-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VuV+pwCa64ShR8UEuY5+nLwD5pMO7lz9jXaBfdR3PoQnkghdwiZOLXy9MueMuzHB 349p4YPehLKQi9UMbavkvw== 0000950116-98-002434.txt : 19981216 0000950116-98-002434.hdr.sgml : 19981216 ACCESSION NUMBER: 0000950116-98-002434 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981130 ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19981215 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NCO GROUP INC CENTRAL INDEX KEY: 0001022608 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-CONSUMER CREDIT REPORTING, COLLECTION AGENCIES [7320] IRS NUMBER: 232858652 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-21639 FILM NUMBER: 98769616 BUSINESS ADDRESS: STREET 1: 515 PENNSYLVANIA AVE CITY: FT WASHINGTON STATE: PA ZIP: 19034 BUSINESS PHONE: 2157939300 8-K 1 FORM 8-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ================================== FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 ================================== Date of Report (Date of earliest event reported): November 30, 1998 NCO GROUP, INC. ---------------------------------------------------- (Exact name of Registrant as specified in its charter)
Pennsylvania 0-21639 23-2858652 - ------------------------------------- --------------------------------- -------------------------------- (State or other jurisdiction of (Commission File Number) (I.R.S. Employer incorporation or organization) Identification Number)
515 Pennsylvania Avenue Fort Washington, Pennsylvania 19034 ----------------------------------- (Address of principal executive offices, including zip code) Registrant's telephone number, including area code: (215) 793-9300 ------------- Item 2. Acquisition or Disposition of Assets. On November 30, 1998, MSC Funding, Inc., a Delaware corporation ("Buyer"), a wholly-owned subsidiary of NCO Group, Inc. ("NCO"), purchased all of the outstanding stock of Medaphis Services Corporation, a wholly owned subsidiary of Medaphis Corporation, for $107.5 million in cash, plus an earn-out of up to $10.0 million based on the acquired company achieving certain operational targets during 1999. Medaphis Services Corporation, together with its subsidiary AssetCare, Inc. ("MSC"), is one of the largest providers of accounts receivable management services and business cosourcing services to hospitals in the United States. MSC has 31 locations and provides services to approximately 2,500 clients. MSC's revenues for the fiscal year ended December 31, 1997 and the nine months ended September 30, 1998 were $96.7 million and $78.1 million, respectively. Management believes that the acquisition of MSC will significantly enhance NCO's market position as a leading provider of accounts receivable management services to the healthcare sector. The purchase price was determined by negotiations between the parties. The cash purchase price was paid using borrowings under NCO's credit agreement with Mellon Bank. See Item 5. Item 5. Other Events. Agreement to acquire JDR Holdings, Inc. - --------------------------------------- On November 2, 1998, NCO signed a definitive agreement to acquire JDR Holdings, Inc. ("JDR"), a leading provider of technology-based outsourcing and accounts receivable management services. NCO will issue approximately 3.7 million shares of NCO common stock for all outstanding shares of JDR. After the transaction is completed, JDR shareholders will own approximately 17% of the combined company. JDR's revenues for the fiscal year ended December 31, 1997 and the nine months ended September 30, 1998 were $33.3 million and $38.2 million, respectively. The transaction is expected to be accounted for as a pooling of interests and treated as a tax free-reorganization. The acquisition, which is subject to shareholder approval of both companies, is expected to close in the first quarter of 1999. Amendment to Credit Agreement - ----------------------------- On November 30, 1998, NCO's credit agreement with Mellon Bank, N.A., for itself and as administrative agent for other participating lenders, was amended to, among other things, increase NCO's credit facility to provide for borrowings up to $200 million consisting of a term loan of $125 million and a revolving credit facility of up to $75 million. Borrowings bear interest at a rate equal to, at the option of NCO, Mellon Bank's prime rate (7.75% at November 30, 1998) or LIBOR plus a margin ranging from 1.25% to 2.25% depending on NCO's consolidated funded debt to EBITDA ratio (LIBOR was 5.28 % at November 30, 1998). Borrowings are collateralized by substantially all the assets of NCO and are payable upon the expiration of the five year term, except that certain quarterly payments on the term loan are payable beginning on September 30, 1999. The credit agreement contains certain financial covenants such as maintaining minimum working capital and net worth requirements and includes restrictions on, among other things, capital expenditures and distributions to shareholders. Risks Associated with Pending and Recent Acquisitions. - ------------------------------------------------------ The businesses acquired by NCO in 1998 and to be acquired in the pending JDR merger had combined revenues of $224.5 million in 1997 compared to NCO's revenue of $85.3 million in 1997. NCO is currently in the process of completing the integration of the acquisitions made in 1998. There can be no assurance that NCO will successfully consummate the JDR merger. The integration of MSC and JDR could divert management's attention from the daily operation of NCO, require additional management, operational and financial resources, and place significant demands on NCO's management and infrastructure. There can be no assurance that the recently acquired businesses, the MSC acquisition and the pending JDR merger will be successfully integrated with NCO, that NCO will be able to realize operating efficiencies or eliminate redundant costs, or that any or all of such businesses will be operated profitably. Further, there can be no assurance that clients of the acquired companies will continue to do business with NCO, or that NCO will be able to retain key employees of the acquired companies. In addition, there can be no assurance that the acquired companies will not have additional liabilities or contingencies that were unanticipated by NCO at the time of the acquisitions. Item 7. Financial Statements and Exhibits. The following exhibits are being filed as part of this report: (a) Financial Statements of Businesses Acquired It is impracticable to provide any financial statements which may be required for MSC at this time. Any required financial statements will be filed as an amendment to this Form 8-K as soon as practicable, but not later than February 13, 1999. (b) Pro Forma Financial Information. It is impracticable to provide any pro forma financial information which may be required for MSC at this time. Any required pro forma financial information will be filed as an amendment to this Form 8-K as soon as practicable, but not later than February 13, 1999. (c) Exhibits Number Title ------ ----- 1. Amended and Restated Stock Purchase Agreement by and between NCO and Medaphis Corporation dated as of October 15, 1998 as amended and restated on November 30, 1998. NCO will furnish to the Securities and Exchange Commission a copy of any omitted schedule upon request. -2- 2. Third Amended and Restated Credit Agreement dated as of November 30, 1998 by and among NCO, its U.S. Subsidiaries, the Financial Institutions listed therein as Lenders and Mellon Bank, N.A. as administrative agent. NCO will furnish to the Securities and Exchange Commission a copy of any omitted schedule upon request. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. NCO GROUP, INC. By: /s/ Steven L. Winokur --------------------------- Vice President, Finance and Chief Financial Officer Date: December 15, 1998 -3- EX-1 2 EXHIBIT 1 AMENDED AND RESTATED STOCK PURCHASE AGREEMENT by and between MEDAPHIS CORPORATION and NCO GROUP, INC. dated as of October 15, 1998 as amended and restated on November 30, 1998 TABLE OF CONTENTS Page ---- ARTICLE I PURCHASE AND SALE OF THE SHARES ......................................1 Section 1.1 Purchase and Sale ...................................1 Section 1.2 Consideration .......................................1 Section 1.3 Closing .............................................2 Section 1.4 Deliveries by Seller ................................2 Section 1.5 Deliveries by Buyer .................................3 Section 1.6 Closing Balance Sheet ...............................3 Section 1.7 Post Closing Adjustment .............................3 Section 1.8 Earn-Out Payment ....................................4 ARTICLE II RELATED MATTERS ......................................................6 Section 2.1 Use of Seller's Name and Logo .......................6 Section 2.2 Books and Records of the Company ....................7 Section 2.3 No Ongoing or Transition Services ...................7 Section 2.4 Intercompany Accounts ...............................8 Section 2.5 Distributions .......................................8 Section 2.6 Service Contracts ...................................8 Section 2.7 Long Distance Telephone Service .....................8 Section 2.8 Certain Insurance Matters ...........................8 Section 2.9 Certain Accounts Receivable .........................9 ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER .............................9 Section 3.1 Organization ........................................9 Section 3.2 Authorization .......................................9 Section 3.3 Common Stock .......................................10 Section 3.4 Ownership of the Common Stock ......................10 Section 3.5 Consents and Approvals: No Violations ..............10 Section 3.6 Financial Statements ...............................11 Section 3.7 Absence of Undisclosed Liabilities .................11 Section 3.8 Absence of Material Adverse and Other Changes ......11 Section 3.9 Title, Ownership and Related Matters ...............11 Section 3.10 Leases .............................................12 Section 3.11 Intellectual Property ..............................13 Section 3.12 Computer Software ..................................13 Section 3.13 Litigation .........................................13 Section 3.14 Compliance with Applicable Law .....................14 i Section 3.15 Certain Contracts and Arrangements .................14 Section 3.16 Employee Benefit Plans: ERISA ......................14 Section 3.17 Taxes ..............................................15 Section 3.18 Certain Fees .......................................16 Section 3.19 Operations Prior to and Including the Closing ......16 Section 3.20 Debt Collection Licenses ...........................18 Section 3.21 Employee Relations .................................18 Section 3.22 Accounts Receivable ................................18 Section 3.23 Suppliers and Customers ............................19 Section 3.24 Insurance ..........................................19 Section 3.25 Questionable Payments ..............................19 Section 3.26 Full Disclosure ....................................19 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER .............................19 Section 4.1 Organization and Authority of Buyer ................19 Section 4.2 Consents and Approvals; No Violations ..............20 Section 4.3 Availability of Funds ..............................20 Section 4.4 Litigation .........................................20 Section 4.5 Certain Fees .......................................21 ARTICLE V COVENANTS ...........................................................21 Section 5.1 Conduct of the Company's Business..................21 Section 5.2 Access to Information ..............................21 Section 5.3 Consents ...........................................22 Section 5.4 Best Efforts .......................................22 Section 5.5 Public Announcements ...............................22 Section 5.6 Covenant to Satisfy Conditions .....................22 Section 5.7 Employees; Employee Benefits .......................23 Section 5.8 Certain Tax Matters ................................24 Section 5.9 Proceedings ........................................29 Section 5.10 Continued Effectiveness of Representations and Warranties of Corporation ..........................29 Section 5.11 No Shopping ........................................29 Section 5.12 Hart-Scott-Rodino Filings ..........................29 Section 5.13 Releases ...........................................29 ARTICLE VI CONDITIONS TO OBLIGATIONS OF THE PARTIES ............................30 Section 6.1 Conditions to Each Party's Obligation ..............30 Section 6.2 Conditions to Obligations of Seller ................30 Section 6.3 Conditions to Obligations of Buyer .................31 ii ARTICLE VII TERMINATION, AMENDMENT; WAIVER ......................................32 Section 7.1 Termination ........................................32 Section 7.2 Procedure and Effect of Termination.................33 Section 7.3 Amendment, Modification and Waiver .................33 ARTICLE VIII SURVIVAL OF REPRESENTATIONS: INDEMNIFICATION ........................33 Section 8.1 Survival of Representations and Warranties .........33 Section 8.2 Seller's Agreement to Indemnify ....................34 Section 8.3 Buyer's Agreement to Indemnify .....................34 Section 8.4 General Provisions .................................35 Section 8.5 Third Party Indemnification ........................36 ARTICLE IX RESTRICTIVE COVENANTS OF THE SELLERS ................................36 Section 9.1 Certain Acknowledgments ............................36 Section 9.2 Nondisclosure Covenants ............................37 Section 9.3 Noncompetition Covenants ...........................38 Section 9.4 Nonsolicitation ....................................38 Section 9.5 Certain Exclusions .................................38 Section 9.6 Enforcement of Covenants ...........................39 Section 9.7 Scope of Covenants .................................39 ARTICLE X MISCELLANEOUS .......................................................39 Section 10.1 Fees and Expenses...................................39 Section 10.2 Further Assurances .................................39 Section 10.3 Notices ............................................39 Section 10.4 Severability .......................................41 Section 10.5 Binding Effect; Assignment .........................41 Section 10.6 No Third Party Beneficiaries .......................41 Section 10.7 Interpretation .....................................41 Section 10.8 Jurisdiction and Consent to Service ................42 Section 10.9 Entire Agreement ...................................42 Section 10.10 Governing Law ......................................42 Section 10.11 Specific Performance ...............................42 Section 10.12 Counterparts .......................................42 iii AMENDED AND RESTATED STOCK PURCHASE AGREEMENT ------------------------ THIS AMENDED AND RESTATED STOCK PURCHASE AGREEMENT is made and dated as of October 15, 1998 and is amended and restated on November 30, 1998 (the "Agreement"), by and between Medaphis Corporation, a Delaware corporation ("Seller"), and NCO Group, Inc., a Pennsylvania corporation ("Buyer"). WHEREAS, pursuant to the terms and conditions of this Agreement, Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, 100 shares (the "Shares") of common stock, par value $1.00 per share (the "Common Stock"), of Medaphis Services Corporation, a Georgia corporation and a wholly-owned subsidiary of Seller (the "Company"), representing all of the issued and outstanding capital stock of the Company. WHEREAS, Seller and Buyer wish to make an election under Section 338(h)(10) of the Internal Revenue Code of 1986, as amended, (the "Code"), to treat the transaction for federal income tax purposes (and for state and local tax purposes, where a comparable election is allowable) as the deemed sale of the Company's assets in connection with a complete liquidation of the Company pursuant to Section 332 of the Code. WHEREAS, immediately before the sale of the Shares to Buyer, the Company will adopt a plan of complete liquidation within the meaning of Section 332 of the Code and, pursuant to such plan of complete liquidation, will distribute to Seller (a) the stock of National Healthcare Technologies, Inc. ("NHTI") that is owned by the Company, which stock represents all of the issued and outstanding stock of NHTI, and (b) all assets related solely to the operation of the print and mail operation of the Company (the "Laser Center"). WHEREAS, the parties have entered into a Stock Purchase Agreement dated as of October 15, 1998 and desire to amend and restate such agreement in its entirety as hereinafter set forth. NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants, agreements and conditions set forth below, and intending to be legally bound hereby, the parties hereto agree as follows: ARTICLE I PURCHASE AND SALE OF THE SHARES Section 1.1 Purchase and Sale. Subject to the terms and conditions of this Agreement, at the Closing provided for in Section 1.3 hereof (the "Closing"), Seller will sell, transfer and deliver to Buyer, and Buyer will purchase, acquire and accept from Seller, the Shares. Section 1.2 Consideration. Subject to the terms and conditions of this Agreement, in consideration of the aforesaid sale, transfer and delivery of the Shares, Buyer shall pay to Seller a total purchase price equal to (a) One Hundred and Seven Million Five Hundred Thousand Dollars ($107,500,000) (the "Base Purchase Price"), plus or minus (as applicable) (b) the amount of the Post-Closing Adjustment (as defined in Section 1.7), if any, plus (c) the amount of the Earn-Out Payment (as defined in Section 1.8), if any, (the Base Purchase Price, plus or minus (as applicable) any Post-Closing Adjustment, plus any Earn-Out Payment is referred to as the "Purchase Price"). The Base Purchase Price shall be paid to Seller in cash by wire transfer of immediately available funds to such bank account as shall be designated by Seller in writing not less than two business days prior to the Closing. Section 1.3 Closing . The Closing of the transactions contemplated by this Agreement shall take place on November 30, 1998, provided that all of the conditions to Closing set forth in Article VI hereof are satisfied or waived, or, in the event that such conditions are not then satisfied or waived, the third business day following the satisfaction or waiver of all of such conditions, at 9:00 a.m., local time, at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York, New York, or on such other date and at such other time or place as the parties may agree. The date of the Closing is sometimes referred to herein as the "Closing Date". The transactions contemplated by this Agreement shall be effective as of the close of business on the Closing Date. Section 1.4 Deliveries by Seller . At the Closing, Seller will deliver or cause to be delivered to Buyer (unless delivered previously) the following: (a) The stock certificate or certificates representing the Shares, accompanied by stock powers duly executed in blank or duly executed stock transfer forms or instruments of transfer which validly transfer title of the Shares; (b) The resignations of all members of the Board of Directors of the Company; (c) The stock books, ledger books and corporate seal of the Company and each Subsidiary (as hereinafter defined); (d) The books and records of the Company and each Subsidiary to the extent provided in Section 2.2 hereof; (e) An opinion of counsel, in form reasonably acceptable to Buyer, from Skadden, Arps, Slate, Meagher & Flom LLP as to the matters reasonably agreed to by the parties; (f) All Releases (as defined in Section 5.13); and (g) All other documents, certificates, instruments and writings required or reasonably requested to be delivered by Seller at or prior to the Closing pursuant to this Agreement or otherwise required in connection herewith. 2 Section 1.5 Deliveries by Buyer. At the Closing, Buyer will deliver or cause to be delivered to Seller (unless previously delivered) the following: (a) The Base Purchase Price referred to in Section 1.2 hereof, and, if applicable, the Earn-Out Payment pursuant to Section 1.8(a); (b) An opinion of counsel, in form reasonably acceptable to Seller, from Blank Rome Comisky & McCauley LLP as to the matters reasonably agreed to by the parties; and (c) All other documents, certificates, instruments or writings required or reasonably requested to be delivered by the Buyer at or prior to the Closing pursuant to this Agreement or otherwise required in connection herewith. Section 1.6 Closing Balance Sheet . Buyer shall cause the Company to close the books and accounts of the Company as of the Closing Date. Buyer will deliver to Seller as soon as reasonably practicable, but in no event later than forty-five (45) business days after Closing, a balance sheet of the Company and Subsidiaries as of the Closing Date (the "Closing Balance Sheet"), which has been audited by PricewaterhouseCoopers LLP (the "Accountants"). The Closing Balance Sheet will be prepared in accordance with generally accepted accounting principles consistently applied ("GAAP") and consistent with the presentation of the balance sheet contained in the Unaudited Financial Statements (as hereinafter defined) as of and for the period ended June 30, 1998. The Closing Balance Sheet shall include accruals for all obligations of the Company and its Subsidiaries including, but not limited to, for federal, state and local taxes (including income taxes) as well as accruals including, but not limited to, for payroll taxes, employee benefits, workers' compensation insurance premiums and deposits, wages, bonuses, vacation pay, sick pay and "comp" time, in all cases as if there had been a closing of the books on the Closing Date. Buyer shall give the representatives of the Seller reasonable access to the Company's books and records for the purpose of examining the Closing Balance Sheet. Section 1.7 Post Closing Adjustment. If the Tangible Net Worth (as hereinafter defined) of the Company and its Subsidiaries as reflected on the Closing Balance Sheet is less than the Target TNW (as hereinafter defined), the amount of such difference shall be the Post Closing Adjustment payable by Seller to Buyer. If the Tangible Net Worth of the Company and its Subsidiaries as reflected on the Closing Balance Sheet is greater than the Target TNW, the amount of such difference shall be the Post Closing Adjustment payable by Buyer to Seller. If any Post Closing Adjustment is required, the adjustment shall be paid on a date (the "Payment Date") within three (3) business days after the Closing Balance Sheet is finally determined pursuant to Section 1.6. The amount of any Post Closing Adjustment shall be paid by wire transfer in immediately available funds to an account or accounts designated by Buyer if the Post Closing Adjustment is payable by Seller to Buyer, or by Seller if the Post Closing Adjustment is payable by Buyer to Seller. "Tangible Net Worth" means the total shareholders equity of the Company and its Subsidiaries on a consolidated basis as reflected on the Closing Balance Sheet: 3 (i) less intangibles (including goodwill, deferred financing acquisition costs, the book value of internally developed software and deferred loan costs) of the Company and its Subsidiaries reflected on the Company's Closing Balance Sheet; (ii) plus any amounts for deferred or current tax liabilities reflected on the Company's Closing Balance Sheet; (iii) less any balance due from Seller reflected on the Company's Closing Balance Sheet; (iv) less non-restricted/non-client cash and non-restricted/non-client cash equivalents reflected on the Company's Closing Balance Sheet; (v) less an amount equal to the total accounts receivable net of applicable bad debt reserve reflected on the Company's Closing Balance Sheet in connection with Allegheny Health, Education and Research Foundation; (vi) plus any balance due to the Seller reflected on the Company's Closing Balance Sheet; and (vii) less amounts for deferred or current tax assets reflected on the Company's Closing Balance Sheet. "Target TNW" means the sum of $32,426,000 subject to adjustment to reflect the additional amounts of: (i) unbilled accounts receivable as of June 30, 1998, (ii) if required by GAAP to be accrued, any accrued sick time as of June 30, 1998, and (iii) any accrued bonus receivable under the Columbia Contract (as defined in Section 1.8) as of June 30, 1998, which would have appeared for such items in the balance sheet contained in the Unaudited Financial Statements as of and for the period ended June 30, 1998 if such balance sheet had been prepared consistent with the presentation of such items in the Closing Balance Sheet and using the same methodologies and assumptions used in the Closing Balance Sheet. The amount of any increase to the Target TNW shall be determined by the Accountants and shall accompany the Closing Balance Sheet. Section 1.8 Earn-Out Payment . The "Earn-Out Payment" means that amount, if any, payable by Buyer to Seller pursuant to Section 1.8(a) or Section 1.8(b) below. (a) In the event that prior to six months after the Closing Date, the Company renews the Agreement for Collection Services between Galen Health Care, Inc. and AssetCare, Inc. dated March 28, 1996 (the "Columbia Contract") on substantially the same terms and conditions, including a guarantee period of not less than two (2) years (the "Renewal") and provides written evidence of the Renewal to Buyer reasonably satisfactory to Buyer, Buyer shall pay Seller an Earn-Out Payment of Ten Million Dollars ($10,000,000) with Interest, as defined below, if applicable, in cash by wire 4 transfer of immediately available funds to such bank account as shall be designated by Seller in writing. Such payment shall occur upon the later of the Closing Date or three (3) business days after the receipt of written evidence of the Renewal. In the event that Buyer pays the Earn-Out Payment pursuant to Section 1.8(a), no Earn-Out Payment shall be payable pursuant to Section 1.8(b). (b) In the event that the Company does not obtain the Renewal of the Columbia Contract on or before six months after the Closing Date (as provided in Section 1.8(a)), Buyer shall pay Seller an Earn-Out Payment, together with accrued interest thereon from the Closing Date at 5.5% per annum ("Interest"), equal to the sum of (i) the Retained Hospital Accounts Amount (as hereinafter defined), if any, plus (ii) one-half of the Lost Hospital Accounts Net Income (as hereinafter defined), if any. Any Earn-Out Payment payable pursuant to this Section 1.8(b) shall not exceed Ten Million Dollars ($10,000,000) plus Interest (the "Maximum Earn-Out Payment"). The Earn-Out Payment shall be paid by Buyer to Seller within three (3) business days after the Earn-Out Statement is finalized pursuant to Section 1.8(e) in cash by wire transfer of immediately available funds to such bank account as shall be designated by Seller in writing. (c) The "Retained Hospital Account Amount" shall equal the result of the following formula: [ Test Period Net Revenues ------------------------ x $15,000,000 ] - $5,000,000 Base Period "Base Period Net Revenues" shall equal the net revenues received by the Company during the twelve (12) calendar months ending on the Closing Date (the "Base Period") from the Closing Date Columbia Hospital Accounts (as hereinafter defined). "Closing Date Columbia Hospital Accounts" means those accounts from all Columbia/HCA hospitals placing such accounts with the Company for collection under the Columbia Contract prior to the expiration of the Columbia Contract. For the purpose of the Base Period Net Revenues calculation, the net revenues from any Closing Date Columbia Hospital Account from any Columbia/HCA hospital which began placing accounts with the Company for collection after the beginning of the Base Period shall be annualized by multiplying the net revenues for such new Closing Date Columbia Hospital Account by a fraction equal to 365 divided by the number of days from the starting date of such new Closing Date Columbia Hospital Account to the Closing Date. "Test Period Net Revenues" shall equal the net revenues received by the Company during the twelve (12) calendar months ending on the first anniversary (the "Anniversary Date") of the Closing Date (the "Test Period") from the Anniversary Date Columbia Hospital Accounts (as hereinafter defined). "Anniversary Date Columbia Hospital Accounts" means those accounts from all Columbia/HCA hospitals which have placed new accounts with the Company for collection within the forty-five (45) day period prior to the first Anniversary of the Closing Date and which have not notified the Company of their intent to terminate their 5 relationship with the Company. For the purpose of the Test Period Net Revenues calculation, the net revenues from any Anniversary Date Columbia Hospital Account from any Columbia/HCA hospital which began placing accounts with the Company after the beginning of the Test Period shall be annualized by multiplying the net revenues for such new Anniversary Date Columbia Hospital Account by a fraction equal to 365 divided by the number of days from the starting date of such new Closing Date Columbia Hospital Account to the Anniversary Date. (d) The "Lost Hospital Accounts Net Income" shall equal the Company's net income arising from Lost Hospital Accounts (as hereinafter defined) during the Test Period, calculated in accordance with GAAP. "Lost Hospital Accounts" means those accounts from Columbia/HCA hospitals for which the Company is performing accounts receivable services during the Test Period but which are not placing or have not placed new accounts with the Company within the period of 45 days prior to the Anniversary Date or which have notified the Company of their intent to terminate their relationship with the Company; provided, however, that if the Company's recovery rate for such hospital's accounts during the Test Period is lower by 10% than the Company's recovery rate for such hospital during the Base Period and such hospital did not have a material change in the composition of its placements, such accounts shall not be Lost Hospital Accounts but shall be included in Anniversary Date Columbia Hospital Accounts. (e) Within thirty (30) business days after the Anniversary Date, Buyer shall prepare a statement (the "Earn-Out Statement") showing a clear and detailed calculation of the Earn-Out Payment described in Section 1.8(b) and deliver the Earn-Out Statement to Seller. Seller shall notify the Buyer, in reasonable detail, of any objections to the Earn-Out Statement within thirty (30) business days after Seller receives the Earn-Out Statement and shall be provided reasonable access to the Company's books and records for the purpose of examining the Earn-Out Statement. If Seller does not notify Buyer of any such objections by the end of such thirty (30) business day period, then the Earn-Out Statement, as prepared by Buyer, shall be considered final on the last day of such thirty (30) business day period or on such earlier date as Seller notifies Buyer that it has no objection. If Seller does notify Buyer of any such objections by the end of such thirty (30) business day period, and Buyer and Seller are unable to resolve their differences within thirty (30) business days thereafter, then the dispute shall be submitted to the Accountant for resolution, with the costs thereof being shared equally, and the Accountant shall be instructed to deliver a final Earn-Out Statement to the Buyer and Seller as soon as possible. ARTICLE II RELATED MATTERS Section 2.1 Use of Sellers Name and Logo. It is expressly agreed that Buyer is not purchasing, acquiring or otherwise obtaining any right, title or interest in the names, "Medaphis", "Medaphis Corporation", or "Medaphis Services Corporation", or any trade names, trademarks, identifying logos or service marks related thereto or employing the words "Medaphis" or any part or variation of any of the foregoing or any confusingly similar trade name, trademark or logo (collectively, the "Seller's Trademarks and Logos"). Buyer agrees that within thirty (30) days after 6 the Closing Date, it will file an amendment to the Company's Certificate of Incorporation amending the Company's name so as to remove the name "Medaphis" therefrom and that none of Buyer, the Company nor any of its affiliates shall make any use of the Seller's Trademarks and Logos from and after the Closing Date and will remove and destroy as quickly as is practicable all items, including, without limitation, all signage, stationery, invoices or other letterhead, bearing Seller's Trademarks and Logos. Notwithstanding the foregoing, Buyer, the Company and their affiliates shall have the right to use Seller's Trademarks and Logos used in the business of the Company prior to Closing for a period of six (6) months following the Closing Date including, without limitation, the right to use signage, all pre-Closing Date inventories of stationery, invoices, or other letterhead bearing Seller's Trademarks and Logos and the right to use "Medaphis Services Corporation" on Company's licenses and permits. For a period of twelve (12) months following the Closing Date, Buyer, the Company and their affiliates shall have the right to state orally that they were "formerly known as Medaphis Services Corporation" or substantially similar phrases and if required by law in continued collection efforts, to use such phrases on stationery, invoices or other letterhead. Section 2.2 Books and Records of the Company . Seller agrees to deliver to Buyer at or as soon as practicable after the Closing, as requested by Buyer, all books and records of the Company and Subsidiaries (including, but not limited to, correspondence, memoranda, books of account, personnel and payroll records and the like), except for the Tax Returns (as defined in Section 3.17(c) hereof) relating to the Company. Any information which would be required to compute the Tax obligations ("Tax Information") of the Company and its Subsidiaries which is not delivered to Buyer pursuant hereto will be preserved by Seller for a period of at least seven (7) years following the Closing and Seller will provide Buyer and its authorized representatives to have reasonable access to, and examine and make copies of, in each case, during normal business hours, all such Tax Information as reasonably requested by Buyer. All books and records delivered by Seller to Buyer will be preserved by Buyer for a period of at least seven (7) years following the Closing and Buyer will permit Seller and its authorized representatives to have reasonable access to, and examine and make copies of, all such books and records as reasonably requested by Seller. Section 2.3 No Ongoing or Transition Services. For a period not to exceed 120 days after Closing (60 days in the case of employee benefits), Seller shall provide Company, its Subsidiaries and their respective clients such transition services as reasonably requested by Buyer no later than three (3) business days prior to the Closing Date, including without limitation, accounting, general ledger, payroll and employee benefits, computer systems and support, that was provided to the Company, the Subsidiaries and their respective clients when the Company was owned by Seller prior to the Closing Date. The fees and charges for the services provided by the Seller shall be based on Seller's actual out-of-pocket costs to provide such services, without markup. Except as provided in this Section 2.3, or as otherwise agreed to in writing by Seller and Buyer, at the Closing, all data processing, accounting, insurance, banking, personnel, legal, communications and other products or services provided to the Company or any subsidiary of the Company by Seller or any affiliate of the Seller, including any agreements or understandings (written or oral) with respect thereto, will terminate. 7 Section 2.4 Intercompany Accounts. On or prior to the Closing Date, all intercompany accounts between the Company, on the one hand, and Seller and its affiliates, on the other hand, shall, at Seller's option, be cancelled or settled. Except as provided in Section 1.7, no adjustment shall be made to the Purchase Price as a result of any such cancellation or settlement. Section 2.5 Distributions. The parties agree that Seller shall have the right, at or prior to the Closing, to cause the Company to distribute cash to the Seller or its affiliates, by one or more cash dividends, repurchase of existing stock and/or other distributions provided, however, that Seller shall not distribute any amounts which represent funds collected by the Company or any Subsidiary on behalf of and belonging to customers. Except as provided in Section 1.7, no adjustment shall be made to the Purchase Price as a result of any such dividends, repurchases or other distributions paid by Seller. Section 2.6 Service Contracts. Prior to Closing, the Company shall enter into Service Contracts with Seller or subsidiaries of Seller in form reasonably satisfactory to Buyer providing for the provision of services and other terms and conditions, all as summarized on Exhibit 2.6 attached hereto (collectively, the "Service Contracts"). The Service Contracts shall contain, among other things, a right of audit permitting Company or Buyer to audit the costs charged by Seller. Section 2.7 Long Distance Telephone and Data Service. Section 2.7.1 Until January 31, 2000, the Company shall use the long-distance telephone service provider currently used by the Seller and Company provided that such service is adequate for the needs of the Company and provided that Seller shall reimburse Buyer for an amount equal to the difference between (i) the amount paid by Buyer and Company to the provider or the Seller in reimbursement for such services and (ii) the amount Company and Buyer would have paid under Buyer's long-distance telephone service provider agreement as from time to time in effect taking into consideration the additional volume and applicable pricing (including any volume discounts) resulting under such agreement if Buyer and Company had placed such long-distance telephone calls under such agreement. Company shall arrange for the long-distance telephone service provider to bill Company separately for such long-distance telephone service. Buyer shall cause the Company to pay all such bills in the ordinary course. Section 2.7.2 Leased Data Lines Company currently utilizes 87 frame relay circuits to connect with remote offices and clients as follows: Sixty (60) circuits are currently online (live) with MCI/Worldcom; Seller shall cause these circuits to be transferred to the Buyer's MCI/Worldcom contract as soon as practicable. Twenty-seven (27) circuits are currently online (live) with AT&T; Seller shall cause these circuits to continue to be made available for usage by Company until Buyer can complete a conversion plan migrating them to MCI/Worldcom by June 30, 1999. Management for both the MCI/Worldcom and AT&T circuits will be provided by Seller until such time as they are transferred to Company technical staff no later than June 30, 1999. Seller will provide all necessary documentation on these existing circuits (both AT&T and MCI/Worldcom) to enable a smooth transition to Buyer and Company. If any old MCI/Worldcom 8 circuits are still in place where new AT&T data service has been installed, these circuits should not be cancelled to speed the migration of the AT&T circuits back to the Worldcom network. In the event Seller or Company sustain a penalty from the cancellation of these data circuits, Buyer or Seller, as applicable, will reimburse Seller or Company, respectively, up to one-half of such penalty but in no event shall Buyer or Company be liable for more than than $70,000. Section 2.8 Certain Insurance Matters. Seller shall maintain for the benefit of Company and Subsidiary its current errors and omissions insurance policy covering acts or omissions of Company and Subsidiary prior to the Closing Date in full force and effect through March 31, 1999 with the same level of coverage as of October 15, 1998. Seller shall provide prompt written notice to Buyer in the event that Seller receives notice that such policy has been or will be canceled or terminated prior to March 31, 1999. Seller shall maintain for the benefit of Company and Subsidiary its current workers' compensation stop-loss insurance policy covering workers' compensation claims against Company and Subsidiary resulting from events occurring prior to the Closing Date in full force and effect and with the same level of coverage through the date that all such claims are resolved without further right of appeal. Section 2.9 Certain Accounts Receivable. Buyer shall cause Company and Subsidiary to remit to Seller any amounts received by Company or Subsidiary after the Closing Date in payment of accounts receivable owed as of the Closing Date by Allegheny Health, Education and Research Foundation to Company or Subsidiary with respect to services provided after the date Allegheny Health, Education and Research Foundation filed its petition for relief under Chapter 11 of the United States Bankruptcy Code to the extent such post-petition accounts receivable are reflected on the Closing Balance Sheet. Buyer, Company and Subsidiary shall not be required to take any actions to collect any such amounts. Section 2.10 Software Licenses As soon as practicable following Closing, Seller shall provide to Buyer evidence reasonably satisfactory to Buyer of software licensing compliance and transferability and/or make compliant and transfer licenses of software that are used to conduct the business of Company or AssetCare as identified by the parties. ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER Seller represents and warrants to Buyer as follows: Section 3.1 Organization. Each of the Company and its Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate and other power and corporate authority to own, lease and operate its properties and to carry on its operations as and where now being conducted. Each of the Company and its Subsidiaries is duly qualified or licensed and in good standing to do business in each jurisdiction in which the property owned, leased or operated by the Company or such Subsidiary or the nature of the business conducted by the Company or such Subsidiary makes such qualification necessary, which jurisdictions are listed on Schedule 3.1, except in any such 9 jurisdictions where the failure to be so duly qualified or licensed and in good standing, individually and in the aggregate, would not have a material adverse effect on the business, results of operations or financial condition of the Company and its Subsidiaries taken as a whole (a "Material Adverse Effect"). Seller has previously made available to Buyer complete and correct copies of the Company's and each of the Subsidiaries' Certificate of Incorporation and By-laws, as currently in effect. Set forth on Section 3.1 of the Disclosure Schedule being delivered to Buyer by Seller herewith (the "Disclosure Schedule") is a list of the Company's subsidiaries (the "Subsidiaries"). The Company has no direct or indirect equity interest in or control of any person other than the Subsidiaries. Section 3.2 Authorization. Seller has the corporate power and authority to execute and deliver this Agreement and consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by the Board of Directors of Seller and no other corporate proceedings on the part of Seller are necessary to authorize the execution, delivery and performance of this Agreement or the consummation of the transactions so contemplated. This Agreement has been duly executed and delivered by Seller and constitutes, and, when executed and delivered, each of the other agreements, documents and instruments to be executed and delivered by Seller pursuant hereto will constitute (assuming in each case the valid authorization, execution and delivery of such agreement by Buyer), a valid and binding agreement of Seller, enforceable against Seller in accordance with its terms, except that (a) such enforcement may be subject to any bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other laws, now or hereafter in effect, relating to or limiting creditors' rights generally, and (b) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. Section 3.3 Common Stock. Set forth on Section 3.3 of the Disclosure Schedule is the number of authorized shares of Common Stock of the Company, par value $1.00 per share, and, of each of the Subsidiaries and the number of such shares which are issued and outstanding. All of such shares are validly issued, fully paid and non-assessable. No other class of capital stock of the Company or of any Subsidiary is authorized, issued or outstanding. Except as set forth on Schedule 3.3, the Company owns of record and beneficially all outstanding capital stock of each of the Subsidiaries free and clear of all liens, claims, charges, options, security interests or other encumbrances (collectively, "Encumbrances"). There are no outstanding securities convertible into, exchangeable for, or carrying the right to acquire, equity or other securities of the Company or any Subsidiary, nor are there any subscriptions, warrants, options, rights, contracts, or other arrangements or commitments (other than this Agreement) which could obligate the Company or any Subsidiary to issue or Seller to sell any shares of Common Stock or any equity or other securities of the Company or any Subsidiary. Section 3.4 Ownership of the Common Stock. Seller is the record and beneficial owner of the Shares, which comprise all of the issued and outstanding shares of all classes of capital Stock of the Company. Except as set forth on Section 3.4 of the Disclosure Schedule, Seller has good title 10 to the Shares, free and clear of all Encumbrances. Section 3.5 Consents and Approvals: No Violations. Except for applicable requirements of the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended (the "H-S-R Act"), or as set forth in Section 3.5 of the Disclosure Schedule, neither the execution and delivery of this Agreement nor the consummation by Seller of the transactions contemplated hereby will (a) conflict with or result in any breach of any provision of the Certificate of Incorporation or By-Laws of the Company, Seller or any Subsidiary; (b) require any filing with, or the obtaining of any permit, license, authorization, consent or approval of, any governmental or regulatory authority whether within or outside the United States (collectively, "Permits"); (c) violate, conflict with or result in a default (or any event that, with notice or lapse of time or both, would constitute a default) under, or give rise to any right of termination, cancellation or acceleration under, any of the terms, conditions or provisions of any note, mortgage, other evidence of indebtedness, guarantee, license, agreement, lease, or other contract or instrument or obligation (collectively, "Contract") to which the Company, Seller or any Subsidiary is a party or by which the Company, Seller or any Subsidiary or any of their assets may be bound; (d) result in the creation or imposition of any Encumbrance upon the assets of the Company or any Subsidiary, or give to any person any interest or right in any of the assets or business of the Company or any Subsidiary; or (e) violate any law, order, injunction, decree, statute, rule or regulation of any governmental or regulatory authority whether within or outside of the United States (collectively, "Laws") or any Judgment (as defined in Section 3.13) applicable to the Company, Seller or any Subsidiary; excluding from the foregoing clause (c) such violations, conflicts, defaults or rights which would not have a Material Adverse Effect and would not adversely affect the ability of Seller to consummate the transactions contemplated by this Agreement. Section 3.6 Financial Statements. Attached as Schedule 3.6 of the Disclosure Schedule are copies of the Company's (a) audited (i) balance sheets as of December 31, 1996 and 1997; (ii) statements of operations for each of the three years in the period ended December 31, 1997; (iii) statements of stockholders' equity for each of the three years in the period ended December 31, 1997; and (iv) statements of cash flows for each of the three years in the period ended December 31, 1997 (the financial statements referred to in clauses (a)(i)-(iv) and the accompanying notes thereto are referred to herein collectively as the "Audited Financial Statements"), and (b) unaudited balance sheet as of June 30, 1998 and statements of operations, stockholders equity and cash flows for the six months ended June 30, 1997 and 1998 (the financial statements referred to in clause (b) and the accompanying notes thereto are referred to herein collectively as the "Unaudited Financial Statements"). The Audited Financial Statements and the Unaudited Financial Statements (collectively, the "Financial Statements") present fairly, in all material respects, the financial position of the Company and the Subsidiaries as of the respective dates thereof, and the results of operations and cash flows of the Company and the Subsidiaries for the respective periods indicated, all in conformity with GAAP, subject, in the case of the Unaudited Financial Statements, to normal recurring year-end adjustments, the absence of notes, the exclusion of NHTI and the Laser Center, and exclusive of parent company allocations as listed in Note 11 to the Company's Financial Statements required pursuant to Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended. With respect to the Unaudited Financial Statements, in the opinion of 11 management of the Seller, all adjustments, consisting of normal recurring adjustments considered necessary for a fair presentation of results for the interim period, have been included. Section 3.7 Absence of Undisclosed Liabilities. Except (a) for liabilities and obligations incurred in the ordinary course of business and consistent with past practice, and (b) as otherwise disclosed herein or in Section 3.7(b) of the Disclosure Schedule, since June 30, 1998 the Company and its Subsidiaries have not incurred any liabilities or obligations (whether direct, indirect, accrued or contingent) in excess of $500,000 individually or in the aggregate. Section 3.8 Absence of Material Adverse and Other Changes. Except as set forth in Section 3.8 of the Disclosure Schedule or as otherwise contemplated by this Agreement, since June 30, 1998 there has been no change in the business, results of operations or financial condition of the Company or its Subsidiaries that, individually or in the aggregate, would have a Material Adverse Effect. Section 3.9 Title, Ownership and Related Matters. (a) As of the date hereof, neither the Company nor any Subsidiary owns or holds any option to acquire any real property. (b) The Company and each Subsidiary has, or will as of the Closing have, good title to, free and clear of any Encumbrance, or rights by license, lease or other Contract to use, all properties and assets (or rights thereto), other than cash, cash equivalents and securities (except for the Shares) and except as contemplated in Article II of this Agreement, necessary to permit the Company and each Subsidiary to conduct its business as substantially currently conducted, except as set forth in Section 3.9(b) of the Disclosure Schedule. Without limiting the generality of the foregoing, Company has good title, free and clear of any Encumbrance, to all data and transmission line equipment used by or necessary to permit the Company or Subsidiary to conduct its business as substantially currently conducted. All such property and assets material to the conduct of the business of the Company and each Subsidiary are in good operating condition and repair, ordinary wear and tear excepted. Section 3.10 Leases (a) Section 3.10(a) of the Disclosure Schedule lists, as of the date hereof, all real property. leases and subleases for space occupied by the Company or any Subsidiary (collectively, the "Leases"). The Company is the lessee under all the Leases. True and complete copies of the Leases and all written amendments and agreements relating thereto have been made available to Buyer. All of the Leases are valid, binding and enforceable in accordance with their terms, and neither the Company, nor any Subsidiary (including, without limitation, with respect to their respective occupancy, maintenance and use of the property) nor, to the best knowledge of Seller and Company, the other party to any Lease is in default under such Lease or any applicable Law relating to the occupancy, maintenance and use of the property, except for defaults, if any, which would not, 12 individually or in the aggregate, have a Material Adverse Effect. No written notice from any lessor, governmental body or other person has been received by the Seller, the Company or any Subsidiary of the Company claiming any violation of, or breach or default under, any lease or Law, or requiring or calling attention to the need for any work, repairs, construction, alternation or installations. Except as disclosed in Section 3.10 of the Disclosure Schedule, neither the Company nor any Subsidiary of the Company has placed or caused to be placed, and to the best knowledge of the Seller and the Company there were not and are not any Hazardous Substances (as hereinafter defined) on or under any of such real property under lease except for Hazardous Substances on or under any such real property in an amount that would create a liability for clean-up of such Hazardous Substances of less than $5,000 per property, but in the aggregate not more than $100,000 for all such real property. "Hazardous Substance" means (a) all substances, wastes, contaminants, pollutants and materials defined or designated as hazardous, dangerous or toxic pursuant to any Law of any state in which any real property leased or occupied by Company is located or any United States Law, and (b) asbestos, polychlorinated biphenyls ("PCBs") and petroleum. (b) Section 3.10(b) of the Disclosure Schedule lists, as of the date hereof, all leases or other agreements or rights under which the Company or any Subsidiary is the lessee of, or holds or operates, any machinery, equipment, vehicles or other tangible personal property owned by a third party, except those that are terminable by the Company without penalty on 60 or fewer days notice or that provide for annual rental payments of less than $25,000. Section 3.11 Intellectual Property. (a) Except as set forth in Section 3.11(a) of the Disclosure Schedule (i) the conduct of the business of the Company does not infringe upon any Intellectual Property (as defined below) right of any third party, and (ii) there are no pending or, to the best knowledge of Seller and Company, threatened proceedings or litigation or other adverse claims by any person against the use by the Company of any name, corporate name, fictitious name, software, trademarks, trade names, service marks, service names, logos, assumed names, copyrights, trade secrets, patents and all registrations, and applications therefor, which are owned by the Company or used in the operation of the Company's business as currently conducted (collectively, the "Intellectual Property"). "Asset Care" is a registered trademark of the Company. All of the Intellectual Property owned or used by the Company or any Subsidiary and material to the operation of the Company's business is listed on Section 3.11 of the Disclosure Schedule. (b) Except as set forth in Section 3.11(b) of the Disclosure Schedule, the Company owns free and clear of any Encumbrances or has valid licenses or other rights to use the Intellectual Property necessary to permit the Company and its Subsidiaries to conduct their operations as currently conducted. Section 3.12 Computer Software. Except as set forth in Section 3.12 of the Disclosure Schedule, the Company owns free and clear of any Encumbrances or has valid licenses or other rights to use all computer software programs necessary to permit the Company and its Subsidiaries 13 to conduct their operations as currently conducted, all as indicated in Section 3.12 of the Disclosure Schedule (provided, however, Seller shall not be required to list any commercially available software under license). Without limiting the generality of the foregoing, the Company owns, free and clear of any Encumbrances, the software known as "N-Sure" and the related object code and source code. With respect to the software developed by the Company or any Subsidiary, including without limitation N-Sure, and without taking into effect the impact of data supplied by third parties, and provided that the Company complies with its internal Year 2000 Compliance Program, each component of such software that creates, accepts, displays, stores, retrieves, accesses, recognizes, distinguishes, compares, sorts, manipulates, processes, calculates or otherwise uses dates or date-related data will not be materially adversely affected by the impact on dating caused by advent of the year 2000, the advent of the 21st century, or the transition from the 20th century through the year 2000 and into the 21st century. Seller and the Company have no reason to believe that any software owned or licensed by the Company which was developed by third parties will be materially adversely affected by the impact on dating caused by the advent of the year 2000, the advent of the 21st century, or the transition from the 20th century through the year 2000 and into the 21st century. Section 3.13 Litigation. Except as set forth in Section 3.13 of the Disclosure Schedule, (a) there is no action, suit, litigation proceeding, arbitration or governmental or regulatory investigation (collectively, "Proceeding") pending or, to the best knowledge of Seller and Company, threatened against Seller, the Company or any Subsidiary; (b) there is no outstanding judgment, order, writ, injunction, fine, citation, award, decree or other judgment (collectively, "Judgment") of any nature of any court, government authority or regulatory authority or arbitration tribunal against the Company or any Subsidiary, or their respective businesses or assets; and (c) no breach of contract, tort or other claim (whether arising from the operations of the business or otherwise) by any third party seeking damages in excess of $25,000 has been asserted and is outstanding against the Company or any Subsidiary. Section 3.14 Compliance with Applicable Law. The Company and each Subsidiary is in compliance with all Laws applicable to the Company and each Subsidiary and their operations, except for violations, if any, which would not have a Material Adverse Effect. Section 3.15 Certain Contracts and Arrangements. Except as set forth in Section 3.15 of the Disclosure Schedule, as of the date hereof, neither the Company nor any Subsidiary is a party to or bound by any written (a) indenture, mortgage, note, installment obligation, agreement or other instrument or Contract relating to the borrowing of money by the Company (other than intercompany accounts which shall be governed by Section 2.4 hereof), or the guaranty by the Company of any obligation for the borrowing of money; or (b) other Contracts, including without limitation, purchase orders, or any enforceable oral Contracts, excluding Contracts that are terminable by the Company without penalty on 60 or fewer days notice or that provide for annual receipts or payments of less than $500,000 (which Disclosure Schedule shall be updated prior to Closing to include such Contracts with annual receipts or payments of between $200,000 and $500,000). A description of each such oral Contract is set forth in Section 3.15 of the Disclosure Schedule. Except as set forth in Section 3.15 of the Disclosure Schedule, all such Contracts (including any Contracts listed on 14 Section 3.19 of the Disclosure Schedule) are valid, binding and enforceable in accordance with their terms and, to the best knowledge of Seller and Company, neither the Company nor any other party thereto is in default under any of the aforesaid Contracts other than such defaults, if any, which would not, individually or in the aggregate, have a Material Adverse Effect. Section 3.16 Employee Benefit Plans: ERISA. (a) Section 3.16(a) of the Disclosure Schedule lists each "employee benefit plan" (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), and all other material employee benefit, bonus and fringe benefit plans maintained for the benefit of, or to which there is an obligation to contribute to by the Company or any trade or business, whether or not incorporated (an "ERISA Affiliate"), that, together with the Company would be deemed a "single employer" within the meaning of Section 4001 of ERISA or Section 414 of the Code, for the benefit of any employee or former employee of the Company (a "Plan" and collectively, the "Plans"). Seller has made available to Buyer copies of each of the Plans including all amendments to date, and true and correct copies of the most current IRS Form 5500s and any other form or filing required to be submitted to any governmental agency with respect to such Plans. (b) Except as set forth in Section 3.16(b) of the Disclosure Schedule, (i) each of the Plans complies and has been operated in all material respects with its terms and all applicable Laws including ERISA and the Code as defined below (and the regulations and rulings thereunder), and (ii) each of the Plans intended to be "qualified" within the meaning of Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), has been determined by the Internal Revenue Service (the "IRS") to be so qualified and Seller knows of no fact or set of circumstances that would adversely affect such qualification prior to the Closing. Seller has made available to Buyer copies of the most recent determination letter issued by the Internal Revenue Service with respect to each Plan. None of the Plans is subject to Title IV of ERISA. There are no pending or, to the best knowledge of Seller or Company, threatened material claims (other than routine claims for benefits) by, on behalf of or against any of the Plans or any trusts related thereto. To the best knowledge of Seller and Company, there are no audits or investigations by any governmental agency which relate directly or indirectly to the Plans. The Company has made, or will have made prior to Closing, any payments or contributions required with respect to such Plans. (c) Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby will (i) result in any payment (including, without limitation, severance, unemployment compensation, golden parachute or otherwise) becoming due from Company under any of Company's Plans, (ii) increase any benefits otherwise payable under any of Company's Plans, or (iii) result in the acceleration of the time of payment or vesting of any such benefits to any extent. No event has occurred which will result in material liability to Company in connection with any employee benefit plan established, maintained, contributed to or to which there has been an obligation to contribute (currently or previously) by Company, or an ERISA Affiliate. 