-----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, TaKdgiZKChkeE6dDl1NrQr2NeBg1/Gg3FR6pAxQWJNsNDk0lIq/oVyPMHR2ORils CQuSB61XPIrFus6hzpH5qw== 0000950131-98-002551.txt : 19980415 0000950131-98-002551.hdr.sgml : 19980415 ACCESSION NUMBER: 0000950131-98-002551 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 23 FILED AS OF DATE: 19980413 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMPASS INTERNATIONAL SERVICES CORP CENTRAL INDEX KEY: 0001046817 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MAILING, REPRODUCTION, COMMERCIAL ART & PHOTOGRAPHY [7330] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-50021 FILM NUMBER: 98592682 BUSINESS ADDRESS: STREET 1: 5 INDEPENDENCE WAY STREET 2: SUITE 300 CITY: PRINCETON STATE: NJ ZIP: 08540 BUSINESS PHONE: 6095145156 MAIL ADDRESS: STREET 1: 5 INDEPENDENCE WAY STREET 2: SUITE 300 CITY: PRINCETON STATE: NJ ZIP: 08540 S-1 1 FORM S-1 As filed with the Securities and Exchange Commission on April 13, 1998 Registration No. 333-________ ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________________ FORM S-1 REGISTRATION STATEMENT Under the Securities Act of 1933 ______________________ COMPASS INTERNATIONAL SERVICES CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 7322 22-3540815 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code No.) Identification No.)
ONE PENN PLAZA, SUITE 4430 NEW YORK, NEW YORK 10119; (212) 967-7770 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Michael J. Cunningham One Penn Plaza Suite 4430 New York, New York 10119 (212) 967-7770 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies to: HOWARD S. LANZNAR, ESQ. MARGUERITE M. ELIAS, ESQ. KATTEN MUCHIN & ZAVIS 525 WEST MONROE STREET, SUITE 1600 CHICAGO, ILLINOIS 60661-3693 (312) 902-5200 ______________________ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: FROM TIME TO TIME AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box [x]. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of earlier effective registration statement for the same offering: [_]. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [_]. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box: [_]. CALCULATION OF REGISTRATION FEE
=================================================================================================================================== Proposed Amount Maximum Amount of Title of Each Class of to be Proposed Maximum Aggregate Registration Securities to be Registered Registered Offering Price/(1)/ Offering Price/(1)/ Fee - ----------------------------------------------------------------------------------------------------------------------------------- Common Stock $.01 par value per share...... 3,000,000 shares/(2)/ $14.5625 per share $43,687,500 $12,888 ===================================================================================================================================
/(1)/ Calculated in accordance with Rule 457(c) on the basis of the average of the high and low sale prices of the Common Stock on April 9, 1998, as reported on the Nasdaq National Market. /(2)/ Such number of shares are also registered hereunder for resale, with the consent of the Registrant, by persons who receive shares covered by this Registration Statement and who may wish to sell such shares under circumstances requiring or making desirable use of the Prospectus contained herein. ________________ The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine. ================================================================================ SUBJECT TO COMPLETION, DATED APRIL 13, 1998 PROSPECTUS Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. 3,000,000 Shares LOGO COMPASS INTERNATIONAL SERVICES CORPORATION COMMON STOCK The 3,000,000 shares of common stock, par value $.01 per share (the "Common Stock"), covered by this Prospectus may be offered and issued from time to time by Compass International Services Corporation (the "Company") in connection with acquisitions of other businesses, real or personal properties or securities in business combination transactions in accordance with Rule 415(a)(1)(viii) of Regulation C under the Securities Act of 1933, as amended (the "Securities Act"), or otherwise under Rule 415. This Prospectus may also be used, with the Company's prior consent, by persons who have received or will receive shares of Common Stock in connection with acquisitions and who wish to offer and sell such shares under circumstances requiring or making desirable its use. See "Securities Covered by this Prospectus" and see the inside back cover page hereof for the identity of such persons, if any. The Common Stock is traded on the Nasdaq National Market under the symbol "CMPS." On April 9, 1998, the closing sale price of the Common Stock, as reported in the Wall Street Journal, was $14.50 per share. See "Price Range of Common Stock." SEE "RISK FACTORS" COMMENCING ON PAGE 9 OF THIS PROSPECTUS FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY. ________________________ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is ________ __, 1998. PROSPECTUS SUMMARY IN CONNECTION WITH ITS INITIAL PUBLIC OFFERING OF A TOTAL OF 4,715,000 SHARES OF COMMON STOCK FOR NET PROCEEDS OF APPROXIMATELY $41.5 MILLION, WHICH CLOSED IN MARCH 1998 (THE "IPO"), COMPASS INTERNATIONAL SERVICES CORPORATION ACQUIRED IN SEPARATE TRANSACTIONS (THE "ACQUISITIONS"), IN EXCHANGE FOR CASH AND SHARES OF ITS COMMON STOCK, FIVE BUSINESS SERVICES OUTSOURCING COMPANIES (EACH A "FOUNDING COMPANY" AND, COLLECTIVELY, THE "FOUNDING COMPANIES"). UNLESS OTHERWISE INDICATED, ALL REFERENCES HEREIN TO THE "COMPANY" INCLUDE THE FOUNDING COMPANIES AND ALL REFERENCES HEREIN TO "COMPASS" MEAN COMPASS INTERNATIONAL SERVICES CORPORATION PRIOR TO THE CONSUMMATION OF THE ACQUISITIONS. THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE PRO FORMA COMBINED AND INDIVIDUAL HISTORICAL FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL SUCH FINANCIAL INFORMATION AND SHARE AND PER SHARE DATA IN THIS PROSPECTUS GIVE EFFECT TO THE 112.1846-FOR-1 STOCK SPLIT THAT WAS EFFECTED ON DECEMBER 3, 1997. THE COMPANY Compass was organized to create a leading provider of outsourced business services to public and private entities throughout the sales cycle (as illustrated below, the "Sales Cycle"). The five Founding Companies collectively provide accounts receivable management services, mailing services and teleservices to clients in a broad range of sectors including telecommunications, financial services, insurance, healthcare, education, government and utilities. In addition, through its proprietary Accelerated Payment Systems ("APS") process, one of the Founding Companies is a leading provider of telephonic check drafting services which enable clients to accept payments through checks authorized by phone. The Founding Companies, each of which has been in business for more than ten years, have collectively achieved substantial growth in recent years. On a pro forma combined basis, the Founding Companies' revenues increased from $34.2 million in 1992 to $87.2 million in 1997, representing a compound annual growth rate of 20.6%. The Company's accounts receivable management services include the recovery of traditional delinquent accounts from both consumer and commercial debtors and the management of early stage delinquencies. Mailing services include lead generating direct mail, often to prompt inbound sales calls, and direct mail for billing, payment processing or collection purposes. Mailing services also include presorting, freight and drop shipping, data processing, laser printing, mailing list rental and order fulfillment. Teleservices include outbound telemarketing, inbound customer service and inbound sales. Each of the services provided by the Company, including APS, can be utilized at various stages of the Sales Cycle. The Company is one of the largest providers of its services in the United States in terms of revenues, servicing clients from 12 call centers in ten states equipped with a total of approximately 900 workstations, a mail processing center in Texas, four sales centers in the United States and one sales center in the United Kingdom. Companies are increasingly outsourcing to third party experts a variety of non-core business functions throughout the Sales Cycle, and the Company believes, although there can be no assurance, that this trend toward outsourcing will continue. In addition to the general trend toward outsourcing, management believes that a number of significant factors and trends are creating opportunities in the Company's businesses. Both the accounts receivable management industry and the direct marketing industry have experienced significant growth in recent years. According to a recent report concerning the accounts receivable management industry, receivables outsourced to third parties for management and recovery in the United States increased from approximately $79.0 billion in 1994 to approximately $84.3 billion in 1995, an increase of approximately 6.7%. 2 The Direct Marketing Association estimates that direct marketing advertising expenditures in the United States for telemarketing increased from approximately $42.4 billion in 1991 to $57.8 billion in 1996, a compound annual growth rate of 6.4%, while direct mail advertising expenditures increased from approximately $24.5 billion to $34.6 billion during the same period, a compound annual growth rate of 7.1%. Each of the accounts receivable management, direct mail and teleservices industries is highly fragmented, includes a large number of small, independent businesses and is currently experiencing consolidation. The Company believes significant opportunities are available to a well capitalized company providing a broad offering of outsourced business services with a high level of customer service. Compass believes that companies are increasingly seeking partners who can provide a comprehensive set of outsourced services, spanning the entire Sales Cycle, while maintaining a high level of client service. The diagram below illustrates the processes that comprise the Sales Cycle, from direct marketing through accounts receivable collection, and the services provided by the Company that can be utilized at various stages throughout the Sales Cycle. [DIAGRAM OF SALES CYCLE] The Company's goal is to become a leading, single-source provider of outsourced business services throughout the Sales Cycle. In order to achieve this goal, the Company intends to: (i) provide a broad array of complementary business services; (ii) focus on high quality client service; (iii) leverage and expand its technology and operational infrastructures; and (iv) operate with a decentralized management structure. The Company intends to implement a focused internal growth strategy and pursue an aggressive acquisition program. INTERNAL GROWTH STRATEGY. While the Company intends to acquire additional outsourcing services companies, strong internal growth remains the core of the Company's growth strategy. A key element of the internal growth strategy is to capitalize on significant cross-selling opportunities. Each of the Founding Companies is a specialist in the services it provides and has many long standing relationships with large clients that have multiple outsourcing needs. Combining the Founding Companies will enable the Company to capitalize on existing clients' desires for a single point of service, and to offer bundled services by leveraging the Founding Companies' client relationships and reputations for quality. The Company expects to use the expertise of the Founding Companies as a point of entry with new clients. In addition, the Company intends to: (i) implement an aggressive, coordinated marketing program; (ii) selectively expand its service offerings with the goal of providing integrated "end-to-end" services to clients throughout the Sales Cycle; (iii) 3 implement best practices throughout the Company's operations; (iv) achieve economies of scale; and (v) pursue opportunities in the growing international market. ACQUISITION STRATEGY. Compass believes that industry trends toward consolidation and increased acceptance of outsourcing create opportunities for expansion of the Company's business. The Company intends to capitalize on the highly fragmented nature of the industries in which it competes by implementing an aggressive strategic acquisition program. Using the Founding Companies as platforms for growth and consolidation, the Company will pursue acquisitions within the industry segments and markets currently served by the Founding Companies to add to the growth of its existing businesses and gain market share. In addition, the Company plans to acquire additional companies that broaden and complement its menu of services and the markets it serves. The Company's ability to successfully execute its internal growth and acquisition strategies is subject to certain risks and will depend on certain factors including, without limitation, the absence of a combined operating history and the Company's ability to: (i) effectively manage growth; (ii) market and cross-sell its services while maintaining high quality and expanding the services offered; (iii) recruit and retain qualified personnel; (iv) identify, acquire and integrate new businesses; and (v) access additional capital. See "Risk Factors" beginning on page 10 of this Prospectus. THE ACQUISITIONS On March 4, 1998, Compass acquired all of the outstanding capital stock of each of the Founding Companies. The aggregate consideration paid by Compass consisted of approximately $17.9 million in cash and 5,435,691 shares of Common Stock, plus the assumption by Compass of certain liabilities of the Founding Companies. Certain executives of the Founding Companies entered into employment agreements with their respective Founding Companies upon consummation of the Acquisitions. One executive from each of the Founding Companies was appointed to Compass' Board of Directors following the consummation of the IPO. See "The Company," "Management -- Executive Compensation; Employment Agreements; Covenants Not to Compete" and "Certain Transactions." RECENT DEVELOPMENTS On April 7, 1998, Compass entered into an Agreement and Plan of Reorganization with Bender Direct Mail Services, Inc. ("Bender"), a Tulsa, Oklahoma based provider of mail services. Compass will acquire the outstanding capital stock of Bender for cash and Common Stock totalling approximately $5.8 million. The transaction is expected to close in April 1998. The Company's executive offices are located at One Penn Plaza, Suite 4430, New York, New York 10119, and its telephone number is (212) 967-7770. 4 SUMMARY PRO FORMA COMBINED FINANCIAL DATA (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Compass acquired the Founding Companies simultaneously with the IPO. For financial statement presentation purposes, The Mail Box, Inc., one of the Founding Companies, was designated as the accounting acquiror. The following unaudited summary pro forma combined financial data present certain data for the Company as adjusted to give effect to (i) the consummation of the Acquisitions, (ii) certain pro forma adjustments to the historical financial statements, including adjustments for an acquisition completed by Bomar (as defined below under the heading "The Company") in September 1997, and (iii) the consummation of the IPO and the application of the net proceeds therefrom. See the Unaudited Pro Forma Combined Financial Statements and the notes thereto included elsewhere in this Prospectus.
Pro Forma Combined ---------------- Year Ended December 31,1997 ---------------- STATEMENT OF OPERATIONS DATA (1): Revenues............................................ $ 87,153 Operating expenses.................................. 53,353 ---------------- Gross profit....................................... 33,800 Selling, general and administrative expenses (2).... 23,229 Amortization of goodwill and other intangibles (3).. 1,528 ---------------- Income from operations............................. 9,043 Other expense, net (4).............................. 625 Income before income taxes.......................... 8,418 Provision for income taxes (5)..................... 3,978 ---------------- Net income.......................................... $ 4,440 ---------------- Net income per share................................ $0.42 Shares used in computing net income per share (6)... 10,460,931
December 31, 1997 --------------------------- Pro Forma As Combined (7) Adjusted (8) ------------- ----------- BALANCE SHEET DATA: Working capital (deficit)..................... $ (20,123)(9) $ 15,323 Total assets.................................. 85,224 90,356 Total long-term debt, net of current portion.. 8,106 2,010 Stockholders' equity.......................... 33,739 75,281
__________________ (1) The pro forma combined statement of operations data assume that the Acquisitions and the IPO were consummated on January 1, 1997, are not necessarily indicative of the operating results that would have been achieved had these events actually then occurred and should not be construed as representative of future operating results. The summary pro forma combined statement of operations data should be read in conjunction with the Unaudited Pro Forma Combined Financial Statements and the notes thereto and the historical financial statements of Compass and the Founding Companies and the notes thereto included elsewhere in this Prospectus. (2) The pro forma combined statement of operations data reflect reductions in salaries, bonuses and benefits to the stockholders of the Founding Companies to which they have agreed in employment agreements entered into upon consummation of the IPO (the "Compensation Differential"). The Compensation Differential was approximately $4.1 million for the year ended December 31, 5 1997. Additionally, the pro forma combined statement of operations data reflect the elimination of a compensation charge of approximately $1.3 million associated with the issuance of NCMC shares to certain key employees and a director of NCMC. (3) Reflects (i) the amortization of goodwill of $51.2 million to be recorded as a result of the Acquisitions over periods ranging from 15 to 40 years; and (ii) the amortization of $1.0 million in intangible assets over a period of 15 years. (4) Reflects a reduction of interest expense associated with long term debt repaid from the proceeds of the IPO of $547,000 for the year ended December 31, 1997 and a reduction of interest income of $75,000 for the year ended December 31, 1997, relating to stockholder notes paid off after consummation of the IPO. (5) Assumes that all income is subject to a corporate income tax rate of 40% and that all goodwill is non-deductible. (6) Includes: (i) 1,682,769 shares issued to BGL Capital Partners, L.L.C. ("BGL"), and management of Compass; (ii) 5,435,691 shares issued to owners of the Founding Companies in connection with the Acquisitions; and (iii) 3,342,471 shares representing the number of shares sold in the IPO necessary to pay the cash portion of the consideration for the Acquisitions, to pay the underwriting discount and estimated expenses of the Acquisitions and the IPO, and to repay certain indebtedness assumed by Compass in the Acquisitions, net of repayment of stockholder receivables. See "Certain Transactions." (7) The pro forma combined balance sheet data assume that the Acquisitions were consummated on December 31, 1997, are not necessarily indicative of the financial position that would have been achieved had these events actually then occurred and should not be construed as representative of future financial position. The summary pro forma balance sheet data should be read in conjunction with the Unaudited Pro Forma Combined Financial Statements and the notes thereto and the historical financial statements of Compass and the Founding Companies and the notes thereto included elsewhere in this Prospectus. (8) Adjusted to reflect the sale of the 4,715,000 shares of Common Stock sold in the IPO and the application of the estimated net proceeds therefrom. See "Use of Proceeds." (9) Includes $17.9 million payable to stockholders of the Founding Companies, representing the cash portion of the consideration for the Acquisitions paid from the net proceeds of the IPO. See "Use of Proceeds" and "Notes to Unaudited Pro Forma Combined Financial Statements." 6 SUMMARY INDIVIDUAL FOUNDING COMPANY FINANCIAL DATA (IN THOUSANDS) The following table presents summary operating data for each of the Founding Companies (see "The Company" for the complete names of each Founding Company) on a historical basis for the periods indicated.
Years Ended December 31,(1) ------------------------------ 1995 1996 1997 --------- --------- -------- MAIL BOX: Revenues...................................... $ 17,370 $ 26,156 $ 32,566 Operating expenses............................ 12,402 17,953 21,493 -------- -------- -------- Gross profit.................................. 4,968 8,203 11,073 Selling, general and administrative expenses.. 4,370 5,891 7,824 -------- -------- -------- Income from operations........................ $ 598 $ 2,312 $ 3,249 ======== ======== ======== NCMC(2): Revenues...................................... $ 12,287 $ 13,579 $ 15,620 Operating expenses............................ 6,322 7,945 9,433 -------- -------- -------- Gross profit.................................. 5,965 5,634 6,187 Selling, general and administrative expenses.. 4,328 4,798 6,340 -------- -------- -------- Income (loss) from operations................. $ 1,637 $ 836 $ (153) ======== ======== ======== BOMAR: Revenues...................................... $ 7,416 $ 9,597 $ 14,266 Operating expenses............................ 4,229 5,814 8,208 -------- -------- -------- Gross profit.................................. 3,187 3,783 6,058 Selling, general and administrative expenses.. 2,934 3,458 5,078 -------- -------- -------- Income from operations........................ $ 253 $ 325 $ 980 ======== ======== ======== MID-CONTINENT: Revenues...................................... $ 8,763 $ 9,038 $ 9,451 Operating expenses............................ 2,851 2,875 3,105 -------- -------- -------- Gross profit.................................. 5,912 6,163 6,346 Selling, general and administrative expenses.. 5,974 6,054 6,239 -------- -------- -------- Income (loss) from operations................. $ (62) $ 109 $ 107 ======== ======== ======== IMPACT(3): Revenues...................................... $ 8,748 $ 8,869 $ 12,870 Operating expenses............................ 6,108 6,961 9,725 -------- -------- -------- Gross profit.................................. 2,640 1,908 3,145 Selling, general and administrative expenses.. 2,590 2,108 2,823 -------- -------- -------- Income (loss) from operations................. $ 50 $ (200) $ 322 ======== ======== ========
_________________ (1) Selling, general and administrative expenses for the Founding Companies for each of the years in the three-year period ended December 31, 1997 do not include a reduction for the Compensation Differential as indicated below. The historical Compensation Differential shown for Bomar does not include $73,000, $169,000, and $64,000, for the years ended December 31, 1995, 1996 and the eight months ended August 31, 1997, respectively, related to Bomar's acquisition of FCCI which was completed in September 1997. 7
Years Ended December 31, -------------------------- 1995 1996 1997 --------- -------- ------- Mail Box............................... $ 310 $ 875 $ 1,776 NCMC................................... 169 210 124 Bomar.................................. 658 986 822 Mid-Continent.......................... 1,057 1,161 1,313 Impact................................. -- -- -- ------- ------- ------- Total $ 2,194 $ 3,232 $ 4,035 ======= ======= =======
__________________ (2) NCMC's operating data for the year ended December 31, 1997 include a compensation charge of approximately $1.3 million associated with the issuance of NCMC shares to certain key employees. (3) Impact's operating data for the year ended December 31, 1995 reflect the operating results for the year ended September 30 for its affiliate, Impact Tele-marketing, Inc. 8 RISK FACTORS An investment in the shares of Common Stock offered by this Prospectus involves a high degree of risk. In addition to the other information contained in this Prospectus, the following factors should be considered carefully before purchasing any of the shares of Common Stock offered hereby. ABSENCE OF COMBINED OPERATING HISTORY; RISKS OF INTEGRATION Compass was formed in 1997 but conducted no operations and generated no revenues prior to the closing of the Acquisitions on March 4, 1998. The Founding Companies operated as separate independent entities prior to the IPO, and there can be no assurance that the Company will be able to integrate the operations of these businesses successfully or to institute the necessary systems and procedures including accounting and financial reporting systems to manage the combined enterprise on a profitable basis and to report the results of operations of the combined entities on a timely basis. Currently, the Company has no centralized financial reporting system and is initially relying on the existing reporting systems of the Founding Companies. The success of the Company will depend, in part, on the Company's ability to integrate the operations of the Founding Companies, including centralizing certain functions to achieve cost savings and developing programs and processes that will promote cooperation and the sharing of opportunities and resources among the Founding Companies. The Company's management group has been assembled only recently and there can be no assurance that the management group will effectively be able to oversee the combined entity and implement the Company's operating or growth strategies. Further, to the extent that the Company is able to implement its acquisition strategy, the resulting growth of the Company will place significant demands on management and on the Company's internal systems and controls. There can be no assurance that the newly assembled management group will effectively be able to direct the Company through a period of significant growth. A number of the Founding Companies offer different services, employ different technologies and operating systems and target different markets and client segments. These differences increase the risk inherent in successfully completing integration of the Founding Companies. Further, there can be no assurance that the Company's integration strategy will be successful, or that the clients of the Founding Companies will accept the Company as a provider of a variety of outsourced business services. In addition, there can be no assurance that the operating results of the Company will match or exceed the combined individual operating results achieved by the Founding Companies prior to the IPO. POTENTIAL ADVERSE EFFECT IF COMPANY IS UNABLE TO MANAGE GROWTH The Company expects to grow internally and through acquisitions. The Company expects to expend significant time and effort in expanding existing businesses and identifying, completing and integrating acquisitions. The Company's ability to manage growth successfully will require the Company to continue to improve its operations, management and financial systems and controls as well as expand its employee workforce. Any future growth can be expected to place significant additional responsibilities on the Company's management, operations, employees and resources. There can be no assurance the Company will be able to maintain or accelerate its current growth, effectively manage its expanding operations or achieve planned growth on a timely or profitable basis. To the extent that the Company is unable to manage its growth efficiently and effectively, the Company's business, financial condition and results of operations could be materially adversely affected. See "Business -- Growth Strategy" and "Management." NO ASSURANCE OF SUSTAINED INTERNAL GROWTH; POTENTIAL ADVERSE EFFECT OF DECENTRALIZED OPERATING STRATEGY A key element of the Company's strategy is to generate internal growth by capitalizing on cross-selling opportunities, generating new clients through aggressive marketing and expanding its service 9 offerings. Internal growth will depend upon factors including the effective initiation, development and maintenance of client relationships; the expansion of marketing operations; the Company's ability to maintain the high quality of the services and products it offers and to expand such services and products; and the recruitment, motivation and retention of qualified management and other personnel. Sustaining growth will also require continued access by the Company to capital, the successful cross-selling of products and services among the Founding Companies and realization by the Company of economies of scale. There can be no assurance that the Company's strategies will continue to generate internal growth or that it will be able to generate cash flow adequate for its operations and to support growth. A key component of the Company's strategy is to operate the Founding Companies and subsequently acquired businesses on a decentralized basis, with local management retaining responsibility for day-to- day operations, profitability and the growth of the business. If proper overall business controls are not implemented, this decentralized operating strategy could result in inconsistent operating and financial practices at the Founding Companies and subsequently acquired businesses and the Company's overall profitability could be adversely affected. See "Business -- Growth Strategy." DEPENDENCE ON ACQUISITIONS; POTENTIAL INABILITY TO CONSUMMATE ACQUISITIONS AND INTEGRATE ACQUIRED BUSINESSES A significant element in the Company's growth strategy is the acquisition of additional outsourced business services companies that will add to the growth of or complement its existing businesses. There can be no assurance that the Company will be able to identify or reach mutually agreeable terms with acquisition candidates and their owners, or that the Company will be able to profitably manage additional businesses or successfully integrate such additional businesses into the Company without substantial costs, delays or other problems. The Company has obtained a commitment from a bank for a $35.0 million three-year revolving credit facility which is expected to contain provisions restricting the Company's ability to engage in certain acquisitions. There can be no assurance that the credit facility will be obtained. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Pro Forma Combined Liquidity and Capital Resources." In addition, acquisitions may involve a number of special risks, including adverse short-term effects on the Company's reported operating results; diversion of management's attention; dependence on retention, hiring and training of key personnel; unanticipated problems or legal liabilities; and amortization of acquired intangible assets. Some or all of these risks could have a material adverse effect on the Company's operations and financial performance. In addition, increased competition for attractive acquisition candidates may develop, in which case there may be fewer acquisition opportunities available to the Company as well as high acquisition prices. There can be no assurance that the Founding Companies or other businesses acquired in the future will achieve anticipated revenues or earnings. POTENTIAL NEED FOR ADDITIONAL FINANCING TO FUND FUTURE ACQUISITIONS The Company currently intends to finance future acquisitions by using its Common Stock for all or a portion of the consideration to be paid. In the event that the Common Stock does not maintain sufficient value, or potential acquisition candidates are unwilling to accept Common Stock as consideration for the sale of their businesses, the Company may be required to utilize more of its cash resources, if available, in order to continue its acquisition program. If the Company does not have sufficient cash resources, its growth could be limited unless it is able to obtain capital through additional debt or equity financings. There can be no assurance that such debt or equity financings will be obtained or that, if obtained, such financing will be on terms that are favorable to the Company or sufficient for the Company's needs. If the Company is unable to obtain sufficient financing, it may be unable to fully implement its acquisition strategy. 10 MATERIAL AMOUNT OF INTANGIBLE ASSETS Approximately $51.2 million, or 56.6%, of the Company's pro forma as adjusted total assets as of December 31, 1997 represents goodwill subsequent to the Acquisitions. Goodwill is an intangible asset that represents the difference between the aggregate purchase price for the assets acquired and the amount of such purchase price allocated to such assets for purposes of the Company's pro forma balance sheet. The Company will amortize the goodwill from the Acquisitions over periods ranging from 15 to 40 years with the amount amortized in a particular period constituting an expense that reduces the Company's net income for that period. The amount amortized, however, will not give rise to a deduction for tax purposes. In addition, the Company will be required to amortize the goodwill, if any, from any future acquisitions. Under accounting rules, the Company is required to periodically evaluate if goodwill has been impaired by reviewing the cash flows of acquired companies and comparing such amounts with the carrying value of the associated goodwill. If goodwill is impaired, the Company would be required to write down goodwill and incur a related charge to its income. A reduction in net income resulting from the amortization or writedown of goodwill could have an adverse impact upon the market price of the Common Stock. POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS Results for any quarter are not necessarily indicative of the results that the Company may achieve for any subsequent quarter or a full fiscal year. Quarterly results may vary materially as a result of the timing and structure of acquisitions, the timing and magnitude of costs related to such acquisitions or the gain or loss of material client relationships. Since a significant portion of the Company's revenues are generated on a project-by-project basis, the timing or completion of material projects could result in fluctuations in the Company's results of operations for particular quarterly periods. Because the anticipated financial benefits of the combination of the Founding Companies may not be generated immediately, if at all, the Company's initial results as a combined company may reflect corporate overhead that exceeds the realized benefits. Unexpected variations in quarterly results could also adversely affect the price of the Common Stock, which in turn could limit the ability of the Company to make acquisitions. PATENT LITIGATION; DEPENDENCE ON PROPRIETARY TECHNOLOGY The success of the Company's APS business is dependent in part upon a patent covering the APS process (the "APS Patent") that was purchased by and assigned to the Company in 1996. NCMC is currently engaged in several disputes with respect to the APS Patent. NCMC has filed suit against the former owner and inventor of the APS Patent (collectively, the "Defendants"), alleging that the Defendants have breached the agreement between NCMC and the Defendants and violated NCMC's exclusive rights to the APS Patent and related intellectual property used in the APS portion of NCMC's business. The Defendants have filed a counterclaim that seeks, among other things, rescission of the agreement under which NCMC purchased the APS Patent, restoration of a prior agreement pursuant to which the Defendants licensed the APS Patent to NCMC, return of the APS Patent to the Defendants and unspecified damages. There can be no assurances that Defendants will not prevail with respect to some or all of their counterclaims. If the purchase agreement is rescinded and the prior license agreement restored, the royalties payable by NCMC would be higher than those currently being paid, damages could be assessed and the ownership of the APS Patent would be transferred to the Defendants. In addition, the inventor has recently alleged (although no claim has been filed) that NCMC has misused the APS Patent, thereby rendering it unenforceable. While management believes that these allegations are without merit, if such claims are litigated, a decision adverse to NCMC could have a material adverse effect on the Company's results of operations and financial condition. See "Business -- Litigation." NCMC is currently a plaintiff in two other lawsuits in which NCMC is alleging that a competitor and a former customer are infringing the APS Patent. These defendants have denied any infringement 11 and filed counterclaims seeking a declaration that the APS Patent is invalid. There can be no assurances that NCMC will prevail in these or other patent infringement actions it may pursue, that the APS Patent will not be declared invalid or that the loss of either of these two lawsuits or the defendants' counterclaims will not have a material adverse effect on the Company's business, results of operations or financial condition. See "Business -- Litigation." In addition, there can be no assurances that the Company's competitors will not be able to develop similar or better technology than the APS Patent. DEPENDENCE ON LABOR FORCE The Company's success depends in part on its ability to recruit, hire, train and retain qualified employees. The Company's operations are very labor intensive and have experienced high personnel turnover. A significant increase in the Company's employee turnover rate could increase the Company's recruiting and training costs and decrease operating efficiencies and productivity. If the Company's growth strategy is successful, the Company will be required to recruit, hire and train qualified personnel at an accelerated rate. There can be no assurance that the Company will be able to hire, train and retain a sufficient labor force of qualified employees. Because a significant portion of the Company's operating costs consist of wages to hourly workers, an increase in wages, costs of employee benefits or employment taxes could have a material adverse effect on the Company's business, results of operations and financial condition. In addition, certain of the Company's facilities are located in geographic areas with relatively low unemployment rates, thus potentially making it more difficult and costly to hire qualified personnel. DEPENDENCE ON CERTAIN SECTORS; CONTRACT RISKS Most of the Company's revenues are derived from clients in the telecommunications, financial services, education, healthcare, retail and commercial, insurance, government and utilities sectors. A significant reduction in expenditures in these sectors or trends to reduce or eliminate the use of third-party services could have a materially adverse impact on the Company's business, results of operations and financial condition. The Company enters into contracts with most of its clients which define, among other things, general fee arrangements, the basic scope of services and termination provisions. Clients may usually terminate such contracts on short notice. Accordingly, there can be no assurance that existing clients will continue to use the Company's services at historical levels, if at all. In 1997, the Company's 10 largest clients accounted for approximately 45.5% of the Company's revenues on a pro forma combined basis. VarTec Telecom, Inc. ("VarTec") accounted for 17.9% of the Company's 1997 revenues on a pro forma combined basis. The Company's contract with VarTec allows for termination on short notice. A significant reduction in business from VarTec could have a material adverse effect on the Company's business, results of operations and financial condition. See "Business -- Client Relationships." COMPETITION The markets in which the Company competes are highly competitive, and the Company expects competition to persist and intensify in the future. The Company's competitors include small firms offering specific business services, divisions of large entities, large independent firms and, most significantly, the in-house operations of clients or potential clients. Some of the Company's competitors have substantially greater financial, marketing and other resources, offer more diversified services and operate in broader geographic areas than the Company. There can be no assurance that additional competitors with greater resources than the Company will not enter the Company's markets. All of the services offered by the Company may be performed in-house. Many larger clients retain multiple service providers which exposes the Company to continuous competition in order to remain a preferred vendor. There can be no assurance that outsourcing of the services performed by the Company will continue or that existing Company clients will not bring some or all of such services in-house. 12 RELIANCE ON MANAGEMENT The Company's operations are dependent on the efforts of Michael J. Cunningham, its Chief Executive Officer, Mahmud U. Haq, its President and Chief Operating Officer, and Richard A. Alston, its Chief Financial Officer, as well as the senior management of the Founding Companies. Furthermore, the Company will likely be dependent on the senior management of any businesses acquired in the future. If any of these individuals becomes unable to continue his role, the Company's business or prospects could be adversely affected. There can be no assurance that such individuals will continue in their present capacities for any particular period of time. The Company does not intend to obtain key man life insurance covering any of its executive officers or members of senior management of the Founding Companies. See "Management -- Executive Officers and Directors" and "-- Executive Compensation; Employment Agreements; Covenants Not to Compete." DEPENDENCE ON TELEPHONE AND POSTAL SERVICE The Company's business is materially dependent upon service provided by various local and long distance telephone companies and the United States Postal Service. Rate increases imposed by telephone companies would increase the Company's operating expenses and adversely affect its operating results to the extent that the Company is unable to pass the increases through to its clients. A significant increase in postage rates could adversely affect the demand for the mailing services provided by the Company. Any significant interruption or capacity limitation in either service would have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Services Offered." GOVERNMENT REGULATION The accounts receivable management and telemarketing industries are regulated under various federal and state statutes. The Company is subject to the Fair Debt Collection Practices Act (the "FDCPA") and various state debt collection laws, which, among other things, establish specific guidelines and procedures debt collectors must follow in communicating with consumer debtors, including the time, place and manner of such communications. The accounts receivable management business is also subject to state regulation, and some states require that the Company be licensed as a debt collection company. The Company is also subject to the Fair Credit Reporting Act (the "FCRA"), which regulates the consumer credit reporting industry and which may impose liability on the Company to the extent that the adverse credit information reported on a consumer to a credit bureau is false, inaccurate or outside of the scope of the Company's transactions with such consumers. With respect to the other teleservices offered by the Company, including telemarketing, the Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994 broadly authorizes the Federal Trade Commission (the "FTC") to issue regulations prohibiting misrepresentations in telemarketing sales. The FTC's telemarketing sales rules, among other things, limit the hours during which telemarketers may call, prohibit misrepresentations of the cost, terms, restrictions, performance or duration of products or services offered by telephone solicitation and specifically address other perceived telemarketing abuses in the offering of prizes and the sale of investment opportunities. In addition, the Telephone Consumer Protection Act of 1991 (the "TCPA") restricts the use of automated telephone equipment for telemarketing purposes, including limiting the hours during which telemarketers may call consumers and prohibiting the use of automated telephone dialing equipment to call certain telephone numbers. A number of states also regulate telemarketing and some states have enacted restrictions similar to the TCPA. The failure to comply with applicable statutes and regulations could have a materially adverse effect on the Company's business, results of operations and financial condition. There can be no assurance that additional federal or state legislation, or changes in regulatory implementation, would not limit the activities of the Company in the future or significantly increase the cost of regulatory compliance. 13 Several of the industries served by the Company are also subject to varying degrees of government regulation. Although compliance with these regulations is generally the responsibility of the Company's clients, the Company could be subject to a variety of enforcement or private actions for its failure or the failure of its clients to comply with such regulations. RISK OF BUSINESS INTERRUPTION The Company's operations are dependent upon its ability to protect its call centers, computer and telecommunications equipment and software systems against damage from fire, power loss, telecommunications interruption or failure, natural disaster and other similar events. In the event the Company experiences a temporary or permanent interruption through casualty, operating malfunction or otherwise, the Company's business could be materially adversely affected and the Company may be required to pay contractual damages to some clients or allow some clients to terminate or renegotiate their contracts with the Company. The Company's property and business interruption insurance may not adequately compensate the Company for all losses that it may incur. DEPENDENCE ON ABILITY TO RESPOND TO RAPIDLY CHANGING TECHNOLOGY The Company's business is highly dependent on its computer and telecommunications equipment and software systems. The Company's failure to maintain its technological capabilities or to respond effectively to technological changes could have a material adverse effect on the Company's business, results of operations or financial condition. The Company's future success also will be highly dependent upon its ability to enhance existing services and introduce new services to respond to changing technological developments. There can be no assurance that the Company can successfully develop and bring to market any new services in a timely manner, that such services or products will be commercially successful or that competitors' technologies or services will not render the Company's products or services noncompetitive or obsolete. CONTROL OF THE COMPANY BY INITIAL STOCKHOLDERS As of the date of this Prospectus, the directors and executive officers of the Company and their affiliates, the former stockholders of the Founding Companies and BGL's members (collectively, the "Initial Stockholders") beneficially own approximately 60.2% of the outstanding shares of Common Stock. These persons, if acting in concert, have the ability to exercise substantial control over the Company's affairs and are likely be able to elect a sufficient number of directors to control the Board and to approve or disapprove any matter submitted to a vote of stockholders. The Initial Stockholders have agreed, for the five years following the IPO, to vote all shares of Common Stock held by them (i) for the nomination and reelection of the directors serving at the time of the IPO or such successors as shall be nominated in accordance with the agreement and (ii) as to any other matter brought to a stockholder vote, in accordance with the recommendation of the then-incumbent Board of Directors. The ownership position of the Initial Stockholders may have the effect of delaying, deferring or preventing a change in control of the Company. See "Certain Transactions," "Principal Stockholders" and "Description of Capital Stock -- Stockholders' Agreement." POTENTIAL ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK The market price of the Common Stock of the Company could be adversely affected by the sale of substantial amounts of Common Stock of the Company in the public market following the IPO. The 4,715,000 shares of Common Stock sold in the IPO are freely tradeable unless acquired by affiliates (as that term is defined under the rules and regulations of the Securities Act of 1933, as amended (the "Securities Act")) of the Company, which shares are subject to the resale limitations of Rule 144 ("Rule 144") promulgated under the Securities Act. 14 As of the date of this Prospectus, the holders of Common Stock who did not purchase shares in the IPO own 7,118,460 shares of Common Stock, including (i) the stockholders of the Founding Companies who received, in the aggregate, 5,435,691 shares in connection with the Acquisitions and (ii) BGL, members of BGL and members of management who own 1,682,769 shares. These shares have not been registered under the Securities Act and, therefore, may not be sold unless registered under the Securities Act or sold pursuant to an exemption from registration, such as the exemption provided by Rule 144. Furthermore, these stockholders have agreed with Compass not to sell, transfer or otherwise dispose of any of these shares of Common Stock for a one-year period following the IPO. Such stockholders have certain piggyback registration rights beginning one year after the IPO and one demand registration right for the six month period beginning twenty months after the IPO with respect to their shares of Common Stock. The Company and the holders of all shares outstanding prior to the IPO (including the holders of shares issued in connection with the Acquisitions) agreed not to offer, sell, contract to sell or otherwise dispose of any shares of Common Stock, or any securities convertible into or exercisable or exchangeable for Common Stock, for a period of 180 days after the date of the IPO without the prior written consent of NationsBanc Montgomery Securities LLC except for: (i) in the case of the Company, Common Stock issued pursuant to any employee or director plan described herein or in connection with acquisitions; (ii) in the case of all such holders, the exercise of stock options pursuant to benefit plans described herein and shares of Common Stock disposed of as bona fide gifts; and (iii) in the case of BGL, distributions of Common Stock to its members, subject, in each case, to any remaining portion of the 180-day period applying to any shares so issued or transferred. See "Shares Eligible for Future Sale." NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE Prior to the IPO, there had been no public market for the Common Stock, and there can be no assurance that an active public market for the Common Stock will develop or continue. The market price of the Common Stock may be subject to significant fluctuations in response to numerous factors, including variations in the annual or quarterly financial results of the Company or its competitors, changes by financial research analysts in their estimates of the earnings of the Company or the failure of the Company to meet such estimates, conditions in the economy in general or in the industries in which the Company competes, unfavorable publicity or changes in applicable laws and regulations (or judicial or administrative interpretations thereof) affecting the Company or the industries in which the Company competes. From time to time, the stock market experiences significant price and volume volatility, which may affect the market price of the Common Stock for reasons unrelated to the Company's performance. ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS The Board of Directors of the Company is authorized to issue preferred stock in one or more series without stockholder action. The Board of Directors of the Company serve staggered terms. The existence of this "blank-check" preferred stock and the staggered Board of Directors could render more difficult or discourage an attempt to obtain control of the Company by means of a tender offer, merger, proxy contest or otherwise. Certain provisions of the Delaware General Corporation Law may also discourage takeover attempts that have not been approved by the Board of Directors. See "Management -- Board of Directors" and "Description of Capital Stock." 15 FORWARD-LOOKING STATEMENTS Certain statements in this Prospectus under the captions "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and elsewhere relate to future events and expectations and as such constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, the Risk Factors discussed herein. The Company undertakes no obligation to release publicly any revisions to any such forward-looking statements that may reflect events or circumstances after the date of this Prospectus or to reflect the occurrence of unanticipated events. See "Risk Factors." PRICE RANGE OF COMMON STOCK The Company's Common Stock has traded on the NASDAQ National Market since February 27, 1998. On April 9, 1998, the last reported sale price of the Common Stock was $14.50 per share and there were approximately 83 holders of record of the Common Stock. The following table sets forth the range of high and low closing sale prices for the Common Stock for the period from the date of the IPO through April 8, 1998. HIGH LOW ------ ------- February 27, 1998 - April 9, 1998........ $16.50 $10.875 ------ ------- 16 THE COMPANY Compass was formed to create a leading provider of outsourced business services to public and private entities throughout the Sales Cycle. In furtherance of this goal, Compass acquired the five Founding Companies on March 4, 1998. A brief description of each Founding Company is set forth below. THE MAIL BOX, INC. The Mail Box, Inc. (together with its subsidiary, "Mail Box"), founded in 1971, provides direct mailing services, billing services, mail presorting, freight and drop shipping, data processing, laser printing, mailing list rental and other related services to companies located principally in the southwest United States. Mail Box also provides order fulfillment services and sells printed materials such as letterhead, envelopes and business forms. Mail Box is headquartered in Dallas where its operations are housed in four buildings containing approximately 338,000 square feet. In the twelve months ended December 31, 1997, Mail Box processed approximately 830 million pieces of mail, utilizing sophisticated technology in its lettershop, data processing and presort facilities. Mail Box has received the Mail Advertising Service Association's Award for Excellence in Education in 1996 for establishing the industry's first full-time training facility. In addition, Kenneth W. Murphy, Mail Box's chief executive officer, received in 1992 the United States Postal Service Industry Excellence Award which recognizes individuals who set standards for excellence in the mailing industry. Mail Box's clients include VarTec Telecom, Inc., Medic Computer Systems, Inc., Sears Roebuck & Co., Advantis Business Services, Inc., The Army and Air Force Exchange Services and Southwestern Bell Mobile Systems, Inc. Mail Box's revenues were $26.2 million in 1996 and $32.6 million in 1997. NATIONAL CREDIT MANAGEMENT CORPORATION National Credit Management Corporation (together with its subsidiary, "NCMC"), founded in 1984, provides accounts receivable management services and, through its patented Accelerated Payment Systems ("APS") technology, telephonic check drafting services. NCMC is based in Hunt Valley, Maryland (a suburb of Baltimore), where it operates a call center and sales office, and operates an additional call center and sales office in Las Vegas. NCMC provides traditional delinquency collection services, as well as an early receivables management service, primarily to clients in the education, utilities, government and healthcare industries and its APS check drafting services primarily to clients in the financial services and utilities sectors. NCMC's clients include EduCap, Inc., MBNA America Bank, N.A., the State of Maryland and General Electric Capital Services, Inc. NCMC's revenues were $13.6 million in 1996 and $15.6 million in 1997. B.R.M.C. OF DELAWARE, INC. B.R.M.C. of Delaware, Inc. (together with its subsidiaries, "Bomar"), founded in 1984, provides accounts receivable management services, primarily for clients in the telecommunications, insurance, financial services and healthcare industries. Bomar is based in Destin, Florida, and conducts operations in Atlanta, Phoenix, Houston and Tampa. Since August 1996, Bomar has acquired three accounts receivable management companies. In August 1996 Bomar acquired a 75% interest in Advanced Credit Services, Inc. ("ACS"), in November 1996 it acquired Clayton-Parker & Associates ("CPA") and in September 1997 it acquired Financial Claims Control, Inc. ("FCCI"). Bomar will acquire the remaining 25% of ACS simultaneously with the Acquisitions. Bomar derives the substantial majority of its revenues from primary, secondary and tertiary consumer collections. In addition, Bomar collects subrogated accounts for insurance companies and recently began providing early receivables management services. Bomar's clients include Bellsouth Telecommunications, Inc., AT&T Wireless Services, MD Anderson Cancer Hospital, The FACS Group (Federated Department Stores, Inc.) and Capital One Financial Corporation. Bomar's revenues were $9.6 million in 1996 and $14.3 million in 1997. 17 MID-CONTINENT AGENCIES, INC. Mid-Continent Agencies, Inc. (together with its subsidiaries, "Mid- Continent"), founded in 1932, provides accounts receivable management services primarily to companies in the manufacturing, insurance, wholesale distribution and commercial sectors. Mid-Continent was one of the first companies in its industry to provide early receivables management services. It derives the substantial majority of its revenues from commercial collections with the balance derived from consumer collections. Mid-Continent is based in Rolling Meadows, Illinois (a suburb of Chicago) where it operates a call center, and has additional call centers in Louisville and Buffalo. Mid-Continent also has an office in the United Kingdom which specializes in commercial debt recovery and international credit reporting services. In a December 1996 survey prepared by the Institute of Management & Administration, Inc., an independent industry trade publication, Mid-Continent was ranked first by companies comparing the services and results provided by commercial collection agencies. Mid- Continent's clients include Beverly Enterprises, Inc., CNA Insurance, Reynolds and Reynolds, Sentry Insurance and eight state workers' compensation funds. Mid-Continent's revenues were $9.0 million in 1996 and $9.5 million in 1997. IMPACT TELEMARKETING GROUP, INC. Impact Telemarketing Group, Inc. and Impact Tele-marketing, Inc. (collectively, "Impact"), founded in 1984, provides primarily outbound telemarketing services to national and regional companies in the insurance, financial services, telecommunications and utilities industries. To a lesser extent, Impact also provides inbound telemarketing and ancillary services. Impact is based in Woodbury, New Jersey (a suburb of Philadelphia), and operates approximately 260 call stations from its two New Jersey call centers. In addition, Impact has an arrangement to use 160 additional call stations located in North Dakota, as needed. Impact has been named one of Telemarketing Magazine's Top Fifty Service Agencies every year since 1991. Impact's clients include MemberWorks, Inc., Gerber Life Insurance Co. and MBNA America Bank, N.A. Impact's revenues were $8.9 million in 1996 and $12.9 million in 1997. DIVIDEND POLICY The Company intends to retain its earnings, if any, to finance the expansion of its business and for general corporate purposes and therefore does not anticipate paying any cash dividends on its Common Stock in the foreseeable future. Any payment of future dividends will be at the discretion of the Board of Directors and will depend upon, among other things, the Company's earnings, financial condition, capital requirements, level of indebtedness, contractual restrictions with respect to the payment of dividends and other factors that the Company's Board of Directors deems relevant. In addition, the Company's Credit Facility is expected to include restrictions on the Company's ability to pay dividends without the consent of the lender. SECURITIES COVERED BY THIS PROSPECTUS The shares of Common Stock covered by this Prospectus are available for use in future acquisitions of other businesses, real or personal properties or securities in business combination transactions in accordance with Rule 415(a)(1)(viii) of Regulation C under the Securities Act or otherwise under Rule 415. Such acquisitions may be made directly by the Company or indirectly through a subsidiary, may relate to businesses or securities of businesses providing services or products similar or dissimilar to the Company's services and products, and may be made in connection with the settlement of litigation or other disputes. The consideration offered by the Company in such acquisitions, in addition to the shares of Common Stock offered by this Prospectus, may include cash, debt or other securities (which may be convertible into shares of Common Stock covered by this Prospectus), or assumption by the Company of liabilities of the business, properties or securities being acquired or of their owners, or a combination thereof. It is contemplated that the terms of acquisitions will be determined by negotiations 18 between the Company and the owners of the businesses, properties or securities to be acquired, with the Company taking into account such factors as the quality of management, the past and potential earning power, growth and appreciation of the businesses, properties or securities acquired, and other relevant factors, and it is anticipated that shares of Common Stock issued in acquisitions will be valued at a price reasonably related to the market value of the Common Stock either at the time the terms of the acquisition are tentatively agreed upon or at or about the time or times of delivery of the shares. The Company may from time to time, in an effort to maintain an orderly market in the Common Stock, negotiate agreements with persons receiving Common Stock covered by this Prospectus that will limit the number of shares that may be sold by such persons at specified intervals. Such agreements may be more restrictive than restrictions on sales made pursuant to the exemption from registration requirements of the Securities Act, including the requirements under Rule 144 or Rule 145(d) under the Securities Act, and certain persons party to such agreements may not otherwise be subject to such Securities Act requirements. With the consent of the Company, this Prospectus may also be used by persons who have received or will receive from the Company Common Stock covered by this Prospectus and who may wish to sell such stock under circumstances requiring or making desirable its use. This Prospectus may also be used, with the Company's consent, by pledgees, donees, or assignees of such persons. The Company's consent to any such use may be conditioned upon such persons' agreeing not to offer more than a specified number of shares following supplements or amendments to this Prospectus, which the Company may agree to use its best efforts to prepare and file at certain intervals. The Company may require that any such offering be effected in an organized manner through securities dealers. Sales by means of this Prospectus may be made from time to time privately at prices to be individually negotiated with the purchasers, or publicly through transactions in the over-the-counter market (which may involve block transactions), at prices reasonably related to market prices at the time of sale or at negotiated prices. Broker-dealers participating in such transactions may act as agent or as principal and, when acting as agent, may receive commissions from the purchasers as well as from the sellers (if also acting as agent for the purchasers). The Company may indemnify any broker-dealer participating in such transactions against certain liabilities, including liabilities under the Securities Act. Finders' fees may be paid from time to time with respect to specific business combinations. Profits, commissions and discounts on sales by persons who may be deemed to be underwriters within the meaning of the Securities Act may be deemed underwriting compensation under the Securities Act. Stockholders may also offer shares of Common Stock covered by this Prospectus by means of prospectuses under other registration statements or pursuant to exemptions from the registration requirements of the Securities Act, including sales which meet the requirements of Rule 144 or Rule 145(d) under the Securities Act, and stockholders should seek the advice of their own counsel with respect to the legal requirements for such sales. This Prospectus may be supplemented or amended from time to time to reflect its use for resales by persons who have received shares of Common Stock for whom the Company has consented to the use of this Prospectus in connection with resales of such shares. See the inside back cover pages of this Prospectus for the identity of any such persons. 19 CAPITALIZATION The following table sets forth the short-term debt and capitalization of the Company at December 31, 1997: (i) on a pro forma combined basis to give effect to the Acquisitions; and (ii) as further adjusted to give effect to the IPO and the application of the estimated net proceeds therefrom. This table should be read in conjunction with the Unaudited Pro Forma Combined Financial Statements of the Company and the notes thereto included elsewhere in this Prospectus.
December 31, 1997 --------------------- Pro As Forma(1) Adjusted ---------- --------- (In thousands) Short-term debt (2).................................................................... $ 10,269 $ 1,021 ======== ======== Long-term debt, net of current portion (2)............................................. $ 8,106 $ 2,010 Stockholders' equity: Preferred Stock, par value $0.01 per share, 10,000,000 shares......................... -- -- authorized; none issued or outstanding.......... Common Stock, par value $0.01 per share, 50,000,000 shares............................ 71 118 authorized; 7,118,460 shares issued and outstanding, pro forma; 11,833,460 shares issued and outstanding, as adjusted (3)........................... Additional paid-in-capital............................................................ 30,537 72,032 Retained earnings...................................................................... 3,131 3,131 -------- -------- Total stockholders' equity............................................................ 33,739 75,281 Total capitalization................................................................. $ 41,845 $ 77,291 ======== ========
__________________ (1) Combines the respective accounts of Compass and the Founding Companies at December 31, 1997 and gives effect to the reclassification of the capital structures of NCMC, Bomar, Mid-Continent and Impact as additional paid-in- capital. (2) For a description of the Company's debt, see Notes to the Financial Statements of the Founding Companies. (3) Does not include: (i) up to 2,000,000 additional shares reserved for issuance pursuant to the Incentive Plan, of which options to purchase approximately 720,000 shares of Common Stock were granted concurrently with the IPO at an exercise price of $10.50 per share; (ii) 500,000 additional shares reserved for issuance under the Company's Employee Stock Purchase Plan; or (iii) 100,000 shares of Common Stock issuable upon the exercise of warrants issued concurrently with the IPO. See "Management -- Employee Incentive Compensation Plan" and "-- Employee Stock Purchase Plan" and "Certain Transactions." 20 SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Compass acquired the Founding Companies simultaneously with the consummation of the IPO. For financial statement presentation purposes, Mail Box was identified as the accounting acquiror. The following selected historical financial data of Mail Box as of December 31, 1996 and 1997 and for the years ended December 31, 1995, 1996 and 1997 have been derived from the audited financial statements of Mail Box included elsewhere in this Prospectus. The selected historical financial data of Mail Box as of December 31, 1995 and for the year ended December 31, 1994 have been derived from the audited financial statements of Mail Box not included in this Prospectus. The following selected historical financial data for Mail Box as of December 31, 1993 and 1994 and for the year ended December 31, 1993 have been derived from unaudited financial statements of Mail Box, which have been prepared on the same basis as the audited financial statements and, in the opinion of Mail Box, reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of such data. The selected unaudited pro forma combined financial data present data for the Company, adjusted for (i) the consummation of the Acquisitions; (ii) certain pro forma adjustments to the historical financial statements, including adjustments for an acquisition completed by Bomar in September 1997; and (iii) the consummation of this Offering and the application of the net proceeds therefrom. See the Unaudited Pro Forma Combined Financial Statements and the notes thereto and the historical Financial Statements of Mail Box and the other Founding Companies and the notes thereto included elsewhere in this Prospectus.
Years Ended December 31, ------------------------------------------------ 1993 1994 1995 1996 1997 ------ ------- ------- ------- ------- STATEMENT OF OPERATIONS DATA: MAIL BOX Revenues...................................... $14,314 $15,354 $17,370 $26,156 $32,566 Operating expenses............................ 11,286 11,168 12,402 17,953 21,493 ------- ------- ------- ------- ------- Gross profit................................. 3,028 4,186 4,968 8,203 11,073 Selling, general and administrative expenses.. 2,957 3,442 4,370 5,891 7,824 ------- ------- ------- ------- ------- Income from operations....................... 71 744 598 2,312 3,249 Other expense................................. 128 212 302 337 382 ------- ------- ------- ------- ------- Income (loss) before income taxes............. (57) 532 296 1,975 2,867 Provision (benefit) for income taxes......... (13) 206 134 700 985 Net (loss) income............................. $ (44) $ 326 $ 162 $ 1,275 $ 1,882 ======= ======= ======= ======= =======
PRO FORMA COMBINED (1): Revenues........................ $ 87,153 Operating expenses.............. 53,353 ---------- Gross profit................... 33,800 Selling, general and administrative expenses (2) 23,229 Goodwill and intangible amortization (3) 1,528 ---------- Income from operations......... 9,043 Interest and other expense, net (4) 625 ---------- Income before income taxes...... 8,418 Provision for income taxes (5). 3,978 ---------- Net income...................... 4,440 ---------- Net income per share............ $ 0.42 ========== Shares used in computing net income per share (6) 10,460,931 ==========
21
Mail Box Combined Companies ------------------------------------------ ------------------------ December 31, December 31, 1997 ------------------------------------------ ------------------------- Pro Forma As 1993 1994 1995 1996 1997 Combined Adjusted (8) ------- ------- ------- ------- ------- ---------- ----------- BALANCE SHEET DATA: Working capital (deficit)....... $ (597) $ (218) $ 36 $ 272 $ 294 $ (20,123)(9) $ 15,323 Total assets.................... 4,374 5,481 7,425 12,539 11,290 85,224 90,356 Long-term debt, net of current 582 871 1,485 1,266 1,576 8,106 2,010 portion....................... Stockholders' equity............ 191 642 995 2,206 3,184 33,739 75,281
__________________ (1) The pro forma combined statement of operations data assume that the Acquisitions and the IPO were closed on January 1, 1997, are not necessarily indicative of the operating results that would have been achieved had these events actually then occurred and should not be construed as representative of future operating results. The summary pro forma combined statement of operations data should be read in conjunction with the Unaudited Pro Forma Combined Financial Statements and the notes thereto and the historical financial statements of Compass and the Founding Companies and the notes thereto included elsewhere in this Prospectus. (2) The pro forma combined statement of operations data reflect reductions in salaries, bonuses and benefits to the stockholders of the Founding Companies to which they have agreed in employment agreements entered into upon consummation of the IPO (the "Compensation Differential"). The Compensation Differential was approximately $4.1 million for 1997. Additionally, the pro forma combined statement of operations data reflect the elimination of a compensation charge of approximately $1.3 million associated with the issuance of NCMC shares to certain key employees and a director of NCMC. (3) Reflects: (i) the amortization of goodwill of $51.2 million to be recorded as a result of the Acquisitions over periods ranging from 15 to 40 years; and (ii) the amortization of $1.0 million in intangible assets over a period of 15 years. (4) Reflects a reduction of interest expense associated with long term debt repaid from the proceeds of the IPO of $547,000 for the year ended December 31, 1997 and a reduction of interest income of $75,000 for the year ended December 31, 1997 relating to stockholder notes paid off after consummation of the IPO. (5) Assumes that all income is subject to a corporate income tax rate of 40% and that all goodwill is non-deductible. (6) Includes: (i) 1,682,769 shares issued to BGL and management of Compass; (ii) 5,435,691 shares issued to owners of the Founding Companies in connection with the Acquisitions; and (iii) 3,342,471 shares representing the number of shares sold in the IPO necessary to pay the cash portion of the consideration for the Acquisitions, to pay the underwriting discount and estimated expenses of the Acquisitions and the IPO, and to repay certain indebtedness assumed by Compass in the Acquisitions, net of repayment of stockholder receivables. See "Certain Transactions." (7) The pro forma combined balance sheet data assume that the Acquisitions were closed on December 31, 1997, are not necessarily indicative of the financial position that would have been achieved had these events actually then occurred and should not be construed as representative of future financial position. The summary pro forma balance sheet data should be read in conjunction with the Unaudited Pro Forma Combined Financial Statements and the notes thereto and the historical financial statements of Compass and the Founding Companies and the notes thereto included elsewhere in this Prospectus. (8) Adjusted to reflect the sale of the 4,715,000 shares of Common Stock offered in the IPO and the application of the estimated net proceeds therefrom. See "Use of Proceeds." (9) Includes $17.9 million payable to stockholders of the Founding Companies, representing the cash portion of the consideration for the Acquisitions paid from a portion of the net proceeds of the IPO. See "Use of Proceeds" and "Notes to Unaudited Pro Forma Combined Financial Statements." 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following should be read in conjunction with "Selected Financial Data" and the Financial Statements and related Notes thereto of Compass and the Founding Companies appearing elsewhere in this Prospectus. INTRODUCTION General The Company was established to create a leading provider of outsourced business services to public and private entities throughout the Sales Cycle. The Company provides accounts receivable management services, mailing services and teleservices to clients in a broad range of sectors including telecommunications, financial services, insurance, healthcare, education, government and utilities. Compass was formed in April 1997 and conducted no operations and generated no revenues prior to March 4, 1998. Unless otherwise indicated, all references to the "Company" in the following discussion include the Founding Companies as if the Acquisitions had occurred during all periods discussed and references to "Compass" shall mean Compass International Services Corporation prior to the effectiveness of the Acquisitions. The Company's revenues are derived from the recovery of delinquent accounts receivable and providing mailing services and teleservices. The Company generally charges its clients for accounts receivable management services on a contingency fee basis, with the amount of the fee determined by the length of the delinquency of the accounts and the extent to which prior collection efforts have been made. Revenue is earned and recognized upon collection of accounts receivable. The Company provides a variety of mailing services including the mailing of direct marketing materials, billing services, mail presorting, freight and drop shipping, data processing, mailing list rental, and other services related to mail handling. Typically, the Company charges a fixed fee per piece for processing mail. These fees are earned and recognized as revenue upon delivery to the United States Postal Service. Postage expenses are passed directly through to the Company's clients and are not recognized as revenues or expenses on the Company's financial statements. Revenues for outbound and inbound teleservices consist of hourly rate charges and incentive based commissions that are recognized as these services are provided. The Company also generates revenue from APS which enables clients to accept payments through checks authorized by phone. Clients are typically charged an initial setup fee and a transaction fee for each usage of the APS service. Revenues are recognized for APS when services are provided. The Company and most of its clients enter into contracts which define, among other things, fee arrangements, scope of services and termination provisions. In most cases, clients may terminate contracts with 30 or 60 days notice. The Company's operating expenses consist primarily of payroll, telecommunications expense and postage expense (other than client postage relating to mailing services). Payroll consists of wages and salaries, commissions, bonuses and benefits for all employees of the Company directly involved in providing services to clients. Telecommunications expense includes telephone costs associated with inbound and outbound teleservice and collection activities. Postage expense is related primarily to the mailing of collection notices and APS check confirmation letters. Selling, general and administrative expenses include management salaries, selling commissions, occupancy and other facilities costs, equipment maintenance and depreciation, and data processing costs. The Company expects to realize certain savings as a result of: (i) consolidation of telecommunications, postage, systems and other operating expenses; (ii) consolidation of insurance, 23 employee benefits and other administrative expenses; and (iii) the Company's ability to borrow at interest rates lower than those at which most of the Founding Companies have borrowed historically. Because the Acquisitions were consummated only recently, the Company has not and cannot quantify these savings. The Company also expects to incur additional costs associated with public ownership and the new management team. These costs cannot be quantified precisely. Accordingly, neither the expected savings nor the expected costs have been included in the pro forma combined financial information of the Company. Since August 1996, Bomar has made three acquisitions, two in 1996 and one in the third quarter of 1997. As a result of these acquisitions, the Company has: (i) expanded its geographic presence in the accounts receivable collection market; (ii) gained access to new information systems and customer service capabilities; and (iii) expanded its secondary and tertiary collection capabilities. The acquisitions have been accounted for using the purchase method of accounting with the results of the acquired companies included in Bomar's statements of income beginning on the respective dates of the acquisitions. The Unaudited Pro Forma Combined Financial Statements give effect to the 1997 acquisition as if it had occurred on January 1, 1997. In July 1996, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 97 ("SAB 97") relating to business combinations immediately prior to an initial public offering. SAB 97 requires the application of purchase accounting when three or more substantive operating entities combine in a single business combination effected by the issuance of stock just prior to or contemporaneously with an initial public offering and the combination does not meet the pooling-of-interests criteria of Accounting Principles Board Opinion No. 16. In accordance with SAB 97, Mail Box has been designated as the accounting acquiror. Accordingly, the excess purchase price over the fair value of the net assets acquired from NCMC, Bomar, Mid-Continent and Impact of approximately $33.2 million, goodwill of $14.0 million attributable to the 1,682,769 shares of Common Stock issued to BGL and management, and existing goodwill of approximately $4.1 million recorded with respect to Bomar, will be amortized over periods ranging from 15 to 40 years as a non-cash charge to the Company's income statement. This amortization, including the amortization of an intangible asset associated with a patent at NCMC over a 15-year period, is approximately $1.5 million per year. See "Certain Transactions -- The Acquisitions." The Compensation Differential The Founding Companies operated as independent, privately-owned entities throughout the periods presented. Their results from operations reflect varying historical levels of owners' compensation. The owners and key employees of the Founding Companies agreed to certain reductions of their salaries, bonuses, and benefits in connection with the Acquisitions (the "Compensation Differential"). Members of senior management of the Founding Companies have entered into employment agreements with their respective Founding Companies that provide for specified annual salaries in addition to certain benefits including vacation, health and insurance benefits. Such agreements also provide for the payment of annual bonuses if specified performance criteria are achieved. See "Management-- Executive Compensation; Employment Agreements; Covenants Not to Compete." In addition, two non-management employees of one of the Founding Companies have agreed to salary reductions. The Compensation Differential was approximately $4.1 million in 1997. Additionally, the results for 1997 include a compensation charge of $1.3 million for NCMC associated with the issuance of NCMC shares to certain key employees and a director of NCMC. These amounts have been reflected as a pro forma adjustment in the Unaudited Pro Forma Combined Statement of Operations. The Unaudited Pro Forma Combined Statement of Operations includes a provision for income tax as if all Founding Companies had been subject to applicable federal and state statutory tax rates. 24 Amortization of Intangible Assets Approximately $51.2 million, or 56.6%, of the Company's pro forma as adjusted total assets as of December 31, 1997 consists of goodwill subsequent to the Acquisitions. Goodwill is an intangible asset that represents the difference between the aggregate purchase price for the assets acquired and the amount of such purchase price allocated to such assets for purposes of the Company's pro forma balance sheet. The Company is required to amortize the goodwill from the Acquisitions over a period of time, with the amount amortized in a particular period constituting an expense that reduces the Company's net income for that period. The amount amortized, however, will not give rise to a deduction for tax purposes. In addition, the Company will be required to amortize the goodwill, if any, from any future acquisitions. The Company plans to amortize goodwill associated with the acquisitions of the Founding Companies over periods ranging from 15 to 40 years. The Company plans to evaluate continually whether events or circumstances have occurred that indicate that the remaining useful life of goodwill may warrant revision. Additionally, in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to be Disposed Of," the Company will evaluate any potential goodwill impairments by reviewing the future cash flows of the respective acquired entities' operations and comparing these amounts with the carrying value of the associated goodwill. Recently Issued Accounting Standards Earnings Per Share. In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 128 "Earnings Per Share." SFAS No. 128 establishes standards for computing and presenting earnings per share ("EPS") and applies to entities with publicly held common stock or potential common stock. SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997; earlier application is not permitted. SFAS No. 128 requires restatement of all prior-period EPS data presented. The implementation of SFAS No. 128 is not expected to have a material effect on the Company's earnings per share as determined under current accounting rules. Reporting Comprehensive Income. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general-purpose financial statements. SFAS No. 130 requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. SFAS No. 130 is effective for fiscal years beginning after December 15, 1997. Reclassification of financial statements for earlier periods provided for comparative purposes is required. The Company intends to adopt SFAS No. 130 in 1998. 25 PRO FORMA COMBINED RESULTS OF OPERATIONS The following table provides the pro forma operating results of the Company for the years ended December 31, 1996 and 1997. For a discussion of the pro forma adjustments, see the Unaudited Pro Forma Combined Financial Statements and the notes thereto included elsewhere in this Prospectus.
