-----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, VHlegxp5DrDR40PpGWenvz0/g3+W44Mi7VWX1di46U25WgxATlYPANl6Vrbv4WjQ twN4iVmndQaV314mIsw3IA== 0000950116-01-500188.txt : 20010516 0000950116-01-500188.hdr.sgml : 20010516 ACCESSION NUMBER: 0000950116-01-500188 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20010404 FILED AS OF DATE: 20010515 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: 10-Q SEC ACT: SEC FILE NUMBER: 000-21639 FILM NUMBER: 1636247 BUSINESS ADDRESS: STREET 1: 515 PENNSYLVANIA AVE CITY: FT WASHINGTON STATE: PA ZIP: 19034 BUSINESS PHONE: 2157939300 10-Q 1 ten-q.txt 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q /X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2001, or / / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to - -------------------------------------------------------------------------------- COMMISSION FILE NUMBER 0-21639 - -------------------------------------------------------------------------------- NCO GROUP, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) PENNSYLVANIA - -------------------------------------------------------------------------------- (State or other jurisdiction of incorporation or organization) 515 Pennsylvania Avenue, Fort Washington, Pennsylvania - -------------------------------------------------------------------------------- (Address of principal executive offices) 23-2858652 - -------------------------------------------------------------------------------- (IRS Employer Identification Number) 19034 - -------------------------------------------------------------------------------- (Zip Code) 215-793-9300 - -------------------------------------------------------------------------------- (Registrant's telephone number including area code) Not Applicable - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ______ The number of shares outstanding of each of the issuer's classes of common stock was 25,749,648 shares common stock, no par value, outstanding as of May 14, 2001. NCO GROUP, INC. INDEX PAGE PART I - FINANCIAL INFORMATION Item 1 CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Consolidated Balance Sheets - December 31, 2000 and March 31, 2001 1 Consolidated Statements of Income - Three months ended March 31, 2000 and 2001 2 Consolidated Statements of Cash Flows - Three months ended March 31, 2000 and 2001 3 Notes to Consolidated Financial Statements 4 Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12 Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 16 PART II - OTHER INFORMATION 17 Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults Upon Senior Securities Item 4. Submission of Matters to a Vote of Shareholders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K Part 1 - Financial Information Item 1 - Financial Statements NCO GROUP, INC. Consolidated Balance Sheets (Amounts in thousands)
March 31, December 31, 2001 ASSETS 2000 (Unaudited) ------------ ----------- Current assets: Cash and cash equivalents $ 13,490 $ 26,395 Restricted cash -- 1,125 Accounts receivable, trade, net of allowance for doubtful accounts of $7,080 and $6,349, respectively 93,971 99,149 Purchased accounts receivable, current portion 10,861 34,898 Deferred income taxes 2,287 3,372 Other current assets 7,925 9,275 --------- --------- Total current assets 128,534 174,214 Funds held on behalf of clients Property and equipment, net 66,401 71,683 Other assets: Intangibles, net of accumulated amortization 536,750 531,876 Purchased accounts receivable, net of current portion 23,614 105,388 Notes receivable 18,250 18,250 Other assets 10,457 15,873 --------- --------- Total other assets 589,071 671,387 --------- --------- Total assets $ 784,006 $ 917,284 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Long-term debt, current portion $ 642 $ 26,547 Corporate taxes payable 1,328 622 Accounts payable 12,360 12,922 Accrued expenses 19,168 23,520 Accrued compensation and related expenses 15,304 16,373 --------- --------- Total current liabilities 48,802 79,984 Funds held on behalf of clients Long-term liabilities: Long-term debt, net of current portion 303,920 376,723 Deferred income taxes 40,549 39,164 Other long-term liabilities 4,309 4,194 Minority interest -- 17,495 Shareholders' equity: Preferred stock, no par value, 5,000 shares authorized, no shares issued and outstanding -- -- Common stock, no par value, 37,500 shares authorized, 25,627 and 25,750 shares issued and outstanding, respectively 316,372 319,654 Other comprehensive loss (1,525) (3,786) Retained earnings 71,579 83,856 --------- --------- Total shareholders' equity 386,426 399,724 --------- --------- Total liabilities and shareholders' equity $ 784,006 $ 917,284 ========= =========
See accompanying notes -1- NCO GROUP, INC. Consolidated Statements of Income (Unaudited) (Amounts in thousands, except per share data)
For the Three Months Ended March 31, -------------------------------- 2000 2001 --------- --------- Revenue $ 143,998 $ 171,029 Operating costs and expenses: Payroll and related expenses 70,646 82,912 Selling, general, and administrative expenses 41,558 51,123 Depreciation and amortization expense 7,545 8,954 --------- --------- Total operating costs and expenses 119,749 142,989 --------- --------- Income from operations 24,249 28,040 Other income (expense): Interest and investment income 503 916 Interest expense (6,421) (7,421) Other income 1,313 -- --------- --------- Total other income (expense) (4,605) (6,505) --------- --------- Income before income tax expense 19,644 21,535 Income tax expense 8,251 8,666 --------- --------- Income from continuing operations before minority interest 11,393 12,869 Minority interest -- (592) --------- --------- Income from continuing operations 11,393 12,277 Discontinued operations, net of income taxes: Loss from discontinued operations (904) -- Loss on disposal of discontinued operations (20,814) -- --------- --------- Net (loss) income $ (10,325) $ 12,277 ========= ========= Income from continuing operations per share: Basic $ 0.45 $ 0.48 Diluted $ 0.44 $ 0.47 Net (loss) income per share: Basic $ (0.40) $ 0.48 Diluted $ (0.40) $ 0.47 Weighted average shares outstanding: Basic 25,540 25,687 Diluted 25,852 26,340
See accompanying notes. -2- NCO GROUP, INC Consolidated Statements of Cash Flows (Unaudited) (Amounts in thousands)
For the Three Months Ended March 31, ------------------------------ 2000 2001 -------- -------- Cash flows from operating activities: Income from continuing operations $ 11,393 $ 12,277 Adjustments to reconcile income from continuing operations to net cash (used in) provided by continuing operating activities: Depreciation 3,278 4,628 Amortization of intangibles 4,267 4,326 Provision for doubtful accounts 657 779 Minority interest -- 592 Changes in operating assets and liabilities, net of acquisitions: Restricted cash -- 2,555 Accounts receivable, trade (10,290) (6,183) Deferred income taxes 1,555 7,530 Other assets (2,696) (2,147) Accounts payable and accrued expenses (417) 1,278 Corporate taxes payable (4,049) (294) Other long-term liabilities (3,727) (115) -------- -------- Net cash (used in) provided by continuing operating activities (29) 25,226 Net cash provided by discontinued operating activities 1,551 -- -------- -------- Net cash provided by operating activities 1,522 25,226 Cash flows from investing activities: Acquisition of purchased accounts receivable (7,583) (13,493) Collections applied to principal of purchased accounts receivable 1,343 6,978 Purchase of property and equipment (9,798) (7,755) Investment in consolidated subsidiary by minority interest -- 2,320 Net cash paid for pre-acquisition liabilities and acquisition related costs -- (11,077) -------- -------- Net cash used in investing activities (16,038) (23,027) Cash flows from financing activities: Repayment of notes payable (398) (4,390) Repayment of acquired notes payable -- (20,084) Borrowings under revolving credit agreement -- 47,350 Repayment of borrowings under revolving credit agreement -- (13,800) Payment of fees to acquire new debt -- (939) Issuance of common stock, net 7 2,872 -------- -------- Net cash (used in) provided by financing activities (391) 11,009 Effect of exchange rate on cash 1 (303) -------- -------- Net (decrease) increase in cash and cash equivalents (14,906) 12,905 Cash and cash equivalents at beginning of period 50,513 13,490 -------- -------- Cash and cash equivalents at end of period $ 35,607 $ 26,395 ======== ========
See accompanying notes. -3- NCO GROUP, INC. Notes to Consolidated Financial Statements (Unaudited) 1. Nature of Operations: NCO Group, Inc. (the "Company" or "NCO") is a leading provider of accounts receivable management and collection services. The Company also owns approximately 63% of NCO Portfolio Management, Inc., a separate public company that purchases and manages accounts receivable. The Company's client base includes companies in the financial services, healthcare, retail, commercial, education, utilities, government and telecommunications sectors. These clients are primarily located throughout the United States of America, Canada, the United Kingdom, and Puerto Rico. 2. Accounting Policies: Interim Financial Information: The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2001, are not necessarily indicative of the results that may be expected for the year ending December 31, 2001, or for any other interim period. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 16, 2001. Principles of Consolidation: The consolidated financial statements include the accounts of the Company and all affiliated subsidiaries and entities controlled by the Company. All significant intercompany accounts and transactions have been eliminated. Contingency Fees and Contractual Services: The Company generates revenue from contingent fees and contractual services. Contingent fee revenue is recognized upon collection of funds on behalf of clients. Contractual services revenue is recognized as services are performed and accepted by the client. Purchased Accounts Receivable: The Company accounts for its investment in purchased accounts receivable on an accrual basis under the guidance of Practice Bulletin 6, "Amortization of Discounts on Certain Acquired Loans," using unique and exclusive static pools. Static pools are established with accounts having similar attributes. Typically, each pool consists of an individual acquisition of accounts. Once a static pool is established, the accounts in the pool are not changed. Each static pool is initially recorded at cost. Collections on the pools are allocated to revenue and principal reduction based on the estimated internal rate of return for each pool. The internal rate of return for each static pool is estimated based on the expected monthly collections over the estimated economic life of each pool (generally five years, based on the Company's collection experience), compared to the original purchase price. Revenue on purchased accounts receivable is recorded monthly based on each static pool's effective internal rate of return applied to each static pool's monthly opening carrying value. To the extent collections exceed the revenue, the carrying value is reduced and the reduction is recorded as collections applied to principal. Because the internal rate of return reflects collections for the entire economic life of the static pool and those collections are not constant, lower collection rates, typically in the early months of ownership, can result in a situation where the actual collections are less than the revenue accrual. In this situation, the carrying value of the pool may be accreted for the difference between the revenue accrual and the carrying value. -4- 2. Accounting Policies (continued): Purchased Accounts Receivable (continued): To the extent the estimated future cash flow increases or decreases from the expected level of collections, the Company adjusts the yield (the internal rate of return) accordingly. To the extent that the carrying amount of a particular static pool exceeds its expected future cash flows, a charge to earnings would be recognized in the amount of such impairment. After the impairment of a static pool, no income is recorded on that static pool and collections are recorded as a return of capital. The estimated yield for each static pool is based on estimates of future cash flows from collections, and actual cash flows may vary from current estimates. The difference could be material. Proceeds from the sale of accounts that are included as parts of a static pool are accounted for as collections in that static pool. Collections on replacement accounts received from the originator of the loans are included as collections in the corresponding static pools. The discount between the cost of each static pool and the face value of the static pool is not recorded since the Company expects to collect a relatively small percentage of each static pool's face value. Credit Policy: The Company has two types of arrangements under which it collects its contingent fee revenue. For certain clients, the Company remits funds collected on behalf of the client net of the related contingent fees while, for other clients, the Company remits gross funds collected on behalf of clients and bills the client separately for its contingent fees. Management carefully monitors its client relationships in order to minimize its credit risk and generally does not require collateral. In many cases, in the event of collection delays from clients, management may, at its discretion, change from the gross remittance method to the net remittance method. Intangibles: Intangibles consist primarily of goodwill and deferred financing costs. Goodwill represents the excess of purchase price over the fair market value of the net assets of the acquired businesses based on their respective fair values at the date of acquisition. Goodwill is amortized on a straight-line basis over 15 to 40 years. The Company reviews the recoverability of its goodwill whenever events or circumstances indicate that the carrying amount of the goodwill may not be recoverable. If such circumstances arise, the Company would use an estimate of the undiscounted value of expected future operating cash flows to determine whether the goodwill is recoverable. Deferred financing costs relate to debt issuance costs incurred, which are capitalized and amortized over the term of the debt. Income Taxes: The Company accounts for income taxes using an asset and liability approach. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting basis and the tax basis of assets and liabilities. Income taxes were computed after giving effect to the nondeductible portion of goodwill expenses attributable to certain acquisitions. The static pools of purchased accounts receivable are comprised of distressed debt. Collection results are not guaranteed until received; accordingly, for tax purposes, any gain on a particular static pool is deferred until the full cost of its acquisition is recovered. Revenue for financial reporting purposes is recognized over the life of the static pool. Deferred income tax benefits are created during the early stages of the static pool, and are realized after the cost basis of the static pool is recovered. The creation of new deferred income tax benefits from future purchases of static pools are expected to offset the reversal of the deferred income tax benefits from static pools where the collections have become fully taxable. -5- 2. Accounting Policies (continued): Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates have been made by management with respect to the amount of future cash flows of purchased accounts receivable portfolios. The estimated future cash flows of the portfolios are used to recognize revenue and amortize the carrying values of the purchased accounts receivable. Actual results could differ from these estimates, making it reasonably possible that a change in these estimates could occur within one year. On a quarterly basis, management reviews the estimate of future collections, and it is reasonably possible that its assessment may change based on actual results and other factors. The change could be material. Derivative Financial Instruments: During the first quarter of 2001, the Company adopted the provisions of Financial Accounting Standards Board's SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which was subsequently amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities --Deferral of the Effective Date of FASB Statement No. 133," collectively referred to as SFAS No. 133. SFAS No. 133 requires that an entity recognize all derivative instruments as either assets or liabilities on its balance sheet at their fair values. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction, and, if it is, the type of hedge transaction. The adoption of SFAS No. 133 did not have a material impact on the Company's consolidated results of operations, financial condition, or cash flows for the three months ended March 31, 2001. Reclassifications: Certain amounts for December 31, 2000, and for the three months ended March 31, 2000, have been reclassified for comparative purposes. 3. Discontinued Operations: On April 14, 2000 (the "Measurement Date"), the Company's Board of Directors approved a plan to divest the Company's Market Strategy division as part of its strategic plan to increase long-term shareholder value and focus on its core business of accounts receivable management services. The Market Strategy division provided market research and telemarketing services. The market research assets were acquired through the January 1997 acquisition of the Tele-Research Center, Inc. and the February 1998 acquisition of The Response Center. The telemarketing assets were acquired as non-core components of the March 1999 acquisition of JDR Holdings, Inc., and the August 1999 acquisition of Compass International Services Corporation. On October 26, 2000, TRC Holdings, Inc. and Creative Marketing Strategies, Inc., both management-led groups, acquired the assets of the market research and telemarketing businesses, respectively. In consideration for the purchased assets of the market research business, the Company received a $12.25 million note. The note earns interest at a fixed rate of 9% per year and the interest payments are due monthly. The entire principal balance is due on December 31, 2002. In the event that the principal and the remaining interest is not paid in full on December 31, 2002, the principal of the note will be increased by a maximum of $2.0 million. The remaining principal and interest will be due in equal monthly payments until December 31, 2005. In consideration for the purchased assets of the telemarketing business, the Company received a $6.0 million note. The note earns interest at a fixed rate of 9% per year and the interest payments are due monthly. Commencing on December 1, 2003, in addition to the interest payments, principal payments of $25,000 will be due monthly until November 1, 2005. The remaining principal and interest will become due in full on November 1, 2005. -6- 3. Discontinued Operations (continued): In accordance with the Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," the consolidated financial statements and the accompanying notes of the Company have been presented to reflect the Market Strategy division as discontinued operations for all periods presented. The following summary of the Market Strategy division's operations prior to the Measurement Date have been presented net in the Company's consolidated statement of income for the three months ended March 31, 2000 (amounts in thousands): 2000 ----------- Revenue $ 6,607 =========== Loss from discontinued operations before income tax benefit $ (1,403) Income tax benefit (499) ----------- Loss from discontinued operations, net of income tax benefit $ (904) =========== During the three months ended March 31, 2001, the Company recorded a $20.8 million loss (net of a tax benefit of $2.9 million), or $0.81 loss per share on a diluted basis, on the disposal of the Market Strategy division. This loss reflected management's estimate of the difference between the net assets of the Market Strategy division over the proceeds from the divestiture and the estimated operating losses from the Measurement Date through the completion of the divestiture. 4. Acquisition: In February 2001, the Company merged NCO Portfolio Management, Inc. ("NCO Portfolio"), its wholly owned subsidiary, with Creditrust Corporation ("Creditrust") to form a new public entity focused on the purchase of accounts receivable. After the merger, the Company owned approximately 63% of the outstanding stock of NCO Portfolio, subject to certain adjustments. The Company's contribution to the NCO Portfolio merger consisted of $25.0 million of purchased accounts receivable. As part of the acquisition, NCO Portfolio signed a ten-year service agreement that appointed the Company as the sole provider of collection services to NCO Portfolio. The Company has agreed to offer all of its future U.S. accounts receivable purchase opportunities to NCO Portfolio. In connection with the acquisition, NCO Group amended its credit agreement with Mellon Bank, N.A. to make $50.0 million of its credit facility available for the use of NCO Portfolio. Upon completion of the acquisition, NCO Group borrowed $36.3 million for NCO Portfolio under this credit facility. 5. Comprehensive (Loss) Income: Comprehensive (loss) income consists of net income from operations, plus certain changes in assets and liabilities that are not included in net income but are reported as a separate component of shareholders' equity. The Company's comprehensive (loss) income for the three months ended March 31, 2000 and 2001 was as follows (amounts in thousands): 2000 2001 ---------- --------- Net (loss) income $ (10,325) $ 12,277 Foreign currency translation adjustment (5) (2,261) ---------- --------- Comprehensive (loss) income $ (10,330) $ 10,016 ========== ========= -7- 6. Purchased Accounts Receivable: The Company purchases defaulted consumer receivables at a discount from the actual principal balance. The following summarizes the change in purchased accounts receivable for the year ended December 31, 2000 and for the three months ended March 31, 2001: December 31, March 31, 2000 2001 --------- --------- Balance, at beginning of period $ 4,694 $ 31,480 Purchased accounts receivable acquired from Creditrust -- 98,988 Purchases of accounts receivable 31,351 14,287 Collections on purchased accounts receivable (17,716) (19,253) Revenue recognized 13,151 12,618 --------- --------- Balance, at end of period $ 31,480 $ 138,120 ========= ========= To the extent that the carrying amount of a static pool exceeds its fair value, a valuation allowance would be recognized in the amount of such impairment. As of December 31, 2000 and March 31, 2001, no valuation allowance has been recorded. 7. Funds Held on Behalf of Clients: In the course of the Company's regular business activities as a provider of accounts receivable management services, the Company receives clients' funds arising from the collection of accounts placed with the Company. These funds are placed in segregated cash accounts and are generally remitted to clients within 30 days. Funds held on behalf of clients of $54.1 million and $68.2 million at December 31, 2000 and March 31, 2001, respectively, have been shown net of their offsetting liability for financial statement presentation. 8. Long-Term Debt: Revolving Credit Facility The Company has a credit agreement with Mellon Bank, N.A. ("Mellon Bank"), for itself and as administrative agent for other participating lenders, that provides for borrowings up to $350.0 million, structured as a $350.0 million revolving credit facility. At the option of NCO, the borrowings bear interest at a rate equal to either Mellon Bank's prime rate plus a margin of 0.25% to 0.50% that is determined quarterly based upon the Company's consolidated funded debt to earnings before interest, taxes, depreciation, and amortization ("EBITDA") ratio (Mellon Bank's prime rate was 8.00% at March 31, 2001), or the London InterBank Offered Rate ("LIBOR") plus a margin of 1.25% to 2.25% depending on the Company's consolidated funded debt to EBITDA ratio (LIBOR was 5.08% at March 31, 2001). The Company is charged a fee on the unused portion of the credit facility ranging from 0.13% to 0.38% depending on the Company's consolidated funded debt to EBITDA ratio. In connection with the merger of Creditrust into NCO Portfolio, the Company amended its revolving credit facility to allow the Company to provide NCO Portfolio with a $50 million revolving line of credit in the form of a sub-facility under its existing credit facility. At the option of NCO, the borrowings bear interest at a rate equal to either Mellon Bank's prime rate plus a margin of 1.25% to 1.50% that is determined quarterly based upon the Company's consolidated funded debt to EBITDA ratio, or LIBOR plus a margin of 2.25% to 3.25% depending on the Company's consolidated funded debt to EBITDA ratio. Borrowings are collateralized by substantially all the assets of the Company, including the common stock of NCO Portfolio, and certain assets of NCO Portfolio. The balance under the revolving credit facility shall become due on May 20, 2004. The credit agreement contains certain financial covenants such as maintaining net worth and funded debt to EBITDA requirements and includes restrictions on, among other things, acquisitions and distributions to shareholders. -8- 8. Long-Term Debt (continued): Securitized Debt The Company has assumed three securitized notes payable in connection with the acquisition of Creditrust. These notes payable were originally established to fund the purchase of accounts receivable. Each of the notes payable is non-recourse, secured by a pool of purchased accounts receivable, and is bound by an indenture and servicing agreement. Pursuant to the acquisition, the trustee appointed NCO Group as the successor servicer for each pool of purchased accounts receivables. When the notes payable were established, a separate special purpose finance subsidiary was created to house the assets and debt. The first securitized note ("Warehouse Facility") was established in September 1998 through Creditrust Funding I LLC, a special purpose finance subsidiary. The Warehouse Facility carries a floating interest rate of LIBOR plus 0.65% per annum, and the final due date of all payments under the facility is March 2005. A $900,000 liquidity reserve is included in restricted cash as of March 31, 2001, and restricted as to use until the facility is retired. Interest expense, trustee fees and guarantee fees aggregated $257,000 for the period from February 21, 2001 to March 31, 2001. As of March 31, 2001, the amount outstanding on the facility was $20.3 million. The note issuer, Asset Guaranty Insurance Company, has been guaranteed against loss by NCO Portfolio for up to $4.5 million, which will be reduced if and when reserves and residual cash flows from another securitization are posted as additional collateral for this facility. The second securitized note ("SPV99-1 Financing") was established in August 1999 through Creditrust SPV99-1, LLC, a special purpose finance subsidiary. SPV99-1 Financing carries interest at 9.43% per annum, with a final payment date of August 2004. A $225,000 liquidity reserve is included in restricted cash as of March 31, 2001, and restricted as to use until the facility is retired. Interest expense and trustee fees aggregated $141,000 for the period from February 21, 2001 to March 31, 2001. As of March 31, 2001, the amount outstanding on the facility was $12.7 million. The third securitized note ("SPV99-2 Financing") was established in August 1999 through Creditrust SPV99-2, LLC, a special purpose finance subsidiary. SPV99-2 Financing carries interest at 15.00% per annum, with a final payment date of December 2004. Interest expense and trustee fees aggregated $421,000 for the period from February 21, 2001 to March 31, 2001. As of March 31, 2001, the amount outstanding on the facility was $28.1 million. 9. Earnings Per Share: Basic earnings per share ("EPS") were computed by dividing the income from continuing operations and the net (loss) income for the three months ended March 31, 2000 and 2001, by the weighted average number of shares outstanding. Diluted EPS were computed by dividing the income from continuing operations and the net (loss) income for the three months ended March 31, 2000 and 2001, by the weighted average number of shares outstanding plus all common equivalent shares. Outstanding options, warrants and convertible securities have been utilized in calculating diluted net (loss) income per share only when their effect would be dilutive. The reconciliation of basic to diluted weighted average shares outstanding for the three months ended March 31, 2000 and 2001 consisted of the following (amounts in thousands): 2000 2001 --------- --------- Basic 25,540 25,687 Dilutive effect of warrants 108 154 Dilutive effect of options 204 499 --------- --------- Diluted 25,852 26,340 ========= ========= -9- 10. Supplemental Cash Flow Information: The following are supplemental disclosures of cash flow information for the three months ended March 31, 2000 and 2001 (amounts in thousands): 2000 2001 ---- ---- Non-cash investing and financing activities: Fair value of assets acquired $ - $121,511 Liabilities assumed from acquisitions - 106,627 11. Segment Reporting: During the first nine months of 2000, the Company was organized into operating divisions that were focused on the operational delivery of services. The Company's focus on the operational delivery of services allowed it to take advantage of significant cross-selling opportunities and enhance the level of service provided to its clients. The operating divisions during the first nine months of 2000 included Accounts Receivable Management Services, Technology-Based Outsourcing, and International Operations. During 2000, the continued integration of the Company's infrastructure facilitated the further reduction of the operating divisions from three to two. Effective October 1, 2000, the new operating divisions included U.S. Operations (formerly Accounts Receivable Management Services and Technology-Based Outsourcing) and International Operations. Each of these divisions will maintain industry specific functional groups including healthcare, commercial, banking, retail, education, utilities, telecommunications, and government. The Company created the Portfolio Management division as a result of the February 2001 acquisition of Creditrust. Prior to the acquisition, NCO's portfolio business was part of the U.S. operations division. The segment information for the three months ended March 31, 2000, has been restated to reflect the three continuing operating segments. The accounting policies of the segments are the same as those described in Note 2, "Accounting Policies." Segment data include a charge allocating corporate overhead costs to each of the operating segments based on revenue and employee headcount. The U.S Operations division provides accounts receivable management services to consumer and commercial accounts for all market segments, serving clients of all sizes in local, regional and national markets. In addition to traditional accounts receivable collections, these services include developing the client relationship beyond bad debt recovery and delinquency management, delivering cost-effective receivables and customer relationship management solutions to all market segments, serving clients of all sizes in local, regional and national markets. The U.S. Operations division had total assets, net of any intercompany balances, of $704.5 million and $714.4 million at December 31, 2000 and March 31, 2001, respectively. The Portfolio Management division purchases and manages defaulted consumer receivables from credit grantors, including banks, finance companies, retail merchants and other service providers. The Portfolio Management division had total assets, net of any intercompany balances, of $32.1 million and $157.2 million at December 31, 2000 and March 31, 2001, respectively. The International Operations division provides accounts receivable management services across Canada and the United Kingdom. The International Operations division had total assets, net of any intercompany balances, of $47.4 million and $45.7 million at December 31, 2000 and March 31, 2001, respectively. -10- 11. Segment Reporting (continued): The following tables represent the revenue, payroll and related expenses, selling, general and administrative expenses, and earnings before interest, taxes, depreciation, and amortization ("EBITDA") for each segment for the three months ended March 31, 2000 and 2001. EBITDA is used by the Company's management to measure the segments' operating performance and is not intended to report the segments' operating results in conformity with generally accepted accounting principles.
For the three months ended March 31, 2000 (amounts in thousands) -------------------------------------------------------------------- Selling, Payroll and General and Revenue Related Expenses Admin. Expenses EBITDA --------------- ---------------- ---------------- -------------- U.S. Operations $ 136,113 $ 66,202 $ 39,185 $ 30,726 Portfolio Management 890 74 523 293 International Operations 7,511 4,370 2,366 775 Eliminations (516) - (516) - --------------- ---------------- ---------------- -------------- Total $ 143,998 $ 70,646 $ 41,558 $ 31,794 =============== ================ ================ ============== For the three months ended March 31, 2001 (amounts in thousands) -------------------------------------------------------------------- Selling, Payroll and General and Revenue Related Expenses Admin. Expenses EBITDA --------------- ---------------- ---------------- -------------- U.S. Operations $ 155,772 $ 78,691 $ 47,929 $ 29,152 Portfolio Management 12,618 257 6,105 6,256 International Operations 8,768 4,742 2,440 1,586 Eliminations (6,129) (778) (5,351) - --------------- ---------------- ---------------- -------------- Total $ 171,029 $ 82,912 $ 51,123 $ 36,994 =============== ================ ================ ==============
12. Subsequent Event: In April 2001, the Company completed the sale of $125.0 million aggregate principal amount of 4.75% Convertible Subordinated Notes due 2006 ("Notes") in a private placement pursuant to Rule 144A and Regulation S under the Securities Act of 1933. The Notes are convertible into NCO common stock at an initial conversion price of $32.92 per share. The Company used the $121.3 million of net proceeds from this offering to repay debt under its revolving credit agreement. In accordance with the terms of the credit agreement, 50% of the net proceeds from the Notes permanently reduced the maximum borrowings available under the revolving credit facility from $350.0 million to $289.4 million. -11- Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations Certain statements included in this Report on Form 10-Q, other than historical facts, are forward-looking statements (as such term is defined in the Securities Exchange Act of 1934, and the regulations thereunder) which are intended to be covered by the safe harbors created thereby. Forward-looking statements include, without limitation, statements as to the Company's expected future results of operations, the Company's growth strategy, the Company's internet and e-commerce strategy, expected increases in operating efficiencies, anticipated trends in the accounts receivable management industry, estimate of future cash flows of purchased accounts receivable, the effects of legal or governmental proceedings, the effects of changes in accounting pronouncements and statements as to trends or the Company's or management's beliefs, expectations and opinions. Forward-looking statements are subject to risks and uncertainties and may be affected by various factors that may cause actual results to differ materially from those in the forward-looking statements. In addition to the factors discussed in this report, certain risks, uncertainties and other factors, including, without limitation, the risk that the Company will not be able to achieve expected future results of operations, the risk that the Company will not be able to implement its growth strategy as and when planned, risks associated with the recent expansion of NCO Portfolio Management, Inc., risks associated with growth and future acquisitions, the risk that the Company will not be able to realize operating efficiencies in the integration of its acquisitions, fluctuations in quarterly operating results, risks relating to the timing of contracts, risks related to purchased accounts receivable, risks associated with technology, the internet and the Company's e-commerce strategy and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K, filed March 16, 2001, can cause actual results and developments to be materially different from those expressed or implied by such forward-looking statements. A copy of the Annual Report on Form 10-K can be obtained, without charge except for exhibits, by written request to Steven L. Winokur, Executive Vice President, Finance/CFO, NCO Group, Inc., 515 Pennsylvania Avenue, Fort Washington, PA 19034. Three Months Ended March 31, 2001, Compared to Three Months Ended March 31, 2000 Revenue. Revenue increased $27.0 million or 18.8% to $171.0 million for the three months ended March 31, 2001, from $144.0 million for the comparable period in 2000. The U.S. Operations, Portfolio Management, and International Operations divisions represented $155.8 million, $12.6 million, and $8.7 million, respectively, of the revenue for the three months ended March 31, 2001. The U.S. Operations division's revenue increased $19.7 million, or 14.4%, to $155.8 million for the three months ended March 31, 2001, from $136.1 million for the comparable period in 2000. This increase in the U.S. Operations division's revenue was attributable to the addition of new clients and the growth in business from existing clients. The Portfolio Management division's revenue increased $11.7 million, or 1,317.8%, to $12.6 million for the three months ended March 31, 2001, from $890,000 for the comparable period in 2000. This increase in the Portfolio Management division's revenue was partially attributable to an increase in acquisitions of purchased accounts receivable. The remainder of the increase was attributable to the acquisition of Creditrust in February 2001. The International Operations division's revenue increased $1.2 million, or 16.7%, to $8.7 million for the three months ended March 31, 2001, from $7.5 million for the comparable period in 2000. This increase in the International Operations division's revenue was primarily attributable to the addition of new clients and growth in business from existing clients. -12- Payroll and related expenses. Payroll and related expenses increased $12.3 million to $82.9 million for the three months ended March 31, 2001, from $70.6 million for the comparable period in 2000, but decreased as a percentage of revenue to 48.5% from 49.1%. The overall decrease as a percentage of revenue was the result of the increase in productivity that was achieved through the expansion of predictive dialing equipment and the result of spreading the fixed portion of the payroll cost structure over a larger revenue base. In addition, a portion of the decrease was attributable to the increase in the size of the Portfolio Management division, which has a lower payroll cost structure than the remainder of the Company. The payroll and related expenses of the U.S Operations division increased $12.5 million to $78.7 million for the three months ended March 31, 2001, from $66.2 million for the comparable period in 2000, and increased as a percentage of revenue to 50.5% from 48.6%. This increase as a percentage of revenue was primarily the result of a difficult economic and collection environment that necessitated higher payroll costs to achieve collection objectives. The payroll and related expenses of the Portfolio Management division increased $183,000 to $257,000 for the three months ended March 31, 2001, from $74,000 for the comparable period in 2000, but decreased as a percentage of revenue to 2.0% from 8.3%. The Portfolio Management division outsources all of its collection services to the U.S. Operations division and, therefore, has a relatively small fixed payroll cost structure. This increase as a percentage of revenue was the result of spreading the fixed cost structure over a larger revenue base. The payroll and related expenses of the International Operations division increased $372,000 to $4.7 million for the three months ended March 31, 2001, from $4.4 million for the comparable period in 2000, but decreased as a percentage of revenue to 54.1% from 58.2%. This decrease as a percentage of revenue was partially attributable to the continuing process of rationalizing staff levels, as well as an increase in productivity that was achieved through the expansion of our use of predictive dialing equipment. In addition, a portion of the decrease was the result of spreading the fixed portion of the payroll cost structure over a larger revenue base. Selling, general and administrative expenses. Selling, general and administrative expenses increased $9.5 million to $51.1 million for the three months ended March 31, 2001, from $41.6 million for the comparable period in 2000, and increased as a percentage of revenue to 29.9% from 28.9%. This increase as a percentage of revenue was primarily the result of a difficult economic and collection environment that necessitated additional collection costs to achieve revenue objectives. Depreciation and amortization. Depreciation and amortization increased to $9.0 million for the three months ended March 31, 2001 from $7.5 million for the comparable period in 2000. This increase consisted of depreciation resulting from normal capital expenditures made in the ordinary course of business during 2000. These capital expenditures included purchases associated with our planned migration towards a single, integrated information technology platform, and predictive dialers and other equipment required to expand our infrastructure to handle future growth. Other income (expense). Interest and investment income increased $413,000 to $916,000 for the three months ended March 31, 2001 over the comparable period in 2000. This increase was primarily attributable to increases in operating cash and funds held on behalf of clients, and the implementation of our new cash investment strategy. Interest expense increased to $7.4 million for the three months ended March 31, 2001, from $6.4 million for the comparable period in 2000. This increase was partially attributable to the Portfolio Management division borrowing $36.3 million in connection with the February 2001 acquisition of Creditrust Corporation ("Creditrust"). In addition, a portion of the increase was attributable to interest from securitized debt that was assumed as part of the Creditrust acquisition. A portion of these increases was offset by debt repayments made during 2000 and the first quarter of 2001. During the three months ended March 31, 2000, the Company recorded insurance proceeds of approximately $1.3 million for flood and telephone outages experienced in the fourth quarter of 1999. Income tax expense. Income tax expense for the three months ended March 31, 2001 increased to $8.7 million, or 40.2% of income before income tax expense, from $8.3 million, or 42.0% of income before income tax expense, for the comparable period in 2000. The decrease in the effective tax rate was primarily attributable to the expansion of the Portfolio Management division, which has a lower effective tax rate than the remainder of the Company. In addition, a portion of the decrease in the effective tax rate was the result of the implementation of certain tax savings initiatives during the fourth quarter of 2000. -13- Discontinued operations. On April 14, 2000 (the "Measurement Date"), the Company's Board of Directors approved a plan to divest the Company's Market Strategy division as part of its strategic plan to increase long-term shareholder value and focus on its core business of accounts receivable management services. An estimate of the operations of the Market Strategy division for the period from the Measurement Date to the expected completion of the divestiture were recorded during the first quarter of 2000 as part of the loss on the disposal of the Market Strategy division. The Company completed the divestiture of the Market Strategy division on October 26, 2000. Liquidity and Capital Resources Historically, the Company's primary sources of cash have been bank borrowings, public offerings, and cash flows from operations. Cash has been used for acquisitions, repayments of bank borrowings, purchases of equipment, purchases of receivables, and working capital to support the Company's growth. Cash Flows from Operating Activities. Cash provided by operating activities was $25.2 million for the three months ended March 31, 2001, compared to $1.5 million for the comparable period in 2000. The increase in cash provided by operations was attributable to a smaller increase in accounts receivable, a larger increase in deferred income taxes, and smaller decreases in corporate taxes payable and other long-term liabilities. The smaller increase in accounts receivable was achieved by the allocation of additional resources to mitigate the spike in accounts receivable that normally accompanies the seasonal increase in revenue. The increase in the deferred income taxes was primarily the result of the expansion of the Portfolio Management division, which generates deferred income tax liabilities. The smaller decrease in corporate taxes payable was the result of larger tax payments and the implementation of certain tax savings initiatives during the fourth quarter of 2000. Cash Flows from Investing Activities. Cash used in investing activities was $23.0 million for the three months ended March 31, 2001, compared to $16.0 million for the comparable period in 2000. The increase was due primarily to cash paid in 2001 to acquire Creditrust and an increase in the purchase of delinquent receivables. These increases were partially offset by an increase in collections applied to the principal of purchased accounts receivable. Capital expenditures were $7.8 million for the three months ended March 31, 2001, compared to $9.8 million for the same period in 2000. Cash Flows from Financing Activities. Cash provided by financing activities was $11.0 million for the three months ended March 31, 2001, compared to cash used in financing activities of $391,000 for the same period in 2000. During the first three months of 2001, the primary source of cash from financing activities was the borrowings under the revolving credit facility made in connection with the Creditrust acquisition that were used to repay the acquired notes payable, finance purchased accounts receivable, and repay other acquisition related liabilities. Credit Facility. The Company has a credit agreement with Mellon Bank, N.A., for itself and as administrative agent for other participating lenders, to provide for borrowings up to $350.0 million, structured as a $350.0 million revolving credit facility. At the Company's option, the borrowings bear interest at a rate equal to either Mellon Bank's prime rate plus a margin of 0.25% to 0.50% that is determined quarterly based upon the Company's consolidated funded debt to earnings before interest, taxes, depreciation, and amortization, also referred to as EBITDA, ratio (Mellon Bank's prime rate was 8.00% at March 31, 2001), or the London InterBank Offered Rate, also referred to as LIBOR, plus a margin of 1.25% to 2.25% depending on the Company's consolidated funded debt to EBITDA ratio (LIBOR was 5.08% at March 31, 2001). As of March 31, 2001, there was $12.7 million available on the revolving credit facility. In connection with the merger of Creditrust into NCO Portfolio, the Company amended its revolving credit facility to allow the Company to provide NCO Portfolio with a $50 million revolving line of credit in the form of a sub-facility under its existing credit facility. At the option of NCO, the borrowings bear interest at a rate equal to either Mellon Bank's prime rate plus a margin of 1.25% to 1.50% that is determined quarterly based upon the Company's consolidated funded debt to EBITDA ratio, or LIBOR plus a margin of 2.25% to 3.25% depending on the Company's consolidated funded debt to EBITDA ratio. As of March 31, 2001, there was $41.6 million outstanding under the NCO Portfolio sub-facility. -14- Borrowings are collateralized by substantially all the assets of the Company, including the common stock of NCO Portfolio, and certain assets of NCO Portfolio. The balance under the revolving credit facility shall become due on May 20, 2004. The credit agreement contains certain financial covenants such as maintaining net worth and funded debt to EBITDA requirements and includes restrictions on, among other things, acquisitions and distributions to shareholders. As of March 31, 2001, there was $12.7 million available on the revolving credit facility. In April 2001, the Company completed the sale of $125.0 million aggregate principal amount of 4.75% Convertible Subordinated Notes due 2006 ("Notes") in a private placement pursuant to Rule 144A and Regulation S under the Securities Act of 1933. The Notes are convertible into NCO common stock at an initial conversion price of $32.92 per share. The Company used the $121.3 million of net proceeds from this offering to repay debt under its revolving credit agreement. In accordance with the terms of the credit agreement, 50% of the net proceeds from the Notes permanently reduced the maximum borrowings available under the revolving credit facility from $350.0 million to $289.4 million. The Notes are expected to dilute earnings per share for the last nine months of 2001 by a range of approximately $0.08 to $0.10 per share. Management believes that funds generated from operations, together with existing cash and available borrowings under the credit agreement will be sufficient to finance current operations, planned capital expenditure requirements, and internal growth at least through the next twelve months. However, additional debt or equity financing could be required if any other significant acquisitions for cash are made during that period. Market Risk The Company is exposed to various types of market risk in the normal course of business, including the impact of interest rate changes, foreign currency exchange rate fluctuations, and changes in corporate tax rates. A 25 basis-point increase in interest rates could increase annual interest expense by $250,000 for each $100 million of variable debt outstanding for the entire year. The Company employs risk management strategies that may include the use of derivatives such as interest rate swap agreements, interest rate ceilings and floors, and foreign currency forwards and options to manage these exposures. The fair value of the interest rate collar agreements was determined to be immaterial at December 31, 2000 and March 31, 2001. Goodwill The Company's balance sheet includes amounts designated as "intangibles", which are predominantly comprised of "goodwill'. Goodwill represents the excess of purchase price over the fair market value of the net assets of the acquired businesses, based on their respective fair values at the date of acquisition. Accounting principles generally accepted in the United States require that this and all other intangible assets be amortized over the period benefited. Management has determined that period to be from 15 to 40 years based on the attributes of each acquisition. As of March 31, 2001, the Company's balance sheet included goodwill that represented approximately 57.4% of total assets and 131.8% of shareholders' equity. If management has incorrectly overestimated the length of the amortization period for goodwill, earnings reported in periods immediately following the acquisition would be overstated. In later years, NCO would be burdened by a continuing charge against earnings without the associated benefit to income valued by management in arriving at the consideration paid for the business. Earnings in later years also could be significantly affected if management determined then that the remaining balance of goodwill was impaired. Management has concluded that the anticipated future cash flows associated with intangible assets recognized in the acquisitions will continue indefinitely, and there is no persuasive evidence that any material portion will dissipate over a period shorter than the respective amortization period. -15- Recent Accounting Pronouncement: In February 2001, the FASB issued an Exposure Draft regarding Business Combinations and Intangible Assets Accounting for Goodwill where it concluded that purchased goodwill would not be amortized but would be reviewed for impairment when certain events indicate that the goodwill of a reporting unit is impaired. The impairment test will use a fair-value based approach, whereby if the implied fair value of a reporting unit's goodwill is less than its carrying amount, goodwill would be considered impaired. The proposed statement would not require that goodwill be tested for impairment upon adoption of the final statement unless an indicator of impairment exists at that date. However, it would require that a benchmark assessment be performed for all existing reporting units within six months of the date of adoption. The new goodwill model would apply not only to goodwill arising from acquisitions completed after the effective date of a new standard, but also to goodwill previously recorded. The Company would be required to initially apply the provisions of this proposed statement at the beginning of the first fiscal quarter following issuance of the final statement. Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities", is effective for transfers of financial assets and extinguishments of liabilities occurring after March 31, 2001. Statement No. 140, which replaces FASB No. 125, requires transfers of financial assets and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001 to de-recognize the assets when control has been surrendered, and to de-recognize liabilities only when they have been extinguished. The Company will adopt Statement No. 140 in the second quarter of 2001. Management does not expect the adoption of the statement to have a material impact on the consolidated financial statements. Item 3 Quantitative and Qualitative Disclosures about Market Risk Included in Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, of this Report on Form 10-Q. -16- Part II. Other Information Item 1. Legal Proceedings The Company is involved in legal proceedings from time to time in the ordinary course of its business. Management believes that none of these legal proceedings will have a materially adverse effect on the financial condition or results of operations of the Company. Item 2. Changes in Securities On April 4, 2001, the Company issued a total of $125,000,000 principal amount of 4.75% convertible subordinated notes due 2006 (the "Notes"). The Company issued and sold these Notes to Deutsche Bank Alex. Brown Inc., as the initial purchaser (the "Initial Purchaser"), in reliance on the exemption from registration under Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"). The Company sold the Notes to the Initial Purchasers at a discount of three percent, for an aggregate discount of $3.75 million. The Initial Purchasers represented to the Company that it was a "qualified institutional buyer" (as such term is defined in Rule 144A under the Securities Act). The Notes are convertible into approximately 3.8 million shares of the Company's common stock at a conversion price of $32.92 per share, subject to adjustment upon certain events described in the Indenture, at any time on or after July 3, 2001, through maturity, unless previously redeemed or repurchased. The Notes mature on April 15, 2006. The Initial Purchaser advised the Company that they proposed to resell the Notes (1) in the United States only to "qualified institutional buyers" in reliance on the exemption from registration under Rule 144A and (2) outside the United States to certain non-United States persons in offshore transactions in reliance on Rule 904 of Regulation S under the Securities Act. The Notes and the shares of common stock issuable upon conversion constitute "restricted securities" within the meaning of Rule 144. The Company's Confidential Offering Memorandum and related offering documents and agreements imposed certain restrictions on the resale or other transfer of the Notes and shares necessary for the availability of the exemptions from registration under the Securities Act referred to above. In accordance with the terms of the Note Purchase Agreement, the Company is required to file not later than July 3, 2001, a registration statement on Form S-3 under the Securities Act to register the Notes and shares for resale by the holders. The net proceeds of the Note offering of approximately $121.25 million were used to repay debt under the Company's Credit Agreement with Mellon Bank. Item 3. Defaults Upon Senior Securities None - not applicable Item 4. Submission of Matters to a Vote of Shareholders None - not applicable Item 5. Other Information None - not applicable -17- Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 4.1 Purchase Agreement dated as of March 29, 2001, between Deutsche Bank Alex. Brown Inc. and NCO Group, Inc. 4.2 Indenture dated as of April 4, 2001, between NCO Group, Inc. and Bankers Trust Company, as Trustee. 4.3 Registration Rights Agreement dated as of April 4, 2001 Deutsche Bank Alex. Brown Inc. and NCO Group, Inc. 4.4 Global Note dated April 4, 2001 of NCO Group, Inc. 99.1 Consolidating Schedule (b) Reports on Form 8-K Date of Report Item Reported -------------- ------------- 3/5/01 Item 2 - Creditrust Corporation acquisition Item 5 - Investor Guidance for 2001 3/14/01 Item 7 - Creditrust Corporation acquisition 4/10/01 Item 5 - Issuance of Convertible Debt 5/4/01 Item 7 - Creditrust Corporation acquisition -18- Signatures Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: May 15, 2001 By: /s/ Michael J. Barrist ---------------------- Michael J. Barrist Chairman of the Board, President and Chief Executive Officer (principal executive officer) Date: May 15, 2001 By: /s/ Steven L. Winokur --------------------- Steven L. Winokur Executive Vice President, Finance, Chief Financial Officer and Treasurer -19- EX-4.1 2 ex4-1.txt PURCHASE AGREEMENT Exhibit 4.1 NCO GROUP, INC. 4.75% Convertible Subordinated Notes due 2006 PURCHASE AGREEMENT March 29, 2001 DEUTSCHE BANC ALEX. BROWN INC. One South Street Baltimore, Maryland 21202 Ladies and Gentlemen: NCO Group, Inc. (the "Company"), a Pennsylvania corporation, confirms its agreement with Deutsche Banc Alex. Brown Inc. ("DBAB" or the "Initial Purchaser," which term shall also include any initial purchaser substitute as hereinafter provided), with respect to the issue and sale by the Company and the purchase by the Initial Purchaser, of the $125,000,000 aggregate principal amount of the Company's 4.75% Convertible Subordinated Notes due 2006 (the "Notes"). The Notes are to be issued pursuant to an indenture to be entered into as of April 4, 2001 (the "Indenture") between the Company and Bankers Trust Company as trustee (the "Trustee"). The Notes will be registered in the name of Cede & Co. as nominee of The Depository Trust Company ("DTC") pursuant to a letter of representations, to be entered into as of the Closing Date (as defined below) (the "DTC Agreement") among the Company, the Trustee and DTC. The Notes will be convertible into shares of the Company's Common Stock, no par value per share (the "Common Stock"), in accordance with the terms of the Notes and the Indenture, at the initial conversion rate specified in Schedule I hereto. The holders of Notes will be entitled to the benefits of a Registration Rights Agreement, substantially in the form of Exhibit A with such changes as shall be agreed to by the parties hereto (the "Registration Rights Agreement"), pursuant to which the Company will file a registration statement with the Securities and Exchange Commission (the "Commission") registering resales of the Notes and the shares of Common Stock issuable upon conversion thereof (the "Conversion Shares"), as referred to in the Registration Rights Agreement under the Securities Act of 1933, as amended (the "Securities Act"). The Company understands that the Initial Purchaser proposes to make an offering of the Notes on the terms and in the manner set forth herein and agrees that the Initial Purchaser may resell, subject to the conditions set forth herein, all or a portion of the Notes to purchasers ("Subsequent Purchasers") at any time after the date of this Agreement. The Notes are to be offered and sold through the Initial Purchaser without being registered under the Securities Act, in reliance upon exemptions therefrom. Pursuant to the terms of the Notes and the Indenture, investors that acquire Notes may only resell or otherwise transfer such Notes if such Notes are hereinafter registered under the Securities Act or if an exemption from the registration requirements of the Securities Act is available (including the exemption afforded by Rule 144A ("Rule 144A") of the rules and regulations promulgated under the Securities Act (the "Securities Act Regulations") by the Commission and the exemption afforded by Regulation S under the Securities Act ("Regulation S")). The Company has prepared and delivered to the Initial Purchaser copies of a preliminary offering memorandum dated March 26, 2001 (the "Preliminary Offering Memorandum") and has prepared and will deliver to the Initial Purchaser on the date hereof or the next succeeding day, copies of a final offering memorandum (the "Final Offering Memorandum") each for use by the Initial Purchaser in connection with its solicitation of purchases of, or offering of, the Notes. "Offering Memorandum" means, with respect to any date or time referred to in this Agreement, the most recent offering memorandum (whether the Preliminary Offering Memorandum or the Final Offering Memorandum, or any amendment or supplement to either such document), including exhibits thereto and the documents incorporated therein by reference, which has been prepared and delivered by the Company to the Initial Purchaser in connection with its solicitation of purchases of, or offering of, the Notes. All references in this Agreement to financial statements and schedules and other information which is "contained," "included" or "stated" in the Offering Memorandum (or other references of like import) shall be deemed to mean and include any document filed under the Securities Exchange Act of 1934, as amended (the "Exchange Act") which is incorporated by reference in the Offering Memorandum. In consideration of the mutual agreements contained herein and of the interests of the parties in the transactions contemplated hereby, the parties hereto agree as follows: 1. Representations and Warranties of the Company. The Company represents and warrants to the Initial Purchaser as of the date hereof and as of the Closing Date (as defined below) as follows: (a) The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the Commonwealth of Pennsylvania, with corporate power and authority to own or lease its properties and conduct its business as described in the Offering Memorandum. Each of the subsidiaries of the Company as listed in Exhibit B hereto (collectively, the "Subsidiaries") has been duly organized and is validly existing as a corporation or limited liability company in good standing under the laws of the jurisdiction of its incorporation, with corporate power and authority to own or lease its properties and conduct its business as described in the Offering Memorandum. Except as set forth on Exhibit B, the Subsidiaries are the only subsidiaries, direct or indirect, of the Company. The Company and each of the Subsidiaries are duly qualified to transact business in all jurisdictions in which the conduct of their business requires such qualification and in which the failure to qualify would have a material adverse effect upon the financial condition, results of operations, business or prospects of the Company and the Subsidiaries taken as a 2 whole (a "Material Adverse Effect"). The outstanding shares of capital stock of each of the Subsidiaries have been duly authorized and validly issued, are fully paid and non-assessable and to the extent shown in Exhibit B hereto are owned by the Company or another Subsidiary free and clear of all liens, encumbrances and claims, at law or in equity, except that the Company owns approximately 63% of the outstanding common stock of NCO Portfolio Management, Inc. ("Portfolio"); and no options, warrants or other rights to purchase, agreements or other obligations to issue or other rights to convert any obligations into shares of capital stock or ownership interests in the Subsidiaries are outstanding, except that Portfolio has the authority to issue stock options to purchase 3,000,000 shares of its common stock. (b) The shares of issued and outstanding capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable; none of the outstanding shares of capital stock of the Company was issued in violation of the preemptive or other similar rights of any securityholder in the Company. Upon issuance and delivery of the Notes in accordance with this Agreement and the Indenture, the Notes will be convertible at the option of the holder thereof into shares of Common Stock; the Conversion Shares have been duly authorized and reserved for issuance upon such conversion by all necessary corporate action and such Conversion Shares when issued upon such conversion will be validly issued, full paid and non-assessable; no holder of Common Stock will be subject to personal liability by reason of being such a holder and the issuance of such Conversion Shares upon such conversion or purchases will not be subject to the preemptive or similar rights of any securityholder of the Company. No preemptive rights of stockholders exist with respect to the issue and sale of any of the Notes or Conversion Shares. Neither the offering nor sale of the Notes as contemplated by this Agreement gives rise to any rights, other than those which have been waived or satisfied, for or relating to the registration under the Securities Act of any shares of Common Stock. (c) The information set forth under the caption "Capitalization" in the Offering Memorandum is true and correct. The Notes, the Indenture, the Registration Rights Agreement and the Conversion Shares conform to the descriptions thereof contained in the Offering Memorandum. The forms of certificates for the Notes and Conversion Shares conform to the corporate law of the jurisdiction of the Company's incorporation. (d) The Preliminary Offering Memorandum and the Final Offering Memorandum and any amendments and supplements thereto do not contain, and will not contain as of the date of such Offering Memorandum, any untrue statement of material fact, and do not omit, and will not omit as of the date of such Offering Memorandum, to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Company makes no representations or warranties as to information contained in or omitted from the Offering Memorandum, or any such amendment or supplement, in reliance upon, and in conformity with, written information furnished to the Company by or on behalf of the Initial Purchaser, specifically for use in the preparation thereof. The Offering Memorandum as delivered from time to time shall incorporate by reference the Company's most recent Annual Report on Form 10-K filed with the Commission and each Quarterly Report on Form 10-Q and each Current Report on Form 8-K filed by the Company with the Commission since the end of the fiscal year to which such Annual Report relates. The documents 3 incorporated or deemed to be incorporated by reference in the Offering Memorandum at the time they were or hereafter are filed with the Commission complied and will comply in all material respects with the requirements of the Exchange Act and the rules and regulations of the Commission thereunder (the "Exchange Act Regulations"), and when read together with the other information in the Offering Memorandum, at the time the Offering Memorandum was issued and at the Closing Date, do not and will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (e) The consolidated financial statements of the Company and the subsidiaries, together with related notes and schedules as set forth or incorporated by reference in the Offering Memorandum, present fairly in all material respects the financial position and the results of operations and cash flows of the Company and the consolidated subsidiaries, at the indicated dates and for the indicated periods. Such financial statements and related schedules have been prepared in accordance with generally accepted principles of accounting, consistently applied throughout the periods involved, except as disclosed therein, and all adjustments necessary for a fair presentation of results for such periods have been made. The summary financial and statistical data included or incorporated by reference in the Offering Memorandum presents fairly in all material respects the information shown therein and such data has been compiled on a basis consistent with the financial statements presented therein and the books and records of the Company. (f) Each of Ernst & Young LLP, PricewaterhouseCoopers LLP, and Reznick, Fedder & Silverman, who have certified certain of the financial statements included as part of, or incorporated by reference in, the Offering Memorandum, are independent public accountants as required by the Securities Act. (g) Except as set forth in the Offering Memorandum, there is no action, suit, claim or proceeding pending or, to the knowledge of the Company, threatened against the Company or any of the Subsidiaries before any court or administrative agency or otherwise which, if determined adversely to the Company or any of its Subsidiaries, might result in any material adverse change in the earnings, business, management, properties, assets, operations, condition (financial or otherwise) or prospects of the Company and of the Subsidiaries taken as a whole or to prevent the consummation of the transactions contemplated hereby. (h) The Company and the Subsidiaries have good and marketable title to all of the properties and assets reflected in the financial statements (or as described in the Offering Memorandum) hereinabove described, subject to no lien, mortgage, pledge, charge or encumbrance of any kind except those reflected in such financial statements (or as described in the Offering Memorandum) or which are not material in amount to the Company and the Subsidiaries taken as a whole. The Company and the Subsidiaries occupy their leased properties under valid and binding leases conforming in all material respects to the description thereof, if any, set forth in the Offering Memorandum. 4 (i) The Company and the Subsidiaries have filed all Federal, State, local and foreign income tax returns which have been required to be filed and have paid all taxes indicated by said returns and all assessments received by them or any of them to the extent that such taxes have become due and are not being contested in good faith. All tax liabilities have been adequately provided for in the financial statements of the Company. (j) Since the respective dates as of which information is given in the Offering Memorandum, as it may be amended or supplemented, there has not been any material adverse change or any development known to the Company involving a prospective material adverse change in or affecting the earnings, business, management, properties, assets, operations, condition (financial or otherwise), or prospects of the Company and its Subsidiaries taken as a whole, whether or not occurring in the ordinary course of business (a "Material Adverse Change"), and there has not been any material transaction entered into or any material transaction that is probable of being entered into by the Company or the Subsidiaries, other than transactions in the ordinary course of business and changes and transactions described in the Offering Memorandum, as it may be amended or supplemented. The Company and the Subsidiaries have no material contingent obligations which are not disclosed in the Company's financial statements which are set forth or incorporated by reference in the Offering Memorandum. (k) Neither the Company nor any of the Subsidiaries is or with the giving of notice or lapse of time or both, will be, in violation of or in default under its Amended and Restated Certificate of Incorporation, as currently in effect (the "Charter"), or its Amended and Restated Bylaws, as currently in effect (the "By-Laws") (or in the case of an entity that is not a corporation, such entity's governing documents) or under any agreement, lease, contract, indenture or other instrument or obligation to which it is a party or by which it, or any of its properties, is bound and which default is of material significance in respect of the business, management, properties, assets, operations, condition (financial or otherwise) or prospects of the Company and the Subsidiaries taken as a whole. (l) Each approval, consent, order, authorization, designation, declaration or filing by or with any regulatory, administrative or other governmental body necessary to be made by or on behalf of the Company in connection with the execution and delivery by the Company of this Agreement and the consummation of the transactions herein contemplated (except such additional steps as may be necessary to qualify the Notes under state securities or Blue Sky laws) has been obtained or made and is in full force and effect. (m) The Company and each of the Subsidiaries holds all licenses, certificates and permits from governmental authorities which are necessary to the conduct of their businesses, except where the failure to hold such license, certificate or permit would not have a Material Adverse Effect. Except as disclosed in the Offering Memorandum, the Company and each of the Subsidiaries own or possess adequate rights to use all material patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights, licenses and know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures) necessary for the conduct of their respective business, except where the failure to own or possess such rights would not have a Material 5 Adverse Effect, and the Company has no reasonable basis to believe that the conduct of their businesses will conflict with any such rights of others which would reasonably be expected to have a Material Adverse Effect, and other than as described in the Offering Memorandum, neither the Company nor any Subsidiary has received any notice of any claim of conflict with any such rights of others which, if such assertion of conflict were sustained, would have a Material Adverse Effect. (n) Neither the Company, nor to the Company's best knowledge, any of its affiliates (as defined in Rule 144 under the Act), has taken or will take, directly or indirectly, any action designed to cause or result in, or which has constituted or which might reasonably be expected to constitute, the manipulation or unlawful stabilization of the price of the shares of Common Stock to facilitate the sale or resale of the Notes or Conversion Shares. The Company acknowledges that the Initial Purchaser may engage in passive market making transactions in shares of the Common Stock on The Nasdaq National Market in accordance with Rule 103 of Regulation M under the Exchange Act. (o) Neither the Company nor any Subsidiary is an "investment company" within the meaning of such term under the Investment Company Act of 1940, as amended and the rules and regulations thereunder (the "1940 Act"). (p) The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (q) The Company and each of its Subsidiaries carry, or are covered by, insurance in such amounts and covering such risks as is adequate for the conduct of their respective businesses and the value of their respective properties and as is customary for companies engaged in similar industries. (r) The Company is in compliance in all material respects with all presently applicable provisions of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for which the Company would have any liability which would have a Material Adverse Effect; the Company has not incurred and does not expect to incur liability which would have a Material Adverse Effect under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended, including the regulations and published interpretations thereunder (the "Code"); and each "pension plan" for which the Company would have any liability that is intended to be qualified under Section 401(a) of the Code is so qualified in all material respects and 6 nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification. (s) The Company confirms as of the date hereof that it is in compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198, An Act Relating to Disclosure of doing Business with Cuba, and the Company further agrees that if it commences engaging in business with the government of Cuba or with any person or affiliate located in Cuba after the date the Offering Memorandum becomes or has become effective with the Commission or with the Florida Department of Banking and Finance (the "Department"), whichever date is later, or if the information reported or incorporated by reference in the Offering Memorandum, if any, concerning the Company's business with Cuba or with any person or affiliate located in Cuba changes in any material way, the Company will provide the Department notice of such business or change, as appropriate, in a form acceptable to the Department. (t) No labor disturbance by the employees of the Company or any of the Subsidiaries exists or, to the best knowledge of the Company, is contemplated or threatened. (u) There has been no storage, generation, transportation, handling, treatment, disposal, discharge, emission or other release of any kind of toxic or other wastes or other hazardous substances by, due to or caused by the Company or any of the Subsidiaries (or, to the best knowledge of the Company, and other entity (including any predecessor) for whose acts or omissions the Company or any of the Subsidiaries is or may reasonably be expected to be liable) upon any of the property now or previously owned or leased by the Company or any of the Subsidiaries, or upon any other property, in violation of any statute or any ordinance, rule, regulation, order, judgment, decree or permit or which would, under any statute or any ordinance, rule (including rule of common law), regulation, order, judgment decree or permit, give rise to any liability, except for any violation or liability which would not have, singularly or in the aggregate with all such violations and liabilities, a Material Adverse Effect; and there has been no disposal, discharge, emission or other release of any kind onto such property or into the environment surrounding such property of any toxic or other wastes or other hazardous substances with respect to which the Company has knowledge, except for any such disposal, discharge, emission or other release of any kind which would not have, singularly or in the aggregate with all such discharges and other releases, a Material Adverse Effect. (v) Neither the Company nor, to the best knowledge of the Company, any director, officer, agent, employee or other person associated with or acting on behalf of the Company has (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; or (iii) made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment. (w) Except as described in the Offering Memorandum, there are no outstanding subscriptions, rights, warrants, calls or options to acquire, or instruments convertible into or exchangeable for, or agreements or understandings with respect to the sale or issuance of, any shares of capital stock of or other equity or other ownership interest in the Company. 7 (x) Neither the Company nor any of the Subsidiaries owns any "margin securities" as that term is defined in Regulations G and U of the Board of Governors of the Federal Reserve System ( the "Federal Reserve Board"), and none of the proceeds of the sale of the Notes will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security, for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the Notes to be considered a "purpose credit" within the meanings of Regulation G, T, U or X of the Federal Reserve Board. (y) The Company has full right, power and authority to execute and deliver this Agreement, the Indenture, the Registration Rights Agreement, and the Notes (collectively, the "Transaction Documents") and to perform its obligations hereunder and thereunder. (z) This Agreement has been duly authorized, executed and delivered by the Company and when duly executed and delivered by each of the other parties hereto will constitute a valid and legally binding agreement of the Company, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). (aa) The Indenture has been duly authorized by the Company and, when executed and delivered by the Company and the Trustee, will constitute a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). On the Closing Date, the Indenture will conform in all material respects to the requirements of the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act") and the rules and regulations of the Commission applicable to an indenture which is qualified thereunder. (bb) The Registration Rights Agreement has been duly authorized by the Company and, when executed and delivered by the Company and the Initial Purchaser, will constitute a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). (cc) The Notes have been duly authorized and at the Closing Date, will have been duly executed by the Company and, when authenticated, issued and delivered in the manner provided for in the Indenture and delivered against payment of the purchase price therefor as provided in this Agreement, will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms except as the enforcement thereof may be 8 limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law) and will be in the form contemplated by, and entitled to the benefits of, the Indenture and the Registration Rights Agreement. (dd) The execution, delivery and performance by the Company of each of the Transaction Documents, the issuance, authentication, sale and delivery of the Notes and the consummation of the transactions contemplated by the Transaction Documents (i) (A) will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of the Subsidiaries pursuant to, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of the Subsidiaries is a party or by which the Company or any of the Subsidiaries is bound or to which any of the property or assets of the Company or any of the Subsidiaries is subject, (B) will not result in any violation of the provisions of the Charter, By-laws, or equivalent constituent documents of the Company or any of the Subsidiaries and (C) will not result in the violation of the provisions of any statute or any judgment, order, decree, rule or regulation of any court or arbitrator or governmental agency or body having jurisdiction over the Company or any of the Subsidiaries or any of their respective properties or assets except, in the case of clauses (i)(A) and (i)(C), for any such conflict, breach, violation, default, lien, charge or encumbrance that would not have a Material Adverse Effect; and (ii) no consent, approval, authorization or order of, or filing or registration with, any such court or arbitrator or governmental agency or body under any such statute, judgment, order, decree, rule or regulation is required for the execution, delivery and performance by the Company of each of the Transaction Documents, the issuance, authentication, sale and delivery of the Notes and the consummation of the transactions contemplated by the Transaction Documents, except for such consents, approvals, authorizations, filings, registrations or qualifications (i) which shall have been obtained or made prior to the Closing Date and (ii) as may be required to be obtained or made under the Securities Act and applicable state securities laws as provided in the Registration Rights Agreement. (ee) Neither the Company nor, to the Company's knowledge, any of its affiliates, as such term is defined in Rule 501(b) under the Securities Act (each an "Affiliate"), has directly or indirectly, solicited any offer to buy, sold or offered to sell or otherwise negotiated in respect of, or will solicit any offer to buy or offer to sell or otherwise negotiate in respect of, or will solicit any offer to buy or offer to sell or otherwise negotiate in respect of any security which is or would be integrated with the sale of the Notes in a manner that would require the Notes or the Conversion Shares to be registered under the Securities Act. None of the Company, and to the Company's knowledge, none of its Affiliates or any person acting on its or any of their behalf (other than the Initial Purchaser, as to whom the Company makes no representation) has engaged or will engage in any form of general solicitation or general advertising within the meaning of Rule 502(c) under the Securities Act. Assuming the accuracy of Initial Purchaser's representations and warranties set forth in Section 2 and compliance with the procedures set forth in Section 6 hereof, it is not necessary in connection with the offer, sale issuance and delivery of the Notes to the Initial Purchaser and the offer, resale and delivery of the Notes 9 by the Initial Purchaser in the manner contemplated by this Agreement and the Offering Memorandum to register the Notes under the Securities Act or to qualify the Indenture under the Trust Indenture Act. None of the Company, any of its Affiliates or any person acting on its or their behalf has engaged or will engage in any "directed selling efforts" (as such term is defined in Regulation S), and all such persons have complied and will comply with the offering restrictions requirement of Regulation S. (ff) The Notes are eligible for resale pursuant to Rule 144A and will not be, at the Closing Date, of the same class as securities listed on a national securities exchange registered under Section 6 of the Exchange Act, or quoted in a U.S. automated interdealer quotation system. (gg) The Company has not been advised, and has no reason to believe, that either it or any of the Subsidiaries is not conducting business in compliance with all applicable laws, rules and regulations of the jurisdictions in which it is conducting business, including, without limitation, the federal Fair Debt Collection Practices Act, the federal Fair Credit Reporting Act, the federal Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994, the federal Telephone Consumer Protection Act of 1991, related state and local statutes and regulations, except where failure to be so in compliance would not have a Material Adverse Effect. (hh) The merger of the Company's subsidiary, NCO Portfolio Management, Inc. ("NCO Portfolio") with Creditrust Corporation ("Creditrust") has been consummated pursuant to Creditrust's Plan of Reorganization, as amended, which was confirmed by the United States Bankruptcy Court for the District of Maryland on January 18, 2001, and, as a result, the Company, directly or indirectly, owns or controls approximately 63% of the issued and outstanding capital stock of NCO Portfolio free and clear of any security interest, mortgage, pledge, lien, encumbrance (other than security interests and pledges held by the Company's lenders) or to the best of the Company's knowledge, any pending or threatened claim. The agreements necessary to effect the acquisition of Creditrust have been duly authorized, executed and delivered by each of the parties thereto and constitute the valid, legal and binding agreements of each such party. 2. Purchase, Sale and Delivery of the Notes. (a) On the basis of the representations, warranties and covenants herein contained, and subject to the conditions herein set forth, the Company agrees to sell to the Initial Purchaser and the Initial Purchaser agrees to purchase from the Company at the price set forth on Schedule I, the aggregate principal amount of Notes plus accrued interest if any, subject to adjustments in accordance with Section 8 hereof. (b) Payment for the Notes to be sold hereunder is to be made in federal (same day) funds via wire transfer to the order of the Company for the Notes to be sold by it against delivery of certificates therefor to the Initial Purchaser. Such delivery is to be made at the offices of Hogan & Hartson L.L.P., 111 South Calvert Street, Baltimore, Maryland 21202, at 9:00 a.m., New York City time, on the third business day after the date of this Agreement or at such other time and date not later than five business days thereafter as you and the 10 Company shall agree upon, such time and date being herein referred to as the "Closing Date." (As used herein, "business day" means a day on which the New York Stock Exchange is open for trading and on which banks in New York are open for business and not permitted by law or executive order to be closed.) Upon delivery, the Notes shall be credited in such names and in such denominations as the Initial Purchaser shall have requested in writing at least two full business days prior to the Closing Date. The Company agrees to make one or more global certificates evidencing the Notes available for inspection by the Initial Purchaser in New York, New York at least 24 hours prior to the Closing Date. (c) The Initial Purchaser represents and warrants to, and agrees with, the Company that it is a "qualified institutional buyer" within the meaning of Rule 144A (a "QIB") and an "accredited investor" within the meaning of Rule 501(a) under the Securities Act. 3. Covenants of the Company. The Company covenants and agrees with the Initial Purchaser that: (a) The Company will cooperate with the Initial Purchaser in endeavoring to qualify the Notes for sale under the securities laws of such jurisdictions as the Initial Purchaser may reasonably have designated in writing and will make such applications, file such documents, and furnish such information as may be reasonably required for that purpose, provided the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction where it is not now so qualified or required to file such a consent. The Company will, from time to time, prepare and file such statements, reports, and other documents, as are or may be required to continue such qualifications in effect for so long a period as the Initial Purchaser may reasonably request for distribution of the Notes. (b) The Company will deliver to, or upon the order of, the Initial Purchaser, from time to time, as many copies of the Preliminary Offering Memorandum, the Final Offering Memorandum and any amendment and supplements thereto as the Initial Purchaser may reasonably request, including documents incorporated by reference therein, and of all amendments thereto, as the Initial Purchaser may reasonably request. (c) The Company will immediately notify the Initial Purchaser, and confirm such notice in writing, of (i) any filing made by the Company of information with any securities exchange or any other regulatory body in the United States or any other jurisdiction, and (ii) prior to the completion of the placement of the Notes by the Initial Purchaser as evidenced by a notice in writing from the Initial Purchaser to the Company, any material changes in or affecting the condition, financial or otherwise, or the earnings, business affairs or business prospects of the Company and its subsidiaries, considered as one enterprise, which (x) make any statement in the Offering Memorandum false or misleading or (y) are not disclosed in the Offering Memorandum. In such event or if during such time any event shall occur as a result of which it is necessary in the reasonable opinion of any of the Company, its counsel, the Initial Purchaser or counsel for the Initial Purchaser, to amend or supplement the Final Offering Memorandum in order that the Final Offering Memorandum not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances then existing, the Company will forthwith amend or supplement the 11 Final Offering Memorandum by preparing and furnishing to the Initial Purchaser an amendment or amendments of, or a supplement or supplements to, the Final Offering Memorandum (in form and substance satisfactory in the reasonable opinion of counsel to the Initial Purchaser) so that, as so amended or supplemented, the Final Offering Memorandum will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time it is delivered to a Subsequent Purchaser, not misleading. (d) The Company will advise the Initial Purchaser promptly of any proposal to amend or supplement the Offering Memorandum and will not effect such amendment or supplement without the consent of the Initial Purchaser. Neither the consent of the Initial Purchaser nor the Initial Purchaser's delivery of any such amendment or supplement, shall constitute a waiver of any of the conditions set forth in Section 5 hereof. (e) The Company will cooperate with the Initial Purchaser and use its reasonable best efforts to permit the Notes to be eligible for clearance and settlement through the facilities of DTC. (f) The Company will use the net proceeds received by it from the sale of the Notes in the manner specified in the Offering Memorandum under "Use of Proceeds." (g) For as long as the Notes are outstanding or a period of three years from the Closing Date, whichever is shorter, the Company will deliver to the Initial Purchaser copies of annual reports and copies of all other documents, reports and information furnished by the Company to its stockholders generally or filed with any securities exchange pursuant to the requirements of such exchange or with the Commission pursuant to the Securities Act or the Exchange Act. The Company will deliver to the Initial Purchaser similar reports with respect to significant subsidiaries, as that term is defined in the Securities Act, if any, which are not consolidated in the Company's financial statements. (h) No offering, sale, short sale, issuance or other disposition of any shares of Common Stock of the Company or other securities convertible into or exchangeable or exercisable for shares of Common Stock or derivative of Common Stock (or agreement for such) will be made for a period of 90 days after the date of this Agreement, directly or indirectly, by the Company otherwise than hereunder or with the prior written consent of DBAB except for (i) options granted under the Company's stock option plans, (ii) shares of Common Stock issued upon exercise of such options, and (iii) issuance of the Conversion Shares. In addition, during the 90-day period, the Company may offer to issue (but may not issue) shares of Common Stock in connection with other then-proposed acquisitions. (i) The Company will use its reasonable best efforts to permit the Notes to be designated PORTAL securities in accordance with the rules and regulations adopted by the NASD relating to the PORTAL Market. 12 (j) The Company will reserve and keep available at all times, free of preemptive rights, a sufficient number of shares of Common Stock for the purpose of enabling the Company to satisfy any obligations to issue Common Stock upon conversion of the Notes. (k) The Company will use its reasonable best efforts to cause all shares of Common Stock issuable upon conversion of the Notes to be listed on The Nasdaq National Market. (l) The Company will file all documents required to be filed with the Commission pursuant to the Exchange Act within the time periods required by the Exchange Act and the Exchange Act Regulations. (m) The Company has caused each executive officer and director of the Company to furnish to you, on or prior to the date of this agreement, a letter or letters, in form and substance satisfactory to the Initial Purchaser, pursuant to which each such person shall agree not to make or cause any offering, sale or other disposition, directly or indirectly, of any shares of Common Stock of the Company owned of record or beneficially by such person (or as to which such person has the right to direct the disposition of) for a period of 90 days after the date of the Final Offering Memorandum, except with the prior written consent of DBAB (the "Lockup Agreements"). (n) The Company shall not invest, or otherwise use the proceeds received by the Company from its sale of the Notes in such a manner as would require the Company or any of the Subsidiaries to register as an investment company under the 1940 Act. (o) The Company will continue to maintain a transfer agent and, if necessary under the jurisdiction of incorporation of the Company, a registrar for the Common Stock. (p) The Company will not take, directly or indirectly, any action designed to cause or result in, or that has constituted or might reasonably be expected to constitute, the manipulation or unlawful stabilization of the price of any securities of the Company. 4. Costs and Expenses. The Company will pay all costs, expenses and fees incident to the performance of the obligations of the Company under this Agreement, including, without limiting the generality of the foregoing, the following: (a) accounting fees of the Company; (b) the fees and disbursements of counsel for the Company; (c) the cost of preparing, printing and delivering to, or as requested by, the Initial Purchaser copies of the Preliminary Offering Memorandum, the Final Offering Memorandum, this Agreement, the Indenture, the Registration Rights Agreement and any other documents that may be required in connection with the offering, purchase, sale, issuance or delivery of the Notes; (d) the qualification of the Notes under securities laws in accordance with the provisions of Section 3(a) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Initial Purchaser in connection therewith and in connection with the preparation of the Blue Sky Survey, any supplement thereto and any Legal Investment Survey (which fees of counsel shall not exceed $10,000); (e) the fees and expenses of the Trustee, including the reasonable fees and disbursements of counsel for the Trustee in connection with the Indenture and the Notes; (f) any fees payable in connection with the rating of the Notes; (g) any fees payable in connection with the initial and continued 13 designation of the Notes as PORTAL securities under the PORTAL Market pursuant to NASD Rule 5322; and (h) the listing fee of The Nasdaq National Market relating to the Conversion Shares. Any transfer taxes imposed on the sale of the Notes to the Initial Purchaser will be paid by the Company. The Company, however, shall not be required to pay for any of the Initial Purchaser's expenses (other than those related to clause (d) above) except that, if this Agreement shall not be consummated because the conditions in Section 5, other than those set forth in Section 5(b), (j), (l) or (n) hereof, are not satisfied, or because this Agreement is terminated by the Initial Purchaser pursuant to Section 9 hereof (other than due to the failure to satisfy the conditions set forth in Section 5(b), (j), (l) or (n) hereof), or by reason of any failure, refusal or inability on the part of the Company to perform any undertaking or satisfy any condition of this Agreement or to comply with any of the terms hereof on their part to be performed, unless such failure to satisfy said condition or to comply with said terms be due to the default or omission of the Initial Purchaser, then the Company shall reimburse the Initial Purchaser for reasonable out-of-pocket expenses, including fees and disbursements of counsel, reasonably incurred in connection with investigating, marketing and proposing to market the Notes or in contemplation of performing their obligations hereunder; but the Company shall not in any event be liable to the Initial Purchaser for damages on account of loss of anticipated profits from the sale by them of the Notes. 5. Conditions of Obligations of the Initial Purchaser. The obligation of the Initial Purchaser to purchase the Notes on the Closing Date is subject to the accuracy as of the date hereof and as of the Closing Date of the representations and warranties of the Company contained herein, and to the performance by the Company of its respective covenants and obligations hereunder and to the following additional conditions: (a) The Initial Purchaser shall have received on the Closing Date the opinion of Blank Rome Comisky & McCauley LLP, counsel for the Company, dated the Closing Date, addressed to the Initial Purchaser (and stating that it may be relied upon by counsel to the Initial Purchaser) to the effect that: (i) The Company has been duly incorporated and is subsisting as a corporation under the laws of the Commonwealth of Pennsylvania, with corporate power and authority to own or lease its properties and conduct its business as described in the Offering Memorandum; each of the Subsidiaries designated on Exhibit B attached hereto as a "Significant Subsidiary" has been duly organized and is validly existing as a corporation or limited liability company in good standing under the laws of the jurisdiction of its incorporation, with corporate power and authority to own or lease its properties and conduct its business as described in the Offering Memorandum; the Company and each of the Significant Subsidiaries are duly qualified to transact business in all jurisdictions in which the conduct of their business requires such qualification and in which the failure to qualify would have a materially adverse effect upon the business of the Company and the Significant Subsidiaries taken as a whole; and the outstanding shares of capital stock of each of the Significant Subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable and are owned by the Company or a Significant Subsidiary, except as described in the Offering Memorandum or set forth in Exhibit B to this Agreement, and, to such counsel's knowledge, the outstanding shares of capital stock of each of the Subsidiaries is owned free and clear of all adverse claims (within the meaning 14 of the Uniform Commercial Code) and, to such counsel's knowledge, no options, warrants or other rights to purchase, agreements or other obligations to issue or other rights to convert any obligations into any shares of capital stock or of ownership interests in the Subsidiaries are outstanding. (ii) The Company has authorized and outstanding capital stock as set forth under the caption "Capitalization" in the Offering Memorandum; the authorized shares of the Company's Common Stock have been duly authorized; the outstanding shares of the Company's capital stock have been duly authorized and validly issued and are fully paid and non-assessable; the Notes have been duly authorized and issued by the Company; the capital stock of the Company, the Notes and the Indenture conform in all material respects to the description thereof contained in the Offering Memorandum; the certificates for the Notes and Conversion Shares are in due and proper form required under the Indenture and the Pennsylvania Business Corporation Law of 1988, respectively; the Conversion Shares have been duly authorized and will be validly issued, fully paid and non-assessable when issued and paid for as contemplated by this Agreement; and are not subject to any preemptive or other similar rights arising by operation of law, under the Charter or By-Laws, under any resolution adopted by the board of directors of the Company or any committee thereof or, to such counsel's knowledge, otherwise. (iii) Except as described in or contemplated by the Offering Memorandum, to the knowledge of such counsel, there are no outstanding securities of the Company convertible or exchangeable into or evidencing the right to purchase or subscribe for any shares of capital stock of the Company and there are no outstanding or authorized options, warrants or rights of any character obligating the Company to issue any shares of its capital stock or any securities convertible or exchangeable into or evidencing the right to purchase or subscribe for any shares of such stock. Except as described in the Offering Memorandum, to the knowledge of such counsel, no holder of any securities of the Company or any other person has the right, contractual or otherwise, which has not been satisfied or effectively waived, to cause the Company to sell or otherwise issue to them, or to permit them to underwrite the sale of, any of the Notes or Conversion Shares or the right to have any Common Stock or other securities of the Company included in the shelf registration statement (the "Registration Statement") contemplated by the Registration Rights Agreement or the right, as a result of the filing of the Registration Statement, to require registration under the Securities Act of any shares of Common Stock or other securities of the Company. (iv) The statements under the captions "Description of Notes," and "Description of Capital Stock" in the Offering Memorandum, insofar as such statements constitute a summary of documents referred to therein or matters of law, accurately summarize in all material respects the information which would have been required to be set forth thereunder pursuant to Regulation S-K under the Securities Act with respect to such documents and matters, assuming such regulation is applicable to the Offering Memorandum. (v) The statements in the Offering Memorandum under the heading "Certain United States Federal Income Tax Considerations" insofar as they purport to summarize matters of U.S. federal tax law, fairly summarize such matters in all material respects. 15 (vi) The Indenture conforms in all material respects with the requirements of the Trust Indenture Act and the rules and regulations of the Commission applicable to an indenture which is qualified thereunder. (vii) Such counsel knows of no material legal or governmental proceedings pending or threatened against the Company or any of the Subsidiaries except as set forth in the Offering Memorandum or which are not required to be disclosed in the Offering Memorandum under Item 103 of Regulation S-K under the Securities Act, assuming such regulation is applicable to the Offering Memorandum. (viii) The execution and delivery of each of the Transaction Documents and the consummation of the transactions therein contemplated by the Company do not and will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, the Charter or By-Laws of the Company, or any agreement or instrument known to such counsel to which the Company or any of the Subsidiaries is a party or by which the Company or any of the Subsidiaries may be bound and which is filed as an exhibit to or incorporated by reference in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. (ix) The execution, delivery and performance by the Company of the Indenture and the consummation of the transactions contemplated by the Indenture will not conflict with or result in a breach or violation of any Pennsylvania law. (x) The execution, delivery and performance by the Company of this Agreement, the Registration Rights Agreement, and the Notes, and the consummation of the transactions contemplated by this Agreement, the Registration Rights Agreement, and the Notes will not conflict with or result in a breach or violation of any Pennsylvania law. (xi) Each of this Agreement, the Indenture and the Registration Rights Agreement has been duly authorized, executed and delivered by the Company. (xii) No approval, consent, order, authorization, designation, declaration or filing by or with any regulatory, administrative or other governmental body is necessary to have been made in connection with the execution and delivery of the Transaction Documents and the consummation of the transactions herein contemplated by the Company (other than as may be required by State securities and Blue Sky laws as to which such counsel need express no opinion) except such as have been obtained or made, specifying the same and except as may be contemplated under the Registration Rights Agreement. (xiii) Assuming due authorization, execution and delivery thereof by the Trustee, the Indenture constitutes a valid and legally binding agreement of the Company enforceable against the Company in accordance with its terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting creditors' rights generally and by general equitable principles (whether considered in a proceeding in equity or at law). 