-----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, McvoAWo9nqo2E+WHEsQPV9e1ae16YuH/TkxjkncCKyyXVqXLJTKSaW0yCkk+Z/Nh f6g9SZqY9WwXieiGUV6oyg== 0000950144-00-002526.txt : 20000221 0000950144-00-002526.hdr.sgml : 20000221 ACCESSION NUMBER: 0000950144-00-002526 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 23 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000218 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRECISION RESPONSE CORP CENTRAL INDEX KEY: 0001013058 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 592194806 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-20941 FILM NUMBER: 549610 BUSINESS ADDRESS: STREET 1: 1505 N.W. 167TH ST CITY: MIAMI STATE: FL ZIP: 33169 BUSINESS PHONE: 3056264600 MAIL ADDRESS: STREET 1: 1525 N W 167TH ST CITY: MIAMI STATE: FL ZIP: 33169 10-K405 1 PRECISION RESPONSE CORP 10-K FOR 12/31/99 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. FORM 10-K [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended DECEMBER 31, 1999 [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to _____ Commission file number: 0-20941 PRECISION RESPONSE CORPORATION (Exact name of Registrant as specified in its charter) FLORIDA 59-2194806 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1505 N.W. 167TH STREET, MIAMI, FLORIDA 33169 (Address of principal executive offices)(Zip code) (305) 816-4600 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $0.01 PAR VALUE (Title of class) 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] ON FEBRUARY 15, 2000, THE REGISTRANT HAD 21,852,231 OUTSTANDING SHARES OF COMMON STOCK, $0.01 PAR VALUE, AND BASED UPON THE CLOSING MARKET PRICE OF THE REGISTRANT'S COMMON STOCK ON THE NASDAQ NATIONAL MARKET ON SUCH DATE, THE AGGREGATE MARKET VALUE OF THE SHARES OF COMMON STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT WAS APPROXIMATELY $253,800,000. DOCUMENTS INCORPORATED BY REFERENCE None. 2 INDEX PART I.
ITEM NO. PAGE 1. Business.....................................................................................3 2. Properties..................................................................................13 3. Legal Proceedings...........................................................................14 4. Submission of Matters to a Vote of Security-Holders.........................................15 PART II. 5. Market for the Registrant's Common Equity and Related Stockholder Matters...................16 6. Selected Financial Data.....................................................................18 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................................................................21 7A. Quantitative and Qualitative Disclosures About Market Risk..................................33 8. Financial Statements and Supplementary Data.................................................34 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure........34 PART III. 10. Directors and Executive Officers of the Registrant..........................................34 11. Executive Compensation......................................................................37 12. Security Ownership of Certain Beneficial Owners and Management..............................48 13. Certain Relationships and Related Transactions..............................................51 PART IV. 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............................53
2 3 PART I. ITEM 1. BUSINESS GENERAL Precision Response Corporation ("PRC" or the "Company") was incorporated in the state of Florida in 1982 as a fulfillment company and is currently a leading full-service provider of outsourced customer care, utilizing a fully-integrated mix of traditional call center and e-commerce customer care solutions and services to large corporations and high-growth Internet-focused companies. Through the integration of its teleservicing, e-commerce customer care services, information technology, which includes database marketing and management ("Information Technology"), and fulfillment capabilities, the Company is able to offer a total customer relationship solution to meet its clients' needs. The Company believes that its integrated approach, combined with its sophisticated use of advanced technologies, provides a distinct competitive advantage in attracting and retaining clients seeking cost-effective ways to contact and service prospective and existing customers. During 1999, the Company continued its strategic initiatives to capitalize on the extraordinary growth of Internet commerce by integrating Internet technologies with current PRC products and services to, in effect, create multimedia "customer interaction centers." These multimedia centers are support facilities in which customer care associates interact with customers over multiple communications channels including telephone, e-mail, web collaboration and online chat/IP telephony. Internet customer care is a natural extension of the Company's traditional products and services that enable a full spectrum of Customer Relationship Management capabilities for PRC clients. Customer Relationship Management is the practice of identifying, attracting and retaining the best customers to generate profitable revenue growth. Utilizing these capabilities in order to assist clients to improve the utility of e-commerce applications is a significant business opportunity for the Company. In February 1999, the Company launched prcnetcare.com, Inc. ("prcnetcare.com") to capitalize on the expected customer service opportunities related to the extraordinary growth of e-commerce. The Company is focused on attracting clients that have significant customer service needs including database design and management and substantial ongoing teleservicing and e-commerce customer care. The Company believes that the long-term outlook for outsourced customer service and marketing is favorable due to the expected steady growth in out-sourcing of traditional telephone-based customer care. In addition, the Company believes that the opportunities presented by the explosive growth of business over the Internet, and particularly of e-commerce, present prcnetcare.com with significant prospects for growth. Longer-term, the Company expects to drive revenue growth by continuing to cross-sell PRC's traditional teleservices to prcnetcare.com's Internet clients and providing additional services to e-commerce companies that take advantage of PRC's existing capabilities. RECENT DEVELOPMENTS On January 12, 2000, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") by and among the Company, USA Networks, Inc. ("USAi"), a Delaware corporation, and P Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of USAi ("Newco"), pursuant to which Newco would be merged with and into the Company, with the Company remaining as the surviving corporation in the merger. Upon and subject to consummation of the merger, each share of PRC common stock would be converted into 1.08 shares of USAi common stock (taking into account the two-for-one stock split of USAi common stock to be effected on February 24, 2000 as to USAi common shareholders as of February 10, 2000). Consummation of the Merger Agreement is subject to certain terms, conditions and termination rights specified in the Merger 3 4 Agreement. In particular, the Company may elect to terminate the Merger Agreement if the volume-weighted average sales price per share of USAi common stock on the twenty consecutive trading days ending on the second full trading day prior to the Company's special meeting of shareholders (to be convened to take action upon the Merger Agreement) is less than $18.52 (taking into account the above-described USAi two-for-one stock split). If the Company makes such election, USAi may, however, elect, in its sole discretion, to increase the exchange ratio at that time so that PRC shareholders receive $20.00 worth of USAi common stock for each share of PRC common stock, in which case the Company's termination election will be deemed to be rescinded. In addition, the merger is subject to approval or expiration or earlier termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the approval of shareholders of the Company holding a majority of outstanding shares of common stock, as well as other customary closing conditions. See "Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K - Reports on Form 8-K." The merger is currently expected to be completed by June 2000. Upon consummation of the merger, PRC would be integrated with USA Electronic Commerce and Services ("ECS"), a USAi company that delivers integrated electronic commerce solutions with a multi-platform business to business package including teleservices, product fulfillment, customer care, systems development, database marketing and integrated marketing products. The combined and centrally managed teleservices operations of the Company and ECS, which includes the call center operations of Home Shopping Network and Ticketmaster, is expected to have approximately 10,000 workstations in approximately 40 call centers throughout the world. INDUSTRY OVERVIEW PRC believes that the long-term outlook for outsourced customer service and marketing is favorable. The growth of the customer care industry is expected to stem from: (i) steady growth in outsourcing of traditional telephone-based customer care; (ii) strong growth in customer care needs across multiple communication channels; and (iii) substantial growth in the demand for Internet customer care. The Company expects that large companies increasingly will outsource their customer care activities in order to focus internal resources on their core competencies and to improve the quality and cost-effectiveness of their customer service and marketing efforts. Timely and effective customer care develops and strengthens customer loyalty which is critical for companies to remain competitive. The Company also believes that organizations with superior customer service and sophisticated advanced technology, such as PRC, will particularly benefit from this outsourcing trend. The traditional telephone-based customer service and marketing industry is quickly changing as multiple communication channels, such as fax, e-mail and the Internet, become increasingly available. Today, customers of PRC's clients are accessing information through these alternative methods as well as by the telephone. As a result, large companies that outsource their customer care activities are likely to demand an integrated customer care provider that can deliver consistent support across multiple communication channels. In addition, being able to provide an end-to-end solution is expected to be a key competitive factor. An end-to-end solution includes the additional services of customer relationship management, fulfillment and information technology consulting, which research indicates is expected to potentially be a $60 billion market by 2003. In particular, the Internet has created a new market for customer care. Research shows that 90% of on-line customers prefer human interaction. Research also indicates that spending on Internet and e-commerce services, including customer support services, is expected to grow to $22 billion by 2002. As e-commerce grows, companies are seeing an increasing percentage of their revenue becoming dependent on their ability to service customers over the Internet. PRC believes Internet customer care represents a significant growth opportunity for the Company. 4 5 BUSINESS STRATEGY PRC's vision is to be the premier provider of interactive customer communications to large corporations and high-growth Internet-focused companies. The Company's strategy is to offer its clients high-quality, fully integrated services that are customized to address each client's unique needs and to improve the quality and cost-effectiveness of the client's customer service and marketing operations. The Company seeks to implement this strategy through the following: "ONE-STOP" SOLUTIONS THROUGH FULLY INTEGRATED SERVICES The Company's current integration of teleservices, Information Technology, which includes database marketing and management, and fulfillment services as part of a one-stop solution provides a cost-effective and efficient method for its clients to manage their growing customer service and marketing needs. In addition, the Company has integrated Internet communications as yet another part of the one-stop solution. The Company is typically involved in all stages of formulating, designing and implementing its clients' customer service and marketing programs. PRC believes that this solution-oriented, value-added approach to addressing its clients' needs distinguishes PRC from its competitors and plays a vital role in the Company's ability to attract and retain clients. INFORMATION TECHNOLOGY CAPABILITIES Through the efforts of its Information Technology and Internet applications groups, the Company is able to rapidly design, develop and implement application software for each client's unique customer service and marketing programs. PRC offers a wide array of services, including formulating, designing and customizing teleservicing and electronic applications, programming, and demographic and psychographic profiling. The Information Technology group also integrates the Company's centrally managed wide area network with the client's management information systems, thereby enabling clients to access real-time program information and obtain comprehensive trend analyses. As the needs of a client evolve, PRC's Information Technology specialists work with the client to modify their programs. ADVANCED TECHNOLOGY The Company's sophisticated use of advanced technology enables it to develop and deliver solutions to its clients' complex customer service and marketing needs. PRC has developed a specialized component-based development software strategy with related proprietary products for its traditional teleservicing and fulfillment services. PRC has also developed InfiniteAccess, Precision Resolution and other specialized software, which cost-effectively utilize the Company's hardware and software capabilities. PRC's component-based software approach allows the Company's Information Technology group to build and to test customer interaction center applications much more quickly than with conventional approaches. As a result, clients receive a customer interaction center solution of superior quality. CAPITALIZE ON THE INTERNET OPPORTUNITY The Company believes that the opportunities presented by the explosive growth of business over the Internet, and particularly of e-commerce, present prcnetcare.com with outstanding prospects for growth. Longer-term, the Company expects to drive revenue growth by continuing to cross-sell PRC's traditional teleservice capabilities to prcnetcare.com's Internet clients and providing additional services to e-commerce companies that take advantage of PRC's existing capabilities. 5 6 LONG-TERM CLIENT RELATIONSHIPS The Company seeks to develop long-term client relationships by becoming an integral part of its clients' overall customer service and marketing efforts. Dedicated client commitment teams, headed by a general manager and comprised of representatives of the teleservices, Internet applications, Information Technology and fulfillment operating groups, are assigned to work closely with a client to formulate, design, implement and operate the client's program. Typically, a customer care associate is dedicated to one client, which translates into customer loyalty and being an integral part of the client's strategic team. STRONG COMMITMENT TO QUALITY PRC strives to achieve the highest quality standards in the industry. Currently, approximately 98% of PRC's customer care associates are full-time, which the Company believes results in greater stability and quality in its workforce. The Company has a rigorous screening process for new hires. All new associates participate in extensive classroom and on-the-job training programs lasting up to six weeks. After training, each associate's performance is monitored regularly through on-site supervision, remote and on-site call monitoring, and on-line performance tracking. The Company's client commitment team ensures that the Company fulfills its commitments in connection with each client program in a timely manner. Because PRC's services involve direct contact with its clients' customers, the Company's commitment to quality is critical to its ability to attract and retain clients. PRC believes that the Company's commitment to total quality continues to strengthen its ability to attract quality clients and employees. OPERATIONS OVERVIEW PRC's operations are organized to effectively provide one-stop solutions for its clients' customer service and marketing needs. MANAGEMENT OF CLIENTS THROUGH GENERAL MANAGERS TEAMS. Each client program is managed by a general manager who is dedicated to a single client or a small group of clients and is the sole point of contact for all matters related to the client's program. The general manager's responsibility includes full operational, financial and client relations functions. The general manager assembles a client commitment team consisting of members from the teleservices, Internet applications, Information Technology and fulfillment operating groups, which is assigned responsibility for that program. This team works with the client to formulate and design a customer service or marketing program tailored to achieve that client's objectives. In implementing the program, the team is supported by the human resources department which carefully selects the customer care associates for that particular program. In addition, the quality assurance and client commitment teams monitor the program to ensure that it is carried out in accordance with specifications. The Company believes that its integrated team approach and solution-oriented focus provide PRC with a distinct competitive advantage. PROGRAM FORMULATION AND DESIGN. PRC's client commitment teams work with clients to formulate a customer service and marketing program suited to each client's needs. The Information Technology group uses its substantial expertise in rapid application development and systems integration to help clients more effectively target marketing programs, resulting in higher response rates and profitability, and to design customer service programs which capture information useful in the client's customer retention programs and other marketing efforts. PRC offers a wide array of services, including formulating, designing and customizing database architecture, programming, demographic and psychographic profiling and scripting. 6 7 PROGRAM IMPLEMENTATION. PRC's general manager teams work with the teleservices, Internet applications, Information Technology and fulfillment operating groups to implement the client's customer service and/or marketing program. OPERATIONS. PRC's teleservicing operations allow clients to establish and maintain direct communications with their customers. The Company can provide a stand-alone teleservices application or support for an existing program. PRC also specializes in business-to-consumer and business-to-business programs and is experienced in a wide range of industries including telecommunications, financial services, hospitality, transportation and e-commerce/Internet. Teleservicing operations involve direct communication with the clients' customers through inbound or outbound calls. In 1999, teleservicing activities accounted for 89% of the Company's total revenues. Of this amount, 94% was from inbound calls. In handling inbound calls, the Company's customer care associates respond to a variety of customer requests, including inquiries, billing questions, complaints, direct mail response and order processing and provide technical support. The complexity of inbound calls ranges from simple one dimensional data look-ups to more complex multi-system navigation and analysis or sophisticated technical help and trouble shooting. PRC's automated call distributors and digital telephony switches identify each inbound call by an "800" number, then routes the call to a PRC customer care associate trained and dedicated to that particular client's program. PRC's outbound services include conducting customer satisfaction and preference surveys and cross-selling client products, as well as providing proactive customer management with the goal of increased sales and enhanced customer retention. Almost all outbound calls are in response to customer-initiated inquiries or are made to a client's existing customers. The Company's outbound call management system utilizes predictive dialers which automatically dial the telephone numbers, determine if a live connection is made and present connected calls to a customer care associate who has been trained specifically for that client's program. The customer's name, along with other information about the customer and the program script, simultaneously appear on the customer care associate's computer screen. The associate then uses the script to take an order for the client's product or service or to request information to broaden the client's database. The Company's teleservicing operations are enhanced by the use of universal workstation technology. Universal workstations allow the customer care associate to handle either inbound or outbound calls as dictated by demand. From the client's standpoint, universal workstations provide increased efficiencies by allowing the customer care associate (for whose service the client generally pays on an hourly basis) to be productive with either inbound or outbound calls. Information obtained during a customer call by the PRC customer care associate is captured by the Company's database marketing and management systems. This information is used by PRC to ensure high quality performance and to provide fulfillment services, if necessary. PRC's database marketing and management technology also enables the Company to seamlessly connect with its clients' systems and thus deliver on-line, real-time program and customer information. Fulfillment services include high-speed laser and electronic document printing, lettershop, and automated mailing and pick and pack capabilities. While fulfillment services represent a relatively small portion of the Company's revenues, they enable the Company to support full-service customer care and marketing programs by managing and fulfilling requests for literature, products and other specialty items and by permitting the rapid distribution of client marketing information and products. The fulfillment operation was upgraded in 1999 to include e-mail and web-based tracking and order-entry communications. 7 8 prcnetcare.com, a wholly owned subsidiary of PRC, is dedicated to developing and providing a total customer care solution for companies conducting business over the Internet. prcnetcare.com currently offers two lines of products and services: InfiniteAccess and Precision Resolution. InfiniteAccess provides e-mail response and management services ("click-to-email"), live web-based customer care services ("click-to-talk", "click-to-chat"), customer information and database management, fulfillment, and hosting of Web application services to companies engaged in e-commerce and other forms of Internet communications on a fully outsourced, turnkey basis. Such products and services include: PRC SMART MAIL is an electronic messaging service which reduces the cost and time of managing large volumes of e-mail by providing rapid and appropriate responses to a client's customers. PRC WEB ON-LINE is a collaborative service that enables customer care associates to simultaneously interact with clients' customers over the telephone and the Web ("click-to-talk"). This product complements Web-based self-service aids by providing live customer care associate assistance. This service also provides "text chat" capabilities. PRC INTERNET FULFILLMENT SERVICE provides e-mail and Web-based fulfillment processes to service e-commerce transactions or requests for information. PRC HOST is a Web application hosting service and Web information service which enables clients to conduct Web-based commerce without the expenditure to establish and support Internet commerce technology infrastructure and provides clients with Internet-related information and reports about their business performance, including sales performance, customer feedback and market analyses. InfiniteAccess is designed to change the growing customer care challenges faced by companies into opportunities to capture and retain new customers by providing the following solutions: REDUCE THE RATE OF ABANDONMENT OF ELECTRONIC SHOPPING CARTS AND ENHANCE THE CONVERSION OF BROWSERS TO BUYERS. Confusion, unanswered questions and rejected order forms cause customers to abandon shopping carts before completing their on-line purchase. Live customer support from a customer care associate via "click-to-talk" makes it easier for customers to have their questions answered, which enhances the likelihood of shoppers completing the on-line purchasing process. REDUCE THE AMOUNT OF TIME REQUIRED TO RESPOND TO E-MAIL. Companies often take five or more days to respond to a customer's e-mail. The ability to manage and process large volumes of e-mail, and therefore respond promptly, increases the likelihood of a customer's repeat visit to a client's web-site. DATA CAPTURING. PRC has expertise and extensive experience in capturing, analyzing and utilizing data from customer interactions. ENHANCES CUSTOMER RETENTION. Companies are committing large sums of marketing dollars in order to attract customers who will return frequently and become long-term sources of earnings. On-line customer service enhances the on-line shopping experience, improves customer satisfaction and builds customer loyalty. STREAMLINE FULFILLMENT PROCESSES. Fulfilling orders has proven difficult and costly for many companies selling on the Web. PRC has a sophisticated fulfillment operation that can be seamlessly integrated with clients' Web stores. Precision Resolution is an error resolution and record standardization system for information transferred electronically or over the Internet that allows for the automated collection, resolution, monitoring and reporting of 8 9 faulty records from highly transactional, relational databases on a real-time basis. Precision Resolution provides solutions for several critical business problems to both on-line and traditional companies. Some of these problems include: REDUCING "ORDER FALLOUT." Many potential customers never purchase products because errors or omission cause their on-line orders to be rejected by the system. For example, missing or mismatched information can cause a whole order to be rejected. Precision Resolution allows companies to capture these order fallouts and to present these fallouts to a customer service representative for resolution. This is valuable to clients since it enables them to potentially capture revenues that would otherwise be lost. ERROR AND EXCEPTION PROCESSING AND RESOLUTION ON A TIMELY BASIS. Precision Resolution's automated process systems help companies significantly reduce the amount of time required to correct errors. MORE ACCURATE AND TIMELY INFORMATION FOR OUR CLIENTS' MANAGEMENT. Data from the error resolution process is captured in a database and made available for clients' management analysis by individual error types. By compiling all the information in one database and automating summary outputs, Precision Resolution allows clients' management to view summary information on types of errors in order to efficiently correct overarching issues. LOWER OPERATING COSTS. Precision Resolution processes exceptions and errors more cost effectively than companies can do on their own. QUALITY ASSURANCE. PRC maintains its strong commitment to quality through its quality assurance and client commitment teams. Within each of PRC's operating departments, the quality assurance teams monitor performance to ensure that the Company's services are delivered at a level of quality that meets both the Company's and the client's standards. The client commitment team functions on a Company-wide basis to audit the achievement of the Company's commitments to each client program. CLIENT REPORTING. Data derived from customer service and marketing programs are a source of valuable information to PRC's clients in evaluating ongoing programs and planning and designing future programs. PRC has developed technologies and reporting procedures that effectively convert raw data gathered during the course of the program into useful information upon which clients can base strategic decisions and more effectively respond to customer needs and inquiries. These technologies and reporting procedures allow clients to monitor their teleservicing and Internet-based programs on-line, in real-time, to obtain comprehensive trend analyses and modify program parameters as necessary. In addition, PRC provides clients with customized reports in printed form, electronic mail, computer-to-computer transmission, disk, tape and on-line. TECHNOLOGY The Company's sophisticated use of advanced technology enables it to develop and deliver customized solutions to meet its clients' complex customer service and marketing needs across all media. PRC has developed a specialized component-based software development strategy with related proprietary data technology products for its traditional teleservicing and fulfillment services. Component-based development refers to the tools and techniques employed by the Information Technology group to assemble and/or modify software applications from reusable software "parts" as opposed to building an application from scratch. PRC has also developed InfiniteAccess, Precision Resolution and other specialized software which cost-effectively utilize the Company's hardware capabilities. PRC's component-based software approach allows the Company's Information Technology group to build, test and rapidly deploy customer turnkey solutions much more quickly than with conventional approaches. As a result, clients receive a customer interaction center solution of superior quality. 9 10 The Company utilizes a UNIX-based open architecture system comprised of multiple computer systems which, in conjunction with its rapid application tool for user interface development, allows PRC to expand capacity from a PC-class computer to a mainframe without rewriting software and provides flexibility in designing applications tailored to the client's needs. In conjunction with the Company's use of Oracle database applications and Windows NT applications, the UNIX-based open architecture system permits the Company to seamlessly integrate with many different types of traditional and e-commerce client systems and allows an electronic link from each center's system to the Company's operational headquarters, resulting in a centrally managed wide area network. The Company's multimedia centers are linked via advanced voice and data communications systems. Each center utilizes telephony switches to route calls and electronic inquiries directly to customer care associates located within the network. Each desktop unit is equipped to handle any customer care function as the computerized routing systems direct inquiries to a specific customer care associate based on his/her individual expertise. This capability exists as a result of a highly scalable, technically integrated platform that brings together the resources of the premier providers of customer relationship management technology. All PRC hardware is supported by an uninterruptable power supply designed for protection against outages or any data loss due to power variations, as well as a diesel generator to assure an uninterrupted power source. The Company believes that the integrity of client information is adequately protected by its data security system and its off-site disaster back-up storage facilities. MANAGEMENT INFORMATION SYSTEMS During 1999, PRC completed its implementation of an Enterprise Resource Planning solution, which the Company designated as the PRISM Project. The PRISM Project allows for all internal systems (including those related to billing, payroll, client profitability management, human resource management, inventory and purchasing management, and general ledger) to be fully integrated into a common platform. The PRISM Project utilized both internal resources as well as outside consultants to allow for a quick and efficient implementation. The PRISM Project was implemented in phases over a two-year period with certain systems or modules becoming functional at different points in the project timeframe. The total cost of full implementation, including software, hardware, consulting fees and internal resources, was approximately $12.8 million (see Note 5 - Property and Equipment of the Notes to Consolidated Financial Statements). PERSONNEL AND TRAINING PRC believes that its rigorous approach to hiring and training its employees is a key component of its ability to provide high quality client and customer service. The Company selects the locations for its multimedia centers based on demographic studies in an attempt to ensure the availability of an adequate and qualified pool of potential employees. Its hiring procedures are designed to ensure that only the most qualified candidates are offered employment. The Company offers extensive classroom and on-the-job training programs for its personnel, including instruction on the businesses of PRC's clients and proper customer service techniques. Each new customer care associate receives up to six weeks of training, which provides the skills training he or she needs to work on a specific, dedicated client program. The Company offers a benefits package to full-time customer care associates after three to six months of employment. The Company believes that its careful selection process and development of its employees results in a high quality, dedicated work force. The Company also provides a full array of management courses and materials designed to ensure that its operations and administrative managers receive continuous and up-to-date training using the latest trends and techniques. 10 11 As of December 31, 1999, the Company had approximately 6,550 full-time and 95 part-time employees, of which approximately 5,200 of the full-time employees and 90 of the part-time employees were customer care associates. The Company believes that its percentage of full-time customer care associates is high relative to that of its competitors, resulting in greater stability and quality in its workforce. None of PRC's employees are subject to a collective bargaining agreement. The Company considers its relations with its employees to generally be good. SALES AND MARKETING The Company's prcnetcare.com and traditional business sales teams are supported by customer relationship management and e-commerce service specialists, as well as the general managers and the Information Technology organization. The account team approach - sales, general managers and Information Technology specialists - allows the Company to focus on both new and existing clients as part of its growth plan. The Company believes its reputation for providing high quality, one-stop solutions has enabled it to obtain new business through requests for proposals, client referrals and cross-selling opportunities to existing clients. In addition, the Company's sales team actively pursues new business opportunities by identifying companies and industries that are in need of or currently utilize outsourced customer service. Working with the Information Technology and Internet applications groups, the sales and marketing team is able to demonstrate to prospective clients the Company's rapid application development and effective systems integration capabilities to meet a proposed program's objectives. After an initial request for proposal is completed, the account team will perform a service and systems need analysis to determine the feasibility of the opportunity and staffing assignment. At the conclusion of a successful sales process, a service agreement is executed between the Company and the client. CLIENT RELATIONSHIPS The Company seeks to develop and maintain long-term relationships with its clients. PRC targets those companies which have the potential for generating recurring revenues due to the magnitude of their customer service departments or marketing programs. The Company believes that its clients view PRC as a strategic partner and a valuable resource in formulating, designing and implementing their customer service and marketing programs. During 1999, the Company provided its services to approximately 60 clients in industries such as telecommunications, financial services, hospitality, transportation and e-commerce/Internet. The Company's ongoing clients include several business units of AT&T, American Express, British Airways, DIRECTV, Ryder TRS and priceline.com's WebHouse Club. The Company's five largest clients accounted for 69% of its total gross revenues for 1999. Revenues generated by the various business units of AT&T, the Company's largest client, accounted for 42% of gross revenues for 1999. Besides AT&T, no other client accounted for 10% or more of total gross revenues for 1999. Although the Company enters into written contracts with its clients, generally either party retains the right to terminate on varying periods of prior notice. The contracts do not assure the Company will generate a specific level of revenue or designate the Company as the exclusive service provider. Contracts typically encompass all aspects of the Company's relationship with the client, together with all applicable charges. The Company's teleservicing charges are primarily based on a fixed hourly fee for dedicated service. The Company has also generated teleservicing revenues under incentive-based compensation agreements whereby the amount of revenue earned correlated to the achievement of established targets. However, at the end of the third quarter of 1998 the Company made a strategic decision to exit a large incentive-based outbound teleservices program due to margin constraints and to focus its efforts on more predictable and profitable programs going forward. This incentive-based program ended in the fourth quarter of 1998 and PRC's relationship with such client ended in March 1999. 11 12 Charges for database marketing and management services are based on an hourly rate or on the volume of information stored. Charges for fulfillment services are typically assessed on a transaction basis, with an additional charge for warehousing products for clients. The Company assesses separate charges for program design, development and implementation, database design and management, training or retraining of personnel, processing and access fees and account services, where appropriate. Billing charges assessed by the Company for Internet customer care and electronic message servicing are based on hourly rates and on a transaction basis, respectively, or a combination of charges thereof. COMPETITION The interactive customer communications industry in which PRC operates is very competitive and highly fragmented. PRC's competitors range in size from very small firms offering specialized applications and short-term projects, to large independent and international firms and the in-house operations of many clients and potential clients. In-house interactive customer communications organizations comprise the largest segment of the industry. The market includes non-captive interactive customer service operations such as APAC TeleServices, Convergys Corporation, RMH Teleservices, SITEL Corporation, Sykes Enterprises, TeleSpectrum Worldwide, TeleTech Holdings and West TeleServices. In addition, some of PRC's services also compete with other forms of direct marketing such as mailhouses, television, radio and on-line services. PRC believes that the principal competitive factors in its industry are a reputation for quality, sales and marketing results, price, technological expertise and application, and the ability to promptly provide clients with customized and creative solutions and approaches to their customer service and marketing needs. The Company believes that it competes favorably with other companies with respect to the foregoing factors for large-scale, ongoing customer service and marketing programs where the principal competitive factor is quality. The Company has not generally chosen to compete for high-volume outbound marketing programs where the principal competitive factor is price. Certain competitors may have capabilities and resources greater than the Company's which might competitively disadvantage PRC in bidding for very large programs. GOVERNMENT REGULATION Telephone sales practices are regulated at both the Federal and state level. The rules of the Federal Communications Commission (the "FCC") under the Federal Telephone Consumer Protection Act of 1991 (the "TCPA") prohibit the initiation of telephone solicitations to residential subscribers before 8:00 a.m. or after 9:00 p.m., local time, and prohibit the use of automated telephone dialing equipment to call certain telephone numbers. In addition, the FCC rules require telemarketers to have procedures in place to maintain lists of residential customers who do not want to receive telephone solicitations and to avoid making calls to those customers. The FCC rules also prohibit the use of pre-recorded or artificial voice calls to consumers (with limited exceptions) and advertising via telephone facsimile machines. The FCC, private individuals and state attorneys general may seek both injunctive and monetary relief for violation of these FCC rules. Monetary damages may be awarded for the greater of actual damages or $1,500 per offense for willful violation of these rules. The Federal Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994 (the "TCFAPA") broadly authorizes the Federal Trade Commission (the "FTC") to issue regulations prohibiting misrepresentation in telephone sales. In August 1995, the FTC issued rules under the TCFAPA. These rules set forth disclosure requirements for telemarketers when placing calls, prohibit deceptive telemarketing acts or practices during solicitation, provide guidelines on collecting payments by check and credit cards, provide restrictions on abusive telephone solicitation practices and promulgate certain record keeping requirements. The FTC, private individuals and state attorneys general may seek both injunctive and monetary damages for violation of these FTC rules. Penalties may range up to $10,000 for each intentional violation of these rules. 12 13 The Company believes that it is in compliance with the TCPA and FCC rules thereunder and with the FTC's rules under the TCFAPA. The Company trains its customer care associates to comply with the FTC and FCC rules and programs its call management system to avoid telephone calls during restricted hours or to individuals maintained on PRC's restricted "do-not-call" list. Most states have enacted or are considering legislation to regulate telephone solicitations. For example, some states require telemarketers to be licensed by state regulatory agencies prior to soliciting purchasers within that state. Additionally, telephone sales in certain states cannot be final unless a written contract is delivered to and signed by the buyer and may be canceled within three business days. At least one state also prohibits telemarketers from requiring credit card payment and several other states require certain telemarketers to obtain licenses and post bonds. Penalties for violation of these state telemarketing regulations vary from state to state and include civil as well as criminal penalties. From time to time, bills are introduced in Congress which, if enacted, would regulate the use of credit information. In addition, legislation could be introduced in the future with respect to the use of the Internet, including regulations relating to its use in connection with customer care and service. The Company cannot predict whether any of these types of legislation will be enacted and what effect, if any, it would have on the Company or its industry. The industries served by the Company are also subject to varying degrees of government regulation. The Company works closely with its clients and their advisors to develop the scripts to be used by PRC in connection with making customer contacts. The Company generally requires its clients to indemnify PRC against claims and expenses arising with respect to the Company's services performed on its clients' behalf. The Company has never been held responsible for regulatory noncompliance by a client. ITEM 2. PROPERTIES During 1999 the Company completed the transition of its traditional call centers into customer interaction centers with multimedia capabilities. The Company had eight such centers in operation as of December 31, 1999. One new multimedia center was opened during 1999. Additionally, in connection with its 1998 restructuring and performance-enhancing initiatives plan, the Company, as of December 31, 1999, had relocated all of the ongoing teleservicing programs from one center (Margate-Coconut Creek) and maintained reduced workstation capacity in another center (Jacksonville). As of December 31, 1999, the Company leased and operated the following multimedia centers, all of which are located in the state of Florida: APPROXIMATE NUMBER OF WORKSTATIONS LOCATION DATE OPENED AT DECEMBER 31, 1999 - ------------------- -------------------- -------------------- Miami (1) July 1992 360 Miami Lakes January 1996 495 Kendall April 1996 413 Orlando June 1996 629 Margate September 1996 644 Miami-Glades (2) December 1996 1,543 Jacksonville February 1997 600 East Kendall August 1999 166 -------------------- 4,850 =================== 13 14 - ---------- (1) The Company's principal executive offices are also currently located in this facility. (2) Certain administrative and operational departments are also located in this facility. The leases for these facilities would generally expire between 2004 and 2022 assuming the Company's exercise of all renewal options (see Note 7 - Lease Commitments of the Notes to Consolidated Financial Statements). However, as a result of the 1998 restructuring plan, as mentioned above, the Company will terminate the Jacksonville facility lease agreement no later than the lease option date in May 2002 (see Note 6 Credit Facilities and Long-Term Debt of the Notes to Consolidated Financial Statements). The Company will also terminate the Margate-Coconut Creek facility lease agreement no later than the lease option date in May 2002. As noted above, the Margate-Coconut Creek facility was no longer part of the Company's ongoing operations as of December 31, 1999 as the Company had relocated all of the ongoing teleservicing programs from this center in connection with the 1998 restructuring plan. As a result of growth beyond that which could be serviced from existing sites, the Company will open two new multimedia centers during the first quarter of 2000. One center is located in Sunrise, Florida, for which the Company secured a mortgage during the second quarter of 1998 (see Note 6 - Credit Facilities and Long-Term Debt of the Notes to Consolidated Financial Statements). The second center, located in Cutler Ridge (Perrine), Florida, is a subleased facility for which the lease agreement expires in 2007, with two 5-year renewal options. As of January 2000, the Sunrise facility was in operation and the Cutler Ridge (Perrine) facility is currently expected to commence operations in March 2000. On July 20, 1999, the Company executed a ten-year lease agreement with Crossroads Business Park Associates, which includes options to extend the initial term of the lease for an additional 15 years. The premises, located in Plantation, Florida, will be the site of the Company's new principal corporate offices. Certain terms of the new lease were amended on October 29, 1999, to provide for additional space. The Company currently expects to fully occupy the premises by the end of the first quarter of 2000. See Note 7 Lease Commitments of the Notes to Consolidated Financial Statements. The Company's fulfillment operations are located in a separate leased facility in Miami, Florida, consisting of 47,577 square feet, the lease for which expires in 2001, with a 5-year renewal option. The Company also leases additional facilities and certain other real property incidental to its operations. The Company believes that its existing facilities and other real property are suitable and adequate for its current operations, but additional facilities may be required to support growth. The Company further believes that suitable space will be available as needed to expand its business on commercially reasonable terms. ITEM 3. LEGAL PROCEEDINGS On or about August 26, 1998 a lawsuit was filed in Connecticut, captioned HENRY E. FREEMAN AND FREEMAN INDUSTRIAL ENTERPRISES CORPORATION v. PRECISION RESPONSE CORPORATION, MARK J. GORDON AND DAVID L. EPSTEIN (Case No. 3:98-CV-1895-AVC (D. Conn.)). It is currently pending in the United States District Court for the District of Connecticut. This lawsuit alleges that the Company breached its contracts with the plaintiffs by allegedly failing to pay all commissions relating to certain clients whom the plaintiffs allegedly claim they procured for the Company. The Amended Complaint also contains claims of breach of fiduciary duty, breach of covenant of good faith and fair dealing, civil conspiracy, fraud/fraud in the inducement, intentional infliction of emotional distress, negligent misrepresentation and violations of the Connecticut Unfair Trade Practices Act. The plaintiffs seek actual, compensatory and punitive damages, declaratory judgement that certain contracts are invalid due to undue influence exercised upon plaintiffs, recission of such contracts, an accounting and interest, costs and attorneys' fees. The Company has filed a motion to dismiss the Amended Complaint for failure to state a cause of action, which is currently pending before the Court. 14 15 The case is currently in the discovery stage. The Company believes that the plaintiffs' allegations are totally without merit and intends to defend the lawsuit vigorously. On or about November 5, 1999 a lawsuit, captioned JOSEPH P. RIANO v. PRECISION RESPONSE CORPORATION; PRCNETCARE.COM, INC.; MARK J. GORDON; AND DAVID L. EPSTEIN (Case No. 99-25774 CA 10), was filed in the Circuit Court of the Eleventh Judicial Circuit in and for Miami Dade-County, Florida. This lawsuit alleges that the Company misappropriated the plaintiff's alleged trade secret. The plaintiff asserts a statutory claim against all defendants under the Florida Uniform Trade Secrets Act, Chapter 688, Florida Statutes. The plaintiff also asserts a claim against PRC that it breached a contract entered into with the plaintiff to keep certain information confidential. In addition, the plaintiff asserts claims for conversion against all of the defendants and for conspiracy to commit conversion against the individual defendants. The plaintiff also asserts a claim for unjust enrichment against PRC and prcnetcare.com. The plaintiff's complaint seeks an unspecified amount of compensatory damages, including all profits earned by the defendants as a result of their conduct, exemplary damages, attorneys' fees, interests and costs. The plaintiff also seeks an accounting and entry of an injunction preventing PRC and prcnetcare.com from continuing to misappropriate the plaintiff's alleged trade secret. On January 28, 2000, the court entered an order denying the defendants' motion to dismiss, with the exception of conspiracy claims against the corporate defendants, which were dismissed by agreement of counsel. An answer and affirmative defenses have been filed on behalf of all defendants. The Company believes that the plaintiff's allegations are totally without merit and intends to defend the lawsuit vigorously. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS There were no matters submitted to a vote of the Company's security-holders during the quarter ended December 31, 1999. 15 16 PART II. ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS COMMON STOCK INFORMATION Since the Company's initial public offering declared effective July 16, 1996 (the "Initial Public Offering"), the common stock of the Company has been traded on The Nasdaq National Market under the symbol "PRRC." The following table sets forth, for the calendar quarters indicated, the high and low closing sale prices of the common stock as reported on The Nasdaq National Market during such period: HIGH LOW 1999 First quarter............................. $ 9-5/16 $ 3-5/32 Second quarter............................ 7-3/4 3-1/4 Third quarter............................. 14-5/8 5-7/16 Fourth quarter............................ 29-3/8 11-3/4 1998 First quarter............................. $ 11 $ 7-5/8 Second quarter............................ 9-3/4 5-7/16 Third quarter............................. 8-9/16 3-3/4 Fourth quarter............................ 8-7/8 4-1/4 As of February 15, 2000, there were 21,852,231 shares of the Company's common stock outstanding held by approximately 56 holders of record. The Company estimates, based upon information provided by the Company's transfer agent, that it has approximately 2,500 beneficial owners of its common stock as of February 15, 2000. DIVIDEND POLICY The Company currently intends to retain future earnings to finance its growth and development and therefore does not anticipate paying any cash dividends in the foreseeable future. In addition, the Company's revolving credit facility prohibits the payment of cash dividends by the Company. Payment of any future dividends will depend upon the future earnings and capital requirements of the Company and other factors which the Company's Board of Directors considers appropriate. Prior to the consummation of the Initial Public Offering, the Company's Board of Directors declared a cash dividend (the "Dividend") to the then current stockholders of the Company of approximately $5,243,000. The Dividend was equal to the Company's estimate of its cumulative taxable income prior to the Company's conversion from an S corporation to a C corporation immediately prior to the consummation of the Initial Public Offering, to the extent such taxable income had not previously been distributed. The Dividend was subject to adjustment based upon actual cumulative taxable income as finally determined based on the Company's final tax return as an S corporation. During the second quarter of 1997, the Company's final tax return as an S corporation was completed and filed. As a result, an additional $174,000 was paid to the Company's existing shareholders prior to the Initial Public Offering as a final distribution of the Company's accumulated taxable income prior to conversion to C corporation status. No cash dividends were paid to the shareholders in 1998 or 1999. See Note 11 - Capital Stock of the Notes to Consolidated Financial Statements. 16 17 RECENT SALES OF UNREGISTERED SECURITIES The Company did not issue or sell any unregistered securities during the quarter ended December 31, 1999, although the Company granted the stock options described below pursuant to the Company's Amended and Restated 1996 Incentive Stock Plan, as amended (the "Incentive Stock Plan"): (i) The Company granted options to purchase 93,500 shares of Common Stock to 50 employees at an exercise price of $12.59 per share. These options have a term of seven years and vest at the rate of 20% on each of the first five anniversaries from the date of grant (November 3, 1999). (ii) The Company granted options to purchase 2,500 shares of Common Stock to an employee at an exercise price of $12.47 per share. These options have a term of seven years and vest at the rate of 20% on each of the first five anniversaries from the date of grant (November 16, 1999). (iii) The Company granted options to purchase 25,000 shares of Common Stock to an independent contractor at an exercise price of $12.47 per share. These options have a term of seven years and vest at the rate of 33%, 33% and 34%, respectively, on each of the first three anniversaries from the date of grant (November 16, 1999). (iv) The Company granted options to purchase 47,975 shares of Common Stock to each of two executive officers and 52,772 shares of Common Stock to another executive officer at an exercise price of $24.72 per share. These options have a term of seven years and vest at the rate of 33%, 33% and 34%, respectively, on each of the first three anniversaries from the date of grant (December 31, 1999). The foregoing stock options were granted by the Company in reliance upon the exemption from registration available under Section 4(2) of the Securities Act of 1933, as amended. 17 18 ITEM 6. SELECTED FINANCIAL DATA The following Selected Financial Data of the Company as of and for the years-ended 1995 through 1999 has been derived (except for Other Data) from the audited consolidated financial statements of the Company. Such data is qualified by reference to and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," the Consolidated Financial Statements (the "Financial Statements") and the Notes to Consolidated Financial Statements included elsewhere in this report. See also Note 16 - Unaudited Quarterly Financial Data of the Notes to Consolidated Financial Statements for certain financial information presented on a quarterly basis for 1999 and 1998.