Years Ended December 31, -------------------------------------- 1996 1997 ----------------- ------------------- Revenues...................................... $71,783 100.0% $87,153 100.0% Operating expenses............................ 44,474 62.0 53,353 61.2 ------- ----- ------- ----- Gross profit.................................. 27,309 38.0 33,800 38.8 Selling, general and administrative expenses.. 20,169 28.1 23,229 26.6 Goodwill and intangible amortization.......... 1,528 2.1 1,528 1.8 ------- ----- ------- ----- Income from operations........................ $ 5,612 7.8% $ 9,043 10.4% ======== ===== ======= =====
PRO FORMA COMBINED RESULTS FOR 1997 COMPARED TO 1996 Revenues. Revenues increased $15.4 million, or 21.4%, from $71.8 million in 1996 to $87.2 million in 1997. The increase was primarily attributable to increased business from existing clients of Mail Box, Impact, NCMC and Bomar. Operating expenses. Operating expenses increased $8.9 million, or 20.0%, from $44.5 million in 1996 to $53.4 million in 1997. Operating expenses decreased as a percentage of revenues from 62.0% in 1996 to 61.2% in 1997 as a result of improved operating efficiency at Mail Box, Bomar and Impact. Selling, general and administrative expenses. Selling, general and administrative expenses increased $3.1 million, or 15.2%, from $20.2 million in 1996 to $23.2 million in 1997. Selling, general and administrative expenses decreased as a percentage of revenues from 28.1% in 1996 to 26.6% in 1997 as the costs of management and administrative personnel were spread over a larger revenue base. Income from operations. Income from operations increased $3.4 million, or 61.2%, from $5.6 million in 1996 to $9.0 million in 1997 as a result of the factors discussed above. PRO FORMA COMBINED LIQUIDITY AND CAPITAL RESOURCES The Company is a holding company that conducts all of its operations through its subsidiaries. Accordingly, the primary internal source of the Company's liquidity is the cash flow of its subsidiaries. Based upon the cash balances of the Founding Companies as of December 31, 1997, after the application by the Company of the net proceeds from the IPO and the closing of the Acquisitions, the Company had approximately $11.7 million of cash. In January 1998, the Company obtained from a bank a commitment for a $35.0 million three-year revolving credit facility (the "Credit Facility"). Amounts outstanding under the Credit Facility will bear interest, at the Company's option, at the bank's base rate plus an applicable margin of up to 0.50% or a reserve adjusted offshore borrowing rate plus an applicable margin of 1.25% to 1.75%. The Company's obligations under the Credit Facility will be guaranteed by the Company's subsidiaries, and will be secured by a pledge of the capital stock of the Company's subsidiaries and all inter-company notes from any subsidiary to the Company. In addition, if the Company fails to maintain specified financial ratios, the bank will obtain a first priority security interest in all assets of the Company and its subsidiaries. The Credit Facility is expected to contain certain covenants, including (i) limitations on asset sales; (ii) restrictions on other indebtedness; (iii) limitations on liens, restricted payments, dividends 26 and restricted investments; and (iv) maintenance of certain financial ratios including a minimum net worth. In addition, the Credit Facility will contain certain limitations on mergers and acquisitions including without limitation: (i) limiting the maximum cash and assumed debt portion of acquisition consideration to a multiple of 6.0 times the acquiree's earnings before interest, taxes, depreciation and amortization for the 12 months preceding the acquisition, (ii) requiring lender approval of acquisitions with cash consideration in excess of $10.0 million; and (iii) requiring that acquisitions be in the Company's general lines of business and non-hostile. The Company will be obligated to pay an underwriting fee of 0.75% of the total amount of the Credit Facility, an annual administration fee of $15,000 and an annual commitment fee of 0.35% to 0.45% on the unutilized portion of the Credit Facility. Execution of the Credit Facility is expected to occur in April 1998 following completion of definitive documentation. There can be no assurance that the Credit Facility will be obtained. The Company believes that its cash flow from operations will provide cash in excess of the Company's expected working capital needs, debt service requirements and planned capital expenditures. The Company made capital expenditures of $2.0 million in 1996 and $3.9 million in 1997. Each of the Founding Companies has upgraded its information systems over the past two years. In addition, Mail Box has invested in new intelligent inserting and sorting equipment to upgrade and expand its mail services capabilities. As a result, the Company does not expect to have significant capital expenditures for information systems in the next two years, other than as may be required to integrate the systems of the Founding Companies and to upgrade and integrate companies that are acquired in the future. The Company intends to study the feasibility of integrating the systems of the Founding Companies. Consequently, the Company has not yet established its capital needs for such integration, which capital requirements are likely to change as the Company acquires other companies in the future. The Company intends to pursue attractive acquisition opportunities. The timing, size or success of any acquisition efforts is unpredictable. Accordingly, the Company is unable to accurately estimate its expected capital commitments. Funding for future acquisitions will likely come from a combination of proceeds of the IPO, cash flow from operations, borrowings under the proposed credit facility and the issuance of additional equity. RESULTS OF OPERATIONS -- MAIL BOX Mail Box provides direct mailing services, billing services, mail presorting, freight and drop shipping, data processing, laser printing, mailing list rental and order fulfillment to companies located principally in the southwest United States. The following table sets forth certain selected financial data for Mail Box on a historical basis and as a percentage of revenues for the periods indicated:
Years Ended December 31, 1995 1996 1997 ------------------ ---------------------- ----------------- (Dollars in thousands) Revenues $17,370 100.0% $26,156 100.0% $32,566 100.0% Operating expenses 12,402 71.4 17,953 68.6 21,493 66.0 --------- ----- ------- ----- ------- ----- Gross profit 4,968 28.6 8,203 31.4 11,073 34.0 Selling, general and administrative expenses 4,370 25.2 5,891 22.6 7,824 24.0 --------- ----- ------- ----- ------- ----- Income from operations $ 598 3.4% $ 2,312 8.8% $ 3,249 10.0% ========= ===== ======= ===== ======= ======
27 RESULTS FOR 1997 COMPARED TO 1996 -- MAIL BOX Revenues. Revenues increased $6.4 million, or 24.5%, from $26.2 million in 1996 to $32.6 million in 1997, primarily due to new mailing programs initiated by existing customers. Mail volume increased in 1997 compared to 1996 primarily due to increased volume with existing clients. Operating expenses. Operating expenses increased approximately $3.5 million, or 19.7%, from $18.0 million in 1996 to $21.5 million in 1997, primarily as a result of higher wage expenses associated with the mailing and freight businesses and increased list rental costs. As a percentage of revenues, operating expenses decreased from 68.6% in 1996 to 66.0% in 1997, primarily due to improved efficiency in mailing operations and revenue mix changes, with higher margin list rental revenues growing as a percentage of revenues. Selling, general and administrative expenses. Selling, general and administrative expenses increased $1.9 million, or 32.8%, from $5.9 million in 1996 to $7.8 million in 1997. The increase was primarily attributable to higher management salaries and increases in depreciation and rent expenses. As a percentage of revenues, selling, general and administrative expenses increased from 22.6% in 1996 to 24.0% in 1997. Excluding Compensation Differential of $875,000 in 1996 and $1.8 million in 1997, selling, general and administrative expenses decreased from 19.2% of revenues to 18.6% of revenues. RESULTS FOR 1996 COMPARED TO 1995 -- MAIL BOX Revenues. Revenues increased $ 8.8 million, or 50.6%, from $17.4 million in 1995 to $26.2 million in 1996, primarily due to expanded volume with existing customers. In addition, Mail Box generated an additional $2.3 million in revenues from a new client in the medical claims industry. Mail volume increased from approximately 500 million pieces in 1995 to approximately 840 million pieces in 1996. Operating expenses. Operating expenses increased approximately $5.6 million, or 44.8%, from $12.4 million in 1995 to $18.0 million in 1996, primarily as a result of higher wage expenses in the mailing business and increased list rental costs. As a percentage of revenues, operating expenses decreased from 71.4% in 1995 to 68.6% in 1996, primarily due to improved efficiency in mailing operations. Selling, general and administrative expenses. Selling, general and administrative expenses increased $1.5 million, or 34.8%, from $4.4 million in 1995 to $5.9 million in 1996. The increase was primarily attributable to higher sales and management salaries, as well as increased systems, rent and depreciation expenses. As a percentage of revenues, selling, general and administrative expenses decreased from 25.2% in 1995 to 22.6% in 1996. Excluding Compensation Differential of $310,000 in 1995 and $875,000 in 1996, selling, general and administrative expenses decreased from 23.4% of revenues to 19.2% of revenues, respectively. This decrease as a percentage of revenues was the result of spreading fixed expenses over a larger revenue base. LIQUIDITY AND CAPITAL RESOURCES -- MAIL BOX Mail Box provided $2.9 million and $246,000 of cash from operating activities in 1996 and 1997, respectively. The decrease in 1997 was due to timing differences in operating accounts, specifically postage on hand and postage deposits and advances. Net cash provided by operations is primarily comprised of net income, non-cash expenses (primarily depreciation and amortization) and changes in operating assets and liabilities (primarily routine fluctuations in trade accounts receivable and payable, postage on hand and postage advances and deposits). Capital expenditures for the purchase of property and equipment totaled $1.0 million and $1.5 million in 1996 and 1997, respectively. Mail Box used cash of $473,000 and $146,000 for financing activities during 1996 and 1997, respectively, primarily in 28 connection with the net repayment of various borrowings and, in the latter period, the repurchase of treasury stock in the amount of $1.0 million. RESULTS OF OPERATIONS -- NCMC NCMC provides accounts receivable management services primarily to clients in the education, utilities, government and healthcare industries. NCMC also provides APS check drafting services initiated by telephone instruction primarily to clients in the financial services and utilities sectors. The following table sets forth certain selected financial data for NCMC on a historical basis and as a percentage of revenues for the periods indicated:
Years Ended December 31, ----------------------------------------------------------- 1995 1996 1997 ---------------- --------------------- ----------------- (Dollars in thousands) Revenues...................................... $12,287 100.0% $13,579 100.0% $15,620 100.0% Operating expenses............................ 6,322 51.5 7,945 58.5 9,433 60.4 ------- ----- ------- ----- ------- ----- Gross profit.................................. 5,965 48.5 5,634 41.5 6,187 39.6 Selling, general and administrative expenses.. 4,328 35.2 4,798 35.3 6,340 40.6 ------- ----- ------- ----- ------- ----- Income (loss) from operations................. $ 1,637 13.3% $ 836 6.2% $ (153) (1.0)% ======= ===== ======= ===== ======= ======
RESULTS FOR 1997 COMPARED TO 1996 -- NCMC Revenues. Revenues increased approximately $2.0 million, or 15.0%, from $13.6 million in 1996 to $15.6 million in 1997, primarily due to increased transaction volume with existing APS customers and increased collections business from existing customers. APS check transaction volume increased from 5.5 million checks in 1996 to 9.4 million checks in 1997. While transaction volume grew 70.9%, per check prices decreased 30.9% as a result of increased competition. Operating expenses. Operating expenses increased approximately $1.5 million, or 18.7%, from $7.9 million in 1996 to $9.4 million in 1997. As a percentage of revenues, operating expenses increased from 58.5% in 1996 to 60.4% in 1997, primarily due to a $650,000 increase in mailing costs associated with APS check confirmation letters without a commensurate increase in revenues. Costs were also unfavorably impacted by certain special charges including $160,000 of compensation related expenses, $119,000 of relocation expenses and executive search fees, and $76,000 of legal expenses. Selling, general and administrative expenses. Selling, general and administrative expenses increased approximately $1.5 million, or 32.1%, from $4.8 million in 1996 to $6.3 million in 1997. The increase was almost entirely attributable to a one-time compensation expense recognized in the third quarter of 1997 relating to shares issued to key employees. As a percentage of revenues, selling, general and administrative expenses increased from 35.3% in 1996 to 40.6% in 1997. Excluding the $1.3 million of compensation expense recognized in the third quarter of 1997 relating to shares issued to key employees, selling, general and administrative expenses as a percentage of revenues decreased from 35.3% in 1996 to 32.0% in 1997. RESULTS FOR 1996 COMPARED TO 1995 -- NCMC Revenues. Revenues increased $1.3 million, or 10.5%, from $12.3 million in 1995 to $13.6 million in 1996, primarily due to expanded APS check volume with existing customers. APS transaction volume increased from approximately 3.6 million checks in 1995 to approximately 5.5 million checks in 1996. This 52.8% increase was partly offset by a 21.2% average APS per check price decrease during 1996 as a result of increased competition. Receivables management revenues grew slightly during 1996 as NCMC restructured its operations and sales management. 29 Operating expenses. Operating expenses increased approximately $1.6 million, or 25.7%, from $6.3 million in 1995 to $7.9 million in 1996. As a percentage of revenues, operating expenses increased from 51.5% in 1995 to 58.5% in 1996, primarily due to increased mailing costs associated with APS check confirmation letters and growth in direct payroll. As a percentage of revenues, mailing costs increased from 10.7% in 1995 to 12.3% in 1996. Selling, general and administrative expenses. Selling, general and administrative expenses increased $470,000, or 10.9%, from $4.3 million in 1995 to $4.8 million in 1996. The increase was primarily attributable to increased legal, rent, systems and insurance expenses. As a percentage of revenues, selling, general and administrative expenses increased slightly from 35.2% in 1995 to 35.3% in 1996. LIQUIDITY AND CAPITAL RESOURCES -- NCMC NCMC provided $566,000 and $1.2 million of cash from operating activities in 1996 and 1997, respectively. Net cash provided by operations is primarily comprised of net income, non-cash expenses (primarily depreciation and amortization) and changes in operating assets and liabilities (primarily routine fluctuations in trade accounts receivable and payable and prepaid expenses). For 1997, net cash provided by operations included a $256,000 increase in trade payables relating to the purchase of systems equipment. Net cash used for purchases of property and equipment totaled $164,000 and $2.1 million for the years ended December 31, 1996 and 1997, respectively. NCMC used cash of $420,000 for financing activities during 1996, primarily for the payments under its line of credit and capital leases. NCMC received $956,000 from financing activities in 1997, primarily in connection with borrowings under its term loan. RESULTS OF OPERATIONS -- BOMAR Bomar provides accounts receivable management services primarily for clients in the telecommunications, insurance, financial services and healthcare industries. The following table sets forth certain selected financial data for Bomar on a historical basis and as a percentage of revenues for the periods indicated:
Years Ended December 31, ---------------------------------------------------- 1995 1996 1997 -------------- -------------------- -------------- (Dollars in thousands) Revenues................ $7,416 100.0% $9,597 100.0% $14,266 100.0% Operating expenses...... 4,229 57.0 5,814 60.6 8,208 57.5 ------ ----- ------ ----- ------- ----- Gross profit............ 3,187 43.0 3,783 39.4 6,058 42.5 Selling, general and administrative expenses. 2,934 39.6 3,458 36.0 5,078 35.6 ------ ----- ------ ----- ------- ----- Income from operations.. $ 253 3.4% $ 325 3.4% $ 980 6.9% ====== ===== ====== ===== ======= =====
RESULTS FOR 1997 COMPARED TO 1996 -- BOMAR Revenues. Revenues increased $4.7 million, or 48.7%, from $9.6 million in 1996 to $14.3 million in 1997, primarily due to the acquisitions of ACS in August 1996, CPA in November 1996 and FCCI in September 1997 which added revenues of $1.4 million, $1.3 million and $1.2 million, respectively, in 1997. Additionally, revenues grew as a result of increased business from existing clients. Operating expenses. Operating expenses increased approximately $2.4 million, or 41.2%, from $5.8 million in 1996 to $8.2 million in 1997. The increase was primarily attributable to increased 30 collector salaries and incentives as well as operating expenses associated with FCCI and CPA which were acquired in September 1997 and November 1996, respectively. As a percentage of revenues, operating expenses decreased from 60.6% for 1996 to 57.5% for 1997, primarily due to a decrease as a percentage of revenues in collector salaries and incentives and telephone expense. Selling, general and administrative expenses. Selling, general and administrative expenses increased $1.6 million, or 46.8%, from $3.5 million in 1996 to $5.1 million in 1997. The increase was primarily attributable to increased depreciation, insurance and rent expenses as well as expenses associated with FCCI and CPA which were acquired in September 1997 and November 1996, respectively. As a percentage of revenues, selling, general and administrative expenses decreased from 36.0% in 1996 to 35.6% in 1997. This decrease as a percentage of revenues was primarily the result of selling, general and administration expenses of FCCI that were lower as a percentage of revenues than Bomar's operations. RESULTS FOR 1996 COMPARED TO 1995 -- BOMAR Revenues. Revenues increased $2.2 million, or 29.4%, from $7.4 million in 1995 to $9.6 million in 1996, due in part to the acquisitions of ACS and CPA, which together contributed over $300,000 of revenues in 1996, and in part to business from new clients. Operating expenses. Operating expenses increased approximately $1.6 million, or 37.5%, from $4.2 million in 1995 to $5.8 million in 1996. As a percentage of revenues, operating expenses increased from 57.0% in 1995 to 60.6% in 1996, primarily due to higher collector salaries which increased $1.1 million from $2.1 million to $3.2 million as a result of an increase in full time employees in the second half of 1996. The acquired companies also had higher operating expenses as a percentage of revenues. Selling, general and administrative expenses. Selling, general and administrative expenses increased $524,000, or 17.9%, from $2.9 million in 1995 to $3.5 million in 1996. The increase was primarily attributable to higher rent expenses as well as expenses associated with CPA and ACS which were acquired in November 1996 and August 1996, respectively. As a percentage of revenues, selling, general and administrative expenses decreased from 39.6% in 1995 to 36.0% in 1996. LIQUIDITY AND CAPITAL RESOURCES -- BOMAR Bomar provided $359,000 and $887,000 of cash from operating activities in 1996 and 1997, respectively. Net cash provided by operations is primarily comprised of net income, non-cash expenses (primarily depreciation and amortization) and changes in operating assets and liabilities (primarily routine fluctuations in commissions receivable and trade accounts payable). Net cash used in investing activities totaled $1.4 million and $3.8 million in 1996 and 1997, respectively (including $791,000 and $3.7 million for acquisitions in 1996 and 1997, respectively). Bomar had cash inflows of $920,000 and $3.3 million for financing activities during 1996 and 1997, respectively, primarily in connection with the net borrowings under Bomar's line of credit and issuances of long-term debt. RESULTS OF OPERATIONS -- MID-CONTINENT Mid-Continent provides accounts receivable management services primarily to companies in the manufacturing, insurance, wholesale distribution and commercial sectors. Mid-Continent's business is comprised of contingency fee collections and outsourced collection services. 31 The following table sets forth certain selected financial data for Mid- Continent on a historical basis and as a percentage of revenues for the periods indicated:
Years Ended December 31, ------------------------------------------------------------ 1995 1996 1997 -------------- ------------------------ ---------------- (Dollars in thousands) Revenues....................... $8,763 100.0 % $9,038 100.0% $9,451 100.0% Operating expenses............. 2,851 32.5 2,875 31.8 3,105 32.9 ------ ----- ------ ----- ------ ----- Gross profit................... 5,912 67.5 6,163 68.2 6,346 67.1 Selling, general and administrative expenses....... 5,974 68.2 6,054 67.0 6,239 66.0 ------ ----- ------ ----- ------ ----- Income (loss) from operations.. $ (62) (0.7)% $ 109 1.2% $ 107 1.1% ====== ===== ====== ====== ====== =====
RESULTS FOR 1997 COMPARED TO 1996 -- MID-CONTINENT Revenues. Revenues increased $413,000, or 4.6%, from $9.0 million in 1996 to $9.5 million in 1997, primarily due to increased volume from new clients. Operating expenses. Operating expenses increased $230,000, or 8.0%, from $2.9 million in 1996 to $3.1 million in 1997, primarily due to increased collector costs. As a percentage of revenues, operating expenses increased from 31.8% in 1996 to 32.9% in 1997. Selling, general and administrative expenses. Selling, general and administrative expenses increased $185,000, or 3.1%, from $6.1 million in 1996 to $6.2 million in 1997. The increase was primarily attributable to increased management compensation expenses. As a percentage of revenues, selling, general and administrative expenses decreased from 67.0% in 1996 to 66.0% in 1997. RESULTS FOR 1996 COMPARED TO 1995 -- MID-CONTINENT Revenues. Revenues increased $275,000, or 3.1%, from $8.8 million in 1995 to $9.0 million in 1996, primarily due to increased contingency fee business from existing clients. Operating expenses. Operating expenses were $2.9 million in 1995 and 1996. As a percentage of revenues, operating expenses decreased from 32.5% in 1995 to 31.8% in 1996, as a result of an increase in revenues. Selling, general and administrative expenses. Selling, general and administrative expenses increased slightly by $80,000, or 1.3%, from $6.0 million in 1995 to $6.1 million in 1996. As a percentage of revenues, selling, general and administrative expenses decreased from 68.2% in 1995 to 67.0% in 1996. Excluding the Compensation Differential in both years, selling, general and administrative expenses as a percentage of revenues decreased from 56.1% in 1995 to 54.1% in 1996. LIQUIDITY AND CAPITAL RESOURCES -- MID-CONTINENT Mid-Continent provided $176,000 of cash from operating activities in 1996. In 1997, Mid-Continent used $36,000 of cash from operating activities. Net cash provided by operations is primarily comprised of net income, non-cash expenses (primarily depreciation and amortization) and changes in operating assets and liabilities (primarily routine fluctuations in trade accounts receivable and payable and accrued expenses). Net cash used for purchases of property and equipment totaled $49,000 and $65,000 in 1996 and 1997, respectively. Mid- Continent used cash of $131,000 and received cash of $266,000 for financing activities during 1996 and 1997, respectively, primarily in connection with borrowing activity and advances to stockholders. 32 RESULTS OF OPERATIONS -- IMPACT Impact provides primarily outbound telemarketing services to national and regional companies in the insurance, financial services, telecommunications and utilities industries. The following table sets forth certain selected financial data for Impact on a historical basis and as a percentage of revenues for the periods indicated:
Years Ended December 31, ------------------------------------ 1996 1997 --------------- ---------------- (Dollars in thousands) Revenues...................................... $8,869 100.0% $12,870 100.0% Operating expenses............................ 6,961 78.5 9,725 75.6 ------ ----- ------- ----- Gross profit.................................. 1,908 21.5 3,145 24.4 Selling, general and administrative expenses.. 2,108 23.8 2,823 21.9 ------ ----- ------- ----- Income (loss) from operations................. $ (200) (2.3)% $ 322 2.5% ====== ===== ======= =====
RESULTS FOR 1997 COMPARED TO 1996 -- IMPACT Revenues. Revenues increased $4.0 million, or 45.1%, from $8.9 million in 1996 to $12.9 million in 1997, primarily due to increased business from existing clients. Operating expenses. Operating expenses increased approximately $2.8 million, or 39.7%, from $7.0 million in 1996 to $9.7 million in 1997. As a percentage of revenues, operating expenses decreased from 78.5% in 1996 to 75.6% in 1997, primarily due to higher revenues per hour due to changes in customer mix. Selling, general, and administrative expenses. Selling, general and administrative expenses increased $715,000, or 33.9%, from $2.1 million in 1996 to $2.8 million in 1997. The increase was primarily attributable to increased rent, depreciation, and systems expenses associated with Impact's call center expansion in 1997. As a percentage of revenues, selling, general and administrative expenses decreased from 23.8% in 1996 to 21.9% in 1997. This decrease as a percentage of revenues was the result of spreading fixed expenses over a larger revenue base. LIQUIDITY AND CAPITAL RESOURCES -- IMPACT Impact provided $96,000 of cash from operating activities in 1996. In 1997, Impact used $306,000 of cash from operating activities primarily as a result of increased accounts receivable. Net cash provided by operations is primarily comprised of net income (loss), non-cash expenses (primarily depreciation and amortization) and changes in operating assets and liabilities (primarily routine fluctuations in trade accounts receivable and payable and accrued liabilities). Net cash provided by investing activities totaled $2,000 in 1996 and net cash used in investing activities totaled $52,000 in 1997. Impact used cash of $90,000 and received cash of $337,000 for financing activities during 1996 and 1997, respectively, primarily in connection with the net repayment of various borrowings and distributions to stockholders. 33 BUSINESS INTRODUCTION Compass was organized to create a leading provider of outsourced business services to public and private entities throughout the Sales Cycle. The five Founding Companies collectively provide accounts receivable management services, mailing services and teleservices to clients in a broad range of sectors including telecommunications, financial services, insurance, healthcare, education, government and utilities. In addition, through its proprietary Accelerated Payment Systems ("APS") process, one of the Founding Companies is a leading provider of telephonic check drafting services which enable clients to accept payments through checks authorized by phone. The Founding Companies, each of which has been in business for more than ten years, have collectively achieved substantial growth in recent years. On a pro forma combined basis, the Founding Companies' revenues increased from $34.2 million in 1992 to $87.2 million in 1997, representing a compound annual growth rate of 20.6%. The Company's accounts receivable management services include the recovery of traditional delinquent accounts from both consumer and commercial debtors and the management of early stage delinquencies. Mailing services include lead generating direct mail, often to prompt inbound sales calls, and direct mail for billing, payment processing or collection purposes. Mailing services also include presorting, freight and drop shipping, data processing, laser printing, mailing list rental and order fulfillment. Teleservices include outbound telemarketing, inbound customer service and inbound sales. Each of the services provided by the Company, including APS, can be utilized at various stages of the Sales Cycle. The Company is one of the largest providers of its services in the United States in terms of revenues, servicing clients from 12 call centers in ten states equipped with a total of approximately 900 workstations, a mail processing center in Texas, four sales centers in the United States and one sales center in the United Kingdom. Compass believes that companies are increasingly seeking partners who can provide a comprehensive set of outsourcing services, spanning the entire Sales Cycle, while maintaining a high level of client service. The diagram below illustrates the processes that comprise the Sales Cycle, from direct marketing through accounts receivable collection, and the services of the Company that can be utilized at various stages throughout the Sales Cycle. [DIAGRAM] The Company's goal is to become a leading, single source provider of outsourced business services throughout the Sales Cycle. The Company intends to leverage the strong client relationships developed by the Founding Companies to cross-sell additional services to existing clients and to use the expertise of the Founding Companies as a point of entry with new clients. In addition, the Company intends to pursue an aggressive acquisition program to broaden the services it offers, expand its client base and gain access to new markets. INDUSTRY OVERVIEW Companies are increasingly outsourcing to third party experts a variety of non-core business functions throughout the Sales Cycle. The Company believes, although there can be no assurance, that this trend toward outsourcing will continue due to a number of factors. Outsourcing allows companies to focus on strategic issues and redirect resources to core business activities while having operational details assumed by a third party provider. In addition, by partnering with specialized outsourcing providers, a company gains access to new technology, tools and techniques that it may not possess internally. By outsourcing functions previously performed in-house, companies can convert the fixed costs associated with investments in equipment, processes, technology and personnel into variable costs incurred only when such functions are needed, and can perform these functions more cost effectively. 34 In addition to the general trend toward outsourcing, management believes that a number of significant factors and trends are creating opportunities in the Company's businesses. In particular, both the accounts receivable management industry and the direct marketing industry have experienced significant growth in recent years. According to a recent report concerning the accounts receivable management industry, receivables outsourced to third parties for management and recovery in the United States increased from approximately $79.0 billion in 1994 to approximately $84.3 billion in 1995, an increase of approximately 6.7%. The Company believes that this growth results in large part from a combination of increasing delinquent consumer debt and the increasing trend of companies and government entities to outsource collection of such debt to third parties. According to the Federal Reserve Board, consumer debt increased from approximately $3.6 trillion in 1990 to nearly $5.0 trillion in 1995. As debt levels have increased, companies are outsourcing more as a result of the (i) increased investment associated with large-scale collection efforts, (ii) ability to use a third party agency to collect funds thereby minimizing the negative impact on customer relations and (iii) increasing complexity of the collection process. Based on ACA estimates and industry assumptions that three percent of consumer debt becomes delinquent, the percentage of delinquent debt referred for collection increased from 41.5% in 1990 to 57.0% in 1995. The Company also believes, based on its recent experience, that companies are beginning to utilize third party service providers earlier in the collection cycle. According to the Direct Marketing Association ("DMA"), a trade association, overall media spending for direct marketing initiatives totalled $144.5 billion in 1996, a 6.3% increase from 1995. The DMA estimates that direct marketing advertising expenditures in the United States for telemarketing (the largest component of total direct marketing expenditures) increased from approximately $42.4 billion in 1991 to $57.8 billion in 1996, a compound annual growth rate of 6.4%. Direct mail advertising expenditures, which constitute the second largest (after telemarketing) component of total direct marketing expenditures, increased from approximately $24.5 billion in 1991 to $34.6 billion in 1996, a compound annual growth rate of 7.1%. Management believes that direct marketing will continue to grow, due in part to the increasing cost effectiveness of direct marketing as compared to other marketing methods, increased competition in the telecommunications industry and rapidly changing, complex technology. Although a very small percentage of teleservices and direct mail business is currently being outsourced, the Company believes that the percentage of the market that is outsourced will also increase as businesses continue to recognize the benefits of outsourcing. Each of the accounts receivable management, direct mail and teleservices industries is highly fragmented, includes a large number of small, independent businesses and is currently experiencing consolidation. As companies seek to focus on their core competencies and maximize asset utilization, they are increasingly turning to outside parties who have the technological expertise, service focus and full range of capabilities necessary to efficiently perform complex or large projects on a multi-regional or national basis. In addition, management believes that companies are increasingly seeking to limit the number of vendors that satisfy their outsourcing needs by finding vendors that can provide multiple outsourcing services. Compass believes that outsourcing companies will require significant capital to grow and to deploy state-of-the- art technology in order to meet the demands of their clients. As a result, the Company believes significant opportunities are available to a well-capitalized company providing a broad offering of outsourced business services with a high level of customer service. BUSINESS STRATEGY The Company's goal is to become a leading, single-source provider of outsourced business services throughout the Sales Cycle. In order to achieve this goal, the Company intends to pursue the following strategy: 35 Provide Broad Array of Complementary Services. Each of the Founding Companies has developed extensive expertise and a strong reputation with respect to the services it provides. The Company is able to provide clients with a broad range of services. The Company expects to offer bundled and complementary services to companies that are currently outsourcing to multiple vendors or performing such functions in-house. In response to the particular needs of each client, the Company will develop customized, coordinated solutions, such as a package of direct marketing, mail fulfillment, billing, customer service and accounts receivable management services. Management believes that companies that can provide a broad array of complementary business services are well positioned for growth as clients are increasingly demanding strategic business partnerships with their vendors, including a single point of contact for many services. In addition, management believes that the Company's reputation for and focus on creating individual business solutions will help it to compete on a basis other than price. Focus on High Quality Client Service. The Company believes that maintaining high levels of service and satisfaction is integral to attracting and retaining clients. In addition to the importance of customized, value-added solutions, client and end-user satisfaction is an important differentiating factor in vendor selection. Each Founding Company has a strong commitment to quality and satisfaction, and conducts regular client performance reviews. For example, Impact has dedicated account teams who implement an extensive quality process that includes validation of the data sent by a client, constant monitoring of the phone conversations done on-site or at the client's location to ensure that scripts are properly executed, and an internally designed verification process to ensure that all of the client's requirements have been fulfilled. Leverage and Expand Technology and Operational Infrastructures. A key element of the Company's strategy will be to capitalize on the investments made by the Founding Companies in technology and the development of operational processes in order to deliver the most effective client solutions. The Company intends to continue to invest in sophisticated telecommunications, mail center and information technology. Continued investment in technology will facilitate the Company's ability to integrate its existing service offerings and expand its menu of services. In addition, the Company will review technology and operational practices across its businesses with the goal of leveraging the best platforms and processes, optimizing MIS capabilities and sharing technologies. Operate with Decentralized Management Structure. Compass believes that the experienced local management teams at the Founding Companies have a valuable understanding of their respective markets and businesses and strong client relationships upon which they may capitalize. Accordingly, the Company operates with a decentralized management strategy. Senior management at the Founding Companies continues to make day-to-day operating decisions and is responsible for the profitability and growth of their business. The Company's executive management team works closely with the Founding Companies to coordinate, integrate and expand their service offerings. The Company intends to utilize stock ownership, as well as appropriate incentive compensation, to ensure that the objectives of local management are aligned with those of the Company. GROWTH STRATEGY The Company believes that there are significant opportunities to expand its business and to further penetrate the market for outsourced business services. The key elements of its growth strategy are as follows: Implement Internal Growth Strategy. While the Company intends to acquire additional outsourcing services companies, strong internal growth remains the core of the Company's growth strategy. The key elements of the Company's internal growth strategy include the following: 36 Capitalize on Cross-Selling Opportunities. Each of the Founding Companies is a specialist in the services it provides, and each has many long standing relationships with large clients who have multiple outsourcing needs. Combining the Founding Companies enables the Company to capitalize on clients' desires for a single point of service, and to offer bundled services by leveraging the Founding Companies' client relationships and reputations for quality. For example, the Company will offer follow-up teleservices to its direct mailing services clients, utilizing identical databases for both processes. The Company also intends to offer accounts receivable management services to its billing services clients. Generate New Clients Through an Aggressive Marketing Program. The Company intends to expand its client base by capitalizing on the breadth of its services, its size, financial resources and geographic scope. The Company will establish a coordinated marketing strategy to effectively market and sell the services of all Founding Companies on a national basis. Expand Service Offerings. The Company expects to continue to selectively expand its service offerings, with the goal of providing integrated "end-to-end" services to clients throughout the Sales Cycle. New services will be complementary to and further leverage the Company's current offerings. Implement Best Practices. The Company will identify best practices at each of the Founding Companies that can be implemented throughout the Company. For example, the Company intends to identify and utilize the most effective call center management programs, collection techniques, mail services and technologies. In addition, the Company intends to focus on the most effective hiring, training, benefits and employee retention programs of the Founding Companies and implement those practices throughout its operations. Achieve Economies of Scale. The Company believes that it can achieve significant cost savings as a result of the Acquisitions, as well as future acquisitions. The Company expects to benefit from greater purchasing power in such key expense areas as telecommunications, postage, credit bureau reports, insurance and employee benefits. The Company believes that it can reduce the total operating expenses of the Founding Companies and other acquired businesses by eliminating or consolidating certain duplicative administrative functions. In addition, the Company expects to realize cost savings and maximize capacity utilization by shifting work among its locations as appropriate. Pursue International Opportunities. Management believes that international markets for accounts receivable management and teleservices are growing rapidly in conjunction with the growth of overall credit card spending and the expansion of the business of major credit card issuers overseas. Management also believes that the United States is significantly more advanced in outsourcing technology and procedures than the rest of the world. Accordingly, the Company intends to pursue opportunities in international markets in order to provide services to its multinational clients. In addition, the Company may pursue other expansion overseas as attractive opportunities arise. Where appropriate, the Company may enter into a strategic partnership with an existing local business to facilitate entry into a new international market. The Company believes that it is well-positioned to capitalize on international opportunities through its existing relationships with multinational clients as well as the expertise and reputations of the Founding Companies. Pursue an Aggressive Acquisition Program. Compass believes that industry trends toward consolidation and increased acceptance of outsourcing create opportunities for expansion of the Company's business. The Company intends to capitalize on the highly fragmented nature of the 37 industries in which it competes by implementing an aggressive strategic acquisition program following the Offering. Using the Founding Companies as platforms for growth and consolidation, the Company will pursue acquisitions within the industry segments and markets currently served by the Founding Companies to add to the growth of its existing businesses and gain market share. In addition, the Company plans to acquire additional companies that broaden and complement the Company's menu of services and the markets it serves. In analyzing acquisition candidates, the Company will look for profitable companies with strong management teams and a reputation for high quality client service. The Company may also consider acquiring companies that possess technology or proprietary rights to functions or services that would significantly enhance the value provided by the Company to its clients. The Company believes that the opportunity to be acquired by Compass will be attractive to many specialized outsourcing companies. The Company offers owners of potential acquisition candidates: (i) significant opportunities to enhance the growth of their businesses through cross-selling the Company's wide range of outsourced services; (ii) access to sophisticated technology and operational processes; (iii) the Company's financial strength and visibility as a public company; (iv) a decentralized management structure; and (v) near-term liquidity. In selecting the Founding Companies, Compass analyzed significant data on outsourced business services companies and met with owners of many individual companies. In addition, the owners of the Founding Companies have extensive industry knowledge and strong reputations and have developed relationships with other companies in their industry sectors, and the Company believes that this will be of significant value in the Company's acquisition program. The Company continues to review various strategic acquisition opportunities. As consideration for future acquisitions, the Company intends to use various combinations of Common Stock, cash and notes. The Company's ability to successfully execute its growth strategy is subject to certain risks. See "Risk Factors" beginning on page 9 of this Prospectus. SERVICES OFFERED BY THE COMPANY The Company provides a broad array of complementary business services which can be utilized by its clients throughout the Sales Cycle. These services include accounts receivable management services, mailing services and teleservices. In addition, the Company provides telephonic check drafting services through its APS service bureau. The services related to accounts receivable management include recovery of early and later stage delinquent consumer and commercial accounts. Mailing services include data processing, printing, addressing, inserting, presorting and other aspects of mail handling. Teleservices include telemarketing, customer service, market research and lead generation activities. Several of the Company's services, such as customer service and APS, can be utilized at multiple stages of the Sales Cycle. Accounts Receivable Management Services The Company, through NCMC, Bomar and Mid-Continent, provides a wide range of accounts receivable management services with respect to the collection of both consumer and commercial accounts. The Company primarily provides services related to the recovery of traditional delinquent accounts which can be categorized as primary (generally 90 to 360 days past due), secondary (generally 12 to 18 months past due with some previous collection efforts) and tertiary (generally more than 18 months past due with extensive previous collection efforts). The Company also provides recovery services for early stage receivables (generally less than 90 days past due) at either the client's location or the Company's location, sometimes on an outsourced basis. The Company charges a fee per account or a contingency fee (generally 2% to 25% of the amount collected) for early stage receivables. With respect to traditional delinquent receivables, the Company generally charges its clients on a contingency fee basis at various 38 rates depending on the category of debt. Generally, the Company charges 25% to 35% of the amount collected for primary accounts, 35% to 50% for secondary accounts and 50% to 70% for tertiary accounts. Recovery activities begin with the Company working with a client to design a customized recovery solution based upon various factors including age and size of the account, type and source of debt, and the client's specific requirements and standards. After the Company and the client have determined the approach, the Company electronically or manually transfers data provided by the client onto its system. The Company then searches various databases, public records and other sources to locate customers whose telephone numbers or addresses are not available from the client. Once the customer is located, the Company forwards a past due notification letter which serves as official notification to the customer under the FDCPA. The Company continues the recovery process through notifications by mail and/or telephone, based on the nature of the account, during which time the Company's telephone representatives continue the dialogue with customers to seek immediate payment or develop a payment program. At the client's request, the Company will report delinquent accounts to one or more of the national credit bureaus. Payments collected by the Company are either remitted to the client net of the Company's fee or remitted in full, with the Company billing the client for its services. The Company also provides litigation management services for clients with respect to certain accounts. Such services include managing the attorney relationships and facilitating the transfer of necessary documentation. Throughout this process, the Company provides activity reports to the client. Mailing Services The Company, through Mail Box, provides direct mailing services and billing services, mail presorting, freight and drop shipping, data processing, laser printing, mailing list rental and other services related to mail handling. Mailing services involve the high speed inserting, addressing and stamping of mail. Utilizing the Company's inserting machines and addressing and stamping systems, the Company processed approximately 830 million pieces of mail during the twelve months ended December 31, 1997. The Company also provides mail presorting services (i.e., combining volumes of like mail and presorting and bar coding it to United States Postal Service specifications), which are designed to generate significant postal discounts for its customers. Utilizing the Company's sophisticated technology, mail can be presorted to the walk sequence of a specific mail carrier. The mail which is presorted includes both mail processed by other vendors and mail processed by the Company. Fees charged for mailing and presorting are based on the number of pieces processed. Another service offered by the Company which is designed to generate postage savings is drop shipping, whereby the Company, instead of sending mail from its Dallas location, transports the mail to other locations in order to be mailed. The fee charged for drop shipping is a percentage of the postal savings realized by the client. Data processing and laser printing services include converting data sent by the client and processing it to produce a letter or a bill. For example, if a client transfers billing information and a corresponding mailing list, the Company standardizes the mailing list in order to reduce postage costs (e.g., deleting duplicative addresses, correcting street names and obtaining current addresses through its change-of-address technology) and merges the list with the bills to be mailed. Data processing services also include state of the art predictive modeling and analysis for market segmentation to achieve higher response rates for direct marketing campaigns. The fee charged for data processing is based on the number of pieces processed. The Company also rents mailing lists, which the Company customizes for a particular client utilizing lists purchased from other sources. Other services of the Company include order fulfillment and sales of printed material such as letterhead, envelopes and forms. 39 Teleservices The Company, through Impact, provides primarily outbound business-to- consumer teleservices where telephone representatives place calls to parties targeted by the client to offer products or services or to obtain information. The Company currently has a total of approximately 260 call stations, all of which are available for outbound telemarketing. The Company has an arrangement to use 160 additional call stations located in North Dakota, as needed. The Company outsources additional business during peak periods. At the beginning of a typical outbound program, the Company receives customer data files that the client has selected to match the demographic profile of the targeted customer for the product or service being offered. These files contain each targeted customer's name, address, phone number and other relevant data. The Company's data management system checks the files for duplicate information, updates for recent area code changes and otherwise modifies the information as needed. Prior to the beginning of the calling effort, the Company works with the client to develop a script appropriate to the specific program. Actual telephone calling at the centers is controlled by computerized call management systems that utilize a predictive dialing system to automatically dial the telephone numbers in the files. The call management system then forwards all connected calls, along with the customer's name and other information, to the workstation of a telephone representative who has been trained for the client's program. The telephone representative uses the customized script to solicit an order for the product or service or to request information that will be added to the client's database. Information regarding sales and other aspects of the program is captured, processed and verified by software systems and made available to clients in customized report formats. The Company charges its outbound teleservices clients on a commission basis, at an hourly rate or through a combination of both. Inbound teleservices account for a small percentage of the Company's teleservices revenues, although the Company intends to expand this business. Forty of the Company's call stations may be used for inbound teleservices which involve the processing of incoming calls, often placed by customers using toll- free numbers, to a customer service representative for service, order fulfillment or product information. Inbound teleservices include activities such as customer care services, credit card and loan application processing and catalog sales. More sophisticated inbound programs assist clients in responding to customer inquiries, offering technical and product support services and assessing overall customer satisfaction. Inbound teleservices are normally billed at an hourly or cost-per-minute rate. Accelerated Payment Systems Accelerated Payment Systems ("APS") was introduced to the market by NCMC in 1992 and patented in 1996. It was originally developed to service the "urgency payment" market in the collections industry by allowing consumers to resolve delinquencies on mortgage, telephone, utility, credit card or other recurring bills through telephonic authorization of a payment by check. The use of APS has since expanded to retail, telecommunications, utilities, banking, sales and other industries as clients have begun to appreciate the advantages of telephonically authorized payments by check as compared to other methods of immediate payment such as wire transfers, money orders, overnight mail, credit cards and debit cards. Compass believes that the advantages include the following: (i) APS does not require written authorization; (ii) APS checks can be printed at the client's location for same day deposit; and (iii) credit cards are not a payment option in the urgency payment market for certain receivables such as credit card debt. The APS procedure begins when the client's representative obtains verbal authorization and checking account, bank and other information from the customer. The client enters such information into the computer where the APS software has been installed, and transmits the data to the APS service bureau. APS receives the transmission and either prints the checks on site for overnight delivery to the 40 client or a designated bank or provides the client access to print the checks at the client's location for same day deposit. The Company charges its APS clients a one-time setup fee as well as a per transaction fee. APS includes a license to use its proprietary software, bank and zip code database updates, software upgrades, data backup and service bureau support including a client help desk and consumer hotline. Management believes that the combination of the Founding Companies creates a significant opportunity to apply APS beyond the urgency payment market. For example, the Company intends to offer APS to its clients as a payment option to improve response rates on outbound telemarketing calls. CLIENT RELATIONSHIPS The Company provides its services to clients in a broad range of sectors including telecommunications, financial services, insurance, healthcare, education, government and utilities. In 1997, the Company's 10 largest clients accounted for approximately 45.5% of the Company's revenues on a pro forma combined basis. VarTec Telecom, Inc. ("VarTec") accounted for approximately 17.9% of the Company's 1997 revenues on a pro forma combined basis. Other than VarTec, no client accounted for more than 10% of the Company's revenues on a pro forma combined basis in 1997. The Company enters into contracts with most of its clients which define, among other things, fee arrangements, scope of services and termination provisions. Clients may usually terminate such contracts on short notice. The following table sets forth a list of certain of the Company's representative clients:
Financial Services Education Healthcare ------------------ --------- ----------- Capital One Financial Columbia University Beverly Enterprises, Inc. Corporation DeVRY, INC. MD Anderson Cancer Hospital Fleet Bank EduCap, Inc. Medical Resource Systems, Inc. General Electric Capital Roosevelt College Medic Computer Systems,Inc. Services, Inc. MBNA America Bank, N.A. Government and Utilities Telecommunications Retail and Commercial - -------------------------- ------------------ --------------------- The Army and Air Force AT&T Wireless Services Advantis Business Services, Inc. Exchange Services Bellsouth Circuit City, Inc. Baltimore Gas & Electric Telecommunications, The FACS Group (Federated Company Inc. Department Stores, Inc.) Georgia Power Co. Southwestern Bell Mobile MemberWorks, Inc. State of Maryland Systems, Inc. Sears Roebuck & Co. Nevada Power Company VarTec Telecom, Inc.
QUALITY ASSURANCE AND CLIENT SERVICE The Company's reputation for quality service is critical to acquiring and retaining clients and the Company has a strong commitment to quality and client satisfaction. With respect to the Company's telephone representatives, the Company and its clients monitor such representatives for compliance with the clients' specifications and the Company's policies. The Company regularly measures the quality of its services by capturing and reviewing such information as the amount of time spent talking with clients' customers, level of customer complaints and a variety of other operating measures. In order to provide ongoing improvement in the performance of the Company's telephone representatives and to assure compliance with the Company's policies and standards, quality assurance personnel monitor each telephone representative on a regular basis and provide ongoing training to the representative based on 41 this review. The Company's information systems enable it to provide clients with reports as to the status of their accounts. In some cases, clients can choose to network with the Company's computer system to access such information directly. The Company believes that extensive training of employees is essential in providing high quality service. For example, Mail Box established the Mail Box Academy, a dedicated training facility at which all new mailing service employees must complete a six-week program that includes training in United States postal regulations, data processing and operation of inserting and presorting machines. SALES AND MARKETING Each Founding Company has dedicated sales personnel who work directly with clients and potential clients to develop solutions to satisfy their outsourcing needs and cultivate successful, long term relationships. Historically, the Founding Companies have acquired new clients and marketed services by pursuing client referrals, responding to requests for proposals, attending trade and industry conferences and using targeted direct marketing efforts. As of December 31, 1997, the Company's sales force included 39 direct sales employees and five independent contractors. The Company intends to continue the Founding Companies' emphasis on developing and maintaining long-term client relationships. The Company will implement a marketing strategy which: (i) provides a broad range of high quality, complementary services; (ii) expands service offerings; and (iii) enables the cross-selling of services to existing and new clients. Marketing strategies will be coordinated to optimize the sales force efforts and prioritize new client acquisitions of major national accounts. TECHNOLOGY AND INFRASTRUCTURE Accounts Receivable Management Services The Company has made a substantial investment in its client/server and local- and wide-area networks which run its collection agency software and call management systems such as predictive dialers, automated call distribution systems and digital switching. The Company utilizes predictive dialers to address its low balance, high volume accounts. These systems scan the Company's database and simultaneously initiate calls on all available telephone lines and determine if a live connection is made. Upon determining that a live connection has been made, the computer immediately switches the call to an available representative and instantaneously displays the associated account record on the telephone representative's workstation. Calls that reach other signals, such as a busy signal, telephone company intercept or no answer, are tagged for statistical analysis and placed in priority recall queues or multiple-pass calling cycles. The system also automates virtually all recordkeeping and follow-up activities including letter and report generation. The Company's automated operations improve the productivity of the Company's collection staff. Mailing Services The Company utilizes software and technology in its lettershop, presort, and data processing facilities. For data processing, the Company utilizes an IBM mainframe and sophisticated letter processing and database management systems to provide high speed data manipulation, flexibility in letter text setup and predictive modeling and analysis. In addition, the Company is able to use its data processing technology to reduce postage costs for clients by deleting duplicative addresses, correcting street names and obtaining current addresses through its change-of-address technology. In the lettershop, the Company has 64 inserting machines, including intelligent inserting machines which burst, fold, select, match or handle multiple page inserts, and 20 addressing and stamping systems which allows the Company to process high volumes of mail in a short period of time. For mail presorting, the Company 42 utilizes multiline optical character readers which read the address, cross reference the National Postal Database and encode the corresponding bar code. Teleservices The Company provides its teleservices through call stations which utilize sophisticated call management systems including a predictive dialing system, automated call distribution systems and digital switching which are integrated with database management systems and local and wide area networks. In addition, the Company uses proprietary software for customizing scripts used by its telephone representatives. The Company's predictive dialing system was designed to be used in conjunction with its scripting and data capture software, while allowing for the import of data in any standardized format. This system can run up to 128 campaigns simultaneously and was designed to allow the Company to increase capacity rapidly and cost effectively. The Company has implemented procedures to protect the loss of data against power loss, fire and other casualty. In addition, the Company has installed a security system to protect the integrity and confidentiality of its computer system and data. COMPETITION The markets in which the Company competes are highly competitive, and the Company expects competition to persist and intensify in the future. As a result, the Company faces aggressive price competition in most of its businesses and expects price competition to continue. The Company's competitors include small firms offering specific applications, divisions of large entities, large independent firms and, most significantly, the in-house operations of clients or potential clients. Some of the Company's competitors have substantially greater financial, marketing and other resources, offer more diversified services and operate in broader geographic areas than the Company. There can be no assurance that additional competitors with greater resources than the Company will not enter the Company's markets. All of the services offered by the Company may be performed in-house. Many larger clients retain multiple accounts receivable management providers which exposes the Company to continuous competition in order to remain a preferred vendor. There can be no assurance that outsourcing of the services performed by the Company will continue or that existing Company clients will not bring some or all of such services in-house. The Company competes primarily on performance, client service, range of services offered and price. GOVERNMENT REGULATION The accounts receivable management and telemarketing industries are regulated under various federal and state statutes. The Company is subject to the FDCPA and various state debt collection laws, which, among other things, establish specific guidelines and procedures debt collectors must follow in communicating with consumer debtors, including the time, place and manner of such communications. The accounts receivable management business is also subject to state regulation, and some states require that the Company be licensed as a debt collection company. The Company is also subject to the FCRA, which regulates the consumer credit reporting industry and which may impose liability on the Company to the extent that the adverse credit information reported on a consumer to a credit bureau is false, inaccurate or outside of the scope of the Company's transactions with such consumers. With respect to the other teleservices offered by the Company, including telemarketing, the Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994 broadly authorizes the FTC to issue regulations prohibiting misrepresentations in telemarketing sales. The FTC's telemarketing sales rules, among other things, limit the hours during which telemarketers may call, prohibit misrepresentations of the cost, terms, restrictions, performance or duration of products or services offered by telephone solicitation and specifically address other perceived telemarketing abuses in the offering of prizes and the sale of business opportunities or investments. In addition, the TCPA restricts the use of automated telephone equipment for telemarketing 43 purposes, including limiting the hours during which telemarketers may call consumers and prohibiting the use of automated telephone dialing equipment to call certain telephone numbers. A number of states also regulate telemarketing and some states have enacted restrictions similar to the TCPA. The failure to comply with applicable statutes and regulations could have a materially adverse effect on the Company's business, results of operations and financial condition. There can be no assurance that additional federal or state legislation, or changes in regulatory implementation, would not limit the activities of the Company in the future or significantly increase the cost of regulatory compliance. Several of the industries served by the Company are also subject to varying degrees of government regulation. Although compliance with these regulations is generally the responsibility of the Company's clients, the Company could be subject to a variety of enforcement or private actions for its failure or the failure of its clients to comply with such regulations. The Company devotes significant and continuous efforts, through training of personnel and monitoring of compliance, to ensure that it is in compliance with all federal and state regulatory requirements. The Company believes that it is in material compliance with all such regulatory requirements. EMPLOYEES As of December 31, 1997, the Founding Companies employed a total of 1,032 full-time and 438 part-time employees, of whom 626 were employed in connection with accounts receivable management services, 473 were employed in connection with teleservices and 371 were employed in connection with mailing services. In addition, the Company uses independent contractors and hires temporary employees as needed. None of the Company's employees is represented by a labor union. The Company believes that its relations with its employees are good. FACILITIES The Company currently operates 15 leased facilities. The chart below sets forth certain information regarding such facilities.
Approximate Location of Facility Company and Operations Conducted Square Feet - -------------------- -------------------------------- ----------- Atlanta, GA Bomar -- Accounts receivable management 3,000 Buffalo, NY Mid-Continent -- Accounts receivable management, 7,700 sales and administrative Destin, FL Bomar -- Administrative 1,200 Dallas, TX Mail Box -- Mailing services and administrative 338,000 Houston, TX Bomar -- Accounts receivable management 2,800 Hunt Valley, MD NCMC -- Accounts receivable management and 18,600 administrative Las Vegas, NV NCMC -- Accounts receivable management 3,000 Louisville, KY Mid-Continent -- Accounts receivable management, 5,500 sales and administrative New York, NY Compass -- Corporate headquarters 4,500 Norcross, GA Bomar -- Accounts receivable management and sales 22,700 Phoenix, AZ Bomar -- Accounts receivable management 4,000 Rolling Meadows, Mid-Continent -- Accounts receivable management, 17,000 IL sales and administrative Tampa, FL Bomar -- Accounts receivable management 8,000 Voorhees, NJ Impact -- Outbound telemarketing 16,000 Woodbury, NJ Impact -- Telemarketing, data processing and 8,500 administrative
44 LITIGATION Disputes Relating to the APS Patent The Company is engaged in certain disputes concerning a patent (the "APS Patent") owned by the Company and used in its APS process to provide telephonic check drafting services. The following is a summary of such disputes: In January 1994, NCMC entered into an Intellectual Property Licensing Agreement (the "1994 Agreement") with Autoscribe Corporation ("ASC") and Robert E. Pollin (the "Inventor"). Pursuant to the 1994 Agreement, NCMC was granted, with certain exceptions, the exclusive right to use certain intellectual property that was at the time the subject of a patent application. In March 1996, NCMC purchased the intellectual property from ASC and the Inventor pursuant to an Intellectual Property Purchase and License Agreement (the "1996 Agreement") that superseded the 1994 Agreement. The APS Patent was issued in April 1996 and assigned to NCMC. NCMC is a plaintiff in two lawsuits (the "Patent Infringement Lawsuits") alleging that a competitor and a former customer willfully infringed the APS Patent. In June 1996, NCMC filed a lawsuit (the "Western Union Lawsuit") against Western Union Financial Services, Inc. in the United States District Court for the Southern District of New York, and in January 1998, NCMC amended its complaint to add Affiliated Computer Services, Inc., a software provider, as a defendant. In December 1996, NCMC filed suit (the "Discover Lawsuit") against Discover Card Services, Inc., Novus Services, Inc. and Dean Witter, Discover & Co. in the United States District Court for the District of Maryland. NCMC's claims against the defendants in the Patent Infringement Lawsuits seek lost profits, damages, attorneys' fees and costs, treble damages for willful infringement and punitive damages. The defendants in the Patent Infringement Lawsuits have denied infringing the APS Patent and have challenged the validity of the APS Patent in a counterclaim. Management believes that the counterclaim is without merit. The parties to the Western Union Lawsuit are currently engaged in discovery. In the Discover Lawsuit, on March 5, 1998, following motions by both parties, the judge granted defendants' motion for summary judgment. NCMC has appealed the ruling. Compass has entered into an agreement with NCMC and its stockholders with respect to the allocation of damages, if any, awarded to NCMC in the Patent Infringement Lawsuits. See "Certain Transactions." In April 1997, ASC and the Inventor filed an arbitration claim against NCMC seeking rescission of the 1996 Agreement and certain monetary damages. In May 1997, NCMC filed a lawsuit against ASC and the Inventor in the Circuit Court for Montgomery County, Maryland alleging that ASC and the Inventor have violated NCMC's ownership rights to the APS Patent and exclusive rights to use the intellectual property by continuing to solicit maintenance customers and provide maintenance services in contravention of the 1996 Agreement. NCMC seeks unspecified damages and injunctive relief. ASC and the Inventor have denied NCMC's claims and have filed a counterclaim seeking rescission of the 1996 Agreement, reassignment of the APS Patent to the Inventor, reinstatement of the 1994 Agreement, the ability to participate as a plaintiff in the Patent Infringement Lawsuits, unspecified damages and other relief. ASC and the Inventor allege that the 1996 Agreement should be rescinded because the Inventor lacked the capacity to sign the 1996 Agreement and because the 1996 Agreement was the product of misrepresentations and duress and is not supported by adequate consideration. ASC and the Inventor also allege that (i) NCMC was and is required under the 1996 Agreement to pay royalties at a rate equal to 7.25% of NCMC's APS-related revenues rather than the 4.5% rate at which they have been paid; (ii) NCMC improperly offset against the royalties certain litigation expenses incurred by it in the Patent Infringement Lawsuits; (iii) NCMC failed to properly prosecute the Patent Infringement Lawsuits; and (iv) NCMC was required under the 1994 Agreement to pay royalties at the rate of 7.25% for the period between March 1, 1995 and March 1, 1996, rather than the 4.5% rate at which they were paid during such period. NCMC has denied these allegations. The litigation is currently in the discovery phase. 45 While NCMC believes that the counterclaims are without merit, there can be no assurance that ASC and the Inventor will not prevail with respect to some or all of their counterclaims. In the event that ASC and the Inventor are successful in their counterclaims, both an award of damages and rescission of the 1996 Agreement could occur, with the future rights of the parties being determined by the 1994 Agreement. If the 1994 Agreement were reinstated, NCMC would be required to pay royalties at the rate of 7.25% of its APS-related revenues rather than the 4.5% rate at which royalties are being paid under the 1996 Agreement. Management does not believe that a decision adverse to NCMC in this dispute would have a material adverse effect on the Company's business, results of operations or financial condition. On February 18, 1998, the Inventor sent NCMC a notice of claim which alleges that NCMC, by attempting to enforce the non-competition provisions of the 1996 Agreement, has misused the APS Patent thereby rendering the APS Patent unenforceable. The notice states that ASC and the Inventor intend to hold NCMC liable for any losses or damages arising from such alleged misuse. On February 24, 1998, NCMC sent the Inventor a notice of claim in which NCMC denied the allegations of patent misuse, alleged breaches by the Inventor of certain warranties and covenants set forth in the 1996 Agreement and stated that NCMC intends to hold the Inventor and ASC liable for any damages caused by the position taken by the Inventor in the February 18 notice. Should these recent claims result in additional litigation, NCMC intends to vigorously pursue its breach of contract claims and vigorously defend against the allegations of patent misuse and unenforceability. While management believes that the Inventor's allegations are without merit, if such claims are litigated, a decision adverse to NCMC with respect to these claims could have a material adverse effect on the Company's results of operations and financial condition. Other Disputes In October 1997, Mid-Continent and its New York subsidiary filed a lawsuit in the State of New York, Supreme Court, County of Erie (the "New York Supreme Court") against Vincent S. Burgio, Eric R. Main and Michael Luksch (all of whom are former employees of Mid-Continent's subsidiary), as well as Continental Commercial Group of New York, Inc. and L.A. Commercial Group, Inc. The complaint alleges (i) breach of employment agreement; (ii) breach of the duty of loyalty; (iii) interference with business relationships; (iv) conversion of confidential information; and (v) misappropriation of trade secrets, and seeks injunctive relief and unspecified damages. The litigation is currently in the discovery stage. In February 1998, the defendants in the above-described lawsuit filed two lawsuits in the New York Supreme Court. The first lawsuit, filed by Mr. Burgio, names as defendants Mid-Continent, its New York subsidiary and William Vallecourse, an employee of the subsidiary, and alleges (i) breach of contract; (ii) breach of contract and constructive discharge; (iii) fraud; (iv) tortious interference with employment contract; and (v) unjust enrichment. The complaint seeks aggregate damages in excess of $1.3 million. The second lawsuit, filed by Messrs. Burgio, Main and Luksch, names as defendants Mid-Continent, its New York subsidiary, Les J. Kirschbaum, Mr. Vallecourse and Michelle Helmer (an employee of the New York subsidiary), alleges defamation of Messrs. Burgio, Main and Luksch and seeks aggregate compensatory damages of $1.5 million in addition to punitive damages. Mid-Continent believes that the allegations against it and its co-defendants are without merit; however, because this litigation is at an early stage, its outcome cannot be predicted. Mid-Continent's stockholders have agreed to indemnify the Company for losses and damages, if any, arising from these lawsuits. The Company is not involved in any other legal proceedings material to the business, financial condition or results of operations of the Company. 46 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth information concerning the Company's directors, executive officers and certain key employees.
Name Age Position ---- --- -------- Michael J. Cunningham.. 40 Chairman of the Board and Chief Executive Officer Mahmud U. Haq.......... 38 President and Chief Operating Officer; Director Richard A. Alston...... 42 Chief Financial Officer Kenneth W. Murphy...... 58 Chief Executive Officer -- Mail Box; Director Leeds Hackett.......... 57 Chief Executive Officer -- NCMC; Director John Maloney........... 52 Chief Operating Officer -- Bomar; Director Les J. Kirschbaum...... 55 Chief Executive Officer -- Mid-Continent; Director Edward A. DuCoin....... 32 Co-President -- Impact; Director Howard L. Clark, Jr.... 54 Director Scott H. Lang.......... 51 Director Tomasso Zanzotto....... 56 Director Gene Collins........... 55 Chief Executive Officer -- Bomar David T. DuCoin........ 39 Co-President -- Impact
MICHAEL J. CUNNINGHAM joined Compass in June 1997 and has served as a director since September 1997. Prior to joining the Company, Mr. Cunningham held various senior executive positions at American Express Company ("American Express"). From 1992 until June 1997, Mr. Cunningham was Vice President -- Operations of the Travel Related Services division of American Express where he was responsible for management of the billing and payment processes for all domestic credit card holders, as well as the collection agency management function. He also chaired the steering committee and managed the group that develops and enhances the global system that generates Travel Related Services customer statements throughout the world. From 1988 to 1992, Mr. Cunningham was the Vice President of Finance of the Travel Related Services division and from 1984 to 1988 he served as Director of Corporate Financial Analysis for American Express. Mr. Cunningham formerly served on the Advisory Council for the National Foundation for Consumer Credit. MAHMUD U. HAQ joined Compass in April 1997 and has served as a director since October 1997. From December 1996 until joining the Company, Mr. Haq was the Executive Vice President of Global Business Development at Nationwide Credit, Inc., one of the nation's largest accounts receivable management companies. From 1985 to 1996, Mr. Haq held various senior executive positions at American Express, including Vice President -- Risk Management of Global Collections for the Travel Related Services division (1994-1996) and Vice President and Controller -- Consumer Card Group Operations for the Travel Related Services division (1992-1994). Mr. Haq formerly served on the Board of Directors of the Consumer Credit Association. RICHARD A. ALSTON joined Compass in June 1997. From December 1994 to March 1997, Mr. Alston served as the Executive Vice President -- Finance and Corporate Development at National Processing, Inc., the nation's second largest credit card processing company. From 1991 to 1994, Mr. Alston was the President of Alston Associates which provided strategic and operations consulting services to Fortune 500 clients. From 1986 to 1991, Mr. Alston was a Senior Vice President at Sealy, Inc. where he oversaw the implementation of new manufacturing and financial systems throughout the Company and was responsible for the Company's international licensing activities and contract sales. 47 KENNETH W. MURPHY became a director of the Company after the closing of the IPO. Mr. Murphy has served as the President and Chief Executive Officer of Mail Box since its founding in 1971. Mr. Murphy was the Chairman of the Board of Directors of The Mail Advertising Service Association, International ("MASA"), a mailing industry trade association, from 1987 to 1993. He is currently a member of the Board of Directors of MASA-Southwest and a member of the Advertising Mail Marketing Association, the Direct Marketing Association of North Texas and the Dallas-Fort Worth and Austin Postal Customer Councils. LEEDS HACKETT became a director of the Company after the closing of the IPO. Mr. Hackett has served as the Chairman and Chief Executive Officer of NCMC since 1991. From 1989 to 1991, Mr. Hackett was Executive Vice President and Chief Financial Officer of The Union Corporation, a New York Stock Exchange company, which has subsidiaries in the debt collection business. From 1987 to 1989, he was the President and Chief Executive Officer of The Park Avenue Bank, N.A. and from 1965 to 1986, he held various management positions at Marine Midland Bank. JOHN MALONEY became a director of the Company after the closing of the IPO. Mr. Maloney has served as the Chief Operating Officer of Bomar since its founding in 1986. In such position, Mr. Maloney manages all of Bomar's operations and production processes. He has played an integral role in Bomar's strategic planning and development since its formation. LES J. KIRSCHBAUM became a director of the Company after the closing of the IPO. Mr. Kirschbaum has served as President of Mid-Continent since 1974 and became Chief Executive Officer in 1995. Mr. Kirschbaum served as the Chairman of the Commercial Agency Section ("CAS") of the Commercial Law League of America ("CLLA") from 1986 to 1988, and was the CAS representative on the Board of Governors of the CLLA from 1991 to 1994. The CLLA is a trade association of commercial attorneys and commercial collection agencies with approximately 6,000 members. EDWARD A. DUCOIN became a director of the Company after the closing of the IPO. Mr. DuCoin founded Impact in 1984 and serves as its Co-President with his brother, David T. DuCoin. He was a member of the Board of Directors of the American Telemarketing Association from 1992 to 1993 and has been a national speaker on the subject of telemarketing. HOWARD L. CLARK, JR. became a director of the Company after the closing of the IPO. Mr. Clark has served as Vice Chairman of Lehman Brothers Inc. since 1993. He was Chairman, President and Chief Executive Officer of Shearson Lehman Brothers Holdings, Inc. from 1990 until he assumed his current position. Prior thereto, Mr. Clark was Executive Vice President and Chief Financial Officer of American Express, having held various positions with that firm since 1981. He is also a director of Lehman Brothers Inc., Fund American Enterprises Holdings, Inc., The Maytag Corporation, Walter Industries, Inc. and Plasti-Line Inc. SCOTT H. LANG became a director of the Company in April 1997. Since 1996, Mr. Lang has been a managing member of BGL Management Company, LLC, which is the managing member of BGL Capital Partners, LLC ("BGL"), a merchant banking firm which originates and finances industry consolidations. Mr. Lang is also a Managing Director and Principal of Brown, Gibbons, Lang & Company, L.P., an investment banking firm, a position he has held since 1995. From 1985 to 1995, he served as Executive Vice President and Managing Director of Investment Banking at Rodman & Renshaw, Inc., a Chicago-based securities firm. TOMMASO ZANZOTTO became a director of the Company after the closing of the IPO. Mr. Zanzotto is the President of Toscana Ville E. Castelli, a real estate development company which owns and operates residential and commercial properties in the lodging and hotel industry. From 1994 to 1996, 48 he was the Chairman and Chief Executive Officer of Hilton International. From 1969 to 1993, Mr. Zanzotto held various positions with American Express Travel Related Services including President International, American Express Financial and Travel Services (1990-1993); President, American Express Corporate Card Division (1987-1990); and President, American Express Travelers Cheques (Europe, Africa, Middle East). He is also a director of Travel Services International, Inc., a distributor of specialized leisure travel services. GENE COLLINS has served as the Chief Executive Officer of Bomar since its founding in 1986. In such position, he manages the marketing efforts and business development of the organization. In addition, Mr. Collins is responsible for Bomar's financial planning and works closely with Mr. Maloney in determining the company's strategic plan. DAVID T. DUCOIN became actively involved with Impact in 1986 and has served as its Co-President since 1993. He has been instrumental in the development of Impact's proprietary predictive dialing system as well as the integration of inbound and outbound technology in a shared database environment. Prior to joining Impact, Mr. DuCoin was involved in television production and was the Senior Editor and Chief Engineer for a variety of programs including major league sports broadcasts. MANAGEMENT OF THE COMPANY The Company operates with a decentralized management strategy. Messrs. Cunningham, Haq and Alston manage the Company's operations and are responsible for areas including strategic planning, resource allocation, capital financing, financial reporting, marketing efforts and human resources. They work closely with the Founding Companies to coordinate, integrate and expand their service offerings. Messrs. Murphy, Hackett, Maloney, Kirschbaum, Collins, Edward A. DuCoin and David T. DuCoin continue to make day-to-day operating decisions and are primarily responsible for the operations of their respective Founding Companies. BOARD OF DIRECTORS The Board of Directors of the Company consists of ten directors divided into three classes. At each annual meeting of stockholders commencing in 1999, directors will be elected to three-year terms by the holders of the Common Stock to succeed those directors whose terms are expiring. Directors whose terms will expire in 1999 are: Mahmud U. Haq, Les J. Kirschbaum, Edward A. DuCoin and Tomasso Zanzotto; directors whose terms will expire in 2000 are: John Maloney, Scott H. Lang and Howard L. Clark, Jr.; directors whose terms will expire in 2001 are: Leeds Hackett, Kenneth W. Murphy and Michael J. Cunningham. The Initial Stockholders have entered into an agreement with respect to nominating and electing directors in the five years following the Offering. See "Description of Capital Stock -- Stockholders' Agreement." The Board of Directors has established an Audit Committee comprised of Messrs. Clark and Zanzotto and will establish a Compensation Committee and such other committees as the Board may determine. Directors elected by the Company's stockholders may be removed only for cause. DIRECTOR COMPENSATION Directors who are also employees of the Company or one of its subsidiaries do not receive compensation for serving as directors. Each director who is not an employee of the Company or one of its subsidiaries receives a fee of $2,000 for attendance at each Board of Directors' meeting and $1,000 for each committee meeting (unless held on the same day as a Board of Directors' meeting). Directors are also reimbursed for out-of-pocket expenses incurred in attending meetings of the Board of Directors or committees thereof or otherwise incurred in their capacity as directors. Upon the consummation of the IPO, each non- employee director was granted options to purchase 10,000 shares of Common Stock 49 at an exercise price equal to the initial public offering price. See "--Employee Incentive Compensation Plan." EXECUTIVE COMPENSATION; EMPLOYMENT AGREEMENTS; COVENANTS NOT TO COMPETE Messrs. Cunningham, Haq and Alston have entered into three-year employment agreements with the Company, that provide for annual base salaries of $225,000 for Mr. Cunningham and $200,000 for each of Mr. Haq and Mr. Alston. Each agreement provides that the executive is eligible to earn an annual bonus of up to 100% of his salary based upon specified performance criteria. Unless terminated or not renewed by the Company or the executive, the term of each such employment agreement will continue thereafter on a year-to-year basis on the same terms and conditions existing at the time of renewal. Each employment agreement contains a covenant not to compete with the Company for a period of one year following termination of employment. Under this covenant, the executive is prohibited from: (i) engaging in any business in competition with the Company anywhere in the United States; (ii) enticing a managerial employee of the Company away from the Company; (iii) soliciting or selling any competitive products or services to any person or entity which is, or has been within one year prior to the date of termination, a customer of the Company, or that was actively solicited by the Company during such period; or (iv) calling upon a prospective acquisition candidate which the employee knew was approached or analyzed by the Company, for the purpose of acquiring the entity. The covenant may be enforced by injunctions or restraining orders and shall be construed in accordance with the changing activities, business and location of the Company. Each employment agreement requires the executive to devote his full time to the Company. Each of these employment agreements provides that, in the event of a termination of employment by the Company without cause during the term of the agreement, the Company will pay to the executive, as severance compensation, (i) his then current salary plus the bonus paid to him the last fiscal year for a period of two years following the date of termination and (ii) his bonus for the current year prorated through the termination date. Payment is due in equal installments on the Company's normal payroll payment dates during the severance period. The employment agreements further provide that in the event of a change in control of the Company (as defined in the employment agreements), the executive will have the right, following such change in control, to terminate his employment for Good Reason (or, in the 60 days immediately following such change in control, for any reason) and be entitled to receive severance benefits as described above. So long as the executive does not engage in conduct giving rise to the right to terminate employment for cause, Good Reason includes (i) the failure to elect the executive to the office previously held, the removal of the executive from his position or the assignment to the executive of any additional duties or responsibilities or a reduction in executive's duties or responsibilities which, in either case, are inconsistent with those customarily associated with such position and (ii) a relocation by the Company of the executive's place of employment beyond a specified area. The Company has entered into supplemental compensation agreements with each of Messrs. Cunningham, Haq and Alston with respect to possible income tax liabilities. See "Certain Transactions -- Other Transactions." The Founding Companies entered into five-year employment agreements with certain of their executive officers, including Messrs. Murphy, Hackett, Maloney, Kirschbaum, Collins, Edward A. DuCoin and David T. DuCoin. Each agreement requires the executive to devote his full time to the Founding Company, specifies an annual base salary and provides that the executive is eligible to earn an annual bonus of up to 100% of salary upon specified performance criteria. The Founding Companies entered into employment agreements with other key employees for terms ranging from one to five years. Unless terminated or not renewed by the Founding Companies or the employee, the term of each employment agreement will continue thereafter on a year-to-year basis on the same terms and conditions existing at the time of renewal. Each employment agreement contains a covenant not to compete 50 whereby, for a two-year period following termination of employment (one year with respect to employees other than executive officers), the employee is prohibited from (i) engaging in any business in competition with the business in which the applicable Founding Company engages anywhere in the United States, (ii) enticing a managerial employee of the Founding Company away from the Founding Company, (iii) soliciting or selling any competitive products or services to any person or entity which is, or has been within one year prior to the date of termination, a customer of the Founding Company, or that was actively solicited by the Founding Company during such period, or (iv) calling upon a prospective acquisition candidate which the employee knew was approached or analyzed by the Company, for the purpose of acquiring the entity. Each agreement provides that upon termination of employment by the Founding Company without cause, the employee will be entitled to receive from the Company his or her annual salary for a period of two years following termination (one year with respect to employees other than executive officers) plus his or her bonus for the current year prorated through the termination date. Certain of the executive officers of the Company were granted options to purchase Common Stock at an exercise price equal to $10.50, the initial public offering price. See "-- Employee Incentive Compensation Plan." EMPLOYEE INCENTIVE COMPENSATION PLAN The Board of Directors and the Company's stockholders approved the Company's Employee Incentive Compensation Plan (the "Plan"). The purpose of the Plan is to provide directors, officers, employees, consultants and independent contractors with additional incentives by increasing their ownership interests in the Company. Individual awards under the Plan may take the form of one or more of: (i) either incentive stock options ("ISOs") or non-qualified stock options ("NQSOs"); (ii) stock appreciation rights ("SARs"); (iii) restricted or deferred stock; (iv) dividend equivalents; and (v) cash awards or other awards not otherwise provided for, the value of which is based in whole or in part upon the value of the Common Stock. The Compensation Committee will administer the Plan and generally select the individuals who will receive awards and the terms and conditions of those awards. The Company has reserved 2,000,000 shares of Common Stock for use in connection with the Plan. It is the policy of the Company that the number of shares of Common Stock subject to options granted under the Plan will not exceed 10% of the number of shares of Common Stock then outstanding. Shares of Common Stock which are attributable to awards which have expired, terminated or been canceled or forfeited are available for issuance or use in connection with future awards. The Plan will remain in effect until terminated by the Board of Directors. The Plan may be amended by the Board of Directors without the consent of the stockholders of the Company, except that any amendment, although effective when made, will be subject to stockholder approval if required by any federal or state law or regulation or by the rules of any stock exchange or automated quotation system on which the Common Stock may then be listed or quoted. In connection with the IPO, NQSOs to purchase a total of approximately 690,000 shares of Common Stock were granted to employees of Compass and the Founding Companies. Of this amount, options to purchase 350,000 shares of Common Stock were granted to management of the Company, including 150,000 options to Mr. Cunningham and 100,000 options to each of Messrs. Haq and Alston, an aggregate of approximately 65,000 options were granted to other employees of the Company and an aggregate of approximately 275,000 options were granted to certain employees of the Founding Companies. The grants of all of the foregoing options were effective as of the date of the IPO and each option has an exercise price equal to $10.50, the initial public offering price per share. Options granted to management of the Founding Companies will vest in three equal annual installments commencing on the first anniversary of the grant while options granted to non-management employees will vest entirely 51 on the first anniversary of the grant. These options will expire 10 years from the date of grant or three months following termination of employment. The Plan also provides for: (i) the automatic grant to each non-employee director (a "Participant") serving at the commencement of the IPO of an option to purchase 10,000 shares of Common Stock; and thereafter (ii) the automatic grant to each Participant of an option to purchase 10,000 shares upon such person's initial election as a director. In addition, the Plan provides for an automatic annual grant to each Participant of an option to purchase 5,000 shares at each annual meeting of stockholders following the IPO, provided, however, that if the first annual meeting of stockholders following a person's initial election as a non-employee director is within three months of the date of such election or appointment, such person will not be granted an option to purchase 5,000 shares of Common Stock at such annual meeting. These options will have an exercise price per share equal to the fair market value of a share at the date of grant. Options granted under the Plan will expire at the earlier of 10 years from the date of grant or one year after termination of service as a director, and options were immediately exercisable. The Plan affords the Compensation Committee discretion to fashion performance awards for eligible participants with incentives the Compensation Committee deems appropriate. It permits the issuance of awards based on the satisfaction of specific performance criteria in cash or Common Stock. The performance goals for any year may be based on a broad array of performance measures as selected by the Compensation Committee, including financial results on a consolidated basis or an operating unit basis depending on the responsibility of the participant, as well as achievement of personal performance goals. The maximum value of such awards for any participant in any year is 100% of such participant's salary. In addition, the Compensation Committee has discretion to pay, cancel or provide for the substitution or assumption of such bonus awards. EMPLOYEE STOCK PURCHASE PLAN Prior to the IPO, the Company adopted the Employee Stock Purchase Plan (the "Stock Purchase Plan"), pursuant to which a total of 500,000 shares of Common Stock were reserved for issuance. The Stock Purchase Plan, which is intended to qualify under Section 423 of the Code, permits eligible employees of the Company to purchase Common Stock through payroll deductions with all such deductions credited to an account under the Stock Purchase Plan. Payroll deductions may not exceed $25,000 for all purchase periods ending with any Plan Year (as hereinafter defined). The Stock Purchase Plan operates on a twelve-month basis (the "Plan Year"), as established by the Board of Directors. To be eligible to participate during a Plan Year, an employee must file all requisite forms prior to a specified due date known as the "Grant Date." Generally the first day of each Plan Year will be the Grant Date and the last day of each Plan Year will be an Exercise Date (the "Exercise Date"). The determination of the Grant Date and the Exercise Dates are completely within the discretion of the Plan Committee. On each Exercise Date, participants' payroll deductions credited to their accounts will be automatically applied to the purchase price of Common Stock at a price per share which is the lesser of eighty-five percent (85%) of the fair market value of the Common Stock on the Grant Date or on the Exercise Date. Employees may end their participation in the Stock Purchase Plan at any time during an offering period, and their payroll deductions to date will be refunded. Participation ends automatically upon termination of employment with the Company. Employees are eligible to participate in the Stock Purchase Plan if they are customarily employed by the Company or a designated subsidiary for at least 20 hours per week and for more than five months in any calendar year. No person will be able to purchase Common Stock under the Stock Purchase Plan if such person, immediately after the purchase, would own stock possessing 5% or more of the total combined voting power or value of all outstanding shares of all classes of stock of the Company. 52 CERTAIN TRANSACTIONS ORGANIZATION OF THE COMPANY The Company was formed in April 1997. The Company was initially capitalized by BGL and Messrs. Cunningham, Haq and Alston. Mr. Lang, a director of the Company, is a managing member of BGL Management Company, LLC, which is the managing member of BGL. Following the 112.1846-for-one stock split effected on December 3, 1997, the 15,000 shares of Common Stock initially issued by the Company to its founders total 1,682,769 shares. Shortly after the closing of the IPO, BGL distributed its shares of Common Stock to its members. THE ACQUISITIONS The aggregate consideration paid by Compass in the Acquisitions consisted of approximately $17.9 million in cash and 5,435,691 shares of Common Stock. The following table sets forth the consideration paid to the stockholders of each of Founding Companies and the debt of each Founding Company assumed by Compass in the Acquisitions.
Shares of Common Debt Founding Company Cash Stock Assumed(1) - ------------------ -------- -------------- -------------- (Dollars in thousands) Mail Box.......... $ 8,616 2,461,85 2 $ 3,967 NCMC.............. 3,169 965,801 1,467 Bomar............. 4,031 1,151,78 7 5,340 Mid-Continent..... 1,635 467,127 4,535 Impact............ 427 389,124 1,378 -------- -------------- --------- Total............ $17,878 5,435,69 1 $16,687 ======== ============== =========
__________________ (1) Reflects: (i) debt of the Founding Companies, including capital leases and lines of credit; and (ii) debt incurred by Mid-Continent in connection with a stock redemption. The consideration for each Founding Company was determined through arm's length negotiations between Compass and representatives of each Founding Company, and based on a uniform formula, applied to each of the Founding Companies in the same manner reflecting primarily their respective operating incomes, as adjusted to reflect long-term debt assumed, contractually agreed upon compensation adjustments, to eliminate the effects of certain non-recurring expenses, and to reflect certain other agreed upon matters. No independent appraisals of any Founding Company were obtained. Each Founding Company was represented by independent counsel in the negotiation of the terms and conditions of the Acquisitions. Each Acquisition Agreement contains standard representations and warranties of each party as well as indemnification provisions in the event of a breach of any representations and warranties made by any party to the agreement. Pursuant to each Acquisition Agreement, the principal stockholders of the Founding Companies have agreed not to compete with the Company for five years following the closing of the Acquisitions wherever the Company conducts business. In connection with the Acquisitions, and as consideration for their interests in the Founding Companies, certain officers, directors and holders of more than 5% of the outstanding shares of Common Stock received cash and shares of Common Stock as follows: 53
Shares of Common Name Cash Stock - ----------------------------------------------- ---------- ----------- Kenneth W. Murphy(1)........................... $6,214,9 81 1,586,911 Leeds Hackett.................................. 971,754 393,329 Gene Collins................................... 1,734,49 4 532,334 Mary Maloney................................... 1,734,49 4 532,334 Les J. Kirschbaum.............................. 1,634,94 5 467,127 Edward A. DuCoin............................... 213,419 194,562 David T. DuCoin................................ 213,419 194,562
__________________ (1) Includes cash and shares of Common Stock received by a trust established for the benefit of Mr. Murphy's children. The Founding Companies entered into employment agreements with certain officers, directors and holders of more than 5% of the outstanding Common Stock. See "Management -- Executive Compensation; Employment Agreements; Covenant Not to Compete." The Company repaid or will repay certain indebtedness of the Founding Companies from the net proceeds of the IPO, including approximately $5.3 million of indebtedness that was personally guaranteed by certain stockholders of the Founding Companies. As of December 31, 1997, the approximate aggregate amount of such guarantees for each of such individuals was as follows: Kenneth W. Murphy - $2.0 million of Mail Box indebtedness; Gene Collins and Mary Maloney - $1.6 million of Bomar indebtedness; Les J. Kirschbaum - $928,000 of Mid- Continent indebtedness; and Edward A. DuCoin and David T. DuCoin - $766,000 of Impact indebtedness. The Company paid a finders' fee of approximately $440,000 from the net proceeds of the IPO to an unaffiliated business broker in connection with the Company's acquisition of Bomar. OTHER TRANSACTIONS As of December 31, 1997, BGL had incurred $3.9 million in expenses in connection with Compass' formation, the IPO and the Acquisitions. This amount includes (i) payment of certain expenses and (ii) payment of consulting fees to Messrs. Cunningham, Haq and Alston under their consulting agreements. See "Management." Additional amounts were advanced by BGL on Compass' behalf prior to the consummation of the IPO. All amounts advanced by BGL to Compass and paid by BGL under the consulting agreements, together with interest thereon at 8% per annum from the date of payment by BGL, were repaid by Compass from the net proceeds of the IPO. In connection with the proposed Credit Facility, BGL and Compass have agreed, jointly and severally, to indemnify the bank and its affiliates against claims incurred by them in connection with the Credit Facility, and to reimburse the bank and an affiliate for all costs and expenses incurred by them in connection with the Credit Facility. Mail Box owns a 50% interest in MB Strategic, Ltd. ("MBS"), a database management company which commenced operations in February 1997. Mail Box provided MBS with $20,000 in start-up capital and an additional $165,000 to cover compensation paid to the president of MBS. Mail Box provides MBS space within its facilities and the use of data management systems, and pays the salaries and benefits of MBS' clerical employees. In addition to its ownership interest, Mail Box is entitled to receive 20% of gross monthly revenues of MBS. 54 Since 1982, Mail Box has leased its corporate headquarters and certain of its mailing facilities from TDC #12, Ltd. ("TDC") pursuant to a lease which expires in October 2002. Mr. Murphy is a 50% limited partner of TDC. The annual rent under this lease was approximately $290,000 in 1995 and 1996 and $321,000 in 1997. From April 1996 through August 1996, Mail Box leased certain inserting machines from a partnership, the partners of which include certain stockholders of Mail Box. The cost of the equipment was $223,000 and in August 1997, Mail Box exercised its option to purchase the equipment for $130,000. In connection with the Patent Infringement Lawsuits, Compass has entered into an agreement with NCMC and its former stockholders whereby any monetary settlement or judgement in NCMC's favor will be allocated: first, to the Company in an amount necessary to pay income or other taxes arising therefrom; second, to the Company in an amount necessary to reimburse it for all fees and costs incurred in pursuing the litigation; third, to certain individuals in amounts to be determined by Leeds Hackett with the approval of the Company (such individuals are expected to include Mr. Hackett and other former stockholders of NCMC) to the extent that the amounts remaining are paid with respect to infringement occurring prior to the closing of the Acquisitions; and fourth, all remaining amounts to the Company. Mr. Hackett, a director of the Company and a former stockholder of NCMC, is a party to this agreement. See "Business -- Litigation." Impact leases office space on a month to month basis from a partnership owned by Edward and David DuCoin. Total rent expense was $131,000, $139,000 and $110,000 for 1995, 1996 and 1997, respectively. Effective July 1, 1997, the annual rent was reduced to $84,000. At December 31, 1997, the outstanding balance of advances made by Impact to Edward and David DuCoin and to Eastern Shore Travel, a partnership owned by the DuCoins, was $105,000. These advances were repaid in full simultaneously with the closing of the Acquisitions on March 4, 1998. At December 31, 1995, 1996 and 1997, the outstanding balance of loans made by Mid-Continent to Les J. Kirschbaum totaled $710,000, $751,000 and $808,000, respectively. These loans accrue interest at the short-term annual Applicable Federal Rate prescribed by the Internal Revenue Service, with the balance of principal and interest due upon demand. Immediately prior to the closing of the Acquisitions, Mid-Continent redeemed certain of Mr. Kirschbaum's shares in retirement of his loans. Mid-Continent Agencies of New York, Inc. ("MCNY"), a subsidiary of Mid- Continent, leases office space from William J. Vallecourse, a stockholder of MCNY, pursuant to a lease that expires in May 2004. Annual rent under this lease is approximately $90,000. The Company has entered into supplemental compensation agreements with each of Messrs. Cunningham, Haq and Alston. Pursuant to such agreements, should any of these executives become liable for income taxes with respect to the shares of Common Stock purchased by the executive at the time of Compass' initial capitalization, the Company would pay the executive a bonus in an amount such that after paying taxes on the bonus, the net amount remaining would be sufficient to compensate the executive for any income taxes attributable to the stock purchase. Concurrently with the closing of the IPO, the Company issued warrants (the "Warrants") to purchase an aggregate 100,000 shares of Common Stock to Catamount Capital, L.L.C. as a fee for consulting services in connection with the acquisition of NCMC. The Warrants will be exercisable for a period of five years commencing on the first anniversary of the IPO at a price of $12.60 per share of 55 Common Stock, subject to adjustment in certain events. Each Warrant contains certain piggyback registration rights relating to the shares issuable thereunder. COMPANY POLICY Certain related-party transactions described above under "Other Transactions" were not negotiated on an arm's-length basis. It is the Company's policy that any future transactions with officers, directors and affiliates will be approved by a majority of the Board, including a majority of the disinterested members of the Board, and will be made on terms no less favorable to the Company than could be obtained from unaffiliated third parties. PRINCIPAL STOCKHOLDERS The following table sets forth certain information with respect to the beneficial ownership of the Company's Common Stock as of April 1, 1998 (following BGL's distribution of its shares of Common Stock to its members) by: (i) each person known by the Company to own beneficially more than 5% of the outstanding shares of Common Stock; (ii) each director and person who is a director; (iii) each executive officer; and (iv) all executive officers and directors as a group.
Shares of Percentage Name and Address of Beneficial Owner(1) Common Stock Owned - ------------------------------------------------- ------------ ------------ Kenneth W. Murphy(2)............................. 1,586,911 13.4% Leeds Hackett.................................... 393,329 3.3% Gene Collins..................................... 532,334 4.5% Mary Maloney..................................... 532,334 4.5% John Maloney(3).................................. 532,334 4.5% Les J. Kirschbaum................................ 467,127 3.9% Edward A. DuCoin................................. 194,562 1.6% David T. DuCoin.................................. 194,562 1.6% Michael J. Cunningham............................ 262,415 2.2% Mahmud U. Haq.................................... 196,323 1.7% Richard A. Alston................................ 112,385 * Howard L. Clark, Jr.(4).......................... 10,000 * Scott H. Lang(4)(5)(6)........................... 608,439 5.1% Tomasso Zanzotto(4).............................. 10,000 * BGL Capital Partners, L.L.C.(5)(6)............... 593,152 5.0% All directors and officers as a group (thirteen 5,100,721 43.0% persons)(2)(3)(4)(5)............................
__________________ * Less than 1.0%. (1) Unless otherwise indicated, the address of the beneficial owners is c/o Compass, One Penn Plaza, Suite 4430, New York, New York 10119. (2) Certain of these shares are owned by the Kenneth W. Murphy Children's Trust. (3) Includes 532,334 shares of Common Stock owned by Mr. Maloney's spouse, of which he may be deemed the beneficial owner. (4) Includes 10,000 shares of Common Stock issuable upon the exercise of vested options. (5) Includes 593,152 shares held by BGL and 5,287 shares held by BGL Management Company, L.L.C. Mr. Lang is a managing member of BGL Management Company, L.L.C., which is the managing member of BGL. (6) The address of each of Mr. Lang and BGL is 225 W. Washington Street, 16th Floor, Chicago, Illinois 60606. 56 DESCRIPTION OF CAPITAL STOCK The authorized capital stock of the Company consists of 50,000,000 shares of Common Stock, and 10,000,000 shares of preferred stock, $.01 par value per share ("Preferred Stock"). COMMON STOCK Of the 50,000,000 shares of Common Stock authorized, 11,833,460 shares are currently outstanding. Subject to the rights of the holders of Preferred Stock, the holders of outstanding shares of Common Stock are entitled to share ratably in dividends declared out of assets legally available therefor at such time and in such amounts as the Board of Directors may from time to time lawfully determine. Each holder of Common Stock is entitled to one vote for each share held. Subject to the rights of holders of any outstanding Preferred Stock, upon liquidation, dissolution or winding up of the Company, any assets legally available for distribution to stockholders as such are to be distributed ratably among the holders of the Common Stock then outstanding. All shares of Common Stock currently outstanding are, and all shares of Common Stock offered hereby when duly issued and paid for will be, fully paid and nonassessable. Shares of Common Stock are not subject to any redemption provisions and are not convertible into any other securities of the Company. The Board of Directors is classified into three classes as nearly equal in number as possible, with the term of each class expiring on a staggered basis. See "Management -- Board of Directors." The classification of the Board of Directors may make it more difficult to change the composition of the Board of Directors and thereby may discourage or make more difficult an attempt by a person or group to obtain control of the Company. Cumulative voting for the election of directors is not permitted, enabling holders of a majority of the outstanding Common Stock to elect all members of the class of Directors whose terms are then expiring. PREFERRED STOCK The Amended and Restated Certificate of Incorporation of the Company authorizes the Board of Directors to issue preferred stock in classes or series and to establish the designations, preferences, qualifications, limitations or restrictions of any class or series with respect to, among other things, the rate and nature of dividends, the price, terms and conditions on which shares may be redeemed, the terms and conditions for conversion or exchange into any other class or series of the stock and voting rights. The Company will have authority, without approval of the holders of Common Stock, to issue preferred stock that has voting, dividend or liquidation rights superior to the Common Stock and that may adversely affect the rights of holders of Common Stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, adversely affect the voting power of the holders of Common Stock and could have the effect of delaying, deferring or preventing a change in control of the Company. The Company currently has no plans to issue any shares of Preferred Stock. One of the effects of undesignated Preferred Stock may be to enable the Board of Directors to render more difficult or to discourage an attempt to obtain control of the Company by means of a tender offer, proxy contest, merger or otherwise, and thereby to protect the continuity of the Company's management. The issuance of shares of the Preferred Stock pursuant to the Board of Directors' authority described above may adversely affect the rights of the holders of Common Stock. For example, Preferred Stock issued by the Company may rank prior to the Common Stock as to dividend rights, liquidation preference or both, may have full or limited voting rights and may be convertible into shares of Common Stock. Accordingly, the issuance of shares of Preferred Stock may discourage bids for the Common Stock or may otherwise adversely affect the market price of the Common Stock. 57 STOCKHOLDERS' AGREEMENT In connection with the Acquisitions, the Initial Stockholders entered into an agreement (the "Stockholders' Agreement") with respect to nominating and electing Directors to the Board of Directors of the Company. The Stockholders' Agreement sets forth the manner and terms by which the stockholders of the Founding Companies and founders of Compass may nominate Directors in each of the Classes. Each of the parties to the Stockholders' Agreement has agreed to vote its Common Stock (i) for the reelection of the incumbent directors of the Company or their successors as described below and (ii) with respect to any matter put to a stockholder vote, in accordance with the recommendation of the incumbent Board of Directors. In the event that an incumbent director who is a former shareholder of a Founding Company is unable to or does not stand for reelection, the former shareholders of such Founding Company may designate his successor for nomination. Should Mr. Lang be unable to or not stand for reelection, BGL may designate his successor. Nominees for other vacancies will be selected by a majority of the then-incumbent Board of Directors. The Stockholders' Agreement terminates immediately following the Company's annual meeting of stockholders relating to fiscal year 2002 (but occurring in fiscal year 2003). The Stockholders' Agreement may be amended by the holders of a majority of the aggregate number of shares of outstanding Common Stock then held by the Initial Stockholders. CERTAIN PROVISIONS AFFECTING STOCKHOLDERS Delaware, like many other states, permits a corporation to adopt a number of measures through amendment of the corporate charter or bylaws or otherwise, which may have the effect of delaying or deterring any unsolicited takeover attempts. In addition, Section 203 of the Delaware General Corporation Law restricts certain "business combinations" with "interested stockholders" (generally a holder of 15% or more of the Company's voting stock) for three years following the date that person becomes an interested stockholder. By delaying or deterring unsolicited takeover attempts, these provisions could adversely affect prevailing market prices for the Common Stock. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Company's Common Stock is First Chicago Trust Company of New York. SHARES ELIGIBLE FOR FUTURE SALE The Company has outstanding 11,833,460 shares of Common Stock. The 4,715,000 shares sold in the IPO are freely tradable without restriction unless acquired by affiliates of the Company. None of the remaining outstanding shares of Common Stock has been registered under the Securities Act, which means that they may be resold publicly only upon registration under the Securities Act or in compliance with an exemption from the registration requirements of the Securities Act, including the exemption provided by Rule 144 thereunder. In general, under Rule 144 as currently in effect, if one year has elapsed since the later of the date of the acquisition of restricted shares of Common Stock from either the Company or any affiliate of the Company, the acquiror or subsequent holder thereof may sell, within any three-month period commencing 90 days after the date of the Prospectus relating to the IPO, a number of shares that does not exceed the greater of one percent of the then outstanding shares of the Common Stock, or the average weekly trading volume of the Common Stock on the Nasdaq National Market during the four calendar weeks preceding the date on which notice of the proposed sale is sent to the Commission. Sales under Rule 144 are also subject to certain manner of sale provisions, notice requirements and the availability of current public information about the Company. If two years have elapsed since the later of the date of the acquisition of restricted shares of Common Stock from the Company or any affiliate of the 58 Company, a person who is not deemed to have been an affiliate of the Company at any time for 90 days preceding a sale would be entitled to sell such shares under Rule 144 without regard to the volume limitations, manner of sale provisions or notice requirements. The holders of Common Stock who did not purchase shares in the IPO own 7,118,460 unregistered shares of Common Stock, including the stockholders of the Founding Companies who received, in the aggregate, 5,435,691 shares in connection with the Acquisitions and founders and executive officers of Compass and members of BGL who own 1,682,769 unregistered shares. These shares have not been registered under the Securities Act and, therefore, may not be sold unless registered under the Securities Act or sold pursuant to an exemption from registration, such as the exemption provided by Rule 144. Furthermore, these stockholders have agreed with the Company not to sell, transfer or otherwise dispose of any of these shares for a one-year period following the IPO. Such stockholders have certain piggyback registration rights beginning one year after the IPO and one demand registration right for the six-month period beginning twenty months after the IPO with respect to these shares. The Company and the holders of all shares outstanding prior to the IPO (including the holders of shares issued in connection with the Acquisitions) have agreed not to offer, sell, contract to sell or otherwise dispose of any shares of Common Stock, or any securities convertible into or exercisable or exchangeable for Common Stock, for a period of 180 days after the date of the IPO without the prior written consent of NationsBanc Montgomery Securities LLC except for: (i) in the case of the Company, Common Stock issued pursuant to any employee or director plan described herein or in connection with acquisitions; (ii) in the case of all such holders, the exercise of stock options pursuant to benefit plans described herein and shares of Common Stock disposed of as bona fide gifts; and (iii) in the case of BGL, distributions of Common Stock to its members, subject, in each case, to any remaining portion of the 180-day period applying to any shares so issued or transferred. In evaluating any request for a waiver of the 180-day lock-up period, NationsBanc Montgomery Securities LLC will consider, in accordance with their customary practice, all relevant facts and circumstances at the time of the request, including, without limitation, the recent trading market for the Common Stock, the size of the request and, with respect to a request by the Company to issue additional equity securities, the purpose of such an issuance. No prediction can be made as to the effect, if any, that the sale of shares or the availability of shares for sale will have on the market price for the Common Stock prevailing from time to time. Nevertheless, sales, or the availability of substantial amounts of the Common Stock in the public market could adversely affect prevailing market prices and the future ability of the Company to raise equity capital and complete any additional acquisitions for Common Stock. CERTAIN LEGAL MATTERS The legality of the shares of Common Stock offered hereby will be passed upon for the Company by Katten Muchin & Zavis, Chicago, Illinois. Certain partners of Katten Muchin & Zavis are holders of Common Stock. EXPERTS The balance sheet of Compass as of December 31, 1997 included in this Prospectus has been so included in reliance on the report of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. 59 The consolidated financial statements of The Mail Box, Inc. as of December 31, 1996 and 1997 and for each of the three years in the period ended December 31, 1997 included in this Prospectus have been so included in reliance on the report of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. The audited consolidated financial statements of National Credit Management Corporation and Subsidiary as of December 31, 1997 and 1996 and for each of the years in the three-year period ended December 31, 1997, included in this Prospectus, have been audited by Arthur Andersen LLP, independent public accountants, as stated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said report. The consolidated financial statements of B.R.M.C. of Delaware, Inc. at December 31, 1997 and 1996 and for each of the three years in the period ended December 31, 1997 appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report, given upon the authority of such firm as experts in accounting and auditing. The consolidated financial statements of Mid-Continent Agencies, Inc. as of December 31, 1996 and 1997 and for each of the three years in the period ended December 31, 1997 included in this Prospectus have been so included in reliance on the report of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. The combined financial statements of Impact Telemarketing Group, Inc. as of December 31, 1996 and 1997 and for the years then ended included in this Prospectus have been so included in reliance on the report (which contains an explanatory paragraph relating to Impact Telemarketing Group, Inc.'s ability to continue as a going concern as described in Note 1 to the financial statements) of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports and other information with the Securities and Exchange Commission (the "Commission"). Reports, registration statements, proxy statements and other information filed by the Company with the Commission can be inspected and copied at the public reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's Regional Offices: Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such materials can be obtained at prescribed rates from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. The Commission maintains a Web site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants, such as the Company, that file electronically with the Commission. The Company has filed with the Commission a Registration Statement on Form S-1 (which term shall encompass any and all amendments thereto) under the Securities Act with respect to the Common Stock offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. Statements contained in this Prospectus as to the contents of any contract or any other document are not necessarily complete and in each instance reference is made to the copy of such contract or document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. For further information 60 with respect to the Company and the Common Stock offered hereby, reference is hereby made to the Registration Statement and such exhibits and schedules filed as a part hereof. 61 COMPASS INTERNATIONAL SERVICES CORPORATION INDEX TO FINANCIAL STATEMENTS
Page ---- COMPASS INTERNATIONAL SERVICES CORPORATION UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS: Introduction to Unaudited Pro Forma Combined Financial Statements.. F-3 Unaudited Pro Forma Combined Balance Sheet......................... F-4 Unaudited Pro Forma Combined Statement of Operations............... F-5 Notes to Unaudited Pro Forma Combined Financial Statements......... F-6 COMPASS INTERNATIONAL SERVICES CORPORATION: Report of Independent Accountants................................. F-11 Balance Sheet F-12 Notes to Financial Statement...................................... F-13 THE MAIL BOX, INC.: Report of Independent Accountants................................. F-15 Consolidated Balance Sheet........................................ F-16 Consolidated Statement of Operations.............................. F-17 Consolidated Statement of Stockholders' Equity.................... F-18 Consolidated Statement of Cash Flows.............................. F-19 Notes to Consolidated Financial Statements........................ F-20 NATIONAL CREDIT MANAGEMENT CORPORATION AND SUBSIDIARY: Report of Independent Public Accountants.......................... F-29 Consolidated Balance Sheets....................................... F-30 Consolidated Statements of Operations............................. F-31 Consolidated Statements of Stockholders' Equity................... F-32 Consolidated Statements of Cash Flows............................. F-33 Notes to Consolidated Financial Statements........................ F-34 B.R.M.C. OF DELAWARE, INC.: Report of Independent Auditors.................................... F-42 Consolidated Balance Sheets....................................... F-43 Consolidated Statements of Income................................. F-44 Consolidated Statements of Stockholders' Equity................... F-45 Consolidated Statements of Cash Flows............................. F-46 Notes to Consolidated Financial Statements........................ F-47 MID-CONTINENT AGENCIES, INC. AND SUBSIDIARIES: Report of Independent Accountants................................. F-54 Consolidated Balance Sheet........................................ F-55 Consolidated Statement of Operations.............................. F-56 Consolidated Statement of Stockholders' Equity.................... F-57 Consolidated Statement of Cash Flows.............................. F-58 Notes to Consolidated Financial Statements........................ F-59
F-1 COMPASS INTERNATIONAL SERVICES CORPORATION INDEX TO FINANCIAL STATEMENTS---(Continued) IMPACT TELEMARKETING GROUP, INC.: Report of Independent Accountants................................. F-67 Combined Balance Sheet............................................ F-68 Combined Statement of Operations.................................. F-69 Combined Statement of Stockholders' Equity........................ F-70 Combined Statement of Cash Flows.................................. F-71 Notes to Combined Financial Statements............................ F-72
F-2 COMPASS INTERNATIONAL SERVICES CORPORATION INTRODUCTION TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS The following unaudited pro forma combined financial statements give effect to the acquisitions by Compass International Services Corporation ("Compass") of the outstanding capital stock of The Mail Box, Inc. ("Mail Box"), National Credit Management Corp. ("NCMC"), B.R.M.C. of Delaware, Inc. ("Bomar"), Mid- Continent Agencies, Inc. ("Mid-Continent") and Impact Telemarketing Group, Inc. ("Impact") (together, the "Founding Companies"). These acquisitions (the "Acquisitions") occurred simultaneously with the closing of Compass's initial public offering (the "Offering") and were accounted for using the purchase method of accounting. In accordance with the provisions of Securities and Exchange Commission Staff Accounting Bulletin No. 97, Mail Box was deemed to be the accounting acquiror as the stockholders of Mail Box will receive the largest portion of the voting rights in the combined corporation. The unaudited pro forma combined balance sheet gives effect to the Acquisitions and the Offering including the exercise of the over-allotment option granted to the Underwriters, as if they had occurred on December 31, 1997. The unaudited pro forma combined statement of operations gives effect to the Acquisitions as if they had occurred on January 1, 1997, reflects reductions in salaries, bonuses and certain benefits to the owners of the Founding Companies to which they have agreed prospectively, reflects reductions in interest expense associated with reductions in debt and gives effect to an acquisition by Bomar as if it had occurred on January 1, 1997. Compass has preliminarily analyzed the benefits that it expects to be realized from reductions in salaries and certain benefits to the owners. It is anticipated that these savings will be offset by costs related to Compass' new corporate management and by the costs associated with being a public company. However, these costs, like the savings they offset, cannot be accurately quantified at this time. Neither the expected savings nor the anticipated costs have been included in the pro forma combined financial information of Compass. The pro forma adjustments are based on estimates, available information and certain assumptions and may be revised as additional information becomes available. The pro forma combined financial data do not purport to represent what Compass' financial position or results of operations would actually have been if such transactions in fact had occurred on those dates and are not necessarily representative of Compass' financial position or results of operations for any future period. Since the Founding Companies were not under common control or management, historical combined results may not be comparable to, or indicative of, future performance. The unaudited pro forma combined financial statements should be read in conjunction with the other financial statements and notes thereto included elsewhere in this Prospectus. See "Risk Factors" included elsewhere herein. F-3 COMPASS INTERNATIONAL SERVICES CORPORATION UNAUDITED PRO FORMA COMBINED BALANCE SHEET DECEMBER 31, 1997 (IN THOUSANDS)
Acquisition Pro Offering Mid- Adjustments Forma Adjustments As ASSETS Compass Mail Box NCMC Bomar Continent Impact (See Note 3) Combined (See Note 3) Adjusted - --------------------------- ------- -------- ------ ------ --------- ------- ------------ -------- ------------ -------- Cash and cash equivalents.. $ -- $ 16 $1,214 $ 429 $ 165 $ 145 $ 697 $ 2,666 $ 9,074 $11,740 Cash held for clients...... -- -- -- 727 -- -- -- 727 -- 727 Commissions/accounts receivable, net........... -- 4,481 2,969 1,125 603 2,688 -- 11,866 -- 11,866 Due from related parties and stockholders.......... -- -- -- -- 1,517 105 (1,590) 32 -- 32 Inventories................ -- 733 -- -- -- -- -- 733 -- 733 Postage on hand............ -- 1,231 -- -- -- -- -- 1,231 -- 1,231 Prepaid expenses and other. -- 198 730 85 350 22 -- 1,385 -- 1,385 Deferred offering costs.... 3,942 -- -- -- -- -- -- 3,942 (3,942) -- ------- -------- ------ ------ --------- ------- ------------ -------- ------------ -------- Total current assets..... 3,942 6,659 4,913 2,366 2,635 2,960 (893) 22,582 5,132 27,714 Property and equipment, net -- 4,327 2,486 823 159 775 -- 8,570 -- 8,570 Goodwill, net.............. -- -- -- 4,018 -- -- 47,140 51,158 -- 51,158 Other assets............... -- 304 420 960 208 22 1,000 2,914 -- 2,914 ------- -------- ------ ------ --------- ------- ------------ -------- ------------ -------- Total assets............. $3,942 $11,290 $7,819 $8,167 $3,002 $3,757 $47,247 $85,224 $ 5,132 $90,356 ======= ======== ====== ====== ========= ======= ============ ======== ============ ======== LIABILITIES AND STOCKHOLDERS' EQUITY - --------------------------- Short-term debt $1,045 $ 2,391 $ 364 $4,587 $ 928 $ 954 $ -- $10,269 $ (9,248) $ 1,021 Accounts payable and accrued expenses 2,747 2,608 1,781 959 659 2,177 440 11,371 (3,187) 8,184 Collections due to clients -- -- 522 727 -- -- -- 1,249 -- 1,249 Checks issued in excess of cash balance -- -- -- 260 -- -- -- 260 -- 260 Postage allowances and deposits -- 950 -- -- -- -- -- 950 -- 950 Income taxes payable -- 416 -- 311 -- -- -- 727 -- 727 Payable to Founding Company stockholders -- -- -- -- 51 -- 17,828 17,879 (17,879) -- ------- -------- ------ ------ --------- ------- ------------ -------- ------------ -------- Total current liabilities 3,792 6,365 2,667 6,844 1,638 3,131 18,268 42,705 (30,314) 12,391 Long-term debt -- 954 945 406 -- -- 4,250 6,555 (6,096) 459 Capital lease obligations -- 622 158 347 -- 424 -- 1,551 -- 1,551 Deferred income taxes -- 165 241 51 -- -- -- 457 -- 457 Other -- -- -- 40 177 -- -- 217 -- 217 ------- -------- ------ ------ --------- ------- ------------ -------- ------------ -------- Total liabilities 3,792 8,106 4,011 7,688 1,815 3,555 22,518 51,485 (36,410) 15,075 Minority interest in subsidiary -- -- -- 6 -- -- (6) -- -- -- Stockholders' equity: Common stock 17 14 2 1 10 91 (64) 71 47 118 Additional paid-in capital 133 1,126 2,097 60 73 -- 27,048 30,537 41,495 72,032 Retained earnings -- 3,131 1,709 412 1,114 111 (3,346) 3,131 -- 3,131 Unrealized loss on securities -- -- -- -- (10) -- 10 -- -- -- Less: Treasury stock -- (1,087) -- -- -- -- 1,087 -- -- -- ------- -------- ------ ------ --------- ------- ------------ -------- ------------ -------- Total stockholders' equity 150 3,184 3,808 473 1,187 202 24,735 33,739 41,542 75,281 ------- -------- ------ ------ --------- ------- ------------ -------- ------------ -------- Total liabilities and stockholders' equity $3,942 $11,290 $7,819 $8,167 $3,002 $3,757 $47,247 $85,224 $ 5,132 $90,356 ======= ======== ====== ====== ========= ======= ============ ======== ============ ========
See Notes to Unaudited Pro Forma Combined Financial Statements. F-4 COMPASS INTERNATIONAL SERVICES CORPORATION UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Other Pro Forma Mid- Acquisitions Adjustments Pro Forma Mail Box NCMC Bomar Continent Impact (See Note 4) (See Note 5) Combined -------- ------- ------- --------- -------- ------------ ------------ ---------- Revenues.................... $32,566 $15,620 $14,266 $9,451 $12,870 $2,380 -- $ 87,153 Operating expenses.......... 21,493 9,433 8,208 3,105 9,725 1,389 -- 53,353 -------- ------- ------- --------- -------- ------------ ------------ ---------- Gross profit............. 11,073 6,187 6,058 6,346 3,145 991 -- 33,800 Selling, general and administrative expenses................... 7,824 6,340 4,951 6,239 2,823 522 $(4,099)(A) 23,229 -- -- -- -- -- -- (1,345)(B) -- -- -- -- -- -- -- (26)(C) -- Goodwill and intangible amortization............... -- -- 127 -- -- 10 1,391 (D) 1,528 -------- ------- ------- --------- -------- ------------ ------------ ---------- Income (loss) from operations...... 3,249 (153) 980 107 322 459 4,079 9,043 Other (income) expense: Interest expense........... 382 77 310 81 163 1 (547)(E) 467 Interest income............ -- (46) -- (70) -- -- 75 (F) (41) Other, net................. -- 199 -- -- -- -- -- 199 -------- ------- ------- --------- -------- ------------ ------------ ---------- Income (loss) before income taxes... 2,867 (383) 670 96 159 458 4,551 8,418 Provision (benefit) for income taxes..................... 985 (128) 302 14 -- 187 2,618 (G) 3,978 -------- ------- ------- --------- -------- ------------ ------------ ---------- Net income (loss)........... $ 1,882 $ (255) $ 368 $ 82 $ 159 $ 271 $ 1,933 $ 4,440 ======== ======= ======= ========= ========= ============ ============ ========== Net income per share........ $0.42 Shares used in computing pro forma basic and diluted net income per share (See Note 6)......... 10,460,931 ==========
See Notes to Unaudited Pro Forma Combined Financial Statements. F-5 COMPASS INTERNATIONAL SERVICES CORPORATION NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS NOTE 1 -- GENERAL Compass International Services Corporation ("Compass") was organized to create a leading provider of outsourced business services to public and private entities. Compass had conducted no operations prior to March 4, 1998, on which date it acquired the Founding Companies concurrently with the closing of its initial public offering (the "Offering"). The historical financial statements reflect the financial position and results of operations of Compass and the Founding Companies and were derived from the respective financial statements. The periods included in these financial statements for all of the individual Founding Companies and Compass are for the year ended December 31, 1997. The audited historical financial statements included elsewhere herein have been included in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 80. NOTE 2 -- ACQUISITION OF FOUNDING COMPANIES Concurrently with the closing of the Offering, Compass acquired all of the outstanding capital stock of the Founding Companies. The Acquisitions will be accounted for using the purchase method of accounting with Mail Box treated as the accounting acquiror. The following table sets forth the consideration paid in cash and in shares of Common Stock to the common stockholders of each of the Founding Companies, as well as finders' fees payable in cash and warrants to purchase Common Stock as described elsewhere in this Prospectus under "Certain Transactions." For purposes of computing the estimated purchase price for accounting purposes, the value of shares is based upon the initial public offering price of $10.50, less a 20% discount of the offering price due to the restrictions on the transferability of the Common Stock acquired by the stockholders of the Founding Companies.
