-----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, UXdF0/TgF1eKwkV+SslJqmhkn345Y7vbCXUEdYkRfF81SzncY+QRsTBVyVw0XYwL VRhmGnR9C07HoMpqxNIODQ== 0001027574-02-000010.txt : 20020416 0001027574-02-000010.hdr.sgml : 20020416 ACCESSION NUMBER: 0001027574-02-000010 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020415 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: 1934 Act SEC FILE NUMBER: 333-16867-07 FILM NUMBER: 02611413 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 GP INC DATE OF NAME CHANGE: 19961227 FORMER COMPANY: FORMER CONFORMED NAME: ACCOUNT PORTFOLIOS INC /NEW DATE OF NAME CHANGE: 19990816 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: 1934 Act SEC FILE NUMBER: 333-16867-22 FILM NUMBER: 02611414 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: 1934 Act SEC FILE NUMBER: 333-16867-21 FILM NUMBER: 02611415 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: 1934 Act SEC FILE NUMBER: 333-16867-20 FILM NUMBER: 02611416 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: 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: 1934 Act SEC FILE NUMBER: 333-16867-18 FILM NUMBER: 02611417 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: 1934 Act SEC FILE NUMBER: 333-16867-17 FILM NUMBER: 02611418 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: 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: 1934 Act SEC FILE NUMBER: 333-16867-16 FILM NUMBER: 02611419 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: 1934 Act SEC FILE NUMBER: 333-16867-15 FILM NUMBER: 02611420 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 EDUCATION SERVICES 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: 1934 Act SEC FILE NUMBER: 333-16867-14 FILM NUMBER: 02611421 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: UNIVERSITY ACCOUNTING SERVICE INC DATE OF NAME CHANGE: 19961218 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: 1934 Act SEC FILE NUMBER: 000-05589 FILM NUMBER: 02611402 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: NORTH SHORE AGENCY INC CENTRAL INDEX KEY: 0001067125 IRS NUMBER: 113399772 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 333-15867-42 FILM NUMBER: 02611403 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 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNION SPECIAL STEEL CASTING CORP CENTRAL INDEX KEY: 0001058633 IRS NUMBER: 251154811 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 333-15867-38 FILM NUMBER: 02611404 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 IRS NUMBER: 231704744 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 333-16867-37 FILM NUMBER: 02611405 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: GENERAL CONNECTOR CORP CENTRAL INDEX KEY: 0001058631 IRS NUMBER: 042428227 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 333-16867-36 FILM NUMBER: 02611406 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: GENAD CONNECTOR CORP DATE OF NAME CHANGE: 19980326 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CSN CORP CENTRAL INDEX KEY: 0001058630 IRS NUMBER: 251319485 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 333-16867-35 FILM NUMBER: 02611407 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 IRS NUMBER: 520937211 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 333-16867-34 FILM NUMBER: 02611408 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 IRS NUMBER: 222630947 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 333-16867-33 FILM NUMBER: 02611409 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 IRS NUMBER: 941728881 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 333-16867-32 FILM NUMBER: 02611410 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: TRANSWORLD SYSTEMS INC CENTRAL INDEX KEY: 0001058626 IRS NUMBER: 941728881 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 333-16867-31 FILM NUMBER: 02611411 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 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: 1934 Act SEC FILE NUMBER: 333-16867-29 FILM NUMBER: 02611412 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: 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: 1934 Act SEC FILE NUMBER: 333-16867-12 FILM NUMBER: 02611422 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: 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: 1934 Act SEC FILE NUMBER: 333-16867 FILM NUMBER: 02611423 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 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: 1934 Act SEC FILE NUMBER: 002-27974 FILM NUMBER: 02611424 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 10-K 1 f10k-123101.txt FORM 10K ENDED 123101 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, 2001 [ ] 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 Identification Number) incorporation or organization) 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 12(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 April 10, 2002, the following shares of the Registrant's common stock were issued and outstanding: Senior common stock 489,795.93 Voting common stock 6,088,479.30 Non-voting common stock 480,321.30 ------------- 7,058,596.53 ============= DOCUMENTS INCORPORATED BY REFERENCE: None. PART I ITEM 1. BUSINESS General Outsourcing Solutions Inc., a Delaware corporation, is one of the largest providers of business process outsourcing (BPO) receivables services in the United States with 2001 revenues of approximately $612.3 million. Unless otherwise indicated by the context, the "Company" means Outsourcing Solutions Inc. only and "OSI" means Outsourcing Solutions Inc. and consolidated subsidiaries. The Company believes that it differentiates itself from its competitors by using best-in-class people practices and business practices to deliver a comprehensive range of accounts receivable management services on a national basis that provide its clients the opportunity to outsource the management of the entire credit-to-cash cycle, and thereby achieve maximum recoveries, net of costs, or "net-back". The breadth of services OSI provides across all stages of the credit-to-cash cycle allows it to cross-sell services to existing clients as well as to expand its client base by providing specific services to potential clients in targeted industries. These BPO services include 1) first-party outsourcing services, 2) portfolio purchasing services and 3) recovery services, which accounted for approximately 53%, 15% and 32% of 2001 revenues, 46%, 16% and 38% of 2000 revenues and 41%, 16% and 43% of 1999 revenues, respectively. o Outsourcing services include contract management of accounts receivable, billing, teleservicing, letter series programs, banking and financial services transaction processing and other services. o Portfolio purchasing services involve acquiring portfolios of charged-off consumer receivables from credit grantors or other owners, servicing such portfolios and retaining all amounts collected and servicing client owned portfolios for an agreed upon servicing fee. o Recovery services involve collecting delinquent or charged-off consumer accounts for a fixed percentage of realized collections or a fixed fee per account. OSI manages the marketing and execution of services within the four stages of the credit-to-cash cycle. In the first stage of the cycle, OSI provides clients with the ability to outsource functions including credit authorization, usage management and client service. Dedicated call centers provide "first-party" services for its clients performing all operations in their name. The second stage of the 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 cycle, OSI 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 or other owners. The accounts receivable management industry is highly fragmented. The American Collectors Association estimates there are approximately 6,000 accounts receivable firms in the United States, with the 10 largest agencies accounting for approximately 33% of industry revenues. Competition is based largely on recovery rates and service fees, industry experience and reputation. Large-volume credit grantors typically employ more than one accounts receivable management firm at a time, and often compare performance rates and rebalance account placements towards higher-performing servicers. The client 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, combined with continued growth in the demand for business process outsourcing services will create larger national clients seeking to place business with national rather than local/regional accounts receivable services companies; as well as, companies that want to focus on their core competencies and outsource essential but non-core functions. OSI's clients include a full range of local, regional and national credit grantors. OSI's largest client accounted for approximately 9% of 2001 consolidated revenues, 8% of 2000 consolidated revenues and 5% of 1999 consolidated revenues. The Company 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 10 additional acquisitions and has established itself as a leading industry consolidator. OSI has experienced significant growth in its business through acquisitions and internal growth, with its revenues increasing from $29.6 million in 1995 to $612.3 million in 2001. Restatement of Financial Results See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations regarding the restated consolidated financial results for all periods impacted by the restatement included herein. 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 and charge-offs have resulted in credit grantors increasingly looking to outsourcing companies to manage the accounts receivable process across the credit-to-cash cycle. The contingent fee collection industry is estimated to be a $7.5 billion market growing at approximately 8% to 10% per annum. OSI's other business services such as portfolio purchasing and outsourcing services are estimated, in the aggregate, to be approximately a $5.1 billion market. The outsourcing segment is experiencing rapid growth with the overall business outsourcing market growing by 25% annually. Annual revenues in the outsourcing market amount to $1.5 billion. The Company believes the following are the key trends in the business process outsourcing of accounts receivable management industry: o Increase in Consumer Debt and Delinquencies. Consumer debt, a leading indicator of current and future business for accounts receivable management companies, rose to $7.5 trillion in 2000 and continues to grow at an annual rate of 14.6%. The percentage of household debt, including mortgages, to disposable income increased almost 25% from 1990 to 2000. And toward the end of 2000, 3.6% of consumer loans were delinquent. As a result, the amount of delinquent consumer debt placed for collection increased 85% from 1990 to 2000, when it reached $135 billion. Overall, U.S. levels of consumer debt and consumer debt placed for collection are at record levels and are expected to increase in coming years. o Increase in Commercial Debt and Delinquencies. Commercial debt climbed to its highest level to date - $1.1 trillion in 2000, a 52% increase over 1995 and an 83% increase over 1975 debt levels. As with consumer debt, commercial debt is expected to continue to rise over the next several years. o Industry Consolidation. The number of companies in the United States participating in contingent fee collection has declined significantly the past decade; and moreover, the revenue of the top 10 companies within the industry climbed to $2.4 billion in 2000 from $910 million in 1990. OSI believes that the industry will continue to experience consolidation, reflecting financial and competitive constraints including limited liquidity options facing the smaller companies. Companies that offer national capabilities with a "full service" approach to accounts receivable management are increasingly displacing local and regional competitors. o Client Consolidation. The largest credit granting industries, including banking, utilities, telecommunications and health care, account for 80% of business placed with accounts receivables firms 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 clients are becoming national in scope and are shifting business to accounts receivable management companies, which allows clients to focus on their core business while at the same time benefiting from leading best business practices in receivables management without capital investment costs. Additionally, clients outsourcing their accounts receivables functions gain flexibility and scalability to cover peaks in demand. OSI has established relationships with many of the target industries' largest consolidators, thereby improving its ability to capitalize on this consolidation trend. o Growth in Portfolio Sales. As a leading provider of portfolio purchasing services, OSI has participated in the rapid and consistent industry-wide increase in the amount of charged-off 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 $28.1 billion of charged-off receivables were acquired by portfolio purchasers in 1999 and more than $30 billion in 2001. o Accelerated Trend Toward Outsourcing. Outsourcing in the U.S. is expected to continue to grow at approximately 25% annually. In an effort to focus on core business activities and to take advantage of economies of scale, leading best practices, better performance and the lower cost structure offered by accounts receivables services companies, many credit grantors are choosing to outsource an increasing number of components in the accounts receivable management process. Instead of waiting until receivables are 90 to 180 days past due (or later) to pursue collection, credit grantors are now involving collection accounts receivable companies much earlier in the process. Increasingly, credit grantors are looking to accounts receivable management providers for assistance with the entire credit-to-cash cycle, including the outsourcing of billing, client service and complete call center functions. o Technological Sophistication. Leading companies in the industry are increasingly using technology to improve their results. These initiatives include investments in data warehousing, proprietary databases, computerized calling systems, debtor location databases, web-based reporting, and scoring and segmentation of receivables portfolios to identify customized treatments and to maximize recoveries. Competitive Advantages OSI believes its strong market position, national presence, breadth of services and industry best practices distinguish it as a leading provider of accounts receivable management services in the United States. OSI believes its competitive advantages include: o Significant Benefits of Scale. The benefits of scale in the accounts receivable industry are significant. OSI's size enables it to compete for larger blocks of revenue, deliver more services over a wider geographic base and leverage its fixed costs over a broader client base. As clients consolidate geographically and seek to reduce suppliers, OSI's national presence is also attractive. o Singular Focus on Managing the Complete Credit-to-Cash Cycle. By focusing on strategic receivables management, OSI offers a comprehensive spectrum of services across the credit-to-cash cycle. Services range from client acquisition to recovery of charge-offs to portfolio acquisition. By integrating these services, OSI aims to provide for its clients accelerated cash flow, lower operating costs and increased revenue. o Industry Specialization. OSI provides services to some of the largest and fastest growing credit grantors in a wide range of industries. OSI has carved out recognizable market niches including bankcard, commercial, communications, education, financial services, government and utilities. This level of specialization allows the company to have a detailed understanding of its clients, and not merely the language of the accounts receivables management business. Regardless of the industry served, each program is customized. OSI's broad client base diversifies its revenue stream. OSI also has long standing relationships with many of its clients which provides a strong base of recurring revenues and provides OSI with significant opportunities to cross-sell services. o Ongoing Investment in Technology. OSI has made, and intends to continue making, investments in technology and know-how to enhance its competitive advantage. OSI believes that its proprietary software, including debtor-scoring models, computerized calling and debtor databases, provides a competitive advantage in pricing portfolios, offering outsourcing services and collecting delinquent accounts. OSI's systems interface with those of its clients to receive new account placements daily and provide frequent updates to clients on the status of collections. OSI has become increasingly integrated with its clients' systems, resulting in efficiency and lower costs. o Commitment to the Best People and the Best Practices. OSI is committed to nurturing a culture of best people and best business practices. From day one, associates are taught OSI's core values: respect for individuals, client focus and team orientation. Associates' education includes training on collection skills, compliance and work standards, and specialized leadership programs--all of which lead to better results for clients. Performance analysis and coaching programs also are in place. In addition to its associate training, a wide range of best business practices provides invaluable assistance to successful accounts receivable management. This range includes a scoring and segmentation account ranking system that enables clients to assess the likelihood of delinquent accounts to on-line management of consumer accounts. Growth Strategies OSI's strategy focuses on expanding its business and enhancing profitability through the following initiatives: o Cross-Selling Services to Existing Clients. OSI offers its clients a comprehensive array of services across the credit-to-cash cycle. These services include: client acquisition/care, billing/client management, delinquency management and recovery. This range of services allows OSI to cross-sell offerings within its existing client base and to potential clients in specifically targeted industries. o Expansion of Client Base. o Existing Target End-Markets. Increasingly, credit grantors in the public and private sectors which have typically maintained accounts receivable departments within their organizations are outsourcing their accounts receivables functions. In addition, consolidation in the banking, retail, utilities, student loan, health care and telecommunications industries has created national clients that are outsourcing more components of their accounts receivable management needs to national providers. Healthcare and telecommunications represent nearly 50% of the outsourcing market, estimated at approximately $1.5 billion. Both of these industries continue to undergo consolidation. o New Target Industries. OSI intends to capitalize on its expertise and reputation to penetrate new end-markets. For example, OSI plans to 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, OSI plans to focus on the commercial market segment (collection of delinquent accounts owed by businesses to other businesses) and health care segment of the industry. The Company believes that the commercial market traditionally has been under-served by accounts receivable services firms, given the need for tailored collection methods which differ from those used in the consumer market. In addition, significant changes and cost reductions in the health care market require specialized skills in the collection of past due accounts. o Disciplined Acquisitions. The Company has built its position as an industry leader through strategic acquisitions of leading accounts receivable outsourcing service providers. By successfully integrating these businesses, its management has demonstrated an ability to evaluate, execute and integrate acquisitions. With more than 6,000 accounts receivable companies in the United States, OSI plans to pursue additional acquisitions that complement its existing services or expand its client base. The Company is continually reviewing acquisition opportunities. o Cost Reductions. OSI's management has adopted an aggressive approach to cost management. OSI plans to continue reducing its overall costs and improving operational efficiencies. Acquisition and Integration History In September 1995, OSI 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, the Company 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, 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., 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, OSI 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 providers 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, client service, usage management and receivable management. High Performance Services, headquartered in Jacksonville, Florida, provided services 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 OSI 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. OSI now provides specialized services for the following industries: health care, government, education, telecommunications/utilities, commercial, financial services and bank card. As part of its strategy to expand its outsourcing services, in September 2000, the Company through a newly formed limited liability company, RWC Consulting Group, LLC, acquired certain assets and assumed certain liabilities of RWC Consulting Group, Inc., a service company providing highly-skilled consultants to banks to assist in their back office functions. In March 2001, the Company through a newly formed limited liability company, Coast to Coast Consulting, LLC, acquired certain assets and assumed certain liabilities of Coast to Coast Consulting, Inc., a service company providing highly skilled experts to health care clients to assist with their on-site, back office functions such as billing, collections, reimbursement, special projects and other areas. In April 2001, the Company through a newly formed limited liability company, Pacific Software Consulting, LLC, acquired (i) certain assets and assumed certain liabilities of Pacific Software Consulting, Inc., a service company providing highly skilled consultants to banks to assist in their bank office functions, and (ii) associated patentable property. 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"). Immediately after the Recapitalization, MDP owned 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. 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 have been and will continue to be used for other working capital, acquisitions and general corporate purposes. Services and Operations OSI is one of the largest providers of business process outsourcing (BPO) receivables services in the United States. Through its subsidiaries, the Company's BPO services include outsourcing services, portfolio purchasing services and recovery services. 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, OSI has developed a number of other accounts receivable management services. OSI leverages its call and data management technology and operational expertise by offering the following services: o Contract management, whereby OSI performs a range of accounts receivable management services at the client's or OSI's location, o Student loan billing, whereby OSI provides billing, due diligence and client services, o A series of letters whereby OSI mails letters for collection of delinquent or charged-off consumer accounts, o Health care accounts receivable management, whereby OSI assumes responsibility for managing third-party billing, patient pay resolution, inbound and outbound patient communication services and cash application functions, and o Teleservicing whereby OSI offers inbound and outbound calling programs, client retention programs, market research and client service. In addition, OSI offers banking and financial services transaction processing. The services provided assist OSI's clients in back-office functions such as research and adjustment, reconcilement, charge-off recovery and other areas. For each client relationship, OSI works with the client to develop an outsourcing strategy and customize services to meet the client's objectives, which may include decreased expenses and more stabilized cash flows. Client 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) the activities that are labor intensive, and (iii) the activity volumes 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, OSI is able to leverage its productive resources to greater efficiency levels. In addition, OSI 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 Corporation and the Federal Deposit Insurance Corporation, under government mandate, 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. OSI estimates that the total principal value of purchased portfolios was more than $30 billion in 2001. The majority of purchased portfolios originated from the bank card receivable and retail markets. 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. OSI offers portfolio purchasing services to a wide range of financial institutions, telecommunications and retailers. OSI purchases large and diverse portfolios of charged-off consumer receivables both on an individually negotiated basis as well as through "forward flow" agreements. Under forward flow agreements, OSI agrees, subject to due diligence, to purchase charged-off receivables on a monthly basis. Credit grantors selling portfolios to OSI 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. OSI'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. OSI's most recent portfolio acquisitions have been primarily health club and bank card purchases. OSI continues to pursue acquisitions of portfolios in various industries for both individually negotiated and forward flow purchases. 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. Although OSI places most of its portfolio purchases in the conduit, in some cases OSI continues 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. In addition, from time to time, OSI may receive income from the conduit representing excess collections above the original cost to purchase the portfolio and related financing fees. In 1999, OSI established its own portfolio purchasing valuation unit to replace services previously provided by an independent portfolio valuation firm. Recovery Services OSI is one of the largest providers of collection services in the United States. OSI offers a full range of contingent fee (percentage of realized collections) services, including pre-charge-off programs, to most consumer credit end-markets. OSI 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 35 call centers in 23 states and approximately 2,200 account representatives, OSI 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, creditors have begun to demand services in which accounts are outsourced earlier in the collection cycle. OSI has responded to this trend by developing "early-out" programs, whereby OSI receives placed accounts that are often less than 180 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 clients, leading to higher switching costs for OSI's clients. OSI primarily services consumer creditors, although it also has a 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 90 to 180 days past due, depending on the specific credit grantor policy, 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. Clients typically use multiple agencies on any given placement category, enabling them to benchmark each agency's performance against other agencies. 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 six 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, usually 90 to 270 days past due, that are being placed with agencies for the first time and usually receive the lowest commission. Secondary placements, typically accounts 270 to 360 days past due, have already been recalled from a primary collection agency. Tertiary placements are typically accounts over 360 days past due which have been recalled from one or more collection agencies. Due to the difficulty to collect accounts that are more past due, commission rates for tertiary placements are generally higher than secondary placements, which are usually higher than commission rates for primary placements. 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. OSI attempts to estimate the collectability of most placements using sophisticated recovery score models that estimate both probability of payment and resulting amount of that payment. The objective is to maximize revenues and minimize expenses by matching the appropriate work effort with the expected yield of each individual account. Financial Information about Industry and Geographic Segments For detailed information concerning the Company's industry and geographic segments, reference is made to Note 19 of the Financial Statements included elsewhere in this Annual Report on Form 10-K. Sales and Marketing OSI has a sales force of approximately 90 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. OSI, except its Transworld Systems subsidiary, maintains a sales force and has a marketing strategy closely tailored to the credit-granting markets that it serves. OSI's primary sales and marketing objective is to expand its client base in those client industries in which it has a particular expertise and to target new clients in high growth end-markets. OSI emphasizes its industry experience and reputation - two key factors considered by creditors when selecting an accounts receivable management provider. OSI believes it will increasingly focus on cross-selling its full range of services to its existing clients 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 clients, 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. The Company's Transworld Systems subsidiary has a sales force of over 700 independent contractors based in 135 offices. Transworld Systems is the leading provider of profit recovery services, targeting the small and medium size business segment. Their profit recovery services offer a two phase process - a letter series and phone recovery. Clients OSI's client base includes a broad range of local, regional and national credit grantors. OSI's largest client accounted for approximately 9% of 2001 consolidated revenues, 8% of 2000 consolidated revenues and 5% of 1999 consolidated revenues. Employees OSI employs approximately 9,000 associates, of which 6,600 are account representatives, 90 are sales representatives and 2,310 work in corporate/supervisory and administrative functions. None of OSI's employees are unionized, and OSI believes its relations with employees are satisfactory. OSI is strongly 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; training is on OSI's procedures, information systems and regulations regarding contact with consumers. The training includes technical topics, such as use of on-line recovery systems and computerized calling techniques, as well as instruction regarding OSI's approach to the recovery process and listening, negotiation and problem-solving skills, all of which are essential to efficient and effective collections. OSI has developed proprietary operations processes on which most account representatives are trained. Account representatives are assigned to work groups for a training period. Initially, the trainees only screen incoming calls. This allows less experienced account representatives to communicate in a less confrontational environment than may be experienced with outgoing calls. Additionally, the trainees are assigned accounts, which based upon scoring by OSI'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. OSI estimates there are approximately 6,000 accounts receivable firms in the United States, with the 10 largest agencies accounting for approximately 33% of industry revenues. Within the collection and outsourcing services of OSI'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, the Company's largest competitors include G.C. Services LP, IntelliRisk Management Corp., NCO Group Inc., Nationwide Credit Inc. and Risk Management Alternatives Inc. The bidding process associated with the acquisition of purchased portfolios has become more competitive as the number of participants in this business has increased. OSI's largest competitors in this market include Asset Acceptance Corp., ASTA Funding, Inc., Arrow Financial Services, L.L.C. and Calvary Investments, L.L.C. Environmental, Health & Safety Matters Current operations of the Company and its subsidiaries do not involve activities materially affecting the environment. However, The Union Corporation, a subsidiary of the Company, 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, the Company, 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 liability of Union or one or more of its subisidairies 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, involvement by Union or one or more of its subsidaries is considered to be de minimus (i.e., a volumetric share of approximately 1% or less) and in each of these cases Union or one or more of its subsidiaries 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 the projected liability of Union or one or more of its subsidiaries, 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 OSI's operations are subject to the Fair Debt Collection Practices Act, or FDCPA, and comparable statutes existing 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 OSI's policy to comply with the provisions of the FDCPA, comparable state statutes and applicable licensing requirements. OSI has established policies and procedures to reduce the likelihood of violations of the FDCPA and related state statutes. For example, all of OSI's account representatives receive extensive training on these policies and must pass a test on the FDCPA, and OSI'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 has a material effect on the Company's consolidated financial condition, cash flows or results of operations. ITEM 2. PROPERTIES As of December 31, 2001, OSI operated approximately 70 facilities in the U.S., all of which are leased, except for three administrative and collection offices operated by Transworld Systems, which are owned. OSI believes that such facilities are suitable and adequate for its business. OSI's facilities are strategically located across the U.S. to give effective broad geographic coverage for clients and access to a number of labor markets. ITEM 3. LEGAL PROCEEDINGS At December 31, 2001, OSI was involved in a number of legal proceedings and claims that were in the normal course of business and routine to the nature of OSI's business, none of which are currently expected to have a material effect on the Company's consolidated financial condition, cash flows or results of operations. In addition, one of the Company's 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, 2001. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II. ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS No public market currently exists for the Company's Senior Common Stock, Voting Common Stock and Nonvoting Common Stock. As of April 10, 2002, there were approximately 45 holders of record of the Senior Common Stock, 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 Company's 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, Credit Suisse First Boston (as successor in interest of 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 Redeemable 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 the Company for, and as of, each of the fiscal years in the five year period ended December 31, 2001. 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 the Company included elsewhere herein.
Year Ended December 31, 2000 1997 1998 1999 as Restated 2001 ---- ---- ---- ----------- ---- ($ In thousands) Statement of Operations Data: Operating revenue.............................. $271,683 $479,400 $504,425 $541,076 $612,346 Salaries and benefits.......................... 133,364 230,114 244,157 264,293 294,509 Other operating expenses (a)................... 156,738 221,598 224,616 237,434 267,610 Compensation expense related to redemption of stock options.......................... - - - 187 - Change in control bonuses, stock option redemption and other bonuses.............. - - 10,487 - - Conversion, realignment and relocation expenses....................... - - 5,063 2,742 3,564 Recapitalization related costs................. - - 6,827 - - -------- -------- -------- Operating income (loss)........................ (18,419) 27,688 13,275 36,420 46,663 Interest expense, net.......................... 28,791 50,627 52,265 60,934 59,449 -------- -------- -------- -------- -------- Loss before taxes.............................. (47,210) (22,939) (38,990) (24,514) (12,786) Provision for income taxes (benefit)........... 11,127 830 759 594 569 Minority interest.............................. - 572 - - - -------- -------- -------- --------- -------- Loss before extraordinary item................. $(58,337) $(24,341) $(39,749) $(25,108) $(13,355) Extraordinary loss............................. - - 4,208 - - -------- -------- -------- -------- -------- Net loss ..................................... $(58,337) $(24,341) $(43,957) $(25,108) $(13,355) ======== ======== ======== ======== ======== Balance Sheet Data (at end of year): Total assets................................... $381,690 $618,491 $624,712 $632,647 $640,210 Total debt..................................... 324,966 528,148 518,307 539,463 539,020 Mandatorily redeemable preferred stock......... - - 85,716 (c) 103,455 123,482 Stockholders' deficit.......................... (5,478) (30,032) (93,948)(c) (134,412) (154,075) Other Financial Data: Amortization of purchased portfolios........... $52,042(d) $50,703(e) $38,722 $28,092 $26,930 Other depreciation and amortization............ 33,574 30,007 31,095 31,885 30,976 Cash capital expenditures...................... 9,489 13,480 18,437 18,398 14,159 On-balance sheet portfolio purchases........... 46,494 43,186 23,176 12,835 19,717 Cash flows from: Operating activities and portfolio purchasing............................ (13,669) 12,066 (3,652) 24,792 16,927 Investing activities...................... (73,005) (184,619) (21,549) (36,714) (38,837) Financing activities...................... 75,394 178,150 22,446 16,136 21,172 EBITDA (b)..................................... 67,197 108,398 83,092 96,397 104,569 Adjusted EBITDA (b)............................ 67,197 108,398 105,469 99,326 108,874
(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 change in control bonuses, stock option redemption and other bonuses; nonrecurring conversion, realignment and relocation expenses; and recapitalization related expenses of $10,487, $5,063 and $6,827, respectively, in the year ended December 31, 1999; the compensation expense related to redemption of stock options and the nonrecurring realignment expenses of $187 and $2,742, respectively, in the year ended December 31, 2000; and the non-cash compensation expense related to variable stock options of $741 and nonrecurring conversion, realignment and relocation expenses at $3,564 in the year ended December 31, 2001. 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. EBITDA and Adjusted EBITDA may not be comparable to other companies. (c) In conjunction with the Company's Recapitalization in 1999, which is discussed elsewhere herein, the Company issued 100,000 shares of its Senior Mandatorily Redeemable Preferred Stock. See Note 3 to the consolidated financial statements. (d) 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 Account Portfolios. 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. (e) In the fourth quarter of 1998, the Company wrote down its investment in a limited liability company (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. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Restatement of Financial Results During the finalization of the Company's consolidated financial statements as of and for the year ended December 31, 2001, it was determined that the consolidated results reported in the Company's Form 10-K as of and for the year ended December 31, 2000, as well as the unaudited consolidated quarterly results reported in the Company's Report on Form 10-Q for the quarter September 30, 2001, would need to be restated because of inaccurate financial reporting of certain transactions at one of the Company's subsidiaries, North Shore Agency, Inc. ("NSA"). The Board of Directors authorized the Audit and Compliance Committee (the "Committee") to conduct an independent investigation, with the assistance of special counsel retained by the Committee, to identify the causes of these discrepancies and to make recommendations to ensure similar issues do not recur in the future. The Committee retained Bryan Cave LLP as special counsel, and Bryan Cave LLP engaged an independent accounting firm to assist in the investigation. As a result of the investigation, it was determined that certain assets were overstated (primarily accounts receivable and prepaid postage) and trade accounts payable was understated at NSA due to the inaccurate financial reporting of certain transactions. As a result, the consolidated financial statements as of and for the year ended December 31, 2000, as well as the unaudited consolidated quarterly results as of and for the quarter September 30, 2001 have been restated. Comparisons of previously reported and restated consolidated financial statements for all periods impacted by the restatement, including annual consolidated financial statements and unaudited quarterly financial data, are set forth in Notes 22 and 23 to the consolidated financial statements included herein. For the year ended December 31, 2000, the previously reported consolidated financial statements included an overstatement of revenues by approximately $1.6 million and an understatement of operating expenses by approximately $4.1 million. The impact of the inaccurate financial reporting of certain transactions on previously reported operating results for the year ended December 31, 2000 was to overstate operating income by approximately $5.7 million and understate net loss and net loss to common stockholders by approximately $5.7 million. The Company expects to file an amended quarterly report on Form 10-Q for the quarter ended September 30, 2001 as soon as practicable. Consolidated Operations - Year Ended December 31, 2001 Compared to Year Ended December 31, 2000 (Restated) Revenues for the year ended December 31, 2001 were $612.3 million compared to $541.1 million for the year ended December 31, 2000 - an increase of 13.2%. The revenue increase of $71.2 million was due to increased outsourcing and portfolio services revenues offset by lower recovery services revenues. Revenues from outsourcing services increased 32.1% to $323.8 million for the year ended December 31, 2001 from $245.2 million for the comparable period in 2000. The increased outsourcing services revenues of $78.6 million were due primarily to new and increased existing business, increased collection letter products business and the acquisitions of RWC Consulting Group ("RWC"), Coast to Coast Consulting ("CCC"), and Pacific Software Consulting ("PSC") which were acquired in September 2000, March 2001 and April 2001, respectively. Revenues from portfolio services of $90.0 million compared favorably to $87.5 million due to increased servicing fees as a result of increased collections from the higher levels of off-balance sheet purchased loans and accounts receivable portfolios during 1999, 2000 and 2001 offset partially by the continued negative effect on revenues resulting from the shift to off-balance sheet purchased portfolios. During the year ended December 31, 2001, the Company recorded servicing fees from OSI Funding LLC ("FINCO"), the Company's off-balance sheet special purpose finance company, of $37.0 million compared to servicing fees of $26.8 million for 2000. Revenues from recovery services decreased 4.8% to $198.5 million for the year ended December 31, 2001 from $208.4 million in 2000. The decreased revenues were due primarily to lower bank card, student loan and telecommunications business offset partially by increased government business. The Company believes that its revenues and operating income for each of its business segments were negatively affected by the September 11, 2001 terrorist attacks. Operating expenses, inclusive of salaries and benefits, service fees and other operating and administrative expenses, were $504.2 million for the year ended December 31, 2001 and $441.8 million for 2000 - an increase of 14.1%. The increase in these operating expenses resulted primarily from the RWC, CCC and PSC acquisitions, higher postage expense and the increased expenses associated with the new and increased existing revenues of outsourcing services. Operating expenses for the year ended December 31, 2001 included non-cash compensation expense related to variable stock options of approximately $0.7 million. For the year ended December 31, 2001, amortization and depreciation charges of $57.9 million were lower than the $60.0 million for 2000 by $2.1 million. The lower amortization and depreciation charges resulted primarily from lower portfolio amortization as a result of the shift towards off-balance sheet purchased portfolios and lower depreciation resulting from lower current year capital expenditures and mix of current and prior years' capital expenditures. For the year ended December 31, 2001, the Company incurred $3.6 million of nonrecurring consolidation, realignment and relocation expenses. These expenses include costs from consolidation of certain call centers, excess leased space, closure of certain call centers, severance associated with these office closures, asset write-offs and certain other one-time costs. Earnings before interest expense, taxes, depreciation and amortization (EBITDA) for the year ended December 31, 2001 was $104.6 million compared to $96.4 million for 2000. The increase was primarily attributable to the effects of the three acquisitions noted above and the higher new and existing outsourcing services revenues offset partially by a change in revenue mix relating to its collection letter products from higher margin contingent fee services to lower margin fixed fee services and higher postage expense. Adding back the non-cash stock compensation expense and the nonrecurring charges, adjusted EBITDA was $108.9 million for the year ended December 31, 2001 compared to $99.3 million after adding back the additional compensation expense and nonrecurring charges for 2000. As a result of the above, the Company's operating income of $46.7 million for the year ended December 31, 2001 compared favorably to the $36.4 million for 2000 - an increase of 28.3%. Net interest expense for the year ended December 31, 2001 of $59.4 million compared favorably to $60.9 million in 2000 due primarily to lower interest rates offset partially by additional interest expense of $3.1 million as a result of the Company's interest rate hedges' ineffectiveness. The provision for income taxes of $0.6 million was provided for certain state and foreign income tax obligations. The net deferred tax assets at December 31, 2001 are fully offset by a valuation allowance. For the year ended December 31, 2001, the net deferred tax assets and the valuation allowance increased by $6.1 million. The increase was caused by an increase of deductible temporary differences and an additional taxable net operating loss generated during the current period. The Company generated a net taxable operating loss for federal and certain state income tax purposes for which a full valuation allowance was provided against the related deferred tax asset. Due to the factors stated above, the Company had a net loss for the year ended December 31, 2001 of $13.4 million which compared favorably to the net loss of $25.1 million for the year ended December 31, 2000. Consolidated Operations - Year Ended December 31, 2000 (Restated) Compared to Year Ended December 31, 1999 Revenues for the year ended December 31, 2000 were $541.1 million compared to $504.4 million for the year ended December 31, 1999 - an increase of 7.3%. The revenue increase of $36.7 million was due to increased outsourcing and portfolio services revenues offset by lower recovery services revenues. The outsourcing services revenue of $245.2 million compared favorably to $205.8 million in 1999 due to increased revenue of $18.3 million from new and existing business, increased collection letter products business of $15.4 million and $5.7 million from RWC, which was acquired in September 2000. Revenues from portfolio services increased to $87.5 million for the year ended December 31, 2000 from $80.4 million for 1999. The increased revenues were due to higher servicing fee revenues for the off-balance sheet collections of FINCO portfolios partially offset by lower revenues from on-balance sheet portfolios resulting from the shift from on-balance sheet ownership of purchased loans and accounts receivable portfolios to off-balance sheet. During the year ended December 31, 2000, the Company recorded revenue from FINCO servicing fees of $26.8 million compared to servicing fees of $15.2 million for 1999. Revenues from recovery services of $208.4 million for the year ended December 31, 2000 compared unfavorably to $218.2 million in 1999 due to primarily to lower telecommunications business and the continued weakness in the bank card market offset partially by increased government business. Operating expenses, inclusive of salaries and benefits, service fees and other operating and administrative expenses, were $441.8 million for the year ended December 31, 2000 and $398.9 million for 1999 - an increase of 10.8%. The increase in these operating expenses resulted primarily from higher collection expenses, higher postage expenses, increased collection-related expenses due to the increased revenues of outsourcing services and increased collection expenses associated with the increase in collections of on and off-balance sheet purchased portfolios partially offset by lower consulting expenses. For the year ended December 31, 2000, operating expenses included approximately $0.2 million of additional compensation expense resulting from the redemption of vested stock options. For the year ended December 31, 2000, amortization and depreciation charges of $60.0 million were lower than $69.8 million for 1999 - a decrease of 14.0%. The lower amortization and depreciation charges resulted primarily from lower portfolio amortization as a result of the shift towards off-balance sheet purchased loans and accounts receivable portfolios. In continuing with the strategy, adopted in early 1999, to align OSI along business services and establish call centers of excellence by industry specialization, the Company incurred nonrecurring realignment expenses of $2.7 million which includes cost for closures of certain call centers, severance associated with these office closures and certain other one-time costs. These costs were recognized as incurred in 2000. During the fourth quarter of 1998 and the first quarter of 1999, OSI evaluated its business strategy for its operations. After the Company's formation and seven acquisitions, the Company adopted a strategy to align OSI 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 in 1999. 