YEAR ENDED DECEMBER 31, ---------------------------------------------------------------------------- 1999 1998(7) 1997(7) 1996 1995 ------------- ------------ ------------- ------------ ---------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) SUMMARY OF OPERATIONS: (FOR THE FISCAL YEAR): REVENUES ................................ $ 215,920 $ 175,173 $ 143,584 $ 97,637 $ 30,204 ------------ ------------ ------------ ------------ ------------ OPERATING EXPENSES: Cost of services ................... 177,668 153,638 128,177 71,345 21,212 Selling, general and administrative expenses ........ 23,249 23,290 25,874 14,727 7,164 Restructuring and asset impairment charges ............. -- 13,583 11,591 -- -- ------------ ------------ ------------ ------------ ------------ Total operating expenses ....... 200,917 190,511 165,642 86,072 28,376 ============ ============ ============ ============ ============ Operating income (loss) ........ $ 15,003 $ (15,338) $ (22,058) $ 11,565 $ 1,828 ============ ============ ============ ============ ============ NET INCOME (LOSS)(1) ................... $ 8,291 $ (10,189) $ (13,066) $ 7,850 $ 1,456 ============ ============ ============ ============ ============ PROFORMA DATA (UNAUDITED)(1): Income before proforma income taxes ................... $ 10,877 $ 1,456 Proforma provision for income taxes relating to corporation 4,358 619 ------------ ------------ PROFORMA NET INCOME .................... $ 6,519 $ 837 ============ ============ COMMON STOCK DATA(2): Net income (loss) per common share(diluted) .................. $ 0.37 $ (0.47) $ (0.61) Proforma net income per common share (diluted)(1)(3)(4)(5) ..... $ 0.36 $ 0.05 Book value per share(5) .............. $ 4.14 $ 3.68 $ 4.15 $ 2.65 $ 0.17 Number of shares outstanding (at year-end)(5) ................ 21,794,400 21,549,000 21,542,000 20,000,000 16,400,000 Weighted average number of common shares outstanding (diluted)(3).. 22,445,156 21,547,981 21,392,814 18,171,000 16,527,061 FINANCIAL POSITION(2): (AT YEAR-END): Working capital ..................... $ 21,288 $ 22,019 $ 23,521 $ 11,849 $ 1,365 Current ratio ....................... 1.63X 1.65x 1.68x 1.40x 1.23x Property and equipment, net ......... $ 88,109 $ 71,414 $ 63,301 $ 42,034 $ 5,284 Total assets ........................ $ 149,363 $ 133,446 $ 127,413 $ 88,415 $ 12,713 Long-term obligations, less current maturities(6) ........... $ 23,425 $ 16,916 $ 3,493 $ 4,190 $ 3,924 Shareholders' equity ................ $ 90,283 $ 79,359 $ 89,440 $ 52,950 $ 2,816 OTHER DATA: (AT YEAR-END): Number of workstations .............. 4,850 4,500 4,500 3,220 550 Number of call renters .............. 8 8 8 8 2
18 19 - ---------- (1) Prior to the Company's Initial Public Offering on July 16, 1996, the Company was an S corporation and not subject to Federal and state corporate income taxes. On July 16, 1996, the Company revoked its S election and changed its tax status from an S corporation to a C corporation, recorded deferred income taxes totaling $90,000 and began providing for Federal and state corporate income taxes from and including that date. The summary of operations data reflects a proforma provision for income taxes as if the Company were subject to Federal and state corporate income taxes for all years. This proforma provision for income taxes is computed using a combined Federal and state tax rate of 37.6%. (2) Effective January 29, 1997 (the actual closing date was February 4, 1997), the Company and certain selling shareholders completed a second equity offering of 4,740,000 shares of common stock at an offering price of $35.125 per share (the "Second Equity Offering"). Of the 4,740,000 shares, 1,500,000 shares were sold by the Company. See Note 2 - Public Offerings of the Notes to Consolidated Financial Statements. (3) The actual weighted average number of common shares outstanding for the years ended December 31, 1996 and 1995 were 18,013,115 and 16,400,000, respectively, after giving effect to the stock splits effected by way of share dividends discussed in note (5) below. However, as required by generally accepted accounting principles, the weighted average number of common shares outstanding has been increased by 127,061 shares (weighted for the applicable period), which shares are not actually outstanding. This number is equal to the number of shares which, when multiplied by $14.50 per share (the price in the Initial Public Offering), would have been sufficient to replace the amount of the Dividend in excess of proforma earnings for the 12 months ended June 30, 1996. (4) Supplemental proforma net income per common share would have been $0.36 per share and $0.06 per share for the years ended December 31, 1996 and 1995, respectively, giving effect to the use of a portion of the net proceeds of the Initial Public Offering to repay the Company's bank borrowings at January 1, 1995, and assuming an increase in the weighted average number of common shares outstanding to 18,285,311 and 16,729,131, respectively (based on the price in the Initial Public Offering of $14.50 per share). (5) Includes a retroactive adjustment for stock splits effected by way of share dividends. On May 31, 1996, the Company declared a share dividend of an aggregate of 12,734,900 shares of common stock, $0.01 par value, immediately payable to its shareholders of record in order to effect the equivalent of a 127,350-for-1 stock split to increase the number of shares of common stock outstanding from 100 shares to 12,735,000 shares. On June 20, 1996, the Company declared a share dividend of an aggregate total of 3,665,000 shares of common stock, $0.01 par value, immediately payable to its shareholders of record in order to effect the equivalent of a 1.287789556-for-1 stock split to increase the number of shares of common stock outstanding from 12,735,000 shares to 16,400,000 shares. (6) Long-term obligations for 1999 and 1998 consist of the outstanding balance of the Company's revolving credit facility as of that year then ended, mortgage loan payable to the lender on the revolving credit facility, capital lease obligations and other long-term obligations, all of which are described more fully in Note 6 - Credit Facilities and Long-Term Debt of the Notes to Consolidated Financial Statements. Long-term obligations for 1997 and 1996 consist only of capital lease obligations. For the year-ended 1995, long-term obligations consist of capital lease obligations, a note payable to a bank, certain installment loans and the outstanding balance of the Company's revolving credit loan as of that year then ended. 19 20 (7) Includes special charges of $22.1 million and $26.2 million before taxes in 1998 and 1997, respectively, described more fully in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview and Basis of Presentation" and Note 3 - Restructuring and Other Non-Recurring Special Charges of the Notes to Consolidated Financial Statements. 20 21 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the financial condition and results of operations of the Company should be read in conjunction with "Selected Financial Data," the Financial Statements and the Notes to Consolidated Financial Statements. OVERVIEW AND BASIS OF PRESENTATION The Company is a full-service provider of outsourced customer care, utilizing a fully-integrated mix of traditional call center and e-commerce customer care solutions and services to large corporations and high-growth Internet-focused companies. Through the integration of its teleservicing, e-commerce customer care services, Information Technology, which includes database marketing and management, and fulfillment capabilities, the Company is able to offer a total customer relationship solution to meet its clients' needs. The Company's primary source of revenue is teleservicing activities which are comprised of both inbound (customer-initiated) and outbound calls. The majority of teleservicing revenues are derived from inbound calls, which represented 94% of teleservicing revenues and 83% of total revenues in 1999 and 86% of teleservicing revenues and 68% of total revenues in 1998. Inbound teleservicing consists of longer-term customer care and customer service programs that tend to be more predictable than other teleservicing revenues. Outbound teleservicing, as performed by the Company, is generally in response to customer-initiated inquiries or a follow-up to an inbound call. Outbound teleservicing may be driven by marketing programs, which change frequently relative to inbound programs. As such, outbound teleservicing is subject to greater variation in operating results (see "Fluctuations in Quarterly Results" below). During 1999, the Company continued its strategic initiatives to capitalize on the extraordinary growth of Internet commerce by integrating Internet technologies with current PRC products and services to, in effect, create multimedia customer interaction centers. In 1999, the Company continued to make advances in the development and marketing of the Internet-based and e-commerce services offered by PRCNETCARE.COM(SM), its Internet-based customer service subsidiary. PRCNETCARE.COM is dedicated to developing and providing a total customer care solution for companies conducting business over the Internet. During 1999, its first year of operation, PRCNETCARE.COM generated revenues of approximately $6.7 million. PRCNETCARE.COM currently offers two lines of products and services: InfiniteAccess and Precision Resolution. The InfiniteAccess suite of products and services enable the Company to integrate clients' Internet-based customer care and e-commerce activities with the Company's existing teleservices, database marketing and management, and fulfillment services. InfiniteAccess's current base of offerings includes: PRC SmartMail, an automated electronic messaging response service; PRC Web On-Line, a collaborative service enabling the Company's customer care associates to simultaneously interact with clients' customers live over the telephone and the Web; PRC Internet Fulfillment Service, an e-mail and Web-based fulfillment process that supports e-commerce transactions or information requests; and PRC Host, a Web application hosting service and Web information service that enables clients to conduct e-commerce activities while limiting their technology investments. The Company is currently committed to investing in and expanding its Internet-based and e-commerce services and continues to make strategic infrastructure and software investments as it seeks to leverage its existing technological capabilities into a leading position in the emerging market for interactive customer care services. Precision Resolution is an error resolution and record standardization system for information transferred electronically or over the Internet that allows for the automated collection, resolution, monitoring and reporting of faulty records from highly transactional, relational databases on a real-time basis. Precision Resolution provides solutions for several critical business problems to both on-line and traditional companies. 21 22 The Company offers a wide variety of Information Technology services including formulating, designing and customizing teleservicing and electronic applications, programming, and demographic and psychographic profiling. The Company employs Information Technology specialists who design, develop and manage applications for each client's unique customer service and marketing programs. Fulfillment services include high-speed laser and electronic document printing, lettershop and automated mailing and pick and pack capabilities. While fulfillment services represent a relatively small portion of the Company's total revenues, they enable the Company's to support full-service customer care and marketing programs by managing and fulfilling requests for literature, products and other specialty items and by permitting the rapid distribution of client marketing information and products. The fulfillment operation was upgraded in 1999 to include e-mail and Web-based tracking and order-entry communications. RESULTS OF OPERATIONS The following table sets forth certain statements of operations data, as a percentage of revenues, for the years indicated (and includes the impact of restructuring and non-recurring special charges during 1998 and 1997 as discussed below):
1999 1998 1997 ------------- ----------- ----------- SELECTED OPERATING RESULTS: Revenues..................................................... 100.0% 100.0% 100.0% Cost of services............................................. 82.3 87.7 89.3 ------------- ----------- ----------- Gross margin............................................. 17.7 12.3 10.7 Selling, general and administrative expenses................. 10.8 13.3 18.0 Restructuring and asset impairment charges................... -- 7.8 8.1 ------------- ----------- ----------- Operating income (loss).................................. 6.9% (8.8)% (15.4)% ============= =========== ===========
During the third quarter of 1998, the Company performed an extensive review of its operations and existing available workstation capacity. As a result of this review, the Company initiated a restructuring and performance enhancing initiatives plan, which centered on exiting the incentive-based outbound teleservicing program, consolidating and making adjustments to certain call centers' workstation capacity and replacing certain existing software programs utilized in its call center operations with new customer interaction software reflective of advances in customer care technology. In connection with the Company's decision to exit the incentive-based outbound teleservicing program and to make call center capacity adjustments, certain reductions in overhead and administrative headcount were also made resulting in the termination of nine employees. In adopting this plan, the Company recorded non-recurring restructuring and other special charges of approximately $22.1 million in the third quarter of 1998 with an after-tax impact of $13.8 million. The charges to earnings are included in the following categories in the accompanying Consolidated Statements of Operations for the year ended December 31, 1998:
AFTER-TAX PER PRE-TAX DOLLAR SHARE AMOUNT (DILUTED) (IN MILLIONS) AMOUNT ------------------- ------------------ Restructuring and asset impairment charges................... $ 13.6 $ (0.39) Cost of services............................................. 2.3 (0.07) Selling, general and administrative expenses................. 6.2 (0.18) ------------------- ------------------ Total.............................................. $ 22.1 $ (0.64) =================== ==================
22 23 During the third quarter of 1997, the Company initiated an extensive and systematic review of its operations and cost structure in response to inefficiencies primarily resulting from the addition of capacity and infrastructure to accommodate a contract for its largest client that had been delayed indefinitely and an across-the-board price reduction imposed by this client. As a result of this review, the Company announced a major restructuring and cost reduction plan designed to reduce its cost structure and adjust its infrastructure to significantly improve operating efficiencies and performance as the Company sought to shift its customer base to a more diversified portfolio. In adopting this plan, the Company recorded non-recurring restructuring and other special charges of approximately $26.2 million in the third quarter of 1997 with an after-tax impact of $15.7 million. The charges to earnings are included in the following categories in the accompanying Consolidated Statements of Operations for the year ended December 31, 1997:
AFTER-TAX PER PRE-TAX DOLLAR SHARE AMOUNT (DILUTED) (IN MILLIONS) AMOUNT ------------------- ------------------ Restructuring and asset impairment charges................... $ 11.6 $ (0.32) Cost of services............................................. 7.8 (0.22) Selling, general and administrative expenses................. 6.8 (0.19) ------------------- ------------------ Total.............................................. $ 26.2 $ (0.73) =================== ==================
See Note 3 - Restructuring and Other Non-Recurring Special Charges of the Notes to Consolidated Financial Statements for further discussion of the non-recurring special charges in 1998 and 1997. 1999 vs. 1998 REVENUES During 1999, revenues increased by $40.7 million to $215.9 million, or 23.3%, in comparison to the prior year. The principal components of revenues are teleservicing activities (representing 88.8% of revenues in 1999), Information Technology services (representing 8.3% of revenues in 1999) and fulfillment services (representing 2.9% of revenues in 1999). The Company had eight multimedia customer interaction centers and approximately 4,850 workstations in operation as of December 31, 1999, and eight centers and approximately 4,500 workstations in operation as of December 31, 1998. In connection with its 1998 restructuring and performance-enhancing initiatives plan, the Company, as of December 31, 1999, had relocated all of the ongoing teleservicing programs from one center and maintained reduced workstation capacity in another center. This relocation and elimination was offset during 1999 by the expansion of workstations and capacity in existing centers and the opening of a small multimedia customer interaction center. The Company is continuing to expand workstation capacity in its existing sites to meet current capacity needs. However, due to continued growth, the Company opened an additional center in January 2000 at the facility that the Company owns in Sunrise, Florida and expects to open one more center in March 2000. As of December 31, 1999, the Company's workstation utilization rate was approximately 91%. During 1999, the Company generated revenue from several new clients, including several new business units of its largest client, a telecommunications company, as well as a company that markets, distributes and produces bottled and canned liquid nonalcoholic refreshments, a leader in the deployment of enhanced telecommunications and interactive information systems, a major national wireless service provider, and a financial services company. In addition, during 1999, PRCNETCARE.COM introduced new clients in the e-commerce/Internet industry, including one of the nations largest Internet e-commerce companies. Overall, new client business accounted for $23.0 million, or 10.6%, of revenues for 1999. 23 24 Teleservicing activities accounted for the majority of the revenue growth during 1999. Revenues from teleservicing activities in 1999 were $191.8 million, representing an increase of $51.5 million, or 36.7%, over the prior year. Major factors contributing to the increase in teleservicing revenues were the addition of several new programs for existing clients as well as the addition of new clients as described above. Revenues from the Company's largest client accounted for 42% of total revenues for 1999, down from 45% for 1998. Besides the Company's largest client, no other client accounted for 10% or more of total revenues in 1999. Generally, teleservicing revenues are earned on a rate-per-hour basis. However, during 1998, approximately 10% of total revenues were earned under an incentive-based compensation arrangement. As discussed above, the Company made a strategic decision to exit this incentive-based outbound teleservices program at the end of the third quarter of 1998 and ceased earning revenues under such program during the fourth quarter of 1998. Revenues from Information Technology services for 1999 were $17.8 million, representing an increase of $1.7 million, or 10.6%, from 1998. The increase was primarily attributable to Information Technology services provided as a result of the addition of new clients and growth in the Company's relationships with existing clients, partially offset by Information Technology services provided to a certain client during the second quarter of 1998 compared to no such services provided to this client in 1999. Revenues from Internet-based customer care services for 1999, in connection with PRCNETCARE.COM'S first year of operations, were approximately $6.7 million, and are included in revenues from teleservicing and Information Technology services noted above. PRCNETCARE.COM continues to develop client relationships with existing clients, as well as new Internet-focused companies. Revenues from fulfillment services for 1999 were $6.3 million, representing a decrease of $12.5 million, or 66.5%, from the prior year. Revenues from fulfillment services for 1998 included fulfillment services provided in connection with the incentive-based outbound teleservices program discussed above, which also included several fulfillment services. COST OF SERVICES Cost of services generally include all direct and some indirect costs incurred in connection with the Company's revenue-producing departments, including, but not limited to, labor, telephone expenses directly related to revenue-generating activities, equipment under operating leases used in the customer interaction centers and fulfillment facility, direct overhead for all such operational facilities, such as rent, security and insurance, and depreciation and amortization of property and equipment used in operations. Cost of services for the year ended December 31, 1999 were $177.7 million. Excluding the impact of the restructuring and non-recurring special charges during 1998, this represented an increase of $26.4 million, or 17.4%, over 1998, principally as a result of the growth in operations. In addition, included in these amounts are the cost of services related to PRCNETCARE.COM, which were approximately $6.9 million for the year ended December 31, 1999. Excluding the impact of restructuring and non-recurring special charges, the decrease in cost of services, as a percentage of revenues, from 86.4% in 1998 to 82.3% for 1999 is primarily attributable to the Company's continued focus on increasing cost efficiencies and operating leverage during 1999, as well as the Company's continued improvement in the utilization of workstation capacity. The decrease is also attributable to the Company's less than satisfactory operating results generated by the incentive-based outbound teleservices program in 1998. As described above, the Company exited the incentive-based outbound teleservices program in the fourth quarter of 1998. 24 25 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses ("SG&A") generally include the costs of central services the Company provides to support and manage its operations, including senior management, sales and marketing, human resources, finance and management information systems functions. SG&A for the year ended December 31, 1999 were $23.2 million. Excluding the impact of restructuring and non-recurring special charges during 1998, this represented an increase of $6.2 million, or 36.1%, over 1998. A portion of this increase is due to the Company's continued investment in the development, sales and marketing of PRCNETCARE.COM, resulting in SG&A of approximately $2.8 million during 1999. The remainder of the increase is principally due to the Company's growth in operations, including an increase in commissions, as well as the addition of certain management positions during 1999 and annual salary increases. Excluding the impact of restructuring and non-recurring special charges during 1998, SG&A, as a percentage of revenues, increased from 9.8% for 1998 to 10.8% for 1999. This increase is principally a result of the development, sales and marketing of PRCNETCARE.COM, as well as an increase in commissions and the addition of certain management positions during 1999. INTEREST, NET Interest expense, net of interest income and capitalized interest, was $1.1 million for 1999 compared to $789,000 for 1998. The increase in net interest expense is a result of increased borrowings under the Company's revolving credit facility in 1999, partially offset by the capitalization of certain interest costs that were incurred as a result of borrowings used to partially fund the Company's PRISM Project and the development of internal use software. (See Note 5 - Property and Equipment of the Notes to Consolidated Financial Statements.) INCOME TAXES The Company had a net deferred tax asset of $7.5 million at December 31, 1999 and $12.4 million at December 31, 1998. The net deferred tax asset in the amount of $7.5 million at December 31, 1999 is based upon expected utilization of net operating loss carryforwards and reversal of certain temporary differences. Although realization is not assured, the Company believes it is more likely than not that all of the net deferred tax asset will be realized. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. The Company will continue to review the assumptions used on a quarterly basis and make adjustments as appropriate. NET INCOME (LOSS) AND NET INCOME (LOSS) PER SHARE For the fiscal year ended December 31, 1999, net income was $8.3 million compared to net income of $3.6 million, excluding the impact of restructuring and non-recurring special charges, for the comparable period of 1998. Net income per common share for 1999 was $0.37, compared to net income per common share of $0.17, excluding the impact of restructuring and non-recurring special charges, for 1998. After giving effect to the impact of restructuring and non-recurring special charges, net loss for 1998 was $10.2 million and net loss per share for 1998 was $(0.47). 25 26 1998 vs. 1997 REVENUES During 1998, revenues increased by $31.6 million to $175.1 million, or 22%, in comparison to the prior year. The principal components of revenues are teleservicing activities (representing 80% of revenues in 1998) and fulfillment services (representing 11% of revenues in 1998), with the remaining 9% of 1998 revenues primarily represented by Information Technology services. The Company had approximately 4,500 workstations in operation as of both December 31, 1998 and 1997. As of December 31, 1998 and 1997, the Company was operating at approximately 78% and 55%, respectively, of full utilization of these workstations. During 1998, the Company generated several new client opportunities. The Company commenced both customer care services and use of its proprietary, automated error resolution system, Precision Resolution, for a large east coast-based utility company. The Company also began a database, telemarketing and fulfillment services program targeting information technology professionals for an international manufacturer and provider of computer products and services. Teleservicing activities accounted for the majority of the revenue growth during 1998 with an increase of $34.6 million, or 33%, to $140.3 million in 1998. Major factors contributing to the increase in teleservicing revenues were the addition of several new programs for existing clients as well as the addition of new clients, principally in the utility, computer products and services and financial services industries. Overall, new client business accounted for $16.7 million, or 10%, of total revenues for 1998, while revenues from the Company's largest client accounted for 45% of total revenues, up from 38% for 1997. Generally, teleservicing revenues are earned on a rate-per-hour basis. However, during 1998 and 1997, approximately 10% of total revenues were earned under incentive-based compensation agreements. Revenues from fulfillment services for 1998 were $18.8 million, an increase of $4.1 million, or 28%, from the prior year. The increase is reflective of fulfillment services provided in connection with the incentive-based outbound teleservices program which was exited in the fourth quarter of 1998. Revenues from Information Technology services for 1998 were $16.1 million, a decrease of $7.2 million, or 31%, from 1997. The decrease was primarily attributable to the transfers of teleservicing-based application software totaling $9.8 million in 1997, compared with no such transfers in 1998, offset by an increase in traditional Information Technology services revenues in 1998. Transfers of teleservicing-based application software produce substantially higher margins than other Information Technology services (which involve the development of unique, individual customer-based applications). Due to the substantially higher margins on these transfers, the Company's operating results can be significantly impacted based upon the Company effecting these transactions in any period. COST OF SERVICES Cost of services, excluding the impact of restructuring and non-recurring special charges, increased by $30.9 million, or 25.7%, to $151.3 million in 1998, principally as a result of the growth in operations. Including the impact of the restructuring and non-recurring special charges of $2.3 million in 1998 and $7.8 million in 1997, cost of services increased by $25.5 million, or 19.9%, to $153.6 million in 1998. Excluding the impact of restructuring and non-recurring special charges, the increase in cost of services, as a percentage of revenues, from 83.8% in 1997 to 86.4% in 1998 is primarily attributable to the Company's expansion of its infrastructure in 1997 and the resultant excess capacity together with lower than expected yield on incentive-based programs and higher 26 27 wage rates paid in call centers in strained labor markets in 1998. Approximately 1,280 workstations were added in two call centers opened during the first six months of 1997. The opening of these new call centers, and the related increase in workstation capacity, was carried out primarily in anticipation of providing increased services to the Company's largest client. This increase in services did not materialize leaving the Company with excess capacity and a higher than desired fixed cost structure. Additionally, the Company's largest client instituted an across-the-board price reduction in the third quarter of 1997. Cost of services, as a percentage of revenues, including the impact of restructuring and non-recurring special charges, decreased from 89.3% in 1997 to 87.7% in 1998. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES SG&A, excluding the impact of restructuring and non-recurring special charges, decreased $2.0 million, or 10.4%, to $17.1 million in 1998. The decrease is indicative of the Company's successful implementation of its cost-cutting initiatives associated with the restructuring plans announced in the third quarters of 1997 and 1998 along with management's efforts to postpone, or temporarily reduce, non-revenue-producing expenditures, whenever possible. Including the impact of restructuring and non-recurring special charges of $6.2 million in 1998 and $6.8 million in 1997, SG&A decreased by $2.6 million, or 10.0%, to $23.3 million in 1998. As a percentage of revenues, excluding the impact of restructuring and non-recurring special charges, SG&A decreased from 13.3% in 1997 to 9.8% in 1998. This decrease is a result of increased revenues during 1998 coupled with the cost-cutting initiatives and the postponement or reduction of expenditures. SG&A, as a percentage of revenues, including the impact of restructuring and non-recurring special charges, decreased from 18.0% in 1997 to 13.3% in 1998. INTEREST, NET Interest expense, net of interest income and capitalized interest, was $789,000 for 1998 compared to net interest income of $282,000 for 1997. During 1997, the Company generated interest income from the investment of a portion of the net proceeds from the Second Equity Offering and had an absence of borrowings under its revolving credit facility, while during 1998 the Company incurred interest charges from borrowings on its revolving credit facility. INCOME TAXES The Company had a deferred tax asset of $12.4 million at December 31, 1998 and $6.4 million at December 31, 1997. The net deferred tax asset at December 31, 1998 is based upon expected utilization of net operating loss carryforwards and reversal of certain temporary differences. Although realization is not assured, the Company believes it is more likely than not that all of the net deferred tax asset will be realized. NET LOSS AND NET LOSS PER SHARE For the fiscal year ended December 31, 1998, the net loss was $10.2 million compared to the net loss of $13.1 million for the comparable period of 1997, including the impact of restructuring and non-recurring special charges as set forth in the next paragraph. The net loss per share for 1998 was $0.47, compared to the net loss per share of $0.61 in 1997, including the impact of restructuring and non-recurring special charges as set forth in the next paragraph. The net loss and net loss per share amounts associated with the restructuring and non-recurring special charges were $13.8 million and $0.64, respectively, for the fiscal year ended December 31, 1998, and $15.7 million and $0.73, respectively, for the fiscal year ended December 31, 1997. See Note 3-Restructuring and Other Non-Recurring Special Charges of the Notes to Consolidated Financial Statements for further discussion of the restructuring and non-recurring special charges. 27 28 For the fiscal year ended December 31, 1998, excluding the impact of restructuring and non-recurring special charges, net income was $3.6 million compared to net income of $2.6 million for the comparable period of 1997. Excluding the impact of restructuring and non-recurring special charges, net income per share for 1998 was $0.17 compared to net income per share of $0.12 for 1997. LIQUIDITY AND CAPITAL RESOURCES During 1999 and 1998, the Company funded its operations and capital expenditures primarily through cash flows from operations and bank borrowings. On March 2, 1998, the Company entered into a three-year, $25.0 million revolving credit facility, replacing its then existing $15.0 million revolving credit facility. Effective June 30, 1999, the $25.0 million revolving credit facility was amended to increase the amount available under the credit facility to $35.0 million through January 31, 2000. The $25.0 million revolving credit facility was further amended effective December 31, 1999 (the "Credit Facility") to extend the $35.0 million amount available through February 29, 2000. In addition, the amount available under the Credit Facility will be increased to $50.0 million for the period of time between March 1, 2000 and June 30, 2000, subject to certain limitations (including a borrowing base limitation) and satisfactory completion of the lender's audit of the Company's books and records and operations. Effective as of July 1, 2000, the amount available under the Credit Facility reverts back to $25.0 million. The December 31, 1999 amendment also extended the maturity date of the Credit Facility to June 30, 2001. For a further discussion of the terms of the Credit Facility, see Note 6 - Credit Facility and Long-Term Debt of the Notes to Consolidated Financial Statements. The Company also has secured a mortgage, as amended effective December 31, 1999, with the lender on its Credit Facility in connection with the acquisition of a property (land and existing building) located in Sunrise, Florida, which in January 2000 was opened as a customer interaction center by the Company. The mortgage loan is for $5.1 million, of which $4.0 million was advanced at closing in 1998. The remaining $1.1 million available under the loan is subject to the Company's completion of interior improvements to the property by March 2, 2000. For a further discussion of the terms of the amended mortgage loan, see Note 6 Credit Facility and Long-Term Debt of the Notes to Consolidated Financial Statements. At December 31, 1999, the Company had cash and cash equivalents of $2.1 million and total long-term obligations (including current maturities thereof) of $25.1 million. Net cash provided by operating activities was $26.6 million for 1999, while $3.0 million of net cash was provided by operating activities in 1998 and $8.7 million of net cash was used in operating activities in 1997. The increase in net cash provided by operating activities between 1999 and 1998 was primarily attributable to the increase in net income in 1999 before non-cash charges, a significantly lower change in accounts receivable balances in 1999 as compared to 1998 as a result of increased collection efforts and the implementation of an integrated billing system, and improved capacity utilization, partially offset by the Company's receipt of income tax refunds in 1998. The decrease in cash used in operating activities from 1997 to 1998 was primarily attributable to the Company's receipt of income tax refunds and the increase in net income after non-cash charges (depreciation and amortization, provision for bad debts and sales allowances, restructuring and asset impairment charges, and deferred income taxes) in 1998 partially offset by the Company's investment in working capital. The Company's working capital as of December 31, 1999 and 1998 was $21.3 million and $22.0 million, respectively. The slight decrease in 1999 from 1998 was primarily due to higher deferred current tax assets in 1998 compared to 1999 generated by the Company's net loss position for 1998 offset by increases in accounts receivable in 1999 due to the Company's growth in operations. 28 29 Net cash used in investing activities in the amounts of $33.8 million, $24.9 million and $34.1 million in 1999, 1998 and 1997, respectively, was principally for capital expenditures. Additionally, in 1999, investing activities included an investment in Global Reservation Systems, Inc. ("GRS"), a West Coast firm specializing in Internet-based travel products and service systems, at an aggregate cost of $1.6 million which is described in further detail in Note 4 - Investment in Unconsolidated Affiliate of the Notes to Consolidated Financial Statements. Capital expenditures, including the capitalized value of property and equipment, were $32.1 million, $24.9 million and $35.9 million for 1999, 1998 and 1997, respectively. Capital expenditures for 1999 relate primarily to costs incurred for the expansion of workstations in existing facilities as well as new customer interaction centers to accommodate the award of new and existing client programs. The Company opened one new center during 1999, an additional center in January 2000 and will open another additional center in March 2000. Capital expenditures in 1999 also include costs incurred for the PRISM Project, IMA Advantage/Edge, Advanced Communications Network ("ACN"), and PRCNETCARE.COM product and service offerings, all of which are discussed below. Capital expenditure for 1998 were primarily for the completion of the relocation and consolidation of administrative office space into unused space in an existing facility, costs incurred for the Company's internal financial and operating system enhancements (the PRISM Project) and the purchase of land and a building located in Sunrise, Florida. Capital expenditures for 1997 were primarily for telecommunications and computer equipment principally attributable to the large increase in the Company's total workstation capacity and leasehold improvements for the new call centers to house the additional workstations. In 1997, the Company opened one new call center in both the first and second quarters of 1997, while one small call center was converted into administrative offices in the first quarter of 1997 and another call center was closed during the third quarter of 1997 as part of the Company's restructuring plan. As a result, workstation capacity increased from approximately 3,200 workstations as of December 31, 1996 to approximately 4,500 workstations as of December 31, 1997. During the first quarter of 1998, the Company began its implementation of an Enterprise Resource Planning ("ERP") solution, which allows for all internal systems (including those related to billing, payroll, client profitability management, human resource management, inventory and purchasing management, and general ledger) to be fully integrated into a common platform. The Company designated its ERP implementation as the PRISM Project. The PRISM Project utilized both internal resources as well as outside consultants to allow for a quick and efficient implementation. As of December 31, 1999, all modules of the PRISM Project had been placed in service. The cost of full implementation, including software, hardware, consulting fees and internal resources, was approximately $12.8 million and has been capitalized in accordance with the provisions of AICPA Statement of Financial Position 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE ("SOP 98-1"). See Note 1 - Operations and Significant Accounting Policies and Note 5 - Property and Equipment of the Notes to Consolidated Financial Statements. 29 30 During the fourth quarter of 1999, the Company completed the implementation of IMA Advantage/Edge, a third party customer interaction software product that utilizes advanced customer care technology, during the fourth quarter of 1999. The cost of full implementation, including software, hardware, consulting fees and internal resources, was approximately $7.7 million and has been capitalized in accordance with SOP 98-1. Additionally, the Company is developing technology that will enhance its virtual call center capabilities. This project, ACN, will allow integration of multiple centers via private voice line connections. This configuration will allow the Company to move customer programs from one location to another and will provide redundancy and disaster recovery solutions for clients. As of December 31, 1999, the Company had invested approximately $3.0 million in ACN, primarily consisting of the purchase of a third party software. Full implementation of this project, including third party's software and internal development and resources, is currently estimated to cost approximately $5.0 million and is expected to take place during the third quarter of 2000. See Note 5 - Property and Equipment of the Notes to Consolidated Financial Statements. In connection with PRCNETCARE.COM, the Company expects through 2000 to continue its investment in developing and enhancing software products and technology infrastructure to accommodate Internet-based interactive customer communications. Net cash provided by financing activities was $7.6 million, $12.5 million and $46.6 million in 1999, 1998 and 1997, respectively. Financing activities for 1999 and 1998 are principally comprised of net borrowings under the Company's Credit Facility. In addition, included in net cash provided by financing activities in 1998 are the proceeds from the mortgage loan for the land and building located in Sunrise, Florida. In 1997, the Company raised additional capital from the Second Equity Offering and used a portion of the net proceeds provided by such offering principally to fund anticipated workstation capacity growth The Company believes that funds generated from operations, available borrowings under the Credit Facility (assuming that the amount available under the Credit Facility would remain at the $50.0 million level throughout 2000 and not revert to $25.0 million on July 1, 2000 as currently provided under the Credit Facility) and capital lease financings will be sufficient to finance its planned capital expenditures at least through 2000. The Company's long-term capital requirements will depend on many factors, including, but not limited to, the rate at which the Company expands its business and the level of future capital expenditures required to develop and/or enhance software products and technology infrastructure to accommodate Internet-based interactive customer communications. To the extent that the available borrowings under the Credit Facility would revert to $25.0 million or funds generated from the sources described above are otherwise insufficient to fund the Company's activities in the short or long-term, the Company would need to raise additional funds through public or private financing. No assurance can be given that additional financing will be available or that, if available, it will be on terms favorable to the Company. YEAR 2000 ISSUE The Year 2000 issue affects the Company's installed computer systems, network elements, software applications and other business systems that have time-sensitive programs, including those with embedded microprocessors, that may not properly reflect or recognize the year 2000 and years thereafter. Because many computers and computer applications define dates by the last two digits of the year, "00" or other two-digit dates after the year 2000 may not be properly identified as the year 2000 or the appropriate later year, but rather the year 1900 or a year between 1901 and 1999 (as the case may be). This error could result in system and equipment failures or malfunctions causing disruption of operations, including, among others, a temporary inability to process calls, transactions and information, or engage in similar normal business activities. During 1998 and continuing in 1999, the Company evaluated its installed computer systems, network elements, software applications and other business systems that have time-sensitive programs and developed a plan to ensure their Year 2000 compliance. The Company established a Year 2000 Compliance Team that monitored the progress and status of the Company's Year 2000 plan. The Company's Year 2000 plan was divided into seven major sections: Internal Systems and 30 31 Equipment (business applications for accounting, administration, human resources and other Company-wide applications and office equipment, including non-information technology infrastructure in which non-compliant software or embedded microprocessors might exist); Hardware (Company-wide information technology architecture); Software Packages (standard personal computer and individual software packages, such as electronic spreadsheet and word processing software); Application Tools and Products (products utilized by information technology development organizations to develop and implement automated business applications); Client Applications; Client Interfaces; and Third Party Suppliers. In order to address the Year 2000 issue and the seven major sections stated above, the Company's Year 2000 plan involved five phases: Planning and Awareness Phase (developing a budget and project plan); Inventory and Assessment Phase (identify systems and applications, assess risks and prioritize efforts); Remediation Phase (repair, replace or retire non-compliant systems or processes); Validation Phase (perform testing of systems and processes); and Implementation Phase. As of the end of the third quarter of 1999, the Company had completed all phases of its Year 2000 plan and the Company continued to monitor its Year 2000 plan throughout the remainder of 1999. Through December 31, 1999, the Company had spent approximately $1.5 million on the Year 2000 issue. As the Company did not, nor does it expect to, experience significant systems or other Year 2000 problems at or after the turn of the millennium, the Company does not currently expect to incur any significant additional costs related to its Year 2000 efforts. All incremental costs associated with the Year 2000 issue have been expensed as incurred. Since the Year 2000 issue may also affect the systems and applications of the Company's customers or suppliers, the Company initiated formal communications with its customers and suppliers during 1998 and 1999 to determine their overall Year 2000 readiness and the extent to which the Company's interface systems were vulnerable to those third parties' failure to remediate their own Year 2000 issues. The Company did not experience any material adverse impact on its operations during the beginning of 2000 as a result of Year 2000 issues of its customers or suppliers. However, as not all Year 2000 issues will necessarily surface during the beginning of 2000, no assurance can be given that one or more of its major suppliers or customers will not encounter future Year 2000 problems which could have a material adverse impact on its operations. The extent of the Company's future Year 2000 exposure is based on management's knowledge to date. Although the Company does not expect any Year 2000 issues to surface in the future, there is no guarantee that this will be achieved. Specific factors that give rise to this uncertainty include, but are not limited to, availability and cost of personnel, failure to identify and correct all Year 2000 susceptible systems and applications, future Year 2000 problems encountered by customers, suppliers and other third parties whose systems and operations impact the Company, and other similar uncertainties. The Company has not developed post-2000 contingency plans in the unlikely event that the uncertainties described above do in fact occur as management currently believes that the probability of such an event and the magnitude of its impact on operations is insignificant. The Company will, however, continue to assess the need for a formal post-2000 contingency plan and make a determination as to the nature and scope of its post-2000 contingency plan, if required, based on the occurrence of Year 2000 issues in the future (if any). IMPACT OF INFLATION Inflation has not had a material impact upon operating results, and the Company does not expect it to have such an impact in the future. To the extent the Company experiences cost increases and is not able to increase its billing rates to offset the costs, such cost increases must be recovered through operating efficiencies and improved gross profit margins. However, there can be no assurance that the Company's business will not be so affected by inflation or that it will be able to absorb cost increases through operating efficiencies or through billing rate adjustments to customers and remain competitive. FLUCTUATIONS IN QUARTERLY RESULTS The Company experiences quarterly variations in revenues, operating margins and operating income principally as a result of the timing of clients' customer service programs, the commencement of new contracts, changes in the Company's revenue mix among its various services offered to clients, including the percentage (if any) of services provided under incentive-based compensation agreements, and the timing of additional operating and capital expenses to 31 32 acquire and support new business and/or in connection with new products and services. In addition, the completion or termination of a large customer service program or the loss or delay in the implementation of a large customer service program or in a transfer of teleservicing-based application software could cause the Company to experience such quarterly variations. See Note 16 - Unaudited Quarterly Financial Data of the Notes to Consolidated Financial Statements. FORWARD-LOOKING STATEMENTS This report contains forward-looking statements (within the meaning of Section 21E. of the Securities Exchange Act of 1934, as amended), representing the Company's current expectations and/or beliefs concerning future events and goals. If and when used in this report, the words "believes," "feels," "estimates," "plans," "expects," "intends," "projects," "anticipates," "sees," "contemplates," "may," "would," "could" and similar expressions as they relate to the Company or its management are intended to identify forward-looking statements. The Company can give no assurance that such expectations and beliefs will prove to be correct. Accordingly, the actual results of the Company could differ materially from those indicated by the forward-looking statements because of various risks and uncertainties related to and including, without limitation, the failure of the acquisition of the Company by USAi to be consummated at all or on a timely basis, the Company's effective and timely initiation, development and implementation of new client relationships and programs (especially with respect to its Internet clients), the maintenance of existing client relationships and programs (particularly since the Company's agreements with its clients generally do not assure the Company will generate a specific level of revenue, do not designate the Company as the exclusive service provider and are terminable on short notice), the effective completion of the implementation of the Company's restructuring plan and performance-enhancing initiatives, the achievement of satisfactory levels of both gross and operating profits and margins, the opening of new customer interaction centers in accordance with strategic plans and in a timely and economic manner consistent with existing capacity requirements, the ability of the Company to hire, train and retain a sufficient labor force of qualified personnel at competitive wage rates, the development and continued enhancement of telecommunication, Internet, computer and information technologies and infrastructures and operational and financial systems, the effective and timely marketing to, and level of acceptance and increased utilization by, existing and new clients of the Company of Precision Resolution, InfiniteAccess and other Internet products and services, technical difficulties or errors, problems or excessive costs incurred by the Company in connection with the completion of the development, implementation and/or future enhancement of InfiniteAccess, Precision Resolution, IMA Advantage/Edge, ACN and/or the integration of Internet technologies with the Company's current products and services to create customer interaction centers and the success and acceptance by the Company's clients thereof, the failure of the Company to cost-effectively develop new Internet services and products or to maintain or enter into new strategic or key business relationships in connection with the development and/or enhancement of its Internet offerings, the over-estimation by the Company of the level of need and demand for customer support and service through the use of the Internet, the ability of the Company to hire, train and retain qualified technology and other personnel in connection with its development, implementation and/or enhancement efforts and the operations of PRCNETCARE.COM, the compatibility of InfiniteAccess, Precision Resolution and other Internet products and services with existing systems of the Company's clients and the extent of the technical problems arising with respect to obtaining such compatibility, the realization by the Company of the expected direct and indirect benefits and returns (including operational and marketing benefits) from its investment in GRS, the introduction of new competitive Internet and other products and services in the Company's industry by other companies and, in connection therewith, the ability of the Company to maintain a leadership role in both traditional and Internet-based customer care products and services, the achievement by the Company and its suppliers and customers of Year 2000 compliance, the anticipated growth in industry trends towards outsourcing and cosourcing of telephone and Internet based marketing and customer service operations (particularly in the telecommunications services and equipment, transportation, financial services, utility, consumer products, food and beverage, and travel industries), changes in competition and the forms of direct sales and marketing techniques, consumer interest in, and use of, the 32 33 Company's clients' products and services, general economic conditions, costs of telephone services, financing and leasing of equipment, the level of costs associated with the expansion of PRCNETCARE.COM's business and operations, the adequacy of cash flows from operations and available financing (including, without limitation, under the Credit Facility) to fund capital needs and future growth, changes in and additions to governmental rules and regulations applicable to the Company, the realization of the Company's net deferred tax asset and other risks set forth in this report, in the Company's other filings with the SEC and in the Company's press releases. These risks and uncertainties are beyond the ability of the Company to control; in many cases, the Company cannot predict the risks and uncertainties that could cause actual results to differ materially from those indicated by the forward-looking statements and the Company undertakes no obligation to revise or update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this report. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk: The Company's exposure to market risk for changes in interest rates relates primarily to its long-term debt. The Company's Credit Facility and mortgage loan with the lender for the Credit Facility bear interest at variable rates, as discussed in Note 6 - Credit Facility and Long-Term Debt of the Notes to Consolidated Financial Statements. The Company mitigates interest rate risk by continually monitoring the interest rates. The table below presents outstanding principal amounts and the related fair values (in thousands), together with maturity dates as of December 31, 1999, and the weighted average interest rates for the Company's long-term debt (including current maturities thereof) subject to variable rates for the year then ended:
WEIGHTED OUTSTANDING AVERAGE PRINCIPAL FAIR INTEREST MATURITY AMOUNT VALUE RATE DATE --------------- ----------- ------------ ------------------ Credit Facility (prime).................................. $ 5,000 $ 5,000 7.98% June 30, 2001 Credit Facility (LIBOR).................................. 14,000 14,000 6.74% June 30, 2001 Mortgage loan............................................ 4,000 4,000 6.69% June 1, 2005 --------------- ----------- Total long-term debt subject to variable rates......... $ 23,000 $ 23,000 =============== ===========
Based on the borrowing rates available to the Company for debt with similar terms and average maturities, the fair value of the Company's debt approximates carrying value. 33 34 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information called for by this item is set forth in the Company's Consolidated Financial Statements contained in this report. The Consolidated Financial Statements can be found at the pages in this report listed in the following index: INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE Report of Independent Certified Public Accountants - PricewaterhouseCoopers LLP..............................................................F-1 Consolidated Balance Sheets as of December 31, 1999 and 1998..................................F-2 For the years ended December 31, 1999, 1998 and 1997: Consolidated Statements of Operations................................................F-3 Consolidated Statements of Shareholders' Equity......................................F-4 Consolidated Statements of Cash Flows................................................F-5 Notes to Consolidated Financial Statements....................................................F-6
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below is a list (as of February 15, 2000) of the names of the directors and executive officers of the Company, their respective ages and their respective positions with the Company. The terms of the directors expire annually upon the holding of the annual meeting of shareholders of the Company. The Company's executive officers serve at the discretion of the Board of Directors, although all of the executive officers have employment agreements. See "Item 11. Executive Compensation - Employment Agreements."
NAME AGE POSITION ------------------------------ ------- ------------------------------------------------------------------------------- Mark J. Gordon 52 Chairman of the Board David L. Epstein 35 Director and Chief Executive Officer Wesley T. O'Brien 44 President and Chief Operating Officer Richard D. Mondre 54 Director, Executive Vice President, General Counsel and Secretary Richard N. Ferry, Jr. 47 Executive Vice President - Business Development Paul M. O'Hara 53 Executive Vice President - Finance and Chief Financial Officer James R. Weber 52 Senior Vice President - Business Operations Frank Modrak 44 Senior Vice President - Sales Michael P. Miller 39 Senior Vice President and Chief Technology Officer Robert K. Tenzer 39 Senior Vice President - Human Resources Thomas F. Jennings, Jr. 40 Vice President and Controller Joseph E. Gillis 42 Vice President and Treasurer Bernard J. Kosar, Jr. 36 Senior Advisor and Director Neil A. Natkow 52 Director Richard N. Krinzman 52 Director Christian Mustad 61 Director
34 35 The following sets forth the background of each of the Company's directors and executive officers, including the principal occupation of those individuals for at least the past five years: MARK J. GORDON joined the Company in 1984 and became a director at that time. Mr. Gordon served as the Company's Chief Executive Officer from 1985 to November 1998. Since April 1996 to date, Mr. Gordon has served as Chairman of the Board. DAVID L. EPSTEIN joined the Company in 1982 and was named Executive Vice President in 1984, President in 1985 and Chief Executive Officer in November 1998. Mr. Epstein became a director of the Company in April 1996. WESLEY T. O'BRIEN became President and Chief Operating Officer of the Company in November 1998. From October 1995 until joining the Company, Mr. O'Brien was the Chief Executive Officer and President of Trescom International Communications Corporation, an international and long distance communications company. Prior to that position, Mr. O'Brien was employed for approximately twelve years with MCI Communications Corporation, a long distance telecommunications company, where he served in various executive capacities. RICHARD D. MONDRE joined the Company in March 1996 as Executive Vice President, General Counsel and Secretary. He became a director of the Company in May 1996. From January 1983 to March 1996, Mr. Mondre was a partner at the law firm of Rubin Baum Levin Constant Friedman & Bilzin ("Rubin Baum"), which served as the Company's regular outside counsel until January 31, 1998. As of February 1, 1998, the successor firm to Rubin Baum, Bilzin Sumberg Dunn Price & Axelrod LLP ("BSDPA"), commenced serving as the Company's regular outside counsel. After joining the Company, Mr. Mondre remained "Of Counsel" to Rubin Baum and is currently "Of Counsel" to BSDPA. RICHARD N. FERRY, JR. joined the Company in November 1994 as Vice President - Business Development, was appointed Senior Vice President in that position in May 1996 and was appointed Executive Vice President in that position in November 1997. Additionally, Mr. Ferry was appointed as President of prcnetcare.com, Inc., a subsidiary of the Company, in February 1999. From November 1993 to November 1994, Mr. Ferry was a principal of Virtual Marketing International, providing consulting services to a number of companies, including many of the Company's competitors in the teleservicing and direct marketing industries. From November 1991 to November 1993, Mr. Ferry was the Director of Marketing Services at Century Telecommunications, a provider of telephone services, and from September 1984 until November 1991, Mr. Ferry was the Vice President of Operations for Advanced Telemarketing Corp., a provider of teleservices. PAUL M. O'HARA joined the Company in August 1996 as Senior Vice President - Finance and Chief Financial Officer. Mr. O'Hara was appointed as Executive Vice President - Finance in November 1998. From March 1994 until joining the Company, Mr. O'Hara was Executive Vice President and Chief Financial Officer of Sunbeam Corp., a consumer products company. From April 1988 to March 1994, Mr. O'Hara was Executive Vice President and Chief Financial Officer of Fruit of the Loom, Inc., an apparel manufacturer. JAMES R. WEBER joined the Company in June 1996 as Senior Vice President - Telemarketing Operations and was formally appointed as an executive officer in November 1996. Mr. Weber was appointed Senior Vice President Business Operations in October 1998. From August 1994 until joining the Company, Mr. Weber was Senior Vice President - Operations for SafeCard Services, Inc., a credit card protection company. From June 1992 to August 1994, Mr. Weber worked with MCI Telecommunications, a telecommunications company, initially as a Center Director and then as Regional Director for the western region. From March 1985 to May 1992, Mr. Weber held a number of positions with American Express Company, a financial services company, including that of Director for its telephone service center and card issuance division. 35 36 FRANK MODRAK joined the Company in January 1996 as Vice President - Sales. Mr. Modrak was appointed Senior Vice President - Sales in November 1998. From 1987 until joining the Company, Mr. Modrak was the National Director of Customer Service and Sales for Cox Communications, a cable communications company. MICHAEL P. MILLER joined the Company in April 1999 as Senior Vice President and Chief Technology Officer. From July 1997 until December 1998, Mr. Miller was the Senior Vice President and Chief Technology Officer for IQI, Inc., a telemarketing company located in Los Angeles, California, which has merged with ATC Communications to form Aegis Communications Group, Inc. From August 1995 until March 1997, Mr. Miller was the Chief Information Officer for Softbank Exposition and Conference Company, a trade show production and management company and a division of Softbank, Inc. of Tokyo, Japan, and from January 1992 until July 1995, Mr. Miller was employed by The Gap, Inc., an apparel retailer and manufacturer, where he served as the Senior Director of Management Information Systems and, prior to that position, as Director of Network Design and Engineering. Mr. Miller also has managed a consulting firm that he originally founded in 1986, initially providing custom software to the medical, dental and legal professions and later information technology services to a wide variety of clients in the retail, banking and manufacturing sectors. ROBERT K. TENZER joined the Company in September 1994 as Director of Human Resources. Mr. Tenzer was appointed Vice President of Human Resources in May 1997 and Senior Vice President in September 1997. From September 1984 until joining the Company, Mr. Tenzer was a Director of Human Resources and Store Operations for Neiman Marcus, a clothing and specialty items retailer. Mr. Tenzer has a Masters of Science in Human Resources Management. THOMAS F. JENNINGS, JR. joined the Company in March 1997 as Controller and was formally appointed Vice President, Controller and Principal Accounting Officer in May 1997. From July 1994 until joining the Company, Mr. Jennings was Vice President and Chief Financial Officer for the Music Division of Blockbuster Entertainment. From March 1993 to July 1994 , Mr. Jennings was Controller for the Domestic Consumer Division of Blockbuster Entertainment. From September 1981 to joining Blockbuster Entertainment, Mr. Jennings was employed by the public accounting firm of PricewaterhouseCoopers LLP (formerly Coopers & Lybrand LLP). Mr. Jennings is a Certified Public Accountant. JOSEPH E. GILLIS joined the Company in November 1994 as Chief Financial Officer and Treasurer, continues to serve as Treasurer and was appointed a Vice President in May 1997. From October 1993 until joining the Company, Mr. Gillis was Chief Financial Officer of William Schneider, Inc., a jewelry manufacturer. From June 1989 to October 1993, Mr. Gillis was Vice President of Finance for the Vertical Blinds Division of Hunter Douglas, Inc., a manufacturer of window coverings, or its predecessor, Profile Corp. Mr. Gillis is a Certified Public Accountant. BERNARD J. KOSAR, JR. was appointed a director of the Company in October 1996. Mr. Kosar is currently employed by the Company as a Senior Advisor, in which, among other functions, he advises executives of the Company on general sales and client matters and participates in client relations. Mr. Kosar served as Senior Vice President - Client Relations for the Company from January 1997 to September 1998. From January 1995 until joining the Company, Mr. Kosar had served as a consultant to the Company. Since July 1985 until his retirement in 1997, Mr. Kosar had been a quarterback in the National Football League and most recently with the Miami Dolphins. Mr. Kosar is also a director and majority owner of Tidewater Management Group, Inc., a franchisee for a national food chain, and Bernie Kosar Greeting Card Company, a distributor of greeting cards. 36 37 NEIL A. NATKOW was appointed a director of the Company in October 1996. Dr. Natkow served as Senior Vice President - Health Care for the Company from February 1997 to October 1997. Upon leaving the Company, Dr. Natkow became President and Chief Executive Officer of NAN II, Inc., a Florida corporation which is the general partner of PhyTrust, Ltd., a Florida management services organization. From December 1993 until his retirement in October 1995, Dr. Natkow served as an executive officer of PCA Health Plans of Florida, a health maintenance organization, most recently as its Chief Executive Officer. From August 1992 to December 1993, Dr. Natkow was the President and Chief Executive Officer of Family Health Plan, a health maintenance organization, and, from June 1987 to July 1992, Dr. Natkow was the Vice President for Professional Affairs at Southeastern University for Health Sciences. Dr. Natkow is also a director of Sheridan Healthcare, Inc., a publicly traded company. Dr. Natkow is a member of the Audit and Compensation Committees of the Board. RICHARD N. KRINZMAN was appointed a director of the Company in February 1997. Mr. Krinzman is a shareholder and director of the law firm of Holtzman, Krinzman, Equels & Furia, P.A., a position he has held since 1979. Mr. Krinzman has practiced law in Dade County, Florida, for over 25 years with concentration on transactional matters in the areas of real property, banking and commercial law. Mr. Krinzman is a member of the Audit Committee of the Board. CHRISTIAN MUSTAD was appointed a director of the Company in October 1996. For the past 25 years, Mr. Mustad has been a managing director of The Mustad Group, which owns and/or manages approximately 35 companies throughout the world. The Mustad Group businesses and activities range from manufacturing of horseshoes and horseshoe nails, level gauging for the shipping industry, precision parts, paper cores, machinery for the cardboard industry and fasteners to oil recycling. Mr. Mustad is a member of the Audit and Compensation Committees of the Board. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires the Company's executive officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (the "Commission") and the National Association of Securities Dealers, Inc. Executive officers, directors and greater than ten percent shareholders are required by the Exchange Act to furnish the Company with copies of all Section 16(a) forms they file. Based solely on a review of the copies of such forms furnished to the Company and written representations that no Forms 5 were required, the Company believes that, during 1999, its directors, executive officers and greater than ten percent beneficial owners complied with all applicable Section 16(a) filing requirements. ITEM 11. EXECUTIVE COMPENSATION The following table sets forth information with respect to all compensation paid or earned for services rendered to the Company in 1999, 1998 and 1997 by the chairman of the board of the Company, the chief executive officer of the Company and the Company's four other most highly compensated executive officers whose aggregate annual compensation exceeded $100,000 and who were executive officers of the Company at December 31, 1999 (all of the individuals named in the following table are collectively defined as the "Named Executive Officers"). The Company does not have a pension plan or a long-term incentive plan, has not issued any restricted stock awards and has not granted any stock appreciation rights as of this date. The Company has granted stock options. See "Option Grants and Holdings" and "Employee Stock Plan and Director Stock Plan." The value of all other annual compensation (perquisites and other personal benefits) received by each Named Executive Officer in each respective year did not exceed the lesser of $50,000 or 10% of the Named Executive Officer's total annual salary and bonus reported for such Named Executive Officer. 37 38 SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION AWARDS ANNUAL ---------------- COMPENSATION SECURITIES FISCAL -------------------------------- UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY (1) BONUS OPTIONS(#) (2) COMPENSATION - ----------------------------------- ------- -------------- -------------- --------------- --------------- David L. Epstein 1999 $ 442,325 - 52,772 $ 34,251(3) Chief Executive Officer 1998 418,841 - - - 1997 388,187 - - - Richard D. Mondre 1999 428,355 - 47,975 - Executive Vice President, 1998 406,588 - - - General Counsel and Secretary 1997 372,270 - - - Mark J. Gordon 1999 388,460 - - 25,559(4) Chairman of the Board 1998 408,226 - - 29,712(4) 1997 403,269 - - 10,703(4) Paul M. O'Hara 1999 398,589 - - - Executive Vice President- 1998 374,639 $ 50,000 200,000 - Finance and Chief Financial 1997 298,215 50,000 350,000(5) - Officer Wesley T. O'Brien 1999 369,500 - - 19,076(6) President and Chief Operating 1998 71,058(7) - 350,000 9,788(6) Officer 1997 - - - - Richard N. Ferry, Jr. 1999 311,442 - 47,975 - Executive Vice President- 1998 331,870 - 200,000 - Business Development 1997 196,738 73,514 336,000 (8) -
- ----------- (1) Includes compensation in connection with payment of auto allowance. (2) See "Option Grants and Holdings" below for a description of such executive officers' options. (3) Consists of premiums paid for three split-dollar life insurance policies for the benefit of Mr. Epstein's family. See "Item 13. Certain Relationships and Related Transactions." (4) Consists of premiums paid for up to three split-dollar life insurance policies for the benefit of the Mark Gordon Family Trust. See "Item 13. Certain Relationships and Related Transactions." (5) The option for 200,000 of these shares was granted in connection with cancellation of option to purchase same number of shares of Common Stock granted in 1996. (6) Consists of premiums paid for a life insurance policy for the benefit of Mr. O'Brien. (7) Mr. O'Brien joined the Company in November 1998. His base annual salary for 1998 was $350,000. (8) The option for 136,000 of these shares was granted in connection with cancellation of option to purchase same number of shares of Common Stock granted in 1996. 38 39 OPTION GRANTS AND HOLDINGS 1999 OPTION GRANTS TABLE The following table summarizes the options which were granted during 1999 to the Named Executive Officers:
Individual Grants -------------------------------------------------------------- % of Potential Realizable Total Value Value at Assumed Options Closing at Annual Rates Number of Granted Market Grant-Date of Stock Price Securities to Price On Market Appreciation Underlying Employees Exercise Date of Price for Option Term(1) Options In Fiscal Price Grant Expiration --------- --------------------------- Name Granted(#) Year ($/Sh) ($/Share)(2) Date 0%($)(2) 5%($) 10%($) -------------------- ---------- ---------- -------- ---------- ---------- --------- ---------- ------------ David L. Epstein 52,772 4.96 24.72 24.25 12/31/06 - 496,172 1,189,290 Richard D. Mondre 47,975 4.51 24.72 24.25 12/31/06 - 451,070 1,081,183 Mark J. Gordon - - - - - - - - Paul M. O'Hara - - - - - - - - Wesley T. O'Brien - - - - - - - - Richard N. Ferry, Jr. 47,975 4.51 24.72 24.25 12/31/06 - 451,070 1,081,183
- ---------- (1) Potential realizable value is based on the assumption that the Company's Common Stock price appreciates at the annual rate shown (compounded annually) from the date of grant until the end of the option term. The amounts have been calculated based on the requirements promulgated by the Commission. The actual value, if any, a Named Executive Officer may realize will depend on the excess of the stock price over the exercise price on the date the option is exercised (if the executive officer were to sell the shares on the date of exercise). Accordingly, there is no assurance that the value realized will be at or near the potential realizable value as calculated in this table. (2) For purposes of and as provided under the 1996 Incentive Stock Plan (as amended to date, the "Employee Stock Plan"), "fair market value" on the date of grant of any option is the average of the high and low sales prices of a share of Common Stock on The Nasdaq National Market on the trading day immediately preceding such date of grant. The Compensation Committee of the Company believes this calculation more accurately reflects "fair market value" of the Company's Common Stock on any given day as compared to simply using the closing market price on the date of grant. As a result, the closing market price on the date of grant at times may be different than the exercise price per share. AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE The following table provides information regarding the value of all options exercised during 1999 and unexercised options held at December 31, 1999 by the Named Executive Officers.