Shares of Value Broker Total Cash Common Stock of Shares Warrants Fee Consideration -------- -------------- ------------ ----------- --------- --------------- (In thousands, except share amounts) Mail Box....... $ 8,616 2,461,852 $20,680 $29,296 NCMC........... 3,169 965,801 8,113 $50 11,332 Bomar.......... 4,031 1,151,787 9,675 $440 14,146 Mid-Continent.. 1,635 467,127 3,924 5,559 Impact......... 427 389,124 3,269 3,696 -------- ------------- ----------- ---------- ------- -------------- Total.......... $17,878 5,435,691 $45,661 $50 $440 $64,029 ======== ============= =========== ========== ======= ==============
The above purchase price consideration has been allocated to the assets and liabilities acquired based on their respective carrying values, with the exception of a patent developed at one of the entities, as these carrying values are deemed to represent fair market value of these assets and liabilities. The fair market value of the patent was determined based on the present value of the incremental revenue stream that is estimated to be realized over the 15 year life of the patent. F-6 The following allocation of the purchase price is considered preliminary. The Company does not anticipate that the final allocation of purchase price will differ significantly from that presented.
Intangible Net Total Identifiable Assets Consideration Assets Acquired Goodwill --------------- -------------- ---------- ---------- (In thousands) NCMC........... $11,332 $1,000 $ 3,808 $ 6,524 Bomar.......... 14,146 473 13,673 Mid-Continent.. 5,559 (3,905) 9,464 Impact......... 3,696 202 3,494 --------------- -------------- ---------- ---------- $34,733 $1,000 $ 578 $33,155 =============== ============== ========== ==========
F-7 NOTE 3 -- UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS The following table summarizes unaudited pro forma combined balance sheet adjustments (in thousands):
TOTAL ASSETS ACQUISITION ACQUISITION TOTAL ------ ADJUSTMENTS ADJUSTMENTS OFFERING ADJUSTMENTS OFFERING ----------------------- ------------ ---------------------- (A) (B) (C) (D) (E) ADJUSTMENTS ----- ----- ----- ----------- -------- ---------- ------------ Cash and cash equivalents....................... $ -- $ -- $ 697 $ 697 $41,692 $(32,618) $ 9,074 Due from stockholders........................... (842) -- (748) (1,590) -- -- -- Deferred offering costs......................... -- -- -- -- (3,942) -- (3,942) ----- ------- ----- ----------- -------- ---------- ------------ Total current assets........................ (842) -- (51) (893) 37,750 (32,618) 5,132 Goodwill, net................................... -- 47,140 -- 47,140 -- -- -- Other assets.................................... -- 1,000 -- 1,000 -- -- -- ----- ------- ----- ----------- -------- ---------- ------------ Total assets................................ $(842) $48,140 $ (51) $47,247 $37,750 $(32,618) $ 5,132 ===== ======= ===== =========== ======== ========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Short term debt................................. $ -- $ -- $ -- $ -- $(1,045) $ (8,203) $ (9,248) Accounts payable and accrued expenses........... -- 440 -- 440 (2,747) (440) (3,187) Payable to Founding Company stockholders........ -- 17,879 (51) 17,828 -- (17,879) (17,879) ----- ------- ----- ----------- -------- ---------- ------------ Total current liabilities................... -- 18,319 (51) 18,268 (3,792) (26,522) (30,314) Long-term debt.................................. -- 4,250 -- 4,250 -- (6,096) (6,096) ----- ------- ----- ----------- -------- ---------- ------------ Total liabilities........................... -- 22,569 (51) 22,518 (3,792) (32,618) (36,410) Minority interest in subsidiary................. -- (6) -- (6) -- -- -- Stockholders' equity:........................... Common stock.................................. -- (64) (64) 47 -- 47 Additional paid-in capital.................... -- 27,048 -- 27,048 41,495 -- 41,495 Retained earnings............................. (842) (2,504) -- (3,346) -- -- -- Unrealized loss on securities................. -- 10 -- 10 -- -- -- Treasury stock................................ -- 1,087 -- 1,087 -- -- -- ----- ------- ----- ----------- -------- ---------- ------------ Total stockholders' equity.................. (842) 25,577 -- 24,735 41,542 -- 41,542 ----- ------- ----- ----------- -------- ---------- ------------ Total liabilities and stockholders' equity.. $(842) $48,140 $ (51) $47,247 $37,750 $(32,615) $ 5,132 ===== ======= ===== =========== ======== ========== ============
__________________ (A) Reflects the exclusion of a note receivable from a stockholder of Mid- Continent which will be retained by the stockholder. (B) Records the Acquisitions of the Founding Companies including: (i) establishment of the liability for the cash portion of the consideration paid to the stockholders of the Founding Companies of $17,879,000 and a broker fee of $440,000; (ii) the issuance of 5,435,691 shares of Common Stock to the stockholders of the Founding Companies; (iii) the assumption of $4,250,000 of debt as part of the consideration for Mid-Continent; (iv) the allocation of the purchase price to the Company's historical assets and liabilities based on their respective carrying values and to an identifiable intangible associated with a patent at NCMC of $1,000,000; (v) the recognition of $33,155,000 of goodwill representing the excess of the purchase price over the fair value of net assets acquired; and (vi) goodwill of $13,985,000 recorded attributable to the 1,682,769 shares of Common Stock issued to BGL and management. The Common Stock consideration was valued at $8.40 per share, which represents a 20% discount from the offering price of $10.50 due to the restrictions on the transferability of the Common Stock acquired by the stockholders of the Founding Companies and BGL. (C) Represents the settlement of certain stockholder receivables and payables pursuant to the Acquisition Agreements (comprised of a $643,000 stockholder receivable at Mid-Continent, a stockholder receivable of $105,000 at Impact and a stockholder payable of $51,000 at Mid-Continent). (D) Records the cash proceeds from the issuance of 4,715,000 shares of Common Stock, net of estimated Offering costs. Offering costs primarily consisted of the underwriting discount, accounting, legal and consulting fees and printing expenses. (E) Records the use of Offering proceeds to pay the cash portion of the consideration due to the stockholders of the Founding Companies in connection with the Acquisitions, including the $4,250,000 of debt assumed as part of the consideration for Mid-Continent, to repay certain long-term and short-term debt of the Founding Companies (comprised of $2,463,000 at Mail Box, $1,103,000 at NCMC, $4,792,000 at Bomar, $928,000 at Mid-Continent and $763,000 at Impact) and to pay certain Acquisition-related liabilities. NOTE 4 -- OTHER ACQUISITIONS Gives effect to the acquisition by Bomar of Financial Claims Control, Inc. ("FCCI") consummated in September 1997, as if this acquisition was consummated on January 1, 1997, including the amortization of approximately $3.2 million of goodwill over 40 years. F-8 NOTE 5 -- UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS (A) Reflects the reduction in salaries, bonuses and benefits to the owners of the Founding Companies to which they have agreed prospectively pursuant to agreements and, in nearly all cases, as a condition of the Acquisitions, as follows:
FOR THE YEAR ENDED DECEMBER 31, 1997 ------------------ (IN THOUSANDS) Mail Box...................................... $1,776 NCMC.......................................... 124 Bomar......................................... 822 Mid-Continent................................. 1,313 Impact........................................ -- Other Acquisitions............................ 64 ------------ $4,099 ============
Pursuant to the terms of employment agreements entered into upon consummation of the Acquisitions, the owners of the Founding Companies will be eligible for performance-based bonuses of up to 100% of their respective annual base salaries. Bonuses under the employment agreements will be awarded based upon substantial improvement in the operating performance of both the Founding Companies and Compass. The bonuses paid historically to the owners of the Founding Companies were not awarded based upon the same performance criteria and compensation expense has been reduced accordingly in the pro forma adjustments. Whether the bonuses that may be awarded under the new employment agreements will be earned cannot be determined at this time and therefore are not reflected in the pro forma adjustments. If bonuses are awarded, compensation expense would increase. (B) Reflects elimination of NCMC compensation expense recognized during the third quarter of 1997 in connection with the issuance of shares of common stock to certain employees in connection with the termination of a stock option plan. The termination of the stock option plan was done in preparation for the planned Acquisitions. (C) Reflects a reduction in rent expense related to a lease on a building controlled by a stockholder of Impact which has been agreed to prospectively as a condition of the Acquisition. (D) Reflects (i) the amortization of $47.1 million of goodwill to be recorded as a result of the Acquisitions and the 1,121,844 shares issued to BGL over the respective goodwill lives, as follows: NCMC, 40 years; Bomar, 40 years; Mid-Continent, 40 years; Impact, 15 years; Compass, 40 years and (ii) the amortization of a $1.0 million intangible asset associated with a patent at NCMC amortized over 15 years. F-9 (E) Reflects the net reduction in interest expense associated with long-term debt to be paid from the proceeds of the Offering, as follows:
FOR THE YEAR ENDED DECEMBER 31, 1997 ------------------ (IN THOUSANDS) Mail Box.......................... $157 NCMC.............................. 22 Bomar............................. 228 Mid-Continent..................... 81 Impact............................ 59 ---- $547 ====
(F) Reflects a net reduction of interest income on stockholder loans of Mid- Continent. (G) Reflects the incremental provision for federal and state income taxes assuming all entities were subject to federal and state income tax and relating to the other statements of operations' adjustments and for income taxes on S Corporation income. NOTE 6 -- NET INCOME PER SHARE The shares used in computing net income per share include: (i) 1,682,769 shares issued to BGL Capital Partners, L.L.C. and management of Compass; (ii) 5,435,691 shares issued to the stockholders of the Founding Companies in connection with the Acquisitions; and (iii) 3,342,471 shares representing the number of shares sold in the Offering necessary to pay the $17.9 million cash portion of the consideration for the Acquisitions; to pay the estimated underwriting discount and other acquisition and offering related costs; and to repay certain indebtedness assumed by Compass in the Acquisitions, net of repayments from stockholder receivables. F-10 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Compass International Services Corporation In our opinion, the accompanying balance sheet presents fairly, in all material respects, the financial position of Compass International Services Corporation at December 31, 1997, in conformity with generally accepted accounting principles. This financial statement is the responsibility of the Company's management; our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit of this statement in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. /s/ Price Waterhouse LLP Minneapolis, Minnesota January 28, 1998, except as to Note 1, which is as of March 25, 1998 F-11 COMPASS INTERNATIONAL SERVICES CORPORATION BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, 1997 ----------- ASSETS ------ Deferred offering costs................................................. $3,942 ----------- Total assets........................................................... $3,942 =========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Accrued expenses........................................................ $2,747 Notes payable........................................................... 1,045 Stockholders' equity: Preferred Stock, 10,000,000 shares authorized, no shares issued or outstanding; Common Stock, 50,000,000 authorized, $.01 par value, 1,682,769 shares issued and outstanding................................................ 17 Additional paid-in-capital............................................ 133 ----------- Total stockholders' equity........................................... 150 ----------- Total liabilities and stockholders' equity........................... $3,942 ===========
The accompanying notes are an integral part of this financial statement. F-12 COMPASS INTERNATIONAL SERVICES CORPORATION NOTES TO FINANCIAL STATEMENT NOTE 1 -- BUSINESS AND ORGANIZATION Compass International Services Corporation, a Delaware corporation ("Compass" or the "Company") was founded in April 1997 to create a leading provider of outsourced business services to public and private entities throughout the United States upon consummation of an initial public offering (the "Offering") of its common stock. In connection with the organization and initial capitalization of Compass, in April 1997 the Company issued 1,570,584 shares (post split) of common stock for $140,000 and in May 1997 issued 112,185 shares (post split) for $10,000. Of these shares issued, 560,925 were issued to management of the Company for a total price of $50,000. On October 1, 1997, the Board of Directors approved several actions in connection with the Offering. These actions included the approval of a 112.1846-for-1 stock split which was effected on December 3, 1997. All common stock related information included in the financial statement has been adjusted to reflect this split. On March 4, 1998, Compass acquired all of the outstanding capital stock of five companies ("Founding Companies") contemporaneously with the Offering. The Founding Companies are The Mail Box, Inc. (Mail Box), National Credit Management Corp. (NCMC), BRMC of Delaware, Inc. (Bomar), Mid-Continent Agencies, Inc. (Mid- Continent) and Impact Telemarketing Group, Inc. (Impact). The aggregate consideration paid by Compass to acquire the Founding Companies was approximately $17.9 million in cash and 5,435,691 shares of Common Stock. The following table reflects the consideration paid in cash and shares of Common Stock:
Shares of Common Founding Company Cash Stock -------------------------------------- --------- -------------- (Dollars in thousands) Mail Box.......... $ 8,616 2,461,85 2 NCMC.............. 3,169 965,801 Bomar............. 4,031 1,151,78 7 Mid-Continent..... 1,635 467,127 Impact............ 427 389,124 Total............. $17,878 5,435,69 1 ========= =============
Compass had not conducted any operations prior to March 4, 1998, and all activities prior to such date have related to the Offering and the Acquisitions. Accordingly, the statements of operations and of cash flows for this period would not provide meaningful information and have been omitted. Expenditures have been funded by advances from BGL Capital Partners, which are payable upon consummation of the Offering, with interest at 8%. As of December 31, 1997, costs of approximately $3,942,000 have been incurred in connection with the Offering and the Company has capitalized these costs as Deferred Offering Costs. These costs include legal, accounting and miscellaneous other fees which will be offset against the proceeds of the Offering at closing. There is no assurance that Compass will be able to generate future operating revenues. F-13 On October 6, 1997, Compass filed a registration statement on Form S-1 for the Offering. In March 1998, Compass completed the Offering, including the exercise of the overallotment option granted to the Underwriters. In connection with such Offering, the Company issued 4,715,000 shares of common stock resulting in proceeds of approximately $41,542,000, net of Offering expenses. NOTE 2 -- NEW ACCOUNTING PRONOUNCEMENTS Accounting for Stock-Based Compensation Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," allows entities to choose between a fair value based method of accounting for employee stock options or similar equity instruments and the intrinsic value-based method of accounting prescribed by Accounting Principles Board Opinion No. 25 ("APB No. 25"). Entities electing to remain with the accounting in APB Opinion No. 25 must make pro forma disclosures of net income and earnings per share as if the fair value method of accounting has been applied. The Company will provide pro forma disclosure of net income and earnings per share, as applicable, in the notes to future consolidated financial statements. Earnings Per Share In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 128 "Earnings per Share." For the Company, SFAS No. 128 will be effective for the year ended December 31, 1997. SFAS No. 128 simplifies the standards required under current accounting rules for computing earnings per share and replaces the presentation of primary earnings per share and fully diluted earnings per share with a presentation of basic earnings per share ("basic EPS") and diluted earnings per share ("diluted EPS"). Basic EPS excludes dilution and is determined by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities and other contracts to issue common stock were exercised or converted into common stock. Diluted EPS is computed similarly to fully diluted earnings per share under current accounting rules. The implementation of SFAS No. 128 is not expected to have a material effect on the Company's earnings per share as determined under current accounting rules. Reporting Comprehensive Income In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general-purpose financial statements. The Statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. SFAS No. 130 requires that an enterprise (a) classify items of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. The Statement is effective for fiscal years beginning after December 15, 1997. Reclassification of financial statements for earlier periods provided for comparative purposes is required. The Company intends to adopt SFAS No. 130 in 1998. F-14 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders of The Mail Box, Inc. In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of stockholders' equity and of cash flows present fairly, in all material respects, the financial position of The Mail Box, Inc. and its wholly-owned subsidiary, Mail Box Data Services, Inc. (the "Company") at December 31, 1996 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ Price Waterhouse LLP Minneapolis, Minnesota January 17, 1998 F-15 THE MAIL BOX, INC. CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE DATA)
December 31, ---------------- 1996 1997 ------- ------- ASSETS ------ Current assets: Cash............................................................................... $ 1,419 $ 16 Accounts receivable, net of allowance for doubtful accounts of $81 and $125, respectively........................................................ 3,419 4,481 Inventories........................................................................ 708 733 Postage on hand.................................................................... 3,593 1,231 Prepaid expenses and other current assets.......................................... 69 154 Deferred income taxes.............................................................. 26 44 ------- ------- Total current assets.............................................................. 9,234 6,659 Property and equipment, net......................................................... 3,205 4,327 Other assets........................................................................ 100 304 ------- ------- Total assets...................................................................... $12,539 $11,290 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Line of credit..................................................................... $ 569 $ 1,168 Note payable, current portion...................................................... -- 329 Secured equipment financing facilities, current portion............................ 327 471 Capitalized lease obligations, current portion..................................... 450 423 Accounts payable................................................................... 1,450 1,373 Accrued expenses and other liabilities............................................. 824 1,235 Income taxes payable............................................................... 524 416 Postage advances and deposits...................................................... 4,818 950 ------- ------- Total current liabilities......................................................... 8,962 6,365 Long-term liabilities: Note payable, net of current portion............................................... -- 384 Secured equipment financing facilities, net of current portion..................... 616 570 Capitalized lease obligations, net of current portion.............................. 650 622 Deferred income taxes.............................................................. 105 165 ------- ------- Total liabilities................................................................. 10,333 8,106 Commitments and contingencies Stockholders' equity: Common stock, $.10 par value, 500,000 shares authorized, 132,900 and 138,900 shares issued, and 129,300 and 102,900 shares outstanding at December 31, 1996 and 1997, respectively.......................................... 13 14 Additional paid-in-capital......................................................... 947 1,126 Treasury stock, at cost, 3,600 and 36,000 shares at December 31, 1996 and 1997, respectively.......................................... (100 (1,087) Retained earnings.................................................................. 1,346 3,131 ------- ------- Total stockholders' equity........................................................ 2,206 3,184 ------- ------- Total liabilities and stockholders' equity........................................ $12,539 $11,290 ======= =======
The accompanying notes are an integral part of these financial statements. F-16 THE MAIL BOX, INC. CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, ---------------------------- 1995 1996 1997 -------- -------- -------- Revenues...................................... $ 17,370 $ 26,156 $ 32,566 Operating expenses............................ 12,402 17,953 21,493 -------- -------- -------- Gross profit................................ 4,968 8,203 11,073 Selling, general and administrative expenses.. 4,370 5,891 7,824 -------- -------- -------- Income from operations...................... 598 2,312 3,249 Other expense: Interest expense............................ 302 337 382 -------- -------- -------- Income before income taxes.................... 296 1,975 2,867 Provision for income taxes.................... 134 700 985 -------- -------- -------- Net income.................................... $ 162 $ 1,275 $ 1,882 ======== ======== ========
The accompanying notes are an integral part of these financial statements. F-17 THE MAIL BOX, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
Common Stock Additional Unearned --------------- Paid-in- Treasury ESOP Retained Shares Amount Capital Stock Compensation Earnings Total ------ ------ ---------- --------- ------------ ----------- --------- 102,90 Balance, January 1, 1995....... 0 $10 $ 692 $ (49) $ (45) $ 33 $ 641 Net income................... 162 162 ESOP compensation............ 32 45 77 Capital contribution......... 86 86 Purchases of treasury stock.. (51) (51) Cash dividends, $.50 per share....................... (60) (60) Sale of common stock......... 30,000 3 137 140 ------ ------ --------- -------- ----------- ---------- --------- 132,90 Balance, December 31, 1995..... 0 13 947 (100) -- 135 995 1,27 Net income................... 1,275 5 Cash dividends, $.50 per share....................... (64) (64) ------ ------ --------- -------- ----------- ---------- --------- 132,90 2,20 Balance, December 31, 1996..... 0 13 947 (100) -- 1,346 6 1,88 Net income................... 1,882 2 Purchases of treasury stock.. (987) (987) Cash dividends, $1.00 per share....................... (97) (97) Common stock issued on exercise of options......... 6,000 1 179 180 ------ ------ --------- -------- ----------- ---------- --------- 138.90 $ 3,1 Balance, December 31, 1997..... 0 $14 $1,126 $(1,087) $ -- $ 3,131 84 ====== ====== ========= ======== =========== ========== =========
The accompanying notes are an integral part of these financial statements. F-18 THE MAIL BOX, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
Years Ended December 31, -------------------------- 1995 1996 1997 ------ ------- ------- Cash flows from operating activities: Net income................................................ $ 162 $ 1,275 $ 1,882 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization........................... 616 768 980 ESOP compensation....................................... 77 -- -- Employee stock compensation............................. 86 -- -- Provision for doubtful accounts......................... 60 82 70 Change in deferred taxes................................ (48) 114 42 Changes in operating assets and liabilities: Accounts receivable..................................... (862) (104) (1,131) Inventories............................................. (322) (218) (25) Postage on hand......................................... (65) (2,706) 2,362 Prepaid expenses and other assets....................... 47 18 (290) Accounts payable and accrued expenses................... 340 566 332 Postage advances and deposits........................... 1,328 2,778 (3,868) Federal income taxes payable............................ 107 310 (108) ------ ------- ------- Net cash provided by operating activities.............. 1,526 2,883 246 Cash flows from investing activities: Purchases of property and equipment....................... (810) (1,007) (1,541) Proceeds from disposal of property and equipment.......... -- -- 38 ------ ------- ------- Net cash used in investing activities.................. (810) (1,007) (1,503) Cash flows from financing activities: Net borrowings (payments) on line of credit............... (725) 130 600 Repayments of capital lease obligations................... (321) (439) (654) Proceeds from long-term debt.............................. 692 161 1,517 Repayment of long-term debt............................... (360) (261) (705) Proceeds from issuance of common stock.................... 140 -- 180 Repurchases of treasury stock............................. (51) -- (987) Cash dividends paid....................................... (85) (64) (97) ------ ------- ------- Net cash provided by (used in) financing activities.... (710) (473) (146) Net increase (decrease) in cash........................... 6 1,403 (1,403) Cash at beginning of period............................... 10 16 1,419 Cash at end of period..................................... $ 16 $ 1,419 $ 16 ====== ======= ======= Supplemental disclosure of cash flow information: Cash paid for interest................................... $ 302 $ 338 $ 382 Cash paid for taxes...................................... 74 276 1,051 Noncash investing and financing activities: Equipment acquired under capital leases.................. 551 592 600
The accompanying notes are an integral part of these financial statements. F-19 THE MAIL BOX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- NATURE OF OPERATIONS The Mail Box, Inc. and its wholly owned subsidiary Mail Box Data Services, Inc. (collectively the "Company") provide direct mailing services, billing services, mail presorting, freight and drop shipping, data processing, laser printing, mailing list rental and order fulfillment to companies based primarily in the southwestern United States. The Company operates from a single location in Dallas, Texas. NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles 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. While management believes that the estimates and related assumptions used in the preparation of these financial statements are appropriate, actual results could differ from those estimates. Estimates are made when accounting for the allowance for doubtful accounts, inventories, depreciation and amortization and income taxes. Principles of Consolidation The consolidated financial statements include the accounts of The Mail Box, Inc. and its wholly-owned subsidiary, Mail Box Data Services, Inc. All significant inter-company transactions have been eliminated. Revenue Recognition Revenues are recognized when services are rendered and are presented in the financial statements net of sales allowances. The Company's services are considered rendered when all printing, sorting, labeling and ancillary services have been provided and the mailing material has been received and accepted by the United States Postal Service. Property and Equipment Property and equipment is recorded at cost less accumulated depreciation and amortization. Depreciation, and amortization of assets recorded under capital leases, is provided using the straight-line method over estimated useful lives of each class of assets, or, if shorter, the terms of leases for capital leases. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the asset or the term of the lease. Average useful lives range from 5 to 7 years. Expenditures for maintenance and repairs are charged to expense as incurred. Inventories Inventories consist of work in progress, spare parts, and paper and envelope stock, recorded at cost not to exceed market. The cost of work in process includes the costs of completed but unmailed production. F-20 THE MAIL BOX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Income Taxes The Company records income taxes using the liability method, under which deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, using enacted tax rates. Accounting for Stock Based Compensation The Company accounts for its employee stock options under Accounting Principles Board Opinion No. 25 (APB 25). Earnings Per Share Earnings per share for the Company have not been presented in the accompanying financial statements because such disclosure is not deemed meaningful considering the proposed transaction discussed in Note 14. Concentration of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk are principally accounts receivable. The Company performs ongoing credit evaluations of its customers' financial condition and requires no collateral from its customers. The allowance for doubtful accounts is maintained based upon the expected collectability of the accounts receivable. Fair Value of Financial Instruments The carrying amounts of the Company's financial instruments, including cash, accounts receivable, accounts payable and long-term debt, approximate fair value . NOTE 3 -- INVENTORIES Inventories consist of the following:
December 31, -------------- 1996 1997 ------ ------ (In thousands) Work in progress............... $ 466 $ 390 Spare parts.................... 130 253 Paper and envelope stock....... 112 90 $ 708 $ 733 ====== ======
F-21 THE MAIL BOX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 4 -- PROPERTY AND EQUIPMENT Property and equipment consist of the following:
December 31, ------------------- 1996 1997 --------- ------- (In thousands) Furniture and fixtures..................... $ 552 $ 665 Plant equipment............................ 3,996 5,495 Computer equipment and software............ 3,654 3,745 Leasehold improvements..................... 70 470 --------- ------- 8,272 10,375 Accumulated depreciation and amortization.. (5,067) (6,048) --------- ------- $ 3,205 $ 4,327 ========= =======
Depreciation and amortization expense was $616,000, $768,000 and $980,000 for the years ended December 31, 1995, 1996 and 1997. NOTE 5 -- ACCRUED EXPENSES AND OTHER LIABILITIES Accrued expenses and other liabilities consist of the following:
December 31, ------------------ 1996 1997 ------- ------- (In thousands) Accrued compensation.......................... $ 314 $ 357 Accrued vacation.............................. 214 278 Other liabilities............................. 296 600 ------- ------- Total accrued expenses and other liabilities.. $ 824 $1,235 ======= =======
F-22 THE MAIL BOX, INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 6 -- NOTE PAYABLE AND CREDIT FACILITIES Obligations under long term note payable and credit facilities are as follows:
DECEMBER 31, ------------------ 1996 1997 -------- -------- (IN THOUSANDS) Note payable to financial institution, interest at 30 day commercial rate plus 2.8% (8.4% at December 31, 1997), principal payment of $27,000 due monthly, balance due on January 1, 2000..................................... $ -- $ 713 Secured equipment financing facilities payable to financial institutions. Monthly fixed payments ranging from $1,000 to $14,000. Interest rates ranging from 8.98% to 10.95%. Maturity dates ranging from 1998 to 2001.............. 943 1,041 Less: Current portion............................................... (327) (800) -------- -------- $ 616 $ 954 ======== ========
The Company's note payable to a financial institution is secured by the personal guarantee of its principal stockholder. As of December 31, 1997, approximately $459,000 of these balances may not be prepaid prior to February 27, 1998; thereafter, such balances may be prepaid, subject to declining prepayment penalties. Other balances may be prepaid at any time subject to a 2% prepayment penalty. The following summarizes the Company's required annual principal payments under note payable and secured equipment financing facilities at December 31, 1997 and for the next four years:
DECEMBER 31, 1997 ----------------- (IN THOUSANDS) 1998........................................... $ 800 1999........................................... 648 2000........................................... 275 ------- 2001........................................... 31 ------- $ 1,754 =======
Revolving Credit Facility The Company has a revolving credit facility with a financial institution which provides for borrowings of $2,250,000 at December 31, 1996 and 1997 to be utilized for working capital purposes. The facility matures on October 31, 1998. The line of credit is collateralized by certain property and equipment, and accounts receivable of the Company. Borrowings outstanding are also secured by a pledge of all of the Company's common stock owned by the principal stockholder. Borrowings outstanding from time to time bear interest at a short term floating interest rate (8.6%, 8.8% and 8.4% at December 31, 1995, 1996 and 1997, respectively.) F-23 THE MAIL BOX, INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The revolving credit facility contains, among other provisions, requirements to maintain defined levels of working capital, net worth, various financial ratios, limit capital expenditures, and restricts distributions to stockholders. At December 31, 1997, the Company was in compliance with all covenants. The Company leases certain equipment under agreements which are classified as capital leases. The following is a schedule of capital leases by asset class:
DECEMBER 31, ------------------ 1996 1997 -------- -------- (IN THOUSANDS) Furniture and fixtures.......................... $ 71 $ 155 Plant equipment................................. 799 1,119 Computer equipment and software................. 959 530 -------- -------- 1,829 1,804 Accumulated amortization........................ (669) (565) Total.......................................... $1,160 $1,239
The following is a schedule of future annual minimum lease payments due under capital lease obligations at December 31, 1997, together with the present value of the future minimum lease payments for the years ended:
DECEMBER 31, 1997 ----------------- (IN THOUSANDS) 1998................................................. $ 499 1999................................................. 415 2000................................................. 172 2001................................................. 85 2002................................................. 7 ------ Total future minimum lease payments................ 1,178 Less: Amount representing interest................... (133) ------ Present value of future minimum lease payments..... $1,045 ======
F-24 THE MAIL BOX, INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company also leases certain facilities and equipment under non- cancelable operating leases. The facilities leases provide that the Company pay the taxes, insurance and maintenance expenses related to the leased facilities. Certain of the facilities are leased from a related party as discussed more fully in Note 9. Future annual minimum payments, by year and in the aggregate, under these non-cancelable operating leases with initial or remaining terms of one year or more consist of the following:
DECEMBER 31, 1997 ----------------- (IN THOUSANDS) 1998.............................................. $2,082 1999.............................................. 1,662 2000.............................................. 1,264 2001.............................................. 903 2002.............................................. 396 Thereafter........................................ 85 ------ $6,392 ======
Rent expense was $1,390,000, $1,534,000 and $1,695,000 for the years ended December 31, 1995, 1996 and 1997, respectively. NOTE 7 -- INCOME TAXES The Company's provision for income taxes is comprised of the following for the years ended December 31, 1995, 1996 and 1997:
DECEMBER 31, -------------------- 1995 1996 1997 ------ ----- ----- (IN THOUSANDS) Current tax expense.............................. $ 182 $ 586 $ 943 Deferred tax expense (benefit)................... (48) 114 42 ------ ----- ----- Total provision for income taxes................. $ 134 $ 700 $ 985 ====== ===== =====
The effective income tax rate for the years ended December 31, 1995, 1996 and 1997 varied from the federal statutory rate as follows:
DECEMBER 31, -------------------- 1995 1996 1997 ------ ----- ----- (IN THOUSANDS) Tax provision computed at statutory rate of 35%.. $ 104 $ 694 $ 970 Nondeductible expenses and other................. (1) 6 15 Employee stock compensation expense.............. 31 -- -- $ 134 $ 700 $ 985 ====== ===== =====
F-25 THE MAIL BOX, INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The components of the net deferred tax asset (liability) are as follows:
DECEMBER 31, ------------------ 1996 1997 -------- -------- (IN THOUSANDS) DEFERRED TAX ASSETS: Deferred compensation........................... $ -- $ -- Allowance for doubtful accounts................ 26 44 Other.......................................... 4 4 ------ ------ 30 48 DEFERRED TAX LIABILITIES: Depreciation and amortization.................. (109) (169) ------ ------ Net deferred tax asset (liability)............ $ (79) $(121) ====== ======
NOTE 8 -- EMPLOYEE BENEFIT PLANS The Company sponsors a savings plan under Section 401(k) of the Internal Revenue Code (the "Plan"), which was adopted in 1996 to provide employees an opportunity to rollover their vested accounts received in connection with the termination of the Company's leveraged employee stock ownership plan ("ESOP"), as discussed below. The Plan allows all eligible employees to defer up to 8% of their base salary on a pretax basis through contributions to the Plan, and the Company will match on a discretionary basis, 25% of the first 5% of such employee contributions. The Company made contributions to the Plan of $0 and $64,000 for the years ended December 31, 1996 and 1997, respectively. During 1995 and 1996, the Company sponsored the ESOP, which covered all full time employees. The Company made contributions to the ESOP equal to scheduled debt payments plus discretionary contributions based on results of operations. As services were rendered by plan participants, the Company recorded compensation expense equal to the average fair value of the shares allocated to participant accounts during the period. ESOP compensation expense was $215,000 and $108,000 for 1995 and 1996, respectively. The ESOP was terminated in 1996 and all shares (32,400) were repurchased by the Company for $987,000 in the first quarter of 1997. The Company funded the termination with a three-year amortizing loan from a financial institution in the amount of $987,000 and recorded the reacquisition of shares as treasury stock. F-26 THE MAIL BOX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 9 -- RELATED PARTIES The Company leases its main office and certain mailshop facilities from a partnership in which the Company's principal stockholder is a limited partner. Included in rent expense for each of the three years ended December 31, 1995, 1996 and 1997, is $290,000, $290,000 and $321,000, respectively, for payments under this lease. Future annual minimum lease payments under this agreement are as follows:
December 31, 1997 ----------------- (In thousands) 1998.................... $ 343 1999.................... 343 2000.................... 343 2001.................... 343 2002.................... 143 Thereafter -- ------------ $1,515 ============
In August 1997, the Company purchased certain equipment previously leased from a partnership, the partners of which include certain Company stockholders. The equipment was purchased for $130,000. NOTE 10 -- CAPITAL TRANSACTIONS In 1995, the Company purchased into treasury from the majority stockholder, 1,600 shares of common stock for $51,000. In 1995, certain employees were awarded an aggregate of 2,500 shares of common stock, with an aggregate value of $86,000. The shares were granted to the employees by the majority stockholder and were accounted for as capital contributions and employee stock compensation expense. In December 1996, the Company granted to a certain employee-stockholder an option to purchase 6,000 shares at $30.00 per share, the approximate fair value at the date of grant. The option was exercised on July 17, 1997. In view of the terms of this option, the fair value is not deemed to be significantly different from the intrinsic value. NOTE 11 -- CONCENTRATION OF CREDIT RISK The Company had two customers that accounted for 15.5% and 11.7% of 1995 revenues, respectively, one customer that accounted for 30.9% of 1996 revenues, and one customer that accounted for 47.9% of revenues for 1997. At December 31, 1996 and 1997, approximately 11.5% and 39.4%, respectively, of the Company's total accounts receivable balance was due from a single customer. F-27 THE MAIL BOX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 12 -- INVENTORIES HELD IN TRUST FOR CUSTOMERS In the ordinary course of the Company's business activities as a mailing service company, the Company receives and stores customers' letter, statement and paper and form stock for use in customers' mailing production processes. The Company does not take legal title to the inventories, and accordingly, these inventories are not carried on the Company's financial statements. The Company maintains casualty risk insurance in amounts sufficient to cover potential damages arising from the Company's custody of such inventories, which varies from time to time but, according to management estimates, does not exceed $11.0 million. NOTE 13 -- COMMITMENTS AND CONTINGENCIES The Company is party from time to time to various legal proceedings incidental to its business. In the opinion of management, the resolution of these items, individually or in the aggregate, would not have a significant effect on the financial position, results of operations, or cash flows of the Company. NOTE 14 -- UNAUDITED SUBSEQUENT EVENT The Company and its stockholders entered into a definitive agreement with Compass International Services Corporation ("Compass") pursuant to which, on March 4, 1998, Compass acquired all outstanding shares of the Company's common stock in exchange for cash and common stock of Compass, concurrent with the consummation of the initial public offering of the common stock of Compass. F-28 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of National Credit Management Corporation We have audited the accompanying consolidated balance sheets of National Credit Management Corporation and Subsidiary (a Maryland corporation), as of December 31, 1996 and 1997, and the related consolidated statements of operations, stockholders' equity and cash flows for the years ended December 31, 1995, 1996 and 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of National Credit Management Corporation and Subsidiary as of December 31, 1996 and 1997, and the results of its operations and its cash flows for the years ended December 31, 1995, 1996 and 1997, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Baltimore, Maryland January 16, 1998 F-29 NATIONAL CREDIT MANAGEMENT CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
December 31, -------------------- ASSETS 1996 1997 ------ ------- ------- CURRENT ASSETS: Cash and cash equivalents........................................ $ 1,149 $ 1,214 Accounts receivable, net of allowance for doubtful accounts of 2,141 2,969 $88 and $102, respectively...................................... Prepaid expenses and other....................................... 361 667 Deferred tax asset............................................... 73 63 ------- ------- Total current assets............................................ 3,724 4,913 Property and equipment, net....................................... 1,053 2,486 Other assets, net of accumulated amortization of $272 and $284, respectively..................................................... 73 420 ------- ------- Total assets.................................................... $ 4,850 $ 7,819 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Current portion of term loan..................................... $ $ 105 Note payable..................................................... -- 53 Trade accounts payable........................................... 356 702 Client payables.................................................. 484 522 Accrued compensation and related benefits........................ 500 676 Current portion of capital lease obligations..................... 327 206 Other accrued expenses........................................... 185 403 ------- ------- Total current liabilities....................................... 1,852 2,667 Deferred tax liability............................................ 96 241 Long-term portion of term loan.................................... -- 945 Long-term capital lease obligations............................... 184 158 ------- ------- Total liabilities............................................... 2,132 4,011 ------- ------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock--Class A, $.01 par value, 5,000,000 shares 2 2 authorized, 210,000 and 231,500 shares issued and outstanding, respectively.................................................... Common stock--Class B, $.01 par value, 250 shares authorized, -- -- no shares issued and outstanding................................ Additional paid-in-capital....................................... 752 2,097 Retained earnings................................................ 1,964 1,709 ------- ------- Total stockholders' equity...................................... 2,718 3,808 ------- ------- Total liabilities and stockholders' equity...................... $ 4,850 $ 7,819 ======= =======
The accompanying notes are an integral part of these consolidated balance sheets. F-30 NATIONAL CREDIT MANAGEMENT CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS)
Years Ended December 31, ----------------------------- 1995 1996 1997 ------- ------- ------- Revenues...................................... $12,287 $13,579 $15,620 Operating expenses............................ 6,322 7,945 9,433 ------- ------- ------- Gross profit................................. 5,965 5,634 6,187 Selling, general and administrative expenses.. 4,328 4,798 6,340 ------- ------- ------- Income (loss) from operations................ 1,637 836 (153) ------- ------- ------- Other (income) expense: Interest income.............................. (62) (46) (46) Interest expense............................. 90 79 77 Other........................................ 5 15 199 ------- ------- ------- Total other expense, net.................... 33 48 230 ------- ------- ------- Income (loss) before income taxes............. 1,604 788 (383) Provision (benefit) for income taxes.......... 648 335 (128) ------- ------- ------- Net income (loss)............................. $ 956 $ 453 $ (255) ======= ======= =======
The accompanying notes are an integral part of these consolidated statements. F-31 NATIONAL CREDIT MANAGEMENT CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
Class A Common Stock Class B Common Stock Additional Total --------------------- --------------------- Shares Shares Paid-in Retained Stockholders' Outstanding Amount Outstanding Amount Capital Earnings Equity ----------- ------ ------------ ------- --------- --------- ---------- Balance, December 31, 1994............ 210,000 $2 -- $ -- $ 752 $ 555 $1,309 Net income......................... -- -- -- -- -- 956 956 ----------- ------ ------------ ------- --------- --------- ---------- Balance, December 31, 1995............ 210,000 2 -- -- 752 1,511 2,265 Net income......................... -- -- -- -- -- 453 453 ----------- ------ ------------ ------- --------- --------- ---------- Balance, December 31, 1996............ 210,000 2 -- -- 752 1,964 2,718 Stock issued pursuant to 21,500 -- -- -- 1,345 -- 1,345 termination of stock option plan... Net loss....................... -- -- -- -- -- (255) (255) ----------- ------ ------------ ------- --------- --------- ---------- Balance, December 31, 1997............ 231,500 $2 -- $ -- $2,097 $1,709 $3,808
The accompanying notes are an integral part of these consolidated statements. F-32 NATIONAL CREDIT MANAGEMENT CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Years Ended December 31, ---------------------------- 1995 1996 1997 ------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss).......................... $ 956 $ 453 $ (255) Adjustments to reconcile net income (loss) to net cash flows provided by operating activities-- Compensation expense charge related to -- -- 1,345 stock issued pursuant to termination of stock option plan........................ Loss from disposal of property and 20 15 199 equipment................................ Deferred tax provision.................... 59 48 155 Depreciation and amortization............. 322 337 483 Increase in accounts receivable........... (653) (147) (828) Increase in prepaid expenses and other.... (39) (232) (306) Increase in other assets.................. (11) (5) (359) Increase (decrease) in trade accounts 204 (39) 564 payable and other accrued expenses....... Increase (decrease) in client payables.... 56 (116) 38 (Decrease) increase in accrued (192) 252 176 compensation and related benefits........ ------- -------- -------- Net cash flows provided by operating activities.............................. 722 566 1,212 ------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment........ (194) (164) (2,103) ------- -------- -------- Net cash flows used in investing activities.............................. (194) (164) (2,103) ------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net (payments) borrowings from term (200) (100) 1,050 loan...................................... Increase in notes payable.................. -- -- 53 Principal payments under capital lease (223) (320) (147) obligations............................... ------- -------- -------- Net cash flows (used in) provided by financing activities.................... (423) (420) 956 ------- -------- -------- Net increase (decrease) in cash and 105 (18) 65 cash equivalents........................ Cash and cash equivalents, beginning of period..................................... 1,062 1,167 1,149 ------- -------- -------- Cash and cash equivalents, end of period.... $1,167 $1,149 $ 1,214 ======= ======== ========
The accompanying notes are an integral part of these consolidated statements. F-33 NATIONAL CREDIT MANAGEMENT CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Business National Credit Management Corporation (the "Company") provides accounts receivable management services and, through its patented Accelerated Payment Systems ("APS") process, telephonic check drafting services. The Company's collection services are provided to a broad range of clients and industries. In addition to standard contingency fee collections, the Company provides early- stage accounts receivable management services to clients in the education, utilities, government and healthcare sectors through its wholly-owned subsidiary, Total Early Receivables Management Corporation. Basis of Presentation The accompanying financial statements have been prepared on the accrual basis of accounting. The preparation of financial statements in conformity with generally accepted accounting principles 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. All significant intercompany transactions have been eliminated in consolidation. Financial Instruments Financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, borrowings under term loan and capital lease obligations, all of which approximate fair value. In addition, the Company has entered into an interest rate cap agreement, which is described in Note 3. Cash and Cash Equivalents Cash and cash equivalents consist primarily of cash and overnight investments stated at cost which approximate market value. Property and Equipment Property and equipment is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the following estimated useful lives:
Computer hardware and software........................ 3-5 years Office furniture and equipment........................ 4-8 years Leasehold improvements................................ Life of related leases Property and equipment held under capital leases...... 3-8 years
Other Assets Other assets consist of security deposits on leases, patent costs and other intangible assets. Client Payables The Company, which is licensed as a collection agency in many states, regularly receives payments on behalf of its clients which are deposited in bank accounts. The Company has recorded a liability for the portion of payments which are owed to clients as of year-end. F-34 NATIONAL CREDIT MANAGEMENT CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Income Taxes Income taxes have been accounted for in accordance with Financial Accounting Standards Board Statement No. 109, "Accounting for Income Taxes." Under Statement 109, the liability method is used in accounting for income taxes. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using tax rates and laws that are expected to be in effect when the differences are scheduled to reverse. Revenue Recognition The Company recognizes revenues in its collections business at the time a payment is received on an account directly from the debtor, or when reported as paid by the client. Revenue is typically based upon contractual percentages of amounts collected. Revenues for the Company's accounts receivable management services are recognized based upon completion of services performed for the client. The APS division of the Company recognizes revenue based upon the number of transactions processed for each client during the month, as well as certain supplementary services. Significant Customers EduCap, Inc. (formerly University Support Services) represented approximately 16%, 16% and 19% of the Company's total revenues for the years ended December 31, 1995, 1996 and 1997, respectively. New Accounting Standards In July 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS No. 131), which is effective for fiscal years beginning after December 15, 1997. The statement establishes revised standards under which an entity must report business segment information in its financial statements. The Company is currently evaluating whether SFAS No. 131 is applicable to it. NOTE 2 -- PROPERTY AND EQUIPMENT, NET Property and equipment consists of:
December 31, ------------------ 1996 1997 -------- -------- (In thousands) Computer hardware and software............. $ 1,754 $ 2,488 Office furniture and equipment............. 892 1,189 Leasehold improvements..................... 81 101 -------- -------- 2,727 3,778 Less--accumulated depreciation............. 1,674 1,292 -------- -------- Property and equipment, net................ $ 1,053 $ 2,486 ======== ========
F-35 NATIONAL CREDIT MANAGEMENT CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 3 -- BORROWINGS UNDER LINE OF CREDIT AND CAPITAL LEASE OBLIGATIONS Borrowings Under Line of Credit The Company has a line of credit agreement with a bank dated October 4, 1995, which was to expire May 15, 1997. There were no balances outstanding under this agreement as of December 31, 1996 and 1997. On January 23, 1997, the line of credit agreement was modified to increase available borrowings to $1,250,000 and extend the expiration date to May 15, 1999. The agreement was further modified on September 17, 1997, to require interest to be paid at variable rates at the borrower's option, as well as to amend certain financial covenants. The line of credit has available borrowings of $1,250,000 as of December 31, 1997. Under the line of credit agreement, substantially all of the Company's assets are pledged as collateral. On August 14, 1997, the Company entered into an interest rate cap agreement. Under the cap agreement, the Company has a cap rate of 7.0% on borrowings up to $1,250,000. The Company receives a cash return if the LIBOR rate exceeds the cap rate. The term of the interest rate cap is three years beginning September 15, 1997 and terminating on September 15, 2000. The cost of the cap was $12,663, which will be amortized over the life of the cap. Term Loan On September 17, 1997, the Company entered into a term loan with a bank which expires on October 15, 2003. The Company may borrow up to $1,500,000 under the loan. The loan bears interest at LIBOR plus 2.0%. Principal repayments begin June 15, 1998 and continue monthly. As of December 31, 1997, the Company has outstanding borrowings under the loan of $1,050,000. Future payments under the term loan as of December 31, 1997 are as follows (in thousands): 1998.......................................... $ 105 1999.......................................... 207 2000.......................................... 238 2001.......................................... 295 2002.......................................... 205 ------ 1,050 Less-current portion of term loan............. 105 ------ Long-term portion of term loan.............. $ 945 ======
Under the term loan agreement, substantially all of the Company's assets are pledged as collateral. F-36 NATIONAL CREDIT MANAGEMENT CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Capital Lease Obligations Certain property and equipment leases have been capitalized using interest rates ranging from approximately 8.75% to 16.0%. Future payments on capital lease obligations as of December 31, 1997, are as follows:
December 31, 1997 ----------------- (In thousands) 1998.................................................. $2 231 1999.................................................. 130 2000.................................................. 40 ----------------- Total payments........................................ 401 Less--amount representing interest.................... 37 ----------------- 364 Less--current portion of capital lease obligation..... 206 ----------------- Long-term capital lease obligations................. $158 =================
NOTE 4 -- COMMITMENTS AND CONTINGENCIES Operating Leases and Service Contract Commitments The Company leases its office space under operating leases which expire through August 2001. In addition, the Company has service contracts on certain office equipment and computer systems held under capital leases. Total rental expense under these agreements was approximately $195,000, $325,000 and $410,000 for the years ended December 31, 1995, 1996 and 1997, respectively. Future minimum payments on operating leases and service contract commitments as of December 31, 1997 are as follows:
December 31, 1997 ----------------- (In thousands) 1998.................................................. $ 383 1999.................................................. 380 2000.................................................. 335 2001.................................................. 275 ----------------- Total............................................... $1,373 =================
Litigation Lawsuits and claims are filed from time to time against the Company in the ordinary course of business. The Company, after reviewing developments to date with legal counsel, is of the opinion that the outcome of such matters will not have a material adverse effect on the Company's financial position or results of operations. Accordingly, no amounts have been provided for these claims in the accompanying financial statements. In May 1997, the Company filed suit against the former owner and inventor of the APS patent (collectively, the "Defendants"), alleging that the Defendants have breached the agreement between the Company and the Defendants and violated the Company's exclusive rights to the APS patent and related intellectual property used in the APS portion of the Company's business. The Defendants have filed a F-37 NATIONAL CREDIT MANAGEMENT CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) counterclaim that seeks, among other things, rescission of the agreement under which the Company purchased the APS patent, restoration of a prior agreement pursuant to which the Defendants licensed the APS patent to the Company, return of the APS patent to the Defendants and unspecified damages. Although the Company believes that the counterclaims are without merit, there can be no assurance that the Defendants will not prevail with respect to some or all of their counterclaims. Management does not believe that a decision adverse to the Company in this dispute would have a material adverse effect on the Company's business, results of operations or financial condition. NOTE 5 -- INCOME TAXES The components of the Company's income tax provision (benefit) are as follows:
December 31, -------------------------- 1995 1996 1997 ------ ------ ------ (In thousands) CURRENT INCOME TAX PROVISION (BENEFIT): Federal....................................... $ 487 $ 235 $ (285) State......................................... 102 52 2 ------ ------ ------ 589 287 (283) ------ ------ ------ DEFERRED INCOME TAX PROVISION (BENEFIT): Federal....................................... 51 41 154 State......................................... 8 7 1 ------ ------ ------ 59 48 155 ------ ------ ------ Total income tax provision (benefit)......... $ 648 $ 335 $ (128) ====== ====== ======
Deferred tax assets and liabilities result from differences in timing of the recognition of certain items for tax and financial accounting purposes. The sources of the deferred tax assets (liabilities) are as follows:
December 31, -------------------- 1996 1997 -------- -------- (In thousands) Property and equipment........................................ $ (144) $ (304) Net operating loss carryforwards.............................. 35 43 Nondeductible reserves........................................ 66 63 Other......................................................... 20 20 -------- -------- Deferred tax liability, net................................. $ (23) $ (178) ======== ========
F-38 NATIONAL CREDIT MANAGEMENT CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The net deferred tax (liability) asset consists of the following items included on the accompanying balance sheets as of December 31, 1996 and 1997:
December 31, ---------------- 1996 1997 ------ ------ (In thousands) Deferred tax asset $ 73 $ 63 Deferred tax liability (96) (241) ------ ------ $ (23) $ (178) ====== ======
The difference between the recorded income tax provision and the federal statutory tax rate is mainly due to lobbying expenses, premiums paid for officers' life insurance, travel and entertainment expenses and other nondeductible differences. As of December 31, 1996 and 1997, the Company had $0 and $603,000 of income taxes receivable, included in prepaid expenses and other in the accompanying consolidated balance sheets. This income tax receivable resulted from the compensation expense recorded in the third quarter (see Note 9), which was not previously considered in the Company's estimated tax payments. As of December 31, 1996 and 1997, the Company has net operating loss (NOL) carryforwards of approximately $91,000 and $110,000, respectively, to offset future taxable income. These loss carryforwards will expire during various periods through 2007. The utilization of these NOL's may be limited pursuant to Internal Revenue Code Section 382. NOTE 6 -- ADVERTISING EXPENSES The Company incurs advertising expenses related to promoting its services to potential clients. These costs are expensed as incurred. The Company recognized advertising expenses of approximately $251,000, $228,000 and $64,000 for the years ended December 31, 1995, 1996 and 1997, respectively. NOTE 7 -- STATEMENTS OF CASH FLOWS -- SUPPLEMENTAL DISCLOSURE: During 1995, 1996 and 1997, the Company paid interest of approximately $90,000, $79,000 and $73,000, respectively. In addition, the Company paid income taxes of approximately $595,000, $498,000 and $210,000 during 1995, 1996 and 1997, respectively. Noncash transactions during 1995, 1996 and 1997 were as follows:
Years Ended December 31, ---------------------- 1995 1996 1997 ------ ------ ------ (In thousands) Property acquired under capital lease obligations $ 673 $ 157 $ 207
F-39 NATIONAL CREDIT MANAGEMENT CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 8 -- EMPLOYEE BENEFIT PLAN The Company provides a 401(k) plan (the Plan) for eligible employees of the Company. Beginning in 1995, the Board of Directors approved discretionary contributions to the Plan. In 1996, contributions were made by the Company at the rate of 25% of employee contributions up to a maximum amount of $1,400 per individual. The Company's contribution, including plan administrative expense, was $22,000, $39,000 and $41,000 for the years ended December 31, 1995, 1996, and 1997, respectively. NOTE 9 -- STOCK OPTION AGREEMENTS On August 14, 1994, the Company instituted a stock option plan whereby the Board of Directors, at its discretion, can award employees options to purchase shares of the Company's common stock. Unvested options granted under this plan expire upon termination of the employee. Fully vested options expire ten years from the date of grant. No option is exercisable until the employee has been an employee of the Company for at least one year on a full-time salaried basis. Typically, one-third of the options granted are vested immediately upon grant. The remaining two-thirds of the options generally become vested proportionately over a two-year period. The Company has reserved 23,331 shares of common stock for these options. During 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock Based Compensation," which defines a fair value based method of accounting for an employee stock option or similar equity instrument. This statement allows an entity to continue to measure compensation cost for those plans using the method of accounting prescribed by the Accounting Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to Employees." Entities electing to remain with the accounting in APB No. 25 must make pro forma footnote disclosures of net income, as if the fair value based method of accounting defined in SFAS No. 123 has been applied. The Company has elected to account for its stock-based compensation plans in accordance with APB No. 25, under which no compensation cost has been recognized. The Company has computed for pro forma disclosure purposes the value of all options granted during 1995 and 1996, using the Black-Scholes option pricing model as prescribed by SFAS No. 123 and the following weighted average assumptions used for grants:
Years Ended December 31, ------------------- 1995 1996 -------- -------- Risk-free interest rate................. 5.85% 5.20% Expected dividend yield................. -- % -- % Expected lives.......................... 2 years 2 years
F-40 NATIONAL CREDIT MANAGEMENT CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Options were assumed to be exercised upon vesting for the purposes of this valuation. Adjustments are made for options forfeited prior to vesting. Had compensation costs for this plan been determined consistent with SFAS No. 123, the Company's net income reflected on the accompanying statements of operations would have been reduced to the following "pro forma" amounts:
Years Ended December 31, -------------- 1995 1996 ------ ------ (In thousands) NET INCOME: As reported................................. $ 956 $ 453 Pro forma................................... $ 952 $ 432
The following table summarizes all stock option and purchase right activity for the three years ended December 31, 1995, 1996 and 1997.
Number of Exercise Price Options Per Share ----------- -------------- Outstanding as of December 31, 1994 6,800 $ 12.03 Granted.................................... 7,500 22.75 ----------- -------------- Outstanding as of December 31, 1995......... 14,300 12.03--22.75 Granted.................................... 9,300 40.12 Repurchased................................ (8,400) 12.03--40.12 ----------- -------------- Outstanding as of December 31, 1996......... 15,200 12.03--40.12 Granted................................... 6,300 39.22 Termination of option plan.................. (21,500) 12.03--40.12 ----------- -------------- Outstanding as of December 31, 1997......... -- ===========
On September 30, 1997, the Company elected to terminate its stock option plan and issue 21,500 shares of common stock to the former stock option holders. As a result, the Company recorded compensation expense in the third quarter of approximately $1.3 million which has been reflected in selling, general and administrative expenses in the accompanying consolidated statements of operations. On October 2, 1997, the Company issued the shares of common stock based upon this decision. NOTE 10 -- UNAUDITED SUBSEQUENT EVENT The Company and its stockholders entered into a definitive agreement with Compass International Services Corporation ("Compass") pursuant to which, on March 4, 1998, Compass acquired all of the outstanding shares of the Company's common stock in exchange for cash and common stock of Compass, concurrent with the consummation of the initial public offering of the common stock of Compass. F-41 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders B.R.M.C. of Delaware, Inc. We have audited the accompanying consolidated balance sheets of B.R.M.C. of Delaware, Inc. as of December 31, 1996 and 1997 and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of B.R.M.C. of Delaware, Inc. at December 31, 1996 and 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP January 27, 1998 Atlanta, Georgia F-42 B.R.M.C. OF DELAWARE, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
December 31, --------------- 1996 1997 ------ ------ ASSETS ------ CURRENT ASSETS: Cash............................................................. $ 6 $ 429 Cash held for clients............................................ 743 727 Commissions receivable, net...................................... 1,021 1,125 Receivable from related parties.................................. 53 -- Other assets..................................................... 39 85 ------ ------ Total current assets............................................ 1,862 2,366 Furniture and equipment, net...................................... 866 823 Goodwill, net..................................................... 873 4,018 Non-compete agreement, net........................................ -- 444 Other assets...................................................... 141 516 ------ ------ Total assets.................................................... $3,742 $8,167 ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Collections due to clients....................................... $ 743 $ 727 Checks issued in excess of cash balance.......................... 90 260 Accounts payable and accrued liabilities......................... 672 959 Income taxes..................................................... 64 311 Current portion of long-term debt and capital lease obligations.. 517 3,087 Borrowings under line of credit.................................. 450 1,500 ------ ------ Total current liabilities....................................... 2,536 6,844 Long-term debt, less current portion.............................. 525 406 Capital lease obligations, less current portion................... 502 347 Deferred income taxes............................................. 14 51 Other liabilities................................................. 56 40 Minority interest in subsidiary 4 6 STOCKHOLDERS' EQUITY: Common stock, $1 par value, 1,000 shares authorized, issued and 1 1 outstanding..................................................... Additional paid-in capital....................................... 60 60 Retained earnings................................................ 44 412 ------ ------ Total stockholders' equity...................................... 105 473 ------ ------ Total liabilities and stockholders' equity...................... $3,742 $8,167 ====== ======
The accompanying notes are an integral part of these financial statements. F-43 B.R.M.C. OF DELAWARE, INC. CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS)
YEARS ENDED DECEMBER 31, -------------------------- 1995 1996 1997 ------- ------- -------- Revenues...................................... $7,416 $9,597 $14,266 Operating expenses............................ 4,229 5,814 8,208 ------- ------- -------- Gross profit................................. 3,187 3,783 6,058 Selling, general and administrative expenses.. 2,934 3,458 5,078 ------- ------- -------- Income from operations....................... 253 325 980 OTHER EXPENSE: Interest expense............................. 103 122 310 ------- ------- -------- Income before income taxes.................... 150 203 670 Provision for income taxes.................... -- 73 302 ------- ------- -------- Net income.................................... $ 150 $ 130 $ 368 ======= ======= ========
The accompanying notes are an integral part of these financial statements. F-44 B.R.M.C. OF DELAWARE, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
TOTAL COMMON STOCK ADDITIONAL RETAINED STOCKHOLDERS' -------------- PAID-IN (DEFICIT) EQUITY SHARES AMOUNT CAPITAL EARNINGS (DEFICIT) ------ ------ ----------- ----------- --------------- Balance at January 1, 1995.... 1,000 $ 1 $ 7 $ (236) $ (228) Net income.................... -- -- -- 150 150 ------ ------ -------- -------- ---------- Balance at December 31, 1995.. 1,000 1 7 (86) (78) Capital contribution.......... -- -- 53 -- 53 Net income.................... -- -- -- 130 130 ------ ------ -------- -------- ---------- Balance at December 31, 1996.. 1,000 1 60 44 105 Net income 1997............... -- -- -- 368 368 ------ ------ -------- -------- ---------- Balance at December 31, 1997.. 1,000 $ 1 $ 60 $ 412 $ 473 ====== ====== ======== ======== ==========
The accompanying notes are an integral part of these financial statements. F-45 B.R.M.C. OF DELAWARE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, ------------------------- 1995 1996 1997 ------ ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income....................................................................... $ 150 $ 130 $ 368 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization................................................... 177 228 560 Minority interest............................................................... -- 4 2 Change in operating assets and liabilities: Commissions receivable......................................................... 101 (6) (104) Cash held for clients.......................................................... -- (53) 16 Other current assets........................................................... -- (39) (46) Receivable from related parties................................................ -- (53) 53 Other assets................................................................... 4 (107) (375) Accounts payable and accrued liabilities....................................... (36) 34 (25) Current income taxes payable................................................... -- 64 247 Due to clients................................................................. -- 53 (16) Deferred revenue............................................................... (65) -- -- Deferred income taxes.......................................................... -- 14 37 Checks issued in excess of cash................................................ (506) 90 170 ----- ------- ------- Net cash (used in) provided by operating activities........................... (175) 359 887 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of furniture and equipment............................................. (60) (589) (102) Collections of purchased receivables............................................. 718 -- -- Business combinations net of cash acquired....................................... -- (791) (3,684) ----- ------- ------- Net cash provided by (used in) investing activities........................... 658 (1,380) (3,786) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under line of credit.................................................. -- 450 1,050 Additions under capital lease obligations........................................ -- 346 -- Repayment of line of credit...................................................... (777) -- -- Principal payments of capital lease obligations.................................. (78) (124) (188) Issuance of long-term debt....................................................... 750 466 2,785 Principal payments of long-term debt............................................. (271) (271) (325) Capital contributions............................................................ -- 53 -- ----- ------- ------- Net cash (used in) provided by financing activities........................... (376) 920 3,322 ----- ------- ------- Net increase (decrease) in cash................................................... 107 (101) 423 Cash at beginning of year......................................................... -- 107 6 ----- ------- ------- Cash at end of year............................................................... $ 107 $ 6 $ 429 ===== ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest........................................................... $ 100 $ 116 $ 302 ===== ======= ======= Cash paid for income taxes....................................................... $ -- $ -- $ 25 ===== ======= ======= Furniture and equipment acquired through capital lease obligations............... $ -- $ 542 $ -- ===== ======= =======
The accompanying notes are an integral part of these financial statements. F-46 B.R.M.C. OF DELAWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization of the Company and Nature of Business BoMar Credit Corporation, formerly Credit Interaction Agency, Inc. was incorporated on June 1, 1984 under the laws of the state of Georgia. In February 1988, BoMar was acquired by East Coast Financial Services, Inc. Subsequently, East Coast Financial Services, Inc. combined with BoMar Credit Corporation. On April 22, 1996, BoMar Receivable Management Company (B.R.M.C.) of Delaware, Inc. was incorporated under the laws of the state of Delaware. As of that date, the shareholders of BoMar Credit Corporation and BoMar Credit Corporation of Texas exchanged their shares for those of B.R.M.C. of Delaware (the "Parent"). The assets and liabilities of BoMar Credit Corporation were transferred to two newly formed and wholly owned subsidiaries of the Parent, BoMar Credit Corporation of Georgia and BoMar Credit Corporation of Texas. The accompanying financial statements reflect the operations of these wholly owned subsidiaries for the years 1996 and 1997 as the above noted transactions were accounted for in a manner similar to a pooling of interests. All assets and liabilities were transferred at net book value. At December 31, 1997, B.R.M.C. of Delaware had five subsidiaries: BoMar Credit Corporation of Georgia; BoMar Credit Corporation of Texas; Advanced Credit Services ("ACS"); Clayton-Parker & Associates ("CPA"); and Financial Claims Control, Inc. ("FCCI"). All subsidiaries are wholly owned by the Company, with the exception of ACS, of which the Company has 75% ownership. The accompanying financial statements present the consolidated financial condition and results of operations of B.R.M.C. of Delaware and subsidiaries (the "Company"). All significant intercompany accounts and transactions have been eliminated in consolidation. The Company provides accounts receivable management services primarily for clients in the telecommunications, insurance, financial services and healthcare industries. The Company is paid a collection fee by the clients based on a percentage of the dollar amount collected. The Company's operations are primarily in the continental United States, however, some business is conducted internationally. Business Combinations On August 1, 1996, the Parent acquired a controlling interest in ACS. The transaction was accounted for as a purchase. The Parent obtained a note receivable from the sole shareholder of ACS in the amount of $75,000 as the fair value of liabilities assumed exceeded assets received. As such, no goodwill was recorded in conjunction with the acquisition. The accompanying financial statements reflect the results of operations of ACS from the date of acquisition. On November 26, 1996, the Parent acquired CPA, an Arizona corporation. The Parent paid cash of $400,000 and issued promissory notes in the amount of $450,000 in connection with the transaction which was accounted for as a purchase. Goodwill of $836,000 was recorded in conjunction with the acquisition. The accompanying financial statements reflect the results of operations of CPA from the date of acquisition. Had the acquisition of CPA occurred on January 1, 1996, revenues for the consolidated entity would have increased by approximately $970,000 for the period ended December 31, 1996. However, net income for the period would not have been significantly impacted. On September 1, 1997, the Parent acquired FCCI, a Florida corporation. The Parent paid cash of $1,000,000 and issued promissory notes in the amount of $2,750,000 in connection with the transaction which was accounted for as a purchase. Goodwill of $3,198,000 and non-compete agreements F-47 B.R.M.C. OF DELAWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) of $500,000 were recorded in conjunction with the acquisition. The accompanying financial statements reflect the results of operations of FCCI from the date of acquisition to December 31, 1997. If the acquisition of FCCI had occurred on January 1, 1997, revenues and net income for the consolidated entity would have increased by approximately $2,380,000 and $281,000, respectively, for the twelve months ended December 31, 1997. Had the acquisition occurred on January 1, 1996, revenues and net income of the consolidated entity would have increased $3,129,000 and $160,000, respectively, for the year 1996. Cash Held for Clients and Collections Due to Clients Cash held for clients and collections due to clients consists of amounts collected on behalf of the Company's clients, net of the Company's commission. Commissions Receivable As of December 31, 1996 and 1997, commissions receivable from companies in the telecommunications industry totaled approximately $454,000 and $474,000, respectively. Credit is extended based on an evaluation of the customer's financial condition, and generally collateral is not required. Credit losses are provided for in the consolidated financial statements and have been within management's expectations. Notes Receivable Included in other assets at December 31, 1996 and 1997 is a note receivable from a related party in the amount of $110,000 and $133,000, respectively. Goodwill Goodwill relates to the excess of purchase price over net assets acquired in business combinations. Such amounts are amortized over a fifteen year period. Accumulated amortization as of December 31, 1996 and 1997 was $16,000 and $132,000, respectively. Goodwill is measured for possible impairment periodically and is reduced through a charge to earnings if impairment exists. Furniture and Equipment Furniture and equipment are stated at cost and are depreciated using the double declining balance method over the estimated useful lives of the individual assets which range from five to seven years. Included in depreciation expense is amortization of assets recorded under capital leases. Revenue Recognition The Company recognizes revenue (commission income) based on contractual rates in the period in which collection occurs. Income Taxes The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109 which requires the liability method of accounting for income taxes. F-48 B.R.M.C. OF DELAWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. Major Customer For the years ended December 31, 1996 and 1997, one customer accounted for approximately 31% and 28%, respectively, of revenues. The loss of the Company's major customer could have a material adverse effect on the Company's business. NOTE 2 -- FURNITURE AND EQUIPMENT Furniture and equipment consisted of the following:
December 31, ---------------- 1996 1997 (In thousands) Furniture and equipment.................. $2,940 $2,217 Less accumulated depreciation............ 2,074 1,394 ------ ------ $ 866 $ 823 ====== ======
Furniture and equipment includes $826,000 and $1,090,000 acquired under various capital leases at December 31, 1996 and 1997, respectively. Accumulated depreciation on this equipment at December 31, 1996 and 1997 was $113,000 and $617,000, respectively. Depreciation expense was $176,000, $216,000 and $352,000 for the years ended December 31, 1995, 1996 and 1997, respectively. NOTE 3 -- DEBT Borrowings Under Line of Credit Borrowings under a line of credit at were as follows: As of December 31, 1996 and 1997, borrowings under a $1,500,000 line of credit totaled $450,000 and $1,500,000, respectively. The line of credit is payable on September 30, 1998 and is secured by substantially all assets of the Company, with simple interest payable monthly at a rate of 9.75%. F-49 B.R.M.C. OF DELAWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Long-Term Debt Long-term debt consisted of the following:
December 31, ---------------- 1996 1997 ------- ------- (In thousands) Note payable, interest at 10.5% per annum; $ 340 $ 72 secured by substantially all of the assets of the Company, payable in equal monthly installments through March 1998 Note payable, interest at 19.5% per annum; 51 -- payable in equal monthly installments through March 2000 Note payable, interest at 8% per annum; -- 35 payable in equal monthly installments through March 2000 Note payable to related party, interest at 8.0% per annum; -- 2,750 interest payable monthly; due March 1998 Note payable, interest at 9.5% per annum; -- 15 payable in equal monthly installments through September 1998 Note payable, interest at 8.9% per annum; -- 420 payable in equal monthly installments through December 2006 Note payable, interest at 8.0% per annum; 450 -- payable in equal monthly installments through December 2006 ------- ------- $ 841 $ 3,292 ======= =======
Principal maturities of long-term debt at December 31, 1997 were as follows (in thousands): 1998......................................... $ 2,886 1999......................................... 52 2000......................................... 43 2001......................................... 42 2002......................................... 45 Thereafter................................... 224 -------- $ 3,292 ========
The Company has negotiated a commitment with a lending institution to refinance long-term debt maturing in the year ending December 31, 1998. NOTE 4 -- LEASES AND OTHER COMMITMENTS The Company leases office space for its operations in Arizona, Georgia, Florida and Texas under noncancelable operating lease agreements. Certain leases have escalation clauses which provide for increases in annual rentals. The leases for office space expire in years through fiscal 2002. F-50 B.R.M.C. OF DELAWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Future minimum rental payments required under the operating lease agreements at December 31, 1997 were as follows (in thousands): 1998................................................. $ 516 1999................................................. 503 2000................................................. 478 2001................................................. 348 2002................................................. 21 ------ $1,866 ======
Total rent expense was $280,000, $319,000 and $474,000 for the years ended December 31, 1995, 1996 and 1997, respectively. In addition, the Company has entered into various capital leases to finance equipment. Future minimum lease payments under capital leases are as follows (in thousands): 1998................................................ $ 201 1999................................................ 160 2000................................................ 70 2001................................................ 117 Thereafter.......................................... ------ $ 548 ======
Obligations under capital leases as scheduled above include imputed interest of approximately $60,000. In addition to the lease commitments above, the Company entered into an agreement to pay a minimum of $360,000 annually for certain telecommunications services. The agreement expires July 15, 1998. NOTE 5 -- EMPLOYEE BENEFIT PLANS The Company sponsors a defined contribution 401(k) plan which permits substantially all employees to make tax deferred contributions of up to 15% of their annual compensation. The Company currently makes a discretionary matching contribution of 25% of the employee contribution. The Company contributed approximately $11,000, $7,000 and $21,000 in 1995, 1996 and 1997, respectively. In addition, the Company sponsors a Medical Plan. The Company voluntarily contributes approximately 50% of the premiums for all employees who elect to participate in the Medical Plan. The Company contributed approximately $54,000, $91,000 and $77,000 in 1995, 1996 and 1997, respectively. F-51 NOTE 6 -- INCOME TAXES The provision for income taxes consisted of the following:
Year Ended December 31, -------------- 1996 1997 ------- ------ (In thousands) CURRENT: Federal....................................... $ 49 $ 230 State......................................... 3 42 ----- ----- 52 272 DEFERRED: Federal....................................... 20 25 State......................................... 1 5 ----- ----- 21 30 ----- ----- Total.......................................... $ 73 $ 302 ===== =====
Income tax expense differs from income taxes computed at statutory rates due to certain non-deductible expenses and the effect of net operating loss carryforwards. The most significant of these differences is non-deductible goodwill. No tax expense was recorded for the year ended December 31, 1995. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets at December 31, 1996 and 1997 were as follows:
December 31, ---------------- 19956 1997 ------- ------ (In thousands) DEFERRED TAX LIABILITIES: Depreciation............................... $ 10 $ 29 Capitalized leases......................... 11 22 Total deferred tax liabilities.............. 21 51 Deferred tax assets......................... ------ ----- Net deferred tax liabilities................ $ 21 $ 51 ====== =====
The Company utilized $32,000 in net operating losses (NOL) during the year ended December 31, 1996. There are no remaining NOL carryforwards. During 1996, the Company reversed a previously recorded deferred tax asset valuation allowance of approximately $28,000. In 1995, deferred tax assets and liability consisted of an insignificant deferred tax asset at December 31, 1995 consisting of an NOL carryforward. A valuation allowance was established for the F-52 B.R.M.C. OF DELAWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) total deferred NOL carryforward amounts for 1995. The Company utilized approximately $150,000 of its NOL carryforwards in 1995. Deferred tax assets and valuation allowances were reduced by approximately $52,000 during 1995. NOTE 7 -- UNAUDITED SUBSEQUENT EVENTS The Company and its stockholders entered into a definitive agreement with Compass International Services Corporation ("Compass") pursuant to which, on March 4, 1998, Compass acquired all outstanding shares of the Company's common stock in exchange for cash and common stock of Compass, concurrent with the consummation of the initial public offering of the common stock of Compass. In connection with the acquisition, certain employees of the Company became entitled to additional compensation, which may be material to the future operations of the Company. F-53 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders of Mid-Continent Agencies, Inc. In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Mid- Continent Agencies, Inc. and its subsidiaries at December 31, 1996 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ Price Waterhouse LLP Chicago, Illinois January 23, 1998 F-54 MID-CONTINENT AGENCIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE DATA)
December 31, -------------- ASSETS 1996 1997 ------ ------ ------ CURRENT ASSETS: Cash and cash equivalents.................................... $ -- $ 165 Accounts receivable, trade................................... 546 603 Receivables due from stockholders............................ 1,421 1,517 Prepaid expenses and other current assets.................... 165 350 ------ ------ Total current assets........................................ 2,132 2,635 Funds held in trust for clients............................... Property and equipment, net................................... 146 159 Deferred income tax benefit................................... 70 67 Other assets.................................................. 136 141 ------ ------ Total assets................................................ $2,484 $3,002 ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Accounts payable and accrued expenses........................ $ 590 $ 659 Notes payable to stockholders................................ 51 51 Notes payable, current portion............................... 388 928 ------ ----- Total current liabilities................................... 1,029 1,638 Funds held in trust for clients............................... Notes payable................................................. 178 -- Deferred compensation......................................... 174 177 ------ ------ Total liabilities........................................... 1,381 1,815 ------ ------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, no par value, 10,000 shares authorized, 1,000 shares issued and outstanding............................... 10 10 Additional paid-in capital................................... 73 73 Retained earnings............................................ 1,032 1,114 Unrealized gain (loss) on securities......................... (12) (10) ------ ------ Total stockholders' equity.................................. 1,103 1,187 ------ ------ Total liabilities and stockholders' equity.................... $2,484 $3,002 ====== ======
The accompanying notes are an integral part of these financial statements. F-55 MID-CONTINENT AGENCIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS)
Years Ended December 31, --------------------------- 1995 1996 1997 ------ ------ --------- Revenues...................................... $8,763 $9,038 $9,451 Operating expenses............................ 2,851 2,875 3,105 ------ ------ ------ Gross profit................................. 5,912 6,163 6,346 Selling, general and administrative expenses.. 5,974 6,054 6,239 ------ ------ ------ Income (loss) from operations................ (62) 109 107 Other (income) expense: Interest and investment income, net.......... (99) (117) (70) Interest expense............................. 48 68 81 Loss on disposal of property and equipment... -- 3 -- ------ ------ ------ (51) (46) 11 ------ ------ ------ Income (loss) before income taxes (11) 155 96 Provision for income taxes 34 107 14 ------ ------ ------ Net income (loss) $ (45) $ 48 $ 82 ====== ====== ======
The accompanying notes are an integral part of these financial statements. F-56 MID-CONTINENT AGENCIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK UNREALIZED ---------------------- NUMBER RETAINED GAIN (LOSS) OF SHARES AMOUNT PAID-IN-CAPITAL EARNINGS ON SECURITIES TOTAL ----------- -------- ----------------- ---------- --------------- ------- Balance, January 1, 1995......... 10 $10 $73 $1,029 $ -- $1,112 Net loss...................... -- -- -- (45) -- (45) Change in unrealized gain on securities................... -- -- -- -- 3 3 --------- --------- ---------------- ----------- ------------- --------- Balance, December 31, 1995....... 10 10 73 984 3 1,070 Net income.................... -- -- -- 48 -- 48 Change in unrealized loss on securities................... -- -- -- -- (15) (15) --------- --------- ---------------- ----------- ------------- --------- Balance, December 31, 1996....... 10 10 73 1,032 (12) 1,103 Net income.................... -- -- -- 82 -- 82 Change in unrealized gain on securities................... -- -- -- -- 2 2 --------- --------- ---------------- ----------- ------------- --------- Balance, December 31, 1997....... 10 $10 $73 $1,114 $(10) $1,187 ========= ========= ================ =========== ============= =========
The accompanying notes are an integral part of these financial statements. F-57 MID-CONTINENT AGENCIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
Years Ended December 31, ------------------------ 1995 1996 1997 ------ ------ ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (45) $ 48 $ 82 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 44 64 52 Loss on disposal of property and equipment -- 3 -- Changes in deferred taxes (13) (2) 3 Changes in operating assets and liabilities: (106) (11) (57) Accounts receivable, trade Prepaid expenses and other current assets 39 (6) (185) Accounts payable and accrued expenses (60) 68 69 Deferred compensation 21 16 3 Other assets (54) (4) (3) ------ ------ ------- Net cash provided by (used in) operating activities (174) 176 (36) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (89) (49) (65) Proceeds from sale of property and equipment -- 3 -- ------ ------ ------- Net cash used in investing activities (89) (46) (65) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from notes payable 600 250 1,000 Payments of notes payable (376) (257) (638) Payments of notes payable to stockholders (10) -- -- Proceeds from notes receivable from stockholders (159) (124) (96) ------ ------ ------- Net cash provided by (used in) financing activities 55 (131) 266 Net increase (decrease) in cash (208) (1) 165 Cash and cash equivalents at beginning of period 209 1 -- ------ ------ ------- Cash and cash equivalents at end of period $ 1 $ -- $ 165 ====== ====== ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 48 $ 69 $ 78 Cash paid for income taxes 46 90 98 Increase (decrease) in funds held in trust for clients (53) (253) 286
The accompanying notes are an integral part of these financial statements. F-58 MID-CONTINENT AGENCIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- NATURE OF OPERATIONS Mid-Continent Agencies, Inc. ("Mid-Continent") and subsidiaries (collectively referred to as the "Company") provides accounts receivable management services primarily to companies in the manufacturing, insurance, wholesale distribution and commercial sectors. The Company has three domestic offices located in Chicago, IL, Louisville, KY and Buffalo, NY and an office in the United Kingdom. NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles 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. Principles of Consolidation The consolidated financial statements include accounts of Mid- Continent and its subsidiaries. All intercompany balances and transactions have been eliminated. Cash and Cash Equivalents Cash and cash equivalents are highly liquid unrestricted investments with original maturities of three months or less. Cash equivalents are stated at cost which approximates market. Accounts Receivable, Trade The Company remits collections to clients either on the net method, in which funds are remitted to the client net of the related earned commission or on the gross method, in which all collected funds are remitted to the client and the Company bills the client separately for its earned commission, resulting in a trade account receivable. Due to the nature of the trade accounts receivable, no allowance is provided and the carrying value is considered to estimate the fair value. Funds Held in Trust for Clients Funds held in trust for clients consists of funds collected on behalf of clients, net of the Company's commission. These funds are held in segregated accounts and are regularly remitted to clients. Funds held in trust of $1,214,000 and $1,500,000 at December 31, 1996 and 1997, respectively, and their offsetting liability are presented net for financial statement presentation purposes. The Company is entitled to invest these funds in specified marketable debt and equity instruments. Amounts not invested in marketable debt and equity instruments are invested in cash equivalents (See Note 4). Investments in marketable securities are accounted for in accordance with Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities". Management has classified all marketable securities as "available for sale" and accordingly, net unrealized gains and losses are presented, net of tax, as a separate component of equity. Realized gains are computed based on cost of investments sold. F-59 MID-CONTINENT AGENCIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Property and Equipment Property and equipment, including additions and improvements and expenditures for repairs and maintenance that significantly add to productivity or extend the economic lives of the assets, are capitalized at cost and depreciated using an accelerated depreciation method, the results of which are not materially different from the straight-line method, over their estimated useful lives as follows: Furniture and fixtures 5 to 7 years Equipment 5 to 7 years Leasehold improvements Term of lease Maintenance, repairs, and minor replacements of these items are charged to expense as incurred. Deferred Compensation Deferred compensation represents executive termination benefits for four key officers of the Company. Deferred compensation is determined generally by the formulas specified in the officers' employment agreements. Deferred compensation is charged to income currently. Income Taxes Provisions are made to record deferred income taxes for items reported in different periods for financial reporting purposes than for federal and state income tax purposes. The Company records deferred income taxes using the liability method in accordance with Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes". Concentration of Credit Risk The Company has over 300 commercial insurance clients which accounted for 38%, 30% and 25% of its revenues at December 31, 1995, 1996 and 1997. No one client represents more than 5% of revenues. Revenue Recognition The Company generates revenues from contingency fees and contractual services. Contingency fee revenue is recognized as a contractual percentage of the net funds collected on behalf of clients, in the period the collection occurs. Contractual services revenue is deferred and recognized over the period in which the services are performed. NOTE 3 -- RECEIVABLES DUE FROM STOCKHOLDERS Receivables due from stockholders includes demand notes receivable with aggregate principal and interest amounts of $1,371,000 and $1,517,000 at December 31, 1996 and 1997, respectively. The notes receivable accrue interest at the short-term annual Applicable Federal Rate prescribed by the Internal Revenue Service, with the balance of principal and interest due upon demand. Due to the demand provision, management estimates the carrying value of the notes receivable from stockholders approximates fair value. F-60 MID-CONTINENT AGENCIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 4 -- MARKETABLE SECURITIES The following is a summary of the marketable debt and equity instruments of the funds held in trust:
UNREALIZED UNREALIZED ESTIMATED HOLDING HOLDING FAIR COST GAIN LOSS VALUE ---- ---------- ---------- --------- (IN THOUSANDS) DECEMBER 31, 1996: Equity securities.............................. $ 11 $ -- $ (4) $ 7 Debt securities issued by the U.S. Treasury 195 -- (15) 180 and other U.S. government agencies............ Debt securities issued by foreign governments.. 2 -- -- 2 Corporate debt securities...................... 202 4 (1) 205 Mortgage-backed securities..................... 107 -- (4) 103 Other debt securities.......................... 294 -- -- 294 ----- ---------- ---------- --------- $ 811 $ 4 $ (24) $ 791 ===== ========== ========== ========= DECEMBER 31, 1997: Equity securities.............................. $ 2 $ -- $ (1) $ 1 Debt securities issued by the U.S. Treasury 196 -- (11) 185 and other U.S. government agencies............ Debt securities issued by foreign governments.. 2 -- -- 2 Corporate debt securities...................... 300 5 -- 305 Mortgage-backed securities..................... 107 -- (3) 104 Other debt securities.......................... 70 -- -- 70 $ 677 $ 5 $ (15) $ 667 ===== ========= ========== =========
Net realized (losses)/gains from the sale of investment securities were $(6,000), $12,000 and $(21,000) for the years ended December 31, 1995, 1996 and 1997, respectively. The cost and estimated fair value of available for sale securities by contractual maturity at December 31, 1997 is as follows:
ESTIMATED COST FAIR VALUE ------ ---------- (IN THOUSANDS) Due in one year or less............................. $ 100 $ 100 Due after one year through five years............... 203 208 Investment funds or mortgage-backed securities not 374 359 due at a single maturity date...................... Total.............................................. $ 677 $ 667 ====== ==========
F-61 MID-CONTINENT AGENCIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Expected maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties. NOTE 5 -- PROPERTY AND EQUIPMENT, NET Property and equipment consists of:
DECEMBER 31, ----------------- 1996 1997 ------- ------- (IN THOUSANDS) Furniture and fixtures....... $ 480 $ 483 Equipment.................... 798 865 Leasehold improvements....... 40 35 ------- ------- 1,318 1,383 Accumulated depreciation..... (1,172) (1,224) ------- ------- Property and equipment, net.. $ 146 $ 159 ======= =======
Depreciation expense aggregated $44,000, $64,000 and $42,000 for the years ended 1995, 1996 and 1997, respectively. NOTE 6 -- OTHER ASSETS Other assets consist of:
DECEMBER 31, --------------- 1996 1997 ------- ------ (IN THOUSANDS) Cash value of life insurance.. $ 31 $ 44 Deposits...................... 101 97 Other......................... 4 -- ------- ------ $ 136 $ 141 ======= ======
NOTE 7 -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consist of:
DECEMBER 31, --------------- 1996 1997 ------- ------ (IN THOUSANDS) Accounts payable...... $ 136 $ 338 Accrued salaries...... 130 146 Accrued bonus......... 93 30 Accrued vacation...... 127 135 Income taxes payable.. 32 -- Other................. 72 10 ------- ------ $ 590 $ 659 ======= ======
F-62 MID-CONTINENT AGENCIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The fair value of accounts payable and accrued expenses are considered to approximate carrying value based on the short term nature of the accounts. NOTE 8 -- NOTE PAYABLE TO STOCKHOLDERS The Company has entered into a note payable agreement with its stockholders. The note payable is unsecured, accrues interest at prime plus 0.5% and is due on demand. The outstanding balance under the note at December 31, 1996 and 1997 was $51,000. No interest was accrued on the note at December 31, 1995. Interest of $6,000, $5,000 and $5,000 for the years ended December 31, 1995, 1996 and 1997, respectively, was paid to the stockholders. Due to the demand provision, management estimates the carrying value of the notes payable to stockholders approximates fair value. NOTE 9 -- NOTES PAYABLE
DECEMBER 31, ---------------- 1996 1997 ------- ------- (IN THOUSANDS) Notes payable consist of the following: Note payable to bank, interest at prime plus 0.5%, principal $ 100 $ -- payments of $10,000 due monthly, extinguished November 15, 1997.............................................................. Note payable to bank, interest at prime plus 0.5% (9.0% at 241 153 December 31, 1997), principal payments of $22,000 due quarterly, balance due January 15, 1998...................................... Note payable to bank, interest at prime plus 0.5% (9.0% at 175 25 December 31, 1997), principal payments of $13,000 due monthly, balance due February 28, 1998..................................... Notes payable to bank, interest at prime plus 0.5%, extinguished 50 -- September 15, 1997................................................ Notes payable to bank, interest at prime plus 0.5% (9.0% at -- 300 December 31, 1997), principal amount due January 5, 1998.......... Notes payable to bank, interest at prime plus 0.5% (9.0% at -- 250 December 31, 1997), principal amount due December 31, 1997........ Notes payable to bank, interest at prime plus 0.5% (9.0% at -- 200 December 31, 1997), principal amount due January 15, 1998......... ------- ------- 566 928 Current portion.................................................... (388) (928) ------- ------- Long-term debt..................................................... $ 179 $ -- ======= =======
Certain notes payable were not paid at their stated maturity dates. Mid-Continent has obtained extensions of the notes to March 31, 1998. All notes payable are payable to American National Bank and Trust Company of Chicago and are secured by the assets of the Company and by personal guarantees of the two stockholders. Due to the short maturities, management estimates the carrying value of the notes payable approximates fair value. F-63 MID-CONTINENT AGENCIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Aggregate maturities of notes payable at December 31, 1996 and 1997 are as follows:
DECEMBER 31, ---------------- 1996 1997 ------ ----- (IN THOUSANDS) 1997................................ $ 388 $ -- 1998................................ 178 928 ----- ----- $ 566 $ 928 ===== =====
NOTE 10 -- INCOME TAXES The components of the provision for income taxes are as follows:
DECEMBER 31, --------------------- 1995 1996 1997 ------ ------ ----- (IN THOUSANDS) Current tax expense: Federal........................ $ 37 $ 90 $ 10 State & local.................. 10 19 5 ----- ----- ----- 47 109 15 Deferred tax expense (benefit) Federal........................ (11) (1) -- State & local.................. (2) (1) (1) ----- ----- ----- (13) (2) (1) Total........................... $ 34 $ 107 $ 14 ===== ===== =====
The provision for income taxes differs from the amount computed as the statutory rates as follows:
DECEMBER 31, --------------------- 1995 1996 1997 ------ ------- ------ (IN THOUSANDS) Federal income at statutory rate............ $ (4) $ 53 $ 33 State income taxes, net of federal benefit.. 5 12 4 Nondeductible expenses...................... 41 41 (18) Federal surtax exemption.................... (9) (2) (13) Change in valuation allowance............... 1 3 8 ----- ----- ----- Total...................................... $ 34 $ 107 $ 14 ===== ===== =====
F-64 MID-CONTINENT AGENCIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The significant items giving rise to the deferred tax assets and (liabilities) are as follows:
DECEMBER 31, --------------- 1996 1997 ------ ------ (IN THOUSANDS) Deferred tax asset--non-current: Bad debt reserve.......................... -- $ 4 Deferred compensation..................... $ 67 64 Unrealized loss on securities............. 8 4 Charitable contribution carryforward...... 13 20 Deferred tax asset valuation allowance.... (13) (20) ----- ----- Net deferred tax asset--non-current...... 75 72 Deferred tax liability--non-current: Unrealized gain on securities............. -- -- Property plan & equipment................. (5) (5) Net deferred tax liability--non-current.. (5) (5) Total..................................... $ 70 $ 67 ===== =====
The valuation allowance has been provided due to uncertainty surrounding the realizability of charitable contribution carryforwards, which expire in years 1998 to 2002. Net operating loss carryforwards for state tax purposes exist in the aggregate of approximately $1.2 million. No benefit has been recognized for these carryforwards. Due to the fact that the Company has filed tax returns based on a fiscal year ending April 30, certain estimates have been used in deriving the provisions for income taxes contained herein. NOTE 11 -- EMPLOYEE BENEFIT PLANS The Company has established a defined contribution and profit sharing plan under Section 401(k) of the Internal Revenue Code (the "Plan") which covers substantially all employees. Discretionary contributions to the plan were $13,000, $26,000 and $28,000, for the years ended December 31, 1995, 1996 and 1997, respectively. NOTE 12 -- COMMITMENTS AND CONTINGENCIES The Company is party from time to time to various legal proceedings incidental to its business. In the opinion of management none of these items individually or in the aggregate would have a significant effect on the financial position, results of operations, or cash flows of the Company. F-65 MID-CONTINENT AGENCIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company leases office space and equipment under operating leases and had not entered into any capital lease transactions for the years ended December 31, 1996 and 1997. Minimum future rentals under non-cancelable operating leases with initial or remaining terms of one year or more consist of the following at December 31, 1996 and 1997:
DECEMBER 31, ------------- 1997 ------------- (IN THOUSANDS) 1998.......................................................... $ 562 1999.......................................................... 517 2000.......................................................... 454 2001.......................................................... 397 2002.......................................................... 358 Thereafter.. 306 --------- $ 2,594 =========
Rent expense was $510,000, $468,000 and $500,000 for the years ended December 31, 1995, 1996 and 1997, respectively. NOTE 13 -- UNAUDITED SUBSEQUENT EVENT The Company and its stockholders entered into a definitive agreement with Compass International Services Corporation ("Compass") pursuant to which, on March 4, 1998, Compass acquired all outstanding shares of the Company's common stock in exchange for cash and common stock of Compass, concurrent with the consummation of the initial public offering of the common stock of Compass. F-66 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders of Impact Telemarketing Group, Inc. In our opinion, the accompanying combined balance sheet and the related combined statements of operations, of stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Impact Telemarketing Group, Inc. and affiliated companies at December 31, 1996 and 1997 and the results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company is not in compliance with certain covenants contained in its loan agreement and the line of credit was due and payable on December 1, 1997. As a result, the Company does not have the ability to obtain additional borrowings under its loan agreement to fund operations. These matters raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Price Waterhouse LLP Chicago, Illinois January 23, 1998 F-67 IMPACT TELEMARKETING GROUP, INC. COMBINED BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, ------------ 1996 1997 ---- ---- ASSETS ------ Current assets: Cash and cash equivalents...................................................... $ 166 $ 145 Accounts receivable, trade, net of allowance for doubtful accounts of $40 and $77, 1,618 2,688 respectively.................................................................. Related party receivables...................................................... 188 105 Prepaid expenses and other current assets...................................... 4 22 ------ ------ Total current assets......................................................... 1,976 2,960 Property and equipment, net..................................................... 573 775 Other assets.................................................................... 27 22 ------ ------ $2,576 $3,757 ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Current portion of long-term debt.............................................. $ 153 $ 113 Borrowings on line of credit................................................... 80 650 Current portion of capitalized lease obligations............................... 119 191 Accounts payable............................................................... 1,605 1,882 Accrued expenses............................................................... 209 295 ------ ------ Total current liabilities.................................................... 2,166 3,131 Capitalized lease obligations, net of current portion........................... 293 424 ------ ------ Total liabilities............................................................ 2,459 3,555 Commitments and contingencies Stockholders' equity: Common stock, no par value, 2,500 and 2,500 shares authorized, 100 and 2,489 shares issued and outstanding for Impact Telemarketing Group, Inc. and Impact Telemarketing, Inc............................................................ 91 91 Retained earnings.............................................................. 26 111 ------ ------ Total stockholders' equity................................................... 117 202 ------ ------ $2,576 $3,757 ====== ======
The accompanying notes are an integral part of these financial statements. F-68 IMPACT TELEMARKETING GROUP, INC. COMBINED STATEMENT OF OPERATIONS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, ------------------ 1996 1997 ------------------ Revenues........................................... $8,869 $12,870 Operating expenses................................. 6,961 9,725 ------- ------- Gross profit...................................... 1,908 3,145 Selling, general and administrative................ 2,108 2,823 ------- ------- Income (loss) from operations..................... (200) 322 OTHER (INCOME) EXPENSE: Interest expense.................................. 30 163 Gain on sale of property and equipment............ (105) -- ------- ------- Net income (loss).................................. $ (125) $ 159 ======= ======= PRO FORMA TAX PROVISION (UNAUDITED) (SEE NOTE 2): Income (loss) before income taxes................. $ (125) $ 159 Pro forma provision (benefit) for income taxes.... (50) 64 ------- ------- Pro forma net income (loss)....................... $ (75) $ 95 ======= =======
The accompanying notes are an integral part of these financial statements. F-69 IMPACT TELEMARKETING GROUP, INC. COMBINED STATEMENT OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK ADDITIONAL ----------------- NUMBER PAID-IN RETAINED OF SHARES AMOUNT CAPITAL EARNINGS TOTAL --------- ------ ---------- -------- ----- Balance, December 31, 1995........ 100 $ -- $ 91 $ 191 $ 282 Net loss....................... -- -- -- (125) (125) Distributions to stockholders.. -- -- -- (40) (40) --------- ------ --------- -------- ----- Balance, December 31, 1996........ 100 -- 91 26 117 Net income..................... -- -- -- 159 159 Distributions to stockholders.. -- -- -- (74) (74) --------- ------ --------- -------- ----- Balance, December 31, 1997........ 100 $ -- $ 91 $ 111 $ 202 ========= ====== ========= ======== =====
The accompanying notes are an integral part of these financial statements. F-70 IMPACT TELEMARKETING GROUP, INC. COMBINED STATEMENT OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, ----------------- 1996 1997 ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)............................................................................. $ (125) $ 159 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization................................................................ 128 192 Gain on sale of property and equipment....................................................... (105) -- Provision for doubtful accounts.............................................................. 77 11 Changes in operating assets and liabilities: Accounts receivable, trade.................................................................. 443 (1,081) Prepaid expenses and other current assets................................................... 7 (18) Related party receivables................................................................... (72) 63 Other assets................................................................................ (12) 5 Accounts payable and accrued liabilities.................................................... (245) 363 ------ ------ Net cash provided by (used in) operating activities........................................ 96 (306) CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of property and equipment.................................................. 157 -- Purchase of property and equipment............................................................ (155) (52) ------ ------ Net cash provided by (used in) investing activities.......................................... 2 (52) CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings on line of credit.............................................................. 80 570 Payments on notes payable..................................................................... (45) (186) Payments on capital lease obligations......................................................... (85) (145) Borrowings under term loan.................................................................... -- 146 Distributions to stockholders................................................................. (40) (48) ------ ------ Net cash provided by (used in) financing activities.......................................... (90) 337 Net increase (decrease) in cash................................................................ 8 (21) Cash and cash equivalents at beginning of year................................................. 158 166 ------ ------ Cash and cash equivalents at end of year....................................................... $ 166 $ 145 ====== ====== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest........................................................................ $ 30 $ 106 Noncash investing and financing activities: Property acquired under capital leases....................................................... $ 330 $ 348 Assumption of North Dakota debt by third party in conjunction with the sale of North Dakota $ 67 $ -- assets...................................................................................... Distributions of assets from an affiliated company........................................... $ -- $ 20
The accompanying notes are an integral part of these financial statements. F-71 IMPACT TELEMARKETING GROUP, INC. NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 1 -- NATURE OF OPERATIONS The affiliated companies of Impact Telemarketing Group, Inc. ("Impact" or the "Company") are individually incorporated companies owned by the same stockholders. Each of the companies is engaged in providing primarily outbound telemarketing services to national and regional companies in the insurance, financial services, telecommunications and utilities industries. The affiliated companies are comprised of Impact Telemarketing Group, Inc. ("Group"), Impact Tele-marketing, Inc. ("Inc."), and Impact Telemarketing of North Dakota, Inc. ("North Dakota"). The Company's headquarters are in Woodbury, New Jersey. The results of operations for the year ended December 31, 1996 include the expenses of North Dakota. North Dakota provided telemarketing services to Group only. North Dakota's net assets were sold to a third party on December 31, 1996 for $157,000 in cash and the assumption of $67,000 in liabilities. A gain of $105,000 has been recognized for the difference between the total purchase price and the net book value of the assets that were sold. The distribution of the remaining assets of North Dakota has been treated as a distribution to the stockholders. At December 31, 1997, the Company has a working capital deficit of $171,000 and is not in compliance with certain covenants contained in its loan agreement with a bank. Total amounts outstanding as of December 31, 1997 under the Company's term loan and line of credit of $103,000 and $650,000, respectively, are currently due and payable at the discretion of the bank based on the violation of these covenants. Additionally, the line of credit expired and was due on December 1, 1997. The amounts outstanding under the term loan and the line of credit have not been liquidated by the Company and the bank has not demanded payment. The Company has not completed an arrangement for a replacement credit facility. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. Even with income from operations, the Company may require additional financing to achieve its plans for 1998 and beyond. However, should the Company be unable to obtain such financings, the Company will be required to reduce discretionary spending. Management believes that it will be able to reduce discretionary spending if required. The accompanying financial statements do not include any adjustments that might result from the outcome of these uncertainties. NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of these financial statements in conformity with generally accepted accounting principles 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 revenue and expenses during the reporting period. Actual results could differ from those estimates. Principles of Combination The combination of the financial statements includes the accounts of all the affiliated companies (Group, Inc. and North Dakota) in which the principal stockholders exercised similar control and which had similar operations. All significant inter-company transactions have been eliminated. As the operations of North Dakota have been sold, North Dakota is not combined in the accounts of the Company for the year ended December 31, 1997. F-72 IMPACT TELEMARKETING GROUP, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) Revenue Recognition The Company recognizes revenues on programs as services are performed, generally based on hours incurred. Major Customers and Concentration of Credit Risk For the year ended December 31, 1996, one customer accounted for approximately 51% of revenues. For the year ended December 31, 1997, two customers accounted for 47% and 11% of revenues, respectively. The loss of the Company's major customer could have a material adverse effect on the Company's business. Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. The Company holds deposits in operating accounts. The Company's accounts receivable are derived from sales to customers located in the United States. The Company performs ongoing credit evaluations of its customers and generally does not require collateral for its accounts receivable. The Company maintains reserves for potential credit losses based upon the expected collectibility of all accounts receivable. At December 31, 1996, one customer accounted for approximately 81% of accounts receivable. At December 31, 1997, four customers accounted for approximately 39%, 21%, 15% and 11% of accounts receivable, respectively. Cash and Cash Equivalents Cash includes cash and highly liquid investments purchased with an original maturity of three months or less. Property and Equipment Property and equipment are recorded at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets, generally five to seven years. Leasehold improvements are amortized over the lesser of the estimated useful lives of the equipment or the lease term, generally ten years. Income Taxes The affiliated companies include separate legal entities that are controlled by common stockholders. These entities file separate tax returns. Group and North Dakota each elected to be treated as an S Corporation for federal and state income tax purposes and accordingly any liabilities for income taxes are the direct responsibility of the stockholders. Inc. is a C Corporation which accounts for income taxes using the asset and liability method, whereby deferred income tax assets and liabilities are determined based on the differences between financial reporting and tax bases of assets and liabilities and are measured using currently enacted tax rates and laws. Inc. incurred losses for the years ended December 31, 1996 and 1997. The differences between the financial reporting and the tax basis of assets and liabilities are not significant. As of December 31, 1997, Inc. had net operating loss carryforwards of approximately $717,000 each for federal and state. These carryforwards expire from 2003 through 2012. Management believes sufficient uncertainty exists with regard to the realization of these carryforwards. Accordingly, a full valuation allowance has been provided as of December 31, 1997. F-73 IMPACT TELEMARKETING GROUP, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) The unaudited pro forma income tax information included in the Statement of Operations is presented in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," as if the Company had been subject to federal and state income taxes for the entire periods presented. Fair Value of Financial Instruments Cash, accounts receivable, accounts payable and accrued liabilities are reflected in the financial statements at fair value due to the short-term nature of those instruments. The carrying amount of the long-term debt and capitalized lease obligations approximates fair value at December 31, 1997. NOTE 3 -- RELATED PARTY TRANSACTIONS The Company rents office space owned by a partnership whose partners are the sole stockholders of the Company. The office space is rented on a month to month basis at above market rates. Total rent expense was $139,000 and $110,000 for the years ended December 31, 1996 and 1997, respectively. As of December 31, 1997, the Company has total loans receivable from its sole stockholders of $105,000. There are no scheduled dates of repayment or interest rates associated with these loans. NOTE 4 -- PROPERTY AND EQUIPMENT, NET
DECEMBER 31, ---------------- 1996 1997 -------- ------ (IN THOUSANDS) Furniture and fixtures...................... $ 144 $ 243 Computer equipment and software............. 752 1,047 Leasehold improvements...................... 81 81 ------ ------ $ 977 $1,371 Less: Accumulated depreciation.............. (404) (596) ------ ------ $ 573 $ 775 ====== ======
Depreciation expense was $75,000 and $36,000 for the years ended December 31, 1996 and 1997, respectively. Included in fixed assets shown above as of December 31, 1997 are fixed assets under capital leases with a gross amount of $880,000. Total amortization expense was $53,000 and $156,000 for the years ended December 31, 1996 and 1997, respectively. NOTE 5 -- NOTES PAYABLE In December 1996, the Company entered into a Loan Agreement (the "Agreement") with a bank which provided for a $650,000 line of credit and a $150,000 term loan (the "Term Loan"). Borrowings on the line of credit are limited to 75% of eligible accounts receivable, as defined. Principal outstanding on the line of credit and Term Loan bear interest at the bank's prime rate, as defined, plus .50% (9.0% as of December 31, 1997). The line of credit is secured by substantially all of the Company's assets. The line of credit expired on December 1, 1997 and all principal and remaining interest was due and F-74 IMPACT TELEMARKETING GROUP, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) payable. Amounts outstanding under this line of credit are $30,000 and $650,000 as of December 31, 1996 and 1997, respectively. The Agreement contains restrictive covenants, which, among other things, require the maintenance of a debt service ratio, limitations on debt and dividends and minimum tangible net worth, as defined in the Agreement. In April 1997, the Company obtained a $100,000 letter of credit facility under the Agreement. Borrowings under the letter of credit facility are due upon demand, bear interest at the bank's prime rate, as defined, plus 2% (10.5% as of December 31, 1997) and are secured by substantially all of the Company's assets. No borrowings were outstanding under this letter of credit facility as of December 31, 1997. At December 31, 1996, the Company had a $100,000 revolving line of credit agreement with a bank. Borrowings bear interest at the bank's prime rate, as defined, plus 1.5% (9.75% at December 31, 1996). The balance outstanding under this line of $50,000 at December 31, 1996 was repaid in January 1997 upon termination of the line of credit agreement. Notes payable consists of:
DECEMBER 31, ---------------- 1996 1997 -------- ------- (IN THOUSANDS) Term loan payable to a bank, secured by substantially all of the Company's assets, payable in equal monthly installments of $4,000 over 36 months......................... -- $ 103 Installment note payable to a bank, secured by accounts receivable, furniture and fixtures, and liens on personal assets of stockholders, payable in equal monthly installments of $3,000, including interest at 9.5% through May 2001........ $ 143 -- Note payable to a relative of the stockholders. No stated maturity date or interest rate................................ 10 10 ------- ------- $ 153 $ 113 ====== =======
The installment note payable was repaid in January 1997 with borrowings obtained from the term loan. F-75 IMPACT TELEMARKETING GROUP, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 6 -- CAPITAL LEASES The Company leases certain equipment under capital leases. The Company's weighted average interest rate was 12% as of December 31, 1997. Future minimum lease payments as of December 31, 1997 are as follows (in thousands): 1998.......................................................... $ 250 1999.......................................................... 200 2000.......................................................... 163 2001.......................................................... 110 2002.......................................................... 28 ----- Total minimum obligations..................................... $ 751 Less interest................................................. 136 ----- Present value of minimum lease payments....................... 615 Less: Current portion......................................... 191 ----- $ 424 =====
NOTE 7 -- EMPLOYEE BENEFIT PLANS The Company has a savings plan under Section 401(k) of the Internal Revenue Code (the "Plan"). The Plan allows all eligible employees to defer up to 15% of their income on a pretax basis through contributions to the Plan. As of December 31, 1997, the Company has not made any contributions under the Plan. NOTE 8 -- COMMITMENTS AND CONTINGENCIES Leases The Company leases certain facilities and equipment under noncancelable operating leases through the year 2002. Future minimum payments, by year and in the aggregate, under noncancelable operating leases with initial or remaining terms of one year or more consist of the following at December 31, 1997 (in thousands): 1998........................................................ $ 230 1999........................................................ 234 2000........................................................ 239 2001........................................................ 243 2002........................................................ 174 ------ $1,120 ======
Rent expense was $182,000 and $283,000 for the years ended December 31, 1996 and 1997, respectively. Subcontractor Arrangements Impact has guaranteed the payments of telephone charges incurred by its major subcontractors with the telephone company. This guaranty arrangement expires in March 1998, and to date, no amounts F-76 IMPACT TELEMARKETING GROUP, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) have been claimed by the telephone company under this arrangement. Impact has a contractual right to offset any claims by the telephone company against amounts owed by Impact to these subcontractors. Legal Matters The Company became a party to certain lawsuits and claims arising out of the conduct of its business. While the ultimate outcome of these matters cannot be predicted with certainty, management expects that these matters will not have a material adverse effect on the financial position or results of the Company. NOTE 9 -- UNAUDITED SUBSEQUENT EVENT The Company and its stockholders entered into a definitive agreement with Compass International Services Corporation ("Compass") pursuant to which, on March 4, 1998, Compass acquired all outstanding shares of the Company's common stock in exchange for cash and common stock of Compass, concurrent with the consummation of the initial public offering of the common stock of Compass. F-77 ================================================================================ No dealer, sales representative or any other person has been authorized to give any information or to make any representations in connection with the offering other than those contained in this Prospectus, and, if given or made, such information or representations must not be relied upon as having been authorized by the Company. This Prospectus does not constitute an offer to sell or a solicitation of any offer to buy any securities other than the shares of Common Stock to which it relates or an offer to, or a solicitation of, any person in any jurisdiction where such an offer or solicitation would be unlawful. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company or that information contained herein is correct as of any time subsequent to the date hereof. ------------------- TABLE OF CONTENTS -------------------
PROSPECTUS SUMMARY......................................... 3 RISK FACTORS............................................... 10 FORWARD-LOOKING STATEMENTS................................. 17 PRICE RANGE OF COMMON STOCK................................ 17 THE COMPANY................................................ 18 DIVIDEND POLICY............................................ 19 SECURITIES COVERED BY THIS PROSPECTUS...................... 19 CAPITALIZATION............................................. 21 SELECTED FINANCIAL DATA.................................... 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............ 24 BUSINESS................................................... 35 MANAGEMENT................................................. 48 CERTAIN TRANSACTIONS....................................... 54 PRINCIPAL STOCKHOLDERS..................................... 57 DESCRIPTION OF CAPITAL STOCK............................... 58 SHARES ELIGIBLE FOR FUTURE SALE............................ 59 CERTAIN LEGAL MATTERS...................................... 60 EXPERTS.................................................... 60 AVAILABLE INFORMATION...................................... 61 INDEX TO FINANCIAL STATEMENTS.............................. F-1
3,000,000 Shares COMPASS INTERNATIONAL SERVICES CORPORATION Common Stock -------------------- PROSPECTUS -------------------- April __, 1998 ================================================================================ PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. Set forth below is an estimate of the approximate amount of fees and expenses (other than underwriting commissions and discounts) payable by the Company in connection with the issuance and distribution of the Common Stock pursuant to the Prospectus contained in this Registration Statement. The Company will pay all of these expenses.
Approximate Amount ----------- Securities and Exchange Commission registration fee 12,888 Nasdaq National Market listing fee............... 17,500 Accountants' fees and expenses................... 20,000 Blue Sky fees and expenses....................... 5,000 Legal fees and expenses.......................... 15,000 Miscellaneous expenses........................... 9,612 ---------- Total........................................... $ 80,000 ==========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Company's Amended and Restated Certificate of Incorporation provides that the Company shall, to the fullest extent permitted by Section 145 of the Delaware General Corporation Law, as amended from time to time, indemnify all persons whom it may indemnify pursuant thereto. Section 145 of the Delaware General Corporation Law permits a corporation, under specified circumstances, to indemnify its directors, officers, employees or agents against expenses (including attorneys' fees), judgments, fines and amounts paid in settlements actually and reasonably incurred by them in connection with any action, suit or proceeding brought by third parties by reason of the fact that they were or are directors, officers, employees, or agents of the corporation, if such directors, officers, employees or agents acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reason to believe their conduct was unlawful. In a derivative action, i.e., one by or in the right of the corporation, indemnification may be made only for expenses actually and reasonably incurred by directors, officers, employees or agents in connection with the defense or settlement of an action or suit, and only with respect to a matter as to which they shall have acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made if such person shall have been adjudged liable to the corporation, unless and only to the extent that the court in which the action or suit was brought shall determine upon application that the defendant directors, officers, employees or agents are fairly and reasonably entitled to be indemnified for such expenses despite such adjudication of liability. The Company's Amended and Restated Certificate of Incorporation provides that the Company's directors will not be personally liable to the Company or its stockholders for monetary damages resulting from breaches of their fiduciary duty as directors except (a) for any breach of the duty of loyalty to the Company or its stockholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under Section 164 of the Delaware General Corporation II-1 Law, which makes directors liable for unlawful dividends or unlawful stock repurchase or redemptions or (d) for transactions from which directors derive improper personal benefit. The Company enters into indemnification agreements with its directors and officers. The form of such agreement is filed as an Exhibit hereto. The Company has director and officer insurance coverage that became effective concurrently with the closing of the IPO. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. The following information relates to securities of the Company issued or sold by the Company since inception that were not registered under the Securities Act: The Company was organized in April 1997 and issued 15,000 shares of its Common Stock to its founders at a price of $10.00 per share. Of such shares, 10,000 were issued to BGL Capital Partners, LLC, 2,250 were issued to Michael J. Cunningham, 1,750 were issued to Mahmud U. Haq and 1,000 were issued to Richard A. Alston. The offer and sale of these shares were exempt from registration under the Securities Act of 1933, as amended ("Securities Act"), in reliance on the exemption provided by Section 4(2) thereof. Prior to the closing of the IPO, the number of these shares was increased to 1,682,769 by a 112.1846-for-one stock split. On March 4, 1998, the Company issued 5,435,691 shares of its Common Stock in connection with the Acquisitions of the Founding Companies. Each of these transactions was completed without registration under the Securities Act in reliance upon the exemption provided by Section 4(2) of the Securities Act. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits. 3.1 Amended and Restated Certificate of Incorporation of the Registrant. 3.2* Bylaws of the Registrant (incorporated by reference to Exhibit No. to the Registration Statement on Form S-1, File No. 333-37205 (the "IPO Registration Statement"). 4.1* Specimen stock certificate representing Common Stock. 5.1 Opinion of Katten Muchin & Zavis as to the legality of the securities being registered (including consent). 10.1 1997 Employee Incentive Compensation Plan. 10.2 Employee Stock Purchase Plan. 10.3 Employment Agreement between the Registrant and Michael J. Cunningham. 10.4 Employment Agreement between the Registrant and Mahmud U. Haq. 10.5 Employment Agreement between the Registrant and Richard A. Alston. 10.6 Employment Agreement between The Mail Box, Inc. and Kenneth W. Murphy. 10.7 Stockholders' Agreement. 10.8 Bonus Agreement dated as of October 2, 1997 among the Registrant, National Credit Management Corporation and the Stockholders named therein. II-2 10.9* Form of Indemnification Agreement between the Registrant and its officers and directors (incorporated by reference to Exhibit 10.9 to the IPO Registration Statement). 10.10 Employment Agreement between National Credit Management Corp. and Leeds Hackett. 10.11 Employment Agreement between B.R.M.C. of Delaware, Inc. and John Maloney. 10.12 Employment Agreement between B.R.M.C. of Delaware, Inc. and H. Gene Collins. 10.13 Employment Agreement between B.R.M.C. of Delaware, Inc. and Mary Maloney. 10.14 Employment Agreement between Mid-Continent Agencies, Inc. and Leslie J. Kirschbaum. 10.15 Employment Agreement between Impact Telemarketing Group, Inc. and Edward A. DuCoin. 10.17* Processing Agreement between VarTec Telecom, Inc. and The Mail Box, Inc. (incorporated by reference to Exhibit 10.17 to the IPO Registration Statement). 10.18 Supplemental Agreement between the Registrant and Michael J. Cunningham dated as of March 4, 1998. 10.19 Supplemental Agreement between the Registrant and Mahmud W. Haq dated as of March 4, 1998. 10.20 Supplemental Agreement between the Registrant and Richard A. Alston dated as of March 4, 1998. 23.1 Consent of Price Waterhouse LLP. 23.2 Consent of Arthur Andersen LLP. 23.3 Consent of Ernst & Young LLP. 23.4 Consent of Katten Muchin & Zavis (contained in its opinion to be filed as Exhibit 5 hereto). 24 Power of Attorney (see signature page). _________________ * Previously filed (b) Financial Statement Schedules. Not applicable. ITEM 17. UNDERTAKINGS. The undersigned reistrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) II-3 which, individually or in the aggregate, represents a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b), if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective Registration Statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suite or proceeding) is asserted by such director, officer of controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter had been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chicago, and State of Illinois on the 9th day of April, 1998. COMPASS INTERNATIONAL SERVICES CORPORATION By: /s/ Michael J. Cunningham --------------------------------------- Michael J. Cunningham Chairman and Chief Executive Officer POWER OF ATTORNEY Each person whose signature appears below hereby appoints Michael J. Cunningham and Richard A. Alston, and each of them severally, acting alone and without the other, his true and lawful Attorney-in-Fact with authority to execute in the name of each such person and to file with the securities and exchange commission, together with any exhibits thereto and other documents therewith, any and all amendments (including post-effective amendments) to this registration statement necessary or advisable to enable the registrant to comply with the Securities Act of 1933, as amended, and any rules, regulations, and requirements of the securities and exchange commission in respect thereof, which amendments may make such other changes in the registration statement as the aforesaid Attorney-in-Fact executing the same deems appropriate, and any filings pursuant to Rule 462(B) under the Securities Act of 1933, as amended. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated. Signature Title Date - -------------------------- ----------------------------- ----------------- /s/ MICHAEL J. CUNNINGHAM Chairman and Chief Executive April 9, 1998 - ---------------------------- Michael J. Cunningham Officer (Principal Executive Officer) /s/ RICHARD A. ALSTON Chief Financial Officer (Principal April 9, 1998 - ---------------------------- Richard A. Alston Financial and Accounting Officer) /s/ MAHMUD U. HAQ Director April 9, 1998 - ---------------------------- Mahmud U. Haq /s/ KENNETH W. MURPHY Director April 9, 1998 - ---------------------------- Kenneth W. Murphy /s/ LEEDS HACKETT Director April 9, 1998 - ---------------------------- Leeds Hackett II-5 Signature Title Date - -------------------------- ----------------------------- ----------------- /s/ JOHN MALONEY Director April 9, 1998 - --------------------------- John Maloney /s/ LES J. KIRSCHBAUM Director April 9, 1998 - --------------------------- Les J. Kirschbaum /s/ EDWARD A. DUCOIN Director April 9, 1998 - --------------------------- Edward A. DuCoin /s/ HOWARD L. CLARK, JR. Director April 9, 1998 - --------------------------- Howard L. Clark, Jr. /s/ SCOTT H. LANG Director April 9, 1998 - --------------------------- Scott H. Lang /s/ TOMASSO ZANZOTTO Director April 9, 1998 - --------------------------- Tomasso Zanzotto II-6 EX-3.1 2 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION EXHIBIT 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF COMPASS INTERNATIONAL SERVICES CORPORATION (Original Certificate of Incorporation filed April 29, 1997) Compass International Services Corporation (the "Corporation"), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Law"), does hereby certify: A. That the Board of Directors of the Corporation adopted a resolution setting forth the Amended and Restated Certificate of Incorporation set forth below, declaring it advisable and submitting it to the stockholders entitled to vote in respect thereof for their consideration of such Amended and Restated Certificate of Incorporation. B. That by written consent executed in accordance with Section 228 of the Law, the holders of a majority of the outstanding stock has voted in favor of the adoption of the Amended and Restated Certificate of Incorporation set forth below. C. That the Amended and Restated Certificate of Incorporation set forth below has been duly adopted in accordance with Sections 242 and 245 of the Law: ARTICLE I The name of the corporation is Compass International Services Corporation. ARTICLE II The address of the Corporation's registered office in the State of Delaware is 1209 Orange Street, Wilmington, Delaware 19801, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. ARTICLE III The nature of the business to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the Law. ARTICLE IV A. The Corporation shall have authority to issue the following classes of stock, in the number of shares and at the par value as indicated opposite the name of the class:
NUMBER OF SHARES PAR VALUE CLASS AUTHORIZED PER SHARE -------------------- --------------------- -------------------- Common Stock 50,000,000 $.01 Preferred Stock 10,000,000 $.01
As of the date of the filing of this Amended and Restated Certificate of Incorporation, each issued share of Common Stock of the Corporation shall be reclassified and changed into 112.1846 shares of Common Stock having the terms specified in this ARTICLE IV. Each outstanding stock certificate which immediately prior to the date hereof represented a number of shares of Common Stock shall, without any action on the part of the holder, hereupon and hereafter, until surrendered as hereinafter provided, represent that number of shares of Common Stock equal to 112.1846 times the number of shares of the Common Stock represented by such certificate. The registered holder of each such certificate may on or after the date hereof surrender such certificate to the Corporation for cancellation and, upon such surrender, shall receive in exchange therefor, without charge, a new certificate registered in the name of such holder representing that number of shares of Common Stock equal to 112.1846 times the number of shares of Common Stock which, prior to the date of filing hereof, was represented by the certificate(s) representing shares of Common Stock. B. The designations and the powers, preferences and relative, participating, optional or other rights of the capital stock and the qualifications, limitations or restrictions thereof are as follows: 1. Common Stock. ------------ a. Voting Rights: Except as otherwise required by law or ------------- expressly provided herein, the holders of shares of Common Stock shall be entitled to one vote per share on each matter submitted to a vote of the stockholders of the Corporation. b. Dividends: Subject to the rights of the holders, if any, of --------- preferred stock, the holders of Common Stock shall be entitled to receive dividends at such times and in such amounts as may be determined by the Board of Directors of the Corporation. c. Liquidation Rights: In the event of any liquidation, ------------------ dissolution or winding up of the Corporation, whether voluntary or involuntary, after payment -2- or provision for payment of the debts and other liabilities of the Corporation and the preferential amounts to which the holders of any outstanding shares of Preferred Stock shall be entitled upon dissolution, liquidation or winding up, the assets of the Corporation available for distribution to stockholders shall be distributed ratably among the holders of the shares of Common Stock. 2. Preferred Stock. --------------- Preferred Stock may be issued from time to time in one or more series. Subject to the other provisions of this Amended and Restated Certificate of Incorporation, the Board of Directors is authorized, subject to any limitations prescribed by law, to provide for the issuance of and to issue shares of the Preferred Stock in series, and by filing a certificate pursuant to the laws of the State of Delaware, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and any qualifications, limitations or restrictions thereof. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the Common Stock, without a vote of the holders of any Preferred Stock, or of any series thereof, unless a vote of any such holders is required pursuant to the certificate or certificates establishing such series of Preferred Stock. ARTICLE V The business and affairs of the Corporation shall be managed by or under the direction of a board of directors. The number of directors shall be determined from time to time by resolution adopted by the affirmative vote of a majority of the directors in office at the time of adoption of such resolution. Initially, the number of directors shall be ten. Such directors shall be divided into three classes, Class I, Class II and Class III; with Class I having four members and Classes II and III each having three members. At the election of directors immediately following the adoption of this Amended and Restated Certificate of Incorporation, Class I directors will be elected for a term expiring at the annual meeting relating to the Corporation's 1998 fiscal year (but occurring in calendar year 1999) (the "1998 Annual Meeting"), Class II directors will be elected for a term expiring at the annual meeting following the Corporation's 1999 fiscal year (but occurring in calendar year 2000) and Class III directors will be elected for a term expiring at the annual meeting relating to the Corporation's 2000 fiscal year (but occurring in calendar year 2001). At each annual meeting of stockholders commencing with the 1998 Annual Meeting, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes by the Board of Directors so as to maintain the number of directors in each class as nearly equal as reasonably possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such -3- class shall hold office for a term that shall coincide with the remaining term of that class. In no case will a decrease in the number of directors shorten the term of any incumbent director even though such decrease may result in an inequality of the classes until the expiration of such term. A director shall hold office until the annual meeting of the year in which his or her term expires and until his or her successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement or removal from office. No director elected by the stockholders of the Corporation may be removed except for cause. Except as required by law or the provisions of this Amended and Restated Certificate of Incorporation, all vacancies on the board of directors and newly-created directorships shall be filled by the board of directors. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of his or her predecessor. Notwithstanding the foregoing, whenever the holders of any one or more classes or series of preferred stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorship shall be governed by the terms of this Amended and Restated Certificate of Incorporation and any resolutions of the Board of Directors applicable thereto, and such directors so elected shall not be divided into classes pursuant to this Article V. Notwithstanding anything to the contrary contained in this Amended and Restated Certificate of Incorporation, the affirmative vote of the holders of at least 80% of the voting power of the shares entitled to vote generally in the election of directors shall be required to amend, alter or repeal, or to adopt any provision inconsistent with, this Article V. In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to adopt, amend or repeal the By- laws of the Corporation. ARTICLE VI Election of Directors need not be by written ballot unless the By-laws of the Corporation so provide. ARTICLE VII The Corporation reserves the right to amend, alter or repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon the stockholders herein are granted subject to this reservation. -4- ARTICLE VIII The Corporation shall, in accordance with and to the full extent now or hereafter permitted by law, indemnify and upon request advance expenses to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including, without limitation, an action by or in the right of the Corporation), by reason of his acting as a director or officer of the Corporation (and the Corporation, in the discretion of the Board of Directors, may so indemnify a person by reason of the fact that he is or was an employee of the Corporation or is or was serving at the request of the Corporation in any other capacity for or on behalf of the Corporation) against any liability or expense (including attorneys' fees and expenses) actually and reasonably incurred by such person in respect thereof; provided, however, that the Corporation shall not be obligated to indemnify or advance expenses to any such person (i) with respect to proceedings, claims or actions initiated or brought voluntarily by such person and not by way of defense, or (ii) for any amounts paid in settlement of an action effected without the prior written consent of the Corporation to such settlement. Such indemnification is not exclusive of any other right to indemnification provided by law, agreement or otherwise. ARTICLE IX No director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided, however, that this provision shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Law, or (iv) for any transaction from which the director derived an improper personal benefit. ARTICLE X No amendment to or repeal of Articles VIII or IX of this Amended and Restated Certificate of Incorporation shall apply to or have any effect on the rights of any individual referred to in Articles VIII or IX for or with respect to acts or omissions of such individual occurring prior to such amendment or repeal. ARTICLE XI A. Written Consent. At any time after the closing of an initial public --------------- offering of the Corporation's Common Stock, any action required or permitted to be taken by the stockholders -5- of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders. B. Special Meetings. Special meetings of stockholders of the Corporation ---------------- may be called upon not less than ten nor more than 60 days' written notice only by the Board of Directors pursuant to a resolution approved by a majority of the Board of Directors. C. Amendment. Notwithstanding anything contained in this Amended and --------- Restated Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least 80% of the shares entitled to vote generally in the election of directors shall be required to amend, alter or repeal, or to adopt any provision inconsistent with, this Article XI. ARTICLE XII Meetings of stockholders may be held within or without the State of Delaware as the By-Laws of the Corporation may provide. The books of the Corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors of the Corporation or in the By-laws of the Corporation. ARTICLE XIII The By-laws of the Corporation may be altered, amended, or repealed or new By-laws may be adopted by the Board of Directors or by the vote of the holders of 66-2/3% of the votes entitled to be cast by the shares entitled to vote generally for the election of directors if notice of such alteration, amendment, repeal or adoption of new By-laws is contained in the notice of such special meeting. IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated Certificate of Incorporation to be signed by its Chief Executive Officer on December 2, 1997. COMPASS INTERNATIONAL SERVICES CORPORATION By: /s/ Michael J. Cunningham ------------------------------------ Name: Michael J. Cunningham ------------------------------------ Its: Chairman and Chief Executive Officer ------------------------------------ -6- EX-5.1 3 OPINION OF KATTEN MUCHIN & ZAVIS OF INCORPORATION EXHIBIT 5.1 April 9, 1998 KATTEN MUCHIN & ZAVIS 525 W. MONROE, SUITE 1600 CHICAGO, ILLINOIS 60661 Compass International Services Corporation One Penn Plaza, Suite 4430 New York, New York 10119 Re: Registration Statement on Form S-1 Gentlemen: We have acted as counsel to Compass International Services Corporation, a Delaware corporation (the "Company"), in connection with the Registration Statement on Form S-1 (the "Registration Statement") filed under the Securities Act of 1933, as amended (the "Securities Act") for the purpose of registering under the Securities Act 3,000,000 shares of common stock, par value $.01 per share (the "Shares"), of the Company, which the Company may offer from time to time pursuant to Rule 415 under the Securities Act. In connection with this opinion, we have relied as to matters of fact, without investigation, upon certificates of public officials and others and upon affidavits, certificates and written statement of directors, officers and employees of, and the accountants for, the Company. We have also examined originals or copies, certified or otherwise identified to our satisfaction, of such instruments, documents and records as we have deemed relevant and necessary to examine for the purpose of this opinion, including (a) the Amended and Restated Certificate of Incorporation of the Company, (b) the By-Laws of the Company, as amended to date, (c) certain resolutions adopted by the Board of Directors of the Company ("Board") and (d) such other documents, records, certificates and other instruments of the Company as in our judgment are necessary or appropriate for purposes of this opinion. We have assumed that (i) the Registration Statement, and any amendments thereto, will have become effective, (ii) such Shares will have been duly authorized and reserved for issuance and, upon the issuance and sale of the Shares in the manner contemplated in the Registration Statement, certificates evidencing the same will be duly executed and delivered, against receipt of the consideration approved by the Board or a committee thereof which will be no less than the par value thereof, and (iii) the Shares will be issued in compliance with applicable federal and state securities laws. In connection with this opinion, we have assumed the accuracy and completeness of all documents and records that we have reviewed, the genuineness of all signatures, the due authority of the parties signing such documents, the authenticity of the documents submitted to us as originals and the conformity to authentic original documents of all documents submitted to us as certified, conformed or reproduced copies. Based upon and subject to the foregoing, we are of the opinion that the Shares will, upon the issuance and sale thereof in the manner contemplated in the Registration Statement, be duly authorized, validly issued, fully paid and non-assessable. Our opinion expressed above is limited to the General Corporation Law of the State of Delaware, and we do not express any opinion concerning any other laws. This opinion is given as of the date hereof and we assume no obligation to advise you of changes that may hereafter be brought to our attention. We hereby consent to the reference to our name in the Registration Statement under the caption "Legal Matters" and further consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement. /s/ Katten Muchin & Zavis Katten Muchin & Zavis EX-10.1 4 1997 EMPLOYEE INCENTIVE COMPENSATION PLAN EXHIBIT 10.1 COMPASS INTERNATIONAL SERVICES CORPORATION EMPLOYEE INCENTIVE COMPENSATION PLAN COMPASS INTERNATIONAL SERVICES CORPORATION EMPLOYEE INCENTIVE COMPENSATION PLAN TABLE OF CONTENTS -----------------
PAGE ---- ARTICLE I ESTABLISHMENT.............................................. 1 1.1 Purpose...................................................... 1 ARTICLE II DEFINITIONS................................................ 1 2.1 "Affiliate".................................................. 1 2.2 "Agreement" or "Award Agreement"............................. 1 2.3 "Annual Incentive Award"..................................... 1 2.4 "Award....................................................... 1 2.5 "Beneficiary"................................................ 1 2.6 "Board of Directors" or "Board".............................. 2 2.7 "Cause"...................................................... 2 2.8 "Change in Control" and "Change in Control Price"........... 2 2.9 "Code" or "Internal Revenue Code"............................ 2 2.10 "Commission"................................................. 2 2.11 "Committee".................................................. 2 2.12 "Common Stock"............................................... 2 2.13 "Company".................................................... 2 2.14 "Covered Employee"........................................... 2 2.15 "Deferred Stock"............................................. 3 2.16 "Disability"................................................. 3 2.17 "Effective Date"............................................. 3 2.18 "Exchange Act"............................................... 3 2.19 "Extraordinary Termination of Employment".................... 3 2.20 "Fair Market Value".......................................... 3 2.21 "Grant Date"................................................. 3 2.22 "Incentive Stock Option"..................................... 3 2.23 "Nonqualified Stock Option".................................. 3 2.24 "Option Period".............................................. 4 2.25 "Option Price"............................................... 4 2.26 "Participant"................................................ 4 2.27 "Performance Shares"......................................... 4 2.28 "Plan"....................................................... 4 2.29 "Representative"............................................. 4 2.30 "Restricted Stock"........................................... 4 2.31 "Retirement"................................................. 4 2.32 "Rule 16b-3" and "Rule 16a-1(c)(3)".......................... 5 2.33 "Stock Appreciation Right"................................... 5
i
PAGE ---- 2.34 "Stock Option" or "Option"................................... 5 2.35 "Termination of Employment".................................. 5 ARTICLE III ADMINISTRATION............................................. 5 3.1 Committee Structure and Authority............................ 5 ARTICLE IV STOCK SUBJECT TO PLAN...................................... 8 4.1 Number of Shares............................................. 8 4.2 Release of Shares............................................ 8 4.3 Restrictions on Shares....................................... 8 4.4 Stockholder Rights........................................... 9 4.5 Best Efforts To Register..................................... 9 4.6 Anti-Dilution................................................ 9 ARTICLE V ELIGIBILITY................................................ 10 5.1 Eligibility.................................................. 10 ARTICLE VI STOCK OPTIONS.............................................. 10 6.1 General...................................................... 10 6.2 Grant and Exercise........................................... 10 6.3 Terms and Conditions......................................... 11 6.4 Termination by Reason of Death............................... 13 6.5 Termination by Reason of Disability.......................... 13 6.6 Other Termination............................................ 14 6.7 Cashing Out of Option........................................ 14 6.8 Formula Grants............................................... 14 ARTICLE VII STOCK APPRECIATION RIGHTS.................................. 15 7.1 General...................................................... 15 7.2 Grant........................................................ 15 7.3 Terms and Conditions......................................... 15 ARTICLE VIII RESTRICTED STOCK........................................... 17 8.1 General...................................................... 17 8.2 Awards and Certificates...................................... 17 8.3 Terms and Conditions......................................... 17 ARTICLE IX DEFERRED STOCK............................................. 19 9.1 General...................................................... 19 9.2 Terms and Conditions......................................... 19
ii
PAGE ---- ARTICLE X PERFORMANCE SHARES......................................... 20 10.1 General...................................................... 20 10.2 Price........................................................ 20 10.3 Performance Share Agreement.................................. 20 10.4 Performance Periods.......................................... 21 10.5 Performance Goals............................................ 21 10.6 Earning of Performance Shares................................ 21 10.7 Termination of Employment Due to Death, Disability or Retirement or at the Request of the Company Without Cause.... 22 10.8 Termination of Employment for Other Reasons.................. 22 10.9 Nontransferability........................................... 22 10.10 Amendment of Awards.......................................... 22 ARTICLE XI ANNUAL INCENTIVE AWARDS.................................... 22 11.1 Eligibility.................................................. 22 11.2 Earning of Annual Incentive Awards........................... 23 11.3 Payments and Election........................................ 24 11.4 Amendment of Awards.......................................... 25 11.5 Performance Threshold........................................ 25 11.6 Maximum Awards............................................... 25 ARTICLE XII PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THIS PLAN.................................................. 25 12.1 Limited Transfer During Offering............................. 25 ARTICLE XIII CHANGE IN CONTROL PROVISIONS............................... 25 13.1 Impact of Event.............................................. 25 13.2 Definition of Change in Control.............................. 26 13.3 Change in Control Price...................................... 28 ARTICLE XIV MISCELLANEOUS.............................................. 28 14.1 Amendments and Termination................................... 28 14.2 Unfunded Status of Plan...................................... 28 14.3 Status of Awards Under Code Section 162(m)................... 29 14.4 General Provisions........................................... 29 14.5 Mitigation of Excise Tax..................................... 30 14.6 Rights with Respect to Continuance of Employment............. 31 14.7 Awards in Substitution for Awards Granted by Other Corporations................................................. 31 14.8 Procedure for Adoption....................................... 31 14.9 Procedure for Withdrawal..................................... 31 14.10 Delay........................................................ 32 14.11 Headings..................................................... 32
iii PAGE ---- 14.12 Severability................................................. 32 14.13 Successors and Assigns....................................... 32 14.14 Entire Agreement............................................. 32
iv COMPASS INTERNATIONAL SERVICES CORPORATION EMPLOYEE INCENTIVE COMPENSATION PLAN ARTICLE I --------- ESTABLISHMENT ------------- 1.1 Purpose. The Compass International Services Corporation Employee ------- Incentive Compensation Plan ("Plan") is hereby established by Compass International Services Corporation ("Company"). The purpose of this Plan is to promote the overall financial objectives of the Company and its stockholders by motivating those persons selected to participate in this Plan to achieve long- term growth in stockholder equity in the Company and by retaining the association of those individuals who are instrumental in achieving this growth. The Plan and the grant of awards hereunder are expressly conditioned upon the Plan's approval by the stockholders of the Company. If such approval is not obtained, then this Plan and all Awards (as defined herein) hereunder shall be null and void ab initio. -- ------ ARTICLE II ---------- DEFINITIONS ----------- For purposes of this Plan, the following terms are defined as set forth below: 2.1 "Affiliate" means any individual, corporation, partnership, --------- association, limited liability company, joint-stock company, trust, unincorporated association or other entity (other than the Company) that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the Company including, without limitation, any member of an affiliated group of which the Company is a common parent corporation as provided in Section 1504 of the Code. 2.2 "Agreement" or "Award Agreement" means any agreement entered into --------- --------------- pursuant to this Plan pursuant to which an Award is granted to a Participant. 2.3 "Annual Incentive Award" means an award granted pursuant to Article ---------------------- XI. 2.4 "Award" means any Stock Option, Stock Appreciation Right, Restricted ----- Stock, Deferred Stock, Performance Share or Annual Incentive Award granted to a Participant under the Plan. 2.5 "Beneficiary" means the person, persons, trust or trusts which have ----------- been designated by a Participant in his or her most recent written beneficiary designation filed with the Committee to receive the benefit specified under the Plan to the extent permitted. If there is no designated beneficiary, then the term means the person or persons, trust or trusts entitled by will or the laws of descent and distribution to receive such benefits. 2.6 "Board of Directors" or "Board" means the Board of Directors of the ------------------ ----- Company. 2.7 "Cause" shall mean, for purposes of whether and when a Participant has ----- incurred a Termination of Employment for Cause, any act or omission which permits the Company to terminate a written agreement or arrangement (employment or otherwise) between the Participant and the Company or an Affiliate for Cause as defined in such agreement or arrangement, or in the event there is no such agreement or arrangement or the agreement or arrangement does not define the term "cause," then Cause shall mean (a) any act or failure to act deemed to constitute cause under the Company's established practices, policies or guidelines applicable to the Participant or (b) the Participant's act or omission constituting gross misconduct with respect to the Company or an Affiliate in any material respect. 2.8 "Change in Control" and "Change in Control Price" have the meanings ----------------- ----------------------- set forth in Sections 13.2 and 13.3, respectively. 2.9 "Code" or "Internal Revenue Code" means the Internal Revenue Code of ---- --------------------- 1986, as amended, final Treasury Regulations thereunder and any subsequent Internal Revenue Code. 2.10 "Commission" means the Securities and Exchange Commission or any ---------- successor agency. 2.11 "Committee" means the person or persons appointed by the Board of --------- Directors to administer this Plan, as further described herein; provided, however, the Committee shall consist of directors who are "disinterested" persons or "non-employees" within the meaning of Rule 16b-3 and each of whom is an "outside" director under Section 162(m) of the Code. 2.12 "Common Stock" means the shares of the regular voting Common Stock, ------------ $.01 par value per share, whether presently or hereafter issued, and any other stock or security resulting from adjustment thereof as described hereinafter or the common stock of any successor to the Company which is designated for the purpose of this Plan. 2.13 "Company" means Compass International Services Corporation, a Delaware ------- corporation, and includes any successor or assignee corporation or corporations into which the Company may be merged, changed or consolidated; any corporation for whose securities all or substantially all of the securities of the Company shall be exchanged; and any assignee of or successor to substantially all of the assets of the Company. 2.14 "Covered Employee" means a Participant who is a "covered employee" ---------------- within the meaning of Section 162(m) of the Code. 2 2.15 "Deferred Stock" means an award made pursuant to Article IX to receive -------------- Common Stock at the end of a specified period. 2.16 "Disability" means a mental or physical illness that entitles the ---------- Participant to receive benefits under the long term disability plan of the Company or an Affiliate, or if the Participant is not covered by such a plan or the Participant is not an employee of the Company or an Affiliate, a mental or physical illness that renders a Participant totally and permanently incapable of performing the Participant's duties for the Company or an Affiliate. Notwithstanding the foregoing, a Disability shall not qualify under this Plan if it is the result of (i) a willfully self-inflicted injury or willfully self- induced sickness; or (ii) an injury or disease contracted, suffered, or incurred, while participating in a criminal offense. Notwithstanding the foregoing, if the Participant and the Company or an Affiliate have entered into an employment agreement which defines the term "Disability" (or a similar term), such definition shall govern for purposes of determining whether such Participant suffers a Disability for purposes of this Plan. The determination of Disability shall be made by the Committee. The determination of Disability for purposes of this Plan shall not be construed to be an admission of disability for any other purpose. 2.17 "Effective Date" means February 27, 1998. -------------- 2.18 "Exchange Act" means the Securities Exchange Act of 1934, as amended, ------------ and the rules and regulations promulgated thereunder. 2.19 "Extraordinary Termination of Employment" means the Termination of --------------------------------------- Employment of the Participant due to death, Disability or Retirement. 2.20 "Fair Market Value" means the fair market value of Common Stock, ----------------- Awards, or other property as determined by the Committee or under procedures established by the Committee. Unless otherwise determined by the Committee, the Fair Market Value per share of Common Stock as of any date shall be the closing sale price per share reported on a consolidated basis for stock listed on the principal stock exchange or market on which the Common Stock is traded on the date as of which such value is being determined or, if there is no sale on that date, then on the last previous day on which a sale was reported. 2.21 "Grant Date" means the date that as of which an Award is granted ---------- pursuant to this Plan. 2.22 "Incentive Stock Option" means any Stock Option intended to be and ---------------------- designated as an "incentive stock option" within the meaning of Section 422 of the Code. 2.23 "Nonqualified Stock Option" means an Option to purchase Common Stock ------------------------- in the Company granted under this Plan the taxation of which is pursuant to Section 83 of the Code. 3 2.24 "Option Period" means the period during which the Option shall be ------------- exercisable in accordance with the Agreement and Article VI. 2.25 "Option Price" means the price at which the Common Stock may be ------------ purchased under an Option as provided in Section 6.3. 2.26 "Participant" means a person who satisfies the eligibility conditions ----------- of Article V and to whom an Award has been granted by the Committee under this Plan, and in the event a Representative is appointed for a Participant or another person becomes a Representative, then the term "Participant" shall mean such Representative. The term shall also include a trust for the benefit of the Participant, a partnership the interest of which is by or for the benefit of the Participant, the Participant's parents, spouse or descendants, or a custodian under a uniform gifts to minors act or similar statute for the benefit of the Participant's descendants, to the extent permitted by the Committee and not inconsistent with the Rule 16b-3 or the status of the Option as an Incentive Stock Option to the extent intended. Notwithstanding the foregoing, the term "Termination of Employment" shall mean the Termination of Employment of the employee (and other terms intended to refer solely to the employee shall be interpreted in a manner that is consistent with such intent). 2.27 "Performance Shares" means a right, granted under Article X, to ------------------ receive Awards based upon criteria specified by the Committee. 2.28 "Plan" means this Compass International Services Corporation 1997 ---- Employee Incentive Compensation Plan, as the same may be amended from time to time. 2.29 "Representative" means (a) the person or entity acting as the executor -------------- or administrator of a Participant's estate pursuant to the last will and testament of a Participant or pursuant to the laws of the jurisdiction in which the Participant had the Participant's primary residence at the date of the Participant's death; (b) the person or entity acting as the guardian or temporary guardian of a Participant; (c) the person or entity which is the Beneficiary of the Participant upon or following the Participant's death; or (d) any person to whom an Option has been transferred with the permission of the Committee or by operation of law; provided that only one of the foregoing shall be the Representative at any point in time as determined under applicable law and recognized by the Committee. 2.30 "Restricted Stock" means an award of Common Stock under Article VIII ---------------- that is subject to certain restrictions and a risk of forfeiture. 2.31 "Retirement" means the Participant's Termination of Employment after ---------- attaining either the normal retirement age or the early retirement age as defined in the principal (as determined by the Committee) tax-qualified plan of the Company or an Affiliate, if the Participant is covered by such plan, and if the Participant is not covered by such a plan, then age 65, or age 55 with the accrual of 10 years of service. 4 2.32 "Rule 16b-3" and "Rule 16a-1(c)(3)" means Rule 16b-3 and Rule --------------------------------- 16a-1(c)(3), as from time to time in effect and applicable to the Plan and Participants, promulgated by the Securities and Exchange Commission under Section 16 of the Exchange Act. 2.33 "Stock Appreciation Right" means a right granted under Article VII. ------------------------ 2.34 "Stock Option" or "Option" means a right to purchase stock on ------------ ------ specified conditions granted under Article VI. 2.35 "Termination of Employment" means the occurrence of any act or event ------------------------- whether pursuant to an employment agreement or otherwise that actually or effectively causes or results in the person's ceasing, for whatever reason, to be an officer, consultant, director or employee of the Company or of any Affiliate, or to be an officer, independent contractor, director or employee of any entity that provides services to the Company or an Affiliate, including, without limitation, death, Disability, dismissal, severance at the election of the Participant, Retirement, or severance as a result of the discontinuance, liquidation, sale or transfer by the Company or its Affiliates of all businesses owned or operated by the Company or its Affiliates. With respect to any person who is not an employee with respect to the Company or an Affiliate, the Agreement may establish what act or event shall constitute a Termination of Employment for purposes of this Plan. A transfer of employment from the Company to an Affiliate, or from an Affiliate to the Company, shall not be a Termination of Employment, unless expressly determined by the Committee. A Termination of Employment shall occur with respect to an employee who is employed by an Affiliate if the Affiliate shall cease to be an Affiliate and the Participant shall not immediately thereafter become an employee of the Company or an Affiliate. In addition, certain other terms used herein have definitions given to them in the first place in which they are used. ARTICLE III ----------- ADMINISTRATION -------------- 3.1 Committee Structure and Authority. This Plan shall be administered by --------------------------------- the Committee which shall be comprised of one or more persons. The Committee shall be the Compensation Committee of the Board of Directors, unless such committee does not exist or the Board establishes a committee whose purpose is the administration of this Plan. In the absence of an appointment, the Board or the portion that qualifies as the Committee shall be the Committee. A majority of the Committee shall constitute a quorum at any meeting thereof (including telephone conference) and the acts of a majority of the members present, or acts approved in writing by a majority of the entire Committee without a meeting, shall be the acts of the Committee for purposes of this Plan. The Committee may authorize any one or more of its members or an officer of the Company to execute and deliver documents on behalf of the Committee. This Plan is intended to qualify for exemption from Section 16(b) of the Exchange 5 Act and to qualify as performance-based compensation under Section 162(m) of the Code and shall be interpreted in such a way as to result in such qualification. A member of the Committee shall not exercise any discretion respecting himself or herself under this Plan. The Board shall have the authority to remove, replace or fill any vacancy of any member of the Committee upon notice to the Committee and the affected member. Any member of the Committee may resign upon notice to the Board. The Committee may allocate among one or more of its members, or may delegate to one or more of its agents, such duties and responsibilities as it determines. Among other things, the Committee shall have the authority, (i) subject to the terms of this Plan, and (ii) subject to the approval of the Board (to the extent required to qualify an option granted hereunder for exemption under Section 16(b) of the Exchange Act and as "performance-based compensation" under Section 162(m) of the Code): (a) to select those persons to whom Awards may be granted from time to time; (b) to determine whether and to what extent Awards are to be granted hereunder; (c) to determine the number of shares of Common Stock to be covered by each Award granted hereunder; (d) to determine the terms and conditions of any Award granted hereunder (including, but not limited to, the Option Price, the Option Period, any exercise restriction or limitation; any exercise acceleration or forfeiture waiver or any performance criteria regarding any Award and the shares of Common Stock relating thereto); (e) to adjust the terms and conditions, at any time or from time to time, of any Award, subject to the limitations of Section 14.1; (f) to determine to what extent and under what circumstances Common Stock and other amounts payable with respect to an Award shall be deferred; (g) to determine under what circumstances an Award may be settled in cash or Common Stock. (h) to provide for the forms of Agreement to be utilized in connection with this Plan; (i) to determine whether a Participant has a Disability or a Retirement; 6 (j) to determine what securities law requirements are applicable to this Plan, Awards, and the issuance of shares of Common Stock and to require of a Participant that appropriate action be taken with respect to such requirements; (k) to cancel, with the consent of the Participant or as otherwise provided in this Plan or an Agreement, outstanding Awards; (l) to interpret and make a final determination with respect to the remaining number of shares of Common Stock available under this Plan; (m) to require as a condition of the exercise of an Award or the issuance or transfer of a certificate of Common Stock, the withholding from a Participant of the amount of any federal, state or local taxes as may be necessary in order for the Company or any other employer to obtain a deduction or as may be otherwise required by law; (n) to determine whether and with what effect an individual has incurred a Termination of Employment; (o) to determine whether the Company or any other person has a right or obligation to purchase Common Stock from a Participant and, if so, the terms and conditions on which such Common Stock is to be purchased; (p) to determine the restrictions or limitations on the transfer of Common Stock; (q) to determine whether an Award is to be adjusted, modified or purchased, or is to become fully exercisable, under this Plan or the terms of an Agreement; (r) to determine the permissible methods of Award exercise and payment, including cashless exercise arrangements; (s) to adopt, amend and rescind such rules and regulations as, in its opinion, may be advisable in the administration of this Plan; and (t) to appoint and compensate agents, counsel, auditors or other specialists to aid it in the discharge of its duties. The Committee shall have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing this Plan as it shall, from time to time, deem advisable, to interpret the terms and provisions of this Plan and any Award issued under this Plan (and any Agreement) and to otherwise supervise the administration of this Plan. The Committee's policies and procedures may differ with respect to Awards granted at different times or to different Participants. 7 Any determination made by the Committee pursuant to the provisions of this Plan shall be made in its sole discretion, and in the case of any determination relating to an Award, may be made at the time of the grant of the Award or, unless in contravention of any express term of this Plan or an Agreement, at any time thereafter. All decisions made by the Committee pursuant to the provisions of this Plan shall be final and binding on all persons, including the Company and Participants. Any determination shall not be subject to de novo review if -- ---- challenged in court. ARTICLE IV ---------- STOCK SUBJECT TO PLAN --------------------- 4.1 Number of Shares. Subject to the adjustment under Section 4.6, the ---------------- total number of shares of Common Stock initially reserved and available for distribution pursuant to Awards under this Plan shall be 2,000,000 shares of Common Stock. Notwithstanding the foregoing, unless approved by the Board of Directors, the number of shares of Common Stock available for distribution hereunder shall not exceed 10% of the shares of Common Stock then outstanding; provided, however, that the number of shares available shall at no time be less than 2,000,000. Such shares may consist, in whole or in part, of authorized and unissued shares or treasury shares. 4.2 Release of Shares. The Committee shall have full authority to ----------------- determine the number of shares of Common Stock available for Award, and in its discretion may include (without limitation) as available for distribution any shares of Common Stock that have ceased to be subject to an Award, any shares of Common Stock subject to any Award that are forfeited, any Award that otherwise terminates without issuance of shares of Common Stock being made to the Participant, or any shares (whether or not restricted) of Common Stock that are received by the Company in connection with the exercise of an Award including the satisfaction of any tax liability or the satisfaction of a tax withholding obligation. If any shares could not again be available for Awards to a particular Participant under any applicable law, such shares shall be available exclusively for Awards to Participants who are not subject to such limitations. 4.3 Restrictions on Shares. Shares of Common Stock issued upon exercise ---------------------- of an Award shall be subject to the terms and conditions specified herein and to such other terms, conditions and restrictions as the Committee in its discretion may determine or provide in the Award Agreement. The Company shall not be required to issue or deliver any certificates for shares of Common Stock, cash or other property prior to (i) the listing of such shares on any stock exchange (or other public market) on which the Common Stock may then be listed (or regularly traded), (ii) the completion of any registration or qualification of such shares under federal or state law, or any ruling or regulation of any government body which the Committee determines to be necessary or advisable, and (iii) the satisfaction of any applicable withholding obligation in order for the Company or an Affiliate to obtain a deduction with respect to the exercise of an Award. The Company may cause any certificate for any share of Common Stock 8 to be delivered to be properly marked with a legend or other notation reflecting the limitations on transfer of such Common Stock as provided in this Plan or as the Committee may otherwise require. The Committee may require any person exercising an Award to make such representations and furnish such information as it may consider appropriate in connection with the issuance or delivery of the shares of Common Stock in compliance with applicable law or otherwise. Fractional shares shall not be delivered, but shall be rounded to the next lower whole number of shares, with appropriate payment made with respect to such fractional shares. 4.4 Stockholder Rights. No person shall have any rights of a stockholder ------------------ as to shares of Common Stock subject to an Award until, after proper exercise of the Award or other action required, such shares shall have been recorded on the Company's official stockholder records as having been issued and transferred. Upon exercise of the Award or any portion thereof, the Company will have a reasonable time in which to issue the shares, and the Participant will not be treated as a stockholder for any purpose whatsoever prior to such issuance. No adjustment shall be made for cash dividends or other rights for which the record date is prior to the date such shares are recorded as issued and transferred in the Company's official stockholder records, except as provided herein or in an Agreement. 4.5 Best Efforts To Register. If there has been an initial public ------------------------ offering of the Common Stock, the Company will register under the Securities Act the Common Stock delivered or deliverable pursuant to Awards on Commission Form S-8 if available to the Company for this purpose (or any successor or alternate form that is substantially similar to that form to the extent available to effect such registration), in accordance with the rules and regulations governing such forms, as soon as such forms are available for registration to the Company for this purpose. The Company will use its best efforts to cause the registration statement to become effective as soon as possible and will file such supplements and amendments to the registration statement as may be necessary to keep the registration statement in effect until the earliest of (a) one year following the expiration of the last relevant period of the last Award outstanding, (b) the date the Company is no longer a reporting company under the Exchange Act and (c) the date all Participants have disposed of all shares of Common Stock delivered pursuant to any Award. The Company may delay the foregoing obligation if the Committee reasonably determines that any such registration would materially and adversely affect the Company's interests or if there is no material benefit to Participants. 4.6 Anti-Dilution. In the event of any Company stock dividend, stock ------------- split, combination or exchange of shares, recapitalization or other change in the capital structure of the Company, corporate separation or division of the Company (including, but not limited to, a split-up, spin-off, split-off or distribution to Company stockholders other than a normal cash dividend), sale by the Company of all or a substantial portion of its assets (measured on either a stand-alone or consolidated basis), reorganization, rights offering, a partial or complete liquidation, or any other corporate transaction, Company share offering or event involving the Company and having an effect similar to any of the foregoing, then the Committee may adjust or substitute, as the case may be, the number of shares of Common Stock available for Awards under this Plan, the number of shares of Common Stock covered by outstanding Awards, the 9 exercise price per share of outstanding Awards, and any other characteristics or terms of the Awards as the Committee shall deem necessary or appropriate to reflect equitably the effects of such changes to the Participants; provided, however, that the Committee may limit any such adjustment so as to maintain the deductibility of the Awards under Section 162(m) of the Code, and that any fractional shares resulting from such adjustment shall be eliminated by rounding to the next lower whole number of shares with appropriate payment for such fractional share as shall reasonably be determined by the Committee. ARTICLE V --------- ELIGIBILITY ----------- 5.1 Eligibility. Except as herein provided, the persons who shall be ----------- eligible to participate in this Plan and be granted Awards shall be those persons who are officers, directors, employees or consultants of the Company or any subsidiary, who shall be in a position, in the opinion of the Committee, to make contributions to the growth, management, protection and success of the Company and its subsidiaries. Of those persons described in the preceding sentence, the Committee may, from time to time, select persons to be granted Awards and shall determine the terms and conditions with respect thereto. In making any such selection and in determining the form of the Award, the Committee may give consideration to the functions and responsibilities of the person's contributions to the Company and its subsidiaries, the value of the individual's service to the Company and its subsidiaries and such other factors deemed relevant by the Committee. The Committee may designate any person who is not eligible to participate in this Plan if such person would otherwise be eligible to participate in this Plan (and members of the Committee are expressly excluded from participation to the extent necessary for purposes of Rule 16b-3, Section 162(m) of the Code or any other legal reason). ARTICLE VI ---------- STOCK OPTIONS ------------- 6.1 General. The Committee shall have authority to grant Options under ------- this Plan at any time or from time to time. Stock Options may be granted alone or in addition to other Awards and may be either Incentive Stock Options or Non- Qualified Stock Options. An Option shall entitle the Participant to receive shares of Common Stock upon exercise of such Option, subject to the Participant's satisfaction in full of any conditions, restrictions or limitations imposed in accordance with this Plan or an Agreement (the terms and provisions of which may differ from other Agreements) including without limitation, payment of the Option Price. 6.2 Grant and Exercise. The grant of a Stock Option shall occur as of the ------------------ date the Committee determines. Each Option granted under this Plan shall be evidenced by an Agreement, in a form approved by the Committee, which shall embody the terms and conditions 10 of such Option and which shall be subject to the express terms and conditions set forth in this Plan. Such Agreement shall become effective upon execution by the Participant. Only a person who is a common-law employee of the Company, any parent corporation of the Company or a subsidiary (as such terms are defined in Section 424 of the Code) on the Grant date shall be eligible to be granted an Option which is intended to be and is an Incentive Stock Option. To the extent that any Stock Option is not designated as an Incentive Stock Option or even if so designated does not qualify as an Incentive Stock Option, it shall constitute a Non-Qualified Stock Option. 6.3 Terms and Conditions. Stock Options shall be subject to such terms -------------------- and conditions as shall be determined by the Committee, including the following: (a) Option Period. The Option Period of each Stock Option shall be ------------- fixed by the Committee; provided that no Non-Qualified Stock Option shall be exercisable more than ten (10) years after the date the Stock Option is granted. In the case of an Incentive Stock Option, the Option Period shall not exceed ten (10) years from the date of grant or five (5) years in the case of an individual who owns more than ten percent (10%) of the combined voting power of all classes of stock of the Company, a corporation which is a parent corporation of the Company or any subsidiary of the Company (each as defined in Section 424 of the Code). No Option which is intended to be an Incentive Stock Option shall be granted more than ten (10) years from the date this Plan is adopted by the Company or the date this Plan is approved by the stockholders of the Company, whichever is earlier. (b) Option Price. The Option Price per share of the Common Stock ------------ purchasable under an Option shall be determined by the Committee. If such Option is intended to qualify as an Incentive Stock Option, the Option Price per share shall be not less than the Fair Market Value per share on the date the Option is granted, or where granted to an individual who owns or who is deemed to own stock possessing more than ten percent (10%) of the combined voting power of all classes of stock of the Company, a corporation which is a parent corporation of the Company or any subsidiary of the Company (each as defined in Section 424 of the Code), not less than one hundred ten percent (110%) of such Fair Market Value per share. (c) Exercisability. Subject to Section 13.1, Stock Options shall be -------------- exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee. If the Committee provides that any Stock Option is exercisable only in installments, the Committee may at any time waive such installment exercise provisions, in whole or in part. In addition, the Committee may at any time accelerate the exercisability of any Stock Option. If the Committee intends that an Option be an Incentive Stock Option, the Committee shall, in its discretion, provide that the aggregate Fair Market Value (determined at the Grant Date) of Incentive Stock Option which is exercisable for the first time during the calendar year shall not exceed $100,000. 11 (d) Method of Exercise. Subject to the provisions of this Article VI, ------------------ a Participant may exercise Stock Options, in whole or in part, at any time during the Option Period by the Participant's giving written notice of exercise on a form provided by the Committee to the Company specifying the number of shares of Common Stock subject to the Stock Option to be purchased. Such notice shall be accompanied by payment in full of the purchase price by cash or check or such other form of payment as the Company may accept. If approved by the Committee (including approval at the time of exercise), payment in full or in part may also be made (i) by delivering Common Stock already owned by the Participant having a total Fair Market Value on the date of such delivery equal to the Option Price; (ii) by the execution and delivery of a note or other evidence of indebtedness (and any security agreement thereunder) satisfactory to the Committee and permitted in accordance with Section 6.3(e); (iii) by authorizing the Company to retain shares of Common Stock which would otherwise be issuable upon exercise of the Option having a total Fair Market Value on the date of delivery equal to the Option Price; (iv) by the delivery of cash or the extension of credit by a broker-dealer to whom the Participant has submitted a notice of exercise or otherwise indicated an intent to exercise an Option (in accordance with Part 220, Chapter II, Title 12 of the Code of Federal Regulations, so-called "cashless" exercise); (v) by certifying ownership of shares of Common Stock owned by the Participant to the satisfaction of the Committee for later delivery to the Company as specified by the Company; or (vi) by any combination of the foregoing. If payment of the Option Price of a Non-Qualified Stock Option is made in whole or in part in the form of Restricted Stock or Deferred Stock, the number of shares of Common Stock to be received upon such exercise equal to the number of shares of Restricted Stock or Deferred Stock used for payment of the Option Price shall be subject to the same forfeiture restrictions or deferral limitations to which such Restricted Stock or Deferred Stock was subject, unless otherwise determined by the Committee. In the case of an Incentive Stock Option, the right to make a payment in the form of already owned shares of Common Stock of the same class as the Common Stock subject to the Stock Option may be authorized only at the time the Stock Option is granted. No shares of Common Stock shall be issued until full payment therefor, as determined by the Committee, has been made. Subject to any forfeiture restrictions or deferral limitations that may apply if a Stock Option is exercised using Restricted Stock or Deferred Stock, a Participant shall have all of the rights of a stockholder of the Company holding the class of Common Stock that is subject to such Stock Option (including, if applicable, the right to vote the shares and the right to receive dividends), when the Participant has given written notice of exercise, has paid in full for such shares and such shares have been recorded on the Company's official stockholder records as having been issued and transferred. (e) Company Loan or Guarantee. Upon the exercise of any Option and ------------------------- subject to the pertinent Agreement and the discretion of the Committee, the Company may at the request of the Participant: 12 (i) lend to the Participant, an amount equal to such portion of the Option Price as the Committee may determine; or (ii) guarantee a loan obtained by the Participant from a third- party for the purpose of tendering the Option Price. The terms and conditions of any loan or guarantee, including the term, interest rate, whether the loan is with recourse against the Participant and any security interest thereunder, shall be determined by the Committee, except that no extension of credit or guarantee shall obligate the Company for an amount to exceed the lesser of the aggregate Fair Market Value per share of the Common Stock on the date of exercise, less the par value of the shares of Common Stock to be purchased upon the exercise of the Award, or the amount permitted under applicable laws or the regulations and rules of the Federal Reserve Board and any other governmental agency having jurisdiction. (f) Non-transferability of Options. Except as provided herein or in ------------------------------ an Agreement and then only consistent with the intent that the Option be an Incentive Stock Option (as applicable), no Stock Option or interest therein shall be transferable by the Participant other than by will or by the laws of descent and distribution or by a designation of beneficiary effective upon the death of the Participant, and all Stock Options shall be exercisable during the Participant's lifetime only by the Participant. If and to the extent transferability is permitted by Rule 16b-3 and except as otherwise provided herein or by an Agreement, every Option granted hereunder shall be freely transferable, but only if such transfer does not result in liability under Section 16 of the Exchange Act to the Participant or other Participants and is consistent with registration of the Option and sale of Common Stock on Form S-8 (or a successor form) or the Committee's waiver of such condition. 6.4 Termination by Reason of Death. Unless otherwise provided in an ------------------------------ Agreement or determined by the Committee, if a Participant incurs a Termination of Employment due to death, any unexpired and unexercised Stock Option held by such Participant shall thereafter be fully exercisable for a period of one (1) year (or such other period or no period as the Committee may specify) immediately following the date of such death or until the expiration of the Option Period, whichever period is the shorter. 6.5 Termination by Reason of Disability. Unless otherwise provided in an ----------------------------------- Agreement or determined by the Committee, if a Participant incurs a Termination of Employment due to a Disability, any unexpired and unexercised Stock Option held by such Participant shall thereafter be fully exercisable by the Participant for the period of one (1) year (or such other period or no period as the Committee may specify) immediately following the date of such Termination of Employment or until the expiration of the Option Period, whichever period is shorter, and the Participant's death at any time following such Termination of Employment due to Disability shall not affect the foregoing. In the event of Termination of Employment by reason of Disability, if an Incentive Stock Option is exercised after the expiration of the exercise 13 periods that apply for purposes of Section 422 of the Code, such Stock Option will thereafter be treated as a Non-Qualified Stock Option. 6.6 Other Termination. Unless otherwise provided in an Agreement or ----------------- determined by the Committee, if a Participant incurs a Termination of Employment due to Retirement, or the Termination of Employment is involuntary on the part of the Participant (but is not due to death, Disability or with Cause), any Stock Option held by such Participant shall thereupon terminate, except that such Stock Option, to the extent then exercisable, may be exercised for the lesser of the ninety (90) day period commencing with the date of such Termination of Employment or until the expiration of the Option Period. Unless otherwise provided in an Agreement or determined by the Committee, if the Participant incurs a Termination of Employment which is either (a) voluntary on the part of the Participant (and is not due to Retirement) or (b) with Cause, the Option shall terminate immediately. Unless otherwise provided in an Agreement or determined by the Committee, the death or Disability of a Participant after a Termination of Employment otherwise provided herein shall not extend the exercisability of the time permitted to exercise an Option. 6.7 Cashing Out of Option. On receipt of written notice of exercise, the --------------------- Committee may elect to cash out all or part of the portion of any Stock Option by paying the Participant an amount, in cash or Common Stock, equal to the excess of the Fair Market Value of the Common Stock that is subject to the Option over the Option Price times the number of shares of Common Stock subject to the Option on the effective date of such cash out. 6.8 Formula Grants. Each person who is a non-employee Director on the -------------- Effective Date shall become a Participant and shall be granted an Option to purchase ten thousand (10,000) shares of Common Stock without further action by the Board or the Committee. Each non-employee who is subsequently elected or appointed as a Director shall become a Participant and shall, on his date of election or appointment, without further action by the Board or the Committee, be granted an Option to purchase ten thousand (10,000) shares of Common Stock. Thereafter, on the date of each annual meeting of stockholders of the Company after which a Participant continues as a non-employee Director, but only with respect to an annual meeting which is more than three months after the date of the initial grant of an Option to such Participant under this Section 6.8, such Participant shall be granted an Option to purchase five thousand (5,000) shares of Common Stock. If the number of shares of Common Stock available to grant under the Plan on a scheduled date of grant is insufficient to make all automatic grants required to be made pursuant to the Plan on such date, then each eligible Director shall receive an Option to purchase a pro rata number of the remaining shares of Common Stock available under the Plan; provided further, however, that if such proration results in fractional shares of Common Stock, then such Option shall be rounded down to the nearest number of whole shares of Common Stock. If there is no whole number of shares remaining to be granted, then no grants shall be made under the Plan. Each Option granted under the Plan shall be evidenced by an Agreement, in a form approved by the Committee, which shall embody the terms and conditions of such Option and which shall be subject to the express terms and conditions set forth in the Plan. Such Agreement shall become effective upon execution by the Participant. 14 Any Option granted pursuant to this Section 6.8 shall terminate upon the first anniversary of the date the Participant first ceased to hold the position of Director. ARTICLE VII ----------- STOCK APPRECIATION RIGHTS ------------------------- 7.1 General. The Committee shall have authority to grant Stock ------- Appreciation Rights under this Plan at any time or from time to time. Subject to the Participant's satisfaction in full of any conditions, restrictions or limitations imposed in accordance with this Plan or an Agreement, a Stock Appreciation Right shall entitle the Participant to surrender to the Company the Stock Appreciation Right and to be paid therefor in shares of the Common Stock, cash or a combination thereof as herein provided, the amount described in Section 7.3(b). 7.2 Grant. Stock Appreciation Rights may be granted in conjunction with ----- all or part of any Stock Option granted under this Plan, in which case the exercise of the Stock Appreciation Right shall require the cancellation of a corresponding portion of the Stock Option, and the exercise of the Stock Option will result in cancellation of a corresponding portion of the Stock Appreciation Right. In the case of a Non-Qualified Stock Option, such rights may be granted either at or after the time of grant of such Stock Option. In the case of an Incentive Stock Option, such rights may be granted only at the time of grant of such Stock Option. A Stock Appreciation Right may also be granted on a stand alone basis. The grant of a Stock Appreciation Right shall occur as of the date the Committee determines. Each Stock Appreciation Right granted under this Plan shall be evidenced by an Agreement, which shall embody the terms and conditions of such Stock Appreciation Right and which shall be subject to the terms and conditions set forth in this Plan. During any three-calendar-year period, no more Stock Appreciation Rights shall be granted to any Participant than the number of Options that may be granted to any Participant under Section 6.1. 7.3 Terms and Conditions. Stock Appreciation Rights shall be subject to -------------------- such terms and conditions as shall be determined by the Committee, including the following: (a) Period and Exercise. The term of a Stock Appreciation Right shall ------------------- be established by the Committee. If granted in conjunction with a Stock Option, the Stock Appreciation Right shall have a term which is the same as the Option Period and shall be exercisable only at such time or times and to the extent the related Stock Options would be exercisable in accordance with the provisions of Article VI. A Stock Appreciation Right which is granted on a stand alone basis shall be for such period and shall be exercisable at such times and to the extent provided in an Agreement. Stock Appreciation Rights shall be exercised by the Participant's giving written notice of exercise on a form provided by the Committee to the Company specifying the portion of the Stock Appreciation Right to be exercised. 15 (b) Amount. Upon the exercise of a Stock Appreciation Right, a ------ Participant shall be entitled to receive an amount in cash, shares of Common Stock or both as determined by the Committee or as otherwise permitted in an Agreement equal in value to the excess of the Fair Market Value per share of Common Stock over the Option Price per share of Common Stock specified in the related Agreement multiplied by the number of shares in respect of which the Stock Appreciation Right is exercised. In the case of a Stock Appreciation Right granted on a stand alone basis, the Agreement shall specify the value to be used in lieu of the Option Price per share of Common Stock. The aggregate Fair Market Value per share of the Common Stock shall be determined as of the date of exercise of such Stock Appreciation Right. (c) Special Rules. In the case of Stock Appreciation Rights relating ------------- to Stock Options held by Participants who are actually or potentially subject to Section 16(b) of the Exchange Act to the extent required by Rule 16b-3: (i) The Committee may require that such Stock Appreciation Rights be exercised only in accordance with the provisions of Rule 16b-3; and (ii) The Committee may provide that the amount to be paid upon exercise of such Stock Appreciation Rights (other than those relating to Incentive Stock Options) shall be based on the highest mean sales price of the Common Stock on the principal exchange on which the Common Stock is traded, NASDAQ or other relevant market for determining value. (d) Non-transferability of Stock Appreciation Rights. Stock ------------------------------------------------ Appreciation Rights shall be transferable only when and to the extent that a Stock Option would be transferable under this Plan unless otherwise provided in an Agreement. (e) Termination. A Stock Appreciation Right shall terminate at such ----------- time as a Stock Option would terminate under this Plan, unless otherwise provided in an Agreement. (f) Effect on Shares Under this Plan. Upon the exercise of a Stock -------------------------------- Appreciation Right, the Stock Option or part thereof to which such Stock Appreciation Right is related shall be deemed to have been exercised for the purpose of the limitation set forth in Section 4.1 on the number of shares of Common Stock to be issued under this Plan, but only to the extent of the number of shares of Common Stock covered by the Stock Appreciation Right at the time of exercise based on the value of the Stock Appreciation Right at such time. (g) Incentive Stock Option. A Stock Appreciation Right granted in ---------------------- tandem with an Incentive Stock Option shall not be exercisable unless the Fair Market Value of 16 the Common Stock on the date of exercise exceeds the Option Price. In no event shall any amount paid pursuant to the Stock Appreciation Right exceed the difference between the Fair Market Value on the date of exercise and the Option Price. ARTICLE VIII ------------ RESTRICTED STOCK ---------------- 8.1 General. The Committee shall have authority to grant Restricted Stock ------- under this Plan at any time or from time to time. Shares of Restricted Stock may be awarded either alone or in addition to other Awards granted under this Plan. The Committee shall determine the persons to whom and the time or times at which grants of Restricted Stock will be awarded, the number of shares of Restricted Shares to be awarded to any Participant, the time or times within which such Awards may be subject to forfeiture and any other terms and conditions of the Awards. Each Award shall be confirmed by, and be subject to the terms of, an Agreement. The Committee may condition the grant of Restricted Stock upon the attainment of specified performance goals by the Participant or by the Company or an Affiliate (including a division or department of the Company or an Affiliate) for or within which the Participant is primarily employed or upon such other factors or criteria as the Committee shall determine. The provisions of Restricted Stock Awards need not be the same with respect to any Participant. The purchase price for shares of Restricted Stock shall be set by the Committee and may be zero. 8.2 Awards and Certificates. Notwithstanding the limitations on issuance ----------------------- of shares of Common Stock otherwise provided in this Plan, each Participant receiving an Award of Restricted Stock shall be issued a certificate in respect of such shares of Restricted Stock. Such certificate shall be registered in the name of such Participant and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Award as determined by the Committee. The Committee may require that the certificates evidencing such shares be held in custody by the Company until the restrictions thereon shall have lapsed and that, as a condition of any Award of Restricted Stock, the Participant shall have delivered a stock power, endorsed in blank, relating to the Common Stock covered by such Award. 8.3 Terms and Conditions. Shares of Restricted Stock shall be subject to -------------------- the following terms and conditions: (a) Limitations on Transferability. Subject to the provisions of this ------------------------------ Plan and the Agreement, during a period set by the Committee, commencing with the date of such Award (the "Restriction Period"), the Participant shall not be permitted to sell, assign, transfer, pledge or otherwise encumber any interest in shares of Restricted Stock. Unless otherwise determined by the Committee, awards of Restricted Stock must be accepted by a Participant within a period of 60 days (or such shorter periods as the Committee may specify at grant) after the Grant Date, by executing a Restricted Stock Agreement and paying whatever price, if any, is required. The Participant shall not have any rights with 17 respect to such Award, unless and until such Participant has executed an agreement evidencing the Award and has delivered a fully executed copy thereof to the Company, and has otherwise complied with the applicable terms and conditions of such Award. (b) Rights. Except as provided in Section 8.3(a), the Participant ------ shall have, with respect to the shares of Restricted Stock, all of the rights of a stockholder of the Company holding the class of Common Stock that is the subject of the Restricted Stock, including, if applicable, the right to vote the shares and the right to receive any cash dividends. Unless otherwise determined by the Committee and subject to this Plan, cash dividends on the class of Common Stock that is the subject of the Restricted Stock shall be automatically deferred and reinvested in additional Restricted Stock, and dividends on the class of Common Stock that is the subject of the Restricted Stock payable in Common Stock shall be paid in the form of Restricted Stock of the same class as the Common Stock on which such dividend was paid. (c) Criteria. Based on service, performance by the Participant or by -------- the Company or the Affiliate, including any division or department for which the Participant is employed or such other factors or criteria as the Committee may determine, the Committee may provide for the lapse of restrictions in installments and may accelerate the vesting of all or any part of any Award and waive the restrictions for all or any part of such Award. (d) Forfeiture. Unless otherwise provided in an Agreement or ---------- determined by the Committee, if the Participant incurs a Termination of Employment during the Restriction Period due to death or Disability, the restrictions shall lapse and the Participant shall be fully vested in the Restricted Stock. Except to the extent otherwise provided in the applicable Agreement and this Plan, upon a Participant's Termination of Employment for any reason during the Restriction Period other than death or Disability, all shares of Restricted Stock still subject to restriction shall be forfeited by the Participant, except the Committee shall have the discretion to waive in whole or in part any or all remaining restrictions with respect to any or all of such Participant's shares of Restricted Stock. (e) Delivery. If and when the Restriction Period expires without a -------- prior forfeiture of the Restricted Stock subject to such Restriction Period, unlegended certificates for such shares shall be delivered to the Participant. (f) Election. A Participant may elect to further defer receipt of the -------- Restricted Stock for a specified period or until a specified event, subject in each case to the Committee's approval and to such terms as are determined by the Committee. Subject to any exceptions adopted by the Committee, such election must be made one (1) year prior to completion of the Restriction Period. 18 ARTICLE IX ---------- DEFERRED STOCK -------------- 9.1 General. The Committee shall have authority to grant Deferred Stock ------- under this Plan at any time or from time to time. Shares of Deferred Stock may be awarded either alone or in addition to other Awards granted under this Plan. The Committee shall determine the persons to whom and the time or times at which Deferred Stock will be awarded, the number of shares of Deferred Stock to be awarded to any Participant, the duration of the period (the "Deferral Period") prior to which the Common Stock will be delivered, and the conditions under which receipt of the Common Stock will be deferred and any other terms and conditions of the Awards. Each Award shall be confirmed by, and be subject to the terms of, an Agreement. The Committee may condition the grant of Deferred Stock upon the attainment of specified performance goals by the Participant or by the Company or an Affiliate, including a division or department of the Company or an Affiliate for or within which the Participant is primarily employed or upon such other factors or criteria as the Committee shall determine. The provisions of Deferred Stock Awards need not be the same with respect to any Participant. 