-----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, KAdRLzumNSPXydUqZawlhcA//NhZK//jmljDCo3mdDIRdlDOJCaU2uOLGMIHTdH7 rhqS5s/vbmN248kaRBhKYg== 0001027574-00-000009.txt : 20000331 0001027574-00-000009.hdr.sgml : 20000331 ACCESSION NUMBER: 0001027574-00-000009 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OUTSOURCING SOLUTIONS INC CENTRAL INDEX KEY: 0001027574 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT SERVICES [8741] IRS NUMBER: 582197161 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-16867 FILM NUMBER: 586315 BUSINESS ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 BUSINESS PHONE: 3145760022 MAIL ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OSI SUPPORT SERVICES INC CENTRAL INDEX KEY: 0000076741 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-CONSUMER CREDIT REPORTING, COLLECTION AGENCIES [7320] IRS NUMBER: 391133219 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-05589 FILM NUMBER: 586316 BUSINESS ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 BUSINESS PHONE: 3145760022 MAIL ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 FORMER COMPANY: FORMER CONFORMED NAME: PAYCO AMERICAN CORP DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNION CORP CENTRAL INDEX KEY: 0000100817 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-CONSUMER CREDIT REPORTING, COLLECTION AGENCIES [7320] IRS NUMBER: 250848970 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 002-27974 FILM NUMBER: 586317 BUSINESS ADDRESS: STREET 1: C/O OUTSOURCING SOLUTIONS STREET 2: 390 SOUTH WOOD MILL ROAD STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 BUSINESS PHONE: 3145760022 MAIL ADDRESS: STREET 1: C/O OUTSOURCING SOLUTIONS STREET 2: 390 SOUTH WOODS MILL RD STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 FORMER COMPANY: FORMER CONFORMED NAME: SUPER ELECTRIC PRODUCTS INC DATE OF NAME CHANGE: 19661121 FORMER COMPANY: FORMER CONFORMED NAME: UNION SPRING & MANUFACTURING CO DATE OF NAME CHANGE: 19660921 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OSI COLLECTION SERVICES INC CENTRAL INDEX KEY: 0001029315 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT SERVICES [8741] IRS NUMBER: 391314048 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-16867-12 FILM NUMBER: 586318 BUSINESS ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 BUSINESS PHONE: 3145760022 MAIL ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 FORMER COMPANY: FORMER CONFORMED NAME: PAYCO GENERAL AMERICAN CREDITS INC DATE OF NAME CHANGE: 19961219 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNIVERSITY ACCOUNTING SERVICE INC CENTRAL INDEX KEY: 0001029318 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT SERVICES [8741] IRS NUMBER: 391357406 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-16867-14 FILM NUMBER: 586319 BUSINESS ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 BUSINESS PHONE: 3145760022 MAIL ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ASSET RECOVERY & MANAGEMENT CORP CENTRAL INDEX KEY: 0001029319 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT SERVICES [8741] IRS NUMBER: 391357406 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-16867-15 FILM NUMBER: 586320 BUSINESS ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 BUSINESS PHONE: 3145760022 MAIL ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INDIANA MUTUAL CREDIT ASSOCIATION INC CENTRAL INDEX KEY: 0001029320 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT SERVICES [8741] IRS NUMBER: 391357406 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-16867-16 FILM NUMBER: 586321 BUSINESS ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 BUSINESS PHONE: 3145760022 MAIL ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRABLE GREINER & WOLFF INC CENTRAL INDEX KEY: 0001029386 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT SERVICES [8741] IRS NUMBER: 391758997 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-16867-17 FILM NUMBER: 586322 BUSINESS ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 BUSINESS PHONE: 3145760022 MAIL ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 FORMER COMPANY: FORMER CONFORMED NAME: FURST & FURST INC DATE OF NAME CHANGE: 19961219 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JENNIFER LOOMIS & ASSOCIATES INC CENTRAL INDEX KEY: 0001029387 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT SERVICES [8741] IRS NUMBER: 953850888 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-16867-18 FILM NUMBER: 586323 BUSINESS ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 BUSINESS PHONE: 3145760022 MAIL ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUALINK INC CENTRAL INDEX KEY: 0001029389 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT SERVICES [8741] IRS NUMBER: 953850888 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-16867-20 FILM NUMBER: 586324 BUSINESS ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 BUSINESS PHONE: 3145760022 MAIL ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROFESSIONAL RECOVERIES INC CENTRAL INDEX KEY: 0001029390 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT SERVICES [8741] IRS NUMBER: 953850888 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-16867-21 FILM NUMBER: 586325 BUSINESS ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 BUSINESS PHONE: 3145760022 MAIL ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PAYCO AMERICAN INTERNATIONAL CORP CENTRAL INDEX KEY: 0001029391 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT SERVICES [8741] IRS NUMBER: 953850888 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-16867-22 FILM NUMBER: 586326 BUSINESS ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 BUSINESS PHONE: 3145760022 MAIL ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OSI PORTFOLIO SERVICES INC CENTRAL INDEX KEY: 0001029715 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT SERVICES [8741] IRS NUMBER: 510369044 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-16867-07 FILM NUMBER: 586327 BUSINESS ADDRESS: STREET 1: 3300 NORTHEAST EXPRESSWAY STREET 2: BUILDING 1 STE M CITY: ATLANTA STATE: GA ZIP: 30341 BUSINESS PHONE: 7704514862 MAIL ADDRESS: STREET 1: 3300 NORTHEAST EXPRESSWAY STREET 2: BUILDING 1 STE M CITY: ATLANTA STATE: GA ZIP: 30341 FORMER COMPANY: FORMER CONFORMED NAME: ACCOUNT PORTFOLIOS INC /NEW DATE OF NAME CHANGE: 19990816 FORMER COMPANY: FORMER CONFORMED NAME: ACCOUNT PORTFOLIOS GP INC DATE OF NAME CHANGE: 19961227 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OSI OUTSOURCING SERVICES INC CENTRAL INDEX KEY: 0001058624 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT SERVICES [8741] IRS NUMBER: 133861550 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-16867-29 FILM NUMBER: 586328 BUSINESS ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 BUSINESS PHONE: 3145760022 MAIL ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 FORMER COMPANY: FORMER CONFORMED NAME: INTERACTIVE PERFORMANCE INC DATE OF NAME CHANGE: 19980326 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANSWORLD SYSTEMS INC CENTRAL INDEX KEY: 0001058626 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 941728881 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-16867-31 FILM NUMBER: 586329 BUSINESS ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 BUSINESS PHONE: 3145760022 MAIL ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UCO PROPERTIES INC CENTRAL INDEX KEY: 0001058627 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 941728881 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-16867-32 FILM NUMBER: 586330 BUSINESS ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 BUSINESS PHONE: 3145760022 MAIL ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNION FINANCIAL SERVICES GROUP INC CENTRAL INDEX KEY: 0001058628 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 222630947 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-16867-33 FILM NUMBER: 586331 BUSINESS ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 BUSINESS PHONE: 3145760022 MAIL ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN RECOVERY CO INC CENTRAL INDEX KEY: 0001058629 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 520937211 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-16867-34 FILM NUMBER: 586332 BUSINESS ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 BUSINESS PHONE: 3145760022 MAIL ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CSN CORP CENTRAL INDEX KEY: 0001058630 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 251319485 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-16867-35 FILM NUMBER: 586333 BUSINESS ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 BUSINESS PHONE: 3145760022 MAIL ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENAD CONNECTOR CORP CENTRAL INDEX KEY: 0001058631 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 042428227 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-16867-36 FILM NUMBER: 586334 BUSINESS ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 BUSINESS PHONE: 3145760022 MAIL ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UCO MBA CORP CENTRAL INDEX KEY: 0001058632 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 231704744 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-16867-37 FILM NUMBER: 586335 BUSINESS ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 BUSINESS PHONE: 3145760022 MAIL ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNION SPECIAL STEEL CASTING CORP CENTRAL INDEX KEY: 0001058633 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 251154811 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-15867-38 FILM NUMBER: 586336 BUSINESS ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 BUSINESS PHONE: 3145760022 MAIL ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTH SHORE AGENCY INC CENTRAL INDEX KEY: 0001067125 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 113399772 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-15867-42 FILM NUMBER: 586337 BUSINESS ADDRESS: STREET 1: 390 SOUTH WOODS MILL RD STREET 2: STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 BUSINESS PHONE: 3145760022 MAIL ADDRESS: STREET 1: C/O OUTSOURCING SOLUTIONS INC STREET 2: 390 SOUTH WOODS MILL RD STE 350 CITY: CHESTERFIELD STATE: MO ZIP: 63017 10-K 1 OUTSOURCING SOLUTION INC. 1999 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------------- ------------------- Commission file Number 333-16867 ----------- Outsourcing Solutions Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 58-2197161 - -------------------------------------------- ----------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 390 South Woods Mill Road, Suite 350 Chesterfield, Missouri 63017 - -------------------------------------------- ------------------------ (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: (314) 576-0022 Securities registered pursuant to Section 12(b) of the Act: Title of each Class Name of each exchange on which registered - ----------------------------------- ----------------------------------------- None None Securities registered pursuant to Section (g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- --------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant is not determinable, as the stock is not publicly traded. APPLICABLE ONLY TO CORPORATE REGISTRANTS: As of March 30, 2000, the following shares of the Registrant's common stock were issued and outstanding: Voting common stock 5,976,389.04 Non-voting common stock 480,321.30 ------------- 6,456,710.34 ============= DOCUMENTS INCORPORATED BY REFERENCE: None PART I ITEM 1. BUSINESS General Outsourcing Solutions Inc. (the "Company" or "OSI") is one of the largest providers of accounts receivable management services in the United States with 1999 revenues of approximately $504.4 million. The Company believes that it differentiates itself from its competitors by providing a full range of accounts receivable management services on a national basis that allow its customers to outsource the management of the entire credit cycle. The breadth of services the Company provides across all stages of the credit cycle allows itself to cross-sell services to existing customers as well as to expand its customer base by providing specific services to potential customers in targeted industries. These services include collection services, portfolio purchasing services and outsourcing services which accounted for approximately 72%, 16% and 12% of 1999 revenues, 73%, 17% and 10% of 1998 revenues and 67%, 25% and 8% of 1997 revenues, respectively. - Collection services involve collecting on delinquent or charged-off consumer accounts for a fixed percentage of realized collections or a fixed fee per account. - Portfolio purchasing services involve acquiring portfolios of non-performing consumer receivables from credit grantors, servicing such portfolios and retaining all amounts collected. - Outsourcing services include contract management of accounts receivable, billing and teleservicing. The Company manages the marketing and execution of services within the four stages of the credit cycle. In the first stage of the credit cycle, OSI provides customers with the ability to outsource services including credit authorization, usage management and customer service. Dedicated call centers provide "first party" services for its clients performing all operations in their name. The second stage of the credit cycle is the management of pre-uncollectable, or charge-off, delinquency situations. OSI provides clients with fixed fee early-out programs based on either a letter series or calling program for accounts that are generally less than 180 days past due. In the third stage of the credit cycle, the Company offers traditional contingent collection services for delinquent and charged-off receivables. In the fourth and final stage of the credit cycle, OSI acts as a principal and purchases both new and delinquent charged-off receivables from credit grantors. The accounts receivable management industry is highly fragmented. Nationwide, the Company estimates there are approximately 6,000 debt collection service companies in the United States, with the 10 largest agencies currently accounting for 20% of industry revenues. Competition is based largely on recovery rates, industry experience and reputation and service fees. Large volume credit grantors typically employ more than one accounts receivable management company at one time, and often compare performance rates and rebalance account placements towards higher performing servicers. The customer base for the accounts receivable management industry is generally concentrated by credit grantors in four end-markets: banks, health care, utilities and telecommunications. Other significant sources of account placements include retail, student loan and governmental agencies. The Company believes that the ongoing consolidation in the banking, health care, utilities and telecommunication industries will benefit them by creating larger national customers seeking to place accounts with accounts receivable management companies that offer national rather than local and regional coverage. The Company's customers include a full range of local, regional and national credit grantors. Our largest customer accounted for no more than 5% of 1999 revenues. Outsourcing Solutions Inc., a Delaware corporation, was formed in 1995 to acquire Account Portfolios L.P., one of the largest purchasers and servicers of non-performing accounts receivables portfolios. Since its formation, the Company has completed six additional acquisitions and has established itself as a leading industry consolidator. The Company has experienced significant growth in their business through internal growth and acquisitions, with its revenues increasing from $29.6 million in 1995 to $504.4 million in 1999. Industry The accounts receivable management industry has experienced significant growth over the past 15 years. The rapid growth of outstanding consumer credit and the corresponding increase in delinquencies has resulted in credit grantors increasingly looking to third party service providers in managing the accounts receivable process. The contingent fee collection industry, the Company's largest business service, is estimated to be a $6.5 billion market growing at approximately 8% to 10% per annum. The Company's other business services such as portfolio purchasing and outsourcing services are estimated, in the aggregate, to be an approximately $3.0 billion market. The Company believes the following are the key trends in the accounts receivable management industry: - Increase in Consumer Debt and Delinquencies. Consumer debt, a leading indicator of current and future business for accounts receivable management companies, has increased dramatically in recent years. Between 1990 and 1998, total consumer debt increased 67% from $3.6 trillion to $6.0 trillion. Furthermore, charged-off credit card debt as a percentage of total outstanding consumer debt increased from 3% in 1994 to 5.6% in 1998. - Industry Consolidation. The American Collectors Association estimates that in 1995 there were approximately 6,000 contingent fee companies in the United States participating in an industry that generated over $6.5 billion in contingent fee collection revenue in 1998. The industry has undergone significant consolidation, with the top ten contingent fee companies increasing their industry share to over 20% in 1998. With over 6,000 debt collection companies in the United States and given the financial and competitive constraints facing these smaller companies and the limited number of liquidity options for the owners of such businesses, the Company believes that the industry will continue to experience consolidation. Well-capitalized companies that offer national capabilities with a "full service" approach to accounts receivable management are increasingly displacing local and regional competitors. - Customer Consolidation. The largest credit granting industries, including banking, utilities, telecommunications and health care account for 80% of accounts placed for collection and are experiencing rapid consolidation. This consolidation has forced companies to focus on core business activities and to outsource ancillary functions, including some or all aspects of the accounts receivable management process. As a result, many regional customers are becoming national in scope and are shifting account placements to accounts receivable management companies that have the ability to service a large volume of placements on a national basis. The Company established relationships with many of the target industries' largest consolidators, thereby improving its ability to capitalize on this consolidation trend. - Growth in Portfolio Sales. As one of the leading providers of portfolio purchasing services, we have participated in the rapid and consistent industry-wide increase in the amount of non-performing consumer receivables sold by credit grantors. Portfolio sales offer the credit grantor many benefits, including increased predictability of cash flow reduction in monitoring and administrative expenses and reallocation of assets from non-core business functions to core business functions. It is estimated that $10.1 billion of charged-off credit card debt was acquired by portfolio purchasers in 1996 and more than $22.0 billion in 1999. - Accelerated Trend toward Outsourcing. In an effort to focus on core business activities and to take advantage of economies of scale, better performance and the lower cost structure offered by collection companies, many credit grantors have chosen to outsource some or all aspects of the accounts receivable management process. Instead of waiting until receivables are 180 days past due (or later) to turn over for credit collection, credit grantors are now involving collection companies much earlier in the process. Increasingly, credit grantors are looking to accounts receivable management providers for assistance with billing, customer service and complete call center outsourcing. - Technological Sophistication. Leading companies in the industry are increasingly using technology to improve their collection efforts. These initiatives include investments in proprietary databases and computerized calling and debtor location techniques. Competitive Advantages The Company believes that its strong market position, national presence and breadth of services distinguishes itself as a leading provider of accounts receivable management services in the United States. OSI believes its competitive advantages include: - Benefits of Scale. The benefits of scale in the accounts receivable industry are significant on both revenues and cost. Scale makes it possible for the Company to compete for larger blocks of revenue, deliver more services over a wider geographic base, leverage its fixed costs over a broader customer base and access capital at attractive rates. As customers consolidate geographically and seek to reduce suppliers, a national presence also provides an important competitive advantage. - "One-stop-shopping" for Receivables Management Services. OSI provides a full array of receivables management services including front-end credit service, pre charge-off delinquency management, contingent collection services and portfolio purchasing. This allows the Company to manage the entire credit cycle for its customers for all sizes of debt and across multiple industries. The Company is one of the few industry participants to provide this breadth of services on a national basis. - Broad Customer Base. OSI provides services to some of the largest and fastest growing credit grantors in a wide range of industries. OSI's broad customer base diversifies its revenue stream and provides the Company with significant opportunities to cross-sell services. The Company also has long-standing relationships with many of its customers which provides a strong base of recurring revenues. - Technology. The Company has made, and will continue to make, significant investmentsin technology and know-how to enhance its competitive advantage. The Company currently has over $53 million invested in computer hardware and software. OSI believes that its proprietary software, including debtor-scoring models, computerized calling and debtor databases, provides them with a competitive advantage in pricing portfolios, providing outsourcing services and collecting delinquent accounts. The Company's systems interface with those of its customers to receive new account placements daily and provide frequent updates to customers on the status of collections. OSI has become increasingly integrated with its customers' systems resulting in high switching costs for its customers. - Customer Service. OSI's broad range of services and focused customer approach enables the Company to actively support and customize services to its customers on a cost-effective basis. This service philosophy has provided the foundation for the Company's reputation and when combined with its industry experience is critical in the clients' selection process. Growth Strategies The Company's strategy focuses on expanding its business and enhancing profitability through the following initiatives: - Cross Selling Services to Existing Customers. OSI offers its customers a wide array of services including traditional fee services, portfolio purchasing services, pre-charge-off programs, outsourcing of accounts receivable management functions and teleservicing. This range of services allows OSI to cross-sell offerings within its existing customer base and to potential customers in specifically targeted industries. - Expansion of Customer Base. - Existing Target End-Markets. Increasingly, credit grantors in the public and private sectors who have typically maintained accounts receivable departments within their organizations are turning to outside accounts receivable management companies. In addition, consolidation in the banking, retail, utilities, student loan, health care and telecommunications industries has created national customers who are outsourcing a portion or all of their accounts receivable management service needs to national providers. As OSI enhances its expertise and reputation with customers in a target end-markets the Company markets that expertise to other credit grantors in that end-market. The Company's relative size, our ability to provide services in all 50 states and experience in successfully managing a high volume of placements on a national basis allows it to benefit from the consolidation of these key industries. - New Target Industries. OSI intends to capitalize on its expertise and reputation to penetrate new end-markets. For example, the Company will continue to focus on increasing its business activities with governmental agencies at the federal, state and local levels, which have begun to outsource tax, child support collection and student loan accounts receivable functions to private companies. In addition, the Company will focus on the commercial market segment (collection of delinquent accounts owed by businesses to other businesses) and healthcare segment of the industry. Traditionally, the commercial market has been underpenetrated by collection agencies given the need for tailored collection methods which differ from those used in the consumer market, while significant changes and cost reductions in the healthcare market require specialized skills in the collection of past due accounts. - Disciplined Acquisitions. The Company has built its position as an industry leader through strategic acquisitions of leading accounts receivable service providers. By successfully integrating these businesses, its management has demonstrated an ability to evaluate, execute and integrate acquisitions. With over 6,000 contingent fee accounts receivable collection companies in the United States, OSI plans to pursue additional acquisitions that complement its existing services or expand its customer base and is continually reviewing acquisition opportunities. - Cost Reductions. The Company's management has adopted an aggressive approach to cost management. The Company will continue to focus on reducing its overall costs and improving operational efficiencies. Acquisition and Integration History In September 1995, the Company was formed and acquired Atlanta-based Account Portfolios, one of the largest purchasers and servicers of non-performing accounts receivable portfolios. In January 1996, OSI acquired Continental Credit Services, Inc. ("Continental") and A.M. Miller Associates, two industry leaders in providing contingent fee services. Continental, which was headquartered in Seattle and operated in eight western states, provided contingent fee services to a wide range of end markets with particular emphasis on public utilities and regional telecommunications. A. M. Miller, based in Minneapolis, provided contingent fee services to the student loan and bank credit card end markets. In November 1996, OSI acquired Payco American Corporation with corporate offices in Brookfield, Wisconsin. Originally founded as a contingent fee service company, Payco diversified into other outsourcing services such as student loan billing, health care accounts receivable billing and management, and contract management of accounts receivable and teleservicing. In October 1997, OSI acquired the assets of North Shore Agency, Inc., a fee service company headquartered in Westbury, New York. North Shore specialized in "letter series" collection services for direct marketers targeted at collecting small balance debts. The majority of North Shore's revenues were generated from traditional contingent collections utilizing letters with the remaining revenues derived from fixed fee letter services. In November 1997, OSI acquired the assets of Accelerated Bureau of Collections, Inc. Accelerated Bureau of Collections is a Denver-based national fee service company. It specialized in credit card collection and derived approximately 25% of its revenues from pre-charge-off programs with the remaining 75% of revenues derived from standard contingent fee collections. In March 1998, the Company completed the acquisition of The Union Corporation ("Union"). Union was originally a conglomerate involved in businesses ranging from electronic and industrial components to financial services. Union was a leading provider of a range of outsourcing services to both large and small clients. Union provided contingent and fixed fee collection services and other related outsourcing services. Union provided fee services through the following wholly-owned subsidiaries: Allied Bond & Collection Agency, Inc., Capital Credit Corporation, and Transworld Systems, Inc. Allied, headquartered in Trevose, Pennsylvania, provided contingent and fixed fee collection services for large clients across a broad spectrum of industries. Capital Credit, headquartered in Jacksonville, Florida also provided contingent and fixed fee collection services for large national clients primarily serving the bankcard, telecommunications, travel and entertainment, and government sectors. Transworld, headquartered in Rohnert Park, California, is one of the largest prepaid, fixed fee provider of delinquent account management services in the United States. Transworld's clients are primarily small companies with low balance delinquent accounts. Union provided related outsourcing services through its Interactive Performance, Inc. and High Performance Services, Inc. subsidiaries. Interactive Performance headquartered in North Charleston, South Carolina, provided a range of credit and receivables management outsourcing services primarily in the form of teleservicing. Interactive Performance services included inbound and outbound calling programs for credit authorization, customer service, usage management and receivable management. High Performance Services, headquartered in Jacksonville, Florida, provided service similar to Interactive Performance for clients in the financial services industry. In 1999, as part of a strategy to increase the efficiency of its operations by aligning the Company along business services and establishing call centers of excellence by industry specialization and in order to market its services under one OSI brand, the Company reorganized many of its acquired subsidiaries. Account Portfolios changed its name to OSI Portfolio Services, Inc. Payco American Corporation's largest debt collection subsidiary changed its name to OSI Collection Services, Inc. and Continental, A.M. Miller, Accelerated Bureau of Collections, Allied Bond & Collection Agency and Capital Credit merged into OSI Collection Services. Interactive Performance changed its name to OSI Outsourcing Services, Inc. and the Interactive Performance and High Performance Services subsidiaries merged into OSI Outsourcing Services. The Company now provides specialized services for the following industries: healthcare, government, education, telecommunications/utilities, commercial, financial services and bank card. Recapitalization On December 10, 1999, pursuant to a Stock Subscription and Redemption Agreement, dated as of October 8, 1999, as amended (the "Recapitalization Agreement"), by and among Madison Dearborn Capital Partners III, L.P. (together with its affiliates, "MDP") the Company, and certain of the Company's stockholders, optionholders and warrantholders: (i) the Company sold 5,323,561.08 shares of its common stock, par value $.01 per share, to certain purchasers for an aggregate purchase price of $199.5 million; (ii) the Company sold 100,000 shares of its Senior Mandatorily Redeemable Preferred Stock to certain purchasers for an aggregate purchase price of $100 million; (iii) the Company redeemed 4,792,307.20 shares of the Company's common stock (including voting common stock, par value $.01 per share, Class A Convertible Nonvoting Common Stock, par value $.01 per share, Class B Convertible Nonvoting Common Stock, par value $.01 per share, Class C Convertible Nonvoting Common Stock, par value $.01 per share and 1,114,319.33 shares of its preferred stock, no par value) for an aggregate of $221.35 million (such transactions collectively referred to herein as the "Recapitalization"). MDP now owns approximately 70.3% of the outstanding common stock (75.9% of the outstanding voting common stock) of the Company. Prior to the Recapitalization, the Company was controlled by McCown DeLeeuw & Co., Inc., a private equity investment firm. In connection with the Recapitalization, all members of the Company's Board of Directors other than Timothy Beffa resigned and Paul Wood and Tim Hurd were elected to serve as directors. In addition, the stockholders and optionholders of the Company entered into a stockholders agreement (the "Stockholders Agreement"). The Stockholders Agreement provides for the election of individuals to the Board of Directors of the Company and includes restrictions on the transfer of capital stock, and the provision of registration, preemptive, tag along and drag along rights granted to the parties thereto. In conjunction with the Recapitalization, the Company also entered into a Credit Agreement among the Company, DLJ Capital Funding, Inc., as Syndication Agent, Harris Trust & Savings Bank, as Documentation Agent, Fleet National Bank, N.A., as Administrative Agent and other Lenders who are parties thereto (the "Credit Agreement"). The Credit Agreement provides for: (i) a $150 million Term A Loan Facility; (ii) a $250 million Term B Loan Facility; and (iii) a $75 million Revolving Loan Facility. Borrowings under the Credit Agreement were used to refinance the Company's existing credit agreement and will be used for other working capital and general corporate purposes. Services and Operations The Company is one of the largest providers of accounts receivable management services in the United States. Through its subsidiaries, the Company offers customers collection services, portfolio purchasing services and related outsourcing services. Collection Services The Company is one of the largest providers of collection services in the United States. The Company offers a full range of contingent fee services, including pre-charge-off programs and letter series, to most consumer credit end-markets. The Company utilizes sophisticated management information systems and vast experience with locating, contacting and effecting payment from delinquent account holders in providing its core contingent fee services. With 52 call centers in 26 states and approximately 5,500 account representatives, the Company has the ability to service a large volume of accounts with national coverage. In addition to traditional contingent fee services involving the placement of accounts over 120 days delinquent, creditors have begun to demand services in which accounts are outsourced earlier in the collection cycle. The Company has responded to this trend by developing "early-out" programs, whereby the Company receives placed accounts that are less than 120 days past due and earn a fixed fee per placed account rather than a percentage of realized collections. These programs require a greater degree of technological integration between OSI and its customers, leading to higher switching costs. The Company primarily services consumer creditors, although the Company has a growing presence in the commercial collection business, offering contingent fee services to commercial creditors. Contingent fee services are the traditional services provided in the accounts receivable management industry. Credit grantors typically place non-performing accounts after they have been deemed non-collectible, usually when 90 to 120 days past due, agreeing to pay the servicer a commission level calculated on the amount of collections actually made. At this point, the receivables are usually still valued on the customer's balance sheet, albeit in a form at least partially reserved against for possible noncollection. Customers typically use multiple agencies on any given placement category, enabling them to benchmark each agency's performance against the other. Placement is usually for a fixed time frame, typically a year, at the end of which the agency returns the uncollected receivables to the customer, which may then place them with an alternative agency. The commission rate for contingent fee services is generally based on the collectability of the asset in terms of the costs which the contingent fee servicer must incur to effect repayment. The earlier the placement (i.e., the less elapsed time between the past due date of the receivable and the date on which the debt is placed with the contingent fee servicer), the higher the probability of recovering the debt, and therefore the lower the cost to collect and the commission rate. Creditors typically assign their charged-off receivables to contingent fee servicers for a twelve month cycle, and then reassign the receivables to other servicers as the accounts become further past due. There are three main types of placements in the contingent fee business, each representing a different stage in the cycle of account collection. Primary placements are accounts, typically 120 to 270 days past due, that are being placed with agencies for the first time and usually receive the lowest commission. Secondary placements, accounts 270 to 360 days past due, have already been placed with a contingent fee servicer and usually require a process including obtaining judgments, asset searches, and other more rigorous legal remedies to obtain repayment and, therefore, receive a higher commission. Tertiary placements, accounts usually over 360 days past due, generally involve legal judgments, and a successful collection receives the highest commission. Customers are increasingly placing accounts with accounts receivable management companies earlier in the collection cycle, often prior to the 120 days past due typical in primary placements, either under a contingent fee or fixed fee arrangement. Once the account has been placed with OSI, the fee service process consists of (i) locating and contacting the debtor through mail, telephone, or both, and (ii) persuading the debtor to settle his or her outstanding balance. Work standards, or the method and order in which accounts are worked by OSI, are specified by the customer, and contractually bind OSI. Some accounts may have different work standards than others based on criteria such as account age or balance. In addition, OSI must comply with the federal Fair Debt Collection Practices Act and comparable state statutes, which restrict the methods it uses to collect consumer debt. The Company estimates the collectability of each placement using sophisticated statistical scoring systems that are applied to each account. The objective is to maximize revenues and to minimize expenses. For example, instead of sending letters to the entire account base, a targeted telemarketing campaign may be used to directly contact selected account groups, thus saving the costs associated with an unnecessary broad-based mail campaign. Outsourcing Services As the volume of consumer credit has expanded across a number of industries, credit grantors have begun demanding a wider range of outsourcing services. In response, the Company has developed a number of other accounts receivable management services. The Company leverages its operational expertise and call and data management technology by offering the following services: - contract management, whereby the Company performs a range of accounts receivable management services at the customer's or the Company's location, - student loan billing, whereby the Company provides billing, due diligence and customer services, - health care accounts receivable management, whereby the Company assumes responsibility for managing third-party billing, patient pay resolution, inbound and outbound patient communication services and cash application functions, and - teleservicing whereby the Company offers inbound and outbound calling programs to perform sales, customer retention programs, market research and customer service. In each client relationship, the cornerstone of the outsourcing strategy is to customize services to its customers on terms that will lead to substantial and increased growth rates in revenues and profit margins for the client as well as more stabilized cash flows. Customer service and billing inquiry activities are ideal candidates for outsourcing relationships for a number of reasons, including: (i) the need for technological investments in automated call management systems, (ii) activities that are labor intensive, and (iii) activity volumes that are subject to fluctuations which make it difficult to maintain stable employment levels and high utilization of the required equipment. By offering outsourcing services to a variety of clients, the Company will be able to leverage its productive resources to greater efficiency levels. In addition, the Company will continue to develop its expertise in outsourcing service delivery, enhancing its creativity and effectiveness in managing various inbound programs that a captive operation does not generally have. This can translate into higher response rates and returns on investment for the client. Portfolio Purchasing Services While contingent fee servicing remains the most widely used method by credit grantors in recovering non-performing accounts, portfolio purchasing has increasingly become a popular alternative. Beginning in the 1980's, the Resolution Trust Company and the Federal Deposit Insurance Company, under government mandate to do so, began to sell portfolios of non-performing loans. Spurred on by the success of these organizations in selling charged-off debt, other creditors likewise began to sell portfolios of non-performing debt. The Company's management estimates the total principal value of purchased portfolios at over $20 billion per year. The largest percentage of purchased portfolios originated from the bank card receivable and retail markets and such portfolios are typically purchased at a deep discount from the aggregate principal value of the accounts, with an inverse correlation between purchase price and age of the delinquent accounts. Once purchased, traditional collection techniques are employed to obtain payment of non-performing accounts. The Company offers portfolio purchasing services to a wide range of financial institutions, educational institutions and retailers. The Company purchases large and diverse portfolios of non-performing consumer receivables both on an individually negotiated basis as well as through "forward flow" agreements. Under forward flow agreements, the Company agrees, subject to due diligence, to purchase charged-off receivables on a monthly basis. Credit grantors selling portfolios to the Company realize a number of benefits including increased predictability of cash flow, reduction in monitoring and administrative expenses, and reallocation of assets from non-core business functions to core business functions. The Company's purchased portfolios consist primarily of consumer loans and credit card receivables, student loan receivables and health club receivables including portfolios purchased under forward flow agreements. The Company's most recent portfolio acquisitions have been primarily purchases pursuant to OSI's health club and bank card forward flow agreements. The Company continues to pursue acquisitions of portfolios in various industries for both individually negotiated and forward flow purchases. In 1999, the Company established its own portfolio purchasing valuation unit to complement services previously provided by an independent portfolio valuation firm. In order to fund an increased level of portfolio purchasing, in October 1998 the Company established a financing conduit, in association with MBIA Insurance Corporation. The conduit is expected to provide OSI with significantly increased purchasing capacity necessary to expand its portfolio purchasing activities at a lower aggregate cost of capital. The transaction structure involves off-balance sheet treatment for a significant portion of prospective portfolio purchases and the related financing, while providing a consistent servicing revenue stream and eventual access to any portfolio residual. Although the Company places most of its portfolio purchases in the conduit, OSI will, when required, continue to place certain portfolio purchases on its balance sheet. The revenue from owned portfolios is derived from gross collections and offset by collection costs and portfolio amortizations. Conversely, the off-balance sheet accounting treatment for portfolios sold into the conduit creates service fee revenues which is a percentage of gross collections, offset by collection costs but with no portfolio amortization. From time to time the Company may receive income from the conduit representing excess collections above the cost to purchase the portfolio, fund the acquisition and pay service fees. Sales and Marketing The Company has a sales force of approximately 100 sales representatives providing comprehensive geographic coverage of the United States on a local, regional and national basis, and, to a much lesser extent in, Puerto Rico, Canada and Mexico. The Company, except its Transworld Systems subsidiary, maintains a sales force and has a marketing strategy closely tailored to the credit-granting markets that it serves. The Company's primary sales and marketing objective is to expand its customer base in those customer industries in which it has a particular expertise and to target new customers in high growth end markets. OSI emphasizes its industry experience and reputation - two key factors considered by creditors when selecting an accounts receivable service provider. Increasingly, the Company will focus on cross-selling its full range of services to its existing customers and will use its product breadth as a key selling point in creating new business. The Company's overall sales and marketing strategies are coordinated at its principal executive offices in Chesterfield, Missouri. The marketing force is responsible both for identifying and cultivating potential customers, as well as retaining or increasing market share with existing clients. The marketing force is generally organized around specific industries and is also trained to market the overall benefits of its services, providing a cross-selling function for all its business units. Compensation plans for the marketing force are incentive based, with professionals receiving a base salary and incremental compensation based on performance. For the Company's Transworld Systems subsidiary, it has a sales force of over 800 independent contractors based in 150 offices. Customers The Company's customer base includes a full range of local, regional and national credit grantors. The Company's largest customer accounted for no more than 5% of 1999 revenues. Employees The Company employs approximately 7,000 people, of which 5,500 are account representatives, 100 are sales representatives and 1,400 work in corporate/supervisory and administrative functions. None of the Company's employees are unionized, and the Company believes its relations with employees are satisfactory. The Company is committed to providing continuous training and performance improvement plans to increase the productivity of its account representatives. Account representatives receive extensive training in a classroom environment for several days on its procedures, information systems and regulations regarding contact with debtors. The training includes technical topics, such as use of on-line collection systems and computerized calling techniques, as well as instruction regarding the Company's approach to the collection process and listening, negotiation and problem-solving skills, all of which are essential to efficient and effective collections. Account representatives are then assigned to work groups for a training period. Initially, the trainees only screen incoming calls. This allows less experienced account representatives to communicate with debtors in a less confrontational environment than may be experienced with outgoing calls. Additionally, the trainees are assigned accounts, which based upon scoring by the Company's information systems, have a higher likelihood of collection. After the training period, the account representatives begin working accounts directly. Competition The accounts receivable management industry is highly fragmented and competitive. Nationwide, there are approximately 6,000 debt collection service companies in the United States, with the 10 largest agencies currently accounting for only 20% of industry revenues. Within the collection and outsourcing services of the Company's business, large volume credit grantors typically employ more than one accounts receivable management company. Competition is based largely on recovery rates, industry experience and reputation, and service fees. Within this market, our largest competitors include Deluxe Corporation, Dun & Bradstreet, Equifax Corporation, G.C. Services and NCO Group. The bidding process associated with the acquisition of purchased portfolios has become more competitive as the number of participants in this business has increased. However, in late 1998, the Company's primary competitor for purchased portfolios, Commercial Financial Services, declared bankruptcy. The Company's largest remaining competitors in this market include MCM Capital Group Inc., Creditrust Corporation and West Capital Corporation. Environmental, Health & Safety Matters Current operations of OSI and its subsidiaries do not involve activities materially affecting the environment. However, the Company's subsidiary, The Union Corporation, is party to several pending environmental proceedings involving the United States Environmental Protection Agency, or EPA, and comparable state environmental agencies in Indiana, Maryland, Massachusetts, New Jersey, Ohio, Pennsylvania, South Carolina and Virginia. All of these matters relate to discontinued operations of former divisions or subsidiaries of Union for which it has potential continuing responsibility. Upon completion of the acquisition of Union, OSI, in consultation with both legal counsel and environmental consultants, established reserves that it believes will be adequate for the ultimate settlement of these environmental proceedings. One group of Union's known environmental proceedings relates to Superfund or other sites where Union's liability arises from arranging for the disposal of allegedly hazardous substances in the ordinary course of prior business operations. In most of these "generator" liability cases, Union's involvement is considered to be de minimus (i.e., a volumetric share of approximately 1% or less) and in each of these cases Union is only one of many potentially responsible parties. From the information currently available, there are a sufficient number of other economically viable participating parties so that Union's projected liability, although potentially joint and several, is consistent with its allocable share of liability. At one "generator" liability site, Union's involvement is potentially more significant because of the volume of waste contributed in past years by a currently inactive subsidiary. Insufficient information is available regarding the need for or extent and scope of any remedial actions which may be required. Union has recorded what it believes to be a reasonable estimate of its ultimate liability, based on current information, for this site. The second group of matters relates to environmental issues on properties currently or formerly owned or operated by a subsidiary or division of Union. These cases generally involve matters for which Union or an inactive subsidiary is the sole or primary responsible party. In one case, the Metal Bank Cottman Avenue site, the EPA issued a record of decision on February 6, 1998. According to the record of decision, the cost to perform the remediation selected by the EPA for the site is estimated by the EPA to be approximately $17.3 million. The aggregate amount reserved by Union for this site was $18.2 million, which represented Union's best estimate of the ultimate potential legal and consulting costs for defending its legal and technical positions regarding remediation of this site and its portion of the potential remediation costs that will ultimately be incurred by it, based on current information. However, Union may be exposed to additional substantial liability for this site as additional information becomes available over the long-term. Actual remediation costs cannot be computed until such remedial action is completed. Some of the other sites involving Union or an inactive subsidiary are at a state where an assessment of ultimate liability, if any, cannot reasonably be made at this time. It is Union's policy to comply fully with all laws regulating activities affecting the environment and to meet its obligations in this area. In many "generator" liability cases, reasonable cost estimates are available on which to base reserves on Union's likely allocated share among viable parties. Where insufficient information is available regarding projected remedial actions for these "generator" liability cases, Union has recorded what it believes to be reasonable estimates of its potential liabilities. Reserves for liability for sites on which former operations were conducted are based on cost estimates of remedial actions projected for these sites. OSI periodically reviews all known environmental claims, where information is available, to provide reasonable assurance that reserves are adequate. Governmental Regulatory Matters Certain of the Company's operations are subject to the Fair Debt Collection Practices Act, or FDCPA, and comparable statutes in many states. Under the FDCPA, a third-party collection agency is restricted in the methods it uses to collect consumer debt. For example, a third-party collection agency (1) is limited in communicating with persons other than the consumer about the consumer's debt, (2) may not telephone at inconvenient hours, and (3) must provide verification of the debt at the consumer's request. Requirements under state collection agency statutes vary, with most requiring compliance similar to that required under the FDCPA. In addition, most states and certain municipalities require collection agencies to be licensed with the appropriate authorities before collecting debts from debtors within those jurisdictions. It is the Company's policy to comply with the provisions of the FDCPA, comparable state statutes and applicable licensing requirements. The Company has established policies and procedures to reduce the likelihood of violations of the FDCPA and related state statutes. For example, all of the Company's account representatives receive extensive training on these policies and must pass a test on the FDCPA and the Company's agents work in an open environment which allows managers to monitor interaction with debtors. From time to time, certain of the Company's subsidiaries have been subject to consent decrees with various governmental agencies, none of which currently have a material effect on the Company's financial condition or operations. ITEM 2. PROPERTIES As of December 31, 1999, the Company and its subsidiaries operated 69 facilities in the U.S., all of which are leased, except for three administrative and collection offices operated by Transworld Systems, which are owned. The Company believes that such facilities are suitable and adequate for its business. The Company's facilities are strategically located across the U.S. to give effective broad geographic coverage for customers and access to a number of labor markets. ITEM 3. LEGAL PROCEEDINGS At December 31, 1999, the Company was involved in a number of legal proceedings and claims that were in the normal course of business and routine to the nature of the Company's business. In addition, one of the OSI subsidiaries, Union, is party to several pending environmental proceedings discussed elsewhere herein. While the results of litigation cannot be predicted with certainty, the Company has provided for the estimated uninsured amounts and costs to resolve the pending suits and management, in consultation with legal counsel, believes that reserves established for the ultimate settlement of such suits are adequate at December 31, 1999. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The following matters were submitted to a vote of security holders during the fourth quarter of the year ended December 31, 1999. In November 1999, pursuant to written consent of shareholders of the Company's voting common stock, the shareholders approved the amendment of the Company's Certificate of Incorporation to (i) increase the total authorized shares of the Voting Common Stock of the Company, (ii) increase the total authorized shares of the Class B Non-Voting Common Stock of the Company and (iii) provide for the authorization of 200,000 shares of other preferred stock. These consents were executed by holders of a majority of the outstanding capital stock of the Company. In December 1999, pursuant to written consent of the holders of the Company's outstanding 11% Senior Subordinated Notes due November 1, 2006, the noteholders waived: (i) the Company's obligations under Section 4.15 of the Indenture, including its obligations to make a Change of Control Offer in connection with the Recapitalization; and (ii) the failure by the Company to comply with certain technical requirements relating to the qualification and operation of its financing subsidiary, OSI Funding Corp., as an Unrestricted Subsidiary under the Indenture and any and all consequences arising therefrom under the Indenture. In December 1999, pursuant to written consent of shareholders of the Company's voting common stock, the shareholders approved bonuses, option acceleration and price amendments, and option grants to certain officers of the Company. These consents were executed by holders of 3,462,726.01 shares of the Company's voting common stock, 391,740.58 shares of the Company's Class A non-voting common stock, 400,000 shares of the Company's Class B non-voting common stock, and 1,040,000 shares of the Company's Class C non-voting common stock. In December 1999, pursuant to written consent of shareholders of the Company's voting common stock, the shareholders approved the amendment and restatement of the Company's Certificate of Incorporation to amend the authorized capitalization of OSI, principally to (i) provide that voting common stock will no longer have the ability to convert into non-voting common stock, (ii) provide that there will be only one class of non-voting common stock and (iii) eliminate reference to any specific series of preferred stock and instead authorize preferred stock with rights, preferences and obligations that may be established by the Board of Directors. Stockholders holding a majority of the issued and outstanding shares of common stock of the Company and holders of a majority of the issued and outstanding shares of each of the (i) preferred stock, (ii) Class A non-voting common stock, (iii) Class B non-voting common stock and (iv) Class C non-voting common stock executed these consents. PART II. ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS No public market currently exists for the Company's Voting common stock and Nonvoting common stock. As of March 30, 2000, there were approximately 30 holders of record of the Voting common stock and Nonvoting common stock. The Company has not declared any cash dividends on any of its common stock since the Company's formation in September 1995. The Indenture (the "Indenture"), dated as of November 6, 1996, by and among the Company, the Guarantors (as defined therein) and Wilmington Trust Company, as Trustee, with respect to the 11% Series B Senior Subordinated Notes due 2006 contains restrictions on the Company's ability to declare or pay dividends on its capital stock. Additionally, the Credit Agreement dated as of November 30, 1999 among the Company, the Lenders listed therein, DLJ Capital Funding, Inc., as the Syndication Agent, Harris Trust and Savings Bank, as the Documentation Agent, and Fleet National Bank, as the Administrative Agent (the "Credit Agreement") contains certain restrictions on the Company's ability to declare or pay dividends on its capital stock. The Indenture, the Credit Agreement and the Certificate of Designation of the powers and preferences and relative participating, optional and other special rights of Class A 14% Senior Mandatorily Redeembale Preferred Stock, Series A, and Class B 14% Senior Mandatorily Redeemable Preferred Stock, Series A, and qualifications and limitations and restrictions thereof prohibit the declaration or payment of any Common Stock dividends or the making of any distribution by the Company or any subsidiary (other than dividends or distributions payable in stock of the Company) other than dividends or distributions payable to the Company. ITEM 6. SELECTED FINANCIAL DATA The following selected historical financial data set forth below have been derived from, and are qualified by reference to the audited Consolidated Financial Statements of OSI as of December 31, 1998 and 1999 and for the three years ended December 31, 1999. The audited financial statements of OSI referred to above are included elsewhere herein. The selected historical financial data set forth below as of September 20, 1995 and for the period January 1, 1995 to September 20, 1995 have been derived from the audited financial statements of Account Portfolios ("API") (as predecessor) not included herein. The selected historical financial data set forth below as of December 31, 1995, 1996, and 1997 for the period September 21, 1995 to December 31, 1995 and for the year ended December 31, 1996 have been derived from the audited financial statements of OSI not included herein. The selected financial data set forth below should be read in conjunction with, and are qualified by reference to, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and accompanying notes thereto of OSI included elsewhere herein.
API OSI (as predecessor) (as successor) --------------- ---------------------------------------------------------------- From From September 21 January 1 to To September 20 December 31, Year Ended December 31, ------------ ------------ ------------------------------------------------ 1995 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- ---- ($ in thousands) Income Statement Data: Operating revenue ...................... $ 21,293 $ 8,311 $ 106,331 $ 271,683 $ 479,400 $ 504,425 Salaries and benefits .................. 4,471 2,079 46,997 133,364 230,114 244,157 Other operating expenses (a) ........... 7,343 8,953 80,357 156,738 221,598 224,616 Change in control bonuses, stock option redemption and other bonuses ..... - - - - - 10,487 Nonrecurring conversion, realignment and relocation expenses ......... - - - - - 5,063 Transaction related costs .............. - - - - - 6,827 --------- --------- --------- --------- --------- --------- Operating income (loss) ................ 9,479 (2,721) (21,023) (18,419) 27,688 13,275 Interest expense, net .................. 495 1,361 12,131 28,791 50,627 52,265 Income (loss) before taxes ............. 8,984 (4,082) (33,154) (47,210) (22,939) (38,990) Provision for income taxes (benefit) ... - (1,605) (11,757) 11,127 830 759 Minority interest ...................... - - - - 572 - --------- --------- --------- --------- --------- --------- Income (loss) before extraordinary item $ 8,984 $ (2,477) $ (21,397) $ (58,337) $ (24,341) $ (39,749) Extraordinary loss ..................... - - - - - 4,208 --------- --------- --------- --------- --------- --------- Net income (loss) ...................... $ 8,984 $ (2,477) $ (21,397) $ (58,337) $ (24,341) $ (43,957) ========= ========= ========= ========= ========= ========= Balance Sheet Data (at end of period): Total assets ........................... 11,272 85,652 355,207 381,690 618,491 624,712 Total debt ............................. - 36,462 247,616 324,966 528,148 518,307 Mandatorily redeemable preferred stock . - - - - - 85,716 Partners' capital/Stockholders equity (deficit) .......................... 10,559 42,448 51,598 (5,478) (30,032) (93,948) Other Financial Data: Amortization of purchased portfolios ... $ 2,308 $ 5,390 $ 27,317 $52,042(c) $50,703(d) 38,722 Other depreciation and amortization .... 167 331 18,281 33,574 30,007 31,095 Cash capital expenditures .............. 574 97 2,606 9,489 13,480 18,437 On-balance sheet portfolio purchases ... 5,502 903 10,373(e) 46,494 43,186 23,176 Cash flows from: Operating activities and portfolio purchasing ......... 385 1,999 (2,978) (13,669) 12,066 (3,652) Investing activities ............... 6,761 (30,104) (186,790) (73,005) (184,619) (21,549) Financing activities ............... (20,587) 29,574 202,796 75,394 178,150 22,446 EBITDA (b) ............................. 11,954 3,000 24,575 67,197 108,398 83,092 Adjusted EBITDA (b) .................... 11,954 3,000 25,775 67,197 108,398 105,469 - ------------------------------
(a) Other operating expenses include telephone, postage, supplies, occupancy costs, data processing costs, depreciation, amortization and miscellaneous operating expenses. (b) EBITDA is defined as income from continuing operations before interest, taxes, depreciation and amortization. Adjusted EBITDA reflects EBITDA as defined above adjusted for the non-recurring write-off of acquired technology in process in connection with the Payco acquisition and relocation expenses incurred by Continental of $1,000 and $200, respectively, in the year ended December 31, 1996 and the change in control bonuses, stock option redemption and other bonuses; non-recurring conversion, realignment and relocation expenses; and transaction related expenses of $10,487, $5,063 and $6,827, respectively, in the year ended December 31, 1999. EBITDA and Adjusted EBITDA are presented here, as management believes they provide useful information regarding the Company's ability to service and/or incur debt. EBITDA and Adjusted EBITDA should not be considered in isolation or as substitutes for net income, cash flows from continuing operations, or other consolidated income or cash flow data prepared in accordance with generally accepted accounting principles or as measures of a company's profitability or liquidity. (c) In the fourth quarter of 1997, the Company completed an in-depth analysis of the carrying value of the purchased portfolios acquired and valued in conjunction with the Company's September 1995 acquisition of API. As a result of this analysis, the Company recorded $10,000 of additional amortization related to these purchased portfolios to reduce their carrying value to their estimated net realizable value. This amount includes the $10,000 of additional amortization. (d) In the fourth quarter of 1998, the Company wrote down its investment in a limited liability corporation (the "LLC") by $3,000 resulting from an analysis of the carrying value of the purchased portfolios owned by the LLC. This amount includes the $3,000. (e) In May 1996, a subsidiary of the Company acquired participation interests in certain loan portfolios, representing the undivided ownership interests in such portfolios which were originally sold pursuant to existing Participation Agreements ("MLQ Interests") for aggregate consideration of $14,772. This amount excludes the $14,772. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Year Ended December 31, 1999 Compared to Year Ended December 31, 1998 Revenues for the year ended December 31, 1999 were $504.4 million compared to $479.4 million for the year ended December 31, 1998 - an increase of 5.2%. The revenue increase of $25.0 million was due primarily to increased collection and outsourcing revenues of $19.7 million and $7.3 million from the full year effect of the acquisition of Union in 1998. Revenues from collection services were $362.9 million for the year ended December 31, 1999 compared to $350.1 million for 1998. The increase in collection services revenue was due to a 2.1% increase in existing business and $5.7 million from the Union acquisition. The outsourcing services revenue of $61.1 million compared favorably to $46.9 million for 1998 due to increased revenue from new and existing business of 26.7% and $1.6 million from the Union acquisition. Revenues from purchased portfolio services decreased 2.4% to $80.4 million for the year ended December 31, 1999 from $82.4 million in 1998. The decreased revenue was attributable to lower revenues from on-balance sheet portfolios and lower strategic sales of portfolios offset by higher servicing fee revenues for the off-balance sheet collections of portfolios which increased due to the formation of the Company's special purpose finance company ("FINCO"). Prior to forming FINCO, the Company would record as revenue the total collections on purchased portfolios. Currently, for all purchased portfolios which are sold to and financed by FINCO, the Company records as revenue a servicing fee on the total collections of FINCO purchased portfolios. During the year ended December 31, 1999, the Company recorded revenue from FINCO servicing fees of $13.5 million on total collections of $39.3 million compared to servicing fees of $0.8 million on total collections of $1.9 million in 1998. When compared to the year ended December 31, 1998, the total collections of both on and off-balance sheet purchased portfolios increased from $65.1 million to $89.0 million in 1999 - an increase of 36.7% or $23.9 million. The increased collections resulted primarily from an increase in the total levels of purchased portfolios primarily as a result of the increased buying capacity made available through FINCO. Operating expenses, inclusive of salaries and benefits, service fees and operating and administrative expenses, were $398.9 for the year ended December 31, 1999 and $371.0 million for the comparable period in 1998 - an increase of 7.5%. The increase in these operating expenses resulted primarily from the Union acquisition, higher collection-related expenses associated with the increased revenues of collection and outsourcing services, increased collection expenses associated with the increase in collections of purchased portfolios, higher infrastructure costs and increased advertising and promotional expenses and consulting expenses. For the year ended December 31, 1999, amortization and depreciation charges of $69.8 million compared to $80.7 million for 1998 - a decrease of 13.5%. The lower amortization and depreciation charges resulted primarily from lower on-balance sheet portfolio amortization offset partially by additional depreciation and amortization of goodwill related to the Union acquisition and depreciation of current year capital expenditures. During the fourth quarter of 1998 and the first quarter of 1999, the Company evaluated its business strategy for its operations. After the Company's formation and seven acquisitions, the Company adopted a strategy to align the Company along business services and establish call centers of excellence by industry specialization. As a result, nonrecurring conversion, realignment and relocation expenses include costs resulting from the temporary duplication of operations, closure of certain call centers along with relocation of certain employees, hiring and training of new employees, costs resulting from the conversion of multiple collection operating systems to a one industry operating system, and other one-time and redundant costs, which will be eliminated as the realignment and integration plans are completed. These costs of $5.1 million were recognized as incurred during 1999. In connection with the Recapitalization, the Company incurred $10.5 million of additional compensation expense. This compensation expense consisted primarily of expense relating to payment of cash for vested stock options and the payment of change in control bonuses to certain officers in accordance with terms of their employment agreements. In addition, the Company incurred $6.8 million of transaction related costs associated with the Recapitalization. These costs consisted primarily of professional and advisory fees, and other expenses. As a result of the above, the Company generated operating income of $13.3 million for the year ended December 31, 1999. Adding back the nonrecurring charges of $5.1 million, additional compensation expense of $10.5 million and transaction related costs of $6.8 million, operating income was $35.7 million for 1999 compared to $27.7 million for 1998. Earnings before interest expense, taxes, depreciation and amortization (EBITDA) for the year ended December 31, 1999 was $83.1 million. Adding back the nonrecurring and transaction related expenses, EBITDA was $105.5 million for 1999 compared to $108.4 million for the year ended December 31, 1998. The decrease was primarily attributable to the higher marketing costs associated with branding initiatives, higher infrastructure and industry focused expenses and the decreased portfolio service revenues resulting from the manner in which revenues from off-balance sheet collections are recognized. Net interest expense of $52.3 million for the year ended December 31, 1999 compared unfavorably to 1998 expense of $50.6 million due primarily to the additional indebtedness incurred to finance the Union acquisition. The provision for income taxes of $0.8 million was provided for state and foreign income tax obligations, which the Company cannot offset currently by net operating losses. Minority interest in 1998 resulted from the Union acquisition. On January 23, 1998, the Company acquired approximately 77% of the outstanding common stock of Union through a tender offer. The acquisition of all remaining outstanding common stock of Union was completed on March 31, 1998. The Company recognized minority interest in earning of Union during the period from January 23, 1998 to March 31, 1998. Due to the factors stated above, the loss before extraordinary item for the year ended December 31, 1999 of $39.7 million compared unfavorably to $24.3 million in 1998. The extraordinary item of $4.2 million, which was the write-off of previously capitalized financing costs, resulted from the extinguishment of the existing credit facility in conjunction with the establishment of a new credit facility in the fourth quarter of 1999. Primarily as a result of the nonrecurring and transaction related expenses and the extraordinary item, net loss of $44.0 million for the year ended December 31, 1999 compared unfavorably to the net loss of $24.3 million for 1998. Year Ended December 31, 1998 Compared to Year Ended December 31, 1997 Revenues for the year ended December 31, 1998 were $479.4 million compared to $271.7 million for the year ended December 31, 1997 - an increase of 76.5%. The revenue increase of $207.7 million was due primarily to increased collection, outsourcing and portfolio services revenues of $14.4 million - an increase of 5.3% over 1997, and $193.3 million from the acquisitions of Union, NSA and ABC. Revenues from collection services were $350.1 million for the year ended December 31, 1998 compared to $180.9 million for 1997. The increase in collection services revenues was due to a 1.0% increase in existing business and $167.9 million from the three acquisitions. In the highly competitive collection services business, during 1998 the Company experienced pressure on their contingent fee rates coupled with lower bankcard placements due to credit grantors selling them, resulting in less than anticipated growth in existing business. Revenue from purchased portfolio services increased to $82.4 million for the year ended December 31, 1998 compared to $67.8 million in 1997 - up 21.5%. The increased revenue was attributable to both higher collection revenue and strategic sales of portfolios. The 1998 outsourcing revenue of $46.9 million compared favorably to 1997 revenue of $23.0 million due primarily to the Union acquisition. Operating Expenses for the year ended December 31, 1998 were $451.7 million compared to $290.1 million for the year ended December 31, 1997 - an increase of 55.7%. Operating expenses, exclusive of amortization and depreciation charges, were $371.0 million for the year ended December 31, 1998 compared to $204.5 million in 1997. The increase in operating expenses, exclusive of amortization and depreciation charges, resulted from the expenses related to the increased revenue and the three acquisitions. Exclusive of the three acquisitions' operating expenses, operating expenses were up 4.4% over 1997. Of the $451.7 million in operating expenses for the year ended December 31, 1998, $80.7 million was attributable to amortization and depreciation charges compared to $85.6 million in 1997. Of the $80.7 million for the year ended December 31, 1998, $50.7 million (including $3.0 million of additional amortization to reduce its investment in a limited liability corporation - See Note 11 to the Consolidated Financial Statements) was attributable to amortization of the purchase price of purchased portfolios (compared to $52.0 million in 1997 including $10.0 million of additional amortization to reduce a portion of purchased portfolios to their estimated fair value). Amortization of goodwill and other intangibles of $15.7 million was less than $24.8 million in 1997 due to no account placement amortization in 1998 ($16.7 million in 1997) since account placement inventory was fully amortized as of December 31, 1997, offset partially by additional amortization of goodwill related to the three acquisitions. The increase in depreciation of $5.5 million from $8.8 million in 1997 to $14.3 million in 1998 was attributable primarily to the additional depreciation related to the three acquisitions. As a result of the above, the Company generated operating income of $27.7 million for the year ended December 31, 1998 compared to an operating loss of $18.4 million for the year ended December 31, 1997. Earnings before interest expense, taxes, depreciation and amortization (EBITDA) for the year ended December 31, 1998 were $108.4 million compared to $67.2 million for 1997. The increase of $41.2 million consisted of $35.9 million as a result of the three acquisitions and $5.3 million primarily from $14.4 million increased revenue from operations unrelated to the acquisitions. Net interest expense for the year ended December 31, 1998 was $50.6 million compared to $28.8 million for 1997. The increase was primarily due to additional indebtedness incurred to finance the Union, NSA and ABC acquisitions. The provision for income taxes of $0.8 million was primarily provided for state income taxes, as the Company will have an obligation in some states for the year ended December 31, 1998. In the fourth quarter of 1997, the Company recorded a net valuation allowance to reflect management's assessment, based on the weight of the available evidence of current and projected future book taxable income, that there is significant uncertainty that any of the benefits from the net deferred tax assets will be realized. Recording the net valuation allowance against the net deferred tax assets resulted in the 1997 provision for income taxes of $11.1 million. Minority interest in 1998 resulted from the Union acquisition. On January 23, 1998, the Company acquired approximately 77% of the outstanding a common stock of Union through a tender offer. The acquisition of all remaining outstanding common stock of Union was completed on March 31, 1998. The Company recognized minority interest in earnings of Union during the period from January 23, 1998 to March 31, 1998. Due to the factors stated above, the net loss for the year ended December 31, 1998 was $24.3 million compared to $58.3 million for the year ended December 31, 1997 - an improvement of $34.0 million. Liquidity and Capital Resources At December 31, 1999, the Company had cash and cash equivalents of $6.1 million. The Company's credit agreement provides for a $75.0 million revolving credit facility, which allows the Company to borrow for working capital, general corporate purposes and acquisitions, subject to certain conditions. As of December 31, 1999, the Company had outstanding $13.0 million under the revolving credit facility leaving $60.0 million, after outstanding letters of credit, available under the revolving credit facility. Cash and cash equivalents decreased from $8.8 million at December 31, 1998 to $6.1 million at December 31, 1999 principally due to the use of cash of $21.5 million for investing activities primarily for capital expenditures and $3.7 million for operating activities and portfolio purchasing offset by net cash from financing activities of $22.5 million, which was due to the Recapitalization of the Company on December 10, 1999. In connection with the Recapitalization, the Company entered into a new credit facility. The proceeds of the new credit facility were used to refinance the indebtedness outstanding under the then existing credit facility on the date of the Recapitalization. Further discussion of the Recapitalization is included in the Company's financial statements included herein. The Company also held $22.5 million of cash for clients in restricted trust accounts at December 31, 1999. Purchased Loans and Accounts Receivable Portfolios decreased from $55.5 million at December 31, 1998 to $39.9 million at December 31, 1999 due primarily to amortization of purchased portfolios of $38.7 million offset partially by new on-balance sheet portfolio purchases of $23.2 million. The purchased loans and accounts receivable portfolios consist primarily of consumer loans and credit card receivables, commercial loans, student loan receivables and health club receivables. Consumer loans purchased primarily consist of unsecured term debt. A summary of purchased loans and accounts receivable portfolios at December 31, 1999 and December 31, 1998 by type of receivable is shown below:
December 31, 1999 December 31, 1998 ------------------------------ -------------------------------- Original Gross Recorded Net Original Gross Recorded Net Principal Value Book Value Principal Value Book Value --------------- ------------ --------------- ------------ (in millions) (in thousands) (in millions) (in thousands) Consumer loans..................... $2,958 $16,141 $2,114 $11,615 Student loans...................... 343 1,258 328 2,782 Credit cards....................... 958 11,837 897 26,489 Health clubs....................... 1,565 9,060 1,460 12,229 Commercial......................... 129 1,651 129 2,378 -------- -------- -------- -------- $5,953 $39,947 $4,928 $55,493 ======== ======== ======== ========
Net deferred taxes was zero at December 31, 1998. At December 31, 1999, net deferred taxes was zero due to a net valuation allowance of $78.8 million. The net deferred tax balances at December 31, 1999 and December 31, 1998 relate principally to net operating loss carryforwards and future temporary deductible differences. The realization of this asset is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards in years through 2019. At December 31, 1999, the Company has a cumulative net valuation allowance of $78.8 million to reflect management's assessment, based on the weight of the available evidence of current and projected future book taxable income, that there is significant uncertainty that any of the benefits from the net deferred tax assets will be realized. For all federal tax years since the Company's formation in September 1995, the Company has incurred net operating losses. Since the Company has a history of generating net operating losses and is expected to continue to incur significant interest expense, management does not expect the Company to generate taxable income in the foreseeable future sufficient to realize tax benefits from the net operating loss carryforwards or the future reversal of the net deductible temporary differences. The amount of the deferred tax assets considered realizable, however, could be increased in future years if estimates of future taxable income during the carryforward period change. The Company's current debt structure at December 31, 1999 consists of $413.0 million indebtedness under the bank credit facility, $100.0 million 11% Senior Subordinated Notes (the "Notes") and other indebtedness of $5.3 million. See Note 6 of the Consolidated Financial Statements of OSI included elsewhere herein for a description of the 1999 credit facility. The Notes and the bank credit facility contain financial and operating covenants and restrictions on the ability of the Company to incur indebtedness, make investments and take certain other corporate actions. The debt service requirements associated with the borrowings under the facility and the Notes significantly impact the Company's liquidity requirements. Additionally, future portfolio purchases may require significant financing or investment. The Company anticipates that its operating cash flow together with availability under the bank credit facility will be sufficient to fund its anticipated future operating expenses and to meet its debt service requirements as they become due. However, actual capital requirements may change, particularly as a result of acquisitions the Company may make. The ability of the Company to meet its debt service obligations and reduce its total debt will be dependent, however, upon the future performance of the Company and its subsidiaries which, in turn, will be subject to general economic conditions and to financial, business and other factors including factors beyond the Company's control. In October of 1998, a special-purpose finance company, OSI Funding Corp., formed by the Company, entered into a revolving warehouse financing arrangement for up to $100.0 million of funding capacity for the purchase of loans and accounts receivable over its five year term. In connection with the Recapitalization, OSI Funding Corp. converted to a limited liability company and is now OSI Funding LLC, with OSI owning approximately 78% of the financial interest but having only approximately 29% of the voting rights. This arrangement will provide the Company expanded portfolio purchasing capability in a very opportunistic buying market. Capital expenditures for the year ended December 31, 1999 were $18.4 million. The Company expects to spend approximately $18.0 million on capital expenditures (exclusive of any expenditures in connection with acquisitions) in 2000. Historical expenditures have been, and future expenditures are anticipated to be primarily for replacement and/or upgrading of telecommunications and data processing equipment, leasehold improvements and continued expansion of the Company's information services systems. Subject to compliance with the provisions of its debt agreements, the Company expects to finance future capital expenditures with cash flow from operations, borrowings and capital leases. The Company will reduce its future capital expenditures to the extent it is unable to fund its capital plan. The Company believes that its facilities will provide sufficient capacity for increased revenues and will not require material additional capital expenditures in the next several years. Inflation The Company believes that inflation has not had a material impact on its results of operations for the years ended December 31, 1999, 1998 and 1997. Year 2000 The Company's business applications and infrastructure functioned flawlessly upon the beginning of the New Year and experienced no significant Year 2000 related glitches during the year's first full week of business operations and have continued to perform since then. Because many of the Company's client relationships are supported through computer system interfaces, OSI worked proactively with clients to assure Year 2000 compliance between respective computer systems. It also secured assurances from suppliers and vendors that their products would be Year 2000 ready. Within OSI, the Company tested and confirmed that the full range of its computer based production systems and infrastructure were Year 2000 compliant. In addition to services typical of most companies, like phone systems, building services, email and office equipment, OSI's compliance program focused especially on customer interfaces and reporting, collection and financial systems and predictive dialers. Spending for Year 2000 modifications and updates were expensed as incurred and did not have a material impact on the results of operations or cash flows. The cost of the company's Year 2000 project was funded from cash flows generated from operations. The Company estimates that its total Year 2000 expenses were approximately $1.7 million. Forward-Looking Statements The following statements in this document are or may constitute forward-looking statements made in reliance upon the safe harbor of the Private Securities Litigation Reform Act of 1995: (1) statements concerning the successful implementation of the Company's Year 2000 initiatives, (2) statements concerning the anticipated costs and outcome of legal proceedings and environmental liabilities, (3) statements regarding anticipated changes in the Company's opportunities in its industry, (4) statements regarding the Company's ability to fund its future operating expenses and meet its debt service requirements as they become due, (5) statements regarding the Company's expected capital expenditures and facilities, (6) any statements preceded by, followed by or that include the word "believes," "expects," "anticipates," "intends," "should," "may," or similar expressions; and (7) other statements contained or incorporated by reference in this document regarding matters that are not historical facts. Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to: (1) the demand for the Company's services, (2) the demand for accounts receivable management generally, (3) general economic conditions, (4) changes in interest rates, (5) competition, including but not limited to pricing pressures, (6) changes in governmental regulations including, but not limited to the federal Fair Debt Collection Practices Act and comparable state statutes, (7) legal proceedings, (8) environmental investigations and clean up efforts, (9) expected synergies, economies of scale and cost savings from recent acquisitions by the Company not being fully realized or realized within the expected time frames, (10) costs of operational difficulties related to integrating the operations of recently acquired companies with the Company's operations being greater than expected, (11) the Company's ability to generate cash flow or obtain financing to fund its operations, service its indebtedness and continue its growth and expand successfully into new markets and services, (12) the effectiveness of the Company's Year 2000 efforts, and (13) factors discussed from time to time in the Company's public filings. These forward-looking statements speak only as of the date they were made. These cautionary statements should be considered in connection with any written or oral forward-looking statements that the Company may issue in the future. The Company does not undertake any obligation to release publicly any revisions to such forward-looking statements to reflect later events or circumstances or to reflect the occurrence of unanticipated events. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is subject to the risk of fluctuating interest rates in the normal course of business. From time to time and as required by the Company's Credit Agreement, the Company will employ derivative financial instruments as part of its risk management program. The Company's objective is to manage risks and exposures of its debt and not to trade such instruments for profit or loss. The Company uses interest rate cap, collar and swap agreements to manage the interest rate characteristics of its outstanding debt to a more desirable fixed or variable rate basis or to limit the Company's exposure to rising interest rates. In connection with the Recapitalization resulting in the Company refinancing its then outstanding indebtedness, all interest agreements were terminated. Therefore, at December 31, 1999, the Company had no outstanding interest rate agreements. Pursuant to the Credit Agreement, the Company is obligated to secure interest rate protection in the nominal amount of $150 million by July 2000. The following table provides information about the Company's financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents principal and cash flows and related weighted-average interest rates by expected maturity dates. Interest Rate Sensitivity Principal (Notional) Amount by Expected Maturity Average Interest Rate (Dollars in millions)
Fair 2000 2001 2002 2003 2004 Thereafter Total Value ---- ---- ---- ---- ---- ---------- ----- ----- Liabilities Long-term debt, including current portion Fixed rate - - - - - $100.0 $100.0 $97.0 Average interest rate 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% Variable rate $2.5 $10.0 $17.5 $32.5 $40.0 $310.5 $413.0 $413.0 Average interest rate (1) (1) (1) (1) (1) (1) (1) - One month LIBOR (5.8% at December 31, 1999) plus weighted-average margin of 3.7%.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reference is made to the Financial Statements and Supplementary Schedule contained in Part IV hereof. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. Directors and Executive Officers of the Registrant Directors of the Company are elected annually by its shareholders to serve during the ensuing year or until a successor is duly elected and qualified. Executive officers of the Company are duly elected by its Board of Directors to serve until their respective successors are elected and qualified. The following table sets forth certain information with respect to the directors and executive officers of the Company. Name Age Position or Office - ------------------------- --- ----------------------------- Timothy G. Beffa 49 Director, President and Chief Executive Officer William B. Hewitt 61 Director Timothy M. Hurd 30 Director and Vice President Scott P. Marks, Jr. 54 Director Richard L. Thomas 69 Director Paul R. Wood 46 Director and Vice President Michael A. DiMarco 42 Executive Vice President - President Fee Services Bryan K. Faliero 34 President Portfolio Services Michael B. Staed 53 Senior Vice President and President Outsourcing Services Gary L. Weller 39 Executive Vice President and Chief Financial Officer Timothy G. Beffa (49), President, Chief Executive Officer and Director of Outsourcing Solutions Inc. since August 1996. From August 1995 until August 1996, Mr. Beffa served as President and Chief Operating Officer of DIMAC Corporation ("DIMAC") and DIMAC DIRECT Inc. ("DDI") and a director of DDI. From 1989 until August 1995, Mr. Beffa served as a Vice President of DIMAC and as Senior Vice President and Chief Financial Officer of DDI. Prior to joining DIMAC, Mr. Beffa was Vice President of Administration and Controller for the International Division of Pet Incorporated, a food and consumer products company, where he previously had been manager of Financial Analysis. William B. Hewitt (61), Director of the Company since February 1998. Mr. Hewitt currently serves as a consultant to the Company since January 1998. From July 1997 to January 1998, Mr. Hewitt served as President and Chief Executive Officer of Union and prior to that he served as President and Chief Operating Officer of Union since May 1995. Mr. Hewitt also served as Chairman and Chief Executive Officer of Capital Credit Corporation since September 1991, Chairman and Chief Executive Officer of Interactive Performance, Inc. since November 1995 and Chairman and Chief Executive Officer of High Performance Services, Inc. since May 1996. Capital Credit Corporation, Interactive Performance, Inc. and High Performance Services, Inc. were subsidiaries of Union. Timothy M. Hurd (30), Director and Vice President of the Company since December 1999. Mr. Hurd is a director of Madison Dearborn Partners. Prior to joining Madison Dearborn Partners, Mr. Hurd was with Goldman Sachs & Co. He currently serves as a director of Woods Equipment Company, Inc. and PeopleFirst.com. Scott P. Marks, Jr. (54), Director of the Company since January 2000. Mr. Marks is a private investor in Chicago, IL. Mr. Marks resigned from his post as Vice Chairman and a member of the Board of Directors of First Chicago NBD Corporation in December, 1997, a post he had held since December, 1995. Previously he was Executive Vice President of First Chicago Corporation and managed their credit card business for approximately 10 years. Mr. Marks serves as a director of ADA Business Enterprises, the for-profit subsidiary of the American Dental Association, Pascomar Inc. and Clark Polk Land LLC. Richard L. Thomas (69), Director of the Company since January 2000. Mr. Thomas has been retired since May 1996. Prior to retiring, Mr. Thomas served as Chairman of First Chicago NBD Corporation from December 1995 to May 1996. Prior to that he served as Chairman of First Chicago Corporation from December 1991 to December 1995. He currently serves as a director of IMC Global Inc., The PMI Group Inc., The Sabre Group, Sara Lee Corporation and Unicom Corporation. Paul R. Wood (46), Director and Vice President of the Company since December 1999. Mr. Wood is a managing director of Madison Dearborn Partners. Prior to co-founding Madison Dearborn Partners, Mr. Wood was with First Chicago Venture Capital for nine years in various leadership positions. He currently serves as a director of Hines Horticulture, Inc., Woods Equipment Company, Inc. and Eldorado Bankshares, Inc. Michael A. DiMarco (42), Executive Vice President and President Collection Services of the Company since September 1998. From 1991 until September 1998, Mr. DiMarco was with Paging Network, Inc., a wireless communications provider, serving in various leadership positions including Senior Vice President of Operations and Executive Vice President of Sales. Prior to that, he served in various senior leadership positions with the City of New York, Hertz Rent-A-Car, Inc., ARA Services, Inc. and National Car Rental, Inc. Bryan K. Faliero (34), President Portfolio Services of the Company since October 1997. From June 1997 to September 1997, Mr. Faliero served as Vice President, Business Analysis for the Company. Prior to joining the Company, he was an associate with Booz Allen & Hamilton, a strategic consultancy based in Chicago, concentrating on operations strategy and network rationalization. Michael B. Staed (53), Senior Vice President and President Outsourcing Services of the Company since July 1999. From May 1998 to June 1999, Mr. Staed served as Senior Vice President Marketing, Outsourcing for the Company. Prior to joining the Company, he served as a partner in the consulting division of Ernst & Young LLP for four years focusing on the global telecommunications practice. Gary L. Weller (39), Executive Vice President and Chief Financial Officer of the Company since July 1999. From January 1998 to June 1999, Mr. Weller served as Senior Vice President and Chief Financial Officer of Harbour Group Ltd., an investment firm based in St. Louis. From June 1993 to December 1997, he served as Executive Vice President and Chief Financial Officer of Greenfield Industries, Inc. ITEM 11. EXECUTIVE COMPENSATION The following table sets forth information concerning the compensation paid or accrued for by the Company on behalf of the Company's Chief Executive Officer and the four other most highly compensated executive officers of the Company for the years ended December 31, 1999, 1998 and 1997.
Summary Compensation Table -------------------------------------------------------------------- Long Term Compensation Name and Other Annual Awards All Other Salary Bonus Compensation ----------- Compensation Principal Position Year ($) ($) ($) Options (#) ($)(1) - ------------------ ----- ------- ------ ------------------ --------------- -------------- Timothy G. Beffa 1999 370,836 365,000 2,617 President and CEO 1998 350,000 405,300 1997 320,110 457,500 41,555 Michael A. DiMarco 1999 325,000 100,000 42,373(2) 50,000 1,373,017 Executive Vice 1998(3) 108,337 220,000 14,491(2) President - President Fee Services Bryan K. Faliero 1999 195,206 90,000 480,337 President Portfolio 1998 159,373 83,800 4,272 Services 1997(4) 73,945 35,000 25,000 2,412 Mike B. Staed 1999 228,337 70,000 16,000 947,505 Senior Vice President 1998(5) 135,289 89,600 9,000 And President Outsourcing Services Gary L. Weller 1999(6) 134,512 310,000 50,000 10,459 Executive Vice President and CFO - ------------------------------
(1) In connection with the Recapitalization, Mr. DiMarco, Mr. Faliero and Mr. Staed received change in control payments of $1,356,875, $475,627 and $937,500, respectively. Remaining amounts, if any, represent split dollar life insurance and long-term disability premiums paid by the Company along with the Company's portion of the 401(k) contribution. Upon termination of split dollar life insurance policy, any residual cash surrender value (cash surrender value less premiums paid) is paid to the executive officer. (2) Payment of taxes by the Company for includable W-2 relocation expenses. (3) 1998 compensation based on an annual salary of $325,000. Mr. DiMarco was hired in September 1998. (4) 1997 compensation based on an annual salary of $138,500. Mr. Faliero was hired in June 1997. (5) 1998 compensation based on an annual salary of $210,000. Mr. Staed was hired in May 1998. (6) 1999 compensation based on an annual salary of $275,000. Mr. Weller was hired in July 1999. The following table sets forth grants of stock options made during the year ended December 31, 1999.
OPTION GRANTS IN 1999 Percent of Number of Total Potential Realizable Value Securities Options at Assumed Annual Rates of Underlying Granted to Exercise Stock Price Appreciation Options Employees or Base for Option Term Name Granted In Fiscal Price Expiration --------------------------- (#) Year ($/share) Date 5% 10% - ----------------- ----------- ------------ ------------ ------------- ----------- ------------ Michael A. DiMarco 50,000 23% $40.00 June 3, 2009 $1,258,000 $3,187,500 Mike B. Staed 16,000 7% $40.00 June 3, 2009 $403,000 $1,020,000 Gary L. Weller 50,000 23% $40.00 July 16, 2009 $1,258,000 $3,187,500
The following table sets forth options exercised during the year ended December 31, 1999 and options held by the current executives at December 31, 1999.
AGGREGATED OPTION EXERCISES IN 1999 AND OPTION VALUES ON DECEMBER 31, 1999 Shares Number of Securities Value of Unexercised Acquired Underlying Unexercised In-the-Money Options at on Value Options at December 31, 1999 December 31, 1999(1) Exercise Realized ------------------------------ ----------------------------- Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable - ----------------- ---------- ------------ ------------ -------------- ----------- -------------- Timothy G. Beffa 102,801.87 2,567,468 70,175 0 $1,752,270 0 Michael A. DiMarco - - 50,000 0 0 0 Bryan K. Faliero 6,250 77,968 18,750 0 $233,813 0 Michael B. Staed - - 25,000 0 0 0 Gary L. Weller - - 50,000 0 0 0
(1) Based on the price per share of $37.47 determined for the Recapitalization which was completed on December 10, 1999. The following table sets forth option repricings during the year ended December 31, 1999. Because no public market currently exists for the Company's common stock, the Compensation Committee of the Board of Directors must estimate the fair market value of the stock to set the exercise price when granting stock options. In June 1999, the Compensation Committee determined that it had overestimated the fair market value of the Company's common stock, and had set the exercise price for several stock option grants significantly above fair market value. Therefore, it amended the stock option award agreements for certain stock option grants, including a grant to one named executive officer, so that the exercise price more closely approximated the fair market value of the Company's common stock.
TEN-YEAR OPTION REPRICINGS Number of Market Exercise Securities Price of Price at Underlying Stock at Time of Length of Original Options Time of Repricing New Option Term Repriced or Repricing or Exercise Remaining at Date of Amended or Amendment Amendment Price Repricing or Amendment Name Date (#) ($)(1) ($) ($) (Years) - ------------------ ---------- ------------- ------------- ------------ -------- ---------------------- Michael B. Staed June 3, 1999 9,000 37.47 65.00 40.00 9
(1) Because there is no public market for the Company's common stock, market value at the time the options were repriced in June 1999 is not readily determinable. Price shown is the per share price determined at the time of the Recapitalization on December 10, 1999. Employment Agreements OSI has entered into employment agreements with certain officers, including each of the named executive officers. The employment agreements provide for initial base salaries for Messrs. Beffa, DiMarco, Faliero, Staed and Weller of $375,000, $325,000, $210,000, $250,000 and $275,000, respectively. In addition, the agreements provide that Mr. Beffa is eligible for an annual bonus of up to 150% of his annual base salary and Messrs. DiMarco, Faliero, Staed and Weller are eligible for target annual bonuses of 67%, 50%, 50% and 67%, respectively. On December 31 of each year, the term of each employment agreement is automatically extended for an additional year unless the Company or the officer gives 30 days advance termination notice. If (i) the Company terminates the officer's employment without "cause" (as defined in the employment agreement), (ii) the Company does not agree to extend the employment agreement upon the expiration thereof, (iii) the officer terminates his employment because the Company reduces his responsibilities or compensation in a manner which is tantamount to termination of the officer's employment, or (iv) within two years following a sale of the company (as defined in the employment agreement), the officer resigns for "good reason" (as defined in the employment agreement), the officer would be entitled to receive an amount equal to his total cash compensation (base salary plus bonus, excluding, however, any change of control bonus described below) for the preceding year and continue to receive medical and dental health benefits for one year. If the officer's employment is terminated by the Company "for cause", the officer is not be entitled to severance compensation. The employment agreements for Messrs. DiMarco, Faliero and Staed provide that upon consummation of a sale of the Company (as defined in the employment agreement), if the officer is employed by the Company immediately prior thereto, he will be entitled to receive a payment from the Company in the amount of 250% of his (i) then current base salary plus (ii) target annual bonus, reduced by any gain for all of the options to purchase capital stock of the Company or other equity compensation awards previously granted to the officer. Pursuant to this provision, Messrs. DiMarco, Faliero and Staed received change in control bonuses in 1999 upon consummation of the Recapitalization. The change in control bonuses paid in 1999 and any future bonuses paid pursuant to this provision of the employment agreements will be paid only if such bonus is previously approved by a vote of more than seventy-five percent (75%) of the voting power of the Company's outstanding stock immediately before any sale of the Company. Director Compensation Non-employee directors of OSI who are not affiliated with a stockholder of the Company receive $2,000 per regularly scheduled meeting of the Board of Directors, $1,000 per special meeting of the Board of Directors and $500 per committee meeting. All directors receive reimbursement for travel and out-of-pocket expenses incurred in connection with attendance at all such meetings. Except as described below, no director of OSI receives any other compensation from OSI for performance of services as a director of OSI (other than reimbursement for travel and out-of-pocket expenses incurred in connection with attendance at Board of Director meetings). Effective February 16, 1996, Mr. Stiefler, who served as the Company's Chairman of the Board prior to December 10, 1999 received options to purchase 23,044 shares of common stock of the Company, which options vest eight years from date of grant or earlier upon the satisfaction of certain performance targets and/or the occurrence of certain liquidity events. Mr. Stiefler also received an annual salary of $150,000. Effective December 10, 1999, in connection with the Recapitalization, Mr. Stiefler resigned as Chairman of the Board. At that time, he exercised all of his options and received cash of $575,530. In 1998, three other directors, Messrs. Hewitt, Jones and Marshall, each received options to purchase 3,000 shares of common stock of the Company. These options time-vested over a three year period. Effective December 10, 1999, in connection with the Recapitalization, all of the Company's directors except Mr. Beffa resigned from the Board of Directors. As a result, Messrs. Hewitt, Jones and Marshall each forfeited their options to purchase 3,000 shares of common stock of the Company. Mr. Hewitt was subsequently elected to the Board of Directors in February 2000. Option Plan The Company maintains the 1995 Stock Option and Stock Award Plan (the "Stock Option Plan"). The Stock Option Plan is administered by the Compensation Committee of the Board of Directors of the Company. Under the Stock Option Plan, the Compensation Committee may grant or award (i) options to purchase stock of the Company (which may either be incentive stock options ("ISOs"), within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, or stock options other than ISOs), (ii) stock appreciation rights granted in conjunction with stock options, (iii) restricted stock, or (iv) bonuses payable in stock, to key salaried employees of the Company, including officers, independent contractors of the Company and non-employee directors of the Company. A total of 750,000 shares of common stock of the Company are reserved for issuance under the Stock Option Plan. As of March 24, 2000, options to purchase up to 442,925 shares of the Company's common stock are outstanding under the Stock Option Plan, all of which are vested and exercisable. Board of Directors' Report on Executive Compensation The Compensation Committee recommends compensation arrangements for the Company's executive officers and administers the Company's Stock Option Plan. In conjunction with the Recapitalization, all members of the Compensation Committee resigned from the Board of Directors, effective December 10, 1999. New members of the Compensation Committee have not yet been elected by the Board. The Company's 1999 compensation program was designed to be competitive with companies similar in structure and business to the Company. The Company's 1999 executive compensation program was structured to help the Company achieve its business objectives by: - - Setting levels of compensation designed to attract and retain superior executives in a highly competitive environment. - - Designing equity-related and other performance-based incentive compensation programs to align the interests of management with the ongoing interests of shareholders; and - - Providing incentive compensation that varies directly with both Company financial performance and individual contributions to that performance. The Company has used a combination of salary and incentive compensation, including cash bonuses and equity-based incentives to achieve its compensation goals. Bonuses for 1999 were determined by certain members of the Board in March 2000 and paid shortly thereafter. The amount of bonuses earned by the Company's executive officers were determined based upon the performance of each executive during the year and the performance of the Company against pre-established earnings before interest, taxes, depreciation and amortization ("EBITDA") goals. In June 1999, the Company entered into an amended and restated employment agreement with Timothy G. Beffa to serve as President and Chief Executive Officer of OSI. Under the employment agreement, Mr. Beffa's base salary for 1999 was $375,000 and his bonus target potential was $562,500, 150% of his base salary. These amounts were established by the Compensation Committee after consideration of compensation paid to Chief Executive Officers of comparative companies and the relationship of his compensation to that paid to other OSI senior executives. For 1999, Mr. Beffa's bonus was determined based upon the following two factors, which were weighted as indicated: the Company's performance against pre-established EBITDA goals (70%), and Mr. Beffa's attainment of pre-established objectives, based on specific strategic initiatives to both build a suitable management infrastructure and deliver on strategic growth initiatives (30%). Based on the Company's EBITDA performance and Mr. Beffa's substantial obtainment of personal objectives, Mr. Beffa's bonus for 1999 was $365,000--64.9% of his target bonus. Board of Directors ------------------ Timothy G. Beffa William B. Hewitt Timothy M. Hurd Scott P. Marks, Jr. Richard L. Thomas Paul R. Wood ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of March 30, 2000, the authorized capital stock of the Company consists of (i) 15,000,000 shares of Voting Common Stock, par value $.01 per share, of which 5,976,389.04 are issued and outstanding, (ii) 2,000,000 shares of Non-Voting Common Stock, par value $.01 per share, of which 480,321.30 are issued and outstanding, (iii) 200,000 shares of 14% Mandatorily Redeemable Senior Preferred Stock, no par value, of which 100,000 are issued and outstanding and (iv) 50,000 shares of Junior Preferred Stock, no par value, of which 7,000 are issued and outstanding. The following table sets forth the number and percentage of shares of each class of the Company's capital stock beneficially owned as of March 30, 2000 by (i) each person known to the Company to be the beneficial owner of more than 5% of any class of the Company's voting equity securities, (ii) each of the Company's directors and nominees, and (iii) all directors and executive officers of the Company as a group. Amount and Nature of Percent Name and Address Beneficial of Class Title of Class Beneficial Owner Ownership (1) - -------------------- ---------------------------- -------------- --------- Voting Common Stock Madison Dearborn Capital 4,536,367.84 75.9% Partners III, L.P.(2) Madison Dearborn Special 4,536,367.84 75.9% Equity III, L.P. (2) Special Advisors Fund I, L.L.C.(2) 4,536,367.84 75.9% Timothy M. Hurd(2) 4,536,367.84 75.9% Paul R. Wood(2) 4,536,367.84 75.9% Timothy G. Beffa(3) 70,175.00 1.2% Michael A. DiMarco(3) 57,000.00 * Bryan K. Faliero(3) 18,750.00 * Michael B. Staed(3) 30,337.60 * Gary L. Weller(3) 50,000.00 * All directors and officers 4,762,630.44 76.9% as a group Junior Preferred Timothy G. Beffa 81.65 1.2% Stock Bryan K. Faliero 2.48 * All directors and officers 84.13 1.2% as a group * Represents less than one percent. (1) The information as to beneficial ownership is based on statements furnished to the Company by the beneficial owners. As used in this table, "beneficial ownership" means the sole or shared power to vote, or direct the voting of a security, or the sole or shared investment power with respect to a security (i.e., the power to dispose of, or direct the disposition of a security). A person is deemed as of any date to have "beneficial ownership" of any security that such person has the right to acquire within 60 days after such date. For purposes of computing the percentage of outstanding shares held by each person named above, any security that such person has the right to acquire within 60 days of the date of calculation is deemed to be outstanding, but is not deemed to be outstanding for purposes of computing the percentage ownership of any other person. (2) Includes 4,433,913.11 shares owned by Madison Dearborn Capital Partners III, L.P., 98,452.05 shares owned by Madison Dearborn Special Equity III, L.P. and 4,002.68 shares owned by Special Advisors Fund I, L.L.C. with each entity managed by or affiliated with Madison Dearborn Partners, LLC. Messrs. Hurd and Wood are a director and a managing director, respectively, of Madison Dearborn Partners, LLC. Madison Dearborn Capital Partners III, L.P., Madison Dearborn Special Equity III, L.P. and Special Advisors Fund I, L.L.C. have pledged their shares of the Company's common stock as security under the Company's Credit Agreement. In addition, under the Stockholders Agreement, dated as of December 10, 1999, among the Company and substantially all of the Company's stockholders, Madison Dearborn Capital Partners III, L.P., as principal investor, may designate individuals to serve as directors of the Company. The Stockholders Agreement also includes restrictions on the transfer of capital stock, and provides for registration, preemptive, tag along and drag along rights granted to the parties thereto, including Madison Dearborn Capital Partners III, L.P. and certain of its affiliates. The address of all the above-mentioned entities is c/o Madison Dearborn Partners, LLC, 3 First National Plaza, Suite 3800, Chicago, IL 60602. (3) Includes vested options to acquire the following number of shares of the Company's common stock: Mr. Beffa 70,175; Mr. DiMarco 50,000; Mr.Faliero 18,750; Mr. Staed 25,000 and Mr. Weller 50,000. The address of Messrs. Beffa, DiMarco, Staed and Weller is c/o Outsourcing Solutions Inc., 390 South Woods Mill Rd., Suite 350, Chesterfield, MO 63017. Mr. Faliero's address is c/o OSI Portfolio Services, Inc., 2425 Commerce Ave., Building 1, Suite 100, Duluth, GA 30096. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Acquisition Arrangements OSI holds a minority interest in a limited liability corporation ("LLC") formed for the purpose of acquiring an accounts receivable portfolio. The majority interest in the LLC is held by MLQ Investors, L.P., one of the Company's stockholders. The recorded value of the Company's investment in the LLC was approximately $520,000 at December 31, 1999. Advisory Services Agreement On September 21, 1995 the Company entered into an Advisory Services Agreement (the "Advisory Services Agreement") with MDC Management Company III, L.P. ("MDC Management"), then an affiliate. Under the Advisory Services Agreement, the Company received consulting, financial, and managerial functions for a $300,000 annual fee. In 1999, the Company paid MDC Management $275,000 under the Advisory Services Agreement. On December 10, 1999, in conjunction with the Recapitalization, the Advisory Services Agreement was amended and assigned to Madison Dearborn Partners, Inc. ("MDP"). As amended, the annual fee under the Advisory Services Agreement is $500,000. The Advisory Services Agreement expires September 21, 2005 and is renewable annually thereafter, unless terminated by the Company. The Company may terminate the Advisory Services Agreement at any time for cause by written notice to MDP authorized by a majority of the directors other than those who are partners, principals or employees of MDP or any of its affiliates. The Advisory Services Agreement may be amended by written agreement of MDP and the Company. The Company believes that the terms of and fees paid for the professional services rendered are at least as favorable to the Company as those which could be negotiated with a third party. In December 1999 upon closing of the Recapitalization, MDP received a one-time fee of $8.0 million for financial advice provided to OSI in connection therewith. Consulting Agreements On January 26, 1998, the Company entered into a one-year Consulting Agreement with William B. Hewitt, a director of the Company. Under the original Consulting Agreement, Mr. Hewitt provided consulting assistance with the growing outsourcing services of the Company at 80% of normal working hours. In addition, Mr. Hewitt received options to purchase 10,000 shares of common stock of the Company, which options in accordance with their terms became vested and exercisable upon consummation of the Recapitalization. On January 25, 1999, the Consulting Agreement was extended through March 31, 1999 and at the same time the Consulting Agreement was renewed for the period April 1, 1999 through March 31, 2000, with the consulting services reduced to a maximum of 50 days (approximately 20% of normal working hours). For the year ended December 31, 1999, the Company paid Mr. Hewitt $427,500. Certain Interests of Shareholders Goldman Sachs and its affiliates have certain interests in the Company in addition to being an initial purchaser of the 11% Senior Subordinated Notes. Goldman Sachs acted as co-arranger and Goldman Sachs Credit Partners, L.P., an affiliate of Goldman Sachs, acted as co-administrative agent and lender in connection with the then existing credit facility, and in 1999 OSI paid them approximately $706,000 in interest in connection therewith. MLQ Investors, L.P., an affiliate of Goldman Sachs, owns an equity interest in the Company. In addition to acting as an initial purchaser of the 11% Senior Subordinated Notes, Chase Securities Inc. ("Chase Securities") and its affiliates have certain other relationships with the Company. Chase Securities acted as co-arranging agent and The Chase Manhattan Bank, an affiliate of Chase Securities, acts as co-administrative agent and a lender under the then existing credit facility and in 1999 OSI paid them approximately $150,000 in fees and approximately $1,526,000 in interest in connection therewith. Additionally, Chase Equity Associates, L.P. an affiliate of Chase Securities, owns an equity interest in the Company. Indebtedness of Management During 1998, the Company advanced $117,000 to Michael A. DiMarco, Executive Vice President and President Fee Services to facilitate his relocation to the St. Louis area from Texas. The advance was non-interest bearing and was repaid in full in March 1999. PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements See index on page 41 for a listing of consolidated financial statements filed with this report. 2. Financial Statement Schedule See index on page 41 for a listing of consolidated financial statements schedule required to be filed by Item 8 of this Form 10-K. 3. Exhibits Exhibit No. 2.1 Asset Purchase Agreement dated October 8, 1997 by and among NSA Acquisition Corporation, Outsourcing Solutions Inc., North Shore Agency, Inc., Automated Mailing Services, Inc., Mailguard Security System, Inc., DMM Consultants and Certain Stockholders (incorporated herein by reference to Exhibit 2.6 of the Company's Form 10-K for the year ended December 31, 1997). 2.2 Asset Purchase Agreement dated November 10, 1997 by and among Outsourcing Solutions Inc., ABC Acquisition Company, Accelerated Bureau of Collections Inc., Accelerated Bureau of Collections of Ohio, Inc., Accelerated Bureau of Collections of Virginia Inc., Accelerated Bureau of Collections of Massachusetts, Inc., Travis J. Justus, and Linda Brown (incorporated herein by reference to Exhibit 2.7 of the Company's Form 10-K for the year ended December 31, 1997). 2.3 Share Purchase Agreement and Plan of Merger dated as of December 22, 1997 by and among Outsourcing Solutions Inc., Sherman Acquisition Corporation and The Union Corporation (incorporated herein by reference to Exhibit 2.8 of the Company's Form 10-K for the year ended December 31, 1997). 2.4 Stock Subscription and Redemption Agreement by and among Madison Dearborn Capital Partners III, L.P., the Company and certain stockholders, optionholders and warrantholders of the Company, dated as of October 8, 1999, as amended (incorporated herein by reference to Exhibit 2 of the Company's Current Report on Form 8-K filed on December 23, 1999). 2.5 Assignment and Stock Purchase Agreement dated as of December 10, 1999 by and among Outsourcing Solutions Inc., Madison Dearborn Capital Partners III, L.P., and certain other parties thereto. 2.6 Purchase Agreement dated as of December 10, 1999, by and among Outsourcing Solutions Inc. and certain other parties thereto. 2.7 Junior Preferred Stock Purchase Agreement, dated as of December 10, 1999, by and among Outsourcing Solutions Inc. and certain other parties thereto. 2.8 Consent Solicitation Statement, dated November 9, 1999, relating to the Company's 11% Senior Subordinated Notes due November 1, 2006. 3.1 Fourth Amended and Restated Certificate of Incorporation of the Company, as of December 3, 1999. 3.2 By-laws of the Company (incorporated herein by reference to Exhibit 3.2 of the Company's Registration Statement on Form S-4 filed on November 26, 1996). 4.1 Indenture dated as of November 6, 1996 by and among the Company, the Guarantors and Wilmington Trust Company (the "Indenture") (incorporated herein by reference to Exhibit 4.1 of the Company's Registration Statement on Form S-4 filed on November 26, 1996). 4.2 Specimen Certificate of 11% Senior Subordinated Note due 2006 (included in Exhibit 4.1 hereto) (incorporated herein by reference to Exhibit 4.2 of the Company's Registration Statement on Form S-4 filed on November 26, 1996). 4.3 Specimen Certificate of 11% Series B Senior Subordinated Note due 2006 (the "New Notes") (included in Exhibit 4.1 hereto) (incorporated herein by reference to Exhibit 4.3 of the Company's Registration Statement on Form S-4 filed on November 26, 1996). 4.4 Form of Guarantee of securities issued pursuant to the Indenture (included in Exhibit 4.1 hereto) (incorporated herein by reference to Exhibit 4.4 of the Company's Registration Statement on Form S-4 filed on November 26, 1996). 4.5 First Supplemental Indenture dated as of March 31, 1998 by and among the Company, the Additional Guarantors and Wilmington Trust Company (incorporated herein by reference to Exhibit 4.5 of the Company's Form 10-K for the year ended December 31, 1998). 10.1 Stockholders Agreement dated as of December 10, 1999 by and among the Company and various stockholders of the Company (incorporated herein by reference to Exhibit 10 of the Company's Current Report on Form 8-K filed on December 23, 1999). 10.2 Advisory Services Agreement dated September 21, 1995 between the Company and Madison Dearborn Partners, Inc., as assignee from MDC Management Company III, L.P. as amended by Assignment Agreement dated as of December 10, 1999 by and between Madison Dearborn Partners, Inc., the Company and MDC Management Company III, L.P. 10.3 Registration Rights Agreement dated December 10, 1999, by and among Outsourcing Solutions Inc., Madison Dearborn Partners III, L.P. and certain other parties thereto. 10.4 Registration Rights Agreement dated December 10, 1999, by and among the Company and certain other parties thereto. 10.5 Amended and Restated Employment Agreement dated as of June 4, 1999 between the Company and Timothy G. Beffa. 10.6 Amended and Restated Employment Agreement dated as of June 4, 1999 between the Company and Michael A. DiMarco. 10.7 Employment Agreement dated as of June 4, 1999 between the Company and Bryan K. Faliero. 10.8 Amended and Restated Employment Agreement dated as of June 4, 1999 between the Company and Michael B. Staed. 10.9 Employment Agreement dated July 5, 1999 between the Company and Gary L. Weller. 10.10 Consulting Agreement dated as of February 6, 1998 between the Company and William B. Hewitt as amended January 25, 1999 (incorporated herein by reference to Exhibit 10.6 of the Company's Form 10-K for the year ended December 31, 1998). 10.11 1995 Stock Option and Stock Award Plan of the Company (incorporated herein by reference to Exhibit 10.31 of the Company's Registration Statement on Form S-4 filed on November 26, 1996). 10.12 First Amendment to 1995 Stock Option and Stock Award Plan of the Company (incorporated herein by reference to Exhibit 10.13 of the Company's Form 10-K for the year ended December 31, 1997). 10.13 Form of Non-Qualified Stock Option Award Agreement [B], as amended. 10.14 Form of Non-Qualified Stock Option Award Agreement [C], as amended. 10.15 Form of Non-Qualified Stock Option Award Agreement [E]. 10.16 1998 Incentive Compensation Program (incorporated herein by reference to Exhibit 10.15 of the Company's Form 10-K for the year ended December 31, 1998). 10.17 Earn-out Agreement dated October 8, 1997 by and among NSA Acquisition Corporation, Outsourcing Solutions Inc., North Shore Agency, Inc., Automated Mailing Services, Inc., Mailguard Security Systems, Inc., and DMM Consultants (incorporated herein by reference to Exhibit 10.17 of the Company's Form 10-K for the year ended December 31,1997). 10.18 Credit Agreement dated as of November 30, 1999 among the Company, the Lenders listed therein, DLJ Capital Funding, Inc., as the Syndication Agent, and Fleet National Bank, as the Administrative Agent. 21 Subsidiaries of registrant. 27 Financial Data Schedule. (b) Reports on Form 8-K For the three months ended December 31, 1999, the following reports on Form 8-K were filed: Report on Form 8-K filed October 29, 1999. Report on Form 8-K filed December 23, 1999. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. OUTSOURCING SOLUTIONS INC. /s/Timothy G. Beffa ------------------------------------ Timothy G. Beffa President and Chief Executive Officer /s/Gary L. Weller ------------------------------------ Gary L. Weller Executive Vice President and Chief Financial Officer DATE: March 29, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/Timothy G. Beffa President and Chief Executive March 29, 2000 - --------------------------- Officer, Director Timothy G. Beffa /s/William B. Hewitt Director March 29, 2000 - --------------------------- William B. Hewitt /s/Timothy M. Hurd Director and Vice President March 28, 2000 - --------------------------- Timothy M. Hurd /s/Scott P. Marks, Jr. Director March 29, 2000 - --------------------------- Scott P. Marks, Jr. /s/Richard L. Thomas Director March 22, 2000 - --------------------------- Richard L. Thomas /s/Paul R. Wood Director and Vice President March 29, 2000 - --------------------------- Paul R. Wood INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULE Page ---- Consolidated Financial Statements Outsourcing Solutions Inc. and Subsidiaries Independent Auditors' Report.................................... F-1 Consolidated Balance Sheets at December 31, 1999 and 1998.............................................. F-2 Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997............... F-3 Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1999, 1998 and 1997........................... F-4 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997..................... F-5 Notes to Consolidated Financial Statements...................... F-6 Consolidated Financial Statement Schedule Independent Auditors' Report...................................... F-23 Schedule II - Valuation and Qualifying Accounts and Reserves...... F-24 INDEPENDENT AUDITORS' REPORT To the Stockholders of Outsourcing Solutions Inc.: We have audited the accompanying consolidated balance sheets of Outsourcing Solutions Inc. and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 1999. 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 auditing standards generally accepted in the United States of America. 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, such consolidated financial statements present fairly, in all material respects, the financial position of Outsourcing Solutions Inc. and subsidiaries as of December 31, 1999 and 1998 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP - ------------------------ Deloitte & Touche LLP St. Louis, Missouri March 28, 2000 OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 1998 (In thousands, except share and per share amounts) - -------------------------------------------------------------------------------- ASSETS 1999 1998 ---- ---- Cash and cash equivalents $ 6,059 $ 8,814 Cash and cash equivalents held for clients 22,521 22,372 Accounts receivable - trade, less allowance for doubtful receivables of $529 and $1,309 52,082 40,724 Purchased loans and accounts receivable portfolios 39,947 55,493 Property and equipment, net 43,647 40,317 Intangible assets, net 410,471 425,597 Deferred financing costs, less accumulated amortization of $248 and $5,203 27,224 13,573 Other assets 22,761 11,601 -------- -------- TOTAL $624,712 $618,491 ======== ======== LIABILITIES AND STOCKHOLDERS' DEFICIT Accounts payable - trade $ 6,801 $ 7,355 Collections due to clients 22,521 22,372 Accrued salaries, wages and benefits 17,009 13,274 Debt 518,307 528,148 Other liabilities 68,306 77,374 Commitments and contingencies - - Mandatorily redeemable preferred stock; redemption amount $107,877 85,716 - Stockholders deficit: 8% nonvoting cumulative redeemable exchangeable preferred stock; authorized 1,250,000 shares, 973,322.32 issued and outstanding in 1998, at liquidiation value of $12.50 per share - 12,167 Voting common stock; $.01 par value; authorized 15,000,000 shares, 9,054,638.11 shares issued in 1999 and 3,477,126.01 shares issued and outstanding in 1998 90 35 Non-voting common stock; $.01 par value; authorized 2,000,000 shares, 480,321.30 issued and outstanding in 1999 5 - Class A convertible nonvoting common stock; $.01 par value; authorized 7,500,000 shares, 391,740.58 shares issued and outstanding in 1998 - 4 Class B convertible nonvoting common stock; $.01 par value; authorized 500,000 shares, 400,000 shares issued and outstanding in 1998 - 4 Class C convertible nonvoting common stock; $.01 par value; authorized 1,500,000 shares, 1,040,000 shares issued and outstanding in 1998 - 10 Paid-in capital 196,339 66,958 Retained deficit (155,525) (109,210) -------- -------- 40,909 (30,032) Common stock in treasury, at cost; 3,078,249.07 shares in 1999 (134,857) - -------- -------- Total stockholders' deficit (93,948) (30,032) -------- -------- TOTAL $624,712 $618,491 ======== ======== See notes to consolidated financial statements. OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (In thousands) - -------------------------------------------------------------------------------- 1999 1998 1997 ---- ---- ---- REVENUES $ 504,425 $ 479,400 $271,683 EXPENSES: Salaries and benefits 244,157 230,114 133,364 Service fees and other operating and administrative expenses 154,799 140,888 71,122 Amortization of purchased loans and accounts receivable portfolios 38,722 50,703 52,042 Amortization of goodwill and other intangibles 16,229 15,725 24,749 Depreciation expense 14,866 14,282 8,825 Nonrecurring conversion, realignment and relocation expenses 5,063 - - Change in control bonuses, stock option redemption and other bonuses 10,487 - - Transaction related costs 6,827 - - --------- -------- -------- Total expenses 491,150 451,712 290,102 --------- --------- -------- OPERATING INCOME (LOSS) 13,275 27,688 (18,419) INTEREST EXPENSE - Net 52,265 50,627 28,791 --------- --------- -------- LOSS BEFORE INCOME TAXES, MINORITY INTEREST AND EXTRAORDINARY ITEM (38,990) (22,939) (47,210) PROVISION FOR INCOME TAXES 759 830 11,127 MINORITY INTEREST - 572 - --------- --------- -------- LOSS BEFORE EXTRAORDINARY ITEM (39,749) (24,341) (58,337) EXTRAORDINARY LOSS ON EXTINGUISHMENT OF DEBT, NET OF INCOME TAXES OF $0. 4,208 - - --------- --------- -------- NET LOSS (43,957) (24,341) (58,337) PREFERRED STOCK DIVIDEND REQUIREMENTS AND ACCRETION OF SENIOR PREFERRED STOCK 2,358 681 922 --------- --------- -------- NET LOSS TO COMMON STOCKHOLDERS $ (46,315) $(25,022) $(59,259) ========= ======== ======== See notes to consolidated financial statements. OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (In thousands, except share and per share amounts) - --------------------------------------------------------------------------------
Non-voting Common Stock Cumulative ------------------------------- Redeemable Non-voting Preferred Classes Paid-in Retained Treasury Stock Voting Non-voting A,B&C Capital Deficit Stock Total --------- -------- --------- --------- --------- ---------- --------- -------- BALANCE, JANUARY 1, 1997 $ 10,816 $ 35 $ - $ 18 $ 65,658 $ (24,929) - $ 51,598 Issuance of 52,000 shares of common stock - - - - 1,300 - - 1,300 Payment of preferred stock dividends through issuance of 70,606.84 shares of preferred stock and recorded preferred stock dividend requirements of $1 per share 883 - - - - (922) - (39) Net loss - - - - - (58,337) - (58,337) -------- -------- ------- -------- --------- --------- ---------- -------- BALANCE, DECEMBER 31, 1997 11,699 35 - 18 66,958 (84,188) - (5,478) Payment of preferred stock dividends through issuance of 37,435.47 shares of preferred stock and recorded preferred stock dividend requirements of $1 per share 468 - - - - (681) - (213) Net loss - - - - - (24,341) - (24,341) -------- -------- ------- -------- --------- --------- ---------- -------- BALANCE, DECEMBER 31, 1998 12,167 35 - 18 66,958 (109,210) - (30,032) Payment of preferred stock dividends through issuance of 140,997.01 shares of preferred stock and recorded preferred stock dividend requirements of $1 per share 1,762 - - - - (1,276) - 486 Issuance of 186,791.67 common shares in exchange for MDP's investment in FINCO - 2 - - 6,998 - - 7,000 Issuance of 5,273,037.98 voting and 480,321.30 non-voting common shares - 52 5 - 215,546 - - 215,603 Repurchase of common stock and redemption of preferred, non-voting common, stock options and warrants (13,929) 1 - (18) (93,163) - (115,391) (222,500) Recapitalization fees and expenses - - - - - (19,466) (19,466) Accrued dividends on mandatorily redeemable preferred stock - - - - - (877) - (877) Accretion of mandatorily redeemable preferred stock - - - - - (205) - (205) Net loss - - - - - (43,957) - (43,957) -------- -------- ------- -------- --------- --------- ---------- -------- BALANCE, DECEMBER 31, 1999 $ - $ 90 $ 5 $ - $ 196,339 $(155,525) $ (134,857) $(93,948) ======== ======== ======= ======== ========= ========= ========== ======== See notes to consolidated financial statements.
OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (In thousands)
- ------------------------------------------------------------------------------------------------------- 1999 1998 1997 ---- ---- ---- OPERATING ACTIVITIES AND PORTFOLIO PURCHASING: Net loss $(43,957) $(24,341) $(58,337) Adjustments to reconcile net loss to net cash from operating activities and portfolio purchasing: Depreciation and amortization 34,477 32,833 35,613 Amortization of purchased loans and accounts receivable portfolios 38,722 50,703 52,042 Extraordinary loss on extinguishment of debt 4,208 - - Compensation expense related to redemption of stock options and repriced options 4,635 - - Deferred taxes - 380 10,877 Minority interest - 572 - Change in assets and liabilities: Purchases of loans and accounts receivable portfolios (23,176) (43,186) (46,494) Other assets (13,245) 2,894 195 Accounts payable and other liabilities (5,316) (7,789) (7,565) -------- -------- -------- Net cash from operating activities and portfolio purchasing (3,652) 12,066 (13,669) -------- -------- -------- INVESTING ACTIVITIES: Payments for acquisitions, net of cash acquired (877) (168,900) (62,913) Investment in FINCO (2,500) (2,500) - Acquisition of property and equipment (18,437) (13,480) (9,489) Purchases of loans and accounts receivable portfolios for resale toFINCO (56,664) (9,134) - Sales of loans and accounts receivable portfolios to FINCO 56,664 9,134 - Other 265 261 (603) -------- -------- -------- Net cash from investing activities (21,549) (184,619) (73,005) -------- -------- -------- FINANCING ACTIVITIES: Proceeds from term loans 400,000 225,000 55,000 Borrowings under revolving credit agreement 289,700 230,000 66,150 Repayments under revolving credit agreement (302,200) (236,350) (34,300) Repayments of debt (397,448) (36,618) (9,763) Deferred financing fees (21,242) (3,882) (1,993) Proceeds from issuance of preferred and common stock 300,237 - 300 Repurchase of preferred stock, common stock and warrants (223,208) - - Redemption of stock options (3,927) - - Recapitalization fees (19,466) - - -------- -------- -------- Net cash from financing activities 22,446 178,150 75,394 -------- -------- -------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,755) 5,597 (11,280) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 8,814 3,217 14,497 -------- -------- -------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 6,059 $ 8,814 $ 3,217 ======== ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION - Cash paid during year for interest $ 51,232 $ 43,923 $ 26,372 ======== ======== ======== Net cash paid (received) during year for taxes $ 306 $(10,995) $ 23 ======== ======== ======== SUPPLEMENTAL DISCLOSURE OF NON-CASH FLOW INFORMATION Investment in FINCO through exchange of common stock with MDP $ 7,000 $ - $ - ======== ========= ========
See notes to consolidated financial statements. Outsourcing Solutions Inc. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation Policy - Outsourcing Solutions Inc. is one of the largest providers of accounts receivable management services in the United States. The consolidated financial statements include the accounts of Outsourcing Solutions Inc. ("OSI") and all of its majority-owned subsidiaries (collectively, the "Company"). Ownership in entities of less than 50% are accounted for under the equity method. All significant intercompany accounts and transactions have been eliminated. Cash and Cash Equivalents - Cash and cash equivalents consist of cash, money market investments, and overnight deposits. Cash equivalents are valued at cost, which approximates market. Cash held for clients consist of certain restricted accounts which are used to maintain cash collected and held on behalf of the Company's clients. Purchased Loans and Accounts Receivable Portfolios - Purchased loans and accounts receivable portfolios ("Receivables") acquired in connection with acquisitions in September 1995 and November 1996 were recorded at the present value of estimated future net cash flows. Receivables purchased in the normal course of business are recorded at cost. The Company periodically reviews all Receivables to assess recoverability. Impairments are recognized in operations if the expected aggregate discounted future net operating cash flows derived from the portfolios are less than the aggregate carrying value (see Note 15). The Company amortizes on an individual portfolio basis the cost of the Receivables based on the ratio of current collections for a portfolio to current and anticipated future collections including any terminal value for that portfolio. Such portfolio cost is amortized over the expected collection period as collections are received which, depending on the individual portfolio, generally ranges from 3 to 5 years. Revenue Recognition - Collections on Receivables owned are generally recorded as revenue when received. Proceeds from strategic sales of Receivables owned are recognized as revenue when received. Revenue from collections and outsourcing services is recorded as such services are provided. Deferred revenue in the accompanying balance sheet primarily relates to certain prepaid letter services which are generally recognized as earned as services are provided. Property and Equipment - Property and equipment are recorded at cost. Depreciation is computed on the straight-line method based on the estimated useful lives (3 years to 30 years) of the related assets. Leasehold improvements are amortized over the term of the related lease. Intangible Assets - The excess of cost over the fair value of net assets of businesses acquired is amortized on a straight-line basis over 20 to 30 years. Other identifiable intangible assets are primarily comprised of the fair value of existing account placements acquired in connection with certain business combinations and non-compete agreements. These assets are short-lived and are being amortized over the assets' periods of recoverability, which are estimated to be 1 to 3 years. The Company periodically reviews goodwill and other intangibles to assess recoverability. Impairments will be recognized in operations if the expected future operating cash flows (undiscounted and without interest charges) derived from such intangible assets are less than its carrying value. Deferred Financing Costs - Deferred financing costs are being amortized over the terms of the related debt agreements. Income Taxes - The Company accounts for income taxes using an asset and liability approach. The Company recognizes the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for expected future tax consequences of events that have been recognized in the consolidated financial statements. The Company evaluates the recoverability of deferred tax assets and establishes a valuation allowance to reduce the deferred tax assets to an amount that is more likely than not to be realized. Environmental Costs - All of the Company's environmental proceedings relate to discontinued operations of former divisions or subsidiaries of The Union Corporation. Costs incurred to investigate and remediate contaminated sites are charged to the environmental reserves established in conjunction with the Union acquisition. Stock-Based Compensation - The Company accounts for its stock-based compensation plan using the intrinsic value method prescribed by Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees. Statement of Financial Accounting Standard ("SFAS") No. 123, Accounting for Stock-Based Compensation, requires that companies using the intrinsic value method make pro forma disclosures of net income as if the fair value-based method of accounting had been applied. See Note 12 for the fair value disclosures required under SFAS No. 123. Comprehensive Income - Effective January 1, 1998, the Company adopted SFAS No. 130, Reporting Comprehensive Income, which established standards for the reporting and display of comprehensive income and its components. The adoption of this statement did not affect the Company's consolidated financial statements for the three years in the period ended December 31, 1999. Comprehensive loss for the three years in the period ended December 31, 1999 was equal to the Company's net loss. Accounting For Transfers of Financial Assets - SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. These standards are based on consistent application of a financial-components approach that focuses on control. Under this approach, after a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered, and derecognizes liabilities when extinguished. This Statement provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. The Company adopted SFAS No. 125 for the year ended December 31, 1997. The adoption of SFAS No. 125 did not have a material effect on the 1997 financial statements, as the Company had no transfers during the year ended December 31, 1997. However, commencing in the fourth quarter of 1998, the Company began selling, concurrent with its purchase, certain Receivables to a special-purpose entity, OSI Funding LLC (FINCO) (see Note 18). Segment Information - SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information, established standards for the way that public business enterprises report information about operating segments in annual financial statements and also established standards for related disclosures about products and services, geographic areas and major customers. Management has considered the requirements of SFAS No. 131 and, as discussed in Note 17, believes the Company operates in one business segment. New Derivatives and Hedging Accounting Standard - In June 1998, SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, was issued, which is required to be adopted no later than January 1, 2001. The statement provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. The Company has not determined the impact on the consolidated statement of operations and consolidated balance sheet. Accounting for the Costs of Computer Systems Developed or Obtained for Internal Use - Statement of Position ("SOP") No. 98-1, Accounting for the Costs of Computer Systems Developed or Obtained for Internal Use, provides guidelines for capitalization of developmental costs of proprietary software and purchased software for internal use. The adoption of SOP No. 98-1 did not have a material impact on the consolidated statement of operations and consolidated balance sheet. Accounting 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. Earnings Per Share - SFAS No. 128, Earnings per Share, simplified the calculation of earnings per share and is applicable only to public companies. Under the Securities and Exchange Commission ("SEC") disclosure requirements, SFAS No. 128 is not currently applicable to the Company and, accordingly, earnings per share is not presented. Reclassifications - Certain amounts in prior periods have been reclassified to conform to the current year presentation, including changing the balance sheet presentation from classified to unclassified. 2. ORGANIZATION, ACQUISITIONS & RECAPITALIZATION OSI was formed on September 21, 1995 to build, through a combination of acquisitions and sustained internal growth, one of the leading providers of accounts receivable management services. In 1999, the Company reorganized many of its acquired subsidiaries. Account Portfolios, Inc. ("API") changed its name to OSI Portfolio Services, Inc. Payco American Corporation's ("Payco") largest debt collection subsidiary changed its name to OSI Collection Services, Inc. and Continental Credit Services, Inc. ("Continental"), A.M. Miller & Associates ("AMM"), Accelerated Bureau of Collections, Inc. ("ABC"), and former subsidiaries of The Union Corporation ("Union"), Allied Bond & Collection Agency and Capital Credit, merged into OSI Collection Services. Former Union subsidiary, Interactive Performance changed its name to OSI Outsourcing Services, Inc. and the Interactive Performance and High Perfomance services subsidiaries merged into OSI Outsourcing Services. The Company purchases and collects portfolios of non-performing loans and accounts receivable for the Company's own account, services accounts receivable placements on a contingent and fixed fee basis and provides contract management of accounts receivable. The Company's customers are mainly in the educational, utilities, telecommunications, retail, healthcare and financial services industries. The markets for the Company's services currently are the United States, Puerto Rico, Canada and Mexico. In September 1995, the Company acquired API, a partnership which purchased and managed large portfolios of non-performing consumer loans and accounts receivable, for cash of $30,000, common stock of $15,000 and notes of $35,000, which were subsequently paid in March 1996. In January 1996, the Company acquired AMM and Continental, accounts receivable and fee services companies, for total cash consideration of $38,500 including transaction costs of $3,600, common stock of $6,000, a 9% unsecured, subordinated note of $5,000 (interest payable quarterly and principal due July 2001) and a 10% unsecured, subordinated note of $3,000, which was subsequently paid in November 1996. In November 1996, the Company acquired all of the outstanding common stock of Payco, an accounts receivable management company primarily focused on healthcare, education and bank/credit cards, in a merger transaction for cash of approximately $154,800 including transaction costs of $4,600. The Company allocated the total purchase price including additional liabilities reserves to the fair value of the net assets acquired resulting in goodwill of approximately $123,000. In addition, the Company allocated $1,000 of the purchase price to in-process research and development that had not reached technological feasibility and had no alternative future uses, which accordingly was expensed at the date of the acquisition. In October and November 1997, the Company acquired the assets of The North Shore Agency, Inc. ("NSA"), a fee service company specializing in letter series collection services, and ABC, a fee service company specializing in credit card collections, for total cash consideration of approximately $53,800 including transaction costs of $1,173 and common stock of $1,000. One of the acquisitions contains certain contingent payment obligations, $2,533 through December 31, 1999, based on the attainment by the newly formed subsidiary of certain financial performance targets over each of the next two years. Future contingent payment obligations, if any, will be accounted for as additional goodwill as the payments are made. In January 1998, the Company acquired through a tender offer approximately 77% of the outstanding shares of Union's common stock for $31.50 per share. On March 31, 1998, the Company acquired the remaining outstanding shares of Union when Union merged with a wholly-owned subsidiary of the Company. The aggregate cash purchase price of the Union acquisition was approximately $220,000 including transaction costs of $10,900 and assumed liabilities. The Company financed the acquisition primarily with funds provided by an amended credit agreement . Union, through certain of its subsidiaries, furnishes a broad range of credit and receivables management outsourcing services as well as management and collection of accounts receivable. The Company allocated the total purchase price including additional liabilities reserves to the fair value of the net assets acquired resulting in goodwill of approximately $219,000. The above acquisitions were accounted for as purchases. The excess of cost over the fair value of net assets of businesses acquired is amortized on a straight-line basis over 20 to 30 years. Results of operations were included in the consolidated financial statements from their respective acquisition dates. On December 10, 1999, the Company consummated a transaction with Madison Dearborn Capital Partners III, L.P. ("MDP") and certain of the Company's stockholders, optionholders and warrantholders pursuant to which MDP acquired 75.9% of OSI's common stock, most of the then outstanding capital stock of OSI was redeemed, refinanced its credit facility and issued $107,000 of preferred stock (the "Recapitalization"). Total value of the Recapitalization was approximately $790,000. The Recapitalization has been accounted for as a recapitalization which had no impact on the historical basis of assets and liabilities. In accordance with the terms of the Recapitalization, the holders of approximately 85.6% of shares of the Company's common stock outstanding immediately prior to the Recapitalization received $37.47 in cash in exchange for each of these shares. In addition, the holders of the Company's preferred stock, non-voting common stock, warrants and exercised stock options, which pursuant to the Recapitalization all outstanding options became vested, received $37.47 in cash in exchange for each of these instruments. Immediately following the Recapitalization, continuing shareholders owned approximately 8.5% of the outstanding shares of the Company's common stock. In connection with the Recapitalization, the Company entered into a new credit facility providing for term loans of $400,000 and revolving loans of up to $75,000 (see Note 6). The proceeds of the initial borrowings under the new credit facility and the issuance of approximately $300,000 of the Company's preferred and common stock have been used to finance the payments of cash to cash-electing shareholders, to pay the holders of stock options and stock warrants exercised or canceled, as applicable, in connection with the Recapitalization, to repay the Company's existing credit facility and to pay expenses incurred in connection with the Recapitalization. The Company incurred various costs aggregating approximately $36,780 in connection with consummating the Recapitalization. These costs consisted primarily of compensation costs, professional and advisory fees, and other expenses. The compensation costs of $10,487 consists primarily of expense relating to the payment of cash for vested stock options and the payment of change in control bonuses to certain officers in accordance with the terms of their respective employment agreements. Of the other transaction related costs, which includes professional and advisory fees, and other expenses, the Company expensed $6,827 and recorded $19,466 as an additional cost of the repurchase of common stock in 1999. In addition to these expenses, the Company also incurred approximately $21,100 of capitalized debt issuance costs, which include the consent payment to existing note holders, associated with the Recapitalization financing. These costs will be charged to interest expense over the terms of the related debt instruments. The unaudited pro forma consolidated financial data presented below provides pro forma effect of the Union acquisition, the Recapitalization and the debt extinguishment as if such transactions had occurred as of the beginning of each period presented. The unaudited results have been prepared for comparative purposes only and do not necessarily reflect the results of operations of the Company that actually would have occurred had the acquisition, the Recapitalization and the debt extinguishment been consummated as of the beginning of each period presented, nor does the data give effect to any transactions other than the acquisition, the Recapitalization and the debt extinguishment. Pro Forma 1999 1998 ---- ---- Net revenues $504,425 $486,754 ======== ======== Net loss $(23,865) $(26,445) ======== ======== 3. PROPERTY AND EQUIPMENT Property and equipment, which is recorded at cost, consists of the following at December 31: 1999 1998 ---- ---- Land $ 2,109 $ 2,109 Buildings 1,912 1,891 Furniture and fixtures 7,964 6,574 Machinery and equipment 3,016 2,479 Telephone equipment 9,826 8,659 Leasehold improvements 5,590 4,068 Computer hardware and software 53,843 40,785 -------- -------- 84,260 66,565 Less accumulated depreciation (40,613) (26,248) -------- -------- $ 43,647 $ 40,317 ======== ======== 4. INTANGIBLE ASSETS Intangible assets consist of the following at December 31: 1999 1998 ---- ---- Goodwill $ 448,651 $ 447,774 Value of favorable contracts and placements 29,000 29,000 Covenants not to compete 5,053 5,021 --------- --------- 482,704 481,795 Less accumulated amortization (72,233) (56,198) --------- --------- $ 410,471 $ 425,597 ========= ========= 5. OTHER ASSETS Other assets consist of the following at December 31: 1999 1998 ---- ---- Investment in FINCO $ 12,000 $ 2,500 Prepaid postage 3,326 1,007 Other 7,435 8,094 -------- -------- $ 22,761 $ 11,601 ======== ======== 6. DEBT Debt consists of the following at December 31: 1999 1998 ---- ---- New Credit Facility $ 400,000 $ - Prior Credit Facility - 396,637 Revolving Credit Facility 13,000 25,500 11% Series B Senior Subordinated Notes 100,000 100,000 Note payable to stockholder (See Note 2) 4,429 4,429 Other (including capital leases) 878 1,582 --------- --------- Total debt $ 518,307 $ 528,148 ========= ========= On April 28, 1997, the Company registered $100,000 of 11% Series B Senior Subordinated Notes (the "Notes") which mature on November 1, 2006, with the SEC to exchange for the then existing unregistered $100,000 of 11% Senior Subordinated Notes (the "Private Placement"). The exchange offer was completed by May 29, 1997. Interest on the Notes is payable semi-annually on May 1 and November 1 of each year. The Notes are general unsecured obligations of the Company and are subordinated in right of payment to all senior debt of the Company presently outstanding and incurred in the future. The Notes contain certain restrictive covenants the more significant of which are limitations on asset sales, additional indebtedness, mergers and certain restricted payments, including dividends. In connection with the Recapitalization, the Company entered into a new credit facility providing up to $475,000 of senior bank financing ("New Credit Facility"). The proceeds of the New Credit Facility were used to refinance $419,818 of indebtedness outstanding on the date of the Recapitalization which resulted in an extraordinary loss of $4,208 from the write-off of previously capitalized deferred financing fees. In addition, the New Credit Facility will be used to provide for the Company's working capital requirements and future acquisitions, if any. The New Credit Facility consists of a $400,000 term loan facility and a $75,000 revolving credit facility (the "Revolving Facility"). The term loan facility consists of a term loan of $150,000 ("Term Loan A") and a term loan of $250,000 ("Term Loan B"), which mature on December 10, 2005 and June 10, 2006, respectively. The Company is required to make quarterly principal repayments on each term loan beginning January 15, 2000 for Term Loan B and January 15, 2001 for Term Loan A. Term Loan A bears interest, at the Company's option, (a) at a base rate equal to the greater of the federal funds rate plus 0.5% or the lender's prime rate, plus 2.25% or (b) at the reserve adjusted Eurodollar rate plus 3.25%. Term Loan B bears interest, at the Company's option, (a) at a base rate equal to the greater of the federal funds rate plus 0.5% or the lender's prime rate, plus 3.0% or (b) at the reserve adjusted Eurodollar rate plus 4.0%. The Revolving Facility has a term of six years and is fully revolving until December 10, 2005. The Revolving Facility bears interest, at the Company's option, (a) at a base rate equal to the greater of the federal funds rate plus 0.5% or the lender's prime rate, plus 2.25% or (b) at the reserve adjusted Eurodollar rate plus 3.25%. Also, outstanding under the Revolving Facility are letters of credit of $1,989 expiring within a year. The one month LIBOR rate (Eurodollar rate) at December 31, 1999 was 5.8%. The three month LIBOR rate (Eurodollar rate) at December 31, 1998 was 5.3%. The New Credit Facility is guaranteed by substantially all of the Company's present domestic subsidiaries and is secured by substantially all of the stock of the Company's present domestic subsidiaries and by substantially all of the Company's domestic property assets. The New Credit Facility contains certain covenants the more significant of which limit dividends, asset sales, acquisitions and additional indebtedness, as well as requires the Company to satisfy certain financial performance ratios. The Notes are fully and unconditionally guaranteed on a joint and several basis by each of the Company's current domestic subsidiaries and any additional domestic subsidiaries formed by the Company that become guarantors under the New Credit Facility (the "Restricted Subsidiaries"). The Restricted Subsidiaries are wholly-owned by the Company and constitute all of the direct and indirect subsidiaries of the Company except for certain subsidiaries that are individually, and in the aggregate inconsequential. The Company is a holding company with no separate operations, although it incurs some expenses. The Company has no significant assets or liabilities other than the common stock of its subsidiaries, debt, related deferred financing costs and accrued expenses. The aggregate assets, liabilities, results of operations and stockholders' equity of the Restricted Subsidiaries are substantially equivalent to those of the Company on a consolidated basis and the separate financial statements of each of the Restricted Subsidiaries are not presented because management has determined that they would not be material to investors. Summarized combined financial information of the Restricted Subsidiaries is shown below: 1999 1998 ---- ---- Total assets $584,184 $595,925 ======== ======== Total liabilities $123,551 $ 78,252 ======== ======== Operating revenue $504,425 $479,400 ======== ======== Income from operations $ 42,669 $ 39,418 ======== ======== Net income $ 11,861 $ 21,189 ======== ======== Maturities of debt and capital leases at December 31, 1999 are as follows: Capital Debt Leases ---- ------- 2000 $ 2,619 $ 675 2001 14,429 95 2002 17,500 19 2003 32,500 - 2004 40,000 - Thereafter 410,500 - --------- -------- Total Payments 517,548 789 Less amounts representing interest 30 -------- Present value of minimum lease payments $ 759 --------- ======== $ 517,548 ========= 7. OTHER LIABILITIES Other liabilities consist of the following at December 31: 1999 1998 ---- ---- Accrued acquisition related office closure costs, over-market leases and other costs $ 7,402 $ 12,103 Accrued interest 4,494 6,851 Deferred revenue 10,242 11,285 Environmental reserves 22,218 22,726 Other 23,950 24,409 --------- --------- $ 68,306 $ 77,374 ========= ========= The environmental reserves, on an undiscounted basis, at December 31, 1999 and 1998 are for environmental proceedings as a result of the Union acquisition. The Company is party to several pending environmental proceedings involving the Environmental Protection Agency and comparable state environmental agencies. All of these matters related to discontinued operations of former divisions or subsidiaries of Union for which it has potential continuing responsibility. Management, in consultation with both legal counsel and environmental consultants, has established the aforementioned liabilities that it believes are adequate for the ultimate resolution of these environmental proceedings. However, the Company may be exposed to additional substantial liability for these proceedings as additional information becomes available over the long-term. 8. MANDATORILY REDEEMABLE PREFERRED STOCK Mandatorily redeemable preferred stock consists of the following at December 31, 1999: 14% Senior Mandatorily Redeemable Junior Preferred Preferred Stock Stock Total ------------ --------- --------- Balance at December 31, 1998 $ - $ - $ - Issuance of stock 77,634 7,000 84,634 Accrued dividends 856 21 877 Accretion of preferred stock 205 - 205 --------- --------- --------- Balance at December 31, 1999 $ 78,695 $ 7,021 $ 85,716 ========= ========= ========= On December 10, 1999, in connection with the Recapitalization, the Board of Directors authorized 50,000 shares of Class A 14% Senior Mandatorily Redeemable Preferred Stock, no par value and 150,000 shares of Class B 14% Senior Mandatorily Redeemable Preferred Stock, no par value. Furthermore, the Company issued 25,000 shares of Class A 14% Senior Mandatorily redeemable Preferred Stock, ("Class A"), Series A, no par value and 75,000 shares of Class B 14% Senior Mandatorily Redeemable Preferred Stock, ("Class B"), Series A, no par value; collectively referred to as Senior Preferred Stock; along with 596,913.07 shares of the Company's common stock for $100,000. The Company may issue up to one additional series of each Class A and Class B solely to the existing holders in exchange for shares of Class A, Series A or Class B, Series A. The liquidation value of each share of Senior Preferred Stock is $1,000 plus accrued and unpaid dividends. Dividends, as may be declared by the Company's Board of Directors, are cumulative at an annual rate of 14% of the liquidation value and are payable quarterly. The Company may, at its option and upon written notice to preferred shareholders, redeem all or any portion of the outstanding Senior Preferred Stock on a pro-rata basis at the redemption prices in cash at a stated percentage of the liquidation value plus cash equal to all accrued and unpaid dividends. The redemption prices for Class A are 110%, 114%, 107%, 103.5% and 100% of the liquidation value for the period December 15, 1999 through June 15, 2001, June 16, 2001 through December 14, 2003, December 15, 2003 through December 14, 2004, December 15, 2004 through December 14, 2005 and December 15, 2005 and thereafter, respectively. The redemption price for Class B is 100% of the liquidation value. However, on December 10, 2007, the Company must redeem all of the shares of the Senior Preferred Stock then outstanding at a redemption price equal to 100% of the liquidation value per share plus accrued and unpaid dividends. Pursuant to the Company's financing arrangements, the payment of dividends and/or the repurchase of shares of Senior Preferred Stock is allowed as long as no default on the financing arrangements shall have occurred. The 14% Senior Mandatorily Redeemable Preferred Stock was recorded at $77,634 to take into account common stock issued in conjunction with the sale of the Senior Preferred Stock and will accrete to $100,000 by December 10, 2007 using the interest rate method. On December 10, 1999, in connection with the Recapitalization, the Company authorized 50,000 shares and issued 7,000 shares of Junior Preferred Stock ("Junior Preferred Shares"). The liquidation value of each Junior Preferred Share is $1,000 plus accrued and unpaid dividends. Dividends, as may be declared by the Company's Board of Directors, are cumulative at an annual rate of 5% of the liquidation value until December 10, 2003 and then at an annual rate of 8% thereafter and are payable annually; however the dividend rate will increase to 20% upon consummation of certain events. The Company will pay dividends in the form of additional Junior Preferred Shares. The Company may, at its sole option and upon written notice, redeem, subject to limitations, all or any portion of the outstanding Junior Preferred Shares for $1,000 per share plus cash equal to all accrued and unpaid dividends, through the redemption date, whether or not such dividends have been authorized or declared. However, on January 10, 2008, the Company must redeem all of the shares of the Junior Preferred Stock then outstanding at a redemption price equal to $1,000 per share plus accrued and unpaid dividends as long as all of the shares of the Senior Preferred Stock have been redeemed. Upon consummation of a primary public offering having an aggregate offering value of at least $50,000, each holder of Junior Preferred Shares shall have the right to convert all, but not less than all, into shares of voting common stock based upon the public offering price. 9. STOCKHOLDERS' EQUITY AND WARRANTS Each share of Non-voting common stock is convertible at the shareholders option into an equal number of shares of Voting common stock subject to the requirements set forth in the Company's Certificate of Incorporation. In connection with the Recapitalization, all warrants (46,088.67) then outstanding were exchanged for cash with each holder receiving cash for the differential between $37.47 per share and their exercise price of $12.50. Consequently, there are no warrants outstanding at December 31,1999. 10. INCOME TAXES Major components of the Company's income tax provision are as follows: 1999 1998 1997 ---- ---- ---- Current: Federal $ - $ - $ - State 550 450 250 Foreign 209 - - ------- ------- ------- Total current 759 450 250 ------- ------- ------- Deferred: Federal - - 9,513 State - 380 1,364 Foreign - - - ------- ------- ------- Total deferred - 380 10,877 ------- ------- ------- Provision for income taxes $ 759 $ 830 $11,127 ======= ======= ======= 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 reporting purposes. The Company's deferred income taxes result primarily from differences in loans and accounts receivable purchased, amortization methods on other intangible assets and depreciation methods on fixed assets. Net deferred tax assets consist of the following at December 31: 1999 1998 ---- ---- Deferred tax assets: Net operating loss carryforwards $ 52,302 $ 41,143 Accrued liabilities 16,812 18,001 Loans and accounts receivable 1,382 3,670 Property and equipment 1,028 1,311 Intangible assets 3,824 4,192 Tax credit carry forwards 3,418 - -------- -------- Total deferred tax assets 78,766 68,317 Less valuation allowance (78,766) (68,317) -------- -------- Net deferred tax assets $ - $ - ======== ======== The valuation allowance was $78,766 and $68,317 at December 31, 1999 and 1998, respectively. The Company has determined the valuation allowance based upon the weight of available evidence regarding future taxable income consistent with the principles of SFAS No. 109, Accounting for Income Taxes. The $10,449 increase in the valuation allowance during 1999 was the result of net changes in temporary differences, and an increase in the net operating loss and tax credit carryforwards. The valuation allowance also includes amounts related to previous acquisitions from years before 1999. Future realization of these deferred tax assets would result in the reduction of goodwill recorded in connection with the acquisitions. The Company has federal net operating loss carryforwards of $127,347 as of December 31, 1999 available to offset future taxable income of the consolidated group of corporations. Since the Recapitalization transaction on December 10, 1999 constituted a change of ownership, tax law imposes a limitation on the future use of the Company's net operating loss carryforwards generated through the date of the change in ownership. The annual limit is equal to the long-term tax-exempt bond rate times the fair imputed value of the Company's stock immediately before the change in ownership. In addition, the Company acquired a net operating loss carry forward of $3,800 with the acquisition of Union that is subject to special tax law restrictions that limit its potential benefit. These loss carryforwards expire between 2010 and 2019. The Company also has available federal tax credit carryforwards of approximately $616 which expire between 2003 and 2012, federal minimum tax credit carryforwards of approximately $759 which may be carried forward indefinitely and various state tax credit carryforwards of approximately $2,043 with various expiration dates. Since the Company has a history of generating net operating losses, management does not expect the Company to generate taxable income in the foreseeable future sufficient to realize tax benefits from the net operating loss carryforwards or the future reversal of the net deductible temporary differences. The amount of the deferred tax assets considered realizable, however, could be increased in future years if estimates of future taxable income during the carryforward period change. A reconciliation of the Company's reported income tax provision to the U.S. federal statutory rate is as follows: 1999 1998 1997 ---- ---- ---- Federal taxes at statutory rate $(13,257) $(7,994) $(16,052) State income taxes (net of federal tax benefits) (874) 18 (2,092) Foreign income taxes - - - Nondeductible amortization 3,753 3,414 1,406 Other 2,371 249 (4,567) Deferred tax valuation allowance 8,766 5,143 32,432 -------- ------- -------- Provision for income taxes $ 759 $ 830 $ 11,127 ======== ======= ======== 11. RELATED PARTY TRANSACTIONS In connection with the agreements executed in connection with the Recapitalization discussed in Note 2, the Company paid transaction costs and advisory fees to certain Company stockholders. Such costs were $17,092 for the year end December 31, 1999. The Company had an agreement with an affiliate of certain Company stockholders to provide management and investment services for a monthly fee of $50. The Company recorded management fees to this entity of $450 for the year ended December 31, 1997. The agreement was terminated September 30, 1997. Subject to the agreements executed in connection with the various acquisitions, the Private Placement discussed in Note 6 and certain management and advisory agreements, the Company has paid to certain Company stockholders transaction costs and advisory fees. Such costs were zero, $3,466 and $1,600 for the years ended December 31, 1999, 1998 and 1997, respectively. Under various financing arrangements associated with the Company's acquisitions and credit facility, the Company incurred interest expense of $3,376, $2,333 and $3,317 for the years ended December 31, 1999, 1998 and 1997, respectively, to certain Company stockholders of which one is a financial institution and was co-administrative agent of the Company's prior credit facility. In December 1997, the Company invested $5,000 for a minority interest in a limited liability corporation (the "LLC") for the purpose of acquiring purchased loan and accounts receivable portfolios. The majority interest in the LLC is held by an affiliate of one of the Company's stockholders. In the fourth quarter of 1998, the Company wrote down its investment in the LLC by $3,000 which is included in amortization expense in the accompanying consolidated statement of operations. The write down resulted from an analysis of the carrying value of the purchased portfolios owned by the LLC. In December 1998, the Company entered into an agreement with the majority owner of the LLC to settle all outstanding disputes relating to the sourcing and collection of certain purchased loan and accounts receivable portfolios. As part of the settlement, the Company was paid $3,000 which was recorded in revenue in the accompanying consolidated statement of operations. 12. STOCK OPTION AND AWARD PLAN The Company has established the Outsourcing Solutions Inc. 1995 Stock Option and Stock Award Plan (the "Plan"). The Plan is a stock award and incentive plan which permits the issuance of options, stock appreciation rights ("SARs") in tandem with such options, restricted stock, and other stock-based awards to selected employees of and consultants to the Company. The Plan reserved 304,255 Voting Common Shares for grants and provides that the term of each award, not to exceed ten years, be determined by the Compensation Committee of the Board of Directors (the "Committee") charged with administering the Plan. In February 1997, the Board of Directors approved an increase to the reserve of Voting Common Shares to 500,000 with an additional approval to 750,000 in December 1997. Under the terms of the Plan, options granted may be either nonqualified or incentive stock options and the exercise price generally may not be less than the fair market value of a Voting Common Share, as determined by the Committee, on the date of grant. SARs granted in tandem with an option shall be exercisable only to the extent the underlying option is exercisable and the grant price shall be equal to the exercise price of the underlying option. As of December 31, 1999, no SARs have been granted. The awarded stock options vest over three to four years and vesting may be accelerated upon the occurrence of a change in control as defined in the Plan. The options expire ten years after date of grant. In June, 1999, 25,500 options were repriced from a grant price of $40.00 to $25.00. In addition, 58,500 options were repriced from a grant price of $65.00 or $50.00 to $40.00. Simultaneously, the vesting provisions of certain options were modified to provide for prorata vesting over a specified number of years. Accordingly, compensation expense was recognized during 1999 as a result of these modifications of certain options. In addition, in connection with the Recapitalization, certain options exercised and the holders of such options received a cash payment equal to the exercise price of such options and $37.47, the price per share at which the Recapitalization was consummated. A summary of the 1995 Stock Option and Stock Award Plan is as follows: Number of Shares of Weighted Average Stock Subject Exercise Price to Options Per Share -------------- ---------------- Outstanding at January 1, 1997 246,021 $14.23 Granted 397,500 27.99 Forfeited (75,000) 22.33 ---------- Outstanding at December 31, 1997 568,521 22.78 Granted 64,300 58.83 Forfeited (54,000) 35.19 ---------- Outstanding at December 31, 1998 578,821 25.63 Granted 214,000 40.00 Forfeited (104,500) 28.52 Exercised (245,396) 18.59 ---------- Outstanding at December 31, 1999 442,925 31.69 ========== Reserved for future option grants 307,075 Exercisable shares at December 31, 1999, 1998 and 1997 were 442,925, 105,784 and 49,647, respectively. A summary of stock options outstanding at December 31, 1999 is as follows: Options Outstanding Options Exercisable -------------------------------- ---------------------- Weighted Average Remaining Number Contractual Exercise Number Exercise Exercise Price Outstanding Life Price Exercisable Price -------------- ----------- ----------- -------- ----------- -------- $12.50 70,175 6.7 years $12.50 70,175 $12.50 $25.00 116,750 7.6 years $25.00 116,750 $25.00 $40.00 256,000 9.1 years $40.00 256,000 $40.00 ------- ------- $12.50-$40.00 442,925 8.6 years $31.69 442,925 $31.69 ======= ======= The Company accounts for the Plan in accordance with APB Opinion No. 25, under which no compensation cost has been recognized for the majority of stock option awards. As required by SFAS No. 123, the Company has estimated the fair value of its option grants since January 1, 1996. The fair value for these options was estimated at the date of the grant based on the following weighted average assumptions: 1999 1998 1997 ---- ---- ---- Risk free rate 5.0% 5.0% 5.44% Expected dividend yield of stock 0% 0% 0% Expected volatility of stock 0% 0% 0% Expected life of option (years) 10.0 10.0 10.0 Since the Company's common stock is not publicly traded, the expected stock price volatility is assumed to be zero. The weighted fair values of options granted during 1999, 1998 and 1997 were $15.74, $23.14, and $12.29, respectively. The Company's pro forma information is as follows: 1999 1998 1997 ---- ---- ---- Net loss: As reported $(43,957) $(24,341) $(58,337) Pro forma (45,436) (25,742) (59,570) In addition, the Committee may grant restricted stock to participants of the Plan at no cost. Other than the restrictions which limit the sale and transfer of these shares, recipients of restricted stock awards are entitled to vote shares of restricted stock and dividends paid on such stock. No restricted stock has been granted as of December 31, 1999. 13. COMMITMENTS AND CONTINGENCIES From time to time, the Company enters into servicing agreements with companies which service loans for others. The servicers handle the collection efforts on certain nonperforming loans and accounts receivable on the Company's behalf. Payments to the servicers vary depending on the servicing contract. Current contracts expire on the anniversary date of such contracts but are automatically renewable at the option of the Company. A subsidiary of the Company has several Portfolio Flow Purchase Agreements, no longer than one year, whereby the subsidiary has a monthly commitment to purchase nonperforming loans meeting certain criteria for an agreed upon price subject to due diligence. The purchases under the Portfolio Flow Purchase Agreements were $33,303 which includes amounts purchased and subsequently sold to FINCO (see Note 18), $25,521 and $20,661 for the years ended December 31, 1999, 1998 and 1997, respectively. The Company leases certain office space and computer equipment under non-cancelable operating leases. These non-cancelable operating leases, with terms in excess of one year, are due in approximate amounts as follows: Amount -------- 2000 $ 16,329 2001 14,019 2002 10,551 2003 8,033 2004 6,668 Thereafter 18,004 -------- Total lease payments $ 73,604 ======== Rent expense under operating leases was $16,974, $15,800 and $8,100 for the years ended December 31, 1999, 1998 and 1997, respectively. 14. LITIGATION At December 31, 1999, the Company was involved in a number of legal proceedings and claims that were in the normal course of business and routine to the nature of the Company's business. While the results of litigation cannot be predicted with certainty, the Company has provided for the estimated uninsured amounts and costs to resolve the pending suits and management, in consultation with legal counsel, believes that reserves established for the ultimate resolution of pending matters are adequate at December 31, 1999. 15. FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair values and the methods and assumptions used to estimate the fair values of the financial instruments of the Company as of December 31, 1999 and 1998 are as follows. The carrying amount of cash and cash equivalents and long-term debt except the Notes, approximate the fair value. The approximate fair value of the Notes at December 31, 1999 and 1998 was $97,000 and $95,300, respectively. The fair value of the long-term debt was determined based on current market rates offered on notes and debt with similar terms and maturities. The fair value of Receivables was determined based on both market pricing and discounted expected cash flows. The discount rate was based on an acceptable rate of return adjusted for the risk inherent in the Receivable portfolios. The estimated fair value of Receivables approximated its carrying value at December 31, 1999 and 1998. In December 1997, the Company completed an in-depth analysis of the carrying value of its Receivables. This analysis included an evaluation of achieved portfolio amortization rates, historical and estimated future costs to collect, as well as projected total future collection levels. As a result of this analysis, the Company recorded $10,000 of additional amortization in December 1997 relating to the Receivables acquired in September 1995 in conjunction with the Company's acquisition of API, to reduce their carrying value to estimated fair value. 16. EMPLOYEE BENEFIT PLANS At December 31, 1997, the Company had five defined contribution plans. During 1998, the Company combined four of these defined contribution plans into a new defined contribution plan sponsored by the Company. At December 31, 1999 and 1998, the Company has five defined contribution plans, four of which it acquired through the Union acquisition, which provide retirement benefits to the majority of all full time employees. The Company matches a portion of employee contributions to the plans. Company contributions to these plans, charged to expense, were $1,654, $1,570 and $276 for the years ended December 31, 1999, 1998 and 1997, respectively. 17. ENTERPRISE WIDE DISCLOSURE The Company operates in one business segment. As a strategic receivables management company, the primary services of the Company consist of collection services, portfolio purchasing services and outsourcing services. In addition, the Company derives substantially all of its revenues from domestic customers. The following table presents the Company's revenue by type of service for the year ended December 31: 1999 1998 1997 ---- ---- ---- Collection services $ 362,964 $ 350,080 $ 180,871 Portfolio purchasing services 80,391 82,399 67,809 Outsourcing services 61,070 46,921 23,003 --------- --------- --------- Total $ 504,425 $ 479,400 $ 271,683 ========= ========= ========= 18. PURCHASED LOANS AND ACCOUNTS RECEIVABLE PORTFOLIOS FINANCING In October 1998, a special-purpose finance company, OSI Funding Corp., formed by the Company, entered into a revolving warehouse financing arrangement (the "Warehouse Facility") for up to $100,000 of funding capacity for the purchase of loans and accounts receivable portfolios over its five year term. In connection with the Recapitalization, OSI Funding Corp. converted to a limited liability company and is now OSI Funding LLC ("FINCO"), with OSI owning approximately 78% of the financial interest but having only approximately 29% of the voting rights. In connection with the establishment of the Warehouse Facility, FINCO entered into a servicing agreement with a subsidiary of the Company to provide certain administrative and collection services on a contingent fee basis (i.e., fee is based on a percent of amount collected) at prevailing market rates based on the nature and age of outstanding balances to be collected. Servicing revenue from FINCO is recognized by the Company as collections are received. All borrowings by FINCO under the Warehouse Facility are without recourse to the Company. The following summarizes the transactions between the Company and FINCO the the year ended December 31: 1999 1998 ---- ---- Sales of purchased loans and accounts receivables portfolios by the Company to FINCO $56,664 $9,134 Servicing fees paid by FINCO to the Company $13,481 $792 Sales of purchased loans and accounts receivable portfolios by the Company to FINCO were in the same amount and occurred shortly after such portfolios were acquired by the Company from the various unrelated sellers. In conjunction with sales of Receivables to FINCO and the servicing agreement, the Company recorded servicing assets which are being amortized over the servicing agreement. The carrying value of such servicing assets is $1,300 at December 31, 1999 and was not considered material at December 31, 1998. At December 31, 1999 and 1998, FINCO had purchased loans and accounts receivable portfolios of $42,967 and $8,361, respectively. At December 31, 1999 and 1998, FINCO had outstanding borrowings of $32,051 and $6,482, respectively, under the Warehouse Facility. 19. NONRECURRING EXPENSES After the Company's formation and seven acquisitions, the Company adopted a strategy to align the Company along business services and establish call centers of excellence. As a result, the Company incurred $5,063 of nonrecurring conversion, realignment and relocation expenses for the year ended December 31, 1999. These expenses include costs resulting from the temporary duplication of operations, closure of certain call centers, hiring and training of new employees, costs of converting collection operating systems, and other one-time and redundant costs. INDEPENDENT AUDITORS REPORT To the Stockholders of Outsourcing Solutions Inc.: We have audited the consolidated financial statements of Outsourcing Solutions Inc. and it subsidiaries as of December 31, 1999 and 1998, and for each of the three years in the period ended December 31, 1999, and have issued our report thereon dated March 28, 2000; such consolidated financial statements and report is included elsewhere in this Form 10-K. Our audits also included the consolidated financial statement schedule of Outsourcing Solutions Inc. and its subsidiaries, listed in the accompanying index at Item 14(a)2. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Deloitte & Touche LLP - --------------------------- Deloitte & Touche LLP St. Louis, Missouri March 28, 2000 Schedule II Outsourcing Solutions Inc. and Subsidiaries Valuation and Qualifying Accounts and Reserves For the year ended December 31, 1999, 1998 and 1997 (in thousands) Column A Column B Column C Column D Column E - -------------------- --------- ----------------------- ---------- ---------- Additions (B) Balance ----------------------- @ beg. Charged Charged to Deductions Balance @ of to Other (Please end of Description Period Expenses Accounts (A) explain) Period - ------------------------------ -------- ------------ ---------- --------- Allowance for doubtful accounts: 1999 1,309 651 - 1,431 529 ====== ==== ==== ====== ====== 1998 538 108 798 135 1,309 ====== ==== ==== ====== ====== 1997 641 367 - 470 538 ====== ==== ==== ====== ====== (A) For 1998, Union balance at date of acquisition. (B) Accounts receivable write-offs and adjustments, net of recoveries. EX-2.5 2 ASSIGNMENT AND STOCK PURCHASE AGREEMENT ASSIGNMENT AND STOCK PURCHASE AGREEMENT THIS ASSIGNMENT AND STOCK PURCHASE AGREEMENT, dated as of December 10, 1999 (this "Agreement"), is made by and among Outsourcing Solutions Inc., a Delaware corporation (the "Company"), Madison Dearborn Capital Partners III, L.P. ("MDP"), Madison Dearborn Special Equity III, L.P. ("MDSE"), Special Advisors Fund I, L.L.C. ("SAE"), DB Capital Investors, L.P. ("DB"), First Union Investors, Inc. ("First Union"), Abbott Capital 1330 Investors II, L.P. ("Abbott"), Abbott Capital Private Equity Fund III, L.P. ("Abbott III"), BNY Partners Fund, L.L.C. ("BNY"), FBR Financial Fund II, L.P. ("FBR") and Harvest Opportunity Partners, L.P. ("Harvest", and along with MDSE, SAE, DB, First Union, Abbott, Abbott III, BNY and FBR a "Purchaser" and collectively the "Purchasers"). Except as otherwise indicated, capitalized terms used herein are defined in Section 7 hereof. WHEREAS, MDP, the Company and others are parties to a Stock Subscription and Redemption Agreement, dated as of October 8, 1999, and attached as Exhibit 1 hereto, and a First Amendment to Stock Subscription and Redemption Agreement, dated as of the date hereof, and attached as Exhibit 2 hereto (as amended, the "Recapitalization Agreement"); WHEREAS, MDP wishes to assign certain of its rights in, to and under the Recapitalization Agreement to the Purchasers, and the Purchasers wish to be assigned certain of MDP's rights in, to and under the Recapitalization Agreement; NOW THEREFORE, subject to the terms and conditions set forth in the Recapitalization Agreement and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: Section 1. Assignment. Subject to the terms and conditions set forth herein, MDP hereby grants, transfers and assigns to each Purchaser, individually and not jointly and severally, the right pursuant to the Recapitalization Agreement to purchase from the Company such shares of Voting Common Stock or Non-Voting Common Stock, as applicable, as set forth on Schedule 1 attached hereto together with all rights, title, interest and remedies related thereto as set forth in the Recapitalization Agreement or that may otherwise be available under applicable law (the "Assignment"). Each Purchaser, individually and not jointly and severally, hereby accepts the Assignment; provided, that the obligations of each Purchaser pursuant to this Assignment shall be limited to the extent of the obligations set forth in this Agreement. The Company hereby consents to the Assignment. Section 2. Sale of Common Stock. Pursuant to the Assignment, and subject to the terms and conditions of the Recapitalization Agreement, the Company will sell to each Purchaser, and each Purchaser will purchase from the Company, such shares as set forth on Schedule 1 of Voting Common Stock, par value $0.01 per share (the "Voting Common Stock") and Non-Voting Common Stock, par value $0.01 per share (the "Non-Voting Common Stock", together with the Voting Common Stock, the "Common Stock"), as applicable, for a purchase price of $37.54 per share (being the same purchase price per share of Voting Common Stock paid by MDP under the Recapitalization Agreement). Section 3. The Closing. The closing of the sale and purchase of the Common Stock hereunder (the "Closing") will take place at the offices of White & Case, 1155 Avenue of the Americas, New York, New York 10036. At the Closing, the Company will deliver to each Purchaser a certificate or certificates evidencing the number of shares of Common Stock to be purchased by such Purchaser, registered in the name of such Purchaser against payment of the purchase price therefor by delivery of a cashier's or certified check or checks of immediately available funds or by wire transfer of immediately available funds to a bank account designated by the Company. Section 4. Conditions Precedent to Sale of Common Stock. 4.A. Conditions to Each Party's Obligations. The respective obligations of each of the parties hereto to effect the transactions set forth in this Assignment shall be subject to fulfillment or waiver at or prior to the Closing of each of the conditions set forth in Section 5.01 of the Recapitalization Agreement. 4.B. Conditions to Obligations of the Company. The obligations of the Company to effect the sale of the Common Stock pursuant to this Assignment shall be subject to the fulfillment at Closing of the following conditions, any one of which may be waived by the Company. (a) The representations and warranties of each Purchaser set forth herein shall be true and correct in all respects. (b) Each Purchaser shall have performed and complied in all material respects with all of the covenants and agreements and satisfied in all material respects all of the conditions required by this Assignment to be complied with or satisfied by each Purchaser at or prior to Closing. (c) Each other condition set forth in Section 5.02 of the Recapitalization Agreement shall be fulfilled at or prior to the Closing. 4.C. Conditions to Obligations of each Purchaser. The obligations of each Purchaser to effect the purchase of the Common Stock pursuant to this Assignment shall be subject to the fulfillment at Closing of the following conditions, any one of which may be waived by the applicable Purchasers with respect to its obligations: (a) The representations and warranties of the Company set forth herein shall be true and correct in all respects. (b) The Company shall have performed and complied in all material respects with all of the covenants and agreements and satisfied in all material respects all of the conditions required by this Assignment to be complied with or satisfied by the Company at or prior to Closing. (c) Each other condition set forth in Section 5.03 of the Recapitalization Agreement shall be fulfilled at or prior to the Closing. Section 5. Representations and Warranties of the Company. The Company hereby represents and warrants to each Purchaser each of the representations and warranties of the Company set forth in Section 3.01 of the Recapitalization Agreement, which are incorporated herein, were true and correct in all respects when made on October 8, 1999. Section 6. Purchasers' Representations and Warranties. 6.A. Purchasers' Investment Representations. Each Purchaser individually, and not jointly or severally, hereby represents that he or it is acquiring the Common Stock purchased hereunder for his or its own account with the present intention of holding such securities for investment purposes and that it has no intention of selling such securities in a public distribution in violation of federal or state securities laws; provided that nothing contained herein will prevent the Purchaser and the subsequent holders of such securities from transferring such securities in compliance with applicable law and the Stockholders Agreement. Each certificate for Common Stock will be conspicuously imprinted with a legend substantially in the form set forth in Section 10 of the Stockholders Agreement. 6.B. Other Representations and Warranties of the Purchasers. Each Purchaser individually, and not jointly or severally, represents and warrants to and covenants and agrees with, the Company that: (i) the Purchaser is an "accredited investor" as defined in Rule 501(a) under the Securities Act; and (ii) the Purchaser has all requisite power and authority to enter into, deliver and consummate the transactions contemplated by this Agreement (including the purchase of the securities to be purchased by the Purchaser hereunder) and this Agreement has been duly authorized, executed and delivered by the Purchaser and constitutes a valid and binding obligation of the Purchaser enforceable in accordance with its terms (subject to the availability of equitable remedies and to the laws of bankruptcy and other similar laws affecting creditors' rights generally) and, as applicable, does not violate the Purchaser's charter, by-laws or other organizational documents. Section 7. Definitions. "Bylaws" means the Bylaws of the Company, as such Bylaws may be modified, amended or amended and restated from time to time. "Certificate of Incorporation" means the Company's Fourth Amended and Restated Certificate of Incorporation. "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or a governmental entity or any department, agency, or political subdivision thereof. "Securities Act" means the Securities Act of 1933, as amended, or any similar federal law then in force. "Stockholders Agreement" means the Stockholders Agreement, dated as of the date hereof, by and among the parties hereto and others. Section 8. Miscellaneous. 8.A. Amendments and Waivers. Except as otherwise provided herein, any provision hereof may be amended or waived generally and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the holders of at least a majority of the outstanding shares of Common Stock issued hereunder and, to the extent that any modification, amendment or waiver adversely affects the rights of the holders of any class of Common Stock, by the holders of at least a majority of the outstanding shares initially issued hereunder of such adversely affected class of Common Stock. No course of dealing between the Company and any holder of Common Stock or any delay on the part of any such holder in exercising any rights hereunder or under any agreement contemplated hereby or under the Certificate of Incorporation or the Bylaws will operate as a waiver of any rights of any such holder. 8.B. Survival of Representations and Warranties. All representations and warranties contained herein or made in writing by any party in connection herewith will survive the execution and delivery of this Agreement, regardless of any investigation made by any Purchaser or on its behalf. 8.C. Successors and Assigns. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto will bind and inure to the benefit of the respective successors and assigns of such parties whether so expressed or not. In addition, and whether or not any express assignment has been made, the provisions of this Agreement which are for the Purchaser's benefit as the purchaser or holder of Common Stock are also for the benefit of and enforceable by any subsequent holder of such Purchaser's Common Stock. 8.D. Severability. Whenever possible, each provision of this Agreement will 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 invalid, illegal or unenforceable under any applicable law or rule in any jurisdiction, such provision will be ineffective only to the extent of such invalidity, illegality or unenforceability in such jurisdiction, without invalidating the remainder of this Agreement in such jurisdiction or any provision hereof in any other jurisdiction. 8.E. Counterparts. This Agreement may be executed simultaneously in two or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together will constitute one and the same Agreement. 8.F. Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 8.G. Governing Law. All issues concerning the enforceability, validity and binding effect of this Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the law of any jurisdiction other than the State of New York. 8.H. Notices. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement will be in writing and shall be delivered personally or by telex or telecopy as described below or by reputable overnight courier, and shall be deemed given on the date on which such delivery is made. If delivered by telex or telecopy such notices or communications shall be confirmed by a registered or certified letter (return receipt requested), postage prepaid. 1.I. IN WITNESS WHEREOF, the parties hereto have executed this Assignment and Stock Purchase Agreement as of the date first written above. OUTSOURCING SOLUTIONS INC. By: /s/ Gary L. Weller ----------------------------- Its: EVP ----------------------------- MADISON DEARBORN CAPITAL PARTNERS III, L.P. By Madison Dearborn Partners III, L.P. Its General Partners By Madison Dearborn Partners, Inc. Its General Partner By /s/ Paul R. Wood ------------------------------ Its ------------------------------ MADISON DEARBORN SPECIALTY EQUITY III, L.P. By Madison Dearborn Partners III, L.P. Its General Partners By Madison Dearborn Partners, Inc. Its General Partner By /s/ Paul R. Wood ------------------------------ Its ------------------------------ SPECIAL ADVISORS FUND I, LLC By /s/ Paul R. Wood ------------------------------ Its ------------------------------ ABBOTT CAPITAL 1330 INVESTORS II, L.P. By Abbott Capital 1330 GenPar II, L.L.C. Its General Partners By /s/ Thomas W. Hallagan ------------------------------ Name: Thomas W. Hallagan Title: Manager ABBOTT CAPITAL PRIVATE EQUITY FUND III, L.P. By Abbott Capital Management, L.L.C. Its General Partners By /s/ Raymond L. Held ------------------------------ Name: Raymond L. Held Title: Managing Director BNY PARTNERS FUND, L.L.C. By BNY Private Investment Management, Inc. Its Member Manager By /s/ Burton M. Siegal ------------------------------ Name: Burton M. Siegal Title: Senior Vice President FBR FINANCIAL FUND II, L.P. By: /s/ ------------------------------ Its: Senior Managing Director ------------------------------ HARVEST OPPORTUNITY PARTNERS, L.P. By: /s/ Joseph Jolson ------------------------------ Its: Manager ------------------------------ FIRST UNION INVESTORS, INC. By: /s/ ------------------------------ Title: ------------------------------ DB CAPITAL INVESTORS, L.P. By: DB Capital Partners, L.P. Its: General Partner By DB Capital Partners, Inc. By: /s/ Tyler Zachem ----------------------------- Name: Tyler Zachem Title: Managing Director EX-2.6 3 PURCHASE AGREEMENT PURCHASE AGREEMENT among Outsourcing Solutions Inc. and the Purchasers named herein Dated as of December 10, 1999 Relating to: $100,000,000 in Units Consisting of 25,000 Shares of Class A 14% Senior Mandatorily Redeemable Preferred Stock, 75,000 Shares of Class B 14% Senior Mandatorily Redeemable Preferred Stock and 596,913.07 Shares of Voting Common Stock, $.01 Par Value TABLE OF CONTENTS Page RECITALS ......................................................................1 SECTION 1 DEFINITIONS AND ACCOUNTING TERMS 1.01. Definitions...........................................................2 1.02. Computation of Time Periods..........................................13 1.03. Accounting Terms.....................................................13 SECTION 2 AUTHORIZATION, ISSUANCE AND SALE OF SECURITIES 2.01. Authorization of Issue...............................................13 2.02. Sale.................................................................13 2.03. Closing..............................................................14 2.04. Allocation of Purchase Price.........................................14 SECTION 3 CONDITIONS TO CLOSING 3A. Conditions to Obligation of Each Purchaser to Close..................14 3.01A. Representations and Warranties.......................................14 3.02A. Performance; No Default Under Other Agreements.......................15 3.03A. Compliance Certificates..............................................15 (a) Officer's Certificate..........................................15 (b) Secretary's Certificate........................................15 3.04A. Opinions of Counsel..................................................15 3.05A. Recapitalization.....................................................16 3.06A. No Adverse Events....................................................16 3.07A. Financial Information................................................16 3.08A. Proceedings and Documents............................................16 3.09A. Purchase Permitted by Applicable Law, etc............................17 3.10A. Transaction Documents in Force and Effect; Information; Certificate of Designation.......................................17 (a) Transaction Documents..........................................17 (b) Accuracy of Information........................................17 (c) Filing of Amended and Restated Certificate of Incorporation and Certificate of Designation..................17 3.11A. No Violation; No Legal Constraints; Consents, Authorizations and Filings, etc...................................................18 3.12A. Credit Agreement.....................................................18 3.13A. Fees and Expenses of the Recapitalization............................18 3.14A. Solvency Certificate.................................................18 3.15A. Litigation...........................................................19 3.16A. Disbursement Instructions............................................19 3.17A. Junior Preferred Stock................................................19 3B. Conditions to Obligation of the Company to Close.....................19 3.01B. Representations and Warranties.......................................19 3.02B. Compliance with Covenants............................................19 3.03B. Litigation...........................................................19 3.04B. Documentation........................................................19 SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY 4.01. Due Incorporation; Power and Authority...............................20 4.02. Capitalization.......................................................20 4.03. Subsidiaries.........................................................21 4.04. Due Authorization, Execution and Delivery............................21 (a) Agreement......................................................21 (b) Senior Preferred Stock; Certificate of Designation.............21 (c) Common Stock Registration Rights Agreement; Preferred StockRegistration Rights Agreement.............................22 (d) Common Stock...................................................22 (e) Stockholders Agreement.........................................22 (f) Other Transaction Documents....................................22 4.05. Noncontravention; Authorizations and Approvals.......................23 4.06. Company Financial Statements.........................................23 4.07. Absence of Undisclosed Liabilities or Events.........................24 4.08. No Actions or Proceedings............................................25 4.09. Title to Properties..................................................25 4.10. Intellectual Property Rights.........................................25 4.11. Taxes................................................................25 4.12. Employee Benefit Plans...............................................27 4.13. Private Offering; No Integration or General Solicitation.............29 4.14. Eligibility for Resale Under Rule 144A...............................30 4.15. [INTENTIONALLY OMITTED]..............................................30 4.16. Insurance............................................................30 4.17. Environmental Laws and Regulations...................................30 4.18. Solvency.............................................................31 4.19. Affiliate Transactions...............................................31 4.20. Material Contracts...................................................31 4.21. Brokerage Fees.......................................................31 4.22. Employment Relations and Agreements..................................31 4.23. [INTENTIONALLY OMITTED]..............................................32 4.24. Compliance with Laws; Licenses.......................................32 SECTION 5 REPRESENTATIONS OF THE PURCHASERS 5.01. Purchase for Investment..............................................32 5.02. Organization of the Purchasers.......................................33 5.03. Authorization of Transaction.........................................33 5.04. Noncontravention.....................................................33 5.05. Brokers' Fees........................................................34 SECTION 6 PROVISIONS RELATING TO RESALES OF SECURITIES 6.01. Private Offerings....................................................34 (a) Offers and Sales of Senior Preferred Stock Only to Institutional Accredited Investors or Qualified Institutional Buyers.........................................34 (b) No General Solicitation........................................34 (c) Purchases by Non-Bank Fiduciaries..............................35 (d) Restrictions on Transfer; Legend...............................35 (e) No Future Liability............................................35 (f) Securities Act Restrictions....................................35 6.02. Resale Offering Assistance...........................................36 6.03. Blue Sky Compliance..................................................38 6.04. Common Stock Registration Rights Agreement; Preferred Stock Registration Rights Agreement......................................39 6.05. No Integration.......................................................39 6.06. DTC Agreement and PORTAL.............................................39 6.07. [Intentionally Omitted]..............................................39 6.08. Form of Legend for the Securities....................................39 SECTION 7 THE SENIOR PREFERRED STOCK 7.01. Execution............................................................41 7.02. Terms of the Senior Preferred Stock..................................41 7.03. Payments and Computations............................................41 7.04. Registration; Registration of Transfer and Exchange..................41 (a) Security Register..............................................41 (b) Registration of Transfer.......................................41 (c) Exchange.......................................................42 (d) Effect of Registration of Transfer or Exchange.................42 (e) Requirements; Charges..........................................42 (f) Certain Limitations............................................42 7.05. Mutilated, Destroyed, Lost and Stolen Shares.........................42 7.06. Persons Deemed Owners................................................43 7.07. Cancellation.........................................................43 7.08. Home Office Payment..................................................44 7.09. Separability.........................................................44 7.10. Board Observation....................................................44 7.11. Reports, Books, Records and Access...................................45 SECTION 8 REDEMPTION 8.01. Right of Redemption..................................................46 8.02. Partial Redemptions..................................................46 8.03. Notice of Redemption.................................................46 8.04. Deposit of Redemption Price..........................................46 8.05. Shares Payable on Redemption Date....................................46 8.06. Shares Redeemed in Part..............................................47 SECTION 9 EXPENSES, INDEMNIFICATION AND CONTRIBUTION AND TERMINATION 9.01. Expenses.............................................................47 9.02. Indemnification......................................................48 (a) Indemnification by the Company.................................48 (b) Indemnification by the Purchasers..............................48 (c) Notifications and Other Indemnification Procedures.............49 9.03. Contribution.........................................................50 9.04. Survival.............................................................51 9.05. Termination..........................................................51 SECTION 10 MISCELLANEOUS 10.01. Notices..............................................................52 10.02. Benefit of Agreement; Assignments and Participations.................52 10.03. No Waiver; Remedies Cumulative.......................................53 10.04. Amendments, Waivers and Consents.....................................53 10.05. Counterparts.........................................................53 10.06. Reproduction.........................................................54 10.07. Headings.............................................................54 10.08. Governing Law; Submission to Jurisdiction; Venue.....................54 10.09. Severability.........................................................55 10.10. Entirety.............................................................55 10.11. Survival of Representations and Warranties...........................56 10.12. Incorporation........................................................56 10.13. Press Releases and Public Announcements..............................56 10.14. Public Disclosures...................................................56 EXHIBITS Exhibit A - Form of Certificate of Designation Exhibit B - Form of Preferred Stock Registration Rights Agreement Exhibit C - Form of Common Stock Registration Rights Agreement Exhibit D - Form of Officer's Certificate Exhibit E - Form of Secretary's Certificate Exhibit F-1 - Form of Opinion of Company Counsel Exhibit F-2 - Form of Opinion of Cahill Gordon & Reindel Exhibit G - Form of Amended and Restated Certificate of Incorporation Exhibit H - Form of Stockholders Agreement SCHEDULES Schedule A - Information Relating to Purchasers PURCHASE AGREEMENT PURCHASE AGREEMENT, dated as of December 10, 1999, by and among Outsourcing Solutions Inc., a Delaware corporation (together with its successors, the "Company"), and Ares Leveraged Investment Fund, L.P., Ares Leveraged Investment Fund II, L.P., DB Capital Investors, L.P., First Union Investors, Inc., Abbott Capital 1330 Investors II, L.P., Abbott Capital Private Equity Fund III, L.P., BNY Partners Fund, L.L.C., Heller Financial, Inc. and Magnetite Asset Investors L.L.C. (each a "Purchaser" and, collectively, the "Purchasers"). RECITALS WHEREAS, upon the terms and subject to the conditions set forth in this Agreement, the Company has agreed to sell to the Purchasers, and each Purchaser, acting severally and not jointly, has agreed to purchase for aggregate gross proceeds of $100.0 million from the Company, 100,000 units (the "Units") in the aggregate consisting of (i) either one share of the Company's Class A 14% Senior Mandatorily Redeemable Preferred Stock (the "Class A Senior Preferred Stock") or one share of the Company's Class B 14% Senior Mandatorily Redeemable Preferred Stock (the "Class B Senior Preferred Stock"), in each case with terms and conditions as set forth in the Certificate of Designation, the form of which is attached hereto as Exhibit A (the "Certificate of Designation"), and (ii) 596,913.07 shares of the Company's Common Stock (as defined), as set forth on Schedule A. The Class A Senior Preferred Stock together with the Class B Senior Preferred Stock are herein referred to as the "Senior Preferred Stock." The Senior Preferred Stock together with the shares of Common Stock issued to the Purchasers are herein referred to as the "Securities." WHEREAS, the Company is issuing the Securities as part of its recapitalization (the "Recapitalization") pursuant to a Stock Subscription and Redemption Agreement dated as of October 8, 1999, as amended (the "Recapitalization Agreement"), by and among the Company, Madison Dearborn Capital Partners III, L.P. (the "Equity Investor") and certain of the stockholders, optionholders and warrantholders of the Company party thereto. WHEREAS, simultaneously with receipt of the proceeds from the sale of the Securities, the Company will utilize such proceeds, proceeds from borrowings under the Credit Agreement (as defined) and proceeds from the equity contribution from the Equity Investor, certain Purchasers, certain other investors and management of the Company to effect the Recapitalization. WHEREAS, the holders of the Senior Preferred Stock from time to time will be entitled to the benefits of a Registration Rights Agreement, dated the date hereof (the "Preferred Stock Registration Rights Agreement"), by and among the Company and the Purchasers in the form of Exhibit B hereto. WHEREAS, the holders of Common Stock and Non-Voting Common Stock from time to time will be entitled to the benefits of a Registration Rights Agreement, dated the date hereof (the "Common Stock Registration Rights Agreement"), by and among the Company, the Equity Investor, the Purchasers, and others in the form of Exhibit C hereto. WHEREAS, the holders of Common Stock and Non-Voting Common Stock from time to time will be entitled to the benefits of the Stockholders Agreement, dated the date hereof (the "Stockholders Agreement"), by and among the Company, the Equity Investor, certain stockholders, optionholders and warrantholders of the Company, the Purchasers, and others in the form of Exhibit H hereto. NOW, THEREFORE, the parties hereto agree as follows: SECTION 1 DEFINITIONS AND ACCOUNTING TERMS 1.01. Definitions. As used herein, the following terms shall have the meanings specified herein unless the context otherwise requires "Accredited Investor" means any Person that is an "accredited investor" within the meaning of Rule 501(a) under the Securities Act. "Additional Company Information" is defined in Section 6.02. "Affiliate" means with respect to any specified Person: (i) any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person; (ii) any other Person that owns, directly or indirectly, 10% or more of such specified Person's Capital Stock; or (iii) any other Person 10% or more of the Voting Stock of which is beneficially owned or held directly or indirectly by such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. With respect to each Purchaser, an Affiliate shall also include, without limitation, any Person managed or advised by, or controlling or under common control with, such Purchaser or any of its Affiliates. Notwithstanding anything to the contrary contained herein, (x) no portfolio company of the Equity Investor nor any portfolio company of a fund managed by or affiliated with the Equity Investor shall be deemed an Affiliate of the Company and (y) no Purchaser or any of their respective Affiliates shall be deemed an Affiliate of the Company. "Agent" is defined in Section 10.08(c). "Agreement" is defined in Section 10.04. "Amended and Restated Certificate of Incorporation" means the Fourth Amended and Restated Certificate of Incorporation of the Company in the form of Exhibit G hereto. "Applicable Law" means all applicable laws, statutes, treaties, rules, codes (including building codes), ordinances, regulations, certificates, orders and licenses of, and interpretations by, any Governmental Authority and judgments, decrees, injunctions, writs, permits, orders or like governmental action of any Governmental Authority (including any Environmental Law and any laws pertaining to health or safety) applicable to any parties hereto (including their respective property or operations), as appropriate. "Assistance Period" is defined in Section 6.02. "Audit Date" means December 31, 1998. "Benefit Plan" is defined in Section 4.12. "Board Observer" is defined in Section 7.10. "Board of Directors" means the Board of Directors of the Company or one of its Subsidiaries, as the case may be, or any authorized committee of such Board of Directors. "Business Day" means any day other than a Legal Holiday. "Capital Stock" means (i) with respect to any Person that is a corporation, corporate stock; (ii) in the case of any association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated and whether or not voting) of corporate stock, including each class of common stock and preferred stock of such Person; (iii) with respect to any Person that is not a corporation, any and all partnership, membership or other equity interests of such Person; and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Capitalized Lease Obligation" means, at the time determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "CERCLA" is defined in Section 4.17. "Certificate of Designation" is defined in the first recital to this Agreement. "Change of Control" is defined in the Certificate of Designation. "Class A Senior Preferred Stock" is defined in the first recital to this Agreement. "Class B Senior Preferred Stock" is defined in the first recital to this Agreement. "Closing Time" is defined in Section 2.03. "COBRA" is defined in Section 4.12. "Code" means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder, as amended from time to time. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act or, if at any time after the execution of this Agreement such Commission is not existing and performing the duties now assigned to it under the Exchange Act, the body performing such duties at such time. "Common Stock" means the Company's Voting Common Stock, $.01 par value. "Common Stock Registration Rights Agreement" is defined in the fifth recital to this Agreement. "Company" shall have the meaning assigned in the preamble to this Agreement and shall include its successors and permitted assigns. "Company Financial Statements" is defined in Section 4.06. "Company Indemnified Person" is defined in Section 9.02(b). "Company Property" is defined in Section 4.17. "Compensation Commitment" is defined in Section 4.12. "Competitor" means any Person who is engaged in the (i) accounts receivable management services and outsourcing business, (ii) consumer debt purchasing business (other than related to asset backed securities or similar investments) or (iii) credit card business and shall include, without limitation, Capital One, Providian, Metris and NCO Group; provided, that no Person or any Affiliate thereof shall be a Competitor for purposes of this Agreement solely by reason of (a) the beneficial ownership for investment purposes of (x) less than 15% of the voting equity securities of any Person engaged, directly or through its Affiliates, in the business described in clauses (i) or (ii) or (y) less than 50% of the voting equity securities of any Person engaged, directly or through its Affiliates, in the business described in clause (iii), and (b) being a lender to any Person, whether or not it is a Competitor. "consolidated" or on a "consolidated basis," when used with reference to any financial term in this Agreement (but not when used with respect to any Tax Return or tax liability), means the aggregate for two or more Persons of the amounts signified by such term for all such Persons, with intercompany items eliminated and, with respect to net income or earnings, after eliminating the portion of net income or earnings properly attributable to minority interests, if any, in the capital stock of any such Person or attributable to shares of preferred stock of any such Person not owned by any other such Person, in accordance with GAAP. "Controlling Person" is defined in Section 9.02(a). "Credit Agreement" means the Credit Agreement dated as of November 30, 1999 among the Company, certain subsidiaries of the Company, as guarantors, DLJ Capital Funding, Inc., as Syndication Agent, Fleet National Bank, N.A., as Administrative Agent, and Harris Trust & Savings Bank, as Documentation Agent, and the other financial institutions from time to time party thereto, together with the related documents (including notes, guarantees, collateral documents, instruments and agreements executed therewith), and in each case as amended (including any amendment and restatement thereof), modified, renewed, refunded, replaced or refinanced from time to time, including any agreement extending the maturity of, refinancing, replacing or otherwise restructuring (including increasing the amount of available borrowings thereunder or adding Subsidiaries of the Company as additional borrowers or guarantors thereunder) all or any portion of the Indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agent, lender or group of creditors. "Depositary" is defined in Section 6.06. "Dividend Payment Date" is defined in the Certificate of Designation. "Dividend Record Date" is defined in the Certificate of Designation. "Enforceability Exceptions" means, with respect to any specified obligation, any limitations on the enforceability of such obligation due to bankruptcy, insolvency, reorganization, moratorium, and other similar laws of general applicability relating to or affecting creditors' rights or general equity principles (other than, in any such case, any federal or state laws relating to fraudulent transfers) and, in the case of any indemnity for securities law obligations, to the extent such indemnity may not be enforceable due to public policy considerations. "Environmental Law" is defined in Section 4.17. "Equity Investor" is defined in the second recital to this Agreement. "ERISA" is defined in Section 4.12. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the Commission thereunder. "Fair Market Value" means, with respect to any asset or property, the price which could be negotiated in an arm's-length free market transaction, for cash, between an informed and willing seller under no compulsion to sell and an informed and willing buyer neither of which is under pressure or compulsion to complete the transaction. Fair Market Value shall be determined by the Board of Directors of the Company or the applicable Subsidiary acting reasonably and in good faith. "GAAP" means, at any date of determination, generally accepted accounting principles in effect in the United States which are applicable at the date of determination and which are consistently applied for all applicable periods. "Governmental Authority" means (a) the government of the United States or any State or other political subdivision thereof, (b) any government or political subdivision of any other jurisdiction in which the Company or any Subsidiary conducts all or any part of its business, or which asserts jurisdiction over any properties of the Company or any Subsidiary, or (c) any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any such government. "guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Hazardous Materials" is defined in Section 4.17. "Hedging Obligations" means, with respect to any Person, the obligations of such Person under (i) currency exchange agreements, interest rate swap agreements, interest rate cap agreements or interest rate collar agreements and (ii) other agreements or arrangements designed to protect such Person against fluctuations in currency exchange or interest rates. "Holder" means any Person in whose name a share of Senior Preferred Stock or Common Stock, as applicable, purchased pursuant hereto is registered. "Indebtedness" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capitalized Lease Obligations or the balance deferred and unpaid of the purchase price of any property (other than contingent or "earnout" payment obligations) or representing any Hedging Obligations (except any such balance that constitutes an accrued expense or trade payable) or any Redeemable Capital Stock of such Person, if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all indebtedness of others secured by a Lien on any asset of such Person in an amount equal to the lesser of the aggregate amount of such indebtedness secured by such Lien and the value of all of the assets of such Person securing such indebtedness (whether or not such indebtedness is assumed by such Person) and, to the extent not otherwise included, the guarantee by such Person of any indebtedness of any other Person. "Indemnified Person" is defined in Section 9.02(c). "Institutional Accredited Investors" is defined in Section 6.01(a). "Intellectual Property" means (a) all inventions and discoveries (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto, and all patents, patent applications and patent disclosures, together with all reissuances, continuations, continuations-in-part, revisions, extensions and reexaminations thereof, (b) all trademarks, service marks, trade dress, logos, trade names and corporate names, together with all translations, adaptations, derivations and combinations thereof and including all goodwill associated therewith, (c) all copyrightable works, all copyrights and all applications, registrations and renewals in connection therewith, (d) all broadcast rights, (e) all mask works and all applications, registrations and renewals in connection therewith, (f) all know-how, trade secrets and confidential business information, whether patentable or unpatentable and whether or not reduced to practice (including ideas, research and development, know-how, formulas, compositions and manufacturing and production processes and techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information and business and marketing plans and proposals), (g) all computer software (including data and related documentation), (h) all other proprietary rights, (i) all copies and tangible embodiments thereof (in whatever form or medium) and (j) all licenses and agreements in connection therewith. "IRS" is defined in Section 4.12(c). "Junior Preferred Stock" means 7,000 shares of the Company's Junior Preferred Stock issued on the date hereof to certain stockholders of the Company. "Knowledge Group" means each of Timothy Beffa, Gary Weller, Eric Fencl, Esq., Paul Wood and Timothy Hurd. "Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in The City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. "License" is defined in Section 4.24. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under Applicable Law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Mandatory Redemption Date" means the date that is the eight year anniversary of the Closing Time. "Material Adverse Effect" means a material adverse effect on (a) the business, prospects, operations, results of operations or financial condition of the Company and its Subsidiaries, taken as a whole, (b) the ability of the Company or any Subsidiary to perform any of its material obligations under any of the Transaction Documents, or (c) the validity or enforceability of any Transaction Document. "Non-Voting Common Stock" means the Company's Non-Voting Common Stock, $.01 par value. "Obligations" means any accrued and unpaid dividends and other liabilities payable by the Company under or in respect of this Agreement or the Certificate of Designation. "Officer" means, with respect to any Person, the President, Chief Executive Officer or the Chief Financial Officer of such Person. "Officer's Certificate" means, with respect to any Person, a certificate signed by an Officer of such Person; provided, however, that every Officer's Certificate with respect to compliance with a covenant or condition provided for in this Agreement shall include (i) a statement that the Officer making or giving such Officer's Certificate has read such condition and any definitions or other provisions contained in this Agreement relating thereto and (ii) a statement as to whether, in the opinion of the signer, such condition has been complied with. "outstanding" means, when used with respect to the Senior Preferred Stock as of the date of determination, all shares of Senior Preferred Stock theretofore executed and delivered under this Agreement and the Certificate of Designation, except: (i) shares theretofore canceled by the Company or delivered to the Company for cancellation; (ii) shares for whose payment or redemption money in the necessary amount has been theretofore set aside by the Company with a third party in trust for the holders of such shares; provided that if such shares are to be redeemed, notice of such redemption has been duly given as provided in this Agreement; and (iii) shares which have been paid pursuant to Section 7.07 or in exchange for or in lieu of which other shares have been executed and delivered pursuant to this Agreement, other than any such shares in respect of which there shall have been presented to the Company proof satisfactory to it that such shares are held by a bona fide purchaser in whose hands such shares are valid obligations of the Company; provided, however, that in determining whether the Holders of the requisite number of the outstanding shares of Senior Preferred Stock have given any request, demand, authorization, direction, notice, consent or waiver hereunder, shares of Senior Preferred Stock owned by the Company or any other obligor upon the Senior Preferred Stock or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be outstanding. Shares of Senior Preferred Stock so owned which have been pledged in good faith may be regarded as outstanding if the pledgee establishes to the satisfaction of the Required Holders the pledgee's right so to act with respect to such shares and that the pledgee is not the Company or any other obligor upon the shares or any Affiliate of the Company or of such other obligor. "Permitted Business" means the business of the Company and its Subsidiaries as of the Closing Time and any other business reasonably related, ancillary or complementary thereto. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "PORTAL Market" is defined in Section 6.06. "Preferred Stock" means, with respect to any Person, Capital Stock of any class or classes (however designated) of such Person which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over Capital Stock of any other class of such Person. With respect to the Company, the term "Preferred Stock" shall include the Senior Preferred Stock. "Preferred Stock Registration Rights Agreement" is defined in the fourth recital to this Agreement. "Private Offering" is any offering by any of the Purchasers of some or all of the Securities that are Registrable Securities without registration under the Securities Act. "property" means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "Purchase Price" is defined in Section 2.02. "Purchaser Indemnified Person" is defined in Section 9.02(a). "Purchasers" is defined in the preamble to this Agreement. "Qualified Institutional Buyer" means any Person that is a "qualified institutional buyer" within the meaning of Rule 144A. "Recapitalization" is defined in the second recital to this Agreement. "Recapitalization Agreement" is defined in the second recital to this Agreement. "Recapitalization Documents" means the Recapitalization Agreement and any other related documents delivered in connection therewith. "Redeemable Capital Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is 91 days after the Stated Maturity of the Senior Preferred Stock. "Redemption Date" means, when used with respect to any share of Senior Preferred Stock to be redeemed, the date fixed for such redemption by or pursuant to this Agreement or the Certificate of Designation. "Redemption Price", when used with respect to any share of Senior Preferred Stock to be redeemed, means the price at which it is to be redeemed pursuant to this Agreement or the Certificate of Designation. "Registrable Securities" means the Securities and any other securities issued or issuable in exchange for the Securities. As to any particular Registrable Securities, once issued such securities shall cease to be Registrable Securities when (a) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (b) they shall have been distributed to the public pursuant to Rule 144, (c) they shall have been otherwise transferred, new certificates for them not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent disposition of them shall not require registration or qualification of them under the Securities Act or any similar Applicable Law then in force, or (d) they shall have ceased to be outstanding. "Regulation S" means Regulation S under the Securities Act (or any successor provision), as it may be amended from time to time. "Release" is defined in Section 4.17. "Reorganization" means the Company's corporate reorganization of its Subsidiaries as described in the Recapitalization Agreement (including the schedules thereto). "Required Holders" means holders of more than 50% of the outstanding shares of Senior Preferred Stock. "Resale Materials" is defined in Section 6.02(c). "Returns" is defined in Section 4.11(a). "Rule 144" means Rule 144 under the Securities Act (or any successor provision), as it may be amended from time to time. "Rule 144A" means Rule 144A under the Securities Act (or any successor provision), as it may be amended from time to time. "Securities" is defined in the first recital to this Agreement. "Securities Act" mean the Securities Act of 1933, as amended, and the rules and regulations promulgated by the Commission thereunder. "Security Register" has the meaning given to such term in Section 7.04(a). "Senior Preferred Stock" is defined in the first recital to this Agreement. "Senior Subordinated Notes" means the Company's 11% Senior Subordinated Notes due 2006. "Significant Holder" means (a) any Purchaser that, together with its Affiliates, holds at least 20% of the outstanding shares of Senior Preferred Stock and (b) Ares Leveraged Investment Fund, L.P., Ares Leveraged Investment Fund II, L.P. and any of their respective Affiliates so long as such entities described in this clause (b) hold in the aggregate at least 15% of the outstanding shares of Senior Preferred Stock. "Solvent" means, with respect to any Person as of the date of any determination, that on such date (a) such Person is able to pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (b) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature and (c) such Person is not engaged in a business or a transaction, and is not about to engage in a business or a transaction, for which such Person's property would constitute unreasonably small capital after giving due consideration to current and anticipated future capital requirements and current and anticipated future business conduct and the prevailing practice in the industry in which such Person is engaged. In computing the amount of contingent liabilities at any time, such liabilities shall be computed as the amount which, in light of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "Stated Maturity" means (a) with respect to any share of Senior Preferred Stock, the Mandatory Redemption Date, (b) with respect to any dividend on the Senior Preferred Stock, the dates specified in the Certificate of Designation as the fixed date on which such dividend is due and payable and (c) with respect to any other Indebtedness, the date specified in the instrument governing such Indebtedness as the fixed date on which the principal of such Indebtedness or any installment of interest is due and payable. "Stockholders Agreement" has the meaning specified in the sixth recital to this Agreement. "Subsequent Purchaser" is defined in Section 4.13(a). "Subsidiary" means, with respect to any Person, (a) any corporation of which the outstanding shares of Voting Stock having at least a majority of the votes entitled to be cast in the election of directors shall at the time be owned, directly or indirectly, by such Person, (b) any partnership, limited liability company, association, joint venture or other entity in which such Person and/or one or more of its Subsidiaries have at least a majority of the shares of Voting Stock of such entity at the time or (c) any partnership (i) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (ii) the only general partners of which are such Person or one or more Subsidiaries of such Person (or any combination thereof). "Tax" is defined in Section 4.11(a). "Transaction Documents" means, collectively, this Agreement, the Certificate of Designation, the Amended and Restated Certificate of Incorporation, the Common Stock Registration Rights Agreement, the Preferred Stock Registration Rights Agreement, the Stockholders Agreement, the Senior Preferred Stock, the Common Stock issued hereunder, the Credit Agreement, the Recapitalization Documents and all certificates, instruments, financial and other statements and other documents made or delivered in connection herewith and therewith. "Transactions" means, collectively, the transactions provided for in, or contemplated by, the Transaction Documents (including, without limitation, the Recapitalization). "United States" shall have the meaning assigned to such term in Regulation S. "Units" is defined in the first recital to this Agreement. "Voting Rights Triggering Event" is defined in the Certificate of Designation. "Voting Stock" means any class or classes of Capital Stock pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of any Person (irrespective of whether or not, at the time, stock of any other class or classes shall have, or might have, voting power by reason of the happening of any contingency); provided that the Company's Preferred Stock will be considered Voting Stock to the extent, at any time, the voting rights therein entitle the holders thereof to designate a director. 1.02. Computation of Time Periods. For purposes of computation of periods of time hereunder, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding." 1.03. Accounting Terms. Accounting terms used but not otherwise defined herein shall have the meanings provided in, and be construed in accordance with, GAAP. SECTION 2 AUTHORIZATION, ISSUANCE and sale OF SECURITIES 2.01. Authorization of Issue. The Company has authorized the issue and sale of (i) 25,000 shares of Class A Senior Preferred Stock and 75,000 shares of Class B Senior Preferred Stock, each with terms as set forth in the Certificate of Designation, and (ii) 596,913.07 shares of Common Stock. 2.02. Sale. On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company agrees to sell to each Purchaser, and each Purchaser, acting severally and not jointly, agrees to purchase from the Company, the aggregate number of shares of Class A Senior Preferred Stock or Class B Senior Preferred Stock, as applicable, and the aggregate number of shares of Common Stock, in each case, set forth on Schedule A opposite the name of such Purchaser at a purchase price (the "Purchase Price") of $1,000 for each Unit consisting of one share of either Class A Senior Preferred Stock or Class B Senior Preferred Stock, as applicable, and 5.9691307 shares of Common Stock. 2.03. Closing. The purchase and sale of Securities pursuant to this Agreement shall occur at the offices of White & Case LLP, 1155 Avenue of the Americas, New York, New York 10005-1702, at 9:00 a.m., New York City time, on December 10, 1999, or such other time as shall be agreed upon by the Purchasers and the Company (such time and date of payment and delivery being herein called the "Closing Time"). At the Closing Time, the Company will deliver to each Purchaser certificates for the Securities to be purchased by such Purchaser at the Closing Time, in such denominations as such Purchaser may request (but with respect to the Senior Preferred Stock, in increments of $1,000), dated the Closing Time and registered in such Purchaser's name, against payment by such Purchaser to the Company by wire transfer of immediately available funds in the amount of the Purchase Price to be paid by such Purchaser therefor to such bank account or accounts as the Company may request in writing at least two Business Days prior to the Closing Time. 2.04. Allocation of Purchase Price. For all income tax purposes, the Company and the Purchasers agree that the Purchase Price for each Unit paid by each Purchaser shall be allocable as follows: $776.3367 to each share of Senior Preferred Stock and $37.47 to each share of Common Stock. SECTION 3 CONDITIONS TO CLOSING 3A. Conditions to Obligation of Each Purchaser to Close. Each Purchaser's several obligation to purchase and pay for the Securities to be purchased by it at the Closing Time is subject to the satisfaction or waiver by each Purchaser prior to or at the Closing Time of each of the conditions specified below in this Section 3A: 3.01A. Representations and Warranties. Each of the representations and warranties of the Company in this Agreement and in each of the other Transaction Documents shall be true and correct in all material respects when made and at and as of the Closing Time as if made on and as of the Closing Time (unless expressly stated to relate to a specific earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date and, in any such case, there shall not have occurred since such date and prior to the Closing Time any developments with respect to the subject matter of any such representation and warranty which would have a Material Adverse Effect as determined by the Purchasers in their reasonable judgment); provided, that any representations and warranties of the Company in this Agreement or any of the other Transaction Documents which are qualified as to "materiality" or "Material Adverse Effect" shall be true and correct in all respects. 3.02A. Performance; No Default Under Other Agreements. The Company shall have performed and complied in all material respects (or such performance or compliance shall have been waived) with all agreements and conditions contained in this Agreement and each of the other Transaction Documents required to be performed or complied with by it prior to or at the Closing Time (including, without limitation, obtaining the requisite consents and/or waivers from holders of Senior Subordinated Notes or repurchasing the Senior Subordinated Notes pursuant to a change of control offer in accordance with the indenture governing the Senior Subordinated Notes) and after giving effect to the issue and sale of the Securities and the other Transactions (and the application of the proceeds thereof as contemplated by the Transaction Documents), no Voting Rights Triggering Event shall have occurred and be continuing and no default or event of default shall have occurred and be continuing under any of the other Transaction Documents. 3.03A. Compliance Certificates. (a) Officer's Certificate. The Company shall have delivered to the Purchasers an Officer's Certificate, dated the Closing Time, in the form of Exhibit D hereto, certifying that the conditions specified in Sections 3.01A, 3.02A, 3.05A, 3.06A, 3.07A, 3.09A, 3.10A and 3.11A have been fulfilled (it being understood that the Company does not have to certify as to any matter set forth in any section to the extent that the determination thereof is to be made by the Purchasers). (b) Secretary's Certificate. The Company shall have delivered to the Purchasers a certificate substantially in the form of Exhibit E hereto certifying as to the Company's certificate of incorporation (including the Certificate of Designation), bylaws and resolutions attached thereto, the incumbency and signatures of certain officers of the Company, other corporate proceedings of the Company relating to the authorization, execution and delivery of the Securities, this Agreement, the Certificate of Designation, the Common Stock Registration Rights Agreement, the Preferred Stock Registration Rights Agreement and the other Transaction Documents to the extent the Company is a party thereto and as to the good standing of the Company in the State of Delaware and in each other jurisdiction in which the Company is qualified to transact business. 3.04A. Opinions of Counsel. Such Purchaser shall have received favorable opinions in form and substance satisfactory to it, dated the Closing Time, from (i) various counsel for the Company, which collectively shall be substantially in the form set forth in Exhibit F-1 and as to such other matters as such Purchaser may reasonably request, (ii) Cahill Gordon & Reindel, certain of the Purchasers' special counsel in connection with such transactions, substantially in the form set forth in Exhibit F-2, and (iii) each counsel delivering an opinion in connection with the Recapitalization, a copy of each such legal opinion, accompanied by a letter from each such counsel (or a statement included in such opinion) authorizing the Purchasers to rely on such opinion. 3.05A. Recapitalization. The transactions contemplated by the Recapitalization Documents shall have been consummated in accordance with the Recapitalization Documents. Any amendments or waivers with respect to the Recapitalization Documents shall be reasonably satisfactory to the Purchasers and their respective special counsel. The Company shall have (i) received at least $199.5 million as an equity contribution from the Equity Investor or its designees, (ii) received at least $17.0 million as an equity contribution from the Company's management and certain stockholders in the form of a rollover of existing equity interests, (iii) received at least $400.0 million of term loans and a revolving credit facility of $75.0 million (of which only $4.0 million may be drawn at the Closing Time) under the Credit Agreement and (iv) completed the consent solicitation with respect to, or refinanced, $100.0 million of the Company's Senior Subordinated Notes. After giving effect to the Recapitalization and the financing thereof, the Company shall have no more than $583.8 of outstanding Indebtedness and the Company's only outstanding Capital Stock will be (a) 5,956,712.25 million shares of Common Stock, including 4,843,239.78 shares issued to the Equity Investor and its designees and 596,913.07 shares issued to the Purchasers pursuant to this Agreement, (b) 480,321.3 shares of Non-Voting Common Stock, (c) 25,000 shares of Class A Senior Preferred Stock and 75,000 shares of Class B Senior Preferred Stock in the aggregate issued to the Purchasers, (d) 7,000 shares of Junior Preferred Stock and (e) options to purchase 440,425 shares of Common Stock issued to management of the Company. 3.06A. No Adverse Events. Since the Audit Date, there has been no material adverse change in the business, prospects, operations, results of operations, or financial condition of the Company and its Subsidiaries, taken as a whole. 3.07A. Financial Information. The Company shall have delivered to such Purchaser a pro forma consolidated balance sheet for the Company and its Subsidiaries as of the Closing Time after giving effect to the Transactions, including the issuance of the Senior Preferred Stock and the use of the proceeds from the issuance of the Securities, which has been certified by the Chief Financial Officer of the Company and which is in form and substance satisfactory to such Purchaser. 3.08A. Proceedings and Documents. All corporate and other proceedings in connection with the Transactions and the other transactions contemplated by this Agreement and the other Transaction Documents, and all documents and instruments incident to such transactions and the terms thereof, shall be reasonably satisfactory to such Purchaser and such Purchaser's special counsel, and such Purchaser and the Purchaser's special counsel shall have received all counterpart originals or certified or other copies of all the Transaction Documents and all documents and instruments incident to all corporate and other proceedings or transactions in connection with the Transactions as it or they may reasonably request. The Company shall have agreed in writing that all fees owing as of the Closing Time pursuant to this Agreement and the transactions contemplated hereby shall be paid in full to each Purchaser within two Business Days following the Closing Time.. 3.09A. Purchase Permitted by Applicable Law, etc. At the Closing Time, such Purchaser's purchase of the Securities shall (a) be permitted by the laws and regulations of each jurisdiction to which it is subject, (b) not violate any Applicable Law (including, without limitation, Regulation U, T or X of the Board of Governors of the Federal Reserve System) and (c) not subject such Purchaser to any tax, penalty or liability under or pursuant to any Applicable Law. 3.10A. Transaction Documents in Force and Effect; Information; Certificate of Designation. (a) Transaction Documents. The Company shall have delivered to such Purchaser true and correct copies of all Transaction Documents and (i) such documents (A) shall have been duly executed and delivered by the Company and its Subsidiaries party thereto, (B) shall be in form and substance reasonably satisfactory to such Purchaser and its special counsel and (C) shall be valid and legally binding obligations of the Company and its Subsidiaries a party thereto enforceable against each of them in accordance with their respective terms, subject to the Enforceability Exceptions, and (ii) there shall have been no material amendments, alterations, modifications or waivers of any provision thereof since the date of this Agreement. (b) Accuracy of Information. All information furnished by the Company and its representatives to such Purchaser on or prior to the Closing Time with respect to the business, management, prospects, operations, results of operations or condition (financial or otherwise) of the Company and its Subsidiaries, as the case may be, shall be accurate and complete in all material respects. (c) Filing of Amended and Restated Certificate of Incorporation and Certificate of Designation. Each of (i) the Amended and Restated Certificate of Incorporation and (ii) the Certificate of Designation shall have been duly and validly approved by all necessary corporate action, shall have been filed with the Secretary of State of Delaware and shall have become effective. 3.11A. No Violation; No Legal Constraints; Consents, Authorizations and Filings, etc. (a) The consummation by the Company and its Subsidiaries of the Transactions shall not contravene, violate or conflict with any Applicable Law. (b) All consents, authorizations and filings, if any, required in connection with the execution, delivery and performance by the Company and its Subsidiaries of the Transaction Documents to which they are party shall have been obtained or made and shall be in full force and effect, and such Purchaser shall have been furnished with appropriate evidence thereof, and all waiting periods shall have lapsed without extension or the imposition of any conditions or restrictions, except, in the case of the Common Stock Registration Rights Agreement, the Preferred Stock Registration Rights Agreement and the Stockholders Agreement, for such consents, authorizations and filings which are required under federal or state securities laws. (c) There shall be no inquiry, injunction, restraining order, action, suit or proceeding pending or entered or any statute or rule proposed, enacted or promulgated by any Governmental Authority or any other Person which, in the opinion of the Purchasers, (i) individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect or which seeks to enjoin or seek damages against the Company or any of the Company's Subsidiaries or any of the Purchasers as a result of the Transactions, including the issuance of the Senior Preferred Stock, (ii) relates to any of the Transactions and has or will have a material adverse effect on any Purchaser, (iii) alleges liability on the part of any Purchaser in connection with this Agreement, any other Transaction Document or the Transactions or any of the other transactions contemplated hereby or thereby or (iv) would bar the issuance of the Securities or the use of the proceeds thereof in accordance with the terms of this Agreement and the other Transaction Documents. 3.12A. Credit Agreement. Such Purchaser shall have been provided with true and correct copies of the executed Credit Agreement and any related documents, and such Credit Agreement shall contain terms and conditions satisfactory to such Purchaser in its sole judgment. The financial institutions party to the Credit Agreement shall have irrevocably committed to fund the Recapitalization simultaneously with the funding of such Purchaser's payment for the sale of the Securities. 3.13A. Fees and Expenses of the Recapitalization. The fees and expenses incurred in connection with the Recapitalization (including, without limitation, the related financings) shall not exceed $48.0 million in the aggregate. 3.14A. Solvency Certificate. Such Purchaser shall have received a certificate from the Company's Chief Financial Officer satisfactory to such Purchaser that shall certify that the Company and its Subsidiaries (other than Pay Tech, Inc.), immediately after giving effect to the Recapitalization, will be Solvent. 3.15A. Litigation. No litigation by any entity (private or governmental) shall be pending or threatened with respect to the Recapitalization which the Purchasers shall reasonably determine could have a Material Adverse Effect. 3.16A. Disbursement Instructions. Such Purchaser shall have received written instructions from the Company to such Purchaser directing the payment of any proceeds of the Securities that are to be paid at the Closing Time. 3.17A. Junior Preferred Stock. Such Purchaser shall have been provided with true and correct copies of the documents governing the Company's Junior Preferred Stock, which shall contain terms and conditions satisfactory to such Purchaser in its sole judgment. 3B. Conditions to Obligation of the Company to Close. The obligation of the Company to consummate the transactions to be performed by it at the Closing Time is subject to the following conditions: 3.01B. Representations and Warranties. Each of the representations and warranties of the Purchasers in this Agreement shall be true and correct in all material respects when made and at and as of the Closing Time as if made on and as of the Closing Time (unless expressly stated to relate to a specific earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date). 3.02B. Compliance with Covenants. The Purchasers shall have performed and complied with all of their covenants hereunder in all material respects through the Closing Time. 3.03B. Litigation. No litigation by any entity (private or governmental) shall be pending or threatened with respect to the Recapitalization or which could prevent consummation of any of the Transactions. 3.04B. Documentation. All actions to be taken by the Purchasers in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments and other documents required to effect the transactions contemplated hereby will be satisfactory in form and substance to the Company. SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to each of the Purchasers as of the date hereof and as of the Closing Time that: 4.01. Due Incorporation; Power and Authority. Each of the Company and the Company's Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, (b) is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification necessary, other than any failures to so qualify, to be so licensed or to be in good standing which, individually or in the aggregate, have not had and would not have a Material Adverse Effect, (c) has all requisite power and authority to own, lease and operate its properties and to carry on its businesses as they are currently conducted, and (d) has all requisite power and authority to enter into and perform its obligations under each of the Transaction Documents to which it is a party. 4.02. Capitalization. As of the Closing Time, after giving effect to the Transactions, the authorized Capital Stock of the Company consists solely of (a) 15.0 million shares of its Common Stock, of which 5,956,712.25 million are issued and outstanding, (b) 2.0 million shares of its Non-Voting Common Stock, of which 480,321.3 shares are issued and outstanding, (c) 250,000 shares of Preferred Stock, no par value, of which (i) 50,000 shares have been designated as the Class A Senior Preferred Stock, of which 25,000 shares are issued and outstanding, (ii) 150,000 shares have been designated as the Class B Senior Preferred Stock, of which 75,000 shares are issued and outstanding and (iii) 50,000 shares have been designated as the Junior Preferred Stock, of which 7,000 shares are issued and outstanding. No shares of any class of the Capital Stock of the Company are held by the Company in its treasury or by the Company's Subsidiaries. All the issued and outstanding shares of Common Stock (including all shares of Common Stock to be issued upon the exercise of warrants or options) have been duly authorized and are (or in the case of Common Stock issued upon exercise of warrants or options, will be) validly issued, fully paid and nonassessable and are (or in the case of Common Stock issued upon exercise of warrants or options, will be) free of preemptive rights. Except as set forth in the first sentence of this Section 4.02 or on Schedule 4.02, (i) there are no shares of Capital Stock of the Company authorized, issued or outstanding and (ii) there are not as of the date hereof, and at the Closing Time after giving effect to the Transactions there will not be, any outstanding or authorized options, warrants, rights (including preemptive rights), subscriptions, claims of any character, agreements, obligations, convertible or exchangeable securities, or other commitments, contingent or otherwise, relating to Common Stock or any other shares of Capital Stock of the Company, pursuant to which the Company is or may become obligated to issue shares of Common Stock, any other shares of its Capital Stock or any securities convertible into, exchangeable for, or evidencing the right to subscribe for, any shares of the Capital Stock of the Company. Except as set forth on Schedule 4.02, there are no voting trusts or other agreements or understandings to which the Company or any of its Subsidiaries is a party with respect to the holding, voting or disposing of Capital Stock of the Company or any of its Subsidiaries. Except as set forth on Schedule 4.02, neither the Company nor any of its Subsidiaries has any outstanding bonds, debentures, notes or other obligations or other securities that entitle the holders thereof to vote with the stockholders of the Company or any of its Subsidiaries on any matter or which are convertible into or exercisable for securities having such a right to vote. 4.03. Subsidiaries. Schedule 4.03 lists all of the Company's Subsidiaries. Except as set forth on Schedule 4.03, all of the outstanding shares of Capital Stock of each of the Company's Subsidiaries have been duly authorized and validly issued, are fully paid and nonassessable and are owned, of record and beneficially, by the Company, free and clear of all liens, encumbrances, options or claims whatsoever, except for liens, encumbrances and claims created pursuant to the Credit Agreement. Except as set forth on Schedule 4.03, no shares of Capital Stock of any of the Company's Subsidiaries are reserved for issuance and there are no outstanding or authorized options, warrants, rights, subscriptions, claims of any character, agreements, obligations, convertible or exchangeable securities, or other commitments, contingent or otherwise, relating to the Capital Stock of any Subsidiary, pursuant to which such Subsidiary is or may become obligated to issue any shares of Capital Stock of such Subsidiary or any securities convertible into, exchangeable for, or evidencing the right to subscribe for, any shares of such Subsidiary. Except as set forth on Schedule 4.03, the Company does not own, directly or indirectly, any Capital Stock in any Person or have any direct or indirect equity or ownership interest in any Person and neither the Company nor any of its Subsidiaries is subject to any obligation or requirement to provide funds for or to make any investment (in the form of a loan, capital contribution or otherwise) to or in any Person. 4.04. Due Authorization, Execution and Delivery. (a) Agreement. This Agreement has been duly authorized, executed and delivered by the Company and constitutes a valid and legally binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to the Enforceability Exceptions. (b) Senior Preferred Stock; Certificate of Designation. The shares of Senior Preferred Stock to be purchased by the Purchasers from the Company are governed by the terms of the Certificate of Designation, have been duly authorized for issuance and sale pursuant to this Agreement and, when issued and delivered by the Company at the Closing Time as provided herein, will have been duly and validly executed, issued and delivered by the Company, will be fully paid and nonassessable, will not be subject to capital calls, will not have been issued in violation of, and will not be subject to, any preemptive or similar rights, and will constitute valid and legally binding obligations of the Company, enforceable against it in accordance with their terms, subject to the Enforceability Exceptions. The Certificate of Designation has been duly authorized, executed and delivered by the Company and, when filed with the Secretary of State of the State of Delaware, will constitute a valid and legally binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to the Enforceability Exceptions. The certification of incorporation of the Company, by virtue of the Certificate of Designation, sets forth the rights, preferences and priorities of the Senior Preferred Stock. (c) Common Stock Registration Rights Agreement; Preferred Stock Registration Rights Agreement. Each of the Common Stock Registration Rights Agreement and the Preferred Stock Registration Rights Agreement has been duly authorized, executed and delivered by the Company and constitutes a valid and legally binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to the Enforceability Exceptions. (d) Common Stock. The Company has authorized the issuance and delivery of 596,913.07 shares of its Common Stock pursuant to this Agreement and such shares of Common Stock have been duly authorized for issuance and sale pursuant to this Agreement and, when issued and delivered by the Company at the Closing Time as provided herein, will have been duly and validly executed, issued and delivered by the Company, will be fully paid and nonassessable, will not be subject to capital calls, will not have been issued in violation of and will not be subject to any preemptive or similar rights, and at the Closing Time will constitute 8.67% of the shares of Common Stock and Non-Voting Common Stock of the Company (determined on a fully diluted basis as of the Closing Time, after giving effect to the Transactions and without giving effect to claims with respect to the Company's Common Stock described in item two (2) of Schedule 4.08 hereto), such shares having the rights, restrictions, privileges and preferences set forth in the Amended and Restated Certificate of Incorporation of the Company, and Holders of such shares of Common Stock and Non-Voting Common Stock will have the benefit of and be subject to the terms and conditions of the Stockholders Agreement. A detailed calculation of the fully diluted shares of Common Stock and Non-Voting Common Stock of the Company, after giving effect to the Transactions, is set forth on Schedule 4.04. (e) Stockholders Agreement. The Stockholders Agreement has been duly authorized, executed and delivered by the Company and constitutes a valid and legally binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to the Enforceability Exceptions. (f) Other Transaction Documents. Each Transaction Document (other than those referred to in paragraphs (a) through (e) of this Section 4.04) (i) has been duly authorized, executed and delivered by the Company, to the extent a party thereto, and (ii) constitutes a valid and legally binding obligation of the Company, to the extent a party thereto, enforceable against the Company in accordance with its terms, subject to the Enforceability Exceptions. 4.05. Noncontravention; Authorizations and Approvals. Assuming the filings required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, are made and the waiting period thereunder has been terminated or has expired (a) the execution and delivery by the Company or any of the Company's Subsidiaries of any of the Transaction Documents to which it is a party, (b) the performance by any of them of their respective obligations thereunder, (c) the consummation of the transactions contemplated thereby or (d) the issuance and delivery of the Securities hereunder will not: (i) violate any provision of the certificate of incorporation or by-laws of the Company or the comparable governing documents of any of its Subsidiaries; (ii) violate any statute, ordinance, rule, regulation, order or decree of any Governmental Authority applicable to the Company or any of its Subsidiaries or by which any of their respective properties or assets may be bound; (iii) require any filing with, or permit, consent or approval of, or the giving of any notice to, or obtaining any new or additional licenses from any Governmental Authority; and (iv) except as set forth on Schedule 4.05, result in a violation or breach of, conflict with, constitute (with or without due notice or lapse of time or both) a material default (or give rise to any right of termination, cancellation, payment or acceleration) under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company or any of its Subsidiaries under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, franchise, permit, agreement, lease, franchise agreement or other instrument or obligation to which the Company or any of its Subsidiaries is a party, or by which it or any of their respective properties or assets are bound or subject, except for, in the case of clauses (iii) and (iv) above, such as would not have a Material Adverse Effect, and would not prevent or materially delay consummation of the Transactions. No violation of any provision of the certificate of incorporation or by-laws of the Company or the comparable governing documents of any of its Subsidiaries exists as a result of the Reorganization. 4.06. Company Financial Statements. The Company has delivered to each Purchaser the following financial statements (collectively, the "Company Financial Statements"): (i) complete and correct copies of the consolidated balance sheets of the Company and its Subsidiaries as of December 31, 1998 and 1997 and the related consolidated statements of operations, stockholders' equity and cash flows for the years then ended, including the footnotes thereto, in each case audited by Deloitte & Touche LLP, (ii) complete and correct copies of the unaudited consolidated balance sheets of the Company and its Subsidiaries as of September 30, 1999 and September 30, 1998 and as of March 31, 1999 and June 30, 1999 and the related unaudited consolidated statements of operations, stockholders' equity and cash flows for such quarters, and, in the case of the quarters ending September 30, 1999 and September 30, 1998, each of the months in such quarters, respectively, then ended, (iii) complete and correct copies of the unaudited consolidated pro forma balance sheet of the Company and its Subsidiaries as of September 30, 1999, and the unaudited pro forma consolidated statements of operations for the nine months ended September 30, 1999 and (iv) complete and correct copies of unaudited consolidated monthly financial statements for each of the months from July through October 1999, in each case showing a comparison of such financial statements to the budget for the applicable month. Each of the consolidated balance sheets contained in the Company Financial Statements fairly presents in all material respects the consolidated financial position of the Company and its Subsidiaries as of its date and each of the consolidated statements of operations, stockholders' equity and cash flows included in the Company Financial Statements fairly presents in all material respects the consolidated results of operations and income, retained earnings and stockholders' equity or cash flows, as the case may be, of the Company and its Subsidiaries for the periods to which they relate (subject, in the case of any unaudited interim financial statements, to normal year-end adjustments that will not be material in amount or effect), in each case in accordance with GAAP. The pro forma financial statements of the Company and its Subsidiaries contained in the Company Financial Statements fairly present in all material respects the consolidated financial position of the Company and its Subsidiaries as of the date and for the periods to which they relate, in each case after giving effect to the Transactions, have been prepared in accordance with the Commission's rules and guidelines with respect to pro forma financial statements and have been properly compiled on the bases described therein, and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the Transactions. All projections provided by or on behalf of the Company to the Purchasers in connection with the Transactions have been prepared in good faith based on assumptions believed by management of the Company to be reasonable. 4.07. Absence of Undisclosed Liabilities or Events. (a) Except as set forth in Schedule 4.07(a), neither the Company nor any of its Subsidiaries has any material claims, liabilities or indebtedness, contingent or otherwise, required to be set forth on its consolidated balance sheet in accordance with GAAP, except as set forth in the consolidated balance sheet as of the Audit Date or as included in the Company Financial Statements and except for liabilities incurred subsequent to any such date in the ordinary course of business. (b) Except as set forth in Schedule 4.07(b), since the Audit Date there has been no Material Adverse Effect. (c) The information, reports, financial statements, exhibits and schedules furnished in writing by or on behalf of the Company to each of the Purchasers in connection with the negotiation, preparation or delivery of this Agreement and the other Transaction Documents or included herein or therein or delivered pursuant hereto or thereto, when taken as a whole do not contain any untrue statement of material fact or omit to state any material fact necessary to make the statements herein or therein not misleading. 4.08. No Actions or Proceedings. Except as set forth in Schedule 4.08, there is no action, suit, condemnation, expropriation or other proceeding at law or in equity, or any arbitration or any administrative or other proceeding by or before (or to the knowledge of the Company any investigation by) any Governmental Authority, pending, or, to the knowledge of the Company, threatened, against or affecting the Company or any of its Subsidiaries, or any of their properties or rights which, would: (i) have a Material Adverse Effect or (ii) is, or is seeking certification as, a class action. In addition, except as set forth on Schedule 4.08, neither the Company nor any of its Subsidiaries is subject to any consent decrees or judicial or administrative order under the Fair Debt Collection Practices Act or any state law equivalent relating to the ongoing conduct of the Company's business. 4.09. Title to Properties. Except as set forth in Schedule 4.09, each of the Company and its Subsidiaries has (a) good and valid title to and fee simple ownership of, or a good and valid leasehold interest in, all of its real property, and (b) good title to, or a good and valid leasehold interest in, all of its equipment and other personal property, in each case free and clear of all Liens, except for (1) Liens reflected on the Company's consolidated unaudited balance sheet as of September 30, 1999, and (2) Liens which do not materially detract from the value of, or materially impair the use of, any material property by the Company or any of its Subsidiaries in the operation of its respective business or which do not have a Material Adverse Effect. Each of the Company and its Subsidiaries have paid or discharged, or reserved for, all lawful claims which, if unpaid, might become a Lien against any property or assets of the Company or any of its Subsidiaries, except where the failure to do so would not have a Material Adverse Effect. 4.10. Intellectual Property Rights. Except as set forth in Schedule 4.10, each of the Company and its Subsidiaries owns or possesses all Intellectual Property reasonably necessary to conduct its businesses as now conducted, except where the expiration or loss of any of such Intellectual Property, individually or in the aggregate, would not have a Material Adverse Effect. To the best knowledge of the Company, (a) there is no infringement of, or conflict with, such Intellectual Property by any third party and (b) the conduct of its businesses as currently conducted do not infringe or conflict with any Intellectual Property of any third party, in each case other than any such infringements or conflicts which, individually or in the aggregate, have not had or would not have a Material Adverse Effect. 4.11. Taxes. (a) Tax Returns. The Company and each of its Subsidiaries has filed or caused to be filed or will file or cause to be filed with the appropriate taxing authorities on a timely basis all material returns and reports ("Returns") relating to Taxes that are required to be filed by, or with respect to, the Company and each of its Subsidiaries at or prior to the Closing Time (taking into account any extension of time to file granted to or on behalf of the Company or any of its Subsidiaries). All such Returns have been prepared in compliance with all applicable laws and regulations and are true and accurate in all material respects. As used herein, "Tax" or "Taxes" shall mean all taxes including, without limitation, all U.S. federal, state, local and foreign income, franchise, profits, capital gains, capital stock, sales, use, value added, occupation, property, excise, stamp, license, payroll, social security, withholding and all other taxes of any kind whatsoever, all estimated taxes, deficiency assessments, and additions to tax, penalties and interest in respect of the foregoing. (b) Payment of Taxes. All material Tax liabilities of the Company and its Subsidiaries due and payable with respect to all taxable years or other taxable periods (including portions thereof) ending on or prior to the Audit Date have been, or prior to the Closing Time will be, paid or adequately disclosed as a liability on the most recent Company Financial Statements. All material Tax liabilities of the Company and its Subsidiaries due and payable with respect to all taxable years or taxable periods (including portions thereof) which did not end prior to the day after the Audit Date and which end at or prior to the Closing Time have been, or prior to the Closing Time will be, paid. (c) Other Tax Matters. Schedule 4.11 sets forth (i) each taxable year or other taxable period of the Company and its Subsidiaries for which an audit or other examination of Taxes by any taxing authority is currently in progress or, to the knowledge of the Company, threatened against or with respect to the Company or any of its Subsidiaries that, if determined adversely to the Company or its Subsidiaries, would result in a material Tax liability of the Company or its Subsidiaries after the Closing Time, and (ii) the taxable years or other taxable periods of the Company and its Subsidiaries which, for income tax purposes, will not be subject to the normally applicable statute of limitations because of written waivers or agreements given by the Company or its Subsidiaries. (d) Except as set forth on Schedule 4.11: (i) subject to Section 5.03(j) of the Recapitalization Agreement, neither the Company nor any of its Subsidiaries has made any payments, nor is or may become obligated (under any contract or agreement entered into at or before the Closing Time) to make any payments, that will be non-deductible under Section 280G of the Code (or any analogous provisions of state, local or foreign Tax law), (ii) the Company and each of its Subsidiaries has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder or other third party other than such Taxes which in the aggregate, are not material, and all material Forms W-2 and 1099 required with respect thereto have been properly completed and timely filed; (iii) there are no liens for material Taxes (other than current Taxes not yet due and payable) upon the assets or properties of the Company or any of its Subsidiaries; (iv) the Company and its Subsidiaries are entitled to each Tax refund claimed or received by the Company or any Subsidiary at or prior to the Closing Time, except to the extent the disallowance of which would not result in any material Tax liability, or loss of a pending material Tax refund claim; (v) the Company and its Subsidiaries are not and will not become liable for any material Taxes as a result of the Reorganization nor will the Reorganization create any material gains or income, the taxation of which is deferred under Treasury Regulation ss. 1.1502-13 (or any similar provision of state, local or foreign law); (vi) neither the Company nor any of its Subsidiaries is a party to any Tax allocation, sharing, or similar agreement under which the Company or such Subsidiaries has any current or potential contractual obligation to indemnify any other Person with respect to Taxes; (vii) the Company and each of its Subsidiaries has properly accrued on its respective financial statements all material Tax liabilities (determined in accordance with GAAP) and the amount so accrued is at least equal to its respective liability for such Taxes; and (viii) neither the Company nor any of its Subsidiaries has any liability for material Taxes arising as a result of the Company or any of its Subsidiaries at any time being a member of an affiliated group (as defined in section 1504(a) of the Code and any analogous combined, consolidated or unitary group defined under state, local or foreign income Tax law) other than a group the common parent of which is the Company or any of its Subsidiaries. 4.12. Employee Benefit Plans. (a) Schedule 4.12 contains an accurate and complete list of (i) each "employee benefit plan" (as such term is defined in Section (3)(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) contributed to, maintained or sponsored by the Company or any of its Subsidiaries, or with respect to which the Company or any of its Subsidiaries has any liability or potential liability; and (ii) each other retirement, savings, thrift, deferred compensation, severance, stock ownership, stock purchase, stock option, performance, bonus, incentive, material fringe benefit, hospitalization or other medical, disability, life or other insurance, and any other welfare benefit policy, trust, understanding or arrangement contributed to, maintained or sponsored by the Company or any of its Subsidiaries for the benefit of any present or former employee, officer or director of the Company or any of its Subsidiaries, or with respect to which the Company or any of its Subsidiaries has any liability or potential liability. Each such item listed on Schedule 4.12 is referred to herein as a "Benefit Plan." (b) Schedule 4.12 also contains an accurate and complete list of each agreement or commitment of the Company or any Subsidiary of the Company or to which the Company or any of its Subsidiaries may have any liability, with or for the benefit of any current or former employee, officer or director of the Company or any of its Subsidiaries (including, without limitation, each employment, compensation or termination agreement or commitment but excluding employment agreements with annual payments of less than $100,000). Each such item listed on Schedule 4.12 is referred to herein as a "Compensation Commitment." (c) With respect to each Benefit Plan that is intended to be qualified within the meaning of Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code") (i) it has received a determination letter, or in the case of a standardized prototype plan, such prototype plan has received a favorable determination letter from the Internal Revenue Service (the "IRS"), or has been timely submitted for a determination letter from the IRS, that such Benefit Plan is qualified under Section 401(a) of the Code, and, to the knowledge of the Company and its Subsidiaries, nothing has occurred since the date of such determination letter or submission that could adversely affect the qualification of such Benefit Plan or the exemption from taxation of the related trust and (ii) no such Benefit Plan is a "defined benefit plan" (as defined in Section (3)(35) of ERISA) or a "multiemployer plan" (as defined in Section 4001 (a)(3) of ERISA). (d) Except as described on Schedule 4.12 (i) none of the Benefit Plans or Compensation Commitments obligates the Company or any of its Subsidiaries to pay any separation, severance, termination or similar benefit solely as a result of any transaction contemplated by the Recapitalization Agreement or solely as a result of a change in control or ownership within the meaning of Section 280G of the Code; and (ii) there is no contract, agreement, plan or arrangement covering any employee or former employee of the Company or any of its Subsidiaries that provides for payment, prior to or in connection with the Recapitalization, by the Company or any of its Subsidiaries that is not deductible under Section 162 or 404 of the Code, or that is an "excess parachute payment" pursuant to Section 280G of the Code. (e) (i) Each Benefit Plan and any related trust, insurance contract or fund has been maintained and administered in substantial compliance with its respective terms and in substantial compliance with all applicable laws and regulations, including, but not limited to, ERISA and the Code; (ii) there has been no application or waiver of the minimum funding standards imposed by Section 412 of the Code with respect to any Benefit Plan, and neither the Company nor any of its Subsidiaries is aware of any facts or circumstances that would materially change the funded status of any such Benefit Plan; (iii) neither the Company nor any of its Subsidiaries has incurred any liability under Title IV of ERISA or to the Pension Benefit Guaranty Corporation; (iv) there are no pending or, to the knowledge of the Company and its Subsidiaries, threatened, material actions, suits, investigations or claims with respect to any Benefit Plan or Compensation Commitment (other than routine claims for benefits), and neither the Company nor any of its Subsidiaries has knowledge of any facts which could give rise to (or reasonably be expected to give rise to) any such actions, suits, investigations or claims; (v) there have been no prohibited transactions as defined in Section 406 of ERISA or Section 4975 of the Code with respect to any Benefit Plan; and (vi) all contributions which are due with respect to each Benefit Plan have been timely made, and all contributions for periods ending on the date of the Closing Time which are not then due have been accrued in accordance with GAAP. (f) The Company and each of its Subsidiaries has complied in all material respects with the health care continuation requirements of Section 4980B of the Code and Part 6 of Subtitle B of Title I of ERISA ("COBRA"); and the Company and its Subsidiaries have no obligation under any Benefit Plan, Compensation Commitment or otherwise to provide health or other welfare benefits to or with respect to former employees of the Company or any of its Subsidiaries or any other person, except as specifically required by COBRA. (g) With respect to each Benefit Plan and Compensation Commitment, the Company has furnished or made available to the Purchasers true and complete copies, as applicable, of (a) the plan documents, summary plan descriptions and employee handbooks; (b) IRS Form 5500 Annual Report (including all attachments) for the most recent plan year; (c) all related trust agreements, insurance contracts or other funding arrangements; and (d) the most recent favorable determination letter issued by the IRS. 4.13. Private Offering; No Integration or General Solicitation. (a) Subject to compliance by the Purchasers with the representations and warranties set forth in Section 5 hereof and with the procedures set forth in Section 6 hereof, it is not necessary in connection with the offer, sale and delivery of the Securities to the Purchasers and to any Person to whom any Purchaser sells any of such Securities (each, a "Subsequent Purchaser") in the manner contemplated by this Agreement to register the Securities under the Securities Act. (b) The Company has not, directly or indirectly, offered, sold or solicited any offer to buy and will not, directly or indirectly, offer, sell or solicit any offer to buy, any security of a type or in a manner which would be integrated with the sale of the Securities and require the Securities to be registered under the Securities Act. None of the Company or its Affiliates or any Person acting on its behalf (other than the Purchasers, as to whom the Company makes no representation or warranty) has engaged or will engage in any form of general solicitation or general advertising (within the meaning of Rule 502(c) under the Securities Act) in connection with the offering of the Securities. With respect to the Securities, if any, sold in reliance upon the exemption afforded by Regulation S: (i) none of the Company or its Affiliates or any Person acting on its behalf (other than the Purchasers, as to whom the Company makes no representation or warranty) has engaged or will engage in any directed selling efforts within the meaning of Regulation S and (ii) each of the Company and its Affiliates and any Person acting on its behalf (other than the Purchasers, as to whom the Company makes no representation or warranty) has complied and will comply with the offering restrictions set forth in Regulation S. 4.14. Eligibility for Resale Under Rule 144A. The Securities are eligible for resale pursuant to Rule 144A and will not, at the Closing Time, be of the same class as securities listed on a national securities exchange registered under Section 6 of the Exchange Act or quoted on a U.S. automated interdealer quotation system. 4.15. [INTENTIONALLY OMITTED]. 4.16. Insurance. Each of the Company and its Subsidiaries are insured by financially sound institutions with policies in such amounts and with such deductibles and covering such risks as the Company deems adequate for its and its Subsidiaries' businesses. 4.17. Environmental Laws and Regulations. Except as set forth on Schedule 4.17, (a) Hazardous Materials have not been (i) generated, used, treated or stored on, or transported to or from, any Company Property or (ii) Released or disposed of on or from any Company Property, except, in the case of clauses (i) or (ii) in a manner which could not reasonably be expected to give rise to material liabilities under Environmental Law, (b) the Company and each of its Subsidiaries have complied and are in compliance in all material respects with applicable Environmental Laws and the requirements of any permits issued under such Environmental Laws, and (c) there are no past, pending or, to the Company's knowledge, threatened claims under Environmental Law against the Company or any of its Subsidiaries. For purposes of this Agreement, the following terms shall have the following meanings: (A) "Company Property" means any real property and improvements at any time owned, leased, or operated by the Company or any of its Affiliates, Subsidiaries or any of their respective predecessors; (B) "Hazardous Materials" means (i) any petroleum or petroleum products, radioactive materials or friable asbestos and (ii) any chemicals, materials or substances defined as "hazardous substances," under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. ss. 9601 et seq. ("CERCLA") and (iii) all other materials or substances the Release of which is prohibited or regulated or as to which liability may be imposed under Environmental Laws; (C) "Environmental Law" means any federal, state or local statute, law, rule, regulation, ordinance or code, contractual obligation or common law or other legal requirement, in each case in effect and as amended as of the date hereof and the Closing Time, relating to the environment or Hazardous Materials, including, without limitation, CERCLA, the Resource Conservation and Recovery Act, as amended, 42 U.S.C. ss. 6901 et seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.C. ss. 1251 et seq.; the Toxic Substances Control Act, 15 U.S.C. ss. 2601 et seq.; the Clean Air Act, 42 U.S.C. ss. 7401 et seq.; and the Safe Drinking Water Act, 42 U.S.C. ss. 33808 et seq.; and (D) "Release" means disposing, discharging, injecting, spilling, leaking, leaching, dumping, emitting, escaping, emptying, seeping, placing and the like, into or upon any land or water or air, or otherwise entering into the environment. 4.18. Solvency. The Company and its Subsidiaries (other than Pay Tech, Inc.) are, and after giving effect to the Transactions will be, Solvent. 4.19. Affiliate Transactions. Except as disclosed on Schedule 4.19, there are no understandings, agreements or arrangements with any stockholder of the Company or its Affiliates which would be required to be disclosed pursuant to Item 404 of Regulation S-K promulgated under the Exchange Act if an annual report on Form 10K were made on the date hereof. 4.20. Material Contracts. Except as set forth on Schedule 4.20, neither the Company nor any Subsidiary has or is bound by (a) any agreement, contract or commitment relating to the employment of any Person by the Company or any Subsidiary which cannot be terminated by the Company or the Subsidiary upon notice of 60 days or less without penalty or premium and involves annual compensation in excess of $100,000 annually, (b) any agreement, contract or commitment materially limiting the freedom of the Company or any Subsidiary to engage in any line of business or to compete with any other Person or (c) any agreement, contract or commitment not entered into in the ordinary course of business which materially affects the business of the Company and the Subsidiaries taken as a whole and is not cancelable without penalty within 90 days. There is no material default under any contract listed on Schedule 4.20 as a result of the Reorganization. 4.21. Brokerage Fees. Except as disclosed on Schedule 4.21, no agent, broker, Person or firm acting on behalf of the Company is, or will be, entitled to any fee, commission or broker's or finder's fees from any of the parties hereto, or from any Person controlling, controlled by, or under common control with any of the parties hereto, in connection with this Agreement or any of the Transactions. 4.22. Employment Relations and Agreements. Except as disclosed on Schedule 4.22, (i) each of the Company and its Subsidiaries is in compliance in all material respects with all federal, state or other applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours, and has not and is not engaged in any unfair labor practice; (ii) no representation question exists respecting the employees of the Company or any of its Subsidiaries; (iii) no collective bargaining agreement is currently being negotiated by the Company or any of its Subsidiaries and neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement; and (iv) neither the Company nor any of its Subsidiaries has experienced any labor difficulty during the last year except (in the case of this clause (iv)) as would not have a Material Adverse Effect. Except as disclosed on Schedule 4.22, there exist no employment, consulting, severance, indemnification agreements or deferred compensation agreements between the Company and any director, officer or employee of the Company or any agreement that would give any Person the right to receive any payment from the Company as a result of the Transactions. 4.23. [INTENTIONALLY OMITTED]. 4.24. Compliance with Laws; Licenses. (i) Except as set forth on Schedule 4.24, the Company and its Subsidiaries are in compliance with all applicable laws and regulations and all orders, judgments and decrees (including, but not limited to, the Fair Debt Collection Practices Act and any state or local counterpart or equivalent) relating to its business and operations (other than with respect to taxes, Environmental Laws, employee benefits, employee relations and federal securities laws which are the subject of specific representations contained in this Agreement) except where the failure to so comply would not have a Material Adverse Effect or would prevent or materially delay consummation of the Transactions. (ii) The Company and each of its Subsidiaries possess all licenses, certificates of authority, certificates of need, permits or other authorizations and regulatory approvals required by law (a "License") necessary for the ownership of its properties and the conduct of its business as presently conducted in each jurisdiction in which the Company and such Subsidiary is required to possess a License, except where the failure to possess such a License would not have a Material Adverse Effect. All such Licenses are in full force and effect and neither the Company nor any Subsidiary has received any written notice of any event, inquiry, investigation or proceeding threatening the validity of such Licenses, except where the failure of such Licenses to be in full force and effect or such event, inquiry, investigation or proceeding would not have a Material Adverse Effect. SECTION 5 REPRESENTATIONS OF THE PURCHASERS Each Purchaser severally and not jointly represents and warrants to the Company as of the date hereof and as of the Closing Time as follows: 5.01. Purchase for Investment. (a) Such Purchaser is acquiring the Securities for its own account, for investment and not with a view to or for offer or sale in connection with any distribution thereof (within the meaning of the Securities Act) that would be in violation of the securities laws of the United States or any state thereof. (b) Such Purchaser understands that (i) the Securities have not been registered under the Securities Act and are being issued by the Company in transactions exempt from the registration requirements of the Securities Act and (ii) the Securities may not be offered or sold except pursuant to an effective registration statement under the Securities Act or pursuant to an applicable exemption from registration under the Securities Act. (c) Such Purchaser further understands that the exemption from registration afforded by Rule 144 (the provisions of which are known to such Purchaser) promulgated under the Securities Act depends on the satisfaction of various conditions, and that, if applicable, Rule 144 may afford the basis for sales only in limited amounts. (d) Such Purchaser did not, and is not obligated to, pay any broker or finder in connection with the transactions contemplated in this Agreement. (e) Such Purchaser is an Accredited Investor. 5.02. Organization of the Purchasers. Such Purchaser is a corporation, limited partnership or limited liability company, duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. 5.03. Authorization of Transaction. Such Purchaser has full power and authority (including full corporate, partnership or limited liability company power and authority) to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of such Purchaser, enforceable in accordance with its terms and conditions, subject to the Enforceability Exceptions. Such Purchaser need not give any notice to, make any filing with, or obtain any authorization, consent or approval of any Governmental Authority in order to consummate the transactions contemplated by this Agreement. 5.04. Noncontravention. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge or other restriction of any Governmental Authority to which such Purchaser is subject or any provisions of its charter or by-laws or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which such Purchaser is a party or by which it is bound or to which any of its assets is subject; provided, that notwithstanding anything to the contrary contained herein, such Purchaser is making no representations or warranties as to compliance with applicable securities laws. 5.05. Brokers' Fees. Such Purchaser has no liability or obligation to pay any fees or commissions to any broker, finder or agent (other than to the Equity Investor) with respect to the transactions contemplated by this Agreement for which the Company could become liable or obligated. SECTION 6 PROVISIONS RELATING TO RESALES OF Securities 6.01. Private Offerings. The Company and the Purchasers agree that the following provisions will apply to any Private Offerings: (a) Offers and Sales of Senior Preferred Stock Only to Institutional Accredited Investors or Qualified Institutional Buyers. Offers and sales of the Securities will be made only by the Holders or Affiliates thereof qualified to do so in the jurisdictions in which such offers or sales are made. Prior to the effectiveness of a registration statement with respect to the Senior Preferred Stock, each offer or sale of Senior Preferred Stock shall only be made (i) to persons whom the offeror or seller reasonably believes to be Qualified Institutional Buyers, (ii) to other institutional accredited investors referred to in Rule 501(a)(1), (2), (3) or (7) of Regulation D that the offeror or seller reasonably believes to be and, with respect to sales and deliveries, that are Accredited Investors ("Institutional Accredited Investors") or (iii) non-U.S. persons that are financial institutions, investment advisors or affiliates of the foregoing or would otherwise be substantially equivalent to an Institutional Accredited Investor outside the United States to whom the offeror or seller reasonably believes offers and sales of the Senior Preferred Stock may be made in reliance upon Regulation S under the Securities Act; provided that (A) this will not prohibit offers and sales of shares of Senior Preferred Stock pursuant to Rule 144 (or any successor provision) to any Person or of any Securities pursuant to a registration statement filed with the Commission under the Securities Act, (B) no Holder shall offer or sell any of the Securities to any Competitor of the Company; provided, that each Purchaser shall be permitted to offer, sell or otherwise transfer any of the Securities to any of its Affiliates and (C) each Purchaser shall give the Company at least 5 days prior notice of any proposed offer or sale of Securities to any Person that is not (x) a Purchaser or one of its Affiliates or (y) a nationally recognized investment banking firm (it being acknowledged that such firm, as an assignee, shall be bound by the terms of this Agreement, including this Section 6.01). (b) No General Solicitation. The Securities will be offered by approaching prospective Subsequent Purchasers on an individual basis. No general solicitation or general advertising (within the meaning of Rule 502(c) under the Securities Act) will be used in the United States and no directed selling efforts (as defined in Regulation S) will be made outside the United States in connection with the offering of the Securities. (c) Purchases by Non-Bank Fiduciaries. In the case of a non-bank Subsequent Purchaser of any Senior Preferred Stock acting as a fiduciary for one or more third parties, in connection with an offer and sale to such purchaser by any Holder pursuant to this Section 6.01, each third party shall, in the judgment of the applicable Holder, be an Institutional Accredited Investor or a Qualified Institutional Buyer or a non-U.S. person outside the United States. (d) Restrictions on Transfer; Legend. Upon original issuance by the Company, and until such time as the same is no longer required under the applicable requirements of the Securities Act, the Securities (and all securities issued in exchange therefor or in substitution thereof) shall bear such legend as is required under Section 6.08 of this Agreement. The restrictions on transfer set forth herein are in addition to any other restrictions on transfer set forth in the Transaction Documents. (e) No Future Liability. Following the sale of the Securities by any Purchaser to Subsequent Purchasers in accordance with the terms of this Section 6, such Purchaser shall not be liable or responsible to the Company for any losses, damages or liabilities suffered or incurred by the Company, including any losses, damages or liabilities under the Securities Act, arising from or relating to any resale or transfer of any Security by such Subsequent Purchaser. (f) Securities Act Restrictions. (i) A Holder selling Securities in a Private Offering to a transferee that is an Accredited Investor or a Qualified Institutional Buyer must satisfy each of the following conditions: (1) such transferee must make all of the representations and warranties set forth in Section 5; and (2) such transferee must agree to be bound by the provisions of this Section 6.01 with respect to any resale of the Securities. (ii) A Holder may sell its Securities to a transferee in accordance with Regulation S under the Securities Act; provided, however, that each of the following conditions is satisfied: (1) the offer of Securities must not be made to a person in the United States; (2) either: (A) at the time the buy order is originated, the transferee is outside the United States or the Holder and any person acting on its behalf reasonably believes that the transferee is outside the United States, or (B) the transaction must be executed in, on or through the facilities of a designated offshore securities market and neither the Holder nor any person acting on its behalf knows that the transaction was pre-arranged with a buyer in the United States; (3) no directed selling efforts may be made in contravention of the requirements of Rule 903(b) or 904(b) of Regulation S under the Securities Act, as applicable; and (4) the transaction must not be part of a plan or scheme to evade the registration requirements of the Securities Act. (iii) In the event of a proposed sale that does not qualify under either subclause (i) or (ii) above, a Holder may sell its Securities only if: (1) such Holder gives written notice to the Company of its intention to effect such sale, which notice (A) shall describe the manner and circumstances of the proposed transaction in reasonable detail and (B) shall designate the counsel for such Holder, which counsel shall be reasonably satisfactory to the Company; (2) counsel for the Holder renders an opinion to the effect that such proposed sale may be effected without registration under the Securities Act or state Blue Sky laws; and (3) such Holder or transferee complies with subclause (i)(1) and (2) above. 