SHARES NUMBER OF ACQUIRED SECURITIES UNDERLYING VALUE OF UNEXERCISED ON VALUE UNEXERCISED OPTIONS AT "IN-THE-MONEY" OPTIONS AT NAME EXERCISE REALIZED DECEMBER 31, 1999 DECEMBER 31, 1999 (1) - --------------------- ---------- ---------- ------------------------------- ------------------------------- UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE --------------- ------------ --------------- ------------ David L. Epstein - - 52,772 - - - Richard D. Mondre - - 47,975 - - - Mark J. Gordon - - - - - - Paul M. O'Hara - - 192,834 357,166 $ 3,341,824 $6,201,426 Wesley T. O'Brien - - 115,500 234,500 2,165,625 4,396,875 Richard N. Ferry, Jr. - - 238,429 352,546 3,300,472 6,169,208
- ---------- (1) Based on a per share price of $24.25 on December 31, 1999, which was the closing market price of the Company's Common Stock on the last day of the Company's 1999 fiscal year. 39 40 COMPENSATION OF DIRECTORS Directors who are not employees or officers of the Company receive a quarterly retainer of $2,500 and receive $1,000 for attendance at each meeting of the Board of Directors (the "Board") or committee thereof. Such directors also receive an option to purchase shares of Common Stock upon initial election and upon each re-election. See "Employee Stock Plan and Director Stock Plan" below. Directors may also be reimbursed for certain expenses in connection with attendance at Board and Board committee meetings. Other than with respect to reimbursement of expenses, directors who are employees or officers of the Company do not receive additional compensation for service as a director. EMPLOYEE STOCK PLAN AND DIRECTOR STOCK PLAN On May 31, 1996, the Company adopted the Employee Stock Plan and the 1996 Non-employee Director Stock Option Plan (the "Director Stock Plan"). Officers, key employees and non-employee consultants may be granted incentive stock options ("ISOs"), nonqualified stock options ("NSOs"), stock appreciation rights ("SARs"), stock awards, performance shares and performance units under the Employee Stock Plan. The Compensation Committee of the Board administers the Employee Stock Plan. The Compensation Committee has final authority to interpret any provision of the Employee Stock Plan, any grant made under the Employee Stock Plan or any provision of any agreement evidencing such grant. The Compensation Committee determines the term of each option and the time or times, and conditions (such as a change in control) under which, each option vests and may be exercised. However, the term of an ISO may not exceed ten years from the date of grant and the term of an NSO may not exceed fifteen years from the date of grant. The Compensation Committee also determines the option exercise price. However, the exercise price of an ISO may not be less than the fair market value of Common Stock on the date of grant. Under certain circumstances (relating to ownership of more than 10% of the total combined voting power of all classes of stock of the Company), the exercise price of an ISO may not be less than 110% of the fair market value on the date of grant and the term of such ISO may not exceed five years from the date of grant. The exercise price for an NSO may not be less than 85% of the fair market value on the date of grant, except for a maximum of 50,000 shares of Common Stock which may be granted at an exercise price as low as $0.01 per share. The aggregate fair market value (determined at the time the option is granted) of the Common Stock with respect to which ISOs are exercisable for the first time by a participant during any calendar year (under all options of the Company) shall not exceed $100,000 and, to the extent in excess of such $100,000, such excess options shall be treated as NSOs. If an optionee terminates his or her employment or consulting relationship for any reason, such optionee's options may be exercised to the extent they have vested or vest and were exercisable at the date of such termination for a period of time determined by the Compensation Committee at the time the option is granted. The Company currently has reserved 4,750,000 shares of the Common Stock for issuance under the Employee Stock Plan. The Employee Stock Plan will expire by its own terms on May 30, 2006. The Board has the power to amend the Employee Stock Plan from time to time. Shareholder approval of an amendment is only required to the extent necessary to maintain the Employee Stock Plan's status as a protected plan under applicable securities laws or as a qualified plan under applicable tax laws. The Director Stock Plan provides for annual grants of non-qualified stock options to each non-employee director of the Company. At the Company's annual meeting of shareholders on June 21, 1999, the Director Stock Plan was amended and restated in its entirety (the "Restated Director Stock Plan"). The Restated Director Stock Plan increased the number of nonqualified stock options automatically awarded to each non-employee director upon re-election from 2,500 shares to 5,000 shares of common stock at an exercise price equal to the fair market value of the common stock on the date of grant. However, the Restated Director Stock Plan provided for the award of 15,000 nonqualified stock options to each non-employee director re-elected at the June 21, 1999 meeting in lieu of the 5,000 annual grant. The purpose of the exception was to retroactively adjust the aggregate number of options previously awarded to the existing non-employee directors to be more consistent with the initial and annual awards under the Restated Director Stock Plan. In addition, the Restated Director Stock 40 41 authorized the Board, in its sole discretion, to grant to a non-employee director at the time of his or her initial election as a director of the Company nonqualified stock options in excess of the 5,000 shares of common stock automatically granted on initial election to the Board of Directors up to and not exceeding 50,000 shares at an exercise price equal to fair market value of the common stock on the date of grant. The options granted to each non-employee director will have a term of ten years and vest, in the case of options granted under the Director Stock Plan, in equal installments over three years and, in the case of options granted under the Restated Director Stock Plan, in full after the first anniversary of the date the option is granted. The Company currently has reserved 300,000 shares of Common Stock for issuance under the Director Stock Plan. Including the option of Richard N. Ferry, Jr., the Company's Executive Vice President-Business Development, to purchase the balance of 7,000 shares at an exercise price of $0.01 per share, the options to purchase 4,277,372 shares granted under the Employee Stock Plan and the Director Stock Plan outstanding as of December 31, 1999, have a weighted average exercise price of $7.60. As of December 31, 1999, the Company had not granted any SARs, stock awards, performance shares or performance units under the Employee Stock Plan. See Note 12 - Stock-Based Compensation Plans of the Notes to Consolidated Financial Statements. RETIREMENT PLANS The Company maintains a profit sharing and 401(k) savings plan (as amended, the "Profit Sharing/401(k) Plan"). Under the provisions of the Profit Sharing/401(k) Plan, employees meeting certain eligibility requirements may contribute a maximum of 15% of pre-tax gross wages, subject to certain restrictions imposed pursuant to the Internal Revenue Code of 1986, as amended (the "Code"). Company contributions are at the discretion of its Board. Vesting occurs over a six-year period at the rate of 20% per year, beginning after the second year of service. The Company accrued a contribution to the Profit Sharing/401(k) Plan of approximately $100,000 in 1999, which is expected to be paid during the first quarter of 2000, $85,000 in 1998, which was paid in April 1999, and $45,000 in 1997, which was paid in 1998. EMPLOYMENT AGREEMENTS MARK J. GORDON AND DAVID L. EPSTEIN. Each of Mr. Gordon and Mr. Epstein entered into an employment agreement with the Company in May 1996, the terms of which are substantially similar except to the extent the terms of Mr. Epstein's agreement have been modified as hereinafter indicated pursuant to amendments to his agreement effective as of April 1, 1999, September 1, 1999 and January 12, 2000 (individually an "Epstein Amendment"). The initial employment term is the period from July 1, 1996 to June 30, 2001, subject to an Epstein Amendment extending Mr. Epstein's initial term to March 31, 2002, but is thereafter subject to automatic annual renewal, absent notice from either party of its desire not to renew. However, the employee may terminate the agreement at any time upon 30 days' notice. Each of Messrs. Gordon's and Epstein's agreements provide for a minimum base salary of $425,000 per annum (adjusted for inflation) subject to increase by the Compensation Committee; provided, however, that Mr. Gordon's base salary was recently decreased to $200,000 per annum with the agreement of Mr. Gordon. An annual bonus is payable based on criteria to be agreed upon by the Compensation Committee and the employee at the beginning of each year. No such criteria have yet been established, except that an Epstein Amendment now gives the Compensation Committee authority to determine the annual bonus in its sole discretion based upon the operating results of the Company and Mr. Epstein's performance during the year. Each agreement provides for the annual grant of stock options in a number to be determined by the Compensation Committee, but for no fewer than 5% of the aggregate number of shares for which options were granted under the Stock Plans during the year. The 41 42 vesting of any options granted pursuant to the agreements will accelerate in certain events including a change in control (as defined therein). Each of Mr. Gordon and Mr. Epstein has waived both their annual bonus and stock option grants with respect to the years ended December 31, 1996, 1997 and 1998. With respect to the year ended December 31, 1999, Mr. Gordon has waived both his annual bonus and stock option grants and Mr. Epstein has waived his annual bonus. Each of Mr. Gordon and Mr. Epstein has certain piggyback and demand registration rights. If either Mr. Gordon's or Mr. Epstein's employment is terminated by death, disability or voluntary resignation, the employee is entitled to severance equal to 18 months' salary, bonus and benefits, and if employment is terminated by the Company without cause or constructive termination (as defined in the agreements), the terminated individual is entitled to severance equal to salary, bonus and benefits for the balance of the contract term or three years, whichever is longer. An Epstein Amendment also added nonrenewal of Mr. Epstein's agreement to events in which the foregoing three-year severance would be paid and amended Mr. Epstein's agreement to include funding by the Company of a portion of the premiums due on three split-dollar life insurance policies. Mr. Gordon's agreement also provides for funding by the Company of a portion of the premiums due on a split-dollar life insurance policy. See "Item 13. Certain Relationships and Related Transactions" for discussion of such split-dollar life insurance arrangements. In connection with the Company entering into the Merger Agreement with USAi, Mr. Epstein entered into an Epstein Amendment dated January 12, 2000, which would amend Mr. Epstein's employment agreement effective only on and after the completion of the merger between the Company and USAi (the "Effective Time") and which provides, among other things, that (i) Mr. Epstein's agreement would no longer provide for an annual grant of options, (ii) Mr. Epstein would no longer be entitled to voluntarily terminate his employment without being in breach of his employment agreement (except upon constructive termination), (iii) Mr. Epstein would no longer be entitled to severance benefits if his employment agreement is not renewed at the end of its initial term and (iv), if Mr. Epstein is employed by the Company at or immediately following the Effective Time, he would be granted a non-qualified option to purchase 75,000 shares of USAi common stock on standard terms and conditions for option grants by USAi to its employees. In addition, on January 12, 2000 in connection with the Company entering into the Merger Agreement, Mr. Gordon agreed to terminate his employment and service as chairman of the Company's Board as of the Effective Time. RICHARD D. MONDRE. Effective April 1, 1999, Mr. Mondre entered into a new employment agreement with the Company replacing his former employment agreement that had expired as of March 31, 1999. Mr. Mondre's new employment agreement extends to March 31, 2002, with automatic renewal of such employment agreement for successive one-year terms unless either party notifies the other in writing of nonrenewal at least 60 days prior to expiration of the initial term or any renewal term. The employment agreement provides for, among other things, an annual salary of $400,000, an annual bonus determined by the Compensation Committee in its sole discretion based upon the operating results of the Company and Mr. Mondre's performance, and the annual grant of stock options in a number to be determined by the Compensation Committee, but no fewer than 5% of the aggregate number of shares for which options were granted under the Stock Plans during the year (other than stock options awarded to certain executive officers pursuant to a provision in their respective employment agreements with the Company substantially the same as the stock option grant provision in Mr. Mondre's employment agreement). The vesting of any options granted to Mr. Mondre as described in the previous sentence will accelerate in certain events including a Change in Control (as hereinafter defined). If Mr. Mondre's employment is terminated by the Company without cause or as the result of constructive termination (as defined) other than in connection with a Change in Control, he will be entitled to the sum of the salary that he would have received during the greater of (i) the one year period following the date of such termination and (ii) the remainder of the initial term (if such termination 42 43 occurs during the initial term) and $200,000. If Mr. Mondre's employment is not renewed by the Company at the end of the initial term or any one-year renewal term other than in connection with a Change of Control, he will be entitled to one year's salary, subject, however, to the modification of this provision included in an amendment to his agreement entered into on January 12, 2000 and discussed below (the "Mondre Amendment"). If Mr. Mondre's employment is terminated without cause or as a result of constructive termination or nonrenewal (subject, however, to the Mondre Amendment) by the Company (or its successor) within generally 180 days before or after a Change in Control, he will be entitled to a lump sum severance payment equal to 2.99 times an amount equal to the average of the sum of the annual salary and bonus amount paid to him each year during the employment term. A "Change in Control" generally means that neither Mr. Gordon nor Mr. Epstein control the Company nor is occupying the positions of Chairman of the Board and/or Chief Executive Officer of the Company. Accordingly, a Change in Control would occur upon the consummation of the Company's acquisition by USAi. Mr. Mondre has also been granted certain demand and piggyback registration rights (subject, however, to the Mondre Amendment). Mr. Mondre is authorized to remain "Of Counsel" to BSDPA as long as his duties in that capacity do not interfere with his performance under the employment agreement with the Company. In connection with the Company entering into the Merger Agreement with USAi, Mr. Mondre entered into the Mondre Amendment, which would amend Mr. Mondre's employment agreement effective only on and after the Effective Time and which provides, among other things, that (i) Mr. Mondre's employment agreement would no longer provide for an annual grant of options, (ii) Mr. Mondre would no longer be entitled to voluntarily terminate his employment without being in breach of his employment agreement (except upon constructive termination or if Mr. Epstein is no longer chief executive officer), (iii) Mr. Mondre would no longer be entitled to severance benefits if his employment agreement is not renewed at the end of its initial term and (iv), if Mr. Mondre is employed by the Company at or immediately following the Effective Time, he would be granted a non-qualified option to purchase 25,000 shares of USAi common stock on standard terms and conditions for option grants by USAi to its employees. WESLEY T. O'BRIEN. Mr. O'Brien's employment agreement extends to December 31, 2001, with automatic renewal of such employment agreement for successive one-year terms unless either party notifies the other in writing of nonrenewal at least 60 days prior to expiration of the initial term or any renewal term. The employment agreement provides for, among other things, an annual salary of $350,000, an annual bonus determined by the Compensation Committee in its sole discretion based upon the operating results of the Company and Mr. O'Brien's performance in an amount not to exceed 75% of Mr. O'Brien's annual salary, and stock options to acquire 350,000 shares of Common Stock at an exercise price of $5.50 per share (the fair market value on the date of grant) vesting 50% six months from the date of grant (October 20, 1998), 17% on each of the first and second anniversaries from the date of grant and 16% on the third anniversary from the date of grant. The vesting of Mr. O'Brien's options accelerate in certain events including a Change in Control. If Mr. O'Brien's employment is terminated by the Company without cause or as a result of constructive termination (as defined) other than in connection with a Change in Control, he will be entitled to the sum of the salary that he would have received during the greater of (i) the one year period following the date of such termination and (ii) the remainder of the initial term (if such termination occurs during the initial term) and $175,000. If Mr. O'Brien's employment is not renewed by the Company at the end of the initial term or any one-year renewal term other than in connection with a Change in Control, he will be entitled to one year's salary unless the Company waives his covenant-not-to-compete. If Mr. O'Brien's employment is terminated without cause or as a result of constructive termination or nonrenewal by the Company (or its successor) within 180 days after a Change in Control, he will be entitled to a lump sum severance payment equal to 2.99 times an amount equal to the average of the sum of the annual salary and bonus amount paid to him each year during the employment term. Any cash payable to Mr. O'Brien, however, would be reduced to the extent necessary to prevent Mr. O'Brien from being in receipt of an "excess parachute payment." RICHARD N. FERRY, JR. Effective April 1, 1999, Mr. Ferry entered into a new employment agreement with the Company replacing his employment agreement that was to expire on June 30, 1999. Mr. Ferry's new employment agreement extends to March 31, 2002, with automatic renewal of such employment agreement for successive one-year terms unless either party notifies the other in writing of nonrenewal at least 60 days prior to expiration of the initial term or any renewal term. The employment agreement provides for, among other things, an annual salary of $300,000, an annual bonus determined by the Compensation Committee in its sole discretion based upon the operating results of the Company and Mr. Ferry's performance, and the annual grant of stock options in a number to be determined by the Compensation Committee, but no fewer than 5% of the aggregate number of shares for which options were granted under the Stock Plans during the year (other than stock options awarded to certain executive officers pursuant to a provision in their respective employment agreements with the Company substantially the same as the stock option grant provision in Mr. Ferry's employment agreement). The vesting of any options granted to Mr. Ferry as described in the previous sentence will accelerate in certain events including a Change in Control. If Mr. Ferry's employment is terminated by the Company without cause or as the result of constructive termination (as defined and to be modified at the Effective Time by an amendment to his employment 43 44 agreement entered into on January 12, 2000 in connection with the Company entering into the Merger Agreement) other than in connection with a Change in Control, he will be entitled to the sum of the salary that he would have received during the greater of (i) the one-year period following the date of such termination and (ii) the remainder of the initial term (if such termination occurs during the initial term) and $150,000. If Mr. Ferry's employment is not renewed by the Company at the end of the initial term or any one-year renewal term other than in connection with a Change of Control, he will be entitled to one year's salary. If Mr. Ferry's employment is terminated without cause or as a result of constructive termination or nonrenewal by the Company (or its successor) within generally 180 days before or after a Change in Control, he will be entitled to a lump sum severance payment equal to 2.99 times an amount equal to the average of the sum of the annual salary and bonus amount paid to him each year during the employment term. Upon a Change in Control the vesting of all of the options presently held by Mr. Ferry accelerates. PAUL M. O'HARA. Effective August 9, 1999, Mr. O'Hara entered into a new employment agreement with the Company replacing his former employment agreement that had expired as of August 8, 1999. Mr. O'Hara's new employment agreement extends to August 8, 2002, with automatic renewal of such employment agreement for successive one-year terms unless either party notifies the other in writing of nonrenewal at least 60 days prior to expiration of the initial term or any renewal term. The employment agreement provides for, among other things, an annual salary of $400,000 and an annual bonus determined by the Compensation Committee in its sole discretion based upon the operating results of the Company and Mr. O'Hara's performance. If Mr. O'Hara's employment is terminated by the Company without cause or as the result of constructive termination (as defined and to be modified at the Effective Time by an amendment to his employment agreement entered into on January 12, 2000 in connection with the Company entering into the Merger Agreement) other than in connection with a Change in Control, he will be entitled to the amount of salary, bonus and benefits, if any, accrued and unpaid through the date of termination and a lump sum payment of $600,000. If Mr. O'Hara's employment is terminated without cause or as a result of constructive termination within 180 days before or one year after a Change in Control or as a result of nonrenewal by the Company (or its successor) within 120 days before or one year after a Change in Control, he will be entitled to a lump sum severance payment equal to 2.99 times an amount equal to the average of the sum of the annual salary and bonus amount paid to him each calendar year during up to the last five years of his employment by the Company preceding the calendar year in which the Change in Control occurred. Upon a Change in Control the vesting of all of the option presently owned by Mr. O'Hara accelerates. JAMES R. WEBER. Mr. Weber's employment agreement extends to March 31, 2001, with an automatic renewal of such employment agreement for successive one-year terms unless either party notifies the other in writing of nonrenewal at least 60 days prior to expiration of the initial term or any renewal term. The employment agreement provides for, among other things, a base annual salary of $225,000 through March 31, 1999, $250,000 through March 31, 2000 and $275,000 thereafter, and an annual bonus based on Mr. Weber's performance and consistent with the Company's then current bonus plan. In connection with the employment agreement, (i) the Company granted Mr. Weber stock options to acquire 85,000 shares of Common Stock at an exercise price of $5.09 per share vesting 50% on the date of grant (October 6, 1998) and an additional 25% on each of the first and second anniversaries from the date of grant and (ii) the Company amended Mr. Weber's existing stock options to purchase an aggregate of 115,000 shares of Common Stock at an exercise price of $7.875 per share to provide for a new vesting schedule (with 50% of such options immediately vesting and an additional 25% of such options vesting on each of April 1, 1999 and April 1, 2000) and for 44 45 accelerating vesting upon a Change in Control, which accelerated vesting on a Change in Control is also provided with respect to the new options covering 85,000 shares described above. If Mr. Weber's employment is terminated by the Company without cause (including, without limitation, upon a Change in Control), he will be entitled to (i) the salary and certain benefits that he would have received during the one-year period following the date of termination of his employment as and when they would have been payable or provided if he had remained an employee for such additional one-year period and (ii) an amount equal to the average of the annual bonus paid to him during the employment term, which amount will be paid in twelve equal consecutive monthly installments thereafter. However, Mr. Weber will not be entitled to the foregoing severance to the extent that he receives or is entitled to receive compensation or benefits for new employment with respect to employment services rendered during such period. FRANK MODRAK. Mr. Modrak's employment agreement with the Company, effective October 1, 1999, extends to December 31, 2000. The employment agreement provides for, among other things, a base annual salary of $175,000. The Company may decide, in its sole discretion, to increase (but not decrease) the base annual salary at any time during the employment term. The employment agreement also provides for quarterly bonuses pursuant to a bonus plan based upon new revenue acquired by the Company during each quarter during the employment term. If Mr. Modrak's employment is terminated by the Company without cause or Mr. Modrak resigns his employment with the Company within 90 days of a significant change in the scope of his job responsibilities or within 90 days after a Change in Control, he will be entitled to the salary that he would have received during the one-year period following the date of termination of his employment as and when it would have been payable if he had remained an employee for such additional one-year period. However, Mr. Modrak will not be entitled to the foregoing severance to the extent that he receives or is entitled to receive compensation for new employment with respect to employment services rendered during such period. MICHAEL P. MILLER. Mr. Miller's employment agreement, which commenced on April 26, 1999, extends to April 25, 2001, with an automatic extension for an additional one-year period unless, prior to January 25, 2001, either Mr. Miller or the Company notifies the other in writing of nonrenewal. The employment agreement provides for, among other things, a base annual salary of $185,000, an annual bonus, based on Mr. Miller's performance and consistent with the Company's then current bonus plan, of up to 40% of his base annual salary, and reimbursement of up to a maximum amount of $65,000 for expenses incurred by Mr. Miller in connection with the relocation of himself and his family from Pacific Palisades, California to South Florida. If Mr. Miller is not employed by the Company continuously for at least the one-year period commencing April 26, 1999 other than if he is terminated without cause, he shall repay the Company all amounts received for relocation expenses. The employment agreement also provides for stock options to acquire 60,000 shares of Common Stock at an exercise price of $4.38 per share (the fair market value of the Common Stock on the date he commenced employment) vesting 33-1/3% on each of the first, second and third anniversaries from the date of grant (April 26, 1999). If Mr. Miller's employment is terminated by the Company without cause (including, without limitation, upon a Change in Control), he will be entitled to the salary that he would have received from the date of termination through the 180 day period following the date of termination or the expiration of the term of the employment agreement, whichever is less. However, Mr. Miller will not be entitled to the foregoing severance to the extent that he receives or is entitled to receive compensation or benefits from new employment with respect to employment services rendered during such period. Effective November 24, 1999, Mr. Miller's existing stock option agreement was amended to provide for accelerated vesting of his options upon the occurrence of a Change in Control and the Company's (or its successor's) termination of Mr. Miller without cause within the earlier to occur of (i) 180 days after the occurrence of a Change in Control or (ii) the expiration date of the employment term of his employment agreement. Effective as of January 12, 2000, Mr. Miller's employment agreement (as well as the employment agreements of each of Robert Tenzer, Thomas F. Jennings, Jr. and Joseph Gillis, each of which is discussed below) was amended to provide that, if any of the payments or benefits to be received in connection with a Change in Control would result in an "excess parachute payment," payments and/or benefits made pursuant to the employment agreement would be reduced to the extent necessary to prevent receipt of an "excess parachute payment," if such reduction would provide such executive officer with a better after tax result. 45 46 ROBERT TENZER. Mr. Tenzer's employment agreement extends to December 31, 2000, with no renewal options. The employment agreement provides for, among other things, a base annual salary of $125,000 until October 1, 1998, at which time the Company's then President was to review the base annual salary. As a result of such review, the base annual salary was increased to $150,000. In addition, Mr. Tenzer's base annual salary was further increased to $180,000 in October 1999. The employment agreement also provides for an annual bonus based on Mr. Tenzer's performance and consistent with the Company's then current bonus plan. In connection with the employment agreement, (i) the Company granted Mr. Tenzer stock options to acquire 70,000 shares of Common Stock at an exercise price of $4.69 per share vesting 33%, 34% and 33% on each of the first, second and third anniversaries from the date of grant (September 14, 1998) and (ii) the Company amended Mr. Tenzer's existing stock options to purchase an aggregate of 70,000 shares of Common Stock at an exercise price of $7.875 per share to provide for a new vesting schedule (with options for 10,000 shares immediately vesting and options for 60,000 shares vesting in 20% annual increments on each of December 5, 1998, 1999, 2000, 2001 and 2002) and for accelerating vesting upon a Change in Control, which accelerated vesting on a Change in Control is also provided with respect to the new options covering 70,000 shares described above. If Mr. Tenzer's employment is terminated by the Company without cause (including, without limitation, upon a Change in Control) or Mr. Tenzer resigns his employment with the Company within 90 days of a significant change in the scope of his job responsibilities or within 90 days of a Change in Control, he will be entitled to the salary that he would have received during the one-year period following the date of termination of his employment as and when it would have been payable if he had remained an employee for such additional one-year period. However, Mr. Tenzer will not be entitled to the foregoing severance to the extent that he receives or is entitled to receive compensation for new employment with respect to employment services rendered during such period. THOMAS F. JENNINGS, JR. Mr. Jennings' employment agreement with the Company, effective November 15, 1999, extends to December 31, 2001, with automatic renewal of such employment agreement for successive one-year terms unless either party notifies the other in writing of nonrenewal at least 90 days prior to expiration of the initial term or any renewal term. The employment agreement provides for, among other things, a base annual salary of $175,000 until April 1, 2000, at which time the Company's then Chief Financial Officer shall review the base annual salary. The Company may decide at this time, in its sole discretion, to increase (but not decrease) the base annual salary or at any time during the employment term. The employment agreement also provides for an annual bonus, the amount of which will be determined by the Company in its sole discretion in a manner consistent with the Company's then current bonus plan. If Mr. Jennings' employment is terminated by the Company without cause (including, without limitation, upon a Change in Control) or Mr. Jennings resigns his employment with the Company within 90 days of either a significant change in the scope of his job responsibilities or the Company requiring him, without his prior written consent, to relocate his office to a location other than northern Miami-Dade County, Broward County or Palm Beach County, Florida, he will be entitled to (i) the salary and general employee benefits that he would have received during the one-year period following the date of termination of his employment as and when it would have been payable if he had remained an employee for such additional one-year period and (ii) an amount equal to the average of the bonuses paid to him during the last two years prior to the date of termination, which amount shall be payable in twelve equal consecutive monthly installments commencing one month from the date of termination. Effective September 1, 1999, Mr. Jennings's existing stock option agreements were amended to provide for accelerated vesting of his options to purchase an aggregate of 75,000 shares of the Company's common stock upon the occurrence of a Change in Control. JOSEPH E. GILLIS. Mr. Gillis' employment agreement with the Company, effective November 15, 1999, extends to December 31, 2001, with automatic renewal of such employment agreement for successive one-year terms unless either party notifies the other in writing of nonrenewal at least 90 days prior to expiration of the initial term or any renewal term. The employment agreement provides for, among other things, a base annual salary of $140,000 until April 1, 2000, at which time the Company's then Chief Financial Officer shall review the base annual salary. The Company may decide at this time, in its sole discretion, to increase (but not decrease) the base annual salary or at any time during the employment 46 47 term. The employment agreement also provides for an annual bonus, the amount of which will be determined by the Company in its sole discretion in a manner consistent with the Company's then current bonus plan. If Mr. Gillis' employment is terminated by the Company without cause (including, without limitation, upon a Change in Control) or Mr. Gillis resigns his employment with the Company within 90 days of either a significant change in the scope of his job responsibilities or the Company requiring him, without his prior written consent, to relocate his office to a location other than northern Miami-Dade County, Broward County or Palm Beach County, Florida, he will be entitled to (i) the salary and general employee benefits that he would have received during the one-year period following the date of termination of his employment as and when it would have been payable if he had remained an employee for such additional one-year period and (ii) an amount equal to the average of the bonuses paid to him during the last two years prior to the date of termination, which amount shall be payable in twelve equal consecutive monthly installments commencing one month from the date of termination. Effective September 1, 1999, Mr. Gillis' existing stock option agreements were amended to provide for accelerated vesting of his options to purchase an aggregate of 65,000 shares of the Company's common stock upon the occurrence of a Change in Control. BERNARD J. KOSAR, JR. On January 2, 1997, Mr. Kosar agreed to join the Company as an executive officer. Mr. Kosar initially entered into a one-year employment agreement with the Company providing for a base annual salary of $150,000 and a discretionary bonus. In October 1997, the Company and Mr. Kosar entered into an amendment to such employment agreement which provided, among other things, for automatic renewal of such employment agreement for successive one-year terms unless either party notified the other in writing not to renew at least 60 days prior to expiration of the initial term or any renewal term, an increase in the base annual salary to $275,000, quarterly bonuses in amounts and based upon the Company's actual revenues equaling or exceeding forecasted revenues on a quarterly basis and the percentage by which forecasted revenues were exceeded in any quarter and severance equal to his compensation (salary and bonuses) for one year in the event Mr. Kosar was terminated without cause within 180 days of a Change in Control. In connection with such amendment to his employment agreement, Mr. Kosar was granted options to purchase 165,000 shares at an exercise price of $7.41 per share vesting 50% on the date of grant (October 1, 1997) and 25% on each of the first and second anniversaries from the date of grant. Additionally, Mr. Kosar's then existing options to purchase 310,000 shares were repriced to $7.41 per share (of which options to purchase 250,000 shares were also modified to provide for a more accelerated vesting schedule than when originally granted to him) and the vesting of all his options now accelerates on a Change in Control. Effective October 1, 1998, the Company and Mr. Kosar entered into a new employment agreement that supersedes and replaces in its entirety the above mentioned employment agreement, as amended. The new employment agreement extends to March 31, 2000, and provides, among other things, for an annual salary of $75,000 and commissions, payable to Mr. Kosar at the rate of 1-1/2% of Adjusted Gross Sales (as defined) collected by the Company from a customer as a result of Mr. Kosar's material facilitative efforts in procuring that customer for the Company. Such commissions for each such customer are payable up to a period of one year or the termination of employment other than with cause, whichever is less. In connection with the cancellation of the former employment agreement, as amended, Mr. Kosar received a cancellation payment in the aggregate amount of $400,000. All stock option agreements between the Company and Mr. Kosar remain unchanged. Mr. Kosar also resigned as an executive officer of the Company effective October 1, 1998 and, pursuant to his new employment agreement, is acting as a Senior Advisor to the Company. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Company's Compensation Committee was comprised of two non-employee directors during 1999, Christian Mustad and Neil A. Natkow. The Compensation Committee determines executive officers' salaries and bonuses and administers 47 48 the Company's Stock Plans. In 1999, neither of the members of the Compensation Committee had any relationship with the Company requiring disclosure under Item 404 of Regulation S-K. LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS The Company's articles of incorporation (the "Articles") contain a provision eliminating the personal liability of its directors for monetary damages resulting from breaches of their fiduciary duty to the extent permitted by the Florida Business Corporation Act. This provision in the Articles does not eliminate the duty of care and, in appropriate circumstances, equitable remedies such as an injunction or other forms of non-monetary relief would remain available under Florida law. Each director will continue to be subject to liability for breach of a director's duty of loyalty to the Company or its shareholders, for acts or omissions not in good faith or involving intentional misconduct, for knowing violations of law, or for any transaction from which the director derived an improper personal benefit. This provision also does not affect a director's responsibilities under any other laws, such as the Federal securities laws or state or Federal environmental laws. The Articles and bylaws of the Company (the "Bylaws") provide that the Company will indemnify its directors and officers, and may indemnify its employees and other agents, to the fullest extent permitted by law. The Company's Bylaws also permit it to secure insurance on behalf of any person it is required or permitted to indemnify for any liability arising out of his or her actions in such capacity, regardless of whether the Articles and Bylaws would permit indemnification. The Company maintains liability insurance for its directors and officers. In addition to the indemnification provided for in the Company's Articles and Bylaws, the Company has entered into agreements to indemnify its directors and its executive officers. These agreements, among other things, indemnify the Company's directors and executive officers for all direct and indirect expenses and costs (including, without limitation, all reasonable attorneys' fees and related disbursements, other out of pocket costs and reasonable compensation for time spent by such persons for which they are not otherwise compensated by the Company or any third person) and liabilities of any type whatsoever (including, but not limited to, judgments, fines and amounts paid in settlement) actually and reasonably incurred by such person in connection with either the investigation, defense, settlement or appeal of any threatened, pending or completed action, suit or other proceeding, including any action by or in the right of the corporation, arising out of such person's services as a director, officer, employee or other agent of the Company, any subsidiary of the Company or any other company or enterprise to which the person provides services at the request of the Company. The Company believes that these provisions and agreements are necessary to attract and retain talented and experienced directors and officers. At present, there are two pending lawsuits against the Company involving certain of its directors and officers where indemnification may be required or permitted. See "Item 3. Legal Proceedings" for a discussion of HENRY E. FREEMAN AND FREEMAN INDUSTRIAL ENTERPRISES CORPORATION v. PRECISION RESPONSE CORPORATION, MARK J. GORDON AND DAVID L. EPSTEIN (Case No. 3:98-CV-1895-AVC (D. Conn.)) and JOSEPH P. RIANO v. PRECISION RESPONSE CORPORATION; PRCNETCARE.COM, INC.; MARK J. GORDON; AND DAVID L. EPSTEIN (Case No. 99-25774 CA 10). ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding the beneficial ownership of Common Stock as of February 15, 2000 by (i) each shareholder of the Company who beneficially owns more than 5% of the Company's Common Stock; (ii) each director of the Company; (iii) each Named Executive Officer; and (iv) all directors and executive officers of the Company as a group. Except as otherwise indicated, the Company believes that the beneficial owners of Common Stock listed below, based on information provided by such owners, have sole investment 48 49 and voting power with respect to such shares. The address of each person who beneficially owns more than 5% of Common Stock is the Company's principal executive office.
SHARES BENEFICIALLY OWNED ----------------------------------------- NAME NUMBER PERCENT (1) - -------------------------------------------------------- --------------------- ---------------- Mark J. Gordon (2) 6,365,313 (3) 29.1% David L. Epstein (2) 4,653,017 (4) 21.3 Richard D. Mondre 4,413,283 (5) 20.2 Stacy Lynn Gordon PRC Trust 1,435,000 (6) 6.6 Jason Howard Gordon PRC Trust 1,435,000 (7) 6.6 Bernard J. Kosar, Jr. 900,300 (8) 4.0 Paul M. O'Hara (2) 557,166 (9) 2.5 Richard N. Ferry, Jr. (2) 552,546 (10) 2.5 Wesley T. O'Brien 234,500 (11) 1.1 Christian Mustad 156,899 (12) * Neil A. Natkow 43,533 (13) * Richard N. Krinzman 12,999 (14) * All directors and executive officers as a group (16 persons) 14,561,323 (15) 61.4%
- ---------- *Less than 1%. (1) Percentage of beneficial ownership is based on 21,852,231 shares of Common Stock outstanding as of February 15, 2000, except that, in the case of Messrs. Kosar, O'Hara, Ferry, O'Brien, Mustad, Natkow and Krinzman and all directors and executive officers as a group, the number of options held by Messrs. Kosar, O'Hara, Ferry, O'Brien, Mustad, Natkow and Krinzman and all directors and executive officers as a group which are exercisable within 60 days of February 15, 2000 are also included in such calculations, as applicable. (2) Mr. Gordon and Mr. Epstein each has certain rights to acquire shares owned by each of Mr. O'Hara and Mr. Ferry pursuant to stock purchase and pledge agreements. For a more detailed description of these rights, see "Shareholder Agreements." (3) Includes 50,000 shares owned directly by Mr. Gordon and 4,959,500 shares held by a Texas limited partnership in which Mr. Gordon is a 80.3562156% limited partner, two grantor retained annuity trusts are limited partners having an aggregate 17.28089% interest, a trust for the benefit of Mr. Gordon's grandchildren is a limited partner having a 0.3628944% interest, Mr. Gordon's wife is a 1% limited partner and a Texas corporation, which is wholly owned by Mr. Gordon, is a 1% general partner. The grantor retained annuity trusts each provides an annuity to Mr. Gordon for five years, and thereafter Mr. Gordon's wife and his lineal descendants have a principal and/or income interest in the remainder. Also includes (i) 607,500 shares held by a Texas limited partnership in which Mr. Gordon is a 98% limited partner, Mr. Gordon's wife is a 1% limited partner and a Texas corporation, which is wholly owned by Mr. Gordon, is a 1% general partner; (ii) 100,030 shares by the Gail and Mark Gordon Foundation, an Internal Revenue Code Section 501 (c)(3) exempt corporation as to which Mr. Gordon and his spouse are the sole directors; and (iii) 648,283 shares beneficially owned by the David Epstein 1995 Grantor Trust (held as described below) as to which Mr. Gordon shares the voting and dispositive duties with respect to the shares as co-trustee under this trust, which was created by Mr. Epstein for the benefit of his children. The shares beneficially owned by the David Epstein 1995 Grantor Trust are held of record by two Texas limited partnerships in which each trust is a 98% limited partner, Mr. Epstein's wife is a 1% limited partner and a Texas corporation, which is wholly owned by the trust, is the 1% general partner. Messrs. Gordon and Mondre share the voting and dispositive duties with respect to these shares as co-trustees under the trust, which was created by Mr. Epstein for the benefit of his children, and as the directors of the Texas corporation which is the general partner of each Texas limited partnership. (4) Includes 1,180,917 shares held by a Texas limited partnership in which Mr. Epstein is a 78.65071% limited partner, a grantor retained annuity trust is a 4.83439% limited partner, a trust for the benefit of Mr. Epstein's children is a 14.5149% limited partner, Mr. Epstein's wife is a 1% limited partner and a Texas corporation, which is wholly owned by Mr. Epstein, is the 1% general partner. The grantor retained annuity trust provides an annuity to Mr. Epstein for five years, and his wife, his parents and their lineal descendants and others have principal and/or income interests in the remainder. Also includes (i) 537,500 shares held by a Texas limited partnership in which Mr. Epstein is a 98% limited partner, Mr. Epstein's wife is a 1% limited partner and a Texas corporation, which is wholly owned by Mr. Epstein, is the 1% general partner; (ii) 1,435,000 shares beneficially owned by the Jason Howard Gordon PRC Trust (held as described in footnote (7) below) and 1,435,000 shares beneficially owned by the Stacy Lynn Gordon PRC Trust (held as described in footnote (6) below), as to which Mr. Epstein shares the voting and dispositive duties as co-trustee under these trusts which were created by Mr. Gordon for the benefit of his children; and (iii) 64,600 shares owned by an Ohio corporation owned 50% by Messrs. Epstein and Kosar. 49 50 (5) Includes 845,000 shares in the aggregate held by two Texas limited partnerships in each of which Mr. Mondre is a 98% limited partner, Mr. Mondre's wife is a 1% limited partner and a Texas corporation, which is wholly owned by Mr. Mondre, is the 1% general partner. Also includes (i) 1,435,000, 1,435,000 and 648,283 shares as to which Mr. Mondre shares the voting and dispositive duties as co-trustee under the Jason Howard Gordon PRC Trust, the Stacy Lynn Gordon PRC Trust and the David Epstein 1995 Grantor Trust, respectively (see footnotes (3) and (4) above and (6) and (7) below); and (ii) 50,000 shares held by a Texas limited partnership in which a Texas corporation, which is wholly owned by Mr. Mondre, is the 1% general partner and Mr. Mondre's son is a 99% limited partner. See "Shareholder Agreements" for a description regarding from whom Mr. Mondre acquired, and to whom are pledged, 895,000 shares beneficially and pecuniarily owned by Mr. Mondre and his family. (6) All of these shares are held by two Texas limited partnerships in each of which the trust is a 98% limited partner, Stacy Lynn Gordon is a 1% limited partner and a Texas limited liability company is the 1% general partner. The general partner is owned by the trust as a 99% member and by a Texas corporation, which is wholly owned by the trust, as a 1% managing member. Messrs. Epstein and Mondre share the voting and dispositive duties with respect to these shares as co-trustees under this trust, which was created by Mr. Gordon for the benefit of his daughter, Stacy Lynn Gordon, and as directors of the Texas corporation. (7) All of these shares are held by two Texas limited partnerships in each of which the trust is a 98% limited partner, Jason Howard Gordon is a 1% limited partner and a Texas limited liability company is the 1% general partner. The general partner is owned by the trust as a 99% member and by a Texas corporation, which is wholly owned by the trust, as a 1% managing member. Messrs. Epstein and Mondre share the voting and dispositive duties with respect to these shares as co-trustees under this trust, which was created by Mr. Gordon for the benefit of his son, Jason Howard Gordon, and as directors of the Texas corporation. (8) Includes (i) 64,600 shares of Common Stock owned by an Ohio corporation owned 50% by Messrs. Kosar and Epstein; and (ii) 651,600 shares of Common Stock issuable upon the exercise of options within 60 days of February 15, 2000. (9) Includes (i) 200,000 shares of Common Stock owned by a grantor trust in which Mr. O'Hara's daughter is trustee and Mr. O'Hara and his spouse are the beneficiaries; and (ii) 357,166 shares of Common Stock issuable upon the exercise of options within 60 days of February 15, 2000. (10) Includes 352,546 shares of Common Stock issuable upon the exercise of options within 60 days of February 15, 2000. (11) Includes 216,319 shares of Common Stock issuable upon the exercise of options within 60 days of February 15, 2000. (12) Includes 4,999 shares of Common Stock issuable upon the exercise of options within 60 days of February 15, 2000. (13) Includes (i) 400 shares of Common Stock held in trust for one of Dr. Natkow's sons; and (ii) 3,333 shares of Common Stock issuable upon the exercise of options within 60 days of February 15, 2000. (14) Includes (i) 1,000 shares held on behalf of Mr. Krinzman's mother; (ii) 1,000 shares held on behalf of Mr. Krinzman's mother-in-law; and (iii) 4,999 shares of Common Stock issuable upon the exercise of options within 60 days of February 15, 2000. (15) See other footnotes above. Does not include options held by officers and directors which are not exercisable within 60 days of February 15, 2000. SHAREHOLDER AGREEMENTS Mr. Mondre acquired 595,000 of the shares of Common Stock beneficially and pecuniarily owned by Mr. Mondre and his family 75% from Mr. Gordon and 25% from Mr. Epstein in February 1996 (the "1996 Acquisition") and 300,000 of his shares of Common Stock from an affiliate of Mr. Gordon in October 1998. The purchase prices for such shares are evidenced by long-term promissory notes guaranteed by Mr. Mondre's spouse and are secured by a pledge of the shares sold and, in the case of the shares purchased in the 1996 Acquisition, other securities owned by Mr. Mondre's spouse pursuant to separate pledge agreements. Each of Mr. O'Hara and Mr. Ferry acquired his shares of Common Stock 62.5% from an affiliate of Mr. Gordon and 37.5% from an affiliate of Mr. Epstein in September 1998. The purchase prices for such shares are evidenced by long-term 50 51 promissory notes guaranteed by the spouses of each of Mr. O'Hara and Mr. Ferry and are secured by a pledge of the shares sold pursuant to stock purchase and pledge agreements. In connection with these purchases, each of Mr. O'Hara and Mr. Ferry agreed to significant restrictions on their respective rights to sell, alienate or otherwise dispose of the shares of Common Stock acquired by them from the affiliates of Mr. Gordon and Mr. Epstein, respectively, as well as to rights on the part of such affiliates to purchase those shares under certain circumstances. Generally, each of Mr. O'Hara and Mr. Ferry may not sell, alienate or otherwise dispose of their shares of Common Stock prior to September 2, 2001, without the consent of the affiliates of Mr. Gordon and Mr. Epstein, subject to certain exceptions including a Change in Control, termination of employment by the Company other than for cause, a sale of the Company and death. Such shares owned by Mr. O'Hara and Mr. Ferry are subject to repurchase rights of the affiliates of Mr. Gordon and Mr. Epstein, respectively, at the acquisition price if the respective individual's employment with the Company terminates prior to September 2, 2001, as a result of termination by the Company of his employment for cause or his resignation from employment with the Company other than after a Change in Control. All of the repurchase rights terminate upon the occurrence of a Change in Control, termination by the Company of the respective individual's employment other than for cause or a sale of the Company. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS During 1999 the Company leased two facilities, currently used for warehouse space, located at 4250 N.W. 135th Street, Miami, and 13180 N.W. 43rd Avenue, Miami, from a corporation of which Mark J. Gordon, the Chairman of the Board of the Company, is the sole shareholder. Prior to May 1, 1996, these two facilities were leased to the Company on a month-to-month basis. In May 1996, the Company entered into written leases for such facilities. The leases commenced on May 1, 1996 for a term of five years, with a five-year renewal option. During 1999 the aggregate monthly rent for these two properties was approximately $24,000. Total rent expense for these facilities was approximately $284,000 in 1999. The Company believes that the rents payable under these leases are no less favorable to it than could be obtained from unaffiliated parties. The Company subleases its facility at 11975 S.W. 140th Terrace, Miami, from a partnership jointly owned by Mr. Gordon and David L. Epstein, the Chief Executive Officer of the Company. The term of this sublease expires in January 2004 and the current monthly rental obligation is approximately $16,600. In addition, the Company is obligated to remit an annual payment for applicable property taxes. The property is subleased to the Company on the same terms as the primary lease with an unaffiliated party. The affiliated partnership holds an option to purchase the property. The Company also subleases a parking facility adjacent to the 11975 S.W. 140th Terrace facility from the same affiliated partnership. This sublease expires in January 2002 and the monthly rental obligation is approximately $2,500 plus one-twelfth of the applicable real estate taxes. This property is also subleased to the Company on the same terms as the primary lease. The Company was originally the lessee under both primary leases, but assigned its interest to the partnership in May 1996 for nominal consideration. Effective June 1996, the Company entered into a net lease with the aforementioned partnership for an additional parking area. The term of the lease expires five years from June 1996 and the monthly rental obligation is approximately $2,800 plus one-twelfth of the applicable real estate taxes. The aggregate rental expenses with respect to the aforementioned subleases and the lease of the additional parking area were approximately $250,000 in 1999, not including applicable property and real estate taxes. The Company believes that the rents paid and that are payable under these subleases and the net lease are no less favorable than could be obtained from unaffiliated parties. The Company funds a portion of the life insurance premiums payable with respect to up to three split-dollar life insurance policies owned by the Mark Gordon Family Trust. The amounts paid by the Company are reimbursable to the Company without interest upon the death of Mr. Gordon, the surrender of the policies or the termination of the arrangement. This obligation is secured by 51 52 the benefits payable under the insurance policies. The aggregate amount outstanding for these premiums as of December 31, 1999 was approximately $167,000. The Company also funds a portion of the life insurance premiums payable with respect to three split-dollar life insurance policies owned by three separate trusts for the benefit of Mr. Epstein's family. The amounts paid by the Company are reimbursable to the Company without interest upon, under one policy, the death of Mr. Epstein, and under the other two policies, the death of the last to die of Mr. Epstein and his spouse, the surrender of the policies or the termination of the arrangement; provided, however, that, in the event that prior to such time Mr. Epstein's employment with the Company is terminated in certain circumstances (including, without limitation, as a result of his disability, without cause or constructive termination), the amounts paid by the Company will not be reimbursed. This obligation is secured by the benefits payable under the insurance policies. The aggregate amount outstanding for these premiums as of December 31, 1999 was approximately $34,000. Richard D. Mondre, the Company's Executive Vice President, General Counsel and Secretary and a director, was a partner of Rubin Baum until immediately prior to joining the Company in March 1996 and remains "Of Counsel" to BSDPA, the successor firm to Rubin Baum. Prior to February 1, 1998, Rubin Baum had acted as the Company's regular outside legal counsel and since then BSDPA has acted as the Company's regular outside counsel. The total fees and costs paid by the Company to BSDPA and Rubin Baum in 1999 were approximately $558,000 and $44,000, respectively. The Company believes that the fees paid to Rubin Baum and BSDPA are no less favorable than could be obtained from other comparable law firms in the area. During 1999, the Company paid approximately $385,000 in fees to charter an aircraft in connection with business travel for the Company's personnel. The aircraft is owned by an entity of which Mr. Gordon is the sole shareholder. The Company believes that the fees paid to Mr. Gordon's affiliate were no less favorable to it than would have been obtained from unaffiliated parties. Richard N. Krinzman, a director of the Company, is a shareholder and director of the law firm of Holtzman, Krinzman, Equels & Furia, P.A., located in Miami, Florida. In July 1998, such law firm was engaged by the Company to represent it in connection with governmental relations matters. Pursuant to such engagement, such law firm received a retainer of $25,000 and is payable $2,500 per month. Such law firm received legal fees from the Company in the amount of $30,000 in 1999. The engagement is terminable at any time by either party. The Company believes that this engagement and the fees payable to such law firm in connection therewith are no less favorable than could be obtained from other comparable law firms in the area. In November 1999, the Company entered into a put/call agreement with Presidential Suites, Ltd., a Florida limited partnership directly and indirectly owned by Mr. Gordon ("Presidential"). Pursuant to such agreement, the Company was granted the right to cause Presidential to assign (and, in connection with such assignment, the Company would assume Presidential's obligations accruing after such assignment with respect to), and Presidential was granted the right to cause the Company to assume Presidential's obligations accruing after such assumption with respect to (and, in connection with such assumption, Presidential would assign), Presidential's interest in a certain lease agreement for leased space consisting of approximately 3,388 rentable square feet ("Presidential Premises") and adjacent to the Company's new leased premises located in Plantation, Florida, which will be the site of the Company's new principal corporate offices (see "Item 2. Properties"). In the event of the exercise of the Company or Presidential of this put/call right, the Company would also purchase, and Presidential would convey, Presidential's furniture, fixtures and equipment kept on the Presidential Premises ("FF&E"). In connection with the assignment and assumption of the aforesaid lease for the Presidential Premises and the conveyance of the FF&E, the Company would, among other things, (i) pay to Presidential the unamortized portion (which is amortizable over the 52 53 initial term of the lease for the Presidential Premises) of the sum of (a) the cost of the tenant improvements constructed on the Presidential Premises in excess of the landlord's contribution in cash (and not in the form of a rent credit) and (b) the cost of the FF&E, and (ii) provide a substitute letter of credit to replace the then outstanding amount of Presidential's letter of credit delivered to the landlord (the initial amount of Presidential's letter of credit was $67,760). The base rental payable by Presidential under the lease for the Presidential Premises is $49,126 per annum (increasing by 3% per annum during the term) and the initial term of such lease is ten years. PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed as part of this report: 1. Financial Statements See Index to Consolidated Financial Statements located in Item 8 of this report. 2. Financial Statement Schedule PAGE Schedule II - Valuation and Qualifying Accounts.........S-1 3. Exhibits
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - --------------- ------------------------------------------------------------------------------------------------------ 3.1 Articles of Incorporation of Precision Response Corporation (Exhibit 3.1 to Form S-1)* 3.2 Amended and Restated Bylaws of Precision Response Corporation (filed herewith) 10.1 Precision Response Corporation Amended and Restated 1996 Incentive Stock Plan as amended through May 15, 1997 (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, File No. 0-20941)+ 10.2 Precision Response Corporation Amended and Restated 1996 Incentive Stock Plan (as amended through June 12, 1998) (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, File No. 0-20941)+ 10.3 Precision Response Corporation Amended and Restated 1996 Incentive Stock Plan (as amended through June 21, 1999) (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, File No. 0-20941)+ 10.4 Precision Response Corporation 1996 Non-employee Director Stock Option Plan (Exhibit 10.2 to Form S-1) *+ 10.5 Precision Response Corporation Amended and Restated 1996 Non-employee Director Stock Option Plan (incorporated by reference to Exhibit "A" to the Company's Proxy Statement dated April 30, 1999, File No. 0-20941)+ 10.6 Precision Response Corporation Profit Sharing Plan (Exhibit 10.3 to Form S-1) *+ 10.7 Employment Agreement with Mark Gordon (Exhibit 10.4 to Form S-1*), as amended by letter agreement dated January 12, 2000 between the Company and Mark J. Gordon (filed herewith) +
53 54
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - --------------- ------------------------------------------------------------------------------------------------------ 10.8 Employment Agreement with David Epstein (Exhibit 10.5 to Form S-1*), as amended by Amendment to Employment Agreement dated as of April 1, 1999 between the Company and David L. Epstein (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, File No. 0-20941), as further amended by Second Amendment to Employment Agreement dated as of September 1, 1999 between the Company and David L. Epstein (filed herewith) and as further amended by Third Amendment to Employment Agreement dated as of January 12, 2000 between the Company and David L. Epstein (filed herewith) + 10.9 Stock Purchase and Shareholder Agreement, dated February 16, 1996, between Richard Mondre and Mark Gordon, as amended effective as of February 16, 1996 (Exhibit 10.8 to Form S-1) * 10.10 Stock Purchase and Shareholder Agreement, dated February 16, 1996, between Richard Mondre and David Epstein, as amended effective as of February 16, 1996 (Exhibit 10.9 to Form S-1) * 10.11 Agreement, dated February 16, 1996, among Richard Mondre, Mark Gordon and David Epstein (Exhibit 10.10 to Form S-1) * 10.12 Stockholder Agreement, dated May 10, 1996, between Mark Gordon and David Epstein (Exhibits 10.14 to Form S-1*), as terminated by letter dated January 12, 2000 from David L. Epstein to and accepted by Mark J. Gordon (filed herewith) 10.13 S Corporation Tax Allocation and Indemnification Agreement (Exhibit 10.15 to Form S-1) * 10.14 Form of Indemnification Agreement (Exhibit 10.17 to Form S-1) * 10.15 Net Lease, dated May 1, 1996, between MJG Properties, Inc. and Precision Response Corporation (13180 N.W. 43rd Avenue lease) (Exhibit 10.18 to Form S-1) * 10.16 Net Lease, dated May 1, 1996, between MJG Properties, Inc. and Precision Response Corporation (4250 N.W. 135th Street lease) (Exhibit 10.19 to Form S-1) * 10.17 Lease Agreement and Option to Purchase Real Property, dated January 23, 1996, between Burger King Corporation and Precision Response Corporation (without schedules) (Exhibit 10.21 to Form S-1) * 10.18 Assignment of Lease, dated as of April 18, 1996, between Precision Response Corporation and Deerwood Realty Partners, Ltd (Exhibit 10. 22 to Form S-1) * 10.19 Sublease, dated May 1, 1996, between Precision Response Corporation and Deerwood Realty Partners, Ltd. (Exhibit 10.23 to Form S-1) * 10.20 Lease, dated January 25, 1996, between Donald V. Mariutto and Eugene L. Mariutto, and Precision Response Corporation (Exhibit 10.24 to Form S-1) * 10.21 Assignment of Lease, dated April 30, 1996, between Precision Response Corporation and Deerwood Realty Partners, Ltd. (Exhibit 10.25 to Form S-1) *
54 55