9.2 Terms and Conditions. Deferred Stock Awards shall be subject to the -------------------- following terms and conditions: (a) Limitations on Transferability. Subject to the provisions of this ------------------------------ Plan and except as may otherwise be provided in an Agreement, neither Deferred Stock Awards, nor any interest therein, may be sold, assigned, transferred, pledged or otherwise encumbered during the Deferral Period. At the expiration of the Deferral Period (or Elective Deferral Period as defined in Section 9.2(e), where applicable), the Committee may elect to deliver Common Stock, cash equal to the Fair Market Value of such Common Stock or a combination of cash and Common Stock, to the Participant for the shares covered by the Deferred Stock Award. (b) Rights. Unless otherwise determined by the Committee and subject ------ to this Plan, cash dividends on the Common Stock that is the subject of the Deferred Stock Award shall be automatically deferred and reinvested in additional Deferred Stock, and dividends on the Common Stock that is the subject of the Deferred Stock Award payable in Common Stock shall be paid in the form of Deferred Stock of the same class as the Common Stock on which such dividend was paid. (c) Criteria. Based on service, performance by the Participant or by -------- the Company or the Affiliate, including any division or department for which the Participant is employed or such other factors or criteria as the Committee may determine, the Committee may provide for the lapse of deferral limitations in installments and may accelerate the vesting of all or any part of any Award and waive the deferral limitations for all or any part of such Award. 19 (d) Forfeiture. Unless otherwise provided in an Agreement or ---------- determined by the Committee, if the Participant incurs a Termination of Employment during the Deferral Period due to death or Disability, the restrictions shall lapse and the Participant shall be fully vested in the Deferred Stock. Unless otherwise provided in an Agreement or determined by the Committee, upon a Participant's Termination of Employment for any reason during the Deferral Period other than death or Disability, the rights to the shares still covered by the Award shall be forfeited by the Participant, except the Committee shall have the discretion to waive in whole or in part any or all remaining deferral limitations with respect to any or all of such Participant's Deferred Stock. (e) Election. A Participant may elect to further defer receipt of the -------- Deferred Stock payable under an Award (or an installment of an Award) for a specified period or until a specified event (an "Elective Deferral Period"), subject in each case to the Committee's approval and to such terms as are determined by the Committee. Subject to any exceptions adopted by the Committee, such election must be made at least one (1) year prior to completion of the Deferral Period for the Award (or the applicable installment thereof). ARTICLE X --------- PERFORMANCE SHARES ------------------ 10.1 General. Subject to the terms and conditions described below, ------- Performance Shares may be granted to any Participant at any time and from time to time as determined by the Committee. The Committee shall have complete discretion in determining the number of Performance Shares granted to each Participant; provided, however, that no Participant who is a Covered Employee may earn more than one half the number of shares of Common Stock reserved under the Plan as Performance Shares with respect to any Performance Period (as defined below). 10.2 Price. The purchase price for Performance Shares shall be zero unless ----- otherwise specified by the Committee. 10.3 Performance Share Agreement. Subject to the provisions of this Plan, --------------------------- all the terms and conditions of an Award of Performance Shares shall be determined by the Committee in its discretion and shall be confirmed by a Performance Share Award Agreement which shall be executed by the Company and the Participant. Not later than the date required or permitted for "qualified performance-based compensation" under Code Section 162(m), the Committee shall determine the Participants who are Covered Employees who will potentially receive individual Performance Share Awards for the Performance Period and the amount or method for determining the amount of such Participant's number of Performance Shares. 20 10.4 Performance Periods. Any time period (the "Performance Period") ------------------- relating to a Performance Share Award (commencing with the Grant Date) shall be at least one calendar or Company fiscal year in length unless otherwise provided by the Committee. 10.5 Performance Goals. Not later than the date required or permitted for ----------------- "qualified performance-based compensation" under Section 162(m), the Committee shall establish in writing the performance goals ("Performance Goals") for such Performance Period, which shall be based on any of the following performance criteria, either alone or in any combination, and on either a consolidated or business unit level, as the Committee may determine: sales, net asset turnover, earnings per share, cash flow, cash flow from operations, operating profit or income, net income, operating margin, net income margin, return on net assets, return on total assets, return on common equity, return on total capital, and total shareholder return. The foregoing criteria shall have any reasonable definitions that the Committee may specify, which may include or exclude any or all of the following items as the Committee may specify; extraordinary, unusual or nonrecurring items; effects of accounting changes; effects of financing activities (e.g., effect on earnings per share of issuance of convertible debt securities); expenses for restructuring or productivity initiates; other nonoperating items; spending for acquisitions; effects of divestitures; and effects of litigation activities and settlements. Any such performance criterion or combination of such criteria may apply to the Participant's Award opportunity in its entirety or to any designated portion or portions of the Award opportunity, as the Committee may specify. Unless the Committee determines otherwise for any Performance Period, extraordinary items, such as capital gains and losses, which affect any performance criterion applicable to the Award (including but not limited to the criterion of net income) shall be excluded or included in determining the extent to which the correspondence performance goal has been achieved, whichever will produce the higher Award. The Committee may, in its discretion, vary the terms and conditions of any Performance Share Award, including, without limitation, the Performance Period and Performance Goals, without shareholder approval, as applied to any recipient who is not a Covered Employee with respect to the Company. In the event applicable tax or securities laws change to permit the Committee discretion to alter the governing performance measures without obtaining shareholder approval of such changes, the Committee shall have sole discretion to make such changes without obtaining shareholder approval. 10.6 Earning of Performance Shares. After the applicable Performance ----------------------------- Period shall have ended, the Committee shall certify the extent to which the established Performance Goals have been achieved. The retention of Performance Shares shall be a direct function of the extent to which the Company's Performance Goals have been achieved. A Participant may earn more or less than the number of Performance Shares originally awarded, or no Performance Shares at all. Performance Shares shall be paid in the form of Common Stock. Unrestricted certificates representing such number of shares of Common Stock as equals the number of Performance Shares earned under the Award shall be delivered to the Participant as soon as practicable after the end of the applicable Performance Period. Participants shall also be entitled to any dividends or other distributions that have been or would have been paid or earned in respect of such shares of Common Stock during the period from the initial award date to the final payout on the Performance Shares, and may be paid in the form of Common Stock. Unless 21 otherwise provided, in its discretion, by the Committee, any such dividends or other distributions shall not bear interest. All determinations by the Committee as to the establishment of Performance Goals and the potential Awards related to such Performance Goals and as to the achievement of Performance Goals relating to such Awards, and the number of any Performance Shares shall be made in writing in the case of any Award intended to qualify under Code Section 162(m). The Committee may not delegate any responsibility relating to such Awards, and may not exercise discretion to increase the amount payable in respect of a Performance Share Award to a Covered Employee. 10.7 Termination of Employment Due to Death, Disability or Retirement ---------------------------------------------------------------- or at the Request of the Company Without Cause. In the event of an - ---------------------------------------------- Extraordinary Termination of Employment or a Termination of Employment by the Company without Cause during a Performance Period, the Participant may receive a prorated payout with respect to the Performance Shares relating to such Performance Period. The prorated payout shall be determined by the Committee, in its sole discretion, and shall be based upon the length of time that the Participant held the Performance Shares during the Performance Period and based upon the achievement of the established Performance Goals. Distribution of earned Performance Shares shall be made at the same time payments are made to Participants who did not incur a Termination of Employment during the applicable Performance Period. 10.8 Termination of Employment for Other Reasons. Unless otherwise ------------------------------------------- provided in an Agreement, in the event that a Participant's employment terminates for any reason other than those reasons set forth in Section 10.7, all Performance Shares shall be forfeited by the Participant to the Company. 10.9 Nontransferability. Unless otherwise provided in an Agreement, ------------------ Performance Shares may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, a Participant's rights under the Plan shall be exercisable during the Participant's lifetime only by the Participant or a Representative. 10.10 Amendment of Awards. The Committee has discretion, subject to ------------------- the Plan's constituting a plan of performance-based compensation under Code Section 162(m), to vary the terms and conditions of any Performance Share Award, including, without limitation, the Performance Goals, without shareholder approval, as applied to any Participant who is not a "covered employee" with respect to the Company as defined in Section 162(m) of the Code. ARTICLE XI ---------- ANNUAL INCENTIVE AWARDS ----------------------- 11.1 Eligibility. Participants designated by the Committee shall be ----------- eligible for an Annual Incentive Award, the amount of which will be based on the satisfaction of specified 22 bonus targets ("Award Targets"). Not later than the date required as permitted for "qualified performance-based compensation" under Code Section 162(m), the Committee shall establish in writing (i) the Award Targets and (ii) the Annual Incentive Awards which may be earned by Participants, based upon the extent to which the Award Targets are achieved ("Award Opportunities"). The Award Targets and Award Opportunities shall be confirmed in Agreements between the Company and the Participants. The Award Targets shall be based on any of the following performance criteria, either alone or in any combination, and on either a consolidated or business unit level, as the Committee may determine: sales, net asset turnover, earnings per share, cash flow, cash flow from operations, operating profit or income, net income, operating margin, net income margin, return on net assets, return on total assets, return on common equity, return on total capital, and total shareholder return. The foregoing criteria shall have any reasonable definitions that the Committee may specify, which may include or exclude any or all of the following items; effects of accounting changes; effects of financing activities (e.g., effect on earnings per share of issuance of convertible debt securities); expenses for restructuring or productivity initiates; other nonoperating items; spending for acquisitions; effects of divestitures; and effects of litigation activities and settlements. Any such performance criterion or combination of such criteria may apply to the Participant's Award opportunity in its entirety or to any designated portion or portions of the Award opportunity, as the Committee may specify. Unless the Committee determines otherwise for any Performance Period, extraordinary items, such as capital gains and losses, which affect any performance criterion applicable to the Award (including but not limited to the criterion of net income) shall be excluded or included in determining the extent to which the corresponding performance goal has been achieved, whichever will produce the higher Award. The Committee may specify the amount of the individual Award as a percentage of such business criteria, a percentage thereof in excess of a threshold amount, or another amount which need not bear a strictly mathematical relationship to such relationship criteria. With respect to any Performance Period, the Committee may establish an aggregate limit or individual limit with respect to the value of the Awards. 11.2 Earning of Annual Incentive Awards. After the applicable fiscal year ---------------------------------- shall have ended, the Committee shall certify in writing the extent to which the established Award Targets have been achieved. The Committee may, in its discretion, determine that the amount payable to any Participant as a final Annual Incentive Award shall be increased or reduced from the amount of his or her potential Award, including a determination to make no final Award whatsoever, but the Committee may not exercise discretion to increase any such amount in the case of an individual Award with respect to a Covered Employee intended to qualify under Code Section 162(m). Unless otherwise determined by the Committee, during a Performance Period, an Award shall be payable under this Plan to the Participant who incurs an Extraordinary Termination of Employment or a Termination of Employment by the Company without cause, which shall be adjusted, pro rata, for the period of time during the year the Participant actually worked. Unless otherwise provided by the Committee, a Participant who incurs a Termination of Employment other than an Extraordinary Termination of Employment or a Termination of Employment by the Company with Cause prior to the end of the Performance Period shall not be entitled to any Award under the Performance Period. Subsequently, the Committee shall calculate the Annual Incentive Award (if any) for each Participant, based upon the Award 23 Opportunities established by the Committee prior to the beginning of the applicable year. Each Annual Incentive Award shall be solely a function of the degree to which the established Award Targets have been achieved. 11.3 Payments and Election. Participants may elect to receive Annual --------------------- Incentive payouts in cash, Common Stock, Deferred Stock, Restricted Stock or a combination of the foregoing, provided that any election for payment in Common Stock is subject to the approval of the Committee. Payouts with respect to a fiscal year will be made within ninety (90) days of the end of such year. To elect the payout of a portion of an Annual Incentive Award in Common Stock, a Participant must inform the Committee in writing prior to the start of the fiscal year with respect to which payout would be made or at such other time as the Committee may permit. Unless modified by the Committee before the beginning of a fiscal year of the Company, terms and conditions of Deferred or Restricted Stock payouts shall include the following: (a) Any portion of an Annual Incentive Award can be elected for payout in Deferred or Restricted Stock, either in a dollar amount or as a percentage of the total Annual Incentive Award. (b) Deferred or Restricted Stock will be issued on the same date that cash payouts would be made, based on the closing price of the Common Stock as of the date of the award ("Closing Price") on the principal exchange on which the Common Stock shall then be listed or quoted. (c) Deferred or Restricted Stock will be issued pursuant to, and shall be subject to the terms and conditions contained in this Plan. Unless otherwise agreed, the Deferral Period or Restriction Period, respectively, will be for a period determined by the Committee of at least three (3) years in duration, after which time the Common Stock will be distributed or released to the Participant. (d) The number of shares of Deferred Stock or Restricted Stock granted to a Participant will equal the product of (A) such number of shares of Common Stock as have an aggregate closing price equal to the dollar amount of the Annual Incentive Award elected to be received in the form of Deferred Stock or Restricted Stock, multiplied by (B) a factor greater than 1.00 but less than or equal to 1.30, as determined by the Committee prior to the beginning of the Company's applicable fiscal year. (e) If the Participant (who is not a Covered Employee) incurs a Termination of Employment by reason of death, Disability or Retirement or by the Company without Cause, the Committee, at its discretion, may provide for waiver of all, or a portion of the deferrals or restrictions applicable to such Awards. If the Participant's incurs a Termination of Employment for any other reason, the shares of Deferred or Restricted Stock may be forfeited. 24 11.4 Amendment of Awards. The Committee has discretion, subject to the ------------------- Plan's constituting a plan of performance-based compensation under Code Section 162(m), to vary the terms and conditions of any Annual Incentive Award, including, without limitation, the Award Targets, without shareholder approval, as applied to any Participant who is not a "covered employee" with respect to the Company as defined in Section 162(m) of the Code. 11.5 Performance Threshold. The Committee may establish minimum levels of --------------------- Company performance which must be achieved during a fiscal year before any Annual Incentive Awards shall be paid to Participants. 11.6 Maximum Awards. The Committee may establish guidelines governing the -------------- maximum Annual Incentive Awards that may be earned by Participants (either in the aggregate, by employee class or among individual Participants), provided that no Participant may receive an Annual Incentive Award in an amount (including the value of any Common Stock constituting any portion of such Annual Incentive Awards) greater than $1,500,000 with respect to any fiscal year of the Company. ARTICLE XII ----------- PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THIS PLAN ------------------------------------------------------- 12.1 Limited Transfer During Offering. In the event there is an effective -------------------------------- registration statement under the Securities Act pursuant to which shares of Common Stock shall be offered for sale in an underwritten offering, a Participant shall not, during the period requested by the underwriters managing the registered public offering, effect any public sale or distribution of shares received directly or indirectly pursuant to an exercise of an Award. 12.2 No Company Obligation. None of the Company, an Affiliate or the --------------------- Committee shall have any duty or obligation to affirmatively disclose to a record or beneficial holder of Common Stock or an Award, and such holder shall have no right to be advised of any material information regarding the Company or any Affiliate at any time prior to, upon or in connection with receipt or the exercise of an Award or the Company's purchase of Common Stock or an Award from such holder in accordance with the terms hereof. ARTICLE XIII ------------ CHANGE IN CONTROL PROVISIONS ---------------------------- 13.1 Impact of Event. Notwithstanding any other provision of this Plan to --------------- the contrary, in the event of a Change in Control (as defined in Section 13.2), the Committee shall have full discretion, notwithstanding anything herein or in an Agreement to the contrary, to do any or all of the following with respect to an outstanding Award: 25 (a) to provide that the Stock Options and Stock Appreciation Rights outstanding as of the date of the Change in Control which are not then exercisable shall become fully exercisable to the full extent of the original grant; (b) to provide that the restrictions and deferral limitations applicable to any Restricted Stock, Deferred Stock or other Award shall lapse, and such Restricted Stock, Deferred Stock or other Award shall become free of all restrictions and become fully vested and transferrable to the full extent of the original grant; (c) to deem any performance goal or other condition with respect to any Performance Shares or Annual Incentive Award to have been satisfied in full, and such Award shall be fully distributable; (d) to cause any Award to be cancelled, provided notice of at least 15 days thereof is provided before the date of cancellation; (e) to provide that the securities of another entity be substituted hereunder for the Common Stock and to make equitable adjustment with respect thereto; (f) to grant the Participant the right to elect by giving notice during a set period of time from and after a Change in Control to surrender all or part of a stock-based Award to the Company and to receive cash in an amount equal to the amount by the "Change in Control Price" (as defined in Section 13.3) per share of the Common Stock on the date of the election exceeds the amount the Participant must pay to exercise the Award per share of Common Stock under the Award (the "Spread") multiplied by the number of shares of Common Stock granted under the Award; and (g) to take any other action the Committee determines to take. 13.2 Definition of Change in Control. For purposes of this Plan, a "Change ------------------------------- in Control" shall mean the happening of any of the following events: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty percent (30%) or more of either (i) the then- outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company other than in connection with the acquisition by the Company or an Affiliate of a business, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the 26 Company, (iv) any acquisition by a lender to the Company pursuant to a debt restructuring of the Company, or (v) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 13.2; (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board. (c) Consummation of a reorganization, merger or consolidation of the Company or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than sixty percent (60%) of, respectively, the then-outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, thirty percent (30%) or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination, or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (d) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company other than to a corporation which would satisfy the 27 requirements of clauses (i), (ii) or (iii) of Subsection (c) of this Section 13.2, assuming for this purpose that such liquidation or dissolution was a Business Combination. 13.3 Change in Control Price. For purposes of this Plan, "Change in ----------------------- Control Price" means the higher of (a) the highest reported sales price of a share of Common Stock in any transaction reported on the principal exchange on which such shares are listed or on Nasdaq during the 60-day period prior to and including the date of a Change in Control or (b) if the Change in Control is the result of a tender or exchange offer or a Corporate Transaction, the highest price per share of Common Stock paid in such tender or exchange offer or a Corporate Transaction, except that, in the case of Incentive Stock Options and Stock Appreciation Rights relating to Incentive Stock Options, such price shall be based only on the Fair Market Value of the Common Stock on the date such Incentive Stock Option or Stock Appreciation Right is exercised. To the extent that the consideration paid in any such transaction described above consists all or in part of securities or other non-cash consideration, the value of such securities or other non-cash consideration shall be determined in the sole discretion of the Committee. ARTICLE XIV ----------- MISCELLANEOUS ------------- 14.1 Amendments and Termination. The Board may amend, alter or discontinue -------------------------- the Plan at any time, but no amendment, alteration or discontinuation shall be made which would impair the rights of a Participant under an Award theretofore granted without the Participant's consent, except such an amendment (a) made to avoid an expense charge to the Company or an Affiliate, (b) made to cause the Plan to qualify for the exemption provided by Rule 16b-3, or (c) made to permit the Company or an Affiliate a deduction under the Code. In addition, no such amendment shall be made without the approval of the Company's stockholders to the extent such approval is required by law or agreement. The Committee may amend, alter or discontinue the terms of any Award theretofore granted, prospectively or retroactively, on the same conditions and limitations (and exceptions to limitations) as the Board and further subject to any approval or limitations the Board may impose. Notwithstanding anything in the Plan to the contrary, if any right under this Plan would cause a transaction to be ineligible for pooling of interest accounting that would, but for the right hereunder, be eligible for such accounting treatment, the Committee may modify or adjust the right so that pooling of interest accounting shall be available, including the substitution of Common Stock having a Fair Market Value equal to the cash otherwise payable hereunder for the right which caused the transaction to be ineligible for pooling of interest accounting. 14.2 Unfunded Status of Plan. It is intended that this Plan be an ----------------------- "unfunded" plan for incentive and deferred compensation. The Committee may authorize the creation of trusts or other arrangements to meet the obligations created under this Plan to deliver Common Stock or make payments; provided, however, that, unless the Committee otherwise determines, the 28 existence of such trusts or other arrangements is consistent with the "unfunded" status of this Plan. 14.3 Status of Awards Under Code Section 162(m). It is the intent of the ------------------------------------------ Company that Awards granted to persons who are Covered Employees within the meaning of Code Section 162(m) shall constitute "qualified performance-based compensation" satisfying the requirements of Code Section 162(m). Accordingly, the provisions of the Plan shall be interpreted in a manner consistent with Code Section 162(m). If any provision of the Plan or any agreement relating to such an Award does not comply or is inconsistent with the requirements of Code Section 162(m), such provision shall be construed or deemed amended to the extent necessary to conform to such requirements. 14.4 General Provisions. ------------------ (a) Representation. The Committee may require each person purchasing -------------- or receiving shares pursuant to an Award to represent to and agree with the Company in writing that such person is acquiring the shares without a view to the distribution thereof. The certificates for such shares may include any legend which the Committee deems appropriate to reflect any restrictions on transfer. (b) No Additional Obligation. Nothing contained in this Plan shall ------------------------ prevent the Company or an Affiliate from adopting other or additional compensation arrangements for its employees. (c) Withholding. No later than the date as of which an amount first ----------- becomes includible in the gross income of the Participant for Federal income tax purposes with respect to any Award, the Participant shall pay to the Company (or other entity identified by the Committee), or make arrangements satisfactory to the Company or other entity identified by the Committee regarding the payment of, any Federal, state, local or foreign taxes of any kind required by law to be withheld with respect to such amount required in order for the Company or an Affiliate to obtain a current deduction. To the extent permitted by the Committee, withholding obligations may be settled with Common Stock, including Common Stock that is part of the Award that gives rise to the withholding requirement provided that any applicable requirements under Section 16 of the Exchange Act are satisfied. The obligations of the Company under this Plan shall be conditional on such payment or arrangements, and the Company and its Affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to the Participant. If the Participant disposes of shares of Common Stock acquired pursuant to an Incentive Stock Option in any transaction considered to be a disqualifying transaction under the Code, the Participant must give written notice of such transfer and the Company shall have the right to deduct any taxes required by law to be withheld from any amounts otherwise payable to the Participant. 29 (d) Reinvestment. The reinvestment of dividends in additional ------------ Deferred or Restricted Stock at the time of any dividend payment shall only be permissible if sufficient shares of Common Stock are available for such reinvestment (taking into account then outstanding Options and other Awards). (e) Representation. The Committee shall establish such procedures as -------------- it deems appropriate for a Participant to designate a Representative to whom any amounts payable in the event of the Participant's death are to be paid. (f) Controlling Law. This Plan and all Awards made and actions taken --------------- thereunder shall be governed by and construed in accordance with the laws of the State of Delaware (other than its law respecting choice of law). This Plan shall be construed to comply with all applicable law, and to avoid liability to the Company, an Affiliate or a Participant, including, without limitation, liability under Section 16(b) of the Exchange Act. (g) Offset. Any amounts owed to the Company or an Affiliate by the ------ Participant of whatever nature may be offset by the Company from the value of any shares of Common Stock, cash or other thing of value under this Plan or an Agreement to be transferred to the Participant, and no shares of Common Stock, cash or other thing of value under this Plan or an Agreement shall be transferred unless and until all disputes between the Company and the Participant have been fully and finally resolved and the Participant has waived all claims to such against the Company or an Affiliate. (h) Fail-Safe. With respect to persons subject to Section 16 of the --------- Exchange Act, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or Rule 16a-1(c)(3), as applicable. To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee. Moreover, in the event the Plan does not include a provision required by Rule 16b-3 or Rule 16a-1(c)(3) to be stated herein, such provision (other than one relating to eligibility requirements or the price and amount of Awards) shall be deemed to be incorporated by reference into the Plan with respect to Participants subject to Section 16. (i) Right to Capitalize. The grant of an Award shall in no way affect ------------------- the right of the Company to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. 14.5 Mitigation of Excise Tax. Subject to any other agreement between the ------------------------ Participant and the Company or an Affiliate, if any payment or right accruing to a Participant under this Plan (without the application of this Section 14.5), either alone or together with other payments or rights accruing to the Participant from the Company or an Affiliate ("Total Payments") would constitute a "parachute payment" (as defined in Section 280G of the Code and regulations 30 thereunder), such payment or right shall be reduced to the largest amount or greatest right that will result in no portion of the amount payable or right accruing under this Plan being subject to an excise tax under Section 4999 of the Code or being disallowed as a deduction under Section 280G of the Code. The determination of whether any reduction in the rights or payments under this Plan is to apply shall be made by the Committee in good faith after consultation with the Participant, and such determination shall be conclusive and binding on the Participant. The Participant shall cooperate in good faith with the Committee in making such determination and providing the necessary information for this purpose. The foregoing provisions of this Section 14.5 shall apply with respect to any person only if after reduction for any applicable federal excise tax imposed by Section 4999 of the Code and federal income tax imposed by the Code, the Total Payments accruing to such person would be less than the amount of the Total Payments as reduced, if applicable, under the foregoing provisions of this Plan and after reduction for only federal income taxes. 14.6 Rights with Respect to Continuance of Employment. Nothing contained ------------------------------------------------ herein shall be deemed to alter the relationship between the Company or an Affiliate and a Participant, or the contractual relationship between a Participant and the Company or an Affiliate if there is a written contract regarding such relationship. Nothing contained herein shall be construed to constitute a contract of employment between the Company or an Affiliate and a Participant. The Company or an Affiliate and each of the Participants continue to have the right to terminate the employment or service relationship at any time for any reason, except as provided in a written contract. The Company or an Affiliate shall have no obligation to retain the Participant in its employ or service as a result of this Plan. There shall be no inference as to the length of employment or service hereby, and the Company or an Affiliate reserves the same rights to terminate the Participant's employment or service as existed prior to the individual becoming a Participant in this Plan. 14.7 Awards in Substitution for Awards Granted by Other Corporations. --------------------------------------------------------------- Awards may be granted under this Plan from time to time in substitution for awards in respect of other plans of other entities. The terms and conditions of the Awards so granted may vary from the terms and conditions set forth in this Plan at the time of such grant as the majority of the members of the Committee may deem appropriate to conform, in whole or in part, to the provisions of the awards in substitution for which they are granted. 14.8 Procedure for Adoption. Any Affiliate of the Company on the Effective ---------------------- Date shall be deemed to have adopted this Plan on the Effective Date. Any other Affiliate of the Company may by resolution of such Affiliate's board of directors, with the consent of the Board of Directors and subject to such conditions as may be imposed by the Board of Directors, adopt this Plan as of the date specified in the board resolution. 14.9 Procedure for Withdrawal. Any Affiliate which has adopted this Plan ------------------------ may, by resolution of the board of directors of such direct or indirect subsidiary, with the consent of the Board of Directors and subject to such conditions as may be imposed by the Board of Directors, terminate its adoption of this Plan. 31 14.10 Delay. If at the time a Participant incurs a Termination of ----- Employment (other than due to Cause) or if at the time of a Change in Control, the Participant is subject to "short-swing" liability under Section 16 of the Exchange Act, any time period provided for under this Plan or an Agreement to the extent necessary to avoid the imposition of liability shall be suspended and delayed during the period the Participant would be subject to such liability, but not more than six (6) months and one (1) day and not to exceed the Option Period, or the period for exercise of a Stock Appreciation Right as provided in the Agreement, whichever is shorter. The Company shall have the right to suspend or delay any time period described in this Plan or an Agreement if the Committee shall determine that the action may constitute a violation of any law or result in liability under any law to the Company, an Affiliate or a stockholder of the Company until such time as the action required or permitted shall not constitute a violation of law or result in liability to the Company, an Affiliate or a stockholder of the Company. The Committee shall have the discretion to suspend the application of the provisions of this Plan required solely to comply with Rule 16b-3 if the Committee shall determine that Rule 16b-3 does not apply to this Plan. 14.11 Headings. The headings contained in this Plan are for reference -------- purposes only and shall not affect the meaning or interpretation of this Plan. 14.12 Severability. If any provision of this Plan shall for any reason ------------ be held to be invalid or unenforceable, such invalidity or unenforceability shall not effect any other provision hereby, and this Plan shall be construed as if such invalid or unenforceable provision were omitted. 14.13 Successors and Assigns. This Plan shall inure to the benefit of and ---------------------- be binding upon each successor and assign of the Company. All obligations imposed upon a Participant, and all rights granted to the Company hereunder, shall be binding upon the Participant's heirs, legal representatives and successors. 14.14 Entire Agreement. This Plan and the Agreement constitute the entire ---------------- agreement with respect to the subject matter hereof and thereof, provided that in the event of any inconsistency between this Plan and the Agreement, the terms and conditions of the Agreement shall control. Effective as of February 27, 1998. COMPASS INTERNATIONAL SERVICES CORPORATION By /s/ Michael J. Cunningham -------------------------------------- Michael J. Cunningham Chairman and Chief Executive Officer 32 EX-10.2 5 EMPLOYEE STOCK PURCHASE PLAN EXHIBIT 10.2 COMPASS INTERNATIONAL SERVICES CORPORATION EMPLOYEE STOCK PURCHASE PLAN ---------------------------- (1997) INTRODUCTION ------------ The purpose of this Employee Stock Purchase Plan (the "PLAN") is to benefit Compass International Services Corporation (the "CORPORATION") (and its parent or subsidiaries) by offering eligible employees a favorable opportunity to become stockholders of the Corporation over a period of years, thereby giving them a proprietary interest in the growth and prosperity of the Corporation and encouraging the continuance of their dedicated services with the Corporation (or its parent or subsidiaries). Pursuant to this Plan, 500,000 shares of authorized but unissued common stock of the Corporation may be offered for sale to eligible employees (as determined under Section 2 of this Plan) through periodic offerings to be made during the ten-year period commencing April 1, 1998 (the "EFFECTIVE DATE"). The Plan will be implemented by making four (4) offerings annually of the Corporation's common stock (the "OFFERINGS" and individually, an "OFFERING"), beginning on the first day of each calendar quarter, each Offering terminating on the last day of such quarter ("OFFERING PERIOD"). The maximum number of shares issued in each Offering shall be 25,000 shares. The Plan is intended to qualify as an Employee Stock Purchase Plan under Section 423 of the Internal Revenue Code of 1986, as amended (the "CODE"), and the regulations promulgated thereunder. 1. COMMITTEE. The Plan will be administered by a committee (the --------- "COMMITTEE") appointed by the Corporation's Board of Directors. The Committee shall consist of one or more members of the Board of Directors, none of whom shall be eligible to participate in the Plan. The Committee's interpretations and decisions with regard thereto shall be final and conclusive. 2. ELIGIBILITY. All employees of the Corporation (and its parent and ----------- subsidiaries) on the date of any Offering (as hereinafter described) shall be eligible to participate in the Plan, except that the following classes of employees shall not be eligible: (a) employees who are not employed by the Corporation (or its parent or one of its subsidiaries) as of the date one year prior to the first day of an Offering; (b) employees whose customary employment is for not more than 5 months in any calendar year; (c) employees who would, immediately after the grant of an option under the Plan, own Corporation stock possessing 5% or more of the total combined voting power or value of all classes of stock of the Corporation (or its parent or subsidiaries); (d) employees whose customary employment with the Corporation is 20 hours or less per week; (e) members of the Committee. For purposes of subparagraph (a), above, a participating employee who terminates his or her employment and is subsequently reemployed by the Corporation (or its parent or one of its subsidiaries) within one year of the termination date shall be eligible to participate in any Offering under this Plan as of the first day of the Offering Period following the one year anniversary of the date of such reemployment (as if the employee were a new employee). Additionally, in determining an employee's employment for purposes of this Plan, such -2- employee's employment with any business entity, the assets, business, stock or product line of which is acquired by the Corporation (or its parent or one of its subsidiaries) through purchase, merger or otherwise will be deemed to be employment with the Corporation. For purposes of subparagraph (c) of this Section 2, the rules of Section 424(d) of the Code shall apply in determining the stock ownership of an employee, and stock which the employee may purchase under outstanding options shall be treated as stock owned by the employee. For purposes of this Plan, a subsidiary of the Corporation shall mean a "SUBSIDIARY CORPORATION" as defined in Section 424(f) of the Code, and a parent of the Corporation shall mean a "PARENT CORPORATION" as defined in section 424(e) of the Code. 3. OFFERINGS. The Corporation will make four (4) annual Offerings to --------- employees to purchase stock under this Plan. Each Offering Period shall be three (3) months in duration, during which the amounts of Base Compensation (as defined below) directed pursuant to Section 4 by an employee (plus the amount of any dividends received on any shares purchased by the employee under the Plan while such shares are registered in the name of a custodian, if one is appointed pursuant to Section 9 hereof) shall constitute the measure by which the employee's participation in the Offering is based. For all purposes of this Plan, "BASE COMPENSATION" shall mean cash payments on account of the employee's employment with the Corporation or its subsidiaries, and shall include regular wage or salary payments only. Overtime premium, shift pay for Saturday, Sunday or holiday work, emergency call-in cash payments, bonuses, commissions and all other non-regular compensation, if any, shall be excluded from Base Compensation for both salaried and hourly employees. -3- No employee may be granted an option which permits his rights to purchase stock under this Plan, and any other stock purchase plan of the Corporation (and its parent or subsidiaries), to accrue at a rate which exceeds $25,000 of the fair market value of such stock (determined at the effective date of the Offering) for each calendar year in which the Offering is outstanding at any time. For purposes of the preceding sentence, the rules set forth in Section 423(b)(8) of the Code shall apply. 4. PARTICIPATION. Subject to the third sentence of Section 7, an ------------- employee eligible on the effective date of any Offering may participate in such Offering on any enrollment date by completing and forwarding a payroll deduction authorization form to the Human Resources Department. The form will authorize a regular payroll deduction from the employee's direct, after-tax Base Compensation, and must specify the date on which such deduction is to commence, which shall be the first day of the next Offering Period and may not be retroactive. The form may also authorize the purchase of additional shares with any dividends received on any shares purchased by the employee under this Plan while such shares are registered in the name of a custodian, if one is appointed pursuant to Section 9 hereof. 5. PAYROLL DEDUCTIONS. The Corporation will maintain payroll deduction ------------------ accounts for all participating employees. With respect to any Offering made under this Plan, an employee may authorize a payroll deduction in terms of whole number percentages from a minimum of 1% up to a maximum of 10% of the gross, pre-tax Base Compensation an employee receives during the Offering Period. Notwithstanding the foregoing, in no event may more than $5,000.00 be deducted from an employee's Base Compensation for each Offering Period. -4- 6. DEDUCTION TERMINATIONS. An employee may, at any time, terminate the ---------------------- employee's payroll deduction by filing a payroll deduction termination form. The change will not become effective sooner than the next pay period after receipt of the form by the Human Resources Department. Upon filing such payroll deduction termination form, the employee shall also be deemed to have elected a "WITHDRAWAL OF FUNDS" in accordance with Section 7, below. 7. WITHDRAWAL OF FUNDS. An employee may at any time more than 15 days ------------------- prior to the end of an Offering Period, and for any reason, permanently draw out the balance accumulated in the employee's account for the Offering Period for which such payroll deduction form is effective and thereby withdraw from participation in an Offering for the Offering Period. Upon an election in accordance with this Section 7, all payroll withdrawals for the Offering Period shall be returned to the employee as soon as administratively practicable and such employee's option shall be automatically terminated. An employee may thereafter resume participation again only as of the first day of the next Offering Period (and/or the first day of each Offering Period thereafter); provided, however, that an employee who is an officer or director of the Corporation may not thereafter resume participation in that Offering or participate in a subsequent Offering until the first day of an Offering Period which occurs at least six months after the date of such withdrawal. Partial withdrawals will not be permitted. 8. PURCHASE OF SHARES. Each employee participating in any Offering under ------------------ this Plan will be granted an option, upon the effective date of such Offering, for as many full shares of the Corporation's common stock as can be purchased by such employee, which shall equal the sum of the following: -5- (a) the amount of payroll deduction elected by the employee up to 10% of such employee's gross, pre-tax Base Compensation received during the specified Offering Period, but not to exceed $5,000; and (b) the amount of any dividends received on any shares purchased by the employee under this Plan while such shares are registered in the name of a custodian appointed pursuant to Section 9 hereof, if any. Notwithstanding the foregoing, the maximum number of shares which can be purchased by an employee shall not exceed the amount of payroll deduction elected by the employee for the Offering Period (not to exceed $5,000) divided by 85% of the fair market value (as defined in Section 11) of the stock on the first day of the Offering Period 9. PURCHASE PRICE OF SHARES. The purchase price for each share purchased ------------------------ will be 85% of the fair market value (as defined in Section 11) of the stock at the time the option is exercised, or, if lower, on the first day of the Offering Period (such price hereinafter referred to as the "SUBSCRIPTION PRICE"), when there are sufficient funds in the employee's account to purchase one or more full shares. Each option shall be automatically exercised at the Subscription Price at the end of the Offering Period. The employee's account shall be charged for the amount of the purchase price and ownership of such share or shares shall be appropriately entered in the books of the Corporation. The Committee may appoint a custodian to accept custody of such shares on behalf of each participating employee. Upon an employee's request, the employee shall be issued a certificate for any or all of the shares held by the custodian on his or her behalf by completing a form approved by the Committee. If no such custodian is appointed, employees will be issued a certificate for shares as soon as practical after exercising an option. -6- A participating employee may not purchase a share under any Offering beyond 60 months from the effective date thereof. Any balance remaining in an employee's payroll deduction account at the end of an Offering Period shall be carried over to the next Offering Period. In no event will such balance exceed the Subscription Price of one share on the last day of the last month of the Offering Period. 10. REGISTRATION OF CERTIFICATION. Any certificates issued to an employee ----------------------------- may be registered only in the name of the employee, or, if the employee so indicates on the employee's payroll deduction authorization form, in the employee's name jointly with a member of the employee's family, with right of survivorship. 11. FAIR MARKET VALUE. The "FAIR MARKET VALUE" for any day shall be the ----------------- last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Exchange or, if such shares are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the shares are listed or admitted to trading or, if the shares are not listed or admitted to trading on any national securities exchange, the last quoted sale price on such date or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Automated Quotation System ("NASDAQ") or such other system then in use, or, if on any such date the shares are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker -7- making a market in such shares selected by the Committee. If such prices are not available on a given day, then the Committee may use the prices of such stock on the next preceding trading day for which such prices are available. 12. RIGHTS AS A STOCKHOLDER. None of the rights or privileges of a ----------------------- stockholder of the Corporation shall exist with respect to shares purchased under this Plan unless and until a stock certificate with respect to such full shares shall have been issued to the employee or the custodian, if any, on his behalf. 13. RIGHTS ON RETIREMENT, DEATH OR TERMINATION OF EMPLOYMENT. In the -------------------------------------------------------- event of a participating employee's retirement, death or termination of employment (other than an authorized leave of absence), no payroll deduction shall be taken from any pay due and owing to an employee at such time and the balance in the employee's account shall be paid to the employee or, in the event of the employee's death, to the employee's estate, as soon as practicable thereafter. Such employee's option shall be automatically terminated. 14. RIGHTS NOT TRANSFERABLE. Rights under this Plan are not transferable ----------------------- by a participating employee other than by will or the laws of descent and distribution, and, during the employee's lifetime, said rights are exercisable only by the employee. 15. APPLICATION OF FUNDS. All funds received or held by the Corporation -------------------- under this Plan may be used for any corporate purpose, and the Corporation shall not be obligated to segregate any payroll deductions. No interest shall be allocated to the payroll deductions credited to an employee's account under the Plan. -8- 16. ADJUSTMENT IN CASE OF CHANGES AFFECTING COMPASS INTERNATIONAL SERVICES ---------------------------------------------------------------------- CORPORATION STOCK. The number of shares subject to the Plan and to Offerings - ----------------- granted under the Plan shall be adjusted as follows: (a) in the event that the Corporation's outstanding common stock is changed by any stock dividend, stock split or combination of shares, the number of shares subject to the Plan and to Offerings theretofore granted thereunder shall be proportionately adjusted; (b) in the event of any merger or consolidation of the Corporation with any other corporation or corporations, there shall be substituted for each share of Compass International Services Corporation then subject to the Plan, whether or not at the time subject to outstanding Offerings, the number and kind of shares of common stock or other securities to which the holders of common stock of the Corporation will be entitled pursuant to the transaction; and (c) in the event of any other relevant change in the capitalization of the Corporation, the Committee shall provide for an equitable adjustment in the number of shares of Compass International Services Corporation common stock subject to the Plan, whether or not then subject to outstanding Offerings. In the event of any such adjustment, the Subscription Price(s) per share shall be appropriately adjusted. 17. AMENDMENT OF THE PLAN. The Committee may at any time, or from time to --------------------- time, amend this Plan in any respect, except that, without the approval of a majority of the shares of stock of the Corporation then issued and outstanding and entitled to vote, no amendment shall be made (i) increasing or decreasing the number of shares approved for this Plan (other than as provided in Section 16) or (ii) amending provisions governing which employees (or class of employees) are eligible to receive options under the Plan. Said shareholder approval must be obtained within 12 months of the amendment's adoption by the Committee. -9- 18. TERMINATION OF THE PLAN. This Plan and all rights of employees under ----------------------- any Offering pursuant to the Plan hereunder shall terminate: (a) on the day that participating employees become entitled to purchase a number of shares equal to or greater than the number of shares remaining available for purchase. If the number of shares so purchasable is greater than the shares remaining available, the available shares shall be allocated by the Committee on a pro rata basis of each participant's Base Compensation earned during the prior Offering Period or, if none, during the immediately prior fiscal year of the Corporation; or (b) at any time, at the discretion of the Board of Directors. No Offering hereunder shall be made which shall extend beyond the ten year anniversary of the Effective Date. Upon termination of this Plan, all amounts in the accounts of participating employees shall be carried forward into the employees' payroll deduction account under a successor employee stock purchase plan, if any, or refunded as soon as practicable thereafter. 19. GOVERNMENTAL REGULATIONS. The Corporation's obligation to sell and ------------------------ deliver Compass International Services Corporation common stock under this Plan is subject to the approval of any governmental authority required in connection with the authorization, issuance or sale of such common stock. Each option shall also be subject to the requirement that, if at any time the Corporation determines, in its discretion, that the listing, registration or qualification of the shares subject to the option upon any securities exchange or under any state or federal law, or the consent or approval of any government regulatory body is necessary or desirable as a condition of, or in connection with, the issue or purchase of shares thereunder, the option may not be exercised in -10- whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable by the Corporation. 20. PURCHASE OF SHARES. Purchase of outstanding shares may be made ------------------ pursuant to and on behalf of this Plan, upon such terms of the Corporation may approve, for delivery under this Plan. 21. SHAREHOLDER APPROVAL. No options shall be exercised or shares issued -------------------- hereunder before the Plan shall have been approved by the stockholders of the Company. Such approval must be obtained within 12 months before or after the date the Plan is adopted, and shall comply with all applicable laws and the requirements of Section 423 of the Code. 22. NO EMPLOYMENT RIGHTS. The Plan does not provide any employment rights -------------------- to any employee, and it shall not be deemed to interfere in any way with an employer's right to terminate, or otherwise modify, an employee's employment at any time. 23. APPLICABLE LAW. The laws of the State of Illinois shall govern all -------------- matters relating to this Plan, except to the extent such laws are superseded by the laws of the United States. 24. ADDITIONAL RESTRICTIONS OF RULE 16B-3. The terms and conditions of ------------------------------------- options granted hereunder to, and the purchase of shares by, persons subject to Section 16 of the Securities Exchange Act of 1934, as amended ("SECTION 16"), shall comply with the applicable provisions of Rule 16b-3. This Plan shall be deemed to contain, such options shall contain, and the shares issued upon exercise thereof shall be subject to, such additional conditions and -11- restrictions as may be required by Rule 16b-3 to qualify for the maximum exemption from Section 16 with respect to Plan transactions. 25. PLAN ADMINISTRATION. The Committee shall have full and exclusive -------------------- discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility and to adjudicate all disputed claims under the Plan. All notices or other communications hereunder shall be deemed to have been duly given when received in the form specified by the Committee at the location, or by the person, designated by the Committee for the receipt thereof. IN WITNESS WHEREOF, this Plan is adopted this 4th day of March, 1998. COMPASS INTERNATIONAL SERVICES CORPORATION By:/s/ Michael J. Cunningham -------------------------------------- Its:Chairman and Chief Executive Officer -12- EX-10.3 6 EMPLOYMENT AGREEMENT -- MICHAEL J. CUNNINGHAM EXHIBIT 10.3 EMPLOYMENT AGREEMENT BY AND BETWEEN COMPASS INTERNATIONAL SERVICES CORPORATION AND MICHAEL J. CUNNINGHAM EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of December 9, 1997, by and between Compass International Services Corporation, a Delaware corporation (the "Company"), and Michael J. Cunningham ("Employee"). PRELIMINARY RECITALS A. Reference is made to those certain Stock Purchase Agreements dated as of October 3, 1997 (collectively, the "Stock Purchase Agreement"), pursuant to which the outstanding capital stock of B.R.M.C. of Delaware, Inc., The Mail Box, Inc., Mid-Continent Agencies, Inc., National Credit Management Corp., Impact Telemarketing Group, Inc. and Impact Telemarketing, Inc. will be acquired by the Company (the "Acquisitions"). Concurrently therewith, the Company will close an initial public offering of its common stock. B. Following the consummation of the Acquisitions, the Company, through its subsidiaries, will be a provider of outsourced business services on a national basis (the "Business"). C. The Company desires to employ Employee, and Employee desires to be employed by the Company, in an executive capacity, all under the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises, the mutual covenants of the parties hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Employment. ---------- 1.1 Engagement of Employee. The Company agrees to employ Employee as ---------------------- Chief Executive Officer of the Company and Employee agrees to accept such employment, all in accordance with the terms and conditions of this Agreement. 1.2 Duties and Powers. During the Employment Period (as defined ----------------- herein), Employee will serve as the Company's Chief Executive Officer and will have such responsibilities, duties and authorities, and will render such services for the Company and its affiliates as the Board of Directors of the Company (the "Board") shall from time to time reasonably direct; provided, however, that such duties and responsibilities shall be commensurate with the position of Chief Executive Officer of the Company. Employee shall report to the Company's Board of Directors. Employee agrees to serve the Company diligently and faithfully during the Employment Period and to devote Employee's best efforts, highest talents and skills and full time and attention to the furtherance and success of the Business. 1.3 Employment Period. Employee's employment under this Agreement ----------------- shall be for a period of three years beginning on the date of the Closing of the Acquisitions (the "Initial Employment Period"). This Agreement shall automatically renew for successive one-year periods (each one-year period shall be referred to herein as a "Renewal Period") unless either the Company or Employee, as the case may be, provides written notice to the other party at least one hundred twenty (120) days prior to the termination of any such period, stating its/his desire to terminate this Agreement. The Initial Employment Period and each successive Renewal Period shall be referred to herein together as the "Employment Period". Notwithstanding anything to the contrary contained herein, the Employment Period is subject to termination pursuant to SECTION 1.4 below. 1.4 Termination of Employment for Cause, Death or Disability. The -------------------------------------------------------- Company has the right to terminate Employee's employment under this Agreement, by notice to Employee in writing at any time, for Cause (as hereinafter defined), and such employment shall automatically terminate upon the death or the Disability (as hereinafter defined) of Employee. Any such termination shall be effective upon the date of service of such notice pursuant to SECTION 6.7 hereof, in the case of termination for Cause, or immediately upon the death or Disability of Employee, and the Employment Period shall terminate as of the effective date of such termination. "Cause," as used herein, means the occurrence of any of the following events: (i) final non-appealable conviction of (A) a felony or (B) any crime involving moral turpitude; (ii) the willful failure of Employee to comply with reasonable directions of the Board after (A) written notice is delivered to Employee describing such willful failure and (B) Employee has failed to cure or take substantial steps to cure such willful failure after a reasonable time period, as determined by the Board in its reasonable discretion (not to be less than 30 days); (iii) any act by Employee in the course of his employment constituting fraud or misappropriation of property of the Company or its affiliates; (iv) a material breach by Employee of any of the terms, conditions or covenants set forth in SECTIONS 3.2, 3.3, 3.4 OR 3.5 of this Agreement if (A) written notice is delivered to Employee describing such breach and (B) Employee has failed to cure or take substantial steps to cure such breach after a reasonable time period, as determined by the Board in its reasonable discretion (not to be less than 30 days). Employee shall be deemed to have a "Disability" for purposes of this Agreement if he is unable to perform, by reason of physical or mental incapacity, his material duties or obligations under this Agreement, with or without reasonable accommodation, for a total period of 90 days in any 360-day period. The Board shall determine, according to the facts then available, whether and when the Disability of the Employee has occurred. Such determination shall not be arbitrary or unreasonable and the Board will, if possible, take into consideration the expert medical opinion of a physician chosen by the Company, -2- after such physician has completed an examination of Employee. Employee agrees to make himself available for such examination upon the reasonable request of the Company. 2. Compensation and Benefits. ------------------------- 2.1 Salary. In consideration of Employee performing his duties under ------ this Agreement during the Employment Period, the Company will pay Employee a base salary at a rate of $225,000 per annum (the "Base Salary"), payable in accordance with the Company's regular payroll policy for salaried employees. The Base Salary may be increased (but not decreased), from time to time during the Employment Period, as determined by the Compensation Committee of the Board (the "Compensation Committee"), in its sole discretion. If the Employment Period is terminated pursuant to SECTION 1.4 above, then the Base Salary for any partial year will be prorated based on the number of days elapsed in such year during which services were actually performed by Employee. 2.2 Bonus. Employee shall participate in Compass' Executive ----- Compensation Program (the "Bonus Program"), under which Employee shall be eligible to earn an annual bonus of up to 100% of Employee's Base Salary based upon such factors as (i) the financial performance of the Company, and/or (ii) the achievement of personal performance goals. The criteria and/or goals for the Bonus Program shall be established by the Compensation Committee at the beginning of each fiscal year. All bonuses awarded to Employee hereunder shall be payable in accordance with Company policy. 2.3 Compensation After Termination of Employment. -------------------------------------------- (a) If the Company shall terminate Employee's employment during the Employment Period for any reason (other than for Cause pursuant to SECTION 1.4 of this Agreement), Employee shall be entitled to receive severance compensation equal to the sum of (A) continuance of his Base Salary and Deemed Bonus for a period of two years commencing on the last day of the Employment Period (the "Severance Period"), (B) (i) if permitted under Company's group health, life and disability insurance coverage ("Insurance Coverage"), continuation at the cost of Company of Employee's coverage thereunder (subject to such changes in coverage as shall apply to Company's employees generally) or (ii) if not so permitted, reimbursement by the Company of the premiums for group health insurance coverage otherwise payable by Employee under COBRA, until the end of the Severance Period or until other employment is obtained, whichever occurs first, and (C) his pro rated bonus, as determined by the Compensation Committee in its good faith judgment, for the portion of any fiscal year prior to the termination date ((A), (B) and (C) collectively, the "Severance Benefits"). The Severance Benefits payable under (A) and (B) (ii) above shall be paid in equal installments on the Company's normal payroll payment dates occurring during the Severance Period. It shall be a condition to Employee's right to receive the Severance Benefits that (i) Employee shall execute and deliver to the Company -3- a written separation agreement, in form and substance satisfactory to the Company, which agreement shall, among other things, contain (X) a general release by Employee of all claims arising out of Employee's employment or termination of employment, (Y) a covenant by Employee to cooperate with the Company in prosecuting or defending any litigation involving third parties and (Z) a covenant by Employee not to disparage the Company, and (ii) Employee shall be in compliance with all of Employee's obligations which survive termination hereof, including without limitation those arising under SECTIONS 3 AND 4 hereof. In addition, the Company may, as a condition to such Severance Benefits, require that Employee provide consulting services to the Company on a reasonable basis during the Severance Period, provided that the timing of such consulting services shall not unreasonably interfere with Employee's ability to obtain other full- time employment or to fulfill his obligations relating to that employment. The Severance Benefits are intended to be in lieu of all other payments to which Employee might otherwise be entitled in respect of termination of Employee's employment without Cause. Employee shall not be required to seek other employment during the Severance Period. Except as expressly provided above or in the Compass Stock Option Plan, no fringe or other employee benefits shall be payable during or after the Severance Period. (b) If Employee shall voluntarily terminate his employment for Good Reason (as defined below) during the Employment Period and at any time after a Change of Control (as defined below), Employee shall be entitled to receive the same Severance Benefits as are provided for in Section 2.3(a) above, subject to all of the terms and conditions set forth in said Section, except that the Severance Period shall be a period of three years commencing on the last day of the Employment Period. (c) For purposes of this Agreement, "Good Reason" shall mean, so long as Employee has not been guilty of the conduct giving rise to the right to terminate Employee for Cause, (i) the failure to elect Employee to the office of Chief Executive Officer of the Company (or a comparable or superior office), the removal of Employee from such position or the assignment to Employee of any additional duties or responsibilities or a reduction in Employee's duties or responsibilities which, in either case, are inconsistent with those customarily associated with such position or an adverse change in the Employee's reporting lines; (ii) the Company's requiring Employee to be based at any office or location other than in the metropolitan New York City area, except for travel reasonably required in the performance of Employee's duties; (iii) any decrease in the Employee's compensation; (iv) a material breach of this Agreement by the Company if (A) written notice is delivered to the Company describing such breach and (B) the Company has failed to cure or take substantial steps to cure such breach after a reasonable period of time (not to exceed 30 days); and (v) the termination by the Company of any employee benefit plan in which the Employee is participating unless (A) such plan is terminated as to all managerial employees of the Company, and (B) the value of the remaining compensation and benefits -4- offered to Employee (including any compensation and benefits offered in lieu of such plan) is not less than prior to such termination. (d) For purposes of this Agreement, a "Change of Control" of the Company shall be deemed to have occurred on the first of any of the following: (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty percent (30%) or more of either (A) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (B) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company other than in connection with the acquisition by the Company or its affiliates of a business, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, (D) any acquisition by a lender to the Company pursuant to a debt restructuring of the Company, or (E) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) of this Section 2.3(d); (ii) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; (iii) Consummation of a reorganization, merger or consolidation of the Company or any direct or indirect subsidiary of the Company or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially -5- own, directly or indirectly, more than sixty percent (60%) of, respectively, the then-outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (which shall include for these purposes, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination and any Person beneficially owning, immediately prior to such Business Combination, directly or indirectly, 30% or more of the Outstanding Common Stock or Outstanding Voting Securities, as the case may be) beneficially owns, directly or indirectly, thirty percent (30%) or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such Business Combination, or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (iv) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company other than to a corporation which would satisfy the requirements of clauses (A), (B) and (C) of Subsection (iii) of this Section 2.3(d), assuming for this purpose that such liquidation or dissolution was a Business Combination. (e) For purposes of this Agreement, "Deemed Bonus" means an amount equal to the higher of (A) the bonus paid or payable to Employee under the Bonus Program for the fiscal year immediately proceeding the fiscal year in which termination of employment occurs and (B) the maximum bonus payable to Employee under the Bonus Program for the fiscal year in which termination of employment occurs. (f) If the Company shall terminate Employee's employment during the Employment Period pursuant to SECTION 1.4, the Company shall have no further obligations hereunder or otherwise with respect to Employee's employment from and after the termination or expiration date (except payment of Employee's Base Salary accrued through the date of termination or expiration), and the Company shall continue to have all other rights available hereunder (including, without limitation, all rights under SECTIONS 3 AND 4 hereof at law or in equity); provided -6- that if Employee's employment terminates by reason of Employee's death or disability, Employee or Employee's estate shall have the right to exercise Employee's stock options for a period of 12 months thereafter and all options shall be immediately exercisable. (g) For the avoidance of doubt, Severance Benefits shall not be payable if Employee's employment is terminated by reason of his death or Disability, but shall continue to be payable during the Severance Period if his employment is terminated without Cause and he subsequently dies or becomes disabled. 2.4 Benefits, Expenses and Pension Plan. During the Employment ----------------------------------- Period, the Company agrees to provide to Employee such fringe and other employee benefits as are generally provided, from time to time, to other senior officers of the Company, including without limitation vacation, health and insurance benefits, and the opportunity to participate in the Company's Employee Incentive Compensation Plan and Employee Stock Purchase Plan. The Company shall retain the right to discontinue or modify any employee benefit program at any time. The Company will reimburse Employee in accordance with Company policy for his normal out-of-pocket expenses incurred in the course of performing his duties hereunder. 3. Covenants. --------- 3.1 Employee's Acknowledgment. Employee acknowledges that: ------------------------- (i) the Company is and will be engaged in the Business during the Employment Period and thereafter; (ii) Employee is one of a limited number of persons who will manage the Business; (iii) Employee will occupy a position of trust and confidence with the Company after the date of this Agreement, and during the Employment Period and Employee's employment under this Agreement, Employee will become familiar with the Company's proprietary and confidential information concerning the Company and the Business; (iv) the agreements and covenants contained in this SECTION 3 are essential to protect the Company and the goodwill of the Business and are a condition precedent to the Company's entering into this Agreement; (v) Employee's employment with the Company has special, unique and extraordinary value to the Company and the Company would be irreparably damaged if Employee were to provide services to any person or entity in violation of the provisions of this Agreement; and (vi) Employee has means to support himself and his dependents other than by engaging in the Business as conducted by the Company during the -7- Restrictive Period (the "RESTRICTED BUSINESS") and the provisions of this SECTION 3 will not impair such ability. 3.2 Non-Compete. Employee hereby agrees that during the Employment ------------ Period and through the period ending with the first anniversary of the last day of the Employment Period (collectively, the "RESTRICTIVE PERIOD"), he shall not (except on behalf of the Company during the Employment Period), for any reason whatsoever, directly or indirectly, whether individually or as an officer, director, shareholder, owner, partner, joint venturer, employee, independent contractor, consultant or advisor to or of any entity, or in any other capacity: (i) engage, participate or invest in any business which is competitive with the Restricted Business anywhere in the United States of America (the "Territory"); provided, however, that nothing contained herein shall be construed to prevent Employee from investing in up to 2% of the outstanding stock of any competing corporation that is widely-traded and listed on a recognized national, international or regional securities exchange or traded in the U.S. over-the-counter market, but only if Employee is not actively involved in and does not render consulting services to the business of said corporation, (ii) sell or provide any competitive products or services to, or solicit for the purpose of selling or providing any competitive products or services to, any person or entity that was a customer of the Company at any time during the one-year period ending on the last day of the Employment Period (the "Termination Date") or that was actively being solicited by the Company to become a customer of the Company at any time during such period, (iii) solicit for employment or engagement, or influence or induce to leave the Company's employment, or knowingly cause to be employed or engaged, any person who is employed or engaged by the Company in a managerial capacity on the Termination Date or during the Restrictive Period, unless such person has been out of the employ of the Company for at least 180 days; provided, that the Employee shall be permitted to solicit and hire any member of his immediate family, or (iv) enter into, or call upon or request non-public information for the purpose of entering into, an Acquisition Transaction with any entity with respect to which Company for made an offer or proposal for, or entered into discussions or negotiations for, or evaluated with the intent of making a proposal for, an Acquisition Transactions, within the six-month period immediately preceding the Termination Date. For purposes of this Agreement, an "Acquisition Transaction" means a merger, consolidation, purchase of material assets, purchase of a material equity interest, tender offer, recapitalization, accumulation of shares, proxy solicitation or other business combination. -8- 3.3 Intellectual Property Rights. Employee will promptly ---------------------------- communicate, disclose and transfer to the Company free of all encumbrances and restrictions (and will execute and deliver any papers and take any action at any time deemed reasonably necessary by the Company to further establish such transfer) all of Employee's right, title and interest in and to all ideas, discoveries, inventions and improvements relating to the Business created, originated, developed or conceived of by Employee solely or jointly with others during the term of Employee's employment hereunder, whether or not during normal working hours. Employee agrees that all right, title and interest in and to all such ideas, discoveries, inventions and improvements shall belong solely to the Company, whether or not they are protected or protectible under applicable patent, trademark, service mark, copyright or trade secret laws. Employee agrees that all work or other material containing or reflecting any such ideas, discoveries, inventions or improvements shall be deemed work made for hire as defined in Section 101 of the Copyright Act, 15 U.S.C.(S)101. Such transfer shall include all patent rights, copyrights, trademark and service mark rights, and trade secret rights (if any) to such ideas, discoveries, inventions and improvements in the United States and in all other countries. Employee further agrees, at the expense of the Company, to take all such reasonable actions and to execute and deliver all such assignments and other lawful papers relating to any aspect of the prosecution of such rights in the United States and all other countries as the Company may request at any time during the Employment Period or after termi nation thereof. 3.4 Interference with Relationships. Other than in the performance ------------------------------- of his duties hereunder, during the Restrictive Period, Employee shall not, directly or indirectly, as employee, agent, consultant, stockholder, director, co-partner or in any other individual or representative capacity solicit or encourage any present or future customer, supplier or other third party to terminate or otherwise alter his, her or its relationship with the Company with respect to the Restricted Business. 3.5 Confidential Information. Other than in the performance of his ------------------------ duties hereunder, during the Restrictive Period and thereafter, Employee shall keep secret and retain in strictest confidence, and shall not, without the prior written consent of the Company, directly or indirectly furnish, make available or disclose to any third party or use for the benefit of himself or any third party, any Confidential Information. As used in this Agreement, "Confidential Information" shall mean any information relating to the business or affairs of the Company or the Business, including, but not limited to, information relating to financial statements, employees, customers, suppliers, pricing, marketing, equipment, programs, strategies, analyses, profit margins, or other proprietary information of or used by the Company or any subsidiary of Company in connection with the Business; provided, however, that Confidential Information shall not include any information which is in the public domain or becomes known in the industry through no wrongful act on the part of Employee. Employee acknowledges that the Confidential Information is vital, sensitive, confidential and proprietary to the Company. 3.6 Blue-Pencil. If any court of competent jurisdiction shall at any ----------- time deem the Restrictive Period too lengthy or the Territory too extensive, the other provisions of this SECTION 3 shall nevertheless stand, the Restrictive Period herein shall be deemed to -9- be the longest period permissible by law under the circumstances and the Territory herein shall be deemed to comprise the largest territory permissible by law under the circumstances. The court in each case shall reduce the time period and/or territory to permissible duration or size. 3.7 Return of Company Materials Upon Termination. Employee -------------------------------------------- acknowledges that all price lists, sales manuals, catalogs, binders, customer lists and other customer information, supplier lists and other supplier information, financial information, memoranda, correspondence and other records or documents including information stored on computer disks or in computer readable form, containing Confidential Information prepared by Employee or coming into Employee's possession by virtue of Employee's employment by the Company is and shall remain the property of the Company and that upon termination of Employee's employment hereunder, Employee shall return immediately to the Company all such items in Employee's possession, together with all copies thereof. 3.8 Remedies. Employee acknowledges and agrees that the covenants -------- set forth in this SECTION 3 (collectively, the "RESTRICTIVE COVENANTS") are reasonable and necessary for the protection of the Company's business interests, that irreparable injury will result to the Company if Employee breaches any of the terms of said Restrictive Covenants, and that in the event Employee breaches or threatens to breach any such Restrictive Covenants, the Company will have no adequate remedy at law. Employee accordingly agrees that in the event Employee breaches or threatens to breach any of the Restrictive Covenants, the Company shall be entitled to immediate temporary injunctive and other equitable relief, without bond and without the necessity of showing actual monetary damages. In addition, if Employee is otherwise entitled to receive Severance Benefits and breaches any of the terms of the Restrictive Covenants, Employee will not be entitled to the payment of any further Severance Benefits hereunder. Nothing contained herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or the threat of such a breach by Employee, including the recovery of any other damages which it is able to prove. 3.9 Company. For purposes of this Section 3, the term "Company" ------- shall include the Company and its respective subsidiaries, affiliates, assignees and any successors in interest of the Company or its subsidiaries. 4. Effect of Termination. If Employee or the Company should terminate --------------------- Employee's employment for any reason, then, notwithstanding such termination, those provisions contained in SECTIONS 3, 4, 5 AND 6 hereof shall remain in full force and effect. 5. Income Tax Treatment. Employee and the Company acknowledge that it is -------------------- the intention of the Company to deduct all amounts paid under SECTION 2 hereof as ordinary and necessary business expenses for income tax purposes. Employee agrees and represents that he will treat all such amounts as required pursuant to all applicable tax laws and regulations, and should he fail to report such amounts as required, he will indemnify and hold the Company harmless from and against any and all taxes, penalties, interest, costs and expenses, including -10- reasonable attorneys' and accounting fees and costs, which are incurred by Company directly or indirectly as a result thereof. 6. Excise Tax ---------- 6.1 This Section 6 shall apply in the event that the Employee becomes entitled (without regard to this Section 6) to one or more payments or rights (which payments or rights shall include, without limitation, the vesting of an option or other non-cash benefit or property), whether pursuant to the terms of this Agreement or any other plan, arrangement, or agreement with the Company or any affiliated company (collectively, the "Total Payments") which would be subject (in whole or in part) to the excise tax imposed by Section 4999 of the Code (or any similar tax as may hereafter be imposed) (the "Excise Tax"). 6.2 In the event that the Total Payments cause the Employee's "parachute payments" within the meaning of Section 280G(b)(2) of the Code to equal or to exceed three times the Employee's "base amount" within the meaning of Section 280G(b)(3) of the Code (the "Trebled Base Amount") by an amount which is not greater than 10% of the Trebled Base Amount, the Total Payments shall be reduced (or eliminated) such that no portion of the Total Payments is subject to the Excise Tax. Reductions shall be made first to those Total Payments arising under the terms of this Agreement. 6.3 In the event that the Total Payments cause the parachute payments to exceed 110% of the Trebled Base Amount, the Company shall pay to the Employee at the time specified below, an additional amount determined as set forth below (the "Gross-up Payment"). The Gross-up Payment shall be made only with respect to the amount (the "Subject Amount") which equals 50% of the Employee's "excess parachute payments" subject to the Excise Tax. For the avoidance of doubt, no Gross-up Payment shall be made with respect to the remaining 50% of the amount described in the preceding sentence. The Gross-up Payment shall be an amount such that the net amount retained by Employee with respect to the Subject Amount after reduction for any Excise Tax on the Subject Amount and any federal, state and local income or employment tax and Excise Tax payable by the Employee on the Gross-up Payment hereunder (provided that such amount is actually paid when due) shall be equal to the Subject Amount. 6.4 For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of any Excise Tax: (a) The Total Payments shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless, and except that to the extent that, in the written opinion of independent legal counsel, compensation consultants or auditors of nationally recognized standing ("Independent Advisors") selected by the Company and reasonably acceptable to Employee, the Total Payments (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) -11- of the Code in excess of the base amount within the meaning of Section 280G(b)(3) of the Code or are otherwise not subject to the Excise Tax; (b) The amount of the Total Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (i) the total amount of the Total Payments or (ii) the total amount of excess parachute payments within the meaning of Section 280G(b)(1) of the Code (after applying Section 6.4 (a) above); and (c) The value of any non-cash benefits or any deferred payment or benefit shall be determined by the Independent Advisors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time the Gross-up Payment is made, Employee shall repay to the Company at the time that the amount of such reduction in Excise Tax is finally determined (but, if previously paid to the taxing authorities, not prior to the time the amount of such reduction is refunded to Employee or otherwise realized as a benefit by Employee) the portion of the Gross-up Payment that would not have been paid if such Excise Tax had been applied to initially calculating the Gross-up Payment, plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time the Gross-up Payment is made (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-up Payment), the Company shall make an additional Gross-up Payment and shall indemnify and hold Employee harmless in respect of such excess (plus any interest and penalties payable with respect to such excess) at the time that the amount of such excess is finally determined. The Gross-up Payment provided for above shall be paid on the 30th day (or such earlier date as the Excise Tax becomes due and payable to the taxing authorities) after it has been determined that the Total Payments (or any other portion thereof) are subject to the Excise Tax; provided, however, that if the amount of such Gross-up Payment or portion thereof cannot be finally determined on or before such day, the Company shall pay to Employee on such day an estimate, as determined by the Independent Advisors, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code), as soon as the amount thereof can be determined. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to Employee, payable on the fifth day after demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). If more than one Gross-up Payment is made, the amount of each Gross-up Payment shall be computed so as not to duplicate any prior Gross-up Payment. Employee shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-up Payment. Such notification shall be given as soon as practicable but no later -12- than ten (10) business days after Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. Employee shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies Employee in writing prior to the expiration of such period that it desires to contest such claim, Employee shall: (i) give the Company any information reasonably requested by the Company relating to such claim; (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company; (iii) cooperate with the Company in good faith in order effectively to contest such claim; and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold Employee harmless, on an after-tax basis, for any Excise Tax or income or employment tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 6, the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Employee to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Employee agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs Employee to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Employee, on an interest-free basis, and shall indemnify and hold Employee harmless, on an after-tax basis, from any Excise Tax or income or employment (including income or employment or interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of Employee with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-up Payment would be payable hereunder and the -13- Employee shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. If, after the receipt by Employee of an amount advanced by the Company pursuant to this Section 6, Employee becomes entitled to receive any refund with respect to such claim, Employee shall (subject to the Company's complying with the requirements of this Section 6) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Employee of an amount advanced by the Company pursuant to this Section 6, a determination is made that Employee shall not be entitled to any refund with respect to such claim and the Company does not notify Employee in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-up Payment required to be paid. 6.5 Section 14.5 of the Company's Employee Incentive Compensation Plan shall not apply with respect to Employee. 7. Miscellaneous. ------------- 7.1 Life Insurance. The Company may at its discretion and at any -------------- time apply for and procure as owner and for its own benefit and at its own expense, insurance on the life of Employee in such amounts and in such form or forms as the Company may choose. Employee shall cooperate with the Company in procuring such insurance and shall, at the request of the Company, submit to such medical examinations, supply such information and execute such documents as may be required by the insurance company or companies to whom the Company has applied for such insurance. Employee shall have no interest whatsoever in any such policy or policies, except that, upon the termination of Employee's employment hereunder, Employee shall have the privilege of purchasing any such insurance from the Company for an amount equal to the actual premiums thereon previously paid by the Company. 7.2 Assignment. No party hereto may assign or delegate any of its ---------- rights or obligations hereunder without the prior written consent of the other party hereto; provided, however, that the Company shall have the right to assign all or any part of its rights and obligations under this Agreement (i) to any affiliate of the Company to which the Business of the Company is assigned at any time, any subsidiary or affiliate of the Company or any surviving entity following any merger or consolidation of any of those entities with any entity other than the Company or (ii) in connection with the sale of the Business by the Company. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective legal representatives, heirs, successors and assigns of the parties hereto whether so expressed or not. 7.3 Entire Agreement. Except as otherwise expressly set forth ---------------- herein, this Agreement and all other agreements entered into by the parties hereto on the date hereof -14- set forth the entire understanding of the parties, and supersede and preempt all prior oral or written understandings and agreements, with respect to the subject matter hereof. 7.4 Severability. Whenever possible, each provision of this ------------ Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. 7.5 Amendment; Modification. No amendment or modification of this ----------------------- Agreement and no waiver by any party of the breach of any covenant contained herein shall be binding unless executed in writing by the party against whom enforcement of such amendment, modification or waiver is sought. No waiver shall be deemed a continuing waiver or a waiver in respect of any subsequent breach or default, either of a similar or different nature, unless expressly so stated in writing. 7.6 Governing Law. This Agreement shall be construed and enforced in ------------- accordance with, and all questions concerning the construction, validity, interpretation and performance of this Agreement shall be governed by, the laws of the State of New York, without giving effect to provisions thereof regarding conflict of laws. 7.7 Notices. All notices, demands or other communications to be ------- given or delivered hereunder or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been properly served if (a) delivered personally, (b) delivered by a recognized overnight courier service, (c) sent by certified or registered mail, return receipt requested and first class postage prepaid, or (d) sent by facsimile transmission followed by a confirmation copy delivered by a recognized overnight courier service the next day. Such notices, demands and other communications shall be sent to the addresses indicated below: (a) If to Employee: Mr. Michael J. Cunningham 21 Bridge Road Nanuet, New York 10954 (b) If to the Company: Compass International Services Corporation One Penn Plaza Suite 4430 New York, New York 10119 Attention: Chief Executive Officer -15- with a copy to: Katten Muchin & Zavis 525 West Monroe, Suite 1600 Chicago, IL 60661 Attention: Howard S. Lanznar, Esq. or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. Date of service of such notice shall be (i) the date such notice is personally delivered or sent by facsimile transmission (with issuance by the transmitting machine of a confirmation of successful transmission), (ii) three business days after the date of mailing if sent by certified or registered mail or (iii) one business day after date of delivery to the overnight courier if sent by overnight courier. 7.8 Counterparts. This Agreement may be executed in multiple ------------ counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same Agreement. 7.9 Descriptive Headings; Interpretation. The descriptive headings in ------------------------------------ this Agreement are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. The use of the word "including" in this Agreement shall be by way of example rather than by limitation. The Preliminary Recitals set forth above are incorporated by reference into this Agreement. 7.10 No Strict Construction. The language used in this Agreement will be ---------------------- deemed to be the language chosen by the parties hereto to express their mutual interest, and no rule of strict construction will be applied against any party hereto. 7.11 Effectiveness. This Agreement shall become effective upon the Closing ------------- of the Acquisitions. -16- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. COMPANY: COMPASS INTERNATIONAL SERVICES CORPORATION By: /s/ Mahmud U. Haq ---------------------------------- Its: President ---------------------------------- EMPLOYEE: /s/ Michael J. Cunningham --------------------------------------- Michael J. Cunningham -17- EX-10.4 7 EMPLOYMENT AGREEMENT -- MAHMUD U. HAQ. EXHIBIT 10.4 EMPLOYMENT AGREEMENT BY AND BETWEEN COMPASS INTERNATIONAL SERVICES CORPORATION AND MAHMUD U. HAQ EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of December 9, 1997, by and between Compass International Services Corporation, a Delaware corporation (the "Company"), and Mahmud U. Haq ("Employee"). PRELIMINARY RECITALS A. Reference is made to those certain Stock Purchase Agreements dated as of October 3, 1997 (collectively, the "Stock Purchase Agreement"), pursuant to which the outstanding capital stock of B.R.M.C. of Delaware, Inc., The Mail Box, Inc., Mid-Continent Agencies, Inc., National Credit Management Corp., Impact Telemarketing Group, Inc. and Impact Telemarketing, Inc. will be acquired by the Company (the "Acquisitions"). Concurrently therewith, the Company will close an initial public offering of its common stock. B. Following the consummation of the Acquisitions, the Company, through its subsidiaries, will be a provider of outsourced business services on a national basis (the "Business"). C. The Company desires to employ Employee, and Employee desires to be employed by the Company, in an executive capacity, all under the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises, the mutual covenants of the parties hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Employment. ---------- 1.1 Engagement of Employee. The Company agrees to employ Employee as ---------------------- Chief Executive Officer of the Company and Employee agrees to accept such employment, all in accordance with the terms and conditions of this Agreement. 1.2 Duties and Powers. During the Employment Period (as defined ----------------- herein), Employee will serve as the Company's Chief Executive Officer and will have such responsibilities, duties and authorities, and will render such services for the Company and its affiliates as the Board of Directors of the Company (the "Board") shall from time to time reasonably direct; provided, however, that such duties and responsibilities shall be commensurate with the position of Chief Executive Officer of the Company. Employee shall report to the Company's Board of Directors. Employee agrees to serve the Company diligently and faithfully during the Employment Period and to devote Employee's best efforts, highest talents and skills and full time and attention to the furtherance and success of the Business. 1.3 Employment Period. Employee's employment under this Agreement ----------------- shall be for a period of three years beginning on the date of the Closing of the Acquisitions (the "Initial Employment Period"). This Agreement shall automatically renew for successive one-year periods (each one-year period shall be referred to herein as a "Renewal Period") unless either the Company or Employee, as the case may be, provides written notice to the other party at least one hundred twenty (120) days prior to the termination of any such period, stating its/his desire to terminate this Agreement. The Initial Employment Period and each successive Renewal Period shall be referred to herein together as the "Employment Period". Notwithstanding anything to the contrary contained herein, the Employment Period is subject to termination pursuant to SECTION 1.4 below. 1.4 Termination of Employment for Cause, Death or Disability. The -------------------------------------------------------- Company has the right to terminate Employee's employment under this Agreement, by notice to Employee in writing at any time, for Cause (as hereinafter defined), and such employment shall automatically terminate upon the death or the Disability (as hereinafter defined) of Employee. Any such termination shall be effective upon the date of service of such notice pursuant to SECTION 6.7 hereof, in the case of termination for Cause, or immediately upon the death or Disability of Employee, and the Employment Period shall terminate as of the effective date of such termination. "Cause," as used herein, means the occurrence of any of the following events: (i) final non-appealable conviction of (A) a felony or (B) any crime involving moral turpitude; (ii) the willful failure of Employee to comply with reasonable directions of the Board after (A) written notice is delivered to Employee describing such willful failure and (B) Employee has failed to cure or take substantial steps to cure such willful failure after a reasonable time period, as determined by the Board in its reasonable discretion (not to be less than 30 days); (iii) any act by Employee in the course of his employment constituting fraud or misappropriation of property of the Company or its affiliates; (iv) a material breach by Employee of any of the terms, conditions or covenants set forth in SECTIONS 3.2, 3.3, 3.4 OR 3.5 of this Agreement if (A) written notice is delivered to Employee describing such breach and (B) Employee has failed to cure or take substantial steps to cure such breach after a reasonable time period, as determined by the Board in its reasonable discretion (not to be less than 30 days). Employee shall be deemed to have a "Disability" for purposes of this Agreement if he is unable to perform, by reason of physical or mental incapacity, his material duties or obligations under this Agreement, with or without reasonable accommodation, for a total period of 90 days in any 360-day period. The Board shall determine, according to the facts then available, whether and when the Disability of the Employee has occurred. Such determination shall not be arbitrary or unreasonable and the Board will, if possible, take into consideration the expert medical opinion of a physician chosen by the Company, -2- after such physician has completed an examination of Employee. Employee agrees to make himself available for such examination upon the reasonable request of the Company. 2. Compensation and Benefits. ------------------------- 2.1 Salary. In consideration of Employee performing his duties under ------ this Agreement during the Employment Period, the Company will pay Employee a base salary at a rate of $200,000 per annum (the "Base Salary"), payable in accordance with the Company's regular payroll policy for salaried employees. The Base Salary may be increased (but not decreased), from time to time during the Employment Period, as determined by the Compensation Committee of the Board (the "Compensation Committee"), in its sole discretion. If the Employment Period is terminated pursuant to SECTION 1.4 above, then the Base Salary for any partial year will be prorated based on the number of days elapsed in such year during which services were actually performed by Employee. 2.2 Bonus. Employee shall participate in Compass' Executive ----- Compensation Program (the "Bonus Program"), under which Employee shall be eligible to earn an annual bonus of up to 100% of Employee's Base Salary based upon such factors as (i) the financial performance of the Company, and/or (ii) the achievement of personal performance goals. The criteria and/or goals for the Bonus Program shall be established by the Compensation Committee at the beginning of each fiscal year. All bonuses awarded to Employee hereunder shall be payable in accordance with Company policy. 2.3 Compensation After Termination of Employment. -------------------------------------------- (a) If the Company shall terminate Employee's employment during the Employment Period for any reason (other than for Cause pursuant to SECTION 1.4 of this Agreement), Employee shall be entitled to receive severance compensation equal to the sum of (A) continuance of his Base Salary and Deemed Bonus for a period of two years commencing on the last day of the Employment Period (the "Severance Period"), (B) (i) if permitted under Company's group health, life and disability insurance coverage ("Insurance Coverage"), continuation at the cost of Company of Employee's coverage thereunder (subject to such changes in coverage as shall apply to Company's employees generally) or (ii) if not so permitted, reimbursement by the Company of the premiums for group health insurance coverage otherwise payable by Employee under COBRA, until the end of the Severance Period or until other employment is obtained, whichever occurs first, and (C) his pro rated bonus, as determined by the Compensation Committee in its good faith judgment, for the portion of any fiscal year prior to the termination date ((A), (B) and (C) collectively, the "Severance Benefits"). The Severance Benefits payable under (A) and (B) (ii) above shall be paid in equal installments on the Company's normal payroll payment dates occurring during the Severance Period. It shall be a condition to Employee's right to receive the Severance Benefits that (i) Employee shall execute and deliver to the Company -3- a written separation agreement, in form and substance satisfactory to the Company, which agreement shall, among other things, contain (X) a general release by Employee of all claims arising out of Employee's employment or termination of employment, (Y) a covenant by Employee to cooperate with the Company in prosecuting or defending any litigation involving third parties and (Z) a covenant by Employee not to disparage the Company, and (ii) Employee shall be in compliance with all of Employee's obligations which survive termination hereof, including without limitation those arising under SECTIONS 3 AND 4 hereof. In addition, the Company may, as a condition to such Severance Benefits, require that Employee provide consulting services to the Company on a reasonable basis during the Severance Period, provided that the timing of such consulting services shall not unreasonably interfere with Employee's ability to obtain other full- time employment or to fulfill his obligations relating to that employment. The Severance Benefits are intended to be in lieu of all other payments to which Employee might otherwise be entitled in respect of termination of Employee's employment without Cause. Employee shall not be required to seek other employment during the Severance Period. Except as expressly provided above or in the Compass Stock Option Plan, no fringe or other employee benefits shall be payable during or after the Severance Period. (b) If Employee shall voluntarily terminate his employment for Good Reason (as defined below) during the Employment Period and at any time after a Change of Control (as defined below), Employee shall be entitled to receive the same Severance Benefits as are provided for in Section 2.3(a) above, subject to all of the terms and conditions set forth in said Section, except that the Severance Period shall be a period of three years commencing on the last day of the Employment Period. (c) For purposes of this Agreement, "Good Reason" shall mean, so long as Employee has not been guilty of the conduct giving rise to the right to terminate Employee for Cause, (i) the failure to elect Employee to the offices of President and Chief Operating Officer of the Company (or a comparable or superior office), the removal of Employee from such position or the assignment to Employee of any additional duties or responsibilities or a reduction in Employee's duties or responsibilities which, in either case, are inconsistent with those customarily associated with such position or an adverse change in the Employee's reporting lines; (ii) the Company's requiring Employee to be based at any office or location other than in the metropolitan New York City area, except for travel reasonably required in the performance of Employee's duties; (iii) any decrease in the Employee's compensation; (iv) a material breach of this Agreement by the Company if (A) written notice is delivered to the Company describing such breach and (B) the Company has failed to cure or take substantial steps to cure such breach after a reasonable period of time (not to exceed 30 days); and (v) the termination by the Company of any employee benefit plan in which the Employee is participating unless (A) such plan is terminated as to all managerial employees of the Company, and (B) the value of the remaining -4- compensation and benefits offered to Employee (including any compensation and benefits offered in lieu of such plan) is not less than prior to such termination. (d) For purposes of this Agreement, a "Change of Control" of the Company shall be deemed to have occurred on the first of any of the following: (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty percent (30%) or more of either (A) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (B) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company other than in connection with the acquisition by the Company or its affiliates of a business, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, (D) any acquisition by a lender to the Company pursuant to a debt restructuring of the Company, or (E) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) of this Section 2.3(d); (ii) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; (iii) Consummation of a reorganization, merger or consolidation of the Company or any direct or indirect subsidiary of the Company or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially -5- own, directly or indirectly, more than sixty percent (60%) of, respectively, the then-outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (which shall include for these purposes, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination and any Person beneficially owning, immediately prior to such Business Combination, directly or indirectly, 30% or more of the Outstanding Common Stock or Outstanding Voting Securities, as the case may be) beneficially owns, directly or indirectly, thirty percent (30%) or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such Business Combination, or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (iv) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company other than to a corporation which would satisfy the requirements of clauses (A), (B) and (C) of Subsection (iii) of this Section 2.3(d), assuming for this purpose that such liquidation or dissolution was a Business Combination. (e) For purposes of this Agreement, "Deemed Bonus" means an amount equal to the higher of (A) the bonus paid or payable to Employee under the Bonus Program for the fiscal year immediately proceeding the fiscal year in which termination of employment occurs and (B) the maximum bonus payable to Employee under the Bonus Program for the fiscal year in which termination of employment occurs. (f) If the Company shall terminate Employee's employment during the Employment Period pursuant to SECTION 1.4, the Company shall have no further obligations hereunder or otherwise with respect to Employee's employment from and after the termination or expiration date (except payment of Employee's Base Salary accrued through the date of termination or expiration), and the Company shall continue to have all other rights available hereunder (including, without limitation, all rights under SECTIONS 3 AND 4 hereof at law or in equity); provided -6- that if Employee's employment terminates by reason of Employee's death or disability, Employee or Employee's estate shall have the right to exercise Employee's stock options for a period of 12 months thereafter and all options shall be immediately exercisable. (g) For the avoidance of doubt, Severance Benefits shall not be payable if Employee's employment is terminated by reason of his death or Disability, but shall continue to be payable during the Severance Period if his employment is terminated without Cause and he subsequently dies or becomes disabled. 