15 Section 3.17 Taxes. (a) Except as set forth in Section 3.17 of the Disclosure Schedule, Seller has (i) timely filed or caused to be filed on a timely basis with the appropriate taxing authorities all Tax Returns (as defined below) required to be, filed by or with respect to the Company (including, without limitation, any income Tax Return required to be filed by any Affiliated Group (as defined in Section 5.8) with respect to which the Seller and the Company or any of its Subsidiaries was a member), and (ii) paid or made adequate provision for the payment of all Taxes (as defined below) owed by Company and/or any other member of an Affiliated Group (whether or not shown on any Tax Return) for each taxable period during which Company and its Subsidiaries were members of such group. Such Tax Returns are true, correct and complete in all material respects. (b) Except as set forth in Section 3.17 of the Disclosure Schedule, (i) there are no liens for Taxes with respect to the assets of the Company or its Subsidiaries except for statutory liens for current Taxes not yet delinquent and no claims with respect to Taxes are being asserted by any taxing authority in writing, which individually or in the aggregate would have a Material Adverse Effect; (ii) all deficiencies asserted in writing as a result of any examinations by the Internal Revenue Service or any other taxing authority have been paid and fully settled; (iii) none of the Tax Returns applicable to the Company or any of its Subsidiaries is currently being audited or examined by any taxing authority; (iv) there is no unpaid tax deficiency, determination or assessment currently outstanding against the Company or any Subsidiary; (v) there are no outstanding agreements or waivers extending the statute of limitations relating to the assessment of Taxes applicable to the Company or any Subsidiary; (vi) neither the Company nor any Subsidiary, nor the Seller on behalf of the Company or any Subsidiary has filed a consent pursuant to Section 341(f) of the Code; (vii) each of the Company and its Subsidiaries has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party; (viii) none of the Company and its Subsidiaries has made any payments, is obligated to make any payments, or is a party to any agreement that could obligate it to make any payments as a result of the transactions contemplated by this Agreement that will not be deductible under Section 280G of the Code; (ix) none of the Company and its Subsidiaries has been a United States real property holding corporation within the meaning of Code Section 897(c)(2) during the applicable period specified in Code Section 897(c)(1)(A)(ii); (x) none of the Company and its Subsidiaries is a party to any Tax allocation or sharing agreement; and (xi) neither Company nor any of its Subsidiaries has (i) been a member of an Affiliated Group filing a consolidated federal income Tax Returns other than the Seller Group (as defined in Section 5.8), or (ii) any liability for the Taxes of any person other than members of the Seller Group (A) under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign law), (B) as a transferee or successor, (C) by Contract, or (D) otherwise. (c) As used in this Agreement: (i) "Taxes" shall mean all taxes, levies, charges or fees including income, corporation, advance corporation, gross receipts, transfer, excise, property, sales, use, value-added, license, payroll, pay-as-you-earn, withholding, social security and franchise or other governmental 16 taxes or charges, imposed by the United States or any state, county, local or foreign government, and such term shall include any interest, penalties or additions to tax attributable to such taxes. (ii) "Tax Return" shall mean any report, return or statement required to be supplied to a taxing authority in connection with Taxes. Section 3.18 Certain Fees. Except for the engagement of Donaldson, Lufkin & Jenrette, the fees and expenses of which shall be the sole responsibility of Seller, none of Seller, the Company or any Subsidiary has employed any financial advisor or finder or incurred any liability for any financial advisory or finders or brokers fees in connection with this Agreement or the transactions contemplated hereby. Section 3.19 Operations Prior to and Including the Closing . Except as set forth in Schedule 3.19, and except in connection with the transactions contemplated by this Agreement, since June 30, 1998, neither the Company nor any Subsidiary has: (1) amended its Certificate of Incorporation or By-laws or merged with or into or consolidated with any other person, or changed or agreed to change in any manner the rights of its outstanding capital stock or the character of its Business; (2) except as permitted by Section 2.5, declared, set aside or paid any dividend or other distribution in respect of the capital stock of the Company or any Subsidiary; redeemed or acquired any of such stock; issued or sold, or issued options or rights to subscribe to, or entered into any Contracts to issue or sell, any shares of its capital stock; or subdivided or in any way reclassified any shares of its capital stock; (3) entered into or amended any employment agreements, entered into any Contracts with any labor union or association representing any employee, or entered into or amended any Employee Benefit Plans; (4) settled any dispute (excluding disputes settled between clients of the Company and account debtors in the ordinary course of the Company's accounts receivable collection business) involving payment of any amount in excess of $50,000 or waived any right of material value to its business; (5) made any change in its accounting methods, practices, policies or principles; (6) materially and adversely changed any of its business policies, including, without limitation, pricing, purchasing, production, personnel, sales, returns, budget or acquisition policies; (7) made any wage or salary increase or bonus, or increase in any other direct or indirect compensation, for or to any officer, director, employee, consultant or agent of the Company 17 or any Subsidiary, or any accrual for or commitment or agreement to make or pay the same, except for such increases or bonuses as are granted in the ordinary course of business in accordance with its customary practices (which shall include normal periodic performance reviews and related compensation and benefit increases), or loaned or advanced any funds to any Person; (8) except in the ordinary course of business, entered into any lease or sublease (as lessor or lessee) or abandoned or made any other disposition of any assets involving more than $200,000 in the aggregate, granted or suffered any Encumbrances on any of its assets having a value in excess of $200,000 in the aggregate; (9) except in the ordinary course of business consistent with past practices, incurred or assumed any liabilities or obligations; (10) except for tangible property acquired in the ordinary course of business, made any acquisition of all or substantially all of the Assets or capital stock or business of any other person; (11) made any capital expenditure or commitment for any property, plant or equipment in excess of $100,000 individually or $250,000 in the aggregate; (12) disposed of, leased or encumbered, or pledged or granted a security interest in any assets, or increased any of the indebtedness of the Company or any Subsidiary of the Company, other than in the normal and ordinary course of business consistent with past practices; (13) paid, discharged or satisfied any liabilities other than by payment, discharge or satisfaction in the ordinary course of business consistent with past practices; (14) made any Contract to do any of the actions referred to in paragraphs (1) through (13) above. Section 3.20 Debt Collection Licenses. The Company and its Subsidiaries hold all Permits which are necessary and material for the conduct of their accounts receivable or debt collection business as currently conducted. A list of the states in which the Company and Subsidiaries have debt collection licenses is set forth on Schedule 3.2. All such Permits are in full force and effect, no violations which have not been remedied have been recorded in respect of any such Permit and neither the Company nor any Subsidiary is in default, nor has received any notice of any claim of default, with respect to any such Permit or of any notice of any other claim or Proceeding (or threatened Proceeding) relating to any such Permit. Section 3.21 Employee Relations. Neither the Company nor any Subsidiary has been a party to or bound by any union or collective bargaining Contract, nor is any such Contract currently in effect or being negotiated by or on behalf of Company or any Subsidiary. Except as set forth in Section 3.15 of the Disclosure Schedule and except for any limitations of general application under 18 applicable employment Laws, neither the Company nor any Subsidiary is a party to any written or oral employment agreement with any of its officers, directors, employees, consultants, agents, or other persons which is not terminable by the Company or its Subsidiaries at will without penalty or cost to the Company or its Subsidiaries. There are no pending, nor, to the Knowledge of the Seller, threatened walkouts, strikes, union organizing efforts or labor disturbances or any pending arbitration, unfair labor practice or grievance, with respect to the Company's or any Subsidiary's employees. Upon termination of the employment of any of its employees, neither the Company nor any Subsidiary of the Company will by reason of any Contract or Plan entered into prior to the Closing Date be liable to any of its employees for severance pay or any other payments, except as and to the extent set forth in Section 3.21 of the Disclosure Schedule. Since December 31, 1997, Company and Subsidiaries have not had an "employment loss" within the meaning of the Workers' Adjustment and Retraining Notification Act ("WARN Act") and the regulations thereunder. Section 3.22 Accounts Receivable. All accounts receivable of the Company or any Subsidiary arose in the ordinary course of business and are proper and valid accounts receivable. To the best of the knowledge of the Seller and the Company, there are no refunds, discounts, rights of setoff (excluding statutory or common law rights of setoff) or assignment affecting any such accounts receivable. Section 3.23 Suppliers and Customers. Set forth on Section 3.23 of the Disclosure Schedule is a list of the ten largest customers (measured by volume of revenues in 1998) of the Company and its Subsidiaries (the "Ten Largest Customers"). Except as set forth on Section 3.23 of the Disclosure Schedule, none of the Ten Largest Customers has given notice to the Company or any Subsidiary that it will or intends to terminate its relationship with the Company or any Subsidiary. Neither the Seller, the Company nor any Subsidiary has any reason to believe that the relationship of the Company and the Company's Subsidiaries with the Ten Largest Customers are not satisfactory. All funds collected by the Company or the Subsidiaries on behalf of and belonging to customers have been properly remitted to customers or are properly reflected on the financial statements of the Company and its Subsidiaries. Section 3.24 Insurance. To the best knowledge of the Seller and the Company, the Company and its Subsidiaries are insured against risks of the types and amounts consistent with similarly situated businesses. None of Seller, Company or any Subsidiary has received notice of cancellation with respect to any such insurance. Except as described on Section 3.24 of the Disclosure Schedule, there are no claims that are pending under any such insurance. Section 3.25 Questionable Payments. Neither any Company or any Subsidiary nor, to the best knowledge of the Seller and the Company, any directors, officers, consultants, agents, employees or other persons associated with or active on behalf of Company or any Subsidiary, has (1) made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment of any nature, or (2) made any material favor or gift which is not deductible for Federal income tax purposes. 19 Section 3.26 Full Disclosure . No representation or warranty made by the Seller in this Agreement or pursuant hereto (a) contains any untrue statement of any material fact; or (b) omits to state any fact that is necessary to make the statements made, in the context in which made, not false or misleading in any material respect. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Seller as follows: Section 4.1 Organization and Authority of Buyer. (a) Buyer is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania. Buyer has previously delivered to Seller complete and correct copies of its Certificate of Incorporation and By-laws, as currently in effect. Buyer has the corporate power and authority to execute and deliver this Agreement and consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by the Board of Directors of Buyer and no other corporate proceedings on tile part of Buyer are necessary to authorize the execution, delivery and performance of this Agreement or the consummation of the transactions so contemplated. (b) This Agreement has been duly executed and delivered by Buyer and constitutes, and, when executed and delivered, each of the other agreements, documents and instruments to be executed and delivered by Buyer, pursuant hereto will constitute, a valid and binding agreement of Buyer (in each case, assuming the valid authorization, execution and delivery of such agreement by Seller), enforceable against Buyer in accordance with its terms, except that (i) such enforcement may be subject to any bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other laws, now or hereafter in effect, relating to or limiting creditors' rights generally, and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and- to the discretion of the court before which any proceeding therefor may be brought. Section 4.2 Consents and Approvals; No Violations . Except for applicable requirements of the H-S-R Act, neither the execution and delivery of this Agreement nor the consummation by Buyer of the transactions contemplated hereby will (a) conflict with or result in any breach of any provision of the Certificate of Incorporation or By-Laws of Buyer; (b) require any filing with, or the obtaining of any permit, authorization, consent or approval of, any governmental or regulatory authority whether within or outside the United States; (c) violate, conflict with or result in a default (or any event which, with notice or lapse of time or both, would constitute a default) under, or give rise to any right of termination, cancellation or acceleration under, any of the terms, conditions or provisions of any note, mortgage, other evidence of indebtedness, guarantee, license, agreement, lease or other instrument or obligation to which Buyer is a party or by which Buyer or any of its 20 assets may be bound; or violate any order, injunction, decree, statute, rule or regulation applicable to Buyer, excluding from the foregoing clauses (b), (c) and (d), (i) such requirements, violations, conflicts, defaults, rights, security interests, claims, liens, charges, other encumbrances or violations which would not adversely affect the ability of Buyer to consummate the transactions contemplated by this Agreement, or (ii) which become applicable as a result of any acts or omissions by, or the status of or any facts pertaining to, the Company or Seller. Section 4.3 Availability of Funds. Buyer has, or will have at Closing, sufficient immediately available funds, in cash, to pay the Purchase Price, to provide the Company with sufficient working capital and to pay any other amounts payable pursuant to this Agreement and to effect the transactions contemplated hereby. Buyer has provided to Seller complete true and correct copies of Buyer's audited financial statements for the year ended December 31, 1997 and Buyer's unaudited financial statements for the six months ended June 30, 1998. Section 4.4 Litigation. There is no claim, action, suit, proceeding or governmental investigation pending or, to the best knowledge of Buyer, threatened against the Buyer, by or before any court, governmental or regulatory authority or by any third party which challenges the validity of this Agreement. Section 4.5 Certain Fees. Except for the engagement of The Robinson Humphrey Company, neither Buyer nor any of its affiliates has employed any financial advisor or finder or incurred any liability for any financial advisory or finders' fees in connection with this Agreement or the transactions contemplated hereby. ARTICLE V COVENANTS Section 5.1 Conduct of the Company's Business. Seller agrees that, during the period from the date of this Agreement to the Closing, except as otherwise contemplated by this Agreement or consented to by Buyer: (a) Seller shall cause the Company and each of the Subsidiaries to use its best efforts to conduct its business operations in the ordinary course consistent with past practice; and (b) Seller shall not, and shall cause the Company and each of the Subsidiaries not to, breach any of the representations or warranties in Section 3.19. Section 5.2 Access to Information. (a) Between the date of this Agreement and the Closing, Seller shall (i) give Buyer and its authorized representatives reasonable access to all books, records, offices and other facilities and properties of the Company and its Subsidiaries; (ii) permit Buyer to make such 21 inspections thereof as Buyer may reasonably request; and (iii) cause the officers of Seller and the Company to furnish Buyer with such financial and operating data and other information with respect to the business and properties of the Company and its Subsidiaries as Buyer may from time to time reasonably request; provided, however, that any such investigation shall be conducted during normal business hours under the supervision of Seller's or the Company's personnel and in such a manner as to maintain the confidentiality of this Agreement and the transactions contemplated hereby and not interfere unreasonably with the business operations of Seller or the Company. (b) All information concerning Seller furnished or provided by Seller or its affiliates to Buyer or its representatives (whether furnished before or after the date of this Agreement) shall be held subject to a confidentiality agreement between Seller and Buyer, dated as of August 5, 1998 (the "Confidentiality Agreement"). The Confidentiality Agreement shall expire at Closing. Notwithstanding anything to the contrary contained in this Agreement, neither Seller nor any affiliate of Seller shall have any obligation to make available or provide to Buyer or their representatives a copy of any consolidated, combined or unitary Tax Return filed by Seller, or any of its affiliates, or any related materials. Section 5.3 Consents. (a) Each of Seller and Buyer shall cooperate, and use its best efforts, to make all filings and obtain all licenses, permits, consents, approvals, authorizations, qualifications and orders of governmental authorities and other third parties necessary to consummate the transactions contemplated by this Agreement including, without limitation, obtaining the consents of the Ten Largest Customers and the landlord of the Company's principal facility to the consummation of the transactions contemplated hereby, if required under the terms of the Contract with such Customer or the Lease for such facility, as the case may be (collectively, the "Material Consents"). In addition to the foregoing, Buyer agrees to provide such assurances as to financial capability, resources and credit worthiness as may be reasonably requested by any third party whose consent or approval is sought hereunder; provided, however, that Buyer shall not be required to provide any guarantee or surety. (b) With respect to any agreements for which any required consent or approval is not obtained prior to the Closing, Seller and Buyer shall each use its best efforts to obtain any such consent or approval after the Closing Date until such consent or approval has been obtained and Seller shall provide Buyer or the Company with the same benefits arising under such agreements, including performance by Seller as agent, if legally and commercially feasible, provided, that Buyer and the Company shall provide Seller with such access to the premises, books and records and personnel as is necessary to enable Seller to perform its obligations under such agreements and Buyer or the Company shall pay or satisfy the corresponding liabilities for the enjoyment of such benefits to the extent Buyer or the Company would have been responsible therefor if such consent or approval had been obtained. 22 Section 5.4 Best Efforts. Each of Seller and Buyer shall cooperate, and use its best efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper, or advisable under applicable laws and regulations to consummate the transactions contemplated by this Agreement. Section 5.5 Public Announcements. Except as otherwise agreed to by the parties, the parties shall not issue any report, statement or press release or otherwise make any public statements with respect to this Agreement and the transactions contemplated hereby, except as in the reasonable judgment of the party may be required by law or in connection with the obligations of a publicly-held, exchange-listed company, in which case the parties will exercise their best efforts to reach mutual agreement as to the language of any such report, statement or press release. Upon the execution of this Agreement and upon the Closing, Seller and Buyer will consult with each other with respect to the issuance of a joint or individual report, statement or press release with respect to this Agreement and the transactions contemplated hereby. Section 5.6 Covenant to Satisfy Conditions. Seller will use its best efforts to ensure that the conditions set forth in Article VI hereof are satisfied, insofar as such matters are within the control of Seller, and Buyer will use its best efforts to ensure that the conditions set forth in Article VI hereof are satisfied, insofar as such matters are within the control of Buyer. Seller and Buyer further covenant and agree, with respect to a threatened or pending preliminary or permanent injunction or other order, decree or ruling or statute, rule, regulation or executive order that would adversely affect the ability of the parties hereto to consummate the transactions contemplated hereby, to use all reasonable efforts to prevent or lift the entry, enactment or promulgation thereof, as the case may be. Section 5.7 Employees; Employee Benefits. (a) Following Closing, Buyer shall give full credit for all service with the Company or any affiliate thereof ("Affiliate"), and any predecessor thereto to the extent that service with such predecessor entity was recognized under the applicable Plan of the Company or any Affiliate, to each employee of the Company ("Employee") for purposes of waiting periods relating to preexisting conditions under medical plans, eligibility to participate in, vesting under, and eligibility for early retirement or any subsidized benefit provided for under, any employee benefit plan (including, but not limited to, any "employee benefit plan" as defined in Section 3(3) of ERISA) maintained by Buyer or its subsidiaries (including, without limitation, any vacation or accrued sick pay plan or policy) on or after the Closing Date. Prior to the Closing Date, Seller shall furnish Buyer with a list of the length of service with the Company or its Affiliates for each of the Employees. For purposes of computing deductible amounts (or like adjustments or limitations on coverage) under any employee welfare benefit plan (including, without limitation, any "employee welfare benefit plan" as defined in Section 3(l) of ERISA), expenses and claims previously recognized for similar purposes under the applicable welfare benefit plan of the Company or any affiliate shall be credited or recognized under the comparable plan maintained after the Closing Date by Buyer or its subsidiaries. 23 (b) Following the Closing Date, Company shall be responsible and assume all liability for all notices or payments due to any Employee, and all notices, payments, fines or assessments due to any government authority, pursuant to any applicable Law, with respect to the employment, discharge or layoff of employees by the Company after the Closing Date, including, but not limited to, the WARN Act and any rules or regulations as have been issued, in connection with the foregoing. (c) After the Closing Date, Buyer shall be responsible for, and shall indemnify and hold harmless Seller and its Affiliates and their officers, directors, employees, affiliates and agents and the fiduciaries (including plan administrators) of the Plans, from and against, any and all claims, losses, damages, costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) and other liabilities and obligations relating to or arising out of (i) all salaries, commissions, vacation entitlements and bonuses due to any Employee accrued but unpaid as of the Closing Date which are reflected on the Closing Balance Sheet, (ii) any failure by Buyer to comply with the provisions of this Section 5.7 and (iii) any claims of, or damages or penalties sought by, any Employee, or any governmental entity on behalf of or concerning any Employee, with respect to any act or failure to act by Buyer to the extent arising from the employment, discharge, layoff or termination of any Employee after the Closing Date. Section 5.8 Certain Tax Matters. (a) Certain Definitions As used in this Agreement: (i) "Affiliated Group" means any affiliated group within the meaning of Section 1504(a) of the Code or any similar group defined under a similar provision of state, local or foreign law. (ii) "Buyer Tax Group" means the affiliated group, within the meaning of Section 1504(a) of the Code, of which Buyer is the common parent or any of Buyer's foreign subsidiaries. (iii) "Election" means the election to be made by Buyer and Seller pursuant to Section 338(h)(10) of the Code, 'as described in Section 5.8(b) hereof. (iv) "Pre-Closing Period" means any taxable period, including that portion of any Straddle Period, which ends on or before the Closing Date. (v) "Seller Group" means the affiliated group, within the meaning of Section 1504(a) of the Code, of which Seller is the common parent. 24 (vi) "Straddle Period" means any taxable period that includes (but does not end on) the Closing Date. (b) Section 338(h)(10) Election. (i) With respect to the purchase by Buyer of the Shares pursuant to this Agreement (A) Seller and Buyer shall jointly make the Election on a timely basis (and any comparable election under state or local tax law), (B) Seller and Buyer shall, as promptly as practicable following the Closing Date, cooperate with each other to take all actions necessary and appropriate (including filing such forms, returns, elections, schedules and other documents as may be required) to effect and preserve a timely Election in accordance with the provisions of Treasury Regulation Section 1.338(h)(10)-l (or any comparable provisions of state or local tax law) or any successor provisions and (C) Seller and Buyer shall report the purchase by Buyer of the Shares pursuant to this Agreement consistent with the Election (and any comparable elections under state or local tax laws) and shall take no position inconsistent therewith in any Tax Return, any proceeding before any taxing authority or otherwise. (ii) In connection with the Election, Buyer and Seller shall agree to the determination of the "Aggregate Deemed Sales Price" (as defined under applicable Treasury Regulations) of the Shares and the allocation of such "Aggregate Deemed Sales Price" among the assets of the Company, which determination and allocation shall be made by Buyer in its sole discretion and will be attached hereto as Schedule 5.8(b). The determination of the amount of the "Aggregate Deemed Sales Price" and the allocation thereof shall be made in accordance with Section 338(b) of the Code and applicable Treasury Regulations. Unless (x) otherwise required by a court of competent jurisdiction, (y) otherwise required by the Internal Revenue Service following an audit, or (z) Seller receives a written opinion from a nationally recognized law firm (which opinion and law firm shall be reasonably acceptable to Buyer) that there is no substantial authority (within the meaning of Section 662(d)(2)(B)(i) of the Code) for such position. Each of Seller and Buyer shall (A) be bound by such determination and such allocation for purposes of determining any Taxes, (B) prepare and file, and cause its affiliates to prepare and file, all Tax Returns on a basis consistent with such determination of the "Aggregate Deemed Sales Price" and such allocation and (C) take no position, and cause its affiliates to take no position, inconsistent with such determination and such allocation on any applicable Tax Return, in any proceeding before any taxing authority or otherwise. In the event that any such determination or allocation is disputed by any taxing authority, the party receiving notice of the dispute shall promptly notify the other party hereto concerning resolution of the dispute. (c) Return Filings, Refunds, Credits and Transfer Taxes (i) Except with regard to Tax Returns for Straddle Periods, Seller shall prepare, or cause to be prepared, and file, or cause to be filed, on a timely basis all Tax Returns of or including the Company and its 25 Subsidiaries for all Pre-Closing Periods (the "Pre-Closing Period Returns"). Seller shall pay, or cause to be paid, all Taxes with respect to the Company and its Subsidiaries shown to be due on the Pre-Closing Period Returns. (ii) Buyer shall prepare, or cause to be prepared, and shall file, or cause to be filed, on a timely basis all Tax Returns with respect to the Company and its Subsidiaries for all periods ending after the Closing Date, including Tax Returns, if any, for any Straddle Period (the "Straddle Period Returns"). Buyer shall pay, or cause to be paid, all Taxes shown to be due on such Tax Returns. (iii) Buyer shall provide Seller with copies of any Straddle Period Returns at least thirty (30) business days prior to the due date thereof (giving effect to any extensions thereto), accompanied by a statement calculating in reasonable detail Seller's indemnification obligation pursuant to Section 5.8(e) hereof (the "Indemnification Statement"). Seller shall have the right to review such Straddle Period Returns and Indemnification Statement prior to the filing of such Straddle Period Returns. If Seller disputes any amounts shown due on such Tax Returns or the amount calculated in the Indemnification Statement, Seller and Buyer shall consult and resolve in good faith any issues arising as a result of the review of such Straddle Period Return and Indemnification Statement. If Seller agrees to the Indemnification Statement amount, Seller shall pay to Buyer an amount equal to the Taxes shown on the Indemnification Statement less any amounts paid by Seller or the Company on or before the Closing Date with respect to estimated taxes not -later than three (3) business days before the due date (including any extensions thereof) for payment of Taxes with respect to such Straddle Period Return. If t he parties are unable to resolve any dispute within fifteen (15) business days after Seller's receipt of such Straddle Period Return and Indemnification Statement, such dispute shall be resolved by the [Independent Accountants], which shall resolve any issue in dispute as promptly as practicable. If the Independent Accountants are unable to make a determination with respect to any disputed issue prior to the due date (including any extensions) for the filing of the Straddle Period Return in, question, (A) Buyer shall file, or shall cause to be filed, such Straddle Period Return without such determination having been made and (B) Seller shall pay to Buyer, not later than three days before the due date (including any extensions thereof) for the payment of Taxes with respect to such Straddle Period Return, an amount determined by Seller as the proper amount chargeable to Seller pursuant to this Section 5.8(c). Upon delivery to Seller and Buyer by the Independent Accountants of its determination, appropriate adjustments shall be made to the amount paid by Seller in accordance with the immediately preceding sentence in order to reflect the decision of the Independent Accountants. The determination by the Independent Accountants shall be final, conclusive and binding on the parties. (iv) Seller and Buyer shall reasonably cooperate, and shall cause their respective affiliates, officers, employees, agents, auditors and representatives reasonably to cooperate, in preparing and filing all Tax Returns (including amended returns and claims for refund), including maintaining and making available to each other all records necessary in connection with Taxes and in resolving all disputes and audits with respect to all taxable periods relating to Taxes. Buyer and Seller recognize that Seller will need access, from time to time, after the Closing Date, to certain accounting and tax records and information held by the Company to the extent such records and information pertain to events occurring prior to the Closing Date; therefore, Buyer 26 agrees that from and after the Closing Date Buyer shall, and shall cause the Company to, (A) retain and maintain such records until such time as Seller determines that such retention and maintenance is no longer necessary and (B) allow Seller and its agents and representatives (and agents and representatives of its affiliates), to inspect, review and make copies of such records as Seller may deem necessary or appropriate from time to time. (v) For a period of seven (7) years from the Closing Date, Buyer shall not, and shall cause the Company not to, dispose of or destroy any of the business records and files of the Company relating to Taxes in existence on the Closing Date without first offering to turn over possession thereof to Seller by written notice to Seller at least thirty (30) days prior to the proposed date of such disposition or destruction. (vi) Any refunds and credits of Taxes of the Company and its Subsidiaries or similar benefit (including any interest or similar benefit) received from or credited thereon by the applicable tax authority with respect to (A) any taxable period ending on or before the Closing Date or (B) Taxes for which the Seller has indemnified the Buyer under the Agreement, shall be for the account of Seller, and if received or utilized by Buyer or the Company, shall be paid to Seller within five (5) business days after Buyer or the Company receives such refund or utilizes such credit. Except as provided in the next sentence, any refunds or credits of the Company with respect to any Straddle Period shall be apportioned between Seller and Buyer on the basis of an interim closing of the books. In the case of a refund or credit attributable to any Taxes that are imposed on a periodic basis and are attributable to the Straddle Period, other at than Taxes based upon or related to gross or net income or receipts, the refund or credit of such Taxes of the Company for the Pre-Closing Period shall be deemed to be the amount of such refund or credit for the Straddle Period multiplied by a fraction the numerator of which is the number of days in the Straddle Period ending on the Closing Date and the denominator of which is the number of days in the Straddle Period. Buyer shall not carry back any tax losses, credits or other tax benefits attributable to the operations of the Company and its Subsidiaries after the Closing Date. (vii) Notwithstanding any other provisions of this Agreement to the contrary, all sales, use, transfer, stamp, duties, recording and similar Taxes incurred in connection with the transactions contemplated by this Agreement shall be shared equally by Seller and Buyer, and Seller shall, at its own expense, accurately file or cause to be filed all necessary Tax Returns and other documentation with respect to such Taxes and timely pay all, such Taxes. If required by applicable law, Buyer will join in the execution of any such Tax Returns or such other documentation. (d) Elections. Buyer shall not, and shall cause the Company not to, make, amend or revoke any Tax election if such action would adversely affect Seller or any person (other than the Company and its Subsidiaries) as to whom or with whom Seller has filed a consolidated return with respect to any, taxable period ending on or before the Closing Date or for the Pre-Closing Period or any Tax refund with respect thereto. 27 (e) Tax Indemnification. (i) Buyer shall indemnify, defend and hold harmless Seller and its affiliates; at any time after the Closing, from and against (A) any liability for Taxes of the Company and its Subsidiaries for any taxable period ending after the Closing Date except for Straddle Periods, in which case Buyer's indemnity will cover only that portion of any such Taxes that is not attributable to the Pre-Closing Period; (B) all costs and expenses (including reasonable attorneys and accountants fees) attributable to any contest or dispute involving the foregoing; and (C) Taxes arising out of any action taken by the Company or any of its Subsidiaries on the Closing Date after the Closing, other than actions contemplated by this Agreement or actions taken in the ordinary course of business. (ii) Seller shall indemnify, defend and hold harmless Buyer and its affiliates, at any time after the Closing, from and against any liability for Taxes, regardless of whether any such liability or potential liability has been disclosed to Buyer, of the Company and its Subsidiaries (including, without limitation, liability for Taxes of any person other than any of the Company and its Subsidiaries: (i) under Reg. Section 1. 1502-6 (or any similar provision of Law), (ii) as a transferee or successor, (iii) by Contract, or (iv) otherwise) except as provided in Section 5.8(c)(vii) hereof, for the Pre-Closing Period, including any Straddle Period. (iii) In determining the responsibility of Seller and Buyer for Taxes attributable to any Straddle Period, Taxes based upon or related to gross or net income or receipts shall be apportioned on the basis of an interim closing of the Company's books as of the Closing Date, and all other Taxes shall be prorated on a daily basis. (iv) If a claim for Taxes shall be made by any taxing authority in writing, which, if successful, might result in an indemnity payment pursuant to this Section 5.8, the party seeking indemnification (the "Tax Indemnified Party") shall promptly notify the other party (the "Tax Indemnifying Party") in writing of such claim (a "Tax Claim") within a reasonably sufficient period of time to allow the Tax Indemnifying Party effectively to contest such Tax Claim, and. in reasonable detail to apprise the Tax Indemnifying Party of the nature of the Tax Claim, and provide copies of all correspondence and documents received by it from the relevant taxing authority. Failure to give prompt notice of a Tax Claim hereunder shall affect the Tax Indemnifying Party's obligation under this Section to the extent that the Tax Indemnifying Party is prejudiced by such failure to give prompt notice. (v) With respect to any Tax Claim which might result in an indemnity payment to Buyer pursuant to this Section 5.8(e) (including, without limitation, Taxes of the Company for a Straddle Period), Seller shall control all proceedings taken in connection with such Tax Claim and, without limiting the foregoing, may in its sole discretion and at its sole- expense pursue or forego any and all administrative appeals, proceedings, hearings and conferences with any taxing authority with respect thereto, and may, in its sole discretion, either pay the Tax claimed and sue for a refund where applicable law permits such refund suits or contest such Tax Claim. Buyer 28 shall not under any circumstances settle or otherwise compromise any Tax Claim referred to in the preceding sentence without Seller's prior written consent. Notwithstanding anything in the foregoing to the contrary, Seller shall not settle any Tax Claim in a manner which would adversely affect the Company and its Subsidiaries after the Closing Date without the prior written consent of the Buyer, which consent shall not unreasonably be withheld. In connection with any proceeding taken in connection with such Tax Claim, (A) Seller shall keep Buyer informed of all material developments and events relating to such Tax Claim if involving a material liability for Taxes and (B) Buyer shall have the right, at its sole expense, to participate in any such proceedings. Buyer shall cooperate with Seller in contesting such Tax Claim (without charge to Seller), which cooperation shall include, without limitation, the retention and the provision to Seller of records and information which are reasonably relevant to such Tax Claim, and making employees available to Seller to provide additional information or explanation of any material provided hereunder or to testify at proceedings relating to such Tax Claim, provided that no charges shall be incurred by Seller for the services of such employees. (vi) With respect to any Tax Claim not described in Section 5.8(e)(v) hereof which might result in an indemnity payment to Seller pursuant hereto, Buyer shall control all proceedings in accordance with provisions that are parallel to those in Section 5.8(e) hereof. (f) Tax Sharing Agreements. Any tax sharing agreement between Seller and any of the Company and its Subsidiaries is terminated as of the Closing Date and will have no further effect for any taxable year (whether the current year, a future year, or a past year). Section 5.9 Proceedings. Seller shall promptly notify Buyer of any Proceedings which, after the date hereof, are threatened or commenced against the Seller, Company or any Subsidiary against any officer, director, employee, consultant or agent with respect to the affairs of the Company or any Subsidiary, which if adversely determined could reasonably be expected to have a Material Adverse Effect. Section 5.10 Continued Effectiveness of Representations and Warranties of Corporation. Seller will use its commercially reasonable efforts to cause the Company and its Subsidiaries to conduct the business of the Company and the Subsidiaries in such a manner so that the representations and warranties contained in Article III herein shall continue to be true and correct on and as of the Closing Date as if made on and as of the Closing Date, and Buyer shall promptly be given notice of any event, condition or circumstance occurring from the date hereof through the Closing Date which would cause any of such representations and warranties to become untrue in any material respect. Section 5.11 No Shopping. The Seller shall not, nor shall any Seller allow the Company or any Subsidiary to, directly or indirectly, through any director, officer, employee, agent or otherwise, solicit, initiate or encourage submission of proposals or offers from any person relating, directly or indirectly, to any acquisition of all or substantially all of the assets or capital stock of the Company or any Subsidiary or participate in any negotiation regarding, or furnish to any other person any information with respect to, or otherwise cooperate in any way with, or assist or 29 participate in, facilitate or encourage, any effort or attempt by any other person to or seek, directly or indirectly, to acquire all or substantially all of the assets or capital stock of the Company or any Subsidiary of the Company. The Seller shall promptly notify NCO if any such proposal or offer, or any inquiry or contact with any Person with respect thereto, is made. Section 5.12 Hart-Scott-Rodino Filings. As promptly as practicable after the date of this Agreement, Buyer and Seller shall make all filings under the H-S-R Act which are required in connection with the transactions contemplated by this Agreement. Each party shall cooperate with the other party in connection with the other party's filings under the H-S-R Act including, without limitation, providing all information reasonably requested by each party to the other and taking all reasonable actions to cause the early termination of all applicable waiting periods. Section 5.13 Releases. Seller shall, at its sole expense, use its commercially reasonable efforts to obtain the release of the Company and each of its Subsidiaries from all guarantees and sureties (other than those in the ordinary course of the Company's business) listed on Section 3.15 of the Disclosure Schedule, including without limitation, those arising under the Credit Agreement dated February 13, 1998 among, inter alia, Seller, DLJ Capital Funding and Wachovia Bank, N.A. ("Credit Agreement"), and the Indenture dated February 20, 1998 by Seller and its subsidiaries ("Indenture"), and from all Encumbrances including applicable UCC-3 Releases (collectively, the "Releases"). Seller shall take or cause to be taken such action, including without limitation, providing such certificates, notices, agreements or instruments and applying the proceeds of the sale of the Shares, as are required of the Seller or the Company under the Credit Agreement and the Indenture to obtain the applicable Releases thereunder. Buyer and Seller shall use their respective commercially reasonable efforts to obtain the release of Seller from guarantees under the Leases; provided, however, that Buyer shall not be required to provide any guaranty or suretyship for any Leases. ARTICLE VI CONDITIONS TO OBLIGATIONS OF THE PARTIES Section 6.1 Conditions to Each Party's Obligation. The respective obligation of each party to consummate the transactions contemplated herein is subject to the satisfaction at or prior to the Closing of the following conditions: (a) No statute, rule or regulation shall have been enacted, entered, promulgated or enforced by any court or governmental authority which prohibits or restricts the consummation of the transactions contemplated hereby; (b) There shall not be in effect any Judgment of any court of competent jurisdiction enjoining the consummation of the transactions contemplated hereby; (c) There shall not be any Proceeding instituted, pending or threatened by any governmental or other regulatory or administrative agency or commission or any person which seeks 30 to enjoin or otherwise prevent, or which seeks material monetary penalties as a result of, consummation of the transactions contemplated hereby; and (d) Any waiting periods applicable to the transactions contemplated by this Agreement under applicable U.S. antitrust or trade regulation laws and regulations, including, without limitation, under the H-S-R Act shall have expired or been terminated. Section 6.2 Conditions to Obligations of Seller. The obligations of Seller to consummate the transactions contemplated hereby are further subject to the satisfaction (or waiver) at or prior to the Closing of the following conditions: (a) Each representation and warranty made by Buyer in Article IV of this Agreement shall be true and correct (a) in all material respects with respect to representations and warranties which are not modified by materiality and (b) in all respects with respect to representations and warranties which are modified by materiality, in either case, on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date except for those representations and warranties made as of a specified date which shall continue to be true and correct as of such date and except for changes permitted or contemplated hereby. (b) Buyer shall have performed in all material respects its obligations under this Agreement required to be performed by it at or prior to the Closing pursuant to the terms hereof; and (c) Buyer shall have delivered to Seller or its affiliates those items set forth in Section 1.5 hereof. Notwithstanding the failure of any one or more of the foregoing conditions, the Seller may proceed with the Closing without satisfaction, in whole or in part, of any one or more of such conditions. To the extent that on or before the third day prior to the Closing Buyer delivers to Seller a written notice, prepared in good faith, specifying in reasonable detail the failure of such condition or the breach by Buyer of any of the representations or warranties of Buyer herein and Seller nevertheless proceeds with the Closing, Seller shall be deemed to have waived for all purposes any rights or remedies it may have against Buyer by reason of the failure of any such condition or the breach of any such representation or warranty to the extent described in such notice. Section 6.3 Conditions to Obligations of Buyer. The obligations of Buyer to consummate the transactions contemplated hereby are further subject to the satisfaction (or waiver) at or prior to the Closing of the following conditions: (a) Each representation and warranty made by Seller in this Agreement shall be true and correct (a) in all material respects with respect to representations and warranties which are not modified by materiality and (b) in all respects with respect to representations and warranties which are modified by materiality, in either case, on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date except for those representations and 31 warranties made as of a specified date which shall continue to be true and correct as of such date and except for changes permitted or contemplated hereby. (b) Seller shall have performed in all material respects its obligations under this Agreement required to be performed by it at or prior to the Closing pursuant to the terms hereof; (c) All Material Consents shall have been obtained and remain in full force and effect; (d) Since the date of the Agreement, there shall have been no change in the business, results of operations or financial condition of the Company that, individually or in the aggregate had or would have a Material Adverse Effect; (e) The Service Contracts shall have been entered into and remain in full force and effect; (f) The Shares and the capital stock of the Subsidiaries shall be free and clear of any Encumbrance. (g) Seller or its affiliates shall have delivered to Buyer those items set forth in Section 1.4 hereof. Notwithstanding the failure of any one or more of the foregoing conditions, Buyer may proceed with the Closing without satisfaction, in whole or in part, of any one or more of such conditions. To the extent that on or before the third day prior to the Closing Seller delivers to Buyer a written notice, prepared in good faith, specifying in reasonable detail the failure of such condition or the breach by Seller of any of the representations or warranties of Seller herein and Buyer nevertheless proceeds with the Closing, Buyer shall be deemed to have waived for all purposes any rights or remedies it may have against Seller by reason of the failure of any such condition or the breach of any such representation or warranty to the extent described in such notice. ARTICLE VII TERMINATION, AMENDMENT; WAIVER Section 7.1 Termination. This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time prior to the Closing Date: (a) At any time, by, mutual written consent of Seller and Buyer; (b) By Buyer or Seller if any court of competent jurisdiction in the United States or any United States governmental body shall have issued a final and non-appealable order, decree, or ruling permanently restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated hereby; provided that no party hereto affiliated with the person who 32 brought the action seeking the permanent enjoinment of the transactions contemplated hereby may seek termination of this Agreement pursuant to this Section 7.1(b); (c) If the transactions contemplated hereby or any of the conditions to Closing hereunder become impossible to perform or obtain, as applicable, provided that no party hereto who caused such impossibility may seek termination of this Agreement pursuant to this Section 7.1(c); (d) in the event of a breach by the other party of any representation, warranty, covenant or other agreement contained in this Agreement which (i) results in the failure of a condition set forth in Article VI and (ii) cannot be or has not been cured within 30 days after the giving of written notice to the breaching party of such breach (provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained in this Agreement); (e) At any time on or after December 31, 1998, by either Seller, on the one hand, or Buyer, on the other hand, if the Closing shall not have occurred on or prior to such date (or such later date as Seller and Buyer shall have agreed in writing), provided that no party hereto may seek termination of this Agreement pursuant to this Section 7.1(e) if such party is in material breach of the Agreement. Section 7.2 Procedure and Effect of Termination. In the event of the termination of this Agreement and the abandonment of the transactions contemplated hereby pursuant to Section 7.1 hereof, written notice thereof shall forthwith be given by the parties so terminating to the other party and this Agreement shall terminate and the transactions contemplated hereby shall be abandoned, without further action by Seller, on the one hand, or Buyer, on the other hand. If this Agreement is terminated pursuant to Section 7.1 hereof: (a) Each party shall redeliver all documents, work papers and other materials of the other parties relating to the transactions contemplated hereby, whether obtained before or after the execution hereof, to the party furnishing the same, and all confidential information received by any party hereto with respect to the other party shall be treated in accordance with the Confidentiality Agreement and Section 5.2(b) hereof; (b) All filings, applications and other submissions made pursuant hereto shall, at the option of Seller, and to the extent practicable, be withdrawn from the agency or other person to which made; and (c) There shall be no liability or obligation hereunder on the part of Seller or Buyer or any of their respective directors, officers, employees, affiliates, controlling persons, agents or representatives, except that Seller or Buyer, as the case may be, may have liability to the other party if the basis of termination is a willful, material breach by Seller or Buyer, as the case may be, of one or more of the provisions of this Agreement, and except that the obligations provided for in Sections 7.2(a), 7.2(b) and 10.1 hereof shall survive any such termination. 