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - --------------- ------------------------------------------------------------------------------------------------------ 10.22 Sublease, dated May 1, 1996, between Precision Response Corporation and Deerwood Realty Partners, Ltd. (Exhibit 10.26 to Form S-1) * 10.23 Net Lease, dated May 1, 1996, between Deerwood Realty Partners, Ltd. and Precision Response Corporation (Exhibit 10.30 to Form S-1) * 10.24 Registration Rights Agreement, dated May 15, 1996, between Precision Response Corporation and Mark Gordon (Exhibit 10.27 to Form S-1) * 10.25 Registration Rights Agreement, dated May 15, 1996, between Precision Response Corporation and David Epstein (Exhibit 10.28 to Form S-1) * 10.26 Credit Agreement (with exhibits but without schedules) dated as of March 2, 1998 among the Company, as the Borrower, NationsBank, N.A. and the other lenders that become signatories thereto, as the Banks, and NationsBank, N.A., as the Agent (incorporated by reference to Exhibit 10.38 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997, File No. 0-20941) 10.27 First Amendment to Credit Agreement effective as of June 30, 1998 between the Company and NationsBank, N.A. (incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, File No. 0-20941) 10.28 Second Amendment to Revolving Credit Agreement effective as of September 30, 1998 between the Company and NationsBank, N.A. (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, File No. 0-20941) 10.29 Confirmation letter dated December 1, 1998 from NationsBank, N.A. to the Company regarding definition of "fixed charge coverage ratio " (incorporated by reference to Exhibit 10.37 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998, File No. 0-20941) 10.30 Third Amendment to Revolving Credit Agreement effective as of June 30, 1999 between the Company and Bank of America, N.A., d/b/a NationsBank, N.A., successor to NationsBank, N.A. ("NationsBank") (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, File No. 0-20941) 10.31 Fourth Amendment to Revolving Credit Agreement effective as of December 31, 1999 between the Company and NationsBank (filed herewith) 10.32 Consolidated Renewal Promissory Note dated as of May 29, 1998 from the Company payable to the order of NationsBank, N.A. (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, File No. 0-20941) 10.33 First Amendment to Consolidated Renewal Promissory Note effective as of June 30, 1999 between the Company and NationsBank (incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, File No. 0-20941)
55 56
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - --------------- ------------------------------------------------------------------------------------------------------ 10.34 Revolving Promissory Note effective as of December 31, 1999 between the Company and NationsBank (filed herewith) 10.35 Mortgage Loan Agreement dated as of May 29, 1998 between the Company and NationsBank, N.A. (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, File No. 0-20941) 10.36 First Amendment to Mortgage Loan Agreement effective as of June 30, 1998 between the Company and NationsBank, N.A. (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, File No. 0-20941) 10.37 Second Amendment to Mortgage Loan Agreement effective as of September 30, 1998 between the Company and NationsBank, N.A. (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, File No. 0-20941) 10.38 Third Amendment to Mortgage Loan Agreement effective as of June 30, 1999 between the Company and NationsBank (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, File No. 0-20941) 10.39 Fourth Amendment to Mortgage Loan Agreement effective as of December 31, 1999 between the Company and NationsBank (filed herewith) 10.40 Employment Agreement dated as of August 4, 1998 between the Company and Robert Tenzer (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, File No. 0-20941), as amended by First Amendment to Employment Agreement dated as of January 13, 2000 between the Company and Robert Tenzer (filed herewith)+ 10.41 Employment Agreement dated as of October 6, 1998 between the Company and James R. Weber (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, File No. 0-20941)+ 10.42 Employment Agreement effective as of October 20, 1998 between the Company and Wesley T. O'Brien (incorporated by reference to Exhibit 10.40 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998, File No. 0-20941)+ 10.43 Letter agreement effective as of October 1, 1998 from the Company to and accepted by Bernard J. Kosar, Jr. (incorporated by reference to Exhibit 10.41 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998, File No. 0-20941)+ 10.44 Employment Agreement dated as of April 1, 1999 between the Company and Richard D. Mondre together with Registration Rights Agreement dated as of April 1, 1999 between the Company and Richard D. Mondre annexed as Exhibit "A" thereto (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, File No. 0-20941), as amended by First Amendment to Employment Agreement dated as of January 12, 2000 between the Company and Richard D. Mondre (filed herewith)+
56 57
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - --------------- ------------------------------------------------------------------------------------------------------ 10.45 Employment Agreement dated as of April 1, 1999 between the Company and Richard N. Ferry, Jr. (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, File No. 0-20941), as amended by First Amendment to Employment Agreement dated as of January 12, 2000 between the Company and Richard N. Ferry, Jr. (filed herewith)+ 10.46 Employment Agreement dated as of April 14, 1999 between the Company and Michael P. Miller (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, File No. 0-20941), as amended by First Amendment to Employment Agreement dated as of January 13, 2000 between the Company and Michael P. Miller (filed herewith)+ 10.47 Securities Purchase Agreement dated as of June 15, 1999 between the Company and Global Reservation Systems, Inc. ("GRS") (without exhibits or schedules) (incorporated by reference to Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, File No. 0-20941) 10.48 Common Stock Purchase Warrant dated June 15, 1999 from GRS in favor of the Company (incorporated by reference to Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, File No. 0-20941) 10.49 Shareholders' Rights Agreement dated as of June 15, 1999 among the Company, GRS and certain shareholders of GRS (incorporated by reference to Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, File No. 0-20941) 10.50 Registration Rights Agreement dated as of June 15, 1999 between the Company and GRS (incorporated by reference to Exhibit 10.9 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, File No. 0-20941) 10.51 Lease Agreement effective as of July 20, 1999 between Crossroads Business Park Associates, as landlord, and the Company, as tenant, as amended by Lease Amendment No. 1 dated and effective as of October 29, 1999 between Crossroads Business Park Associates, as landlord, and the Company, as tenant (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, File No. 0-20941) 10.52 Put/Call Agreement dated November 17, 1999 between the Company and Presidential Suites, Ltd. (filed herewith) 10.53 Employment Agreement effective as of August 9, 1999 between the Company and Paul M. O'Hara (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, File No. 0-20941), as amended by First Amendment to Employment Agreement dated as of January 12, 2000 between the Company and Paul M. O'Hara (filed herewith)+ 10.54 Tri-Party Split Dollar Agreement and Collateral Assignment effective as of September 1, 1999 between the David Epstein 1995 Grantor Trust u/a/d December 28, 1995 and the Epstein 1997 Family Trust u/a/d June 19, 1997 and the Company (filed herewith)+
57 58
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - --------------- ------------------------------------------------------------------------------------------------------ 10.55 Amended and Restated Split Dollar Agreement and Collateral Assignment effective as of September 1, 1999 between the David Epstein 1995 Irrevocable Life Insurance Trust u/a/d August 2, 1995 and the Company (filed herewith)+ 10.56 Amended and Restated Split Dollar Agreement and Collateral Assignment effective as of September 1, 1999 between the Epstein 1995 Family Trust u/a/d August 2, 1995 and the Company (filed herewith)+ 10.57 Split Dollar Agreement and Collateral Assignment effective April 1998 between the Mark Gordon Family Trust u/a/d March 1, 1990 and the Company (filed herewith)+ 10.58 Employment Agreement dated as of November 15, 1999 between the Company and Joseph E. Gillis, as amended by First Amendment to Employment Agreement dated as of January 13, 2000 between the Company and Joseph E. Gillis (filed herewith)+ 10.59 Employment Agreement dated as of November 15, 1999 between the Company and Thomas F. Jennings, Jr., as amended by First Amendment to Employment Agreement dated as of January 13, 2000 between the Company and Thomas F. Jennings, Jr. (filed herewith)+ 10.60 Employment Agreement executed as of October 1, 1999 between the Company and Frank Modrak (filed herewith)+ 10.61 Agreement and Plan of Merger, dated as of January 12, 2000, among the Company, USA Networks, Inc. and P Acquisition Corp. (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on January 13, 2000, File No. 0-20941) 10.62 Stockholders Agreement, dated as of January 12, 2000, by and among USA Networks, Inc. and each of the stockholders listed on Schedule I thereto (incorporated by reference to Exhibit 2.2 to the Company's Current Report on Form 8-K filed on January 13, 2000, File No. 0-20941) 23.1 Consent of PricewaterhouseCoopers LLP (filed herewith) 27.1 Financial Data Schedule (filed herewith)
- ---------- * Previously filed and incorporated by reference to exhibit in the Company's Registration Statement on Form S-1, as amended (File No. 333-03209), initially filed on May 6, 1996 ("Form S-1"), as set forth after such agreement or document. + Indicates a management contract or compensatory plan or arrangement. 58 59 (b) Reports on Form 8-K No reports on Form 8-K were filed by the Company during the quarter ended December 31, 1999. However, the Company has filed (i) a Current Report on Form 8-K dated January 13, 2000, reporting in Item 5 thereof, among other things, the entering into the Merger Agreement with USAi on January 12, 2000 and in Item 7 thereof the filing of a copy of the Merger Agreement, Stockholders Agreement dated as of January 12, 2000 among USAi and each of the stockholders listed on Schedule I thereto and a press release of the Company and USAi dated January 12, 2000, and (ii) a Current Report on Form 8-K dated January 27, 2000, reporting in Item 5 thereof the Company's issuance on January 26, 2000 of a press release announcing its revenues and earnings for the fourth quarter and year ended December 31, 1999 and in Item 7 thereof the filing of a copy of such press release of the Company dated January 26, 2000. 59 60 SIGNATURES Pursuant to the requirement 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. PRECISION RESPONSE CORPORATION (Registrant) By: /s/ PAUL M. O'HARA ----------------------------------- Paul M. O'Hara Executive Vice President - Finance and Chief Financial Officer (Principal Financial Officer) Dated: February 18, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE /s/ MARK J. GORDON Chairman of the Board February 18, 2000 - ------------------------------------------- Mark J. Gordon /s/ DAVID L. EPSTEIN Chief Executive Officer and February 18, 2000 - ------------------------------------------- Director David L. Epstein (Principal Executive Officer) /S/ RICHARD D. MONDRE Executive Vice President, February 18, 2000 - ------------------------------------------- General Counsel, Secretary Richard D. Mondre and Director /s/ PAUL M. O'HARA Executive Vice President - Finance February 18, 2000 - ------------------------------------------- and Chief Financial Officer Paul M. O'Hara /s/ THOMAS F. JENNINGS, JR. Vice President and Controller February 18, 2000 - ------------------------------------------- (Principal Accounting Officer) Thomas F. Jennings, Jr. Director , 2000 - ------------------------------------------- Bernard J. Kosar, Jr. /s/ RICHARD N. KRINZMAN Director February 18, 2000 - ------------------------------------------- Richard N. Krinzman /s/ CHRISTIAN MUSTAD Director February 18, 2000 - ------------------------------------------- Christian Mustad /s/ NEIL A. NATKOW Director February 18, 2000 - ------------------------------------------- Neil A. Natkow
60 61 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Precision Response Corporation: In our opinion, the consolidated financial statements listed in the index appearing under Item 8 on page 34 and Item 14(a)(1) on page 53 present fairly, in all material respects, the financial position of Precision Response Corporation and subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. In addition, in our opinion the financial statement schedule listed in the index appearing under Item 14 (a)(2) on page 53 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PRICEWATERHOUSECOOPERS LLP Miami, Florida January 26, 2000 F-1 62 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, --------------------------------- 1999 1998 -------------- --------------- ASSETS Current assets: Cash and cash equivalents .................................................... $ 2,067 $ 1,656 Accounts receivable, net of allowances of $2,411 and $8,225, in 1999 and 1998, respectively ............................................................. 46,173 42,771 Income taxes receivable ...................................................... 199 215 Deferred income taxes ........................................................ 3,823 6,906 Prepaid expenses and other current assets .................................... 2,714 4,186 --------- --------- Total current assets ................................................. 54,976 55,734 Property and equipment, net ...................................................... 88,109 71,414 Deferred income taxes ............................................................ 3,713 5,516 Other assets ..................................................................... 2,565 782 --------- --------- Total assets ......................................................... $ 149,363 $ 133,446 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term obligations .................................. $ 1,691 $ 2,510 Accounts payable ............................................................. 18,472 16,571 Restructuring accrual ........................................................ 1,280 3,244 Accrued compensation expenses ................................................ 4,632 3,108 Other accrued expenses ....................................................... 7,236 7,174 Customer deposits ............................................................ 377 1,108 --------- --------- Total current liabilities ............................................ 33,688 33,715 Long-term obligations, less current maturities ................................... 23,425 16,916 Restructuring accrual ............................................................ 1,967 3,456 --------- --------- Total liabilities .................................................... 59,080 54,087 --------- --------- Commitments and contingencies (see Notes 7 and 15) ............................... -- -- Shareholders' equity: Common stock, $0.01 par value; 100,000,000 shares authorized; 21,794,400 and 21,549,000 issued and outstanding, respectively ........... 218 215 Additional paid-in capital ................................................... 100,218 97,179 Accumulated deficit .......................................................... (9,744) (18,035) Unearned compensation ........................................................ (409) -- --------- --------- Total shareholders' equity ........................................... 90,283 79,359 --------- --------- Total liabilities and shareholders' equity ........................... $ 149,363 $ 133,446 ========= =========
The accompanying notes are an integral part of these financial statements. F-2 63 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEAR ENDED DECEMBER 31, ---------------------------------- 1999 1998 1997 ------- ------- ------- Revenues ............................................ $ 215,920 $ 175,173 $ 143,584 --------- --------- --------- Operating expenses: Cost of services ................................ 177,668 153,638 128,177 Selling, general and administrative expenses .... 23,249 23,290 25,874 Restructuring and asset impairment charges ...... -- 13,583 11,591 --------- --------- --------- Total operating expenses ................ 200,917 190,511 165,642 --------- --------- --------- Operating income (loss) ................. 15,003 (15,338) (22,058) Other income (expense): Interest income ................................. 74 261 984 Interest expense ................................ (1,195) (1,050) (702) --------- --------- --------- Income (loss) before income tax provision (benefit) ................... 13,882 (16,127) (21,776) Income tax provision (benefit) ...................... 5,591 (5,938) (8,710) --------- --------- --------- Net income (loss) ....................... $ 8,291 $ (10,189) $ (13,066) ========= ========= ========= Net income (loss) per common share: Basic ............................................. $ 0.38 $ (0.47) $ (0.61) ========= ========= ========= Diluted ........................................... $ 0.37 $ (0.47) $ (0.61) ========= ========= ========= Weighted average number of common shares outstanding: Basic ............................................. 21,587 21,548 21,393 ========= ========= ========= Diluted ........................................... 22,445 21,548 21,393 ========= ========= =========
The accompanying notes are an integral part of these financial statements. F-3 64 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS)
COMMON STOCK ADDITIONAL RETAINED ---------------------- PAID-IN EARNINGS UNEARNED SHARES AMOUNT CAPITAL (DEFICIT) COMPENSATION TOTAL --------- --------- ---------- ----------- -------------- --------- Balance at December 31, 1996 ............ 20,000 $ 200 $ 47,808 $ 5,394 $ (452) $ 52,950 Net loss ............................ -- -- -- (13,066) -- (13,066) Payment of dividend ................. -- -- -- (174) -- (174) Issuance of common stock ............ 1,500 15 49,149 -- -- 49,164 Exercise of employee stock options .. 42 -- 222 -- -- 222 Amortization of unearned compensation -- -- -- -- 344 344 --------- --------- --------- --------- --------- --------- Balance at December 31, 1997 ............ 21,542 215 97,179 (7,846) (108) 89,440 Net loss ............................ -- -- -- (10,189) -- (10,189) Exercise of employee stock options .. 7 -- -- -- -- -- Amortization of unearned compensation -- -- -- -- 108 108 --------- --------- --------- --------- --------- --------- Balance at December 31, 1998 ............ 21,549 215 97,179 (18,035) -- 79,359 Net income .......................... -- -- -- 8,291 -- 8,291 Stock option grants ................. -- -- 486 -- (486) -- Exercise of employee stock options .. 246 3 1,862 -- -- 1,865 Tax effect on exercise of employee stock options .................. -- -- 691 -- -- 691 Amortization of unearned compensation -- -- -- -- 77 77 --------- --------- --------- --------- --------- --------- Balance at December 31, 1999 ............ 21,795 $ 218 $ 100,218 $ (9,744) $ (409) $ 90,283 ========= ========= ========= ========= ========= =========
The accompanying notes are an integral part of these financial statements. F-4 65 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31, ---------------------------------------- 1999 1998 1997 ------------- ---------- ----------- OPERATING ACTIVITIES: Net income (loss) .......................................................... $ 8,291 $(10,189) (13,066) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization .......................................... 15,440 12,822 11,506 Provision for bad debts and sales allowances ........................... 2,393 14,534 5,895 Amortization of unearned compensation .................................. 77 108 344 Restructuring and asset impairment charges ............................. -- 6,458 6,832 Other asset write-offs ................................................. -- 5,392 -- Deferred income taxes .................................................. 5,577 (6,037) (4,905) Changes in operating assets and liabilities, excluding effects of acquisition: Accounts receivable .................................................... (5,795) (30,165) (7,205) Income taxes receivable ................................................ 16 6,755 (6,970) Prepaid expenses and other current assets .............................. 1,472 (448) (4,048) Other assets ........................................................... (143) (247) 787 Accounts payable ....................................................... 1,901 3,549 (3,761) Restructuring accrual .................................................. (3,453) 4,497 2,863 Accrued compensation expenses .......................................... 1,524 (1,993) 1,023 Income taxes payable ................................................... -- -- (3,297) Other accrued expenses ................................................. 62 815 3,748 Customer deposits ...................................................... (731) (2,846) 1,534 -------- -------- -------- Net cash provided by (used in) operating activities ...................................................... 26,631 3,005 (8,720) -------- -------- -------- INVESTING ACTIVITIES: Purchases of property and equipment ........................................ (32,135) (24,883) (34,251) Investment in unconsolidated affiliate ..................................... (1,640) -- -- Cash acquired in acquisition, net of cash paid ............................. -- -- 192 -------- -------- -------- Net cash used in investing activities .............................. (33,775) (24,883) (34,059) -------- -------- -------- FINANCING ACTIVITIES: Net proceeds from revolving credit loan .................................... 8,000 11,000 -- Payments on long-term obligations .......................................... (2,310) (2,546) (2,615) Proceeds from long-term obligations ........................................ -- 4,000 -- Net proceeds from issuance of common stock ................................. -- -- 49,386 Dividend paid .............................................................. -- -- (174) Proceeds from exercise of stock options .................................... 1,865 -- -- -------- -------- -------- Net cash provided by financing activities .......................... 7,555 12,454 46,597 -------- -------- -------- Net increase (decrease) in cash and cash equivalents ........................... 411 (9,424) 3,818 Cash and cash equivalents at beginning of year ................................. 1,656 11,080 7,262 -------- -------- -------- Cash and cash equivalents at end of year ....................................... $ 2,067 $ 1,656 $ 11,080 ======== ======== ======== Supplemental cash flow information: Cash paid for interest, including capital leases, net of amounts capitalized ..................................................... $ 877 $ 893 $ 724 ======== ======== ======== Cash paid for income taxes ................................................. $ -- $ 215 $ 3,330 ======== ======== ======== Supplemental schedule of non-cash investing and financing activities: Installment loans and capital lease obligations ........................ $ -- $ -- $ 1,687 ======== ======== ========
The accompanying notes are an integral part of these financial statements. F-5 66 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS Precision Response Corporation and subsidiaries (the "Company") is a full-service provider of outsourced customer care, utilizing a fully-integrated mix of traditional call center and e-commerce customer care solutions and services, to large corporations and high-growth Internet-focused companies. Through the integration of its teleservicing, e-commerce customer care services, information technology, which includes database marketing and management, and fulfillment capabilities, the Company is able to offer a total customer relationship solution to meet its clients' needs. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and all wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates consist primarily of the allowance for doubtful accounts and sales allowances, the valuation allowance on net deferred tax assets, the useful lives of property and equipment, and accrued expenses. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS Highly liquid investments with a maturity of three months or less on their acquisition date are considered cash equivalents. The Company places its temporary cash investments with high credit quality financial institutions. At times, such investments may be in excess of the federally-insured limits. PROPERTY AND EQUIPMENT Property and equipment, including expenditures for major improvements, is stated at cost less accumulated depreciation and amortization. Repairs and maintenance are expensed as incurred. Depreciation and amortization is determined using the straight-line method over the estimated useful lives of the respective assets or, in relation to leasehold improvements and property under capital leases, over the lesser of the asset's estimated useful life or the lease term (see Note 5 - Property and Equipment). Upon the sale, retirement or other disposition of assets, the related cost and accumulated depreciation or amortization is eliminated from the accounts. Any resulting gains or losses from disposals are included in the Consolidated Statements of Operations. LONG-LIVED ASSETS The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with Statement of Financial Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF (see Note 3 - Restructuring and Other Non-Recurring Special Charges). F-6 67 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CAPITALIZED INTEREST The Company capitalizes certain interest costs recognized on borrowings as part of the historical cost of acquiring or producing certain assets in accordance with Statement of Financial Accounting Standards No. 34, CAPITALIZATION OF INTEREST COST. The amount capitalized is an allocation of the interest cost incurred during the period required to complete the asset. During 1999 and 1998, certain borrowings under the Company's revolving credit facility (see Note 6- Credit Facilities and Long-Term Debt) were used to partially fund the Company's PRISM Project (see Note 5- Property and Equipment) and other internally developed or modified software, and the resulting interest costs incurred have been capitalized. Total interest cost incurred during 1999 was $1.8 million, of which $1.2 million was expensed and is included in the accompanying 1999 Consolidated Statements of Operations, and the remaining $0.6 million was capitalized and is included in Property and equipment, net in the accompanying Consolidated Balance Sheets. Total interest cost incurred during 1998 was $1.3 million, of which $1.1 million was expensed and is included in the accompanying 1998 Consolidated Statements of Operations, and the remaining $0.2 million was capitalized and is included in Property and equipment, net in the accompanying Consolidated Balance Sheets. As each module of the PRISM Project became operational or as other internally developed or modified software is available for use, all associated capitalized costs, including capitalized interest, is, or will begin to be, amortized on a straight-line basis over the module's or software's estimated useful life. REVENUE RECOGNITION The Company recognizes revenues as services are performed. Teleservicing charges are primarily based on a fixed hourly fee for dedicated service. Internet customer care and electronic message servicing are based on hourly rates and on a transaction basis, respectively, or a combination of charges thereof. Beginning in the third quarter of 1997, the Company also generated teleservicing revenues under incentive-based compensation agreements whereby the amount of revenue earned correlates to the achievement of established targets. The Company exited the incentive-based teleservicing program during 1998. Charges for database marketing and management services are based on an hourly rate or on the volume of information stored. Charges for fulfillment services are typically assessed on a transaction basis, with an additional charge for warehousing products for customers. Revenues earned from the transfers of software by the Company are generally recognized when the software has been shipped, payment is due within one year, collectibility is probable and there are no significant obligations remaining. No such revenues were recognized in 1999 or 1998. SOFTWARE DEVELOPMENT COSTS The Company capitalized costs related to the development of certain software products integral to the Company's teleservicing programs and recent business process reengineering, which were either for internal use or with an objective of being marketed externally. Capitalized software development costs were reported at the lower of unamortized cost or net realizable value based upon future use on a product-by-product basis. In accordance with Statement of Financial Accounting Standards No. 86, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE MARKETED, ("SFAS No. 86") capitalization of these software development costs began when technological feasibility had been established and ended when the product was available for general use in the Company's teleservicing programs. The establishment of technological feasibility and the ongoing assessment of recoverability of capitalized software development costs require considerable judgment by management with respect to certain external factors, including, but not limited to, anticipated future demands of teleservicing programs, estimated economic life and changes in software and hardware technologies. F-7 68 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Commencing upon initial product release, capitalized software costs were amortized on an individual product basis using the straight-line method over the estimated economic life of the product or three years. The amount of externally marketed software development costs capitalized in 1997 was $1,660,000. No software development costs were incurred during 1999 or 1998 in accordance with the provisions of SFAS No. 86. Amortization expense related to externally marketed software development costs was $744,000 and $1,368,000 in 1998 and 1997, respectively. No amortization expense related to externally marketed software development costs was recorded in 1999. In conjunction with the Company's restructuring plan during the third quarter of 1998, the remaining unamortized balance of software development costs in the amount of $1,243,000 was written off (see Note 3 - Restructuring and Other Non-Recurring Special Charges). In accordance with Statement of Position 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE ("SOP 98-1"), the Company capitalizes acquired and internally developed or modified software solely to meet the Company's internal needs integral to the Company's teleservicing or Internet-based programs. The Company capitalizes certain internal and external costs directly associated with developing or modifying the internal use software, which begins with the application development stage and ends when the project is substantially complete and ready for its intended use. The amount of costs capitalized in 1999 and 1998 relating to internal use software in process was $3.1 million and $4.9 million, respectively, consisting principally of software purchased from external vendors, and is included in Property and equipment, net in the accompanying Consolidated Balance Sheets. In addition, $10.1 million of software developed or modified for internal purposes was available for use as of December 31, 1999 and is included in Property and equipment, net in the accompanying Consolidated Balance Sheets (see Note 5- Property and Equipment). As of December 31, 1998, no internal use software development projects were ready for their intended uses with the exception of the PRISM Project which is discussed in the following paragraph. The establishment of technological feasibility and the ongoing assessment of recoverability of capitalized software development costs require considerable judgment by management with respect to certain external factors, including, but not limited to, anticipated future teleservicing program or Internet-based program demand, estimated economic life and changes in software and hardware technologies. In addition, in accordance with Emerging Issues Task Force 97-13, ACCOUNTING FOR COSTS INCURRED IN CONNECTION WITH A CONSULTING CONTRACT OR AN INTERNAL PROJECT THAT COMBINES BUSINESS PROCESS REENGINEERING AND INFORMATION TECHNOLOGY TRANSFORMATION, and the provisions of SOP 98-1, the Company capitalized certain costs incurred in the enhancement of internal financial and operating systems associated with its initiative to implement an Enterprise Resource Planning solution, which the Company designated the PRISM Project. Capitalized costs incurred on the PRISM Project, consisting principally of software purchased from Oracle Corporation, outside consultant fees and, to a lesser extent, payroll and payroll-related costs for employees directly associated with the PRISM Project, were $12.8 million and $8.6 million as of December 31, 1999 and 1998, respectively, and are included in Property and equipment, net in the accompanying Consolidated Balance Sheets (see Note 5- Property and Equipment). The PRISM Project has been implemented in phases with certain systems or modules becoming functional at different points in the project timeframe. As each module of the PRISM Project was implemented, all associated capitalized costs began to be amortized on a straight-line basis over the module's estimated useful life. As of December 31, 1999, all modules of the PRISM Project had been placed in service. Amortization expense relating to the modules placed in service was approximately $1.3 million and $100,000 in 1999 and 1998, respectively. STOCK-BASED COMPENSATION Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, ("SFAS No. 123") encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. Accordingly, compensation expense for qualified and non-qualified stock options granted under the Company's stock option plans is generally measured as the difference between the quoted market price of the Company's F-8 69 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS stock at the date of grant and the amount an employee must pay to acquire the stock. For options granted to other than employees in exchange for goods or services, compensation cost is measured at fair value in accordance with SFAS 123 (see Note 12- Stock-Based Compensation Plans). ADVERTISING EXPENSES Advertising expenses are charged to operations as incurred. During 1999, 1998 and 1997, advertising expenses were $477,000, $418,000 and $341,000, respectively. INCOME TAXES The Company provides for deferred income taxes under the asset and liability method for financial accounting and reporting for income taxes. Deferred tax assets and liabilities are determined based on the differences between the financial statements carrying amounts and the tax bases of existing assets and liabilities using the enacted statutory tax rates in effect for the year in which the differences are expected to reverse. EARNINGS PER COMMON SHARE During 1997, the Company adopted Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE ("SFAS No. 128"), which supersedes Accounting Principles Board Opinion No. 15, EARNINGS PER SHARE. Basic earnings per common share calculations are determined by dividing earnings available to common shareholders by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share calculations are determined by dividing earnings available to common shareholders by the weighted average number of shares of common stock and dilutive common stock equivalents outstanding during the year (all related to outstanding stock options discussed in Note 12- Stock-Based Compensation Plans). 2. PUBLIC OFFERINGS Effective January 29, 1997 (the actual closing date was February 4, 1997), the Company and certain selling shareholders completed a second equity offering of 4,740,000 shares of common stock at an offering price of $35.125 per share (the "Second Equity Offering"). Of the 4,740,000 shares, 1,500,000 shares were sold by the Company. Net proceeds to the Company from the Second Equity Offering in the amount of $49.2 million, after deducting $3.5 million in costs associated with the offering, have been used for call center expansion, other capital expenditures necessary to support the Company's growth, working capital and other general corporate purposes. 3. RESTRUCTURING AND OTHER NON-RECURRING SPECIAL CHARGES During the third quarter of 1998, the Company performed an extensive review of its operations and existing available workstation capacity. Such review focused on determining the needed workstation capacity appropriate and desirable in light of several factors. These factors included the requirements for servicing the Company's current, recently attained, and anticipated new clients; the Company's less than satisfactory operating results relative to a large incentive-based, outbound teleservices program; and, the Company's inability to recruit, train and maintain an employee base relative to available workstations in certain strained labor markets without paying premium wage rates not able to be supported by the operating margins being generated. F-9 70 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As a result of this review, the Company initiated a restructuring and performance enhancing initiatives plan, which centered on exiting the incentive-based outbound teleservicing program, consolidating and making adjustments to certain call centers' workstation capacity and replacing certain existing software programs utilized in its call center operations with new customer interaction software reflective of advances in customer care technology. In connection with the Company's decision to exit the incentive-based outbound teleservicing program and to make call center capacity adjustments, certain reductions in overhead and administrative headcount were also made resulting in the termination of nine employees. In adopting this plan, the Company recorded restructuring and other non-recurring special charges of $22.1 million before taxes with an after-tax impact of $13.8 million. This pre-tax amount is allocated as follows in the Consolidated Statements of Operations for the year ended December 31, 1998: $13.6 million to Restructuring and asset impairment charges (as further described in the next paragraph); $2.3 million to Cost of services (of which $700,000 represents cash items and $1.6 million represents non-cash items) related principally to the write-off of teleservicing software that the Company decided to replace with new customer interaction software reflective of advances in customer care technology; and $6.2 million to Selling, general and administrative expenses (of which $2.1 million represents cash items and $4.1 million represents non-cash items) principally for asset impairments of $4.1 million related to the plan to exit an incentive-based outbound teleservicing program, $1.5 million related to increases in the provisions for certain accrued liabilities, and $600,000 related to severance and other employee costs incurred during the development of the performance enhancing initiatives plan. Of the total $8.5 million in Cost of services and Selling, general and administrative expenses described above, approximately $704,000 and $1.0 million was accrued at December 31, 1999 and 1998, respectively, and is included in Other accrued expenses in the accompanying Consolidated Balance Sheets. Amounts included in Restructuring and asset impairment charges in the Consolidated Statements of Operations for the year ended December 31, 1998 include cash items such as severance and other employee-related costs of $1.0 million and lease and other facility exit costs associated with the reduction of workstation capacity of $6.1 million. Of the total $7.1 million, approximately $3.2 million and $6.2 million is accrued as of December 31, 1999 and 1998, respectively, as part of the restructuring accrual. Non-cash restructuring and asset impairment charges of $6.5 million are primarily related to the write-off of leasehold improvements and telephone and computer equipment associated with the reduction in workstation capacity. As of December 31, 1999, the Company had substantially completed its restructuring and performance enhancing initiatives. During the fourth quarter of 1998, the Company's exit of the incentive-based outbound teleservicing program was completed and during the first quarter of 1999, the Company completed its termination of certain designated employees. As of the end of the fourth quarter of 1999, the Company had relocated all of the ongoing teleservicing programs from one center and maintained reduced workstation capacity in another center. Additionally, the Company implemented new customer interaction software reflective of advances in customer care technology. During the third quarter of 1997, the Company initiated an extensive and systematic review of its operations and cost structure in response to inefficiencies primarily resulting from the addition of capacity and infrastructure to accommodate a contract for its largest client that had been delayed indefinitely and an across-the-board price reduction imposed by this client. The review of the Company's operations focused primarily on operational and organization structures and systems, client profitability and facilities rationalization. As a result of this review, the Company announced a major restructuring and cost reduction plan designed to reduce its cost structure and adjust its infrastructure to significantly improve operating efficiencies and performance as the Company sought to shift its customer base to a more diversified portfolio. The Company initiated a plan to consolidate three administrative locations into unused space in an existing facility, to reduce overhead and administrative headcount by 10%, to consolidate and reorganize various F-10 71 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS functional departments and to integrate and enhance its financial and operating systems. The headcount reductions resulted in the termination of approximately 150 employees primarily in the areas of teleservicing, information services and administration. Payment of substantially all termination benefits took place during the fourth quarter of 1997 during which time actual employee terminations occurred. In adopting this plan, the Company recorded a non-recurring special charge of $26.2 million before taxes with an after-tax impact of $15.7 million. This amount is allocated as follows in the Consolidated Statements of Operations for the year ended December 31, 1997: $11.6 million to Restructuring and asset impairment charges (as further described in the next paragraph); $7.8 million to Cost of services (of which $6.6 million represented cash items and $1.2 million represented non-cash items) related principally to significant, non-capitalizable start-up and other costs incurred in expanding and improving the Company's ability to provide certain types of teleservicing and fulfillment services which it had previously been providing only on a limited basis (these costs primarily related to development of systems applications and training modules as well as actual employee training); and $6.8 million to Selling, general and administrative expenses (of which $6.7 million represented cash items and $100,000 represented non-cash items) principally for non-recurring operating expenses including $4.8 million of costs associated with the development of the Company's restructuring and cost reduction initiatives, increases in the provisions for certain accrued liabilities totaling $1.9 million and various balance sheet write-offs totaling $100,000. As of December 31, 1999, all accruals relating to Cost of services and Selling, general and administrative expenses described above were fully utilized. Amounts included in Restructuring and asset impairment charges in the Consolidated Statements of Operations for the year ended December 31, 1997 include cash items such as severance and other employee costs of $2.1 million and lease obligations and other exit costs associated with the consolidation of three administrative locations into an existing facility and the closing of one small, unused call center of $2.6 million. Non-cash restructuring and asset impairment charges of $6.9 million are primarily related to the write-off of leasehold improvements associated with the administrative facility consolidation and closing along with the cost to fully amortize redundant systems that are not deemed recoverable in light of the aforementioned changes with the Company's largest client. At December 31, 1999, $57,000 is included in Restructuring accrual in the Consolidated Balance Sheets, relating to facility consolidation costs associated with the 1997 restructuring plan. The Company initiated the restructuring and cost savings initiatives during the third quarter of 1997 and during the fourth quarter of 1997 and during 1998, the Company terminated designated employees and reorganized its operational and administrative management structure in connection with the restructuring and cost savings plan. The Company also completed the relocation and consolidation of administrative office space into unused space at an existing facility. Additionally, the Company continued its attempts to divest unused facilities. This included termination in February 1998, of a lease for an unused facility whose landlord is a corporation that is wholly owned by the Company's Chairman of the Board. In consideration of a termination payment of approximately $82,000, the landlord relieved the Company of its future lease commitments totaling approximately $161,000. The Company believes that the amount of the termination payment was no less favorable to it than could have been negotiated from an unaffiliated party. The Company's implementation throughout 1998 was substantially completed prior to the Company's initiation of additional restructuring and performance enhancing initiatives described above. F-11 72 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table sets forth the details and the cumulative activity in the restructuring accrual during the year ended December 31, 1999 (in thousands):
ACCRUAL ACCRUAL BALANCE AT BALANCE AT DECEMBER 31, DECEMBER 31, 1998 EXPENDITURES 1999 ----------------- ----------------- ---------------- Severance and other employee costs................... $ 697 $ (697) $ -- Closure and consolidation of facilities and related exit costs....................................... 6,003 (2,756) 3,247 ----------------- ----------------- ---------------- Total restructuring accrual.............. 6,700 $ (3,453) 3,247 ================= Less current portion..................... (3,244) (1,280) ----------------- ---------------- Total restructuring accrual, long-term... $ 3,456 $ 1,967 ================= ================
4. INVESTMENT IN UNCONSOLIDATED AFFILIATE On June 15, 1999, the Company acquired 6,000,000 shares of common stock of Global Reservation Systems, Inc. ("GRS"), currently representing an approximate 16% ownership interest in GRS's successor (see below), for an aggregate cost of $1.6 million. GRS (and its successor), a California corporation, specializes in developing Internet-based travel products and service systems. This equity investment in GRS has been accounted for using the cost method and is included in Other assets in the accompanying Consolidated Balance Sheet as of December 31, 1999. In conjunction with this transaction, the Company also was issued a warrant to purchase an aggregate of 3,000,000 shares of GRS common stock at an exercise price equivalent to the lesser of (i) the lowest per share price of any sales or issuances of GRS common stock (other than the sales or issuances related to outstanding GRS options to purchase 6,065,391 shares or an additional 2,900,000 shares reserved by GRS for future issuances of options) that take place up to the time of exercise or (ii) $0.85 per share, which exercise price currently is $0.60 per share. The exercise price and/or number of shares issuable upon exercising the warrant will be proportionately adjusted if effected after any future stock dividends, stock splits, combinations of stocks or issuance of stock in a reclassification as defined in the agreement. The right to exercise the warrant, in whole or in part, expires on June 15, 2002. In addition, the Company's decision to exercise this warrant currently would require the consent of the lender on its revolving credit facility and existing mortgage loan (see Note 6 - Credit Facilities and Long-Term Debt). In January 2000, GRS reorganized itself by transferring all of its assets and substantially all of its liabilities to a newly-formed California corporation which retained the Global Reservation Systems name. All existing shareholders, including the Company, retained the same relative interests in this new corporation as they had in the predecessor corporation. 5. PROPERTY AND EQUIPMENT Property and equipment is comprised of both owned property and property under capital leases, the details of which are set forth below (in thousands): F-12 73 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 DECEMBER 31, 1998 ---------------------------------- ----------------------------------- ESTIMATED USEFUL OWNED LEASED TOTAL OWNED LEASED TOTAL LIVES --------- -------- --------- --------- -------- --------- ---------- Land ........................... $ 1,057 $ -- $ 1,057 $ 1,057 $ -- $ 1,057 N/A Buildings and improvements ..... 5,140 -- 5,140 4,878 -- 4,878 25 years Telecommunications equipment and software ................... 25,681 4,406 30,087 20,946 4,432 25,378 3-7 years Computer equipment and software 63,538 5,429 68,967 33,768 5,523 39,291 3-5 years Leasehold improvements ......... 14,064 -- 14,064 11,167 -- 11,167 * Furniture and fixtures ......... 8,683 242 8,925 8,044 242 8,286 5-7 years Vehicles ....................... 111 -- 111 111 -- 111 3 years --------- --------- --------- --------- --------- --------- 118,274 10,077 128,351 79,971 10,197 90,168 Development in process ......... 5,360 -- 5,360 11,408 -- 11,408 N/A --------- --------- --------- --------- --------- --------- 123,634 10,077 133,711 91,379 10,197 101,576 Less: accumulated depreciation and amortization ............. (39,640) (5,962) (45,602) (25,943) (4,219) (30,162) --------- --------- --------- --------- --------- --------- $ 83,994 $ 4,115 $ 88,109 $ 65,436 $ 5,978 $ 71,414 ========= ========= ========= ========= ========= =========
* The lesser of the asset's estimated useful life or the lease term (see also Note 7- Lease Commitments). Depreciation and amortization expense amounted to $15,440,000, $12,078,000 and $10,138,000 for 1999, 1998 and 1997, respectively. As discussed in Note 1 - Operations and Significant Accounting Policies, the Company capitalizes certain costs in connection with its PRISM Project and software developed or modified for internal purposes, which will be amortized when the project modules are implemented or software is available for use. As of December 31, 1999, all modules of the PRISM Project had been placed in service and are included within Computer equipment and software in the above table in the amount of $12.8 million. Also included within Computer equipment and software in the above table is $10.1 million of software developed or modified for internal purposes, including IMA Advantage/Edge, that was available for use as of December 31, 1999. Additionally, as of December 31, 1999, $3.1 million of internal use software in process, including the Company's Advanced Communications Network project, is included within Development in process in the above table. During 1998, the Company acquired a property (land and existing building) in Sunrise, Florida. See also Note 6- Credit Facilities and Long-Term Debt below. The building and related building improvements of $5.1 million as of December 31, 1999 were not depreciated in 1999 or 1998 due to the fact that the building was not occupied or utilized during this time. The property, beginning in January 2000, is occupied and being utilized as a new customer interaction center. 6. CREDIT FACILITIES AND LONG-TERM DEBT On March 2, 1998, the Company entered into a three-year, $25.0 million revolving credit facility, replacing its then existing $15.0 million revolving credit facility. Effective June 30, 1999, the $25.0 million revolving credit facility was amended to increase the amount available under the credit facility to $35.0 million through January 31, 2000. The $25.0 million revolving credit facility was further amended effective December 31, 1999 (the "Credit Facility") to extend the $35.0 million amount available through February 29, 2000. In addition, the amount available under the Credit Facility will be increased to $50.0 million for the period of time between March 1, 2000 and June 30, 2000, subject to certain limitations, as described below, and satisfactory completion of the lender's audit of the Company's books and records and operations. Effective as of July 1, 2000, the amount available under the Credit Facility reverts back to $25.0 million. The December 31, 1999 amendment also extended the maturity date of the Credit Facility to June 30, 2001. In accordance with the F-13 74 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS terms of the amendment effective December 31, 1999, the Company paid the lender on its Credit Facility a modification fee in the amount of $200,000 in January 2000, which will be amortized over the remaining life of the Credit Facility. The terms of the amendment also require the Company to pay the lender on its Credit Facility an additional fee in the amount of $250,000 on July 1, 2000, in the event that USA Networks, Inc. has not completed its acquisition of the Company by June 30, 2000. See Note 17 - Subsequent Event for a further discussion of USA Network Inc.'s acquisition of the Company. The Credit Facility is collateralized by all of the Company's owned and hereafter acquired assets. The Company may borrow up to 80% of eligible accounts receivable. The Credit Facility accrues interest at the Company's option at (i) the greater of the prime rate or the Federal funds rate plus 0.50% or (ii) the LIBOR rate plus a specified percentage (1.25% to 1.75%) based upon the ratio of funded debt to earnings before interest, taxes, depreciation and amortization ("EBITDA"). Prior to December 31, 1999, the Company paid a fee of between 0.1875% and 0.25% per annum on unused commitments under the Credit Facility based upon the ratio of funded debt to EBITDA, of which the rate was 0.1875% per annum at December 31, 1999. Effective December 31, 1999, the future fee on unused commitments was increased to between 0.25% and 0.375% per annum. The Company is required, under the terms of the Credit Facility, to maintain certain financial covenants and ratios, including minimum tangible net worth and funded debt to EBITDA and funded debt to capitalization ratios, to limit capital expenditures and additional indebtedness and is restricted, among other things, with respect to the declaration and payment of dividends, redemptions, investments and acquisitions. At December 31, 1999, the outstanding balance of the Credit Facility was $19.0 million ($5.0 million at 8.50% per annum, $5.2 million at 7.48% per annum, $4.0 million at 7.73% per annum, $2.5 million at 7.46% per annum and $2.3 million at 7.32% per annum) and is included in Long-term obligations, less current maturities in the accompanying Consolidated Balance Sheets. At December 31, 1999, the available balance under the terms of the Credit Facility was $15.2 million. As of December 31, 1999, the Company was in compliance with all financial debt covenants. The Company also has secured a mortgage, as amended effective December 31, 1999, with the lender on its Credit Facility in connection with the acquisition of a property (land and existing building) located in Sunrise, Florida, which in January 2000 was opened as a customer interaction center by the Company. The mortgage loan is for $5.1 million, of which $4.0 million was advanced at closing in 1998. The remaining $1.1 million available under the loan is subject to the Company's completion of interior improvements to the property by March 2, 2000. The amended mortgage note accrues interest payable quarterly at the LIBOR rate plus 1.50% per annum, of which the interest rate was 7.33% per annum at December 31, 1999. Principal payments are due quarterly, commencing on January 31, 2000, based upon a 20-year amortization schedule, with a balloon payment due at maturity on June 1, 2005. The amended mortgage loan is cross-defaulted with and has terms substantially similar to the Credit Facility. Effective May 1997, the Company entered into a ten-year agreement to lease its operating facility located in Jacksonville, Florida. The terms of the lease included a construction allowance payment of approximately $1.0 million made by the lessor to the Company on commencement of the lease and in return the Company was obligated to make improvements to the facility. The lease agreement also specifies that if the Company terminates the lease agreement prior to its full term, it is required to refund the lessor the $1.0 million on a pro-rata basis. In connection with the restructuring plan adopted in the third quarter of 1998 (see Note 3 - Restructuring and Other Non-Recurring Special Charges), the Company reconfigured the workstation capacity and utilized space of the Jacksonville facility during 1999 and, therefore, will terminate the Jacksonville lease agreement at the lease option date in May 2002, which will represent only five years of the specified ten year lease term. As such, the Company will be obligated to refund the lessor 50% of the $1.0 million construction allowance, or $500,000, upon termination of the lease. The $500,000 was accrued at December 31, 1999 and is included in Long-term obligations, less current maturities in the accompanying Consolidated Balance Sheets. F-14 75 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Long-term obligations as of December 31, 1999 and 1998 consisted of the following (in thousands):
1999 1998 -------------- --------------- Credit Facility............................................... $ 19,000 $ 11,000 Mortgage loan................................................. 4,000 4,000 Capital lease obligations..................................... 1,616 3,926 Other long-term obligations................................... 500 500 --------------- --------------- 25,116 19,426 Less: current maturities...................................... 1,691 2,510 --------------- --------------- Long-term obligations, less current maturities................ $ 23,425 $ 16,916 =============== ===============
Based on the borrowing rates available to the Company for debt with similar terms and average maturities, the fair value of the Company's debt approximates carrying value. 7. LEASE COMMITMENTS The Company's operations are conducted in leased facilities which have initial terms generally ranging from two to ten years. The leases for these facilities would generally expire between 2004 and 2022 assuming the Company's exercise of all renewal options. However, as a result of the 1998 restructuring plan and continual assessment of the capacity requirements in Jacksonville and Margate-Coconut Creek, the Company will terminate the lease agreements relating to these locations no later than the lease option dates in May 2002. However, as of December 31, 1999, the Company had relocated all of the ongoing teleservicing programs from the Margate-Coconut Creek facility and maintained reduced workstation capacity in the Jacksonville center. The Company also has certain equipment leases which have terms of up to five years, of which the latest expiration date occurs in 2001. Rent expense under operating leases was $6,224,000, $6,542,000 and $5,867,000 for 1999, 1998 and 1997, respectively. On July 20, 1999, the Company executed a ten-year lease agreement with Crossroads Business Park Associates (the "Landlord"), which includes options to extend the initial term of the lease for an additional 15 years. The premises, located in Plantation, Florida, will be the site of the Company's new principal corporate offices. Certain terms of the new lease were amended on October 29, 1999, to provide for additional administrative space. The monthly base rent, as amended, payable commencing on the earlier of (i) the fifteenth business day immediately following the date that a certificate of occupancy or its equivalent is issued permitting the Company to occupy the premises or (ii) March 15, 2000 for the initial space and April 15, 2000 for the additional space, will initially be $54,775 per month, subject to 3% annual increases. The Company will also pay its proportionate share of customary operating expenses of the office building in which the Company's premises are located. Pursuant to the lease agreement, as amended, the Landlord will pay the Company an improvement allowance in the amount of $1.8 million. The Company has delivered a letter of credit in the amount of $750,000 to the Landlord as security for the performance of the Company's obligations under the lease agreement. The amount of such letter of credit will decrease annually by $150,000. In November 1999, the Company entered into a put/call agreement with Presidential Suites, Ltd., a Florida limited partnership directly and indirectly owned by the Company's chairman of the board ("Presidential"). Pursuant to such agreement, the Company was granted the right to cause Presidential to assign (and, in connection with such assignment, the Company would assume F-15 76 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Presidential's obligations accruing after such assignment with respect to), and Presidential was granted the right to cause the Company to assume Presidential's obligations accruing after such assumption with respect to (and, in connection with such assumption, Presidential would assign), Presidential's interest in a certain lease agreement for leased space consisting of approximately 3,388 rentable square feet ("Presidential Premises") and adjacent to the Company's new leased premises located in Plantation, Florida, as discussed above. In the event of the exercise of the Company or Presidential of this put/call right, the Company would also purchase, and Presidential would convey, Presidential's furniture, fixtures and equipment kept on the Presidential Premises ("FF&E"). In connection with the assignment and assumption of the aforesaid lease for the Presidential Premises and the conveyance of the FF&E, the Company would, among other things, (i) pay to Presidential the unamortized portion (which is amortizable over the initial term of the lease for the Presidential Premises) of the sum of (a) the cost of the tenant improvements constructed on the Presidential Premises in excess of the landlord's contribution in cash (and not in the form of a rent credit), and (b) the cost of the FF&E, and (ii) provide a substitute letter of credit to replace the then outstanding amount of Presidential's letter of credit delivered to the landlord (the initial amount of Presidential's letter of credit was $67,760). The base rental payable by Presidential under the lease for the Presidential Premises is $49,126 per annum (increasing by 3% per annum during the term) and the initial term of such lease is ten years. Future minimum lease payments under capital and operating leases, including all renewal periods, and the annual rentals due on the related party leases discussed in Note 9 - Related Party Transactions, at December 31, 1999 are as follows (in thousands):
CAPITAL OPERATING YEAR ENDING DECEMBER 31, LEASES LEASES - ------------------------ ----------- ------------- 2000......................................................................... $ 1,575 $ 5,602 2001......................................................................... 127 4,753 2002......................................................................... -- 3,919 2003......................................................................... -- 3,264 2004......................................................................... -- 3,226 Thereafter................................................................... -- 48,624 ----------- -------- Total minimum lease payments................................................. 1,702 $ 69,388 ======== Less: amount representing interest..................................................... 86 ----------- Present value of net minimum lease payments under capital leases....................... 1,616 Less: current maturities............................................................... 1,491 ----------- Long-term obligations.................................................................. $ 125 ===========
8. INFORMATION ABOUT SERVICES AND SIGNIFICANT CLIENTS The Company has one reportable operating segment; developing and delivering solutions to its clients' customer service and marketing needs utilizing teleservices, e-mail and the Internet, database marketing and management, information technology, electronic data processing and fulfillment services. A significant portion of the Company's business is dependent upon several large clients. For the years ended December 31, 1999, 1998 and 1997, the Company's five largest clients accounted for approximately 69%, 76% and 64% of gross revenues, respectively. As of December 31, 1999, 1998 and 1997, approximately 64%, 68% and 68%, respectively, of the Company's accounts receivable were from the five largest clients. Accounts receivable represents the Company's greatest concentration of credit risk and is subject to the financial condition of its largest clients. The Company does not require collateral or other security to support clients' receivables. The Company conducts periodic reviews of its clients' financial condition and vendor payment practices to minimize collection risks on trade accounts receivable. F-16 77 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS During 1999, 1998 and 1997, certain clients individually accounted for more than 10% of the Company's total gross revenues. The clients and their related percentage and amount of total gross revenues (in thousands) were as follows:
YEAR ENDED DECEMBER 31, -------------------------------------------------------------------------- 1999 1998 1997 ---------------------- ---------------------- ---------------------- % Amount % Amount % Amount ------ ----------- ------- ----------- ------- ----------- Company A......................... 42% $ 90,793 45% $ 80,559 38% $ 55,022 Company B......................... * * 12% $ 20,882 11% $ 15,139