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 Recapitalization related costs in 1999. These costs consisted primarily of professional and advisory fees, and other expenses. Earnings before interest expenses, taxes, depreciation and amortization ("EBITDA") for the year ended December 31, 2000 was $96.4 million. Adding back the nonrecurring charges and the additional compensation expense, adjusted EBITDA was $99.3 million for the year ended December 31, 2000 compared to $105.5 million after adding back the nonrecurring and Recapitalization related expenses for 1999. The decrease of $6.2 million was primarily attributable to the increased collection expenses in relation to the revenue reported from the collections of purchased portfolios and higher postage expenses partially offset by the contribution from increased outsourcing services revenues and lower consulting expenses. While EBITDA was down due primarily to the off-balance sheet ownership of the portfolios, depreciation and amortization also declined resulting in operating income of $36.4 million. Adding back the nonrecurring charges of $2.7 million and the additional compensation expense of approximately $0.2 million, operating income was $39.3 million for the year ended December 31, 2000 compared to $35.7 million for 1999 after adding back the nonrecurring and Recapitalization related expenses. Net interest expense for the year ended December 31, 2000 of $60.9 million compared unfavorably to $52.3 million in 1999 due primarily to higher interest rates and higher amortization of deferred financing fees. The provision for income taxes of $0.6 million was provided for certain state and foreign income tax obligations. The Company generated a net operating loss for federal and certain state income tax purposes in 2000, for which a full valuation allowance was provided against the related deferred tax asset. The extraordinary loss of $4.2 million in 1999, the write-off of previously capitalized financing costs, resulted from the extinguishment of the then existing credit facility in conjunction with the establishment of a new bank credit facility in the fourth quarter of 1999. The net loss for the year ended December 31, 2000 of $25.1 million compared favorably to the net loss of $44.0 million for 1999 due primarily to the nonrecurring and Recapitalization related expenses and the extraordinary item in 1999. Segment Operations The following results of segment operations do not include the elimination of intercompany revenue and the allocation of corporate and shared expenses. See Note 19 in the Company's financial statements included herein for additional information. Outsourcing Services Outsourcing services revenues of $339.3 million in 2001 increased 32.9% from $255.3 million in 2000 (as restated) reflecting new and increased existing business, increased collection letter products business and the acquisitions of RWC, CCC and PSC. In 2000 (as restated), outsourcing revenues were $255.3 million representing a 20.4% increase over 1999 revenues of $212.0 million. The increased revenue in 2000 (as restated) was due to new and existing business, increased collection letter products business and the RWC acquisition. EBITDA before corporate and shared expenses, but after amortization of purchased loans and accounts receivable portfolios ("Adjusted Operating EBITDA") of $46.4 million in 2001 increased from $40.4 million in 2000 (as restated) due to effects of the three acquisitions and the new and increased existing business offset partially by a change in revenue mix relating to its collection letter products from higher margin contingent fee services to lower margin fixed fee services and higher postage expense. Adjusted Operating EBITDA of $40.4 million in 2000 (as restated) increased 14.1% from $35.4 million in 1999. The increase was due to the increased revenues and the RWC acquisition. Portfolio Purchasing Services Portfolio purchasing services reported a 3.4% increase in 2001 on revenues of $96.0 million compared to $92.8 million in 2000. The increase was attributable to increased servicing fees as a result of increased collections from the increased level of off-balance sheet purchased loans and accounts receivable portfolios during 1999, 2000 and 2001 offset partially by the continued negative effect on revenues resulting from the shift to off-balance sheet purchased portfolios. Revenues rose 8.2% in 2000 from $85.8 million in 1999 to $92.8 million, largely as a result of higher servicing fee revenues for the off-balance sheet collections partially offset by lower revenues from on balance-sheet portfolios, again, resulting from the shift from on-balance sheet ownership of purchased loans and accounts receivable portfolios to off-balance sheet. Adjusted Operating EBITDA increased to $16.7 million in 2001 from $13.4 million in 2000. The 24.6% increase was due to the increased servicing fee revenues and lower portfolio amortization as a result of the shift towards off-balance sheet purchased portfolios. For 2000, Adjusted Operating EBITDA was $13.4 million compared to $10.2 million in 1999, an increase of 31.4% resulting from the higher servicing fee revenues and lower portfolio amortization. Recovery Services Recovery services revenues decreased 4.8% in 2001 on revenue of $198.5 million compared to $208.4 million in 2000 and decreased 4.5% in 2000 to $208.4 million from $218.2 million in 1999. The decreases were primarily attributable to lower bank card, student loan and telecommunications business offset partially by increased government business. Largely as a result of the lower revenues, Adjusted Operating EBITDA decreased from $53.2 million in 1999 to $47.2 million in 2000 to $43.8 million in 2001 - a decrease of 7.2% in 2001 and 11.3% in 2000. The Company believes that its revenues and Adjusted Operating EBITDA of each business segment were negatively affected by the September 11, 2001 terrorist attacks. Liquidity and Capital Resources At December 31, 2001, the Company had cash and cash equivalents of $9.5 million. The Company's bank credit facility 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, 2001, the Company had outstanding $46.0 million under the revolving credit facility leaving $20.4 million, after outstanding letters of credit, available under the revolving credit facility. Cash and cash equivalents decreased from $10.3 million at December 31, 2000 to $9.5 million at December 31, 2001 primarily due to cash utilized for the CCC and PSC acquisitions of $21.7 million, debt repayments of $14.7 million, an earnout payment of $3.0 million and capital expenditures of $14.2 million offset by cash from operating activities and portfolio purchasing of $16.9 million, borrowings under the credit facility of $14.0 million and net proceeds from the issuance of Senior Common Stock of $22.0 million. The Company also held $25.9 million of cash for clients in restricted trust accounts at December 31, 2001. Cash and cash equivalents increased from $6.1 million at December 31, 1999 to $10.3 million at December 31, 2000 principally due to cash from operating activities and portfolio purchasing of $24.8 million and cash from financing activities of $16.1 million primarily from the increase in the revolver of $19.0 million offset by the use of cash of $36.7 million primarily for capital expenditures of $18.4 million and $16.7 million for the acquisition of certain assets of RWC. In addition to the cash consideration for RWC of $16.7 million, the purchase price included Voting Common Stock worth $2.0 million and a $5.0 million 18% unsecured, subordinated note (interest compounded annually and principal and interest due September 29, 2003) along with a contingent payment obligation due in three years. The Company also held $22.0 million of cash for clients in restricted trust accounts at December 31, 2000. Purchased Loans and Accounts Receivable Portfolios decreased from $24.7 million at December 31, 2000 to $17.5 million at December 31, 2001 due to the amortization of purchased portfolios of $26.9 million offset by new on-balance sheet portfolio purchases of $19.7 million. In addition, the Company purchased, and sold to FINCO, loans and accounts receivable portfolios of $63.4 million and $86.9 million during the year ended December 31, 2001 and 2000, respectively. 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, 2001 and December 31, 2000 by type of receivable is shown below: December 31, 2001 December 31, 2000 ------------------------------ ------------------------------ 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... $ 4,823 $ 6,829 $ 4,525 $ 9,477 Student loans.... 343 439 343 653 Credit cards..... 2,147 4,966 1,515 9,292 Health clubs..... 1,735 4,330 1,661 5,118 Commercial....... 668 913 129 150 ------- ------- ------- ------- $ 9,716 $17,477 $ 8,173 $24,690 ======= ======= ======= ======= Net deferred tax assets were zero at December 31, 2001 and 2000 due to a valuation allowance of $100.7 million and $94.6 million, respectively. The Company's deferred tax assets at December 31, 2001 and December 31, 2000 relate principally to net operating loss carryforwards and future deductible differences. The realization of these assets is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards in years through 2021. At December 31, 2001, the Company has a cumulative valuation allowance of $100.7 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 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, is subject to reassessment in future years if estimates of future taxable income during the carryforward period change. The Company's current debt structure at December 31, 2001 consists of $433.5 million indebtedness under the bank credit facility, $100.0 million 11% Senior Subordinated Notes (the "Notes") and other indebtedness of $5.5 million. See Note 6 of the Consolidated Financial Statements of the Company included elsewhere herein for a description of the bank 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. The Company's contractual obligations at December 31, 2001 are summarized as follows (in thousands): Less than 1-3 4-5 After 5 Total 1 year years years years -------- --------- -------- -------- --------- Long-Term Debt $538,590 $ 17,590 $279,250 $241,750 $ - Capital Lease Obligations 478 238 240 - - Operating Leases 91,170 20,149 46,832 12,164 12,025 -------- --------- -------- -------- --------- Total Contractual Cash Obligations $630,238 $ 37,977 $326,322 $253,914 $ 12,025 ======== ========= ======== ======== ========= 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 monthly obligations cannot be determined, however, the bank credit facility limits total annual on-balance sheet portfolio purchases to $20.0 million. In October of 1998, a special-purpose finance company, OSI Funding Corp., formed by the Company, entered into a revolving warehouse financing arrangement ("Warehouse Facility") 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 ("FINCO"), a bankruptcy remote, non-consolidated subsidiary of the Company, with the Company owning approximately 29% of the voting rights. An unrelated third party holds the majority voting rights of FINCO and has decision-making authority over FINCO's operations. The Company believes this arrangement will provide it with expanded portfolio purchasing capability in a very opportunistic buying market at a lower cost of capital. 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 various unrelated sellers. At December 31, 2001 and 2000, FINCO had purchased loans and accounts receivable portfolios of $75.9 million and $76.9 million, respectively. At December 31, 2001 and 2000, FINCO had outstanding commercial paper borrowings of $66.4 million and $67.6 million, respectively. These borrowings are without recourse to the Company. As noted above, FINCO is a special purpose and bankruptcy remote entity that is not consolidated by the Company. The Company accounts for its investment in FINCO under the equity method of accounting. The Company does not consolidate FINCO because the unrelated third party investor in FINCO holds the majority voting rights of FINCO, has decision-making authority over the operations of FINCO, including the authority to make all decisions and to take all actions with respect to the retention or removal of OSI as a provider of collection services for FINCO's portfolios, and maintains a substantial equity investment in FINCO. The FASB is currently reviewing the rules surrounding special purpose entities. The FASB has issued a preliminary draft of proposed rules regarding the consolidation of special purpose entities. The FASB expects to finalize this project by August of 2002. If the Company were required to adopt the rules prescribed in the current FASB project, it would be required to consolidate FINCO. If required to consolidate FINCO, the Company could possibly be in violation of its debt covenants and would be required to seek a waiver or amend its debt agreements. The following provides summary financial information for the Company assuming FINCO was consolidated, and compares that to similar information currently reported by the Company with FINCO accounted for under the equity method, at the end of each period presented: 2001 2000 (As Restated) ---------------------------- -------------------------- Equity Consolidation Equity Consolidation Method Method Method Method ---------- ---------------- ---------- ------------- (In thousands) Revenues $612,346 $678,868 $541,076 $590,827 Operating income 46,663 51,673 36,420 40,783 Net loss (13,355) (11,955) (25,108) (24,406) EBITDA 104,569 171,091 96,397 146,148 Receivables 17,477 93,398 24,690 101,598 Total assets 640,210 708,388 632,647 701,040 Total debt 539,020 605,411 539,463 607,099 Stockholders' (deficit) (154,075) (148,747) (134,412) (130,475) As a result of the restatement of financial results as discussed in Note 2 of the Company's financial statements included herein, the Company was in breach of certain covenants, representations and warranties in each of its bank credit facility and the Warehouse Facility. In response, the Company and the lenders to the bank credit facility amended the facility effective April 10, 2002. The amendment to the bank credit facility includes provisions that amend the financial covenants, waive certain existing defaults of covenants and breaches in representations and warranties, increase the interest rate on borrowings pursuant to the facility (as discussed below), and, during 2002, reduce the Company's availability under its bank credit facility by $5 million, and limit capital expenditures, investments and acquisitions. In connection with the amendment, the Company also issued 4,150 shares of its Series B Junior Preferred Stock with attached warrants to acquire 42,347 shares of the Company's Senior Common Stock to Madison Dearborn Capital Partners III, L.P. and Madison Dearborn Special Equity III, L.P. for a total purchase price of $4.15 million. The proceeds of this sale were used to repay the Revolving Facility in the amount of $2.075 million and the balance pro-rata to the Term A and B loans, as provided in the bank credit facility. From April 10, 2002 until such time as the Company delivers to the lenders a compliance certificate for the period ended December 31, 2002, borrowings under the Revolving Facility and Term A Loan of the Credit Facility will bear interest, at the Company's option, at (a) the lender's prime rate, plus 2.75% or (b) the Eurodollar rate plus 3.75%. Borrowings under the Term B Loan will bear interest, at the Company's option, at (a) the lenders' prime rate plus 3.50% or (b) the Eurodollar rate plus 4.50%. The amortization and maturity were not amended. Following this amendment, the Company is in compliance with the Credit Facility and, subject to the Warehouse Facility issues discussed below, expects to be in compliance throughout 2002. The Company has also received a waiver from the lender under the Warehouse Facility for certain breaches of covenants, representations and warranties with respect to periods through year-end 2001. Since the Company, on an ongoing basis, will continue to be in breach of certain financial covenants, representations and warranties, it has initiated discussions with the lender under the Warehouse Facility for the purpose of seeking to amend such facility to cure such breaches, although there can be no assurances that the Company will be successful in negotiating such an amendment. If the Company is unsuccessful in negotiating such an amendment, notwithstanding the waiver received, the Company may again breach certain covenants, representations and warranties in the Warehouse Facility and there can be no assurances that the lender will extend the waiver to cover such breaches. On an ongoing basis, the Company has also been engaged in discussions with certain other providers of similar warehouse facilities. While there can be no assurances, the Company believes that other warehouse facilities would be available on economic terms and in amounts comparable to the Company's existing Warehouse Facility which would allow the Company to continue its business of purchasing of loans and accounts receivable. In the event the Company is unable to amend the current Warehouse Facility and it is terminated and the Company is unable to enter a replacement warehouse facility, the Company would be in default of its Credit Facility. Capital expenditures for the year ended December 31, 2001 were $14.2 million. The Company expects to spend approximately $10.0 million on capital expenditures (exclusive of any expenditures in connection with acquisitions) in 2002. 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, 2001, 2000 and 1999. Critical Accounting Policies The results of operations of the Company are prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to bad debts, supplies inventories, purchased loans and accounts receivable portfolios, intangible assets, income taxes, environmental exposures and other contingencies and litigation. Management bases its assumptions on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. o The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of the Company's customers were to deteriorate, resulting in impairment in their ability to make payments, additional allowances may be required. o The Company records a valuation allowance to reduce its deferred tax assets to the amount that it believes is more likely than not to be realized. 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, is subject to reassessment in future years if estimates of future taxable income during the carryforward period change. Should the Company determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax assets would increase income in the period such determination was made. To the extent the valuation allowance for deferred tax assets is attributable to net operating losses related to acquisitions, realization of these deferred tax assets would result in the reduction of goodwill recorded in connection with the acquisitions. o The Company records purchased loans and accounts receivable portfolios ("Receivables") in the normal course of business at cost. These Receivables are reflected in the Company's consolidated balance sheet. The Company periodically reviews all Receivables to assess recoverability. Impairments are recognized as increased amortization expense if the expected aggregate discounted future net operating cash flows derived from the Receivables are less than the aggregate carrying value. This requires management to estimate the future operating cash flows that are expected to be generated from the Receivables and to discount the future cash flows. The discount rate is determined at the time of purchase as the calculated internal rate of return used in determining the Receivables purchase price. To the extent actual cash flows differ from these projections, the Company could be required to record additional impairment charges in future periods. o 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 estimated terminal value for that portfolio. This requires management to estimate both future collections and terminal values for individual portfolios. To the extent actual collections differ from those projections, amortization of the cost of the Receivables is affected. To the extent future collections, including estimated terminal value, are less than anticipated, increased amortization will occur in future periods. To the extent future collections are greater than anticipated, decreased amortization will occur in future periods. o The Company annually reviews goodwill and other intangibles to assess recoverability. Impairment charges are recognized in operations if the fair value of the goodwill is less than its carrying value. The fair value of the goodwill could change in the future, primarily based on the results of the Company's operations. This could result in impairment charges to operations in future periods. See also the following discussion of the impact of a new accounting standard adopted by the Company on January 1, 2002, SFAS No. 142, "Goodwill and Other Intangible Assets." o Certain subsidiaries of the Company are parties to several pending environmental proceedings as a result of its acquisition of Union. These proceedings involve the Environmental Protection Agency and comparable state environmental agencies. In addition, the Company is involved in a number of legal proceedings and claims that occur in the normal course of business and are routine to the nature of the Company's business. The results of the environmental and legal proceedings and claims cannot be predicted with certainty. However, the Company has provided for the estimated uninsured amounts and costs associated with proceedings and claims and, in consultation with legal counsel, believe that reserves established for the ultimate resolution of these mattes are adequate at December 31, 2001. However, OSI may be exposed to additional substantial liability for these proceedings and claims as additional information becomes available in the future. This could result in charges to operations in future periods. Accounting Pronouncements In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, Business Combinations. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 and establishes specific criteria for recognition of intangible assets separately from goodwill. For business combinations initiated after June 30, 2001, SFAS No. 141 also requires that unallocated negative goodwill be written off immediately as an extraordinary gain. In addition, SFAS No. 141 requires reclassifying existing intangible assets that have been reported as part of goodwill, and accounting for them separately upon adoption of SFAS No. 142 if certain criteria are met. The adoption of SFAS No. 141 will not have a material impact on the Company's consolidated financial statements as the Company has no negative goodwill or intangible assets that have been reported as part of goodwill. In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 eliminates the amortization of goodwill and instead requires goodwill to be tested for impairment annually at the reporting unit level. Also, specifically identifiable intangible assets are required to be amortized over their useful lives and reviewed for impairment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Under SFAS No. 142, if the intangible asset has an indefinite useful life, it is not amortized until its life is determined to be finite. The Company is required to adopt SFAS No. 142 on January 1, 2002. SFAS No. 142 provides a staggered timeline for completing transitional impairment testing of goodwill and indefinite-lived intangible assets. The Company does not have any indefinite-lived intangible assets. The Company will be required to reassess the useful lives of intangible assets by the end of the first quarter of 2002. The Company will be required to complete the first step of the transitional goodwill impairment test by the end of the second quarter of 2002. If this first step indicates transitional goodwill impairment may exist, the second step, which results in a final determination of goodwill impairment, if any, must be completed no later than December 31, 2002. The Company is currently evaluating the impact of SFAS No. 142 on its financial statements. Goodwill, net of amortization, was $421.9 million and $417.1 million at December 31, 2001 and 2000, respectively. Goodwill amortization recorded for the year ended December 31, 2001 and 2000 was $16.6 million and $15.5 million, respectively. However, as previously noted, goodwill amortization will cease as of January 1, 2002. In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets, and as required, was adopted, by the Company on January 1, 2002. The Company does not expect SFAS No. 144 to have a material impact on the Company's consolidated financial statements. Forward-Looking Statements The following statements in this entire 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 anticipated costs and outcome of legal proceedings and environmental liabilities, (2) statements regarding anticipated changes in the accounts receivable management industry, including but not limited to debt levels, delinquencies, industry consolidation, customer consolidation and outsourcing trends, (3) statements regarding anticipated changes in the Company's opportunities in its industry, including but not limited to acquisitions, (4) statements regarding the Company's plans to reduce costs and improve operational efficiencies, (5) statements regarding the Company's ability to fund its future operating expenses and meet its debt service requirements as they become due, (6) statements regarding the Company's expected capital expenditures and facilities, (7) any statements preceded by, followed by or that include the word "believes," "expects," "anticipates," "plans", "intends," "should," "may," or similar expressions; and (8) 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 and the availability of portfolios to purchase 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, including but not limited to those related to integrating the operations of recently acquired companies with the Company's operations being greater than expected, (11) unanticipated realignment costs, (12) 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 either through acquisitions or internal growth, (13) the Company's ability to amend its Warehouse Facility to cure breaches and defaults thereunder or to obtain replacements thereof on acceptable economic terms, (14) changes in circumstances or the effects of new accounting standards which may require the Company to consolidate FINCO into its financial statements, and (15) 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 bank credit facility, 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 swap and collared 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. 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. For interest rate swap and collared swap agreements, the table presents notional amounts and weighted-average interest rates. Interest Rate Sensitivity Principal (Notional) Amount by Expected Maturity Average Interest Rate (Dollars in millions)
Fair 2002 2003 2004 2005 2006 Thereafter Total Value ---- ---- ---- ---- ---- ---------- ----- ----- Liabilities Long-term debt Fixed rate - - - - $100.0 - $100.0 $80.0 Average interest rate 11.0% 11.0% 11.0% 11.0% 11.0% Variable rate $17.5 $32.5 $40.0 $201.8 $141.7 - $433.5 $433.5 Average interest rate (1) (1) (1) (1) (1) Interest Rate Derivative Financial Instruments Related to Debt Interest Rate Swap Notional amount - - - - $75.0 - $75.0 $0.2 (2) Average pay rate (3) (3) (3) (3) (3) Average receive rate 11.0% 11.0% 11.0% 11.0% 11.0% Interest Rate Collared Swap Notional amount - $150.0 - - - - $150.0 $(9.4)(2) Strike cap rate 8.5% 8.5% - - - - Strike floor rate 5.9% 5.9% - - - - Strike swap rate 7.0% 7.0% - - - - Forward rate (4) (4) - - - - Interest Rate Collared Swap Notional amount - - - - $75.0 - $75.0 $(2.6)(2) Strike cap rate 6.75% 6.75% 6.75% 6.75% 6.75% Strike floor rate (5) (5) (5) (5) (5) Strike swap rate 5.5% 5.5% 5.5% 5.5% 5.5% Forward rate (4) (4) (4) (4) (4)
(1) Three-month LIBOR (1.9% at December 31, 2001) plus weighted average margin of 3.7%. (2) Represents the fair value of the interest rate swap agreement based on the receivable (payment) to exit the agreement at December 31, 2001. (3) Three-month LIBOR plus margin of 5.5%. (4) Three-month LIBOR. (5) 2.5% from November 1, 2001 through April 30, 2002, 2.85% from May 1, 2002 through April 30, 2003 and 4.1% from May 1, 2003 through maturity. 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 51 Director, President and Chief Executive Officer William B. Hewitt 63 Director Timothy M. Hurd 32 Director and Vice President Scott P. Marks, Jr. 56 Director Jeff L. Ott 39 Director Richard L. Thomas 71 Director Paul R. Wood 48 Director and Vice President Michael A. DiMarco 44 Executive Vice President - President of Specialty Business Bryan K. Faliero 36 Executive Vice President Operations Michael B. Staed 55 Executive Vice President Sales - Chief Sales and Marketing Officer Gary L. Weller 41 Executive Vice President and Chief Financial Officer Timothy G. Beffa (51), 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 (63), Director of the Company since February 1998. Mr. Hewitt has served as President and Chief Executive Officer of Sirius Ventures, Inc. since February 1998. From July 1997 to January 1998, Mr. Hewitt served as President and Chief Executive Officer of The Union Corporation ("Union") and prior to that he served as President and Chief Operating Officer of Union since May 1995. Prior to the Company's acquisition of Union, 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. He currently serves as a director of ZIBEX, Inc. Timothy M. Hurd (32), 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 in 1995, Mr. Hurd was with Goldman Sachs & Co. from 1992 to 1994. He currently serves as a director of CapitalSource Holdings, LLC, Pax Holding Corporation and PayPal, Inc. Scott P. Marks, Jr. (56), 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 and Clark Polk Land LLC. Jeff L. Ott (39), Director of the Company since April 2002. Mr. Ott is a general partner of Gryphon GenPar II, LLC. Prior to joining Gryphon, Mr. Ott was a managing director with DB Capital Partners, Inc. from April 1996 to May 2001. Richard L. Thomas (71), 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 Exelon, IMC Global Inc., The PMI Group Inc., The Sabre Holding Corp. and Sara Lee Corporation. Paul R. Wood (48), 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 in 1993, 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., Pax Holding Corporation and CapitalSource Holdings, LLC. Michael A. DiMarco (44), Executive Vice President - President of Specialty Business since January 2001; Executive Vice President and President Collection Services of the Company from September 1998 until December 2000. 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 Capital Source Holdings, LLC. Bryan K. Faliero (36), Executive Vice President Operations since January 2001; President Portfolio Services of the Company from October 1997 until December 2001. 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 consulting company based in Chicago, concentrating on operations strategy and network rationalization. Michael B. Staed (55), Executive Vice President Sales - Chief Sales and Marketing Officer since January 2001; Senior Vice President and President Outsourcing Services of the Company from July 1999 until December 2000. 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 (41), 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 (collectively, the "Named Officers") for the years ended December 31, 2001, 2000 and 1999. Summary Compensation Table
Long Term Other Annual Compensation All Other Salary Bonus Compensation Awards Compensation Name and ------------------ Principal Position Year ($) ($) ($) Options (#) ($)(1) - ------------------ ----- ------- ------ ------------------ ------------------ ----------------- Timothy G. Beffa 2001 437,500 - 3,400 President and CEO 2000 371,250 375,000 30,000 3,400 1999 370,836 365,000 2,617 Michael A. DiMarco 2001 342,915 - 3,400 Executive Vice 2000 319,370 105,000 3,000 3,400 President - President 1999 325,000 100,000 42,373(2) 50,000 1,373,017 of Specialty Business Bryan K. Faliero 2001 269,304 - 3,400 Executive Vice 2000 241,673 105,000 31,250 3,400 President Operations 1999 195,206 90,000 480,337 Mike B. Staed 2001 265,818 - 2,473 Executive Vice 2000 245,519 70,000 19,663 3,400 President Sales - 1999 228,337 70,000 16,000 947,505 Chief Sales an Marketing Officer Gary L. Weller 2001 292,508 - 3,400 Executive Vice 2000 269,884 120,000 President and CFO 1999(3) 134,512 310,000 50,000 10,459
(1) Amounts for 2001 and 2000 represent the Company's portion of the 401(k) Plan contribution. In connection with the Recapitalization in 1999, Mr. DiMarco, Mr. Faliero and Mr. Staed received change in control payments of $1,356,875, $475,627 and $937,500, respectively. Remaining amounts in 1999 represent split dollar life insurance and long-term disability premiums paid by the Company along with the Company's portion of the 401(k) Plan contribution. (2) Payment of taxes by the Company for includable W-2 relocation expenses. (3) 1999 compensation based on an annual salary of $275,000. Mr. Weller was hired in July 1999. During the year ended December 31, 2001, there were no stock option grants or exercises by the Named Officers. The following table sets forth options held by the Named Officers at December 31, 2001. AGGREGATED OPTION VALUES ON DECEMBER 31, 2001 Number of Securities Value of Unexercised Underlying Unexercised In-the-Money Options Options at December 31, 2001 at December 31, 2001(1) --------------------------- --------------------------- Name Exercisable Unexercisable Exercisable Unexercisable - ------------------ ----------- ------------- ------------ ------------- Timothy G. Beffa 77,675 22,500 $2,647,863 $259,425 Michael A. DiMarco 50,750 2,250 $458,648 $25,943 Bryan K. Faliero 26,562.5 23,437.5 $540,078 $270,234 Michael B. Staed 29,915.75 14,747.25 $281,679 $170,036 Gary L. Weller 50,000 0 $450,000 0 (1) Based on a price per share of $49.00, the last price at which the Company sold its common stock Employment Agreements OSI has entered into employment agreements with certain officers, including each of the Named 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. Base salaries are adjusted annually by the Compensation Committee of the Board of Directors. 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 Messrs. Hewitt, Marks and Thomas receive $2,000 per regularly scheduled meeting of the Board of Directors. Effective May 31, 2000, Messrs. Hewitt, Marks and Thomas each purchased 2,669 shares of the Company's voting common stock for fair value, $37.47 per share. In conjunction with this stock purchase, each was granted an option to purchase an additional 2,669 shares of the Company's voting common stock at an exercise price of $37.47 per share. These options time-vest over a three-year period and expire on the earlier of May 31, 2010 or the date the director ceases to be a member of the Company's Board of Directors. All directors receive reimbursement for travel and out-of-pocket expenses incurred in connection with attendance at all such meetings. Except as described above, no director of OSI receives any other compensation from OSI for performance of services as a director of OSI or a member of any committee of the Board of Directors. Option Plans The Company maintains the 1995 Stock Option and Stock Award Plan ("1995 Plan") and Outsourcing Solutions Inc. 2000 Equity Incentive Plan ("2000 Plan") (collectively, the "Stock Option Plans"). The Stock Option Plans are administered by the Compensation Committee of the Board of Directors of the Company. Under the Stock Option Plans, the Compensation Committee may grant or award (i) options to purchase stock of the Company, (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 directors of the Company. Options granted under the 1995 Plan 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 ("NQSOs"), but all grants under the 1995 Plan were NQSOs. The 2000 Plan authorizes the issuance of only NQSOs. A total of 1,150,000 shares of common stock of the Company are reserved for issuance under the Stock Option Plans. As of March 28, 2002, options to purchase up to 751,345 shares of the Company's common stock are outstanding under the Stock Option Plans, which 475,447 shares are vested and exercisable. Compensation Committee Interlocks and Insider Participation Mr. Hurd serves as a member of the Company's Compensation Committee and as a Vice President of the Company. Mr. Hurd is not, however, an employee of the Company. 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 Plans. The Company's compensation program was designed to be competitive with companies similar in structure and business to the Company. The Company's executive compensation program was structured to help the Company achieve its business objectives by: o Setting levels of compensation designed to attract and retain superior executives in a highly competitive environment. o Designing equity-related and other performance-based incentive compensation programs to align the interests of management with the ongoing interests of shareholders; and o 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. In accordance with the 2001 Management Incentive Plan, effective in April 2001, the Company selected executives and certain managers and other key personnel to participate in the annual bonus program. It established target awards for each participant, as a percent of his or her base salary. In addition, corporate and individual business unit objectives were established for revenue and adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") and corporate leverage. These financial factors, along with a component for accomplishment of individual goals, were assigned a weighting for each participant, depending on his or her position within the Company. In February 2002, the head of each functional unit recommended the amount of payout for individual performance based on an evaluation of each participant's performance in 2001. Recommendations for the individual performance component were reviewed and in some cases adjusted by the Chief Executive Officer. Payout for revenue, EBITDA and leverage were determined based on the Company's financial results for the year ended December 31, 2001. The total amount of bonus payouts and individual payouts for each of the Company's senior executives were presented to and approved by the Compensation Committee. Based on the Company's revenue and EBITDA performance and year-end leverage, none of the Named Officers received a bonus for 2001. 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 the Company. Under the employment agreement, Mr. Beffa's target potential is 150% of his base salary. In March 2001, the Compensation Committee increased Mr. Beffa's base salary from $390,000 to $450,000 and thus his target potential to $675,000. 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 Company senior executives. For 2001, Mr. Beffa's bonus was determined based upon the following three factors, which were weighted as indicated: the Company's performance against pre-established revenue and EBITDA goals (70%), leverage goals (15%) and Mr. Beffa's attainment of pre-established objectives, based on specific strategic initiatives to both build a suitable business infrastructure and deliver on strategic growth initiatives (15%). Based on the Company's revenue and EBITDA performance and year-end leverage, Mr. Beffa did not receive a bonus for 2001. Compensation Committee Timothy M. Hurd Paul R. Wood ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of April 10, 2002, the authorized capital stock of the Company consists of (i) 900,000 shares of Senior Common Stock, par value $.01 per share, of which 489,795.93 are issued and outstanding, (ii) 15,000,000 shares of Voting Common Stock, par value $.01 per share, of which 6,088,479.30 are issued and outstanding, (iii) 2,000,000 shares of Non-Voting Common Stock, par value $.01 per share, of which 480,321.30 are issued and outstanding, (iv) 200,000 shares of 14% Mandatorily Redeemable Senior Preferred Stock, no par value, of which 100,000 are issued and outstanding and (v) 50,000 shares of Junior Preferred Stock, no par value, of which 11,150 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 April 10, 2002 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, (iii) each of the Named Officers, and (iv) all directors and executive officers of the Company as a group.