33 Section 7.3 Amendment, Modification and Waiver. This Agreement may be amended, modified or supplemented at any time by written agreement of Seller and Buyer. Any failure of Seller or Buyer to comply with any term or provision of this Agreement may be waived, with respect to Buyer, by Seller and, with respect to Seller, by Buyer, by an instrument in writing signed by or on behalf of the appropriate party, but such waiver or failure to insist upon strict compliance with such term or provision shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure to comply. ARTICLE VIII SURVIVAL OF REPRESENTATIONS: INDEMNIFICATION Section 8.1 Survival of Representations and Warranties. Unless otherwise provided herein, the representations and warranties of Seller and Buyer, made in Articles III and IV hereof, respectively, shall survive the Closing: (a) with respect to claims for indemnification not based on the assertion of liability by third parties, for a period of fifteen months after the Closing Date, or (b) with respect to claims for indemnification based on the assertion of liability by third parties, for a period of twenty-four months after the Closing Date (as applicable, the "Indemnity Period"); but except as provided in Section 7.2(c) hereof, shall not survive any termination of this Agreement pursuant to Section 7.1. The parties intend to shorten the statute of limitations and agree that no claims or causes of action may be brought against Seller or Buyer based upon, directly or indirectly, any of the representations or warranties contained in Articles III and IV hereof after the Indemnity Period except as provided in Section 8.4(b). This Article VIII shall not limit any covenant or agreement of the parties, which contemplates performance after the Closing, including, without limitation, the covenants and agreements set forth in Sections 5.7 and 5.8 hereof. Section 8.2 Seller's Agreement to Indemnify. Subject to the terms and conditions set forth herein, from and after the Closing, Seller shall indemnify and hold harmless Buyer, Company and Subsidiaries and their respective directors, officers, employees, affiliates, controlling persons, agents and representatives and their successors and assigns (collectively, the "Buyer Indemnitees") from and against all liability, demands, claims, actions or causes of action, assessments, losses, damages, costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) (collectively "Buyer Damages") arising out of or caused by, directly or indirectly, any or all of the following: (i) any misrepresentation, breach or failure of any warranty or representation made by the Seller in or pursuant to this Agreement; (ii) any failure or refusal by Seller to satisfy or perform in all material respects any covenant, term or condition of this Agreement required to be satisfied or performed by the Seller; (iii) any claim against Company under any guaranty or surety by Company of the obligations or liabilities of Seller or its subsidiaries; (iv) any claims asserted by Allegheny Health, Education and Research Foundation, Allegheny University of the Health Sciences, Allegheny University Medical Partners, Allegheny Hospitals, Centennial and Allegheny University Hospital -- East, or its agents, trustees or assigns (collectively, "Allegheny") against Buyer Indemnitees which arise from or relate to payments received by the Company or Subsidiaries from Allegheny prior to the date when Allegheny filed its petition for relief under Chapter 11 in the United States Bankruptcy Court for the Western District of Pennsylvania, Case Nos. 98-25773 34 through 98-25777, inclusive; and (v) any Proceeding against any Buyer Indemnitee by any person arising out of the foregoing. Section 8.3 Buyer's Agreement to Indemnify. Subject to the terms and conditions set forth herein, from and after the Closing, Buyer shall indemnify and hold harmless Seller, Company and Subsidiaries and their respective directors, officers, employees, affiliates, controlling persons, agents and representatives and their successors and assigns (collectively, the "Seller Indemnitees") from and against all liability, demands, claims, actions or causes of action, assessments, losses, damages, costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) (collectively "Seller Damages") arising out of or caused by, directly or indirectly, any or all of the following: (i) any misrepresentation, breach or failure of any warranty or representation made by the Buyer in or pursuant to this Agreement; (ii) any failure or refusal by Buyer to satisfy or perform in all material respects any covenant, term or condition of this Agreement required to be satisfied or performed by the Buyer; (iii) any claim against the Seller under any guaranty of the Leases by Seller with respect to obligations or liabilities arising on or after the Closing Date; (iv) any Proceeding against any Seller Indemnitee by any person arising out of the foregoing. Section 8.4 General Provisions. (a) Seller's obligations to indemnify the Buyer Indemnitees pursuant to Section 8.2, and Buyer's obligation to indemnify the Seller Indemnitees pursuant to Section 8.3, are subject to the following limitations: (i) No indemnification shall be made by Seller or Buyer (referred to as the "Indemnitor") unless the aggregate amount of all of Buyer Damages or all of Seller Damages (Buyer Damages and Seller Damages are sometimes referred to as "Damages"), as the case may be, exceeds $1,000,000 and, in such event, indemnification shall be made by Indemnitor only to the extent Buyer Damages or Seller Damages, as the case may be, exceed $1,000,000. (ii) In no event shall an Indemnitor's aggregate obligation to indemnify the Buyer Indemnitees or Seller Indemnitees, as the case may be (Buyer Indemnitees and Seller Indemnitees are sometimes referred to as "Indemnitees") exceed $15,000,000; provided, however, that any Damages arising from any indemnification matter described in Section 8.4(b) shall not be taken into account in calculating the amount of Damages for the purposes of the limitation provided by this Section 8.4(a)(ii). (iii) Indemnitor shall be obligated to indemnify the Indemnitees only for those claims giving rise to Damages as to which the Indemnitees have given Indemnitor written notice thereof prior to the end of the Indemnity Period. Any written notice delivered by a Indemnitee to Indemnitor with respect to Damages shall set forth with as much specificity as is reasonably practicable the basis of the claim for Damages and, to the extent reasonably practicable, a reasonable estimate of the amount thereof. 35 (iv) Except for willful, knowing or intentional fraud, remedies that cannot be waived as a matter of law and injunctive or provisional relief, if the Closing occurs, this Article VIII shall be the exclusive remedy for breaches of this Agreement (including any covenant, obligation, representation or warranty contained in this Agreement or in any certificate delivered pursuant to this Agreement) or otherwise in respect of the sale of the Shares contemplated hereby. (b) None of the foregoing limitations in Section 8.1 or Section 8.4 shall apply in the case of any indemnification matter involving; (i) title to the Shares; (ii) Taxes; or (iii) civil false claims act liabilities for billing and coding under Medicare and Medicaid; or (iv) covenants, agreements or obligations to be performed after Closing; (v) indemnification matters described in Section 8.2(iii), Section 8.2(iv) or Section 8.3(iii) and any related Proceeding; or (vi) Buyer's breach of the representations contained in Section 4.1. (c) In determining the amount of Damages arising from breach of representations or warranties qualified by materiality or Material Adverse Effect, such qualification shall not be taken into account in determining the amount of such damages. (d) The right to indemnification, payment of damages or other remedy based on representations, warranties, covenants and obligations of this Agreement will not be affected by any investigation conducted with respect to, or any knowledge acquired (or capable of being acquired) at any time, whether before or after the execution and delivery of this Agreement or the Closing Date, with respect to the accuracy or inaccuracy of or compliance with, any such representation, warranty, covenant, or obligation. Section 8.5 Third Party Indemnification. The obligations of Indemnitor to indemnify the Indemnitees under Section 8.2 or Section 8.3 hereof, as the case may be, with respect to Damages resulting from the assertion of liability by third parties (a "Claim"), will be subject to the following terms and conditions: (a) Any party against whom any Claim is asserted will give Seller written notice of any such Claim promptly after learning of such Claim, and Indemnitor may at its option undertake the defense thereof by representatives of its own choosing. Failure to give prompt notice of a Claim hereunder shall not affect Indemnitor's obligations under this Section 8.5, except to the extent Indemnitor is materially prejudiced by such failure to give prompt notice. If Indemnitor, within thirty (30) days after notice of any such Claim, or such shorter period as is reasonably required, fails to assume the defense of such Claim, or does not continue to defend the Claim in good faith, the Indemnitee against whom such claim has been made will (upon further notice to Indemnitor) have the right to undertake the defense, compromise or settlement of such claim on behalf of and for the account and risk, and at the expense, of Indemnitor, subject to the right of Indemnitor to assume the defense of such Claim at any time prior to settlement, compromise or final determination thereof. If Indemnitee reasonably believes that the handling of the Defense by Indemnitor may have a material adverse affect on any Indemnitee, its business or financial condition, or its relationship with any customer, prospect, supplier, employee, salesman, consultant, agent or representative, then 36 Indemnitee may, at its option and expense and through counsel of its choice, assume control of the defense of such Claim, provided that Indemnitor shall be entitled to participate in the defense of such Claim at its expense and through counsel of its choice. (b) Anything in this Section 8.5 to the contrary, notwithstanding, Indemnitor shall not enter into any settlement or compromise of any action, suit or proceeding or consent to the entry of any judgment (i) which does not include as an unconditional term thereof the delivery by the claimant or plaintiff to the Indemnitee of a written release from all liability in respect of such action, suit or proceeding or (ii) for other than monetary damages to be borne in full by Indemnitor, without the prior written consent of the Indemnitee, which consent shall not be unreasonably withheld. ARTICLE IX RESTRICTIVE COVENANTS OF THE SELLERS Section 9.1 Certain Acknowledgments. Seller expressly acknowledges that: (a) Business. The accounts receivable management business (collectively, the "Business") as currently conducted by Company and Subsidiaries involve the provision of accounts receivable collection and management services using proprietary and confidential systems and information. Competitive Nature of Business. The Business is highly competitive, is marketed throughout the United States and Europe and requires long sales "lead times" often exceeding one year. The Company and Subsidiaries expend substantial time and money, on an ongoing basis, to train their employees, maintain and expand their customer base, and improve and develop their products and services. (b) Access to Information. During the period that Seller owned the Company and Subsidiaries, Seller had access to proprietary and confidential property, knowledge and information of the Company and Subsidiaries, which, after Closing, shall be proprietary and confidential property, knowledge and information of the Buyer; such property, knowledge and information must be kept in strict confidence to protect the Business and maintain the competitive position of the Business in the marketplace; and such property, knowledge and information would be useful to competitors of the Business for indefinite periods of time. (c) Basis for Covenants. The covenants of Sections 9.2, 9.3 and 9.4 (the "Covenants") are a material part of this Agreement and are an integral part of the obligations of the Seller hereunder; the Covenants are supported by good and adequate consideration; and the Covenants are reasonable and necessary to protect the legitimate business interests of the Company and Buyer. (d) Conduct of Business by Buyer. Buyer has informed Seller that after Closing, the Business will be conducted by the Buyer through the Company and the Subsidiaries and/or other 37 subsidiaries of Buyer (collectively, the "NCO Companies"). Section 9.2 Nondisclosure Covenants. Except with Buyer's prior written consent, Seller shall not, directly or indirectly, in any capacity, communicate, publish or otherwise disclose to any person, or use for the benefit of any person, any confidential or proprietary property, knowledge or information of the Business, no matter when or how such knowledge or information was obtained, including without limitation (a) any information concerning the conduct and details of the Company's or the Subsidiaries' businesses; (b) the identity of customers and prospects, their specific requirements, and the names, addresses and telephone numbers of individual contacts at customers and prospects; (c) prices, renewal dates and other detailed terms of customer and supplier Contracts and proposals; (d) pricing policies, marketing and sales strategies, methods of delivering products and services, and products and service development projects and strategies; (e) employment and payroll records; (f) forecasts, budgets and other nonpublic financial information; and (g) expansion plans, management policies, methods of operation, and other business strategies and policies. Section 9.3 Noncompetition Covenants. During the period beginning on the Closing Date and ending on the fifth (5th) anniversary of the Closing Date, except with the Buyer's prior written consent, Seller shall not, directly or indirectly, in any capacity, at any location worldwide: (a) Solicitation Restrictions. Communicate with or solicit any person who is or during such period becomes a customer, prospect, supplier, employee, salesman, agent or representative of, or a consultant to the Business, in any manner which interferes with such person's relationship with the Business, or in an effort to obtain any such person as a customer, employee, salesman, agent or representative of, or a consultant to, any other person that conducts a business competitive with or similar to all or any part of the Business. (b) Competing Business Restrictions. Establish, own, manage, operate, finance or control, or participate in the establishment, ownership, management, operation, financing or control of, or be a director, officer, employee, salesman, agent or representative of, or be a consultant to, any person that conducts a business competitive with or similar to all or any part of the Business. Section 9.4 Nonsolicitation. During the period beginning on the Closing Date and ending on the fifth (5th) anniversary of the Closing Date, Seller shall not, directly or indirectly, solicit (other than a general public solicitation) any of the employees of the Business who were employed by the Business prior to the Closing Date to become employees or independent contractors of Seller or any of its subsidiaries. Section 9.5 Certain Exclusions. Confidential and proprietary property, knowledge and information of the Business shall not include any information that is now known by or readily available to the general public, nor shall it include any information that in the future becomes known by or readily available to the general public other than as a result of any breach of the Covenants of this Agreement. If Seller is required to disclose proprietary information to any court, administrative agency or governmental authority or else stand liable for contempt or other penalty and Seller 38 notifies Buyer as soon as possible so that Buyer may seek a protective order or other relief, then, in the absence of such protective order or other relief, Seller may disclose such proprietary information without liability under this Agreement. Nothing in Article IX shall prohibit Seller from conducting any business (other than the Business) being conducted by Seller on the date hereof. The ownership by Seller of not more than five percent (5%) of the outstanding securities of any public company shall not, by itself, constitute a breach of the Covenants of Section 9.3, even if such public company competes with the Business. The acquisition by Seller of the stock or assets of any person or entity (an "Acquired Business") which conducts a business competitive with the Business shall not, by itself, constitute a breach of the Covenants of Section 9.3 (i) if less than 10% of the gross revenues of such Acquired Business are derived from business competitive with the Business, or (ii) if 10% or more of the gross revenues of such Acquired Business are derived from business competitive with the Business and Seller disposes of such competitive business as soon as practicable after the acquisition of the Acquired Business by Seller. Seller hereby agrees to notify Buyer in a timely fashion so as to permit Buyer, at its option, to bid on or offer to purchase any competitive business to be disposed of by Seller pursuant to the preceding sentence. CDI is a wholly-owned subsidiary of Seller. A division of CDI doing business as "Nationwide Credit" is performing collection services in the State of Michigan as part of a physician practice service management company. The continued ownership and operation of CDI by the Seller, and the licensing of CDI as a collection agency in the State of Michigan, will not constitute a breach of the Covenants of Section 9.3 if the third party account collections activity engaged in by CDI is limited to the State of Michigan and is offered only as an integrated part of CDI's practice management services to physicians and practices within the State of Michigan who are existing clients of CDI. Seller shall license CDI as a collection agency in the State of Michigan as soon as reasonably practicable. Pending the granting of such license, AssetCare shall provide collection services to the billing clients of CDI under the Collection Services contract to be entered into pursuant to Section 2.6. In the event that Seller desires to sell on a stand alone basis, or have a third party provide, the third party collection services conducted by CDI, Seller shall provide written notice thereof to Buyer and shall give Buyer the right for a period of sixty (60) days after such notice to make an offer to purchase such business and assets or provide such services. Section 9.6 Enforcement of Covenants. Seller expressly acknowledges that it would be extremely difficult to measure the damages that might result from any breach of the Covenants, and that any breach of the Covenants will result in irreparable injury to the Business for which money damages could not adequately compensate. If a breach of the Covenants occurs, then the NCO Companies shall be entitled, in addition to all other rights and remedies that they may have at law or in equity, to seek an injunction issued by any competent court enjoining and restraining the Seller and all other persons involved therein from continuing such breach. Section 9.7 Scope of Covenants. If any Covenant, or any part thereof, or the application thereof, is construed to be invalid, illegal or unenforceable, then the other Covenants, or the other portions of such Covenant, or the application thereof, shall not be affected thereby and shall be enforceable without regard thereto. If any of the Covenants is determined to be unenforceable because of its scope, duration, geographical area or other factor, then the court making such 39 determination shall have the power to reduce or limit such scope, duration, area or other factor, and such Covenant shall then be enforceable in its reduced or limited form. ARTICLE X MISCELLANEOUS Section 10.1 Fees and Expenses. Whether or not the transactions contemplated herein are consummated pursuant hereto, except as otherwise provided herein, each of Seller and Buyer shall pay all fees and expenses incurred by, or on behalf of, such party, and Seller shall pay all fees and expenses incurred by or on behalf of Company and Subsidiary in connection with, or in anticipation of, this Agreement and the consummation of the transactions contemplated hereby. Each of Seller and Buyer shall indemnify and hold harmless the other party from and against any and all claims or liabilities for financial advisory and finders' fees incurred by reason of any action taken by such party or otherwise arising out of the transactions contemplated by this Agreement by any person claiming to have been engaged by such party. Section 10.2 Further Assurances. From time to time after the Closing Date, at the request of another party hereto and at the expense of the party so requesting, each of the parties hereto shall execute and deliver to such requesting party such documents and take such other action as such requesting party may reasonably request in order to consummate more effectively the transactions contemplated hereby. Section 10.3 Notices. All notices, requests, demands, waivers and other communications required or permitted to be given under this Agreement shall be in writing and may be given by any of the following methods: (a) personal delivery; (b) facsimile transmission; (c) registered or certified mail, postage prepaid, return receipt requested; or (d) overnight delivery service. Notices shall be sent to the appropriate party at its address or facsimile number given below (or at such other address or facsimile number for such party as shall be specified by notice given hereunder): If to Buyer, to: NCO Group, Inc. 515 Pennsylvania Avenue Fort Washington, PA 19034 Telephone No.: 215-793-9300 Fax No.: 215-793-2929 Attention: Joshua Gindin, Esquire 40 with a copy to: Blank Rome Comisky & McCauley LLP One Logan Square Philadelphia, PA 19103 Telephone No.: 215-569-5500 Fax No.: 215-569-5555 Attention: Francis E. Dehel, Esquire If to Seller, to: Medaphis Corporation 2840 Mt. Wilkinson Parkway Suite 300 Atlanta, GA 30339 Attention: General Counsel with a copy to: Skadden, Arps, Slate, Meagher & Flom (Illinois) 333 West Wacker Drive Chicago, IL 60606-1285 Fax No.: (312) 407-0411 Attention: Lynn Hiestand, Esquire All such notices, requests, demands, waivers and, communications shall be deemed received upon (i) actual receipt thereof by the addressee, (ii) actual delivery thereof to the appropriate address or (iii) in the case of a facsimile transmission, upon transmission thereof by the sender and issuance by the transmitting machine of a confirmation slip that the number of pages constituting the notice have been transmitted without error. In the case of notices sent by facsimile transmission, the sender shall contemporaneously mail a copy of the notice to the addressee at the address provided for above. However, such mailing shall in no way alter the time at which the facsimile notice is deemed received. Section 10.4 Severability. Should any provision of this Agreement for any reason be declared invalid or unenforceable, such decision shall not affect the validity or enforceability of any of the other provisions of this Agreement, which remaining provisions shall remain in full force and effect and the application of such invalid or unenforceable provision to persons or circumstances other than those as to which it is held invalid or unenforceable shall be valid and enforced to the fullest extent permitted by law. Section 10.5 Binding Effect; Assignment. This Agreement and all of the provisions hereof shall be binding upon and shall inure to the benefit of the parties hereto and their respective 41 successors and permitted assigns. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned, directly or indirectly, including, without limitation, by operation of law, by any party hereto without the prior written consent of the other parties hereto provided, however, that Buyer shall have the right to assign its rights (but not its obligations) under this Agreement to a wholly-owned subsidiary of Buyer. Section 10.6 No Third Party Beneficiaries. This Agreement is solely for the benefit of Seller, and its successors and permitted assigns, with respect to the obligations of Buyer under this Agreement, and for the benefit of Buyer, and its respective successors and permitted assigns, with respect to the obligations of Seller, under this Agreement, and this Agreement shall not be deemed to confer upon or give to any other third party any remedy, claim liability, reimbursement, cause of action or other right. Section 10.7 Interpretation. (a) The article and section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or interpretation of this Agreement. (b) As used in this Agreement, the term "person" shall mean and include an individual, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof. (c) As used in this Agreement, the term "affiliate" shall have the meaning set forth in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended. (d) In view of the fact that each of the parties hereto has been represented by their own counsel and this Agreement has been fully negotiated by all parties, the legal principle that ambiguities in a document are construed against the draftsperson of that document shall not apply to this Agreement. Section 10.8 Jurisdiction and Consent to Service. Without limiting the jurisdiction or venue of any other court, each of Seller and Buyer (a) agrees that any suit, action or proceeding arising out of or relating to this Agreement may be brought solely in the state or Federal courts of the District of Delaware; (b) consents to the exclusive jurisdiction of each such court in any suit, action or proceeding relating to or arising out of this Agreement; (c) waives any objection which it may have to the laying of venue in -any such suit, action or proceeding in any such court; and (d) agrees that service of any court paper may be made in such manner as may be provided under applicable laws or court rules governing service of process. Section 10.9 Entire Agreement. Except for this Agreement, the Confidentiality Agreement, the Disclosure Schedule, and the Exhibits and other documents referred to herein or delivered 42 pursuant hereto which form a part hereof constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all other prior agreements and understandings, both written and oral, between the parties or any of them with respect to the subject matter hereof, including without limitation the Stock Purchase Agreement between the parties dated as of October 15, 1998. Section 10.10 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware (regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof) as to all matters, including but not limited to matters of validity, construction, effect, performance and remedies. Section 10.11 Specific Performance. The parties agree that any breach of the terms of this Agreement would give rise to irreparable harm for which money damages would not be an adequate remedy and accordingly the parties agree that, in addition to any other remedies, each shall be entitled to enforce the terms of this Agreement by a decree of specific performance without the necessity of proving the inadequacy of money damages as a remedy. Section 10.12 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. * * * * * * * * * * (signatures appear on next page) 43 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. MEDAPHIS CORPORATION By: /s/ RANDOLPH L.M. HUTTO ------------------------------ Name: RANDOLPH L.M. HUTTO Title: EXECUTIVE VICE PRESIDENT NCO GROUP, INC. By: /s/ MICHAEL J. BARRIST ------------------------------ Name: MICHAEL J. BARRIST Title: PRESIDENT AND CEO 44 EX-2 3 EXHIBIT 2 ================================================================================ THIRD AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF NOVEMBER 30, 1998 by and among NCO GROUP, INC. AND ITS SUBSIDIARIES IDENTIFIED HEREIN AS BORROWERS and THE FINANCIAL INSTITUTIONS identified herein as Lenders and MELLON BANK, N.A., as Administrative Agent and SUCH CO-AGENTS AS MAY BE APPOINTED FROM TIME TO TIME HEREAFTER ================================================================================ TABLE OF CONTENTS
Page ARTICLE I CREDIT FACILITY ............................................................................................1 1.1 COMMITMENT TO LEND.............................................................................1 1.2 JOINT AND SEVERAL OBLIGATIONS..................................................................2 1.3 MANNER OF BORROWING............................................................................2 1.4 SCHEDULED REPAYMENTS...........................................................................3 1.5 VOLUNTARY PREPAYMENTS..........................................................................4 1.6 PAYMENTS BY THE BORROWERS IN GENERAL...........................................................5 1.7 REDUCTIONS OF RC COMMITMENT....................................................................7 1.8 INTEREST.......................................................................................7 1.9 FEES ......................................................................................9 1.10 COMPUTATION OF INTEREST AND FEES...............................................................9 1.11 PROMISSORY NOTES; RECORDS OF ACCOUNT..........................................................10 1.12 PRO RATA TREATMENT............................................................................10 1.13 TAXES ON PAYMENTS.............................................................................10 1.14 REGISTERED NOTES AND LOANS....................................................................12 1.15 ISSUANCE OF LETTERS OF CREDIT................................................................13 ARTICLE II YIELD PROTECTION AND BREAKAGE INDEMNITY....................................................................18 2.1 MANDATORY SUSPENSION AND CONVERSION OF LIBO RATE LOANS........................................18 2.2 REGULATORY CHANGES............................................................................19 2.3 CAPITAL AND RESERVE REQUIREMENTS..............................................................20 2.4 BREAKAGE......................................................................................20 2.5 DETERMINATIONS................................................................................20 2.6 REPLACEMENT OF LENDERS........................................................................20 2.7 CHANGE OF LENDING OFFICE......................................................................21 ARTICLE III CONDITIONS TO EFFECTIVENESS OF AGREEMENT AND FUNDINGS......................................................22 3.1 CONDITIONS TO INITIAL LOANS...................................................................22 3.2 CONDITIONS TO ALL LOANS.......................................................................26 ARTICLE IV REPRESENTATIONS AND WARRANTIES.............................................................................27 4.1 REPRESENTATIONS AND WARRANTIES................................................................27 4.2 REPRESENTATIONS AND WARRANTIES ABSOLUTE.......................................................32 ARTICLE V AFFIRMATIVE COVENANTS .....................................................................................33 5.1 BASIC REPORTING REQUIREMENTS..................................................................33 5.2 INSURANCE.....................................................................................35
5.3 PAYMENT OF TAXES AND OTHER POTENTIAL CHARGES AND PRIORITY CLAIMS..............................36 5.4 PRESERVATION OF CORPORATE STATUS..............................................................36 5.5 GOVERNMENTAL APPROVALS AND FILINGS............................................................36 5.6 MAINTENANCE OF PROPERTIES.....................................................................36 5.7 AVOIDANCE OF OTHER CONFLICTS..................................................................37 5.8 FINANCIAL ACCOUNTING PRACTICES................................................................37 5.9 USE OF PROCEEDS...............................................................................37 5.10 CONTINUATION OF OR CHANGE IN BUSINESS.........................................................37 5.11 CONSOLIDATED TAX RETURN.......................................................................37 5.12 FISCAL YEAR...................................................................................37 5.13 BANK ACCOUNTS.................................................................................37 5.14 SUBMISSION OF COLLATERAL DOCUMENTS............................................................38 5.15 COLLECTION OF ACCOUNTS........................................................................38 5.16 SUBSIDIARIES AS BORROWERS.....................................................................38 5.17 UPDATE OF SCHEDULES...........................................................................38 ARTICLE VI NEGATIVE COVENANTS ........................................................................................38 6.1 FINANCIAL COVENANTS...........................................................................38 6.2 LIENS ........................................................................................39 6.3 INDEBTEDNESS..................................................................................39 6.4 GUARANTIES, INDEMNITIES, ETC..................................................................40 6.5 LOANS, ADVANCES AND INVESTMENTS...............................................................40 6.6 DIVIDENDS AND RELATED DISTRIBUTIONS...........................................................41 6.7 SALE-LEASEBACKS...............................................................................41 6.8 LEASES .......................................................................................41 6.9 MERGERS, ACQUISITIONS, ETC....................................................................42 6.10 DISPOSITIONS OF PROPERTIES....................................................................42 6.11 ISSUANCE OF STOCK.............................................................................42 6.12 DEALINGS WITH AFFILIATES......................................................................42 6.13 ACQUIRED DELINQUENT POOLS OF ACCOUNTS.........................................................43 6.14 CAPITAL EXPENDITURES..........................................................................43 6.15 LIMITATIONS ON MODIFICATION OF CERTAIN AGREEMENTS AND INSTRUMENTS.............................43 6.16 LIMITATION ON PAYMENTS OF PURCHASE MONEY INDEBTEDNESS.........................................44 6.17 LIMITATION ON OTHER RESTRICTIONS ON LIENS.....................................................44 6.18 LIMITATION ON OTHER RESTRICTIONS ON AMENDMENT OF THE LOAN DOCUMENTS, ETC......................44 ARTICLE VII DEFAULTS 7.1 EVENTS OF DEFAULT.............................................................................44 7.2 CONSEQUENCES OF AN EVENT OF DEFAULT...........................................................47 7.3 APPLICATION OF PROCEEDS.......................................................................48
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ARTICLE VIII THE ADMINISTRATIVE AGENT ..................................................................................48 8.1 APPOINTMENT...................................................................................48 8.2 GENERAL NATURE OF ADMINISTRATIVE AGENT'S DUTIES...............................................49 8.3 EXERCISE OF POWERS............................................................................49 8.4 GENERAL EXCULPATORY PROVISIONS................................................................50 8.5 ADMINISTRATION BY THE ADMINISTRATIVE AGENT....................................................50 8.6 LENDERS NOT RELYING ON ADMINISTRATIVE AGENT OR OTHER LENDERS..................................51 8.7 INDEMNIFICATION...............................................................................51 8.8 REGISTER......................................................................................52 8.9 SUCCESSOR ADMINISTRATIVE AGENT................................................................52 8.10 ADDITIONAL AGENTS............................................................................53 8.11 CALCULATIONS..................................................................................53 8.12 ADMINISTRATIVE AGENT IN ITS INDIVIDUAL CAPACITY...............................................53 ARTICLE IX SPECIAL INTER-BORROWER PROVISIONS..........................................................................54 9.1 CERTAIN BORROWER ACKNOWLEDGEMENTS.............................................................54 9.2 CERTAIN INTER-BORROWER AGREEMENTS.............................................................54 9.3 RECORDS.......................................................................................55 ARTICLE X DEFINITIONS; CONSTRUCTION..................................................................................55 10.1 CERTAIN DEFINITIONS...........................................................................55 10.2 CONSTRUCTION..................................................................................71 10.3 ACCOUNTING PRINCIPLES.........................................................................72 ARTICLE XI MISCELLANEOUS .............................................................................................73 11.1 NOTICES.......................................................................................73 11.2 PRIOR UNDERSTANDINGS; ENTIRE AGREEMENT........................................................73 11.3 SEVERABILITY..................................................................................73 11.4 DESCRIPTIVE HEADINGS..........................................................................74 11.5 GOVERNING LAW.................................................................................74 11.6 NON-MERGER OF REMEDIES........................................................................74 11.7 NO IMPLIED WAIVER; CUMULATIVE REMEDIES........................................................74 11.8 AMENDMENTS; WAIVERS...........................................................................74 11.9 SUCCESSORS AND ASSIGNS........................................................................75 11.10 COUNTERPARTS; PHOTOCOPIED OR TELECOPIED SIGNATURE PAGES.......................................77 11.11 MAXIMUM LAWFUL INTEREST RATE..................................................................77 11.12 INDEMNIFICATION...............................................................................77 11.13 EXPENSES......................................................................................79 11.14 MAXIMUM AMOUNT OF JOINT AND SEVERAL LIABILITY.................................................79
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11.15 AUTHORIZATION OF NCO GROUP BY OTHER BORROWERS.................................................80 11.16 CERTAIN WAIVERS BY BORROWERS..................................................................80 11.17 SET-OFF.......................................................................................80 11.18 SHARING OF COLLECTIONS........................................................................81 11.19 OTHER LOAN DOCUMENTS..........................................................................81 11.20 CERTAIN BORROWER ACKNOWLEDGEMENTS.............................................................81 11.21 CONSENT TO JURISDICTION, SERVICE AND VENUE; WAIVER OF JURY TRIAL..............................81 11.22 MOST FAVORED BORROWER.........................................................................82
iv Exhibits - -------- A-1 RC Note A-2 Term Note B Borrowing Notice C Prepayment Notice D LIBO Rate Selection Notice E Form of Security Agreement F Form of Stock Pledge G Insurance Assignment H Certificate of Pro Forma Covenant Compliance I Quarterly Compliance Certificate J Form of Seller Subordination Agreement K Form of Seller Subordination Agreement (for seller notes aggregating less than $2,000,000 in original principal amount) K-1 Form of Seller Subordination Agreement (for seller notes aggregating less than $10,000,000 in original principal amount) L Assignment and Acceptance M Joinder Agreement Schedules - --------- 1.1(a) Lender's Commitments 1.1(b) Lender's Participation in The Term Loan 4.1(a) Jurisdictions 4.1(h) Undisclosed Liabilities 4.1(k) Projections 4.1(n) Partnerships 4.1(o) Ownership 4.1(s) Insurance 4.1(v) Intellectual Property 4.1(x) Environmental Matters 4.1(w) Employee Benefits 4.1(z) Names 5.15 Excluded Subsidiaries 6.2 Liens 6.3 Indebtedness 6.5 Loans and Investments 6.12 Affiliate Transactions v CREDIT AGREEMENT THIS THIRD AMENDED AND RESTATED CREDIT AGREEMENT, dated as of November 30, 1998, by and between NCO GROUP, INC., a Pennsylvania corporation ("NCO Group"), AND ITS SUBSIDIARIES LISTED ON THE SIGNATURE PAGE HERETO (NCO Group and such Subsidiaries are each individually a "Borrower" and collectively the "Borrowers") and the Lenders referred to on the signature page hereto (together with other lender parties hereto from time to time pursuant to Section 11.9 below, and their successors and assigns, the "Lenders"), MELLON BANK, N.A., a national banking association ("Mellon") for itself and as Administrative Agent for the other Lenders (in such capacity, together with its successors and assigns in such capacity, the "Administrative Agent") and MELLON BANK, N.A., a national banking association, as issuer of Letters of Credit hereunder (in such capacity, together with its successors and assigns in such capacity, the "Issuer"). Recitals: A. NCO Financial Systems, Inc. ("NCO Financial") and Mellon entered into that certain Credit Agreement dated as of July 28, 1995 ("Original Credit Agreement"), pursuant to which Mellon made available to NCO Financial certain credit facilities. The Original Credit Agreement was amended and restated on September 5, 1996 (the "1996 Credit Agreement") pursuant to which NCO Financial, NCO Group, NCO Funding, Inc., and NCO of New York, Inc. each became parties to the 1996 Credit Agreement, and further amended on September 11, 1996, December 13, 1996, and February 11, 1998. The 1996 Credit Agreement was amended and restated as of March 23, 1998 (the "Existing Credit Agreement") and further clarified by those certain Closing Memoranda dated May 5, 1998 and May 29, 1998 pursuant to which all U.S. subsidiaries of NCO Group (as of that date) each became parties to the Credit Agreement. B. The Borrowers have requested that the credit facilities be increased and restructured as a $75,000,000 revolving credit loan and a $125,000,000 term loan. Mellon has agreed to do so, with the understanding that the credit will be syndicated and portions of Mellon's commitment will be sold and assigned to other lenders. C. In connection with the foregoing modifications, all Loans outstanding under the Existing Credit Agreement shall be repaid in full on the date hereof from the proceeds of the new Loans and all Commitments, other than Mellon's, shall be terminated. D. In furtherance of their goals, the parties have agreed to amend and restate the Credit Agreement on the terms and conditions set forth below. NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained and intending to be legally bound hereby, the Borrowers and the Lenders agree that the Credit Agreement is hereby amended and restated in its entirety as follows: CREDIT FACILITY 1.1 COMMITMENT TO LEND. (a) Term Loan. Upon the terms and subject to the conditions of this Agreement (including all conditions precedent in Section 3.1), each Lender agrees to make, on the Closing Date, a Loan ("Term Loan") to the Borrowers in the amount of such Lender's Term Loan Commitment. The total amount of the Term Loan Commitment of all Lenders on the Closing Date is $125,000,000.00. (b) RC Loans. Upon the terms and subject to the conditions of this Agreement (including all conditions precedent in Section 3.1), each Lender agrees to make, from time to time during the period from and including the Closing Date to but excluding the Maturity Date, one or more RC Loans ("RC Loans") to the Borrowers in an aggregate unpaid principal amount not exceeding at any time such Lender's RC Commitment at such time; provided, however, that the Borrowers shall not request, and the Lenders shall have no obligation to make, any Loans at any time in excess of the Available RC Commitment. The total amount of the RC Commitment of all Lenders on the Closing Date is $75,000,000.00. 1.2 JOINT AND SEVERAL OBLIGATIONS. WHETHER OR NOT EXPRESSLY STATED HEREIN OR IN ANY OTHER LOAN DOCUMENT, ALL OBLIGATIONS OF THE BORROWERS (OR OF ANY BORROWER) HEREUNDER AND UNDER EACH OTHER LOAN DOCUMENT (WHETHER IN CONNECTION WITH LOANS OR OTHER OBLIGATIONS) ARE JOINT AND SEVERAL OBLIGATIONS OF ALL BORROWERS. 1.3 MANNER OF BORROWING. (a) Notice of Borrowing. NCO Group (on behalf of the Borrowers) shall give the Administrative Agent notice (which shall be irrevocable), in the case of Prime Rate Loans, no later than 12:00 p.m. (Philadelphia, Pennsylvania time) on the Business Day for the making of such RC Loans and, in the case of LIBO Rate Loans, 12:00 p.m. (Philadelphia, Pennsylvania, time) three Business Days before the requested date for the making of such Loans. Each such notice shall be in the form of Exhibit B hereto and shall specify (i) whether the requested Loans are to be a Term Loan or RC Loans, (ii) the requested date for the making of such Loans which date shall be a Business Day, (iii) the Type or Types of Loans requested and (iv) the amount of each such Type of Loan, which amount shall be $1,000,000.00 or any integral multiple of $500,000.00 in excess thereof (except that the amount of the requested RC Loan may be less if the amount requested is equal to the total Available RC Commitment). Upon receipt of any such notice, the Administrative Agent shall promptly notify each applicable Lender of the contents thereof and of the amount and Type of each Loan to be made by such Lender on the requested date specified therein. (b) Funding by Lenders. Not later than 3:00 p.m. (Philadelphia, Pennsylvania time) on each requested date for the making of Loans, each Lender shall make available to the -2- Administrative Agent, in Dollars and in funds immediately available to the Administrative Agent at the office designated by the Administrative Agent, the Loans to be made by such Lender on such date, provided however that if a Lender does not receive timely notice from the Administrative Agent as set forth in paragraph (a) above, such Lender shall fund the required amount promptly upon receipt of such notice. The obligations of the Lenders hereunder are several; accordingly, any Lender's failure to make any Loan to be made by it on the requested date therefor shall not relieve any other Lender of its obligation to make any Loan to be made by it on such date, but the latter shall not be liable for the former's failure. (c) Permitted Assumption as to Funding. Unless the Administrative Agent shall have received notice from a Lender prior to 12:00 p.m. (Philadelphia, Pennsylvania time) on the requested date for the making of any Loan that such Lender will not make available to the Administrative Agent the Loan requested to be made by it on such date, the Administrative Agent may assume that such Lender has made such Loan available. The Administrative Agent in its sole discretion and in reliance upon such assumption, may make available to the Borrowers on the requested date a corresponding amount on behalf of such Lender. If and to the extent such Lender shall not have made available to the Administrative Agent the Loans requested to be made by such Lender on such date and the Administrative Agent shall have so made available to the Borrowers a corresponding amount on behalf of such Lender, (i) such Lender shall, on demand, pay to the Administrative Agent such corresponding amount together with interest thereon, for each day from the date such amount shall have been so made available by the Administrative Agent to the Borrowers until the date such amount shall have been paid in full to the Administrative Agent, at the Federal Funds Rate until (and including) the third Business Day after demand is made and thereafter at the Prime Rate, and (ii) the Administrative Agent shall be entitled to all interest payable by Borrowers on such amount for the period commencing on the date such amount was advanced by the Administrative Agent to but not including the date on which such amount is received by the Administrative Agent from such Lender. Moreover, any Lender that shall have failed to make available the required amount shall not be entitled to vote on such matters as Lenders or Majority Lenders are otherwise entitled to vote on or consent to or approve under this Agreement and the other Loan Documents until such amount with interest is paid in full to the Administrative Agent by such Lender. Without limiting any obligations of any Lender pursuant to this paragraph (c), if such Lender does not pay such corresponding amount promptly upon the Administrative Agent's demand therefor, the Administrative Agent shall notify NCO Group (on behalf of the Borrowers) and the Borrowers shall promptly repay such corresponding amount to the Administrative Agent together with accrued interest thereon at the applicable rate or rates on such Loans. (d) Disbursements of Funds to Borrowers. All amounts made available to the Administrative Agent in accordance with paragraph (b) above shall be disbursed by the Administrative Agent promptly but in any event not later than 4:00 p.m. (Philadelphia, Pennsylvania time) on the requested date therefor in Dollars, in funds immediately available to the Borrowers by crediting such amount to an account of NCO Group at the Administrative Agent's Domestic Lending Office or in such other manner as may be agreed to by NCO Group and the Administrative Agent. -3- 1.4 SCHEDULED REPAYMENTS. (a) Term Loan. The Term Loan shall mature and become due and payable and shall be repaid by the Borrowers in quarterly installments, payable on successive Quarterly Payment Dates commencing on September 30, 1999 and ending on the Maturity Date (whether or not such date would otherwise be a Quarterly Payment Date). Each such installment shall be in the amount set forth below for the applicable period), provided that the final installment shall be in an amount equal to the aggregate amount of the Term Loan then outstanding.