- ---------- *Accounted for less than 10% of total gross revenues for the year indicated. 9. RELATED PARTY TRANSACTIONS During 1996, but prior to the completion of the Company's Initial Public Offering, the Company entered into various lease agreements for certain real property with a corporation that is wholly-owned by the Company's Chairman of the Board providing for aggregate annual rentals of approximately $288,000. The primary lease term is five years with a renewal option for an additional five-year period. In accordance with the Company's 1997 restructuring plan, the Company terminated one of the lease agreements and a termination payment of approximately $82,000 was made in February 1998. Rent expense under these leases was $284,000, $287,000 and $275,000 for 1999, 1998 and 1997, respectively. The Company also subleases another facility and a parking lot and leases an additional parking lot from a partnership jointly owned by certain of its shareholders. The sublease on the facility expires in January 2004, the sublease on the parking lot expires in January 2002 and the additional parking lot lease expires in June 2001, with combined annual rentals aggregating approximately $250,000. The Company paid approximately $385,000, $198,000 and $200,000 in 1999, 1998 and 1997, respectively, in fees to charter an aircraft in connection with business travel for the Company's personnel. The aircraft is owned by an entity of which the Company's Chairman of the Board is the sole shareholder. During 1999 and 1998 the Company funded a portion of the life insurance premiums payable with respect to up to three split-dollar life insurance policies owned by the Mark Gordon Family Trust. The amounts paid by the Company are reimbursable to the Company without interest upon the death of the Company's Chairman of the Board, the surrender of the policies or the termination of the arrangement. This obligation is secured by the benefits payable under the insurance policies. The aggregate amount outstanding for these premiums as of December 31, 1999 and 1998 was approximately $167,000 and $140,000, respectively, and is included in Other Assets in the accompanying Consolidated Balance Sheets. During 1999 the Company also funded a portion of the life insurance premiums payable with respect to three split-dollar life insurance policies owned by three separate trusts for the benefit of the family of the Company's chief executive officer. The amounts paid by the Company are reimbursable to the Company without interest upon, under one policy, the death of the chief executive officer, and under the other two policies, the death of the last to die of the chief executive officer and his spouse, the surrender of the policies or the termination of the arrangement; provided, however, that, in the event that prior to such time the chief executive officer's employment with the Company is terminated in certain circumstances (including, without limitation, as a result of his disability, without cause or constructive termination), the amounts paid by the Company will not be reimbursed. This obligation is secured F-17 78 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS by the benefits payable under the insurance policies. The aggregate amount outstanding for these premiums as of December 31, 1999 was approximately $34,000 and is included in Other Assets in the accompanying Consolidated Balance Sheet. The Company's executive vice president, general counsel and secretary (and who is also a director of the Company) was a partner of a certain law firm until immediately prior to joining the Company in March 1996, and remained "Of Counsel" to such law firm after joining the Company. Prior to February 1, 1998, such law firm had acted as the Company's regular outside legal counsel. As of February 1, 1998, a successor law firm commenced serving as the Company's regular outside counsel. The Company's executive vice president, general counsel and secretary is currently "Of Counsel" to such successor law firm. The total fees and costs paid by the Company to the aforementioned law firm and the successor law firm in 1999 were approximately $44,000 and $558,000, respectively, and in 1998 were approximately $98,000 and $468,000, respectively. The Company believes that the fees paid to these law firms are no less favorable than could be obtained from other comparable law firms in the area. In July 1998 the Company engaged a law firm to represent it in connection with governmental relations matters. A director of the Company is a shareholder and director of such law firm. Pursuant to such engagement, such law firm received a retainer of $25,000 in 1998 and received legal fees from the Company in the amount of $30,000 and $12,500 in 1999 and 1998, respectively. The engagement is terminable at any time by either party. 10. INCOME TAXES As described in Note 1 - Operations and Significant Accounting Policies, the Company provides for deferred income taxes under the asset and liability method for financial accounting and reporting for income taxes. The components of the income tax provision (benefit) for the years ended December 31, 1999, 1998 and 1997 are as follows (in thousands): 1999 1998 1997 -------- -------- --------- Current: Federal . $ 14 $ -- $(3,805) State ... -- -- -- ------- ------- ------- 14 -- (3,805) ------- ------- ------- Deferred: Federal . 4,760 (5,068) (3,632) State ... 817 (870) (1,273) ------- ------- ------- 5,577 (5,938) (4,905) ------- ------- ------- $ 5,591 $(5,938) $(8,710) ======= ======= ======= A reconciliation of the difference between the actual income tax provision and income taxes computed at the U.S. Federal statutory tax rate for the years ended December 31, 1999, 1998 and 1997 are as follows (in thousands): 1999 1998 1997 -------- -------- --------- U.S. Federal statutory tax rate applied to pre-tax income (loss) ................ $ 4,859 $(5,644) $(7,622) State income taxes, net of Federal benefit................................. 539 (577) (790) Nondeductible expenses and other, net .................................... 193 283 (298) ------- ------- ------- Income tax provision (benefit) ..... $ 5,591 $(5,938) $(8,710) ======= ======= ======= F-18 79 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The significant components of the net deferred tax asset as of December 31, 1999 and 1998 are as follows (in thousands): 1999 1998 ------- ------- Deferred tax assets: Allowances and reserves ....................... $ 8,059 $ 9,898 Net operating loss and tax credit carryforwards 9,177 10,043 Other ......................................... 143 174 ------- ------- 17,379 20,115 Deferred tax liability: Property and equipment ........................ 9,843 7,693 ------- ------- Net deferred tax assets ................. $ 7,536 $12,422 ======= ======= The net deferred tax asset in the amount of $7.5 million as of December 31, 1999 is based upon expected utilization of net operating loss ("NOL") carryforwards and reversal of certain temporary differences. Although realization is not assured, the Company believes it is more likely than not that all of the net deferred tax asset will be realized in the future. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. The Company will continue to review the assumptions used on a quarterly basis and make adjustments as appropriate. The Company has a Federal NOL carryforward of approximately $18.6 million and a state NOL carryforward of approximately $31.6 million, both of which will begin to expire in 2012. 11. CAPITAL STOCK The Company has authorized 100 million shares, par value $0.01, of common stock. The Company has also authorized 25 million shares, par value $0.01, of preferred stock, the terms of which have not yet been determined. The Company has no present plans to issue any preferred stock. Prior to the consummation of the Company's Initial Public Offering, the Company's Board of Directors declared a dividend payable in cash to the then current shareholders of the Company of approximately $5,243,000 (the "Dividend"). The Dividend was equal to the Company's then estimate of its cumulative taxable income prior to the conversion to a C corporation to the extent such taxable income had not previously been distributed. During the second quarter of 1997, the Company's final tax return as an S corporation was completed and filed. As a result, an additional $174,000 was paid to the Company's existing shareholders prior to the Initial Public Offering as a final distribution of the Company's accumulated taxable income prior to conversion to C corporation status. 12. STOCK-BASED COMPENSATION PLANS On May 31, 1996, the Company adopted the 1996 Incentive Stock Plan (the "Employee Stock Plan") and the 1996 Non-employee Director Stock Option Plan (the "Director Stock Plan"; together with the Employee Stock Plan, the "Stock Plans"). Officers, key employees and certain non-employee consultants may be granted stock options, stock appreciation rights, stock awards, performance shares and performance units under the Employee Stock Plan. Participation in the Director Stock Plan is limited to members of the Company's Board of Directors who are not salaried officers or employees of the Company. The Company originally reserved 1,931,684 shares of common stock for issuance under the Employee Stock Plan and 96,584 shares of common stock for issuance under the Director Stock Plan, after giving effect to the previously described stock splits by way of share dividends, and subject in each case to further anti-dilution adjustments. At the Company's annual meeting of shareholders on F-19 80 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS May 15, 1997, June 12, 1998, and June 21, 1999, the total number of shares reserved for issuance under the Employee Stock Plan was increased to 3,000,000, 4,000,000 and 4,750,000, respectively. In addition, at the Company's annual meeting of shareholders on June 21, 1999, the total number of shares reserved under the Director Stock Plan was increased to 300,000. Prior to the establishment of a compensation committee (the "Committee") of the Board of Directors, the Employee Stock Plan was administered by the Board of Directors of the Company. The Board of Directors or the Committee are authorized to determine, among other things, the key employees to whom, and the times at which, options and other benefits are to be granted, the number of shares subject to each option, the applicable vesting schedule and the exercise price. The Board of Directors or the Committee also determines the treatment to be afforded to a participant in the Employee Stock Plan in the event of termination of employment for any reason, including death, disability, retirement or change in control. Under the Employee Stock Plan, the maximum term of an incentive stock option is 10 years and the maximum term of a non-qualified stock option is 15 years. Incentive stock options under the Employee Stock Plan are required to be granted at an exercise price equal to that of 100% of the fair market value at the date of grant. Non-qualified options under the Employee Stock Plan are required to be granted at an exercise price not less than 85% of the fair market value at the date of grant, except for options covering up to 50,000 shares which may be granted at an exercise price equal to or in excess of par value (or $0.01 per share) (the "$0.01 Options"). With the exception of the $0.01 Options covering 21,000 shares and options to purchase an aggregate of 500,000 shares which were granted at an exercise price of approximately 94% of the fair market value at the date of grant, non-qualified options granted under the Employee Stock Plan through December 31, 1999 have been granted at an exercise price not less than 100% of the fair market value at the date of grant. The Director Stock Plan provides for annual grants of non-qualified stock options to each non-employee director of the Company. At the Company's annual meeting of shareholders on June 21, 1999, the Director Stock Plan was amended and restated in its entirety (the "Restated Director Stock Plan"). The Restated Director Stock Plan increased the number of nonqualified stock options automatically awarded to each non-employee director upon re-election from 2,500 shares to 5,000 shares of common stock at an exercise price equal to the fair market value of the common stock on the date of grant. However, the Restated Director Stock Plan provided for the award of 15,000 nonqualified stock options to each non-employee director re-elected at the June 21, 1999 meeting in lieu of the 5,000 annual grant. The purpose of the exception was to retroactively adjust the aggregate number of options previously awarded to the existing non-employee directors to be more consistent with the initial and annual awards under the Restated Director Stock Plan. In addition, the Restated Director Stock Plan authorized the Board, in its sole discretion, to grant to a non-employee director at the time of his or her initial election as a director of the Company nonqualified stock options in excess of the 5,000 shares of common stock automatically granted on initial election to the Board of Directors up to and not exceeding 50,000 shares. The options granted to each non-employee director will have a term of ten years and vest, in the case of options granted under the Director Stock Plan, in equal installments over three years and, in the case of options granted under the Restated Director Stock Plan, in full after the first anniversary of the date the option is granted. Stock options to purchase 45,000 shares at an exercise price of $5.53 per share were granted under the Restated Director Stock Plan during 1999. Stock options to purchase 7,500 shares at an exercise price of $6.32 per share during 1998 and 7,500 shares at exercise prices ranging between $21.125 and $33.75 per share during 1997 were granted under the Director Stock Plan. On July 16, 1996, an executive officer of the Company was granted a non-qualified stock option to purchase 21,000 shares of common stock at an exercise price of $0.01 per share under the Employee Stock Plan. In accordance with APB 25, the difference between the fair market value of the common stock and the exercise price, which amounted to $304,290, was recorded as unearned compensation (a separate component of shareholders' equity) and was recognized over the related vesting period. Amortization of the unearned compensation recorded in the accompanying Consolidated Financial Statements in accordance with APB 25 resulted in compensation expense of $41,000 and $111,000 for 1998 and 1997, respectively. As of December 31, 1998, the related unearned compensation was fully amortized. F-20 81 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS During 1996, two then non-employee consultants were granted options under the Employee Stock Plan to purchase an aggregate total of 85,000 shares of common stock at various exercise prices equal to 100% of the fair market values at the dates of grant. Pursuant to the application of SFAS 123 in accounting for these non-employee stock options, the Company recorded $387,000 in unearned compensation, which was amortized ratably over the related vesting periods. Amortization of the unearned compensation recorded in the accompanying Consolidated Financial Statements in accordance with SFAS 123 resulted in compensation expense of $67,000 and $233,000 for 1998 and 1997, respectively. As of December 31, 1998, the related unearned compensation was fully amortized. In late November 1997, the Company offered each employee, who had previously been granted options to purchase the Company's stock, the opportunity to change the option price, date of grant and vesting period effective December 5, 1997 (the "Repricing"). Under the terms of the Repricing, all previously granted stock options would be cancelled, including any vested options, and the employee would be granted the same number of options at the fair market value of the Company's common stock on December 5, 1997, which was $7.875 per share. The new grants would generally vest on a straight-line basis on each of the first five anniversaries from the new date of grant. At the time of the offer, the Company had approximately 170 employees who had been granted options to purchase the Company's common stock since the Company's Initial Public Offering with option prices ranging from $14.50 to $43.00. The Repricing plan was accepted by approximately 125 eligible Company employees with respect to 925,000 outstanding stock options. Additionally, during the fourth quarter of 1997, three executive officers of the Company had certain of their existing stock options repriced. Options covering a total of 646,000 shares of common stock were repriced, with 310,000 shares having a new exercise price of $7.41 per share and 336,000 shares having a new exercise price of $6.88 per share. As part of the repricing, certain of these stock options provided for a new vesting schedule. Options covering 254,000 shares now vest 50% on the original date of grant of the options with an additional 25% vesting on each of the first two anniversaries from the original date of grant, and options covering 336,000 shares now vest 50% six months from the repricing date of grant with an additional approximately 16-2/3% vesting on each of the first three anniversaries from the repricing date of grant. During the second quarter of 1998, the Company repriced options to purchase 100,000 shares of common stock previously issued to an employee. The exercise price of the options was reduced from $17.625 per share to $8.00 per share, the fair market value of the Company's common stock on the date of repricing. The repriced options were fully vested on the date of repricing. These options were cancelled during 1999 as a result of this employees voluntary termination. During 1999, a non-employee consultant was granted options on two occasions under the Employee Stock Plan to purchase an aggregate total of 50,000 shares of common stock at exercise prices equal to 100% of the fair market values at the dates of grant. Pursuant to the application of SFAS 123 in accounting for these non-employee stock options, the Company recorded $329,000 in unearned compensation, which is being amortized ratably over the related vesting periods. Amortization of the unearned compensation recorded in the accompanying Consolidated Financial Statements in accordance with SFAS 123 resulted in compensation expense of $50,000 for 1999. Also during 1999, two employees of the Company were each granted non-qualified stock options to purchase 250,000 shares of common stock at an exercise price of $5.1875 per share, which represented 94% of the fair market value at the date of grant, under the Employee Stock Plan. In accordance with APB 25, the difference between the fair market value of the common stock and the exercise price, which amounted to $157,000, was recorded as unearned compensation (a separate component of shareholders' equity) and is being recognized over the related vesting period. Amortization of the unearned compensation recorded in the accompanying Consolidated Financial Statements in accordance with APB 25 resulted in compensation expense of $27,000 for 1999. F-21 82 The fair value of each option grant under the Company's Stock Plans is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 1999, 1998 and 1997:
1999 1998 1997 ------------------ -------------------- ------------------ Expected volatility.......................... 76.7% 73.0% 78.3% Risk-free interest rate...................... 4.6% -6.6% 4.1% -5.9% 5.92% - 6.81% Dividend yield............................... 0.0% 0.0% 0.0% Expected life................................ 4-10 years 1-10 years 7 years
A summary of the status of the Company's Stock Plans as of December 31, 1999, 1998 and 1997 and changes during the years then ended is presented below:
WEIGHTED-AVERAGE NUMBER OF EXERCISE PRICE OPTIONS PER OPTION ----------------- --------------------- Outstanding at January 1, 1997..................................... 904,750 $ 26.63 Granted......................................................... 3,667,750 (1) 12.40 Exercised....................................................... (42,000) 7.02 Forfeited....................................................... (1,865,117) (1) 25.34 --------------- Outstanding at December 31, 1997 2,665,383 8.26 Granted......................................................... 1,663,750 (2) 6.60 Exercised....................................................... (7,000) 0.01 Forfeited....................................................... (481,483) (2) 10.06 --------------- Outstanding at December 31, 1998 3,840,650 7.39 Granted......................................................... 1,108,222 8.99 Exercised....................................................... (245,400) 7.60 Forfeited....................................................... (426,100) 9.59 --------------- Outstanding at December 31, 1999................................... 4,277,372 $ 7.60 ===============
---------- (1) Includes 925,000 shares cancelled and then subsequently re-granted as part of the Repricing and 646,000 shares cancelled and then subsequently re-granted in the fourth quarter of 1997 as part of a repricing of three executive officers' stock options at exercise prices ranging between $6.88 and $7.41 per share. (2) Includes 100,000 shares cancelled and, then, subsequently re-granted in the second quarter of 1998 as part of a repricing of an employee's stock options at an exercise price of $8.00 per share. The number of options exercisable at December 31, 1999, 1998 and 1997 was 2,021,921, 1,243,759 and 225,464, respectively. The per share weighted-average fair value of stock options granted during 1999, 1998 and 1997 was $6.77, $4.30 and $9.53, respectively. F-22 83 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes information about stock options outstanding at December 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE --------------------------------------------------- -------------------------------- WEIGHTED-AVERAGE NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE OUTSTANDING AT CONTRACTUAL EXERCISE EXERCISABLE AT EXERCISE RANGE OF EXERCISE PRICES DCEMBER 31, 1999 LIFE (YEARS) PRICE DECEMBER 31, 1999 PRICE - ------------------------------ ----------------- ------------- ------------ ---------------- ------------ $0.01 (1) 7,000 3.54 $ 0.01 7,000 $ 0.01 $4.06 to $6.32 1,190,500 6.30 5.21 388,849 5.35 $6.875 to $6.94 1,377,800 4.91 6.91 745,775 6.89 $7.41 to $7.7188 426,600 4.70 7.43 401,600 7.41 $7.875 (2) 606,250 5.41 7.88 275,249 7.88 $8.0313 to $16.00 508,000 5.93 9.34 193,450 8.24 $21.125 to $43.00 161,222 7.01 25.32 9,998 34.17 ----------------- ---------------- $0.01 to $43.00 4,277,372 5.54 7.60 2,021,921 7.07 ================= ================
- ---------- (1) As noted herein, the Employee Stock Plan provides for options covering up to 50,000 shares which may be granted at an exercise price equal to or in excess of par value (or $0.01 per share). (2) Represents the exercise price under the Repricing plan. Had compensation cost for the Company's Stock Plans been determined based on the fair value at the grant dates for awards under the Stock Plans consistent with the method prescribed by SFAS 123, the Company's net income (loss) and net income (loss) per share (diluted) in 1999, 1998 and 1997 would have been reduced to the proforma amounts indicated below (in thousands, except per share data):
1999 1998 1997 -------------- --------------- ------------- Net income (loss): As reported.................................... $ 8,291 $ (10,189) $ (13,066) Proforma....................................... 4,835 (14,733) (18,474) Diluted net income (loss) per common share: As reported.................................... $ 0.37 $ (0.47) $ (0.61) Proforma.......................................... 0.22 (0.68) (0.86)
The effects of applying SFAS 123 in this proforma disclosure are not indicative of future amounts. The Company anticipates that additional awards will be granted in future years. 13. EARNINGS PER SHARE The following reconciles the numerators and denominators of the basic and diluted earnings per share ("EPS") computations (in thousands, except per share data): F-23 84 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------------------------------ 1999 1998 1997 ------------------------------ -------------------------------- ------------------------------ NET PER NET PER NET PER INCOME SHARES SHARE LOSS SHARES SHARE LOSS SHARES SHARE ------ ------ ----- ---- ------ ----- ---- ------ ----- BASIC EPS: Income (loss) available to common shareholders.. $ 8,291 21,587 $ 0.38 $(10,189) 21,548 $(0.47) $(13,066) 21,393 $ (0.61) EFFECT OF DILUTIVE SECURITIES: Stock options(1) ........ -- 858 (0.01) -- -- -- -- -- -- -------- ------ -------- -------- ------ ------ -------- ------ -------- DILUTED EPS: Income (loss) available to common shareholders and assumed exercises... $ 8,291 22,445 $ 0.37 $(10,189) 21,548 $(0.47) $(13,066) 21,393 $ (0.61) ======== ====== ======== ======== ====== ====== ======== ====== ========
- ------------- (1) The effect of 71,679 and 178,684 shares of potential common stock were anti-dilutive in 1998 and 1997, respectively. 14. RETIREMENT PLANS The Company has adopted a profit sharing plan (the "Profit Sharing Plan") which covers substantially all employees who have been employed with the Company for at least two years and are at least 21 years of age. Under the terms of the Profit Sharing Plan, the Company makes elective contributions to the Profit Sharing Plan, the allocation of which to employees is based on relative salary. Effective January 1, 1997, the Company amended the Profit Sharing Plan to include certain 401(k) savings plan features (as amended, the "Profit Sharing/401(k) Plan"). Under the provisions of the Profit Sharing/401(k) Plan, employees meeting certain eligibility requirements may contribute a maximum of 15% of pre-tax gross wages, subject to certain restrictions imposed pursuant to the Internal Revenue Code. Company contributions are at the discretion of its Board of Directors. Vesting occurs over a six-year period at the rate of 20% per year, beginning after the second year of service. The Company accrued a contribution of $100,000, $85,000 and $45,000 to the Profit Sharing/401(k) Plan during 1999, 1998 and 1997, respectively. 15. CONTINGENCIES On or about August 26, 1998 a lawsuit was filed in Connecticut, captioned HENRY E. FREEMAN AND FREEMAN INDUSTRIAL ENTERPRISES CORPORATION v. PRECISION RESPONSE CORPORATION, MARK J. GORDON AND DAVID L. EPSTEIN (Case No. 3:98-CV-1895-AVC (D. Conn.)). It is currently pending in the United States District Court for the District of Connecticut. This lawsuit alleges that the Company breached its contracts with the plaintiffs by allegedly failing to pay all commissions relating to certain clients whom the plaintiffs allegedly claim they procured for the Company. The Amended Complaint also contains claims of breach of fiduciary duty, breach of covenant of good faith and fair dealing, civil conspiracy, fraud/fraud in the inducement, intentional infliction of emotional distress, negligent misrepresentation and violations of the Connecticut Unfair Trade Practices Act. The plaintiffs seek actual, compensatory and punitive damages, declaratory judgement that certain contracts are invalid due to undue influence exercised upon plaintiffs, recission of such contracts, an accounting and interest, costs and attorneys' fees. The Company has filed a motion to dismiss the Amended Complaint for failure to state a cause of action, which is currently pending before the Court. The case is currently in the discovery stage. The Company believes that the plaintiffs' allegations are totally without merit and intends to defend the lawsuit vigorously. A provision for legal defense costs has been accrued and is included in Other accrued expenses in the accompanying Consolidated Balance Sheets which management believes is adequate based on available information. No other provisions have been reflected since management is unable, at this time, to predict the ultimate outcome of this matter. F-24 85 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS On or about November 5, 1999 a lawsuit, captioned JOSEPH P. RIANO v. PRECISION RESPONSE CORPORATION; PRCNETCARE.COM, INC.; MARK J. GORDON; AND DAVID L. EPSTEIN (Case No. 99-25774 CA 10), was filed in the Circuit Court of the Eleventh Judicial Circuit in and for Miami Dade-County, Florida. This lawsuit alleges that PRC misappropriated the plaintiff's alleged trade secret. The plaintiff asserts a statutory claim against all defendants under the Florida Uniform Trade Secrets Act, Chapter 688, Florida Statutes. The plaintiff also asserts a claim against Precision Response Corporation ("PRC") that it breached a contract entered into with the plaintiff to keep certain information confidential. In addition, the plaintiff asserts claims for conversion against all of the defendants and for conspiracy to commit conversion against the individual defendants. The plaintiff also asserts a claim for unjust enrichment against PRC and prcnetcare.com, Inc. ("prcnetcare.com"). The plaintiff's complaint seeks an unspecified amount of compensatory damages, including all profits earned by the defendants as a result of their conduct, exemplary damages, attorneys' fees, interests and costs. The plaintiff also seeks an accounting and entry of an injunction preventing PRC and prcnetcare.com from continuing to misappropriate the plaintiff's alleged trade secret. On January 28, 2000, the court entered an order denying the defendants' motion to dismiss, with the exception of conspiracy claims against the corporate defendants, which were dismissed by agreement of counsel. An answer and affirmative defenses have been filed on behalf of all defendants. The Company believes that the plaintiff's allegations are totally without merit and intends to defend the lawsuit vigorously. 16. UNAUDITED QUARTERLY FINANCIAL DATA
FISCAL 1999 ----------------------------------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------------ ------------ ------------ ------------ (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues........................................ $ 46,248 $ 50,090 $ 57,006 $ 62,576 Gross profit.................................... 7,317 8,655 10,431 11,849 Operating income................................ 2,447 2,984 4,283 5,289 Net income...................................... 1,238 1,696 2,392 2,965 Basic earnings per common share................. 0.06 0.08 0.11 0.14 Diluted earnings per common share............... 0.06 0.08 0.11 0.13
FISCAL 1998 ----------------------------------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------------ ------------ ------------ ------------ (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues....................................... $ 40,535 $ 43,379 $ 44,978 $ 46,281 Gross profit................................... 4,025 6,157 4,437 6,916 Operating income (loss)........................ 705 1,727 (19,880) (1) 2,110 Net income (loss).............................. 373 829 (12,604) 1,213 Basic earnings (loss) per common share......... 0.02 0.04 (0.58) 0.06 Diluted earnings (loss) per common share....... 0.02 0.04 (0.58) 0.06
- ---------- (1) Includes non-recurring special charges of $22.1 million before taxes in 1998 as part of the Company's restructuring and cost reduction initiatives (see Note 3 - Restructuring and Other Non-Recurring Special Charges). F-25 86 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 17. SUBSEQUENT EVENT On January 12, 2000, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") by and among the Company, USA Networks, Inc. ("USAi"), a Delaware corporation, and P Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of USAi ("Newco"), pursuant to which Newco would be merged with and into the Company, with the Company remaining as the surviving corporation in the merger. Upon and subject to consummation of the merger, each share of the Company's common stock would be converted into 1.08 shares of USAi common stock (taking into account the two-for-one stock split of USAi common stock to be effected on February 24, 2000 as to USAi common shareholders as of February 10, 2000). Consummation of the Merger Agreement is subject to certain terms, conditions and termination rights specified in the Merger Agreement. In particular, the Company may elect to terminate the Merger Agreement if the volume-weighted average sales price per share of USAi common stock on the twenty consecutive trading days ending on the second full trading day prior to the Company's special meeting of shareholders (to be convened to take action upon the Merger Agreement) is less than $18.52 (taking into account the above-described USAi two-for-one stock split). If the Company makes such election, USAi may, however, elect, in its sole discretion, to increase the exchange ratio at that time so that the Company's shareholders receive $20.00 worth of USAi common stock for each share of the Company's common stock, in which case the Company's termination election will be deemed to be rescinded. In addition, the merger is subject to approval or expiration or earlier termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the approval of shareholders of the Company holding a majority of outstanding shares of common stock, as well as other customary closing conditions. The merger is currently expected to close by June 2000. F-26 87 PRECISION RESPONSE CORPORATION SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (DOLLARS IN THOUSANDS)
ADDITIONS CHARGED TO BEGINNING COSTS AND ENDING DESCRIPTION BALANCE EXPENSES (1) DEDUCTIONS (2) BALANCE - ------------------------------------------- -------------- ----------------- ------------------- ----------- Year ended December 31, 1999: Allowance for doubtful accounts and sales allowances............ $ 8,225 $ 2,393 $ 8,207 $ 2,411 Year ended December 31, 1998: Allowance for doubtful accounts and sales allowances............ 2,864 14,534 9,173 8,225 Year ended December 31, 1997: Allowance for doubtful accounts and sales allowances............ 2,650 5,895 5,681 2,864
- ------------ (1) Amounts charged to bad debt expense and sales credits were $50 and $2,343 in 1999, respectively, $4,314 and $10,220 in 1998, respectively, and $448 and $5,447 in 1997, respectively. (2) Deductions represent customer accounts written-off and sales credit S-1 88 PRECISION RESPONSE CORPORATION INDEX TO EXHIBITS FILED HEREWITH
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - --------------- -------------------------------------------------------------------------------------------------- 3.2 Amended and Restated Bylaws of Precision Response Corporation 10.7 Letter agreement dated January 12, 2000 between the Company and Mark J. Gordon 10.8 Second Amendment to Employment Agreement dated as of September 1, 1999 between the Company and David L. Epstein and Third Amendment to Employment Agreement dated as of January 12, 2000 between the Company and David L. Epstein 10.12 Letter dated January 12, 2000 from David L. Epstein to and accepted by Mark J. Gordon terminating Stockholder Agreement dated May 10, 1996 between Messrs. Gordon and Epstein 10.31 Fourth Amendment to Revolving Credit Agreement effective as of December 31, 1999 between the Company and NationsBank 10.34 Revolving Promissory Note effective as of December 31, 1999 between the Company and NationsBank 10.39 Fourth Amendment to Mortgage Loan Agreement effective as of December 31, 1999 between the Company and NationsBank 10.40 First Amendment to Employment Agreement dated as of January 13, 2000 between the Company and Robert Tenzer 10.44 First Amendment to Employment Agreement dated as of January 12, 2000 between the Company and Richard D. Mondre 10.45 First Amendment to Employment Agreement dated as of January 12, 2000 between the Company and Richard N. Ferry, Jr. 10.46 First Amendment to Employment Agreement dated as of January 13, 2000 between the Company and Michael P. Miller 10.52 Put/Call Agreement dated November 17, 1999 between the Company and Presidential Suites, Ltd. 10.53 First Amendment to Employment Agreement dated as of January 12, 2000 between the Company and Paul M. O'Hara 10.54 Tri-Party Split Dollar Agreement and Collateral Assignment effective as of September 1, 1999 between the David Epstein 1995 Grantor Trust u/a/d December 28, 1995 and the Epstein 1997 Family Trust u/a/d June 19, 1997 and the Company 10.55 Amended and Restated Split Dollar Agreement and Collateral Assignment effective as of September 1, 1999 between the David Epstein 1995 Irrevocable Life Insurance Trust u/a/d August 2, 1995 and the Company 10.56 Amended and Restated Split Dollar Agreement and Collateral Assignment effective as of September 1, 1999 between the Epstein 1995 Family Trust u/a/d August 2, 1995 and the Company
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - --------------- -------------------------------------------------------------------------------------------------- 10.57 Split Dollar Agreement and Collateral Assignment effective April 1998 between the Mark Gordon Family Trust u/a/d March 1, 1990 and the Company 10.58 Employment Agreement dated as of November 15, 1999 between the Company and Joseph E. Gillis, as amended by First Amendment to Employment Agreement dated as of January 13, 2000 between the Company and Joseph E. Gillis 10.59 Employment Agreement dated as of November 15, 1999 between the Company and Thomas F. Jennings, Jr., as amended by First Amendment to Employment Agreement dated as of January 13, 2000 between the Company and Thomas F. Jennings, Jr. 10.60 Employment Agreement executed as of October 1, 1999 between the Company and Frank Modrak 23.1 Consent of PricewaterhouseCoopers LLP 27.1 Financial Data Schedule
(ii) EX-3.2 2 AMENDED AND RESTATED BYLAWS 1 EXHIBIT 3.2 AMENDED AND RESTATED BYLAWS OF PRECISION RESPONSE CORPORATION 2 TABLE OF CONTENTS
Page Number ------ ARTICLE I MEETINGS OF SHAREHOLDERS...............................................................1 Section 1. Annual Meeting.........................................................................1 Section 2. Special Meetings.......................................................................1 Section 3. Place..................................................................................1 Section 4. Notice.................................................................................1 Section 5. Manner of Notice.......................................................................2 Section 6. Notice of Adjourned Meetings...........................................................2 Section 7. Fixing of Record Date..................................................................2 Section 8. Shareholders' List For Meeting.........................................................3 Section 9. Shareholder Quorum and Voting..........................................................3 Section 10. Voting Entitlement of Shares...........................................................4 Section 11. Proxies................................................................................5 Section 12. Voting Trusts..........................................................................5 Section 13. Notice of Shareholder Business and Nominations.........................................5 (a) Annual Meetings of Shareholders........................................................5 (b) Special Meetings of Shareholders.......................................................6 (c) General................................................................................7 Section 14. Shareholders' Agreements...............................................................7 ARTICLE II DIRECTORS..............................................................................7 Section 1. Function...............................................................................7 Section 2. Qualification..........................................................................7 Section 3. Compensation...........................................................................8 Section 4. Duties of Directors....................................................................8 Section 5. Presumption of Assent..................................................................8 Section 6. Number.................................................................................8 Section 7. Election...............................................................................9 Section 8. Term...................................................................................9 Section 9. Resignation............................................................................9 Section 10. Vacancies..............................................................................9 Section 11. Removal of Directors...................................................................9 Section 12. Quorum and Voting......................................................................9 Section 13. Conflicts of Interest..................................................................9 Section 14. Executive and Other Committees........................................................10 Section 15. Meetings..............................................................................11 Section 16. Notice of Meetings....................................................................11 Section 17. Waiver of Notice......................................................................11 Section 18. Action Without a Meeting..............................................................11 Section 19. Amendment by Board of Directors.......................................................12
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ARTICLE III OFFICERS..............................................................................12 Section 1. Officers..............................................................................12 Section 2. Powers and Duties.....................................................................12 Section 3. Delegation............................................................................13 Section 4. Resignation and Removal of Officers...................................................13 Section 5. Contract Rights.......................................................................14 ARTICLE IV STOCK CERTIFICATES....................................................................14 Section 1. Form and Content of Certificates......................................................14 Section 2. Transfer of Stock.....................................................................15 Section 3. Lost, Stolen or Destroyed Certificates................................................15 ARTICLE V BOOKS AND RECORDS.....................................................................15 Section 1. Corporate Records.....................................................................15 Section 2. Inspection of Records by Shareholders.................................................16 Section 3. Scope of Inspection Right.............................................................17 Section 4. Financial Statements for Shareholders.................................................17 ARTICLE VI DIVIDENDS.............................................................................17 Section 1. Distributions to Shareholders.........................................................17 Section 2. Share Dividends.......................................................................19 ARTICLE VII CORPORATE SEAL........................................................................19 ARTICLE VIII EXECUTION OF DOCUMENTS................................................................19 ARTICLE IX INDEMNIFICATION.......................................................................19 ARTICLE X AMENDMENT.............................................................................22
(ii) 4 AMENDED AND RESTATED BYLAWS OF PRECISION RESPONSE CORPORATION ARTICLE I MEETINGS OF SHAREHOLDERS SECTION 1. ANNUAL MEETING. The annual meeting of the shareholders of this corporation shall be held at the time and place designated by the Board of Directors of the corporation. The annual meeting of shareholders for any calendar year shall be held no later than thirteen months after the last preceding annual meeting of shareholders. Business transacted at the annual meeting shall include the election of directors of the corporation and any proper business as may come before the meeting. SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders shall be held when directed by the Board of Directors, or when a signed and dated written demand is delivered to the secretary of the corporation by the holders of not less than fifty (50%) percent of all votes entitled to be cast on any issue to be considered at the proposed special meeting, describing the purposes of the proposed special meeting. At any special meeting only such business may be transacted which is related to the purpose or purposes set forth in the notice of such special meeting. SECTION 3. PLACE. Meetings of shareholders may be held within or without the State of Florida. SECTION 4. NOTICE. The corporation shall notify shareholders of the date, time and place of each annual and special shareholders' meeting no fewer than ten (10) or more than sixty (60) days before the meeting date. Unless the Florida Business Corporation Act, as amended (the "Act"), or the Articles of Incorporation, as amended from time to time hereafter (the "Articles of Incorporation") require otherwise, the corporation is required to give notice only to shareholders entitled to vote at the meeting. Notice shall be given in the manner provided in section 5 below, by or at the direction of the chairman of the board or chief executive officer, the secretary, or the officer or persons calling the meeting. If the notice is mailed at least thirty (30) days before the date of the meeting, it may be done by a class of United States mail other than first class. Notwithstanding section 5 below, if mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the shareholder at his address as it appears on the stock transfer books of the corporation, with postage thereon prepaid. Unless the Act or the Articles of Incorporation require otherwise, notice of an annual meeting need not include a description of the purpose or purposes for which the meeting is called. 5 Notice of a special meeting must include a description of the purpose or purposes for which the meeting is called. Notwithstanding the foregoing, no notice of a shareholders' meeting need be given to a shareholder if (a) an annual report and proxy statement for two consecutive annual meetings of shareholders or (b) all, and at least two, checks in payment of dividends or interest on securities during a twelve (12) month period have been sent by first-class United States mail, addressed to the shareholder at his address as it appears on the share transfer books of the corporation, and returned undeliverable. The obligation of the corporation to give notice of a shareholders' meeting to any such shareholder shall be reinstated once the corporation has received a new address for such shareholder for entry on its share transfer books. SECTION 5. MANNER OF NOTICE. Any notice given under these Bylaws must be written and may be communicated in person; telegraph, teletype or other form of electronic communication; or by mail. Written notice by the corporation to a shareholder shall be effective when mailed, if mailed postpaid and correctly addressed to the shareholder's address shown in the corporation's current record of shareholders. Written notice to a domestic or foreign corporation authorized to transact business in this state may be addressed to its registered agent at its registered office or to the corporation or its secretary at its principal office shown in its most recent annual report or, in the case of corporation that has not yet delivered an annual report, in a domestic corporation's articles of incorporation or in a foreign corporation's application for certificate of authority. Except as otherwise provided herein or in the Act, written notice shall be effective at the earliest date of the following: (a) when received; (b) five days after its deposit in the United States mail, as evidenced by the postmark, if mailed postpaid and correctly addressed; or (c) on the date shown on the return receipt, if sent by registered or certified mail return receipt requested, and the receipt is signed by or on behalf of the addressee. SECTION 6. NOTICE OF ADJOURNED MEETINGS. If an annual or special shareholders' meeting is adjourned to a different date, time or place, notice need not be given of the new date, time or place if the new date, time or place is announced at the meeting before an adjournment is taken, and any business may be transacted at the adjourned meeting that might have been transacted on the original date of the meeting. If a new record date for the adjourned meeting is or must be fixed, however, notice of the adjourned meeting must be given as provided in section 5 above to persons who are shareholders as of the new record date who are entitled to notice of the meeting. SECTION 7. FIXING OF RECORD DATE. For the purpose of determining shareholders entitled to notice of a shareholders' meeting, to demand a special meeting, to vote, or to take any other action, the Board of Directors may fix the record date. In no event may a record date fixed by the Board of Directors be a date preceding the date upon which the 2 6 resolution fixing the record date is adopted. The record date for determining shareholders entitled to demand a special meeting is the date the first shareholder delivers his demand to the corporation. If not otherwise provided by or pursuant to these Bylaws, the record date for determining shareholders entitled to notice of and to vote at an annual or special shareholders' meeting is the close of business on the day before the first notice is delivered to shareholders. A record date for purposes of this section may not be more than seventy (70) days before the meeting or action requiring a determination of shareholders. A determination of shareholders entitled to notice of or to vote at a shareholders' meeting is effective for any adjournment of the meeting unless the Board of Directors fixes a new record date, which it must do if the meeting is adjourned to a date more than the one hundred twenty (120) days after the date fixed for the original meeting. SECTION 8. SHAREHOLDERS' LIST FOR MEETING. After fixing a record date for a meeting, the corporation shall prepare an alphabetical list of the names of all its shareholders who are entitled to notice of a shareholders' meeting, arranged by voting group with the address of, and the number and class and series, if any, of shares held by, each. The shareholders' list must be available for inspection by any shareholder for a period of ten (10) days prior to the meeting or such shorter time as exists between the record date and the meeting and continuing through the meeting at the corporation's principal office, at a place identified in the meeting notice in the city where the meeting will be held, or at the office of the corporation's transfer agent or registrar. A shareholder or his agent or attorney is entitled on written demand to inspect the list during regular business hours and at his expense during the period it is available for inspection. The corporation shall make the shareholders' list available at the meeting, and any shareholder or his agent or attorney is entitled to inspect the list at any time during the meeting or any adjournment. If the requirements of this section have not been substantially complied with or if the corporation refuses to allow a shareholder or his agent or attorney to inspect the shareholders' list before or at the meeting, the meeting shall be adjourned until such requirements are complied with on the demand of any shareholder in person or by proxy who failed to get such access. Refusal or failure to comply with the requirements of this section shall not affect the validity of any action taken at such meeting. SECTION 9. SHAREHOLDER QUORUM AND VOTING. A majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. When a specified item of business is required to be voted on by a class or series of stock, a majority of the shares of such class or series shall constitute a quorum for the transaction of such item of business by that class or series. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on the subject matter shall be the act of the shareholders unless otherwise provided by law or the Articles of Incorporation. After a quorum has been established at a shareholders' meeting, the subsequent withdrawal of shareholders, so as to reduce the number of shares entitled to vote at the meeting below the number required for a quorum, shall not affect the validity of any action taken at the meeting or any adjournment thereof. 3 7 SECTION 10. VOTING ENTITLEMENT OF SHARES. Except as otherwise provided below, each outstanding share, regardless of class, is entitled to one vote on each matter submitted to a vote at a meeting of shareholders. Only shares are entitled to vote. The shares of the corporation are not entitled to vote if they are owned, directly or indirectly, by a second corporation, domestic or foreign, and the corporation owns, directly or indirectly, a majority of the shares entitled to vote for directors of the second corporation. This paragraph does not limit the power of the corporation to vote any shares, including its own shares, held by it in a fiduciary capacity. Redeemable shares are not entitled to vote on any matter, and shall not be deemed to be outstanding, after notice of redemption is mailed to the holders thereof and a sum sufficient to redeem such shares has been deposited with a bank, trust company, or other financial institution upon an irrevocable obligation to pay the holders the redemption price upon surrender of the shares. Shares standing in the name of another corporation, domestic or foreign, may be voted by such officer, agent or proxy as the Bylaws of the corporate shareholder or, in the absence of any applicable provision, by such person as the Board of Directors of the corporate shareholder may designate. In the absence of any such designation, or in case of a conflicting designation by the corporate shareholder, the chairman of the board, the president, any vice president, the secretary and the treasurer of the corporate shareholder, in that order, shall be presumed to be fully authorized to vote such shares. Shares held by an administrator, executor, guardian, personal representative or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of such shares into his name or the name of his nominee. Shares held by or under the control of a receiver, a trustee in bankruptcy proceedings or an assignee for the benefit of creditors may be voted by him without the transfer thereof into his name. If a share or shares stand of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety, or otherwise, or if two or more persons have the same fiduciary relationship respecting the same shares, unless the secretary of the corporation is given notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, the acts with respect to voting have the following effect: (a) if only one votes, in person or by proxy, his act binds all; (b) if more than one votes, in person or by proxy, the act of the majority so voting binds all; (c) if more than one votes, in person or by proxy, but the vote is evenly split on any particular matter, each faction is entitled to vote the share or shares in question proportionally; (d) if the instrument or order so filed shows that any such tenancy is held in unequal interest, a majority or a vote evenly split for purposes of this section shall be a majority or a vote evenly split in interest; (e) the principles of this section shall apply, insofar as possible, to execution of proxies, waivers, consents, or objections and for the purpose of ascertaining the presence of a quorum. Nothing herein contained shall prevent trustees or other fiduciaries holding shares registered in the name of a nominee from causing such shares to be voted by such nominee as the trustee or other fiduciary may direct. Such nominee may vote shares as directed by a trustee or other fiduciary without the necessity of transferring the shares to the name of the trustee or other fiduciary. 4 8 SECTION 11. PROXIES. A shareholder, other person entitled to vote on behalf of a shareholder pursuant to section 10 above, or attorney-in-fact may vote the shareholders' shares in person or by proxy. A shareholder may appoint a proxy to vote or otherwise act for him by signing an appointment form, either personally or by his attorney-in-fact. An executed telegram or cablegram appearing to have been transmitted by such person, or a photographic, photostatic or equivalent reproduction of an appointment form, is a sufficient appointment form. An appointment of a proxy is effective when received by the secretary or other officer or agent authorized to tabulate votes. An appointment is valid for up to eleven (11) months unless a longer period is expressly provided in the appointment form. The death or incapacity of the shareholder appointing a proxy does not affect the right of the corporation to accept the proxy's authority unless notice of the death or incapacity is received by the secretary or other officer or agent authorized to tabulate votes before the proxy exercises his authority under the appointment. If an appointment form expressly provides, any proxy holder may appoint, in writing, a substitute to act in his place. SECTION 12. VOTING TRUSTS. One or more shareholders may create a voting trust, conferring on a trustee the right to vote or otherwise act for them, by signing an agreement setting out the provisions of the trust as provided by law and transferring their shares to a trustee. The trustee shall thereafter prepare a list of names and addresses of all owners of beneficial interests in the trust, together with the number and class of shares of each transferred to the trust, and deliver copies of the list and agreement to the corporation's principal office. After filing a copy of the list and agreement in the corporation's principal office, such copies shall be open to inspection by any shareholder of the corporation (subject to the requirements of Article V herein) or any beneficiary of the trust under the agreement during business hours. SECTION 13. NOTICE OF SHAREHOLDER BUSINESS AND NOMINATIONS. (a) ANNUAL MEETINGS OF SHAREHOLDERS. (1) Nominations of persons for election to the Board of Directors of the corporation and the proposal of business to be considered by the shareholders may be made at an annual meeting of shareholders (a) by or at the direction of the Board of Directors or (b) by any shareholder of the corporation who was a shareholder of record at the time of giving of notice provided for in this Bylaw, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this Bylaw. (2) For nominations or other business to be properly brought before an annual meeting by a shareholder pursuant to clause (b) of paragraph (a)(1) of this Bylaw, the shareholder must have given timely notice thereof in writing to the Secretary of the corporation and such other business must otherwise be a proper matter for shareholder action. To be timely, a shareholder's notice shall be delivered to the 5 9 Secretary at the principal executive offices of the corporation not later than the close of business on the sixtieth (60th) day, nor earlier than the close of business on the ninetieth (90th) day, prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is more than thirty (30) days before or more than sixty (60) days after such anniversary date, notice by the shareholder to be timely must be so delivered not earlier than the close of business on the ninetieth (90th) day prior to such annual meeting and not later than the close of business on the later of the sixtieth (60th) day prior to such annual meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made by the corporation. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a shareholder's notice as described above. Such shareholder's notice shall set forth (a) as to each person whom the shareholder proposes to nominate for election or re-election as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (b) as to any other business that the shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such shareholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such shareholder, as they appear on the corporation's books, and of such beneficial owner and (ii) the class and number of shares of the corporation which are owned beneficially and of record by such shareholder and such beneficial owner. (3) Notwithstanding anything in the second sentence of paragraph (a)(2) of this Bylaw to the contrary, in the event that the number of directors to be elected to the Board of Directors of the corporation is increased and there is no public announcement by the corporation naming all of the nominees for director or specifying the size of the increased Board of Directors at least seventy (70) days prior to the first anniversary of the preceding year's annual meeting, a shareholder's notice required by this Bylaw shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the corporation not later than the close of business on the tenth (10th) day following the date on which such public announcement is first made by the corporation. (b) SPECIAL MEETINGS OF SHAREHOLDERS. Only such business shall be conducted at a special meeting of shareholders as shall have been brought before the meeting pursuant to the corporation's notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of shareholders at which directors are to be elected pursuant to the corporation's notice of meeting (a) by or at the direction of the Board of Directors or (b) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any shareholder of the corporation who is a shareholder of record at the time of giving of notice provided for in this Bylaw, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Bylaw. In the event the corporation calls a special meeting of shareholders for the purposes of electing one or more directors to the Board of Directors, any such shareholder may nominate a person or persons (as the case may be), for election of such position(s) as specified in the corporation's notice of meeting, if the shareholder's notice required by paragraph (a)(2) of this Bylaw shall be delivered to the Secretary at the principal executive offices of the corporation not earlier than the close of business on the ninetieth (90th) day prior to such special meeting and not later than the close of business on the later of the sixtieth (60th) day prior to such special meeting or the tenth (10th) 6 10 day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment of a special meeting commence a new time period for the giving of a shareholder's notice as described above. (c) GENERAL. (1) Only such persons who are nominated in accordance with the procedures set forth in this Bylaw shall be eligible to serve as directors and only such business shall be conducted at a meeting of shareholders as shall have been brought before the meeting in accordance with the procedures set forth in this Bylaw. Except as otherwise provided by law, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Bylaw and, if any proposed nomination or business is not in compliance with this Bylaw, to declare that such defective proposal or nomination shall be disregarded. (2) For purposes of this Bylaw, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (3) Notwithstanding the foregoing provisions of this Bylaw, a shareholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Bylaw. Nothing in this Bylaw shall be deemed to affect any rights (i) of shareholders to request inclusion of proposals in the corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders of any series of preferred stock to elect directors under specified circumstances. SECTION 14. SHAREHOLDERS' AGREEMENTS. Two or more shareholders of this corporation may provide for the manner in which they vote their shares by signing an agreement for that purpose as provided by law. ARTICLE II DIRECTORS SECTION 1. FUNCTION. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation managed under the direction of, its Board of Directors. SECTION 2. QUALIFICATION. Directors must be natural persons who are eighteen (18) years of age or older but need not be residents of the State of Florida or shareholders of this corporation. 7 11 SECTION 3. COMPENSATION. The Board of Directors may fix the compensation of directors. SECTION 4. DUTIES OF DIRECTORS. A director shall discharge his duties as a director, including his duties as a member of a committee: in good faith; with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and in a manner he reasonably believes to be in the best interests of the corporation. In discharging his duties, a director is entitled to rely on information, opinions, reports or statements, including financial statements and other financial data, if prepared or presented by: (a) One or more officers or employees of the corporation whom the director reasonably believes to be reliable and competent in the matters presented; (b) Legal counsel, public accountants or other persons as to matters the director reasonably believes are within the persons' professional or expert competence; or (c) A committee of the Board of Directors of which he is not a member, if the director reasonably believes the committee merits confidence. In discharging his duties, a director may consider such factors as the director deems relevant, including the long-term prospects and interests of the corporation and its shareholders, and the social, economic, legal, or other effects of any action on the employees, suppliers, customers of the corporation or its subsidiaries, the communities and society in which the corporation or its subsidiaries operate, and the economy of the state and the nation. A director is not acting in good faith if he has knowledge concerning the matter in question that makes reliance otherwise permitted by this section unwarranted. A director shall not be liable for any action taken as a director, or any failure to take any action, if he performed the duties of his office in compliance with this section. SECTION 5. PRESUMPTION OF ASSENT. A director of the corporation who is present at a meeting of its Board of Directors or a committee of the Board of Directors when corporate action is taken is deemed to have assented to the action taken unless: (a) he objects at the beginning of the meeting (or promptly upon his arrival) to holding it or transacting specified business at the meeting; or (b) he votes against or abstains from the action taken. SECTION 6. NUMBER. The number of directors of this corporation shall be not less than four (4) nor more than eight (8). The number of directors of this corporation shall initially be set at four (4). The number of directors may be increased or decreased from time to time as determined by a majority of the entire Board of Directors of this corporation or by amendment to these Bylaws. 