Amount and Nature of Beneficial Percent of Title of Class Name and Address Beneficial Owner Ownership Class (1) - ------------------------ ------------------------------------------------ ---------------- ------------- Senior Common Stock Gryphon Partners II, L.P. (2) 800,320.13 90.7% Gryphon Partners II-A, L.P. (2) 800,320.13 90.7% Jeff L. Ott (2) 800,320.13 90.7% Madison Dearborn Capital Partners III, L.P. (3) 17,346.94 3.6% Madison Dearborn Special Equity III, L.P. (3) 17,346.94 3.6% All directors and executive officers as a group 425,510.21 86.9% Voting Common Stock Madison Dearborn Capital Partners III, L.P.(3) 4,536,367.84 74.5% Madison Dearborn Special Equity III, L.P. (3) 4,536,367.84 74.5% Special Advisors Fund I, L.L.C. (3) 4,536,367.84 74.5% Timothy M. Hurd (3) 4,536,367.84 74.5% Paul R. Wood (3) 4,536,367.84 74.5% Timothy G. Beffa (4) 104,363.02 1.7% Michael A. DiMarco (4) 57,750.00 * Bryan K. Faliero (4) 36,570.00 * Michael B. Staed (4) 35,253.35 * Gary L. Weller (4) 63,344.01 1.0% All directors and executive officers as a group 4,833,648.22 76.4% Junior Preferred Stock Timothy G. Beffa 81.65 1.2% Bryan K. Faliero 2.48 * All directors and executive officers as a group 84.13 1.2% Series B Junior Madison Dearborn Capital Partners III, L.P.(3) 4,150.00 100.0% Preferred Stock Madison Dearborn Special Equity III, L.P. (3) 4,150.00 100.0%
* 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 381,340.41 shares owned by Gryphon Partners II, L.P. (""GPII") and 26,822.86 shares owned by Gryphon Partners II-A, L.P. ("GPII-A and together with GPII, "Gryphon") with each entity managed by or affiliated with Gryphon GenPar II, LLC. Mr. Ott is a general partner of Gryphon GenPar II, LLC, general partner of GPII and GPII-A. Gryphon has the right but not the obligation to purchase from the Company up to an aggregate of 392,156.86 shares of Senior common stock anytime prior to April 16, 2002. Gryphon Partners II, L.P. and Gryphon Partners II-A, L.P. have pledged their shares of the Company's common stock as security under the Company's Credit Agreement. In addition, Gryphon Partners II, L.P. and Gryphon Partners II-A, L.P. are parties to Amended and Restated Stockholders Agreement, dated as of April 16, 2001, among the Company and substantially all of the Company's stockholders, under which Madison Dearborn Capital Partners III, L.P., as principal investor, may designate individuals to serve as directors of the Company. The Amended and Restated 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 Gryphon. Furthermore, the Company, Madison Dearborn Capital Partners III, L.P. and Gryphon are parties to a Voting Agreement pursuant to which Gryphon may designate one individual to be elected to the Company's Board of Directors. The address of the Gryphon entities is c/o Gryphon GenPar II, LLC, One Embarcadero Center, Suite 2750, San Francisco, CA 94111. (3) Includes (i) 16,970.13 shares of Senior Common Stock, 4,433,913.11 shares of Voting Common Stock and 4,059.85 shares of Series B Junior Preferred Stock owned by Madison Dearborn Capital Partners III, L.P., (ii) 376.81 shares of Senior Common Stock, 98,452.05 shares of Voting Common Stock and 90.15 shares of Series B Junior Preferred Stock owned by Madison Dearborn Special Equity III, L.P., and (iii) 4,002.68 shares of Voting Common Stock 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 managing directors 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 Amended and Restated Stockholders Agreement, dated as of April 16, 2001, 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 Amended and Restated 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. (4) Includes vested options to acquire the following number of shares of the Company's common stock: Mr. Beffa 77,675; Mr. DiMarco 50,750; Mr. Faliero 26,562.5; Mr. Staed 29,915.75 and Mr. Weller 50,000. The address of Messrs. Beffa, DiMarco, Faliero, Staed and Weller is c/o Outsourcing Solutions Inc., 390 South Woods Mill Rd., Suite 350, Chesterfield, MO 63017. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 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. 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 2001, the Company paid $500,000 under the Advisory Services Agreement for MDP's professional services. 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). Beginning April 1, 2000, Mr. Hewitt agreed to perform consulting services as mutually agreed from time to time. For the year ended December 31, 2001, Mr. Hewitt did not perform any consulting services under this arrangement. Indebtedness of Management During 2000, the Company issued 26,688.02, 10,008 and 13,344.01 shares of its voting common stock at fair value to Messrs. Beffa, Faliero and Weller, respectively in exchange for cash and interest bearing notes secured by the shares along with certain personal assets. At December 31, 2001, the outstanding indebtedness under the notes for Messrs. Beffa, Faliero and Weller was approximately $1,114,000, $401,000 and $446,000, respectively, which includes the outstanding principal balance and interest. The interest rate on Mr. Beffa's and Mr. Weller's note is 6.71% per annum and on Mr. Faliero's note, the interest rate is 6.01% per annum. PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements See index on page 50 for a listing of consolidated financial statements filed with this report. 2. Financial Statement Schedule See index on page 50 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 StockSubscription 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). 2.2 StockSubscription Agreement by and among Gryphon Partners II, L.P., Gryphon Partners II-A, L.P., Outsourcing Solutions Inc., and the additional investors, dated April 3, 2001 (incorporated herein by reference to Exhibit 2.2 of the Company's Form 10-Q for the period ended June 30, 2001). 2.3 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 (incorporated herein by reference to Exhibit 2.5 of the Company's Form 10-K for the period ended December 31, 1999). 2.4 Purchase Agreement dated as of December 10, 1999, by and among Outsourcing Solutions Inc. and certain other parties thereto (incorporated herein by reference to Exhibit 2.6 of the Company's Form 10-K for the period ended December 31, 1999). 2.5 Junior Preferred Stock Purchase Agreement, dated as of December 10, 1999, by and among Outsourcing Solutions Inc. and certain other parties thereto (incorporated herein by reference to Exhibit 2.7 of the Company's Form 10-K for the period ended December 31, 1999). 2.6 Unit Purchase Agreement, dated as of April 10, 2002, by and among the Company and certain other parties thereto. 2.7 Consent Solicitation Statement, dated November 9, 1999, relating to the Company's 11% Senior Subordinated Notes due November 1, 2006 (incorporated herein by reference to Exhibit 2.8 of the Company's Form 10-K for the period ended December 31, 1999). 2.8 Asset Purchase Agreement dated September 26, 2000 by and among Outsourcing Solutions Inc., RWC Consulting Group, LLC, RWC Consulting Group, Inc., and Robert W. Curtis, Jr. (incorporated herein by reference to Exhibit 2 of the Company's Form 10-Q for the period ended September 30, 2000). 2.9 Asset Purchase Agreement dated March 12, 2001 by and among Outsourcing Solutions Inc., Coast to Coast Consulting, LLC, PAE Leasing, LLC, Coast to Cost Consulting, Incorporated, Pioneer Auto Enterprises, Inc., C2C Management, LTD., and Robert Fraiser (incorporated herein by reference to Exhibit 2 of the Company's Form 10-Q for the period ended March 31, 2001). 2.10 Asset Purchase Agreement and Patentable Property Purchase Agreement dated April 30, 2001 by and among Outsourcing Solutions Inc., Pacific Software Consulting, LLC, Pacific Software Consulting, Inc., and Edward F. Lambert (incorporated herein by reference to Exhibit 2.1 of the Company's Form 10-Q for the period ended June 30, 2001). 3.1 Fourth Amended and Restated Certificate of Incorporation of the Company, as of April 16, 2001. 3.2 By-laws of the Company (incorporated herein by reference to Exhibit 3.2 of the Company's Form 10-K for the period ended December 31, 2000). 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). 4.6 Second Supplemental Indenture dated as of July 16, 2000 by and among the Company, the Additional Guarantors and Wilmington Trust Company, as trustee (incorporated herein by reference to Exhibit 4.1 of the Company's Form 10-Q for the period ended September 30, 2000). 4.7 Third Supplemental Indenture dated as of September 29, 2000 by and among the Company, the Additional Guarantors and Wilmington Trust Company, as trustee (incorporated herein by reference to Exhibit 4.2 of the Company's Form 10-Q for the period ended September 30, 2000). 4.8 Fourth Supplemental Indenture dated as of March 12, 2001 by and among the Company, the Additional Guarantors and Wilmington Trust Company, as trustee (incorporated herein by reference to Exhibit 4 of the Company's Form 10-Q for the period ended March 31, 2001). 4.9 Fifth Supplemental Indenture dated as of April 30, 2001 by and among the Company, the Additional Guarantor and Wilmington Trust Company, as trustee (incorporated herein by reference to Exhibit 4 of the Company's Form 10-Q for the period ended June 30, 2001). 4.10 Release of Subsidiary Guarantee of OSI Education Services, Inc. (incorporated herein by reference to Exhibit 4.3 of the Company's Form 10-Q for the period ended September 30, 2000). 10.1 Amended and Restated Stockholders Agreement dated as of April 16, 2001 by and among the Company and various stockholders of the Company. 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. (incorporated herein by reference to Exhibit 10.2 of the Company's Form 10-K for the period ended December 31, 1999). 10.3 Amended and Restated Registration Rights Agreement dated April 16, 2001, 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 (incorporated herein by reference to Exhibit 10.4 of the Company's Form 10-K for the period ended December 31, 1999). 10.5 Voting Agreement. 10.6 Amended and Restated Employment Agreement dated as of June 4, 1999 between the Company and Timothy G. Beffa (incorporated herein by reference to Exhibit 10.5 of the Company's Form 10-K for the period ended December 31, 1999). 10.7 Amended and Restated Employment Agreement dated as of June 4, 1999 between the Company and Michael A. DiMarco (incorporated herein by reference to Exhibit 10.6 of the Company's Form 10-K for the period ended December 31, 1999). 10.8 Employment Agreement dated as of June 4, 1999 between the Company and Bryan K. Faliero (incorporated herein by reference to Exhibit 10.7 of the Company's Form 10-K for the period ended December 31, 1999). 10.9 Amended and Restated Employment Agreement dated as of June 4, 1999 between the Company and Michael B. Staed (incorporated herein by reference to Exhibit 10.8 of the Company's Form 10-K for the period ended December 31, 1999). 10.10 Employment Agreement dated July 5, 1999 between the Company and Gary L. Weller (incorporated herein by reference to Exhibit 10.9 of the Company's Form 10-K for the period ended December 31, 1999). 10.11 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). 10.12 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). 10.13 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). 10.14 Form of Non-Qualified Stock Option Award Agreement [B], as amended (incorporated herein by reference to Exhibit 10.14 of the Company's Form 10-K for the period ended December 31, 1999). 10.15 Form of Non-Qualified Stock Option Award Agreement [E] (incorporated herein by reference to Exhibit 10.15 of the Company's Form 10-K for the period ended December 31, 1999). 10.16 Outsourcing Solutions Inc. 2000 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.16 of the Company's Form 10-K for the period ended December 31, 2000). 10.17 Form of Non-Qualified Stock Purchase and Option Award Agreement [F] (incorporated herein by reference to Exhibit 10.4 of the Company's Form 10-Q for the period ended June 30, 2000). 10.18 Form of Director Stock Purchase and Option Agreement (incorporated herein by reference to Exhibit 10.3 of the Company's Form 10-Q for the period ended June 30, 2000). 10.19 Management Stock Purchase Agreement, Non-Recourse Secured Promissory Note and Management Stock Pledge Agreement dated as of April 19, 2000 between the Company and Timothy Beffa (incorporated herein by reference to Exhibit 10.1 of the Company's Form 10-Q for the period ended June 30, 2000). 10.20 Management Stock Purchase Agreement, Promissory Note and Management Stock Pledge Agreement dated as of April 19, 2000 between the Company and Gary Weller (incorporated herein by reference to Exhibit 10.2 of the Company's Form 10-Q for the period ended June 30, 2000). 10.21 Management Stock Purchase Agreement, Promissory Note and Management Stock Pledge Agreement dated as of November 1, 2000 between the Company and Bryan Faliero (incorporated herein by reference to Exhibit 10.21 of the Company's Form 10-K for the period ended December 31, 2000). 10.22 2001 Management Incentive Plan (incorporated herein by reference to Exhibit 10 of the Company's Form 10-Q for the period ended June 30, 2001). 10.23 Outsourcing Solutions Inc. Deferred Compensation Plan (incorporated herein by reference to Exhibit 10.23 of the Company's Form 10-K for the period ended December 31, 2000). 10.24 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). 10.25 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 (incorporated herein by reference to Exhibit 10.18 of the Company's Form 10-K for the year ended December 31, 1999). 10.26 First Amendment to Credit Agreement dated as of January 10, 2001 among the Company, the Lenders listed therein, DLJ Capital Funding, Inc., as the Syndication Agent, and Fleet National Bank, as the Administrative Agent (incorporated herein by reference to Exhibit 10.1 of the Company's Form 10-Q for the period ended March 31, 2001). 10.27 Second Amendment to Credit Agreement dated as of March 30, 2001 among the Company, the Lenders listed therein, DLJ Capital Funding, Inc., as the Syndication Agent, and Fleet National Bank, as the Administrative Agent (incorporated herein by reference to Exhibit 10.2 of the Company's Form 10-Q for the period ended March 31, 2001). 10.28 Third Amendment to Credit Agreement dated as of January 24, 2002 among the Company, the Lenders listed therein, Credit Suisse First Boston (as successor in interest of DLJ Capital Funding, Inc.), as the Syndication Agent, and Fleet National Bank, as the Administrative Agent. 10.29 Fourth Amendment to Credit Agreement dated as of April 8, 2002 among the Company, the Lenders listed therein, Credit Suisse First Boston (as successor in interest of DLJ Capital Funding, Inc.), as the Syndication Agent, and Fleet National Bank, as the Administrative Agent. 21 Subsidiaries of registrant. (b) Reports on Form 8-K There were no reports on Form 8-K for the three-month period ended December 31, 2001. 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: April 15, 2002 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 April 15, 2002 - ------------------------ Timothy G. Beffa Officer, Director /s/William B. Hewitt Director April 15, 2002 - ------------------------ William B. Hewitt /s/Timothy M. Hurd Director and Vice President April 15, 2002 - ------------------------ Timothy M. Hurd /s/Scott P. Marks, Jr. Director April 15, 2002 - ------------------------ Scott P. Marks, Jr. /s/Jeff L. Ott Director April 15, 2002 - ------------------------ Jeff L. Ott /s/Richard L. Thomas Director April 15, 2002 - ------------------------ Richard L. Thomas /s/Paul R. Wood Director and Vice President April 15, 2002 - ------------------------ Paul R. Wood INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULE Page ---- Consolidated Financial Statements Outsourcing Solutions Inc. and Subsidiaries Reports of Independent Accountants................................... F-1 Consolidated Balance Sheets at December 31, 2001 and 2000............ F-3 Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999........................... F-4 Consolidated Statements of Stockholders' Deficit for the years ended December 31, 2001, 2000 and 1999..................... F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999................................. F-7 Notes to Consolidated Financial Statements........................... F-9 Consolidated Financial Statement Schedule Report of Independent Accountants......................................... F-34 Schedule II - Valuation and Qualifying Accounts and Reserves.............. F-35 Report of Independent Accountants To the Stockholders and Board of Directors of Outsourcing Solutions Inc.: In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) on page 44, present fairly, in all material respects, the financial position of Outsourcing Solutions Inc. and its subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 14(a)(2) on page 44 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The consolidated financial statements of the Company for the year ended December 31, 1999 were audited by other independent accountants whose report dated March 28, 2000 expressed an unqualified opinion on those statements. /s/ PricewaterhouseCoopers LLP - ------------------------------ PricewaterhouseCoopers LLP March 22, 2002, except for Notes 2, 22 and 24 which are as of April 12, 2002 Report of Independent Accountants To the Stockholders of Outsourcing Solutions Inc.: We have audited the consolidated statements of operations, stockholders' (deficit) and cash flows of Outsourcing Solutions Inc. and subsidiaries for the year 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 audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, such consolidated financial statements of Outsourcing Solutions Inc. and subsidiaries present fairly, in all material respects, the consolidated results of their operations and their cash flows for the year 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, 2001 AND 2000 (As Restated) (In thousands, except share and per share amounts) - -------------------------------------------------------------------------------- ASSETS 2000 As Restated 2001 (Notes 2 & 22) ---- -------------- Cash and cash equivalents $ 9,535 $ 10,273 Cash and cash equivalents held for clients 25,920 21,970 Accounts receivable - trade, less allowance for doubtful receivables of $1,080 and $447 60,100 61,325 Purchased loans and accounts receivable portfolios 17,477 24,690 Property and equipment, net 46,952 46,601 Goodwill, less accumulated amortization of $70,824 and $54,218 421,871 417,084 Deferred financing costs, less accumulated amortization of $8,844 and $4,538 18,665 22,934 Other assets 39,690 27,770 -------- -------- TOTAL $640,210 $632,647 ======== ======== LIABILITIES AND STOCKHOLDERS' DEFICIT Accounts payable - trade $ 16,192 $ 15,896 Collections due to clients 25,920 21,970 Accrued salaries, wages and benefits 13,325 15,195 Debt 539,020 539,463 Other liabilities 76,346 71,080 Commitments and contingencies (Notes 3, 13 and 14) Mandatorily redeemable preferred stock; redemption amount $140,560 and $123,115 123,482 103,455 Stockholders' deficit: Senior common stock; $.01 par value; authorized 900,000 shares, 489,795.93 issued in 2001 and outstanding 5 - Voting common stock; $.01 par value; authorized 15,000,000 shares, 9,166,728.37 shares issued 92 92 Non-voting common stock; $.01 par value; authorized 2,000,000 shares, 480,321.30 issued and outstanding 5 5 Paid-in capital 223,277 200,537 Accumulated deficit (231,754) (198,372) Accumulated other comprehensive loss (8,883) - Notes receivable from management for shares sold (1,960) (1,817) Common stock in treasury, at cost; 3,078,249.07 shares (134,857) (134,857) -------- -------- Total stockholders' deficit (154,075) (134,412) --------- -------- TOTAL $640,210 $632,647 ======== ======== The accompanying notes are an integral part of these financial statements. OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 (As Restated) and 1999 (In thousands) - --------------------------------------------------------------------------------
2000 As Restated 2001 (Notes 2 & 22) 1999 ---- -------------- ---- REVENUES $ 612,346 $ 541,076 $ 504,425 EXPENSES: Salaries and benefits 294,509 264,293 244,157 Service fees and other operating and administrative expenses 209,704 177,457 154,799 Amortization of purchased loans and accounts receivable portfolios 26,930 28,092 38,722 Amortization of goodwill and other intangibles 16,606 16,082 16,229 Depreciation expense 14,370 15,803 14,866 Compensation expense related to redemption of stock options - 187 - Conversion, realignment and relocation expenses 3,564 2,742 5,063 Change in control bonuses, stock option redemption and other bonuses - - 10,487 Recapitalization related costs - - 6,827 --------- --------- --------- Total expenses 565,683 504,656 491,150 --------- --------- --------- OPERATING INCOME 46,663 36,420 13,275 INTEREST EXPENSE - Net 59,449 60,934 52,265 --------- --------- --------- LOSS BEFORE INCOME TAXES AND EXTRAORDINARY ITEM (12,786) (24,514) (38,990) PROVISION FOR INCOME TAXES 569 594 759 --------- --------- --------- LOSS BEFORE EXTRAORDINARY ITEM (13,355) (25,108) (39,749) EXTRAORDINARY LOSS ON EXTINGUISHMENT OF DEBT - - 4,208 --------- --------- --------- NET LOSS (13,355) (25,108) (43,957) PREFERRED STOCK DIVIDEND REQUIREMENTS AND ACCRETION OF SENIOR PREFERRED STOCK 20,027 17,739 2,358 --------- --------- --------- NET LOSS TO COMMON STOCKHOLDERS $ (33,382) $ (42,847) $ (46,315) ========== ========= =========
The accompanying notes are an integral part of these financial statements. OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 (As Restated) and 1999 (In thousands, except share and per share amounts) - --------------------------------------------------------------------------------
Common Stock Non-Voting ------------------------------- Cumulative Non- Accumulated Redeemable Voting Other Preferred Non- Classes Paid-in Accumulated Comprehensive Notes Treasury Stock Senior Voting Voting A, B & C Capital Deficit Income Receivable Stock Total ---------- ------ ------ ------ -------- ------- ----------- ------------- ---------- ------- --------- BALANCE JANUARY 1,1999 $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 & 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) Issuance of 62,050.23 voting common shares - - 1 - - 2,324 - - - - 2,325 Issuance of 50,040.03 voting common shares in exchange for cash and notes receivable - - 1 - - 1,874 - - (1,774) - 101
(continued) The accompanying notes are an integral part of these financial statements. OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (Continued) FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 (As Restated) and 1999 (In thousands, except share and per share amounts) - --------------------------------------------------------------------------------
Common Stock --------------------------------- Non-voting Cumulative Non- Redeemable voting Accumulated Preferred Classes Paid-in Accumulated Comprehensive Notes Treasury Stock Senior Voting Voting A, B & C Capital Deficit Income(Loss) Receivable Stock Total ---------- ------ ------ ------ -------- ------- ------------ ------------ ---------- -------- ----- Accrued interest on notes receivable - - - - - - - - (43) - (43) Accrued dividends on mandatorily redeemable preferred stock - - - - - - (15,238) - - - (15,238) Accretion of mandatorily redeemable preferred stock - - - - - - (2,501) - - - (2,501) Net loss As Restated (Notes 2 & 22) - - - - - - (25,108) - - - (25,108) ------- ----- ------ ------ ------- ------ ------- ------- ------- ------ ------- BALANCE, DECEMBER 31, 2000 As Restated (Notes 2 & 22) - - 92 5 - 200,537 (198,372) - (1,817) (134,857) (134,412) Issuance of 489,795.93 of senior common shares - 5 - - - 21,999 - - - - 22,004 Fair market value adjustments on derivatives (see Note 16) - - - - - - - (8,883) - - (8,883) Non-cash variable stock options compensation - - - - - 741 - - - - 741 Accrued interest on notes receivable - - - - - - - - (143) - (143) Accrued dividends on mandatorily redeemable preferred stock - - - - - - (17,445) - - - (17,445) Accretion of mandatorily redeemable preferred stock - - - - - - (2,582) - - - (2,582) Net loss - - - - - - (13,355) - - - (13,355) ------ ----- ------ ------ ------- -------- ---------- ------- ------- -------- --------- BALANCE, DECEMBER 31, 2001 $ - $ 5 $ 92 $ 5 $ - $223,277 $(231,754) $(8,883) $(1,960) $(134,857) $(154,075) ====== ===== ====== ====== ======= ======== ========= ======= ======= ========== =========
The accompanying notes are an integral part of these financial statements. OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 (As Restated) AND 1999 (In thousands) - --------------------------------------------------------------------------------
2000 As Restated 2001 (Notes 2 & 22) 1999 ---- --------------- ---- OPERATING ACTIVITIES AND PORTFOLIO PURCHASING: Net loss $ (13,355) $ (25,108) $ (43,957) Adjustments to reconcile net loss to net cash from operating activities and portfolio purchasing: Depreciation and amortization 38,458 36,300 34,477 Amortization of purchased loans and accounts receivable portfolios 26,930 28,092 38,722 Extraordinary loss on extinguishment of debt - - 4,208 Compensation expense related to redemption of stock options and - - 4,635 repriced options Other non-cash charges 1,968 - - Change in assets and liabilities: Purchases of loans and accounts receivable portfolios (19,717) (12,835) (23,176) Other assets (8,429) (11,127) (13,245) Accounts payable and other liabilities (8,928) 9,470 (5,316) --------- --------- --------- Net cash from operating activities and portfolio purchasing 16,927 24,792 (3,652) --------- --------- --------- INVESTING ACTIVITIES: Payments for acquisitions, net of cash acquired (24,678) (18,316) (877) Investment in FINCO - - (2,500) Acquisition of property and equipment (14,159) (18,398) (18,437) Purchases of loans and accounts receivable portfolios for resale to FINCO (63,399) (86,910) (56,664) Sales of loans and accounts receivable portfolios to FINCO 63,399 86,910 56,664 Other - 265 --------- --------- --------- Net cash from investing activities (38,837) (36,714) (21,549) --------- --------- --------- FINANCING ACTIVITIES: Proceeds from term loans - 150 400,000 Borrowings under revolving credit agreement 341,600 341,950 289,700 Repayments under revolving credit agreement (327,600) (322,950) (302,200) Repayments of debt (14,670) (3,315) (397,448) Deferred financing fees (162) (125) (21,242) Proceeds from issuance of preferred and common stock 22,004 426 300,237 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 21,172 16,136 22,446 --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (738) 4,214 (2,755) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 10,273 6,059 8,814 --------- --------- --------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 9,535 $ 10,273 $ 6,059 ========= ========= =========
(continued) The accompanying notes are an integral part of these financial statements. OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 (As Restated) AND 1999 (In thousands) - -------------------------------------------------------------------------------- 2000 As Restated 2001 (Notes 2 & 22) 1999 ---- -------------- ---- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during year for interest $ 54,057 $ 49,151 $ 51,232 ======== ======== ======== Net cash paid during year for taxes $ 469 $ 2 $ 306 ======== ======== ======== SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION: Investment in FINCO through exchange of common stock with MDP $ - $ - $ 7,000 ======== ======== ======== Accrued dividends on mandatorily redeemable preferred stock $ 17,445 $ 15,238 $ 877 ======== ======== ======== Accretion of mandatorily redeemable preferred stock $ 2,582 $ 2,501 $ 205 ======== ======== ======== Notes receivable for common stock $ - $ 1,774 $ - ======== ======== ======== Capital lease obligations incurred for the purchase of new equipment $ 227 $ 320 $ - ======== ======== ======== Issuance of voting common stock in partial payment of asset acquisition $ - $ 2,000 $ - ======== ======== ======== Notes payable in partial payment of asset acquisition $ - $ 5,000 $ - ======== ======== ======== The accompanying notes are an integral part of these financial statements. OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2001 AND 2000 (In thousands, except share and per share amounts) - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business - The Company is one of the largest providers of business process outsourcing receivables services in the United States. The Company purchases and collects portfolios of charged-off 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. Consolidation Policy - The consolidated financial statements include the accounts of Outsourcing Solutions Inc. ("the Company") and all of its majority-owned subsidiaries (collectively, "OSI"). 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 with original maturities of less than three months. Cash equivalents are valued at cost, which approximates market. Cash and cash equivalents held for clients consist of certain restricted accounts which are used to maintain cash collected and held on behalf of OSI's clients. Purchased Loans and Accounts Receivable Portfolios - Purchased loans and accounts receivable portfolios ("Receivables") acquired 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. No impairments have been recorded for the year ended December 31, 2001, 2000 and 1999, respectively. 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 recorded as revenue when cash is collected. Proceeds from strategic sales of Receivables owned are generally recognized as revenue when received. Revenue from collections and outsourcing services is recorded as such services are provided. Certain collection services are provided on a contingent fee basis. For these services, revenue is recognized when cash is collected. Deferred revenue in the accompanying balance sheet primarily relates to certain prepaid fees for letter services which are recognized when the letter services are provided. Property and Equipment - Property and equipment is 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. The Company annually reviews property and equipment to assess recoverability. Impairments are recognized in operations if the estimated future undiscounted cash flows derived from such property and equipment are less than its carrying value. Management believes there is no impairment of property and equipment at December 31, 2001. Intangible Assets - The excess of cost over the fair value of net assets of businesses acquired (goodwill) 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 annually reviews goodwill and other intangibles to assess recoverability. Impairments are recognized in operations if the estimated future operating cash flows (undiscounted and without interest charges) derived from such intangible assets are less than its carrying value. At December 31, 2001, the Company believes that no impairment in the carrying value of goodwill or intangibles exists. In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 eliminates the amortization of goodwill and instead requires goodwill to be tested for impairment annually at the reporting unit level. Also, specifically identifiable intangible assets are required to be amortized over their useful lives and reviewed for impairment in accordance with Statement of Financial Accounting Standard No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Under SFAS No. 142, if the intangible asset has an indefinite useful life, it is not amortized until its life is determined to be finite. The Company is required to adopt SFAS No. 142 on January 1, 2002. SFAS No. 142 provides a staggered timeline for completing transitional impairment testing of goodwill and indefinite-lived intangible assets. The Company does not have any indefinite-lived intangible assets. The Company will be required to reassess the useful lives of intangible assets by the end of the first quarter of 2002. The Company will be required to complete the first step of the transitional goodwill impairment by the end of the second quarter of 2002. If this first step indicates transitional goodwill impairment may exist, the second step, which results in a final determination of goodwill impairment, if any, must be completed no later than December 31, 2002. The Company is currently evaluating the impact of SFAS No. 142 on its financial statements. Goodwill, net of amortization, was $421,871 and $417,084 at December 31, 2001 and 2000, respectively. Goodwill amortization recorded for the year ended December 31, 2001 and 2000 was $16,606 and $15,484, respectively. However, as previously noted, goodwill amortization will cease as of January 1, 2002. 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 the 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 subsidiaries or former divisions of The Union Corporation (See Notes 7 and 14). Costs incurred to investigate and remediate contaminated sites are charged against the environmental reserves established in conjunction with the Union acquisition. Stock-Based Compensation - The Company accounts for its stock-based compensation plans using the intrinsic value method prescribed by Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees. 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. Accounting Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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, is applicable to companies who have publicly traded equity securities. As such, SFAS No. 128 is not currently applicable to the Company and, accordingly, earnings per share information is not presented. Business Combinations - In July 2001, the FASB issued SFAS No. 141, Business Combinations. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 and establishes specific criteria for recognition of intangible assets separately from goodwill. For business combinations initiated after June 30, 2001, SFAS No. 141 also requires that unallocated negative goodwill be written off immediately as an extraordinary gain. In addition, SFAS No. 141 requires reclassifying existing intangible assets that have been reported as part of goodwill, and accounting for them separately upon adoption of SFAS No. 142 if certain criteria are met. The adoption of SFAS No. 141 did not have a material impact on the Company's consolidated financial statements as the Company has no negative goodwill or intangible assets that have been reported as part of goodwill. Impairment or Disposal of Long-Lived Assets - In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets, and is required to be adopted on January 1, 2002. The Company does not expect SFAS No. 144 to have a material impact on the Company's consolidated financial statements upon adoption. 2. RESTATEMENT OF FINANCIAL RESULTS During the finalization of the Company's consolidated financial statements as of and for the year ended December 31, 2001, it was determined that the consolidated results reported in the Company's Form 10-K as of and for the year ended December 31, 2000, as well as the unaudited consolidated quarterly results reported in the Company's Report on Form 10-Q for the quarter ended September 30, 2001, would need to be restated for inaccurate financial reporting of certain transactions at one of the Company's subsidiaries, North Shore Agency, Inc. ("NSA"). The Board of Directors authorized the Audit and Compliance Committee (the "Committee") to conduct an independent investigation, with the assistance of special counsel retained by the Committee, to identify the causes of these discrepancies and to make recommendations to ensure similar issues do not recur in the future. The Committee retained Bryan Cave LLP as special counsel, and Bryan Cave LLP engaged an independent accounting firm to assist in the investigation. As a result of the investigation, it was determined that certain assets were overstated (primarily accounts receivable and prepaid postage) and trade accounts payable was understated at NSA due to the inaccurate financial reporting of certain transactions. As a result, the consolidated financial statements as of and for the year ended December 31, 2000, as well as the unaudited consolidated quarterly results as of and for the quarter ended September 30, 2001 have been restated. Comparisons of previously reported and restated consolidated financial statements for all periods impacted by the restatement, including annual consolidated financial statements and unaudited quarterly financial data, are set forth in Notes 22 and 23 to the consolidated financial statements included herein. For the year ended December 31, 2000, the previously reported consolidated financial statements included an overstatement of revenues by $1,551 and an understatement of operating expenses by $4,106. The impact of the inaccurate financial reporting of certain transactions on previously reported operating results for the year ended December 31, 2000 was to overstate operating income by $5,657 and understate net loss and net loss to common stockholders by $5,657. 3. RECAPITALIZATION AND RECENT ACQUISITIONS In December 1999, the Company was recapitalized in a transaction with Madison Dearborn Capital Partners III, L.P. ("MDP") and certain of the Company's stockholders, optionholders and warrant holders pursuant to which MDP acquired 75.9% of OSI's common stock. In conjunction with the Recapitalization, most of the then outstanding capital stock of OSI was redeemed, the Company refinanced its credit facility and issued $107,000 of preferred stock. The total implied value of the Company based on the Recapitalization was approximately $790,000. The Recapitalization had no impact on the historical basis of the Company's 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 stock options received $37.47 in cash in exchange for each of these instruments. In accordance with the terms of the Recapitalizations, all outstanding stock options that had not vested at the date of the Recaptialization became immediately vested. Immediately following the Recapitalization, continuing shareholders (14.4% before the Recapitalization) owned approximately 8.5% of the outstanding shares of the Company's voting 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 were 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. During 1999, the Company recorded $57,880 in fees and expenses associated with the Recapitalization. The total fees and expenses consisted of: (i) fees and expenses related to the debt and equity transactions, including bank commitment fees and underwriting commissions; (ii) professional and advisory fees and expenses; (iii) compensation 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; and (iv) other miscellaneous fees and expenses. The fees and expenses that could be specifically identified as relating to the issuance of debt were capitalized and are being amortized over the life of the debt as interest expense. The fees and expenses that could be specifically identified as relating to the equity transactions were charged directly to equity. Other transaction fees were allocated between debt and equity based on the Company's estimate of the effort spent in the activity giving rise to the fee or expense. The allocation of fees and expenses to the debt, equity, compensation expense and Recapitalization related costs is as follows: Compensation Recapitalization Debt Equity Expense Related Costs Total ------- ------- ------------ ---------------- ------- Direct costs $20,205 $18,571 $10,487 $ 6,827 $56,090 Allocated costs 895 895 - - 1,790 ------- ------- ------- ------- ------- Total 21,100 $19,466 $10,487 $ 6,827 $57,880 ======= ======= ======= ======= ======= In September 2000, the Company through a newly formed limited liability company, RWC Consulting Group, LLC, acquired certain assets and assumed certain liabilities of RWC Consulting Group, Inc. ("RWC"), a service company providing highly-skilled consultants to banks to assist in their back office functions. Total consideration for RWC included cash of approximately $16,968 including transaction costs of $225, voting common stock worth $2,000 (53,376.03 shares) and an 18% unsecured, subordinated note of $5,000 (interest compounded annually and principal and interest due September 29, 2003). The acquisition contains a contingent payment obligation based on the attainment of a financial performance target over the next three years. The future contingent payment obligation, if any, will be accounted for as additional goodwill at such time the Company determines it is probable that the contingent payment will be made. In March 2001, the Company through a newly formed limited liability company, Coast to Coast Consulting, LLC, acquired certain assets and assumed certain liabilities of Coast to Coast Consulting, Inc. ("CCC"), a service company providing highly skilled experts to health care clients to assist with their on-site, back office functions such as billing, collections, special projects and other areas. Total cash consideration for CCC was approximately $16,699 including transaction costs of $150. The acquisition contains a contingent payment obligation based on the attainment of a financial performance target over the next three years. The future contingent payment obligation, if any, is expected to be accounted for as additional goodwill at such time as the Company determines it is probable that the contingent payment will be made. In April 2001, the Company through a newly formed limited liability company, Pacific Software Consulting, LLC, acquired (i) certain assets and assumed certain liabilities of Pacific Software Consulting, Inc. ("PSC"), a service company providing highly skilled consultants to banks to assist in their back office functions, and (ii) associated patentable property. Total cash consideration for these acquisitions was approximately $4,954 including transaction costs of $45. In connection with these acquisitions, the Company agreed to certain contingent payment obligations based on the attainment of certain financial performance targets through September 2002. The future contingent payment obligations, if any, are expected to be accounted for as additional goodwill as the payments are made. The above acquisitions were accounted for under the purchase method of accounting. The excess of cost over the fair value of the net assets acquired was $39,488. The cash purchase price of the acquisitions was financed under the Company's revolving credit facility. Results of operations for the acquired businesses were included in the Company's consolidated financial statements at their respective acquisition dates. No amounts have been recorded to date relative to the contingent purchase price provisions for the respective acquisitions noted above. The unaudited pro forma consolidated financial data shown below presents the consolidated financial data as if the RWC, CCC and PSC acquisitions 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 acquisitions been consummated as of the beginning of each period presented, nor does the data give effect to any transactions other than the acquisitions. Unaudited Pro Forma ----------------------------- 2001 2000 Net revenues $617,400 $579,306 ======== ======== Net loss $(13,047) $(15,210) ======== ======== 4. PROPERTY AND EQUIPMENT Property and equipment, which is recorded at cost, consists of the following at December 31: 2001 2000 ---- ---- Land $ 2,109 $ 2,109 Buildings 1,917 1,917 Furniture and fixtures 13,391 10,603 Machinery and equipment 5,223 4,176 Telephone equipment 15,951 13,066 Leasehold improvements 9,685 9,056 Computer hardware and software 64,663 57,710 --------- --------- 112,939 98,637 Less accumulated depreciation (65,987) (52,036) ---------- --------- $ 46,952 $ 46,601 ========= ========= 5. OTHER ASSETS Other assets consist of the following at December 31: 2000 As Restated 2001 (Notes 2 & 22) ---- -------------- Investment in FINCO $ 12,000 $ 12,000 Receivable from FINCO 17,014 5,612 Other (primarily supplies inventory and prepaid assets) 10,676 10,158 --------- --------- $ 39,690 $ 27,770 ========= ========= 6. DEBT Debt consists of the following at December 31: 2001 2000 ---- ---- Term Loan Facility $ 387,500 $ 397,500 Revolving Credit Facility 46,000 32,000 11% Series B Senior Subordinated Notes 100,000 100,000 18% Note payable to stockholder (See Note 3) 5,000 5,000 9% Note payable to stockholder - 4,429 Other (including capital leases) 520 534 --------- --------- Total debt $ 539,020 $ 539,463 ========= ========= On April 28, 1997, the Company registered $100,000 of 11% Series B Senior Subordinated Notes (the "Notes") which mature on November 1, 2006. The Notes were exchanged for the then existing unregistered $100,000 of 11% Senior Subordinated Notes. 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. Under the Indenture governing the Notes, the Company is obligated to furnish holders of the Notes with financial information that would be required to be contained in filings with the Securities and Exchange Commission. The Company is furnishing Note holders with copies of the restated financial results discussed in Note 2 and, therefore, has cured, within any applicable cure period, any default that may have existed as a result of inaccuracies contained in any previously furnished financial information. In connection with the Recapitalization, the Company entered into a new credit facility providing up to $475,000 of senior bank financing ("Credit Facility"). The proceeds of the Credit Facility were used to refinance $439,602 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. No income tax benefit was recorded with respect to this write-off. In addition, the Credit Facility will be used to provide for the Company's working capital requirements and any future acquisitions. The 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%. As of December 31, 2001 and 2000, the interest rate for Term Loan A was 5.68% and 10.05%, respectively. As of December 31, 2001 and 2000, the interest rate for Term Loan B was 6.43% and 10.80%, respectively. See Note 24 for an explanation of interest rate adjustments for 2002 and thereafter. 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%. The average interest rate was 5.83% and 10.04% at December 31, 2001 and 2000, respectively. Also outstanding under the Revolving Facility are letters of credit of $8,571, which expire at various dates within the next year. After outstanding letters of credit, the Company had $20,429 available under the Revolving Facility at December 31, 2001. The 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, by substantially all of the Company's domestic property assets and by certain shares of the Company's Voting Common Stock. The 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. As discussed in Note 24, the Company amended its Credit Facility to obtain waivers for the certain events of non-compliance since December 31, 2000 and further amended certain of the 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, with the exception of OSI Education Services Inc., and any additional domestic subsidiaries formed by the Company that become guarantors under the 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: 2000 As Restated 2001 (Notes 2 & 22) ---- -------------- Total assets $600,688 $591,559 ======== ======== Total liabilities $149,642 $163,960 ======== ======== Operating revenue $579,314 $532,642 ======== ======== Income from operations $ 46,010 $ 44,978 ======== ======== Net income $ 4,958 $ 8,777 ======== ======== Maturities of debt and capital leases at December 31, 2001 are as follows: Capital Debt Leases ---- ------- 2002 $ 17,590 $ 238 2003 37,500 195 2004 40,000 45 2005 201,750 - 2006 241,750 - Thereafter - - ---------- ------- Total Payments $ 538,590 478 ========== Less amounts representing interest 48 ------- Present value of minimum lease payments $ 430 ======= 7. OTHER LIABILITIES Other liabilities consist of the following at December 31: 2001 2000 ---- ---- Accrued acquisition related office closure costs, over-market leases and other costs $ 3,676 $ 5,665 Accrued interest 9,764 11,854 Deferred revenue 10,264 10,424 Environmental reserves 19,698 21,078 Derivative hedge liability 11,934 - Other 21,010 22,059 -------- -------- $ 76,346 $ 71,080 ======== ======== The environmental reserves, on an undiscounted basis, at December 31, 2001 and 2000 are for environmental proceedings as a result of the Union acquisition. Union and certain of its subsidiaries are parties to several pending environmental proceedings involving the United States 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 they have 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, Union or its subsidiaries may be exposed to additional substantial liability for these proceedings as additional information becomes available over the long-term. See Note 14. 