Payment Due Each Quarterly Payment Date Amount (Assuming Full $125,000,000.00 is Borrowed --------------------------------------- ------------------------------------------------- during the Following Period and Not Otherwise Prepaid) --------------------------- -------------------------- 9/30/99 through 12/31/00 $3,000,000.00 3/31/01 through 12/31/01 $3,750,000.00 3/31/02 through 12/31/02 $4,500,000.00 3/31/03 through Maturity Date $5,250,000.00
(b) RC Loans. The aggregate outstanding principal amount of the RC Loans shall mature and become due and payable, and shall be repaid by the Borrowers, on the Maturity Date. 1.5 VOLUNTARY PREPAYMENTS. (a) Optional Prepayments. The Borrowers may, at any time and from time to time, prepay the Loans in whole or in part, without premium or penalty (but with any payment required under Section 2.4 (Breakage)), except that any optional partial prepayment (other than a prepayment of all outstanding Loans) shall be in an aggregate principal amount of $500,000.00 or any integral multiple of $250,000.00 in excess thereof. Amounts to be so prepaid shall irrevocably be due and payable on the date specified in the applicable notice of prepayment delivered pursuant to paragraph (b) of this Section 1.5 together with interest thereon as provided in Section 1.8 (Interest) and together with any payment required under Section 2.4 (Breakage). (b) Application and Timing of Prepayments. (i) Notice. The Borrowers shall give the Administrative Agent notice of each prepayment of RC Loans, which notice, in the case of a prepayment of Prime Rate Loans, shall be given no later than 1:00 p.m. (Philadelphia, Pennsylvania time) one (1) Business Day before and, in the case of a prepayment of LIBO Rate Loans, no later than 12:00 P.M. (Philadelphia, Pennsylvania, time) three (3) Business Days before, the date of such prepayment. Each such notice of prepayment shall be in the form of Exhibit C hereto and shall specify (i) the date such prepayment is to be made, and (ii) whether the Loans to be prepaid are a Term Loan or RC Loans (consistent with the provisions of this Agreement), (iii) the amount and Type and, in the case of any LIBO Rate Loan, the last day of the applicable Interest Period for the RC Loan to -4- be prepaid. Upon receipt of any such notice, the Administrative Agent shall promptly notify each applicable Lender of the contents thereof. (ii) Timing and Application of Voluntary Prepayments. Any voluntary prepayments pursuant to paragraph (a) of this Section 1.5 shall be applied in the following order unless otherwise directed by the Borrowers: (1) First, prepayments shall be applied against any interest, fees, charges and expenses due and payable in respect of the Obligations. (2) Second, prepayments shall be applied against the RC Loans but with no corresponding reduction in the amount of the Commitment unless otherwise specified by NCO Group (on behalf of the Borrowers) in accordance with Section 1.7 hereof. (3) Third, prepayments shall be applied against the Term Loan. Prepayment of the Term Loan shall be applied to reduce the remaining installments thereof set forth in Section 1.4 (Scheduled Repayment) on a pro rata basis. Any excess shall be applied to any other amounts owing in respect of the Obligations and, if all such Obligations have been then paid in full, then any excess amount shall be returned to NCO Group (on behalf of the Borrowers) or as otherwise required by applicable Law. (c) Certain Provisions Respecting Prepayments Generally. Prepayments shall be subject to the interest payment provisions, as applicable, set forth in Section 1.8 and the breakage indemnity provisions, as applicable, set forth in Section 2.4 below. 1.6 PAYMENTS BY THE BORROWERS IN GENERAL. (a) Time, Place and Manner. All payments due to the Administrative Agent and the Lenders under the Loan Documents shall be made to the Administrative Agent at the office designated by the Administrative Agent on the signature pages hereto or to such other Person or at such other address as the Administrative Agent may designate by written notice to NCO Group on behalf of the Borrowers. Until further notice from the Administrative Agent and except as otherwise provided herein, all such payments shall be made by charging the Borrower's deposit account with the Administrative Agent as provided in Section 1.6(c). Except as otherwise set forth in this Agreement, a payment shall not be deemed to have been made on any day unless such payment has been received by the required Person, at the required place of payment, in Dollars in funds immediately available to such Person, no later than 1:00 p.m. (Philadelphia, Pennsylvania time) on such day; provided, however, that the failure of the Borrowers to make any such payment by such time shall not constitute a Default hereunder so long as such payment is received no later than 3:00 p.m. (Philadelphia, Pennsylvania time) on such day, but any such payment received later than 1:00 p.m. (Philadelphia, Pennsylvania time) on such day shall be deemed to have been made on the next Business Day for the purpose of calculating interest on the amount paid, provided further, that any such payment made with the proceeds of Loans shall be deemed to have been made on the date of the making of such Loans, -5- so long as such proceeds are immediately so applied and are not otherwise disbursed to the Borrowers. (b) No Reductions. All payments due to the Administrative Agent or any Lender under this Agreement and the other Loan Documents, shall be made by the Borrowers without any reduction or deduction whatsoever, including any reduction or deduction for any charge, set-off, holdback, recoupment or counterclaim (whether sounding in tort, contract or otherwise). (c) Authorization to Charge Accounts. The Borrowers hereby authorize the Administrative Agent to charge any amounts due under this Agreement against any or all of the demand deposit or other accounts (other than accounts containing escrow funds) of NCO Group or any Borrower with the Administrative Agent (whether maintained at a branch or office located within or without the United States), with the Borrowers remaining jointly and severally liable for any deficiency. The Administrative Agent shall give the relevant Borrower one day prior notice of the amount to be charged provided, however, that advance notice shall not be required to charge any amount due for interest or the Unused Fee, and the Administrative Agent shall only advise of such charge after such charge has been made. (d) Extension of Payment Dates if Not a Business Day. Whenever any payment to the Administrative Agent or any Lender under the Loan Documents would otherwise be due (except by reason of acceleration) on a day that is not a Business Day, such payment shall instead be due on the next succeeding Business Day unless, in the case of a payment of the principal of LIBO Rate Loans, such extension would cause payment to be due in the next succeeding calendar month, in which case such due date shall be advanced to the next preceding Eurodollar Business Day. If the due date for any payment under the Loan Documents is extended (whether by operation of any Loan Document, applicable Law or otherwise), such payment shall bear interest for such extended time at the rate of interest applicable hereunder. (e) Disbursement of Payments to Lenders. The Administrative Agent shall promptly distribute to each applicable Lender its ratable share of each payment received by the Administrative Agent under the Loan Documents for the account of such Lender by crediting an account of such Lender at the Administrative Agent's office or by wire transfer to an account of such Lender at an office of any other commercial bank located in the United States or at any Federal Reserve Bank designated by such Person. Unless the Administrative Agent shall have received notice from NCO Group (on behalf of the Borrowers) prior to the date on which any payment is due to any Lenders under the Loan Documents that the Borrowers will not make such payment in full, the Administrative Agent may assume that the Borrowers have made such payment in full to the Administrative Agent on such date and the Administrative Agent, in its sole discretion may, in reliance upon such assumption, cause to be distributed to each applicable Lender on such due date, a corresponding amount with respect to the amount then due to such Person. If and to the extent that the Borrowers shall not have so made such payment in full to the Administrative Agent, and the Administrative Agent shall have so distributed to such Lender or Lenders a corresponding amount, such Lender shall, on demand, repay to the Administrative Agent the amount so distributed together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Person repays such amount to the Administrative Agent, at the Federal Funds Rate until (and including) the third Business Day after demand is made and thereafter at the Prime Rate. Moreover, any Lender that shall have -6- failed to make available the required amount shall not be entitled to vote on such matters as Lenders or Majority Lenders are otherwise entitled to vote on or consent to or approve under this Agreement and the other Loan Documents until such amount with interest is paid in full to the Administrative Agent by such Lender. Nothing in this Section 1.6 shall relieve the Borrowers from any payment obligations. (f) Breakage Costs on LIBO Rate Loans. Any repayment or prepayment of a LIBO Rate Loan made on a day other than the last day of the applicable Interest Period therefor shall be subject to payments in respect of breakage costs as required to be paid in respect thereof pursuant to Section 2.4 below. 1.7 REDUCTIONS OF RC COMMITMENT. (a) Optional Reductions. The Borrowers may reduce the RC Commitment by giving the Administrative Agent notice (which shall be irrevocable) thereof no later than 11:00 a.m. (Philadelphia, Pennsylvania, time) on the third Business Day before the requested date of such reduction, provided, that each partial reduction thereof (other than the elimination of the RC Loan) shall be in an amount equal to $5,000,000.00 or any integral multiple of $1,000,000.00 in excess thereof and, provided, further, that no reduction shall reduce the Commitment to an amount less than the aggregate of the principal amount of all Loans outstanding on such date (after giving effect to any repayment or prepayment of RC Loans made on or prior to such date). Upon receipt of any such notice, the Administrative Agent shall promptly notify each Lender of the contents thereof and the amount (based on a pro rata reduction to each Lender's RC Commitment) to which such Lender's RC Commitment is to be reduced. (b) No Reinstatement of RC Commitment. All reductions of the RC Commitment are permanent and the RC Commitment cannot be restored without the written consent of all Lenders. (c) On each date ("Reduction Date") on which the RC Commitment is reduced the Borrowers shall pay to the Administrative Agent the amount, if any, by which the outstanding principal balance of the RC Loans exceeds the amount of the RC Commitment as reduced on such Reduction Date. 1.8 INTEREST. (a) Interest Rates in General. Subject to the terms and conditions of this Agreement, each Loan, at the option of the Borrowers, shall bear interest on the outstanding principal amount thereof until paid in full at a rate per annum equal to (i) the Prime Rate as in effect from time to time or (ii) the applicable LIBO Rate for a specified Interest Period plus the Applicable Margin. (b) Election of LIBO Rate. Unless otherwise designated by the Borrowers as a LIBO Rate Loan in accordance with this paragraph (b), each Loan shall be deemed to be a Prime Rate Loan as more fully set forth below. -7- (i) Prime Rate Unless Otherwise Designated. Prime Rate Loans shall continue as Prime Rate Loans unless and until such Loans are converted into Loans of another Type. LIBO Rate Loans for any Interest Period shall continue as Loans of such Type until the end of the then current Interest Period therefor, at which time they shall be automatically converted into Prime Rate Loans unless NCO Group (on behalf of the Borrowers) shall have given the Administrative Agent notice in accordance with clause (ii) below requesting that such Loans continue as LIBO Rate Loans for another Interest Period of a specified duration. (ii) Election of LIBO Rate. To elect a LIBO Rate, NCO Group (on behalf of the Borrowers) shall give the Administrative Agent notice (which shall be irrevocable) no later than 12:00 p.m. (Philadelphia, Pennsylvania, time) three (3) Eurodollar Business Days before the requested date of the funding, conversion or continuation which date shall be a Eurodollar Business Day. Each such notice shall be in the form of Exhibit D hereto and shall specify (A) the requested date of such funding, conversion or continuation, (B) whether the subject Loan is a new advance or an existing Loan that is to be converted or continued, (C) in the case of any LIBO Rate Loan being continued, the last day of the current Interest Period, (D) whether such Loan is to be a Term Loan or RC Loan, and (E) the amount of, and the desired Interest Period for, the Loan subject to such LIBO Rate election, provided that the Borrowers shall not be entitled to select an Interest Period for any Loan which shall end on a date later than the Maturity Date applicable to such Loan. Upon receipt of any such notice, the Administrative Agent shall promptly notify each applicable Lender of the contents thereof. (iii) LIBO Rate Suspended During Event of Default. Notwithstanding anything to the contrary contained in clauses (i) or (ii) of this paragraph (b), so long as an Event of Default shall have occurred and be continuing, the Administrative Agent may (and, at the request of the Majority Lenders, shall) notify NCO Group (on behalf of the Borrowers) that Loans may only be converted into or continued upon the expiration of the applicable current Interest Period therefor as Prime Rate Loans or Loans of such specified Types as shall be acceptable to the Majority Lenders. Thereafter, until no Event of Default shall continue to exist, Loans may not be converted into or continued as Loans of any Type other than Prime Rate Loans or one or more of such specified Types. (iv) Limitation on Types of Loans. Notwithstanding anything to the contrary contained in this Agreement, the Borrowers shall borrow, prepay, convert and continue Loans in a manner such that (A) unless otherwise agreed to by the Administrative Agent, the aggregate principal amount of LIBO Rate Loans of the same Type shall, at all times, be not less than $1,000,000.00 and (B) there shall be, at any one time, no more than seven (7) Interest Periods for LIBO Rate Loans in effect. (v) Flexibility as to Source. Each Lender may fund LIBO Rate Loans from any source that such Lender deems (in its sole discretion) appropriate without loss of any rights hereunder. (c) Interest Payment Dates. Interest shall be payable, (i) in the case of Prime Rate Loans, monthly in arrears on each Monthly Payment Date, (ii) in the case of LIBO Rate Loans, on the last day of each applicable Interest Period (and, in the case of any LIBO Rate Loan having an Interest Period longer than three months, on each three month anniversary of the first day of -8- such Interest Period) and (iii) in the case of any Loan, when such Loan shall be due (whether at maturity, upon mandatory prepayment, by reason of notice of prepayment or acceleration or otherwise) or converted, but only to the extent then accrued on the amount then so due or converted. (d) Default Rate. At any time that an Event of Default shall have occurred and shall be continuing, any amount payable hereunder and under each other Loan Document shall bear interest (whether before or after judgment), payable on demand, at a rate per annum equal to the applicable Default Rate. 1.9 FEES. (a) Unused Fee. The Borrowers shall pay to the Administrative Agent, for the account of each Lender, an unused fee ("Unused Fee") calculated at a rate per annum equal to the percentage amount set forth below, under the caption "Unused Fee" opposite the relevant Consolidated Funded Debt/Consolidated EBITDA Ratio, on the daily unused amount of such Lender's RC Commitment for each day from and including the Closing Date to but excluding the Maturity Date: Consolidated Funded Debt/ Consolidated EBITDA Ratio Unused Fee ------------------------- ---------- below 2.0 1/8% > 2.0 < 3.0 1/4% > 3.0 < 3.5 3/8% The Unused Fee shall be payable in arrears (i) on successive Monthly Payment Dates beginning with the first Monthly Payment Date after the Closing Date (ii) on the date of any reduction of the Commitment (to the extent accrued and unpaid on the amount of such reduction) and (iii) on the Maturity Date. From the Closing Date until the first day of the month following delivery of the first Officer's Compliance Certificate for the first fiscal quarter of 1999, the Unused Fee shall be 3/8% regardless of the actual ratio. Thereafter, the Unused Fee shall be adjusted on the first Business Day of the month after delivery of each Officer's Compliance Certificate under Section 5.1. (b) Letter of Credit Fees. The Borrowers shall pay to the Issuer for the ratable benefit of the Lenders, a "Letter of Credit Fee" on the face amount of each Letter of Credit at a rate per annum equal to 1 1/2%. Such fee shall be payable upon issuance of each Letter of Credit and, if the Letter of Credit is "evergreen" on each anniversary of such issuance for so long as the Letter of Credit remains outstanding. The Borrowers shall also pay to the Issuer for the Issuer's sole account the Issuer's then in effect standard document preparation fees and reasonable administrative expenses payable with respect to Letters of Credit. (c) Other Fees. The Borrowers shall pay to the Administrative Agent for the sole account of the Administrative Agent, such fees, including an annual Administrative Agent's fee, as have been or may be agreed to in writing by the Borrowers or any of them and the -9- Administrative Agent in connection with this Agreement and the transactions contemplated by this Agreement. 1.10 COMPUTATION OF INTEREST AND FEES. Interest and commitment fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed. Interest and commitment fees for any period shall be calculated from and including the first day thereof to but excluding the last day thereof. 1.11 PROMISSORY NOTES; RECORDS OF ACCOUNT. Each Lender's Loans and the Borrowers' joint and several obligations to repay such Loans with interest in accordance with the terms of this Agreement shall be evidenced by this Agreement, the Register and other records of the Administrative Agent and such Lender and, in the case of a Term Loan, a single Term Note payable to the order of such Lender, and in the case of RC Loans, a single RC Note payable to the order of such Lender. The records of each Lender shall be prima facie evidence of such Lender's Loans and, in each case, of accrued interest thereon and all payments made in respect thereto. In the event that there is any dispute concerning the amount of any such obligations, the amount of each Lender's RC Commitment with respect to RC Loans and the Term Loan and the amount of outstanding Obligations of each and every Type shall at all times be ascertained from the records of the Administrative Agent, including, without limitation, the Register, all of which shall be conclusive absent manifest error. 1.12 PRO RATA TREATMENT. Except to the extent otherwise provided herein, (a) the Term Loan shall be made by, and principal interest and fees in respect thereof shall be paid or repaid to, the Lenders pro rata in accordance with their respective Term Loan Commitments and interest in the Term Loan; and (b) RC Loans shall be made by, and principal, interest and fees in respect thereof shall be paid or repaid to, the Lenders pro rata in accordance with their respective RC Commitments and interest in RC Loans. 1.13 TAXES ON PAYMENTS. (a) Taxes Payable by the Borrowers. If any Tax is required to be withheld or deducted from, or is otherwise payable by the Borrowers in connection with, any payment due to the Administrative Agent or any Lender that is not a "United States Person" (as such term is defined in Section 7701(a)(30) of the Code), the Borrowers (i) shall, if required, withhold or deduct the amount of such Tax from such payment and, in any case, pay such Tax to the appropriate taxing authority in accordance with applicable Law and (ii) except in the case of any Bank Tax, shall pay to such Lender or the Administrative Agent such additional amounts as may be necessary so that the net amount received by such Person with respect to such payment, after withholding or deducting all Taxes required to be withheld or deducted, is equal to the full amount payable hereunder. If any Tax is withheld or deducted from, or is otherwise payable by the Borrowers in connection with, any payment due to any Lender or the Administrative Agent hereunder, the Borrowers shall furnish to such Person the original or a certified copy of a receipt (if any) for such Tax from the applicable taxing authority or other evidence of payment thereof satisfactory to such Person within 30 days after the date of such payment (or, if such receipt shall not have been made available by such taxing authority within such time, the Borrowers shall use reasonable efforts to promptly obtain and furnish such receipt). If the Borrowers fail to pay any such Taxes when due to the appropriate taxing authority or fail to remit to any Lender or the -10- Administrative Agent the required receipts or other evidence of payment thereof satisfactory to such Person, the Borrowers shall indemnify such Person for any Taxes, interest, penalties or additions to Tax that may become payable by such Person as a result of any such failure. (b) Taxes Payable by any Lender or the Administrative Agent. The Borrowers shall, promptly upon request by any Lender or the Administrative Agent that is not a United States Person, pay to such Person an amount equal to (i) all Taxes (other than Bank Taxes and without duplication of amounts paid pursuant to the preceding paragraph (a)) payable by such Person with respect to any payment due to such Person hereunder and (ii) all Taxes (other than Bank Taxes) payable by such Person as a result of payments made by the Borrowers (whether made to a taxing authority or to such Person pursuant to the preceding paragraph (a) or this paragraph (b)). (c) Credits and Deductions. If any Lender or the Administrative Agent is, in its sole opinion, able to apply for any refund, offset, credit, deduction or other reduction in Taxes by reason of any payment made by the Borrowers under the preceding paragraphs (a) or (b), such Lender or the Administrative Agent, as the case may be, shall use reasonable efforts to obtain such refund, offset, credit, deduction or other reduction and, upon receipt thereof, will pay to the Borrowers such amount, not exceeding the increased amount paid by the Borrowers, as is equal to the net after-tax value to such Lender or the Administrative Agent, in its sole opinion, of such part of such refund, offset, credit, deduction or other reduction as it considers to be allocable to such payment by the Borrowers, having regard to all of such Person's dealings giving rise to similar refunds, offsets, credits, deductions or other reductions in relation to the same tax period and to the cost of obtaining the same; provided, however, that if such Person has made a payment to the Borrowers pursuant to this paragraph (c) and the applicable refund, offset, credit, deduction or other reduction in Tax is subsequently disallowed, the Borrowers shall, promptly upon request by the Administrative Agent or such Lender refund to such Person that portion of such payment determined by such Person, in its sole opinion, relating to such disallowance; and provided, further that (i) the Administrative Agent or such Lender, as the case may be, shall not be obligated to disclose to the Borrowers any information regarding its Tax affairs or computations and (ii) nothing in this paragraph (c) shall interfere with the right of such Person to arrange its Tax affairs as it deems appropriate. (d) Exemption from U.S. Withholding Taxes. Each Lender that is not a United States Person shall submit to the Borrowers and the Administrative Agent, on or before the fifth day prior to the first Monthly Payment Date occurring after the Initial Funding Date (or, in the case of a Person that is not a United States Person and that became a Lender by assignment, promptly upon such assignment), two duly completed and signed copies of either (A) Form 1001 of the United States Internal Revenue Service entitling such Lender to a complete exemption from withholding on all amounts to be received by such Lender pursuant to this Agreement and the Loans, (B) Form 4224 of the United States Internal Revenue Service relating to all amounts to be received by such Lender pursuant to this Agreement and the Loans or (C) in the case of a Lender that is claiming an exemption from United States withholding tax under Section 871(h) or 881(c) of the Internal Revenue Code with respect to payments of "portfolio interest" two accurate and complete signed original Forms W-8 (or any successor form prescribed by the Internal Revenue Service, certifying that such Lender is exempt from or is entitled to a reduced -11- rate of United States withholding tax on payments under this Agreement or the Notes) and, if such Lender delivers such Forms W-8 (or successor form), two signed certificates that such Lender is not (1) a "bank" for purposes of Section 881(c) of the Internal Revenue Code, (2) is not a 10% shareholder (within the meaning of Section 871(h)(3)(B) of the Internal Revenue Code) of any Borrower and (3) is not a controlled foreign corporation related to any Borrower (within the meaning of Section 864(d)(4) of the Internal Revenue Code), as appropriate, Each such Lender shall, from time to time after submitting either such form, submit to the Borrowers and the Administrative Agent such additional duly completed and signed copies of one or the other such forms (or any successor forms as shall be adopted from time to time by the relevant United States taxing authorities) as may be (A) requested in writing by the Borrowers or the Administrative Agent and (B) appropriate under the circumstances and under then current United States law or regulations to avoid or reduce United States withholding taxes on payments in respect of all amounts to be received by such Lender pursuant to this Agreement or the Loans. Upon the request of the Borrowers or the Administrative Agent, each Lender that is a United States Person shall submit to the Borrowers and the Administrative Agent a certificate to the effect that it is a United States Person. (e) Obligations under this Section 1.13 shall survive payment of the Loans. 1.14 REGISTERED NOTES AND LOANS. (a) Request for Registration. Any Lender may request the Borrowers (through the Administrative Agent), and the Borrowers agree thereupon, to register such Loans as provided in Section 1.14(c) and to issue such Lender's Note(s), evidencing such Loans, or to exchange such Note(s) for new Note(s), registered as provided in Section 1.14(c) (each, a "Registered Note"). A Registered Note may not be exchanged for a Note that is not in registered form. A Registered Note shall be deemed to be and shall be a Note for all purposes of this Agreement and the other Loan Documents. (b) Delivery of Tax Forms. Each Non-U.S. Lender that requests or holds a Registered Note pursuant to Section 1.14(a) or registers its Loans pursuant to Section 1.14(a) (a "Registered Lender") (or, if such Registered Lender is not the beneficial owner thereof, such beneficial owner) shall deliver to NCO Group (on behalf of the Borrowers) (with a copy to the Administrative Agent) prior to or at the time such Non-U.S. Lender becomes a Registered Lender, the applicable form described in Section 1.13(d) (or such successor and related forms as may from time to time be adopted by the relevant taxing authorities of the United States) together with an annual certificate stating that such Registered Lender or beneficial owner, as the case may be, is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code and is not otherwise described in Section 881(c)(3) of the Code. Each Registered Lender or beneficial owner, as the case may be, shall promptly notify NCO Group (on behalf of the Borrowers) (with a copy to the Administrative Agent) if at any time such Registered Lender or beneficial owner, as the case may be, determines that it is no longer in a position to provide such previously delivered certificate to the Borrowers (or any other form of certification adopted by the relevant taxing authorities of the United States for such purposes). (c) Registration of Loans. The Administrative Agent, acting, for this purpose, as agent of the Borrowers, shall, upon request of any Registered Lender, enter in the Register the -12- name, address and taxpayer identification number (if provided) of the Registered Lender or beneficial owner, as the case may be. In addition to the requirements of Section 11.9 (Successors and Assigns), a Registered Note and the Loans evidenced thereby (or such Loans pending delivery of such Registered Note) or any other Loans registered pursuant to Section 1.14(a) above may be assigned or otherwise transferred in whole or in part only by registration of such assignment or transfer of such Registered Note and/or the Loans so registered on the Register (and each such Registered Note shall expressly so provide). Any assignment or transfer of all or part of such Loans and such Registered Note shall be registered on the Register only upon compliance with the provisions of Section 11.9 and, in the case of Registered Notes, surrender for registration of assignment or transfer of the Registered Note evidencing such Loans, duly endorsed by (or accompanied by a written instrument of assignment or transfer fully executed by) the Registered Lender thereof, and thereupon one or more new Registered Notes in the same aggregate principal amount shall be issued to the designated assignee(s) or transferee(s) and, if less than all of such Registered Notes is thereby being assigned or transferred, the assignor or transferor. 1.15 ISSUANCE OF LETTERS OF CREDIT. (a) In General. Upon the terms and subject to the conditions of this Agreement, the Issuer shall, from time to time, from the Closing Date to the date which is 90 days prior to the Maturity Date, issue one or more Letters of Credit for the account of any Borrower, provided that (i) the sum of the Contingent Reimbursement Obligations (after giving effect to the requested Letter of Credit) plus the aggregate unpaid amount of all Drawings under Letters of Credit shall not exceed $10,000,000 and provided, further, that the face amount of the Letter of Credit so requested shall not exceed the Lenders' Commitments at such time. Each Letter of Credit shall be in a form and shall contain such terms as shall be reasonably satisfactory to the Issuer. Letters of Credit shall be issued only on a Business Day and shall be used for the general corporate purposes of the Borrowers or for such other purposes as shall be acceptable to the Issuer in its sole discretion. (b) Terms. Each Letter of Credit shall be denominated only in Dollars and shall expire on or before the first anniversary of the issuance thereof and in any event not later than the fifth Business Day preceding the Maturity Date. No Letter of Credit shall have an expiration date which is extendable under an "evergreen" or similar provision unless the Issuer expressly agrees to the same in its sole discretion in any particular case. All other extensions and renewals are also at the sole discretion of the Issuer. For purposes of Section 3.2 only, any extension of the expiry date of a Letter of Credit to a date beyond the first anniversary of the issuance thereof shall constitute an "issuance" of such Letter of Credit for all purposes hereof. (c) Form of Request. The Borrowers shall request the issuance of a Letter of Credit by furnishing to the Agent and the Issuer, at least five Business Days before the requested date of such issuance (or at such later time as shall be acceptable to the Issuer), such notice thereof as shall be reasonably satisfactory to the Issuer to which shall be attached a certificate of the chief financial officer representing that the Borrower is not, and after giving effect to the additional Indebtedness will not be, in Default hereunder. -13- (d) Participation by Lenders. Upon the date of issuance of a Letter of Credit, the Issuer shall be deemed to have granted to each Lender (other than the Issuer), and each Lender (other than the Issuer) shall be deemed to have acquired from the Issuer without further action by any party hereto, a participation in such Letter of Credit and any Drawings that may at any time be made thereunder, to the extent of such Lender's pro rata share of the Commitment. (e) Notice of Drawings. The Issuer shall promptly notify NCO Group (on behalf of the Borrowers) of its receipt of each Drawing request with respect to a Letter of Credit, stating the date and amount of the Drawing requested thereby and the date and amount of each Drawing disbursed pursuant to such request. The failure of the Issuer to give, or delay in giving, any such notice shall not release or diminish the obligations hereunder of the Borrowers in respect of such Drawing. (f) Reimbursement of Drawings by Borrowers. If at any time NCO Group (on the behalf of the Borrowers) receives notice of a Drawing, the Borrowers shall reimburse such Drawing by paying to the Issuer in immediately available funds the amount of the payment made by the Issuer with respect to such Drawing, together with interest thereon at a rate per annum equal to the Prime Rate from the day that the Drawing is made until the day such reimbursement is made if such Drawing is not reimbursed on the day the Drawing is made. Such reimbursement shall be made by the Borrowers to the Issuer no later than one (1) Business Day following the Business Day that NCO Group (on behalf of Borrowers) receives the relevant notice of Drawing if such notice is received on or prior to 10:00 a.m. (Philadelphia, Pennsylvania time) and no later than two (2) Business Days following the date that NCO Group receives the relevant notice of Drawing if such notice is received after 10:00 a.m. (Philadelphia, Pennsylvania time). If the Borrowers shall fail to make any payment required by this paragraph (f) at the time specified, and if at such time, there shall be any Commitment, the Administrative Agent may (but is not obligated to) assume that the Borrowers intend to use the proceeds of Loans to make such payment. In reliance on such assumption, the Administrative Agent may (but is not obligated to) notify the Lenders (and NCO Group (on behalf of the Borrowers)) that notwithstanding the Borrowers' failure to provide notice pursuant to paragraph (e) above, such notice is deemed given pursuant to this paragraph (f) requesting a Loan bearing interest at the Prime Rate in an amount sufficient to make the payments required by this paragraph. Such notice from the Administrative Agent shall be treated by the Lenders in the same manner as a notice from the Borrowers under paragraph (e) above. The Administrative Agent may, at the direction of the Issuer, apply the proceeds of such Loans to satisfy the requirements of this paragraph. (g) Obligations of Lenders to Issuer. In the event that the Borrowers shall fail to make any payment when due pursuant to the preceding paragraph (f) and for so long as such failure shall be continuing, the Issuer may give notice of such failure to the Administrative Agent and each Lender, which notice shall include, in the case of a Lender, the amount of such Lender's interest in such Drawing, whereupon each such Lender (other than the Issuer) shall promptly remit such amount to the Administrative Agent for the account of the Issuer as provided in this paragraph (g). Each Lender (other than the Issuer) shall, in the event it receives such notice from the Issuer at or before 12:00 noon (Philadelphia, Pennsylvania time) on any Business Day, fund its participation in any unreimbursed Drawing by remitting to the Administrative Agent, no later than 2:00 p.m. (Philadelphia, Pennsylvania time) on such day, in immediately available funds its -14- share of the reimbursement obligations in respect of each Drawing. In the event that the Administrative Agent receives such funds from a Lender at or before 2:00 p.m. (Philadelphia, Pennsylvania time) on any day, the Administrative Agent shall make available the amount thereof to the Issuer, in immediately available funds no later than 4:00 p.m. (Philadelphia, Pennsylvania time) on that same day. Any amount payable by a Lender to the Administrative Agent for the account of the Issuer under this paragraph (g), and any amount payable by the Administrative Agent to the Issuer under this paragraph (g), shall bear interest for each day from the date due (and including such day if paid after 2:00 p.m. (Philadelphia, Pennsylvania time) in the case of any such payment by a Lender to the Administrative Agent, or 4:00 p.m. (Philadelphia, Pennsylvania time), in the case of any such payment by the Administrative Agent to the Issuer, on such day) until the date it is received by the Issuer at a rate equal to the Federal Funds Rate until (and including) the third Business Day after the date due and thereafter at the Prime Rate. Moreover, any Lender that shall have failed to make available the required amount shall not be entitled to vote on such matters, other than those set forth in Section 11.8, as Lenders or Majority Lenders or Super Majority Lenders are otherwise entitled to vote on or consent to or approve under this Agreement and the other Loan Documents until such amount with interest is paid in full to the Administrative Agent by such Lender. Each Lender shall, upon the demand of the Issuer, reimburse the Issuer, through the Administrative Agent to the extent that the Issuer has not been reimbursed by the Borrowers after demand therefor, for the reasonable costs and expenses (including reasonable legal fees) incurred by it (other than as a result of its willful misconduct or gross negligence as finally determined by a court of competent jurisdiction) in connection with the collection of amounts due under, the administration of, and the preservation and enforcement of any rights conferred by, the Letters of Credit or the performance of the Issuer's obligations under this Agreement in respect thereof on a pro rata basis relative to such Lender's pro rata share of the Commitment (as of the time such costs and expenses are incurred). The Issuer shall refund through the Administrative Agent any costs and expenses reimbursed by such Lender that are subsequently recovered from the Borrowers in an amount equal to such Lender's ratable share thereof. (h) Cash Collateral. It is intended that at all times that the Borrowers shall have contingent or other obligations (including obligations in respect of fees) relating to Letters of Credit, there shall be sufficient availability under the Commitment to reimburse the Issuer (and the Lenders) out of proceeds of Loans. Accordingly, in the event that there shall, at any time, be insufficient availability under the Commitment (after giving effect to all outstanding Loans) to do so (whether because the amount of the Commitment is reduced pursuant to a mandatory reduction or is terminated at maturity, upon acceleration or otherwise or because the amount of outstanding Loans and such Letter of Credit obligations exceeds the amount of the Commitment for any other reason), the Borrowers shall forthwith pay to the Administrative Agent an amount equal to the aggregate face value of all outstanding Letters of Credit plus the aggregate amount of all unreimbursed Drawings plus the amount of all fees or other obligations in respect of Letters of Credit to the extent of such excess. Such amount shall be maintained by the Administrative Agent in an interest-bearing cash collateral account in the name of and for the benefit of the Issuer and the Lenders to secure such payment obligations of the Borrowers. Upon receipt of a notice from the Issuer that there are unreimbursed Drawings or other amounts due in respect of such Letters of Credit (which notice shall set forth the amount of such unreimbursed Drawings or other obligations) the Administrative Agent shall promptly disburse -15- from the cash collateral account the amount specified in the notice and shall pay such amount to the Issuer and Lenders ratably in accordance with the respective amounts owing to each such Person, first, for fees and indemnities until the same are paid in full and, second, for unreimbursed Drawings. The Administrative Agent and the Issuer may rely on their records as to any amounts so owing and shall be fully protected in doing so. Such records shall be conclusive, absent manifest error. At any time that the Commitment again becomes available for reimbursement of Drawings under outstanding Letters of Credit such that (i) the sum of the Commitment at that time and the amount in the cash collateral account exceeds (ii) the sum of all outstanding Loans, the face amount of all outstanding Letters of Credit and the amount of all unreimbursed Drawings, then, upon written request of NCO Group (on behalf of the Borrowers) (which request shall (A) represent that there exists no Default or Event of Default and (B) specify the amount of such excess), the Administrative Agent shall release such excess amount to the Borrowers from the cash collateral account. If all Obligations (other than Obligations constituting contingent obligations under indemnification provisions which survive indefinitely, so long as no unsatisfied claim has been made under any such indemnification provision) have been indefeasibly paid in full in cash, all Commitments have terminated and all Letters of Credit have expired, promptly following demand by NCO Group (on behalf of the Borrowers) the Administrative Agent shall release to the Borrowers all remaining funds in the Letter of Credit cash collateral account. (i) Obligations Absolute. The obligation of each Borrower and each Lender to make available to the Issuer the amounts set forth in this Section 1.15 shall be absolute, unconditional and irrevocable under any and all circumstances without reduction for any set-off or counterclaim of any nature whatsoever, and may not be terminated, suspended or delayed for any reason whatsoever, shall not be subject to any qualification or exception and shall be made in accordance with the terms and conditions of this Agreement under all circumstances, including any of the following circumstances: (1) any lack of validity or enforceability of this Agreement or any of the other Loan Documents; (2) the existence of any claim, setoff, defense or other right which any Borrower may have at any time against a beneficiary named in a Letter of Credit, any transferee of any Letter of Credit (or any Person for whom any such transferee may be acting), the Administrative Agent, the Issuer, any Lender or any other Person, whether in connection with this Agreement, any Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transaction between such Borrower and the beneficiary named in any such Letter of Credit); (3) any draft, certificate or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; -16- (4) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Loan Documents; or (5) the occurrence of any Default or Event of Default. (j) Limitations on Liability; Protection of Issuer, Administrative Agent and Lenders. (1) Limitation on Liability of Lenders. Without affecting any rights any Lenders may have under applicable Law, each of the Borrowers agrees that none of the Lenders, the Issuer, the Administrative Agent or their respective officers or directors shall be liable or responsible for, and the obligations of the Borrowers to the Lenders, the Issuer and the Administrative Agent hereunder shall not in any manner be affected by: (A) the use that may be made of any Letter of Credit or the proceeds thereof by the beneficiary thereof or any other Person or any acts or omissions of such beneficiary or any other Person; (B) the validity, sufficiency or genuineness of documents presented in connection with any Drawing, or of any endorsements thereon, even if such documents should, in fact, prove to be in any or all respects, invalid, insufficient, fraudulent or forged; or (C) any other circumstances whatsoever in making or failing to make payment under any Letter of Credit or any other action taken or omitted to be taken by any Person under or in connection with any Letter of Credit, except that the Borrowers shall have a claim against the Issuer and the Issuer shall be liable to the Borrowers, in each case to the extent and only to the extent of any damages suffered by the Borrowers that they prove are caused by the Issuer's willful misconduct or gross negligence. In furtherance and not in limitation of the foregoing, in determining whether to pay under any Letter of Credit, the Issuer shall not have any obligation relative to the other Lenders other than to determine that any documents required to be delivered under such Letter of Credit appear to have been delivered and that they appear to comply on their face with the requirements of such Letter of Credit, regardless of any notice or information to the contrary. Any action taken or omitted to be taken by the Issuer under or in connection with any Letter of Credit (if taken or omitted in the absence of gross negligence or willful misconduct, as finally determined by a court of competent jurisdiction) shall not create for the Issuer any resulting liability to any Borrower or any Lender. (2) Indemnification and Expenses. In addition to any other amounts payable under this Agreement, the Borrowers agree jointly and severally to protect, indemnify, pay and hold the Issuer and each Lender harmless from and against any and all claims, costs, charges and expenses (including reasonable attorneys' fees) which the Issuer may incur or be subject to as a consequence, direct or indirect, of (A) the issuance of, or payment of any drawing under, any Letter of Credit, other than as a result -17- of the gross negligence or willful misconduct of the Issuer and/or such Lender as finally determined by a court of competent jurisdiction or (B) the failure of the Issuer to honor a Drawing under any Letter of Credit as a result of any act or omission of any present or future government or Governmental Authority. (3) Issuer Not Responsible. In furtherance of the foregoing limitations on liability, the Issuer shall not be responsible for: (A) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the issuance of Letters of Credit; (B) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof in whole or in part; (C) errors, omissions, interruptions, or delays in transmissions or delivery of any messages, by mail, cable, telecopy, telex or otherwise, whether or not in cipher; (D) the misapplication by the beneficiary of any Letter of Credit or the proceeds of any drawing under such Letter of Credit; or (E) any consequence arising from causes beyond the control of the Issuer, including any governmental acts except for damages proven to be caused by the Issuer's gross negligence or willful misconduct. ARTICLE II YIELD PROTECTION AND BREAKAGE INDEMNITY 2.1 MANDATORY SUSPENSION AND CONVERSION OF LIBO RATE LOANS. Each Lender's obligations to make, continue or convert into LIBO Rate Loans of any Type shall be suspended, all such Lender's outstanding Loans of such Type shall be converted into Prime Rate Loans on the last day of their applicable Interest Periods (or, in the case of clause (c) below, on the last day such Lender may lawfully continue to maintain Loans of such Type if earlier, or, in the case of clause (d) below, on the day determined by such Lender to be the last Business Day before the effective date of the applicable restriction), and all pending requests for the making or continuation of or conversion into Loans of such Type by such Lender shall be deemed requests for Prime Rate Loans, if: (a) on or prior to the date required for the determination of a LIBO Rate for any Interest Period, the Administrative Agent determines that for any reason appropriate information is not available to it for purposes of determining the LIBO Rate for such Interest Period; (b) on or prior to the first day of any Interest Period for a LIBO Rate Loan, the Majority Lenders have informed the Administrative Agent of their determination that the LIBO Rate as determined by the Administrative Agent for such Interest Period would not accurately reflect the cost to such Lenders of making, continuing or converting into a LIBO Rate Loan for such Interest Period; (c) at any time such Lender determines that any Regulatory Change makes it unlawful or impracticable for such Lender or its applicable Eurodollar Lending Office to make, -18- continue or convert into a LIBO Rate Loan of such Type, or to comply with its obligations hereunder in respect thereof; or (d) such Lender notifies the Administrative Agent of its determination that (i) by reason of any Regulatory Change, such Lender or its applicable Eurodollar Lending Office is restricted, directly or indirectly, in the amount that it may hold of (A) a category of liabilities that includes deposits by reference to which, or on the basis of which, the interest rate applicable to LIBO Rate Loans of such Type is directly or indirectly determined or (B) the category of assets that includes LIBO Rate Loans of such Type and (ii) in connection therewith, such Lender has elected not to make available hereunder LIBO Rate Loans of such Type. If, as a result of this Section 2.1, any Loan of any Lender that would otherwise be made or maintained as or converted into a LIBO Rate Loan for any Interest Period is instead made or maintained as or converted into a Prime Rate Loan, then, unless the corresponding Loan of each of the other Lenders is also to be made or maintained as or converted into a Prime Rate Loan, such Loan shall be treated as being a LIBO Rate Loan of such Type for such Interest Period for all purposes of this Agreement (including the timing, application and proration among the Lenders of interest payments, conversions and prepayments) except for the calculation of the interest rate borne by such Loan. The Administrative Agent shall promptly notify NCO Group (on behalf of the Borrowers) and each Lender of the existence or occurrence of any condition or circumstance specified in clause (a) or (b) above, and each Lender shall promptly notify NCO Group (on behalf of the Borrowers) and the Administrative Agent of the existence, occurrence or termination of any condition or circumstance specified in clause (c) or (d) above applicable to such Lender's Loans, but the failure by the Administrative Agent or such Lender to give any such notice shall not affect such Lender's rights hereunder. 