John J. Abens, not
individually, but solely as
Co-Trustee of the Trust Four
Hundred Thirty U/A/D 4/2/94
----------------------------------------
Heidi Schoeffer, not
individually, but solely as
Co-Trustee of the Trust Four
Hundred Thirty U/A/D 4/2/94
----------------------------------------
M. Christine Schwartz, not
individually, but solely as
Trustee of the Schwartz 1996
Charitable Remainder Unitrust
----------------------------------------
Marc S. Simon
Exh. A - 4
<PAGE> 60
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
LEHMAN BROTHERS INC.
SMITH BARNEY INC.
WILLIAM BLAIR & COMPANY, L.L.C.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
--------------------------------
Authorized Signatory
For themselves and as Representatives of the
other U.S. Underwriters named in the Purchase Agreement
Exh. A - 5
<PAGE> 1
EXHIBIT 1.2
820,000 Shares
APAC TELESERVICES, INC.
(an Illinois corporation)
Common Shares
(Par Value $.01 Per Share)
INTERNATIONAL PURCHASE AGREEMENT
--------------------------------
, 1996
--------------
MERRILL LYNCH INTERNATIONAL
LEHMAN BROTHERS INTERNATIONAL (EUROPE)
SMITH BARNEY INC.
WILLIAM BLAIR & COMPANY, L.L.C.
as Lead Managers of the several Managers
c/o Merrill Lynch International
Ropemaker Place
25 Ropemaker Street
London EC2Y 9LY
ENGLAND
Dear Sirs:
APAC TeleServices, Inc., a United States company incorporated
in the State of Illinois (the "Company"), and each of the shareholders of the
Company named in Schedule B hereto (the "Selling Shareholders"), confirm their
respective agreements with you and each of the other underwriters named in
Schedule A hereto (collectively, the "Managers," which term shall also include
any underwriter substituted as hereinafter provided in Section 10), for whom
you are acting as lead managers (in such capacity, the "Lead Managers"), with
respect to the sale by the Selling Shareholders, acting severally and not
jointly, and the purchase by the Managers, acting severally and not jointly, of
the respective number of Common Shares, par value $.01 per share, of the
Company (the "Common Shares") set forth in said Schedules A and B hereto and
with respect to the grant by certain of the
<PAGE> 2
Selling Shareholders to the Managers, acting severally and not jointly, of the
option described in Section 2(b) hereof to purchase all or any part of 123,000
additional Common Shares to cover over-allotments, if any, in each case except
as may otherwise be provided in the International Pricing Agreement, as
hereinafter defined. The 820,000 Common Shares (the "Initial International
Securities") to be purchased by the Managers and all or any part of the 123,000
Common Shares subject to the option described in Section 2(b) hereof (the
"International Option Securities") are collectively hereinafter called the
"International Securities".
It is understood that the Company and the Selling Shareholders
are concurrently entering into an agreement dated the date hereof (the "U.S.
Purchase Agreement") providing for the offering by the Selling Shareholders of
3,280,000 Common Shares (the "Initial U.S. Securities") through arrangements
with certain underwriters in the United States (the "U.S. Underwriters") for
which Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), Lehman Brothers Inc., Smith Barney Inc. and William Blair &
Company, L.L.C. are acting as representatives (the "U.S. Representatives") and
the grant by certain of the Selling Shareholders to the U.S. Underwriters,
acting severally and not jointly, of an option to purchase all or any part of
the U.S. Underwriters' pro rata portion of up to 492,000 additional Common
Shares solely to cover over-allotments, if any (the "U.S. Option Securities"
and, together with the International Option Securities, the "Option
Securities"). The Initial U.S. Securities and the U.S. Option Securities are
hereinafter called the "U.S. Securities". It is understood that the Selling
Shareholders are not obligated to sell, and the Managers are not obligated to
purchase, any Initial International Securities unless all of the Initial U.S.
Securities are contemporaneously purchased by the U.S. Underwriters.
The Managers and the U.S. Underwriters are hereinafter
collectively called the "Underwriters", the Initial U.S. Securities and the
Initial International Securities are hereinafter collectively called the
"Initial Securities" and the International Securities and the U.S. Securities
are hereinafter collectively called the "Securities".
Prior to the purchase and public offering of the International
Securities by the several Managers, the Company, the Selling Shareholders and
the Lead Managers, acting on behalf of the several Managers, shall enter into
an agreement substantially in the form of Exhibit A hereto (the "International
Pricing Agreement"). The International Pricing Agreement may take the form of
an exchange of any standard form of written telecommunication among the
Company, the Selling Shareholders and the Lead Managers and shall specify such
applicable information
-2-
<PAGE> 3
as is indicated in Exhibit A hereto. The offering of the International
Securities will be governed by this Agreement, as supplemented by the
International Pricing Agreement. From and after the date of the execution and
delivery of the International Pricing Agreement, this Agreement shall be deemed
to incorporate the International Pricing Agreement. The initial public
offering price and the purchase price with respect to the U.S. Securities shall
be set forth in a separate instrument (the "U.S. Pricing Agreement"), the form
of which is attached to the U.S. Purchase Agreement.
The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-3 (No.
333-14097) and related preliminary prospectuses for the registration of the
Securities under the Securities Act of 1933 (the "1933 Act"), has filed such
amendments thereto, if any, and such amended preliminary prospectuses as may
have been required to the date hereof, and will file such additional amendments
thereto and such amended prospectuses as may hereafter be required pursuant to
this Agreement, the 1933 Act or otherwise. Such registration statement (as
amended, if applicable) and the two prospectuses constituting a part thereof
(including in each case all documents incorporated or deemed to be incorporated
therein by reference and the information, if any, deemed to be part thereof
pursuant to Rule 430A(b) or Rule 434 of the rules and regulations of the
Commission under the 1933 Act (the "1933 Act Regulations")), as from time to
time amended or supplemented pursuant to the 1933 Act, the Securities Exchange
Act of 1934, as amended (the "1934 Act"), or otherwise, are hereinafter
referred to as the "Registration Statement", the "International Prospectus" and
the "U.S. Prospectus", respectively, and the International and U.S.
Prospectuses are hereinafter together called "Prospectuses" and, each
individually, a Prospectus except that if any revised prospectuses shall be
provided to the Managers or the U.S. Underwriters by the Company for use in
connection with the offering of the Securities which differs from the
Prospectuses on file at the Commission at the time the Registration Statement
becomes effective (whether or not such revised prospectus is required to be
filed by the Company pursuant to Rule 424(b) of the 1933 Act Regulations), the
terms "International Prospectus" and "U.S. Prospectus" shall refer to each such
revised prospectus from and after the time it is first provided to the Managers
or the U.S. Underwriters, as the case may be, for such use. If the Company
elects to rely on Rule 434 under the 1933 Act Regulations, all references to
the Prospectuses shall be deemed to include, without limitation, the form of
prospectuses and the term sheets, taken together, provided to the Managers and
the U.S. Underwriters by the Company in reliance on Rule 434 under the 1933 Act
(the "Rule 434 Prospectuses"). If the Company files a registration statement
to register a portion of the Securities and relies on Rule 462(b)
-3-
<PAGE> 4
for such registration statement to become effective upon filing with the
Commission (the "Rule 462 Registration Statement"), then any reference to
"Registration Statement" herein shall be deemed to include both the
registration statement referred to above (No. 333-14097) and the Rule 462
Registration Statement, as each such registration statement may be amended
pursuant to the 1933 Act, the 1934 Act, or otherwise. For purposes of this
Agreement, all references to the Registration Statement, any preliminary
prospectuses, the Prospectuses or any term sheets or any amendment or
supplement to any of the foregoing shall be deemed to include the copy filed
with the Commission pursuant to its Electronic Data Gathering, Analysis and
Retrieval system ("EDGAR").
All references in this Agreement to financial statements and
schedules and other information which is "contained", "included", "described"
or "stated" in the Registration Statement, any preliminary prospectus or the
Prospectuses (or other references of like import) shall be deemed to mean and
include all such financial statements and schedules and other information which
is incorporated by reference in the Registration Statement, any preliminary
prospectus or the Prospectuses, as the case may be; and all references in this
Agreement to amendments or supplements to the Registration Statement, any
preliminary prospectus or the Prospectuses shall be deemed to mean and include
the filing of any document under the 1934 Act which is or is deemed to be
incorporated by reference in the Registration Statement, such preliminary
prospectus or the Prospectuses, as the case may be.
The Company and the Selling Shareholders understand that the
Managers propose to make a public offering of the International Securities as
soon as the Lead Managers deem advisable after the Registration Statement
becomes effective and the International Pricing Agreement has been executed and
delivered. The price per share for the U.S. Securities to be purchased by the
U.S. Underwriters pursuant to the U.S. Purchase Agreement shall be identical to
the price per share for the International Securities to be purchased by the
Managers hereunder.
SECTION 1. Representations and Warranties.
(a) The Company represents and warrants to each of the
Managers as of the date hereof and as of the date of the International Pricing
Agreement (such latter date being hereinafter referred to as the "International
Representation Date") as follows:
(i) The Company meets the requirements for use of
Form S-3 under the 1933 Act. At the respective times the
Registration Statement and any post-effective amendments
thereto become effective and at the International
-4-
<PAGE> 5
Representation Date, the Registration Statement will comply in
all material respects with the requirements of the 1933 Act
and the 1933 Act Regulations and will not contain an untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading. The Prospectuses, at the
International Representation Date (unless the term
"Prospectuses" refers to prospectuses which have been provided
to the Managers and the U.S. Underwriters by the Company for
use in connection with the offering of the Securities which
differ from the Prospectuses on file at the Commission at the
time the Registration Statement becomes effective, in which
case at the time such prospectuses are first provided to the
Managers and the U.S. Underwriters for such use) and at
Closing Time referred to in Section 2 hereof, will not include
an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements
therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that the
representations and warranties in this subsection shall not
apply to statements in or omissions from the Registration
Statement or Prospectuses made in reliance upon and in
conformity with information furnished to the Company in
writing by the Managers through the Lead Managers expressly
for use in the Registration Statement or the Prospectuses.
(ii) The documents incorporated or deemed to be
incorporated by reference in the Prospectuses, at the time
they were or hereafter are filed with the Commission, complied
and will comply in all material respects with the requirements
of the 1934 Act and the rules and regulations of the
Commission thereunder (the "1934 Act Regulations") and, when
read together with the other information in the Prospectuses,
at the time the Registration Statement and any post-effective
amendments thereto become effective and at the Closing Time
will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(iii) The accountants who certified the financial
statements and supporting schedules included or incorporated
by reference in the Registration Statement are independent
public accountants as required by the 1933 Act and the 1933
Act Regulations.
(iv) The historical financial statements included or
incorporated by reference in the Registration Statement and
the Prospectuses, together with the related schedules and
-5-
<PAGE> 6
notes, present fairly the financial position of the Company at
the dates indicated and the statement of operations,
stockholders' equity and cash flows of the Company for the
periods specified; except as otherwise stated in the
Registration Statement, said financial statements have been
prepared in conformity with generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout
the periods involved. The supporting schedules, if any,
included in the Registration Statement present fairly in
accordance with GAAP the information required to be stated
therein. The historical Income Statement Data and Balance
Sheet Data contained in the Registration Statement under the
captions "Summary Financial and Operating Data" and "Selected
Financial and Operating Data" and the historical Income
Statement Data under the caption "Recent Developments" in the
Registration Statement have been compiled on a basis
consistent with that of the audited financial statements
included in the Registration Statement.
(v) Since the respective dates as of which
information is given in the Registration Statement and the
Prospectuses, except as otherwise stated therein, (A) there
has been no material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs
or business prospects of the Company and its subsidiaries
considered as one enterprise, whether or not arising in the
ordinary course of business, (B) there have been no
transactions entered into by the Company or any of its
subsidiaries, other than those in the ordinary course of
business, which are material with respect to the Company and
its subsidiaries considered as one enterprise, and (C) there
has been no dividend or distribution of any kind declared,
paid or made by the Company on any class of its capital stock.
(vi) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the State of Illinois and has the corporate power and
authority to own, lease and operate its properties and to
conduct its business as described in the Prospectuses and to
enter into and perform its obligations under this Agreement,
the International Pricing Agreement, the U.S. Purchase
Agreement and the U.S. Pricing Agreement; the Company is duly
qualified as a foreign corporation to transact business and is
in good standing in the State of Iowa; and the Company is duly
qualified as a foreign corporation to transact business and is
in good standing in each other jurisdiction in which such
qualification is required, whether by reason of the ownership
or leasing of property or the conduct of business, except
where the failure so to qualify or to be in good standing
would not have a material adverse effect on the condition,
financial
-6-
<PAGE> 7
or otherwise, or the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as
one enterprise.
(vii) Each subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease
and operate its properties and to conduct its business and is
duly qualified as a foreign corporation to transact business
and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership
or leasing of property or the conduct of business, except
where the failure so to qualify or to be in good standing
would not have a material adverse effect on the condition,
financial or otherwise, or the earnings, business affairs or
business prospects of the Company and its subsidiaries
considered as one enterprise; all of the issued and
outstanding capital stock of each such subsidiary has been
duly authorized and validly issued, is fully paid and
non-assessable and is owned by the Company, directly or
through subsidiaries, free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity; none of
the outstanding shares of capital stock of the subsidiaries
was issued in violation of the preemptive or similar rights of
any stockholder of such corporation arising by operation of
law, under the charter or by-laws of any subsidiary or under
any agreement to which the Company or any subsidiary is a
party. Except for the shares of capital stock of each of the
subsidiaries owned by the Company and such subsidiaries,
neither the Company nor any such subsidiary owns any shares of
stock or any other equity securities of any corporation or has
any equity interest in any firm, partnership, association or
other entity, except as described in or by the Prospectuses.