8 12 SECTION 7. ELECTION. Directors are elected at the first annual shareholders' meeting and at each annual meeting thereafter. SECTION 8. TERM. The terms of the initial directors of the corporation expire at the first shareholders' meeting at which directors are elected. The terms of all other directors expire at the next annual shareholders' meeting following their election. A decrease in the number of directors does not shorten an incumbent director's term. The term of a director elected to fill a vacancy expires at the next shareholders' meeting at which directors are elected. Despite the expiration of a director's term, he or she continues to serve until his or her successor is elected and qualifies or until there is a decrease in the number of directors. SECTION 9. RESIGNATION. A director may resign at any time by delivering written notice to the Board of Directors or its chairman or to the corporation. A resignation is effective when the notice is delivered unless the notice specifies a later effective date. If a resignation is made effective at a later date, the Board of Directors may fill the pending vacancy before the effective date if the Board of Directors provides that the successor does not take office until the effective date. SECTION 10. VACANCIES. Whenever a vacancy occurs on the Board of Directors, including a vacancy resulting from an increase in the number of directors, it may be filled by the affirmative vote of a majority of the remaining directors, though less than a quorum of the Board of Directors or by the shareholders. A vacancy that will occur at a specific later date (by reason of a resignation effective at a later date or otherwise) may be filled before the vacancy occurs but the new director may not take office until the vacancy occurs. SECTION 11. REMOVAL OF DIRECTORS. The shareholders may remove one or more directors with or without cause at a meeting of shareholders, provided the notice of the meeting states that the purpose, or one of the purposes, of the meeting is removal of the director. SECTION 12. QUORUM AND VOTING. A quorum of the Board of Directors consists of a majority of the number of directors. If a quorum is present when a vote is taken, the affirmative vote of a majority of directors present is the act of the Board of Directors. SECTION 13. CONFLICTS OF INTEREST. No contract or other transaction between this corporation and one or more of its directors or any other corporation, firm, association or entity in which one or more of the directors are directors or officers 9 13 or are financially interested shall be either void or voidable because of such relationship or interest or because such director or directors are present at the meeting of the Board of Directors or a committee thereof which authorizes, approves or ratifies such contract or transaction or because his or their votes are counted for such purpose, if: (a) the fact of such relationship or interest is disclosed or known to the Board of Directors or committee which authorizes, approves or ratifies the contract or transaction by a vote or consent sufficient for the purpose without counting the votes or consents of such interested directors; or (b) the fact of such relationship or interest is disclosed or known to the shareholders entitled to vote and they authorize, approve or ratify such contract or transaction by vote or written consent; or (c) the contract or transaction is fair and reasonable as to the corporation at the time it is authorized by the Board, committee or the shareholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or a committee thereof which authorizes, approves or ratifies such contract or transaction. For purposes of subparagraph (b) above, a conflict of interest transaction is authorized, approved or ratified if it receives the vote of a majority of the shares entitled to be counted under this section. Shares owned by or voted under the control of a director who has a relationship or interest in the transaction described in this section may not be counted in a vote of shareholders to determine whether to authorize, approve or ratify a conflict of interest transaction under subparagraph (b) above. The vote of those shares, however, is counted in determining whether the transaction is approved under other sections of the Act. A majority of the shares, whether or not present, that are entitled to be counted in a vote on the transaction under this section constitutes a quorum for the purpose of taking action under this section. SECTION 14. EXECUTIVE AND OTHER COMMITTEES. The Board of Directors, by resolution adopted by a majority of the full Board of Directors, may designate from among its members an executive committee and one or more other committees, consisting of a minimum of two (2) directors who serve at the pleasure of the Board of Directors, each of which, to the extent provided in such resolution, shall have and may exercise all the authority of the Board of Directors, except that no committee shall have the authority to: (a) Approve or recommend to shareholders actions or proposals required by law to be approved by shareholders; (b) Fill vacancies on the Board of Directors or any committee thereof; (c) Adopt, amend or repeal the Bylaws; (d) Authorize or approve the reacquisition of shares unless pursuant to a general formula or method specified by the Board of Directors; or 10 14 (e) Authorize or approve the issuance or sale or contract for the sale of shares, or determine the designation and relative rights, preferences and limitations of a voting group, except that the Board of Directors may authorize a committee (or a senior executive officer of the corporation) to do so within limits specifically prescribed by the Board of Directors. The provisions of section 12 above and sections 15, 16 and 17 below, which govern meetings, notice and waiver of notice, and quorum and voting requirements of the Board of Directors, shall apply to committees and their members as well. SECTION 15. MEETINGS. The Board of Directors may hold regular or special meetings in or out of the State of Florida. A majority of the directors present, whether or not a quorum exists, may adjourn any meeting of the Board of Directors to another time and place. Notice of any such adjourned meeting shall be given to the directors who were not present at the time of the adjournment and, unless the time and place of the adjourned meeting are announced at the time of the adjournment, to the other directors. Meetings of the Board of Directors may be called by the chairman of the board or by the chief executive officer of the corporation. The Board of Directors may permit any or all directors to participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all directors participating may simultaneously hear each other during the meeting. A director participating in a meeting by this means is deemed to be present in person at the meeting. SECTION 16. NOTICE OF MEETINGS. Regular meetings of the Board of Directors may be held without notice of the date, time, place or purpose of the meeting. Special meetings of the Board of Directors must be preceded by at least two (2) days' notice of the date, time and place of the meeting. The notice need not describe the purpose of the special meeting unless required by the articles of incorporation or these Bylaws. SECTION 17. WAIVER OF NOTICE. Notice of a meeting of the Board of Directors need not be given to any director who signs a waiver of notice either before or after the meeting. Attendance of a director at a meeting shall constitute a waiver of notice of such meeting and a waiver of any and all objections to the place of the meeting, the time of the meeting, or the manner in which it has been called or convened, except when a director states, at the beginning of the meeting or promptly upon arrival at the meeting, any objection to the transaction of business because the meeting is not lawfully called or convened. SECTION 18. ACTION WITHOUT A MEETING. Any action required or permitted to be taken at a Board of Directors' meeting or committee meeting may be taken without a meeting if the action is taken by all members of the Board of Directors or the committee. The actions must be evidenced by one or more written consents describing the action taken and signed by each director or committee member. 11 15 Action taken under this section is effective when the last director signs the consent, unless the consent specifies a different effective date. A consent signed under this section has the effect of a meeting vote and may be described as such in any document. SECTION 19. AMENDMENT BY BOARD OF DIRECTORS. The corporation's Board of Directors may adopt one or more amendments to the corporation's Articles of Incorporation without shareholder action: (1) To delete the names and addresses of the initial directors; (2) To delete the name and address of the initial registered agent or registered office, if a statement of change is on file with the Department of State; (3) To delete any other information contained in the Articles of Incorporation that is solely of historical interest; (4) To change each issued and unissued authorized share of an outstanding class into a greater number of whole shares if the corporation has only shares of that class outstanding; (5) To delete the authorization for a class or series of shares authorized as provided by law, if no shares of such class or series have been issued; (6) To change the corporate name by substituting the word "corporation," "Incorporated," or "company," or the abbreviation "corp.," "Inc.," or "Co.," for a similar word or abbreviation in the name, or by adding, deleting, or changing a geographical attribution for the name; or (7) To make any other change expressly permitted by the Act to be made without shareholder action. ARTICLE III OFFICERS SECTION 1. OFFICERS. The Board of Directors may elect from its own number a chairman of the board and may elect a president, chief executive officer, chief operating officer, chief financial officer, such vice presidents and a treasurer as in the opinion of the Board of Directors the business of the corporation requires. The Board of Directors shall elect a secretary and shall delegate to the secretary responsibility for preparing minutes of the directors' and shareholders' meetings and for authenticating records of the corporation. The Board of Directors or the chief executive officer may appoint one or more other officers or assistant officers. The same individual may simultaneously hold more than one office in the corporation. SECTION 2. POWERS AND DUTIES. The officers of the corporation shall have the following duties: 12 16 (a) The chairman of the board, if elected, or failing his or her election, the chief executive officer, shall preside at all meetings of the shareholders and Board of Directors and shall have such other powers and perform such other duties as may be prescribed from time to time by the Board of Directors. (b) The chief executive officer shall have overall charge and supervision of the officers of the corporation, who shall report to the chief executive officer or such other person or persons designated by the chief executive officer, and shall, in the absence or failing the election of a chairman of the board, preside at all meetings of the shareholders and the Board of Directors. (c) The president shall have general charge and supervision of the day-to-day business, affairs, administration and operations of the corporation subject to the direction of the Board of Directors and chief executive officer. The president shall have such other powers and perform such other duties as may from time to time be assigned to him by the Board of Directors or chief executive officer. (d) Each of the chief operating officer and vice presidents, if elected, shall have such powers and shall perform such duties as may from time to time be assigned to him or her by the Board of Directors. (e) The secretary shall be the custodian of, and shall maintain, all of the corporate records except the financial records, shall authenticate all corporate records, shall prepare and record the minutes of all meetings of the shareholders and Board of Directors, send out all notices of meetings, and shall have such other powers and shall perform such other duties as may be prescribed by the Board of Directors or the chief executive officer. (f) The chief financial officer or treasurer shall be the custodian of all corporate funds, securities and financial records, shall keep full and accurate accounts of receipts and disbursements and render accounts thereof at the annual meetings of shareholders and whenever else required by the Board of Directors or the chief executive officer, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or the chief executive officer. SECTION 3. DELEGATION. In the event of the absence of any officer of this corporation or for any other reason that the Board of Directors may deem sufficient, the Board of Directors may at any time and from time to time delegate all or any part of the powers or duties of any officer to any other officer or officers or to any director or directors. SECTION 4. RESIGNATION AND REMOVAL OF OFFICERS. An officer may resign at any time by delivering notice to the corporation. A resignation is effective when the notice is delivered unless the notice specifies a later effective date. If a resignation is made effective at a later date and the corporation accepts the future effective date, the Board of Directors may fill 13 17 the pending vacancy before the effective date if the Board of Directors provides that the successor does not take office until the effective date. The Board of Directors may remove any officer at any time with or without cause. Any officer or assistant officer, if appointed by the chief executive officer, may likewise be removed by the chief executive officer. SECTION 5. CONTRACT RIGHTS. The appointment of an officer does not itself create contract rights. An officer's removal does not affect the officer's contract rights, if any, with the corporation. An officer's resignation does not affect the corporation's contract rights, if any, with the officer. ARTICLE IV STOCK CERTIFICATES SECTION 1. FORM AND CONTENT OF CERTIFICATES. Shares may, but are not required to, be represented by certificates. At a minimum each share certificate, if this corporation has share certificates, must state on its face: the name of the corporation and that the corporation is organized under the laws of the State of Florida; the name of the person to whom issued; and the number and class of shares and the designation of the series, if any, the certificate represents. If the corporation is authorized to issue different classes of shares or different series within a class, the designations, relative rights, preferences, and limitations applicable to each class and the variations in rights, preferences, and limitations determined for each series (and the authority of the Board of Directors to determine variations for future series) must be summarized on the front or back of each certificate if this corporation has share certificates. Alternatively, each certificate, if this corporation has share certificates, may state conspicuously on its front or back that the corporation will furnish the shareholder a full statement of this information on request and without charge. Each share certificate must be signed (either manually or in facsimile) by the chief executive officer, president or a vice president and the secretary or an assistant secretary of the corporation and shall bear the corporate seal or its facsimile. If the person who signed (either manually or in facsimile) a share certificate no longer holds office when the certificate is issued, the certificate is nevertheless valid. The Board of Directors may authorize the issuance of some or all of the shares of any or all of its classes or series without certificates pursuant to and to the extent permitted by applicable law. 14 18 SECTION 2. TRANSFER OF STOCK. Subject to any restrictions on the transfer or registration of transfer of the shares represented by a stock certificate which have been imposed or adopted as authorized by the Act, the corporation shall register a stock certificate presented to it for transfer if the certificate is properly endorsed by the holder of record or by his duly authorized attorney and is accompanied with any additional documents, instruments, certificates, signature guaranties or other items required from time to time by the Board of Directors in its sole discretion. SECTION 3. LOST, STOLEN OR DESTROYED CERTIFICATES. The corporation shall issue a new stock certificate in the place of any certificate previously issued if the holder of record of the certificate (a) makes proof in affidavit form that it has been lost, destroyed or wrongfully taken; (b) requests the issue of a new certificate before the corporation has notice that the certificate has been acquired by a purchaser for value in good faith and without notice of any adverse claim; (c) gives bond or other security or indemnity in such form as the corporation may direct to indemnify the corporation, the transfer agent, and registrar against any claim that may be made on account of the alleged loss, destruction, or theft of a certificate; and (d) satisfies any other reasonable requirements imposed by the corporation. ARTICLE V BOOKS AND RECORDS SECTION 1. CORPORATE RECORDS. The corporation shall keep as permanent records minutes of all meetings of its shareholders and its Board of Directors, a record of all actions taken by the shareholders or Board of Directors without a meeting, and a record of all actions taken by a committee of the Board of Directors in place of the Board of Directors on behalf of the corporation. The corporation shall maintain accurate accounting records. The corporation or its agent shall maintain a record of its shareholders in a form that permits preparation of a list of the names and addresses of all shareholders in alphabetical order by class of shares showing the number and series of shares held by each. The corporation shall maintain its records in written form or in another form capable of conversion into written form within a reasonable time. The corporation shall keep a copy of the following records: (a) Its Articles or Restated Articles of Incorporation and all amendments to them currently in effect; (b) Its Bylaws or Restated Bylaws and all amendments to them currently in effect; (c) Resolutions adopted by its Board of Directors creating one or more classes or series of shares and fixing their relative rights, preferences, and limitations, if shares issued pursuant to those resolutions are outstanding; 15 19 (d) The minutes of all shareholders' meetings and records of all action taken by shareholders without a meeting for the past three (3) years. (e) Written communications to all shareholders generally or all shareholders of a class or series within the past three (3) years, including the financial statements required to be furnished for the past three (3) years under section 4 of this Article V; (f) A list of the names and business street addresses of its current directors and officer; and (g) Its most recent annual report delivered to the Department of State. SECTION 2. INSPECTION OF RECORDS BY SHAREHOLDERS. A shareholder of the corporation is entitled to inspect and copy, during regular business hours at the corporation's principal office, any of the records of the corporation described in subparagraphs (a) through (g) in section 1 above if he gives the corporation written notice of his demand at least five (5) business days before the date on which he wishes to inspect and copy. A shareholder of the corporation is entitled to inspect and copy, during regular business hours at a reasonable location specified by the corporation, any of the following records of the corporation if the shareholder meets the requirements of this section and gives the corporation written notice of his demand at least five (5) business days before the date on which he wishes to inspect and copy: (a) Excerpts from minutes of any meeting of the Board of Directors, records of any action of a committee of the Board of Directors while acting in place of the Board of Directors on behalf of the corporation, minutes of any meeting of the shareholders, and records of action taken by the shareholders or Board of Directors without a meeting, to the extent not otherwise subject to inspection under these Bylaws; (b) Accounting records of the corporation; (c) The record of shareholders; and (d) Any other books and records. A shareholder may inspect and copy the records described in subparagraphs (a) through (d) in the preceding paragraph only if: (a) His demand is made in good faith and for a proper purpose; (b) He describes with reasonable particularity his purpose and the records he desires to inspect; and (c) The records are directly connected with his purpose. This section does not affect the right of a shareholder to inspect and copy records under Article I, section 8 of these Bylaws, or, if the shareholder is in litigation with the corporation, to the same extent as 16 20 any other litigant; or the power of a court, independently of the Act, to compel the production of corporate records for examination. For purposes of this section, the term "shareholder" includes a beneficial owner whose shares are held in a voting trust or by a nominee on his behalf; and a "proper purpose" means a purpose reasonably related to such person's interest as a shareholder. SECTION 3. SCOPE OF INSPECTION RIGHT. A shareholder's agent or attorney has the same inspection and copying rights as the shareholder he represents. The right to copy and/or to have converted unwritten records into written form and/or to otherwise inspect the corporate records, including expenses and charges therefore, shall be the same as provided or permitted by law. SECTION 4. FINANCIAL STATEMENTS FOR SHAREHOLDERS. Unless modified by resolution of the shareholders within one hundred twenty (120) days of the close of each fiscal year, the corporation shall furnish its shareholders annual financial statements which may be consolidated or combined statements of the corporation and one or more of its subsidiaries, as appropriate, that include a balance sheet as of the end of the fiscal year, an income statement for that year, and a statement of cash flows for that year. If financial statements are prepared for the corporation on the basis of generally accepted accounting principles, the annual financial statements must also be prepared on that basis. If the annual financial statements are reported upon by a public accountant, its report must accompany them. If not, the statements must be accompanied by a statement of the president or the person responsible for the corporation's accounting records: (a) Stating his reasonable belief whether the statements were prepared on the basis of generally accepted accounting principles and, if not, describing the basis of preparation; and (b) Describing any respects in which the statements were not prepared on a basis of accounting consistent with the statements prepared for the preceding year. A corporation shall mail the annual financial statements to each shareholder within one hundred twenty (120) days after the close of each fiscal year or within such additional time thereafter as is reasonably necessary to enable the corporation to prepare its financial statements if, for reasons beyond the corporation's control, it is unable to prepare its financial statements within the prescribed period. Thereafter, on written request from a shareholder who was not mailed the statements, the corporation shall mail him the latest annual financial statements. ARTICLE VI DIVIDENDS SECTION 1. DISTRIBUTIONS TO SHAREHOLDERS. The Board of Directors may authorize and the corporation may make distributions to its shareholders subject to restriction by its Articles of Incorporation and/or the Act. 17 21 If the Board of Directors does not fix the record date for determining shareholders entitled to a distribution (other than one involving a purchase, redemption or other acquisition of the corporation's shares), it is the date the Board of Directors authorizes the distribution. No distribution may be made if, after giving it effect: the corporation would not be able to pay its debts as they become due in the usual course of business; or the corporation's total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Board of Directors may base a determination that a distribution is not prohibited either on financial statements prepared on the basis of accounting practices and principles that are reasonable in the circumstances or on a fair valuation or other method that is reasonable in the circumstances. In the case of any distribution based upon such a valuation, each such distribution shall be identified as a distribution based upon a current valuation of assets, and the amount per share paid on the basis of such valuation shall be disclosed to the shareholders concurrent with their receipt of the distribution. Except as otherwise provided herein, the effect of a distribution under this section is measured: (a) In the case of distribution by purchase, redemption or other acquisition of the corporation's shares, as of the earlier of: (1) The date money or other property is transferred or debt incurred by the corporation; or (2) The date the shareholder ceases to be a shareholder with respect to the acquired shares; (b) In the case of any other distribution of indebtedness, as of the date the indebtedness is distributed; (c) In all other cases, as of: (1) The date the distribution is authorized if the payment occurs within one hundred twenty (120) days after the date of authorization; or (2) The date the payment is made if it occurs more than one hundred twenty (120) days after the date of authorization. The corporation's indebtedness to a shareholder incurred by reason of a distribution made in accordance with this section is at parity with the corporation's indebtedness to its general unsecured creditors, except to the extent subordinated by agreement. Indebtedness of the corporation, including indebtedness issued as a distribution, is not considered a liability for purposes of determinations under this section if its terms provide that payment of principal and interest are made only if and to the extent that payment of a distribution to shareholders could then be made under this section. If the indebtedness is issued as a distribution, each payment of principal or interest is treated as a distribution, the effect of which is measured on the date the payment is actually made. 18 22 SECTION 2. SHARE DIVIDENDS. Shares may be issued pro rata and without consideration to the corporation's shareholders or to the shareholders of one or more classes or series. An issuance of shares under this subsection is a share dividend. Shares of one class or series may not be issued as a share dividend in respect of shares of another class or series unless a majority of the votes entitled to be cast by the class or series to be issued approves the issue, or there are no outstanding shares of the class or series to be issued. If the Board of Directors does not fix the record date for determining shareholders entitled to a share dividend, it is the date the Board of Directors authorizes the share dividend. ARTICLE VII CORPORATE SEAL The Board of Directors shall provide a corporate seal which shall be circular in form and shall have inscribed thereon the name of the corporation, the year of incorporation, the word "Florida" and the word "seal"; it may be a facsimile, engraved, printed or an impression seal. ARTICLE VIII EXECUTION OF DOCUMENTS All contracts, instruments, agreements, bills payable, notes, checks, drafts, warrants or other obligations of this corporation shall be made in the name of the corporation and shall be signed by such officer or officers as the Board of Directors may from time to time designate. ARTICLE IX INDEMNIFICATION (a) The corporation shall indemnify any person who was or is a party to any proceeding (other than an action by, or in the right of, the corporation), by reason of the fact that he is or was a director, officer, employee, or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against liability incurred in connection with such proceeding, including any appeal thereof, if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any proceeding by judgment, order, settlement, or conviction or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in, or not opposed to, the best interests of the corporation or, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (b) The corporation shall indemnify any person, who was or is a party to any proceeding by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee, or agent of the corporation or is or was serving at the request of the corporation 19 23 as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against expenses and amounts paid in settlement not exceeding, in the judgment of the board of directors, the estimated expense of litigating the proceeding to conclusion, actually and reasonably incurred in connection with the defense or settlement of such proceeding, including any appeal thereof, if such person acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the corporation, except that no indemnification shall be made under this subsection in respect of any claim, issue, or matter as to which such person shall have been adjudged to be liable unless, and only to the extent that, the court in which such proceeding was brought, or any other court of competent jurisdiction, shall determine upon application that, despite the adjudication of liability but in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. (c) To the extent that a director, officer, employee, or agent of a corporation has been successful on the merits or otherwise in defense of any proceeding referred to in subsection (a) or subsection (b), or in defense of any claim, issue, or matter therein, he shall be indemnified against expenses actually and reasonably incurred by him in connection therewith. (d) Any indemnification under subsection (a) or subsection (b), unless pursuant to a determination by a court, shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee, or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in subsection (a) or subsection (b). Such determination shall be made: (1) By the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such proceeding; (2) If such a quorum is not obtainable or, even if obtainable, by majority vote of a committee duly designated by the Board of Directors (in which directors who are parties may participate) consisting solely of two or more directors not at the time parties to the proceeding; (3) By independent legal counsel: 1. Selected by the Board of Directors prescribed in paragraph (1) or the committee prescribed in paragraph (2); or 2. If a quorum of the directors cannot be obtained for paragraph (1) and the committee cannot be designated under paragraph (2), selected by majority vote of the full Board of Directors (in which directors who are parties may participate); or (4) By the shareholders by a majority vote of a quorum consisting of shareholders who were not parties to such proceeding or, if no such quorum is obtainable, by a majority vote of shareholders who were not parties to such proceeding. (e) Evaluation of the reasonableness of expenses and authorization of indemnification shall be made in the same manner as the determination that indemnification is permissible. However, if the 20 24 determination of permissibility is made by independent legal counsel, persons specified by paragraph (d)(3) shall evaluate the reasonableness of expenses and may authorize indemnification. (f) Expenses incurred by an officer or director in defending a civil or criminal proceeding shall be paid by the corporation in advance of the final disposition of such proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if he is ultimately found not to be entitled to indemnification by the corporation pursuant to this section. Expenses incurred by other employees and agents shall be paid in advance upon such terms or conditions that the board of directors deems appropriate. (g) The indemnification and advancement of expenses provided pursuant to these Bylaws are not exclusive, and the corporation may make any other or further indemnification or advancement of expenses of any of its directors, officers, employees, or agents, under any bylaw, agreement, vote of share holders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. However, indemnification or advancement of expenses shall not be made to or on behalf of any director, officer, employee, or agent if a judgment or other final adjudication establishes that his actions, or omissions to act, were material to the cause of action so adjudicated and constitute: (1) A violation of the criminal law, unless the director, officer, employee, or agent had reasonable cause to believe his conduct was lawful or had no reasonable cause to believe his conduct was unlawful; (2) A transaction from which the director, officer, employee, or agent derived an improper personal benefit; (3) In the case of a director, a circumstance under which the liability provisions of Section 607.0834 of the Florida Business Corporation Act are applicable; or (4) Willful misconduct or a conscious disregard for the best interests of the corporation in a proceeding by or in the right of the corporation to procure a judgment in its favor or in a proceeding by or in the right of a shareholder. (h) Indemnification and advancement of expenses as provided in these Bylaws shall continue as, unless otherwise provided when authorized or ratified, to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person, unless otherwise provided when authorized or ratified. (i) For purposes of this Bylaw, the term "corporation" includes, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger, so that any person who is or was a director, officer, employee, or agent of a constituent corporation, or is or was serving at the request of a constituent corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, IS in the same position under this section with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. (j) For purposes of this section: 21 25 (1) The term "other enterprises" includes employee benefit plans; (2) The term "expenses" includes counsel fees, including those for appeal; (3) The term "liability" includes obligations to pay a judgment, settlement, penalty, fine (including an excise tax assessed with respect to any employee benefit plan), and expenses actually and reasonably incurred with respect to a proceeding; (4) The term "proceeding" includes any threatened, pending, or completed action, suit, or other type of proceeding, whether civil, criminal, administrative, or investigative and whether formal or informal; (5) The term "agent" includes a volunteer; (6) The term "serving at the request of the corporation" includes any service as a director, officer, employee, or agent of the corporation that imposes duties on such persons, including duties relating to an employee benefit plan and its participants or beneficiaries; and (7) The term "not opposed to the best interest of the corporation" describes the actions of a person who acts in good faith and in a manner he reasonably believes to be in the best interests of the participants and beneficiaries of an employee benefit plan. (k) The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against any liability asserted against him and incurred by him in any such capacity or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this section. ARTICLE X AMENDMENT These Bylaws may be altered, amended or repealed by either the Board of Directors or the shareholders, but the Board of Directors may not alter, amend or repeal the Bylaws generally or a particular Bylaw provision adopted by the shareholders if the shareholders expressly provide that the Bylaws generally or a particular Bylaw provision is not subject to amendment, alteration or repeal by the Board of Directors. 22 EX-10.7 3 LETTER OF AGREEMENT BETWEEN PRC & M. GORDON 1 EXHIBIT 10.7 PRECISION RESPONSE CORPORATION 1505 NW 167TH STREET MIAMI, FLORIDA 33169 January 12, 2000 Mr. Mark J. Gordon 19951 Northeast 39th Place Aventura, Florida 33180 Dear Mark: Precision Response Corporation, a Florida corporation (the "COMPANY"), is entering into an Agreement and Plan of Merger (the "MERGER AGREEMENT") with USA Networks, Inc., a Delaware corporation ("USAi"), and a wholly-owned subsidiary of USAi ("MERGER SUB"), pursuant to which the Company has agreed to merge with and into Merger Sub, subject to certain terms and conditions. It is a material condition to such merger (the "MERGER") that you enter into this letter agreement (the "LETTER AGREEMENT") with the Company, and you have agreed to enter into this Letter Agreement in consideration of, among other things, the benefits to be received by you in connection with the Merger. This Letter Agreement and all of the terms hereof shall become effective on and after the Effective Time (as defined in the Merger Agreement), whether or not you continue to be employed by the Company at such time. This Letter Agreement (i) confirms that, effective as of the Effective Time, you will no longer serve as the Chairman of the Board of the Company, (ii) terminates, effective as of the Effective Time, the Employment Agreement, dated as of May 15, 1996 (the "EMPLOYMENT AGREEMENT"), between you and the Company, and (iii) terminates, effective as of the Effective Time, the Registration Rights Agreement, dated as of May 15, 1996 (the "REGISTRATION RIGHTS AGREEMENT"), between you and the Company. 1. Effective as of the Effective Time, you will resign as the Chairman of the Board of the Company and from all positions you then occupy as an officer or director of the Company and any subsidiary or affiliate of the Company and will terminate as an employee of the Company and any subsidiary or affiliate of the Company. 2. (a) In view of the consideration to be received by you in connection with the Merger and as material inducement to USAi to enter into the Merger, effective on and after the Effective Time, you, in your individual capacity only, hereby waive, release and forever discharge the Company and its subsidiaries, and their respective divisions, branches, predecessors, successors, assigns, directors, officers, employees, agents, partners, members, stockholders, representatives and attorneys, in their individual and representative capacities 2 (collectively, the "RELEASEES"), of and from any and all claims, rights, damages, demands, causes of action or liabilities of any nature whatsoever, known or unknown, contingent or fixed, whether due or to become due, that you have had, now have or may have at any future time by reason of any cause, matter or thing whatsoever, directly or indirectly, related to the Employment Agreement, the Registration Rights Agreement or otherwise in connection with your employment with any Releasees (collectively, "CLAIMS"), including without limitation under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. Section 2000 et seq.; the Fair Labor Standards Act, as amended, 29 U.S.C. Section 201 et seq.: the Age Discrimination in Employment Act, 29 U.S.C. Section 621 et seq. (the "ADEA"); the Americans With Disabilities Act, 42 U.S.C. Section 1001 et seq. and Section 12,112 et seq.; the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. Section 1001 et seq.; the Reconstruction Era Civil Rights Act, as amended, 42 U.S.C. Section 1981 et seq.; and all other federal, state and local laws, statutes, rules or regulations of any type or description, including, without limitation, contract law, tort law, civil rights laws, express or implied covenants of good faith or fair dealing, and otherwise, regarding employment discrimination or the employment of labor, which you or your heirs, executors, administrators, successors and assigns ever had, now have or hereafter can, shall or may have against the Releasees or any of them whatsoever from the beginning of the world to the Effective Time, except for Claims arising under or in connection with this Letter Agreement and your rights to accrued salary and other benefits through the Effective Time and under COBRA to continue your medical benefits under the Company's health plan, at you own expense, after the Effective Time. (b) Notwithstanding anything to the contrary set forth in this paragraph 2 or otherwise, you do not in any manner whatsoever waive or discharge or release your rights against the Company or any of its subsidiaries, or any rights arising in connection with or under the Merger Agreement, from or with respect to any claims for or rights to indemnification or contribution under agreement, at law, in equity or otherwise with respect to any liability, obligation, loss or expense incurred by you, or claims made against you in your capacity as a shareholder, director, officer or employee of the Company (or any subsidiary thereof). (c) For the purpose of implementing a full and complete release and discharge of the Releasees you expressly acknowledge that the release set out in this Letter Agreement is intended to include in its effect, without limitation, all claims or other matters described in this paragraph 2 that you do not know or suspect to exist in your favor at the time of execution hereof, and that the release set out in this Letter Agreement contemplates the extinguishment of any and all such claims or other such matters. 3. (a) You acknowledge that you have been informed by the Company of the Company's policy to maintain as secret and confidential all information and materials relating to (i) the financial condition, operations, business and interests of the Company, (ii) the systems, know-how, records, products, services, cost information, inventions, computer and Internet software, marketing and sales techniques and/or programs, methods, methodologies, manuals, lists and other trade secrets from time to time acquired, sold, developed, maintained and/or used by the Company, and (iii) the nature and terms of the Company's relationships with its clients, suppliers, lenders, underwriters, vendors, consultants, independent contractors, attorneys, accountants and employees (all such information and materials being hereinafter collectively referred to as "Confidential Information"). You further acknowledge that such Confidential 2 3 Information is of great value to the Company and has been developed by the Company as a result of substantial effort and expense and that you have been given access to Company's clients and prospective clients because of your business position with the Company. Therefore, you understand that it is reasonably necessary to protect the Company's goodwill, trade secrets and business interests that you agree and, accordingly, you do hereby agree, that you will not directly or indirectly (except where authorized by the Board of Directors, Chairman of the Board or Chief Executive Officer of the Company for the benefit of the Company at any time hereafter divulge or disclose for any purpose to any persons, firms, corporations or other entities (hereinafter referred to collectively as "THIRD PARTIES"), or use or cause or authorize any Third Parties to use, any such Confidential Information, except as otherwise required by law. (b) In accordance with the foregoing, you furthermore agree that (i) you will at no time retain or remove from the premises of the Company any products, prototypes, drawings, notebooks, computer or Internet software or discs, tapes or similar containers of software, manuals, data, books, records, materials or documents of any kind or description of the Company or related to its business for any purpose unconnected with the performance of your duties with the Company and (ii) on or before the Effective Time, you shall forthwith deliver or cause to be delivered up to the Company any and all drawings, notebooks, software programs or discs, tapes or similar containers of software, manuals, data, books, records, materials and other documents and materials in your possession or under your control relating to any Confidential Information or any other material or thing which is the property of the Company. 4. In view of (a) the Confidential Information that has been obtained by or disclosed to you, and (b) the consideration received by you in connection with the Merger and as a material inducement to USAi to enter into the Merger, you covenant and agree that, for a period of two (2) years after the Effective Time, you shall not directly or indirectly, (i) engage in any venture enterprise, activity or business, passively or actively, as an owner, consultant, adviser, participant, employee, agent or in any other capacity, competitive with the business in which the Company is engaged or involved as of the Effective Time, anywhere within the continental United States, including, without limitation, the sale of any products or services sold or offered by the Company to any person or entity who is or was a client of the Company and for or to whom the Company is performing services or selling products or for or to whom the Company has performed services or sold products at any time during the one-year period ending as of the Effective Time or (ii) solicit the services of, or hire, directly or indirectly, whether on your own behalf or on behalf of others, any managerial or executive employee, account manager or other sales or marketing employee, programmer, information services employee (including, without limitation, network or other information services or Internet operation employee) or database management or marketing employee of the Company who was or is employed by the Company at any time during the two-year period ending as of the Effective Time. Notwithstanding the foregoing, nothing in this paragraph 4 shall prohibit you from owning as a passive investor beneficially and/or of record less than 5% of the outstanding equity securities of any entity whose equity securities are registered under the Securities Exchange Act of 1934, as amended, or are listed for trading on any United States or foreign stock exchange. You acknowledge that the business of the Company is national in scope, that one can effectively compete with such business from anywhere in the continental United States, and that, therefore, such geographical area of restriction is reasonable in the circumstances to protect the Company's trade secrets and other legitimate business interests. 3 4 5. You covenant and agree that if you shall violate or breach any of your covenants or agreements provided for in paragraph 3 or 4 hereof, the Company shall be entitled to an accounting and repayment of all profits, compensation, commissions, remuneration and benefits which you directly or indirectly have realized and realize as a result of, growing out of or in connection with any such violation or breach. In addition, in the event of a breach or violation or threatened or imminent breach or violation of any provisions of paragraph 3 or 4 hereof, the Company shall be entitled to a temporary and permanent injunction or any other appropriate decree of specific performance or equitable relief from a court of competent jurisdiction in order to prevent, prohibit or restrain any such breach or violation or threatened or imminent breach or violation by you. The Company shall be entitled to such injunctive or other equitable relief in addition to any ascertainable damages which are suffered, together with reasonable attorneys' and paralegals' fees and costs and other costs incurred in connection with any such litigation, both before and at trial and at all tribunal levels. It is understood that resort by the Company to such injunctive or other equitable relief shall not be deemed to waive or to limit in any respect any other rights or remedies which the Company may have with respect to such breach or violation. 6. (a) You acknowledge that any breach or violation of paragraph 3 or 4 hereof will cause irreparable injury and damage and incalculable harm to the Company. You further acknowledge that you have carefully read and considered the provisions of paragraphs 3, 4 and 5 hereof and, having done so, agree that the restrictions and remedies set forth in such paragraphs (including, but not limited to, the time period, geographical and types of restrictions imposed) are fair and reasonable and are reasonably required for the protection of the business, trade secrets, interest and goodwill of the Company. (b) You understand and intend that each provision and restriction agreed to by you in paragraphs 3, 4, and 5 hereof shall be construed as separate and divisible from every other provision and restriction. In the event that any one of the provisions of, or restrictions in, paragraphs 3, 4, and/or 5 hereof shall be held to be invalid or unenforceable, and is not reformed by a court of competent jurisdiction (which a court, in lieu of striking a provision entirely, is urged by the parties to do), the remaining provisions thereof and restrictions therein shall nevertheless continue to be valid and enforceable as though the invalid or unenforceable provisions or restrictions had not been included. In the event that any such provision relating to time period, geographical and/or type of restriction shall be declared by a court of competent jurisdiction to exceed the maximum or permissible time period, geographical or type of restriction such court deems reasonable and enforceable, said time period, geographical and/or type of restriction shall be deemed to become and shall thereafter be the maximum time period or geographical area and/or type of restriction which such court deems reasonable and enforceable. (c) The restrictions, acknowledgements, covenants and agreements of you set forth in paragraphs 3, 4, 5 and 6 of this Letter Agreement shall survive any termination of this Letter Agreement. (d) For purposes of paragraphs 3, 4, 5, and 6 of this Letter Agreement, the term "COMPANY" includes the Company and all wholly-owned subsidiaries of the Company as of the Effective Time. 4 5 7. This Letter Agreement shall be governed by and construed pursuant to the laws of the State of Florida. Any and all disputes between the parties which may arise pursuant to this Letter Agreement will be heard and determined before an appropriate federal court in Florida, or, if not maintainable therein, then in an appropriate Florida state court. 8. (a) This Letter Agreement is personal in its nature and the parties shall not, without the prior written consent of the other, assign or transfer this Letter Agreement or any rights or obligations hereunder; PROVIDED, HOWEVER, the provisions hereof shall inure to the benefit of, and be binding upon, (i) each successor of the Company or any of its affiliates, whether by merger, consolidation, transfer of all or substantially all of its assets or similar transaction, and (ii) your heirs, legatees, executors, administrators and legal representatives. (b) This Letter Agreement contains the entire understanding of the parties hereto relating to the subject matter herein contained and supersedes, on and after the Effective Time, all prior agreements or understandings between the parties hereto with respect thereto, including, without limitation, the Employment Agreement and the Registration Rights Agreement, and can be changed only by a writing signed by both parties hereto. No waiver shall be effective against a party unless in writing and signed by the party against whom such waiver shall be enforced. 9. For purposes of this Letter Agreement, notices and other communications provided for in this Letter Agreement shall be deemed to be properly given if delivered personally or sent by United States certified mail, return receipt requested, postage prepaid, addressed as follows: If to you: Mark J. Gordon 19951 Northeast 39th Place Aventura, Florida 33180 If to the Company: USA Networks, Inc. 152 West 57th Street, 42nd Floor New York, New York 10019 Attn.: General Counsel or to such other address as either party may have furnished to the other party in writing in accordance with this paragraph. Such notices or other communications shall be effective only upon receipt. Notices also may be given by facsimile and in such case shall be deemed to be properly given when sent so long as the sender uses reasonable efforts to confirm and does confirm the receiver's receipt of the facsimile transmission. 10. This Letter Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement. 11. You acknowledge and agree that, in deciding to execute this Letter Agreement, you have relied entirely upon your own judgment, that you have read this Letter Agreement and have had adequate time to consider its terms and effects and to ask any question that you may have of anyone, including your legal counsel and that you have executed this Letter Agreement 5 6 voluntarily and with full understanding of its terms and effects on you, and that no fact, evidence, event or transaction currently unknown to you but which may later become known to you will affect in any way or manner the final and unconditional nature of this Letter Agreement. You further acknowledge that (a) you were advised to consult with an attorney before you executed this Letter Agreement; (b) you were afforded sufficient opportunity to and did consult with an attorney; and (c) you may revoke your release of any Claims under the ADEA set forth in paragraph 2 by delivering written notice to the Company within a period of seven days following the day on which you execute this Letter Agreement (the "REVOCATION PERIOD"), and your release of any Claims under the ADEA set forth in paragraph 2 shall not become effective or enforceable until after the Revocation Period has expired. For this revocation to be effective, written notice from you must be received by the Company at the address set forth and as provided in paragraph 9 no later than the close of business on the seventh day after you sign this Letter Agreement. If you revoke your release of any claims under the ADEA set forth in paragraph 2, such release will be of no force or effect. 12. If the Merger Agreement is terminated before the Effective Time, this Letter Agreement shall be null and void and of no force or effect. BY SIGNING THIS LETTER AGREEMENT, YOU STATE THAT: (a) YOU HAVE READ THIS LETTER AGREEMENT AND HAVE HAD SUFFICIENT TIME TO CONSIDER ITS TERMS; (b) YOU UNDERSTAND ALL OF THE TERMS AND CONDITIONS OF THIS LETTER AGREEMENT AND KNOW THAT YOU ARE GIVING UP IMPORTANT RIGHTS; (c) YOU AGREE WITH EVERYTHING IN THIS LETTER AGREEMENT; (d) YOU ARE AWARE OF YOUR RIGHT TO CONSULT WITH AN ATTORNEY BEFORE SIGNING THIS LETTER AGREEMENT AND HAVE BEEN ADVISED OF SUCH RIGHT; AND (e) YOU HAVE SIGNED THIS LETTER AGREEMENT KNOWINGLY AND VOLUNTARILY. 6 7 If the foregoing correctly sets forth our understanding, please sign one copy of this Letter Agreement and return it to the undersigned, whereupon this letter shall constitute a binding agreement between us. Sincerely, PRECISION RESPONSE CORPORATION By: /s/ David Epstein ------------------------------- Name: David Epstein Title: Chief Executive Officer ACCEPTED AND AGREED TO: /s/ Mark J. Gordon - --------------------------------- Mark J. Gordon 7 8 STATE OF FLORIDA ) ) ss: COUNTY OF MIAMI-DADE ) The foregoing instrument was acknowledged before me this 12th day of January, 2000, by David Epstein, as Chief Executive Officer of Precision Response Corporation, a Florida corporation, on behalf of said corporation. He is personally known to me or has produced a State of Florida driver's license as identification. Sign Name: /s/ Richard D. Mondre ------------------------ Print Name: Richard D. Mondre ------------------------ NOTARY PUBLIC Serial No. (none, if blank:) ------- OFFICIAL NOTARY SEAL RICHARD D. MONDRE NOTARY PUBLIC STATE OF FLORIDA My Commission Expires: COMMISSION NO. CC888151 MY COMMISSION EXP. DEC. 9, 2003 9 STATE OF FLORIDA ) ) ss: COUNTY OF MIAMI-DADE ) The foregoing instrument was acknowledged before me this 12th day of January, 2000, by Mark J. Gordon. He is personally known to me or has produced a State of Florida driver's license as identification. Sign Name: /s/ Richard D. Mondre ------------------------ Print Name: Richard D. Mondre ------------------------ NOTARY PUBLIC Serial No. (none, if blank:) ------- OFFICIAL NOTARY SEAL RICHARD D. MONDRE NOTARY PUBLIC STATE OF FLORIDA My Commission Expires: COMMISSION NO. CC888151 MY COMMISSION EXP. DEC. 9, 2003 EX-10.8 4 2ND AMENDMENT TO EMPLOYMENT PRC & D. EPSTEIN 1 EXHIBIT 10.8 SECOND AMENDMENT TO EMPLOYMENT AGREEMENT This Second Amendment to Employment Agreement (this "Amendment") dated and effective as of September 1, 1999, by and between Precision Response Corporation, a corporation organized and existing under the laws of the State of Florida ("Company"), and David L. Epstein ("Executive"). W I T N E S S E T H WHEREAS, Company currently employs Executive pursuant to that certain Employment Agreement dated May 15, 1996, by and between Company and Executive, as previously amended by that certain Amendment to Employment Agreement dated and effective as of April 1, 1999, by and between Company and Executive (collectively, the "Employment Agreement"); and WHEREAS, Company and Executive desire to amend one of the provisions of the Employment Agreement as set forth herein. NOW THEREFORE, the parties agree that the Employment Agreement shall be amended effective as of and after the date hereof as follows: 1. Schedule 6(e) to the Employment Agreement is amended to provide, immediately following the existing description of the Split Dollar Plan, and as an addition thereto, the following: "Company shall also commence funding a portion of the premiums due on a life insurance policy dated September 25, 1997, and issued September 26, 1997, by New York Life Insurance Company insuring the lives of Executive and his spouse, Jodi A. Epstein, pursuant to a separate written "Split Dollar Agreement and Collateral Assignment" in the form executed by two separate trusts administered for the benefit of Executive's family, one of which is the owner of the insurance policy, and Company, as same may be amended from time to time." 2. Except as otherwise specifically modified by this Amendment, all terms, conditions and provisions of the Employment Agreement shall remain effective and shall continue to operate in full force throughout the entire term of the Employment Agreement, as amended hereby. 3. This Amendment shall be governed by and construed pursuant to the laws of the State of Florida. 4. This Amendment may be executed in counterparts, each of which shall be an original, but both of which together shall constitute one and the same instrument. 2 IN WITNESS WHEREOF, the undersigned have caused this Amendment to be duly executed as of the day and year first above written. PRECISION RESPONSE CORPORATION BY: /s/ MARK J. GORDON ----------------------------------------- Mark J. Gordon, Chairman of the Board /s/ DAVID L. EPSTEIN ----------------------------------------- DAVID L. EPSTEIN 2 3 THIRD AMENDMENT TO EMPLOYMENT AGREEMENT Third Amendment to Employment Agreement (this "AMENDMENT") dated as of January 12, 2000 and effective as of the Effective Time (as defined below), between Precision Response Corporation, a Florida corporation ("COMPANY"), and David Epstein ("EXECUTIVE"). "EFFECTIVE TIME" has the meaning set forth in the Merger Agreement described below. Company currently employs Executive pursuant to that certain Employment Agreement, dated May 15, 1996, as amended as of April 1, 1999 and September 1, 1999, between Company and Executive (collectively, the "AGREEMENT"); Company has entered into an Agreement and Plan of Merger (the "MERGER AGREEMENT") with USA Networks, Inc., a Delaware corporation ("USAi"), and its wholly-owned subsidiary ("MERGER SUB"), pursuant to which Company has agreed to merge with and into Merger Sub, subject to certain terms and conditions. It is a material condition to such merger (the "MERGER") that Executive enter into this Amendment, and Executive has agreed to enter into this Amendment in consideration of, among other things, the benefits to be received by the Executive in connection with the Merger. The parties agree that the Agreement shall be amended effective on and after the Effective Time (whether or not the Executive continues to be employed by the Company at such time) as follows: 1. Paragraph 1 of the Agreement is amended by adding the following sentence between the second and third sentences thereof: "Executive shall report directly to the President of USAi's Electronic Commerce and Services division (the "REPORTING OFFICER")." In addition, the third sentence of paragraph 1 of the Agreement is amended by replacing the words "Board of Directors of the Company or the Chairman of the Board" with "Reporting Officer". 2. (a) Paragraph 6(b) of the Agreement is deleted in its entirety, and Executive hereby waives and releases any and all rights or benefits that he may now have to be granted any stock options thereunder in respect of the years ended December 31, 1996, December 31, 1997 and December 31, 1998 (but excluding the year ended December 31, 1999 in which it is acknowledged Executive was granted stock options thereunder) and in respect of any year commencing after December 31, 1999. (b) At or immediately following the Effective Time and provided that Executive continues to be employed by the Company at such time, in consideration of Executive's entering into this Amendment and continued employment with the Company at the Effective Time, Executive shall be granted under USAi's 1997 Stock and Annual Incentive Plan 4 a non-qualified stock option to purchase 75,000 shares of USAi common stock on the standard terms and conditions for option grants by USAi to its employees. 3. Paragraph 7(d) of the Agreement is deleted in its entirety. 4. The heading to paragraph 8(a) of the Agreement is amended by deleting the words "Voluntary Termination," and the first sentence of paragraph 8(a) of the Agreement is amended by deleting the words "voluntary or" in the second line thereof. 5. The first sentence of paragraph 8(c) of the Agreement is amended by deleting the words "or upon expiration of the Employment Term pursuant to the terms of paragraph 2 hereof" from the fourth and fifth lines thereof. 6. Paragraph 10 of and Schedule 10 to the Agreement are deleted in their entirety and the Registration Rights Agreement, dated as of May 15, 1996, between Company and Executive is terminated in its entirety. 7. The Agreement is amended to add a new paragraph 20 at the end thereof as follows: 20. Non-Disclosure of Confidential Information A. Confidential Information. Executive acknowledges that Executive has been informed by Company of Company's policy to maintain as secret and confidential all information and materials relating to (i) the financial condition, operations, business and interests of Company, (ii) the systems, know-how, records, products, services, cost information, inventions, computer and Internet software, marketing and sales techniques and/or programs, methods, methodologies, manuals, lists and other trade secrets from time to time acquired, sold, developed, maintained and/or used by Company, and (iii) the nature and terms of Company's relationships with its clients, suppliers, lenders, underwriters, vendors, consultants, independent contractors, attorneys, accountants and employees (all such information and materials being hereinafter collectively referred to as "Confidential Infomation"). Executive further acknowledges that such Confidential Information is of great value to Company and has been developed by Company as a result of substantial effort and expense and that Executive has been and will be given access to Company's clients and prospective clients because of Executive's business position with Company. Therefore, Executive understands that it is reasonably necessary to protect Company's goodwill, trade secrets and business interests that Executive agree and, accordingly, Executive does hereby agree, that Executive will not directly or indirectly (except where authorized by the Board of Directors or Chairman of the Board of Company for the benefit of 2 5 Company and/or as required in the course of employment) at any time hereafter divulge or disclose for any purpose to any persons, firms, corporations or other entities (hereinafter referred to collectively as "Third Parties"), or use or cause or authorize any Third Parties to use, any such Confidential Information, except as otherwise required by law. B. Company's Materials. In accordance with the foregoing, Executive furthermore agrees that (i) Executive will at no time retain or remove from the premises of Company any products, prototypes, drawings, notebooks, computer or Internet software or discs, tapes or similar containers of software, manuals, data, books, records, materials or documents of any kind or description of Company or related to its business for any purpose unconnected with the performance of Executive's duties with Company and (ii) upon the cessation or termination of Executive's employment with Company for any reason, Executive shall forthwith deliver or cause to be delivered up to Company any and all drawings, notebooks, software programs or discs, tapes or similar containers of software, manuals, data, books, records, materials and other documents and materials in Executive's possession or under Executive's control relating to any Confidential Information or any other material or thing which is the property of Company. 8. The Agreement is amended to add a new paragraph 21 at the end thereof as follows: 21. Covenant Not-To-Compete In view of (a) the Confidential Information to be obtained by or disclosed to Executive, and (b) the consideration received by Executive in connection with the merger (the "Merger") of the Company with and into a wholly-owned subsidiary of USA Networks, Inc. ("USAi"), a Delaware corporation, the options to purchase stock in USAi granted to Executive as of the Effective Time and the consideration payable to Executive under this Agreement, and as a material inducement to USAi to enter into the Merger, Executive covenants and agrees that, for as long as Executive is employed by Company and for a period of two (2) years after the later of (A) the last day of the Initial Term (if Executive ceases for any reason to be employed by Company before the expiration of the Initial Term) and (B) the date on which Executive ceases for any reason to be employed by Company, Executive shall not, directly or indirectly, (i) engage in any venture, enterprise, activity or business, passively or actively, as an owner, consultant, adviser, participant, employee, agent or in any 3 6 other capacity, competitive with the business in which Company is engaged or involved during the period that Executive is employed by Company and, in the case of the period after termination of employment, in which Company is engaged or involved as of the date Executive ceases for any reason to be employed by Company, anywhere within the continental United States, including, without limitation, the sale of any products or services sold or offered by Company to any person or entity who is or was a client of Company and for or to whom Company is performing services or selling products or for or to whom Company has performed services or sold products at any time during the one-year period ending on Executive's termination of employment, or (ii) solicit the services of, or hire, directly or indirectly, whether on Executive's own behalf or on behalf of others, any managerial or executive employee, account manager or other sales or marketing employee, programmer, information services employee (including, without limitation, network or other information services or Internet operation employee) or database management or marketing employee of Company who was or is employed by Company at any time during the two-year period ending on the date of termination of Executive's employment. Notwithstanding the foregoing, nothing in this paragraph 21 shall prohibit Executive from owning as a passive investor beneficially and/or of record less than 5% of the outstanding equity securities of any entity whose equity securities are registered under the Securities Exchange Act of 1934, as amended, or are listed for trading on any United States or foreign stock exchange. Executive acknowledges that the business of Company is national in scope, that one can effectively compete with such business from anywhere in the continental United States, and that, therefore, such geographical area of restriction is reasonable in the circumstances to protect Company's trade secrets and other legitimate business interests. 9. The Agreement is amended to add a new paragraph 22 in its entirety as follows: 22. Company's Remedies for Breach of Paragraphs 20 and 21 Executive covenants and agrees that if Executive shall violate or breach any of Executive's covenants or agreements provided for in paragraph 20 or 21 hereof, Company shall be entitled to an accounting and repayment of all profits, compensation, commissions, remuneration and benefits which Executive directly or indirectly has realized and realizes as a result of, growing out of or in connection with any such violation or breach. In addition, in the event of a breach or violation or threatened or imminent breach or violation of any provisions of paragraph 20 or 21 hereof, Company shall be entitled to a temporary and permanent 4 7 injunction or any other appropriate decree of specific performance or equitable relief from a court of competent jurisdiction in order to prevent, prohibit or restrain any such breach or violation or threatened or imminent breach or violation by Executive. Company shall be entitled to such injunctive or other equitable relief in addition to any ascertainable damages which are suffered, together with reasonable attorneys' and paralegals' fees and costs and other costs incurred in connection with any such litigation, both before and at trial and at all tribunal levels. It is understood that resort by Company to such injunctive or other equitable relief shall not be deemed to waive or to limit in any respect any other rights or remedies which Company may have with respect to such breach or violation. 10. The Agreement is amended to add a new paragraph 23 in its entirety as follows: 23. Reasonableness of Restrictions A. Reasonableness. Executive acknowledges that any breach or violation of paragraph 20 or 21 hereof will cause irreparable injury and damage and incalculable harm to Company. Executive further acknowledges that Executive has carefully read and considered the provisions of paragraphs 20, 21 and 22 hereof and, having done so, agrees that the restrictions and remedies set forth in such Sections (including, but not limited to, the time period, geographical and types of restrictions imposed) are fair and reasonable and are reasonably required for the protection of the business, trade secrets, interests and good will of Company. B. Severability. Executive understands and intends that each provision and restriction agreed to by Executive in paragraphs 20, 21 and 22 hereof shall be construed as separate and divisible from every other provision and restriction. In the event that any one of the provisions of, or restrictions in, paragraphs 20, 21 and/or 22 hereof shall be held to be invalid or unenforceable, and is not reformed by a court of competent jurisdiction (which a court, in lieu of striking a provision entirely, is urged by the parties to do), the remaining provisions thereof and restrictions therein shall nevertheless continue to be valid and enforceable as though the invalid or unenforceable provisions or restrictions had not been included. In the event that any such provision relating to time period, geographical and/or type of restriction shall be declared by a court of competent jurisdiction to exceed the maximum or permissible time period, geographical or type of restriction such court deems reasonable and enforceable, said time period, geographical and/or type of restriction shall be deemed to become and shall thereafter be the maximum time period or geographical 5 8 area and/or type of restriction which such court deems reasonable and enforceable. C. Survivability. The restrictions, acknowledgments, covenants and agreements of Executive set forth in paragraphs 20, 21, 22 and 23 of this Agreement shall survive any termination of this Agreement or of Executive's employment (for any reason, including expiration of the Employment Term). D. Definition of Company. For purposes of paragraphs 20, 21, 22 and 23 of this Agreement, the term "Company" includes the Company and all wholly-owned subsidiaries of Company. 11. Except as otherwise specifically modified by this Amendment, all terms, conditions and provisions of the Agreement shall remain effective and shall continue to operate in full force throughout the entire term of the Agreement, as amended hereby. 12. This Amendment shall be governed by and construed pursuant to the laws of the State of Florida. Any and all disputes between the parties which may arise pursuant to the Agreement, as amended by this Amendment, will be heard and determined before an appropriate federal court in Florida, or, if not maintainable therein, then in an appropriate Florida state court. 13. This Amendment may be executed in counterparts, each of which shall be an original, but both of which together shall constitute one and the same instrument. 14. If the Merger Agreement is terminated before the Effective Time, this Amendment shall be null and void and of no force or effect. The parties hereto have caused this Agreement to be duly executed as of the day and year first above written. PRECISION RESPONSE CORPORATION By: /s/ Mark Gordon ------------------------------------------ Name: Mark Gordon Title: Chairman /s/ David Epstein ------------------------------------------ David Epstein 6 EX-10.12 5 LETTER BETWEEN D. EPSTEIN & M. GORDON 1 Exhibit 10.12 David L. Epstein 3478 Derby Lane Ft. Lauderdale, Florida 33331 January 12, 2000 Mark J. Gordon 19951 N.E. 39th Place Aventura, Florida 33180 Dear Mark: This will confirm that we hereby agree that the certain Stockholders Agreement dated May 10, 1996, between Mark J. Gordon and David L. Epstein (the "Agreement") is terminated as of the date hereof and, accordingly, neither of us has any further obligations or liabilities thereunder. By your execution of a copy of this letter, you hereby confirm that you hereby agree to the termination of the Agreement as set forth in the foregoing paragraph. Sincerely, /s/ David L. Epstein ----------------------------- David L. Epstein AGREED TO AND ACCEPTED BY: /s/ Mark J. Gordon - ---------------------------- Mark J. Gordon EX-10.31 6 4TH AMENDMENT TO REVOLVING CREDIT AGREEMENT 1 EXHIBIT 10.31 FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT THIS FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT (the "Amendment") is entered into effective as of December 31, 1999 by PRECISION RESPONSE CORPORATION (as "Borrower"), and BANK OF AMERICA, N.A., d/b/a NATIONSBANK, N.A., successor to NATIONSBANK, N.A., as a Bank and as an Agent under that certain Credit Agreement dated March 2, 1998 ("NationsBank"). W I T N E S S E T H: WHEREAS, that certain Revolving Credit Agreement (the "Credit Agreement") was executed as of March 2, 1998 by Borrower and NationsBank; and WHEREAS, the Credit Agreement was modified by First Amendment dated as of June 30, 1998 and by Second Amendment dated as of September 30, 1998; and by Third Amendment dated as of June 30, 1999 and WHEREAS, the parties desire to further modify the Credit Agreement as set forth herein. NOW THEREFORE, for good and valuable considerations, the receipt of which is hereby acknowledged, the parties do hereby modify the Credit Agreement as follows: 1. COMMITMENT AMOUNT. (a) The Amount of Commitment by NationsBank is hereby increased to Thirty Five Million and No/100 Dollars ($35,000,000.00) for the period of time between the date of this Amendment and February 29, 2000, subject to compliance by Borrower with all terms and conditions of the Credit Agreement and subject to the Borrowing Base limitations as to available advances under the Loan. (b) Subject to satisfactory completion of the audit referenced in paragraph 1(c) below , the Amount of Commitment by NationsBank will be increased to Fifty Million and No/100 Dollars ($50,000,000.00) for the period of time between March 1, 2000 and June 30, 2000, subject to compliance by Borrower with all terms and conditions of the Credit Agreement and subject to the Borrowing Base limitations as to available advances under the Loan. Effective as of July 1, 2000, the Amount of Commitment by NationsBank shall revert to Twenty- Five Million and No/100 Dollars ($25,000,000.00). (c) NationsBank shall conduct an audit of the Borrower's books and records and business operations within forty-five (45) days from the date of this Amendment. The increase of the Commitment to Fifty Million and No/100 Dollars ($50,000,000.00) for the period of time between March 1, 2000 and June 30, 2000 is contingent upon NationsBank being satisfied with the results of the audit in the sole discretion NationsBank. In the event that the audit is not completed by March 1, 2000, or if NationsBank is not satisfied with the results of 2 the audit, the Amount of Commitment by NationsBank shall revert to Twenty-Five Million and No/100 Dollars ($25,000,000.00) as of March 1, 2000. 2. DEFINITIONS. (a) The definition of "Commitment Fee Rate" in Section 1.01 is hereby modified in its entirety to read as follows: "COMMITMENT FEE RATE" means the percent per annum set forth below, which shall be based as specified below upon the ratio of Funded Debt as of the last day of the fiscal quarter of the Borrower most recently ended to EBITDA for the Four-Quarter Period most recently ended:
Ratio of Funded Debt to EBITDA Commitment Fee Rate -------------------- ------------------- (i) Less than or equal to 1.00 to 1.0 .25% (ii) Greater than 1.00 to 1.0 .375%
The Commitment Fee Rate shall be established for each fiscal quarter of the Borrower based upon the foregoing ratio at the end of the immediately preceding fiscal quarter of the Borrower (the "Determination Date"). Each such ratio shall be determined based upon the computations set forth in the certificate furnished to the Agent pursuant to ss.7.01(a), subject to review and approval of such computations by the Agent. If the Borrower shall fail to deliver any such certificate within the time period required by ss.7.01(a) with respect to a particular quarter, the Commitment Fee Rate for such quarter shall be .375% per annum. Nothing herein shall be construed to permit the Borrower to permit the ratio of Funded Debt to EBITDA to exceed 2.50 to 1.0 or to bar the Agent and the Banks from treating its doing so as an Event of Default or charging interest at the Post-Default Rate as provided in ss. 2.05(b) hereof. 3. The definition of "Credit Termination Date" in Section 1.01 is hereby modified in its entirety to read as follows: "CREDIT TERMINATION DATE" means the earlier of (i) June 30, 2001 and (ii) the date of termination in whole of the Banks' Commitments pursuant to ss.8.02. -2- 3 4. NEGATIVE COVENANTS. Section 6.04 is hereby modified in its entirety to read as follows: 6.04 CAPITAL EXPENDITURES. Make or become committed to make Capital Expenditures which exceed in the aggregate (on a noncumulative basis, with the effect that amounts not expended in any Fiscal Year may not be carried forward to a subsequent period) Forty Million Dollars ($40,000,000) in any Fiscal Year. 5. FACILITY FEE. Borrower shall pay to NationsBank the amount of Two Hundred Thousand Dollars ($200,000.00) as a fee for the Credit Agreement modification, to be paid upon the closing of this Amendment. 6. ADDITIONAL FEE. Borrower agrees to pay to Bank an additional fee in the amount of Two Hundred Fifty Thousand Dollars ($250,000.00) on July 1, 2000, in the event that USA Networks, Inc. has not completed its acquisition of Borrower by June 30, 2000. 7. REAFFIRMATION. Except as expressly modified herein, the Credit Agreement, as previously amended, is hereby reaffirmed in its entirety. PRECISION RESPONSE CORPORATION, AS THE BORROWER By: /s/ JOSEPH E. GILLIS -------------------------------------- Name: JOSEPH E. GILLIS Title: VP & TREASURER BANK OF AMERICA, N.A., D/B/A NATIONSBANK, N.A., SUCCESSOR TO NATIONSBANK, N.A., AS AGENT AND AS A BANK UNDER THE CREDIT AGREEMENT By: /s/ GUILLERMO G. CASTILLO ------------------------------------- Name: GUILLERMO G. CASTILLO Title: SENIOR VICE PRESIDENT -3- EX-10.34 7 REVOLVING NOTE BETWEEN PRC & NATIONSBANK 1 EXHIBIT 10.34 REVOLVING NOTE $50,000,000.00 December 31, 1999 FOR VALUE RECEIVED, the undersigned PRECISION RESPONSE CORPORATION, a Florida corporation, (the "Borrower") hereby absolutely and unconditionally promises to pay to the order of BANK OF AMERICA, N.A., d/b/a NATIONSBANK, N.A. (the "Bank") at the offices of BANK OF AMERICA, N.A., as Agent for the Banks (the "Agent") at 100 S.E. 2nd Street, 15th Floor, Miami, Florida 33131 (or such other place as the Agent may designate in writing): 1. On June 30, 2001, the principal amount of Fifty Million and 00/100 Dollars ($50,000,000.00) or, if less, the aggregate unpaid principal amount of Loans advanced pursuant to the Credit Agreement, dated as of March 2, 1998, by and among the Borrower, the Bank, the Agent, and certain other banks or financial institutions (as amended, modified, supplemented or restated and in effect from time to time, the "Credit Agreement"); and 2. Interest on the principal balance hereof from time to time outstanding from the date hereof through and including the date on which such principal amount is paid in full, at the times and at the rates provided in the Credit Agreement. This Note evidences Loans made by the Bank under, and has been issued by the Borrower in accordance with the terms of, the Credit Agreement and is one of the Notes referred to therein. The Bank and any holder hereof is entitled to the benefits of the Credit Agreement (and the Security Documents and Guaranties referred to therein) and may enforce the agreements of the Borrower contained therein, and any holder hereof may exercise the remedies provided for thereby or otherwise available in respect thereof, all in accordance with the terms thereof. This Note is secured by the Security Agreement described in the Credit Agreement. All capitalized terms used in this Note and not otherwise defined herein shall have the same meanings herein as in the Credit Agreement. The Borrower has the right in certain circumstances and the obligation under certain other circumstances to repay or prepay the whole or part of the principal of this Note on the terms and conditions specified in the Credit Agreement. If any one or more of the Events of Default shall occur, the entire unpaid principal amount of this Note and all of the unpaid interest accrued thereon may become or be declared due and payable in the manner and with the effect provided in the Credit Agreement. No delay or omission on the part of the Bank or any holder hereof in exercising any right hereunder shall operate as a waiver of such right or of any other rights of the Bank or such holder, nor shall any delay, omission or waiver on any one occasion be deemed a bar or waiver of the same or any other right on any future occasion. Except as specifically provided in the Credit Agreement, the Borrower and every endorser and guarantor of this Note or the obligation represented hereby waive all requirements of diligence in collection, presentation, demand, notice, protest, notice of intent to accelerate, 2 notice of acceleration, and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note, assent to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral and to the addition or release of any other party or person primarily or secondarily liable. This Note shall be construed in accordance with, and governed by, the laws of the State of Florida, without regard to any conflicts-of-law rule or principle that would give effect to the law of any other jurisdiction. This Note replaces that certain $25,000,000.00 Revolving Note executed by the Borrower dated March 2, 1998. THE BORROWER AND (BY ACCEPTANCE HEREOF) THE BANK EACH WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING HEREUNDER OR RELATING HERETO. IN WITNESS WHEREOF, the Borrower has caused this Note to be signed under seal by its duly authorized officer as of the date first set forth above. PRECISION RESPONSE CORPORATION By: /s/ JOSEPH E. GILLIS ------------------------------- Name: JOSEPH E. GILLIS Title: VP & TREASURER -2- EX-10.39 8 FOURTH AMDT TO MORTGAGE LOAN AGREEMENT 1 EXHIBIT 10.39 FOURTH AMENDMENT TO MORTGAGE LOAN AGREEMENT THIS FOURTH AMENDMENT TO MORTGAGE LOAN AGREEMENT (the "Fourth Amendment") is entered into effective as of December 31, 1999 by PRECISION RESPONSE CORPORATION (as "Borrower"), and BANK OF AMERICA, N.A., d/b/a NATIONSBANK, N.A., successor to NATIONSBANK, N.A., as Bank under that certain Mortgage Loan Agreement dated May 29, 1998 ("NationsBank"). W I T N E S S E T H: WHEREAS, that certain Mortgage Loan Agreement (the "Mortgage Loan Agreement") was executed as of May 29, 1998 by Borrower and NationsBank; and WHEREAS, the Mortgage Loan Agreement was modified by First Amendment dated as of June 30, 1998 and by Second Amendment dated September 30, 1998 and by Third Amendment dated June 30, 1999; and WHEREAS, the parties desire to further modify the Mortgage Loan Agreement as set forth herein. NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, the parties do hereby modify the Mortgage Loan Agreement as follows: 1. NEGATIVE COVENANTS. Section 5.04 is hereby modified in its entirety to read as follows: 5.04 CAPITAL EXPENDITURES. Make or become committed to make Capital Expenditures which exceed in the aggregate (on a noncumulative basis, with the effect that amounts not expended in any Fiscal Year may not be carried forward to a subsequent period) Forty Million Dollars ($40,000,000) in any Fiscal Year. 2. LOAN HOLDBACK. Section 2.02 as previously modified by the Third Amendment is hereby modified in its entirety to read as follows: 2.02 LOAN HOLDBACK. The amount of One Million One Hundred Twenty Thousand Dollars ($1,120,000.00) shall not be disbursed to Borrower at Closing, and shall constitute the "Interior Improvement Holdback". The Interior Improvement Holdback shall be disbursed to Borrower upon the substantial completion by Borrower of the interior improvements to the Mortgaged Property in a lien free manner to the satisfaction of Bank. The Borrower agrees to substantially complete the interior improvements not later than March 2, 2000. The interior improvements shall be deemed to be substantially completed at such time as (a) Borrower has obtained a Certificate of Occupancy or Completion for the premises and improvements, and (b) Borrower has obtained a contractor's final lien release from all contractors who have worked on the interior improvements, and (c) Bank's inspector (I.E., an inspector designated by Bank) has inspected the interior improvements and has verified to Bank that the interior improvements have been 2 substantially completed and (d) Borrower has furnished to Bank an updated endorsement to the title policy insuring the Mortgage confirming the absence of liens on the Mortgaged Property. In the event that Borrower fails to substantially complete the interior improvements in accordance with this Section 2.02 on or before March 2, 2000, then Bank shall not be obligated to advance the Interior Improvement Holdback and at the option of Bank the amount of the Loan shall be deemed reduced by the amount of the Interior Improvement Holdback. The failure of Borrower to substantially complete the interior improvements on or before March 2, 2000 in accordance with this Section 2.02 shall not be deemed to constitute a Default under this Agreement and the only consequence of such failure shall be a reduction in the amount of the Loan, but the foregoing shall not be deemed to permit any construction liens to attach to the Mortgaged Property. The Interior Construction Holdback shall not be deemed an advance of funds to the Borrower and shall not bear interest unless and until such funds are advanced to Borrower. 3. REAFFIRMATION. Except as expressly modified herein, the Mortgage Loan Agreement, as previously amended, is hereby reaffirmed in its entirety. PRECISION RESPONSE CORPORATION, AS THE BORROWER By: /s/ JOSEPH E. GILLIS -------------------------------------- Name: JOSEPH E. GILLIS Title: VP & TREASURER BANK OF AMERICA, N.A., D/B/A NATIONSBANK, N.A., SUCCESSOR TO NATIONSBANK, N.A., AS AGENT AND AS A BANK UNDER THE CREDIT AGREEMENT By: /s/ GUILLERMO G. CASTILLO -------------------------------------- Name: GUILLERMO G. CASTILLO Title: SENIOR VICE PRESIDENT -2- EX-10.40 9 EMPLYOMENT AGREEMENT BETWEEN PRC & R.TENZER 1 EXHIBIT 10.40 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT This Amendment to Employment Agreement (this "Amendment") dated and effective as of JANUARY 13, 2000, by and between Precision Response Corporation, a corporation organized and existing under the laws of the State of Florida (hereinafter referred to as "Employer"), and Robert Tenzer hereinafter referred to as ("Employee"). W I T N E S S E T H WHEREAS, Employer currently employs Employee pursuant to an Employment Agreement dated August 4, 1998 by and between Employer and Employee; and WHEREAS, Employer and Employee desire to amend the Employment Agreement as set forth herein. NOW THEREFORE, the parties agree that the Employment Agreement shall be amended as of and after the date hereof as follows: Section 9 is hereby amended by the addition of the following Subsection G: G. EXCISE TAX TREATMENT. If any of the payments or benefits to be received by Employee in connection with a Change in Control (as defined in Subsection 9E.) pursuant to the terms of this agreement or any other plan, arrangement or agreement (such payments or benefits the "Total Payments") will be subject to any excise tax imposed by Section 4999 of the Internal Revenue of 1986, as amended (the "Code"), then, after taking into account any reduction in the Total Payments provided by Section 280G of the Code in such other plan, arrangement or agreement, the payments made pursuant to Subsection 9E. of this Employment Agreement shall be reduced to the extent necessary so that no portion of the Total Payments is subject to the excise tax but only if (i) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state and local income taxes on such reduced Total Payments) is greater than or equal to (ii) the net amount of such Total Payments without such reduction (but after subtracting the net amount of federal, state and local income taxes on such Total Payments and the amount of excise tax to which the Employee would be subject in respect of such unreduced Total Payments). 2 IN WITNESS WHEREOF, the undersigned have caused this Amendment to be duly executed as of the day and year first above written. PRECISION RESPONSE CORPORATION BY: /s/ RICHARD D. MONDRE --------------------------------------- Exec. Vice Pres. /s/ ROBERT TENZER --------------------------------------- Robert Tenzer 2 EX-10.44 10 1ST AMEND TO EMPLOY BETWEEN PRC & R. MONDRE 1 Exhibit 10.44 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT First Amendment to Employment Agreement (this "AMENDMENT"), dated as of January 12, 2000 and effective as of the Effective Time (as defined below), between Precision Response Corporation, a Florida corporation ("EMPLOYER"), and Richard D. Mondre ("EMPLOYEE"). "EFFECTIVE TIME" has the meaning set forth in the Merger Agreement described below. Employer currently employs Employee pursuant to that certain Employment Agreement, dated as of April 1, 1999, between Employer and Employee (the "AGREEMENT"); Employer has entered into an Agreement and Plan of Merger (the "MERGER AGREEMENT") with USA Networks, Inc., a Delaware corporation ("USAi") and a wholly-owned subsidiary of USAi ("MERGER SUB"), pursuant to which Employer has agreed to merge with and into Merger Sub, subject to certain terms and conditions. It is a material condition to such merger (the "MERGER") that Employee enter into this Amendment, and Employee has agreed to enter into this Amendment in consideration of, among other things, the benefits to be received by the Employee is connection with the Merger. The parties agree that the Agreement shall be amended effective on and after the Effective Time (whether or not the Employee continues to be employed by the Employer at such time) as follows: 1. (a) Section 5.C. of the Agreement is deleted in its entirety, and Employee hereby waives and releases any and all rights or benefits that he may now have to be granted any stock options thereunder commencing after December 31, 1999 (but excluding the year ended December 31, 1999 in which it acknowledged Employee was granted stock options thereunder). (b) At or immediately following the Effective Time and provided that Employee continues to be employed by the Company at such time, in consideration of Employee's entering into this Amendment and continued employment with the Company at the Effective Time, Employee shall be granted under USAi's 1997 Stock and Annual Incentive Plan a non-qualified stock option to purchase 25,000 shares of USAi common stock on standard terms and conditions for option grants by USAi to its employees. 2. Section 9.A. of the Agreement is amended by adding the following language at the end of clause (i) thereof ", provided that Employee may only give such notice of resignation to Employer if David Epstein has ceased to be the Chief Executive Officer of the Company within the 90-day period immediately preceding the giving of such notice and is not serving as the Chief Executive Officer on the effective date of resignation specified in Employee's notice" and by changing the time period in clause (i) of Section 9A. from "ninety (90) days" to "thirty (30) days". 2 3. The definition of "Constructive Termination" in the fifth sentence of Section 9B. of the Agreement is amended by deleting the references to "Chairman of the Board" and to "Mark J. Gordon" is clause (z) thereof. 4. Section 9C. of the Agreement is amended by adding after the clause "or because Employee resigns from Employee's employment" the following language: "to the extent permitted in Section 9A." 5. The heading to Section 9E. of the Agreement is amended by deleting the words "or Expiration", and the language of Section 9E. is amended in all respects as necessary to delete any references to the payment of any amounts to Employee upon the expiration of the Employment Term pursuant to the terms of Section 2 of the Agreement. 6. The first sentence of Section 9F of the Agreement is amended by deleting clause (iii) in its entirety and is amended in all respects as necessary to delete any references to the payment of any amounts to Employee if Employer (or its successor) delivers to Employee a written notice of termination pursuant to Section 2 of the Agreement. 7. Clause (i) of Section 11 of the Agreement is amended by replacing the words "for a period of 24 months after the date Employee ceases for any reason to be employed by "Employer" with "for two (2) years after the later of (x) the last day of the Initial Employment Term (if Employee ceases for any reason to be employed by Employer before the expiration of the Initial Employment Term) and (y) the date on which Employee ceases for any reason to be employed by Employer". Clause (ii) of Section 11 of the Agreement is amended by replacing the words "competitive with the business of Employer" with the words "competitive with the business in which Employer is engaged or involved during the period that Employee is employed by Employer and, in the case of Severance Period, in which Employer is engaged or involved as of the date Employee ceases for any reason to be employed by Employer". The definition of "Severance Period" in Section 11 of the Agreement is amended and restated in its entirety as follows: "For purposes of this Section 11, the 'Severance Period' shall mean two (2) years after the later of (x) the last day of the Initial Employment Term (if Employee ceases for any reason to be employed by Employer before the expiration of the Initial Employment Term) and (y) the date on which Employee ceases for any reason to be employed by Employer." 8. Section 13.D. of the Agreement is amended and restated in its entirety as follows: "For purposes of Section 10, 11, 12 and 13 of this Employment Agreement, the term 'Employer' includes the Employer and all wholly-owned subsidiaries of Employer." 9. Section 14 of the Agreement is deleted in its entirety, and Exhibit "A" is deleted is its entirety. 10. Section 18 of the Agreement is amended to delete the reference to the Registration Rights Agreement. 2 3 11. Except as otherwise specifically modified by this Amendment, all terms, conditions and provisions of the Agreement shall remain effective and shall continue to operate in full force throughout the entire term of the Agreement, as amended hereby. 12. This Amendment shall be governed by and construed pursuant to the laws of the State of Florida. Any and all disputes between the parties which may arise pursuant to the Agreement, as amended by this Amendment, will be heard and determined before an appropriate federal court in Florida, or, if not maintainable therein, then in an appropriate Florida state court. 13. This Amendment may be executed in counterparts, each of which shall be an original, but both of which together shall constitute one and the same instrument. 14. If the Merger Agreement is terminated before the Effective Time, this Amendment shall be null and void and of no force or effect. The parties hereto have cause this Agreement to be duly executed as of the day and year first above written. PRECISION RESPONSE CORPORATION By: /s/ David Epstein --------------------------------- Name: David Epstein Title: Chief Executive Officer /s/ Richard D. Mondre ------------------------------------- Richard D. Mondre 3 EX-10.45 11 1ST AMEND TO EMPLOY BETWEEN PRC & R. FERRY JR. 1 Exhibit 10.45 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT First Amendment to Employment Agreement (this "AMENDMENT") dated as of January 12, 2000 and effective as of the Effective Time (as defined below), between Precision Response Corporation, a Florida corporation ("EMPLOYER"), and Richard N. Ferry, Jr. ("EMPLOYEE"). "EFFECTIVE TIME" has the meaning set forth in the Merger Agreement described below. Employer currently employs Employee pursuant to that certain Employment Agreement, dated as of April 1, 1999, between Employer and Employee (the "AGREEMENT"); Employer has entered into an Agreement and Plan of Merger (the "MERGER AGREEMENT") with USA Networks, Inc., a Delaware corporation ("USAi"), and a wholly-owned subsidiary of USAi ("MERGER SUB"), pursuant to which Employer has agreed to merge with and into Merger Sub, subject to certain terms and conditions. It is a material condition to such merger (the "MERGER") that Employee enter into this Amendment, and Employee has agreed to enter into this Amendment in consideration of, among other things, the benefits to be received by the Employee in connection with the Merger. The parties agree that the Agreement shall be amended effective on and after the Effective Time as follows: 1. The definition of "Constructive Termination" in the fifth sentence of Section 9(B) of the Agreement is amended by deleting the references to "Chairman of the Board" and to "Mark J. Gordon" in clause (z) thereof. 2. Except as otherwise specifically modified by this Amendment, all terms, conditions and provisions of the Agreement shall remain effective and shall continue to operate in full force throughout the entire term of the Agreement, as amended hereby. 3. This Amendment shall be governed by and construed pursuant to the laws of the State of Florida. 4. This Amendment may be executed in counterparts, each of which shall be an original, but both of which together shall constitute one and the same instrument. 5. If the Merger Agreement is terminated before the Effective Time, this Amendment shall be null and void and of no force or effect. 2 The parties hereto have caused this Agreement to be duly executed as of the day and year first above written. PRECISION RESPONSE CORPORATION By: /s/ David Epstein -------------------------------- Name: David Epstein Title: Chief Executive Officer /s/ Richard N. Ferry ----------------------------------- Richard N. Ferry, Jr. 2 EX-10.46 12 1ST AMEND TO EMPLOY BETWEEN PRC & M.MILLER 1 EXHIBIT 10.46 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT This Amendment to Employment Agreement (this "Amendment") dated and effective as of JANUARY 13, 2000, by and between Precision Response Corporation, a corporation organized and existing under the laws of the State of Florida (hereinafter referred to as "Employer"), and Michael Miller hereinafter referred to as ("Employee"). W I T N E S S E T H WHEREAS, Employer currently employs Employee pursuant to an Employment Agreement dated April 14, 1999 by and between Employer and Employee; and WHEREAS, Employer and Employee desire to amend the Employment Agreement as set forth herein. NOW THEREFORE, the parties agree that the Employment Agreement shall be amended as of and after the date hereof as follows: Section 9 is hereby amended by the addition of the following Subsection F: F. EXCISE TAX TREATMENT. If any of the payments or benefits to be received by Employee in connection with a Change in Control (as defined in Subsection 9E.) pursuant to the terms of this agreement or any other plan, arrangement or agreement (such payments or benefits the "Total Payments") will be subject to any excise tax imposed by Section 4999 of the Internal Revenue of 1986, as amended (the "Code"), then, after taking into account any reduction in the Total Payments provided by Section 280G of the Code in such other plan, arrangement or agreement, the payments made pursuant to Subsection 9E. of this Employment Agreement shall be reduced to the extent necessary so that no portion of the Total Payments is subject to the excise tax but only if (i) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state and local income taxes on such reduced Total Payments) is greater than or equal to (ii) the net amount of such Total Payments without such reduction (but after subtracting the net amount of federal, state and local income taxes on such Total Payments and the amount of excise tax to which the Employee would be subject in respect of such unreduced Total Payments). 2 IN WITNESS WHEREOF, the undersigned have caused this Amendment to be duly executed as of the day and year first above written. PRECISION RESPONSE CORPORATION BY: /s/ RICHARD D. MONDRE --------------------------------------- Exec. Vice Pres. /s/ MICHAEL MILLER --------------------------------------- Michael Miller 2 EX-10.52 13 PUT/CALL AGREEMENT BETWEEN PRC & PRES. SUITES LTD. 1 EXHIBIT 10.52 PUT/CALL AGREEMENT This Put/Call Agreement (the "Agreement") is made and entered into this 17th day of November, 1999 by and between PRESIDENTIAL SUITES, LTD., a Florida limited partnership ("Presidential") and PRECISION RESPONSE CORPORATION, a Florida corporation ("PRC"). W I T N E S S E T H WHEREAS, Presidential entered into that certain Lease Agreement (the "Lease") having an effective date of October 29, 1999, wherein Crossroads Business Park Associates is the landlord and Presidential is the tenant, for the lease of premises consisting of approximately 3,388 rentable square feet on the third floor of Building Two in Crossroads Business Park located at 8151 West Peters Road, Plantation, Florida 33317; and WHEREAS, PRC leases space in the aforesaid Building Two which is adjacent to the premises leased by Presidential under the Lease; and WHEREAS, Presidential desires the right to assign its interest in the Lease to PRC and to convey its furniture, fixtures and equipment commonly kept on the leased premises ("FF&E") to PRC and to thereupon cause PRC to assume the obligations of tenant under the Lease all in accordance with the terms and conditions set forth herein; and WHEREAS, PRC desires the right to cause Presidential to assign its interest in the Lease to PRC and to convey the FF&E to PRC and to thereupon assume the obligations of tenant under the Lease all in accordance with the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises and of the promises, agreements, representations, warranties, and covenants hereinafter set forth, Presidential and PRC agree as follows: 1. RECITALS. The foregoing recitals are true and correct and incorporated herein in their entirety. 2. TERMS. Unless otherwise defined herein, capitalized terms shall have the meaning given them in the Lease. 3. PRESIDENTIAL RIGHT TO ASSIGN LEASE. Subject to the terms and conditions set forth herein, and provided no Event of Default has occurred and is continuing under the Lease, Presidential has the absolute right at any time during the Term by giving written notice (the "Put Notice"), to assign its interest in the Lease to PRC and to convey the FF&E to PRC, whereupon PRC will assume the obligations of Tenant under the Lease accruing from and after the Assignment and Assumption Effective Date (as hereinafter defined) and accept the FF&E. Notwithstanding the 2 foregoing, Presidential may not deliver the Put Notice prior to the receipt of a final Certificate of Occupancy for the Premises from the City of Plantation. 4. PRC RIGHT TO CAUSE ASSIGNMENT OF LEASE. Subject to the terms and conditions set forth herein, PRC has the absolute right at any time during the Term by giving written notice (the "Call Notice"), to cause Presidential to assign its interest in the Lease to PRC provided PRC thereupon assumes the obligations of Tenant under the Lease accruing from and after the Assignment and Assumption Effective Date (as hereinafter defined) and accepts the FF&E. 5. PROCEDURE FOR ASSIGNMENT AND ASSUMPTION OF LEASE AND CONVEYANCE OF FF&E. In the event Presidential exercises its rights under paragraph 3 hereof or PRC exercises its rights under paragraph 4 hereof, the assignment of Presidential's interest in the Lease and the assumption by PRC of the Tenant's obligations under the Lease shall be evidenced by an Assignment and Assumption Agreement (the "Assignment and Assumption Agreement") substantially in the form attached hereto as Exhibit "A," but subject to the reasonable comments of the Landlord, and the conveyance of the FF&E shall be evidenced by a Bill of Sale in the form of that attached hereto as Exhibit B (the "Bill of Sale"). Following delivery of the Put Notice or Call Notice, as the case may be, Presidential and PRC shall agree in writing upon the effective date of the Assignment and Assumption Agreement (the "Assignment and Assumption Effective Date"), which date shall be the first day of a calendar month; provided, however, if the parties are unable to agree, the Assignment and Assumption Effective Date shall be the first date which is at least 90 days from the date of delivery of the Put Notice or Call Notice, as the case may be, and which is the first day of a calendar month. The parties acknowledge the provisions of subparagraph 14.01(e) of the Lease and agree to cooperate in good faith to comply with such provisions. Not later than 20 days prior to the Assignment and Assumption Effective Date (the "Delivery Date"), Presidential and PRC shall jointly deliver to Landlord (i) written notice of the assignment and assumption of Presidential's interest in the Lease, which notice shall include a request that the Landlord release Presidential from all liability accruing under the Lease from and after the Assignment and Assumption Effective Date, and (ii) a copy of the fully executed Assignment and Assumption Agreement (effective as of the Assignment and Assumption Effective Date). On the Delivery Date, PRC shall deliver to Landlord, with copy to Presidential, (i) evidence that it has in place all insurance required to be maintained under the Lease which insurance policies shall name Landlord as an additional insured and (ii) a substitute letter of credit which letter of credit shall be in the amount required for the Letter of Credit as of the Assignment and Assumption Effective Date and otherwise comply with the requirements of the Lease for the Letter of Credit and be sufficient to cause Landlord to release to Presidential the existing Letter of Credit as of or before the Assignment and Assumption Effective Date. On the Delivery Date, the party which delivered the Put Notice or Call Notice, as the case may be, shall deliver to Landlord the administrative charge required by 14.01(e)(iv) of the Lease. On the Delivery Date, Presidential shall deliver to PRC (i) a certificate certifying to PRC that all the representations and warranties of Presidential contained in this Agreement are true and correct in all material respects and will be true and correct in all material respects as of the 2 3 Assignment and Assumption Effective Date and (ii) documentation sufficient to allow PRC to determine the TI Adjustment (as defined below) and the FF&E Payment (as defined below). No sooner than 45 days, and no later than 30 days, prior to the Assignment and Assumption Effective Date, Presidential shall request in writing from Landlord an estoppel certificate to be addressed to PRC and otherwise in accordance with subparagraph 27.01(j) of the Lease. On the Assignment and Assumption Effective Date, Presidential shall deliver to PRC (i) the Premises, broom-clean and free of Presidential's personal property, other than the FF&E, (ii) the FF&E in the condition required hereby, (iii) the Assignment and Assumption Agreement, (iv) the Bill of Sale, and (v) all keys and access devices for the Premises and any and all plans and specifications, certificates of occupancy, approvals, licenses, permits, architectural drawings, permits, warranties and guaranties pertaining to the Premises and Interior Buildout, all assigned to PRC to the extent assignable. On the Assignment and Assumption Effective Date, PRC shall deliver to Presidential the Assignment and Assumption Agreement, and PRC shall pay to Presidential (i) the FF&E Payment (as defined below), and (ii) the TI Adjustment (as defined below). On the Assignment and Assumption Effective Date, Presidential and PRC shall jointly deliver to Landlord instruction to release the Letter of Credit to Presidential. On the Assignment and Assumption Effective Date, Presidential shall pay PRC or PRC shall pay Presidential, as appropriate, the payments required by the first sentence of the following Section. 6. FINANCIAL MATTERS UNDER THE LEASE. It is the intent of the parties that all monetary obligations of Presidential under the Lease shall be made current by Presidential at or prior to the Assignment and Assumption Effective Date. To the extent necessary or appropriate, the parties shall prorate Rent, utilities and other financial matters as of the Assignment and Assumption Effective Date and make payment of prorated items to the appropriate party on the Assignment and Assumption Effective Date. To the extent Presidential's obligations under the Lease are not ascertainable as of the Assignment and Assumption Effective Date (such as Tenant's Proportionate Share of Operating Expenses), the parties agree to promptly adjust and pay or reimburse the same when such matters are ascertainable. Following the Assignment and Assumption Effective Date, PRC shall have the right, but not the obligation, to contest Landlord's determination of Tenant's Percentage Share of Operating Costs for the calendar year during which the Assignment and Assumption Effective Date falls. PRC and Presidential agree to provide the other party with copies of all notices and evidence concerning Landlord's determination of Tenant's Proportionate Share of Operating Costs which either party receives from Landlord for such calendar year. Presidential may at its expense contest Landlord's determination of Tenant's Proportionate Share of Operating Expenses if PRC does not elect to do 3 4 so. Any savings as a result of such contest shall be prorated between the parties as of the Assignment and Assumption Effective Date after reimbursing the contesting party for the costs and expenses of contest. 7. TENANT IMPROVEMENT ADJUSTMENT/FF&E PAYMENT. Promptly, but in no event later than sixty (60) days following the completion of the Interior Buildout and the furnishing of the Premises, Presidential shall deliver to PRC such documentation and other support as PRC may reasonably request demonstrating (i) the cost of the tenant improvements constructed or installed in the Premises (other than the FF&E) by or on behalf of Presidential (the "TI Cost"), (ii) the portion of Landlord's Contribution actually paid to Presidential in cash, and not in the form of a rent credit (the "Paid Contribution"), and (iii) the cost of the FF&E. Within thirty (30) days following receipt of such documentation and support, the parties shall seek to agree as to the amount of the difference between the TI Cost and the Paid Contribution (the "Difference") and the cost of the FF&E (the "FF&E Cost"). If the parties are unable to agree as to the amount of the Difference or the FF&E Cost, the same shall be determined by PRC's then independent public accountants, which determination shall be conclusive. The Difference and the FF&E Cost shall be amortized over the portion of the initial Term remaining after the final certificate of occupancy for the Premises has been issued. The unamortized Difference as of the Assignment and Assumption Effective Date shall be the "TI Adjustment"; the unamortized FF&E Cost as of the Assignment and Assumption Effective Date shall be the "FF&E Payment." The parties shall adjust the FF&E Cost from time to time as FF&E is added to or removed from the Premises using the procedure set forth in this Section. The cost of any FF&E which is added to the Premises shall be amortized over an assumed ten year term. 8. PRESIDENTIAL REPRESENTATIONS AND WARRANTIES. Presidential represents and warrants to PRC that as of the date of this Agreement and as of the Assignment and Assumption Effective Date: (i) Presidential is a limited partnership duly formed, validly existing and in good standing under the laws of the State of Florida. (ii) Presidential has the power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by Presidential and is a valid and binding agreement of Presidential, enforceable in accordance with its terms. (iii) The negotiation, execution, delivery and performance of this Agreement by Presidential, and the consummation of the transactions contemplated hereby, do not and will not conflict with or result in any breach of any of the provisions of, constitute a default under, or result in a violation of the Lease, or require any authorization, consent, approval, exemption or other action by or notice to any third party other than the notice to Landlord required by 14.01(e) of the Lease. 4 5 (iv) There are no actions, suits, proceedings, orders, investigations or claims pending or threatened against Presidential, or to which Presidential is a party, at law or in equity, or before or by any court, tribunal, governmental department, commission, board, bureau, agency or instrumentality, or otherwise which pertain to the Lease or the Premises. (v) There are no claims for brokerage commissions, finders' fees or similar compensation in connection with the transactions contemplated by this Agreement or for which Presidential is obligated as a result of the Lease or its negotiation. (vi) To the best of Presidential's knowledge, the Premises are not in material violation of any law or any regulation or requirement, and Presidential has not received notice of any such violation. (vii) To the best of Presidential's knowledge there is no condition, circumstance, or set of facts that constitutes a significant hazard to health, safety, property, or the environment relating to the Premises or Building. (viii) Attached hereto as Schedule 1 is a true, correct and complete copy of the Lease containing all amendments and modifications thereto. (ix) Presidential has accepted possession of the Premises from Landlord subject to the Interior Buildout. (x) Presidential has delivered the Letter of Credit to Landlord. (xi) No Event of Default has occurred under the Lease nor has any event occurred which, but for notice and the passage of time, would constitute an Event of Default under the Lease. 9. PRC REPRESENTATIONS AND WARRANTIES. PRC represents and warrants to Presidential that as of the date of this Agreement and as of the Assignment and Assumption Effective Date: (i) PRC is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Florida. (ii) PRC has the corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated on its part hereby. This Agreement has been duly executed and delivered by PRC and is the valid and binding agreement of PRC. 5 6 (iii) The execution, delivery and performance of this Agreement by PRC and the consummation of the transactions contemplated hereby do not and will not conflict with or result in any breach of any of the provisions of, or require any authorization, consent, approval, exemption or other action by or notice to any third party under the provisions of the Articles of Incorporation or ByLaws of PRC or any other agreement or instrument to which PRC is a party. (iv) There are no claims for brokerage commissions, finders' fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement made by or on behalf of PRC. 10. COVENANTS OF PRESIDENTIAL. Presidential covenants and agrees with PRC that from the date hereof until the Assignment and Assumption Effective Date: (i) Presidential shall not amend or modify or consent to any amendment or modification of the Lease without the prior written consent of PRC, which consent shall not be unreasonably withheld or delayed; (ii) Presidential shall faithfully and diligently cause the Interior Buildout to occur in accordance plans and specifications to be prepared by Presidential and thereafter occupy and maintain the Premises and FF&E in accordance with the Lease; (iii) Presidential shall comply in all respects with the terms and conditions of the Lease and shall cause the Landlord to comply with all terms and condition of the Lease; and (iv) Presidential shall not pledge, transfer, assign, sublet, hypothecate or otherwise encumber the Lease or the Premises, or any portion thereof, or any interest of Presidential in the Premises or in the Lease. 11. CONDITIONS PRECEDENT. (a) PRC shall not be obligated to consummate the transaction described in this Agreement unless: (i) Presidential shall have performed in all material respects all of the agreements, covenants and obligations contained in this Agreement to be performed or complied with by Presidential on or prior to the Assignment and Assumption Effective Date; and 6 7 (ii) All representations and warranties made by Presidential hereunder shall be true, complete and accurate in all material respects on the date hereof and as of Assignment and Assumption Effective Date. PRC, in its sole discretion, may waive any of the foregoing conditions in this paragraph 11(a). (b) Presidential shall not be obligated to consummate the transactions described in this Agreement unless: (i) PRC has performed in all material respects all of the obligations and agreements performable by PRC hereunder; and (ii) All the representations and warranties made by PRC hereunder are true and correct in all material respects on the date hereof and as of the Assignment and Assumption Effective Date; and (iii) Landlord delivers to Presidential a release from all liability accruing under the Lease from and after the Assignment and Assumption Effective Date. Presidential, in its sole discretion, may waive any of the foregoing conditions in this paragraph 11(b). 12. MISCELLANEOUS. 12.01 SURVIVAL. The representations and warranties of Presidential and PRC shall survive delivery of the Assignment and Assumption Agreement. 12.02 TERMINATION. Anything herein or elsewhere to the contrary notwithstanding, this Agreement may be terminated and abandoned at any time prior to consummation of the transactions contemplated hereby: (i) By the mutual consent of Presidential and PRC; (ii) By PRC if there shall be any Event of Default under the Lease at any time following the delivery of the Put Notice or Call Notice, as the case may be; (iii) Presidential has materially breached any representation or warranty herein or failed to perform any material obligation or condition hereof and such breach or failure shall not have been cured in manner, form and substance reasonably satisfactory to PRC; (iv) By Presidential if PRC has materially breached any representation or warranty herein or failed to perform any material obligation or condition 7 8 hereof and such breach or failure has not been cured in manner, form and substance reasonably satisfactory to Presidential. 12.03 EXPENSES. Each party will pay all of its expenses in connection with the negotiation of this Agreement, the performance of its obligations hereunder, and the consummation of the transactions contemplated by this Agreement. 12.04 AMENDMENTS AND WAIVERS. The parties hereto, by mutual agreement in writing, may amend, modify and supplement this Agreement. The failure of any party hereto to enforce at any time any provision of this Agreement shall not be construed to be a waiver of such provision, nor in any way to affect the validity of this Agreement or any part hereof or the right of any party thereafter to enforce each and every such provision. No waiver of any breach of this Agreement shall be held to constitute a waiver of any other or subsequent breach. 12.05 NOTICES. All notices or other communications required or permitted hereunder shall be in writing and shall be given by hand or by registered mail, return receipt requested, addressed as follows: If to Presidential: c/o Mark Gordon, President 19951 Northeast 39th Place Aventura, Florida 33180 If to PRC: 1505 Northwest 167th Street Miami, Florida 33169 Attention: General Counsel Any party hereto may specify in writing a different address for such purpose by notice to the other parties. 12.06 ASSIGNMENT. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, provided that neither this Agreement nor any of the rights, interests or obligations hereunder may be assigned by any party without the prior written consent of the other party hereto. 12.07 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 prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder 8 9 of such provision or the remaining provision of this Agreement unless the consummation of the transaction contemplated hereby is adversely affected thereby. 12.08 COMPLETE AGREEMENT. This document and the documents referred to herein contain the complete agreement between the parties and supersede any prior understandings, agreements or representations by or between the parties, written or oral, which may have related to the subject matter hereof in any way. 12.09 NO THIRD-PARTY BENEFICIARIES. This Agreement shall be for the benefit only of the parties hereto, and their respective successors and assigns. 12.10 GOVERNING LAW. All questions concerning the construction, validity and interpretation of this Agreement and the performance of the obligations imposed by this Agreement will be governed by the laws of the State of Florida without reference to any conflict of laws rules. IN WITNESS WHEREOF, the parties hereto have executed this Agreement intending to be legally bound hereby. PRESIDENTIAL SUITES, LTD., a Florida limited partnership By: Presidential Suites Corp., a Florida corporation, as its sole general partner /s/ ESTHER HERNANDEZ By: /s/ MARK GORDON - ---------------------------------- -------------------------- Name: Mark Gordon /s/ DOROTHY DEDARIO Title: President - ---------------------------------- PRECISION RESPONSE CORPORATION, a Florida corporation /s/ ESTHER HERNANDEZ By: /s/ DAVID EPSTEIN - ---------------------------------- -------------------------- Name: David Epstein /s/ DOROTHY DEDARIO Title: Chief Executive Officer - ---------------------------------- 9 10 EXHIBIT A [Form of Assignment and Assumption Agreement] 10 11 ASSIGNMENT AND ASSUMPTION OF LEASE THE STATE OF FLORIDA ) ) KNOW ALL MEN BY THESE PRESENTS: COUNTY OF MIAMI-DADE ) THIS ASSIGNMENT AND ASSUMPTION OF LEASE (the "ASSIGNMENT"), is executed and delivered effective as of the ___ day of __________, ______ by and between Presidential Suites, Ltd., a Florida limited partnership ("ASSIGNOR"), and Precision Response Corporation, a Florida corporation ("ASSIGNEE"); W I T N E S S E T H: Assignor, as tenant, has heretofore entered into a certain Lease Agreement (the "Lease") with Crossroads Business Park Associates, as landlord, for lease of Premises located on the third floor of Building Two at Crossroads Business Park located at 8151 West Peters Road, Plantation, Florida 33317, a true copy of the Lease being attached hereto as Exhibit A. NOW, THEREFORE, for and in consideration of the premises and the agreements and covenants herein set forth, together with the sum of Ten Dollars ($10.00) and other good and valuable consideration this day paid and delivered by Assignee to Assignor, the receipt and sufficiency of which by Assignor are hereby confirmed and acknowledged, Assignor does hereby ASSIGN, TRANSFER, SET OVER, and DELIVER unto Assignee all of the Assignor's interest as tenant in and to the Lease and all of the rights, benefits and privileges of the tenant thereunder, subject to all terms, conditions, reservations, and limitations set forth in the Lease. TO HAVE AND TO HOLD all and singular the tenant's interest in and to the Lease unto Assignee, its successors, and assigns, and Assignor does hereby bind itself, its successors, and assigns, to warrant and forever defend all and singular the tenant's interest in and under the Lease unto Assignee, its successors and assigns, against every person whomsoever lawfully claiming or attempting to claim the same, or any part thereof by, through and under Assignor, but not otherwise. Such assignment of the Lease by Assignor to Assignee is made on the following terms and conditions: Assignee assumes Assignor's interest under the Lease and agrees to perform all of the terms, covenants, obligations, and conditions of the Lease on the part of the tenant therein required to be performed, from and after the effective date hereof, but not prior thereto. Assignee hereby covenants and agrees to indemnify, save, and hold harmless Assignor from and against any and all demands, claims, assessments, costs, damages, penalties, attorney's fees, loss, liability, claims, actions or 12 causes of action in any way directly or indirectly arising from, out of or relating to Assignee's acts, omissions, breaches or failures to perform with respect to the Lease from and after the effective date of this Assignment. Assignor acknowledges to Assignee and landlord under the Lease that this Assignment does not release Assignor from liability under the Lease unless the Landlord under the Lease specifically releases Assignor. It is further agreed that Assignee is not responsible under the Lease for the discharge and performance of the tenant's obligations and duties thereunder prior to the effective date hereof and Assignor hereby covenants and agrees to indemnify, save, and hold harmless Assignee from and against any and all demands, claims, assessments, costs, damages, penalties, attorney's fees, loss, liability, claims, actions or causes of action in any way directly or indirectly arising from, out of or relating to Assignor's acts or omissions with respect to the Lease prior to the effective date hereof. All of the covenants, terms, and conditions set forth herein shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. IN WITNESS WHEREOF, Assignee and Assignor have executed this Assignment effective as of the date set forth above. WITNESSES: ASSIGNOR: Presidential Suites, Ltd., a Florida limited partnership By: Presidential Suites Corp., a Florida corporation, its sole general partner By: - --------------------------- --------------------------- Name: - --------------------------- ------------------------- Title: ------------------------ ASSIGNEE: Precision Response Corporation, a Florida corporation By: - --------------------------- --------------------------- Name: - --------------------------- ------------------------- Title: ------------------------ 2 13 EXHIBIT A [Lease] 3 14 EXHIBIT B [FORM OF BILL OF SALE] 15 EXHIBIT "B" BILL OF SALE Presidential Suites, Ltd., ("Assignor") for and in consideration of $10.00 and other good and valuable consideration from Precision Response Corporation ("Assignee"), receipt and sufficiency of which is acknowledged, grants, bargains, sells, transfers and delivers to Assignee and Assignee's successors and assigns all of the goods, chattels and personal property ("FF & E") described on Exhibit A hereto. TO HAVE AND TO HOLD the same forever. AND Seller covenants with Assignee and Assignee's successors and assigns that: Assignor is the lawful owner of the FF & E; the FF & E is free from all encumbrances; Assignor has good right to sell the FF & E; and Assignor will warrant and defend the sale of the FF & E to Assignee and Assignee's successors and assigns against the lawful claims and demands of all persons whomsoever. Seller has executed this instrument, as _____________________, _______. Signed, sealed and delivered Presidential Suites, Ltd. in the presence of: By: Presidential Suites Corp., it sole general partner - ------------------------------ By: ------------------------------ Name: ---------------------------- Title: --------------------------- - ------------------------------ 16 EXHIBIT A (FF & E) 17 SCHEDULE 1 [The Lease] 12 EX-10.53 14 1ST AMEND TO EMPLOY BETWEEN PRC & P. O'HARA 1 Exhibit 10.53 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT First Amendment to Employment Agreement (this "AMENDMENT") dated as of January 12, 2000 and effective as of the Effective Time (as defined below), between Precision Response Corporation, a Florida corporation ("EMPLOYER"), and Paul M. O'Hara ("EMPLOYEE"). "EFFECTIVE TIME" has the meaning set forth in the Merger Agreement described below. Employer currently employs Employee pursuant to that certain Employment Agreement, dated as of August 9, 1999, between Employer and Employee (the "AGREEMENT"); Employer has entered into an Agreement and Plan of Merger (the "MERGER AGREEMENT") with USA Networks, Inc., a Delaware corporation ("USAi"), and a wholly-owned subsidiary of USAi ("MERGER SUB"), pursuant to which Employer has agreed to merge with and into Merger Sub, subject to certain terms and conditions. It is a material condition to such merger (the "MERGER") that Employee enter into this Amendment, and Employee has agreed to enter into this Amendment in consideration of, among other things, the benefits to be received by the Employee in connection with the Merger. The parties agree that the Agreement shall be amended effective on and after the Effective Time as follows: 1. The definition of "Constructive Termination" in the third sentence of Section 9(B) of the Agreement is amended by deleting the references to "Chairman of the Board" and to "Mark J. Gordon" in clause (z) thereof. 2. Except as otherwise specifically modified by this Amendment, all terms, conditions and provisions of the Agreement shall remain effective and shall continue to operate in full force throughout the entire term of the Agreement, as amended hereby. 3. This Amendment shall be governed by and construed pursuant to the laws of the State of Florida. 4. This Amendment may be executed in counterparts, each of which shall be an original, but both of which together shall constitute one and the same instrument. 5. If the Merger Agreement is terminated before the Effective Time, this Amendment shall be null and void and of no force or effect. 2 The parties hereto have caused this Agreement to be duly executed as of the day and year first above written. PRECISION RESPONSE CORPORATION By: /s/ David Epstein -------------------------------- Name: David Epstein Title: Chief Executive Officer /s/ Paul M. O'Hara ----------------------------------- Paul M. O'Hara 2 EX-10.54 15 AGREEMENT BETWEEN D. EPSTEIN,FAMILY TRUST & PRC 1 EXHIBIT 10.54 TRI-PARTY SPLIT DOLLAR AGREEMENT AND COLLATERAL ASSIGNMENT AGREEMENT (the "Agreement") made and effective as of September 1, 1999, by and between the David Epstein 1995 Grantor Trust u/a/d December 28, 1995 (the "Grantor Trust") and the Epstein 1997 Family Trust u/a/d June 19, 1997 (the "Family Trust") and PRECISION RESPONSE CORPORATION, a Florida corporation (the "Company") (whose address is 1505 N.W. 167 Street, Miami, Florida 33169). WHEREAS, the Family Trust is the owner of a certain life insurance policy (the "Policy") dated September 25, 1997, and issued September 26, 1997, by New York Life Insurance Company (the "Insurance Company") on the lives of David L. Epstein ("Husband" or "David L. Epstein") and his spouse, Jodi A. Epstein ("Wife"); WHEREAS, pursuant to that certain Split Dollar Agreement and Collateral Assignment (the "1997 Agreement") dated on or about September 1, 1997, between the Trustees of the Family Trust and the Grantor Trust, the Grantor Trust has contributed a portion of the premiums due on the Policy; WHEREAS, the Grantor Trust desires henceforth to cease contributing a portion of the premiums due on the Policy pursuant to the 1997 Agreement; WHEREAS, the Husband is employed by the Company pursuant to that certain Employment Agreement (the "Employment Agreement") dated as of May 15, 1996, between the Husband and the Company, as amended by the Amendment to Employment Agreement dated as of April 1, 1999, between the Husband and the Company; WHEREAS, the Company desires henceforth to contribute a portion of the premiums due on the Policy under a continuing "Split Dollar" arrangement; WHEREAS, the Family Trust will continue to be the owner of the Policy subject to the terms of this Agreement; WHEREAS, the Policy will be collaterally assigned to the Grantor Trust and the Company as security for the repayment of the amounts which the Grantor Trust and the Company have contributed or will contribute as premiums due on the Policy, all as more fully set forth herein; and WHEREAS, the Family Trust and the Grantor Trust hereby desire that, pursuant to ARTICLE 14 of the 1997 Agreement, this Agreement should supersede in its entirety the 1997 Agreement, which hereafter shall be of no further force and effect. 