8. MANDATORILY REDEEMABLE PREFERRED STOCK Mandatorily redeemable preferred stock consists of the following at December 31: 14% Senior Mandatorily Junior Redeemable Preferred Preferred Stock Stock Total ---------------- ----------- ------------ Balance at December 31, 1999 $ 78,695 $ 7,021 $ 85,716 Accrued dividends 14,887 351 15,238 Accretion of preferred stock 2,501 - 2,501 ----------- -------- --------- Balance at December 31, 2000 $ 96,083 $ 7,372 $ 103,455 Accrued dividends 17,076 369 17,445 Accretion of preferred stock 2,582 - 2,582 ----------- -------- --------- Balance at December 31, 2001 $ 115,741 $ 7,741 $ 123,482 =========== ======== ========= 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, valued at $37.47 per share, 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 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 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 difference between $37.47 per share and their exercise price of $12.50. Consequently, there are no warrants outstanding at December 31, 2001 and 2000. In 2000, the Company issued 50,040.03 shares of its Voting Common Stock at prices approximating fair value to certain members of senior management in exchange for cash and interest bearing notes secured by the shares along with certain personal assets of the members of senior management. The outstanding principal balances plus accrued interest of these notes amounted to $1,960 and $1,817 at December 31, 2001 and 2000, respectively, and are classified as an increase to stockholders' deficit. In 2001, the Company completed a sale of 489,795.93 shares of Senior Common Stock for $24,000 ($22,004 after all related expenses) to a private equity firm and to certain members of its existing private investor group, including MDP, the Company's majority stockholder. 10. INCOME TAXES Major components of the Company's income tax provision are as follows: 2001 2000 1999 ---- ---- ---- Current: Federal $ - $ - $ - State 500 400 550 Foreign 69 194 209 --------- --------- --------- Total current 569 594 759 --------- --------- --------- Deferred: Federal - - - State - - - Foreign - - - --------- --------- --------- Total deferred - - - --------- --------- --------- Provision for income taxes $ 569 $ 594 $ 759 ========= ========= ========= 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 net operating loss carryforwards, 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: 2000 As Restated 2001 (Notes 2 & 22) ---- -------------- Deferred tax assets: Net operating loss carryforwards $ 77,662 $ 68,473 Accrued liabilities 16,044 15,894 Loans and accounts receivable (1,084) (1,176) Property and equipment (993) 392 Intangible assets (1,963) 1,236 Tax credit carryforwards 10,625 8,375 Other 414 1,402 ---------- ---------- Total deferred tax assets 100,705 94,596 Less valuation allowance (100,705) (94,596) ---------- ---------- Net deferred tax assets $ - $ - ========== ========== The valuation allowance was $100,705 and $94,596 at December 31, 2001 and 2000, 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 increases in the valuation allowance during 2001, 2000 and 1999 were primarily 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 2001. 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 $177,699 as of December 31, 2001 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 for tax purposes, 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 carryforward 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 2021. The Company also has available federal tax credit carryforwards of approximately $778 which expire between 2003 and 2014 and federal minimum tax credit carryforwards of approximately $759 which may be carried forward indefinitely. The Company has various state tax credit carryforwards of approximately $8,993 with various expiration dates primarily from South Carolina, Alabama, Georgia and Pennsylvania for new job creation and new capital investment. 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, is subject to reassessment 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: 2000 As Restated 2001 (Notes 2 & 22) 1999 ---- -------------- ---- Federal tax benefits at statutory rate $ (4,347) $ (8,335) $ (13,257) State income taxes (net of federal tax benefits) (7,011) (9,816) (874) Nondeductible amortization 3,551 3,546 3,753 Other 2,068 (825) 2,371 Foreign 199 194 - Deferred tax valuation allowance 6,109 15,830 8,766 -------- ------- --------- Provision for income taxes $ 569 $ 594 $ 759 ======== ======= ========= 11. RELATED PARTY TRANSACTIONS In connection with the agreements executed in connection with the Recapitalization discussed in Note 3, the Company paid transaction costs and advisory fees to certain Company stockholders. Such costs were $17,092 for the year ended December 31, 1999. Under an Advisory Services Agreement, the Company expensed $500 in 2001 and 2000 for professional services rendered by MDP, the majority stockholder of the Company. Under various financing arrangements associated with the Company's Credit Facility, the Company incurred interest expense of $2,981, $2,358 and $3,376 for the years ended December 31, 2001, 2000 and 1999, respectively, to certain Company stockholders of which one is a financial institution and was co-administrative agent of the Company's prior credit facility. 12. STOCK OPTION AND AWARD PLANS Under terms of the Company's stock option plans, selected employees, directors and certain consultants may be granted options and other awards. The plans are stock award and incentive plans which permit the issuance of options, stock appreciation rights ("SARs") in tandem with such options, restricted stock, and other stock-based awards. The plans reserved 1,150,000 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. Under the terms of certain plans, 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, 2001, no SARs have been granted. The awarded stock options vest over periods ranging from three to four years and vesting may be accelerated upon the occurrence of a change in control as defined in the plans. 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 pro rata vesting over a specified number of years. Accordingly, compensation expense of $708 was recognized during 1999 as a result of these modifications of certain options and is reflected in the accompanying statement of operations. In addition, in connection with the Recapitalization, certain options were 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 plans activity is as follows: Number of Shares Weighted Average of Stock Subject Exercise Price to Options Per Share ---------------- ---------------- Outstanding at January 1, 1999 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 Granted 305,420 37.47 Forfeited (38,000) 40.00 Exercised (5,000) 25.00 -------- Outstanding at December 31, 2000 705,345 33.79 Granted 52,000 49.00 Forfeited (4,500) 37.47 Exercised (1,500) 37.47 -------- Outstanding at December 31, 2001 751,345 34.82 ======== Exercisable shares at December 31, 2001, 2000 and 1999 were 475,447, 399,925 and 442,925, respectively. A summary of stock options outstanding at December 31, 2001 is as follows: Options Outstanding Options Exercisable ---------------------------------------- ---------------------- Weighted Average Exercise Number Remaining Exercise Number Exercise Price Outstanding Contractual Life Price Exercisable Price - -------------- ----------- ---------------- --------- ----------- --------- $12.50 70,175 4.7 years $12.50 70,175 $12.50 $25.00 111,750 5.6 years $25.00 111,750 $25.00 $37.47 299,420 8.6 years $37.47 75,522 $37.47 $40.00 218,000 7.1 years $40.00 218,000 $40.00 $49.00 52,000 9.9 years $49.00 - - ------- ------- $12.50-$49.00 751,345 6.9 years $34.82 475,447 $32.01 ======= ======= The Company accounts for the stock option plans 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: 2001 2000 1999 ---- ---- ---- Risk free rate 3.59% 5.06% 5.0% 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 2001, 2000 and 1999 were $15.23, $14.83 and $15.74, respectively. The Company's pro forma information is as follows: 2000 As Restated 2001 (Notes 2 & 22) 1999 ---- -------------- ---- Net loss: As reported $(13,355) $(25,108) $(43,957) Pro forma (14,712) (26,493) (45,436) In addition, the Committee may grant restricted stock to participants of the plans 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, 2001. 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, whereby the subsidiary has a monthly commitment to purchase nonperforming loans meeting certain criteria for an agreed upon price subject to due diligence. The duration of these agreements do not extend beyond one year. The purchases under the Portfolio Flow Purchase Agreements were $23,890, $16,371 and $33,303, which excludes amounts purchased and subsequently sold to FINCO (see Note 20), for the years ended December 31, 2001, 2000 and 1999, 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 -------- 2002 $ 20,149 2003 17,198 2004 15,465 2005 14,169 2006 12,164 Thereafter 12,025 -------- Total lease payments $ 91,170 ======== Rent expense under operating leases was $19,288, $18,372 and $16,974 for the years ended December 31, 2001, 2000 and 1999, respectively. 14. LITIGATION AND ENVIRONMENTAL At December 31, 2001, the Company and certain of its subsidiaries were involved in a number of legal proceedings and claims that occurred in the normal course of business and are 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, 2001. Current operations of the Company and its subsidiaries do not involve activities materially affecting the environment. However, The Union Corporation, a subsidiary of the Company, and certain of its subsidiaries are parties 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 subsidiaries or former divisions of Union for which it has potential continuing responsibility. Upon completion of the acquisition of Union, the Company, 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 liability of Union or one or more of its subsidiaries 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, involvement by Union or one or more of its subsidaries is considered to be de minimus (i.e., a volumetric share of approximately 1% or less) and in each of these cases Union or one or more of its subsidiaries 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 the projected liability of Union or one or more of its subsidiaries, 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. The Company periodically reviews all known environmental claims, where information is available, to provide reasonable assurance that reserves are adequate. 15. DERIVATIVES AND HEDGING ACTIVITIES 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 Facility, the Company will employ derivative financial instruments as part of its risk management program. The Company's objective is to manage risks and exposures and not to trade such instruments. At December 31, 2001, the Company had interest rate swap and collared swap agreements outstanding in the notional amounts of $75,000 and $225,000, respectively. At December 31, 2000, the Company had interest rate swap and collared swap agreements outstanding in the notional amounts of $50,000 and $150,000, respectively. Under the interest rate collared swap agreements maturing June 2003 relating to $150,000 nominal amount of its term debt, the Company pays three month LIBOR between 5.90% and 8.50% in addition to the applicable margin as set forth in the Credit Facility. In the event, however, the three month LIBOR falls below 5.90%, the Company would be required to pay 7.0% plus the applicable margin, until such time the three month LIBOR rises above 5.90%, at which time the rate returns to a variable rate. In September 2001, the Company accelerated the call option of an interest rate swap agreement maturing November 2006 relating to $50,000 notional amount of its 11.0% senior subordinated notes and entered into a new interest rate swap agreement maturing November 2006 relating to $75,000 notional amount of its 11.0% senior subordinated notes. Under this agreement, the Company pays floating three month LIBOR plus 5.50%. The financial institution has the right to call the agreement, at its discretion, after May 1, 2003. In addition, the Company entered into an interest rate collared swap agreement maturing November 2006 relating to $75,000 notional amount of its term debt. Under the agreement, the Company pays floating three month LIBOR, capped at 6.75%, plus the applicable margin as set forth in the Credit Facility. In the event, however, the three month LIBOR drops below 2.50% from November 1, 2001 to April 30, 2002, 2.85% from May 1, 2002 to April 30, 2003, or 4.10% from May 1, 2003 to November 1, 2006, the Company would be required to pay 5.50% plus the applicable margin, until such time the three month LIBOR rises above the period floor, at which time the rate returns to a variable rate. The three month LIBOR rate (Euro dollar rate) at December 31, 2001 and 2000 was 1.9% and 6.6%, respectively. On January 1, 2001, the Company implemented SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 137 and SFAS No. 138 (collectively, the Statement). This Statement requires all derivatives to be recognized in the balance sheet at fair value, with changes in that fair value to be recorded in current earnings or deferred in other comprehensive income, depending on whether the derivative instrument qualifies as a hedge and, if so, the nature of the hedging activity. As noted above, 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 Facility, the Company will employ derivative financial instruments as part of its risk management program. The Company's interest rate hedges are primarily classified as cash flow hedges. For a cash flow hedge of an anticipated transaction, the ineffective portion of the change in fair value of the derivative is recorded in earnings as incurred, whereas the effective portion is deferred in accumulated other comprehensive income (loss) on the balance sheet until the transaction is realized, at which time any deferred hedging gains or losses are recorded in earnings. The Company's transition adjustment upon adoption of the Statement required the recording of a liability of $3,691 with an offset of the same amount to accumulated other comprehensive income (loss). As of December 31, 2001, this liability is $11,934 and is included in other liabilities and $8,883 is included in accumulated other comprehensive income (loss). During the year ended December 31, 2001, the Company recorded, as additional interest expense, $3,051 due to the hedges' ineffectiveness. 16. COMPREHENSIVE INCOME (LOSS) The components of total comprehensive income (loss) for the year ended December 31 are as follows: 2000 As Restated 2001 (Notes 2 & 22) 1999 ---- -------------- ---- Net income (loss): $(13,355) $(25,108) $(43,957) Other comprehensive income item: Cumulative effect of adoption of the Statement (3,691) - - Fair market value adjustments on derivatives (5,192) - - -------- -------- -------- Total comprehensive income (loss) $(22,238) $(25,108) $(43,957) ======== ======== ======== 17. 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, 2001 and 2000 are as follows. The carrying amount of cash and cash equivalents and long-term debt except the Notes, approximates the fair value. The approximate fair value of the Notes at December 31, 2001 and 2000 was $80,000 and $80,000, 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 their carrying value at December 31, 2001 and 2000. 18. EMPLOYEE BENEFIT PLANS At December 31, 2001, the Company has two defined contribution plans, one of which it acquired through the Union acquisition, which provides 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 $1,913, $1,652 and $1,654 for the years ended December 31, 2001, 2000 and 1999, respectively. In November 2000, the Company established a deferred compensation plan for selected employees who, due to Internal Revenue Service guidelines, cannot take full advantage of the contributory plan. This plan, which is not required to be funded, allows eligible employees to defer portions of their current compensation. To support the deferred compensation plan, the Company has elected to purchase Company-owned life insurance, which is included in other assets, was $943 and $175 at December 31, 2001 and 2000, respectively. The cash surrender value of the Company-owned life insurance and the deferred compensation liability, which is included in other liabilities, was $829 and $160 at December 31, 2001 and 2000, respectively. 19. SEGMENT INFORMATION The Company has three reportable segments, Outsourcing Services, Portfolio Services and Recovery Services. The Outsourcing Services segment provides services such as contract management of accounts receivable, billing and teleservicing services, letter series programs and banking and financial services transaction processing. Portfolio Services involve acquiring portfolios of charged-off consumer receivables from credit grantors or other owners, servicing such portfolios and retaining all amounts collected and servicing customer owned portfolios for an agreed upon servicing fee. The Recovery Services segment collects delinquent or charged-off consumer accounts for a fixed percentage of realized collections or a fixed fee per account. The Company derives substantially of its revenues from domestic customers. The chief operating decision maker evaluates performance of the segments based on Adjusted Operating EBITDA (Earnings before interest expense, taxes, depreciation, amortization and corporate and shared expenses, but after amortization of purchased loans and accounts receivable portfolios). Adjusted Operating EBITDA includes only the costs directly attributable to the operations of the individual segment. Eliminations represent intercompany revenue. Assets are not identified by the individual segments and, therefore, are not reported by segment. The accounting policies for the Company's segments are consistent with the corporate accounting policies outlined in Note 1 to the accompanying financial statements. The following table presents certain data by business segment: 2000 As Restated Revenues 2001 (Notes 2 & 22) 1999 -------- ---- -------------- ---- Outsourcing Services $339,298 $255,269 $212,039 Portfolio Purchasing Services 96,044 92,779 85,815 Recovery Services 198,482 208,406 218,177 Eliminations (21,478) (15,378) (11,606) -------- -------- -------- Total Revenues $612,346 $541,076 $504,425 ======== ======== ======== Adjusted Operating EBITDA Outsourcing Services $ 46,426 $ 40,434 $ 35,447 Portfolio Purchasing Services 16,717 13,432 10,152 Recovery Services 43,785 47,182 53,239 -------- -------- -------- Total Adjusted Operating EBITDA $106,928 $101,048 $ 98,838 ======== ======== ======== 20. 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 which expires in October 2003. 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 29% of the voting rights. An unrelated third party holds the majority voting rights of FINCO and has decision-making authority over FINCO's operations. The Company's investment in FINCO is accounted for under the equity method. In connection with the establishment of the Warehouse Facility, FINCO entered into an 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). The Company believes the fee structure agreed to by FINCO is representative of a fee structure that would exist with an unrelated party. The services provided by the Company to FINCO are similar to those provided to unrelated parties. Revenue from FINCO is generally 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 for the year ended December 31: 2001 2000 ---- ---- Sales of purchased loans and accounts receivables portfolios by the Company to FINCO $63,399 $86,910 Fees paid by FINCO to the Company $37,026 $26,827 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. As such, the Company's Statements of Operations do not include revenues or expenses related to these loans and accounts receivable portfolios. In conjunction with an agreement to provide certain administrative and collection services to FINCO, the Company can achieve a bonus fee if amounts in excess of the original purchase price of a portfolio are recovered. Payment of any bonus fee is subject to certain collateral and collection sharing requirements as outlined in the agreement. Receivables from FINCO were $17,014 and $5,612 at December 31, 2001 and 2000, respectively. At December 31, 2001 and 2000, FINCO had purchased loans and accounts receivable portfolios of $75,921 and $76,908, respectively. At December 31, 2001 and 2000, FINCO had outstanding borrowings of $66,391 and $67,636, respectively, under the Warehouse Facility. FINCO's summarized results from operations for the years ended December 31, 2001 and 2000 are as follows: 2001 2000 ---- ---- Net revenues $103,548 $ 76,578 Income from operations 5,010 4,363 Net income 1,400 702 21. CONVERSION, REALIGNMENT AND RELOCATION EXPENSES After the Company's formation in 1995 and seven acquisitions, the Company adopted a strategy to align OSI 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, costs of converting collection operating systems, and other one-time and redundant costs. No accrued amounts remained relative to these expenses at December 31, 1999. In continuing the above strategy, the Company incurred $2,742 of nonrecurring realignment expenses for the year ended December 31, 2000. These expenses include costs resulting from closure of certain call centers, severance associated with these office closures and certain other one-time costs. All cash requirements relative to this charge were settled by December 31, 2000. For the year ended December 31, 2001, the Company incurred $3,564 of nonrecurring consolidation, realignment and relocation expenses. These expenses include costs from consolidation of certain call centers, severance associated with these office closures, asset write-offs and certain other one-time costs. Accrued costs at December 31, 2001 were $451, all of which should be substantially settled in 2002. 22. RESTATEMENT As described in Note 2, the December 31, 2000 consolidated financial statements have been restated. A comparison of previously reported and restated consolidated financial statements follows: Consolidated Balance Sheets - --------------------------- December 31, 2000 As December 31, Previously 2000 As Reported Restated ------------ ------------ ASSETS Cash and cash equivalents $ 10,273 $ 10,273 Cash and cash equivalents held for clients 21,970 21,970 Accounts receivable - trade, less allowance for doubtful receivables of $447 62,876 61,325 Purchased loans and accounts receivable portfolios 24,690 24,690 Property and equipment, net 46,601 46,601 Intangible assets, less accumulated amortization of $54,218 417,084 417,084 Deferred financing costs, less accumulated amortization of $4,538 22,934 22,934 Other assets 30,426 27,770 -------- -------- TOTAL $636,854 $632,647 ======== ======== LIABILITIES AND STOCKHOLDERS' DEFICIT Accounts payable - trade $ 14,446 $ 15,896 Collections due to clients 21,970 21,970 Accrued salaries, wages and benefits 15,195 15,195 Debt 539,463 539,463 Other liabilities 71,080 71,080 Commitments and contingencies - - Mandatorily redeemable preferred stock; redemption amount $123,115 103,455 103,455 Stockholders' deficit: Voting common stock; $.01 par value; authorized 15,000,000 shares, 9,166,728.7 shares issued 92 92 Non-voting common stock; $.01 par value; authorized 2,000,000 shares, 480,321.30 issued and outstanding 5 5 Paid-in capital 200,537 200,537 Accumulated deficit (192,715) (198,372) Notes receivable from management for shares sold (1,817) (1,817) Common stock in treasury, at cost; 3,078,249.07 shares (134,857) (134,857) -------- -------- Total stockholders' deficit (128,755) (134,412) -------- -------- TOTAL $636,854 $632,647 ======== ======== Statements of Operations For the Year Ended - ------------------------ ------------------------------ December 31, 2000 As December 31, Previously 2000 As Reported Restated ------------ ------------ REVENUES $ 542,627 $ 541,076 EXPENSES: Salaries and benefits 264,293 264,293 Service fees and other operating and administrative expenses 173,351 177,457 Amortization of purchased loans and accounts receivable portfolios 28,092 28,092 Amortization of goodwill and other intangibles 16,082 16,082 Depreciation expense 15,803 15,803 Compensation expense related to redemption of stock options 187 187 Conversion, realignment and relocation expenses 2,742 2,742 ---------- ---------- Total expenses 500,550 504,656 ---------- ---------- OPERATING INCOME 42,077 36,420 INTEREST EXPENSE - Net 60,934 60,934 ---------- ---------- LOSS BEFORE INCOME TAXES (18,857) (24,514) PROVISION FOR INCOME TAXES 594 594 ---------- ---------- NET LOSS (19,451) (25,108) PREFERRED STOCK DIVIDEND REQUIREMENTS AND ACCRETION OF SENIOR PREFERRED STOCK 17,739 17,739 ---------- ---------- NET LOSS TO COMMON STOCKHOLDERS $ (37,190) $ (42,847) ========== ========== 23. QUARTERLY FINANCIAL DATA (unaudited) As described in Note 2, the unaudited quarterly information for the three months ended December 31, 2000 and September 30, 2001 have been restated. Unaudited quarterly financial data for the years ended December 31, 2001 and 2000 are as follows: Third as Previously Third as 2001 First Second Reported Restated Fourth Revenues $151,586 $157,433 $151,023 $152,902 $150,425 Operating income 14,910 16,074 16,623 13,163 2,516 Net income (loss) (1,526) 2,080 (61) (3,521) (10,388) Fourth as Previously Fourth as 2000 First Second Third Reported Restated Revenues $133,250 $137,373 $133,871 $138,133 $136,582 Operating income 10,988 10,175 9,679 11,235 5,578 Net loss (3,380) (5,203) (5,763) (5,105) (10,762) The fourth quarter of 2001 includes a charge for conversion, realignment and relocation expenses of $3,564. See Note 21. 24. SUBSEQUENT EVENT-DEBT As a result of the restatement of financial results as discussed in Note 2, the Company breached certain covenants, representations and warranties in each of its Credit Facility and the Warehouse Facility. In response, the Company and the lenders to the Credit Facility amended the facility effective April 10, 2002. The amendment to the Credit Facility includes provisions that amend the financial covenants, waive certain existing defaults of covenants and breaches in representations and warranties, increase the interest rate on borrowings pursuant to the facility (as discussed below), and, during 2002, reduce the Company's availability under its Credit Facility by $5,000, and limit capital expenditures, investments and acquisitions. In connection with the amendment, the Company also issued 4,150 shares of its Series B Junior Preferred Stock with attached warrants to acquire 42,347 shares of the Company's Senior Common Stock to Madison Dearborn Capital Partners III, L.P. and Madison Dearborn Special Equity III, L.P. for a total purchase price of $4,150. The proceeds of this sale were used to repay the Revolving Facility in the amount of $2,075 and the balance pro-rata to the Term A and B loans, as provided in the Credit Facility. From April 10, 2002 until such time as the Company delivers to the lenders a compliance certificate for the period ended December 31, 2002, borrowings under the Revolving Facility and Term A Loan of the Credit Facility will bear interest, at the Company's option at (a), the lender's prime rate, plus 2.75% or at (b) the Eurodollar rate plus 3.75%. Borrowings under the Term B Loan will bear interest, at the Company's option, at (a) the lenders' prime rate plus 3.50% or (b) the Eurodollar rate plus 4.50%. The amortization and maturity were not amended. Following this amendment, the Company is in compliance with the Credit Facility and, subject to the Warehouse Facility issues discussed below, expects to be in compliance throughout 2002. The Company has also received a waiver from the lender under the Warehouse Facility for certain breaches of covenants, representations and warranties with respect to periods through year-end 2001. Since the Company, on an ongoing, basis will continue to be in breach of certain financial covenants, representations and warranties, it has initiated discussions with the lender under the Warehouse Facility for the purpose of seeking to amend such facility to cure such breaches, although there can be no assurance that the Company will be successful in negotiating such an amendment. If the Company is unsuccessful in negotiating such an amendment, notwithstanding the waiver received, the Company may again breach certain covenants, representations and warranties in the Warehouse Facility and there can be no assurances that the lender will extend the waiver to cover such breaches. On an ongoing basis, the Company has also been engaged in discussions with certain other providers of similar warehouse facilities. While there can be no assurances, the Company believes that other warehouse facilities would be available on economic terms and in amounts comparable to the Company's existing Warehouse Facility which would allow the Company to continue its business of purchasing of loans and accounts receivable. In the event the Company is unable to amend the current warehouse facility and it is terminated and the Company is unable to enter a replacement warehouse facility, the Company would be in default of its Credit Facility. INDEPENDENT AUDITORS' REPORT To the Stockholders of Outsourcing Solutions Inc.: We have audited the consolidated financial statements of Outsourcing Solutions Inc. and its subsidiaries for the year 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 audit also included the consolidated financial statement schedule of Outsourcing Solutions Inc. and its subsidaries for the year ended December 31, 1999, 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 audit. 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 set forth therein. /s/ Deloitte & Touche LLP - ------------------------- Deloitte & Touche LLP St. Louis, Missouri March 28, 2000 Outsourcing Solutions Inc. and Subsidiaries Schedule II Valuation and Qualifying Accounts and Reserves For the year ended December 31, 2001, 2000 and 1999 (In thousands) Column A Column B Column C Column D Column E - ------------- --------- ---------------------- ------------ -------- Additions ---------------------- Balance Charged Charged Deductions Balance @ beg. of to to Other (Please @ end of Description Period Expenses Accounts explain) Period - ------------- --------- ---------- --------- ----------- -------- Allowance for doubtful accounts: 2001 $ 447 $ 1,289 - $ 656 (A) $ 1,080 ======== ======== ======== ======== ======== 2000 $ 529 $ 671 - $ 753 (A) $ 447 ======== ======== ======== ======== ======== 1999 $ 1,309 $ 651 - $ 1,431 (A) $ 529 ======== ======== ======== ======== ======== Environmental reserves: 2001 $ 21,078 - - $ 1,380 (B) $ 19,698 ======== ======== ======== ======== ======== 2000 $ 22,218 - - $ 1,140 (B) $ 21,078 ======== ======== ======== ======== ======== 1999 $ 22,726 - - $ 508 (B) $ 22,218 ======== ======== ======== ======== ======== (A) Accounts receivable write-offs and adjustments, net of recoveries. (B) Payments for environmental matters. EX-2 3 upaw_f10k-123101.txt UNIT PURCHASE AGREEMENT AND WARRANT UNIT PURCHASE AGREEMENT THIS UNIT PURCHASE AGREEMENT, dated as of April 10, 2002 (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 Series B Junior Preferred Stock. The Company has authorized a class of 7,500 shares of Series B Junior Preferred Stock, no par value per share, having the terms and provisions set forth on Exhibit A hereto (the "Series B 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, (i) such number of shares of Series B Junior Preferred Stock as is set forth in Schedule 1 attached hereto at the purchase price set forth thereon and (ii) a warrant (each a "Warrant") to purchase up to the number of shares of the Company's Senior Common Stock, par value $.01 (the "Senior Common Stock") set forth next opposite such Purchaser's name on Schedule 2 attached hereto at the purchase price set forth thereon. This purchase and sale is being consummated pursuant to Section 4.C.vii of the Company's Fourth Amended and Restated Certificate of Incorporation. The Series B Junior Preferred Stock and Warrants are collectively referred to herein as the "Units." 2B. The Closing. The closing of the sale and purchase of the Units hereunder (the "Closing") will take place at the offices of Kirkland & Ellis, 200 East Randolph, Chicago, Illinois 60601. At the Closing, the Company will deliver to each Purchaser (i) a Warrant and (ii) a certificate or certificates evidencing the number of shares of Series B 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. Section 3. Restrictions on Transfers. 3A. Transfer of Restricted Securities. No holder of Restricted Securities (other than Madison Dearborn Capital Partners III, L.P. or its affiliates) shall sell, transfer, assign, pledge or otherwise dispose of (whether with or without consideration and whether voluntarily or involuntarily or by operation of law) any interest in his Restricted Securities (a "Transfer"), except pursuant to the provisions of this paragraph 3. 3B. First Offer Right. At least 30 days prior to making any Transfer of any Restricted Securities the transferring stockholder (the "Transferring Stockholder") shall deliver a written notice (an "Offer Notice") to the Company. The Offer Notice shall disclose in reasonable detail the proposed number of Restricted Securities to be transferred, the proposed terms and conditions of the Transfer and the identity of the prospective transferee(s) (if known). First, the Company may elect to purchase all (but not less than all) of the Restricted Securities specified in the Offer Notice at the price and on the terms specified therein by delivering written notice of such election to the Transferring Stockholder as soon as practical but in any event within ten days after the delivery of the Offer Notice. If the Company has elected to purchase Restricted Securities from the Transferring Stockholder, the transfer of such shares shall be consummated as soon as practical after the delivery of the election notice(s) to the Transferring Stockholder, but in any event within 15 days after the expiration of the Election Period. To the extent that the Company has not elected to purchase all of the Restricted Securities being offered, the Transferring Stockholder may, within 90 days after the expiration of the Election Period and subject to the provisions of subparagraph 3A above, transfer such Restricted Securities to one or more third parties at a price no less than 95% of the price per share specified in the Offer Notice and on other terms no more favorable to the transferees thereof than offered to the Company in the Offer Notice. Any Restricted Securities not transferred within such 90-day period shall be reoffered to the Company under this paragraph 3B prior to any subsequent Transfer. The purchase price specified in any Offer Notice shall be payable solely in cash at the closing of the transaction or in installments over time 3C. Procedure for Transfer. In connection with the transfer of any Restricted Securities other than to the Company or Madison Dearborn Capital Partners III, L.P. or its affiliates, the holder thereof will deliver to the Company 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. Section 4. Representations and Warranties of the Company. The Company hereby represents and warrants to each Purchaser that as of the Closing: 4A. 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. 4B. 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 Units 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 Series B 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. The Senior Common Stock issuable upon exercise of the Warrants 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. 4C. No Registration. Assuming the truth and accuracy of the representations set forth in Section 5 hereof, the offers and sales of the Units 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. 5A. 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 APRIL 10, 2002, 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 UNIT PURCHASE AGREEMENT DATED AS OF APRIL 10, 2002, 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 Series B Junior Preferred Stock or Senior Common Stock, as applicable, 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 Series B Junior Preferred Stock or Senior Common Stock, as applicable, a new certificate representing such shares of Series B Junior Preferred Stock or Senior Common Stock, as applicable, of like tenor but not bearing a legend of the character set forth above. 5B. 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, including without limitation the Company's Form 8-K filed on March 21, 2002, 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 Series B Junior Preferred Stock and Warrants issued hereunder and the Senior Common Stock issuable upon exercise of the Warrants, and any securities issued with respect to such Series B Junior Preferred Stock or Senior Common 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 or (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). 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. "Senior Common Stock" means the Company's Senior Common Stock, par value $0.01. Section 7. Miscellaneous. 7A. Remedies. The holders of the Series B Junior Preferred Stock or the Warrant 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. 7B. 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 two-thirds of the outstanding shares of Series B Junior Preferred Stock issued hereunder. No course of dealing between the Company and any holder of Series B 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. 7C. 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. 7D. 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 Units are also for the benefit of and enforceable by any subsequent holder of such Purchaser's Units. (ii) If a sale, transfer, assignment or other disposition of the Series B Junior Preferred Stock or the Warrant 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. 7E. 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. 7F. 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. 7G. Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 7H. 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 Delaware, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the law of any jurisdiction other than the State of Delaware. 7I. 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 7J. Stockholders Agreement. The holder of the Series B Junior Preferred Stock acknowledges that by virtue of executing this Agreement it will become a party to and be bound by and subject to the terms and conditions of the Amended and Restated Stockholders Agreement, dated as of April 16, 2001, among the Company and certain of the Company's stockholders, as amended from time to time, which is attached as Exhibit B hereto. * * * * * IN WITNESS WHEREOF, the parties hereto have executed this Unit Purchase Agreement as of the date first written above. OUTSOURCING SOLUTIONS INC. /s/ Eric R. Fencl ------------------------------------- By: Eric R. Fencl Its: Senior Vice President, General Counsel and Secretary PURCHASERS TO FOLLOW ON SEPARATE SIGNATURE PAGES: 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 /s/ Timothy M. Hurd -------------------------------- By: Timothy Hurd Its: Managing Director 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 /s/ Timothy M. Hurd -------------------------------- By: Timothy Hurd Its: Managing Director SCHEDULE 1 Number of Shares of Series B Junior Aggregate Purchaser Preferred Stock Purchase Price - ------------------------ ------------------------ ------------------------ Madison Dearborn Capital Partners III, L.P. 4,059.85 $4,059,755.86 Madison Dearborn Special Equity III, L.P. 90.15 $90,144.14 SCHEDULE 2 Warrant Number and Shares of Senior Common Stock Aggregate Purchaser Underlying Such Warrant Purchase Price - ------------------------ ------------------------ ------------------------ Madison Dearborn Capital Warrant No. 1 evidencing $97.83 Partners III, L.P. the right to purchase up to 41,427.14 shares of Senior Common Stock Madison Dearborn Special Warrant No. 2 evidencing $2.17 Equity III, L.P. the right to purchase up to 919.86 shares of Senior common Stock "THE SECURITIES REPRESENTED BY THIS WARRANT WERE ORIGINALLY ISSUED ON APRIL 10, 2002, 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 UNIT PURCHASE AGREEMENT DATED AS OF APRIL 10, 2002, 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. HOLDERS OF THIS CERTIFICATE RECEIVING SENIOR COMMON STOCK PURSUANT TO THE EXERCISE OF THE SECURITIES REPRESENTED HEREBY WILL BE SUBJECT TO RESTRICTIONS ON TRANSFER, VOTING AGREEMENTS AND OTHER CONDITIONS AND RESTRICTIONS SPECIFIED IN THE AMENDED AND RESTATED STOCKHOLDERS AGREEMENT DATED AS OF APRIL 16, 2001 AMONG THE COMPANY AND CERTAIN OF THE COMPANY, COPIES OF WHICH ARE ON FILE AT THE OFFICE OF THE COMPANY AND WILL BE FURNISHED WITHOUT CHARGE TO THE HOLDER OF SUCH SECURITIES UPON WRITTEN REQUEST." Warrant No. __ Number of Shares: _______ Date of Issuance: April 10, 2002 (subject to adjustment) OUTSOURCING SOLUTIONS INC. A Delaware Corporation Warrant to Purchase Senior Common Stock Outsourcing Solutions Inc. (the "Company"), for good and valuable consideration, receipt of which is hereby acknowledged, hereby grants __________________ or its registered assigns (the "Registered Holder"), the right, subject to the terms set forth below, to purchase from the Company, at any time after the date hereof and on or before the Expiration Date (as defined in Section 6), up to __________ (as adjusted from time to time) shares of Senior Common Stock, par value $0.01 per share (the "Senior Common Stock"), of the Company, pursuant to the provisions of this warrant (the "Warrant"), at a purchase price of $49.00 per share (as adjusted from time to time, the "Purchase Price"). The shares purchasable upon exercise of this Warrant, as adjusted from time to time pursuant to the provisions of this Warrant, are sometimes referred to herein as the "Warrant Shares." Section 8. Exercise. 8A. Manner of Exercise.This Warrant may be exercised by the Registered Holder, in whole or in part, by surrendering this Warrant and the duly executed Notice of Exercise appended hereto as Exhibit A, at the principal office of the Company, or at such other office or agency as the Company may designate, together with payment in full of the Purchase Price payable in respect of the Warrant Shares purchased upon such exercise. The Purchase Price shall be paid to the Company by either (i) a certified check or wire transfer of immediately available funds in an amount equal to the product of the Purchase Price multiplied by the number of shares of Senior Common Stock being purchased upon such exercise (the "Aggregate Exercise Price") or (ii) a written notice to the Company that the Registered Holder is exercising this Warrant (or a portion thereof) by authorizing the Company to withhold from issuance a number of shares of Senior Common Stock issuable upon such exercise of the Warrant which when multiplied by the Market Price of the Senior Common Stock is equal to the Aggregate Exercise Price (and such withheld shares shall no longer be issuable under this Warrant). 8B. Effective Time of Exercise. Exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business at the Company's principal office on the day on which this Warrant is surrendered to the Company and the Purchase Price paid as provided in Section 1. Subject to Section 3(a), at such time, the person or persons in whose name or names any certificates for Warrant Shares shall be issuable shall be deemed to have become the holder or holders of record of the Warrant Shares evidenced by such certificates. 8C. Delivery to Holder. Subject to Section 3, as soon as practicable after the exercise of this Warrant, and in any event within twenty (20) business days thereafter, the Company shall cause to be issued in the name of, and delivered to, the Registered Holder, or such Holder(s) as the Registered Holder (upon payment by such Holder of any applicable transfer taxes) may direct, a certificate or certificates evidencing the number of Warrant Shares to which such Registered Holder shall be entitled. Section 9. Adjustment of Purchase Price and Number of Shares. In order to prevent dilution of the rights granted under this Warrant, the Purchase Price shall be subject to adjustment from time to time as provided in this Section 2, and the number of shares of Senior Common Stock obtainable upon exercise of this Warrant shall be subject to adjustment from time to time as provided in this Section 2. 9A. Adjustment of Purchase Price and Number of Shares upon Issuance of Common Stock. If and whenever the Company issues or sells, or in accordance with paragraph 2(b) is deemed to have issued or sold, any share of Common Stock for a consideration per share less than the Purchase Price in effect immediately prior to such time, then immediately upon such issuance or sale the Purchase Price shall be reduced to the lowest net price per share at which such share of Common Stock has been issued or sold or is deemed to have been issued or sold. Upon each such adjustment of the Purchase Price hereunder, the number of shares of Senior Common Stock acquirable upon exercise of this Warrant shall be adjusted to the number of shares determined by multiplying the Purchase Price in effect immediately prior to such adjustment by the number of shares of Senior Common Stock acquirable upon exercise of this Warrant immediately prior to such adjustment and dividing the product thereof by the Purchase Price resulting from such adjustment. 9B. Effect on Purchase Price of Certain Events. For purposes of determining the adjusted Purchase Price under paragraph 2(a), the following shall be applicable: (i) Issuance of Rights or Options. If the Company in any manner grants or sells any Options and the lowest price per share for which any one share of Common Stock is issuable upon the exercise of any such Option, or upon conversion or exchange of any Convertible Security issuable upon exercise of such Option, is less than the Purchase Price in effect immediately prior to the time of the granting or sale of such Option, then such share of Common Stock shall be deemed to have been issued and sold by the Company at such time for such price per share. For purposes of this paragraph, the "lowest price per share for which any one share of Common Stock is issuable" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the granting or sale of the Option, upon exercise of the Option and upon conversion or exchange of the Convertible Security. No further adjustment of the Purchase Price shall be made upon the actual issue of such Common Stock or of such Convertible Security upon the exercise of such Options or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Security. (ii) Issuance of Convertible Securities. If the Company in any manner issues or sells any Convertible Security and the lowest price per share for which any one share of Common Stock is issuable upon conversion or exchange thereof is less than the Purchase Price in effect immediately prior to the time of such issue or sale, then such share or shares of Common Stock shall be deemed to have been issued and sold by the Company at such time for such price per share. For the purposes of this paragraph, the "lowest price per share for which any one share of Common Stock is issuable" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the issuance of the Convertible Security and upon the conversion or exchange of such Convertible Security. No further adjustment of the Purchase Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of any Convertible Security, and if any such issue or sale of such Convertible Security is made upon exercise of any Options for which adjustments of the Purchase Price had been or are to be made pursuant to other provisions of this Section 2, no further adjustment of the Purchase Price shall be made by reason of such issue or sale. (iii) Change in Option Price or Conversion Rate. If the purchase price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion or exchange of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exchangeable for Common Stock changes at any time, the Purchase Price in effect at the time of such change shall be adjusted immediately to the Purchase Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold and the number of shares of Common Stock issuable hereunder shall be correspondingly adjusted. (iv) Treatment of Expired Option and Unexercised Convertible Securities. Upon the expiration of any Option or the termination of any right to convert or exchange any Convertible Securities without the exercise of such Option or right, the Purchase Price then in effect shall be adjusted immediately to the Purchase Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Securities, to the extent outstanding immediately prior to such expiration or termination, never been issued. (v) Calculation of Consideration Received. If any Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor shall be deemed to be the net amount received by the Company therefor. In case any Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company shall be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Company shall be the Market Price thereof as of the date of receipt. In case any Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving corporation, the amount of consideration therefor shall be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or securities shall be determined jointly by the Company and the Registered Holders of Warrants representing a majority of the shares of Senior Common Stock obtainable upon exercise of such Warrants. If such parties are unable to reach agreement within a reasonable period of time, such fair value shall be determined by an appraiser jointly selected by the Company and the Registered Holders of Warrants representing a majority of the shares of Senior Common Stock obtainable upon exercise of such Warrants. The determination of such appraiser shall be final and binding on the Company and the Registered Holders of the Warrants, and the fees and expenses of such appraiser shall be paid by the Company. (vi) Integrated Transactions. In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options by the parties thereto, the Options shall be deemed to have been issued without consideration. (vii) Treasury Shares. The number of shares of Common Stock outstanding at any given time does not include shares owned or held by or for the account of the Company or any Subsidiary, and the disposition of any shares so owned or held shall be considered an issue or sale of Common Stock. (viii) Record Date. If the Company takes a record of the holders of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be (ix) Certain Issuances. Notwithstanding the foregoing, there shall be no adjustment to the Purchase Price under paragraph Section 3 with respect to (a) the issuance of Common Stock or options to the Company's or its affiliates current or former employees, officers, directors, or consultants pursuant to compensatory options or purchase rights which have been granted or are granted in the future, (b) warrants issued to underwriters in connection with a public offering registered under the Act, (c) the issuance of Common Stock (or warrants exercisable into Common Stock) to financial institutions or lessors in connection with the bona fide incurrence of indebtedness, equipment financings or similar transactions, (d) the issuance of Common Stock to strategic investors or in connection with acquisitions or corporate partnering transactions, (e) the issuance of Common Stock as a dividend or distribution on the Preferred Shares or Senior Common Shares, (f) the issuance of shares of Common Stock upon conversion of the Preferred Shares, Senior Common Shares and Non-Voting Common Shares in accordance with their respective terms or (g) the issuance of shares of Common Stock or other shares of the Company's capital stock upon conversion or exercise of any outstanding warrants, options or other convertible instruments. 