The only subsidiaries of the Company are APAC TeleServices of
Michigan, Inc., a Michigan corporation, APAC TeleServices of
Illinois, Inc., an Illinois corporation, and APAC Insurance
Services Agency, Inc., an Illinois corporation. Such
subsidiaries, considered in the aggregate as a single
subsidiary, do not constitute a "significant subsidiary" as
defined in Rule 1-02 of Regulation S-X.
(viii) Each of the contracts and agreements between
the Company and the clients of the Company listed on Schedule
C hereto (each, a "Contract" and collectively, the
"Contracts") and the Employment Agreement, dated May 26, 1995,
as amended on October 3, 1995, between the Company and Marc S.
Simon (the "Simon Agreement") has been duly authorized,
executed and delivered by the Company and, to the knowledge of
the Company (with respect to each
-7-
<PAGE> 8
Contract), by the other parties thereto, is enforceable in
accordance with its terms and is in full force and effect,
without termination or cancellation provisions having been
exercised by any of the parties thereto; to the knowledge of
the Company, no exercise of termination or cancellation
provisions of any of the Contracts or the Simon Agreement is
contemplated or has been threatened by any of the parties
thereto; and the consummation of the transactions contemplated
in each of the Contracts and the Simon Agreement has been duly
authorized by all necessary corporate action. The Company has
not received any notice or is otherwise aware of any material
infringement of or material dispute arising out of the rights
or obligations of the Company or the other parties to such
Contracts or the Simon Agreement under the terms of any of the
Contracts or the Simon Agreement.
(ix) The authorized, issued and outstanding capital
stock of the Company is set forth in the Prospectuses under
the caption "Capitalization" (except for subsequent issuances,
if any, pursuant to employee benefit plans referred to in the
Prospectuses, pursuant to the exercise of options referred to
in the Prospectuses or pursuant to the employee stock purchase
plan referred to in the Prospectuses); the issued and
outstanding Common Shares, including the Securities to be
purchased by the Underwriters from the Selling Shareholders,
have been duly authorized and validly issued and are fully
paid and non-assessable; none of the outstanding Common
Shares, including the Securities to be purchased by the
Underwriters from the Selling Shareholders, was issued in
violation of the preemptive or other similar rights of any
securityholder of the Company arising by operation of law,
under the charter or by-laws of the Company or under any
agreement to which the Company or any of its subsidiaries is a
party; the Common Shares conform in all material respects to
all statements relating thereto contained in the Prospectuses;
and the Securities are not subject to preemptive or other
similar rights of any securityholder of the Company arising by
operation of law, under the charter and by-laws of the Company
or under any agreement to which the Company or any of its
subsidiaries is a party.
(x) Neither the Company nor any of its subsidiaries
is in violation of its charter or in material default in the
performance or observance of any obligation, agreement,
covenant or condition contained in any material contract,
indenture, mortgage, deed of trust, loan or credit agreement,
note, lease or other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which it
or any of them may be bound, or to which any of
-8-
<PAGE> 9
the material property or assets of the Company or any of its
subsidiaries is subject, including any of the Contracts; and
the execution, delivery and performance of this Agreement, the
International Pricing Agreement, the U.S. Purchase Agreement
and the U.S. Pricing Agreement and the consummation of the
transactions contemplated herein and therein and compliance by
the Company with its obligations hereunder and thereunder have
been duly authorized by all necessary corporate action and do
not and will not, whether with or without the giving of notice
or the passage of time or both, conflict with or constitute a
material breach of, or material default or Repayment Event (as
defined below) under, or result in the creation or imposition
of any lien, charge or encumbrance upon any material property
or assets of the Company or any of its subsidiaries pursuant
to, any material contract, indenture, mortgage, deed of trust,
loan or credit agreement, note, lease or other instrument to
which the Company or any of its subsidiaries is a party or by
which it or any of them may be bound, or to which any of the
material property or assets of the Company or any of its
subsidiaries is subject, including any of the Contracts, nor
will such action result in any violation of the provisions of
the charter or by-laws of the Company, any applicable law,
statute, rule, regulation, judgment, order, writ or decree of
any government, government instrumentality or court, domestic
or foreign, having jurisdiction over the Company or any of its
subsidiaries or any of their assets or properties or the terms
and conditions of any material Governmental License (as
defined below). As used herein, a "Repayment Event" means any
event or condition which gives the holder of any note,
debenture or other evidence of indebtedness (or any person
acting on such holder's behalf) the right to require the
repurchase, redemption or repayment of all or a portion of
such indebtedness by the Company or any of its subsidiaries.
(xi) Other than disputes incidental to the Company's
business that could not reasonably be expected to result in a
material adverse effect on the condition, financial or
otherwise, or the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as
one enterprise, no labor dispute with the employees of the
Company or any of its subsidiaries exists or, to the knowledge
of the Company, is imminent; and the Company is not aware of
any existing or imminent labor disturbance by the employees of
any of its principal suppliers, manufacturers or contractors
or any party to a Contract which in either case might be
expected to result in any material adverse change in the
condition, financial or otherwise, or in the earnings,
business affairs or business
-9-
<PAGE> 10
prospects of the Company and its subsidiaries considered as
one enterprise.
(xii) There is no action, suit, proceeding, inquiry
or investigation before or by any court or governmental agency
or body, domestic or foreign, now pending, or, to the
knowledge of the Company, threatened, against or affecting the
Company or any of its subsidiaries, which is required to be
disclosed in the Registration Statement (other than as
disclosed therein), or which the Company, acting reasonably,
believes is likely to result in any material adverse change in
the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, or which the
Company, acting reasonably, believes is likely to materially
and adversely affect the properties or assets of the Company
or any of its subsidiaries or the consummation of this
Agreement or the U.S. Purchase Agreement or the performance by
the Company of its obligations hereunder or thereunder or
under any of the Contracts; the aggregate of all pending legal
or governmental proceedings to which the Company or any of its
subsidiaries is a party or of which any of their respective
property or assets is the subject which are not described in
the Registration Statement, including ordinary routine
litigation incidental to the business, could not reasonably be
expected to result in a material adverse change in the
condition, financial or otherwise, or the earnings, business
affairs or business prospects of the Company and its
subsidiaries considered as one enterprise.
(xiii) There are no contracts or documents which are
required to be described in the Registration Statement, the
Prospectuses or the documents incorporated by reference
therein or to be filed as exhibits thereto by the 1933 Act,
the 1933 Act Regulations, the 1934 Act or the 1934 Act
Regulations which have not been so described and filed as
required.
(xiv) The Company and its subsidiaries own or
possess, or reasonably believe they can acquire on reasonable
terms, the patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks
and trade names (collectively, "patent and proprietary
rights") presently employed by them in connection with the
business now operated by them, and, other than as explicitly
disclosed in writing to the Lead Managers, neither the Company
nor any of its subsidiaries has received any notice or is
otherwise aware of any infringement of or conflict
-10-
<PAGE> 11
with asserted rights of others with respect to any such patent
or proprietary rights, or of any facts which would render any
such patent and proprietary rights invalid or inadequate to
protect the interest of the Company or any of its subsidiaries
therein, and which infringement or conflict (if the subject of
any unfavorable decision, ruling or finding) or invalidity or
inadequacy, singly or in the aggregate, would result in any
material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as
one enterprise.
(xv) No filing with, or authorization, approval,
consent, license, order, registration, qualification or decree
of, any court or governmental authority or agency is necessary
or required for the performance by the Company of its
obligations hereunder or under the U.S. Purchase Agreement, or
in connection with the offering, issuance or sale of the
Securities hereunder or under the U.S. Purchase Agreement or
the consummation of the transactions contemplated by this
Agreement, the U.S. Purchase Agreement, the International
Pricing Agreement and the U.S. Pricing Agreement, except such
as have been already obtained or as may be required under the
1933 Act or the 1933 Act Regulations or state securities laws.
(xvi) The Company, its subsidiaries and their
respective telephone representatives who sell
insurance-related products possess such certificates,
authorities, permits, licenses, approvals, consents and other
authorizations (collectively, "Governmental Licenses") issued
by the appropriate state, federal, local or foreign regulatory
agencies or bodies necessary to conduct the business now
operated or conducted by them except where the failure to
possess such Governmental Licenses would not, singly or in the
aggregate, have a material adverse effect on the condition,
financial or otherwise, or the earnings, business affairs or
business prospects of the Company and its subsidiaries
considered as one enterprise; the Company, its subsidiaries
and their respective telephone representatives who sell
insurance-related products are in compliance with the terms
and conditions of all such Governmental Licenses, except where
the failure so to comply would not, singly or in the
aggregate, have a material adverse effect on the condition,
financial or otherwise, or the earnings, business affairs or
business prospects of the Company and its subsidiaries
considered as one enterprise; all of the Governmental Licenses
are valid and in full force and effect, except where the
invalidity of such Governmental Licenses or the failure of
such Government Licenses to be in full force and effect would
not have a material adverse
-11-
<PAGE> 12
effect on the condition, financial or otherwise, or the
earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise; and
neither the Company nor any of its subsidiaries has received
any notice of proceedings relating to the revocation or
modification of any such Governmental Licenses which, singly
or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would materially and adversely
affect the condition, financial or otherwise, or the earnings,
business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise.
(xvii) This Agreement and the U.S. Purchase
Agreement have been, and, at the International Representation
Date, the International Pricing Agreement and the U.S. Pricing
Agreement will have each been, duly authorized, executed and
delivered by the Company.
(xviii) Except as set forth in the Prospectuses, the
Company and its subsidiaries are in compliance in all material
respects with all applicable laws, statutes, ordinances, rules
or regulations, the enforcement of which, individually or in
the aggregate, would be reasonably expected to have a material
adverse effect on the condition, financial or otherwise, or
the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise.
(xix) The Company and its subsidiaries have good and
marketable title to all material properties (real and
personal) owned by the Company and its subsidiaries, free and
clear of all mortgages, pledges, liens, security interests,
claims, restrictions or encumbrances of any kind except such
as (a) are described in the Prospectuses or (b) do not, singly
or in the aggregate, materially affect the value of such
property and do not interfere with the use made and proposed
to be made of such property by the Company or any of its
subsidiaries; and all properties held under lease by the
Company or its subsidiaries are held under valid, subsisting
and enforceable leases.
(xx) Except as disclosed in the Prospectuses, there
are no persons with registration or other similar rights to
have any securities registered pursuant to the Registration
Statement or otherwise registered by the Company under the
1933 Act.
(xxi) Except as disclosed in the Prospectuses, there
are no outstanding options, warrants, or other rights calling
for the issuance of, and no commitments, plans or
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arrangements to issue, any shares of capital stock of the
Company or any of its subsidiaries or any security convertible
into or exchangeable for capital stock of the Company or any
of its subsidiaries.
(xxii) The Company has complied with, and is and
will be in compliance with, the provisions of that certain
Florida act relating to disclosure of doing business with
Cuba, codified as Section 517.075 of the Florida statutes, and
the rules and regulations thereunder (collectively, the "Cuba
Act") or is exempt therefrom.
(xxiii) The Company is not, and upon the sale of the
Securities as contemplated herein and in the U.S. Purchase
Agreement will not be, an "investment company" or an entity
"controlled" by an "investment company" as such terms are
defined in the Investment Company Act of 1940, as amended (the
"1940 Act").
(xxiv) The Company and its subsidiaries have filed
all federal, state, local and foreign tax returns that are
required to be filed or has duly requested extension thereof
and has paid all taxes required to be paid by them and any
related assessments, fines or penalties except for any such
tax, assessment, fine or penalty that is being contested in
good faith and by appropriate proceedings; and adequate
charges, accruals and reserves have been provided for in the
financial statements referred to in Section 1(a)(iv) above in
respect of all federal, state, local and foreign taxes for all
periods as to which the tax liability of the Company or any of
its subsidiaries has not been finally determined or remains
open to examination by applicable taxing authorities.
(xxv) The Company and its subsidiaries carry or are
entitled to the benefits of insurance in such amounts and
covering such risks as they reasonably believe is adequate to
protect them against the occurrence of such events, (i)
against the risk of which insurance is available and (ii) the
occurrence of which would reasonably be likely to materially
and adversely affect the condition, financial or otherwise, or
the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, and
all such insurance is in full force and effect.
(xxvi) The Company and its subsidiaries maintain a
system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in
accordance with management's general and specific
authorizations; (ii) transactions are recorded as necessary
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<PAGE> 14
to permit preparations of financial statements in conformity
with GAAP and to maintain accountability for assets; (iii)
access to assets is permitted only in accordance with
management's general or specific authorizations; and (iv) the
recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(xxvii) The Company and its subsidiaries have not
(i) taken directly or indirectly, any action designed to cause
or result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to
facilitate the sale of the Securities or (ii) since the
initial filing of the Registration Statement (A) bid for,
purchased or paid anyone any compensation for soliciting
purchases of, the Securities, or (B) paid or agreed to pay to
any person any compensation for soliciting another to purchase
any other securities of the Company.
(xxviii) The Company has not distributed and, prior
to the later to occur of (i) the Closing Time and (ii)
completion of the distribution of the Securities, will not
distribute any prospectus (as such term is defined in the 1933
Act and the 1933 Act Regulations) in connection with the
offering and sale of the Securities other than the
Registration Statement, any preliminary prospectus filed with
the Commission, the Prospectuses or other materials, if any,
permitted by the 1933 Act or by the 1933 Act Regulations and
approved by the Lead Managers and the U.S. Representatives.