2.4 Benefits, Expenses and Pension Plan. During the Employment ----------------------------------- Period, the Company agrees to provide to Employee such fringe and other employee benefits as are generally provided, from time to time, to other senior officers of the Company, including without limitation vacation, health and insurance benefits, and the opportunity to participate in the Company's Employee Incentive Compensation Plan and the Employee Stock Purchase Plan. The Company shall retain the right to discontinue or modify any employee benefit program at any time. The Company will reimburse Employee in accordance with Company policy for his normal out-of-pocket expenses incurred in the course of performing his duties hereunder. 3. Covenants. --------- 3.1 Employee's Acknowledgment. Employee acknowledges that: ------------------------- (i) the Company is and will be engaged in the Business during the Employment Period and thereafter; (ii) Employee is one of a limited number of persons who will manage the Business; (iii) Employee will occupy a position of trust and confidence with the Company after the date of this Agreement, and during the Employment Period and Employee's employment under this Agreement, Employee will become familiar with the Company's proprietary and confidential information concerning the Company and the Business; (iv) the agreements and covenants contained in this SECTION 3 are essential to protect the Company and the goodwill of the Business and are a condition precedent to the Company's entering into this Agreement; (v) Employee's employment with the Company has special, unique and extraordinary value to the Company and the Company would be irreparably damaged if Employee were to provide services to any person or entity in violation of the provisions of this Agreement; and (vi) Employee has means to support himself and his dependents other than by engaging in the Business as conducted by the Company during the -7- Restrictive Period (the "RESTRICTED BUSINESS") and the provisions of this SECTION 3 will not impair such ability. 3.2 Non-Compete. Employee hereby agrees that during the Employment ------------ Period and through the period ending with the first anniversary of the last day of the Employment Period (collectively, the "RESTRICTIVE PERIOD"), he shall not (except on behalf of the Company during the Employment Period), for any reason whatsoever, directly or indirectly, whether individually or as an officer, director, shareholder, owner, partner, joint venturer, employee, independent contractor, consultant or advisor to or of any entity, or in any other capacity: (i) engage, participate or invest in any business which is competitive with the Restricted Business anywhere in the United States of America (the "Territory"); provided, however, that nothing contained herein shall be construed to prevent Employee from investing in up to 2% of the outstanding stock of any competing corporation that is widely-traded and listed on a recognized national, international or regional securities exchange or traded in the U.S. over-the-counter market, but only if Employee is not actively involved in and does not render consulting services to the business of said corporation, (ii) sell or provide any competitive products or services to, or solicit for the purpose of selling or providing any competitive products or services to, any person or entity that was a customer of the Company at any time during the one-year period ending on the last day of the Employment Period (the "Termination Date") or that was actively being solicited by the Company to become a customer of the Company at any time during such period, (iii) solicit for employment or engagement, or influence or induce to leave the Company's employment, or knowingly cause to be employed or engaged, any person who is employed or engaged by the Company in a managerial capacity on the Termination Date or during the Restrictive Period, unless such person has been out of the employ of the Company for at least 180 days; provided, that the Employee shall be permitted to solicit and hire any member of his immediate family, or (iv) enter into, or call upon or request non-public information for the purpose of entering into, an Acquisition Transaction with any entity with respect to which Company for made an offer or proposal for, or entered into discussions or negotiations for, or evaluated with the intent of making a proposal for, an Acquisition Transactions, within the six-month period immediately preceding the Termination Date. For purposes of this Agreement, an "Acquisition Transaction" means a merger, consolidation, purchase of material assets, purchase of a material equity interest, tender offer, recapitalization, accumulation of shares, proxy solicitation or other business combination. -8- 3.3 Intellectual Property Rights. Employee will promptly ---------------------------- communicate, disclose and transfer to the Company free of all encumbrances and restrictions (and will execute and deliver any papers and take any action at any time deemed reasonably necessary by the Company to further establish such transfer) all of Employee's right, title and interest in and to all ideas, discoveries, inventions and improvements relating to the Business created, originated, developed or conceived of by Employee solely or jointly with others during the term of Employee's employment hereunder, whether or not during normal working hours. Employee agrees that all right, title and interest in and to all such ideas, discoveries, inventions and improvements shall belong solely to the Company, whether or not they are protected or protectible under applicable patent, trademark, service mark, copyright or trade secret laws. Employee agrees that all work or other material containing or reflecting any such ideas, discoveries, inventions or improvements shall be deemed work made for hire as defined in Section 101 of the Copyright Act, 15 U.S.C.(S)101. Such transfer shall include all patent rights, copyrights, trademark and service mark rights, and trade secret rights (if any) to such ideas, discoveries, inventions and improvements in the United States and in all other countries. Employee further agrees, at the expense of the Company, to take all such reasonable actions and to execute and deliver all such assignments and other lawful papers relating to any aspect of the prosecution of such rights in the United States and all other countries as the Company may request at any time during the Employment Period or after termi nation thereof. 3.4 Interference with Relationships. Other than in the performance ------------------------------- of his duties hereunder, during the Restrictive Period, Employee shall not, directly or indirectly, as employee, agent, consultant, stockholder, director, co-partner or in any other individual or representative capacity solicit or encourage any present or future customer, supplier or other third party to terminate or otherwise alter his, her or its relationship with the Company with respect to the Restricted Business. 3.5 Confidential Information. Other than in the performance of his ------------------------ duties hereunder, during the Restrictive Period and thereafter, Employee shall keep secret and retain in strictest confidence, and shall not, without the prior written consent of the Company, directly or indirectly furnish, make available or disclose to any third party or use for the benefit of himself or any third party, any Confidential Information. As used in this Agreement, "Confidential Information" shall mean any information relating to the business or affairs of the Company or the Business, including, but not limited to, information relating to financial statements, employees, customers, suppliers, pricing, marketing, equipment, programs, strategies, analyses, profit margins, or other proprietary information of or used by the Company or any subsidiary of Company in connection with the Business; provided, however, that Confidential Information shall not include any information which is in the public domain or becomes known in the industry through no wrongful act on the part of Employee. Employee acknowledges that the Confidential Information is vital, sensitive, confidential and proprietary to the Company. 3.6 Blue-Pencil. If any court of competent jurisdiction shall at any ----------- time deem the Restrictive Period too lengthy or the Territory too extensive, the other provisions of this SECTION 3 shall nevertheless stand, the Restrictive Period herein shall be deemed to -9- be the longest period permissible by law under the circumstances and the Territory herein shall be deemed to comprise the largest territory permissible by law under the circumstances. The court in each case shall reduce the time period and/or territory to permissible duration or size. 3.7 Return of Company Materials Upon Termination. Employee -------------------------------------------- acknowledges that all price lists, sales manuals, catalogs, binders, customer lists and other customer information, supplier lists and other supplier information, financial information, memoranda, correspondence and other records or documents including information stored on computer disks or in computer readable form, containing Confidential Information prepared by Employee or coming into Employee's possession by virtue of Employee's employment by the Company is and shall remain the property of the Company and that upon termination of Employee's employment hereunder, Employee shall return immediately to the Company all such items in Employee's possession, together with all copies thereof. 3.8 Remedies. Employee acknowledges and agrees that the covenants -------- set forth in this SECTION 3 (collectively, the "RESTRICTIVE COVENANTS") are reasonable and necessary for the protection of the Company's business interests, that irreparable injury will result to the Company if Employee breaches any of the terms of said Restrictive Covenants, and that in the event Employee breaches or threatens to breach any such Restrictive Covenants, the Company will have no adequate remedy at law. Employee accordingly agrees that in the event Employee breaches or threatens to breach any of the Restrictive Covenants, the Company shall be entitled to immediate temporary injunctive and other equitable relief, without bond and without the necessity of showing actual monetary damages. In addition, if Employee is otherwise entitled to receive Severance Benefits and breaches any of the terms of the Restrictive Covenants, Employee will not be entitled to the payment of any further Severance Benefits hereunder. Nothing contained herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or the threat of such a breach by Employee, including the recovery of any other damages which it is able to prove. 3.9 Company. For purposes of this Section 3, the term "Company" ------- shall include the Company and its respective subsidiaries, affiliates, assignees and any successors in interest of the Company or its subsidiaries. 4. Effect of Termination. If Employee or the Company should terminate --------------------- Employee's employment for any reason, then, notwithstanding such termination, those provisions contained in SECTIONS 3, 4, 5 AND 6 hereof shall remain in full force and effect. 5. Income Tax Treatment. Employee and the Company acknowledge that it is -------------------- the intention of the Company to deduct all amounts paid under SECTION 2 hereof as ordinary and necessary business expenses for income tax purposes. Employee agrees and represents that he will treat all such amounts as required pursuant to all applicable tax laws and regulations, and should he fail to report such amounts as required, he will indemnify and hold the Company harmless from and against any and all taxes, penalties, interest, costs and expenses, including -10- reasonable attorneys' and accounting fees and costs, which are incurred by Company directly or indirectly as a result thereof. 6. Excise Tax ---------- 6.1 This Section 6 shall apply in the event that the Employee becomes entitled (without regard to this Section 6) to one or more payments or rights (which payments or rights shall include, without limitation, the vesting of an option or other non-cash benefit or property), whether pursuant to the terms of this Agreement or any other plan, arrangement, or agreement with the Company or any affiliated company (collectively, the "Total Payments") which would be subject (in whole or in part) to the excise tax imposed by Section 4999 of the Code (or any similar tax as may hereafter be imposed) (the "Excise Tax"). 6.2 In the event that the Total Payments cause the Employee's "parachute payments" within the meaning of Section 280G(b)(2) of the Code to equal or to exceed three times the Employee's "base amount" within the meaning of Section 280G(b)(3) of the Code (the "Trebled Base Amount") by an amount which is not greater than 10% of the Trebled Base Amount, the Total Payments shall be reduced (or eliminated) such that no portion of the Total Payments is subject to the Excise Tax. Reductions shall be made first to those Total Payments arising under the terms of this Agreement. 6.3 In the event that the Total Payments cause the parachute payments to exceed 110% of the Trebled Base Amount, the Company shall pay to the Employee at the time specified below, an additional amount determined as set forth below (the "Gross-up Payment"). The Gross-up Payment shall be made only with respect to the amount (the "Subject Amount") which equals 50% of the Employee's "excess parachute payments" subject to the Excise Tax. For the avoidance of doubt, no Gross-up Payment shall be made with respect to the remaining 50% of the amount described in the preceding sentence. The Gross-up Payment shall be an amount such that the net amount retained by Employee with respect to the Subject Amount after reduction for any Excise Tax on the Subject Amount and any federal, state and local income or employment tax and Excise Tax payable by the Employee on the Gross-up Payment hereunder (provided that such amount is actually paid when due) shall be equal to the Subject Amount. 6.4 For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of any Excise Tax: (a) The Total Payments shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless, and except that to the extent that, in the written opinion of independent legal counsel, compensation consultants or auditors of nationally recognized standing ("Independent Advisors") selected by the Company and reasonably acceptable to Employee, the Total Payments (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) -11- of the Code in excess of the base amount within the meaning of Section 280G(b)(3) of the Code or are otherwise not subject to the Excise Tax; (b) The amount of the Total Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (i) the total amount of the Total Payments or (ii) the total amount of excess parachute payments within the meaning of Section 280G(b)(1) of the Code (after applying Section 6.4 (a) above); and (c) The value of any non-cash benefits or any deferred payment or benefit shall be determined by the Independent Advisors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time the Gross-up Payment is made, Employee shall repay to the Company at the time that the amount of such reduction in Excise Tax is finally determined (but, if previously paid to the taxing authorities, not prior to the time the amount of such reduction is refunded to Employee or otherwise realized as a benefit by Employee) the portion of the Gross-up Payment that would not have been paid if such Excise Tax had been applied to initially calculating the Gross-up Payment, plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time the Gross-up Payment is made (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-up Payment), the Company shall make an additional Gross-up Payment and shall indemnify and hold Employee harmless in respect of such excess (plus any interest and penalties payable with respect to such excess) at the time that the amount of such excess is finally determined. The Gross-up Payment provided for above shall be paid on the 30th day (or such earlier date as the Excise Tax becomes due and payable to the taxing authorities) after it has been determined that the Total Payments (or any other portion thereof) are subject to the Excise Tax; provided, however, that if the amount of such Gross-up Payment or portion thereof cannot be finally determined on or before such day, the Company shall pay to Employee on such day an estimate, as determined by the Independent Advisors, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code), as soon as the amount thereof can be determined. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to Employee, payable on the fifth day after demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). If more than one Gross-up Payment is made, the amount of each Gross-up Payment shall be computed so as not to duplicate any prior Gross-up Payment. Employee shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-up Payment. Such notification shall be given as soon as practicable but no later -12- than ten (10) business days after Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. Employee shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies Employee in writing prior to the expiration of such period that it desires to contest such claim, Employee shall: (i) give the Company any information reasonably requested by the Company relating to such claim; (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company; (iii) cooperate with the Company in good faith in order effectively to contest such claim; and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold Employee harmless, on an after-tax basis, for any Excise Tax or income or employment tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 6, the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Employee to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Employee agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs Employee to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Employee, on an interest-free basis, and shall indemnify and hold Employee harmless, on an after-tax basis, from any Excise Tax or income or employment (including income or employment or interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of Employee with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-up Payment would be payable hereunder and the -13- Employee shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. If, after the receipt by Employee of an amount advanced by the Company pursuant to this Section 6, Employee becomes entitled to receive any refund with respect to such claim, Employee shall (subject to the Company's complying with the requirements of this Section 6) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Employee of an amount advanced by the Company pursuant to this Section 6, a determination is made that Employee shall not be entitled to any refund with respect to such claim and the Company does not notify Employee in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-up Payment required to be paid. 6.5 Section 14.5 of the Company's Employee Incentive Compensation Plan shall not apply with respect to Employee. 7. Miscellaneous. ------------- 7.1 Life Insurance. The Company may at its discretion and at any -------------- time apply for and procure as owner and for its own benefit and at its own expense, insurance on the life of Employee in such amounts and in such form or forms as the Company may choose. Employee shall cooperate with the Company in procuring such insurance and shall, at the request of the Company, submit to such medical examinations, supply such information and execute such documents as may be required by the insurance company or companies to whom the Company has applied for such insurance. Employee shall have no interest whatsoever in any such policy or policies, except that, upon the termination of Employee's employment hereunder, Employee shall have the privilege of purchasing any such insurance from the Company for an amount equal to the actual premiums thereon previously paid by the Company. 7.2 Assignment. No party hereto may assign or delegate any of its ---------- rights or obligations hereunder without the prior written consent of the other party hereto; provided, however, that the Company shall have the right to assign all or any part of its rights and obligations under this Agreement (i) to any affiliate of the Company to which the Business of the Company is assigned at any time, any subsidiary or affiliate of the Company or any surviving entity following any merger or consolidation of any of those entities with any entity other than the Company or (ii) in connection with the sale of the Business by the Company. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective legal representatives, heirs, successors and assigns of the parties hereto whether so expressed or not. 7.3 Entire Agreement. Except as otherwise expressly set forth ---------------- herein, this Agreement and all other agreements entered into by the parties hereto on the date hereof -14- set forth the entire understanding of the parties, and supersede and preempt all prior oral or written understandings and agreements, with respect to the subject matter hereof. 7.4 Severability. Whenever possible, each provision of this ------------ Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. 7.5 Amendment; Modification. No amendment or modification of this ----------------------- Agreement and no waiver by any party of the breach of any covenant contained herein shall be binding unless executed in writing by the party against whom enforcement of such amendment, modification or waiver is sought. No waiver shall be deemed a continuing waiver or a waiver in respect of any subsequent breach or default, either of a similar or different nature, unless expressly so stated in writing. 7.6 Governing Law. This Agreement shall be construed and enforced in ------------- accordance with, and all questions concerning the construction, validity, interpretation and performance of this Agreement shall be governed by, the laws of the State of New York, without giving effect to provisions thereof regarding conflict of laws. 7.7 Notices. All notices, demands or other communications to be ------- given or delivered hereunder or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been properly served if (a) delivered personally, (b) delivered by a recognized overnight courier service, (c) sent by certified or registered mail, return receipt requested and first class postage prepaid, or (d) sent by facsimile transmission followed by a confirmation copy delivered by a recognized overnight courier service the next day. Such notices, demands and other communications shall be sent to the addresses indicated below: (a) If to Employee: Mr. Mahmud U. Haq 10 Beekman Road Franklin Park, New Jersey 08823 (b) If to the Company: Compass International Services Corporation One Penn Plaza Suite 4430 New York, New York 10119 Attention: Chief Executive Officer -15- with a copy to: Katten Muchin & Zavis 525 West Monroe, Suite 1600 Chicago, IL 60661 Attention: Howard S. Lanznar, Esq. or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. Date of service of such notice shall be (i) the date such notice is personally delivered or sent by facsimile transmission (with issuance by the transmitting machine of a confirmation of successful transmission), (ii) three business days after the date of mailing if sent by certified or registered mail or (iii) one business day after date of delivery to the overnight courier if sent by overnight courier. 7.8 Counterparts. This Agreement may be executed in multiple ------------ counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same Agreement. 7.9 Descriptive Headings; Interpretation. The descriptive headings in ------------------------------------ this Agreement are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. The use of the word "including" in this Agreement shall be by way of example rather than by limitation. The Preliminary Recitals set forth above are incorporated by reference into this Agreement. 7.10 No Strict Construction. The language used in this Agreement will be ---------------------- deemed to be the language chosen by the parties hereto to express their mutual interest, and no rule of strict construction will be applied against any party hereto. 7.11 Effectiveness. This Agreement shall become effective upon the Closing ------------- of the Acquisitions. -16- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. COMPANY: COMPASS INTERNATIONAL SERVICES CORPORATION By: /s/ Michael J. Cunningham ---------------------------------------- Its: Chairman and Chief Executive Officer ---------------------------------------- EMPLOYEE: /s/ Mahmud U. Haq --------------------------------------------- Mahmud U. Haq -17- EX-10.5 8 EMPLOYMENT AGREEMENT -- RICHARD A. ALSTON EXHIBIT 10.5 EMPLOYMENT AGREEMENT BY AND BETWEEN COMPASS INTERNATIONAL SERVICES CORPORATION AND RICHARD A. ALSTON EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of December 9, 1997, by and between Compass International Services Corporation, a Delaware corporation (the "Company"), and Richard A. Alston ("Employee"). PRELIMINARY RECITALS A. Reference is made to those certain Stock Purchase Agreements dated as of October 3, 1997 (collectively, the "Stock Purchase Agreement"), pursuant to which the outstanding capital stock of B.R.M.C. of Delaware, Inc., The Mail Box, Inc., Mid-Continent Agencies, Inc., National Credit Management Corp., Impact Telemarketing Group, Inc. and Impact Telemarketing, Inc. will be acquired by the Company (the "Acquisitions"). Concurrently therewith, the Company will close an initial public offering of its common stock. B. Following the consummation of the Acquisitions, the Company, through its subsidiaries, will be a provider of outsourced business services on a national basis (the "Business"). C. The Company desires to employ Employee, and Employee desires to be employed by the Company, in an executive capacity, all under the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises, the mutual covenants of the parties hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Employment. ---------- 1.1 Engagement of Employee. The Company agrees to employ Employee as ---------------------- Chief Financial Officer of the Company and Employee agrees to accept such employment, all in accordance with the terms and conditions of this Agreement. 1.2 Duties and Powers. During the Employment Period (as defined ----------------- herein), Employee will serve as the Company's Chief Financial Officer and will have such responsibilities, duties and authorities, and will render such services for the Company and its affiliates as the Board of Directors of the Company (the "Board") shall from time to time reasonably direct; provided, however, that such duties and responsibilities shall be commensurate with the position of Chief Financial Officer of the Company. Employee shall report to the Company's Chief Executive Officer. Employee agrees to serve the Company diligently and faithfully during the Employment Period and to devote Employee's best efforts, highest talents and skills and full time and attention to the furtherance and success of the Business. 1.3 Employment Period. Employee's employment under this Agreement ----------------- shall be for a period of three years beginning on the date of the Closing of the Acquisitions (the "Initial Employment Period"). This Agreement shall automatically renew for successive one-year periods (each one-year period shall be referred to herein as a "Renewal Period") unless either the Company or Employee, as the case may be, provides written notice to the other party at least one hundred twenty (120) days prior to the termination of any such period, stating its/his desire to terminate this Agreement. The Initial Employment Period and each successive Renewal Period shall be referred to herein together as the "Employment Period". Notwithstanding anything to the contrary contained herein, the Employment Period is subject to termination pursuant to SECTION 1.4 below. 1.4 Termination of Employment for Cause, Death or Disability. The -------------------------------------------------------- Company has the right to terminate Employee's employment under this Agreement, by notice to Employee in writing at any time, for Cause (as hereinafter defined), and such employment shall automatically terminate upon the death or the Disability (as hereinafter defined) of Employee. Any such termination shall be effective upon the date of service of such notice pursuant to SECTION 6.7 hereof, in the case of termination for Cause, or immediately upon the death or Disability of Employee, and the Employment Period shall terminate as of the effective date of such termination. "Cause," as used herein, means the occurrence of any of the following events: (i) final non-appealable conviction of (A) a felony or (B) any crime involving moral turpitude; (ii) the willful failure of Employee to comply with reasonable directions of the Board after (A) written notice is delivered to Employee describing such willful failure and (B) Employee has failed to cure or take substantial steps to cure such willful failure after a reasonable time period, as determined by the Board in its reasonable discretion (not to be less than 30 days); (iii) any act by Employee in the course of his employment constituting fraud or misappropriation of property of the Company or its affiliates; (iv) a material breach by Employee of any of the terms, conditions or covenants set forth in SECTIONS 3.2, 3.3, 3.4 OR 3.5 of this Agreement if (A) written notice is delivered to Employee describing such breach and (B) Employee has failed to cure or take substantial steps to cure such breach after a reasonable time period, as determined by the Board in its reasonable discretion (not to be less than 30 days). Employee shall be deemed to have a "Disability" for purposes of this Agreement if he is unable to perform, by reason of physical or mental incapacity, his material duties or obligations under this Agreement, with or without reasonable accommodation, for a total period of 90 days in any 360-day period. The Board shall determine, according to the facts then available, whether and when the Disability of the Employee has occurred. Such determination shall not be arbitrary or unreasonable and the Board will, if possible, take into consideration the expert medical opinion of a physician chosen by the Company, -2- after such physician has completed an examination of Employee. Employee agrees to make himself available for such examination upon the reasonable request of the Company. 2. Compensation and Benefits. ------------------------- 2.1 Salary. In consideration of Employee performing his duties under ------ this Agreement during the Employment Period, the Company will pay Employee a base salary at a rate of $200,000 per annum (the "Base Salary"), payable in accordance with the Company's regular payroll policy for salaried employees. The Base Salary may be increased (but not decreased), from time to time during the Employment Period, as determined by the Compensation Committee of the Board (the "Compensation Committee"), in its sole discretion. If the Employment Period is terminated pursuant to SECTION 1.4 above, then the Base Salary for any partial year will be prorated based on the number of days elapsed in such year during which services were actually performed by Employee. 2.2 Bonus. Employee shall participate in Compass' Executive ----- Compensation Program (the "Bonus Program"), under which Employee shall be eligible to earn an annual bonus of up to 100% of Employee's Base Salary based upon such factors as (i) the financial performance of the Company, and/or (ii) the achievement of personal performance goals. The criteria and/or goals for the Bonus Program shall be established by the Compensation Committee at the beginning of each fiscal year. All bonuses awarded to Employee hereunder shall be payable in accordance with Company policy. 2.3 Compensation After Termination of Employment. -------------------------------------------- (a) If the Company shall terminate Employee's employment during the Employment Period for any reason (other than for Cause pursuant to SECTION 1.4 of this Agreement), Employee shall be entitled to receive severance compensation equal to the sum of (A) continuance of his Base Salary and Deemed Bonus for a period of two years commencing on the last day of the Employment Period (the "Severance Period"), (B) (i) if permitted under Company's group health, life and disability insurance coverage ("Insurance Coverage"), continuation at the cost of Company of Employee's coverage thereunder (subject to such changes in coverage as shall apply to Company's employees generally) or (ii) if not so permitted, reimbursement by the Company of the premiums for group health insurance coverage otherwise payable by Employee under COBRA, until the end of the Severance Period or until other employment is obtained, whichever occurs first, and (C) his pro rated bonus, as determined by the Compensation Committee in its good faith judgment, for the portion of any fiscal year prior to the termination date ((A), (B) and (C) collectively, the "Severance Benefits"). The Severance Benefits payable under (A) and (B) (ii) above shall be paid in equal installments on the Company's normal payroll payment dates occurring during the Severance Period. It shall be a condition to Employee's right to receive the Severance Benefits that (i) Employee shall execute and deliver to the Company -3- a written separation agreement, in form and substance satisfactory to the Company, which agreement shall, among other things, contain (X) a general release by Employee of all claims arising out of Employee's employment or termination of employment, (Y) a covenant by Employee to cooperate with the Company in prosecuting or defending any litigation involving third parties and (Z) a covenant by Employee not to disparage the Company, and (ii) Employee shall be in compliance with all of Employee's obligations which survive termination hereof, including without limitation those arising under SECTIONS 3 AND 4 hereof. In addition, the Company may, as a condition to such Severance Benefits, require that Employee provide consulting services to the Company on a reasonable basis during the Severance Period, provided that the timing of such consulting services shall not unreasonably interfere with Employee's ability to obtain other full- time employment or to fulfill his obligations relating to that employment. The Severance Benefits are intended to be in lieu of all other payments to which Employee might otherwise be entitled in respect of termination of Employee's employment without Cause. Employee shall not be required to seek other employment during the Severance Period. Except as expressly provided above or in the Compass Stock Option Plan, no fringe or other employee benefits shall be payable during or after the Severance Period. (b) If Employee shall voluntarily terminate his employment for Good Reason (as defined below) during the Employment Period and at any time after a Change of Control (as defined below), Employee shall be entitled to receive the same Severance Benefits as are provided for in Section 2.3(a) above, subject to all of the terms and conditions set forth in said Section, except that the Severance Period shall be a period of three years commencing on the last day of the Employment Period. (c) For purposes of this Agreement, "Good Reason" shall mean, so long as Employee has not been guilty of the conduct giving rise to the right to terminate Employee for Cause, (i) the failure to elect Employee to the office of Chief Financial Officer of the Company (or a comparable or superior office), the removal of Employee from such position or the assignment to Employee of any additional duties or responsibilities or a reduction in Employee's duties or responsibilities which, in either case, are inconsistent with those customarily associated with such position or an adverse change in the Employee's reporting lines; (ii) the Company's requiring Employee to be based at any office or location other than in the metropolitan New York City area, except for travel reasonably required in the performance of Employee's duties; (iii) any decrease in the Employee's compensation; (iv) a material breach of this Agreement by the Company if (A) written notice is delivered to the Company describing such breach and (B) the Company has failed to cure or take substantial steps to cure such breach after a reasonable period of time (not to exceed 30 days); and (v) the termination by the Company of any employee benefit plan in which the Employee is participating unless (A) such plan is terminated as to all managerial employees of the Company, and (B) the value of the remaining compensation and benefits -4- offered to Employee (including any compensation and benefits offered in lieu of such plan) is not less than prior to such termination. (d) For purposes of this Agreement, a "Change of Control" of the Company shall be deemed to have occurred on the first of any of the following: (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty percent (30%) or more of either (A) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (B) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company other than in connection with the acquisition by the Company or its affiliates of a business, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, (D) any acquisition by a lender to the Company pursuant to a debt restructuring of the Company, or (E) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) of this Section 2.3(d); (ii) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; (iii) Consummation of a reorganization, merger or consolidation of the Company or any direct or indirect subsidiary of the Company or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially -5- own, directly or indirectly, more than sixty percent (60%) of, respectively, the then-outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (which shall include for these purposes, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination and any Person beneficially owning, immediately prior to such Business Combination, directly or indirectly, 30% or more of the Outstanding Common Stock or Outstanding Voting Securities, as the case may be) beneficially owns, directly or indirectly, thirty percent (30%) or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such Business Combination, or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (iv) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company other than to a corporation which would satisfy the requirements of clauses (A), (B) and (C) of Subsection (iii) of this Section 2.3(d), assuming for this purpose that such liquidation or dissolution was a Business Combination. (e) For purposes of this Agreement, "Deemed Bonus" means an amount equal to the higher of (A) the bonus paid or payable to Employee under the Bonus Program for the fiscal year immediately proceeding the fiscal year in which termination of employment occurs and (B) the maximum bonus payable to Employee under the Bonus Program for the fiscal year in which termination of employment occurs. (f) If the Company shall terminate Employee's employment during the Employment Period pursuant to SECTION 1.4, the Company shall have no further obligations hereunder or otherwise with respect to Employee's employment from and after the termination or expiration date (except payment of Employee's Base Salary accrued through the date of termination or expiration), and the Company shall continue to have all other rights available hereunder (including, without limitation, all rights under SECTIONS 3 AND 4 hereof at law or in equity); provided -6- that if Employee's employment terminates by reason of Employee's death or disability, Employee or Employee's estate shall have the right to exercise Employee's stock options for a period of 12 months thereafter and all options shall be immediately exercisable. (g) For the avoidance of doubt, Severance Benefits shall not be payable if Employee's employment is terminated by reason of his death or Disability, but shall continue to be payable during the Severance Period if his employment is terminated without Cause and he subsequently dies or becomes disabled. 2.4 Benefits, Expenses and Pension Plan. During the Employment ----------------------------------- Period, the Company agrees to provide to Employee such fringe and other employee benefits as are generally provided, from time to time, to other senior officers of the Company, including without limitation vacation, health and insurance benefits, and the opportunity to participate in the Company's Employee Incentive Compensation Plan and Employee Stock Purchase Plan. The Company shall retain the right to discontinue or modify any employee benefit program at any time. The Company will reimburse Employee in accordance with Company policy for his normal out-of-pocket expenses incurred in the course of performing his duties hereunder. 3. Covenants. --------- 3.1 Employee's Acknowledgment. Employee acknowledges that: ------------------------- (i) the Company is and will be engaged in the Business during the Employment Period and thereafter; (ii) Employee is one of a limited number of persons who will manage the Business; (iii) Employee will occupy a position of trust and confidence with the Company after the date of this Agreement, and during the Employment Period and Employee's employment under this Agreement, Employee will become familiar with the Company's proprietary and confidential information concerning the Company and the Business; (iv) the agreements and covenants contained in this SECTION 3 are essential to protect the Company and the goodwill of the Business and are a condition precedent to the Company's entering into this Agreement; (v) Employee's employment with the Company has special, unique and extraordinary value to the Company and the Company would be irreparably damaged if Employee were to provide services to any person or entity in violation of the provisions of this Agreement; and (vi) Employee has means to support himself and his dependents other than by engaging in the Business as conducted by the Company during the -7- Restrictive Period (the "RESTRICTED BUSINESS") and the provisions of this SECTION 3 will not impair such ability. 3.2 Non-Compete. Employee hereby agrees that during the Employment ------------ Period and through the period ending with the first anniversary of the last day of the Employment Period (collectively, the "RESTRICTIVE PERIOD"), he shall not (except on behalf of the Company during the Employment Period), for any reason whatsoever, directly or indirectly, whether individually or as an officer, director, shareholder, owner, partner, joint venturer, employee, independent contractor, consultant or advisor to or of any entity, or in any other capacity: (i) engage, participate or invest in any business which is competitive with the Restricted Business anywhere in the United States of America (the "Territory"); provided, however, that nothing contained herein shall be construed to prevent Employee from investing in up to 2% of the outstanding stock of any competing corporation that is widely-traded and listed on a recognized national, international or regional securities exchange or traded in the U.S. over-the-counter market, but only if Employee is not actively involved in and does not render consulting services to the business of said corporation, (ii) sell or provide any competitive products or services to, or solicit for the purpose of selling or providing any competitive products or services to, any person or entity that was a customer of the Company at any time during the one-year period ending on the last day of the Employment Period (the "Termination Date") or that was actively being solicited by the Company to become a customer of the Company at any time during such period, (iii) solicit for employment or engagement, or influence or induce to leave the Company's employment, or knowingly cause to be employed or engaged, any person who is employed or engaged by the Company in a managerial capacity on the Termination Date or during the Restrictive Period, unless such person has been out of the employ of the Company for at least 180 days; provided, that the Employee shall be permitted to solicit and hire any member of his immediate family, or (iv) enter into, or call upon or request non-public information for the purpose of entering into, an Acquisition Transaction with any entity with respect to which Company for made an offer or proposal for, or entered into discussions or negotiations for, or evaluated with the intent of making a proposal for, an Acquisition Transactions, within the six-month period immediately preceding the Termination Date. For purposes of this Agreement, an "Acquisition Transaction" means a merger, consolidation, purchase of material assets, purchase of a material equity interest, tender offer, recapitalization, accumulation of shares, proxy solicitation or other business combination. -8- 3.3 Intellectual Property Rights. Employee will promptly ---------------------------- communicate, disclose and transfer to the Company free of all encumbrances and restrictions (and will execute and deliver any papers and take any action at any time deemed reasonably necessary by the Company to further establish such transfer) all of Employee's right, title and interest in and to all ideas, discoveries, inventions and improvements relating to the Business created, originated, developed or conceived of by Employee solely or jointly with others during the term of Employee's employment hereunder, whether or not during normal working hours. Employee agrees that all right, title and interest in and to all such ideas, discoveries, inventions and improvements shall belong solely to the Company, whether or not they are protected or protectible under applicable patent, trademark, service mark, copyright or trade secret laws. Employee agrees that all work or other material containing or reflecting any such ideas, discoveries, inventions or improvements shall be deemed work made for hire as defined in Section 101 of the Copyright Act, 15 U.S.C.(S)101. Such transfer shall include all patent rights, copyrights, trademark and service mark rights, and trade secret rights (if any) to such ideas, discoveries, inventions and improvements in the United States and in all other countries. Employee further agrees, at the expense of the Company, to take all such reasonable actions and to execute and deliver all such assignments and other lawful papers relating to any aspect of the prosecution of such rights in the United States and all other countries as the Company may request at any time during the Employment Period or after termi nation thereof. 3.4 Interference with Relationships. Other than in the performance ------------------------------- of his duties hereunder, during the Restrictive Period, Employee shall not, directly or indirectly, as employee, agent, consultant, stockholder, director, co-partner or in any other individual or representative capacity solicit or encourage any present or future customer, supplier or other third party to terminate or otherwise alter his, her or its relationship with the Company with respect to the Restricted Business. 3.5 Confidential Information. Other than in the performance of his ------------------------ duties hereunder, during the Restrictive Period and thereafter, Employee shall keep secret and retain in strictest confidence, and shall not, without the prior written consent of the Company, directly or indirectly furnish, make available or disclose to any third party or use for the benefit of himself or any third party, any Confidential Information. As used in this Agreement, "Confidential Information" shall mean any information relating to the business or affairs of the Company or the Business, including, but not limited to, information relating to financial statements, employees, customers, suppliers, pricing, marketing, equipment, programs, strategies, analyses, profit margins, or other proprietary information of or used by the Company or any subsidiary of Company in connection with the Business; provided, however, that Confidential Information shall not include any information which is in the public domain or becomes known in the industry through no wrongful act on the part of Employee. Employee acknowledges that the Confidential Information is vital, sensitive, confidential and proprietary to the Company. 3.6 Blue-Pencil. If any court of competent jurisdiction shall at any ----------- time deem the Restrictive Period too lengthy or the Territory too extensive, the other provisions of this SECTION 3 shall nevertheless stand, the Restrictive Period herein shall be deemed to -9- be the longest period permissible by law under the circumstances and the Territory herein shall be deemed to comprise the largest territory permissible by law under the circumstances. The court in each case shall reduce the time period and/or territory to permissible duration or size. 3.7 Return of Company Materials Upon Termination. Employee -------------------------------------------- acknowledges that all price lists, sales manuals, catalogs, binders, customer lists and other customer information, supplier lists and other supplier information, financial information, memoranda, correspondence and other records or documents including information stored on computer disks or in computer readable form, containing Confidential Information prepared by Employee or coming into Employee's possession by virtue of Employee's employment by the Company is and shall remain the property of the Company and that upon termination of Employee's employment hereunder, Employee shall return immediately to the Company all such items in Employee's possession, together with all copies thereof. 3.8 Remedies. Employee acknowledges and agrees that the covenants -------- set forth in this SECTION 3 (collectively, the "RESTRICTIVE COVENANTS") are reasonable and necessary for the protection of the Company's business interests, that irreparable injury will result to the Company if Employee breaches any of the terms of said Restrictive Covenants, and that in the event Employee breaches or threatens to breach any such Restrictive Covenants, the Company will have no adequate remedy at law. Employee accordingly agrees that in the event Employee breaches or threatens to breach any of the Restrictive Covenants, the Company shall be entitled to immediate temporary injunctive and other equitable relief, without bond and without the necessity of showing actual monetary damages. In addition, if Employee is otherwise entitled to receive Severance Benefits and breaches any of the terms of the Restrictive Covenants, Employee will not be entitled to the payment of any further Severance Benefits hereunder. Nothing contained herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or the threat of such a breach by Employee, including the recovery of any other damages which it is able to prove. 3.9 Company. For purposes of this Section 3, the term "Company" ------- shall include the Company and its respective subsidiaries, affiliates, assignees and any successors in interest of the Company or its subsidiaries. 4. Effect of Termination. If Employee or the Company should terminate --------------------- Employee's employment for any reason, then, notwithstanding such termination, those provisions contained in SECTIONS 3, 4, 5 AND 6 hereof shall remain in full force and effect. 5. Income Tax Treatment. Employee and the Company acknowledge that it is -------------------- the intention of the Company to deduct all amounts paid under SECTION 2 hereof as ordinary and necessary business expenses for income tax purposes. Employee agrees and represents that he will treat all such amounts as required pursuant to all applicable tax laws and regulations, and should he fail to report such amounts as required, he will indemnify and hold the Company harmless from and against any and all taxes, penalties, interest, costs and expenses, including -10- reasonable attorneys' and accounting fees and costs, which are incurred by Company directly or indirectly as a result thereof. 6. Excise Tax ---------- 6.1 This Section 6 shall apply in the event that the Employee becomes entitled (without regard to this Section 6) to one or more payments or rights (which payments or rights shall include, without limitation, the vesting of an option or other non-cash benefit or property), whether pursuant to the terms of this Agreement or any other plan, arrangement, or agreement with the Company or any affiliated company (collectively, the "Total Payments") which would be subject (in whole or in part) to the excise tax imposed by Section 4999 of the Code (or any similar tax as may hereafter be imposed) (the "Excise Tax"). 6.2 In the event that the Total Payments cause the Employee's "parachute payments" within the meaning of Section 280G(b)(2) of the Code to equal or to exceed three times the Employee's "base amount" within the meaning of Section 280G(b)(3) of the Code (the "Trebled Base Amount") by an amount which is not greater than 10% of the Trebled Base Amount, the Total Payments shall be reduced (or eliminated) such that no portion of the Total Payments is subject to the Excise Tax. Reductions shall be made first to those Total Payments arising under the terms of this Agreement. 6.3 In the event that the Total Payments cause the parachute payments to exceed 110% of the Trebled Base Amount, the Company shall pay to the Employee at the time specified below, an additional amount determined as set forth below (the "Gross-up Payment"). The Gross-up Payment shall be made only with respect to the amount (the "Subject Amount") which equals 50% of the Employee's "excess parachute payments" subject to the Excise Tax. For the avoidance of doubt, no Gross-up Payment shall be made with respect to the remaining 50% of the amount described in the preceding sentence. The Gross-up Payment shall be an amount such that the net amount retained by Employee with respect to the Subject Amount after reduction for any Excise Tax on the Subject Amount and any federal, state and local income or employment tax and Excise Tax payable by the Employee on the Gross-up Payment hereunder (provided that such amount is actually paid when due) shall be equal to the Subject Amount. 6.4 For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of any Excise Tax: (a) The Total Payments shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless, and except that to the extent that, in the written opinion of independent legal counsel, compensation consultants or auditors of nationally recognized standing ("Independent Advisors") selected by the Company and reasonably acceptable to Employee, the Total Payments (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) -11- of the Code in excess of the base amount within the meaning of Section 280G(b)(3) of the Code or are otherwise not subject to the Excise Tax; (b) The amount of the Total Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (i) the total amount of the Total Payments or (ii) the total amount of excess parachute payments within the meaning of Section 280G(b)(1) of the Code (after applying Section 6.4 (a) above); and (c) The value of any non-cash benefits or any deferred payment or benefit shall be determined by the Independent Advisors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time the Gross-up Payment is made, Employee shall repay to the Company at the time that the amount of such reduction in Excise Tax is finally determined (but, if previously paid to the taxing authorities, not prior to the time the amount of such reduction is refunded to Employee or otherwise realized as a benefit by Employee) the portion of the Gross-up Payment that would not have been paid if such Excise Tax had been applied to initially calculating the Gross-up Payment, plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time the Gross-up Payment is made (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-up Payment), the Company shall make an additional Gross-up Payment and shall indemnify and hold Employee harmless in respect of such excess (plus any interest and penalties payable with respect to such excess) at the time that the amount of such excess is finally determined. The Gross-up Payment provided for above shall be paid on the 30th day (or such earlier date as the Excise Tax becomes due and payable to the taxing authorities) after it has been determined that the Total Payments (or any ot her portion thereof) are subject to the Excise Tax; provided, however, that if the amount of such Gross-up Payment or portion thereof cannot be finally determined on or before such day, the Company shall pay to Employee on such day an estimate, as determined by the Independent Advisors, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code), as soon as the amount thereof can be determined. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to Employee, payable on the fifth day after demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). If more than one Gross-up Payment is made, the amount of each Gross-up Payment shall be computed so as not to duplicate any prior Gross-up Payment. Employee shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-up Payment. Such notification shall be given as soon as practicable but no later -12- than ten (10) business days after Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. Employee shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies Employee in writing prior to the expiration of such period that it desires to contest such claim, Employee shall: (i) give the Company any information reasonably requested by the Company relating to such claim; (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company; (iii) cooperate with the Company in good faith in order effectively to contest such claim; and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold Employee harmless, on an after-tax basis, for any Excise Tax or income or employment tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 6, the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Employee to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Employee agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs Employee to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Employee, on an interest-free basis, and shall indemnify and hold Employee harmless, on an after-tax basis, from any Excise Tax or income or employment (including income or employment or interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of Employee with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-up Payment would be payable hereunder and the -13- Employee shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. If, after the receipt by Employee of an amount advanced by the Company pursuant to this Section 6, Employee becomes entitled to receive any refund with respect to such claim, Employee shall (subject to the Company's complying with the requirements of this Section 6) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Employee of an amount advanced by the Company pursuant to this Section 6, a determination is made that Employee shall not be entitled to any refund with respect to such claim and the Company does not notify Employee in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-up Payment required to be paid. 6.5 Section 14.5 of the Company's Employee Incentive Compensation Plan shall not apply with respect to Employee. 7. Miscellaneous. ------------- 7.1 Life Insurance. The Company may at its discretion and at any -------------- time apply for and procure as owner and for its own benefit and at its own expense, insurance on the life of Employee in such amounts and in such form or forms as the Company may choose. Employee shall cooperate with the Company in procuring such insurance and shall, at the request of the Company, submit to such medical examinations, supply such information and execute such documents as may be required by the insurance company or companies to whom the Company has applied for such insurance. Employee shall have no interest whatsoever in any such policy or policies, except that, upon the termination of Employee's employment hereunder, Employee shall have the privilege of purchasing any such insurance from the Company for an amount equal to the actual premiums thereon previously paid by the Company. 7.2 Assignment. No party hereto may assign or delegate any of its ---------- rights or obligations hereunder without the prior written consent of the other party hereto; provided, however, that the Company shall have the right to assign all or any part of its rights and obligations under this Agreement (i) to any affiliate of the Company to which the Business of the Company is assigned at any time, any subsidiary or affiliate of the Company or any surviving entity following any merger or consolidation of any of those entities with any entity other than the Company or (ii) in connection with the sale of the Business by the Company. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective legal representatives, heirs, successors and assigns of the parties hereto whether so expressed or not. 7.3 Entire Agreement. Except as otherwise expressly set forth ---------------- herein, this Agreement and all other agreements entered into by the parties hereto on the date hereof -14- set forth the entire understanding of the parties, and supersede and preempt all prior oral or written understandings and agreements, with respect to the subject matter hereof. 7.4 Severability. Whenever possible, each provision of this ------------ Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. 7.5 Amendment; Modification. No amendment or modification of this ----------------------- Agreement and no waiver by any party of the breach of any covenant contained herein shall be binding unless executed in writing by the party against whom enforcement of such amendment, modification or waiver is sought. No waiver shall be deemed a continuing waiver or a waiver in respect of any subsequent breach or default, either of a similar or different nature, unless expressly so stated in writing. 7.6 Governing Law. This Agreement shall be construed and enforced in ------------- accordance with, and all questions concerning the construction, validity, interpretation and performance of this Agreement shall be governed by, the laws of the State of New York, without giving effect to provisions thereof regarding conflict of laws. 7.7 Notices. All notices, demands or other communications to be ------- given or delivered hereunder or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been properly served if (a) delivered personally, (b) delivered by a recognized overnight courier service, (c) sent by certified or registered mail, return receipt requested and first class postage prepaid, or (d) sent by facsimile transmission followed by a confirmation copy delivered by a recognized overnight courier service the next day. Such notices, demands and other communications shall be sent to the addresses indicated below: (a) If to Employee: Mr. Richard A. Alston 408 Duff Lane Louisville, Kentucky 40207 (b) If to the Company: Compass International Services Corporation One Penn Plaza Suite 4430 New York, New York 10119 Attention: Chief Executive Officer -15- with a copy to: Katten Muchin & Zavis 525 West Monroe, Suite 1600 Chicago, IL 60661 Attention: Howard S. Lanznar, Esq. or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. Date of service of such notice shall be (i) the date such notice is personally delivered or sent by facsimile transmission (with issuance by the transmitting machine of a confirmation of successful transmission), (ii) three business days after the date of mailing if sent by certified or registered mail or (iii) one business day after date of delivery to the overnight courier if sent by overnight courier. 7.8 Counterparts. This Agreement may be executed in multiple ------------ counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same Agreement. 7.9 Descriptive Headings; Interpretation. The descriptive headings ------------------------------------ in this Agreement are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. The use of the word "including" in this Agreement shall be by way of example rather than by limitation. The Preliminary Recitals set forth above are incorporated by reference into this Agreement. 7.10 No Strict Construction. The language used in this Agreement ---------------------- will be deemed to be the language chosen by the parties hereto to express their mutual interest, and no rule of strict construction will be applied against any party hereto. 7.11 Effectiveness. This Agreement shall become effective upon the ------------- Closing of the Acquisitions. -16- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. COMPANY: COMPASS INTERNATIONAL SERVICES CORPORATION By: /s/ Michael J. Cunningham ---------------------------------------- Its: Chairman and Chief Executive Officer ---------------------------------------- EMPLOYEE: /s/ Richard A. Alston --------------------------------------------- Richard A. Alston -17- EX-10.6 9 EMPLOYMENT AGREEMENT -- KENNETH W. MURPHY EXHIBIT 10.6 EMPLOYMENT AGREEMENT BY AND BETWEEN THE MAIL BOX, INC. AND KENNETH W. MURPHY EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of March __, 1998, by and between The Mail Box, Inc., a Texas corporation (the "Company"), and Kenneth W. Murphy ("Employee"). PRELIMINARY RECITALS A. Reference is made to that certain Stock Purchase Agreement, dated as of October 3, 1997, as amended (the "Purchase Agreement"), by and among the Company, Compass International Services Corporation, a Delaware corporation ("Compass"), and the stockholders of the Company identified on Schedule A to the ---------- Purchase Agreement, providing for the purchase (the "Purchase") by Compass of all of the outstanding capital stock of the Company, whereby the Company shall become a wholly-owned subsidiary of Compass. B. The Company provides billing, direct mail fulfillment, mailing list rental, data processing, database management, list marketing, list maintenance, laser printing services and other related services to major corporations throughout the United States (the "Business"). C. Employee has been a substantial stockholder of the Company since its inception, and has extensive knowledge and a unique understanding of the Business and has developed longstanding business relationships with customers and other business constituencies who are involved in the Business. D. The Company desires to employ Employee, and Employee desires to be employed by the Company, all under the terms and conditions set forth herein. E. It is a condition to the consummation of the Purchase Agreement that the Company and Employee enter into this Agreement. NOW, THEREFORE, in consideration of the premises, the mutual covenants of the parties hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Employment. ---------- 1.1 Engagement of Employee. The Company agrees to employ Employee as ---------------------- President and Chief Executive Officer ("CEO") of the Company, and Employee agrees to accept such employment, all in accordance with the terms and conditions of this Agreement. 1.2 Duties and Powers. At all times during the Employment Period (as ----------------- defined herein), Employee will serve as the Company's President and CEO and will have such responsibilities, duties and authority, and will render such services for the Company and its affiliates as the Board of Directors of Compass (the "Board") shall from time to time reasonably direct; provided, however, that such duties, responsibilities, authority and services shall be commensurate with the position of President and CEO of the Company. Employee agrees diligently and faithfully to serve the Company and to devote Employee's best efforts, highest talents and skills and full time and attention to the furtherance and success of the Business. 1.3 Employment Period. Employee's employment under this Agreement ----------------- shall be for a period of five years beginning as of the date of this Agreement (the "Initial Employment Period"). This Agreement shall automatically renew for successive one-year periods (each one-year period shall be referred to herein as a "Renewal Period") unless either the Company or Employee, as the case may be, provides written notice to the other party at least ninety (90) days prior to the termination of any such period, stating its/his desire to terminate this Agreement. The Initial Employment Period and each successive Renewal Period shall be referred to herein together as the "Employment Period". Notwithstanding anything to the contrary contained herein, the Employment Period is subject to termination pursuant to SECTION 1.5 below. 1.4 Place of Employment. Employee's services hereunder shall be ------------------- rendered at such locations in the greater Dallas, Texas metropolitan area as shall be determined by the Board, subject to such travel as may be reasonably required in connection with the Business. Employee shall not be required to relocate to any other area without his consent. 1.5 Termination of Employment for Cause, Death or Disability. The -------------------------------------------------------- Company has the right to terminate Employee's employment under this Agreement, by notice to Employee in writing at any time, for Cause (as hereinafter defined), and such employment shall automatically be terminated upon the death or the Disability (as hereinafter defined) of Employee. Any such termination shall be effective upon the date of service of such notice pursuant to SECTION 6.7 hereof, in the case of termination for Cause, or immediately upon the death or Disability of Employee, and the Employment Period shall terminate as of the effective date of such termination. "Cause," as used herein, means the occurrence of any of the following events: (i) final non-appealable conviction of (A) a felony or (B) any crime involving moral turpitude; (ii) the willful failure of Employee to comply with reasonable and lawful directions of the Board after (A) written notice is delivered to Employee describing such willful failure and (B) Employee has failed to cure or take substantial steps to cure such willful failure after a reasonable time period, as determined by the Board in its reasonable discretion (not to be less than 60 days); (iii) the good faith determination by the Board in the exercise of its reasonable judgment that Employee has committed an act or acts in the course of his employment constituting fraud or misappropriation of material Company property; -2- (iv) a material breach by Employee of any of the terms, conditions or covenants set forth in SECTION 3 of this Agreement; or (v) a material breach by Employee of any of the terms or conditions of this Agreement if (A) written notice is delivered to Employee describing such breach and (B) Employee has failed to cure or take substantial steps to cure such breach after a reasonable time period, as determined by the Board in its reasonable discretion (not to be less than 60 days). Employee shall be deemed to have a "Disability" for purposes of this Agreement if he is unable to perform, by reason of physical or mental incapacity, his material duties or obligations under this Agreement, with or without reasonable accommodation, for a total period of 90 days in any 360-day period. The Board shall determine, according to the facts then available, whether and when the Disability of the Employee has occurred. Such determination shall not be arbitrary or unreasonable and the Board will, if available, take into consideration the expert medical opinion of a physician mutually agreed upon by Employee and the Company, after such physician has completed an examination of Employee. Employee agrees to make reasonable efforts to make himself available for such examination upon the reasonable request of the Company. 2. Compensation and Benefits. ------------------------- 2.1 Salary. In consideration of Employee performing his duties under ------ this Agreement during the Employment Period, the Company will pay Employee a base salary at a rate of $150,000 per annum (the "Base Salary"), payable in accordance with the Company's regular payroll policy for salaried employees. The Base Salary may be increased (but not decreased), from time to time during the Employment Period, as determined by the Compensation Committee of the Board (the "Compensation Committee"), in its sole discretion, and in any event will be increased on January 1 of each year beginning January 1, 1999 to reflect corresponding increases in the United States Department of Labor, Bureau of Labor Statistics, Consumer Price Index, All Urban Consumers, United States City Average, all items (1982- 88=100). If the Employment Period is terminated pursuant to SECTION 1.5 above, then the Base Salary for any partial year will be prorated based on the number of days elapsed in such year during which services were actually performed by Employee, and all such Base Salary which remains unpaid, together with accrued but unused vacation and sick pay, if any, shall be paid by the Company to the Employee within five days after the effective date of termination of the Employment Period. 2.2 Bonus. Employee shall participate in Compass' Executive ----- Compensation Program (the "Bonus Program"), under which Employee shall be eligible to earn an annual bonus of up to 100% of Employee's Base Salary based upon such factors as (i) the financial performance of the Company, (ii) the financial performance of Compass, and/or (iii) the achievement of personal performance goals. The criteria and/or goals for the Bonus Program shall be established by the Compensation Committee at the beginning of each fiscal year after consultation with Employee. All bonuses awarded to Employee hereunder shall be payable in accordance with Company policy. If the Employment -3- Period is terminated pursuant to SECTION 1.5 above then the foregoing bonus for any partial year will be determined based on annualizing results to the date of the termination and will be prorated based upon the number of days elapsed in such year during which services were actually performed by Employee, and shall be paid within five days of the effective date of such termination of the Employment Period. 2.3 Compensation After Termination of Employment. -------------------------------------------- (a) If the Company shall terminate Employee's employment during the Employment Period for any reason (other than for Cause pursuant to SECTION 1.5 of this Agreement), or if Employee shall voluntarily terminate his employment during the Employment Period and within 60 days after a Constructive Termination (as defined below), Employee shall be entitled to receive severance compensation equal to (A) the amount of his Base Salary for a period of two years commencing on the last day of the Employment Period (the "Severance Period"), (B) (i) if permitted under Company's group health insurance coverage, continuation at the cost of Company of coverage thereunder for Employee and, if dependant coverage is then in effect, his covered dependents (subject to such changes in coverage as shall apply to Company's employees generally and provided that if the cost of dependent coverage prior to termination of employment was being paid by Employee, such cost shall continue to be payable by Employee) or (ii) if not so permitted, reimbursement by the Company of the premiums for group health insurance coverage otherwise payable by Employee under COBRA, until the end of the Severance Period or until other employment is obtained, whichever occurs first, and (C) his pro rated bonus, as determined by the Compensation Committee in its good faith judgement, for the period of any partial fiscal year immediately proceeding the termination date in accordance with SECTION 2.2 above ((A), (B) and (C) collectively, the "Severance Benefits"). The Severance Benefits payable under (A) and (B)(ii) above shall be paid in equal installments on the Company's normal payroll payment dates occurring during the first 60 days of the Severance Period. The Severance Benefits payable under (C) above shall be paid in a lump sum in accordance with SECTION 2.2 above. It shall be a condition to Employee's right to receive the Severance Benefits that (i) Employee shall execute and deliver to the Company a written separation agreement, in form and substance reasonably satisfactory to the Company (but not inconsistent with this Agreement), which agreement shall, among other things, contain a general release by Employee of all claims arising out of Employee's employment or termination of employment (but excluding claims for indemnification for third party claims pursuant to the Company's articles of incorporation and/or bylaws), and (ii) Employee shall be in compliance with all of Employee's obligations which expressly survive termination hereof, including without limitation those arising under SECTIONS 3 AND 4 hereof. In addition, the Company may, as a condition to such Severance Benefits, require that Employee provide consulting services to the Company on a reasonable basis during the first 60 days of the Severance Period, provided that the timing of such consulting services shall not unreasonably interfere with Employee's ability to obtain other full-time employment. The Severance Benefits are intended to be in lieu of all -4- other payments to which Employee might otherwise be entitled in respect of termination of Employee's employment without Cause (except for the payments required under SECTION 2.1). Except as expressly provided above, no fringe or other employee benefits shall be payable during or after the Severance Period. (b) If Employee's employment shall be terminated pursuant to SECTION 1.5, the Company shall have no further obligations hereunder or otherwise with respect to Employee's employment from and after the effective date of the termination of the Employment Period (except for the payments required under SECTION 2.1), and the Company shall continue to have all other rights available hereunder (including, without limitation, all rights under SECTIONS 3 AND 4 hereof at law or in equity). (c) For the avoidance of doubt, Severance Benefits shall not be payable if Employee's employment is terminated by reason of his death or Disability, but shall continue to be payable during the Severance Period if his employment is terminated without Cause or by reason of Constructive Termination and he subsequently dies or becomes disabled. (d) "Constructive Termination" as used herein, shall be deemed to have occurred if the Company (i) demotes Employee to a position below that of President and CEO of the Company or assigns the Employee duties and responsibilities that are not commensurate with such position, (ii) reduces Employee's Base Salary or materially reduces his employee benefits and prerequisites, taken in the aggregate, or (iii) requires Employee to relocate in violation of SECTION 1.4. 2.4 Benefits, Expenses and Pension Plan. During the Employment ----------------------------------- Period, the Company agrees to provide to Employee such fringe and other employee benefits as are generally provided, from time to time, to senior officers of the subsidiaries of Compass (upon no less favorable terms as provided to such officers), including without limitation, vacation, health and insurance benefits, and the opportunity to participate in the Compass Stock Option Plan and Compass Stock Purchase Plan. The Company shall retain the right to discontinue or modify any employee benefit program at any time. The Company will reimburse Employee in accordance with Company policy for his normal out-of-pocket expenses incurred in the course of performing his duties hereunder. 3. Covenants. --------- 3.1 Employee's Acknowledgment. Employee acknowledges that: ------------------------- (i) the Company is and will be engaged in the Business during the Employment Period and thereafter; (ii) Employee is one of a limited number of persons who will manage the Business; -5- (iii) Employee will occupy a position of trust and confidence with the Company after the date of this Agreement, and during the Employment Period and Employee's employment under this Agreement, Employee will become familiar with the Company's proprietary and confidential information concerning the Company and the Business; (iv) the agreements and covenants contained in this SECTION 3 are essential to protect the Company and the goodwill of the Business and are a condition precedent to the Company's entering into this Agreement; (v) Employee's employment with the Company has special, unique and extraordinary value to the Company and the Company would be irreparably damaged if Employee were to provide services to any person or entity in violation of the provisions of this Agreement; and (vi) Employee has means to support himself and his dependents other than by engaging in the Business, or a business substantially similar to the Business, and the provisions of this SECTION 3 will not impair such ability. 3.2 Non-Compete. Employee hereby agrees that during the Employment ------------ Period and through the period ending with the second anniversary of the last day of the Employment Period (collectively, the "RESTRICTIVE PERIOD"), he shall not, for any reason whatsoever, directly or indirectly, whether individually or as an officer, director, shareholder, owner, partner, joint venturer, employee, independent contractor, consultant or advisor to or of any entity, or in any other capacity: (i) engage, participate or invest in any business which is competitive with the Business anywhere within the United States of America (the "Territory"); provided, however, that nothing contained herein shall be construed to prevent Employee from investing in up to 5% of the outstanding stock of any competing corporation that is publicly-traded and listed on a recognized national, international or regional securities exchange or traded in the U.S. over-the-counter market, but only if Employee is not actively involved in and does not render consulting services to the business of said corporation, (ii) sell or provide any competitive products or services to, or solicit for the purpose of selling or providing any competitive products or services to, any person or entity that was a customer of the Company at any time during the one-year period ending on the last day ("Termination Date") of the Employment Period or that was known by Employee to have been actively being solicited by the Company to become a customer of the Company at any time during such period, (iii) solicit for employment or engagement, or influence or induce to leave the Company's employment, or knowingly cause to be employed or engaged, any person who is employed or engaged by the Company in a managerial capacity on the Termination Date or during the Restrictive Period, -6- unless such person has been out of the employ of the Company for at least 180 days; provided, that the Employee shall be permitted to solicit and hire any member of his immediate family, or (iv) enter into, or call upon or request non-public information for the purpose of entering into, an Acquisition Transaction with any entity with respect to which Company has made an offer or proposal for, or entered into discussions or negotiations for, or evaluated with the intent of making a proposal for, an Acquisition Transaction, within the six-month period immediately preceding the Termination Date. For purposes of this Agreement, an "Acquisition Transaction" means a merger, consolidation, purchase of material assets, purchase of a material equity interest, tender offer, recapitalization, accumulation of shares, proxy solicitation or other business combination. 3.3 Intellectual Property Rights. Employee will promptly ---------------------------- communicate, disclose and transfer to the Company free of all encumbrances and restrictions (and will execute and deliver any papers and take any reasonable action at any time deemed reasonably necessary by the Company to further establish such transfer) all of Employee's right, title and interest in and to all ideas, discoveries, inventions and improvements relating to the Business created, originated, developed or conceived of by Employee solely or jointly with others during the term of Employee's employment here under, whether or not during normal working hours. Employee agrees that all right, title and interest in and to all such ideas, discoveries, inventions and improvements shall belong solely to the Company, whether or not they are protected or protectible under applicable patent, trademark, service mark, copyright or trade secret laws. Employee agrees that all work or other material containing or reflecting any such ideas, discoveries, inventions or improvements shall be deemed work made for hire as defined in Section 101 of the Copyright Act, 15 U.S.C.(S)101. Such transfer shall include all patent rights, copyrights, trademark and service mark rights, and trade secret rights (if any) to such ideas, discoveries, inventions and improvements in the United States and in all other countries. Employee further agrees, at the expense of the Company, to take all such reasonable actions and to execute and deliver all such assignments and other lawful papers relating to any aspect of the prosecution of such rights in the United States and all other countries as the Company may request at any time during the Employment Period or after termination thereof. 3.4 Interference with Relationships. Other than in the performance ------------------------------- of his duties hereunder, during the Restrictive Period, Employee shall not, directly or indirectly, as employee, agent, consultant, stockholder, director, partner or in any other individual or representative capacity, solicit or intentionally encourage any present or future customer, supplier or other third party to terminate or otherwise alter his, her or its relationship with the Company. 3.5 Confidential Information. Other than in the performance of his ------------------------ duties hereunder, during the Restrictive Period and thereafter, Employee shall keep secret and retain in strictest confidence, and shall not, without the prior written consent of the -7- Company, directly or indirectly furnish, make available or disclose to any third party or use for the benefit of himself or any third party, any Confidential Information. As used in this Agreement, "Confidential Information" shall mean any information relating to the business or affairs of the Company or the Business, including, but not limited to, information relating to financial statements, employees, customers, suppliers, pricing, marketing, equipment, programs, strategies, analyses, profit margins, or other proprietary information of or used by Compass, the Company or any other subsidiary of Compass in connection with the Business; provided, however, that Confidential Information shall not include any information which is in the public domain or becomes known in the industry through no wrongful act on the part of Employee. Employee acknowledges that the Confidential Information is vital, sensitive, confidential and proprietary to the Company and Compass. 3.6 Blue-Pencil. If any court of competent jurisdiction shall at any ----------- time deem the Restrictive Period too lengthy or the Territory too extensive, the other provisions of this SECTION 3 shall nevertheless stand, the Restrictive Period herein shall be deemed to be the longest period permissible by law under the circumstances and the Territory herein shall be deemed to comprise the largest territory permissible by law under the circumstances. The court in each case shall reduce the time period and/or territory to permissible duration or size. 3.7 Return of Company Materials Upon Termination. Employee -------------------------------------------- acknowledges that all price lists, sales manuals, catalogs, binders, customer lists and other customer information, supplier lists and other supplier information, financial information, memoranda, correspondence and other records or documents including information stored on computer disks or in computer readable form, containing Confidential Information prepared by Employee or coming into Employee's possession by virtue of Employee's employment by the Company is and shall remain the property of the Company and that upon termination of Employee's employment hereunder, Employee shall return immediately to the Company all such items, together with all copies thereof, in Employee's possession. 3.8 Remedies. Employee acknowledges and agrees that the covenants -------- set forth in this SECTION 3 (collectively, the "RESTRICTIVE COVENANTS") are reasonable and necessary for the protection of the Company's business interests, that irreparable injury will result to the Company if Employee breaches any of the terms of said Restrictive Covenants, and that in the event Employee breaches or threatens to breach any such Restrictive Covenants, the Company will have no adequate remedy at law. Employee accordingly agrees that in the event Employee breaches or threatens to breach any of the Restrictive Covenants, the Company shall be entitled to immediate temporary injunctive and other equitable relief, without the necessity of showing actual monetary damages. Nothing contained herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or the threat of such a breach by Employee, including the recovery of any damages which it is able to prove. -8- 3.9 Company. For purposes of this SECTION 3, the term "Company" ------- shall include the Company and its respective subsidiaries, affiliates, permitted assignees and any permitted successors in interest of the Company or its subsidiaries or affiliates. 4. Effect of Termination. If Employee or the Company should terminate --------------------- Employee's employment for any reason, then, notwithstanding such termination, those provisions contained in SECTIONS 2.3, 3, 4, 5 AND 6 hereof shall remain in full force and effect. 5. Income Tax Treatment. Employee and the Company acknowledge that it is -------------------- the intention of the Company to deduct all amounts paid under SECTION 2 hereof as ordinary and necessary business expenses for income tax purposes. Employee agrees and represents that he will treat all such amounts as required pursuant to all applicable tax laws and regulations. 6. Miscellaneous. ------------- 6.1 Life Insurance. The Company may at its discretion and at any -------------- time apply for and procure as owner and for its own benefit and at its own expense, insurance on the life of Employee in such amounts and in such form or forms as the Company may choose. Employee shall cooperate with the Company in procuring such insurance and shall, at the request of the Company, submit to such medical examinations, supply such information and execute such documents as may be reasonably and customarily required by the insurance company or companies to whom the Company has applied for such insurance. Employee shall have no interest whatsoever in any such policy or policies, except that, upon the termination of Employee's employment hereunder, Employee may purchase any and all such insurance from the Company for an amount equal to the actual premiums thereon previously paid by the Company. 6.2 Assignment. No party hereto may assign or delegate any of its ---------- rights or obligations hereunder without the prior written consent of the other party hereto; provided, however, that the Company shall have the right to assign all or any part of its rights and obligations under this Agreement upon written notice to Employee (i) to any affiliate of the Company to which the Business of the Company is assigned at any time (provided that the Company and Compass shall remain liable for all obligations of the Company hereunder) or any surviving entity following any merger or consolidation of the Company and any other entity or (ii) in connection with the sale of the Business by the Company. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective legal representatives, heirs, permitted successors and assigns of the parties hereto whether so expressed or not. 6.3 Entire Agreement. Except as otherwise expressly set forth ---------------- herein, this Agreement sets forth the entire understanding of the parties, and supersedes and preempts all prior oral or written understandings and agreements, with respect to the subject matter hereof. 6.4 Severability. Whenever possible, each provision of this ------------ Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if -9- any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. 6.5 Amendment; Modification. No amendment or modification of this ----------------------- Agreement and no waiver by any party of the breach of any covenant contained herein shall be binding unless executed in writing by the party against whom enforcement of such amendment, modification or waiver is sought. No waiver shall be deemed a continuing waiver or a waiver in respect of any subsequent breach or default, either of a similar or different nature, unless expressly so stated in writing. 6.6 Governing Law. This Agreement shall be construed and enforced in ------------- accordance with, and all questions concerning the construction, validity, interpretation and performance of this Agreement shall be governed by, the laws of the State of Texas, without giving effect to provisions thereof regarding conflict of laws. 6.7 Notices. All notices, demands or other communications to be ------- given or delivered hereunder or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been properly served if (a) delivered personally, (b) delivered by a nationally recognized overnight courier service, (c) sent by certified or registered mail, return receipt requested and first class postage prepaid, or (d) sent by facsimile transmission followed by a confirmation copy delivered by a nationally recognized overnight courier service the next day. Such notices, demands and other communications shall be sent to the addresses indicated below: (a) If to Employee: Mr. Kenneth W. Murphy 3700 Pipestone Road Dallas, Texas 75212-6194 Facsimile No: (214) 637-4286 with a copy to: Jenkins & Gilchrist 1445 Ross Avenue Suite 3200 Dallas, Texas 75202-2799 Attn: L. Steven Leshin, Esq. Facsimile No.: (214) 855-4300 -10- (b) If to the Company: The Mail Box, Inc. c/o Compass International Services Corporation 5 Independence Way, Suite 300 Princeton, NJ 08540 Attention: President with a copy to: Compass International Services Corporation 5 Independence Way, Suite 300 Princeton, NJ 08540 Attention: President with a copy to: Katten Muchin & Zavis 525 West Monroe, Suite 1600 Chicago, IL 60661 Attention: Howard S. Lanznar, Esq. Facsimile No: (312) 902-1061 or to such other address or facsimile number or to the attention of such other person or entity as the recipient party has specified by prior written notice to the sending party. Date of service of such notice shall be (i) the date such notice is personally delivered or sent by facsimile transmission (with issuance by the transmitting machine of a confirmation of successful transmission), (ii) five business days after the date of mailing if sent by certified or registered mail or (iii) one business day after date of delivery to the overnight courier if sent by overnight courier. 6.8 Counterparts. This Agreement may be executed in multiple ------------ counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same Agreement. 6.9 Descriptive Headings; Interpretation. The descriptive headings in ------------------------------------ this Agreement are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. The use of the word "including" in this Agreement shall be by way of example rather than by limitation. The Preliminary Recitals set forth above are incorporated by reference into this Agreement. 6.10 No Strict Construction. The language used in this Agreement will be ---------------------- deemed to be the language chosen by the parties hereto to express their mutual interest, and no rule of strict construction will be applied against any party hereto. 6.11 Arbitration. Any controversy or claim arising out of or relating to ----------- this Agreement, the making, interpretation or the breach thereof, other than a claim solely for -11- injunctive relief for any alleged breach of the provisions of SECTION 3 as to which the parties shall have the right to apply for relief in any court of competent jurisdiction, shall be resolved by arbitration in Dallas, Texas, in accordance with the Federal Arbitration Act and the National Rules for the Resolution of Employment Disputes of the American Arbitration Association. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof and any party to the arbitration may, if such party so elects, institute proceedings in any court having jurisdiction for the specific performance of any such award. Without limiting the generality of the foregoing sentence, the claims to which this provision shall apply include, but are not limited to: (i) any claims arising out of or related to this Employment Agreement or breach thereof ; (ii) any claims arising under any federal, state or local statute or the common law of any state, regarding compensation or employee benefits, or discrimination, retaliation, harassment, or denial of equal employment opportunity based on sex, race, color, religion, national origin, disability, age, marital status, or any other category protected by law; (iii) any claims arising under the common law of the United States or any state relating to Employee's employment with Company, including without limitation claims alleging negligence, defamation, public policy, tort, infliction of emotional distress, fraud, or misrepresentation; or (iv) any civil claims that Company may have against Employee relating to Employee's employment with Company. Anything herein to the contrary notwithstanding, this SECTION 6.11 shall not apply to: (i) any claim by Employee for workers' compensation benefits or unemployment compensation benefits; or (ii) any claim by Company for injunctive or equitable relief, including without limitation claims related to the enforcement of SECTION 3 hereof, which may be brought in any court of competent jurisdiction. EMPLOYEE AND COMPANY EXPRESSLY WAIVE ANY RIGHT TO RESOLVE ANY DISPUTE COVERED BY THIS SECTION BY FILING SUIT IN COURT FOR TRIAL BY A JUDGE OR JURY. The arbitrator shall include in any award in the prevailing party's favor costs and expenses of the arbitration. In the event the arbitrator does not rule in favor of the prevailing party in respect of all the claims alleged by such party, the arbitrator shall include in any award in favor of the prevailing party the amount of his or its reasonable costs and expenses of the arbitration as he deems just and equitable under the circumstances. Except as provided above, each party to the arbitration shall bear his or its own attorney's fees and expenses and the parties shall bear equally all other costs and expenses of the arbitration. -12- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. COMPANY: THE MAIL BOX, INC. By: /s/ Kenneth W. Murphy ----------------------------- Kenneth W. Murphy President EMPLOYEE: /s/ Kenneth W. Murphy ----------------------------------- KENNETH W. MURPHY For good and valuable consideration, the receipt of which is hereby acknowledged, the undersigned hereby unconditionally guarantees the payment and performance of the obligations of the Company hereunder. COMPASS INTERNATIONAL SERVICES CORPORATION By: /s/ Michael J. Cunningham ----------------------------- Michael J. Cunningham Chairman and CEO -13- EX-10.7 10 STOCKHOLDERS' AGREEMENT EXHIBIT 10.7 STOCKHOLDERS' AGREEMENT ----------------------- THIS STOCKHOLDERS' AGREEMENT (the "Agreement") is made as of March 4, 1998, --------- by and among BGL Capital Partners, L.L.C. ("BGL"), Michael J. Cunningham, Mahmud --- U. Haq and Richard A. Alston, and each of the individuals listed on SCHEDULE I hereto (each such individual a "Founding Company Owner" and collectively, the ---------------------- "Founding Company Owners"). - ------------------------ WHEREAS, on the date hereof, BGL and Messrs. Cunningham, Haq and Alston are the sole owners of the common stock, par value $.01 per share (the "Common ------ Stock") of Compass International Services Corporation (the "Corporation"); and ----------- WHEREAS, upon the consummation of each of the separate Stock Purchase Agreements dated October 3, 1997, by and among the Corporation, the Founding Company Owners and the Founding Companies set forth on SCHEDULE I hereto (collectively, the "Stock Purchase Agreements"), the Founding Company Owners ------------------------- will become owners of Common Stock; and WHEREAS, each of the undersigned parties believes that the continuity of management is essential to the success of the business of the Corporation, and that to preserve such continuity, it is essential for the undersigned parties to vote on shareholder proposals and for the election of the board of directors of the Corporation (the "Board") as hereinafter provided. ----- NOW, THEREFORE, in consideration of the foregoing and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the undersigned parties agree as follows: 1. COMPOSITION OF BOARD OF DIRECTORS IMMEDIATELY FOLLOWING THE OFFERING. -------------------------------------------------------------------- Immediately upon the closing of the Offering, the Board shall be composed of ten members, consisting of (i) five Founding Company Owners (or their selected representative), each designated by his or her respective Founding Company, (ii) one director designated by BGL, (iii) Mr. Cunningham, (iv) Mr. Haq and (v) two independent directors, not employed by the Corporation, the Founding Companies or their respective subsidiaries or by BGL. The Board shall be divided into three classes, with Class I consisting of four directors and Classes II and III each consisting of three directors. The Class I directors shall initially be elected for a term expiring at the Annual Meeting of the Corporation's stockholders relating to the fiscal year ending December 31, 1998 but held in 1999 (the "1998 Annual Meeting"); the Class II directors shall initially be ------------------- elected for a term expiring at the Annual Meeting relating to the fiscal year ending December 31, 1999 but held in 2000 (the "1999 Annual Meeting"); and the ------------------- Class III directors shall initially be elected for a term expiring at the Annual Meeting relating to the fiscal year ending December 31, 2000 but held in 2001 (the "2000 Annual Meeting"). Thereafter, directors will be elected for three- ------------------- year terms. The initial members of the Board, the persons by whom they are designated, if applicable, and their Classes are set forth on SCHEDULE II hereto. 2. NOMINATIONS FOR ANNUAL MEETINGS. With respect to each Annual Meeting ------------------------------- of the Corporation's stockholders beginning with the 1998 Annual Meeting up to and including the Annual Meeting relating to the fiscal year ending December 31, 2002 but held in 2003 (the "2002 Annual Meeting"), and in each case at any ------------------- adjournment thereof, each of the undersigned parties shall take any and all action necessary as a stockholder and/or director or officer of the Corporation (in each case, subject to applicable fiduciary duties) to cause those directors listed on SCHEDULE II attached hereto whose terms are then expiring, or their designated successors as provided in Section 4 herein, to be nominated for election to the Board. 3. ELECTION OF DIRECTORS AT THE ANNUAL MEETINGS. Each of the undersigned -------------------------------------------- parties shall vote the shares of Common Stock which it owns or hereafter acquires, or over which it has voting control or hereafter acquires voting control, in any manner necessary to cause all nominees nominated pursuant to Section 2 herein to be elected to the Board at each Annual Meeting of the Corporation's stockholders beginning with the 1998 Annual Meeting and up to and including the 2002 Annual Meeting. 4. SUCCESSORS. In the event that the Board determines (in its reasonable ---------- discretion) that a member of the Board is unable for any protracted period to discharge his/her duties to the Corporation, or such member resigns or is removed from the Board or declines to stand for re-election to the Board, each of the undersigned parties shall take any and all action necessary (subject to applicable fiduciary duties) as a stockholder and/or director or officer of the Corporation to cause the then-incumbent Board to nominate as a successor director (i) if the director being replaced was designated by the former owners of a Founding Company or by BGL, such individual as shall be designated by the persons who originally designated such director and (ii) in all other cases, such individual as shall be approved by a majority of the then-incumbent Board, and each of the undersigned parties shall take any and all action necessary as a stockholder and/or director or officer of the Corporation (in each case, subject to applicable fiduciary duties) to elect such successor director to the Board. 5. OTHER MATTERS BROUGHT TO VOTE; BEST EFFORTS. In the event that any ------------------------------------------- matter other than election of directors is brought to the vote of stockholders at any Annual Meeting beginning with the 1998 Annual Meeting and up to and including the 2002 Annual Meeting, each of the undersigned parties shall vote the shares of Common Stock which it owns or hereafter acquires or over which it has voting control or hereafter acquires voting control, in accordance with the recommendations of the incumbent Board. 6. TERM. The term of this Agreement shall run from the date hereof until ---- immediately following the final adjournment of the 2002 Annual Meeting. 7. TERMINATION. If the Stock Purchase Agreements are not consummated by ----------- March 31, 1998, this Agreement will terminate and its terms will be null and void and of no force and effect. -2- 8. ASSIGNABILITY/TRANSFERS. Except with respect to the assignment of this ----------------------- Agreement to a transferee of Common Stock owned by one or more of the parties hereto, this Agreement shall only be assignable by the written consent of all of the parties hereto. This Agreement shall be binding on all transferees of the Common Stock owned by the parties hereto and no assignment or transfer permitted pursuant to this Paragraph 8 shall be effective or be of any force or effect whatsoever, unless and until any such assignee or transferee executes a counterpart of this Agreement (unless, in the case of a transfer of Common Stock, such transfer is a transfer or sale in connection with a registered public securities offering or pursuant to Rule 144 under the Securities Act of 1933, as amended). 9. EXPANSION OF BOARD OF DIRECTORS. This Agreement is not intended to ------------------------------- limit in any respect the Board's authority to increase from time to time the size of the Board in accordance with Article V of the Corporation's Amended and Restated Certificate of Incorporation. 10. AMENDMENT. This Agreement may be amended from time to time by an --------- instrument in writing signed by the holders of a majority of the aggregate number of shares of outstanding Common Stock held by the signatories hereto at the date of such amendment; provided, however, that no amendment shall be made which would materially adversely affect the rights of any Founding Company Owners or BGL without the consent of the persons so affected. 11. COUNTERPARTS. This Agreement may be executed in multiple counterparts, ------------ each of which shall be deemed an original. 12. GOVERNING LAW. This Agreement shall be governed by and enforced in ------------- accordance with the laws and decisions of the State of Delaware, without regard to the choice of law provisions thereof. -3- IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed individually, and has entered into this Agreement effective the date and year first above written. BGL CAPITAL PARTNERS, L.L.C. By: BGL Management Company, L.L.C. By: /s/ Scott H. Lang ----------------------------------- Scott H. Lang Managing Partner /s/ Michael J. Cunningham - ---------------------------------------- Michael J. Cunningham /s/ Mahmud U. Haq - ---------------------------------------- Mahmud U. Haq /s/ Richard A. Alston - ---------------------------------------- Richard A. Alston (Additional Signatures Follow) -4- OWNERS OF THE MAIL BOX, INC.: /s/ Kenneth W. Murphy - ---------------------------------------- Kenneth W. Murphy Kenneth W. Murphy Childrens Trust By: /s/ Kenneth W. Murphy ------------------------------------ Trustee /s/ Robert Meador - ---------------------------------------- Robert Meador /s/ Richard J. Bainter - ---------------------------------------- Richard J. Bainter /s/ John Erickson - ---------------------------------------- John Erickson /s/ Lynn Harris - ---------------------------------------- Lynn Harris /s/ Earl Johnson - ---------------------------------------- Earl Johnson /s/ Jack Padian - ---------------------------------------- Jack Padian /s/ Patty Bond - ---------------------------------------- Patty Bond /s/ Lee McNamara - ---------------------------------------- Lee McNamara (Additional Signatures Follow) -5- OWNERS OF NATIONAL CREDIT MANAGEMENT CORPORATION: /s/ Leeds Hackett - ---------------------------------------- Leeds Hackett /s/ Thomas Gillespie - ---------------------------------------- Thomas Gillespie /s/ Veronica Hackett - ---------------------------------------- Veronica Hackett /s/ Victoria C. McAndrews - ---------------------------------------- Victoria C. McAndrews /s/ Richard M. Fiorito - ---------------------------------------- Richard M. Fiorito /s/ Russ C. Causey - ---------------------------------------- Russ C. Causey /s/ Paul Holt - ---------------------------------------- Paul Holt /s/ Sylvia Sorgel - ---------------------------------------- Sylvia Sorgel (Additional Signatures Follow) -6- OWNERS OF BRMC OF DELAWARE, INC.: /s/ Mary Maloney - ---------------------------------------- Mary Maloney /s/ H. Eugene Collins - ---------------------------------------- H. Eugene Collins ADVANCED CREDIT SERVICES, INC., a Georgia corporation By: /s/ David Fletcher ----------------------------------- Its: President ----------------------------- /s/ Billy Ray Pitcher - ---------------------------------------- Billy Ray Pitcher /s/ Eddie Newton King, Jr. - ---------------------------------------- Eddie Newton King, Jr. /s/ Peter Michael Grossman - ---------------------------------------- Peter Michael Grossman /s/ William Dale Graham - ---------------------------------------- William Dale Graham /s/ Thomas Warren Hester - ---------------------------------------- Thomas Warren Hester (Additional Signatures Follow) -7- OWNER OF MID-CONTINENT AGENCIES, INC.: /s/ Leslie J. Kirschbaum - ---------------------------------------- Leslie J. Kirschbaum (Additional Signatures Follow) -8- OWNERS OF IMPACT TELEMARKETING GROUP, INC. AND IMPACT TELEMARKETING, INC.: /s/ Edward A. DuCoin - ---------------------------------------- Edward A. DuCoin /s/ David T. DuCoin - ---------------------------------------- David T. DuCoin -9- SCHEDULE I ---------- NAME OF FOUNDING COMPANY AND OWNERS ----------------------------------- THE MAIL BOX, INC.: - ------------------ Kenneth W. Murphy Kenneth W. Murphy Childrens Trust Robert Meador Richard J. Bainter John Erickson Lynn Harris Earl Johnson Jack Padian Patty Bond Lee McNamara NATIONAL CREDIT MANAGEMENT CORPORATION: - -------------------------------------- Leeds Hackett Thomas Gillespie Veronica Hackett Victoria McAndrews Richard M. Florito Russ C. Causey Paul Holt Sylvia Sorgel I-1 BRMC OF DELAWARE, INC.: - ---------------------- Mary Maloney H. Eugene Collins Advanced Credit Services, Inc., a Georgia corporation Billy Ray Pitcher Eddie Newton King, Jr. Peter Michael Grossman William Dale Grossman Thomas Warren Hester MID-CONTINENT AGENCIES, INC.: - ---------------------------- Leslie J. Kirschbaum IMPACT TELEMARKETING GROUP, INC. AND - ------------------------------------ IMPACT TELEMARKETING, INC.: - -------------------------- Edward A. DuCoin David T. DuCoin I-2 SCHEDULE II ----------- BOARD OF DIRECTORS ------------------