9C. Subdivision or Combination of Senior Common Stock. If the Company at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Senior Common Stock into a greater number of shares, the Purchase Price in effect immediately prior to such subdivision shall be proportionately reduced and the number of shares of Senior Common Stock obtainable upon exercise of this Warrant shall be proportionately increased. If the Company at any time combines (by reverse stock split or otherwise) one or more classes of its outstanding shares of Senior Common Stock into a smaller number of shares, the Purchase Price in effect immediately prior to such combination shall be proportionately increased and the number of shares of Senior Common Stock obtainable upon exercise of this Warrant shall be proportionately decreased. 9D. Reorganization, Reclassification, Consolidation, Merger or Sale. Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company's assets or other transaction, in each case which is effected in such a way that the holders of Senior Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Senior Common Stock is referred to herein as "Organic Change." Prior to the consummation of any Organic Change, the Company shall make appropriate provision (in form and substance satisfactory to the Registered Holders of the Warrants representing a majority of the Senior Common Stock obtainable upon exercise of all Warrants then outstanding) to insure that each of the Registered Holders of the Warrants shall thereafter have the right to acquire and receive, in lieu of or addition to (as the case may be) the shares of Senior Common Stock immediately theretofore acquirable and receivable upon the exercise of such holder's Warrant, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for the number of shares of Senior Common Stock immediately theretofore acquirable and receivable upon exercise of such holder's Warrant had such Organic Change not taken place. In any such case, the Company shall make appropriate provision (in form and substance satisfactory to the Registered Holders of the Warrants representing a majority of the Senior Common Stock obtainable upon exercise of all Warrants then outstanding) with respect to such holders' rights and interests to insure that the provisions of this Section 2 and Sections 3 and 4 hereof shall thereafter be applicable to the Warrants (including, in the case of any such consolidation, merger or sale in which the successor entity or purchasing entity is other than the Company, an immediate adjustment of the Purchase Price to the value for the Senior Common Stock reflected by the terms of such consolidation, merger or sale, and a corresponding immediate adjustment in the number of shares of Senior Common Stock acquirable and receivable upon exercise of the Warrants, if the value so reflected is less than the Purchase Price in effect immediately prior to such consolidation, merger or sale). The Company shall not effect any such consolidation, merger or sale, unless prior to the consummation thereof, the successor entity (if other than the Company) resulting from consolidation or merger or the entity purchasing such assets assumes by written instrument (in form and substance satisfactory to the Registered Holders of Warrants representing a majority of the Senior Common Stock obtainable upon exercise of all of the Warrants then outstanding), the obligation to deliver to each such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to acquire. 9E. Certain Events. If any event occurs of the type contemplated by the provisions of this Section 2 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's board of directors shall make an appropriate adjustment in the Purchase Price and the number of shares of Senior Common Stock obtainable upon exercise of this Warrant so as to protect the rights of the holders of the Warrants; provided that no such adjustment shall increase the Purchase Price or decrease the number of shares of Senior Common Stock obtainable as otherwise determined pursuant to this Section 2. 9F. Notices. (i) Immediately upon any adjustment of the Purchase Price, the Company shall give written notice thereof to the Registered Holder, setting forth in reasonable detail and certifying the calculation of such adjustment. (ii) The Company shall give written notice to the Registered Holder at least 20 days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Senior Common Stock, (B) with respect to any pro rata subscription offer to holders of Senior Common Stock or (C) for determining rights to vote with respect to any Organic Change, dissolution or liquidation. (iii) The Company shall also give written notice to the Registered Holders at least 20 days prior to the date on which any Organic Change, dissolution or liquidation shall take place. Section 10. Liquidating Dividends. If the Company declares or pays a dividend upon the Senior Common Stock payable otherwise than in cash out of earnings or earned surplus (determined in accordance with generally accepted accounting principles, consistently applied) except for a stock dividend payable in shares of Senior Common Stock (a "Liquidating Dividend"), then the Company shall pay to the Registered Holder of this Warrant at the time of payment thereof the Liquidating Dividend which would have been paid to such Registered Holder on the Senior Common Stock had this Warrant been fully exercised immediately prior to the date on which a record is taken for such Liquidating Dividend, or, if no record is taken, the date as of which the record holders of Senior Common Stock entitled to such dividends are to be determined. Section 11. Purchase Rights. If at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the "Purchase Rights"), then the Registered holder of this Warrant shall be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could have acquired if such holder had held the number of shares of Senior Common Stock acquirable upon complete exercise of this Warrant immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. Notwithstanding the foregoing, this Section 4 shall not apply to any grant, issuance or sale of any Options, Convertible Securities or Purchase Rights to the Company's or its affiliates current or former employees, officers, directors or consultants pursuant to compensatory options or purchase rights which have been granted or are granted in the future. Section 12. Transfers. 12A. Unregistered Security. The Registered Holder of this Warrant acknowledges that this Warrant and the Warrant Shares have not been registered under the Securities Act of 1933, as amended (the "Act"), and agrees not to sell, pledge, distribute, offer for sale, transfer or otherwise dispose of this Warrant or any Warrant Shares in the absence of (i) an effective registration statement under the Act as to this Warrant or such Warrant Shares and registration or qualification of this Warrant or such Warrant Shares under any applicable foreign, U.S. federal or state securities laws then in effect or (ii) an exemption from such registration and qualification under the Act. Each certificate or other instrument for Warrant Shares issued upon the exercise of this Warrant shall bear a legend substantially to the foregoing effect. 12B. Stockholders Agreement. The Registered Holder of this Warrant acknowledges that the Registered Holder, upon exercise of this Warrant, shall become a party to and be bound by and subject to the terms and conditions of the Amended and Restated Stockholders Agreement, dated as of April 16, 2001, among the Company and certain of the Company's stockholders, as amended from time to time, which is attached as Exhibit B hereto and is incorporated herein by this reference. The Stockholders Agreement shall be binding on the Registered Holder and the other parties thereto. Section 13. Termination. This Warrant and the rights hereunder shall terminate upon the tenth (10th) anniversary of the Date of Issuance of this Warrant (the "Expiration Date"). Section 14. Definitions. "Common Stock" means collectively the Senior Common Stock, Voting Common Stock and Non-Voting Common Stock. "Convertible Securities" means any stock or securities (directly or indirectly) convertible into or exchangeable for Common Stock. "Market Price" means as to any security the average of the closing prices of such security's sales on all domestic securities exchanges on which such security may at the time be listed, or, if there have been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day such security is not so listed, the average of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, on such day, or, if on any day such security is not quoted in the NASDAQ System, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in each such case averaged over a period of 21 days consisting of the day as of which "Market Price" is being determined and the 20 consecutive business days prior to such day; provided that if such security is listed on any domestic securities exchange the term "business days" as used in this sentence means business days on which such exchange is open for trading. If at any time such security is not listed on any domestic securities exchange or quoted in the NASDAQ System or the domestic over-the-counter market, the "Market Price" shall be the fair value thereof determined jointly by the Company and the Registered Holders of Warrants representing a majority of the Senior Common Stock purchasable upon exercise of all the Warrants then outstanding; provided that if such parties are unable to reach agreement within a reasonable period of time, such fair value shall be determined by an appraiser jointly selected by the Company and the Registered Holders of Warrants representing a majority of the Senior Common Stock purchasable upon exercise of all the Warrants then outstanding. The determination of such appraiser shall be final and binding on the Company and the Registered Holders of the Warrants, and the fees and expenses of such appraiser shall be paid by the Company. "Non-Voting Common Stock" means the Company's Non-Voting Common Stock, par value $0.01. "Options" means any rights or options to subscribe for or purchase Common Stock or Convertible Securities. "Preferred Shares" means each share of Preferred Stock. "Preferred Stock" means the Company's Preferred Stock, no par value. "Senior Common Share" means each share of Senior Common Stock. "Voting Common Stock" means the Company's Voting Common Stock, par value $0.01. "Warrants" means this Warrant and any other warrant issued in connection with the purchase of Series B Junior Preferred Stock. Section 15. Replacement of Warrants. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) upon delivery of an indemnity agreement (with surety if reasonably required) in an amount reasonably satisfactory to the Company, or (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will issue, in lieu thereof, a new Warrant of like tenor. Section 16. Authorization. All corporate action on the part of the Company and its directors necessary for the authorization, execution, delivery and performance of the Warrant by the Company, and the authorization, sale, issuance and delivery of the Warrant Shares has been taken. The Warrant, when executed and delivered by the Company, shall constitute a valid and binding obligation of the Company, enforceable in accordance with its terms. The Warrant Shares have been duly and validly reserved and, when issued, will be validly issued, fully paid and nonassessable; and the Warrant Shares will be free of any liens or encumbrances other than any liens or encumbrances created by or imposed on the Registered Holders; provided, however, that the Warrant Shares may be subject to restrictions on transfer by contract or under state or federal securities laws and restrictions. Section 17. Governmental Consent. No consent, approval order or authorization of or registration, qualification, designation, declaration or filing with any governmental authority on the part of the Company is required in connection with offer, sale or issuance of the Warrant or the Warrant Shares, or the consummation of any other transaction contemplated hereby. Section 18. Notices. Any notice required or permitted by this Warrant shall be in writing and shall be deemed given when sent, if delivered personally or by courier, overnight delivery service or confirmed facsimile, or forty-eight (48) hours after being deposited in the regular mail as certified or registered mail with postage prepaid, addressed (a) if to the Registered Holder, to the address of the Registered Holder most recently furnished in writing to the Company and (b) if to the Company, to the address set forth below or subsequently modified by written notice to the Registered Holder. Section 19. No Rights as Stockholder. The Registered Holder of this Warrant shall not have or exercise any rights by virtue hereof as a stockholder of the Company. Section 20. No Fractional Shares. No fractional shares will be issued in connection with any exercise hereunder. In lieu of any fractional shares which would otherwise be issuable, the Company shall pay cash equal to the product of such fraction multiplied by the fair market value of one Warrant Share on the date of exercise, as determined in good faith by the Board of Directors of the Company. Section 21. Amendment or Waiver. Except as otherwise provided herein, the provisions of the Warrants may be amended 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 Registered Holders of Warrants representing a majority of the shares of Senior Common Stock obtainable upon exercise of the Warrants. Section 22. Headings. The headings in this Warrant are descriptive only and shall not limit or otherwise affect the meaning of any provision of this Warrant. Section 23. 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 Delaware, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the law of any jurisdiction other than the State of Delaware. OUTSOURCING SOLUTIONS INC. By: -------------------------------- Name: Eric R. Fencl Title: Senior Vice President, General Counsel and Secretary 390 South Woods Mill Road, Suite 350 Chesterfield, Missouri 63017 Phone: (314) 576-0022 Fax: (314) 576-1867 [Signature Page to Warrant to Purchase Senior Common Stock] NOTICE OF EXERCISE To: Outsourcing Solutions Inc. The undersigned hereby irrevocably, subject to the terms and conditions contained in the attached Warrant, elects to purchase ____ shares of Senior Common Stock of Outsourcing Solutions Inc., pursuant to the provisions of Section 1 of the attached Warrant, and tenders herewith payment of the purchase price for such shares in full, in cash. In exercising this Warrant, the undersigned hereby confirms and acknowledges that the Senior Common Stock is being acquired solely for the account of the undersigned and the undersigned will not offer, sell or otherwise dispose of any of the Senior Common Stock in contravention of Section 3 of the Warrant. Please issue a certificate or certificates representing said Senior Common Stock in the name of the undersigned or in such other name as is specified below. -------------------------------------- (Name) - ------------------------- -------------------------------------- (Date) (Signature) ASSIGNMENT FORM FOR VALUE RECEIVED, the undersigned registered owner of this Warrant hereby sells, assigns and transfer unto the Assignee named below the attached Warrant, together with all of the rights of the undersigned under the Warrant, with respect to the number of shares of Senior Common Stock set forth below: Name of Assignee Address No. of Shares - ------------------------ ------------------------ ------------------------ and does hereby irrevocably constitute and appoint ___________ Attorney to make such transfer on the books of Outsourcing Solutions Inc., maintained for the purpose, with full power of substitution in the premises. The undersigned also represents that, by assignment hereof, the Assignee acknowledges that this Warrant and the securities to be issued upon exercise hereof are being acquired for investment and that the Assignee will not offer, sell or otherwise dispose of this Warrant or any securities to be issued upon exercise hereof in contravention of Section 3 of the Warrant. Further, the Assignee has acknowledged that upon exercise of this Warrant, the Assignee shall, if requested by the Company, confirm in writing, in a form satisfactory to the Company, that the securities so purchased are being acquired for investment and not with a view toward distribution or resale. Dated: ----------------------------- HOLDER: By: ----------------------------- Title: ----------------------------- Note: The above signature should correspond exactly with the name on the face of the attached Warrant. EX-3.(I) 4 farci_f10k-123101.txt FOURTH AMENDED AND RESTATED CERT OF INCORP 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 R. Fencl Title: Vice President & General Counsel CERTIFICATE OF AMENDMENT TO THE FOURTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF OUTSOURCING SOLUTIONS INC. OUTSOURCING SOLUTIONS INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (hereinafter the "Corporation"), DOES HEREBY CERTIFY THAT: 1. The Corporation's Fourth Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on December 10, 1999. 2. On March 30, 2001, the Board of Directors of the Corporation, duly adopted resolutions setting forth proposed amendments to the Fourth Amended and Restated Certificate of Incorporation, declaring said amendments 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 Section 228 of the General Corporation Law of the State of Delaware. The resolutions setting forth the proposed amendments are attached hereto as Exhibit A and incorporated herein by reference. 3. Thereafter, pursuant to the resolutions of the Board of Directors, in lieu of a meeting and vote of holders of the Corporation's common and preferred stock, stockholders holding a majority of the issued and outstanding shares of common stock of the Corporation adopted the amendments set forth in Exhibit A. 4. Said amendments were duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, Outsourcing Solutions Inc. has caused this Certificate of Amendment to be signed and attested by its duly authorized officer, this 16th day of April, 2001. OUTSOURCING SOLUTIONS INC. By: /s/ Eric R. Fencl ---------------------------------- Name: Eric R. Fencl Title: Secretary EXHIBIT A RESOLUTIONS OF THE BOARD OF DIRECTORS OF OUTSOURCING SOLUTIONS INC. 1. RESOLVED, that the Preamble of ARTICLE FOURTH to the Corporation's Fourth Amended and Restated Certificate of Incorporation be amended and restated to read as follows: "FOURTH: The total number of shares which the Corporation shall have the authority to issue is 23,200,000 shares of capital stock as follows: 300,000 shares of Preferred Stock, no par value (the "Preferred Stock"), 900,000 shares of Senior Common Stock, par value $.01 per share (the "Senior Common Stock"), 20,000,000 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 Senior Common Stock is hereafter referred to as a "Senior Common Share" and collectively as "Senior Common Shares." Each Senior Common Share and 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 "." 2. RESOLVED, that ARTICLE FOURTH, Paragraph B to the Corporation's Fourth Amended and Restated Certificate of Incorporation be amended and restated to read as follows: "B. Senior Common Stock and Common Stock. Except as otherwise provided in this paragraph B or as otherwise required by applicable law, all shares of Senior Common Stock, Voting Common Stock and Non-Voting Common Stock shall be identical in all respects and shall entitle the holders thereof to the same voting powers, designations, preferences and relative participating, optional or other special rights, and qualifications, or restrictions thereof, as set forth herein: 3. 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 and 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 Senior Common Stock, Voting Common Stock and Non-Voting Common Stock then outstanding. As and when dividends are declared or paid thereon, whether in cash, property or securities of the Corporation, the holders of the 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 shares of Senior Common Stock, Voting Common Stock or Non-Voting Common Stock, dividends will be declared which are payable at the same rate on all three classes of stock and the dividends payable in shares of Senior Common Stock will be payable to holders of such shares, the dividends payable in shares of Voting Common Stock will be payable to holders of such shares and the dividends payable in shares of Non-Voting Common Stock will be payable to holders of such shares and (ii) if the dividends consist of other voting securities of the Corporation, the Corporation will make available to each holder of shares of Non-Voting Common Stock, 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 shares of Non-Voting Common Stock are convertible into shares of Voting Common Stock. 4. Rights on Liquidation. 1. Senior Common Stock. In the event of the liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (each a "Liquidation"), each holder of a Senior Common Share shall be entitled to receive with respect to such Senior Common 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 Preferred Shares), 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 the Original Purchase Price (as defined below) per Senior Common Share (the "Liquidation Preference"). If the assets of the Corporation available for distribution to holders of Senior Common Stock shall be insufficient to permit the payment in full of the amount due such holders pursuant to this paragraph B(2)(A), all assets of the Corporation available for distribution to such holders shall be distributed pro rata 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 Senior Common 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 Senior Common Shares shall not be entitled to any distribution in the event of a Liquidation. For the purposes of this paragraph, the consolidation or merger of the Corporation into or with another corporation, or the sale of all or substantially all of the assets of the Corporation (determined on a consolidated basis) to another corporation or any other entity shall be deemed a liquidation, dissolution or winding-up of the affairs of the Corporation; provided, however, that the foregoing provision shall not apply to any merger in which (i) the Corporation is the surviving entity, (ii) the holders of the Corporation's outstanding capital stock possessing the voting power to elect a majority of the Corporation's board of directors immediately prior to the merger continue to own the Corporation's outstanding capital stock possessing the voting power to elect a majority of the Corporation's board of directors immediately after the merger and (iii) the surviving entity expressly acknowledges and agrees that it shall assume the obligations of the Corporation under this Certificate of Amendment. Notwithstanding anything herein to the contrary, the Senior Common Stock ranks junior in all respects to the Preferred Shares, and no dividend distributions or distributions upon Liquidation shall be made with respect to the Senior Common Stock unless and until all dividend distributions and distributions upon Liquidation with respect to the Preferred Shares, have been made in full. The Senior Common Stock will, however, rank senior to all other capital stock of the Corporation other than the Preferred Shares. For purposes of this paragraph B(2)(A) and paragraph B(4) below, "Original Purchase Price" means $49.00 per share or $51.00 per share, as the case may be, of Senior Common Stock paid by the purchasers pursuant to that certain Stock Subscription Agreement, dated April 3, 2001, by and among the Corporation, Gryphon Partners II, L.P., Gryphon Partners II-A, L.P. and the additional purchasers named therein (as adjusted for any stock dividends, combinations, stock splits, recapitalizations, or the like with respect to such shares). 2. Common Stock. In the event of any 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 and Senior Common Shares), the holders of Common Stock (including, without limitation, the Voting Common Stock and the Non-Voting Common Stock) and any other class of stock or series thereof ranking on a parity with the Common Stock 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. 5. 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. 6. Conversion of Senior Common Stock. 1. Conversion Rights. (1) Optional Conversion. Each holder of Senior Common Shares shall have the right, at any time and at the option of the such holder, to convert any of such holder's Senior Common Shares into a number of shares of Voting Common Stock (the "Conversion Stock") equal to (a) the number of Senior Common Shares to be converted multiplied by the Original Purchase Price applicable for such Senior Common Shares, divided by (b) the Conversion Price (as defined below). (2) Mandatory Conversion. Upon consummation of the initial underwritten public offering, registered under the Securities Act of 1933, of Common Stock of the Corporation having an aggregate offering value of at least $50 million (the "Initial Public Offering"), each Senior Common Share shall automatically convert into a number of shares of Conversion Stock equal to (a) the number of Senior Common Shares to be converted multiplied by the Original Purchase Price applicable for such Senior Common Shares, divided by (b) the Conversion Price. Except as otherwise provided herein, the conversion of Senior Common Stock shall be deemed to have been effected at the time of consummation of the Initial Public Offering. 2. Conversion Price. (1) The initial conversion price shall be the Original Purchase Price applicable for such Senior Common Shares (the "Conversion Price"). In order to prevent dilution of the conversion rights granted under paragraph B(4)(A), the Conversion Price shall be subject to adjustment from time to time until on or before April 3, 2004 pursuant to this paragraph B(4)(B) and shall be subject to adjustment for any stock dividends, combinations, stock splits, recapitalizations, or the like with respect to the Senior Common Shares. (2) If and whenever on April 3, 2001 or during the period between such date and April 3, 2004, the Corporation issues or sells, or in accordance with paragraph B(4)(C) is deemed to have issued or sold, Common Stock, in a transaction involving the issuance of Common Stock or a Convertible Security (as defined below) (a "Common Stock Financing Transaction"), for no consideration or for a consideration per share less than the Conversion Price in effect immediately prior to such time, then forthwith upon such issue or sale the Conversion Price shall be reduced to the lowest net price per share at which any such share of Common Stock has been issued or sold or is deemed to have been issued or sold; provided, however, that notwithstanding anything herein to the contrary, under no event or circumstance shall the Conversion Price be reduced hereunder to a per share price less than $37.47 (as adjusted for any stock dividends, combinations, stock splits, recapitalizations, or the like). 3. Effect on Conversion Price of Certain Events. For purposes of determining the adjusted Conversion Price under paragraph B(4)(B), the following shall be applicable: (1) Issuance of Convertible Securities. If the Corporation in any manner issues or sells any stock or other securities convertible into or exchangeable for Common Stock (such convertible or exchangeable stock or securities being herein called "Convertible Securities") in a Common Stock Financing Transaction and the price per share for which any one share of Common Stock is issuable upon conversion or exchange thereof is less than the Conversion Price in effect immediately prior to the time of such issue or sale, then such share of Common Stock shall be deemed to have been issued and sold by the Corporation at the time of the issuance or sale of such Convertible Securities for such price per share. No further adjustment of the Conversion Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of any Convertible Security. (2) Change in Conversion Rate. If the additional consideration (if any) payable upon the issue, conversion or exchange of any Convertible Security, or the rate at which any Convertible Security is convertible into or exchangeable for Common Stock changes at any time, the Conversion Price in effect at the time of such change shall be readjusted to the Conversion Price which would have been in effect at such time had such Convertible Security originally provided for such changed purchase price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold; provided that if such adjustment would result in an increase of the Conversion Price then in effect, such adjustment shall not increase the Conversion Price higher than the Conversion Price in effect immediately prior to the issuance of such Convertible Security. (3) Treatment of Unexercised Convertible Securities. Upon the termination of any right to convert or exchange any Convertible Security without the exercise of any such right, the Conversion Price then in effect hereunder shall be adjusted to the Conversion Price which would have been in effect at the time of such termination had such Convertible Security, to the extent outstanding immediately prior to such expiration or termination, never been issued. (4) Calculation of Consideration Received. If any Common Stock or Convertible Security is issued or sold or deemed to have been issued or sold for cash, the consideration received therefor shall be deemed to be the net amount received by the Corporation therefor plus, in the case of Convertible Securities, the minimum amount to be paid to the Corporation upon the conversion or exercise thereof. In case any Common Stock or Convertible Securities are issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Corporation shall be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Corporation shall be the fair value of the securities as determined by the Corporation's board of directors in its reasonable good faith judgment as of the date of receipt. If any Common Stock or Convertible Security is issued to the owners of the non-surviving entity in connection with any merger in which the Corporation is the surviving corporation, the amount of consideration therefor shall be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock or Convertible Securities, as the case may be. The fair value of any consideration other than cash and securities shall be determined jointly by the Corporation and the holders of a majority of the outstanding Senior Common Stock. If such parties are unable to reach agreement within a reasonable period of time, the fair value of such consideration shall be determined by the Corporation's board of directors in its reasonable good faith judgment. (5) Treasury Shares. The number of shares of Common Stock outstanding at any given time does not include shares owned or held by or for the account of the Corporation or any of its subsidiaries, and the disposition of any shares so owned or held shall be considered an issue or sale of Common Stock. (6) Record Date. If the Corporation takes a record of the holders of Common Stock for the purpose of entitling them (a) to receive a dividend or other distribution payable in Common Stock or in Convertible Securities or (b) to subscribe for or purchase Common Stock or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or upon the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (7) Certain Issuances. Notwithstanding the foregoing, there shall be no adjustment to the Conversion Price under paragraph B(4) with respect to (a) the issuance of Common Stock (or options to purchase Common Stock) to the Corporation's or its affiliates' current or former employees, officers, directors or consultants pursuant to compensatory options or purchase rights which have been granted or are granted in the future, (b) warrants issued to underwriters in connection with a public offering registered under the Securities Act of 1933, (c) the issuance of Common Stock (or warrants exercisable into Common Stock) to financial institutions or lessors in connection with the bona fide incurrence of indebtedness, equipment financings or similar transactions, (d) the issuance of Common Stock to strategic investors or in connection with acquisitions or corporate partnering transactions, (e) the issuance of Common Stock as a dividend or distribution on Preferred Shares or Senior Common Shares, (f) the issuance of shares of Common Stock upon conversion of the Preferred Shares, Senior Common Shares and Non-Voting Common Shares in accordance with their respective terms, (g) the issuance of shares of Common Stock or other shares of the Corporation's capital stock upon conversion or exercise of any outstanding warrants, options or other convertible instruments or (h) the issuance of shares of Senior Common Stock, Voting Common Stock or Non-Voting Common Stock issued in connection with a stock split or stock dividend effected in accordance with this Article Fourth, paragraphs B(1) and B(6). 4. Conversion Terms. (1) At the time any such conversion has been effected pursuant to paragraph B(4)(A), the rights of the holder of the Senior Common 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. (2) As soon as possible after a conversion has been effected pursuant to paragraph B(4)(A), the Corporation shall deliver to the converting holder, or in accordance with such holder's written instructions, 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. The Corporation may, at its option, pay cash in lieu of issuing fractional shares of Voting Common Stock in connection with a conversion effected hereunder provided that no other fractional shares of Common Stock are outstanding at the time of such conversion. (3) The issuance of certificates for shares of Conversion Stock upon conversion of Senior Common Stock shall be made without charge to the holders of such Senior Common 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 Senior Common 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. (4) The Corporation shall not close its books against the transfer of Senior Common Stock or of Conversion Stock issued or issuable upon conversion of Senior Common Stock in any manner which interferes with the timely conversion of Senior Common Stock. (5) The Corporation will at all times reserve and keep available out of its authorized but unissued Conversion Stock, solely for the purpose of issuance upon the conversion of the Senior Common Shares such number of shares of Conversion Stock as are issuable upon the conversion of all outstanding Senior Common Shares. All shares of Conversion Stock 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 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 notices of issuance which will be immediately transmitted by the Corporation upon issuance). 7. Conversion of Non-Voting Common Shares. 1. Conversion of Rights. 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 paragraph 5(A), 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 Stock 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: (1) the BHCA Act would not prohibit such holder from holding such shares of Voting Common Stock; and (2) such shares of Voting Common Stock 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 Stock into which such shares were converted, such holder may convert the Voting Common Stock into the Non-Voting Common Shares converted in anticipation of such distribution or sale or other permitted holding. 2. Conversion Procedure. (1) 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 Stock. 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 Stock are to be issued upon such conversion will be deemed to have become the holder or holders of record of the Voting Common Stock represented thereby. (2) 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 Stock 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. (3) The issuance of certificates for Voting Common Stock 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 Stock. (4) The Corporation will at all times reserve and keep available out of its authorized but unissued Voting Common Stock, solely for the purpose of issuance upon the conversion of the Non-Voting Common Shares such number of Voting Common Stock 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). (5) 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. 8. Stock Splits, Etc. 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. 9. 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. 10. Amendment and Waiver. No amendment, waiver or change to or with respect to any of the rights, privileges, preferences or powers of the Senior Common Stock shall be effective without the prior approval of the holders of a majority of the Senior Common Shares then outstanding, voting as a separate class. No amendment or waiver of any provision of paragraph B(5) of this Article FOURTH or of this paragraph B(8)(ii) shall be effective without the prior approval of the holders of a majority of the shares of Voting Common Stock then outstanding, voting as a separate class, and the holders of a majority of the shares of Non-Voting Common Stock then outstanding, voting as a separate class." * * * * * 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 AND RESTRICTIONS 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 therefor 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 Senior 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) No dividends 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 winding up) 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 Preferred 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 CERTIFICATE OF DESIGNATION OF THE POWER, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS OF SERIES B 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, at a meeting held on April 3, 2002, 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 Series B Junior Preferred Stock, no par value, consisting of 7,500 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 "Series B Junior Preferred Stock" (hereafter referred to as the "Series B Junior Preferred"). The number of shares constituting such Series B Junior Preferred shall be 7,500. Each share of Series B Junior Preferred is hereafter referred to as a "Series B Junior Preferred Share." (b) Voting Rights. The holders of the Series B Preferred shall be entitled to notice of all stockholders meetings in accordance with the Corporation's bylaws, and except as otherwise permitted by applicable law, the holders of the Series B Junior Preferred shall be entitled to vote as of the record date for such vote or, if no record date is specified, as of the date of such vote, on all matters submitted to the stockholders for a vote together with the holders of the Common Stock voting together as a single class with each share of Common Stock entitled to one vote per share and each Series B Junior Preferred Share entitled to a certain number of votes equal to the result of the Liquidation Value divided by $49.00 per Series B Junior Preferred Share (as adjusted for any stock split, stock dividend, recapitalization or similar transaction). (c) Dividend Rights. (1) The record holders shall be entitled to receive in preference to all holders of Common Stock, the Senior Common Stock and any other shares of capital stock of the Corporation other than the Senior Preferred Stock (as defined below), when and as 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 in cash at the Dividend Rate set forth in (c)(2) below on the Liquidation Value (as defined in (d) below) on each Series B Junior Preferred Share. (2) Dividends on each Series B Junior Preferred Share shall accrue (whether or not declared by the Board of Directors) on a daily basis at the Dividend Rate on the Liquidation Value thereof, and accumulate on a quarterly basis if not paid on each Payment Date from and including the date of issuance of such Series B Junior Preferred Share to and including the first to occur of (i) the date on which the Liquidation Value of such Series B Junior Preferred Share is paid to the holder thereof in connection with the liquidation of the Corporation or the redemption of such Series B Junior Preferred Share by the Corporation or (ii) the date on which such Series B Junior Preferred Share is converted into shares of Capital Securities hereunder. The "Dividend Rate" shall be an annual rate of eighteen percent (18%); provided, however, that the Dividend Rate shall increase to twenty-three percent (23%) on and after the ninety-first (91st) day following the occurrence of a (i) Change in Control or (ii) a Qualified Public Offering. (3) If at any time the Corporation pays less than the total amount of dividends then accrued with respect to the Series B Junior Preferred, such payment shall be distributed pro rata among the holders thereof based upon the aggregate accrued but unpaid dividends on the Series B Junior Preferred Shares held by each such holder. (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 Series B Junior Preferred Share shall be entitled to receive with respect to such Series B Junior Preferred Share, before any distribution is made to or set aside for the holders of Common Stock, the Senior 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 Series B Junior Preferred Share, plus all accumulated dividends which are unpaid with respect to such Series B Junior Preferred Share (together, the "Liquidation Value") plus accrued dividends thereon 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 Series B Junior Preferred 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 Series B Junior Preferred shall be reasonably determined in good faith by a vote of the Board of Directors of the Corporation. Notwithstanding the foregoing, in the event of a liquidation, dissolution or winding-up of the affairs of the Corporation that occurs in connection with or at any time after a Change in Control, the Liquidation Value shall equal the Redemption Price. The Series B Junior Preferred 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 Series B Junior Preferred (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 Certificates of Designation of the Senior Preferred Stock. The Series B Junior Preferred will rank senior to all other capital stock of the Corporation other than the Senior Preferred Stock. (e) Redemption Rights. (1) Optional Redemption. The Corporation may, at its option, at any time and from time to time, redeem all or any portion of the outstanding Series B Junior Preferred Shares (each a "Redemption") for a sum in cash equal to 150% of the sum of the Liquidation Value plus accrued and unpaid dividends thereon (the "Redemption Price"); provided, however, that the Redemption Price shall be increased to two hundred percent (200%) of the sum of the Liquidation Value plus accrued and unpaid dividends thereon on the ninety-first (91st) day following the consummation of a (i) Change in Control or (ii) a Qualified Public Offering. A date fixed by the Board of Directors for any such redemption shall be a "Redemption Date." (2) Mandatory Redemption. On March 11, 2008 (the"Mandatory Redemption Date"), the Corporation shall redeem, in the manner provided for in paragraph (e)(3) hereof, all or any portion of the outstanding Series B Junior Preferred Shares then outstanding at the Redemption Price. (3) Notice of Redemption. Not more than sixty (60) nor less than ten (10) days prior to any redemption pursuant to paragraph (e)(1) or (e)(2) hereof, the Corporation shall give written notice ("Redemption Notice") of a Redemption to each holder of Series B 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 Series B Junior Preferred are to be redeemed and the total number of shares of the Series B Junior Preferred 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 Series B Junior Preferred to be redeemed; and (v) that dividends on the shares of the Series B Junior Preferred 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 Series B Junior Preferred Share to be redeemed the Redemption Price thereof by wire transfer in immediately available funds, but only upon each holder of Series B Junior Preferred having surrendered the certificate representing such share of Series B Junior Preferred 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 Series B Junior Preferred Shares to be redeemed in any Redemption in which not all Series B Junior Preferred Shares are able to be redeemed pursuant to this paragraph so that the Series B Junior Preferred Shares of each holder selected for Redemption shall bear the same proportion to the total Series B Junior Preferred Shares owned by that holder as the proportion of all Series B Junior Preferred Shares selected for Redemption bears to the total of all then outstanding Series B Junior Preferred Shares, but adjusted as determined by the Board of Directors to avoid the redemption of fractional Series B 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 Series B 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 Series B 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 Series B Junior Preferred Shares thereafter shall continue to be only those of a holder of Series B Junior Preferred Shares. Should any Series B 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 Series B Junior Preferred Shares shall be redeemed on the earliest possible date thereafter that the applicable Series B 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) Mandatory Conversion at Election of Majority Holders. In connection with, or at any time after, a Future Offering, upon receipt of a Conversion Notice the Corporation shall convert all Series B Junior Preferred Shares into a number of shares of Capital Securities equal to (i) the Redemption Price divided by (ii) the Conversion Price. The "Conversion Price" shall be the price per share or unit of securities at which the Capital Securities are sold in such Future Offering. The Corporation may, at its option, pay cash in lieu of issuing fractional shares or units of Capital Securities in connection with such conversion. (2) Except as otherwise provided herein, the conversion of Series B Junior Preferred shall be deemed to have been effected as of the date the Conversion Notice is delivered. At the time any such conversion has been effected, the rights of all holders of the Series B Junior Preferred Shares shall cease and each Person or Persons shall be deemed to have become the holder or holders of record of the shares of Capital Securities represented thereby and shall become a party to and be bound by and subject to the terms and conditions of the Stockholders