(xxix) No relationship, direct or indirect, exists
between or among any of the Company or any affiliate of the
Company, on the one hand, and any director, officer,
stockholder, customer or supplier of any of them, on the other
hand, which is required by the 1933 Act or the 1934 Act or by
the 1933 Act Regulations or the 1934 Act Regulations to be
described in the Registration Statement or the Prospectuses
which is not so described or is not described as required.
(b) Each Selling Shareholder severally and not jointly
represents and warrants to, and agrees with, each of the Managers as follows:
(i) All authorizations, approvals and consents
(other than the issuance of the order of the Commission
declaring the Registration Statement effective and such
authorizations, approvals or consents as may be necessary
under state securities laws) necessary for the execution and
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<PAGE> 15
delivery by such Selling Shareholder of this Agreement, the
International Pricing Agreement, the U.S. Purchase Agreement
and the U.S. Pricing Agreement and the sale and delivery of
the Securities to be sold by such Selling Shareholder
hereunder and under the U.S. Purchase Agreement have been
obtained and are in full force and effect; such Selling
Shareholder has the full right, power and authority to enter
into this Agreement, the International Pricing Agreement, the
U.S. Purchase Agreement and the U.S. Pricing Agreement and to
sell, transfer and deliver the Securities to be sold by such
Selling Shareholder hereunder and under the U.S. Purchase
Agreement; and the trustees of each Selling Shareholder which
is a trust and their successor or successors (the "Trustees")
are duly and validly authorized to take each such action
without the approval of any other person or court and the
execution hereof and of the International Pricing Agreement,
the U.S. Purchase Agreement and the U.S. Pricing Agreement by
the Trustees shall be an act which validly binds each Selling
Shareholder which is a trust to the terms of this Agreement,
the International Pricing Agreement, the U.S. Purchase
Agreement and the U.S. Pricing Agreement, respectively.
(ii) The execution, delivery and performance of
this Agreement, the International Pricing Agreement, the U.S.
Purchase Agreement and the U.S. Pricing Agreement and the sale
and delivery of the Securities to be sold by such Selling
Shareholder and the consummation of the transactions
contemplated herein and therein and compliance by such Selling
Shareholder with its obligations hereunder and thereunder have
been duly authorized by such Selling Shareholder and do not
and will not, whether with or without the giving of notice or
passage of time or both, conflict with or constitute a
material breach of, or material default under, or result in
the creation or imposition of any tax, lien, charge or
encumbrance upon the Securities to be sold by such Selling
Shareholder or any material property or assets of such Selling
Shareholder pursuant to, any treaty, law, regulation or decree
or material contract, indenture, mortgage, deed of trust, loan
or credit agreement, note, license, lease or other agreement
or instrument to which such Selling Shareholder is a party or
by which such Selling Shareholder may be bound, or to which
any of the material property or assets of such Selling
Shareholder is subject, nor will such action result in any
violation of the trust agreement or other
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<PAGE> 16
organizational or governing instrument of such Selling
Shareholder, if applicable, or any applicable treaty, law,
statute, regulation, judgment, order, writ or decree of any
government, government instrumentality or court, foreign or
domestic; and in the case of each Selling Shareholder that is
a trust, the trust agreement or other organizational or
governing instrument applicable thereto previously provided to
the Lead Managers and the U.S. Representatives is a valid,
binding and enforceable agreement under the laws of the State
of Illinois and such agreement or other instrument has not
been modified or revoked and is in full force and effect and
the powers granted thereby and thereunder to the Trustees to
take the actions referred to in (b)(i) above were validly
granted and have not been modified or revoked and are in full
force and effect; and no legal action is pending or threatened
that challenges the validity of such trust agreement or other
organizational or governing instrument or such powers granted
to the Trustees.
(iii) Except as described in the Prospectuses, such
Selling Shareholder has (or, in the case of Marc S. Simon,
such Selling Shareholder has the right to acquire pursuant to
the Simon Agreement) and will at Closing Time referred to in
Section 2(c) hereof and, if any International Option
Securities are purchased, on each Date of Delivery referred to
in Section 2(b) hereof, have good and marketable title to the
Securities to be sold by such Selling Shareholder hereunder
and under the U.S. Purchase Agreement, free and clear of any
security interest, mortgage, pledge, lien, encumbrance, claim
or equity other than pursuant to this Agreement or the U.S.
Purchase Agreement; and upon delivery of the International
Securities and payment of the purchase price therefor as
herein contemplated, each of the Managers will receive good
and marketable title to the International Securities purchased
by it from such Selling Shareholder, free and clear of any
security interest, mortgage, pledge, lien, encumbrance, claim
or equity.
(iv) Such Selling Shareholder has not taken, and
will not take, directly or indirectly, any action which is
designed to or which has constituted or which might reasonably
be expected to constitute the stabilization or manipulation of
the price of any security of the Company to facilitate the
sale of the Securities; and such Selling Shareholder has not
distributed and will not distribute any prospectus (as such
term is defined in the 1933 Act and the 1933 Act Regulations)
in connection with the offering and sale of the Securities
other than any preliminary prospectus filed with the
Commission or the Prospectuses or other material permitted by
the 1933 Act or the 1933 Act Regulations.
(v) No filing with, or consent, approval,
authorization, order, registration, qualification or decree
of, any governmental authority or body is necessary or
required for the performance by such Selling Shareholder of
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<PAGE> 17
its obligations hereunder or under the U.S. Purchase Agreement
or in connection with the sale of the Securities hereunder or
under the U.S. Purchase Agreement or the consummation of the
transactions contemplated by this Agreement, the International
Pricing Agreement, the U.S. Purchaser Agreement and the U.S.
Pricing Agreement, except such as may have previously been
made or obtained or as may be required under the 1933 Act or
the 1933 Act Regulations or state securities laws.
(vi) Such Selling Shareholder (or, if the Selling
Shareholder is a trust, the Trustees thereof) has reviewed and
is familiar with the Registration Statement; to the best
knowledge of such Selling Shareholder such Registration
Statement does not contain any untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading; such Selling Shareholder (or, if the Selling
Shareholder is a trust, the Trustees thereof) is not prompted
to sell the Securities to be sold by such Selling Shareholder
hereunder or under the U.S. Purchase Agreement by any
information concerning the Company or any subsidiary of the
Company which is not set forth in the Prospectuses.
(vii) Such parts of the Registration Statement as
specifically refer to such Selling Shareholder do not contain
any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to
make the statements therein not misleading.
(viii) During a period of 180 days from the date of
the International Pricing Agreement, such Selling Shareholder
will not, without the prior written consent of Merrill Lynch
International, directly or indirectly, sell, offer to sell,
grant any option for the sale of, or otherwise dispose of, any
shares of capital stock of the Company or any security
convertible or exchangeable into or exercisable for such
capital stock owned by such Selling Shareholder or with
respect to which such Selling Shareholder has the power of
disposition, other than to (A) the Managers or the U.S.
Underwriters pursuant to this Agreement or the U.S. Purchase
Agreement, (B) members of such Selling Shareholder's immediate
family, (C) a trust or trusts the beneficiaries of which are
exclusively such Selling Shareholder, a member or members of
the Theodore G. Schwartz family or other entities controlled
by such Selling Shareholder or members of the Theodore G.
Schwartz family, or (D) family limited partnerships which are
controlled by such Selling Shareholder or members of the
Theodore G. Schwartz family, provided that each transferee
pursuant to
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<PAGE> 18
subclauses (B), (C) and (D) above agrees in writing to be
bound by the restrictions described above in b(viii).
(ix) Neither such Selling Shareholder nor any of its
affiliates directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under
common control with, or has any other association with (within
the meaning of Article 1, paragraph (q) of the By-laws of the
National Association of Securities Dealers, Inc. (the
"NASD")), any member firm of the NASD.
(x) Such Selling Shareholder agrees to deliver to
the Lead Managers and the U.S. Representatives at or prior to
the Closing Time a properly completed and executed United
States Treasury Department Form W-9 (or other applicable form
or statement specified by Treasury Department regulations in
lieu thereof).
(c) Any certificate signed by any officer of the Company
and delivered to the Lead Managers or to counsel for the Managers pursuant to
the terms of this Agreement shall be deemed a representation and warranty by
the Company to each Manager as to the matters covered thereby; and any
certificate signed by any Selling Shareholder as such and delivered to the Lead
Managers or to counsel for the Managers pursuant to the terms of this Agreement
shall be deemed a representation and warranty by such Selling Shareholder to
each Manager as to matters covered thereby.
(d) The liability of the Selling Shareholders for breach
of the representation and warranty set forth in clause (b)(vi) above is limited
as set forth in Section 6(a).
SECTION 2. Sale and Delivery to Managers; Closing.
(a) On the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, each
Selling Shareholder, severally and not jointly, agrees to sell to each Manager,
severally and not jointly, and each Manager, severally and not jointly, agrees
to purchase from each Selling Shareholder, at the price per share set forth in
the International Pricing Agreement, that proportion of the number of Initial
International Securities set forth in Schedule B opposite the name of such
Selling Shareholder which the number of Initial International Securities set
forth in Schedule A opposite the name of such Manager (plus any additional
number of Initial International Securities that such Manager may become
obligated to purchase pursuant to the provisions of Section 10 hereof) bears to
the total number of Initial International Securities (except as otherwise
provided in the International Pricing Agreement), subject to such adjustments
as the Managers in their
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<PAGE> 19
discretion shall make to eliminate any sales or purchases of fractional
securities.
(1) If the Company has elected not to rely upon Rule
430A under the 1933 Act Regulations, the initial public
offering price and the purchase price per share to be paid by
the several Managers for the International Securities have
each been determined and set forth in the International
Pricing Agreement, dated the date hereof, and an amendment to
the Registration Statement and the Prospectuses will be filed
before the Registration Statement becomes effective.
(2) If the Company has elected to rely upon Rule
430A under the 1933 Act Regulations, the initial public
offering price and the purchase price per share to be paid by
the several Managers for the International Securities shall be
determined by agreement among the Lead Managers, the Company
and the Selling Shareholders and, when so determined, shall be
set forth in the International Pricing Agreement. In the
event that such prices have not been agreed upon and the
International Pricing Agreement has not been executed and
delivered by all parties thereto by the close of business on
the fourteenth business day following the date of this
Agreement, this Agreement shall terminate forthwith, without
liability of any party to any other party, unless otherwise
agreed to by the Company, Selling Shareholders and the Lead
Managers, except that Sections 1, 6, 7 and 8 shall remain in
effect.
(b) In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, certain of the Selling Shareholders as set forth on Schedule B hereto,
acting severally and not jointly, hereby grant an option to the Managers
severally and not jointly, to purchase up to an additional 123,000 Common
Shares at the price per share set forth in the International Pricing Agreement.
The option hereby granted will expire 30 days after (i) the date the
Registration Statement becomes effective, if the Company has elected not to
rely on Rule 430A under the 1933 Act Regulations, or (ii) the International
Representation Date, if the Company has elected to rely upon Rule 430A under
the 1933 Act Regulations, and may be exercised in whole or in part from time to
time only for the purpose of covering over-allotments which may be made in
connection with the offering and distribution of the Initial International
Securities upon notice by the Lead Managers to such Selling Shareholders
setting forth the number of International Option Securities as to which the
several Managers are then exercising the option and the time and date of
payment and delivery for such International Option Securities. Any such time
and date of delivery for the International Option Securities (a "Date of
Delivery") shall be determined by the Lead Managers,
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<PAGE> 20
but shall not be, unless otherwise agreed upon by the Lead Managers and the
Selling Shareholders granting such option, later than seven full business days
after the exercise of said option, and in no event prior to Closing Time, as
hereinafter defined. If the option is exercised as to all or any portion of the
International Option Securities, the International Option Securities shall be
sold by the Selling Shareholders granting such option substantially in
proportion to the respective number of International Option Securities set
forth opposite their names in Schedule B hereto and each of the Managers,
acting severally and not jointly, will purchase from each such Selling
Shareholder that proportion of the total number of International Option
Securities set forth in Schedule B opposite the name of such Selling
Shareholder as may be adjusted on a pro rata basis to reflect the aggregate
number of International Option Securities then being purchased, which the
number of Initial International Securities set forth in Schedule A opposite the
name of such Manager bears to the total number of Initial International
Securities.
(c) Payment of the purchase price for the Initial
International Securities shall be made at the office of Merrill Lynch & Co.,
5500 Sears Tower, Chicago, Illinois 60606, and delivery of the certificates for
the Initial International Securities shall be made against payment therefor at
the office of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Merrill Lynch
World Headquarters, North Tower, World Financial Center, New York, New York
10281-1305, or (in either case) at such other place or places as shall be
agreed upon by the Selling Shareholders and the Lead Managers, at 10:00 A.M. on
the third business day (unless postponed in accordance with the provisions of
Sections 10) following the date the Registration Statement becomes effective
(or, if the Company has elected to rely upon Rule 430A of the 1933 Act
Regulations, the third business day after execution of the International
Pricing Agreement, unless the International Pricing Agreement is executed after
4:30 P.M., in which case on the fourth business day thereafter), or such other
time not later than ten business days after such date as shall be agreed upon
by the Selling Shareholders and the Lead Managers (such time and date of
payment and delivery being herein called "Closing Time"). In addition, in the
event that any or all of the International Option Securities are purchased by
the Managers, payment of the purchase price for, and delivery of certificates
for, such International Option Securities shall be made at the offices set
forth above, or at such other place as shall be agreed upon by the Lead
Managers and the Selling Shareholders that granted such option to the Managers,
on each Date of Delivery as specified in the notice from the Lead Managers to
such Selling Shareholders. Payment shall be made to the appropriate Selling
Shareholders by wire transfer of, or certified or official bank check or checks
drawn in, same day
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funds payable to the order of the appropriate Selling Shareholders against
delivery to the Lead Managers, for the respective accounts of the Managers of
certificates for the International Securities to be purchased by them.