NAME CLASS DESIGNATED BY - ------------------------- --------------- ------------------------- Michael J. Cunningham III Kenneth W. Murphy III Owners of Mail Box Leeds Hackett III Owners of National Credit Management Corp. Howard L. Clark, Jr. II Scott H. Lang II BGL John Maloney II Owners of BRMC Leslie J. Kirschbaum I Owners of Mid-Continent Edward A. DuCoin I Owners of Impact Tomasso Zanzotto I Mahmud U. Haq I
II-1 EX-10.8 11 BONUS AGREEMENT EXHIBIT 10.8 BONUS AGREEMENT --------------- THIS BONUS AGREEMENT (this "Agreement") is made as of October 2, 1997 by and among Compass International Services Corporation, a Delaware corporation ("Compass"), National Credit Management Corp., a Maryland corporation (the "Company"), and the stockholders of the Company identified in Schedule A to this Agreement (the "Stockholders"). W I T N E S S E T H: WHEREAS, simultaneously with the execution of this Agreement, the parties hereto are entering into a Stock Purchase Agreement (the "Purchase Agreement"), whereby Compass is purchasing all of the issued and outstanding shares of capital stock of the Company; and WHEREAS, the Company is a party to certain litigation regarding United States Letter Patent No. 5,504,667 entitled "Automatic Payment System and Method" (the "Patent"), of which it is the owner, and which litigation is as follows: A. National Credit Management Corporation v. Western Union Financial ----------------------------------------------------------------- Services, Inc., DC. SD. NY. Civil Action No. 96 Civ. 4609 (the "Western Union - -------------- Litigation"); and B. National Credit Management Corporation v. Novus Services, Inc. and ------------------------------------------------------------------ Dean Witter, Discovery & Co., DC. M.D. Civil Action No. K 96-3833 (the "Dean - ---------------------------- Witter Litigation"); and NOW THEREFORE, in consideration of the foregoing and the mutual covenants contained herein, the parties agree as follows: 1. Defined Terms. -------------- (a) Terms used herein with their initial letter capitalized shall, unless otherwise defined herein, shall have the same meanings given such terms as in the Purchase Agreement. (b) "Applicable Transactions" shall mean, with respect to the Western Union Litigation and the Dean Witter Litigation, those transactions on which a damage award is based. (c) "Closing Date" shall mean the date on which the transactions provided for in the Purchase Agreement have closed. (d) "Plaintiff Litigation" shall mean the Western Union Litigation and the Dean Witter Litigation. (e) "Pre-Closing Damages" shall mean, with respect to the Western Union Litigation and the Dean Witter Litigation, that portion of the Proceeds (defined herein) which are for or otherwise relate to the Applicable Transactions which occurred prior to the Closing Date. (f) "Proceeds" shall mean a monetary settlement or judgment in the Western Union Litigation or the Dean Witter Litigation. 2. Western Union Litigation and Dean Witter Litigation. ---------------------------------------------------- (a) The Company intends to continue to pursue the Western Union Litigation and Dean Witter Litigation. In the event that the Company receives Proceeds from the Plaintiff Litigation, subject to subsection (b) below, such Proceeds shall be divided between the Company and certain individuals, when and as received by the Company, in the following order: (1) First, to the Company in an amount necessary to pay any income or other taxes, if any, which will be owed by the Company as a result of receipt of the Proceeds; 2 (2) Second, to the Company in an amount necessary to reimburse it for all fees and costs incurred in pursuing the Plaintiff Litigation, including, without limitation, attorney fees and costs, accountant fees and costs and other court costs; (3) Third, an amount representing Pre-Closing Damages to be distributed to certain individuals in such amounts to be determined by the president of the Company with the approval of Compass, such approval to not be unreasonably withheld. (4) Fourth, all remaining Proceeds to the Company. From and after the date of the judgment or settlement, all royalties or other amounts received from exploitation of the Patent shall belong to the Company. (b) In the event that any portion of the Proceeds are not awarded on the basis of Applicable Transactions or other criteria which can be determined as occurring prior to or after the Closing Date, then such portion of the Proceeds shall, after allocation of amounts set forth in (a)(1) and (2) above, be allocated between the Company and those certain individuals in the same proportion that the number of pre-Closing Date Applicable Transactions are to the number of post-Closing Date Applicable Transactions. In the event that the parties are unable to determine the number of Applicable Transactions which occurred pre-Closing Date and which occurred post-Closing Date, Proceeds shall be allocated between the Company and those certain individuals, after allocation of amounts set forth in (a)(1) and (2) above, based on a percentage determined by taking the number of days prior to the Closing Date (for the certain individuals) or after the Closing Date (for the Company) and dividing said number in each case by the total 3 number of days from the date reasonably determined to be the first day of infringement to the date of settlement or judgment. (c) Any disputes between the parties as to the allocation of the Proceeds shall be submitted to a mutually agreeable "Big-Six" (or "Big-Five") accounting firm, other than one which then provides services to the Stockholders, the Company or Compass, or, if the parties are unable to agree or no such accounting firm agrees to take this engagement, then the Company's regularly engaged auditors shall select any accounting firm (other than themselves) or other party they believe suitable to resolve the dispute. The decision by the accounting firm or other arbitor shall be binding upon the parties. Each of the parties shall, if required, agree to indemnify such accounting firm or other arbitor for any damages resulting from the engagement, other than damages which are a result of willful misconduct or fraud. The fees of the accounting firm or other arbitor shall be split equally between the parties hereto. 3. This Agreement and the performance hereunder shall be governed and construed in accordance with the laws of the State of Delaware and the United States of America. 4. The Agreement constitutes the entire Agreement between the parties with respect to the subject matter hereof, supersedes all other agreements and understanding, whether written or oral and no agreements, warranties or representations have been made by either of the parties to the other with respect to said subject matter except as herein or therein expressly set forth provided that nothing herein shall be deemed to affect or change any of the provisions of the Merger Agreement. 4 5. Notwithstanding anything to the contrary which may be contained herein, nothing in this Agreement shall be construed to modify any of the terms and conditions of the Purchase Agreement, which Purchase Agreement remains in full force and effect. 5 IN WITNESS WHEREOF, the parties have agreed to this Agreement as of the date first above written. COMPASS INTERNATIONAL SERVICES CORPORATION /s/ Michael J. Cunningham ------------------------------------------ NATIONAL CREDIT MANAGEMENT CORP. /s/ Leeds Hackett ------------------------------------------ STOCKHOLDERS /s/ Leeds Hackett ------------------------------------------ LEEDS HACKETT /s/ Veronica Hackett ------------------------------------------ VERONICA HACKETT /s/ Thomas Gillespie, Jr. ------------------------------------------ THOMAS GILLESPIE, JR. /s/ Victoria C. McAndrews ------------------------------------------ VICTORIA C. McANDREWS /s/ Richard M. Fiorito ------------------------------------------ RICHARD M. FIORITO /s/ Russ C. Causey ------------------------------------------ RUSS C. CAUSEY /s/ Paul Holt ------------------------------------------ PAUL HOLT /s/ Sylvia Sorgel ------------------------------------------ SYLVIA SORGEL 6 EX-10.10 12 EMPLOYMENT AGREEMENT -- LEEDS HACKETT EXHIBIT 10.10 EMPLOYMENT AGREEMENT BY AND BETWEEN NATIONAL CREDIT MANAGEMENT CORP. AND LEEDS HACKETT EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of March __, 1998, by and between National Credit Management Corp., a Maryland corporation (the "Company"), and Leeds Hackett ("Employee"). PRELIMINARY RECITALS A. Reference is made to that certain Stock Purchase Agreement, dated as of October 3, 1997, as amended (the "Purchase Agreement"), by and among the Company, Compass International Services Corporation, a Delaware corporation ("Compass"), and the stockholders of the Company identified on Schedule A to the ---------- Purchase Agreement (the "Stockholders"), providing for the purchase by Compass of all of the issued and outstanding stock of the Company. B. The Company provides accounts receivable management services and patented telephonic check drafting services throughout the United States (the "Business"). C. Employee has been a substantial stockholder of the Company since its inception, and has extensive knowledge and a unique understanding of the Business and has developed longstanding business relationships with customers and other business constituencies who are involved in the Business. D. The Company desires to employ Employee, and Employee desires to be employed by the Company, all under the terms and conditions set forth herein. E. It is a condition to the consummation of the Purchase Agreement that the Company and Employee enter into this Agreement. NOW, THEREFORE, in consideration of the premises, the mutual covenants of the parties hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Employment. ---------- 1.1 Engagement of Employee. The Company agrees to employ Employee as ---------------------- President and Chief Executive Officer ("CEO") of the Company, and Employee agrees to accept such employment, all in accordance with the terms and conditions of this Agreement. 1.2 Duties and Powers. At all times during the Employment Period (as ----------------- defined herein), Employee will serve as the Company's President and CEO and will have such responsibilities, duties and authority, and will render such services for the Company and its affiliates as the Board of Directors of Compass (the "Board") shall from time to time reasonably direct; provided, however, that such duties and responsibilities, duties, authority and services shall be commensurate with the position of President and CEO of the Company. Employee agrees diligently and faithfully to serve the Company and to devote Employee's best efforts, highest talents and skills and full time and attention to the furtherance and success of the Business. 1.3 Employment Period. Employee's employment under this Agreement ----------------- shall be for a period of five years beginning as of the date of this Agreement (the "Initial Employment Period"). This Agreement shall automatically renew for successive one-year periods (each one-year period shall be referred to herein as a "Renewal Period") unless either the Company or Employee, as the case may be, provides written notice to the other party at least ninety (90) days prior to the termination of any such period, stating its/his desire to terminate this Agreement. The Initial Employment Period and each successive Renewal Period shall be referred to herein together as the "Employment Period". Notwithstanding anything to the contrary contained herein, the Employment Period is subject to termination pursuant to SECTION 1.5 below. 1.4 Place of Employment. Employees's services hereunder shall be ------------------- rendered at such locations in the greater Baltimore metropolitan area as shall be determined by the Board, subject to such travel as may be reasonably required in connection with the Business. Employee shall not be required to relocate to any other area without his consent. 1.5 Termination of Employment for Cause, Death or Disability. The -------------------------------------------------------- Company has the right to terminate Employee's employment under this Agreement, by notice to Employee in writing at any time, for Cause (as hereinafter defined), and such employment shall automatically be terminated upon the death or the Disability (as hereinafter defined) of Employee. Any such termination shall be effective upon the date of service of such notice pursuant to SECTION 6.7 hereof, in the case of termination for Cause, or immediately upon the death or Disability of Employee, and the Employment Period shall terminate as of the effective date of such termination. "Cause," as used herein, means the occurrence of any of the following events: (i) final non-appealable conviction of (A) a felony or (B) any crime involving moral turpitude; (ii) the willful failure of Employee to comply with reasonable and lawful directions of the Board after (A) written notice is delivered to Employee describing such willful failure and (B) Employee has failed to cure or take substantial steps to cure such willful failure after a reasonable time period, as determined by the Board in its reasonable discretion (not to be less than 60 days); (iii) the good faith determination by the Board in the exercise of its reasonable judgment that Employee has committed an act or acts in the course of his employment constituting fraud or misappropriation of Company property; -2- (iv) a material breach by Employee of any of the terms, conditions or covenants set forth in SECTION 3 of this Agreement; or (v) a material breach by Employee of any of the terms or conditions of this Agreement if (A) written notice is delivered to Employee describing such breach and (B) Employee has failed to cure or take substantial steps to cure such breach after a reasonable time period, as determined by the Board in its reasonable discretion (not to be less than 60 days). Employee shall be deemed to have a "Disability" for purposes of this Agreement if he is unable to perform, by reason of physical or mental incapacity, his material duties or obligations under this Agreement, with or without reasonable accommodation, for a total period of 120 days in any 360-day period. The Board shall determine, according to the facts then available, whether and when the Disability of the Employee has occurred. Such determination shall not be arbitrary or unreasonable and the Board will, if available, take into consideration the expert medical opinion of a physician mutually agreed upon by Employee and the Company, after such physician has completed an examination of Employee. Employee agrees to make reasonable efforts to make himself available for such examination upon the reasonable request of the Company. 2. Compensation and Benefits. ------------------------- 2.1 Salary. In consideration of Employee performing his duties under ------ this Agreement during the Employment Period, the Company will pay Employee a base salary at a rate of $150,000 per annum (the "Base Salary"), payable in accordance with the Company's regular payroll policy for salaried employees. The Base Salary may be increased (but not decreased), from time to time during the Employment Period, as determined by the Compensation Committee of the Board (the "Compensation Committee"), in its sole discretion, and in any event will be increased on January 1 of each year beginning January 1, 1999 to reflect corresponding increases in the United States Department of Labor, Bureau of Labor Statistics, Consumer Price Index. All Urban Consumers, United States City Average, all items (1982- 88=100). If the Employment Period is terminated pursuant to SECTION 1.5 above, or for any other reason, then the Base Salary for any partial year will be prorated based on the number of days elapsed in such year during which services were actually performed by Employee, and all such prorated Base Salary which remains unpaid, together with accrued but unused vacation and sick pay, if any, shall be paid by the Company to Employee within five days after the effective date of termination of the Employment Period. 2.2 Bonus. Employee shall participate in Compass' Executive ----- Compensation Program (the "Bonus Program"), under which Employee shall be eligible to earn an annual bonus of up to 100% of Employee's Base Salary based upon such factors as (i) the financial performance of the Company, (ii) the financial performance of Compass, and/or (iii) the achievement of personal performance goals. The criteria and/or goals for the Bonus Program shall be established by the Compensation Committee at the beginning of each fiscal year after consultation with Employee. All bonuses awarded to Employee hereunder shall be payable in accordance with Company policy. If the Employment -3- Period is terminated pursuant to SECTION 1.5 above then the foregoing bonus for any partial year will be determined based on annualizing results to the date of the termination and will be prorated based upon the number of days elapsed in such year during which services were actually performed by Employee, and shall be paid within five days of the effective date of such termination of the Employment Period. 2.3 Compensation After Termination of Employment. -------------------------------------------- (a) If the Company shall terminate Employee's employment during the Employment Period for any reason (other than for Cause pursuant to SECTION 1.5 of this Agreement), or if Employee shall voluntarily terminate his employment during the Employment Period and within 60 days after a Constructive Termination (as defined below), Employee shall be entitled to receive severance compensation equal to (A) the amount of his Base Salary for a period of two years commencing on the last day of the Employment Period (the "Severance Period"), (B) (i) if permitted under Company's group health insurance coverage, continuation at the cost of Company of coverage thereunder for Employee and, if dependent coverage is then in effect, his covered dependents (subject to such changes in coverage as shall apply to Company's employees generally and provided that if the cost of dependent coverage prior to termination of employment was being paid by Employee, such cost shall continue to be payable by Employee) or (ii) if not so permitted, reimbursement by the Company of the premiums for group health insurance coverage otherwise payable by Employee under COBRA, until the end of the Severance Period or until other employment is obtained, whichever occurs first, and (C) his pro rated bonus, as determined by the Compensation Committee in its good faith judgment, for the period of any partial fiscal year immediately preceding the termination date in accordance with SECTION 2.2 above ((A), (B) and (C) collectively, the "Severance Benefits"). The Severance Benefits payable under (A) and B(ii) above shall be paid in equal installments on the Company's normal payroll payment dates occurring during the first sixty (60) days of the Severance Period. The Severance Benefits payable under (C) above shall be paid in a lump sum in accordance with SECTION 2.2 above. It shall be a condition to Employee's right to receive the Severance Benefits that (i) Employee shall execute and deliver to the Company a written separation agreement, in form and substance reasonably satisfactory to the Company (but not inconsistent with this Agreement), which agreement shall, among other things, contain a general release by Employee of all claims arising out of Employee's employment or termination of employment (but excluding claims for indemnification for third party claims pursuant to the Company's articles of incorporation and/or bylaw), and (ii) Employee shall be in compliance with all of Employee's obligations which expressly survive termination hereof, including without limitation those arising under SECTIONS 3 AND 4 hereof. In addition, the Company may, as a condition to such Severance Benefits, require that Employee provide consulting services to the Company on a reasonable basis during the first sixty (60) days of the Severance Period, provided that the timing of such consulting services shall not unreasonably interfere with Employee's ability to obtain other full-time employment. The Severance Benefits are intended -4- to be in lieu of all other payments to which Employee might otherwise be entitled in respect of termination of Employee's employment without Cause (except for the payment required under SECTION 2.1). Except as expressly provided above, no fringe or other employee benefits shall be payable during or after the Severance Period. (b) If Employee's employment shall be terminated pursuant to SECTION 1.5, the Company shall have no further obligations hereunder or otherwise with respect to Employee's employment from and after the effective date of the termination of the Employment Period (except for the payments required under SECTION 2.1), and the Company shall continue to have all other rights available hereunder (including, without limitation, all rights under SECTIONS 3 AND 4 hereof at law or in equity). (c) For the avoidance of doubt, Severance Benefits shall not be payable if Employee's employment is terminated by reason of his death or Disability, but shall continue to be payable during the Severance Period if his employment is terminated without Cause or by reason of Constructive Termination and he subsequently dies or becomes disabled. (d) "Constructive Termination" as used herein, shall be deemed to have occurred if the Company (i) demotes Employee to a position below that of President and CEO of the Company or assigns the Employee duties and responsibilities that are not commensurate with such position, or (ii) reduces Employee's Base Salary or materially reduces his employee benefits and prerequisites, taken in the aggregate, or (iii) requires Employee to relocate in violation of SECTION 1.4. 2.4 Benefits, Expenses and Pension Plan. During the Employment ----------------------------------- Period, the Company agrees to provide to Employee such fringe and other employee benefits as are generally provided, from time to time, to senior officers of the subsidiaries of Compass (upon no less favorable terms as provided to such officers), including without limitation, vacation, health and insurance benefits, and the opportunity to participate in the Compass Stock Option Plan and Compass Stock Purchase Plan. The Company shall retain the right to discontinue or modify any employee benefit program at any time. The Company will reimburse Employee in accordance with Company policy for his normal out-of-pocket expenses incurred in the course of performing his duties hereunder. 3. Covenants. --------- 3.1 Employee's Acknowledgment. Employee acknowledges that: ------------------------- (i) the Company is and will be engaged in the Business during the Employment Period and thereafter; (ii) Employee is one of a limited number of persons who will manage the Business; -5- (iii) Employee will occupy a position of trust and confidence with the Company after the date of this Agreement, and during the Employment Period and Employee's employment under this Agreement, Employee will become familiar with the Company's proprietary and confidential information concerning the Company and the Business; (iv) the agreements and covenants contained in this SECTION 3 are essential to protect the Company and the goodwill of the Business and are a condition precedent to the Company's entering into this Agreement; (v) Employee's employment with the Company has special, unique and extraordinary value to the Company and the Company would be irreparably damaged if Employee were to provide services to any person or entity in violation of the provisions of this Agreement; and (vi) Employee has means to support himself and his dependents other than by engaging in the Business, or a business substantially similar to the Business, and the provisions of this SECTION 3 will not impair such ability. 3.2 Non-Compete. Employee hereby agrees that during the Employment ------------ Period and through the period ending with the second anniversary of the last day of the Employment Period (collectively, the "RESTRICTIVE PERIOD"), he shall not, for any reason whatsoever, directly or indirectly, whether individually or as an officer, director, shareholder, owner, partner, joint venturer, employee, independent contractor, consultant or advisor to or of any entity, or in any other capacity: (i) engage, participate or invest in any business which is competitive with the Business anywhere within the United states of America (the "Territory"); provided, however, that nothing contained herein shall be construed to prevent Employee from investing in up to 5% of the outstanding stock of any competing corporation that is publicly-traded and listed on a recognized national, international or regional securities exchange or traded in the U.S. over-the-counter market, but only if Employee is not actively involved in and does not render consulting services to the business of said corporation, (ii) sell or provide any competitive products or services to, or solicit for the purpose of selling or providing any competitive products or services to, any person or entity that was a customer of the Company at any time during the one-year period ending on the last day of the Employment Period ("Termination Date") or that was known by Employee to have been actively being solicited by the Company to become a customer of the Company at any time during such period, (iii) solicit for employment or engagement, or influence or induce to leave the Company's employment, or knowingly cause to be employed or engaged, any person who is employed or engaged by the Company in a managerial capacity on the Termination Date or during the Restrictive Period, -6- unless such person has been out of the employ of the Company for at least 180 days; provided, that the Employee shall be permitted to solicit and hire any member of his immediate family, or (iv) enter into, or call upon or request non-public information for the purpose of entering into, an Acquisition Transaction with any entity with respect to which Company has made an offer or proposal for, or entered into discussions or negotiations for, or evaluated with the intent of making a proposal for, an Acquisition Transaction, within the six-month period immediately preceding the Termination Date. For purposes of this Agreement, an "Acquisition Transaction" means a merger, consolidation, purchase of material assets, purchase of a material equity interest, tender offer, recapitalization, accumulation of shares, proxy solicitation or other business combination. 3.3 Intellectual Property Rights. Employee will promptly ---------------------------- communicate, disclose and transfer to the Company free of all encumbrances and restrictions (and will execute and deliver any papers and take any reasonable action at any time deemed reasonably necessary by the Company to further establish such transfer) all of Employee's right, title and interest in and to all ideas, discoveries, inventions and improvements relating to the Business created, originated, developed or conceived of by Employee solely or jointly with others during the term of Employee's employment here under, whether or not during normal working hours. Employee agrees that all right, title and interest in and to all such ideas, discoveries, inventions and improvements shall belong solely to the Company, whether or not they are protected or protectible under applicable patent, trademark, service mark, copyright or trade secret laws. Employee agrees that all work or other material containing or reflecting any such ideas, discoveries, inventions or improvements shall be deemed work made for hire as defined in Section 101 of the Copyright Act, 15 U.S.C.(S)101. Such transfer shall include all patent rights, copyrights, trademark and service mark rights, and trade secret rights (if any) to such ideas, discoveries, inventions and improvements in the United States and in all other countries. Employee further agrees, at the expense of the Company, to take all such reasonable actions and to execute and deliver all such assignments and other lawful papers relating to any aspect of the prosecution of such rights in the United States and all other countries as the Company may request at any time during the Employment Period or after termination thereof. 3.4 Interference with Relationships. Other than in the performance ------------------------------- of his duties hereunder, during the Restrictive Period, Employee shall not, directly or indirectly, as employee, agent, consultant, stockholder, director, partner or in any other individual or representative capacity, solicit or intentionally encourage any present or future customer, supplier or other third party to terminate or otherwise alter his, her or its relationship with the Company. 3.5 Confidential Information. Other than in the performance of his ------------------------ duties hereunder, during the Restrictive Period and thereafter, Employee shall keep secret and retain in strictest confidence, and shall not, without the prior written consent of the -7- Company, directly or indirectly furnish, make available or disclose to any third party or use for the benefit of himself or any third party, any Confidential Information. As used in this Agreement, "Confidential Information" shall mean any information relating to the business or affairs of the Company or the Business, including, but not limited to, information relating to financial statements, employees, customers, suppliers, pricing, marketing, equipment, programs, strategies, analyses, profit margins, or other proprietary information of or used by Compass, the Company or any other subsidiary of Compass in connection with the Business; provided, however, that Confidential Information shall not include any information which is in the public domain or becomes known in the industry through no wrongful act on the part of Employee. Employee acknowledges that the Confidential Information is vital, sensitive, confidential and proprietary to the Company and Compass. 3.6 Blue-Pencil. If any court of competent jurisdiction shall at any ----------- time deem the Restrictive Period too lengthy or the Territory too extensive, the other provisions of this SECTION 3 shall nevertheless stand, the Restrictive Period herein shall be deemed to be the longest period permissible by law under the circumstances and the Territory herein shall be deemed to comprise the largest territory permissible by law under the circumstances. The court in each case shall reduce the time period and/or territory to permissible duration or size. 3.7 Return of Company Materials Upon Termination. Employee -------------------------------------------- acknowledges that all price lists, sales manuals, catalogs, binders, customer lists and other customer information, supplier lists and other supplier information, financial information, memoranda, correspondence and other records or documents including information stored on computer disks or in computer readable form, containing Confidential Information prepared by Employee or coming into Employee's possession by virtue of Employee's employment by the Company is and shall remain the property of the Company and that upon termination of Employee's employment hereunder, Employee shall return immediately to the Company all such items, together with all copies thereof, in Employee's possession. 3.8 Remedies. Employee acknowledges and agrees that the covenants -------- set forth in this SECTION 3 (collectively, the "RESTRICTIVE COVENANTS") are reasonable and necessary for the protection of the Company's business interests, that irreparable injury will result to the Company if Employee breaches any of the terms of said Restrictive Covenants, and that in the event Employee breaches or threatens to breach any such Restrictive Covenants, the Company will have no adequate remedy at law. Employee accordingly agrees that in the event Employee breaches or threatens to breach any of the Restrictive Covenants, the Company shall be entitled to immediate temporary injunctive and other equitable relief, without the necessity of showing actual monetary damages. Nothing contained herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or the threat of such a breach by Employee, including the recovery of any damages which it is able to prove. -8- 3.9 Company. For purposes of this SECTION 3, the term "Company" ------- shall include the Company and its respective subsidiaries, affiliates, permitted assignees and any permitted successors in interest of the Company or its subsidiaries or affiliates. 4. Effect of Termination. If Employee or the Company should terminate --------------------- Employee's employment for any reason, then, notwithstanding such termination, those provisions contained in SECTIONS 2.3, 3, 4, 5 AND 6 hereof shall remain in full force and effect. 5. Income Tax Treatment. Employee and the Company acknowledge that it is -------------------- the intention of the Company to deduct all amounts paid under SECTION 2 hereof as ordinary and necessary business expenses for income tax purposes. Employee agrees and represents that he will treat all such amounts as required pursuant to all applicable tax laws and regulations. 6. Miscellaneous. ------------- 6.1 Life Insurance. The Company may at its discretion and at any -------------- time apply for and procure as owner and for its own benefit and at its own expense, insurance on the life of Employee in such amounts and in such form or forms as the Company may choose. Employee shall cooperate with the Company in procuring such insurance and shall, at the request of the Company, submit to such medical examinations, supply such information and execute such documents as may be reasonably and customarily required by the insurance company or companies to whom the Company has applied for such insurance. Employee shall have no interest whatsoever in any such policy or policies, except that, upon the termination of Employee's employment hereunder, Employee may purchase any and all such insurance from the Company for an amount equal to the actual premiums thereon previously paid by the Company. 6.2 Assignment. No party hereto may assign or delegate any of its ---------- rights or obligations hereunder without the prior written consent of the other party hereto; provided, however, that the Company shall have the right to assign all or any part of its rights and obligations under this Agreement upon written notice to Employee (i) to any affiliate of the Company to which the Business of the Company is assigned at any time, (provided that the Company and Compass shall remain liable for all obligations of Company hereunder) or any surviving entity following any merger or consolidation of the Company and any other entity or (ii) in connection with the sale of the Business by the Company. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective legal representatives, heirs, permitted successors and assigns of the parties hereto whether so expressed or not. 6.3 Entire Agreement. Except as otherwise expressly set forth ---------------- herein, this Agreement sets forth the entire understanding of the parties, and supersedes and preempts all prior oral or written understandings and agreements, with respect to the subject matter hereof. 6.4 Severability. Whenever possible, each provision of this ------------ Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if -9- any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. 6.5 Amendment; Modification. No amendment or modification of this ----------------------- Agreement and no waiver by any party of the breach of any covenant contained herein shall be binding unless executed in writing by the party against whom enforcement of such amendment, modification or waiver is sought. No waiver shall be deemed a continuing waiver or a waiver in respect of any subsequent breach or default, either of a similar or different nature, unless expressly so stated in writing. 6.6 Governing Law. This Agreement shall be construed and enforced in ------------- accordance with, and all questions concerning the construction, validity, interpretation and performance of this Agreement shall be governed by, the laws of the State of Maryland, without giving effect to provisions thereof regarding conflict of laws. 6.7 Notices. All notices, demands or other communications to be ------- given or delivered hereunder or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been properly served if (a) delivered personally, (b) delivered by a nationally recognized overnight courier service, (c) sent by certified or registered mail, return receipt requested and first class postage prepaid, or (d) sent by facsimile transmission followed by a confirmation copy delivered by a nationally recognized overnight courier service the next day. Such notices, demands and other communications shall be sent to the addresses indicated below: (a) If to Employee: Mr. Leeds Hackett c/o National Credit Management Corporation 11350 McCormick Road Suite 800, Executive Plaza III Hunt Valley, MD 21031 with a copy to: Earl S. Wellschlager Piper & Marbury L.L.P. 36 South Charles Street Baltimore, MD 21201 (b) If to the Company: National Credit Management Corp. c/o Compass International Services Corporation 5 Independence Way, Suite 300 Princeton, NJ 08540 Attention: President -10- with a copy to: Compass International Services Corporation 5 Independence Way, Suite 300 Princeton, NJ 08540 Attention: President with a copy to: Katten Muchin & Zavis 525 West Monroe, Suite 1600 Chicago, IL 60661 Attention: Howard S. Lanznar, Esq. or to such other address or facsimile number or to the attention of such other person or entity as the recipient party has specified by prior written notice to the sending party. Date of service of such notice shall be (i) the date such notice is personally delivered or sent by facsimile transmission (with issuance by the transmitting machine of a confirmation of successful transmission), (ii) five business days after the date of mailing if sent by certified or registered mail or (iii) one business day after date of delivery to the overnight courier if sent by overnight courier. 6.8 Counterparts. This Agreement may be executed in multiple ------------ counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same Agreement. 6.9 Descriptive Headings; Interpretation. The descriptive headings in ------------------------------------ this Agreement are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. The use of the word "including" in this Agreement shall be by way of example rather than by limitation. The Preliminary Recitals set forth above are incorporated by reference into this Agreement. 6.10 No Strict Construction. The language used in this Agreement will be ---------------------- deemed to be the language chosen by the parties hereto to express their mutual interest, and no rule of strict construction will be applied against any party hereto. 6.11 Arbitration. Any controversy or claim arising out of or relating to ----------- this Agreement, the making, interpretation or the breach thereof, other than a claim solely for injunctive relief for any alleged breach of the provisions of SECTION 3 as to which the parties shall have the right to apply for relief in any court of competent jurisdiction, shall be resolved by arbitration in Baltimore, Maryland, in accordance with the Federal Arbitration Act and the National Rules for the Resolution of Employment Disputes of the American Arbitration Association. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof and any party to the arbitration may, if such party so elects, institute proceedings in any court having jurisdiction for the specific performance of any such award. Without limiting the generality of the foregoing sentence, the claims to which this provision shall apply include, but are not limited to: (i) any claims arising out of or related to this Employment -11- Agreement or breach thereof; (ii) any claims arising under any federal, state, or local statute or the common law of any state, regarding compensation or employee benefits, or discrimination, retaliation, harassment, or denial of equal employment opportunity based on sex, race, color, religion, national origin, disability, age, marital status, or any other category protected by law; (iii) any claims arising under the common law of the United States or any state relating to Employee's employment with Company, including without limitation claims alleging negligence, defamation, public policy, tort, infliction of emotional distress, fraud, or misrepresentation; or (iv) any civil claims that Company may have against Employee relating to Employee's employment with Company. Anything herein to the contrary notwithstanding, this SECTION 6.11 shall not apply to: (i) any claim by Employee for workers compensation benefits or unemployment compensation benefits; or (ii) any claim by Company for injunctive or equitable relief, including without limitation claims related to the enforcement of SECTION 3 hereof, which may be brought in any court of competent jurisdiction. EMPLOYEE AND COMPANY EXPRESSLY WAIVE ANY RIGHT TO RESOLVE ANY DISPUTE COVERED BY THIS SECTION BY FILING SUIT IN COURT FOR TRIAL BY A JUDGE OR JURY. The arbitrator shall include in any award in the prevailing party's favor costs and expenses of the arbitration. In the event the arbitrator does not rule in favor of the prevailing party in respect of all the claims alleged by such party, the arbitrator shall include in any award in favor of the prevailing party the amount of his or its reasonable costs and expenses of the arbitration as he deems just and equitable under the circumstances. Except as provided above, each party to the arbitration shall bear his or its own attorney's fees and expenses and the parties shall bear equally all other costs and expenses of the arbitration. -12- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. COMPANY: NATIONAL CREDIT MANAGEMENT CORP. By: /s/ Leeds Hackett ----------------- Its: President --------- EMPLOYEE: /s/ Leeds Hackett ----------------- LEEDS HACKETT For good and valuable consideration, the receipt of which is hereby acknowledged, the undersigned hereby unconditionally guarantees the obligations of the Company hereunder. COMPASS INTERNATIONAL SERVICES CORPORATION By: /s/ Michael J. Cunningham ------------------------- Michael Cunningham Chairman and Chief Executive Officer -13- EX-10.11 13 EMPLOYMENT AGREEMENT EXHIBIT 10.11 EMPLOYMENT AGREEMENT BY AND BETWEEN BRMC OF DELAWARE, INC. AND JOHN MALONEY EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of March __, 1998, by and between BRMC of Delaware, Inc., a Delaware corporation (the "Company"), and John Maloney ("Employee"). PRELIMINARY RECITALS A. Reference is made to that certain Stock Purchase Agreement, dated as of October 3, 1997, as amended (the "Purchase Agreement"), by and among the Company, Compass International Services Corporation, a Delaware corporation ("Compass"), and the stockholders of the Company identified on Schedule A to the ---------- Purchase Agreement, providing for the purchase (the "Purchase") by Compass of all of the outstanding capital stock of the Company, whereby the Company shall become a wholly-owned subsidiary of Compass. B. The Company provides accounts receivable management services and telephonic check drafting services (the "Business"). C. Employee has been a substantial stockholder of the Company since its inception, and has extensive knowledge and a unique understanding of the Business and has developed longstanding business relationships with customers and other business constituencies who are involved in the Business. D. The Company desires to employ Employee, and Employee desires to be employed by the Company, all under the terms and conditions set forth herein. E. It is a condition to the consummation of the Purchase Agreement that the Company and Employee enter into this Agreement. NOW, THEREFORE, in consideration of the premises, the mutual covenants of the parties hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Employment. ---------- 1.1 Engagement of Employee. The Company agrees to employ Employee as ---------------------- the Chief Operating Officer ("COO") of the Company, and Employee agrees to accept such employment, all in accordance with the terms and conditions of this Agreement. 1.2 Duties and Powers. At all times during the Employment Period (as ----------------- defined herein), Employee will serve as the COO and will have such responsibilities, duties and authority, and will render such services for the Company and its affiliates as the Board of Directors of Compass (the "Board") shall from time to time reasonably direct; provided, however, that such duties, responsibilities, authority and services shall be commensurate with the position of COO of the Company. Employee agrees diligently and faithfully to serve the Company and to devote Employee's best efforts, highest talents and skills and full time and attention to the furtherance and success of the Business. 1.3 Employment Period. Employee's employment under this Agreement ----------------- shall be for a period of five years beginning as of the date of this Agreement (the "Initial Employment Period"). This Agreement shall automatically renew for successive one-year periods (each one-year period shall be referred to herein as a "Renewal Period") unless either the Company or Employee, as the case may be, provides written notice to the other party at least ninety (90) days prior to the termination of any such period, stating its/his desire to terminate this Agreement. The Initial Employment Period and each successive Renewal Period shall be referred to herein together as the "Employment Period". Notwithstanding anything to the contrary contained herein, the Employment Period is subject to termination pursuant to SECTION 1.5 below. 1.4 Place of Employment. Employee's services hereunder shall be ------------------- rendered at such locations in Destin, Florida or the greater Pensacola, Florida metropolitan area as shall be determined by the Board, subject to such travel as may be reasonably required in connection with the Business. Employee shall not be required to relocate to any other area without his consent. 1.5 Termination of Employment for Cause, Death or Disability. The -------------------------------------------------------- Company has the right to terminate Employee's employment under this Agreement, by notice to Employee in writing at any time, for Cause (as hereinafter defined), and such employment shall automatically be terminated upon the death or the Disability (as hereinafter defined) of Employee. Any such termination shall be effective upon the date of service of such notice pursuant to SECTION 6.7 hereof, in the case of termination for Cause, or immediately upon the death or Disability of Employee, and the Employment Period shall terminate as of the effective date of such termination. "Cause," as used herein, means the occurrence of any of the following events: (i) final non-appealable conviction of (A) a felony or (B) any crime involving moral turpitude; (ii) the willful failure of Employee to comply with reasonable and lawful directions of the Board after (A) written notice is delivered to Employee describing such willful failure and (B) Employee has failed to cure or take substantial steps to cure such willful failure after a reasonable time period, as determined by the Board in its reasonable discretion (not to be less than 60 days); (iii) the good faith determination by the Board in the exercise of its reasonable judgment that Employee has committed an act or acts in the course of his employment constituting fraud or misappropriation of Company property; (iv) a material breach by Employee of any of the terms, conditions or covenants set forth in SECTION 3 of this Agreement; or -2- (v) a material breach by Employee of any of the terms or conditions of this Agreement if (A) written notice is delivered to Employee describing such breach and (B) Employee has failed to cure or take substantial steps to cure such breach after a reasonable time period, as determined by the Board in its reasonable discretion (not to be less than 60 days). Employee shall be deemed to have a "Disability" for purposes of this Agreement if he is unable to perform, by reason of physical or mental incapacity, his material duties or obligations under this Agreement, with or without reasonable accommodation, for a total period of 90 days in any 360-day period. The Board shall determine, according to the facts then available, whether and when the Disability of the Employee has occurred. Such determination shall not be arbitrary or unreasonable and the Board will, if possible, take into consideration the expert medical opinion of a physician mutually agreed upon by Employee and the Company, after such physician has completed an examination of Employee. Employee agrees to make reasonable efforts to make himself available for such examination upon the reasonable request of the Company. 2. Compensation and Benefits. ------------------------- 2.1 Salary. In consideration of Employee performing his duties under ------ this Agreement during the Employment Period, the Company will pay Employee a base salary at a rate of $100,000 per annum (the "Base Salary"), payable in accordance with the Company's regular payroll policy for salaried employees. The Base Salary may be increased (but not decreased), from time to time during the Employment Period, as determined by the Compensation Committee of the Board (the "Compensation Committee"), in its sole discretion, and in any event will be increased on January 1 of each year beginning January 1, 1999 to reflect corresponding increases in the United States Department of Labor, Bureau of Labor Statistics, Consumer Price Index, All Urban Consumers, United States City Average, all items (1982- 88=100). If warranted by the growth of the Business, in the sole judgment of the Compensation Committee, the Base Salary will be increased as of January 1, 1999 to the level of the Base Salary of the other CEO's of the Founding Companies (as defined in the Purchase Agreement). If the Employment Period is terminated pursuant to SECTION 1.5 above, then the Base Salary for any partial year will be prorated based on the number of days elapsed in such year during which services were actually performed by Employee, and all such prorated Base Salary which remains unpaid, together with accrued but unused vacation and sick pay, if any, shall be paid by the Company to Employee within five days after the effective date of termination of the Employment Period. 2.2 Bonus. Employee shall participate in Compass' Executive ----- Compensation Program (the "Bonus Program"), under which Employee shall be eligible to earn an annual bonus of up to 100% of Employee's Base Salary based upon such factors as (i) the financial performance of the Company, (ii) the financial performance of Compass, and/or (iii) the achievement of personal performance goals. The criteria and/or goals for the Bonus Program shall be established by the Compensation Committee at the beginning of each fiscal year after consultation with Employee. All bonuses awarded to Employee hereunder shall be payable in accordance with Company policy. If the Employment -3- Period is terminated pursuant to SECTION 1.5 above then the foregoing bonus for any partial year will be determined based on annualizing results to the date of the termination and will be prorated based upon the number of days elapsed in such year during which services were actually performed by Employee, and shall be paid within five days of the date of such termination. 2.3 Compensation After Termination of Employment. -------------------------------------------- (a) If the Company shall terminate Employee's employment during the Employment Period for any reason (other than for Cause pursuant to SECTION 1.5 of this Agreement), or if Employee shall voluntarily terminate his employment during the Employment Period and within 60 days after a Constructive Termination (as defined below), Employee shall be entitled to receive severance compensation equal to (A) the amount of his Base Salary for a period of two years commencing on the last day of the Employment Period (the "Severance Period"), (B) (i) if permitted under Company's group health insurance coverage, continuation at the cost of Company of coverage thereunder for Employee and, if dependent coverage is then in effect, his covered dependents (subject to such changes in coverage as shall apply to Company's employees generally and provided that if the cost of dependent coverage prior to termination of employment was being paid by Employee, such cost shall continue to be payable by Employee) or (ii) if not so permitted, reimbursement by the Company of the premiums for group health insurance coverage otherwise payable by Employee under COBRA, until the end of the Severance Period or until other employment is obtained, whichever occurs first, and (C) his pro rated bonus, as determined by the Compensation Committee in its good faith judgement, for the period of any partial fiscal year immediately preceding the termination date in accordance with SECTION 2.2 above ((A), (B) and (C) collectively, the "Severance Benefits"). The Severance Benefits payable under (A) and (B)(ii) above shall be paid in equal installments on the Company's normal payroll payment dates occurring during the first sixty (60) days of the Severance Period. The Severance Benefits payable under (C) above shall be paid in a lump sum in accordance with SECTION 2.2 above. It shall be a condition to Employee's right to receive the Severance Benefits that (i) Employee shall execute and deliver to the Company a written separation agreement, in form and substance reasonably satisfactory to the Company (but not inconsistent with this Agreement), which agreement shall, among other things, contain a general release by Employee of all claims arising out of Employee's employment or termination of employment (but excluding claims for indemnification for third party claims pursuant to the Company's articles of incorporation and/or bylaws), and (ii) Employee shall be in compliance with all of Employee's obligations which expressly survive termination hereof, including without limitation those arising under SECTIONS 3 AND 4 hereof. In addition, the Company may, as a condition to such Severance Benefits, require that Employee provide consulting services to the Company on a reasonable basis during the first sixty (60) days of the Severance Period, provided that the timing of such consulting services shall not unreasonably interfere with Employee's ability to obtain other full-time employment. The Severance Benefits are intended -4- to be in lieu of all other payments to which Employee might otherwise be entitled in respect of termination of Employee's employment without Cause (except for the payments required under SECTION 2.1). Except as expressly provided above, no fringe or other employee benefits shall be payable during or after the Severance Period. (b) If Employee's employment shall be terminated pursuant to SECTION 1.5, the Company shall have no further obligations hereunder or otherwise with respect to Employee's employment from and after the effective date of the termination of the Employment Period (except for payments required under SECTION 2.1), and the Company shall continue to have all other rights available hereunder (including, without limitation, all rights under SECTIONS 3 AND 4 hereof at law or in equity). (c) For the avoidance of doubt, Severance Benefits shall not be payable if Employee's employment is terminated by reason of his death or Disability, but shall continue to be payable during the Severance Period if his employment is terminated without Cause or by reason of Constructive Termination and he subsequently dies or becomes disabled. (d) "Constructive Termination" as used herein, shall be deemed to have occurred if the Company (i) demotes Employee to a position below that of COO of the Company or assigns the Employee duties and responsibilities that are not commensurate with such position, (ii) reduces Employee's Base Salary or materially reduces his employee benefits and prerequisites, taken in the aggregate, or (iii) requires Employee to relocate in violation of SECTION 1.4. 2.4 Benefits, Expenses and Pension Plan. During the Employment ----------------------------------- Period, the Company agrees to provide to Employee such fringe and other employee benefits as are generally provided, from time to time, to senior officers of the subsidiaries of Compass (upon no less favorable terms as provided to such officers), including without limitation, vacation, health and insurance benefits, and the opportunity to participate in the Compass Stock Option Plan and Compass Stock Purchase Plan. The Company shall retain the right to discontinue or modify any employee benefit program at any time. The Company will reimburse Employee in accordance with Company policy for his normal out-of-pocket expenses incurred in the course of performing his duties hereunder. 3. Covenants. --------- 3.1 Employee's Acknowledgment. Employee acknowledges that: ------------------------- (i) the Company is and will be engaged in the Business during the Employment Period and thereafter; (ii) Employee is one of a limited number of persons who will manage the Business; -5- (iii) Employee will occupy a position of trust and confidence with the Company after the date of this Agreement, and during the Employment Period and Employee's employment under this Agreement, Employee will become familiar with the Company's proprietary and confidential information concerning the Company and the Business; (iv) the agreements and covenants contained in this SECTION 3 are essential to protect the Company and the goodwill of the Business and are a condition precedent to the Company's entering into this Agreement; (v) Employee's employment with the Company has special, unique and extraordinary value to the Company and the Company would be irreparably damaged if Employee were to provide services to any person or entity in violation of the provisions of this Agreement; and (vi) Employee has means to support himself and his dependents other than by engaging in the Business, or a business substantially similar to the Business, and the provisions of this SECTION 3 will not impair such ability. 3.2 Non-Compete. Employee hereby agrees that during the Employment ------------ Period and through the period ending with the second anniversary of the last day of the Employment Period (collectively, the "RESTRICTIVE PERIOD"), he shall not, for any reason whatsoever, directly or indirectly, whether individually or as an officer, director, shareholder, owner, partner, joint venturer, employee, independent contractor, consultant or advisor to or of any entity, or in any other capacity: (i) engage, participate or invest in any business which is competitive with the Business anywhere within the United States of America (the "Territory"); provided, however, that nothing contained herein shall be construed to prevent Employee from investing in up to 5% of the outstanding stock of any competing corporation that is publicly-traded and listed on a recognized national, international or regional securities exchange or traded in the U.S. over-the-counter market, but only if Employee is not actively involved in and does not render consulting services to the business of said corporation, (ii) sell or provide any competitive products or services to, or solicit for the purpose of selling or providing any competitive products or services to, any person or entity that was a customer of the Company at any time during the one-year period ending on the last day ("Termination Date") of the Employment Period or that was known by Employee to have been actively being solicited by the Company to become a customer of the Company at any time during such period, (iii) solicit for employment or engagement, or influence or induce to leave the Company's employment, or knowingly cause to be employed or engaged, any person who is employed or engaged by the Company in a managerial capacity on the Termination Date or during the Restrictive Period, -6- unless such person has been out of the employ of the Company for at least 180 days; provided, that the Employee shall be permitted to solicit and hire any member of his immediate family, or (iv) enter into, or call upon or request non-public information for the purpose of entering into, an Acquisition Transaction with any entity with respect to which Company has made an offer or proposal for, or entered into discussions or negotiations for, or evaluated with the intent of making a proposal for, an Acquisition Transaction, within the six-month period immediately preceding the Termination Date. For purposes of this Agreement, an "Acquisition Transaction" means a merger, consolidation, purchase of material assets, purchase of a material equity interest, tender offer, recapitalization, accumulation of shares, proxy solicitation or other business combination. 3.3 Intellectual Property Rights. Employee will promptly ---------------------------- communicate, disclose and transfer to the Company free of all encumbrances and restrictions (and will execute and deliver any papers and take any reasonable action at any time deemed reasonably necessary by the Company to further establish such transfer) all of Employee's right, title and interest in and to all ideas, discoveries, inventions and improvements relating to the Business created, originated, developed or conceived of by Employee solely or jointly with others during the term of Employee's employment here under, whether or not during normal working hours. Employee agrees that all right, title and interest in and to all such ideas, discoveries, inventions and improvements shall belong solely to the Company, whether or not they are protected or protectible under applicable patent, trademark, service mark, copyright or trade secret laws. Employee agrees that all work or other material containing or reflecting any such ideas, discoveries, inventions or improvements shall be deemed work made for hire as defined in Section 101 of the Copyright Act, 15 U.S.C.(S)101. Such transfer shall include all patent rights, copyrights, trademark and service mark rights, and trade secret rights (if any) to such ideas, discoveries, inventions and improvements in the United States and in all other countries. Employee further agrees, at the expense of the Company, to take all such reasonable actions and to execute and deliver all such assignments and other lawful papers relating to any aspect of the prosecution of such rights in the United States and all other countries as the Company may request at any time during the Employment Period or after termination thereof. 3.4 Interference with Relationships. Other than in the performance ------------------------------- of his duties hereunder, during the Restrictive Period, Employee shall not, directly or indirectly, as employee, agent, consultant, stockholder, director, partner or in any other individual or representative capacity, solicit or intentionally encourage any present or future customer, supplier or other third party to terminate or otherwise alter his, her or its relationship with the Company. 3.5 Confidential Information. Other than in the performance of his ------------------------ duties hereunder, during the Restrictive Period and thereafter, Employee shall keep secret and retain in strictest confidence, and shall not, without the prior written consent of the -7- Company, directly or indirectly furnish, make available or disclose to any third party or use for the benefit of himself or any third party, any Confidential Information. As used in this Agreement, "Confidential Information" shall mean any information relating to the business or affairs of the Company or the Business, including, but not limited to, information relating to financial statements, employees, customers, suppliers, pricing, marketing, equipment, programs, strategies, analyses, profit margins, or other proprietary information of or used by Compass, the Company or any other subsidiary of Compass in connection with the Business; provided, however, that Confidential Information shall not include any information which is in the public domain or becomes known in the industry through no wrongful act on the part of Employee. Employee acknowledges that the Confidential Information is vital, sensitive, confidential and proprietary to the Company and Compass. 3.6 Blue-Pencil. If any court of competent jurisdiction shall at any ----------- time deem the Restrictive Period too lengthy or the Territory too extensive, the other provisions of this SECTION 3 shall nevertheless stand, the Restrictive Period herein shall be deemed to be the longest period permissible by law under the circumstances and the Territory herein shall be deemed to comprise the largest territory permissible by law under the circumstances. The court in each case shall reduce the time period and/or territory to permissible duration or size. 3.7 Return of Company Materials Upon Termination. Employee -------------------------------------------- acknowledges that all price lists, sales manuals, catalogs, binders, customer lists and other customer information, supplier lists and other supplier information, financial information, memoranda, correspondence and other records or documents including information stored on computer disks or in computer readable form, containing Confidential Information prepared by Employee or coming into Employee's possession by virtue of Employee's employment by the Company is and shall remain the property of the Company and that upon termination of Employee's employment hereunder, Employee shall return immediately to the Company all such items, together with all copies thereof, in Employee's possession. 3.8 Remedies. Employee acknowledges and agrees that the covenants -------- set forth in this SECTION 3 (collectively, the "RESTRICTIVE COVENANTS") are reasonable and necessary for the protection of the Company's business interests, that irreparable injury will result to the Company if Employee breaches any of the terms of said Restrictive Covenants, and that in the event Employee breaches or threatens to breach any such Restrictive Covenants, the Company will have no adequate remedy at law. Employee accordingly agrees that in the event Employee breaches or threatens to breach any of the Restrictive Covenants, the Company shall be entitled to immediate temporary injunctive and other equitable relief, and without the necessity of showing actual monetary damages. Nothing contained herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or the threat of such a breach by Employee, including the recovery of any damages which it is able to prove. -8- 3.9 Company. For purposes of this SECTION 3, the term "Company" ------- shall include the Company and its respective subsidiaries, affiliates, permitted assignees and any permitted successors in interest of the Company or its subsidiaries or affiliates. 4. Effect of Termination. If Employee or the Company should terminate --------------------- Employee's employment for any reason, then, notwithstanding such termination, those provisions contained in SECTIONS 2.3, 3, 4, 5 AND 6 hereof shall remain in full force and effect. 5. Income Tax Treatment. Employee and the Company acknowledge that it is -------------------- the intention of the Company to deduct all amounts paid under SECTION 2 hereof as ordinary and necessary business expenses for income tax purposes. Employee agrees and represents that he will treat all such amounts as required pursuant to all applicable tax laws and regulations. 6. Miscellaneous. ------------- 6.1 Life Insurance. The Company may at its discretion and at any -------------- time apply for and procure as owner and for its own benefit and at its own expense, insurance on the life of Employee in such amounts and in such form or forms as the Company may choose. Employee shall cooperate with the Company in procuring such insurance and shall, at the request of the Company, submit to such medical examinations, supply such information and execute such documents as may be reasonably and customarily required by the insurance company or companies to whom the Company has applied for such insurance. Employee shall have no interest whatsoever in any such policy or policies, except that, upon the termination of Employee's employment hereunder, Employee may purchase any and all such insurance from the Company for an amount equal to the actual premiums thereon previously paid by the Company. 6.2 Assignment. No party hereto may assign or delegate any of its ---------- rights or obligations hereunder without the prior written consent of the other party hereto; provided, however, that the Company shall have the right to assign all or any part of its rights and obligations under this Agreement upon written notice to Employee (i) to any affiliate of the Company to which the Business of the Company is assigned at any time (provided that the Company and Compass shall remain liable for all obligations of the Company hereunder) or any surviving entity following any merger or consolidation of the Company and any other entity or (ii) in connection with the sale of the Business by the Company. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective legal representatives, heirs, permitted successors and assigns of the parties hereto whether so expressed or not. 6.3 Entire Agreement. Except as otherwise expressly set forth ---------------- herein, this Agreement sets forth the entire understanding of the parties, and supersedes and preempts all prior oral or written understandings and agreements, with respect to the subject matter hereof. 6.4 Severability. Whenever possible, each provision of this ------------ Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if -9- any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. 6.5 Amendment; Modification. No amendment or modification of this ----------------------- Agreement and no waiver by any party of the breach of any covenant contained herein shall be binding unless executed in writing by the party against whom enforcement of such amendment, modification or waiver is sought. No waiver shall be deemed a continuing waiver or a waiver in respect of any subsequent breach or default, either of a similar or different nature, unless expressly so stated in writing. 6.6 Governing Law. This Agreement shall be construed and enforced in ------------- accordance with, and all questions concerning the construction, validity, interpretation and performance of this Agreement shall be governed by, the laws of the State of Florida, without giving effect to provisions thereof regarding conflict of laws. 6.7 Notices. All notices, demands or other communications to be ------- given or delivered hereunder or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been properly served if (a) delivered personally, (b) delivered by a nationally recognized overnight courier service, (c) sent by certified or registered mail, return receipt requested and first class postage prepaid, or (d) sent by facsimile transmission followed by a confirmation copy delivered by a nationally recognized overnight courier service the next day. Such notices, demands and other communications shall be sent to the addresses indicated below: (a) If to Employee: Mr. John Maloney 10065 West Emerald Coast Parkway Suite B1 Destin, Florida 32541 Facsimile No.: (904) 650-6538 with a copy to: Alston & Bird LLP One Atlantic Center 1201 West Peachtree Street Atlanta, Georgia 30309-3424 Attn: David E. Brown, Jr., Esq. Facsimile No.: (404) 881-4777 and -10- Emmanuel Sheppard & Condon 30 S. Spring Street Pensacola, Florida 32501 Attn: Kramer Litvak, Esq. Facsimile No.: (904) 434-7163 (b) If to the Company: BRMC of Delaware, Inc. c/o Compass International Services Corporation 5 Independence Way, Suite 300 Princeton, NJ 08540 Attention: President with a copy to: Compass International Services Corporation 5 Independence Way, Suite 300 Princeton, NJ 08540 Attention: President with a copy to: Katten Muchin & Zavis 525 West Monroe, Suite 1600 Chicago, IL 60661 Attention: Howard S. Lanznar, Esq. Facsimile No.: (312) 902-1061 or to such other address or facsimile number or to the attention of such other person or entity as the recipient party has specified by prior written notice to the sending party. Date of service of such notice shall be (i) the date such notice is personally delivered or sent by facsimile transmission (with issuance by the transmitting machine of a confirmation of successful transmission), (ii) five business days after the date of mailing if sent by certified or registered mail or (iii) one business day after date of delivery to the overnight courier if sent by overnight courier. 6.8 Counterparts. This Agreement may be executed in multiple ------------ counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same Agreement. 6.9 Descriptive Headings; Interpretation. The descriptive headings in ------------------------------------ this Agreement are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. The use of the word "including" in this Agreement shall be by way of example rather than by limitation. The Preliminary Recitals set forth above are incorporated by reference into this Agreement. -11- 6.10 No Strict Construction. The language used in this Agreement will be ---------------------- deemed to be the language chosen by the parties hereto to express their mutual interest, and no rule of strict construction will be applied against any party hereto. 6.11 Arbitration. Any controversy or claim arising out of or relating to ----------- this Agreement, the making, interpretation or the breach thereof, other than a claim solely for injunctive relief for any alleged breach of the provisions of SECTION 3 as to which the parties shall have the right to apply for relief in any court of competent jurisdiction, shall be resolved by arbitration in Pensacola, Florida, in accordance with the Federal Arbitration Act and the National Rules for the Resolution of Employment Disputes of the American Arbitration Association. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof and any party to the arbitration may, if such party so elects, institute proceedings in any court having jurisdiction for the specific performance of any such award. Without limiting the generality of the foregoing sentence, the claims to which this provision shall apply include, but are not limited to: (i) any claims arising out of or related to this Employment Agreement or breach thereof ; (ii) any claims arising under any federal, state or local statute or the common law of any state, regarding compensation or employee benefits, or discrimination, retaliation, harassment, or denial of equal employment opportunity based on sex, race, color, religion, national origin, disability, age, marital status, or any other category protected by law; (iii) any claims arising under the common law of the United States or any state relating to Employee's employment with Company, including without limitation claims alleging negligence, defamation, public policy, tort, infliction of emotional distress, fraud, or misrepresentation; or (iv) any civil claims that Company may have against Employee relating to Employee's employment with Company. Anything herein to the contrary notwithstanding, this SECTION 6.11 shall not apply to: (i) any claim by Employee for workers' compensation benefits or unemployment compensation benefits; or (ii) any claim by Company for injunctive or equitable relief, including without limitation claims related to the enforcement of SECTION 3 hereof, which may be brought in any court of competent jurisdiction. EMPLOYEE AND COMPANY EXPRESSLY WAIVE ANY RIGHT TO RESOLVE ANY DISPUTE COVERED BY THIS SECTION BY FILING SUIT IN COURT FOR TRIAL BY A JUDGE OR JURY. The arbitrator shall include in any award in the prevailing party's favor costs and expenses of the arbitration. In the event the arbitrator does not rule in favor of the prevailing party in respect of all the claims alleged by such party, the arbitrator shall include in any award in favor of the prevailing party the amount of his or its reasonable costs and expenses of the arbitration as he deems just and equitable under the circumstances. Except as provided above, each party to the arbitration shall bear his or its own attorney's fees and expenses and the parties shall bear equally all other costs and expenses of the arbitration. -12- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. COMPANY: BRMC OF DELAWARE, INC. By: /s/ Gene Collins --------------------------------- Gene Collins President EMPLOYEE: /s/ John Maloney --------------------------------------- JOHN MALONEY For good and valuable consideration, the receipt of which is hereby acknowledged, the undersigned hereby unconditionally guarantees payment and performance of the obligations of the Company hereunder. COMPASS INTERNATIONAL SERVICES CORPORATION By: /s/ Michael J. Cunningham --------------------------------- Michael J. Cunningham Chairman and CEO -13- EX-10.12 14 EMPLOYMENT AGREEMENT -- H. GENE COLLINS EXHIBIT 10.12 EMPLOYMENT AGREEMENT BY AND BETWEEN BRMC OF DELAWARE, INC. AND H. GENE COLLINS EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of March __, 1998, by and between BRMC of Delaware, Inc., a Delaware corporation (the "Company"), and H. Gene Collins ("Employee"). PRELIMINARY RECITALS A. Reference is made to that certain Stock Purchase Agreement, dated as of October 3, 1997, as amended (the "Purchase Agreement"), by and among the Company, Compass International Services Corporation, a Delaware corporation ("Compass"), and the stockholders of the Company identified on Schedule A to the ---------- Purchase Agreement, providing for the purchase (the "Purchase") by Compass of all of the outstanding capital stock of the Company, whereby the Company shall become a wholly-owned subsidiary of Compass. B. The Company provides accounts receivable management services and telephonic check drafting services (the "Business"). C. Employee has been a substantial stockholder of the Company since its inception, and has extensive knowledge and a unique understanding of the Business and has developed longstanding business relationships with customers and other business constituencies who are involved in the Business. D. The Company desires to employ Employee, and Employee desires to be employed by the Company, all under the terms and conditions set forth herein. E. It is a condition to the consummation of the Purchase Agreement that the Company and Employee enter into this Agreement. NOW, THEREFORE, in consideration of the premises, the mutual covenants of the parties hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Employment. ---------- 1.1 Engagement of Employee. The Company agrees to employ Employee as ---------------------- the President and Chief Executive Officer ("CEO") of the Company, and Employee agrees to accept such employment, all in accordance with the terms and conditions of this Agreement. 1.2 Duties and Powers. At all times during the Employment Period (as ----------------- defined herein), Employee will serve as the Company's President and CEO and will have such responsibilities, duties and authority, and will render such services for the Company and its affiliates as the Board of Directors of Compass (the "Board") shall from time to time reasonably direct; provided, however, that such duties, responsibilities, authority and services shall be commensurate with the position of President and CEO of the Company. Employee agrees diligently and faithfully to serve the Company and to devote Employee's best efforts, highest talents and skills and full time and attention to the furtherance and success of the Business. 1.3 Employment Period. Employee's employment under this Agreement ----------------- shall be for a period of five years beginning as of the date of this Agreement (the "Initial Employment Period"). This Agreement shall automatically renew for successive one-year periods (each one-year period shall be referred to herein as a "Renewal Period") unless either the Company or Employee, as the case may be, provides written notice to the other party at least ninety (90) days prior to the termination of any such period, stating its/his desire to terminate this Agreement. The Initial Employment Period and each successive Renewal Period shall be referred to herein together as the "Employment Period". Notwithstanding anything to the contrary contained herein, the Employment Period is subject to termination pursuant to SECTION 1.5 below. 1.4 Place of Employment. Employee's services hereunder shall be ------------------- rendered at such locations in Destin, Florida or the greater Pensacola, Florida metropolitan area as shall be determined by the Board, subject to such travel as may be reasonably required in connection with the Business. Employee shall not be required to relocate to any other area without his consent. 1.5 Termination of Employment for Cause, Death or Disability. The -------------------------------------------------------- Company has the right to terminate Employee's employment under this Agreement, by notice to Employee in writing at any time, for Cause (as hereinafter defined), and such employment shall automatically be terminated upon the death or the Disability (as hereinafter defined) of Employee. Any such termination shall be effective upon the date of service of such notice pursuant to SECTION 6.7 hereof, in the case of termination for Cause, or immediately upon the death or Disability of Employee, and the Employment Period shall terminate as of the effective date of such termination. "Cause," as used herein, means the occurrence of any of the following events: (i) final non-appealable conviction of (A) a felony or (B) any crime involving moral turpitude; (ii) the willful failure of Employee to comply with reasonable and lawful directions of the Board after (A) written notice is delivered to Employee describing such willful failure and (B) Employee has failed to cure or take substantial steps to cure such willful failure after a reasonable time period, as determined by the Board in its reasonable discretion (not to be less than 60 days); (iii) the good faith determination by the Board in the exercise of its reasonable judgment that Employee has committed an act or acts in the course of his employment constituting fraud or misappropriation of Company property; -2- (iv) a material breach by Employee of any of the terms, conditions or covenants set forth in SECTION 3 of this Agreement; or (v) a material breach by Employee of any of the terms or conditions of this Agreement if (A) written notice is delivered to Employee describing such breach and (B) Employee has failed to cure or take substantial steps to cure such breach after a reasonable time period, as determined by the Board in its reasonable discretion (not to be less than 60 days). Employee shall be deemed to have a "Disability" for purposes of this Agreement if he is unable to perform, by reason of physical or mental incapacity, his material duties or obligations under this Agreement, with or without reasonable accommodation, for a total period of 90 days in any 360-day period. The Board shall determine, according to the facts then available, whether and when the Disability of the Employee has occurred. Such determination shall not be arbitrary or unreasonable and the Board will, if possible, take into consideration the expert medical opinion of a physician mutually agreed upon by Employe and the Company, after such physician has completed an examination of Employee. Employee agrees to make reasonable efforts to make himself available for such examination upon the reasonable request of the Company. 2. Compensation and Benefits. ------------------------- 2.1 Salary. In consideration of Employee performing his duties under ------ this Agreement during the Employment Period, the Company will pay Employee a base salary at a rate of $100,000 per annum (the "Base Salary"), payable in accordance with the Company's regular payroll policy for salaried employees. The Base Salary may be increased (but not decreased), from time to time during the Employment Period, as determined by the Compensation Committee of the Board (the "Compensation Committee"), in its sole discretion, and in any event will be increased on January 1 of each year beginning January 1, 1999 to reflect corresponding increases in the United States Department of Labor, Bureau of Labor Statistics, Consumer Price Index, All Urban Consumers, United States City Average, all items (1982- 88=100). If warranted by the growth of the Business, in the sole judgment of the Compensation Committee, the Base Salary will be increased as of January 1, 1999 to the level of the Base Salary of the other CEO's of the Founding Companies (as defined in the Purchase Agreement). If the Employment Period is terminated pursuant to SECTION 1.5 above, then the Base Salary for any partial year will be prorated based on the number of days elapsed in such year during which services were actually performed by Employee, and all such prorated Base Salary which remains unpaid, together with accrued but unused vacation and sick pay, if any, shall be paid by the Company to Employee within five days after the effective date of termination of the Employment Period. 2.2 Bonus. Employee shall participate in Compass' Executive ----- Compensation Program (the "Bonus Program"), under which Employee shall be eligible to earn an annual bonus of up to 100% of Employee's Base Salary based upon such factors as (i) the financial performance of the Company, (ii) the financial performance of Compass, and/or (iii) the achievement of personal performance goals. The criteria and/or goals for -3- the Bonus Program shall be established by the Compensation Committee at the beginning of each fiscal year after consultation with Employee. All bonuses awarded to Employee hereunder shall be payable in accordance with Company policy. If the Employment Period is terminated pursuant to SECTION 1.5 above then the foregoing bonus for any partial year will be determined based on annualizing results to the date of the termination and will be prorated based upon the number of days elapsed in such year during which services were actually performed by Employee, and shall be paid within five days of the date of such termination. 2.3 Compensation After Termination of Employment. -------------------------------------------- (a) If the Company shall terminate Employee's employment during the Employment Period for any reason (other than for Cause pursuant to SECTION 1.5 of this Agreement), or if Employee shall voluntarily terminate his employment during the Employment Period and within 60 days after a Constructive Termination (as defined below), Employee shall be entitled to receive severance compensation equal to (A) the amount of his Base Salary for a period of two years commencing on the last day of the Employment Period (the "Severance Period"), (B) (i) if permitted under Company's group health insurance coverage, continuation at the cost of Company of coverage thereunder for Employee and, if dependent coverage is then in effect, his covered dependents (subject to such changes in coverage as shall apply to Company's employees generally and provided that if the cost of dependent coverage prior to termination of employment was being paid by Employee, such cost shall continue to be payable by Employee) or (ii) if not so permitted, reimbursement by the Company of the premiums for group health insurance coverage otherwise payable by Employee under COBRA, until the end of the Severance Period or until other employment is obtained, whichever occurs first, and (C) his pro rated bonus, as determined by the Compensation Committee in its good faith judgement, for the period of any partial fiscal year immediately preceding the termination date in accordance with SECTION 2.2 above ((A), (B) and (C) collectively, the "Severance Benefits"). The Severance Benefits payable under (A) and (B)(ii) above shall be paid in equal installments on the Company's normal payroll payment dates occurring during the first sixty (60) days of the Severance Period. The Severance Benefits payable under (C) above shall be paid in a lump sum in accordance with SECTION 2.2 above. It shall be a condition to Employee's right to receive the Severance Benefits that (i) Employee shall execute and deliver to the Company a written separation agreement, in form and substance reasonably satisfactory to the Company (but not inconsistent with this Agreement), which agreement shall, among other things, contain a general release by Employee of all claims arising out of Employee's employment or termination of employment (but excluding claims for indemnification for third party claims pursuant to the Company's articles of incorporation and/or bylaws), and (ii) Employee shall be in compliance with all of Employee's obligations which expressly survive termination hereof, including without limitation those arising under SECTIONS 3 AND 4 hereof. In addition, the Company may, as a condition to such Severance Benefits, require that Employee provide consulting services to the Company on a reasonable basis -4- during the first sixty (60) days of the Severance Period, provided that the timing of such consulting services shall not unreasonably interfere with Employee's ability to obtain other full-time employment. The Severance Benefits are intended to be in lieu of all other payments to which Employee might otherwise be entitled in respect of termination of Employee's employment without Cause (except for the payments required under SECTION 2.1). Except as expressly provided above, no fringe or other employee benefits shall be payable during or after the Severance Period. (b) If Employee's employment shall be terminated pursuant to SECTION 1.5, the Company shall have no further obligations hereunder or otherwise with respect to Employee's employment from and after the effective date of the termination of the Employment Period (except for payments required under SECTION 2.1), and the Company shall continue to have all other rights available hereunder (including, without limitation, all rights under SECTIONS 3 AND 4 hereof at law or in equity). (c) For the avoidance of doubt, Severance Benefits shall not be payable if Employee's employment is terminated by reason of his death or Disability, but shall continue to be payable during the Severance Period if his employment is terminated without Cause or by reason of Constructive Termination and he subsequently dies or becomes disabled. (d) "Constructive Termination" as used herein, shall be deemed to have occurred if the Company (i) demotes Employee to a position below that of President and CEO of the Company or assigns the Employee duties and responsibilities that are not commensurate with such position, (ii) reduces Employee's Base Salary or materially reduces his employee benefits and prerequisites, taken in the aggregate, or (iii) requires Employee to relocate in violation of SECTION 1.4. 2.4 Benefits, Expenses and Pension Plan. During the Employment ----------------------------------- Period, the Company agrees to provide to Employee such fringe and other employee benefits as are generally provided, from time to time, to senior officers of the subsidiaries of Compass (upon no less favorable terms as provided to such officers), including without limitation, vacation, health and insurance benefits, and the opportunity to participate in the Compass Stock Option Plan and Compass Stock Purchase Plan. The Company shall retain the right to discontinue or modify any employee benefit program at any time. The Company will reimburse Employee in accordance with Company policy for his normal out-of-pocket expenses incurred in the course of performing his duties hereunder. 3. Covenants. --------- 3.1 Employee's Acknowledgment. Employee acknowledges that: ------------------------- (i) the Company is and will be engaged in the Business during the Employment Period and thereafter; -5- (ii) Employee is one of a limited number of persons who will manage the Business; (iii) Employee will occupy a position of trust and confidence with the Company after the date of this Agreement, and during the Employment Period and Employee's employment under this Agreement, Employee will become familiar with the Company's proprietary and confidential information concerning the Company and the Business; (iv) the agreements and covenants contained in this SECTION 3 are essential to protect the Company and the goodwill of the Business and are a condition precedent to the Company's entering into this Agreement; (v) Employee's employment with the Company has special, unique and extraordinary value to the Company and the Company would be irreparably damaged if Employee were to provide services to any person or entity in violation of the provisions of this Agreement; and (vi) Employee has means to support himself and his dependents other than by engaging in the Business, or a business substantially similar to the Business, and the provisions of this SECTION 3 will not impair such ability. 3.2 Non-Compete. Employee hereby agrees that during the Employment ------------ Period and through the period ending with the second anniversary of the last day of the Employment Period (collectively, the "RESTRICTIVE PERIOD"), he shall not, for any reason whatsoever, directly or indirectly, whether individually or as an officer, director, shareholder, owner, partner, joint venturer, employee, independent contractor, consultant or advisor to or of any entity, or in any other capacity: (i) engage, participate or invest in any business which is competitive with the Business anywhere within the United States of America (the "Territory"); provided, however, that nothing contained herein shall be construed to prevent Employee from investing in up to 5% of the outstanding stock of any competing corporation that is publicly-traded and listed on a recognized national, international or regional securities exchange or traded in the U.S. over-the-counter market, but only if Employee is not actively involved in and does not render consulting services to the business of said corporation, (ii) sell or provide any competitive products or services to, or solicit for the purpose of selling or providing any competitive products or services to, any person or entity that was a customer of the Company at any time during the one-year period ending on the last day ("Termination Date") of the Employment Period or that was known by Employee to have been actively being solicited by the Company to become a customer of the Company at any time during such period, -6- (iii) solicit for employment or engagement, or influence or induce to leave the Company's employment, or knowingly cause to be employed or engaged, any person who is employed or engaged by the Company in a managerial capacity on the Termination Date or during the Restrictive Period, unless such person has been out of the employ of the Company for at least 180 days; provided, that the Employee shall be permitted to solicit and hire any member of his immediate family, or (iv) enter into, or call upon or request non-public information for the purpose of entering into, an Acquisition Transaction with any entity with respect to which Company has made an offer or proposal for, or entered into discussions or negotiations for, or evaluated with the intent of making a proposal for, an Acquisition Transaction, within the six-month period immediately preceding the Termination Date. For purposes of this Agreement, an "Acquisition Transaction" means a merger, consolidation, purchase of material assets, purchase of a material equity interest, tender offer, recapitalization, accumulation of shares, proxy solicitation or other business combination. 3.3 Intellectual Property Rights. Employee will promptly ---------------------------- communicate, disclose and transfer to the Company free of all encumbrances and restrictions (and will execute and deliver any papers and take any reasonable action at any time deemed reasonably necessary by the Company to further establish such transfer) all of Employee's right, title and interest in and to all ideas, discoveries, inventions and improvements relating to the Business created, originated, developed or conceived of by Employee solely or jointly with others during the term of Employee's employment here under, whether or not during normal working hours. Employee agrees that all right, title and interest in and to all such ideas, discoveries, inventions and improvements shall belong solely to the Company, whether or not they are protected or protectible under applicable patent, trademark, service mark, copyright or trade secret laws. Employee agrees that all work or other material containing or reflecting any such ideas, discoveries, inventions or improvements shall be deemed work made for hire as defined in Section 101 of the Copyright Act, 15 U.S.C.(S)101. Such transfer shall include all patent rights, copyrights, trademark and service mark rights, and trade secret rights (if any) to such ideas, discoveries, inventions and improvements in the United States and in all other countries. Employee further agrees, at the expense of the Company, to take all such reasonable actions and to execute and deliver all such assignments and other lawful papers relating to any aspect of the prosecution of such rights in the United States and all other countries as the Company may request at any time during the Employment Period or after termination thereof. 3.4 Interference with Relationships. Other than in the performance ------------------------------- of his duties hereunder, during the Restrictive Period, Employee shall not, directly or indirectly, as employee, agent, consultant, stockholder, director, partner or in any other individual or representative capacity, solicit or intentionally encourage any present or future customer, supplier or other third party to terminate or otherwise alter his, her or its relationship with the Company. -7- 3.5 Confidential Information. Other than in the performance of his ------------------------ duties hereunder, during the Restrictive Period and thereafter, Employee shall keep secret and retain in strictest confidence, and shall not, without the prior written consent of the Company, directly or indirectly furnish, make available or disclose to any third party or use for the benefit of himself or any third party, any Confidential Information. As used in this Agreement, "Confidential Information" shall mean any information relating to the business or affairs of the Company or the Business, including, but not limited to, information relating to financial statements, employees, customers, suppliers, pricing, marketing, equipment, programs, strategies, analyses, profit margins, or other proprietary information of or used by Compass, the Company or any other subsidiary of Compass in connection with the Business; provided, however, that Confidential Information shall not include any information which is in the public domain or becomes known in the industry through no wrongful act on the part of Employee. Employee acknowledges that the Confidential Information is vital, sensitive, confidential and proprietary to the Company and Compass. 3.6 Blue-Pencil. If any court of competent jurisdiction shall at any ----------- time deem the Restrictive Period too lengthy or the Territory too extensive, the other provisions of this SECTION 3 shall nevertheless stand, the Restrictive Period herein shall be deemed to be the longest period permissible by law under the circumstances and the Territory herein shall be deemed to comprise the largest territory permissible by law under the circumstances. The court in each case shall reduce the time period and/or territory to permissible duration or size. 3.7 Return of Company Materials Upon Termination. Employee -------------------------------------------- acknowledges that all price lists, sales manuals, catalogs, binders, customer lists and other customer information, supplier lists and other supplier information, financial information, memoranda, correspondence and other records or documents including information stored on computer disks or in computer readable form, containing Confidential Information prepared by Employee or coming into Employee's possession by virtue of Employee's employment by the Company is and shall remain the property of the Company and that upon termination of Employee's employment hereunder, Employee shall return immediately to the Company all such items, together with all copies thereof, in Employee's possession. 3.8 Remedies. Employee acknowledges and agrees that the covenants -------- set forth in this SECTION 3 (collectively, the "RESTRICTIVE COVENANTS") are reasonable and necessary for the protection of the Company's business interests, that irreparable injury will result to the Company if Employee breaches any of the terms of said Restrictive Covenants, and that in the event Employee breaches or threatens to breach any such Restrictive Covenants, the Company will have no adequate remedy at law. Employee accordingly agrees that in the event Employee breaches or threatens to breach any of the Restrictive Covenants, the Company shall be entitled to immediate temporary injunctive and other equitable relief, and without the necessity of showing actual monetary damages. Nothing contained herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or the threat of such a breach by Employee, including the recovery of any damages which it is able to prove. -8- 3.9 Company. For purposes of this SECTION 3, the term "Company" ------- shall include the Company and its respective subsidiaries, affiliates, permitted assignees and any permitted successors in interest of the Company or its subsidiaries or affiliates. 4. Effect of Termination. If Employee or the Company should terminate --------------------- Employee's employment for any reason, then, notwithstanding such termination, those provisions contained in SECTIONS 2.3, 3, 4, 5 AND 6 hereof shall remain in full force and effect. 5. Income Tax Treatment. Employee and the Company acknowledge that it is -------------------- the intention of the Company to deduct all amounts paid under SECTION 2 hereof as ordinary and necessary business expenses for income tax purposes. Employee agrees and represents that he will treat all such amounts as required pursuant to all applicable tax laws and regulations. 6. Miscellaneous. ------------- 6.1 Life Insurance. The Company may at its discretion and at any -------------- time apply for and procure as owner and for its own benefit and at its own expense, insurance on the life of Employee in such amounts and in such form or forms as the Company may choose. Employee shall cooperate with the Company in procuring such insurance and shall, at the request of the Company, submit to such medical examinations, supply such information and execute such documents as may be reasonably and customarily required by the insurance company or companies to whom the Company has applied for such insurance. Employee shall have no interest whatsoever in any such policy or policies, except that, upon the termination of Employee's employment hereunder, Employee may purchase any and all such insurance from the Company for an amount equal to the actual premiums thereon previously paid by the Company. 6.2 Assignment. No party hereto may assign or delegate any of its ---------- rights or obligations hereunder without the prior written consent of the other party hereto; provided, however, that the Company shall have the right to assign all or any part of its rights and obligations under this Agreement upon written notice to Employee (i) to any affiliate of the Company to which the Business of the Company is assigned at any time (provided that the Company and Compass shall remain liable for all obligations of the Company hereunder) or any surviving entity following any merger or consolidation of the Company and any other entity or (ii) in connection with the sale of the Business by the Company. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective legal representatives, heirs, permitted successors and assigns of the parties hereto whether so expressed or not. 6.3 Entire Agreement. Except as otherwise expressly set forth ---------------- herein, this Agreement sets forth the entire understanding of the parties, and supersedes and preempts all prior oral or written understandings and agreements, with respect to the subject matter hereof. -9- 6.4 Severability. Whenever possible, each provision of this ------------ Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. 6.5 Amendment; Modification. No amendment or modification of this ----------------------- Agreement and no waiver by any party of the breach of any covenant contained herein shall be binding unless executed in writing by the party against whom enforcement of such amendment, modification or waiver is sought. No waiver shall be deemed a continuing waiver or a waiver in respect of any subsequent breach or default, either of a similar or different nature, unless expressly so stated in writing. 6.6 Governing Law. This Agreement shall be construed and enforced in ------------- accordance with, and all questions concerning the construction, validity, interpretation and performance of this Agreement shall be governed by, the laws of the State of Florida, without giving effect to provisions thereof regarding conflict of laws. 6.7 Notices. All notices, demands or other communications to be ------- given or delivered hereunder or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been properly served if (a) delivered personally, (b) delivered by a nationally recognized overnight courier service, (c) sent by certified or registered mail, return receipt requested and first class postage prepaid, or (d) sent by facsimile transmission followed by a confirmation copy delivered by a nationally recognized overnight courier service the next day. Such notices, demands and other communications shall be sent to the addresses indicated below: (a) If to Employee: Mr. H. Gene Collins 10065 West Emerald Coast Parkway Suite B1 Destin, Florida 32541 Facsimile No.: (904) 650-6538 with a copy to: Alston & Bird LLP One Atlantic Center 1201 West Peachtree Street Atlanta, Georgia 30309-3424 Attn: David E. Brown, Jr., Esq. Facsimile No.: (404) 881-4777 and -10- Emmanuel Sheppard & Condon 30 S. Spring Street Pensacola, Florida 32501 Attn: Kramer Litvak, Esq. Facsimile No.: (904) 434-7163 (b) If to the Company: BRMC of Delaware, Inc. c/o Compass International Services Corporation 5 Independence Way, Suite 300 Princeton, NJ 08540 Attention: President with a copy to: Compass International Services Corporation 5 Independence Way, Suite 300 Princeton, NJ 08540 Attention: President with a copy to: Katten Muchin & Zavis 525 West Monroe, Suite 1600 Chicago, IL 60661 Attention: Howard S. Lanznar, Esq. Facsimile No.: (312) 902-1061 or to such other address or facsimile number or to the attention of such other person or entity as the recipient party has specified by prior written notice to the sending party. Date of service of such notice shall be (i) the date such notice is personally delivered or sent by facsimile transmission (with issuance by the transmitting machine of a confirmation of successful transmission), (ii) five business days after the date of mailing if sent by certified or registered mail or (iii) one business day after date of delivery to the overnight courier if sent by overnight courier. 6.8 Counterparts. This Agreement may be executed in multiple ------------ counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same Agreement. 6.9 Descriptive Headings; Interpretation. The descriptive headings in ------------------------------------ this Agreement are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. The use of the word "including" in this Agreement shall be by way of example rather than by limitation. The Preliminary Recitals set forth above are incorporated by reference into this Agreement. -11- 6.10 No Strict Construction. The language used in this Agreement will be ---------------------- deemed to be the language chosen by the parties hereto to express their mutual interest, and no rule of strict construction will be applied against any party hereto. 6.11 Arbitration. Any controversy or claim arising out of or relating to ----------- this Agreement, the making, interpretation or the breach thereof, other than a claim solely for injunctive relief for any alleged breach of the provisions of SECTION 3 as to which the parties shall have the right to apply for relief in any court of competent jurisdiction, shall be resolved by arbitration in Pensacola, Florida, in accordance with the Federal Arbitration Act and the National Rules for the Resolution of Employment Disputes of the American Arbitration Association. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof and any party to the arbitration may, if such party so elects, institute proceedings in any court having jurisdiction for the specific performance of any such award. Without limiting the generality of the foregoing sentence, the claims to which this provision shall apply include, but are not limited to: (i) any claims arising out of or related to this Employment Agreement or breach thereof ; (ii) any claims arising under any federal, state or local statute or the common law of any state, regarding compensation or employee benefits, or discrimination, retaliation, harassment, or denial of equal employment opportunity based on sex, race, color, religion, national origin, disability, age, marital status, or any other category protected by law; (iii) any claims arising under the common law of the United States or any state relating to Employee's employment with Company, including without limitation claims alleging negligence, defamation, public policy, tort, infliction of emotional distress, fraud, or misrepresentation; or (iv) any civil claims that Company may have against Employee relating to Employee's employment with Company. Anything herein to the contrary notwithstanding, this SECTION 6.11 shall not apply to: (i) any claim by Employee for workers' compensation benefits or unemployment compensation benefits; or (ii) any claim by Company for injunctive or equitable relief, including without limitation claims related to the enforcement of SECTION 3 hereof, which may be brought in any court of competent jurisdiction. EMPLOYEE AND COMPANY EXPRESSLY WAIVE ANY RIGHT TO RESOLVE ANY DISPUTE COVERED BY THIS SECTION BY FILING SUIT IN COURT FOR TRIAL BY A JUDGE OR JURY. The arbitrator shall include in any award in the prevailing party's favor costs and expenses of the arbitration. In the event the arbitrator does not rule in favor of the prevailing party in respect of all the claims alleged by such party, the arbitrator shall include in any award in favor of the prevailing party the amount of his or its reasonable costs and expenses of the arbitration as he deems just and equitable under the circumstances. Except as provided above, each party to the arbitration shall bear his or its own attorney's fees and expenses and the parties shall bear equally all other costs and expenses of the arbitration. -12- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. COMPANY: BOMAR RECEIVABLES MANAGEMENT CORPORATION By: /s/ Mary Maloney --------------------------------------- Its: Secretary --------------------------------------- EMPLOYEE: /s/ H. Gene Collins --------------------------------------------- H. GENE COLLINS For good and valuable consideration, the receipt of which is hereby acknowledged, the undersigned hereby unconditionally guarantees payment and performance of the obligations of the Company hereunder. COMPASS INTERNATIONAL SERVICES CORPORATION By: /s/ Michael J. Cunningham --------------------------------------- Michael J. Cunningham Chairman and CEO -13- EX-10.13 15 EMPLOYMENT AGREEMENT -- MARK MALONEY EXHIBIT 10.13 EMPLOYMENT AGREEMENT BY AND BETWEEN BRMC OF DELAWARE, INC. AND MARY MALONEY EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of March __, 1998, by and between BRMC of Delaware, Inc., a Delaware corporation (the "Company"), and Mary Maloney ("Employee"). PRELIMINARY RECITALS A. Reference is made to that certain Stock Purchase Agreement, dated as of October 3, 1997, as amended (the "Purchase Agreement"), by and among the Company, Compass International Services Corporation, a Delaware corporation ("Compass"), and the stockholders of the Company identified on Schedule A to the ---------- Purchase Agreement, providing for the purchase (the "Purchase") by Compass of all of the outstanding capital stock of the Company, whereby the Company shall become a wholly-owned subsidiary of Compass. B. The Company provides accounts receivable management services and telephonic check drafting services (the "Business"). C. Employee has been a substantial stockholder of the Company since its inception, and has extensive knowledge and a unique understanding of the Business and has developed longstanding business relationships with customers and other business constituencies who are involved in the Business. D. The Company desires to employ Employee, and Employee desires to be employed by the Company, all under the terms and conditions set forth herein. E. It is a condition to the consummation of the Purchase Agreement that the Company and Employee enter into this Agreement. NOW, THEREFORE, in consideration of the premises, the mutual covenants of the parties hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Employment. ---------- 1.1 Engagement of Employee. The Company agrees to employ Employee as ---------------------- the Vice President and Secretary of the Company, and Employee agrees to accept such employment, all in accordance with the terms and conditions of this Agreement. 