2.2 REGULATORY CHANGES. If in the determination of any Lender (a) any Regulatory Change shall actually directly or indirectly (i) reduce the amount of any sum received or receivable by such Lender with respect to any LIBO Rate Loan or the return to be earned by such Lender on any LIBO Rate Loan, (ii) impose a cost on such Lender or any Affiliate of such Lender that is attributable to the making or maintaining of, or such Lender's commitment to make or acquire, any LIBO Rate Loan, (iii) require such Lender or any Affiliate of such Lender to make any payment on or calculated by reference to any amount received by such Lender in respect of its LIBO Rate Loans or its obligations to make LIBO Rate Loans or (iv) reduce, or have the effect of reducing, the rate of return on any capital such Lender or any Affiliate of such Lender is required to maintain on account of any LIBO Rate Loan or such Lender's commitment to make any LIBO Rate Loan. and (b) such reduction, increased cost or payment shall not be fully compensated for by an adjustment in the applicable rates of interest payable under the Loan Documents, then the -19- Borrowers shall pay to such Lender such additional amounts as such Lender determines will fully compensate it for such reduction, increased cost or payment. Such additional amounts shall be payable, in the case of those applicable to prior periods, within 15 Business Days after request for such payment by such Lender, accompanied by the certificate described in Section 2.5 and, in the case of those applicable to future periods, on the dates specified, or determined in accordance with a method specified, by such Lender, provided that the Borrowers shall not be liable for any amount payable with respect to any period more than 90 days before the date of such request or certificate, or, if earlier the retroactive effective date of the Regulatory Change if such Regulatory Change occurs during such 90-day period. 2.3 CAPITAL AND RESERVE REQUIREMENTS. If, in the determination of any Lender, such Lender or any Affiliate thereof is required, under applicable Law (including Regulation D), or interpretations, directives, requests and governmental or regulatory guidelines (whether or not having the force of law), to maintain capital or deposit any reserve on account of any Loan, or any commitment to make any Loan then, upon request by such Lender, the Borrowers shall pay to such Lender such additional amounts as such Person determines will fully compensate it for any actual reduction in the rate of return on the capital that such Lender or such Affiliate thereof is so required to maintain. Such additional amounts shall be payable, in the case of those applicable to prior periods, within 15 Business Days after request by such Lender for such payment accompanied by the certificate described in Section 2.5 (provided that the Borrowers shall not be liable for any amount payable with respect to any period more than 90 days before the date of such request or certificate, or, if earlier, the retroactive effective date of such determination if made during such 90-day period), and, in the case of those relating to future periods, on the dates specified, or determined in accordance with a method specified, by such Lender. 2.4 BREAKAGE. The Borrowers shall pay to each Lender, upon request, such amount as such Lender reasonably determines is necessary to compensate it for any actual loss, cost or expense incurred by it as a result of (a) any payment, prepayment or conversion of a LIBO Rate Loan on a date other than the last day of an Interest Period for such LIBO Rate Loan or (b) a LIBO Rate Loan for any reason not being made or converted, or any payment of principal thereof or interest thereon not being made, on the date therefor determined in accordance with the applicable provisions of this Agreement. At the election of such Lender, and without limiting the generality of the foregoing, but without duplication, such compensation on account of losses may include an amount equal to the excess of (i) the interest that would have been received from the Borrowers under this Agreement during the remainder of the applicable Interest Period over (ii) the interest component of the return that such Lender determines it could have obtained had it placed such amount on deposit in the interbank Dollar market for a period equal to such remaining portion of the Interest Period. 2.5 DETERMINATIONS. In making the determinations contemplated by this Article 2, each Lender shall make such estimates, assumptions, allocations and the like that such Person in good faith determines to be appropriate, and such Person's selection thereof in accordance with this Section 2.5, and the determinations made by such Person on the basis thereof, shall be final, binding and conclusive upon the Borrowers, except, in the case of such determinations, for manifest errors. Each Lender shall furnish to the Borrowers, at the time of any request for -20- compensation under Section 2.2 or 2.3, a certificate outlining in reasonable detail the computation of any amounts claimed by it under this Article 2 and the assumptions underlying such computations, which shall include a statement of an officer of such Person certifying that such request for compensation is being made pursuant to a policy adopted by such Person to seek such compensation generally from customers similar to the Borrowers and having similar provisions in agreements with such Person. 2.6 REPLACEMENT OF LENDERS. If any Lender requests compensation pursuant to Sections 1.13 (Taxes on Payments), 2.2 (Regulatory Changes) or 2.3 (Capital and Reserve Requirements), or such Lender's obligation to make or continue Loans as LIBO Rate Loans shall be suspended pursuant to Section 2.1 (Mandatory Suspension and Conversion of LIBO Rate Loans) or such Lender has defaulted on its obligations to make or participate in Loans pursuant to Section 1.3 (Manner of Borrowing), NCO Group (on behalf of the Borrowers), upon three Business Days' notice, may require that such Lender transfer all of its right, title and interest under this Agreement, such Lender's Notes, if any, and the other Loan Documents to any Eligible Institution identified by NCO Group (on behalf of the Borrowers) subject to (a) the consent of the Administrative Agent (which consent shall not be unreasonably withheld), (b) satisfaction of the other conditions specified in Section 11.9 below (Successors and Assigns), (c) the agreement of the proposed transferee to assume all of the obligations of such Lender hereunder and under the other Loan Documents for consideration equal to the outstanding principal amount of such Lender's Loans, interest thereon to the date of such transfer, and all other amounts payable hereunder to such Lender to the date of transfer, (d) such transferor Lender shall have been paid on or prior to the date of such transfer all fees and other amounts payable to such transferor hereunder including those amounts payable under said Sections 1.13, 2.2 or 2.3, as applicable (and including any fees accrued hereunder and any amounts that would be payable under Section 2.4 (Breakage) as if all of such Lender's Loans were being prepaid in full on such date) or arrangements satisfactory to the transferor Lender shall have been made for such payments, and (e) satisfaction of the condition that if the Lender being replaced has requested compensation pursuant to Sections 1.13, 2.2 or 2.3, the proposed transferee's aggregate requested compensation, if any, pursuant to Sections 1.13, 2.2 or 2.3 with respect to such replaced Lender's Loans is lower than that of the Lender replaced. Without prejudice to the survival of any other agreement of the Borrowers hereunder, the agreements of the Borrowers contained in Sections 1.13 (Taxes on Payments), 2.2 (Regulatory Changes), 2.3 (Capital and Reserve Requirements), 2.4 (Breakage), 11.12 (Indemnification) and 11.12 (Expenses) (without duplication of any payments made to such Lender by the Borrowers or the proposed transferee) shall survive for the benefit of any Lender replaced under this Section 2.6 with respect to the time prior to such replacement. -21- 2.7 CHANGE OF LENDING OFFICE. Each Lender agrees that, upon the occurrence of any event giving rise to the operation of Sections 1.13 (Taxes on Payments), 2.1 (Mandatory Suspension and Conversion of LIBO Rate Loans), 2.2 (Regulatory Changes) or 2.3 (Capital and Reserve Requirements) with respect to such Lender, it will, if requested by the Borrowers, use reasonable efforts (subject to overall policy considerations of such Lender) to designate another lending office for any Loans affected by such event, provided that such designation is made on such terms that such Lender and its lending office suffer no material economic, legal or regulatory disadvantage, with the object of avoiding the consequence of the event giving rise to the operation of any such Section. Nothing in this Section 2.7 shall affect or postpone any of the obligations of the Borrowers or the right of any Lender provided in Section 1.12 (Taxes on Payments), 2.1 (Mandatory Suspension and Conversion of LIBO Rate Loans), 2.2 (Regulatory Changes) or 2.3 (Capital and Reserve Requirements). ARTICLE III CONDITIONS TO EFFECTIVENESS OF AGREEMENT AND FUNDINGS 3.1 CONDITIONS TO INITIAL LOANS. The effectiveness of this Agreement (other than this Article 3) and the obligation of the Lenders to make Loans and of the Issuer to issue Letters of Credit on the Closing Date are subject to the satisfaction, immediately prior to or concurrently with the making of such Loan or the issuance of such Letter of Credit, of the following conditions precedent in each case to the satisfaction of the Administrative Agent, in addition to the conditions precedent set forth in Section 3.2 hereof: (a) Agreement; Note. The Administrative Agent shall have received this Agreement, duly executed by each Borrower, and executed RC Notes, in the form of Exhibit "A-1" hereto and executed Term Notes, in the form of Exhibit "A-2" hereto, each duly executed on behalf of each Borrower. (b) Certain Security Documents Pertaining to Personal Property. The Administrative Agent shall have received the following documents (as amended, modified or supplemented from time to time, each a "Security Document" and collectively the "Security Documents"), each of which shall be in form and substance satisfactory to the Administrative Agent, (except for the certificates representing the stock certificates and other instruments pledged pursuant to such Security Documents and the stock powers delivered in connection therewith): (i) Executed copies of each of the following: (A) A Second Amended and Restated Security Agreement, duly executed on behalf of each Borrower, in substantially the form of Exhibit "E" hereto (such agreement as it may be further amended, modified or supplemented from time to time, the "Security Agreement"). (B) An Amended and Restated Stock Pledge Agreement, duly executed on behalf of NCO Group, and Stock Pledge Agreements, duly executed on behalf of FCA Funding, Inc., CRWF Acquisition, Inc., Financial Collection Agencies, Inc. (Puerto Rico), Advantage Financial Services Funding, Inc., Medsource, Inc. and Management Financial -22- Services, Inc. each in substantially the form of Exhibit "F" hereto (such agreements as it may be further amended, modified or supplemented from time to time, the "Stock Pledge Agreements"). (C) A Global Amendment to Security Documents duly executed on behalf of each of the Borrowers confirming that the Collateral continues to secure the Obligations hereunder. (D) Insurance Assignments, duly executed by the Borrower, in substantially the form of Exhibit "G" hereto (as amended, modified or supplemented from time to time, the "Insurance Assignments"), in order to assign to the Administrative Agent as agent and representative of the Lenders at least $2,000,000 in keyman life insurance policies on the life of Michael Barrist. (ii) Certificates and instruments representing the stock certificates and other instruments pledged pursuant to such Security Documents, accompanied by duly executed instruments of transfer or assignment in blank, and, to the extent required by the Security Documents, duly endorsed to the order of the Administrative Agent, in form and substance satisfactory to the Administrative Agent. (iii) Evidence of the completion of all recordings and filings of or with respect to, and of all other actions with respect to, the above Security Documents as may be necessary or, in the opinion of the Administrative Agent, desirable to create or perfect the Liens created or purported to be created by such Security Documents as valid, continuing and perfected Liens in favor of the Administrative Agent securing the Obligations, prior to all other Liens other than Permitted Liens; and evidence of the payment of any necessary fee, tax or expense relating to such recording or filing. Without limitation of the foregoing, the Administrative Agent shall receive: (A) Proper financing statements duly executed by the Borrowers necessary or desirable by Administrative Agent to create or perfect such Liens in favor of the Administrative Agent as Administrative Agent and representative of the Lenders. (iv) Evidence of the insurance required by the terms of the above Security Documents, containing the endorsements required by such Security Documents and this Agreement. (v) Waivers of landlord's liens, warehouseman's liens and like rights. (vi) Evidence that all other actions necessary or, in the opinion of the Administrative Agent, desirable to create, perfect or protect the Liens created or purported to be created by the above Security Documents have been taken. (vii) A contemporaneous search of UCC, tax, judgment and litigation dockets and records and other appropriate registers shall have revealed no filings or recordings in effect with respect to the Collateral purported to be covered by the above Security Documents, except such as are acceptable to the Administrative Agent (it being understood that such -23- acceptance does not limit the obligations of the Borrowers with respect to the priority of the Liens in favor of the Lenders), and the Administrative Agent shall have received a copy of the search reports received as a result of the search and of the acknowledgment copies of the financing statements or other instruments required to be filed or recorded pursuant to this subsection bearing evidence of the recording of such statements or instruments at each of such filing or recording places. (c) Medaphis Acquisition. The Administrative Agent shall have received the following documents evidencing the Medaphis Acquisition, each of which shall be in form and substance satisfactory to the Administrative Agent: (i) Copies of the stock purchase agreement, the closing checklist listing all material documents in connection with the Medaphis Acquisition and any document requested by Administrative Agent in its sole discretion from such closing checklist (all documents listed in such closing checklist, the "Medaphis Acquisition Agreements"). The closing checklist shall be revised by NCO Group and sent to the Administrative Agent as documents are added or deleted. The Administrative Agent shall be satisfied with all Medaphis Acquisition Agreements. The Medaphis Acquisition Agreements accepted by Administrative Agent may not be amended, modified or supplemented, nor may any of their terms or conditions in favor of NCO Group be waived, and the stock purchase, merger and other transactions contemplated thereunder shall take place in strict compliance therewith. (ii) Satisfactory evidence of completion of the conditions precedent to the Medaphis Acquisition but for the payment of the purchase price including evidence that NCO Group has not waived any conditions precedent under the Medaphis Acquisition Agreements without the prior written consent of the Administrative Agent. (iii) Satisfactory evidence that all corporate governmental, judicial and third party consents and approvals necessary in connection with the consummation of the Medaphis Acquisition (including without limitation consents and approvals required under or referred to in the Medaphis Acquisition Agreements) shall have been obtained and, as applicable, become final orders (without imposition of any conditions that are not satisfactory to the Lenders) and shall remain in full force and effect. Without limiting the generality of the foregoing, all appropriate filings shall have been made under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the applicable waiting periods relating thereto shall have expired or been terminated without requests for additional information from the reviewing agencies. (iv) In connection with the Medaphis Acquisition for each acquired US company, an executed Security Agreement from the appropriate Person pursuant to which each grants to the Administrative Agent (on behalf of the Lenders) a blanket lien on all business assets (excluding cash held for clients), including but not limited to accounts receivable, inventory, general intangibles and equipment, now owned or hereafter acquired and/or an executed Stock Pledge Agreement from the appropriate Person pursuant to which each pledges to the Administrative Agent (on behalf of the Lenders) all of its equity interests in any acquired company. -24- (d) Capitalization, Etc. The corporate and capital structure of each Borrower, the articles of incorporation and by-laws (or other constituent documents) of each Borrower, and the terms, conditions, amounts and holders of all equity (except for NCO Group), debt and other indebtedness, obligations and liabilities of each Borrower, shall be reasonably satisfactory to the Administrative Agent. (e) Corporate Proceedings. The Administrative Agent shall have received certificates by the Secretary or Assistant Secretary of each Borrower dated as of the Closing Date as to (i) true copies of the articles of incorporation and by-laws (or other constituent documents) of each Borrower in effect on such date (which, in the case of articles of incorporation or other constituent documents filed or required to be filed with the Secretary of State or other Governmental Authority in its jurisdiction of incorporation, shall be certified to be true, correct and complete by such Secretary of State or other Governmental Authority not more than 30 days before the Closing Date) or certificates from a Responsible Officer of each Borrower stating that the articles of incorporation and bylaws of each Borrower have not been amended or modified since furnished to the Administrative Agent in connection with the Credit Agreement, (ii) true copies of all corporate action taken by each Borrower relative to this Agreement and the other Loan Documents and (iii) the incumbency and signature of the respective officers of each Borrower executing this Agreement and the other Loan Documents, together with satisfactory evidence of the incumbency of such Secretary or Assistant Secretary. The Administrative Agent shall have received certificates from the appropriate Secretaries of State or other applicable Governmental Authorities dated not more than 30 days before the Closing Date showing the good standing of each Borrower in its state of incorporation and each state in which each Borrower does business. (f) Insurance. The Administrative Agent shall have received a report from each Borrower's insurance broker, addressed to the Administrative Agent, satisfactory in form and substance to the Administrative Agent, as to insurance matters pertaining to such Borrower. The Administrative Agent shall have received evidence satisfactory to it that the insurance policies required by this Agreement and the other Loan Documents have been obtained, containing the endorsements required hereby and thereby. (g) Financial Statements, Projections. The Administrative Agent shall have received copies of the financial statements, combining financial statements, pro forma financial statements and projections referred to in Section 4.1 hereof. (h) Legal Opinions of Counsel to the Lenders. The Administrative Agent shall have received an opinion addressed to the Lenders, dated the Closing Date, of Blank Rome Comisky & McCauley LLP, counsel to the Borrowers, in form and substance satisfactory to the Administrative Agent and its counsel (which are substantially the same as the opinions issued in connection with the Credit Agreement, with appropriate additional provisions which address the transactions described herein). Borrowers shall also have delivered copies of favorable opinions, on which the Administrative Agent and Lenders may rely, from counsel to Medaphis concerning the Medaphis Acquisition. (i) Responsible Officer Certificates. The Administrative Agent shall have received certificates from a Responsible Officer of each Borrower as to such matters as the -25- Administrative Agent may request, including a pro forma certificate of covenant compliance in the form of Exhibit "H" attached hereto, reflecting the Medaphis Acquisition. (j) Fees, Expenses, etc. All fees and other compensation required to be paid to the Administrative Agent on behalf of the Lenders pursuant hereto or pursuant to any other written agreement on or prior to the Closing Date shall have been paid or received, including but not limited to those referred to in the commitment letter from Mellon to Borrowers dated November 9, 1998. (k) Interest Rate Hedging Agreement. The Borrowers shall deliver to the Administrative Agent within 120 days of the Initial Funding Date evidence satisfactory to the Administrative Agent that the Borrowers have purchased an Interest Rate Hedging Agreement with a financial institution acceptable to the Administrative Agent pursuant to which the Borrowers have reduced their risk of exposure to a level reasonably satisfactory to the Administrative Agent in its sole discretion. This interest rate cap agreement shall be in force for at least three (3) years following the Initial Funding Date and shall apply to a minimum of 40% of the Commitment. (l) Management Letters. The Administrative Agent shall have received copies of the management letters issued by NCO Group's certified public accountants in connection with its audited financial statements dated December 31, 1997 or a letter from such accountants that no such management letters were issued. (m) No Material Adverse Effect. The Responsible Officer of NCO Group (on behalf of the Borrowers) shall provide the Administrative Agent with a certificate stating that there has not occurred, or been threatened, any event, act or condition which could have a Material Adverse Effect. (n) Additional Matters. All corporate and other proceedings, and all documents, instruments and other matters in connection with the transactions contemplated by this Agreement and the other Loan Documents shall be reasonably satisfactory in form and substance to the Administrative Agent. 3.2 CONDITIONS TO ALL LOANS. The obligation of the Lenders to make any Loan and of the Issuer to issue any Letter of Credit is subject to performance by each Borrower of its obligations to be performed hereunder or under the other Loan Documents on or before the date of such Loan or Letter of Credit, satisfaction of the conditions precedent set forth herein and in the other Loan Documents and to satisfaction of the following further conditions precedent: (a) Notice. Appropriate notice of such Loan shall have been given by the Borrowers as provided in Article 1 hereof. (b) Representations and Warranties. Each of the representations and warranties made by each Borrower in Article 4 hereof shall be true and correct in all material respects on and as of such date as if made on and as of such date, both before and after giving effect to the Loans requested to be made on such date. -26- (c) No Defaults. No Event of Default or Default shall have occurred and be continuing on such date or after giving effect to the Loans requested to be made on such date. (d) No Violations of Law, etc. Neither the making nor use of the Loans shall cause the Lenders to violate or conflict with any Law. (e) No Material Adverse Effect. There shall not have occurred, or be threatened, any other event, act or condition which could have a Material Adverse Effect since the last Loan. Each request by a Borrower for any Loan shall constitute a representation and warranty by such Borrower that the conditions set forth in this Section 3.2 have been satisfied as of the date of such request. Failure of the Administrative Agent to receive notice from the Borrower to the contrary before such Loan is made shall constitute a further representation and warranty by the Borrower that the conditions referred to in this Section 3.2 have been satisfied as of the date such Loan is made. ARTICLE IV REPRESENTATIONS AND WARRANTIES 4.1 REPRESENTATIONS AND WARRANTIES. Each Borrower hereby represents and warrants to the Lenders as follows: (a) Corporate Status. Each Borrower is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. Each Borrower has corporate power and authority to own its property and transact the business in which it is engaged or presently proposes to engage. Each Borrower is duly qualified to do business as a foreign corporation and is in good standing in all jurisdictions in which the ownership of its properties or the nature of its activities or both makes such qualification necessary or advisable. Schedule 4.1(a) hereof states as of the date hereof the jurisdiction of incorporation of each Borrower and the jurisdictions in which each Borrower is qualified to do business as a foreign corporation. (b) Corporate Power and Authorization. Each Borrower has corporate power and authority to execute, deliver, perform, and take all actions contemplated by each Loan Document to which it is a party, and all such action has been duly and validly authorized by all necessary corporate proceedings on its part. Without limitation of the foregoing, each Borrower has the corporate power and authority to borrow pursuant to the Loan Documents to the fullest extent permitted hereby and thereby from time to time, and has taken all necessary corporate action to authorize such borrowings. (c) Execution and Binding Effect. This Agreement and each other Loan Document to which any Borrower is a party and which is required to be delivered on or before the Closing Date pursuant to Section 3.1 hereof has been duly and validly executed and delivered by such Borrower. This Agreement and each other Loan Document constitutes, the legal, valid and binding obligation of each Borrower, enforceable against each Borrower in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency or other similar laws of general application affecting the enforcement of creditors' rights or by general principles of equity limiting the availability of equitable remedies. -27- (d) Governmental Approvals and Filings. No approval, order, consent, authorization, certificate, license, permit or validation of, or exemption or other action by, or filing, recording or registration with, or notice to, any Governmental Authority (collectively, "Governmental Action") is or will be necessary or advisable in connection with the execution and delivery of any Loan Document, consummation of the transactions herein or therein contemplated, performance of or compliance with the terms and conditions hereof or thereof or to ensure the legality, validity, binding effect, enforceability or admissibility in evidence hereof or thereof, provided that Borrower may be required to file the Loan Documents with the Securities and Exchange Commission and Borrowers may be required to obtain certain consents in connection with the Medaphis Acquisition. (e) Absence of Conflicts. Neither the execution and delivery of any Loan Document, nor consummation of the transactions herein or therein contemplated, nor performance of or compliance with the terms and conditions hereof or thereof does or will (i) violate or conflict with any Law, or (ii) violate, conflict with or result in a breach of any term or condition of, or constitute a default under, or result in (or give rise to any right, contingent or otherwise, of any Person to cause) any termination, cancellation, prepayment or acceleration of performance of, or result in the creation or imposition of (or give rise to any obligation, contingent or otherwise, to create or impose) any Lien upon any property of the Borrower (except for any Lien in favor of the Lender securing the Obligations) pursuant to, or otherwise result in (or give rise to any right, contingent or otherwise, of any Person to cause) any change in any right, power, privilege, duty or obligation of the Borrower under or in connection with, (A) the articles of incorporation or by-laws (or other constituent documents) of any Borrower, (B) any agreement or instrument creating, evidencing or securing any Indebtedness to which any Borrower is a party or by which any of them or any of their respective properties (now owned or hereafter acquired) may be subject or bound, or (C) any other material agreement or instrument to which any Borrower is a party or any of its properties (now owned or hereafter acquired) may be subject or bound. (f) Audited Financial Statements. The Borrowers have heretofore furnished to the Administrative Agent balance sheets as of December 31, 1997 and the related statements of income, cash flows and changes in stockholders' equity for the fiscal year then ended, as examined and reported on by Coopers & Lybrand, independent certified public accountants for the Borrowers, who delivered an unqualified opinion in respect thereof. The Borrowers' financial statements present fairly the financial condition of the Borrowers, as of the end of such fiscal year, and the results of its operations and its cash flows for the fiscal year then ended, all in conformity with GAAP. -28- (g) Interim Financial Statements. The Borrowers have heretofore furnished to the Administrative Agent interim company prepared balance sheets of the Borrowers, dated September 30, 1998, together with the related consolidated statements of income, cash flows and changes in stockholders' equity for the fiscal quarter ending on such date. The Borrowers' financial statements present fairly the financial condition of the Borrowers, as of the end of such fiscal quarter and the results of its operations and its cash flows for such fiscal quarter, all in conformity with GAAP, subject to normal and recurring year-end audit adjustments. (h) Absence of Undisclosed Liabilities. No Borrower has any liability or obligation of any nature whatever (whether absolute, accrued, contingent or otherwise, whether or not due), forward or long-term commitments or unrealized or anticipated losses from unfavorable commitments, except (w) as disclosed in the financial statements referred to in Sections 4.1(f) and (g) hereof, (x) matters that, individually or in the aggregate, could not have a Material Adverse Effect, (y) as disclosed in Schedule 4.1(h) hereof, and (z) liabilities, obligations, commitments and losses incurred after December 31, 1997 in the ordinary course of business and consistent with past practices. (i) Absence of Changes. Since September 30, 1998, there has been no change in the business, operations, or condition (financial or otherwise) of the Borrowers. (j) Accurate and Complete Disclosure. All information (taken as a whole) heretofore, contemporaneously or hereafter provided (orally or in writing) by any Borrower to the Administrative Agent pursuant to or in connection with any Loan Document or any transaction contemplated hereby or thereby is or will be (as the case may be) true and accurate in all material respects on the date as of which such information is dated (or, if not dated, when received by the Administrative Agent as the case may be) and does not or will not (as the case may be) omit to state any material fact necessary to make such information (taken as a whole) not misleading at such time in light of the circumstances in which it was provided. Each Borrower has disclosed to the Administrative Agent in writing every fact or circumstance which has, or which could have, a Material Adverse Effect. (k) Projections. Attached hereto as Schedule 4.1(k) are projections prepared by the Borrowers demonstrating the projected financial condition and results of operations of the Borrowers, for the period commencing on January 1, 1999 and ending on December 31, 2003, which projections are accompanied by a written statement of the assumptions and estimates underlying such projections. Such projections were prepared on the basis of such assumptions and estimates. Such projections, assumptions and estimates, as of the date of preparation thereof and as of the date hereof, are reasonable, are made in good faith, are consistent with the Loan Documents, and represent each Borrower's best judgment as to such matters. Nothing has come to the attention of the Borrowers which would lead the Borrowers to believe that such projections will not be attained or exceeded. Nothing contained in this Section shall constitute a representation or warranty that such future financial performance or results of operations will in fact be achieved. (l) Solvency. On and as of the Closing Date, and after giving effect to all Loans and other obligations and liabilities being incurred on such date in connection therewith, and on the date of each subsequent Loan or other extension of credit hereunder and after giving effect to -29- application of the proceeds thereof in accordance with the terms of the Loan Documents, the Borrowers on a consolidated basis are and will be Solvent. (m) Margin Regulations. No part of the proceeds of any Loan hereunder will be used for the purpose of buying or carrying any "margin stock," as such term is used in Regulation U of the Board of Governors of the Federal Reserve System, as amended from time to time, or to extend credit to others for the purpose of buying or carrying any "margin stock". No Borrower is engaged in the business of extending credit to others for the purpose of buying or carrying "margin stock". No Borrower owns any "margin stock". Neither the making of any Loan nor any use of proceeds of any such Loan will violate or conflict with the provisions of Regulation T, U or X of the Board of Governors of the Federal Reserve System, as amended from time to time. (n) Partnerships, Etc. Except as set forth on Schedule 4.1(n), no Borrower is a partner (general or limited) of any partnership, is a party to any joint venture, or owns (beneficially or of record) any equity or similar interest in any such Person (including but not limited to any interest pursuant to which the Borrower has or may in any circumstance have an obligation to make capital contributions to, or be generally liable for or on account of the liabilities, acts or omissions of such other Person). (o) Ownership and Control. Schedule 4.1(o) hereof states as of the date hereof the authorized capitalization of each Borrower, the number of shares of each class of capital stock issued and outstanding of each Borrower and the number and percentage of outstanding shares of each such class of capital stock and the names of the record owners of such shares and the direct or indirect beneficial owners of such shares (except that for NCO Group the listing shall include only the names of any parties beneficially owning, individually or through affiliates, more than 5% of NCO Group stock). The outstanding shares of capital stock of each Borrower have been duly authorized and validly issued and are fully paid and nonassessable. Except as described in Schedule 4.1(o), there are no options, warrants, calls, subscriptions, conversion rights, exchange rights, preemptive rights or other rights, agreements or arrangements (contingent or otherwise) which may in any circumstances now or hereafter obligate any Borrower to issue any shares of its capital stock or any other securities. (p) Litigation. To the best of each Borrower's knowledge, there is no pending or (to such Borrower's knowledge after due inquiry) threatened action, suit, proceeding or investigation by or before any Governmental Authority against any Borrower, other than alleged violations of the Fair Debt Collection Practices Act which would not cause a Material Adverse Effect. (q) Absence of Events of Default. No event has occurred and is continuing and no condition exists which constitutes an Event of Default or Default. (r) Absence of Other Conflicts. No Borrower is in violation of or conflict with, or is subject to any contingent liability on account of any violation of or conflict with: (i) any Law to the best of its knowledge, after due inquiry, -30- (ii) its articles of incorporation or by-laws (or other constituent documents), or (iii) any material agreement or instrument or arrangement to which it is party or by which it or any of its properties (now owned or hereafter acquired) may be subject or bound. (s) Insurance. Each Borrower maintains with financially sound and reputable insurers insurance with respect to its properties and business and against at least such liabilities, casualties and contingencies and in at least such types and amounts as is customary in the case of corporations engaged in the same or a similar business or having similar properties similarly situated. Schedule 4.1(s) hereof sets forth a list of all insurances currently maintained by each Borrower, setting forth the identity of the insurance carrier, the type of coverage, the amount of coverage and the deductible. There are no claims, actions, suits, or proceedings against, arising under or based upon any of such insurance policies except as set forth in such Schedule 4.1(s). (t) Title to Property. Each Borrower has good and marketable title in fee simple to all real property owned or purported to be owned by it and good title to all other property of whatever nature owned or purported to be owned by it, including but not limited to all property reflected in the most recent audited balance sheet referred to in Section 4.1(f) hereof or submitted pursuant to Section 5.1(a) hereof, as the case may be (except as sold or otherwise disposed of in the ordinary course of business after the date of such balance sheet), in each case free and clear of all Liens, other than Permitted Liens. (u) Intellectual Property. Each Borrower owns, or is licensed or otherwise has the right to use, all the patents, trademarks, service marks, names (trade, service, fictitious or otherwise), copyrights, technology (including but not limited to computer programs and software), processes, data bases and other rights, free from burdensome restrictions, necessary to own and operate its properties and to carry on its business as presently conducted and presently planned to be conducted without conflict with the rights of others. Except as described in Schedule 4.1(u), no Borrower owns any patents, trademarks or copyrights. (v) Taxes. All tax and information returns required to be filed by or on behalf of any Borrower have been properly prepared, executed and filed. All taxes, assessments, fees and other governmental charges upon any Borrower or upon any of its properties, incomes, sales or franchises which are due and payable have been paid other than those not yet delinquent and payable without premium or penalty, and except for those being diligently contested in good faith by appropriate proceedings, and in each case adequate reserves and provisions for taxes have been made on the books of such Borrower. The reserves and provisions for taxes on the books of each Borrower are adequate for all open years and for its current fiscal period. No Borrower has knowledge of any proposed additional assessment or basis for any material assessment for additional taxes (whether or not reserved against). (w) Employee Benefits. Except as set forth on Schedule 4.1(w), no Borrower has a Plan or Plans. (x) Environmental Matters. -31- (i) Each Borrower, and each of its respective Environmental Affiliates, is and has been in full compliance with all applicable Environmental Laws, except for (x) matters set forth in Schedule 4.1(x) hereof and (y) matters which, individually or in the aggregate, could not have a Material Adverse Effect. There are to each Borrower's knowledge after due inquiry no circumstances that may prevent or interfere with such full compliance in the future. (ii) Each Borrower and its respective Environmental Affiliates has all Environmental Approvals necessary or desirable for the ownership and operation of their respective properties, facilities and businesses as presently owned and operated and as presently proposed to be owned and operated, except for (x) matters set forth in Schedule 4.1(x) hereof and (y) matters which, individually or in the aggregate, could not have a Material Adverse Effect. (iii) There is no Environmental Claim pending or to the knowledge of any Borrower after due inquiry threatened, and there are no past or present acts, omissions, events or circumstances that could form the basis of any Environmental Claim, against any Borrower or any of its respective Environmental Affiliates, except for (x) matters set forth in Schedule 4.1(x) hereof, and (y) matters which, if adversely decided, individually or in the aggregate, could not have a Material Adverse Effect. (iv) No facility or property now or previously owned, operated or leased by any Borrower or any of its respective Environmental Affiliates is an Environmental Cleanup Site. No Borrower nor any respective Environmental Affiliate has directly transported or directly arranged for the transportation of any Environmental Concern Materials to any Environmental Cleanup Site. No Lien exists, and to Borrower's knowledge no condition exists which could result in the filing of a Lien, against any property of any Borrower or any of its respective Environmental Affiliates under any Environmental Law. (y) Business Interruptions. Within two (2) years prior to the Closing Date, neither the business, property nor operations of any Borrower have been materially and adversely affected in any way by any casualty, strike, lockout, combination of workers, order of the United States of America, or any state or local government, or any political subdivision or agency thereof, directed against any Borrower. To the best of each Borrower's knowledge, there are no pending or threatened labor disputes, strikes, lockouts or similar occurrences or grievances against the business being operated by any Borrower. (z) Names. In the five (5) years prior to the Closing Date, no Borrower has conducted business under or used any names (whether corporate or assumed) except for its present corporate name and those names listed in Schedule 4.1(z) attached hereto and made a part hereof. Each Borrower is the sole owner of its name and any and all business done and all invoices using such name or any names listed in Schedule 4.1(z) represent sales and business of such Borrower and are owned solely by such Borrower. (aa) Regulation O. No director, executive officer or principal shareholder of any Borrower is a director, executive officer or principal shareholder of the Lender. For the purposes hereof the terms "director" (when used with reference to the Lender), "executive -32- officer" and "principal shareholder" have the respective meanings assigned thereto in Regulation O issued by the Board of Governors of the Federal Reserve System. 4.2 REPRESENTATIONS AND WARRANTIES ABSOLUTE. The representations and warranties of the Borrowers set forth in this Article 4 are unaffected by any prior or subsequent investigation by, or knowledge of, the Administrative Agent or any Lender. ARTICLE V AFFIRMATIVE COVENANTS So long as any Loan shall remain unpaid, any Letter of Credit is outstanding or any Lender shall have any Commitment under this Agreement, each of the Borrowers shall comply with the following covenants. 5.1 BASIC REPORTING REQUIREMENTS. (a) Annual Audit Reports. As soon as practicable, and in any event within 90 days after the close of each fiscal year of the Borrowers, the Borrowers shall furnish to the Administrative Agent and each of the Lenders consolidated statements of income, cash flows and changes in stockholders' equity of the Borrowers for such fiscal year and a consolidated balance sheet of the Borrowers as of the close of such fiscal year, and notes to each, all in reasonable detail, setting forth in comparative form the corresponding figures for the preceding fiscal year, together with all management letters issued, or letters stating that no management letters are being issued, in connection therewith. Such financial statements shall be accompanied by an opinion of independent certified public accountants of recognized national standing selected by the Borrowers and reasonably satisfactory to the Administrative Agent. A copy of the opinion of such accountants shall be delivered to the Administrative Agent and each of the Lenders and signed by such accountants. Such opinion shall be free of exceptions or qualifications not acceptable to the Administrative Agent in its reasonable discretion and in any event shall be free of any exception or qualification which is of "going concern" or like nature or which relates to a limited scope of examination. Such opinion in any event shall contain a written statement of such accountants substantially to the effect that (i) such accountants examined such financial statements in accordance with generally accepted auditing standards and accordingly made such tests of accounting records and such other auditing procedures as such accountants considered necessary under the circumstances and (ii) in the opinion of such accountants such financial statements present fairly the financial position of the Borrowers as of the end of such fiscal year and the results of their operations and their cash flows and changes in stockholders' equity for such fiscal year, in conformity with GAAP. (b) Quarterly Financial Statements. As soon as practicable but in any event within 45 days after the end of each quarter, the Borrowers shall furnish to the Administrative Agent and each of the Lenders financial statements in the form filed with NCO Group's Form 10-Q filing with the Securities Exchange Commission. (c) Quarterly Compliance Certificates. The Borrowers shall deliver to the Administrative Agent and each of the Lenders a Quarterly Compliance Certificate in substantially the form set forth as Exhibit "I" hereto, duly completed and signed by the Chief -33- Financial Officer of NCO Group concurrently with the delivery of the financial statements referred to in subsection (a) and (b). The Quarterly Compliance Certificate shall confirm that the unamortized remaining invested balance of all acquired delinquent pools of Accounts does not exceed $10,000,000, in the aggregate among all Borrowers, at any point in time. From time to time the Borrowers may seek the prior written consent of the Administrative Agent (in its sole discretion) so that the unamortized remaining invested balance of all acquired delinquent pools of accounts may exceed $10,000,000. (d) Annual Budget. As soon as practicable, and in any event within 45 days after the start of each fiscal year, the Borrowers shall deliver to the Administrative Agent a consolidated annual budget, which shall include the annual projections of profit and loss statements, balance sheets and cash flow reports (prepared on an annual basis) for the succeeding fiscal year, together with a statement of the assumptions and estimates upon which such projections are based in form and substance consistent with past practice. The projections shall be accompanied by a cover letter stating that such projections, estimates and assumptions, as of the date of preparation thereof, are reasonable, made in good faith, consistent with the Loan Documents, and represent the Borrowers' best judgment as to such matters. (e) Commercial Finance Reports. Within 30 days of a request by the Administrative Agent, the Borrowers shall furnish to the Administrative Agent a report of a Responsible Officer of the Borrowers setting forth information as to (i) receivables, and (ii) payables (which may include, among other things, a breakout of aging and payments). (f) Certain Other Reports and Information. Promptly upon their becoming available to the Borrowers, the Borrowers shall deliver to the Administrative Agent a copy of (i) all regular or special reports, registration statements and amendments to the foregoing which the Borrowers shall file with the Securities and Exchange Commission (or any successor thereto) or any securities exchange, (ii) all reports, proxy statements, financial statements and other information distributed by the Borrowers to its stockholders, bondholders or the financial community generally, and (iii) all accountants' management letters pertaining to, all other reports submitted by accountants in connection with any audit of, and all other material reports from outside accountants with respect to, the Borrowers. (g) Further Information. The Borrowers will promptly furnish to the Administrative Agent or any Lender such other information and in such form as the Administrative Agent or any Lender may reasonably request from time to time. (h) Notice of Certain Events. Promptly upon becoming aware of any of the following, the Borrowers shall give the Administrative Agent notice thereof, together with a written statement of a Responsible Officer of the Borrowers setting forth the details thereof and any action with respect thereto taken or proposed to be taken by the Borrowers: (i) Any Event of Default or Default. (ii) Any material adverse change in the business, operations or condition (financial or otherwise) of any Borrower. -34- (iii) Any pending or threatened action, suit, proceeding or investigation by or before any Governmental Authority against or affecting any Borrower, except for matters that if adversely decided, individually or in the aggregate, could not have a Material Adverse Effect. (iv) Any material violation, breach or default by any Borrower under any agreement or instrument which could have a Material Adverse Effect. (v) Any material amendment or supplement to, or extension, renewal, refinancing, or refunding of, or waiver by any other party thereto of any right under or conditions of, any agreement or instrument creating, evidencing or securing any Indebtedness of any Borrower; any agreement or instrument material to the business, operations or condition (financial or otherwise) of any Borrower, and any negotiations pertaining to any of the foregoing. (vi) Any Pension-Related Event. Such notice shall be accompanied by: (A) a copy of any notice, request, return, petition or other document received by any Borrower or any Controlled Group Member from any Person, or which has been or is to be filed with or provided to any Person (including without limitation the Internal Revenue Service, PBGC or any Plan participant, beneficiary, alternate payee or employer representative), in connection with such Pension-Related Event, and (B) in the case of any Pension-Related Event with respect to a Plan, the most recent Annual Report (5500 Series), with attachments thereto, and the most recent actuarial valuation report, for such Plan, if not previously provided. (vii) Any Environmental Claim pending or threatened against any Borrower, or any past or present acts, omissions, events or circumstances (including but not limited to any dumping, leaching, deposition, removal, abandonment, escape, emission, discharge or release of any Environmental Concern Material at, on or under any facility or property now or previously owned, operated or leased by any Borrower that could form the basis of such Environmental Claim, which Environmental Claim, if adversely resolved, individually or in the aggregate, could have a Material Adverse Effect. (i) Visitation; Verification. Each Borrower shall permit such Persons as the Administrative Agent or any Lender may designate from time to time to visit and inspect any of the properties of such Borrower, to examine its books and records and take copies and extracts therefrom and to discuss its affairs with its directors, officers, employees and independent accountants at such times and as often as the Administrative Agent may reasonably request. Each Borrower hereby authorizes such officers, employees and independent accountants to discuss with the Administrative Agent the affairs of such Borrower. The Administrative Agent shall have the right to examine accounts, inventory and other properties and liabilities of each Borrower from time to time, and each Borrower shall cooperate with the Administrative Agent in such examination. 