Certificates for the Initial International Securities and the International
Option Securities, if any, shall be in such denominations and registered in
such names as the Lead Managers may request in writing at least two business
days before the Closing Time or the relevant Date of Delivery, as the case may
be.
(d) It is understood that each Manager has authorized the
Lead Managers, for its account, to accept delivery of, receipt for, and make
payment of the purchase price for, the Initial International Securities and the
International Option Securities, if any, which it has agreed to purchase.
Merrill Lynch, individually and not as representative of the Managers, may (but
shall not be obligated to) make payment of the purchase price for the Initial
International Securities or the International Option Securities, if any, to be
purchased by any Manager whose funds have not been received by the Closing Time
or the relevant Date of Delivery, as the case may be, but such payment shall
not relieve such Manager from its obligations hereunder. The certificates for
the Initial International Securities and the International Option Securities,
if any, will be made available for examination and packaging by the Lead
Managers not later than 11:00 A.M. on the last business day prior to the
Closing Time or the relevant Date of Delivery, as the case may be.
SECTION 3. Covenants of the Company. The Company covenants
with each of the Managers as follows:
(a) The Company will use its best efforts to cause
the Registration Statement to become effective (as and when
requested by the Lead Managers) and will notify the Lead
Managers immediately, and confirm the notice in writing, (i)
when the Registration Statement, or any post-effective
amendment to the Registration Statement, shall become
effective, or any supplement to the Prospectuses or any
amended Prospectus shall have been filed, (ii) of the receipt
of any comments from the Commission, (iii) of any request by
the Commission for any amendment to the Registration Statement
or any amendment or supplement to the Prospectuses or for
additional information, and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of
the Registration Statement or of any order preventing or
suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Securities for offering
or sale in any jurisdiction, or of the initiation or
threatening of any proceeding for any such purpose. The
Company will make every reasonable effort to prevent the
issuance of any stop order and, if any stop
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order is issued, to obtain the lifting thereof at the earliest
possible moment. If the Company elects to rely on Rule 434
under the 1933 Act Regulations, the Company will prepare a
term sheet that complies with the requirements of Rule 434
under the 1933 Act Regulations. If the Company elects not to
rely on Rule 434, the Company will provide the Managers with
copies of the form of Prospectuses, in such number as the
Managers may reasonably request, and timely file with the
Commission such Prospectuses in accordance with Rule 424(b) of
the 1933 Act by the close of business in New York on the
business day immediately succeeding the date of the
International Pricing Agreement. If the Company elects to
rely on Rule 434, the Company will provide the Managers with
copies of the forms of Rule 434 Prospectuses, in such number
as the Managers may reasonably request, and timely file with
the Commission the form of Prospectuses complying with Rule
434(b)(2) of the 1933 Act in accordance with Rule 424(b) of
the 1933 Act by the close of business in New York on the
business day immediately succeeding the date of the
International Pricing Agreement.
(b) The Company will give the Lead Managers notice
of its intention to file or prepare any amendment to the
Registration Statement (including any post-effective
amendment) or any amendment or supplement to the Prospectuses,
whether pursuant to the 1933 Act, the 1934 Act or otherwise,
(including any revised prospectuses which the Company proposes
for use by the Managers or the U.S. Underwriters in connection
with the offering of the Securities which differs from the
prospectuses on file at the Commission at the time the
Registration Statement first becomes effective, whether or not
any such revised prospectus is required to be filed pursuant
to Rule 424(b) of the 1933 Act Regulations or any term sheet
prepared in reliance on Rule 434 of the 1933 Act Regulations),
will furnish the Lead Managers with copies of any such
amendment or supplement a reasonable amount of time prior to
such proposed filing or use, as the case may be, and will not
file any such amendment or supplement or use any such
prospectus to which the Lead Managers or counsel for the
Managers shall have reasonably objected; provided, however,
that such objection shall not prevent the filing of any such
amendment or supplement which, in the opinion of counsel for
the Company, is required to be filed, pursuant to the 1933
Act, the 1933 Act Regulations, the 1934 Act or the 1934 Act
Regulations.
(c) The Company has furnished or will deliver to the
Lead Managers and counsel for the Managers, without charge,
signed copies of the Registration Statement as originally
filed and of each amendment thereto (including exhibits
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<PAGE> 23
filed therewith or incorporated by reference therein and
documents incorporated or deemed to be incorporated by
reference therein) and signed copies of all consents and
certificates of experts, and will also deliver to the Lead
Managers a conformed copy of the Registration Statement as
originally filed and of each amendment thereto (without
exhibits) for each of the Managers. The copies of the
Registration Statement and each amendment thereto furnished to
the Managers will be identical to the electronically
transmitted copies thereof filed with the Commission pursuant
to EDGAR, except to the extent permitted by Regulation S-T.
(d) The Company will deliver to each Manager,
without charge, from time to time until the effective date of
the Registration Statement (or, if the Company has elected to
rely upon Rule 430A, until such time the International Pricing
Agreement is executed and delivered), as many copies of each
preliminary prospectus as such Manager may reasonably request,
and the Company hereby consents to the use of such copies for
purposes permitted by the 1933 Act. The Company will furnish
to each Manager, without charge, from time to time during the
period when the Prospectuses are required to be delivered
under the 1933 Act or the 1934 Act, such number of copies of
the International Prospectus (as amended or supplemented) as
such Manager may reasonably request for the purposes
contemplated by the 1933 Act or the 1934 Act or the respective
applicable rules and regulations of the Commission thereunder;
provided, that, in the event that a Manager is required to
deliver an International Prospectus in connection with sales
of any of the International Securities at any time nine months
or more after the time of issuance of the International
Prospectus, upon the request of such Manager but at such
Manager's expense, the Company will prepare and deliver to
such Manager as many copies as it may request of an
International Prospectus (as amended or supplemented)
complying with Section 10(a)(3) of the 1933 Act. The
International Prospectus and any amendments or supplements
thereto furnished to the Managers will be identical to the
electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted
by Regulation S-T.
(e) The Company will comply with the 1933 Act and
the 1933 Act Regulations and the 1934 Act and the 1934 Act
Regulations so as to permit the completion of the distribution
of the Securities as contemplated by this Agreement, the U.S.
Purchase Agreement and the Prospectuses. If, during the period
in which a prospectus is required to be delivered by a Manager
under the 1933 Act, any event
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<PAGE> 24
shall occur as a result of which it is necessary to amend the
Registration Statement or amend or supplement any Prospectus
in order that the Prospectuses will not include any untrue
statements of a material fact or omit to state a material fact
necessary in order to make the statements therein not
misleading in the light of the circumstances existing at the
time it is delivered to a purchaser, or if it shall be
necessary during such period to amend the Registration
Statement or amend or supplement any Prospectus in order to
comply with the 1933 Act or 1933 Act Regulations, the Company
will promptly prepare and file with the Commission, subject to
Section 3(b), such amendment or supplement as may be necessary
to correct such statement or omission or to make the
Registration Statement or the Prospectuses comply with such
requirements, and the Company will furnish to the Managers
such number of copies of such amendment or supplement as the
Managers may reasonably request.
(f) If, at the time that the Registration Statement
becomes effective, any information shall have been omitted
therefrom in reliance upon Rule 430A of the 1933 Act
Regulations, then following the execution of the International
Pricing Agreement, the Company will prepare, and timely file
with the Commission in accordance with such Rule 430A and Rule
424(b) of the 1933 Act Regulations, copies of amended
Prospectuses, or, if required by such Rule 430A, a
post-effective amendment to the Registration Statement
(including amended Prospectuses), containing all information
so omitted and will use its best efforts to cause such
post-effective amendment to be declared effective as promptly
as practicable.
(g) The Company will endeavor, in cooperation
with the Managers and their counsel, to qualify the Securities
for offering and sale under the applicable securities laws of
such jurisdictions as the Lead Managers may designate;
provided, however, that the Company shall not be obligated to
qualify as a foreign corporation in any jurisdiction in which
it is not so qualified or to take any action that would
subject the Company to general service of process or taxation
in any jurisdiction where it is not so subject at the date of
this Agreement. In each jurisdiction in which the Securities
have been so qualified, the Company will file such statements
and reports as may be required by the laws of such
jurisdiction to continue such qualification in effect for a
period of not less than one year from the effective date of
the Registration Statement.
(h) The Company will make generally available to its
security holders as soon as practicable, but not later than
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45 days after the close of the period covered thereby, an
earnings statement (in form complying with the provisions of
Rule 158 of the 1933 Act Regulations) covering a twelve month
period beginning not later than the first day of the Company's
fiscal quarter next following the "effective date" (as defined
in said Rule 158) of the Registration Statement.
(i) [intentionally omitted]
(j) During a period of 180 days from the date of the
International Pricing Agreement, the Company will not, without
the prior written consent of Merrill Lynch International,
directly or indirectly, sell, offer to sell, grant any option
for the sale of, or otherwise dispose of, any capital stock of
the Company or any security convertible or exchangeable into
or exercisable for such capital stock (except for Common
Shares issued pursuant to employee benefit plans referred to
in the Prospectuses, pursuant to the exercise of options
referred to in the Prospectuses or pursuant to the employee
stock purchase plan of the Company referred to in the
Prospectuses) or file any registration statement under the
1933 Act with respect to any of the foregoing (except for
registration statements on Form S-8 with respect to employee
benefit plans referred to in the Prospectuses or the employee
stock purchase plan of the Company referred to in the
Prospectuses).
(k) In accordance with the Cuba Act and without
limitation to the provisions of Sections 6 and 7 hereof, the
Company agrees to indemnify and hold harmless each Manager
from and against any and all loss, liability, claim damage and
expense whatsoever (including fees and disbursements of
counsel), as incurred, arising out of any violation by the
Company of the Cuba Act.
(l) The Company, during the period when the
Prospectuses are required to be delivered under the 1933 Act
or the 1934 Act, will file all documents required to be filed
with the Commission pursuant to the 1934 Act within the time
periods required by the 1934 Act and the 1934 Act Regulations.
SECTION 4. Payment of Expenses. The Company will pay all
expenses incident to the performance of its obligations under this Agreement,
including (i) the printing and filing of the Registration Statement as
originally filed and of each amendment thereto, (ii) the preparation, copying
and delivery to the Managers of this Agreement, the International Pricing
Agreement, any Agreement among Underwriters and such other documents as may be
required in connection with the offering, purchase, sale, issuance or delivery
of the Securities, (iii) the preparation and
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delivery of the certificates for the Securities to the Underwriters, including
any capital duties, stamp duties and stock or other transfer taxes payable upon
the issuance, sale or delivery of the Securities to the Underwriters and the
transfer of the Securities between the U.S. Underwriters and the Managers, (iv)
the fees and disbursements of the Company's counsel, accountants and other
advisors, the Selling Shareholders' respective counsel, accountants and other
advisors and the Trustees and their respective counsel, (v) the qualification
of the Securities under securities laws in accordance with the provisions of
Section 3(g) hereof and Section 3(g) of the U.S. Purchase Agreement, including
filing fees and the fees and disbursements of counsel for the Underwriters in
connection therewith and in connection with the preparation of the Blue Sky
Survey and any supplement thereto, provided that the Company's obligations with
respect to the amounts included in this clause (v) and clause (v) of Section 4
of the U.S. Purchase Agreement shall not exceed $10,000 in the aggregate, (vi)
the printing and delivery to the Underwriters of copies of the Registration
Statement as originally filed and of each amendment thereto, of each
preliminary prospectus, and of the Prospectuses and any amendments or
supplements thereto including any term sheet delivered by the Company pursuant
to Rule 434 of the 1933 Act Regulations, (vii) the preparation, copying and
delivery to the Underwriters of copies of the Blue Sky Survey and any
supplement thereto, (viii) the fees and expenses of any transfer agent or
registrar for the Securities, and (ix) the filing fees in connection with the
review by the NASD of the terms of the sale of the Securities.
(b) The Selling Shareholders, jointly and severally, will
pay all expenses incident to the performance of their respective obligations
under, and the consummation of the transactions contemplated by this Agreement,
including any stamp duties, capital duties and stock transfer taxes, if any,
payable upon the sale of the Securities to the Underwriters, and their transfer
between the Managers and the U.S. Underwriters.
(c) If this Agreement is terminated by the Lead Managers
in accordance with the provisions of Section 5, Section 9(a)(i) or Section 11
hereof, the Company and the Selling Shareholders, jointly and severally, shall
reimburse the Managers for all of their reasonable out-of-pocket expenses
relating to the transactions contemplated hereby, including the reasonable fees
and disbursements of counsel for the Managers.
(d) The provisions of this Section shall not affect any
agreement among the Company and the Selling Shareholders with repect to such
costs and expenses.