Agreement. (3) As soon as possible after a conversion has been effected and the holders deliver the Series B Junior Preferred certificate(s) to the Corporation for cancellation, the Corporation shall deliver to each holder a certificate or certificates representing the number of shares of Capital Securities 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 Capital Securities upon conversion of Series B Junior Preferred shall be made without charge to the holders of such Series B Junior Preferred 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 Capital Securities. Upon conversion of each Series B Junior Preferred Share, the Corporation shall take all such actions as are necessary in order to insure that the Capital Securities 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 Series B Junior Preferred or of Capital Securities issued or issuable upon conversion of Series B Junior Preferred in any manner which interferes with the timely conversion of Series B Junior Preferred. The Corporation shall assist and cooperate with any holder of Series B Junior Preferred required to make any governmental filings or obtain any governmental approval prior to or in connection with any conversion of Series B Junior Preferred hereunder (including, without limitation, making any filings required to be made by the Corporation). (6) The Corporation shall in connection with any Future Offering reserve and keep available out of its authorized but unissued shares of Capital Securities solely for the purpose of issuance upon the conversion of the Series B Junior Preferred, such number of shares of Capital Securities as the Corporation reasonably believes may be issuable upon the conversion of all outstanding Series B Junior Preferred. All shares or units of Capital Securities 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 or units of Capital Securities may be so issued without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which shares or units of Capital Securities 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 Capital Securities to be less than the number of such shares required to be reserved hereunder for issuance upon conversion of the Series B Junior Preferred. (h) Transfers of Series B Junior Preferred Shares. The Series B Junior Preferred Shares may not be sold, assigned or transferred by the holders without the prior written consent of the Corporation or the Majority Holders, and by acceptance of any Series B Junior Preferred Shares, the holder agrees not to sell, assign or transfer such shares without such consent. (i) 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 Series B Junior Preferred. (j) Amendment. Except as otherwise provided herein, the provisions set forth in this Certificate of Designation of the Series B Junior Preferred Stock may be amended and the Corporation may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Corporation has obtained the written consent of the Majority Holders. (k) 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. "Capital Securities" means any security or strip of securities issued by the Corporation in a Future Offering. "Certificates of Designation of the Senior Preferred Stock" means the Certificate of Designation of the Class A 14% Senior Mandatorily Redeemable Preferred Stock and Class B 14% Senior Mandatorily Redeemable Preferred Stock and the Certificate of Designation of the Junior Preferred Stock. "Change of Control" shall have the meaning ascribed to it in the Certificate of Designation of the Class A 14% Senior Mandatorily Redeemable Preferred Stock and Class B 14% Senior Mandatorily Redeemable Preferred Stock. "Conversion Notice" means written notice delivered by the Majority Holders demanding all Series B Junior Preferred Shares be converted into Capital Securities in accordance with Section (f) hereof. "Common Stock" means collectively the Senior Common Stock, Voting Common Stock and the Non-Voting Common Stock. "Future Offering" means any offering of more than $10.0 million of capital securities pursuant to Section 7.2.9 of the Credit Agreement dated as of November 30, 1999 (as amended from time to time) by and among the Corporation, the various financial institutions and other persons party thereto, Harris Trust and Savings Bank and Fleet National Bank. "Junior Preferred Stock" means the Corporation's Junior Preferred Stock. "Majority Holders" means the holder or holders of a majority of the voting power with respect to the outstanding Series B Junior Preferred Shares. "Non-Voting Common Stock" means the Corporation's Non-Voting Common Stock, par value $0.01. "Payment Date" means every April 10, July 10, October 10 and January 10 during which any Series B Junior Preferred Shares are issued and outstanding (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). "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. "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 Common Stock" means the Corporation's Senior Common Stock, par value $0.01. "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 (c) the Junior Preferred Stock and (d) any other securities issued or issuable with respect to or in exchange for such Senior Preferred Stock described in clauses (a), (b) or (c) 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. "Stated Maturity Date" shall have the meaning ascribed to it in the Certificate of Designation of the Class A 14% Senior Mandatorily Redeemable Preferred Stock and Class B 14% Senior Mandatorily Redeemable Preferred Stock. "Stockholders Agreement" means the Amended and Restated Stockholders Agreement, dated as of April 16, 2001 among the Corporation and certain of the Corporation's stockholders, as amended from time to time. "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 April, 2002. OUTSOURCING SOLUTIONS INC. By: /s/ Eric R. Fencl ----------------------------- Name: Eric R. Fencl Title: Senior Vice President, General Counsel & Secretary EX-10 5 arsa_f10k-123101.txt AMENDED & RESTATED STOCKHOLDERS AGREEMENT OUTSOURCING SOLUTIONS INC. AMENDED AND RESTATED STOCKHOLDERS AGREEMENT ------------------------------------------- THIS AGREEMENT is made as of April 16, 2001, among Outsourcing Solutions Inc., a Delaware corporation (the "Company"), Madison Dearborn Capital Partners III, L.P. (the "Principal Investor"), Madison Dearborn Special Equity III, L.P. ("MDSE"), Special Advisers Fund I, LLC ("SA"), Ares Leveraged Investment Fund, L.P. ("Ares I"), Ares Leveraged Investment Fund II, L.P., ("Ares II"), DB Capital Investors, L.P. ("DB"), First Union Merchant Banking 1999, L.L.C. ("FU99"), First Union Capital Partners 2001, L.L.C. ("FUO1"), 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"), Heller Financial, Inc. ("Heller"), Magnetite Asset Investors L.L.C. ("Magnetite"), FBR Financial Fund II, L.P. ("FBR"), Harvest Opportunity Partners, L.P. ("Harvest"), Gryphon Partners II, L.P. ("GPII"), and Gryphon Partners II-A, L.P. ("GPII-A," and, together with the Principal Investor, MDSE, SA, Ares I, Ares II, DB, FU99, FU01, Abbott, Abbott III, BNY, Heller, Magnetite, FBR, Harvest, GPII and any other Person that executes a counterpart to this Agreement from time-to-time in such capacity, the "Investors"), each of the stockholders listed on Exhibit A attached hereto (including stockholders who acquire capital stock of the Company after the date hereof and execute a counterpart to this Agreement or otherwise agree to be bound by this Agreement, the "Stockholders"), each of the optionholders listed on Exhibit B attached hereto (including optionholders who acquire options to purchase capital stock of the Company after the date hereof and execute a counterpart to this Agreement or otherwise agree to be bound by this Agreement, the "Optionholders") and each of the warrantholders listed on Exhibit C attached hereto (including warrantholders who acquire warrants of the Company after the date hereof and execute a counterpart to this Agreement or otherwise agree to be bound by this Agreement, the "Warrantholders"). The Investors, the Stockholders, the Optionholders and the Warrantholders are collectively referred to as the "OSI Stockholders" and individually as an "OSI Stockholder." Capitalized terms used herein are defined in paragraph 12 hereof. The Company, certain of the OSI Stockholders, and others are parties to a Stock Subscription and Redemption Agreement dated as of October 8, 1999, as amended on December 10, 1999 (the "Recapitalization Agreement"). The Company and Ares I, Ares II, DB, FU99 (as assignee of First Union Investors, Inc.), Abbott, Abbott III, BNY, Heller and Magnetite (collectively the "Unit Purchasers") are parties to a Purchase Agreement, dated as of December 10, 1999 (the "Purchase Agreement"), wherein, inter alia, the Unit Purchasers acquired certain shares of Common Stock (the "Unit Common Shares"). The Company, the Principal Investor, and DB, FU99 (as assignee), Abbott, Abbott III, BNY, FBR and Harvest (collectively the "Co-Invest Purchasers") are parties to an Assignment and Stock Purchase Agreement, dated as of December 10, 1999 (the "Assignment Agreement") wherein, inter alia, the Co-Invest Purchasers acquired certain shares of Common Stock (the "Co-Invest Common Shares"). The Company, GPII and GPII-A (GPII and GPII-A shall sometimes be collectively referred to herein as "Gryphon") and certain other Investors are parties to a Stock Subscription Agreement, dated as of April 3, 2001 (the "Subscription Agreement"), wherein, inter alia, GPII, GPII-A and certain other Investors are each acquiring certain, and GPII and GPII-A may acquire additional, shares of the Company's Senior Common Stock, par value $0.01 per share (the "Senior Common Stock"). The Company and the OSI Stockholders (other than Gryphon) previously entered into a Stockholders Agreement dated December 10, 1999 (the "Original Agreement"). A condition to GPII's and GPII-A's obligations under the Subscription Agreement is that the Company and the OSI Stockholders, including GPII and GPII-A, enter into this Agreement for the purposes, among others, of (i) amending and restating the Original Agreement, (ii) inducing the Company, GPII and GPII-A to execute and deliver the Subscription Agreement, (iii) establishing the composition of the Company's Board of Directors (the "Board"), (iv) assuring continuity in the management and ownership of the Company, (v) limiting the manner and terms by which the OSI Stockholders' Common Stock may be transferred, and (vi) granting certain registration rights to the OSI Stockholders. NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows: 1. Board of Directors. (a) From and after the Closing and until the provisions of this paragraph 1 cease to be effective pursuant to 1(d) below, each OSI Stockholder, other than the Rollover Stockholders, shall vote all of his, her or its OSI Stockholder Shares which are voting shares and any other voting securities of the Company over which such OSI Stockholder has voting control (other than Senior Preferred Stock) and shall take all other necessary or desirable actions within his control (whether in his, her or its capacity as a stockholder, director, member of a board committee or officer of the Company or otherwise, and including, without limitation, attendance at meetings in person or by proxy for purposes of obtaining a quorum and execution of written consents in lieu of meetings), and the Company shall take all necessary or desirable actions within its control (including, without limitation, calling special board and stockholder meetings), so that: (i) the authorized number of directors on the Board to be elected by the holders of OSI Stockholder Shares shall be established at such number as shall be determined from time to time in the sole discretion of the Principal Investor (it being understood that upon the occurrence of a Voting Rights Triggering Event (as defined in the Certificate of Designation) the holders of Senior Preferred Stock may elect an additional two or more directors in accordance with the terms thereof); (ii) the following individuals shall be elected to the Board by holders of the OSI Stockholder Shares: (A) one individual designated by the Principal Investor who is a member of the Company's management (the "Management Director"), provided that until the first annual meeting of the Company's stockholders, Timothy Beffa shall serve as the Management Director; (B) all other individuals designated by the Principal Investor (the "Principal Investor Directors"), who shall initially be Paul Wood and Timothy Hurd; provided that the Principal Investor may authorize in writing one or more other Persons (each an "Authorized Person") to designate one or more additional individuals to be elected to the Board on such terms and conditions as the Principal Investor shall determine in its sole discretion (provided, that any such Authorized Person shall consent in writing to such designation and related obligations pursuant to Section 3(c)); (iii)the removal from the Board (with or without cause) of any individual designated hereunder by the Principal Investor shall be at the Principal Investor's written request (or the written request of an Authorized Person in the case of an individual designated by such Authorized Person), but only upon such written request and under no other circumstances, provided that if any director elected pursuant to subparagraph (ii)(A) above ceases to be an employee of the Company and its Subsidiaries, he or she shall be removed as a director promptly after his or her employment ceases; and (iv) in the event that any individual designated hereunder by the Principal Investor ceases to serve as a member of the Board during his term of office, the resulting vacancy on the Board shall be filled by an individual designated by the Principal Investor (or by an individual designated by an Authorized Person in the case where the representative ceasing to serve as a member of the Board was designated by such Authorized Person), provided that in the event the Management Director ceases to serve as a member of the Board during his term of office, the resulting vacancy on the Board shall be filled by a member of the Company's management designated by the Principal Investor. (b) The Company shall pay the reasonable out-of-pocket expenses incurred by each director (including any director elected by holders of the Senior Preferred Stock in accordance with the Certificate of Designation) in connection with attending the meetings of the Board and any committee thereof. (c) If the Principal Investor (or an Authorized Person) fails to designate an individual to fill a directorship pursuant to the terms of this paragraph 1, the individual previously holding such directorship shall be elected to such position, or if such individual fails or declines to serve, the election of an individual to such directorship shall be accomplished in accordance with the Company's Bylaws and applicable law; provided that the OSI Stockholders shall vote to remove any such individual the Principal Investor (or the Authorized Person, if applicable) so directs in accordance with paragraph 1(a)(iii). (d) The provisions set forth in this paragraph 1 shall remain in effect until the consummation of a Qualified Public Offering. 2. Representations and Warranties. Each OSI Stockholder represents and warrants as to itself that (i) such OSI Stockholder is the record owner of the number of OSI Stockholder Shares set forth opposite his, her or its name on the applicable Exhibit attached hereto, (ii) this Agreement has been duly authorized, executed and delivered by such OSI Stockholder and constitutes the valid and binding obligation of such OSI Stockholder, enforceable in accordance with its terms, and (iii) such OSI Stockholder has not granted and is not a party to any proxy, voting trust or other agreement which is inconsistent with, conflicts with or violates any provision of this Agreement. No holder of OSI Stockholder Shares shall grant any proxy or become party to any voting trust or other agreement which is inconsistent with, conflicts with or violates any provision of this Agreement. The Company represents and warrants that this Agreement has been duly authorized, executed and delivered by the Company and constitutes the valid and binding obligation of the Company, enforceable in accordance with its terms 3. Restrictions on Transfer of OSI Stockholder Shares. (a) Transfer of OSI Stockholder Shares. No holder of OSI Stockholder Shares shall sell, transfer, assign, pledge or otherwise dispose of (whether with or without consideration and whether voluntarily or involuntarily or by operation of law) any interest in his, her or its OSI Stockholder Shares (a "Transfer"), except pursuant to the provisions of this paragraph 3, or, with respect to any OSI Stockholder other than the Principal Investor and its Affiliates, with the prior written approval of the Principal Investor, which approval shall not be unreasonably withheld (but which approval may be conditioned upon the transferee agreeing to be bound by this Agreement); provided, however, that the Principal Investor may withhold such approval in its sole discretion with regard to any proposed Transfer to a Competitor, or an affiliate of a Competitor, of the Company. (b) Drag-Along Rights. (i) If the Board and the holders of a majority of the shares of Common Stock then outstanding approve a Sale of the Company (an "Approved Sale"), each OSI Stockholder and each holder of OSI Stockholder Shares shall vote for, consent to and take all actions required in connection with and raise no objections against such Approved Sale. If the Approved Sale is structured as a (A) merger or consolidation, each holder of OSI Stockholder Shares shall waive any dissenters' rights, appraisal rights or similar rights in connection with such merger or consolidation or (B) sale of stock, each holder of OSI Stockholder Shares shall agree to sell all of his OSI Stockholder Shares and rights to acquire OSI Stockholder Shares, in each case on the same terms and conditions approved by the Board and applicable to all holders of the Common Stock then outstanding. Each holder of OSI Stockholder Shares shall take all necessary or desirable actions in connection with the consummation of the Approved Sale as requested by the Company. (ii) The obligations of the holders of OSI Stockholder Shares with respect to the Approved Sale of the Company are subject to the satisfaction of the following conditions: (A) upon the consummation of the Approved Sale, each OSI Stockholder and each holder of OSI Stockholder Shares (in his or her capacity as such) shall have the right to receive the same terms, conditions and form of consideration with respect to such OSI Stockholder Shares (and in the same proportion of the aggregate consideration with respect to such Approved Sale that such holder would have received if the OSI Stockholder Shares constituted all of the issued and outstanding capital stock of the Company and if such aggregate consideration had been distributed by the Company in complete liquidation pursuant to the applicable rights and preferences set forth in the Company's Certificate of Incorporation as in effect immediately prior to such Approved Sale; provided, however, the holders of Senior Common Stock shall be entitled to a Liquidation Preference (as defined therein) only to the extent permitted in the Company's Certificate of Incorporation); (B) if any holders of a class of OSI Stockholder Shares are given an option as to the form and amount of consideration to be received, each holder of such class of OSI Stockholder Shares shall be given the same option; and (C) each holder of then currently exercisable rights to acquire shares of a class of OSI Stockholder Shares shall be given an opportunity to either (i) exercise such rights prior to the consummation of the Approved Sale and participate in such sale as holders of such class of OSI Stockholder Shares or (ii) upon the consummation of the Approved Sale, receive in exchange for such rights consideration equal to the amount determined by multiplying (1) the same amount of consideration per share of a class of OSI Stockholder Shares received by holders of such class of OSI Stockholder Shares in connection with the Approved Sale less the exercise price per share of such class of OSI Stockholder Shares of such rights to acquire such class of OSI Stockholder Shares by (2) the number of shares of such class of OSI Stockholder Shares represented by such rights assuming such rights were exercised as of the date of consummation of the Approved Sale; provided, however, that if the purchaser in any Approved Sale desires to have some or all OSI Stockholders who are members of the Company's management retain or rollover some or all of their OSI Stockholder Shares and/or desires to have the Principal Investor and/or other specified stockholders of the Company retain or rollover some or all of their OSI Stockholder Shares in order to qualify the Approved Sale for recapitalization accounting, the foregoing provisions in (A), (B) and (C) shall not apply to the extent of any such retention or rollover; provided further, however, that no OSI Stockholder shall be required by this Agreement, without such OSI Stockholder's written consent, to retain or rollover some or all of their OSI Stockholder Shares, except in a merger in which all stockholders are required to be treated equally with respect to such retention or rollover. (iii) Each OSI Stockholder will bear, and shall not be required to bear more than, his or its pro rata share (based upon the number of OSI Stockholder Shares to be sold) of the costs of any sale of OSI Stockholder Shares pursuant to an Approved Sale to the extent such costs are incurred for the benefit of all such holders of OSI Stockholder Shares and are not otherwise paid by the Company or the acquiring party; provided that no such OSI Stockholder shall be required to make any such payment unless the Principal Investor is required to pay its pro rata share. Costs incurred by the holders of OSI Stockholder Shares on their own behalf will not be considered costs of the Approved Sale. Each OSI Stockholder transferring OSI Stockholder Shares pursuant to an Approved Sale shall be obligated to join on a pro rata basis (based on the number of OSI Stockholder Shares to be sold) in any indemnification or other obligations that are part of the terms and conditions of the Approved Sale (other than any such obligations that relate specifically to a particular OSI Stockholder, such as indemnification with respect to representations and warranties given by an OSI Stockholder regarding such OSI Stockholder's title to and ownership of OSI Stockholder Shares). Notwithstanding the foregoing, no OSI Stockholder shall be obligated in connection with any Approved Sale to agree to indemnify or hold harmless the transferees in an amount in excess of the net proceeds paid to such OSI Stockholder in connection with the Approved Sale. (c) Co-Sale Rights. (i) In the event that the Principal Investor or its Affiliates (as defined in paragraph 3(d) but not including its limited partners) or an Authorized Person or its Affiliates (any of the above the "Transferring Holder") propose to effect a direct or indirect Transfer (other than a Permitted Transfer as defined in paragraph 3(d)) of OSI Stockholder Shares, the Transferring Holder shall promptly give written notice (the "Co-Sale Notice") to the Company and the other OSI Stockholders at least 30 days prior to the closing of such Transfer. The Co-Sale Notice shall describe in reasonable detail the proposed Transfer including, without limitation, the name of, and the number (by class) of OSI Stockholder Shares to be purchased by, the transferee, the purchase price of each OSI Stockholder Share to be sold, the number of shares the Transferring Holder proposes to Transfer, any other terms of the proposed Transfer and the date the proposed Transfer will be consummated, it being understood that if such proposed Transfer by the Transferring Holder is in a public offering under the Securities Act and the provisions of paragraph 6 apply, then this paragraph 3(c)(i) shall not apply. (ii) Each other OSI Stockholder may elect to participate in the contemplated Transfer by delivering irrevocable written notice to the Transferring Holder setting forth the number of OSI Stockholder Shares such OSI Stockholder desires to sell in the contemplated Transfer within 20 days after receipt of the Co-Sale Notice. If any OSI Stockholders have elected to participate in such Transfer (each, a "Participant"), each such Participant (subject in the case of Optionholders and Warrantholders to the Option or Warrant being exercisable and to the payment by such holder of the applicable exercise price) shall be entitled to sell in the contemplated Transfer, at the same price and on the same terms as the Transferring Holder, a number of OSI Stockholder Shares equal to the product of (A) the quotient determined by dividing the percentage of OSI Stockholder Shares owned by such Participant by the aggregate percentage of OSI Stockholder Shares owned by the Transferring Holder and all Participants and (B) the number of OSI Stockholder Shares to be sold in the contemplated Transfer. For example, if the Co-Sale Notice contemplated a sale of 100 OSI Stockholder Shares by the Transferring Holder, and if the Transferring Holder at such time own 30% of all OSI Stockholder Shares and if the Participants own 20% of all OSI Stockholder Shares, the Transferring Holder would be entitled to sell 60 shares (30%/50% x 100 shares) and the Participants would be entitled to sell 40 shares (20% / 50% x 100 shares). (iii)The Transferring Holder shall use reasonable best efforts to obtain the agreement of the prospective transferee(s) to the participation of the Participants in any contemplated Transfer, and the Transferring Holder may not Transfer any of their respective OSI Stockholder Shares to the prospective transferee(s) if the prospective transferee(s) declines to allow the participation of the Participants in accordance with the foregoing formula. (iv) Each Participant will bear its pro rata share (based upon the number of shares sold) of the reasonable costs of any sale of OSI Stockholder Shares pursuant to a sale subject to this paragraph 3(c) to the extent such costs are incurred for the benefit of all selling OSI Stockholders and are not otherwise paid by the Company or the acquiring party; provided, that no such OSI Stockholder shall be required to make any such payment unless the Principal Investor is required to pay its pro rata share. Costs incurred by the OSI Stockholders on their own behalf will not be considered costs of the transaction hereunder. (d) Permitted Transfers. The restrictions set forth in this paragraph 3 shall not apply with respect to: (i) any Transfer of OSI Stockholder Shares by any OSI Stockholder to the Company, (ii) any Transfer of OSI Stockholder Shares by any OSI Stockholder who is a natural person, pursuant to applicable laws of descent and distribution or among such OSI Stockholder's Family Group or Affiliates, as applicable, (iii) any Transfer of OSI Stockholder Shares by any OSI Stockholder or Warrantholder that is a corporation, partnership or limited liability company, to its Affiliates, (iv) any Transfer of OSI Stockholder Shares by any Investors, to their respective officers, directors, employees, partners, members or Affiliates or to other Investors, (v) any Transfer of OSI Stockholder Shares by any OSI Stockholder, pursuant to a Public Sale, (vi) any Transfer of OSI Stockholder Shares by any Unit Purchasers and their Affiliates, of Unit Common Shares to any Person in accordance with the Purchase Agreement, (vii) any Transfer of OSI Stockholder Shares by any Co-Invest Purchasers and their Affiliates, of Co-Invest Common Shares to any Person in accordance with paragraph 8, (viii) any Transfer of OSI Stockholder Shares by the Principal Investor and its Affiliates, to any Person, provided that immediately after such transfer the Principal Investor and its Affiliates own not less than 50.1% of the shares of the Company's Common Stock calculated on a fully-diluted basis and (ix) any Transfer or Transfers by Gryphon and its Affiliates of an amount not to exceed, individually or in the aggregate, 100,000 OSI Stockholder Shares (collectively referred to herein as "Permitted Transferees"); provided that the restrictions contained in this paragraph 3 shall continue to be applicable to the OSI Stockholder Shares after any such Transfer (other than a Transfer to the Company or as provided in paragraph 3(e)); provided, further that the transferees of such OSI Stockholder Shares (other than in the case of a Public Sale or in the case where the Company is the transferee) shall have agreed in writing to be bound by the provisions of this Agreement affecting the OSI Stockholder Shares so transferred; provided, further that the provision in subparagraphs 3(d)(ii), (iii) or (viii) shall not apply to Transfers by a Rollover Stockholder which is a partnership or the Principal Investor to a partner of such Rollover Stockholder or Principal Investor until such time as there has been an initial public offering of the Company's securities (in which event such OSI Stockholder Shares will remain subject to the other terms hereof, including paragraph 4); provided, further that the restrictions set forth in this paragraph 3 shall not apply with respect to the execution by an OSI Stockholder of, and any Transfers pursuant to, the Pledge or the Senior Credit Pledge. For purposes of this Agreement, "Family Group" means as to any OSI Stockholder who is a natural person his or her spouse and descendants (whether natural or adopted) and any trust solely for the benefit of such OSI Stockholder or his or her spouse and/or descendants, and "Affiliate" of an OSI Stockholder means any other Person, directly or indirectly controlling, controlled by or under common control with such OSI Stockholder and any partner of an OSI Stockholder which is a partnership and any officer, director or member of any OSI Stockholder which is a corporation or other entity. Except for transfers permitted by Section 3(d)(iv), any Affiliate of an OSI Stockholder (other than a natural person) who receives any OSI Stockholder Shares shall Transfer such OSI Stockholder Shares to the OSI Stockholder from whom the OSI Stockholder Shares were originally received or acquired within 5 days after ceasing to be an Affiliate of such OSI Stockholder. Notwithstanding anything in this Agreement to the contrary, no Rollover Stockholder which is a party to the Pledge shall Transfer any of his, her or its OSI Stockholder Shares until such time as such OSI Stockholder Shares are no longer subject to the Pledge, at which time such OSI Stockholder Shares may be Transferred pursuant to the terms of this paragraph 3. (e) Termination of Restrictions. The restrictions set forth in this paragraph 3 shall continue with respect to each OSI Stockholder Share until the earlier of (i) the date on which such OSI Stockholder Share has been transferred in a Public Sale, (ii) the date on which such OSI Stockholder Share has been transferred pursuant to this paragraph 3 (other than a transfer pursuant to subparagraph 3(d) and other than a transfer approved by the Principal Investor pursuant to paragraph 3(a) on the condition that the transferee agree to be bound by this Agreement), (iii) the tenth anniversary of the date of this Agreement or (iv) the consummation of a Qualified Public Offering. 4 Holdback Agreement. No holder of OSI Stockholder Shares shall effect any public sale or distribution of any OSI Stockholder Shares or of any other capital stock or equity securities of the Company (other than the Senior Preferred Stock), or any securities convertible into or exchangeable or exercisable for such stock or securities, during the seven days prior to and the 180-day period beginning on the effective date of any underwritten public offering of capital stock (or securities convertible into or exchangeable for capital stock) (other than the Senior Preferred Stock) of the Company unless the underwriters managing the registration otherwise agree. This paragraph 4 shall remain in effect with respect to each OSI Stockholder Share until earlier of (a) the date on which such OSI Stockholder Share has been transferred in a Public Sale, or (b) the ninetieth (90th) day following the closing of a Qualified Public Offering; provided, however, that for each holder of OSI Stockholder Shares who is an employee of the Company at the time of a Qualified Public Offering or who is not an Independent Third Party immediately after such Qualified Public Offering, the restrictions on the transfer of OSI Stockholder Shares set forth in this paragraph 4 shall terminate only upon (a) above. 5 Call Upon Termination of Management Stockholder's Employment. (a) Notwithstanding any other provision of this Agreement to the contrary, upon the death, disability, retirement or termination of employment (each a "Call Event") of any Management Stockholder employed immediately prior to such Call Event by the Company or any of the Company's Subsidiaries, the Company or its designee shall, on terms and subject to the conditions set forth in this paragraph 5, have the right (the "Management Call") at the option of the Company, to purchase all but not less than all of the Call Shares and Vested Stock Options held by such Management Stockholder, and any Permitted Transferee of Call Shares or Vested Stock Options of such Management Stockholder, by delivering written notice to such Management Stockholder or his or her Permitted Transferees, within 60 days after the occurrence of the Call Event. The offering price for the Call Shares or Vested Stock Options offered pursuant to this paragraph 5 shall be equal to the Fair Market Value of such Call Shares or Vested Stock Options at such time. As used in this Agreement, the "Fair Market Value" of any OSI Stockholder Shares (including Call Shares) or any Vested Stock Options shall be as determined in good faith by the Board of Directors of the Company (without discount for lack of marketability or minority interest). (b) If the Company shall elect to exercise the Management Call in accordance with this paragraph 5, the closing of the purchase by the Company shall take place no later than 45 days after the exercise of the Management Call, which time in the case of the death of a Management Stockholder may at the Company's election be extended to provide for probate of such Stockholder's estate. On the date scheduled for such closing, the price for the OSI Stockholder Shares or Vested Stock Options subject to the Management Call shall be paid in full to the Management Stockholder holding such OSI Stockholder Shares (including, if applicable, such OSI Stockholder Shares held by any Permitted Transferee of such Management Stockholder) by the Company or its designee against delivery of a certificate or certificates, as the case may be, representing the purchased shares in proper form for transfer. In connection with such closing, such Management Stockholder and/or Permitted Transferee (as the case may be) shall warrant to the Company or its designee that he, she or it has good and marketable title to the purchased OSI Stockholder Shares or Vested Stock Options, free and clear of all claims, liens, charges, encumbrances and security interests of any nature whatsoever except those under this Agreement. 6 Piggyback Registration Rights. (a) Right to Piggyback. Whenever the Company proposes to register any of its Common Stock under the Securities Act (other than a registration on Form S-4 or S-8 or any successor or similar forms) for the account of the Company or any other Person, and the registration form to be used may be used for the registration of OSI Stockholder Shares (a "Piggyback Registration"), the Company will give prompt written notice to all holders of OSI Stockholder Shares of its intention to effect such a registration and, subject to paragraphs 6(c) and 6(d) below, will include in such registration all OSI Stockholder Shares with respect to which the Company has received written requests for inclusion therein within 15 days after the receipt of the Company's notice. (b) Piggyback Expenses. In all Piggyback Registrations, all costs and expenses incident to the Company's performance of or compliance with this paragraph 6, including, without limitation, all registration and filing fees, fees and expenses of compliance with securities or blue sky laws, printing expenses, messenger and delivery expenses, fees and disbursements of custodians, fees and disbursements of counsel for the Company, and all independent certified public accountants, underwriters (excluding discounts and commissions), and other persons retained or employed by the Company (all such expenses being herein called "Registration Expenses") will be paid by the Company. (c) Priority on Registrations. If a Piggyback Registration is an underwritten registration, and the managing underwriters advise the Company in writing (with a copy to each party hereto requesting registration of OSI Stockholder Shares) that, in their opinion, the number of securities requested to be included in such registration exceeds the number which can be sold in such offering without adversely affecting the marketability of such offering, the Company will include in such registration (1) with respect to a primary registration: (a) first, the securities that the Company proposes to sell, and (b) second, the OSI Stockholder Shares requested to be included in such registration pursuant to this Section 6 together with any other holders of securities to whom registration rights may hereafter be granted, pro rata among the holders thereof on the basis of the number of OSI Stockholder Shares or other securities owned by each such holder, and (2) with respect to a secondary registration: (a) first, the shares of capital stock of the Company of any stockholder exercising his, her or its right to include his, her or its shares of Common Stock in a Demand Registration, and (b) second, the OSI Stockholder Shares requested to be included in such registration pursuant to this Section 6 together with any other holders of securities to whom registration rights may hereafter be granted, pro rata among the holders thereof on the basis of the number of OSI Stockholder Shares or other securities owned by each such holder. If, as a result of the proration provisions of this Section 6(c), any OSI Stockholder shall not be entitled to include all OSI Stockholder Shares in a Piggyback Registration that such OSI Stockholder has requested to be included, such OSI Stockholder may elect to withdraw his request to include its OSI Stockholder Shares in such registration (a "Withdrawal Election"); provided that a Withdrawal Election shall be made prior to the effectiveness of the related registration statement and shall be irrevocable and, after making a Withdrawal Election, an OSI Stockholder shall no longer have any right to include its OSI Stockholder Shares in the registration as to which such Withdrawal Election was made. (d) Withdrawal by Company. If, at any time after giving notice of its intention to register any of its securities as set forth in paragraph 6(a) and before the effective date of such registration statement filed in connection with such registration, the Company shall determine, for any reason, not to register such securities, the Company may, at its sole discretion, give prompt written notice of such determination to each holder of OSI Stockholder Shares and thereupon shall be relieved of its obligation to register any OSI Stockholder Shares in connection with such registration (but not from its obligation to pay the Registration Expenses in connection therewith as provided herein). 7 Grant of Preemptive Rights. (a) If the Company agrees to issue New Securities to any Person (such Person an "Acquiring Person") at a subscription, offering, exercise or conversion price ("Offer Price") lower than either (x) the Fair Market Value (as defined in paragraph 5(a)) of such New Securities at the time the Company agrees to issue such New Securities or (y) the applicable Original Purchase Price, then the Company hereby grants each Rollover Stockholder and each Investor, and/or its respective Affiliates, as the case may be, so long as such Investor and/or its Affiliates beneficially owns 35% or more of the OSI Stockholder Shares held by such Investor or its Affiliates on the date hereof (collectively with the Rollover Stockholders, the "Right A Holders"), preemptive rights to purchase a pro rata portion of such New Securities at the same price and on the same terms and conditions offered to such Acquiring Person. In the event (and on each occasion) that the Company shall decide to undertake an issuance of New Securities to an Acquiring Person, the Company will give all Right A Holders written notice (a "Preemptive Notice") of the Company's decision, describing the type of New Securities and the terms upon which the Company has decided to issue the New Securities (including, without limitation, the expected timing of such issuance which will in no event exceed 60 days after the date of the Preemptive Notice). For the avoidance of doubt, the OSI Stockholders acknowledge and agree that no OSI Stockholder has any preemptive rights with respect to any OSI Stockholder Shares issued or issuable pursuant to the Subscription Agreement. (b) If the Company issues New Securities to the Principal Investor or its Affiliates, which issuance (including any prior issuance with respect to which such Unit Purchaser, Co-Invest Purchaser, GPII or GPII-A had no preemptive rights hereunder) would either otherwise entitle a Unit Purchaser, Co-Invest Purchaser, GPII or GPII-A to purchase at least $1.5 million of New Securities under this paragraph 7(b) or dilute (calculated on a fully diluted basis) the percentage of beneficial ownership of the Company's Common Stock by a Unit Purchaser, Co-Invest Purchaser, GPII or GPII-A as of the issue date of the New Securities by 10% or more, then the Company hereby grants each Unit Purchaser, Co-Invest Purchaser, GPII or GPII-A and its respective Affiliates (the "Right B Holders" and collectively with the Right A Holders, the "Rights Holders"), preemptive rights to purchase a pro rata portion of such New Securities at the same price and on the same terms and conditions offered to the Principal Investor or its Affiliates, as applicable. In the event (and on each occasion) that the Company shall decide to undertake an issuance of New Securities to the Principal Investor or its Affiliates, the Company will give all Right B Holders a Preemptive Notice of the Company's decision, describing the type of New Securities and the terms upon which the Company has decided to issue the New Securities (including, without limitation, the expected timing of such issuance which will in no event exceed 60 days after the date of the Preemptive Notice). (c) Each of the Rights Holders, as applicable, shall have 20 business days from the date on which it receives a Preemptive Notice to agree to purchase its pro rata portion of such New Securities for the applicable price and upon the same terms specified in the Preemptive Notice by giving written notice to the Company. Each Rights Holder, as applicable, shall have the option to purchase less than all of its pro rata portion. If, in connection with such a proposed issuance of New Securities, any Rights Holders shall for any reason fail or refuse to give such written notice to the Company within such 20-day period, such OSI Stockholder shall, for all purposes of this paragraph 7, be deemed to have refused (in that particular instance only) to purchase any of such New Securities and to have waived (in that particular instance only) all of its rights under this paragraph 7 to purchase any of such New Securities. Upon expiration of the offering periods described in this paragraph 7, the Company shall be entitled to sell such New Securities and other securities which the Rights Holders, as applicable, have elected not to purchase during the 120 days following such expiration on terms and conditions no more favorable to the purchasers thereof than those offered to the applicable Rights Holders. Any New Securities offered or sold by the Company after such 120-day period must be reoffered to the applicable Rights Holders, as the case may be, provided that the applicable Rights Holders continue to meet the requirements set forth in this paragraph 7. The rights granted by this paragraph 7 shall terminate upon the consummation of a Qualified Public Offering. Notwithstanding anything herein to the contrary, no Rights Holder has any preemptive rights with respect to any New Securities issued in connection with (i) debt or preferred stock financing (so long as such preferred stock does not constitute New Securities), (ii) the exercise of options, warrants or other rights or the conversion or exchange of securities of the Company, (iii) the receipt of paid-in-kind dividends, (iv) a stock split, stock dividend, stock distribution or recapitalization in which all similarly situated OSI Stockholders are treated in a similar manner, (v) issuances to the directors, officers or employees of the Company or any Subsidiary of the Company pursuant to a benefit plan or similar arrangement or as an inducement to hire a director, officer or employee of the Company or any Subsidiary of the Company, provided that such issuances are approved by the Board of Directors or (vi) issuances to customers or suppliers of the Company, provided that such issuances are approved by the Board of Directors. As used in this paragraph 7, the term "pro rata portion" with respect to a Rights Holder shall mean the aggregate number of New Securities to be issued multiplied by a fraction, the numerator of which is the number of OSI Stockholder Shares held at such time by such Rights Holder and the denominator of which is the aggregate number of OSI Stockholder Shares on a fully diluted basis; provided that in the case of preemptive rights triggered pursuant to Section 7(a)(y) above, the pro rata portion shall be based on the number of OSI Stockholder Shares purchased by the applicable Rights Holder at an applicable Original Purchase Price which is higher than the Offer Price relative to the total number of OSI Stockholder Shares then outstanding. 8 First Offer Right. Prior to making any Transfer (other than a Permitted Transfer) of any Co-Invest Common Shares by a Co-Invest Purchaser or its assignee, such Person (the "Transferring Stockholder") shall deliver a written notice (an "Offer Notice") to the Company and the Principal Investor. The Offer Notice shall disclose in reasonable detail the proposed number of Co-Invest Common Shares to be transferred, the proposed terms and conditions of the Transfer and the identity, if known, of the prospective transferee(s). First, the Company may elect to purchase all (but not less than all) of the Co-Invest Common Shares specified in the Offer Notice at the price and on the terms specified therein by delivering written notice of such election to the Transferring Stockholder and the Principal Investor as soon as practical but in any event within ten days after the delivery of the Offer Notice. If the Company has not elected to purchase all of the Co-Invest Common Shares specified in the Offer Notice within such ten-day period, the Principal Investor may elect to purchase all (but not less than all) of the Co-Invest Common Shares specified in the Offer Notice at the price and on the terms specified therein by delivering written notice of such election to the Transferring Stockholder as soon as practical but in any event within 5 days after expiration of the Company's election. If the Company or the Principal Investor has elected to purchase Co-Invest Common Shares from the Transferring Stockholder, the transfer of such shares shall be consummated as soon as practical after the delivery of the election notice(s) to the Transferring Stockholder, but in any event within 10 days after the expiration of the applicable election period. To the extent that the Company and the Principal Investor have not elected to purchase all of the Co-Invest Common Shares being offered, the Transferring Stockholder may, within 90 days after the expiration of the election period of the Principal Investor, transfer such Co-Invest Common Shares to one or more third parties at a price no less than 95% of the price per share specified in the Offer Notice and on other terms not materially more favorable to the transferees thereof than offered to the Company and the Principal Investor in the Offer Notice. Any Co-Invest Common Shares not transferred within such 90-day period shall be reoffered to the Company and the Principal Investor under this Section 8 prior to any subsequent Transfer. The purchase price specified in any Offer Notice shall be payable solely in cash at the closing of the transaction, or as otherwise agreed to with the applicable Co-Invest Purchaser. Notwithstanding anything to the contrary in this Agreement, (a) this Section 8 shall terminate and be of no further force and effect immediately upon the consummation of a Qualified Public Offering or at any time the Principal Investor ceases to beneficially own, in the aggregate with its Affiliates, less than 40% of the outstanding shares of the Company's Common Stock (on a fully diluted basis) and (b) the rights of the Principal Investor pursuant to this Section 8 may not be assigned or otherwise transferred to any Person other than its Affiliates. 