1.2 Duties and Powers. At all times during the Employment Period (as ----------------- defined herein), Employee will serve as the Company's Vice President and Secretary and will have such responsibilities, duties and authority, and will render such services for the Company and its affiliates as the Board of Directors of Compass (the "Board") shall from time to time reasonably direct; provided, however, that such duties, responsibilities, authority and services shall be commensurate with the position of Vice President and Secretary of the Company. Employee agrees diligently and faithfully to serve the Company and to devote Employee's best efforts, highest talents and skills and full time and attention to the furtherance and success of the Business. 1.3 Employment Period. Employee's employment under this Agreement ----------------- shall be for a period of five years beginning as of the date of this Agreement (the "Initial Employment Period"). This Agreement shall automatically renew for successive one-year periods (each one-year period shall be referred to herein as a "Renewal Period") unless either the Company or Employee, as the case may be, provides written notice to the other party at least ninety (90) days prior to the termination of any such period, stating its/her desire to terminate this Agreement. The Initial Employment Period and each successive Renewal Period shall be referred to herein together as the "Employment Period". Notwithstanding anything to the contrary contained herein, the Employment Period is subject to termination pursuant to SECTION 1.5 below. 1.4 Place of Employment. Employee's services hereunder shall be ------------------- rendered at such locations in Destin, Florida or the greater Pensacola, Florida metropolitan area as shall be determined by the Board, subject to such travel as may be reasonably required in connection with the Business. Employee shall not be required to relocate to any other area without her consent. 1.5 Termination of Employment for Cause, Death or Disability. The -------------------------------------------------------- Company has the right to terminate Employee's employment under this Agreement, by notice to Employee in writing at any time, for Cause (as hereinafter defined), and such employment shall automatically be terminated upon the death or the Disability (as hereinafter defined) of Employee. Any such termination shall be effective upon the date of service of such notice pursuant to SECTION 6.7 hereof, in the case of termination for Cause, or immediately upon the death or Disability of Employee, and the Employment Period shall terminate as of the effective date of such termination. "Cause," as used herein, means the occurrence of any of the following events: (i) final non-appealable conviction of (A) a felony or (B) any crime involving moral turpitude; (ii) the willful failure of Employee to comply with reasonable and lawful directions of the Board after (A) written notice is delivered to Employee describing such willful failure and (B) Employee has failed to cure or take substantial steps to cure such willful failure after a reasonable time period, as determined by the Board in its reasonable discretion (not to be less than 60 days); (iii) the good faith determination by the Board in the exercise of its reasonable judgment that Employee has committed an act or acts in the course of her employment constituting fraud or misappropriation of Company property; (iv) a material breach by Employee of any of the terms, conditions or covenants set forth in SECTION 3 of this Agreement; or -2- (v) a material breach by Employee of any of the terms or conditions of this Agreement if (A) written notice is delivered to Employee describing such breach and (B) Employee has failed to cure or take substantial steps to cure such breach after a reasonable time period, as determined by the Board in its reasonable discretion (not to be less than 60 days). Employee shall be deemed to have a "Disability" for purposes of this Agreement if she is unable to perform, by reason of physical or mental incapacity, her material duties or obligations under this Agreement, with or without reasonable accommodation, for a total period of 90 days in any 360-day period. The Board shall determine, according to the facts then available, whether and when the Disability of the Employee has occurred. Such determination shall not be arbitrary or unreasonable and the Board will, if possible, take into consideration the expert medical opinion of a physician mutually agreed upon by Employee and the Company, after such physician has completed an examination of Employee. Employee agrees to make reasonable efforts to make herself available for such examination upon the reasonable request of the Company. 2. Compensation and Benefits. ------------------------- 2.1 Salary. In consideration of Employee performing her duties under ------ this Agreement during the Employment Period, the Company will pay Employee a base salary at a rate of $100,000 per annum (the "Base Salary"), payable in accordance with the Company's regular payroll policy for salaried employees. The Base Salary may be increased (but not decreased), from time to time during the Employment Period, as determined by the Compensation Committee of the Board (the "Compensation Committee"), in its sole discretion, and in any event will be increased on January 1 of each year beginning January 1, 1999 to reflect corresponding increases in the United States Department of Labor, Bureau of Labor Statistics, Consumer Price Index, All Urban Consumers, United States City Average, all items (1982- 88=100). If warranted by the growth of the Business, in the sole judgment of the Compensation Committee, the Base Salary will be increased as of January 1, 1999 to the level of the Base Salary of the other CEO's of the Founding Companies (as defined in the Purchase Agreement). If the Employment Period is terminated pursuant to SECTION 1.5 above, then the Base Salary for any partial year will be prorated based on the number of days elapsed in such year during which services were actually performed by Employee, and all such prorated Base Salary which remains unpaid, together with accrued but unused vacation and sick pay, if any, shall be paid by the Company to Employee within five days after the effective date of termination of the Employment Period. 2.2 Bonus. Employee shall participate in Compass' Executive ----- Compensation Program (the "Bonus Program"), under which Employee shall be eligible to earn an annual bonus of up to 100% of Employee's Base Salary based upon such factors as (i) the financial performance of the Company, (ii) the financial performance of Compass, and/or (iii) the achievement of personal performance goals. The criteria and/or goals for the Bonus Program shall be established by the Compensation Committee at the beginning of each fiscal year after consultation with Employee. All bonuses awarded to Employee hereunder shall be payable in accordance with Company policy. If the Employment -3- Period is terminated pursuant to SECTION 1.5 above then the foregoing bonus for any partial year will be determined based on annualizing results to the date of the termination and will be prorated based upon the number of days elapsed in such year during which services were actually performed by Employee, and shall be paid within five days of the date of such termination. 2.3 Compensation After Termination of Employment. -------------------------------------------- (a) If the Company shall terminate Employee's employment during the Employment Period for any reason (other than for Cause pursuant to SECTION 1.5 of this Agreement), or if Employee shall voluntarily terminate her employment during the Employment Period and within 60 days after a Constructive Termination (as defined below), Employee shall be entitled to receive severance compensation equal to (A) the amount of her Base Salary for a period of two years commencing on the last day of the Employment Period (the "Severance Period"), (B) (i) if permitted under Company's group health insurance coverage, continuation at the cost of Company of coverage thereunder for Employee and, if dependent coverage is then in effect, her covered dependents (subject to such changes in coverage as shall apply to Company's employees generally and provided that if the cost of dependent coverage prior to termination of employment was being paid by Employee, such cost shall continue to be payable by Employee) or (ii) if not so permitted, reimbursement by the Company of the premiums for group health insurance coverage otherwise payable by Employee under COBRA, until the end of the Severance Period or until other employment is obtained, whichever occurs first, and (C) her pro rated bonus, as determined by the Compensation Committee in its good faith judgement, for the period of any partial fiscal year immediately preceding the termination date in accordance with SECTION 2.2 above ((A), (B) and (C) collectively, the "Severance Benefits"). The Severance Benefits payable under (A) and (B)(ii) above shall be paid in equal installments on the Company's normal payroll payment dates occurring during the first sixty (60) days of the Severance Period. The Severance Benefits payable under (C) above shall be paid in a lump sum in accordance with SECTION 2.2 above. It shall be a condition to Employee's right to receive the Severance Benefits that (i) Employee shall execute and deliver to the Company a written separation agreement, in form and substance reasonably satisfactory to the Company (but not inconsistent with this Agreement), which agreement shall, among other things, contain a general release by Employee of all claims arising out of Employee's employment or termination of employment (but excluding claims for indemnification for third party claims pursuant to the Company's articles of incorporation and/or bylaws), and (ii) Employee shall be in compliance with all of Employee's obligations which expressly survive termination hereof, including without limitation those arising under SECTIONS 3 AND 4 hereof. In addition, the Company may, as a condition to such Severance Benefits, require that Employee provide consulting services to the Company on a reasonable basis during the first sixty (60) days of the Severance Period, provided that the timing of such consulting services shall not unreasonably interfere with Employee's ability to obtain other full-time employment. The Severance Benefits are intended -4- to be in lieu of all other payments to which Employee might otherwise be entitled in respect of termination of Employee's employment without Cause (except for the payments required under SECTION 2.1). Except as expressly provided above, no fringe or other employee benefits shall be payable during or after the Severance Period. (b) If Employee's employment shall be terminated pursuant to SECTION 1.5, the Company shall have no further obligations hereunder or otherwise with respect to Employee's employment from and after the effective date of the termination of the Employment Period (except for payments required under SECTION 2.1), and the Company shall continue to have all other rights available hereunder (including, without limitation, all rights under SECTIONS 3 AND 4 hereof at law or in equity). (c) For the avoidance of doubt, Severance Benefits shall not be payable if Employee's employment is terminated by reason of her death or Disability, but shall continue to be payable during the Severance Period if her employment is terminated without Cause or by reason of Constructive Termination and she subsequently dies or becomes disabled. (d) "Constructive Termination" as used herein, shall be deemed to have occurred if the Company (i) demotes Employee to a position below that of Vice President and Secretary of the Company or assigns the Employee duties and responsibilities that are not commensurate with such position, (ii) reduces Employee's Base Salary or materially reduces her employee benefits and prerequisites, taken in the aggregate, or (iii) requires Employee to relocate in violation of SECTION 1.4. 2.4 Benefits, Expenses and Pension Plan. During the Employment ----------------------------------- Period, the Company agrees to provide to Employee such fringe and other employee benefits as are generally provided, from time to time, to senior officers of the subsidiaries of Compass (upon no less favorable terms as provided to such officers), including without limitation, vacation, health and insurance benefits, and the opportunity to participate in the Compass Stock Option Plan and Compass Stock Purchase Plan. The Company shall retain the right to discontinue or modify any employee benefit program at any time. The Company will reimburse Employee in accordance with Company policy for her normal out-of-pocket expenses incurred in the course of performing her duties hereunder. 3. Covenants. --------- 3.1 Employee's Acknowledgment. Employee acknowledges that: ------------------------- (i) the Company is and will be engaged in the Business during the Employment Period and thereafter; (ii) Employee is one of a limited number of persons who will manage the Business; -5- (iii) Employee will occupy a position of trust and confidence with the Company after the date of this Agreement, and during the Employment Period and Employee's employment under this Agreement, Employee will become familiar with the Company's proprietary and confidential information concerning the Company and the Business; (iv) the agreements and covenants contained in this SECTION 3 are essential to protect the Company and the goodwill of the Business and are a condition precedent to the Company's entering into this Agreement; (v) Employee's employment with the Company has special, unique and extraordinary value to the Company and the Company would be irreparably damaged if Employee were to provide services to any person or entity in violation of the provisions of this Agreement; and (vi) Employee has means to support himself and her dependents other than by engaging in the Business, or a business substantially similar to the Business, and the provisions of this SECTION 3 will not impair such ability. 3.2 Non-Compete. Employee hereby agrees that during the Employment ------------ Period and through the period ending with the second anniversary of the last day of the Employment Period (collectively, the "RESTRICTIVE PERIOD"), she shall not, for any reason whatsoever, directly or indirectly, whether individually or as an officer, director, shareholder, owner, partner, joint venturer, employee, independent contractor, consultant or advisor to or of any entity, or in any other capacity: (i) engage, participate or invest in any business which is competitive with the Business anywhere within the United States of America (the "Territory"); provided, however, that nothing contained herein shall be construed to prevent Employee from investing in up to 5% of the outstanding stock of any competing corporation that is publicly-traded and listed on a recognized national, international or regional securities exchange or traded in the U.S. over-the-counter market, but only if Employee is not actively involved in and does not render consulting services to the business of said corporation, (ii) sell or provide any competitive products or services to, or solicit for the purpose of selling or providing any competitive products or services to, any person or entity that was a customer of the Company at any time during the one-year period ending on the last day ("Termination Date") of the Employment Period or that was known by Employee to have been actively being solicited by the Company to become a customer of the Company at any time during such period, (iii) solicit for employment or engagement, or influence or induce to leave the Company's employment, or knowingly cause to be employed or engaged, any person who is employed or engaged by the Company in a managerial capacity on the Termination Date or during the Restrictive Period, -6- unless such person has been out of the employ of the Company for at least 180 days; provided, that the Employee shall be permitted to solicit and hire any member of her immediate family, or (iv) enter into, or call upon or request non-public information for the purpose of entering into, an Acquisition Transaction with any entity with respect to which Company has made an offer or proposal for, or entered into discussions or negotiations for, or evaluated with the intent of making a proposal for, an Acquisition Transaction, within the six-month period immediately preceding the Termination Date. For purposes of this Agreement, an "Acquisition Transaction" means a merger, consolidation, purchase of material assets, purchase of a material equity interest, tender offer, recapitalization, accumulation of shares, proxy solicitation or other business combination. 3.3 Intellectual Property Rights. Employee will promptly ---------------------------- communicate, disclose and transfer to the Company free of all encumbrances and restrictions (and will execute and deliver any papers and take any reasonable action at any time deemed reasonably necessary by the Company to further establish such transfer) all of Employee's right, title and interest in and to all ideas, discoveries, inventions and improvements relating to the Business created, originated, developed or conceived of by Employee solely or jointly with others during the term of Employee's employment here under, whether or not during normal working hours. Employee agrees that all right, title and interest in and to all such ideas, discoveries, inventions and improvements shall belong solely to the Company, whether or not they are protected or protectible under applicable patent, trademark, service mark, copyright or trade secret laws. Employee agrees that all work or other material containing or reflecting any such ideas, discoveries, inventions or improvements shall be deemed work made for hire as defined in Section 101 of the Copyright Act, 15 U.S.C.(S)101. Such transfer shall include all patent rights, copyrights, trademark and service mark rights, and trade secret rights (if any) to such ideas, discoveries, inventions and improvements in the United States and in all other countries. Employee further agrees, at the expense of the Company, to take all such reasonable actions and to execute and deliver all such assignments and other lawful papers relating to any aspect of the prosecution of such rights in the United States and all other countries as the Company may request at any time during the Employment Period or after termination thereof. 3.4 Interference with Relationships. Other than in the performance ------------------------------- of her duties hereunder, during the Restrictive Period, Employee shall not, directly or indirectly, as employee, agent, consultant, stockholder, director, partner or in any other individual or representative capacity, solicit or intentionally encourage any present or future customer, supplier or other third party to terminate or otherwise alter his, her or its relationship with the Company. 3.5 Confidential Information. Other than in the performance of her ------------------------ duties hereunder, during the Restrictive Period and thereafter, Employee shall keep secret and retain in strictest confidence, and shall not, without the prior written consent of the -7- Company, directly or indirectly furnish, make available or disclose to any third party or use for the benefit of himself or any third party, any Confidential Information. As used in this Agreement, "Confidential Information" shall mean any information relating to the business or affairs of the Company or the Business, including, but not limited to, information relating to financial statements, employees, customers, suppliers, pricing, marketing, equipment, programs, strategies, analyses, profit margins, or other proprietary information of or used by Compass, the Company or any other subsidiary of Compass in connection with the Business; provided, however, that Confidential Information shall not include any information which is in the public domain or becomes known in the industry through no wrongful act on the part of Employee. Employee acknowledges that the Confidential Information is vital, sensitive, confidential and proprietary to the Company and Compass. 3.6 Blue-Pencil. If any court of competent jurisdiction shall at any ----------- time deem the Restrictive Period too lengthy or the Territory too extensive, the other provisions of this SECTION 3 shall nevertheless stand, the Restrictive Period herein shall be deemed to be the longest period permissible by law under the circumstances and the Territory herein shall be deemed to comprise the largest territory permissible by law under the circumstances. The court in each case shall reduce the time period and/or territory to permissible duration or size. 3.7 Return of Company Materials Upon Termination. Employee -------------------------------------------- acknowledges that all price lists, sales manuals, catalogs, binders, customer lists and other customer information, supplier lists and other supplier information, financial information, memoranda, correspondence and other records or documents including information stored on computer disks or in computer readable form, containing Confidential Information prepared by Employee or coming into Employee's possession by virtue of Employee's employment by the Company is and shall remain the property of the Company and that upon termination of Employee's employment hereunder, Employee shall return immediately to the Company all such items, together with all copies thereof, in Employee's possession. 3.8 Remedies. Employee acknowledges and agrees that the covenants -------- set forth in this SECTION 3 (collectively, the "RESTRICTIVE COVENANTS") are reasonable and necessary for the protection of the Company's business interests, that irreparable injury will result to the Company if Employee breaches any of the terms of said Restrictive Covenants, and that in the event Employee breaches or threatens to breach any such Restrictive Covenants, the Company will have no adequate remedy at law. Employee accordingly agrees that in the event Employee breaches or threatens to breach any of the Restrictive Covenants, the Company shall be entitled to immediate temporary injunctive and other equitable relief, and without the necessity of showing actual monetary damages. Nothing contained herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or the threat of such a breach by Employee, including the recovery of any damages which it is able to prove. -8- 3.9 Company. For purposes of this SECTION 3, the term "Company" ------- shall include the Company and its respective subsidiaries, affiliates, permitted assignees and any permitted successors in interest of the Company or its subsidiaries or affiliates. 4. Effect of Termination. If Employee or the Company should terminate --------------------- Employee's employment for any reason, then, notwithstanding such termination, those provisions contained in SECTIONS 2.3, 3, 4, 5 AND 6 hereof shall remain in full force and effect. 5. Income Tax Treatment. Employee and the Company acknowledge that it is -------------------- the intention of the Company to deduct all amounts paid under SECTION 2 hereof as ordinary and necessary business expenses for income tax purposes. Employee agrees and represents that she will treat all such amounts as required pursuant to all applicable tax laws and regulations. 6. Miscellaneous. ------------- 6.1 Life Insurance. The Company may at its discretion and at any -------------- time apply for and procure as owner and for its own benefit and at its own expense, insurance on the life of Employee in such amounts and in such form or forms as the Company may choose. Employee shall cooperate with the Company in procuring such insurance and shall, at the request of the Company, submit to such medical examinations, supply such information and execute such documents as may be reasonably and customarily required by the insurance company or companies to whom the Company has applied for such insurance. Employee shall have no interest whatsoever in any such policy or policies, except that, upon the termination of Employee's employment hereunder, Employee may purchase any and all such insurance from the Company for an amount equal to the actual premiums thereon previously paid by the Company. 6.2 Assignment. No party hereto may assign or delegate any of its ---------- rights or obligations hereunder without the prior written consent of the other party hereto; provided, however, that the Company shall have the right to assign all or any part of its rights and obligations under this Agreement upon written notice to Employee (i) to any affiliate of the Company to which the Business of the Company is assigned at any time (provided that the Company and Compass shall remain liable for all obligations of the Company hereunder) or any surviving entity following any merger or consolidation of the Company and any other entity or (ii) in connection with the sale of the Business by the Company. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective legal representatives, heirs, permitted successors and assigns of the parties hereto whether so expressed or not. 6.3 Entire Agreement. Except as otherwise expressly set forth ---------------- herein, this Agreement sets forth the entire understanding of the parties, and supersedes and preempts all prior oral or written understandings and agreements, with respect to the subject matter hereof. 6.4 Severability. Whenever possible, each provision of this ------------ Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if -9- any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. 6.5 Amendment; Modification. No amendment or modification of this ----------------------- Agreement and no waiver by any party of the breach of any covenant contained herein shall be binding unless executed in writing by the party against whom enforcement of such amendment, modification or waiver is sought. No waiver shall be deemed a continuing waiver or a waiver in respect of any subsequent breach or default, either of a similar or different nature, unless expressly so stated in writing. 6.6 Governing Law. This Agreement shall be construed and enforced in ------------- accordance with, and all questions concerning the construction, validity, interpretation and performance of this Agreement shall be governed by, the laws of the State of Florida, without giving effect to provisions thereof regarding conflict of laws. 6.7 Notices. All notices, demands or other communications to be ------- given or delivered hereunder or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been properly served if (a) delivered personally, (b) delivered by a nationally recognized overnight courier service, (c) sent by certified or registered mail, return receipt requested and first class postage prepaid, or (d) sent by facsimile transmission followed by a confirmation copy delivered by a nationally recognized overnight courier service the next day. Such notices, demands and other communications shall be sent to the addresses indicated below: (a) If to Employee: Ms. Mary Maloney 10065 West Emerald Coast Parkway Suite B1 Destin, Florida 32541 Facsimile No.: (904) 650-6538 with a copy to: Alston & Bird LLP One Atlantic Center 1201 West Peachtree Street Atlanta, Georgia 30309-3424 Attn: David E. Brown, Jr., Esq. Facsimile No.: (404) 881-4777 and -10- Emmanuel Sheppard & Condon 30 S. Spring Street Pensacola, Florida 32501 Attn: Kramer Litvak, Esq. Facsimile No.: (904) 434-7163 (b) If to the Company: BRMC of Delaware, Inc. c/o Compass International Services Corporation 5 Independence Way, Suite 300 Princeton, NJ 08540 Attention: President with a copy to: Compass International Services Corporation 5 Independence Way, Suite 300 Princeton, NJ 08540 Attention: President with a copy to: Katten Muchin & Zavis 525 West Monroe, Suite 1600 Chicago, IL 60661 Attention: Howard S. Lanznar, Esq. Facsimile No.: (312) 902-1061 or to such other address or facsimile number or to the attention of such other person or entity as the recipient party has specified by prior written notice to the sending party. Date of service of such notice shall be (i) the date such notice is personally delivered or sent by facsimile transmission (with issuance by the transmitting machine of a confirmation of successful transmission), (ii) five business days after the date of mailing if sent by certified or registered mail or (iii) one business day after date of delivery to the overnight courier if sent by overnight courier. 6.8 Counterparts. This Agreement may be executed in multiple ------------ counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same Agreement. 6.9 Descriptive Headings; Interpretation. The descriptive headings in ------------------------------------ this Agreement are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. The use of the word "including" in this Agreement shall be by way of example rather than by limitation. The Preliminary Recitals set forth above are incorporated by reference into this Agreement. -11- 6.10 No Strict Construction. The language used in this Agreement will be ---------------------- deemed to be the language chosen by the parties hereto to express their mutual interest, and no rule of strict construction will be applied against any party hereto. 6.11 Arbitration. Any controversy or claim arising out of or relating to ----------- this Agreement, the making, interpretation or the breach thereof, other than a claim solely for injunctive relief for any alleged breach of the provisions of SECTION 3 as to which the parties shall have the right to apply for relief in any court of competent jurisdiction, shall be resolved by arbitration in Pensacola, Florida, in accordance with the Federal Arbitration Act and the National Rules for the Resolution of Employment Disputes of the American Arbitration Association. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof and any party to the arbitration may, if such party so elects, institute proceedings in any court having jurisdiction for the specific performance of any such award. Without limiting the generality of the foregoing sentence, the claims to which this provision shall apply include, but are not limited to: (i) any claims arising out of or related to this Employment Agreement or breach thereof ; (ii) any claims arising under any federal, state or local statute or the common law of any state, regarding compensation or employee benefits, or discrimination, retaliation, harassment, or denial of equal employment opportunity based on sex, race, color, religion, national origin, disability, age, marital status, or any other category protected by law; (iii) any claims arising under the common law of the United States or any state relating to Employee's employment with Company, including without limitation claims alleging negligence, defamation, public policy, tort, infliction of emotional distress, fraud, or misrepresentation; or (iv) any civil claims that Company may have against Employee relating to Employee's employment with Company. Anything herein to the contrary notwithstanding, this SECTION 6.11 shall not apply to: (i) any claim by Employee for workers' compensation benefits or unemployment compensation benefits; or (ii) any claim by Company for injunctive or equitable relief, including without limitation claims related to the enforcement of SECTION 3 hereof, which may be brought in any court of competent jurisdiction. EMPLOYEE AND COMPANY EXPRESSLY WAIVE ANY RIGHT TO RESOLVE ANY DISPUTE COVERED BY THIS SECTION BY FILING SUIT IN COURT FOR TRIAL BY A JUDGE OR JURY. The arbitrator shall include in any award in the prevailing party's favor costs and expenses of the arbitration. In the event the arbitrator does not rule in favor of the prevailing party in respect of all the claims alleged by such party, the arbitrator shall include in any award in favor of the prevailing party the amount of her or its reasonable costs and expenses of the arbitration as she deems just and equitable under the circumstances. Except as provided above, each party to the arbitration shall bear her or its own attorney's fees and expenses and the parties shall bear equally all other costs and expenses of the arbitration. -12- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. COMPANY: BRMC OF DELAWARE, INC. By: /s/ Gene Collins -------------------------------- Gene Collins President EMPLOYEE: /s/ Mary Maloney ------------------------------------- MARY MALONEY For good and valuable consideration, the receipt of which is hereby acknowledged, the undersigned hereby unconditionally guarantees payment and performance of the obligations of the Company hereunder. COMPASS INTERNATIONAL SERVICES CORPORATION By: /s/ Michael J. Cunningham -------------------------------- Michael J. Cunningham Chairman and CEO -13- EX-10.14 16 EMPLOYMENT AGREEMENT -- LESLIE J. KIRSCHBAUM EXHIBIT 10.14 EMPLOYMENT AGREEMENT BY AND BETWEEN MID-CONTINENT AGENCIES, INC. AND LESLIE J. KIRSCHBAUM EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of March __, 1998, by and between Mid-Continent Agencies, Inc., an Illinois corporation (the "Company"), and Leslie J. Kirschbaum ("Employee"). PRELIMINARY RECITALS A. Reference is made to that certain Stock Purchase Agreement dated as of October 3, 1997, as amended (the "Purchase Agreement"), by and among the Company, Compass International Services Corporation, a Delaware corporation ("Compass"), and Employee, providing for the purchase by Compass of all of the outstanding capital stock of the Company. B. The Company provides credit collection services to clients throughout the United States, the United Kingdom, the Peoples Republic of China and other foreign countries (the "Business"). C. Employee has been a substantial stockholder of the Company for more than twenty years, and has extensive knowledge and a unique understanding of the Business and has developed longstanding business relationships with customers and other business constituencies who are involved in the Business of the Company. D. The Company desires to employ Employee, and Employee desires to be employed by the Company, all under the terms and conditions set forth herein. E. It is a condition to the consummation of the Purchase Agreement that the Company and Employee enter into this Agreement. NOW, THEREFORE, in consideration of the premises, the mutual covenants of the parties hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Employment. ---------- 1.1 Engagement of Employee. The Company agrees to employ Employee as ---------------------- President and Chief Executive Officer ("CEO") of the Company and Employee agrees to accept such employment, all in accordance with the terms and conditions of this Agreement. 1.2 Duties and Powers. At all times during the Employment Period (as ----------------- defined herein), Employee will serve as the Company's President and CEO and will have such responsibilities, duties and authority, and will render such services for the Company and its affiliates, as the Board of Directors of Compass (the "Board") shall from time to time reasonably direct; provided, however, that such duties and responsibilities, duties, authority and services shall be commensurate with the position of President and CEO of the Company. Employee agrees diligently and faithfully to serve the Company and to devote Employee's best efforts, highest talents and skills and full time and attention to the furtherance and success of the Business. 1.3 Employment Period. Employee's employment under this Agreement ----------------- shall be for a period of five years beginning as of the date of this Agreement (the "Initial Employment Period"). This Agreement shall automatically renew for successive one-year periods (each one-year period shall be referred to herein as a "Renewal Period") unless either the Company or Employee, as the case may be, provides written notice to the other party at least ninety (90) days prior to the termination of any such period, stating its/his desire to terminate this Agreement. The Initial Employment Period and each successive Renewal Period shall be referred to herein together as the "Employment Period". Notwithstanding anything to the contrary contained herein, the Employment Period is subject to termination pursuant to SECTION 1.5 below. 1.4 Place of Employment. Employee's services hereunder shall be ------------------- rendered at such locations in the greater Chicago metropolitan area as shall be determined by the Board, subject to such travel as may be reasonably required in connection with the Business. Employee shall not be required to relocate to any other area without his consent. 1.5 Termination of Employment for Cause, Death or Disability. The -------------------------------------------------------- Company has the right to terminate Employee's employment under this Agreement, by notice to Employee in writing at any time, for Cause (as hereinafter defined), and such employment shall automatically be terminated upon the death or the Disability (as hereinafter defined) of Employee. Any such termination shall be effective upon the date of service of such notice pursuant to SECTION 6.7 hereof, in the case of termination for Cause, or immediately upon the death or Disability of Employee, and the Employment Period shall terminate as of the effective date of such termination. "Cause," as used herein, means the occurrence of any of the following events: (i) final non-appealable conviction of (A) a felony or (B) any crime involving moral turpitude; (ii) the willful failure of Employee to comply with reasonable and lawful directions of the Board after (A) written notice is delivered to Employee describing such willful failure and (B) Employee has failed to cure or take substantial steps to cure such willful failure after a reasonable time period, as determined by the Board in its reasonable discretion (not to be less than 60 days); (iii) the good faith determination by the Board in the exercise of its reasonable judgment that Employee has committed an act or acts in the course of his employment constituting fraud or misappropriation of material Company property; -2- (iv) a material breach by Employee of any of the terms, conditions or covenants set forth in SECTION 3 of this Agreement; or (v) a material breach by Employee of any of the terms or conditions of this Agreement if (A) written notice is delivered to Employee describing such breach and (B) Employee has failed to cure or take substantial steps to cure such breach after a reasonable time period, as determined by the Board in its reasonable discretion (not to be less than 60 days). Employee shall be deemed to have a "Disability" for purposes of this Agreement if he is unable to perform, by reason of physical or mental incapacity, his material duties or obligations under this Agreement, with or without reasonable accommodation, for a total period of 120 days in any 360-day period. The Board shall determine, according to the facts then available, whether and when the Disability of the Employee has occurred. Such determination shall not be arbitrary or unreasonable and the Board will, if available, take into consideration the expert medical opinion of a physician mutually agreed upon by Employee and the Company, after such physician has completed an examination of Employee. Employee agrees to make reasonable efforts to make himself available for such examination upon the reasonable request of the Company. 2. Compensation and Benefits. ------------------------- 2.1 Salary. In consideration of Employee performing his duties under ------ this Agreement during the Employment Period, the Company will pay Employee a base salary at a rate of $150,000 per annum (the "Base Salary"), payable in accordance with the Company's regular payroll policy for salaried employees. The Base Salary may be increased (but not decreased), from time to time during the Employment Period, as determined by the Compensation Committee of the Board (the "Compensation Committee"), in its sole discretion, and in any event will be increased on January 1 of each year beginning January 1, 1999 to reflect corresponding increases in the United States Department of Labor, Bureau of Labor Statistics, Consumer Price Index, All Urban Consumers, United States City Average, all items (1982- 88=100). If the Employment Period is terminated pursuant to SECTION 1.5 above or for any other reason, then the Base Salary for any partial year will be prorated based on the number of days elapsed in such year during which services were actually performed by Employee, and all such prorated Base Salary which remains unpaid, together with accrued but unused vacation and sick pay, if any, shall be paid by the Company to Employee within five days after the effective date of termination of the Employment Period. 2.2 Bonus. Employee shall participate in Compass' Executive ----- Compensation Program (the "Bonus Program"), under which Employee shall be eligible to earn an annual bonus of up to 100% of Employee's Base Salary based upon such factors as (i) the financial performance of the Company, (ii) the financial performance of Compass, and/or (iii) the achievement of personal performance goals. The criteria and/or goals for the Bonus Program shall be established by the Compensation Committee at the beginning of each fiscal year after consultation with Employee. All bonuses awarded to Employee hereunder shall be payable in accordance with Company policy. If the Employment -3- Period is terminated pursuant to Section 1.5 above then the foregoing bonus for any partial year will be determined based on annualizing results to the date of the termination and will be prorated based upon the number of days elapsed in such year during which services were actually performed by Employee, and shall be paid within five days of the effective date of such termination of the Employment Period. 2.3 Compensation After Termination of Employment. -------------------------------------------- (a) If the Company shall terminate Employee's employment during the Employment Period for any reason (other than for Cause pursuant to SECTION 1.5 of this Agreement), or if Employee shall voluntarily terminate his employment during the Employment Period and within 60 days after a Constructive Termination (as defined below), Employee shall be entitled to receive severance compensation equal to (A) the amount of his Base Salary for a period of two years commencing on the last day of the Employment Period (the "Severance Period"), (B) (i) if permitted under Company's group health insurance coverage, continuation at the cost of Company of coverage thereunder for Employee and, if dependent coverage is then in effect, his covered dependents (subject to such changes in coverage as shall apply to Company's employees generally and provided that if the cost of dependent coverage prior to termination of employment was being paid by Employee, such cost shall continue to be payable by Employee) or (ii) if not so permitted, reimbursement by the Company of the premiums for group health insurance coverage otherwise payable by Employee under COBRA, until the end of the Severance Period or until other employment is obtained, whichever occurs first, and (C) his pro rated bonus, as determined by the Compensation Committee in its good faith judgement, for the period of any partial fiscal year immediately preceding the termination date in accordance with Section 2.2 above ((A), (B) and (C) collectively, the "Severance Benefits"). The Severance Benefits payable under (A) and (B)(ii) above shall be paid in equal installments on the Company's normal payroll payment dates occurring during the first 60 days of the Severance Period. The Severance Benefits payable under (C) above shall be paid in a lump sum in accordance with Section 2.2 above. It shall be a condition to Employee's right to receive the Severance Benefits that (i) Employee shall execute and deliver to the Company a written separation agreement, in form and substance reasonably satisfactory to the Company (but not inconsistent with this Agreement), which agreement shall, among other things, contain a general release by Employee of all claims arising out of Employee's employment or termination of employment (but excluding claims for indemnification for third party claims pursuant to the Company's articles of incorporation and/or bylaw), and (ii) Employee shall be in compliance with all of Employee's obligations which expressly survive termination hereof, including without limitation those arising under SECTIONS 3 AND 4 hereof. In addition, the Company may, as a condition to such Severance Benefits, require that Employee provide consulting services to the Company on a reasonable basis during the first 60 days of the Severance Period, provided that the timing of such consulting services shall not unreasonably interfere with Employee's ability to obtain other full-time employment. The Severance Benefits are intended to be in lieu of all -4- other payments to which Employee might otherwise be entitled in respect of termination of Employee's employment without Cause (except for the payments required under Section 2.1). Except as expressly provided above, no fringe or other employee benefits shall be payable during or after the Severance Period. (b) If Employee's employment shall be terminated pursuant to SECTION 1.5, the Company shall have no further obligations hereunder or otherwise with respect to Employee's employment from and after the effective date of the termination of the Employment Period (except for the payments required under SECTION 2.1), and the Company shall continue to have all other rights available hereunder (including, without limitation, all rights under SECTIONS 3 AND 4 hereof at law or in equity). (c) For the avoidance of doubt, Severance Benefits shall not be payable if Employee's employment is terminated by reason of his death or Disability, but shall continue to be payable during the Severance Period if his employment is terminated without Cause or by reason of Constructive Termination and he subsequently dies or becomes disabled. (d) "Constructive Termination" as used herein, shall be deemed to have occurred if the Company (i) demotes Employee to a position below that of President and CEO of the Company or assigns the Employee duties and responsibilities that are not commensurate with such position, (ii) reduces Employee's Base Salary or materially reduces his employee benefits and prerequisites, taken in the aggregate, or (iii) requires Employee to relocate in violation of Section 1.4. 2.4 Benefits, Expenses and Pension Plan. During the Employment ----------------------------------- Period, the Company agrees to provide to Employee such fringe and other employee benefits as are generally provided, from time to time, to senior officers of the subsidiaries of Compass (upon no less favorable terms as provided to such officers), including without limitation, vacation, health and insurance benefits, and the opportunity to participate in the Compass Stock Option Plan and Compass Stock Purchase Plan. The Company shall retain the right to discontinue or modify any employee benefit program at any time. The Company will reimburse Employee in accordance with Company policy for his normal out-of-pocket expenses incurred in the course of performing his duties hereunder. 3. Covenants. --------- 3.1 Employee's Acknowledgment. Employee acknowledges that: ------------------------- (i) the Company is and will be engaged in the Business during the Employment Period and thereafter; (ii) Employee is one of a limited number of persons who will manage the Business; -5- (iii) Employee will occupy a position of trust and confidence with the Company after the date of this Agreement, and during the Employment Period and Employee's employment under this Agreement, Employee will become familiar with the Company's proprietary and confidential information concerning the Company and the Business; (iv) the agreements and covenants contained in this SECTION 3 are essential to protect the Company and the goodwill of the Business and are a condition precedent to the Company's entering into this Agreement; (v) Employee's employment with the Company has special, unique and extraordinary value to the Company and the Company would be irreparably damaged if Employee were to provide services to any person or entity in violation of the provisions of this Agreement; and (vi) Employee has means to support himself and his dependents other than by engaging in the Business, or a business substantially similar to the Business, and the provisions of this SECTION 3 will not impair such ability. 3.2 Non-Compete. Employee hereby agrees that during the Employment ------------ Period and through the period ending with the second anniversary of the last day of the Employment Period (collectively, the "RESTRICTIVE PERIOD"), he shall not, for any reason whatsoever, directly or indirectly, whether individually or as an officer, director, shareholder, owner, partner, joint venturer, employee, independent contractor, consultant or advisor to or of any entity, or in any other capacity: (i) engage, participate or invest in any business which is competitive with the Business anywhere in the United States of America (the "Territory"); provided, however, that nothing contained herein shall be construed to prevent Employee from investing in up to 5% of the outstanding stock of any competing corporation that is publicly- traded and listed on a recognized national, international or regional securities exchange or traded in the U.S. over-the-counter market, but only if Employee is not actively involved in and does not render consulting services to the business of said corporation, (ii) sell or provide any competitive products or services to, or solicit for the purpose of selling or providing any competitive products or services to, any person or entity that was a customer of the Company at any time during the one-year period ending on the last day of the Employment Period (the "Termination Date") or that was known by Employee to have been actively being solicited by the Company to become a customer of the Company at any time during such period, (iii) solicit for employment or engagement, or influence or induce to leave the Company's employment, or knowingly cause to be employed or engaged, any person who is employed or engaged by the Company in a managerial capacity on the Termination Date or during the Restrictive Period, -6- unless such person has been out of the employ of the Company for at least 180 days; provided, that the Employee shall be permitted to solicit and hire any member of his immediate family, or (iv) enter into, or call upon or request non-public information for the purpose of entering into, an Acquisition Transaction with any entity with respect to which the Company has made an offer or proposal for, or entered into discussions or negotiations for, or evaluated with the intent of making a proposal for, an Acquisition Transaction, within the six-month period immediately preceding the Termination Date. For purposes of this Agreement, an "Acquisition Transaction" means a merger, consolidation, purchase of material assets, purchase of a material equity interest, tender offer, recapitalization, accumulation of shares, proxy solicitation or other business combination. 3.3 Intellectual Property Rights. Employee will promptly ---------------------------- communicate, disclose and transfer to the Company free of all encumbrances and restrictions (and will execute and deliver any papers and take any reasonable action at any time deemed reasonably necessary by the Company to further establish such transfer) all of Employee's right, title and interest in and to all ideas, discoveries, inventions and improvements relating to the Business created, originated, developed or conceived of by Employee solely or jointly with others during the term of Employee's employment here under, whether or not during normal working hours. Employee agrees that all right, title and interest in and to all such ideas, discoveries, inventions and improvements shall belong solely to the Company, whether or not they are protected or protectible under applicable patent, trademark, service mark, copyright or trade secret laws. Employee agrees that all work or other material containing or reflecting any such ideas, discoveries, inventions or improvements shall be deemed work made for hire as defined in Section 101 of the Copyright Act, 15 U.S.C.(S)101. Such transfer shall include all patent rights, copyrights, trademark and service mark rights, and trade secret rights (if any) to such ideas, discoveries, inventions and improvements in the United States and in all other countries. Employee further agrees, at the expense of the Company, to take all such reasonable actions and to execute and deliver all such assignments and other lawful papers relating to any aspect of the prosecution of such rights in the United States and all other countries as the Company may request at any time during the Employment Period or after termination thereof. 3.4 Interference with Relationships. Other than in the performance ------------------------------- of his duties hereunder, during the Restrictive Period, Employee shall not, directly or indirectly, as employee, agent, consultant, stockholder, director, partner or in any other individual or representative capacity, solicit or intentionally encourage any present or future customer, supplier or other third party to terminate or otherwise alter his, her or its relationship with the Company. 3.5 Confidential Information. Other than in the performance of his ------------------------ duties hereunder, during the Restrictive Period and thereafter, Employee shall keep secret and retain in strictest confidence, and shall not, without the prior written consent of the -7- Company, directly or indirectly furnish, make available or disclose to any third party or use for the benefit of himself or any third party, any Confidential Information. As used in this Agreement, "Confidential Information" shall mean any information relating to the business or affairs of the Company or the Business, including, but not limited to, information relating to financial statements, employees, customers, suppliers, pricing, marketing, equipment, programs, strategies, analyses, profit margins, or other proprietary information of or used by Compass, the Company or any other subsidiary of Compass in connection with the Business; provided, however, that Confidential Information shall not include any information which is in the public domain or becomes known in the industry through no wrongful act on the part of Employee. Employee acknowledges that the Confidential Information is vital, sensitive, confidential and proprietary to the Company and Compass. 3.6 Blue-Pencil. If any court of competent jurisdiction shall at any ----------- time deem the Restrictive Period too lengthy or the Territory too extensive, the other provisions of this SECTION 3 shall nevertheless stand, the Restrictive Period herein shall be deemed to be the longest period permissible by law under the circumstances and the Territory herein shall be deemed to comprise the largest territory permissible by law under the circumstances. The court in each case shall reduce the time period and/or territory to permissible duration or size. 3.7 Return of Company Materials Upon Termination. Employee -------------------------------------------- acknowledges that all price lists, sales manuals, catalogs, binders, customer lists and other customer information, supplier lists and other supplier information, financial information, memoranda, correspondence and other records or documents including information stored on computer disks or in computer readable form, containing Confidential Information prepared by Employee or coming into Employee's possession by virtue of Employee's employment by the Company is and shall remain the property of the Company and that upon termination of Employee's employment hereunder, Employee shall return immediately to the Company all such items, together with all copies thereof, in Employee's possession. 3.8 Remedies. Employee acknowledges and agrees that the covenants -------- set forth in this SECTION 3 (collectively, the "RESTRICTIVE COVENANTS") are reasonable and necessary for the protection of the Company's business interests, that irreparable injury will result to the Company if Employee breaches any of the terms of said Restrictive Covenants, and that in the event Employee breaches or threatens to breach any such Restrictive Covenants, the Company will have no adequate remedy at law. Employee accordingly agrees that in the event Employee breaches or threatens to breach any of the Restrictive Covenants, the Company shall be entitled to immediate temporary injunctive and other equitable relief, without the necessity of showing actual monetary damages. Nothing contained herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or the threat of such a breach by Employee, including the recovery of any damages which it is able to prove. -8- 3.9 Company. For purposes of this Section 3, the term "Company" ------- shall include the Company and its respective subsidiaries, affiliates, permitted assignees and any permitted successors in interest of the Company or its subsidiaries or affiliates. 4. Effect of Termination. If Employee or the Company should terminate --------------------- Employee's employment for any reason, then, notwithstanding such termination, those provisions contained in SECTIONS 2.3, 3, 4, 5 AND 6 hereof shall remain in full force and effect. 5. Income Tax Treatment. Employee and the Company acknowledge that it is -------------------- the intention of the Company to deduct all amounts paid under SECTION 2 hereof as ordinary and necessary business expenses for income tax purposes. Employee agrees and represents that he will treat all such amounts as required pursuant to all applicable tax laws and regulations. 6. Miscellaneous. ------------- 6.1 Life Insurance. The Company may at its discretion and at any -------------- time apply for and procure as owner and for its own benefit and at its own expense, insurance on the life of Employee in such amounts and in such form or forms as the Company may choose. Employee shall cooperate with the Company in procuring such insurance and shall, at the request of the Company, submit to such medical examinations, supply such information and execute such documents as may be reasonably and customarily required by the insurance company or companies to whom the Company has applied for such insurance. Employee shall have no interest whatsoever in any such policy or policies, except that, upon the termination of Employee's employment hereunder, Employee may purchase any and all such insurance from the Company for an amount equal to the actual premiums thereon previously paid by the Company. 6.2 Assignment. No party hereto may assign or delegate any of its ---------- rights or obligations hereunder without the prior written consent of the other party hereto; provided, however, that the Company shall have the right to assign all or any part of its rights and obligations under this Agreement upon written notice to Employee (i) to any affiliate of the Company to which the Business of the Company is assigned at any time (provided that the Company and Compass shall remain liable for all obligations of Company hereunder) or any surviving entity following any merger or consolidation of the Company and any other entity or (ii) in connection with the sale of the Business by the Company. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective legal representatives, heirs, permitted successors and assigns of the parties hereto whether so expressed or not. 6.3 Entire Agreement. Except as otherwise expressly set forth ---------------- herein, this Agreement sets forth the entire understanding of the parties, and supersedes and preempts all prior oral or written understandings and agreements, with respect to the subject matter hereof. 6.4 Severability. Whenever possible, each provision of this ------------ Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if -9- any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. 6.5 Amendment; Modification. No amendment or modification of this ----------------------- Agreement and no waiver by any party of the breach of any covenant contained herein shall be binding unless executed in writing by the party against whom enforcement of such amendment, modification or waiver is sought. No waiver shall be deemed a continuing waiver or a waiver in respect of any subsequent breach or default, either of a similar or different nature, unless expressly so stated in writing. 6.6 Governing Law. This Agreement shall be construed and enforced in ------------- accordance with, and all questions concerning the construction, validity, interpretation and performance of this Agreement shall be governed by, the laws of the State of Illinois, without giving effect to provisions thereof regarding conflict of laws. 6.7 Notices. All notices, demands or other communications to be ------- given or delivered hereunder or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been properly served if (a) delivered personally, (b) delivered by a nationally recognized overnight courier service, (c) sent by certified or registered mail, return receipt requested and first class postage prepaid, or (d) sent by facsimile transmission followed by a confirmation copy delivered by a nationally recognized overnight courier service the next day. Such notices, demands and other communications shall be sent to the addresses indicated below: (a) If to Employee: Mr. Leslie J. Kirschbaum c/o Mid-Continent Agencies, Inc. 3701 West Algonquin Road Rolling Meadows, Illinois 60008-3155 with a copy to: Fagel & Haber 140 South Dearborn, Suite 1400 Chicago, Illinois 60603 Attention: Joel A. Haber, Esq. (b) If to the Company: Mid-Continent Agencies, Inc. c/o Compass International Services Corporation 5 Independence Way, Suite 300 Princeton, NJ 08540 Attention: President -10- with a copy to: Compass International Services Corporation 5 Independence Way, Suite 300 Princeton, NJ 08540 Attention: President with a copy to: Katten Muchin & Zavis 525 West Monroe, Suite 1600 Chicago, IL 60661 Attention: Howard S. Lanznar, Esq. or to such other address or facsimile number or to the attention of such other person or entity as the recipient party has specified by prior written notice to the sending party. Date of service of such notice shall be (i) the date such notice is personally delivered or sent by facsimile transmission (with issuance by the transmitting machine of a confirmation of successful transmission), (ii) five business days after the date of mailing if sent by certified or registered mail or (iii) one business day after date of delivery to the overnight courier if sent by overnight courier. 6.8 Counterparts. This Agreement may be executed in multiple ------------ counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same Agreement. 6.9 Descriptive Headings; Interpretation. The descriptive headings in ------------------------------------ this Agreement are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. The use of the word "including" in this Agreement shall be by way of example rather than by limitation. The Preliminary Recitals set forth above are incorporated by reference into this Agreement. 6.10 No Strict Construction. The language used in this Agreement will be ---------------------- deemed to be the language chosen by the parties hereto to express their mutual interest, and no rule of strict construction will be applied against any party hereto. 6.11 Arbitration. Any controversy or claim arising out of or relating to ----------- this Agreement, the making, interpretation or the breach thereof, other than a claim solely for injunctive relief for any alleged breach of the provisions of SECTION 3 as to which the parties shall have the right to apply for relief in any court of competent jurisdiction, shall be resolved by arbitration in Chicago, Illinois, in accordance with the Federal Arbitration Act and the National Rules for the Resolution of Employment Disputes of the American Arbitration Association. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof and any party to the arbitration may, if such party so elects, institute proceedings in any court having jurisdiction for the specific performance of any such award. Without limiting the generality of the foregoing sentence, the claims to which this provision shall apply include, but are not limited to: (i) any claims arising out of or related to this Employment -11- Agreement or breach thereof; (ii) any claims arising under any federal, state, or local statute or the common law of any state, regarding compensation or employee benefits, or discrimination, retaliation, harassment, or denial of equal employment opportunity based on sex, race, color, religion, national origin, disability, age, marital status, or any other category protected by law; (iii) any claims arising under the common law of the United States or any state relating to Employee's employment with Company, including without limitation claims alleging negligence, defamation, public policy, tort, infliction of emotional distress, fraud, or misrepresentation; or (iv) any civil claims that Company may have against Employee relating to Employee's employment with Company. Anything herein to the contrary notwithstanding, this Section 6.11 shall not apply to: (i) any claim by Employee for workers compensation benefits or unemployment compensation benefits; or (ii) any claim by Company for injunctive or equitable relief, including without limitation claims related to the enforcement of Section 3 hereof, which may be brought in any court of competent jurisdiction. EMPLOYEE AND COMPANY EXPRESSLY WAIVE ANY RIGHT TO RESOLVE ANY DISPUTE COVERED BY THIS SECTION BY FILING SUIT IN COURT FOR TRIAL BY A JUDGE OR JURY. The arbitrator shall include in any award in the prevailing party's favor costs and expenses of the arbitration. In the event the arbitrator does not rule in favor of the prevailing party in respect of all the claims alleged by such party, the arbitrator shall include in any award in favor of the prevailing party the amount of his or its reasonable costs and expenses of the arbitration as he deems just and equitable under the circumstances. Except as provided above, each party to the arbitration shall bear his or its own attorney's fees and expenses and the parties shall bear equally all other costs and expenses of the arbitration. -12- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. COMPANY: MID-CONTINENT AGENCIES, INC. By: /s/ Leslie J. Kirschbaum --------------------------------------- Its: President --------------------------------------- EMPLOYEE: /s/ Leslie J. Kirschbaum -------------------------------------------- LESLIE J. KIRSCHBAUM For good and valuable consideration, the receipt of which is hereby acknowledged, the undersigned hereby unconditionally guarantees the obligations of the Company hereunder. COMPASS INTERNATIONAL SERVICES CORPORATION By: /s/ Michael J. Cunningham --------------------------------------- Michael J. Cunningham Chairman and Chief Executive Officer -13- EX-10.15 17 EMPLOYMENT AGREEMENT -- EDWARD A. DUCOIN EXHIBIT 10.15 EMPLOYMENT AGREEMENT BY AND BETWEEN IMPACT TELEMARKETING GROUP, INC. AND EDWARD A. DUCOIN EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of March __, 1998, by and between Impact Telemarketing Group, Inc., a New Jersey corporation (the "Company"), and Edward A. DuCoin ("Employee"). PRELIMINARY RECITALS A. Reference is made to that certain Stock Purchase Agreement dated as of October 3, 1997, as amended (the "Purchase Agreement"), by and among the Company, Impact Telemarketing, Inc. ("IT"), Compass International Services Corporation, a Delaware corporation ("Compass"), and the Stockholders of the Company and IT identified on Schedule A to the Purchase Agreement, providing for ---------- the purchase by Compass of all of the issued and outstanding stock of the Company and IT. B. The Company and IT provide outbound and inbound telemarketing services to national and regional companies throughout the United States (the "Business"). C. Employee has been a substantial owner of the Company and IT since their inception, and has extensive knowledge and a unique understanding of the Business and has developed longstanding business relationships with customers and other business constituencies who are involved in the Business of the Company and IT. D. The Company desires to employ Employee, and Employee desires to be employed by the Company, all under the terms and conditions set forth herein. E. It is a condition to the consummation of the Purchase Agreement that the Company and Employee enter into this Agreement. NOW, THEREFORE, in consideration of the premises, the mutual covenants of the parties hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Employment. ---------- 1.1 Engagement of Employee. The Company agrees to employ Employee as ---------------------- President and Chief Executive Officer ("CEO") of the Company and Employee agrees to accept such employment, all in accordance with the terms and conditions of this Agreement. 1.2 Duties and Powers. At all times during the Employment Period (as ----------------- defined herein), Employee will serve as the Company's President and CEO and will have such responsibilities, duties and authority, and will render such services for the Company and its affiliates, as the Board of Directors of Compass (the "Board") shall from time to time reasonably direct; provided, however, that such duties and responsibilities, duties, authority and services shall be commensurate with the position of President and CEO of the Company. Employee agrees diligently and faithfully to serve the Company and to devote Employee's best efforts, highest talents and skills and full time and attention to the furtherance and success of the Business. 1.3 Employment Period. Employee's employment under this Agreement ----------------- shall be for a period of five years beginning as of the date of this Agreement (the "Initial Employment Period"). This Agreement shall automatically renew for successive one-year periods (each one-year period shall be referred to herein as a "Renewal Period") unless either the Company or Employee, as the case may be, provides written notice to the other party at least ninety (90) days prior to the termination of any such period, stating its/his desire to terminate this Agreement. The Initial Employment Period and each successive Renewal Period shall be referred to herein together as the "Employment Period". Notwithstanding anything to the contrary contained herein, the Employment Period is subject to termination pursuant to SECTION 1.5 below. 1.4 Place of Employment. Employee's services hereunder shall be ------------------- rendered at such locations in the greater Philadelphia metropolitan area as shall be determined by the Board, subject to such travel as may be reasonably required in connection with the Business. Employee shall not be required to relocate to any other area without his consent. 1.5 Termination of Employment for Cause, Death or Disability. The -------------------------------------------------------- Company has the right to terminate Employee's employment under this Agreement, by notice to Employee in writing at any time, for Cause (as hereinafter defined), and such employment shall automatically be terminated upon the death or the Disability (as hereinafter defined) of Employee. Any such termination shall be effective upon the date of service of such notice pursuant to SECTION 6.7 hereof, in the case of termination for Cause, or immediately upon the death or Disability of Employee, and the Employment Period shall terminate as of the effective date of such termination. "Cause," as used herein, means the occurrence of any of the following events: (i) final non-appealable conviction of (A) a felony or (B) any crime involving moral turpitude; (ii) the willful failure of Employee to comply with reasonable and lawful directions of the Board after (A) written notice is delivered to Employee describing such willful failure and (B) Employee has failed to cure or take substantial steps to cure such willful failure after a reasonable time period, as determined by the Board in its reasonable discretion (not to be less than 60 days); (iii) the good faith determination by the Board in the exercise of its reasonable judgment that Employee has committed an act or acts in the course of his employment constituting fraud or misappropriation of material Company property; -2- (iv) a material breach by Employee of any of the terms, conditions or covenants set forth in SECTION 3 of this Agreement; or (v) a material breach by Employee of any of the terms or conditions of this Agreement if (A) written notice is delivered to Employee describing such breach and (B) Employee has failed to cure or take substantial steps to cure such breach after a reasonable time period, as determined by the Board in its reasonable discretion (not to be less than 60 days). Employee shall be deemed to have a "Disability" for purposes of this Agreement if he is unable to perform, by reason of physical or mental incapacity, his material duties or obligations under this Agreement, with or without reasonable accommodation, for a total period of 120 days in any 360-day period. The Board shall determine, according to the facts then available, whether and when the Disability of the Employee has occurred. Such determination shall not be arbitrary or unreasonable and the Board will, if available, take into consideration the expert medical opinion of a physician mutually agreed upon by Employee and the Company, after such physician has completed an examination of Employee. Employee agrees to make reasonable efforts to make himself available for such examination upon the reasonable request of the Company. 2. Compensation and Benefits. ------------------------- 2.1 Salary. In consideration of Employee performing his duties under ------ this Agreement during the Employment Period, the Company will pay Employee a base salary at a rate of $110,000 per annum (the "Base Salary"), payable in accordance with the Company's regular payroll policy for salaried employees. The Base Salary may be increased (but not decreased), from time to time during the Employment Period, as determined by the Compensation Committee of the Board (the "Compensation Committee"), in its sole discretion, and in any event will be increased on January 1 of each year beginning January 1, 1999 to reflect corresponding increases in the United States Department of Labor, Bureau of Labor Statistics, Consumer Price Index, All Urban Consumers, United States City Average, all items (1982- 88=100). If warranted by the growth of the Business, in the sole judgment of the Compensation Committee, the Base Salary will be increased as of January 1, 1999 to the level of the Base Salary of the other CEO's of the Founding Companies (as defined in the Purchase Agreement). If the Employment Period is terminated pursuant to SECTION 1.5 above or for any other reason, then the Base Salary for any partial year will be prorated based on the number of days elapsed in such year during which services were actually performed by Employee, and all such prorated Base Salary which remains unpaid, together with accrued but unused vacation and sick pay, if any, shall be paid by the Company to Employee within five days after the effective date of termination of the Employment Period. 2.2 Bonus. Employee shall participate in Compass' Executive ----- Compensation Program (the "Bonus Program"), under which Employee shall be eligible to earn an annual bonus of up to 100% of Employee's Base Salary based upon such factors as (i) the financial performance of the Company, (ii) the financial performance of Compass, and/or (iii) the achievement of personal performance goals. The criteria and/or goals for -3- the Bonus Program shall be established by the Compensation Committee at the beginning of each fiscal year after consultation with Employee. All bonuses awarded to Employee hereunder shall be payable in accordance with Company policy. If the Employment Period is terminated pursuant to Section 1.5 above then the foregoing bonus for any partial year will be determined based on annualizing results to the date of the termination and will be prorated based upon the number of days elapsed in such year during which services were actually performed by Employee, and shall be paid within five days of the effective date of such termination of the Employment Period. 2.3 Compensation After Termination of Employment. -------------------------------------------- (a) If the Company shall terminate Employee's employment during the Employment Period for any reason (other than for Cause pursuant to SECTION 1.5 of this Agreement), or if Employee shall voluntarily terminate his employment during the Employment Period and within 60 days after a Constructive Termination (as defined below), Employee shall be entitled to receive severance compensation equal to (A) the amount of his Base Salary for a period of two years commencing on the last day of the Employment Period (the "Severance Period"), (B) (i) if permitted under Company's group health insurance coverage, continuation at the cost of Company of coverage thereunder for Employee and, if dependent coverage is then in effect, his covered dependents (subject to such changes in coverage as shall apply to Company's employees generally and provided that if the cost of dependent coverage prior to termination of employment was being paid by Employee, such cost shall continue to be payable by Employee) or (ii) if not so permitted, reimbursement by the Company of the premiums for group health insurance coverage otherwise payable by Employee under COBRA, until the end of the Severance Period or until other employment is obtained, whichever occurs first, and (C) his pro rated bonus, as determined by the Compensation Committee in its good faith judgement, for the period of any partial fiscal year immediately preceding the termination date in accordance with Section 2.2. above ((A), (B) and (C) collectively, the "Severance Benefits"). The Severance Benefits payable under (A) and (B)(ii) above shall be paid in equal installments on the Company's normal payroll payment dates occurring during the first 60 days of the Severance Period. The Severance Benefits payable under (C) above shall be paid in a lump sum in accordance with Section 2.2 above. It shall be a condition to Employee's right to receive the Severance Benefits that (i) Employee shall execute and deliver to the Company a written separation agreement, in form and substance reasonably satisfactory to the Company (but not inconsistent with this Agreement), which agreement shall, among other things, contain a general release by Employee of all claims arising out of Employee's employment or termination of employment (but excluding claims for indemnification for third party claims pursuant to the Company's articles of incorporation and/or bylaw), and (ii) Employee shall be in compliance with all of Employee's obligations which expressly survive termination hereof, including without limitation those arising under SECTIONS 3 AND 4 hereof. In addition, the Company may, as a condition to such Severance Benefits, require that Employee provide consulting services to the Company on a reasonable basis during the first -4- other payments to which Employee might otherwise be entitled in respect of termination of Employee's employment without Cause (except for the payments required under Section 2.1). Except as expressly provided above, no fringe or other employee benefits shall be payable during or after the Severance Period. (b) If Employee's employment shall be terminated pursuant to SECTION 1.5, the Company shall have no further obligations hereunder or otherwise with respect to Employee's employment from and after the effective date of the termination of the Employment Period (except for the payments required under SECTION 2.1), and the Company shall continue to have all other rights available hereunder (including, without limitation, all rights under SECTIONS 3 AND 4 hereof at law or in equity). (c) For the avoidance of doubt, Severance Benefits shall not be payable if Employee's employment is terminated by reason of his death or Disability, but shall continue to be payable during the Severance Period if his employment is terminated without Cause or by reason of Constructive Termination and he subsequently dies or becomes disabled. (d) "Constructive Termination" as used herein, shall be deemed to have occurred if the Company (i) demotes Employee to a position below that of President and CEO of the Company or assigns the Employee duties and responsibilities that are not commensurate with such position, (ii) reduces Employee's Base Salary or materially reduces his employee benefits and prerequisites, taken in the aggregate, or (ii) requires Employee to relocate in violation of Section 1.4. 2.4 Benefits, Expenses and Pension Plan. During the Employment ----------------------------------- Period, the Company agrees to provide to Employee such fringe and other employee benefits as are generally provided, from time to time, to senior officers of the subsidiaries of Compass (upon no less favorable terms as provided to such officers), including without limitation, vacation, health and insurance benefits, and the opportunity to participate in the Compass Stock Option Plan and Compass Stock Purchase Plan. The Company shall retain the right to discontinue or modify any employee benefit program at any time. The Company will reimburse Employee in accordance with Company policy for his normal out-of-pocket expenses incurred in the course of performing his duties hereunder. 3. Covenants. --------- 3.1 Employee's Acknowledgment. Employee acknowledges that: ------------------------- (i) the Company is and will be engaged in the Business during the Employment Period and thereafter; (ii) Employee is one of a limited number of persons who will manage the Business; -5- (iii) Employee will occupy a position of trust and confidence with the Company after the date of this Agreement, and during the Employment Period and Employee's employment under this Agreement, Employee will become familiar with the Company's proprietary and confidential information concerning the Company and the Business; (iv) the agreements and covenants contained in this SECTION 3 are essential to protect the Company and the goodwill of the Business and are a condition precedent to the Company's entering into this Agreement; (v) Employee's employment with the Company has special, unique and extraordinary value to the Company and the Company would be irreparably damaged if Employee were to provide services to any person or entity in violation of the provisions of this Agreement; and (vi) Employee has means to support himself and his dependents other than by engaging in the Business, or a business substantially similar to the Business, and the provisions of this SECTION 3 will not impair such ability. 3.2 Non-Compete. Employee hereby agrees that during the Employment ------------ Period and through the period ending with the second anniversary of the last day of the Employment Period (collectively, the "RESTRICTIVE PERIOD"), he shall not, for any reason whatsoever, directly or indirectly, whether individually or as an officer, director, shareholder, owner, partner, joint venturer, employee, independent contractor, consultant or advisor to or of any entity, or in any other capacity: (i) engage, participate or invest in any business which is competitive with the Business anywhere in the United States of America (the "Territory"); provided, however, that nothing contained herein shall be construed to prevent Employee from investing in up to 5% of the outstanding stock of any competing corporation that is publicly- traded and listed on a recognized national, international or regional securities exchange or traded in the U.S. over-the-counter market, but only if Employee is not actively involved in and does not render consulting services to the business of said corporation, (ii) sell or provide any competitive products or services to, or solicit for the purpose of selling or providing any competitive products or services to, any person or entity that was a customer of the Company at any time during the one-year period ending on the last day of the Employment Period (the "Termination Date") or that was known by Employee to have been actively being solicited by the Company to become a customer of the Company at any time during such period, (iii) solicit for employment or engagement, or influence or induce to leave the Company's employment, or knowingly cause to be employed or engaged, any person who is employed or engaged by the Company in a managerial capacity on the Termination Date or during the Restrictive Period, -6- unless such person has been out of the employ of the Company for at least 180 days; provided, that the Employee shall be permitted to solicit and hire any member of his immediate family, or (iv) enter into, or call upon or request non-public information for the purpose of entering into, an Acquisition Transaction with any entity with respect to which Company has made an offer or proposal for, or entered into discussions or negotiations for, or evaluated with the intent of making a proposal for, an Acquisition Transaction, within the six-month period immediately preceding the Termination Date. For purposes of this Agreement, an "Acquisition Transaction" means a merger, consolidation, purchase of material assets, purchase of a material equity interest, tender offer, recapitalization, accumulation of shares, proxy solicitation or other business combination. 3.3 Intellectual Property Rights. Employee will promptly ---------------------------- communicate, disclose and transfer to the Company free of all encumbrances and restrictions (and will execute and deliver any papers and take any reasonable action at any time deemed reasonably necessary by the Company to further establish such transfer) all of Employee's right, title and interest in and to all ideas, discoveries, inventions and improvements relating to the Business created, originated, developed or conceived of by Employee solely or jointly with others during the term of Employee's employment here under, whether or not during normal working hours. Employee agrees that all right, title and interest in and to all such ideas, discoveries, inventions and improvements shall belong solely to the Company, whether or not they are protected or protectible under applicable patent, trademark, service mark, copyright or trade secret laws. Employee agrees that all work or other material containing or reflecting any such ideas, discoveries, inventions or improvements shall be deemed work made for hire as defined in Section 101 of the Copyright Act, 15 U.S.C.(S)101. Such transfer shall include all patent rights, copyrights, trademark and service mark rights, and trade secret rights (if any) to such ideas, discoveries, inventions and improvements in the United States and in all other countries. Employee further agrees, at the expense of the Company, to take all such reasonable actions and to execute and deliver all such assignments and other lawful papers relating to any aspect of the prosecution of such rights in the United States and all other countries as the Company may request at any time during the Employment Period or after termination thereof. 3.4 Interference with Relationships. Other than in the performance ------------------------------- of his duties hereunder, during the Restrictive Period, Employee shall not, directly or indirectly, as employee, agent, consultant, stockholder, director, partner or in any other individual or representative capacity, solicit or intentionally encourage any present or future customer, supplier or other third party to terminate or otherwise alter his, her or its relationship with the Company. 3.5 Confidential Information. Other than in the performance of his ------------------------ duties hereunder, during the Restrictive Period and thereafter, Employee shall keep secret and retain in strictest confidence, and shall not, without the prior written consent of the -7- Company, directly or indirectly furnish, make available or disclose to any third party or use for the benefit of himself or any third party, any Confidential Information. As used in this Agreement, "Confidential Information" shall mean any information relating to the business or affairs of the Company or the Business, including, but not limited to, information relating to financial statements, employees, customers, suppliers, pricing, marketing, equipment, programs, strategies, analyses, profit margins, or other proprietary information of or used by Compass, the Company or any other subsidiary of Compass in connection with the Business; provided, however, that Confidential Information shall not include any information which is in the public domain or becomes known in the industry through no wrongful act on the part of Employee. Employee acknowledges that the Confidential Information is vital, sensitive, confidential and proprietary to the Company and Compass. 3.6 Blue-Pencil. If any court of competent jurisdiction shall at any ----------- time deem the Restrictive Period too lengthy or the Territory too extensive, the other provisions of this SECTION 3 shall nevertheless stand, the Restrictive Period herein shall be deemed to be the longest period permissible by law under the circumstances and the Territory herein shall be deemed to comprise the largest territory permissible by law under the circumstances. The court in each case shall reduce the time period and/or territory to permissible duration or size. 3.7 Return of Company Materials Upon Termination. Employee -------------------------------------------- acknowledges that all price lists, sales manuals, catalogs, binders, customer lists and other customer information, supplier lists and other supplier information, financial information, memoranda, correspondence and other records or documents including information stored on computer disks or in computer readable form, containing Confidential Information prepared by Employee or coming into Employee's possession by virtue of Employee's employment by the Company is and shall remain the property of the Company and that upon termination of Employee's employment hereunder, Employee shall return immediately to the Company all such items, together with all copies thereof, in Employee's possession. 3.8 Remedies. Employee acknowledges and agrees that the covenants -------- set forth in this SECTION 3 (collectively, the "RESTRICTIVE COVENANTS") are reasonable and necessary for the protection of the Company's business interests, that irreparable injury will result to the Company if Employee breaches any of the terms of said Restrictive Covenants, and that in the event Employee breaches or threatens to breach any such Restrictive Covenants, the Company will have no adequate remedy at law. Employee accordingly agrees that in the event Employee breaches or threatens to breach any of the Restrictive Covenants, the Company shall be entitled to immediate temporary injunctive and other equitable relief, without the necessity of showing actual monetary damages. Nothing contained herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or the threat of such a breach by Employee, including the recovery of any damages which it is able to prove. -8- 3.9 Company. For purposes of this Section 3, the term "Company" ------- shall include the Company and its respective subsidiaries, affiliates, permitted assignees and any permitted successors in interest of the Company or its subsidiaries or affiliates. 4. Effect of Termination. If Employee or the Company should terminate --------------------- Employee's employment for any reason, then, notwithstanding such termination, those provisions contained in SECTIONS 2.3, 3, 4, 5 AND 6 hereof shall remain in full force and effect. 5. Income Tax Treatment. Employee and the Company acknowledge that it is -------------------- the intention of the Company to deduct all amounts paid under SECTION 2 hereof as ordinary and necessary business expenses for income tax purposes. Employee agrees and represents that he will treat all such amounts as required pursuant to all applicable tax laws and regulations. 6. Miscellaneous. ------------- 6.1 Life Insurance. The Company may at its discretion and at any -------------- time apply for and procure as owner and for its own benefit and at its own expense, insurance on the life of Employee in such amounts and in such form or forms as the Company may choose. Employee shall cooperate with the Company in procuring such insurance and shall, at the request of the Company, submit to such medical examinations, supply such information and execute such documents as may be reasonably and customarily required by the insurance company or companies to whom the Company has applied for such insurance. Employee shall have no interest whatsoever in any such policy or policies, except that, upon the termination of Employee's employment hereunder, Employee may purchase any and all such insurance from the Company for an amount equal to the actual premiums thereon previously paid by the Company. 6.2 Assignment. No party hereto may assign or delegate any of its ---------- rights or obligations hereunder without the prior written consent of the other party hereto; provided, however, that the Company shall have the right to assign all or any part of its rights and obligations under this Agreement upon written notice to Employee (i) to any affiliate of the Company to which the Business of the Company is assigned at any time (provided that the Company and Compass shall remain liable for all obligations of Company hereunder) or any surviving entity following any merger or consolidation of the Company and any other entity or (ii) in connection with the sale of the Business by the Company. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective legal representatives, heirs, permitted successors and assigns of the parties hereto whether so expressed or not. 6.3 Entire Agreement. Except as otherwise expressly set forth ---------------- herein, this Agreement sets forth the entire understanding of the parties, and supersedes and preempts all prior oral or written understandings and agreements, with respect to the subject matter hereof. 6.4 Severability. Whenever possible, each provision of this ------------ Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if -9- any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. 6.5 Amendment; Modification. No amendment or modification of this ----------------------- Agreement and no waiver by any party of the breach of any covenant contained herein shall be binding unless executed in writing by the party against whom enforcement of such amendment, modification or waiver is sought. No waiver shall be deemed a continuing waiver or a waiver in respect of any subsequent breach or default, either of a similar or different nature, unless expressly so stated in writing. 6.6 Governing Law. This Agreement shall be construed and enforced in ------------- accordance with, and all questions concerning the construction, validity, interpretation and performance of this Agreement shall be governed by, the laws of the State of New Jersey, without giving effect to provisions thereof regarding conflict of laws. 6.7 Notices. All notices, demands or other communications to be ------- given or delivered hereunder or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been properly served if (a) delivered personally, (b) delivered by a nationally recognized overnight courier service, (c) sent by certified or registered mail, return receipt requested and first class postage prepaid, or (d) sent by facsimile transmission followed by a confirmation copy delivered by a nationally recognized overnight courier service the next day. Such notices, demands and other communications shall be sent to the addresses indicated below: (a) If to Employee: Mr. Edward A. DuCoin c/o Impact Telemarketing Group, Inc. 15 East Center Street Woodbury, NJ 08090 with a copy to: Robert Amron 1236 Brace Road, Suite K P.O. Box 2626 Cherry Hill, NJ 08034-0219 (b) If to the Company: Impact Telemarketing Group, Inc. c/o Compass International Services Corporation 5 Independence Way, Suite 300 Princeton, NJ 08540 Attention: President -10- with a copy to: Compass International Services Corporation 5 Independence Way, Suite 300 Princeton, NJ 08540 Attention: President with a copy to: Katten Muchin & Zavis 525 West Monroe, Suite 1600 Chicago, IL 60661 Attention: Howard S. Lanznar, Esq. or to such other address or facsimile number or to the attention of such other person or entity as the recipient party has specified by prior written notice to the sending party. Date of service of such notice shall be (i) the date such notice is personally delivered or sent by facsimile transmission (with issuance by the transmitting machine of a confirmation of successful transmission), (ii) five business days after the date of mailing if sent by certified or registered mail or (iii) one business day after date of delivery to the overnight courier if sent by overnight courier. 6.8 Counterparts. This Agreement may be executed in multiple ------------ counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same Agreement. 6.9 Descriptive Headings; Interpretation. The descriptive headings in ------------------------------------ this Agreement are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. The use of the word "including" in this Agreement shall be by way of example rather than by limitation. The Preliminary Recitals set forth above are incorporated by reference into this Agreement. 6.10 No Strict Construction. The language used in this Agreement will be ---------------------- deemed to be the language chosen by the parties hereto to express their mutual interest, and no rule of strict construction will be applied against any party hereto. 6.11 Arbitration. Any controversy or claim arising out of or relating to ----------- this Agreement, the making, interpretation or the breach thereof, other than a claim solely for injunctive relief for any alleged breach of the provisions of SECTION 3 as to which the parties shall have the right to apply for relief in any court of competent jurisdiction, shall be resolved by arbitration in Philadelphia, Pennsylvania, in accordance with the Federal Arbitration Act and the National Rules for the Resolution of Employment Disputes of the American Arbitration Association. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof and any party to the arbitration may, if such party so elects, institute proceedings in any court having jurisdiction for the specific performance of any such award. Without limiting the generality of the foregoing sentence, the claims to which this provision shall apply include, but are not limited to: (i) any claims arising out of or related to this Employment -11- Agreement or breach thereof; (ii) any claims arising under any federal, state, or local statute or the common law of any state, regarding compensation or employee benefits, or discrimination, retaliation, harassment, or denial of equal employment opportunity based on sex, race, color, religion, national origin, disability, age, marital status, or any other category protected by law; (iii) any claims arising under the common law of the United States or any state relating to Employee's employment with Company, including without limitation claims alleging negligence, defamation, public policy, tort, infliction of emotional distress, fraud, or misrepresentation; or (iv) any civil claims that Company may have against Employee relating to Employee's employment with Company. Anything herein to the contrary notwithstanding, this Section 6.11 shall not apply to: (i) any claim by Employee for workers compensation benefits or unemployment compensation benefits; or (ii) any claim by Company for injunctive or equitable relief, including without limitation claims related to the enforcement of Section 3 hereof, which may be brought in any court of competent jurisdiction. EMPLOYEE AND COMPANY EXPRESSLY WAIVE ANY RIGHT TO RESOLVE ANY DISPUTE COVERED BY THIS SECTION BY FILING SUIT IN COURT FOR TRIAL BY A JUDGE OR JURY. The arbitrator shall include in any award in the prevailing party's favor costs and expenses of the arbitration. In the event the arbitrator does not rule in favor of the prevailing party in respect of all the claims alleged by such party, the arbitrator shall include in any award in favor of the prevailing party the amount of his or its reasonable costs and expenses of the arbitration as he deems just and equitable under the circumstances. Except as provided above, each party to the arbitration shall bear his or its own attorney's fees and expenses and the parties shall bear equally all other costs and expenses of the arbitration. -12- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. COMPANY: IMPACT TELEMARKETING GROUP, INC. By: /s/ Leslie J. Kirschbaum ----------------------------------------- Its: President ----------------------------------------- EMPLOYEE: /s/ Leslie J. Kirschbaum ---------------------------------------------- LESLIE J. KIRSCHBAUM For good and valuable consideration, the receipt of which is hereby acknowledged, the undersigned hereby unconditionally guarantees the payment and performance of the obligations of the Company hereunder. COMPASS INTERNATIONAL SERVICES CORPORATION By: /s/ Michael J. Cunningham ------------------------- Michael J. Cunningham Chairman and Chief Executive Officer -13- EX-10.18 18 SUPPLEMENTAL AGREEMENT - MICHAEL J. CUMMINGHAM EXHIBIT 10.18 Compass International Services Corporation One Penn Plaza Suite 4430 New York, New York 10119 March 4, 1998 Mr. Michael J. Cunningham c/o Compass International Services Corporation One Penn Plaza, Suite 4430 New York, New York 10119 Dear Mr. Cunningham: You are an officer of the undersigned (the "Company"). Pursuant to that certain letter agreement, dated as of April 28, 1997 with BGL Capital Partners, L.L.C., you subscribed for and purchased 2,250 shares of common stock of the Company, par value $.01 per share (the "Shares"), at a purchase price of $10.00 per share (the "Purchase Price"). To induce you to continue to serve as an officer of the Company, and in consideration of your continued service after the date hereof, the Company hereby undertakes and agrees to pay or cause to be paid and shall be liable for, and covenants and agrees to defend, indemnify and hold you harmless on an after- tax basis from and against, any and all Losses (as defined below) resulting from, arising out of or otherwise based upon Taxes (as defined below) that are attributable to, or arise from any claim or determination by the Internal Revenue Service or other income tax authority that the fair market value of the Shares on the date you purchased them was greater than the Purchase Price (such claim or determination an "Indemnified Tax Matter"). As used in this letter, (i) "Losses" means liabilities, obligations, losses, fines, costs, or deficiencies, including but not limited to out-of- pocket fees and expenses and reasonable attorneys' and accountants' fees and expenses incurred in the investigation or defense of any of the same and (ii) "Taxes" means any income, alternative minimum, employment, payroll, social security, unemployment, withholding or other similar tax, assessment or other governmental charge (including all interest and penalties thereon and additions thereto whether disputed or not) imposed by any federal, state or local government. The payment obligation of Company hereunder shall be reduced by any Tax benefit actually realized by you that would not have been realized but for an Indemnified Tax Matter (for example, the benefit of an increase in the tax basis in Shares disposed of by you). If any such Tax benefit is actually realized by you before any payment is made to you by the Company hereunder, the obligation of the Company shall be reduced by the amount of any such Tax Mr. Michael J. Cunningham March 4, 1998 Page Two benefit, and if such Tax benefit is actually realized by you after the date the Company has made a payment to you hereunder, you shall reimburse the Company for the amount of such Tax benefit promptly after such Tax benefit is actually realized, provided that your reimbursement obligation hereunder shall not exceed the aggregate amount of payments in respect of tax liabilities previously made to you by the Company hereunder. The obligation of Company hereunder shall survive any transfer by you of the Shares and any termination of your employment by the Company. If you are in agreement with the foregoing, please so indicate by signing the enclosed copy of this letter where indicated below and return the same to the Company. This letter will be governed by and construed in accordance with the laws of the State of New York. Very truly yours, COMPASS INTERNATIONAL SERVICES CORPORATION By /s/ Mahmud U. Haq ------------------------------------------- Name: Mahmud U. Haq Title: President Accepted and Agreed as of the date of this letter: /s/ Michael J. Cunningham - ------------------------------ Michael J. Cunningham EX-10.19 19 SUPPLEMENTAL AGREEMENT - MAHMUD W. HAQ EXHIBIT 10.19 Compass International Services Corporation One Penn Plaza Suite 4430 New York, New York 10119 March 4, 1998 Mr. Mahmud U. Haq c/o Compass International Services Corporation One Penn Plaza, Suite 4430 New York, New York 10119 Dear Mr. Haq: You are an officer of the undersigned (the "Company"). Pursuant to that certain letter agreement, dated as of March 31, 1997 with BGL Capital Partners, L.L.C., you subscribed for and purchased 1,750 shares of common stock of the Company, par value $.01 per share (the "Shares"), at a purchase price of $10.00 per share (the "Purchase Price"). To induce you to continue to serve as an officer of the Company, and in consideration of your continued service after the date hereof, the Company hereby undertakes and agrees to pay or cause to be paid and shall be liable for, and covenants and agrees to defend, indemnify and hold you harmless on an after- tax basis from and against, any and all Losses (as defined below) resulting from, arising out of or otherwise based upon Taxes (as defined below) that are attributable to, or arise from any claim or determination by the Internal Revenue Service or other income tax authority that the fair market value of the Shares on the date you purchased them was greater than the Purchase Price (such claim or determination an "Indemnified Tax Matter"). As used in this letter, (i) "Losses" means liabilities, obligations, losses, fines, costs, or deficiencies, including but not limited to out-of- pocket fees and expenses and reasonable attorneys' and accountants' fees and expenses incurred in the investigation or defense of any of the same and (ii) "Taxes" means any income, alternative minimum, employment, payroll, social security, unemployment, withholding or other similar tax, assessment or other governmental charge (including all interest and penalties thereon and additions thereto whether disputed or not) imposed by any federal, state or local government. The payment obligation of Company hereunder shall be reduced by any Tax benefit actually realized by you that would not have been realized but for an Indemnified Tax Matter (for example, the benefit of an increase in the tax basis in Shares disposed of by you). If any such Tax benefit is actually realized by you before any payment is made to you by the Company hereunder, the obligation of the Company shall be reduced by the amount of any such Tax Mr. Mahmud U. Haq March 4, 1998 Page Two benefit, and if such Tax benefit is actually realized by you after the date the Company has made a payment to you hereunder, you shall reimburse the Company for the amount of such Tax benefit promptly after such Tax benefit is actually realized, provided that your reimbursement obligation hereunder shall not exceed the aggregate amount of payments in respect of tax liabilities previously made to you by the Company hereunder. The obligation of Company hereunder shall survive any transfer by you of the Shares and any termination of your employment by the Company. If you are in agreement with the foregoing, please so indicate by signing the enclosed copy of this letter where indicated below and return the same to the Company. This letter will be governed by and construed in accordance with the laws of the State of New York. Very truly yours, COMPASS INTERNATIONAL SERVICES CORPORATION By /s/ Michael J. Cunningham -------------------------------------------- Name: Michael J. Cunningham Title: Chief Executive Officer Accepted and Agreed as of the date of this letter: /s/ Mahmud U. Haq - ----------------------------- Mahmud U. Haq EX-10.20 20 SUPPLEMENTAL AGREEMENT - RICHARD A. ALSTON EXHIBIT 10.20 Compass International Services Corporation One Penn Plaza Suite 4430 New York, New York 10119 March 4, 1998 Mr. Richard A. Alston c/o Compass International Services Corporation One Penn Plaza, Suite 4430 New York, New York 10119 Dear Mr. Alston: You are an officer of the undersigned (the "Company"). Pursuant to that certain letter agreement, dated as of May 28, 1997 with BGL Capital Partners, L.L.C., you subscribed for and purchased 1,000 shares of common stock of the Company, par value $.01 per share (the "Shares"), at a purchase price of $10.00 per share (the "Purchase Price"). To induce you to continue to serve as an officer of the Company, and in consideration of your continued service after the date hereof, the Company hereby undertakes and agrees to pay or cause to be paid and shall be liable for, and covenants and agrees to defend, indemnify and hold you harmless on an after- tax basis from and against, any and all Losses (as defined below) resulting from, arising out of or otherwise based upon Taxes (as defined below) that are attributable to, or arise from any claim or determination by the Internal Revenue Service or other income tax authority that the fair market value of the Shares on the date you purchased them was greater than the Purchase Price (such claim or determination an "Indemnified Tax Matter"). As used in this letter, (i) "Losses" means liabilities, obligations, losses, fines, costs, or deficiencies, including but not limited to out-of- pocket fees and expenses and reasonable attorneys' and accountants' fees and expenses incurred in the investigation or defense of any of the same and (ii) "Taxes" means any income, alternative minimum, employment, payroll, social security, unemployment, withholding or other similar tax, assessment or other governmental charge (including all interest and penalties thereon and additions thereto whether disputed or not) imposed by any federal, state or local government. The payment obligation of Company hereunder shall be reduced by any Tax benefit actually realized by you that would not have been realized but for an Indemnified Tax Matter (for example, the benefit of an increase in the tax basis in Shares disposed of by you). If any such Tax benefit is actually realized by you before any payment is made to you by the Company hereunder, the obligation of the Company shall be reduced by the amount of any such Tax Mr. Richard A. Alston March 4, 1998 Page Two benefit, and if such Tax benefit is actually realized by you after the date the Company has made a payment to you hereunder, you shall reimburse the Company for the amount of such Tax benefit promptly after such Tax benefit is actually realized, provided that your reimbursement obligation hereunder shall not exceed the aggregate amount of payments in respect of tax liabilities previously made to you by the Company hereunder. The obligation of Company hereunder shall survive any transfer by you of the Shares and any termination of your employment by the Company. If you are in agreement with the foregoing, please so indicate by signing the enclosed copy of this letter where indicated below and return the same to the Company. This letter will be governed by and construed in accordance with the laws of the State of New York. Very truly yours, COMPASS INTERNATIONAL SERVICES CORPORATION By /s/ Michael J. Cunningham ------------------------------------------- Name: Michael J. Cunningham Title: Chief Executive Officer Accepted and Agreed as of the date of this letter: /s/ Richard A. Alston - ------------------------------- Richard A. Alston EX-23.1 21 CONSENT OF PRICE WATERHOUSE LLP. EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-1 of our reports relating to the respective financial statements which appear in such Prospectus.
Financial Statements Date - -------------------- ---- Compass International Services Corporation January 28, 1008, except as to Note 1, which is as of March 25, 1998 The Mail Box, Inc. January 17, 1998 Mid-Continent Agencies, Inc. January 23,1998 Impact Telemarketing Group, Inc. January 23, 1998
We also consent to the reference to us under the healing "Expert". /s/Price Waterhouse LLP Price Waterhouse LLP Minneapolis, Minnesota April 8, 1998 EX-23.2 22 CONSENT OF ARTHUR ANDERSEN LLP. Exhibit 23.2 ARTHUR ANDERSEN LLP CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report and to all references to our Firm included in or made a part of this Registration Statement. /s/ Arthur Andersen LLP Baltimore, Maryland, April 7, 1998 EX-23.3 23 CONSENT OF ERNST & YOUNG LLP. EXHIBIT 23.3 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated January 27, 1998, with respect to the financial statements of BRMC of Delaware, Inc. included in the Registration Statement (Form S-1 No. 333-00000) and related Prospectus of Compass International Services Corporation for the registration of 3,000,000 shares of its common stock. /s/ Ernst & Young LLP April 9, 1998 Atlanta, Georgia -----END PRIVACY-ENHANCED MESSAGE-----