SECTION 5. Conditions of Managers' Obligations. The
obligations of the several Managers hereunder are subject to the
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accuracy of the representations and warranties of the Company and the Selling
Shareholders herein contained, to the performance by the Company and the
Selling Shareholders of their obligations hereunder, and to the following
further conditions:
(a) The Registration Statement shall have become
effective not later than 5:30 P.M. on the date hereof, or with
the consent of the Lead Managers, at a later time and date,
not later, however, than 5:30 P.M. on the first business day
following the date hereof, or at such later time and date as
may be approved by a majority in interest of the Managers; and
at Closing Time no stop order suspending the effectiveness of
the Registration Statement shall have been issued under the
1933 Act or proceedings therefor initiated or threatened by
the Commission, and any request on the part of the Commission
for additional information shall have been complied with to
the reasonable satisfaction of counsel to the Managers. If
the Company has elected to rely upon Rule 430A of the 1933 Act
Regulations, the price of the Securities and any price-related
information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been
transmitted to the Commission for filing pursuant to Rule
424(b) of the 1933 Act Regulations within the prescribed time
period and prior to Closing Time the Company shall have
provided evidence satisfactory to the Lead Managers of such
timely filing, or a post-effective amendment providing such
information shall have been promptly filed and declared
effective in accordance with the requirements of Rule 430A of
the 1933 Act Regulations.
(b) At Closing Time the Lead Managers shall have
received:
(1) The favorable opinion, dated as of
Closing Time, of McDermott, Will & Emery, counsel for
the Company and the Selling Shareholders, in form and
substance reasonably satisfactory to counsel for the
Managers, to the effect that:
(i) The Company has been duly
incorporated and is validly existing and in
good standing under the laws of the State of
Illinois.
(ii) The Company has corporate power
and authority to conduct its business as
described in the Registration Statement and
to execute and deliver and perform its
obligations under this Agreement, the
International Pricing Agreement, the U.S.
Purchase Agreement and the U.S. Pricing
Agreement.
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(iii) The Company is duly qualified to
transact business and is in good standing as
a foreign corporation in the States of
Florida, Indiana, Iowa, Maryland, Michigan,
North Carolina, South Carolina, Texas and
Virginia (in rendering such opinion such
counsel shall be entitled to rely solely on
certificates of public officials of such
States).
(iv) The authorized and outstanding
capital stock of the Company is as set forth
in the Prospectuses under the caption
"Capitalization" and under the caption
"Description of Capital Stock"; the issued
and outstanding Common Shares, including the
Securities to be purchased by the Managers
and the U.S. Underwriters from the Selling
Shareholders, have been duly authorized and
validly issued and are fully paid and
non-assessable; and none of the outstanding
shares of capital stock of the Company was
issued in violation of the preemptive rights
of any stockholder of the Company arising by
operation of law, under the charter or
by-laws of the Company or any of its
subsidiaries or, to the knowledge of such
counsel, under any agreement to which the
Company or any of its subsidiaries is a
party.
(v) The shareholders of the Company do
not have any preemptive rights with respect
to the Securities to be purchased by the
Managers and the U.S. Underwriters from the
Selling Shareholders.
(vi) Except as disclosed in or
specifically contemplated by the
Prospectuses, to the knowledge of such
counsel, there are no outstanding options,
warrants or other rights calling for the
issuance of any shares of capital stock of
the Company or any security convertible into
or exchangeable for capital stock of the
Company. The stock option plans of the
Company described in the Prospectuses have
been duly authorized by the Company and the
descriptions of the stock option granted to
Mr. Simon and the stock option plans of the
Company contained in the Prospectuses are
accurate in all material requests.
(vii) This Agreement, the
International Pricing Agreement, the U.S.
Purchase Agreement and the U.S. Pricing
Agreement have each been duly authorized,
executed and delivered by the Company.
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(viii) Such counsel has been advised
by the Commission that the Registration
Statement has been declared effective under
the 1933 Act; any required filing of the
Prospectuses pursuant to Rule 424(b) has been
made in the manner and within the time period
required by Rule 424(b); and, to the
knowledge of such counsel, no stop order
suspending the effectiveness of the
Registration Statement has been issued under
the 1933 Act or proceedings therefor
initiated or threatened by the Commission.
(ix) The Registration Statement, the
Prospectuses and each amendment or supplement
to the Registration Statement and
Prospectuses as of their respective effective
or issue dates appeared on their face to be
appropriately responsive in all material
respects to the requirements of the 1933 Act
and the 1933 Act Regulations, except that
such counsel need not express any opinion as
to the financial statements, schedules and
other financial data included therein or
excluded therefrom, or the exhibits to the
Registration Statement (except to the extent
set forth in the next sentence of this
paragraph) and such counsel need not assume
responsibility for the accuracy, completeness
or fairness of the statements contained in
the Registration Statement and the
Prospectuses. To the knowledge of such
counsel without having made any independent
investigation and based upon representations
of officers of the Company as to the factual
matters, there were no contracts or documents
required to be described or referred to in,
or to be filed as exhibits to, the
Registration Statement as of its Effective
Date which were not so described, referred to
or filed or incorporated by reference as
exhibits thereto.
(x) The Company's Annual Report on
Form 10-K for the fiscal year ended December
31, 1995, its Quarterly Reports on Form 10-Q
for the quarters ended March 31 and June 30,
1996, its Current Report on Form 8-K dated
October 17, 1996 and the description of the
Common Shares contained in the Company's
Registration Statement on Form 8-A for such
securities, as of their respective filing or
effective dates, appeared on their face to be
appropriately responsive in all material
respects to the requirements of the
applicable provisions of the 1934 Act, the
1934 Act Regulations, the 1933 Act and the
1933 Act Regulations, except that
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such counsel need not express any opinion as
to the financial statements, schedules and
other financial data included therein or
excluded therefrom or the exhibits to such
documents (except to the extent set forth in
the last sentence of paragraph (ix) above).
(xi) The Common Shares conform in all
material respects to the description thereof
under the caption "Description of Capital
Stock" in the Prospectuses, and the form of
certificate used to evidence the Common
Shares is in due and proper form and complies
with all requirements of the Illinois
Business Corporation Act and with any
applicable requirements of the charter and
by-laws of the Company.
(xii) To the knowledge of such counsel
there are no legal or governmental actions,
suits or proceedings pending or threatened
against the Company or any of its
subsidiaries that are required to be
described in the Prospectuses that are not
described as required.
(xiii) The information in the
Prospectuses under "Description of Capital
Stock," "Certain United States Federal Tax
Consequences to Non-United States Holders"
and in the Registration Statement under Item
15 of Form S-3 to the extent that it
constitutes matters of law, summaries of
legal matters, documents or proceedings, or
legal conclusions, has been reviewed by them
and is correct in all material respects; to
the knowledge of such counsel, there are no
Illinois, New York or United States statutes
or regulations that are required to be
described in the Prospectuses that are not
described as required.
(xiv) All descriptions in the
Prospectuses of contracts and other documents
to which the Company or any of its
subsidiaries is a party are accurate in all
material respects.
(xv) No authorization, approval,
consent or order of any governmental
authority or agency or, to the knowledge of
such counsel, any court (other than under the
1933 Act and the 1933 Act Regulations, which
have been obtained, or as may be required
under the securities or blue sky laws of the
various states, as to which such counsel need
express no opinion) is required under the
laws of the United States or the States of
Illinois or New York (except that such
counsel
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<PAGE> 31
need not express any opinion regarding
matters relating to the regulation of
insurance companies as such or consumer
credit laws) to be obtained by the Company
for the due authorization, execution and
delivery of this Agreement, the International
Pricing Agreement, the U.S. Purchase
Agreement and the U.S. Pricing Agreement or
in connection with the offering, issuance or
sale of the International Securities to the
Managers and the U.S. Securities to the U.S.
Underwriters; and, except as otherwise stated
in such opinion (the form of which has
previously been provided to Mayer, Brown &
Platt, counsel for the Managers,) the
execution, delivery and performance of this
Agreement, the International Pricing
Agreement, the U.S. Purchase Agreement and
the U.S. Pricing Agreement and the
consummation of the transactions contemplated
herein and therein and compliance by the
Company with its obligations hereunder and
thereunder will not, whether with or without
the giving of notice or lapse of time or
both, (A) constitute a breach of, or default
or Repayment Event by the Company under, or
result in the creation or imposition of any
lien, charge or encumbrance upon any property
or assets of the Company or any of its
subsidiaries pursuant to, any contract,
credit agreement, note, or any other
agreement or instrument listed on Schedule D
hereto, (B) violate the provisions of the
charter or by-laws of the Company, (C)
contravene any applicable law, statute, rule
or regulation of the United States or the
States of New York or Illinois, or (D) to the
knowledge of such counsel violate any,
judgment, order, writ or decree of any New
York, Illinois or federal executive,
legislative, judicial, administrative or
regulatory body applicable to the Company or
any of its subsidiaries or any of their
respective properties.
(xvi) To the knowledge of such
counsel, except as disclosed in the
Prospectuses, there are no persons with
registration or other similar rights to have
any securities registered pursuant to the
Registration Statement or otherwise
registered by the Company under the 1933 Act.
(xvii) The Company is not an
"investment company" or an entity
"controlled" by an "investment company," as
such terms are defined in the 1940 Act.
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<PAGE> 32
(xviii) No authorization, approval,
consent or order of any governmental
authority or agency or, to the knowledge of
such counsel, any court (other than under the
1933 Act and the 1933 Act Regulations, which
have been obtained or as may be required
under the securities or blue sky laws of the
various states, as to which such counsel need
express no opinion) is required under the
laws of the United States or the States of
Illinois or New York (except that such
counsel need not express any opinion
regarding matters relating to the regulation
of insurance companies as such or consumer
credit laws) to be obtained by the Selling
Shareholders for the execution and delivery
of this Agreement, the International Pricing
Agreement, the U.S. Purchase Agreement and
the U.S. Pricing Agreement or in connection
with the offer or sale of the International
Securities hereunder and the U.S. Securities
pursuant to the U.S. Purchase Agreement or
the consummation of the transactions
contemplated by this Agreement, the
International Pricing Agreement, the U.S.
Purchase Agreement and the U.S. Pricing
Agreement; and the Trustees are duly and
validly authorized to take each such action
without the approval of any other person or
court and the execution hereof and of the
International Pricing Agreement, the U.S.
Purchase Agreement and the U.S. Pricing
Agreement by the Trustees is an act which
validly binds each Selling Shareholder which
is a trust to the terms of this Agreement,
the International Pricing Agreement, the U.S.
Purchase Agreement and the U.S. Pricing
Agreement, respectively.
(xix) This Agreement, the
International Pricing Agreement, the U.S.
Purchase Agreement and the U.S. Pricing
Agreement have each been duly executed and
delivered by or on behalf of each Selling
Shareholder.
(xx) The execution, delivery and
performance of this Agreement, the
International Pricing Agreement, the U.S.
Purchase Agreement and the U.S. Pricing
Agreement and the sale and delivery of the
Securities and the consummation of the
transactions contemplated herein and therein
and compliance by the Selling Shareholders
with the terms of this Agreement and the U.S.
Purchase Agreement have been duly authorized
by all necessary action on the part of the
Selling Shareholders and do not and will not,
whether with
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or without the giving of notice or passage of
time or both, violate, or result in the
creation or imposition of any tax, lien,
charge or encumbrance upon the Securities
pursuant to, any treaty, law, statute,
regulation or decree, nor will such action
result in any violation of the provisions of
the trust agreement or other organizational
or governing instruments of the Selling
Shareholders, if applicable, or any
applicable treaty, law, statute or regulation
under the laws of the United States or the
States of Illinois or New York, or, to the
knowledge of such counsel, violate any
judgment, order, writ or decree of any
government, government instrumentality or
court, foreign or domestic, having
jurisdiction over any Selling Shareholder;
with respect to the Selling Shareholders that
are trusts, the trust agreement or other
organizational or governing instrument
relating to such trust is a valid, binding
and enforceable agreement under the laws of
the State of Illinois and, to such counsel's
knowledge, such agreement or other instrument
has not been modified or revoked and is in
full force and effect and the powers granted
thereby and thereunder to the Trustees were
validly granted and have not been modified or
revoked and are in full force and effect;
and, to the knowledge of such counsel, no
legal action is pending or threatened that
challenges the validity of such trust
agreement or other organizational or
governing instrument or such powers granted
to the Trustees.
(xxi) Based solely upon a review of
the Company's stock transfer book, to the
knowledge of such counsel, each Selling
Shareholder other than Marc S. Simon is, and
immediately prior to Closing time will be,
the sole registered owner of the
International Securities to be sold by such
Selling Shareholder; the Simon Agreement has
been duly authorized, executed and delivered
by the Company and Marc S. Simon, and to the
knowledge of such counsel, the Simon
Agreement is in full force and effect,
without termination or cancellation
provisions having been exercised by either
party thereto, and is enforceable in
accordance with its terms except that
enforcement may be limited by applicable
bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting
creditors' rights generally and by general
principles of equity (regardless of whether
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enforcement is sought in equity or at law);
upon payment for the International Securities
and when the Managers take delivery of the
certificates representing the International
Securities and, assuming such certificates
are registered in the names of the Managers
and the Managers purchased such International
Securities for value in good faith (as
defined in Section 1-201 of the Illinois
Uniform Commercial Code (the "UCC")) and
without notice of any adverse claim (as
defined in Section 8-302 of the UCC), each
Manager will have acquired such International
Securities free of any adverse claim; and
such Selling Shareholder has the full right,
power and authority (A) to enter into this
Agreement, the International Pricing
Agreement, the U.S. Purchase Agreement and
the U.S. Pricing Agreement and (B) to sell,
transfer and deliver the Securities to be
sold by such Selling Shareholder under this
Agreement and the U.S. Purchase Agreement.