5.2 INSURANCE. Each Borrower shall maintain insurance on all insurable tangible Collateral against fire, flood, casualty and such other hazards as may be reasonably acceptable to the Administrative Agent in such amounts, with such deductibles and with such insurers as may be reasonably acceptable to the Administrative Agent. The policies of all such casualty insurance shall contain standard Loss Payable Clauses issued in favor of the Administrative -35- Agent for the benefit of the Lenders under which all losses thereunder shall be paid to the Administrative Agent for the Lenders as their interests may appear. Such policies shall expressly provide that the requisite insurance cannot be altered or canceled without thirty (30) days prior written notice to the Administrative Agent and shall insure the Lenders notwithstanding the act or neglect of the insured. In the event any Borrower fails to procure or cause to be procured any such insurance or to timely pay or cause to be paid the premium(s) on any such insurance, the Administrative Agent may do so for such Borrower but such Borrower shall continue to be liable for the cost of such insurance. Each Borrower hereby appoints the Administrative Agent as its attorney-in-fact, exercisable at the Administrative Agent's option, to endorse any check which may be payable to such Borrower in order to collect the proceeds of such insurance. Any and all amount or amounts received or collected by the Administrative Agent pursuant to the provisions of this paragraph, in excess of $100,000 per year in the aggregate, may be applied by the Lenders to any Obligations or to repair, reconstruct or replace the loss of or damage to Collateral as the Majority Lenders in their judgment may from time to time determine. Each Borrower shall furnish to the Administrative Agent from time to time upon request the policies under which such insurance is issued, certificates of insurance and such other information relating to such insurance as the Administrative Agent may request, and provide such other insurance and endorsements as are required by this Agreement and the other Loan Documents. 5.3 PAYMENT OF TAXES AND OTHER POTENTIAL CHARGES AND PRIORITY CLAIMS. Each Borrower shall pay or discharge (a) on or prior to the date on which penalties attach thereto, all taxes, assessments and other governmental charges imposed upon it or any of its properties; (b) on or prior to the date when due, all lawful claims of materialmen, mechanics, carriers, warehousemen, landlords and other like Persons which, if unpaid, might result in the creation of a Lien upon any such property; and (c) on or prior to the date when due, all other lawful claims which, if unpaid, might result in the creation of a Lien upon any such property or which, if unpaid, might give rise to a claim entitled to priority over general creditors of such Borrower or such Subsidiary in a case under Title 11 (Bankruptcy) of the United States Code, as amended; provided, that unless and until foreclosure, distraint, levy, sale or similar proceedings shall have been commenced such Borrower need not pay or discharge any such tax, assessment, charge or claim so long as (x) the validity thereof is contested in good faith and by appropriate proceedings diligently conducted, and (y) such reserves or other appropriate provisions as may be required by GAAP shall have been made therefor. 5.4 PRESERVATION OF CORPORATE STATUS. Each Borrower shall maintain its status as a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, and to be duly qualified to do business as a foreign corporation and in good standing in all jurisdictions in which the ownership of its properties or the nature of its business or both make such qualification necessary. -36- 5.5 GOVERNMENTAL APPROVALS AND FILINGS. Each Borrower shall keep and maintain in full force and effect all Governmental Actions necessary or advisable in connection with execution and delivery of any Loan Document, consummation of the transactions herein or therein contemplated, performance of or compliance with the terms and conditions hereof or thereof or to ensure the legality, validity, binding effect, enforceability or admissibility in evidence hereof or thereof. 5.6 MAINTENANCE OF PROPERTIES. Each Borrower shall maintain or cause to be maintained in good repair, working order and condition the properties now or hereafter owned, leased or otherwise possessed by it and shall make or cause to be made all needful and proper repairs, renewals, replacements and improvements thereto so that the business carried on in connection therewith may be properly and advantageously conducted at all times. 5.7 AVOIDANCE OF OTHER CONFLICTS. Each Borrower shall not violate or conflict with, be in violation of or conflict with, or be or remain subject to any liability (contingent or otherwise) on account of any violation or conflict with (a) any Law in a manner which could cause a Material Adverse Effect, (b) its articles of incorporation or by-laws (or other constituent documents), or (c) any material agreement or instrument to which it is a party or by which any of them or any of their respective Subsidiaries is a party or by which any of them or any of their respective properties (now owned or hereafter acquired) may be subject or bound. 5.8 FINANCIAL ACCOUNTING PRACTICES. Each Borrower shall make and keep books, records and accounts which, in reasonable detail, accurately and fairly reflect its transactions and dispositions of its assets and maintain a system of internal accounting controls sufficient to provide reasonable assurances that (a) transactions are executed in accordance with management's general or specific authorization, (b) transactions are recorded as necessary (i) to permit preparation of financial statements in conformity with GAAP and (ii) to maintain accountability for assets, (c) access to assets is permitted only in accordance with management's general or specific authorization and (d) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. 5.9 USE OF PROCEEDS. Subject to the terms and conditions of this Agreement, the Borrowers shall apply the proceeds of all Loans hereunder only for working capital and acquisition financing. The Borrowers shall not use the proceeds of any Loans hereunder directly or indirectly for any unlawful purpose or inconsistent with any other provision of any Loan Document. 5.10 CONTINUATION OF OR CHANGE IN BUSINESS. Each Borrower shall continue to engage in its business substantially as conducted and operated during the present and preceding fiscal year, and no Borrower shall engage in any other business not substantially similar to the business as presently conducted. -37- 5.11 CONSOLIDATED TAX RETURN. No Borrower shall file or consent to the filing of any consolidated income tax return with any Person other than another Borrower, except as required by the Code. 5.12 FISCAL YEAR. No Borrower shall change its fiscal year or fiscal quarter. 5.13 BANK ACCOUNTS. As additional consideration for the establishment of the credit facilities hereunder, each Borrower shall maintain its primary depository and disbursement accounts with the Administrative Agent. If the Administrative Agent fails to service the Borrower's depository and disbursement accounts in a commercially-reasonable manner, Borrower may move the accounts to another financial institution of its choice. 5.14 SUBMISSION OF COLLATERAL DOCUMENTS. Each Borrower shall promptly, but in no event later than twenty (20) days following the conversion of an Account to an instrument or chattel paper, notify the Administrative Agent if an Account becomes evidenced or secured by an instrument or chattel paper and, upon request of the Administrative Agent, promptly deliver any such instrument or chattel paper to the Lender. 5.15 COLLECTION OF ACCOUNTS. Each Borrower shall continue to collect its Accounts in the ordinary course of its business. 5.16 SUBSIDIARIES AS BORROWERS. (a) Each Borrower shall cause all of its Subsidiaries, other than (i) foreign Subsidiaries listed on Schedule 5.16 if doing so would cause an adverse tax consequence under Section 956 of the Internal Revenue Code as amended ("IRC") or under any similar law, and (ii) other Excluded Subsidiaries, to be or become Borrowers hereunder by signing this Agreement or, in the case of new Subsidiaries formed or acquired after the Closing Date, a Joinder Agreement in the form of Exhibit M attached hereto. Under the Security Documents, Borrowers shall pledge all the capital stock or other equity interests in each such Subsidiary and cause each such Subsidiary to grant a security interest in all of its property meeting the definition of "Collateral" under the Security Documents. (b) Notwithstanding the exclusion of certain foreign Subsidiaries as Borrowers, Borrowers shall cause each such foreign Subsidiary to comply with the terms and conditions of this Agreement and Borrowers shall grant to the Administrative Agent (on behalf of the Lenders) a first priority security interest in and lien on 65% of the capital stock or other equity interests in each such foreign Subsidiary so long as such pledge shall not trigger adverse tax consequences under Section 956 of the IRC or similar law. 5.17 UPDATE OF SCHEDULES. Each Borrower shall promptly, but in no event later than thirty (30) days, following a Permitted Acquisition or other event which would result in a material change to any of the information on the disclosure schedules hereto, provide the Administrative Agent with revised schedule(s). The revised schedules must be acceptable in all respects to the Administrative Agent; they will not be acceptable if they disclose actual or potential Events of Default. -38- ARTICLE VI NEGATIVE COVENANTS So long as any Obligations shall remain unpaid or any Lender shall have any Commitment under this Agreement, each of the Borrowers shall comply with the following covenants. 6.1 FINANCIAL COVENANTS. (a) Consolidated Fixed Charge Coverage Ratio. The Consolidated Fixed Charge Coverage Ratio shall not at any time be less than 1.15 to 1.00 for any quarter during the period from January 1, 1999 through December 31, 2000, or 1.25 to 1.00 during any quarter thereafter. (b) Consolidated Net Worth. As of the last day of each fiscal quarter Consolidated Net Worth shall not be less than $80,400,910.00 plus 90% of quarterly Consolidated Net Income on a cumulative basis for each quarter beginning with the quarter ending December 31, 1998, but without deductions for net losses plus the net proceeds of any offering of equity after the Closing Date. (c) Consolidated Funded Debt to Consolidated EBITDA. The ratio of Consolidated Funded Debt to annualized Consolidated EBITDA shall not be more than 3.5 to 1.00 for any quarter ending during the period from Closing through December 31, 1999; 3.0 to 1.00 for any quarter ending during the period from January 1, 2000 through December 31, 2000; 2.5 to 1.00 for any quarter ending during the period from January 1, 2001 through December 31, 2001; or 2.0 to 1.00 for any quarter ending during the period ending after January 1, 2002. Consolidated EBITDA shall be annualized by multiplying Consolidated EBITDA for the fiscal quarter being tested by four. For purposes of calculating pro forma compliance with this provision in analyzing a proposed acquisition, Consolidated EBITDA shall include the pre-acquisition EBITDA of the target for the immediately preceding 12 month period after adjustment for unusual expense items. (d) Consolidated Interest Coverage Ratio. The Consolidated Interest Coverage Ratio as of the last day of each fiscal quarter shall not be less than 3.00 to 1.00 for the quarter ending December 31, 1998 or less than 3.50 to 1.00 for any quarter ending thereafter. 6.2 LIENS. No Borrower shall at any time create, incur, assume or suffer to exist any Lien on any of its property (now owned or hereafter acquired), or agree, become or remain liable (contingently or otherwise) to do any of the foregoing, except for the following ("Permitted Liens"): (a) Liens pursuant to the Security Documents in favor of the Lender to secure the Obligations; (b) Liens existing on the date hereof securing obligations existing on the date hereof, as such Liens and obligations are listed in Schedule 6.2 hereto or Liens relating to Purchase Money Indebtedness for Capital Expenditures permitted by Section 6.14; -39- (c) Liens arising from taxes, assessments, charges or claims described in Section 5.3 hereof that are not yet due or that remain payable without penalty or to the extent permitted to remain unpaid under the proviso to such Section 5.3 , provided that the aggregate amount secured by all Liens described in this Section 6.2(c) shall not at any time exceed $300,000; "Permitted Lien" shall in no event include any Lien imposed by, or required to be granted pursuant to, ERISA or any Environmental Law. Nothing in this Section 6.2 shall be construed to limit any other restriction on Liens imposed by the Security Documents or otherwise in the Loan Documents. 6.3 INDEBTEDNESS. No Borrower shall at any time create, incur, assume or suffer to exist any Indebtedness, or agree, become or remain liable (contingently or otherwise) to do any of the foregoing, except: (a) Indebtedness to the Lenders pursuant to this Agreement and the other Loan Documents; (b) Indebtedness of such Borrower existing on the date hereof and listed in Schedule 6.3 hereof (but not any extensions, renewals or refinancings thereof); (c) Purchase Money Indebtedness; (d) Accounts payable to trade creditors arising out of purchases of goods or services in the ordinary course of business; (e) Capitalized Leases which are permitted as Capital Expenditures not exceeding in the aggregate $10,000,000; (f) Permitted Acquisitions Indebtedness; and (g) Inter-Borrower Indebtedness permitted under Section 6.5(e). 6.4 GUARANTIES, INDEMNITIES, ETC. No Borrower shall be or become subject to or bound by any Guaranty or Guaranty Equivalent, or agree, become or remain liable (contingently or otherwise) to do any of the foregoing, except: (a) Guaranties and Guaranty Equivalents of the obligations of third parties (including unconsolidated subsidiaries but excluding consolidated subsidiaries) which, together with loans and advances by Borrowers to such third parties, in the aggregate do not exceed $500,000 at any one time for all Borrowers; (b) Contingent liabilities arising from the endorsement of negotiable or other instruments for deposit or collection or similar transactions in the ordinary course of business; and (c) Indemnities by a Borrower of the liabilities of its directors or officers in their capacities as such pursuant to provisions presently contained in their articles of incorporation or by-laws (or other constituent documents) or as permitted by Law. -40- 6.5 LOANS, ADVANCES AND INVESTMENTS. No Borrower shall at any time make or suffer to exist or remain outstanding any loan or advance to, or purchase, acquire or own (beneficially or of record) any stock, bonds, notes or securities of, or any partnership interest (whether general or limited) in, or any other interest in, or make any capital contribution to or other investment in, any other Person, or agree, become or remain liable (contingently or otherwise) to do any of the foregoing, except: (a) Loans and investments existing on the date hereof and listed in Schedule 6.5 hereof; but not any amendments, extensions or refinancings thereof; (b) Receivables owing to such Borrower arising from sales of inventory under usual and customary terms in the ordinary course of business; (c) Demand advances to officers and employees of a Borrower to meet expenses incurred by such officers and employees in the ordinary course of business and in amounts at any time outstanding not exceeding $5,000 to any one officer or employee and $10,000 in the aggregate among all Borrowers; (d) Cash Equivalent Investments; (e) Loans from a Borrower to another Borrower, provided that the Borrowers shall cause any such loans to be evidenced by a promissory note, which shall immediately be delivered to the Lender as Collateral; (f) Permitted Acquisitions; (g) investments in a Borrower by another Borrower; (h) Other loans and advances to third parties (including unconsolidated subsidiaries but excluding consolidated subsidiaries), the aggregate principal amount of which together with Guaranties and Guaranty Equivalents issued by Borrowers for such third parties, do not exceed $500,000 at any time for all Borrowers; and (i) investments in entities purchasing delinquent pools of Accounts in accordance with Section 6.13 so long as the Borrowers cause such entities to comply with the other applicable provisions of this Agreement. 6.6 DIVIDENDS AND RELATED DISTRIBUTIONS. No Borrower shall declare or make any Stock Payment, or agree, become or remain liable (contingently or otherwise) to do any of the foregoing, except that a Borrower may make a Stock Payment to another Borrower. 6.7 SALE-LEASEBACKS. No Borrower shall at any time enter into or suffer to remain in effect any transaction to which such Borrower is a party involving the sale, transfer or other disposition by such Borrower of any property (now owned or hereafter acquired), with a view directly or indirectly to the leasing back of any part of the same property or any other property -41- used for the same or a similar purpose or purposes, or agree, become or remain liable (contingently or otherwise) to do any of the foregoing. 6.8 LEASES. No Borrower shall at any time enter into or suffer to remain in effect any lease, as lessee, of any property, or agree, become or remain liable (contingently or otherwise) to do any of the foregoing, except: (a) Operating leases of equipment or office space used by the lessee in the ordinary course of business; (b) Leases cancelable by the lessee without penalty on not more than 90 days' notice; and (c) Capitalized Leases permitted under Section 6.3 hereof. 6.9 MERGERS, ACQUISITIONS, ETC. No Borrower shall (v) except for Permitted Acquisitions, merge with or into or consolidate with any other Person, (w) liquidate, wind-up, dissolve or divide, (x) except for Permitted Acquisitions, acquire all or any substantial portion of the properties of any going concern or going line of business, (y) except for Permitted Acquisitions, acquire all or any substantial portion of the properties of any other Person, or (z) agree, become or remain liable (contingently or otherwise) to do any of the foregoing; provided, however, that the Borrowers may seek the prior written consent of the Super Majority Lenders for an acquisition which is not a Permitted Acquisition. In connection with considering the Borrowers' request, the Lenders, via the Administrative Agent may conduct their own due diligence or require appropriate third party due diligence regarding the proposed acquisition. The results of all such due diligence must be satisfactory to the Super Majority Lenders. Borrowers shall bear the cost of all such due diligence. 6.10 DISPOSITIONS OF PROPERTIES. No Borrower shall sell, convey, assign, lease, transfer, abandon or otherwise dispose of, voluntarily or involuntarily, any of its properties, or agree, become or remain liable (contingently or otherwise) to do any of the foregoing, except: (a) The Borrowers may sell inventory in the ordinary course of business; (b) The Borrowers may dispose of equipment which is obsolete or no longer useful in the business of such Borrower; (c) The Cash Equivalent Investments described in Section 6.5(d); and (d) The Borrowers may dispose of any division or Subsidiary with an enterprise value on an arms length basis per transaction of $500,000 or less. By way of illustration, and without limitation, it is understood that the following are dispositions of property prohibited under this Section 6.10: any disposition of accounts, chattel paper or general intangibles, with or without recourse, and any disposition of any leasehold interest. Nothing in this Section 6.10 shall be construed to limit any other restriction on dispositions of property imposed by the Security Documents or otherwise in the Loan Documents. -42- 6.11 ISSUANCE OF STOCK. No Borrower, other than NCO Group, shall issue, sell, otherwise dispose or suffer to remain outstanding, voluntarily or involuntarily, any additional shares of capital stock, or any options, warrants, calls, subscriptions, conversion rights, exchange rights, preemptive rights or other rights, agreements or arrangements (contingent or otherwise) which may in any circumstances now or hereafter obligate such Borrower to issue any shares of its capital stock, except to NCO Group or another Borrower, except options issued to employees of the Borrowers. 6.12 DEALINGS WITH AFFILIATES. No Borrower shall enter into or carry out any transaction with (including, without limitation, purchase or lease property or services from, sell or lease property or services to, loan or advance to, or enter into, suffer to remain in existence or amend any contract, agreement or arrangement with) any Affiliate of such Borrower, directly or indirectly, or agree, become or remain liable (contingently or otherwise) to do any of the foregoing, except: (a) Existence and performance of contracts, agreements and arrangements in existence as of the date hereof and set forth in Schedule 6.12 hereof; and (b) Directors, officers and employees of a Borrower may be compensated for services rendered in such capacity to such Borrower, provided that such compensation is in good faith and on terms no less favorable to such Borrower than those that could have been obtained in a comparable transaction on an arm's-length basis from an unrelated Person, and the board of directors of such Borrower (including a majority of the directors having no direct or indirect interest in such transaction) approve the same. (c) Transactions in the ordinary course of business and consistent with past practices between one Borrower and another Borrower, in good faith and on terms no less favorable to either Borrower than those that could have been obtained in a comparable transaction on an arm's-length basis from an unrelated Person; and (d) Other transactions with Affiliates in good faith and on terms no less favorable to a Borrower than those that could have been obtained in a comparable transaction on an arm's-length basis from an unrelated Person. 6.13 ACQUIRED DELINQUENT POOLS OF ACCOUNTS. The Borrowers shall not acquire delinquent pools of Accounts or make investments in entities purchasing delinquent pools of Accounts if such acquisition would cause the unamortized remaining invested balance for all such pools as reflected on the Borrowers' consolidated balance sheet to exceed $10,000,000, in the aggregate among all Borrowers, at any given point in time. From time to time the Borrowers may seek the prior written consent of the Majority Lenders (in their sole discretion) so that the unamortized remaining invested balance of all acquired delinquent pools of accounts or investments in entities purchasing delinquent pools of Accounts may exceed $10,000,000. 6.14 CAPITAL EXPENDITURES. No Borrower shall make any Capital Expenditures on or after the date hereof, except for Capital Expenditures in the aggregate among all Borrowers not in excess of $8,000,000, for the rolling four quarter period ending December 31, 1999; -43- $7,000,000 in the rolling four quarter period ending December 31, 2000; and $6,000,000 in any rolling four quarter period thereafter; provided, however, that the Borrowers may carry forward into the future, on a non-cumulative basis, up to $1,000,000 in unspent Capital Expenditures per rolling four quarter period. For purposes of this provision, (a) all leases, except for real estate leases and automobile leases, shall be deemed to be Capitalized Leases (which under Section 6.3 are limited to $10,000,000 in the aggregate during the term of this Agreement) and therefore shall be accounted for as a Capital Expenditure, and (b) Purchase Money Indebtedness shall be accounted for as a Capital Expenditure. 6.15 LIMITATIONS ON MODIFICATION OF CERTAIN AGREEMENTS AND INSTRUMENTS. No Borrower shall materially amend, modify or supplement materially its articles of incorporation or by-laws (or similar constituent documents), if so doing would adversely affect the Lenders' rights or benefits under the Loan Documents. 6.16 LIMITATION ON PAYMENTS OF PURCHASE MONEY INDEBTEDNESS. No Borrower shall directly or indirectly pay, prepay, purchase, redeem, retire, defease or acquire, or make any payment (on account of principal, interest, premium or otherwise) of, or grant or suffer the existence of any Lien on any of its property (now owned or hereafter acquired) to secure any indebtedness, obligation or liability with respect to, or amend, modify or supplement any of the terms and conditions of, any Purchase Money Indebtedness, or agree, become or remain liable (contingently or otherwise) to do any of the foregoing, except that so long as no Event of Default or Default has occurred, the Borrowers may pay principal and interest on Purchase Money Indebtedness when due, to the extent consistent with the subordination provisions of such Purchase Money Indebtedness. 6.17 LIMITATION ON OTHER RESTRICTIONS ON LIENS. No Borrower shall enter into, become or remain subject to any agreement or instrument to which such Borrower is a party or by which its properties (now owned or hereafter acquired) may be subject or bound that would prohibit the grant of any Lien upon any of its properties (now owed or hereafter required), except Permitted Liens. 6.18 LIMITATION ON OTHER RESTRICTIONS ON AMENDMENT OF THE LOAN DOCUMENTS, ETC. No Borrower shall enter into, become or remain subject to any agreement or instrument to which such Borrower is a party or by which any Borrower or any of their respective properties (now owned or hereafter acquired) may be subject or bound that would prohibit or require the consent of any Person to any amendment, modification or supplement to any of the Loan Documents, except for the Loan Documents. ARTICLE VII DEFAULTS 7.1 "EVENTS OF DEFAULT." An Event of Default shall mean the occurrence or existence of one or more of the following events or conditions (for any reason, whether voluntary, involuntary or effected or required by Law): (a) Any Borrower shall fail to pay when due principal of any Loan. -44- (b) Any Borrower shall fail to pay when due interest on any Loan, any fees, indemnity or expenses, or any other amount due hereunder or under any other Loan Document. (c) Any representation or warranty made or deemed made by any Borrower in or pursuant to or in connection with any Loan Document, or any statement made by any Borrower in any financial statement, certificate, report, exhibit or document furnished by any Borrower to the Lenders pursuant to or in connection with any Loan Document, shall prove to have been false or misleading in any material adverse respect as of the time when made or deemed made (including by omission of material information necessary to make such representation, warranty or statement not misleading). (d) Any Borrower shall default in the performance or observance of any covenant, agreement or duty under this Agreement or any other Loan Document and (i) in the case of a default under Section 5.1 hereof such default shall have continued for a period of ten days and (ii) in the case of any other default such default shall have continued for a period of ten (10) days after the Administrative Agent has sent notice of such default (as long as such ten (10) day period does not extend more than thirty (30) days beyond the date of occurrence of such default) provided that such default is capable of being cured (which shall be determined in the sole and absolute discretion of the Administrative Agent). (e) Any Cross-Default Event shall occur with respect to any Cross-Default Obligation; provided, that if a Cross-Default Event would have occurred with respect to a Cross-Default Obligation but for the grant of a waiver or similar indulgence, a Cross-Default Event shall nevertheless be deemed to have occurred if any Borrower directly or indirectly gave or agreed to give any consideration for such waiver or indulgence (including but not limited to a reduction in maturity, an increase in rates or the granting of collateral). As used herein, "Cross-Default Obligation" shall mean any Indebtedness or Guaranty Equivalent of any Borrower in which the principal obligation of such Borrower exceeds $500,000, or any agreement or instrument creating, evidencing or securing such Indebtedness or Guaranty Equivalent. As used herein, "Cross-Default Event" with respect to a Cross-Default Obligation shall mean the occurrence of any default, event or condition which causes any Person or Persons to cause all or any part of such Cross-Default Obligation to become due (by acceleration, mandatory prepayment or repurchase, or otherwise) before its otherwise stated maturity, or failure to pay all or any part of such Cross-Default Obligation at its stated maturity. (f) One or more judgments for the payment of money shall have been entered against any Borrower, which judgment or judgments exceed $250,000 in the aggregate, and such judgment or judgments shall have remained undischarged and unstayed for a period of thirty consecutive days. (g) One or more writs or warrants of attachment, garnishment, execution, distraint or similar process exceeding in value the aggregate amount of $250,000 shall have been issued against any Borrower or any of their properties and shall have remained undischarged and unstayed for a period of thirty consecutive days. (h) Any Governmental Action now or hereafter made by or with any Governmental Authority required in connection with any Loan Document is not obtained or shall -45- have ceased to be in full force and effect or shall have been materially modified or amended or shall have been held to be illegal or invalid, and the Administrative Agent shall have determined in good faith (which determination shall be conclusive) that such event or condition could have a Material Adverse Effect. (i) Any Security Document shall cease to be in full force and effect, or any Lien created or purported to be created in any Collateral pursuant to any Security Document shall fail to be a valid, enforceable and perfected Lien in favor of the Lenders securing the Obligations, prior to all other Liens, except Permitted Liens, or any Borrower or any Governmental Authority shall assert any of the foregoing. (j) Any Loan Document or term or provision thereof shall cease to be in full force and effect, or any Borrower shall, or shall purport to, terminate, repudiate, declare voidable or void or otherwise contest, any Loan Document or term or provision thereof or any obligation or liability of any Borrower thereunder, and the result of which is a material effect on the rights and remedies of the Lenders under the Loan Documents. (k) The Administrative Agent shall have determined in good faith that an event or condition has occurred which will have a Material Adverse Effect. (l) Any one or more Pension-Related Events referred to in subsection (a)(ii), (b) or (e) of the definition of "Pension-Related Event" shall have occurred; or any one or more other Pension-Related Events shall have occurred and the Majority Lenders shall determine in good faith (which determination shall be conclusive) that such other Pension-Related Events, individually or in the aggregate, could have a Material Adverse Effect. (m) Any one or more of the events or conditions set forth in the following clauses (i) or (ii) shall have occurred in respect of any Borrower, and the Administrative Agent shall determine in good faith (which determination shall be conclusive) that such events or conditions, individually or in the aggregate, could have a Material Adverse Effect: (i) any past or present violation of any Environmental Law by such Person, (ii) the existence of any pending or threatened Environmental Claim against any such Person, or the existence of any past or present acts, omissions, events or circumstances that could form the basis of any Environmental Claim against any such Person. (n) A Change of Management shall have occurred. (o) A proceeding shall have been instituted in respect of any Borrower: (i) subject to clause (p)(4) below, seeking to have an order for relief entered in respect of any Borrower, or seeking a declaration or entailing a finding that any Borrower is insolvent or a similar declaration or finding, or seeking dissolution, winding-up, charter revocation or forfeiture, liquidation, reorganization, arrangement, adjustment, composition or other similar relief with respect to any Borrower, its assets or its debts under any Law relating to bankruptcy, insolvency, relief of debtors or protection of creditors, termination of legal entities or any other similar Law now or hereafter in effect, or -46- (ii) seeking appointment of a receiver, trustee, liquidator, assignee, sequestrator or other custodian for such Person or for all or any substantial part of its property, and such proceeding shall result in the entry, making or grant of any such order for relief, declaration, finding, relief or appointment, or such proceeding shall remain undismissed and unstayed for a period of sixty consecutive days. (p) Borrowers on a consolidated basis shall (1) become insolvent; (2) fail to pay or (3) become unable to pay, or any Borrower shall (1) state that it is or will be unable to pay, its debts as they become due; (2) voluntarily suspend transaction of its business; (3) make a general assignment for the benefit of creditors; (4) institute (or fail to controvert in a timely and appropriate manner) a proceeding described in Section 7.1(o)(i) hereof, or (whether or not any such proceeding has been instituted) shall consent to or acquiesce in any such order for relief, declaration, finding or relief described therein; (5) institute (or fail to controvert for a period of sixty consecutive days in a timely and appropriate manner) a proceeding described in Section 7.1(o)(ii) hereof, or (whether or not any such proceeding has been instituted) shall consent to or acquiesce in any such appointment or to the taking of possession by any such custodian of all or any substantial part of its property; shall dissolve, wind-up, revoke or forfeit its charter (or other constituent documents) or liquidate itself or any substantial part of its property; or (6) take any action in furtherance of any of the foregoing. (q) Any person or any affiliated group of persons, other than present management, obtains control of a majority of the voting stock of NCO Group. 7.2 CONSEQUENCES OF AN EVENT OF DEFAULT. (a) Events of Default in General. If an Event of Default (other than one specified in paragraph (j) of Section 7.1 (Insolvency, Bankruptcy, Etc.) hereof) shall occur and be continuing or shall exist, then, in addition to all other rights and remedies which the Administrative Agent or any other Lender may have hereunder or under any other Loan Document, at law, in equity or otherwise, the Lenders shall be under no further obligation to make Loans and the Administrative Agent may, (and upon the written request of the Majority Lenders, shall), by notice to NCO Group (on behalf of the Borrowers), from time to time do any or all of the following: (i) Declare the Commitments terminated, whereupon the Commitments will terminate and any fees hereunder shall be immediately due and payable without presentment, demand, protest or further notice of any kind, all of which are hereby waived, and an action therefor shall immediately accrue. (ii) Declare the unpaid principal amount of the Loans, interest accrued thereon and all other Obligations to be immediately due and payable without presentment, demand, protest or further notice of any kind, all of which are hereby waived, and an action therefor shall immediately accrue. (iii) Exercise such other remedies as may be available to the Lenders under applicable Law. -47- (b) Automatic Acceleration; Certain Bankruptcy-Related Events. If an Event of Default specified in paragraph (j) of Section 7.1 (Insolvency, Bankruptcy, Etc.) hereof shall occur or exist, then, in addition to all other rights and remedies which any Lender may have hereunder or under any other Loan Document, at law, in equity or otherwise, the Commitments shall automatically terminate and the Lenders shall be under no further obligation to make Loans, and the unpaid principal amount of the Loans, interest accrued thereon and all other Obligations shall become immediately due and payable without presentment, demand, protest or notice of any kind, all of which are hereby waived, and an action therefor shall immediately accrue, and in addition, the Administrative Agent may, and upon the written request of the Majority Lenders, shall exercise such other remedies as may be available to the Lenders under applicable Law. (c) Equitable Remedies. It is agreed that, in addition to all other rights hereunder or under Law, the Administrative Agent shall have the right to institute proceedings in equity or other appropriate proceedings for the specific performance of any covenant or agreement made in any of the Loan Documents or for an injunction against the violation of any of the terms of any of the Loan Documents or in aid of the exercise of any power granted in any of the Loan Documents or by Law or otherwise. 7.3 APPLICATION OF PROCEEDS. After the occurrence of an Event of Default and acceleration of the Loans, any amounts received on account of Obligations shall be applied by the Administrative Agent in the following order: First, to payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts due to the Administrative Agent in its capacity as such; Second, to payment of that portion of the Obligations constituting fees, indemnities due to the Lenders, ratably among them in proportion to the amounts described in this clause Second due to them; Third, to payment of that portion of the Obligations constituting accrued and unpaid interest on Loans, ratably among the Lenders in proportion to the respective amounts described in this clause Third due to them; Fourth, to payment of that portion of the Obligations constituting unpaid principal of the Loans ratably among the Lenders in proportion to the respective amounts described in this clause Fourth due to them; Fifth, to payment of all other Obligations, ratably among the Lenders in proportion to the respective amounts described in this clause Fifth due to them; and Finally, the balance, if any, after all of the Obligations have been indefeasibly paid in full, to NCO Group (on behalf of the Borrowers) or as otherwise required by Law. -48- ARTICLE VIII THE ADMINISTRATIVE AGENT 8.1 APPOINTMENT. Subject to the provisions of the second sentence of Section 8.9 below, each Lender hereby irrevocably appoints Mellon to act as Administrative Agent for such Lender under this Agreement and the other Loan Documents. Each Lender hereby irrevocably authorizes the Administrative Agent to take such action on behalf of such Lender under the provisions of this Agreement and the other Loan Documents, and to exercise such powers and to perform such duties, as are expressly delegated to or required of the Administrative Agent by the terms hereof or thereof, together with such powers as are reasonably incidental thereto. Mellon hereby agrees to act as Administrative Agent on behalf of the Lenders on the terms and conditions set forth in this Agreement and the other Loan Documents, subject to its right to resign as provided in Section 8.9 hereof. Each Lender hereby irrevocably authorizes the Administrative Agent to execute and deliver each of the Loan Documents and to accept delivery of such of the other Loan Documents as may not require execution by the Administrative Agent. Each Lender agrees that the rights and remedies granted to the Administrative Agent under the Loan Documents shall be exercised exclusively by the Administrative Agent (or a Person designated by the Administrative Agent), and that no Lender shall have any right individually to exercise any such right or remedy, except to the extent, if any, expressly provided herein or therein. 8.2 GENERAL NATURE OF ADMINISTRATIVE AGENT'S DUTIES. Notwithstanding anything to the contrary elsewhere in this Agreement or in any other Loan Document: (a) The Administrative Agent shall have no duties or responsibilities except those expressly set forth in this Agreement and the other Loan Documents, and no implied duties or responsibilities on the part of the Administrative Agent shall be read into this Agreement or any other Loan Document or shall otherwise exist. (b) The duties and responsibilities of the Administrative Agent under this Agreement and the other Loan Documents shall be mechanical and administrative in nature, and the Administrative Agent shall not have a fiduciary relationship with respect to any Lender. (c) The Administrative Agent's relationship with and to the Lenders is governed exclusively by the terms of this Agreement and the other Loan Documents. The Administrative Agent does not assume, and shall not at any time be deemed to have, any relationship of agency or trust with or for, any Lender or any other Person or (except only as expressly provided in this Agreement and the other Loan Documents) any other duty or responsibility to such Lender or other Person. (d) The Administrative Agent shall be under no obligation to take any action hereunder or under any other Loan Document if the Administrative Agent believes in good faith that taking such action may conflict with any Law or any provision of this Agreement or any -49- other Loan Document, or may require the Administrative Agent to qualify to do business in any jurisdiction where it is not then so qualified. (e) The authority of the Administrative Agent to request information from the Borrowers or take any other voluntary action hereunder shall impose no duty of any kind on the Administrative Agent to make such request or take any such action. 8.3 EXERCISE OF POWERS. The Administrative Agent shall take any action of the type specified in this Agreement or any other Loan Document as being within the Administrative Agent's rights, powers or discretion in accordance with directions from the Majority Lenders (or if expressly required herein the Super Majority Lenders) (or as otherwise provided in the Loan Documents). In the absence of such direction, the Administrative Agent shall have the authority (but under no circumstances shall be obligated), in its sole discretion, to take any such action, except to the extent that this Agreement or such other Loan Document expressly requires the direction or consent of the Majority Lenders (or the Super Majority Lenders, all of the Lenders, or some other Person or group of Persons), in which case the Administrative Agent shall not take such action absent such direction or consent. Any action or inaction pursuant to such direction, discretion or consent shall be binding on each Lender (whether or not it so consented). The Administrative Agent shall not have any liability to any Person as a result of any action or inaction in conformity with this Section 8.3. 8.4 GENERAL EXCULPATORY PROVISIONS. Notwithstanding anything to the contrary elsewhere in this Agreement or any other Loan Document: (a) The Administrative Agent shall not be liable for any action taken or omitted to be taken by it under or in connection with this Agreement or any other Loan Document, except only for direct (as opposed to consequential or other) damages suffered by a Person and only to the extent that such Person proves that such damages were caused by the Administrative Agent's own gross negligence or willful misconduct. (b) The Administrative Agent shall not be responsible for (i) the execution, delivery, effectiveness, enforceability, genuineness, validity or adequacy of any Loan Document, (ii) any recital, representation, warranty, document, certificate, report or statement in, provided for in, or received under or in connection with, any Loan Document, or (iii) any failure of any Borrower or, any Lender to perform any of their respective obligations under any Loan Document. (c) The Administrative Agent shall not be under any obligation to ascertain, inquire or give any notice relating to (i) the performance or observance of any of the terms or conditions of this Agreement or any other Loan Document on the part of any Borrower, (ii) the business, operations, condition (financial or otherwise) or prospects of any Borrower or any other Person (even if the Administrative Agent knows or should know that some event or condition exists or fails to exist), or (iii) except to the extent set forth in Section 8.5(f) below, the existence of any Event of Default or Default. (d) The Administrative Agent shall not be under any obligation, either initially or on a continuing basis, to provide any Lender with any notices, reports or information of any -50- nature, whether in its possession presently or hereafter, whether obtained under or in connection with this Agreement or otherwise, except for such notices, reports and other information expressly required by this Agreement or any other Loan Document to be furnished by the Administrative Agent to such Lender. 8.5 ADMINISTRATION BY THE ADMINISTRATIVE AGENT. (a) The Administrative Agent may rely upon any notice or other communication of any nature (written or oral, including but not limited to telephone conversations, whether or not such notice or other communication is made in a manner permitted or required by this Agreement or any other Loan Document) purportedly made by or on behalf of the proper party or parties, and the Administrative Agent shall not have any duty to verify the identity or authority of any Person giving such notice or other communication. (b) The Administrative Agent may consult with legal counsel (including in-house counsel for the Administrative Agent or in-house or other counsel for any Borrower), independent public accountants and any other experts selected by it from time to time, and the Administrative Agent shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts. (c) The Administrative Agent may conclusively rely upon the truth of the statements and the correctness of the opinions expressed in any certificates or opinions furnished to the Administrative Agent in accordance with the requirements of this Agreement or any other Loan Document. Whenever the Administrative Agent shall deem it necessary or desirable that a matter be proved or established with respect to any Borrower or Lender, such matter may be established by a certificate of such Borrower or Lender, as the case may be, and the Administrative Agent may conclusively rely upon such certificate (unless other evidence with respect to such matter is specifically prescribed in this Agreement or another Loan Document). (d) The Administrative Agent may fail or refuse to take any action unless it shall be directed by the Majority Lenders (or the Super Majority Lenders, all of the Lenders, or some other Person or group of Persons, if this Agreement or another Loan Document so expressly requires) to take such action and it shall be indemnified to its satisfaction from time to time against any and all amounts, liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature which may be imposed on, incurred by or asserted against the Administrative Agent by reason of taking or continuing to take any such action. (e) The Administrative Agent may perform any of its duties under this Agreement or any other Loan Document by or through agents or attorneys-in-fact. The Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. (f) The Administrative Agent shall not be deemed to have any knowledge or notice of the occurrence of any Event of Default or Default unless the Administrative Agent has received notice from a Lender or a Borrower referring to this Agreement, describing such Event of Default or Default, and stating that such notice is a "notice of default." If the Administrative -51- Agent receives such a notice, the Administrative Agent shall give prompt notice thereof to each Lender. 