16 (xiv) Assuming due authentication thereof by the Trustee and upon payment and delivery in accordance with this Agreement, the Notes will constitute valid and legally binding obligations of the Company entitled to the benefits of the Indenture and enforceable against the Company in accordance with their terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting creditors' rights generally and by general equitable principles (whether considered in a proceeding in equity or at law). (xv) Assuming due authorization, execution and delivery thereof by the Initial Purchaser, the Registration Rights Agreement constitutes a valid and legally binding agreement of the Company enforceable against the Company in accordance with its terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting creditors' rights generally and by general equitable principles (whether considered in a proceeding in equity or at law). (xvi) The Company is not, and will not become, as a result of the consummation of the transactions contemplated by this Agreement, and application of the net proceeds therefrom as described in the Offering Memorandum, required to register as an investment company under the 1940 Act. (xvii) Assuming the accuracy of the representations, warranties and agreements of the Company and the Initial Purchaser contained in this Agreement, no registration of the Notes under the Securities Act or qualification of the Indenture under the Trust Indenture Act is required in connection with the issuance and sale of the Notes by the Company and the offer, initial resale and delivery of the securities by the Initial Purchaser in the manner contemplated by this Agreement and the Offering Memorandum. In rendering such opinion, Blank Rome Comisky & McCauley LLP may rely as to matters governed by the laws of states or jurisdictions other than Pennsylvania or Federal laws on local counsel in such jurisdictions, or the Company may cause its counsel in such other jurisdictions to deliver such opinions. In addition to the matters set forth above, such opinion shall also include a statement to the effect that nothing has come to the attention of such counsel which leads them to believe that the Final Offering Memorandum as of the date of the Final Offering Memorandum or the Closing Date contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, in light of the circumstances under which they were made (except that such counsel need express no view as to financial statements, including the notes thereto, schedules or other financial or statistical information set forth or incorporated by reference therein). With respect to such statement, Blank Rome Comisky & McCauley LLP may state that their belief is based upon the procedures set forth therein, but is without independent check and verification. (b) The Initial Purchaser shall have received from Hogan & Hartson L.L.P., counsel for the Initial Purchaser, an opinion dated the Closing Date, substantially to the effect specified in subparagraphs (ii), (iii), (vi), (viii), (xiii), (xiv), (xv) and (xvii) of Paragraph (a) of this Section 5, and 17 that the Company is a duly incorporated and validly existing corporation under the laws of the Commonwealth of Pennsylvania. In rendering such opinion, Hogan & Hartson L.L.P. may rely as to all matters governed other than by the laws of the State of New York and the State of Delaware or Federal laws on the opinion of counsel referred to in Paragraph (a) of this Section 5. In addition to the matters set forth above, such opinion shall also include a statement to the effect that nothing has come to the attention of such counsel which leads them to believe that the Offering Memorandum or any amendment thereto, as of the time it became effective, as of the Closing Date, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading (except that such counsel need express no view as to financial statements, including the notes thereto, schedules or other financial or statistical information therein). With respect to such statement, Hogan & Hartson L.L.P. may state that their belief is based upon the procedures set forth therein, but is without independent check and verification. (c) You shall have received, on each of the date hereof and the Closing Date (i) a letter dated the date hereof and the Closing Date, in form and substance satisfactory to you, of Ernst & Young LLP confirming that they are independent public accountants within the meaning of the Securities Act and stating that in their opinion the financial statements and schedules examined by them and included in the Offering Memorandum comply in form in all material respects with the applicable accounting requirements of the Securities Act; and containing such other statements and information as is ordinarily included in accountants' "comfort letters" to Initial Purchasers with respect to the financial statements and certain financial and statistical information contained in the Offering Memorandum; and (ii) a letter dated the date hereof and the Closing Date, in form and substance satisfactory to you, of PricewaterhouseCoopers LLP confirming that they are independent public accountants within the meaning of the Securities Act and stating that in their opinion the financial statements and schedules examined by them and included in the Offering Memorandum comply in form in all material respects with the applicable accounting requirements of the Securities Act; and containing such other statements and information as is ordinarily included in accountants' "comfort letters" to Initial Purchasers with respect to the financial statements and certain financial and statistical information contained in the Offering Memorandum. (d) The Initial Purchaser shall have received on the Closing Date a certificate or certificates of the Chief Executive Officer and the Chief Financial Officer of the Company to the effect that, as of the Closing Date, each of them severally represents as follows: (i) The representations and warranties of the Company contained in Section 1 hereof are true and correct as of the Closing Date; (ii) Since the respective dates as of which information is given in the Offering Memorandum, there has not been any material adverse change or any development known to him involving a prospective material adverse change in or affecting the condition, financial or otherwise, of the Company and its Subsidiaries taken as a whole or the earnings, business, management, properties, assets, operations, condition (financial or otherwise) or prospects of the Company and the Subsidiaries taken as a whole, whether or not arising in the ordinary course of business; and 18 (iii) He has carefully examined the Offering Memorandum and, to such officer's knowledge, as of the effective date, the statements contained in the Offering Memorandum were true and correct in all material respects and such Offering Memorandum did not omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and since the date of the Offering Memorandum, no event has occurred which should have been set forth in a supplement to or an amendment of the Offering Memorandum which has not been so set forth in such supplement or amendment. (e) The Company shall have furnished to the Initial Purchaser such further certificates and documents confirming the representations and warranties, covenants and conditions contained herein and related matters as the Initial Purchaser may reasonably have requested in writing. (f) The Conversion Shares have been approved as additional shares of Common Stock for listing upon notice of issuance on The Nasdaq National Market. (g) The Lockup Agreements described in Section 3(m) are in full force and effect. (h) At the Closing Date, the Registration Rights Agreement in form and substance reasonably satisfactory to the Initial Purchaser shall have been duly executed and delivered by the Company and (assuming due execution, delivery and performance by the Initial Purchaser) be in full force and effect. (i) At the Closing Date, the Notes shall have been designated for trading on PORTAL. (j) There shall not have occurred any invalidation of Rule 144A under the Securities Act by any court or any withdrawal or proposed withdrawal of any rule or regulation under the Securities Act or the Exchange Act by the Commission or any amendment or proposed amendment thereof by the Commission which in the reasonable judgment of the Initial Purchaser would materially impair the ability of the Initial Purchaser to purchase, hold or effect resales of the Notes as contemplated. (k) Subsequent to the execution and delivery of this Agreement or, if earlier, the dates as of which information is given in the Offering Memorandum (exclusive of any amendment or supplement thereto), there shall not have been any change in the capital stock or long-term debt or any change, or any development involving a prospective change, in or affecting the financial condition, results of operations, business or prospects of the Company and its subsidiaries taken as a whole, the effect of which, in any such case described above, is, in the reasonable judgment of the Initial Purchaser, after oral notice to and consultation with (but not subject to the agreement of) the Company, so material and adverse as to make it impracticable or inadvisable to proceed with the sale or delivery of the Notes on the terms and in the manner contemplated by this Agreement and the Offering Memorandum (exclusive of any amendment or supplement thereto). 19 (l) No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any governmental agency or body, foreign or domestic, which would, as of the Closing Date, prevent the issuance or sale of the Notes; and no injunction, restraining order or order of any other nature by any federal, state or foreign court of competent jurisdiction shall have been issued as of the Closing Date which would prevent the issuance or sale of the Notes. (m) Subsequent to the execution and delivery of this Agreement (i) no downgrading shall have occurred in the rating accorded any of the Company's debt securities by any "nationally recognized statistical rating organization", as such term is defined by the Commission for purposes of Rule 436(g)(2) of the rules and regulations of the Commission under the Securities Act and (ii) no such organization shall have publicly announced that it has under surveillance or review (other than an announcement with positive implications of a possible upgrading), its rating of any of the Company's debt securities. (n) Subsequent to the execution and delivery of this Agreement there shall not have occurred any of the following: (i) trading in securities generally on the New York Stock Exchange, The Nasdaq National Market, the over-the-counter market, shall have been suspended or limited, or minimum prices shall have been established on any such exchange or market by the Commission, by any such exchange or by any other regulatory body or governmental authority having jurisdiction, or trading in any securities of the Company on any exchange or in the over-the-counter market shall have been suspended or (ii) any moratorium on commercial banking activities shall have been declared by federal or New York State authorities or (iii) trading in the Company's Common Stock on The Nasdaq National Market shall have been suspended or (iv) an outbreak or escalation of hostilities or a declaration by the United States of a national emergency or war or (v) a material adverse change in general economic, political or financial conditions (or the effect of international conditions on the financial markets in the United States shall be such) the effect of which, in the case of this clause (v), is, in the judgment of the Initial Purchaser, so material and adverse as to make it impracticable or inadvisable to proceed with the sale or the delivery of the Notes on the terms and in the manner contemplated by this Agreement and in the Offering Memorandum (exclusive of any amendment or supplement thereto). The opinions and certificates mentioned in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in all material respects satisfactory to the Initial Purchaser and to Hogan & Hartson L.L.P., counsel for the Initial Purchaser. If any of the conditions hereinabove provided for in this Section 5 shall not have been fulfilled when and as required by this Agreement to be fulfilled, the obligations of the Initial Purchaser hereunder may be terminated by the Initial Purchaser by notifying the Company of such termination in writing or by telegram at or prior to the Closing Date. In such event, the Company and the Initial Purchaser shall not be under any obligation to each other (except to the extent provided in Sections 4 and 7 hereof). 20 6. Subsequent Offers and Resales of the Notes. (a) Each of the Initial Purchaser and the Company hereby establish and agree to observe the following procedures in connection with the offer and sale of the Notes: (i) Offers and sales of the Notes shall only be made to persons whom the offeror or seller reasonably believes to be qualified institutional buyers (as defined in Rule 144A under the Securities Act) or as an offshore transaction to persons who are not U.S. persons (as such terms are defined in Regulation S under the Securities Act) in accordance with Regulation S. (ii) No general solicitation or general advertising (within the meaning of Rule 502(c) under the Securities Act) will be used in the United States in connection with the offering or sale of the Notes and neither the Initial Purchaser, the Company or any of their respective affiliates will engage in any directed selling efforts (as such term is defined in Regulation S under the Securities Act). (iii) In the case of a non-bank Subsequent Purchaser of a Note acting as a fiduciary for one or more third parties, each third party shall, in the judgment of the Initial Purchaser, be a QIB. (iv) The Initial Purchaser will take reasonable steps to inform, and cause each of its U.S. affiliates to take reasonable steps to inform, persons acquiring Notes from the Initial Purchaser or affiliate, as the case may be, in the United States that the Notes (A) have not been registered under the Securities Act, (B) are being sold to them without registration under the Securities Act in reliance on Rule 144A or in accordance with another exemption from registration under the Securities Act, as the case may be, and (C) may not be offered, sold or otherwise transferred except (1) to the Company, (2) outside the United States to non-U.S. persons in accordance with Regulation S or (3) to U.S. persons in accordance with (x) Rule 144A to a person whom the seller reasonably believes is a QIB that is purchasing such Notes for its own account or for the account of a QIB to whom notice is given that the offer, sale or transfer is being made in reliance on Rule 144A or (y) pursuant to another available exemption from registration under the Securities Act. (v) The transfer restrictions and the other provisions set forth in the Offering Memorandum under the heading "Notice to Investors; Transfer Restrictions," including the legend required thereby, shall apply to the Notes except as otherwise agreed by the Company and the Initial Purchaser. (b) The Company covenants with the Initial Purchaser as follows: (i) The Company agrees that it will not and will cause its Affiliates under its control not to, directly or indirectly, solicit any offer to buy or make any offer or sale of, or otherwise negotiate in respect of, securities of the Company of any class if, as a result of the doctrine of "integration" referred to in Rule 502 under the Securities Act, such offer or sale would render invalid (for the purpose of (i) the sale of the Notes by the 21 Company to the Initial Purchaser, (ii) the resale of the Notes by the Initial Purchaser to Subsequent Purchasers or (iii) the resale of the Notes by such Subsequent Purchasers to others) the exemption from the registration requirements of the Securities Act provided by Section 4(2) thereof, by Rule 144A thereunder, by Regulation S thereunder or otherwise. (ii) The Company agrees that, in order to render the Notes eligible for resale pursuant to Rule 144A under the Securities Act, while any of the Notes remain outstanding, it will make available, upon request, to any holder of Notes or prospective purchasers of Notes the information specified in Rule 144A(d)(4), unless the Company furnishes information to the Commission pursuant to Section 13 or 15(d) of the Exchange Act (such information, whether made available to holders or prospective purchasers or furnished to the Commission, is herein referred to as "Additional Information"). (iii) During the period beginning on the last date of original issuance of the Notes and ending on the date that is two years from such date, the Company will not, and will use all reasonable efforts not to permit any of its "affiliates" (as defined under Rule 144 under the Securities Act or any successor provision thereto) which are under its control, to, resell (x) any Notes which constitute "restricted securities" under Rule 144 or (y) any securities into which the Notes have been converted which constitute "restricted securities" under Rule 144, that in either case have been reacquired by any of them, except pursuant to an effective registration statement under the Securities Act or an applicable exemption therefrom. 7. Indemnification. (a) The Company agrees to indemnify and hold harmless the Initial Purchaser and each person, if any, who controls the Initial Purchaser within the meaning of the Securities Act, against any losses, claims, damages or liabilities to which the Initial Purchaser or any such controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in the Preliminary Offering Memorandum, Final Offering Memorandum or any amendment or supplement thereto, or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made; and will reimburse the Initial Purchaser and each such controlling person upon demand for any legal or other expenses reasonably incurred by the Initial Purchaser or such controlling person in connection with investigating or defending any such loss, claim, damage or liability, action or proceeding or in responding to a subpoena or governmental inquiry related to the offering of the Notes, whether or not the Initial Purchaser or controlling person is a party to any action or proceeding; provided, however, that (i) the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement, or omission or alleged omission made in the Preliminary Offering Memorandum, Final Offering Memorandum, or such amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by or through the Initial Purchaser specifically for use in the preparation thereof or (ii) with respect to any untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Offering Memorandum, such indemnity in this 22 subsection (a) shall not inure to the benefit of the Initial Purchaser (or to the benefit of any persons controlling such Initial Purchaser) if the person asserting any such loss, claim, damage or liability who purchased the Notes which are the subject thereof did not receive a copy of an amended Preliminary Offering Memorandum or the Final Offering Memorandum (or the Final Offering Memorandum as amended or supplemented) at or prior to the written confirmation of the sale of such Notes to such person and the untrue statement or alleged untrue statement or omission or alleged omission of a material fact made in such Preliminary Offering Memorandum was corrected in the amended Preliminary Offering Memorandum or the Final Offering Memorandum (or the Final Offering Memorandum as amended and supplemented). This indemnity agreement will be in addition to any liability which the Company may otherwise have. (b) The Initial Purchaser will indemnify and hold harmless the Company, and each person, if any, who controls the Company within the meaning of the Securities Act, against any losses, claims, damages or liabilities to which the Company or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in the Preliminary Offering Memorandum, Final Offering Memorandum or any amendment or supplement thereto, (ii) the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made; and will reimburse any legal or other expenses reasonably incurred by the Company or controlling person in connection with investigating or defending any such loss, claim, damage, liability, action or proceeding or (iii) the failure of the Initial Purchaser at or prior to the written confirmation of the sale of the Notes to send or deliver a copy of an amended Preliminary Offering Memorandum or the Final Offering Memorandum (or the Final Offering Memorandum as amended or supplemented) to the person asserting any such losses, claims, damages, liabilities or expenses who purchased the Notes which is the subject thereof and the untrue statement or omission of a material fact contained in such Preliminary Offering Memorandum was corrected in the amended Preliminary Offering Memorandum or Final Offering Memorandum (or the Final Offering Memorandum as amended or supplemented); provided, however, that the Initial Purchaser will be liable in each case to the extent, but only to the extent, in the case of clauses (i) and (ii), that such untrue statement or alleged untrue statement or omission or alleged omission has been made in the Preliminary Offering Memorandum, Final Offering Memorandum or such amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by or through the Initial Purchaser specifically for use in the preparation thereof; and in the case of clause (iii) of this Section 7(b), the Initial Purchaser failed to send or deliver a copy of an amended Preliminary Offering Memorandum or the Final Offering Memorandum (or the Final Offering Memorandum as amended or supplemented). This indemnity agreement will be in addition to any liability which the Initial Purchaser may otherwise have. (c) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to this Section 7, such person (the "indemnified party") shall promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing. No indemnification provided for in Section 23 7(a) or (b) shall be available to any party who shall fail to give notice as provided in this Section 7(c) if the party to whom notice was not given was unaware of the proceeding to which such notice would have related and was materially prejudiced by the failure to give such notice, but the failure to give such notice shall not relieve the indemnifying party or parties from any liability which it or they may have to the indemnified party for contribution or otherwise than on account of the provisions of Section 7(a) or (b). In case any such proceeding shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party and shall pay as incurred the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel at its own expense. Notwithstanding the foregoing, the indemnifying party shall pay as incurred (or within 30 days of presentation) the fees and expenses of the counsel retained by the indemnified party in the event (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel, (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them or (iii) the indemnifying party shall have failed to assume the defense and employ counsel acceptable to the indemnified party within a reasonable period of time after notice of commencement of the action. It is understood that the indemnifying party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate firm for all such indemnified parties. Such firm shall be designated in writing by you in the case of parties indemnified pursuant to Section 7(a) and by the Company in the case of parties indemnified pursuant to Section 7(b). The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. In addition, the indemnifying party will not, without the prior written consent of the indemnified party, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding of which indemnification may be sought hereunder (whether or not any indemnified party is an actual or potential party to such claim, action or proceeding) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action or proceeding. (d) If the indemnification provided for in this Section 7 is unavailable to or insufficient to hold harmless an indemnified party under Section 7(a) or (b) above in respect of any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to therein, except by reason of the exceptions set forth in Section 7(a) hereof or the failure of the indemnified party to give notice as required in Section 7(c) hereof (provided that the indemnifying party was unaware of the proceeding to which such notice would have related and was prejudiced by the failure to give such notice), then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) in such proportion 24 as is appropriate to reflect the relative benefits received by the Company on the one hand and the Initial Purchaser on the other from the offering of the Notes. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company on the one hand and the Initial Purchaser on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, (or actions or proceedings in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Initial Purchaser on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total discounts received by the Initial Purchaser, in each case as set forth in this Agreement and in the Final Offering Memorandum. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the Initial Purchaser on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Initial Purchaser agree that it would not be just and equitable if contributions pursuant to this Section 7(d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 7(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to above in this Section 7(d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), (i) the Initial Purchaser shall not be required to contribute any amount in excess of the underwriting discounts applicable to the Notes purchased by the Initial Purchaser, and (ii) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (e) In any proceeding relating to the Preliminary Offering Memorandum, Offering Memorandum or any supplement or amendment thereto, each party against whom contribution may be sought under this Section 7 hereby consents to the jurisdiction of any court having jurisdiction over any other contributing party, agrees that process issuing from such court may be served upon him or it by any other contributing party and consents to the service of such process and agrees that any other contributing party may join him or it as an additional defendant in any such proceeding in which such other contributing party is a party. (f) Except as otherwise provided above in this Section 7, any losses, claims, damages, liabilities or expenses for which an indemnified party is entitled to indemnification or contribution under this Section 7 shall be paid by the indemnifying party to the indemnified party as such losses, claims, damages, liabilities or expenses are incurred (or within 30 days of presentation). The indemnity and contribution agreements contained in this Section 7 and the representations and warranties of the Company set forth in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of the Initial Purchaser or any 25 person controlling the Initial Purchaser, the Company, its directors or officers or any persons controlling the Company, (ii) acceptance of any Notes and payment therefor hereunder, and (iii) any termination of this Agreement. A successor to the Initial Purchaser, or to the Company, its directors or officers, or any person controlling the Company, shall be entitled to the benefits of the indemnity, contribution and reimbursement agreements contained in this Section 7. 8. Notices. All communications hereunder shall be in writing and, except as otherwise provided herein, will be mailed, delivered, telecopied or telegraphed and confirmed as follows: if to the Underwriters, to: Deutsche Banc Alex. Brown Inc. One South Street Baltimore, Maryland 21202 Attention: General Counsel with a copy to: Hogan & Hartson L.L.P. 111 South Calvert Street Baltimore, Maryland 21202 Attention: Lawrence R. Seidman if to the Company to: NCO Group, Inc. 515 Pennsylvania Avenue Fort Washington, Pennsylvania 19034 Attention: General Counsel with a copy to: Blank Rome Comisky & McCauley LLP One Logan Square Philadelphia, PA 19103 Attention: Francis E. Dehel 26 9. Termination. This Agreement may be terminated by you in your absolute discretion by notice to the Company as follows: (a) at any time prior to the Closing Date if any of the events described in Section 5(j), (k), (l), (m) or (n) shall have occurred and be continuing; or (b) as provided in Section 4 of this Agreement. 10. Successors. This Agreement has been and is made solely for the benefit of the Initial Purchaser and the Company and their respective successors, executors, administrators, heirs and assigns, and the officers, directors and controlling persons referred to herein, and no other person will have any right or obligation hereunder. No purchaser of any of the Notes from the Initial Purchaser shall be deemed a successor or assign merely because of such purchase. 11. Information Provided by Initial Purchaser. The Company and the Initial Purchaser acknowledge and agree that the only information furnished or to be furnished by the Initial Purchaser to the Company for inclusion in any Offering Memorandum consists of the information set forth in the last paragraph on the front cover page (insofar as such information relates to the Initial Purchaser) and the information set forth in the seventh paragraph under the caption "Plan of Distribution" of the Offering Memorandum. 12. Miscellaneous. The reimbursement, indemnification and contribution agreements contained in this Agreement and the representations, warranties and covenants in this Agreement shall remain in full force and effect regardless of (a) any termination of this Agreement, (b) any investigation made by or on behalf of the Initial Purchaser or any controlling person thereof, or by or on behalf of the Company or its directors or officers and (c) delivery of, and payment for, the Notes under this Agreement. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. [Rest of Page Intentionally Left Blank] 27 If the foregoing letter is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicates hereof, whereupon it will become a binding agreement among the Company and the Initial Purchaser in accordance with its terms. Very truly yours, NCO GROUP, INC. By:____________________________ Name: Title: The foregoing Purchase Agreement is hereby confirmed and accepted as of the date first above written. DEUTSCHE BANC ALEX. BROWN INC. By: Deutsche Banc Alex. Brown Inc. By: _____________________ Authorized Officer By: _____________________ Authorized Officer 28 SCHEDULE I NCO Group, Inc. $125,000,000 4.75% Convertible Subordinated Notes due 2006 1. The Notes shall bear interest at a rate of 4.75% per annum. 2. The Notes shall be convertible into shares of common stock, no par value per share, of the Company (the "Common Stock") at an initial rate of 30.3767 shares of Common Stock per $1,000 principal amount of Notes. 3. The purchase price to be paid by the Initial Purchaser for the Notes shall be $121,250,000, being an amount equal to 97.0% of the aggregate principal amount of Notes purchased by the Initial Purchaser. 4. The redemption prices to be supplied on page 44 of the Preliminary Offering Memorandum (and correspondingly in the Indenture) shall be: April 22, 2004 through April 14, 2005.........................102.0% April 15, 2005 through April 14, 2006.........................101.0% EX-4.2 3 ex4-2.txt INDENTURE Exhibit 4.2 ================================================================================ NCO GROUP, INC. 4.75% Convertible Subordinated Notes Due 2006 ---------- INDENTURE Dated as of April 4, 2001 ---------- BANKERS TRUST COMPANY, as Trustee ================================================================================ TABLE OF CONTENTS(1)
Page ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.1. Definitions.........................................................................................1 Section 1.2. Other Definitions...................................................................................6 Section 1.3. Incorporation by Reference of Trust Indenture Act...................................................7 Section 1.4. Rules of Construction...............................................................................7 ARTICLE 2. THE SECURITIES Section 2.1. Designation, Form and Dating........................................................................8 Section 2.2. Execution and Authentication........................................................................8 Section 2.3. Registrar, Paying Agent and Conversion Agent........................................................9 Section 2.4. Paying Agent To Hold Money in Trust.................................................................9 Section 2.5. Securityholder Lists...............................................................................10 Section 2.6. Transfer and Exchange..............................................................................10 Section 2.7. Replacement Securities.............................................................................17 Section 2.8. Outstanding Securities.............................................................................17 Section 2.9. Treasury Securities................................................................................18 Section 2.10. Temporary Securities...............................................................................18 Section 2.11. Cancellation.......................................................................................18 Section 2.12. CUSIP Numbers......................................................................................19 ARTICLE 3. REDEMPTION AND REPURCHASE Section 3.1. Optional Redemption by the Company.................................................................19 Section 3.2. Election To Redeem; Notice to Trustee..............................................................19 Section 3.3. Selection of Securities To Be Redeemed.............................................................19 Section 3.4. Notice of Redemption...............................................................................20 Section 3.5. Deposit of Redemption Price........................................................................20 Section 3.6. Securities Payable on Redemption Date..............................................................21 Section 3.7. Securities Redeemed in Part........................................................................21 Section 3.8. Conversion Arrangement on Call for Redemption......................................................21
- -------- (1) This Table of Contents shall not, for any purpose, be deemed to be part of this Indenture. i Section 3.9. Repurchase of Securities at Option of the Holder upon Change in Control............................22 Section 3.10. Notice; Method of Exercising Repurchase Right......................................................23 Section 3.11. Effect of Repurchase Notice........................................................................25 Section 3.12. Deposit of Repurchase Price........................................................................26 Section 3.13. Securities Repurchased in Part.....................................................................26 Section 3.14. Compliance with Securities Laws upon Repurchase of Securities......................................26 Section 3.15. Repayment to the Company...........................................................................26 ARTICLE 4. CONVERSION Section 4.1. Conversion Privilege...............................................................................27 Section 4.2. Conversion Procedure...............................................................................27 Section 4.3. Adjustments Below Par Value........................................................................28 Section 4.4. Taxes on Conversion................................................................................29 Section 4.5. Company To Provide Stock...........................................................................29 Section 4.6. Adjustment of Conversion Price.....................................................................30 Section 4.7. No Adjustment......................................................................................33 Section 4.8. Equivalent Adjustments.............................................................................33 Section 4.9. Adjustment for Tax Purposes........................................................................33 Section 4.10. Notice of Adjustment...............................................................................34 Section 4.11. Notice of Certain Transactions.....................................................................34 Section 4.12. Effect of Reclassification, Consolidation, Merger or Sale on Conversion Privilege..................35 Section 4.13. Trustee's Disclaimer...............................................................................35 Section 4.14. Voluntary Reduction................................................................................36 ARTICLE 5. SUBORDINATION Section 5.1. Securities Subordinated to Senior Indebtedness.....................................................36 Section 5.2. Securities Subordinated to Prior Payment of All Senior Indebtedness on Dissolution, Liquidation, Reorganization, Etc., of the Company...............................................................37 Section 5.3. Securityholders To Be Subrogated to Right of Holders of Senior Indebtedness........................38 Section 5.4. Obligations of the Company Unconditional...........................................................38 Section 5.5. Company Not To Make Payment with Respect to Securities in Certain Circumstances....................39 Section 5.6. Notice to Trustee..................................................................................40 Section 5.7. Application by Trustee of Monies Deposited with It.................................................40 Section 5.8. Subordination Rights Not Impaired by Acts or Omissions of the Company or Holders of Senior Indebtedness.................................................................... 41 Section 5.9. Trustee To Effectuate Subordination................................................................41
ii Section 5.10. Right of Trustee To Hold Senior Indebtedness.......................................................41 Section 5.11. Article 5 Not To Prevent Events of Default.........................................................41 Section 5.12. No Fiduciary Duty Created to Holders of Senior Indebtedness........................................41 Section 5.13. Article Applicable to Paying Agents................................................................42 Section 5.14. Certain Conversion Deemed Payment..................................................................42 ARTICLE 6. COVENANTS Section 6.1. Payment of Securities..............................................................................42 Section 6.2. SEC Reports; 144A Information......................................................................43 Section 6.3. Liquidation........................................................................................43 Section 6.4. Compliance Certificates............................................................................44 Section 6.5. Notice of Defaults.................................................................................44 Section 6.6. Payment of Taxes and Other Claims..................................................................45 Section 6.7. Corporate Existence................................................................................45 Section 6.8. Maintenance of Properties..........................................................................45 Section 6.9. Further Instruments and Acts.......................................................................45 Section 6.10. Maintenance of Office or Agency....................................................................45 Section 6.11. Resale of Certain Securities; Reporting Issuer.....................................................46 Section 6.12. Registration Rights................................................................................46 Section 6.13. Additional Interest................................................................................47 Section 6.14. Stay, Extension and Usury Laws.....................................................................47 ARTICLE 7. SUCCESSOR CORPORATION Section 7.1. When Company May Merge, Etc........................................................................48 Section 7.2. Successor Corporation Substituted..................................................................48 ARTICLE 8. DEFAULT AND REMEDIES Section 8.1. Events of Default..................................................................................49 Section 8.2. Acceleration.......................................................................................50 Section 8.3. Other Remedies.....................................................................................51 Section 8.4. Waiver of Defaults and Events of Default...........................................................51 Section 8.5. Control by Majority................................................................................51 Section 8.6. Limitation on Suits................................................................................52 Section 8.7. Rights of Holders To Receive Payment...............................................................52 Section 8.8. Collection Suit by Trustee.........................................................................52 Section 8.9. Trustee May File Proofs of Claim...................................................................53 Section 8.10. Priorities.........................................................................................53
iii Section 8.11. Undertaking for Costs..............................................................................53 Section 8.12. Restoration of Rights and Remedies.................................................................54 Section 8.13. Rights and Remedies Cumulative.....................................................................54 Section 8.14. Delay or Omission Not Waiver.......................................................................54 ARTICLE 9. TRUSTEE Section 9.1. Duties of Trustee..................................................................................54 Section 9.2. Rights of Trustee..................................................................................55 Section 9.3. Individual Rights of Trustee.......................................................................57 Section 9.4. Trustee's Disclaimer...............................................................................57 Section 9.5. Notice of Default or Events of Default.............................................................57 Section 9.6. Reports by Trustee to Holders......................................................................57 Section 9.7. Compensation and Indemnity.........................................................................57 Section 9.8. Replacement of Trustee.............................................................................58 Section 9.9. Successor Trustee by Merger, Etc...................................................................59 Section 9.10. Eligibility; Disqualification......................................................................59 Section 9.11. Preferential Collection of Claims Against Company..................................................59 ARTICLE 10. SATISFACTION AND DISCHARGE OF INDENTURE Section 10.1. Termination of Company's Obligations...............................................................60 Section 10.2. Application of Trust Money.........................................................................60 Section 10.3. Repayment to Company...............................................................................61 Section 10.4. Reinstatement......................................................................................61 ARTICLE 11. AMENDMENTS, SUPPLEMENTS AND WAIVERS Section 11.1. Without Consent of Holders.........................................................................61 Section 11.2. With Consent of Holders............................................................................62 Section 11.3. Compliance with Trust Indenture Act................................................................63 Section 11.4. Revocation and Effect of Consents..................................................................63 Section 11.5. Notation on or Exchange of Securities..............................................................63 Section 11.6. Trustee To Sign Amendments, Etc.; Notices..........................................................63
iv ARTICLE 12. MISCELLANEOUS Section 12.1. Trust Indenture Act Controls.......................................................................64 Section 12.2. Notices............................................................................................64 Section 12.3. Communications by Holders with Other Holders.......................................................65 Section 12.4. Certificate and Opinion as to Conditions Precedent.................................................65 Section 12.5. Record Date for Vote or Consent of Securityholders.................................................66 Section 12.6. Rules by Trustee, Paying Agent, Registrar..........................................................66 Section 12.7. Legal Holidays.....................................................................................66 Section 12.8. Governing Law......................................................................................66 Section 12.9. No Adverse Interpretation of Other Agreements......................................................66 Section 12.10. No Recourse Against Others.........................................................................67 Section 12.11. Successors.........................................................................................67 Section 12.12. Multiple Counterparts..............................................................................67 Section 12.13. Separability.......................................................................................67 Section 12.14. Table of Contents, Headings, Etc...................................................................67 Signatures..........................................................................................................S-1 Exhibit A...........................................................................................................A-1