9 Power of Attorney. (a) In order to secure each Stockholder's, Optionholder's and Warrantholder's obligation to (1) vote his, her or its OSI Stockholder Shares and other voting securities of the Company in accordance with the provisions of paragraph 1 (except for Rollover Stockholders) and (2) comply with the requirements of paragraphs 3(b) and, as applicable, paragraph 5, each Stockholder, each Optionholder and each Warrantholder hereby irrevocably appoints the Principal Investor as his, her or its true and lawful attorney-in-fact, with full power of substitution, to (a) vote all of his, her or its OSI Stockholder Shares and other voting securities of the Company for the election and/or removal of directors and all such other matters as expressly provided for in paragraph 1 (except for Rollover Stockholders) and paragraph 3(b) and (b) take all actions, and execute and deliver all agreements, certificates or other documents, in each case necessary to implement and give effect to the agreements set forth in paragraph 3(b) and paragraph 5 hereof in the name and for the benefit and obligation of such Stockholder, Optionholder or Warrantholder. The Principal Investor may exercise the irrevocable power of attorney granted to it hereunder at any time any Stockholder, Optionholder or Warrantholder fails to comply with the provisions of this Agreement. The power of attorney granted by each Stockholder, Optionholder and Warrantholder pursuant to this paragraph 9 is coupled with an interest and is given to secure the performance of each Stockholder's, Optionholder's and Warrantholder's obligations to the Principal Investor under this Agreement. Such power of attorney is irrevocable (subject to paragraph 9(b) below), and shall survive the death, incompetency, disability, bankruptcy or dissolution of such Stockholder, Optionholder or Warrantholder and the subsequent holders of his, her or its OSI Stockholder Shares. (b) The provisions set forth in paragraph 9(a) above shall terminate upon the consummation of a Qualified Public Offering. 10 Legend. Each certificate evidencing OSI Stockholder Shares and each certificate issued in exchange for or upon the transfer of any OSI Stockholder Shares (if such shares remain OSI Stockholder Shares after such transfer) shall be stamped or otherwise imprinted with a legend in substantially the following form: "The securities represented by this certificate are subject to an Amended and Restated Stockholders Agreement dated as of April 16, 2001 among the issuer of such securities (the "Company") and certain of the Company's stockholders, as amended and modified from time to time. A copy of such Stockholders Agreement shall be furnished without charge by the Company to the holder hereof upon written request. The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or any state securities laws and may not be transferred, sold or otherwise disposed of except pursuant to an effective registration under the Securities Act or pursuant to an opinion of counsel, satisfactory to the Company, to the effect that an exemption from such registration is available. The Company shall imprint such legend on certificates evidencing OSI Stockholder Shares outstanding as of the date hereof. The legend set forth above shall be removed from the certificates evidencing any shares which cease to be OSI Stockholder Shares. The parties hereto acknowledge and agree that the legend required to be placed on certificates representing OSI Stockholder Shares pursuant to the Original Agreement still applies. 11 Transfer. Prior to transferring any OSI Stockholder Shares (other than pursuant to a Public Sale or a Sale of the Company) to any Person, the transferring holders of OSI Stockholder Shares shall cause the prospective transferee to be bound by this Agreement, in the same capacity as the transferor, and to execute and deliver to the Company and the other holders of OSI Stockholder Shares a counterpart of this Agreement. The requirements of this paragraph 11 shall terminate upon the consummation of a Qualified Public Offering. 12 Definitions. "Call Shares" shall mean collectively (i) restricted shares of Common Stock granted, or (ii) shares of Common Stock received upon the exercise of options granted, to certain key employees of the Company (or the Company's Subsidiaries) pursuant to any Company stock option or stock award plan. "Certificate of Designation" means the 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 and Restrictions Thereof. "Common Stock" means collectively the Company's Senior Common Stock, par value $0.01 per share, Voting Common Stock, par value $0.01 per share and Nonvoting Common Stock, par value $0.01. "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. "Credit Agreement" means the Credit Agreement, dated as of November 30, 1999, among the Company, the various financial institutions and other Persons as are or may become parties thereto, DLJ Capital Funding, Inc., as the syndication agent, lead arranger and sole book running manager, Harris Trust and Savings Bank, as documentation Agent, and Fleet National Bank, N.A., as administrative agent, as amended, supplemented, replaced, refinanced, amended and restated or otherwise modified from time to time. "Demand Registration" with respect to the OSI Stockholders has the meaning ascribed to it in that certain Amended and Restated Registration Rights Agreement, dated as of the date hereof, among the Company and the Persons named therein, relating to the Company's Common Stock. "Independent Third Party" means any Person who, immediately prior to the contemplated transaction, does not own together with its affiliates in excess of 10% of the Company's Common Stock on a fully-diluted basis voting capital stock (a "10% Owner)", who is not controlling, controlled by or under common control with any such 10% Owner and who is not the spouse or descendent (by birth or adoption) of any such 10% Owner or a trust for the benefit of such 10% Owner and/or such other Persons. "Management Stockholder" shall mean the individuals listed on Exhibit B, it being understood that any other member of the management of the Company who becomes a stockholder or optionholder of the Company (including through the receipt of Call Shares) shall be a Management Stockholder. "New Securities" means (i) any Common Stock or (ii) any securities of the Company which are convertible into, or any options, warrants or other rights which are exercisable or exchangeable for, Common Stock. "Options" means any options to purchase Common Stock issued by the Company to Optionholders. "Original Purchase Price" means, with respect to Gryphon, the purchase price per share of Senior Common Stock paid by Gryphon pursuant to the Subscription Agreement, and, with respect to the other OSI Stockholders (excluding Gryphon), the price per Unit Common Share as set forth in Section 2.04 of the Purchase Agreement. Each such Original Purchase Price shall be equitably adjusted for stock splits, stock dividends, stock combinations and similar events. "OSI Stockholder Shares" means (i) any Common Stock purchased or otherwise acquired by any OSI Stockholder, (ii) any Common Stock issued or issuable directly or indirectly to an OSI Stockholder upon exercise of Warrants or Options or conversion of Senior Common Stock and (iii) any Common Stock issued or issuable with respect to the securities referred to in clauses (i) and (ii) above by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. For purposes of this Agreement, any Person who holds Warrants, Options or Senior Common Stock shall be deemed to be the holder of the OSI Stockholder Shares issuable directly or indirectly upon exercise of the Warrants or Options or conversion of Senior Common Stock in connection with the transfer thereof or otherwise and regardless of any restriction or limitation on the exercise or conversion thereof. As to any particular OSI Stockholder Shares, such shares shall cease to be OSI Stockholder Shares when they have been disposed of in a Public Sale. "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 and a governmental entity or any department, agency or political subdivision thereof. "Pledge" means, with respect to a Rollover Stockholder, the pledge of such Rollover Stockholder's OSI Stockholder Shares pursuant to the Pledge Agreement by and among the Company and the Rollover Stockholder dated as of the date hereof. "Public Sale" means any sale of OSI Stockholder Shares to the public pursuant to an offering registered under the Securities Act or, following a public offering of any class of Common Stock of the Company registered under the Securities Act, to the public pursuant to the provisions of Rule 144, or any successor provision thereto, adopted under the Securities Act. "Qualified Public Offering" means the issuance and sale in an underwritten public offering registered under the Securities Act of shares of the Company's Common Stock having an aggregate offering value of at least $50 million. "Rollover Stockholders" has the meaning ascribed to it in the Recapitalization Agreement. "Sale of the Company" means the sale of the Company to an Independent Third Party or group of Independent Third Parties pursuant to which such party or parties acquire (i) capital stock of the Company possessing the voting power under normal circumstances to elect a majority of the Company's board of directors (whether by merger, consolidation or sale or transfer of the Company's capital stock) or (ii) all or substantially all of the Company's assets determined on a consolidated basis. "Securities Act" means the Securities Act of 1933, as amended from time to time. "Senior Common Stock" has the meaning set forth in the recitals hereto. "Senior Credit Pledge" means the pledge by each applicable OSI Stockholder of its OSI Stockholder Shares pursuant to the Shareholders' Pledge Agreement (which is Exhibit G-1 of the Credit Agreement), by and among Fleet National Bank, N.A., in its capacity as administrative agent under the Credit Agreement and each OSI Stockholder a signatory thereto, as amended, supplemented, amended and restated or otherwise modified from time to time. "Senior Preferred Stock" means collectively the Company's Class A 14% Senior Mandatorily Redeemable Preferred Stock, par value $0.01 per share (or any series thereof) and the Class B 14% Senior Mandatorily Redeemable Preferred Stock, par value $0.01 per share (or any series thereof). "Subsidiary" means, with respect to any Person, any corporation, limited liability company, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of 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 that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a limited liability company, partnership, association or other business entity, a majority of the limited liability company, partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated a majority of limited liability company, partnership, association or other business entity gains or losses or shall be or control the managing director or general partner of such limited liability company, partnership, association or other business entity. "Vested Stock Options" shall mean vested and exercisable stock options for the Common Stock granted to certain key employees of the Company pursuant to any Company stock option plan. "Warrants" means any warrants to acquire Common Stock issued by the Company to Warrantholders. 13 Transfers in Violation of Agreement. Any Transfer or attempted Transfer of any OSI Stockholder Shares in violation of any provision of this Agreement shall be void, and the Company shall not record such Transfer on its books or treat any purported transferee of such OSI Stockholder Shares as the owner of such shares for any purpose. 14 Amendment and Waiver. (a) Except as otherwise provided herein, no modification, amendment or waiver of any provision of this Agreement shall be effective against the Company or the OSI Stockholders unless such modification, amendment or waiver is approved in writing by the Company and the holders of at least 50% of the OSI Stockholder Shares and, with respect to any provision that would, directly or indirectly, reduce the rights or increase the obligations of any Investors hereunder, by the Investors (other than the Principal Investor or its Affiliates) holding a majority of all OSI Stockholder Shares held by the Investors (other than the Principal Investor or its Affiliates); provided, however, that no modification, amendment or waiver that affects an OSI Stockholder in a manner different from any other OSI Stockholder shall be effective without such OSI Stockholder's consent. The failure of any party to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms. (b) The OSI Stockholders acknowledge and agree that upon the execution and delivery of this Agreement by the requisite holders of OSI Stockholder Shares as provided in Section 14 of the Original Agreement, the Original Agreement is terminated and superseded by this Agreement. 15 Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision of this Agreement in such jurisdiction or affect the validity, legality or enforceability of any provision in any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. 16 Entire Agreement. Except as otherwise expressly set forth herein, this Agreement, the agreements referred to herein and the other agreements executed contemporaneously with this Agreement embody the complete agreement and understanding among the parties hereto with respect to the subject matter hereof and supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way. Notwithstanding anything to the contrary, nothing contained in this Agreement shall affect, limit or impair the rights and remedies of Heller in its capacity as (i) agent and a lender to the Company or any Subsidiary pursuant to any agreement under which the Company or any Subsidiary has borrowed money, including without limitation the Credit Agreement, and (ii) the beneficiary of any and all agreements entered into by the Company or any Subsidiary for the benefit of Heller, as agent and lender, to induce Heller to enter into the Credit Agreement. 17 Successors and Assigns. Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by the Company and its successors and assigns and the OSI Stockholders and any subsequent holders of OSI Stockholder Shares and the respective successors and assigns of each of them, so long as they hold OSI Stockholder Shares; provided that the rights of the Stockholders and Optionholders under paragraph 1 hereof may not be assigned without the prior written approval of the Principal Investor. Notwithstanding anything herein to the contrary, upon the exercise of its rights under the Senior Credit Pledge with respect to any OSI Stockholder Shares subject to the Senior Credit Pledge, the Administrative Agent (as defined in the Senior Credit Pledge) shall succeed to the rights of each applicable OSI Stockholder and automatically become subject to the obligations of each such OSI Stockholder pursuant to this Agreement. 18 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be an original and all of which taken together shall constitute one and the same agreement. 19 Remedies. The Company, the Investors, and the other OSI Stockholders shall be entitled to enforce their rights under this Agreement specifically, to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights existing in their favor. The parties hereto agree and acknowledge that money damages would not be an adequate remedy for any breach of the provisions of this Agreement and that the Company, any Investor, and any other OSI Stockholder may in its sole discretion apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive relief (without posting a bond or other security) in order to enforce or prevent any violation of the provisions of this Agreement. 20 Notices. Any notice provided for in this Agreement shall be in writing and shall be either personally delivered, or mailed by first class mail (postage prepaid) or sent by reputable overnight courier service (charges prepaid) to the Company at the address set forth below and to any other recipient at the address indicated on the schedules hereto and to any subsequent holder of OSI Stockholder Shares subject to this Agreement at such address as indicated by the Company's records, or at such address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. Notices shall be deemed to have been given hereunder when delivered personally, three business days after deposit in the U.S. mail and one business day after deposit with a reputable overnight courier service. The Company's address is: Outsourcing Solutions Inc. c/o Madison Dearborn Capital Partners, III, L.P. Suite 3800 Three First National Plaza Chicago, IL 60602 Attention: Timothy M. Hurd Director with a copy to: Kirkland & Ellis 200 E. Randolph Chicago, IL 60601 Attention: Michael H. Kerr, P.C. Richard W. Porter 21 Governing Law. All issues and questions concerning the relative rights of the Company and its stockholders and all other issues and questions concerning the construction, validity, interpretation and enforceability of this Agreement and the exhibits and schedules hereto 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 rules or provisions that would cause the application of the laws of any jurisdiction other than the State of New York. In furtherance of the foregoing, the internal law of the State of New York shall control the interpretation and construction of this Agreement (and all schedules and exhibits hereto), even though under that jurisdiction's choice of law or conflict of law analysis, the substantive law of some other jurisdiction would ordinarily apply. 22 Business Days. If any time period for giving notice or taking action hereunder expires on a day which is a Saturday, Sunday or legal holiday in the state in which the Company's chief-executive office is located, the time period shall automatically be extended to the business day immediately following such Saturday, Sunday or legal holiday. 23 Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 24 Bank Holding Company. Notwithstanding anything to the contrary in this Agreement, DB, First Union Investors, Inc., and Heller or any of their respective direct or indirect transferees of Unit Common Shares, or any other OSI Stockholder 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 Voting Common 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. IN WITNESS WHEREOF, the parties hereto have executed this Stockholders Agreement as of the date first written above. OUTSOURCING SOLUTIONS INC. By: /s/ Timothy G. Beffa ------------------------------------- Its: President and Chief Executive Officer ------------------------------------- MADISON DEARBORN CAPITAL PARTNERS III, L.P. By: Madison Dearborn Partners III, L.P. Its: General Partners By: /s/ Paul R. Wood ------------------------------------- Its: Managing Director ------------------------------------- MADISON DEARBORN SPECIAL EQUITY III, L.P. By: Madison Dearborn Partners III, L.P. Its: General Partners By: /s/ Paul R. Wood ------------------------------------- Its: Managing Director ------------------------------------- SPECIAL ADVISORS FUND I, LLC By: /s/ Paul R. Wood ------------------------------------- Its: Managing Director ------------------------------------- ARES LEVERAGED INVESTMENT FUND, L.P. By: Ares Management, L.P. Its: General Partner By: ------------------------------------- Its: ------------------------------------- ARES LEVERAGED INVESTMENT FUND II, L.P. By: Ares Management II, L.P. Its: General Partner By: ------------------------------------- Its: ------------------------------------- MAGNETITE ASSET INVESTORS L.L.C. By: BLACKROCK FINANCIAL MANAGEMENT, INC. As Managing Member By: ------------------------------------- Name: Title: DB CAPITAL INVESTORS, L.P. By: DB Capital Partners, L.P. Its: General Partner DB Capital Partners, Inc. By: /s/ Jon E. Mattson ------------------------------------- Name: Jon E. Mattson Title: Vice President ABBOTT CAPITAL 1330 INVESTORS II, L.P. By: Abbott Capital 1330 GenPar II, L.L.C., Its: General Partner By: /s/ Kathryn J. Stokel ------------------------------------- Name: Kathryn J. Stokel Title: Managing Director ABBOTT CAPITAL PRIVATE EQUITY FUND III, L.P. By: Abbott Capital Management, L.L.C., Its: Investment Manager By: /s/ Kathryn J. Stokel ------------------------------------- Name: Kathryn J. Stokel Title: Managing Director BNY PARTNERS FUND, L.L.C. By: BNY Private Investment Management, Inc., Its: Member Manager By: /s/ Burton M. Siegel ------------------------------------- Name: Burton M. Siegel Title: Senior Vice President HELLER FINANCIAL, INC. By: ------------------------------------- Name: Title: FBR FINANCIAL FUND II, L.P. By: ------------------------------------- Its: ------------------------------------- HARVEST OPPORTUNITY PARTNERS, L.P. By: ------------------------------------- Its: ------------------------------------- FIRST UNION INVESTORS, INC. By: ------------------------------------- Its: ------------------------------------- GRYPHON PARTNERS II, L.P., a Delaware limited partnership By: Gryphon GenPar II, LLC Its: General Partner By: /s/ R. David Andrews ------------------------------------- Name: R. David Andrews Title: President GRYPHON PARTNERS II-A, L.P., a Delaware limited partnership By: Gryphon GenPar II, LLC Its: General Partner By: /s/ R. David Andrews ------------------------------------- Name: R. David Andrews Title: President FIRST UNION MERCHANT BANKING 1999, L.L.C. By: /s/ Frederick W. Eubank II ------------------------------------- Its: Partner ------------------------------------- FIRST UNION CAPITAL PARTNERS 2001, L.L.C. By: /s/ Frederick W. Eubank II ------------------------------------- Its: Partner ------------------------------------- EXHIBIT A: STOCKHOLDERS ----------------------- Name Number of OSI Stockholder Shares - ---- -------------------------------- McCown De Leeuw & Company, III, L.P. 219,940.82 McCown De Leeuw & Company III Offshore (Europe), L.P. 18,568.55 McCown De Leeuw & Company III Offshore (Asia), L.P. 4,336.86 Gamma Fund, L.L.C. 4,956.41 Peter C. Rosvall 144,518.39 Heller Financial, Inc. 6,537.91 Chase Equity Associates, L.P. 32,689.57 Clipper Capital Associates, L.P. 757.46 Clipper/Merchant Partners, L.P. 8,388.32 Clipper/Merban, L.P. 9,825.26 Clipper Equity Partners I, L.P. 7,368.95 Clipper/European RE, L.P. 4,912.63 CS First Boston Merchant Investments 1995/1996, L.P. 1,436.95 MLQ Investors 52,303.31 EXHIBIT B: OPTIONHOLDERS ------------------------ Name Number of Options - ---- ----------------- William Hewitt 10,000 Timothy Beffa 70,175 Patrick Carroll 12,500 Michael DiMarco 50,000 Bryan Faliero 18,750 Eric Fencl 12,000 Dennis Grady 15,000 Jon Mazzoli 10,000 C. Bradford McLeod 15,000 Michael Meyer 25,000 Michael Staed 25,000 Gary Weller 50,000 Michael Aleshire 4,000 David Burton 3,500 Richard Hoffman 2,000 Daniel Picciano 15,000 Daniel Pijut 6,000 John Stetzenbach 5,000 David St. John 5,000 Steven Wendling 10,000 William Cruz 5,000 Robert Freidman 4,000 George Macauley 7,500 Stuart Pim 4,000 Marilyn Popovich 5,000 Gary Praznik 3,000 Peter Pugal 5,000 Geoff Rigabar 9,000 Christopher Shuler 5,000 Karen Stein-Townsend 5,000 Michael Swanson 3,000 Kerry Walbridge 9,000 Stanislaw Wolk 10,000 Geoge Wright 3,000 Scott Yates 9,000 EXHIBIT C: WARRANTHOLDERS ------------------------- Name Number of Warrants - ---- ------------------ None EX-10 6 arrra_f10k-123101.txt AMENDED & RESTATED REGISTRATION RIGHTS AGREEMENT AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT Dated as of April 16, 2001 among OUTSOURCING SOLUTIONS INC., a Delaware corporation, the Purchasers named herein AND certain other parties hereto Relating to Certain Shares of Common Stock, $0.01 Par Value THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered into as of April 16, 2001, 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 Merchant Bank 1999, L.L.C., First Union Capital Partners 2001, L.L.C., 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., Harvest Opportunity Partners, L.P., Gryphon Partners II, L.P. ("GPII") and Gryphon Partners II-A, L.P. ("GPII-A") (each a "Purchaser" and, collectively, the "Purchasers"). The Company and certain of the Purchasers (or their Affiliates), excluding GPII and GPII-A, previously entered into a Registration Rights Agreement, dated December 10, 1999 (relating to 5,920,474.15 shares of Common Stock), pursuant to that certain Purchase Agreement, dated as of December 10, 1999 (the "Original Agreement"), among the Company and certain of the Purchasers (the "Purchase Agreement"), relating to the sale by the Company to certain of 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"). The Company, GPII, GPII-A and certain other Purchasers are parties to a Stock Subscription Agreement, dated as of April 3, 2001 (the "Subscription Agreement"), wherein, inter alia, GPII and GPII-A are each acquiring certain, and may acquire certain additional, shares of the Company's Senior Common Stock, par value $0.01 per share (the "Senior Common Stock") (such shares of Senior Common Stock, the "Subscription Shares"). In order to induce GPII and GPII-A to enter into the Subscription Agreement and purchase the Subscription Shares, the Company has agreed to provide to GPII and GPII-A 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 GPII and GPII-A to purchase the Subscription Shares under the Subscription 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 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 $0.01 par value common stock of any class, including the Voting Common Stock, Non-Voting Common Stock and Senior Common Stock. "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 or issued or issuable to the Equity Investor upon conversion of the Senior Common Stock (including all Common Stock purchased pursuant to the Recapitalization Agreement or issued or issuable to the Equity Investor or its designees upon conversion of the Senior Common Stock purchased pursuant to the Subscription 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 or Senior 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. "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 30% 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 Common Stock" shall have the meaning ascribed to that term in the preamble hereto. "Senior Preferred Stock" shall have the meaning ascribed to that term in the preamble hereto. "Shares" shall mean (a) the Common Stock held by, or issued or issuable upon conversion of the Senior Common Stock to, the Purchasers (including all Purchased Securities and all other Common Stock sold to certain of the Purchasers pursuant to the Assignment and Stock Purchase Agreement dated as December 10, 1999 and all Subscription Shares), 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. For purposes of this Agreement, any Purchaser who holds Senior Common Stock shall be deemed to be the holder of the Shares issuable directly or indirectly upon exercise or conversion of such Senior Common Stock in connection with the transfer thereof or otherwise and regardless of any restriction or limitation on the exercise or conversion thereof. "Stockholders Agreement" shall mean the Amended and Restated Stockholders Agreement dated the date hereof by and among the Company, the Equity Investor, certain stockholders, optionholders and warrantholders and the Purchasers. "Subscription Agreement" shall have the meaning ascribed to that term in the preamble hereto. "Subscription Shares" shall have the meaning ascribed to that term in the preamble hereto. "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"), (ii) on or after December 10, 2002, Purchasers owning, individually or in the aggregate, at least the Requisite Shares may make up to two Demands for a Demand Registration and (iii) after an Initial Public Equity Offering, GPII and GPII-A, collectively, may make one Demand if GPII and GPII-A have collectively purchased $20,000,000 in Senior Common Stock pursuant to the Subscription Agreement and may make one additional Demand if GPII and GPII-A have collectively purchased $40,000,000 in Senior Common Stock pursuant to the Subscription Agreement. 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 (y) 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 (z) 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) and up to two Demand Registrations under 2.1(a)(iii) of 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) or 2.1(a)(iii) is deemed not to have been effected or (ii) the registration requested pursuant to Section 2.1(a)(ii) or 2.1(a)(iii) 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) or 2.1(a)(iii) 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) or 2.1(a)(iii), 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) or 2.1(a)(iii). (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) Within 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 at the expense of the indemnifying party. 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 (except in the case where an indemnified party is entitled to conduct the defense as provided above). (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. 60 Rule 144 and 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 144 or Rule 144A, as applicable. 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. (i) 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 Company, 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 and no amendment, modification, supplement, waiver or consent with respect to Section 2.1(a)(iii) shall be made or given otherwise than with the prior written consent of GPII and GPII-A. (ii) The Original Agreement shall automatically be terminated and superseded upon the execution and delivery of this Agreement by the requisite parties pursuant to Section 8(c) thereof. (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 the Purchasers, as provided in the Purchase Agreement or the Subscription Agreement as the case may be, 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 substantially 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 APRIL 16, 2001, 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 parties hereto acknowledge and agree that the legend required to be placed on certificates representing any Shares or Equity Investor Shares pursuant to Section 8(j) of the Original Agreement still applies. 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/ Timothy G. Beffa ------------------------------------ Name: Timothy G. Beffa Title: President and Chief Executive Officer 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: Managing Director ARES LEVERAGED INVESTMENT FUND, L.P. By: Ares Management, L.P. Its: General Partner By: ------------------------------------ Name: Title: ARES LEVERAGED INVESTMENT FUND II, L.P. By: Ares Management, L.P. Its: General Partner By: ------------------------------------ Name: Title: DB CAPITAL INVESTORS, L.P. By: DB Capital Partners, L.P. Its: General Partner DB Capital Partners, Inc. By: /s/ Jon E. Mattson ------------------------------------ Name: Jon E. Mattson Title: Vice President FIRST UNION INVESTORS, INC. By: ------------------------------------ Name: Title: ABBOTT CAPITAL 1330 INVESTORS II, L.P. By: Abbott Capital 1330 GenPar II, L.L.C. Its: General Partner By: /s/ Kathryn J. Stokel ------------------------------------ Name: Kathryn J. Stokel Title: Managing Director ABBOTT CAPITAL PRIVATE EQUITY FUND III, L.P. By: Abbott Capital Management, L.L.C. Its: Investment Manager By: /s/ Kathryn J. Stokel ------------------------------------ Name: Kathryn J. Stokel Title: Managing Director BNY PARTNERS FUND, L.L.C. By: BNY Private Investment Management, Inc. Its: Member Manager By: /s/ Burton M. Siegel ------------------------------------ Name: Burton M. Siegel Title: Senior Vice President HELLER FINANCIAL, INC. By: ------------------------------------ Name: Title: MAGNETITE ASSET INVESTORS L.L.C. By: Blackrock Financial Management, Inc., as Managing Member By: ------------------------------------ Name: Title: FBR FINANCIAL FUND II, L.P. By: ------------------------------------ Name: Title: HARVEST OPPORTUNITY PARTNERS, L.P. By: ------------------------------------ Name: Title: MADISON DEARBORN SPECIAL EQUITY III, L.P. By: Madison Dearborn Partners III, L.P. Its: General Partner By: Madison Dearborn Partners, Inc., Its: General Partner By: /s/ Paul R. Wood ------------------------------------ Name: Paul R. Wood Title: Managing Director SPECIAL ADVISORS FUND I, LLC By: /s/ Paul R. Wood ------------------------------------ Name: Paul R. Wood Title: Managing Director GRYPHON PARTNERS II, L.P., a Delaware limited partnership By: Gryphon GenPar II, LLC Its: General Partner By: /s/ R. David Andrews ------------------------------------ Name: R. David Andrews Title: President GRYPHON PARTNERS II-A, L.P., a Delaware limited partnership By: Gryphon GenPar II, LLC Its: General Partner By: /s/ R. David Andrews ------------------------------------ Name: R. David Andrews Title: President FIRST UNION MERCHANT BANK 1999, L.L.C. By: /s/ ------------------------------------ Name: Title: Partner FIRST UNION CAPITAL PARTNERS 2001, L.L.C. By: /s/ ------------------------------------ Name: Title: Partner EX-10 7 va_f10k-123101.txt VOTING AGREEMENT OUTSOURCING SOLUTIONS INC. VOTING AGREEMENT ---------------- THIS VOTING AGREEMENT (this "Agreement") is made as of April 16, 2001, among Outsourcing Solutions Inc., a Delaware corporation (the "Company"), Madison Dearborn Capital Partners III, L.P. (the "Principal Investor"), Gryphon Partners II, L.P. ("GPII") and Gryphon Partners II-A, L.P. ("GPII-A" and together with GPII, "Gryphon") (Gryphon and the Principal Investor are collectively referred to herein as the "Investors"). Except as otherwise provided, capitalized terms used herein are defined in paragraph 2 hereof. The Company and Gryphon are parties to a Stock Subscription Agreement, dated as of April 3, 2001 (the "Subscription Agreement"), wherein, inter alia, Gryphon is acquiring certain shares of Senior Common Stock. A condition to Gryphon's obligations under the Subscription Agreement is that the Company, the Principal Investor and Gryphon enter into this Agreement for the purpose of setting forth the terms and conditions pursuant to which the Investors shall vote their OSI Shares (as defined below) in favor of certain designees to the Company's Board of Directors. Each of the Company, the Principal Investor and Gryphon desire to facilitate the voting arrangements set forth in this Agreement and the sale and purchase of the Senior Common Stock pursuant to the Subscription Agreement, by agreeing to the terms and conditions set forth below. NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows: 1. Board of Directors. (a) From and after the Initial Closing and until the consummation of a Qualified Public Offering, the Principal Investor designates Gryphon as an Authorized Person pursuant to paragraph 1(a)(ii)(B) of the Amended and Restated Stockholders Agreement and, in doing so, authorizes Gryphon to designate one individual (the "Gryphon Director") to be elected to the Board. Gryphon hereby consents to being designated as an Authorized Person under the Amended and Restated Stockholders Agreement and to the obligations related to such designation pursuant to paragraph 3(c) thereof. (b) From and after the Initial Closing and until the provisions of this paragraph 1 cease to be effective as provided in paragraph 1(b)(i) and 1(b)(ii) below, as the case may be, each Investor shall vote all of its OSI Shares which are voting shares and any other voting securities of the Company over which it has voting control and shall take all other necessary or desirable actions within its control (whether in its capacity as a stockholder, director, member of a board committee or officer of the Company or otherwise, and including, without limitation, attendance at meetings in person or by proxy for purposes of obtaining a quorum and execution of written consents in lieu of meetings) so that: (i) prior to the termination of the provisions set forth in paragraph 1 of the Amended and Restated Stockholders Agreement, the individuals specified in paragraph 1(a)(ii) of the Amended and Restated Stockholders Agreement are elected to the Board; and (ii) upon and subsequent to the consummation of a Qualified Public Offering, two Principal Investor Directors and one Gryphon Director are elected to the Board; provided, that Gryphon's voting obligations under this paragraph 1(b)(ii) shall terminate at such time as Principal Investor holds that number of OSI Shares which is less than one-third of the number of OSI Shares held as of the date hereof, and Principal Investor's voting obligations under this paragraph 1(b)(ii) shall terminate at such time as Gryphon holds that number of OSI Shares which is less than 30% of the number of OSI Shares held as of the date hereof. (c) Upon any Permitted Transfer (as defined in the Amended and Restated Stockholders Agreement) by an Investor (other than in the case of a Public Sale), such Investor shall cause any transferee who, immediately after such Permitted Transfer beneficially owns at least 5% of the voting securities of the Company to assume the obligations of such Investor under this paragraph 1 and such transferee shall execute an amendment to this Agreement or joinder or other document reasonably acceptable to the other parties that are not party to such transfer. Each certificate representing any OSI Shares that are subject to this Agreement shall be endorsed by the Company with a legend reading substantially as follows: "THE SHARES EVIDENCED HEREBY ARE SUBJECT TO A VOTING AGREEMENT (A COPY OF WHICH MAY BE OBTAINED UPON WRITTEN REQUEST FROM THE ISSUER)." 2. Definitions. "Affiliate" of an Investor means any other Person, directly or indirectly controlling, controlled by or under common control with such Investor and any partner of an Investor which is a partnership and any officer, director or managing member of any Investor which is a corporation or other entity. "Amended and Restated Stockholders Agreement" means that certain Amended and Restated Stockholders Agreement dated as of the date hereof among the Company, the Principal Investor, Gryphon and certain other holders of OSI Shares, as may be amended or supplemented from time to time. "Common Stock" means collectively the Senior Common Stock, Voting Common Stock, par value $0.01 per share and Nonvoting Common Stock, par value $0.01 per share. "OSI Shares" means (i) any Common Stock, (ii) any Common Stock issued or issuable directly or indirectly upon exercise of Warrants or Options and (iii) any Common Stock issued or issuable with respect to the securities referred to in clauses (i) and (ii) above by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. As to any particular OSI Shares, such shares shall cease to be OSI Shares when they have been disposed of in a Public Sale. "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 and a governmental entity or any department, agency or political subdivision thereof. "Principal Investor Director" means any individual designated by the Principal Investor pursuant to paragraph 1(a)(ii)(B) of the Amended and Restated Stockholders Agreement. "Public Sale" means any sale of OSI Shares to the public pursuant to an offering registered under the Securities Act or, following a public offering of any class of Common Stock of the Company registered under the Securities Act, to the public pursuant to the provisions of Rule 144, or any successor provision thereto, adopted under the Securities Act. "Qualified Public Offering" means the issuance and sale by the Company in an underwritten public offering registered under the Securities Act of shares of the Company's Common Stock having an aggregate offering value of at least $50 million. "Securities Act" means the Securities Act of 1933, as amended from time to time. "Senior Common Stock" means the Company's Senior Common Stock, par value $0.01 per share. 3. Amendment and Waiver. No modification, amendment or waiver of any provision of this Agreement shall be effective against the Company, the Principal Investor or Gryphon unless, in the case of a modification or amendment, such modification or amendment is approved in writing by each of the Company, the Principal Investor and Gryphon and, in the case of a waiver, such waiver is approved in writing by the Company, the Principal Investor or Gryphon, as the case may be. 4. Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision of this Agreement in such jurisdiction or affect the validity, legality or enforceability of any provision in any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. 5. Entire Agreement. Except as otherwise expressly set forth herein, this Agreement and the other agreements executed contemporaneously with this Agreement embody the complete agreement and understanding among the parties hereto with respect to the subject matter hereof and supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way. 6. Successors and Assigns. Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by the Company, the Principal Investor and Gryphon and their respective successors, so long as, in the case of the Principal Investor, the Principal Investor holds that number of OSI Shares which is no less than one-third of the number of OSI Shares held as of the date hereof, and, in the case of Gryphon, Gryphon holds that number of OSI Shares which is no less than 30% of the number of OSI Shares held as of the date hereof; provided that the rights of Gryphon under paragraph 1 hereof may not be assigned without the prior written approval of the Principal Investor, other than to an Affiliate of Gryphon. 7. Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be an original and all of which taken together shall constitute one and the same agreement. 8. Remedies. The Company and the Investors shall be entitled to enforce their rights under this Agreement specifically, to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights existing in their favor. The parties hereto agree and acknowledge that money damages would not be an adequate remedy for any breach of the provisions of this Agreement and that the Company and either Investor may in its sole discretion apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive relief (without posting a bond or other security) in order to enforce or prevent any violation of the provisions of this Agreement. 9. Notices. Any notice provided for in this Agreement shall be in writing and shall be either personally delivered, or mailed by first class mail (postage prepaid) or sent by reputable overnight courier service (charges prepaid) to the Company, the Principal Investor and Gryphon at the addresses set forth below and to any subsequent holder of OSI Shares subject to this Agreement at such address as indicated by the Company's records, or at such address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. Notices shall be deemed to have been given hereunder when delivered personally, three business days after deposit in the U.S. mail and one business day after deposit with a reputable overnight courier service. if to the Company: Outsourcing Solutions Inc. 390 South Woods Mill Road, Suite 350 Chesterfield, MO 63017 Attention: Eric R. Fencl with a copy to: Madison Dearborn Capital Partners, III, L.P. Suite 3800 Three First National Plaza Chicago, IL 60602 Attention: Timothy M. Hurd Kirkland & Ellis 200 E. Randolph Chicago, IL 60601 Attention: Michael H. Kerr, P.C. Richard W. Porter if to the Principal Investor: Madison Dearborn Capital Partners, III, L.P. Suite 3800 Three First National Plaza Chicago, IL 60602 Attention: Timothy M. Hurd with a copy to: Kirkland & Ellis 200 E. Randolph Chicago, IL 60601 Attention: Michael H. Kerr, P.C. Richard W. Porter if to the Gryphon: Gryphon Partners II, L.P. One Embarcadero Center, Suite 2750 San Francisco, CA 94111 Attention: Patrick Haiz with a copy to: Latham & Watkins 505 Montgomery Street, Suite 1900 San Francisco, CA 94111 Attention: Scott Haber 10. Governing Law. All issues and questions concerning the relative rights of the Company and its stockholders and all other issues and questions concerning the construction, validity, interpretation and enforceability of this Agreement and the exhibits and schedules hereto shall be governed by, and construed in accordance with, the laws of the State of Delaware, without giving effect to any choice of law or conflict of law rules or provisions that would cause the application of the laws of any jurisdiction other than the State of Delaware. In furtherance of the foregoing, the internal law of the State of Delaware shall control the interpretation and construction of this Agreement (and all schedules and exhibits hereto), even though under that jurisdiction's choice of law or conflict of law analysis, the substantive law of some other jurisdiction would ordinarily apply. 11. Business Days. If any time period for giving notice or taking action hereunder expires on a day which is a Saturday, Sunday or legal holiday in the state in which the Company's chief-executive office is located, the time period shall automatically be extended to the business day immediately following such Saturday, Sunday or legal holiday. 12. Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 13. Covenants of the Company. The Company agrees to use its reasonable best efforts to ensure that the rights granted hereunder are effective and that the parties hereto enjoy the benefits thereof. Such actions include, without limitation, the use of the Company's reasonable best efforts to cause the nomination and election of the directors as provided above. The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be performed hereunder by the Company, but will at all times in good faith assist, to the extent possible, in the carrying out of all of the provisions of this Agreement and in the taking of all such reasonable actions as may be necessary or appropriate in order to protect the rights of the parties hereunder against impairment. 