8.6 LENDERS NOT RELYING ON ADMINISTRATIVE AGENT OR OTHER LENDERS. Each Lender acknowledges as follows: (a) neither the Administrative Agent nor any other Lender has made any representations or warranties to it, and no act taken hereafter by the Administrative Agent or any other Lender shall be deemed to constitute any representation or warranty by the Administrative Agent or such other Lender to it; (b) it has, independently and without reliance upon the Administrative Agent or any other Lender, and based upon such documents and information as it has deemed appropriate, made its own credit and legal analysis and decision to enter into this Agreement and the other Loan Documents; and (c) it will, independently and without reliance upon the Administrative Agent or any other Lender, and based upon such documents and information as it shall deem appropriate at the time, make its own decisions to take or not take action under or in connection with this Agreement and the other Loan Documents. 8.7 INDEMNIFICATION. Each Lender agrees to reimburse and indemnify the Administrative Agent and its directors, officers, employees and agents (to the extent not reimbursed by a Borrower and without limitation of the obligations of the Borrowers to do so), in proportion to the Lenders' respective pro rata share of (without duplication) the Commitment and the Loans, from and against any and all amounts, losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs or disbursements of any kind or nature (including the fees and disbursements of counsel for the Administrative Agent or such other Person in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not the Administrative Agent or such other Person shall be designated a party thereto) that may at any time be imposed on, incurred by or asserted against the Administrative Agent or such other Person as a result of, or arising out of, or in any way related to or by reason of, this Agreement, any other Loan Document, any Acquisition or any other transaction from time to time contemplated hereby or thereby, or any transaction actually or proposed to be financed in whole or in part, directly or indirectly, with the proceeds of any Loan, provided that no Lender shall be liable for any portion of such amounts, losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs or disbursements that such Lender proves were the result of the gross negligence or willful misconduct of the Administrative Agent or such other Person. Payments under this Section 8.7 shall be due and payable on demand. 8.8 REGISTER. The Administrative Agent shall maintain at its address referred to in Section 11.1 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Loans and stated interest thereon owing to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrowers, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by NCO Group on behalf of the Borrowers or any Lender at any reasonable time and from time to time upon reasonable prior notice. -52- 8.9 SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent may resign at any time by giving 30 days' prior written notice thereof to the other Lenders and NCO Group on behalf of the Borrowers. The Administrative Agent may be removed by the Majority Lenders at any time for cause by such Majority Lenders giving 30 days' prior written notice thereof to the Administrative Agent, the other Lenders and NCO Group on behalf of the Borrowers. Upon any such resignation or removal, the Majority Lenders shall have the right to appoint a successor Administrative Agent with (so long as no Default or Event of Default shall have occurred and then be continuing) the consent of NCO Group on behalf of the Borrowers whose consent shall not be unreasonably withheld or delayed. If no successor Administrative Agent shall have been so appointed and consented to, and shall have accepted such appointment, within 30 days after such notice of resignation or removal, then another Lender shall have the right to become the successor Administrative Agent by giving written notice thereof to NCO Group and the Lenders and if no Lender volunteers to become successor Administrative Agent or fails to give such notice within thirty five (35) days after the retiring Administrative Agent's notice of resignation or removal, then the retiring Administrative Agent may (but shall not be required to) appoint a successor Administrative Agent. Each successor Administrative Agent shall be a Lender if any Lender shall at the time be willing to become the successor Administrative Agent, and if no Lender shall then be so willing, then such successor Administrative Agent shall be an Eligible Institution. Upon the acceptance by a successor Administrative Agent of its appointment as Administrative Agent hereunder, such successor Administrative Agent shall thereupon succeed to and become vested with all the properties, rights, powers, privileges and duties of the former Administrative Agent in its capacity as such, without further act, deed or conveyance. Upon the effective date of resignation or removal of a retiring Administrative Agent, such Administrative Agent shall be discharged from its duties under this Agreement and the other Loan Documents, but the provisions of this Agreement shall inure to its benefit as to any actions taken or omitted by it while it was Administrative Agent under this Agreement. If and so long as no successor Administrative Agent shall have been appointed, then any notice or other communication required or permitted to be given by the Administrative Agent shall be sufficiently given if given by the Majority Lenders, all notices or other communications required or permitted to be given to the Administrative Agent shall be given to each Lender, and all payments to be made to the Administrative Agent shall be made directly to the Borrowers or Lender for whose account such payment is made. 8.10 ADDITIONAL AGENTS. If the Administrative Agent shall from time to time deem it necessary or advisable, for its own protection in the performance of its duties hereunder or in the interest of the Lenders, the Administrative Agent and the Borrowers shall execute and deliver a supplemental agreement and all other instruments and agreements necessary or advisable, in the opinion of the Administrative Agent, to constitute one or more other Persons designated by the Administrative Agent, to act as co-Agent, with such powers of the Administrative Agent as may be provided in such supplemental agreement, and to vest in such other Person as such co-agent or separate agent, as the case may be, any properties, rights, powers, privileges and duties of the Administrative Agent under this Agreement or any other Loan Document. 8.11 CALCULATIONS. The Administrative Agent shall not be liable for any calculation, apportionment or distribution of payments made by it in good faith and without -53- gross negligence or willful misconduct. If such calculation, apportionment or distribution is subsequently determined to have been made in error, the sole recourse of any Lender to whom payment was due but not made shall be to recover from the other Lenders any payment in excess of the amount to which they are determined to be entitled or, if the amount due was not paid by the appropriate Borrower, to recover such amount from the appropriate Borrower. 8.12 ADMINISTRATIVE AGENT IN ITS INDIVIDUAL CAPACITY. With respect to its Commitment hereunder and the Obligations owing to it, the Administrative Agent shall have the same rights and powers under this Agreement and each other Loan Document as any other Lender and may exercise the same as though it were not the Administrative Agent, and the terms "Lender", "Holder of Notes" and like terms shall include the Administrative Agent in its individual capacity as such. The Administrative Agent and its Affiliates may, without liability to account, make loans to, accept deposits from, acquire debt or equity interests in, act as trustee under indentures of, enter into Interest Rate Hedging Agreements with, serve as "Administrative Agent" for other financing vehicles, issue letters of credit on behalf of, and engage in any other business with, (a) any Borrower or any stockholder, Subsidiary or Affiliate of any Borrower, or (b) any other Person, whether such other Person may be engaged in any conflict or dispute with any Borrower or any Lender or otherwise, as though the Administrative Agent were not the Administrative Agent hereunder. ARTICLE IX SPECIAL INTER-BORROWER PROVISIONS 9.1 CERTAIN BORROWER ACKNOWLEDGEMENTS. (a) Each Borrower acknowledges that it will enjoy significant benefits from the business conducted by the other Borrowers because of, inter alia, their combined ability to bargain with other Persons including without limitation their ability to receive the credit facilities on favorable terms granted by this Agreement and other Loan Documents which would not have been available to an individual Borrower acting alone. Each Borrower has determined that it is in its best interest to procure credit facilities which each Borrower may utilize directly and which receive the credit support of the other Borrowers as contemplated by this Agreement and the other Loan Documents. (b) The Lenders have advised the Borrowers that they are unwilling to enter into this Agreement and the other Loan Documents and make available the credit facilities extended hereby to any Borrower unless each Borrower agrees, among other things, to be jointly and severally liable for the due and proper payment of the obligations of each other Borrower under this Agreement and other Loan Documents. Each Borrower has determined that it is in its best interest and in pursuit of its purposes that it so induce the Lenders to extend credit pursuant to this Agreement and the other documents executed in connection herewith (i) because of the desirability to each Borrower of the credit facilities, the interest rates and the modes of borrowing available hereunder, (ii) because each Borrower may engage in transactions jointly with other Borrowers and (iii) because each Borrower may require, from time to time, access to funds under this Agreement for the purposes herein set forth. -54- (c) Each Borrower has determined that it has and, after giving effect to the transactions contemplated by this Agreement and the other Loan Documents (including, without limitation, the inter-Borrower arrangement set forth in this Article 9 will have, assets having a fair saleable value in excess of the amount required to pay its probable liability on its existing debts as they fall due for payment and that the sum of its debts is not and will not then be greater than all of its property at a fair valuation, that such Borrower has, and will have, access to adequate capital for the conduct of its business and the ability to pay its debts from time to time incurred in connection therewith as such debts mature and that the value of the benefits to be derived by such Borrower from the access to funds under this Agreement (including, without limitation, the inter-Borrower arrangement set forth in this Article 9) is reasonably equivalent to the obligations undertaken pursuant hereto. 9.2 CERTAIN INTER-BORROWER AGREEMENTS. (a) Subject to paragraph (b) below, each Borrower as indemnitor shall indemnify the other Borrowers as indemnitees for all Obligations incurred by the indemnitee Borrowers for Loans advanced to the indemnitor Borrower. (b) The rights and obligations of the Borrowers pursuant to paragraph (a) above shall be subordinated in all respects to the rights of the Administrative Agent and the other Lenders with respect to the Obligations and, accordingly, each Borrower agrees that it shall not make any payment or receive any payment pursuant to the preceding paragraph (a) at any time a Default has occurred and is continuing or would be caused thereby. Each Borrower agrees that in the event it receives any payment described by or in violation of this paragraph (b), it shall accept such payment as agent of the Administrative Agent, for the benefit of the Lenders, and hold the same in trust on behalf of and for the benefit of the Administrative Agent, for the benefit of the Lenders. 9.3 RECORDS. NCO Group (on behalf of each Borrower) shall maintain records specifying (a) all Obligations incurred by each Borrower, (b) the date of such incurrence, (c) the date and amount of any payments made in respect of such Obligations and (d) all inter-Borrower obligations pursuant to paragraph 9.2 above. NCO Group shall make copies of such records available to the Administrative Agent, upon request. ARTICLE X DEFINITIONS; CONSTRUCTION 10.1 CERTAIN DEFINITIONS. As used in this Agreement, the following terms have the following meanings, (terms defined in the singular to have a correlative meaning when used in the plural) unless the context hereof otherwise clearly requires: "Accumulated Funding Deficiency" has the meaning given to such term in Section 4001(a)(18) of ERISA. "Administrative Agent" has the meaning ascribed to such term in the preamble of this Agreement. -55- "Affiliate" of a Person (the "Specified Person") shall mean (a) any Person which directly or indirectly controls, or is controlled by, or is under common control with, the Specified Person, (b) any director or officer (or, in the case of a Person which is not a corporation, any individual having analogous powers) of the Specified Person or of a Person who is an Affiliate of the Specified Person within the meaning of the preceding clause (a), and (c) for each individual who is an Affiliate of the Specified Person within the meaning of the foregoing clauses (a) or (b), any other individual related to such Affiliate by consanguinity within the third degree or in a step or adoptive relationship within such third degree or related by affinity with such Affiliate or any such individual. For purposes of the preceding sentence, "control" of a Person means (a) the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "Agreement" means this Credit Agreement as the same may be amended, modified, restated or supplemented from time to time in accordance with its terms. "Applicable Margin" means a marginal rate of interest which is added to the LIBO Rate to determine the effective rate of interest on LIBO Rate Loans. The Applicable Margin shall be determined in the following manner: For any LIBO Rate Loan, the Applicable Margin shall be the percentage amount set forth below under the caption "Applicable Margin" opposite the relevant Consolidated Funded Debt/Consolidated EBITDA Ratio: Consolidated Funded Debt/ Applicable Margin Consolidated EBITDA Ratio LIBO Rate Loans ------------------------- --------------- below 1.50 1.25% > 1.50 < 2.00 1.50% - - > 2.00 < 2.50 1.75% - > 2.50 < 3.00 2.00% - > 3.00 < 3.50 2.25% - From the Closing Date until the first day of the month following delivery of the first Officer's Compliance Certificate for under Section 5.1 for the first quarter of 1999, the Applicable Margin shall be 2.25%. Beginning with receipt of such first Officer's Compliance Certificate, the Applicable Margin shall be adjusted on the first Business Day of the month after delivery of each Officer's Compliance Certificate delivered pursuant to Section 5.1. If an Officer's Compliance Certificate is required to be delivered pursuant to Section 5.1 and is not so delivered, then the Applicable Margin shall be the highest rate specified above until the Officer's Compliance Certificate is so delivered. "Assignment and Acceptance Agreement" shall have the meaning ascribed to such term in Section 11.9. "Available RC Commitment" means, as of any date, the difference obtained by subtracting (a) minus (b) where (a) is the amount of the RC Commitment on such date and (b) is -56- the aggregate outstanding principal amount of all Loans plus amounts available to be drawn under Letters of Credit on such date. "Bank Tax" means (i) any Tax based on or measured by net income of a Lender, any franchise Tax and any doing business Tax imposed upon any Lender by any jurisdiction (or any political subdivision thereof) in which such Lender or any lending office of a Lender is located and (ii) for the purposes of Section 1.13, any other Tax imposed by a jurisdiction other than the United States or a political subdivision thereof that would not have been imposed but for a present or former connection between such Lender or lending office (as the case may be) and such jurisdiction. "Borrowers" has the meaning ascribed to such term in the preamble hereto. Unless the Administrative Agent agrees otherwise, each Person which is now or hereafter becomes a direct or indirect Subsidiary of NCO Group shall at all times after becoming a Subsidiary of NCO Group be a "Borrower" pursuant to the terms of this Agreement. "Business Day" means any day other than a Saturday, Sunday, public holiday under the laws of the Commonwealth of Pennsylvania, or other day on which banking institutions are authorized or obligated to close in the city in which the Administrative Agent's Domestic Lending Office is located provided, however, that whether or not expressly stated in this Agreement or other Loan Documents, when "Business Day" is used with respect to any LIBO Rate Loan, such Business Day must also be a Eurodollar Business Day. "Capital Expenditures", of any Person shall mean, for any period, all expenditures (whether paid in cash or accrued as liabilities during such period) of such Person during such period which would be classified as capital expenditures in accordance with GAAP (including, without limitation, expenditures for maintenance and repairs which are capitalized, Capitalized Leases to the extent an asset is recorded in connection therewith in accordance with GAAP, and Purchase Money Indebtedness), but excluding any capital assets acquired as part of a Permitted Acquisition. "Capitalized Lease" shall mean at any time any lease, other than a real estate lease or automobile lease, which is, or is required under GAAP to be, capitalized on the balance sheet of the lessee at such time, and "Capitalized Lease Obligation" of any Person at any time shall mean the aggregate amount which is, or is required under GAAP to be, reported as a liability on the balance sheet of such Person at such time as lessee under a Capitalized Lease. "Cash Equivalent Investments" shall mean any of the following, to the extent acquired for investment and not with a view to achieving trading profits: (a) obligations fully backed by the full faith and credit of the United States of America maturing not in excess of nine months from the date of acquisition, (b) commercial paper maturing not in excess of nine months from the date of acquisition and rated "P-1" by Moody's Investors Service or "A-1" by Standard & Poor's Corporation on the date of acquisition, and (c) the following obligations of any domestic commercial bank having capital and surplus in excess of $500,000,000, which has, or the holding company of which has, a commercial paper rating meeting the requirements specified in clause (b) above: (i) time deposits, certificates of deposit and acceptances maturing not in excess of -57- nine months from the date of acquisition, or (ii) repurchase obligations with a term of not more than seven days for underlying securities of the type referred to in clause (a) above. "CERCLA" shall mean the Comprehensive Environmental Response, Compensation and Liability Act, as amended, and any successor statute of similar import, and regulations thereunder, in each case as in effect from time to time. "CERCLIS" shall mean the Comprehensive Environmental Response, Compensation and Liability Information System List, as the same may be amended from time to time. "Change of Management" shall mean (a) that a majority of the Board of Directors of NCO Group shall be other than those who were directors on the date hereof plus David D'Anna; or (b) Michael J. Barrist for any reason shall cease to serve as chief executive officer of NCO Group; provided, however, that the cessation of Michael Barrist's status as chief executive officer shall not fall within the definition of a Change of Management so long as a replacement is hired within ninety (90) calendar days of such cessation who is reasonably satisfactory to the Super Majority Lenders. "Closing Date" means the date of execution and delivery of this Agreement. "COBRA Violation" means any violation of the "continuation coverage requirements" of "group health plans" of former Section 162(k) of the Code (as in effect for tax years beginning on or before December 31, 1988) and of Section 4980B of the Code (as in effect for tax years beginning on or after January 1, 1989) and Part 6 of Subtitle B of Title I of ERISA. "Code" means the Internal Revenue Code of 1986, as amended, and any successor statute of similar import, and regulations thereunder, in each case as in effect from time to time, and the Treasury regulations thereunder. "Collateral" shall mean the property from time to time subject to the Liens of the Security Documents. "Commitment" shall mean the RC Commitment and Term Loan Commitment. "Consolidated EBIT" for any period, with respect to NCO Group and its consolidated Subsidiaries, shall mean the sum of (a) Consolidated Net Income for such period, (b) Consolidated Interest Expense for such period, (c) charges against income for foreign, federal, state and local income taxes for such period, (d) extraordinary losses to the extent included in determining such Consolidated Net Income, minus (e) extraordinary gains to the extent included in determining such Consolidated Net Income, all as determined on a consolidated basis in accordance with GAAP. "Consolidated EBITDA" for any period, with respect to NCO Group and its consolidated Subsidiaries, shall mean the sum of (a) Consolidated EBIT for such period, (b) depreciation expense for such period, and (c) amortization expense for such period, all as determined on a consolidated basis in accordance with GAAP. -58- "Consolidated Fixed Charge Coverage Ratio" for any period, with respect to NCO Group and its consolidated Subsidiaries, shall mean the ratio of (i) Consolidated EBITDA minus Capital Expenditures for such period to (ii) the sum for such period of (a) Consolidated Interest Expense, (b) principal payments on Indebtedness and (c) Taxes. "Consolidated Funded Debt" shall mean all obligations of NCO Group and its consolidated Subsidiaries incurred from time to time for Indebtedness, including without limitation the Obligations and Purchase Money Indebtedness. "Consolidated Interest Coverage Ratio" for any period shall mean the ratio of Consolidated EBIT for such period to the Consolidated Interest Expense for such period. "Consolidated Interest Expense" for any period shall mean the total Interest Expense of NCO Group and its consolidated Subsidiaries for such period determined on a consolidated basis in accordance with GAAP. "Consolidated Net Income" for any period shall mean the net earnings (or loss) after taxes of NCO Group and its consolidated Subsidiaries for such period determined on a consolidated basis in accordance with GAAP; provided, that there shall be deducted therefrom (a) the income (or deficit) of any Person accrued prior to the date it becomes a consolidated Subsidiary or is merged into or consolidated, acquired by or combined with NCO Group or any consolidated Subsidiary in a business combination accounted for as a pooling of interests, including, in the case of a successor to NCO Group or any consolidated Subsidiary by consolidation or merger or transfer of assets, any earnings of the successor corporation prior to such consolidation, merger or transfer of assets, (b) income or loss accounted for by NCO Group on the equity method because of the income (or deficit) during such period of any Person (other than a consolidated Subsidiary) in which NCO Group or any consolidated Subsidiary has an ownership interest, but the deduction for such equity income shall be reversed to the extent that during such period or at any subsequent time an amount not in excess of such income has been actually received by NCO Group or such consolidated Subsidiary in the form of cash or property dividends or similar distributions, (c) income or loss of a foreign Subsidiary, but the deduction for such Subsidiary income shall be reversed to the extent that during such period or at any subsequent time an amount not in excess of such income has been actually received by NCO Group or such consolidated Subsidiary in the form of cash or property dividends or similar distributions, not subject to foreign currency translation, (d) the undistributed earnings of any consolidated Subsidiary to the extent that the declaration or payment of dividends or similar distributions by such consolidated Subsidiary is restricted (whether such restriction arises by operation of Law, by agreement, by its articles of incorporation or by-laws (or other constituent documents), or otherwise), (e) any restoration to income of any contingency reserve, except to the extent that provision for such reserve was made against income during such period, and (f) any gain arising from the acquisition of any securities, or the extinguishment, under GAAP, of any Indebtedness, of NCO Group or any consolidated Subsidiary. "Consolidated Net Worth" at any time shall mean the total amount of stockholders' equity of NCO Group and its consolidated Subsidiaries at such time determined on a consolidated basis in accordance with GAAP. -59- "Contingent Reimbursement Obligation" shall mean the contingent obligation of the Borrowers to reimburse the Issuer for any Drawings that may be made under an outstanding Letter of Credit, whenever issued. Without limiting the generality of the foregoing, the amount of all Contingent Reimbursement Obligations at any time shall be the aggregate amount available to be drawn under outstanding Letters of Credit at such time. "Controlled Group Member" shall mean each trade or business (whether or not incorporated) which together with any Borrower is treated as a single employer under Sections 4001(a)(14) or 4001(b)(1) of ERISA or Sections 414(b), (c), (m) or (o) of the Code. "Credit Agreement" shall mean the Amended and Restated Credit Agreement between the Borrowers and the Administrative Agent dated as of September 5, 1996, as amended. "Default" means any event or condition which with notice, passage of time or both, would constitute an Event of Default. "Default Rate" means, with respect to any amounts payable hereunder or under the other Loan Documents, a rate equal to the sum of (a) two percent (2%) per annum plus (b) the interest rate otherwise in effect with respect to such amounts or, if no such rate is otherwise in effect with respect to such amounts, a rate equal to the sum of (i) the Prime Rate plus (ii) two percent (2%). "Dollar," "Dollars" and the symbol "$" means lawful money of the United States of America. "Domestic Lending Office" means, with respect to any Lender (i) the office designated as such on the signature page hereof, or (ii) the branch or office of such Lender designated, from time to time, by such Lender in a notice to the Administrative Agent and NCO Group. "Drawing" shall mean (a) any amount disbursed by the Issuer pursuant to the terms of a Letter of Credit or (b) as the context may require, the obligation of the Borrowers to reimburse the Issuer for such disbursement. "Eligible Institution" means (i) a Lender; (ii) an Affiliate of a Lender; (iii) a commercial bank organized under the laws of the United States, or any State thereof, and having a combined capital and surplus of at least $1,000,000,000.00; (iv) a savings and loan association or savings bank organized under the laws of the United States, or any State thereof, and having a combined capital and surplus of at least $1,000,000,000.00; (v) a commercial bank organized under the laws of any other country that is a member of the Organization for Economic Cooperation and Development or has concluded special lending arrangements with the International Monetary Fund associated with its General Arrangements to Borrow or under the laws of a political subdivision of any such country, and having a combined capital and surplus of at least $1,000,000,000.00, so long as such bank is acting through a branch or agency located in the United States; and (vi) a finance company, insurance company or other financial institution or fund (whether a corporation, partnership, trust or other entity) that is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business and having a combined capital and surplus or total assets of at least $500,000,000.00 and (vii) with respect to any Lender that is a fund, any other fund with assets in excess of $100,000,000.00 that -60- invests in bank loans and is managed by the same investment advisor as such Lender; provided, however, that neither any Borrower nor any Affiliate of a Borrower shall qualify as an Eligible Institution under this definition. "Environmental Affiliate" shall mean, with respect to any Person, any other Person whose liability (contingent or otherwise) for any Environmental Claim such Person has retained, assumed or otherwise is liable for (by Law, agreement or otherwise). "Environmental Approvals" shall mean any Governmental Action pursuant to or required under any Environmental Law. "Environmental Claim" shall mean, with respect to any Person, any action, suit, proceeding, investigation, notice, claim, complaint, demand, request for information or other communication (written or oral) by any other Person (including but not limited to any Governmental Authority, citizens' group or present or former employee of such Person) alleging, asserting or claiming any actual or potential (a) violation of any Environmental Law, (b) liability under any Environmental Law or (c) liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries, fines or penalties arising out of, based on or resulting from the presence, or release into the environment, of any Environmental Concern Materials at any location, whether or not owned by such Person. "Environmental Cleanup Site" shall mean any location which is listed or proposed for listing on the National Priorities List, on CERCLIS or on any similar state list of sites requiring investigation or cleanup, or which is the subject of any pending or threatened action, suit, proceeding or investigation related to or arising from any alleged violation of any Environmental Law. "Environmental Concern Materials" shall mean (a) any flammable substance, explosive, radioactive material, hazardous material, hazardous waste, toxic substance, solid waste, pollutant, contaminant or any related material, raw material, substance, product or by-product of any substance specified in or regulated or otherwise affected by any Environmental Law (including but not limited to any "hazardous substance" as defined in CERCLA or any similar state Law), (b) any toxic chemical or other substance from or related to industrial, commercial or institutional activities, and (c) asbestos, gasoline, diesel fuel, motor oil, waste and used oil, heating oil and other petroleum products or compounds, polychlorinated biphenyls, radon and urea formaldehyde. "Environmental Law" shall mean any Law, whether now existing or subsequently enacted or amended, relating to (a) pollution or protection of the environment, including natural resources, (b) exposure of Persons, including but not limited to employees, to Environmental Concern Materials, (c) protection of the public health or welfare from the effects of products, by-products, wastes, emissions, discharges or releases of Environmental Concern Materials or (d) regulation of the manufacture, use or introduction into commerce of Environmental Concern Materials including their manufacture, formulation, packaging, labeling, distribution, transportation, handling, storage or disposal. Without limitation, "Environmental Law" shall also include any Environmental Approval and the terms and conditions thereof. -61- "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, and any successor statute of similar import, and regulations thereunder, in each case as in effect from time to time. References to sections of ERISA shall be construed also to refer to any successor sections. "Event of Default" shall mean any of the Events of Default described in Article 7 hereof. "Eurodollar Business Day" means any Business Day on which dealings in Dollar deposits are carried on in the London interbank market and on which commercial banks are open for domestic and international business (including dealings in Dollar deposits) in London, England. "Eurodollar Lending Office" means, with respect to any Lender, the branch or office of such Lender designated by such Person on the signature page hereof or in a notice to the Administrative Agent and NCO Group. "Excluded Subsidiaries" means those Subsidiaries listed on Schedule 5.16 hereof. "Federal Funds Rate" for any day means the rate per annum determined by the Administrative Agent (which determination shall be conclusive) to be the rate per annum announced by the Federal Reserve Bank of New York on such day as being the weighted average of the rates on overnight Federal funds transactions arranged by federal funds brokers on the previous trading day, or, if such Federal Reserve Bank does not announce such rate on any day, the rate for the last day on which such rate was announced. "GAAP" has the meaning set forth in Section 10.3 hereof. "Governmental Action" has the meaning set forth in Section 4.1(d) hereof. "Governmental Authority" means any government or political subdivision or any agency, authority, bureau, central bank, commission, department or instrumentality of either, or any court, tribunal, grand jury or arbitrator, in each case whether foreign or domestic. "Guaranty" means, with respect to any Person (a "Guarantor"), any contractual or other obligation, contingent or otherwise, of such Person to pay any Indebtedness or other obligation of any other Person or to otherwise protect the holder of any such Indebtedness or other obligation against loss (whether such obligation arises by agreement to pay, to keep well, to purchase assets, goods, securities or services or otherwise) provided, however, that the term "Guaranty" shall not include an endorsement for collection or deposit in the ordinary course of business. The term, "Guaranty," when used as a verb has the correlative meaning. "Guaranty Equivalent" shall have the meaning set forth below: A Person (the "Deemed Guarantor") shall be deemed to subject to a Guaranty Equivalent in respect of any indebtedness, obligation or liability (the "Assured Obligation") of another Person (the "Deemed Obligor") if the Deemed Guarantor directly or indirectly guarantees, becomes surety for, endorses, assumes, agrees to indemnify the Deemed Obligor against, or otherwise agrees, becomes or remains liable (contingently or otherwise) for, such Assured Obligation. Without limitation, a Guaranty -62- Equivalent shall be deemed to exist if a Deemed Guarantor agrees, becomes or remains liable (contingently or otherwise), directly or indirectly: (a) to purchase or assume, or to supply funds for the payment, purchase or satisfaction of, an Assured Obligation, (b) to make any loan, advance, capital contribution or other investment in, or to purchase or lease any property or services from, a Deemed Obligor (i) to maintain the solvency of the Deemed Obligor, (ii) to enable the Deemed Obligor to meet any other financial condition, (iii) to enable the Deemed Obligor to satisfy any Assured Obligation or to make any Stock Payment or any other payment, or (iv) to assure the holder of such Assured Obligation against loss, (c) to purchase or lease property or services from the Deemed Obligor regardless of the non-delivery of or failure to furnish of such property or services, (d) in a transaction having the characteristics of a take-or-pay or throughput contract or as described in paragraph 6 of FASB Statement of Financial Accounting Standards No. 47, or (e) in respect of any other transaction the effect of which is to assure the payment or performance (or payment of damages or other remedy in the event of nonpayment or nonperformance) of any Assured Obligation. "Indebtedness" of a Person shall mean: (a) All obligations on account of money borrowed by, or credit extended to or on behalf of, or for or on account of deposits with or advances to, such Person; (b) All obligations of such Person evidenced by bonds, debentures, notes or similar instruments; (c) All obligations of such Person for the deferred purchase price of property or services, including without limitation, with respect to the Borrower, all obligations incurred by the Borrower to a seller in connection with any Permitted Acquisition; (d) All obligations secured by a Lien on property owned by such Person (whether or not assumed); and all obligations of such Person under Capitalized Leases (without regard to any limitation of the rights and remedies of the holder of such Lien or the lessor under such Capitalized Lease to repossession or sale of such property); (e) The face amount of all letters of credit issued for the account of such Person and, without duplication, the unreimbursed amount of all drafts drawn thereunder, and all other obligations of such Person associated with such letters of credit or draws thereon; (f) All obligations of such Person in respect of acceptances or similar obligations issued for the account of such Person; (g) All obligations of such Person under a product financing or similar arrangement described in paragraph 8 of FASB Statement of Accounting Standards No. 49 or any similar requirement of GAAP; and (h) All obligations of such Person under any interest rate or currency protection agreement, interest rate or currency future, interest rate or currency option, interest rate or currency swap or cap or other interest rate or currency hedge agreement. -63- "Indemnified Parties" shall mean the Lender, its respective affiliates, and the directors, officers, employees, attorneys and agents of each of the foregoing. "Interest Expense" means, for any Person, for any period, the sum (without duplication) of (a) all interest accrued (or accreted) on Indebtedness of such Person during such period whether or not actually paid plus (b) the net amount accrued under any Interest Rate Hedging Agreements (or less the net amount receivable thereunder) during such period. "Interest Period" means with respect to any LIBO Rate Loan, (a) initially, the period commencing on the borrowing or conversion date, as the case may be, and ending one, two, three or six months thereafter as selected by the Borrowers pursuant to Section 1.8 above and (b) thereafter, each period commencing on the day after the last day of the preceding Interest Period and ending one, two, three or six months thereafter, as selected by the Borrower pursuant to Section 1.8 above provided, however, if any such Interest Period would otherwise end on a day which is not a Eurodollar Business Day, such Interest Period shall be extended to the next succeeding Eurodollar Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Eurodollar Business Day and provided, further, if any such Interest Period begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period (as may be the case with an Interest Period commencing at the end of a calendar month) the Interest Period shall end on the last Eurodollar Business Day of the relevant calendar month. "Interest Rate Hedging Agreement" means any rate swap, cap or collar agreement with a term as may be acceptable to the Lenders to which any or all of the Borrowers are party and which is on terms and conditions satisfactory to the Majority Lenders. "Issuer" shall have the meaning set forth in the preamble. "Law" means any law (including common law), constitution, statute, treaty, convention, regulation, licensing requirement, rule, ordinance, order, injunction, writ, decree or award of any Governmental Authority. "Lender" has the meaning ascribed to such term in the preamble hereto. "Letter of Credit" shall mean any letter of credit issued by Issuer pursuant to Section 1.15 hereof. "Letter of Credit Participation" shall mean, with respect to any Lender, the participation interest of such Lender in any Letter of Credit acquired pursuant to Section 1.15. The amount of the Letter of Credit Participation of a Lender in any Letter of Credit shall be deemed to be the amount equal to such Lender's pro rata share (determined on the basis of the Commitment at such time) of the sum of (a) the aggregate unpaid amount of all Drawings thereunder at such time and (b) the amount of any Contingent Reimbursement Obligations with respect thereto at such time. -64- "LIBO Rate" means the rate per annum determined by the Administrative Agent by dividing (the resulting quotient to be rounded upward to the nearest 1/100 of 1%) (a) the rate of interest (which shall be the same for each day in such Interest Period) determined in good faith by the Administrative Agent (which determination shall be conclusive) to be the average of the rates per annum for deposits in Dollars offered to major money center banks in the London interbank market at approximately 11:00 a.m., London time, two Eurodollar Business Days prior to the first day of the applicable Interest Period for delivery on the first day of such Interest Period in similar amounts and maturities as the proposed LIBO Rate Loan by (b) a number equal to 1.0 minus the Reserve Percentage. "Reserve Percentage" for any day means the percentage (expressed as a decimal, rounded upward to the nearest 1/100 of 1%), as determined in good faith by the Administrative Agent (which determination shall be conclusive), which is in effect on such day as prescribed by the Board of Governors of the Federal Reserve System representing the maximum reserve requirement (including supplemental, marginal and emergency reserve requirements) with respect to eurocurrency funding (currently referred to as "Eurocurrency liabilities") of a member bank in such System. The LIBO Rate shall be adjusted automatically as of the effective date of each change in the Reserve Percentage. "LIBO Rate Loan" means a Loan bearing interest at the per annum rate of the LIBO Rate plus Applicable Margin. "Licenses" means any and all licenses, permits, franchises, rights to conduct business, approvals by a Governmental Authority or otherwise, consents, qualifications, operating authority, and/or any other authorizations. "Lien" shall mean any mortgage, deed of trust, pledge, lien, security interest, charge or other encumbrance or security arrangement of any nature whatsoever, including but not limited to any conditional sale or title retention arrangement, and any assignment, deposit arrangement or lease intended as, or having the effect of, security. "Limitation" means a revocation, suspension, termination, impairment, probation, limitation, non-renewal, forfeiture, declaration of ineligibility, and/or loss of any other rights. "Loan" shall mean any loan by the Lenders to any Borrower under this Agreement, and "Loans" shall mean all Loans made by the Lenders under this Agreement. "Loan Documents" shall mean this Agreement, the Notes, the Security Documents, and all other agreements and instruments extending, renewing, refinancing or refunding any indebtedness, obligation or liability arising under any of the foregoing, in each case as the same may be amended, modified or supplemented from time to time hereafter. "Majority Lenders" means, as of any date, Lenders otherwise eligible to vote pursuant to the terms of this Agreement holding, in the aggregate, at least 51% of the aggregate outstanding Loans and available Commitments so eligible to vote. "Material Adverse Effect" shall mean: (a) a material adverse effect on the business, operations or condition (financial or otherwise) of the Borrowers taken as a whole, (b) a material adverse effect on the ability of any Borrowers, taken as a whole, to perform or comply with any -65- of the terms and conditions of any Loan Document, or (c) a material adverse effect on the legality, validity, binding effect, enforceability or admissibility into evidence of any Loan Document, or the ability of the Lender to enforce any rights or remedies under or in connection with any Loan Document. "Maturity Date" shall mean the fifth anniversary of the Closing Date. "Medaphis Acquisition" means the proposed acquisition by NCO Group of all of the stock of Medaphis Services Corporation under a stock purchase agreement. "Medaphis Acquisition Agreements" has the meaning set forth in Section 3.1(c)(i) hereof. "Mellon" has the meaning ascribed to such term in the preamble hereof. "Monthly Payment Date" means the last Business Day of each month. "Multiemployer Plan" has the meaning ascribed to such term in Section 4001(a)(3) of ERISA. "Non-U.S. Lender" means any Lender that is not a United States Person. "Note" means RC Notes and Term Notes. "Obligations" shall mean all indebtedness, obligations and liabilities of any Borrower to the Lenders from time to time arising under or in connection with or related to or evidenced by or secured by or under color of this Agreement or any other Loan Document, and all extensions, renewals or refinancings thereof, whether such indebtedness, obligations or liabilities are direct or indirect, otherwise secured or unsecured, joint or several, absolute or contingent, due or to become due, whether for payment or performance, now existing or hereafter arising. Without limitation of the foregoing, such indebtedness, obligations and liabilities include the principal amount of all Loans, Letters of Credit, interest, fees, indemnities or expenses under or in connection with this Agreement or any other Loan Document, and all extensions, renewals and refinancings thereof, whether or not such Loans were made, or such Letters of Credit were issued, in compliance with the terms and conditions of this Agreement or in excess of the obligation of the Lender to lend. Obligations shall remain Obligations notwithstanding any assignment or transfer or any subsequent assignment or transfer of any of the Obligations or any interest therein. "Officer's Compliance Certificate" means a certificate, as of a specified date, of the chief financial officer or controller of NCO Group in substantially the form of Exhibit E hereto as to each of the following: (a) the absence of any Event of Default or Default on such date, (b) the truth of the representations and warranties herein and in the other Loan Documents as of such date, and (c) with the financial covenants set forth in Article 5. "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. -66- "Pension Plan" means a pension plan (as defined in Section 3(2) of ERISA) which is subject to Part 3 of Subtitle B of Title I of ERISA or subject to Section 412 of the Code and maintained by any Borrower or any member of its Controlled Group. "Pension-Related Event" shall mean any of the following events or conditions: (a) Any action is taken by any Person (i) to terminate, or which would result in the termination of, a Plan, either pursuant to its terms or by operation of law (including, without limitation, any amendment of a Plan which would result in a termination under Section 4041(e) of ERISA), or (ii) to have a trustee appointed for a Plan pursuant to Section 4042 of ERISA; (b) PBGC notifies any Person of its determination that an event described in Section 4042 of ERISA has occurred with respect to a Plan, that a Plan should be terminated, or that a trustee should be appointed for a Plan; (c) Any Reportable Event occurs with respect to a Plan; (d) Any action occurs or is taken which could result in any Borrower becoming subject to liability for a complete or partial withdrawal by any Person from a Multiemployer Plan (including, without limitation, seller liability incurred under Section 4204(a)(2) of ERISA), or any Borrower or any Controlled Group Member receives from any Person a notice or demand for payment on account of any such alleged or asserted liability; or (e) (i) There occurs any failure to meet the minimum funding standard under Section 302 of ERISA or Section 412 of the Code with respect to a Plan, or any tax return is filed showing any tax payable under Section 4971(a) of the Code with respect to any such failure, or any Borrower or any Controlled Group Member receives a notice of deficiency from the Internal Revenue Service with respect to any alleged or asserted such failure, or (ii) any request is made by any Person for a variance from the minimum funding standard, or an extension of the period for amortizing unfunded liabilities, with respect to a Plan. "Permitted Acquisition" shall mean any acquisition (by way of stock purchase, merger, asset purchase or otherwise) by any Borrower of all of the properties of any going concern or going line of business; provided, however, that (1) each such business being acquired by such Borrower must (a) have a positive EBITDA for the immediately preceding twelve months prior to the acquisition, after adjustments for unusual expense items and (b) be in the same or a similar line of business as such Borrower, (2) after recasting the Borrowers' consolidated financial statements for the immediately preceding twelve month period to include the results of operations from the target of the acquisition, and preparing pro-forma financial statements for the immediately succeeding twelve month period, the combined Borrower and target shall have met the financial covenants described in Section 6.1 of this Agreement for the immediately preceding twelve months prior to the acquisition and on a pro-forma basis for the immediately following twelve month period after the acquisition (such compliance to be evidenced by a pro forma covenant compliance certificate in the form of Exhibit "H" attached hereto), (3) with respect to -67- any merger, the Borrower shall be the surviving corporation, (4) after giving effect to the acquisition, no Event of Default or Default shall exist, (5) the disclosure schedules shall be updated to account for the acquisition as required by Section 5.1 7 and (6) the cash consideration to be paid by such Borrower for the acquisition must not exceed $10,000,000 in any rolling twelve month period. An acquisition meeting the criteria set forth in this definition does not require the consent of any Lender provided that the due diligence on such acquisition, including a review of all acquisition documents shall be satisfactory to the Super Majority Lenders. Any acquisition which does not meet the criteria set forth in the provisos to this definition requires the prior written consent of the Super Majority Lenders. "Permitted Acquisition Indebtedness" means Indebtedness incurred by a Borrower to the seller in connection with a Permitted Acquisition that is (1) unsecured, (2) subordinated to the Obligations as provided in the next sentence, and (3) without financial covenants binding on any Borrower. The terms of subordination, which at the request of the Administrative Agent shall be embodied in a separate subordination agreement in the form of Exhibit "J" attached hereto, shall prohibit the Borrower from making any payments of principal, interest, or other sums on the Indebtedness following an Event of Default under this Agreement; prior to an Event of Default, the Borrower