v INDENTURE dated as of April 4, 2001 between NCO Group, Inc., a Pennsylvania corporation (the "Company"), and Bankers Trust Company, a New York banking corporation, as trustee (the "Trustee"). Both parties agree as follows for the benefit of the other and for the equal and ratable benefit of the registered holders of the Company's 4.75% Convertible Subordinated Notes Due 2006. ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.1. Definitions. ------------ The terms defined in this Section 1.1 (except as herein otherwise expressly provided or unless the context otherwise requires) for all purposes of this Indenture and of any indenture supplemental hereto shall have the respective meanings specified in this Section 1.1. "Affiliate" of any specified person means any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, "control" when used with respect to any person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Agent" means any Registrar, Paying Agent or Conversion Agent. "Board of Directors" means the Board of Directors of the Company or any authorized committee of the Board of Directors. "Business Day" means a day that is not a Legal Holiday. "Cash" or "cash" means such coin or currency of the United States as at any time of payment is legal tender for the payment of public and private debts. "Closing Price" with respect to any securities on any day shall mean the closing sale price regular way on such day or, in case no such sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in each case on the principal national security exchange or quotation system on which such security is quoted or listed or admitted to trading, or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the average of the closing bid and asked prices of such security on the over-the-counter market on the day in question as reported by the National Quotation Bureau Incorporated, or a similar generally accepted reporting service, or if not so available, in such manner as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors for that purpose, or a price determined in good faith by the Board of Directors or, to the extent permitted by applicable law, a duly authorized committee thereof, whose determination shall be conclusive. "Common Stock" means any stock of any class of the Company which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and which is not subject to redemption by the Company. Subject to the provisions of Section 4.12, however, shares issuable on conversion of Securities shall include only shares of Common Stock, no par value per share (which is the class designated as Common Stock of the Company at the date of this Indenture), or shares of any class or classes resulting from any reclassification or reclassifications thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and which are not subject to redemption by the Company; provided that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion to which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. "Company" means the party named as such in this Indenture until a successor replaces it pursuant to this Indenture and thereafter means the successor. "Consolidated Net Worth" means, with respect to any Person, the consolidated stockholders' equity (excluding any capital stock that by its terms is, or upon the happening of an event or passage of time would be, required to be redeemed prior to the maturity of the Securities or is redeemable at the option of the holder thereof at any time prior to such maturity or is convertible or exchangeable for debt securities at any time prior to such maturity at the option of the holder thereof) of such Person and its consolidated subsidiaries, as determined in accordance with generally accepted accounting principles. "Corporate Trust Office" of the Trustee means the office of the Trustee at which this Indenture is administered, which office initially is located at Four Albany Street, 4th Floor, New York, New York 10006. "Default" or "default" means any event which is, or after notice or passage of time, or both, would be, an Event of Default. "Depositary" means, with respect to the Securities issuable or issued in whole or in part in global form, The Depository Trust Company as the Depositary with respect to the Securities, until a successor shall have been appointed and becomes such pursuant to the applicable provisions of this Indenture, and thereafter, "Depositary" shall mean or include such successor. "Designated Senior Indebtedness" means (a) the Company's obligations arising under or out of that certain Fifth Amended and Restated Credit Agreement, dated as of December 31, 1999, among the Company, Mellon Bank, N.A. as Administrative Agent, and the Lenders party thereto, as previously amended and as the same may be amended, restated, modified, supplemented or refinanced from time to time and each instrument and agreement entered into in connection therewith and (b) the Company's obligations under any particular Senior Indebtedness in which the instrument creating or evidencing the same or the assumption or guarantee thereof, or related agreements or documents to which the Company is party, expressly provides that such Indebtedness shall be "Designated Senior Indebtedness" for purposes of this Indenture. The instrument, agreement or other document evidencing any Designated Senior Indebtedness may place limitations or conditions on the right of such Senior Indebtedness to exercise the rights of Designated Senior Indebtedness provided under this Indenture. 2 "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "Holder" or "Securityholder" means the person in whose name a Security is registered on the Registrar's books. "Indenture" means this Indenture as amended or supplemented from time to time. "Initial Purchaser" means Deutsche Banc Alex. Brown Inc., as initial purchaser under the Purchase Agreement. "Instrument" means any agreement, indenture, instrument or other document under which any obligation is evidenced, assumed, guaranteed or secured. "Market Capitalization" means an amount determined by multiplying the number of shares of Common Stock outstanding on the applicable date by the current market price of the Common Stock (determined as provided in Section 4.6(e)) as of such date. "Non-U.S. Person" means a Person that is not a U.S. Person. "Officer" means the Chairman of the Board, the President, any Vice President, the Chief Executive Officer, the Chief Financial Officer, the General Counsel, the Treasurer or the Secretary of the Company. "Officers' Certificate" means a certificate signed by two Officers of the Company; provided, however, that for purposes of Section 6.4 "Officers' Certificate" means a certificate signed by the principal executive officer, principal financial officer or principal accounting officer of the Company. "Opinion of Counsel" means a written opinion from legal counsel acceptable to the Trustee. The counsel may be an employee of or counsel to the Company. "Payment Dates" means April 15 and October 15, the payment dates of the Securities. "Payment Default" means any default in the payment of Senior Indebtedness. "Payment in full" or "paid in full" means payment in full in cash. "Person" or "person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or other agency or political subdivision thereof. 3 "PORTAL Market" means the Private Offerings, Resales and Trading through Automated Linkages Market operated by the National Association of Securities Dealers, Inc. or any successor thereto. "Principal" or "principal" of a debt security, including the Securities, means the principal of the security plus, when appropriate, the premium, if any, on the security. "Purchase Agreement" means the Purchase Agreement dated March 29, 2001 between the Company and the Initial Purchaser. "QIB" means a "Qualified Institutional Buyer" as that term is defined in Rule 144A. "Record Dates" means April 1 and October 1, the record dates of the Securities. "Redemption Date" or "redemption date," when used with respect to any Security to be redeemed, means the date fixed for such redemption pursuant to this Indenture, as set forth in the form of Security annexed as Exhibit A hereto. "Redemption Price" or "redemption price," when used with respect to any Security to be redeemed, means the price fixed for such redemption pursuant to this Indenture, as set forth in the form of Security annexed as Exhibit A hereto. "Registration Rights Agreement" means the Registration Rights Agreement dated as of the date hereof between the Company and the Initial Purchaser and certain permitted assigns. "Regulation S" means Regulation S promulgated under the Securities Act. "Reorganization Securities" means securities of the Company or any other corporation provided for by a plan of reorganization or readjustment of the Company (a) which are equity securities that do not provide for any mandatory payments to holders thereof, including by way of dividends or mandatory redemption; or (b) the payment of which is subordinated, at least to the extent provided in Article 5 with respect to the Securities, to the payment of all Senior Indebtedness which may at the time be outstanding. "Responsible Officer" shall mean, when used with respect to the Trustee, any officer in the Corporate Trust Office of the Trustee, including any principal, vice president, managing director, assistant vice president, assistant secretary, assistant treasurer, or any other officer customarily performing functions similar to those performed by any of the above-designated officers who shall, in any case, be responsible for the administration of this Indenture or have familiarity with it, and also means, with respect to a particular corporate matter, any other officer of the Trustee to whom corporate trust matters are referred because of his knowledge of and familiarity with the particular subject. "Representative" means the indenture trustee or other trustee, agent or representative for any class of Senior Indebtedness. "Rule 144" means Rule 144 as promulgated under the Securities Act. 4 "Rule 144A" means Rule 144A as promulgated under the Securities Act. "SEC" or "Commission" means the Securities and Exchange Commission. "Securities" means the 4.75% Convertible Subordinated Notes Due 2006 or any of them (each a "Security"), as amended or supplemented from time to time, that are issued under this Indenture. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Senior Agent" means, on any date, the Representative of the class of Senior Indebtedness having the highest principal amount (including all revolving credit, letter of credit and other working capital commitments) then outstanding. "Senior Indebtedness" means the following, whether outstanding upon issuance of the Securities or thereafter incurred or created: (a) the principal of and premium, if any, and interest on, and fees, costs, enforcement expenses, collateral protection expenses and other reimbursement or indemnity obligations in respect of all indebtedness or obligations of the Company to any Person for money borrowed that is evidenced by a note, bond, debenture, loan agreement, or similar instrument or agreement; (b) commitment or standby fees due and payable to lending institutions with respect to credit facilities available to the Company; (c) all obligations of the Company (i) for the reimbursement of any obligor on any letter of credit, banker's acceptance, or similar credit transaction, (ii) under interest rate swaps, caps, collars, options, and similar arrangements, and (iii) under any foreign exchange contract, currency swap agreement, futures contract, currency option contract, or other foreign currency hedge; (d) all obligations of the Company for the payment of money relating to capitalized lease obligations; (e) any liabilities of others described in the preceding clauses that the Company has guaranteed or which are otherwise its legal liability; and (f) renewals, extensions, refundings, refinancings, restructurings, amendments, and modifications of any such indebtedness or guarantee; other than any indebtedness or other obligation of the Company that by its terms is not superior in right of payment to the Securities. "Significant Subsidiary" means a "significant subsidiary" as defined in Reg. ss.210.1-02(w) of Regulation S-X under the Exchange Act. "Subsidiary" means any corporation, association or other business entity of which at least a majority of the total capital stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by the Company or one or more of the Company's other Subsidiaries or a combination thereof. "TIA" means the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990 and as in effect on the date of this Indenture, except as provided in Section 11.3, and except to the extent any amendment to the Trust Indenture Act expressly provides for application of the Trust Indenture Act as in effect on another date. 5 "Transfer Restricted Security" means securities that bear or are required to bear the legend set forth in Section 2.6(c) or (d). "Trustee" means Bankers Trust Company until a successor replaces it in accordance with the provisions of this Indenture and thereafter means the successor. "U.S. Person" has the meaning specified in Regulation S. Section 1.2. Other Definitions. ------------------ Defined Term in Section - ---- ---------- "Additional Interest"............................................ 6.12(a) "Aggregate Market Premium"....................................... 4.6(d) "Bankruptcy Law"................................................. 8.1 "beneficial owner"............................................... 3.9 "Change in Control".............................................. 3.9 "Clearstream".................................................... 2.6(c) "Company Notice"................................................. 3.10(a) "Company Order".................................................. 2.2 "Continuing Directors"........................................... 3.9 "Conversion Agent"............................................... 2.3 "Conversion Price"............................................... 4.6 "Conversion Shares".............................................. 4.1 "Custodian"...................................................... 8.1 "Euroclear"...................................................... 2.6(c) "Event of Default"............................................... 8.1 "Global Note".................................................... 2.6(a) "Group".......................................................... 3.9(1) "Legal Holiday".................................................. 12.7 "Notice Date".................................................... 3.1 "Optional Redemption"............................................ 3.1 "Paying Agent"................................................... 2.3 "Payment Blockage Period"........................................ 5.5 "Payment of the Securities"...................................... 5.5 "Registrar"...................................................... 2.3 "Registration Default"........................................... 6.12(a) "Registration Statement"......................................... 6.12(a) "Repurchase Date"................................................ 3.9 "Repurchase Price"............................................... 3.9 "Repurchase Notice".............................................. 3.10(b) "Restricted Securities".......................................... 2.6(c) "Trading Days"................................................... 4.6(e) "Trigger Event".................................................. 4.6(f) "U.S. Government Obligations".................................... 10.1 6 Section 1.3. Incorporation by Reference of Trust Indenture Act. -------------------------------------------------- This Indenture is hereby made subject to, incorporates by reference, and shall be governed by, the provisions of the TIA required to be part of and to govern indentures qualified under the TIA. The following TIA terms used in this Indenture have the following meanings: "Commission" means the SEC. "indenture securities" means the Securities. "indenture security holder" means a Securityholder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means the Company or any other obligor on the Securities. All other terms used in this Indenture that are defined in the TIA, defined by a TIA reference to another statute or defined by SEC rule and not otherwise defined herein have the meanings assigned to them therein. Section 1.4. Rules of Construction. ---------------------- Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles in effect on the date hereof, and any other reference in this Indenture to "generally accepted accounting principles" refers to generally accepted accounting principles in effect on the date hereof; (3) "or" is not exclusive; (4) words in the singular include the plural, and words in the plural include the singular; (5) provisions apply to successive events and transactions; and (6) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. 7 ARTICLE 2. THE SECURITIES Section 2.1. Designation, Form and Dating. ----------------------------- The Securities shall be designated as the "4.75% Convertible Subordinated Notes Due 2006." Other than as provided in Section 2.6, the Securities and the Trustee's certificate of authentication to be borne by the Securities shall be substantially in the form of Exhibit A attached hereto, which is incorporated in and made part of this Indenture. The Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to the terms and provisions of the Securities and to be bound thereby. In addition to such legends as may be required pursuant to Section 2.6, any of the Securities may have imprinted thereon such legends or endorsements as the officers executing the same may approve (execution thereof to be conclusive evidence of such approval) and as are not inconsistent with the provisions of this Indenture, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Securities may be listed or any trading system in which the Securities may be admitted, or to conform to usage. Each Security shall be dated the date of its authentication. Section 2.2. Execution and Authentication. ----------------------------- Two Officers of the Company shall sign the Securities for the Company by manual or facsimile signature. If an Officer whose signature is on a Security no longer holds that office at the time the Trustee authenticates the Security, the Security shall be valid nevertheless. A Security shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Security. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. The Trustee shall authenticate and make available for delivery Securities for original issue in the aggregate principal amount of up to $125,000,000, upon a written order or orders of the Company signed by two Officers or by an Officer and an Assistant Treasurer or Assistant Secretary of the Company (a "Company Order"). The Company Order shall specify the amount of Securities to be authenticated and the date on which the original issue of Securities is to be authenticated. The aggregate principal amount of Securities outstanding under this Indenture at any time may not exceed $125,000,000, except as provided in Section 2.7. The Trustee shall act as the initial authenticating agent. Thereafter, the Trustee may appoint an authenticating agent acceptable to the Company to authenticate Securities. An authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate of the Company. The Securities shall be issuable only in registered form without coupons only in denominations of $1,000 and any integral multiple thereof. 8 Section 2.3. Registrar, Paying Agent and Conversion Agent. --------------------------------------------- The Company shall maintain an office or agency where Securities may be presented for registration of transfer or for exchange (the "Registrar"), an office or agency where Securities may be presented for payment (the "Paying Agent"), an office or agency where Securities may be presented for conversion (the "Conversion Agent") and an office or agency for service of notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company may have one or more co-Registrars, one or more additional Paying Agents and one or more additional Conversion Agents. The term "Registrar" includes any co-Registrar, the term "Paying Agent" includes any additional Paying Agent and the term "Conversion Agent" includes any additional Conversion Agent. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee of the name and address of any Agent not a party to this Indenture. If the Company fails to maintain a Registrar, Paying Agent or a Conversion Agent or fails to give the foregoing notice, the Trustee shall act as such. The Company or any Affiliate of the Company may act as Paying Agent (except for the purposes of Section 6.3 and Article 10), Registrar or Conversion Agent. The Company initially appoints the Trustee as Registrar, Paying Agent and Conversion Agent in connection with the Securities. Section 2.4. Paying Agent To Hold Money in Trust. ------------------------------------ If the Company shall at any time act as its own Paying Agent, it will, on or before each due date of the principal of and premium, if any, or interest (together with any Additional Interest in respect thereof) on any of the Securities, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal of, premium, if any, or interest on any of the Securities (together with any Additional Interest in respect thereof) so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents, it will, prior to 10:00 a.m., New York City time, on each due date of the principal of and premium, if any, or interest (together with any Additional Interest in respect thereof) on any Securities, deposit with a Paying Agent a sum sufficient to pay such amount, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium, if any, or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. The Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section 2.4, that such Paying Agent will, subject to Section 5.7: 9 (1) hold all sums held by it for the payment of the principal of, premium, if any, or interest on Securities in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (2) give the Trustee written notice of any default by the Company (or any other obligor upon the Securities) in the making of any payment of principal, premium, if any, or interest; and (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. Any money deposited with the Trustee or any Paying Agent, or then held by the Company in trust for the payment of the principal of, and premium, if any, or interest (together with any Additional Interest in respect thereof) on any Security and remaining unclaimed for two years after such principal and premium, if any, or interest has become due and payable shall be paid, subject to applicable escheatment laws, to the Company on written request of the Company, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper selected by the Company and published in the English language, customarily published on each Business Day and of general circulation in the Borough of Manhattan, The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. Section 2.5. Securityholder Lists. --------------------- The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Securityholders. If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least five Business Days prior to each semi-annual interest Payment Date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Securityholders. Section 2.6. Transfer and Exchange. ---------------------- (a) Upon surrender for registration of transfer of any Security to the Registrar or any co-registrar, and satisfaction of the requirements for such transfer set forth in this Section 2.6, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of any authorized denominations and of a like aggregate principal amount and bearing such restrictive legends as may be required by this Indenture. 10 Securities may be exchanged for other Securities of any authorized denominations and of a like aggregate principal amount, upon surrender of the Securities to be exchanged at any such office or agency maintained by the Company pursuant to Section 6.10. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Securityholder making the exchange is entitled to receive bearing registration numbers not contemporaneously outstanding. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. All Securities presented or surrendered for registration of transfer or for exchange, redemption or conversion shall (if so required by the Company or the Registrar) be duly endorsed, or be accompanied by a written instrument or instruments of transfer in form satisfactory to the Company, and the Securities shall be duly executed by the Securityholder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax, assessment or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities. Neither the Company nor the Trustee nor any Registrar or any Company registrar shall be required to exchange or register a transfer of (a) any Securities for a period of fifteen (15) days next preceding any selection of Securities to be redeemed or (b) any Securities or portions thereof called for redemption pursuant to Section 3.4 or (c) any Securities or portion thereof surrendered for conversion pursuant to Article 4. So long as the Securities are eligible for book-entry settlement with the Depositary, or unless otherwise required by law, all Securities that upon initial issuance are beneficially owned by QIBs and all Securities that are beneficially owned by Non-U.S. Persons who acquired such Securities in accordance with Regulation S will be represented by a Security in global form registered in the name of the Depositary or the nominee of the Depositary (the "Global Note"). The transfer and exchange of beneficial interests in the Global Note shall be effected through the Depositary in accordance with this Indenture and the procedures of the Depositary therefor. The Trustee shall make appropriate endorsements to reflect increases or decreases in the principal amounts of the Global Note as set forth on the face of the Security to reflect any such transfers. Except as provided below, beneficial owners of the Global Note shall not be entitled to have certificates registered in their names, will not receive or be entitled to receive physical delivery of certificates in definitive form and will not be considered holders of such Securities in global form. (b) Any Security in global form may be endorsed with or have incorporated in the text thereof such legends or recitals or changes not inconsistent with the provisions of this Indenture as may be required by the Custodian, the Depositary or by the National Association of Securities Dealers, Inc. in order for the Securities to be tradable on The PORTAL Market or as may be required for the Securities to be tradable on any other market developed for trading of securities pursuant to Rule 144A or Regulation S or required to comply with any applicable law or any regulation thereunder or with the rules and regulations of any securities exchange or automated quotation system upon which the Securities may be listed or traded or to conform with any usage with respect thereto, or to indicate any special limitations or restrictions to which any particular Securities are subject. 11 (c) Every Security that bears or is required under this Section 2.6(c) to bear the legend set forth in this Section 2.6(c) (together with any Common Stock issued upon conversion of the Securities and required to bear the legend set forth in Section 2.6(d), collectively, the "Restricted Securities") shall be subject to the restrictions on transfer set forth in this Section 2.6(c) (including those set forth in the legend set forth below) unless such restrictions on transfer shall be waived by written consent of the Company, and the Holder of each such Transfer Restricted Security, by such Holder's acceptance thereof, agrees to be bound by all such restrictions on transfer. As used in Sections 2.6(c) and 2.6(d), the term "transfer" encompasses any sale, pledge, transfer or other disposition whatsoever of any Restricted Security. Until the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision) and provided that the holder has not been an Affiliate of the Company at any time during the three-month period preceding such date, any certificate evidencing such Security (and all securities issued in exchange therefor or substitution thereof, other than Common Stock, if any, issued upon conversion thereof, which shall bear the legend set forth in Section 2.6(d), if applicable) shall bear a legend in substantially the following form, unless such Security has been sold pursuant to a registration statement that has been declared effective under the Securities Act (and which continues to be effective at the time of such transfer), or unless otherwise agreed by the Company in writing, with written notice thereof to the Trustee: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS SECURITY MAY NOT BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD UNDER RULE 144(k) (OR ANY SUCCESSOR THERETO) UNDER THE SECURITIES ACT WHICH IS APPLICABLE TO THIS SECURITY OR (Y) BY ANY HOLDER THAT WAS AN "AFFILIATE" (WITHIN THE MEANING OF RULE 144 UNDER THE SECURITIES ACT) OF THE COMPANY AT ANY TIME DURING THE THREE MONTHS PRECEDING THE DATE OF SUCH TRANSFER, IN EITHER CASE, OTHER THAN (1) TO THE COMPANY, (2) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A, PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (3) IN AN OFFSHORE TRANSACTION (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT) IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT, (4) TO AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a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k)(2) OF RULE 902 UNDER) REGULATION S UNDER THE SECURITIES ACT. IN ANY CASE THE HOLDER HEREOF WILL NOT, DIRECTLY OR INDIRECTLY, ENGAGE IN ANY HEDGING TRANSACTION WITH REGARD TO THIS SECURITY OR ANY COMMON STOCK ISSUABLE UPON CONVERSION OF THIS SECURITY EXCEPT AS PERMITTED BY THE SECURITIES ACT. Any Security (or security issued in exchange or substitution therefor) as to which such restrictions on transfer shall have expired in accordance with their terms or as to which the conditions for removal of the foregoing legend set forth therein have been satisfied may, upon surrender of such Security for exchange to the Registrar in accordance with the provisions of this Section 2.6, be exchanged for a new Security or Securities, of like tenor and aggregate principal amount, which shall not bear the restrictive legend required by this Section 2.6(c). Notwithstanding any other provisions of this Indenture (other than the provisions set forth in Section 2.6(b) and in this Section 2.6(c)), the Global Note may not be transferred as a whole or in part except by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. 13 The Depositary shall be a clearing agency registered under the Exchange Act. The Company initially appoints The Depository Trust Company to act as Depositary with respect to the Global Note. Initially, the Global Note shall be issued to the Depositary, registered in the name of Cede & Co., as the nominee of the Depositary, and deposited with the Custodian for Cede & Co. The Global Note, to the extent that it represents the interests of Non-U.S. Persons, will be held by Cede & Co. for the accounts of designated agents on behalf of the Euroclear System ("Euroclear") and Clearstream Banking, Societe Anonyme ("Clearstream"). Non-U.S. Persons holding beneficial interests in the Global Note may do so only through Euroclear or Clearstream, and any resale or transfer of any such interest to a U.S. Person shall only be permitted if such Person is a QIB or is the Company or an Affiliate of the Company. If at any time the Depositary for the Global Note notifies the Company that it is unwilling or unable to continue as Depositary for such Global Note, the Company may appoint a successor Depositary with respect to such Global Note. If a successor Depositary is not appointed by the Company within ninety (90) days after the Company receives such notice, the Company will execute, and the Trustee, upon receipt of an Officers' Certificate for the authentication and delivery of Securities, will authenticate and deliver, Securities in certificated form, in aggregate principal amount equal to the principal amount of the Global Note, in exchange for such Global Note. If a Security in certificated form is issued in exchange for any portion of the Global Note after the close of business at the office or agency where such exchange occurs on any record date and before the opening of business at such office or agency on the next succeeding interest payment date, interest will not be payable on such interest payment date in respect of such Security, but will be payable on such interest payment date, subject to the provisions of paragraphs 1 and 2 of the Security, only to the person to whom interest in respect of such portion of the Global Note is payable in accordance with the provisions of this Indenture and the Securities. Securities in certificated form issued in exchange for all or a part of the Global Note pursuant to this Section 2.6 shall be registered in such names and in such authorized denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. Upon execution and authentication, the Trustee shall deliver such Securities in certificated form to the persons in whose names such Securities in certificated form are so registered. At such time as all interests in the Global Note have been redeemed, converted, canceled, exchanged for Securities in certificated form, or transferred to a transferee who receives Securities in certificated form thereof, such Global Note shall, upon receipt thereof, be canceled by the Trustee in accordance with standing procedures and instructions existing between the Depositary and the Custodian. At any time prior to such cancellation, if any interest in the Global Note is redeemed, converted, repurchased or canceled, the principal amount of the Global Note shall, in accordance with the standing procedures and instructions existing between the Depositary and the Custodian, be appropriately reduced and an endorsement shall be made on such Global Note, by the Trustee or the Custodian, at the direction of the Trustee, to reflect such reduction. 14 (d) Until the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision), any stock certificate representing Common Stock issued upon conversion of such Security shall bear a legend in substantially the following form, unless such Common Stock has been sold pursuant to a registration statement that has been declared effective under the Securities Act (and which continues to be effective at the time of such transfer) or such Common Stock has been issued upon conversion of Securities that have been transferred pursuant to a registration statement that has been declared effective under the Securities Act, or unless otherwise agreed by the Company in writing with written notice thereof to the transfer agent: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS SECURITY MAY NOT BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD UNDER RULE 144(k) (OR ANY SUCCESSOR THERETO) UNDER THE SECURITIES ACT WHICH IS APPLICABLE TO THIS SECURITY OR (Y) BY ANY HOLDER THAT WAS AN "AFFILIATE" (WITHIN THE MEANING OF RULE 144 UNDER THE SECURITIES ACT) OF THE COMPANY AT ANY TIME DURING THE THREE MONTHS PRECEDING THE DATE OF SUCH TRANSFER, IN EITHER CASE, OTHER THAN (1) TO THE COMPANY, (2) IN AN OFFSHORE TRANSACTION (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT) IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER APPLICABLE TO THIS SECURITY, THE FORM OF WHICH MAY BE OBTAINED FROM THE COMPANY OR THE TRANSFER AGENT), (3) TO AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT ("INSTITUTIONAL ACCREDITED INVESTOR") (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER APPLICABLE TO THIS SECURITY, THE FORM OF WHICH MAY BE OBTAINED FROM THE COMPANY OR THE TRANSFER AGENT) THAT IS ACQUIRING THIS SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION, AND THAT, PRIOR TO SUCH TRANSFER, DELIVERS TO THE COMPANY AND THE TRANSFER AGENT A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE SECURITY EVIDENCED HEREBY (THE FORM OF WHICH LETTER MAY BE OBTAINED FROM THE COMPANY OR THE TRANSFER AGENT), (4) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 (IF APPLICABLE) UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER APPLICABLE TO THIS SECURITY, THE FORM OF WHICH MAY BE OBTAINED FROM THE COMPANY OR 15 THE TRANSFER AGENT) OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. PRIOR TO A TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER PURSUANT TO CLAUSE (5) ABOVE), THE HOLDER OF THIS SECURITY MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE COMPANY AND THE TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AND, IN THE CASE OF A TRANSFER PURSUANT TO CLAUSE (4) ABOVE, A LEGAL OPINION AS THEY MAY REASONABLY REQUIRE TO CONFIRM THAT ANY TRANSFER BY IT OF THIS SECURITY COMPLIES WITH THE FOREGOING RESTRICTIONS. THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, REPRESENTS AND AGREES FOR THE BENEFIT OF THE COMPANY THAT IT IS (1) AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT AND THAT IT IS HOLDING THIS SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR (2) NOT A U.S. PERSON AND IS OUTSIDE THE UNITED STATES WITHIN THE MEANING OF (OR AN ACCOUNT SATISFYING THE REQUIREMENTS OF PARAGRAPH (k)(2) OF RULE 902 UNDER) REGULATION S UNDER THE SECURITIES ACT. IN ANY CASE THE HOLDER HEREOF WILL NOT, DIRECTLY OR INDIRECTLY, ENGAGE IN ANY HEDGING TRANSACTION WITH REGARD TO THIS SECURITY EXCEPT AS PERMITTED BY THE SECURITIES ACT. Any such Common Stock as to which such restrictions on transfer shall have expired in accordance with their terms or as to which the conditions for removal of the foregoing legend set forth therein have been satisfied may, upon surrender of the certificates representing such shares of Common Stock for exchange in accordance with the procedures of the transfer agent for the Common Stock, be exchanged for a new certificate or certificates for a like number of shares of Common Stock, which shall not bear the restrictive legend required by this Section 2.6(d). (e) Any Security or Common Stock issued upon the conversion or exchange of a Security that, prior to the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision), is purchased or owned by the Company or any Affiliate thereof may not be resold by the Company or such Affiliate unless registered under the Securities Act or resold pursuant to an exemption from the registration requirements of the Securities Act in a transaction which results in such Securities or Common Stock, as the case may be, no longer being "restricted securities" (as defined under Rule 144). (f) Each Holder of a Security agrees to indemnify the Company and the Trustee against any liability that may result from the transfer, exchange or assignment of such Holder's Security in violation of any provision of this Indenture and/or applicable United States Federal or state securities law. The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest 16 in any Security (including any transfers between or among Depositary Participants or beneficial owners of interests in the Global Note) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by the terms of, this Indenture. Section 2.7. Replacement Securities. ----------------------- If any mutilated Security is surrendered to the Company or the Trustee, or the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Security, and there is delivered to the Company and the Trustee such Security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute, and upon its written request the Trustee shall authenticate and deliver, in exchange for any such mutilated Security or in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and principal amount, bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, or is about to be redeemed by the Company pursuant to Article 3, the Company in its discretion may, instead of issuing a new Security, pay or redeem such Security, as the case may be. Upon the issuance of any new Securities under this Section 2.7, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) in connection therewith. Every new Security issued pursuant to this Section 2.7 in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section 2.7 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. Section 2.8. Outstanding Securities. ----------------------- Securities outstanding at any time are all Securities authenticated by the Trustee, except for those canceled by it, those delivered to it for cancellation and those described in this Section 2.8 as not outstanding. If a Security is replaced pursuant to Section 2.7, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Security is held by a bona fide purchaser. If the Paying Agent (other than the Company or an Affiliate of the Company) holds on a redemption date, repurchase date or maturity date money sufficient to pay the principal of, premium, if any, and accrued interest on Securities payable on that date, then on and after that date such Securities cease to be outstanding and interest on them ceases to accrue. 17 Subject to the restrictions contained in Section 2.9, a Security does not cease to be outstanding because the Company or an Affiliate of the Company holds the Security. Section 2.9. Treasury Securities. -------------------- In determining whether the Holders of the required principal amount of Securities have concurred in any notice, direction, waiver or consent, Securities owned by the Company or any other obligor on the Securities or by any Affiliate of the Company or of such other obligor shall be disregarded, except that for purposes of determining whether the Trustee shall be protected in relying on any such notice, direction, waiver or consent, only Securities which the Trustee knows are so owned shall be so disregarded. Securities so owned which have been pledged in good faith shall not be disregarded if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to the Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor. Section 2.10. Temporary Securities. --------------------- Until definitive Securities are ready for delivery, the Company may prepare and execute, and, upon the order of the Company, the Trustee shall authenticate and deliver temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company with the consent of the Trustee considers appropriate for temporary Securities. Every such temporary Security shall be executed by the Company and authenticated by the Trustee upon the same conditions and in substantially the same manner, and with the same effect, as the definitive Securities. Without unreasonable delay the Company will execute and deliver to the Trustee definitive Securities and thereupon any or all temporary Securities may be surrendered in exchange therefor, at each office or agency maintained by the Company pursuant to Section 6.10 and the Trustee shall authenticate and deliver in exchange for such temporary Securities an equal aggregate principal amount at maturity of definitive Securities. Such exchange shall be made by the Company at its own expense and without any charge therefor. Until so exchanged, the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities authenticated and delivered hereunder. Section 2.11. Cancellation. ------------- The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar, the Paying Agent and the Conversion Agent shall forward to the Trustee any Securities surrendered to them for transfer, exchange, payment or conversion. The Trustee and no one else shall cancel all Securities surrendered for transfer, exchange, payment (including redemption or repurchase), conversion or cancellation and shall dispose of cancelled Securities in accordance with its procedures for the disposition of cancelled Securities in effect as of the date of such disposition and thereupon deliver a certificate of cancellation to the Company. The Company may not issue new Securities to replace Securities it has paid or delivered to the Trustee for cancellation or which have been converted. 18 Section 2.12. CUSIP Numbers. -------------- The Company in issuing the Securities may use "CUSIP" numbers (if then generally in use), and if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the "CUSIP" numbers. ARTICLE 3. REDEMPTION AND REPURCHASE Section 3.1. Optional Redemption by the Company. ----------------------------------- The Company may, at its option, redeem all or from time to time any part of the Securities on any date on or after April 22, 2004 and prior to maturity (an "Optional Redemption") if the Closing Price of the Company's Common Stock for 20 Trading Days in a period of 30 consecutive Trading Days ending on the Trading Day prior to the date of mailing of the provisional notice of redemption (the "Notice Date") exceeds 120% of the Conversion Price (as defined in Section 4.6) of the Securities, upon notice as set forth in Section 3.4, and at the redemption prices set forth in paragraph 5 of the form of Security attached hereto as Exhibit A, together with accrued interest to the date of redemption. Section 3.2. Election To Redeem; Notice to Trustee. -------------------------------------- If the Company elects to redeem Securities pursuant to paragraph 5 of the Securities, it shall notify the Trustee at least 45 days prior to the redemption date as fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee) of the redemption date and the principal amount of Securities to be redeemed. If fewer than all of the Securities are to be redeemed, the record date relating to such redemption shall be selected by the Company and given to the Trustee, which record date shall not be less than 10 days after the date of notice to the Trustee. Section 3.3. Selection of Securities To Be Redeemed. --------------------------------------- If less than all of the Securities are to be redeemed, the Trustee shall, not more than 45 days prior to the redemption date, select the Securities to be redeemed by lot, pro rata or by another method the Trustee considers fair and appropriate; provided that such method is not prohibited by any stock exchange or market on which the Securities are then listed. The Trustee shall make the selection from the Securities outstanding and not previously called for redemption. Securities in denominations of $1,000 may only be redeemed in whole. The Trustee may select for redemption portions (equal to $1,000 or any multiple thereof) of the principal of Securities that have denominations larger than $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. 19 Section 3.4. Notice of Redemption. --------------------- Notice of redemption shall be given at least 30 days prior to the redemption date in the case of an Optional Redemption. In each case, the Company shall mail or cause to be mailed a notice of redemption by first-class mail to each Holder of Securities to be redeemed at such Holder's address as it appears on the Registrar's books. The notice shall identify the Securities to be redeemed and shall state: (1) the redemption date; (2) the redemption price, plus accrued interest, if any; (3) the then-current Conversion Price; (4) the name and address of the Paying Agent and the Conversion Agent; (5) that Securities called for redemption must be presented and surrendered to the Paying Agent to collect the redemption price; (6) that the Securities called for redemption may be converted at any time before the close of business on the Business Day immediately preceding the redemption date; (7) that Holders who wish to convert Securities must satisfy the requirements in paragraph 8 of the Securities; (8) that, unless the Company defaults in making the redemption payment, interest on Securities called for redemption ceases to accrue on and after the redemption date and the only remaining right of the Holder is to receive payment of the redemption price upon presentation and surrender to the Paying Agent of the Securities; (9) if any Security is being redeemed in part, the portion of the principal amount of such Security to be redeemed and that, after the redemption date, upon presentation and surrender of such Security, a new Security or Securities in principal amount equal to the unredeemed portion thereof will be issued; and (10) subject to Section 2.12, the CUSIP number of the Securities called for redemption. At the Company's written request delivered at least 15 days prior to the date of the mailing of the notice of redemption, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense. Section 3.5. Deposit of Redemption Price. ---------------------------- On or prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust) an amount of money sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an interest payment date) accrued interest on, all the Securities which are to be redeemed on that date other than any Securities called for redemption on that date which have been converted prior to the date of such deposit; provided that if such payment is made on the Redemption Date, it must be received by the Trustee or Paying Agent, as the case may be, by 10:00 a.m. New York City time on such date. 20 If any Security called for redemption is converted, any money deposited with the Trustee or with any Paying Agent or segregated and held in trust for the redemption of such Security shall (subject to any right of the Holder of such Security or any predecessor security to receive interest) be paid to the Company as soon as practicable upon written request by the Company or, if then held by the Company, shall be released from such trust. Section 3.6. Securities Payable on Redemption Date. -------------------------------------- Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest, if any) such Securities shall cease to bear or accrue any interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price, together with accrued interest to (but not including) the Redemption Date; provided, however, that installments of interest whose stated maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities registered as such at the close of business on the relevant Record Dates according to their terms. If the Company shall fail to deposit the Redemption Price with the Trustee and any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal and premium, if any, shall, until paid, bear and accrue interest from the Redemption Date at the rate borne by the Security. Section 3.7. Securities Redeemed in Part. ---------------------------- Any Security which is to be redeemed only in part shall be surrendered at an office or agency of the Company designated for that purpose (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney-in-fact duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal amount of the Security so surrendered. Section 3.8. Conversion Arrangement on Call for Redemption. ---------------------------------------------- In connection with any redemption of Securities, the Company may arrange for the purchase and conversion of any Securities by an agreement with one or more investment bankers or other purchasers to purchase such Securities by paying to the Trustee in trust for the Holders, on or before the Redemption Date, an amount not less than the applicable Redemption Price of such Securities, together with interest accrued to the Redemption Date. Notwithstanding anything to the contrary contained in this Article 3, the 21 obligation of the Company to pay the Redemption Price of such Securities, together with interest accrued to, but excluding, the Redemption Date shall be deemed to be satisfied and discharged to the extent such amount is so paid by such purchasers. If such an agreement is entered into, a copy of which shall be filed with the Trustee prior to the Redemption Date, any Securities not duly surrendered for conversion by the Holders thereof, may, at the option of the Company, be deemed, to the fullest extent permitted by law, acquired by such purchasers from such Holders and (notwithstanding anything to the contrary contained in Article 4) surrendered by such purchasers for conversion, all as of immediately prior to the close of business on the Redemption Date (and the right to convert any such Securities shall be deemed to have been extended through such time), subject to payment of the above amount as aforesaid. At the written direction of the Company, the Trustee shall hold and dispose of any such amount paid to it in the same manner as it would monies deposited with it by the Company for the redemption of Securities. Without the Trustee's prior written consent, no arrangement between the Company and such purchasers for the purchase and conversion of any Securities shall increase or otherwise affect any of the powers, duties, responsibilities or obligations of the Trustee as set forth in this Indenture, and the Company agrees to indemnify the Trustee from, and hold it harmless against, any loss, liability or expense arising out of or in connection with any such arrangement for the purchase and conversion of any Securities between the Company and such purchasers, including the costs and expenses incurred by the Trustee in the defense of any claim or liability arising out of or in connection with the exercise or performance of any of its powers, duties, responsibilities or obligations under this Indenture. Nothing in the preceding sentence shall be deemed to limit the rights and protections afforded to the Trustee in Article 9, including, but not limited to, the right to the indemnification pursuant to Section 9.7. Section 3.9. Repurchase of Securities at Option of the Holder upon Change in Control. --------------------------------------------------------------- If at any time that Securities remain outstanding there shall have occurred a Change in Control (as hereinafter defined), Securities shall be repurchased by the Company at the option of the Holder thereof, at a purchase price (the "Repurchase Price") equal to the principal amount thereof plus accrued interest up to and including the Repurchase Date (as hereinafter defined), on the date (the "Repurchase Date") fixed by the Company that is not less than 45 days nor more than 60 days after the date of the Company Notice (as hereinafter defined), subject to satisfaction by or on behalf of the Holder of the requirements set forth in Section 3.10(b). Whenever in this Indenture there is a reference to the principal of any Security as of any time, such reference shall be deemed to include reference to the Repurchase Price payable in respect of such Security to the extent that such Repurchase Price is, was or would be so payable at such time, and express mention of the Repurchase Price in any provision of this Indenture shall not be construed as excluding the Repurchase Price in those provisions of this Indenture when such express mention is not made. Any rights of Holders, contractual or otherwise, arising under or pursuant to any offer to repurchase Securities made by the Company under this Section 3.9 shall be subordinated in right of payment to all Senior Indebtedness to the same extent as the Securities are subordinated to Senior Indebtedness 22 under the provisions of Article 5 and such offer to repurchase shall provide that, if at the time the Securities are required to be repurchased pursuant to such offer, payment of the Securities is not permitted pursuant to the provisions of Article 5, the Company shall use its reasonable best efforts to obtain all necessary waivers from, or to repay in full, the holders of Senior Indebtedness in order to permit such repurchase. Notwithstanding the foregoing, any failure by the Company to comply with this Section 3.9 to offer to repurchase, or to repurchase, the Securities shall be a default in the performance by the Company hereunder. A "Change in Control" shall be deemed to have occurred at such time after the original issuance of the Securities as any of the following occur: (1) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company and its subsidiaries, taken as a whole, to any person or group of related persons, as defined in Section 13(d) of the Exchange Act (a "Group"); (2) the approval by the holders of capital stock of the Company of any plan or proposal for the liquidation or dissolution of the Company (whether or not otherwise in compliance with the provisions of the applicable indenture); (3) any person or Group shall become the owner, directly or indirectly, beneficially or of record, of shares representing more than 50% of the aggregate ordinary voting power represented by the Company's issued and outstanding voting stock or of any successor to all or substantially all of the Company's assets; or (4) the first day on which a majority of the members of the Company's Board of Directors are not Continuing Directors. "Beneficial owner" shall be determined in accordance with Rule 13d-3 promulgated by the SEC under the Exchange Act, as in effect on the date of execution of this Indenture, except that a person shall be deemed to be the "beneficial owner" of all securities that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors on the date of the original issuance of the Securities or (ii) was nominated for election or elected to the Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election. Section 3.10. Notice; Method of Exercising Repurchase Right. ---------------------------------------------- (a) Within 30 days after the occurrence of a Change in Control, the Company shall mail a written notice (the "Company Notice") by first-class mail to the Trustee and to each Holder (and to beneficial owners as required by applicable law). The notice shall include the form of a Repurchase Notice (as defined below) to be completed by the Holder and shall state: 23 (1) the date of such Change in Control and, briefly, the events causing such Change in Control; (2) the date by which the Repurchase Notice pursuant to this Section 3.10 must be given; (3) the Repurchase Date; (4) the Repurchase Price; (5) briefly, the conversion rights of the Securities including, without limitation, the current Conversion Price and any adjustments thereto; (6) the name and address of the Paying Agent and the Conversion Agent; (7) whether the holders of Senior Indebtedness will permit the payment of the Repurchase Price; (8) that Securities as to which a Repurchase Notice has been given may be converted into Common Stock only to the extent that the Repurchase Notice has been withdrawn in accordance with the terms of this Indenture; (9) the procedures that the Holder must follow to exercise rights under Section 3.9; (10) the procedures for withdrawing a Repurchase Notice, including a form of notice of withdrawal; (11) that the Holder must satisfy the requirements set forth in the Securities in order to convert the Securities; and (12) the CUSIP number of the Securities as to which a Repurchase Notice has been given. (b) A Holder may exercise its rights specified in Section 3.9 upon delivery of a written notice of the exercise of such rights (a "Repurchase Notice") to the Paying Agent at any time prior to the close of business on the third Business Day prior to the Repurchase Date, stating: (1) the certificate number of each Security that the Holder will deliver to be repurchased; (2) the portion of the principal amount of each Security that the Holder will deliver to be repurchased, which portion must be $1,000 or an integral multiple thereof; and (3) that such Security shall be repurchased pursuant to the terms and conditions specified in this Indenture. The delivery of such Security to the Paying Agent (together with all necessary endorsements), together with the Repurchase Notice as provided above, at the office of the Paying Agent shall be a condition to the receipt by the Holder of the Repurchase Price therefor; provided, however, that such Repurchase Price shall be so paid pursuant to Section 3.9 only if the Security so delivered to the Paying Agent shall conform in all respects to the description thereof set forth in the related Repurchase Notice. 