6.02. Resale Offering Assistance. (a) At any time following 12 months after the Closing Time (provided that the Company is not then subject to, and in compliance with, the reporting requirements of Section 13 or 15(d) of the Exchange Act) (the "Assistance Period"), the Company will, if reasonably requested by the Required Holders, use commercially reasonable efforts to assist the Holders of Securities in completing any private or public resale of any portion thereof (including any such resales of the Senior Preferred Stock pursuant to any Private Offering) in accordance with the Holders' intended method of distribution. Such assistance may, in each case, include the following: (i) reasonable direct contact between the Company's senior management and advisors and prospective purchasers at mutually agreeable times and hosting of one or more meetings of prospective purchasers; (ii) responding to reasonable inquiries of, and providing answers to, each prospective purchaser who so requests concerning the Company and its Subsidiaries (to the extent such information is available or can be acquired and made available to prospective purchasers without unreasonable effort or expense and to the extent the provision thereof is not prohibited by Applicable Law or applicable confidentiality restrictions) and the terms and conditions of the applicable distribution; (iii) if requested by the Required Holders, using commercially reasonable efforts to make available information and materials to be used in connection with the distribution (including assistance in completion of any sales or placement agent's, if any, or in the case of an underwritten offering, the lead managers' and co-managers' reasonable due diligence review of the Company and its Subsidiaries); and (iv) using commercially reasonable efforts to promptly prepare and provide to the Holders (or any sales or placement agent therefor and any underwriter thereof) all information with respect to the Company, including projections, as such Holders (or any sales or placement agent therefor and any underwriter thereof) may reasonably request. Any such projections that will so be made available to such Holders (or each placement or sales agent, if any, therefor and each underwriter, if any, thereof) by the Company or any of its representatives will be prepared in good faith based upon reasonable assumptions. (b) During the Assistance Period, the Company will allow the Required Holders (or any sales or placement agent therefor or, in the case of an underwritten offering, the lead manager and co-managers thereof, in each case, as may be selected by the Purchasers and is reasonably acceptable to the Company), in consultation with the Company, to manage all aspects of the distribution, including decisions as to the selection of institutions to be approached and when and how they will be approached. (c) During the Assistance Period, all materials supplied or available under this Section 6.02 or under Section 4.06 by the Company (including any materials referred to or incorporated by reference therein, "Resale Materials") will not, to the knowledge of the Company, as of its date and as of the closing of such Private Offering, when taken as a whole, include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. During the Assistance Period, all information about a Holder supplied in writing to the Company by such Holder expressly for use in any Resale Materials will not, to the knowledge of such Holder, as of its date and as of the closing of such Private Offering, when taken as a whole, include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (d) If, prior to the completion of any sale of the Securities by the selling Holders (as evidenced by a notice in writing from the Holders to the Company), any event shall occur or condition exist as a result of which the Resale Materials would contain a misstatement of a material fact or an omission of a material fact required to make the statements therein, in the light of the circumstances, not misleading, then the Company agrees to promptly prepare and furnish at its own expense to the selling Holders, further information so that the statements in the Resale Materials, taken as a whole, will not contain a misstatement of a material fact or an omission of a material fact required to make the statements therein, in the light of the circumstances, not misleading. The Company hereby expressly acknowledges that the indemnification and contribution provisions of Sections 9.02 and 9.03 hereof are specifically applicable and relate to Resale Materials. (e) In addition (and not in limitation of the foregoing), for the benefit of Holders and beneficial owners from time to time of Securities, the Company shall, upon the request of any such Holder, use commercially reasonable efforts to furnish, at its expense, to Holders and beneficial owners of Securities and prospective purchasers thereof information ("Additional Company Information") satisfying the requirements of subsection (d)(4) of Rule 144A. 6.03. Blue Sky Compliance. In connection with any Private Offering of the Securities, the Company shall cooperate with the selling Holders and counsel for the selling Holders to obtain exemptions from the application of, or if necessary because of any change in the Applicable Law to qualify or register the Senior Preferred Stock, and the shares of Common Stock of any Holder, if applicable, for sale under, the Blue Sky or state securities laws of those jurisdictions designated by the selling Holders with respect to the relevant Securities, shall comply with such laws and shall continue such exemptions, qualifications and registrations in effect so long as required for the distribution of the Senior Preferred Stock and shares of Common Stock, if applicable. The Company shall not be required to qualify as a foreign corporation or to take any action that would subject it to general service of process in any such jurisdiction where they are not then qualified or to taxation as a foreign corporation. The Company will advise the selling Holders promptly of the suspension of any exemption relating to or the qualification or registration of the Senior Preferred Stock or the Common Stock, if applicable, for offering, sale or trading in any jurisdiction or any initiation or threat of any proceeding for any such purpose, and in the event of the issuance of any order suspending such exemption, qualification or registration, the Company shall, with the cooperation of the selling Holders, use its best efforts to obtain the withdrawal thereof at the earliest possible moment. 6.04. Common Stock Registration Rights Agreement; Preferred Stock Registration Rights Agreement. The Company shall comply with all provisions and obligations of each of the Common Stock Registration Rights Agreement and the Preferred Stock Registration Rights Agreement and shall comply with all applicable federal and state securities laws in connection therewith. 6.05. No Integration. The Company agrees that it shall not and (to the extent within its control) it shall cause its respective Affiliates not to make any offer or sale of securities of any class of the Company if, as a result of the doctrine of "integration" referred to in Rule 502 under the Securities Act, such offer or sale would render invalid (for the purpose of (a) the sale of the Securities by the Company to the Purchasers, (b) the resale of Securities by the Purchasers to Subsequent Purchasers or (c) the resale of Securities by such Subsequent Purchasers to others) any applicable exemption from the registration requirements of the Securities Act provided by Section 4(2) thereof or by Rule 144A or Regulation S thereunder or otherwise. 6.06. DTC Agreement and PORTAL. The Company will, promptly following the request of and with the cooperation of the Required Holders, use its best efforts to cause the Senior Preferred Stock to be registered in book-entry form in the name of Cede & Co., as nominee of The Depository Trust Company (the "Depositary"), pursuant to an agreement among the Company and the Depositary in the form then required by the Depositary. The Company will cooperate with the Holders and use its best efforts to permit the Senior Preferred Stock and the shares of Common Stock of Holders to be eligible for clearance and settlement through the facilities of the Depositary. In connection therewith, the Company shall obtain a CUSIP number for the Senior Preferred Stock. The Company will, promptly following the request of and with the cooperation of the Required Holders, use its best efforts to cause the Securities (if eligible) to be eligible for the National Association of Securities Dealers, Inc. PORTAL Market (the "PORTAL Market"). 6.07. [INTENTIONALLY OMITTED]. 6.08. Form of Legend for the Securities. Unless otherwise permitted by Section 6.01(f), every share of Senior Preferred Stock issued and delivered hereunder shall bear a legend in substantially the following form: THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR QUALIFIED UNDER ANY STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE A REGISTRATION STATEMENT IS IN EFFECT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. THE HOLDER OF THIS SECURITY IS SUBJECT TO THE TERMS OF THE PURCHASE AGREEMENT, DATED AS OF DECEMBER 10, 1999 (THE "PURCHASE AGREEMENT"), AMONG OUTSOURCING SOLUTIONS INC. (THE "COMPANY") AND THE PURCHASERS NAMED THEREIN. A COPY OF SUCH PURCHASE AGREEMENT IS AVAILABLE AT THE OFFICES OF THE COMPANY. Unless otherwise permitted by Section 6.01(f), each share of Common Stock issued and delivered hereunder shall bear a legend in substantially the following form: THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR QUALIFIED UNDER ANY STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE A REGISTRATION STATEMENT IS IN EFFECT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. THE HOLDER OF THIS SECURITY IS SUBJECT TO THE TERMS OF THE PURCHASE AGREEMENT AND THE REGISTRATION RIGHTS AND STOCKHOLDERS AGREEMENT, EACH DATED AS OF DECEMBER 10, 1999, AMONG OUTSOURCING SOLUTIONS INC. (THE "COMPANY") AND THE PARTIES NAMED THEREIN. COPIES OF SUCH AGREEMENTS ARE AVAILABLE AT THE OFFICES OF THE COMPANY. SECTION 7 THE senior preferred stock 7.01. Execution. The shares of Senior Preferred Stock shall be executed on behalf of the Company by its President or one of its Vice Presidents, under its corporate seal reproduced thereon attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the shares of Senior Preferred Stock may be manual or facsimile. Shares of Senior Preferred Stock bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such shares or did not hold such offices at the date of such shares. 7.02. Terms of the Senior Preferred Stock. The terms of the Senior Preferred Stock shall be as set forth in the Certificate of Designation. 7.03. Payments and Computations. All payments of dividends on the Senior Preferred Stock shall be paid to the Holders thereof at the close of business on the Dividend Record Date and all redemption payments on the shares of Senior Preferred Stock shall be paid to the Holders thereof as of the applicable Redemption Date or at the Stated Maturity, as applicable. Redemption payments on any share of Senior Preferred Stock shall be payable only against surrender therefor, while payments of dividends on shares of Senior Preferred Stock shall be made, in accordance with the Certificate of Designation and subject to applicable laws and regulations, by check mailed on or before the due date for such payment to the person entitled thereto at such person's address appearing on the Security Register or, by wire transfer to such account as any Holder thereof shall designate by written instructions received by the Company no less than 15 days prior to any applicable Dividend Payment Date, which wire instruction shall continue in effect until such time as the Holder otherwise notifies the Company or such Holder no longer is the registered owner of such share or shares of Senior Preferred Stock. 7.04. Registration; Registration of Transfer and Exchange. (a) Security Register. The Company shall maintain a register (the "Security Register") for the registration or transfer of the shares of Senior Preferred Stock. The name and address of the Holder of each such share, records of any transfers of the shares and the name and address of any transferee of a share of Senior Preferred Stock shall be entered in the Security Register and the Company shall, promptly upon receipt thereof, update the Security Register to reflect all information received from a Holder. There shall be no more than one Holder for each share of Senior Preferred Stock, including all beneficial interests therein. (b) Registration of Transfer. Upon surrender for registration of transfer of any share of Senior Preferred Stock at the office or agency of the Company, the Company shall execute and deliver, in the name of the designated transferee or transferees, one or more new shares of Senior Preferred Stock, of any authorized denominations and like aggregate number of shares. (c) Exchange. At the option of the Holder of Senior Preferred Stock, shares of Senior Preferred Stock may be exchanged for other shares of Senior Preferred Stock, of any authorized denominations and of like aggregate number of shares, upon surrender of the shares of Senior Preferred Stock to be exchanged at such office or agency. Whenever any shares of Senior Preferred Stock are so surrendered for exchange, the Company shall execute and deliver the shares of Senior Preferred Stock which the Holder making the exchange is entitled to receive. (d) Effect of Registration of Transfer or Exchange. All shares of Senior Preferred Stock issued upon any registration of transfer or exchange of shares of Senior Preferred Stock shall be the valid obligations of the Company, evidencing the same obligation, and entitled to the same benefits under this Agreement and the Certificate of Designation, as the shares of Senior Preferred Stock surrendered upon such registration of transfer or exchange. (e) Requirements; Charges. Every share of Senior Preferred Stock presented or surrendered for registration of transfer or for exchange shall (if so required by the Company) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company duly executed, by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of shares of Senior Preferred Stock, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of shares of Senior Preferred Stock. (f) Certain Limitations. If the shares of Senior Preferred Stock are to be redeemed in part, the Company shall not be required (i) to issue, register the transfer of or exchange any share of Senior Preferred Stock during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of any such shares selected for redemption under Section 8.02 and ending at the close of business on the day of such mailing, or (ii) to register the transfer of or exchange any shares so selected for redemption in whole or in part, except the unredeemed portion of any shares being redeemed in part. 7.05. Mutilated, Destroyed, Lost and Stolen Shares. If any mutilated share or shares of Senior Preferred Stock is surrendered to the Company, the Company shall execute and deliver in exchange therefor a new share or shares of Senior Preferred Stock of the same aggregate number of shares and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company (a) evidence to its satisfaction of the destruction, loss or theft of any share of Senior Preferred Stock and (b) such security or indemnity as may be required by it to save each of it and any agent harmless, then, in the absence of notice that such share has been acquired by a bona fide purchaser, the Company shall execute and deliver, in lieu of any such destroyed, lost or stolen share of Senior Preferred Stock, a new share of Senior Preferred Stock bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen share of Senior Preferred Stock has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new share of Senior Preferred Stock, redeem such share of Senior Preferred Stock in accordance with the terms hereof and of the Certificate of Designation. Upon the issuance of any new share of Senior Preferred Stock under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses connected therewith. Every new share of Senior Preferred Stock issued pursuant to this Section in lieu of any destroyed, lost or stolen share of Senior Preferred Stock shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen share shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Agreement and the Certificate of Designation equally and proportionately with any and all other shares duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen shares. 7.06. Persons Deemed Owners. Prior to due presentment of a share of Senior Preferred Stock for registration of transfer, the Company and any agent of the Company may treat the Person in whose name such share is registered as the owner of such share for the purpose of receiving payment of dividends on, or redemption of, such share and for all other purposes whatsoever, whether or not such payment with respect to such share be overdue, and neither the Company nor any agent of the Company shall be affected by notice to the contrary. 7.07. Cancellation. All shares of Senior Preferred Stock surrendered for redemption, registration of transfer or exchange shall, if surrendered to any Person other than the Company, be delivered to the Company and shall be promptly canceled by it. The Company shall cancel any share of Senior Preferred Stock previously issued and delivered hereunder which the Company may have reacquired. 7.08. Home Office Payment. So long as any Purchaser or its nominee shall be the Holder of any share of Senior Preferred Stock, and notwithstanding anything contained in this Agreement or the Certificate of Designation to the contrary, the Company will pay all sums becoming due on such share by such method (which may be by check if the amount of such check is less than $100,000, or by wire transfer of immediately available funds) and at such address as such Purchaser shall have from time to time specified to the Company in writing for such purpose, without the presentation or surrender of such share or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment or prepayment in full of any share, such Purchaser shall surrender such share for cancellation reasonably promptly after any such request, to the Company at its principal executive office. Prior to any sale or other disposition of any share held by such Purchaser or its nominee such Purchaser will, at its election, either endorse thereon the amount paid thereon and the last date to which dividends have been paid thereon or surrender such share to the Company in exchange for a new share or shares pursuant to Section 7.04. The Company will afford the benefits of this Section 7.08 to any direct or indirect transferee of any share purchased by such Purchaser under this Agreement and that has made the same agreement relating to such share as such Purchaser made in this Section 7.08. 7.09. Separability. The Senior Preferred Stock and the shares of Common Stock comprising the Units shall be separable at any time at the option of the Purchasers. 7.10. Board Observation. So long as any shares of Senior Preferred Stock are outstanding, the Required Holders shall have the right to appoint one Board Observer (the "Board Observer") and such Board Observer shall be appointed on each anniversary of the Closing Time; provided that the first Board Observer may be appointed by DB Capital Investors, L.P. and First Union Investors, Inc. at any time prior to the first meeting of the Board of Directors after the Closing Time. The Company will give to the Board Observer notice of all regular meetings and all special meetings of the Company's Board of Directors at the time notice is given to the directors, will permit the Board Observer to attend such meetings as an observer and will provide the Board Observer and each Purchaser with all information provided to directors of the Company at the time such information is provided to the directors; provided, however, that such observation rights pursuant to this Section 7.10 shall be temporarily suspended if, in the opinion of counsel of the Company, the Board Observer's attendance at such meeting could violate any member of the Board of Directors' fiduciary duty, any confidentiality obligation or any attorney-client privilege that may exist in connection with such meeting. The Company shall reimburse the Board Observer for its reasonable travel incurred in connection with its board observation rights pursuant to this Section 7.10. 7.11. Reports, Books, Records and Access. (a) (i) As soon as available, but in any event within thirty (30) days after the end of each fiscal month (or with respect to any fiscal month that is the last month in a fiscal quarter, sixty (60) days after the end of such fiscal month) of the Company, the Company shall deliver to each Purchaser the unaudited consolidated balance sheet of the Company and its Subsidiaries as of the end of such month, the related consolidated statements of operations, income, cash flows, retained earnings and shareholders' equity for such month and for the elapsed portion of the fiscal year ended with the last day of such month, in each case setting forth comparative figures for the corresponding month in the prior fiscal year and for the corresponding month in the annual budget provided as required below, all of which shall be certified by the Chief Financial Officer or equivalent officer of the Company, subject to normal year-end audit adjustments. (ii) As soon as available and in any event not later than thirty (30) days after the first day of each fiscal year of the Company, the Company shall deliver to each Purchaser an annual consolidated budget and business plan (including consolidated budgeted statements of operations, income, cash flows, retained earnings and shareholders' equity and balance sheets for the Company and its Subsidiaries) prepared by the Company for each month of such fiscal year. (iii) Concurrently with the delivery of information packages to the Board of Directors, the Corporation shall deliver to each Significant Holder a duplicate and complete copy of such information package, including copies of all financial statements and other information provide therein; provided, however, that the provision of information packages pursuant to this Section 7.11(a)(iii) shall be temporarily suspended, upon notice to such Significant Holders, if in the opinion of counsel of the Company the provision of such information packages could violate any member of the Board of Directors' fiduciary duty, any confidentiality obligation or any attorney-client privilege that may exist in connection therewith. (b) If reasonably requested by any Holder, and upon reasonable notice, the Company shall, and shall cause its Subsidiaries to, subject to compliance with Applicable Laws and confidentiality obligations to third parties, (x) give each Holder that is not a Competitor of the Company or any of its Subsidiaries and their authorized representatives (including any sales or placement agent or underwriter participating in any resale of such shares) reasonable access during normal business hours to all contracts, books, records, personnel, offices and other facilities and properties of the Company and its Subsidiaries and access to their legal advisors, accountants and, to the extent available to the Company after the Company uses reasonable efforts to obtain them, access to the accountants' work papers; provided, that (A) the Company will not be required to allow such access to Holders more than two times in the aggregate, in any twelve month period and (B) any Holder that requests such access shall give each other Holder at least 10 days' prior written notice of such request so that any other Holder may obtain such access at the same time, (y) permit such Holder (and any such sales or placement agent or underwriter) to make such copies and inspections thereof as such Holder may reasonably request and (z) furnish such Holder (and any such sales or placement agent or underwriter) with such financial and operating data and other information with respect to the business and properties of the Company and its Subsidiaries as such Holder (and any such sales or placement agent or underwriter) may from time to time reasonably request. SECTION 8 REDEMPTION 8.01. Right of Redemption. The Senior Preferred Stock may be redeemed at the election of the Company and otherwise upon such conditions, at such times, in such amounts and at the applicable Redemption Price (together with any applicable accrued and unpaid dividends to the Redemption Date) specified in the Certificate of Designation. 8.02. Partial Redemptions. In case the Company is entitled to, and elects to, redeem less than all of the outstanding shares of Senior Preferred Stock, the Company shall redeem the Senior Preferred Stock pro rata from each Holder (or as nearly pro rata as practicable). For all purposes of this Agreement and the Certificate of Designation, unless the context otherwise requires, all provisions relating to the redemption of Senior Preferred Stock shall relate, in the case of any shares of Senior Preferred Stock redeemed or to be redeemed only in part, to the portion of such shares which has been or is to be redeemed. 8.03. Notice of Redemption. Notice of redemption shall be given as set forth in the Certificate of Designation. Notice of redemption of shares to be redeemed at the election of the Company shall be given by the Company and at the expense of the Company. 8.04. Deposit of Redemption Price. Prior to any Redemption Date, the Company shall segregate and hold in trust an amount of money sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be a Dividend Payment Date) any applicable accrued and unpaid dividends on, all the shares which are to be redeemed on that date. 8.05. Shares Payable on Redemption Date. If notice of redemption shall have been given as provided above, the shares of Senior Preferred Stock so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and any applicable accrued and unpaid dividends) such shares shall not accrue dividends. Upon surrender of any such share for redemption in accordance with said notice, such share shall be paid by the Company at the Redemption Price, together with any applicable accrued and unpaid dividends to the Redemption Date; provided, however, that dividends whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such shares, or one or more predecessor shares, registered as such at the close of business on the relevant Dividend Record Dates according to their terms and the provisions of this Agreement. If any share of Senior Preferred Stock called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, accrue dividends from the Redemption Date at the rate provided by the Certificate of Designation. 8.06. Shares Redeemed in Part. Any share which is to be redeemed only in part shall be surrendered at the principal offices of the Company (with, if the Company so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute and deliver to the Holder of such share without service charge, a new share or shares, of any authorized denomination as requested by such Holder, in an amount equal to and in exchange for the unredeemed portion of the share so surrendered. SECTION 9 EXPENSES, INDEMNIFICATION AND CONTRIBUTION AND TERMINATION 9.01. Expenses. Whether or not the transactions contemplated hereby are consummated, the Company will pay all reasonable costs and expenses (including reasonable and documented attorneys' and accountants' fees and disbursements) incurred by each Purchaser or any Holder of a Security in connection with the Transactions (including the preparation and negotiation of the Transaction Documents), in connection with any amendments, waivers or consents under or in respect of this Agreement, the other Transaction Documents or the Securities (whether or not such amendment, waiver or consent becomes effective, including, without limitation: (a) each Purchaser's reasonable and documented out-of-pocket expenses in connection with such Purchaser's examinations and appraisals of the properties, books and records of the Company and its Subsidiaries, (b) the reasonable costs and expenses incurred in enforcing, defending or declaring (or determining whether or how to enforce, defend or declare) any rights or remedies under this Agreement, the other Transaction Documents or the Securities or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement, the other Transaction Documents or the Securities, or by reason of being a Holder of any Securities, (c) the reasonable costs and expenses, including reasonable and documented consultants' and advisors' fees, incurred in connection with the insolvency or bankruptcy of the Company or any Subsidiary of the Company or in connection with any work-out or restructuring of the transactions contemplated hereby, by the other Transaction Documents or by the Securities and (d) any transfer, stamp, documentary or other similar taxes, assessments or charges levied by any Governmental Authority in respect of this Agreement or the Transaction Documents or any other document referred to herein or therein. The Company will pay, and will save the Purchasers and each other Holder of a Security harmless from, all claims in respect of any fees, costs or expenses, if any, of brokers and finders in relation to the Transactions. The Purchasers will deliver to the Company on or prior to the date that is two Business Days prior to the date of the Closing Time an invoice for those costs and expenses payable at the Closing Time in accordance herewith. Subject to the last sentence of Section 3.08A, the Company will pay any costs and expenses of the Purchasers contemplated in this Section 9.01 in connection with the Closing Time within five Business Days after the Closing Time. 9.02. Indemnification. (a) Indemnification by the Company. The Company agrees to indemnify and hold harmless (i) each Purchaser and each Person who participates as a placement or sales agent or as an underwriter in any Private Offering, (ii) each Person, if any, who controls (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) any such Person referred to in clause (i) (any of the Persons referred to in this clause (ii) being referred to herein as a "Controlling Person") and (iii) the respective officers, directors, managing directors, stockholders, partners, representatives, trustees, fiduciaries, and agents of any Person referred to in clause (i) or any such Controlling Person (any such Person referred to in clause (i), (ii) or (iii), a "Purchaser Indemnified Person") against any losses, claims, damages or liabilities, joint or several, to which such Purchaser Indemnified Person may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) subject to Section 10.11, in whole or in part any inaccuracy in any of the representations and warranties of the Company contained herein of which the Knowledge Group had knowledge, (ii) in whole or in part upon the failure of the Company to perform its obligations hereunder or (iii) any untrue statement or alleged untrue statement of a material fact contained in any Resale Materials, or arise out of or are based upon the omission or alleged omission to state therein a material fact necessary to make the statements therein not misleading, except insofar as the same are a result of any information furnished in writing to the Company by such Purchaser Indemnified Person expressly for use therein; and will reimburse each such Purchaser Indemnified Person for any legal and other expenses incurred by such Purchaser Indemnified Person in connection with investigating or defending any such action or claims as such expenses are incurred. The indemnity agreement set forth in this Section 9.02(a) shall be in addition to any liabilities that the Company may otherwise have. (b) Indemnification by the Purchasers. Each Purchaser agrees, severally and not jointly, to indemnify and hold harmless (i) the Company, (ii) each Controlling Person of the Company and (iii) the respective officers, directors, employees, representatives and agents of the Company or any such Controlling Person (any such Person referred to in clause (i), (ii) or (iii), a "Company Indemnified Person") against any losses, claims, damages or liabilities, joint or several, to which such Company Indemnified Person may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) in whole or in part any inaccuracy of any of such Purchaser's representations and warranties in Section 5 or (ii) in whole or in part the failure of such Purchaser to perform its obligations in Section 6.01(f) or 6.08; and will reimburse the Company Indemnified Persons for any legal and other expenses reasonably incurred by the Company Indemnified Persons in connection with investigating or defending any such actions or claims as such expenses are incurred. The indemnity agreement set forth in this Section 9.02(b) shall be in addition to any liabilities that each Purchaser may otherwise have. (c) Notifications and Other Indemnification Procedures. Promptly after receipt by a Purchaser Indemnified Person or a Company Indemnified Person (each, an "Indemnified Person") of notice of the commencement of any action, such Indemnified Person shall, if a claim in respect thereof is to be made against an indemnifying party under Section 9.02(a) or 9.02(b), as applicable, notify such indemnifying party in writing of the commencement thereof, but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any Indemnified Person otherwise than under Section 9.02(a) or 9.02(b), as applicable, or to the extent it is not materially prejudiced as a proximate result of such failure. In case any such action is brought against any Indemnified Person and it shall notify an indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it shall elect within 30 days after receiving any such notification, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such Indemnified Person (who shall not, except with the consent of the Indemnified Person, which consent shall not be unreasonably withheld, be counsel to the indemnifying party), and, after notice from the indemnifying party to such Indemnified Person of its election so to assume the defense thereof, the indemnifying party shall not be liable to such Indemnified Person under such paragraph for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such Indemnified Person, in connection with the defense thereof other than reasonable costs of investigation. Notwithstanding the foregoing, any Indemnified Person shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the Indemnified Person unless (i) the Indemnified Person shall have been advised by counsel that representation of the Indemnified Person by counsel provided by the indemnifying party would be inappropriate due to actual or potential conflicting interests between the indemnifying party and the Indemnified Person, including situations in which there are one or more legal defenses available to the Indemnified Person that are different from or additional to those available to the indemnifying party, (ii) the indemnifying party shall have authorized in writing the employment of counsel for the Indemnified Person at the expense of the indemnifying party or (iii) the indemnifying party shall have failed to assume the defense or retain counsel reasonably satisfactory to the Indemnified Person; provided, however, that the indemnifying party shall not, in connection with any one such action or proceeding or separate but substantially similar actions or proceedings arising out of the same general allegations, be liable for the fees and expenses of more than one separate firm of attorneys at any time for all Indemnified Persons, except to the extent that local counsel, in addition to their regular counsel, is required in order to effectively defend against such action or proceeding. No indemnifying party shall, without the written consent of the Indemnified Person, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the Indemnified Person is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the Indemnified Person from all liability arising out of such action or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any Indemnified Person. 9.03. Contribution. If the indemnification provided for in Section 9.02 is unavailable or insufficient to hold harmless an Indemnified Person under paragraph (a) or (b) of Section 9.02 in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall, in lieu of indemnifying such Indemnified Person, contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the (i) relative benefits received by the Company on the one hand and the Purchasers on the other hand from the issuance and sale of the Securities; or (ii) if the allocation provided in clause (i) is not permitted by Applicable Law, in such proportion as is appropriate to reflect not only the related benefits referred to in clause (i) above but also the relative fault of the indemnifying party on the one hand and the Indemnified Person on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Purchasers on the other hand in connection with the sale of the Securities pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Securities pursuant to this Agreement (before deducting expenses) received by the Company and the fee payable to the Purchasers at the Closing Time. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party on the one hand or the Indemnified Person on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties agree that it would not be just and equitable if contributions pursuant to this Section 9.03 were determined by pro rata allocation (even if the Indemnified Persons were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 9.03. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this Section 9.03 shall be deemed to include any legal or other expenses reasonably incurred by such Indemnified Person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 9.03, no Purchaser shall be required to contribute any amount which, when taken together with any amounts paid by such Purchaser under Section 9.02(b) exceeds the fee payable to the Purchasers at the Closing Time. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The obligations of the Company and the Purchasers under this Section 9.03 shall be in addition to any liability which the Company and the respective Purchasers may otherwise have. 9.04. Survival. The obligations of the Company under this Section 9 will survive the payment or transfer of any Security, the enforcement, amendment or waiver of any provision of this Agreement and the termination of this Agreement. 9.05. Termination. (a) The Purchasers and the Company may terminate this Agreement by written consent of each Purchaser and the Company at any time prior to the Closing Time. The Purchasers may terminate this Agreement, by notice to the Company, (1) at any time at or prior to December 31, 1999 if any of the conditions in Section 3 are not satisfied or waived in writing by the Purchasers or are not capable of being so satisfied or waived at or prior to December 31, 1999, (2) if the Transactions have not closed prior to December 31, 1999 or (3) at any time at or prior to the Closing Time if there has been, since the time of execution of this Agreement or since the Audit Date, any material adverse change in the business, prospects, operations, results of operations or financial condition of the Company and its Subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business. (b) Liabilities. If this Agreement is terminated pursuant to this Section 9.05, such termination shall be without liability of any party to any other party except as provided in Section 9.01 hereof, and provided further that Sections 1, 9.02, 9.03, 9.04, 10.08 and 10.11 shall survive such termination and remain in full force and effect. SECTION 10 MISCELLANEOUS 10.01. Notices. Except as otherwise expressly provided herein, all notices and other communications shall have been duly given and shall be effective (a) when delivered, (b) when transmitted via telecopy (or other facsimile device) to the number set out below if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), (c) the day following the day on which the same has been delivered prepaid to a reputable national overnight air courier service or (d) the third Business Day following the day on which the same is sent by certified or registered mail, postage prepaid, in each case to the respective parties at the address set forth below, or at such other address as such party may specify by written notice to the other party hereto: (i) if to a Purchaser or its nominee, to the Purchaser or its nominee at the address specified for such communications in Schedule A, with a copy to (A)Cahill Gordon & Reindel, 80 Pine Street, New York, New York 10005-1702, attention: Jonathan A. Schaffzin, Esq., and (B) Kennedy Covington Lobdell & Hickman, L.L.P., 100 N. Tryon Street, Suite 4200, Charlotte, North Carolina 28202, attention: Henry W. Flint, Esq., or at such other address as the Purchaser or its nominee shall have specified to the Company in writing; (ii) if to any other Holder to such Holder at the address of such Holder appearing in the Security Register or such other address as such Holder shall have specified to the Company in writing; or (iii) if to the Company at 390 South Woods Mill Road, Suite 350, Chesterfield, Missouri 63017, attention: Eric Fencl, Esq., with a copy to (A) Madison Dearborn Capital Partners III, L.P., Suite 3800, Three First National Plaza, Chicago, Illinois 60602, attention: Timothy M. Hurd, and (B) Kirkland & Ellis, 200 E. Randolph, Chicago, Illinois 60601, attention: Michael H. Kerr, P.C., or at such other address as the Company shall have specified to the Holders in writing. 10.02. Benefit of Agreement; Assignments and Participations. Except with respect to Section 7.10 and 7.11 and as otherwise expressly provided herein, all covenants, agreements and other provisions contained in this Agreement by or on behalf of any of the parties hereto shall bind, inure to the benefit of and be enforceable by their respective successors and assigns (including, without limitation, any subsequent holder of a Security) whether so expressed or not (other than Section 6.08 as to Persons other than the Purchasers and their Affiliates); provided, however, that the Company may not assign and transfer any of its rights or obligations without the prior written consent of the other parties hereto and each Subsequent Purchaser, except as otherwise permitted under paragraph (j)(viii) of the Certificate of Designation. Nothing in this Agreement, the Certificate of Designation or the Securities, express or implied, shall give to any Person other than the parties hereto, their successors and assigns and the Holders from time to time of the Securities any benefit or any legal or equitable right, remedy or claim under this Agreement. 10.03. No Waiver; Remedies Cumulative. No failure or delay on the part of any party hereto or any Holder in exercising any right, power or privilege hereunder, under the Certificate of Designation or under the Securities and no course of dealing between the Company and any other party or Holder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder, under the Certificate of Designation or under the Securities preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights and remedies provided herein, in the Certificate of Designation and in the Securities are cumulative and not exclusive of any rights or remedies which the parties or Holders would otherwise have. No notice to or demand on the Company in any case shall entitle the Company to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the other parties hereto or the Holders to any other or further action in any circumstances without notice or demand. 10.04. Amendments, Waivers and Consents. This Agreement may be amended, and the observance of any term hereof may be waived (either retroactively or prospectively), with (and only with) the written consent of the Company and the Required Holders (or, if prior to the Closing Time, Purchasers who have agreed to purchase a majority of the shares of Senior Preferred Stock); provided, however, that no such amendment or waiver may, without the prior written consent of the Holder of each share of Senior Preferred Stock then outstanding and affected thereby, subject any Purchaser or Holder to any additional obligation hereunder. No amendment or waiver of this Agreement will extend to or affect any obligation, covenant or agreement not expressly amended or waived or thereby impair any right consequent thereon. As used herein, the term this "Agreement" and references thereto shall mean this Agreement as it may from time to time be amended or supplemented. 10.05. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. It shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto. 10.06. Reproduction. This Agreement, the other Transaction Documents and all documents relating hereto and thereto, including, without limitation, (a) consents, waivers and modifications that may hereafter be executed, (b) documents received by the Purchasers at the Closing Time (except the shares of Senior Preferred Stock or Common Stock themselves), and (c) financial statements, certificates and other information previously or hereafter furnished in connection herewith, may be reproduced by any photographic, photostatic, microfilm, microcard, miniature photographic or other similar process and any original document so reproduced may be destroyed. The Company agrees and stipulates that, to the extent permitted by Applicable Law, any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made in the regular course of business) and any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. This Section 10.06 shall not prohibit the Company, any other party hereto or any Holder from contesting any such reproduction to the same extent that it could contest the original, or from introducing evidence to demonstrate the inaccuracy of any such reproduction. 10.07. Headings. The headings of the sections and subsections hereof are provided for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. 10.08. Governing Law; Submission to Jurisdiction; Venue. (a) THIS AGREEMENT AND THE SECURITIES SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK, EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE. (b) If any action, proceeding or litigation shall be brought by the Company, any Purchaser or any Holder in order to enforce any right or remedy under this Agreement or any of the Securities, the Company and each Purchaser hereby consent and will submit, and, in the case of the Company, will cause each of its Subsidiaries to submit, to the jurisdiction of any state or federal court of competent jurisdiction sitting within the area comprising the Southern District of New York on the date of this Agreement. The Company and each Purchaser hereby irrevocably waive any objection, including, but not limited to, any objection to the laying of venue or based on the grounds of forum non conveniens, which they may now or hereafter have to the bringing of any such action, proceeding or litigation in such jurisdiction. The Company and each Purchaser further agree that they shall not, and, in the case of the Company, shall cause its Subsidiaries not to, bring any action, proceeding or litigation arising out of this Agreement, the Securities or any other Transaction Document in any state or federal court other than any state or federal court of competent jurisdiction sitting within the area comprising the Southern District of New York on the date of this Agreement. (c) The Company hereby designates CT Corporation at an address in New York City designated at the Closing Time as the designee, appointee and agent of the Company (the "Agent") to receive, for and on behalf of the Company, service of process in such jurisdiction in any action, proceeding or litigation with respect to this Agreement, the Securities or any of the other Transaction Documents (it being understood that, with prior written notice to the Required Holders, the Company may designate any other Person as its Agent for the purposes of this Section 10.08(c)). It is understood that a copy of such process served on such agent will be promptly forwarded by mail to the Company at its address set forth opposite its signature below, but the failure of the Company to have received such copy shall not affect in any way the service of such process. The Company further irrevocably consents to the service of process of any of the aforementioned courts in any such action, proceeding or litigation by the mailing of copies thereof by registered or certified mail, postage prepaid, to the Company at its said address, such service to become effective thirty (30) days after such mailing. (d) Nothing herein shall affect the right of the Company or any Holder of a share of Senior Preferred Stock to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against any party hereto in any other jurisdiction. If service of process is made on a designated agent it should be made by either (i) personal delivery or (ii) mailing a copy of summons and complaint to the agent via registered or certified mail, return receipt requested. (e) THE COMPANY AND EACH PURCHASER HEREBY WAIVE ANY AND ALL RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, PROCEEDING OR LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE SECURITIES. 10.09. Severability. If any provision of this Agreement is determined to be illegal, invalid or unenforceable, such provision shall be fully severable to the extent of such illegality, invalidity or unenforceability and the remaining provisions shall remain in full force and effect and shall be construed without giving effect to the illegal, invalid or unenforceable provisions. 10.10. Entirety. This Agreement together with the other Transaction Documents represents the entire agreement of the parties hereto and thereto, and supersedes all prior agreements and understandings, oral or written, if any, relating to the Transaction Documents or the transactions contemplated herein or therein. 10.11. Survival of Representations and Warranties. All representations and warranties and covenants and indemnities made by the Company herein shall survive the execution and delivery of this Agreement, the issuance and transfer of all or any portion of the Securities and the payment of Senior Preferred Stock and any other obligations hereunder, regardless of any investigation made at any time by or on behalf of the Purchasers or any other holder that is Affiliated with the Purchasers; provided that the representations and warranties made by the Company herein or pursuant to the certificates contemplated hereby shall terminate 180 days after the Closing Time (the "Survival Termination Date"); provided, further, that if the Company's audited financial statements are not completed by the 150th day after the Closing Time, the Survival Termination Date shall be tolled for one day for every day between the 150th day after the Closing Time and the day the Company's audited financial statements are completed. All statements contained in any certificate delivered by or on behalf of the Company pursuant to this Agreement shall be deemed representations and warranties of the Company under this Agreement. 10.12. Incorporation. All Exhibits and Schedules attached hereto are incorporated as part of this Agreement as if fully set forth herein. 10.13. Press Releases and Public Announcements. No party to this Agreement shall issue any press release or make any public announcement relating to the subject matter of this Agreement prior to the Closing Time without the prior written approval of each of the Purchasers and the Company; provided, however, that any party may make any public disclosure it believes in good faith is required by Applicable Law or any listing or trading agreement concerning its publicly-traded securities (in which case the disclosing party will use its reasonable best efforts to advise the other parties prior to making the disclosure). 10.14. Public Disclosures. The Company shall not, and shall not permit any of its Subsidiaries to, disclose the name or identity of any Purchaser as an investor in the Company in any press release or other public announcement or in any document or material filed with any governmental entity, unless (i) such Purchaser consents to such disclosure or (ii) the Company believes such disclosure is required by applicable law or governmental regulations or by order of a court of competent jurisdiction or in any registration statement, in which case the Company or such Subsidiary shall give prior written notice to such Purchaser describing in reasonable detail the proposed content of such disclosure and shall permit such Purchaser to review and comment upon the form and substance of such disclosure. 10.15. Heller. Notwithstanding anything to the contrary, nothing containedin this Agreement shall affect, limit or impair the rights and remedies of Heller Financial, Inc. in its capacity as (i) a lender to the Company or any Subsidiary pursuant to any agreement under which the Company or any Subsidiary has borrowed or may borrow money, and (ii) the beneficiary of any and all agreements entered into by the Company or any Subsidiary for the benefit of Heller Financial, Inc., as lender. IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written. OUTSOURCING SOLUTIONS INC. By: /s/ Gary L. Weller ---------------------------- Name: Gary L. Weller Title: EVP ARES LEVERAGED INVESTMENT FUND, L.P. By: Ares Management, L.P., its General Partner By: /s/ Jeffrey Serota ---------------------------- Name: Jeffrey Serota Title: Vice President ARES LEVERAGED INVESTMENT FUND II, L.P. By: Ares Management II, L.P., its General Partner By: /s/ Jeffrey Serota ---------------------------- Name: Jeffrey Serota Title: Vice President DB CAPITAL INVESTORS, L.P. By: DB Capital Parnters, L.P. its General Partner By DB Capital Parners, Inc. By: /s/ Tyler Zachem ---------------------------- Name: Tyler Zachem Title: Managing Director FIRST UNION INVESTORS, INC. By: /s/ Frederick W. Eubank ---------------------------- Name: Frederick W. Eubank, II Title: Senior Vice President ABBOTT CAPITAL 1330 INVESTORS II, L.P. By: Abbott Capital 1330 GenPar II, L.L.C., its General Partner By: /s/ Thomas W. Hallagan ---------------------------- Name: Thomas W. Hallagan Title: Manager ABBOTT CAPITAL PRIVATE EQUITY FUND III, L.P. By: Abbott Capital Management, L.L.C., its General Partner By: /s/ Raymond L. Held ---------------------------- Name: Raymond L. Held Title: Managind Director BNY PARTNERS FUND, L.L.C. By: BNY Private Investment Management, Inc., its Member Manager By: /s/ Burton M. Siegal ---------------------------- Name: Burton M. Siegal Title: Senior Vice President HELLER FINANCIAL, INC. By: /s/ Timothy P. Davitt ---------------------------- Name: Timothy P. Davitt Title: Vice President MAGNETITE ASSET INVESTORS L.L.C. By: BlackRock Financial Management, Inc., as Managing Member By: /s/ Dennis M. Schaney ---------------------------- Name: Dennis M. Schaney Title: Managing Director EX-2.7 4 JUNIOR PREFERRED STOCK PURCHASE AGREEMENT JUNIOR PREFERRED STOCK PURCHASE AGREEMENT THIS JUNIOR PREFERRED STOCK PURCHASE AGREEMENT, dated as of December 10, 1999 (this "Agreement"), is made by and among Outsourcing Solutions Inc., a Delaware corporation (the "Company"), and the Purchasers listed on the signature pages hereto (each a "Purchaser" and collectively the "Purchasers"). Except as otherwise indicated, capitalized terms used herein are defined in Section 7 hereof. The parties hereto agree as follows: Section 1. Authorization of Junior Preferred Stock. The Company will authorize a class of 50,000 shares of Junior Preferred Stock, no par value per share, having the terms and provisions set forth on Exhibit A hereto (the "Junior Preferred Stock"). Section 2. Purchase and Sale of Junior Preferred Stock. 2A. Purchase and Sale. Subject to the terms and conditions set forth herein, the Company will sell to each Purchaser, and each Purchaser will purchase from the Company, such number of shares of Junior Preferred Stock as is set forth in Schedule 1 attached hereto at a purchase price of $1,000.00 per share. 2B. The Closing. The closing of the sale and purchase of the Junior Preferred Stock hereunder (the "Closing") will take place at the offices of White & Case LLP, 1155 Avenue of the Americas, New York, New York 10036. At the Closing, the Company will deliver to each Purchaser a certificate or certificates evidencing the number of shares of Junior Preferred Stock to be purchased by such Purchaser, registered in the name of such Purchaser against payment of the purchase price therefor by delivery of a cashier's or certified check or checks of immediately available funds or by wire transfer of immediately available funds to a bank account designated by the Company. Each Purchaser may satisfy his or its obligation to pay the purchase price by directing that a portion of its redemption consideration in connection with that certain Stock Subscription and Redemption Agreement, dated October 8, 1999, and amended as of the date hereof, to which the Company and the Purchasers are parties, be retained by the Company. Section 3. Restrictions on Transfers. 3.A. Restrictions. Restricted Securities are transferable pursuant to (i) public offerings registered under the Securities Act, (ii) Rule 144 or Rule 144A of the Securities and Exchange Commission (or any similar rule then in force) if such rule is available, and (iii) subject to the conditions specified in paragraph 3B, any other legally available means of transfer pursuant to the Securities Act. 3.B. Procedure for Transfer. In connection with the transfer of any Restricted Securities (other than a transfer referred to in clauses (i) or (ii) of paragraph 3A above), the holder thereof will deliver written notice to the Company describing in reasonable detail the transfer or proposed transfer, together with an opinion (reasonably satisfactory to the Company) of counsel which (to the Company's reasonable satisfaction) is knowledgeable in securities law matters to the effect that such transfer of Restricted Securities may be effected without registration of such Restricted Securities under the Securities Act. In addition, if the holder of such Restricted Securities delivers to the Company an opinion of such counsel to the effect that no subsequent transfer of such Restricted Securities will require registration under the Securities Act, the Company will promptly upon such contemplated transfer deliver new certificates for such Restricted Securities which do not bear the Securities Act Legend set forth in paragraph 5A below. If the Company is not required to deliver new certificates for such Restricted Securities not bearing such legend, the holder thereof will not transfer the same until the prospective transferee has confirmed to the Company in writing its agreement to be bound by the conditions contained in this paragraph and paragraph 5A. 3.C. Transferees. Upon request of any Purchaser, the Company shall promptly supply to such Purchaser or its prospective transferees all information required to be delivered in connection with a transfer pursuant to Rule 144A of the Securities and Exchange commission. Section 4. Representations and Warranties of the Company. The Company hereby represents and warrants to each Purchaser that as of the Closing: 4.A. Organization, etc. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company has all requisite corporate power and authority to carry on its businesses as now conducted and presently proposed to be conducted and to carry out the transactions contemplated by this Agreement. 4.B. Authorization; No Breach. The execution, delivery and performance of this Agreement and all other agreements and transactions contemplated hereby and thereby have been duly authorized by the Company. This Agreement constitutes a valid and binding obligation of the Company enforceable in accordance with its terms, subject to the availability of equitable remedies and to the laws of bankruptcy and other similar laws affecting creditors' rights generally. The execution and delivery by the Company of this Agreement and all other agreements and instruments contemplated hereby and thereby to be executed by the Company, and the offering, sale and issuance of the Junior Preferred Stock hereunder, do not and will not (i) conflict with or result in a breach of the terms, conditions or provisions of, (ii) constitute a default under, (iii) result in the creation of any lien, security interest, charge or encumbrance upon the Company's capital stock or assets pursuant to, (iv) give any third party the right to accelerate any obligation under, (v) result in a violation of, or (vi) require any authorization, consent, approval, exemption or other action by or notice to or filing with any court or administrative or governmental body (other than in connection with certain state and federal securities laws) or any other third party pursuant to, the Fourth Amended and Restated Certificate of Incorporation or the Bylaws, or any law, statute, rule, regulation, instrument, order, judgment or decree to which the Company is subject or any agreement or instrument to which the Company is a party, or by which its assets are bound. The Junior Preferred Stock has been duly and validly authorized for issuance by the Company and, when issued and paid for in accordance with this Agreement, will be fully paid and non-assessable and free and clear of any liens and preemptive or similar rights. 4.C. No Registration. Assuming the truth and accuracy of the representations set forth in Section 5 hereof, the offers and sales of the Junior Preferred Stock pursuant to the terms hereof are not required to be registered under the Securities Act or any state securities laws. Section 5. Purchasers' Representations and Warranties. 5.A. Purchasers' Investment Representations. Each Purchaser individually, and not jointly or severally, hereby represents that he or it is acquiring the Restricted Securities purchased hereunder for his or its own account with the present intention of holding such securities for investment purposes and that it has no intention of selling such securities in a public distribution in violation of federal or state securities laws; provided that nothing contained herein will prevent the Purchaser and the subsequent holders of such securities from transferring such securities in compliance with the provisions of Section 3 hereof. Each certificate for Restricted Securities will be conspicuously imprinted with a legend substantially in the following form (the "Securities Act Legend"): "THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON DECEMBER 10, 1999, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE TRANSFER OF SUCH SECURITIES IS SUBJECT TO THE CONDITIONS SPECIFIED IN THE JUNIOR PREFERRED STOCK PURCHASE AGREEMENT DATED AS OF DECEMBER 10, 1999, BETWEEN THE ISSUER (THE "COMPANY") AND THE ORIGINAL PURCHASER HEREOF, AND THE COMPANY RESERVES THE RIGHT TO REFUSE TO TRANSFER SUCH SECURITIES UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO SUCH TRANSFER. UPON WRITTEN REQUEST, A COPY OF SUCH CONDITIONS WILL BE FURNISHED BY THE COMPANY TO THE HOLDER HEREOF WITHOUT CHARGE." Whenever any shares of Junior Preferred Stock cease to be Restricted Securities and are not otherwise restricted securities, the holder thereof will be entitled to receive from the Company, without expense, upon surrender to the Company of the certificate representing such shares of Junior Preferred Stock, a new certificate representing such shares of Junior Preferred Stock of like tenor but not bearing a legend of the character set forth above. 5.B. Other Representations and Warranties of the Purchasers. Each Purchaser individually, and not jointly or severally, represents and warrants to and covenants and agrees with, the Company that: (i) the Purchaser has had an opportunity to ask questions and receive answers concerning the terms and conditions of the securities purchased hereunder and has had full access to such other information concerning the Company as the Purchaser may have requested and that in making its decision to invest in the securities being purchased hereunder it is not in any way relying on the fact that any other person has decided to be a Purchaser hereunder or to invest in the securities; (ii) the Purchaser (a) is an "accredited investor" as defined in Rule 501(a) under the Securities Act or (b) by reason of his business and financial experience, and the business and financial experience of those retained by him to advise it with respect to its investment in the securities being purchased hereunder, he, together with such advisors, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of its prospective investment in such securities, is able to bear the economic risk of such investment and, at the present time, is able to afford a complete loss of such investment; and (iii) the Purchaser has all requisite power and authority to enter into, deliver and consummate the transactions contemplated by this Agreement (including the purchase of the securities to be purchased by the Purchaser hereunder) and this Agreement has been duly authorized, executed and delivered by the Purchaser and constitutes a valid and binding obligation of the Purchaser enforceable in accordance with its terms (subject to the availability of equitable remedies and to the laws of bankruptcy and other similar laws affecting creditors' rights generally) and, as applicable, does not violate the Purchaser's charter, by-laws or other organizational documents. Section 6. Definitions. "Bylaws" means the Bylaws of the company, as such Bylaws may be modified, amended or amended and restated from time to time. "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or a governmental entity or any department, agency, or political subdivision thereof. "Restricted Securities" means the Junior Preferred Stock issued hereunder and any securities issued with respect to such Junior Preferred Stock by way of any stock dividend or stock split, or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. As to any particular Restricted Securities, such securities will cease to be Restricted Securities when they have (a) been effectively registered under the Securities Act and disposed of in accordance with the registration statement covering them, (b) become eligible for sale pursuant to Rule 144 (excluding Rule 144(k)) or Rule 144A of the Securities and Exchange Commission (or any similar rule then in force), or (c) been otherwise transferred and new securities for them not bearing the Securities Act Legend set forth in paragraph 5A have been delivered by the company in accordance with paragraph 3B. Whenever any particular securities cease to be Restricted Securities, the holder thereof will be entitled to receive from the Company, without expense, new securities of like tenor not bearing a Securities Act Legend of the character set forth in paragraph 5A. "Rule 144" means Rule 144 promulgated by the Securities and Exchange Commission under the Securities Act as such rule may be amended from time to time, or any similar rule then in force. "Rule 144A" means Rule 144A promulgated by the Securities and Exchange Commission under the Securities Act as such rule may be amended from time to time, or any similar rule then in force. "Securities Act" means the Securities Act of 1933, as amended, or any similar federal law then in force. "Securities Exchange Act" means the Securities Exchange Act of 1934, as amended, or any similar federal law then in force. "Securities and Exchange Commission" includes any governmental body or agency succeeding to the functions thereof. Section 7. Miscellaneous. 7.A. Remedies. The holders of Junior Preferred Stock acquired hereunder (directly or indirectly) will have all of the rights and remedies set forth in this Agreement and the Certificate of Incorporation, and all of the rights and remedies which such holders have been granted at any time under any other agreement or contract, and all of the rights and remedies which such holders have under any law. Any Person having any rights under any provision of this Agreement will be entitled to enforce such rights specifically, to recover damages by reason of any breach of any provision of this Agreement, and to exercise all other rights granted by law. 7.B. Amendments and Waivers. Except as otherwise provided herein, any provision hereof may be amended or waived generally and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the holders of at least a majority of the outstanding shares of Junior Preferred Stock issued hereunder and, to the extent that any modification, amendment or waiver adversely affects the rights of the holders of any class of Junior Preferred Stock, by the holders of at least a majority of the outstanding shares initially issued hereunder of such adversely affected class of Junior Preferred Stock. No course of dealing between the Company and any holder of Junior Preferred Stock or any delay on the part of any such holder in exercising any rights hereunder or under any agreement contemplated hereby or under the Certificate of Incorporation or the Bylaws will operate as a waiver of any rights of any such holder. 7.C. Survival of Representations and Warranties. All representations and warranties contained herein or made in writing by any party in connection herewith will survive the execution and delivery of this Agreement, regardless of any investigation made by any Purchaser or on its behalf. 7.D. Successors and Assigns. (i) Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto will bind and inure to the benefit of the respective successors and assigns of such parties whether so expressed or not. In addition, and whether or not any express assignment has been made, the provisions of this Agreement which are for the Purchaser's benefit as the purchaser or holder of Junior Preferred Stock are also for the benefit of and enforceable by any subsequent holder of such Purchaser's Junior Preferred Stock. (ii) If a sale, transfer, assignment or other disposition of any Junior Preferred Stock is made in accordance with the provisions of this Agreement to any Person and such securities remain Restricted Securities immediately after such disposition, such Person shall, at or prior to the time such securities are acquired, execute a counterpart of this Agreement with such modifications thereto as may be necessary to reflect such acquisition, and such other documents as are necessary to confirm such Person's agreement to become a party to, and to be bound by, all covenants, terms and conditions of this Agreement as theretofore amended. 7.E. Severability. Whenever possible, each provision of this Agreement will 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 invalid, illegal or unenforceable under any applicable law or rule in any jurisdiction, such provision will be ineffective only to the extent of such invalidity, illegality or unenforceability in such jurisdiction, without invalidating the remainder of this Agreement in such jurisdiction or any provision hereof in any other jurisdiction. 7.F. Counterparts. This Agreement may be executed simultaneously in two or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together will constitute one and the same Agreement. 7.G. Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 7.H. Governing Law. All issues concerning the enforceability, validity and binding effect of this Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the law of any jurisdiction other than the State of New York. 7.I. Notices. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement will be in writing and shall be delivered personally or by telex or telecopy as described below or by reputable over night courier, and shall be deemed given on the date on which such delivery is made. If delivered by telex or telecopy such notices or communications shall be confirmed by a registered or certified letter (return receipt requested), postage prepaid. 1.K. IN WITNESS WHEREOF, the parties hereto have executed this Junior Preferred Stock Purchase Agreement as of the date first written above. OUTSOURCING SOLUTIONS INC. By: /s/ Gary L. Weller -------------------------------- Its: EVP -------------------------------- RAINBOW TRUST ONE By /s/ Frank J. Hanna --------------------------------- Name: Frank J. Hanna Title: Trustee RAINBOW TRUST TWO By /s/ David G. Hanna --------------------------------- Name: David G. Hanna Title: Trustee By /s/ Alan M. Miller --------------------------------- Name: Alan M. Miller By /s/ Timothy G. Beffa --------------------------------- Name: Timothy G. Beffa HELLER FINANCIAL, INC. By /s/ Mark Hutchings --------------------------------- Name: Mark Hutchings Title: AVP Title: McCOWN De LEEUW & CO. III, L.P. By /s/ David De Leeuw --------------------------------- Name: David DeLeeuw Title: McCOWN De LEEUW & CO. III EUROPE, L.P. By /s/ David DeLeeuw --------------------------------- Name: David DeLeeuw Title: McCOWN De LEEUW & CO. III (ASIA), L.P. By /s/ David DeLeeuw --------------------------------- Name: David DeLeeuw Title: GAMMA FUND, L.L.C. By /s/ David DeLeeuw --------------------------------- Name: David DeLeeuw Title: EX-2.8 5 CONSENT SOLICITATION STATEMENT OUTSOURCING SOLUTIONS INC. -------------------------- CONSENT SOLICITATION STATEMENT ------------------------ Relating to its 11% Senior Subordinated Notes due November 1, 2006 CUSIP No. 690132AC9 ------------------------ Outsourcing Solutions Inc., a Delaware corporation (the "Company"), is hereby soliciting consents (the "Consents"), on the terms and subject to the conditions set forth in this Consent Solicitation Statement (as it may be supplemented or amended from time to time, the "Consent Statement") and the related Consent Form (as it may be supplemented or amended from time to time, the "Consent Form" and together with the Consent Statement, the "Solicitation") from holders (each, a "Holder" and, collectively, the "Holders") of at least a majority of the aggregate principal amount of its outstanding 11% Senior Subordinated Notes due November 1, 2006 (the "Notes") issued pursuant to the Indenture, dated November 6, 1996 (the "Indenture"), among the Company, the subsidiary guarantors named therein (collectively, the "Guarantors") and Wilmington Trust Company, as trustee (the "Trustee"), to the waiver of: (i) the Company's obligations under Section 4.15 of the Indenture, including its obligation to make a Change of Control Offer in connection with the recapitalization of the Company (the "Recapitalization") by an investor group led by an affiliate of Madison Dearborn Partners, Inc. ("MDP"); and (ii) the failure by the Company to comply with certain technical requirements relating to the qualification and operation of its financing subsidiary, OSI Funding Corp. ("OSI Funding"), as an Unrestricted Subsidiary under the Indenture and any and all consequences arising therefrom under the Indenture (collectively, the "Waivers"). The Company is offering to pay to each Holder who provides its Consent at or prior to 5:00 p.m., New York City time, on the Expiration Date (as defined below) a payment of $100 per $1,000 of principal amount of Notes (the "Consent Payment"). The Company will not be obligated to make any Consent Payment in respect of any Consents not provided at or prior to 5:00 p.m., New York City time, on the Expiration Date. Subject to the consummation of the Recapitalization, the Consent Payment will be made on the Consent Payment Date (as defined below). Capitalized terms used in this Consent Statement and not otherwise defined herein have the meanings ascribed to them in the Indenture. In order to receive the Consent Payment, Holders of Notes must provide their Consents (and not have revoked such Consents) at or prior to 5:00 p.m., New York City time, on November 19, 1999 (the "Expiration Date"), unless extended by the Company in its sole discretion. The Company reserves the right to extend the Solicitation on a daily basis until 5:00 p.m., New York City time, on the date on which the Requisite Consents (as defined below) have been obtained. Consents may be revoked at any time prior to the date on which the Company receives the Requisite Consents. MDP's obligation to complete the Recapitalization is expressly conditioned upon the Company receiving the Requisite Consents to the Waivers. See "The Recapitalization - Conditions." See "Certain Considerations" for a discussion of certain factors that should be considered in evaluating the Solicitation. The Solicitation Agent for the Solicitation is: Donaldson, Lufkin & Jenrette November 9, 1999 Any Holder desiring to give its Consent should either (i) complete and sign the Consent Form (or a facsimile thereof) in accordance with the instructions in the Consent Form and mail or deliver it to MacKenzie Partners, Inc., the information and tabulation agent (the "Information Agent") or (ii) request such Holder's broker, dealer, commercial bank, trust company or other nominee to effect the transaction for such Holder. A Holder who has Notes registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact that entity if such Holder desires to give its Consent. A Letter of Instruction is contained in the solicitation materials provided along with this Consent Statement which may be used by a beneficial owner to instruct the record Holder to deliver Consents. In the event that the Solicitation is withdrawn or otherwise not completed, the Consent Payment will not be paid or become payable to Holders of the Notes who have validly delivered their Consents in connection with the Solicitation. The Solicitation may be abandoned or terminated by the Company at any time prior to the Consent Payment Date for any reason. The record date for purposes of the Solicitation is November 5, 1999 (the "Record Date"). If Consents are received from registered Holders of at least a majority of the aggregate principal amount of the outstanding Notes as of the Record Date, such Consents will apply to all Notes issued under the Indenture and each Holder of such Notes will be bound by such Consents regardless of whether such Holder executed a Consent. NEITHER THE COMPANY NOR DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION (THE "SOLICITATION AGENT") MAKES ANY RECOMMENDATION AS TO WHETHER OR NOT HOLDERS SHOULD PROVIDE THEIR CONSENTS IN RESPONSE TO THE SOLICITATION. Any questions regarding the Solicitation should be directed to the Solicitation Agent. Requests for additional copies of this Consent Statement and the Consent Form may be directed to the Information Agent. Beneficial owners may also contact their broker, dealer, commercial bank or trust company for assistance concerning the Solicitation. THIS SOLICITATION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF SUCH SOLICITATION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS CONSENT STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. FORWARD LOOKING STATEMENTS This Consent Statement (including the documents incorporated or deemed incorporated by reference herein) includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of historical fact provided or incorporated by reference herein are forward looking statements and may contain information about financial results, economic conditions, trends and known uncertainties. The forward-looking statements contained or incorporated by reference herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. Factors that might cause such a difference include, but are not limited to: (i) general economic or business conditions affecting the account receivables management services industry, either nationally or regionally, being less favorable than expected; (ii) expected synergies, economies of scale and cost savings from recent acquisitions by the Company not being fully realized or realized within the expected time frames; (iii) costs or operational difficulties related to integrating the operations of recently acquired companies with the Company's operations being greater than expected; (iv) increased competition in the accounts receivable management services industry; (v) implementation of or changes in the laws, regulations or policies governing the accounts receivable management industry that could negatively affect such industry; (vi) changes in general economic conditions in the United States; (vii) the other factors discussed under the caption "Certain Considerations" included elsewhere in this Consent Statement; and (viii) factors discussed from time to time in the Company's public filings, including the Annual Report on Form 10-K for the year ended December 31, 1998. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis, judgment, belief or expectations only as of the date hereof. Neither the Company nor the Solicitation Agent undertakes any obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. In addition to the disclosure contained herein, readers should carefully review any disclosure of risks and uncertainties contained in other documents the Company files or has filed from time to time with the Commission pursuant to the Exchange Act. See "Additional Information; Incorporation of Certain Information by Reference." TABLE OF CONTENTS Page ---- SUMMARY .................................................................. 1 BACKGROUND OF THE SOLICITATION............................................ 3 Outsourcing Solutions Inc......................................... 3 Purpose of the Solicitation....................................... 3 Source of Funds for Consent Payments.............................. 3 THE RECAPITALIZATION...................................................... 4 General........................................................... 4 Sources and Uses.................................................. 5 Conditions........................................................ 5 Indemnification................................................... 6 Termination....................................................... 6 Ancillary Agreements.............................................. 6 The Purchaser..................................................... 7 Management........................................................ 7 New Senior Credit Facility........................................ 8 THE SOLICITATION.......................................................... 11 Purpose of the Solicitation....................................... 11 Consent Payment................................................... 13 Requisite Consents; Record Date; Effective Date; Expiration Date................................................ 13 Waiver; Extensions; Amendments.................................... 13 Consent Procedures................................................ 14 Withdrawal Rights................................................. 16 Fees and Expenses................................................. 16 Information, Tabulation and Paying Agents......................... 17 CAPITALIZATION............................................................ 18 UNAUDITED PRO FORMA FINANCIAL DATA........................................ 19 CERTAIN CONSIDERATIONS.................................................... 24 Substantial Leverage; Ability to Service Debt..................... 24 Additional Borrowings Available................................... 25 Substantial Restrictions and Covenants............................ 25 Subordination; Asset Encumbrances................................. 25 Control by Principal Stockholder.................................. 26 Holding Company Structure......................................... 26 Competition....................................................... 26 Impact of Governmental Regulation................................. 27 Litigation........................................................ 27 Dependence on Key Management...................................... 27 Environmental Liabilities......................................... 27 CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS............................ 28 Tax Considerations for Consenting Holders......................... 28 Tax Considerations for Non-Consenting Holders..................... 28 Backup Withholding................................................ 28 ADDITIONAL INFORMATION; INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.................... 29 MISCELLANEOUS............................................................. 30 ANNEX I .................................................................. A-1 ANNEX II.................................................................. A-3 ANNEX III................................................................. A-4 SUMMARY For your convenience, the Solicitation is summarized below. The following summary is not intended to be complete and is qualified in its entirety by reference to the more detailed information included or incorporated by reference in this Consent Statement. Holders of the Notes are urged to read carefully this Consent Statement and the documents incorporated by reference in their entirety. Each of the capitalized terms used in this summary and not defined herein has the meaning set forth elsewhere in this Consent Statement. The Solicitation The Solicitation and The Company is soliciting the Consents from Consent Payment...... the Holders of the Notes with respect to the Waivers. The Company is offering to pay to each Holder who validly consents to (and does not revoke such Consent) the Waivers prior to 5:00 p.m., New York City time, on the Expiration Date, the Consent Payment for such Notes. The Consent Payment will be made on the date of the closing of the Recapitalization (the "Consent Payment Date"). The Company's obligation to make the Consent Payment is expressly conditioned upon, and subject to, the closing of the Recapitalization. Purpose of the The purpose of the Solicitation is to obtain Solicitation....... the Requisite Consents to the waiver of: (i) the Company's obligations under Section 4.15 of the Indenture, including its obligation to make a Change of Control Offer in connection with the Recapitalization and (ii) the failure by the Company to comply with certain technical requirements relating to the qualification and operation of its financing subsidiary, OSI Funding, as an Unrestricted Subsidiary under the Indenture and any and all consequences arising therefrom under the Indenture. Requisite Consents.... The duly executed (and not revoked) Consents of the registered Holders of a majority of the outstanding aggregate principal amount of the Notes as of the Record Date (as defined) will be required to effect the Waivers under the Indenture governing the Notes (the "Requisite Consents"). Effective Date ....... The Consents shall become effective immediately upon the Company receiving the Requisite Consents and certifying to the Trustee that such Requisite Consents have been received (the "Effective Date"). The Consents shall cease to be effective in the event that the Solicitation is abandoned or terminated by the Company for any reason prior to the Consent Payment Date. Expiration Date....... The Expiration Date shall be November 19, 1999. The Company will not be obligated to accept any Consents received after the Expiration Date. The Company reserves the right to extend the Solicitation on a daily basis until 5:00 p.m., New York City time, on the date on which the Requisite Consents have been received. Withdrawal Rights..... Consents may be revoked at any time prior to the Effective Date by following the procedures described herein. Record Date........... Date The Record Date for purposes of the Solicitation is the close of business on November 5, 1999. Only Holders of Notes as of the Record Date may execute Consentsand receive the Consent Payment. Waiver; Extensions; The Company expressly reserves the right, in Amendments.......... its sole discretion, subject to applicable law, at any time or from time to time, to waive any conditions to the Solicitation, extend the Expiration Date or amend the terms of the Solicitation or terminate the Solicitation before the Consent Payment Date whether or not the Requisite Consents have been received. Brokerage Commissions. No brokerage commissions are payable by the Holders of the Notes to the Solicitation Agent, the Information Agent, the Company or the Paying Agent (as defined below). Solicitation Agent.... Donaldson, Lufkin & Jenrette Securities Corporation. Information and Tabulation Agent.... MacKenzie Partners, Inc. Paying Agent.......... U.S. Bank Trust National Association (the "Paying Agent"). Further Information... Additional copies of this Consent Statement may be obtained by contacting the Information Agent or the Solicitation Agent at their respective telephone numbers and addresses set forth on the back cover of this Consent Statement. Copies of the other documents incorporated by reference herein may be obtained as described below under "Additional Information; Incorporation of Certain Information by Reference." See "Certain Considerations" beginning on page 24 for a discussion of certain factors that should be considered in evaluating the Solicitation. BACKGROUND OF THE SOLICITATION Outsourcing Solutions Inc. The Company is one of the largest providers of accounts receivable management services in the United States with revenues of $497.8 million for the twelve months ended June 30, 1999 (the "LTM Period"). The Company believes that it differentiates itself from its competitors by providing a full range of accounts receivable management services on a national basis that allows its customers to outsource the management of the entire credit cycle. The Company's breadth of services across all stages of the credit cycle allows it to cross-sell services to existing customers as well as to expand its customer base by providing specific services to potential customers in targeted industries. These services include contingent fee services, portfolio purchasing services and outsourcing services, which accounted for approximately 72%, 17%, and 11% of revenues for the LTM Period, respectively. Contingent fee services involve collecting on delinquent consumer accounts for a fixed percentage of realized collections or a fixed fee per account. Portfolio purchasing services involve acquiring portfolios of non-performing consumer receivables from credit grantors, servicing such portfolios and retaining all amounts collected. Outsourcing services include contract management of accounts receivable, billing and teleservicing. The customer base for the accounts receivable management industry is dominated by credit grantors in four end-markets: banks, health care, utilities, and telecommunications. Other significant sources of account placements include retail companies, and student loan and other governmental agencies. The Company's customers include a full range of local, regional and national credit grantors such as American Express, AT&T, Citigroup, First USA, Sony, Time Warner, US West, Bally's, New Jersey Department of Treasury and various student loan guaranty agencies including the California Student Aid Commission, the Great Lakes Higher Education Corporation and USA Group Guaranty Services Inc. No customer of the Company accounted for more than 5% of the Company's revenues in 1998. The Company was formed in 1995 by McCown De Leeuw & Co., Inc., a private equity investment firm, to acquire Account Portfolios, Inc., one of the largest purchasers and servicers of non-performing accounts receivables portfolios. Since the Company's formation it has completed six additional acquisitions and has established itself as a leading industry consolidator. The Company has experienced significant growth in its business through internal growth and acquisitions, with its revenues increasing from $29.6 million in 1995 to $497.8 million in the LTM Period. Purpose of the Solicitation The purpose of the Solicitation is to obtain the Requisite Consents to the waiver of: (i) the Company's obligations under Section 4.15 of the Indenture, including its obligation to make a Change of Control Offer in connection with the Recapitalization and (ii) the failure by the Company to comply with certain technical requirements relating to the qualification and operation of its financing subsidiary, OSI Funding, as an Unrestricted Subsidiary under the Indenture and any and all consequences arising therefrom under the Indenture. See "The Solicitation - Purpose of the Solicitation." Source of Funds for Consent Payments The funds necessary to pay the Consent Payments will come out of the proceeds being raised to finance the Recapitalization. See "The Recapitalization - - Sources and Uses." THE RECAPITALIZATION General The Recapitalization will be effected pursuant to the Stock Subscription and Redemption Agreement, dated as of October 8, 1999 (the "Purchase Agreement"), between the Company, certain of its existing stockholders (the "Stockholders"), warrantholders (the "Warrantholders") and optionholders (the "Optionholders" and, collectively with the Stockholders and Warrantholders, the "Equityholders"), and Madison Dearborn Capital Partners III, L.P. (the "Purchaser"), a private equity investment fund. The Recapitalization will be effected under the terms of the Purchase Agreement as follows: Certain new investors, which may include the Purchaser, will purchase from the Company 100,000 units for an aggregate purchase price of $100.0 million. Each unit will consist of one share of 14% Senior Mandatorily Redeemable Preferred Stock (the "Preferred Stock") and a number of shares of Common Stock that, together with all other shares of Common Stock issued with the units, represents 8.7% of the fully diluted common equity of the Company as of the date of the closing of the Recapitalization (the "Closing"). The Purchaser and certain other investors will purchase Common Stock from the Company for an aggregate purchase price ranging from $195 million to $215 million, depending upon several factors, including the Company's revolver availability at the Closing and the transaction fees and expenses of the Recapitalization payable by the Company or the Purchaser. The total number of shares of Common Stock issued to the Purchaser will represent approximately 78.0% of the fully diluted common equity of the Company as of the Closing. At the Closing, the Company will redeem all of its outstanding preferred stock. Certain existing stockholders will retain a portion of their shares of Common Stock (the "Rollover Shares"), such that the Rollover Shares will represent approximately 6.3% of the fully diluted common equity of the Company as of the Closing. All other shares of Common Stock (including those issued upon the conversion of all the Company's outstanding warrants) will be redeemed by the Company at the Closing (the "Redemption Shares"). Each Optionholder will elect whether to retain some or all of their options to purchase Common Stock or to have them cashed out at the Closing. The aggregate consideration for the Redemption Shares will be $790 million, plus or minus a working capital adjustment, and minus the sum of the Company's debt at Closing, the value of the Rollover Shares, certain fees and expenses of the Company, and amounts paid or payable by the Company with respect to change of control payments to certain employees pursuant to existing employment agreements. All outstanding borrowings and obligations under the Company's existing credit agreement will be replaced and refinanced by a new $475.0 million senior credit facility (the "New Senior Credit Facility") at the Closing. The New Senior Credit Facility will consist of (i) a six-year non-amortizing $75.0 million revolving credit facility (approximately $4.0 million of which is expected to be drawn at Closing) and (ii) a $400.0 million term loan facility, which will be comprised of a $125.0 million six-year amortizing term loan A facility and a $275.0 million six and one half-year amortizing term loan B facility. See "- New Senior Credit Facility." Sources and Uses The following table sets forth the expected sources and uses of funds (dollars in millions) in connection with the Recapitalization, assuming the Recapitalization occurred on June 30, 1999. The actual amounts of such sources and uses may differ upon consummation of the Recapitalization and such differences may be material. Sources of Funds Amount Uses of Funds Amount - --------------------- ---------- ------------------- ------------ Notes................. $ 100.0 Refinance Existing Senior Credit Facility... $ 415.5 New Senior Credit Facility: Assumption of the Notes... 100.0 Term Loans......... 400.0 Redemption of Capital Stock................. 249.7 Revolving Credit Loans........... 4.0 Rollover Shares........... 15.8 Preferred Stock ...... 100.0 Fees and Expenses......... 24.2 Common Equity Investment.......... 195.4 Consent Payments ......... 10.0 Rollover Shares ...... 15.8 Other Indebtedness ....... 5.5 Other Indebtedness ... 5.5 --------- ---------- Total Sources ..... $ 820.7 Total Uses.......... $ 820.7 ========= ========== Conditions The Purchase Agreement contains customary conditions to the Closing, including that: (i) the representations and warranties of the parties are true and correct; (ii) the parties have performed all requirements specified in the Purchase Agreement; (iii) no preliminary injunction, decree or other order exists that would prohibit the consummation of the transaction; (iv) no statute, rule, regulation, executive order, decree or order of any kind exists that would prohibit the consummation of the transaction; (v) the parties have executed a stockholders agreement; (vi) the parties have delivered the requested certificates; and (vii) the parties have delivered the requested opinions of counsel. The Purchaser's obligation to complete the Recapitalization is subject to certain other conditions, including that: (i) no material adverse change has occurred; (ii) all necessary third party consents have been obtained; (iii) the Advisory Services Agreement, dated September 21, 1995, by and between OSI Holdings Corp. and MDC Management Company III, L.P. has been assigned to Purchaser; (iv) certain conditions to the financing of the Recapitalization have been satisfied including, among others, that Purchaser has obtained from the Holders, and the Trustee has taken all necessary actions with respect to, all waivers, consents and amendments necessary to (a) waive the failure by the Company to comply with certain technical requirements relating to the qualification and operation of OSI Funding as an Unrestricted Subsidiary under the Indenture and any and all consequences arising therefrom under the Indenture, and (b) have the Holders waive the Company's obligation to make a Change of Control Offer or to make a Change of Control Payment, in each case on terms and conditions Purchaser and the Company each deem satisfactory; (v) Purchaser has received the resignations, effective as of the Closing, of each non-employee director and officer of the Company and its subsidiaries other than those whom the Purchaser has specified in writing at least five business days prior to the Closing; (vi) the Company has obtained the vote of stockholders holding more than 75% of the voting power of all of the outstanding stock of the Company approving payments the Company has made or is or may be obligated to make that would be "parachute payments" (within the meaning of Internal Revenue Code ss. 280G(b)) so that any such payments either will not be excess parachute payments or will be exempt from treatment as a parachute payment under Code ss. 280G(b); (vii) the Company's preferred stock has been exchanged and the Company's nonvoting common stock has been converted as specified in the Purchase Agreement; (viii) the Company has neither received notification of the termination of its business relationship with its major customers nor experienced any material adverse change in the Company's contracts with its major customers; (ix) the stock to be redeemed has been delivered; and (x) an escrow agreement related to a potential working capital adjustment has been entered into. Indemnification From and after the Closing, the Company must and the Purchaser must cause the Company to maintain in effect in the Certificate of Incorporation of the Company the provisions with respect to indemnification set forth in Article Eight of the Certificate of Incorporation of the Company as in effect at the Closing. Such provisions may not be amended, repealed, or otherwise modified for a period of six (6) years from the Closing in any manner that would adversely affect the rights thereunder of individuals (or their estates) who at the date of the Purchase Agreement and/or as of the Closing are or were directors, officers, employees or agents of the Company or its Subsidiaries, unless such modification is required by law. Termination The Purchase Agreement may be terminated and the Recapitalization abandoned, at any time prior to the Closing: 1. by mutual consent of the Company and the Purchaser; 2. by the Company or the Purchaser if the Recapitalization has not been completed on or before December 31, 1999 (or such later date as may be agreed to in writing by the Company and the Purchaser), by reason of the failure of any condition to the consummation of the Recapitalization which must be fulfilled to its satisfaction, provided that no party may terminate the Purchase Agreement if such failure has been caused primarily by such party's material breach of the Purchase Agreement; 3. by either the Company or the Purchaser if (i) there are any inaccuracies, misrepresentations or breaches of the breaching party's representations or warranties in the Purchase Agreement, such that the nonbreaching party's obligation to effect the Recapitalization cannot be met, or (ii) the breaching party has breached or failed to perform in all material respects any of its material covenants or agreements contained within the Purchase Agreement as to which notice has been given to the breaching party and the breaching party has failed to cure or otherwise resolve to the reasonable satisfaction of the nonbreaching party within 15 days after receipt of such notice; or 4. by the Company or the Purchaser if a court of competent jurisdiction or other governmental body has issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the transactions contemplated by the Purchase Agreement and such order, decree, ruling or other action has become final and nonappealable. In the event of the termination of the Purchase Agreement by the Purchaser or the Company, written notice will be given to the other party or parties specifying the provision pursuant to which such termination is made, and the Purchase Agreement will become void and have no effect, and there will be no liability on the part of any party except under certain sections that survive any termination of the Purchase Agreement. Ancillary Agreements Simultaneous with the Closing, an escrow agreement (the "Escrow Agreement") and a stockholders agreement (the "Stockholders Agreement") will be entered into. The Escrow Agreement will be among McCown De Leeuw & Co., Inc., as the seller's representative for the Equityholders, and an escrow agent to be identified by McCown De Leeuw & Co., Inc., as Escrow Agent (the "Escrow Agent"). The Purchase Agreement provides for adjustments to the redemption price payable for the Redemption Shares depending on Company's closing date working capital, and that as a result of such adjustments certain payments may be required to be made. To facilitate such payments, the Purchase Agreement provides for the deposit into escrow of $5.0 million otherwise payable at the Closing to the Equityholders. The Stockholders Agreement will be among the Company, the Purchaser and certain Equityholders and will provide for, among other things, (i) the composition of the Company's Board of Directors (the "Board"); (ii) certain "drag along" and "tag along" rights among the parties thereto and (iii) certain restrictions on the ability of the Equityholders to transfer their shares of Common Stock. The Purchaser MDP is one of the largest and most experienced private equity investment firms in the United States. MDP's principals manage Madison Dearborn Capital Partners III, L.P. ("MDCPIII"), a $2.2 billion investment fund raised in 1999, Madison Dearborn Capital Partners II, L.P. ("MDCPII"), a $925.0 million investment fund raised in 1996, and Madison Dearborn Capital Partners, L.P. ("MDCP"), a $550.0 million investment fund raised in 1993. Previously, MDP's principals built a $2.0 billion management buyout and venture capital portfolio at First Chicago Corporation. MDP focuses on management and venture capital transactions and a wide range of other private equity investments, including growth equity financings, recapitalizations and acquisition-oriented financing transactions. MDP focuses on investments in several specific industries, including financial services, communications, natural resources, consumer, health care and industrial. MDP's long-standing investment philosophy is to invest in companies that have outstanding management teams and the potential for significant long-term equity appreciation. Management Board of Directors. Pursuant to the Stockholders Agreement, the authorized number of directors on the Board following the Recapitalization will be established at such number as will be determined from time to time in the sole discretion of MDCPIII. The Stockholders Agreement provides that the following individuals will be elected to the Board: (i) one individual designated by MDCPIII who is a member of the Company's management, provided that until the first annual meeting of the Company's stockholders, Timothy G. Beffa will serve as such Management Director; and (ii) other individuals designated by MDCPIII, who will initially be Paul R. Wood, Timothy M. Hurd and two other persons to be specified by MDCPIII; provided that MDCPIII may authorize one or more other persons to designate one or more additional individuals to be elected to the Board on such terms and conditions as the Purchaser will determine in its sole discretion. A brief description of each person who will serve on the Board following the Recapitalization is set forth below: Paul R. Wood. Mr. Wood has served as a principal of MDCPIII, MDCPII and MDCP since their respective formations in March 1999, June 1996 and January 1993, and as a Vice President or Managing Director of MDP, their indirect general partner. Prior to that time, Mr. Wood served as Vice President of First Chicago Venture Capital, which comprised the private equity investment activities of First Chicago Corporation, the holding company parent of First National Bank of Chicago. Mr. Wood serves on the board of directors of Hines Horticulture, Inc., Eldorado Bancshares Inc., Woods Equipment Company and a number of private companies. Timothy M.Hurd. Mr. Hurd has served as a principal of MDCPIII and MDCPII since their respective formations in March 1999 and June 1996, and as a Director of MDP, their indirect general partner. Mr. Hurd joined MDP in 1996 following his graduation from Harvard Business School. From 1992 to 1994, Mr. Hurd was employed by Goldman, Sachs & Co. Mr. Hurd also serves on the board of directors of Woods Equipment Company. Timothy G. Beffa. Mr. Beffa has served as President, Chief Executive Officer and a Director of the Company since August 1996. From August 1995 until August 1996, Mr. Beffa served as president and chief operating officer of DIMAC Corporation and DIMAC DIRECT Inc. and a director of DIMAC DIRECT Inc. From 1989 until August 1995, Mr. Beffa served as a vice president of DIMAC Corporation and as senior vice president and chief financial officer of DIMAC DIRECT Inc. Prior to joining the Company, Mr. Beffa was vice president of administration and controller for the Internal Division of Pet Incorporated, a food and consumer products company, where he previously had been manager of financial analysis. Mr. Beffa currently serves as a director of DIMAC Holdings, Inc. and DIMAC Corporation. Executive Officers. All of the current non-director executive officers of the Company and its subsidiaries will continue to serve in such capacities following the Recapitalization on substantially the same terms and conditions other than those whom the Purchaser shall have specified in writing at least five business days prior to the Closing. New Senior Credit Facility DLJ Capital Funding, Inc. has issued a commitment letter to MDCPIII under which it has committed, subject to the terms and conditions set forth therein, to provide senior secured facilities to the Company under the New Senior Credit Facility. The New Senior Credit Facility will consist of (i) a six-year non-amortizing $75.0 million revolving credit facility (the "Revolving Facility") and (ii) a $400.0 million term loan facility (the "Term Facility"), which will be comprised of a $125.0 million six-year amortizing term loan A facility (the "Term A Facility") and a $275.0 million six and one half-year amortizing term loan B facility (the "Term B Facility"). Set forth below is a brief description of the material terms of the New Senior Credit Facility. Definitive documents relating to the New Senior Credit Facility are still being negotiated and thus the terms set forth herein are subject to change. Repayment The Term A Facility and Term B. Facility mature in quarterly installments, resulting in aggregate annual amortization payments as a percentage of the initial principal amount as follows: Year after Closing Annual Amortization ----------------------------- ------------------------------ (In percentage of the initial principal amount) Term A Facility Term B Facility* --------------- ---------------- 1............................... 0.0% 1.0% 2............................... 5.0% 1.0% 3............................... 10.0% 1.0% 4............................... 20.0% 1.0% 5............................... 25.0% 1.0% 6............................... 40.0% 94.5% * With respect to the Term B Facility, aggregate annual amortization payments as a percentage of the initial principal amount are 1.0% for years 1-5.5 and 94.5% for year 6.5. Guarantees; Security The New Senior Credit Facility will be secured by a first-priority, perfected lien on: (i) substantially all property and assets (tangible and intangible) of the Company and its present and future domestic subsidiaries (excluding OSI Funding), including all capital stock of all direct and indirect subsidiaries of the Company (excluding OSI Funding); provided, however, that no more than 65% of the equity interests of non-U.S. subsidiaries of the Company will be required to be pledged as security; (ii) 100% of the capital stock of the Company; and (iii) all intercompany indebtedness in favor of the Company and its domestic subsidiaries (excluding OSI Funding). Interest At the Company's option, the interest rates per annum applicable to the Revolving Facility, Term A Facility and Term B Facility will bear interest at the Administrative Agent's alternate base rate or reserve-adjusted LIBO rate plus, in each case, the applicable margins set forth below: Applicable Margins ----------------------------------------- Alternate Base Rate LIBO Rate ------------------- --------- Revolving Facility............... 2.25% 3.25% Term A Facility.................. 2.25% 3.25% Term B Facility.................. 2.75% 3.75% Commencing after the first two full fiscal quarters after the Closing, the applicable margin to be used in calculating the interest rates under the Revolving Facility and Term A Facility will be based upon the ratio of the Company's total debt to EBITDA (the "Leverage Ratio") as follows: Applicable Margins ----------------------------------------------- Leverage Ratio Alternate Base Rate LIBO Rate -------------- ------------------- --------- >4.0x 2.25% 3.25% - >3.5x 1.75% 2.75% - >2.75x 1.25% 2.25% - <2.25x 0.75% 1.75% Interest periods for the LIBO rate will be, at the Company's option, one, two, three or six months. Interest for the LIBO rate loans will be payable on the last business day of the applicable interest period thereof (or, if earlier, each third month following the commencement of such interest period). Interest on the alternative base rate loans will be payable monthly in arrears. Prepayments The Company is permitted to voluntarily prepay its obligations under the New Senior Credit Facility without penalty (exclusive of customary LIBO rate breakage costs). Obligations under the New Senior Credit Facility are subject to customary, mandatory prepayments including, without limitation, with (i) 100% of net cash proceeds from the issuance of debt securities and sales of assets (subject to certain exceptions), (ii) 50% of net cash proceeds from the issuance of equity securities (subject to the exceptions and the maintenance of a specified leverage ratio) and (iii) 50% of excess cash flow proceeds (subject to maintaining a specified leverage ratio). Conditions; Covenants; Events of Default The effectiveness of the New Senior Credit Facility will be subject to customary conditions. The New Senior Credit Facility will contain customary covenants restricting the Company's ability, and the ability of its subsidiaries to (with limited exceptions), among other things: (i) incur debt, (ii) subject the Company's assets to liens or other encumbrances, (iii) incur contingent liabilities, (iv) enter into sale/lease-back transactions, (v) pay dividends or similar distributions, (vi) sell assets other than in the ordinary course of business, (vii) merge or consolidate, (viii) enter into transactions with affiliates, (ix) make investments or capital expenditures in excess of specified levels and (x) refinance, defease, repurchase or prepay subordinated debt. In addition, the New Senior Credit Facility will require the Company to meet certain financial performance tests, including: (i) a maximum leverage ratio, (ii) a minimum interest coverage ratio, (iii) a minimum fixed charge ratio and (iv) a minimum EBITDA. The New Senior Credit Facility will contain events of default customary for a recapitalization, including, among others, a default under the New Senior Credit Facility upon a change in control and defaults in other agreements. THE SOLICITATION Purpose of the Solicitation Change of Control. The Company is soliciting Consents to the waiver of the Company's obligations under Section 4.15 of the Indenture, including its obligation to make a Change of Control Offer in connection with the Recapitalization. Under the Indenture, a Change of Control is defined to include, among other things, the acquisition by any Person or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (other than Principals and Related Parties) of a direct or indirect interest in more than 35% of the voting power of the voting stock of the Company by way of merger or consolidation or otherwise. Absent a waiver of the Company's obligations under Section 4.15, the Purchaser's acquisition of approximately 78.0% of the Company's fully diluted common equity in connection with the Recapitalization will constitute a Change of Control under the Indenture. Section 4.15 of the Indenture and all related defined terms are set forth in their entirety on Annex I attached hereto. Upon receipt by the Company of the Requisite Consents, the Consents being solicited hereby will become effective and the Company will not be obligated to make a Change of Control Offer or Change of Control Payment under Section 4.15 of the Indenture in connection with the Recapitalization to any Holder of Notes regardless of whether such Holder executed a Consent. The waiver being solicited hereby with respect to the Change of Control relates only to the Company's obligations under Section 4.15 of the Indenture in connection with the Recapitalization and will not serve to waive any future rights the Holders may have under Section 4.15 of the Indenture, or to amend, alter or otherwise modify any of the terms of the Indenture, including Section 4.15 thereof. Unrestricted Subsidiary Designation. The Consents will also serve to waive the failure by the Company to comply with certain technical requirements relating to the qualification and operation of its finance subsidiary, OSI Funding, as an Unrestricted Subsidiary under the Indenture and any and all consequences arising therefrom under the Indenture. In September 1998, the Company formed OSI Funding as a qualifying special-purpose finance company for use in helping to fund its portfolio purchasing business. Since its formation, OSI Funding has been a nonconsolidated, bankruptcy-remote, wholly owned subsidiary of the Company. In connection with its formation, OSI Funding entered into a revolving warehouse financing arrangement for up to $100.0 million of funding capacity for the purchase of loans and accounts receivable portfolios, approximately $35.0 million of which is currently utilized. A majority of all receivables portfolios purchased by the Company or its subsidiaries are now sold to OSI Funding utilizing such financing arrangement. Such transactions with OSI Funding are required to be on the same economic terms as those by which the Company or its subsidiaries initially purchases the receivables portfolio from third party credit grantors. A subsidiary of the Company, through a servicing agreement with OSI Funding, provides certain administrative and collection services on a contingent fee basis. Through OSI Funding, the Company is able to fund the purchase of portfolios on an off-balance sheet basis, thereby substantially increasing the Company's available cash flow for servicing its debt. The Company's initial investment in OSI Funding was $2.5 million, and the Company has made investments in OSI Funding aggregating $5.0 million, inclusive of the initial investment. Since the formation of OSI Funding, the Company has treated OSI Funding as an Unrestricted Subsidiary under the Indenture. Unlike a Restricted Subsidiary, which is required to guarantee payment of the Notes and generally is subject to the covenant restrictions under the Indenture, an Unrestricted Subsidiary is not required to guarantee payment of the Notes and, for the most part, is not subject to such covenant restrictions. Under the Indenture, a Subsidiary is deemed to be a Restricted Subsidiary unless it otherwise qualifies as an Unrestricted Subsidiary. In order for a Subsidiary to qualify as an Unrestricted Subsidiary, the following conditions must be satisfied: (i) the Subsidiary must be designated as an Unrestricted Subsidiary by the Company's Board of Directors pursuant to a Board Resolution and a certified copy of such Board Resolution, together with an Officer's Certificate certifying that such designation complied with the applicable conditions and was in accordance with the provisions under the Indenture relating to Restricted Payments, must be filed with the Trustee under the Indenture; (ii) the Subsidiary has no Indebtedness other than Non-Recourse Debt; (iii) the Subsidiary is not a party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (iv) the Subsidiary must be a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person's financial condition or cause such Person to achieve any specified levels of operating results; (v) the Subsidiary has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries; (vi) the Subsidiary has at least one director on its board directors that is not a director or executive officer of the Company or any of its Restricted Subsidiaries; and (vii) the Subsidiary has at least one executive officer that is not a director or executive officer of the Company or any of its Restricted Subsidiaries. The definition of an Unrestricted Subsidiary is set forth in its entirety on Annex II attached hereto. It has recently come to the attention of the Company that, at the time of formation of OSI Funding, the Company failed to take certain ministerial actions to satisfy the technical requirements under the Indenture for the designation of OSI Funding as an Unrestricted Subsidiary, despite the fact that it could have been designated as such at that time. Namely, the Company did not satisfy items (i) and (vii) set forth above at the time of formation of OSI Funding, and the Company's obligation under the terms of OSI Funding's financing arrangements to purchase an additional $2.5 million of equity in OSI Funding if certain borrowing thresholds were exceeded by OSI Funding conflicted with item (iv)(a) set forth above. The Company has since made this additional equity investment in OSI Funding and currently does not have any obligation to purchase or subscribe for additional equity interests in OSI Funding. But for these deficiencies, OSI Funding would have otherwise satisfied the requirements for qualification as an Unrestricted Subsidiary under the Indenture at the time of its formation. Had OSI Funding been properly designated an Unrestricted Subsidiary from the time of its formation, the Company's investments in OSI Funding would have been Permitted Investments under the Indenture. If OSI Funding were not to be treated as having been an Unrestricted Subsidiary since its formation, the Company and OSI Funding would not be in compliance with certain restrictive covenants of the Indenture. If it were determined that the Company was not in compliance with the Indenture, the Trustee or the Holders of 25% of the aggregate principal amount of the Notes could notify the Company to comply with such restrictive covenants under the Indenture, and, if the Company failed to so comply within the applicable grace period, could declare the Notes to be immediately due and payable. In such event, the aggregate principal amount of the Notes plus accrued and unpaid interest thereon to the date of payment would, subject to the subordination provisions of the Indenture, then be due and payable. While the Company believes that its failure to properly qualify and operate OSI Funding as an Unrestricted Subsidiary under the Indenture is a technicality and that substantively OSI Funding should be treated as qualifying as an Unrestricted Subsidiary since its formation, in order to remove any doubt as to the status of OSI Funding as an Unrestricted Subsidiary for the benefit of the Purchaser, the Company is seeking the waiver of its failure to properly qualify and operate OSI Funding as an Unrestricted Subsidiary and any and all consequences arising therefrom. Subject to the effectiveness of the Consents, OSI Funding will be treated as having been duly designated as an Unrestricted Subsidiary since its formation. Such actions will thereby cure any asserted failure by the Company and OSI Funding to be in compliance with the provisions of the Indenture arising as a result of the Company not having properly qualified and operated OSI Funding as an Unrestricted Subsidiary and any and all consequences arising therefrom. Section 4.11 of the Indenture requires that the Company deliver to the Trustee an opinion from an accounting, appraisal or investment banking firm of national standing as to the fairness to the Holders of the Notes of any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $5.0 million (a "Fairness Opinion"). Section 4.11 of the Indenture is set forth in its entirety on Annex III attached hereto. The execution of the servicing agreement between the Company and OSI Funding in connection with the formation of OSI Funding and the transactions undertaken pursuant thereto from time to time thereafter were Affiliate Transactions involving aggregate consideration in excess of $5.0 million. In addition, on four occasions the sale of receivables portfolios by the Company to OSI Funding involved aggregate consideration in excess of $5.0 million. As a result, the Company was required in connection with the servicing agreement and such sales to obtain Fairness Opinions. Although the Company did not obtain Fairness Opinions at such times, it has since retained an appraisal firm of national standing to provide such Fairness Opinions. The Company believes the appraisal firm will be able to provide it with the Fairness Opinions. The Company expects to receive such Fairness Opinions prior to the completion of the Recapitalization. Upon receipt of Fairness Opinions with respect to the transactions referred to above, the Company will have satisfied the requirements of Section 4.11 of the Indenture with respect to any potential noncompliance arising out of those transactions. The Waivers constitute a single proposal with respect to the Indenture and a consenting Holder must Consent to the Waivers as an entirety and may not consent selectively with respect to the Waivers. If the Consents are received from registered Holders of at least a majority of the aggregate principal amount of the outstanding Notes, such Consents will apply to all Notes issued under the Indenture and each Holder of such Notes will be bound by such Consents regardless of whether such Holder executed a Consent. Consent Payment The Consent Payment is an amount in cash equal to $100 for each $1,000 of principal amount of Notes as to which the Consents have been validly delivered and not validly revoked at or prior to 5:00 p.m., New York City time, on the Expiration Date. The Company will pay the Consent Payment on the Consent Payment Date, subject to the Company's right to abandon or terminate the Solicitation, in its sole discretion, prior to the Consent Payment Date. In addition, the Company's obligation to make the Consent Payment is expressly conditioned upon, and subject to, the Closing. In the event that the Solicitation is withdrawn or otherwise not completed, the Consent Payment will not be paid or become payable to Holders of the Notes who have validly delivered their Consents in connection with the Solicitation. In all cases, payment of the Consent Payment shall constitute consideration with respect to the tender of Consents and will be made only after timely receipt by the Information Agent and acceptance by the Company of (i) the properly completed and duly executed Consents and (ii) any other documents required by the Consent. The Consent Payments will be deposited by the Company with the Paying Agent, which will act as agent for the consenting Holders for purposes of receiving payment from the Company and transmitting payments to the consenting Holders on the Consent Payment Date. Requisite Consents; Record Date; Effective Date; Expiration Date To effect the Waivers, the registered holders of at least a majority of the aggregate principal amount of the Notes outstanding under the Indenture as of the Record Date must tender their Consents thereto. Notwithstanding the foregoing, for purposes of determining whether the Requisite Consents have been delivered by the Holders, Notes held by the Company, any Guarantor or any of their respective affiliates will be disregarded. The Record Date for purposes of the Solicitation is the close of business on November 5, 1999. Only Holders of Notes as of the Record Date may execute Consents and receive the Consent Payment. The Consents shall become effective immediately upon the Company receiving the Requisite Consents and certifying to the Trustee that such Requisite Consents have been received. The Consents shall cease to be effective, and no Consent Payment will be made in respect thereof, in the event that the Solicitation is abandoned or terminated by the Company for any reason prior to the Consent Payment Date. The Expiration Date shall be November 19, 1999. The Company will not be obligated to accept any Consents received after the Expiration Date. The Company reserves the right to extend the Solicitation on a daily basis until 5:00 p.m., New York City time, on the date on which the Requisite Consents have been received. Waiver; Extensions; Amendments The Company expressly reserves the right, in its sole discretion, subject to applicable law at any time or from time to time, to: 1. abandon or terminate the Solicitation for any reason at any time prior to the Consent Payment Date, not accept any Consents before the Consent Payment Date whether or not the Requisite Consents have been received by such date, or postpone the acceptance of any Consents or delay the Consent Payment for Consents accepted; 2. waive any condition to the Solicitation and accept all Consents previously delivered pursuant to the Solicitation; 3. extend the Expiration Date of the Solicitation and retain all Consents tendered pursuant thereto, subject to the withdrawal rights of Holders; and 4. amend the Solicitation in any respect until the Consents that are the subject thereof are delivered. If the Company extends the Solicitation or if, for any reason, the acceptance of the Consents is delayed or if the Company is unable to accept the Consents or pay the Consent Payment pursuant to the Solicitation, then the Information Agent may retain the delivered Consents which have not been previously withdrawn on behalf of the Company, and such Consents may not be withdrawn except to the extent consenting Holders are entitled to withdrawal rights. Any extension, termination or amendment of the Solicitation may be made by giving written or oral notice thereof to the Information Agent, which will be followed as promptly as practicable by a public announcement thereof. In the case of an extension, a public announcement will be issued prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date of the Solicitation subject to such extension. Without limiting the manner in which the Company may choose to make any public announcement, the Company shall have no obligation to publish, advertise or otherwise communicate any such public announcement other than by making a release to the Dow Jones News Service or otherwise as required by law. All Consents provided pursuant to the Solicitation prior to any extension and not subsequently withdrawn will remain subject to the Solicitation. The terms of any extension or amendment of the Solicitation may vary from the original Solicitation. There can be no assurance that the Company will exercise its right to extend, terminate or amend the Consent Statement. If the Company amends the terms of the Solicitation, such amendment will apply to all Consents delivered pursuant thereto regardless of when or in what order such Consents were delivered. The Company does not presently intend to change the terms of the Solicitation, including the amount of the Consent Payment. If the Company makes a material change in the terms of the Solicitation or the information concerning the Solicitation or waives any condition of the Solicitation that results in a material change to the circumstances of the Solicitation, the Company will disseminate additional Solicitations and solicitation material if and to the extent required by applicable law and will extend the Solicitation if and to the extent required in order to permit the Holders subject to the Solicitation adequate time to consider such materials. If the Company decides, in its sole discretion, to increase or decrease the Consent Payment, the Company will, to the extent required by applicable law, cause the Solicitation to be extended, if necessary so that the Solicitation remains open at least until the expiration of three business days from the date that such notice is first published, sent or given by the Company. For purposes of this paragraph, "business day" has the meaning set forth in Rule 14d-1(c)(6) under the Exchange Act. In addition, with respect to any other material change in the Solicitation or the information concerning the Solicitation, the minium period during which the Solicitation must remain open following such material change depends upon the facts and circumstances including, the relative materiality of such terms or information. Consent Procedures The Notes are currently on deposit with The Depository Trust Company ("DTC") and are registered in the name of DTC's nominee, Cede & Co., as nominee holder of the Notes. Cede & Co. will execute an omnibus proxy which will authorize its participants (each, a "Participant") to consent with respect to the Notes owned by it and held in the name of Cede & Co. as specified on the DTC position listing of Cede & Co., as of the Record Date, with respect to the Notes. The term "Holder" as used in this Consent Statement means (i) each person (a) in whose name the Notes are registered as of the Record Date; or (b) whose name appears on a securities position listing of DTC as the holder of an interest in the Notes as of the Record Date and whom DTC has authorized to consent to the Waivers and (ii) any other person who has been authorized by proxy or in any other manner acceptable to the Company to vote Notes on behalf of the registered Holder thereof. Pursuant to Section 9.04 of the Indenture, a Consent with respect to all or a portion of a Note is a continuing Consent with respect to such Note or portion of a Note notwithstanding a subsequent transfer of ownership of such Note. Consents may be revoked prior to the Effective Date, only by the Holder granting such Consent (or a duly authorized proxy of such person) by following the procedures set forth herein. Such revocation shall terminate the previously delivered Consent with respect to such Note unless a new Consent is given prior to the Expiration Date by following the procedure set forth herein. Giving a Consent will not affect the right of a Holder to sell or transfer the Notes, and such Consent shall be binding upon a subsequent holder of the Notes. The Company is requesting that any and all of the Holders execute the Consent Form accompanying this Consent Statement. The Consent Form must be executed by the Holder in the same manner as the Holder's name appears in the register maintained by the Trustee or on a DTC securities position listing reflecting such Holder as an owner of such Notes. If the Notes are held in more than one name, as reflected therein, such Consent Form must be executed by each such Holder. If the Consent Form is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation, or other person acting in a fiduciary or representative capacity, such person should so indicate when signing and should submit with the Consent Form appropriate evidence of authority to execute the Consent Form. If the Notes owned by a Holder are held in different names, as reflected in such register or on such securities position listing, separate Consent Forms must be executed covering all such Notes. If applicable, the Consent Form should set forth the DTC participant number relating to the Notes with respect to which a Consent is given. In addition, if the Consent Form relates to less than the total principal amount of the Notes at maturity held in the name of such Holder, the Holder must list the principal amounts of the Notes at maturity to which the Consent Form relates. Otherwise, the Consent Form will be deemed to relate to the total principal amount of the Notes at maturity held in the name of such Holder. Any beneficial owner whose Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to Consent should promptly contact the person in whose name its Notes are registered and instruct such registered Holder to Consent on its behalf. A Letter of Instruction is contained in the solicitation materials provided along with this Consent Statement which may be used by a beneficial owner to instruct the record Holder to deliver Consents. If a beneficial owner wishes to Consent on its own behalf, it must, prior to completing and executing the Consent, either make appropriate arrangements to register ownership of the Notes in its name or obtain a properly completed bond power from the registered Holder. The transfer of registered ownership may take considerable time. All questions as to the validity, form, eligibility (including time of receipt) and the acceptance of Consents will be resolved by the Company, in its sole discretion, whose determination shall be binding. The Company reserves the absolute right to reject all Consents that are not in proper form or the acceptance of which could, in the opinion of its counsel, be unlawful. The Company also reserves the right to waive any irregularities or conditions of delivery as to particular Consents, including the requirement that Consents must be delivered prior to the Expiration Date in order to receive the Consent Payment. Unless waived, any irregularities in connection with the deliveries must be cured within such time as the Company determines. None of the Company, the Solicitation Agent, the Information Agent, the Paying Agent and any other person will be under any duty to give notification of any such irregularities or waiver. Deliveries of such Consents will not be deemed to have been properly made until such irregularities have been cured or waived. The interpretation of the Company of the terms and conditions of this Solicitation shall be binding. Consents to the Waivers, to be effective, must be properly executed and received by the Company prior to the Expiration Date. The method of delivery of all documents, including the fully executed Consent Form, is at the election and risk of the Holder. Each Holder wishing to consent to the Waivers must complete, sign and date the Consent Form accompanying this Consent Statement (or a facsimile thereof) in accordance with the instructions set forth herein and therein and hand deliver, send by overnight courier or send by facsimile transmission, to the Information Agent as follows: By Mail, Overnight Courier or Hand: MacKenzie Partners, Inc. 156 Fifth Avenue New York, NY 10010 Attention: Simon Coope By Facsimile: (212) 929-0061 Confirm by Telephone: (212) 929-5500 (Call Collect) (800) 322-2885 (Toll Free) HOLDERS WHO WISH TO CONSENT SHOULD HAND DELIVER, SEND BY OVERNIGHT COURIER OR SEND BY FACSIMILE TRANSMISSION, THEIR PROPERLY COMPLETED AND EXECUTED CONSENT FORM TO THE INFORMATION AGENT IN ACCORDANCE WITH THE INSTRUCTIONS SET FORTH HEREIN AND THEREIN. HOWEVER, THE COMPANY RESERVES THE RIGHT TO ACCEPT ANY CONSENT RECEIVED BY IT OR THE INFORMATION AGENT. IN NO EVENT SHOULD A HOLDER TENDER OR DELIVER NOTES. Withdrawal Rights Consents may be revoked at any time prior to the Effective Date. Each properly completed and executed Consent will be counted, notwithstanding any transfer of the Notes to which such Consent relates, unless the procedure for revoking Consents described below has been complied with. Consents may only be revoked by the Holder granting such Consent (or a duly authorized proxy of such Holder). For a revocation of Consents to be effective prior to the Effective Date a written notice must be received by the Information Agent at its address set forth above or on the back cover of this Consent Statement. Any such notice of revocation must (i) specify the name of the person having executed the Consent being revoked, (ii) identify the aggregate principal amount of the Notes held by such person, and (iii) be signed by the Holder in the same manner as the original signature on the Consent or be accompanied by a bond power, and a properly completed irrevocable proxy, in each case in the name of the person revoking the Consent, in a satisfactory form as determined by the Company in its sole discretion, duly executed by the registered Holder. A purported notice of revocation which lacks any of the required information or is dispatched to any other address will not be an effective withdrawal of a Consent previously made. Revocation of Consents can only be accomplished in accordance with the foregoing procedures. Any permitted revocation of Consents may not be rescinded; and any Consents so withdrawn will thereafter be deemed not validly tendered for purposes of the Consent Payment; provided, however, that revoked Consents may again be tendered by following the procedures for tendering at or prior to the Expiration Date. All questions as to the validity (including time of receipt) of notices of revocation will be determined by the Company, in its sole discretion, whose determination will be final and binding. None of the Company, the Solicitation Agent, the Information Agent, the Paying Agent and any other person will be under any duty to give notification of any defects or irregularities in any notice of revocation, or shall incur any liability for failure to give any such notification. Fees and Expenses In addition to the fees and expenses payable to the Solicitation Agent, the Company will pay the Paying Agent reasonable and customary fees for its services (and will reimburse it for its reasonable out-of-pocket expenses in connection therewith), and will pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding copies of this Solicitation and related documents to the beneficial owners of the Notes and in handling or forwarding their Consents. Information, Tabulation and Paying Agents The Information and Tabulation Agent for the Solicitation is MacKenzie Partners, Inc. All deliveries, correspondence and questions sent or presented to the Information Agent relating to the Solicitation should be directed to the address or telephone number set forth on the back cover of this Consent Statement. The Company will pay the Information Agent reasonable and customary compensation for its services in connection with the Solicitation, plus reimbursement for reasonable out-of-pocket expenses. The Company will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the federal securities laws. U.S. Bank Trust National Association is acting as the Paying Agent for the Company in connection with the Solicitation. The Company will pay the Paying Agent reasonable and customary compensation for such services, plus reimbursement for reasonable out-of-pocket expenses. Brokers, dealers, commercial banks and trust companies will be reimbursed by the Company for customary mailing and handling expenses incurred by them in forwarding material to their customers. The Company will not pay any fees or commissions to any broker, dealer or other person (other than the Information Agent) in connection with the Solicitation. CAPITALIZATION The following table sets forth the Company's unaudited capitalization as of June 30, 1999, on an actual basis and a pro forma basis giving effect to the Recapitalization and related financing transactions as if they occurred on such date. The information in the following table should be read in conjunction with the "Unaudited Pro Forma Financial Data" included elsewhere in this Consent Statement. Unaudited ------------------------- As of June 30, 1999 ------------------------- Actual Pro Forma ------ --------- (dollars in millions) Debt: Existing Senior Credit Facility $ 415.5 $ - New Senior Credit Facility:(1) Revolving Credit Facility - 4.0 Term A Facility - 125.0 Term B Facility - 275.0 Notes 100.0 100.0 Other indebtedness 5.5 5.5 ------------ ------------- Total debt $ 521.0 $ 509.5 Preferred Stock - 100.0 Stockholders' deficit(2) (36.1) (123.3) ------------ ------------- Total capitalization $ 484.9 $ 486.2 ============ ============= (1) The New Senior Credit Facility will provide for revolving credit borrowings of up to $75.0 million, $4.0 million of which the Company expects to borrow at Closing. (2) See "Unaudited Pro Forma Consolidated Balance Sheet." UNAUDITED PRO FORMA FINANCIAL DATA The following unaudited pro forma financial data (the "Unaudited Pro Forma Financial Data") of the Company have been derived by the application of pro forma adjustments to the historical financial statements of the Company for the periods indicated. The adjustments are described in the accompanying notes. The Unaudited Pro Forma Statement of Operations for the year ended December 31, 1998 and the six month period ended June 30, 1999 gives effect to the Recapitalization and related financing transactions, as if such transactions had occurred at the beginning of the earliest period presented. The Unaudited Pro Forma Balance Sheet as of June 30, 1999 gives effect to the Recapitalization and related financing transactions as if such transactions occurred on such date. The Unaudited Pro Forma Financial Data do not give effect to any other transactions except those discussed in the accompanying notes. The Unaudited Pro Forma Financial Data are provided for informational purposes only and do not purport to represent the results of operations or financial position of the Company had the Recapitalization and related financing transactions in fact occurred on such dates nor do they purport to be indicative of the financial position or results of operations as of any future date or any future period. The Unaudited Pro Forma Financial Data and accompanying notes should be read in conjunction with the financial statements and accompanying notes thereto and the other financial information incorporated by reference herein. OUTSOURCING SOLUTIONS INC. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET (Dollars in Thousands) As of June 30, 1999 ----------------------------------- Historical Adjustments Pro Forma ---------- ----------- --------- ASSETS CURRENT ASSETS: Cash and cash equivalents - operating $ 6,889 $ 6,889 Cash and cash equivalents held for clients 25,206 25,206 Current portion of purchase loans and accounts receivable portfolios 30,202 30,202 Accounts receivable - trade, 45,165 45,165 Other current assets 9,209 9,209 TOTAL CURRENT ASSETS 116,671 116,671 PURCHASED LOANS AND ACCOUNTS RECEIVABLE PORTFOLIOS 8,902 8,902 PROPERTY AND EQUIPMENT, net 40,111 40,111 DEFERRED FEES 12,307 $1,316(1) 13,623 INTANGIBLE ASSETS, net 418,452 418,452 OTHER 2,778 2,778 TOTAL ASSETS $599,221 $ 1,316 $600,537 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable - trade $8,036 8,036 Accounts payable - clients 25,206 25,206 Accrued salaries and wages 13,190 13,190 Current maturities of notes payable 18,749 $(15,304)(2) 3,445 Other current liabilities 46,171 46,171 TOTAL CURRENT LIABILITIES 111,352 96,048 (15,304) NOTES PAYABLE, NET OF CURRENT PORTION Term debt 370,700 26,550(2) 397,250 Revolver 26,700 (22,700)(2) 4,000 11% Senior Subordinated Notes 100,000 100,000 Other notes payable 4,818 4,818 OTHER LONG-TERM LIABILITIES 21,743 21,743 TOTAL LIABILITIES 635,313 (11,454) 623,859 REDEEMABLE PREFERRED STOCK $ - $100,000(3) $100,000 STOCKHOLDERS' EQUITY: Common stock and additional paid in capital $ 80,170 $(65,796)(4) $ 14,374 Accumulated deficit (116,262) (21,434)(4) (137,696) Total Stockholders' Deficit (36,092) (87,230) (123,322) TOTAL LIABILITIES, PREFERRED $599,221 $ 1,316 $600,537 STOCK AND STOCKHOLDERS' EQUITY See related Notes to the Unaudited Pro Forma Consolidated Balance Sheet. NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET (Dollars in Thousands) 1. Reflects deferred debt issuance costs relating to the New Senior Credit Facility and deferred costs relating to the Consents from Holders of the Notes of $12,750, net of write-off of existing deferred financing costs of $11,434. 2. Reflects revolving credit and term loan borrowings and the repayment of existing debt as follows: Current portion of long term debt borrowings under the New Senior Credit Facility based on scheduled repayments $ 2,750 Retirement of existing OSI term loans (18,054) ---------------- Net Adjustment $ (15,304) ================ Long term portion of term loan borrowings under the New Senior Credit Facility based on scheduled repayments $ 397,250 Retirement of existing OSI term loans (370,700) ---------------- Net Adjustment $ 26,550 ================ Initial draw of revolving credit notes under the New Senior Credit Facility $ 4,000 Retirement of existing OSI revolving credit notes (26,700) ---------------- Net Adjustment $ 22,700) ================ 3. Reflects the issuance of the Preferred Stock. 4. Reflects the following relating to the Recapitalization: Equity Purchase Price $ (265,482) Common Equity Investment 211,186 Equity related transaction expenses (11,500) ---------------- Net Adjustment $ (65,796) ================ Consent Payment $ (10,000) Write-off of deferred financing costs (11,434) ---------------- Total Adjustment $ (21,434) ================ OUTSOURCING SOLUTIONS INC. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS(3) (Dollars in Thousands) Year Ended December 31, 1998 ----------------------------------------- Historical Adjustments Pro Forma ---------- ----------- --------- REVENUES $ 479,400 $ 479,400 EXPENSES: Salaries and benefits 230,114 230,114 Service fees and other operating and administrative expenses 140,888 140,888 Amortization of purchased loans and accounts receivable portfolios 50,703 50,703 Amortization of goodwill and other intangibles 15,725 15,725 Depreciation expense 14,282 14,282 --------- -------- Total expenses 451,712 451,712 --------- -------- OPERATING INCOME 27,688 27,68 INTEREST EXPENSE - Net 50,627 $ 1,955(1) 52,582 --------- -------- -------- LOSS BEFORE INCOME TAXES AND MINORITY INTEREST (22,939) (1,955) (24,894) PROVISION FOR INCOME TAXES 830 -(2) 830 MINORITY INTEREST 572 572 --------- -------- -------- NET LOSS $ (24,341) $ (1,955) $ (26,296) ========= ======== ======== Six months Ended June 30, 1999 ----------------------------------------- Historical Adjustments Pro Forma ---------- ----------- --------- REVENUES $ 257,076 $ 257,076 EXPENSES: Salaries and benefits 122,162 122,162 Service fees and other operating and administrative expenses 79,894 79,894 Amortization of purchased loans and accounts receivable portfolios 20,477 20,477 Amortization of goodwill and other intangibles 8,204 8,204 Depreciation expense 7,225 7,225 --------- -------- Total expenses 237,962 237,962 --------- -------- OPERATING INCOME 19,114 19,114 INTEREST EXPENSE - Net 25,209 $ 1,183(1) 26,392 --------- -------- -------- LOSS BEFORE INCOME TAXES AND MINORITY INTEREST (6,171) (1,183) (7,278) PROVISION FOR INCOME TAXES 375 -(2) 375 MINORITY INTEREST - - --------- -------- -------- NET LOSS $ (6,546) $ (1,183) $ (7,729) ========= ======== ======== See related Notes to the Unaudited Pro Forma Consolidated Statement of Operations. NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (Dollars in Thousands) 1. Adjustments to interest expense based on the pro forma capitalization of the Company are summarized in the table below: Year Ended Six Months December 31, Ended June 30, 1998 1999 ------------ -------------- Interest expense on Notes $ 11,000.0 $ 5,500.0 Interest expense on term loans under the New Senior Credit Facility(A) 38,745.0 19,372.5 Commitment fee for the revolving credit facility under the New Senior Credit Facility(B) 355.0 177.5 Amortization of debt issuance costs related to the Recapitalization(C) 1,961.5 980.8 Elimination of historical interest expense (including amortization of debt (50,106.7) (24,848.0) issuance costs) --------------- -------------- $ 1,954.8 $ 1,182.8 =============== ============== ----------------------------- (A) The New Senior Credit Facility will consist of the (i) Revolving Facility and (ii) Term Facility, which will be comprised of the Term A Facility and the Term B Facility. The Revolving Facility and the Term A Facility will bear interest, at the Company's option, at the Administrative Agent's alternate base rate plus 2.25% or reserve-adjusted LIBO rate, plus 3.25%. The Term B Facility will bear interest, at the Company's option, at the Administrative Agent's alternate base rate plus 2.75% or the reserve-adjusted LIBO rate plus 3.75%. After the first two full fiscal quarters after the consummation of the Recapitalization, the applicable margin for the Revolving Facility and the Term A Facility will be subject to change, as set forth in the proposed terms of the New Senior Credit Facility. The interestfor each of the pro forma periods has been calculated based on the reserve-adjusted LIBO rate of 6.00% and average drawn down balances based on scheduled payments. (B) The assumed commitment fee on the unused portion of the Revolving Facility is 0.5% per annum. (C) Deferred financing costs of $12.75 million are amortized over the life of the related debt ranging from six to six and one-half years. 2. Provision for income taxes was not adjusted, as the effect of the pro forma adjustments would have increased the Company's net operating loss carry forwards. 3. The unaudited pro forma statement of operations excludes $10,000 of Recapitalization and other special charges and the write-off of unamortized financing costs of $11,434. CERTAIN CONSIDERATIONS The Holders should carefully consider the risks described below before making an investment decision. The risks described below are not the only ones facing the Company. Additional risks (i) incorporated by reference and (ii) not presently known to the Company or that it currently deems immaterial may also impair the Company's business operations. Substantial Leverage; Ability to Service Debt The Company's substantial indebtedness could adversely affect its financial health and prevent it from fulfilling its obligations under the Notes. The Company will incur a significant amount of indebtedness in connection with the financing of the Recapitalization. The following charts will show certain important credit statistics for the Company and are presented assuming that the Company had completed the Recapitalization and related financing transactions as of the date or at the beginning of the period specified below and applied the net proceeds as intended: At June 30, 1999 ---------------- The Company (Dollars in thousands) Total indebtedness.......................... $ 509,513 Preferred Stock............................. $ 100,000 Stockholders' deficit....................... $ 123,322 Fiscal Year Ended Six Months Ended December 31, 1998 June 30, 1999 ----------------- ---------------- Pro forma ratio of earnings to fixed charges(1) 1.48x 1.66x - -------------------------------- (1) In calculating the ratio of earnings to fixed charges, earnings consist of income before income taxes plus fixed charges. Fixed charges consists of interest expense (which includes amortization of deferred financing costs and debt issuance costs) and one-third of rental expenses, deemed representative of that portion of rental expense estimated to be attributable to interest. The ability of the Company to make scheduled payments of principal or interest on, or to refinance, its indebtedness will depend on future operating performance and cash flow, which are subject to prevailing economic conditions, prevailing interest rate levels and financial, competitive, business and other factors beyond its control. The degree to which the Company is leveraged could have important consequences to holders of the Notes, including the following: 1. the Company's ability to obtain additional financing for working capital, capital expenditures, acquisitions, debt payments or general corporate purposes may be impaired; 2. a substantial portion of the Company's cash flow from operations must be dedicated to the payment of interest on the Notes, and interest on other existing indebtedness, thereby reducing the funds available to the Company for other purposes; 3. the agreements governing the Company's long-term indebtedness, including the New Senior Credit Facility and the Indenture, contain certain restrictive financial and operating covenants; 4. the indebtedness under the New Senior Credit Facility will be at variable rates of interest, which will cause the Company to be vulnerable to increases in interest rates: 5. the indebtedness outstanding under the New Senior Credit Facility will be secured by all accounts receivable and general intangibles of the Company and will become due prior to the time the principal on the Notes become due; 6. the Company is substantially more leveraged than certain of its competitors, which might place the Company at a competitive disadvantage 7. the Company may be hindered in its ability to adjust rapidly to changing market conditions; 8. the Company's substantial degree of leverage and negative tangible net worth may negatively affect certain suppliers' willingness to give the Company favorable payment terms or customers' willingness to engage the Company; and 9. the Company's substantial degree of leverage could make it more vulnerable in the event of a downturn in general economic conditions or in its business. If operating cash flow of the Company is insufficient to meet its operating expenses or to service its debt requirements as they become due, the Company may be required to refinance a portion of the principal of the Notes prior to their maturity. If the Company is unable to service its indebtedness, it will be forced to take actions such as reducing or delaying capital expenditures, selling assets, restructuring or refinancing their indebtedness or seeking additional equity capital. There can be no assurance that any of these remedies can be effected on satisfactory terms, if at all. Additional Borrowings Available Despite the Company's level of indebtedness immediately following the Recapitalization, the Company will still be able to incur substantially more debt. This could further exacerbate the risks described above. The terms of the Indenture do not fully prohibit the Company or its subsidiaries from doing so. Subject to customary maintenance covenants, the New Senior Credit Facility will permit additional borrowings of approximately $71.0 million after completion of the Recapitalization, and all of those borrowings would be secured. If new debt is added to the Company's current debt levels, the related risks that the Company now faces could intensify. Substantial Restrictions and Covenants The New Senior Credit Facility will contain, and the Indenture currently contains, various covenants which limit the Company's management's discretion in the operation of its business. The New Senior Credit Facility will contain, and the Indenture currently contains, numerous restrictive covenants, including, but not limited to, covenants that restrict the Company's ability to incur or refinance indebtedness, pay dividends, create liens, sell assets, and engage in certain mergers and acquisitions. In addition, the New Senior Credit Facility will also require the Company to maintain financial ratios. The ability of the Company to comply with the covenants and other terms of the New Senior Credit Facility and the Indenture, to make cash payments with respect to the Notes, and to satisfy its other respective debt obligations (including, without limitation, borrowings and other obligations under the New Senior Credit Facility) will depend on the future operating performance of the Company. In the event the Company fails to comply with the various covenants contained in the New Senior Credit Facility and the Indenture, it would be a default thereunder, and in any such case, the maturity of substantially all of such long-term indebtedness could be accelerated. Subordination; Asset Encumbrances The Notes are subordinated in right of payment to all existing and future Senior Debt, including the principal of (and premium, if any) and interest on and all other amounts due on or payable in connection with Senior Debt. As of June 30, 1999, on a pro forma basis after giving effect to the Recapitalization, there would have been outstanding approximately $404.0 million of Senior Debt, $475.0 million of which would have been fully secured borrowings under the New Senior Credit Facility. By reason of such subordination, in the event of the bankruptcy, insolvency, liquidation, reorganization, dissolution or other winding-up of the Company or upon a default in payment with respect to, or the acceleration of, any Senior Debt, the holders of such Senior Debt and any other creditors who are holders of Senior Debt and creditors of subsidiaries that are not Guarantors must be paid in full before the Holders of the Notes may be paid. If the Company incurs any additional pari passu debt, the holders of such debt would be entitled to share ratably with the Holders of the Notes in any proceeds distributed in connection with any bankruptcy, insolvency, liquidation, reorganization, dissolution or other winding-up of the Company. This may have the effect of reducing the amount of proceeds paid to Holders of the Notes. In addition, no cash payments may be made with respect to the principal of (and premium, if any) or interest on the Notes if a payment default exists with respect to Senior Debt and, under certain circumstances, no payments may be made with respect to the principal of (and premium, if any) or interest on the Notes for a period of up to 179 days if a non-payment default exists with respect to Senior Debt. In addition, the Indenture permits subsidiaries of the Company to incur debt under certain circumstances. Any debt incurred by a subsidiary of the Company that is not a Guarantor will be structurally senior to the Notes. The Company will be required to grant to the lenders under the New Senior Credit Facility security interests in substantially all of the current and future assets of the Company, including a pledge of all of the issued and outstanding shares of capital stock of all of the Company's direct and indirect domestic subsidiaries. In addition, the Guarantors will be required to grant to such lenders security interests in all of the current and future assets of the Guarantors. In the event of a default on secured indebtedness, including the guarantees of the Guarantors under the New Senior Credit Facility (whether as a result of the failure to comply with a payment or other covenant, a cross-default, or otherwise), the parties granted such security interests will have a prior secured claim on the capital stock of the Company and the assets of the Company and the Guarantors. If such parties should attempt to foreclose on their collateral, the Company's financial condition and the value of the Notes would be materially adversely affected. Control by Principal Stockholder Upon completion of the Recapitalization, the Purchaser will own approximately 78.0% of the fully diluted common equity of the Company. Consequently, MDP, as the sole general partner of the Purchaser, will have the ability to control the business and affairs of the Company by virtue of its ability to elect a majority of the Company's Board and its voting power with respect to actions requiring stockholder approval. In addition, upon consummation of the Recapitalization, all directors serving on the Company's Board will have been selected by MDP. Some decisions regarding the Company's operations or financial structure may present conflicts of interest between MDP and the Holders. For example, MDP may be willing to approve acquisitions, divestitures or other transactions undertaken by the Company that MDP believes could increase the value of its equity investment. These types of transactions, however, could increase the financial risk to the Holders. Holding Company Structure The Company conducts substantially all of its business through subsidiaries and has few operations of its own. The Company is dependent on the cash flow of its subsidiaries and distribution thereof from its subsidiaries to the Company in order to meet its debt service obligations. It is not expected that the Company will have any significant assets other than the common stock of its subsidiaries. Competition The Company is engaged in a highly fragmented and competitive industry. The Company competes with many local, regional and national accounts receivable management companies in the markets which it serves. Some of the Company's principal competitors are less highly-leveraged than the Company and may have greater financial and operating flexibility. Impact of Governmental Regulation Certain of the Company's operations are subject to compliance with the federal Fair Debt Collection Practices Act (the "FDCPA") and comparable statutes in many states. Under the FDCPA, a third-party collection company is restricted in the methods it uses in contacting consumer debtors and eliciting payments with respect to placed accounts. Requirements under state collection agency statutes vary, with most requiring compliance similar to that required under the FDCPA. In addition, most states and certain municipalities require collection agencies to be licensed with the appropriate regulatory body before operating in such jurisdictions. The Company believes that it is in substantial compliance with the FDCPA and comparable state statutes and that it maintains licenses in all jurisdictions in which its operations require it to be licensed. There can be no assurance, however, that additional federal or state legislation will not be enacted that would further restrict the methods used in collecting placed accounts or require additional regulatory compliance. Litigation Due to the nature of certain of its operations, the Company is regularly a defendant in various legal proceedings involving claims for damages, including class actions under the FDCPA. The Company believes that such proceedings constitute ordinary and routine litigation incidental to its business. The costs associated with defending such lawsuits (including payments made in connection with settlements and judgments) have not historically had a material adverse effect on the Company's financial condition and operating results. There can be no assurance that the costs associated with existing or future claims against the Company will not have a material adverse effect on the Company's financial condition and operating results. Dependence on Key Management The Company's success will continue to depend to a significant extent on its executive and other key management personnel. Although the Company has entered into employment agreements with certain of its executive officers, there can be no assurance that the Company will be able to retain its executive officers and key personnel or attract additional qualified management in the future. In addition, the success of certain of the Company's acquisitions may depend, in part, on the Company's ability to retain management personnel of the acquired companies. Environmental Liabilities One of the Company's subsidiaries, the Union Corporation ("Union"), is a party to several pending environmental proceedings involving the United States Environmental Protection Agency and comparable state environmental agencies in Indiana, Maryland, Massachusetts, New Jersey, Ohio, Pennsylvania, South Carolina and Virginia. All of these matters relate to discontinued operations of inactive subsidiaries of Union for which Union may be potentially liable. The Company has established reserves which it believes to be adequate for the ultimate settlement of these environmental proceedings. However, insufficient information is available regarding the extent and scope of any remedial actions which may be required to settle these proceedings. In addition, the costs of potential legal and consulting fees are difficult to estimate. Accordingly, there can be no assurance that the costs associated with settling these environmental proceedings will not have a material adverse effect on the Company's financial condition and operating results. CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS The following discussion is a summary of certain anticipated U.S. federal income tax consequences of the Solicitation to the Holders of Notes. This discussion is general in nature, and does not discuss all aspects of U.S. federal income taxation that may be relevant to a particular Holder in light of the Holder's particular circumstances, or to certain types of the Holders subject to special treatment under U.S. federal income tax laws (such as insurance companies, tax-exempt organizations, financial institutions, brokers, dealers in securities, and taxpayers that are neither citizens nor residents of the United States, or that are foreign corporations, foreign partnerships or foreign estates or trusts). In addition, the discussion does not consider the effect of any foreign, state, local or other tax laws, or any U.S. tax considerations (e.g., estate or gift tax) other than U.S. federal income tax considerations, that may be applicable to particular Holders. Further, this summary assumes that the Holders hold their Notes as "capital assets" (generally, property held for investment) within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code"). This summary is based on the Code and applicable Treasury Regulations, rulings, administrative pronouncements and decisions as of the date hereof, all of which are subject to change or differing interpretations at any time with possible retroactive effect. EACH HOLDER IS URGED TO CONSULT ITS OWN TAX ADVISOR TO DETERMINE THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES TO IT OF THE SOLICITATION. Tax Considerations for Consenting Holders The Company intends to treat the Consent Payments for U.S. federal income tax purposes as a separate fee for consenting to the Waivers. As a result, the Consent Payments will be taxable as ordinary income to the Holders. Tax Considerations for Non-Consenting Holders A Holder who does not Consent and therefore will not receive the Consent Payment should not recognize any income, gain, or loss for U.S. federal income tax purposes as a result of the Solicitation. Backup Withholding The receipt of the Consent Payment by a Holder who executes a Consent may be subject to backup withholding at the rate of 31% with respect to such payments unless such Holder (i) is a corporation or comes within certain exempt categories and, when required, demonstrates this fact, or (ii) provides a correct taxpayer identification number that certifies as to no loss of exemption from backup withholding and otherwise complies with applicable requirements of the backup withholding rules. Any amount withheld under these rules will be credited against the Holder's U.S. federal income tax liability. THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF U.S. FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO PARTICULAR HOLDERS IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES AND INCOME TAX SITUATIONS. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE SOLICITATION, INCLUDING THE EFFECT OF ANY FEDERAL, STATE, LOCAL, FOREIGN OR OTHER LAWS. ADDITIONAL INFORMATION; INCORPORATION OF CERTAIN INFORMATION BY REFERENCE The Company is subject to the informational filing requirements of the Exchange Act and, in accordance therewith, is required to file with the Commission periodic reports and other information relating to its business, financial condition and other matters. These reports and other informational filings required by the Exchange Act should be available for inspection at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W. Washington, D.C. 20549 and also should be available for inspection and copying at the regional offices of the commission located at Citicorp Center, 500 West Madison Street, Chicago, Illinois 60611 and 7 World Trade Center, 13th Floor, New York, New York 10048. The Commission maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The Commission's Web site address is http://www.sec.gov. Copies of such material may be obtained by mail, upon payment of the Commission's customary fees, from the Commission's principal office at Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549 (telephone number: 1-800-SEC-0330). The Company's (i) Annual Report on Form 10-K for the year ended December 31, 1998 and (ii) Quarterly Reports on Form 10-Q for the quarters ended March 31, 1999 and June 30, 1999, each filed by the Company with the Commission, are incorporated herein by reference and shall be deemed to be a part hereof. Any statement contained in a document listed above and incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Consent Statement to the extent that a statement contained herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Consent Statement. In addition, all reports and other documents filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Consent Statement and before the termination of the Solicitation shall be deemed to be incorporated by reference herein and to be made a part hereof from the date of filing of such reports and documents. Any statement contained in this Consent Statement or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Consent Statement to the extent that a statement contained in any reports and other documents filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Consent Statement modifies or supersedes such statement. The information related to the Company contained in this Solicitation should be read in conjunction with the information contained in the documents incorporated by reference. The Company will provide without charge to each person to whom a copy of this Consent Statement is delivered, upon the written or oral request of any such person, a copy of any or all of the documents incorporated herein by reference, other than exhibits to such documents (unless such exhibits are specifically incorporated by reference into such documents). Requests should be directed to Eric R. Fencl, Vice President and General Counsel, Outsourcing Solutions Inc., 390 South Woods Mill Road, Suite 350, Chesterfield, Missouri 63017. In order to insure timely delivery of documents prior to the Expiration Date, any such requests should be made by November 15, 1999. MISCELLANEOUS No person has been authorized to give any information or make any representation other than as contained in this Consent Statement and, if given or made, such information or representation must not be relied upon as having been authorized. OUTSOURCING SOLUTIONS INC. November 9, 1999 ANNEX I SECTION 4.15. OFFER TO REPURCHASE UPON CHANGE OF CONTROL. (a) Upon the occurrence of a Change of Control, each Holder of Notes shall have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash (the "Change of Control Payment") equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the date of purchase. Within 30 days following a Change of Control, the Company shall mail to each Holder of Notes at such Holder's registered address a notice stating: (i) that an offer (an "Offer") is being made pursuant to this Section 4.15 as a result of a Change of Control, the length of time the Offer shall remain open, and the maximum aggregate principal amount of Notes that will be accepted for payment pursuant to such Offer; (ii) the purchase price, the amount of accrued and unpaid interest and Liquidated Damages, if any, as of the purchase date, and the purchase date (which will be no earlier than 30 days or later than 60 days from the date such notice is mailed) (the "Change of Control Payment Date"); (iii) the circumstances and material facts regarding such Change of Control to the extent known to the Company (including, but not limited to, information with respect to pro forma and historical financial information after giving effect to such Change of Control and information regarding the Person or Persons acquiring control); (iv) that any Note not tendered will continue to accrue interest and Liquidated Damages, if any; (v) that, unless the Company defaults in the payment of the Change of Control Payment, all Notes accepted for payment pursuant to the Offer shall cease to accrue interest and Liquidated Damages, if any, after the Change of Control Payment Date; (vii) that Holders electing to have any Notes purchased pursuant to an Offer will be required to surrender the Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date; (viii) that Holders shall be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the second Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Notes delivered for purchase, and a statement that such Holder is withdrawing his election to have the Notes purchased; and (ix) that Holders whose Notes are being purchased only in part shall be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Notes in connection with a Change of Control. (b) On the Change of Control Payment Date, the Company shall, to the extent lawful, (1) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered and (3) deliver or cause to be delivered to the Trustee for cancellation the Notes so accepted together with an Officer's Certificate stating the aggregate principal amount of Notes or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to each Holder of Notes so tendered the Change of Control Payment for such Notes, and the Trustee shall promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each such new Note shall be in a principal amount of $1,000 or an integral multiple thereof. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. Any amounts remaining after the purchase of Notes pursuant to the Change of Control Offer shall be returned by the Paying Agent to the Company. (c) The Company shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth herein applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. - --------------------------------- "Change of Control" means the occurrence of any of the following: (i) the sale, lease or transfer, in one or a series of related transactions (other than by merger or consolidation), of all or substantially all of the assets of the Company and its Restricted Subsidiaries, taken as a whole, to any "person" (as such term is used in Section 13(d)(3) of the Exchange Act) (other than the Principals or their Related parties); (ii) the adoption of a plan relating to the liquidation or dissolution of the Company; (iii) the acquisition by any Person or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (other than the Principals and their Related Parties) of a direct or indirect interest in more than 35% of the voting power of the voting stock of the Company by way of merger or consolidation of otherwise; or (iv) a majority of the members of the Board of Directors of the Company cease to be Continuing Directors. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors who (i) was a member of such Board of Directors on the date of this Indenture or (ii) was nominated for election or elected to such Board of Directors with, or whose election to such Board of Directors was approved by, the affirmative vote of a majority of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election. "Principals" means each of the general partners of MDC Management Company III, L.P., MDC Management Company IIIE, L.P. and MDC Management Company IIIA, L.P. and any Person controlled by one or more of such general partners. "Related Parties" means any Person controlled by the Principals, including any partnership of which the Principals or their Affiliates is the general partner. ANNEX II "Unrestricted Subsidiary" means (i) any Subsidiary that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution; but only to the extent that such Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement, contract, arrangement or understanding with the company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (c) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (x) to subscribe for additional Equity Interests or (y) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; (d) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries; and (e) has at least one director on its board of directors that is not a director or executive officer of the Company or any of its Restricted Subsidiaries and has at least one executive officer that is not a director or executive officer of the Company or any of its Restricted Subsidiaries. Any such designation by the Board of Directors shall be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an Officer's Certificate certifying that such designation complied with the foregoing conditions and was permitted pursuant to and in accordance with the provisions set forth in Section 4.07 hereof. If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the Company as of such date (and, if such Indebtedness is not permitted to be incurred as of such date pursuant to and in accordance with the provisions set forth in Section 4.09 hereof, the Company shall be in default of such covenant). The board of Directors of the Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such designation shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall only be permitted if (i) such Indebtedness is permitted to be incurred pursuant to and in accordance with the provisions set forth in Section 4.09 hereof and (ii) no Default or Event of Default would be in existence following such designation. - --------------------------------- "Non-Recourse Debt" means Indebtedness (i) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor or otherwise), or (c) constitutes the lender; and (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (iii) as to which the lenders have been notified in writing that they shall not have any recourse to the stock or assets of the Company or any of its Restricted Subsidiaries. "Restricted Subsidiary" of a Person means any Subsidiary of the referent Person that is not (i) an Unrestricted Subsidiary or (ii) a direct or indirect Subsidiary of an Unrestricted Subsidiary; provided, however, that upon the occurrence of any Unrestricted Subsidiary ceasing to be an Unrestricted Subsidiary, such Subsidiary shall be included in the definition of Restricted Subsidiary. "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). ANNEX III SECTION 4.11 TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that might reasonably have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $1.0 million, a resolution of the Board of Directors set forth in an Officer's Certificate certifying that such Affiliate Transaction complies with clause (i) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors and (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $5.0 million, an opinion as to the fairness to the Holders of the Notes of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing. The foregoing provisions shall not apply to the following: (i) transactions between or among the Company and/or any of its Restricted Subsidiaries; (ii) Restricted Payments or Permitted Investments permitted under Section 4.07 hereof; (iii) the payment of reasonable and customary fees and compensation to, and indemnity provided on behalf of, officers, directors, employees or consultants of the Company or any Restricted Subsidiary of the Company; (iv) the payment of fees in an aggregate amount not to exceed $750,000 in any twelve-month period pursuant to the Advisory Services Agreement; (v) any other transactions pursuant to the Advisory Services Agreement or transactions pursuant to the HBR Services Agreement, in each case, as in effect on the date hereof; and (vi) the payment of fees and expenses as set forth under the caption "Use of Proceeds" contained in the Offering Circular. Facsimile copies of the Consent Form will be accepted. The Consent Form and any other required documents should be sent by each Holder or his broker, dealer, commercial bank, trust company or nominee to the Information Agent at the address set forth below. -------------------- The Information and Tabulation Agent for the Solicitation is: -------------------- MACKENZIE PARTNERS, INC. By Mail, Overnight Courier or Hand: MacKenzie Partners, Inc. 156 Fifth Avenue New York, NY 10010 Attention: Simon Coope By Facsimile (212) 929-0061 Confirm by telephone: (212) 929-5500 (Call Collect) (800) 322-2885 (Toll Free) -------------------- Any questions or requests for assistance or additional copies of this Consent Statement, the Consent Form and the Letter of Instruction may be directed to the Information Agent at the telephone number and location listed above. You may also contact your broker, dealer, commercial bank or trust company for assistance concerning the Solicitation. The Solicitation Agent for the Solicitation is: Donaldson, Lufkin & Jenrette 277 Park Avenue New York, New York 10172 Telephone Number: (212) 892-7707 Attention: Tom Pereira LETTER OF INSTRUCTION TO REGISTERED HOLDER OF OUTSOURCING SOLUTION INC. 11% Senior Subordinated Notes due November 1, 2006 CUSIP No. 690132AC9 ---------------------------------------- November 9, 1999 To Our Clients: Outsourcing Solutions Inc., a Delaware corporation (the "Company"), is hereby soliciting consents (the "Consents"), on the terms and subject to the conditions set forth in the Consent Solicitation Statement (as it may be supplemented or amended from time to time, the "Consent Statement") and the related Consent Form (as it may be supplemented or amended from time to time, the "Consent Form" and together with the Consent Statement, the "Solicitation") from holders (each, a "Holder" and, collectively, the "Holders") of at least a majority of the aggregate principal amount of its outstanding 11% Senior Subordinated Notes due November 1, 2006 (the "Notes") issued pursuant to the Indenture, dated November 6, 1996 (the "Indenture"), among the Company, the subsidiary guarantors named therein and Wilmington Trust Company, as trustee, to the waiver of: (i) the Company's obligations under Section 4.15 of the Indenture, including its obligation to make a Change of Control Offer in connection with the recapitalization of the Company (the "Recapitalization") by an investor group led by an affiliate of Madison Dearborn Partners, Inc. ("MDP"); and (ii) the failure by the Company to comply with certain technical requirements relating to the qualification and operation of its financing subsidiary, OSI Funding Corp. ("OSI Funding"), as an Unrestricted Subsidiary under the Indenture and any and all consequences arising therefrom under the Indenture (collectively, the "Waivers"). Enclosed for your consideration are copies of the Consent Statement and the Consent Form. All capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them in the Solicitation. IN ORDER TO RECEIVE THE CONSENT PAYMENT, HOLDERS OF NOTES MUST PROVIDE THEIR CONSENTS (AND NOT HAVE REVOKED SUCH CONSENTS) AT OR PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON NOVEMBER 19, 1999 (THE "EXPIRATION DATE"). THE CONSENTS SHALL BECOME EFFECTIVE IMMEDIATELY UPON THE COMPANY RECEIVING THE REQUISITE CONSENTS (AS DEFINED) AND CERTIFYING TO THE TRUSTEE THAT SUCH REQUISITE CONSENTS HAVE BEEN RECEIVED. THE COMPANY WILL NOT BE OBLIGATED TO ACCEPT ANY CONSENTS RECEIVED AFTER THE EXPIRATION DATE. CONSENTS MAY BE REVOKED AT ANY TIME PRIOR TO THE EFFECTIVE DATE OF THE CONSENTS. The Company is offering to pay to each Holder who provides its Consent (and has not revoked such Consent) at or prior to 5:00 p.m., New York City time, on the Expiration Date, a payment of $100 per $1,000 of principal amount of Notes (the "Consent Payment"). The Company will not be obligated to make any Consent Payment in respect of any Consents not provided at or prior to 5:00 p.m., New York City time, on the Expiration Date. The Consent Payment will be made on the date of the closing of the Recapitalization (the "Consent Payment Date"). If Consents are received from registered Holders of at least a majority of the aggregate principal amount of the outstanding Notes as of the Record Date (the "Requisite Consents"), such Consents will apply to all Notes issued under the Indenture and each Holder of such Notes will be bound by such Consents regardless of whether such Holder executed a Consent. MDP's obligation to complete the Recapitalization is expressly conditioned upon, among other things, the Company receiving the Requisite Consents to the Waivers. This material relating to the Solicitation is being forwarded to you as the beneficial owner of Notes carried by us for your account or benefit but not registered in your name. Delivery of the Consents with respect to any Notes may only be made by us as the registered Holder and pursuant to your instructions. Accordingly, we request instructions as to whether you wish us to deliver the Consents with respect to any or all of the Notes held by us for your account. We urge you to read carefully the Consent Statement, the Consent Form and the other materials provided herewith before instructing us to deliver the Consents with respect to such Notes. Consents may be revoked by written notice of revocation received by MacKenzie Partners, Inc., the information and tabulation agent (the "Information Agent") at any time at or prior to 5:00 p.m., New York City time, on the Effective Date. Any permitted revocation of Consents may not be rescinded; and any Consents so withdrawn will thereafter be deemed not validly tendered for purposes of the Consent Payment; provided, however, that revoked Consents may again be tendered by following the procedures for tendering prior to the Expiration Date. No Consent Payment will be made in respect of any Consent which is not provided at or prior to 5:00 p.m., New York City time, on the Expiration Date. Your attention is directed to the following: 1. If you desire to deliver the Consents with respect to any Notes and receive the Consent Payment, we must receive your instructions in ample time to permit us to submit the Consents on your behalf at or prior to 5:00 p.m., New York City time, on the Expiration Date. 2. The Company's obligation to pay the Consent Payments for submitted Consents is subject to consummation of the Recapitalization. 3. MDP's obligation to complete the Recapitalization is expressly conditioned upon the Company receiving the Requisite Consents to the Waivers. 4. The Company expressly reserves the right, in its sole discretion, subject to applicable law at any time or from time to time, to: (i) abandon or terminate the Solicitation for any reason at any time prior to the Consent Payment Date, not accept any Consents before the Consent Payment Date whether or not the Requisite Consents have been received by such date, or postpone the acceptance of any Consents or delay the Consent Payment for Consents accepted; (ii) waive any condition to the Solicitation and accept all Consents previously delivered pursuant to the Solicitation; (iii) extend the Expiration Date of the Solicitation and retain all Consents tendered pursuant thereto, subject to the withdrawal rights of Holders, and (iv) amend the Solicitation in any respect until the Consents that are the subject thereof are delivered. 5. Obtaining the Requisite Consents will enable the Company to proceed with the Recapitalization. If Consents are received from registered Holders of at least a majority of the aggregate principal amount of the outstanding Notes as of the Record Date, such Consents will apply to all Notes issued under the Indenture and each Holder of such Notes will be bound by such Consents regardless of whether such Holder executed a Consent. If you wish to have us deliver your Consents pursuant to the Solicitation, please so instruct us by completing, executing and returning to us the instruction form that appears below. The accompanying Consent Form is furnished to you for informational purposes only and may not be used by you to deliver the Consents. IMPORTANT: The Consent Form (or a facsimile thereof) must be received by the Information Agent at or prior to 5:00 p.m., New York City time, on the Expiration Date in order for Holders to receive the Consent Payment. INSTRUCTIONS The undersigned acknowledge(s) receipt of your letter and the enclosed material referred to therein relating to the Solicitation. This will instruct you to deliver the undersigned's Consent with respect to the principal amount of Notes indicated below, pursuant to the terms of and conditions set forth in the Consent Statement November 9, 1999, and the Consent Form. - ----------------------------- -------------------------------------------------- Consents are to be Principal Amount given pursuant to the as to which Solicitation Consents are ("Yes" or "No")* given in the Solicitation - ----------------------------- -------------------------------------------------- - ----------------------------- -------------------------------------------------- - ----------------------------- -------------------------------------------------- - ----------------------------- -------------------------------------------------- - ----------------------------- -------------------------------------------------- - ----------------------------- -------------------------------------------------- * Unless otherwise indicated, "yes" will be assumed. Holders who desire to receive the Consent Payment are required to provide their Consents. - -------------------------------------------------------------------------------- PLEASE SIGN HERE - -------------------------------------------------------------------------------- Signature(s) - -------------------------------------------------------------------------------- Name(s) (Please Print) - -------------------------------------------------------------------------------- Address - -------------------------------------------------------------------------------- Zip Code - -------------------------------------------------------------------------------- Area Code and Telephone No. - -------------------------------------------------------------------------------- Tax Identification or Social Security No. - -------------------------------------------------------------------------------- My Account Number With You - -------------------------------------------------------------------------------- Date - -------------------------------------------------------------------------------- CONSENT FORM To Give Consent in Respect of 11% Senior Subordinated Notes due November 1, 2006 (CUISP No. 690132AC9) of OUTSOURCING SOLUTIONS INC. Pursuant to the Consent Solicitation Statement, dated November 9, 1999 IN ORDER TO RECEIVE THE CONSENT PAYMENT, HOLDERS OF NOTES MUST PROVIDE THEIR CONSENTS (AND NOT HAVE REVOKED SUCH CONSENTS) AT OR PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON NOVEMBER 19, 1999 (THE "EXPIRATION DATE"). THE CONSENTS SHALL BECOME EFFECTIVE IMMEDIATELY UPON THE COMPANY RECEIVING THE REQUISITE CONSENTS (AS DEFINED) AND CERTIFYING TO THE TRUSTEE THAT SUCH REQUISITE CONSENTS HAVE BEEN RECEIVED. THE COMPANY WILL NOT BE OBLIGATED TO ACCEPT ANY CONSENTS RECEIVED AFTER THE EXPIRATION DATE. CONSENTS MAY BE REVOKED AT ANY TIME PRIOR TO THE EFFECTIVE DATE OF THE CONSENTS. The Information and Tabulation Agent for the Solicitation is: MACKENZIE PARTNERS, INC. By Mail, Overnight Courier or Hand: MacKenzie Partners, Inc. 156 Fifth Avenue New York, NY 10010 Attention: Simon Coope By Facsimile (212) 929-0061 Confirm by telephone: (212) 929-5500 (Call Collect) (800) 322-2885 (Toll Free) Delivery of this Consent Form to an address other than as set forth above will not constitute a valid delivery. The instructions contained herein and in the Consent Statement (as defined below) should be read carefully before this Consent is completed. By execution hereof, the undersigned acknowledges receipt of the Consent Solicitation Statement dated November 9, 1999 (as the same may be amended from time to time, the "Consent Statement") and this Consent Form and instructions hereto (the "Consent Form"), which together constitute the Company's solicitation (the "Solicitation") of consents (the "Consents") from holders (each, a "Holder" and, collectively, the "Holders") of at least a majority of the aggregate principal amount of the Company's outstanding 11% Senior Subordinated Notes due November 1, 2006 (the "Notes") as of the Record Date issued pursuant to the Indenture dated November 6, 1996 (the "Indenture"), among the Company, the subsidiary guarantors named therein (collectively, the "Guarantors") and Wilmington Trust Company, as trustee (the "Trustee"), to the waiver of: (i) the Company's obligations under Section 4.15 of the Indenture, including its obligation to make a Change of Control Offer in connection with the recapitalization of the Company (the "Recapitalization") by an investor group led by an affiliate of Madison Dearborn Partners, Inc. ("MDP"); and (ii) the failure by the Company to comply with certain technical requirements relating to the qualification and operation of its financing subsidiary, OSI Funding Corp. ("OSI Funding"), as an Unrestricted Subsidiary under the Indenture and any and all consequences arising therefrom under the Indenture (collectively, the "Waivers"). The Company is offering to pay to each Holder who provides its Consent (and has not revoked such Consent) at or prior to 5:00 p.m., New York City time, on the Expiration Date a payment of $100 per $1,000 of principal amount of Notes (the "Consent Payment"). The Company will not be obligated to make any Consent Payment in respect of any Consents not provided at or prior to 5:00 p.m., New York City time, on the Expiration Date. The Consent Payment will be made on the date of the closing of the Recapitalization (the "Consent Payment Date"). Capitalized terms used in this Consent Form and not otherwise defined herein have the meanings ascribed to them in the Consent Statement. If Consents are received from registered Holders of at least a majority of the aggregate principal amount of the outstanding Notes as of the Record Date (the "Requisite Consents"), such Consents will apply to all Notes issued under the Indenture and each Holder of such Notes will be bound by such Consents regardless of whether such Holder executed a Consent. MDP's obligation to complete the Recapitalization is expressly conditioned upon, among other things, the Company receiving the Requisite Consents to the Waivers. Use this Consent Form only to provide your Consent pursuant to the Solicitation. The Notes are currently on deposit with the Depository Trust Company ("DTC") and are registered in the name of DTC's nominee, Cede & Co., as nominee holder of the Notes. Cede & Co. will execute an omnibus proxy which will authorize its participants (each, a "Participant") to consent with respect to the Notes owned by it and held in the name of Cede & Co. as specified on the DTC position listing of Cede & Co., as of the Record Date, with respect to the Notes. The term "Holder" as used in this Consent Form means (i) each person (a) in whose name the Notes are registered as of the Record Date; or (b) whose name appears on a securities position listing of DTC as the holder of an interest in the Notes as of the Record Date and whom DTC has authorized to consent to the Waivers and (ii) any other person who has been authorized by proxy or in any other manner acceptable to the Company to vote Notes on behalf of the registered Holder thereof. Pursuant to Section 9.04 of the Indenture, a Consent with respect to all or a portion of a Note is a continuing Consent with respect to such Note or portion of a Note notwithstanding a subsequent transfer of ownership of such Note. Consents may be revoked prior to the date on which the Company receives the Requisite Consents, only by the Holder granting such Consent (or a duly authorized proxy of such person) by following the procedures set forth in the Consent Statement. Such revocation shall terminate the previously delivered Consent with respect to such Note unless a new Consent is given prior to the Expiration Date by following the procedure set forth herein. The Company is requesting that any and all of the Holders execute this Consent Form. This Consent Form must be executed by the Holder in the same manner as the Holder's name appears in the register maintained by the Trustee or on a DTC securities position listing reflecting such Holder as an owner of such Notes. If the Notes are held in more than one name, as reflected therein, such Consent Form must be executed by each such Holder. If this Consent Form is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation, or other person acting in a fiduciary or representative capacity, such person should so indicate when signing and should submit with this Consent Form appropriate evidence of authority to execute this Consent Form. If the Notes owned by a Holder are held in different names, as reflected in such register or on such securities position listing, separate Consent Forms must be executed covering all such Notes. If applicable, this Consent Form should set forth the DTC participant number relating to the Notes with respect to which a Consent is given. In addition, if this Consent Form relates to less than the total principal amount of the Notes at maturity held in the name of such Holder, the Holder must list the principal amounts of the Notes at maturity to which this Consent Form relates. Otherwise, this Consent Form will be deemed to relate to the total principal amount of the Notes at maturity held in the name of such Holder. Any beneficial owner whose Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to Consent should promptly contact the person in whose name its Notes are registered and instruct such registered Holder to Consent on its behalf. A Letter of Instruction is contained in the Solicitation materials provided along with the Consent Statement which may be used by a beneficial owner to instruct the record Holder to deliver Consents. If a beneficial owner wishes to Consent on its own behalf, it must, prior to completing and executing the Consent, either make appropriate arrangements to register ownership of the Notes in its name or obtain a properly completed bond power from the registered Holder. The transfer of registered ownership may take considerable time. All questions as to the validity, form, eligibility (including time of receipt) and the acceptance of Consents will be resolved by the Company in its sole discretion whose determination shall be binding. The Company reserves the absolute right to reject all Consents that are not in proper form or the acceptance of which could, in the opinion of its counsel, be unlawful. The Company also reserves the right to waive any irregularities or conditions of delivery as to particular Consents, including the requirement that Consents must be delivered prior to the Expiration Date in order to receive the Consent Payment. Unless waived, any irregularities in connection with the deliveries must be cured within such time as the Company determines. None of the Company, the Information Agent, the Solicitation Agent, the Paying Agent and any other will be under any duty to give notification of any such irregularities or waiver. Deliveries of such Consents will not be deemed to have been properly made until such irregularities have been cured or waived. The interpretation of the Company of the terms and conditions of this Solicitation shall be binding. HOLDERS WHO WISH TO CONSENT SHOULD HAND DELIVER, SEND BY OVERNIGHT COURIER OR SEND BY FACSIMILE TRANSMISSION, THEIR PROPERLY COMPLETED AND EXECUTED CONSENT FORM TO THE INFORMATION AGENT IN ACCORDANCE WITH THE INSTRUCTIONS SET FORTH HEREIN. HOWEVER, THE COMPANY RESERVES THE RIGHT TO ACCEPT ANY CONSENT RECEIVED BY IT OR THE INFORMATION AGENT. IN NO EVENT SHOULD A HOLDER TENDER OR DELIVER NOTES. THE SOLICITATION IS NOT BEING MADE TO (NOR WILL NOTES PROVIDED BE ACCEPTED FROM OR ON BEHALF OF) HOLDERS IN ANY JURISDICTION IN WHICH THE MAKING OR ACCEPTANCE OF THE SOLICITATION WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH JURISDICTION. Delivery of documents to DTC does not constitute delivery to the Information Agent. The undersigned has completed, executed and delivered this Consent to indicate the action the undersigned desires to take with respect to the Solicitation. Your bank or broker can assist you in completing this form. The instructions included with this Consent Form must be followed. Questions and requests for assistance or for additional copies of the Consent Statement and this Consent Form may be directed to the Information Agent. See Instruction 9 below. List below the Notes to which this Consent Form relates. If the space provided below is inadequate, list the certificate numbers and principal amounts on a separately executed schedule and affix the schedule to this Consent Form. Consent Payments will only be made in payments of $100 per $1,000 of principal amount of Notes. - -------------------------------------------------------------------------------- DESCRIPTION OF NOTES - ----------------------- -------------------- ---------------------- ------------ Name(s) and Principal Address(es) of Aggregate Amount(s) Registered Principal As To Which Holder(s) Certificate Amount(s) Consents Are (Please include DTC Number(s) Represented* Given in the Number) Solicitation - ----------------------- -------------------- ---------------------- ------------ - ----------------------- -------------------- ---------------------- ------------ - ----------------------- -------------------- ---------------------- ------------ - ----------------------- -------------------- ---------------------- ------------ - ----------------------- -------------------- ---------------------- ------------ - ----------------------- -------------------- ---------------------- ------------ TOTAL PRINCIPAL AMOUNT OF NOTES - ----------------------- -------------------- ---------------------- ------------ * Unless otherwise indicated in the column labeled "Principal Amount(s) As To Which Consents Are Given in the Solicitation" and subject to the terms and conditions of the Consent Statement, a Holder will be deemed to have tendered the entire aggregate principal amount represented by the Notes indicated in the column labeled "Aggregate Principal Amount(s) Represented." See Instruction 3. - -------------------------------------------------------------------------------- HOLDERS WHO WISH TO PROVIDE THEIR CONSENTS MUST COMPLETE THIS CONSENT FORM IN ITS ENTIRETY. THE COMPANY WILL NOT BE OBLIGATED TO PAY THE CONSENT PAYMENT TO HOLDERS OF NOTES WHO DELIVER THEIR CONSENTS AFTER THE EXPIRATION DATE. NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: Upon the terms and subject to the conditions of the Solicitation, the undersigned hereby provides its Consent. Subject to, and effective upon, the acceptance of, and payment for, the Consent provided with this Consent Form, the undersigned hereby (i) waives the Company's obligations under Section 4.15 of the Indenture, including its obligation to make a Change of Control Offer in connection with the Recapitalization; and (ii) waives the failure by the Company to properly qualify and operate its financing subsidiary, OSI Funding, as an Unrestricted Subsidiary under the Indenture and any and all consequences arising therefrom under the Indenture. The undersigned hereby irrevocably constitutes and appoints the Information Agent the true and lawful agent and attorney-in-fact of the undersigned (with full knowledge that the Information Agent also acts as the agent of the Company) with respect to such Consents, with full power of substitution and resubstitution (such power-of-attorney being deemed to be an irrevocable power coupled with an interest) to deliver to the Company and the Trustee this Consent Form as evidence of the undersigned's and as certification that the Requisite Consents to the Waivers duly executed by Holders of such Notes have been received, all in accordance with the terms and conditions of the Solicitation. The undersigned agrees and acknowledges that, by the execution and delivery hereof, the undersigned makes and provides the written Consent to the Waivers as permitted by Section 9.04 of the Indenture. The undersigned understands that any Consent provided hereby shall remain in full force and effect until such Consent is revoked in accordance with the procedures set forth in the Consent Statement and this Consent Form, which procedures are hereby agreed to be applicable in lieu of any and all other procedures for revocation set forth in the Indenture, which are hereby waived. The undersigned understands that a revocation of such Consent will not be effective after the Effective Date. The undersigned hereby represents and warrants that the undersigned has full power and authority to give any Consent contained herein. The undersigned will, upon request, execute and deliver any additional documents deemed by the Information Agent or the Company to be necessary or desirable to perfect the undersigned's Consent to the Waivers. The undersigned understands that by providing its Consent pursuant to any of the procedures described in the Consent Statement under the caption "The Solicitation" and in the instructions hereto and acceptance thereof by the Company will constitute a binding agreement between the undersigned and the Company, upon the terms and subject to the conditions of the Solicitation. For purposes of the Solicitation, the undersigned understands that the Company will be deemed to have accepted validly delivered Consents (or defectively delivered Consents with respect to which the Company has waived such defect) if, as and when the Company gives oral, to be followed by written, notice thereof to the Information Agent. The undersigned understands that deliveries of Consents may be revoked by written notice of revocation received by the Information Agent at any time at or prior to 5:00 p.m., New York City time, on the Effective Date. Any permitted revocation of Consents may not be rescinded; and any Consents so withdrawn will thereafter be deemed not validly tendered for purposes of the Consent Payment; provided, however, that revoked Consents may again be tendered by following the procedures for tendering prior to the Expiration Date. The undersigned understands that notice of revocation of a Consent, to be effective, must (i) specify the name of the person having executed the Consent being revoked, (ii) identify the aggregate principal amount of the Notes held by such person, and (iii) be signed by the Holder in the same manner as the original signature on the Consent or be accompanied by a bond power, and a properly completed irrevocable proxy, in each case in the name of the person revoking the Consent, in a satisfactory form as determined by the Company in its sole discretion, duly executed by the registered Holder. A purported notice of revocation that lacks any of the required information or is dispatched to any other address will not be effective to revoke a Consent previously given. The undersigned understands that, under certain circumstances and subject to certain conditions of the Solicitation (each of which the Company may waive) set forth in the Consent Statement, the Company may not be required to accept any of the Consents delivered (including any Consents delivered after the Expiration Date). All authority conferred or agreed to be conferred by this Consent Form shall survive the death or incapacity of the undersigned and every obligation of the undersigned under this Consent Form shall be binding upon the undersigned's heirs, personal representatives, executors, administrators, successors, assigns, trustees in bankruptcy and other legal representatives. Unless otherwise indicated herein under "Special Payment Instructions," the undersigned hereby requests that any Consent Payments to be made in connection with the Solicitation be issued to the order of the undersigned. Similarly, unless otherwise indicated herein under "Special Delivery Instructions," the undersigned hereby requests that any Consent Payments to be made in connection with the Solicitation be delivered to the undersigned at the address(es) shown below. In the event that the "Special Payment Instructions" box or the "Special Delivery Instructions" box or both are completed, the undersigned hereby requests that any Consent Payments to be made in connection with the Solicitation be issued in the name(s) of, and be delivered to, the person(s) at the address(es) so indicated. The undersigned recognizes that the Company has no obligation pursuant to the "Special Payment Instructions" box or "Special Delivery Instructions" box to make any Consent Payment if the Company does not accept any of the Consents so delivered. PLEASE SIGN HERE (To Be Completed By All Consenting Holders of Notes)The completion, execution and delivery of this Consent Form will be deemed to constitute a Consent to the Waivers. This Consent Form must be executed by the Holder in the same manner as the Holder's name appears in the register maintained by the Trustee or on a DTC securities position listing reflecting such Holder as an owner of such Notes. If the Notes are held in more than one name, as reflected therein, such Consent Form must be executed by each such Holder. If the Consent Form is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation, or other person acting in a fiduciary or representative capacity, such person should so indicate when signing and should submit with the Consent Form appropriate evidence of authority to execute the Consent Form. See Instruction 4 below. If the Notes owned by a Holder are held in different names, as reflected in such register or on such securities position listing, separate Consent Forms must be executed covering all such Notes. If applicable, the Consent Form should set forth the DTC participant number relating to the Notes with respect to which a Consent is given. In addition, if the Consent Form relates to less than the total principal amount of the Notes at maturity held in the name of such Holder, the Holder must list the principal amounts of the Notes at maturity to which the Consent Form relates. Otherwise, the Consent Form will be deemed to relate to the total principal amount of the Notes at maturity held in the name of such Holder. If the signature appearing below is not of the registered holder(s) of the Notes, then the registered holder(s) must sign a valid proxy. X ------------------------------------------------------------------------ X ------------------------------------------------------------------------ (Signature(s) of Holder(s) or Authorized Signatory) Dated: November _____, 1999 Name(s): ---------------------------------------------------------------- ---------------------------------------------------------------- (Please Print) Capacity: ----------------------------------------------------------------- Address: ------------------------------------------------------------------ ------------------------------------------------------------------ (Including Zip Code) Area Code and Telephone No.: ---------------------------------------------- COMPLETE SUBSTITUTE FORM W-9 HEREIN SIGNATURE GUARANTEE (See Instruction 4 below) Certain Signatures Must be Guaranteed by an Eligible Institution - -------------------------------------------------------------------------------- (Name of Eligible Institution Guaranteeing Signature(s)) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Address (including zip code) and Telephone Number(including area code) of Firm) - -------------------------------------------------------------------------------- (Authorized Signature) - -------------------------------------------------------------------------------- (Printed Name) - -------------------------------------------------------------------------------- (Title) Dated: November___ , 1999 - -------------------------------------- ------------------------------------- SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS (See Instructions 3, 4, 5 and 7) (See Instructions 3, 4, 5 and 7) To be completed ONLY if the Consent To be completed ONLY if the Consent Payments to be made are to be sent Payments to be made are to be sent to someone other than the person to an address different from that whose signature(s) appear(s) within shown in the box entitled "Description this Consent Form. of Notes" within this Consent Form. Name: Name: ------------------------------ -------------------------------- (Please Print) (Please Print) Address: Address: --------------------------- ----------------------------- (Please Print) (Please Print) (Zip Code) (Zip Code) Taxpayer Identification or Social Taxpayer Identification or Social Security Number Security Number (See Substitute Form W-9 herein) (See Substitute Form W-9 herein) - -------------------------------------- ------------------------------------- INSTRUCTIONS Forming Part of the Terms and Conditions of the Solicitation 1. Delivery of this Consent Form. A properly completed and duly executed copy (or facsimile) of this Consent Form, and any other documents required by this Consent Form, must be received by the Information Agent at its address set forth herein at or prior to 5:00 p.m., New York City time, on the Expiration Date; provided, however, that the Company will not be obligated to make the Consent Payment to Holders who tender their Consents after the Expiration Date. The method of delivery of this Consent Form and all other required documents to the Information Agent is at the election and risk of Holders. If such delivery is by mail, it is suggested that Holders use properly insured registered mail, return receipt requested, and that the mailing be made sufficiently in advance of the Expiration Date to permit delivery to the Information Agent at or prior to 5:00 p.m., New York City time, on such date. Except as otherwise provided below, the delivery will be deemed made when actually received or confirmed by the Information Agent. This Consent Form should be sent only to the Information Agent and not to the Company, the Trustee, the Solicitation Agent or the Paying Agent. 2. Revocation of Consents. Consents may be revoked at any time prior to the Effective Date. For a revocation of Consents to be effective prior to the Effective Date a written notice must be received by the Information Agent at its address set forth above or on the back cover of this Consent Form. Any such notice of revocation must (i) specify the name of the person having executed the Consent being revoked, (ii) identify the aggregate principal amount of the Notes held by such person, and (iii) be signed by the Holder in the same manner as the original signature on the Consent or be accompanied by a bond power, and a properly completed irrevocable proxy, in each case in the name of the person revoking the Consent, in a satisfactory form as determined by the Company in its sole discretion, duly executed by the registered Holder. A purported notice of revocation which lacks any of the required information will not be an effective withdraw of a Consent previously made. A purported notice of revocation that lacks any of the required information or is dispatched to any other address will not be effective to revoke a Consent previously given. Revocation of Consents can only be accomplished in accordance with the foregoing procedures. Any permitted revocation of Consents may not be rescinded; and any Consents so withdrawn will thereafter be deemed not validly tendered for purposes of the Consent Payment; provided, however, that revoked Consents may again be tendered by following the procedures for tendering at or prior to the Expiration Date. All questions as to the validity (including time of receipt) of notices of withdrawal will be determined by the Company, it its sole discretion, whose determination will be final and binding. None of the Company, the Information Agent, the Solicitation Agent, the Paying Agent and any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal, or shall incur any liability for failure to give any such notification. 3. Partial Tenders and Consents. If the Consent Form relates to less than the total principal amount of the Notes at maturity held in the name of the Holder, such Holder must list the principal amounts of the Notes at maturity held in the name of such holder in the last column of the box entitled "Description of Notes" herein. 4. Signatures on this Consent and Letter of Transmittal, Bond Powers and Endorsement Guarantee of Signatures. If this Consent Form is signed by the registered Holder(s) of the Notes tendered hereby or with respect to which Consent is given, the signature(s) must correspond with the name(s) as written on the face of the certificate(s) without alteration, enlargement or any change whatsoever. If this Consent Form is signed by a Participant in DTC whose name is shown as the owner of the Notes tendered hereby, the signature must correspond with the name shown on the security position listing as the owner of the Notes. IF THIS CONSENT FORM IS EXECUTED BY A HOLDER OF NOTES WHO IS NOT THE REGISTERED HOLDER, THEN THE REGISTERED HOLDER MUST SIGN A VALID PROXY, WITH THE SIGNATURE OF SUCH REGISTERED HOLDER GUARANTEED BY AN ELIGIBLE INSTITUTION. If any of the Notes are owned of record by two or more joint owners, all such owners must sign this Consent Form. If any of the Notes are registered in different names, it will be necessary to complete, sign and submit as many separate copies of this Consent Form and any necessary accompanying documents as there are different names in which the Notes are held. [If this Consent Form is signed by an Acting Holder, and the Consent Payment to be made in connection with the Solicitation is to be issued to the order of the Acting Holder, then the Acting Holder need not provide a separate bond power. In any other case (including if this Consent Form is not signed by the Acting Holder), the Acting Holder must transmit a separate properly completed bond power with this Consent Form (executed exactly as the name(s) of the registered holder(s) appear(s) on such Notes, and, with respect to a participant in DTC whose name appears on a security position listing as the owner of Notes exactly as the name(s) of the participant(s) appear(s) on such security position listing), with the signature on the endorsement or bond power guaranteed by an Eligible Institution, unless such bond powers are executed by an Eligible Institution.] If this Consent Form or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and proper evidence satisfactory to the Company of their authority to so act must be submitted with this Consent Form. Signatures on bond powers and proxies and Consents provided in accordance with this Instruction 4 by registered Holders not executing this Consent Form must be guaranteed by an Eligible Institution. No signature guarantee is required if: (i) this Consent Form is signed by the registered holder(s) of the Notes tendered herewith (or by a Participant in DTC whose name appears on a security position listing as the owner of Notes) and the payments for the Consent Payments to be made are to be issued, directly to such registered Holder(s) and the "Special Payment Instructions" box of this Consent and Letter of Transmittal has not been completed; or (ii) such Consents are delivered for the account of an Eligible Institution. In all other cases, all signatures on Consent Forms must be guaranteed by an Eligible Institution. 5. Special Issuance and Special Delivery Instructions. Consenting Holders should indicate in the applicable box or boxes the name and address to which Consent Payments to be made are to be issued or sent, if different from the name and address of the Holder signing this Consent Form. In the case of issuance in a different name, the taxpayer identification or social security number of the person named must also be indicated. 6. Taxpayer Identification Number. Each consenting Holder is required to provide the Information Agent with the Holder's correct taxpayer identification number ("TIN"), generally the Holder's social security or federal employer identification number, on Substitute Form W-9, which is provided under "Important Tax Information" below or, alternatively, to establish another basis for exemption from backup withholding. A Holder must cross out item (2) in the Certification box on Substitute Form W-9 if such Holder is subject to backup withholding. Failure to provide the information on the form may subject the tendering Holder to 31% federal income tax backup withholding on the payment, including the Consent Payment, if any, made to the Holder or other payee with respect to Consents delivered pursuant to the Solicitation. The box in Part 3 of the form should be checked if the consenting Holder has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If the box in Part 3 is checked and the Information Agent is not provided with a TIN within 60 days thereafter, the Information Agent will withhold 31% from all such payments with respect to the Consent Payment to be made until a TIN is provided to the Information Agent. 7. Irregularities. All questions as to the form of all documents and the validity (including time of receipt) and deliveries and revocations of Consents will be determined by the Company, in its sole discretion, which determination shall be final and binding. Alternative, conditional or contingent Consents will not be considered valid. The Company reserves the absolute right to reject any or all of Consents that are not in proper form or the acceptance of which would, in the Company's opinion, be unlawful. The Company also reserves the right to waive any defects, irregularities or conditions of delivery as to particular Consents. The Company's interpretations of the terms and conditions of the Solicitation (including the instructions in this Consent Form) will be final and binding. Any defect or irregularity in connection with deliveries of Consents must be cured within such time as the Company determines, unless waived by the Company. A defective Consent may, in the sole discretion of the Company, constitute a valid Consent and will be counted for purposes of determining whether Requisite Consents have been obtained. None of the Company, the Information Agent, the Solicitation Agent, the Paying Agent or any other person will be under any duty to give notice of any defects or irregularities in deliveries of Consents or will incur any liability to Holders for failure to give any such notice. 8. Waiver of Conditions. The Company expressly reserves the absolute right, in its sole discretion, to amend or waive any of the conditions to the Solicitation in the case of any Consents delivered at any time and from time to time. 9. Requests for Assistance or Additional Copies. Any questions or requests for assistance or additional copies of this Consent Statement may be directed to the Information Agent at the telephone number and location listed below. You may also contact your broker, dealer, commercial bank or trust company for assistance concerning this Solicitation. IMPORTANT TAX INFORMATION Under federal income tax laws, a Holder whose Consents are accepted for payment is required to provide the Information Agent with such Holder's correct TIN on Substitute Form W-9 below or otherwise establish a basis for exemption from backup withholding. If such Holder is an individual, the TIN is his social security number. If the Information Agent is not provided with the correct TIN, a $50 penalty may be imposed by the Internal Revenue Service, and any Consent Payment, made with respect to Consents provided pursuant to the Solicitation may be subject to backup withholding. Failure to comply truthfully with the backup withholding requirements also may result in the imposition of severe criminal and/or civil fines and penalties. Certain Holders (including, among others, all corporations and certain foreign persons) are not subject to these backup withholding and reporting requirements. Exempt Holders should furnish their TIN, write "Exempt" on the face of the Substitute Form W-9, and sign, date and return the Substitute Form W-9 to the Information Agent. A foreign person, including entities, may qualify as an exempt recipient by submitting to the Information Agent a properly completed Internal Revenue Service Form W-8, signed under penalties of perjury, attesting to that Holder's foreign status. A Form W-8 can be obtained from the Information Agent. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional instructions. If backup withholding applies, the Information Agent is required to withhold 31% of any payments made to the Holder or other payee. Backup withholding is not an additional federal income tax; rather, the federal income tax liability of persons subject to backup withholding is reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. Purpose of Substitute Form W-9 To prevent backup withholding on any Consent Payment, made with respect to Consents provided pursuant to the Solicitation, the Holder is required to provide the Information Agent with either (i) the Holder's correct TIN by completing the form below, certifying that the TIN provided on Substitute Form W-9 is correct (or that such Holder is awaiting a TIN) and that (A) the Holder has not been notified by the Internal Revenue Service that the Holder is subject to backup withholding as a result of failure to report all interest or dividends or (B) the Internal Revenue Service has notified the Holder that the Holder is no longer subject to backup withholding; or (ii) an adequate basis for exemption. What Number to Give the Information Agent The Holder is required to give the Information Agent the TIN (e.g., social security number or employer identification number) of the registered holder of the Notes. If the Notes are held in more than one name or are not held in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report. - -------------------------------------------------------------------------------- Part 1--PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND CERTIFY BY SIGNING SUBSTITUTE AND DATING BELOW. ------------------------------ Social Security Number Form W-9 OR ------------------------------ Department of the Employer Identification Number Treasury Payer's Request for Taxpayer Identification Number (TIN) - -------------------------------------------------------------------------------- Part 2--Certification--Under the penalties of Part3--Awaiting TIN perjury, I certify that: (1) The number shown on this form is my correct Taxpayer Identification Number (or I am waitingfor a number to be issued to me) and Awaiting TIN (2) I am not subject to backup withholding either because I have not been notified by the Internal Revenue Service ("IRS") that I am subject to backup withholding as a result of failure to report all interest or dividends, or the IRS has notified me that I am no longer subject to backup withholding. - -------------------------------------------------------------------------------- Certificate Instructions--You must cross out item (2) in Part 2 above if you have been notified by the IRS that you are subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS stating that you are no longer subject to backup withholding, do not cross out item (2). SIGNATURE DATE , 1999 -------------------- ---------- - ------------------------------- ------------------------------------------------ NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE SOLICITATION. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9. CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number within 60 days, 31% of all reportable payments made to me thereafter will be withheld until I provide a number. - -------------------------------- ------------------------------, 1999 Signature Date The Information and Tabulation Agent for the Solicitation is: MACKENZIE PARTNERS, INC. By Mail, Overnight Courier or Hand: MacKenzie Partners, Inc. 156 Fifth Avenue New York, NY 10010 Attention: Simon Coope By Facsimile: (212) 929-0061 Confirm by telephone: (212) 929-5500 (Call Collect) (800) 322-2885 (Toll Free) -------------------- Any questions or requests for assistance or additional copies of this Consent Statement and the Consent Form may be directed to the Information Agent at the telephone number and location listed above. You may also contact your broker, dealer, commercial bank or trust company for assistance concerning the Solicitation. The Solicitation Agent for the Solicitation is: Donaldson, Lufkin & Jenrette 277 Park Avenue New York, New York 10172 Telephone Number: (212) 892-7707 Attention: Tom Pereira EX-3.(I) 6 FOURTH AMENDED AND RESTATED CERT OF INCORPORATION FOURTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF OUTSOURCING SOLUTIONS INC. Outsourcing Solutions Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: 1. The name of the corporation is Outsourcing Solutions Inc. (the "Corporation"). The Corporation was originally incorporated as OSI Holdings Corp. in the State of Delaware on the 21st day of September, 1995 pursuant to a Certificate of Incorporation filed with the Secretary of State of the State of Delaware on that date. 2. This Fourth Amended and Restated Certificate of Incorporation amends and restates the Third Amended and Restated Certificate of Incorporation of the Corporation filed with the Secretary of State of the State of Delaware on January 13, 1999, as amended on November 29, 1999. This Fourth Amended and Restated Certificate of Incorporation has been adopted by the Corporation and by its stockholders pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware. 3. On December 3, 1999, Directors of the Corporation duly adopted resolutions authorizing the following amendment and restatement of the Certificate of Incorporation of the Corporation, declaring such amendment and restatement to be advisable and in the best interests of the Corporation and its stockholders and authorizing the appropriate officers to solicit written consents of the stockholders of the Corporation in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware. Thereafter, pursuant to resolutions of the Board of Directors, in lieu of a meeting and vote of holders of the Corporation's common stock and preferred stock, stockholders holding a majority of the issued and outstanding shares of common stock of the Corporation and holders of a majority of the issued and outstanding shares of each of the (i) preferred stock, (ii) Class A Non-Voting Common Stock, (iii) Class B Non-Voting Common Stock and (iv) Class C Non-Voting Common Stock of the Corporation adopted the following amendment and restatement of the Certificate of Incorporation of the Corporation. 4. The text of Certificate of Incorporation, is hereby restated and amended to read in its entirety as follows: FIRST: The name of the Corporation is Outsourcing Solutions Inc. SECOND: The registered office of the Corporation in the State of Delaware is 1013 Centre Road, Wilmington, Delaware 19805, County of New Castle. The name of its registered agent in the State of Delaware at such address is The Prentice-Hall Corporation System, Inc. THIRD: The purpose of the Corporation is to engage, directly or indirectly, in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware as from time to time in effect. FOURTH: The total number of shares which the Corporation shall have the authority to issue is 17,300,000 shares of capital stock as follows: 300,000 shares of Preferred Stock, no par value (the "Preferred Stock"), 15,000,000 shares of Voting Common Stock, par value $.01 per share (the "Voting Common Stock") and 2,000,000 shares of Non-Voting Stock, par value $.01 per share (the "Non-Voting Common Stock", and together with the Voting Common Stock, the "Common Stock"). Each share of Preferred Stock is hereafter referred to as a "Preferred Share" and collectively as "Preferred Shares." Each share of Voting Common Stock is hereafter referred to as a "Voting Common Share" and collectively as "Voting Common Shares". Each share of Non-Voting Common Stock is hereafter referred to as a "Non-Voting Common Share" and collectively as "Non-Voting Common Shares". The Voting Common Shares and Non-Voting Common Shares are hereafter collectively referred to as "Common Shares". A. Preferred Stock. Authorized but unissued shares of Preferred Stock may be issued from time to time in one or more series or classes. The Board of Directors is hereby authorized to determine and fix by resolution all rights, preferences, and privileges and qualifications, limitations and restrictions (including, without limitation, voting rights, dividend rights, redemption features, conversion rights or protective features, and the limitation and exclusion thereof) applicable to any such series or class of Preferred Stock and the number of shares constituting any such series or class and the designation thereof, and, subject to the terms of any such series or class, to increase or decrease (but not below the number of shares of such series or class then outstanding) the number of shares of any series or class subsequent to the issue of shares of that series or class then outstanding. In the event that the number of shares of any series or class is so decreased, the shares constituting such reduction shall resume the status which such shares had prior to the adoption of the resolution originally fixing the number of such series or class. B. Common Stock. The voting powers, designations, preferences and relative participating, optional or other special rights, and qualifications, or restrictions thereof, of the Common Stock are as follows: 1. Dividend Rights. Subject to the preferential rights of the Preferred Shares, the Board of Directors of the Corporation may, in its discretion, out of funds legally available for the payment of dividends and at such times and in such manner as determined by the Board of Directors, declare and pay dividends on the Common Shares of the Corporation. No dividend (other than a dividend in capital stock ranking on a parity with the Common Shares or cash in lieu of fractional shares with respect to such stock dividend) shall be declared or paid on any share or shares of any class of stock or series thereof ranking on a parity with the Common Shares in respect of payment of dividends for any dividend period unless there shall have been declared, for the same dividend period, like proportionate dividends on all shares of Common Shares then outstanding. As and when dividends are declared or paid thereon, whether in cash, property or securities of the Corporation, the holders of the Voting Common Shares and of the Non-Voting Common Shares will be entitled to share ratably, on a share for share basis, in such dividends, provided, that (i) if dividends are declared which are payable in Voting Common Shares or Non-Voting Common Shares, dividends will be declared which are payable at the same rate on both classes of stock and the dividends payable in Voting Common Shares will be payable to holders of such shares and the dividends payable in Non-Voting Common Shares will be payable to holders of such shares and (ii) if the dividends consist of other voting securities of the Corporation, (a) the Corporation will make available to each holder of Non-Voting Common Shares, at such holder's request, dividends consisting of non-voting securities of the Corporation which are otherwise identical to the voting securities and which are convertible into or exchangeable for such voting securities on the same terms as the Non-Voting Common Shares are convertible into Voting Common Shares. 2. Rights on Liquidation. In the event of any liquidation, dissolution, distribution of assets or winding up of the Corporation, whether voluntary or involuntary (collectively, a "Liquidation"), after payment or provision for payment of the debts and other liabilities of the Corporation and the setting aside for payment of any preferential amount due to the holders of any other class or series of stock (including, without limitation, the holders of Preferred Shares), the holders of Common Shares (including, without limitation, the Voting Common Shares and the Non-Voting Common Shares) and any other class of stock or series thereof ranking on a parity with the Common Shares in respect of distributions on Liquidation shall be entitled to receive ratably on a share for share basis, any or all assets remaining to be paid or distributed. 3. Voting Rights. Except as may be otherwise required by law, all voting rights shall be vested in the Voting Common Shares and each holder of Voting Common Shares shall have one vote in respect of each Voting Common Share held by such holder on all matters to be voted upon by the stockholders of the Corporation. The holders of the Non-Voting Shares will have no right to vote on any matters to be voted on by the stockholders of the Corporation; provided, that the holders of the Non-Voting Common Shares shall have the right to vote as a separate class on any matter on which the Non-Voting Common Shares are required to vote as a class pursuant to the General Corporation Law of the State of Delaware. 4. Conversion. A. Conversion of Non-Voting Common Shares. Any holder of Non-Voting Common Shares shall have the right, at its option, at any time and from time to time, to convert, subject to the terms and provisions of this Section 4A, any or all of such holder's Non-Voting Common Shares into an equal number of shares of fully paid and non-assessable shares of Voting Common Shares as provided below; provided, however, if the holder in any such conversion is subject to the Bank Holding Company Act of 1956, as amended (12 U.S.C. ss.1841, et. seq.) and the regulations promulgated thereunder (collectively and including any successor provisions, the "BHCA Act"), such conversion may be made only if: (i) the BHCA Act would not prohibit such holder from holding such shares of Voting Common Shares; and (ii) such shares of Voting Common Shares to be received upon such conversion will be (A) distributed or sold in connection with any public equity offering registered under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the "1933 Act"), (B) distributed or sold in a "broker's transaction" (as defined in Rule 144(g) under the 1933 Act) pursuant to Rule 144 under the 1933 Act or any similar rule then in force, (C) distributed or sold to a person or group (within the meaning of the Securities Exchange Act of 1934, as amended (the "1934 Act")) of persons if, after such distribution or sale, such person or group of persons would not, in the aggregate, own, control or have the right to acquire more than 2% of the outstanding securities of the Corporation entitled to vote on the election of directors of the Corporation, (D) distributed or sold to a person or group (within the meaning of the 1934 Act) of persons if, prior to such sale, such person or group of persons had control of the Corporation, (E) distributed, sold, or held in any other manner permitted under the BHCA, including after giving effect to the amendment of the BHCA by the Gramm-Leach-Bliley Financial Services Act; provided, further, that if the holder converts any Non-Voting Common Shares as provided in clauses (i) and (ii) above and any distribution or sale of the Non-Voting Common Shares fails to occur for any reason or such holder is not otherwise permitted to hold the Voting Common Shares into which such shares were converted, such holder may convert the Voting Common Shares into the Non-Voting Common Shares converted in anticipation of such distribution or sale or other permitted holding. B. Conversion Procedure. (i) Unless otherwise provided herein, each conversion of shares of Non-Voting Common Stock into shares of Voting Common Stock will be effected by the surrender of the certificate or certificates representing the Non-Voting Common Shares to be converted at the principal office of the Corporation at any time during normal business hours, together with a written notice by the holder of such Non-Voting Common Shares stating that such holder desires to convert such Non-Voting Common Shares, or a stated number of such Non-Voting Common Shares, represented by such certificate(s) into shares of Voting Common Shares. Unless otherwise provided herein, each conversion will be deemed to have been effected as of the close of business on the date on which such certificate(s) have been surrendered and such notice has been received, and at such time the rights of the holder of the converted Non-Voting Common Shares, as such holder, will cease and the person or persons in whose name or names the certificate(s) for Voting Common Shares are to be issued upon such conversion will be deemed to have become the holder or holders of record of the Voting Common Shares represented thereby. (ii) Promptly after the surrender of certificates and the receipt of written notice, the Corporation will issue and deliver in accordance with the surrendering holder's instructions (a) the certificate(s) for the Voting Common Shares issuable upon such conversion and (b) a certificate representing any Non-Voting Common Shares that was represented by the certificate(s) delivered to the Corporation in connection with such conversion but that was not converted. (iii) The issuance of certificates for Voting Common Shares upon conversion of Non-Voting Common Shares will be made without charge to the holders of such shares for any issuance tax in respect thereof (other than any tax in connection with the issuance of shares in a different name) or other cost incurred by the Corporation in connection with such conversion and the related issuance of Voting Common Shares. (iv) The Corporation will at all times reserve and keep available out of its authorized but unissued Voting Common Shares, solely for the purpose of issuance upon the conversion of the Non-Voting Common Shares such number of Voting Common Shares as are issuable upon the conversion of all outstanding Non-Voting Common Shares. All Common Shares which are so issuable will, when issued, be duly and validly issued, fully paid and nonassessable. The Corporation will take all such actions as may be necessary to assure that all such Common Shares may be so issued without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which Common Shares may be listed (except for official notices of issuance which will be immediately transmitted by the Corporation upon issuance). (v) The Corporation will not close its books against the transfer of Common Shares in any manner which would interfere with the timely conversion of any Non-Voting Common Shares. 5. Stock Splits. If the Corporation in any manner subdivides or combines the outstanding shares of one class of Common Shares, the outstanding shares of the other class of Common Shares will be proportionately subdivided or combined in a similar manner. 6. Notices. All notices referred to in this Article FOURTH shall be in writing, shall be delivered personally, by facsimile or by first class mail, postage prepaid, and shall be deemed to have been given when so delivered or mailed to the Corporation at its principal office and to any stockholder at such holder's address as it appears in the stock records of the Corporation. 7. Amendment and Waiver. No amendment or waiver of any provision of paragraph 4 of this Article FOURTH or of this paragraph 7 shall be effective without the prior approval of both the holders of a majority of the Voting Common Shares then outstanding, voting as a separate class, and the holders of a majority of the Non-Voting Common Shares then outstanding, voting as a separate class. FIFTH: The business of the Corporation shall be managed under the direction of the Board of Directors except as otherwise provided by law. The number of Directors of the Corporation shall be fixed from time to time by, or in the manner provided in, the By-Laws. Election of Directors need not be by written ballot unless the By-Laws of the Corporation shall so provide. SIXTH: The Board of Directors may make, alter or repeal the By-Laws of the Corporation except as otherwise provided in the By-Laws adopted by the Corporation's stockholders. SEVENTH: The Directors of the Corporation shall be protected from personal liability, through indemnification or otherwise, to the fullest extent permitted under the General Corporation Law of the State of Delaware as from time to time in effect. 1. A Director of the Corporation shall under no circumstances have any personal liability to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director except for those breaches and acts or omissions with respect to which the General Corporation Law of the State of Delaware, as from time to time amended, expressly provides that this provision shall not eliminate or limit such personal liability of Directors. Neither the modification or repeal of this paragraph 1 of Article SEVENTH nor any amendment to said General Corporation Law that does not have retroactive application shall limit the right of Directors hereunder to exculpation from personal liability for any act or omission occurring prior to such amendment, modification or repeal. 2. The Corporation shall indemnify each Director and Officer of the Corporation to the fullest extent permitted by applicable law, except as may be otherwise provided in the Corporation's By-Laws, and in furtherance hereof the Board of Directors is expressly authorized to amend the Corporation's By-Laws from time to time to give full effect hereto, notwithstanding possible self interest of the Directors in the action being taken. Neither the modification or repeal of this paragraph 2 of Article SEVENTH nor any amendment to the General Corporation Law of the State of Delaware that does not have retroactive application shall limit the right of Directors and Officers to indemnification hereunder with respect to any act or omission occurring prior to such modification, amendment or repeal. EIGHTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. IN WITNESS WHEREOF, said Outsourcing Solutions Inc. has caused this Amended and Restated Certificate of Incorporation of Outsourcing Solutions Inc. to be executed by its officer thereunto duly authorized this 7th day of December, 1999. OUTSOURCING SOLUTIONS INC. By:/s/ Eric R. Fencl -------------------------- Name: Eric Fencl Title: Vice President and General Counsel CERTIFICATE OF DESIGNATION OF THE POWERS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS OF CLASS A 14% SENIOR MANDATORILY REDEEMABLE PREFERRED STOCK, SERIES A, AND CLASS B 14% SENIOR MANDATORILY REDEEMABLE PREFERRED STOCK, SERIES A, AND QUALIFICATIONS, LIMITATIONS ANDRESTRICTIONS THEREOF - -------------------------------------------------------------------------------- Pursuant to Section 151 of the General Corporation Law of the State of Delaware - -------------------------------------------------------------------------------- Outsourcing Solutions Inc. (the "Corporation"), a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify that, pursuant to authority conferred upon the board of directors of the Corporation (the "Board of Directors") by its Certificate of Incorporation, as amended (hereinafter referred to as the "Certificate of Incorporation"), and pursuant to the provisions of Section 151 of the General Corporation Law of the State of Delaware, said Board of Directors, by unanimous written consent dated December 10, 1999, duly approved and adopted the following resolution (the "Resolution"): RESOLVED, that, pursuant to the authority vested in the Board of Directors by its Certificate of Incorporation, the Board of Directors does hereby designate and authorize 50,000 shares of Class A 14% Senior Mandatorily Redeemable Preferred Stock, no par value, of which 25,000 shares shall be designated Class A 14% Senior Mandatorily Redeemable Preferred Stock, Series A, no par value; and futher resolved that the Board of Directors does hereby designate and authorize 150,000 shares of Class B 14% Senior Mandatorily Redeemable Preferred Stock, no par value, of which 75,000 shares shall be designated as Class B 14% Senior Mandatorily Redeemable Preferred Stock, Series A, no par value, each having the designations, preferences, relative, participating, optional and other special rights and the qualifications, limitations and restrictions thereof that are set forth in the Certificate of Incorporation and in this Resolution as follows: (a) Designation. There is hereby created out of the authorized and unissued shares of Preferred Stock of the Corporation a class of Preferred Stock designated as the "Class A 14% Senior Mandatorily Redeemable Preferred Stock." The number of shares constituting such class shall be 50,000 and are referred to herein as the "Class A Senior Preferred Stock." 25,000 shares of Class A Senior Preferred Stock, designated as the "Class A 14% Senior Mandatorily Redeemable Preferred Stock, Series A," shall be initially issued. There is hereby created out of the authorized and unissued shares of Preferred Stock of the Corporation a class of Preferred Stock designated as the "Class B 14% Senior Mandatorily Redeemable Preferred Stock." The number of shares constituting such class shall be 150,000 and are referred to herein as the "Class B Senior Preferred Stock." 75,000 shares of Class B Senior Preferred Stock, designated as the "Class B 14% Senior Mandatorily Redeemable Preferred Stock, Series A," shall be initially issued. The Class A Senior Preferred Stock and the Class B Senior Preferred Stock are collectively referred to herein as the "Senior Preferred Stock." The Corporation may issue up to one additional series of the Class A Senior Preferred Stock (designated as the "Class A 14% Mandatorily Redeemable Preferred Stock, Series B") and one additional series of the Class B Senior Preferred Stock (designated as the "Class B 14% Mandatorily Redeemable Preferred Stock, Series B") pursuant to this Certificate of Designation (without complying with paragraph (f)(ii)(A) hereof) solely to Holders of the Senior Preferred Stock, in exchange for shares of the Class A 14% Senior Mandatorily Redeemable Preferred Stock, Series A, or the Class B 14% Senior Mandatorily Redeemable Preferred Stock, Series A, as applicable, as is necessary to comply with the registration provisions of the Registration Rights Agreement. (b) Rank. The Senior Preferred Stock shall, with respect to dividend distributions and distributions upon liquidation, winding-up and dissolution of the Corporation, rank (i) senior (to the extent set forth herein) to all classes of Common Stock of the Corporation and to each other class or series of Capital Stock (including Capital Stock issuable upon exercise of any options, warrants or rights to purchase Capital Stock) of the Corporation now authorized (including the Junior Preferred Stock) or hereafter created the terms of which do not expressly provide that it ranks senior to, or on a parity with, the Senior Preferred Stock as to dividend distributions and distributions upon liquidation, winding-up and dissolution of the Corporation (collectively referred to, together with all classes of Common Stock of the Corporation, as "Junior Securities"); (ii) on a parity with any class or series of Capital Stock (including Capital Stock issuable upon exercise of any options, warrants or rights to purchase Capital Stock) of the Corporation hereafter created the terms of which expressly provide that such class or series will rank on a parity with the Senior Preferred Stock as to dividend distributions and distributions upon liquidation, winding-up and dissolution (collectively referred to as "Parity Securities"), provided that any such Parity Securities that were not approved by the Holders in accordance with paragraph (f)(ii)(A) hereof shall be deemed to be Junior Securities and not Parity Securities; and (iii) junior to each other class or series of Capital Stock (including Capital Stock issuable upon exercise of any options, warrants or rights to purchase Capital Stock) of the Corporation hereafter created the terms of which expressly provide that such class or series will rank senior to the Senior Preferred Stock as to dividend distributions and distributions upon liquidation, winding-up and dissolution of the Corporation (collectively referred to as "Senior Securities"), provided that any such Senior Securities that were not approved by the Holders in accordance with paragraph (f)(ii)(B) hereof shall be deemed to be Junior Securities and not Senior Securities. (c) Dividends. (i) From the Issue Date, the Holders of the outstanding shares of Senior Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available therefor, dividends on each share of Senior Preferred Stock at a rate per annum equal to 14% of the Liquidation Preference per share of Senior Preferred Stock in effect from time to time. All dividends shall accrue, whether or not earned or declared, on a daily basis from the Issue Date, shall be cumulative and shall be payable quarterly in arrears on each Dividend Payment Date, commencing on the first Dividend Payment Date after the Issue Date. If any dividend payable on any Dividend Payment Date on or prior to December 1, 2004 is not declared or paid in full in cash on such Dividend Payment Date then, to the extent of legally available funds therefor, the Liquidation Preference of each share shall be increased on such Dividend Payment Date by an amount (the "Accrued Dividend Amount") equal to the product of (A) the amount payable as dividends on such share on such Dividend Payment Date that is not paid in cash divided by the total amount payable as dividends on such share on such Dividend Payment Date, and (B)one-quarter (or, if the Issue Date was less than 90 days prior to the applicable Dividend Payment Date, a fraction the numerator of which is the number of days elapsed from the Issue Date to the applicable Dividend Payment Date and the denominator of which is 360) of the Accrued Dividend Rate times the then Liquidation Preference. The amount of the dividend otherwise payable in cash that is so added to the Liquidation Preference shall be deemed for all purposes to have been paid in full in cash, shall not be deemed to be arrearages or in arrears and shall not accumulate. In the event that any portion of the Accrued Dividend Amount may not be so added to the Liquidation Preference because of the lack of legally available funds therefor (such portion, the "Default Dividends") and any portion of the Accrued Dividend Amount not so added to the Liquidation Preference because of the lack of legally available funds therefo shall be accumulated and payable in cash. Any Default Dividends shall thereafter accrue dividends at an annual rate equal to the Accrued Dividend Rate. All dividends accumulating and accruing after December 1, 2004 must be paid in cash (when, as and if declared by the Board of Directors out of funds legally available therefor). If, at any time, any Voting Rights Triggering Event described in clause (1), (2) or (3) of paragraph (f)(iii)(A) shall have occurred, the per annum dividend rate will be increased by (x) 2% per annum in the case of clause (1) or (2) of paragraph (f)(iii)(A) during the continuance of any such Voting Rights Triggering Event and (y) 6% per annum in the case of clause (3) of paragraph (f)(iii)(A) beginning on the date of such Change of Control; provided, that upon the occurrence of a Voting Rights Triggering Event described in clause (3)(x) of paragraph (f)(iii)(A) the Corporation may, at its option, offer to redeem the Senior Preferred Stock pursuant to paragraph (e)(i)(C) within 30 days of the occurrence of such Change of Control, in which case the dividend rate will not increase by 6% per annum. After the date on which the right of the Holders to elect and to be represented by members of the Board of Directors ceases to exist in accordance with paragraph (f)(iii)(B), the dividend rate will revert to the rate originally borne by the Senior Preferred Stock. Each dividend shall be payable to the Holders of record as they appear on the stock books of the Corporation on the Dividend Record Date immediately preceding the related Dividend Payment Date. Dividends shall cease to accrue and, if applicable, accumulate in respect of the enior Preferred Stock on the date of their redemption unless the Corporation shall have failed to pay the relevant redemption price on Senior Preferred Stock to be redeemed on the date fixed for redemption. (ii) All dividends paid with respect to shares of the Senior Preferred Stock pursuant to paragraph (c)(i) shall be paid pro rata to the Holders entitled thereto. (iii) Dividends accruing after December 1, 2004 on the Senior Preferred Stock for any past Dividend Period and dividends in connection with any optional redemption pursuant to paragraph (e) (i) may be declared and paid at any time, without reference to any Dividend Payment Date, to Holders of record on such date, not more than forty-five (45) days prior to the payment thereof, as may be fixed by the Board of Directors. (iv) (A) Nodividends shall be declared by the Board of Directors or paid or set apart for payment by the Corporation on any Parity Securities for any period unless full cumulative dividends have been or contemporaneously are declared and paid in full, or declared and, if payable in cash, a sum in cash set apart sufficient for such payment, on the Senior Preferred Stock for all Dividend Periods terminating on or prior to the date of payment of such dividends on such Parity Securities; provided, that with respect to dividends payable on the Senior Preferred Stock on or prior to December 1, 2004, any such dividends that are added to the Liquidation Preference pursuant to paragraph (c)(i) shall be deemed to have already been paid in full. If any dividends are not so paid, all dividends declared upon shares of the Senior Preferred Stock and any other Parity Securities shall be declared pro rata so that the amount of dividends declared per share on the Senior Preferred Stock and such Parity Securities shall in all cases bear to each other the same ratio that accrued dividends per share on the Senior Preferred Stock and such Parity Securities bear to each other. (B) So long as any share of Senior Preferred Stock is outstanding, the Corporation shall not declare, pay or set apart for payment any dividend on any of the Junior Securities (other than dividends in Junior Securities to the holders of Junior Securities, including with respect to the Junior Preferred Stock), or make any payment on account of, or set apart for payment money for a sinking or other similar fund for, the purchase, redemption or other retirement of, any of the Junior Securities or any warrants, rights, calls or options exercisable for or convertible into any of the Junior Securities whether in cash, obligations or shares of the Corporation or other property (other than in exchange for Junior Securities or pursuant to clause (ii), (vi), (vii) or (ix) of paragraph (j)(ii)(B)), and shall not permit any corporation or other entity directly or indirectly controlled by the Corporation to purchase or redeem any of the Junior Securities or any such warrants, rights, calls or options (other than in exchange for Junior Securities or pursuant to clause (ii), (vi), (vii) or (ix) of paragraph (j)(ii)(B)). (C) So long as any share of the Senior Preferred Stock is outstanding, the Corporation shall not (except with respect to dividends as permitted by paragraph (c)(iv)(A)) make any payment on account of, or set apart for payment money for a sinking or other similar fund for, the purchase, redemption or other retirement of, any of the Parity Securities or any warrants, rights, calls or options exercisable for or convertible into any of the Parity Securities whether in cash, obligations or shares of the Corporation or other property, and shall not permit any corporation or other entity directly or indirectly controlled by the Corporation to purchase or redeem any of the Parity Securities or any such warrants, rights, calls or options unless full cumulative dividends determined in accordance herewith on the Senior Preferred Stock have been or contemporaneously are paid in full; provided, that with respect to dividends payable on the Senior Preferred Stock on or prior to December 1, 2004, any such dividends that are added to the Liquidation Preference pursuant to paragraph (c)(i) shall be deemed to have already been paid in full. (v) Dividends payable on the Senior Preferred Stock for any period less than a year shall be computed on the basis of a 360-day year of twelve 30-day months and, for periods not involving a full calendar month, the actual number of days elapsed (not to exceed 30 days). (d) Liquidation Preference. (i) In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the affairs of the Corporation, the Holders of shares of Senior Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders an amount in cash equal to the Liquidation Preference for each share outstanding, plus, without duplication, an amount in cash equal to accrued and, if applicable, accumulated and unpaid dividends thereon (including, without limitation, Default Dividends) to the date fixed for Liquidation, dissolution or winding-up (including an amount equal to a prorated dividend for the period from the last Dividend Payment Date to the date fixed for liquidation, dissolution or windingup) before any distribution shall be made or any assets distributed in respect of Junior Securities to the holders of any Junior Securities including, without limitation, Common Stock of the Corporation. If upon any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, the amounts available for payment with respect to the Senior Preferred Stock and all other Parity Securities are not sufficient to pay the Holders thereof, the Holders of the Senior Preferred Stock and the Parity Securities will share equally and ratably in any distribution of assets of the Corporation in proportion to the amounts that would be payable on such distribution if the amounts to which the Holders of the Senior Preferred Stock and any Parity Securities are entitled were paid in full. (ii) For the purposes of this paragraph (d), neither the sale, conveyance, exchange, assignment or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Corporation nor the consolidation or merger of the Corporation with or into one or more entities in accordance with paragraph (j)(viii) shall be deemed to be a liquidation, dissolution or winding-up of the affairs of the Corporation. (e) Redemption. (i) Optional Redemption. (A) The Corporation may redeem the Senior Preferred Stock at its option, in whole at any time or in part from time to time, from any source of funds legally available therefor, in the manner provided for in paragraph (e) (iii) hereof, at the redemption prices in cash (expressed as a percentage of the Liquidation Preference) set forth below for each of the Class A Senior Preferred Stock and the Class B Senior Preferred Stock, plus, without duplication, an amount in cash equal to all accrued and, if applicable, accumulated and unpaid dividends (including an amount in cash equal to a prorated dividend for the period from the Dividend Payment Date immediately prior to the Redemption Date to the Redemption Date) if redeemed during the 12-month period beginning on December 15 of each year listed below (unless otherwise specified): Class A Senior Preferred Stock 1999 through June 15, 2001................................. 110.0% June 16, 2001 through December 14, 2003.................... 114.0% 2003....................................................... 107.0% 2004....................................................... 103.5% 2005 and thereafter........................................ 100.0% Class B Senior Preferred Stock 1999 and thereafter........................................ 100.0% ; provided that (I) no redemption pursuant to this paragraph (e)(i)(A) shall be authorized or made unless prior thereto full accrued and, if applicable, accumulated and unpaid dividends are declared and paid in full, or declared and a sum in cash is set apart sufficient for such payment, on the Senior Preferred Stock for all Dividend Periods terminating on or prior to the Redemption Date, (II) any redemption pursuant to this paragraph (e)(i)(A) must be made pro rata among the Class A Senior Preferred Stock and the Class B Senior Preferred Stock outstanding at such time, except that the Corporation may redeem such shares held by Holders of fewer than ten shares (or shares held by Holders who would hold less than ten shares as a result of such redemption), as may be determined by the Corporation, and (III) any redemption pursuant to this paragraph (e)(i)(A) must be for at least $15.0 million; provided, that if less than $15.0 million of Senior Preferred Stock is outstanding at the time of such redemption, such redemption pursuant to this paragraph (e)(i)(A) must be for all of the outstanding Senior Preferred Stock. (B) [Intentionally Omitted]. (C) In addition to the foregoing paragraph (e)(i)(A), upon the occurrence of a Change of Control, the Corporation may, at its option, offer to redeem all but not less than all of the outstanding shares of Senior Preferred Stock, upon not less than 30 nor more than 60 days prior notice (but in no event may any such redemption occur more than 120 days after the occurrence of the Change of Control), such offer to remain open for not less than 30 days, mailed by first-class mail to each Holder's registered address, at a redemption price equal to 100% of the Liquidation Preference thereof, plus, without duplication, an amount in cash equal to all accumulated and unpaid dividends (including an amount in cash equal to a prorated dividend for the period from the Dividend Payment Date immediately prior to the Redemption Date to the Redemption Date); provided, that no redemption pursuant to this paragraph (e)(i)(C) shall be authorized or made unless prior thereto full accumulated and unpaid dividends are declared and paid in full, or declared and a sum in cash is set apart sufficient for such payment, on the Senior Preferred Stock for all Dividend Periods terminating on or prior to the Redemption Date. (D) In the event of a redemption pursuant to paragraph (e)(i)(A) hereof of only a portion of the then outstanding shares of Senior Preferred Stock, the Corporation shall effect such redemption on a pro rata basis according to the number of shares held by each Holder of Senior Preferred Stock, except that the Corporation may redeem such shares held by Holders of fewer than ten shares (or shares held by Holders who would hold less than ten shares as a result of such redemption), as may be determined by the Corporation. (ii) Mandatory Redemption. On December 10, 2007 (the "Mandatory Redemption Date"), the Corporation shall redeem, to the extent of funds legally available therefor, in the manner provided for in paragraph (e) (iii) hereof, all of the shares of Senior Preferred Stock then outstanding at a redemption price equal to 100% of the Liquidation Preference per share, plus, without duplication, an amount in cash equal to all accumulated and unpaid dividends per share (including an amount in cash equal to a prorated dividend for the period from the Dividend Payment Date immediately prior to the Redemption Date to the Redemption Date). (iii) Procedures for Redemption. (A) At least 30 days and not more than 60 days prior to the date fixed for any redemption of the Senior Preferred Stock, written notice (the "Redemption Notice") shall be given by first-class mail, postage prepaid, to each Holder of record on the record date fixed for such redemption of the Senior Preferred Stock at such Holder's address as it appears in the register maintained by the Transfer Agent for the Senior Preferred Stock, provided that no failure to give such notice nor any deficiency therein shall affect the validity of the procedure for the redemption of any shares of Senior Preferred Stock to be redeemed except as to the Holder or Holders to whom the Corporation has failed to give said notice or except as to the Holder or Holders whose notice was defective. The Redemption Notice shall state: (1) whether the redemption is pursuant to paragraph (e) (i)(A) or (C) or paragraph (e)(ii)hereof; (2) the redemption price; (3) whether all or less than all the outstanding shares of Senior referred Stock are to be redeemed and the total number of shares of Senior Preferred Stock being redeemed; (4) the Redemption Date; (5) that the Holder is to surrender to the Corporation, in the manner, at the place or places and at the price designated, his certificate or certificates representing the shares of Senior Preferred Stock to be redeemed; and (6) that dividends on the shares of Senior Preferred Stock to be redeemed shall cease to accumulate and accrue on such Redemption Date unless the Corporation defaults in the payment of the redemption price. (B) Each Holder shall surrender the certificate or certificates representing such shares of Senior Preferred Stock to the Corporation, duly endorsed (or otherwise in proper form for transfer, as determined by the Corporation), in the manner and at the place designated in the Redemption Notice, and on the Redemption Date the full redemption price for such shares shall be payable in cash to the Person whose name appears on such certificate or certificates as the owner thereof, and each surrendered certificate shall be canceled and retired. In the event that less than all of the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. (C) On and after the Redemption Date, unless the Corporation defaults in the payment in full of the applicable redemption price, dividends on Senior Preferred Stock called for redemption shall cease to accumulate on the Redemption Date, and all rights of the Holders of redeemed shares shall terminate with respect thereto on the Redemption Date, other than the right to receive the redemption price; provided, however, that if a Redemption Notice shall have been given as provided in paragraph (iii)(A) above and the funds necessary for redemption (including an amount in cash in respect of all dividends that will accumulate to the Redemption Date) shall have been irrevocably deposited in trust for the equal and ratable benefit for the Holders of the shares of Senior Preferred Stock to be redeemed, then, at the close of business on the Business Day on which such funds are segregated and set aside, the Holders of the shares to be redeemed shall cease to be stockholders of the Corporation and shall be entitled only to receive the redemption price. (D) All of the shares of the Senior Preferred Stock referenced in and created by this Certificate of Designation shall at all times (including during any bankruptcy proceeding) be treated as and deemed to be equity interests in the Corporation. (f) Voting Rights. (i) The Holders of Senior Preferred Stock, except as otherwise required under Delaware law or as set forth in paragraphs (ii), (iii) and (iv) below, shall not be entitled or permitted to vote on any matter required or permitted to be voted upon by the stockholders of the Corporation. (ii) (A) So long as any shares of Senior Preferred Stock are outstanding, the Corporation shall not authorize or issue any Parity Securities (except pursuant to the Registration Rights Agreement or in connection with the refinancing and concurrent redemption of all, but not less than all, of the outstanding Senior Preferred Stock) without the affirmative vote or consent of Holders of at least 60% of the then outstanding shares of Senior Preferred Stock, voting or consenting, as the case may be, as one class, given in person or by proxy, either in writing or by resolution adopted at an annual or special meeting. (B) So long as any shares of Senior Preferred Stock are outstanding, the Corporation shall not authorize or issue any Senior Securities without the affirmative vote or consent of Holders of at least 60% of the then outstanding shares of Senior Preferred Stock, voting or consenting, as the case may be, as one class, given in person or by proxy, either in writing or by resolution adopted at an annual or special meeting. (C) So long as any shares of Senior Preferred Stock are outstanding, the Corporation shall not amend this Resolution or Certificate of Designation so as to affect adversely the specified rights, preferences, privileges or voting rights of Holders of shares of Senior Preferred Stock without the affirmative vote or consent of Holders of at least a majority of the then outstanding shares of Senior Preferred Stock, voting or consenting, as the case may be, as one class, given in person or by proxy, either in writing or by resolution adopted at an annual or special meeting; provided, however, that no such amendment or waiver may, without the prior written consent of (x) the Holder of each share of Senior Preferred Stock then outstanding and affected thereby, (i) reduce the dividend rate on any share of Senior Preferred Stock, (ii) postpone the Mandatory Redemption Date or any Dividend Payment Date with respect to any share of Senior Preferred Stock, (iii) change the percentage of the aggregate outstanding number of shares of Senior Preferred Stock the Holders of which shall be required to consent or take any other action under this Certificate of Designation or (iv) make any change to clauses (1), (2) or (4) of the definition of Voting Rights Triggering Event and (y) at least 66 2/3% of the Holders of the then outstanding shares of Senior Preferred Stock, (i) subject any Holder to any additional obligation hereunder or (ii) make any change to clauses (3) or (5) of the definition of Voting Rights Triggering Event. (iii) (A) If (1) dividends accruing and, if applicable, accumulating on the Senior Preferred Stock after December 1, 2004 are in arrears and not paid in cash for one or more quarterly Dividend Periods (whether or not consecutive) (a "Dividend Default"); (2) the Corporation fails to redeem all of the then outstanding shares of Senior Preferred Stock on the Mandatory Redemption Date or otherwise fails to discharge any redemption obligation with respect to the Senior Preferred Stock; (3) a Change of Control occurs and either (x) the Corporation does not make an offer pursuant to paragraph (e)(i)(C) within 30 days after such Change of Control or (y) the Corporation fails to redeem any shares validly tendered in connection with such offer in accordance with paragraph (e)(i)(C); (4) the Corporation breaches or violates one or more of the provisions set forth in paragraph (j) hereof and the breach or violation continues for a period of 60 days or more after the Corporation receives notice thereof specifying the default from the Holders of at least 50% of the shares of Senior Preferred Stock then outstanding; or (5) a payment default occurs under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness of the Corporation or any of the Restricted Subsidiaries (or payment of which is guaranteed by the Corporation or any of the Restricted Subsidiaries), whether such Indebtedness or guarantee now exists, or is created after the date hereof and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which a payment default has occurred, aggregates $10.0 million or more (other than any such payment default being contested in good faith by the Corporation), then in the case of any of clauses (1) through (5) (each of such clauses (1) through (5) a "Voting Rights Triggering Event"), the number of directors constituting the Board of Directors shall be adjusted by the number, if any, necessary to permit the Holders of the Senior Preferred Stock, voting separately and as one class, to elect that number of directors constituting at least 25% (rounded to the nearest whole number) of the Board of Directors; provided, that such number of directors shall not be less than two; provided, further, that, in the event more than one of the above defaults occurs, at the same or at different times, the maximum number of directors that such Holders shall be entitled to elect is that number of directors constituting at least 25% (rounded to the nearest whole number) of the Board of Directors; provided, that such number of directors shall not be less than two. Such members of the Board of Directors shall be elected by a plurality vote of the Holders of the Senior Preferred Stock at a meeting therefor called upon the occurrence of such Voting Rights Triggering Event, and at every subsequent meeting at which the terms of office of the directors so elected by the Holders of Senior Preferred Stock expire (other than as described in paragraph (f)(iii)(B) below). Such Holders shall be entitled to cumulative voting rights in connection with the election of such members of the Board of Directors. In addition to the voting rights provided herein, any Significant Holder shall be entitled to an injunction or injunctions to prevent material breaches of the provisions of this Certificate of Designation and to enforce specifically the remedies under this Certificate of Designation in any court of the United States or any state thereof having jurisdiction, this being in addition to any other remedy to which such Holder may be entitled at law or in equity; provided that, notwithstanding the foregoing, Holders holding at least a majority of the then outstanding Senior Preferred Stock may by written consent waive any such material breach and such Significant Holder shall thereafter terminate its enforcement action with respect to such material breach. No such waiver or consent shall extend to any subsequent or other material breach or impair any right consequent thereon except to the extent expressly so waived. (B) The right of the Holders of the Senior Preferred Stock voting together as a separate class to elect members of the Board of Directors as set forth in paragraph (f)(iii)(A) above shall continue until such time as (x) in the event such right arises due to a Dividend Default, all such accrued dividends that are in arrears on the Senior Preferred Stock are paid in full in cash; (y) in the event such right arises due to a Change of Control, an offer pursuant to paragraph (e)(i)(C) is made and the related redemption is consummated at any time within 120 days after such Change of Control; and (z) in all other cases, the event, failure, breach or default giving rise to such Voting Rights Triggering Event is remedied or cured by the Corporation or waived by the Holders of at least a majority of the shares of Senior Preferred Stock then outstanding and entitled to vote thereon, at which time (1) the special right of the Holders of Senior Preferred Stock so to vote as a class for the election of directors, (2) the term of office of the directors elected by the Holders of Senior Preferred Stock shall each terminate and the directors elected by the holders of Common Stock or Capital Stock (other than the Senior Preferred Stock) shall constitute the entire Board of Directors and (3) such Voting Rights Triggering Event shall be deemed to cease to exist or be continuing. At any time after voting power to elect directors shall have become vested and be continuing in the Holders of Senior Preferred Stock pursuant to paragraph (f)(iii) hereof, or if vacancies shall exist in the offices of directors elected by the Holders of Senior Preferred Stock, a proper officer of the Corporation may, and upon the written request of the Holders of record of at least 25% of the shares of Senior Preferred Stock then outstanding addressed to the secretary of the Corporation shall, call a special meeting of the Holders of Senior Preferred Stock, for the purpose of electing the directors which such Holders are entitled to elect. If such meeting shall not be called by a proper officer of the Corporation within 20 days after personal service of said written request upon the secretary of the Corporation, or within 20 days after mailing the same within the United States by certified mail, addressed to the secretary of the Corporation at its principal executive offices, then the Holders of record of at least 25% of the outstanding shares of Senior Preferred Stock may designate in writing one Holder to call such meeting at the expense of the Corporation, and such meeting may be called by the Person so designated upon the notice required for the annual meetings of stockholders of the Corporation and shall be held at the place for holding the annual meetings of stockholders. Any Holder of Senior Preferred Stock so designated shall have, and the Corporation shall provide, access to the lists of stockholders to be called pursuant to the provisions hereof. (C) At any meeting held for the purpose of electing directors at which the Holders of Senior Preferred Stock shall have the right, voting together as a separate class, to elect directors as aforesaid, the presence in person or by proxy of the Holders of at least a majority of the outstanding shares of Senior Preferred Stock entitled to vote thereat shall be required to constitute a quorum of the Senior Preferred Stock. (D) Any vacancy occurring in the office of a director elected by the Holders of the Senior Preferred Stock may be filled by the remaining director elected by the Holders of the Senior Preferred Stock unless and until such vacancy shall be filled by the Holders of the Senior Preferred Stock. (E) Notwithstanding anything to the contrary in this paragraph (f), DB Capital Investors, L.P., First Union Investors, Inc. and Heller Financial, Inc. or any of their respective direct or indirect transferees of shares of the Class B Senior Preferred Stock, or any other Holder that is a bank holding company or any affiliate thereof (each, a "Regulated Holder"), shall not be entitled to vote with the other Holders of Senior Preferred Stock unless, until and to the extent (x) permitted by the Bank Holding Company Act of 1956, as amended, and Section 225.2(q)(2)(i) of Regulation Y promulgated thereunder, and (y) such Regulated Holder provides written notice thereof to the Corporation. Notwithstanding the foregoing the Corporation shall send to each Regulated Holder any information, consent solicitation documents, notices or any other documents or correspondence that is sent to the Holders. Each such Regulated Holder shall have 10 days after receipt of such information, documents or notices to provide the Corporation with notice that it is permitted to vote on any such matter set forth therein; provided, that if any Regulated Holder does not give the Corporation notice within such 10 days such Regulated Holder shall be deemed not to be permitted to vote on any such matter. (iv) In any case in which the Holders of the Senior Preferred Stock shall be entitled to vote pursuant to this paragraph (f) or pursuant to Delaware law, each Holder of Senior Preferred Stock entitled to vote with respect to such matter shall be entitled to one vote for each share of Senior Preferred Stock held. (v) Any action required or permitted to be taken at a meeting of Holders may be taken without a meeting, without prior notice and without a vote, if one or more written consents, setting forth the action so taken, shall be signed by the Holders of outstanding Senior Preferred Stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares of Senior Preferred Stock entitled to vote thereon were present and voted. (g) Conversion or Exchange; Registration Rights. The Holders of shares of Senior Preferred Stock shall not have any rights hereunder to convert such shares into or exchange such shares for shares of any other class or classes or of any other series of any class or classes of Capital Stock of the Corporation other than as provided in the Registration Rights Agreement. The Holders of shares of Senior Preferred Stock shall have the rights described in the Registration Rights Agreement. (h) Reissuance of Senior Preferred Stock. Shares of Senior Preferred Stock that have been issued and reacquired in any manner, including shares purchased or redeemed or exchanged, shall (upon compliance with any applicable provisions of the laws of Delaware) have the status of authorized and unissued shares of Preferred Stock undesignated as to series and may be redesignated and reissued as part of any series of Preferred Stock; provided that any issuance of such shares of Preferred Stock must be in compliance with the terms hereof. (i) Business Day. If any payment, redemption or exchange shall be required by the terms hereof to be made on a day that is not a Business Day, such payment, redemption or exchange shall be made on the immediately succeeding Business Day. (j) Certain Covenants. (i) Intentionally Omitted. (ii) Restricted Payments. (A) The Corporation shall not, and shall not cause or permit any of the Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other distribution or payment on or in respect of Capital Stock or options, warrants or rights to purchase Capital Stock of the Corporation (other than (x) dividends or distributions payable solely in shares of Qualified Capital Stock of the Corporation or in options, warrants or other rights to acquire shares of such Qualified Capital Stock, and (y) subject to paragraph (c)(iv), dividends or distributions in respect of Senior Securities or Parity Securities of the Corporation that were issued in accordance with paragraph (f)(ii)(A) or (B), as applicable); (ii) purchase, redeem, defease or otherwise acquire or retire for value, directly or indirectly (including through the purchase of Capital Stock or options, warrants or rights to purchase Capital Stock of any Person that directly or indirectly owns Capital Stock of the Corporation), the Capital Stock or options, warrants or rights to purchase Capital Stock of the Corporation (other than (x) any such Capital Stock owned by the Corporation (other than Redeemable Capital Stock) or (y) subject to paragraph (c)(iv), Senior Securities or Parity Securities of the Corporation that were issued in accordance with paragraph (f)(ii)(A) or (B), as applicable, or options, warrants or other rights to acquire such Capital Stock); or (iii) make any Investment (other than any Permitted Investment) in any Person; (any of the foregoing actions described in clauses (i) through (iii), collectively, "Restricted Payments"), unless (1) immediately before and immediately after giving effect to such Restricted Payment on a pro forma basis, no Voting Rights Triggering Event (other than a Voting Rights Triggering Event described in clause (3) or (5) of paragraph (f)(iii)(A)) shall have occurred and be continuing; (2) immediately before and immediately after giving effect to such Restricted Payment on a pro forma basis, the Corporation could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) under paragraph (j)(iv); and (3) after giving effect to the proposed Restricted Payment, the aggregate amount of all such Restricted Payments declared or made (or deemed made) after the Issue Date, does not exceed the sum of: (I) 50% of the cumulative Consolidated Net Income of the Corporation during the period (treated as one accounting period) beginning on the Issue Date and ending on the last day of the Corporation's most recently ended fiscal quarter for which internal financial statements are available at or prior to the time of such Restricted Payment (or, if such cumulative Consolidated Net Income shall be a deficit, minus 100% of such deficit); plus (II) 100% of the aggregate net cash proceeds received after the Issue Date by the Corporation from the issuance or sale (other than to any of its Subsidiaries) of Qualified Capital Stock of the Corporation or from the exercise of any options, warrants or rights to purchase such Qualified Capital Stock of the Corporation or of Redeemable Capital Stock or debt securities of the Corporation that have been converted into such Qualified Capital Stock or any options, warrants or rights to purchase such Qualified Capital Stock (except, in each case, to the extent such proceeds are used to purchase, redeem or otherwise retire Capital Stock as set forth below in clause (ii) or (iv) of paragraph (B) below); plus (III) in the case of the disposition or repayment of any Investment (other than a Permitted Investment) made after the Issue Date, an amount (to the extent not included in Consolidated Net Income) equal to the lesser of (x) the return of capital with respect to such Investment, less the cost of disposition of such Investment and (y) the initial amount of such Investment; plus (IV) so long as the Designation thereof was treated as a Restricted Payment made after the Issue Date, with respect to any Unrestricted Subsidiary that has been redesignated as a Restricted Subsidiary after the Issue Date in accordance with paragraph (j)(xi),the lesser of (x) the net book value of the Corporation's Investment in such Unrestricted Subsidiary at the time of such redesignation and (y) the Fair Market Value of such Investment at the time of such redesignation; plus (V) 100% of the aggregate amounts contributed to the capital of the Corporation since the Issue Date; plus (VI) 50% of any dividends received by the Corporation or a Wholly Owned Restricted Subsidiary (except to the extent that such dividends were already included in Consolidated Net Income) after the Issue Date from an Unrestricted Subsidiary. (B) Notwithstanding the foregoing clause (A), and in the case of clauses (iii),(iv) and (vi) below, so long as no Voting Rights Triggering Event (other than a Voting Rights Triggering Event described in clause (3) or (5)of paragraph (f)(iii)(A)) shall have occurred and be continuing or would arise therefrom, the foregoing provisions of clause (A) shall not prohibit the following actions, which shall, however, be subject to paragraph (c)(iv), (each of clauses (i) through (ix) being referred to as a "Permitted Payment"): (i) the payment of any dividend or redemption payment within 60 days after the date of declaration thereof, if at such date of declaration such payment was permitted by the provisions of this Certificate of Designation, including as described under paragraph (A) of this paragraph (j)(ii); (ii) the repurchase, redemption, or other acquisition or retirement of any shares of Capital Stock (or any options, warrants or rights to purchase Capital Stock) of the Corporation or any Restricted Subsidiary in exchange for (including any such exchange pursuant to the exercise of a conversion right or privilege in connection with which cash is paid in lieu of the issuance of fractional shares), or out of the net cash proceeds of a substantially concurrent issue and sale for cash to any Person (other than to a Restricted Subsidiary of the Corporation) of, shares of Qualified Capital Stock (or options, warrants or rights to purchase such Qualified Capital Stock) of the Corporation; provided that the net cash proceeds that are utilized for any such repurchase, redemption or other acquisition or retirement are excluded from clause (II) of paragraph (A) of this paragraph (j)(ii); (iii) Restricted Payments in an aggregate amount not to exceed $10.0 million; (iv) Investments (in addition to Permitted Investments) in Persons engaged in a Permitted Business that are made out of the net cash proceeds of the issuance of Qualified Capital Stock of the Corporation; provided, that (x) such Investment is made within 30 days of the receipt of the proceeds of the issuance of such Qualified Capital Stock and (y) such Investment together with all other Investments made pursuant to this clause (iv) does not exceed an aggregate amount of $15.0 million; provided, further, that the net cash proceeds from the sale of such shares of Qualified Capital Stock are excluded from clause (II) of paragraph (A) of this paragraph (j)(ii); (v) subject to paragraph (c)(iv), any dividends or other payments on or with respect to the Senior Preferred Stock or Parity Securities issued in accordance with paragraph (f)(ii); (vi) the repurchase, redemption, retirement or other acquisition for value of any shares of Capital Stock (or options, warrants or rights to purchase Capital Stock) of the Corporation or any Restricted Subsidiary (other than any such repurchase, redemption, retirement or other acquisition in connection with the Recapitalization) held by any director, officer or employee of the Corporation or any of its Restricted Subsidiaries pursuant to any employment agreement, management equity subscription agreement, stock option or acquisition agreement; provided, that the aggregate price paid for all such repurchased, redeemed, acquired or retired Capital Stock (or options, warrants or rights to purchase Capital Stock) (x) from current employees of the Corporation or any of its Restricted Subsidiaries shall not exceed $1.0 million or (y) from former directors, officers or employees of the Corporation or any of its Restricted Subsidiaries shall not exceed $3.0 million, in each case in the aggregate in any twelve-month period (other than any such repurchase, redemption, retirement or other acquisition in connection with the Recapitalization); (vii) repurchases of Capital Stock (or options, warrants or rights to purchase Capital Stock) deemed to occur upon cashless exercise of stock options to the extent such Capital Stock (or options, warrants or rights to purchase Capital Stock) represents a portion of the exercise price of such options or related withholding taxes (but only to the extent such withholding taxes do not exceed $250,000 in any twelve-month period); (viii) any payments on Redeemable Capital Stock issued in accordance with this Certificate of Designation; and (ix) payments of up to $3.0 million with respect to which the Corporation has no indemnification rights under the agreements governing the Recapitalization in connection with the final resolution of any disputes existing as of the Issue Date regarding stock ownership. In computing the amount of Restricted Payments previously made for purposes of clause (3) of paragraph (A) of this paragraph (j)(ii), Restricted Payments under the immediately preceding clauses (i) and (vi) shall be included. The amount of all Restricted Payments (other than cash) shall be the Fair Market Value (evidenced by a resolution of the Board of Directors set forth in an officers' certificate delivered to the Significant Holders) on the date of the Restricted Payment of the asset(s) proposed to be transferred by the Corporation or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. Not later than the date of making any Restricted Payment, the Corporation shall deliver to the Significant Holders an officers' certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this paragraph (j)(ii) were computed, which calculations may be based upon the Corporation's latest available financial statements. No payment made in connection with the Recapitalization shall be deemed to be a Restricted Payment hereunder. (iii) Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries. The Corporation shall not, and shall not cause or permit any of the Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective or enter into any agreement with any Person that would cause to become effective, any consensual encumbrance or restriction of any kind, on the ability of any Restricted Subsidiary to (A)(i) pay dividends, in cash or otherwise, or make any other distributions to the Corporation or any of the Restricted Subsidiaries (x) on or in respect its Capital Stock or (y) with respect to any other interest or participation in, or measured by, its profits, or (ii) pay any Indebtedness owed to the Corporation or any of the Restricted Subsidiaries, (B) make any Investment in the Corporation or any of the Restricted Subsidiaries or (C) sell, lease or transfer any of its properties or assets to the Corporation or any of the Restricted Subsidiaries, except for such encumbrances or restrictions existing under or by reason of: (i) any encumbrance or restriction existing under the Credit Agreement or the Indenture and any other agreement, in each case as in effect on the Issue Date, (ii) customary non-assignment provisions in leases, licenses and other agreements entered into in the ordinary course of business and consistent with past practices, (iii) Purchase Money Obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (C) above on the property so acquired, (iv) any encumbrance or restriction, with respect to a Person that is not a Restricted Subsidiary on the Issue Date in existence at the time such Person becomes a Restricted Subsidiary and not incurred in connection with, or in contemplation of, such Person becoming a Restricted Subsidiary; provided, however, that such encumbrances and restrictions are not applicable to the Corporation or any other Restricted Subsidiary, or the properties or assets of the Corporation or any other Restricted Subsidiary, (v) customary restrictions with respect to a Restricted Subsidiary pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Restricted Subsidiary; provided, however, that any such restriction relates only to the Capital Stock or assets being sold pursuant to such agreement, (vi) any customary restriction in an agreement governing Indebtedness of a Restricted Subsidiary incurred after the Issue Date in compliance with paragraph (j)(iv); (vii) any encumbrance or restriction existing under any agreement that extends, renews, refinances or replaces the agreements containing the encumbrances or restrictions in the foregoing clause (i), (iii) or (iv), or in this clause (vii); provided, however, that the terms and conditions of any such encumbrances or restrictions are no more restrictive than those under or pursuant to the agreement so extended, renewed, refinanced or replaced; and (viii) applicable law. (iv) Incurrence of Indebtedness. (A) The Corporation shall not, and shall not cause or permit any of the Restricted Subsidiaries to, directly or indirectly, create, incur, assume, issue, guarantee or in any manner become liable for or with respect to, contingently or otherwise (in each case, to "incur"), the payment of, any Indebtedness (including any Acquired Indebtedness); provided, however, that the Corporation or any Restricted Subsidiary may incur Indebtedness (including Acquired Indebtedness), if, in either case, immediately after giving pro forma effect thereto, the Consolidated Fixed Charge Coverage Ratio of the Corporation is at least equal to 2.0:1.0. (B) Notwithstanding the foregoing, to the extent specifically set forth below, the Corporation and the Restricted Subsidiaries may incur each and all of the following (collectively, "Permitted Indebtedness"): (i) Indebtedness of the Corporation and its Restricted Subsidiaries under the Senior Subordinated Notes and guarantees thereof in an aggregate principal amount, when taken together with any refinancings thereof pursuant to clause (ix), not to exceed $100.0 million at any one time outstanding; (ii) Indebtedness of the Corporation and its Restricted Subsidiaries under the Credit Agreement (and guarantees thereof) in an aggregate principal amount not to exceed $475.0 million at any time outstanding, less the principal amount of any scheduled or mandatory payments made under the Credit Agreement to the extent the commitments thereunder are reduced in connection therewith; (iii) Indebtedness of the Corporation or any Restricted Subsidiary outstanding on the Issue Date (other than under the Credit Agreement and the Senior Subordinated Notes); (iv) Indebtedness of the Corporation owing to a Wholly Owned Restricted Subsidiary for so long as such Indebtedness is owing to a Wholly Owned Restricted Subsidiary; provided that the disposition, pledge or transfer of any such Indebtedness to a Person (other than a disposition, pledge or transfer to a Wholly Owned Restricted Subsidiary) shall be deemed to be an incurrence of such Indebtedness by the Corporation not permitted by this clause (iv); (v) Indebtedness of a Restricted Subsidiary owing to and held by the Corporation or another Restricted Subsidiary; provided that (a) any disposition, pledge or transfer of any such Indebtedness to a Person (other than the Corporation or a Restricted Subsidiary) shall be deemed to be an incurrence of such Indebtedness by the obligor not permitted by this clause (v), and (b) any transaction pursuant to which any Restricted Subsidiary, which has Indebtedness owing to the Corporation or any other Restricted Subsidiary, ceases to be a Restricted Subsidiary shall be deemed to be the incurrence of Indebtedness by such Restricted Subsidiary that is not permitted by this clause (v); (vi) the incurrence by the Corporation or any Restricted Subsidiary of Hedging Obligations that are incurred (a) for the purpose of fixing or hedging interest rate risk with respect to any Indebtedness that is permitted to be incurred by the terms of this Certificate of Designation or (b) for the purpose of fixing or hedging currency exchange rate risk with respect to any currency exchanges, in either case not for speculative purposes; (vii) Indebtedness of the Corporation or any Restricted Subsidiary represented by Capitalized Lease Obligations or Purchase Money Obligations or other Indebtedness incurred or assumed in connection with the acquisition or development of real or personal (tangible or intangible) property in each case incurred for the purpose of financing or refinancing all or any part of the purchase price, or cost of installation, construction or improvement of property used in the business of the Corporation or such Restricted Subsidiary, in an aggregate principal amount, when taken together with any refinancings thereof pursuant to clause (ix), not to exceed $10.0 million at any one time outstanding; (viii) letters of credit to support workers compensation obligations and bankers acceptances and performance bonds, surety bonds and performance guarantees, of the Corporation or any Restricted Subsidiary, in each case, in the ordinary course of business consistent with past practice; (ix) any renewals, extensions, substitutions, refundings, refinancings or replacements (collectively, a "refinancing") of any Indebtedness incurred under paragraph (j)(iv)(A) above or described in clauses (B)(i), (ii), (iii) and (vii), including any successive refinancings so long as the aggregate principal amount (or accreted value, if applicable) of Indebtedness represented thereby is not increased by such refinancing plus the amount of any premium or other payment required to be paid in connection with such a refinancing pursuant to the terms of the Indebtedness being refinanced plus the amount of expenses of the Corporation or a Restricted Subsidiary incurred in connection with such refinancing and such refinancing does not reduce the Average Life to Stated Maturity or the Stated Maturity of such Indebtedness; (x) guarantees by the Corporation or any Restricted Subsidiary of Indebtedness incurred by the Corporation or a Restricted Subsidiary so long as the incurrence of such Indebtedness by the primary obligor thereon was permitted under the terms of this Certificate of Designation; (xi) the incurrence by the Corporation's Unrestricted Subsidiaries of Non-Recourse Debt; provided, however, that if any such Indebtedness ceases to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be deemed to constitute an incurrence of Indebtedness by a Restricted Subsidiary of the Corporation; and (xii) Indebtedness of the Corporation or any Restricted Subsidiary in addition to that described in clauses (i) through (xi) above, and any refinancing thereof, so long as the aggregate principal amount of all such additional Indebtedness shall not exceed $20.0 million outstanding at any one time in the aggregate (all or part of which may, but need not, be incurred under the Credit Agreement). (C) For purposes of determining compliance with this paragraph (j)(iv), in the event that an item of Indebtedness meets the criteria of more than one of the categories of Indebtedness described in clauses (i) through (xii) of the immediately preceding paragraph (B), the Corporation shall, in its sole discretion, classify such item of Indebtedness in any manner that complies with this paragraph (j)(iv) and will only be required to include the amount and type of such Indebtedness in one of such clauses or pursuant to paragraph (j)(iv)(A); provided that (1) Indebtedness outstanding on the Issue Date (other than under the Credit Agreement or the Senior Subordinated Notes) will be deemed outstanding under clause (B)(iii), and (2) Indebtedness under the Credit Agreement (including amounts outstanding on the Issue Date) of up to $475.0 million (as reduced under clause (B)(ii)) will be deemed incurred under clause (B)(ii). Accrual of interest, accretion of accreted value and the payment of interest through the issuance of securities paid-in-kind shall not be deemed to be an incurrence of Indebtedness for purposes of this paragraph (j)(iv). (v) Transactions with Affiliates. The Corporation shall not, and shall not cause or permit any of the Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of the Corporation or of a Restricted Subsidiary (other than transactions between or among the Corporation and/or any of its Restricted Subsidiaries) unless (A) such transaction is on terms that are no less favorable to the Corporation or such Restricted Subsidiary, as the case may be, than those that might reasonably have been obtained in a comparable transaction with an unrelated Person, (B) with respect to any transaction or series of related transactions involving aggregate value in excess of $2.5 million, the Corporation delivers to each Significant Holder an Officers' Certificate describing such transaction or transactions, certifying that such transaction or transactions have been approved by a majority of the Disinterested Directors of the Corporation, or in the event there is only one Disinterested Director, by such Disinterested Director, and certifying that such transaction or transactions comply with clause (A) above and (C) with respect to any transaction or series of related transactions involving aggregate payments in excess of $7.5 million, the Corporation delivers to each Holder a written opinion of an Independent Financial Advisor stating that the transaction or series of related transactions is fair to the Corporation or such Restricted Subsidiary from a financial point of view (it being agreed that an opinion from an Independent Financial Advisor stating that the transaction is at Fair Market Value shall be sufficient); provided, however, that this provision shall not apply to: (I) any transaction with an officer or director of the Corporation (acting in such capacity) entered into in the ordinary course of business (including compensation and employee benefit arrangements with any officer, director or employee of the Corporation, including under any stock option or stock incentive plans); (II) any Restricted Payment or Permitted Investment otherwise permitted by the terms of this Certificate of Designation; (III) those agreements and arrangements existing and as in effect on the Issue Date; (IV) the payment of reasonable and customary fees and compensation to, and indemnification agreements (and payments thereunder) for the benefit of, officers, directors and employees entered into in the ordinary course of business; (V) the agreements and arrangements pursuant to or referred to in the Purchase Agreement, this Certificate of Designation, the Registration Rights Agreement and the other documents entered into in connection with the Recapitalization; (VI) so long as no Voting Rights Triggering Event has occurred and is continuing, the payment of management, consulting, monitoring and advisory fees and related expenses to the Equity Investor and its Affiliates not to exceed $500,000 in any calendar year (other than the fees and unrelated expenses incurred by and paid to or on behalf of the Equity Investor and its Affiliates in connection with the Recapitalization, which fees and expenses are exempt from the terms hereof); and (VII) any transaction with OSI Funding Corp. (or any other Person engaged in business with the Corporation or any of its Restricted Subsidiaries similar to OSI Funding Corp.'s business) entered into in the ordinary course of business consistent with past practices. (vi) Limitation on Issuances and Sales of Capital Stock of Restricted Subsidiaries. The Corporation shall not, and shall not cause or permit any of the Restricted Subsidiaries to, transfer, convey, sell, issue or otherwise dispose of any Capital Stock of any Wholly Owned Restricted Subsidiaries to any Person (other than the Corporation or a Wholly Owned Restricted Subsidiary), unless such transfer, conveyance, sale, issue or other disposition (x) is pursuant to and in accordance with the provisions of paragraphs (j)(viii), (j)(ix) or, with respect to the transfer, conveyance, sale, lease or other disposition of all of the Capital Stock of a Wholly Owned Restricted Subsidiary, (j)(xv) or (y) is of directors' qualifying shares to the extent required by applicable law; provided, however, that this covenant shall not apply to any pledge of and foreclosure on Capital Stock of any Restricted Subsidiary to secure Indebtedness under the Credit Agreement. (vii) Payments for Consents. Neither the Corporation nor any of its Subsidiaries shall, directly or indirectly, pay or cause to be paid any economic consideration, whether by way of interest, fee or otherwise, to any Holder in consideration for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Certificate of Designation unless such economic consideration is concurrently offered to be paid or is concurrently paid to all Holders that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. (viii) Merger, Consolidation, or Sale of Assets. The Corporation shall not consolidate or merge with or into (whether or not the Corporation is the surviving corporation), or directly and/or indirectly through its Subsidiaries sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the properties and assets of the Corporation and its Restricted Subsidiaries taken as a whole in one or more related transactions, to any other Person unless (A)(i) the Corporation is the surviving corporation or (ii) the entity or the Person formed by or surviving any such consolidation or merger (if other than the Corporation) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (the entity or Person described in this clause (ii), the "Successor Corporation") is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (B) the Successor Corporation assumes all the obligations of the Corporation under this Certificate of Designation and the Purchase Agreement pursuant to an amendment or supplement hereto or thereto, as applicable, and each other instrument, document or agreement entered into by the Corporation in connection therewith, in each case in a form reasonably satisfactory to the Required Holders; (C) immediately after such transaction no Voting Rights Triggering Event (other than a Voting Rights Triggering Event described in clause (1) (so long as, on a pro forma basis after giving effect to such transaction, the Corporation will pay any accrued and unpaid dividends since December 1, 2004 in cash, (3) or (5) of paragraph (f)(iii)(A)) exists; and (D) the Corporation will, at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Consolidated Fixed Charge Coverage Ratio test set forth in paragraph (j)(iv)(A) hereof. (ix) Successor Corporation Substituted. Upon any consolidation of the Corporation with, or merger of the Corporation into, any other Person or any transfer, conveyance, sale, lease or other disposition of all or substantially all of the properties and assets of the Corporation and its Subsidiaries taken as a whole in one or more related transactions in accordance with paragraph (j)(viii), the Successor Corporation shall succeed to, and be substituted for, and may exercise every right and power of, the Corporation under this Certificate of Designation and the Purchase Agreement with the same effect as if such Successor Corporation had been named as the Corporation herein or therein, and thereafter, except in the case of a lease, the predecessor Corporation shall be relieved of all obligations and covenants under this Certificate of Designation and the Purchase Agreement. (x) Intentionally Omitted. (xi) Limitations on Unrestricted Subsidiaries. The Corporation may designate after the Issue Date any Subsidiary as an "Unrestricted Subsidiary" under this Certificate of Designation (a "Designation") only if: (A) no Voting Rights Triggering Event (other than a Voting Rights Triggering Event described in clause (1), (3) or (5) of paragraph (f)(iii)(A)) shall have occurred and be continuing at the time of or after giving effect to such Designation; (B) the Corporation would be permitted to make an Investment at the time of Designation (assuming the effectiveness of such Designation) pursuant to this Certificate of Designation in an amount (the "Designation Amount") equal to the Fair Market Value of the interest of the Corporation and the Restricted Subsidiaries in such Subsidiary on such date; provided, that the Fair Market Value of securities of such Subsidiary shall be deemed to be the cash purchase price paid by the Corporation or such Restricted Subsidiary therefor; and (C) the Corporation would be permitted under this Certificate of Designation to incur $1.00 of additional Indebtedness pursuant to the Consolidated Fixed Charge Coverage Ratio test set forth in paragraph (j)(iv)(A) at the time of such Designation (assuming the effectiveness of such Designation). In the event of any such Designation, the Corporation shall be deemed to have made an Investment for all purposes of this Certificate of Designation in the Designation Amount. Except to the extent permitted by paragraph (j)(ii), the Corporation shall not, and shall not cause or permit any Restricted Subsidiary to, at any time (x) provide credit support for or subject any of its property or assets (other than the Capital Stock of any Unrestricted Subsidiary) to the satisfaction of, any Indebtedness of any Unrestricted Subsidiary (including any undertaking, agreement or instrument evidencing such Indebtedness) or (y) be directly or indirectly liable for any Indebtedness of any Unrestricted Subsidiary. All Subsidiaries of Unrestricted Subsidiaries shall automatically be deemed to be Unrestricted Subsidiaries. The Corporation may revoke any Designation of a Subsidiary as an Unrestricted Subsidiary (a "Revocation") if: (A) no Voting Rights Triggering Event (other than a Voting Rights Triggering Event described in clause (1), (3) or (5) of paragraph (f)(iii)(A)) shall have occurred and be continuing at the time of and after giving effect to such Revocation; and (B) all Indebtedness of such Unrestricted Subsidiary outstanding immediately following such Revocation would, if incurred at such time, be permitted to be incurred for all purposes of this Certificate of Designation. All Designations and Revocations must be evidenced by resolutions of the Board of Directors of the Corporation delivered to each Significant Holder certifying compliance with the foregoing provisions. (xii) Conduct of Business. The Corporation and the Restricted Subsidiaries shall not engage in any business other than a Permitted Business. (xiii) Sale and Leaseback. The Corporation will not, and will not permit any of its Restricted Subsidiaries to, enter into any Sale and Leaseback Transaction unless (a) the Corporation or its Restricted Subsidiaries entering into such Sale and Leaseback Transaction could have incurred the Indebtedness relating to such Sale and Leaseback pursuant to paragraph (j)(iv) and (b) the net cash proceeds of such Sale and Leaseback Transaction are at least equal to the Fair Market Value of such property as determined by the Board of Directors of the Corporation and are applied in accordance with paragraph (j)(xv). (xiv) Reports; Books, Records and Access. So long as the Corporation is subject to the periodic reporting requirements of the Exchange Act, it will file the information required thereby with the Commission and will furnish such information to Holders upon filing thereof with the Commission. If the Corporation is entitled under the Exchange Act not to file such information with the Commission, it will nonetheless file such information with the Commission to the extent permitted by the Commission and further will furnish such information to Holders on the date on which filing with the Commission would have been required. (xv) Asset Sales. (A) The Corporation shall not, and shall not cause or permit any Restricted Subsidiary to, directly or indirectly, consummate an Asset Sale, unless (i) at least 85% of the consideration from such Asset Sale is received in cash or Cash Equivalents and (ii) the Corporation or such Restricted Subsidiary receives consideration at the time of such Asset Sale at least equal to the Fair Market Value of the shares or assets subject to such Asset Sale; provided, however, that the amount of (x) any liabilities (as shown on the Corporation's or such Restricted Subsidiary's most recent balance sheet) of the Corporation or any Restricted Subsidiary that are assumed by the transferee of such assets pursuant to any arrangement releasing the Corporation or such Restricted Subsidiary from further liability and (y) any notes or other obligations received by the Corporation or any such Restricted Subsidiary from such transferee that are immediately converted by the Corporation or such Restricted Subsidiary into cash (to the extent of the cash received), shall be deemed to be cash for purposes of this provision. Notwithstanding anything to the contrary contained herein, any Asset Sale to OSI Funding Corp. (or any successor entity thereof) in the ordinary course of business consistent with past practices shall be deemed to have complied with clause (ii) above. (B) Within 365 days after the receipt of any net cash proceeds from an Asset Sale, the Corporation or the applicable Restricted Subsidiary shall apply such net cash proceeds (i) to repay Indebtedness of the Corporation or any Restricted Subsidiary and permanently reduce any related commitment and/or (ii) to the acquisition of a controlling interest in any Permitted Business, the making of a capital expenditure or the acquisition of Purchased Portfolios or any other long-term assets, in each case, in, or that is used or useful in, a Permitted Business and/or (iii) to make an Investment in properties or assets that replace the properties or assets that are the subject of such Asset Sale. Pending the final application of any such net cash proceeds, the Corporation may invest such net cash proceeds in any manner that is not prohibited by this Certificate of Designation and in any event may temporarily reduce Indebtedness under a revolving credit facility otherwise permitted to be entered into under this Certificate of Designation, or otherwise may invest such proceeds in Cash Equivalents. (k) Transfer Agent and Registrar. The Corporation is the transfer agent (the "Transfer Agent") and registrar for the Senior Preferred Stock. (l) Definitions. As used in this Certificate of Designation, the following terms shall have the following meanings (with terms defined in the singular having comparable meanings when used in the plural and vice versa), unless the context otherwise requires: "Accrued Dividend Amount" shall have the meaning provided in paragraph (c)(i). "Accrued Dividend Rate" means an annual rate equal to 14%. "Acquired Indebtedness" means Indebtedness of a Person (i) assumed in connection with an Asset Acquisition from such Person or (ii) existing at the time such Person is merged with or into or otherwise becomes a Restricted Subsidiary of any other Person (including, without limitation, any Indebtedness incurred in connection with, or in contemplation of, such Asset Acquisition or such Person merging with or into or otherwise becoming such a Restricted Subsidiary). Acquired Indebtedness shall be deemed to be incurred on the date of the related Asset Acquisition from any Person or the date the acquired Person is merged with or into or otherwise becomes a Restricted Subsidiary, as the case may be. "Advisory Services Agreement" means the Advisory Services Agreement, dated as of September 21, 1995, between the Company and Madison Dearborn Capital Partners III, L.P. (as successor to MDC Management Company III, L.P.), as amended from time to time. "Affiliate" means with respect to any specified Person: (i) any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person; (ii) any other Person that owns, directly or indirectly, 10% or more of such specified Person's Capital Stock; or (iii) any other Person 10% or more of the Voting Stock of which is beneficially owned or held directly or indirectly by such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. Notwithstanding anything to the contrary contained herein, no portfolio company of Madison Dearborn Capital Partners III, L.P., nor any portfolio company of a fund managed by or affiliated with Madison Dearborn Partners, Inc., shall be deemed an Affiliate of the Corporation. None of Ares, DB, First Union, Abbott Capital 1330 Investors II, L.P., Abbott Capital Private Equity Fund III, L.P., BNY Partners Fund, L.L.C., Heller Financial, Inc. or Magnetite Asset Investors L.L.C. shall be deemed to be an Affiliate of the Corporation. "Ares" means Ares Leveraged Investment Fund, L.P. and Ares Leveraged Investment Fund II, L.P. and/or any of their Affiliates. "Asset Acquisition" means (i) an Investment by the Corporation or any Restricted Subsidiary in any other Person pursuant to which such Person will become a Restricted Subsidiary or will be merged or consolidated with or into the Corporation or any Restricted Subsidiary or (ii) the acquisition by the Corporation or any Restricted Subsidiary of the assets of any Person which constitute substantially all of the assets of such Person, or any division or line of business of such Person, or which is otherwise outside of the ordinary course of business. "Asset Sale" means any sale, issuance, conveyance, transfer or other disposition (including pursuant to a Sale and Leaseback Transaction) (collectively, a "transfer"), in one or a series of related transactions, of: (i) any Capital Stock of any Restricted Subsidiary (other than to the Corporation or any other Restricted Subsidiary); or (ii) any other properties or assets of the Corporation or any Restricted Subsidiary other than in the ordinary course of business. For the purposes of this definition, the term "Asset Sale" shall not include: (a) the transfer of all or substantially all of the assets of the Corporation in a manner permitted pursuant to and in accordance with the provisions of paragraph (j)(viii) hereof or any transfer that constitutes a Change of Control pursuant to this Certificate of Designation; (b) any transfer that is a Restricted Payment or Permitted Investment that is permitted under the provisions of paragraph (j)(ii) hereof; (c) any transfer or related series of transfers of assets with an aggregate Fair Market Value of less than $1.0 million; or (d) any sale of a Purchased Portfolio in the ordinary course of business. "Average Life to Stated Maturity" means, when applied to any Indebtedness at any date of determination, the number of years obtained by dividing (a) the then outstanding aggregate principal amount of such Indebtedness into (b) the sum of the total of the products obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required payment of principal, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) which will elapse between such date and the making of such payment. "Board of Directors" shall have the meaning provided in the first paragraph of this Certificate of Designation. "Business Day" means any day except a Saturday, a Sunday, or a day on which banking institutions in The City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. "Capital Stock" means, (i) with respect to any Person that is a corporation, corporate stock; (ii) with respect to any Person that is an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated and whether or not voting) of corporate stock, including each class of Common Stock and Preferred Stock of such Person; (iii) with respect to any Person that is not a corporation, any and all partnership, membership or other equity interests of such Person; and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of the assets of, the issuing Person. "Capitalized Lease Obligation" means, at the time determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Cash Equivalents" means, at any time, (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than one year from the date of acquisition, (iii) certificates of deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers' acceptances with maturities not exceeding one year and overnight bank deposits, in each case with any domestic commercial bank having capital and surplus in excess of $500.0 million and a Thomson Bank Watch Rating of "B" or better, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above and (v) commercial paper rated A-1 or higher by Standard & Poor's Corporation or P-1 by Moody's Investors Service, Inc. and in each case maturing within one year after the date of acquisition. "Certificate of Designation" means this Certificate of Designation creating the Senior Preferred Stock. "Certificate of Incorporation" shall have the meaning provided in the first paragraph of this Certificate of Designation. "Change of Control" means the occurrence, after the date of the Recapitalization, of any of the following events (whether or not approved by the Board of Directors of the Corporation): (i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than Permitted Holders, is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to have "beneficial ownership" of all securities that such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of 50% or more of the total voting power of the then outstanding Voting Stock of the Corporation; (ii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Corporation (together with any new directors whose election to such board or whose nomination for election by the stockholders of the Corporation was approved by a vote of at least a majority of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of such Board of Directors then in office; (iii) the Corporation consolidates with or merges with or into any Person (other than a Wholly Owned Restricted Subsidiary) or sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any Person (other than a Wholly Owned Restricted Subsidiary), or any corporation consolidates with or merges into or with the Corporation, in any such event pursuant to a transaction in which the outstanding Voting Stock of the Corporation is changed into or exchanged for cash, securities or other property, other than any such transaction where the outstanding Voting Stock of the Corporation is not changed or exchanged at all (except to the extent necessary solely to reflect a change in the jurisdiction of incorporation of the Corporation) or where (A) the outstanding Voting Stock of the Corporation is changed into or exchanged for (x) Voting Stock of the surviving corporation which is not Redeemable Capital Stock or (y) cash, securities and other property (other than Capital Stock of the surviving corporation) in an amount which could be paid by the Corporation as a Restricted Payment as described under paragraph (j)(ii) (and such amount shall be treated as a Restricted Payment subject to the provisions described under paragraph (j)(ii)) and (B) no "person" or "group" owns immediately after such transaction, directly or indirectly, more of the total voting power of the then outstanding Voting Stock of the surviving corporation than the total voting power of the then outstanding Voting Stock of the surviving corporation held by the Permitted Holders; or (iv) any order, judgment or decree shall be entered against the Corporation decreeing the dissolution or split-up of the Corporation and such order shall remain undischarged or unstayed for a period in excess of sixty days. "Class A Senior Preferred Stock" shall have the meaning provided in paragraph (a). "Class B Senior Preferred Stock" shall have the meaning provided in paragraph (a). "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act or, if at any time after the Issue Date such Commission is not existing and performing the duties now assigned to it under the Exchange Act, the body performing such duties at such time. "Common Stock" of any Person means all Capital Stock of such Person that is generally entitled to: (i) vote in the election of directors of such Person or (ii) if such Person is not a corporation, vote or otherwise participate in the selection of the governing body, partners, managers or others that will control the management and policies of such Person. "Consolidated Cash Flow Available for Fixed Charges" means, for any period, the Consolidated Net Income of the Corporation for such period plus (i) an amount equal to any extraordinary loss plus any net loss realized in connection with all Asset Sales (to the extent such losses were deducted in computing such Consolidated Net Income), plus (ii) provision for taxes based on income or profits of the Corporation and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income, plus (iii) consolidated interest expense of the Corporation and its Restricted Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capitalized Lease Obligations, imputed interest with respect to Indebtedness attributable to any Sale and Leaseback Transaction, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income, plus (iv) any Consolidated Non-Cash Charges that were deducted in computing such Consolidated Net Income, less (v) the aggregate amount of contingent and "earnout" payments in respect of any Permitted Business acquired by the Corporation or any Restricted Subsidiary that are paid in cash during such period and less (vi) any non-cash items increasing Consolidated Net Income for such period. "Consolidated Fixed Charge Coverage Ratio" means the ratio of the aggregate amount of Consolidated Cash Flow Available for Fixed Charges of the Corporation for the four full fiscal quarters immediately preceding the date of the transaction (the "Calculation Date") giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio for which consolidated financial information of the Corporation is available (such four full fiscal quarter period being referred to herein as the "Four Quarter Period") to the aggregate amount of Consolidated Fixed Charges of the Corporation for such Four Quarter Period. In the event that the Corporation or any of its Restricted Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness (other than revolving credit or other similar borrowings which may be repaid and reborrowed) subsequent to the commencement of the period for which the Consolidated Fixed Charge Coverage Ratio is being calculated but prior to the Calculation Date, then the Consolidated Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, guarantee or redemption of Indebtedness, as if the same had occurred at the beginning of the applicable Four Quarter Period. In addition, for purposes of making the computation referred to above, (i) acquisitions (including Asset Acquisitions) that have been made by the Corporation or any of its Restricted Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the Four Quarter Period or subsequent to such period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the Four Quarter Period and Consolidated Cash Flow Available For Fixed Charges and Consolidated Fixed Charges for such period shall be calculated giving pro forma effect (excluding any pro forma increase in revenues but including any pro forma expense and cost reductions calculated on a basis consistent with Regulation S-X under the Securities Act) to such Asset Acquisition and without giving effect to clause (iii) of the proviso set forth in the definition of Consolidated Net Income, and (ii) the Consolidated Cash Flow Available for Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and to operations or businesses disposed of prior to the Calculation Date, shall be excluded, and (iii) the Consolidated Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and to operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Consolidated Fixed Charges shall not be obligations of the Corporation or any of its Restricted Subsidiaries following the Calculation Date. "Consolidated Fixed Charges" means, for any period, the sum of (i) the consolidated interest expense of the Corporation and its Restricted Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capitalized Lease Obligations, imputed interest with respect to Indebtedness attributable to any Sale and Leaseback Transaction, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations, but excluding amortization of those deferred financing costs reflected on the Corporation's combined consolidated balance sheet as of the date of this Certificate of Designation) and (ii) the consolidated interest expense of the Corporation and its Restricted Subsidiaries that was capitalized during such period, and (iii) any interest expense on Indebtedness of another Person that is guaranteed by the Corporation or one of its Restricted Subsidiaries or secured by a Lien on assets of the Corporation or one of its Restricted Subsidiaries (whether or not such guarantee or Lien is called upon) and (iv) the product of (a) all cash dividend payments (and non-cash dividend payments in the case of a Person that is a Restricted Subsidiary) on any series of Preferred Stock of such Person, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current effective federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "Consolidated Net Income" means, for any period, the aggregate of the Net Income of the Corporation and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (i) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the Corporation or a Wholly Owned Restricted Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by the Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a pooling of interest transaction for any period prior to the date of such acquisition shall be excluded, (iv) the cumulative effect of a change in accounting principles shall be excluded and (v) the Net Income of any Unrestricted Subsidiary shall be excluded, except to the extent set forth in clause (i) above. "Consolidated Non-cash Charges" means, for any period, the aggregate depreciation and amortization (including (i) amortization of goodwill, (ii) amortization of Purchased Portfolios, (iii) amortization of amounts reflected on the Corporation's combined consolidated balance sheet as of the date of this Certificate of Designation related to "in-process technology," (iv) any incremental increase in amortization of account inventory resulting from write-ups of such inventory in connection with the purchase accounting treatment of an acquisition and (v) amortization of other intangibles and other non-cash charges (excluding any such intangible and non-cash charge to the extent that it represents an accrual of or reserve for cash charges in any future period or amortization of a prepaid cash expense that was paid in a prior period)) of the Corporation and its Restricted Subsidiaries for such period, in each case, determined on a consolidated basis in accordance with GAAP. "Corporation" shall have the meaning provided in the first paragraph of this Certificate of Designation. "Credit Agreement" means the Senior Secured Credit Facility dated as of November 30, 1999 among the Corporation, certain subsidiaries of the Corporation, as guarantors, DLJ Capital Funding, Inc., as Syndication Agent, Fleet National Bank, N.A., as Administrative Agent, and Harris Trust & Savings Bank, as Documentation Agent, and the other financial institutions from time to time party thereto, together with the related documents (including notes, guarantees, collateral documents, instruments and agreements executed in connection therewith), and in each case as amended (including any amendment and restatement thereof), modified, renewed, refunded, replaced or refinanced from time to time, including any agreement extending the maturity of, refinancing, replacing or otherwise restructuring (including increasing the amount of available borrowings thereunder or adding Restricted Subsidiaries of the Corporation as additional borrowers or guarantors thereunder) all or any portion of the Indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agent, lender or group of creditors. "DB" means DB Capital Investors, L.P. and/or any of its Affiliates. "Default Dividends" shall have the meaning provided in paragraph (c)(i). "Designation" shall have the meaning provided in paragraph(j)(xi). "Designation Amount" shall have the meaning provided in paragraph(j)(xi). "Disinterested Director" means, with respect to any transaction or series of related transaction, a member of the Board of Directors of the Corporation who does not have any material direct or indirect financial interest in or with respect to such transaction or series of related transactions. "Dividend Default" shall have the meaning provided in paragraph (f)(iii)(A). "Dividend Payment Date" means March 1, June 1, September 1 and December 1 of each year. "Dividend Period" means the Initial Dividend Period and, thereafter, each quarterly period from a Dividend Payment Date to the next following Dividend Payment Date (but without including such Dividend Payment Date). "Dividend Record Date" means February 15, May 15, August 15 and November 15 of each year. "Equity Investor" means collectively, Madison Dearborn Capital Partners III, L.P., Madison Dearborn Special Equity III, L.P. and Special Advisers Fund I, L.L.C. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "Fair Market Value" means, with respect to any asset or property, the price which could be negotiated in an arm's-length, free market transaction, for cash, between an informed and willing seller under no compulsion to sell and an informed and willing buyer, neither of which is under pressure or compulsion to complete the transaction. Fair Market Value shall be determined by the Board of Directors of the Corporation or the applicable Restricted Subsidiary acting reasonably and in good faith. "First Union" means First Union Investors, Inc. and/or any of its Affiliates. "GAAP" means, at any date of determination, generally accepted accounting principles in effect in the United States which are applicable at the date of determination. "guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Hedging Obligations" means, with respect to any Person, the obligations of such Person under (i) currency exchange agreements, interest rate swap agreements, interest rate cap agreements or interest rate collar agreements and (ii) other agreements or arrangements designed to protect such Person against fluctuations in currency exchange or interest rates. "Holder" means a holder of shares of Senior Preferred Stock as reflected in the register maintained by the Transfer Agent for the Senior Preferred Stock. "incur" shall have the meaning provided in paragraph (j)(iv). "Indebtedness" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capitalized Lease Obligations or the balance deferred and unpaid of the purchase price of any property (other than contingent or "earnout" payment obligations) or representing any Hedging Obligations (except any such balance that constitutes an accrued expense or trade payable) or any Redeemable Capital Stock of such Person, if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all indebtedness of others secured by a Lien on any asset of such Person in an amount equal to the lesser of the aggregate amount of such indebtedness secured by such Lien and the value of all of the assets of such Person securing such indebtedness (whether or not such indebtedness is assumed by such Person) and, to the extent not otherwise included, the guarantee by such Person of any indebtedness of any other Person. "Indenture" means the indenture dated as of November 6, 1996, by and between the Corporation and Wilmington Trust Company, as trustee, governing the Senior Subordinated Notes, as amended (including any amendment and restatement thereof), modified, renewed, refunded, replaced or refinanced from time to time, including any agreement extending the maturity of, refinancing, replacing or otherwise restructuring all or any portion of the Indebtedness under such agreement or any successor or replacement agreement. "Independent Financial Advisor" means an accounting, appraisal or investment banking firm which is nationally recognized within the United States of America (i) which does not, and whose directors, officers and employees or Affiliates do not, have a direct or indirect financial interest in the Corporation or any of its Subsidiaries or Affiliates, and (ii) which, in the judgment of the Board of Directors of the Corporation, is otherwise independent and qualified to perform the task for which it is to be engaged. "Initial Dividend Period" means the dividend period commencing on the Issue Date and ending on the first Dividend Payment Date to occur thereafter. "Investment" means, with respect to any Person, any direct or indirect advance, loan or other extension of credit (including by means of a guarantee) or capital contribution (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business) to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others or otherwise), or any purchase or acquisition by such Person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by any other Person and all other items that would be classified as investments on a balance sheet prepared in accordance with GAAP. Investments shall exclude extensions of trade credit on commercially reasonable terms in accordance with normal trade practices. If the Corporation or any Restricted Subsidiary of the Corporation sells or otherwise disposes of any Capital Stock of any direct or indirect Restricted Subsidiary of the Corporation such that, after giving effect to any such sale or disposition, the Corporation no longer owns, directly or indirectly, a majority of the outstanding Capital Stock of such Restricted Subsidiary, the Corporation shall be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of the Capital Stock of such Restricted Subsidiary not sold or disposed of. "Issue Date" means December 10, 1999. "Junior Preferred Stock" means the Company's Junior Preferred Stock issued in connection with the Recapitalization, with terms and conditions thereof as set forth in the Certificate of Designation of the Power, Preferences and Relative, Participating, Optional and Other Special Rights of Junior Preferred Stock, and Qualifications, Limitations and Restrictions thereof filed on the Issue Date. "Junior Securities" shall have the meaning provided in paragraph (b). "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Liquidation Preference" means, initially, $1,000.00 per share of Senior Preferred Stock subject to increase as provided under paragraph (c)(i) hereof and, thereafter, means the Liquidation Preference as so increased. "Mandatory Redemption Date" shall have the meaning provided in paragraph (e)(ii). "Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of Preferred Stock dividends, excluding, however, (i) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (a) any Asset Sale (including, without limitation, dispositions pursuant to Sale and Leaseback Transactions) or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but not loss), together with any related provision for taxes on such extraordinary or nonrecurring gain (but not loss). "Non-Recourse Debt" means Indebtedness (i) as to which neither the Corporation nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor or otherwise), or (c) constitutes the lender; and (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Corporation or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (iii) as to which the lenders have been notified in writing that they shall not have any recourse to the stock or assets of the Corporation or any of its Restricted Subsidiaries. "Parity Securities" shall have the meaning provided in paragraph (b). "Permitted Business" means the business of the Corporation and its Subsidiaries as of the Issue Date and any other business reasonably related, ancillary or complementary thereto. "Permitted Holders" means Ares, DB, First Union, Abbott Capital 1330 Investors II, L.P., Abbott Capital Private Equity Fund III, L.P., BNY Partners Fund, L.L.C., Heller Financial, Inc., Magnetite Asset Investors L.L.C. and Madison Dearborn Capital Partners III, L.P. and any of their respective Affiliates. "Permitted Investments" means: (i) any Investment (a) by the Corporation or any Restricted Subsidiary in the Corporation or in a Restricted Subsidiary or (b) by Unrestricted Subsidiaries in other Unrestricted Subsidiaries; (ii) any Investment in cash and Cash Equivalents; (iii) any Investment by the Corporation or any Restricted Subsidiary in a Person, if as a result of such Investment (a) such Person becomes a Restricted Subsidiary or (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys all or substantially all of its assets to, or is liquidated into, the Corporation or a Restricted Subsidiary; (iv) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the provisions of paragraph (j)(xv) hereof; (v) other Investments in any Person (other than a Restricted Subsidiary) having an aggregate Fair Market Value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (v) that are at the time outstanding, not to exceed $7.5 million; (vi) loans and advances to employees, directors and officers of the Corporation and the Restricted Subsidiaries in the ordinary course of business not to exceed $5.0 million at any one time outstanding; (vii) Investments acquired by the Corporation or any of its Restricted Subsidiaries (A) in exchange for any other Investment or receivable held by the Corporation or any such Restricted Subsidiary in connection with or as a result of a bankruptcy, workout, reorganization or recapitalization of the issuer of such other Investment or receivable or (B) as a result of a foreclosure by the Corporation or any of its Restricted Subsidiaries with respect to any secured Investment or other transfer of title with respect to any secured Investment in default; (viii) Investments represented by Hedging Obligations; (ix) any Investment existing on the Issue Date; (x) any acquisition by the Corporation or any of its Restricted Subsidiaries of Purchased Portfolios; (xi) any acquisition of assets, Capital Stock, options, warrants or other rights to acquire shares of Capital Stock or other securities by the Corporation for consideration consisting of Common Stock or options, warrants or other rights to acquire shares of Common Stock of the Corporation; and (xii) subject to paragraph (f)(ii), Investments the payment for which consists exclusively of Capital Stock (exclusive of Redeemable Capital Stock) or options, warrants or other rights to acquire shares of Qualified Capital Stock. "Permitted Payment" shall have the meaning provided in paragraph (j)(ii). "Person" means any individual, corporation, partnership, limited liability corporation, joint venture, association, joint-stock company, trust, unincorporated organization or government or agency or political subdivision thereof. "Preferred Stock" means, with respect to any Person, Capital Stock of any class or classes (however designated) of such Person which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over Capital Stock of any other class of such Person. With respect to the Corporation, the term "Preferred Stock" shall include the Senior Preferred Stock. "property" means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "Purchase Agreement" means the Purchase Agreement dated December 10, 1999 by and among the Corporation, Ares Leveraged Investment Fund, L.P., Ares Leveraged Investment Fund II, L.P., DB Capital Investors, L.P., First Union Investors, Inc., Abbott Capital 1330 Investors II, L.P., Abbott Capital Private Equity Fund III, L.P., BNY Partners Fund, L.L.C., Heller Financial, Inc. and Magnetite Asset Investors L.L.C. "Purchase Money Obligation" means Indebtedness of a Person incurred in the normal course of business of such Person for the purpose of financing all or any part of the purchase price, or the cost of installation, construction or improvement of any property or assets. "Purchased Portfolios" means account receivable portfolios purchased by the Corporation or any of its Restricted Subsidiaries in the ordinary course of business. "Qualified Capital Stock" of any Person means any and all Capital Stock of such Person other than Redeemable Capital Stock. "Recapitalization" means the recapitalization of the Corporation pursuant to the Stock Subscription and Redemption Agreement dated as of October 8, 1999 among the Corporation, Madison Dearborn Capital Partners III, L.P., and the stockholders, optionholders, and warrantholders of the Corporation party thereto, which shall be consummated on the Issue Date. "Redeemable Capital Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily reedemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is 91 days after the Stated Maturity of the Senior Preferred Stock. "Redemption Date" with respect to any shares of Senior Preferred Stock, means the date on which such shares of Senior Preferred Stock are redeemed by the Corporation. "Redemption Notice" shall have the meaning provided in paragraph (e)(iii). "refinancing" shall have the meaning provided in paragraph (j) (iv). "Registration Rights Agreement" means the Registration Rights Agreement dated as of the Issue Date among the Corporation, Ares Leveraged Investment Fund, L.P., Ares Leveraged Investment Fund II, L.P., DB Capital Investors, L.P., First Union Investors, Inc., Abbott Capital 1330 Investors II, L.P., Abbott Capital Private Equity Fund III, L.P., BNY Partners Fund, L.L.C., Heller Financial, Inc., and Magnetite Asset Investors L.L.C. as initial purchasers of the Senior Preferred Stock, relating to the registration of the Senior Preferred Stock. "Required Holders" means holders of more than 50% of the outstanding shares of Senior Preferred Stock. "Resolution" shall have the meaning provided in the first paragraph of this Certificate of Designation. "Restricted Payments" shall have the meaning provided in paragraph (j)(ii). "Restricted Subsidiary" means any Subsidiary of the Corporation that has not been designated by the Board of Directors of the Corporation, by a board resolution delivered to the Significant Holders, as an Unrestricted Subsidiary or a direct or indirect Subsidiary of an Unrestricted Subsidiary pursuant to and in compliance with paragraph (j)(xi). Any such designation may be revoked by a board resolution of the Board of Directors of the Corporation delivered to the Significant Holders subject to the provisions of paragraph (j)(xi). "Revocation" shall have the meaning provided in paragraph (j)(xi). "Sale and Leaseback Transaction" means any direct or indirect arrangement with any Person or to which any such Person is a party, providing for the leasing to the Corporation or a Restricted Subsidiary of any property, whether owned by the Corporation or any Restricted Subsidiary on the Issue Date or later acquired, which has been or is to be sold or transferred by the Corporation or such Restricted Subsidiary to such Person or to any other Person from whom funds have been or are to be advanced by such Person on the security of such Property. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Senior Securities" shall have the meaning provided in paragraph (b). "Senior Preferred Stock" shall have the meaning provided in paragraph (a). "Senior Subordinated Notes" means the Corporation's 11% Senior Subordinated Notes due 2006. "Significant Holder" means (x) any Holder which, together with its Affiliates, holds at least 20% of the outstanding shares of Senior Preferred Stock and (y) Ares Leveraged Investment Fund, L.P., Ares Leveraged Investment Fund II, L.P. and any of their respective Affiliates so long as such entities described in this clause (y) hold in the aggregate at least 15% of the outstanding shares of Senior Preferred Stock. "Stated Maturity" means (a) with respect to any share of Senior Preferred Stock, the Mandatory Redemption Date, (b) with respect to any dividend on the Senior Preferred Stock, the dates specified in this Certificate of Designation as the fixed date on which the principal of such share of Senior Preferred Stock or such dividend is due and payable and (c) with respect to any other Indebtedness, the date specified in the instrument governing such Indebtedness as the fixed date on which the principal of such Indebtedness or any installment of interest is due and payable. "Subsidiary" means, with respect to any Person, (a) any corporation of which the outstanding shares of Voting Capital Stock having at least a majority of the votes entitled to be cast in the election of directors shall at the time be owned, directly or indirectly, by such Person, (b) any partnership, limited liability company, association, joint venture or other entity in which such Person and/or one or more of its Subsidiaries has at least a majority of the shares of Voting Stock of such entity at the time or (c) any partnership (i) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (ii) the only general partners of which are such Person or one or more Subsidiaries of such Person (or any combination thereof). "Successor Corporation" shall have the meaning provided in paragraph (j)(xiii). "Transfer Agent" shall have the meaning provided in paragraph (k). "Unrestricted Subsidiary" means each Subsidiary of the Corporation designated as such pursuant to and in compliance with paragraph (j)(xi). Any such designation may be revoked by a resolution of Board of Directors of the Corporation delivered to the Significant Holders, subject to the provisions of such paragraph (j)(xi). "Voting Rights Triggering Event" shall have the meaning provided in paragraph (f)(iii). "Voting Stock" means any class or classes of Capital Stock pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the Board of Directors, managers or trustees of any Person (irrespective of whether or not, at the time, stock of any other class or classes shall have, or might have, voting power by reason of the happening of any contingency). "Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary of which 100% of the outstanding Capital Stock is owned by the Corporation and/or another Wholly Owned Restricted Subsidiary. For purposes of this definition, any directors' qualifying shares shall be disregarded in determining the ownership of a Restricted Subsidiary. IN WITNESS WHEREOF, said Outsourcing Solutions Inc. has caused this Certificate of Designation to be signed by Timothy M. Hurd, its Secretary, this 10th day of December, 1999. OUTSOURCING SOLUTIONS INC. By: /s/ Timothy M. Hurd ------------------------------------- Name: Timothy M. Hurd Title: Secretary CERTIFICATE OF DESIGNATION OF THE POWER, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS OF JUNIOR PREFERRED STOCK, AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF - -------------------------------------------------------------------------------- Pursuant to Section 151 of the General Corporate Law of the State of Delaware - -------------------------------------------------------------------------------- Outsourcing Solutions Inc. (the "Corporation"), a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify that, pursuant to authority conferred upon the board of directors of the Corporation (the "Board of Directors") by its Certificate of Incorporation, as amended (hereinafter referred to as the "Certificate of Incorporation"), and pursuant to the provisions of Section 151 of the General Corporation Law of the State of Delaware, said Board of Directors, by unanimous written consent dated December 10, 1999, duly approved and adopted the following resolution (the "Resolution"): RESOLVED, that, pursuant to the authority vested in the Board of Directors by its Certificate of Incorporation, the Board of Directors does hereby create, authorize and provide for the issuance of Junior Preferred Stock, no par value, consisting of 50,000 shares, having the designations, preferences, relative, participating, optional and other special rights and the qualifications, limitations and restrictions thereof that are set forth in the Certificate of Incorporation and in this Resolution as follows: (a) Designation. There is hereby created out of the authorized and unissued shares of Preferred Stock of the Corporation a class of Preferred Stock designated as the "Junior Preferred Stock." The number of shares constituting such Junior Preferred Stock shall be 50,000. Each share of Junior Preferred Stock is hereafter referred to as a "Junior Preferred Share." (b) Voting Rights. The record holders of the issued and outstanding Junior Preferred Shares shall have no voting rights, unless (and then only to the extent) otherwise expressly provided by law or as set forth below. In addition to any other vote required by this paragraph (b), without the affirmative vote of the holders of a majority of the Junior Preferred Stock, voting separately as a class, the Corporation shall not amend the Certificate of Incorporation of the Corporation, including this Certificate of Designation, if the amendment would alter or change the powers, preferences or special rights of the shares of Junior Preferred Stock so as to affect them adversely (within the meaning of Section 242(b)(2) of the Delaware General Corporate Law). (c) Dividend Rights. (1) The record holders shall be entitled to receive in preference to all holders of Common Stock and any other shares of capital stock of the Corporation other than the Senior Preferred Stock (as defined below), when, as and if declared by the Corporation's Board of Directors or a duly authorized committee thereof, out of funds legally available for the payment thereof, fully cumulative dividends at the Dividend Rate set forth in (c)(2) below on the Liquidation Preference (as defined in (d) below) on each Junior Preferred Share, to be payable in arrears in additional Junior Preferred Shares (such dividends paid in kind being herein referred to as "PIK Dividends") on the day immediately succeeding the last day of a Payment Period (as such term is defined below in (c)(5)) (except that if any such date is a Saturday, Sunday or legal holiday, then such dividends shall be payable on the next day that is not a Saturday, Sunday or legal holiday) (each a "Dividend Payment Date"). Dividends shall cease to accrue on each Junior Preferred Share on its date of redemption or conversion, unless the Corporation defaults in its obligations to convert or redeem such shares. (2) The "Dividend Rate" shall be an annual rate of five percent (5%) until December 10, 2003, and an annual rate of eight percent (8%) thereafter; provided, however, that the Dividend Rate shall be increased to twenty percent (20%) upon the consummation of (i) a Change in Control, (ii) an Approved Sale or (iii) a Major Public Offering. (3) PIK Dividends with respect to any Payment Period shall be paid by delivering to the record holders of Junior Preferred Stock a number of Junior Preferred Shares determined by dividing the Dividend Payment Amount with respect to such Payment Period (as defined in (c)(4) below) by the Liquidation Preference (as defined in (d) below) per share. The issuance of any such PIK Dividend in such number of shares shall constitute full payment of such dividend. Fractional Junior Preferred Shares payable as PIK Dividends may be paid by the Corporation, at its option, in cash. Any additional Junior Preferred Shares issued pursuant to this section shall be subject in all respects, except as to issue date and the date from which dividends accrue and cumulate as set forth below, to the same terms as the Junior Preferred Shares originally issued hereunder. (4) Dividends shall accrue (whether or not declared by the Board of Directors) on the Liquidation Preference on each Junior Preferred Share during each Payment Period and be fully cumulative on a daily basis from the first day of each Payment Period to the last day of such Payment Period (with the amount of accrued dividends per share, as expressed in dollars, with respect to any Payment Period determined in accordance with the applicable Dividend Rate or Rates being herein referred to as the "Dividend Payment Amount"). In the case of Junior Preferred Stock issued and/or accumulated as a PIK Dividend, dividends shall accrue (whether or not declared by the Board of Directors) on the Liquidation Preference and be fully cumulative on a daily basis from the Dividend Payment Date in respect of which such shares were issued as a dividend. Dividends shall be paid to the holders of record of Junior Preferred Stock at the close of business on the date specified by the Board of Directors of the Corporation or a duly authorized committee thereof at the time such dividend is declared in accordance with the Delaware General Corporation Law (each of such dates being a "Record Date"). A Record Date shall not be more than sixty (60) days nor less than ten (10) days prior to the applicable Dividend Payment Date. (5) The term "Payment Period" shall mean the one year period commencing on December 10, 1999 and each one year period thereafter during which any Junior Preferred Shares are issued and outstanding; provided, that, for the purpose of determining any Dividend Payment Amount, a Payment Period shall commence on the last Dividend Payment Date on which dividends were actually paid. (d) Rights on Liquidation and Ranking. In the event of the liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (each a "Liquidation"), each holder of a Junior Preferred Share shall be entitled to receive with respect to such Junior Preferred Share, before any distribution is made to or set aside for the holders of Common Stock (or any other shares of capital stock of the Corporation, other than the Senior Preferred Stock), payable in cash or, if the amount of cash available to the Corporation is insufficient, out of the other assets of the Corporation, whether such assets are stated capital or surplus of any nature, an amount equal to One Thousand Dollars ($1,000.00) per Junior Preferred Share (the "Liquidation Preference"), plus all dividends accrued and unpaid on such Junior Preferred Share on the date of final distribution to such holder, whether or not authorized or declared. If the assets of the Corporation available for distribution to holders of Junior Preferred Stock shall be insufficient to permit the payment in full of the amount due such holders pursuant to this paragraph (d), all assets of the Corporation available for distribution to such holders shall be distributed pari passu among such holders. The fair market value of any assets of the Corporation and the proportion of cash and other assets distributed by the Corporation to the holders of Junior Preferred Stock shall be reasonably determined in good faith by a vote of the Board of Directors of the Corporation. Except as provided in this paragraph, the holders of Junior Preferred Shares shall not be entitled to any distribution in the event of a Liquidation. For the purposes of this paragraph, neither the consolidation or merger of the Corporation into or with another corporation, nor the sale of all or substantially all of the assets of the Corporation to another corporation or any other entity shall be deemed a liquidation, dissolution or winding-up of the affairs of the Corporation. Notwithstanding anything herein to the contrary, the Junior Preferred Stock ranks junior in all respects to the Senior Preferred Stock, and no dividend distributions or distributions upon Liquidation shall be made with respect to the Junior Preferred Stock (i) unless and until all dividend distributions and distributions upon Liquidation with respect to the Senior Preferred Stock have been made in full, and (ii) unless otherwise made in accordance with the limitations in the Certificate of Designation of the Senior Preferred Stock. The Junior Preferred Stock will rank senior to all other capital stock of the Corporation other than the Senior Preferred Stock. (e) Redemption Rights. (1) Optional Redemption. To the extent that the Corporation shall have funds legally available therefor, the Corporation may, at its option, at any time and from time to time, and subject to the limitations in the Certificate of Designation for the Senior Preferred Stock, redeem all or any portion of the outstanding Junior Preferred Shares (each a "Redemption") for a sum in cash equal to One Thousand Dollars ($1,000.00) per Junior Preferred Share plus an amount in cash equal to all accrued and unpaid dividends on such shares through the date fixed by the Board of Directors for such redemption (a "Redemption Date"), whether or not authorized and declared (such sum being referred to as the "Redemption Price"). (2) Mandatory Redemption . On January 10, 2008 (the "Mandatory Redemption Date"), the Corporation shall redeem, to the extent of funds legally available therefor, in the manner provided for in paragraph (e)(3) hereof, all or any portion of the outstanding Junior Preferred Shares then outstanding at the Redemption Price. Notwithstanding the foregoing, the Junior Preferred Stock shall not be redeemed pursuant to this paragraph (e)(2) at any time during which the Corporation has failed to redeem the Senior Preferred Stock in accordance with its terms. (3) Notice of Redemption. Not more than sixty (60) nor less than ten (10) days prior to any Redemption Date or the Mandatory Redemption Date, as appropriate, the Corporation shall give written notice ("Redemption Notice") of a Redemption to each holder of Junior Preferred Shares to be redeemed at its address as it appears on the stock records of the Corporation by deposit thereof in first class U.S. mail, postage prepaid. The Redemption Notice shall state: (i) the Redemption Price; (ii) whether all or less than all the outstanding shares of the Junior Preferred Stock are to be redeemed and the total number of shares of the Junior Preferred Stock being redeemed; (iii) the date fixed for redemption; (iv) that the holder is to surrender to the Corporation, in the manner, at the place or places and at the Redemption Price designated, his certificate or certificates representing the shares of Junior Preferred Stock to be redeemed; and (v) that dividends on the shares of the Junior Preferred Stock to be redeemed shall cease to accumulate on such Redemption Date or Mandatory Redemption Date unless the Corporation defaults in the payment of the Redemption Price. On the Redemption Date or the Mandatory Redemption Date, as the case may be, the Corporation shall transfer to an account designated by each holder of a Junior Preferred Share to be redeemed the Redemption Price thereof by wire transfer in immediately available funds, but only upon each holder of Junior Preferred Stock having surrendered the certificate representing such share of Junior Preferred Stock to the Corporation, duly endorsed (or otherwise in proper form for transfer, as determined by the Corporation), in the manner and at the place designated in the Redemption Notice. In the event that less than all of the shares represented by any certificate so surrendered are redeemed, a new certificate shall be issued representing the unredeemed shares. (4) Selection of Shares. The Corporation shall select the Junior Preferred Shares to be redeemed in any Redemption in which not all Junior Preferred Shares are able to be redeemed pursuant to this paragraph so that the Junior Preferred Shares of each holder selected for Redemption shall bear the same proportion to the total Junior Preferred Shares owned by that holder as the proportion of all Junior Preferred Shares selected for Redemption bears to the total of all then outstanding Junior Preferred Shares, but adjusted as determined by the Board of Directors to avoid the redemption of fractional Junior Preferred Shares. Notice having been given as provided above, if, on the date fixed for Redemption, funds necessary for the redemption shall be available therefor and shall have been irrevocably deposited or set aside in trust for the holders of the Junior Preferred Shares, then, notwithstanding that the certificates representing any shares so called for Redemption shall not have been surrendered, dividends with respect to the shares so called shall cease to accrue after the date fixed for Redemption, such shares will no longer be deemed outstanding, the holders thereof shall cease to be stockholders of the Corporation and all rights whatsoever with respect to such shares (except the right of the holders to receive the Redemption Price without interest upon surrender of their certificates therefor) shall terminate. If funds legally available for such purpose are not sufficient for redemption of the Junior Preferred Shares to be redeemed pursuant to a Redemption, then the certificates representing such shares shall be deemed not to be surrendered, such shares shall remain outstanding and the rights of holders of Junior Preferred Shares thereafter shall continue to be only those of a holder of Junior Preferred Shares. Should any Junior Preferred Shares required to be redeemed under the terms of any Redemption not be redeemed solely by reason of limitations imposed by law, the applicable Junior Preferred Shares shall be redeemed on the earliest possible date thereafter that the applicable Junior Preferred Shares may be redeemed to the maximum extent permitted by law. Except as set forth above, the Board of Directors shall prescribe the manner in which any Redemption shall be effected. (f) Conversion. (1) At the consummation of a Qualified Public Offering, each holder of Junior Preferred Shares shall have the right to convert all, but not less than all, of such holder's Junior Preferred Shares into a number of shares of Voting Common Stock (the "Conversion Stock") equal to (i) the sum of (A) the number of Junior Preferred Shares to be converted multiplied by $1,000 plus (B) the amount of all accrued and unpaid dividends on the Junior Preferred Shares to be converted (whether or not declared) from the last Dividend Payment Date through the effective date of the conversion, divided by (ii) the Conversion Price. The "Conversion Price" shall be the price per share at which the Corporation's Voting Common Stock is sold to the public in such Qualified Public Offering. The Corporation may, at its option, pay cash in lieu of issuing fractional shares of Voting Common Stock in connection with such conversion. At least 30 days prior to the effectiveness of a Qualified Public Offering, the Corporation shall provide written notification (the "Notice") to each holder of Junior Preferred Stock that the Corporation intends to consummate a Qualified Public Offering. The Notice shall include the expected date of the consummation of the Qualified Public Offering (the "Expected Date") and the expected range of offering price to the public. At least 10 days prior to the Expected Date, each holder of Junior Preferred Stock who elects to convert such holder's Junior Preferred Shares into Conversion Stock shall provide written notice of such election to the Corporation. Any holder of Junior Preferred Stock who does not provide written notice to the Corporation shall be deemed to have elected not to convert such holder's Junior Preferred Shares into Conversion Stock. The Conversion Stock issued in connection with such conversion shall be entitled to piggyback registration rights (including with respect to such Qualified Public Offering) as set forth in the Stockholders Agreement. (2) Except as otherwise provided herein, the conversion of Junior Preferred Stock shall be deemed to have been effected at the time of consummation of the Qualified Public Offering. At the time any such conversion has been effected, the rights of the holder of the Junior Preferred Shares converted shall cease and the Person or Persons in whose name or names any certificate or certificates for shares of Conversion Stock are to be issued upon such conversion shall be deemed to have become the holder or holders of record of the shares of Conversion Stock represented thereby. (3) As soon as possible after a conversion has been effected, the Corporation shall deliver to the converting holder a certificate or certificates representing the number of shares of Conversion Stock issuable by reason of such conversion in such name or names and such denomination or denominations as the converting holder has specified. (4) The issuance of certificates for shares of Conversion Stock upon conversion of Junior Preferred Stock shall be made without charge to the holders of such Junior Preferred Stock for any issuance tax (other than in connection with a transfer into a different name) in respect thereof or other cost incurred by the Corporation in connection with such conversion and the related issuance of shares of Conversion Stock. Upon conversion of each Junior Preferred Share, the Corporation shall take all such actions as are necessary in order to insure that the Conversion Stock issuable with respect to such conversion shall be validly issued, fully paid and nonassessable. (5) The Corporation shall not close its books against the transfer of Junior Preferred Stock or of Conversion Stock issued or issuable upon conversion of Junior Preferred Stock in any manner which interferes with the timely conversion of Junior Preferred Stock. The Corporation shall assist and cooperate with any holder of Junior Preferred Stock required to make any governmental filings or obtain any governmental approval prior to or in connection with any conversion of Junior Preferred Stock hereunder (including, without limitation, making any filings required to be made by the Corporation). (6) The Corporation shall in connection with any Qualified Public Offering reserve and keep available out of its authorized but unissued shares of Conversion Stock, solely for the purpose of issuance upon the conversion of the Junior Preferred Stock, such number of shares of Conversion Stock as the Corporation reasonably believes may be issuable upon the conversion of all outstanding Junior Preferred Stock. All shares of Conversion Stock which are so issuable shall, when issued, be duly and validly issued, fully paid and nonassessable. The Corporation shall take all such actions as may be necessary to assure that all such shares of Conversion Stock may be so issued without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which shares of Conversion Stock may be listed (except for official notice of issuance which shall be immediately delivered by the Corporation upon each such issuance). The Corporation shall not take any action which would cause the number of authorized but unissued shares of Conversion Stock to be less than the number of such shares required to be reserved hereunder for issuance upon conversion of the Junior Preferred Stock. (g) Transfers of Junior Preferred Shares. The Junior Preferred Shares may not be sold, assigned or transferred by the holders without the prior written consent of the Corporation, and by acceptance of any Junior Preferred Shares, the holder agrees not to sell, assign or transfer such shares without such consent. (h) Merger, Consolidation, or Sale of Assets. The Corporation shall not consolidate or merge with or into (whether or not the Corporation is the surviving corporation), or directly and/or indirectly through its subsidiaries sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the properties and assets of the Corporation and its subsidiaries taken as a whole in one or more related transactions, to any other Person unless (A) (i) the Corporation is the surviving corporation or (ii) the entity or the Person formed by or surviving any such consolidation or merger (if other than the Corporation) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (the entity or Person described in this clause (ii), the "Successor Corporation ") is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; and (B) the Successor Corporation assumes all the obligations of the Corporation under this Certificate of Designation pursuant to an amendment or supplement hereto or thereto, as applicable, in a form reasonably satisfactory to the holders of a majority of the then issued and outstanding shares of Junior Preferred Stock. (i) Definitions. As used in this Certificate of Designation, the following terms shall have the following meanings (with terms defined in the singular having comparable meanings when used in the plural and vice versa), unless the context otherwise requires: "Affiliate" means with respect to any specified Person: (i) any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person; (ii) any other Person that owns, directly or indirectly, 10% or more of such specified Person's capital stock; or (iii) any other Person 10% or more of the voting capital stock of which is beneficially owned or held directly or indirectly by such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Approved Sale" shall have the meaning ascribed to it in the Stockholders Agreement (as in effect on the date hereof). "Change of Control" shall have the meaning ascribed to it in the Certificate of Designation for the Senior Preferred Stock. "Common Stock" means collectively the Voting Common Stock and the Non-Voting Common Stock. "Qualified Public Offering" means any underwritten primary public offering registered under the Securities Act of 1933 of capital stock of the Corporation having an aggregate offering value of at least $50 million. "Major Public Offering" means an underwritten primary public offering registered under the Securities Act of 1933 of capital stock of the Corporation in which the Corporation receives in excess of $200 million in net proceeds (after deducting any underwriting fees or commissions). "Non-Voting Common Stock" means the Corporation's Non-Voting Common Stock, par value $0.01. "Person" means any individual, corporation, partnership, limited liability corporation, joint venture, association, joint-stock company, trust, unincorporated organization or government or agency or political subdivision thereof. "Senior Preferred Stock" shall mean (a) the Class A 14% Senior Mandatorily Redeemable Preferred Stock, (b) the Class B 14% Senior Mandatorily Redeemable Preferred Stock and (c) any other securities issued or issuable with respect to or in exchange for such Senior Preferred Stock described in clauses (a) or (b) by way of share exchange, stock dividend, stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or pursuant to any registration agreement applicable thereto or otherwise. "Stockholders Agreement" means the Stockholders Agreement, dated as of December 10, 1999, by and among the Corporation and the Persons signatory thereto. "Voting Common Stock" means the Corporation's Voting Common Stock, par value $0.01. IN WITNESS WHEREOF, said Outsourcing Solutions Inc. has caused this Certificate of Designation of Outsourcing Solutions Inc. to be executed by its officer thereunto duly authorized this 10th day of December, 1999. OUTSOURCING SOLUTIONS INC. By:/s/ Timothy M. Hurd --------------------------------- Name: Timothy M. Hurd Title: Secretary EX-10.2 7 ADVISORY SERVICES AGREEMENT ADVISORY SERVICES AGREEMENT THIS ADVISORY SERVICES AGREEMENT (the "Agreement") is entered into as of this 21st day of September, 1995, by and between OSI Holdings Corp. (on behalf of itself and its subsidiaries), a Delaware corporation (the "Company"), and MDC Management Company III, L.P., a California limited partnership ("MDC"). WHEREAS, contemporaneously with the execution and delivery of this Agreement the Company and certain subsidiaries of the Company have acquired all of the partnership interests in Account Portfolios, L.P., Perimeter Credit, L.P. and Gulf State Credit, L.P. (the "Acquisition"); and WHEREAS, the execution and delivery of this Agreement is a material condition to the consummation of the Acquisition. NOW, THEREFORE, in consideration of the mutual promises of the parties hereinafter set forth, MDC and the Company hereto agree as follows: 1. Retention as Management Advisor. Subject to each of the terms, conditions and provisions of this Agreement, the Company and its subsidiaries hereby retain MDC and MDC hereby agrees to be retained by the Company and its subsidiaries to perform those financial and managerial functions set forth in Section 4 of this Agreement. 2. Term. 2.1 Subject to the provisions for termination set forth herein, this Agreement shall be from the date hereof through September 21, 2005, and automatically renewable annually thereafter unless MDC receives 30 days notice of the termination prior to the renewal date. 2.2 The Company, by written notice to MDC, authorized by a majority of the directors other than those who are partners, principals or employees of MDC (or an affiliate of MDC), may terminate this Agreement for justifiable cause, which shall mean any of the following events: material breach by MDC of any of its obligations hereunder; misappropriation by MDC of funds or property of the Company or other willful breach in the course of the consultancy; any attempt by MDC to secure personal profit related to the business of the Company and not fairly disclosed to and approved by the Board of Directors or gross neglect by MDC in the fulfillment of its obligations hereunder. 2.3 MDC, by thirty (30) days' prior written notice to the Company, may terminate this Agreement at any time. 3. Compensation. 3.1 Upon execution and delivery of this Agreement, the Company shall pay MDC a transaction fee of $1,600,000 for services rendered on behalf of the Company and its subsidiaries in connection with the Acquisition. 3.2 As compensation to MDC for its management and advisory services to the Company and its subsidiaries under this Agreement, the Company, on behalf of itself and its subsidiaries, agrees to pay MDC a fee in the amount of three hundred thousand dollars ($300,000) per year. Such fee shall be payable in arrears in equal quarterly installments, on or before the last day of March, June, September and December, commencing on December 31, 1995. 3.3 MDC shall also be entitled to be reimbursed by the Company for all reasonable out-of-pocket costs and expenses incurred by MDC and any of its partners, employees or affiliates in connection with (i) providing the Services under this Agreement, or (ii) serving as a member of the Board of Directors or as an officer of the Company including, without limitation, all travel expenses. Reimbursement shall be provided upon receipt by the Company of invoices from MDC with respect to such costs and expenses. 4. Duties as Management Advisor. MDC's duties as a financial and management consultant to the Company and its subsidiaries under the provisions of this Agreement shall include providing services in obtaining equity, debt, lease and acquisition financing, as well as providing other financial and consulting services for the operation and growth of the Company at any time during the term of this Agreement (the "Services"). Such Services shall be rendered upon the reasonable request of the Company. MDC shall devote as much time as reasonably necessary to the affairs of the Company. 5. Decisions. The Company reserves the right to make all decisions with regard to any matter upon which MDC has rendered its advice and consultation, and there shall be no liability to MDC for any such advice accepted by the Company pursuant to the provisions of this Agreement. 6. Authority of Management Advisor. MDC shall have authority only to act as a consultant and advisor to the Company. MDC shall have no authority to enter into any agreement or to make any representation, commitment or warranty binding upon the Company or to obtain or incur any right, obligation or liability on behalf of the Company. 7. Independent Contractor. Except as may be expressly provided elsewhere in this Agreement, MDC shall act as an independent contractor and shall have complete charge of its personnel engaged in the performance of the Services. 8. Books and Records. MDC's books and records with respect to the Services and any reimbursable costs ("Books and Records") shall be kept at MDC's office located at 3000 Sand Hill Road, Building 3, Suite 290, Menlo Park, California 94025. The Books and Records shall be kept in accordance with recognized accounting principles and practices, consistently applied, and shall be made available for the Company or the Company's representatives' inspection and copying at all times during regular office hours. MDC shall not be required to maintain the Books and Records for more than three (3) years after termination of this Agreement. 9. Confidential Information. 9.1 The parties acknowledge that during the course of provision of the Services, the Company may disclose confidential information to MDC or its affiliated companies. MDC shall treat such information as the Company's confidential property and safeguard and keep secret all such information about the Company, including reports and records, customer lists, trade lists, trade practices, and prices pertaining to the Company's business coming to the attention or knowledge of MDC because of any activities conducted by MDC under or pursuant to this Agreement. 9.2 MDC shall exercise its best efforts and shall cause any of its affiliated companies to exercise their best efforts to prevent any confidential information from being disclosed to third parties, except as necessarily required in the performance of the Services and except under terms of confidentiality satisfactory to the Company. This obligation shall remain in effect until the Company shall release MDC or its affiliated companies from their obligations under this paragraph 9, but in no event later than three (3) years after the completion of the Services. MDC shall not use any of the Company's confidential information in any way that is detrimental to the interests of the Company, directly or indirectly, either during the term of this Agreement or at any time thereafter. 10. Indemnification. The Company agrees to indemnify and hold MDC and its partners, officers, directors and agents harmless from damages, losses or expenses (including, without limitation, reasonable attorneys' fees and expenses) incurred or paid directly or indirectly, by MDC as a result or arising out of any actions taken by MDC in connection with the performance of the Services under this Agreement except to the extent that such actions resulted solely from the gross negligence or willful misconduct of MDC. The Company hereby further agrees to reimburse MDC for all reasonable fees and expenses (including attorneys fees) incurred in connection with defending any such claim to which MDC is a party, as such fees and expenses are incurred by MDC. 11. Notices and Communications. 11.1 All communications relating to the day-to-day activities necessary to render the Services shall be exchanged between the respective representatives of the Company and MDC, who will be designated by the parties promptly upon commencement of the Services. 11.2 All other notices, demands, and communications required or permitted hereunder shall be in writing and shall be delivered personally to the respective representatives of the Company and MDC set forth below or shall be mailed by registered mail, postage prepaid, return receipt requested. Notices, demands and communications hereunder shall be effective: (i) If delivered personally, on delivery; or (ii) if mailed, forty-eight (48) hours after deposit thereof in the United States mail addressed to the party to whom such notice, demand, or communication is given. Until changed by written notice, all such notices, demands and communications shall be addressed as follows: If to the Company: OSI Holdings Corp. c/o David B. Kreiss 5605 Lake Island Drive Atlanta, GA 30327 Tel: (404) 250-0707 Fax: (404) 250-0707 If to MDC: McCown De Leeuw & Co. 101 East 52nd Street 31st Floor New York, New York 10022 Attn: Mr. Tyler Zachem Tel: (212) 355-5500 Fax: (212) 355-6283 or (212) 355-6945 With copies to: McCown De Leeuw & Co. 3000 Sand Hill Road Building 3, Suite 290 Menlo Park, CA 94025 Attn: Mr. Steven A. Zuckerman Tel: (415) 854-6000 Fax: (415) 854-0853 12. Assignments. MDC shall not assign this Agreement in whole or in part without the prior written consent of the Company, provided, however, that such consent shall not be unreasonably withheld with respect to assignments to MDC's affiliates or wholly-owned subsidiaries; and provided further, that any such assignment shall not relieve MDC of any of its obligations under this Agreement. Subject to the foregoing, all the terms and conditions contained herein shall inure to the benefit of and shall be binding upon the parties hereto and their respective heirs, personal representatives, successors and assigns. 13. Applicable Law and Severability. This document shall, in all respects, be governed by the laws of the State of Delaware applicable to agreements executed and to be wholly performed within the State of Delaware. Nothing contained herein shall be construed so as to require the commission of any act contrary to law, and wherever there is any conflict between any provisions contained herein and any contrary present or future statute, law, ordinance or regulation, the latter shall prevail, but the provision of this document which is affected shall be curtailed and limited only to the extent necessary to bring it within the requirements of the law. 14. Further Assurances. Each of the parties hereto shall execute and deliver any and all additional papers, documents and other assurances, and shall do any and all acts and things reasonably necessary in connection with the performance of their obligations hereunder and to carry out the intent of the parties hereto. 15. Attorneys' Fees. In the event any action is instituted by a party to enforce any of the terms and provisions contained herein, the prevailing party in such action shall be entitled to such reasonable attorneys' fees, costs and expenses as may be fixed by the court. 16. Time of the Essence. Time is of the essence of this Agreement and all the terms, provisions, covenants and conditions hereof. 17. Captions. The captions appearing at the commencement of the paragraphs hereof are descriptive only and for convenience and reference. Should there be any conflicts between any such caption and the paragraph at the head of which it appears, the paragraph and not such caption shall control and govern in the construction of this document. 18. Modifications or Amendments. No amendment, change or modification of this document shall be valid unless it is in writing and signed by all the parties hereto and expressly states that an amendment, change or modification of this Agreement is intended. 19. Separate Counterparts. This document may be executed in one or more separate counterparts, each of which, when so executed, shall be deemed to be an original. Such counterparts shall, together, constitute and be one and the same instrument. 20. Entire Agreement. This Agreement shall constitute the entire understanding and agreement between the parties hereto and shall supersede any and all letters of intent, whether written or oral, pertaining to the subject matter of this Agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized officers on the date first appearing above. OSI HOLDINGS CORP. By: /s/ David B. Kreiss --------------------------- Name: David B. Kreiss Title: President MDC MANAGEMENT COMPANY III, L.P., a California limited partnership By: /s/ David E. King --------------------------- General Partner ASSIGNMENT AGREEMENT This ASSIGNMENT AGREEMENT (this "Agreement"), dated as of December 10, 1999, is by and between Madison Dearborn Partners, Inc. ("MDP"), Outsourcing Solutions Inc. (f/k/a Outsourcing Holdings Corp.) ("OSI") and MDC Management Company III, L.P. ("MDC"). Reference is made to the Advisory Services Agreement dated as of September 21, 1995 (the "Advisory Services Agreement"), by and between OSI and MDC. Capitalized terms not otherwise defined in this Instrument shall have the meanings given to such terms in the Advisory Services Agreement. In accordance with its rights under Section 12 of the Advisory Services Agreement, MDC wishes to (i) assign all of its rights in, to and under the Advisory Services Agreement to MDP and (ii) designate MDP as MDC under the Advisory Services Agreement. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby covenant and agree as follows: 1. Assignment and Assumption. (a) MDC hereby assigns to MDP all of its obligations with respect to and arising from the performance of advisory services to OSI after the date hereof and all of its rights under the Advisory Services Agreement, including, without limitation, MDC's right to receive the fee set forth in Section 3.2 of the Advisory Services Agreement. Notwithstanding the foregoing, MDC's obligation under the confidentiality provisions set forth in Section 9 of the Advisory Services Agreement shall expire on the first anniversary of the date hereof with respect to OSI information obtained prior to the date hereof. (b) MDP hereby accepts the foregoing assignment of MDC's rights and hereby assumes all of MDC's obligations to perform advisory services under the Advisory Services Agreement after the date hereof and assumes all obligations arising from the performance of such services. (c) OSI hereby consents to MDC's assignment of its rights under the Advisory Services Agreement to MDP and accepts MDP's assumption of the obligation to perform advisory services under the Advisory Services Agreement after the date hereof. Notwithstanding anything to the contrary contained in Section 12 of the Advisory Services Agreement, OSI hereby agrees that after MDC's assignment of its rights under the Advisory Services Agreement to MDP, MDC shall be relieved of all of its obligations under the Advisory Services Agreement. 2. OSI hereby represents and warrants to MDP and MDC as follows: (a) OSI has full power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution, delivery and performance of this Agreement by OSI has been duly authorized and approved by its Board of Directors and no other corporate action on the part of OSI is necessary to authorize the execution, delivery and performance of this Agreement by OSI. This Agreement has been duly executed and delivered by OSI and, assuming the due execution and delivery of this Agreement by MDP and MDC, is a valid and binding obligation of OSI enforceable against OSI in accordance with its terms. (b) The execution and delivery of this Agreement by OSI will not: (1) violate any provision of the Certificate of Incorporation or By-Laws of OSI or the comparable governing documents of any of its Subsidiaries; (2) violate any statute, ordinance, rule, regulation, order or decree of any court or of any governmental or regulatory body, agency or authority applicable to OSI or any of its Subsidiaries or by which any of their respective properties or assets may be bound; (3) require any filing with, or permit, consent or approval of, or the giving of any notice to, or obtaining any new or additional licenses from any governmental or regulatory body, agency or authority; and (4) except as set forth in Section 3.01(d) of the Company's disclosure letter, result in a violation or breach of, conflict with, constitute (with or without due notice or lapse of time or both) a material default (or give rise to any right of termination, cancellation, payment or acceleration) under, or result in the creation of any encumbrance upon any of the properties or assets of OSI or any of its Subsidiaries under, any of the terms, conditions or provisions of any license, franchise, permit, agreement, lease, or other instrument or obligation to which OSI or any of its Subsidiaries is a party, or by which it or any of their respective properties or assets are bound or subject. (c) OSI and MDC have each fully performed all of its obligations under the Advisory Services Agreement to date and neither is in breach of such agreement. 3. MDC does hereby represent and warrant to MDP and OSI as follows: (a) MDC has full power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution, delivery and performance of this Agreement by MDC has been duly authorized by MDC and no other partnership action on the part of MDC is necessary to authorize the execution, delivery and performance of this Agreement by MDC. This Agreement has been duly executed and delivered by MDC and, assuming the due execution and delivery of this Agreement by MDP and OSI, is a valid and binding obligation of MDC enforceable against MDC in accordance with its terms. (b) The execution and delivery of this Agreement by MDC will not: (1) violate any provision of the Certificate of Limited Partnership or By-Laws of MDC; or (2) require any filing with, or permit, consent or approval of, or the giving of any notice to, or obtaining any new or additional licenses from any governmental or regulatory body, agency or authority. (c) MDC and OSI have each fully performed all of its obligations under the Advisory Services Agreement to date and neither is in breach of such agreement. 4. MDP represents and warrants to MDC and OSI as follows: (a) MDP has all requisite partnership power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution delivery and performance of this Agreement by MDP has been duly authorized by MDP. No other action on the part of MDP (or its partners) is necessary to authorize the execution, delivery and performance of this Agreement by MDP. This Agreement has been duly executed and delivered by MDP and assuming the due execution and delivery of this Agreement by OSI and MDC, is a valid and binding obligation of MDP, enforceable against MDP in accordance with its terms. (b) The execution and delivery of this Agreement by MDP will not: (1) violate any provision of the Certificate of Limited Partnership or By-Laws of MDP; or (2) require any filing with, or permit, consent or approval of, or the giving of any notice to, or obtaining any new or additional licenses from any governmental or regulatory body, agency or authority. 5. This Agreement is executed and delivered pursuant to Sections 18 ("Modifications or Amendments") and 12 ("Assignments") of the Advisory Services Agreement. From the date hereof, all references to MDC in the Advisory Services Agreement shall be deemed to be references to MDP. 6. The first sentence of Section 3.2 shall be deleted and replaced with the following: As compensation to MDP for its management and advisory services to the Company and its subsidiaries under this Agreement, the Company, on behalf of itself and its subsidiaries, agrees to pay MDP a fee in the amount of five hundred thousand dollars ($500,000) per year. 1. Section 11.2 of the Advisory Services Agreement shall be amended to read as follows: 11.2 All other notices, demands, and communications required or permitted hereunder shall be in writing and shall be delivered personally to the respective representatives of the Company and MDP set forth below or shall be mailed by registered mail, postage prepaid, return receipt requested. Notices, demands and communications hereunder shall be effective: (i) if delivered personally, on delivery; or (ii) if mailed, forty-eight (48) hours after deposit thereof in the United States mail addressed to the party to whom such notice, demand, or communication is given. Until changed by written notice, all such notices, demands and communication shall be addressed as follows: If to the Company: Outsourcing Solutions Inc. 390 South Woods Mill Road Suite 350 Chesterfield, Missouri 63017 Attention: Eric Fencl, Esq. General Counsel Phone: (314) 576-0022 Fax: (314) 576-1867 If to MDP: Madison Dearborn Partners, Inc. Suite 3800 Three First National Plaza Chicago, IL 60602 Attention: Timothy Hurd Phone: (312) 895-1170 Fax: (312) 895-1156 with a copy to: Kirkland & Ellis 200 E. Randolph Chicago, IL 60601 Attention: Michael H. Kerr, P.C. Phone: (312) 861-2000 Fax: (312) 861-2200 1. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same Agreement, and shall become effective when one or more of such counterparts have been signed by each of the parties and delivered to the other party. 1. This Agreement shall be governed by, performed, construed and enforced in accordance with the laws of the State of New York, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this Assignment Agreement to be duly executed as of the day and year first above written. MADISON DEARBORN PARTNERS, INC. By: /s/ Paul R. Wood ---------------------------------------- Its: MDC MANAGEMENT COMPANY III, L.P. By: /s/ ---------------------------------------- Its: OUTSOURCING SOLUTIONS INC. By: /s/ Eric R. Fencl ---------------------------------------- Its: EX-10.3 8 REGISTRATION RIGHTS AGREEMENT COMMON STOCK ================================================================================ REGISTRATION RIGHTS AGREEMENT Dated as of December 10, 1999 among OUTSOURCING SOLUTIONS INC., a Delaware corporation, the Purchasers named herein AND certain other parties hereto Relating to 5,920,474.15 Shares of Common Stock, $.01 Par Value ================================================================================ THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered into as of December 10, 1999, among Outsourcing Solutions Inc., a Delaware corporation (the "Company"), Madison Dearborn Capital Partners III, L.P. ("MDCP"), Madison Dearborn Special Equity III, L.P. ("MDSE") and Special Advisers Fund I, L.L.C. ("SAF" and collectively with MDCP and MDSE, the "Equity Investor") and Ares Leveraged Investment Fund, L.P., Ares Leveraged Investment Fund II, L.P., DB Capital Investors, L.P., First Union Investors, Inc., Abbott Capital 1330 Investors II, L.P., Abbott Capital Private Equity Fund III, L.P., BNY Partners Fund, L.L.C., Heller Financial, Inc., Magnetite Asset Investors L.L.C., FBR Financial Fund II, L.P. and Harvest Opportunity Partners, L.P. (each a "Purchaser" and, collectively, the "Purchasers"). This Agreement is made pursuant to the Purchase Agreement, dated as of December 10, 1999, among the Company and certain of the Purchasers (the "Purchase Agreement"), relating to the sale by the Company to the Purchasers of an aggregate of (i) 25,000 shares of the Company's Class A 14% Senior Mandatorily Redeemable Preferred Stock (the "Class A Senior Preferred Stock"), (ii) 75,000 shares of the Company's Class B 14% Senior Mandatorily Redeemable Preferred Stock (the "Class B Senior Preferred Stock", and together with the Class A Senior Preferred Stock, the "Senior Preferred Stock") and (iii) 596,913.07 shares of the Company's Common Stock (as defined herein) (such shares of Common Stock, together with the Senior Preferred Stock, the "Purchased Securities"). In order to induce the Purchasers to enter into the Purchase Agreement and/or to accept an assignment of the right to purchase Common Stock pursuant to the Recapitalization Agreement, the Company has agreed to provide to the Holders (as defined herein) the registration rights and other rights for the Registrable Securities (as defined herein) set forth in this Agreement. The execution of this Agreement is a condition to the obligations of the Purchasers to purchase the Purchased Securities under the Purchase Agreement. In consideration of the foregoing, the parties hereto agree as follows: 1. Definitions. As used in this Agreement, the following capitalized defined termsshall have the following meanings: "Advice" shall have the meaning ascribed to that term in the last paragraph of Section 4. "Affiliate" means, with respect to any specified Person: (i) any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person; (ii) any other Person that owns, directly or indirectly, 10% or more of such specified Person's Capital Stock; or (iii) any other Person 10% or more of the Voting Stock of which is beneficially owned or held directly or indirectly by such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. With respect to each Purchaser, an Affiliate shall also include, without limitation, any Person managed by, or controlling or under common control with such Purchaser or any of its Affiliates. Notwithstanding anything to the contrary contained herein, (x) no portfolio company of MDCP nor any portfolio company of a fund managed by or affiliated with MDCP shall be deemed an Affiliate of the Company and (y) no Purchaser or any of their respective Affiliates shall be deemed an Affiliate of the Company. "Agreement" shall have the meaning ascribed to that term in the preamble hereto. "Black Out Period" shall have the meaning ascribed to that term in Section 2.1. "Board of Directors" shall mean the Board of Directors of the Company or any authorized committee of such Board of Directors. "Business Day" shall mean a day that is not a Legal Holiday. "Capital Stock" shall mean, (i) with respect to any Person that is a corporation, corporate stock, (ii) with respect to any association or business entity, any and all shares, interests, participations or other equivalents (however designated and whether or not voting) of corporate stock, including each class of common stock and preferred stock of such Person; (iii) with respect to any Person that is not a corporation, any and all partnership, membership or other equity interests of such Person; and (iv) any rights, warrants or options exchangeable for or convertible into any of the foregoing. "Certificate of Designation" shall mean the Certificate of Designation for the Senior Preferred Stock. "Change of Control" shall have the meaning ascribed to that term in the Certificate of Designation. "Class A Senior Preferred Stock" shall have the meaning ascribed to that term in the preamble hereto. "Class B Senior Preferred Stock" shall have the meaning ascribed to that term in the preamble hereto. "Common Stock" shall mean the Company's $.01 par value common stock of any class. "Company" shall have the meaning ascribed to that term in the preamble hereto and shall also include the Company's successors. "Demand" shall have the meaning ascribed to that term in Section 2.1. "Demand Registration" shall have the meaning ascribed to that term in Section 2.1. "Effectiveness Period" shall have the meaning ascribed to that term in Section 2.1. "Equity Investor" shall have the meaning ascribed to that term in the preamble. "Equity Investor Shares" shall mean (a) the Common Stock held by the Equity Investor or its designees (including all Common Stock purchased pursuant to the Recapitalization Agreement), whether held by any of them or any subsequent assignee or transferee and (b) any other securities issued or issuable with respect to or in exchange for such Common Stock by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the SEC thereunder. "Holder" shall mean each of the Purchasers and the Equity Investor, for so long as the Purchasers or the Equity Investor own any Registrable Securities, and their respective successors, assigns and direct and indirect transferees who become registered owners of Registrable Securities. "Initial Public Equity Offering" means a primary underwritten public offering (but excluding any offering pursuant to Form S-8 under the Securities Act or any other publicly registered offering pursuant to the Securities Act pertaining to an issuance of shares of Common Stock or securities exercisable therefor under any benefit plan, employee compensation plan, or employee or director stock purchase plan) of Common Stock of the Company pursuant to an effective registration statement under the Securities Act. "Issue Date" means December 10, 1999. "Legal Holiday" shall mean a Saturday, a Sunday or a day on which banking institutions in The City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. "Lock Up Period" shall have the meaning ascribed to that term in Section 2.1. "MDCP" shall have the meaning ascribed to that term in the preamble hereto. "MDSE" shall have the meaning ascribed to that term in the preamble hereto. "Person" shall mean an individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or agency or political subdivision thereof. "Postponement Period" shall have the meaning ascribed to that term in Section 2.1. "Preferred Stock" means, with respect to any Person, Capital Stock of any class or classes (however designated) of such Person which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over Capital Stock of any other class of such Person. With respect to the Company, the term "Preferred Stock" shall include the Senior Preferred Stock. "Prospectus" means the prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated pursuant to the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement, and all other amendments and supplements to any such prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference, if any, in such prospectus. "Purchase Agreement" shall have the meaning ascribed to that term in the preamble hereto. "Purchased Securities" shall have the meaning ascribed to that term in the preamble hereto. "Purchasers" shall have the meaning ascribed to that term in the preamble hereto. "Purchaser Holder" shall mean each of the Purchasers, for so long as the Purchasers own any Registrable Securities, and their successors, assigns and direct and indirect transferees who become registered owners of Registrable Securities. "Qualifying IPO" shall mean an Initial Public Equity Offering generating aggregate gross proceeds to the Company of at least $50.0 million. "Recapitalization Agreement" means that certain Stock Subscription and Redemption Agreement, dated as of October 8, 1999, by and among MDCP and the other parties thereto, as may be amended from time to time. "Registrable Securities" shall mean any of (i) the Shares or (ii) the Equity Investor Shares. As to any particular Registrable Securities, once issued such securities shall cease to be Registrable Securities when (a) a Registration Statement with respect to the sale of such securities by the Holder thereof shall have been declared effective under the Securities Act and such securities shall have been disposed of by such Holder in accordance with such Registration Statement, (b) such securities have been distributed to the public pursuant to Rule 144 (or any successor provision) promulgated under the Securities Act, (c) such securities shall have been otherwise transferred and new certificates for them not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent disposition of such securities shall not require registration or qualification under the Securities Act or any similar state law then in force or (d) such securities shall have ceased to be outstanding. "Registration Expenses" shall mean all expenses incident to the Company's performance of or compliance with this Agreement, including, without limitation, all SEC and stock exchange or National Association of Securities Dealers, Inc. registration and filing fees and expenses, fees and expenses of compliance with securities or Blue Sky laws (including, without limitation, in the event of an underwritten offering, reasonable fees and disbursements of counsel for the underwriters in connection with Blue Sky qualifications, if any, of the Registrable Securities), rating agency fees, printing expenses, messenger, telephone and delivery expenses, fees and disbursements of counsel for the Company and all independent certified public accountants, and, in the event of an underwritten offering, the fees and disbursements of underwriters customarily paid by issuers or sellers of securities (but not including (i) any underwriting discounts or commissions or transfer taxes, if any, attributable to the sale of Registrable Securities by Holders of such Registrable Securities or (ii) fees and expenses of counsel and/or experts for the Holders). "Registration Statement" shall mean any registration statement of the Company which covers any of the Registrable Securities pursuant to the provisions of this Agreement and all amendments and supplements to any such Registration Statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Requisite Shares" shall mean a number of Registrable Securities equivalent to not less than 35% of the Registrable Securities (excluding Registrable Securities which are Equity Investor Shares) outstanding as of any date of determination. "Rule 144" shall mean Rule 144 under the Securities Act (or any successor provision), as it may be amended from time to time. "Rule 144A" shall mean Rule 144A under the Securities Act (or any successor provision), as it may be amended from time to time. "SAF" shall have the meaning ascribed in the preamble hereto. "SEC" shall mean the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act or, if at any time after the execution of this Agreement such Commission is not existing and performing the duties now assigned to it under the Exchange Act, the body performing such duties at such time. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated by the SEC thereunder. "Senior Preferred Stock" shall have the meaning ascribed to that term in the preamble hereto. "Shares" shall mean (a) the Common Stock held by the Purchasers (including all Purchased Securities and all other Common Stock sold to the Purchasers pursuant to the Assignment and Stock Purchase Agreement dated as of the date hereof), whether held by any of them or any subsequent assignee or transferee and (b) any other securities issued or issuable with respect to or in exchange for such Common Stock by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. "Stockholders Agreement" shall mean the Stockholders Agreement dated the date hereof by and among the Company, the Equity Investor, certain stockholders, optionholders and warrantholders and the Purchasers. "Voting Stock" shall mean any class or classes of Capital Stock pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the Board of Directors, managers or trustees of any Person (irrespective of whether or not, at the time, stock of any other class or classes shall have, or might have, voting power by reason of the happening of any contingency). 2. Registration Rights and Other Rights of the Holders. 2.1. Demand Registration. (a) Request for Registration. At any time (i) the Equity Investor may make an unlimited number of written requests (each a "Demand") for registration under the Securities Act of its Registrable Securities (a "Demand Registration") and (ii) on or after the third year anniversary of the Issue Date, Purchasers owning, individually or in the aggregate, at least the Requisite Shares may make up to two Demands for a Demand Registration. Any such Demand will specify the number of Registrable Securities proposed to be sold and will also specify the intended method of disposition thereof. Subject to the other provisions of this Section 2.1, the Company shall give written notice of such Demand within 10 days after the receipt thereof to all other Holders. Within 30 days after receipt of such notice by any Holder, such Holder may request in writing that its Registrable Securities be included in such registration and the Company shall include in the Demand Registration the Registrable Securities of any such selling Holder requested to be so included. Each such request by such other selling Holders shall specify the number of Registrable Securities proposed to be sold and the intended method of disposition thereof. Upon a Demand, the Company will (i) prepare, file and use its commercially reasonable efforts to cause to become effective within 90 days of such Demand a Registration Statement in respect of all the Registrable Securities which Holders request for inclusion therein; provided that if such Demand occurs during a Black Out Period or a period (not to exceed 180 days) during which the Company is prohibited or restricted from issuing or selling Common Stock pursuant to any underwriting or purchase agreement relating to an underwritten public offering of Common Stock or securities convertible into or exchangeable for Common Stock under Rule 144A or registered under the Securities Act or any agreement with a securityholder of the Company exercising registration rights (a "Lock Up Period"), the Company shall not be required to notify the Holders of such Demand or file such Registration Statement prior to the end of the Black Out Period or Lock Up Period, as the case may be, in which event, the Company will use its commercially reasonable efforts to cause such Registration Statement to become effective no later than 90 days after the end of the Black Out Period or Lock Up Period, as the case may be, and (ii) keep such Registration Statement effective for the shorter of (a) 180 days (the "Effectiveness Period") and (b) such period of time as all of the Registrable Securities included in such Registration Statement have been sold thereunder. Notwithstanding anything set forth in the immediately preceding sentence, the Company may (I) postpone the filing period, suspend the effectiveness of any registration, suspend the use of any Prospectus and shall not be required to amend or supplement the Registration Statement, any related Prospectus or any document incorporated therein by reference (other than an effective registration statement being used for an underwritten offering) in the event that, and for a period, in the case of any particular Demand Registration, not to exceed an aggregate of 90 days ("Black Out Period") if (i) an event or circumstance occurs as a result of which the Registration Statement, any related Prospectus or any document incorporated therein by reference as then amended or supplemented would, in the Company's good faith judgment, contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and (ii) the Company determines in its good faith judgment that (A) the disclosure of such event at such time would have a material adverse effect on the business, operations or prospects of the Company or (B) the disclosure otherwise relates to a material business transaction or any other material matter, which has not yet been publicly disclosed; provided, further, that, if the effectiveness of any Registration Statement is suspended as a result of a Black Out Period, the Effectiveness Period shall be extended by the number of days in any Black Out Period and (II) at any time prior to an Initial Public Equity Offering by the Company, postpone the filing of one Demand Registration, by giving written notice thereof to all Holders, for a period not to exceed an aggregate of 180 days ("Postponement Period"); provided, that at the end of the Postponement Period the Company will use its commercially reasonable efforts to cause a Registration Statement with respect to all Registrable Securities of Holders electing to participate in such Demand Registration to become effective within 90 days after the end of the Postponement Period. In the event of the occurrence of any Black Out Period during an Effectiveness Period or Lock Up Period, the Company will promptly notify the Holders of Registrable Securities thereof in writing. (b) Effective Registration. Except as specifically provided herein, the Company is only required to effect two Demand Registrations under Section 2.1(a)(ii) this Agreement (whether or not all of the Holders of Registrable Securities elect to participate in such Demand Registration on the basis set forth herein). A registration will not be deemed to have been effected as a Demand Registration, and thereby satisfy the obligation hereunder, unless it has been declared effective by the SEC and the Company has complied in all material respects with its obligations under this Agreement with respect thereto; provided that if, after it has become effective, the offering of Registrable Securities pursuant to such registration is or becomes the subject of any stop order, injunction or other order or requirement of the SEC or any other governmental or administrative agency, or if any court prevents or otherwise limits the sale of Registrable Securities pursuant to the registration (for any reason other than the act or omissions of the Holders) for the period of time contemplated hereby, such registration will be deemed not to have been effected. If (i) a registration requested pursuant to Section 2.1(a)(ii) is deemed not to have been effected or (ii) the registration requested pursuant to Section 2.1(a)(ii) does not remain effective for the Effectiveness Period, then the Company shall not be deemed to have effected a Demand Registration and its obligations pursuant to Section 2.1(a)(ii) will continue. The Holders of Registrable Securities shall be permitted to withdraw all or any part of the Registrable Securities from a Demand Registration at any time prior to the effective date of such Demand Registration. If at any time a Registration Statement is filed pursuant to a Demand Registration under Section 2.1(a)(ii), and subsequently a sufficient number of the Registrable Securities are withdrawn from the Demand Registration so that such Registration Statement does not cover that number of Registrable Securities at least equal to one-half of the Registrable Securities of the Purchaser Holders outstanding as of such date, the Holders who have not withdrawn their Registrable Securities shall have the opportunity to include an additional number of Registrable Securities in the Demand Registration so that such Registration Statement covers that number of Registrable Securities at least equal to one-half of the Registrable Securities of the Purchaser Holders outstanding as of such date. If an additional number of Registrable Securities is not so included, the Company may withdraw the Registration Statement. Such withdrawn Registration Statement will not count as a Demand Registration and the Company shall continue to be obligated to effect such registration pursuant to Section 2.1(a)(ii). Except as set forth in the last sentence of Section 2.1(c), without the prior written consent of the Holders of the Requisite Shares no other securityholder of the Company shall be permitted to include their securities in a Demand Registration pursuant to Section 2.1(a)(ii). (c) Priority in Demand Registrations Pursuant to Section 2.1. If a Demand Registration pursuant to this Section 2.1 involves an underwritten offering and the lead managing underwriter advises the Company in writing that, in its view, the number of Registrable Securities requested by the Holders to be included in such registration, together with any other securities permitted to be included in such registration exceeds the number which, in the view of such lead managing underwriter, can be sold, the number of such Registrable Securities to be included in such registration shall be allocated pro rata among all requesting Holders on the basis of the relative number of Registrable Securities then held by each such Holder (provided that any Registrable Securities thereby allocated to any such Holder that exceed such Holder's request shall be reallocated among the remaining requesting Holders in like manner). In the event that the number of Registrable Securities requested to be included in such registration is less than the number which, in the view of the lead managing underwriter, can be sold, the Company may include in such registration the Securities the Company proposes to sell up to the number of Securities that, in the view of the lead managing underwriter, can be sold without adversely affecting the success of the offering, including the price at which the Registrable Securities can be sold. (d) Selection of Underwriter. If the Holders so elect, the offering of Registrable Securities pursuant to a Demand Registration shall be in the form of an underwritten offering. The Holders of a majority of Registrable Securities to be sold in such Demand Registration shall select one or more nationally recognized firms of investment bankers (to whom the Company shall not have reasonably objected) to act as the managing underwriter or underwriters in connection with such offering and shall select any additional investment bankers and managers to be used in connection with the offering. (e) Expenses. The Company will pay all Registration Expenses in connection with the registrations requested pursuant to Section 2.1(a). Each Holder shall pay all underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of such Holder's Registrable Securities pursuant to any registration statement requested pursuant to this Section 2.1. 3. [Intentionally Omitted] 4. Registration Procedures. In connection with the obligations of the Company with respect to any Registration Statement pursuant to Section 2.1 hereof and pursuant to Section 6 of the Stockholders Agreement, the Company shall: (a) A reasonable period of time prior to the initial filing of a Registration Statement or Prospectus and a reasonable period of time prior to the filing of any amendment or supplement thereto, furnish to the Holders of the Registrable Securities included in such Registration Statement, and the managing underwriters, if any, copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of such Holders, and such underwriters, if any, and use reasonable commercial efforts to cause the officers and directors of the Company, counsel to the Company and independent certified public accountants to the Company to respond to such reasonable inquiries as shall be necessary, in the opinion of the respective counsel to such Holders and such underwriters, to conduct a reasonable investigation within the meaning of the Securities Act. The Company shall not file any such Registration Statement or related Prospectus or any amendments or supplements thereto to which the Holders of a majority of the Registrable Securities included in such Registration Statement shall reasonably object on a timely basis; (b) Prepare and file with the SEC such amendments, including post-effective amendments, to each Registration Statement as may be necessary to keep such Registration Statement continuously effective for the applicable time period required hereunder; cause the related Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Securities Act; and comply with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all securities covered by such Registration Statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented; (c) Notify the Holders of Registrable Securities to be sold and the managing underwriters, if any, promptly, and (if requested by any such Person), confirm such notice in writing, (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment is proposed to be filed and (B) with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the SEC or any other Federal or state governmental authority for amendments or supplements to a Registration Statement or related Prospectus or for additional information, (iii) of the issuance by the SEC, any state securities commission, any other governmental agency or any court of any stop order, order or injunction suspending or enjoining the use of a Prospectus or the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose, and (v) of the happening of any event or information becoming known that makes any statement made in a Registration Statement or related Prospectus untrue in any material respect or that requires the making of any changes in such Registration Statement or Prospectus so that, in the case of a Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and that in the case of a Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (d) Use its commercially reasonable efforts to avoid the issuance of or, if issued, obtain the withdrawal of any order enjoining or suspending the use of a Prospectus or the effectiveness of a Registration Statement or the lifting of any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction described in Section 4(h), at the earliest practicable moment; (e) If requested by the lead managing underwriters, if any, (i) promptly incorporate in a Prospectus supplement or post-effective amendment such information as the managing underwriters, if any, reasonably believe should be included therein, and (ii) make all required filings of such Prospectus supplement or such post-effective amendment under the Securities Act as soon as practicable after the Company has received notification of the matters to be incorporated in such Prospectus supplement or post-effective amendment; provided, however, that the Company shall not be required to take any action pursuant to this Section 4(e) that would, in the opinion of counsel for the Company, violate applicable law; (f) Upon written request to the Company, furnish to each Holder of Registrable Securities to be sold pursuant to a Registration Statement and each managing underwriter, if any, without charge, at least one conformed copy of such Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference, and all exhibits to the extent requested (including those previously furnished or incorporated by reference) as soon as practicable after the filing of such documents with the SEC; (g) Deliver to each Holder of Registrable Securities to be sold pursuant to a Registration Statement, and the underwriters, if any, without charge, as many copies of the Prospectus (including each form of prospectus) and each amendment or supplement thereto as such persons reasonably request; and the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders of Registrable Securities and the underwriters, if any, in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto; (h) Prior to any public offering of Registrable Securities, use its commercially reasonable efforts to register or qualify or cooperate with the Holders of Registrable Securities to be sold, the underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions as any such Holder or underwriter reasonably requests in writing; keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective hereunder and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by the applicable Registration Statement; provided, however, that the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it is not then so qualified or (ii) take any action which would subject it to general service of process or to taxation in any jurisdiction where they are not so subject; (i) In connection with any sale or transfer of Registrable Securities that will result in such Securities no longer being Registrable Securities, cooperate with the Holders thereof and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with The Depository Trust Company, and to enable such Registrable Securities to be in such denominations and registered in such names as the managing underwriters, if any, or such Holders may request at least two Business Days prior to any sale of Registrable Securities; (j) Upon the occurrence of any event contemplated by Section 4(c)(v), as promptly as practicable, prepare a supplement or amendment, including, if appropriate, a post-effective amendment, to each Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (k) Enter into such agreements (including an underwriting agreement in form, scope and substance as is customary in underwritten offerings) and take all such other reasonable actions in connection therewith (including those reasonably requested by the managing underwriters, if any) in order to expedite or facilitate the disposition of such Registrable Securities, and, whether or not an underwriting agreement is entered into and whether or not the registration is an underwritten registration: (i) make such representations and warranties to the underwriters and selling Holders, if any, with respect to the business of the Company and its subsidiaries (including with respect to businesses or assets acquired or to be acquired by any of them), and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings, and confirm the same if and when requested; (ii) obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters if any, addressed to each of the underwriters, and selling Holders, if any), covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such underwriters or selling Holders; (iii) use their commercially reasonable efforts to obtain customary "cold comfort" letters and updates thereof from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data is, or is required to be, included in the Registration Statement), addressed (where reasonably possible) to each of the underwriters and selling Holders, if any, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings; (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less favorable to the underwriters, if any, than those set forth in Section 5 hereof (or such other provisions and procedures acceptable to the managing underwriters, if any); and (v) deliver such documents and certificates as may be reasonably requested by the managing underwriters, if any, to evidence the continued validity of the representations and warranties made pursuant to clause (i) above and to evidence compliance with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company; (l) Make available for inspection by a representative of any underwriter participating in any such disposition of Registrable Securities, and any attorney, consultant or accountant retained by such selling Holders or underwriter, at the offices where normally kept, during reasonable business hours, all pertinent financial and other records, corporate documents and properties of the Company and its subsidiaries (including with respect to businesses and assets acquired or to be acquired to the extent that such information is available to the Company), and cause the officers, directors, agents and employees of the Company and its subsidiaries (including with respect to businesses and assets acquired or to be acquired to the extent that such information is available to the Company) to supply all information in each case reasonably requested by any such representative, underwriter, attorney, consultant or accountant in connection with such Registration Statement; provided, however, that such Persons shall first agree in writing with the Company that any information that is reasonably and in good faith designated by the Company in writing as confidential at the time of delivery of such information shall be kept confidential by such Persons, unless (i) disclosure of such information is required by court or administrative order or is necessary to respond to inquiries of regulatory authorities, (ii) disclosure of such information is required by law (including any disclosure requirements pursuant to Federal securities laws in connection with the filing of the Registration Statement or the use of any Prospectus), (iii) such information becomes generally available to the public other than as a result of a disclosure or failure to safeguard such information by such Person or (iv) such information becomes available to such Person from a source other than the Company and its subsidiaries and such source is not bound by a confidentiality agreement; (m) Comply with all applicable rules and regulations of the SEC and make generally available to their securityholders earnings statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 under the Securities Act, no later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Securities are sold to underwriters in a firm commitment or reasonable efforts underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter after the effective date of a Registration Statement, which statement shall cover said period, consistent with the requirements of Rule 158 under the Securities Act; and (n) Cooperate with each seller of Registrable Securities covered by any Registration Statement and each underwriter, if any, participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc. The Company may require a Holder of Registrable Securities to be included in a Registration Statement to furnish to the Company such information regarding (i) the intended method of distribution of such Registrable Securities (ii) such Holder and (iii) the Registrable Securities held by such Holder as is required by law to be disclosed in such Registration Statement and the Company may exclude from such Registration Statement the Registrable Securities of any Holder who unreasonably fails to furnish such information within a reasonable time after receiving such request. The Company shall not be required to provide indemnification to any underwriter or any other person relating to information referred to in clauses (i) and (ii) provided to the Company in writing specifically for inclusion in such Registration Statement. If any such Registration Statement refers to any Holder by name or otherwise as the Holder of any securities of the Company, then such Holder shall have the right to require (i) the insertion therein of language, in form and substance reasonably satisfactory to such Holder, to the effect that the holding by such Holder of such securities is not to be construed as a recommendation by such Holder of the investment quality of the Company's securities covered thereby and that such holding does not imply that such Holder will assist in meeting any future financial requirements of the Company, or (ii) in the event that such reference to such Holder by name or otherwise is not required by the Securities Act, the deletion of the reference to such Holder in any amendment or supplement to the Registration Statement filed or prepared subsequent to the time that such reference ceases to be required. Each Holder of Registrable Securities agrees by acquisition of such Registrable Securities that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 4(c)(ii), 4(c)(iii), 4(c)(iv) or 4(c)(v) hereof, such Holder will forthwith discontinue disposition of such Registrable Securities covered by such Registration Statement or Prospectus until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 4(j) hereof, or until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus. If the Company shall give any such notice, the Effectiveness Period shall be extended by the number of days during such period from and including the date of the giving of such notice to and including the date when each Holder of Registrable Securities covered by such Registration Statement shall have received (x) the copies of the supplemented or amended Prospectus contemplated by Section 4(j) hereof or (y) the Advice, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus. 5. Indemnification and Contribution. (a) The Company shall indemnify and hold harmless each Holder, each underwriter who participates in an offering of Registrable Securities, their respective Affiliates, each Person, if any, who controls any of such parties within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act and each of their respective directors, officers, employees and agents, as follows: (i) from and against any and all loss, liability, claim, damage and expense whatsoever, joint or several, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment thereto), covering Registrable Securities, including all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading or arising out of any untrue statement or alleged untrue statement of a material fact contained in any Prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) from and against any and all loss, liability, claim, damage and expense whatsoever, joint or several, as incurred, to the extent of the aggregate amount paid in settlement of any litigation (other than amounts the Holders agree to pay in any written settlement agreement), or any investigation or proceeding by any court or governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, if such settlement is effected with the prior written consent of the Company; and (iii) from and against any and all expenses whatsoever, as incurred (including reasonable fees and disbursements of one counsel chosen by the Holders or any underwriter (except to the extent otherwise expressly provided in Section 5(c) hereof)), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any court or governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under subparagraph (i) or (ii) of this Section 5(a); provided that this indemnity does not apply to any loss, liability, claim, damage or expense to the extent arising out of an untrue statement or omission or alleged untrue statement or omission (i) made in reliance upon and in conformity with written information furnished to the Company by a Holder or any underwriter in writing expressly for use in the Registration Statement (or any amendment thereto) or any Prospectus (or any amendment or supplement thereto) or (ii) contained in any preliminary prospectus if such Holder or such underwriter failed to send or deliver a copy of the Prospectus (in the form it was first provided to such parties for confirmation of sales) to the Person asserting such losses, claims, damages or liabilities on or prior to the delivery of written confirmation of any sale of securities covered thereby to such Person in any case where such delivery is required by the Securities Act and such Prospectus would have corrected such untrue statement or omission. Any amounts advanced by the Company to an indemnified party pursuant to this Section 5 as a result of such losses shall be returned to the Company if it shall be finally determined by such a court in a judgment not subject to appeal or final review that such indemnified party was not entitled to indemnification by the Company. (b) By accepting the benefits of this Agreement, each Holder agrees, severally and not jointly, to indemnify and hold harmless the Company, each underwriter who participates in an offering of Registrable Securities and the other selling Holders and each of their respective directors, officers (including each officer of the Company who signed the Registration Statement), employees and agents and each Person, if any, who controls the Company, any underwriter or any other selling Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all loss, liability, claim, damage and expense whatsoever described in the indemnity contained in Section 5(a) hereof, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto) or any Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by such selling Holder expressly for use in the Registration Statement (or any amendment thereto), or any such Prospectus (or any amendment or supplement thereto). Notwithstanding the provisions of this Section 5(b), a Holder of Registrable Securities shall not be required to pay any indemnification in an amount in excess of the net proceeds received by such Holder in the offering to which such Registration Statement relates. (c) Each indemnified party shall give prompt notice to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, enclosing a copy of all papers properly served on such indemnified party, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability which it may have other than on account of this indemnity agreement. An indemnifying party may participate at its own expense in the defense of any such action. If an indemnifying party so elects within a reasonable time after receipt of such notice, such indemnifying party, jointly with any other indemnifying party, may assume the defense of such action with counsel chosen thereby and approved by the indemnified parties defendant in such action; provided that if any such indemnified party reasonably determines, based on advice of counsel, that there may be legal defenses available to such indemnified party which are different from or in addition to those available to such indemnifying party or that representation of such indemnifying party and any indemnified party by the same counsel would present a conflict of interest, then such indemnifying party or parties shall not be entitled to assume such defense. If an indemnifying party is not entitled to assume the defense of such action as a result of the proviso to the preceding sentence, counsel for such indemnifying party shall be entitled to conduct the defense of such indemnifying party and counsel for each indemnified party or parties shall be entitled to conduct the defense of such indemnified party or parties. If an indemnifying party assumes the defense of an action in accordance with and as permitted by the provisions of this paragraph, such indemnifying party shall not be liable for any fees and expenses of counsel for the indemnified parties incurred thereafter in connection with such action. In no event shall the indemnifying party or parties be liable for the fees and expenses of more than one counsel (in addition to any local counsel), separate from its own counsel, for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. (d) In order to provide for just and equitable contribution in circumstances under which any of the indemnity provisions set forth in this Section 5 is for any reason held to be unavailable to the indemnified parties although applicable in accordance with its terms, the Company and the Holders shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by such indemnity agreement incurred by the Company and the Holders, as incurred; provided that notwithstanding the provisions of this Section 5(d), a Holder of Registrable Securities shall not be required to contribute any amount in excess of the amount by which the net proceeds received by such Holder in the offering to which such Registration Statement relates exceeds the amount of any damages that such Holder has otherwise been required to pay and no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person that was not guilty of such fraudulent misrepresentation. As between the Company and the Holders, such parties shall contribute to such aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by such indemnity agreement in such proportion as shall be appropriate to reflect the relative fault of the Company, on the one hand, and Holders, on the other hand, with respect to the statements or omissions which resulted in such loss, liability, claim, damage or expense, or action in respect thereof, as well as any other relevant equitable considerations. The relative fault of the Company, on the one hand, and of the Holders, on the other hand, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, on the one hand, or by or on behalf of the Holders, on the other, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Holders of the Registrable Securities agree that it would not be just and equitable if contribution pursuant to this Section 5 were to be determined by pro rata allocation or by any other method of allocation that does not take into account the relevant equitable considerations. For purposes of this Section 5, each Affiliate of each Holder, and each director, officer, employee, agent and Person, if any, who controls a Holder or such Affiliate within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution as such Holder, and each director of the Company, each officer of the Company who signed the Registration Statement, and each Person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution as the Company. (e) The indemnity and contribution covenants contained in this Section 5 shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of a Holder or any Person controlling a Holder, (ii) any sale of any Registrable Securities pursuant to this Agreement and receipt by the Holders of the proceeds thereof, or (iii) any termination of this Agreement for any reason, including after the initial filing of the Registration Statement to which these indemnity and contribution covenants relate. 6. Rule 144A The Company shall use its commercially reasonable efforts to file the reports required to be filed by it under the Securities Act and the Exchange Act in a timely manner and, if at any time it is not required to file such reports but in the past had been required to or did file such reports, it will, upon the request of any Holder or beneficial owner of Registrable Securities, make available other information as required by, and so long as necessary to permit, sales of Registrable Securities pursuant to Rule 144A. Notwithstanding the foregoing, nothing in this Section 6 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act. 7. Underwritten Registrations No Person may participate in any underwritten registration hereunder unless such Person (i) agrees to sell such Registrable Securities on the basis reasonably provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. 8. Miscellaneous (a) Remedies. In the event of a breach by the Company or by a Holder of any of its obligations under this Agreement, each Holder and the Company, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and each Holder agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach of any of the provisions of this Agreement and each hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate. (b) No Inconsistent Agreements. Neither the Company nor the Equity Investor will enter into any agreement that is inconsistent with the rights granted to the Holders and indemnified persons in this Agreement or otherwise conflicts with the provisions hereof. Without the written consent of the Purchaser Holders of a majority of the outstanding Shares held by Purchaser Holders, the Company and the Equity Investor shall not grant to any Person any rights which conflict with or are inconsistent with the provisions of this Agreement; it being acknowledged that the Company may grant rights to Demand Registrations without requiring that the Purchaser Holders be granted any rights with respect thereto (including but not limited to piggy-back registration rights) so long as the Purchaser Holders are treated in the same manner with respect to such newly granted rights as the Equity Investor is treated. (c) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, otherwise than with the prior written consent of MDCP and the Holders of not less than a majority of the then outstanding Shares. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Holders may be given by Holders of a majority of the Registrable Securities being sold by such Holders pursuant to such Registration Statement; provided, however, that the provisions of this sentence may not be amended, modified or supplemented except in accordance with the provisions of the immediately preceding sentence. Notwithstanding the foregoing, no amendment, modification, supplement, waiver or consent with respect to Section 5 shall be made or given otherwise than with the prior written consent of each Holder or former Holder affected thereby. (d) Notices. All notices and other communications provided for herein shall be made in writing by hand-delivery, next-day air courier, certified first-class mail, return receipt requested, telex or telecopier: (i) if to the Company, as provided in the Purchase Agreement, (ii) if to the Equity Investor: Madison Dearborn Capital Partners III, L.P. Suite 3800, Three First National Plaza Chicago, IL 60602 Attention: Timothy M. Hurd (iii) if to the Purchasers, as provided in the Purchase Agreement, or (iv) if to any other Person who is then the registered Holder of Shares or Registrable Securities, to the address of such Holder as it appears in the register therefor of the Company. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; one Business Day after being timely delivered to a next-day air courier; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; and when receipt is acknowledged by the recipient's telecopier machine, if telecopied. (e) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder of Shares and Equity Investor Shares. The Company may not assign any of its rights hereunder without the prior written consent of each Holder of Shares and Equity Investor Shares; provided that a merger or consolidation of the Company with another Person pursuant to which the issuer or issuers of any securities issued to Holders of Shares and Equity Investor Shares in connection with such merger or consolidation becomes obligated under this Agreement shall not be considered an assignment. Notwithstanding the foregoing, no successor or assignee of the Company shall have any of the rights granted under this Agreement until such Person shall acknowledge its rights and obligations hereunder by a signed written statement of such person's acceptance of such rights and obligations. If any transferee of any Holder shall acquire Shares and/or Equity Investor Shares in any manner, whether by operation of law or otherwise, such Shares or Equity Investor Shares shall be held subject to all of the terms of this Agreement, and by taking and holding such Shares or Equity Investor Shares such person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement and such person shall be entitled to receive the benefits hereof. (f) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. (g) Governing Law; Submission to Jurisdiction. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK. THE COMPANY, THE EQUITY INVESTOR AND THE PURCHASERS HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND EACH IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. (h) Severability. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (i) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. All references made in this Agreement to "Section" and "paragraph" refer to such Section or paragraph of this Agreement, unless expressly stated otherwise (j) Legends. Each Holder agrees that the following legend shall be placed on certificates representing any Shares or Equity Investor Shares owned by them: THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED UNLESS SUCH TRANSFER COMPLIES WITH THE PROVISIONS OF A REGISTRATION RIGHTS AGREEMENT DATED AS OF December 10, 1999, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF OUTSOURCING SOLUTIONS INC. AND IS AVAILABLE WITHOUT CHARGE UPON WRITTEN REQUEST THEREFOR. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF THE AFORESAID AGREEMENT. The Company agrees to remove the legend on the Shares and Equity Investor Shares upon the resale of such Shares and Equity Investor Shares in accordance with the terms of this Agreement. (k) Notwithstanding anything to the contrary, nothing contained in this Agreement shall affect, limit or impair the rights and remedies of Heller Financial, Inc. in its capacity as (i) a lender to the Company or any Subsidiary pursuant to any agreement under which the Company or any Subsidiary has borrowed or may borrow money, and (ii) the beneficiary of any and all agreements entered into by the Company or any Subsidiary for the benefit of Heller Financial, Inc. as lender. IN WITNESS WHEREOF, the parties have caused this Registration Rights Agreement to be duly executed as of the date first written above. OUTSOURCING SOLUTIONS INC. By: /s/ Gary L. Weller -------------------------------- Name: Gary L. Weller Title: EVP MADISON DEARBORN CAPITAL PARTNERS III, L.P. By: Madison Dearborn Partners III, L.P. Its General Partners By: Madison Dearborn Partners, Inc. Its General Partner By: /s/ Paul R. Wood -------------------------------- Name: Paul R. Wood Title: ARES LEVERAGED INVESTMENT FUND, L.P. By: Ares Management, L.P., its General Partner By: /s/ Jeffrey Serota -------------------------------- Name: Jeffrey Serota Title: VP ARES LEVERAGED INVESTMENT FUND II, L.P., By: Ares Management II, L.P., its General Partner By: /s/ Jeffrey Serota -------------------------------- Name: Jeffrey Serota Title: VP DB CAPITAL INVESTORS, L.P. By: DB Capital Partners, L.P. its General Partner By: DB Capital Partners, Inc. By: /s/ Tyler Zachem -------------------------------- Name: Tyler Zachem Title: Managing Director FIRST UNION INVESTORS, INC. By: /s/ -------------------------------- Name: Title: ABBOTT CAPITAL 1330 INVESTORS II, L.P. By: Abbott Capital 1330 GenPar II, L.L.C., its General Partner By: /s/ Thomas W. Hallagan -------------------------------- Name: Thomas W. Hallagan Title: Manager ABBOTT CAPITAL PRIVATE EQUITY FUND III, L.P. By: Abbott Capital Management, L.L.C., its General Partner By: /s/ Raymond L. Held -------------------------------- Name: Raymond L. Held Title: Managing Director BNY PARTNERS FUND, L.L.C. By: BNY Private Investment Management, Inc., its Member Manager By: /s/ Burton Siegal -------------------------------- Name: Burton Siegal Title: Senior V.P. HELLER FINANCIAL, INC. By: /s/ Timothy P. Davitt -------------------------------- Name: Timothy P. Davitt Title: Vice President MAGNETITE ASSET INVESTORS L.L.C. By: Blackrock Financial Management, Inc. as Managing Member By: /s/ Dennis M. Schaney -------------------------------- Name: Dennis M. Schaney Title: Managing Director FBR FINANCIAL FUND II, L.P. By: /s/ Edward M. Wheeler -------------------------------- Name: Edward M. Wheeler Title: Senior Managing Director HARVEST OPPORTUNITY PARTNERS, L.P. By: /s/ Joseph A. Jolson -------------------------------- Name: Joseph A. Jolson Title:Managing Member MADISON DEARBORN SPECIAL EQUITY III, L.P. By: Madison Dearborn Partners III, L.P., Its General Partners By: Madison Dearborn Partners, Inc., Its General Partner By: /s/ Paul R. Wood -------------------------------- Name: Title: SPECIAL ADVISORS FUND I, LLC By: /s/ Paul R. Wood -------------------------------- Name: Title: EX-10.4 9 REGISTRATION RIGHTS AGREEMENT PREFERRED STOCK ================================================================================ REGISTRATION RIGHTS AGREEMENT Dated as of December 10, 1999 among OUTSOURCING SOLUTIONS INC., a Delaware corporation AND the Purchasers named herein Relating to: 25,000 Shares of Class A 14% Senior Mandatorily Redeemable Preferred Stock, and 75,000 Shares of Class B 14% Senior Mandatorily Redeemable Preferred Stock ================================================================================ THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered into as of December 10, 1999, among Outsourcing Solutions Inc., a Delaware corporation (the "Company"), and Ares Leveraged Investment Fund, L.P., Ares Leveraged Investment Fund II, L.P., DB Capital Investors, L.P., First Union Investors, Inc., Abbott Capital 1330 Investors II, L.P., Abbott Capital Private Equity Fund III, L.P., BNY Partners Fund, L.L.C., Heller Financial, Inc. and Magnetite Asset Investors L.L.C. (each a "Purchaser" and, collectively, the "Purchasers"). This Agreement is made pursuant to the Purchase Agreement, dated as of December 10, 1999, among the Company and the Purchasers (the "Purchase Agreement"), relating to the sale by the Company to the Purchasers of an aggregate of (i) 25,000 shares of the Company's Class A 14% Senior Mandatorily Redeemable Preferred Stock (the "Class A Senior Preferred Stock"), (ii) 75,000 shares of the Company's Class B 14% Senior Mandatorily Redeemable Preferred Stock (the "Class B Senior Preferred Stock," and together with the Class A Senior Preferred Stock, the "Senior Preferred Stock"), and (iii) 596,913.07 shares of the Company's Common Stock (as defined herein) (such shares of Common Stock, together with the Senior Preferred Stock, the "Purchased Securities"). In order to induce the Purchasers to enter into the Purchase Agreement, the Company has agreed to provide to the Holders (as defined herein) the registration rights for the Registrable Securities (as defined herein) set forth in this Agreement. The execution of this Agreement is a condition to the obligations of the Purchasers to purchase the Purchased Securities under the Purchase Agreement. In consideration of the foregoing, the parties hereto agree as follows: 1. Definitions. As used in this Agreement, the following capitalized defined terms shall have the following meanings: "Advice" shall have the meaning ascribed to that term in the last paragraph of Section 3. "Affiliate" means, with respect to any specified Person: (i) any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person; (ii) any other Person that owns, directly or indirectly, 10% or more of such specified Person's Capital Stock; or (iii) any other Person 10% or more of the Voting Stock of which is beneficially owned or held directly or indirectly by such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. With respect to each Purchaser, an Affiliate shall also include, without limitation, any Person managed by, or controlling or under common control with such Purchaser or any of its Affiliates. Notwithstanding anything to the contrary contained herein, (x) no portfolio company of the Equity Investor nor any portfolio company of a fund managed by or affiliated with the Equity Investor shall be deemed an Affiliate of the Company and (y) no Purchaser or any of their respective Affiliates shall be deemed an Affiliate of the Company. "Agreement" shall have the meaning ascribed to that term in the preamble hereto. "Black Out Period" shall have the meaning ascribed to that term in Section 2.1. "Board of Directors" shall mean the Board of Directors of the Company or any authorized committee of such Board of Directors. "Business Day" shall mean a day that is not a Legal Holiday. "Capital Stock" shall mean, (i) with respect to any Person that is a corporation, corporate stock, (ii) with respect to any association or business entity, any and all shares, interests, participations or other equivalents (however designated and whether or not voting) of corporate stock, including each class of common stock and preferred stock of such Person; (iii) with respect to any Person that is not a corporation, any and all partnership, membership or other equity interests of such Person; and (iv) any rights, warrants or options exchangeable for or convertible into any of the foregoing. "Change of Control" shall have the meaning ascribed to that term in the Certificate of Designation for the Senior Preferred Stock. "Class A Senior Preferred Stock" is defined in the first recital to this Agreement. "Class B Senior Preferred Stock" is defined in the first recital to this Agreement. "Common Stock" shall mean the Company's $.01 par value common stock of any class. "Company" shall have the meaning ascribed to that term in the preamble hereto and shall also include the Company's successors. "Demand" shall have the meaning ascribed to that term in Section 2.1. "Demand Registration" shall have the meaning ascribed to that term in Section 2.1. "Effectiveness Period" shall have the meaning ascribed to that term in Section 2.1. "Equity Investor" means Madison Dearborn Capital Partners III, L.P. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the SEC thereunder. "Holder" shall mean each of the Purchasers, for so long as the Purchasers own any Registrable Securities, and their successors, assigns and direct and indirect transferees who become registered owners of Registrable Securities. "Initial Public Equity Offering" means a primary underwritten public offering (but excluding any offering pursuant to Form S-8 under the Securities Act or any other publicly registered offering pursuant to the Securities Act pertaining to an issuance of shares of Common Stock or securities exercisable therefor under any benefit plan, employee compensation plan, or employee or director stock purchase plan) of Common Stock of the Company pursuant to an effective registration statement under the Securities Act. "Issue Date" means December 10, 1999. "Legal Holiday" shall mean a Saturday, a Sunday or a day on which banking institutions in The City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. "Lock Up Period" shall have the meaning ascribed to that term in Section 2.1. "Person" shall mean an individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or agency or political subdivision thereof. "Piggy-Back Registration" shall have the meaning ascribed to that term in Section 2.2. "Postponement Period" shall have the meaning ascribed to that term in Section 2.1. "Preferred Stock" means, with respect to any Person, Capital Stock of any class or classes (however designated) of such Person which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over Capital Stock of any other class of such Person. With respect to the Company, the term "Preferred Stock" shall include the Senior Preferred Stock. "Prospectus" means the prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated pursuant to the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement, and all other amendments and supplements to any such prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference, if any, in such prospectus. "Purchase Agreement" shall have the meaning ascribed to that term in the preamble hereto. "Purchased Securities" shall have the meaning ascribed to that term in the preamble hereto. "Purchasers" shall have the meaning ascribed to that term in the preamble hereto. "Registrable Securities" shall mean any of the Shares. As to any particular Registrable Securities, once issued such securities shall cease to be Registrable Securities when (a) a Registration Statement with respect to the sale of such securities by the Holder thereof shall have been declared effective under the Securities Act and such securities shall have been disposed of by such Holder in accordance with such Registration Statement, (b) such securities have been distributed to the public pursuant to Rule 144 (or any successor provision) promulgated under the Securities Act, (c) such securities shall have been otherwise transferred and new certificates for them not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent disposition of such securities shall not require registration or qualification under the Securities Act or any similar state law then in force or (d) such securities shall have ceased to be outstanding. "Registration Expenses" shall mean all expenses incident to the Company's performance of or compliance with this Agreement, including, without limitation, all SEC and stock exchange or National Association of Securities Dealers, Inc. registration and filing fees and expenses, fees and expenses of compliance with securities or Blue Sky laws (including, without limitation, in the event of an underwritten offering, reasonable fees and disbursements of counsel for the underwriters in connection with Blue Sky qualifications, if any, of the Registrable Securities), rating agency fees, printing expenses, messenger, telephone and delivery expenses, fees and disbursements of counsel for the Company and all independent certified public accountants, and, in the event of an underwritten offering, the fees and disbursements of underwriters customarily paid by issuers or sellers of securities (but not including (i) any underwriting discounts or commissions or transfer taxes, if any, attributable to the sale of Registrable Securities by Holders of such Registrable Securities or (ii) fees and expenses of counsel and/or experts for the Holders). "Registration Statement" shall mean any registration statement of the Company which covers any of the Registrable Securities pursuant to the provisions of this Agreement and all amendments and supplements to any such Registration Statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Requisite Shares" shall mean a number of Registrable Securities equivalent to not less than 35% of the Registrable Securities outstanding as of any date of determination. "Rule 144" shall mean Rule 144 under the Securities Act (or any successor provision), as it may be amended from time to time. "Rule 144A" shall mean Rule 144A under the Securities Act (or any successor provision), as it may be amended from time to time. "SEC" shall mean the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act or, if at any time after the execution of this Agreement such Commission is not existing and performing the duties now assigned to it under the Exchange Act, the body performing such duties at such time. "Securities" shall mean the Senior Preferred Stock, Common Stock, any preferred or common stock equivalents, participations or interests and any options, warrants or securities convertible into or exercisable or exchangeable for Senior Preferred Stock or Common Stock or any preferred or common stock equivalents, participations or interests. "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated by the SEC thereunder. "Senior Preferred Stock" shall have the meaning ascribed to that term in the preamble hereto. "Shares" shall mean (a) the Senior Preferred Stock sold to the Purchasers pursuant to the Purchase Agreement, whether held by any of them or any subsequent assignee or transferee and (b) any other securities issued or issuable with respect to or in exchange for the Senior Preferred Stock by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. "Voting Stock" shall mean any class or classes of Capital Stock pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the Board of Directors, managers or trustees of any Person (irrespective of whether or not, at the time, stock of any other class or classes shall have, or might have, voting power by reason of the happening of any contingency). "Withdrawal Election" shall have the meaning ascribed to that term in Section 2.3. 2. Registration Rights and Other Rights and Obligations of the Holders. 2.1. Demand Registration. (a) Request for Registration. At any time on or after the first year anniversary of the Issue Date, Holders owning, individually or in the aggregate, at least the Requisite Shares may make up to two written requests (a "Demand") for registration under the Securities Act of their Registrable Securities (a "Demand Registration"). Any such Demand will specify the number of Registrable Securities proposed to be sold and will also specify the intended method of disposition thereof. Subject to the other provisions of this Section 2.1, the Company shall give written notice of such Demand within 10 days after the receipt thereof to all other Holders. Within 30 days after receipt of such notice by any Holder, such Holder may request in writing that its Registrable Securities be included in such registration and the Company shall include in the Demand Registration the Registrable Securities of any such selling Holder requested to be so included. Each such request by such other selling Holders shall specify the number of Registrable Securities proposed to be sold and the intended method of disposition thereof. Upon a Demand, the Company will (i) prepare, file and use its commercially reasonable efforts to cause to become effective within 90 days of such Demand a Registration Statement in respect of all the Registrable Securities which Holders request for inclusion therein; provided that if such Demand occurs during a Black Out Period or a period (not to exceed 180 days) during which the Company is prohibited or restricted from issuing or selling Senior Preferred Stock pursuant to any underwriting or purchase agreement relating to an underwritten public offering of Senior Preferred Stock or securities convertible into or exchangeable for Senior Preferred Stock under Rule 144A or registered under the Securities Act or any agreement with a securityholder of the Company exercising registration rights pursuant to an agreement in existence on the date hereof (a "Lock Up Period"), the Company shall not be required to notify the Holders of such Demand or file such Registration Statement prior to the end of the Black Out Period or Lock Up Period, as the case may be, in which event, the Company will use its commercially reasonable efforts to cause such Registration Statement to become effective no later than 90 days after the end of the Black Out Period or Lock Up Period, as the case may be, and (ii) keep such Registration Statement effective for the shorter of (a) 180 days (the "Effectiveness Period") and (b) such period of time as all of the Registrable Securities included in such Registration Statement have been sold thereunder. Notwithstanding anything set forth in the immediately preceding sentence, the Company may (I) postpone the filing period, suspend the effectiveness of any registration, suspend the use of any Prospectus and shall not be required to amend or supplement the Registration Statement, any related Prospectus or any document incorporated therein by reference (other than an effective registration statement being used for an underwritten offering) in the event that, and for a period, in the case of any particular Demand Registration, not to exceed an aggregate of 90 days ("Black Out Period") (i) an event or circumstance occurs as a result of which the Registration Statement, any related Prospectus or any document incorporated therein by reference as then amended or supplemented would, in the Company's good faith judgment, contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and (ii)(A) the Company determines in its good faith judgment that the disclosure of such event at such time would have a material adverse effect on the business, operations or prospects of the Company or (B) the disclosure otherwise relates to a material business transaction or any other material matter, which has not yet been publicly disclosed; provided, further, that, if the effectiveness of any Registration Statement is suspended as a result of a Black Out Period, the Effectiveness Period shall be extended by the number of days in any Black Out Period and (II) at any time prior to an Initial Public Offering by the Company, postpone the filing of one Demand Registration, by giving written notice thereof to all Holders, for a period not to exceed an aggregate of 180 days ("Postponement Period"); provided, that at the end of the Postponement Period the Company will use its commercially reasonable efforts to cause a Registration Statement with respect to all Registrable Securities of Holders electing to participate in such Demand Registration to become effective within 90 days after the end of the Postponement Period. In the event of the occurrence of any Black Out Period during an Effectiveness Period or Lock Up Period, the Company will promptly notify the Holders of Registrable Securities thereof in writing. Upon a Demand, the Company may elect, at its option, to effect an A/B exchange within the time periods referred to above, which shall be deemed to satisfy the Company's obligations to effect a registration under this Agreement. (b) Effective Registration. Except as specifically provided herein, the Company is only required to effect two Demand Registrations under this Agreement (whether or not all of the Holders of Registrable Securities elect to participate in such Demand Registration on the basis set forth herein). A registration will not be deemed to have been effected as a Demand Registration, and thereby satisfy the obligation hereunder, unless it has been declared effective by the SEC and the Company has complied in all material respects with its obligations under this Agreement with respect thereto; provided that if, after it has become effective, the offering of Registrable Securities pursuant to such registration is or becomes the subject of any stop order, injunction or other order or requirement of the SEC or any other governmental or administrative agency, or if any court prevents or otherwise limits the sale of Registrable Securities pursuant to the registration (for any reason other than the act or omissions of the Holders) for the period of time contemplated hereby, such registration will be deemed not to have been effected. If (i) a registration requested pursuant to this Section 2.1 is deemed not to have been effected or (ii) the registration requested pursuant to this Section 2.1 does not remain effective for the Effectiveness Period, then the Company shall not be deemed to have effected a Demand Registration and its obligations pursuant to this Section 2.1 will continue. The Holders of Registrable Securities shall be permitted to withdraw all or any part of the Registrable Securities from a Demand Registration at any time prior to the effective date of such Demand Registration. If at any time a Registration Statement is filed pursuant to a Demand Registration, and subsequently a sufficient number of the Registrable Securities are withdrawn from the Demand Registration so that such Registration Statement does not cover that number of Registrable Securities at least equal to one-half of the Registrable Securities outstanding as of such date, the Holders who have not withdrawn their Registrable Securities shall have the opportunity to include an additional number of Registrable Securities in the Demand Registration so that such Registration Statement covers that number of Registrable Securities at least equal to one-half of the Registrable Securities outstanding as of such date. If an additional number of Registrable Securities is not so included, the Company may withdraw the Registration Statement. Such withdrawn Registration Statement will not count as a Demand Registration and the Company shall continue to be obligated to effect such registration pursuant to this Section 2.1. Except as set forth in the last sentence of Section 2.1(c), without the prior written consent of the Holders of the Requisite Shares no other securityholder of the Company shall be permitted to include their securities in a Demand Registration. (c) Priority in Demand Registrations Pursuant to Section 2.1. If a Demand Registration pursuant to this Section 2.1 involves an underwritten offering and the lead managing underwriter advises the Company in writing that, in its view, the number of Registrable Securities requested by the Holders to be included in such registration, together with any other securities permitted to be included in such registration exceeds the number which, in the view of such lead managing underwriter, can be sold, the number of such Registrable Securities to be included in such registration shall be allocated pro rata among all requesting Holders on the basis of the relative number of Registrable Securities then held by each such Holder (provided that any Registrable Securities thereby allocated to any such Holder that exceed such Holder's request shall be reallocated among the remaining requesting Holders in like manner). In the event that the number of Registrable Securities requested to be included in such registration is less than the number which, in the view of the lead managing underwriter, can be sold, the Company may include in such registration the Securities the Company proposes to sell up to the number of Securities that, in the view of the lead managing underwriter, can be sold without adversely affecting the success of the offering, including the price at which the Registrable Securities can be sold. (d) Selection of Underwriter. If the Holders so elect, the offering of Registrable Securities pursuant to a Demand Registration shall be in the form of an underwritten offering. The Holders of a majority of the Registrable Securities to be sold in such Demand Registration shall select one or more nationally recognized firms of investment bankers (to whom the Company shall not have reasonably objected) to act as the managing underwriter or underwriters in connection with such offering and shall select any additional investment bankers and managers to be used in connection with the offering. (e) Expenses. The Company will pay all Registration Expenses in connection with the registrations requested pursuant to Section 2.1(a). Each Holder shall pay all underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of such Holder's Registrable Securities pursuant to any registration statement requested pursuant to this Section 2.1. 2.2. Piggy-Back Registration. If at any time the Company proposes to file a Registration Statement under the Securities Act with respect to an offering by the Company for its own account of any Securities (including, but not limited to, an Initial Public Equity Offering) or for the account of any of its respective securityholders of any Securities (other than (i) a registration statement on Form S-4 or S-8 (or any substitute forms that may be adopted by the SEC), (ii) a registration statement filed in connection with an offer or offering of securities solely to the Company's existing securityholders or (iii) a Demand Registration), then the Company shall give written notice of such proposed filing to the Holders of Registrable Securities as soon as practicable (but in no event less than 20 Business Days before the anticipated filing date), and such notice shall offer such Holders the opportunity to register such number of Registrable Securities as each such Holder may request (which request shall specify the Registrable Securities intended to be disposed of by such Holder and the intended method of distribution thereof) (a "Piggy-Back Registration"). The Company shall use its best efforts to cause the managing underwriter or underwriters of such proposed underwritten offering to permit the Registrable Securities requested to be included in a Piggy-Back Registration to be included on the same terms and conditions as any similar securities of the Company or any other securityholder included therein and to permit the sale or other disposition of such Registrable Securities in accordance with the intended method of distribution thereof; provided, however, in no event shall the Company be required to reduce the number of securities proposed to be sold by the Company or alter the terms of the securities proposed to be sold by the Company in order to induce the managing underwriter or underwriters to permit Registrable Securities to be included. Any Holder shall have the right to withdraw its request for inclusion of its Registrable Securities in any Registration Statement pursuant to this Section 2.2 by giving written notice to the Company of its request to withdraw prior to the effectiveness of the Registration Statement. The Company may withdraw a Piggy-Back Registration at any time prior to the time it becomes effective; provided that the Company shall give prompt notice thereof to participating Holders. The Company will pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this Section 2.2, and each Holder shall pay all underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of such Holder's Registrable Securities pursuant to a Registration Statement effected pursuant to this Section 2.2. No registration effected under this Section 2.2, and no failure to effect a registration under this Section 2.2, shall relieve the Company of its obligation to effect a registration upon the request of Holders pursuant to Section 2.1, and no failure to effect a registration under this Section 2.2 and to complete the sale of Registrable Securities in connection therewith shall relieve the Company of any other obligation under this Agreement. 2.3. Reduction of Offering. If the lead managing underwriter of any underwritten offering described in Section 2.2 has informed, in writing, the Holders of the Registrable Securities requesting inclusion in such offering that it is its view that the total number of securities which the Company, the Holders and any other Persons desiring to participate in such registration intend to include in such offering is such as to materially and adversely affect the success of such offering, including the price at which such securities can be sold, then: first, the securities other than Registrable Securities of the Holders and securities of the Company included in such offering shall be reduced in their entirety before any reduction of Registrable Securities; and second, to the extent the reduction set forth in the immediately preceding clause is insufficient to reduce the number of securities requested for inclusion in such offering to a number, which, in the view of the lead managing underwriter, can be sold without materially and adversely affecting the success of the offering, the number of Registrable Securities to be offered for the account of such Holders participating in such registration shall be reduced or limited pro rata in proportion to the respective number of securities requested to be registered to the extent necessary to reduce the total number of Registrable Securities requested to be included in such offering to the number of securities, if any, recommended by such lead managing underwriter. If a reduction in the Registrable Securities pursuant to this paragraph would, in the judgment of the lead managing underwriter, be insufficient to substantially eliminate the adverse effect that inclusion of the Registrable Securities requested to be included would have on such offering, such Registrable Securities will be excluded from such offering. In no event shall the Company be required to reduce the number of securities to be sold by it in the offering. If, as a result of the proration provisions of this Section 2.3, any Holder shall not be entitled to include all Registrable Securities in a Piggy-Back Registration that such Holder has requested to be included, such Holder may elect to withdraw his request to include Registrable Securities in such registration (a "Withdrawal Election"); provided that a Withdrawal Election shall be made prior to the effectiveness of the Registration Statement and shall be irrevocable and, after making a Withdrawal Election, a Holder shall no longer have any right to include Registrable Securities in the registration as to which such Withdrawal Election was made. 2.4. Lock-Up of Holders. If the Company has complied with all of its obligations with respect to a Demand Registration or a Piggy-Back Registration that is a firm commitment underwritten public offering, all Holders of Registrable Securities, upon request of the lead managing underwriter with respect to such underwritten public offering, agree not to sell or otherwise dispose of any Registrable Security owned by them for a period not to exceed 90 days from the consummation of such underwritten public offering; provided that Registrable Securities which had been requested for inclusion in a Demand Registration or a Piggy-Back Registration but which were not so included pursuant to Section 2.1(c) or Section 2.3 shall only be subject to the restriction on sale and disposition in this Section 2.4 for a period not to exceed 60 days from the consummation of such underwritten public offering. 3. Registration Procedures. In connection with the obligations of the Company with respect to any Registration Statement pursuant to Sections 2.1 and 2.2 hereof, the Company shall: (a) A reasonable period of time prior to the initial filing of a Registration Statement or Prospectus and a reasonable period of time prior to the filing of any amendment or supplement thereto, furnish to the Holders of the Registrable Securities included in such Registration Statement, and the managing underwriters, if any, copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of such Holders, and such underwriters, if any, and use reasonable commercial efforts to cause the officers and directors of the Company, counsel to the Company and independent certified public accountants to the Company to respond to such reasonable inquiries as shall be necessary, in the opinion of the respective counsel to such Holders and such underwriters, to conduct a reasonable investigation within the meaning of the Securities Act. The Company shall not file any such Registration Statement or related Prospectus or any amendments or supplements thereto to which the Holders of a majority of the Registrable Securities included in such Registration Statement shall reasonably object on a timely basis; (b) Prepare and file with the SEC such amendments, including post-effective amendments, to each Registration Statement as may be necessary to keep such Registration Statement continuously effective for the applicable time period required hereunder; cause the related Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Securities Act; and comply with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all securities covered by such Registration Statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented; (c) Notify the Holders of Registrable Securities to be sold and the managing underwriters, if any, promptly, and (if requested by any such Person), confirm such notice in writing, (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment is proposed to be filed and (B) with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the SEC or any other Federal or state governmental authority for amendments or supplements to a Registration Statement or related Prospectus or for additional information, (iii) of the issuance by the SEC, any state securities commission, any other governmental agency or any court of any stop order, order or injunction suspending or enjoining the use of a Prospectus or the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose, and (v) of the happening of any event or information becoming known that makes any statement made in a Registration Statement or related Prospectus untrue in any material respect or that requires the making of any changes in such Registration Statement or Prospectus so that, in the case of a Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and that in the case of a Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (d) Use its commercially reasonable efforts to avoid the issuance of or, if issued, obtain the withdrawal of any order enjoining or suspending the use of a Prospectus or the effectiveness of a Registration Statement or the lifting of any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction described in Section 3(h), at the earliest practicable moment; (e) If requested by the lead managing underwriters, if any, (i) promptly incorporate in a Prospectus supplement or post-effective amendment such information as the managing underwriters, if any, reasonably believe should be included therein, and (ii) make all required filings of such Prospectus supplement or such post-effective amendment under the Securities Act as soon as practicable after the Company has received notification of the matters to be incorporated in such Prospectus supplement or post-effective amendment; provided, however, that the Company shall not be required to take any action pursuant to this Section 3(e) that would, in the opinion of counsel for the Company, violate applicable law; (f) Upon written request to the Company, furnish to each Holder of Registrable Securities to be sold pursuant to a Registration Statement and each managing underwriter, if any, without charge, at least one conformed copy of such Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference, and all exhibits to the extent requested (including those previously furnished or incorporated by reference) as soon as practicable after the filing of such documents with the SEC; (g) Deliver to each Holder of Registrable Securities to be sold pursuant to a Registration Statement, and the underwriters, if any, without charge, as many copies of the Prospectus (including each form of prospectus) and each amendment or supplement thereto as such persons reasonably request; and the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders of Registrable Securities and the underwriters, if any, in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto; (h) Prior to any public offering of Registrable Securities, use its commercially reasonable efforts to register or qualify or cooperate with the Holders of Registrable Securities to be sold, the underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions as any such Holder or underwriter reasonably requests in writing; keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective hereunder and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by the applicable Registration Statement; provided, however, that the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it is not then so qualified or (ii) take any action which would subject it to general service of process or to taxation in any jurisdiction where they are not so subject; (i) In connection with any sale or transfer of Registrable Securities that will result in such Securities no longer being Registrable Securities, cooperate with the Holders thereof and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with The Depository Trust Company, and to enable such Registrable Securities to be in such denominations and registered in such names as the managing underwriters, if any, or such Holders may request at least two Business Days prior to any sale of Registrable Securities; (j) Upon the occurrence of any event contemplated by Section 3(c)(v), as promptly as practicable, prepare a supplement or amendment, including, if appropriate, a post-effective amendment, to each Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (k) Enter into such agreements (including an underwriting agreement in form, scope and substance as is customary in underwritten offerings) and take all such other reasonable actions in connection therewith (including those reasonably requested by the managing underwriters, if any) in order to expedite or facilitate the disposition of such Registrable Securities, and, whether or not an underwriting agreement is entered into and whether or not the registration is an underwritten registration: (i) make such representations and warranties to the underwriters and selling Holders, if any, with respect to the business of the Company and its subsidiaries (including with respect to businesses or assets acquired or to be acquired by any of them), and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings, and confirm the same if and when requested; (ii) obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters if any, addressed to each of the underwriters, and selling Holders, if any), covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such underwriters or selling Holders; (iii) use their commercially reasonable efforts to obtain customary "cold comfort" letters and updates thereof from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data is, or is required to be, included in the Registration Statement), addressed (where reasonably possible) to each of the underwriters and selling Holders, if any, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings; (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less favorable to the underwriters, if any, than those set forth in Section 4 hereof (or such other provisions and procedures acceptable to the managing underwriters, if any); and (v) deliver such documents and certificates as may be reasonably requested by the managing underwriters, if any, to evidence the continued validity of the representations and warranties made pursuant to clause (i) above and to evidence compliance with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company; (l) Make available for inspection by a representative of any underwriter participating in any such disposition of Registrable Securities, and any attorney, consultant or accountant retained by such selling Holders or underwriter, at the offices where normally kept, during reasonable business hours, all pertinent financial and other records, corporate documents and properties of the Company and its subsidiaries (including with respect to businesses and assets acquired or to be acquired to the extent that such information is available to the Company), and cause the officers, directors, agents and employees of the Company and its subsidiaries (including with respect to businesses and assets acquired or to be acquired to the extent that such information is available to the Company) to supply all information in each case reasonably requested by any such representative, underwriter, attorney, consultant or accountant in connection with such Registration Statement; provided, however, that such Persons shall first agree in writing with the Company that any information that is reasonably and in good faith designated by the Company in writing as confidential at the time of delivery of such information shall be kept confidential by such Persons, unless (i) disclosure of such information is required by court or administrative order or is necessary to respond to inquiries of regulatory authorities, (ii) disclosure of such information is required by law (including any disclosure requirements pursuant to Federal securities laws in connection with the filing of the Registration Statement or the use of any Prospectus), (iii) such information becomes generally available to the public other than as a result of a disclosure or failure to safeguard such information by such Person or (iv) such information becomes available to such Person from a source other than the Company and its subsidiaries and such source is not bound by a confidentiality agreement; (m) Comply with all applicable rules and regulations of the SEC and make generally available to their securityholders earnings statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 under the Securities Act, no later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Securities are sold to underwriters in a firm commitment or reasonable efforts underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter after the effective date of a Registration Statement, which statement shall cover said period, consistent with the requirements of Rule 158 under the Securities Act; and (n) Cooperate with each seller of Registrable Securities covered by any Registration Statement and each underwriter, if any, participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc. The Company may require a Holder of Registrable Securities to be included in a Registration Statement to furnish to the Company such information regarding (i) the intended method of distribution of such Registrable Securities (ii) such Holder and (iii) the Registrable Securities held by such Holder as is required by law to be disclosed in such Registration Statement and the Company may exclude from such Registration Statement the Registrable Securities of any Holder who unreasonably fails to furnish such information within a reasonable time after receiving such request. The Company shall not be required to provide indemnification to any underwriter or any other person relating to information referred to in clauses (i) and (ii) provided to the Company in writing specifically for inclusion in such Registration Statement. If any such Registration Statement refers to any Holder by name or otherwise as the Holder of any securities of the Company, then such Holder shall have the right to require (i) the insertion therein of language, in form and substance reasonably satisfactory to such Holder, to the effect that the holding by such Holder of such securities is not to be construed as a recommendation by such Holder of the investment quality of the Company's securities covered thereby and that such holding does not imply that such Holder will assist in meeting any future financial requirements of the Company, or (ii) in the event that such reference to such Holder by name or otherwise is not required by the Securities Act, the deletion of the reference to such Holder in any amendment or supplement to the Registration Statement filed or prepared subsequent to the time that such reference ceases to be required. Each Holder of Registrable Securities agrees by acquisition of such Registrable Securities that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv) or 3(c)(v) hereof, such Holder will forthwith discontinue disposition of such Registrable Securities covered by such Registration Statement or Prospectus until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 3(j) hereof, or until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus. If the Company shall give any such notice, the Effectiveness Period shall be extended by the number of days during such period from and including the date of the giving of such notice to and including the date when each Holder of Registrable Securities covered by such Registration Statement shall have received (x) the copies of the supplemented or amended Prospectus contemplated by Section 3(j) hereof or (y) the Advice, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus. 4. Indemnification and Contribution. (a) The Company shall indemnify and hold harmless each Holder, each underwriter who participates in an offering of Registrable Securities, their respective Affiliates, each Person, if any, who controls any of such parties within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act and each of their respective directors, officers, employees and agents, as follows: (i) from and against any and all loss, liability, claim, damage and expense whatsoever, joint or several, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment thereto), covering Registrable Securities, including all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading or arising out of any untrue statement or alleged untrue statement of a material fact contained in any Prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) from and against any and all loss, liability, claim, damage and expense whatsoever, joint or several, as incurred, to the extent of the aggregate amount paid in settlement of any litigation (other than amounts the Holders agree to pay in any written settlement agreement), or any investigation or proceeding by any court or governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, if such settlement is effected with the prior written consent of the Company; and (iii) from and against any and all expenses whatsoever, as incurred (including reasonable fees and disbursements of one counsel chosen by the Holders or any underwriter (except to the extent otherwise expressly provided in Section 4(c) hereof)), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any court or governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under subparagraph (i) or (ii) of this Section 4(a); provided that this indemnity does not apply to any loss, liability, claim, damage or expense to the extent arising out of an untrue statement or omission or alleged untrue statement or omission (i) made in reliance upon and in conformity with written information furnished to the Company by a Holder or any underwriter in writing expressly for use in the Registration Statement (or any amendment thereto) or any Prospectus (or any amendment or supplement thereto) or (ii) contained in any preliminary prospectus if such Holder or such underwriter failed to send or deliver a copy of the Prospectus (in the form it was first provided to such parties for confirmation of sales) to the Person asserting such losses, claims, damages or liabilities on or prior to the delivery of written confirmation of any sale of securities covered thereby to such Person in any case where such delivery is required by the Securities Act and such Prospectus would have corrected such untrue statement or omission. Any amounts advanced by the Company to an indemnified party pursuant to this Section 4 as a result of such losses shall be returned to the Company if it shall be finally determined by such a court in a judgment not subject to appeal or final review that such indemnified party was not entitled to indemnification by the Company. (b) By accepting the benefits of this Agreement, each Holder agrees, severally and not jointly, to indemnify and hold harmless the Company, each underwriter who participates in an offering of Registrable Securities and the other selling Holders and each of their respective directors, officers (including each officer of the Company who signed the Registration Statement), employees and agents and each Person, if any, who controls the Company, any underwriter or any other selling Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all loss, liability, claim, damage and expense whatsoever described in the indemnity contained in Section 4(a) hereof, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto) or any Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by such selling Holder expressly for use in the Registration Statement (or any amendment thereto), or any such Prospectus (or any amendment or supplement thereto). Notwithstanding the provisions of this Section 4(b), a Holder of Registrable Securities shall not be required to pay any indemnification in an amount in excess of the net proceeds received by such Holder in the offering to which such Registration Statement relates. (c) Each indemnified party shall give prompt notice to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, enclosing a copy of all papers properly served on such indemnified party, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability which it may have other than on account of this indemnity agreement. An indemnifying party may participate at its own expense in the defense of any such action. If an indemnifying party so elects within a reasonable time after receipt of such notice, such indemnifying party, jointly with any other indemnifying party, may assume the defense of such action with counsel chosen thereby and approved by the indemnified parties defendant in such action; provided that if any such indemnified party reasonably determines, based on advice of counsel, that there may be legal defenses available to such indemnified party which are different from or in addition to those available to such indemnifying party or that representation of such indemnifying party and any indemnified party by the same counsel would present a conflict of interest, then such indemnifying party or parties shall not be entitled to assume such defense. If an indemnifying party is not entitled to assume the defense of such action as a result of the proviso to the preceding sentence, counsel for such indemnifying party shall be entitled to conduct the defense of such indemnifying party and counsel for each indemnified party or parties shall be entitled to conduct the defense of such indemnified party or parties. If an indemnifying party assumes the defense of an action in accordance with and as permitted by the provisions of this paragraph, such indemnifying party shall not be liable for any fees and expenses of counsel for the indemnified parties incurred thereafter in connection with such action. In no event shall the indemnifying party or parties be liable for the fees and expenses of more than one counsel (in addition to any local counsel), separate from its own counsel, for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. (d) In order to provide for just and equitable contribution in circumstances under which any of the indemnity provisions set forth in this Section 4 is for any reason held to be unavailable to the indemnified parties although applicable in accordance with its terms, the Company and the Holders shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by such indemnity agreement incurred by the Company and the Holders, as incurred; provided that, notwithstanding the provisions of this Section 4(d), a Holder of Registrable Securities shall not be required to contribute any amount in excess of the amount by which the net proceeds received by such Holder in the offering to which such Registration Statement relates exceeds the amount of any damages that such Holder has otherwise been required to pay and no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person that was not guilty of such fraudulent misrepresentation. As between the Company and the Holders, such parties shall contribute to such aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by such indemnity agreement in such proportion as shall be appropriate to reflect the relative fault of the Company, on the one hand, and Holders, on the other hand, with respect to the statements or omissions which resulted in such loss, liability, claim, damage or expense, or action in respect thereof, as well as any other relevant equitable considerations. The relative fault of the Company, on the one hand, and of the Holders, on the other hand, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, on the one hand, or by or on behalf of the Holders, on the other, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Holders of the Registrable Securities agree that it would not be just and equitable if contribution pursuant to this Section 4 were to be determined by pro rata allocation or by any other method of allocation that does not take into account the relevant equitable considerations. For purposes of this Section 4, each Affiliate of each Holder, and each director, officer, employee, agent and Person, if any, who controls a Holder or such Affiliate within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution as such Holder, and each director of the Company, each officer of the Company who signed the Registration Statement, and each Person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution as the Company. (e) The indemnity and contribution covenants contained in this Section 4 shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of a Holder or any Person controlling a Holder, (ii) any sale of any Registrable Securities pursuant to this Agreement and receipt by the Holders of the proceeds thereof or (iii) any termination of this Agreement for any reason, including after the initial filing of the Registration Statement to which these indemnity and contribution covenants relate 5. Rule 144A The Company shall use its commercially reasonable efforts to file the reports required to be filed by it under the Securities Act and the Exchange Act in a timely manner and, if at any time it is not required to file such reports but in the past had been required to or did file such reports, it will, upon the request of any Holder or beneficial owner of Registrable Securities, make available other information as required by, and so long as necessary to permit, sales of Registrable Securities pursuant to Rule 144A. Notwithstanding the foregoing, nothing in this Section 5 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act. 6. Underwritten Registrations No Person may participate in any underwritten registration hereunder unless such Person (i) agrees to sell such Registrable Securities on the basis reasonably provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. 