(2) The favorable opinion, dated as of
Closing Time, of Mayer, Brown & Platt, counsel for
the Managers, with respect to the matters set forth
in (i) (as to the Company's existence and good
standing), (v) (solely as to preemptive rights
arising by operation of law or under the charter or
by-laws of the Company), (vii), (viii), the first
sentence of (ix), (xi) and (xiii) (solely as to the
information in the Prospectus under "Description of
Capital Stock -- Common Shares") of subsection (b)(1)
of this Section.
(3) In giving their opinions required by
subsections (b)(1) and (b)(2), respectively, of this
Section, McDermott, Will & Emery and Mayer, Brown &
Platt shall each additionally state that such counsel
has participated in conferences with officers and
representatives of the Company, the Selling
Shareholders and representatives of the independent
accountants of the Company and the Underwriters, at
which the contents of the Registration Statement and
the Prospectuses were discussed, and that although
such counsel is not required to pass upon or assume
any responsibility for the accuracy, completeness or
fairness of the statements contained in the
Registration Statement or the Prospectuses (except to
the extent specifically set forth in subsections
(b)(1) and (b)(2) respectively) and are not required
to make an independent check or verification thereof,
except to the extent otherwise set forth in their
opinion, based upon the foregoing, no facts have come
to their
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<PAGE> 35
attention to lead them to believe that as of its
effective date, the Registration Statement, contained
an untrue statement of a material fact or omitted to
state any material fact required to be stated therein
or necessary to make the statements therein not
misleading or the Prospectuses as of their dates
(unless the term "Prospectuses" refers to a
prospectus which has been provided to the Managers by
the Company for use in connection with the offering
of the Securities which differs from the Prospectuses
on file at the Commission at the time the
Registration Statement becomes effective, in which
case at the time it is first provided to the Managers
for such use) and as of the Closing Time contained or
contain an untrue statement of a material fact or
omitted or omit to state a material fact necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not
misleading, except that such counsel need not express
any opinion or belief as to the financial statements,
schedules and other financial data included or
incorporated by reference therein or excluded from
the Registration Statement or the Prospectuses or the
exhibits to the Registration Statement.
(c) At Closing Time there shall not have been, since
the date hereof or since the respective dates as of which
information is given in the Prospectuses, any material adverse
change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise,
whether or not arising in the ordinary course of business, and
the Lead Managers shall have received a certificate of the
Company signed by the President or a Vice President of the
Company and the chief financial or chief accounting officer of
the Company, dated as of Closing Time, to the effect that (i)
there has been no such material adverse change, (ii) the
representations and warranties of the Company contained in
Section 1(a) are true and correct with the same force and
effect as though expressly made at and as of Closing Time,
(iii) the Company has complied with all agreements and
satisfied all conditions on its part to be performed or
satisfied under this Agreement at or prior to Closing Time,
and (iv) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for
that purpose have been initiated or threatened by the
Commission. As used in this Section 5(c), the term
"Prospectuses" means the Prospectuses in the form first used
to confirm sales of the Securities.
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(d) At Closing Time the Lead Managers shall have
received a certificate of each of the Selling Shareholders,
dated as of Closing Time, to the effect that (i) to the
knowledge of such Selling Shareholder (or, if such Selling
Shareholder is a trust, to the knowledge of the Trustees
thereof), there has been no material adverse change as
described in Section 5(c), (ii) the representations and
warranties of such Selling Shareholder contained in Section
1(b) are true and correct with the same force and effect as
though expressly made at and as of Closing Time and (iii) such
Selling Shareholder has complied in all material respects with
all agreements and satisfied all conditions on its part to be
performed under this Agreement at or prior to Closing Time.
(e) At the time of the execution of this Agreement,
the Lead Managers shall have received from Arthur Andersen LLP
a letter dated such date, in form and substance satisfactory
to the Lead Managers, to the effect that (i) they are
independent public accountants with respect to the Company
within the meaning of the 1933 Act, the 1933 Act Regulations,
the 1934 Act and the 1934 Act Regulations; (ii) in their
opinion, the financial statements and financial statement
schedules, if any, audited by them and included or
incorporated by reference in the Registration Statement comply
as to form in all material respects with the applicable
accounting requirements of the 1933 Act, the 1933 Act
Regulations, the 1934 Act and the 1934 Act Regulations; (iii)
based upon limited procedures set forth in detail in such
letter (which shall include, without limitation, the
procedures specified by the American Institute of Certified
Public Accountants for a review of interim financial
information as described in SAS No. 71, Interim Financial
Information, with respect to the Company's unaudited balance
sheet as of June 30, 1996, and the Company's unaudited
statements of income, shareholders' equity and cashflows for
the twenty-six weeks ended June 30, 1996, and the Company
unaudited statements of income and cash flows for the
twenty-six weeks ended July 2, 1995, included in the
Registration Statement and the Company's condensed financial
statements for the same periods included in the Company's
quarterly report on Form 10-Q for the quarter ended June 30,
1996 and incorporated by reference in the Registration
Statement (collectively, the "Unaudited Financial
Statements")), nothing has come to their attention which
causes them to believe that (A) any material modifications
should be made to the Unaudited Financial Statements for them
to be in conformity with generally accepted accounting
principles or (B) the Unaudited Financial Statements do not
comply as to form in all material respects with the applicable
accounting requirements of the 1933 Act, the 1933
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Act Regulations, the 1934 Act and the 1934 Act Regulations or
(C) at a specified date not more than three days prior to the
date of this Agreement, there has been any change in the
capital stock of the Company or any increase in the long-term
debt or any decrease in the working capital or stockholders'
equity of the Company as compared with the amounts shown in
the June 30, 1996 balance sheet included in the Registration
Statement or, during the period from July 1, 1996 to a
specified date not more than three days prior to the date of
this Agreement, there were any decreases as compared with the
corresponding period in the preceding year, in revenues,
income from operations, net income or net income per share of
the Company, except in all instances for changes, increases or
decreases which the Registration Statement and the
Prospectuses disclose have occurred or may occur or which such
letter discloses have occurred; (iv) in addition to the
examination referred to in their opinions and the limited
procedures referred to in clause (iii) above, they have
carried out certain specified procedures, not constituting an
audit, with respect to certain amounts, percentages and
financial information which are included or incorporated by
reference in the Registration Statement and Prospectuses and
which are specified by the Lead Managers, and have found such
amounts, percentages and financial information to be in
agreement with the relevant accounting, financial and other
records of the Company identified in such letter; and (v) they
have compared the information included or incorporated by
reference in the Prospectuses under selected captions with the
disclosure requirements of Regulation S-K and on the basis of
limited procedures specified in such letter nothing came to
their attention as a result of the foregoing procedures that
caused them to believe that this information does not conform
in all material respects with the disclosure requirements of
Items 301 and 402, respectively, of Regulation S-K.
(f) At Closing Time the Lead Managers shall have
received from Arthur Andersen LLP a letter, dated as of
Closing Time, to the effect that they reaffirm the statements
made in the letter furnished pursuant to subsection (e) of
this Section, except that the specified date referred to shall
be a date not more than three days prior to Closing Time and,
if the Company has elected to rely on Rule 430A of the 1933
Act Regulations, to the further effect that they have carried
out procedures as specified in clause (iv) of subsection (e)
of this Section with respect to certain amounts, percentages
and financial information specified by the Lead Managers and
deemed to be a part of the Registration Statement pursuant to
Rule 430(A)(b) and have found such amounts, percentages and
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<PAGE> 38
financial information to be in agreement with the records
specified in such clause (iv).
(g) At the Closing Time the Securities shall have
been approved for inclusion in the Nasdaq National Market and
such approval shall not have been withdrawn or limited.
(h) At Closing Time and at each Date of Delivery
counsel for the Managers shall have been furnished with such
documents and opinions as they may require for the purpose of
enabling them to pass upon the offer and sale of the
International Securities as contemplated herein and the U.S.
Securities as contemplated in the U.S. Purchase Agreement and
related proceedings, or the fulfillment of any of the
conditions herein or therein contained; and all proceedings
taken by the Company or the Selling Shareholders in connection
with the sale of the International Securities as contemplated
herein and the U.S. Securities as contemplated in the U.S.
Purchase Agreement shall be reasonably satisfactory in form
and substance to the Lead Managers and counsel for the
Managers.
(i) In the event that the Managers exercise their
option provided in Section 2(b) hereof to purchase all or any
portion of the International Option Securities, the
representations and warranties of the Company and the Selling
Shareholders contained herein and the statements in any
certificates furnished by the Company and the Selling
Shareholders hereunder shall be true and correct as of each
Date of Delivery and, at the relevant Date of Delivery, the
Lead Managers shall have received:
(1) Certificates, dated such Date of
Delivery, of (x) the President or a Vice President of
the Company and of the chief financial or chief
accounting officer of the Company and (y) the Selling
Shareholders confirming that the certificates
delivered at the Closing Time pursuant to Section
5(c) and 5(d) hereof, respectively, remain true and
correct as of such Date of Delivery.
(2) The favorable opinion of McDermott, Will
& Emery, counsel for the Company and the Selling
Shareholders, in form and substance satisfactory to
counsel for the Managers, dated such Date of
Delivery, relating to the International Option
Securities to be purchased on such Date of Delivery
and otherwise to the same effect as the opinion
required by Sections 5(b)(1) and 5(b)(3) hereof.
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<PAGE> 39
(3) The favorable opinion of Mayer, Brown &
Platt, counsel for the Managers, dated such Date of
Delivery, relating to the International Option
Securities to be purchased on such Date of Delivery
and otherwise to the same effect as the opinion
required by Sections 5(b)(2) and 5(b)(3) hereof.
(4) A letter from Arthur Andersen LLP, in
form and substance satisfactory to the Lead Managers
and dated such Date of Delivery, substantially the
same in form and substance as the letter furnished to
the Lead Managers pursuant to Section 5(e) hereof,
except that the "specified date" in the letter
furnished pursuant to this Section 5(i)(4) shall be a
date not more than three days prior to such Date of
Delivery.
If any condition specified in this Section shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be
terminated by the Lead Managers by notice to the Company and the Selling
Shareholders at any time at or prior to Closing Time, and such termination
shall be without liability of any party to any other party except as provided
in Section 4 and except that Sections 1, 3(k), 6, 7 and 8 shall survive any
such termination and remain in full force and effect.
SECTION 6. Indemnification.
(a) The Company and the Selling Shareholders jointly and
severally agree to indemnify and hold harmless each Manager and each person, if
any, who controls any Manager within the meaning of Section 15 of the 1933 Act
or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, arising out of any
untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement (or any amendment
thereto), including the information deemed to be part of the
Registration Statement pursuant to Rule 430A(b) or Rule 434 of
the 1933 Act Regulations, if applicable, or the omission or
alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged
untrue statement of a material fact included in any
preliminary prospectus or prospectus, including the
Prospectuses (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading;
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<PAGE> 40
(ii) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, to the extent of
the aggregate amount paid in settlement of any litigation, or
any investigation or proceeding by any governmental agency or
body, commenced or threatened, or of any claim whatsoever
based upon any such untrue statement or omission, or any
alleged untrue statement or omission; provided that (subject
to Section 6(d) below) any such settlement is effected with
the written consent of the indemnifying party and parties; and
(iii) against any and all expense whatsoever, as
incurred (including, subject to the third sentence of Section
6(c) hereof, the fees and disbursements of counsel chosen by
Merrill Lynch International), reasonably incurred in
investigating, preparing or defending against any litigation,
or any investigation or proceeding by any governmental agency
or body, commenced or threatened, or any claim whatsoever
based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, to the extent that any
such expense is not paid under (i) or (ii) above;
provided, however, that (A) this indemnity agreement shall not apply to any
loss, liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to the
Company by any Manager through the Lead Managers expressly for use in the
Registration Statement (or any amendment thereto) or any preliminary prospectus
or the Prospectuses (or any amendment or supplement thereto), (B) this
indemnity agreement, with respect to any preliminary prospectus, shall not
apply to any loss, liability, claim, damage or expense if a copy of the
International Prospectus (as then amended or supplemented, if the Company shall
have furnished any amendments or supplements thereto to such Manager) was not
sent or given by or on behalf of such Manager to the person asserting any such
loss, liability, claim, damage or expense if such is required by law at or
prior to the written confirmation of the sale of such International Securities
to such person and if the International Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss, liability,
claim, damage or expense, and (C) the obligations of each Selling Shareholder
for indemnification pursuant to this Section 6, for contribution pursuant to
Section 7 and for any breach of the representation and
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<PAGE> 41
warranty of such Selling Shareholder set forth in Section 1(b)(vi) of this
Agreement (to the extent such breach does not also constitute a breach of any
other representation and warranty of such Selling Shareholder) (together with
any liability of such Selling Shareholder under Section 6 of the U.S. Purchase
Agreement or for any breach of the representation and warranty set forth in
Section 1(b)(vi) of the U.S. Purchase Agreement (to the extent such breach does
not also constitute a breach of any other representation and warranty of such
Selling Shareholder)) shall be limited to the net proceeds received by such
Selling Shareholder from the sale of his or its Securities pursuant to this
Agreement and the U.S. Purchase Agreement.