24 The Company shall repurchase from the Holder thereof, pursuant to Section 3.9, a portion of a Security if the principal amount of such portion is $1,000 or an integral multiple of $1,000. Provisions of this Indenture that apply to the repurchase of all of a Security pursuant to Sections 3.9 through 3.15 also apply to the repurchase of such portion of such Security. Notwithstanding anything herein to the contrary, any Holder delivering to the Paying Agent the Repurchase Notice contemplated by this Section 3.10(b) shall have the right to withdraw such Repurchase Notice in whole or in a portion thereof that is $1,000 or an integral multiple thereof at any time prior to the close of business on the Business Day prior to the Repurchase Date by delivery of a written notice of withdrawal to the Paying Agent in accordance with Section 3.11. The Paying Agent shall promptly notify the Company of the receipt by it of any Repurchase Notice or written withdrawal thereof. Section 3.11. Effect of Repurchase Notice. ---------------------------- Upon receipt by the Paying Agent of the Repurchase Notice specified in Section 3.10(b), the Holder of the Security in respect of which such Repurchase Notice was given shall (unless such Repurchase Notice is withdrawn as specified below) thereafter be entitled to receive solely the Repurchase Price with respect to such Security. Such Repurchase Price shall be paid to such Holder promptly following the later of (i) the Repurchase Date with respect to such Security (provided the conditions in Section 3.10(b) have been satisfied) and (ii) the time of delivery of such Security to the Paying Agent by the Holder thereof in the manner required by Section 3.10(b). Securities in respect of which a Repurchase Notice has been given by the Holder thereof may not be converted into shares of Common Stock on or after the date of the delivery of such Repurchase Notice unless such Repurchase Notice has first been validly withdrawn. A Repurchase Notice may be withdrawn by means of a written notice of withdrawal delivered by the Holder, with such Holder's signature guaranteed in a manner satisfactory to the Paying Agent, to the office of the Paying Agent at any time prior to the close of business on the Business Day prior to the Repurchase Date to which it relates, specifying: (1) the certificate number of each Security in respect of which such notice of withdrawal is being submitted; (2) the principal amount of the Security or portion thereof with respect to which such notice of withdrawal is being submitted, which portion must be $1,000 or an integral multiple thereof; and (3) the principal amount, if any, of such Security that remains subject to the original Repurchase Notice and that has been or will be delivered for repurchase by the Company. 25 Section 3.12. Deposit of Repurchase Price. ---------------------------- On or before the Repurchase Date, the Company shall deposit with the Trustee or with the Paying Agent (or, if the Company is acting as the Paying Agent, shall segregate and hold in trust as provided in Section 2.4) an amount of money sufficient to pay the aggregate Repurchase Price of all the Securities or portions thereof that are to be repurchased as of such Repurchase Date. The manner in which the deposit required by this Section 3.12 is made by the Company shall be at the option of the Company; provided that such deposit shall be made in a manner such that the Trustee or the Paying Agent shall have immediately available funds on the Repurchase Date; provided further, that if such payment is made on the Repurchase Date it must be received by the Trustee or Paying Agent, as the case may be, by 10:00 a.m., New York City time, on such date. If the Paying Agent holds, in accordance with the terms hereof, money sufficient to pay the Repurchase Price of any Security tendered for repurchase on the Business Day prior to the Repurchase Date, then, on and after the Repurchase Date, such Security will cease to be outstanding and interest on such Security will cease to accrue and will be deemed paid, whether or not such Security is delivered to the Paying Agent, and all other rights of the Holder in respect thereof shall terminate (other than the right to receive the Repurchase Price upon delivery of such Security). Section 3.13. Securities Repurchased in Part. ------------------------------- Any Security that is to be repurchased only in part shall be surrendered at the office of the Paying Agent (with due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing), and the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security, without service charge, a new Security or Securities, or such authorized denomination or denominations as may be requested by such Holder, in aggregate principal amount equal to, and in exchange for, the portion of the principal amount of the Security so surrendered that is not repurchased. Section 3.14. Compliance with Securities Laws upon Repurchase of Securities. -------------------------------------------------------------- In connection with any offer to repurchase or repurchase of Securities under Section 3.9 hereof (provided that such offer or repurchase constitutes an "issuer tender offer" for purposes of Rule 13e-4 (which term, as used herein, includes any successor provision thereto) at the time of such offer or repurchase), the Company shall, to the extent applicable, (i) comply with Rule 13e-4 and Rule 14e-1 under the Exchange Act, (ii) file the related Schedule 13E-4 (or any successor schedule, form or report) under the Exchange Act, and (iii) otherwise comply with all federal and state securities laws so as to permit the rights of the Holders and obligations of the Company under Sections 3.9 through 3.14 to be exercised in the time and in the manner specified therein. Section 3.15. Repayment to the Company. ------------------------- Subject to the provisions of Section 5.7, to the extent that the aggregate amount of cash deposited by the Company pursuant to Section 3.12 exceeds the aggregate Repurchase Price of the Securities or portions thereof to be repurchased, then, promptly after the Business Day following the Repurchase Date, the Trustee or the Paying Agent, as the case may be, shall return any such excess to the Company. 26 ARTICLE 4. CONVERSION Section 4.1. Conversion Privilege. --------------------- At any time after 90 days following the latest date of original issuance of the Securities and prior to the close of business on the Business Day immediately preceding April 15, 2006, a Holder of a Security may convert such Security into Common Stock (the shares of Common Stock issuable upon such conversion, the "Conversion Shares"), at the Conversion Price then in effect, together with those rights, warrants or options specified in the first sentence of Section 4.6(f) hereof, to the extent applicable; provided that, if such Security is called for redemption pursuant to Article 3, such conversion right shall terminate at the close of business on the Business Day before the redemption date for such Security (unless the Company shall default in making the redemption payment then due, in which case the conversion right shall terminate on the date such default is cured and such Security is redeemed). The number of shares of Common Stock issuable upon conversion of a Security shall be determined by dividing the principal amount of the Security or portion thereof surrendered for conversion by the Conversion Price in effect on the conversion date. The initial Conversion Price is set forth in paragraph 8 of the Securities and is subject to adjustment as provided in this Article 4. A Holder may convert a portion of a Security equal to $1,000 or any integral multiple thereof. Provisions of this Indenture that apply to conversion of all of a Security also apply to conversion of a portion of a Security. A Security in respect of which a Holder has delivered a Repurchase Notice pursuant to Section 3.10(b) exercising the option of such Holder to require the Company to repurchase such Security may be converted only if such Repurchase Notice is withdrawn by a written notice of withdrawal delivered to the Paying Agent prior to the close of business on the Business Day prior to the Repurchase Date in accordance with Section 3.11. A Holder of Securities is not entitled to any rights of a holder of Common Stock until such Holder has converted his Securities into Common Stock and, upon such conversion, only to the extent such Securities are deemed to have been converted into Common Stock pursuant to this Article 4. Section 4.2. Conversion Procedure. --------------------- To convert a Security, a Holder must (i) complete and manually sign the conversion notice on the back of the Security and deliver such notice to the Conversion Agent, (ii) surrender the Security to the Conversion Agent, (iii) furnish appropriate endorsements and transfer documents to the Registrar or the Conversion Agent, (iv) pay any transfer or other tax, if required by Section 4.4 and (v) if the Security is held in book-entry form, complete and deliver to the 27 Depositary appropriate instructions pursuant to the Depositary's book-entry conversion programs. The date on which the Holder satisfies all of the foregoing requirements is the conversion date. As soon as practicable after the conversion date, the Company shall deliver to the Holder through the Conversion Agent a certificate for the number of whole shares of Common Stock issuable upon the conversion and cash in lieu of any fractional shares pursuant to Section 4.5. The person in whose name the certificate is registered shall be deemed to be a stockholder of record on the conversion date; provided, however, that no surrender of a Security on any date when the stock transfer books of the Company shall be closed shall be effective to constitute the person or persons entitled to receive the shares of Common Stock upon such conversion as the record holder or holders of such shares of Common Stock on such date, but such surrender shall be effective to constitute the person or persons entitled to receive such shares of Common Stock as the record holder or holders thereof for all purposes at the close of business on the next succeeding day on which such stock transfer books are open; provided, further, that such conversion shall be at the Conversion Price in effect on the date that such Security shall have been surrendered for conversion, as if the stock transfer books of the Company had not been closed. Upon conversion of a Security, such person shall no longer be a Holder of such Security. No payment or adjustment will be made for accrued interest on a converted Security or for dividends or distributions on shares of Common Stock issued upon conversion of a Security, but if any Holder surrenders a Security for conversion between the close of business on any record date for the payment of an installment of interest and the opening of business on the next interest payment date, then, notwithstanding such conversion, the interest payable on such interest payment date shall be paid to the Holder of such Security on such record date. In such event, such Security, when surrendered for conversion, must be accompanied by delivery of a check payable to the Conversion Agent in an amount equal to the interest payable on such interest payment date on the portion so converted. If such payment does not accompany such Security, the Security shall not be converted; provided, however, that no such check shall be required if such Security has been called for redemption on a redemption date within the period between and including such record date and such interest payment date, or if such Security is surrendered for conversion after the opening of business on the interest payment date. If the Company defaults in the payment of interest payable on the interest payment date, the Conversion Agent shall repay such funds to the Holder. If a Holder converts more than one Security at the same time, the number of shares of Common Stock issuable upon the conversion shall be based on the aggregate principal amount of Securities converted. Upon surrender of a Security that is converted in part, the Company shall execute, and the Trustee shall authenticate and deliver to the Holder, a new Security equal in principal amount to the unconverted portion of the Security surrendered. Section 4.3. Adjustments Below Par Value. ---------------------------- Before taking any action which would cause an adjustment decreasing the Conversion Price so that the shares of Common Stock issuable upon conversion of the Securities would be issued for less than the par value of such Common Stock, the Company will take all corporate action which may be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of such Common Stock at such adjusted Conversion Price. 28 Section 4.4. Taxes on Conversion. -------------------- If a Holder converts a Security, the Company shall pay any documentary, stamp or similar issue or transfer tax due on the issue of shares of Common Stock upon such conversion. However, the Holder shall pay any such tax which is due because the Holder requests the shares to be issued in a name other than the Holder's name. The Conversion Agent may refuse to deliver the certificates representing the Common Stock being issued in a name other than the Holder's name until the Conversion Agent receives a sum sufficient to pay any tax which will be due because the shares are to be issued in a name other than the Holder's name. Nothing herein shall preclude any tax withholding required by law or regulations. Section 4.5. Company To Provide Stock. ------------------------- The Company shall, prior to issuance of any Securities hereunder, and from time to time as may be necessary, reserve, out of its authorized but unissued Common Stock a sufficient number of shares of Common Stock to permit the conversion of all outstanding Securities for shares of Common Stock. The shares of Common Stock or other securities issued upon conversion of the Securities shall bear any legend required in accordance with Section 2.6(d). No fractional shares of Common Stock or scrip representing fractional shares shall be issued upon conversion of Securities. If more than one Security shall be surrendered for conversion at one time by the same holder, the number of full shares which shall be issuable upon conversion shall be computed on the basis of the aggregate principal amount of the Securities (or specified portions thereof to the extent permitted hereby) so surrendered. If any fractional share of Common Stock would be issuable upon the conversion of any Security or Securities, the Company shall make an adjustment thereof in cash at the current market value thereof. For these purposes, the current market value of a share of Common Stock shall be the Closing Price on the first day (which is not a Legal Holiday) immediately preceding the day on which the Securities (or specified portions thereof) are deemed to have been converted. The Company covenants that all shares of Common Stock delivered upon conversion of the Securities shall be newly issued shares or treasury shares, shall be duly authorized, validly issued, fully paid and non-assessable and shall be free from preemptive rights and free of any lien or adverse claim. The Company will endeavor promptly to comply with all federal and state securities laws regulating the offer and delivery of shares of Common Stock upon conversion of Securities, if any, and will list or cause to have quoted such shares of Common Stock on each national securities exchange or in the over-the-counter market or such other market on which the Common Stock is then listed or quoted. 29 Section 4.6. Adjustment of Conversion Price. ------------------------------- The conversion price (the "Conversion Price") shall be that price set forth in paragraph 8 of the form of Security attached hereto as Exhibit A and shall be adjusted from time to time by the Company as follows: (a) In case the Company shall (i) pay a dividend or other distribution in shares of Common Stock to holders of Common Stock, (ii) subdivide its outstanding Common Stock into a greater number of shares, (iii) combine its outstanding Common Stock into a smaller number of shares or (iv) reclassify its outstanding Common Stock, the Conversion Price in effect immediately prior thereto shall be adjusted so that the Holder of any Security thereafter surrendered for conversion shall be entitled to receive the number of shares of Common Stock which it would have owned or have been entitled to receive had such Security been converted immediately prior to the happening of such event. An adjustment made pursuant to this subsection (a) shall become effective immediately after the record date in the case of a dividend or distribution and shall become effective immediately after the effective date in the case of subdivision, combination or reclassification. (b) In case the Company shall issue to all or substantially all holders of its Common Stock, rights, warrants or options entitling such holders (for a period commencing no earlier than the record date described below and expiring not more than 45 days after such record date) to subscribe for or purchase shares of Common Stock (or securities convertible into Common Stock) at a price per share less than the current market price per share of Common Stock (as determined in accordance with subsection (e) below) at the record date for the determination of stockholders entitled to receive such rights, warrants or options, the Conversion Price in effect immediately prior thereto shall be adjusted so that the Conversion Price shall equal the price determined by multiplying the Conversion Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding on such record date, plus the number of shares which the aggregate subscription or purchase price for the total number of shares of Common Stock offered by the rights, warrants or options so issued (or the aggregate conversion price of the convertible securities offered by such rights, warrants or options) would purchase at such current market price, and the denominator of which shall be the number of shares of Common Stock outstanding on such record date plus the number of additional shares of Common Stock offered by such rights, warrants or options (or into which the convertible securities so offered by such rights, warrants or options are convertible). Such adjustment shall be made successively whenever any such rights, warrants or options are issued, and shall become effective immediately after such record date. If at the end of the period during which such rights, warrants or options are exercisable not all rights, warrants or options shall have been exercised, the adjusted Conversion Price shall be immediately readjusted to what it would have been upon application of the foregoing adjustment substituting the number of additional shares of Common Stock actually issued (or the number of shares of Common Stock issuable upon conversion of convertible securities actually issued) for the total number of shares of Common Stock offered (or the convertible securities offered). (c) In case the Company shall distribute to all or substantially all holders of its Common Stock any shares of capital stock of the Company (other than Common Stock) or evidences of its indebtedness, cash, other securities or other assets, or shall distribute to all or substantially all holders of its Common Stock, rights, warrants or options to subscribe for or purchase any of 30 its securities (excluding (i) rights, options and warrants referred to in subsection (b) above or (f) below; (ii) those dividends, distributions, subdivisions, combinations and reclassifications referred to in subsection (a) above; and (iii) dividends and distributions paid in cash in an aggregate amount that, combined together with (A) all other such cash distributions made within the preceding 12 months in respect of which no adjustment has been made under this Section 4.6 and (B) the fair market value of consideration payable in respect of any repurchases (by way of tender offers or exchange offers) by the Company or any of its Subsidiaries, of Common Stock concluded within the preceding 12 months, in each case in respect of which no adjustment has been made under this Section 4.6, does not exceed 10% of Market Capitalization as of the record date for such distribution), then in each such case the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the date of such distribution by a fraction, the numerator of which shall be the current market price per share (as defined in subsection (e) below) of the Common Stock on the record date mentioned below less the fair market value on such record date (as determined by the Board of Directors of the Company, whose determination shall be conclusive evidence of such fair market value) of the portion of the capital stock or evidences of indebtedness, securities or assets so distributed or of such rights, warrants or options, in each case as applicable to one share of Common Stock, and the denominator of which shall be the current market price per share (as defined in subsection (e) below) of the Common Stock on such record date. Such adjustment shall become effective immediately after the record date for the determination of stockholders entitled to receive such distribution. (d) In case the Company or any of its Subsidiaries shall repurchase (by way of tender offer or exchange offer) shares of Common Stock, and the fair market value of the sum of (i) the aggregate consideration paid for such Common Stock, (ii) the aggregate fair market value of cash dividends and distributions of the type described in clause (iii) of the preceding paragraph (c) paid within the twelve (12) months preceding the date of purchase of such shares of Common Stock in respect of which no adjustment pursuant to this Section 4.6 previously has been made, and (iii) the aggregate fair market value of any amounts previously paid for the repurchase of Common Stock of a type described in this paragraph (d) within the twelve (12) months preceding the date of purchase of such shares of Common Stock in respect of which no adjustment pursuant to this Section 4.6 previously has been made, exceeds 10% of Market Capitalization on the date of, and after giving effect to, such repurchase, then the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the date of such purchase by a fraction, the numerator of which shall be the current market price per share (as defined in subsection (e) below) of the Common Stock on the date of such repurchase, less the quotient obtained by dividing the Aggregate Market Premium involved in such repurchase (as defined hereinafter) by the difference between the number of shares of Common Stock outstanding before such repurchase and the number of shares of Common Stock the subject of such repurchase, and the denominator of which shall be the current market price per share (as defined in subsection (e) below) of the Common Stock on the date of such repurchase. Such adjustment shall become effective immediately after the date of such repurchase. For purposes of this subsection (d), the "Aggregate Market Premium" is the excess, if any, of the aggregate repurchase price paid for all such Common Stock over the aggregate current market value per share (as defined in subsection (e) below) of all such repurchased stock, determined with respect to each share involved in each such repurchase as of the date of repurchase with respect to such share. 31 (e) For the purpose of any computation under subsections (b), (c) and (d) above, the current market price per share of Common Stock on any date shall be deemed to be the average of the Closing Prices for 20 consecutive Trading Days commencing 30 Trading Days before the record date with respect to any distribution, issuance or other event requiring such computation. The Closing Price for each day shall be (i) the last sale price, or the average of the closing bid and asked prices if no sale occurred of such class of stock on the principal securities exchange on which such class of stock is listed, if the Common Stock is listed or admitted for trading on any national securities exchange, (ii) the last reported sale price of Common Stock on The Nasdaq Stock Market, or any similar system of automated dissemination of quotations of securities prices then in common use, if so quoted, or (iii) if not quoted as described in clause (i), the mean between the high bid and low asked quotations for Common Stock as reported by the National Quotation Bureau Incorporated if at least two securities dealers have inserted both bid and asked quotations for such class of stock on at least 5 of the 10 preceding days. If the Common Stock is quoted on a national securities or central market system, in lieu of a market or quotation system described above, the Closing Price shall be determined in the manner set forth in clause (iii) of the preceding sentence if bid and asked quotations are reported but actual transactions are not, and in the manner set forth in clause (ii) of the preceding sentence if actual transactions are reported. If none of the conditions set forth above is met, the Closing Price of Common Stock on any day or the average of such last reported sale prices for any period shall be the fair market value of such class of stock as determined by a member firm of the New York Stock Exchange, Inc. selected by the Company. As used herein the term "Trading Days" with respect to Common Stock means (i) if the Common Stock is listed or admitted for trading on any national securities exchange, days on which such national securities exchange is open for business or (ii) if the Common Stock is quoted on The Nasdaq Stock Market or any similar system of automated dissemination of quotations of securities prices, days on which trades may be made on such system. (f) If the Company implements a Stockholder Rights Plan (as defined below), the Company agrees that such Stockholder Rights Plan will provide that upon any conversion of the Securities by any Holder prior to a Trigger Event (as defined below), the holders of the Common Stock into which the Securities have been converted shall receive the rights, warrants or options issued under such plan. Rights, warrants or options distributed by the Company to all holders of Common Stock entitling the holders thereof to subscribe for or purchase shares of the Company's capital stock (either initially or under certain circumstances), which rights, warrants or options, until the occurrence of a specified event or events (a "Trigger Event"): (i) are deemed to be transferred with such shares of Common Stock, (ii) are not exercisable, and (iii) are also issued in respect of future issuances of Common Stock, (a "Stockholder Rights Plan") shall not be deemed distributed for purposes of this Section 4.6 and no adjustment to the Conversion Price shall be required to be made until the occurrence of the earliest Trigger Event. In addition, in the event of any Trigger Event with respect thereto, that shall have resulted in an adjustment to the Conversion Price under this Section 4.6, (1) in the case of any such rights, warrants or options which shall all have been redeemed or repurchased without exercise by any holders thereof, the Conversion Price shall be readjusted upon such final redemption or repurchase to give effect to such distribution or Trigger Event, as the case may be, as though it were a cash 32 distribution, equal to the per share redemption or repurchase price received by a holder of Common Stock with respect to such rights, warrants or options (assuming such holder had retained such rights, warrants or options), made to all holders of Common Stock as of the date of such redemption or repurchase, and (2) in the case of any such rights, warrants or options all of which shall have expired without exercise by any holder thereof, the Conversion Price shall be readjusted as if such issuance had not occurred. In any case in which this Section 4.6 shall require that an adjustment be made immediately following a record date established for purposes of Section 4.6, the Company may elect to defer (but only until five Business Days following the filing by the Company with the Trustee of the certificate described in Section 4.10) issuing to the holder of any Security converted after such record date the shares of Common Stock and other capital stock of the Company issuable upon such conversion over and above the shares of Common Stock and other capital stock of the Company issuable upon such conversion only on the basis of the Conversion Price prior to adjustment; and, in lieu of the shares the issuance of which is so deferred, the Company shall issue or cause its transfer agents to issue due bills or other appropriate evidence of the right to receive such shares. Section 4.7. No Adjustment. -------------- No adjustment in the Conversion Price shall be required unless the adjustment would require an increase or decrease of at least 1% in the Conversion Price as last adjusted; provided, however, that any adjustments which by reason of this Section 4.7 are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article 4 shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. No adjustment need be made for rights to purchase Common Stock or issuances of Common Stock pursuant to a Company plan for reinvestment of dividends or interest. No adjustment need be made for a change in the par value or a change to no par value of the Common Stock. To the extent that the Securities become convertible into cash, no adjustment need be made thereafter as to the cash. Interest will not accrue on the cash. Section 4.8. Equivalent Adjustments. ----------------------- In the event that, as a result of an adjustment made pursuant to Section 4.6 above, the holder of any Security thereafter surrendered for conversion shall become entitled to receive any shares of capital stock of the Company other than shares of its Common Stock, thereafter the Conversion Price of such other shares so receivable upon conversion of any Securities shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to Common Stock contained in this Article 4. Section 4.9. Adjustment for Tax Purposes. ---------------------------- The Company shall be entitled to make such reductions in the Conversion Price, in addition to those required by Section 4.6, as it in its discretion shall determine to be advisable in order that any stock dividends, subdivision of shares, distribution of rights to purchase stock or securities, or a distribution of securities convertible into or exchangeable for stock hereafter made by the Company to its stockholders shall not be taxable. 33 Section 4.10. Notice of Adjustment. --------------------- Whenever the Conversion Price is adjusted, or Securityholders become entitled to other securities or due bills, the Company shall promptly mail to Securityholders a notice of the adjustment and file with the Trustee an Officers' Certificate briefly stating the facts requiring the adjustment and the manner of computing it. The certificate shall be conclusive evidence of the correctness of such adjustment and the Trustee may conclusively assume that, unless and until such certificate is received by it, no such adjustment is required. Section 4.11. Notice of Certain Transactions. ------------------------------- In case: (a) the Company shall declare a dividend (or any other distribution) on its Common Stock (other than in cash out of retained earnings); or (b) the Company shall authorize the granting to the holders of its Common Stock of rights, warrants or options to subscribe for or purchase any share of any class or any other rights, warrants or options; or (c) of any reclassification of the Common Stock of the Company (other than a subdivision or combination of its outstanding Common Stock, or a change in par value, or from par value to no par value, or from no par value to par value), or of any consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company is required, or of the sale or transfer of all or substantially all of the assets of the Company; or (d) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company; the Company shall cause to be filed with the Trustee and to be mailed to each holder of Securities at its address appearing on the list provided for in Section 2.5, as promptly as possible but in any event at least ten days prior to the applicable date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution or rights, warrants or options, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution or rights are to be determined, or (y) the date on which such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up is expected to become effective or occur, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up. Failure to give such notice, or any defect therein, shall not affect the legality or validity of such dividend, distribution, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up. 34 Section 4.12. Effect of Reclassification, Consolidation, Merger or Sale on Conversion Privilege. ------------------------------------------------------------ If any of the following shall occur, namely: (i) any reclassification or change of outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination); (ii) any consolidation, combination or merger to which the Company is a party other than a merger in which the Company is the continuing corporation and which does not result in any reclassification of, or change (other than a change in name, or par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination) in, outstanding shares of Common Stock; or (iii) any sale or conveyance of all or substantially all of the assets of the Company, then the Company, or such successor or purchasing corporation, as the case may be, shall, as a condition precedent to such reclassification, change, consolidation, merger, sale or conveyance, execute and deliver to the Trustee a supplemental indenture providing that the Holder of each Security then outstanding shall have the right to convert such Security into the kind and amount of shares of stock and other securities and property (including cash) receivable upon such reclassification, change, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock deliverable upon conversion of such Security immediately prior to such reclassification, change, consolidation, merger, sale or conveyance. Such supplemental indenture shall provide for adjustments of the Conversion Price which shall be as nearly equivalent as may be practicable to the adjustments of the Conversion Price provided for in this Article 4. If, in the case of any such consolidation, merger, sale or conveyance, the stock or other securities and property (including cash) receivable thereupon by a holder of Common Stock includes shares of stock or other securities and property of a corporation other than the successor or purchasing corporation, as the case may be, in such consolidation, merger, sale or conveyance, then such supplemental indenture shall also be executed by such other corporation and shall contain such additional provisions to protect the interests of the Holders of the Securities as the Board of Directors of the Company shall reasonably consider necessary by reason of the foregoing. The provision of this Section 4.12 shall similarly apply to successive consolidations, mergers, sales or conveyances. Notwithstanding the foregoing, a distribution by the Company to all or substantially all holders of its Common Stock for which an adjustment to the Conversion Price or provision for conversion of the Securities may be made pursuant to Section 4.6 shall not be deemed to be a sale or conveyance of all or substantially all of the assets of the Company for purposes of this Section 4.12. In the event the Company shall execute a supplemental indenture pursuant to this Section 4.12, the Company shall promptly file with the Trustee an Opinion of Counsel stating that such supplemental indenture is authorized or permitted by this Indenture and an Officers' Certificate briefly stating the reasons therefor, the kind or amount of shares of stock or securities or property (including cash) receivable by Holders of the Securities upon the conversion of their Securities after any such reclassification, change, consolidation, merger, sale or conveyance, any adjustment to be made with respect thereto and that all conditions precedent have been complied with. Section 4.13. Trustee's Disclaimer. --------------------- The Trustee has no duty to determine when an adjustment under this Article 4 should be made, how it should be made or what such adjustment should be made, but may accept as conclusive evidence of the correctness of any such 35 adjustment, and shall be protected in relying upon, the Officers' Certificate with respect thereto which the Company is obligated to file with the Trustee pursuant to Section 4.10. The Trustee shall not be accountable for and makes no representation as to the validity or value of any securities or assets issued upon conversion of Securities, and the Trustee shall not be responsible for the Company's failure to comply with any provisions of this Article 4. Each Conversion Agent (other than the Company or an Affiliate of the Company) shall have the same protection under this Section 4.13 as the Trustee. The Trustee shall not be under any responsibility to determine the correctness of any provisions contained in any supplemental indenture executed pursuant to Section 4.12, but may accept as conclusive evidence of the correctness thereof, and shall be protected in relying upon, the Officers' Certificate with respect thereto which the Company is obligated to file with the Trustee pursuant to Section 4.12. Section 4.14. Voluntary Reduction. -------------------- The Company from time to time may reduce the Conversion Price by any amount for any period of time if the period is at least 20 days or such longer period as may be required by law and if the reduction is irrevocable during the period; provided that in no event may the Conversion Price be less than the par value of a share of Common Stock. ARTICLE 5. SUBORDINATION Section 5.1. Securities Subordinated to Senior Indebtedness. ----------------------------------------------- The Company covenants and agrees, and each Holder of Securities by his acceptance thereof likewise covenants and agrees, that all Securities are subject to the provisions of this Article 5; and each Person holding any Security, whether upon original issue or upon transfer or assignment thereof, accepts and agrees to be bound by such provisions and acknowledges that such provisions are for the benefit of, and shall be enforceable directly by, the holders of Senior Indebtedness. Each Holder of Securities authorizes and directs the Trustee on such Holder's behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination between the Holders of Securities and the holders of Senior Indebtedness as provided in this Article and appoints the Trustee as such Holder's attorney-in-fact for any and all such purposes. The payment of the principal of, premium, if any, and interest on and any other payment due pursuant to this Indenture or any Securities issued hereunder (including, without limitation, the payment or deposit of the Redemption Price or Repurchase Price pursuant to Article 3 and any deposit pursuant to Section 6.3) shall, to the extent and in the manner hereinafter set forth, be subordinated and subject in right of payment to the prior payment in full of all Senior Indebtedness, whether outstanding at the date of this Indenture or thereafter created, incurred, assumed or guaranteed. 36 Section 5.2. Securities Subordinated to Prior Payment of All Senior Indebtedness on Dissolution, Liquidation, Reorganization, Etc., of the Company. ------------------------------------------------------------------- Upon any payment or distribution of the assets of the Company of any kind or character, whether in cash, property or securities (including any collateral at any time securing the Securities), to creditors upon any dissolution, winding-up, total or partial liquidation, or reorganization of the Company (whether voluntary or involuntary, or in bankruptcy, insolvency, reorganization, liquidation, or receivership proceedings, or upon an assignment for the benefit of creditors, or any marshalling of the assets and liabilities of the Company, or otherwise), then in such event: (a) all Senior Indebtedness (including without limitation principal thereof and interest thereon) shall first be paid in full before any Payment of the Securities (as defined in Section 5.5) is made; (b) any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities (including any collateral at any time securing the Securities) (other than Reorganization Securities), to which the Holders or the Trustee on behalf of the Holders would be entitled except for the provisions of this Article 5, including any such payment or distribution which may be payable or deliverable by reason of the payment of another debt of the Company being subordinated to the payment of the Securities, shall be paid or delivered by any debtor, Custodian or other person making such payment or distribution, directly to the holders of the Senior Indebtedness or their Representative or Representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any of such Senior Indebtedness may have been issued, ratably according to the aggregate amounts remaining unpaid on account of the Senior Indebtedness held or represented by each, for application to payment of all Senior Indebtedness remaining unpaid, to the extent necessary to pay all Senior Indebtedness in full after giving effect to any concurrent payment or distribution, or provision therefor, to the holders of such Senior Indebtedness; and (c) in the event that, notwithstanding the foregoing provisions of this Section 5.2, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities (other than Reorganization Securities), shall be received by the Trustee or the Holders before all Senior Indebtedness is paid in full, such payment or distribution (subject to the provisions of Sections 5.6 and 5.7) shall be held in trust for the benefit of, and shall be immediately paid or delivered by the Trustee or such Holders, as the case may be, to the holders of Senior Indebtedness remaining unpaid, or their Representative or Representatives, ratably according to the aggregate amounts remaining unpaid on account of the principal of and interest on the Senior Indebtedness held or represented by each, for application to the payment of all Senior Indebtedness remaining unpaid, to the extent necessary to pay all Senior Indebtedness in full after giving effect to any concurrent payment or distribution, or provision therefor, to or for the holders of such Senior Indebtedness. The Company shall give prompt notice to the Trustee of any dissolution, winding-up, liquidation or reorganization of the Company. 37 Upon any distribution of assets of the Company referred to in this Article 5, the Trustee, subject to the provisions of Sections 9.1 and 9.2, and the Holders shall be entitled to conclusively rely upon any order or decree by any court of competent jurisdiction in which such dissolution, winding-up, liquidation or reorganization proceeding is pending, or a certificate of the liquidating trustee or agent or other person making any distribution to the Trustee or to the Holders, for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 5; provided that the foregoing shall apply only if such court, trustee, liquidating trustee or other person has been fully apprised of the provisions of this Article. In the event that the Trustee or any holder of Notes does not file a proper claim or proof of debt in the form required in any proceeding referred to above prior to 30 days before the expiration of the time to file such claim in such proceeding, then the holder of any Senior Indebtedness (or its Representative) is hereby authorized, and has the right, to file an appropriate claim or claims for or on behalf of such holder of Notes. Section 5.3. Securityholders To Be Subrogated to Right of Holders of Senior Indebtedness. -------------------------------------------------------------- Subject to the prior payment in full of all Senior Indebtedness, the Holders shall be subrogated (equally and ratably with the holders of all indebtedness of the Company which by its express terms is subordinated to indebtedness of the Company to substantially the same extent as the Securities are subordinated and is entitled to like rights of subrogation) to the rights of the holders of Senior Indebtedness to receive payments or distributions of assets of the Company applicable to the Senior Indebtedness until the principal of and interest on the Securities shall be paid in full, and for purposes of such subrogation, no payments or distributions to the holders of Senior Indebtedness of assets, whether in cash, property or securities, distributable to the holders of Senior Indebtedness under the provisions hereof to which the Holders would be entitled except for the provisions of this Article 5, and no payment pursuant to the provisions of this Article 5 to the holders of Senior Indebtedness by the Holders shall, as among the Company, its creditors other than the holders of Senior Indebtedness, and the Holders, be deemed to be a payment by the Company to or on account of Senior Indebtedness, it being understood that the provisions of this Article 5 are, and are intended, solely for the purpose of defining the relative rights of the Holders, on the one hand, and the holders of Senior Indebtedness, on the other hand. Section 5.4. Obligations of the Company Unconditional. ----------------------------------------- Nothing contained in this Article 5 or elsewhere in this Indenture or in any Security is intended to or shall impair the obligation of the Company, which is absolute and unconditional, to pay to the Holders the principal of and interest on the Securities, as and when the same shall become due and payable in accordance with the terms of the Securities, or to affect the relative rights of the Holders and other creditors of the Company other than the holders of Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or any Holder from exercising all remedies otherwise permitted by applicable law upon the happening of an Event of Default under this Indenture, subject to the provisions of Article 8, and the rights, if any, under this Article 5 of the holders of Senior Indebtedness in respect of assets, whether in cash, property or securities, of the Company received upon the exercise of any such remedy. 38 Section 5.5. Company Not To Make Payment with Respect to Securities in Certain Circumstances. ----------------------------------------------------------------- Upon the occurrence of a Payment Default, unless and until the amount of Designated Senior Indebtedness affected by such Payment Default then due shall have been paid in full, or such default shall have been cured or waived or shall have ceased to exist, the Company shall not pay principal of, premium, if any, or interest on the Securities or any other amount due pursuant to this Indenture or any Securities or make any deposit pursuant to Article 3 or Section 6.3 or 10.1 and shall not repurchase, redeem or otherwise retire any Securities (collectively, "Payment of the Securities"). Unless Section 5.2 shall be applicable, upon (1) the occurrence of a default on Designated Senior Indebtedness (other than a Payment Default) that occurs and is continuing that permits the holders of such Designated Senior Indebtedness (or their Representative or Representatives) to accelerate its maturity and (2) receipt by the Company and the Trustee from the Senior Agent of written notice of such occurrence and the imposition of a Payment Blockage Period hereunder, then the Company shall not make any Payment of the Securities for a period (the "Payment Blockage Period") commencing on the earlier of the date of receipt by the Company or the Trustee of such notice from the Senior Agent and ending on the earlier of (subject to any blockage of payments that may then be in effect under this Section 5.5) (x) the date 179 days after such date, (y) the date such default shall have been cured or waived in writing or shall have ceased to exist or such Senior Indebtedness shall have been discharged, or (z) the date such Payment Blockage Period shall have been terminated by written notice to the Company or the Trustee from the Senior Agent, after which, in case of clause (x), (y) or (z), as the case may be, the Company shall resume making any and all required payments. Notwithstanding any other provision of this Agreement, only one Payment Blockage Period may be commenced within any consecutive 365-day period, and no event of default with respect to any Designated Senior Indebtedness which existed or was continuing on the date of the commencement of any Payment Blockage Period with respect to such Designated Senior Indebtedness shall be, or can be made, the basis for the commencement of a second Payment Blockage Period whether or not within a period of 365 consecutive days unless such event of default shall have been cured or waived for a period of not less than 90 consecutive days. In no event will a Payment Blockage Period extend beyond 179 days. In the event that, notwithstanding the foregoing provisions of this Section 5.5, any Payment of the Securities shall be made by or on behalf of the Company and received by the Trustee, any Holder or any Paying Agent (or, if the Company is acting as its own Paying Agent, money for any such payment shall be segregated and held in trust), which payment was prohibited by this Section 5.5, then, unless and until the amount of Designated Senior Indebtedness then due, as to which a default shall have occurred, shall have been paid in full, or such default shall have been cured or waived, such payment (subject, in each case, to the provisions of Sections 5.6 and 5.7) shall be held in trust for the benefit of, and shall be immediately paid over to, the holders of Designated Senior Indebtedness or their Representative or Representatives, ratably according to the aggregate amounts remaining unpaid on account of the principal of and interest on the Designated Senior Indebtedness held or represented by each, for application to the payment of all Designated Senior Indebtedness remaining unpaid to the extent necessary to pay all Designated Senior Indebtedness in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the benefit of the holders of Designated Senior Indebtedness. The Company shall give prompt written notice to the Trustee of any default under any Designated Senior Indebtedness or under any agreement pursuant to which Designated Senior Indebtedness may have been issued. 39 Section 5.6. Notice to Trustee. ------------------ The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Securities. Notwithstanding the provisions of this Article 5 or any other provision of this Indenture, the Trustee shall not at any time be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee, unless and until the Trustee shall have received written notice thereof from the Company or from the holder or holders of Senior Indebtedness or from their Representative or Representatives; and, prior to the receipt of any such notice, the Trustee, subject to the provisions of Sections 9.1 and 9.2, shall be entitled to assume conclusively that no such facts exist. This provision shall not affect the obligations of the Holders under Sections 5.2, 5.5 or elsewhere in this Indenture. The Trustee shall be entitled to conclusively rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Indebtedness (or a Representative of such holder) to establish that such notice has been given by a holder of Senior Indebtedness or a Representative of any such holder. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article 5, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of each Person under this Article 5, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. Section 5.7. Application by Trustee of Monies Deposited with It. --------------------------------------------------- Money or U.S. Government Obligations deposited in trust with the Trustee pursuant to Sections 6.3 and 10.1 and not in violation of this Article 5 shall be for the sole benefit of Securityholders and shall thereafter not be subject to the subordination provisions of this Article 5. Otherwise, any deposit of monies by the Company with the Trustee or any Paying Agent (whether or not in trust) for the payment of the principal of or interest on any Securities shall be subject to the provisions of Sections 5.1, 5.2, 5.3 and 5.5; except that, if at least three Business Days prior to the date on which by the terms of this Indenture any such monies may become payable for any purpose (including, without limitation, the payment of either the principal of or interest on any Security), a Responsible Officer of the Trustee shall not have received with respect to such monies the notice provided for in Section 5.6, then the Trustee or any Paying Agent shall have full power and authority to receive such monies and to apply such monies to the purpose for which they were received, and shall not be affected by any notice to the contrary which may be received by it within three Business Days prior to or after such date. This Section 5.7 shall be construed solely for the benefit of the Trustee and the Paying Agent and shall not otherwise affect the rights that holders of Senior Indebtedness may have to recover any such payments from the Holders in accordance with the provisions of this Article 5. 40 Section 5.8. Subordination Rights Not Impaired by Acts or Omissions of the Company or Holders of Senior Indebtedness. -------------------------------------------------------------- No right of any present or future holders of any Senior Indebtedness to enforce subordination, as herein provided, shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof which any such holder may have or be otherwise charged with. The holders of any Senior Indebtedness may extend, renew, modify or amend the terms of such Senior Indebtedness or any security therefor and release, sell or exchange such security and otherwise deal freely with the Company, all without affecting the liabilities and obligations of the parties to this Indenture or the Holders. No amendment of this Article 5 or any defined terms used herein or any other Sections referred to in this Article 5 which adversely affects the rights hereunder of holders of Senior Indebtedness, shall be effective unless the holders of such Senior Indebtedness (required pursuant to the terms of such Senior Indebtedness to give such consent) have consented thereto. Section 5.9. Trustee To Effectuate Subordination. ------------------------------------ Each Holder of a Security by his acceptance thereof authorizes and directs the Trustee in his behalf to take such action as may be necessary or appropriate to acknowledge and effectuate the subordination provided in this Article 5 and appoints the Trustee his attorney-in-fact for any and all such purposes. Section 5.10. Right of Trustee To Hold Senior Indebtedness. --------------------------------------------- The Trustee, in its individual capacity, shall be entitled to all of the rights set forth in this Article 5 in respect of any Senior Indebtedness at any time held by it to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall be construed to deprive the Trustee of any of its rights as such holder. Nothing in this Article 5 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 9.7. Section 5.11. Article 5 Not To Prevent Events of Default. ------------------------------------------- The failure to make a Payment of the Securities by reason of any provision in this Article 5 shall not be construed as preventing the occurrence of an Event of Default under Section 8.1. Section 5.12. No Fiduciary Duty Created to Holders of Senior Indebtedness. ------------------------------------------------------------ Notwithstanding any other provision in this Article 5, the Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness by virtue of the provisions of this Article 5 or otherwise. With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants or obligations as are specifically set forth in this Article 5 and no implied covenants or obligations with respect to holders of Senior Indebtedness shall be read into this Indenture against the Trustee. 