14. Execution by the Company. The Company, by its execution in the space provided below, agrees that it will cause the certificates evidencing the shares of Common Stock to bear the legend required by Section 1(c) herein, and it shall supply, free of charge, a copy of this Agreement to any holder of a certificate evidencing shares of capital stock of the Company upon written request from such holder to the Company at its principal office. The parties hereto agree that the failure to cause the certificates evidencing the shares of Common Stock to bear the legend required by Section 1(c) herein and/or failure of the Company to supply, free of charge, a copy of this Agreement as provided under this Section 5 shall not affect the validity or enforcement of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Voting Agreement as of the date first written above. OUTSOURCING SOLUTIONS INC. By: /s/ Timothy G. Beffa ------------------------------------- Its: President and Chief Executive Officer ------------------------------------- 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: Managing Director ------------------------------------- GRYPHON PARTNERS II, L.P., a Delaware limited partnership By: Gryphon GenPar II, LLC Its: General Partner By: /s/ R. David Andrews ------------------------------------- Name: R. David Andrews Title: President GRYPHON PARTNERS II-A, L.P., a Delaware limited partnership By: Gryphon GenPar II, LLC Its: General Partner By: /s/ R. David Andrews ------------------------------------- Name: R. David Andrews Title: President EX-10 8 taca_f10k-123101.txt THIRD AMENDMENT TO CREDIT AGREEMENT THIRD AMENDMENT TO CREDIT AGREEMENT THIS THIRD AMENDMENT, dated as of January 24, 2002 (this "Amendment"), to the Existing Credit Agreement (as defined below) is among OUTSOURCING SOLUTIONS INC., a Delaware corporation (the "Borrower") and each of the Lenders party hereto. W I T N E S S E T H: -------------------- WHEREAS, the Borrower, the Lenders, Credit Suisse First Boston (as successor in interest of DLJ Capital Funding, Inc.), as the Syndication Agent, the Lead Arranger and the Sole Book Running Manger, Harris Trust and Savings Bank, as the Documentation Agent, and Fleet National Bank, as the Administrative Agent are parties to a Credit Agreement, dated as of November 30, 1999 (as amended, supplemented, amended and restated or otherwise modified prior to the date hereof, the "Existing Credit Agreement"); and WHEREAS, the Borrower has requested that the Lenders amend the Existing Credit Agreement as set forth below (the Existing Credit Agreement, as amended by this Amendment, being referred to as the "Credit Agreement"); NOW, THEREFORE, in consideration of the agreements herein contained, and for other valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: PART I DEFINITIONS SUBPART 1.1. Certain Definitions. The following terms (whether or not underscored) when used in this Amendment shall have the following meanings (such meanings to be equally applicable to the singular and plural form thereof): "Amendment" is defined in the preamble. "Credit Agreement" is defined in the second recital. "Existing Credit Agreement" is defined in the first recital. "Third Amendment Effective Date" is defined in Part III. SUBPART 1.2. Other Definitions. Terms for which meanings are provided in the Existing Credit Agreement are, unless otherwise defined herein or the context otherwise requires, used in this Amendment with such meanings. PART II AMENDMENTS TO THE EXISTING CREDIT AGREEMENT Effective on (and subject to the occurrence of) the Third Amendment Effective Date, the Existing Credit Agreement is hereby amended in accordance with this Part. SUBPART 2.1. Amendments to Article I. Article I of the Existing Credit Agreement is hereby amended as set forth in Subpart 2.1.1. SUBPART 2.1.1. The following definitions shall be inserted into Section 1.1 of the Existing Credit Agreement in the appropriate alphabetical order: "Restructuring Charges" means nonrecurring charges, including severance, relocation, rent and certain asset write-downs incurred by the Borrower on or before June 30, 2002 in connection with the closing, conversion, realignment and relocation by the Borrower of (a) call centers in Roseville, MN; Englewood, CO, Trevose, PA; Jacksonville, FL; Richmond, VA; Atlanta, GA; Olympia, WA and Oxnard, CA, (b) offices in Fishkill, WA; Helena, MT; Bellevue, WA and Bakersfield, CA and (c) related business units. "Third Amendment Effective Date" means January 24, 2002. SUBPART 2.1.2. The definition of "EBITDA" is hereby amended by deleting the proviso appearing at the end of such definition and inserting a new clause (f) in its place to read as follows: plus (f) solely for the purpose of calculating whether the Borrower is in compliance with clauses (a) through (d) of Section 7.2.4, $2,200,000 of the amount deducted in determining Net Income representing cash Restructuring Charges. SUBPART 2.2. Amendment to Article VII. Clause (a) of Section 7.2.4 of the Existing Credit Agreement is amended in its entirety to read as follows: (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) 3/31/01 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) 03/31/02 4.50:1.00 04/01/02 through (and including) 06/30/02 4.25:1.00 07/01/02 through (and including) 9/30/02 4.25:100 10/01/02 through (and including) 12/31/02 4.00:1.00 01/01/03 through (and including) 6/30/03 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 PART III CONDITIONS TO EFFECTIVENESS This Amendment (and the amendments and other modifications contained herein) shall become effective as of the date first set forth above (the "Third Amendment Effective Date") when the conditions set forth in this Part have been satisfied. SUBPART 3.1. Execution of Counterparts. The Syndication Agent shall have received counterparts of this Amendment, duly executed and delivered on behalf of the Borrower and the Required Lenders. SUBPART 3.2. Affirmation and Consent. The Syndication Agent shall have received counterparts of an Affirmation and Consent, dated as of the Third Amendment Effective Date, and in form and substance satisfactory to the Syndication Agent, duly executed and delivered by each OSI Shareholder (including each investor party to the Stock Subscription Agreement) and each Obligor other than the Borrower. SUBPART 3.3. Costs and Expenses, etc. The Syndication Agent shall have received for the account of each Lender, all fees, costs and expenses due and payable pursuant to Sections 3.3 and 10.3 of the Credit Agreement, if then invoiced. SUBPART 3.4. Amendment Fee. The Syndication Agent shall have received for the account of each Lender (that has delivered its signature page in a manner and before the time set forth below), an amendment fee in an amount equal to 25 basis points on the sum of (i) such Lender's RL Percentage multiplied by the Revolving Loan Commitment Amount plus (ii) the outstanding principal amount of Term Loans owing to such Lender, but payable only to each such Lender that has delivered (including by way of facsimile) its executed signature page to this Amendment to the attention of Ms. Christine Azzaro at Mayer, Brown & Platt, 1675 Broadway, New York, New York 10019, facsimile number: 212-262-1910, at or prior to 5:00 p.m., (New York time) on January 24, 2002. SUBPART 3.5. Legal Details, etc. All documents executed or submitted pursuant hereto shall be satisfactory in form and substance to the Syndication Agent and its counsel. The Syndication Agent and its counsel shall have received all information, and such counterpart originals or such certified or other copies of such materials, as the Syndication Agent or its counsel reasonably request. All legal matters incident to the transactions contemplated by this Amendment shall be satisfactory to the Syndication Agent and its counsel. PART IV MISCELLANEOUS PROVISIONS SUBPART 4.1. Cross-References. References in this Amendment to any Part or Subpart are, unless otherwise specified, to such Part or Subpart of this Amendment. SUBPART 4.2. Loan Document Pursuant to Existing Credit Agreement. This Amendment is a Loan Document executed pursuant to the Existing Credit Agreement and shall be construed, administered and applied in accordance with all of the terms and provisions of the Existing Credit Agreement. SUBPART 4.3. Successors and Assigns. This Amendment shall be binding upon and inure to the benefit of the Borrower, the Lenders and their respective successors and assigns. SUBPART 4.4. Full Force and Effect; Limited Amendment. Except as expressly amended hereby, all of the representations, warranties, terms, covenants, conditions and other provisions of the Existing Credit Agreement and the Loan Documents shall remain unchanged and shall continue to be, and shall remain, in full force and effect in accordance with their respective terms. The amendments set forth herein shall be limited precisely as provided for herein to the provisions expressly amended herein and shall not be deemed to be an amendment to, waiver of, consent to or modification of any other term or provision of the Existing Credit Agreement or any other Loan Document or of any transaction or further or future action on the part of any Obligor or OSI Shareholder which would require the consent of the Lenders under the Existing Credit Agreement or any of the Loan Documents. SUBPART 4.5. Governing Law. THIS AMENDMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING FOR SUCH PURPOSES SECTION 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK). SUBPART 4.6. Execution in Counterparts. This Amendment may be executed in any number of counterparts by the parties hereto, each of which counterparts when so executed shall be an original, but all the counterparts shall together constitute one and the same agreement. The parties hereto agree that delivery of an executed counterpart of a signature page to this Amendment by facsimile shall be effective as delivery of an original executed counterpart of this Amendment. SUBPART 4.7. Representations and Warranties. In order to induce the Lenders to execute and deliver this Amendment, the Borrower hereby represents and warrants to the Lenders that, both before and after giving effect to this Amendment, all of the statements set forth in Section 5.2.1 of the Existing Credit Agreement are true and correct. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers hereunto duly authorized as of the date first above written. OUTSOURCING SOLUTIONS INC. By: /s/ Gary L. Weller --------------------------------- Title: Executive Vice President and Chief Financial Officer CREDIT SUISSE FIRST BOSTON By: /s/ Paul J. Corona --------------------------------- Title: Director By: /s/ Robert Hetu --------------------------------- Title: Director FLEET NATIONAL BANK By: /s/ --------------------------------- Title: Vice President HARRIS TRUST AND SAVINGS BANK By: /s/ --------------------------------- Title: Vice President CENTURION CDO 1, LIMITED BY: AMERICAN EXPRESS ASSET MANAGEMENT GROUP INC. AS COLLATERAL MANAGER By: /s/ Michael M. Leyland --------------------------------- Title: Managing Director CENTURION CDO II, LTD. BY: AMERICAN EXPRESS ASSET MANAGEMENT GROUP INC. AS COLLATERAL MANAGER By: /S/ Michael M. Leyland --------------------------------- Title: Managing Director CENTURION CDO III, LIMITED AMERICAN EXPRESS ASSET MANAGEMENT GROUP INC. AS COLLATERAL MANAGER By: /s/ Michael M. Leyland --------------------------------- Title: Managing Director CEDAR CBO, LIMITED BY: AMERICAN EXPRESS ASSET MANAGEMENT GROUP INC. AS COLLATERAL MANAGER By: /s/ Michael M. Leyland --------------------------------- Title: Managing Director SEQUILLS-CENTURION V, LTD. AMERICAN EXPRESS ASSET MANAGEMENT GROUP INC. AS COLLATERAL MANAGER By: /s/ Michael M. Leyland --------------------------------- Title: Managing Director AG CAPITAL FUNDING PARTNERS, L.P. BY: ANGELO, GORDON & CO., L.P., AS INVESTMENT ADVISOR By: /s/ John W. Fraser --------------------------------- Title: Managing Director NORTHWOODS CAPITAL, LIMITED BY: ANGELO, GORDON & CO., L.P., AS COLLATERAL MANAGER By: /s/ John W. Fraser --------------------------------- Title: Managing Director NORTHWOODS CAPITAL, II, LIMITED BY: ANGELO, GORDON & CO., L.P., AS COLLATERAL MANAGER By: /s/ John W. Fraser --------------------------------- Title: Managing Director NORTHWOODS CAPITAL, III, LIMITED BY: ANGELO, GORDON & CO., L.P., AS COLLATERAL MANAGER By: /s/ John W. Fraser --------------------------------- Title: Managing Director BANK OF AMERICA, N.A. By: /s/ --------------------------------- Title: Senior Vice President MUIRFIELD TRADING LLC By: /s/ Diana L. Mushill --------------------------------- Title: Authorized Agent OLYMPIC FUNDING TRUST, SERIES 1999-3 By: /s/ Diana L. Mushill --------------------------------- Title: Authorized Agent BANK ONE By: /s/ Stephen E. McDonald --------------------------------- Title: Senior Vice President FIRST DOMINION FUNDING I By: /s/ David H. Lerner --------------------------------- Title: Authorized Signatory FIRST DOMINION FUNDING II By: /s/ David H. Lerner --------------------------------- Title: Authorized Signatory FIRST DOMINION FUNDING III By: /s/ David H. Lerner --------------------------------- Title: Authorized Signatory CSAM FUNDING I By: /s/ David H. Lerner --------------------------------- Title: Authorized Signatory DRESDNER BANK AG NEW YORK AND GRAND CAYMAN BRANCHES By: /s/ Gabriela Fields --------------------------------- Title: Associate By: /s/ James Jerz --------------------------------- Title: Vice President HELLER FINANCIAL INC. BY: HELLER FINANCIAL ASSET MANAGEMENT LLC AUTHORIZED AGENT By: /s/ Shelia C. Weimer --------------------------------- Title: Vice President BALANCED HIGH-YIELD FUND II, LTD. BY: ING CAPITAL ADVISORS LLC, AS ASSET MANAGER By: /s/ Gordon R. Cook --------------------------------- Title: Senior Vice President and Portfolio Manager ARCHIMEDES FUNDING III, LTD. BY: ING CAPITAL ADVISORS LLC, AS ASSET MANAGER By: /s/ Gordon R. Cook --------------------------------- Title: Senior Vice President and Portfolio Manager JP MORGAN CHASE BANK By: /s/ William J. Caggiano --------------------------------- Title: Managing Director KZH CYPRESSTREE-1 LLC By: /s/ Susan Lee --------------------------------- Title: Authorized Agent KZH ING-2 LLC By: /s/ Susan Lee --------------------------------- Title: Authorized Agent KZH RIVERSIDE LLC By: /s/ Susan Lee --------------------------------- Title: Authorized Agent KZH STERLING LLC By: /s/ Susan Lee --------------------------------- Title: Authorized Agent LASALLE BANK NATIONAL ASSOCIATION By: /s/ Brian Peterson --------------------------------- Title: First Vice President MAPLEWOOD (CAYMAN) LTD BY: MASS MUTUAL LIFE INSURANCE CO., AS INVESTMENT MANAGER By: /s/ Steven J. Katz --------------------------------- Title: Second Vice President and Associate General Counsel MASS MUTUAL LIFE INSURANCE COMPANY By: /s/ Steven J. Katz --------------------------------- Title: Second Vice President and Associate General Counsel WILBRAHAM CBO LTD BY: DAVID L. BABSON & CO., INC. AS INVESTMENT MANAGER By: /s/ Kathleen Lynch --------------------------------- Title: Managing Director MASSMUTUAL HIGH YIELD PARTNERS II, LLC BY: HYP MANAGEMENT, INC. By: /s/ Kathleen Lynch --------------------------------- Title: Managing Director MERRILL LYNCH GLOBAL INVESTMENT SERIES: INCOME STRATEGIES PORTFOLIO BY: MERRILL LYNCH INVESTMENT MANAGERS, L.P. AS INVESTMENT ADVISOR By: /s/ Anthony Heyman --------------------------------- Title: Authorized Signatory MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By: /s/ Anthony Heyman --------------------------------- Title: Authorized Signatory PILGRIM AMERICA HIGH INCOME INVESTMENTS INC. LTD. BY: ING PILGRIM INVESTMENTS LLC AS INVESTMENT MANAGER By: /s/ Jason Groom --------------------------------- Title: Vice President MORGAN STANLEY PRIME INCOME TRUST By: /s/ Shelia A. Finnerty --------------------------------- Title: Executive Director PILGRIM CLO 1999-LTD. BY: ING PILGRIM INVESTMENTS LLC AS INVESTMENT MANAGER By: /s/ Jason Groom --------------------------------- Title: Vice President ML CLO XII PIGRIM AMERICA (CAYMAN) LTD. BY: ING PILGRIM INVESTMENTS LLC AS INVESTMENT MANAGER By: /s/ Jason Groom --------------------------------- Title: Vice President ML CLO XX PILGRIM AMERICA (CAYMAN) LTD. BY: ING PILGRIM INVESTMENTS LLC AS INVESTMENT MANAGER By: /s/ Jason Groom --------------------------------- Title: Vice President PILGRIM PRIME RATE TRUST BY: ING PILGRIM INVESTMENTS LLC AS INVESTMENT MANAGER By: /s/ Jason Groom --------------------------------- Title: Vice President LIBERTY-STEIN ROE ADVISOR FLOATING RATE ADVANTAGE FUND. BY: STEIN ROE & FARNHAM INCORPORATED, AS ADVISOR By: /s/ James R. Fellows --------------------------------- Title: Senior Vice President STEIN ROE FLOATING RATE LIMITED LIABILITY COMPANY By: /s/ James R. Fellows --------------------------------- Title: Senior Vice President STEIN ROE & FARNHAM CLO I LTD., BY: STEIN ROE & FARNHAM INCORPORATED, AS PORTFOLIO MANAGER By: /s/ James R. Fellows --------------------------------- Title: Senior Vice President COLUMBUS LOAN FUNDING LTD. BY: TRAVELERS ASSET MANAGEMENT INTERNATIONAL COMPANY, LLC By: /s/ John Petchler --------------------------------- Title: Vice President THE TRAVELERS INSURANCE COMPANY By: /s/ John Petchler --------------------------------- Title: Vice President TRAVELERS CORPORATE LOAN FUND INC. BY: TRAVELERS ASSET MANAGEMENT INTERNATIONAL COMPANY, LLC By: /s/ John Petchler --------------------------------- Title: Vice President VAN KAMPEN SENIOR INCOME TRUST BY: VAN KAMPEN INVESTMENT ADVISORY CORP. By: /s/ Darvin D. Pierce --------------------------------- Title: Executive Director VAN KAMPEN PRIME RATE INCOME TRUST BY: VAN KAMPEN INVESTMENT ADVISORY CORP. By: /s/ Darvin D. Pierce --------------------------------- Title: Executive Director VAN KAMPEN SENIOR FLATING RATE FUND BY: VAN KAMPEN INVESTMENT ADVISORY CORP. By: /s/ Darvin D. Pierce --------------------------------- Title: Executive Director WACHOVIA BANK, N.A. By: /s/ Catherine A. Cowan --------------------------------- Title: Vice President WELLS FARGO BANK, N.A. By: /s/ --------------------------------- Title: Vice President SZUDDER FLOATING RATE FUND By: /s/ Kenneth Weber --------------------------------- Title: Senior Vice President EX-10 9 faca_f10k-123101.txt FOURTH AMENDMENT TO CREDIT AGREEMENT FOURTH AMENDMENT TO CREDIT AGREEMENT THIS FOURTH AMENDMENT, dated as of April 4, 2002 (this "Amendment"), to the Existing Credit Agreement (as defined below) is among OUTSOURCING SOLUTIONS INC., a Delaware corporation (the "Borrower") and each of the Lenders party hereto. W I T N E S S E T H: -------------------- WHEREAS, the Borrower, the Lenders, Credit Suisse First Boston (as successor in interest of DLJ Capital Funding, Inc.), as the Syndication Agent, the Lead Arranger and the Sole Book Running Manger, Harris Trust and Savings Bank, as the Documentation Agent, and Fleet National Bank, as the Administrative Agent are parties to a Credit Agreement, dated as of November 30, 1999 (as amended, supplemented, amended and restated or otherwise modified prior to the date hereof, the "Existing Credit Agreement"); and WHEREAS, the Borrower has requested that the Lenders amend the Existing Credit Agreement as set forth below (the Existing Credit Agreement, as amended by this Amendment, is referred to as the "Credit Agreement") and waive certain Defaults, as more fully described below; NOW, THEREFORE, in consideration of the agreements herein contained, and for other valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows. PART I DEFINITIONS SUBPART 1.1. Certain Definitions. The following terms (whether or not underscored) when used in this Amendment shall have the following meanings (such meanings to be equally applicable to the singular and plural form thereof): "Amendment" is defined in the preamble. "Credit Agreement" is defined in the second recital. "Existing Credit Agreement" is defined in the first recital. "Fourth Amendment Effective Date" is defined in Part IV. SUBPART 1.2. Other Definitions. Terms for which meanings are provided in the Existing Credit Agreement are, unless otherwise defined herein or the context otherwise requires, used in this Amendment with such meanings. PART II AMENDMENTS TO THE EXISTING CREDIT AGREEMENT Effective on (and subject to the occurrence of) the Fourth Amendment Effective Date, the Existing Credit Agreement is hereby amended in accordance with this Part. SUBPART 2.1. Amendments to Article I. Article I of the Existing Credit Agreement is hereby amended as set forth in Subparts 2.1.1 and 2.1.4. SUBPART 2.1.1. Section 1.1 of the Existing Credit Agreement is hereby amended by adding the following definitions in the appropriate alphabetical order: "2002 Preferred Equity Documents" means the documentation delivered in connection with the issuance of the 2002 Preferred Equity. "2002 Preferred Equity" means the Borrower's convertible preferred Capital Securities issued in exchange for $4,150,000 on or about the Fourth Amendment Effective Date. "Amendment Period" means the period commencing on the Fourth Amendment Effective Date and ending on December 31, 2002. "Consultant" is defined in Section 7.1.14. "Fourth Amendment" means the Fourth Amendment to this Agreement, dated as of April 4, 2002, among the Borrower and the Lenders party thereto. "Fourth Amendment Effective Date" is defined in Part IV of the Fourth Amendment. "NSA Adjustment" means the negative impact on EBITDA resulting from the accounting methods used by North Shore Agency Inc., in an amount of $5,700,000 (in total, and not on a cumulative basis (i.e., not $17,100,000)) for each of the Fiscal Quarters ending March 31, 2002, June 30, 2002 and September 30, 2002; provided, however, that, if PricewaterhouseCoopers, following its accounting review of the Borrower's and North Shore Agency Inc.'s financial statements, determines that the Borrower needs to restate its financial statements for either (or both) of the 1999 or 2000 Fiscal Years, then the Borrower may, with the consent of the Syndication Agent, allocate the portion of the $5,700,000 (as advised by PricewaterhouseCoopers) to such periods, but such allocation shall result in a reduction, Dollar-for-Dollar, in the amount added back to the Fiscal Quarters ending March 31, 2002, June 30, 2002 and September 30, 2002. SUBPART 2.1.2. The definition of "Applicable Margin" contained in Section 1.1 of the Existing Credit Agreement is hereby amended and restated as follows: "Applicable Margin" means, at all times during the applicable periods set forth below, (a) for all Loans, at all times prior to the Fourth Amendment Effective Date the rate calculated in accordance with this Agreement as in effect immediately prior to the Fourth Amendment Effective Date; (b) on and after the Fourth Amendment Effective Date, with respect to the unpaid principal amount of each Term B Loan maintained as a (i) Base Rate Loan, 3.50% per annum, and (ii) LIBO Rate Loan, 4.50% per annum; (c) on and after the Fourth Amendment Effective Date to (but excluding) the date on which the Compliance Certificate for the Fiscal Quarter ending December 31, 2002 is delivered 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, 2.75% per annum, and (ii) Revolving Loan and Term A Loan maintained as a LIBO Rate Loan, 3.75% per annum; and (d) on and after the date on which the Compliance Certificate described in clause (c) above is delivered to the Administrative Agent, 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 Margin For Margin For Leverage Ratio Base Rate Loans LIBO Rate Loans -------------- --------------- --------------- greater than or equal to 4.00:1.00 2.25% 3.25% greater than or equal to 1.75% 2.75% 3.50:1.00 and less than 4.00:1.00 greater than or equal to 1.25% 2.25% 2.75:1.00 and less than 3.50:1.00 less than 2.75:1.00 0.75% 1.75% Subject to clause (c), 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 (subject to clause (c)) conclusively be equal to the highest Applicable Margin set forth above. SUBPART 2.1.3. The definition of "EBITDA" contained in Section 1.1 of the Existing Credit Agreement is hereby amended by deleting the period appearing at the end of such definition and inserting a new "clause (g)" in its place, to read in its entirety as follows: plus (g) for the Fiscal Quarters ending March 31, 2002, June 30, 2002 and September 30, 2002, the NSA Adjustment. SUBPART 2.1.4.The existing definitions of "Preferred Equity" and "Preferred Equity Documents" are hereby deleted from the fourth recital to the Existing Credit Agreement and further amended and restated in their entirety to read as follows: "Preferred Equity" means, collectively, the PIK Preferred Equity, the Junior PIK Preferred Equity and the 2002 Preferred Equity. "Preferred Equity Documents" means, collectively, the PIK Preferred Equity Documents, the Junior PIK Preferred Equity Documents, the 2002 Preferred Equity Documents and each other document delivered by the Borrower in connection with any issuance of preferred Capital Securities of the Borrower. SUBPART 2.2. Amendment to Article II. Section 2.1.2 of the Existing Credit Agreement is hereby amended by adding the following sentence to the end of such Section: Notwithstanding anything else contained in this Agreement or any other Loan Document, during the Amendment Period the Borrower hereby agrees that the sum of (i) the aggregate outstanding principal amount of Revolving Loans, plus (ii) the aggregate outstanding principal amount of Swing Line Loans, plus (iii) the aggregate amount of Letters of Credit Outstanding shall not exceed the then existing Revolving Loan Commitment Amount less $5,000,000. SUBPART 2.3. Amendments to Article III. Article III of the Existing Credit Agreement is hereby amended as set forth in Subparts 2.3.1 through 2.3.6. SUBPART 2.3.1. Clause (b) of Section 3.1.1 of the Existing Credit Agreement is hereby amended and restated in its entirety to read as follows: (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) less (solely during the Amendment Period) $5,000,000, 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. SUBPART 2.3.2. Clause (e) of Section 3.1.1 of the Existing Credit Agreement is hereby amended by (i) inserting "(i)" following the words "provided, however," and (ii) inserting the following language immediately before the period at the end of such clause: and (ii) notwithstanding anything else contained in this Agreement, for the 2002 Fiscal Year the Borrower shall be required to make or cause to be made a mandatory prepayment of the Loans in an amount equal to 100% of the Excess Cash Flow (if any) for such Fiscal Year, to be applied as set forth in Section 3.1.2. SUBPART 2.3.3. Clauses (e), (f), (g) and (h) of Section 3.1.1 of the Existing Credit Agreement are hereby amended by deleting the words "Term Loans" in such clauses and inserting the word "Loans" in its place. SUBPART 2.3.4. Clauses (f), (g) and (h) of Section 3.1.1 of the Existing Credit Agreement are hereby further amended by inserting "(at all times other than during the Amendment Period), and $500,000 (during the Amendment Period)" following the number "$2,000,000" in such clauses. SUBPART 2.3.5. Clause (g) of Section 3.1.1 of the Existing Credit Agreement is hereby further amended inserting "(at all times other than during the Amendment Period), and 100% (during the Amendment Period)" following the percentage "50%" in such clause. SUBPART 2.3.6. Section 3.1.2 of the Existing Credit Agreement is hereby amended as follows. (i) clause (a) of such Section is hereby amended by changing the words "Subject to clause (b)," to "Subject to clauses (b) and (c)," (ii) clause (b) of such Section is hereby amended by (A) deleting the words "Term Loans" in the first line of such clause and inserting the words "Loans" in its place and (B) inserting the words "(at all times other than during the Amendment Period)" following the letter "(g)" each time it appears in such clause; and (iii) adding a new clause (c), to read in its entirety as follows: (c) During the Amendment Period, each prepayment of Loans made pursuant to clause (g) of Section 3.1.1 shall be applied (i) by applying (A) 50% of the Net Equity Proceeds 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 (B) 50% of the Net Equity Proceeds to a mandatory prepayment of the outstanding principal amount of all Revolving Loans (which shall not result in a reduction of the Revolving Loan Commitment Amount), until all outstanding Revolving Loans have been paid in full and the remainder, if any, applied in accordance with clause (c)(i)(A) above and (ii) once all Term Loans have been repaid in full, then 100% of such Net Equity Proceeds to the prepayment of any outstanding Revolving Loans and 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 (g) 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. SUBPART 2.4. Amendments to Article VII. Article VII of the Existing Credit Agreement is hereby amended as set forth in Subparts 2.4.1 through 2.4.10. SUBPART 2.4.1. Section 7.1.1 of the Existing Credit Agreement is hereby amended by (i) deleting the word "and" at the end of clause (i) thereof, (ii) re-lettering "clause (j)" as "clause (l)" and (iii) inserting the following new clauses in the appropriate order: (j) for the first 45 days following the Fourth Amendment Effective Date, as soon as possible and in any event no later than 3 Business Days after the last day of each week, a weekly liquidity report in the form delivered to the Syndication Agent prior to the Fourth Amendment Effective Date; (k) as soon as possible and in any event no later than 10 Business Days after the last day of each month, a monthly liquidity report in the form delivered to the Syndication Agent prior to the Fourth Amendment Effective Date; and SUBPART 2.4.2. New Sections 7.1.14 and 7.1.15 are hereby added to Article VII of the Existing Credit Agreement, to read in their entirety as follows: SECTION 7.1.14. Consultant Engagement. The Borrower hereby consents to the engagement by Mayer, Brown, Rowe & Maw of FTI Policano & Manzo (the "Consultant") to perform, among other things, consulting services as directed by Mayer, Brown, Rowe & Maw, in consultation with the Syndication Agent. The Borrower hereby agrees (i) to pay all reasonable fees and reasonable out-of-pocket expenses owed to the Consultant for providing such services promptly following receipt of invoices from the Consultant and (ii) to cooperate fully with the Consultant in the discharge of its duties to Mayer, Brown, Rowe & Maw, including providing information to the Consultant and allowing the Consultant to have access to the Borrower's and its U.S. Subsidiaries management (at reasonable times during regular business hours and with reasonable prior written notice (which may include notice by electronic mail or facsimile transmission)) and the properties of the Borrower and its U.S. Subsidiaries. SECTION 7.1.15. Deleveraging Event. The Borrower hereby agrees that (a) subsequent to March 28, 2002 but on or prior to December 31, 2002, the Borrower will either (i) issue (in one or more issuances) its Capital Securities in exchange for gross cash proceeds of not more than $25,000,000 and/or (ii) consummate some other corporate event or asset Disposition, so that it will be in compliance with the financial covenants set forth in Section 7.2.4 for the Fiscal Quarter ending December 31, 2002 and (b) on or prior to January 5, 2003, the Borrower will deliver a certificate to the Syndication Agent describing the actions taken and including a good faith estimate of the calculation of the financial covenants set forth in Section 7.2.4 as of December 31, 2002. SUBPART 2.4.3. Section 7.2.2 of the Existing Credit Agreement is hereby amended as follows: (i) by inserting the words "at all times other than during the Amendment Period and $1,000,000 during the Amendment Period, in each case" following the number "$3,000,000" in clause (f)(ii) thereof; and (ii) by inserting the words "at all times other than during the Amendment Period and $2,000,000 during the Amendment Period" following the number "$15,000,000" in clause (q) thereof. SUBPART 2.4.4. The grid contained in clause (a) of Section 7.2.4 of the Existing Credit Agreement for the period from July 1, 2001 through (and including) March 31, 2003 is hereby amended to read as follows: Period Leverage Ratio ------ -------------- 07/01/01 through (and including) 12/31/01 NOT TESTED 01/01/02 through (and including) 03/31/02 5.25:1.00 04/01/02 through (and including) 06/30/02 5.20:1.00 07/01/02 through (and including) 09/30/02 4.90:1.00 10/01/02 through (and including) 12/31/02 4.25:1.00 01/01/03 through (and including) 03/31/03 4.00:1.00 SUBPART 2.4.5. The grid contained in clause (b) of Section 7.2.4 of the Existing Credit Agreement for the period from April 1, 2002 through (and including) December 31, 2002 is hereby amended to read as follows: Period Interest Coverage Ratio ------ ----------------------- 04/01/02 through (and including) 06/30/02 2.15:1.00 07/01/02 through (and including) 09/30/02 2.25:1.00 10/01/02 through (and including) 12/31/02 2.40:1.00 SUBPART 2.4.6. Clause (c) of Section 7.2.4 of the Existing Credit Agreement is hereby amended to read in its entirety as follows: 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) each Fiscal Quarter ending on or before December 31, 2002, other than the Fiscal Quarter ending on June 30, 2002, (ii) 1.20:1 for the Fiscal Quarter ending on June 30, 2002 and (iii) 1.15:1.00 for each Fiscal Quarter ending after December 31, 2002. SUBPART 2.4.7. The grid contained in clause (d) of Section 7.2.4 of the Existing Credit Agreement for the period from January 1, 2002 through (and including) June 30, 2002 is hereby amended to read as follows: Period EBITDA ------ ------ 01/01/02 through (and including) 06/30/02 $102,500,000 SUBPART 2.4.8. Section 7.2.5 of the Existing Credit Agreement is hereby amended as follows: (i) by inserting the words "at any time other than during the Amendment Period, " at the beginning of clause (g) thereof; (ii) by inserting the words "; provided, however, that the Borrower and its Subsidiaries may only consummate Permitted Acquisitions during the Amendment Period if the sole consideration for such Permitted Acquisition is Capital Securities of the Borrower and the Borrower delivers a certificate to the Syndication Agent certifying, with evidence reasonably satisfactory to the Syndication Agent, that the Capital Securities or assets being acquired have produced positive EBITDA for the four full Fiscal Quarters immediately prior to the date of the consummation of such Permitted Acquisition;" at the end of clause (g) thereof; (iii) by inserting the words "(at all times other than during the Amendment Period), and when aggregated with the amount of Investments made by the Borrower and its Subsidiaries under clause (n), $2,000,000 (during the Amendment Period)" following the number "$3,000,000" to clause (e)(i) thereof; and (iv) by inserting the words "(at all times other than during the Amendment Period) and when aggregated with the amount of Investments made by the Borrower and its Subsidiaries under clause (e)(i), $2,000,000 (during the Amendment Period), in each case" following the number "$10,000,000" to clause (n) thereof. SUBPART 2.4.9. Section 7.2.6 of the Existing Credit Agreement is hereby amended as follows: (i) by inserting "(i)" prior to the number "$5,000,000" in clause (b) thereof; (ii) by inserting the words "and (ii) $500,000 during the Amendment Period" following the word "Agreement" in clause (b) thereof; and (iii) by inserting the words "; provided, however, that (i) during the Amendment Period such advisory fees shall accrue and not be paid and (ii) following the Amendment Period such accrued and unpaid advisory fees shall (subject to the other terms of this Agreement) be paid and the limitation set forth in this clause (c) shall be increased by such amount so paid" following the word "Year" in clause (c) thereof. SUBPART 2.4.10.Section 7.2.7 of the Existing Credit Agreement is hereby amended as follows: (i) The first sentence of such Section is hereby amended by deleting "and (ii)" and inserting ", (ii) for the 2001 Fiscal Year, $20,000,000, (iii) for the 2002 Fiscal Year, $12,000,000 and (iv) $20,000,000 (for the 2003 Fiscal Year and each Fiscal Year thereafter)" in lieu thereof; and (ii) by adding a new sentence to the end of such Section, to read in its entirety as follows: Notwithstanding anything else contained in this Section, the Borrower hereby agrees that no portion of the 2001 Fiscal Year Carry-Forward Amount (if any) for the 2001 Fiscal Year and the 2002 Fiscal Year shall be permitted to be carried over to any subsequent Fiscal Year. PART III WAIVER OF EXISTING DEFAULTS SUBPART 3.1. Waiver of Defaults. By their signature below, the Lenders hereby waive all Defaults which have occurred prior to the Fourth Amendment Effective Date (i) as a result of a breach of the representations under Sections 6.5, 6.6, 6.10 and 6.13 of the Existing Credit Agreement and (ii) as a result of a breach of the covenants set forth in Sections 7.1.1, 7.1.5, 7.2.4 and 7.2.5 (in the case of the acquisition of Willis Associates on or about January 21, 2002 for consideration of approximately $100,000) of the Existing Credit Agreement, in each case to the extent such Defaults are caused by the accounting methods used by North Shore Agency Inc. (referred to as the "NSA Situation"), including any restatement of or adjustments made to the financial statements of the Borrower or any of its Subsidiaries resulting from the NSA Situation required by PricewaterhouseCoopers after the Fourth Amendment Effective Date for the 1999 and 2000 Fiscal Years with the consent of the Syndication Agent. In addition, by their signature below, the Lenders hereby waive all Defaults which have occurred prior to the Fourth Amendment Effective Date under the Subsidiary Guaranty as a result of the NSA Situation. PART IV CONDITIONS TO EFFECTIVENESS This Amendment (and the amendments and other modifications contained herein) shall become effective as of the Fourth Amendment Effective Date when the conditions set forth in this Part have been satisfied. SUBPART 4.1. Execution of Counterparts. The Syndication Agent shall have received counterparts of this Amendment, duly executed and delivered on behalf of the Borrower and the Required Lenders. SUBPART 4.2. Affirmation and Consent. The Syndication Agent shall have received counterparts of an Affirmation and Consent, dated as of the Fourth Amendment Effective Date, and in form and substance satisfactory to the Syndication Agent, duly executed and delivered by each OSI Shareholder (including each investor party to the Stock Subscription Agreement) and each Obligor other than the Borrower. SUBPART 4.3. Costs and Expenses, etc. The Syndication Agent shall have received for the account of each Lender, all fees, costs and expenses due and payable pursuant to Sections 3.3 and 10.3 of the Credit Agreement, if then invoiced. SUBPART 4.4. Amendment Fee. The Syndication Agent shall have received for the account of each Lender (that has delivered its signature page in a manner and before the time set forth below), an amendment fee in an amount equal to 0.25% of the sum of (i) the outstanding principal amount of Loans owing to such Lender on such date plus (ii) such Lender's RL Percentage of the unused portion of the Revolving Loan Commitment Amount (net of outstanding Swing Line Loans and Letters of Credit outstanding) on such date, but payable only to each such Lender that has delivered (including by way of facsimile) its executed signature page to this Amendment to the attention of Jason Kanner, Esq. at Mayer, Brown, Rowe & Maw, 1675 Broadway, New York, New York 10019, facsimile number: 212-262-1910, at or prior to 5:00 p.m. (New York time) on April 4, 2002. SUBPART 4.5. Equity Issuance. Contemporaneously with the effectiveness of this Amendment, the Borrower shall have received at least $4,150,000 in consideration for its issuance of the 2002 Preferred Equity (as defined in Subpart 2.1.1), with such amount being deemed received during the Amendment Period (as defined in Subpart 2.1.1). SUBPART 4.6. Legal Details, etc. All documents executed or submitted pursuant hereto shall be satisfactory in form and substance to the Syndication Agent and its counsel. The Syndication Agent and its counsel shall have received all information, and such counterpart originals or such certified or other copies of such materials, as the Syndication Agent or its counsel reasonably request. All legal matters incident to the transactions contemplated by this Amendment shall be satisfactory to the Syndication Agent and its counsel. PART V MISCELLANEOUS PROVISIONS SUBPART 5.1. Cross-References. References in this Amendment to any Part or Subpart are, unless otherwise specified, to such Part or Subpart of this Amendment. SUBPART 5.2. Loan Document Pursuant to Existing Credit Agreement. This Amendment is a Loan Document executed pursuant to the Existing Credit Agreement and shall be construed, administered and applied in accordance with all of the terms and provisions of the Existing Credit Agreement. SUBPART 5.3. Successors and Assigns. This Amendment shall be binding upon and inure to the benefit of the Borrower, the Lenders and their respective successors and assigns. SUBPART 5.4. Full Force and Effect; Limited Amendment. Except as expressly amended hereby, all of the representations, warranties, terms, covenants, conditions and other provisions of the Existing Credit Agreement and the Loan Documents shall remain unchanged and shall continue to be, and shall remain, in full force and effect in accordance with their respective terms. The amendments set forth herein shall be limited precisely as provided for herein to the provisions expressly amended herein and shall not be deemed to be an amendment to, waiver of, consent to or modification of any other term or provision of the Existing Credit Agreement or any other Loan Document or of any transaction or further or future action on the part of any Obligor or OSI Shareholder which would require the consent of the Lenders under the Existing Credit Agreement or any of the Loan Documents. SUBPART 5.5. Governing Law. THIS AMENDMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING FOR SUCH PURPOSES SECTION 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK). SUBPART 5.6. Execution in Counterparts. This Amendment may be executed in any number of counterparts by the parties hereto, each of which counterparts when so executed shall be an original, but all the counterparts shall together constitute one and the same agreement. The parties hereto agree that delivery of an executed counterpart of a signature page to this Amendment by facsimile shall be effective as delivery of an original executed counterpart of this Amendment. SUBPART 5.7. Representations and Warranties. In order to induce the Lenders to execute and deliver this Amendment, the Borrower hereby represents and warrants to the Lenders that after giving effect to this Amendment all of the statements set forth in Section 5.2.1 of the Existing Credit Agreement are true and correct. Without limiting the foregoing, the Borrower represents and warrants to Lenders that the representation set forth in Section 6.16 of the Existing Credit Agreement is true and correct as of the Fourth Amendment Effective Date. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers hereunto duly authorized as of the date first above written. OUTSOURCING SOLUTIONS INC. By: /s/ Gary L. Weller --------------------------------- Title: Executive Vice President and Chief Financial Officer CREDIT SUISSE FIRST BOSTON By: /s/ Paul J. Corona --------------------------------- Title: Director By: /s/ Bill O'Daly --------------------------------- Title: Director FLEET NATIONAL BANK By: /s/ --------------------------------- Title: Vice President HARRIS TRUST AND SAVINGS BANK By: /s/ Kathleen J. Collins --------------------------------- Title: Vice President ISLES CBO, LIMITED BY: AMERICAN EXPRESS ASSET MANAGEMENT GROUP INC. AS COLLATERAL MANAGER By: /s/ --------------------------------- Title: CEDAR CBO, LIMITED BY: AMERICAN EXPRESS ASSET MANAGEMENT GROUP INC. AS COLLATERAL MANAGER By: /s/ --------------------------------- Title: CENTURION CDO II, LIMITED AMERICAN EXPRESS ASSET MANAGEMENT GROUP INC. AS COLLATERAL MANAGER By: /s/ Lynn A. Hopton --------------------------------- Title: Senior Managing Director CENTURION CDO III, LIMITED AMERICAN EXPRESS ASSET MANAGEMENT GROUP INC. AS COLLATERAL MANAGER By: /s/ Lynn A. Hopton --------------------------------- Title: Senior Managing Director CENTURION CDO I, LIMITED AMERICAN EXPRESS ASSET MANAGEMENT GROUP INC. AS COLLATERAL MANAGER By: /s/ Lynn A. Hopton --------------------------------- Title: Senior Managing Director SEQUILLS-CENTURION V, LTD. AMERICAN EXPRESS ASSET MANAGEMENT GROUP INC. AS COLLATERAL MANAGER By: /s/ Lynn A. Hopkin --------------------------------- Title: Senior Managing Director AG CAPITAL FUNDING PARTNERS, L.P. BY: ANGELO, GORDON & CO., L.P., AS INVESTMENT ADVISOR By: /s/ John W. Fraser --------------------------------- Title: Managing Director NORTHWOODS CAPITAL, LIMITED BY: ANGELO, GORDON & CO., L.P., AS COLLATERAL MANAGER By: /s/ John W. Fraser --------------------------------- Title: Managing Director NORTHWOODS CAPITAL II, LIMITED BY: ANGELO, GORDON & CO., L.P., AS COLLATERAL MANAGER By: /s/ John W. Fraser --------------------------------- Title: Managing Director NORTHWOODS CAPITAL III, LIMITED BY: ANGELO, GORDON & CO., L.P., AS COLLATERAL MANAGER By: /s/ John W. Fraser --------------------------------- Title: Managing Director BANK OF AMERICA, N.A. By: /s/ --------------------------------- Title: Senior Vice President MUIRFIELD TRADING LLC By: /s/ Ann E. Morris --------------------------------- Title: Asst. Vice President OLYMPIC FUNDING TRUST, SERIES 1999-3 By: /s/ Ann E. Morris --------------------------------- Title: Asst. Vice President BANK ONE By: /s/ William D. Allsicht --------------------------------- Title: Director FIRST DOMINION FUNDING I By: /s/ David H. Lerner --------------------------------- Title: Authorized Signatory FIRST DOMINION FUNDING II By: /s/ David H. Lerner --------------------------------- Title: Authorized Signatory FIRST DOMINION FUNDING III By: /s/ David H. Lerner --------------------------------- Title: Authorized Signatory CSAM FUNDING I By: /s/ David H. Lerner --------------------------------- Title: Authorized Signatory DRESDNER BANK AG NEW YORK AND GRAND CAYMAN BRANCHES By: /s/ Gabriela Fields --------------------------------- Title: Associate By: /s/ Faraaz Kamran --------------------------------- Title: Associate HELLER FINANCIAL INC. By: /s/ Gregory Hong --------------------------------- Title: Duly Authorized Signatory BALANCED HIGH-YIELD FUND II, LTD. BY: ING CAPITAL ADVISORS LLC, AS ASSET MANAGER By: /s/ Gordon R. Cook --------------------------------- Title: Senior Vice President and Portfolio Manager ARCHIMEDES FUNDING III, LTD. BY: ING CAPITAL ADVISORS LLC, AS ASSET MANAGER By: /s/ Gordon R. Cook --------------------------------- Title: Senior Vice President and Portfolio Manager JP MORGAN CHASE BANK By: /s/ William J. Caggiano --------------------------------- Title: Managing Director KZH CYPRESSTREE-1 LLC By: /s/ Susan Lee --------------------------------- Title: Authorized Agent KZH ING-2 LLC By: /s/ Susan Lee --------------------------------- Title: Authorized Agent KZH RIVERSIDE LLC By: /s/ Susan Lee --------------------------------- Title: Authorized Agent KZH STERLING LLC By: /s/ Susan Lee --------------------------------- Title: Authorized Agent LASALLE BANK NATIONAL ASSOCIATION By: /s/ Brian Peterson --------------------------------- Title: First Vice President MAPLEWOOD (CAYMAN) LTD BY: MASS MUTUAL LIFE INSURANCE CO., AS INVESTMENT MANAGER By: /s/ Steven J. Katz --------------------------------- Title: Second Vice President and Associate General Counsel MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY By: /s/ Steven J. Katz --------------------------------- Title: Second Vice President and Associate General Counsel MAGNETITE ASSET INVESTORS, LLC By: /s/ M.J. Williams --------------------------------- Title: Director DENALI CAPITAL LLC, MANAGING MEMBER OF DC FUNDING PARTNERS LLC, PORTFOLIO MANAGER FOR DENALI CAPITAL CLO I, LTD. By: /s/ John Thacker --------------------------------- Title: Chief Credit Officer MERRILL LYNCH GLOBAL INVESTMENT SERIES: INCOME STRATEGIES PORTFOLIO BY: MERRILL LYNCH INVESTMENT MANAGERS, L.P. AS INVESTMENT ADVISOR By: /s/ Anthony Heyman --------------------------------- Title: Authorized Signatory MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By: /s/ Anthony Heyman --------------------------------- Title: Authorized Signatory PILGRIM AMERICA HIGH INCOME INVESTMENTS INC. LTD. BY: ING PILGRIM INVESTMENTS LLC AS INVESTMENT MANAGER By: /s/ Jason Groom --------------------------------- Title: Vice President MORGAN STANLEY PRIME INCOME TRUST By: /s/ Shelia A. Finnerty --------------------------------- Title: Executive Director PILGRIM CLO 1999-LTD. BY: ING PILGRIM INVESTMENTS LLC AS INVESTMENT MANAGER By: /s/ Jason Groom --------------------------------- Title: Vice President ML CLO XII PIGRIM AMERICA (CAYMAN) LTD. BY: ING PILGRIM INVESTMENTS LLC AS INVESTMENT MANAGER By: /s/ Jason Groom --------------------------------- Title: Vice President ML CLO XX PILGRIM AMERICA (CAYMAN) LTD. BY: ING PILGRIM INVESTMENTS LLC AS INVESTMENT MANAGER By: /s/ Jason Groom --------------------------------- Title: Vice President ING PRIME RATE TRUST BY: ING PILGRIM INVESTMENTS LLC AS INVESTMENT MANAGER By: /s/ Jason Groom --------------------------------- Title: Vice President LIBERTY-STEIN ROE ADVISOR FLOATING RATE ADVANTAGE FUND. BY: STEIN ROE & FARNHAM INCORPORATED, AS ADVISOR By: /s/ James R. Fellows --------------------------------- Title: Senior Vice President STEIN ROE FLOATING RATE LIMITED LIABILITY COMPANY By: /s/ James R. Fellows --------------------------------- Title: Senior Vice President STEIN ROE & FARNHAM CLO I LTD., BY: STEIN ROE & FARNHAM INCORPORATED, AS PORTFOLIO MANAGER By: /s/ James R. Fellows --------------------------------- Title: Senior Vice President COLUMBUS LOAN FUNDING LTD. BY: TRAVELERS ASSET MANAGEMENT INTERNATIONAL COMPANY, LLC By: /s/ John Petchler --------------------------------- Title: Vice President THE TRAVELERS INSURANCE COMPANY By: /s/ John Petchler --------------------------------- Title: Vice President TRAVELERS CORPORATE LOAN FUND INC. BY: TRAVELERS ASSET MANAGEMENT INTERNATIONAL COMPANY, LLC By: /s/ John Petchler --------------------------------- Title: Vice President VAN KAMPEN SENIOR INCOME TRUST BY: VAN KAMPEN INVESTMENT ADVISORY CORP. By: /s/ Christina Jamieson --------------------------------- Title: Vice President VAN KAMPEN PRIME RATE INCOME TRUST BY: VAN KAMPEN INVESTMENT ADVISORY CORP. By: /s/ Christina Jamieson --------------------------------- Title: Vice President VAN KAMPEN SENIOR FLOATING RATE FUND BY: VAN KAMPEN INVESTMENT ADVISORY CORP. By: /s/ Darvin D. Pierce --------------------------------- Title: Executive Director WACHOVIA BANK, N.A. By: /s/ Robert Wilson --------------------------------- Title: Vice President WELLS FARGO BANK, N.A. By: /s/ --------------------------------- Title: Vice President SZUDDER FLOATING RATE FUND By: /s/ Kenneth Weber --------------------------------- Title: Senior Vice President FRANKLIN FLOATING RATE TRUST By: /s/ Richard Hsu --------------------------------- Title: Asst. Vice President EX-21 10 sr_f10k-123101.txt SUBSIDIARIES OF THE REGISTRANT SUBSIDIARIES OF THE REGISTRANT Exhibit 21 The following is a list of the Company's subsidiaries and jurisdictions of incorporation or organization as of April 10, 2002, except for unnamed subsidiaries which, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary. Name of Subsidiary Jurisdiction of Incorporation 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 OSI Education Services, 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 University Accounting Services, LLC Wisconsin RWC Consulting Group, LLC Delaware Coast to Coast Consulting, LLC Delaware Pacific Software Consulting, LLC Delaware PAE Leasing, LLC Delaware Greystone Business Group, LLC Delaware -----END PRIVACY-ENHANCED MESSAGE-----