may make regularly scheduled payments of principal and interest on the Indebtedness. Despite the foregoing, (1) the Borrowers may incur up to an aggregate of $2,000,000 (based on the original principal amount of notes outstanding at any one time) in Indebtedness to sellers in connection with Permitted Acquisitions on which Borrowers may make regularly scheduled payments of principal and interest despite the existence of an Event of Default (other than a bankruptcy or insolvency default, in which case such payments will be prohibited until the Obligations have been repaid in full) so long as such Indebtedness otherwise meets the above requirements (the subordination agreement shall take the form of Exhibit "K" attached hereto) and (2) the Borrowers may incur up to an aggregate of $10,000,000 (based on the original principal amount of notes outstanding at any one time) in Indebtedness to sellers in connection with Permitted Acquisitions on which Borrowers may make regularly scheduled payments of principal and interest until the occurrence of an Event of Default and may resume such payments six months after the occurrence of such default (unless the default is a bankruptcy or insolvency default, or a default as to which the Lenders are exercising remedies; in any such case such payments will be prohibited until the Obligations have been repaid in full) so long as such Indebtedness otherwise meets the above requirements (the subordination agreement shall take the form of Exhibit "K-1" attached hereto) "Permitted Liens" shall have the meaning set forth in Section 6.2 hereof. "Person" means an individual, corporation, partnership, trust, unincorporated association, limited liability company, joint venture, joint-stock company, Governmental Authority or any other entity. "Plan" means any employee pension benefit plan within the meaning of Section 3(2) of ERISA (other than a Multiemployer Plan) covered by Title IV of ERISA by reason of Section 4021 of ERISA, of which any Borrower or any Controlled Group Member is or has been within the preceding five years a "contributing sponsor" within the meaning of Section 4001(a)(13) of ERISA, or which is or has been within the preceding five years maintained for employees of any Borrower or any Controlled Group Member. -68- "Prime Rate" means the interest rate per annum announced from time to time by the Administrative Agent as its prime rate. The Prime Rate may be greater or less than other interest rates charged by the Administrative Agent to other borrowers. "Prime Rate Loan" means any Loan bearing interest at the Prime Rate. "Prohibited Transaction" has the meaning given to such term in Section 406 of ERISA or Section 4975(c) of the Code. "Purchase Money Indebtedness" shall mean at any time any (a) Indebtedness incurred for the deferred purchase price in connection with a Capital Expenditure and (b) Indebtedness for borrowed money of any Borrower which is incurred in connection with a Permitted Acquisition, and which (i) is unsecured, (ii) is fully and permanently subordinated, as to both principal and interest, to any Obligations, (iii) contains no financial covenants, and (iv) contains permanent "stand still" or forbearance provisions acceptable to the Lender which apply upon the occurrence of an Event of Default or Default under this Agreement. "Quarterly Payment Dates" means the last Business Day of each December, March, June and September. "RC Commitment" means, with respect to any Lender, (a) the obligation of such Lender to make Loans and participate in Letters of Credit in an amount as set forth opposite such Lender's name under the heading "RC Commitment" on Schedule 1.1 (as such Schedule may be amended from time to time) hereto or, in the case of a Lender that becomes a Lender pursuant to an assignment, the amount of the assignor's RC Commitment assigned to such Lender, in either case as the same may be reduced from time to time pursuant to Section 1.7 above or increased or reduced from time to time pursuant to assignments in accordance with Section 11.9 below, or (b) as the context may require, the obligation of such Lender to make Loans in an aggregate unpaid principal amount not exceeding such amount; and "RC Commitment" means with respect to all Lenders, the sum of each Lender's RC Commitment. "RC Loan" has the meaning ascribed to such term in Section 1.1 of this Agreement. "RC Note" means each promissory note of the Borrowers issued to an RC Lender relating to such Lender's RC Loans and RC Commitments substantially in the form of Exhibit A-1 hereto, together with any allonges thereto, from time to time, and any promissory note issued in substitution therefor pursuant to the terms hereof, together with all extensions, renewals, refinancings or refundings thereof in whole or part, in each case as the same may be amended, modified, restated or supplemented from time to time. "Register" has the meaning ascribed to such term in Section 8.8 hereof. "Registered Lender" has the meaning ascribed to such term in Section 1.14 hereof. "Registered Note" has the meaning ascribed to such term in Section 1.14 hereof. "Regulatory Change" means any applicable law, interpretation, directive, request or guideline (whether or not having the force of law), or any change therein or in the administration -69- or enforcement thereof, that becomes effective or is implemented or first required or expected to be complied with after the Closing Date (including any applicable law that shall have become such as the result of any act or omission of the Borrowers or any of their Affiliates, without regard to when such applicable law shall have been enacted or implemented), whether the same is (a) the result of an enactment by a government or any agency or political subdivision thereof, a determination of a court or regulatory authority or otherwise or (b) enacted, adopted, issued or proposed before or after the Closing Date, including any such that imposes, increases or modifies any Tax, reserve requirement, insurance charge, special deposit requirement, assessment or capital adequacy requirement, but excluding any such that imposes, increases or modifies any Bank Tax. "Reorganization" has the meaning ascribed to such term in ERISA. "Reportable Event" means (a) a reportable event described in Section 4043 of ERISA, (b) a withdrawal by a substantial employer from a Plan to which more than one employer contributes, as referred to in Section 4063(b) of ERISA, (c) a cessation of operations at a facility causing more than twenty percent (20%) of Plan participants to be separated from employment, as referred to in Section 4062(e) of ERISA, or (d) a failure to make a required installment or other payment with respect to a Plan when due in accordance with Section 412 of the Code or Section 302 of ERISA which causes the total unpaid balance of missed installments and payments (including unpaid interest) to exceed $750,000. "Responsible Officer" shall mean Michael J. Barrist, Charles Piola, Jr. or Steven L. Winokur or such other person designated by the Borrowers and reasonably acceptable to Administrative Agent. "Security Agreement" shall have the meaning ascribed to such term in Section 3.1(b) hereof. "Security Documents" shall have the meaning set forth in Section 3.1(e) hereof. "Solvent" means, with respect to any Person at any time, that at such time (a) the sum of the debts and liabilities (including, without limitation, contingent liabilities) of such Person is not greater than all of the assets of such Person at a fair valuation, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person has not incurred, will not incur, does not intend to incur, and does not believe that it will incur, debts or liabilities (including, without limitation, contingent liabilities) beyond such person's ability to pay as such debts and liabilities mature, (d) such Person is not engaged in, and is not about to engage in, a business or a transaction for which such person's property constitutes or would constitute unreasonably small capital, and (e) such Person is not otherwise insolvent as defined in, or otherwise in a condition which could in any circumstances then or subsequently render any transfer, conveyance, obligation or act then made, incurred or performed by it avoidable or fraudulent pursuant to, any Law that may be applicable to such Person pertaining to bankruptcy, insolvency or creditors' rights (including but not limited to the Bankruptcy Code of 1978, as amended, and, to the extent applicable to such Person, the Uniform Fraudulent Conveyance Act, -70- the Uniform Fraudulent Transfer Act, or any other applicable Law pertaining to fraudulent conveyances or fraudulent transfers or preferences). "Stock Payment" by any Person shall mean any dividend, distribution or payment of any nature (whether in cash, securities, or other property) on account of or in respect of any shares of the capital stock (or warrants, options or rights therefor) of such Person, including but not limited to any payment on account of the purchase, redemption, retirement, defeasance or acquisition of any shares of the capital stock (or warrants, options or rights therefor) of such Person, in each case regardless of whether required by the terms of such capital stock (or warrants, options or rights) or any other agreement or instrument. "Subsidiary" of a Person means (i) a corporation (a) at least 50% of the voting stock of which is at the time owned, directly or indirectly, by such Person and (b) of which such Person, directly or indirectly, has the right to elect a majority of the members of the board of directors either as a result of the ownership of a majority of the voting stock of such corporation or pursuant to a shareholders or other voting agreement or (ii) any partnership, joint venture, limited liability company or similar entity at least 50% of the total equity and voting interests of which (x) is at the time owned, directly or indirectly, by such Person whether in the form of membership, general, special or limited partnership, or otherwise and (y) such Person or any wholly owned Subsidiary of such Person is a controlling general partner or otherwise controls such entity. "Super Majority Lenders" means, as of any date, Lenders otherwise eligible to vote pursuant to the terms of this Agreement holding, in the aggregate, at least 66 2/3% of the aggregate outstanding Loans and available Commitments so eligible to vote. "Tax" means any federal, state, local or foreign tax assessment or other governmental charge or levy (including any withholding tax) upon a Person or upon its assets, revenues, income or profits. "Term Loan Commitment" shall mean, as to any Lender at any time, the amount initially set forth opposite its name on Schedule 1.1(B) in the column labeled "Amount of Commitment for Term Loan," and thereafter on Schedule I to the most recent Assignment and Acceptance Agreement, and Term Loan Commitments shall mean the aggregate Term Loan Commitments of all of the Lenders. "Term Loan" shall mean collectively and "Term Loan" shall mean separately all Term Loans or any Term Loan made by the Lenders to the Borrowers pursuant to Section 1.1. "Term Notes" shall mean collectively and "Term Note" shall mean separately all of the Term Notes of the Borrowers in the form of Exhibit 1.1(B) evidencing the Term Loan, together with any allonges thereto, from time to time, and any promissory note issued in substitution therefor pursuant to the terms hereof, together with all extensions, renewals, refinancings or refundings thereof in whole or part, in each case as the same may be amended, modified, restated or supplemented from time to time. "Third Party Claims" has the meaning set forth in Section 11.12 hereof. -71- "Transaction Documents" means each of the material documents as may exist from time to time with such changes thereto as are permitted by the terms of this Agreement. "Type" means with respect to Loans, any of the following, each of which shall be deemed to be a different "Type" of Loan: Prime Rate Loans, LIBO Rate Loans having a one-month Interest Period commencing on a specified date, LIBO Rate Loans having a two-month Interest Period commencing on a specified date, LIBO Rate Loans having a three-month Interest Period commencing on a specified date, and LIBO Rate Loans having a six-month Interest Period commencing on a specified date. "UCC" means the Uniform Commercial Code as adopted in the Commonwealth of Pennsylvania. "Unused Fee" has the meaning ascribed to such term in Section 1.8 hereof. "United States Person" has the meaning ascribed to such term in Section 1.13 hereof. "Withdrawal Liability" has the meaning given to such term in Section 4201 of ERISA. 10.2 CONSTRUCTION. In this Agreement and each other Loan Document, unless the context otherwise clearly requires, (a) references to the plural include the singular, the singular the plural and the part the whole; (b) "or" has the inclusive meaning represented by the phrase "and/or;" (c) the terms "property" and "assets" each include all properties and assets of any kind or nature, tangible or intangible, real, personal or mixed, now existing or hereafter acquired; (d) the words "hereof," "herein" and "hereunder" (and similar terms) in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular provision of this Agreement or such other Loan Document; (e) the words "includes" and "including" (and similar terms) in this Agreement or any other Loan Document mean "includes, without limitation" and "including, without limitation," respectively whether or not stated; and (f) references to "determination" (and similar terms) by any Lender include good faith estimates by such Lender (in the case of quantitative determinations) and good faith beliefs by such Lender (in the case of qualitative determinations). No doctrine of construction of ambiguities in agreements or instruments against the interests of the party controlling the drafting thereof shall apply to this Agreement or any other Loan Document. The section and other headings contained in this Agreement and in each other Loan Document, and any tables of contents contained herein or therein, are for reference purposes only and shall not affect the construction or interpretation of this Agreement or such other Loan -72- Document in any respect. Whenever this Agreement requires the delivery of financial projections, it is understood that the projections shall be made in good faith, consistent with the Loan Documents and based on NCO Group's reasonable judgment as to the anticipated financial performance and results of operations. However, any such financial projections shall not constitute a representation or warranty that such future financial performance or results of operations will in fact be achieved. 10.3 ACCOUNTING PRINCIPLES. (a) As used herein, "GAAP" shall mean generally accepted accounting principles (other than as set forth herein as to consolidation) in the United States, applied on a basis consistent with the principles used in preparing the financial statements of NCO Group and its consolidated Subsidiaries as of December 31, 1997 and for the fiscal year then ended. When the word "consolidated" is used in this Agreement, it shall be used in a manner consistent with generally accepted accounting principles in the United States except that such principles relating to what entities shall be consolidated shall be superseded by any terms of this Agreement which designate what entities shall be consolidated for purposes relating hereto. (b) Except as otherwise provided in this Agreement, all computations and determinations as to accounting or financial matters shall be made, and all financial statements to be delivered pursuant to this Agreement shall be prepared, in accordance with GAAP and all accounting or financial terms shall have the meanings ascribed to such terms by GAAP; provided that if because of a change in GAAP after the date hereof Borrowers would be required to alter a previously utilized accounting principle, method or policy in order to remain in compliance with GAAP, such determination shall continue to be made in accordance with Borrowers' previous accounting principles, methods and policies unless otherwise agreed by the Administrative Agent (on behalf of the Lenders). ARTICLE XI MISCELLANEOUS 11.1 NOTICES. Unless otherwise expressly provided under this Agreement all notices, requests, demands, directions and other communications (collectively "notices") given to or made upon any party under the provisions of this Agreement (and unless otherwise specified, in each other Loan Document) shall be by telephone (immediately confirmed in writing) or in writing (including facsimile communication) and if in writing shall be delivered by hand, nationally recognized overnight courier or U.S. mail or sent by facsimile to the respective parties at the addresses and numbers set forth under their respective names on the signature pages of this Agreement or in accordance with any subsequent unrevoked written direction from any party to the others. All notices shall, except as otherwise expressly provided in this Agreement, be effective (a) in the case of facsimile, when received, (b) in the case of hand-delivered notice, when hand delivered, (c) in the case of telephone, when telephoned, provided, however, that in order to be effective unless otherwise expressly provided, telephonic notices must be confirmed in writing no later than the next day by letter or facsimile, (d) if given by U.S. mail, the day after such communication is deposited in the mails with overnight first class postage prepaid, return receipt requested, and (e) if given by any other means (including by -73- air courier), when delivered; provided, further, that notices to the Administrative Agent shall not be effective until received. Any Lender giving any notice to the Borrowers shall simultaneously send a copy of such notice to the Administrative Agent, and the Administrative Agent shall promptly notify the other Lenders of the receipt by it of any such notice. Except as otherwise provided in this Agreement, in the event of a discrepancy between any telephonic or written notice, the written notice shall control. 11.2 PRIOR UNDERSTANDINGS; ENTIRE AGREEMENT. This Agreement and the other Loan Documents supersede all prior and contemporaneous understandings and agreements, whether written or oral, among the parties hereto relating to the transactions provided for herein and therein except as expressly provided otherwise (e.g., certain fee agreements and fee arrangements with the Administrative Agent). This Agreement and the other Loan Documents represent the entire agreement between the parties to this Agreement with respect to the transactions contemplated hereby or thereby and, except as expressly provided herein or in the other Loan Documents, shall not be affected by reference to any other documents. 11.3 SEVERABILITY. Every provision of this Agreement and each of the other Loan Documents is intended to be severable, and if any term or provision of this Agreement or any of the other Loan Documents shall be invalid, illegal or unenforceable for any reason, the validity, legality and enforceability of the remaining provisions shall not be affected or impaired thereby, and any invalidity, illegality or unenforceability in any jurisdiction shall not affect the validity, legality or enforceability of any such term or provision in any other jurisdiction. If any provision of this Agreement shall be held invalid or unenforceable in whole or in part in any jurisdiction, this Agreement shall, as to such jurisdiction, be deemed amended to modify or delete, as necessary, the offending provision or provisions and to alter the bounds thereof in order to render it or them valid and enforceable to the maximum extent permitted by applicable Law, without in any manner affecting the validity or enforceability of such provision or provisions in any other jurisdiction or the remaining provisions hereof in any jurisdiction. 11.4 DESCRIPTIVE HEADINGS. The descriptive headings of the several sections of this Agreement are inserted for convenience only and shall not affect the meaning or construction of any of the provisions of this Agreement. 11.5 GOVERNING LAW. This Agreement and the rights and obligations of the parties under this Agreement and under the other Loan Documents shall be construed in accordance with and shall be governed by the laws of the Commonwealth of Pennsylvania. 11.6 NON-MERGER OF REMEDIES. The covenants and obligations of the Borrowers and the rights and remedies of the Administrative Agent and other Lenders hereunder and under the other Loan Documents shall not merge with or be extinguished by the entry of a judgment hereunder or thereunder, and such covenants, obligations, rights and remedies shall survive any entry of a judgment until payment in full of the Obligations and termination of the Commitment. All obligations under the Loan Documents shall continue to apply with respect to and during the collection of amounts due under the Loan Documents or the proof and allowability of any claim arising under this Agreement or any other Loan Document, whether in bankruptcy or receivership proceedings or otherwise, and in any workout, restructuring or in -74- connection with the protection, preservation, exercise or enforcement of any of the terms of this Agreement or of any rights under this Agreement or under any other Loan Document or in connection with any foreclosure, collection or bankruptcy proceedings. Without limiting the generality of the foregoing, post-judgment interest rate shall be the interest rate provided in paragraph (d) of Section 1.8 (Default Rate) above. 11.7 NO IMPLIED WAIVER; CUMULATIVE REMEDIES. No course of dealing and no delay or failure of the Administrative Agent or any other Lender in exercising any right, power or privilege under this Agreement or any other Loan Document shall affect any other or future exercise thereof or exercise of any other right, power or privilege; nor shall any single or partial exercise of any such right, power or privilege or any abandonment or discontinuance of steps to enforce such a right, power or privilege preclude any further exercise thereof or of any other right, power or privilege. The rights and remedies of the Administrative Agent and the other Lenders under this Agreement and any other Loan Document are cumulative and not exclusive of any rights or remedies which the Administrative Agent or any other Lender would otherwise have hereunder or thereunder, at law, in equity or otherwise. Any waiver of a specific default made in accordance with Section 11.8 below shall be effective only as to such specific default and shall not apply to any subsequent default. 11.8 AMENDMENTS; WAIVERS. (a) Any term, covenant, agreement or condition of any Loan Document to which the Lenders (or the Administrative Agent) are party may be amended, and any right under the Loan Documents may be waived, if, but only if, such amendment or waiver is in writing and is signed by the Majority Lenders or, as to any term requiring the consent or approval of the Super Majority Lenders, by the Super Majority Lenders (or by the Administrative Agent at the direction of the Majority Lenders or Super Majority Lenders, as appropriate); provided, however, if the rights and duties of the Administrative Agent are affected thereby, such amendment or waiver must be executed by the Administrative Agent; and provided, always that no such amendment or waiver shall be effective unless in writing and signed by all Lenders, if it would (a) amend the definition of "Majority Lenders" or "Super-Majority Lenders"; (b) release any Borrower from its Obligations; (c) change the principal amount of the Loans; (d) change the maturity of any Loan or the time of any scheduled principal payment of any Loan or any Reduction Date; (e) decrease the rates of interest or amount of fees payable hereunder or extend the time for payment of interest or fees hereunder; or (f) release any Collateral, except in connection with a disposition of stock or assets permitted under this Agreement. -75- In addition, the Administrative Agent may, without the consent of any Person, release any Borrower as a court of competent jurisdiction may direct. For purposes of determining whether "all Lenders", "Super Majority Lenders", "the Majority Lenders" or "any Lender" has consented to any amendment or waiver, no effect shall be given to the determination of any Lender who has lost its right to vote pursuant to Sections 1.3(c) or 1.6(e). Further, the Administrative Agent and the Lenders may amend or modify the provisions of Article 8 hereof (except for Section 8.9 (Successor Administrative Agent) and Article 11 hereof) without the need for any consent or approval from the Borrowers, it being acknowledged that the Borrowers are not third party beneficiaries of the provisions of said Article 9 (except for Section 9.9 (Successor Administrative Agent) and (y) without the consent of any Lenders, the Administrative Agent may enter into amendments and modifications to this Agreement and the other Loan Documents as necessary or desirable to cure any ambiguities herein or therein or to add additional Borrowers or add collateral. 11.9 SUCCESSORS AND ASSIGNS (a) Assignments by the Borrowers. Without the prior written consent of all of the Lenders, no Borrower may assign any of its rights or delegate any of its duties or obligations under this Agreement or any other Loan Document. (b) Participations. Any Lender, with NCO Groups consent, may sell participations to one or more Eligible Institutions of all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment); provided, however, that, with respect to any Lender, (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties to this Agreement for the performance of such obligations, (iii) all amounts payable by the Borrowers under this Agreement shall be determined as if such transferor Lender had not sold such participation and no participant shall be entitled to receive any greater amount pursuant to this Agreement than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred by such transferor Lender to such participant had no such transfer occurred, (iv) such participant shall agree to be bound by the provisions of this Agreement and the other Loan Documents, and (v) the Borrowers, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such transferor Lender in connection with such Lender's rights and obligations under this Agreement, and such Lender shall retain the sole rights and responsibility vis-a-vis the Borrowers to enforce the obligations of the Borrowers relating to the Loans including the right to approve any amendment, modification or waiver of any provision of this Agreement (except that such Lender may give its participants the right to direct such Lender to approve or disapprove any amendment, modification or waiver which would require such Lender's consent under clause (a) (b), (c), of the preceding Section 11.8). (c) Assignments by Lenders. Each Lender may assign to one or more Eligible Institutions all or a portion of its interest, rights and obligations under this Agreement (including all or a portion of its Commitment) and the other Loan Documents; provided, however, that with -76- respect to any assignment, (i) the aggregate principal amount of the interest, rights and obligations so assigned to any assignee may not be less than $5,000,000; (ii) unless the assignee is (prior to the effective time of the assignment) an existing Lender or an Affiliate of an existing Lender, the Administrative Agent and, if no Event of Default has occurred and is continuing, NCO Group (on behalf of the Borrowers) must give their prior written consent to such assignment (which consent shall not be unreasonably withheld), and (iii) the parties to each such assignment shall execute and deliver to the Administrative Agent and, unless an Event of Default has occurred and is continuing, NCO Group (on behalf of the Borrowers), for their acceptance, an Assignment and Acceptance Agreement in substantially the form attached hereto as Exhibit "L" (an "Assignment and Acceptance Agreement"), together with (A) any Note subject to such assignment, and (B) a processing and recordation fee of $3,500.00. If the assignee is not incorporated under the laws of the United States of America or a state thereof, it shall, prior to the first date on which interest or fees are payable hereunder for its account, deliver to NCO Group (on behalf of the Borrowers) and the Administrative Agent certification as to exemption from deduction or withholding of any United States federal income taxes. (d) Procedures Respecting Assignment. Upon their receipt of an Assignment and Acceptance executed by the assignor and the assignee, subject to the conditions set forth in the preceding paragraph (c), the Administrative Agent and (unless an Event of Default shall have occurred and be continuing) NCO Group (on behalf of the Borrowers) shall accept such Assignment and Acceptance. Within thirty (30) days after such Assignment and Acceptance is signed and accepted by all parties and made effective, the Borrowers, at their own expense, shall execute and deliver to the Administrative Agent new Notes in exchange for the surrendered Notes, each to the order of such assignee in an amount equal to its portion of the Commitment and Loans, assigned to it pursuant to such Assignment and Acceptance and new Notes to the order of the assigning Lender in an amount equal to the Commitment and Loans retained by it. Such Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Notes, shall be dated the date of such surrendered Notes (each assignee shall confirm in the Assignment and Acceptance that, notwithstanding the date of the new Notes made in favor of such assignee, such assignee shall have no right to, or interest in, any fees or interest which shall have accrued on the Loans prior to the effective date of the Assignment and Acceptance). Cancelled or replaced Notes shall be returned to the Borrowers upon the execution of such new Notes. (e) Assignments to Federal Reserve Bank. Notwithstanding any of the terms of this Section 11.9, without the consent of the Administrative Agent and the Borrowers, any Lender may assign all or any portion of its rights to payments in connection with this Agreement to a Federal Reserve Bank as collateral in accordance with Regulation A of the Board of Governors of the Federal Reserve System. Such assignment shall not affect any other rights or any obligations of the assigning Lender 11.10 COUNTERPARTS; PHOTOCOPIED OR TELECOPIED SIGNATURE PAGES. Any Loan Document may be executed in one or more counterparts, each of which shall constitute an original, but all of which together shall constitute one and the same instrument. Delivery of a photocopy or telecopy of an executed counterpart of a signature page to any Loan -77- Document shall be as effective as delivery of a manually executed counterpart of such Loan Document. 11.11 MAXIMUM LAWFUL INTEREST RATE. Notwithstanding any provision contained in this Agreement or the Notes or any other Loan Document, the total liability of the Borrowers for payment of interest pursuant to this Agreement and the Notes shall not exceed the maximum amount of such interest permitted by Law to be charged, collected, or received from the Borrowers, and if any payment by the Borrowers includes interest in excess of such a maximum amount, each Lender shall apply such excess to the reduction of the unpaid principal amount due pursuant to this Agreement and the Notes, or if none is due, to the other Obligations, if any, and then such excess shall be refunded to NCO Group (on behalf of the Borrowers). 11.12 INDEMNIFICATION. (a) Whether or not any fundings are made under this Agreement, the Borrowers jointly and severally shall unconditionally upon demand, pay or reimburse the Administrative Agent and other Lenders for, and indemnify and save the Administrative Agent, the other Lenders and their respective Affiliates, officers, directors, employees, agents, attorneys, shareholders and consultants (collectively, "Indemnitees") harmless from and against, any and all losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs or disbursements of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel for such Indemnitee in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not such Indemnitee shall be designated a party thereto) that may at any time be imposed on, asserted against or incurred by such Indemnitee as a result of, or arising out of, or in any way related to or by reason of, this Agreement or any other Loan Document, any acquisition or transaction from time to time contemplated hereby or by any other Loan Document, or any transaction actually or proposed to be financed in whole or in part or directly or indirectly with the proceeds of any Loan, any transaction contemplated by the Transaction Documents but excluding any such losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs or disbursements that the Borrowers prove were the result solely of the gross negligence or willful misconduct of such Indemnitee(s), as finally determined by a court of competent jurisdiction. If and to the extent that the foregoing obligations of the Borrowers under this paragraph (a), or any other indemnification obligation of the Borrowers hereunder or under any other Loan Document are unenforceable for any reason, the Borrowers hereby agree, jointly and severally, to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under applicable Law. (b) Without limiting the generality of the foregoing, the Borrowers jointly and severally hereby indemnify and agree to defend and hold harmless each Indemnitee, from and against any and all claims, actions, causes of action, liabilities, penalties, fines, damages, judgments, losses, suits, expenses, legal or administrative proceedings, interest, costs and expenses (including court costs and reasonable attorneys', consultants' and experts' fees) arising out of or in any way relating to: (i) the use, handling, management, production, treatment, processing, storage, transfer, transportation, disposal, release or threat of release of any Environmental Concern Material by or on behalf of, any Borrower or any of its Environmental Affiliates; (ii) the presence of Environmental Concern Materials on, about, beneath or arising -78- from any premises owned or occupied by any Borrower or any of its Environmental Affiliates (herein collectively, the "Premises"); (iii) the failure of any Borrower or Environmental Affiliate of a Borrower or any occupant of any Premises to comply with the Environmental Laws; (iv) any Borrower's breach of any of the representations, warranties and covenants contained herein or in any Loan Documents; (v) Regulatory Actions (as hereinafter defined) and Third Party Claims (as hereinafter defined); or (vi) the imposition or recording of a Lien against any Premises in connection with any release at, on or from any Premises or any activities undertaken on or occurring at any Premises, or arising from such Premises or pursuant to any Environmental Law. The Borrowers' indemnity and defense obligations under this section shall include, whether foreseeable or unforeseeable, any and all costs related to any remedial action. "Regulatory Action" means any notice of violation, citation, complaint, request for information, order, directive, compliance schedule, notice of claim, consent decree, action, litigation or proceeding brought or instituted by any governmental authority under or in connection with any Environmental Law involving any Borrower or any occupant of any of the Premises or involving any of the Premises or any activities undertaken on or occurring at any Premises. "Third Party Claims" means claims by a party (other than a party to this Agreement and other than Regulatory Actions) based on negligence, trespass, strict liability, nuisance, toxic tort or detriment to human health or welfare due to Environmental Concern Materials on, about, beneath or arising from any Premises or in any way related to any alleged violation of any Environmental Laws or any activities undertaken on or occurring at any Premises. (c) The indemnities contained herein shall survive repayment of the Obligations, termination of the Commitment and satisfaction, release, and discharge of the Loan Documents, whether through full payment of the Loans, foreclosure, deed in lieu of foreclosure or otherwise. (d) The foregoing amounts are in addition to any other amounts which may be due and payable to the Administrative Agent and/or the Lenders under this Agreement. A certification by the Administrative Agent or a Lender hereunder of the amount of liabilities, losses, costs, expenses, claims and/or charges shall be conclusive, absent manifest error. 11.13 EXPENSES Whether or not there shall be any funding hereunder, the Borrowers agree, jointly and severally, to pay promptly or cause to be paid promptly and to hold harmless (i) the Administrative Agent (and after an Event of Default, and for the period in which the same shall continue, each Lender) against liability for the payment of all reasonable out-of-pocket costs and expenses (including but not limited to reasonable fees and expenses of counsel, including local counsel, auditors, consulting engineers, appraisers, and all other professional, accounting, evaluation and consulting costs) incurred by it from time to time arising from or relating to (1) the negotiation, preparation, execution and delivery of this Agreement and the other Loan Documents, (2) the administration and performance of this Agreement and the other Loan Documents, and (3) any requested amendments, modifications, supplements, waivers or consents (whether or not ultimately entered into or granted) to this Agreement or any other Loan Document; -79- (ii) the Administrative Agent (and, with respect to clause (2) of this paragraph (ii) after an Event of Default, and for the period in which the same shall continue, each Lender) against liability for the payment of all reasonable out-of-pocket costs and expenses (including but not limited to reasonable fees and expenses of counsel, including local counsel, auditors, consulting engineers, appraisers, and all other professional, accounting, evaluation and consulting costs) incurred by it from time to time arising from or relating to the enforcement or preservation of rights under, or administration of, this Agreement or any other Loan Document (including but not limited to any such costs or expenses arising from or relating to (1) collection or enforcement of an outstanding Loan, Obligation, and (2) any litigation, proceeding, dispute, work-out, restructuring or rescheduling related in any way to this Agreement or the other Loan Documents); and (iii) each Lender against liability for all stamp, document, transfer, recording, filing, registration, search, sales and excise fees and taxes and all similar impositions now or hereafter determined by any Lender to be payable in connection with this Agreement or any other Loan Documents. 11.14 MAXIMUM AMOUNT OF JOINT AND SEVERAL LIABILITY. To the extent that applicable Law otherwise would render the full amount of the joint and several obligations of any Subsidiary of NCO Group hereunder and under the other Loan Documents invalid or unenforceable, such Borrower's obligations hereunder and under the other Loan Documents shall be limited to the maximum amount which does not result in such invalidity or unenforceability, provided, however, that each Borrower's obligations hereunder and under the other Loan Documents shall be presumptively valid and enforceable to their fullest extent in accordance with the terms hereof or thereof, as if this Section 11.14 were not a part of this Agreement. 11.15 AUTHORIZATION OF NCO GROUP BY OTHER BORROWERS. (a) Each of the Borrowers hereby irrevocably authorizes NCO Group to give notices, make requests, make payments, receive payments and notices, give receipts and execute agreements, make agreements or take any other action whatever on behalf of such Borrower under and with respect to any Loan Document and each Borrower shall be bound thereby. This authorization is coupled with an interest and shall be irrevocable, and the Administrative Agent and each Lender may rely on any notice, request, information supplied by NCO Group and every document executed by NCO Group, agreement made by NCO Group or other action taken by NCO Group in respect of the Borrowers or any thereof as if the same were supplied, made or taken by any or all Borrowers. Without limiting the generality of the foregoing, the failure of one or more Borrowers to join in the execution of any writing in connection herewith shall not, unless the context clearly requires, relieve any such Borrower from obligations in respect of such writing. (b) The Borrowers acknowledge that the credit provided hereunder is on terms more favorable than any Borrower acting alone would receive and that each Borrower benefits indirectly from all Loans and Letters of Credit hereunder. NCO Group and, subject only to the terms of the preceding paragraph (a), each of the other Borrowers, shall be jointly and severally liable for all Obligations, regardless of, inter alia, which Borrower requested (or received the proceeds of) a particular Loan. -80- 11.16 CERTAIN WAIVERS BY BORROWERS. Each Borrower hereby waives promptness, diligence, notice of acceptance and any other notice with respect to any of the Obligations and any requirement that any Lender exhaust any right or take any action against any other Borrower or any other Person or any collateral or other direct or indirect security for any of the Obligations. Without limiting the generality of the foregoing, each Borrower acknowledges and agrees that the Administrative Agent or other Lender may commence an action against such Borrower whether or not any action is brought against any other Borrower or against any collateral and it shall be no defense to any action brought against any Borrower that the Lenders have failed to bring an action against any other Borrower or any Collateral. 11.17 SET-OFF. The Borrowers hereby agree that, to the fullest extent permitted by Law, if any Loan shall be due and payable (by acceleration or otherwise), each Lender shall have the right, without notice to any Borrower, to set-off against and to appropriate and apply to such Loan any indebtedness, liability or obligation of any nature owing to any Borrower by such Lender, including but not limited to all deposits now or hereafter maintained by any Borrower with such Lender but not including any escrow account maintained by any Borrower. Such right shall exist whether or not such Lender or any other Person shall have given notice or made any demand to any Borrower or any other Person. The Borrowers hereby agree that, to the fullest extent permitted by Law, any participant and any Affiliate of any Lender or any participant shall have the same rights of set-off as a Lender as provided in this Section 11.17. The rights provided by this Section 11.17 are in addition to all other rights of set-off and banker's lien and all other rights and remedies which any Lender (or any such participant, or Affiliate) may otherwise have under this Agreement, any other Loan Document, at law or in equity, or otherwise. 11.18 SHARING OF COLLECTIONS. The Lenders hereby agree among themselves that if any Lender shall receive (by voluntary payment, realization upon security, charging of accounts, set-off or from any other source) any amount on account of the Obligations in greater proportion than any such amount received by any other Lender (based on the relative amount of each such Lender's interest in the Obligations), then the Lender receiving such proportionately greater payment shall notify each other Lender and the Administrative Agent of such receipt, and equitable adjustment will be made in the manner stated in this Section 11.18 so that, in effect, all such excess amounts will be shared ratably among all of the Lenders. The Lender receiving such excess amount shall purchase (which it shall be deemed to have done simultaneously upon the receipt of such excess amount) for cash from the other Lenders a participation in the applicable Obligations owed to such other Lenders in such amount as shall result in a ratable sharing by all Lenders of such excess amount (and to such extent the receiving Lender shall be a participant). If all or any portion of such excess amount is thereafter recovered from the Lender making such purchase, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, together with interest or other amounts, if any, required by Law to be paid by the Lender making such purchase. The Borrowers hereby consent to and confirm the foregoing arrangements. Each participant shall be bound by this Section 11.18 as fully as if it were a Lender hereunder. 11.19 OTHER LOAN DOCUMENTS. Each Lender acknowledges that on signing this Agreement it is bound by the terms of the Loan Documents. -81- 11.20 CERTAIN BORROWER ACKNOWLEDGEMENTS. Each Borrower hereby acknowledges that neither the Administrative Agent nor any other Lender has any fiduciary relationship with, or any fiduciary duty to any Borrower arising out of or in connection with this Agreement or any of the other Loan Documents and the relationship between the Administrative Agent and the other Lenders, on the one hand, and the Borrower, on the other hand, in connection herewith or therewith is solely that of debtor and creditor. 11.21 CONSENT TO JURISDICTION, SERVICE AND VENUE; WAIVER OF JURY TRIAL. (a) Consent to Jurisdiction. For the purpose of enforcing payment and performance of the Loan Documents, including, any payment under the Notes and performance of other obligations under the Loan Documents, or in any other matter relating to, or arising out of, the Loan Documents, each of the Borrowers hereby consents to the jurisdiction and venue of the courts of the Commonwealth of Pennsylvania or of any federal court located in such state, waive personal service of any and all process upon it and consents that all such service of process be made by certified or registered mail directed to NCO Group (on behalf of the applicable Borrowers) at the address provided for in Section 11.1 and service so made shall be deemed to be completed upon actual receipt or execution of a receipt by any Person at such address. Each of the Borrowers hereby waives the right to contest the jurisdiction and venue of the courts located in the Commonwealth of Pennsylvania on the ground of inconvenience or otherwise and, further, waives any right to bring any action or proceeding against (a) the Administrative Agent in any court outside the Commonwealth of Pennsylvania, or (b) any other Lender other than in a state within the United States designated by such Lender. The provisions of this Section 11.21 shall not limit or otherwise affect the right of the Administrative Agent or any other Lender to institute and conduct an action in any other appropriate manner, jurisdiction or court. (b) WAIVER OF JURY TRIAL; DAMAGES. NEITHER ANY LENDER NOR ANY BORROWER, NOR ANY ASSIGNEE, SUCCESSOR, HEIR OR PERSONAL REPRESENTATIVE OF THE FOREGOING SHALL SEEK A JURY TRIAL IN ANY PROCEEDING BASED UPON OR ARISING OUT OF THIS AGREEMENT, OR ANY OTHER LOAN DOCUMENT, OR INVOLVING ANY COLLATERAL OR ANY GUARANTY RELATING TO THE INDEBTEDNESS HEREUNDER OR THE RELATIONSHIP BETWEEN OR AMONG SUCH PERSONS OR ANY OF THEM. NO SUCH PERSON WILL SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. EXCEPT AS PROHIBITED BY LAW, EACH PARTY TO THIS AGREEMENT WAIVES ANY RIGHTS IT MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION REFERRED TO IN THIS SECTION 11.21 ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. EACH PARTY TO THIS AGREEMENT (I) CERTIFIES THAT NEITHER THE ADMINISTRATIVE AGENT NOR ANY LENDER NOR ANY REPRESENTATIVE, OR ATTORNEY OF THE ADMINISTRATIVE AGENT OR ANY LENDER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE ADMINISTRATIVE AGENT OR SUCH LENDER WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (II) -82- ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND EACH OTHER LOAN DOCUMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS PARAGRAPH (B) OF SECTION 11.21. THE PROVISIONS OF THIS SECTION 11.21 HAVE BEEN FULLY DISCLOSED TO THE PARTIES AND THE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NO PARTY HAS IN ANY WAY AGREED WITH OR REPRESENTED TO ANY OTHER PARTY THAT THE PROVISIONS OF THIS SECTION 11.21 WILL NOT BE FULLY ENFORCED IN ALL INSTANCES. 11.22 MOST FAVORED BORROWER. Notwithstanding anything in this Agreement to the contrary, Borrowers are required to pay taxes, charges and other amounts to Lender(s) and/or Administrative Agent under Sections 1.13, 2.2, 2.3 and 2.4 only if, and to the extent, such Lender(s) and/or Administrative Agent charge similarly situated borrowers similar amounts under similar circumstances. -83- IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly authorized, have executed and delivered this Agreement as of the date first above written. NCO GROUP, INC. NCO FINANCIAL SYSTEMS INC. NCO TELESERVICES, INC. CRWF ACQUISITION, INC. K & K ACQUISITION, INC. NCO FINANCIAL SYSTEMS OF MI, INC. NCO FINANCIAL SYSTEMS OF NC, INC. MANAGEMENT ADJUSTMENT BUREAU FUNDING, INC. CREDIT ACCEPTANCE FUNDING, CORPORATION ADVANTAGE FINANCIAL SERVICES FUNDING,INC. AMERICAN TRANSPORT SERVICE BUREAU, INC. ADVANTAGE SOUTHEAST, INC. GOODYEAR & ASSOCIATES FUNDING, INC. NCO FUNDING, INC. CRW TEXAS, INC. CRW CALIFORNIA, INC. MEDSOURCE INC. MAC/TCS, LTD. ALL STATES CREDIT SERVICE, INC. WORLD CREDIT, INC. MANAGEMENT FINANCIAL SERVICES, INC. FCA FUNDING, INC. By /s/ MICHAEL J. BARRIST ------------------------------------ MICHAEL J. BARRIST, as President and Chief Executive Officer of each [Corporate Seals] FINANCIAL COLLECTION AGENCIES, INC. FCA LEASING, INC. By /s/ STEVEN L. WINOKUR ------------------------------------- STEVEN L. WINOKUR as Treasurer of each [Corporate Seals] -84- Address for Notices to each Borrower: c/o NCO Group, Inc. 515 Pennsylvania Avenue Fort Washington, PA 19034 Attn: MICHAEL J. BARRIST Telephone: (215) 793-2101 Facsimile: (215) 793-2908 with copies to: BLANK ROME COMISKY & McCAULEY LLP One Logan Square, 10th Floor Philadelphia, PA 19103 Attn: Joel C. Shapiro, Esq. Telephone: (215) 569-5476 Facsimile: (215) 569-5555 MELLON BANK, N.A. By /s/ Liam M. Brickley ---------------------------------- Liam M. Brickley Vice President Address for Notices: Plymouth Meeting Executive Campus 610 West Germantown Pike, Suite 200 Plymouth Meeting, PA 19462 Attn: Liam M. Brickley Telephone: (610) 941-8401 Facsimile: (610) 941-4136 with a copy to: DRINKER BIDDLE & REATH LLP 1000 Westlakes Drive, Suite 300 Berwyn, PA 19312 Attn: George V. Strong, III, Esq. Telephone: (610) 993-2218 Facsimile: (610) 993-8585 -85- -----END PRIVACY-ENHANCED MESSAGE-----