41 Section 5.13. Article Applicable to Paying Agents. ------------------------------------ In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article 5 shall in such case (unless the context shall otherwise require) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article 5 in addition to or in place of the Trustee; provided, however, that Sections 5.6, 5.10 and 5.12 shall not apply to the Company if it acts as Paying Agent. Section 5.14. Certain Conversion Deemed Payment. ---------------------------------- For the purposes of this Article only, (1) the issuance and delivery of junior securities upon conversion of Securities in accordance with Article 4 shall not be deemed to constitute a payment or distribution on account of the principal of or premium or interest on Securities or on account of the purchase or other acquisition of Securities, and (2) the payment, issuance or delivery of cash, property or securities (other than junior securities) upon conversion of a Security shall be deemed to constitute payment on account of principal of such Security. For the purposes of this Section, the term "junior securities" means (a) shares of any stock of any class of the Company and (b) securities of the Company which are subordinated in right of payment to all Senior Indebtedness which may be outstanding at the time of issuance or delivery of such securities to substantially the same extent as, or to a greater extent than, the Securities are so subordinated as provided in this Article. Nothing contained in this Article or elsewhere in this Indenture or in the Securities is intended to or shall impair, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of the Securities, the right, which is absolute and unconditional, of the Holder of any Security to convert such Security in accordance with Article 4. ARTICLE 6. COVENANTS Section 6.1. Payment of Securities. ---------------------- The Company covenants and agrees that it will duly and punctually pay or cause to be paid the principal amount at maturity, Redemption Price, Repurchase Price and interest, in respect of each of the Securities at the places, at the respective times and in the manner provided herein and in the Securities. Each installment of interest on the Securities may be paid by mailing checks for the interest payable to or upon the written order of the Holders of Securities entitled thereto as they shall appear on the registry books of the Company; provided that with respect to any Holder of Securities with an aggregate principal amount equal to or in excess of $5 million, at the request of such Holder in writing the Company shall pay interest on such Holder's Securities by wire transfer in immediately available funds. 42 Section 6.2. SEC Reports; 144A Information. ------------------------------ The Company shall file all reports and other information and documents which it is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act, and within 15 days after it files them with the SEC, the Company shall file copies of all such reports, information and other documents with the Trustee. The Company will cause any quarterly and annual reports which it mails to its stockholders to be mailed to the Holders of the Securities. In the event the Company is at any time no longer subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company will prepare, for the first three quarters of each fiscal year, quarterly financial statements substantially equivalent to the financial statements required to be included in a report on Form 10-Q under the Exchange Act. The Company will also prepare, on an annual basis, complete audited consolidated financial statements including, but not limited to, a balance sheet, a statement of income and retained earnings, a statement of cash flows and all appropriate notes. All such financial statements will be prepared in accordance with generally accepted accounting principles consistently applied, except for changes with which the Company's independent accountants concur, and except that quarterly statements may be subject to year-end adjustments. The Company will cause a copy of such financial statements to be filed with the Trustee and mailed to the Holders of the Securities within 60 days after the close for each of the first three quarters of each fiscal year and within 105 days after the close of each fiscal year. The Company will also comply with the other provisions of TIA 314(a). Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). At any time when the Company is not subject to Section 13 or 15(d) of the Exchange Act, upon the request of a Holder or beneficial owner of a Security, the Company will promptly furnish or cause to be furnished Rule 144A Information (as defined below) to such Holder, to such beneficial owner or to a prospective purchaser designated by such Securityholder or beneficial owner, as the case may be, in order to permit compliance by such Securityholder or beneficial owner with Rule 144A under the Securities Act in connection with the resale of such Security by such Securityholder or beneficial owner; provided, however, the Company shall not be required to furnish such information in connection with any request made on or after the date which is two years from the later of (i) the date such Security (or any predecessor Security) was acquired from the Company or (ii) the date such Security (or any predecessor Security) was last acquired from an "affiliate" of the Company within the meaning of Rule 144 under the Securities Act. "Rule 144A Information" shall be such information as is specified pursuant to Rule 144A(d)(4) under the Securities Act (or any successor provision thereto). Section 6.3. Liquidation. ------------ Subject to the provisions of Article 5, insofar as they may be applicable hereto, the Board of Directors or the stockholders of the Company may not adopt a plan of liquidation which plan provides for, contemplates, or the effectuation of which is preceded by (a) the sale, lease, conveyance or other 43 disposition of all or substantially all of the assets of the Company otherwise than substantially as an entirety (Article 7 being the Article which governs any such sale, lease, conveyance or other disposition substantially as an entirety), and (b) the distribution of all or substantially all of the proceeds of such sale, lease, conveyance or other disposition and of the remaining assets of the Company to the holders of the capital stock of the Company, unless the Company shall in connection with the adoption of such plan make provision for, or agree that prior to making any liquidating distributions to the holders of capital stock of the Company it will make provision for, the satisfaction of the Company's obligations hereunder and under the Securities as to the payment of principal and interest. The Company shall be deemed to have made provision for such payments only if (1) the Company irrevocably deposits in trust with the Trustee money or U.S. Government Obligations maturing as to principal and interest in such amounts and at such times as are sufficient, without consideration of any reinvestment of such interest, to pay the principal of and interest on the Securities then outstanding to maturity and to pay all other sums payable by it hereunder, or (2) there is an express assumption of the due and punctual payment of the Company's obligations hereunder and under the Securities and the performance and observance of all covenants and conditions to be performed by the Company hereunder, by the execution and delivery of a supplemental indenture in form reasonably satisfactory to the Trustee by a person who acquires, or will acquire (otherwise than pursuant to a lease) a portion of the assets of the Company, and which person will have Consolidated Net Worth (immediately after the acquisition) equal to not less than the Consolidated Net Worth of the Company (immediately preceding such acquisition), and which is a corporation organized under the laws of the United States, any State thereof or the District of Columbia; provided, however, that the Company shall not make any liquidating distribution to the holders of capital stock of the Company described in the first sentence of this Section 6.3 until after the Company shall have certified to the Trustee with an Officers' Certificate at least five days prior to the making of any liquidating distribution that it has complied with the provisions of this Section 6.3. Section 6.4. Compliance Certificates. ------------------------ The Company shall deliver to the Trustee within 105 days after the end of each fiscal year of the Company, an Officers' Certificate as to the signer's knowledge of the Company's compliance with all conditions and covenants on its part contained in this Indenture and stating whether or not the signer knows of any default or Event of Default. If such signer knows of such a default or Event of Default, the Certificate shall describe the default or Event of Default and the efforts to remedy the same. For the purposes of this Section 6.4, compliance shall be determined without regard to any grace period or requirement of notice provided pursuant to the terms of this Indenture. Section 6.5. Notice of Defaults. ------------------- The Company will give notice to the Trustee, promptly, and in any event within five days, upon becoming aware thereof, of the existence of any Event of Default or an event which, with notice or the lapse of time or both would constitute an Event of Default hereunder. 44 Section 6.6. Payment of Taxes and Other Claims. ---------------------------------- The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (1) all material taxes, assessments and governmental charges levied or imposed upon the Company, directly or by reason of its ownership of any Subsidiary or upon the income, profits or property of the Company; and (2) all material lawful claims for labor, materials and supplies, which, if unpaid, might by law become a lien upon the property of the Company; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which adequate provision has been made. Section 6.7. Corporate Existence. -------------------- Subject to Section 6.3 and Article 7, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and rights (charter and statutory); provided, however, that the Company shall not be required to preserve any right if the Company shall determine that the preservation is no longer desirable in the conduct of the Company's business and that the loss thereof is not, and will not be, adverse in any material respect to the Holders. Section 6.8. Maintenance of Properties. -------------------------- Subject to Section 6.3, the Company will cause all material properties owned, leased or licensed in the conduct of its business to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof and thereto, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times while any Securities are outstanding; provided, however, that nothing in this Section 6.8 shall prevent the Company from doing otherwise if, in the judgment of the Company, the same is desirable in the conduct of the Company's business and is not, and will not be, adverse in any material respect to the Holders. Section 6.9. Further Instruments and Acts. ----------------------------- Upon request of the Trustee, the Company will execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purposes of this Indenture. Section 6.10. Maintenance of Office or Agency. -------------------------------- The Company will maintain in The City of New York an office or agency where Securities may be presented or surrendered for payment or repurchase, where Securities may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The office of the agent of the Trustee in The City of New York shall be such office or agency of the Company, unless the Company shall designate and maintain some other office or agency for one or more of such purposes. The Company will give prompt written notice to the Trustee of any change in the location of any such office or agency. If at any time the 45 Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company may from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designation; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in The City of New York for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and any change in the location of any such office or agency. Section 6.11. Resale of Certain Securities; Reporting Issuer. ----------------------------------------------- During the period beginning on the last date of original issuance of the Securities and ending on the date that is two years from such date, the Company will not, and will use all reasonable efforts not to permit any of its "affiliates" (as defined under Rule 144 under the Securities Act or any successor provision thereto) to, resell (x) any Securities which constitute "restricted securities" under Rule 144 or (y) any securities into which the Securities have been converted under this Indenture which constitute "restricted securities" under Rule 144, that in either case have been reacquired by any of them, except pursuant to an effective registration statement under the Securities Act or pursuant to an applicable exemption from the Securities Act. The Trustee shall have no responsibility in respect of the Company's performance of its agreement in the preceding sentence. Section 6.12. Registration Rights. -------------------- (a) The Company agrees that the Holders (and any Person that has a beneficial interest in a Security) from time to time of Registrable Securities (as such term is defined in the Registration Rights Agreement) are entitled to the benefits of the Registration Rights Agreement. Pursuant to the Registration Rights Agreement, the Company has agreed for the benefit of the Holders from time to time of Registrable Securities, at the Company's expense, (i) to file within 90 days after the first date of original issuance of the Securities, a registration statement (the "Registration Statement") with the Commission with respect to resales of the Restricted Securities, (ii) to use all reasonable efforts to cause such Registration Statement to be declared effective by the Commission not later than 180 days after the first date of original issuance of the Securities, and (iii) to use all reasonable efforts to maintain such Registration Statement continuously effective under the Securities Act subject to and in accordance with the terms of the Registration Rights Agreement. Additional interest (the "Additional Interest") with respect to the Securities shall be assessed if a Registration Default (as defined in the Registration Rights Agreement) occurs. Additional Interest shall accrue on the Securities over and above the interest set forth in the title of the Securities from and including the date on which any such Registration Default shall occur, to but excluding the date on which such Registration Default has been cured (in the manner described in the Registration Rights Agreement), at a rate of 0.50% per annum. Additional Interest shall be payable only to holders of Registrable Securities (as defined in the Registration Rights Agreement). 46 (b) Any amounts of Additional Interest due pursuant to clause (a) of this Section 6.12 shall be payable in cash on the regular interest Payment Dates. The amount of Additional Interest shall be determined by multiplying the applicable Additional Interest rate by the principal amount of the Securities, multiplied by a fraction, the numerator of such period (determined on the basis of a 360-day year comprised of twelve 30-day months), and the denominator of which is 360. Whenever in this Indenture there is mentioned, in any context, the payment of the principal of, premium, if any, or interest on, or in respect of, any Security, such mention shall be deemed to include mention of the payment of Additional Interest provided for in this Section to the extent that, in such context, Additional Interest are, were or would be payable in respect thereof pursuant to the provisions of this Section 6.12 and express mention of the payment of Additional Interest (if applicable) in any provisions hereof shall not be construed as excluding Additional Interest in those provisions hereof where such express mention is not made. In the event of a conflict between the terms of the Registration Rights Agreement and this Indenture as to the calculation or payment of Additional Interest, the provisions of the Registration Rights Agreement shall be controlling. Section 6.13. Additional Interest. -------------------- If Additional Interest is payable pursuant to the Registration Rights Agreement, the Company shall deliver to the Trustee a certificate to that effect stating (i) the amount of such Additional Interest that is payable and (ii) the date on which such interest is payable. Unless and until a Responsible Officer receives at the Corporate Trust Office such a certificate, the Trustee may assume without inquiry that no such interest is payable. If the Company has paid Additional Interest directly to the Persons entitled to it, the Company shall deliver to the Trustee a certificate setting forth the particulars of such payment. Section 6.14. Stay, Extension and Usury Laws. ------------------------------- The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. 47 ARTICLE 7. SUCCESSOR CORPORATION Section 7.1. When Company May Merge, Etc. ---------------------------- The Company shall not consolidate with or merge into any other Person, or convey, transfer or lease its properties and assets substantially as an entirety to any Person, and shall not permit any Person (other than a Subsidiary wholly-owned by the Company) to consolidate with or merge into the Company or convey, transfer or lease its properties and assets substantially as an entirety to the Company, unless: (a) in case the Company shall consolidate with or merge into another Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Company substantially as an entirety shall be a corporation, partnership, limited liability company or trust, shall be organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental thereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of (and premium, if any) and interest on all the Securities and the performance or observance of every covenant of this Indenture on the part of the Company to be performed or observed and shall have provided for conversion rights in accordance with Section 4.12; (b) immediately after giving effect to such transaction and treating any indebtedness which becomes an obligation of the Company or a Subsidiary as a result of such transaction as having been incurred by the Company or such Subsidiary at the time of such transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have happened and be continuing; and (c) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with. Section 7.2. Successor Corporation Substituted. ---------------------------------- Upon any consolidation of the Company with, or merger of the Company into, any other Person or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety in accordance with Section 7.1, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Securities. 48 ARTICLE 8. DEFAULT AND REMEDIES Section 8.1. Events of Default. ------------------ An "Event of Default" occurs if: (1) the Company defaults in the payment of any interest upon any of the Securities when due and payable and the default continues for a period of 30 days whether or not such payment is prevented by Article 5; (2) the Company defaults in the payment of the principal of and premium, if any, on any of the Securities when due, including on a redemption date, whether or not such payment is prevented by Article 5; (3) the Company fails to pay when due the principal of or interest on indebtedness for money borrowed by the Company or its subsidiaries in excess of $20.0 million, or the acceleration of that indebtedness that is not withdrawn within 15 days after the date of written notice to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the outstanding Securities; (4) a default by the Company in the performance, or breach, of any of the Company's other covenants in this Indenture which are not remedied by the end of a period of 60 days after written notice to the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the outstanding Securities; (5) the Company or any Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law: A. commences a voluntary case or proceeding; B. consents to the entry of an order for relief against it in an involuntary case or proceeding; C. consents to the appointment of a Custodian of it or for all or substantially all of its assets; D. makes a general assignment for the benefit of its creditors; or (6) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: A. is for relief against the Company or any Significant Subsidiary in an involuntary case or proceeding; 49 B. appoints a Custodian of the Company or any Significant Subsidiary or for all or substantially all of the assets of any of them; or C. orders the liquidation of the Company or any Significant Subsidiary; and in each case the order or decree remains unstayed and in effect for 60 days. The term "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal or state law for the relief of debtors. For purposes of this Section 8.1, the term "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. A default under clause (4) is not an Event of Default until the Trustee notifies the Company or the Holders of at least 25% in principal amount of the Securities then outstanding notify the Company and the Trustee, of the default, and the Company does not cure the default within 60 days after receipt of such notice. The notice given pursuant to this Section 8.1 must specify the default, demand that it be remedied and state that the notice is a "Notice of Default." When a default is cured, it ceases. Subject to the provisions of Sections 9.1 and 9.2, the Trustee shall not be charged with knowledge of any Event of Default unless written notice thereof shall have been given to a Responsible Officer at the Corporate Trust Office of the Trustee by the Company, the Paying Agent, any Holder or an agent of any Holder. Within 90 days after a default, the Trustee must give to the registered Holders of Securities notice of all uncured defaults known to it. Section 8.2. Acceleration. ------------- If an Event of Default (other than an Event of Default specified in Section 8.1(5) or (6)) occurs and is continuing, the Trustee may, by notice to the Company, or the Holders of at least 25% in principal amount of the Securities then outstanding may, by notice to the Company and the Trustee, and the Trustee shall, upon the request of such Holders, declare all unpaid principal of and accrued interest to the date of acceleration on the Securities then outstanding (if not then due and payable) to be due and payable upon any such declaration, and the same shall become and be immediately due and payable. If an Event of Default specified in Section 8.1(5) or (6) occurs, all unpaid principal of and accrued interest on the Securities then outstanding shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Securityholder. The Holders of a majority in principal amount of the Securities then outstanding by notice to the Trustee may rescind an acceleration and its consequences if (i) all existing Events of Default, other than the nonpayment of the principal of and accrued interest on the Securities which has become due solely by such declaration of acceleration, have been cured or waived; (ii) the Company has paid or deposited with the Trustee a sum sufficient to pay (a) all overdue interest on the Securities, (b) the principal of any Security which has become due otherwise then by such declaration of acceleration, and (c) to the extent the payment of such interest is lawful, interest on overdue installments of interest and overdue principal, which has become due otherwise than by such declaration of acceleration; (iii) the rescission would not conflict with any 50 judgment or decree of a court of competent jurisdiction; and (iv) all payments due to the Trustee and any predecessor Trustee under Section 9.7 have been made. No such rescission shall affect any subsequent default or impair any right consequent thereon. Anything herein contained to the contrary notwithstanding, in the event of any acceleration pursuant to this Section 8.2, the Company shall not be obligated to pay any premium which it would have had to pay if it had then elected to redeem the Securities pursuant to paragraph 5 of the Securities, except in the case of any Event of Default occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium which it would have had to pay if it had then elected to redeem the Securities pursuant to paragraph 5 of the form of Security attached hereto as Exhibit A, in which case an equivalent premium shall also become and be immediately due and payable to the extent permitted by law. Section 8.3. Other Remedies. --------------- In case of an Event of Default hereunder, the Trustee may proceed to protect and enforce the rights vested in it by this Indenture by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any of such rights, either by suit in equity or by action at law or by proceeding in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement contained in this Indenture or in aid of the exercise of any power granted in this Indenture, or to enforce any other legal or equitable right vested in the Trustee by this Indenture or by law. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative to the extent permitted by law. Section 8.4. Waiver of Defaults and Events of Default. ----------------------------------------- Subject to Section 8.7, the Holders of a majority in principal amount of the Securities then outstanding by notice to the Trustee may waive an existing default or Event of Default and its consequences, except a default in the payment of the principal of (or premium, if any) or interest on any Security as specified in clauses (1) and (2) of Section 8.1, or a default in respect of a covenant or provision hereof which cannot be modified or amended pursuant to Section 11.2 without the consent of the Holder of each Security affected thereby. When a default or Event of Default is waived, it is cured and ceases. Section 8.5. Control by Majority. -------------------- The Holders of a majority in principal amount of the Securities then outstanding may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture; provided that the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. 51 Section 8.6. Limitation on Suits. -------------------- A Securityholder may not pursue any remedy with respect to this Indenture or the Securities (except actions for payment of overdue principal or interest or for the conversion of the Securities pursuant to Article 4) unless: (1) the Holder gives to the Trustee written notice of a continuing Event of Default; (2) the Holders of at least 25% in principal amount of the then outstanding Securities make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer to the Trustee indemnity reasonably satisfactory to the Trustee against any loss, liability or expense; (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Securities then outstanding. A Securityholder may not use any provision of this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over such other Securityholder, or to enforce any rights under this Indenture other than in the manner herein provided and for the equal and ratable benefit of all the Securityholders. Section 8.7. Rights of Holders To Receive Payment. ------------------------------------- Notwithstanding any other provision of this Indenture (but subject to Article 5), the right of any Holder of a Security to receive payment of principal of (and premium, if any) and interest on the Security, on or after the respective dates on which such payments are due as expressed in the Security, or to convert the Security, or to bring suit for the enforcement of any such payment on or after such respective dates, is absolute and unconditional and shall not be impaired or affected without the consent of the Holder. Section 8.8. Collection Suit by Trustee. --------------------------- If an Event of Default in the payment of principal or interest specified in Section 8.1(1) or (2) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company or another obligor on the Securities for the whole amount of principal and accrued interest remaining unpaid, together with interest on overdue principal and, to the extent that payment of such interest is lawful, interest on overdue installments of interest, in each case at the rate per annum borne by the Securities and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. 52 Section 8.9. Trustee May File Proofs of Claim. --------------------------------- The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Securityholders allowed in any judicial proceedings relative to the Company (or any other obligor on the Securities), its creditors or its property and shall be entitled and empowered to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same, and any Custodian in any such judicial proceeding is hereby authorized by each Securityholder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Securityholders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 9.7, and to the extent that such payment of the reasonable compensation, expenses, disbursements and advances in any such proceedings shall be denied for any reason, payment of the same shall be secured by a lien on, and shall be paid out of, any and all distributions, dividends, monies, securities and other property which the Securityholders may be entitled to receive in such proceedings, whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or the Trustee to authorize or accept or adopt on behalf of any Securityholder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Securityholder in any such proceeding. Section 8.10. Priorities. ----------- Subject to Article 5, if the Trustee collects any money pursuant to this Article 8, it shall pay out the money in the following order: First, to the Trustee for amounts due under Section 9.7; Second, to Securityholders for amounts due and unpaid on the Securities for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal and interest, respectively; and Third, to the Company. The Trustee may fix a record date and payment date for any payment to Securityholders pursuant to this Section 8.10. Section 8.11. Undertaking for Costs. ---------------------- In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 8.11 does not apply to a suit made by the Trustee, a suit by a Holder pursuant to Section 8.7, or a suit by any Holder, or group of Holders, of more than 10% in principal amount of the Securities then outstanding. 53 Section 8.12. Restoration of Rights and Remedies. ----------------------------------- If the Trustee or any Securityholder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Securityholder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Securityholders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Securityholders shall continue as though no such proceeding had been instituted. Section 8.13. Rights and Remedies Cumulative. ------------------------------- Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 2.7, no right or remedy herein conferred upon or reserved to the Trustee or to the Securityholders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Section 8.14. Delay or Omission Not Waiver. ----------------------------- No delay or omission of the Trustee or of any Securityholder to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Securityholders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Securityholders, as the case may be. ARTICLE 9. TRUSTEE Section 9.1. Duties of Trustee. ------------------ (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: 54 (1) the Trustee need perform only those duties as are specifically set forth in this Indenture and no others and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. The Trustee, however, shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein). (c) The Trustee may not be relieved, and no provision of this Indenture shall be construed to relieve the Trustee, from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) this paragraph does not limit the effect of paragraph (b) of this Section 9.1; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; (3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 8.5; and (4) no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (d) The Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity reasonably satisfactory to it against any loss, liability, expense or fee. (e) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 9.1. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. Section 9.2. Rights of Trustee. ------------------ Subject to Section 9.1: (a) The Trustee may conclusively rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. 55 (b) Whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, it may require an Officers' Certificate or an Opinion of Counsel, which shall conform to Section 12.4(b). The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Certificate or Opinion. (c) The Trustee may act through its agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes in good faith to be authorized or within its rights or powers. (e) The Trustee may consult with counsel of its selection and the advice or opinion of such counsel as to matters of law shall be full and complete authorization and protection in respect of any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel. (f) Any request or direction of the Company mentioned herein shall be sufficiently evidenced by a written Company request or Officers' Certificate and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution. (g) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney at the sole cost of the Company and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation. (h) The Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture. (i) The Trustee shall not be deemed to have notice of any Default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Securities and this Indenture. (j) The rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and to each agent, custodian and other Person employed to act hereunder. 56 (k) The Trustee may request that the Company deliver an Officers' Certificate setting forth the names of individuals and/or titles of Officers of the Company authorized at such time to take specified actions pursuant to this Indenture, which Officers' Certificate may be signed by any person authorized to sign an Officers' Certificate, including any person specified as so authorized in any such certificate previously delivered and not superseded. Section 9.3. Individual Rights of Trustee. ----------------------------- The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or an Affiliate of the Company with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee is subject to Sections 9.10 and 9.11. Section 9.4. Trustee's Disclaimer. --------------------- The Trustee makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the Company's use of the proceeds from the Securities, and it shall not be responsible for the recitals contained herein or any statement in the Securities other than its certificate of authentication. Section 9.5. Notice of Default or Events of Default. --------------------------------------- If a default or an Event of Default occurs and is continuing and if it is actually known to the Trustee, the Trustee shall mail to each Securityholder notice of the default or Event of Default within 90 days after it occurs. Except in the case of a default or an Event of Default in payment of the principal of or interest on any Security, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interest of Securityholders. Section 9.6. Reports by Trustee to Holders. ------------------------------ If such report is required by TIA 313, within 60 days after each June 30, beginning with the June 30 following the date of this Indenture, the Trustee shall mail to each Securityholder a brief report dated as of such June 30 that complies with TIA 313(a). The Trustee also shall comply with TIA 313(b)(2) and (c). A copy of each report at the time of its mailing to Securityholders shall be mailed to the Company and filed with the SEC and each stock exchange, if any, on which the Securities are listed. The Company shall notify the Trustee whenever the Securities become listed on or delisted from any stock exchange and any changes in the stock exchanges on which the Securities are listed. Section 9.7. Compensation and Indemnity. --------------------------- The Company shall pay to the Trustee from time to time such compensation for its services hereunder as the Company and the Trustee shall from time to time agree in writing (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust). The Company shall reimburse the Trustee upon request for all reasonable disbursements, expenses and advances incurred or made by it. Such expenses may include the reasonable compensation, disbursements and expenses of Trustee's agents and counsel. 57 The Company shall indemnify the Trustee or any predecessor Trustee and their agents for, and hold them harmless against, any loss, liability or expense incurred by it in connection with its duties under this Indenture or any action or failure to act as authorized or within the discretion or rights or powers conferred upon the Trustee hereunder, including the costs and expenses of defending itself against any claim (whether asserted by the Company, or any Holder or any other Person) or liability in connection with the exercise or performance of any of its powers or duties hereunder. The Trustee shall notify the Company promptly of any claim asserted against the Trustee for which it may seek indemnity. The Trustee shall have the option of undertaking the defense of such claims at the Company's expense and may have separate counsel. The reasonable fees and expenses of such counsel shall be paid by the Company. The Company need not pay for any settlement without its written consent, which consent shall not be unreasonably withheld or delayed. The Company need not reimburse the Trustee for any expense or indemnify it against any loss or liability incurred by it through its own negligent action, negligent failure to act or willful misconduct. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 8.1(5) or (6) occurs, such expenses and the compensation for such services are intended to constitute expenses of administration under any Bankruptcy Law. The provisions of this Section 9.7 shall survive the termination of this Indenture and the resignation or removal of the Trustee. Section 9.8. Replacement of Trustee. ----------------------- The Trustee may resign by so notifying the Company; provided, however, no such resignation shall be effective until a successor Trustee has accepted its appointment pursuant to this Section 9.8. The Holders of a majority in principal amount of the Securities then outstanding may remove the Trustee by so notifying the Trustee and may appoint a successor Trustee with the Company's written consent. The Company may remove the Trustee if: (1) the Trustee fails to comply with Section 9.10; (2) the Trustee is adjudged a bankrupt or an insolvent; (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) the Trustee becomes incapable of acting as trustee. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. If a successor Trustee does not take office within 45 days after the retiring Trustee resigns or is removed, the retiring Trustee (at the Company's expense), the Company or the Holders of 10% in principal amount of the Securities then outstanding may petition any court of competent jurisdiction for the appointment of a successor Trustee. 58 If the Trustee fails to comply with Section 9.10, any Securityholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately after that, the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee and be released from its obligations (exclusive of any liabilities Trustee may have incurred while acting as Trustee) hereunder, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each Securityholder. Notwithstanding replacement of the Trustee pursuant to this Section 9.8, the Company's obligations under Section 9.7 shall continue for the benefit of the retiring Trustee. Section 9.9. Successor Trustee by Merger, Etc. --------------------------------- If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust assets (including the administration of this Indenture) to, another corporation, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee; provided such transferee corporation shall qualify and be eligible under Section 9.10. Section 9.10. Eligibility; Disqualification. ------------------------------ There shall at all times be a Trustee hereunder which shall be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to exercise corporate trust process, having (together with any Person directly or indirectly controlling the Trustee) a combined capital and surplus of at least $25,000,000, subject to supervision or examination by federal or state authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section 9.10, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 9.10, it shall resign immediately in the manner and with the effect specified above in this Article 9. Section 9.11. Preferential Collection of Claims Against Company. -------------------------------------------------- The Trustee shall comply with TIA 311(a), excluding any creditor relationship listed in TIA 311(b). A trustee who has resigned or been removed shall be subject to TIA 311(a) with respect to the Government Obligations in accordance with Section 10.1; provided, however, that if the Company has made any payment of the principal of or premium, if any, or interest on any Securities because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive any such payment from the money or U.S. Government Obligations held by the Trustee or the Paying Agent. 59 ARTICLE 10. SATISFACTION AND DISCHARGE OF INDENTURE Section 10.1. Termination of Company's Obligations. ------------------------------------- The Company may terminate all of its obligations under the Securities and this Indenture (except those obligations referred to in the immediately succeeding paragraph) if all Securities previously authenticated and delivered (other than destroyed, lost or stolen Securities which have been replaced or paid or Securities for whose payment money has theretofore been held in trust and thereafter repaid to the Company, as provided in Section 10.3) have been delivered to the Trustee for cancellation and the Company has paid all sums payable by it hereunder, or if the Company irrevocably deposits in trust with the Trustee money or U.S. Government Obligations maturing as to principal and interest in such amounts and at such times as are sufficient, without consideration of any reinvestment of such interest, to pay the principal of and premium, if any, and interest on the Securities then outstanding to maturity or to the date fixed for redemption and to pay all other sums payable by it hereunder. The Company may make an irrevocable deposit pursuant to this Section 10.1 only if at such time it is not prohibited from doing so under the provisions of Article 5 and the Company shall have delivered to the Trustee and any such Paying Agent an Officers' Certificate and Opinion of Counsel to that effect and that all other conditions to such deposit have been complied with. The Company's obligations in paragraphs 8 and 12 of the Securities, in Sections 6.1, 6.2, 9.7, 9.8 and 10.4, and in Articles 2 and 4 shall survive until the Securities are no longer outstanding. Thereafter, the Company's obligations in such paragraph 12 and in Section 9.7 shall survive. After such irrevocable deposit, the Trustee upon request shall acknowledge in writing the discharge of the Company's obligations under the Securities and this Indenture, except for those surviving obligations specified above. "U.S. Government Obligations" means direct non-callable obligations of, or non-callable obligations guaranteed by, the United States of America for the payment of which guarantee or obligation the full faith and credit of the United States is pledged. Section 10.2. Application of Trust Money. --------------------------- The Trustee or the Paying Agent shall hold in trust, for the benefit of the Holders, money or U.S. Government Obligations deposited with it pursuant to Section 10.1, and shall apply the deposited money and the money from U.S. Government Obligations in accordance with this Indenture to the payment of the principal of, premium, if any, and interest on the Securities. Money and U.S. Government Obligations so held in trust and deposited in compliance with Section 10.1 and Article 5 shall not be subject to the subordination provisions of Article 5. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to Section 10.1 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of outstanding Securities. 60 Section 10.3. Repayment to Company. --------------------- Subject to Section 10.1, the Trustee and the Paying Agent shall promptly pay to the Company upon request any excess money or U.S. Government Obligations held by them at any time. The Trustee and the Paying Agent shall pay, subject to applicable escheatment laws, to the Company upon request any money held by them for the payment of principal, premium, if any, or interest that remains unclaimed for two years after a right to such money has matured; provided, however, that the Trustee or such Paying Agent, before being required to make any such payment, may at the expense of the Company cause to be published once in a newspaper of general circulation in The City of New York or mail to each Holder entitled to such money notice that such money remains unclaimed and that after a date specified therein, which shall be at least 30 days from the date of such publication or mailing, any unclaimed balance of such money then remaining will be repaid to the Company. After that, Holders entitled to money must look to the Company for payment unless an abandoned property law designates another person. Section 10.4. Reinstatement. -------------- If the Trustee or the Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with Section 10.1 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 10.1 until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with Section 10.1; provided, however, that if the Company has made any payment of the principal of or premium or interest on any Securities because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive any such payment from the money or U.S. Government Obligations held by the Trustee or the Paying Agent. ARTICLE 11. AMENDMENTS, SUPPLEMENTS AND WAIVERS Section 11.1. Without Consent of Holders. --------------------------- The Company and the Trustee may amend or supplement this Indenture or the Securities without notice to or consent of any Securityholder: (a) to comply with Sections 4.12, 6.3 and 7.1; (b) to cure any ambiguity, omission, defect or inconsistency, or to make any other change that does not adversely affect the rights of any Securityholder; 61 (c) to make provisions with respect to the conversion right of the Holders pursuant to Section 4.6; (d) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities; or (e) to comply with the provisions of the TIA or with any requirement of the SEC arising solely as a result of the qualification of this Indenture under the TIA. Section 11.2. With Consent of Holders. ------------------------ The Company and the Trustee may amend or supplement this Indenture or the Securities without notice to any Securityholder but with the written consent of the Holders of a majority in aggregate principal amount of the Securities then outstanding. The Holders of a majority in aggregate principal amount of the Securities then outstanding may waive compliance by the Company with restrictive provisions of this Indenture other than as set forth in this Section 11.2 below; and waive any past default under this Indenture and its consequences, except a default in the payment of the principal of or any premium or interest on any Security or in respect of a provision which under this Indenture cannot be modified or amended without the consent of the Holder of each outstanding Security affected. Subject to Section 11.4, without the written consent of each Securityholder affected, however, an amendment, supplement or waiver, including a waiver pursuant to Section 8.4, may not: (a) change the stated maturity date of the principal of, or any installment of interest on, any Security; (b) reduce the principal amount of, or the rate of interest on, or any premium payable on, any Security, whether upon acceleration, redemption or otherwise; (c) change the currency for payment of principal of, or premium or interest (including Additional Interest) on any Security; (d) impair the right to institute suit for the enforcement of any payment of principal of, or premium or interest on any Security when due; (e) adversely affect the conversion rights provided in Article 4; (f) modify the provisions of Article 5 with respect to the subordination of the Securities in a manner adverse to the Holders of the Securities; (g) modify the provisions of this Indenture requiring the Company to make an offer to repurchase Securities upon a Change in Control in a manner adverse to the Holders of the Securities; (h) reduce the percentage of principal amount of the outstanding Securities necessary to modify or amend this Indenture or to consent to any waiver provided for in this Indenture; 62 (i) waive a default in the payment of the principal of or premium or interest (including Additional Interest) on any Security; or (j) make any changes in Section 8.4, 8.7 or this sentence. It shall not be necessary for the consent of the Holders under this Section 11.2 to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. An amendment under this Section 11.2 may not make any change that adversely affects the rights under Article 5 of any holder of an issue of Senior Indebtedness unless the holders of that issue, pursuant to its terms, consent to the change. Section 11.3. Compliance with Trust Indenture Act. ------------------------------------ Every amendment to or supplement of this Indenture or the Securities shall comply with TIA as in effect at the date of such amendment or supplement. Section 11.4. Revocation and Effect of Consents. ---------------------------------- Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to his Security or portion of a Security if the Trustee receives the notice of revocation before the date the amendment, supplement or waiver becomes effective. After an amendment, supplement or waiver becomes effective, it shall bind every Securityholder, unless it makes a change described in any of clauses (a) through (j) of Section 11.2. In that case the amendment, supplement or waiver shall bind each Holder of a Security who has consented to it and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security. Section 11.5. Notation on or Exchange of Securities. -------------------------------------- If an amendment, supplement or waiver changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security about the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. Section 11.6. Trustee To Sign Amendments, Etc.; Notices. ------------------------------------------ The Trustee shall sign any amendment or supplement authorized pursuant to this Article 11 if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may but need not sign it. In signing or refusing to sign such amendment or supplement, the Trustee shall be entitled to receive and, subject to Section 9.1, shall be fully protected in relying upon, an Officer's Certificate, board 63 resolutions and an Opinion of Counsel stating that such amendment or supplement is authorized or permitted by this Indenture. The Company may not sign an amendment or supplement until the Board of Directors approves it. After an amendment, supplement or waiver under this Article 11 becomes effective, the Company shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amendment, supplement or waiver. ARTICLE 12. MISCELLANEOUS Section 12.1. Trust Indenture Act Controls. ----------------------------- If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by any of Sections 310 to 317, inclusive, of the TIA through operation of Section 318(c) thereof, upon qualification of this Indenture thereunder such imposed duties shall control. Section 12.2. Notices. -------- Any notice or communication shall be given in writing and delivered by facsimile (with original to follow), in person, by overnight delivery or mailed by first class mail, postage prepaid, addressed as follows: If to the Company: NCO Group, Inc. 515 Pennsylvania Avenue Fort Washington, Pennsylvania 10934 Telecopier: (215) 793-2944 Attention: General Counsel with a copy to: Blank Rome Comiskey & McCauley LLP One Logan Square Philadelphia, Pennsylvania 19103 Telecopier: (215) 569-5555 Attention: Francis E. Dehel, Esq. 64 If to the Trustee: Bankers Trust Company Corporate Trust and Agency Services Four Albany Street New York, New York 10006 Telecopier: (212) 250-6392/6961 Attention: Corporate Market Services Such notices or communications shall be effective when received. The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notice or communications. Any notice or communication mailed to a Securityholder shall be mailed by first class mail to him at his address shown on the register kept by the Registrar. Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. If a notice or communication to a Securityholder is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. Section 12.3. Communications by Holders with Other Holders. --------------------------------------------- Securityholders may communicate pursuant to TIA 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and any other person shall have the protection of TIA 312(c). Section 12.4. Certificate and Opinion as to Conditions Precedent. --------------------------------------------------- (a) Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee at the request of the Trustee: (1) an Officers' Certificate stating that, in the opinion of the signers, all conditions precedent (including any covenants compliance with which constitutes a condition precedent), if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent (including any covenants compliance with which constitutes a condition precedent) have been complied with. (b) Each Officers' Certificate and Opinion of Counsel with respect to compliance with a condition or covenant provided for in this Indenture (other than annual certificates provided pursuant to Section 6.4) shall include: (1) a statement that the person making such certificate or opinion has read such covenant or condition; 65 (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with; provided, however, that with respect to matters of fact an Opinion of Counsel may rely on Officers' Certificates or certificates of public officials. Section 12.5. Record Date for Vote or Consent of Securityholders. --------------------------------------------------- The Company (or, in the event deposits have been made pursuant to Section 6.3 or 10.1, the Trustee) may set a record date for purposes of determining the identity of Securityholders entitled to vote or consent to any action by vote or consent authorized or permitted under this Indenture, which record date shall be the later of 10 days prior to the first solicitation of such vote or consent or the date of the most recent list of Securityholders furnished to the Trustee pursuant to Section 2.5 prior to such solicitation. If a record date is fixed, those persons who were Holders of Securities at such record date (or their duly designated proxies), and only those persons, shall be entitled to take such action by vote or consent or to revoke any vote or consent previously given, whether or not such persons continue to be Holders after such record date. Section 12.6. Rules by Trustee, Paying Agent, Registrar. ------------------------------------------ The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or the Paying Agent may make reasonable rules for its functions. Section 12.7. Legal Holidays. --------------- A "Legal Holiday" is a Saturday, or a Sunday or a day on which state or federally chartered banking institutions in New York (or, if the Trustee is not located in New York, the state where the Trust Office of the Trustee is located) are not required to be open. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. Section 12.8. Governing Law. -------------- The laws of the State of New York shall govern this Indenture and the Securities without regard to principles of conflicts of law. Section 12.9. No Adverse Interpretation of Other Agreements. ---------------------------------------------- This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or a Subsidiary. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. 66 Section 12.10. No Recourse Against Others. --------------------------- All liability described in paragraph 17 of the Securities of any director, officer, employee or stockholder, as such, of the Company is waived and released. Section 12.11. Successors. ----------- All agreements of the Company in this Indenture and the Securities shall bind its successor. All agreements of the Trustee in this Indenture shall bind its successor. Section 12.12. Multiple Counterparts. ---------------------- The parties may sign multiple counterparts of this Indenture. Each signed counterpart shall be deemed an original, but all of them together represent the same agreement. Section 12.13. Separability. ------------- In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 12.14. Table of Contents, Headings, Etc. --------------------------------- The table of contents, cross-reference sheet and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof. 67 IN WITNESS WHEREOF, the parties hereto have hereunto set their hands as of the 4th day of April, 2001. NCO GROUP, INC. By: -------------------------------------- Name: Title: BANKERS TRUST COMPANY as Trustee By: -------------------------------------- Name: Title: S-1 EXHIBIT A --------- FORM OF SECURITY [GLOBAL NOTE LEGEND: UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO NCO GROUP, INC. (THE "COMPANY") OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFER IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.] A-1 [RESTRICTED SECURITIES LEGEND: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS SECURITY MAY NOT BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD UNDER RULE 144(k) (OR ANY SUCCESSOR THERETO) UNDER THE SECURITIES ACT WHICH IS APPLICABLE TO THIS SECURITY OR (Y) BY ANY HOLDER THAT WAS AN "AFFILIATE" (WITHIN THE MEANING OF RULE 144 UNDER THE SECURITIES ACT) OF THE COMPANY AT ANY TIME DURING THE THREE MONTHS PRECEDING THE DATE OF SUCH TRANSFER, IN EITHER CASE, OTHER THAN (1) TO THE COMPANY, (2) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A, PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (3) IN AN OFFSHORE TRANSACTION (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT) IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT, (4) TO AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a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k)(2) OF RULE 902 UNDER) REGULATION S UNDER THE SECURITIES ACT. IN ANY CASE THE HOLDER HEREOF WILL NOT, DIRECTLY OR INDIRECTLY, ENGAGE IN ANY HEDGING TRANSACTION WITH REGARD TO THIS SECURITY OR ANY COMMON STOCK ISSUABLE UPON CONVERSION OF THIS SECURITY EXCEPT AS PERMITTED BY THE SECURITIES ACT.] A-2 [FORM OF FACE OF SECURITY] NCO GROUP, INC. Number 1 CUSIP 628858 AC 6 4.75% Convertible Subordinated Note Due 2006 NCO Group, Inc., a Pennsylvania corporation (the "Company"), promises to pay to Cede & Co. or registered assigns, the principal sum of One Hundred Twenty Five Million Dollars ($125,000,000) on April 15, 2006 and to pay interest on the principal amount of this Note beginning the most recent date to which interest has been paid or, if no interest has been paid, beginning April 4, 2001 at the rate of 4.75% per annum. Interest Payment Dates: April 15 and October 15 Record Dates: April 1 and October 1 This Note is convertible at such times and as specified on the other side of this Note. Additional provisions of this Note are set forth on the other side of this Note. A-3 IN WITNESS WHEREOF, the Company has caused this 4.75% Convertible Subordinated Note due 2006 to be signed by its duly authorized officers. Dated: April 4, 2001 NCO GROUP, INC. By: ------------------------------ Name: Title: By: ------------------------------ Name: Title: Trustee's Certificate of Authentication: Dated: ------------------- This is one of the Securities referred to in the within mentioned Indenture. Bankers Trust Company, as Trustee By: --------------------------------------- Authorized Signatory A-4 [FORM OF REVERSE SIDE OF SECURITY] NCO Group, Inc. 4.75% Convertible Subordinated Note Due 2006 1. Interest. -------- NCO Group, Inc., a Pennsylvania corporation (the "Company"), promises to pay interest on the principal amount of this Note at the rate per annum shown above. The Company shall pay interest semi-annually on April 15 and October 15 of each year, commencing October 15, 2001. Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from April 4, 2001. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Holder of this Note is entitled to the benefits of the Registration Rights Agreement, dated April 4, 2001, between the Company and Deutsche Banc Alex. Brown Inc. 2. Method of Payment. ----------------- The Company will pay interest on this Note (except defaulted interest) to the person who is the registered Holder of this Note at the close of business on the April 1 and October 1 next preceding the interest payment date. The Holder must surrender this Note to the Paying Agent to collect payment of principal. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. The Company, however, may pay principal and interest by its check payable in such money. It may mail an interest check to the Holder's registered address. 3. Paying Agent, Registrar and Conversion Agent. -------------------------------------------- Initially, Bankers Trust Company (the "Trustee") will act as Paying Agent, Registrar and Conversion Agent. The Company may change any Paying Agent, Registrar or Conversion Agent without notice to the Holder. The Company or any of its Subsidiaries may act as Paying Agent, Registrar or Conversion Agent. 4. Indenture; Limitations. ---------------------- This Note is one of a duly authorized issue of Notes of the Company designated as its 4.75% Convertible Subordinated Notes Due 2006 (the "Notes"), issued under an Indenture dated as of April 4, 2001 (the "Indenture"), between the Company and the Trustee. The terms of this Note include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb), as amended by the Trust Indenture Reform Act of 1990, as in effect on the date hereof or, from and after the date that the Indenture shall be qualified thereunder, as in effect on such date. This Note is subject to all such terms, and the holder of this Note is referred to the Indenture and said Act for a statement of them. A-5 The Notes are subordinated unsecured obligations of the Company limited to up to $125,000,000 aggregate principal amount. 5. Optional Redemption. ------------------- The Notes may be redeemed at the Company's option, in whole or in part, at any time and from time to time on and after April 22, 2004 (an "Optional Redemption") if the Closing Price of the Company's Common Stock for 20 Trading Days (as defined in the Indenture) in a period of 30 consecutive Trading Days ending on the Trading Day prior to the date of mailing of the provisional notice of redemption exceeds 120% of the Conversion Price (as defined below) of the Notes. The redemption price for the Notes, expressed as a percentage of the principal amount, is as follows for the 12-month periods set forth below: |----------------------------------------------------------| | Redemption Period Percentage | | -------------------------------------------------------- | | April 22, 2004 through April 14, 2005...........102.0% | | April 15, 2005 through April 14, 2006...........101.0% | |----------------------------------------------------------| together in the case of any such redemption with accrued and unpaid interest to the date of redemption, but any interest payment that is due and payable on or prior to such date of redemption will be payable to the Holders of such Notes, or one or more predecessor Notes, of record at the close of business on the relevant record dates referred to on the face hereof, all as provided in the Indenture. 6. Notice of Redemption. -------------------- Notice of redemption will be mailed by first class mail at least 30 days prior to the redemption date in the case of an Optional Redemption to each Holder of Notes to be redeemed at his registered address. Notes in denominations larger than $1,000 may be redeemed in part, but only in whole multiples of $1,000. On and after the redemption date, subject to the deposit with the Paying Agent of funds sufficient to pay the redemption price, interest ceases to accrue on Notes or portions of them called for redemption. 7. Repurchase of Notes at Option of Holder upon a Change in Control. ---------------------------------------------------------------- If at any time that Notes remain outstanding there shall have occurred a Change in Control (as defined in the Indenture), at the option of the Holder and subject to the terms and conditions of the Indenture, the Company shall become obligated to repurchase all or any part specified by the Holder (so long as the principal amount of such part is $1,000 or an integral multiple thereof) of the Notes held by such Holder on the Repurchase Date. The Holder shall have the right to withdraw any Repurchase Notice by delivering a written notice of withdrawal to the Paying Agent in accordance with the terms of the Indenture. The Repurchase Price is payable in cash. 8. Conversion. ---------- At any time after 90 days following the latest date of original issuance of the Notes and prior to the close of business on the Business Day immediately preceding April 15, 2006, a Holder of a Note may convert such Note into shares of Common Stock of the Company; provided, however, that if the Note A-6 is called for redemption, the conversion right will terminate at the close of business on the Business Day before the redemption date of such Note (unless the Company shall default in making the redemption payment when due, in which case the conversion right shall terminate at the close of business on the date such default is cured and such Note is redeemed). The initial conversion price is $32.92 per share, subject to adjustment under certain circumstances as described in the Indenture (the "Conversion Price"). The number of shares issuable upon conversion of a Note is determined by dividing the principal amount converted by the Conversion Price in effect on the conversion date. Upon conversion, no adjustment for interest or dividends will be made. No fractional shares will be issued upon conversion; in lieu thereof, an amount will be paid in cash based upon the current market price (as defined in the Indenture) of the Common Stock on the last trading day prior to the date of conversion. To convert a Note, a Holder must (a) complete and sign the conversion notice set forth below and deliver such notice to the Conversion Agent, (b) surrender the Note to the Conversion Agent, (c) furnish appropriate endorsements and transfer documents if required by the Registrar or the Conversion Agent, (d) pay any transfer or similar tax, if required and (e) if the Note is held in book-entry form, complete and deliver to the Depositary appropriate instructions pursuant to the Depositary's book-entry conversion programs. If a Holder surrenders a Note for conversion between the close of business on any record date for the payment of an installment of interest and the opening of business on the next interest payment date, the Note must be accompanied by payment of an amount equal to the interest payable on such interest payment date on the principal amount of the Note or portion thereof then converted; provided, however, that no such payment shall be required if such Note has been called for redemption on a redemption date within the period between and including such record date and such interest payment date, or if such Note is surrendered for conversion after the opening of business on the interest payment date. A Holder may convert a portion of a Note equal to $1,000 or any integral multiple thereof. A Note in respect of which a Holder had delivered a Repurchase Notice exercising the option of such Holder to require the Company to repurchase such Note may be converted only if the notice of exercise is withdrawn as provided above and in accordance with the terms of the Indenture. 9. Subordination. ------------- The indebtedness evidenced by the Notes is, to the extent and in the manner provided in the Indenture, subordinate and junior in right of payment to the prior payment in full of all Senior Indebtedness of the Company, as defined in the Indenture. Any Holder by accepting this Note agrees to and shall be bound by such subordination provisions and authorizes the Trustee to give them effect. In addition to all other rights of Senior Indebtedness described in the Indenture, the Senior Indebtedness shall continue to be Senior Indebtedness and entitled to the benefits of the subordination provisions irrespective of any amendment, modification or waiver of any terms of any instrument relating to the Senior Indebtedness or any extension or renewal of the Senior Indebtedness. A-7 10. Denominations, Transfer, Exchange. --------------------------------- The Notes are in registered form without coupons in denominations of $1,000 and integral multiples thereof. A Holder may register the transfer of or exchange Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes or other governmental charges that may be imposed by law or permitted by the Indenture. [Global Note Insert: The aggregate principal amount of the Note in global form represented hereby may from time to time be reduced to reflect conversions or redemptions of a part of this Note in global form or cancellations of a part of this Note in global form, in each case, and in any such case, by means of notations on the Global Note Transfer Schedule on the last page hereof. Notwithstanding any provision of this Note to the contrary, conversions or redemptions of a part of this Note in global form and cancellations of a part of this Note in global form, may be effected without the surrendering of this Note in global form, provided that appropriate notations on the Schedule of Exchanges, Conversions, Redemptions, Cancellations and Transfers are made by the Trustee, or the Custodian at the direction of the Trustee, to reflect the appropriate reduction or increase, as the case may be, in the aggregate principal amount of this Note in a global form resulting therefrom or as a consequence thereof.] 11. Persons Deemed Owners. --------------------- The registered holder of a Note may be treated as the owner of it for all purposes. 12. Unclaimed Money. --------------- If money for the payment of principal, premium, if any, or interest remains unclaimed for two years, the Trustee or Paying Agent will pay, subject to applicable escheatment laws, the money back to the Company at its request. After that, Holders entitled to money must look to the Company for payment unless an abandoned property law designates another person. 13. Amendment, Supplement, Waiver. ----------------------------- Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of a majority in aggregate principal amount of the Notes then outstanding and any past default or compliance with any provision may be waived in a particular instance with the consent of the Holders of a majority in aggregate principal amount of the Notes then outstanding. Without the consent of or notice to any Holder, the Company and the Trustee may amend or supplement the Indenture or the Notes to, among other things, cure any ambiguity, omission, defect or inconsistency or make any other change that does not adversely affect the rights of any Holder. A-8 14. Successor Corporation. --------------------- When a successor corporation assumes all the obligations of its predecessor under the Notes and the Indenture, the predecessor corporation will be released from those obligations. 15. Defaults and Remedies. --------------------- An Event of Default is: default for 30 days in payment of interest on the Notes; default in payment of principal on the Notes when due; failure by the Company for 60 days after appropriate notice to it to comply with any of its other agreements contained in the Indenture or the Notes; default by the Company or any Subsidiary with respect to its obligation to pay principal of or interest on indebtedness for borrowed money aggregating more than $20.0 million or the acceleration of such indebtedness if not withdrawn within 15 days after the date of appropriate notice to it; and certain events of bankruptcy, insolvency or reorganization of the Company or any of its Significant Subsidiaries. If an Event of Default (other than as a result of certain events of bankruptcy, insolvency or reorganization) occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Notes then outstanding may declare all unpaid principal of and accrued interest to the date of acceleration on the Notes then outstanding to be due and payable immediately, all as and to the extent provided in the Indenture. If an Event of Default occurs as a result of certain events of bankruptcy, insolvency or reorganization, all unpaid principal of and accrued interest on the Notes then outstanding shall become due and payable immediately without any declaration or other act on the part of the Trustee or any Holder, all as and to the extent provided in the Indenture. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Notes. Subject to certain limitations, Holders of a majority in principal amount of the Notes then outstanding may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders notice of any continuing default (except a default in payment of principal or interest) if it determines that withholding notice is in their interests. The Company is required to file periodic reports with the Trustee as to the absence of default. 16. Trustee Dealings with the Company. --------------------------------- Bankers Trust Company, the Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or an Affiliate of the Company, and may otherwise deal with the Company or an Affiliate of the Company, as if it were not the Trustee. 17. No Recourse Against Others. -------------------------- A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect or by reason of, such obligations or their creation. The Holder of this Note by accepting this Note waives and releases all such liability. The waiver and release are part of the consideration for the issue of this Note. A-9 18. Discharge Prior to Maturity. --------------------------- If the Company deposits with the Trustee or the Paying Agent money or U.S. Government Obligations sufficient to pay the principal of and interest on the Notes to maturity as provided in the Indenture, the Company will be discharged from the Indenture except for certain Sections thereof. 19. Authentication. -------------- This Note shall not be valid until the Trustee or an authenticating agent signs the certificate of authentication on the other side of this Note. 20. Abbreviations and Definitions. ----------------------------- Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors Act). All capitalized terms used in this Note and not specifically defined herein are defined in the Indenture and are used herein as so defined. 21. Indenture to Control. -------------------- In the case of any conflict between the provisions of this Note and the Indenture, the provisions of the Indenture shall control. The Company will furnish to any Holder, upon written request and without charge, a copy of the Indenture. Requests may be made to: NCO Group, Inc., 515 Pennsylvania Avenue, Fort Washington, Pennsylvania 19034, Attention: General Counsel. A-10 TRANSFER NOTICE This Transfer Notice relates to $__________ principal amount of the 4.75% Convertible Subordinated Notes Due 2006 of NCO Group, Inc., a Pennsylvania corporation, held by _____________________ (the "Transferor"). (I) or (we) assign and transfer this Convertible Note to - -------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) ----------- - -------------------------------------------------------------------------------- (Insert assignee's social security or tax I.D. no.) and irrevocably appoint _______________________________ agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. Your Signature: ----------------------------------------------------------------- (Sign exactly as your name appears on the other side of this Convertible Note) Date: -------------------- Signature Guarantee(2) ------------------------------ In connection with any transfer of any of the Notes evidenced by this certificate occurring prior to the date that is two years after the later of the date of original issuance of such Notes and the last date, if any, on which such Notes were owned by the Company or any Affiliate of the Company, the undersigned confirms that such Notes are being transferred: CHECK ONE BOX BELOW (1) [ ] to NCO Group, Inc.; or (2) [ ] pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended; or (3) [ ] pursuant to and in compliance with Regulation S under the Securities Act of 1933, as amended; or (4) [ ] pursuant to another available exemption from the registration requirements of the Securities Act of 1933; or - -------- (2) Signature must be guaranteed by a commercial bank, trust company or member firm of the New York Stock Exchange using the Medallion signature guarantee. A-11 (5) [ ] pursuant to an effective registration statement under the Securities Act of 1933. Unless one of the boxes is checked, the Trustee will refuse to register any of the Notes evidenced by this certificate in the name of any person other than the registered holder thereof; provided, however, that if box (2), (3) or (4) is checked, the Trustee may require, prior to registering any such transfer of the Notes such legal opinions, certifications and other information as the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, such as the exemption provided by Rule 144 under such Act. Unless the box below is checked, the undersigned confirms that such Note is not being transferred to an "affiliate" of the Company as defined in Rule 144 under the Securities Act of 1933, as amended (an "Affiliate"): (6) [ ] The transferee is an Affiliate of the Company. ---------------------------------------- Signature ---------------------------------------- Date ---------------------------------------- Signature Guarantee(3) TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED. - -------- (3) Signature must be guaranteed by a commercial bank, trust company or member firm of the New York Stock Exchange using the Medallion signature guarantee. A-12 The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: --------------- ------------------------------------------------- [Signature of executive officer of purchaser] Name: Title: A-13 CONVERSION NOTICE To NCO Group, Inc.: The undersigned owner of this Note hereby irrevocably exercises the option to convert this Note, or the portion below designated, into Common Stock of NCO Group, Inc. in accordance with the terms of the Indenture referred to in this Note, and directs that the shares issuable and deliverable upon conversion, together with any check in payment for fractional shares, be issued in the name of and delivered to the undersigned, unless a different name has been indicated in the assignment below. If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. Any holder of Notes, upon exercise of its conversion rights in accordance with the terms of the Indenture and the Security, agrees to be bound by the terms of the Registration Rights Agreement relating to the Common Stock issuable upon conversion of the Notes. [ ] Convert whole [ ] Convert in part Amount of Note to be converted ($1,000 or integral multiples thereof): $----------------------------- --------------------------------------- Signature (sign exactly as name appears on the other side of this Note) --------------------------------------- Signature Guarantee:(4) - -------- (4) Signature must be guaranteed by a commercial bank, trust company or member firm of the New York Stock Exchange using the Medallion signature guarantee. A-14 If you want the stock certificate made out in another person's name, complete the following for such person: - ------------------------------------------------------- Name - ------------------------------------------------------- Social Security or Taxpayer Identification Number - ------------------------------------------------------- Street Address - ------------------------------------------------------- City, State and Zip Code A-15 OPTION OF HOLDER TO ELECT REPURCHASE If you want to elect to have this Note repurchased by the Company pursuant to Section 3.9 of the Indenture, check the box: [ ] If you want to elect to have only part of this Note repurchased by the Company pursuant to Section 3.9 of the Indenture, state the principal amount (which shall be $1,000 or a multiple thereof) to be repurchased: $__________________ Dated: ---------------------- ---------------------------------------- Signature (sign exactly as name appears on the other side of this Note) - -------------------------------------------------- Signature Guarantee:(5) - -------- (5) Signature must be guaranteed by a commercial bank, trust company or member firm of the New York Stock Exchange using the Medallion signature guarantee. A-16 [Schedule A to Exhibit A Global Note Transfer Schedule Changes to Principal Amount of Global Security
|=============|=====================================|====================================|=======================| | | Principal Amount of Securities by | Remaining Principal Amount of this | Authorized Signature | | | which this Global Security Is to | Global Security | of officer of Trustee | | Date | Be Reduced and Reason for Reduction | (following decrease) | or Note Custodian | |-------------|-------------------------------------|------------------------------------|-----------------------| | | | | | |-------------|-------------------------------------|------------------------------------|-----------------------| | | | | | |-------------|-------------------------------------|------------------------------------|-----------------------| | | | | | |-------------|-------------------------------------|------------------------------------|-----------------------| | | | | | |-------------|-------------------------------------|------------------------------------|-----------------------| | | | | | |-------------|-------------------------------------|------------------------------------|-----------------------| | | | | | |-------------|-------------------------------------|------------------------------------|-----------------------| | | | | | |-------------|-------------------------------------|------------------------------------|-----------------------| | | | | | |=============|=====================================|====================================|=======================|
Schedule to be maintained by Depositary in cooperation with Trustee.] A-17 EX-4.3 4 ex4-3.txt REGISTRATION RIGHTS AGREEMENT Exhibit 4.3 REGISTRATION RIGHTS AGREEMENT Dated as of April 4, 2001 By and Among NCO GROUP, INC., as Issuer, and DEUTSCHE BANC ALEX. BROWN INC. as Initial Purchaser 4.75% Convertible Subordinated Senior Notes Due 2006 TABLE OF CONTENTS 1. Definitions..............................................................1 2. Shelf Registration.......................................................4 3. Liquidated Damages.......................................................5 4. Registration Procedures..................................................6 5. Registration Expenses...................................................12 6. Indemnification.........................................................12 7. Rules 144 and 144A......................................................15 8. Underwritten Registrations..............................................16 9. Miscellaneous...........................................................16 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "Agreement") is dated as of April 4, 2001, by and among NCO GROUP, INC., a Pennsylvania corporation (the "Company"), and DEUTSCHE BANC ALEX. BROWN INC. (the "Initial Purchaser"). This Agreement is entered into in connection with the Purchase Agreement, dated as of March 29, 2001 (the "Purchase Agreement"), by and among the Company and the Initial Purchaser, which provides for the sale by the Company to the Initial Purchaser of $125,000,000 aggregate principal amount of the Company's 4.75% Convertible Subordinated Notes Due 2006 (the "Convertible Notes"), which are convertible into Common Stock of the Company, no par value per share (the "Underlying Shares"). The Convertible Notes are being issued pursuant to an indenture dated as of the date hereof (the "Indenture"), between the Company and Bankers Trust, as trustee. In order to induce the Initial Purchaser to enter into the Purchase Agreement, the Company has agreed to provide the registration rights set forth in this Agreement for the benefit of the Initial Purchaser and any subsequent holder or holders of the Convertible Notes or Underlying Shares as provided herein. The execution and delivery of this Agreement is a condition to the Initial Purchaser's obligation to purchase the Convertible Notes under the Purchase Agreement. The parties hereby agree as follows: 1. Definitions. As used in this Agreement, the following terms shall have the following meanings: Agreement: See the first introductory paragraph hereto. Amount of Registrable Securities: (a) With respect to Convertible Notes constituting Registrable Securities, the aggregate principal amount of all such Convertible Notes outstanding, (b) with respect to Underlying Shares constituting Registrable Securities, the aggregate number of such Underlying Shares outstanding multiplied by the Conversion Price (as defined in the Indenture relating to the Convertible Notes upon the conversion of which such Underlying Shares were issued) in effect at the time of computing the Amount of Registrable Securities or, if no such Convertible Notes are then outstanding, the last Conversion Price that was in effect under such Indenture when any such Convertible Notes were last outstanding, and (c) with respect to combinations thereof, the sum of (a) and (b) for the relevant Registrable Securities. Business Day: Any day that is not a Saturday, Sunday or a day on which banking institutions in New York are authorized or required by law to be closed. Closing Date: April 4, 2001. Company: See the first introductory paragraph hereto. Convertible Notes: See the second introductory paragraph hereto. Damages Payment Date: See Section 3(c) hereof. Depositary: The Depository Trust Company until a successor is appointed by the Company. Effectiveness Date: The 180th day after the Closing Date. Effectiveness Period: See Section 2(a) hereof. Exchange Act: The Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. Filing Date: The 90th day after the Closing Date. Holder: Any holder of Registrable Securities. Indemnified Holder: See Section 6 hereof. Indemnified Person: See Section 6 hereof. Indemnifying Person: See Section 6 hereof. Indenture: See the second introductory paragraph hereto. Initial Purchaser: See the first introductory paragraph hereto. Initial Shelf Registration: See Section 2(a) hereof. Inspectors: See Section 4(n) hereof. Liquidated Damages: See Section 3(a) hereof. NASD: See Section 4(q) hereof. Person: An individual, partnership, corporation, limited liability company, unincorporated association, trust or joint venture, or a governmental agency or political subdivision thereof. Prospectus: The prospectus included in any Registration Statement (including, without limitation, any prospectus subject to completion and a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. Purchase Agreement: See the second introductory paragraph hereto. 2 QIU: See Section 4(q) hereof. Records: See Section 4(n) hereof. Registrable Securities: All Convertible Notes and all Underlying Shares upon original issuance thereof and at all times subsequent thereto until the earliest to occur of (i) a Registration Statement covering such Convertible Notes and Underlying Shares having been declared effective by the SEC and such Convertible Notes and Underlying Shares having been disposed of in accordance with such effective Registration Statement, (ii) such Convertible Notes and Underlying Shares having been sold in compliance with Rule 144 or could (except with respect to affiliates of the Company within the meaning of the Securities Act) be sold in compliance with Rule 144(k), or (iii) such Convertible Notes and any Underlying Shares ceasing to be outstanding. Registration Default: See Section 3(a) hereof. Registration Statement: Any registration statement of the Company filed with the SEC pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. Rule 144: Rule 144 promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144A) or regulation hereafter adopted by the SEC providing for offers and sales of securities made in compliance therewith resulting in offers and sales by subsequent holders that are not affiliates of an issuer of such securities being free of the registration and prospectus delivery requirements of the Securities Act. Rule 144A: Rule 144A promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144) or regulation hereafter adopted by the SEC. Rule 415: Rule 415 promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. SEC: The Securities and Exchange Commission. Securities Act: The Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. Shelf Registration: See Section 2(b) hereof. Shelf Registration Statement: See Section 2(b) hereof. Subsequent Shelf Registration: See Section 2(b) hereof. TIA: The Trust Indenture Act of 1939, as amended, and the rules and regulations of the SEC promulgated thereunder. 3 Trustee: The Trustee under the Indenture. Underlying Shares: See the second introductory paragraph hereto. Underwritten registration or underwritten offering: A registration in which securities of the Company are sold to an underwriter for reoffering to the public. 2. Shelf Registration. (a) Shelf Registration. The Company shall use its reasonable best efforts to file with the SEC a Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415 covering all of the Registrable Securities (the "Initial Shelf Registration") on or prior to the Filing Date. The Initial Shelf Registration shall be on Form S-3 or another appropriate form permitting registration of such Registrable Securities for resale by Holders in the manner or manners designated by them (including, without limitation, one or more underwritten offerings). The Company shall not permit any securities other than the Registrable Securities to be included in the Initial Shelf Registration or any Subsequent Shelf Registration (as defined below). The Company shall use its reasonable best efforts to cause the Initial Shelf Registration to be declared effective under the Securities Act on or prior to the Effectiveness Date and to keep such Initial Shelf Registration continuously effective under the Securities Act until the date that is two years from the Closing Date (as it may be shortened pursuant to clause (i) or clause (ii) immediately following, the "Effectiveness Period"), or such shorter period ending when (i) all the shares of Registrable Securities covered by the Initial Shelf Registration have been sold in the manner set forth and as contemplated in the Initial Shelf Registration, (ii) the date on which all the Registrable Securities (x) held by Persons who are not affiliates of the Company may be resold pursuant to Rule 144(k) under the Securities Act or (y) cease to be outstanding, or (iii) a Subsequent Shelf Registration covering all of the Registrable Securities has been declared effective under the Securities Act. (b) Subsequent Shelf Registrations. If the Initial Shelf Registration or any Subsequent Shelf Registration ceases to be effective for any reason at any time during the Effectiveness Period (other than because of the sale of all of the securities registered thereunder), the Company shall use its reasonable best efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within 45 days of such cessation of effectiveness amend the Initial Shelf Registration in a manner to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional "shelf" Registration Statement pursuant to Rule 415 covering all of the Registrable Securities (a "Subsequent Shelf Registration"). If a Subsequent Shelf Registration is filed, the Company shall use its reasonable best efforts to cause the Subsequent Shelf Registration to be declared effective under the Securities Act as soon as practicable after such filing and to keep such Registration Statement continuously effective for a period equal to the number of days in the Effectiveness Period less the aggregate number of days during which the Initial Shelf Registration or any Subsequent Shelf Registration was previously continuously effective. As used herein the term "Shelf Registration" means the Initial Shelf Registration and any Subsequent Shelf Registration and the term "Shelf Registration Statement" means any Registration Statement filed in connection with a Shelf Registration. 4 (c) Supplements and Amendments. The Company shall promptly supplement and amend the Shelf Registration if required by the rules, regulations or instructions applicable to the registration form used for such Shelf Registration, if required by the Securities Act, or if reasonably requested by the Holders of the majority in Amount of Registrable Securities covered by such Registration Statement or by any underwriter of such Registrable Securities. 3. Liquidated Damages. (a) The Company and the Initial Purchaser agree that the Holders of Registrable Securities will suffer damages if the Company fails to fulfill its obligations under Section 2 hereof and that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, the Company agrees to pay liquidated damages on the Registrable Securities ("Liquidated Damages") under the circumstances and to the extent set forth below (each of which shall be given independent effect; each a "Registration Default"): (i) if the Initial Shelf Registration is not filed on or prior to the Filing Date, then commencing on the day after the Filing Date, Liquidated Damages shall accrue on the Registrable Securities at a rate of 0.50% per annum on the Amount of Registrable Securities; (ii) if the Company fails to use all reasonable efforts and the Initial Shelf Registration is not declared effective by the SEC on or prior to the Effectiveness Date, then commencing one day after the Effectiveness Date, Liquidated Damages shall accrue on the Registrable Securities at a rate of 0.50% per annum on the Amount of Registrable Securities; and (iii) if a Shelf Registration has been declared effective and such Shelf Registration ceases to be effective at any time during the Effectiveness Period (other than as permitted under Section 3(b)), then Liquidated Damages shall accrue on the Registrable Securities at a rate of 0.50% per annum on the Amount of Registrable Securities; provided, however, that Liquidated Damages on the Registrable Securities may not accrue under more than one of the foregoing clauses (i), (ii) or (iii) at any one time and at no time shall the aggregate amount of Liquidated Damages accruing exceed in the aggregate 0.50% per annum of the Amount of Registrable Securities; provided, further, however, that (1) upon the filing of the Shelf Registration as required hereunder (in the case of clause (a)(i) of this Section 3), (2) upon the effectiveness of the Shelf Registration as required hereunder (in the case of clause (a)(ii) of this Section 3), or (3) upon the effectiveness of a Shelf Registration which had ceased to remain effective (in the case of (a)(iii) of this Section 3), Liquidated Damages on the Registrable Securities as a result of such clause (or the relevant subclause thereof), as the case may be, shall cease to accrue. It is understood and agreed that, notwithstanding any provision to the contrary, so long as any Registrable Security is then covered by an effective Shelf Registration Statement, no Liquidated Damages shall accrue on such Registrable Security. (b) Notwithstanding paragraph (a) of this Section 3, the Company shall be permitted to suspend the effectiveness of a Shelf Registration for any reason whatsoever for up to 30 consecutive days in any 90 day period, for a total of not more than 60 days in any 360 day period, without paying Liquidated Damages. 5 (c) So long as Convertible Notes remain outstanding, the Company shall notify the Trustee within two Business Days after each and every date on which an event occurs in respect of which Liquidated Damages is required to be paid. Any amounts of Liquidated Damages due pursuant to (a)(i), (a)(ii) or (a)(iii) of this Section 3 will be payable in cash semi-annually on each April 15 and October 15 (each a "Damages Payment Date"), commencing with the first such date occurring after any such Liquidated Damages commences to accrue, to Holders to whom regular interest is payable on such Damages Payment Date with respect to Convertible Notes that are Registrable Securities and to Persons that are registered Holders 15 days prior to such Damages Payment Date with respect to Underlying Shares that are Registrable Securities. The amount of Liquidated Damages for Registrable Securities will be determined by multiplying the applicable rate of Liquidated Damages by the Amount of Registrable Securities outstanding on the Damages Payment Date following such Registration Default in the case of the first such payment of Liquidated Damages with respect to a Registration Default (and thereafter at the next succeeding Damages Payment Date until the cure of such Registration Default), multiplied by a fraction, the numerator of which is the number of days such Liquidated Damages rate was applicable during such period (determined on the basis of a 360-day year comprised of twelve 30-day months and, in the case of a partial month, the actual number of days elapsed), and the denominator of which is 360. (d) The Liquidated Damages set forth above shall be the exclusive monetary remedy available to the Holders, but shall not preclude the Holders from seeking equitable relief. 4. Registration Procedures. In connection with the filing of any Registration Statement pursuant to Section 2 hereof, the Company shall effect such registrations to permit the sale of the securities covered thereby in accordance with the intended method or methods of disposition thereof, and pursuant thereto and in connection with any Registration Statement filed by the Company hereunder the Company shall: (a) Prepare and file with the SEC on or prior to the Filing Date, a Registration Statement or Registration Statements as prescribed by Section 2 hereof, and use its reasonable best efforts to cause each such Registration Statement to become effective and remain effective as provided herein; provided, however, that before filing any Registration Statement or Prospectus or any amendments or supplements thereto, the Company shall furnish to and afford the Holders of the Registrable Securities covered by such Registration Statement and the managing underwriters, if any, a reasonable opportunity to review copies of all such documents proposed to be filed (in each case, where possible, at least five Business Days prior to such filing, or such later date as is reasonable under the circumstances). The Company shall not file any Registration Statement or Prospectus or any amendments or supplements thereto if the Holders of a majority in Amount of Registrable Securities covered by such Registration Statement or the managing underwriters, if any, shall reasonably object. (b) Prepare and file with the SEC such amendments and post-effective amendments to each Shelf Registration, as may be necessary to keep such Registration Statement continuously effective for the Effectiveness Period; cause the related Prospectus to be supplemented by any Prospectus supplement required by applicable law, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) promulgated under the Securities Act; and comply with the provisions of the Securities Act and the Exchange Act applicable to it with respect to the disposition of all securities covered by such Registration Statement as so amended or in such Prospectus as so 6 supplemented. The Company shall be deemed not to have used its reasonable best efforts to keep a Registration Statement effective during the Effectiveness Period if it voluntarily takes any action that would result in selling Holders of the Registrable Securities covered thereby not being able to sell such Registrable Securities during that period unless such action is required by applicable law or unless the Company complies with this Agreement, including without limitation the provisions of Section 4(k) hereof. (c) Notify the selling Holders of Registrable Securities and the managing underwriters, if any, promptly (but in any event within two Business Days), (i) when a Prospectus or any prospectus supplement or post-effective amendment has been filed, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective under the Securities Act (including in such notice a written statement that any Holder may, upon request, obtain, at the sole expense of the Company, one conformed copy of such Registration Statement or post-effective amendment including financial statements and schedules, documents incorporated or deemed to be incorporated by reference and exhibits), (ii) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of any preliminary prospectus or the initiation of any proceedings for that purpose, (iii) of the happening of any event, the existence of any condition or any information becoming known that makes any statement made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in or amendments or supplements to such Registration Statement, Prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading and (iv) of the Company's determination that a post-effective amendment to a Registration Statement would be appropriate. (d) Use its reasonable best efforts to prevent the issuance of any order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of a Prospectus and, if any such order is issued, to use its reasonable best efforts to obtain the withdrawal of any such order at the earliest possible moment. (e) If requested by the managing underwriter or underwriters (if any) or the Holders of the majority in Amount of Registrable Securities being sold in connection with an underwritten offering (i) promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or underwriters (if any), or such Holders reasonably determine is necessary to be included therein, (ii) make all required filings of such prospectus supplement or such post-effective amendment as soon as reasonably practicable after the Company has received notification of the matters to be incorporated in such prospectus supplement or post-effective amendment and (iii) supplement or make amendments to such Registration Statement. (f) Furnish to each selling Holder of Registrable Securities, a single counsel to such Holders (chosen in accordance with Section 5(b)) and each managing underwriter, if any, at the sole expense of the Company, one conformed 7 copy of the Registration Statement or Registration Statements and each post-effective amendment thereto, including financial statements and schedules, and, if requested, all documents incorporated or deemed to be incorporated therein by reference and all exhibits. (g) Deliver to each selling Holder of Registrable Securities, a single counsel to such Holders (chosen in accordance with Section 5(b)) and the underwriters, if any, at the sole expense of the Company, as many copies of the Prospectus (including each form of preliminary prospectus) and each amendment or supplement thereto and any documents incorporated by reference therein as such Persons may reasonably request; and, subject to the second paragraph of Section 4(s) hereof, the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders of Registrable Securities and the underwriters or agents, if any, and dealers (if any), in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto. (h) Prior to any public offering of Registrable Securities, to use its reasonable best efforts to register or qualify, to the extent required by applicable law, and to cooperate with the selling Holders of Registrable Securities and the managing underwriter or underwriters, if any, in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities or offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any selling Holder, or the managing underwriter or underwriters, if any, reasonably request; provided, however, that where Registrable Securities are offered other than through an underwritten offering, the Company agrees to cause the Company's counsel to perform Blue Sky investigations and file registrations and qualifications required to be filed pursuant to this Section 4(h); keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and do any and all other acts or things reasonably necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by the applicable Registration Statement; provided, however, that the Company shall not be required to (A) qualify generally to do business in any jurisdiction where it is not then so qualified, (B) take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject or (C) subject itself to taxation in excess of a nominal dollar amount in any such jurisdiction where it is not then so subject. (i) Cooperate with the selling Holders of Registrable Securities and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates representing shares of Registrable Securities to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with The Depository Trust Company; and enable such shares of Registrable Securities to be in such denominations and registered in such names as the managing underwriter or underwriters, if any, or Holders may reasonably request. (j) Use its reasonable best efforts to cause the Registrable Securities covered by any Shelf Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be reasonably necessary to enable the seller or sellers thereof or the underwriter or underwriters, if any, to consummate the disposition of such Registrable Securities, except as may be required solely as a consequence of the nature of such selling Holder's 8 business, in which case the Company will cooperate in all reasonable respects with the filing of such Registration Statement and the granting of such approvals. (k) Upon the occurrence of any event contemplated by paragraph 4(c)(ii), 4(c)(iii) or 4(c)(iv) hereof, as promptly as practicable prepare and (subject to Section 4(a) hereof) file with the SEC, at the sole expense of the Company, a supplement or post-effective amendment to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder, any such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (l) Prior to the effective date of the