7. Miscellaneous (a) Remedies. In the event of a breach by the Company or by a Holder of any of its obligations under this Agreement, each Holder and the Company, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and each Holder agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach of any of the provisions of this Agreement and each hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate. (b) No Inconsistent Agreements. The Company will not enter into any agreement that is inconsistent with the rights granted to the Holders and indemnified persons in this Agreement or otherwise conflicts with the provisions hereof. Without the written consent of the Holders of a majority of the outstanding Shares, the Company shall not grant to any Person any rights which conflict with or are inconsistent with the provisions of this Agreement. (c) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, otherwise than with the prior written consent of the Holders of not less than a majority of the then outstanding Shares. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Holders may be given by Holders of a majority of the Registrable Securities being sold by such Holders pursuant to such Registration Statement; provided, however, that the provisions of this sentence may not be amended, modified or supplemented except in accordance with the provisions of the immediately preceding sentence. Notwithstanding the foregoing, no amendment, modification, supplement, waiver or consent with respect to Section 4 shall be made or given otherwise than with the prior written consent of each Holder or former Holder affected thereby. (d) Notices. All notices and other communications provided for herein shall be made in writing by hand-delivery, next-day air courier, certified first-class mail, return receipt requested, telex or telecopier: (i) if to the Company, as provided in the Purchase Agreement, (ii) if to the Purchasers, as provided in the Purchase Agreement, or (iii) if to any other Person who is then the registered Holder of Shares or Registrable Securities, to the address of such Holder as it appears in the register therefor of the Company. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; one Business Day after being timely delivered to a next-day air courier; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; and when receipt is acknowledged by the recipient's telecopier machine, if telecopied. (e) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder of Shares. The Company may not assign any of its rights hereunder without the prior written consent of each Holder of Shares; provided that a merger or consolidation of the Company with another Person pursuant to which the issuer or issuers of any securities issued to Holders of Shares in connection with such merger or consolidation becomes obligated under this Agreement shall not be considered an assignment. Notwithstanding the foregoing, no successor or assignee of the Company shall have any of the rights granted under this Agreement until such Person shall acknowledge its rights and obligations hereunder by a signed written statement of such person's acceptance of such rights and obligations. If any transferee of any Holder shall acquire Shares in any manner, whether by operation of law or otherwise, such Shares shall be held subject to all of the terms of this Agreement, and by taking and holding such Shares such person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement and such person shall be entitled to receive the benefits hereof. (f) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. (g) Governing Law; Submission to Jurisdiction. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK. THE COMPANY AND THE PURCHASERS HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND EACH IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. (h) Severability. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (i) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. All references made in this Agreement to "Section" and "paragraph" refer to such Section or paragraph of this Agreement, unless expressly stated otherwise. (j) Legends. Each Holder agrees that the following legend shall be placed on certificates representing any Securities owned by them: THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED UNLESS SUCH TRANSFER COMPLIES WITH THE PROVISIONS OF A REGISTRATION RIGHTS AGREEMENT DATED AS OF DECEMBER 10, 1999, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF OUTSOURCING SOLUTIONS INC. AND IS AVAILABLE WITHOUT CHARGE UPON WRITTEN REQUEST THEREFOR. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF THE AFORESAID AGREEMENT. The Company agrees to remove the legend on the Shares upon the resale of such Shares in accordance with the terms of this Agreement. (k) Notwithstanding anything to the contrary, nothing contained in this Agreement shall affect, limit or impair the rights and remedies of Heller Financial, Inc. in its capacity as (i) a lender to the Company or any Subsidiary pursuant to any agreement under which the Company or any Subsidiary has borrowed or may borrow money, and (ii) the beneficiary of any and all agreements entered into by the Company or any Subsidiary for the benefit of Heller Financial, Inc., as lender. IN WITNESS WHEREOF, the parties have caused this Registration Rights Agreement to be duly executed as of the date first written above. OUTSOURCING SOLUTIONS INC. By:/s/ Gary L. Weller --------------------------------- Name: Gary L. Weller Title: EVP ARES LEVERAGED INVESTMENT FUND, L.P. By: Ares Management, L.P., its General Partner By: /s/ Jeffrey Serota -------------------------------- Name: Jeffrey Serota Title: Vice President ARES LEVERAGED INVESTMENT FUND II, L.P. By: Ares Management II, L.P., its General Partner By: /s/ Jeffrey Serota -------------------------------- Name: Jeffrey Serota Title: Vice President DB CAPITAL INVESTORS, L.P. By: DB Capital Partners, L.P. By DB Capital Partners, Inc. By: /s/ Tyler Zachem -------------------------------- Name: Tyler Zachem Title: Managing Director FIRST UNION INVESTORS, INC. By: /s/ -------------------------------- Name: Title: ABBOTT CAPITAL 1330 INVESTORS II, L.P. By: Abbott Capital 1330 GenPar II, L.L.C., its General Partner By: /s/ Thomas W. Hallagan -------------------------------- Name: Thomas W. Hallagan Title: Manager ABBOTT CAPITAL PRIVATE EQUITY FUND III, L.P. By: Abbott Capital Management, L.L.C., its General Partner By: /s/ Raymond L. Held -------------------------------- Name: Raymond L. Held Title: Managing Director BNY PARTNERS FUND, L.L.C. By: BNY Private Investment Management, Inc., its Member Manager By: /s/ Burton M. Siegal -------------------------------- Name: Burton M. Siegal Title:Senior VP HELLER FINANCIAL, INC. By: /s/ Timothy P. Davitt -------------------------------- Name: Timothy P. Davitt Title: Vice President MAGNETITE ASSET INVESTORS L.L.C. By: Blackrock Financial Management, Inc. As Managing Member By: /s/ Dennis M. Schaney -------------------------------- Name: Dennis M. Schaney Title: Managing Director EX-10.5 10 T. BEFFA EMPLOYMENT AGREEMENT AMENDED AND RESTATED EMPLOYMENT AGREEMENT This Agreement, dated as of the 4th day of June, 1999 amends and restates the Employment Agreement dated as of as of the 27th day of August, 1996, as amended on May 14, 1997 and August 27, 1997, between Outsourcing Solutions Inc. (formerly known as OSI Holdings Corp.), a Delaware corporation, with offices at 390 South Woods Mill Road, Suite 350, Chesterfield, Missouri 63017 (the "Company"), and Timothy G. Beffa, an individual residing in the State of Missouri (the "Employee"). R E C I T A L S WHEREAS, the Company desires to secure the services and employment of the Employee on behalf of the Company, and the Employee desires to enter into employment with the Company, upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, the parties hereto, each intending to be legally bound hereby, agree as follows: 1. Employment. The Company hereby employs the Employee as Chief Executive Officer of the Company, and the Employee accepts such employment for the term of the employment specified in Section 3 below. During the Employment Term (as defined below), the Employee shall serve as the Chief Executive Officer of the Company, performing such duties as shall be reasonably required of such an employee of the Company, and shall have such other powers and perform such other additional executive duties as may from time to time be assigned to him by the Board of Directors of the Company. During the Employment Term, the Employee shall serve as a member of the Board of Directors of the Company. The Employee's primary place of employment shall be St. Louis, Missouri. The Company and the Employee each acknowledge that the Employee shall be required to travel extensively in connection with the performance of his duties hereunder, particularly during the first year of employment. The Company and the Employee further acknowledge that the Company's headquarters shall be relocated to St. Louis. 2. Performance. The Employee will serve the Company faithfully and to the best of his ability and will devote substantially all of his time, energy, experience and talents during regular business hours and as otherwise reasonably necessary to such employment, to the exclusion of all other business activities; provided, however, that the Employee may continue to serve on outside boards of directors of which he is a member as of the date hereof. 3. Employment Term. The employment term shall begin on the date of this Agreement and continue until December 31, 1999, unless earlier terminated pursuant to Section 7 below (the "Employment Term"); provided, that on December 31, 1999 and on each anniversary thereafter, the Employment Term shall be automatically extended for an additional twelve month period unless 30 days prior to such anniversary date either the Company or the Employee shall give written notice of termination of the Agreement, in which case the Agreement will terminate at the end of the then existing Employment Term. 4. Compensation. (a) Salary. During the Employment Term, the Company shall pay the Employee a base salary, payable in equal semimonthly installments, subject to withholding and other applicable taxes, at an annual rate of no less than Three Hundred Seventy Five Thousand Dollars ($375,000.00). (b) Bonus. Commencing on January 1, 1999, the Employee shall be eligible for an annual bonus of up to 150% of his base salary. Annual bonuses shall be based on the satisfaction of performance targets established by the Board of Directors on or before March 31 of each year for such year. (c) Medical and Dental Health, Life and Disability Insurance Benefits. During the Employment Term, the Employee shall be entitled to medical and dental health, life insurance and disability insurance benefits in accordance with the Company's established practices with respect to its key employees. (d) Vacation; Sick Leave. During the Employment Term, the Employee shall be entitled to vacation and sick leave in accordance with the Company's established practices with respect to its key employees. (e) Automobile. The Company shall assume the Employee's lease obligations with respect to his current automobile and pay for all gas, oil, maintenance and insurance for such automobile. 5. Expenses. The Employee shall be reimbursed by the Company for all reasonable expenses incurred by him in connection with the performance of his duties hereunder in accordance with policiese stablished by the Board from time to time and upon receipt of appropriate documentation. 6. Secret Processes and Confidential Information. For the Employment Term and thereafter, (a) the Employee will not divulge, transmit or otherwise disclose (except as legally compelled by court order, and then only to the extent required, after prompt notice to the Company of any such order), directly or indirectly, other than in the regular and proper course of business of the Company, any confidential knowledge or information with respect to the operations or finances of the Company or with respect to confidential or secret processes, services, techniques, customers or plans with respect to the Company and (b) the Employee will not use, directly or indirectly, any confidential information for the benefit of anyone other than the Company; provided, however, that the Employee has no obligation, express or implied, to refrain from using or disclosing to others any such knowledge or information which is or hereafter shall become available to the public other than through disclosure by the Employee. All new processes, techniques, know-how, inventions, plans, products, patents and devices developed, made or invented by the Employee, alone or with others, while an employee of the Company, shall be and become the sole property of the Company, unless released in writing by the Company, and the Employee hereby assigns any and all rights therein or thereto to the Company. During the term of this Agreement and thereafter, Employee shall not take any action to disparage or criticize to any third parties any of the services of the Company or to commit any other action that injures or hinders the business relationships of the Company. All files, records, documents, memorandums, notes or other documents relating to the business of Company, whether prepared by Employee or otherwise coming into his possession in the course of the performance of his services under this Agreement, shall be the exclusive property of Company and shall be delivered to Company and not retained by Employee upon termination of this Agreement for any reason whatsoever. 7. Termination. The employment of the Employee hereunder may be terminated at any time by the Company with or without "cause". For purposes of this Agreement, "cause" shall mean: (i) embezzlement, theft or other misappropriation of any property of the Company or any subsidiary, (ii) gross or willful misconduct resulting in substantial loss to the Company or any subsidiary or substantial damage to the reputation of the Company or any subsidiary, (iii) any act involving moral turpitude which results in a conviction for a felony involving moral turpitude, fraud or misrepresentation, (iv) gross neglect of his assigned duties to the Company or any subsidiary, (v) gross breach of his fiduciary obligations to the Company or any subsidiary, or (vi) any chemical dependence which materially affects the performance of his duties and responsibilities to the Company or any subsidiary; provided that in the case of the misconduct set forth in clauses (iv) and (vi) above, such misconduct shall continue for a period of 30 days following written notice thereof by the Company to the Employee. 8. Severance. (a) If (i) Employee's employment is terminated by the Company without "cause," (ii) the Company does not agree to extend the Employment Term upon the expiration thereof, (iii) Employee terminates his employment because the Company reduces his responsibilities or compensation in a manner which is tantamount to termination of Employee's employment, or (iv) within two years following a Sale of the Company (as defined in Section 8(c) of this Agreement), the Employee gives notice to the Company of his resignation for "Good Reason" (as defined in Section 8(b) hereof) setting forth in reasonable detail the circumstances claimed to constitute Good Reason and stating that it constitutes notice pursuant to this Section 8(a), and the stated basis for Good Reason has not been fully corrected within sixty (60) days from the date of such notice, the Employee shall be entitled to (x) receive an amount equal to his total cash compensation (base salary plus bonus) for the year preceding the date of the Employee's termination or the date on which the Employment Term expires, as the case may be, such amount to be payable in a lump sum on the date of termination or the date on which the Employment Term expires, as the case may be, and (y) continue to receive the benefits referred to in Section 4(c) during the one year period following the date of termination or expiration (the "Severance Period"). If the Employee's employment is terminated by the Company "for cause", the Employee shall not be entitled to severance compensation. The Employee covenants and agrees that he will not, during the one year period following the termination of the Employee's employment by the Company, within any jurisdiction or marketing area in which the Company or any of its Affiliates (as defined below) is doing business or is qualified to do business, directly or indirectly own, manage, operate, control, be employed by or participate in the ownership, management, operation or control of, or be connected in any manner with, any business of the type and character engaged in and competitive with that conducted by the Company or any of its Affiliates at the time of such termination; provided, however, that ownership of securities of 2% or less of any class of securities of a public company shall not be considered to be competition with the Company or any of its Affiliates. For the purposes of this Agreement, the term "Affiliate" shall mean, with respect to the Company, any person or entity which, directly or indirectly, owns or is owned by, or is under common ownership with, the Company. The term "own" (including, with correlative meanings, "owned by" and "under common ownership with") shall mean the ownership of 50% or more of the voting securities (or their equivalent) of a particular entity. (b) For purposes of this Agreement, "Good Reason" shall mean the occurrence, without the Employee's consent, of any of the following events during the Employment Term within two years following a Sale of the Company: (A) a relocation of the principal location of the performance of work by the Employee beyond a thirty mile radius of such location as of the time of the Sale of the Company; (B) an assignment to the Employee of duties that result in a material diminution of the Employee's duties and responsibilities under this Agreement, (C) a reduction of the Employee's base salary in effect as of the time of the Sale of the Company, (D) a material breach of the Company's obligations set forth in this Agreement, or (E) the failure of any acquiror of, or successor to, all or substantially all of the assets or business of the Company to expressly assume this Agreement and agree to perform all of the obligations of the Company hereunder. (c) For the purposes of this Agreement, "Sale of the Company" shall mean (i) a stock sale, merger, consolidation, combination, reorganization or other transaction resulting in less than fifty percent (50%) of the combined voting power of the surviving or resulting entity being owned by the shareholders of the Company immediately prior to such transaction or (ii) the sale or other disposition of all or substantially all of the assets or business of the Company (other than, in the case of either clause (i) or (ii) above, in connection with any employee benefit plan of the Company or an Affiliate); provided, however, that a public offering of the capital stock of the Company shall not be a "Sale of the Company." 9. Notice. Any notices required or permitted hereunder shall be in writing and shall be deemed to have been given when personally delivered or when mailed, certified or registered mail, postage prepaid, to the following addresses: If to the Employee: Timothy G. Beffa 2015 Kings Pointe Drive St. Louis, Missouri 63005 If to the Company: Outsourcing Solutions Inc. 390 South Woods Mill Road, Suite 350 Chesterfield, Missouri 63017 Attention: Vice President and General Counsel 10. General. (a) Governing Law; Jurisdiction. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Missouri applicable to contracts executed and to be performed entirely within said State. Any judicial proceeding brought against any of the parties to this Agreement or any dispute arising out of this Agreement or any matter related hereto may be brought in the courts of the State of Missouri or in the United States District Court for the Eastern District of Missouri, and, by execution and delivery of this Agreement, each of the parties to this Agreement accepts the jurisdiction of said courts, and irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement. The foregoing consent to jurisdiction shall not be deemed to confer rights on any person other than the respective parties to this Agreement. (b) Assignability. The Employee may not assign his interest in or delegate his duties under this Agreement. Notwithstanding anything else in this Agreement to the contrary, the Company may assign this Agreement to and all rights hereunder shall inure to the benefit of any person, firm or corporation succeeding to all or substantially all of the business or assets of the Company by purchase, merger or consolidation. (c) Enforcement Costs. In the event that either the Company or the Employee initiates an action or claim to enforce any provision or term of this Agreement, or in the event of any dispute or controversy arising out of or relating to this Agreement, the costs and expenses (including attorney's fees and disbursements) of the prevailing party shall be paid by the other party, such party to be deemed to have prevailed if such action or claim is concluded pursuant to a court order or final judgment which is not subject to appeal, a settlement agreement or dismissal of the principal claims. Notwithstanding the foregoing, following a Sale of the Company, all reasonable costs and expenses (including attorney's fees and disbursements) incurred by the Employee in an action or claim to enforce any provision or term of this Agreement, and all costs and expenses of any court proceeding or arbitration in connection with any dispute or controversy arising out of or relating to this Agreement, shall be promptly paid or reimbursed by the Company or its successor; provided, however, that no payment or reimbursement shall be made of such costs or expenses if and to the extent that the court or arbitrator adjudicating or deciding the matter determines that any of the Employee's litigation assertions or defenses were in bad faith or frivolous. Pending the resolution of any court proceeding or arbitration described in this Section 10(c), the Company or its successor shall continue payment of all amounts and benefits due the Employee under this Agreement. (d) Binding Effect. This Agreement is for the employment of Employee, personally, and for the services to be rendered by him must be rendered by him and no other person. This Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns. (e) Entire Agreement; Modification. This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and may not be modified or amended in any way except in writing by the parties hereto. (f) Duration. Notwithstanding the term of employment hereunder, this Agreement shall continue for so long as any obligations remain under this Agreement. (g) Survival. The covenants set forth in Sections 6 and 8 of this Agreement shall survive and shall continue to be binding upon Employee notwithstanding the termination of this Agreement for any reason whatsoever. The covenants set forth in Sections 6 and 8 of this Agreement shall be deemed and construed as separate agreements independent of any other provision of this Agreement. The existence of any claim or cause of action by Employee against Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by Company of any or all covenants. It is expressly agreed that the remedy at law for the breach or any such covenant is inadequate and that injunctive relief shall be available to prevent the breach or any threatened breach thereof. IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have hereunto executed this Agreement the day and year first written above. OUTSOURCING SOLUTIONS INC. By: /s/ Eric R. Fencl -------------------------- Name: Eric R. Fencl Title: Vice President and General Counsel EMPLOYEE /s/ Timothy G. Beffa --------------------------- TIMOTHY G. BEFFA EX-10.6 11 M. DIMARCO EMPLOYMENT AGREEMENT AMENDED AND RESTATED EMPLOYMENT AGREEMENT This Agreement, dated as of the 4th day of June, 1999 amends and restates the Employment Agreement dated as of the 1st day of September, 1998 between Outsourcing Solutions Inc., a Delaware corporation, with offices at 390 South Woods Mill Road, Suite 350, Chesterfield, Missouri 63017 (the "Company"), and Michael A. DiMarco, an individual residing in the State of Missouri (the "Employee"). RECITALS WHEREAS, the Company desires to secure the services and employment of the Employee on behalf of the Company, and the Employee desires to enter into employment with the Company, upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, the parties hereto, each intending to be legally bound hereby, agree as follows: 1. Employment. The Company hereby employs the Employee as Executive Vice President--President of Fee Services of the Company, and the Employee accepts such employment for the term of the employment specified in Section 3 below. During the Employment Term (as defined below), the Employee shall serve as the Executive Vice President--President of Fee Services of the Company, performing such duties as shall be reasonably required of such an employee of the Company, and shall have such other powers and perform such other additional executive duties as may from time to time be assigned to him by the Board of Directors of the Company. The Employee's primary place of employment shall be St. Louis, Missouri. 2. Performance. The Employee will serve the Company faithfully and to the best of his ability and will devote substantially all of his time, energy, experience and talents during regular business hours and as otherwise reasonably necessary to such employment, to the exclusion of all other business activities. 3. Employment Term. The employment term shall begin on the date of this Agreement and continue until December 31, 1999, unless earlier terminated pursuant to Section 7 below (the "Employment Term"); provided, that on December 31, 1999 and on each anniversary thereafter, the Employment Term shall be automatically extended for an additional twelve month period unless 30 days prior to such anniversary date either the Company or the Employee shall give written notice of termination of the Agreement, in which case the Agreement will terminate at the end of the then existing Employment Term. 4. Compensation. (a) Salary. During the Employment Term, the Company shall pay the Employee a base salary, payable in equal semimonthly installments, subject to withholding and other applicable taxes, at an annual rate of no less than Three Hundred Twenty Five Thousand Dollars ($325,000.00). (b) Bonus. Commencing on January 1, 1999, the Employee shall be eligible for a target annual bonus of 67% of his base salary. Annual bonuses shall be based on the satisfaction of performance targets established by the Board of Directors on or before March 31 of each year for such year. (c) Medical and Dental Health, Life and Disability Insurance Benefits. During the Employment Term, the Employee shall be entitled to medical and dental health, life insurance and disability insurance benefits in accordance with the Company's established practices with respect to its key employees. (d) Vacation; Sick Leave. During the Employment Term, the Employee shall be entitled to vacation and sick leave in accordance with the Company's established practices with respect to its key employees. 5. Expenses. (a) The Employee shall be reimbursed by the Company for all reasonable expenses incurred by him in connection with the performance of his duties hereunder in accordance with policies established by the Board from time to time and upon receipt of appropriate documentation. (b) The Employee shall be reimbursed by the Company for normal moving and relocation expenses incurred by Employee to move his residence to the St. Louis metropolitan area, including reasonable and customary real estate commission, closing costs and discount points and reasonable expenses for temporary living, return home travel and family travel to St. Louis for house purchasing purposes. If requested by Employee, Company shall provide an advance of $115,000 to facilitate Employee's relocation, to be repaid to the Company no later than 48 hours following the closing of the sale of Employee's current residence in Fairview, Texas. 6. Secret Processes and Confidential Information. For the Employment Term and thereafter, (a) the Employee will not divulge, transmit or otherwise disclose (except as legally compelled by court order, and then only to the extent required, after prompt notice to the Company of any such order), directly or indirectly, other than in the regular and proper course of business of the Company, any confidential knowledge or information with respect to the operations or finances of the Company or with respect to confidential or secret processes, services, techniques, customers or plans with respect to the Company and (b) the Employee will not use, directly or indirectly, any confidential information for the benefit of anyone other than the Company; provided, however, that the Employee has no obligation, express or implied, to refrain from using or disclosing to others any such knowledge or information which is or hereafter shall become available to the public other than through disclosure by the Employee. All new processes, techniques, know-how, inventions, plans, products, patents and devices developed, made or invented by the Employee, alone or with others, while an employee of the Company, shall be and become the sole property of the Company, unless released in writing by the Company, and the Employee hereby assigns any and all rights therein or thereto to the Company. During the term of this Agreement and thereafter, Employee shall not take any action to disparage or criticize to any third parties any of the services of the Company or to commit any other action that injures or hinders the business relationships of the Company. During the term of this Agreement and for two years thereafter, Employee shall not employ, solicit for employment or otherwise contract for the services of any employee of the Company or any of its Affiliates (as defined below) at the time of this Agreement or who shall subsequently become an employee of the Company or any of its Affiliates, provided that Employee shall not be prohibited from such solicitation or employment if such employee (a) initiated discussions with Employee without any direct or indirect solicitation from Employee, (b) responded to a general public solicitation, or (c) has terminated employment with the Company prior to commencement of discussions with Employee. All files, records, documents, memorandums, notes or other documents relating to the business of Company, whether prepared by Employee or otherwise coming into his possession in the course of the performance of his services under this Agreement, shall be the exclusive property of Company and shall be delivered to Company and not retained by Employee upon termination of this Agreement for any reason whatsoever. 7. Termination. The employment of the Employee hereunder may be terminated at any time by the Company with or without "cause". For purposes of this Agreement, "cause" shall mean: (i) embezzlement, theft or other misappropriation of any property of the Company or any subsidiary, (ii) gross or willful misconduct resulting in substantial loss to the Company or any subsidiary or substantial damage to the reputation of the Company or any subsidiary, (iii) any act involving moral turpitude which results in a conviction for a felony involving moral turpitude, fraud or misrepresentation, (iv) gross neglect of his assigned duties to the Company or any subsidiary, (v) gross breach of his fiduciary obligations to the Company or any subsidiary, or (vi) any chemical dependence which materially affects the performance of his duties and responsibilities to the Company or any subsidiary; provided that in the case of the misconduct set forth in clauses (iv) and (vi) above, such misconduct shall continue for a period of 30 days following written notice thereof by the Company to the Employee. 8. Severance. (a) If (i) Employee's employment is terminated by the Company without "cause," (ii) the Company does not agree to extend the Employment Term upon the expiration thereof, (iii) Employee terminates his employment because the Company reduces his responsibilities or compensation in a manner which is tantamount to termination of Employee's employment, or (iv) within two years following a Sale of the Company (as defined in Section 9 of this Agreement), the Employee gives notice to the Company of his resignation for "Good Reason" (as defined in Section 8(b) hereof) setting forth in reasonable detail the circumstances claimed to constitute Good Reason and stating that it constitutes notice pursuant to this Section 8(a), and the stated basis for Good Reason has not been fully corrected within sixty (60) days from the date of such notice, the Employee shall be entitled to (x) receive an amount equal to his total cash compensation (base salary plus bonus, excluding, however, any Change in Control Bonus paid pursuant to Section 9 hereof) for the year preceding the date of the Employee's termination or the date on which the Employment Term expires, as the case may be, such amount to be payable in a lump sum on the date of termination or the date on which the Employment Term expires, as the case may be, and (y) continue to receive the benefits referred to in Section 4(c) during the one year period following the date of termination or expiration (the "Severance Period"); provided, however, if any such event occurs prior to the extension of the initial Employment Term, the Employee shall be entitled to (A) an amount equal to his then current salary, payable in a lump sum on the date of termination, (B) an amount equal to his target annual bonus, payable in a lump sum on the date of termination, and (C) continue to receive the benefits referred to in Section 4(c) during the Severance Period. If the Employee's employment is terminated by the Company "for cause", the Employee shall not be entitled to severance compensation. The Employee covenants and agrees that he will not, during the one year period following the termination of the Employee's employment by the Company, within any jurisdiction or marketing area in which the Company or any of its Affiliates (as defined below) is doing business or is qualified to do business, directly or indirectly own, manage, operate, control, be employed by or participate in the ownership, management, operation or control of, or be connected in any manner with, any business of the type and character engaged in and competitive with that conducted by the Company or any of its Affiliates at the time of such termination; provided, however, that ownership of securities of 2% or less of any class of securities of a public company shall not be considered to be competition with the Company or any of its Affiliates. For the purposes of this Agreement, the term "Affiliate" shall mean, with respect to the Company, any person or entity which, directly or indirectly, owns or is owned by, or is under common ownership with, the Company. The term "own" (including, with correlative meanings, "owned by" and "under common ownership with") shall mean the ownership of 50% or more of the voting securities (or their equivalent) of a particular entity. (b) For purposes of this Agreement, "Good Reason" shall mean the occurrence, without the Employee's consent, of any of the following events during the Employment Term within two years following a Sale of the Company: (A) a relocation of the principal location of the performance of work by the Employee beyond a thirty mile radius of such location as of the time of the Sale of the Company; (B) an assignment to the Employee of duties that result in a material diminution of the Employee's duties and responsibilities under this Agreement, (C) a reduction of the Employee's base salary in effect as of the time of the Sale of the Company, (D) a material breach of the Company's obligations set forth in this Agreement, or (E) the failure of any acquiror of, or successor to, all or substantially all of the assets or business of the Company to expressly assume this Agreement and agree to perform all of the obligations of the Company hereunder. 9. Change in Control Bonus. Upon consummation of a "Sale of the Company," if the Employee is employed by the Company immediately prior thereto, he will be entitled to receive a payment from the Company in the amount of 250% of his (i) then current base salary plus (ii) target annual bonus, reduced by his "Option Gain" and subject to any applicable withholding or employment taxes. Such amount (the "Change in Control Bonus") will be paid to the Employee in immediately available funds in a lump-sum at the time such Sale of the Company is consummated. The foregoing to the contrary notwithstanding, the Employee will only be entitled to receive the Change in Control Bonus if the Change in Control Bonus is previously approved by a vote of more than seventy-five percent (75%) of the voting power of the Company's outstanding stock immediately before any Sale of the Company. For purposes of this Agreement, the following terms have the meanings set forth below: "Sale of the Company" - a (i) a stock sale, merger, consolidation, combination, reorganization or other transaction resulting in less than fifty percent (50%) of the combined voting power of the surviving or resulting entity being owned by the shareholders of the Company immediately prior to such transaction or (ii) the sale or other disposition of all or substantially all of the assets or business of the Company (other than, in the case of either clause (i) or (ii) above, in connection with any employee benefit plan of the Company or an Affiliate); provided, however, that a public offering of the capital stock of the Company shall not be a "Sale of the Company." "Option Gain" - the aggregate amount computed for all of the options to purchase capital stock of the Company or other equity compensation awards theretofore granted to the Employee, of the excess of the consideration received by the holders of the Company's common stock for a share of such common stock in connection with the applicable Sale of the Company over the exercise price of the option or other award, if any, multiplied by the number of shares of the Company's common stock covered by each such option or award. The amount of the Option Gain shall be finally and conclusively determined by the Board of Directors of the Company in its good faith. 10. Notice. Any notices required or permitted hereunder shall be in writing and shall be deemed to have been given when personally delivered or when mailed, certified or registered mail, postage prepaid, to the following addresses: If to the Employee: Michael A. DiMarco 247 Doulton Place Town and Country, Missouri 63141 If to the Company: Outsourcing Solutions Inc. 390 South Woods Mill Road, Suite 350 Chesterfield, Missouri 63017 Attn: President 11. General. (a) Governing Law; Jurisdiction. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Missouri applicable to contracts executed and to be performed entirely within said State. Any judicial proceeding brought against any of the parties to this Agreement or any dispute arising out of this Agreement or any matter related hereto may be brought in the courts of the State of Missouri or in the United States District Court for the Eastern District of Missouri, and, by execution and delivery of this Agreement, each of the parties to this Agreement accepts the jurisdiction of said courts, and irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement. The foregoing consent to jurisdiction shall not be deemed to confer rights on any person other than the respective parties to this Agreement. (b) Assignability. The Employee may not assign his interest in or delegate his duties under this Agreement. Notwithstanding anything else in this Agreement to the contrary, the Company may assign this Agreement to and all rights hereunder shall inure to the benefit of any person, firm or corporation succeeding to all or substantially all of the business or assets of the Company by purchase, merger or consolidation. (c) Enforcement Costs. In the event that either the Company or the Employee initiates an action or claim to enforce any provision or term of this Agreement, or in the event of any dispute or controversy arising out of or relating to this Agreement, the costs and expenses (including attorney's fees and disbursements) of the prevailing party shall be paid by the other party, such party to be deemed to have prevailed if such action or claim is concluded pursuant to a court order or final judgment which is not subject to appeal, a settlement agreement or dismissal of the principal claims. Notwithstanding the foregoing, following a Sale of the Company, all reasonable costs and expenses (including attorney's fees and disbursements) incurred by the Employee in an action or claim to enforce any provision or term of this Agreement, and all costs and expenses of any court proceeding or arbitration in connection with any dispute or controversy arising out of or relating to this Agreement, shall be promptly paid or reimbursed by the Company or its successor; provided, however, that no payment or reimbursement shall be made of such costs or expenses if and to the extent that the court or arbitrator adjudicating or deciding the matter determines that any of the Employee's litigation assertions or defenses were in bad faith or frivolous. Pending the resolution of any court proceeding or arbitration described in this Section 11(c), the Company or its successor shall continue payment of all amounts and benefits due the Employee under this Agreement. (d) Binding Effect. This Agreement is for the employment of Employee, personally, and for the services to be rendered by him must be rendered by him and no other person. This Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns. (e) Entire Agreement; Modification. This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and may not be modified or amended in any way except in writing by the parties hereto. (f) Duration. Notwithstanding the term of employment hereunder, this Agreement shall continue for so long as any obligations remain under this Agreement. (g) Survival. The covenants set forth in Sections 6 and 8 of this Agreement shall survive and shall continue to be binding upon Employee notwithstanding the termination of this Agreement for any reason whatsoever. The covenants set forth in Sections 6 and 8 of this Agreement shall be deemed and construed as separate agreements independent of any other provision of this Agreement. The existence of any claim or cause of action by Employee against Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by Company of any or all covenants. It is expressly agreed that the remedy at law for the breach or any such covenant is inadequate and that injunctive relief shall be available to prevent the breach or any threatened breach thereof. IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have hereunto executed this Agreement the day and year first written above. OUTSOURCING SOLUTIONS INC. By /s/ Timothy G. Beffa --------------------------------- Timothy G. Beffa, President and Chief Executive Officer EMPLOYEE /s/ Michael A. DiMarco ---------------------------------- Michael A. DiMarco EX-10.7 12 B. FALIERO EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT This Agreement is made as of the 4th day of June, 1999 between Outsourcing Solutions Inc., a Delaware corporation, with offices at 390 South Woods Mill Road, Suite 350, Chesterfield, Missouri 63017 (the "Company"), and Bryan Faliero, an individual residing in the State of Georgia (the "Employee"). RECITALS WHEREAS, the Company desires to secure the services and employment of the Employee on behalf of the Company, and the Employee desires to enter into employment with the Company, upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, the parties hereto, each intending to be legally bound hereby, agree as follows: 1. Employment. The Company hereby employs the Employee as Division President, Portfolio Services of the Company, and the Employee accepts such employment for the term of the employment specified in Section 3 below. During the Employment Term (as defined below), the Employee shall serve as the Division President, Portfolio Services of the Company, performing such duties as shall be reasonably required of such an employee of the Company, and shall have such other powers and perform such other additional executive duties as may from time to time be assigned to him by the Board of Directors of the Company. The Employee's primary place of employment shall be Atlanta, Georgia. 2. Performance. The Employee will serve the Company faithfully and to the best of his ability and will devote substantially all of his time, energy, experience and talents during regular business hours and as otherwise reasonably necessary to such employment, to the exclusion of all other business activities. 3. Employment Term. The employment term shall begin on the date of this Agreement and continue until December 31, 1999, unless earlier terminated pursuant to Section 7 below (the "Employment Term"); provided, that on December 31, 1999 and on each anniversary thereafter, the Employment Term shall be automatically extended for an additional twelve month period unless 30 days prior to such anniversary date either the Company or the Employee shall give written notice of termination of the Agreement, in which case the Agreement will terminate at the end of the then existing Employment Term. 4. Compensation. (a) Salary. During the Employment Term, the Company shall pay the Employee a base salary, payable in equal semimonthly installments, subject to withholding and other applicable taxes, at an annual rate of no less than Two Hundred Ten Thousand Dollars ($210,000.00). (b) Bonus. Commencing on January 1, 1999, the Employee shall be eligible for a target annual bonus of 50% of his base salary. Annual bonuses shall be based on the satisfaction of performance targets established by the Board of Directors on or before March 31 of each year for such year. (c) Medical and Dental Health, Life and Disability Insurance Benefits. During the Employment Term, the Employee shall be entitled to medical and dental health, life insurance and disability insurance benefits in accordance with the Company's established practices with respect to its key employees. (d) Vacation; Sick Leave. During the Employment Term, the Employee shall be entitled to vacation and sick leave in accordance with the Company's established practices with respect to its key employees. 5. Expenses. The Employee shall be reimbursed by the Company for all reasonable expenses incurred by him in connection with the performance of his duties hereunder in accordance with policies established by the Board from time to time and upon receipt of appropriate documentation. 6. Secret Processes and Confidential Information. For the Employment Term and thereafter, (a) the Employee will not divulge, transmit or otherwise disclose (except as legally compelled by court order, and then only to the extent required, after prompt notice to the Company of any such order), directly or indirectly, other than in the regular and proper course of business of the Company, any confidential knowledge or information with respect to the operations or finances of the Company or with respect to confidential or secret processes, services, techniques, customers or plans with respect to the Company and (b) the Employee will not use, directly or indirectly, any confidential information for the benefit of anyone other than the Company; provided, however, that the Employee has no obligation, express or implied, to refrain from using or disclosing to others any such knowledge or information which is or hereafter shall become available to the public other than through disclosure by the Employee. All new processes, techniques, know-how, inventions, plans, products, patents and devices developed, made or invented by the Employee, alone or with others, while an employee of the Company, shall be and become the sole property of the Company, unless released in writing by the Company, and the Employee hereby assigns any and all rights therein or thereto to the Company. During the term of this Agreement and thereafter, Employee shall not take any action to disparage or criticize to any third parties any of the services of the Company or to commit any other action that injures or hinders the business relationships of the Company. During the term of this Agreement and for two years thereafter, Employee shall not employ, solicit for employment or otherwise contract for the services of any employee of the Company or any of its Affiliates (as defined below) at the time of this Agreement or who shall subsequently become an employee of the Company or any of its Affiliates, provided that Employee shall not be prohibited from such solicitation or employment if such employee (a) initiated discussions with Employee without any direct or indirect solicitation from Employee, (b) responded to a general public solicitation, or (c) has terminated employment with the Company prior to commencement of discussions with Employee. All files, records, documents, memorandums, notes or other documents relating to the business of Company, whether prepared by Employee or otherwise coming into his possession in the course of the performance of his services under this Agreement, shall be the exclusive property of Company and shall be delivered to Company and not retained by Employee upon termination of this Agreement for any reason whatsoever. 7. Termination. The employment of the Employee hereunder may be terminated at any time by the Company with or without "cause". For purposes of this Agreement, "cause" shall mean: (i) embezzlement, theft or other misappropriation of any property of the Company or any subsidiary, (ii) gross or willful misconduct resulting in substantial loss to the Company or any subsidiary or substantial damage to the reputation of the Company or any subsidiary, (iii) any act involving moral turpitude which results in a conviction for a felony involving moral turpitude, fraud or misrepresentation, (iv) gross neglect of his assigned duties to the Company or any subsidiary, (v) gross breach of his fiduciary obligations to the Company or any subsidiary, or (vi) any chemical dependence which materially affects the performance of his duties and responsibilities to the Company or any subsidiary; provided that in the case of the misconduct set forth in clauses (iv) and (vi) above, such misconduct shall continue for a period of 30 days following written notice thereof by the Company to the Employee. 8. Severance. (a) If (i) Employee's employment is terminated by the Company without "cause," (ii) the Company does not agree to extend the Employment Term upon the expiration thereof, (iii) Employee terminates his employment because the Company reduces his responsibilities or compensation in a manner which is tantamount to termination of Employee's employment, or (iv) within two years following a Sale of the Company (as defined in Section 9 of this Agreement), the Employee gives notice to the Company of his resignation for "Good Reason" (as defined in Section 8(b) hereof) setting forth in reasonable detail the circumstances claimed to constitute Good Reason and stating that it constitutes notice pursuant to this Section 8(a), and the stated basis for Good Reason has not been fully corrected within sixty (60) days from the date of such notice, the Employee shall be entitled to (x) receive an amount equal to his total cash compensation (base salary plus bonus, excluding, however, any Change in Control Bonus paid pursuant to Section 9 hereof) for the year preceding the date of the Employee's termination or the date on which the Employment Term expires, as the case may be, such amount to be payable in a lump sum on the date of termination or the date on which the Employment Term expires, as the case may be, and (y) continue to receive the benefits referred to in Section 4(c) during the one year period following the date of termination or expiration (the "Severance Period"); provided, however, if any such event occurs prior to the extension of the initial Employment Term, the Employee shall be entitled to (A) an amount equal to his then current salary, payable in a lump sum on the date of termination, (B) an amount equal to his target annual bonus, payable in a lump sum on the date of termination, and (C) continue to receive the benefits referred to in Section 4(c) during the Severance Period. If the Employee's employment is terminated by the Company "for cause", the Employee shall not be entitled to severance compensation. The Employee covenants and agrees that he will not, during the one year period following the termination of the Employee's employment by the Company, within any jurisdiction or marketing area in which the Company or any of its Affiliates (as defined below) is doing business or is qualified to do business, directly or indirectly own, manage, operate, control, be employed by or participate in the ownership, management, operation or control of, or be connected in any manner with, any business of the type and character engaged in and competitive with that conducted by the Company or any of its Affiliates at the time of such termination; provided, however, that ownership of securities of 2% or less of any class of securities of a public company shall not be considered to be competition with the Company or any of its Affiliates. For the purposes of this Agreement, the term "Affiliate" shall mean, with respect to the Company, any person or entity which, directly or indirectly, owns or is owned by, or is under common ownership with, the Company. The term "own" (including, with correlative meanings, "owned by" and "under common ownership with") shall mean the ownership of 50% or more of the voting securities (or their equivalent) of a particular entity. (b) For purposes of this Agreement, "Good Reason" shall mean the occurrence, without the Employee's consent, of any of the following events during the Employment Term within two years following a Sale of the Company: (A) a relocation of the principal location of the performance of work by the Employee beyond a thirty mile radius of such location as of the time of the Sale of the Company; (B) an assignment to the Employee of duties that result in a material diminution of the Employee's duties and responsibilities under this Agreement, (C) a reduction of the Employee's base salary in effect as of the time of the Sale of the Company, (D) a material breach of the Company's obligations set forth in this Agreement, or (E) the failure of any acquiror of, or successor to, all or substantially all of the assets or business of the Company to expressly assume this Agreement and agree to perform all of the obligations of the Company hereunder. 9. Change in Control Bonus. Upon consummation of a "Sale of the Company," if the Employee is employed by the Company immediately prior thereto, he will be entitled to receive a payment from the Company in the amount of 250% of his (i) then current base salary plus (ii) target annual bonus, reduced by his "Option Gain" and subject to any applicable withholding or employment taxes. Such amount (the "Change in Control Bonus") will be paid to the Employee in immediately available funds in a lump-sum at the time such Sale of the Company is consummated. The foregoing to the contrary notwithstanding, the Employee will only be entitled to receive the Change in Control Bonus if the Change in Control Bonus is previously approved by a vote of more than seventy-five percent (75%) of the voting power of the Company's outstanding stock immediately before any Sale of the Company. For purposes of this Agreement, the following terms have the meanings set forth below: "Sale of the Company" - a (i) a stock sale, merger, consolidation, combination, reorganization or other transaction resulting in less than fifty percent (50%) of the combined voting power of the surviving or resulting entity being owned by the shareholders of the Company immediately prior to such transaction or (ii) the sale or other disposition of all or substantially all of the assets or business of the Company (other than, in the case of either clause (i) or (ii) above, in connection with any employee benefit plan of the Company or an Affiliate); provided, however, that a public offering of the capital stock of the Company shall not be a "Sale of the Company." "Option Gain" - the aggregate amount computed for all of the options to purchase capital stock of the Company or other equity compensation awards theretofore granted to the Employee, of the excess of the consideration received by the holders of the Company's common stock for a share of such common stock in connection with the applicable Sale of the Company over the exercise price of the option or other award, if any, multiplied by the number of shares of the Company's common stock covered by each such option or award. The amount of the Option Gain shall be finally and conclusively determined by the Board of Directors of the Company in its good faith. 10. Notice. Any notices required or permitted hereunder shall be in writing and shall be deemed to have been given when personally delivered or when mailed, certified or registered mail, postage prepaid, to the following addresses: If to the Employee: Bryan Faliero 3635 Cantrell Rd. N. E. Atlanta, GA 30319 If to the Company: Outsourcing Solutions Inc. 390 South Woods Mill Road, Suite 350 Chesterfield, Missouri 63017 Attn: President 11. General. (a) Governing Law; Jurisdiction. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Missouri applicable to contracts executed and to be performed entirely within said State. Any judicial proceeding brought against any of the parties to this Agreement or any dispute arising out of this Agreement or any matter related hereto may be brought in the courts of the State of Missouri or in the United States District Court for the Eastern District of Missouri, and, by execution and delivery of this Agreement, each of the parties to this Agreement accepts the jurisdiction of said courts, and irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement. The foregoing consent to jurisdiction shall not be deemed to confer rights on any person other than the respective parties to this Agreement. (b) Assignability. The Employee may not assign his interest in or delegate his duties under this Agreement. Notwithstanding anything else in this Agreement to the contrary, the Company may assign this Agreement to and all rights hereunder shall inure to the benefit of any person, firm or corporation succeeding to all or substantially all of the business or assets of the Company by purchase, merger or consolidation. (c) Enforcement Costs. In the event that either the Company or the Employee initiates an action or claim to enforce any provision or term of this Agreement, or in the event of any dispute or controversy arising out of or relating to this Agreement, the costs and expenses (including attorney's fees and disbursements) of the prevailing party shall be paid by the other party, such party to be deemed to have prevailed if such action or claim is concluded pursuant to a court order or final judgment which is not subject to appeal, a settlement agreement or dismissal of the principal claims. Notwithstanding the foregoing, following a Sale of the Company, all reasonable costs and expenses (including attorney's fees and disbursements) incurred by the Employee in an action or claim to enforce any provision or term of this Agreement, and all costs and expenses of any court proceeding or arbitration in connection with any dispute or controversy arising out of or relating to this Agreement, shall be promptly paid or reimbursed by the Company or its successor; provided, however, that no payment or reimbursement shall be made of such costs or expenses if and to the extent that the court or arbitrator adjudicating or deciding the matter determines that any of the Employee's litigation assertions or defenses were in bad faith or frivolous. Pending the resolution of any court proceeding or arbitration described in this Section 11(c), the Company or its successor shall continue payment of all amounts and benefits due the Employee under this Agreement. (d) Binding Effect. This Agreement is for the employment of Employee, personally, and for the services to be rendered by him must be rendered by him and no other person. This Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns. (e) Entire Agreement; Modification. This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and may not be modified or amended in any way except in writing by the parties hereto. (f) Duration. Notwithstanding the term of employment hereunder, this Agreement shall continue for so long as any obligations remain under this Agreement. (g) Survival. The covenants set forth in Sections 6 and 8 of this Agreement shall survive and shall continue to be binding upon Employee notwithstanding the termination of this Agreement for any reason whatsoever. The covenants set forth in Sections 6 and 8 of this Agreement shall be deemed and construed as separate agreements independent of any other provision of this Agreement. The existence of any claim or cause of action by Employee against Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by Company of any or all covenants. It is expressly agreed that the remedy at law for the breach or any such covenant is inadequate and that injunctive relief shall be available to prevent the breach or any threatened breach thereof. IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have hereunto executed this Agreement the day and year first written above. OUTSOURCING SOLUTIONS INC. By /s/ Timothy G. Beffa --------------------------------- Timothy G. Beffa, President and Chief Executive Officer EMPLOYEE /s/ Bryan Faliero ------------------------------------ Bryan Faliero EX-10.8 13 M. STAED EMPLOYMENT AGREEMENT AMENDED AND RESTATED EMPLOYMENT AGREEMENT This Agreement, dated as of the 4th day of June, 1999 amends and restates the Employment Agreement dated as of the 11th day of May, 1998 between Outsourcing Solutions Inc., a Delaware corporation, with offices at 390 South Woods Mill Road, Suite 350, Chesterfield, Missouri 63017 (the "Company"), and Michael Staed, an individual residing in the State of Missouri (the "Employee"). RECITALS WHEREAS, the Company desires to secure the services and employment of the Employee on behalf of the Company, and the Employee desires to enter into employment with the Company, upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, the parties hereto, each intending to be legally bound hereby, agree as follows: 1. Employment. The Company hereby employs the Employee as Senior Vice President - President of Outsourcing Services of the Company, and the Employee accepts such employment for the term of the employment specified in Section 3 below. During the Employment Term (as defined below), the Employee shall serve as the Senior Vice President - President of Outsourcing Services of the Company, performing such duties as shall be reasonably required of such an employee of the Company, and shall have such other powers and perform such other additional executive duties as may from time to time be assigned to him by the Board of Directors of the Company. The Employee's primary place of employment shall be St. Louis, Missouri. 2. Performance. The Employee will serve the Company faithfully and to the best of his ability and will devote substantially all of his time, energy, experience and talents during regular business hours and as otherwise reasonably necessary to such employment, to the exclusion of all other business activities. 3. Employment Term. The employment term shall begin on the date of this Agreement and continue until December 31, 1998, unless earlier terminated pursuant to Section 7 below (the "Employment Term"); provided, that on December 31, 1998 and on each anniversary thereafter, the Employment Term shall be automatically extended for an additional twelve month period unless 30 days prior to such anniversary date either the Company or the Employee shall give written notice of termination of the Agreement, in which case the Agreement will terminate at the end of the then existing Employment Term. 4. Compensation. (a) Salary. During the Employment Term, the Company shall pay the Employee a base salary, payable in equal semimonthly installments, subject to withholding and other applicable taxes, at an annual rate of no less than Two Hundred Fifty Thousand Dollars ($250,000.00). (b) Bonus. Commencing on January 1, 1999, the Employee shall be eligible for a target annual bonus of 50% of his base salary. Annual bonuses shall be based on the satisfaction of performance targets established by the Board of Directors on or before March 31 of each year for such year. (c) Medical and Dental Health, Life and Disability Insurance Benefits. During the Employment Term, the Employee shall be entitled to medical and dental health, life insurance and disability insurance benefits in accordance with the Company's established practices with respect to its key employees. (d) Vacation; Sick Leave. During the Employment Term, the Employee shall be entitled to vacation and sick leave in accordance with the Company's established practices with respect to its key employees. 5. Expenses. The Employee shall be reimbursed by the Company for all reasonable expenses incurred by him in connection with the performance of his duties hereunder in accordance with policies established by the Board from time to time and upon receipt of appropriate documentation. 6. Secret Processes and Confidential Information. For the Employment Term and thereafter, (a) the Employee will not divulge, transmit or otherwise disclose (except as legally compelled by court order, and then only to the extent required, after prompt notice to the Company of any such order), directly or indirectly, other than in the regular and proper course of business of the Company, any confidential knowledge or information with respect to the operations or finances of the Company or with respect to confidential or secret processes, services, techniques, customers or plans with respect to the Company and (b) the Employee will not use, directly or indirectly, any confidential information for the benefit of anyone other than the Company; provided, however, that the Employee has no obligation, express or implied, to refrain from using or disclosing to others any such knowledge or information which is or hereafter shall become available to the public other than through disclosure by the Employee. All new processes, techniques, know-how, inventions, plans, products, patents and devices developed, made or invented by the Employee, alone or with others, while an employee of the Company, shall be and become the sole property of the Company, unless released in writing by the Company, and the Employee hereby assigns any and all rights therein or thereto to the Company. During the term of this Agreement and thereafter, Employee shall not take any action to disparage or criticize to any third parties any of the services of the Company or to commit any other action that injures or hinders the business relationships of the Company. During the term of this Agreement and for two years thereafter, Employee shall not employ, solicit for employment or otherwise contract for the services of any employee of the Company or any of its Affiliates (as defined below) at the time of this Agreement or who shall subsequently become an employee of the Company or any of its Affiliates, provided that Employee shall not be prohibited from such solicitation or employment if such employee (a) initiated discussions with Employee without any direct or indirect solicitation from Employee, (b) responded to a general public solicitation, or (c) has terminated employment with the Company prior to commencement of discussions with Employee. All files, records, documents, memorandums, notes or other documents relating to the business of Company, whether prepared by Employee or otherwise coming into his possession in the course of the performance of his services under this Agreement, shall be the exclusive property of Company and shall be delivered to Company and not retained by Employee upon termination of this Agreement for any reason whatsoever. 7. Termination. The employment of the Employee hereunder may be terminated at any time by the Company with or without "cause". For purposes of this Agreement, "cause" shall mean: (i) embezzlement, theft or other misappropriation of any property of the Company or any subsidiary, (ii) gross or willful misconduct resulting in substantial loss to the Company or any subsidiary or substantial damage to the reputation of the Company or any subsidiary, (iii) any act involving moral turpitude which results in a conviction for a felony involving moral turpitude, fraud or misrepresentation, (iv) gross neglect of his assigned duties to the Company or any subsidiary, (v) gross breach of his fiduciary obligations to the Company or any subsidiary, or (vi) any chemical dependence which materially affects the performance of his duties and responsibilities to the Company or any subsidiary; provided that in the case of the misconduct set forth in clauses (iv) and (vi) above, such misconduct shall continue for a period of 30 days following written notice thereof by the Company to the Employee. 8. Severance. (a) If (i) Employee's employment is terminated by the Company without "cause," (ii) the Company does not agree to extend the Employment Term upon the expiration thereof, (iii) Employee terminates his employment because the Company reduces his responsibilities or compensation in a manner which is tantamount to termination of Employee's employment, or (iv) within two years following a Sale of the Company (as defined in Section 9 of this Agreement), the Employee gives notice to the Company of his resignation for "Good Reason" (as defined in Section 8(b) hereof) setting forth in reasonable detail the circumstances claimed to constitute Good Reason and stating that it constitutes notice pursuant to this Section 8(a), and the stated basis for Good Reason has not been fully corrected within sixty (60) days from the date of such notice, the Employee shall be entitled to (x) receive an amount equal to his total cash compensation (base salary plus bonus, excluding, however, any Change in Control Bonus paid pursuant to Section 9 hereof) for the year preceding the date of the Employee's termination or the date on which the Employment Term expires, as the case may be, such amount to be payable in a lump sum on the date of termination or the date on which the Employment Term expires, as the case may be, and (y) continue to receive the benefits referred to in Section 4(c) during the one year period following the date of termination or expiration (the "Severance Period"); provided, however, if any such event occurs prior to the extension of the initial Employment Term, the Employee shall be entitled to (A) an amount equal to his then current salary, payable in a lump sum on the date of termination, (B) an amount equal to his target annual bonus, payable in a lump sum on the date of termination, and (C) continue to receive the benefits referred to in Section 4(c) during the Severance Period. If the Employee's employment is terminated by the Company "for cause", the Employee shall not be entitled to severance compensation. The Employee covenants and agrees that he will not, during the one year period following the termination of the Employee's employment by the Company, within any jurisdiction or marketing area in which the Company or any of its Affiliates (as defined below) is doing business or is qualified to do business, directly or indirectly own, manage, operate, control, be employed by or participate in the ownership, management, operation or control of, or be connected in any manner with, any business of the type and character engaged in and competitive with that conducted by the Company or any of its Affiliates at the time of such termination; provided, however, that ownership of securities of 2% or less of any class of securities of a public company shall not be considered to be competition with the Company or any of its Affiliates. For the purposes of this Agreement, the term "Affiliate" shall mean, with respect to the Company, any person or entity which, directly or indirectly, owns or is owned by, or is under common ownership with, the Company. The term "own" (including, with correlative meanings, "owned by" and "under common ownership with") shall mean the ownership of 50% or more of the voting securities (or their equivalent) of a particular entity. (b) For purposes of this Agreement, "Good Reason" shall mean the occurrence, without the Employee's consent, of any of the following events during the Employment Term within two years following a Sale of the Company: (A) a relocation of the principal location of the performance of work by the Employee beyond a thirty mile radius of such location as of the time of the Sale of the Company; (B) an assignment to the Employee of duties that result in a material diminution of the Employee's duties and responsibilities under this Agreement, (C) a reduction of the Employee's base salary in effect as of the time of the Sale of the Company, (D) a material breach of the Company's obligations set forth in this Agreement, or (E) the failure of any acquiror of, or successor to, all or substantially all of the assets or business of the Company to expressly assume this Agreement and agree to perform all of the obligations of the Company hereunder. 9. Change in Control Bonus. Upon consummation of a "Sale of the Company," if the Employee is employed by the Company immediately prior thereto, he will be entitled to receive a payment from the Company in the amount of 250% of his (i) then current base salary plus (ii) target annual bonus, reduced by his "Option Gain" and subject to any applicable withholding or employment taxes. Such amount (the "Change in Control Bonus") will be paid to the Employee in immediately available funds in a lump-sum at the time such Sale of the Company is consummated. The foregoing to the contrary notwithstanding, the Employee will only be entitled to receive the Change in Control Bonus if the Change in Control Bonus is previously approved by a vote of more than seventy-five percent (75%) of the voting power of the Company's outstanding stock immediately before any Sale of the Company. For purposes of this Agreement, the following terms have the meanings set forth below: "Sale of the Company" - a (i) a stock sale, merger, consolidation, combination, reorganization or other transaction resulting in less than fifty percent (50%) of the combined voting power of the surviving or resulting entity being owned by the shareholders of the Company immediately prior to such transaction or (ii) the sale or other disposition of all or substantially all of the assets or business of the Company (other than, in the case of either clause (i) or (ii) above, in connection with any employee benefit plan of the Company or an Affiliate); provided, however, that a public offering of the capital stock of the Company shall not be a "Sale of the Company." "Option Gain" - the aggregate amount computed for all of the options to purchase capital stock of the Company or other equity compensation awards theretofore granted to the Employee, of the excess of the consideration received by the holders of the Company's common stock for a share of such common stock in connection with the applicable Sale of the Company over the exercise price of the option or other award, if any, multiplied by the number of shares of the Company's common stock covered by each such option or award. The amount of the Option Gain shall be finally and conclusively determined by the Board of Directors of the Company in its good faith. 10. Notice. Any notices required or permitted hereunder shall be in writing and shall be deemed to have been given when personally delivered or when mailed, certified or registered mail, postage prepaid, to the following addresses: If to the Employee: Michael Staed 13231 Thornhill Drive Town & Country, Missouri 63131 If to the Company: Outsourcing Solutions Inc. 390 South Woods Mill Road, Suite 350 Chesterfield, Missouri 63017 Attn: President 11. General. (a) Governing Law; Jurisdiction. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Missouri applicable to contracts executed and to be performed entirely within said State. Any judicial proceeding brought against any of the parties to this Agreement or any dispute arising out of this Agreement or any matter related hereto may be brought in the courts of the State of Missouri or in the United States District Court for the Eastern District of Missouri, and, by execution and delivery of this Agreement, each of the parties to this Agreement accepts the jurisdiction of said courts, and irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement. The foregoing consent to jurisdiction shall not be deemed to confer rights on any person other than the respective parties to this Agreement. (b) Assignability. The Employee may not assign his interest in or delegate his duties under this Agreement. Notwithstanding anything else in this Agreement to the contrary, the Company may assign this Agreement to and all rights hereunder shall inure to the benefit of any person, firm or corporation succeeding to all or substantially all of the business or assets of the Company by purchase, merger or consolidation. (c) Enforcement Costs. In the event that either the Company or the Employee initiates an action or claim to enforce any provision or term of this Agreement, or in the event of any dispute or controversy arising out of or relating to this Agreement, the costs and expenses (including attorney's fees and disbursements) of the prevailing party shall be paid by the other party, such party to be deemed to have prevailed if such action or claim is concluded pursuant to a court order or final judgment which is not subject to appeal, a settlement agreement or dismissal of the principal claims. Notwithstanding the foregoing, following a Sale of the Company, all reasonable costs and expenses (including attorney's fees and disbursements) incurred by the Employee in an action or claim to enforce any provision or term of this Agreement, and all costs and expenses of any court proceeding or arbitration in connection with any dispute or controversy arising out of or relating to this Agreement, shall be promptly paid or reimbursed by the Company or its successor; provided, however, that no payment or reimbursement shall be made of such costs or expenses if and to the extent that the court or arbitrator adjudicating or deciding the matter determines that any of the Employee's litigation assertions or defenses were in bad faith or frivolous. Pending the resolution of any court proceeding or arbitration described in this Section 11(c), the Company or its successor shall continue payment of all amounts and benefits due the Employee under this Agreement. (d) Binding Effect. This Agreement is for the employment of Employee, personally, and for the services to be rendered by him must be rendered by him and no other person. This Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns (e) Entire Agreement; Modification. This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and may not be modified or amended in any way except in writing by the parties hereto. (f) Duration. Notwithstanding the term of employment hereunder, this Agreement shall continue for so long as any obligations remain under this Agreement. (g) Survival. The covenants set forth in Sections 6 and 8 of this Agreement shall survive and shall continue to be binding upon Employee notwithstanding the termination of this Agreement for any reason whatsoever. The covenants set forth in Sections 6 and 8 of this Agreement shall be deemed and construed as separate agreements independent of any other provision of this Agreement. The existence of any claim or cause of action by Employee against Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by Company of any or all covenants. It is expressly agreed that the remedy at law for the breach or any such covenant is inadequate and that injunctive relief shall be available to prevent the breach or any threatened breach thereof. IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have hereunto executed this Agreement the day and year first written above. OUTSOURCING SOLUTIONS INC. By /s/ Timothy G. Beffa --------------------------------- Timothy G. Beffa, President and Chief Executive Officer EMPLOYEE /s/ Michael B. Staed ------------------------------------ Michael Staed EX-10.9 14 G. WELLER EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT This Agreement is made as of the 6th day of July, 1999 between Outsourcing Solutions Inc., a Delaware corporation, with offices at 390 South Woods Mill Road, Suite 350, Chesterfield, Missouri 63017 (the "Company"), and Gary L. Weller, an individual residing in the State of Missouri (the "Employee"). RECITALS WHEREAS, the Company desires to secure the services and employment of the Employee on behalf of the Company, and the Employee desires to enter into employment with the Company, upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, the parties hereto, each intending to be legally bound hereby, agree as follows: 1. Employment. The Company hereby employs the Employee as Executive Vice President and Chief Financial Officer of the Company, and the Employee accepts such employment for the term of the employment specified in Section 3 below. During the Employment Term (as defined below), the Employee shall serve as as Executive Vice President and Chief Financial Officer of the Company, performing such duties as shall be reasonably required of such an employee of the Company, and shall have such other powers and perform such other additional executive duties as may from time to time be assigned to him by the Board of Directors of the Company. The Employee's primary place of employment shall be St. Louis, Missouri. 2. Performance. The Employee will serve the Company faithfully and to the best of his ability and will devote substantially all of his time, energy, experience and talents during regular business hours and as otherwise reasonably necessary to such employment, to the exclusion of all other business activities. 3. Employment Term. The employment term shall begin on the date of this Agreement and continue until December 31, 1999, unless earlier terminated pursuant to Section 7 below (the "Employment Term"); provided, that on December 31, 1999 and on each anniversary thereafter, the Employment Term shall be automatically extended for an additional twelve month period unless 30 days prior to such anniversary date either the Company or the Employee shall give written notice of termination of the Agreement, in which case the Agreement will terminate at the end of the then existing Employment Term. 4. Compensation. (a) Salary. During the Employment Term, the Company shall pay the Employee a base salary, payable in equal semimonthly installments, subject to withholding and other applicable taxes, at an annual rate of no less than Two Hundred Seventy Five Thousand Dollars ($275,000.00). (b) Bonus. The Company shall pay the Employee a signing bonus, subject to withholding and other applicable taxes, of $125,000, payable on or before July 31, 1999. For the period commencing on the date of this Agreement and ending on December 31, 1999, the Employee shall also receive a bonus of $184,250, subject to withholding and other applicable taxes, provided the Employee remains employed by the Company and on its payroll on the date annual bonuses for 1999 are distributed to other key employees of the Company. Commencing on January 1, 2000, the Employee shall be eligible for an annual target bonus of up to 67% of his base salary. Annual bonuses (other than the guaranteed bonus for 1999) shall be based on the satisfaction of performance targets established by the Board of Directors on or before March 31 of each year for such year. (c) Medical and Dental Health, Life and Disability Insurance Benefits. During the Employment Term, the Employee shall be entitled to medical and dental health, life insurance and disability insurance benefits in accordance with the Company's established practices with respect to its key employees. (d) Vacation; Sick Leave. During the Employment Term, the Employee shall be entitled to vacation and sick leave in accordance with the Company's established practices with respect to its key employees. 5. Expenses. The Employee shall be reimbursed by the Company for all reasonable expenses incurred by him in connection with the performance of his duties hereunder in accordance with policies established by the Board from time to time and upon receipt of appropriate documentation. 6. Secret Processes and Confidential Information. For the Employment Term and thereafter, (a) the Employee will not divulge, transmit or otherwise disclose (except as legally compelled by court order, and then only to the extent required, after prompt notice to the Company of any such order), directly or indirectly, other than in the regular and proper course of business of the Company, any confidential knowledge or information with respect to the operations or finances of the Company or with respect to confidential or secret processes, services, techniques, customers or plans with respect to the Company and (b) the Employee will not use, directly or indirectly, any confidential information for the benefit of anyone other than the Company; provided, however, that the Employee has no obligation, express or implied, to refrain from using or disclosing to others any such knowledge or information which is or hereafter shall become available to the public other than through disclosure by the Employee. All new processes, techniques, know-how, inventions, plans, products, patents and devices developed, made or invented by the Employee, alone or with others, while an employee of the Company, shall be and become the sole property of the Company, unless released in writing by the Company, and the Employee hereby assigns any and all rights therein or thereto to the Company. During the term of this Agreement and thereafter, Employee shall not take any action to disparage or criticize to any third parties any of the services of the Company or to commit any other action that injures or hinders the business relationships of the Company. During the term of this Agreement and for two years thereafter, Employee shall not employ, solicit for employment or otherwise contract for the services of any employee of the Company or any of its Affiliates (as defined below) at the time of this Agreement or who shall subsequently become an employee of the Company or any of its Affiliates, provided that Employee shall not be prohibited from such solicitation or employment if such employee (a) initiated discussions with Employee without any direct or indirect solicitation from Employee, (b) responded to a general public solicitation, or (c) has terminated employment with the Company prior to commencement of discussions with Employee. All files, records, documents, memorandums, notes or other documents relating to the business of Company, whether prepared by Employee or otherwise coming into his possession in the course of the performance of his services under this Agreement, shall be the exclusive property of Company and shall be delivered to Company and not retained by Employee upon termination of this Agreement for any reason whatsoever. 7. Termination. The employment of the Employee hereunder may be terminated at any time by the Company with or without "cause". For purposes of this Agreement, "cause" shall mean: (i) embezzlement, theft or other misappropriation of any property of the Company or any subsidiary, (ii) gross or willful misconduct resulting in substantial loss to the Company or any subsidiary or substantial damage to the reputation of the Company or any subsidiary, (iii) any act involving moral turpitude which results in a conviction for a felony involving moral turpitude, fraud or misrepresentation, (iv) gross neglect of his assigned duties to the Company or any subsidiary, (v) gross breach of his fiduciary obligations to the Company or any subsidiary, or (vi) any chemical dependence which materially affects the performance of his duties and responsibilities to the Company or any subsidiary; provided that in the case of the misconduct set forth in clauses (iv) and (vi) above, such misconduct shall continue for a period of 30 days following written notice thereof by the Company to the Employee. 8. Severance; Non-Competition Covenant. (a) If (i) Employee's employment is terminated by the Company without "cause," (ii) the Company does not agree to extend the Employment Term upon the expiration thereof, (iii) Employee terminates his employment because the Company reduces his responsibilities or compensation in a manner which is tantamount to termination of Employee's employment, or (iv) within two years following a Sale of the Company (as defined in Section 8(c) of this Agreement), the Employee gives notice to the Company of his resignation for "Good Reason" (as defined in Section 8(b) hereof) setting forth in reasonable detail the circumstances claimed to constitute Good Reason and stating that it constitutes notice pursuant to this Section 8(a), and the stated basis for Good Reason has not been fully corrected within sixty (60) days from the date of such notice, the Employee shall be entitled to (x) receive an amount equal to his total cash compensation (base salary plus bonus) for the year preceding the date of the Employee's termination or the date on which the Employment Term expires, as the case may be, such amount to be payable in a lump sum on the date of termination or the date on which the Employment Term expires, as the case may be, and (y) continue to receive the benefits referred to in Section 4(c) during the one year period following the date of termination or expiration (the "Severance Period"); provided, however, if any such event occurs prior to Employee receiving the guaranteed bonus for 1999 referred to in Section 4(b), the Employee shall be entitled to (A) an amount equal to his then current salary, payable in a lump sum on the date of termination, (B) an amount equal to his target annual bonus, payable in a lump sum on the date of termination, (C) the guaranteed bonus payment for 1999 referred to in Section 4(b) to the extent not previously paid to Employee, payable in a lump sum on the date of termination, and (d) continue to receive the benefits referred to in Section 4(c) during the Severance Period. If the Employee's employment is terminated by the Company "for cause", the Employee shall not be entitled to severance compensation. The Employee covenants and agrees that he will not, during the one year period following the termination of the Employee's employment by the Company, within any jurisdiction or marketing area in which the Company or any of its Affiliates (as defined below) is doing business or is qualified to do business, directly or indirectly own, manage, operate, control, be employed by or participate in the ownership, management, operation or control of, or be connected in any manner with, any business of the type and character engaged in and competitive with that conducted by the Company or any of its Affiliates at the time of such termination; provided, however, that ownership of securities of 2% or less of any class of securities of a public company shall not be considered to be competition with the Company or any of its Affiliates. For the purposes of this Agreement, the term "Affiliate" shall mean, with respect to the Company, any person or entity which, directly or indirectly, owns or is owned by, or is under common ownership with, the Company. The term "own" (including, with correlative meanings, "owned by" and "under common ownership with") shall mean the ownership of 50% or more of the voting securities (or their equivalent) of a particular entity. (b) For purposes of this Agreement, "Good Reason" shall mean the occurrence, without the Employee's consent, of any of the following events during the Employment Term within two years following a Sale of the Company: (A) a relocation of the principal location of the performance of work by the Employee beyond a thirty mile radius of such location as of the time of the Sale of the Company; (B) an assignment to the Employee of duties that result in a material diminution of the Employee's duties and responsibilities under this Agreement, (C) a reduction of the Employee's base salary in effect as of the time of the Sale of the Company, (D) a material breach of the Company's obligations set forth in this Agreement, or (E) the failure of any acquiror of, or successor to, all or substantially all of the assets or business of the Company to expressly assume this Agreement and agree to perform all of the obligations of the Company hereunder. (c) For the purposes of this Agreement, "Sale of the Company" shall mean (i) a stock sale, merger, consolidation, combination, reorganization or other transaction resulting in less than fifty percent (50%) of the combined voting power of the surviving or resulting entity being owned by the shareholders of the Company immediately prior to such transaction or (ii) the sale or other disposition of all or substantially all of the assets or business of the Company (other than, in the case of either clause (i) or (ii) above, in connection with any employee benefit plan of the Company or an Affiliate); provided, however, that a public offering of the capital stock of the Company shall not be a "Sale of the Company." 9. Notice. Any notices required or permitted hereunder shall be in writing and shall be deemed to have been given when personally delivered or when mailed, certified or registered mail, postage prepaid, to the following addresses: If to the Employee: Gary L. Weller 17511 Country Lake Estates Court Chesterfield, Missouri 63005 If to the Company: Outsourcing Solutions Inc. 390 South Woods Mill Road, Suite 350 Chesterfield, Missouri 63017 Attention: President and Chief Executive Officer 10. General. (a) Governing Law; Jurisdiction. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Missouri applicable to contracts executed and to be performed entirely within said State. Any judicial proceeding brought against any of the parties to this Agreement or any dispute arising out of this Agreement or any matter related hereto may be brought in the courts of the State of Missouri or in the United States District Court for the Eastern District of Missouri, and, by execution and delivery of this Agreement, each of the parties to this Agreement accepts the jurisdiction of said courts, and irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement. The foregoing consent to jurisdiction shall not be deemed to confer rights on any person other than the respective parties to this Agreement. (b) Assignability. The Employee may not assign his interest in or delegate his duties under this Agreement. Notwithstanding anything else in this Agreement to the contrary, the Company may assign this Agreement to and all rights hereunder shall inure to the benefit of any person, firm or corporation succeeding to all or substantially all of the business or assets of the Company by purchase, merger or consolidation. (c) Enforcement Costs. In the event that either the Company or the Employee initiates an action or claim to enforce any provision or term of this Agreement, or in the event of any dispute or controversy arising out of or relating to this Agreement, the costs and expenses (including attorney's fees and disbursements) of the prevailing party shall be paid by the other party, such party to be deemed to have prevailed if such action or claim is concluded pursuant to a court order or final judgment which is not subject to appeal, a settlement agreement or dismissal of the principal claims. Notwithstanding the foregoing, following a Sale of the Company, all reasonable costs and expenses (including attorney's fees and disbursements) incurred by the Employee in an action or claim to enforce any provision or term of this Agreement, and all costs and expenses of any court proceeding or arbitration in connection with any dispute or controversy arising out of or relating to this Agreement, shall be promptly paid or reimbursed by the Company or its successor; provided, however, that no payment or reimbursement shall be made of such costs or expenses if and to the extent that the court or arbitrator adjudicating or deciding the matter determines that any of the Employee's litigation assertions or defenses were in bad faith or frivolous. Pending the resolution of any court proceeding or arbitration described in this Section 10(c), the Company or its successor shall continue payment of all amounts and benefits due the Employee under this Agreement. (d) Binding Effect. This Agreement is for the employment of Employee, personally, and for the services to be rendered by him must be rendered by him and no other person. This Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns. (e) Entire Agreement; Modification. This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and may not be modified or amended in any way except in writing by the parties hereto. (f) Duration. Notwithstanding the term of employment hereunder, this Agreement shall continue for so long as any obligations remain under this Agreement. (g) Survival. The covenants set forth in Sections 6 and 8 of this Agreement shall survive and shall continue to be binding upon Employee notwithstanding the termination of this Agreement for any reason whatsoever. The covenants set forth in Sections 6 and 8 of this Agreement shall be deemed and construed as separate agreements independent of any other provision of this Agreement. The existence of any claim or cause of action by Employee against Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by Company of any or all covenants. It is expressly agreed that the remedy at law for the breach or any such covenant is inadequate and that injunctive relief shall be available to prevent the breach or any threatened breach thereof. IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have hereunto executed this Agreement the day and year first written above. OUTSOURCING SOLUTIONS INC. By /s/ Timothy G. Beffa --------------------------------- Timothy G. Beffa, President and Chief Executive Officer EMPLOYEE /s/ Gary L. Weller ------------------------------------ Gary L. Weller EX-10.13 15 NON-QUALIFIED STOCK OPTION AWARD B OUTSOURCING SOLUTIONS INC. NON-QUALIFIED STOCK OPTION AWARD AGREEMENT [B] This Agreement (the "Agreement"), dated , is made --------------- between Outsourcing Solutions Inc. (the "Company") and (the ------------------ "Optionee"). All capitalized terms that are not defined herein shall have the meaning as defined in the Company's 1995 Stock Option and Stock Award Plan, as amended (the "Plan"). References to "he," "him," and "his" shall mean the feminine form of such terms, when applicable. W I T N E S S E T H : -------------------- 1. Grant of Option. Pursuant to the provisions of the Plan, the Company hereby grants to the Optionee, subject to the terms and conditions of the Plan and subject further to the terms and conditions herein set forth, the right and option to purchase from the Company, all or any part of an aggregate of shares of $0.01 par value common stock of the Company (the "Stock") at ------- a per share purchase price equal to $ .00 (the "Option"), such Option to be -- exercisable as hereinafter provided. The Option shall not be treated as an incentive stock option as defined in Section 422 of the Internal Revenue Code of 1986, as amended. 2. Terms and Conditions. It is understood and agreed that the Option evidenced hereby is subject to the following terms and conditions: (a) Expiration Date. The Option shall expire ten (10) years after the date indicated above. (b) Exercise of Option. Subject to the other terms of this Agreement and the Plan, the Option may be exercised on or after the date which is eight years from the date hereof; provided, however, that such Option shall become exercisable (i) with respect to fifty percent (50%) of the shares of Stock subject to the Option on or after the satisfaction by the Company of such reasonable performance targets as are established in good faith by the Committee or the Board in writing on or before December 31 of each year for the next succeeding year, as set forth in a resolution of the Committee or the Board (as applicable), as to that percentage of the total shares of Stock covered by this Option set forth on Schedule I attached hereto and (ii) with respect to the remaining fifty percent (50%) of the shares of Stock subject to the Option upon the occurrence of a Liquidation Event, as defined on Schedule I attached hereto, subject to the achievement by the Company of internal rate of return targets as set forth on such Schedule I, plus any shares of Stock as to which the Option could have been exercised prior to satisfaction of such conditions in (i) and/or (ii) in a particular year (if any) but was not so exercised. Notwithstanding the foregoing, the Option shall become fully exercisable as to those shares of Stock referred in clause (i) above immediately upon the occurrence of a Change in Control (as defined in Section 3 below). Any exercise of all or any part of this Option shall be accompanied by a written notice to the Company specifying the number of shares of Stock as to which the Option is being exercised. Notation of any partial exercise shall be made by the Company on Schedule II attached hereto. (c) Consideration. At the time of any exercise of the Option, the purchase price of the shares of Stock as to which the Option shall be exercised shall be paid to the Company (i) in cash, (ii) with Stock already owned for at least eight months by the Optionee having a total fair market value, as determined in accordance with Section 6(a) of the Plan ("Fair Market Value"), equal to the purchase price of such Stock, or (iii) a combination of cash and Stock (such Stock having already been owned for at least eight months by the Optionee) having a total Fair Market Value, as so determined, equal to the purchase price of such Stock. (d) Exercise Upon Death, Disability or Termination of Employment. (i) In the event of the death of the Optionee while an employee of the Company or a subsidiary of the Company, the Option, to the extent such Option would be exercisable in accordance with Section 2(b) hereof as of the date of his death, may be immediately exercised after his death by the legal representative of the Optionee's estate or by the legatee of the Optionee under his last will for a period of two years from the date of his death or until the expiration of the stated period of the Option, whichever period is the shorter. (ii) If the Optionee's employment with the Company or a subsidiary of the Company shall terminate by reason of permanent disability (as defined in the last sentence of this Section 2(d)(ii)), his Option, to the extent exercisable in accordance with Section 2(b) hereof as of the date of such termination, may be immediately exercised after such termination of employment but may not be exercised after the expiration of the period of one year from the date of such termination of employment or of the stated period of the Option, whichever period is the shorter; provided, however, that if the Optionee dies within a period of one year from the date of such termination of employment, any unexercised Option, to the extent exercisable in accordance with Section 2(b) hereof as of the date of such termination, may be exercised after his death by the legal representative of his estate or by the legatee of the Optionee under his last will until the expiration of the period of two years from the date of his death or of the stated period of the Option, whichever period is the shorter. For purposes of this Agreement, "permanent disability" shall mean an inability (as determined by the Committee) to perform duties and services as an employee of the Company or a subsidiary of the Company by reason of a medically determinable physical or mental impairment, supported by medical evidence, which can be expected to last for a continuous period of not less than eight (8) months. (iii) If (A) the Company or a subsidiary of the Company terminates the Optionee's employment with the Company or such subsidiary and such termination is not "for cause" (as defined in Section 2.5(d) of the Stockholders Agreement, dated as of September 21, 1995, as amended and restated on January 10, 1996 and on February 16, 1996 and as may be further amended from time to time, by and among the Company, the MDC Entities (as defined therein), APT (as defined therein), the Management Stockholders (as defined therein) and the Non-Management Stockholders (as defined therein) (as amended, the "Stockholders Agreement")) or (B) the Optionee terminates employment with the Company or such subsidiary for "good reason" (as defined in Section 2.5(c) of the Stockholders Agreement), the Optionee's Option, to the extent such Option would have been exercisable in accordance with Section 2(b) hereof as of the date of such termination, may thereafter be immediately exercised but may not be exercised after the expiration of the period of one year from the date of such termination of employment or of the stated period of the Option, whichever period is the shorter; provided, however, that if the Optionee dies within a period one year from the date of such termination of employment, any unexercised Option, to the extent such Option would have been exercisable in accordance with Section 2(b) hereof as of the date of such termination, may thereafter be exercised by the legal representative of his estate or by the legatee of the Optionee under his last will until the expiration of the period of two years from the date of his death or of the stated period of the Option, whichever period is the shorter. (iv) If the Optionee's employment with the Company or a subsidiary of the Company is terminated by reason of the Optionee's retirement after attaining both five (5) years of continuous service with the Company or a subsidiary of the Company and 59 1/2 years of age, to the extent exercisable in accordance with Section 2(b) hereof as of the date of such termination, such Option may thereafter be immediately exercised but may not be exercised after the expiration of the period of two (2) years from the date of such termination of employment or of the stated period of the Option, whichever period is the shorter; provided, however, that if the Optionee dies within a period of two (2) years from the date of such termination of employment, any unexercised Option, to the extent exercisable in accordance with Section 2(b) hereof as of the date of such termination, may thereafter be exercised by the legal representative of his estate or by the legatee of the Optionee under his last will until the expiration of the period of two years from the date of his death or of the stated period of the Option, whichever period is the shorter. (v) If the Optionee's employment is terminated by the Company or a subsidiary of the Company "for cause" (as defined in Section 2.5(d) of the Stockholders Agreement) or if the Optionee's employment is terminated for any reason not described in this Section 2(d), the Optionee's Option shall terminate on the date of such termination. (e) Nontransferability. This Option shall not be transferable other than by will or by the laws of descent and distribution. (f) Withholding Taxes. If required by applicable law, the Optionee shall be required to pay withholding taxes, if any, to the Company in cash at the time of receipt of Stock upon the exercise of all or any part of this Option; provided, however, tax withholding obligations may be met by the withholding of Stock otherwise deliverable to the Optionee pursuant to procedures approved by the Committee; provided further, however, the amount of Stock so withheld shall not exceed the minimum required withholding obligation. In no event shall Stock be delivered to any Optionee until he has paid to the Company in cash the amount of tax required to be withheld by the Company under applicable law, if any, or has elected to have such tax withholding obligations, if any, met by the withholding of Stock in accordance with procedures approved by the Committee. (g) No Rights as Stockholder. The Optionee shall have no dividend rights or any other rights as a stockholder with respect to any shares of Stock subject to the Option until he has given written notice of exercise of the Option and paid in full for such shares. (h) No Right to Continued Employment. This Option shall not confer upon the Optionee any right with respect to continuance of employment by the Company or a subsidiary of the Company, nor shall it interfere in any way with the right of the Company or such a subsidiary to terminate his employment at any time. (i) Inconsistency with Plan. Notwithstanding any provision herein to the contrary, this Option provides the Optionee with no greater rights or claims than are specifically provided for under the Plan. If and to the extent that any provision contained herein is inconsistent with the Plan, the Plan shall govern. (j) Compliance with Laws, Regulations, Stockholders Agreement, Etc. This Option and the obligation of the Company to sell and deliver shares of Stock hereunder, shall be subject to (i) all applicable federal and state laws, rules and regulations, (ii) any registration, qualification, approvals or other requirements imposed by any government or regulatory agency or body which the Committee shall, in its sole discretion, determine to be necessary or applicable and (iii) the terms of the Stockholders Agreement in all respects. Moreover, this Option may not be exercised if its exercise, or the receipt of shares of Stock pursuant thereto, would be contrary to applicable law. 3. Change in Control. For purposes of this Agreement, a "Change in Control" shall be deemed to have occurred if a "Sale of the Business," as defined in and contemplated by Section 2.4 of the Stockholders Agreement shall have occurred. 4. Investment Representation. If at the time of exercise of all or part of this Option the Stock is not registered under the Securities Act of 1933, as amended (the "Securities Act"), and/or there is no current prospectus in effect under the Securities Act with respect to the Stock, the Optionee shall execute, prior to the issuance of any shares of Stock to the Optionee by the Company, an agreement (in such form as the Committee may specify) in which the Optionee represents and warrants that the Optionee is purchasing or acquiring the shares acquired under this Agreement for the Optionee's own account, for investment only and not with a view to the resale or distribution thereof, and represents and agrees that any subsequent offer for sale or distribution of any of such shares shall be made only pursuant to either (i) a registration statement on an appropriate form under the Securities Act, which registration statement has become effective and is current with regard to the shares being offered or sold, or (ii) a specific exemption from the registration requirements of the Securities Act, but in claiming such exemption the Optionee shall, prior to any offer for sale or sale of such shares, obtain a prior favorable written opinion, in form and substance satisfactory to the Committee, from counsel for or approved by the Committee, as to the applicability of such exemption thereto. 5. Disposition of Stock. Any shares of Stock received by the Optionee upon exercise of this Option (or any interest or right in such shares) cannot be sold, assigned, pledged or transferred in any manner except as permitted by the Stockholders Agreement. 6. Optionee Bound by Plan; Stockholders Agreement. The Optionee hereby acknowledges receipt of a copy of the Plan and the Stockholders Agreement and agrees to be bound by all of the terms and provisions thereof, including the terms and provisions adopted after the granting of this Option but prior to the complete exercise hereof, subject to the last paragraph of Section 16 of the Plan as in effect on the date hereof. 7. Notices. Any notice hereunder to the Company shall be addressed to it at c/o McCown De Leeuw & Co., 101 East 52nd Street, 31st Floor, New York, New York 10022, Attention: David King, and any notice hereunder to the Optionee shall be addressed to him at , Attention: , -------------- -------------- subject to the right of either party to designate at any time hereafter in writing some other address. 8. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. 9. Counterparts. This Agreement has been executed in two counterparts each of which shall constitute one and the same instrument. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by an appropriate officer and the Optionee has executed this Agreement, both on the day and year first above written. OUTSOURCING SOLUTIONS INC. By: -------------------------------- Name:Timothy Beffa Title: President & CEO OPTIONEE (L.S.) - --------------------------- SCHEDULE I Subject to paragraph (b) of Section 2 of the Agreement, the Option will vest and become exercisable in accordance with paragraph (1) below with respect to fifty percent (50%) of the shares of Stock subject to the Option and the Option will vest and become exercisable in accordance with paragraph (2) below with respect to the remaining fifty percent (50%) of the shares of Stock subject to the Option. (1) With respect to 50% of the shares of Stock subject to the Option: Subject to the achievement of annual performance targets established by the Board of Directors of the Company (the "Board") or the Committee (as defined in the Agreement) in consultation with management, this portion of the Option will vest evenly on an annual basis over five (5) years beginning on the date of the Agreement, i.e., with respect to 20% of the total number of shares subject to this portion of the Option in each year (the "Annual Option Allocation"). 50% of the Annual Option Allocation not vested in any year would be subject to catch-up vesting in the immediately following year, based upon the achievement of the performance targets applicable to such immediately following year, and to the extent such Annual Option Allocation does not vest in such immediately following year, it shall be forfeited and the Option shall never be exercisable with respect to the shares covered by such unvested portion of such Annual Option Allocation; provided, however, that, notwithstanding the foregoing, the Option may become exercisable with respect to such shares to the extent otherwise provided in paragraph (b) of Section 2 of the Agreement. (2) With respect to 50% of the shares of Stock subject to the Option: This portion of the Option will vest upon the occurrence of a "Liquidation Event" (as defined below), subject to the achievement by the Company of McCown De Leeuw & Co. ("MDC") internal rate of return ("IRR") targets according to the schedule set forth below : ================================================================================ Year - -------------------------------------------------------------------------------- 1 2 3 4 5 ----------------------------------------------------------------------- 25.00% 0.00% 0.00% 0.00% 20.00% 40.00% ----------------------------------------------------------------------- 30.00% 0.00% 0.00% 20.00% 40.00% 60.00% ----------------------------------------------------------------------- MDC IRR* 35.00% 0.00% 20.00% 40.00% 60.00% 80.00% ----------------------------------------------------------------------- 40.00% 20.00% 40.00% 60.00% 80.00% 100.00% ----------------------------------------------------------------------- 45.00% 40.00% 60.00% 80.00% 100.00% ----------------------------------------------------------------------- 50.00% 60.00% 80.00% 100.00% ----------------------------------------------------------------------- 55.00% 60.00% 100.00% ----------------------------------------------------------------------- 75.00% 80.00% ----------------------------------------------------------------------- 100.00% 100.00% ----------------------------------------------------------------------- *After giving effect to exercise of management options. ================================================================================ For purposes of this Agreement, "Liquidation Event" shall mean a sale by MDC of any of its shares of common stock of the Company to an unaffiliated third party (including, without limitation, in a public offering). Upon a Liquidation Event in which MDC sells less than all of its shares of common stock of the Company, this portion of the Option will partially vest and become exercisable, in accordance with the foregoing schedule, on a ratable basis based upon the proportion of MDC shares sold in the Liquidation Event relative to the total number of shares owned by MDC immediately prior to the Liquidation Event. SCHEDULE II NOTATIONS AS TO PARTIAL EXERCISE ========== ============ ============ =========== ========= Number of Balance of Date of Purchased Shares on Authorized Notation Exercise Shares Option Signature Date ---------- ------------ ------------ ----------- --------- ---------- ------------ ------------ ----------- --------- ---------- ------------ ------------ ----------- --------- ---------- ------------ ------------ ----------- --------- ---------- ------------ ------------ ----------- --------- ---------- ------------ ------------ ----------- --------- ---------- ------------ ------------ ----------- --------- ---------- ------------ ------------ ----------- --------- ---------- ------------ ------------ ----------- --------- ========== ============ ============ =========== ========= SCHEDULE II Page 2 This STOCK OPTION AMENDMENT AGREEMENT (this "Amendment Agreement"), dated as of June 3, 1999, is made by and among OUTSOURCING SOLUTIONS INC., a Delaware corporation (the "Company"), and (the "Optionee"). - --------------- W I T N E S S E T H : - - - - - - - - - - WHEREAS, the Optionee is a common law employee of the Company; WHEREAS, the Optionee is the holder of an outstanding option (the "Option") to purchase an aggregate of shares of $0.01 par value common ----------- stock of the Company ("Stock") awarded pursuant to the Outsourcing Solutions Inc. (formerly OSI Holdings Corp.) 1995 Stock Option and Stock Award Plan, as amended (the "Plan"), and that certain Agreement, dated , 199 , between --------- - the Company and the Optionee (the "Option Agreement"); and WHEREAS, the parties hereto desire to amend the terms and conditions of the Option Agreement to modify the exercise terms thereof as hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto agree as follows: Section 1. Amendment of Option Agreement. The Option Agreement shall be and hereby is amended by: (a) deleting Schedule I of the Option Agreement in its entirety and re-designating Schedule II as Schedule I of the Option Agreement, and (b) deleting paragraph (b) of Section 2 of the Option Agreement in its entirety and inserting the following in lieu thereof: "(b) Exercise of Option. (i) Subject to the other terms of the Agreement and the Plan, the Option may be exercised on or after the dates indicated below as to that percentage of the total shares of Stock subject to the Option as set forth below opposite each such date, plus any shares of Stock as to which the Option could have been exercised previously, but was not so exercised: Date Percentage ---- ---------- -------------- 50% -------------- 25% -------------- 25% (ii) Notwithstanding the foregoing provisions of Section 2(b)(i) hereof, but subject to Section 2(a) and 2(d) hereof, immediately prior to a "Change in Control," as hereinafter defined, the Option may be exercised with respect to all or any portion of the total number of shares of Stock covered by the then unexercised Option. (iii) Any exercise of all or any part of the Option shall be accompanied by a written notice to the Company specifying the whole number of shares of Stock as to which the Option is being exercised. Upon the valid exercise of all or any part of the Option, a certificate (or certificates) for the number of shares of Stock with respect to which the Option is exercised shall be issued in the name of the Optionee, subject to the other terms and conditions of the Agreement and the Plan. Notation of any partial exercise shall be made by the Company on Schedule I attached hereto." Section 2. Optionee Bound by Plan. The Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all of the terms and provisions of the Plan and the Option Agreement, as amended hereby, including, without limitation, the terms and provisions of the Plan and the amended Option Agreement adopted after the date hereof. Section 3. Not a Contract of Employment. This Amendment Agreement shall not be deemed to constitute a contract of employment between the Optionee and the Company or its subsidiaries or affiliates, nor shall any provision hereof restrict the right of the Company and/or its subsidiaries or affiliates to discharge the Optionee, or restrict the right of the Optionee to terminate his employment with the Company or its subsidiaries or affiliates, subject to any employment agreement currently or hereafter in effect between the Optionee and the Company and/or any such subsidiary or affiliate. Section 4. Successors and Assigns. This Amendment Agreement shall be binding upon and inure to the benefit of the Optionee and his legal representatives, executors, administrators, heirs, distributees and legatees and shall be binding upon and inure to the benefit of the Company, and any subsidiary or affiliate, and any successor organizations, to any of the foregoing which may employ the Optionee. Section 5. Governing Law; Severability. This Amendment Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. If, under such law, any portion of this Amendment Agreement is at any time deemed to be in conflict with any applicable statute, rule, judicial interpretation binding on the parties, regulation or ordinance, such portion shall be deemed to be modified or altered to conform thereto or, if that is not possible, to be omitted from this Amendment Agreement; and the invalidity of any such portion shall not affect the force, effect and validity of the remaining portions hereof. Section 6. Stockholder Approval. This Amendment Agreement shall become effective on the date it is approved by more than seventy-five percent (75%) of the voting power of the Company's outstanding stock, and, if such approval is not obtained prior to December 31, 1999, this Amendment Agreement shall thereupon automatically be canceled and deemed to have been null and void ab initio. Section 7. Miscellaneous. Except as expressly amended hereby, the terms and conditions of the Option Agreement shall remain unchanged and in full force and effect. No term or provision of this Amendment Agreement may be amended, changed, waived, discharged or terminated orally, but may only be amended, changed, waived, discharged or terminated by an instrument in writing executed by each of the parties to this Amendment Agreement. Section headings of this Amendment Agreement are for convenience of reference only and shall not be considered a part of this Amendment Agreement. This Amendment Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have signed this Amendment Agreement as of the day and year first written above. OUTSOURCING SOLUTIONS, INC. By: -------------------------- Name: Title: OPTIONEE ------------------------- EX-10.14 16 STOCK OPTION AGRMT C OUTSOURCING SOLUTIONS INC. NON-QUALIFIED STOCK OPTION AWARD AGREEMENT [C] This Agreement (the "Agreement"), dated [ ] , 1996, is made between Outsourcing Solutions Inc. (the "Company") and Timothy G. Beffa (the "Optionee"). All capitalized terms that are not defined herein shall have the meaning as defined in the Outsourcing Solutions Inc. 1995 Stock Option and Stock Award Plan, as amended (the "Plan"). References to "he," "him," and "his" shall mean the feminine form of such terms, when applicable. W I T N E S S E T H : 1. Grant of Option. Pursuant to the provisions of the Plan, the Company hereby grants to the Optionee, subject to the terms and conditions of the Plan and subject further to the terms and conditions herein set forth, the right and option to purchase from the Company, all or any part of an aggregate of 41,555.21 shares of $0.01 par value common stock of the Company (the "Stock") at a per share purchase price equal to $12.50 (the "Option"), such Option to be exercisable as hereinafter provided. The Option shall not be treated as an incentive stock option as defined in Section 422 of the Internal Revenue Code of 1986, as amended. 2. Terms and Conditions. It is understood and agreed that the Option evidenced hereby is subject to the following terms and conditions: (a) Expiration Date. The Option shall expire ten (10) years after the date indicated above. (b) Exercise of Option. Subject to the other terms of this Agreement and the Plan, the Option may be exercised on or after the date which is eight years from the date hereof; provided, however, that notwithstanding any other provision of this Agreement, the Option shall only be cumulatively exercisable with respect to an aggregate number of shares of Stock equal to 2.5% of the number of shares of Stock, if any, issued by the Company from time to time, prior to the expiration date of the Option, upon conversion by the holders thereof of the Company's Preferred Stock and provided further that, subject to the preceding clause, such Option shall become exercisable (i) with respect to fifty percent (50%) of the shares of Stock subject to the Option on or after the satisfaction by the Company of such reasonable performance targets as are established in good faith by the Committee or the Board in writing on or before December 31 of each year for the next succeeding year, as set forth in a resolution of the Committee or the Board (as applicable), as to that percentage of the total shares of Stock covered by this Option set forth on Schedule I attached hereto and (ii) with respect to the remaining fifty percent (50%) of the shares of Stock subject to the Option upon the occurrence of a Liquidation Event, as defined on Schedule I attached hereto, subject to the achievement by the Company of internal rate of return targets as set forth on such Schedule I, plus any shares of Stock as to which the Option could have been exercised prior to satisfaction of such conditions in (i) and/or (ii) in a particular year (if any) but was not so exercised. Notwithstanding the foregoing, the Option shall become fully exercisable as to those shares of Stock referred in clause (i) above immediately upon the occurrence of a Change in Control (as defined in Section 3 below). Any exercise of all or any part of this Option shall be accompanied by a written notice to the Company specifying the number of shares of Stock as to which the Option is being exercised. Notation of any partial exercise shall be made by the Company on Schedule II attached hereto. (c) Consideration. At the time of any exercise of the Option, the purchase price of the shares of Stock as to which the Option shall be exercised shall be paid to the Company (i) in cash, (ii) with Stock already owned for at least eight months by the Optionee having a total fair market value, as determined in accordance with Section 6(a) of the Plan ("Fair Market Value"), equal to the purchase price of such Stock, or (iii) a combination of cash and Stock (such Stock having already been owned for at least eight months by the Optionee) having a total Fair Market Value, as so determined, equal to the purchase price of such Stock. (d) Exercise Upon Death, Disability or Termination of Employment. (i) In the event of the death of the Optionee while an employee of the Company or a subsidiary of the Company, the Option, to the extent such Option would be exercisable in accordance with Section 2(b) hereof as of the date of his death, may be immediately exercised after his death by the legal representative of the Optionee's estate or by the legatee of the Optionee under his last will for a period of two years from the date of his death or until the expiration of the stated period of the Option, whichever period is the shorter. (ii) If the Optionee's employment with the Company or a subsidiary of the Company shall terminate by reason of permanent disability (as defined in the last sentence of this Section 2(d)(ii)), his Option, to the extent exercisable in accordance with Section 2(b) hereof as of the date of such termination, may be immediately exercised after such termination of employment but may not be exercised after the expiration of the period of one year from the date of such termination of employment or of the stated period of the Option, whichever period is the shorter; provided, however, that if the Optionee dies within a period of one year from the date of such termination of employment, any unexercised Option, to the extent exercisable in accordance with Section 2(b) hereof as of the date of such termination, may be exercised after his death by the legal representative of his estate or by the legatee of the Optionee under his last will until the expiration of the period of two years from the date of his death or of the stated period of the Option, whichever period is the shorter. For purposes of this Agreement, "permanent disability" shall mean an inability (as determined by the Committee) to perform duties and services as an employee of the Company or a subsidiary of the Company by reason of a medically determinable physical or mental impairment, supported by medical evidence, which can be expected to last for a continuous period of not less than eight (8) months. (iii) If (A) the Company or a subsidiary of the Company terminates the Optionee's employment with the Company or such subsidiary and such termination is not "for cause" (as defined in Section 2.5(d) of the Stockholders Agreement, dated as of September 21, 1995, as amended and restated on January 10, 1996 and on February 16, 1996 and as may be further amended from time to time, by and among Outsourcing Solutions Inc., the MDC Entities (as defined therein), APT (as defined therein), the Management Stockholders (as defined therein) and the Non-Management Stockholders (as defined therein) (as amended, the "Stockholders Agreement")) or (B) the Optionee terminates employment with the Company or such subsidiary for "good reason" (as defined in Section 2.5(c) of the Stockholders Agreement), the Optionee's Option, to the extent such Option would have been exercisable in accordance with Section 2(b) hereof as of the date of such termination, may thereafter be immediately exercised but may not be exercised after the expiration of the period of one year from the date of such termination of employment or of the stated period of the Option, whichever period is the shorter; provided, however, that if the Optionee dies within a period one year from the date of such termination of employment, any unexercised Option, to the extent such Option would have been exercisable in accordance with Section 2(b) hereof as of the date of such termination, may thereafter be exercised by the legal representative of his estate or by the legatee of the Optionee under his last will until the expiration of the period of two years from the date of his death or of the stated period of the Option, whichever period is the shorter. (iv) If the Optionee's employment with the Company or a subsidiary of the Company is terminated by reason of the Optionee's retirement after attaining both five (5) years of continuous service with the Company or a subsidiary of the Company and 59 1/2 years of age, to the extent exercisable in accordance with Section 2(b) hereof as of the date of such termination, such Option may thereafter be immediately exercised but may not be exercised after the expiration of the period of two (2) years from the date of such termination of employment or of the stated period of the Option, whichever period is the shorter; provided, however, that if the Optionee dies within a period of two (2) years from the date of such termination of employment, any unexercised Option, to the extent exercisable in accordance with Section 2(b) hereof as of the date of such termination, may thereafter be exercised by the legal representative of his estate or by the legatee of the Optionee under his last will until the expiration of the period of two years from the date of his death or of the stated period of the Option, whichever period is the shorter. (v) If the Optionee's employment is terminated by the Company or a subsidiary of the Company "for cause" (as defined in Section 2.5(d) of the Stockholders Agreement) or if the Optionee's employment is terminated for any reason not described in this Section 2(d), the Optionee's Option shall terminate on the date of such termination. (e) Nontransferability. This Option shall not be transferable other than by will or by the laws of descent and distribution. (f) Withholding Taxes. If required by applicable law, the Optionee shall be required to pay withholding taxes, if any, to the Company in cash at the time of receipt of Stock upon the exercise of all or any part of this Option; provided, however, tax withholding obligations may be met by the withholding of Stock otherwise deliverable to the Optionee pursuant to procedures approved by the Committee; provided further, however, the amount of Stock so withheld shall not exceed the minimum required withholding obligation. In no event shall Stock be delivered to any Optionee until he has paid to the Company in cash the amount of tax required to be withheld by the Company under applicable law, if any, or has elected to have such tax withholding obligations, if any, met by the withholding of Stock in accordance with procedures approved by the Committee. (g) No Rights as Stockholder. The Optionee shall have no dividend rights or any other rights as a stockholder with respect to any shares of Stock subject to the Option until he has given written notice of exercise of the Option and paid in full for such shares. (h) No Right to Continued Employment. This Option shall not confer upon the Optionee any right with respect to continuance of employment by the Company or a subsidiary of the Company, nor shall it interfere in any way with the right of the Company or such a subsidiary to terminate his employment at any time. (i) Inconsistency with Plan. Notwithstanding any provision herein to the contrary, this Option provides the Optionee with no greater rights or claims than are specifically provided for under the Plan. If and to the extent that any provision contained herein is inconsistent with the Plan, the Plan shall govern. (j) Compliance with Laws, Regulations, Stockholders Agreement, Etc. This Option and the obligation of the Company to sell and deliver shares of Stock hereunder, shall be subject to (i) all applicable federal and state laws, rules and regulations, (ii) any registration, qualification, approvals or other requirements imposed by any government or regulatory agency or body which the Committee shall, in its sole discretion, determine to be necessary or applicable and (iii) the terms of the Stockholders Agreement in all respects. Moreover, this Option may not be exercised if its exercise, or the receipt of shares of Stock pursuant thereto, would be contrary to applicable law. 3. Change in Control. For purposes of this Agreement, a "Change in Control" shall be deemed to have occurred if a "Sale of the Business," as defined in and contemplated by Section 2.4 of the Stockholders Agreement shall have occurred. 4. Investment Representation. If at the time of exercise of all or part of this Option the Stock is not registered under the Securities Act of 1933, as amended (the "Securities Act"), and/or there is no current prospectus in effect under the Securities Act with respect to the Stock, the Optionee shall execute, prior to the issuance of any shares of Stock to the Optionee by the Company, an agreement (in such form as the Committee may specify) in which the Optionee represents and warrants that the Optionee is purchasing or acquiring the shares acquired under this Agreement for the Optionee's own account, for investment only and not with a view to the resale or distribution thereof, and represents and agrees that any subsequent offer for sale or distribution of any of such shares shall be made only pursuant to either (i) a registration statement on an appropriate form under the Securities Act, which registration statement has become effective and is current with regard to the shares being offered or sold, or (ii) a specific exemption from the registration requirements of the Securities Act, but in claiming such exemption the Optionee shall, prior to any offer for sale or sale of such shares, obtain a prior favorable written opinion, in form and substance satisfactory to the Committee, from counsel for or approved by the Committee, as to the applicability of such exemption thereto. 5. Disposition of Stock. Any shares of Stock received by the Optionee upon exercise of this Option (or any interest or right in such shares) cannot be sold, assigned, pledged or transferred in any manner except as permitted by the Stockholders Agreement. 6. Optionee Bound by Plan; Stockholders Agreement. The Optionee hereby acknowledges receipt of a copy of the Plan and the Stockholders Agreement and agrees to be bound by all of the terms and provisions thereof, including the terms and provisions adopted after the granting of this Option but prior to the complete exercise hereof, subject to the last paragraph of Section 16 of the Plan as in effect on the date hereof. 7. Notices. Any notice hereunder to the Company shall be addressed to it at c/o McCown De Leeuw & Co., 101 East 52nd Street, 31st Floor, New York, New York 10022, Attention: David King, and any notice hereunder to the Optionee shall be addressed to him at 2015 Kings Pointe Drive, St. Louis, Missouri 63005, subject to the right of either party to designate at any time hereafter in writing some other address. 8. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. 9. Counterparts. This Agreement has been executed in two counterparts each of which shall constitute one and the same instrument. IN WITNESS WHEREOF, Outsourcing Solutions Inc. has caused this Agreement to be executed by an appropriate officer and the Optionee has executed this Agreement, both on the day and year first above written. OUTSOURCING SOLUTIONS INC. By: --------------------------------- Title: ------------------------------ OPTIONEE (L.S.) - --------------------------- SCHEDULE I Subject to paragraph (b) of Section 2 of the Agreement, the Option will vest and become exercisable in accordance with paragraph (1) below with respect to fifty percent (50%) of the shares of Stock subject to the Option and the Option will vest and become exercisable in accordance with paragraph (2) below with respect to the remaining fifty percent (50%) of the shares of Stock subject to the Option. (1) With respect to 50% of the shares of Stock subject to the Option: Subject to the achievement of annual performance targets established by the Board of Directors of the Company (the "Board") or the Committee (as defined in the Agreement) in consultation with management, this portion of the Option will vest evenly on an annual basis over five (5) years beginning on the date of the Agreement, i.e., with respect to 20% of the total number of shares subject to this portion of the Option in each year (the "Annual Option Allocation"). 50% of the Annual Option Allocation not vested in any year would be subject to catch-up vesting in the immediately following year, based upon the achievement of the performance targets applicable to such immediately following year, and to the extent such Annual Option Allocation does not vest in such immediately following year, it shall be forfeited and the Option shall never be exercisable with respect to the shares covered by such unvested portion of such Annual Option Allocation; provided, however, that, notwithstanding the foregoing, the Option may become exercisable with respect to such shares to the extent otherwise provided in paragraph (b) of Section 2 of the Agreement. (2) With respect to 50% of the shares of Stock subject to the Option: This portion of the Option will vest upon the occurrence of a "Liquidation Event" (as defined below), subject to the achievement by the Company of McCown De Leeuw & Co. ("MDC") internal rate of return ("IRR") targets according to the schedule set forth below : ================================================================================ Year ------------------------------------------------------------------- 1 2 3 4 5 ------------------------------------------------------------------- 25.00% 0.00% 0.00% 0.00% 20.00% 40.00% ------------------------------------------------------------------- 30.00% 0.00% 0.00% 20.00% 40.00% 60.00% ------------------------------------------------------------------- MDC IRR* 35.00% 0.00% 20.00% 40.00% 60.00% 80.00% ------------------------------------------------------------------- 40.00% 20.00% 40.00% 60.00% 80.00% 100.00% ------------------------------------------------------------------- 45.00% 40.00% 60.00% 80.00% 100.00% ------------------------------------------------------------------- 50.00% 60.00% 80.00% 100.00% ------------------------------------------------------------------- 55.00% 60.00% 100.00% ------------------------------------------------------------------- 75.00% 80.00% ------------------------------------------------------------------- 100.00% 100.00% =================================================================== *After giving effect to exercise of management options. =================================================================== For purposes of this Agreement, "Liquidation Event" shall mean a sale by MDC of any of its shares of common stock of the Company to an unaffiliated third party (including, without limitation, in a public offering). Upon a Liquidation Event in which MDC sells less than all of its shares of common stock of the Company, this portion of the Option will partially vest and become exercisable, in accordance with the foregoing schedule, on a ratable basis based upon the proportion of MDC shares sold in the Liquidation Event relative to the total number of shares owned by MDC immediately prior to the Liquidation Event. SCHEDULE II NOTATIONS AS TO PARTIAL EXERCISE - --------------- --------------- ---------------- ---------------- -------------- Number of Balance of Date of Purchased Shares on Authorized Notation Exercise Shares Option Signature Date - --------------- --------------- ---------------- ---------------- -------------- - --------------- --------------- ---------------- ---------------- -------------- - --------------- --------------- ---------------- ---------------- -------------- - --------------- --------------- ---------------- ---------------- -------------- - --------------- --------------- ---------------- ---------------- -------------- - --------------- --------------- ---------------- ---------------- -------------- - --------------- --------------- ---------------- ---------------- -------------- - --------------- --------------- ---------------- ---------------- -------------- - --------------- --------------- ---------------- ---------------- -------------- This STOCK OPTION AMENDMENT AGREEMENT (this "Amendment Agreement"), dated as of June 3, 1999, is made by and among OUTSOURCING SOLUTIONS INC., a Delaware corporation (the "Company"), and Timothy G. Beffa (the "Optionee"). W I T N E S S E T H : - - - - - - - - - - WHEREAS, the Optionee is a common law employee of the Company; WHEREAS, the Optionee is the holder of an outstanding option (the "Option") to purchase an aggregate of 41,555.21 shares of $0.01 par value common stock of the Company ("Stock") awarded pursuant to the Outsourcing Solutions Inc. (formerly OSI Holdings Corp.) 1995 Stock Option and Stock Award Plan, as amended (the "Plan"), and that certain Agreement, dated March 14, 1997, between the Company and the Optionee (the "Option Agreement"); and WHEREAS, the parties hereto desire to amend the terms and conditions of the Option Agreement to modify the exercise terms thereof as hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto agree as follows: Section 1. Amendment of Option Agreement. The Option Agreement shall be and hereby is amended by: (a) deleting Schedule I of the Option Agreement in its entirety and re-designating Schedule II as Schedule I of the Option Agreement, and (b) deleting paragraph (b) of Section 2 of the Option Agreement in its entirety and inserting the following in lieu thereof: "(b) Exercise of Option. (i) Subject to the other terms of the Agreement and the Plan, the Option may be exercised on or after the dates indicated below as to that percentage of the total shares of Stock subject to the Option as set forth below opposite each such date, plus any shares of Stock as to which the Option could have been exercised previously, but was not so exercised: Date Percentage ---- ---------- June 3, 1999 50% March 14, 2000 25% March 14, 2001 25% (ii) Notwithstanding the foregoing provisions of Section 2(b)(i) hereof, but subject to Section 2(a) and 2(d) hereof, immediately prior to a "Change in Control," as hereinafter defined, the Option may be exercised with respect to all or any portion of the total number of shares of Stock covered by the then unexercised Option. (iii) Any exercise of all or any part of the Option shall be accompanied by a written notice to the Company specifying the whole number of shares of Stock as to which the Option is being exercised. Upon the valid exercise of all or any part of the Option, a certificate (or certificates) for the number of shares of Stock with respect to which the Option is exercised shall be issued in the name of the Optionee, subject to the other terms and conditions of the Agreement and the Plan. Notation of any partial exercise shall be made by the Company on Schedule I attached hereto." Section 2. Optionee Bound by Plan. The Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all of the terms and provisions of the Plan and the Option Agreement, as amended hereby, including, without limitation, the terms and provisions of the Plan and the amended Option Agreement adopted after the date hereof. Section 3. Not a Contract of Employment. This Amendment Agreement shall not be deemed to constitute a contract of employment between the Optionee and the Company or its subsidiaries or affiliates, nor shall any provision hereof restrict the right of the Company and/or its subsidiaries or affiliates to discharge the Optionee, or restrict the right of the Optionee to terminate his employment with the Company or its subsidiaries or affiliates, subject to any employment agreement currently or hereafter in effect between the Optionee and the Company and/or any such subsidiary or affiliate. Section 4. Successors and Assigns. This Amendment Agreement shall be binding upon and inure to the benefit of the Optionee and his legal representatives, executors, administrators, heirs, distributees and legatees and shall be binding upon and inure to the benefit of the Company, and any subsidiary or affiliate, and any successor organizations, to any of the foregoing which may employ the Optionee. Section 5. Governing Law; Severability. This Amendment Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. If, under such law, any portion of this Amendment Agreement is at any time deemed to be in conflict with any applicable statute, rule, judicial interpretation binding on the parties, regulation or ordinance, such portion shall be deemed to be modified or altered to conform thereto or, if that is not possible, to be omitted from this Amendment Agreement; and the invalidity of any such portion shall not affect the force, effect and validity of the remaining portions hereof. Section 6. Stockholder Approval. This Amendment Agreement shall become effective on the date it is approved by more than seventy-five percent (75%) of the voting power of the Company's outstanding stock, and, if such approval is not obtained prior to December 31, 1999, this Amendment Agreement shall thereupon automatically be canceled and deemed to have been null and void ab initio. Section 7. Miscellaneous. Except as expressly amended hereby, the terms and conditions of the Option Agreement shall remain unchanged and in full force and effect. No term or provision of this Amendment Agreement may be amended, changed, waived, discharged or terminated orally, but may only be amended, changed, waived, discharged or terminated by an instrument in writing executed by each of the parties to this Amendment Agreement. Section headings of this Amendment Agreement are for convenience of reference only and shall not be considered a part of this Amendment Agreement. This Amendment Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have signed this Amendment Agreement as of the day and year first written above. OUTSOURCING SOLUTIONS, INC. By: ------------------------------ Name: Eric R. Fencl Title: Vice President & General Counsel OPTIONEE Timothy G. Beffa EX-10.15 17 NON-QUALIFIED STOCK AGREEMENT E OUTSOURCING SOLUTIONS INC. NON-QUALIFIED STOCK OPTION AWARD AGREEMENT [E] This Non-qualified Stock Option Award Agreement (this "Agreement"), dated as of , 199 , is made between Outsourcing Solutions Inc. ----------- - (the "Company") and (the "Optionee"). All capitalized terms used herein ------ that are not defined herein shall have the respective meanings given to such terms in the Outsourcing Solutions Inc. (formerly OSI Holdings Corp.) 1995 Stock Option and Stock Award Plan, as amended (the "Plan"). W I T N E S S E T H : - - - - - - - - - - 1. Grant of Option. Pursuant to the provisions of the Plan, the Company hereby grants to the Optionee, subject to the terms and conditions of the Plan and subject further to the terms and conditions herein set forth, the right and option to purchase from the Company all or any part of an aggregate of shares of the $0.01 par value common stock of the Company (the "Stock"), at a per share purchase price equal to $ (the "Option"), such Option to be exercisable as hereinafter provided. The Option shall not be treated as an "incentive stock option," as defined in Section 422 of the Code. 2. Terms and Conditions. It is understood and agreed that the Award evidenced hereby is subject to the following terms and conditions: (a) Expiration Date. The Option shall expire ten (10) years after the date indicated above. (b) Exercise of Option. (i) Subject to the other terms of this Agreement and the Plan, the Option may be exercised on or after the dates indicated below as to that percentage of the total shares of Stock subject to the Option as set forth below opposite each such date, plus any shares of Stock as to which the Option could have been exercised previously, but was not so exercised. Date Percentage ---- ---------- ------------------------------------ 25% ------------------------------------ 25% ------------------------------------ 25% ------------------------------------ 25% (ii) Notwithstanding the foregoing provisions of Section 2(b)(i) hereof, but subject to Section 2(a) and 2(d) hereof, immediately prior to a "Sale of the Business," as defined in and contemplated by Section 2.4 of the Stockholders Agreement, dated as of September 21, 1995, as amended and restated on January 10, 1996, and February 16, 1996, and as may be further amended from time to time, by and among OSI Holdings Corp., the MDC Entities, APT, the Management Stockholders and the Non-Management Stockholders (all as defined therein) (the "Stockholders Agreement"), the Option may be exercised with respect to all or any portion of the total number of shares of Stock covered by the then unexercised Option. (iii) Any exercise of all or any part of the Option shall be accompanied by a written notice to the Company specifying the whole number of shares of Stock as to which the Option is being exercised. Upon the valid exercise of all or any part of the Option, a certificate (or certificates) for the number of shares of Stock with respect to which the Option is exercised shall be issued in the name of the Optionee, subject to the other terms and conditions of this Agreement and the Plan. Notation of any partial exercise shall be made by the Company on Schedule I attached hereto. (c) Consideration. At the time of any exercise of the Option, the purchase price of the shares of Stock as to which the Option shall be exercised shall be paid to the Company (i) in United States dollars by personal check, bank draft or money order, (ii) if permitted by applicable law and approved by the Committee in accordance with the Plan, with Stock, duly endorsed for transfer to the Company, owned by the Optionee (or the Optionee and his spouse jointly) for at least six (6) months prior to the tender thereof and not used for another such exercise during such six-month period and having a total fair market value, as determined in accordance with Paragraph 6(a) of the Plan ("Fair Market Value"), on the date of such exercise of the Option equal to such purchase price of such shares of Stock, or (iii) a combination of the consideration provided for in the foregoing clauses (i) and (ii) of this Section 2(c) having a total Fair Market Value on the date of such exercise equal to the purchase price of such shares of Stock. (d) Exercise Upon Death, Disability or Termination of Employment. The Option shall terminate upon the termination, for any reason, of the Optionee's employment with the Company or a subsidiary of the Company, and no shares of Stock may thereafter be purchased under the Option, except as follows: (i) In the event of the death of the Optionee while an employee of the Company or a subsidiary of the Company, the Option, to the extent exercisable in accordance with Section 2(b)(i) or 2(b)(ii) at the time of his or her death, may be exercised after the Optionee's death by the legal representative of the Optionee's estate or the legatee of the Optionee under his last will until the earlier to occur of the second anniversary of the Optionee's death and the stated expiration date of the Option. (ii) If the Optionee's employment with the Company or a subsidiary of the Company shall terminate by reason of permanent disability (as defined in the last sentence of this Section 2(d)(ii)), the Option, to the extent exercisable in accordance with Section 2(b)(i) or 2(b)(ii) upon such termination of employment, may be exercised after such termination until the earlier to occur of the first anniversary of such termination and the stated expiration date of the Option. For purposes of this Agreement, "permanent disability" shall mean an inability (as determined by the Committee) to perform duties and services as an employee of the Company or a subsidiary of the Company by reason of a medically determinable physical or mental impairment, supported by medical evidence, which can be expected to last for a continuous period of not less than eight (8) months. (iii) If (A) the Company or a subsidiary of the Company terminates the Optionee's employment with the Company or such subsidiary and such termination is not "for cause" (as defined in Section 2.5(d) of the Stockholders Agreement), or (B) the Optionee terminates employment with the Company or such subsidiary for "good reason" (as defined in Section 2.5(c) of the Stockholders Agreement), the Option, to the extent exercisable in accordance with Section 2(b)(i) or 2(b)(ii) upon such termination of employment, may be exercised after such termination until the earlier to occur of the first anniversary of such termination and the stated expiration date of the Option. (iv) If the Optionee's employment with the Company or a subsidiary of the Company is terminated by reason of the Optionee's retirement after attaining both five (5) years of continuous service with the Company or a subsidiary of the Company and 59 1/2 years of age, the Option, to the extent exercisable in accordance with Section 2(b)(i) or 2(b)(ii) upon such retirement, may be exercised after such retirement until the earlier to occur of the second anniversary of such retirement and the stated expiration date of the Option. (v) If the Optionee dies during the one-year or two-year period following termination of his or her employment specified in Section 2(d)(ii), 2(d)(iii) or 2(d)(iv), the Option, to the extent the Option would have been exercisable pursuant to Section 2(d)(ii), 2(d) (iii) or 2(d)(iv) as of the date of the Optionee's death, may be exercised after the Optionee's death by the legal representative of his estate or the legatee of the Optionee under his last will until the earlier to occur of the second anniversary of the Optionee's death and the stated expiration date of the Option. (vi) If the Optionee's employment is terminated by the Company or a subsidiary of the Company "for cause" (as defined in Section 2.5(d) of the Stockholders Agreement) or under circumstances not otherwise described in this Section 2(d), the Option shall automatically, without any further action required by the Company, terminate on the date of such termination of employment and shall cease to thereafter be exercisable with respect to any shares of Stock. (e) Nontransferability. The Option shall not be transferable otherwise than by will or the laws of descent and distribution, and are exercisable, during the lifetime of the Optionee, only by him. (f) Withholding Taxes. At the time of receipt of Stock upon the exercise of all or any part of the Option, the Optionee shall be required to pay to the Company in cash (or make other arrangements, in accordance with Section 12 of the Plan, for the satisfaction of) any taxes of any kind required by law to be withheld with respect to such Stock; provided, however, tax withholding obligations may be met, in whole or in part, by the withholding of shares of Stock otherwise deliverable to the Optionee upon such exercise pursuant to procedures approved by the Committee; provided further, however, the amount of shares so withheld may not exceed the amount necessary to satisfy required Federal, state, local and foreign withholding obligations using the minimum statutory rate. In no event shall Stock or other property be delivered to the Optionee until the Optionee has paid to the Company in cash, or made arrangements satisfactory to the Company regarding the payment of, the amount of any taxes of any kind required by law to be withheld with respect to the Stock subject to the Option, and the Company shall have the right to deduct any such taxes from any payment of any kind otherwise due to the Optionee. (g) No Rights as Stockholder. The Optionee shall not become the beneficial owner of the shares of Stock subject to the Option, nor have any rights to dividends or other rights as a shareholder with respect to any such shares, until the Optionee has exercised the Option in accordance with the provisions hereof and of the Plan. (h) No Right to Continued Employment. The Option shall not confer upon the Optionee any right to be retained in the service of the Company or a subsidiary of the Company, nor restrict in any way the right of the Company or any subsidiary of the Company, which right is hereby expressly reserved, to terminate his employment at any time with or without cause. (i) Inconsistency with Plan. Notwithstanding any provision herein to the contrary, the Option provides the Optionee with no greater rights or claims than are specifically provided for under the Plan. If and to the extent that any provision contained in this Agreement is inconsistent with the Plan, the Plan shall govern. (j) Compliance with Laws, Regulations, Stockholders Agreement. The Option and the obligation of the Company to sell and deliver shares of Stock hereunder shall be subject in all respects to (i) all applicable Federal and state laws, rules and regulations, (ii) any registration, qualification, approvals or other requirements imposed by any government or regulatory agency or body which the Committee shall, in its sole discretion, determine to be necessary or applicable and (iii) the terms of the Stockholders Agreement in all respects. Moreover, the Option may not be exercised if its exercise, or the receipt of shares of Stock pursuant thereto, would be contrary to applicable law. 3. Investment Representation. If at the time of exercise of all or part of the Option the Stock is not registered under the Securities Act of 1933, as amended (the "Securities Act"), and/or there is no current prospectus in effect under the Securities Act with respect to the Stock, the Optionee shall execute, prior to the issuance of any shares of Stock to the Optionee by the Company, an agreement (in such form as the Committee may specify) in which the Optionee, among other things, represents, warrants and agrees that the Optionee is purchasing or acquiring the shares acquired under this Agreement for the Optionee's own account, for investment only and not with a view to the resale or distribution thereof, that the Optionee has knowledge and experience in financial and business matters, that the Optionee is capable of evaluating the merits and risks of owning any shares of Stock purchased or acquired under this Agreement, that the Optionee is a person who is able to bear the economic risk of such ownership and that any subsequent offer for sale or distribution of any of such shares shall be made only pursuant to (i) a registration statement on an appropriate form under the Securities Act, which registration statement has become effective and is current with regard to the shares being offered or sold, or (ii) a specific exemption from the registration requirements of the Securities Act, it being understood that to the extent any such exemption is claimed, the Optionee shall, prior to any offer for sale or sale of such shares, obtain a prior favorable written opinion, in form and substance satisfactory to the Committee, from counsel for or approved by the Committee, as to the applicability of such exemption thereto. 