In making a claim for indemnification under this Section 6 or
contribution under Section 7 hereof by the Company or the Selling Shareholders,
the indemnified parties may proceed against either (1) both the Company and the
Selling Shareholders jointly or (2) the Company only, but may not proceed
solely against the Selling Shareholders. In the event that the indemnified
parties are entitled to seek indemnity or contribution hereunder against any
loss, liability, claim, damage and expense incurred with respect to a final
judgment from a trial court then, as a precondition to any indemnified party
obtaining indemnification or contribution from any Selling Shareholder, the
indemnified parties shall first obtain a final judgment from a trial court that
such indemnified parties are entitled to indemnity or contribution under this
Agreement with respect to such loss, liability, claim, damage or expense (the
"Final Judgment") from the Company and the Selling Shareholders and shall seek
to satisfy such Final Judgment in full from the Company by making a written
demand upon the Company for such satisfaction. Only in the event such Final
Judgment shall remain unsatisfied in whole or in part 30 days following the
date of receipt by the Company of such demand shall any party entitled to
indemnification hereunder have the right to take action to satisfy such Final
Judgment by making demand directly on the Selling Shareholders (but only if and
to the extent the Company has not already satisfied such Final Judgment,
whether by settlement, release or otherwise). The indemnified parties shall,
however, be relieved of their obligation to first obtain a Final Judgment, to
seek to obtain payment from the Company with respect to such Final Judgment or,
having sought such payment, to wait such 30 days after failure by the Company
to immediately satisfy any such Final Judgment if (A) the Company files a
petition for relief under the United States Bankruptcy Code (the "Bankruptcy
Code"), (B) an order for relief is entered against the Company in an
involuntary case under the Bankruptcy Code, (C) the Company makes an assignment
for the benefit of its creditors, or (D) any court orders or approves the
appointment of a receiver or custodian for the Company or a substantial portion
of its assets. The foregoing provisions of this paragraph are not intended to
require any indemnified party to obtain a Final Judgement against the Company
or the Selling Shareholders before obtaining reimbursement of expenses pursuant
to clause (a)(iii) of this Section 6. However, the indemnified parties shall
first seek to obtain such reimbursement in full from the Company by making a
written demand upon the Company for such reimbursement. Only in
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<PAGE> 42
the event such expenses shall remain unreimbursed in whole or in part 30 days
following the date of receipt by the Company of such demand shall any
indemnified party have the right to receive reimbursement of such expenses from
the Selling Shareholders by making written demand directly on the Selling
Shareholders (but only if and to the extent the Company has not already
satisfied the demand for reimbursement, whether by settlement, release or
otherwise). The indemnified parties shall, however, be relieved of their
obligation to first seek to obtain such reimbursement in full from the Company
or, having made written demand therefor, to wait such 30 days after failure by
the Company to immediately reimburse such expenses if (I) the Company files a
petition for relief under the Bankruptcy Code, (II) an order for relief is
entered against the Company in an involuntary case under the Bankruptcy Code,
(III) the Company makes an assignment for the benefit of its creditors, or (IV)
any court orders or approves the appointment of a receiver or custodian for the
Company or a substantial portion of its assets.
(b) Each Manager severally agrees to indemnify and hold
harmless the Company, its directors, each of its officers who signed the
Registration Statement, each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, each
Selling Shareholder and each Trustee against any and all loss, liability,
claim, damage and expense described in the indemnity contained in subsection
(a) of this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto) or any preliminary international
prospectus or the International Prospectus (or any amendment or supplement
thereto) in reliance upon and in conformity with written information furnished
to the Company by such Manager through the Lead Managers expressly for use in
the Registration Statement (or any amendment thereto) or such preliminary
prospectus or the International Prospectus (or any amendment or supplement
thereto).
(c) Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder, but failure
to so notify an indemnifying party shall not relieve such indemnifying party
from any liability hereunder to the extent it is not materially prejudiced as a
result thereof and in any event shall not relieve it from any liability which
it may have otherwise than on account of this indemnity agreement. If it so
elects within a reasonable time after receipt of such notice, an indemnifying
party may assume the defense of such action, with counsel chosen by it, unless
the indemnified parties reasonably object to such assumption on the grounds
that there are legal defenses available to them which are different from, or
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<PAGE> 43
in addition to, those available to such indemnifying party. If the
indemnifying party assumes the defense of such action, the indemnifying parties
shall not be liable for any fees and expenses of counsel for the indemnified
parties incurred thereafter in connection with such action. In no event shall
the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances. No indemnifying party shall, without the
prior written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever in respect of which indemnification or
contribution could be sought under this Section 6 or Section 7 hereof (whether
or not the indemnified parties are actual or potential parties thereto), unless
such settlement, compromise or consent (i) includes an unconditional release of
each indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of
any indemnified party.
(d) If at any time an indemnified party shall have
requested an indemnifying party to reimburse the indemnified party for fees and
expenses of counsel, such indemnifying party agrees that it shall be liable for
any settlement of the nature contemplated by Section 6(a)(ii) effected without
its written consent if (i) such settlement is entered into more than 45 days
after receipt by such indemnifying party of the aforesaid request, (ii) such
indemnifying party shall have received notice of the terms of such settlement
at least 30 days prior to such settlement being entered into and (iii) such
indemnifying party shall not have reimbursed such indemnified party in
accordance with such request prior to the date of such settlement.
Notwithstanding the immediately preceding sentence, if at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, an indemnifying party shall
not be liable for any settlement of the nature contemplated by Section 6(a)(ii)
effected without its consent if such indemnifying party (i) reimburses such
indemnified party in accordance with such request to the extent it considers
such request to be reasonable and (ii) provides written notice to the
indemnified party substantiating the unpaid balance as unreasonable, in each
case prior to the date of such settlement.
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<PAGE> 44
(e) The provisions of this Section shall not affect any
agreement among the Company and the Selling Shareholders with respect to
indemnification.
SECTION 7. Contribution. If the indemnification provided for
in Section 6 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Shareholders on the one hand and the Managers on the
other hand from the offering of the International Securities pursuant to this
Agreement or (ii) if the allocation provided by clause (i) is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault
of the Company and the Selling Shareholders on the one hand and of the Managers
on the other hand in connection with the statements or omissions which resulted
in such losses, liabilities, claims, damages or expenses, as well as any other
relevant equitable considerations.
The relative benefits received by the Company and the Selling
Shareholders on the one hand and the Managers on the other hand in connection
with the offering of the International Securities pursuant to this Agreement
shall be deemed to be in the same respective proportions as the total net
proceeds from the offering of the International Securities pursuant to this
Agreement (before deducting expenses) received by the Selling Shareholders and
the total underwriting discount received by the Managers, in each case as set
forth on the cover of the International Prospectus, bear to the aggregate
initial public offering price of the International Securities as set forth on
such cover.
The relative fault of the Company and the Selling Shareholders
on the one hand and the Managers on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Company or the Selling
Shareholders or by the Managers and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company, the Selling Shareholders and the Managers agree
that it would not be just and equitable if contribution pursuant to this
Section 7 were determined by pro rata allocation (even if the Managers were
treated as one entity for such purpose) or by
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<PAGE> 45
any other method of allocation which does not take account of the equitable
considerations referred to above in this Section 7. The aggregate amount of
losses, liabilities, claims, damages and expenses incurred by an indemnified
party and referred to above in this Section 7 shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged
untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no Manager
shall be required to contribute any amount in excess of the amount by which the
total price at which the International Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Manager has otherwise been required to pay by reason of any
such untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who
controls a Manager within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act shall have the same rights to contribution as such Manager,
each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
shall have the same rights to contribution as the Company and each Trustee
shall have the same rights to contribution as the Selling Shareholder that is a
trust of which such Trustee is a Trustee. The Managers' respective obligations
to contribute pursuant to this Section 7 are several in proportion to the
number of Initial International Securities set forth opposite their respective
names in Schedule A hereto and not joint.
Notwithstanding the provisions of this Section 7, each Selling
Shareholder's liability for contribution shall be limited as specified in
clause (c) of the proviso to Section 6(a). Any claim for contribution pursuant
to this Section 7 against any of the Selling Shareholders may be made only in
accordance with the last paragraph of Section 6(a).
The provisions of this Section shall not affect any agreement
among the Company and the Selling Shareholders with respect to contribution.
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<PAGE> 46
SECTION 8. Representations, Warranties and Agreements to
Survive Delivery. All representations, warranties and agreements contained in
this Agreement and the International Pricing Agreement, or contained in
certificates of officers of the Company or the Selling Shareholders submitted
pursuant hereto, shall remain operative and in full force and effect,
regardless of any investigation made by or on behalf of any Manager or
controlling person, or by or on behalf of the Company or the Selling
Shareholders, and shall survive delivery of the International Securities to the
Managers.
SECTION 9. Termination of Agreement.
(a) The Lead Managers may terminate this Agreement, by notice
to the Company and the Selling Shareholders, at any time at or prior to Closing
Time (i) if there has been, since the time of execution of this Agreement or
since the respective dates as of which information is given in the
International Prospectus, any material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one enterprise,
whether or not arising in the ordinary course of business, or (ii) if there has
occurred any material adverse change in the financial markets in the United
States or the international financial markets, any outbreak of hostilities or
escalation thereof or other calamity or crisis or any change or development
involving a prospective change in national or international political,
financial or economic conditions, in each case the effect of which is such as
to make it, in the judgment of the Lead Managers, impracticable to market the
Securities or to enforce contracts for the sale of the Securities, or (iii) if
trading in the Common Shares has been suspended or materially limited by the
Commission or the Nasdaq National Market, or if trading generally on the
American Stock Exchange or the New York Stock Exchange or in the Nasdaq
National Market has been suspended or materially limited, or minimum or maximum
prices for trading have been fixed, or maximum ranges for prices for securities
have been required, by any of said exchanges or by such system or by order of
the Commission, the NASD or any other governmental authority, or (iv) if a
banking moratorium has been declared by either Federal, New York or Illinois
authorities. As used in this Section 9(a), the term "International Prospectus"
means the International Prospectus in the form first used to confirm sales of
the International Securities.
(b) If this Agreement is terminated pursuant to this Section,
such termination shall be without liability of any party to any other party
except as provided in Section 4 hereof. Notwithstanding any such termination,
the provisions of Sections 1, 3(k), 6, 7 and 8 hereof shall remain in effect.
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<PAGE> 47
SECTION 10. Default by One or More of the Managers. If one
or more of the Managers shall fail at Closing Time or a Date of Delivery to
purchase the Securities which it or they are obligated to purchase under this
Agreement and the International Pricing Agreement (the "Defaulted Securities"),
the Lead Managers shall have the right, within 24 hours thereafter, to make
arrangements for one or more of the non-defaulting Managers, or any other
underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms herein set
forth; if, however, the Lead Managers shall not have completed such
arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not
exceed 10% of the number of International Securities to be
purchased on such date, each of the non-defaulting Managers
shall be obligated, severally and not jointly, to purchase the
full amount thereof in the proportions that their respective
underwriting obligations hereunder bear to the underwriting
obligations of all non-defaulting Managers, or
(b) if the number of Defaulted Securities exceeds
10% of the number of International Securities to be purchased
on such date, this Agreement or, with respect to any Date of
Delivery which occurs after the Closing Time, the obligation
of the Managers to purchase and of the relevant Selling
Shareholders to sell the Option Securities to be purchased and
sold on such Date of Delivery shall terminate without
liability on the part of any non-defaulting Manager.
No action taken pursuant to this Section shall relieve any
defaulting Manager from liability in respect of its default.
In the event of any such default which does not result in a
termination of this Agreement or, in the case of a Date of Delivery which is
after the Closing Time, which does not result in a termination of the
obligation of the Managers to purchase and the relevant Selling Shareholders to
sell the relevant International Option Securities, as the case may be, either
(i) the Lead Managers or (ii) the Company and any Selling Shareholder shall
have the right to postpone Closing Time for a period not exceeding seven days
in order to effect any required changes in the Registration Statement or
Prospectuses or in any other documents or arrangements. As used herein, the
term "Manager" includes any person substituted for a Manager under this Section
10.
SECTION 11. Default by One or More of the Selling
Shareholders. If a Selling Shareholder shall fail at Closing Time or at a Date
of Delivery to sell and deliver the number of International Securities that
such Selling Shareholder or Selling
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<PAGE> 48
Shareholders are obligated to sell hereunder, and the remaining Selling
Shareholders do not exercise the right hereby granted to increase, pro rata or
otherwise, the number of International Securities to be sold by them hereunder
to the total number to be sold by all Selling Shareholders as set forth in
Schedule B hereto, then the Managers may, at the option of the Lead Managers,
by notice from the Lead Managers to the Company and the non-defaulting Selling
Shareholders, either (a) terminate this Agreement without any liability on the
part of any non-defaulting party except that the provisions of Sections 1,
3(k), 4, 6, 7 and 8 shall remain in full force and effect or (b) elect to
purchase the International Securities which the non-defaulting Selling
Shareholders have agreed to sell hereunder. No action taken pursuant to this
Section 11 shall relieve any Selling Shareholder so defaulting from liability,
if any, in respect of such default.
In the event of any default by any Selling Shareholder as
referred to in this Section 11, each of the Lead Managers, the Company and the
non-defaulting Selling Shareholders shall have the right to postpone Closing
Time or Date of Delivery for a period not exceeding seven days in order to
effect any required change in the Registration Statement or Prospectuses or in
any other documents or arrangements.
SECTION 12. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
mailed or transmitted by any standard form of telecommunication. Notices to
the Managers shall be directed to the Lead Managers at Merrill Lynch & Co.,
5500 Sears Tower, Chicago, Illinois 60606, attention of Jeffrey C. Neal;
notices to the Company shall be directed to it at APAC TeleServices, Inc., One
Parkway North Center, Suite 510, Deerfield, Illinois 60015, attention of Marc
S. Simon; notices to any Selling Shareholder which is not a trust shall be
directed to Theodore G. Schwartz and Marc S. Simon, One Parkway North Center,
Suite 510, Deerfield, Illinois 60015; and notices to the Selling Shareholders
which are trusts shall be directed to M. Christine Schwartz, c/o TCS Group,
L.L.C., 1200 Shermer Road, Suite 212, Northbrook, Illinois 60062.