first Registration Statement relating to the Registrable Securities, (i) provide the Trustee with certificates for the Registrable Securities in a form eligible for deposit with The Depository Trust Company and (ii) provide a CUSIP number for the Registrable Securities. (m) In connection with any underwritten offering of Registrable Securities pursuant to a Shelf Registration, enter into an underwriting agreement as is customary in underwritten offerings of securities similar to the Registrable Securities and take all such other actions as are reasonably requested by the managing underwriter or underwriters in order to expedite or facilitate the registration or the disposition of such Registrable Securities and, in such connection, (i) make such representations and warranties to, and covenants with, the underwriters with respect to the business of the Company and its subsidiaries (including any acquired business, properties or entity, if applicable) and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, as are customarily made by issuers to underwriters in underwritten offerings of securities similar to the Registrable Securities and confirm the same in writing if and when requested; (ii) obtain the written opinion of counsel to the Company and written updates thereof in form, scope and substance reasonably satisfactory to the managing underwriter or underwriters, addressed to the underwriters covering the matters customarily covered in opinions requested in underwritten offerings of securities similar to the Registrable Securities and such other matters as may be reasonably requested by the managing underwriter or underwriters; and (iii) obtain "cold comfort" letters and updates thereof in form, scope and substance reasonably satisfactory to the managing underwriter or underwriters from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included or incorporated by reference in the Registration Statement), addressed to each of the underwriters, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings of securities similar to the Registrable Securities and such other matters as reasonably requested by the managing underwriter or underwriters as permitted by the Statement on Auditing Standards No. 72. The above shall be done as and to the extent required by such underwriting agreement. (n) Make available for inspection by any selling Holder of such Registrable Securities being sold, any underwriter participating in any such disposition of Registrable Securities, if any, and any attorney, accountant or 9 other agent retained by any such selling Holder, or underwriter (collectively, the "Inspectors"), at the offices where normally kept, during reasonable business hours at such time or times as shall be mutually convenient for the Company and the Inspectors as a group, all financial and other records, pertinent corporate documents and instruments of the Company and its subsidiaries (collectively, the "Records") as shall be reasonably necessary to enable them to exercise any applicable due diligence responsibilities, and cause the officers, directors and employees of the Company and its subsidiaries to supply all information reasonably requested by any such Inspector in connection with such Registration Statement. Records that the Company determines, in good faith, to be confidential and any Records that it notifies the Inspectors are confidential shall not be disclosed by any Inspector unless (i) the disclosure of such Records is necessary to avoid or correct a material misstatement or material omission in such Registration Statement, (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction, (iii) disclosure of such information is, in the opinion of counsel for any Inspector, necessary or advisable in connection with any action, claim, suit or proceeding, directly involving or potentially involving such Inspector and arising out of, based upon, relating to, or involving this Agreement or any transactions contemplated hereby or arising hereunder or (iv) the information in such Records has been made generally available to the public other than through the acts of such Inspector; provided, however, that prior notice shall be provided as soon as practicable to the Company of the potential disclosure of any information by such Inspector pursuant to clauses (ii) or (iii) of this sentence to permit the Company to obtain a protective order (or waive the provisions of this paragraph (n)). Each Inspector shall take such actions as are reasonably necessary to protect the confidentiality of such information (if practicable) to the extent such actions are otherwise not inconsistent with, an impairment of or in derogation of the rights and interests of the Holder or any Inspector, unless and until such information in such Records has been made generally available to the public other than as a result of a breach of this Agreement. (o) Provide (i) the Holders of the Registrable Securities to be included in such Registration Statement and not more than one counsel for all the Holders of such Registrable Securities chosen in accordance with Section 5(b), (ii) the underwriters (which term, for purposes of this Registration Rights Agreement, shall include a Person deemed to be an underwriter within the meaning of Section 2(11) of the Securities Act), if any, thereof, (iii) the sales or placement agent, if any, thereof, and (iv) one counsel for such underwriters or agents, reasonable opportunity to participate in the preparation of such Registration Statement, each prospectus included therein or filed with the SEC, and each amendment or supplement thereto. (p) Comply with all applicable rules and regulations of the SEC and make generally available to its security holders earning statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Securities are sold to underwriters in a firm commitment or best efforts underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Company after the effective date of a Registration Statement, which statements shall cover said 12-month periods. (q) Cooperate with each seller of Registrable Securities covered by any Registration Statement and each underwriter, if any, participating in the disposition of such Registrable Securities and their respective counsel in 10 connection with any filings required to be made with the National Association of Securities Dealers, Inc. (the "NASD"), including, if the Conduct Rules of the NASD or any successor thereto as amended from time to time so require, engaging a "qualified independent underwriter" ("QIU") as contemplated therein and making Records available to such QIU as though it were a participating underwriter for the purposes of Section 4(n) and otherwise applying the provisions of this Agreement to such QIU (including indemnification) as though it were a participating underwriter. (r) Cause the Indenture to be qualified under the TIA not later than the effective date of the first Registration Statement relating to the Registrable Securities; and in connection therewith, cooperate with the Trustee and the Holders of the Registrable Securities to effect such changes to the Indenture as may be required for the Indenture to be so qualified in accordance with the terms of the TIA; and execute, and use its reasonable best efforts to cause the Trustee to execute, all documents as may be required to effect such changes and all other forms and documents required to be filed with the SEC to enable the Indenture to be so qualified in a timely manner. (s) Use its reasonable best efforts to take all other steps necessary or advisable to effect the registration of the Registrable Securities covered by a Registration Statement contemplated hereby. The Company may require each seller of Registrable Securities as to which any registration is being effected to furnish to the Company such information regarding such seller and the distribution of such Registrable Securities as the Company may, from time to time, reasonably request to the extent necessary or advisable to comply with the Securities Act. The Company may exclude from such registration the Registrable Securities of any seller if such seller fails to furnish such information within 20 Business Days after receiving such request. Each seller as to which any Shelf Registration is being effected agrees to furnish promptly to the Company all information required to be disclosed so that the information previously furnished to the Company by such seller is not materially misleading and does not omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made. Each Holder of Registrable Securities agrees by acquisition of such Registrable Securities that, upon actual receipt of any notice from the Company of the happening of any event of the kind described in Section 4(c)(ii), 4(c)(iii) or 4(c)(iv) hereof, such Holder will forthwith discontinue disposition of such Registrable Securities covered by such Registration Statement or Prospectus until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 4(k) hereof, or until it is advised in writing by the Company that the use of the applicable Prospectus may be resumed, and has received copies of any amendments or supplements thereto. 11 5. Registration Expenses. (a) All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company, including, without limitation, (i) all registration and filing fees (including, without limitation, (A) fees with respect to filings required to be made with the NASD in connection with an underwritten offering and (B) fees and expenses of compliance with state securities or Blue Sky laws (including, without limitation, reasonable fees and disbursements of counsel in connection with Blue Sky qualifications of the Registrable Securities and determination of the eligibility of the Registrable Securities for investment under the laws of such jurisdictions as provided in Section 4(h) hereof), (ii) printing expenses, including, without limitation, expenses of printing certificates for Registrable Securities in a form eligible for deposit with The Depository Trust Company and of printing prospectuses if the printing of prospectuses is requested by the managing underwriter or underwriters, if any, or by the Holders of the majority in Amount of Registrable securities included in any Registration Statement, (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company and reasonable fees and disbursements of one special counsel for the sellers of Registrable Securities (subject to the provisions of Section 5(b) hereof), (v) fees and disbursements of all independent certified public accountants referred to in Section 4(m)(iii) hereof (including, without limitation, the expenses of any special audit and "cold comfort" letters required by or incident to such performance), (vi) Securities Act liability insurance, if the Company desires such insurance, (vii) fees and expenses of all other Persons retained by the Company, (viii) internal expenses of the Company (including, without limitation, all salaries and expenses of officers and employees of the Company performing legal or accounting duties), (ix) the expense of any annual audit, (x) the fees and expenses incurred in connection with the listing of the securities to be registered on any securities exchange, if applicable, and (xi) the expenses relating to printing, word processing and distributing all Registration Statements, underwriting agreements, securities sales agreements and any other documents necessary in order to comply with this Agreement. Notwithstanding anything in this Agreement to the contrary, each Holder shall pay all underwriting discounts and brokerage commissions with respect to any Registrable Securities sold by it. (b) The Company shall reimburse the Holders of the Registrable Securities being registered in a Shelf Registration for the reasonable fees and disbursements of not more than one counsel chosen by the Holders of a majority in Amount of Registrable Securities to be included in such Registration Statement. 6. Indemnification. The Company agrees to indemnify and hold harmless (i) each Initial Purchaser, (ii) each Holder, (iii) each Person, if any, who controls (within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act) any of the foregoing (any of the Persons referred to in this clause (iii) being hereinafter referred to as a "controlling person"), (iv) the respective officers, directors, partners, employees, representatives and agents of the Initial Purchaser, the Holders (including predecessor Holders) or any controlling person (any person referred to in clause (i), (ii), (iii) or (iv) may hereinafter be referred to as an "Indemnified Holder"), from and against any and all losses, claims, damages, liabilities and judgments (including, without limitation, reasonable legal fees and other expenses incurred in connection with any suit, action or proceeding or any claim asserted) caused by any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus, or any amendment or supplement thereto or any related preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages or liabilities are caused by any untrue statement or 12 omission or alleged untrue statement or omission made in reliance upon and in conformity with information relating to any Holder furnished to the Company in writing by such Holder expressly for use in therein; provided, however, that the Company shall not be liable to any Indemnified Holder under the indemnity agreement of this paragraph with respect to any preliminary prospectus to the extent that any such loss, claim, damage, liability, judgment or expense of such Indemnified Holder results from the fact that such Indemnified Holder sold Registrable Securities under a Registration Statement to a Person as to whom it shall be established that there was not sent or given, at or prior to the written confirmation of such sale, a copy of the Prospectus (or of the Prospectus as then amended or supplemented if the Company shall have furnished such Indemnified Holder with such amendment or supplement thereto on a timely basis), in any case where such delivery is required by applicable law and the loss, claim, damage, liability or expense of such Indemnified Holder results from an untrue statement or omission of a material fact contained in the preliminary prospectus (or the Prospectus) which was corrected in the Prospectus (or in the Prospectus as then amended or supplemented if the Company shall have furnished such Indemnified Holder with such amendment or supplement thereto, as the case may be, on a timely basis). The Company shall notify Indemnified Holder promptly of the institution, threat or assertion of any claim, proceeding (including any governmental investigation) or litigation in connection with the matters addressed by this Agreement which involves the Company or such Indemnified Holder. Each Holder agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, officers and each Person who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to each Holder, but only with reference to such losses, claims, damages or liabilities which are caused by any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information relating to a Holder furnished to the Company in writing by such Holder expressly for use in any Registration Statement or Prospectus, or any amendment or supplement thereto or any related preliminary prospectus. Each Holder agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, officers and each Person who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act with respect to any preliminary prospectus to the extent that any loss, claim, damage, liability, judgment or expense of the Company, its directors, officers and each controlling person of the Company results from the fact that such Holder sold Registrable Securities under a Registration Statement to a Person as to whom it shall be established that there was not sent or given, at or prior to the written confirmation of such sale, a copy of the Prospectus (or of the Prospectus as then amended or supplemented if the Company shall have furnished such Holder with such amendment or supplement thereto on a timely basis), in any case where such delivery is required by applicable law and the loss, claim, damage, liability or expense of the Company, its directors, officers and each controlling person of the Company results from an untrue statement or omission of a material fact contained in the preliminary prospectus (or the Prospectus) which was corrected in the Prospectus (or in the Prospectus as then amended or supplemented if the Company shall have furnished such Holder with such amendment or supplement thereto, as the case may be, on a timely basis). 13 If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any Person in respect of which indemnity may be sought pursuant to either of the two preceding paragraphs, such Person (the "Indemnified Person") shall promptly notify the Person or Persons against whom such indemnity may be sought (each an "Indemnifying Person") in writing, and such Indemnifying Person, upon request of the Indemnified Person, shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others entitled to indemnification pursuant to this Section 6 that the Indemnifying Person may designate in such proceeding and shall pay the fees and expenses of such counsel related to such proceeding. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) such Indemnifying Person and the Indemnified Person shall have mutually agreed to the contrary, (ii) such Indemnifying Person has failed within a reasonable time to retain counsel reasonably satisfactory to such Indemnified Person or (iii) the named parties in any such proceeding (including any impleaded parties) include an Indemnifying Person and an Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that an Indemnifying Person shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such fees and expenses shall be reimbursed as they are incurred. Any such separate firm for the Indemnified Holders shall be designated in writing by the Holders of the majority in Amount of Registrable Securities, and any such separate firm for the Company, its directors, respective officers and such control Persons of the Company shall be designated in writing by the Company. The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, such Indemnifying Person agrees to indemnify any Indemnified Person from and against any loss or liability by reason of such settlement or judgment. No Indemnifying Person shall, without the prior written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Person, unless such settlement includes an unconditional release of such Indemnified Person from all liability on claims that are the subject matter of such proceeding. If the indemnification provided for in the first and second paragraphs of this Section 6 is unavailable to an Indemnified Person or insufficient in respect of any losses, claims, damages or liabilities referred to therein, except by reason of the exceptions set forth in the first paragraph to this Section 6 or the failure of the Indemnified Person to give notice as required in this Section 6 (provided that the Indemnifying Person was unaware of the proceeding to which such notice would have related and was prejudiced by the failure to give such notice), then each Indemnifying Person under such paragraph, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Indemnifying Person on the one hand and the Indemnified Person on the other hand pursuant to the Purchase Agreement or from the offering of the Registrable Securities pursuant to any Shelf Registration or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also 14 the relative fault of the Indemnifying Person on the one hand and the Indemnified Person on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and any Indemnified Holder on the other shall be deemed to be in the same proportion as the total net proceeds from the initial offering and sale of Convertible Notes (before deducting expenses) received by the Company bear to the total net proceeds received by such Indemnified Holder from sales of Registrable Securities giving rise to such obligations. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or such Indemnified Holder and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. Each of the Company and the Initial Purchaser agrees that it would not be just and equitable if contribution pursuant to this Section 6 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses incurred by such Indemnified Person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 6, in no event shall any Holder be required to contribute any amount in excess of the amount by which the net proceeds received by such Holder from the sale of the Registrable Securities pursuant to a Shelf Registration Statement exceeds the amount of damages which such Holder would have otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The remedies provided for in this Section 6 are not exclusive and shall not limit any rights or remedies that may otherwise be available to any indemnified party at law or in equity. The indemnity and contribution agreements contained in this Section 6 shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Holder or any Person controlling any Holder or by or on behalf of the Company, its officers or directors or any other Person controlling any of the Company and (iii) acceptance of and payment for any of the Registrable Securities. 7. Rules 144 and 144A. The Company covenants that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder in a timely manner in accordance with the requirements of the Securities Act and the Exchange Act and, for so long as any Registrable Securities remain outstanding, if at any time the Company is not required to file such reports, it will, upon the request of any Holder or beneficial owner of Registrable Securities, make available such information necessary to permit sales pursuant to Rule 144A under the Securities Act. The Company further covenants that, for so long as any Registrable Securities remain outstanding, it will use its reasonable best efforts to take such further action as any Holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such holder to 15 sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144(k) and Rule 144A under the Securities Act, as such rules may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the SEC. Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act. 8. Underwritten Registrations. If any of the Registrable Securities covered by any Shelf Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will manage the offering will be selected by the Holders of the majority in Amount of Registrable Securities to be included in such offering and be reasonably acceptable to the Company. No Holder of Registrable Securities may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder's Registrable Securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 9. Miscellaneous. (a) No Inconsistent Agreements. The Company has not, as of the date hereof, and the Company shall not, after the date of this Agreement, enter into any agreement with respect to any of its securities that is inconsistent with the rights granted to the Holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. The Company has not entered and will not enter into any agreement with respect to any of its securities that will grant to any Person piggyback registration rights with respect to a Registration Statement, except to the extent any existing right has heretofore been waived. (b) Adjustments Affecting Registrable Securities. The Company shall not, directly or indirectly, take any action with respect to the Registrable Securities as a class that would adversely affect the ability of the Holders of Registrable Securities to include such Registrable Securities in a registration undertaken pursuant to this Agreement. (c) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, otherwise than with the prior written consent of the Company and the Holders of not less than the majority in Amount of Registrable Securities; provided, however, that Section 6 and this Section 9(c) may not be amended, modified or supplemented without the prior written consent of the Company and each Holder (including, in the case of an amendment, modification or supplement of Section 6, any Person who was a Holder of Registrable Securities disposed of pursuant to any Registration Statement). Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Registrable Securities whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect, impair, limit or compromise the rights of other Holders of Registrable Securities may be 16 given by Holders of at least a majority in Amount of the Registrable Securities being sold by such Holders pursuant to such Registration Statement. (d) Notices. All notices and other communications (including without limitation any notices or other communications to the Trustee) provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, next-day air courier or facsimile: (1) if to a Holder of the Registrable Securities, at the most current address of such Holder set forth on the records of the registrar under the Indenture, in the case of Holders of Convertible Notes, and the stock ledger of the Company, in the case of Holders of common stock of the Company. (2) if to the Initial Purchaser: Deutsche Banc Alex. Brown Inc. 1 South Street Baltimore, Maryland 21202 Facsimile No.: 212-469-5995 Attention: Equity Syndicate with copies to: Hogan & Hartson 111 South Calvert Street, Suite 1600 Baltimore, Maryland 21202 Facsimile No.: 410-539-6981 Attention: Lawrence R. Seidman (3) if to the Company, at the addresses as follows: NCO Group, Inc. 515 Pennsylvania Avenue Fort Washington, Pennsylvania 19034 Facsimile No.: 215-793-2929 Attention: General Counsel with copies to: Blank Rome Comisky & McCaukey LLP One Logan Square Philadelphia, Pennsylvania 19103 Facsimile No: 215-569-5555 Attention: Francis E. Dehel All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; one Business Day after being timely delivered to a next-day air courier; and when the addressor receives facsimile confirmation, if sent by facsimile. 17 (e) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto, including the Holders; provided, however, that this Agreement shall not inure to the benefit of or be binding upon a successor or assign of a Holder unless and except to the extent such successor or assign holds Registrable Securities. (f) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (g) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE FEDERAL AND NEW YORK STATE COURTS SITTING IN MANHATTAN, NEW YORK CITY, THE STATE OF NEW YORK, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. (i) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (j) Securities Held by the Company or Its Affiliates. Whenever the consent or approval of Holders of a specified percentage in Amount of Registrable Securities is required hereunder, Registrable Securities held by the Company or its affiliates (as such term is defined in Rule 405 under the Securities Act) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. (k) Third-Party Beneficiaries. Holders of Registrable Securities are intended third party beneficiaries of this Agreement and this Agreement may be enforced by such Persons. (l) Entire Agreement. This Agreement, together with the Purchase Agreement and the Indenture, is intended by the parties as a final and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein and any and all prior oral or written agreements, representations, or warranties, contracts, understandings, correspondence, conversations and memoranda between the Initial Purchaser on the one hand and the Company on the other, or between or among any agents, representatives, parents, subsidiaries, affiliates, predecessors in interest or successors in interest with respect to the subject matter hereof and thereof are merged herein and replaced hereby. 18 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. NCO GROUP, INC. By:_________________________________ Name: Title: DEUTSCHE BANC ALEX. BROWN INC. By:__________________________________ Name: Title: 19 EX-4.4 5 ex4-4.txt GLOBAL NOTE Exhibit 4.4 UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO NCO GROUP, INC. (THE "COMPANY") OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFER IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF. THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS SECURITY MAY NOT BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD UNDER RULE 144(k) (OR ANY SUCCESSOR THERETO) UNDER THE SECURITIES ACT WHICH IS APPLICABLE TO THIS SECURITY OR (Y) BY ANY HOLDER THAT WAS AN "AFFILIATE" (WITHIN THE MEANING OF RULE 144 UNDER THE SECURITIES ACT) OF THE COMPANY AT ANY TIME DURING THE THREE MONTHS PRECEDING THE DATE OF SUCH TRANSFER, IN EITHER CASE, OTHER THAN (1) TO THE COMPANY, (2) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A, PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (3) IN AN OFFSHORE TRANSACTION (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT) IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT, (4) TO AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a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k)(2) OF RULE 902 UNDER) REGULATION S UNDER THE SECURITIES ACT. IN ANY CASE THE HOLDER HEREOF WILL NOT, DIRECTLY OR INDIRECTLY, ENGAGE IN ANY HEDGING TRANSACTION WITH REGARD TO THIS SECURITY OR ANY COMMON STOCK ISSUABLE UPON CONVERSION OF THIS SECURITY EXCEPT AS PERMITTED BY THE SECURITIES ACT. NCO GROUP, INC. Number 1 CUSIP 628858 AC 6 4.75% Convertible Subordinated Note Due 2006 NCO Group, Inc., a Pennsylvania corporation (the "Company"), promises to pay to Cede & Co. or registered assigns, the principal sum of One Hundred Twenty Five Million Dollars ($125,000,000) on April 15, 2006 and to pay interest on the principal amount of this Note beginning the most recent date to which interest has been paid or, if no interest has been paid, beginning April 4, 2001 at the rate of 4.75% per annum. Interest Payment Dates: April 15 and October 15 Record Dates: April 1 and October 1 This Note is convertible at such times and as specified on the other side of this Note. Additional provisions of this Note are set forth on the other side of this Note. IN WITNESS WHEREOF, the Company has caused this 4.75% Convertible Subordinated Note due 2006 to be signed by its duly authorized officers. Dated: April 4, 2001 NCO GROUP, INC. By: -------------------------------- Name: Title: By: -------------------------------- Name: Title: Trustee's Certificate of Authentication: Dated: ------------------------------------ This is one of the Securities referred to in the within mentioned Indenture. Bankers Trust Company, as Trustee By: --------------------------------------- Authorized Signatory NCO Group, Inc. 4.75% Convertible Subordinated Note Due 2006 1. Interest. -------- NCO Group, Inc., a Pennsylvania corporation (the "Company"), promises to pay interest on the principal amount of this Note at the rate per annum shown above. The Company shall pay interest semi-annually on April 15 and October 15 of each year, commencing October 15, 2001. Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from April 4, 2001. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Holder of this Note is entitled to the benefits of the Registration Rights Agreement, dated April 4, 2001, between the Company and Deutsche Banc Alex. Brown Inc. 2. Method of Payment. ----------------- The Company will pay interest on this Note (except defaulted interest) to the person who is the registered Holder of this Note at the close of business on the April 1 and October 1 next preceding the interest payment date. The Holder must surrender this Note to the Paying Agent to collect payment of principal. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. The Company, however, may pay principal and interest by its check payable in such money. It may mail an interest check to the Holder's registered address. 3. Paying Agent, Registrar and Conversion Agent. -------------------------------------------- Initially, Bankers Trust Company (the "Trustee") will act as Paying Agent, Registrar and Conversion Agent. The Company may change any Paying Agent, Registrar or Conversion Agent without notice to the Holder. The Company or any of its Subsidiaries may act as Paying Agent, Registrar or Conversion Agent. 4. Indenture; Limitations. ---------------------- This Note is one of a duly authorized issue of Notes of the Company designated as its 4.75% Convertible Subordinated Notes Due 2006 (the "Notes"), issued under an Indenture dated as of April 4, 2001 (the "Indenture"), between the Company and the Trustee. The terms of this Note include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb), as amended by the Trust Indenture Reform Act of 1990, as in effect on the date hereof or, from and after the date that the Indenture shall be qualified thereunder, as in effect on such date. This Note is subject to all such terms, and the holder of this Note is referred to the Indenture and said Act for a statement of them. The Notes are subordinated unsecured obligations of the Company limited to up to $125,000,000 aggregate principal amount. 5. Optional Redemption. ------------------- The Notes may be redeemed at the Company's option, in whole or in part, at any time and from time to time on and after April 22, 2004 (an "Optional Redemption") if the Closing Price of the Company's Common Stock for 20 Trading Days (as defined in the Indenture) in a period of 30 consecutive Trading Days ending on the Trading Day prior to the date of mailing of the notice of redemption exceeds 120% of the Conversion Price (as defined below) of the Notes. The redemption price for the Notes, expressed as a percentage of the principal amount, is as follows for the 12-month periods set forth below: -------------------------------------------------------------- Redemption Period Percentage -------------------------------------------------------------- April 22, 2004 through April 14, 2005..................102.0% April 15, 2005 through April 14, 2006..................101.0% -------------------------------------------------------------- together in the case of any such redemption with accrued and unpaid interest to the date of redemption, but any interest payment that is due and payable on or prior to such date of redemption will be payable to the Holders of such Notes, or one or more predecessor Notes, of record at the close of business on the relevant record dates referred to on the face hereof, all as provided in the Indenture. 6. Notice of Redemption. -------------------- Notice of redemption will be mailed by first class mail at least 30 days prior to the redemption date in the case of an Optional Redemption to each Holder of Notes to be redeemed at his registered address. Notes in denominations larger than $1,000 may be redeemed in part, but only in whole multiples of $1,000. On and after the redemption date, subject to the deposit with the Paying Agent of funds sufficient to pay the redemption price, interest ceases to accrue on Notes or portions of them called for redemption. 7. Repurchase of Notes at Option of Holder upon a Change in Control. ---------------------------------------------------------------- If at any time that Notes remain outstanding there shall have occurred a Change in Control (as defined in the Indenture), at the option of the Holder and subject to the terms and conditions of the Indenture, the Company shall become obligated to repurchase all or any part specified by the Holder (so long as the principal amount of such part is $1,000 or an integral multiple thereof) of the Notes held by such Holder on the Repurchase Date. The Holder shall have the right to withdraw any Repurchase Notice by delivering a written notice of withdrawal to the Paying Agent in accordance with the terms of the Indenture. The Repurchase Price is payable in cash. 8. Conversion. ---------- At any time after 90 days following the latest date of original issuance of the Notes and prior to the close of business on the Business Day immediately preceding April 15, 2006, a Holder of a Note may convert such Note into shares of Common Stock of the Company; provided, however, that if the Note is called for redemption, the conversion right will terminate at the close of business on the Business Day before the redemption date of such Note (unless the Company shall default in making the redemption payment when due, in which case the conversion right shall terminate at the close of business on the date such default is cured and such Note is redeemed). The initial conversion price is $32.92 per share, subject to adjustment under certain circumstances as described in the Indenture (the "Conversion Price"). The number of shares issuable upon conversion of a Note is determined by dividing the principal amount converted by the Conversion Price in effect on the conversion date. Upon conversion, no adjustment for interest or dividends will be made. No fractional shares will be issued upon conversion; in lieu thereof, an amount will be paid in cash based upon the current market price (as defined in the Indenture) of the Common Stock on the last trading day prior to the date of conversion. To convert a Note, a Holder must (a) complete and sign the conversion notice set forth below and deliver such notice to the Conversion Agent, (b) surrender the Note to the Conversion Agent, (c) furnish appropriate endorsements and transfer documents if required by the Registrar or the Conversion Agent, (d) pay any transfer or similar tax, if required and (e) if the Note is held in book-entry form, complete and deliver to the Depositary appropriate instructions pursuant to the Depositary's book-entry conversion programs. If a Holder surrenders a Note for conversion between the close of business on any record date for the payment of an installment of interest and the opening of business on the next interest payment date, the Note must be accompanied by payment of an amount equal to the interest payable on such interest payment date on the principal amount of the Note or portion thereof then converted; provided, however, that no such payment shall be required if such Note has been called for redemption on a redemption date within the period between and including such record date and such interest payment date, or if such Note is surrendered for conversion after the opening of business on the interest payment date. A Holder may convert a portion of a Note equal to $1,000 or any integral multiple thereof. A Note in respect of which a Holder had delivered a Repurchase Notice exercising the option of such Holder to require the Company to repurchase such Note may be converted only if the notice of exercise is withdrawn as provided above and in accordance with the terms of the Indenture. 9. Subordination. ------------- The indebtedness evidenced by the Notes is, to the extent and in the manner provided in the Indenture, subordinate and junior in right of payment to the prior payment in full of all Senior Indebtedness of the Company, as defined in the Indenture. Any Holder by accepting this Note agrees to and shall be bound by such subordination provisions and authorizes the Trustee to give them effect. In addition to all other rights of Senior Indebtedness described in the Indenture, the Senior Indebtedness shall continue to be Senior Indebtedness and entitled to the benefits of the subordination provisions irrespective of any amendment, modification or waiver of any terms of any instrument relating to the Senior Indebtedness or any extension or renewal of the Senior Indebtedness. 10. Denominations, Transfer, Exchange. --------------------------------- The Notes are in registered form without coupons in denominations of $1,000 and integral multiples thereof. A Holder may register the transfer of or exchange Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes or other governmental charges that may be imposed by law or permitted by the Indenture. The aggregate principal amount of the Note in global form represented hereby may from time to time be reduced to reflect conversions or redemptions of a part of this Note in global form or cancellations of a part of this Note in global form, in each case, and in any such case, by means of notations on the Global Note Transfer Schedule on the last page hereof. Notwithstanding any provision of this Note to the contrary, conversions or redemptions of a part of this Note in global form and cancellations of a part of this Note in global form, may be effected without the surrendering of this Note in global form, provided that appropriate notations on the Schedule of Exchanges, Conversions, Redemptions, Cancellations and Transfers are made by the Trustee, or the Custodian at the direction of the Trustee, to reflect the appropriate reduction or increase, as the case may be, in the aggregate principal amount of this Note in a global form resulting therefrom or as a consequence thereof. 11. Persons Deemed Owners. --------------------- The registered holder of a Note may be treated as the owner of it for all purposes. 12. Unclaimed Money. --------------- If money for the payment of principal, premium, if any, or interest remains unclaimed for two years, the Trustee or Paying Agent will pay, subject to applicable escheatment laws, the money back to the Company at its request. After that, Holders entitled to money must look to the Company for payment unless an abandoned property law designates another person. 13. Amendment, Supplement, Waiver. ----------------------------- Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of a majority in aggregate principal amount of the Notes then outstanding and any past default or compliance with any provision may be waived in a particular instance with the consent of the Holders of a majority in aggregate principal amount of the Notes then outstanding. Without the consent of or notice to any Holder, the Company and the Trustee may amend or supplement the Indenture or the Notes to, among other things, cure any ambiguity, omission, defect or inconsistency or make any other change that does not adversely affect the rights of any Holder. 14. Successor Corporation. --------------------- When a successor corporation assumes all the obligations of its predecessor under the Notes and the Indenture, the predecessor corporation will be released from those obligations. 15. Defaults and Remedies. --------------------- An Event of Default is: default for 30 days in payment of interest on the Notes; default in payment of principal on the Notes when due; failure by the Company for 60 days after appropriate notice to it to comply with any of its other agreements contained in the Indenture or the Notes; default by the Company or any Subsidiary with respect to its obligation to pay principal of or interest on indebtedness for borrowed money aggregating more than $20.0 million or the acceleration of such indebtedness if not withdrawn within 15 days after the date of appropriate notice to it; and certain events of bankruptcy, insolvency or reorganization of the Company or any of its Significant Subsidiaries. If an Event of Default (other than as a result of certain events of bankruptcy, insolvency or reorganization) occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Notes then outstanding may declare all unpaid principal of and accrued interest to the date of acceleration on the Notes then outstanding to be due and payable immediately, all as and to the extent provided in the Indenture. If an Event of Default occurs as a result of certain events of bankruptcy, insolvency or reorganization, all unpaid principal of and accrued interest on the Notes then outstanding shall become due and payable immediately without any declaration or other act on the part of the Trustee or any Holder, all as and to the extent provided in the Indenture. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Notes. Subject to certain limitations, Holders of a majority in principal amount of the Notes then outstanding may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders notice of any continuing default (except a default in payment of principal or interest) if it determines that withholding notice is in their interests. The Company is required to file periodic reports with the Trustee as to the absence of default. 16. Trustee Dealings with the Company. --------------------------------- Bankers Trust Company, the Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or an Affiliate of the Company, and may otherwise deal with the Company or an Affiliate of the Company, as if it were not the Trustee. 17. No Recourse Against Others. -------------------------- A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect or by reason of, such obligations or their creation. The Holder of this Note by accepting this Note waives and releases all such liability. The waiver and release are part of the consideration for the issue of this Note. 18. Discharge Prior to Maturity. --------------------------- If the Company deposits with the Trustee or the Paying Agent money or U.S. Government Obligations sufficient to pay the principal of and interest on the Notes to maturity as provided in the Indenture, the Company will be discharged from the Indenture except for certain Sections thereof. 19. Authentication. -------------- This Note shall not be valid until the Trustee or an authenticating agent signs the certificate of authentication on the other side of this Note. 20. Abbreviations and Definitions. ----------------------------- Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors Act). All capitalized terms used in this Note and not specifically defined herein are defined in the Indenture and are used herein as so defined. 21. Indenture to Control. -------------------- In the case of any conflict between the provisions of this Note and the Indenture, the provisions of the Indenture shall control. The Company will furnish to any Holder, upon written request and without charge, a copy of the Indenture. Requests may be made to: NCO Group, Inc., 515 Pennsylvania Avenue, Fort Washington, Pennsylvania 19034, Attention: General Counsel. TRANSFER NOTICE This Transfer Notice relates to $__________ principal amount of the 4.75% Convertible Subordinated Notes Due 2006 of NCO Group, Inc., a Pennsylvania corporation, held by _____________________ (the "Transferor"). (I) or (we) assign and transfer this Convertible Note to - ------------ (Print or type assignee's name, address and zip code) - ------------ (Insert assignee's social security or tax I.D. no.) and irrevocably appoint _______________________________ agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. Your Signature: ________________________________________________________________ (Sign exactly as your name appears on the other side of this Convertible Note) Date: ______________ Signature Guarantee(1) __________________________ In connection with any transfer of any of the Notes evidenced by this certificate occurring prior to the date that is two years after the later of the date of original issuance of such Notes and the last date, if any, on which such Notes were owned by the Company or any Affiliate of the Company, the undersigned confirms that such Notes are being transferred: CHECK ONE BOX BELOW (1) / / to NCO Group, Inc.; or (2) / / pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended; or (3) / / pursuant to and in compliance with Regulation S under the Securities Act of 1933, as amended; or (4) / / pursuant to another available exemption from the registration requirements of the Securities Act of 1933; or (5) / / pursuant to an effective registration statement under the Securities Act of 1933. - -------- (1) Signature must be guaranteed by a commercial bank, trust company or member firm of the New York Stock Exchange using the Medallion signature guarantee. Unless one of the boxes is checked, the Trustee will refuse to register any of the Notes evidenced by this certificate in the name of any person other than the registered holder thereof; provided, however, that if box (2), (3) or (4) is checked, the Trustee may require, prior to registering any such transfer of the Notes such legal opinions, certifications and other information as the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, such as the exemption provided by Rule 144 under such Act. Unless the box below is checked, the undersigned confirms that such Note is not being transferred to an "affiliate" of the Company as defined in Rule 144 under the Securities Act of 1933, as amended (an "Affiliate"): (6) / / The transferee is an Affiliate of the Company. -------------------------------------------- Signature -------------------------------------------- Date -------------------------------------------- Signature Guarantee(2) TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED. - -------- (2) Signature must be guaranteed by a commercial bank, trust company or member firm of the New York Stock Exchange using the Medallion signature guarantee. The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: ---------------------------- ------------------------------------------ Name: Title: CONVERSION NOTICE To NCO Group, Inc.: The undersigned owner of this Note hereby irrevocably exercises the option to convert this Note, or the portion below designated, into Common Stock of NCO Group, Inc. in accordance with the terms of the Indenture referred to in this Note, and directs that the shares issuable and deliverable upon conversion, together with any check in payment for fractional shares, be issued in the name of and delivered to the undersigned, unless a different name has been indicated in the assignment below. If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. Any holder of Notes, upon exercise of its conversion rights in accordance with the terms of the Indenture and the Security, agrees to be bound by the terms of the Registration Rights Agreement relating to the Common Stock issuable upon conversion of the Notes. / / Convert whole / / Convert in part Amount of Note to be converted ($1,000 or integral multiples thereof): $ --------------- --------------------------------------- Signature (sign exactly as name appears on the other side of this Note) --------------------------------------- Signature Guarantee:(3) - ------ (3) Signature must be guaranteed by a commercial bank, trust company or member firm of the New York Stock Exchange using the Medallion signature guarantee. If you want the stock certificate made out in another person's name, complete the following for such person: - -------------------------------------------------------- Name - -------------------------------------------------------- Social Security or Taxpayer Identification Number - -------------------------------------------------------- Street Address - -------------------------------------------------------- City, State and Zip Code OPTION OF HOLDER TO ELECT REPURCHASE If you want to elect to have this Note repurchased by the Company pursuant to Section 3.9 of the Indenture, check the box: |_| If you want to elect to have only part of this Note repurchased by the Company pursuant to Section 3.9 of the Indenture, state the principal amount (which shall be $1,000 or a multiple thereof) to be repurchased: $______________ Dated: ------------------------------- --------------------------------------- Signature (sign exactly as name appears on the other side of this Note) - ------------------------------------- Signature Guarantee:(4) (4) Signature must be guaranteed by a commercial bank, trust company or member firm of the New York Stock Exchange using the Medallion signature guarantee. Schedule A to Exhibit A Global Note Transfer Schedule Changes to Principal Amount of Global Security
=================================================================================================================== Principal Amount of Securities by Remaining Principal Amount of this Authorized Signature which this Global Security Is to Global Security of officer of Trustee Date Be Reduced and Reason for Reduction (following decrease) or Note Custodian - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- ===================================================================================================================
Schedule to be maintained by Depositary in cooperation with Trustee. EX-99.1 6 ex99-1.txt CONSOLIDATED SCHEDULE Exhibit 99.1 NCO GROUP, INC. Consolidating Statement of Income Unaudited (in thousands, except for per share amounts)
For the Three Months Ended March 31, 2001 ------------------------------------------------------------------------- NCO Portfolio (1) --------------------------------- Intercompany NCO Group Pre-acquisition Post-acquisition Eliminations Consolidated --------- --------------- ---------------- ------------ ------------ Revenue $ 163,762 $ 4,378 $ 8,240 $ (5,351) $ 171,029 Operating costs and expenses: Payroll and related expenses 82,655 69 188 -- 82,912 Selling, general, and administrative expenses 50,369 1,864 4,241 (5,351) 51,123 Depreciation and amortization expense 8,930 -- 24 -- 8,954 --------- --------- --------- --------- --------- 141,954 1,933 4,453 (5,351) 142,989 --------- --------- --------- --------- --------- 21,808 2,445 3,787 -- 28,040 Other income (expense): Interest and investment income 1,303 -- 32 (419) 916 Interest expense (6,266) (335) (1,239) 419 (7,421) --------- --------- --------- --------- --------- (4,963) (335) (1,207) -- (6,505) --------- --------- --------- --------- --------- Income before income tax expense 16,845 2,110 2,580 -- 21,535 Income tax expense 6,907 791 968 -- 8,666 --------- --------- --------- --------- --------- Income from continuing operations before minority interest 9,938 1,319 1,612 -- 12,869 Minority interest (1) -- -- -- (592) (592) --------- --------- --------- --------- --------- Net income $ 9,938 $ 1,319 $ 1,612 $ (592) $ 12,277 ========= ========= ========= ========= ========= Net income per share: Basic $ 0.39 $ 0.05 $ 0.06 $ (0.02) $ 0.48 ========= ========= ========= ========= ========= Diluted $ 0.38 $ 0.05 $ 0.06 $ (0.02) $ 0.47 ========= ========= ========= ========= ========= Weighted average shares outstanding: Basic 25,687 25,687 25,687 25,687 25,687 Diluted 26,340 26,340 26,340 26,340 26,340
(1) NCO Group owns approximately 63% percent of the outstanding common stock of NCO Portfolio Management, Inc. -----END PRIVACY-ENHANCED MESSAGE-----