4. Disposition of Stock. In addition to the restrictions set forth in Section 3, no share of Stock received by the Optionee upon exercise of the Option (or any interest or right in such shares) can be sold, assigned, pledged or transferred in any manner except as permitted by the Stockholders Agreement 5. Optionee Bound by Plan; Stockholders Agreement. The Optionee hereby acknowledges receipt of a copy of the Plan and the Stockholders Agreement and agrees to be bound by all of the terms and provisions of each thereof, including the terms and provisions adopted after the granting of the Option but prior to the complete exercise hereof, subject to the last paragraph of Section 16 of the Plan as in effect on the date hereof. 6. Notices. Any notice hereunder to the Company shall be addressed to it at 390 South Woods Mill Road, Suite 350, Chesterfield, Missouri 63017, Attention: Chief Financial Officer, and any notice hereunder to the Optionee, shall be addressed to him at , -------------------------------------------------- Attention: , subject to the right of either party to designate ------------------ at any time hereafter in writing some other address. 7. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Delaware applicable to contracts executed and to be performed entirely within such state, without regard to the conflict of law provisions thereof. 8. Severability. If any of the provisions of this Agreement should bedeemed unenforceable, the remaining provisions shall remain in full force and effect. 9. Modification. Except as otherwise permitted by the Plan, this Agreement may not be modified or amended, nor may any provision hereof be waived, in any way except in writing signed by the party against whom enforcement thereof is sought. 10. Counterparts. This Agreement has been executed in two counterparts, each of which shall constitute one and the same instrument. IN WITNESS WHEREOF, Outsourcing Solutions Inc. has caused this Agreement to be executed by a duly authorized officer and the Optionee has executed this Agreement, both as of the day and year first above written. OUTSOURCING SOLUTIONS INC. By ---------------------------- Name: Timothy G. Beffa Title: President & Chief Executive Officer OPTIONEE --------------------------- NOTATIONS AS TO PARTIAL EXERCISE ======== ==================== ==================== ==================== ======== Date of Number of Shares Balance of Shares Authorized Notation Exercise of Stock Purchased of Stock on Option Signature Date - -------- -------------------- -------------------- -------------------- -------- - -------- -------------------- -------------------- -------------------- -------- - -------- -------------------- -------------------- -------------------- -------- - -------- -------------------- -------------------- -------------------- -------- - -------- -------------------- -------------------- -------------------- -------- - -------- -------------------- -------------------- -------------------- -------- - -------- -------------------- -------------------- -------------------- -------- - -------- -------------------- -------------------- -------------------- -------- - -------- -------------------- -------------------- -------------------- -------- ======== ==================== ==================== ==================== ======== EX-10.18 18 CREDIT AGREEMENT U.S.$475,000,000 CREDIT AGREEMENT, dated as of November 30, 1999, among OUTSOURCING SOLUTIONS INC., as the Borrower, VARIOUS FINANCIAL INSTITUTIONS AND OTHER PERSONS FROM TIME TO TIME PARTIES HERETO, as the Lenders, DLJ CAPITAL FUNDING, INC., as the Syndication Agent, HARRIS TRUST AND SAVINGS BANK, as the Documentation Agent, and FLEET NATIONAL BANK, as the Administrative Agent. ARRANGED BY: DLJ CAPITAL FUNDING, INC. TABLE OF CONTENTS ARTICLE I DEFINITIONS AND ACCOUNTING TERMS 1.1. Defined Terms.....................................................3 1.2. Use of Defined Terms.............................................39 1.3. Cross-References.................................................40 1.4. Accounting and Financial Determinations; etc.....................40 ARTICLE II COMMITMENTS, BORROWING AND ISSUANCE PROCEDURES, NOTES AND LETTERS OF CREDIT 2.1. Commitments......................................................40 2.1.1. Revolving Loan Commitment and Swing Line Loan Commitment.........40 2.1.2. Letter of Credit Commitment......................................41 2.1.3. Term A Loan Commitment...........................................42 2.1.4. Term B Loan Commitment...........................................42 2.2. Reduction of the Commitment Amounts..............................42 2.2.1. Optional.........................................................42 2.2.2. Mandatory........................................................42 2.3. Borrowing Procedures.............................................43 2.3.1. Borrowing Procedure..............................................43 2.3.2. Swing Line Loans.................................................43 2.4. Continuation and Conversion Elections............................45 2.5. Funding..........................................................45 2.6. Issuance Procedures..............................................46 2.6.1. Other Lenders' Participation.....................................46 2.6.2. Disbursements....................................................46 2.6.3. Reimbursement....................................................47 2.6.4. Deemed Disbursements.............................................47 2.6.5. Nature of Reimbursement Obligations..............................48 2.7. Register; Notes..................................................48 ARTICLE III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES 3.1. Repayments and Prepayments; Application..........................50 3.1.1. Repayments and Prepayments.......................................50 3.1.2. Application......................................................54 3.2. Interest Provisions..............................................55 3.2.1. Rates............................................................55 3.2.2. Post-Maturity Rates..............................................55 3.2.3. Payment Dates....................................................55 3.3. Fees.............................................................56 3.3.1. Commitment Fee...................................................56 3.3.2. Administrative Agent's Fees......................................56 3.3.3. Letter of Credit Fee.............................................56 ARTICLE IV CERTAIN LIBO RATE AND OTHER PROVISIONS 4.1. LIBO Rate Lending Unlawful.......................................57 4.2. Deposits Unavailable.............................................57 4.3. Increased LIBO Rate Loan Costs, etc..............................57 4.4. Funding Losses...................................................58 4.5. Increased Capital Costs..........................................58 4.6. Taxes............................................................59 4.7. Payments, Computations, etc......................................62 4.8. Sharing of Payments..............................................62 4.9. Setoff...........................................................63 4.10. Change of Lending Office.........................................63 4.11. Replacement of Lenders...........................................63 4.12. Limitation on Additional Amounts, etc............................64 ARTICLE V CONDITIONS TO CREDIT EXTENSIONS 5.1. Initial Credit Extension.........................................65 5.1.1. Resolutions, etc.................................................65 5.1.2. Transaction Consummated..........................................65 5.1.3. Transaction Documents............................................66 5.1.4. Closing Date Certificate.........................................67 5.1.5. Delivery of Notes................................................67 5.1.6. Payment of Outstanding Indebtedness, etc.........................67 5.1.7. Administrative Agent's Fee Letter, Closing Fees, Expenses, etc...67 5.1.8. Financial Information; Material Adverse Change...................68 5.1.9. Opinions of Counsel; Reliance Letters............................68 5.1.10. Filing Agent, etc................................................68 5.1.11. Subsidiary Guaranty..............................................69 5.1.12. Solvency, etc....................................................69 5.1.13. Pledge Agreements................................................69 5.1.14. Patent Security Agreement, Copyright Security Agreement and Trademark Security Agreement...............................70 5.1.15. Perfection Certificates..........................................70 5.1.16. Insurance........................................................70 5.1.17. Corporate, Tax and Capital Structure.............................71 5.1.18. Litigation.......................................................71 5.2. All Credit Extensions............................................71 5.2.1. Compliance with Warranties, No Default, etc......................71 5.2.2. Credit Extension Request, etc....................................71 5.2.3. Satisfactory Legal Form..........................................71 ARTICLE VI REPRESENTATIONS AND WARRANTIES 6.1. Organization, etc................................................72 6.2. Due Authorization, Non-Contravention, etc........................72 6.3. Government Approval, Regulation, etc.............................72 6.4. Validity, etc....................................................73 6.5. Financial Information............................................73 6.6. No Material Adverse Change.......................................73 6.7. Litigation, Labor Controversies, etc.............................73 6.8. Subsidiaries.....................................................74 6.9. Ownership of Properties; Capital Securities......................74 6.10. Taxes............................................................74 6.11. Pension and Welfare Plans........................................74 6.12. Environmental Warranties.........................................75 6.13. Accuracy of Information..........................................76 6.14. Regulations U and X..............................................76 6.15. Year 2000........................................................76 6.16. Status of Obligations as Senior Indebtedness, etc................76 6.17. Solvency.........................................................77 ARTICLE VII COVENANTS 7.1. Affirmative Covenants............................................77 7.1.1. Financial Information, Reports, Notices, etc.....................77 7.1.2. Maintenance of Existence; Compliance with Laws, etc..............79 7.1.3. Maintenance of Properties........................................79 7.1.4. Insurance........................................................80 7.1.5. Books and Records................................................80 7.1.6. Environmental Law Covenant.......................................81 7.1.7. Use of Proceeds..................................................81 7.1.8. Subsidiary Guarantors, Security, etc.............................82 7.1.9. Hedging Obligations..............................................82 7.1.10. Year 2000........................................................83 7.1.11. Maintenance of Corporate Separateness............................83 7.1.12. Existing and Future Owned Real Property..........................83 7.1.13. Permitted Receivables Transaction................................84 7.2. Negative Covenants...............................................85 7.2.1. Business Activities..............................................85 7.2.2. Indebtedness.....................................................85 7.2.3. Liens............................................................88 7.2.4. Financial Condition and Operations...............................90 7.2.5. Investments......................................................93 7.2.6. Restricted Payments, etc.........................................95 7.2.7. Capital Expenditures, etc........................................96 7.2.8. No Prepayment of Subordinated Debt...............................97 7.2.9. Issuance of Capital Securities...................................97 7.2.10. Consolidation, Merger, etc.......................................98 7.2.11. Permitted Dispositions...........................................98 7.2.12. Modification of Certain Documents................................99 7.2.13. Transactions with Affiliates.....................................99 7.2.14. Restrictive Agreements, etc......................................99 7.2.15. Sale and Leaseback..............................................100 7.2.16. Accounting Changes..............................................100 7.3. UAS and the Student Loan Collection Business....................100 7.3.1. Business Activities.............................................100 7.3.2. Indebtedness....................................................100 7.3.3. Liens...........................................................101 7.3.4. Investments.....................................................101 7.3.5. Restricted Payments, etc........................................101 7.3.6. Consolidation, Merger...........................................101 7.4. OSIFC...........................................................101 ARTICLE VIII EVENTS OF DEFAULT 8.1. Listing of Events of Default....................................101 8.1.1. Non-Payment of Obligations......................................101 8.1.2. Breach of Warranty..............................................102 8.1.3. Non-Performance of Certain Covenants and Obligations............102 8.1.4. Non-Performance of Other Covenants and Obligations..............102 8.1.5. Default on Other Indebtedness...................................102 8.1.6. Judgments.......................................................102 8.1.7. Pension Plans...................................................102 8.1.8. Change in Control...............................................103 8.1.9. Bankruptcy, Insolvency, etc.....................................103 8.1.10. Impairment of Security, etc.....................................103 8.1.11. Failure of Subordination........................................104 8.1.12. Redemption......................................................104 8.2. Action if Bankruptcy............................................104 8.3. Action if Other Event of Default................................104 ARTICLE IX THE AGENTS 9.1. Actions.........................................................105 9.2. Funding Reliance, etc...........................................105 9.3. Exculpation; Notice of Default..................................105 9.4. Successors......................................................106 9.5. Credit Extensions by each Managing Agent and each Issuer........107 9.6. Credit Decisions................................................107 9.7. Copies, etc.....................................................107 9.8. Reliance by Managing Agents and Issuers.........................107 9.9. The Managing Agents and the Issuers.............................108 9.10. Documentation Agent.............................................108 ARTICLE X MISCELLANEOUS PROVISIONS 10.1. Waivers, Amendments, etc........................................108 10.2. Notices; Time...................................................110 10.3. Payment of Costs and Expenses...................................110 10.4. Indemnification.................................................111 10.5. Survival........................................................112 10.6. Severability....................................................112 10.7. Headings........................................................112 10.8. Execution in Counterparts, Effectiveness, etc...................113 10.9. Governing Law; Entire Agreement.................................113 10.10. Successors and Assigns..........................................113 10.11. Sale and Transfer of Credit Extensions; Participations in Credit Extensions Notes.......................................113 10.11.1. Assignments.....................................................113 10.11.2. Participations..................................................115 10.12. Other Transactions..............................................116 10.13. Independence of Covenants.......................................117 10.14. Confidentiality.................................................117 10.15. Forum Selection and Consent to Jurisdiction.....................117 10.16. Waiver of Jury Trial............................................118 SCHEDULE I - Disclosure Schedule SCHEDULE II - Percentages; Notice Information; LIBOR Office; Domestic Office ANNEX I - Corporate and Capital Structure EXHIBIT A-1 - Form of Revolving Note EXHIBIT A-2 - Form of Term A Note EXHIBIT A-3 - Form of Term B Note EXHIBIT A-4 - Form of Swing Line Note EXHIBIT B-1 - Form of Borrowing Request EXHIBIT B-2 - Form of Issuance Request EXHIBIT C - Form of Continuation/Conversion Notice EXHIBIT D - Form of Borrower Closing Date Certificate EXHIBIT E - Form of Compliance Certificate EXHIBIT F - Form of Subsidiary Guaranty EXHIBIT G-1 - Form of Shareholders' Pledge Agreement EXHIBIT G-2 - Form of Borrower Pledge and Security Agreement EXHIBIT G-3 - Form of Subsidiary Pledge and Security Agreement EXHIBIT H - Form of Perfection Certificate EXHIBIT I - Form of Solvency Certificate EXHIBIT J - Form of Interco Subordination Agreement EXHIBIT K - Form of Lender Assignment Agreement CREDIT AGREEMENT THIS CREDIT AGREEMENT, dated as of November 30, 1999, is made by and among OUTSOURCING SOLUTIONS INC., a Delaware corporation (the "Borrower"), the various financial institutions and other Persons (as defined below) from time to time parties hereto (the "Lenders"), DLJ CAPITAL FUNDING, INC. ("DLJ"), as the syndication agent (in such capacity, the "Syndication Agent"), the Lead Arranger and the Sole Book Running Manager, HARRIS TRUST AND SAVINGS BANK, as the documentation agent (in such capacity, the "Documentation Agent"), and FLEET NATIONAL BANK ("Fleet"), as the administrative agent (in such capacity, the "Administrative Agent"). W I T N E S S E T H: WHEREAS, in accordance with and subject to the terms and conditions contained in the Stock Subscription and Redemption Agreement, dated as of October 8, 1999 (the "Recapitalization Agreement"), by and among Madison Dearborn Capital Partners III, L.P., a Delaware limited partnership ("MDCP"), the Borrower and all of the existing equity holders of the Borrower immediately prior to the effectiveness of the Recapitalization Agreement (the "Existing Shareholders"), and upon the consummation of the Transaction referred to below, (i) MDCP will, by way of a recapitalization (the "Recapitalization"), become the direct controlling shareholder of the Borrower, and (ii) certain Existing Shareholders (the "Rollover Shareholders") will retain certain shares of OSI Common Stock and options to purchase OSI Common Stock; WHEREAS, in connection with the Recapitalization, the Borrower intends to refinance (the "Refinancing") its existing senior credit facilities evidenced by that certain Credit Agreement, dated as of November 6, 1996 (as amended, supplemented, amended and restated or otherwise modified prior to the Closing Date, the "Existing Credit Agreement"), among the Borrower, the lenders party thereto, and certain financial institutions as the co-administrative agents; WHEREAS, in connection with the Recapitalization, the Borrower delivered a consent solicitation statement (the "Consent Solicitation Statement") relating to the Subordinated Notes, dated November 9, 1999, to the holders of the Subordinated Notes (the "Subordinated Note Holders") pursuant to which the Borrower solicited (the "Solicitation") the consent of the Subordinated Note Holders to the waiver of, among other things, the Borrower's obligation pursuant to Section 4.15 of the Subordinated Note Indenture to make a Change of Control Offer (as such term is defined in the Subordinated Note Indenture) in connection with the Recapitalization and any and all consequences arising therefrom under the Subordinated Note Indenture; WHEREAS, in connection with the Recapitalization and the Refinancing, and pursuant to the applicable Transaction Documents, prior to or contemporaneously with the consummation of the Recapitalization and the making of the initial Credit Extensions hereunder, the Borrower will (a) receive common equity proceeds of approximately $200,000,000 pursuant to the Recapitalization Agreement (which proceeds shall have been paid by MDCP and its designees to the Borrower) such that, immediately after giving effect to the Recapitalization, MDCP and its designees shall be the holder of approximately 82.5% of the issued and outstanding OSI Common Stock, representing more than 77% of the OSI Common Stock on a fully diluted basis, in each case on the Closing Date; (b) issue (the "PIK Preferred Equity Issuance"), on terms and conditions, and pursuant to documentation (the "PIK Preferred Equity Documents"), reasonably satisfactory in all respects to the Managing Agents, redeemable preferred equity securities (the "PIK Preferred Equity") for not less than $100,000,000 in gross cash proceeds to certain purchasers thereof (collectively, the "PIK Preferred Equity Holders"); and (c) issue (the "Junior PIK Preferred Equity Issuance" and, together with the PIK Preferred Equity Issuance, the "Preferred Equity Issuances"), on terms and conditions, and pursuant to documentation (the "Junior PIK Preferred Equity Documents" and, together with the PIK Preferred Equity Documents, the "Preferred Equity Documents"), reasonably satisfactory in all respects to the Managing Agents, preferred equity securities (the "Junior PIK Preferred Equity" and, together with the PIK Preferred Equity, the "Preferred Equity") to certain of the Existing Shareholders (together with the PIK Preferred Equity Holders, the "Preferred Equity Holders") for not less than $7,000,000 of gross cash proceeds, in connection with the Recapitalization. The transactions set forth in clauses (a) through (c) above, together with the Recapitalization, the Refinancing, the Solicitation and each of the other transactions contemplated thereby and hereby (including the initial Credit Extensions hereunder, but excluding any Credit Extensions made after the Closing Date), shall hereinafter be collectively referred to as the "Transaction", which Transaction shall be consummated for an aggregate amount of approximately $826,000,000 (which shall include the payment of Transaction-related fees and expenses not in excess of $47,000,000); WHEREAS, in order to partially finance the Transaction and in connection with the post-closing ongoing working capital and general corporate needs of the Borrower and its Subsidiaries, the Borrower desires to obtain the following financing facilities from the Lenders: (a) a Term A Loan Commitment and a Term B Loan Commitment pursuant to which Borrowings of Term Loans will be made to the Borrower on the Closing Date in a maximum, original principal amount of $150,000,000 (in the case of Term A Loans) and $250,000,000 (in the case of Term B Loans); (b) a Revolving Loan Commitment (to include availability for Revolving Loans, Swing Line Loans and Letters of Credit) pursuant to which Borrowings of Revolving Loans, in a maximum aggregate principal amount (together with all Swing Line Loans and Letter of Credit Outstandings) not to exceed $75,000,000 will be made to the Borrower from time to time on and subsequent to the Closing Date but prior to the Revolving Loan Commitment Termination Date; (c) a Letter of Credit Commitment pursuant to which the Issuer will issue Letters of Credit for the account of the Borrower and the Subsidiary Guarantors from time to time on and subsequent to the Closing Date but prior to the Revolving Loan Commitment Termination Date in a maximum aggregate Stated Amount at any one time outstanding not to exceed $25,000,000 (provided, that the aggregate outstanding principal amount of Revolving Loans and Swing Line Loans, and Letter of Credit Outstandings at any time shall not exceed the then existing Revolving Loan Commitment Amount); and (d) a Swing Line Loan Commitment pursuant to which Swing Line Loans will be made to the Borrower from time to time on and subsequent to the Closing Date but prior to the Revolving Loan Commitment Termination Date; and WHEREAS, the Lenders and the Issuer are willing, on the terms and subject to the conditions hereinafter set forth, to extend the Commitments and make Loans to the Borrower and issue (or participate in) Letters of Credit; NOW, THEREFORE, the parties hereto agree as follows. ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.1. Defined Terms. The following terms (whether or not underscored) when used in this Agreement, including its preamble and recitals, shall, except where the context otherwise requires, have the following meanings (such meanings to be equally applicable to the singular and plural forms thereof): "Account" means any account (as that term is defined in Section 9-106 of the UCC) of the Borrower or any of its Subsidiaries arising from the sale or lease of goods or rendering of services. "Adjusted Base Rate" means, for any day, a rate per annum equal to the greater of (a) the Prime Rate in effect on such day, and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the Adjusted Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "Adjusted LIBO Rate" means, with respect to any LIBO Rate Loan for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/100 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate. "Administrative Agent" is defined in the preamble and includes each other Person appointed as the successor Administrative Agent pursuant to Section 9.4. "Administrative Agent's Fee Letter" means the confidential letter, dated December 1, 1999, between the Borrower and the Administrative Agent. "Affected Lender" is defined in Section 4.11. "Affiliate" of any Person means any other Person which, directly or indirectly, controls, is controlled by or is under common control with such Person. "Control" of a Person means the power, directly or indirectly, (a) to vote (under ordinary circumstances) 10% or more of the Capital Securities (on a fully diluted basis) of such Person for the election of directors, managing members or general partners (as applicable) or (b) to direct or cause the direction of the management and policies of such Person (whether by contract or otherwise). "Agreement" means, on any date, this Credit Agreement as originally in effect on the Closing Date and as thereafter from time to time amended, supplemented, amended and restated or otherwise modified from time to time and in effect on such date. "Alternative Receivables Program" is defined in clause (a) of Section 7.1.13. "Annualized Basis" means, (a) with respect to the end of the first Fiscal Quarter of the Borrower ending after the Closing Date, the applicable amount for such Fiscal Quarter multiplied by four, (b) with respect to the second Fiscal Quarter of the Borrower ending after the Closing Date, the applicable amount for such Fiscal Quarter and the immediately preceding Fiscal Quarter multiplied by two, and (c) with respect to the third Fiscal Quarter of the Borrower ending after the Closing Date, the applicable amount for such Fiscal Quarter and the immediately preceding two Fiscal Quarters multiplied by one and one-third. "Applicable Commitment Fee" means, (a) for each day from the Closing Date to (but excluding) the date upon which the Compliance Certificate for the second full Fiscal Quarter to have commenced and ended after the Closing Date is required to be delivered by the Borrower to the Administrative Agent pursuant to clause (c) of Section 7.1.1, a fee which shall accrue at a rate of 1/2 of 1% per annum, and (b) at all times from the date the Compliance Certificate described in clause (a) above is required to be delivered, a fee which shall accrue at the applicable rate per annum set forth below under the column entitled "Applicable Commitment Fee", determined by reference to the applicable Leverage Ratio referred to below: Leverage Ratio Applicable Commitment Fee -------------- ------------------------- greater than or equal to 4.00:1.00 0.500% less than 4.00:1.00 0.375% The Leverage Ratio used to compute the Applicable Commitment Fee shall be that set forth in the Compliance Certificate most recently delivered by the Borrower to the Administrative Agent; changes in the Applicable Commitment Fee resulting from a change in the Leverage Ratio shall become effective upon delivery by the Borrower to the Administrative Agent of a new Compliance Certificate pursuant to clause (c) of Section 7.1.1. If the Borrower shall fail to deliver a Compliance Certificate by the delivery due date specified in such clause, the Applicable Commitment Fee from and including the day immediately following such delivery due date to (but excluding) the date the Borrower delivers to the Administrative Agent a Compliance Certificate shall conclusively be equal to the highest Applicable Commitment Fee set forth above. "Applicable Margin" means, at all times during the applicable periods set forth below, (a) on any date, with respect to the unpaid principal amount of each Term B Loan maintained as a (i) Base Rate Loan, 3.00% per annum and (ii) LIBO Rate Loan, 4.00% per annum; (b) from the Closing Date to (but excluding) the date upon which the Compliance Certificate for the second full Fiscal Quarter to have commenced and ended after the Closing Date is required to be delivered by the Borrower to the Administrative Agent pursuant to clause (c) of Section 7.1.1, with respect to the unpaid principal amount of each (i) Revolving Loan and Term A Loan maintained as a Base Rate Loan, 2.25% per annum, and (ii) Revolving Loan and Term A Loan maintained as a LIBO Rate Loan, 3.25% per annum; and (c) at all times from the date the Compliance Certificate described in clause (b) above is required to be delivered, with respect to the unpaid principal amount of each Revolving Loan and Term A Loan, the rate determined by reference to the applicable Leverage Ratio and at the applicable percentage per annum set forth below under the column entitled "Applicable Margin for Base Rate Loans", in the case of such Loans made or maintained as Base Rate Loans, or by reference to the applicable Leverage Ratio and at the applicable percentage per annum set forth below under the column entitled "Applicable Margin for LIBO Rate Loans", in the case of such Loans made or maintained as LIBO Rate Loans: Applicable Applicable Leverage Ratio Margin For Margin For Base Rate Loans LIBO Rate Loans greater than or equal to 4.00:1.00 2.25% 3.25% greater than or equal to 3.50:1.00 and less than 1.75% 2.75% 4.00:1.00 greater than or equal to 2.75:1.00 and less than 1.25% 2.25% 3.50:1.00 less than 2.75:1.00 0.75% 1.75% The Leverage Ratio used to compute the Applicable Margin shall be the Leverage Ratio set forth in the Compliance Certificate most recently delivered by the Borrower to the Administrative Agent; changes in the Applicable Margin resulting from a change in the Leverage Ratio shall become effective upon delivery by the Borrower to the Administrative Agent of a new Compliance Certificate pursuant to clause (c) of Section 7.1.1. If the Borrower shall fail to deliver a Compliance Certificate by the delivery due date specified in such clause, the Applicable Margin from and including the day immediately following such delivery due date to (but excluding) the date the Borrower delivers to the Administrative Agent a Compliance Certificate shall conclusively be equal to the highest Applicable Margin set forth above. "Assignee Lender" is defined in Section 10.11.1. "Assignor Lender" is defined in Section 10.11.1. "Authorized Officer" is defined in clause (b) of Section 5.1.1. "Base Rate Loan" means a Loan bearing interest at a fluctuating rate determined by reference to the Adjusted Base Rate. "Board" means the Board of Governors of the Federal Reserve System of the United States of America. "Borrower" is defined in the preamble. "Borrower Closing Date Certificate" means the closing date certificate executed and delivered by the Borrower pursuant to the terms of this Agreement, substantially in the form of Exhibit D hereto. "Borrower Pledge and Security Agreement" means the Pledge and Security Agreement executed and delivered by an Authorized Officer of the Borrower, substantially in the form of Exhibit G-2 hereto, together with any supplemental Foreign Pledge Agreements delivered from time to time pursuant to any Loan Document, in each case as amended, supplemented, amended and restated or otherwise modified from time to time. "Borrowing" means the Loans of the same type and, in the case of LIBO Rate Loans, having the same Interest Period made by all Lenders required to make such Loans on the same Business Day and pursuant to the same Borrowing Request in accordance with Section 2.1. "Borrowing Request" means a Loan request and certificate duly executed by an Authorized Officer of the Borrower, substantially in the form of Exhibit B-1 hereto. "Business Day" means any day that is not a Saturday, Sunday or other day on which commercial banks in Boston, Massachusetts or New York City are authorized or required by law to remain closed; provided, that when used in connection with a LIBO Rate Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in Dollar deposits in the London interbank market. "Capital Expenditures" means for any period, the sum of (a) the aggregate amount of all expenditures of the Borrower and its Subsidiaries for fixed or capital assets made during such period which, in accordance with GAAP, would be classified as capital expenditures, and (b) the aggregate amount of the principal component of all Capitalized Lease Liabilities incurred during such period by the Borrower and its Subsidiaries; provided, that Capital Expenditures shall not include (i) any such expenditures or any such principal component funded with (x) any Casualty Proceeds, as permitted under clause (h) of Section 3.1.1 or (y) any Net Disposition Proceeds or the proceeds received from any Disposition of obsolete equipment permitted under clause (a) of Section 7.2.11 (collectively referred to as the "Excluded Proceeds"); or (ii) any Investment made under Section 7.2.5 (other than pursuant to clause (d)(i) thereof, but then only to the extent such expenditures were not funded with Excluded Proceeds). "Capital Securities" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of such Person's capital, whether now outstanding or issued after the Closing Date. "Capitalized Lease Liabilities" means all monetary obligations of the Borrower or any of its Subsidiaries under any leasing or similar arrangement which have been (or, in accordance with GAAP, should be) classified as capitalized leases, and for purposes of each Loan Document the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP, and the stated maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a premium or a penalty. "Carry-Forward Amount" is defined in Section 7.2.7. "Cash Collateralize" means, with respect to a Letter of Credit, the deposit of immediately available funds into a cash collateral account maintained with (or on behalf of) the Administrative Agent on terms satisfactory to the Administrative Agent in an amount equal to the Stated Amount of such Letter of Credit. "Cash Equivalent Investment" means, at any time: (a) any direct obligation of (or unconditionally guaranteed by) the United States (or any agency or political subdivision thereof, to the extent such obligations are supported by the full faith and credit of the United States) maturing not more than one year from the date of acquisition thereof; (b) any direct obligation issued by any State of the United States (or any agency or political subdivision thereof) maturing not more than one year from the date of acquisition thereof and (i) backed by the full faith and credit of such State or (ii) at the time of acquisition, having the highest rating obtainable from either S&P or Moody's; (c) commercial paper maturing not more than 365 days from the date of acquisition and rated A-1 or higher by S&P or P-1 or higher by Moody's; (d) any certificate of deposit, time deposit, or bankers acceptance, maturing not more than one year after its date of acquisition, or any demand deposit accounts which, in any case, is issued by or established at either (i) any bank organized under the laws of the United States (or any State thereof) and which has (x) a credit rating of A2 or higher from Moody's or A or higher from S&P and (y) a combined capital and surplus greater than $250,000,000 or (ii) any Lender; (e) any repurchase agreement having a term of 7 days or less entered into with any Lender or any commercial banking institution satisfying the criteria set forth in clause (c)(i) which (i) is secured by a fully perfected security interest in any obligation of the type described in clause (a), and (ii) has a market value at the time such repurchase agreement is entered into of not less than 100% of the repurchase obligation of such commercial banking institution thereunder; or (f) shares of investment companies that are registered under the Investment Company Act of 1940, as amended, and that invest solely in one or more of the types of securities described in clauses (a) through (e) above. "Casualty Event" means the damage, destruction or condemnation, as the case may be, of any property of the Borrower or any of its Subsidiaries. "Casualty Proceeds" means, with respect to any Casualty Event, the cash amount of any insurance proceeds under any casualty insurance policy or condemnation awards received by the Borrower or any of its Subsidiaries in connection therewith, but excluding any proceeds or awards required to be paid to a creditor (other than the Lenders) which holds a Lien on the property which is the subject of such Casualty Event which Lien (i) is a Permitted Lien and (ii) has priority over the Liens securing the Obligations. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended. "CERCLIS" means the Comprehensive Environmental Response Compensation Liability Information System List. "Change in Control" means (a) the failure of Madison at any time to, directly or indirectly, (i) own beneficially on a fully diluted basis at least 51% of the issued and outstanding OSI Common Stock, all such OSI Common Stock to be held free and clear of all Liens (other than Liens granted under a Loan Document) or (ii) have the right to designate or cause to be elected a majority of the Board of Directors of the Borrower; or (b) at any time after the creation of a Public Market, any person or group (within the meaning of Sections 13(d) and 14(d) under the Exchange Act), other than Madison, becoming the ultimate "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of Voting Securities representing 30% or more of the Voting Securities of the Borrower on a fully diluted basis; or (c) the occurrence of any "Change of Control" (or similar term) under (and as defined in) any Subordinated Debt Document. "Closing Date" means the date (which shall be a Business Day) of the initial Credit Extension hereunder. "Code" means the Internal Revenue Code of 1986, and the regulations thereunder, in each case as amended, reformed or otherwise modified from time to time. "Commitment" means, as the context may require, a Lender's Term A Loan Commitment, Term B Loan Commitment, Revolving Loan Commitment, Letter of Credit Commitment or Swing Line Loan Commitment. "Commitment Amount" means, as the context may require, the Term A Loan Commitment Amount, the Term B Loan Commitment Amount, the Revolving Loan Commitment Amount, the Letter of Credit Commitment Amount or the Swing Line Loan Commitment Amount. "Commitment Termination Date" means, as the context may require, the Term A Loan Commitment Termination Date, the Term B Loan Commitment Termination Date or the Revolving Loan Commitment Termination Date. "Commitment Termination Event" means (a) the occurrence of any Event of Default described in clauses (a) through (d) of Section 8.1.9 with respect to the Borrower; or (b) the occurrence and continuance of any other Event of Default and either (i) the declaration of all or any portion of the Loans to be due and payable pursuant to Section 8.3 or (ii) the giving of notice by the Administrative Agent, acting at the direction of the Required Lenders, to the Borrower that the Commitments have been terminated. "Compliance Certificate" means a certificate duly completed and executed by the chief financial or accounting Authorized Officer of the Borrower, substantially in the form of Exhibit E hereto, together with such changes thereto as the Administrative Agent may from time to time reasonably request for the purpose of monitoring the Borrower's compliance with the financial covenants contained herein. "Consent Solicitation Statement" is defined in the third recital. "Contingent Liability" means any agreement, undertaking or arrangement by which any Person guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the Indebtedness of any other Person (other than by endorsements of instruments in the course of collection), or guarantees the payment of dividends or other distributions upon the Capital Securities of any other Person. The amount of any Person's obligation under any Contingent Liability shall be deemed to be the outstanding principal amount of the debt, obligation or other liability guaranteed thereby (reduced to the extent that such Person's obligation thereunder is reduced by applicable law or valid contractual agreement). "Continuation/Conversion Notice" means a notice of continuation or conversion and certificate duly executed by an Authorized Officer of the Borrower, substantially in the form of Exhibit C hereto. "Controlled Group" means all members of a controlled group of corporations and all members of a controlled group of trades or businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414(b) or 414(c) of the Code or Section 4001 of ERISA. "Copyright Security Agreement" means any Copyright Security Agreement executed and delivered by any Obligor in substantially the form of Exhibit C to either Pledge and Security Agreement, as amended, supplemented, amended and restated or otherwise modified from time to time. "Credit Extension" means, as the context may require, (a) the making of a Loan by a Lender; or (b) the issuance of any Letter of Credit, or the extension of any Stated Expiry Date of any existing Letter of Credit, by the applicable Issuer. "Credit Extension Request" means, as the context may require, any Borrowing Request or Issuance Request. "Current Assets" means, on any date, all assets (other than receivables portfolios owned on the Closing Date and thereafter acquired by the Borrower or any of its Subsidiaries in connection with any Permitted Portfolio Acquisition) which, in accordance with GAAP, would be included as current assets on a consolidated balance sheet of the Borrower and its Subsidiaries at such date as current assets. "Current Liabilities" means, on any date, all amounts which, in accordance with GAAP, would be included as current liabilities on a consolidated balance sheet of the Borrower and its Subsidiaries at such date, excluding current maturities of Indebtedness. "Default" means any Event of Default or any condition, occurrence or event which, after notice or lapse of time or both, would constitute an Event of Default. "Disbursement" is defined in Section 2.6.2. "Disbursement Date" is defined in Section 2.6.2. "Disclosure Schedule" means the Disclosure Schedule attached hereto as Schedule I, as it may be amended, supplemented, amended and restated or otherwise modified from time to time by the Borrower with the written consent of the Required Lenders. "Disposition" (or similar words such as "Dispose") means any sale, transfer, lease, contribution or other conveyance (including by way of merger) of, or the granting of options, warrants or other rights to, any of the Borrower's or its Subsidiaries' assets (including accounts receivables and Capital Securities of Subsidiaries) to any other Person (other than to another Obligor) in a single transaction or series of related transactions (provided, that "Disposition" shall exclude the write-off in the ordinary course of business of amounts owing to the Borrower or its Subsidiaries which the Borrower has determined to be uncollectible). "DLJ" is defined in the preamble. "Documentation Agent" is defined in the preamble. "Dollar" and the sign "$" mean lawful money of the United States. "Domestic Office" means the office of a Lender designated as its "Domestic Office" on Schedule II hereto or in a Lender Assignment Agreement, or such other office within the United States as may be designated from time to time by notice from such Lender to the Administrative Agent and the Borrower. "Domestic Subsidiary" means any Subsidiary that is incorporated or organized in or under the laws of the United States, any state thereof or the District of Columbia. "EBITDA" means, for any applicable period, the sum for the Borrower and its Subsidiaries on a consolidated basis of (a) Net Income, plus (b) the amount deducted in determining Net Income representing non-cash charges or expenses, including depreciation and amortization (excluding any non-cash charges representing an accrual of or reserve for cash charges to be paid within the next twelve months), plus (c) the amount deducted in determining Net Income representing income taxes (other than for the OSIFC Family) (whether paid or deferred), plus (d) the amount deducted in determining Net Income representing Interest Expense and all fees, expenses and management bonuses (to the extent, in the case of management bonuses, paid at or accrued for or prior to the Closing Date) and financing costs incurred in connection with the Transaction, plus (e) the amount deducted in determining Net Income representing fees paid to Madison in an aggregate amount not to exceed $500,000 per annum; provided, however, that "EBITDA" for any such applicable period ending on March 31, 2000, June 30, 2000 and September 30, 2000 shall be increased by an amount equal to $9,000,000, $6,000,000 and $3,000,000, respectively. "Environmental Laws" means all applicable and legally binding federal, state or local statutes, laws, ordinances, codes, rules, regulations and guidelines (including consent decrees and administrative orders) relating to public health and safety and protection of the environment. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute thereto of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to Sections of ERISA also refer to any successor Sections thereto. "Event of Default" is defined in Section 8.1. "Excess Cash Flow" means, for any applicable period, the excess (if any), of (a) EBITDA for such applicable period; over (b) the sum (for such applicable period) of (i) the cash portion of Interest Expense (net of cash interest income) for such applicable period; plus (ii) voluntary and mandatory prepayments of, and scheduled repayments of, the principal amount of Total Debt, including Capitalized Lease Liabilities, Term Loans and Revolving Loans (provided, that, in the case of Revolving Loans, there is a corresponding permanent reduction in the Revolving Loan Commitment Amount), in each case, to the extent actually made and for such applicable period; plus (iii) all federal, state and foreign income taxes actually paid or payable in cash by the Borrower and its Subsidiaries for such applicable period; plus (iv) Capital Expenditures actually made during such applicable period pursuant to clause (a) of Section 7.2.7 (excluding Capital Expenditures constituting Capitalized Lease Liabilities and by way of the incurrence of Indebtedness permitted pursuant to clause (e) of Section 7.2.2 to a vendor of any assets permitted to be acquired pursuant to Section 7.2.7 to finance the acquisition of such assets); plus (v) the amount of the net increase (if any) of Current Assets, other than cash and Cash Equivalent Investments, over Current Liabilities of the Borrower and its Subsidiaries for such applicable period; plus (vi) Investments permitted and actually made, in cash, pursuant to clause (d)(i), (g), (k) or (m) of Section 7.2.5 during such applicable period (excluding Investments financed with the proceeds of any issuance of Capital Securities or Indebtedness other than Revolving Loans); plus (vii) Restricted Payments (in an amount not to exceed $500,000) paid pursuant to clause (c) of Section 7.2.6 made during such applicable period. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Excluded Proceeds" is defined in the definition of "Capital Expenditures". "Exemption Certificate" is defined in clause (e) of Section 4.6. "Existing Credit Agreement" is defined in the second recital. "Existing Letters of Credit" means each letter of credit identified in Item 2.1.2 of the Disclosure Schedule. "Existing Shareholders" is defined in the first recital. "Federal Funds Effective Rate" means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Fee Letter" means the confidential letter, dated October 8, 1999, between DLJ and MDCP. "Filing Agent" is defined in Section 5.1.10. "Filing Statement" is defined in Section 5.1.10. "Fiscal Month" means any fiscal month of a Fiscal Year. "Fiscal Quarter" means a quarter ending on the last day of March, June, September or December. "Fiscal Year" means any period of twelve consecutive calendar months ending on December 31; references to a Fiscal Year with a number corresponding to any calendar year (e.g., the "2000 Fiscal Year") refer to the Fiscal Year ending on December 31 of such calendar year. "Fixed Charge Coverage Ratio" means, at the end of any Fiscal Quarter, the ratio computed for the period consisting of such Fiscal Quarter and each of the three immediately prior Fiscal Quarters of (a) EBITDA for all such Fiscal Quarters to (b) the sum of (i) Capital Expenditures actually made during such applicable period pursuant to clause (a) of Section 7.2.7 (excluding Capital Expenditures constituting Capitalized Lease Liabilities and by way of the incurrence of Indebtedness permitted pursuant to clause (e) of Section 7.2.2 to a vendor of any assets permitted to be acquired pursuant to Section 7.2.7 to finance the acquisition of such assets); plus (ii) the cash portion of Interest Expense (net of cash interest income) for all such Fiscal Quarters, provided that for the first three Fiscal Quarters ending after the Closing Date, Interest Expense shall be determined on an Annualized Basis; plus (iii) all scheduled payments of principal of Total Debt (including the Term Loans and the principal portion of any Capitalized Lease Liabilities) during all such Fiscal Quarters, provided that for the first three Fiscal Quarters ending after the Closing Date, such payments shall be determined on an Annualized Basis; plus (iv) Restricted Payments made or permitted to be made pursuant to clause (a) of Section 7.2.6 during all such Fiscal Quarters; plus (v) all federal, state and foreign income taxes actually paid or payable in cash by the Borrower and its Subsidiaries for all such Fiscal Quarters. "Fleet" is defined in the preamble. "Foreign Pledge Agreement" means any supplemental pledge agreement governed by the laws of a jurisdiction other than the United States or a State thereof executed and delivered from time to time by the Borrower or any Subsidiary Guarantor pursuant to the terms of the applicable Pledge and Security Agreement, in form and substance reasonably satisfactory to the Administrative Agent, as may be necessary or desirable under the laws of organization or incorporation of a Subsidiary to further protect or perfect the Lien on and security interest in any Collateral (as defined in a Pledge and Security Agreement). "Foreign Subsidiary" means any Subsidiary that is not a Domestic Subsidiary. "GAAP" is defined in Section 1.4. "Governmental Authority" means the government of the United States, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank, the NAIC or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "Hazardous Material" means (a) any "hazardous substance", as defined by CERCLA; (b) any "hazardous waste", as defined by the Resource Conservation and Recovery Act, as amended; (c) any petroleum product; or (d) any pollutant or contaminant or hazardous, dangerous or toxic chemical, material or substance (including any petroleum product) within the meaning of any other Environmental Laws. "Hedging Obligations" means, with respect to any Person, all liabilities of such Person under currency exchange agreements, interest rate swap agreements, interest rate cap agreements and interest rate collar agreements, and all other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency exchange rates. "herein", "hereof", "hereto", "hereunder" and similar terms contained in any Loan Document refer to such Loan Document as a whole and not to any particular Section, paragraph or provision of such Loan Document. "Impermissible Qualification" means, relative to the opinion or certification of any independent public accountant as to any financial statement of any Obligor, any qualification or exception to such opinion or certification (i) which is of a "going concern" or similar nature, (ii) which relates to the limited scope of examination of matters relevant to such financial statement (except, in the case of matters relating to any acquired business or assets, in respect of the period prior to the acquisition by such Obligor of such business or assets), or (iii) which relates to the treatment or classification of any item in such financial statement and which, as a condition to its removal, would require an adjustment to such item the effect of which would be to cause the Borrower to be in default of any of its obligations under Section 7.2.4. "including" and "include" means including without limiting the generality of any description preceding such term, and, for purposes of each Loan Document, the parties hereto agree that the rule of ejusdem generis shall not be applicable to limit a general statement, which is followed by or referable to an enumeration of specific matters, to matters similar to the matters specifically mentioned. "Indebtedness" of any Person means: (a) all obligations of such Person for borrowed money or for the deferred purchase price of property or services (exclusive of (i) deferred purchase price arrangements in the nature of open or other accounts payable owed to suppliers on normal terms in connection with the purchase of goods and services in the ordinary course of business, (ii) accrued expenses incurred in the ordinary course of business and (iii) Specified Liabilities (until such time as the obligation associated with such Specified Liabilities is recorded as a liability on the balance sheet of the Borrower in accordance with GAAP)) and all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (b) all obligations, contingent or otherwise, relative to the face amount of all letters of credit, whether or not drawn, and banker's acceptances issued for the account of such Person; (c) all Capitalized Lease Liabilities; (d) net liabilities of such Person under all Hedging Obligations; (e) whether or not so included as liabilities in accordance with GAAP, all Indebtedness of the types referred to in clauses (a) through (d) above (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including Indebtedness arising under conditional sales or other title retention agreements), whether or not such Indebtedness shall have been assumed by such Person or is limited in recourse; provided, however, that, to the extent such Indebtedness is limited in recourse to the assets securing such Indebtedness, the amount of such Indebtedness shall be limited to the fair market value of such assets; (f) for purposes of Section 8.1.5 only, all other items which, in accordance with GAAP, would be included as liabilities on the liability side of the balance sheet of such Person as of the date at which Indebtedness is to be determined; (g) all Receivables Facility Outstandings; and (h) all Contingent Liabilities of such Person in respect of any of the foregoing. For all purposes of this Agreement, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture in which such Person is a general partner or a joint venturer (but only to the extent such Person is liable for such Indebtedness), but shall not include any preferred stock. "Indemnified Liabilities" is defined in Section 10.4. "Indemnified Parties" is defined in Section 10.4. "Interco Subordination Agreement" means the Intercompany Subordination Agreement, substantially in the form of Exhibit J hereto, executed and delivered by two or more Obligors pursuant to the terms of this Agreement, as amended, supplemented, amended and restated or otherwise modified from time to time. "Intercompany Note" means, with respect to the Borrower or any of its Subsidiaries, as the maker thereof, a promissory note substantially in the form of Exhibit A to any Pledge Agreement (with such modifications as the Administrative Agent may consent to, such consent not to be unreasonably withheld), which promissory note shall evidence all intercompany loans which may be made from time to time by the payee thereunder to such maker and shall be duly endorsed and pledged by the payee in favor of the Administrative Agent. "Interest Coverage Ratio" means, at the end of any Fiscal Quarter, the ratio computed for the period consisting of such Fiscal Quarter and each of the three immediately prior Fiscal Quarters of: (a) EBITDA (for all such Fiscal Quarters) to (b) the cash portion of Interest Expense (net of cash interest income) for all such Fiscal Quarters; provided that for the first full three Fiscal Quarters ending after the Closing Date, Interest Expense shall be determined on an Annualized Basis. "Interest Expense" means, for any applicable period, the aggregate consolidated interest expense of the Borrower and its Subsidiaries for such applicable period, as determined in accordance with GAAP, including the portion of any payments made in respect of Capitalized Lease Liabilities allocable to interest expense, but excluding (to the extent included in interest expense) up-front fees and expenses and the amortization of all deferred financing costs. "Interest Period" means, relative to any LIBO Rate Loan, the period beginning on (and including) the date on which such LIBO Rate Loan is made or continued as, or converted into, a LIBO Rate Loan pursuant to Section 2.3 or 2.4 and shall end on (but exclude) the day which numerically corresponds to such date one, two, three or six months thereafter (or, if such month has no numerically corresponding day, on the last Business Day of such month), as the Borrower may select in its relevant notice pursuant to Section 2.3 or 2.4; provided, however, that (a) the Borrower shall not be permitted to select Interest Periods to be in effect at any one time which have expiration dates occurring on more than eight different dates (it being understood that there shall not be more than eight contracts in respect of LIBO Rate Loans in effect at any one time); (b) if such Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next following Business Day (unless such next following Business Day is the first Business Day of a calendar month, in which case such Interest Period shall end on the Business Day next preceding such numerically corresponding day); and (c) no Interest Period for any Loan may end later than the Stated Maturity Date for such Loan. "Investment" means, relative to any Person, (a) any loan, advance or extension of credit made by such Person to any other Person (other than officers and employees in the ordinary course of business for commissions, travel, relocation and similar expenses), including the purchase by such Person of any bonds, notes, debentures or other debt securities of any other Person; and (b) any Capital Securities acquired by such Person in any other Person. The amount of any Investment shall be the original principal or capital amount thereof less all returns of principal or equity thereon and shall, if made by the transfer or exchange of property other than cash, be deemed to have been made in an original principal or capital amount equal to the fair market value of such property at the time of such Investment. "ISP Rules" is defined in Section 10.9. "Issuance Request" means a Letter of Credit request and certificate duly executed by an Authorized Officer of the Borrower, substantially in the form of Exhibit B-2 hereto. "Issuer" means the Administrative Agent in its capacity as Issuer of the Letters of Credit. At the request of the Administrative Agent and with the Borrower's consent (not to be unreasonably withheld), another Lender or an Affiliate of the Administrative Agent may issue one or more Letters of Credit hereunder. Furthermore, the parties hereto acknowledge and agree that The Chase Manhattan Bank and BankBoston, N.A. shall each be deemed to be an "Issuer" under the terms of this Agreement with respect to the Existing Letters of Credit issued by each one of them. "Junior PIK Preferred Equity" is defined in clause (c) of the fourth recital. "Junior PIK Preferred Equity Documents" is defined in clause (c) of the fourth recital. "Junior PIK Preferred Equity Holders" is defined in clause (c) of the fourth recital. "Junior PIK Preferred Equity Issuance" is defined in clause (c) of the fourth recital. "Lender Assignment Agreement" means an assignment agreement substantially in the form of Exhibit K hereto. "Lenders" is defined in the preamble (and includes any Person that becomes a Lender pursuant to Section 10.11.1). "Lender's Environmental Liability" means any and all losses, liabilities, obligations, penalties, claims, litigation, demands, defenses, costs, judgments, suits, proceedings, damages (including consequential damages), disbursements or expenses of any kind or nature whatsoever (including reasonable attorneys' fees at trial and appellate levels and experts' fees and disbursements and expenses incurred in investigating, defending against or prosecuting any litigation, claim or proceeding) which may at any time be imposed upon, or asserted or awarded against, the Administrative Agent, the Syndication Agent, any Lender, the Issuers or any of such Person's Affiliates, shareholders, directors, officers, employees, and agents in connection with or arising from: (a) any Hazardous Material on, in, under or affecting all or any portion of any property of the Borrower or any of its Subsidiaries, the groundwater thereunder, or any surrounding areas thereof to the extent caused by Releases from the Borrower's or any of its Subsidiaries' or any of their respective predecessors' properties; (b) any investigation, claim, litigation or proceeding related to personal injury arising from exposure or alleged exposure to Hazardous Materials handled by the Borrower or any of its Subsidiaries; (c) any misrepresentation, inaccuracy or breach of any warranty, contained or referred to in Section 6.12; (d) any violation or claim of violation by the Borrower or any of its Subsidiaries of any Environmental Laws; or (e) the imposition of any lien for damages caused by or the recovery of any costs for the cleanup, release or threatened release of Hazardous Material by the Borrower or any of its Subsidiaries, or in connection with any property owned or formerly owned by the Borrower or any of its Subsidiaries. "Letter of Credit" means (i) any standby letters of credit issued on or after the Closing Date for the account of the Borrower or any Subsidiary Guarantor (other than UAS) in accordance with the terms of this Agreement and (ii) each of the Existing Letters of Credit. "Letter of Credit Commitment" means the Issuers' obligation to issue Letters of Credit pursuant to Section 2.1.2 and, with respect to each Revolving Loan Lender, the obligations of each such Lender to participate in such Letters of Credit pursuant to Section 2.6.1. "Letter of Credit Commitment Amount" means, on any date, a maximum amount of $25,000,000, as such amount may be permanently reduced from time to time pursuant to Section 2.2. "Letter of Credit Outstandings" means, on any date, an amount equal to the sum of (i) the then aggregate amount which is undrawn and available under all issued and outstanding Letters of Credit, and (ii) the then aggregate amount of all unpaid and outstanding Reimbursement Obligations. "Leverage Ratio" means, at the end of any Fiscal Quarter, the ratio of (a) Total Debt less cash and Cash Equivalent Investments (in each case, exclusive of the Restricted Cash Balance on such date) of the Borrower and its Subsidiaries on a consolidated basis outstanding at such time; to (b) EBITDA for the period of four consecutive Fiscal Quarters ended on such date. "LIBO Rate" means, with respect to any LIBO Rate Loan for any Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to Dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for Dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the "LIBO Rate" with respect to such LIBO Rate Loan for such Interest Period shall be the rate at which Dollar deposits of $5,000,000, and for a maturity comparable to such Interest Period, are offered by the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. "LIBO Rate Loan" means a Loan bearing interest, at all times during an Interest Period applicable to such Loan, at a rate of interest determined by reference to the Adjusted LIBO Rate. "LIBOR Office" means the office of a Lender designated as its "LIBOR Office" on Schedule II hereto or in a Lender Assignment Agreement, or such other office designated from time to time by notice from such Lender to the Borrower and the Administrative Agent, whether or not outside the United States, which shall be making or maintaining the LIBO Rate Loans of such Lender. "Lien" means any security interest, mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or otherwise), charge against or interest in property, or other priority or preferential arrangement of any kind or nature whatsoever, to secure payment of a debt or performance of an obligation. "Loan" means, as the context may require, a Revolving Loan, a Term Loan or a Swing Line Loan of any type. "Loan Documents" collectively means this Agreement, the Letters of Credit, the Notes, each Rate Protection Agreement, the Interco Subordination Agreement, the Fee Letter, the Administrative Agent's Fee Letter, each agreement pursuant to which the Administrative Agent is granted a Lien to secure the Obligations, each Credit Extension Request and each other agreement, certificate, document or instrument (in each case other than any Transaction Documents) delivered in connection with any Loan Document, whether or not specifically mentioned herein or therein. "Madison" means Madison Dearborn Capital Partners III, L.P., a Delaware limited partnership, Madison Dearborn Partners III, L.P., a Delaware limited partnership, and any Person that the general partner of Madison Dearborn Partners III, L.P. has the power to direct or cause the direction of the management and policies thereof (whether by contract or otherwise). "Managing Agents" means, as the context may require, the Administrative Agent and/or the Syndication Agent. "Material Adverse Effect" means a material adverse effect on (i) the business, operations, results of operations, business prospects (which could reasonably be expected to result in a Default) or financial condition of the Borrower and its Subsidiaries taken as a whole, (ii) the rights and remedies of any Secured Party under any Loan Document or (iii) the ability of any Obligor to perform its Obligations under any Loan Document. "Material Documents" means, collectively, the Recapitalization Agreement (including any and all exhibits thereto), the Preferred Equity Documents (including any and all exhibits thereto), the Consent Solicitation Statement, and the Organic Documents of the Borrower and the Subsidiary Guarantors, in each case as amended, supplemented, amended and restated or otherwise modified from time to time in accordance with Section 7.2.12. "MDCP" is defined in the first recital. "Moody's" means Moody's Investors Service, Inc. "Mortgage" means each mortgage, deed of trust or other agreement, in any case in form and substance reasonably satisfactory to the Administrative Agent, executed and delivered by any Obligor in favor of the Administrative Agent for the benefit of the Secured Parties pursuant to the requirements of this Agreement, under which a Lien is granted on the real property and fixtures described therein, in each case as amended, supplemented, amended and restated or otherwise modified from time to time. "NAIC" means the National Association of Insurance Commissioners. "Net Debt Proceeds" means with respect to the incurrence, sale or issuance by the Borrower or any of its Subsidiaries of any Indebtedness (other than any Indebtedness permitted by Section 7.2.2, as such Section may be amended or modified with the consent of the Required Lenders), the excess of: (a) the gross cash proceeds received by such Person from such incurrence, sale or issuance, over (b) the sum of (i) all reasonable and customary underwriting commissions and legal, investment banking, brokerage and accounting and other professional fees, sales commissions and disbursements and all other reasonable fees, expenses and charges, in each case actually incurred in connection with such incurrence, sale or issuance and (ii) in the case of any Indebtedness incurred, sold or issued by any Non-Guarantor that is a Foreign Subsidiary, any taxes or other costs or expenses resulting from repatriating any such proceeds to the United States. "Net Disposition Proceeds" means, with respect to any Disposition of any assets of the Borrower or any of its Subsidiaries permitted pursuant to clause (d) of Section 7.2.11, the excess of (a) the gross cash proceeds received by such Person from any such Disposition and any cash payments when received in respect of promissory notes or other non-cash consideration delivered to such Person in respect thereof, over (b) the sum of (i) all reasonable and customary fees and expenses with respect to legal, investment banking, brokerage and accounting and other professional fees, sales commissions and disbursements and all other reasonable fees, expenses and charges, in each case actually incurred in connection with such Disposition, (ii) all Taxes and other governmental costs and expenses actually paid or estimated by such Person (in good faith) to be payable in cash in connection with such Disposition (including, in the event of a Disposition of non-U.S. assets, any such taxes or other costs or expenses resulting from repatriating any such proceeds to the United States), (iii) payments made by such Person to retire Indebtedness (other than the Credit Extensions) of such Person where payment of such Indebtedness is required in connection with such Disposition and (iv) reserves for purchase price adjustments, including earn-out payments, and retained fixed liabilities that are payable by the Borrower or such Subsidiary in cash to the extent required under GAAP in connection with such Disposition; provided, however, that if, after the payment of all Taxes, purchase price adjustments, including earn-out payments, and retained fixed liabilities with respect to such Disposition, the amount of estimated Taxes, purchase price adjustments, including earn-out payments, and retained fixed liabilities, if any, pursuant to clause (b)(ii) or (b)(iv) above exceeded the amount of Taxes, purchase price adjustments, including earn-out payments, and retained fixed liabilities amount actually paid in cash in respect of such Disposition, the aggregate amount of such excess shall, at such time, constitute Net Disposition Proceeds. "Net Equity Proceeds" means with respect to the sale or issuance by the Borrower to any Person of any Capital Securities of the Borrower, or any warrants or options with respect to any such Capital Securities or the exercise of any such warrants or options after the Closing Date (other than any sale or issuance to, or exercise by, any directors, officers, employees or consultants of the Borrower and its Subsidiaries), the excess of: (a) the gross cash proceeds received by the Borrower from such sale, exercise or issuance, over (b) all reasonable and customary underwriting commissions and legal, investment banking, brokerage, accounting and other professional fees, sales commissions and disbursements and all other reasonable fees, expenses and charges, in each case actually incurred in connection with such sale or issuance. "Net Income" means, for any period, the aggregate of all amounts (exclusive of (i) extraordinary gains and losses, (ii) gains and losses from Dispositions, and (iii) non-cash restructuring charges, but including dividends or distributions paid in cash by OSIFC to the Borrower) which would be included as net income on the consolidated financial statements of the Borrower and its Subsidiaries for such period; provided, however, that non-recurring expenses associated with personnel and facility relocations, strategic reviews, branding and Year 2000 compliance incurred during any of the four Fiscal Quarters ending prior to the Closing Date shall be included in the determination of Net Income. "Non-Domestic Secured Party" means any Secured Party that is not a "United States person", as defined under Section 7701(a)(30) of the Code. "Non-Excluded Taxes" means any Taxes other than net income and franchise Taxes imposed with respect to any Secured Party by a Governmental Authority under the laws of which such Secured Party is organized or in which it maintains its applicable lending office or under the jurisdiction of which such Secured Party maintains a fixed place of business or otherwise engages in business. "Non-Guarantor" means Pay Tech, and each other Subsidiary of the Borrower which is not a Subsidiary Guarantor. "Note" means, as the context may require, a Revolving Note, a Term A Note, a Term B Note or a Swing Line Note. "Obligations" means all obligations (monetary or otherwise, whether absolute or contingent, matured or unmatured) of each Obligor arising under or in connection with a Loan Document, including the principal of and premium, if any, and interest (including interest accruing during the pendency of any proceeding of the type described in Section 8.1.9, whether or not allowed in such proceeding) on the Loans and all Reimbursement Obligations. "Obligor" means, as the context may require, the Borrower and each other Person (other than (i) a Secured Party and (ii) any OSI Shareholder) obligated under any Loan Document. "Organic Document" means, relative to any Person, as applicable, its certificate of incorporation, by-laws, certificate of partnership, partnership agreement, certificate of formation, limited liability agreement and all shareholder agreements, voting trusts and similar arrangements applicable to any of such Person's partnership interests, limited liability company interests or authorized shares of Capital Securities. "OSI Common Stock" means the common stock of the Borrower, $0.01 par value per share. "OSI Shareholders" means MDCP and each other shareholder of the OSI Common Stock who is obligated under the Shareholders' Pledge Agreement. "OSIFC" means OSI Funding Corp., a Delaware corporation and a wholly owned Subsidiary of the Borrower (which shall be converted to a non-Subsidiary limited liability company after the Closing Date as contemplated in Section 7.4). "OSIFC Family" and "OSIFC Family Member" means OSIFC and/or any Subsidiary of OSIFC, either collectively or individually, as the context may require. "OSIPS" means OSI Portfolio Services, Inc. (formerly known as Account Portfolios, Inc.), a Delaware corporation and a wholly owned Subsidiary of the Borrower. "Other Person" is defined in the definition of "Subsidiary". "Other Taxes" means any and all stamp, documentary or similar taxes, or any other excise or property taxes or similar levies that arise on account of any payment made or required to be made under any Loan Document or from the execution, delivery, registration, recording or enforcement of any Loan Document; provided, that the term "Other Taxes" shall not include any net income or franchise taxes. "Outstanding Amount" is defined in clause (c) of Section 2.3.2. "Participant" is defined in Section 10.11.2. "Patent Security Agreement" means any Patent Security Agreement executed and delivered by any Obligor in substantially the form of Exhibit A to either Pledge and Security Agreement, as amended, supplemented, amended and restated or otherwise modified from time to time. "Pay Tech" means Pay Tech, Inc., a Wisconsin corporation and a Subsidiary of the Borrower. "PBGC" means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. "Pension Plan" means a "pension plan", as such term is defined in Section 3(2) of ERISA, which is subject to Title IV of ERISA (other than a multiemployer plan as defined in Section 4001(a)(3) of ERISA), and to which the Borrower or any corporation, trade or business that is, along with the Borrower, a member of a Controlled Group, may have liability, including any liability by reason of having been a substantial employer within the meaning of Section 4063 of ERISA at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under Section 4069 of ERISA. "Percentage" means, as the context may require, any Lender's RL Percentage, Term A Loan Percentage or Term B Loan Percentage. "Perfection Certificate" means the Perfection Certificate executed and delivered by an Authorized Officer of each Obligor that is a party to Pledge and Security Agreement pursuant to Section 5.1.15 or 7.1.8, substantially in the form of Exhibit H hereto, as amended, supplemented, amended and restated or otherwise modified from time to time. "Permitted Acquisition" means an acquisition of Capital Securities (by merger, consolidation, purchase or otherwise) or of all or substantially all of the assets by the Borrower or any Subsidiary (other than any OSIFC Family Member) from any Person in which the following conditions are satisfied: (a) immediately before and after giving effect to such acquisition no Default shall have occurred and be continuing or would result therefrom (including under Section 7.2.1); (b) the Borrower shall have delivered to the Administrative Agent a Compliance Certificate for the period of four full Fiscal Quarters immediately preceding such acquisition (prepared in good faith and in a manner and using such methodology which is consistent with the most recent financial statements delivered pursuant to Section 7.1.1) giving pro forma effect to the consummation of such acquisition and evidencing compliance with the covenants set forth in Section 7.2.4; (c) such acquisition, if an acquisition of Capital Securities, shall result in the issuer of such Capital Securities becoming a wholly owned Subsidiary; and (d) upon the consummation of such acquisition, the provisions of Section 7.1.8 are complied with. "Permitted Lien" means any Lien described in Section 7.2.3. "Permitted Portfolio Acquisition" is defined in clause (m) of Section 7.2.5. "Permitted Receivables Amount" means (initially) $100,000,000, as such amount may be cumulatively increased from time to time following the 2001 Fiscal Year (in an aggregate amount not to exceed $55,000,000 over the term of this Agreement) by the "Increased Amount" set forth below if the Leverage Ratio as of the last day of any Fiscal Year is less than that set forth below (provided, that, (i) once a particular Leverage Ratio has been achieved, the Permitted Receivables Amount shall only be subsequently increased if at least the next succeeding minimum Leverage Ratio (the "Next Ratio") is achieved in a subsequent Fiscal Year and (ii) if, in any given Fiscal Year, the Leverage Ratio falls below the next succeeding minimum Leverage Ratio below the Next Ratio, the Permitted Receivables Amount will be cumulatively increased by the full amount of the applicable Increased Amounts set forth below (i.e., if, at the end of Fiscal Year 1, the Leverage Ratio is 2.80:1.00 and, thereafter, the Leverage Ratio is 2.20:1.00 at the end of Fiscal Year 2, on and as of the appropriate date, the Permitted Receivables Amount will be increased by $20,000,000)): Leverage Ratio Less Than Increased Amount --------------- ---------------- 3.25:1.00 $15,000,000 2.75:1.00 $10,000,000 2.25:1.00 $10,000,000 1.75:1.00 $10,000,000 1.25:1.00 $10,000,000 The Leverage Ratio used to compute the Increased Amount shall be that set forth in the Compliance Certificate delivered by the Borrower to the Administrative Agent for the fourth Fiscal Quarter of each Fiscal Year (beginning with the fourth Fiscal Quarter of the 2001 Fiscal Year); provided, that the Increased Amount shall only become effective from and subsequent to the date such Compliance Certificate is actually delivered and only if such Compliance Certificate also demonstrates that (i) no Default shall have occurred and be continuing and (ii) the Borrower was in compliance with the covenants set forth in Section 7.2.4 during the fourth Fiscal Quarter of the Fiscal Year in respect of which such Compliance Certificate is delivered. "Permitted Receivables Transaction" means any transaction (including any Alternative Receivables Program), providing for the sale or financing of Accounts with customary limited recourse based on the collectability of the Accounts sold, consummated pursuant to and in accordance with the Receivables Documents. "Permitted Refinancing" means, as to any Indebtedness (other than the Obligations), the incurrence of other Indebtedness (whether with the same or different lenders) to refinance such existing Indebtedness or the amendment, renewal or other modification of such existing Indebtedness; provided that, in the case of such other Indebtedness or modified Indebtedness, the following conditions are satisfied: (i) the weighted average life to maturity of such refinancing or modified Indebtedness shall be greater than or equal to the weighted average life to maturity of the Indebtedness being refinanced or modified, and the first scheduled principal payment in respect of such refinancing or modified Indebtedness shall not be earlier than the first scheduled principal payment in respect of the Indebtedness being refinanced or modified; (ii) the principal amount of such refinancing or modified Indebtedness shall be less than or equal to the principal amount then outstanding of the Indebtedness being refinanced or modified; (iii) the respective obligor or obligors shall be the same on the refinancing or modified Indebtedness as on the Indebtedness being refinanced or modified; (iv) the security, if any, for the refinancing or modified Indebtedness shall be the same as that for the Indebtedness being refinanced or modified (except to the extent that less security is granted to holders of the refinancing Indebtedness or modified Indebtedness); (v) the refinancing or modified Indebtedness is subordinated to the Obligations to the same degree, if any, or to a greater degree as the Indebtedness being refinanced or modified; and (vi) with respect to any refinancing or modification of the Indebtedness evidenced by the Subordinated Notes, no material terms applicable to such refinancing or modified Indebtedness and, if applicable, the related guarantees of such refinancing or modified Indebtedness (including covenants, events of default, acceleration rights and remedies) shall be more favorable to the lenders with respect to such refinancing or modified Indebtedness than the terms that are applicable under the instruments and documents governing the Indebtedness being refinanced or modified. "Person" means any natural person, corporation, limited liability company, partnership, joint venture, association, trust or unincorporated organization, Governmental Authority or any other legal entity, whether acting in an individual, fiduciary or other capacity. "PIK Preferred Equity" is defined in clause (b) of the fourth recital. "PIK Preferred Equity Documents" is defined in clause (b) of the fourth recital. "PIK Preferred Equity Holders" is defined in clause (b) of the fourth recital. "PIK Preferred Equity Issuance" is defined in clause (b) of the fourth recital. "Pledge Agreement" means, as the context may require, the Shareholders' Pledge Agreement, the Borrower Pledge and Security Agreement and/or the Subsidiary Pledge and Security Agreement. "Pledge and Security Agreement" means, as the context may require, the Borrower Pledge and Security Agreement and/or the Subsidiary Pledge and Security Agreement. "Pledged Subsidiary" means each Subsidiary in respect of which the Administrative Agent has been granted a security interest in or a pledge of (i) any of the Capital Securities of such Subsidiary or (ii) any Intercompany Notes of such Subsidiary owing to the Borrower or another Subsidiary. "Preferred Equity" is defined in clause (c) of the fourth recital. "Preferred Equity Documents" is defined in clause (c) of the fourth recital. "Preferred Equity Holders" is defined in clause (c) of the fourth recital. "Preferred Equity Issuance" is defined in clause (c) of the fourth recital. "Prime Rate" means the rate of interest per annum publicly announced from time to time by Fleet National Bank, as its prime rate in effect at its principal office in Boston, Massachusetts; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective. "Public Market" shall exist if (i) a Public Offering has been consummated and (ii) any Capital Securities of the Borrower has been distributed by means of an effective registration statement under the Securities Act. "Public Offering" means a public offering of Capital Securities of the Borrower pursuant to an effective registration statement under the Securities Act. "Quarterly Payment Date" means the 15th day of January, April, July and October, or, if any such day is not a Business Day, the next succeeding Business Day. "Rate Protection Agreement" means, collectively, any interest rate swap, cap, collar or similar agreement entered into by the Borrower or any of its Subsidiaries under which the counterparty of such agreement is (or at the time such agreement was entered into, was) a Lender or an Affiliate of a Lender. "Recapitalization" is defined in the first recital. "Recapitalization Agreement" is defined in the first recital. "Receivables Agreement" means that certain Sale and Servicing Agreement, dated as of October 28, 1998, by and among the Borrower, Gulf State Credit, L.L.C., OSIFC and OSIPS, as in effect on the Closing Date. "Receivables Documents" means the Receivables Agreement, the Triple-A One Credit Agreement, the Triple-A One Commercial Paper, and the Variable Funding Notes, in each case as amended, supplemented, amended and restated or otherwise modified from time to time in accordance with Section 7.2.12. "Receivables Facility Outstandings" means, at any date of determination, the principal amount of commercial paper issued and outstanding under the Triple-A One Credit Agreement and pursuant to the Permitted Receivables Transaction. "Refinancing" is defined in the second recital. "Refunded Swing Line Loans" is defined in clause (b) of Section 2.3.2. "Register" is defined in clause (b)(i) of Section 2.7. "Reimbursement Obligation" is defined in Section 2.6.3. "Related Fund" means, with respect to any Lender that is a fund that invests in commercial loans, any other fund that invests in commercial loans and is managed or advised by the same investment advisor as such Lender or by an Affiliate of such investment advisor. "Release" means a "release", as such term is defined in CERCLA. "Replacement Lender" is defined in Section 4.11. "Replacement Notice" is defined in Section 4.11. "Repurchase Payments" means amounts expended to repurchase, redeem, or otherwise retire for value any shares of the Borrower's Capital Securities (together with options or warrants in respect of any thereof) held by officers, directors, employees and individual persons who are consultants of the Borrower (or any of their respective estates or beneficiaries under such estates). "Required Lenders" means, at any time, Lenders holding at least 51% of the Total Exposure Amount. "Resource Conservation and Recovery Act" means the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., as amended. "Restricted Cash Balance" means, as of the last day of any Fiscal Quarter, the aggregate amount of all cash, deposits and Cash Equivalent Investments which is not owned by the Borrower or any of its Subsidiaries but instead is being held by the Borrower or any such Subsidiary for the benefit of any of their respective customers which are not included as "cash and cash equivalents" on the consolidated balance sheet of the Borrower and its Subsidiaries. "Restricted Payment" means the declaration or payment of any dividend (other than dividends to be paid or in fact paid in Capital Securities of the Borrower or any Subsidiary or by an increase in the liquidation preference of any Capital Securities of the Borrower or any Subsidiary) on, or the making of any payment or distribution on account of, or setting apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of any class of Capital Securities of the Borrower or any Subsidiary or any warrants or options to purchase any such Capital Securities, whether now or hereafter outstanding, or the making of any other payment or distribution (other than in Capital Securities or by an increase in the liquidation preference of any Capital Securities of the Borrower or any Subsidiary) in respect thereof, either directly or indirectly, whether in cash or property, obligations of the Borrower or any Subsidiary or otherwise. "Revolving Loan" is defined in Section 2.1.1. "Revolving Loan Commitment" means, relative to any Lender, such Lender's obligation (if any) to make Revolving Loans pursuant to Section 2.1.1. "Revolving Loan Commitment Amount" means, on any date, $75,000,000, as such amount may be reduced from time to time pursuant to Section 2.2. "Revolving Loan Commitment Termination Date" means the earliest of (a) December 10, 2005; (b) the date on which the Revolving Loan Commitment Amount is terminated in full or reduced to zero pursuant to the terms of this Agreement; and (c) the date on which any Commitment Termination Event occurs. Upon the occurrence of any event described in the preceding clause (b) or (c), the Revolving Loan Commitments shall terminate automatically and without any further action. "Revolving Loan Lender" is defined in Section 2.1.1. "Revolving Note" means a promissory note of the Borrower payable to any Revolving Loan Lender, in the form of Exhibit A-1 hereto (as such promissory note may be amended, endorsed or otherwise modified from time to time), evidencing the aggregate Indebtedness of the Borrower to such Revolving Loan Lender resulting from outstanding Revolving Loans, and also means all other promissory notes accepted from time to time in substitution therefor or renewal thereof. "RL Percentage" means, relative to any Lender, the applicable percentage relating to Revolving Loans set forth on Schedule II hereto under the Revolving Loan Commitment column or set forth in a Lender Assignment Agreement under the Revolving Loan Commitment column, as such percentage may be adjusted from time to time pursuant to Lender Assignment Agreements executed by such Lender and its Assignee Lender and delivered pursuant to Section 10.11.1. A Lender shall not have any Revolving Loan Commitment if its percentage under the Revolving Loan Commitment column is zero. "Rollover Shareholders" is defined in clause (ii) of the first recital. "S&P" means Standard & Poor's Rating Services, a division of McGraw-Hill, Inc. "SEC" means the Securities and Exchange Commission. "Secured Parties" means, collectively, the Lenders, the Issuers, the Managing Agents, each counterparty to a Rate Protection Agreement that is (or at the time such Rate Protection Agreement was entered into, was) a Lender or an Affiliate thereof and (in each case), each of their respective successors, transferees and assigns. "Securities Act" means the Securities Act of 1933, as amended. "Shareholders' Pledge Agreement" means the Pledge Agreement executed and delivered by each of the OSI Shareholders, substantially in the form of Exhibit G-1 hereto, as amended, supplemented, amended and restated or otherwise modified from time to time. "Solicitation" is defined in the third recital. "Solvent" means, with respect to any Person and its Subsidiaries on a particular date, that on such date (a) the fair value of the property of such Person and its Subsidiaries on a consolidated basis is greater than the total amount of liabilities, including contingent liabilities, of such Person and its Subsidiaries on a consolidated basis, (b) the present fair salable value of the assets of such Person and its Subsidiaries on a consolidated basis is not less than the amount that will be required to pay the probable liability of such Person and its Subsidiaries on a consolidated basis on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it or its Subsidiaries will, incur debts or liabilities beyond the ability of such Person and its Subsidiaries to pay as such debts and liabilities mature, and (d) such Person and its Subsidiaries on a consolidated basis is not engaged in business or a transaction, and such Person and its Subsidiaries on a consolidated basis is not about to engage in business or a transaction, for which the property of such Person and its Subsidiaries on a consolidated basis would constitute an unreasonably small capital. The amount of Contingent Liabilities at any time shall be computed as the amount that, in light of all the facts and circumstances existing at such time, can reasonably be expected to become an actual or matured liability, including as an asset all Contingent Liabilities and indemnifications provided by a third party in favor of such Person and its Subsidiaries. "Specified Liabilities" means liabilities of the Borrower or any of its Subsidiaries arising from agreements delivered after the Closing Date in connection with acquisitions or dispositions of any business, assets or Subsidiary of the Borrower or any of its Subsidiaries in respect of indemnification, adjustment of purchase price (including earn-out arrangements), similar obligations or from guarantees or letters of credit, surety bonds or performance bonds securing the performance of the Borrower or any such Subsidiary pursuant to such agreements. "Stated Amount" means, on any date and with respect to a particular Letter of Credit, the total amount then available to be drawn under such Letter of Credit. "Stated Expiry Date" is defined in Section 2.6. "Stated Maturity Date" means (a) with respect to all Term A Loans, December 10, 2005; (b) with respect to all Term B Loans, June 10, 2006; and (c) with respect to all Revolving Loans and Swing Line Loans, December 10, 2005. "Statutory Reserve Rate" means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number of one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject with respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. LIBO Rate Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "Student Loan Collection Business" means billing, portfolio management, default aversion and debt collection services for the purpose of collecting loans issued or guaranteed under a student financial assistance program. "Subordinated Debt" means unsecured Indebtedness of each Obligor (including the Indebtedness evidenced by the Subordinated Notes) subordinated in right of payment to the Obligations pursuant to documentation containing redemption and other prepayment events, maturities, amortization schedules, covenants, events of default, remedies, acceleration rights, subordination provisions and other material terms satisfactory to the Required Lenders. "Subordinated Debt Documents" means, collectively, the Subordinated Note Indenture and each of the loan agreements, indentures, note purchase agreements, promissory notes, guarantees, and other instruments (including the Subordinated Notes) and agreements evidencing the terms of Subordinated Debt, as amended, supplemented, waived, amended and restated or otherwise modified in accordance with Section 7.2.12. "Subordinated Note Holders" is defined in the third recital. "Subordinated Note Indenture" means the Indenture, dated November 6, 1996, between the Borrower, the guarantors signatory thereto, and Wilmington Trust Company, as trustee, as in effect on the Closing Date and, thereafter, as amended, supplemented, amended and restated or otherwise modified in accordance with Section 7.2.12, and any refinancings or replacements thereof. "Subordinated Notes" means the Borrower's 11% senior subordinated notes due 2006, as in effect on the Closing Date and, thereafter, as amended, supplemented, amended and restated or otherwise modified in accordance with Section 7.2.12. "Subordination Provisions" is defined in Section 8.1.11. "Subsidiary" means, with respect to any Person, any corporation, limited liability company, partnership or other entity ("Other Person") of which more than 50% of the Voting Securities of such Other Person (irrespective of whether at the time Capital Securities of any other class or classes of such Other Person shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more other Subsidiaries of such Person, or by one or more other Subsidiaries of such Person. "Subsidiary Guarantor" means each Domestic Subsidiary that has executed and delivered to the Administrative Agent the Subsidiary Guaranty (or a supplement thereto) pursuant to the terms of this Agreement. "Subsidiary Guaranty" means the subsidiary guaranty executed and delivered by each Subsidiary Guarantor pursuant to the terms of this Agreement, substantially in the form of Exhibit F hereto, as amended, supplemented, amended and restated or otherwise modified from time to time. "Subsidiary Pledge and Security Agreement" means the Pledge and Security Agreement executed and delivered by an Authorized Officer of each Subsidiary, substantially in the form of Exhibit G-3 hereto, together with any supplemental Foreign Pledge Agreements delivered from time to time pursuant to the terms of the Pledge and Security Agreement, in each case as amended, supplemented, amended and restated or otherwise modified from time to time. "Summary" is defined in clause (a) of Section 7.1.13. "Swing Line Lender" means the Administrative Agent, in its capacity as the Swing Line Lender. "Swing Line Loan" is defined in clause (b) of Section 2.1.1. "Swing Line Loan Commitment" is defined in clause (b) of Section 2.1.1. "Swing Line Loan Commitment Amount" means, on any date, $7,500,000, as such amount may be reduced from time to time pursuant to Section 2.2. "Swing Line Note" means a promissory note of the Borrower payable to the Swing Line Lender, in the form of Exhibit A-4 hereto (as such promissory note may be amended, endorsed or otherwise modified from time to time), evidencing the aggregate Indebtedness of the Borrower to the Swing Line Lender resulting from outstanding Swing Line Loans, and also means all other promissory notes accepted from time to time in substitution therefor or renewal thereof. "Syndication Agent" is defined in the preamble. "Taxes" means any and all income, stamp or other taxes, duties, levies, imposts, charges, assessments, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, and all interest, penalties or similar liabilities with respect thereto. "Term A Loan" is defined in Section 2.1.3. "Term A Loan Commitment" means, relative to any Lender, such Lender's obligation (if any) to make Term A Loans pursuant to Section 2.1.3. "Term A Loan Commitment Amount" means, on any date, $150,000,000. "Term A Loan Commitment Termination Date" means the earlier of (a) the Closing Date (immediately after the making of the Term A Loans on such date) and (b) the date on which any Commitment Termination Event occurs. Upon the occurrence of any event described in clause (a) or (b), the Term A Loan Commitments shall terminate automatically and without any further action. "Term A Note" means a promissory note of the Borrower payable to any Lender, in the form of Exhibit A-2 hereto (as such promissory note may be amended, endorsed or otherwise modified from time to time), evidencing the aggregate Indebtedness of the Borrower to such Lender resulting from outstanding Term A Loans, and also means all other promissory notes accepted from time to time in substitution therefor or renewal thereof. "Term A Loan Percentage" means, relative to any Lender, the applicable percentage relating to Term A Loans set forth on Schedule II hereto under the Term A Loan Commitment column or set forth in a Lender Assignment Agreement under the Term A Loan Commitment column, as such percentage may be adjusted from time to time pursuant to Lender Assignment Agreements executed by such Lender and its Assignee Lender and delivered pursuant to Section 10.11.1. A Lender shall not have any Term A Loan Commitment if its percentage under the Term A Loan Commitment column is zero. "Term B Loan" is defined in Section 2.1.4. "Term B Loan Commitment" means, relative to any Lender, such Lender's obligation (if any) to make Term B Loans pursuant to Section 2.1.4. "Term B Loan Commitment Amount" means, on any date, $250,000,000. "Term B Loan Commitment Termination Date" means the earlier of (a) the Closing Date (immediately after the making of the Term B Loans on such date); or (b) the date on which any Commitment Termination Event occurs. Upon the occurrence of any event described in clause (a) or (b), the Term B Loan Commitments shall terminate automatically and without any further action. "Term B Note" means a promissory note of the Borrower payable to any Lender, in the form of Exhibit A-3 hereto (as such promissory note may be amended, endorsed or otherwise modified from time to time), evidencing the aggregate Indebtedness of the Borrower to such Lender resulting from outstanding Term B Loans, and also means all other promissory notes accepted from time to time in substitution therefor or renewal thereof. "Term B Loan Percentage" means, relative to any Lender, the applicable percentage relating to Term B Loans set forth on Schedule II hereto under the Term B Loan Commitment column or set forth in a Lender Assignment Agreement under the Term B Loan Commitment column, as such percentage may be adjusted from time to time pursuant to Lender Assignment Agreements executed by such Lender and its Assignee Lender and delivered pursuant to Section 10.11.1. A Lender shall not have any Term B Loan Commitment if its percentage under the Term B Loan Commitment column is zero. "Term Loans" means, collectively, the Term A Loans and the Term B Loans. "Termination Date" means the date on which all Obligations have been paid in full (other than indemnity obligations not yet due and payable) in cash, all Letters of Credit have been terminated, expired or Cash Collateralized, all Rate Protection Agreements have been terminated and all Commitments shall have terminated. "Total Debt" means, on any date, the outstanding principal amount of all Indebtedness of the Borrower and its Subsidiaries of the type referred to in clauses (a), (b) and (c), in each case, of the definition of "Indebtedness" and, without duplication, any Contingent Liability in respect of any of the foregoing. "Total Exposure Amount" means, on any date of determination (and without duplication), the outstanding principal amount of all Loans, the aggregate amount of all Letter of Credit Outstandings and the unfunded amount of the Commitments. "Trademark Security Agreement" means any Trademark Security Agreement executed and delivered by any Obligor substantially in the form of Exhibit B to either Pledge and Security Agreement, as amended, supplemented, amended and restated or otherwise modified from time to time. "Tranche" means, as the context may require, the Term A Loans, the Term B Loans or the Revolving Loans. "Transaction" is defined in the fourth recital. "Transaction Documents" means each of the Material Documents and all other agreements, documents, instruments, certificates, filings, consents, approvals, board of directors resolutions and opinions furnished pursuant to or in connection with the Recapitalization, the Refinancing, the Preferred Equity Issuances, the Solicitation, and the other transactions contemplated hereby or thereby, in each case as amended, supplemented, amended and restated or otherwise modified from time to time in accordance with Section 7.2.12. "Triple-A One" means Triple-A One Funding Corp., a Delaware corporation. "Triple-A Commercial Paper" means commercial paper issued by Triple-A One to fund advances made by Triple-A One to OSIFC evidenced by the Variable Funding Notes. "Triple-A One Credit Agreement" means the Triple-A One Credit Agreement, dated as of October 28, 1998, among OSIFC, Triple-A One, and MBIA Insurance Corporation, as in effect on the Closing Date. "type" means, relative to any Loan, the portion thereof, if any, being maintained as a Base Rate Loan or a LIBO Rate Loan. "UAS" means University Accounting Service, Inc., a Wisconsin corporation, as such corporation's name may be changed from time to time. "UCC" means the Uniform Commercial Code as in effect from time to time in the State of New York; provided, that if, with respect to any Filing Statement or by reason of any provisions of law, the perfection or the effect of perfection or non-perfection of the security interests granted to the Administrative Agent pursuant to the applicable Loan Document is governed by the Uniform Commercial Code as in effect in a jurisdiction of the United States other than New York, UCC means the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions of each Loan Document and any Filing Statement relating to such perfection or effect of perfection or non-perfection. "United States" or "U.S." means the United States of America, its fifty states and the District of Columbia. "Variable Funding Notes" means, collectively, the variable funding notes or certificates issued by OSIFC to Triple-A One to finance the purchase of receivables by OSIFC pursuant to the Triple-A One Credit Agreement, as in effect on the Closing Date. "Voting Securities" means, with respect to any Person, Capital Securities of any class or kind ordinarily having the power to vote (that is, not contingent on the happening of any event) for the election of directors, managers or other voting members of the governing body of such Person. "Welfare Plan" means a "welfare plan", as such term is defined in Section 3(1) of ERISA. "wholly owned" refers to any Subsidiary all of the outstanding common stock (or similar equity interest) of which (other than any director's qualifying shares or investments by foreign nationals mandated by applicable laws) is owned directly or indirectly by the Borrower. SECTION 1.2. Use of Defined Terms. Unless otherwise defined or the context otherwise requires, terms for which meanings are provided in this Agreement shall have such meanings when used in each other Loan Document and the Disclosure Schedule, and each notice and other communication delivered from time to time in connection with any Loan Document. SECTION 1.3. Cross-References. Unless otherwise specified, references in a Loan Document to any Article or Section are references to such Article or Section of such Loan Document, and references in any Article, Section or definition to any clause are references to such clause of such Article, Section or definition. SECTION 1.4. Accounting and Financial Determinations; etc. (a) Unless otherwise specified, all accounting terms used in each Loan Document shall be interpreted, and all accounting determinations and computations thereunder (including under Section 7.2.4 and the definitions used in such calculations) shall be made, in accordance with those generally accepted accounting principles ("GAAP") applied in the preparation of the financial statements referred to in clause (a) of Section 5.1.8. Unless otherwise expressly provided, all financial covenants and defined financial terms shall be computed on a consolidated basis for the Borrower and its Subsidiaries (other than the OSIFC Family), in each case without duplication. (b) For purposes of computing the Leverage Ratio, the Interest Coverage Ratio and the Fixed Charge Coverage Ratio, such ratios (and any financial calculations or components required to be made or included therein) shall be determined, with respect to the relevant period, after giving pro forma effect to each acquisition and Disposition of a Person, business or asset consummated during such period, together with all transactions relating thereto consummated during such period (including any incurrence, assumption, refinancing or repayment of Indebtedness), as if such acquisition, Disposition and related transactions had been consummated on the first day of such period, in each case based on historical actual results accounted for in accordance with GAAP. In furtherance of, and not in limitation of, the preceding sentence, any determination to be made in accordance with this clause for any period commencing prior to the Closing Date shall give pro forma effect to the Transaction as provided in the preceding sentence. ARTICLE II COMMITMENTS, BORROWING AND ISSUANCE PROCEDURES, NOTES AND LETTERS OF CREDIT SECTION 2.1. Commitments. On the terms and subject to the conditions of this Agreement, the Lenders and the Issuers severally agree to make Credit Extensions as set forth below. SECTION 2.1.1. Revolving Loan Commitment and Swing Line Loan Commitment. From time to time on any Business Day occurring from and after the Closing Date but prior to the Revolving Loan Commitment Termination Date, (a) each Lender that has a Revolving Loan Commitment (referred to as a "Revolving Loan Lender") agrees that it will make loans (relative to such Lender, its "Revolving Loans") to the Borrower equal to such Lender's RL Percentage of the aggregate amount of each Borrowing of the Revolving Loans requested by the Borrower to be made on such day; and (bi the Swing Line Lender agrees that it will make loans (its "Swing Line Loans") to the Borrower equal to the principal amount of the Swing Line Loan requested by the Borrower to be made on such day. The Commitment of the Swing Line Lender described in this clause is herein referred to as its "Swing Line Loan Commitment". On the terms and subject to the conditions hereof, the Borrower may from time to time borrow, prepay and reborrow Revolving Loans and Swing Line Loans. No Revolving Loan Lender shall be permitted or required to make any Revolving Loan if, after giving effect thereto, the aggregate outstanding principal amount of all Revolving Loans of such Revolving Loan Lender, together with such Lender's RL Percentage of the aggregate amount of all Swing Line Loans and Letter of Credit Outstandings, would exceed such Lender's RL Percentage of the then existing Revolving Loan Commitment Amount. Furthermore, the Swing Line Lender shall not be permitted or required to make Swing Line Loans if, after giving effect thereto, (i) the aggregate outstanding principal amount of all Swing Line Loans would exceed the then existing Swing Line Loan Commitment Amount or (ii) unless otherwise agreed to by the Swing Line Lender, in its sole discretion, the sum of all Swing Line Loans and Revolving Loans made by the Swing Line Lender plus the Swing Line Lender's RL Percentage of the aggregate amount of Letter of Credit Outstandings would exceed the Swing Line Lender's RL Percentage of the then existing Revolving Loan Commitment Amount. SECTION 2.1.2. Letter of Credit Commitment. Each of the parties hereto acknowledge and agree that all Existing Letters of Credit shall continue as Letters of Credit for all purposes under the Loan Documents. In addition, from time to time on any Business Day occurring from and after the Closing Date but prior to the Revolving Loan Commitment Termination Date, each Issuer agrees that it will, to the extent requested by the Borrower, (a) issue one or more Letters of Credit in the Stated Amount requested by the Borrower on such day; or (b) extend the Stated Expiry Date of an existing standby Letter of Credit previously issued hereunder. No Stated Expiry Date shall be scheduled to occur beyond the earlier of (i) the Revolving Loan Commitment Termination Date and (ii) unless otherwise agreed to by the applicable Issuer in its sole discretion, one year from the date of such issuance or extension. No Issuer shall be permitted or required to issue any Letter of Credit if, after giving effect thereto, (i) the aggregate amount of all Letter of Credit Outstandings would exceed the Letter of Credit Commitment Amount or (ii) the sum of the aggregate amount of all Letter of Credit Outstandings plus the aggregate principal amount of all Revolving Loans and Swing Line Loans then outstanding would exceed the Revolving Loan Commitment Amount. SECTION 2.1.3. Term A Loan Commitment. In a single Borrowing on any Business Day occurring on or prior to the Term A Loan Commitment Termination Date, each Lender that has a Term A Loan Commitment agrees that it will make loans (relative to such Lender, its "Term A Loans") to the Borrower equal to such Lender's Term A Loan Percentage of the aggregate amount of the Borrowing of Term A Loans requested by the Borrower to be made on such day. No amounts paid or prepaid with respect to Term A Loans may be reborrowed. SECTION 2.1.4. Term B Loan Commitment. In a single Borrowing on any Business Day occurring on or prior to the Term B Loan Commitment Termination Date, each Lender that has a Term B Loan Commitment agrees that it will make loans (relative to such Lender, its "Term B Loans") to the Borrower equal to such Lender's Term B Loan Percentage of the aggregate amount of the Borrowing of Term B Loans requested by the Borrower to be made on such day. No amounts paid or prepaid with respect to Term B Loans may be reborrowed. SECTION 2.2. Reduction of the Commitment Amounts. The Commitment Amounts are subject to reduction from time to time pursuant to this Section. SECTION 2.2.1. Optional. The Borrower may, from time to time on any Business Day occurring on and after the Closing Date, voluntarily reduce the amount of the Revolving Loan Commitment Amount, the Swing Line Loan Commitment Amount or the Letter of Credit Commitment Amount on the Business Day so specified by the Borrower; provided, however, that all such reductions shall require at least three Business Day's prior notice to the Administrative Agent and be permanent, and any partial reduction of any Commitment Amount shall be in a minimum amount of $500,000 and in an integral multiple of $100,000. Any optional or mandatory reduction of the Revolving Loan Commitment Amount pursuant to the terms of this Agreement which reduces the Revolving Loan Commitment Amount below the sum of (i) the Swing Line Loan Commitment Amount and (ii) the Letter of Credit Commitment Amount shall result in an automatic and corresponding reduction of the Swing Line Loan Commitment Amount and/or Letter of Credit Commitment Amount (as directed by the Borrower in a notice to the Administrative Agent delivered together with the notice of such voluntary reduction in the Revolving Loan Commitment Amount) to an aggregate amount not in excess of the Revolving Loan Commitment Amount, as so reduced, without any further action on the part of the Swing Line Lender or any Issuer. SECTION 2.2.2. Mandatory. Following the prepayment in full of the Term Loans, the Revolving Loan Commitment Amount shall, without any further action, automatically and permanently be reduced on the date the Term Loans would otherwise have been required to be prepaid pursuant to clause (e), (f), (g) or (h) of Section 3.1.1, in an amount equal to the amount by which the Term Loans would otherwise be required to be prepaid if Term Loans had been outstanding. SECTION 2.3. Borrowing Procedures. Loans (other than Swing Line Loans) shall be made by the Lenders in accordance with Section 2.3.1, and Swing Line Loans shall be made by the Swing Line Lender in accordance with Section 2.3.2. SECTION 2.3.1. Borrowing Procedure. In the case of other than Swing Line Loans, by delivering a Borrowing Request to the Administrative Agent on or before 12:00 p.m. (noon) on a Business Day, the Borrower may from time to time irrevocably request, on not less than one Business Day's notice in the case of Base Rate Loans, or three Business Days' notice in the case of LIBO Rate Loans, and in either case not more than ten Business Days' notice, that a Borrowing be made, in the case of LIBO Rate Loans, in a minimum amount of $2,000,000 and an integral multiple of $500,000, in the case of Base Rate Loans, in a minimum amount of $500,000 and an integral multiple of $100,000 or, in either case, in the unused amount of the applicable Commitment; provided, however, that all of the initial Loans shall be made as Base Rate Loans. On the terms and subject to the conditions of this Agreement, each Borrowing shall be comprised of the type of Loans, and shall be made on the Business Day, specified in such Borrowing Request. In the case of other than Swing Line Loans, on or before 1:00 p.m. on such Business Day each Lender that has a Commitment to make the Loans being requested shall deposit with the Administrative Agent same day funds in an amount equal to such Lender's Percentage of the requested Borrowing. Such deposit will be made to an account which the Administrative Agent shall specify from time to time by notice to the Lenders. To the extent funds are received from the Lenders, the Administrative Agent shall make such funds available to the Borrower by wire transfer to the accounts the Borrower shall have specified in its Borrowing Request. No Lender's obligation to make any Loan shall be affected by any other Lender's failure to make any Loan. SECTION 2.3.2. Swing Line Loans. (a) By telephonic notice to the Swing Line Lender on or before 12:00 noon on any Business Day (followed (within one Business Day) by the delivery of a confirming Borrowing Request) occurring on and after the Closing Date through (but excluding) the Revolving Loan Commitment Termination Date, the Borrower may from time to time irrevocably request that Swing Line Loans be made by the Swing Line Lender in an aggregate minimum principal amount of $250,000 and an integral multiple of $50,000; provided, that the aggregate principal amount of Swing Line Loans shall at no time exceed the Swing Line Loan Commitment Amount. Subject to Section 5.2, all Swing Line Loans shall be made as Base Rate Loans and shall not be entitled to be converted into LIBO Rate Loans. The proceeds of each Swing Line Loan shall be made available by the Swing Line Lender to the Borrower by wire transfer to the account the Borrower shall have specified in its notice therefor by the close of business on the Business Day telephonic notice is received by the Swing Line Lender. (b) Each Revolving Loan Lender (other than the Swing Line Lender) irrevocably agrees that it will, at the request of the Swing Line Lender in its sole and absolute discretion at any time, make a Revolving Loan (which shall initially be funded as a Base Rate Loan) in an amount equal to such Lender's RL Percentage of the aggregate principal amount of all such Swing Line Loans then outstanding (such outstanding Swing Line Loans hereinafter referred to as the "Refunded Swing Line Loans"); provided, that if any Default described in clauses (a) through (d) of Section 8.1.9 shall have occurred and be continuing, the procedures set forth in the last two sentences of this clause shall apply and no other provisions of this clause shall be applicable. On or before 11:00 a.m. on the first Business Day following receipt by each Revolving Loan Lender of a request to make Revolving Loans as provided in the preceding sentence, each Revolving Loan Lender shall deposit in an account specified by the Swing Line Lender the amount so requested in same day funds and such funds shall be applied by the Swing Line Lender to repay the Refunded Swing Line Loans. At the time the Revolving Loan Lenders make the above referenced Revolving Loans the Swing Line Lender shall be deemed to have made, in consideration of the making of the Refunded Swing Line Loans, Revolving Loans in an amount equal to the Swing Line Lender's RL Percentage of the aggregate principal amount of the Refunded Swing Line Loans. Upon the making (or deemed making, in the case of the Swing Line Lender) of any Revolving Loans pursuant to this clause, the amount so funded shall become outstanding under such Revolving Loan Lender's Revolving Note and shall no longer be owed under the Swing Line Note. All interest payable with respect to any Revolving Loans made (or deemed made, in the case of the Swing Line Lender) pursuant to this clause shall be appropriately adjusted to reflect the period of time during which the Swing Line Lender had outstanding Swing Line Loans in respect of which such Revolving Loans were made. Each Revolving Loan Lender's obligation to make the Revolving Loans referred to in this clause shall be absolute and unconditional and shall not be affected by any circumstance, including (i) any set-off, counterclaim, recoupment, defense or other right which such Lender may have against the Swing Line Lender, any Obligor or any Person for any reason whatsoever; (ii) the occurrence or continuance of any Default (other than a Default which the Swing Line Lender is deemed to have notice of pursuant to clause (b) of Section 9.3); (iii) any adverse change in the condition (financial or otherwise) of any Obligor; (iv) the acceleration or maturity of any Obligations or the termination of any Commitment after the making of any Swing Line Loan; (v) any breach of any Loan Document by any Person; or (vi) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. If, prior to the making of a Revolving Loan pursuant to this clause, any Default described in clauses (a) through (d) of Section 8.1.9 shall have occurred and be continuing, each Revolving Loan Lender will, on the date such Revolving Loan was to have been made, purchase an undivided participation interest in the Refunded Swing Line Loan in an amount equal to its RL Percentage of the aggregate principal amount of such Refunded Swing Line Loan. Each Revolving Loan Lender will immediately transfer to the Swing Line Lender, in immediately available funds, the amount of its participation in such Refunded Swing Line Loan. (c) If any Revolving Loan Lender does not make a Revolving Loan (or otherwise purchase from the Revolving Loan Lender an undivided participation interest) in an amount (the "Outstanding Amount") equal to such Lender's RL Percentage of the aggregate principal amount of all Refunded Swing Line Loans pursuant to clause (b) above on the applicable due date with respect thereto, then such Revolving Loan Lender shall promptly pay to the Swing Line Lender on demand such Outstanding Amount with interest thereon accruing at the Federal Funds Effective Rate for each day from (and including) the date such Outstanding Amount should have been made available to the Swing Line Lender to (but excluding) the date upon which such Revolving Loan Lender actually paid such Outstanding Amount to the Swing Line Lender. If such Revolving Loan Lender pays such Outstanding Amount to the Swing Line Lender, then, on and as of the date of such payment, such Outstanding Amount shall constitute such Revolving Loan Lender's Loan including in such Refunded Swing Line Loan or the consideration for the purchase of its undivided participation interest, as the case may be. (d) The failure or refusal of any Revolving Loan Lender to make a Revolving Loan (or otherwise purchase from the Revolving Loan Lender an undivided participation interest) in an amount equal to such Lender's RL Percentage of the aggregate principal amount of all Refunded Swing Line Loans pursuant to clause (b) above on the applicable due date with respect thereto shall not (i) relieve any other Revolving Loan Lender from its several obligation hereunder to make a Revolving Loan (or otherwise purchase an undivided participation interest) pursuant to clause (b) above and (ii) impose upon such other Revolving Loan Lender any liability with respect to such failure or refusal or otherwise increase such other Revolving Loan Lender's RL Percentage of the Revolving Loan Commitment Amount. SECTION 2.4. Continuation and Conversion Elections. By delivering a Continuation/Conversion Notice to the Administrative Agent on or before 12:00 noon on a Business Day, the Borrower may from time to time irrevocably elect, on not less than one Business Day's notice in the case of Base Rate Loans, or three Business Days' notice in the case of LIBO Rate Loans, and in either case not more than ten Business Days' notice, that all, or any portion in an aggregate minimum amount of $500,000 and an integral multiple of $100,000 be, in the case of Base Rate Loans, converted into LIBO Rate Loans or be, in the case of LIBO Rate Loans, converted into Base Rate Loans or continued as LIBO Rate Loans (in the absence of delivery of a Continuation/Conversion Notice with respect to any LIBO Rate Loan at least three Business Days (but not more than ten Business Days) before the last day of the then current Interest Period with respect thereto, such LIBO Rate Loan shall, on such last day, automatically convert to a Base Rate Loan); provided, however, that (x) each such conversion or continuation shall be pro rated among the applicable outstanding Loans of all Lenders that have made such Loans, and (y) no portion of the outstanding principal amount of any Loans may be continued as, or be converted into, LIBO Rate Loans when any Default has occurred and is continuing. SECTION 2.5. Funding. Each Lender may, if it so elects, fulfill its obligation to make, continue or convert LIBO Rate Loans hereunder by causing one of its foreign branches or Affiliates (or an international banking facility created by such Lender) to make or maintain such LIBO Rate Loan; provided, however, that such LIBO Rate Loan shall nonetheless be deemed to have been made and to be held by such Lender, and the obligation of the Borrower to repay such LIBO Rate Loan shall nevertheless be to such Lender for the account of such foreign branch, Affiliate or international banking facility. In addition, the Borrower hereby consents and agrees that, for purposes of any determination to be made for purposes of Section 4.1, 4.2, 4.3 or 4.4, it shall be conclusively assumed that each Lender elected to fund all LIBO Rate Loans by purchasing Dollar deposits in its LIBOR Office's interbank eurodollar market. SECTION 2.6. Issuance Procedures. By delivering to the Administrative Agent an Issuance Request on or before 12:00 noon on a Business Day, the Borrower may from time to time irrevocably request on not less than two nor more than ten Business Days' notice, in the case of an initial issuance of a Letter of Credit and not less than two Business Days' prior notice, in the case of a request for the extension of the Stated Expiry Date of a standby Letter of Credit (in each case, unless a shorter notice period is agreed to by the applicable Issuer, in its sole discretion), that such Issuer issue, or extend the Stated Expiry Date of, a Letter of Credit in such form as may be requested by the Borrower and approved by such Issuer, solely for the purposes described in Section 7.1.7. Each Letter of Credit shall by its terms be stated to expire on a date (its "Stated Expiry Date") no later than the earlier to occur of (i) the Revolving Loan Commitment Termination Date or (ii) (unless otherwise agreed to by the Issuer, in its sole discretion), one year from the date of its issuance. Each Issuer will make available to the beneficiary thereof the original of the Letter of Credit which it issues. SECTION 2.6.1. Other Lenders' Participation. Upon the issuance of each Letter of Credit, and without further action, each Revolving Loan Lender (other than the applicable Issuer) shall be deemed to have irrevocably purchased, to the extent of its RL Percentage, a participation interest in such Letter of Credit (including the Contingent Liability in respect thereof), and such Revolving Loan Lender shall, to the extent of its RL Percentage, be responsible for reimbursing within one Business Day the applicable Issuer for any amount drawn under a Letter of Credit which has not been reimbursed by the Borrower in accordance with Section 2.6.3. In addition, such Revolving Loan Lender shall, to the extent of its RL Percentage, be entitled to receive a ratable portion of the Letter of Credit fees payable pursuant to Section 3.3.3 with respect to each Letter of Credit (other than the issuance fees payable to the Issuer of such Letter of Credit pursuant to the last sentence of Section 3.3.3) and of interest payable pursuant to Section 3.2 with respect to any Reimbursement Obligation. To the extent that any Revolving Loan Lender has reimbursed any Issuer for a Disbursement, such Lender shall be entitled to receive its ratable portion of any amounts subsequently received (from the Borrower or otherwise) in respect of such Disbursement. SECTION 2.6.2. Disbursements. The applicable Issuer will notify the Borrower and the Administrative Agent promptly of the presentment for payment of any Letter of Credit issued by such Issuer, together with notice of the date (the "Disbursement Date") such payment shall be made (each such payment, a "Disbursement"). Subject to the terms and provisions of such Letter of Credit and this Agreement, the applicable Issuer shall make such payment to the beneficiary (or its designee) of such Letter of Credit. Prior to 1:00 p.m. on the first Business Day following the Disbursement Date, the Borrower will reimburse the Administrative Agent, for the account of the applicable Issuer, for all amounts which such Issuer has disbursed under such Letter of Credit, together with interest thereon at a rate per annum equal to the rate per annum then in effect for Base Rate Loans (with the then Applicable Margin for Revolving Loans accruing on such amount) pursuant to Section 3.2 for the period from the Disbursement Date through the date of such reimbursement. Without limiting in any way the foregoing and notwithstanding anything to the contrary contained herein or in any separate application for any Letter of Credit, the Borrower hereby acknowledges and agrees that it shall be obligated to reimburse the applicable Issuer upon each Disbursement of a Letter of Credit, and it shall be deemed to be the obligor for purposes of each such Letter of Credit issued hereunder (whether the account party on such Letter of Credit is the Borrower or a Subsidiary Guarantor (other than UAS)). SECTION 2.6.3. Reimbursement. The obligation (a "Reimbursement Obligation") of the Borrower under Section 2.6.2 to reimburse the applicable Issuer with respect to each Disbursement (including interest thereon), and, upon the failure of the Borrower to reimburse such Issuer, each Revolving Loan Lender's obligation under Section 2.6.1 to pay to such Issuer its RL Percentage of any drawing under a Letter of Credit, shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which the Borrower or such Revolving Loan Lender, as the case may be, may have or have had against such Issuer or any Lender, including any defense based upon the failure of any Disbursement to conform to the terms of the applicable Letter of Credit (if, in such Issuer's good faith opinion, such Disbursement is determined to be appropriate) or any non-application or misapplication by the beneficiary of the proceeds of such Letter of Credit; provided, however, that after paying in full its Reimbursement Obligation hereunder or paying its RL Percentage of any drawing under a Letter of Credit, as the case may be, nothing herein shall adversely affect the right of the Borrower or such Lender, as the case may be, to commence any proceeding against such Issuer for any wrongful Disbursement made by the Issuer under a Letter of Credit as a result of acts or omissions constituting gross negligence or wilful misconduct on the part of such Issuer. SECTION 2.6.4. Deemed Disbursements. Upon the occurrence and during the continuation of any Default under Section 8.1.9 or upon notification by the Administrative Agent (acting at the direction of the Required Lenders) to the Borrower of its obligations under this Section, following the occurrence and during the continuation of any other Event of Default, (a) the aggregate Stated Amount of all Letters of Credit shall, without demand upon or notice to the Borrower or any other Person, be deemed to have been paid or disbursed by the applicable Issuer of such Letters of Credit (notwithstanding that such amount may not in fact have been paid or disbursed); and (b) the Borrower shall be immediately obligated to reimburse such Issuer for the amount deemed to have been so paid or disbursed by such Issuer. Amounts payable by the Borrower pursuant to this Section shall be deposited in immediately available funds with the Administrative Agent and held as collateral security for the Reimbursement Obligations. When all Defaults giving rise to the deemed disbursements under this Section have been cured or waived the Administrative Agent shall return to the Borrower all amounts then on deposit with the Administrative Agent pursuant to this Section which have not been applied to the satisfaction of the Reimbursement Obligations. SECTION 2.6.5. Nature of Reimbursement Obligations. The Borrower, each other Obligor and, to the extent set forth in Section 2.6.1, each Revolving Loan Lender shall assume all risks of the acts, omissions or misuse of any Letter of Credit by the beneficiary thereof. No Issuer (except to the extent of its own gross negligence or wilful misconduct) shall be responsible for: (a) the form, validity, sufficiency, accuracy, genuineness or legal effect of any Letter of Credit or any document submitted by any party in connection with the application for and issuance of a Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (b) the form, validity, sufficiency, accuracy, genuineness or legal effect of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or the proceeds thereof in whole or in part, which may prove to be invalid or ineffective for any reason; (c) failure of the beneficiary to comply fully with conditions required in order to demand payment under a Letter of Credit; (d) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise; or (e) any loss or delay in the transmission or otherwise of any document or draft required in order to make a Disbursement under a Letter of Credit. None of the foregoing shall affect, impair or prevent the vesting of any of the rights or powers granted to any Issuer or any Revolving Loan Lender hereunder. In furtherance and not in limitation or derogation of any of the foregoing, any action taken or omitted to be taken by any Issuer in good faith (and not constituting gross negligence or willful misconduct) shall be binding upon each Obligor and each such Secured Party, and shall not put such Issuer under any resulting liability to any Obligor or any Secured Party, as the case may be. SECTION 2.7. Register; Notes. (a) Each Lender may maintain in accordance with its usual practice an account or accounts evidencing the Indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. In the case of a Lender that does not request, pursuant to clause (c) below, execution and delivery of a Note evidencing the Loans made by such Lender to the Borrower, such account or accounts shall, to the extent not inconsistent with the notations made by the Administrative Agent in the Register, be conclusive and binding on the Borrower absent manifest error; provided, however, that the failure of any Lender to maintain such account or accounts shall not limit or otherwise affect any Obligations of any Obligor. (b) The Borrower hereby designates the Administrative Agent to serve as the Borrower's agent, solely for the purpose of this clause, to maintain a register (the "Register") on which the Administrative Agent will record each Lender's Commitments, the Loans made by each Lender and each repayment in respect of the principal amount of the Loans of each Lender and annexed to which the Administrative Agent shall retain a copy of each Lender Assignment Agreement delivered to the Administrative Agent pursuant to Section 10.11.1. Failure to make any recordation, or any error in such recordation, shall not affect the Borrower's obligation in respect of such Loans. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the Administrative Agent and the Lenders shall treat each Person in whose name a Loan (and as provided in clause (c) below the Note evidencing such Loan, if any) is registered as the owner thereof for all purposes of this Agreement, notwithstanding notice or any provision herein to the contrary. A Lender's Commitment and the Loans made pursuant thereto may be assigned or otherwise transferred in whole or in part only by registration of such assignment or transfer in the Register. Any assignment or transfer of a Lender's Commitment or the Loans made pursuant thereto shall be registered in the Register only upon delivery to the Administrative Agent of a Lender Assignment Agreement duly executed by the assignor thereof and the compliance by the parties thereto with the other requirements of Section 10.11.1. No assignment or transfer of a Lender's Commitment or the Loans made pursuant thereto shall be effective unless such assignment or transfer shall have been recorded in the Register by the Administrative Agent as provided in this Section. (c) The Borrower agrees that, upon the request to the Administrative Agent by any Lender, the Borrower will execute and deliver to such Lender, as applicable, a Revolving Note, a Term A Note and/or a Term B Note evidencing the Loans made by such Lender. The Borrower hereby irrevocably authorizes each Lender to make (or cause to be made) appropriate notations on the grid attached to such Lender's Notes (or on any continuation of such grid), which notations, if made, shall evidence, inter alia, the date of, the outstanding principal amount of, and the interest rate and Interest Period applicable to the Loans evidenced thereby. Such notations shall, to the extent not inconsistent with the notations made by the Administrative Agent in the Register, be conclusive and binding on the Borrower absent manifest error; provided, however, that the failure of any Lender to make any such notations or any error in any such notations shall not limit or otherwise affect any Obligations of any Obligor. The Loans evidenced by any such Note and interest thereon shall at all times (including after assignment pursuant to Section 10.11.1) be represented by one or more Notes payable to the order of the payee named therein and its registered assigns. A Note and the obligation evidenced thereby may be assigned or otherwise transferred in whole or in part only by registration of such assignment or transfer of such Note and the obligation evidenced thereby in the Register (and each Note shall expressly so provide). Any assignment or transfer of all or part of an obligation evidenced by a Note shall be registered in the Register only upon surrender for registration of assignment or transfer of the Note evidencing such obligation, accompanied by a Lender Assignment Agreement duly executed by the assignor thereof, and thereupon, if requested by the assignee, one or more new Notes shall be issued to the designated assignee (and to the assignor, if the assignor is retaining any of the Loans) and the old Note shall be returned by the Administrative Agent to the Borrower marked "exchanged". No assignment of a Note and the obligation evidenced thereby shall be effective unless it shall have been recorded in the Register by the Administrative Agent as provided in this Section. ARTICLE III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES SECTION 3.1. Repayments and Prepayments; Application. The Borrower agrees that the Loans shall be repaid and prepaid pursuant to the following terms. SECTION 3.1.1. Repayments and Prepayments. The Borrower shall repay in full the unpaid principal amount of each Loan upon the applicable Stated Maturity Date therefor. Prior thereto, payments and prepayments of Loans shall or may be made as set forth below. (a) From time to time on any Business Day, the Borrower may make a voluntary prepayment, in whole or in part, of the outstanding principal amount of any (i) Loans (other than Swing Line Loans); provided, however, that (A) in the case of Term Loans, the Borrower may elect to prepay either Term A Loans or Term B Loans, such prepayment to be applied pro rata among the Term Loans so prepaid of the same type and, if applicable, having the same Interest Period of all Lenders that have made such Term Loans (to be applied as set forth in clause (a) of Section 3.1.2 and with the amount of such prepayment of the Term A Loans or Term B Loans, as applicable, being applied to the remaining scheduled amortization payments thereof in direct order in accordance with the amount of each such remaining Term A Loan or Term B Loan amortization payments); (B) with respect to Term B Loans only, there shall be a prepayment fee of (1) 2.0% of the principal amount of such Loans voluntarily prepaid on or prior to December 10, 2000, (2) 1.0% of the principal amount of such Loans voluntarily prepaid from (and including) December 11, 2000 through (and including) December 10, 2001, and (3) 0% thereafter; (C) any such prepayment of Revolving Loans shall be made pro rata among the Revolving Loans of the same type and, if applicable, having the same Interest Period of all Lenders that have made such Revolving Loans; (D) all such voluntary prepayments shall require at least one but no more than five Business Days' prior written notice to the Administrative Agent; and (E) all such voluntary partial prepayments of any Loans shall be in an aggregate minimum amount of $500,000 and an integral multiple of $100,000. (ii) Swing Line Loans; provided, that (A) all such voluntary prepayments shall require prior telephonic notice to the Swing Line Lender on or before 1:00 p.m. on the day of such prepayment (such notice to be confirmed in writing within 24 hours thereafter); and (B) all such voluntary partial prepayments shall be in an aggregate minimum amount of $200,000 and an integral multiple of $100,000. (b) On each date when the sum of (i) the aggregate outstanding principal amount of all Revolving Loans and Swing Line Loans and (ii) the aggregate amount of all Letter of Credit Outstandings exceeds the Revolving Loan Commitment Amount (as it may be reduced from time to time pursuant to this Agreement), the Borrower shall make a mandatory prepayment of Revolving Loans or Swing Line Loans (or both) and, if necessary, Cash Collateralize Letter of Credit Outstandings, in an aggregate amount equal to such excess. (c) On the Stated Maturity Date for Term A Loans and on each Quarterly Payment Date occurring during any period set forth below, the Borrower shall make a scheduled repayment of the aggregate outstanding principal amount, if any, of all Term A Loans in an amount equal to the amount set forth below opposite the Stated Maturity Date or such Quarterly Payment Date, as applicable: Amount of Required Period Principal Repayment ------ ------------------- 10/16/00 through (and including) 10/16/01 $1,875,000.00 10/17/01 through (and including) 10/15/02 $3,750,000.00 10/16/02 through (and including) 10/15/03 $7,500,000.00 10/16/03 through (and including) 10/15/04 $9,375,000.00 10/16/04 through (and including) 10/17/05 $12,000,000.00 Stated Maturity Date for Term A Loans $12,000,000.00 or, if different, the then outstanding principal amount of all Term A Loans. (d) On the Stated Maturity Date for Term B Loans and on each Quarterly Payment Date occurring during any period set forth below, the Borrower shall make a scheduled repayment of the aggregate outstanding principal amount, if any, of all Term B Loans in an amount equal to the amount set forth below opposite the Stated Maturity Date or such Quarterly Payment Date, as applicable: Amount of Required Period Principal Repayment ------ ------------------- Closing Date through (and including) 04/15/05 $625,000.00 04/16/05 through (and including) 04/17/06 $47,250,000.00 Stated Maturity Date for Term B Loans $47,250,000.00 or, if different, the then outstanding principal amount of all Term B Loans. (e) No later than five Business Days following the delivery by the Borrower of its annual audited financial reports required pursuant to clause (b) of Section 7.1.1 (beginning with the financial reports delivered in respect of the 2000 Fiscal Year), the Borrower shall deliver to the Administrative Agent a calculation of the Excess Cash Flow for the Fiscal Year last ended and, no later than five Business Days following the delivery of such calculation, make or cause to be made a mandatory prepayment of the Term Loans in an amount equal to 50% of the Excess Cash Flow (if any) for such Fiscal Year to be applied as set forth in Section 3.1.2; provided, however, that such prepayment shall only be required to be made to the extent that the amount of Indebtedness, as reduced by giving effect to such prepayment, would result in a Leverage Ratio of greater than 3.50:1.00 on a pro forma basis as of the date of such prepayment. (f) No later than one Business Day (in the case of Net Debt Proceeds) or 30 calendar days (in the case of Net Disposition Proceeds) following the receipt of any Net Disposition Proceeds from any Disposition or a series of related Dispositions, the aggregate amount of which is in excess of $50,000 or Net Debt Proceeds by the Borrower or any of its Subsidiaries, the Borrower shall deliver to the Administrative Agent a calculation of the amount of such Net Disposition Proceeds or Net Debt Proceeds, as the case may be, and, to the extent the amount of such Net Disposition Proceeds or Net Debt Proceeds, as the case may be, with respect to any single transaction or series of related transactions, exceeds $2,000,000, make a mandatory prepayment of the Term Loans in an amount equal to 100% of such Net Disposition Proceeds or Net Debt Proceeds, as the case may be, to be applied as set forth in Section 3.1.2; provided, that no mandatory prepayment on account of such Net Disposition Proceeds shall be required under this clause if the Borrower informs the Administrative Agent no later than 30 days following the receipt of any Net Disposition Proceeds of its or its Subsidiary's good faith intention to apply such Net Disposition Proceeds to the acquisition of other assets or property consistent with the business permitted to be conducted pursuant to Section 7.2.1 (including by way of merger or Investment) within 365 days following the receipt of such Net Disposition Proceeds, with the amount of such Net Disposition Proceeds unused after such 365 day period being applied to the Loans pursuant to Section 3.1.2. (g) The Borrower shall, concurrently with the receipt of any Net Equity Proceeds by the Borrower or any of its Subsidiaries, deliver to the Administrative Agent a calculation of the amount of such Net Equity Proceeds, and no later than five Business Days following the delivery of such calculation, and, to the extent that the amount of such Net Equity Proceeds with respect to any single transaction or series of related transactions exceeds $2,000,000, and subject to the proviso below, make or cause to be made a mandatory prepayment of the Term Loans in an amount equal to 50% of such Net Equity Proceeds to be applied as set forth in Section 3.1.2; provided, however, that such prepayment shall only be required to be made to the extent that the amount of Indebtedness, as reduced by giving effect to such prepayment would result in a Leverage Ratio of greater than 3.50:1 on a pro forma basis as of the date of such prepayment; (h) The Borrower shall, no later than the 60th calendar day following the receipt by the Borrower or any of its Subsidiaries of any Casualty Proceeds in excess of $2,000,000 (individually or in the aggregate in any Fiscal Year), make or cause to be made a mandatory prepayment of the Term Loans in an amount equal to 100% of such Casualty Proceeds, to be applied as set forth in Section 3.1.2; provided, that no mandatory prepayment on account of Casualty Proceeds shall be required under this clause if the Borrower informs the Administrative Agent no later than 60 days following the occurrence of the Casualty Event resulting in such Casualty Proceeds of its or its Subsidiary's good faith intention to apply such Casualty Proceeds to the rebuilding or replacement of the damaged, destroyed or condemned assets or property subject to such Casualty Event or the acquisition of other assets or property consistent with the business permitted to be conducted pursuant to Section 7.2.1 (including by way of merger or Investment) and in fact uses or commits to use such Casualty Proceeds to rebuild or replace the damaged, destroyed or condemned assets or property subject to such Casualty Event or to acquire such other property or assets within 365 days following the receipt of such Casualty Proceeds, with the amount of such Casualty Proceeds unused after such 365 day period being applied to the Loans pursuant to Section 3.1.2; provided further, however, that at any time when any Event of Default shall have occurred and be continuing or Casualty Proceeds not applied as provided above shall exceed $2,000,000, such Casualty Proceeds will be deposited in an account maintained with the Administrative Agent for disbursement at the request of the Borrower to pay for such rebuilding, replacement or acquisition. (i) Immediately upon any acceleration of the Stated Maturity Date of any Loans pursuant to Section 8.2 or Section 8.3, the Borrower shall repay all the Loans, unless, pursuant to Section 8.3, only a portion of all the Loans is so accelerated (in which case the portion so accelerated shall be so repaid). Each prepayment of any Loans made pursuant to this Section shall be without premium or penalty, except as may be required by Section 4.4. SECTION 3.1.2. Application. Amounts prepaid pursuant to Section 3.1.1 shall be applied as set forth in this Section. (a) Subject to clause (b), each prepayment or repayment of the principal of the Loans shall be applied, to the extent of such prepayment or repayment, first, to the principal amount thereof being maintained as Base Rate Loans, and second, subject to the terms of Section 4.4, to the principal amount thereof being maintained as LIBO Rate Loans. (b) Each prepayment of Term Loans made pursuant to clauses (e), (f), (g) and (h) of Section 3.1.1 shall be applied (i) first, pro rata to a mandatory prepayment of the outstanding principal amount of all Term A Loans and Term B Loans (with the amount of such prepayment of the Term A Loans and the Term B Loans being applied to the remaining scheduled amortization payments of the Term A Loans or Term B Loans, as the case may be, in inverse order in accordance with the amount of each such remaining Term A Loan or Term B Loan amortization payments, and (ii) second, once all Term Loans have been repaid in full, to the repayment of any outstanding Revolving Loans and, in the case of prepayments pursuant to clause (e), (f), (g) or (h) of Section 3.1.1, to a reduction of the Revolving Loan Commitment Amount in accordance with Section 2.2.2; provided, however, that, in the case of any prepayment of Term B Loans made pursuant to clause (e), (f), (g) or (h) of Section 3.1.1, if the Borrower (at any time prior to the repayment in full of the Term A Loans) elects in writing, in its sole discretion, to permit any Lender that has Term B Loans to decline to have such Loans so prepaid, then any Lender that has Term B Loans may, by delivering a notice to the Administrative Agent at least one Business Day prior to the date that such prepayment is to be made, decline to have such Loans prepaid with the amounts set forth above, in which case 50% of the amounts that would have been applied to a prepayment of such Lender's Term B Loans shall instead be applied to a prepayment of the principal amount of all outstanding Term A Loans until all outstanding Term A Loans have been prepaid in full, with the balance being retained by the Borrower. SECTION 3.2. Interest Provisions. Interest on the outstanding principal amount of Loans shall accrue and be payable in accordance with the terms set forth below. SECTION 3.2.1. Rates. Pursuant to an appropriately delivered Borrowing Request or Continuation/Conversion Notice, the Borrower may elect that Loans comprising a Borrowing accrue interest at a rate per annum: (a) on that portion maintained from time to time as a Base Rate Loan, equal to the sum of the Adjusted Base Rate from time to time in effect plus the Applicable Margin; provided that all Swing Line Loans shall always accrue interest at the then effective Applicable Margin for Revolving Loans maintained as Base Rate Loans; and (b) on that portion maintained as a LIBO Rate Loan, during each Interest Period applicable thereto, equal to the sum of the Adjusted LIBO Rate for such Interest Period plus the Applicable Margin. All LIBO Rate Loans shall bear interest from and including the first day of the applicable Interest Period to (but not including) the last day of such Interest Period at the interest rate determined as applicable to such LIBO Rate Loan. SECTION 3.2.2. Post-Maturity Rates. After the date any principal amount of any Loan or Reimbursement Obligation is due and payable (whether on the Stated Maturity Date, upon acceleration or otherwise), or after any other monetary Obligation of the Borrower shall have become due and payable, the Borrower shall pay, but only to the extent permitted by law, interest (after as well as before judgment) on such amounts at a rate per annum equal to the Adjusted Base Rate from time to time in effect, plus the Applicable Margin for Term B Loans accruing interest at the Base Rate, plus a margin of 2%. SECTION 3.2.3. Payment Dates. Interest accrued on each Loan shall be payable, without duplication: (a) on the Stated Maturity Date therefor; (b) on the date of any payment or prepayment, in whole or in part, of principal outstanding on any Loan which is a LIBO Rate Loan on the principal amount so paid or prepaid; (c) with respect to Base Rate Loans, on each Quarterly Payment Date occurring after the Closing Date; (d) with respect to LIBO Rate Loans, on the last day of each applicable Interest Period (and, if such Interest Period shall exceed three months, on the date occurring on each three-month interval occurring after the first day of such Interest Period); and (e) on that portion of any Loans the Stated Maturity Date of which is accelerated pursuant to Section 8.2 or 8.3, immediately upon such acceleration. Interest accrued on Loans or other monetary Obligations after the date such amount is due and payable (whether on the Stated Maturity Date, upon acceleration or otherwise) shall be payable upon demand. SECTION 3.3. Fees. The Borrower agrees to pay the fees set forth below. All such fees shall be non-refundable. SECTION 3.3.1. Commitment Fee. The Borrower agrees to pay to the Administrative Agent for the account of each Lender, for the period (including any portion thereof when any of its Commitments are suspended by reason of the Borrower's inability to satisfy any condition of Article V) commencing on the Closing Date and continuing through the applicable Commitment Termination Date, a commitment fee in an amount equal to the Applicable Commitment Fee, in each case on such Lender's Percentage of the sum of the average daily unused portion of the Revolving Loan Commitment Amount (net of Letter of Credit Outstandings, in the case of the Revolving Loan Commitment Amount). All commitment fees payable pursuant to this Section shall be calculated on a year comprised of 360 days and payable by the Borrower in arrears on the Closing Date and thereafter on each Quarterly Payment Date, commencing with the first Quarterly Payment Date following the Closing Date, and on the Revolving Loan Commitment Termination Date. The making of Swing Line Loans shall not constitute usage of the Revolving Loan Commitment with respect to the calculation of commitment fees to be paid by the Borrower to the Lenders (other than in the case of the Swing Line Lender). SECTION 3.3.2. Administrative Agent's Fees. The Borrower agrees to pay to the Administrative Agent, for its own account, the fees in the amounts and on the dates set forth in the Administrative Agent's Fee Letter SECTION 3.3.3. Letter of Credit Fee. The Borrower agrees to pay to the Administrative Agent, for the pro rata account of the each applicable Issuer and each Revolving Loan Lender, a Letter of Credit fee in an amount equal to the then effective Applicable Margin for Revolving Loans maintained as LIBO Rate Loans, multiplied by the Stated Amount of each such Letter of Credit, such fees being payable quarterly in arrears on each Quarterly Payment Date following the date of issuance of each Letter of Credit and on the Revolving Loan Commitment Termination Date. The Borrower further agrees to pay to each applicable Issuer quarterly in arrears on each Quarterly Payment Date following the date of issuance of each Letter of Credit and on the Revolving Loan Commitment Termination Date a fronting fee as specified in the Administrative Agent's Fee Letter or as otherwise agreed to by the Borrower and the applicable Issuer. ARTICLE IV CERTAIN LIBO RATE AND OTHER PROVISIONS SECTION 4.1. LIBO Rate Lending Unlawful. If any Lender shall determine (which determination shall, upon notice thereof to the Borrower and the Administrative Agent, be conclusive and binding on the Borrower) that the introduction of or any change in or in the interpretation of any law makes it unlawful, or any Governmental Authority asserts that it is unlawful, for such Lender to make or continue any Loan as, or to convert any Loan into, a LIBO Rate Loan, the obligations of such Lender to make, continue or convert any such LIBO Rate Loan shall, after the determination thereof, forthwith be suspended until such Lender shall notify the Administrative Agent that the circumstances causing such suspension no longer exist, and all outstanding LIBO Rate Loans payable to such Lender shall automatically convert into Base Rate Loans at the end of the then current Interest Periods with respect thereto or sooner, if required by such law or assertion. SECTION 4.2. Deposits Unavailable. If the Administrative Agent shall have determined that (a) Dollar deposits in the relevant amount and for the relevant Interest Period are not available to it in its relevant market; or (b) by reason of circumstances affecting its relevant market, adequate means do not exist for ascertaining the interest rate applicable hereunder to LIBO Rate Loans; then, upon notice from the Administrative Agent to the Borrower and the Lenders, the obligations of all Lenders under Sections 2.3 and 2.4 to make or continue any Loans as, or to convert any Loans into, LIBO Rate Loans shall forthwith be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist. SECTION 4.3. Increased LIBO Rate Loan Costs, etc. The Borrower agrees to reimburse each Lender and each Issuer for any increase in the cost to such Lender or such Issuer of, or any reduction in the amount of any sum receivable by such Secured Party in respect of, such Secured Party's Commitments and the making of Credit Extensions hereunder (including the making, continuing or maintaining (or of its obligation to make or continue) any Loans as, or of converting (or of its obligation to convert) any Loans into, LIBO Rate Loans) that arise in connection with any change in, or the introduction, adoption, effectiveness, interpretation, reinterpretation or phase-in after the Closing Date of, any law or regulation, directive, guideline, decision or request (whether or not having the force of law) of any Governmental Authority, except for (i) such changes with respect to increased capital costs and Taxes which are governed by Sections 4.5 and 4.6, respectively, and (ii) increased costs which are already included in the determination of the Statutory Reserve Rate. Each affected Secured Party shall promptly notify the Administrative Agent and the Borrower in writing of the occurrence of any such event, stating the reasons therefor and the additional amount required fully to compensate such Secured Party for such increased cost or reduced amount. Such additional amounts shall be payable by the Borrower directly to such Secured Party within ten days of its receipt of such notice, and such notice shall, in the absence of manifest error, be conclusive and binding on the Borrower. SECTION 4.4. Funding Losses. In the event any Lender shall incur any loss or expense (including any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to make or continue any portion of the principal amount of any Loan as, or to convert any portion of the principal amount of any Loan into, a LIBO Rate Loan) as a result of (a) any conversion or repayment or prepayment of the principal amount of any LIBO Rate Loan on a date other than the scheduled last day of the Interest Period applicable thereto, whether pursuant to Article III or otherwise; (b) any Loans not being made as LIBO Rate Loans in accordance with the Borrowing Request therefor; or (c) any Loans not being continued as, or converted into, LIBO Rate Loans in accordance with the Continuation/Conversion Notice therefor; but in each case other than due to such Lender's failure to fulfill its obligations hereunder, then, upon the written notice of such Lender to the Borrower (with a copy to the Administrative Agent), the Borrower shall, within ten days of its receipt thereof, pay directly to such Lender such amount as will (in the reasonable determination of such Lender) reimburse such Lender for such loss or expense. Such written notice shall, in the absence of manifest error, be conclusive and binding on the Borrower. SECTION 4.5. Increased Capital Costs. If, after the Closing Date, any change in, or the introduction, adoption, effectiveness, interpretation, reinterpretation or phase-in of, any law or regulation, directive, guideline, decision or request (whether or not having the force of law) of any Governmental Authority affects or would affect the amount of capital required or expected to be maintained by any Secured Party or any Person controlling such Secured Party, and such Secured Party determines (in good faith but in its sole and absolute discretion) that the rate of return on its or such controlling Person's capital as a consequence of the Commitments or the Credit Extensions made, or the Letters of Credit participated in, by such Secured Party is reduced to a level below that which such Secured Party or such controlling Person could have achieved but for the occurrence of any such circumstance, then upon notice from time to time by such Secured Party to the Borrower, the Borrower shall within five days following receipt of such notice pay directly to such Secured Party additional amounts sufficient to compensate such Secured Party or such controlling Person for such reduction in rate of return. A statement of such Secured Party as to any such additional amount or amounts shall, in the absence of manifest error, be conclusive and binding on the Borrower. In determining such amount, such Secured Party may use any reasonable method of averaging and attribution that it (in its sole and absolute discretion) shall deem applicable. SECTION 4.6. Taxes. The Borrower covenants and agrees as follows with respect to Taxes. (a) Any and all payments by the Borrower under each Loan Document shall be made without setoff, counterclaim or other defense, and free and clear of, and without deduction or withholding for or on account of, any Taxes, except to the extent any Taxes are imposed by law. In the event that any Taxes are required by law to be deducted or withheld from any payment required to be made by the Borrower to or on behalf of any Secured Party under any Loan Document, then: (i) subject to clause (f), if such Taxes are Non-Excluded Taxes, the amount of such payment shall be increased as may be necessary such that such payment is made, after withholding or deduction for or on account of such Non-Excluded Taxes, in an amount that is not less than the amount provided for in such Loan Document; and (ii) the Borrower shall withhold the full amount of such Taxes from such payment (as increased pursuant to clause (a)(i), if applicable) and shall pay such amount to the Governmental Authority imposing such Taxes in accordance with applicable law. (b) In addition, the Borrower shall pay any and all Other Taxes imposed on or with respect to a Secured Party to the relevant Governmental Authority imposing such Other Taxes in accordance with applicable law. (c) As promptly as practicable after the payment of any Taxes or Other Taxes, and in any event within 45 days of any such payment, the Borrower shall furnish to the Administrative Agent a copy of an official receipt (or a certified copy thereof) or if obtaining such receipt or copy is impractical, other documentation necessary for purposes of claiming a foreign tax credit evidencing the payment of such Taxes or Other Taxes. The Administrative Agent shall make copies thereof available to any Lender upon request therefor. (d) Subject to clause (f), the Borrower shall indemnify each Secured Party for any Non-Excluded Taxes and Other Taxes levied, imposed, assessed on or actually paid by or on behalf of such Secured Party (whether or not such Non-Excluded Taxes or Other Taxes are correctly or legally asserted by the relevant Governmental Authority). Promptly upon having actual knowledge that any such Non-Excluded Taxes or Other Taxes have been levied, imposed or assessed, and promptly upon notice thereof by any Secured Party, the Borrower shall pay such Non-Excluded Taxes or Other Taxes directly to the relevant Governmental Authority (provided, however, that no Secured Party shall be under any obligation to provide any such notice to the Borrower). In addition, the Borrower shall indemnify each Secured Party for any incremental Taxes that are paid or payable by such Secured Party as a result of any failure of the Borrower to pay any Taxes when due to the appropriate Governmental Authority or to deliver to the Administrative Agent, pursuant to clause (c), documentation evidencing the payment of Taxes or Other Taxes. With respect to indemnification for Non-Excluded Taxes and Other Taxes actually paid by any Secured Party or the indemnification provided in the immediately preceding sentence, such indemnification shall be made within 30 days after the date such Secured Party makes written demand therefor. The Borrower acknowledges that any payment made to any Secured Party or to any Governmental Authority in respect of the indemnification obligations of the Borrower provided in this clause shall constitute a payment in respect of which the provisions of clause (a) and this clause shall apply. (e) Each Non-Domestic Secured Party, on or prior to the date on which such Non-Domestic Secured Party becomes a Secured Party hereunder (and from time to time thereafter upon the request of the Borrower or the Administrative Agent, but only for so long as such Non-Domestic Secured Party is legally entitled to do so), shall deliver to the Borrower and the Administrative Agent either (i) two properly completed and duly executed copies of (A) Internal Revenue Service Form W-8BEN and (B) Internal Revenue Service Form 4224 or Form 1001 or, in either case, an applicable successor form; or (ii) in the case of a Non-Domestic Secured Party that is not legally entitled to deliver either form listed in clause (e)(i), (x) a certificate in form and substance reasonably satisfactory to the Borrower and the Administrative Agent of a duly authorized officer of such Non-Domestic Secured Party to the effect that such Non-Domestic Secured Party is not (A) a "bank" within the meaning of Section 881(c)(3)(A) of the Code, (B) a "10 percent shareholder" of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, or (C) a controlled foreign corporation receiving interest from a related person within the meaning of Section 881(c)(3)(C) of the Code (such certificate, an "Exemption Certificate") and (y) two properly completed and duly executed copies of Internal Revenue Service Form W-8BEN or applicable successor form, in each case certifying that such Non-Domestic Secured Party is entitled to receive payments under this Agreement and the Notes without deduction or withholding of any Non-Excluded Taxes. Each such Non-Domestic Secured Party further agrees to deliver to each of the Borrower and the Administrative Agent an additional copy of such relevant form on or before the date such form expires or becomes obsolete or after the occurrence of any event (including a change in applicable lending office) requiring a change in the most recent forms so delivered by it, in each case certifying that such Non-Domestic Secured Party is entitled to an exemption from withholding or deduction for or on account of Non-Excluded Taxes in connection with payments under this Agreement or under any of the Notes. Each such Non-Domestic Secured Party shall promptly notify the Borrower and the Administrative Agent of any changes in circumstances unique to such Non-Domestic Secured Party, and not including a change in law, that would modify or render invalid any claimed exemption or reduction. (f) The Borrower shall not be obligated to gross up any payments to any Secured Party pursuant to clause (a)(i), or to indemnify any Secured Party pursuant to clause (d), in respect of Taxes to the extent imposed as a result of (i) the failure of such Secured Party to deliver to the Borrower the form or forms and/or an Exemption Certificate, as applicable to such Secured Party, pursuant to clause (e), (ii) such form or forms and/or Exemption Certificate not establishing a complete exemption from U.S. federal withholding Tax or the information or certifications made therein by the Secured Party being untrue or inaccurate on the date delivered in any material respect, or (iii) the Secured Party designating a successor lending office at which it maintains its Loans which has the effect of causing such Secured Party to become obligated for Tax payments in excess of those in effect immediately prior to such designation; provided, however, that the Borrower shall be obligated to gross up any payments to any such Secured Party pursuant to clause (a)(i), and to indemnify any such Secured Party pursuant to clause (d), in respect of United States federal withholding Taxes if (i) any such failure to deliver a form or forms or an Exemption Certificate or the failure of such form or forms or Exemption Certificate to establish a complete exemption from U.S. federal withholding Tax or inaccuracy or untruth contained therein resulted from a change in any applicable statute, treaty, regulation or other applicable law or any interpretation of any of the foregoing occurring after the date on which such Secured Party became a Secured Party hereunder, which change rendered such Secured Party no longer legally entitled to deliver such form or forms or Exemption Certificate or otherwise ineligible for a complete exemption from U.S. federal withholding Tax, or rendered the information or certifications made in such form or forms or Exemption Certificate untrue or inaccurate in a material respect or (ii) the obligation to gross up payments to any such Secured Party pursuant to clause (a)(i) or to indemnify any such Secured Party pursuant to clause (d) is with respect to an assignee Secured Party as a result of an assignment made at the request of the Borrower. (g) If a Secured Party receives a refund in respect of Taxes as to which it has been grossed up by the Borrower pursuant to clause (a)(i) or indemnified by the Borrower pursuant to clause (d) and such Secured Party determines in its sole, good faith judgment that such refund is attributable to such gross up or indemnification, then such Secured Party shall pay such amount to the Borrower as such Secured Party determines to be the proportion of the refund as will leave it, after such payment, in no better or worse financial position with respect to Tax liabilities and related expenses than it would have been in the absence of such payment. No Secured Party shall be obligated to disclose information regarding its tax affairs or computations to the Borrower in connection with this clause or any other provision of this Section. SECTION 4.7. Payments, Computations, etc. Unless otherwise expressly provided in a Loan Document, all payments by the Borrower pursuant to each Loan Document shall be made by the Borrower to the Administrative Agent for the pro rata account of the Secured Parties entitled to receive such payment. All payments shall be made without setoff, deduction or counterclaim not later than 1:00 p.m. on the date due in same day or immediately available funds to such account as the Administrative Agent shall specify from time to time by notice to the Borrower. Funds received after that time shall be deemed to have been received by the Administrative Agent on the next succeeding Business Day. The Administrative Agent shall promptly remit in same day funds to each Secured Party its share, if any, of such payments received by the Administrative Agent for the account of such Secured Party. All interest (including interest on LIBO Rate Loans) and fees shall be computed on the basis of the actual number of days (including the first day but excluding the last day) occurring during the period for which such interest or fee is payable over a year comprised of 360 days (or, in the case of interest on a Base Rate Loan (calculated at other than the Federal Funds Effective Rate), 365 days or, if appropriate, 366 days). Payments due on other than a Business Day shall (except as otherwise required by clause (c) of the definition of the term "Interest Period") be made on the next succeeding Business Day and such extension of time shall be included in computing interest and fees in connection with that payment. SECTION 4.8. Sharing of Payments. If any Secured Party shall obtain any payment or other recovery (whether voluntary, involuntary, by application of setoff or otherwise) on account of any Credit Extension or Reimbursement Obligation (other than pursuant to the terms of Section 4.3, 4.4, 4.5 or 4.6) in excess of its pro rata share of payments obtained by all Secured Parties, such Secured Party shall purchase from the other Secured Parties such participations in Credit Extensions made by them as shall be necessary to cause such purchasing Secured Party to share the excess payment or other recovery ratably (to the extent such other Secured Parties were entitled to receive a portion of such payment or recovery) with each of them; provided, however, that if all or any portion of the excess payment or other recovery is thereafter recovered from such purchasing Secured Party, the purchase shall be rescinded and each Secured Party which has sold a participation to the purchasing Secured Party shall repay to the purchasing Secured Party the purchase price to the ratable extent of such recovery together with an amount equal to such selling Secured Party's ratable share (according to the proportion of (a) the amount of such selling Secured Party's required repayment to the purchasing Secured Party to (b) total amount so recovered from the purchasing Secured Party) of any interest or other amount paid or payable by the purchasing Secured Party in respect of the total amount so recovered. The Borrower agrees that any Secured Party purchasing a participation from another Secured Party pursuant to this Section may, to the fullest extent permitted by law, exercise all its rights of payment (including pursuant to Section 4.9) with respect to such participation as fully as if such Secured Party were the direct creditor of the Borrower in the amount of such participation. If under any applicable bankruptcy, insolvency or other similar law any Secured Party receives a secured claim in lieu of a setoff to which this Section applies, such Secured Party shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Secured Parties entitled under this Section to share in the benefits of any recovery on such secured claim. SECTION 4.9. Setoff. Each Secured Party shall, upon the occurrence and during the continuance of any Default described in clauses (a) through (d) of Section 8.1.9 or, with the consent of the Required Lenders, upon the occurrence and during the continuance of any other Event of Default, have the right to appropriate and apply to the payment of the Obligations owing to it (whether or not then due), and (as security for such Obligations) the Borrower hereby grants to each Secured Party a continuing security interest in, any and all balances, credits, deposits, accounts (other than any trust accounts comprised entirely of moneys held in trust for the benefit of Persons other than the Borrower and its Affiliates) or moneys of the Borrower then or thereafter maintained with such Secured Party (other than the Restricted Cash Balance); provided, however, that any such appropriation and application shall be subject to the provisions of Section 4.8. Each Secured Party agrees promptly to notify the Borrower and the Administrative Agent after any such setoff and application made by such Secured Party; provided, however, that the failure to give such notice shall not affect the validity of such setoff and application. The rights of each Secured Party under this Section are in addition to other rights and remedies (including other rights of setoff under applicable law or otherwise) which such Secured Party may have. SECTION 4.10. Change of Lending Office. Each Secured Party agrees that if it makes any demand for payment under Section 4.3, 4.5 or 4.6, or if any adoption or change of the type described in Section 4.1 shall occur with respect to it, it will, if requested by the Borrower, file a certificate or document reasonably requested by the Borrower and/or use reasonable efforts (in either case, consistent with its internal policy and legal and regulatory restrictions and so long as such efforts would not be disadvantageous to it, as determined in its sole discretion) to designate a different lending office if the filing of such certificate or document or the making of such a designation would reduce or obviate the need for the Borrower to make payments under Section 4.3, 4.5 or 4.6, or would eliminate or materially reduce the effect of any adoption or change described in Section 4.1; provided, however, that nothing in this Section shall affect or postpone any of the Obligations of the Borrower or the right of any Secured Party provided in Section 4.1, 4.3, 4.5 or 4.6. SECTION 4.11. Replacement of Lenders. If any Lender (an "Affected Lender") makes a demand upon the Borrower for (or if the Borrower is otherwise required to pay) amounts pursuant to Section 4.3, 4.5 or 4.6 (and the payment of such amounts are, and are likely to continue to be, more onerous in the reasonable judgment of the Borrower than with respect to the other Lenders), or gives notice pursuant to Section 4.1 requiring a conversion of such Affected Lender's LIBO Rate Loans to Base Rate Loans or suspending such Lender's obligation to make Loans as, or to convert Loans into, LIBO Rate Loans, the Borrower may, within 30 days of receipt by the Borrower of such demand or notice, as the case may be, give notice (a "Replacement Notice") in writing to the Administrative Agent and such Affected Lender of its intention to replace such Affected Lender with a financial institution or other Person (a "Replacement Lender") designated in such Replacement Notice; provided, however, that no Replacement Notice may be given by the Borrower if (i) such replacement conflicts with any applicable law or regulation, (ii) any Event of Default shall have occurred and be continuing at the time of such replacement or (iii) prior to any such replacement, such Lender shall have taken any necessary action under Section 4.5 or 4.6 (if applicable) so as to eliminate the continued need for payment of amounts owing pursuant to Section 4.5 or 4.6. If the Administrative Agent shall, in the exercise of its reasonable discretion and within 30 days of its receipt of such Replacement Notice, notify the Borrower and such Affected Lender in writing that the Replacement Lender is satisfactory to the Administrative Agent (such consent not being required where the Replacement Lender is already a Lender), then such Affected Lender shall, subject to the payment of any amounts due pursuant to Section 4.4, assign, in accordance with Section 10.11.1, all of its Commitments, Loans, Notes (if any) and other rights and obligations under this Agreement and all other Loan Documents (including Reimbursement Obligations, if applicable) to such Replacement Lender; provided, however, that (i) such assignment shall be without recourse, representation or warranty and shall be on terms and conditions reasonably satisfactory to such Affected Lender and such designated financial institution, (ii) the purchase price paid by such Replacement Lender shall be in the amount of such Affected Lender's Loans and its Percentage of outstanding Reimbursement Obligations, together with all accrued and unpaid interest and fees in respect thereof, plus all other amounts (including the amounts demanded and unreimbursed under Sections 4.3, 4.5 and 4.6), owing to such Affected Lender hereunder and (iii) the Borrower shall pay to the Affected Lender and the Administrative Agent all reasonable out-of-pocket expenses incurred by the Affected Lender and the Administrative Agent in connection with such assignment and assumption (including the processing fees described in Section 10.11.1). Upon the effective date of an assignment described above, the Replacement Lender shall become a "Lender" for all purposes under the Loan Documents. SECTION 4.12. Limitation on Additional Amounts, etc. Notwithstanding anything to the contrary contained in Sections 4.3, 4.5 or 4.6 of this Agreement, unless a Lender gives notice to the Borrower that it is obligated to pay an amount under any such Section within 90 days after the later of (x) the date the Lender incurs the respective increased costs, Taxes, loss, expense or liability, reduction in amounts received or receivable or reduction in return on capital or (y) the date such Lender has actual knowledge of its incurrence of their respective increased costs, Taxes, loss, expense or liability, reductions in amounts received or receivable or reduction in return on capital, then such Lender shall only be entitled to be compensated for such amount by such Borrower pursuant to Sections 4.3, 4.5 or 4.6, as the case may be, to the extent the costs, Taxes, loss, expense or liability, reduction in amounts received or receivable or reduction in return on capital are incurred or suffered on or after the date which occurs 90 days prior to such Lender giving notice to the Borrower that it is obligated to pay the respective amounts pursuant to Sections 4.3, 4.5 or 4.6, as the case may be. This Section shall have no applicability to any Section of this Agreement other than Sections 4.3, 4.5 or 4.6. ARTICLE V CONDITIONS TO CREDIT EXTENSIONS SECTION 5.1. Initial Credit Extension. The obligations of the Lenders and, if applicable, the Issuers to fund the initial Credit Extension shall be subject to the prior or concurrent satisfaction of each of the conditions precedent set forth in this Section. SECTION 5.1.1. Resolutions, etc. The Managing Agents shall have received from each Obligor, as applicable, (i) a copy of a good standing certificate, dated a date reasonably close to the Closing Date, for each such Person and (ii) a certificate, dated the Closing Date and with counterparts for each Lender, duly executed and delivered by such Person's Secretary or Assistant Secretary, managing member or general partner, as applicable, as to (a) the fact that a complete and correct copy of the resolutions of each such Person's Board of Directors (or other managing body, in the case of other than a corporation) then in full force and effect authorizing, to the extent relevant, all aspects of the Transaction applicable to such Person and the execution, delivery and performance of each Loan Document to be executed by such Person and the transactions contemplated hereby and thereby is attached to such certificate and that those resolutions have not been amended, modified or rescinded by subsequent action; (b) the incumbency and signatures of those of its officers, managing member or general partner, as applicable, authorized to act with respect to each Loan Document to be executed by such Person (each, an "Authorized Officer"); and (c) the full force and validity of each Organic Document of such Person and copies thereof; upon which certificates each Secured Party may conclusively rely until it shall have received a further certificate of the Secretary, Assistant Secretary, managing member or general partner, as applicable, of any such Person canceling or amending the prior certificate of such Person. SECTION 5.1.2. Transaction Consummated. The Transactions shall have been consummated for an aggregate amount not in excess of $826,000,000, and in connection therewith: (a) The Recapitalization shall have been consummated pursuant to the Recapitalization Agreement (and all of the conditions to effecting or consummating the Recapitalization set forth in the Recapitalization Agreement shall have been duly satisfied or, with the consent of the Managing Agents and the Required Lenders, waived) and, pursuant thereto, (i) the Borrower shall have received common equity proceeds of approximately $200,000,000, and (ii) MDCP and its designees shall have become the holder of approximately 82.5% of the issued and outstanding OSI Common Stock, representing more than 77% of the OSI Common Stock on a fully diluted basis, in each case on the Closing Date. (b) The Rollover Shareholders shall continue to hold approximately 8.0% of the issued and outstanding OSI Common Stock, representing approximately 7.5% of the OSI Common Stock on a fully diluted basis, in each case on the Closing Date. (c) The Preferred Equity Issuances shall have been consummated on terms and conditions reasonably satisfactory in all respects to the Managing Agents and, pursuant to (i) the PIK Preferred Equity Issuance, the Borrower shall have issued the PIK Preferred Equity for not less than $100,000,000 in gross cash proceeds to the PIK Preferred Equity Holders pursuant to the PIK Preferred Equity Documents; and (ii) the Junior PIK Preferred Equity Issuance, the Borrower shall have issued (pursuant to the Junior PIK Preferred Equity Documents) the Junior PIK Preferred Equity to certain of the Existing Shareholders for not less than $7,000,000 of gross cash proceeds, in connection with the Recapitalization. SECTION 5.1.3. Transaction Documents. (a) The Managing Agents shall have received (with copies for each Lender that shall have requested in writing copies thereof) copies of fully executed versions of the Transaction Documents other than the Consent Solicitation Statement, certified to be true and complete copies thereof by an Authorized Officer of the Borrower. Each Material Document shall be in full force and effect and shall not have been modified or waived in any material respect, nor shall there have been any forbearance to exercise any rights with respect to any of the material terms or provisions relating to the conditions to the consummation of the Recapitalization, the Preferred Equity Issuances and the Solicitation set forth in the applicable Material Document unless otherwise agreed to by the Required Lenders. (b) With respect to the Solicitation, the Managing Agents shall have received evidence satisfactory in all respects to each of them that the Subordinated Note Holders of at least a majority of the aggregate principal amount of the Subordinated Notes shall have executed and delivered a consent pursuant to the Consent Solicitation Statement, such that the terms, conditions and waivers contained in the Consent Solicitation Statement shall be binding on and enforceable against all of the Subordinated Note Holders. SECTION 5.1.4. Closing Date Certificate. The Managing Agents shall have received, with counterparts for each Lender, the Borrower Closing Date Certificate, dated the Closing Date and duly executed and delivered by an Authorized Officer of the Borrower, in which certificate the Borrower shall agree and acknowledge that the statements made therein shall be deemed to be true and correct representations and warranties in all material respects of the Borrower as of such date, and, at the time each such certificate is delivered, such statements shall in fact be true and correct in all material respects (it being understood that the Borrower shall not have to certify as to any matter set forth in this Agreement to the extent that the determination thereof is to be made (as expressly provided for in this Agreement) by either Managing Agent or any Lender). All documents and agreements required to be appended to the Borrower Closing Date Certificate (including documentation evidencing that, after giving effect to the Transaction and each other transaction contemplated hereby (including the initial Credit Extensions hereunder), all Obligations, including those to pay principal of and interest (including interest accruing subsequent to the filing of, or which would have accrued but for the filing of, a petition for bankruptcy, reorganization or similar proceeding, whether or not allowed as a claim under such proceeding) on the Loans and Reimbursement Obligations, and fees and expenses in connection therewith, constitute "Senior Bank Debt" (as defined in the Subordinated Note Indenture)) shall be in form and substance reasonably satisfactory to the Managing Agents. SECTION 5.1.5. Delivery of Notes. The Managing Agents shall have received, for the account of each Lender that has requested a Note in writing three Business Days prior to the Closing Date, such Lender's Notes duly executed and delivered by an Authorized Officer of the Borrower. SECTION 5.1.6. Payment of Outstanding Indebtedness, etc. All Indebtedness identified in Item 7.2.2(b) of the Disclosure Schedule (including, pursuant to the Refinancing, all Indebtedness outstanding under the terms of the Existing Credit Agreement (other than the Existing Letters of Credit)), together with all interest, all prepayment premiums, if any, and other amounts due and payable with respect thereto, shall have been paid in full from the proceeds of the initial Credit Extension and the commitments in respect of such Indebtedness shall have been terminated, and all Liens securing payment of any such Indebtedness have been released and the Administrative Agent shall have received all executed UCC termination statements (Form UCC-3) or other instruments as may be suitable or appropriate in connection therewith. SECTION 5.1.7. Administrative Agent's Fee Letter, Closing Fees, Expenses, etc. (a) The Administrative Agent shall have received the Administrative Agent's Fee Letter, duly executed and delivered by an Authorized Officer of the Borrower. (b) Each Managing Agent shall have received for its own account, or for the account of each Lender, as the case may be, all fees, costs and expenses due and payable pursuant to Sections 3.3 and 10.3, to the extent then invoiced. The Managing Agents shall be satisfied that the aggregate amount of fees and expenses paid or payable in connection with the Transaction shall not exceed $47,000,000. SECTION 5.1.8. Financial Information; Material Adverse Change. (a) The Managing Agents shall have received, with counterparts for each Lender, (i) (A) consolidated financial statements of the Borrower including balance sheets and income and cash flow statements as of the end of and for each of the last three Fiscal Years ended December 31, 1998, December 31, 1997 and December 31, 1996 audited by independent public accountants of recognized national standing and prepared in conformity with GAAP, together with the report thereon; and (B) unaudited interim financial statements of the Borrower prepared in each case in the same manner as the historical audited statements for the first three Fiscal Quarters of the 1999 Fiscal Year and for the same Fiscal Quarters of the 1998 Fiscal Year; and (ii) a consolidated pro forma balance sheet of the Borrower and its Subsidiaries, as of September 30, 1999, certified by the chief financial or accounting Authorized Officer of the Borrower, giving effect to the consummation of the Transaction and each other transaction contemplated by this Agreement and the Transaction Documents, and reflecting the proposed legal and capital structures of the Borrower and its Subsidiaries, which legal and capital structure shall be satisfactory in all material respects to the Managing Agents; and (b) Since December 31, 1998, there has not been any material adverse change in the business, operations, results of operations, business prospects or financial condition of the Borrower and its Subsidiaries taken as a whole. SECTION 5.1.9. Opinions of Counsel; Reliance Letters. The Managing Agents shall have received opinions, dated the Closing Date and addressed to the Managing Agents and all of the Lenders, from (a) Kirkland & Ellis, New York counsel to the Obligors, in form and substance satisfactory to the Managing Agents; and (b) local counsel to the Obligors, in form and substance, and from counsel, in each case satisfactory to the Managing Agents, from the States of California, Florida, Georgia, Missouri and Wisconsin. SECTION 5.1.10. Filing Agent, etc. All UCC financing statements (Form UCC-1) or other similar financing statements and UCC termination statements (Form UCC-3) required pursuant to the Loan Documents (collectively, the "Filing Statements") shall have been delivered to CT Corporation System or another similar filing service company acceptable to the Managing Agents (the "Filing Agent"). The Filing Agent shall have acknowledged in a writing satisfactory to the Managing Agents and their counsel (i) the Filing Agent's receipt of all Filing Statements, (ii) that the Filing Statements have either been submitted for filing in the appropriate filing offices or will be submitted for filing in the appropriate offices within ten days following the Closing Date and (iii) that the Filing Agent will notify the Managing Agents and their counsel of the results of such submissions within 30 days following the Closing Date. SECTION 5.1.11. Subsidiary Guaranty. The Managing Agents shall have received the Subsidiary Guaranty, dated as of the Closing Date, duly executed and delivered by an Authorized Officer of each Subsidiary Guarantor. SECTION 5.1.12. Solvency, etc. The Managing Agents shall have received, with counterparts for each Lender, a certificate duly executed and delivered by the chief financial or accounting Authorized Officer of the Borrower, dated the Closing Date, in the form of Exhibit I attached hereto. SECTION 5.1.13. Pledge Agreements. The Managing Agents shall have received, (a) the Shareholders' Pledge Agreement, dated as of the Closing Date, and duly executed and delivered by an Authorized Officer of each OSI Shareholder that is not a natural person and each other OSI Shareholder that is a natural person in his/her individual capacity together with the certificates evidencing the shares of the OSI Common Stock owned by such OSI Shareholders and pledged pursuant to the Shareholders' Pledge Agreement, which certificates in each case shall be accompanied by undated instruments of transfer duly executed in blank; (b) each Pledge and Security Agreement, dated as of the Closing Date, duly executed and delivered by an Authorized Officer of the Borrower and each Subsidiary Guarantor together with (i) the certificates evidencing all of the issued and outstanding shares of Capital Securities pledged pursuant to the Pledge and Security Agreement, which certificates in each case shall be accompanied by undated instruments of transfer duly executed in blank, or, if any such shares of Capital Securities pledged pursuant to such Pledge and Security Agreement are uncertificated securities, the Administrative Agent shall have obtained "control" (as defined in the UCC) over such shares of Capital Securities) and such other instruments and documents as shall be necessary or in the reasonable opinion of the Administrative Agent desirable under applicable law to perfect (subject to Permitted Liens) the first priority security interest of the Administrative Agent in such shares of Capital Securities; (ii) executed copies of UCC financing statements (Form UCC-1) naming each such Obligor executing a Pledge and Security Agreement as a debtor and the Administrative Agent as the secured party, or other similar instruments or documents to be filed under the UCC of all jurisdictions as may be necessary or, in the opinion of the Managing Agents and their counsel, desirable to perfect the security interests of the Administrative Agent pursuant to such Pledge and Security Agreement; (iii) executed copies of proper UCC termination statements (Form UCC-3), if any, necessary to release all Liens and other rights of any Person (other than Permitted Liens) (i) in any collateral described in any security agreement previously executed and delivered by any Person, and (ii) securing any of the Indebtedness identified in Item 7.2.2(b) of the Disclosure Schedule, together with such other UCC termination statements (Form UCC-3) as the Managing Agents may reasonably request from such Obligors; and (iv) certified copies of UCC Requests for Information or Copies (Form UCC-11), or a similar search report certified by a party acceptable to the Managing Agents, dated a date reasonably near to the Closing Date, listing effective financing statements which name such Obligor (under its present name and certain of its previous names) as the debtor and which are filed in certain of the jurisdictions in which filings are to be made pursuant to clause (ii) above, together with copies of such financing statements; and The Managing Agents and their counsel shall be satisfied that (i) the Lien granted to the Administrative Agent, for the benefit of the Secured Parties in the Collateral (subject to Permitted Liens) is a first priority (or local equivalent thereof) security interest, and (ii) no Lien exists on any of the Collateral (as defined in the applicable Pledge Agreement) other than the Lien created in favor of the Administrative Agent, for the benefit of the Secured Parties, pursuant to a Loan Document. SECTION 5.1.14. Patent Security Agreement, Copyright Security Agreement and Trademark Security Agreement. The Managing Agents shall have received the Patent Security Agreement, the Copyright Security Agreement and the Trademark Security Agreement, as applicable, each dated as of the Closing Date, duly executed and delivered by an Authorized Officer of each Obligor that has delivered a Pledge and Security Agreement. SECTION 5.1.15. Perfection Certificates. The Managing Agents shall have received Perfection Certificates, dated as of the Closing Date, duly executed and delivered by an Authorized Officer of the Borrower and each Subsidiary Guarantor. SECTION 5.1.16. Insurance. The Managing Agents shall have received certified copies of the insurance policies (or binders in respect thereof), from one or more insurance companies satisfactory to the Managing Agents, evidencing coverage required to be maintained pursuant to each Loan Document. SECTION 5.1.17. Corporate, Tax and Capital Structure. The corporate, tax, capital and ownership structure (including Organic Documents), shareholders agreements and the management of the Borrower both before and after the Transaction shall be reasonably satisfactory to the Managing Agents in all respects. The corporate and capital structure of the Borrower and its Subsidiaries on the Closing Date shall be as set forth in Annex I hereto. SECTION 5.1.18. Litigation. There shall exist no pending or threatened action, suit, investigation, litigation or proceeding pending or threatened in any court or before any arbitrator or governmental instrumentality which (a) contests the consummation of the Transaction or the legality or validity of any Loan Document or any Transaction Document, or (b) could reasonably be expected to have a Material Adverse Effect. SECTION 5.2. All Credit Extensions. The obligation of each Lender and each Issuer to make any Credit Extension (including the initial Credit Extension) shall be subject to the satisfaction of each of the conditions precedent set forth below. SECTION 5.2.1. Compliance with Warranties, No Default, etc. Both immediately before and immediately after giving effect to any Credit Extension (but, if any Default of the nature referred to in Section 8.1.5 shall have occurred with respect to any other Indebtedness, without giving effect to the application, directly or indirectly, of the proceeds thereof) the following statements shall be true and correct: (a) the representations and warranties set forth in each Loan Document shall, in each case, be true and correct in all material respects with the same effect as if then made (unless stated to relate solely to an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date); and (b) no Default shall have then occurred and be continuing. SECTION 5.2.2. Credit Extension Request, etc. The Administrative Agent shall have received a Borrowing Request if Loans are being requested, or an Issuance Request if a Letter of Credit is being requested or extended. Each of the delivery of a Borrowing Request or Issuance Request and the acceptance by the Borrower of the proceeds of such Credit Extension shall constitute a representation and warranty by the Borrower that on the date of such Credit Extension (both immediately before and after giving effect to such Credit Extension and the application of the proceeds thereof) the statements made in Section 5.2.1 are true and correct in all material respects. SECTION 5.2.3. Satisfactory Legal Form. All documents executed or submitted pursuant hereto by or on behalf of any Obligor shall be reasonably satisfactory in form and substance to the Managing Agents and their counsel. The Managing Agents and their counsel shall have received all information, approvals, opinions, documents or instruments as either Managing Agent or its counsel may reasonably request, if the Managing Agents believe in good faith that a Default may have occurred and is continuing. ARTICLE VI REPRESENTATIONS AND WARRANTIES In order to induce the Secured Parties a party hereto to enter into this Agreement and to make Credit Extensions hereunder, the Borrower represents and warrants to each Secured Party a party hereto as set forth in this Article. SECTION 6.1. Organization, etc. Each Obligor (i) is validly organized and existing and in good standing under the laws of the state or jurisdiction of its incorporation or organization, (ii) is duly qualified to do business and is in good standing as a foreign entity in each jurisdiction where the nature of its business requires such qualification (except where the failure to be so qualified or in good standing as a foreign entity could not reasonably be expected to have a Material Adverse Effect), and (iii) has full power and authority and holds all requisite governmental licenses, permits and other approvals to enter into and perform its Obligations under each Loan Document to which it is a party and to own and hold under lease its property and to conduct its business substantially as currently conducted by it (except where the failure to hold any such licenses, permits or other approvals could not reasonably be expected to have a Material Adverse Effect). SECTION 6.2. Due Authorization, Non-Contravention, etc. The execution, delivery and performance by each Obligor of each Loan Document executed or to be executed by it, each such Obligor's participation in the consummation of all aspects of the Transaction, and the execution, delivery and performance by such Obligor of the agreements executed and delivered by it in connection with the Transaction are in each case within each such Person's powers, have been duly authorized by all necessary action, and do not (a) contravene any (i) Obligor's Organic Documents, (ii) contractual restriction binding on or affecting any Obligor (other than any such contractual restriction that shall have been waived on or prior to the Closing Date or the failure to obtain thereof could not reasonably be expected to have a Material Adverse Effect or that which will not lead to any liability by a Secured Party), (iii) court decree or order binding on or affecting any Obligor or (iv) law or governmental regulation binding on or affecting any Obligor; or (b) result in, or require the creation or imposition of, any Lien on any Obligor's properties (except as permitted or required by this Agreement). SECTION 6.3. Government Approval, Regulation, etc. No authorization or approval or other action by, and no notice to or filing with, any Governmental Authority or other Person (other than those which (i) have been, or on the Closing Date will be, duly obtained or made or waived and which are, or on the Closing Date will be, in full force and effect or (ii) the failure to obtain or make could not reasonably be expected to have a Material Adverse Effect) is required for the consummation of the Transaction or the due execution, delivery or, to the extent applicable, performance by any Obligor of any Loan Document to which it is a party, or for the due execution, delivery and/or, to the extent applicable, performance of the Transaction Documents, in each case by the parties thereto or the consummation of the Transaction. Neither the Borrower nor any of its Subsidiaries is an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. SECTION 6.4. Validity, etc. Each Loan Document and each Transaction Document (other than the Consent Solicitation) to which each Obligor is a party constitute, or will, on the due execution and delivery thereof by such Obligor, constitute, the legal, valid and binding obligations of such Obligor, enforceable against it in accordance with its terms (except, in any case, as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally and by principles of equity). SECTION 6.5. Financial Information. (a) The financial statements of the Borrower and its Subsidiaries furnished to the Managing Agents and each Lender pursuant to Section 5.1.8(a)(i) have been prepared in accordance with GAAP consistently applied, and present fairly in all material respects the consolidated financial condition of the Persons covered thereby as at the dates thereof and the results of their operations for the periods then ended. (b) The pro forma balance sheets furnished to the Agents and each Lender pursuant to Section 5.1.8(a)(ii) fairly presents in all material respects the pro forma estimated financial condition of the Borrower as of such date. (c) All balance sheets, all statements of operations, shareholders' equity and cash flow and all other financial information (other than projections) of each of the Borrower and its Subsidiaries furnished pursuant to Section 7.1.1 have been and will for periods following the Closing Date be prepared in accordance with GAAP consistently applied, and do or will present fairly in all material respects the consolidated financial condition of the Persons covered thereby as at the dates thereof and the results of their operations for the periods then ended. SECTION 6.6. No Material Adverse Change. There has been no material adverse change in the business, operations, results of operations, business prospects which could reasonably be expected to result in a Default, or financial condition of the Borrower and its Subsidiaries taken as a whole since December 31, 1998. SECTION 6.7. Litigation, Labor Controversies, etc. There is no pending or, to the knowledge of the Borrower or any of its Subsidiaries, threatened litigation, action, proceeding or labor controversy (a) except as disclosed in Item 6.7 of the Disclosure Schedule, affecting the Borrower or any such Subsidiary or any of their respective properties, businesses, assets or revenues, which could reasonably be expected to have a Material Adverse Effect, and no adverse development has occurred in any labor controversy, litigation, arbitration or governmental investigation or proceeding disclosed in Item 6.7; or (b)which purports to affect the legality, validity or enforceability of any Loan Document, any Transaction Document or the Transaction. SECTION 6.8. Subsidiaries. The Borrower has no Subsidiaries except those Subsidiaries (a) existing on the Closing Date which are identified in Item 6.8 of the Disclosure Schedule; or (b) which are permitted to have been organized or acquired in accordance with Section 7.2.5 or 7.2.10. Item 6.8 of the Disclosure Schedule (a) lists, with respect to each Subsidiary, (i) the state or jurisdiction of such Subsidiary's incorporation or organization and (ii) the percentage of shares or interests of the Capital Securities of such Subsidiary owned by the Borrower or another Subsidiary, and (b) identifies each Subsidiary which is a Foreign Subsidiary. SECTION 6.9. Ownership of Properties; Capital Securities. (a) The Borrower and each of its Subsidiaries owns (i) in the case of owned real property, good and marketable fee title to, and (ii) in the case of owned personal property, good and valid title to, or, in the case of leased real or personal property, valid and enforceable leasehold interests (as the case may be) in, all of its properties and assets, real and personal, tangible and intangible, of any nature whatsoever, free and clear in each case of all Liens or claims, except for Permitted Liens. (b) All of the issued and outstanding shares of OSI Common Stock and all of the issued and outstanding shares of Capital Securities of each of the Pledged Subsidiaries are, in each case, duly authorized and validly issued, fully paid and non-assessable. SECTION 6.10. Taxes. Each of the Borrower and its Subsidiaries has filed all Federal, State and other material Tax returns and reports required by law to have been filed by it and has paid all Taxes and governmental charges thereby shown to be due and owing, except any such Taxes or charges which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books. SECTION 6.11. Pension and Welfare Plans. During the twelve- consecutive-month period prior to the Closing Date and prior to the date of any Credit Extension hereunder, no steps have been taken to terminate any Pension Plan, and no contribution failure has occurred with respect to any Pension Plan sufficient to give rise to a Lien under Section 302(f) of ERISA. No condition exists or event or transaction has occurred with respect to any Pension Plan which might result in the incurrence by the Borrower or any member of the Controlled Group of any material liability, fine or penalty. Except as disclosed in Item 6.11 of the Disclosure Schedule, neither the Borrower nor any member of the Controlled Group has any contingent liability with respect to any post-retirement benefit under a Welfare Plan, other than liability for continuation coverage described in Part 6 of Title I of ERISA. SECTION 6.12. Environmental Warranties. Except as, singly or in the aggregate, could not reasonably be expected to have a Material Adverse Effect: (a) all facilities and property (including underlying groundwater) owned or leased by the Borrower or any of its Subsidiaries have been, and continue to be, owned or leased by the Borrower and its Subsidiaries in compliance with all Environmental Laws; (b) there have been no past, and there are no pending or threatened (i) written claims, complaints, notices or requests for information received by the Borrower or any of its Subsidiaries with respect to any alleged violation of any Environmental Law, or (ii) written complaints, notices or inquiries to the Borrower or any of its Subsidiaries regarding potential liability under any Environmental Law; (c) there have been no Releases of Hazardous Materials at, on or under any property now or previously owned or leased by the Borrower or any of its Subsidiaries; (d) the Borrower and its Subsidiaries have been issued and are in compliance with all permits, certificates, approvals, licenses and other authorizations relating to environmental matters and necessary or desirable for their businesses; (e) no property now or previously owned or leased by the Borrower or any of its Subsidiaries is listed or proposed for listing (with respect to owned property only) on the National Priorities List pursuant to CERCLA, on the CERCLIS or on any similar state list of sites requiring investigation or clean-up; (f) there are no underground storage tanks, active or abandoned, including petroleum storage tanks, on or under any property now or previously owned or leased by the Borrower or any of its Subsidiaries; (g) neither the Borrower nor any Subsidiary has directly transported or directly arranged for the transportation of any Hazardous Material to any location which is listed or proposed for listing on the National Priorities List pursuant to CERCLA, on the CERCLIS or on any similar state list or which is the subject of federal, state or local enforcement actions or other investigations which may lead to material claims against the Borrower or such Subsidiary for any remedial work, damage to natural resources or personal injury, including claims under CERCLA; (h) there are no polychlorinated biphenyls or friable asbestos present at any property now or previously owned or leased by the Borrower or any Subsidiary; and (i) no conditions exist at, on or under any property now or previously owned or leased by the Borrower which, with the passage of time, or the giving of notice or both, would give rise to liability under any Environmental Law. SECTION 6.13. Accuracy of Information. None of the factual information heretofore or contemporaneously furnished in writing to any Secured Party and prepared by or on behalf of any Obligor in connection with any Loan Document or any transaction contemplated hereby (including the Transaction) contains as of the date made any untrue statement of a material fact, or omits to state any material fact necessary to make any such factual information not misleading, and no other factual information hereafter furnished in connection with any Loan Document by or on behalf of any Obligor in writing to any Secured Party will contain as of the date made any untrue statement of a material fact or will omit to state any material fact necessary to make any such factual information not misleading on the date as of which such factual information is dated or certified. SECTION 6.14. Regulations U and X. Neither the Borrower nor any of its Subsidiaries is engaged in the business of extending credit for the purpose of purchasing or carrying margin stock, and no proceeds of any Credit Extensions will be used to purchase or carry margin stock or otherwise for a purpose which violates, or would be inconsistent with, Board Regulation U or Regulation X. Terms for which meanings are provided in Board Regulation U or Regulation X or any regulations substituted therefor, as from time to time in effect, are used in this Section with such meanings. SECTION 6.15. Year 2000. Each Obligor has developed a program to address on a timely basis, the "Year 2000 Problem" (that is, the risk that computer applications used by such Obligor may be unable to recognize and properly perform date-sensitive functions involving certain dates prior to and any date after December 31, 1999). Based on such program, the Year 2000 Problem could not reasonably be expected to have a Material Adverse Effect. SECTION 6.16. Status of Obligations as Senior Indebtedness, etc. The subordination provisions relating to the Subordinated Debt (including the subordination provisions set forth in the Subordinated Note Indenture) are enforceable against the holders of the applicable Subordinated Debt by the holder of any "Senior Bank Debt" (as defined in the Subordinated Note Indenture) or any similar term referring to the Obligations (as defined in any other Subordinated Debt Document). All Obligations (including those to pay principal of and interest (including interest accruing subsequent to the filing of, or which would have accrued but for the filing of, a petition for bankruptcy, reorganization or similar proceeding, whether or not allowed as a claim under such proceeding) on the Loans and Reimbursement Obligations, and fees and expenses in connection therewith) constitute "Senior Bank Debt" (as defined in the Subordinated Note Indenture) or any similar term referring to the Obligations (as defined in any other Subordinated Debt Document) and all such Obligations are entitled to the benefits of the subordination created by such Subordinated Debt Documents. The Borrower acknowledges that the Managing Agents, each Lender and each Issuer are entering into this Agreement and are extending their respective Commitments in reliance upon the subordination provisions of the Subordinated Debt Documents (including the subordination provisions set forth in the Subordinated Note Indenture). SECTION 6.17. Solvency. The Transaction (including the incurrence of the initial Credit Extension hereunder, and the execution and delivery by the Subsidiary Guarantors of the Subsidiary Guaranty) will not involve or result in any fraudulent transfer or fraudulent conveyance under the provisions of Section 548 of the Bankruptcy Code (11 U.S.C. ss.101 et seq., as from time to time hereafter amended, and any successor or similar statute) or any applicable state law relating to fraudulent transfers or fraudulent conveyances. After giving effect to each Credit Extension hereunder, the Borrower and each Subsidiary Guarantor is Solvent. ARTICLE VII COVENANTS SECTION 7.1. Affirmative Covenants. The Borrower covenants and agrees with each of the Secured Parties that from the Closing Date until the Termination Date has occurred, the Borrower will, and will cause its Subsidiaries to, perform or cause to be performed the obligations set forth below. SECTION 7.1.1. Financial Information, Reports, Notices, etc. The Borrower will furnish, or cause to be furnished, to the Managing Agents (with sufficient copies for each Lender) copies of the following financial statements, reports, notices and information: (a) as soon as available and in any event within 60 days after the end of each of the first three Fiscal Quarters of each Fiscal Year, an unaudited consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such Fiscal Quarter and consolidated statements of income and cash flow of the Borrower and its Subsidiaries for such Fiscal Quarter and for the period commencing at the end of the previous Fiscal Year and ending with the end of such Fiscal Quarter, and including (in each case), in comparative form the figures for the corresponding Fiscal Quarter in, and year to date portion of, the immediately preceding Fiscal Year, certified as complete and correct by the chief financial or accounting Authorized Officer of the Borrower; (b) as soon as available and in any event within 105 days after the end of each Fiscal Year, a copy of the consolidated balance sheets of the Borrower and its Subsidiaries, and the related consolidated statements of income and cash flow of the Borrower and its Subsidiaries for such Fiscal Year, setting forth in comparative form the figures for the immediately preceding Fiscal Year and, in the case of such consolidated balance sheets and statements of income and cash flow, audited (without any Impermissible Qualification) by a "Big Five" accounting firm or any other independent public accountants acceptable to the Managing Agents, which shall include a calculation of the financial covenants set forth in Section 7.2.4 and stating that, in performing the examination necessary to deliver the audited financial statements of the Borrower and its Subsidiaries, no knowledge was obtained of any Event of Default; (c) concurrently with the delivery of the financial information pursuant to clauses (a) and (b), a Compliance Certificate, executed by the chief financial or accounting Authorized Officer of the Borrower, showing compliance with the financial covenants set forth in Section 7.2.4 and stating that no Default has occurred and is continuing (or, if a Default has occurred, specifying the details of such Default and the action that the Borrower or an Obligor has taken or proposes to take with respect thereto); (d) as soon as possible and in any event within five days after the Borrower or any Subsidiary obtains knowledge of the occurrence of a Default, a statement of an Authorized Officer of the Borrower setting forth details of such Default and the action which the Borrower or such Subsidiary has taken and proposes to take with respect thereto; (e) as soon as possible and in any event within five days after the Borrower or any Subsidiary obtains knowledge of (i) the occurrence of any material adverse development with respect to any litigation, action, proceeding or labor controversy described in Item 6.7 of the Disclosure Schedule or (ii) the commencement of any litigation, action, proceeding or labor controversy of the type and materiality described in Section 6.7, notice thereof and, to the extent either Managing Agent requests, copies of all documentation relating thereto; (f) promptly after the sending or filing thereof, copies of all reports, notices, prospectuses and registration statements which the Borrower or any Subsidiary files with the SEC or any national securities exchange; (g) immediately upon becoming aware of (i) the institution of any steps by any Person to terminate any Pension Plan, (ii) the failure to make a required contribution to any Pension Plan if such failure is sufficient to give rise to a Lien under Section 302(f) of ERISA, (iii) the taking of any action with respect to a Pension Plan which could result in the requirement that any Obligor furnish a bond or other security to the PBGC or such Pension Plan, or (iv) the occurrence of any event with respect to any Pension Plan which could result in the incurrence by any Obligor of any material liability, fine or penalty, notice thereof and copies of all documentation relating thereto; (h) promptly upon receipt thereof, copies of all "management letters" submitted to any Obligor by the independent public accountants referred to in clause (b) in connection with each audit made by such accountants; (i) promptly following the mailing or receipt of any notice or report delivered under the terms of any Preferred Equity or any Subordinated Debt Documents, copies of such notice or report; and (j) such other financial and other information as any Lender or Issuer through either Managing Agent may from time to time reasonably request (including information and reports in such detail as either Managing Agent may request with respect to the terms of and information provided pursuant to the Compliance Certificate). SECTION 7.1.2. Maintenance of Existence; Compliance with Laws, etc. The Borrower will (a) preserve and maintain its legal existence and qualification as a foreign corporation in each jurisdiction where the nature of its business or the location of its assets requires it to be so qualified, except to the extent the failure to be so qualified would not result in a Material Adverse Effect; (b) cause each of its Subsidiaries to, except as otherwise permitted by Section 7.2.10, preserve and maintain its legal existence and qualification as a foreign entity in each jurisdiction where the nature of its business or the location of its assets requires it to be so qualified, except to the extent the failure to be so qualified would not result in a Material Adverse Effect; and (c) comply with all applicable laws, rules, regulations and orders, including the payment (before the same become delinquent) of all material Taxes imposed upon the Borrower or any Subsidiary or upon their property except to the extent being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP have been set aside on the books of the Borrower or any such Subsidiary, as applicable, except to the extent the failure to comply with all such laws rules, regulations and orders (other than any relating to the payment of material Taxes) would not result in a Material Adverse Effect. SECTION 7.1.3. Maintenance of Properties. Except to the extent the failure to do so could not reasonably be expected to have a Material Adverse Effect, the Borrower will, and will cause each of its Subsidiaries to, maintain, preserve, protect and keep its and their respective properties in good repair, working order and condition (ordinary wear and tear excepted), and make necessary repairs, renewals and replacements so that the business carried on by the Borrower and its Subsidiaries may be properly conducted at all times, unless the Borrower or such Subsidiary determines that the continued maintenance of such property is no longer economically desirable. SECTION 7.1.4. Insurance. The Borrower will, and will cause each of its Subsidiaries to maintain: (a) insurance on its property with financially sound and reputable insurance companies against loss and damage in at least the amounts (and with only those deductibles) customarily maintained, and against such risks as are typically insured against in the same general area, by Persons of comparable size engaged in the same or similar business as the Borrower and its Subsidiaries; and (b) all worker's compensation, employer's liability insurance or similar insurance as may be required under the laws of any state or jurisdiction in which it may be engaged in business. Without limiting the foregoing, all insurance policies required pursuant to this Section shall (i) name the Administrative Agent on behalf of the Secured Parties as mortgagee (in the case of property insurance) or additional insured (in the case of liability insurance), as applicable, and provide that no cancellation or modification of the policies will be made without thirty days' prior written notice to the Administrative Agent. SECTION 7.1.5. Books and Records. (a) The Borrower will, and will cause each of its Subsidiaries to, (i) keep books and records in accordance with GAAP which accurately reflect all of its business affairs and transactions; (ii) permit the Managing Agents or any of their respective representatives, at reasonable times and intervals and upon reasonable notice to the Borrower to visit each of the Borrower's and its Subsidiaries' offices, to discuss such Person's financial matters with its officers and employees, and its independent public accountants (and the Borrower hereby authorizes such independent public accountant to discuss each of such Person's financial matters with the Managing Agents or any of their respective representatives whether or not any representative of such Person is present, so long as a representative of such Person has been afforded a reasonable opportunity to be present) and to examine (and photocopy extracts from) any of such Person's books and records; and (iii) afford each other Secured Party or any of its respective representatives the opportunity to visit the Borrower's and its Subsidiaries' offices once per calendar year (such date to be determined by the Borrower and each such Secured Party to be given reasonable notice thereof), to discuss such Person's financial matters with its officers and employees, and its independent public accountants (and the Borrower hereby authorizes such independent public accountant to discuss each of such Person's financial matters with each such Secured Party or any of their respective representatives whether or not any representative of such Person is present, so long as a representative of such Person has been afforded a reasonable opportunity to be present) and to examine (and photocopy extracts from) any of such Person's books and records; provided, however, that each such Secured Party or any of their respective representatives, at reasonable times and intervals and upon reasonable notice to the Borrower, shall be permitted to do any of the foregoing at any time after the occurrence and during the continuation of an Event of Default. (b) If an Event of Default shall have occurred and be continuing, the Borrower shall pay any fees of such independent public accountant incurred in connection with any Secured Party's exercise of its rights pursuant to clause (a). SECTION 7.1.6. Environmental Law Covenant. The Borrower will, and will cause each of its Subsidiaries to, (a) use and operate all of its facilities and properties in compliance with all Environmental Laws, keep all necessary material permits, approvals, certificates, licenses and other authorizations relating to environmental matters in effect and remain in compliance therewith, and handle all Hazardous Materials in compliance with all applicable Environmental Laws, in each case except where the failure to comply with the terms of this clause could not reasonably be expected to have a Material Adverse Effect; and (b) promptly notify the Administrative Agent and provide copies upon receipt of all written claims, complaints, notices or inquiries which (i) relate to the condition of its facilities and properties in respect of, or as to compliance with, Environmental Laws and (ii) could (singly or in the aggregate) reasonably be expected to have a Material Adverse Effect, and shall promptly resolve any non-compliance with Environmental Laws (except to the extent being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP have been set aside on its books or except for any such non-compliance which could not reasonably be expected to have a Material Adverse Effect) and keep its property free of any material Lien imposed by any Environmental Law. SECTION 7.1.7. Use of Proceeds. The Borrower will (a) apply the proceeds of the Term Loans to refinance Indebtedness and other amounts owing under the Existing Credit Agreement and to partially finance the consummation of the Transaction; (b) apply the proceeds of the Revolving Loans (i) to refinance Indebtedness and other amounts owing under the Existing Credit Agreement and to partially finance the consummation of the Transaction with Borrowings of Revolving Loans on the Closing Date in an amount not to exceed $7,000,000 and (ii) for post-closing working capital and general corporate purposes of the Borrower and the Subsidiary Guarantors (other than UAS); and (c) use Letters of Credit only for purposes of supporting working capital and general corporate purposes of the Borrower and the Subsidiary Guarantors (other than UAS). SECTION 7.1.8. Subsidiary Guarantors, Security, etc. The Borrower will, and will cause each Subsidiary Guarantor to, execute any documents, Perfection Certificates, Filing Statements, agreements and instruments, and take all further action (including filing Mortgages, to the extent required under Section 7.1.12) that may be required under applicable law, or that either Managing Agent may reasonably request, in order to effectuate the transactions contemplated by the Loan Documents and in order to grant, preserve, protect and perfect the perfection and priority of the Liens created or intended to be created by the Loan Documents. Unless otherwise agreed to by the Required Lenders, the Borrower will cause any subsequently acquired or organized Domestic Subsidiary (other than any OSIFC Family Member) to execute a Subsidiary Guaranty (or a supplement thereto) and each applicable Loan Document in favor of the Secured Parties. In addition, from time to time, the Borrower will, at its cost and expense, promptly secure the Obligations by pledging or creating, or causing to be pledged or created, perfected Liens with respect to such of its assets and properties as either Managing Agent or the Required Lenders shall designate (it being understood that it is the intent of the parties that the Obligations shall be secured by, among other things, substantially all the assets of the Borrower and (unless otherwise agreed to by the Required Lenders) the Subsidiary Guarantors (including, subject to Section 7.1.12, real and personal property acquired subsequent to the Closing Date); provided, that (i) neither the Borrower nor any such Subsidiary shall be required to pledge more than 65% of the Voting Securities of any Foreign Subsidiary, (ii) following a Public Offering or a series of Public Offerings in which the Borrower shall have received in the aggregate no less than $100,000,000 in net cash proceeds, and so long as no Default shall have occurred and is then continuing, the Required Lenders may elect to release the OSI Common Stock (together with the guarantee obligations related thereto from the OSI Shareholders) held in pledge under the Shareholders' Pledge Agreement and (iii) following the release of its obligations as a guarantor (and for so long as it is not a guarantor) under the Subordinated Debt Documents, and if no Default shall have occurred and is continuing, (A) UAS shall be released from its obligations as a "Subsidiary Guarantor" under the Subsidiary Guaranty and (B) any Collateral (as such term is defined in the Subsidiary Pledge and Security Agreement) which has been pledged by UAS pursuant to the Subsidiary Pledge and Security Agreement shall be released, in each case without any action on the part of any other party. Such Liens will be created under the Loan Documents in form and substance reasonably satisfactory to the Administrative Agent, and the Borrower shall deliver, or cause to be delivered, to the Lenders all such instruments and documents (including legal opinions, title insurance policies and lien searches) as the Administrative Agent shall reasonably request to evidence compliance with this Section. SECTION 7.1.9. Hedging Obligations. Within seven months following the Closing Date, the Administrative Agent shall have received evidence satisfactory to it that the Borrower has entered into interest rate swap, cap, collar or similar arrangements (including such Indebtedness accruing interest at a fixed rate by its terms) designed to protect the Borrower against fluctuations in interest rates with respect to at least $150,000,000 of the aggregate principal amount of the Term Loans for a period of at least three years from the Closing Date, with terms reasonably satisfactory to the Borrower and the Administrative Agent. SECTION 7.1.10. Year 2000. (a) The Borrower shall take all action reasonably necessary to assure that its computer based systems are able to effectively process data including dates on and after January 1, 2000. At the reasonable request of either Managing Agent or any Lender, the Borrower shall provide such Person with assurance reasonably acceptable to such Person of the Borrower's Year 2000 capability. (b) The Borrower will promptly notify the Administrative Agent in the event the Borrower discovers or determines that any computer application (including those of its suppliers and vendors) that is material to its or any of its Subsidiaries' businesses and operations will not be Year 2000 compliant as of January 1, 2000, except to the extent that such failure could not reasonably be expected to have a Material Adverse Effect. SECTION 7.1.11. Maintenance of Corporate Separateness. The Borrower will, and will cause each of its Subsidiaries to, satisfy customary corporate formalities, including the holding of regular board of directors' and shareholders' meetings and the maintenance of corporate offices and records. Neither the Borrower nor any Subsidiary which is not an OSIFC Family Member shall make any payment to a creditor of any OSIFC Family Member in respect of any liability of such OSIFC Family Member (unless such payment is pursuant to the Permitted Receivables Transaction and otherwise specifically permitted by any Loan Document), and no bank account of any OSIFC Family Member shall be commingled with any bank account of the Borrower or any of its Subsidiaries which is not an OSIFC Family Member. Any financial statements distributed to any creditors of any OSIFC Family Member shall clearly establish the separateness of such OSIFC Family Member from the Borrower and its Subsidiaries which are not OSIFC Family Members and each lender to an OSIFC Family Member shall be notified in writing by such OSIFC Family Member that such lender will not have any recourse to the assets of the Borrower and its Subsidiaries which are not OSIFC Family Members. Neither the Borrower nor any of its Subsidiaries shall take any action, or conduct its affairs in a manner, which is likely to result in the corporate existence of any OSIFC Family Member which is a direct Subsidiary of the Borrower or any Subsidiary which is not an OSIFC Family Member being ignored by any court of competent jurisdiction, or in the assets and liabilities of the Borrower or any Subsidiary which is not an OSIFC Family Member being substantively consolidated with those of any OSIFC Family Member in a bankruptcy, reorganization or other insolvency proceeding. SECTION 7.1.12. Existing and Future Owned Real Property. (a) Within 30 days after the Closing Date, the Borrower shall deliver to the Administrative Agent, as mortgagee for the ratable benefit of the Secured Parties, counterparts of each Mortgage relating to each piece of real property owned by the Borrower or any Subsidiary Guarantor (other than any such real property that has a net book value of less than $1,500,000), each dated as of the date of such delivery, duly executed by the Borrower or such Subsidiary Guarantor, together with (i) evidence of the completion (or satisfactory arrangements for the completion) of all recordings and filings of such Mortgage as may be necessary or, in the reasonable opinion of the Administrative Agent, desirable effectively to create a valid, perfected first priority Lien, subject to Permitted Liens, against the properties purported to be covered thereby; (ii) mortgagee's title insurance policies in favor of the Administrative Agent, as mortgagee for the ratable benefit of the Secured Parties, in amounts and in form and substance and issued by insurers, in each case reasonably satisfactory to the Administrative Agent, with respect to the property purported to be covered by such Mortgage, insuring that title to such property is marketable and that the interests created by the Mortgage constitute valid first Liens thereon free and clear of all defects and encumbrances other than Permitted Liens, and such policies shall also include, to the extent available, a revolving credit endorsement and such other endorsements as the Administrative Agent shall reasonably request and shall be accompanied by evidence of the payment in full of all premiums thereon; and (iii) such other approvals, opinions or documents as the Administrative Agent may reasonably request. (b) At all times after the Closing Date, the Borrower shall, and shall cause each Subsidiary Guarantor to, execute and deliver or cause to be executed and delivered Mortgages that may be necessary to create a valid, first priority perfected Lien (subject only to Permitted Liens) against any real property acquired from time to time by the Borrower or any such Subsidiary Guarantor (other than any such real property that has a net book value of less than $1,000,000), together with the appropriate items described in clauses (a)(i) through (a)(iii) above. SECTION 7.1.13. Permitted Receivables Transaction. The Borrower will cause the Subsidiaries comprising the OSIFC Family to maintain in effect the Permitted Receivables Transaction in effect on the Closing Date or, alternatively, upon the termination by the Borrower, or receipt of written notice (or such other form of notice otherwise permitted to be given under the terms of the then effective Receivables Documents) of termination from MBIA Insurance Corporation (or such other entity serving in a similar capacity as MBIA Insurance Corporation under the then effective Receivables Documents) by the Borrower, the Borrower will, (a) within 45 days of the termination or receipt of notice of termination, as the case may be, of the Permitted Receivables Transaction then in effect, deliver to the Managing Agents a detailed summary (the "Summary") of terms and conditions with respect to another program (the "Alternative Receivables Program") providing for the sale or financing of Accounts with customary limited recourse based on the collectability of the Accounts sold, which Summary shall be satisfactory to the Managing Agents and indicate that the Alternative Receivables Program shall be, upon the consummation thereof, substantially similar to the Permitted Receivables Transaction (including the Receivables Documents evidencing such Permitted Receivables Transaction) being replaced, and in an amount of not less than that in effect on the Closing Date; and (b) within 90 days of the termination or receipt of notice of termination, as the case may be, of the Permitted Receivables Transaction then in effect, cause the Subsidiaries comprising the OSIFC Family to consummate the Alternative Receivables Program on the terms and conditions set forth in the Summary, which terms and conditions shall not have been modified or waived in any material respect unless otherwise agreed to by the Managing Agents. SECTION 7.2. Negative Covenants. The Borrower covenants and agrees with each of the Secured Parties that from the Closing Date until the Termination Date has occurred, the Borrower will not, and will not permit its Subsidiaries to, perform or cause to be performed the obligations set forth below. SECTION 7.2.1. Business Activities. The Borrower will not, and will not permit any of its Subsidiaries to, engage in any business other than the business of the Borrower and its Subsidiaries on the Closing Date, and any other business reasonably related, ancillary or complementary thereto. SECTION 7.2.2. Indebtedness. The Borrower will not, and will not permit any of its Subsidiaries to, create, incur, assume or permit to exist any Indebtedness, other than: (a) Indebtedness in respect of the Obligations; (b) until the Closing Date, Indebtedness that is to be repaid in full which is identified in Item 7.2.2(b) of the Disclosure Schedule; (c) Indebtedness existing as of the Closing Date which is identified in Item 7.2.2(c) of the Disclosure Schedule, and Permitted Refinancings of such Indebtedness; (d) (i) unsecured Indebtedness of the Borrower and its Subsidiaries (A) incurred in the ordinary course of business of the Borrower and its Subsidiaries (including open accounts extended by suppliers on normal trade terms in connection with purchases of goods and services which are not overdue for a period of more than 90 days or, if overdue for more than 90 days, as to which a dispute exists and adequate reserves in conformity with GAAP have been established on the books of the Borrower or such Subsidiary) and (B) in respect of performance, surety, statutory, appeal bonds or similar obligations provided in the ordinary course of business, but excluding (in each case), Indebtedness incurred through the borrowing of money or Contingent Liabilities in respect thereof, and (ii) Indebtedness constituting Specified Liabilities, which Indebtedness may, to the extent permitted by clause (w) of Section 7.2.3, be secured; (e) Indebtedness of the Borrower and its Subsidiaries (i) in respect of industrial revenue bonds or other similar governmental or municipal bonds, (ii) incurred to finance the acquisition of equipment or other property of the Borrower and its Subsidiaries (pursuant to purchase money mortgages or otherwise, whether owed to the seller or a third party) used in the ordinary course of business of the Borrower and its Subsidiaries (provided, that such Indebtedness is incurred within 60 days of the acquisition of such property) and (iii) Capitalized Lease Liabilities; provided, that the aggregate amount of all Indebtedness outstanding pursuant to this clause (e) shall not at any time exceed $15,000,000; (f) Indebtedness of any Subsidiary which is not an OSIFC Family Member owing to the Borrower or any other Subsidiary which is not an OSIFC Family Member, which Indebtedness (i) shall, if payable to the Borrower or a Subsidiary Guarantor, be evidenced by one or more Intercompany Notes, duly executed and delivered in pledge to the Administrative Agent pursuant to the applicable Pledge and Security Agreement, and shall not be forgiven or otherwise discharged for any consideration other than payment in cash (provided, that only the amount repaid shall be discharged); and (ii) if incurred by a Non-Guarantor owing to the Borrower or a Subsidiary Guarantor, shall not (when aggregated with the amount of Investments made by the Borrower and the Subsidiary Guarantors in Non-Guarantors under clause (e)(i) of Section 7.2.5) exceed $3,000,000 at any time outstanding; (g) unsecured Indebtedness (not evidenced by a note or other instrument) of the Borrower owing to a Subsidiary that has previously executed and delivered to the Administrative Agent the Interco Subordination Agreement (or a supplement thereto); (h) unsecured Subordinated Debt of the Borrower evidenced by the Subordinated Notes incurred pursuant to the terms of the Subordinated Debt Documents in a principal amount not to exceed $100,000,000, and unsecured Contingent Liabilities of the Subsidiary Guarantors in respect of such Subordinated Debt, but only if such Contingent Liabilities are subordinated to the Obligations on substantially the same terms as such Subordinated Debt of the Borrower is subordinated to the Obligations and, in each case, Permitted Refinancings of such Subordinated Debt and Contingent Liabilities which continue to satisfy the terms of the definition of "Subordinated Debt"; (i) Indebtedness of a Person existing at the time such Person became a Subsidiary of the Borrower, together with all Indebtedness assumed by the Borrower or any Subsidiary in connection with any Permitted Acquisition (including any Permitted Acquisition of assets), in an aggregate amount not to exceed $15,000,000 at any time outstanding, but only to the extent that such Indebtedness was not created or incurred in contemplation of such Person becoming a Subsidiary or such Permitted Acquisition; (j) Indebtedness of the OSIFC Family incurred in connection with the Permitted Receivables Transaction in an aggregate amount at any time not to exceed the Permitted Receivables Amount; (k) Hedging Obligations of the Borrower or any of its Subsidiaries which is not an OSIFC Family Member in respect of the Credit Extensions or otherwise entered into by the Borrower or such Subsidiary to hedge against interest rate or currency exchange rate fluctuations, in each case arising in the ordinary course of business of the Borrower and its Subsidiaries which are not OSIFC Family Members and not for speculative purposes; (l) Indebtedness in respect of netting services, overdraft protections and otherwise in connection with deposit accounts; (m) Indebtedness incurred by Foreign Subsidiaries for working capital purposes in an amount not to exceed $1,000,000; (n) Permitted Refinancings of the Indebtedness listed above (other than Indebtedness of the type permitted under clause (a) hereof); (o) other unsecured Indebtedness issued in respect of the Restricted Payment described in clause (b) of Section 7.2.6 which, when aggregated with the amount of Restricted Payments made pursuant to such clause, does not exceed $5,000,000 (which amount shall be increased Dollar-for-Dollar by the amount of any cash payments made by any new shareholders of OSI Common Stock in connection with their purchase of such OSI Common Stock) over the term of this Agreement, and then only if such Indebtedness is, except as otherwise consented to by the Administrative Agent, subordinated on terms and conditions no less favorable to any Secured Party than those contained in the Interco Subordination Agreement; (p) Indebtedness incurred in connection with any transaction otherwise permitted pursuant to Section 7.2.15; and (q) other unsecured Indebtedness of the Borrower and its Subsidiaries (other than Indebtedness of Non-Guarantors owing to the Borrower or Subsidiary Guarantors) which are not OSIFC Family Members in an aggregate amount at any time outstanding not to exceed $15,000,000; provided, however, that no Indebtedness otherwise permitted by (A) clause (e), (f)(ii), (i), (k), (o) or (q) shall be assumed or otherwise incurred if a Default has occurred and is then continuing or would result therefrom, and (B) clause (m) shall be assumed or otherwise incurred if a Default would result therefrom. SECTION 7.2.3. Liens. The Borrower will not, and will not permit any of its Subsidiaries to, create, incur, assume or permit to exist any Lien upon any of its property (including Capital Securities of any Person), revenues or assets, whether now owned or hereafter acquired, except the following (each, a "Permitted Lien"): (a) Liens securing payment of the Obligations; (b) until the Closing Date, Liens securing payment of Indebtedness of the type described in clause (b) of Section 7.2.2; (c) Liens existing as of the Closing Date and disclosed in Item 7.2.3(c) of the Disclosure Schedule securing Indebtedness described in clause (c) of Section 7.2.2, including any Permitted Refinancings of such Indebtedness; provided, that no such Lien shall encumber any additional property and the amount of Indebtedness if any, secured by such Lien is not increased from that existing on the Closing Date; (d) Liens securing Indebtedness of the type permitted under clause (e) of Section 7.2.2; provided, that such Lien (i) is granted within 60 days after such Indebtedness is incurred and (ii) secures only the assets that are the subject of the Indebtedness referred to in such clause; (e) Liens securing Indebtedness permitted by clause (i) of Section 7.2.2; provided, that such Liens existed prior to such Person becoming a Subsidiary, were not created in anticipation thereof and attach only to specific tangible assets of such Person (and not assets of such Person generally); (f) statutory and common law Liens in favor of carriers, warehousemen, mechanics, materialmen and landlords granted in the ordinary course of business for amounts not overdue or being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books; (g) Liens incurred or deposits made in the ordinary course of business in connection with worker's compensation, unemployment insurance or other forms of governmental insurance or benefits, or to secure performance of tenders, statutory obligations, bids, leases or other similar obligations (other than for borrowed money) entered into in the ordinary course of business or to secure obligations on surety and appeal bonds or performance bonds; (h) judgment Liens which do not result in an Event of Default under Section 8.1.6; (i) easements, rights-of-way, zoning restrictions, minor defects or irregularities in title and other similar encumbrances not interfering in any material respect with the value or use of the property to which such Lien is attached; (j) Liens for Taxes, assessments or other governmental charges or levies not at the time delinquent or thereafter payable without penalty or being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books; (k) Liens on Accounts or other related assets of the OSIFC Family created in connection with the Permitted Receivables Transaction; (l) Liens solely on cash earnest money deposits in connection with any letter of intent or purchase agreement entered into by the Borrower or any of its Subsidiaries; (m) Liens encumbering customary initial deposits and margin deposits, and similar Liens attaching to commodity trading accounts or other brokerage accounts incurred in the ordinary course of business; (n) Liens in connection with the sale of accounts receivables by a Foreign Subsidiary; (o) Liens securing Indebtedness of Foreign Subsidiaries permitted under Section 7.2.2 so long as any such Lien attaches only to the assets of the respective Foreign Subsidiary that has incurred such Indebtedness; (p) non-consensual Liens which may arise or be created under Environmental Laws that are being contested in good faith and as to which adequate reserves have been established to the extent required by GAAP and secure obligations that would not reasonably be expected to have a Material Adverse Effect; (q) Liens arising from precautionary UCC financing statement filings regarding operating leases; (r) leases, subleases, licenses and sublicenses granted to third parties in the ordinary course of business, in each case not interfering in any material respect with the operations or business of the Borrower and its Subsidiaries or the Liens of the Secured Parties granted by the Loan Documents; (s) extensions, renewals and replacements of any of the foregoing Liens to the extent and for so long as the Indebtedness secured hereby is expressly permitted hereunder and remains outstanding; (t) landlord Liens arising under any lease contracts entered into by the Borrower or any of its Subsidiaries in the ordinary course of business (so long as no financing statements have been filed by such landlord); (u) statutory Liens of depository or collecting banks on items in collection and any accompanying documents or the proceeds thereof; (v) Liens securing Indebtedness of the type permitted under clause (p) of Section 7.2.2; and (w) Liens to secure Indebtedness incurred in the ordinary course of business and Indebtedness permitted under clause (d)(ii) of Section 7.2.2, in an aggregate amount not to exceed $5,000,000 at any time outstanding. SECTION 7.2.4. Financial Condition and Operations. The Borrower will not permit any of the events set forth below to occur. (a) The Borrower will not permit the Leverage Ratio as of the last day of any Fiscal Quarter occurring during any period set forth below to be greater than the ratio set forth opposite such period: Period Leverage Ratio ------ -------------- 01/01/00 through (and including) 03/31/01 5.00:1.00 04/01/01 through (and including) 06/30/01 4.75:1.00 07/01/01 through (and including) 12/31/01 4.50:1.00 01/01/02 through (and including) 06/30/02 4.25:1.00 07/01/02 through (and including) 12/31/02 3.75:1.00 01/01/03 through (and including) 06/30/03 3.50:1.00 07/01/03 through (and including) 06/30/04 3.00:1.00 07/01/04 through (and including) 12/31/04 2.50:1.00 01/01/05 and thereafter 2.00:1.00 (b) The Borrower will not permit the Interest Coverage Ratio as of the last day of any Fiscal Quarter occurring during any period set forth below to be less than the ratio set forth opposite such period: Period Interest Coverage Ratio ------ ----------------------- 01/01/00 through (and including) 03/31/01 1.80:1.00 04/01/01 through (and including) 03/31/02 2.00:1.00 04/01/02 through (and including) 09/30/02 2.25:1.00 10/01/02 through (and including) 06/30/03 2.50:1.00 07/01/03 through (and including) 06/30/04 3.00:1.00 07/01/04 through (and including) 12/31/04 4.00:1.00 01/01/05 and thereafter 5.00:1.00 (c) The Borrower will not permit the Fixed Charge Coverage Ratio as of the last day of any Fiscal Quarter (beginning with the first Fiscal Quarter of the 2000 Fiscal Year) to be less than (i) 1.25:1.00 through (and including) December 31, 2002 and (ii) 1.15:1.00 for each Fiscal Quarter thereafter. (d) The Borrower will not permit EBITDA for the period of four consecutive Fiscal Quarters ending on the last day of any Fiscal Quarter occurring during any period set forth below to be less than the amount set forth opposite such period: Period EBITDA ------ ------ 01/01/00 through (and including) 03/31/01 $95,000,000 04/01/01 through (and including) 09/30/01 $100,000,000 10/01/01 through (and including) 09/30/02 $105,000,000 10/01/02 through (and including) 06/30/03 $110,000,000 07/01/03 through (and including) 12/31/03 $115,000,000 01/01/04 through (and including) 06/30/04 $120,000,000 07/01/04 through (and including) 12/31/04 $130,000,000 01/01/05 through (and including) 12/31/05 $140,000,000 01/01/06 and thereafter $150,000,000 SECTION 7.2.5. Investments. The Borrower will not, and will not permit any of its Subsidiaries to, purchase, make, incur, assume or permit to exist any Investment in any other Person, except: (a) Investments existing on the Closing Date and identified in Item 7.2.5(a) of the Disclosure Schedule; (b) Cash Equivalent Investments; (c) Investments received in connection with the bankruptcy or reorganization of, or settlement of delinquent accounts and disputes with, customers and suppliers, in each case in the ordinary course of business; (d) without duplication, Investments permitted as (i) Capital Expenditures pursuant to Section 7.2.7 (including any such Investments which would otherwise constitute Capital Expenditures but for the operation of clause (i) of the proviso to the definition of "Capital Expenditures"), (ii) Indebtedness pursuant to Section 7.2.2 and (iii) Restricted Payments pursuant to clause (b) of Section 7.2.6; (e) Investments by way of (i) contributions to capital or purchases of Capital Securities by the Borrower in any Subsidiaries (other than any OSIFC Family Member) or by any Subsidiary in other Subsidiaries (in either case, other than any OSIFC Family Member); provided, that the aggregate amount of intercompany loans made pursuant to clause (f)(ii) of Section 7.2.2 and Investments under this clause made by the Borrower and Subsidiary Guarantors in Non-Guarantors shall not exceed $3,000,000 at any time, or (ii) contributions to capital by any Subsidiary in the Borrower; (f) Investments made by the Borrower and its Subsidiaries that constitute (i) accounts receivable arising, (ii) trade debt granted, or (iii) deposits made in connection with the purchase price of goods or services, in each case in the ordinary course of business; (g) Investments made by the Borrower and its Subsidiaries constituting Permitted Acquisitions in an aggregate amount not to exceed $35,000,000 (which amount shall include the assumption of all Indebtedness in connection with such Permitted Acquisition and the aggregate amount of Specified Liabilities (but only to the extent the obligations associated with such Specified Liabilities are recorded as liabilities on the consolidated balance sheet of the Borrower and its Subsidiaries in accordance with GAAP), regardless of the date on which such Specified Liabilities are actually recorded) in any single transaction or series of related transactions; (h) Investments consisting of any deferred portion of the sales price received by the Borrower or any Subsidiary in connection with any Disposition permitted under Section 7.2.11 to the extent such deferred portion does not exceed the portion of such sales price which may be non-cash under Section 7.2.11; (i) Investments in the ordinary course of business in the form of loans and advances to officers, directors and employees of the Borrower or any of its Subsidiaries to finance the purchase of Capital Securities of Borrower, so long as the aggregate amount of (x) any such loan or advance does not exceed the purchase price of the Capital Securities so financed and (y) all such loans and advances does not exceed $5,000,000 at any time outstanding; (j) Investments made by the Borrower or any of its Subsidiaries, solely with proceeds which have been contributed, directly or indirectly after the Closing Date, to the Borrower or such Subsidiary as cash equity from holders of Borrower's Capital Securities for the purpose of making an Investment identified in a notice to the Administrative Agent on or prior to the date that such capital contribution is made, which Investments shall result in the Borrower or such Subsidiary acquiring a majority controlling interest in or substantially all of the assets of the Person in which such Investment was made or from which such assets were purchased or increasing any such controlling interest already maintained by it; (k) Investments in OSIFC in an aggregate amount not to exceed $5,000,000, which amount shall be in addition to the amount of Investments made by the Borrower and its Subsidiaries and existing on the Closing Date; (l) Investments made with Casualty Proceeds in accordance with the provisions of clause (h) of Section 3.1.1; (m) Investments consisting of acquisitions of receivables portfolios ("Permitted Portfolio Acquisitions"); provided, that the aggregate amount expended by the Borrower and its Subsidiaries for Permitted Portfolio Acquisitions shall not exceed $15,000,000 in any Fiscal Year; and (n) other Investments made by the Borrower and its Subsidiaries (other than any Investments of the type permitted in clauses (a) through (m) above) in an amount not to exceed $10,000,000 over the term of this Agreement; provided, however, that (o) any Investment which when made complies with the requirements of clause (a), (b), (c) or (d) of the definition of the term "Cash Equivalent Investment" may continue to be held notwithstanding that such Investment if made thereafter would not comply with such requirements; and (p) no Investment otherwise permitted by clause (d)(i), (d)(ii) (except to the extent permitted under Section 7.2.2), (g) or (i) shall be permitted to be made if any Default has occurred and is continuing or would result therefrom. SECTION 7.2.6. Restricted Payments, etc. The Borrower will not, and will not permit any of its Subsidiaries to, declare or make a Restricted Payment, or make any deposit for any Restricted Payment (other than Restricted Payments made by Subsidiaries to the Borrower or wholly owned Subsidiaries) in excess of $2,000,000 in the aggregate over the term of this Agreement (which amount may not be added to the additional Restricted Payments permitted in clauses (a) through (c) below); provided, however, that, notwithstanding any of the foregoing, the Borrower may make additional Restricted Payments, without duplication, (a) beginning December 1, 2004, to the extent necessary to make scheduled dividend payments on the PIK Preferred Equity in accordance with the PIK Preferred Equity Documents; (b) in respect of Repurchase Payments; provided, that the aggregate consideration paid for such Repurchase Payments, when aggregated with the amount of Indebtedness incurred pursuant to clause (o) of Section 7.2.2 (without duplication), shall not exceed $5,000,000 over the term of this Agreement; and (c) in respect of advisory fees in an amount not to exceed $500,000 in the aggregate in any Fiscal Year. Notwithstanding any of the foregoing, the Borrower may make any such Restricted Payment only so long as (a) both before and after giving effect to such Restricted Payment, no Default shall have occurred and be continuing, and (b) the Borrower shall have delivered to the Administrative Agent (A) financial statements prepared on a pro forma basis to give effect to such Restricted Payment for the period of four consecutive Fiscal Quarters ending with the Fiscal Quarter then last ended for which financial statements and the Compliance Certificate relating thereto have been delivered to the Administrative Agent pursuant to Section 7.1.1 and (B) a certificate of the Borrower executed by an Authorized Officer of the Borrower demonstrating that the financial results reflected in such financial statements would comply with the requirements of Section 7.2.4 for the Fiscal Quarter in which such Restricted Payment is to be made. SECTION 7.2.7. Capital Expenditures, etc. Subject (in the case of Capitalized Lease Liabilities) to clause (e) of Section 7.2.2, (a) the Borrower will not, and will not permit any of its Subsidiaries to, make or commit to make Capital Expenditures other than Capital Expenditures made or committed to be made by the Borrower and its Subsidiaries in any Fiscal Year which in the aggregate do not exceed, (i) for the 2000 Fiscal Year, $25,000,000, and (ii) for each Fiscal Year thereafter, $20,000,000; provided, however, that notwithstanding anything to the contrary in this clause, in the event that the amount of Capital Expenditures permitted to be made by the Borrower and its Subsidiaries during any Fiscal Year (or portion thereof) pursuant to this clause (prior to giving effect to any increase in such permitted amounts pursuant to this proviso) is greater than the aggregate amount of such Capital Expenditures made by the Borrower and its Subsidiaries during such Fiscal Year (or portion thereof), such excess (up to an aggregate of 50% of the amount set forth opposite such Fiscal Year, each such amount of excess, a "Carry-Forward Amount") may be carried forward to the immediately succeeding Fiscal Year and utilized to make Capital Expenditures in such succeeding Fiscal Year (it being understood and agreed that a Carry-Forward Amount may not be carried beyond the Fiscal Year immediately succeeding the Fiscal Year in which it arose ). With respect to any Carry-Forward Amount, (i) it shall be certified by the Borrower to the Administrative Agent in the Compliance Certificate delivered for the last Fiscal Quarter of such Fiscal Year, and (ii) it shall be deemed to be used prior to the Borrower and its Subsidiaries using any amount of Capital Expenditures permitted for such immediately succeeding Fiscal Year. (b) The parties acknowledge and agree that the permitted Capital Expenditure amounts set forth in clause (a) above shall be exclusive of (i) the amount of Capital Expenditures actually made with cash capital contributions made to the Borrower or any of its Subsidiaries, directly or indirectly, by any Person other than the Borrower and its Subsidiaries, after the Closing Date and specifically identified in a certificate delivered by an Authorized Officer of the Borrower to the Administrative Agent on or about the time such capital contribution or equity issuance is made (but in any event prior to the time of the Capital Expenditure made with such capital contribution or equity issuance); provided, that, to the extent such cash capital contributions or any proceeds from such equity issuance constitute Net Equity Proceeds arising from the issuance by the Borrower of its Capital Securities, only that portion of such Net Equity Proceeds which are not required to be applied as a prepayment pursuant to clause (g) of Section 3.1.1 may be used for Capital Expenditures pursuant to this clause and (ii) any portion of any acquisition that is permitted under Section 7.2.5 (other than pursuant to clause (d) thereof) that is accounted for as a Capital Expenditure. SECTION 7.2.8. No Prepayment of Subordinated Debt. The Borrower will not, and will not permit any of its Subsidiaries to, (a) make any payment or prepayment of principal of, or premium or interest on, any Subordinated Debt (i) other than the stated, scheduled date for payment of interest set forth in the applicable Subordinated Debt Documents, (ii) other than with Net Equity Proceeds (after application pursuant to clause (g) of Section 3.1.1) in accordance with the applicable Subordinated Debt Documents or (iii) which would violate the terms of this Agreement or the applicable Subordinated Debt Documents; (b) redeem, retire, purchase, defease or otherwise acquire any Subordinated Debt; or (c) make any deposit (including the payment of amounts into a sinking fund or other similar fund) for any of the foregoing purposes. Furthermore, neither the Borrower nor any Subsidiary will designate any Indebtedness other than the Obligations as "Designated Senior Debt" (or any analogous term) in any Subordinated Debt Document. SECTION 7.2.9. Issuance of Capital Securities. The Borrower will not, and will not permit any of its Subsidiaries (other than Pay Tech) to, (a) issue any Capital Securities (whether for value or otherwise) to any Person other than (i) (in the case of Subsidiaries) the Borrower or another wholly owned Subsidiary, (ii) for transfers, replacements and exchanges of then outstanding shares of Capital Securities, (iii) for stock splits, stock dividends and issuances which do not decrease the percentage ownership of the Borrower or any of its Subsidiaries in any class of the Capital Securities of such Subsidiary (and for which the Secured Parties continue to have a first priority pledge of such Capital Securities), (iv) to qualify directors to the extent required by applicable law and (v) for issuances by newly created or acquired Subsidiaries in accordance with the terms of this Agreement, or (b) become liable in respect of any obligation (contingent or otherwise) to purchase, redeem, retire, acquire or make any other payment in respect of any Capital Securities of the Borrower (other than obligations for Repurchase Payments) or any Subsidiary or any option, warrant or other right to acquire any such Capital Securities; provided, however, that, notwithstanding any of the foregoing, the Borrower may issue its Capital Securities to the extent that, after giving effect to any such issuance, no Default shall result therefrom. SECTION 7.2.10. Consolidation, Merger, etc. The Borrower will not, and will not permit any of its Subsidiaries to, liquidate or dissolve, consolidate with, or merge into or with, any other Person, or purchase or otherwise acquire all or substantially all of the assets of any Person (or any division thereof), except (a) Pay Tech may liquidate or dissolve, and any other Subsidiary may liquidate or dissolve voluntarily into, and may merge with and into, the Borrower (so long as the Borrower is the surviving corporation) or any other Subsidiary (provided, however, that a Subsidiary Guarantor may only liquidate or dissolve into, or merge with and into, the Borrower or another Subsidiary Guarantor), and the assets or Capital Securities of any Subsidiary may be purchased or otherwise acquired by the Borrower or any other Subsidiary (provided, however, that the assets or Capital Securities of any Subsidiary Guarantor may only be purchased or otherwise acquired by the Borrower or another Subsidiary Guarantor unless such assets are of the type described in clause (a) or (c) of Section 7.2.11); provided, further, that in no event shall any Pledged Subsidiary consolidate with or merge with and into any Subsidiary other than another Pledged Subsidiary unless after giving effect thereto, the Administrative Agent shall have a perfected pledge of, and security interest in and to, at least the same percentage of the issued and outstanding interests of Capital Securities (on a fully diluted basis) of the surviving Person as the Administrative Agent had immediately prior to such merger or consolidation in form and substance satisfactory to the Administrative Agent and its counsel, pursuant to such documentation and opinions as shall be necessary in the reasonable opinion of the Administrative Agent to create, perfect or maintain the collateral position of the Secured Parties therein; and (b) so long as no Default has occurred and is continuing or would occur after giving effect thereto, the Borrower or any of its Subsidiaries may (to the extent permitted by clause (g) of Section 7.2.5) purchase all or substantially all of the assets or Capital Securities of any Person (or any division thereof), or acquire such Person by merger. SECTION 7.2.11. Permitted Dispositions. The Borrower will not, and will not permit any of its Subsidiaries to, Dispose of any of the Borrower's or such Subsidiaries' assets (including accounts receivable and Capital Securities of Subsidiaries) to any Person in one transaction or a series of transactions unless: (a) such Disposition is of inventory, obsolete equipment or receivables portfolios, in each case Disposed of in the ordinary course of business; (b) such Disposition is permitted by Section 7.2.10; (c) such Disposition is of Accounts or other related assets and ancillary rights in property pursuant to the Permitted Receivables Transaction; or (d) such Disposition is not described in clauses (a) through (c) above and (i) such Disposition is for not less than the fair market value of the assets to be Disposed, (ii) the consideration received by the Borrower or such Subsidiary consists of at least 80% cash, (iii) the Net Disposition Proceeds received from such Disposition, together with the Net Disposition Proceeds of all other assets Disposed pursuant to this clause since the Closing Date, does not exceed (individually or in the aggregate) $10,000,000 over the term of this Agreement, and (iv) an amount equal to the Net Disposition Proceeds received from such Disposition are applied in accordance with Sections 3.1.1 and 3.1.2. SECTION 7.2.12. Modification of Certain Documents. After the Closing Date, the Borrower will not, and will not permit any of its Subsidiaries to, consent to any amendment, supplement, waiver or other modification of, or enter into any forbearance from exercising any rights with respect to the terms or provisions contained in, (a) the Subordinated Debt Documents, other than any amendment, supplement, waiver or modification for which no fee is payable to the holders of the Subordinated Debt in excess of $1,000,000 in the aggregate over the term of this Agreement and which (i) extends the date or reduces the amount of any required repayment, prepayment or redemption of the principal of such Subordinated Debt, (ii) reduces the rate or extends the date for payment of the interest, premium (if any) or fees payable on such Subordinated Debt, (iii) makes the covenants, events of default or remedies in such Subordinated Debt Documents less restrictive on the Borrower or its Subsidiaries, (iv) does not in any way adversely affect the interests of the Secured Parties hereunder or under the Loan Documents or (v) is of a technical or clarifying nature; or (b) any of the Material Documents, other than any amendment, supplement, waiver or modification which (i) does not in any way adversely affect the interests of the Secured Parties hereunder or under the Loan Documents or (ii) is of a technical or clarifying nature; or (c) any of the Receivables Documents, other than any such amendment, supplement, waiver or modification which (i) would extend the maturity thereof, (ii) does not in any way adversely affect the interests of the Secured Parties hereunder or under the Loan Documents or (iii) is of a technical or clarifying nature. SECTION 7.2.13. Transactions with Affiliates. The Borrower will not, and will not permit any of its Subsidiaries to, enter into or cause or permit to exist any arrangement, transaction or contract (including for the purchase, lease or exchange of property or the rendering of services) with any of its other Affiliates, unless such arrangement, transaction or contract is (i) on fair and reasonable terms no less favorable to the Borrower or such Subsidiary than it could obtain in an arm's-length transaction with a Person that is not an Affiliate, (ii) of the kind which would be entered into by a prudent Person in the position of the Borrower or such Subsidiary with a Person that is not one of its Affiliates, (iii) fees paid to MDCP on the Closing Date and thereafter in an amount not to exceed $500,000 per annum, (iv) the Permitted Receivables Transaction, and (v) the Investment described in clause (i) of Section 7.2.5 in an amount not to exceed $5,000,000 at any time outstanding. SECTION 7.2.14. Restrictive Agreements, etc. The Borrower will not, and will not permit any of its Subsidiaries to, enter into any agreement prohibiting (a) the creation or assumption of any Lien for the benefit of any Secured Party; (b) the ability of any Obligor to amend or otherwise modify any Loan Document; or (c) the ability of any Subsidiary to make any payments, directly or indirectly, to the Borrower, including by way of dividends, advances, repayments of loans, reimbursements of management and other intercompany charges, expenses and accruals or other returns on investments. The foregoing prohibitions shall not apply to restrictions contained (i) in any Loan Document, (ii) in the case of clause (a), in any agreement governing any Indebtedness permitted by clause (e) of Section 7.2.2 as to the assets financed with the proceeds of such Indebtedness or (iii) in the case of clauses (a) and (c), in (A) any agreement of a Non-Guarantor governing the Indebtedness permitted by clause (f)(ii) of Section 7.2.2 or (B) any Receivables Documents. SECTION 7.2.15. Sale and Leaseback. Other than with respect to the properties listed in Item 7.2.15 of the Disclosure Schedule, the Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly enter into any agreement or arrangement providing for the sale or transfer by it of any property (now owned or hereafter acquired) to a Person and the subsequent lease or rental of such property or other similar property from such Person. SECTION 7.2.16. Accounting Changes. The Borrower will not, and will not permit any of its Subsidiaries to, change its Fiscal Year from twelve consecutive calendar months ending on December 31. SECTION 7.3. UAS and the Student Loan Collection Business. Notwithstanding anything to the contrary in this Agreement, with respect to UAS and the Student Loan Collection Business, the Borrower covenants and agrees with each Managing Agent, each Lender and each Issuer that until the Termination Date has occurred, the Borrower will, and will cause UAS and, to the extent applicable, each other Subsidiary to, perform or cause to be performed the obligations set forth below. SECTION 7.3.1. Business Activities. UAS will not engage in any business activity (a) other than in connection with the Student Loan Collection Business; and (b) so long as UAS is a Subsidiary Guarantor, in any State of the United States (or any political subdivision thereof) where, under applicable law, UAS's guarantee of the Obligations pursuant to the Subsidiary Guaranty would prohibit UAS from engaging in the Student Loan Collection Business in such State (or political subdivision). SECTION 7.3.2. Indebtedness. UAS will not create, incur, assume or permit to exist any Indebtedness, except Indebtedness (a) existing as of the Closing Date which is identified in Item 7.2.2(c) of the Disclosure Schedule, and Permitted Refinancings of such Indebtedness, (b) in respect of UAS's guarantee of (i) the Obligations pursuant to the Subsidiary Guaranty and (ii) the obligations of the Borrower under and pursuant to the Subordinated Debt Documents, and (c) which is intercompany Indebtedness otherwise permitted pursuant to this Agreement. SECTION 7.3.3. Liens. UAS will not create, incur, assume or permit to exist any Lien upon any of its property, revenues or assets, whether now owned or hereafter acquired, except Permitted Liens created, incurred, assumed or otherwise existing (a) in the ordinary course of the Student Loan Collection Business and (b) pursuant to any Loan Document. SECTION 7.3.4. Investments. UAS will not purchase, make, incur, assume or permit to exist any Investment in any other Person (including Investments in the Borrower or any other Subsidiary) nor will the Borrower or any other Subsidiary purchase, make, incur, assume or permit to exist any Investment in UAS, except, in any case, as otherwise permitted under clauses (a), (b) and (e)(i) of Section 7.2.5. SECTION 7.3.5. Restricted Payments, etc. UAS will, within 45 days following the end of each Fiscal Quarter, declare and make a Restricted Payment to the Borrower in an aggregate amount such that, immediately after giving effect to any such Restricted Payment, UAS would not have a "positive net worth" (as defined in any regulations or laws binding on or applicable to UAS) in excess of "positive net worth" plus $500,000. SECTION 7.3.6. Consolidation, Merger. UAS will not liquidate or dissolve, consolidate with, or merge into or with, any other Person, or purchase or otherwise acquire all or substantially all of the assets of any Person (or any division thereof). SECTION 7.4. OSIFC Transaction. Each of the Secured Parties agree that, notwithstanding anything to the contrary set forth in this Agreement, within thirty days following the Closing Date, the Borrower may (a) cause OSIFC to convert its corporate status to that of a limited liability company and Dispose of (or permit OSIFC to issue additional) Capital Securities of OSIFC such that, after giving effect to such Disposition (and/or issuance), OSIFC will no longer be a Subsidiary of the Borrower, and (b) make a Restricted Payment in an aggregate amount not to exceed $3,500,000 in connection with such conversion and Disposition (and/or issuance). ARTICLE VIII EVENTS OF DEFAULT SECTION 8.1. Listing of Events of Default. Each of the following events or occurrences described in this Article shall constitute an "Event of Default". SECTION 8.1.1. Non-Payment of Obligations. The Borrower shall default in the payment or prepayment when due of (a) any principal of any Loan, or any Reimbursement Obligation or any deposit of cash for collateral purposes pursuant to Section 2.6.4; or (b) interest on any Loan, any Reimbursement Obligation, any fee described in Article III, or any other monetary Obligations and such default shall continue unremedied for a period of three Business Days after such amount was due. SECTION 8.1.2. Breach of Warranty. Any representation or warranty of any Obligor made or deemed to be made in any Loan Document to which such Obligor is party or any other writing or certificate (including any certificates delivered pursuant to Article V) furnished by or on behalf of any Obligor to any Secured Party for the purposes of or in connection with any Loan Document is or shall be incorrect when made or deemed to have been made in any material respect. SECTION 8.1.3. Non-Performance of Certain Covenants and Obligations. The Borrower shall default in the due performance or observance of any of its obligations under Section 7.1.1, 7.1.7, 7.1.13 or 7.2. SECTION 8.1.4. Non-Performance of Other Covenants and Obligations. Any Obligor shall default in the due performance or observance of any other agreement contained in any Loan Document to which such Obligor is party, and such default shall continue unremedied for a period of 30 days after notice thereof shall have been given to the Borrower by either Managing Agent or any Lender. SECTION 8.1.5. Default on Other Indebtedness. A default shall occur in the payment of any amount when due (subject to any applicable grace period), whether by acceleration or otherwise, of any principal or stated amount of, or interest or fees on, of any Indebtedness (other than Indebtedness described in Section 8.1.1) of any Obligor having a principal or stated amount, individually or in the aggregate, in excess of $5,000,000, or a default shall occur in the performance or observance of any obligation or condition with respect to such Indebtedness if the effect of such default is to accelerate the maturity of any such Indebtedness or such default shall continue unremedied for any applicable period of time sufficient to permit the holder or holders of such Indebtedness, or any trustee or agent for such holders, to cause or declare such Indebtedness to become due and payable or to require such Indebtedness to be prepaid, redeemed, purchased or defeased, or require an offer to purchase or defease such Indebtedness to be made, prior to its expressed maturity. SECTION 8.1.6. Judgments. Any judgment or order for the payment of money, individually or in the aggregate, in excess of $5,000,000 (exclusive of any amounts fully covered by insurance or indemnification (less any applicable deductible) and as to which the insurer has acknowledged in writing its responsibility to cover such judgment or order) shall be rendered against any Obligor and either (i) such judgment shall not have been vacated or discharged or stayed or bonded pending appeal within 30 days after the entry thereof (unless the judgment allows for a longer period of time for payment) or (ii) enforcement proceedings shall have been commenced by any creditor upon such judgment or order. SECTION 8.1.7. Pension Plans. Any of the following events shall occur with respect to any Pension Plan (a) the institution of any steps by the Borrower, any member of its Controlled Group or any other Person to terminate a Pension Plan if, as a result of such termination, the Borrower or any such member could be required to make a contribution to such Pension Plan, or could reasonably expect to incur a liability or obligation to such Pension Plan, in excess of $1,000,000; or (b) a contribution failure occurs with respect to any Pension Plan sufficient to give rise to a Lien under section 302(f) of ERISA. SECTION 8.1.8. Change in Control. Any Change in Control shall occur. SECTION 8.1.9. Bankruptcy, Insolvency, etc. Any Obligor shall (a) become insolvent or generally fail to pay, or admit in writing its inability or unwillingness generally to pay, debts as they become due; (b) apply for, consent to, or acquiesce in the appointment of a trustee, receiver, sequestrator or other custodian for any substantial part of the property of any thereof, or make a general assignment for the benefit of creditors; (c) in the absence of such application, consent or acquiescence in or permit or suffer to exist the appointment of a trustee, receiver, sequestrator or other custodian for a substantial part of the property of any thereof, and such trustee, receiver, sequestrator or other custodian shall not be discharged within 60 days; provided, that each Obligor hereby expressly authorizes each Secured Party to appear in any court conducting any relevant proceeding during such 60-day period to preserve, protect and defend their rights under the Loan Documents; (d) permit or suffer to exist the commencement of any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law or any dissolution, winding up or liquidation proceeding, in respect thereof, and, if any such case or proceeding is not commenced by any Obligor, such case or proceeding shall be consented to or acquiesced in by such Person or shall result in the entry of an order for relief or shall remain for 60 days undismissed; provided, that the each Obligor hereby expressly authorizes each Secured Party to appear in any court conducting any such case or proceeding during such 60-day period to preserve, protect and defend their rights under the Loan Documents; or (e) take any action authorizing, or in furtherance of, any of the foregoing. SECTION 8.1.10. Impairment of Security, etc. Any Loan Document or any Lien granted thereunder shall (except in accordance with its terms), in whole or in part, terminate, cease to be effective or cease to be the legally valid, binding and enforceable obligation of any Obligor party thereto; any Obligor or any other party shall, directly or indirectly, contest in any manner such effectiveness, validity, binding nature or enforceability; except as permitted under any Loan Document or as a result of a Secured Party's wilful misconduct or gross negligence, any Lien securing any Obligation shall, in whole or in part, cease to be (subject to Permitted Liens) a perfected first priority Lien; or, except as permitted under any Loan Document or as a result of a Secured Party's wilful misconduct or gross negligence, the Administrative Agent, for the benefit of the Secured Parties,shall fail to have a valid, first priority pledge of at least 80.5% of the issued and outstanding OSI Common Stock on a fully diluted basis. SECTION 8.1.11. Failure of Subordination. Unless otherwise waived or consented to by the Secured Parties in writing, the subordination provisions relating to any Subordinated Debt (the "Subordination Provisions") shall fail to be enforceable by the Secured Parties in accordance with the terms thereof or the monetary Obligations shall fail to constitute "Senior Indebtedness" (or a similar term) referring to the Obligations; or any Obligor shall, directly or indirectly, disavow or contest in any manner (i) the effectiveness, validity or enforceability of any of the Subordination Provisions, (ii) that the Subordination Provisions exist for the benefit of the Secured Parties or (iii) that all payments of principal of or premium and interest on the Subordinated Debt, or realized from the liquidation of any property of any Obligor, shall be subject to any of such Subordination Provisions. SECTION 8.1.12. Redemption. Any event shall occur which, under the terms of any Subordinated Debt Document, shall require the Borrower or any of its Subsidiaries to purchase, redeem or otherwise acquire or offer to purchase, redeem or otherwise acquire all or any portion of the principal amount of any such Subordinated Debt prior to its final stated maturity date. SECTION 8.2. Action if Bankruptcy. If any Event of Default described in clauses (a) through (d) of Section 8.1.9 with respect to the Borrower shall occur, the Commitments (if not theretofore terminated) shall automatically terminate and the outstanding principal amount of all outstanding Loans and all other Obligations (including Reimbursement Obligations) shall automatically be and become immediately due and payable, without notice or demand to any Person, and each Obligor shall automatically and immediately be obligated to Cash Collateralize all Letter of Credit Outstandings. SECTION 8.3. Action if Other Event of Default. If any Event of Default (other than any Event of Default described in clauses (a) through (d) of Section 8.1.9 with respect to the Borrower) shall occur for any reason, whether voluntary or involuntary, and be continuing, the Administrative Agent, upon the direction of the Required Lenders, shall by notice to the Borrower declare all or any portion of the outstanding principal amount of the Loans and other Obligations (including Reimbursement Obligations) to be due and payable and/or the Commitments (if not theretofore terminated) to be terminated, whereupon the full unpaid amount of such Loans and other Obligations which shall be so declared due and payable shall be and become immediately due and payable, without further notice, demand or presentment, and/or, as the case may be, the Commitments shall terminate and the Borrower shall automatically and immediately be obligated to Cash Collateralize all Letter of Credit Outstandings. ARTICLE IX THE AGENTS SECTION 9.1. Actions. Each Lender hereby appoints DLJ as its Syndication Agent and Fleet as its Administrative Agent under and for purposes of each Loan Document. Each Lender authorizes each Managing Agent to act on behalf of such Lender under each Loan Document and, in the absence of other written instructions from the Required Lenders received from time to time by the Managing Agents (with respect to which each Managing Agent agrees that it will comply, except as otherwise provided in this Section or as otherwise advised by counsel in order to avoid contravention of applicable law), to exercise such powers hereunder and thereunder as are specifically delegated to or required of such Managing Agent by the terms hereof and thereof, together with such powers as may be reasonably incidental thereto. Each Lender hereby indemnifies (which indemnity shall survive any termination of this Agreement) each Managing Agent, pro rata according to such Lender's proportionate Total Exposure Amount, from and against any and all liabilities, obligations, losses, damages, claims, costs or expenses of any kind or nature whatsoever which may at any time be imposed on, incurred by, or asserted against, such Managing Agent in any way relating to or arising out of any Loan Document, including reasonable attorneys' fees, and as to which such Managing Agent is not reimbursed by the Borrower; provided, however, that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, claims, costs or expenses which are determined by a court of competent jurisdiction in a final proceeding to have resulted from such Managing Agent's gross negligence or wilful misconduct. Neither Managing Agent shall be required to take any action under any Loan Document, or to prosecute or defend any suit in respect of any Loan Document, unless it is indemnified hereunder to its satisfaction. If any indemnity in favor of either Managing Agent shall be or become, in such Managing Agent's determination, inadequate, such Managing Agent may call for additional indemnification from the Lenders and cease to do the acts indemnified against hereunder until such additional indemnity is given. SECTION 9.2. Funding Reliance, etc. Unless the Administrative Agent shall have been notified in writing by any Lender by 3:00 p.m. on the Business Day prior to a Borrowing that such Lender will not make available the amount which would constitute its Percentage of such Borrowing on the date specified therefor, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent and, in reliance upon such assumption, make available to the Borrower a corresponding amount. If and to the extent that such Lender shall not have made such amount available to the Administrative Agent, such Lender and the Borrower severally agree to repay the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date the Administrative Agent made such amount available to the Borrower to the date such amount is repaid to the Administrative Agent, at the interest rate applicable at the time to Loans comprising such Borrowing (in the case of the Borrower) and (in the case of a Lender), at the Federal Funds Effective Rate for the first two Business Days after which such amount has not been repaid, and thereafter at the interest rate applicable to Loans comprising such Borrowing. SECTION 9.3. Exculpation; Notice of Default. (a) Neither Managing Agent nor any Issuer nor any of their respective directors, officers, employees or agents shall be liable to any Lender for any action taken or omitted to be taken by it under any Loan Document, or in connection herewith or therewith, except for its own wilful misconduct or gross negligence, nor responsible for any recitals or warranties herein or therein, nor for the effectiveness, enforceability, validity or due execution of any Loan Document, nor for the creation, perfection or priority of any Liens purported to be created by any of the Loan Documents, or the validity, genuineness, enforceability, existence, value or sufficiency of any collateral security, nor to make any inquiry respecting the performance by any Obligor of its Obligations. Any such inquiry which may be made by either Managing Agent or any Issuer shall not obligate it to make any further inquiry or to take any action. The Administrative Agent and each Issuer shall be entitled to rely upon advice of counsel concerning legal matters and upon any notice, consent, certificate, statement or writing which the Administrative Agent believes to be genuine and to have been presented by a proper Person. (b) Neither Managing Agent, the Swing Line Lender nor any Issuer shall be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless any such Person has received written notice from (A) in the case of the Administrative Agent, the Swing Line Lender or any Issuer, a Lender or the Borrower referring to this Agreement describing such Default or Event of Default and stating that such notice is a "notice of default" and (B) in the case of the Syndication Agent, from the Administrative Agent as set forth in the immediately following sentence. In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give prompt notice thereof to the Syndication Agent and the Lenders. SECTION 9.4. Successors. The Syndication Agent may resign as such upon one Business Day's notice to the Borrower and the Administrative Agent. The Administrative Agent may resign as such at any time upon at least 30 days' prior notice to the Borrower and all Lenders. If the Administrative Agent at any time shall resign, the Required Lenders may, with the consent of the Borrower (not to be unreasonably withheld), appoint another Lender as a successor Administrative Agent which shall thereupon become the Administrative Agent hereunder. If no successor Administrative Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent's giving notice of resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent, which shall be one of the Lenders or a commercial banking institution organized under the laws of the U.S. (or any State thereof) or a U.S. branch or agency of a commercial banking institution, and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall be entitled to receive from the retiring Administrative Agent such documents of transfer and assignment as such successor Administrative Agent may reasonably request, and shall thereupon succeed to and become vested with all rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under the Loan Documents. After any retiring Administrative Agent's resignation hereunder as the Administrative Agent, the provisions of this Article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Administrative Agent under the Loan Documents, and Sections 10.3 and 10.4 shall continue to inure to its benefit. SECTION 9.5. Credit Extensions by each Managing Agent and each Issuer. Each Managing Agent and each Issuer, in its individual capacity as a Lender shall have the same rights and powers with respect to (x)(i) in the case of a Managing Agent, the Credit Extensions made by it or any of its Affiliates and (ii) in the case of an Issuer, the Loans made by it or any of its Affiliates, and (y) the Notes held by it or any of its Affiliates as any other Lender and may exercise the same as if it were not a Managing Agent or Issuer. Each Managing Agent, each Issuer and each of their respective Affiliates, in each case, in its individual capacity, may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or Affiliate of the Borrower as if such Managing Agent or Issuer were not a Managing Agent or Issuer hereunder. SECTION 9.6. Credit Decisions. Each Lender acknowledges that it has, independently of each Managing Agent and each other Lender, and based on such Lender's review of the financial information of the Borrower and its Subsidiaries, the Loan Documents (the terms and provisions of which being satisfactory to such Lender) and such other documents, information and investigations as such Lender has deemed appropriate, made its own credit decision to extend its Commitments. Each Lender also acknowledges that it will, independently of each Managing Agent and each other Lender, and based on such other documents, information and investigations as it shall deem appropriate at any time, continue to make its own credit decisions as to exercising or not exercising from time to time any rights and privileges available to it under the Loan Documents. SECTION 9.7. Copies, etc. The Administrative Agent shall give prompt notice to each Lender of each notice or request required or permitted to be given to the Administrative Agent by the Borrower pursuant to the terms of the Loan Documents (unless concurrently delivered to the Lenders by the Borrower). The Administrative Agent will distribute to each Lender each document or instrument received for its account and copies of all other communications received by the Administrative Agent from the Borrower for distribution to the Lenders by the Administrative Agent in accordance with the terms of the Loan Documents. SECTION 9.8. Reliance by Managing Agents and Issuers. Each Managing Agent and each Issuer shall be entitled to rely upon any certification, notice or other communication (including any thereof by telephone, telecopy, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person, and upon advice and statements of legal counsel, independent accountants and other experts selected by such Managing Agent or such Issuer, as the case may be. As to any matters not expressly provided for by the Loan Documents, each Managing Agent and each Issuer shall in all cases be fully protected in acting, or in refraining from acting, hereunder or thereunder in accordance with instructions given by the Required Lenders or all of the Lenders as is required in such circumstance, and such instructions of such Lenders and any action taken or failure to act pursuant thereto shall be binding on all Secured Parties. For purposes of applying amounts in accordance with this Section, each Managing Agent shall be entitled to rely upon any Secured Party that has entered into a Rate Protection Agreement with any Obligor for a determination (which such Secured Party agrees to provide or cause to be provided upon request of the Administrative Agent) of the outstanding Obligations owed to such Secured Party under any Rate Protection Agreement. Unless it has actual knowledge evidenced by way of written notice from any such Secured Party and the Borrower to the contrary, each Managing Agent, in acting in such capacity under the Loan Documents, shall be entitled to assume that no Rate Protection Agreements or Obligations in respect thereof are in existence or outstanding between any Secured Party and any Obligor. SECTION 9.9. The Managing Agents and the Issuers. Notwithstanding anything else to the contrary contained in any Loan Document, the Managing Agents and the Issuers, in their respective capacities as such, shall have no duties or responsibilities under any Loan Document nor any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into any Loan Document or otherwise exist against either Managing Agent or any Issuer, as applicable, in such capacity, except as are explicitly set forth in any such Loan Document. SECTION 9.10. Documentation Agent. The Lender identified on the signature pages of this Agreement as the "Documentation Agent" shall not have any right, power, obligation, liability, responsibility or duty under this Agreement (or any other Loan Document) other than those applicable to all Lenders as such. Without limiting the foregoing, the Lender so identified as the "Documentation Agent" shall not have or be deemed to have any fiduciary relationship with any other Lender. Each Lender acknowledges that it has not relied, and will not rely, on the Lender so identified as the "Documentation Agent" in deciding to enter into this Agreement and each other Loan Document to which it is a party or in taking or not taking action hereunder or thereunder. ARTICLE X MISCELLANEOUS PROVISIONS SECTION 10.1. Waivers, Amendments, etc. The provisions of each Loan Document (other than Rate Protection Agreements, under which amendments, modifications and waivers may be effected by the Applicable Obligor and Applicable Lender, each a party thereto) may from time to time be amended, modified or waived, if such amendment, modification or waiver is in writing and consented to by the Borrower and the Required Lenders; provided, however, that no such amendment, modification or waiver shall: (a) modify this Section without the consent of all Lenders; (b) increase the aggregate amount of any Credit Extensions required to be made by a Lender pursuant to its Commitments, extend any final Commitment Termination Date or reduce any fees described in Article III payable to any Lender without the consent of such Lender; (c) extend any scheduled date of payment of principal for any Lender's Loan, or reduce the principal amount of, rate of interest or fees on any Loan or Reimbursement Obligations (which shall in each case include the conversion of all or any part of the Obligations into equity of any Obligor), or extend the scheduled date on which interest or fees are payable in respect of such Loan or Reimbursement Obligation, in each case, without the consent of the Lender which has made such Loan or, in the case of a Reimbursement Obligation, the applicable Issuer owed, and those Lenders participating in, such Reimbursement Obligation (it being understood and agreed, however, that any vote to rescind any acceleration made pursuant to Sections 8.2 and 8.3 of amounts owing with respect to the Loans and other Obligations shall only require the vote of the Required Lenders); (d) reduce the percentage set forth in the definition of "Required Lenders" or modify any requirement hereunder that any particular action be taken by all Lenders without the consent of all Lenders; (e) except as otherwise expressly provided in a Loan Document (including the sale or transfer of Accounts and other related assets in accordance with the Permitted Receivables Transaction), release (i) the Borrower from its Obligations under the Loan Documents or any Subsidiary Guarantor from its Obligations under the Subsidiary Guaranty, as applicable (other than in connection with a Disposition of all or substantially all of the Capital Securities of a Subsidiary Guarantor in a transaction permitted by Section 7.2.10 or 7.2.11) or (ii) all or substantially all of the collateral under the Loan Documents, in each case without the consent of all Lenders; (f) (i) amend, modify or waive clause (b) of Section 3.1.1 or (ii) have the effect (either immediately or at some later time) of enabling the Borrower to satisfy a condition precedent to the making of a Revolving Loan or the issuance of a Letter of Credit unless such amendment, modification or waiver shall have been consented to by the Lenders holding a majority of the aggregate amount of the then outstanding Revolving Loan Commitments. (g) change any of the terms of Section 2.3.2 without the consent of the Swing Line Lender; (h) amend, modify or waive the provisions of clause (b) of Section 3.1.2 or effect any amendment, modification or waiver that by its terms adversely affects the rights of Lenders participating in any Tranche differently from those of Lenders participating in other Tranches, unless such amendment, modification or waiver shall have been consented to by the holders of at least a majority of the aggregate amount of Loans outstanding under the Tranche or Tranches affected by such modification, or, in the case of a modification affecting the Revolving Loan Commitments, the Lenders holding a majority of the aggregate amount of the then outstanding Revolving Loan Commitments; (i) affect adversely the interests, rights or obligations of either Managing Agent (in its capacity as a Managing Agent) or any Issuer, unless consented to by such Managing Agent or such Issuer, as the case may be; (j) amend, modify or waive the provisions of Section 9.10, without the consent of Harris Trust and Savings Bank, so long as such financial institution is a Lender hereunder; or (k) with respect to any LIBO Rate Loan, amend, waive or modify the requirement that the Interest Period relative to any such Loan be one, two, three or six months in duration, unless consented to by each Lender making such Loan. No failure or delay on the part of either Managing Agent, any Issuer or any Lender in exercising any power or right under any Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No notice to or demand on any Obligor in any case shall entitle it to any notice or demand in similar or other circumstances. No waiver or approval by either Managing Agent, any Issuer or any Lender under any Loan Document shall, except as may be otherwise stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval hereunder shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder. For purposes of this Section, the Syndication Agent, in coordination with the Administrative Agent, shall have primary responsibility, together with the Borrower, in the negotiation, preparation and documentation relating to any amendment, modification or waiver under this Agreement, any other Loan Document or any other agreement or document related hereto or thereto contemplated pursuant to this Section. SECTION 10.2. Notices; Time. All notices and other communications provided under each Loan Document shall be in writing or by facsimile and addressed, delivered or transmitted, if to the Borrower or either Managing Agent, at its address or facsimile number set forth on Schedule II hereto, and if to a Lender or Issuer, to the applicable Person at its address or facsimile number set forth on Schedule II hereto or set forth in the Lender Assignment Agreement pursuant to which such Lender became a Lender hereunder, or, in any case, at such other address or facsimile number as may be designated by any such party in a notice to the other parties. Any notice, if mailed and properly addressed with postage prepaid or if properly addressed and sent by pre-paid courier service, shall be deemed given when received; any notice, if transmitted by facsimile, shall be deemed given when the confirmation of transmission thereof is received by the transmitter. Unless otherwise indicated, all references to the time of a day in a Loan Document shall refer to Boston, Massachusetts time. SECTION 10.3. Payment of Costs and Expenses. The Borrower agrees to pay on demand all reasonable fees and expenses of the Managing Agents (including the fees and out-of-pocket expenses of Mayer, Brown & Platt, counsel to the Syndication Agent and Lead Arranger, Palmer & Dodge LLP, counsel to the Administrative Agent, and of local counsel, if any, who may be retained by or on behalf of the Managing Agents) in connection with (a) the negotiation, preparation, execution and delivery of each Loan Document, including schedules and exhibits, and any amendments, waivers, consents, supplements or other modifications to any Loan Document as may from time to time hereafter be required, whether or not the transactions contemplated hereby are consummated; (b) the filing, recording, refiling or rerecording of any Loan Document (including the Filing Statements) and all amendments, supplements, amendment and restatements and other modifications to any thereof, searches made following the Closing Date in jurisdictions where Filing Statements (or other documents evidencing Liens in favor of the Secured Parties) have been filed or recorded and any and all other documents or instruments of further assurance required to be filed or recorded, or refiled or rerecorded by the terms of any Loan Document; and (c) the preparation and review of the form of any document or instrument relevant to any Loan Document. The Borrower further agrees to pay, and to save each Secured Party harmless from all liability for, any stamp or other Taxes which may be payable in connection with the execution or delivery of each Loan Document, the Credit Extensions or the issuance of the Notes. The Borrower also agrees to reimburse each Secured Party upon demand for all reasonable out-of-pocket expenses (including reasonable attorneys' fees and legal expenses of counsel to each Secured Party) incurred by such Secured Party in connection with (x) the negotiation of any restructuring or "work-out" with the Borrower, whether or not consummated, of any Obligations and (y) the enforcement of any Obligations. SECTION 10.4. Indemnification. In consideration of the execution and delivery of this Agreement by each Secured Party, the Borrower hereby indemnifies, exonerates and holds each Secured Party and each of their respective officers, directors, employees and agents (collectively, the "Indemnified Parties") free and harmless from and against any and all actions, causes of action, suits, losses, costs, liabilities and damages, and expenses incurred in connection therewith (irrespective of whether any such Indemnified Party is a party to the action for which indemnification hereunder is sought), including reasonable attorneys' fees and disbursements, whether incurred in connection with actions between or among the parties hereto or the parties hereto and third parties (collectively, the "Indemnified Liabilities"), incurred by the Indemnified Parties or any of them as a result of, or arising out of, or relating to (a) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of any Credit Extension, including all Indemnified Liabilities arising in connection with the Transaction; (b) the entering into and performance of any Loan Document by any of the Indemnified Parties (including any action brought by or on behalf of the Borrower as the result of any determination by the Required Lenders pursuant to Article V not to fund any Credit Extension, provided that any such action is resolved in favor of such Indemnified Party); (c) any investigation, litigation or proceeding related to any acquisition or proposed acquisition by any Obligor or any Subsidiary thereof of all or any portion of the Capital Securities or assets of any Person, whether or not an Indemnified Party is party thereto; (d) any investigation, litigation or proceeding (including any threatened investigation, litigation or proceeding) related to any environmental cleanup, audit, compliance or other matter relating to any Obligor or any Subsidiary with respect to the protection of the environment or relating to the Release by any Obligor or any Subsidiary thereof of any Hazardous Material; (e) the presence on or under, or the escape, seepage, leakage, spillage, discharge, emission, discharging or releases from, any real property owned or operated by any Obligor or any Subsidiary of any Hazardous Material (including any losses, liabilities, damages, injuries, costs, expenses or claims asserted or arising under any Environmental Law), regardless of whether caused by, or within the control of, such Obligor or such Subsidiary; or (f) each Lender's Environmental Liability (the indemnification herein shall survive repayment of the Obligations and any transfer of the property of any Obligor or any of its Subsidiaries by foreclosure or by a deed in lieu of foreclosure for any Lender's Environmental Liability, regardless of whether caused by, or within the control of, such Obligor or such Subsidiary); except for Indemnified Liabilities arising for the account of a particular Indemnified Party by reason of the relevant Indemnified Party's gross negligence or wilful misconduct. Except with respect to such gross negligence or wilful misconduct, each Obligor and its successors and assigns hereby waive, release and agree not to make any claim or bring any cost recovery action against, any Indemnified Party under CERCLA or any state equivalent, or any similar law now existing or hereafter enacted. It is expressly understood and agreed that to the extent that any Indemnified Party is strictly liable under any Environmental Laws, each Obligor's obligation to such Indemnified Party under this indemnity shall likewise be without regard to fault on the part of any Obligor with respect to the violation or condition which results in liability of an Indemnified Party. If and to the extent that the foregoing undertaking may be unenforceable for any reason, each Obligor agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. SECTION 10.5. Survival. The obligations of the Borrower under Sections 4.3,4.4, 4.5, 4.6, 10.3 and 10.4, and the obligations of the Lenders under Section 9.1, shall in each case survive any assignment from one Lender to another (in the case of Sections 10.3 and 10.4) and the occurrence of the Termination Date. The representations and warranties made by each Obligor in each Loan Document shall survive the execution and delivery of such Loan Document. SECTION 10.6. Severability. Any provision of any Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of such Loan Document or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 10.7. Headings. The various headings of each Loan Document are inserted for convenience only and shall not affect the meaning or interpretation of such Loan Document or any provisions thereof. SECTION 10.8. Execution in Counterparts, Effectiveness, etc. This Agreement may be executed by the parties hereto in several counterparts, each of which shall be an original (whether such counterpart is originally executed or an electronic copy of an original and each party hereto expressly waives its rights to receive originally executed documents other than with respect to any Notes)and all of which shall constitute together but one and the same agreement. This Agreement shall become effective when counterparts hereof executed on behalf of the Borrower, each Managing Agent and each Lender (or notice thereof satisfactory to the Managing Agents) shall have been received by the Managing Agents. SECTION 10.9. Governing Law; Entire Agreement. EACH LOAN DOCUMENT (OTHER THAN THE LETTERS OF CREDIT, TO THE EXTENT SPECIFIED BELOW AND EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN A LOAN DOCUMENT) WILL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING FOR SUCH PURPOSE SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK). EACH LETTER OF CREDIT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OR RULES DESIGNATED IN SUCH LETTER OF CREDIT, OR IF NO LAWS OR RULES ARE DESIGNATED, THE INTERNATIONAL STANDBY PRACTICES (ISP98--INTERNATIONAL CHAMBER OF COMMERCE PUBLICATION NUMBER 590 (THE "ISP RULES")) AND, AS TO MATTERS NOT GOVERNED BY THE ISP RULES, THE INTERNAL LAWS OF THE STATE OF NEW YORK. The Loan Documents constitute the entire understanding among the parties hereto with respect to the subject matter thereof and supersede any prior agreements, written or oral, with respect thereto. SECTION 10.10. Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that the Borrower may not assign or transfer its rights or obligations hereunder without the consent of all of the Lenders. SECTION 10.11. Sale and Transfer of Credit Extensions; Participations in Credit Extensions Notes. Each Lender may assign, or sell participations in, its Loans, Letters of Credit and Commitments to one or more other Persons in accordance with this the terms set forth below. SECTION 10.11.1. Assignments. Any Lender (an "Assignor Lender"), pursuant to a Lender Assignment Agreement, (a) with the written consent of the Borrower, each Managing Agent and, in the case of assignments of Revolving Loans and Letters of Credit, the Issuers (which consent(s) (i) shall not be unreasonably delayed or withheld and (ii) of the Borrower shall not be required upon the occurrence and during the continuance of any Default or Event of Default), may at any time assign and delegate to one or more commercial banks, other financial institutions or funds that are regularly engaged in making, purchasing or investing in loans or securities; and (b) with written notice to the Borrower, each Managing Agent and, in the case of assignments of Revolving Loans and Letters of Credit, the Issuers (but without the consent of any such Person), may assign and delegate to any of its Affiliates or Related Funds or to any other Lender or any Affiliate or Related Fund of any other Lender; (each Person described in either of the foregoing clauses as being the Person to whom such assignment and delegation is to be made, being hereinafter referred to as an "Assignee Lender"), all or any fraction of such Assignor Lender's Loans and Commitments (and in the case of any assignment of Revolving Loan Commitments, related participations in Letters of Credit and Letter of Credit Outstandings) (which assignment and delegation shall be, as among Revolving Loan Commitments, Revolving Loans and participations in Letters of Credit and Letter of Credit Outstandings, of a constant, and not a varying, percentage) is in a minimum aggregate amount of (i) $2,500,000, in the case of Term Loans and Term Loan Commitments, and $5,000,000, in the case of Revolving Loans and Revolving Loan Commitments (provided, that (1) assignments that are made on the same day to a Related Fund may be treated as a single assignment for purposes of the minimum amount and (2) no minimum amount shall be required in the case of any assignment between two Lenders so long as the Assignor Lender has an aggregate amount of Loans and Commitments of at least $5,000,000 following such assignment), unless the Borrower and the Administrative Agent otherwise consent or (ii) the then remaining amount of such Assignor Lender's Loans and Commitments; provided, however, that any such Assignee Lender will comply, if applicable, with the provisions contained in Section 4.6 and each Obligor and the Administrative Agent shall be entitled to continue to deal solely and directly with such Assignor Lender in connection with the interests so assigned and delegated to an Assignee Lender until (A) written notice of such assignment and delegation, together with payment instructions, addresses and related information with respect to such Assignee Lender, shall have been delivered to the Borrower and the Administrative Agent by such Assignor Lender and such Assignee Lender; (B) such Assignee Lender shall have executed and delivered to the Borrower and each Managing Agent a Lender Assignment Agreement, accepted by each Managing Agent; (C) the processing fees described below shall have been paid; and (D) the Administrative Agent shall have registered such assignment and delegation in the Register pursuant to clause (b) of Section 2.7. From and after the date that the Administrative Agent accepts such Lender Assignment Agreement and such assignment and delegation is registered pursuant to clause (b) of Section 2.7, (x) the Assignee Lender thereunder shall be deemed automatically to have become a party hereto and to the extent that rights and obligations hereunder have been assigned and delegated to such Assignee Lender in connection with such Lender Assignment Agreement, shall have the rights and obligations of a Lender hereunder and under the other Loan Documents, and (y) the Assignor Lender, to the extent that rights and obligations hereunder have been assigned and delegated by it in connection with such Lender Assignment Agreement, shall be released from its obligations hereunder and under the other Loan Documents. Any Assignor Lender that shall have previously requested and received any Note or Notes in respect of any Tranche to which any such assignment applies shall, upon the acceptance by the Administrative Agent of the applicable Lender Assignment Agreement, mark such Note or Notes "exchanged" and deliver them to the Borrower (against, if the Assignor Lender has retained Loans or Commitments with respect to the applicable Tranche and has requested replacement Notes pursuant to clause (c) of Section 2.7, its receipt from the Borrower of replacement Notes in the principal amount of the Loans and Commitments of the applicable Tranche retained by it). Such Assignor Lender or such Assignee Lender (unless the Assignor Lender or the Assignee Lender is DLJ or one of its Affiliates) must also pay a processing fee to the Administrative Agent upon delivery of any Lender Assignment Agreement in the amount of $3,500, unless such assignment and delegation is by a Lender to its Affiliate or Related Fund or if such assignment and delegation is by a Lender to a Federal Reserve Bank, as provided below or is otherwise consented to by the Administrative Agent. Any attempted assignment and delegation not made in accordance with this Section shall be null and void. Nothing contained in this Section shall prevent or prohibit any Lender from pledging its rights (but not its obligations to make Loans or participate in Letters of Credit or Letter of Credit Outstandings) under this Agreement and/or its Loans hereunder to a Federal Reserve Bank in support of borrowings made by such Lender from such Federal Reserve Bank and any Lender that is a fund that invests in bank loans may pledge all or any portion of its rights (but not its obligations to make Loans or participate in Letters of Credit or Letter of Credit Outstandings) hereunder to any trustee or any other holder or representative of holders of obligations owed or securities issued by such fund as security for such obligations or securities. In the event that S&P, Moody's or Thompson's BankWatch (or InsuranceWatch Ratings Service, in the case of Lenders that are insurance companies (or Best's Insurance Reports, if such insurance company is not rated by Insurance Watch Ratings Service)) shall, after the date that any Lender with a Commitment to make Revolving Loans or participate in Letters of Credit or Letter of Credit Outstandings becomes a Lender, downgrade the long-term certificate of deposit rating or long-term senior unsecured debt rating of such Lender, and the resulting rating shall be below BBB-, Baa3 or C (or BB, in the case of Lender that is an insurance company (or B, in the case of an insurance company not rated by InsuranceWatch Ratings Service)) respectively, then any Issuer or the Borrower shall have the right, but not the obligation, upon notice to such Lender and the Administrative Agent, to replace such Lender with an Assignee Lender in accordance with and subject to the restrictions contained in this Section, and such Lender hereby agrees to transfer and assign without recourse (in accordance with and subject to the restrictions contained in this Section) all its interests, rights and obligations in respect of its Revolving Loan Commitment under this Agreement to such Assignee Lender; provided, however, that (i) no such assignment shall conflict with any law, regulation or order of any Governmental Authority and (ii) such Assignee Lender shall pay to such Lender in immediately available funds on the date of such assignment the principal of and interest and fees (if any) accrued to the date of payment on the Loans made, and Letters of Credit participated in, by such Lender hereunder and all other amounts accrued for such Lender's account or owed to it hereunder. SECTION 10.11.2. Participations. Any Lender may sell to one or more commercial banks or other Persons (each of such commercial banks and other Persons being herein called a "Participant") participating interests in any of the Loans, Commitments, or other interests of such Lender hereunder; provided, however, that (a) no participation contemplated in this Section shall relieve such Lender from its Commitments or its other obligations under any Loan Document; (b) such Lender shall remain solely responsible for the performance of its Commitments and such other obligations; (c) each Obligor and each Managing Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under each Loan Document; (d) no Participant, unless such Participant is an Affiliate of such Lender or is itself a Lender, shall be entitled to require such Lender to take or refrain from taking any action under any Loan Document, except that such Lender may agree with any Participant that such Lender will not, without such Participant's consent, take any actions of the type described in clauses (a), (b), (c) or (f) of Section 10.1 with respect to Obligations participated in by such Participant; and (e) the Borrower shall not be required to pay any amount under this Agreement that is greater than the amount which it would have been required to pay had no participating interest been sold. The Borrower acknowledges and agrees that each Participant, for purposes of Sections 4.3, 4.4, 4.5, 4.6, 4.8, 4.9, 7.1.1, 10.3 and 10.4, shall be considered a Lender. Each Participant shall only be indemnified for increased costs pursuant to Section 4.3, 4.5 or 4.6 if and to the extent that the Lender which sold such participating interest to such Participant concurrently is entitled to make, and does make, a claim on the Borrower for such increased costs. Any Lender that sells a participating interest in any Loan, Commitment or other interest to a Participant under this Section shall indemnify and hold harmless the Borrower and the Administrative Agent from and against any Taxes, penalties, interest or other costs or losses (including reasonable attorneys' fees and expenses) incurred or payable by the Borrower or the Administrative Agent as a result of the failure of the Borrower or the Administrative Agent to comply with its obligations to deduct or withhold any Taxes from any payments made pursuant to this Agreement to such Lender or the Administrative Agent, as the case may be, which Taxes would not have been incurred or payable if such Participant had been a Non-Domestic Lender that was entitled to deliver to the Borrower, the Administrative Agent or such Lender, and did in fact so deliver, a duly completed and valid Form W-8BEN or W-8ECI (or applicable successor form) entitling such Participant to receive payments under this Agreement without deduction or withholding of any United States federal Taxes. Each Lender shall, as agent of the Borrower solely for the purpose of this Section, record in book entries maintained by such Lender the name and the amount of the participating interest of each Participant entitled to receive payments in respect of any participating interests sold pursuant to this Section. SECTION 10.12. Other Transactions. Nothing contained herein shall preclude any Managing Agent, any Issuer or any other Lender from engaging in any transaction, in addition to those contemplated by the Loan Documents, with the Borrower or any of its Affiliates in which the Borrower or such Affiliate is not restricted hereby from engaging with any other Person. SECTION 10.13. Independence of Covenants. All covenants contained in this Agreement and each other Loan Document shall be given independent effect such that, in the event a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitations of, another covenant shall not, unless expressly so provided in such first covenant, avoid the occurrence of a Default or an Event of Default if such action is taken or such condition exists. SECTION 10.14. Confidentiality. (a) Subject to the provisions of clause (b)of this Section, each Lender agrees that it will use its reasonable best efforts not to disclose without the prior consent of the Borrower (other than to its employees, auditors, advisors or counsel or to another Lender if the Lender or such Lender's holding or parent company in its sole discretion determines that any such party should have access to such information, provided such Persons shall be subject to the provisions of this Section to the same extent as such Lender) any information which is now or in the future furnished pursuant to this Agreement or any other Loan Document, provided that any Lender may disclose any such information (i) as has become generally available to the public other than by virtue of a breach of this clause by the respective Lender or any other Person to whom such Lender has provided such information as permitted by this Section, (ii) as may be required or appropriate in any report, statement or testimony submitted to any municipal, state or Federal regulatory body having or claiming to have jurisdiction over such Lender or to the Federal Reserve Board or the Federal Deposit Insurance Corporation or similar organizations (whether in the United States or elsewhere) or their successors, (iii) as may be required or appropriate in respect to any summons or subpoena or in connection with any litigation, (iv) in order to comply with any law, order, regulation or ruling applicable to such Lender, (v) to either Managing Agent, (vi) to any prospective or actual transferee or participant in connection with any contemplated transfer or participation of any of the Notes or Commitments or any interest therein by such Lender, provided that such prospective transferee agrees to be bound by the confidentiality provisions contained in this Section, (vii) to any direct or indirect contractual counterparty in swap agreements or such contractual counterparty's professional advisor (so long as such contractual counterparty or professional advisor to such contractual counterparty agrees to be bound by the provisions of this Section) and (viii) to the NAIC or any similar organization or any nationally recognized rating agency that requires access to information about a Lender's investment portfolio in connection with ratings issued with respect to such Lender. (b) The Borrower hereby acknowledges and agrees that each Lender may share with any of its Affiliates, and such Affiliates may share with such Lender, any information related to the Borrower or any of its Subsidiaries, provided such Persons shall be subject to the provisions of this Section to the same extent as such Lender. SECTION 10.15. Forum Selection and Consent to Jurisdiction. ANY LITIGATIONBASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, ANY LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE MANAGING AGENTS, THE LENDERS, THE ISSUER OR THE BORROWER IN CONNECTION HEREWITH OR THEREWITH MAY BE BROUGHT AND MAINTAINED IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE MANAGING AGENTS' OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE BORROWER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK AT THE ADDRESS FOR NOTICES SPECIFIED IN SECTION 10.2. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE BORROWER HEREBY IRREVOCABLY WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THE LOAN DOCUMENTS. SECTION 10.16. Waiver of Jury Trial. EACH MANAGING AGENT, EACH LENDER, THE ISSUER AND THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, EACH LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF SUCH MANAGING AGENT, SUCH LENDER, THE ISSUER OR THE BORROWER IN CONNECTION THEREWITH. THE BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR EACH MANAGING AGENT, EACH LENDER AND THE ISSUER ENTERING INTO THE LOAN DOCUMENTS. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of December , 1999. - --- OUTSOURCING SOLUTIONS INC. By:/s/ Eric R. Fencl ----------------------------------- Title: V.P./General Counsel DLJ CAPITAL FUNDING, INC., as the Syndication Agent By: /s/ James L. Paradise ---------------------------------- Title: Senior Vice President FLEET NATIONAL BANK, as the Administrative Agent By: /s/ ---------------------------------- Title: Managing Director HARRIS TRUST AND SAVINGS BANK, as the Documentation Agent By: /s/ ---------------------------------- Title: Vice President LENDERS: DLJ CAPITAL FUNDING, INC. By: /s/ James L. Paradise ---------------------------------- Title: Senior Vice President FLEET NATIONAL BANK By: /s/ ---------------------------------- Title: Director HARRIS TRUST AND SAVINGS BANK By: /s/ ---------------------------------- Title: Vice President BANK OF AMERICA By: /s/ ---------------------------------- Title: Vice President BANK ONE, NA (FORMERLY KNOWN AS THE FIRST NATIONAL BANK OF CHICAGO) By: /s/ ---------------------------------- Title: Senior Vice President THE CHASE MANHATTAN BANK By: /s/ William J. Caggiano ---------------------------------- Title: Managing Director DRESDNER BANK AG, NEW YORK & GRAND CAYMAN BRANCHES By: /s/ John W. Sweeney ---------------------------------- Title: Vice President By: /s/ John R. Morrison ---------------------------------- Title: Vice President LASALLE BANK NATIONAL ASSOCIATION By: /s/ Andrew G. Pollack ---------------------------------- Title: Corporate Banking Officer Leveraged Finance WACHOVIA BANK, N.A. By: /s/ ---------------------------------- Title: Senior Vice President WELLS FARGO BANK, N.A. By: /s/ ---------------------------------- Title: Vice President EX-21 19 SUBSIDIARIES OF OUTSOURCING SOLUTIONS INC. SUBSIDIARIES OF THE REGISTRANT Exhibit 21 The following is a list of the Company's subsidiaries and jurisdictions of incorporation or organization as of March 24, 2000, except for unnamed subsidiaries which, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary. Jurisdiction of Incorporation Name of Subsidiary or Organization - ----------------------- --------------- OSI Portfolio Services, Inc. Delaware Perimeter Credit, L.L.C. Delaware Gulf State Credit, L.L.C. Delaware OSI Support Services, Inc. Wisconsin OSI Collection Services, Inc. Delaware University Accounting Service, Inc. Wisconsin Asset Recovery & Management Corp. Wisconsin Indiana Mutual Credit Association, Inc. Indiana Jennifer Loomis & Associates, Inc. Arizona Qualink, Inc. Wisconsin Grable, Greiner & Wolff, Inc. Wisconsin Professional Recoveries Inc. Wisconsin Payco American International Corp. Wisconsin Federal Collection Bureau, S.A. de C.V. Mexico North Shore Agency, Inc. New York North Shore Agency Collection Corporation, Canada Canada The Union Corporation Delaware OSI Outsourcing Services, Inc. Delaware Transworld Systems, Inc. California OSI SPE LLC Delaware EX-27 20 FINANCIAL DATA SCHEDULE FOR 1999 10-K
5 Note: This schedule contains summary financial information extracted from the Form 10-K for the Year Ended December 31, 1999 and is qualified in its entirety by reference to such financial statements. 0001027574 Outsourcing Solutions Inc. and Subsidiaries 1,000 Year DEC-31-1999 JAN-01-1999 DEC-31-1999 28,580 0 52,611 529 0 0 84,260 40,613 624,712 0 0 85,716 0 95 0 624,712 0 504,425 0 491,150 0 0 52,265 (38,990) 759 (39,749) 0 (4,208) 0 (43,957) 0 0
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