SECTION 13. Parties. This Agreement and the International
Pricing Agreement shall each inure to the benefit of and be binding upon the
Managers, the Company and the Selling Shareholders and their respective
successors, heirs and legal representatives. Nothing expressed or mentioned in
this Agreement or the International Pricing Agreement is intended or shall be
construed to give any person, firm or corporation, other than the Managers, the
Company and the Selling Shareholders and their respective successors, heirs and
legal representatives and the controlling persons, officers and directors and
Trustees referred to in Sections 6 and 7 and their respective successors, heirs
and legal representatives, any legal or equitable right,
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<PAGE> 49
remedy or claim under or in respect of this Agreement or the International
Pricing Agreement or any provision herein or therein contained. This Agreement
and the International Pricing Agreement and all conditions and provisions
hereof and thereof are intended to be for the sole and exclusive benefit of the
Managers, the Company and the Selling Shareholders and their respective
successors, heirs and legal representatives and said controlling persons,
officers and directors and Trustees and their respective successors, heirs and
legal representatives, and for the benefit of no other person, firm or
corporation. No purchaser of Securities from any Manager shall be deemed to be
a successor by reason merely of such purchase.
SECTION 14. GOVERNING LAW AND TIME. THIS AGREEMENT AND THE
PRICING AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK. SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY
TIME.
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<PAGE> 50
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to each of the Company and the Selling
Shareholders, a counterpart hereof, whereupon this instrument, along with all
counterparts, will become a binding agreement among the Managers, the Company
and the Selling Shareholders in accordance with its terms.
Very truly yours,
APAC TELESERVICES, INC.
By:
----------------------------------------
Title:
-------------------------------------------
Theodore G. Schwartz
-------------------------------------------
M. Christine Schwartz, not individually,
but solely as Co-Trustee of the Trust
Seven Hundred Thirty U/A/D 4/2/94
-------------------------------------------
Robert H. Wicklein, not individually,
but solely as Co-Trustee of the Trust Seven
Hundred Thirty U/A/D 4/2/94
-------------------------------------------
John J. Abens, not individually, but
solely as Co-Trustee of the Trust Seven
Hundred Thirty U/A/D 4/2/94
-------------------------------------------
Heidi Schoeffer, not individually, but
solely as Co-Trustee of the Trust Seven
Hundred Thirty U/A/D 4/2/94
-------------------------------------------
M. Christine Schwartz, not individually,
but solely as Co-Trustee of the Trust
Four Hundred Thirty U/A/D 4/2/94
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<PAGE> 51
-------------------------------------------
Robert H. Wicklein, not individually,
but solely as Co-Trustee of the Trust
Four Hundred Thirty U/A/D 4/2/94
-------------------------------------------
John J. Abens, not individually, but
solely as Co-Trustee of the Trust Four
Hundred Thirty U/A/D 4/2/94
-------------------------------------------
Heidi Schoeffer, not individually, but
solely as Co-Trustee of the Trust Four
Hundred Thirty U/A/D 4/2/94
-------------------------------------------
M. Christine Schwartz, not individually,
but solely as Trustee of the Schwartz
1996 Charitable Remainder Unitrust
-------------------------------------------
Marc S. Simon
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH INTERNATIONAL
LEHMAN BROTHERS INTERNATIONAL (EUROPE)
SMITH BARNEY INC.
WILLIAM BLAIR & COMPANY, L.L.C.
By: MERRILL LYNCH INTERNATIONAL
By:
----------------------------------------
Authorized Signatory
For themselves and as Lead Managers of the other
Managers named in Schedule A hereto.
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<PAGE> 52
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Initial
International
Name of Manager Securities
--------------- ----------
<S> <C>
Merrill Lynch International . . . . . . . . . . . . . . . . . . . . . . . . .
Lehman Brothers International (Europe). . . . . . . . . . . . . . . . . . . .
Smith Barney Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
William Blair & Company, L.L.C. . . . . . . . . . . . . . . . . . . . . . . .
--------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 820,000
=======
</TABLE>
Sch A - 1
<PAGE> 53
SCHEDULE B
<TABLE>
<CAPTION>
Maximum
Number of Number of
Initial International
International Option
Securities Securities
Name to be sold to be sold
---- ---------- ----------
<S> <C> <C>
Theodore G. Schwartz . . . . . . . . . . . . . . . . . . . . . . . . . . 180,000
Schwartz 1996 Charitable
Remainder Unitrust . . . . . . . . . . . . . . . . . . . . . . . . 220,000 120,000
Trust Seven Hundred Thirty . . . . . . . . . . . . . . . . . . . . . . . .
U/A/D 4/2/94 . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000
Trust Four Hundred Thirty . . . . . . . . . . . . . . . . . . . . . . . . .
U/A/D 4/2/94 . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000
Marc S. Simon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 3,000
------- -------
Total . . . . . . . . . . . . . . . . . . . . . . 820,000 123,000
======= =======
</TABLE>
Sch B - 1
<PAGE> 54
SCHEDULE C
Certain Clients of the Company
J.C. Penney Life Insurance Company (each contract with J.C.
Penney Life Insurance Company includes an exhibit thereto
regarding the services to be performed for Mass Marketing
Insurance)
American Bankers Life Assurance Company
Discover Card Services, Inc.
Western Union Financial Services, Inc.
United Parcel Service General Services Company
Chevy Chase Bank
Quill Corporation
John H. Harland Corporation
AT&T
Sch C - 1
<PAGE> 55
SCHEDULE D
Certain Contracts and Other Agreements
1. Credit Agreement, dated as of June 5, 1996, among APAC TeleServices,
Inc., the Lenders party thereto and Harris Trust and Savings Bank.
2. APAC TeleServices, Inc. Revolving Note (Facility A) dated as of _____,
19 __.
3. APAC TeleServices, Inc. Revolving Note (Facility B) dated as of _____,
19 __.
4. APAC TeleServices, Inc. Facility B Term Note dated as of _____, 19 __.
5. All Industrial Revenue Bonds described in the "Notes to Financial
Statements" contained in the Prospectus.
6. Registration Rights Agreement dated as of October 3, 1995 between APAC
TeleServices, Inc., Theodore G. Schwartz and the Co-Trustees of the
1994 Schwartz Family Trust No. 1 u/a/d April 2, 1994 and the 1994
Schwartz Family Trust No. 2 u/a/d April 2, 1994, as co-trustees.
7. Tax Agreement dated as of October 2, 1995 between APAC TeleServices,
Inc., Theodore G. Schwartz and the Co-Trustees of the 1994 Schwartz
Family Trust No. 1 u/a/d April 2, 1994 and the 1994 Schwartz Family
Trust No. 2 u/a/d April 2, 1994, as co-trustees.
8. Each contract and agreement between the Company and the following
clients of the Company:
J.C. Penney Life Insurance Company (each contract with J.C.
Penney Life Insurance Company includes an exhibit thereto
regarding the services to be performed for Mass Marketing
Insurance)
American Bankers Life Assurance Company
Discover Card Services, Inc.
Western Union Financial Services, Inc.
United Parcel Service General Services Company
AT&T
John H. Harland Corporation
Chevy Chase Bank
Quill Corporation
Sch D - 1
<PAGE> 56
Exhibit A
820,000 Shares
APAC TELESERVICES, INC.
(an Illinois corporation)
Common Shares
(Par Value $.01 Per Share)
PRICING AGREEMENT
-----------------
, 1996
-------
MERRILL LYNCH INTERNATIONAL
LEHMAN BROTHERS INTERNATIONAL (EUROPE)
SMITH BARNEY INC.
WILLIAM BLAIR & COMPANY, L.L.C.
as Lead Managers of the several Managers
c/o Merrill Lynch International
Ropemaker Place
25 Ropemaker Street
London EC2Y 96Y
ENGLAND
Dear Sirs:
Reference is made to the International Purchase Agreement dated
_______, 1996 (the "International Purchase Agreement") relating to the purchase
by the several Managers named in Schedule A thereto, for whom you are acting as
representatives (the "Lead Managers"), of the above Common Shares (the "Initial
International Securities"), of APAC TeleServices, Inc., an Illinois corporation
(the "Company").
Pursuant to Section 2 of the International Purchase Agreement, the
Company and the Selling Shareholders named in Schedule B to the International
Purchase Agreement (the "Selling Shareholders") agree with each Manager as
follows:
1. The initial public offering price per share for the
Initial International Securities, determined as provided in said
Section 2, shall be $_________________.
2. The purchase price per share for the Initial International
Securities to be paid by the several Managers
Exh. A - 1
<PAGE> 57
shall be $ , being an amount equal to the initial public
offering price set forth above less $ per share.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York applicable to agreements made and to be
performed in said State.
Exh. A - 2
<PAGE> 58
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company and the Selling Shareholders,
a counterpart hereof, whereupon this instrument, along with all counterparts,
will become a binding agreement among the Managers, the Company and the Selling
Shareholders in accordance with its terms.
Very truly yours,
APAC TELESERVICES, INC.
By:
---------------------------
Title:
------------------------------
Theodore G. Schwartz
------------------------------
M. Christine Schwartz, not
individually, but solely as
Co-Trustee of the Trust Seven
Hundred Thirty U/A/D 4/2/94
------------------------------
Robert H. Wicklein, not
individually, but solely as
Co-Trustee of the Trust Seven
Hundred Thirty U/A/D 4/2/94
------------------------------
John J. Abens, not
individually, but solely as
Co-Trustee of the Trust Seven
Hundred Thirty U/A/D 4/2/94
------------------------------
Heidi Schoeffer, not
individually, but solely as
Co-Trustee of the Trust Seven
Hundred Thirty U/A/D 4/2/94
Exh. A - 3
<PAGE> 59
-------------------------------
M. Christine Schwartz, not
individually, but solely as
Co-Trustee of the Trust Four
Hundred Thirty U/A/D 4/2/94
-------------------------------
Robert H. Wicklein, not
individually, but solely as
Co-Trustee of the Trust Four
Hundred Thirty U/A/D 4/2/94
-------------------------------
John J. Abens, not
individually, but solely as
Co-Trustee of the Trust Four
Hundred Thirty U/A/D 4/2/94
-------------------------------
Heidi Schoeffer, not
individually, but solely as
Co-Trustee of the Trust Four
Hundred Thirty U/A/D 4/2/94
-------------------------------
M. Christine Schwartz, not
individually, but solely as
Trustee of the Schwartz 1996
Charitable Remainder Unitrust
-------------------------------
Marc S. Simon
Exh. A - 4
<PAGE> 60
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH INTERNATIONAL
LEHMAN BROTHERS INTERNATIONAL (EUROPE)
SMITH BARNEY INC.
WILLIAM BLAIR & COMPANY, L.L.C.
By: MERRILL LYNCH INTERNATIONAL
By:
---------------------------------------
Authorized Signatory
For themselves and as Lead Managers of the
other Managers named in the Purchase Agreement
Exh. A - 5
<PAGE> 1
Exhibit - 5.1
-------------
[McDermott, Will & Emery Letterhead]
October 29, 1996
APAC TeleServices, Inc.
One Parkway North Center
Deerfield, Illinois 60015
Re: Registration Statement on Form S-3
File No. 333-14097
-----------------------------------
Ladies and Gentlemen:
You have requested our opinion in connection with the above-referenced
registration statement (the "Registration Statement") which has been filed with
the Securities and Exchange Commission by APAC TeleServices, Inc. (the
"Company"). The Registration Statement relates to 4,100,000 Common Shares, par
value $.01 per share, of the Company ("Common Shares"), to be sold by certain
shareholders of the Company and an aggregate of 615,000 additional Common
Shares subject to an over-allotment option granted to the underwriters
(together with the 4,100,000 Common Shares, the "Secondary Shares").
In arriving at the opinion expressed below, we have examined the
Registration Statement and such other documents as we have deemed necessary to
enable us to express the opinion hereinafter set forth. In addition, we have
examined and relied, to the extent we deem proper, on certificates of officers
of the Company as to factual matters, and on the originals or copies certified
or otherwise identified to our satisfaction, of all such corporate records of
the Company and such other instruments and certificates of public officials and
other persons as we have deemed appropriate. In our examination, we have
assumed the authenticity of all documents submitted to us as originals, the
conformity to the original documents of all documents submitted to us as
copies, the genuineness of all signatures on documents reviewed by us and the
legal capacity of natural persons.
Based upon and subject to the foregoing, we are of the opinion that
when issued and sold in accordance with the terms and conditions of the U.S.
Purchase Agreement and the International Purchase Agreement (as these terms are
defined in the Registration Statement) the Secondary Shares will be validly
issued, fully paid and non-assessable.
Members of our firm are admitted to the practice of law in the State of
Illinois and we express no opinion as to the laws of any jurisdiction other
than the laws of the State of Illinois and the laws of the United States of
America. We hereby consent to the references to our firm under the caption
"Legal Matters" in the Registration Statement and to the use of this opinion as
an exhibit to the Registration Statement. In giving this consent, we do not
hereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ McDermott, Will & Emery
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this Registration Statement of our reports dated
February 1, 1996, included in APAC TeleServices, Inc. Form 10-K for the year
ended December 31, 1995 and to all references to our Firm included in this
Registration Statement.
ARTHUR ANDERSON LLP
-------------------
ARTHUR ANDERSON LLP
Chicago, Illinois
October 31, 1996