2 NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, it is agreed between the parties to this Agreement as follows: ARTICLE 1 INSURANCE POLICY The Family Trust has obtained the Policy on the Husband's and Wife's joint lives in the total face amount of $30,000,000. The policy number, type of policy, face amount and plan of payments contained in the Policy are recorded on Schedule A attached hereto and the parties hereto agree that the Policy is held subject to the terms of this Agreement. ARTICLE 2 OWNERSHIP OF INSURANCE The Family Trust is and shall continue to be the owner of the Policy and may exercise all rights of ownership with respect to the Policy, except as to the limited security interest in the Policy specifically granted to the Grantor Trust and the Company herein. Subject to such security interest of the Grantor Trust and the Company, the rights reserved to the Family Trust include specifically the right to change the beneficiaries of the Policy, the right to surrender the Policy, the right to assign the Policy or revoke such an assignment, and the right to pledge the Policy for a loan or to obtain a loan from the Insurance Company against the surrender value of the Policy. ARTICLE 3 PREMIUM When used in this Agreement the words "the Premium" shall mean and refer to the annual premium shown on Schedule A attached hereto, or such other annual amounts as the parties hereto may from time to time agree in writing to pay to the Insurance Company with respect to the Policy; provided, however, that in no event shall the Premium be less than the smallest annual payment necessary to keep the Policy in full force and effect. ARTICLE 4 PAYMENT OF PREMIUMS ON POLICY A. The Company shall pay either directly to the Insurance Company or by making the necessary funds therefor -2- 3 available to the Family Trust the Premium when due less the amounts due from the Family Trust pursuant to the provisions of Section B of this ARTICLE 4. The Premium may be paid under any payment method acceptable to the Company and the Insurance Company. B. The Family Trust shall pay that portion of each annual premium equal to the cost (calculated by application of the lower of the Internal Revenue Service's U.S. Life Table 38 rate or the Insurance Company's annual term insurance rates on the lives of the Husband and Wife while they are both alive, and by application of the lower of the Internal Revenue Service's U.S. Life Table 58 rate or the Insurance Company's annual term insurance rate on the life of the survivor of the Husband and Wife after the death of the first of them to die) of the insurance proceeds which the beneficiary or beneficiaries named by the Family Trust would be entitled to receive if the survivor of the Husband and Wife died during that policy year (before any reduction for any repayments to be made to the Grantor Trust or the Company pursuant to this Agreement). ARTICLE 5 FAMILY TRUST'S OBLIGATION TO GRANTOR TRUST AND COMPANY A. The Family Trust must repay to the Grantor Trust the aggregate amount paid by the Grantor Trust under Section A of ARTICLE 4 of the 1997 Agreement as premiums on the Policy (such amount being hereinafter referred to as the "Grantor Trust Net Payment Amount") in accordance with Section A of ARTICLE 8, Section A of ARTICLE 9, and Section A of ARTICLE 11 of this Agreement (as the case may be). B. The Family Trust must repay to the Company the aggregate amount paid by the Company under Section A of ARTICLE 4 of this Agreement as premiums on the Policy (such amount being hereinafter referred to as the "Company Net Payment Amount") in accordance with ARTICLE 7, Section B of ARTICLE 8, Section B of ARTICLE 9, and Section B of ARTICLE 11 of this Agreement (as the case may be), subject, however, to the provisions of Section C of this ARTICLE 5. C. Notwithstanding anything in this Agreement to the contrary, the Family Trust shall not be required to repay to the Company any part or all of the Company Net Payment Amount in the event of the termination of Husband's employment with the Company by reason of any one or more of the following events (hereinafter referred to individually in this Agreement as a "Vesting Event"): 1. The termination of Husband's employment as a result of Husband's disability (as such term is defined in paragraph 7(b) of the Employment Agreement); -3- 4 2. The voluntary resignation of Husband from employment by Company (a) in connection with a Change in Control of Company (as defined in paragraph 1 of Section B of ARTICLE 7 hereof) or (b) due to Husband's attainment of normal retirement age of sixty-five (65) years; 3. The termination of Husband's employment as a result of Husband's Constructive Termination (as defined in paragraph 7(e) of the Employment Agreement); 4. The involuntary termination of Husband's employment by Company for any reason not set forth in paragraph 7 of the Employment Agreement; and/or 5. The failure or refusal by Company to renew the term of the Employment Agreement pursuant to paragraph 2 thereof or to renew or continue any successor employment agreement (other than in connection with (a) the occurrence of a Termination Event (as defined in Section A of Article 7 hereof); (b) the death of Husband or (c) Husband entering into a successor employment agreement with the Company acceptable to Husband in his sole discretion). D. Immediately upon the occurrence of a Vesting Event: 1. The Company shall release the collateral assignment of the Policy made by the Family Trust to the Company pursuant to Section A of ARTICLE 6 hereof; 2. The Family Trust's obligations to the Company under Section B of this ARTICLE 5 shall terminate and cease forever; 3. The Company shall have no right, title and interest in and to the Policy, including without limitation by way of ARTICLE 7, Section B of ARTICLE 8, Section B of ARTICLE 9 and/or Section B of ARTICLE 11 hereof; and 4. The obligation of the Company under Section A of ARTICLE 4 hereof shall be funded as and when, to the extent and for the period required under paragraph 8 of the Employment Agreement consistent with such obligation being a benefit of Husband which Husband is entitled to receive under such paragraph 8 upon the termination of his employment with the Company by reason of a Vesting Event. Upon the funding of the required amount of the Company's obligation under Section A of ARTICLE 4 hereof, the Company shall have no further obligations hereunder. ARTICLE 6 ASSIGNMENT OF POLICY A. The Family Trust hereby collaterally assigns, and grants a security interest in, all of its right, title and interest -4- 5 in and to the Policy, to (i) the Grantor Trust as security for repayment of the Grantor Trust Net Payment Amount and (ii) the Company as security for repayment of the Company Net Payment Amount, subject, however, to the provisions of Section B of this ARTICLE 6. Such collateral assignment shall be joint and several as to the Grantor Trust and the Company, subject, however, to and as provided in the provisions of Section B of this ARTICLE 6. Such collateral assignment shall not be altered or changed without the written consent of the Grantor Trust and the Company. B. The Grantor Trust and the Company hereby acknowledge and agree that any and all right, title and interest of the Grantor Trust in and to the Policy under Section A of this ARTICLE 6, including without limitation any and all right, title and interest of the Grantor Trust in and to the cash surrender value of the Policy and/or the death benefits provided under the Policy, are hereby and shall be junior, subject to, and subordinate in all respects to any and all right, title and interest of the Company in and to the Policy under said Section A, including without limitation any and all right, title and interest of the Company in and to the cash surrender value of the Policy and/or the death benefits provided under the Policy; it being the intent of this Section B that the Company be repaid the Company Net Payment Amount as and to the extent it is entitled to be repaid same hereunder prior to any repayment of the Grantor Trust Net Payment Amount. Such agreement shall not be altered or changed without the written consent of the Grantor Trust and the Company. ARTICLE 7 CLAIMS UPON TERMINATION OF EMPLOYMENT A. The Family Trust must repay to the Company the Company Net Payment Amount less any repayments made by the Family Trust to the Company prior to the occurrence of a Termination Event (as hereinafter defined) upon the termination of Husband's employment by Company by reason of any one or more of the following events (hereinafter referred to individually in this Agreement as a "Termination Event"): 1. The termination of Husband's employment by Company for cause pursuant to paragraph 7(c) of the Employment Agreement; and/or 2. The voluntary resignation by Husband from employment by Company pursuant to paragraph 7(d) of the Employment Agreement (other than any such resignation resulting in the occurrence of a Vesting Event). B. As used in this Agreement: 1. A "Change in Control of Company" means that (i) neither Mark J. Gordon (for these purposes, counting all common -5- 6 stock directly or indirectly beneficially owned by Mark J. Gordon's Affiliates (as hereinafter defined)) nor David L. Epstein (for these purposes, counting all common stock directly or indirectly beneficially owned by David L. Epstein's Affiliates) beneficially owns at least ten (10%) percent of the issued and outstanding common stock of Company (or its successor); (ii) neither Mark J. Gordon (for these purposes, counting all common stock directly or indirectly beneficially owned by Mark J. Gordon's Affiliates) nor David L. Epstein (for these purposes, counting all common stock directly or indirectly beneficially owned by David L. Epstein's Affiliates) is the stockholder of Company (or its successor) beneficially owning the highest number of issued and outstanding shares of common stock of Company (or its successor); or (iii) Mark J. Gordon and/or David L. Epstein do not occupy the positions of Chairman of the Board and Chief Executive Officer of Company (or its successor). 2. "Affiliate" means, with respect to Mark J. Gordon or David L. Epstein, an Immediate Family Member (as hereinafter defined) of his, a trust principally for his benefit and/or the benefit of his Immediate Family Members and/or lineal descendants, or a family limited partnership or any other entity the direct or indirect beneficial or pecuniary owners of which are principally him, his Immediate Family Members and/or trusts or other entities principally for the benefit of him, his Immediate Family Members and/or lineal descendants. 3. "Immediate Family Members" means, with respect to Mark J. Gordon or David L. Epstein, his spouse, children, parents, siblings or other lineal descendants. C. The repayment pursuant to Section A of this ARTICLE 7 must be made within one (1) year from the date of the Termination Event; provided, however, that upon receipt of such repayment, the Company shall release the collateral assignment of the Policy made by the Family Trust to the Company pursuant to Section A of ARTICLE 6 of this Agreement and the Company shall have no further right, title and interest in and to the Policy. The receipt by the Company of the Company Net Payment Amount shall constitute satisfaction of the Family Trust's obligation under Section B of ARTICLE 5 hereof and this ARTICLE 7. ARTICLE 8 DEATH CLAIMS A. When the survivor of the Husband and Wife dies, the Grantor Trust shall be entitled to receive a portion of the death benefits provided under the Policy. The amount to which the Grantor Trust shall be entitled shall be the lesser of (i) the excess, if any, of such death benefits over the amount, if any, payable to the Company under Section B of this ARTICLE 8 or (ii) the Grantor Trust Net Payment Amount less any repayments made by the Family Trust to -6- 7 the Grantor Trust prior to the death of the survivor of the Husband and Wife; provided, however, that upon receipt of such amount by the Grantor Trust, the Grantor Trust shall release the collateral assignment of the Policy made by the Family Trust to the Grantor Trust pursuant to Section A of ARTICLE 6 of this Agreement. The receipt by the Grantor Trust of the Grantor Trust Net Payment Amount less any repayments made by the Family Trust to the Grantor Trust prior to the death of the survivor of the Husband and Wife shall constitute satisfaction of the Family Trust's obligation under Section A of ARTICLE 5 of this Agreement. To the extent, if any, the death benefits provided under the Policy are insufficient to pay in full the Grantor Trust Net Payment Amount less any repayments made by the Family Trust to the Grantor Trust prior to the death of the survivor of the Husband and Wife, the Family Trust shall be liable to the Grantor Trust for the amount of such insufficiency. B. When the survivor of the Husband and Wife dies, the Company shall be entitled to receive a portion of the death benefits provided under the Policy; provided, however, that a Vesting Event shall not have occurred prior to such death, in which event the Company shall not receive any part or all of the death benefits provided under the Policy. The amount to which the Company shall be entitled shall be the Company Net Payment Amount less any repayments made by the Family Trust to the Company prior to the death of the survivor of the Husband and Wife; provided, however, that upon receipt of such amount by the Company, the Company shall release the collateral assignment of the Policy made by the Family Trust to the Company pursuant to Section A of ARTICLE 6 of this Agreement. The receipt of such amount by the Company shall consti tute satisfaction of the Family Trust's obligation under Section B of ARTICLE 5 of this Agreement. To the extent, if any, the death benefits under the Policy are insufficient to pay in full the Company Net Payment Amount less any repayments made by the Family Trust to the Company prior to the death of the survivor of the Husband and Wife, the Family Trust shall be liable to the Company for the amount of such insufficiency. C. When the survivor of the Husband and Wife dies, the beneficiary or beneficiaries named by the Family Trust (or by its assignees) shall be entitled to receive the amount, if any, of the death benefits provided under the Policy in excess of the sum of (i) the amount, if any, payable to the Grantor Trust under Section A of this ARTICLE 8 and (ii) the amount, if any, payable to the Company under Section B of this ARTICLE 8. Such amount shall be paid under the settlement option elected by the Family Trust (or by its assignees). D. If any interest is due upon the death benefits provided under the Policy, the Grantor Trust, the Company and the beneficiary or beneficiaries named by the Family Trust (or by its assignees) shall share such interest in the same proportions as their respective shares of such death benefits (as provided in Sections A, B and C, respectively, of this ARTICLE 8) shall bear to -7- 8 the total death benefits provided under the Policy excluding such interest. E. If, upon the death of the survivor of the Husband and Wife, there is a refund of unearned premium under the Policy, then any such refund shall be divided between the Grantor Trust, the Company (provided, however, that a Vesting Event shall not have occurred prior to such death, in which event the Company shall not receive any part or all of such refund under the Policy) and the beneficiary or beneficiaries named by the Family Trust (or by its assignees) in the same proportions as their respective shares of the last premium payment made by the Grantor Trust, the Company and the Family Trust, respectively. ARTICLE 9 DIVISION OF THE NET CASH SURRENDER VALUE OF THE POLICY A. If the Policy is surrendered (which the then Trustees of the Family Trust, in their sole discretion, shall have the right to do at any time), the Grantor Trust shall thereupon be entitled to receive the lesser of (i) the excess, if any, of the net cash surrender value of the Policy over the amount, if any, payable to the Company pursuant to the provisions of Section B of this ARTICLE 9 or (ii) the Grantor Trust Net Payment Amount less any repayments made by the Family Trust to the Grantor Trust prior to such surrender. To the extent, if any, the net cash surrender value of the Policy is insufficient to pay in full the Grantor Trust Net Payment Amount less any repayments made by the Family Trust to the Grantor Trust prior to such surrender, the Family Trust shall be liable to the Grantor Trust for the amount of such insufficiency. B. If the Policy is surrendered (which the then Trustees of the Family Trust, in their sole discretion, shall have the right to do at any time), the Company shall thereupon be entitled to receive the Company Net Payment Amount less any repayments made by the Family Trust to the Company prior to such surrender; provided, however, that a Vesting Event shall not have occurred prior to such surrender, in which event the Company shall not receive any part or all of the Company Net Payment Amount. To the extent, if any, the net cash surrender value of the Policy is insufficient to pay in full the Company Net Payment Amount less any repayments made by the Family Trust to the Company prior to such surrender, the Family Trust shall be liable to the Company for the amount of such insufficiency. C. The Family Trust (or its assignees), shall be entitled to receive any balance of the net cash surrender value of the Policy. -8- 9 ARTICLE 10 TERMINATION OF AGREEMENT This Agreement shall terminate when any of the following events occur: A. Termination of the Family Trust; B. Upon the election of the aggrieved party, if either the Company or the Family Trust shall fail for any reason to make payment of any portion of the Premium due on the Policy as required by ARTICLE 4 of this Agreement on or prior to the due date thereof; provided, however, that any election to terminate this Agreement under this Section B must be made within ninety (90) days after the failure to make the required payment occurs; and provided further, however, that the election to terminate this Agreement by the Family Trust shall be in addition to all of the other rights and remedies at law or in equity of the Family Trust against the Company for its failure to pay any portion of the Premium it was required to make; or C. Full repayment by the Family Trust of both (i) the Grantor Trust Net Payment Amount and (ii) the Company Net Payment Amount; provided, however, that a Vesting Event shall not have occurred prior to such repayment, in which event the Company shall not receive any part or all of the Company Net Payment Amount. ARTICLE 11 DISPOSITION OF POLICY ON TERMINATION OF AGREEMENT A. If the Policy is surrendered by the then Trustees of the Family Trust or this Agreement is terminated under Section A or Section B of ARTICLE 10 hereof, the Family Trust shall have one hundred twenty (120) days in which to repay to the Grantor Trust the Grantor Trust Net Payment Amount less any repayments made by the Family Trust to the Grantor Trust prior to the termination of this Agreement. Upon receipt of such amount, the Grantor Trust shall release the collateral assignment of the Policy made by the Family Trust to the Grantor Trust pursuant to Section A of ARTICLE 6 of this Agreement. If the Family Trust does not repay such amount within such one hundred twenty (120) day period, the Grantor Trust may enforce its rights against the Family Trust under this Agreement in any way it sees fit. B. If the Policy is surrendered by the then Trustees of the Family Trust or this Agreement is terminated under Section A or Section B of ARTICLE 10 hereof, the Family Trust shall have one hundred twenty (120) days in which to repay to the Company the Company Net Payment Amount less any repayments made by the Family Trust to the Company prior to the termination of this Agreement; -9- 10 provided, however, that a Vesting Event shall not have occurred prior to such termination, in which event the Company shall not receive any part or all of the Company Net Payment Amount. Upon receipt of such amount, the Company shall release the collateral assignment of the Policy made by the Family Trust to the Company pursuant to Section A of ARTICLE 6 of this Agreement. If the Family Trust does not repay such amount within such one hundred twenty (120) day period, the Company may enforce its rights against the Family Trust under this Agreement in any way it sees fit, subject, however, to the Family Trust's right to set off against any claim made by the Company any damages suffered by or claims of the Family Trust to the extent this Agreement was terminated by the Family Trust pursuant to Section B of ARTICLE 10 hereof. C. Any repayment made by the Family Trust pursuant to this ARTICLE 11 shall be made first to the Company to the extent of the Company Net Payment Amount less any repayments made by the Family Trust to the Company prior to the termination of this Agreement (subject, however, to a Vesting Event not having occurred) and, if and only if such amount is paid in full, then to the Grantor Trust to the extent of the Grantor Trust Net Payment Amount less any repayments made by the Family Trust to the Grantor Trust prior to the termination of this Agreement. ARTICLE 12 INSURANCE COMPANY A PARTY The Insurance Company is a party to this Agreement and hereby acknowledges and agrees to be bound by the terms and provisions hereof, including without limitation the provisions of ARTICLE 5 and ARTICLE 6 hereof, and shall be fully discharged from any and all liability under the terms of any policy issued by it, which is subject to the terms of this Agreement, upon payment or other performance of its obligations in accordance with the terms and provisions of such policy and this Agreement. ARTICLE 13 ASSIGNMENT BY GRANTOR TRUST AND COMPANY Each of the Grantor Trust and the Company is prohibited from assigning its right, title or interest in and to the Policy (or any portion thereof) to anyone other than the Family Trust (or its assignees). -10- 11 ARTICLE 14 AMENDMENT OF AGREEMENT This Agreement shall not be modified or amended except by a written agreement signed by the Grantor Trust, the Company and the Family Trust. This Agreement shall be binding upon the successors and assigns of each party hereto. ARTICLE 15 GOVERNING LAW This Agreement shall be deemed a contract made under the laws of, executed and delivered in the State of Florida, and for all purposes shall be construed and interpreted in accordance with the laws of such State without reference to conflicts of laws principles. ARTICLE 16 ATTORNEYS' FEES In the event that any of the parties to this Agreement institutes suit against any other party to this Agreement to enforce or declare any of their respective rights or obligations hereunder, the prevailing party in such action shall be entitled to recover from the other party or parties all reasonable costs thereof, including reasonable attorneys' and paralegals' fees and costs incurred before and at trial and at all tribunal levels, and whether or not suit or any other proceeding is instituted. ARTICLE 17 ENTIRE AGREEMENT This Agreement constitutes the entire final agreement among the parties with respect to, and supersedes any and all prior and contemporaneous agreements between or among the parties hereto both oral and written (including, without limitation, the 1997 Agreement) concerning, the subject matter hereof and may not be amended, modified or terminated except by a writing signed by the parties hereto. ARTICLE 18 COUNTERPARTS This Agreement may be executed in counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument. -11- 12 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. /s/ MARK J. GORDON ------------------------------------- MARK J. GORDON, as a Trustee of the David Epstein 1995 Grantor Trust /s/ RICHARD D. MONDRE ------------------------------------- RICHARD D. MONDRE, as a Trustee of the David Epstein 1995 Grantor Trust /s/ MARK J. GORDON ------------------------------------- MARK J. GORDON, as a Trustee of the Epstein 1997 Family Trust /s/ RICHARD D. MONDRE ------------------------------------- RICHARD D. MONDRE, as a Trustee of the Epstein 1997 Family Trust CITICORP TRUST SOUTH DAKOTA, as a Trustee of the Epstein 1997 Family Trust By: /s/ ROBIN MARY STEPHENS --------------------------------- Name: Robin Mary Stephens Title: Trust Officer PRECISION RESPONSE CORPORATION, a Florida corporation By: /s/ MARK J. GORDON --------------------------------- Mark J. Gordon, Chairman of the Board This Split Dollar Agreement and Collateral Assignment relating to the Policy was executed and recorded by New York Life Insurance Company on 2-9-2000, 1999. NEW YORK LIFE INSURANCE COMPANY By: /s/ YVONE SHUMPUT --------------------------------- Name: Title: Consultant 1 The issuer assumes no responsibility for the validity of any assignment or collateral assignment. [X] NEW YORK LIFE INSURANCE COMPANY By /s/ George J. Trapp --------------------------------- Secretary [ ] NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION By /s/ George J. Trapp --------------------------------- Secretary [ ] NEW YORK LIFE INSURANCE COMPANY OF ARIZONA By /s/ not legible DATE 2-9-2000 --------------------------------- --------------- Secretary -12- 13 SCHEDULE A INSURANCE POLICY ON THE JOINT LIVES OF DAVID EPSTEIN AND JODI EPSTEIN
New York Life Insurance Annual Company Planned Policy Number Type of Policy Face Amount Premium - ------------- -------------- ----------- ------- Beginning as of 09/25/97: $127,100 Beginning as of 09/25/2002: 46 111 916 Second-to-die $30,000,000 $124,900
-13- EX-10.55 16 AGREEMENT BETWEEN IRREVOCABLE LIFE,EPSTEIN,& PRC. 1 EXHIBIT 10.55 AMENDED AND RESTATED SPLIT DOLLAR AGREEMENT AND COLLATERAL ASSIGNMENT THIS AMENDED AND RESTATED SPLIT DOLLAR AGREEMENT AND COLLATERAL ASSIGNMENT (the "Agreement") made and effective as of September 1, 1999, by and between the David Epstein 1995 Irrevocable Life Insurance Trust u/a/d August 2, 1995 (the "Epstein Life Insurance Trust") and PRECISION RESPONSE CORPORATION, a Florida corporation (the "Company") (whose address is 1505 N.W. 167 Street, Miami, Florida, 33169). WHEREAS, the Epstein Life Insurance Trust is the owner of a certain life insurance policy (the "Policy") issued on September 1, 1995, by New York Life Insurance Company (the "Insurance Company") on the life of David L. Epstein (the "Grantor" or "David L. Epstein"); WHEREAS, pursuant to that certain Split Dollar Agreement and Collateral Assignment (the "1999 Agreement") dated on or around May 17, 1999, between the Trustees of the Epstein Life Insurance Trust and the Company, the Company has contributed a portion of the premiums due on the Policy; WHEREAS, pursuant to ARTICLE 14 of the 1999 Agreement, the Epstein Life Insurance Trust and the Company desire to amend and restate in its entirety the 1999 Agreement; WHEREAS, the Grantor is employed by the Company pursuant to that certain Employment Agreement (the "Employment Agreement") dated as of May 15, 1996, between the Grantor and the Company, as amended by the Amendment to Employment Agreement dated as of April 1, 1999, between the Grantor and the Company; WHEREAS, the Company desires to contribute a portion of the premiums due on the Policy under a continuing "Split Dollar" arrangement; WHEREAS, the Epstein Life Insurance Trust will continue to be the owner of the Policy subject to the terms of this Agreement; and WHEREAS, the Policy will be collaterally assigned to the Company as security for the repayment of the amounts which the Company has contributed or will contribute as premiums due on the Policy, all as more fully set forth herein. NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, the parties hereby amend and restate in its entirety the 1999 Agreement as follows: 2 ARTICLE 1 INSURANCE POLICY The Epstein Life Insurance Trust has obtained the Policy on the Grantor's life in the total face amount of $1,500,000. The policy number, type of policy, face amount and plan of payments contained in the Policy are recorded on Schedule A attached hereto and the parties hereto agree that the Policy is held subject to the terms of this Agreement. ARTICLE 2 OWNERSHIP OF INSURANCE The Epstein Life Insurance Trust is and shall continue to be the owner of the Policy and may exercise all rights of ownership with respect to the Policy, except as to the limited security interest in the Policy specifically granted to the Company herein. Subject to such security interest of the Company, the rights reserved to the Epstein Life Insurance Trust include specifically the right to change the beneficiaries of the Policy, the right to surrender the Policy, the right to assign the Policy or revoke such an assignment, and the right to pledge the Policy for a loan or to obtain a loan from the Insurance Company against the surrender value of the Policy. ARTICLE 3 PREMIUM When used in this Agreement the words "the Premium" shall mean and refer to the semi-annual premium shown on Schedule A attached hereto, or such other semi-annual amounts as the parties hereto may from time to time agree in writing to pay to the Insurance Company with respect to the Policy; provided, however, that in no event shall the Premium be less than the smallest semi-annual payment necessary to keep the Policy in full force and effect. ARTICLE 4 PAYMENT OF PREMIUMS ON POLICY A. The Company shall pay either directly to the Insurance Company or by making the necessary funds therefor available to the Epstein Life Insurance Trust the Premium when due less the amounts due from the Epstein Life Insurance Trust pursuant -2- 3 to the provisions of Section B of this ARTICLE 4. The Premium may be paid under any payment method acceptable to the Company and the Insurance Company. B. The Epstein Life Insurance Trust shall pay that portion of each semi-annual premium equal to the cost (calculated by application of the lower of the Internal Revenue Service's U.S. Life Table 58 rate or the Insurance Company's annual term insurance rate on the life of the Grantor) of the insurance proceeds which the beneficiary or beneficiaries named by the Epstein Life Insurance Trust would be entitled to receive if the Grantor died during that policy year (before any reduction for any repayments to be made to the Company pursuant to this Agreement). ARTICLE 5 EPSTEIN LIFE INSURANCE TRUST'S OBLIGATION TO COMPANY A. The Epstein Life Insurance Trust must repay to the Company the aggregate amount paid by the Company under Section A of ARTICLE 4 of this Agreement as premiums on the Policy (such amount being hereinafter referred to as the "Net Payment Amount") in accordance with ARTICLE 7, Section A of ARTICLE 8, Section A of ARTICLE 9, and ARTICLE 11 of this Agreement (as the case may be), subject, however, to the provisions of Section B of this ARTICLE 5. B. Notwithstanding anything in this Agreement to the contrary, the Epstein Life Insurance Trust shall not be required to repay to the Company any part or all of the Net Payment Amount in the event of the termination of Grantor's employment with the Company by reason of any one or more of the following events (hereinafter referred to individually in this Agreement as a "Vesting Event"): 1. The termination of Grantor's employment as a result of Grantor's disability (as such term is defined in paragraph 7(b) of the Employment Agreement); 2. The voluntary resignation of Grantor from employment by Company (a) in connection with a Change in Control of Company (as defined in paragraph 1 of Section B of ARTICLE 7 hereof) or (b) due to Grantor's attainment of normal retirement age of sixty-five (65) years; 3. The termination of Grantor's employment as a result of Grantor's Constructive Termination (as defined in paragraph 7(e) of the Employment Agreement); 4. The involuntary termination of Grantor's employment by Company for any reason not set forth in paragraph 7 of the Employment Agreement; and/or -3- 4 5. The failure or refusal by Company to renew the term of the Employment Agreement pursuant to paragraph 2 thereof or to renew or continue any successor employment agreement (other than in connection with (a) the occurrence of a Termination Event (as defined in Section A of Article 7 hereof); (b) the death of Grantor or (c) Grantor entering into a successor employment agreement with the Company acceptable to Grantor in his sole discretion). C. Immediately upon the occurrence of a Vesting Event: 1. The Company shall release the collateral assignment of the Policy made by the Epstein Life Insurance Trust to the Company pursuant to ARTICLE 6 hereof; 2. The Epstein Life Insurance Trust's obligations to the Company under Section A of this ARTICLE 5 shall terminate and cease forever; 3. The Company shall have no right, title and interest in and to the Policy, including without limitation by way of ARTICLE 7, Section A of ARTICLE 8, Section A of ARTICLE 9 and/or ARTICLE 11 hereof; and 4. The obligation of the Company under Section A of ARTICLE 4 hereof shall be funded as and when, to the extent and for the period required under paragraph 8 of the Employment Agreement consistent with such obligation being a benefit of Grantor which Grantor is entitled to receive under such paragraph 8 upon the termination of his employment with the Company by reason of a Vesting Event. Upon the funding of the required amount of the Company's obligation under Section A of ARTICLE 4 hereof, the Company shall have no further obligations hereunder. ARTICLE 6 ASSIGNMENT OF POLICY The Epstein Life Insurance Trust hereby collaterally assigns, and grants a security interest in, all of its right, title and interest in and to the Policy to the Company as security for repayment of the Net Payment Amount. Such collateral assignment shall not be altered or changed without the written consent of the Company. ARTICLE 7 CLAIMS UPON TERMINATION OF EMPLOYMENT A. The Epstein Life Insurance Trust must repay to the Company the Net Payment Amount less any repayments made by the Epstein Life Insurance Trust to the Company prior to the occurrence of a Termination Event (as hereinafter defined) upon the -4- 5 termination of Grantor's employment by Company by reason of any one or more of the following events (hereinafter referred to individually in this Agreement as a "Termination Event"): 1. The termination of Grantor's employment by Company for cause pursuant to paragraph 7(c) of the Employment Agreement; and/or 2. The voluntary resignation by Grantor from employment by Company pursuant to paragraph 7(d) of the Employment Agreement (other than any such resignation resulting in the occurrence of a Vesting Event). B. As used in this Agreement: 1. A "Change in Control of Company" means that (i) neither Mark J. Gordon (for these purposes, counting all common stock directly or indirectly beneficially owned by Mark J. Gordon's Affiliates (as hereinafter defined)) nor David L. Epstein (for these purposes, counting all common stock directly or indirectly beneficially owned by David L. Epstein's Affiliates) beneficially owns at least ten (10%) percent of the issued and outstanding common stock of Company (or its successor); (ii) neither Mark J. Gordon (for these purposes, counting all common stock directly or indirectly beneficially owned by Mark J. Gordon's Affiliates) nor David L. Epstein (for these purposes, counting all common stock directly or indirectly beneficially owned by David L. Epstein's Affiliates) is the stockholder of Company (or its successor) beneficially owning the highest number of issued and outstanding shares of common stock of Company (or its successor); or (iii) Mark J. Gordon and/or David L. Epstein do not occupy the positions of Chairman of the Board and Chief Executive Officer of Company (or its successor). 2. "Affiliate" means, with respect to Mark J. Gordon or David L. Epstein, an Immediate Family Member (as hereinafter defined) of his, a trust principally for his benefit and/or the benefit of his Immediate Family Members and/or lineal descendants, or a family limited partnership or any other entity the direct or indirect beneficial or pecuniary owners of which are principally him, his Immediate Family Members and/or trusts or other entities principally for the benefit of him, his Immediate Family Members and/or lineal descendants. 3. "Immediate Family Members" means, with respect to Mark J. Gordon or David L. Epstein, his spouse, children, parents, siblings or other lineal descendants. C. The repayment pursuant to Section A of this ARTICLE 7 must be made within one (1) year from the date of the Termination Event; provided, however, that upon receipt of such repayment, the Company shall release the collateral assignment of the Policy made by the Epstein Life Insurance Trust to the Company pursuant to ARTICLE 6 of this Agreement and the Company shall have no further right, title and interest in and to the Policy. The receipt by the -5- 6 Company of the Company Net Payment Amount shall constitute satisfaction of the Epstein Life Insurance Trust's obligation under Section A of ARTICLE 5 hereof and this ARTICLE 7. ARTICLE 8 DEATH CLAIMS A. When the Grantor dies, the Company shall be entitled to receive a portion of the death benefits provided under the Policy; provided, however, that a Vesting Event shall not have occurred prior to the death of the Grantor, in which event the Company shall not receive any part or all of the death benefits provided under the Policy. The amount to which the Company shall be entitled shall be the Net Payment Amount less any repayments made by the Epstein Life Insurance Trust to the Company prior to the death of the Grantor; provided, however, that upon receipt of such amount by the Company, the Company shall release the collateral assignment of the Policy made by the Epstein Life Insurance Trust to the Company pursuant to ARTICLE 6 of this Agreement. The receipt of such amount by the Company shall constitute satisfaction of the Epstein Life Insurance Trust's obligation under Section A of ARTICLE 5 of this Agreement. To the extent, if any, the death benefits under the Policy are insufficient to pay in full the Net Payment Amount less any repayments made by the Epstein Life Insurance Trust to the Company prior to the death of the Grantor, the Epstein Life Insurance Trust shall be liable to the Company for the amount of such insufficiency. B. When the Grantor dies, the beneficiary or benefi ciaries named by the Epstein Life Insurance Trust (or by its assignees) shall be entitled to receive the amount, if any, of the death benefits provided under the Policy in excess of the amount, if any, payable to the Company under Section A of this ARTICLE 8. Such amount shall be paid under the settlement option elected by the Epstein Life Insurance Trust (or by its assignees). C. If any interest is due upon the death benefits provided under the Policy, the Company and the beneficiary or beneficiaries named by the Epstein Life Insurance Trust (or by its assignees) shall share such interest in the same proportions as their respective shares of such death benefits (as provided in Sections A and B, respectively, of this ARTICLE 8) shall bear to the total death benefits provided under the Policy excluding such interest. D. If, upon the death of the Grantor, there is a refund of unearned premium under the Policy, then any such refund shall be divided between the Company (provided, however, that a Vesting Event shall not have occurred prior to the death of the Grantor, in which event the Company shall not receive any part or all of such refund under the Policy) and the beneficiary or beneficiaries named by the Epstein Life Insurance Trust (or by its assignees) in the same -6- 7 proportions as their respective shares of the last premium payment made by the Company and the Epstein Life Insurance Trust, respectively. ARTICLE 9 DIVISION OF THE NET CASH SURRENDER VALUE OF THE POLICY A. If the Policy is surrendered (which the then Trustees of the Epstein Life Insurance Trust, in their sole discretion, shall have the right to do at any time), the Company shall thereupon be entitled to receive the Net Payment Amount less any repayments made by the Epstein Life Insurance Trust to the Company prior to such surrender; provided, however, that a Vesting Event shall not have occurred prior to such surrender, in which event the Company shall not receive any part or all of the Net Payment Amount. To the extent, if any, the net cash surrender value of the Policy is insufficient to pay in full the Net Payment Amount less any repayments made by the Epstein Life Insurance Trust to the Company prior to such surrender, the Epstein Life Insurance Trust shall be liable to the Company for the amount of such insufficiency. B. The Epstein Life Insurance Trust (or its assignees), shall be entitled to receive any balance of the net cash surrender value of the Policy. ARTICLE 10 TERMINATION OF AGREEMENT This Agreement shall terminate when any of the following events occur: A. Termination of the Epstein Life Insurance Trust; B. Upon the election of the aggrieved party, if either the Company or the Epstein Life Insurance Trust shall fail for any reason to make payment of any portion of the Premium due on the Policy as required by ARTICLE 4 of this Agreement on or prior to the due date thereof; provided, however, that any election to terminate this Agreement under this Section B must be made within ninety (90) days after the failure to make the required payment occurs; and provided further, however, that the election to terminate this Agreement by the Epstein Life Insurance Trust shall be in addition to all of the other rights and remedies at law or in equity of the Epstein Life Insurance Trust against the Company for its failure to pay any portion of the Premium it was required to make; or C. Full repayment by the Epstein Life Insurance Trust of the Net Payment Amount; provided, however, that a Vesting Event shall not have occurred prior to such repayment, in which event the Company shall not receive any part or all of the Net Payment Amount. -7- 8 ARTICLE 11 DISPOSITION OF POLICY ON TERMINATION OF AGREEMENT If the Policy is surrendered by the then Trustees of the Epstein Life Insurance Trust or this Agreement is terminated under Section A or Section B of ARTICLE 10 hereof, the Epstein Life Insurance Trust shall have one hundred twenty (120) days in which to repay to the Company the Net Payment Amount less any repayments made by the Epstein Life Insurance Trust to the Company prior to the termination of this Agreement; provided, however, that a Vesting Event shall not have occurred prior to such termination, in which event the Company shall not receive any part or all of the Net Payment Amount. Upon receipt of such amount, the Company shall release the collateral assignment of the Policy made by the Epstein Life Insurance Trust to the Company pursuant to ARTICLE 6 of this Agreement. If the Epstein Life Insurance Trust does not repay such amount within such one hundred twenty (120) day period, the Company may enforce its rights against the Epstein Life Insurance Trust under this Agreement in any way it sees fit, subject, however, to the Epstein Life Insurance Trust's right to set off against any claim made by the Company any damages suffered by or claims of the Epstein Life Insurance Trust to the extent this Agreement was terminated by the Epstein Life Insurance Trust pursuant to Section B of ARTICLE 10 hereof. ARTICLE 12 INSURANCE COMPANY A PARTY The Insurance Company is a party to this Agreement and hereby acknowledges and agrees to be bound by the terms and provisions hereof, including without limitation the provisions of ARTICLE 5 and ARTICLE 6 hereof, and shall be fully discharged from any and all liability under the terms of any policy issued by it, which is subject to the terms of this Agreement, upon payment or other performance of its obligations in accordance with the terms and provisions of such policy and this Agreement. ARTICLE 13 ASSIGNMENT BY EPSTEIN LIFE INSURANCE TRUST AND COMPANY The Company is prohibited from assigning its right, title or interest in and to the Policy (or any portion thereof) to anyone other than the Epstein Life Insurance Trust (or its assignees). -8- 9 ARTICLE 14 AMENDMENT OF AGREEMENT This Agreement shall not be modified or amended except by a written agreement signed by the Company and the Epstein Life Insurance Trust. This Agreement shall be binding upon the successors and assigns of each party hereto. ARTICLE 15 GOVERNING LAW This Agreement shall be deemed a contract made under the laws of, executed and delivered in the State of Florida, and for all purposes shall be construed and interpreted in accordance with the laws of such State without reference to conflicts of laws principles. ARTICLE 16 ATTORNEYS' FEES In the event that either party to this Agreement institutes suit against any other party to this Agreement to enforce or declare any of their respective rights or obligations hereunder, the prevailing party in such action shall be entitled to recover from the other party all reasonable costs thereof, including reasonable attorneys' and paralegals' fees and costs incurred before and at trial and at all tribunal levels, and whether or not suit or any other proceeding is instituted. ARTICLE 17 ENTIRE AGREEMENT This Agreement constitutes the entire final agreement among the parties with respect to, and supersedes any and all prior and contemporaneous agreements between or among the parties hereto both oral and written (including, without limitation, the 1999 Agreement) concerning, the subject matter hereof and may not be amended, modified or terminated except by a writing signed by the parties hereto. ARTICLE 18 COUNTERPARTS This Agreement may be executed in counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument. -9- 10 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. /s/ MARK J. GORDON --------------------------------------------- MARK J. GORDON, as a Trustee of the David Epstein 1995 Irrevocable Life Insurance Trust /s/ RICHARD D. MONDRE --------------------------------------------- RICHARD D. MONDRE, as a Trustee of the David Epstein 1995 Irrevocable Life Insurance Trust PRECISION RESPONSE CORPORATION, a Florida corporation By: /s/ MARK J. GORDON ----------------------------------------- Mark J. Gordon, Chairman of the Board This Amended and Restated Split Dollar Agreement and Collateral Assignment relating to the Policy was executed and recorded by New York Life Insurance Company on 12-8-99. NEW YORK LIFE INSURANCE COMPANY By: /s/ ANNA WILLIAMS ---------------------------------- Name: Title: The issuer assumes no responsibility for the validity of any assignment or collateral assignment. [X] NEW YORK LIFE INSURANCE COMPANY By /s/ George J. Trapp --------------------------------- Secretary [ ] NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION By /s/ George J. Trapp --------------------------------- Secretary [ ] NEW YORK LIFE INSURANCE COMPANY OF ARIZONA By /s/ not legible DATE 12-8-99 --------------------------------- --------------- Secretary -10- 11 SCHEDULE A INSURANCE POLICY ON THE LIFE OF DAVID L. EPSTEIN
New York Life Insurance Semi-Annual Company Planned Policy Number Type of Policy Face Amount Premium ------------- -------------- ----------- ------- 45 588 030 Single Life $1,500,000.00 $7,033.00
-11- EX-10.56 17 COLLATERAL ASSIGN BETWEEN EPSTEIN,TRUST & PRC. 1 EXHIBIT 10.56 AMENDED AND RESTATED SPLIT DOLLAR AGREEMENT AND COLLATERAL ASSIGNMENT THIS AMENDED AND RESTATED SPLIT DOLLAR AGREEMENT AND COLLATERAL ASSIGNMENT ("the Agreement") made and effective as of September 1, 1999, by and between the Epstein 1995 Family Trust u/a/d August 2, 1995 (the "Epstein Family Trust") and PRECISION RESPONSE CORPORATION, a Florida corporation (the "Company") (whose address is 1505 N.W. 167 Street, Miami, Florida, 33169). W I T N E S S E T H: WHEREAS, the Epstein Family Trust is the owner of a certain life insurance policy (the "Policy") issued on September 1, 1995, by New York Life Insurance Company (the "Insurance Company") on the lives of David L. Epstein (the "Husband" or "David L. Epstein") and his spouse, Jodi A. Epstein ("Wife"); WHEREAS, pursuant to that certain Split Dollar Agreement and Collateral Assignment (the "1999 Agreement") dated on or around May 17, 1999, between the Trustees of the Epstein Family Trust and the Company, the Company has contributed a portion of the premiums due on the Policy; WHEREAS, pursuant to ARTICLE 14 of the 1999 Agreement, the Epstein Family Trust and the Company desire to amend and restate in its entirety the 1999 Agreement; WHEREAS, the Husband is employed by the Company pursuant to that certain Employment Agreement (the "Employment Agreement") dated as of May 15, 1996, between the Husband and the Company, as amended by the Amendment to Employment Agreement dated as of April 1, 1999, between the Husband and the Company; WHEREAS, the Company desires to contribute a portion of the premiums due on the Policy under a continuing "Split Dollar" arrangement; WHEREAS, the Epstein Family Trust will continue to be the owner of the Policy subject to the terms of this Agreement; and WHEREAS, the Policy will be collaterally assigned to the Company as security for the repayment of the amounts which the Company has contributed or will contribute as premiums due on the Policy, all as more fully set forth herein. NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, the parties hereby amend and restate in its entirety the 1999 Agreement, as follows: 2 ARTICLE 1 INSURANCE POLICY The Epstein Family Trust has obtained the Policy on the Husband's and Wife's joint lives in the total face amount of $3,000,000. The policy number, type of policy, face amount and plan of payments contained in the Policy are recorded on Schedule A attached hereto and the parties hereto agree that the Policy is held subject to the terms of this Agreement. ARTICLE 2 OWNERSHIP OF INSURANCE The Epstein Family Trust is and shall continue to be the owner of the Policy and may exercise all rights of ownership with respect to the Policy, except as to the limited security interest in the Policy specifically granted to the Company herein. Subject to such security interest of the Company, the rights reserved to the Epstein Family Trust include specifically the right to change the beneficiaries of the Policy, the right to surrender the Policy, the right to assign the Policy or revoke such an assignment, and the right to pledge the Policy for a loan or to obtain a loan from the Insurance Company against the surrender value of the Policy. ARTICLE 3 PREMIUM When used in this Agreement the words "the Premium" shall mean and refer to the semi-annual premium shown on Schedule A attached hereto, or such other semi-annual amounts as the parties hereto may from time to time agree in writing to pay to the Insurance Company with respect to the Policy; provided, however, that in no event shall the Premium be less than the smallest semi-annual payment necessary to keep the Policy in full force and effect. ARTICLE 4 PAYMENT OF PREMIUMS ON POLICY A. The Company shall pay either directly to the Insurance Company or by making the necessary funds therefor available to the Epstein Family Trust the Premium when due less the amounts due from the Epstein Family Trust pursuant to the provisions of Section B of this ARTICLE 4. The Premium may be paid under any payment method acceptable to the Company and the Insurance Company. -2- 3 B. The Epstein Family Trust shall pay that portion of each semi-annual premium equal to the cost (calculated by application of the lower of the Internal Revenue Service's U.S. Life Table 38 rate or the Insurance Company's annual term insurance rates on the lives of the Husband and Wife while they are both alive, and by application of the lower of the Internal Revenue Service's U.S. Life Table 58 rate or the Insurance Company's annual term insurance rate on the life of the survivor of the Husband and Wife after the death of the first of them to die) of the insurance proceeds which the beneficiary or beneficiaries named by the Epstein Family Trust would be entitled to receive if the survivor of the Husband and Wife died during that policy year (before any reduction for any repayments to be made to the Company pursuant to this Agreement). ARTICLE 5 EPSTEIN FAMILY TRUST'S OBLIGATION TO COMPANY A. The Epstein Family Trust must repay to the Company the aggregate amount paid by the Company under Section A of ARTICLE 4 of this Agreement as premiums on the Policy (such amount being hereinafter referred to as the "Net Payment Amount") in accordance with ARTICLE 7, Section A of ARTICLE 8, Section A of ARTICLE 9, and ARTICLE 11 of this Agreement (as the case may be), subject, however, to the provisions of Section B of this ARTICLE 5. B. Notwithstanding anything in this Agreement to the contrary, the Epstein Family Trust shall not be required to repay to the Company any part or all of the Net Payment Amount in the event of the termination of Husband's employment with the Company by reason of any one or more of the following events (hereinafter referred to individually in this Agreement as a "Vesting Event"): 1. The termination of Husband's employment as a result of Husband's disability (as such term is defined in paragraph 7(b) of the Employment Agreement); 2. The voluntary resignation of Husband from employment by Company (a) in connection with a Change in Control of Company (as defined in paragraph 1 of Section B of ARTICLE 7 hereof) or (b) due to Husband's attainment of normal retirement age of sixty-five (65) years; 3. The termination of Husband's employment as a result of Husband's Constructive Termination (as defined in paragraph 7(e) of the Employment Agreement); 4. The involuntary termination of Husband's employment by Company for any reason not set forth in paragraph 7 of the Employment Agreement; and/or 5. The failure or refusal by Company to renew the term of the Employment Agreement pursuant to paragraph 2 thereof or -3- 4 to renew or continue any successor employment agreement (other than in connection with (a) the occurrence of a Termination Event (as defined in Section A of Article 7 hereof); (b) the death of Husband or (c) Husband entering into a successor employment agreement with the Company acceptable to Husband in his sole discretion). C. Immediately upon the occurrence of a Vesting Event: 1. The Company shall release the collateral assignment of the Policy made by the Epstein Family Trust to the Company pursuant to ARTICLE 6 hereof; 2. The Epstein Family Trust's obligations to the Company under Section A of this ARTICLE 5 shall terminate and cease forever; 3. The Company shall have no right, title and interest in and to the Policy, including without limitation by way of ARTICLE 7, Section A of ARTICLE 8, Section A of ARTICLE 9 and/or ARTICLE 11 hereof; and 4. The obligation of the Company under Section A of ARTICLE 4 hereof shall be funded as and when, to the extent and for the period required under paragraph 8 of the Employment Agreement consistent with such obligation being a benefit of Husband which Husband is entitled to receive under such paragraph 8 upon the termination of his employment with the Company by reason of a Vesting Event. Upon the funding of the required amount of the Company's obligation under Section A of ARTICLE 4 hereof, the Company shall have no further obligations hereunder. ARTICLE 6 ASSIGNMENT OF POLICY The Epstein Family Trust hereby collaterally assigns, and grants a security interest in, all of its right, title and interest in and to the Policy to the Company as security for repayment of the Net Payment Amount. Such collateral assignment shall not be altered or changed without the written consent of the Company. ARTICLE 7 CLAIMS UPON TERMINATION OF EMPLOYMENT A. The Epstein Family Trust must repay to the Company the Net Payment Amount less any repayments made by the Epstein Family Trust to the Company prior to the occurrence of a Termination Event (as hereinafter defined) upon the termination of Husband's employment by Company by reason of any one or more of the following events (hereinafter referred to individually in this Agreement as a "Termination Event"): -4- 5 1. The termination of Husband's employment by Company for cause pursuant to paragraph 7(c) of the Employment Agreement; and/or 2. The voluntary resignation by Husband from employment by Company pursuant to paragraph 7(d) of the Employment Agreement (other than any such resignation resulting in the occurrence of a Vesting Event). B. As used in this Agreement: 1. A "Change in Control of Company" means that (i) neither Mark J. Gordon (for these purposes, counting all common stock directly or indirectly beneficially owned by Mark J. Gordon's Affiliates (as hereinafter defined)) nor David L. Epstein (for these purposes, counting all common stock directly or indirectly beneficially owned by David L. Epstein's Affiliates) beneficially owns at least ten (10%) percent of the issued and outstanding common stock of Company (or its successor); (ii) neither Mark J. Gordon (for these purposes, counting all common stock directly or indirectly beneficially owned by Mark J. Gordon's Affiliates) nor David L. Epstein (for these purposes, counting all common stock directly or indirectly beneficially owned by David L. Epstein's Affiliates) is the stockholder of Company (or its successor) beneficially owning the highest number of issued and outstanding shares of common stock of Company (or its successor); or (iii) Mark J. Gordon and/or David L. Epstein do not occupy the positions of Chairman of the Board and Chief Executive Officer of Company (or its successor). 2. "Affiliate" means, with respect to Mark J. Gordon or David L. Epstein, an Immediate Family Member (as hereinafter defined) of his, a trust principally for his benefit and/or the benefit of his Immediate Family Members and/or lineal descendants, or a family limited partnership or any other entity the direct or indirect beneficial or pecuniary owners of which are principally him, his Immediate Family Members and/or trusts or other entities principally for the benefit of him, his Immediate Family Members and/or lineal descendants. 3. "Immediate Family Members" means, with respect to Mark J. Gordon or David L. Epstein, his spouse, children, parents, siblings or other lineal descendants. C. The repayment pursuant to Section A of this ARTICLE 7 must be made within one (1) year from the date of the Termination Event; provided, however, that upon receipt of such repayment, the Company shall release the collateral assignment of the Policy made by the Epstein Family Trust to the Company pursuant to ARTICLE 6 of this Agreement and the Company shall have no further right, title and interest in and to the Policy. The receipt by the Company of the Company Net Payment Amount shall constitute satisfaction of the Epstein Family Trust's obligation under Section A of ARTICLE 5 hereof and this ARTICLE 7. -5- 6 ARTICLE 8 DEATH CLAIMS A. When the survivor of the Husband and Wife dies, the Company shall be entitled to receive a portion of the death benefits provided under the Policy; provided, however, that a Vesting Event shall not have occurred prior to such death, in which event the Company shall not receive any part or all of the death benefits provided under the Policy. The amount to which the Company shall be entitled shall be the Net Payment Amount less any repayments made by the Epstein Family Trust to the Company prior to the death of the survivor of the Husband and Wife; provided, however, that upon receipt of such amount by the Company, the Company shall release the collateral assignment of the Policy made by the Epstein Family Trust to the Company pursuant to ARTICLE 6 of this Agreement. The receipt of such amount by the Company shall constitute satisfaction of the Epstein Family Trust's obligation under Section A of ARTICLE 5 of this Agreement. To the extent, if any, the death benefits under the Policy are insufficient to pay in full the Net Payment Amount less any repayments made by the Epstein Family Trust to the Company prior to the death of the survivor of the Husband and Wife, the Epstein Family Trust shall be liable to the Company for the amount of such insufficiency. B. When the survivor of the Husband and Wife dies, the beneficiary or beneficiaries named by the Epstein Family Trust (or by its assignees) shall be entitled to receive the amount, if any, of the death benefits provided under the Policy in excess of the amount, if any, payable to the Company under Section A of this ARTICLE 8. Such amount shall be paid under the settlement option elected by the Epstein Family Trust (or by its assignees). C. If any interest is due upon the death benefits provided under the Policy, the Company and the beneficiary or beneficiaries named by the Epstein Family Trust (or by its assignees) shall share such interest in the same proportions as their respective shares of such death benefits (as provided in Sections A and B, respectively, of this ARTICLE 8) shall bear to the total death benefits provided under the Policy excluding such interest. D. If, upon the death of the survivor of the Husband and Wife, there is a refund of unearned premium under the Policy, then any such refund shall be divided between the Company (provided, however, that a Vesting Event shall not have occurred prior to such death, in which event the Company shall not receive any part or all of such refund under the Policy) and the beneficiary or beneficiaries named by the Epstein Family Trust (or by its assignees) in the same proportions as their respective shares of the last premium payment made by the Company and the Epstein Family Trust, respectively. -6- 7 ARTICLE 9 DIVISION OF THE NET CASH SURRENDER VALUE OF THE POLICY A. If the Policy is surrendered (which the then Trustees of the Epstein Family Trust, in their sole discretion, shall have the right to do at any time), the Company shall thereupon be entitled to receive the Net Payment Amount less any repayments made by the Epstein Family Trust to the Company prior to such surrender; provided, however, that a Vesting Event shall not have occurred prior to such surrender, in which event the Company shall not receive any part or all of the Net Payment Amount. To the extent, if any, the net cash surrender value of the Policy is insufficient to pay in full the Net Payment Amount less any repayments made by the Epstein Family Trust to the Company prior to such surrender, the Epstein Family Trust shall be liable to the Company for the amount of such insufficiency. B. The Epstein Family Trust (or its assignees), shall be entitled to receive any balance of the net cash surrender value of the Policy. ARTICLE 10 TERMINATION OF AGREEMENT This Agreement shall terminate when any of the following events occur: A. Termination of the Epstein Family Trust; B. Upon the election of the aggrieved party, if either the Company or the Epstein Family Trust shall fail for any reason to make payment of any portion of the Premium due on the Policy as required by ARTICLE 4 of this Agreement on or prior to the due date thereof; provided, however, that any election to terminate this Agreement under this Section B must be made within ninety (90) days after the failure to make the required payment occurs; and provided further, however, that the election to terminate this Agreement by the Epstein Family Trust shall be in addition to all of the other rights and remedies at law or in equity of the Epstein Family Trust against the Company for its failure to pay any portion of the Premium it was required to make; or C. Full repayment by the Epstein Family Trust of the Net Payment Amount; provided, however, that a Vesting Event shall not have occurred prior to such repayment, in which event the Company shall not receive any part or all of the Net Payment Amount. -7- 8 ARTICLE 11 DISPOSITION OF POLICY ON TERMINATION OF AGREEMENT If the Policy is surrendered by the then Trustees of the Epstein Family Trust or this Agreement is terminated under Section A or Section B of ARTICLE 10 hereof, the Epstein Family Trust shall have one hundred twenty (120) days in which to repay to the Company the Net Payment Amount less any repayments made by the Epstein Family Trust to the Company prior to the termination of this Agreement; provided, however, that a Vesting Event shall not have occurred prior to such termination, in which event the Company shall not receive any part or all of the Net Payment Amount. Upon receipt of such amount, the Company shall release the collateral assignment of the Policy made by the Epstein Family Trust to the Company pursuant to ARTICLE 6 of this Agreement. If the Epstein Family Trust does not repay such amount within such one hundred twenty (120) day period, the Company may enforce its rights against the Epstein Family Trust under this Agreement in any way it sees fit, subject, however, to the Epstein Family Trust's right to set off against any claim made by the Company any damages suffered by or claims of the Epstein Family Trust to the extent this Agreement was terminated by the Epstein Family Trust pursuant to Section B of ARTICLE 10 hereof. ARTICLE 12 INSURANCE COMPANY A PARTY The Insurance Company is a party to this Agreement and hereby acknowledges and agrees to be bound by the terms and provisions hereof, including without limitation the provisions of ARTICLE 5 and ARTICLE 6 hereof, and shall be fully discharged from any and all liability under the terms of any policy issued by it, which is subject to the terms of this Agreement, upon payment or other performance of its obligations in accordance with the terms and provisions of such policy and this Agreement. ARTICLE 13 ASSIGNMENT BY COMPANY The Company is prohibited from assigning its right, title or interest in and to the Policy (or any portion thereof) to anyone other than the Epstein Family Trust (or its assignees). -8- 9 ARTICLE 14 AMENDMENT OF AGREEMENT This Agreement shall not be modified or amended except by a written agreement signed by the Company and the Epstein Family Trust. This Agreement shall be binding upon the successors and assigns of each party hereto. ARTICLE 15 GOVERNING LAW This Agreement shall be deemed a contract made under the laws of, executed and delivered in the State of Florida, and for all purposes shall be construed and interpreted in accordance with the laws of such State without reference to conflicts of laws principles. ARTICLE 16 ATTORNEYS' FEES In the event that either party to this Agreement institutes suit against any other party to this Agreement to enforce or declare any of their respective rights or obligations hereunder, the prevailing party in such action shall be entitled to recover from the other party all reasonable costs thereof, including reasonable attorneys' and paralegals' fees and costs incurred before and at trial and at all tribunal levels, and whether or not suit or any other proceeding is instituted. ARTICLE 17 ENTIRE AGREEMENT This Agreement constitutes the entire final agreement among the parties with respect to, and supersedes any and all prior and contemporaneous agreements between or among the parties hereto both oral and written (including, without limitation, the 1999 Agreement) concerning, the subject matter hereof and may not be amended, modified or terminated except by a writing signed by the parties hereto. ARTICLE 18 COUNTERPARTS This Agreement may be executed in counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument. -9- 10 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. /s/ MARK J. GORDON --------------------------------------- MARK J. GORDON, as a Trustee of the Epstein 1995 Family Trust /s/ RICHARD D. MONDRE --------------------------------------- RICHARD D. MONDRE, as a Trustee of the Epstein 1995 Family Trust PRECISION RESPONSE CORPORATION, a Florida corporation By: /s/ MARK J. GORDON ----------------------------------- Mark J. Gordon, Chairman of the Board This Amended and Restated Split Dollar Agreement and Collateral Assignment relating to the Policy was executed and recorded by New York Life Insurance Company on DECEMBER 8, 1999. NEW YORK LIFE INSURANCE COMPANY By: /s/ YVONE SHUMPUT ------------------------------------ Name: Yvone Shumput Title: -10- 11 SCHEDULE A INSURANCE POLICY ON THE JOINT LIVES OF DAVID L. EPSTEIN AND JODI A. EPSTEIN
New York Life Semi- Insurance Annual Company Planned Policy Number Type of Policy Face Amount Premium ------------- -------------- ----------- ------- 45 588 264 Second-to-die $3,000,000.00 $5,191.00
EX-10.57 18 AGREEMENT BETWEEN M.GORDAN TRUST & PRC. 1 EXHIBIT 10.57 SPLIT DOLLAR AGREEMENT AND COLLATERAL ASSIGNMENT THIS AGREEMENT ("Agreement") effective on or around April, 1998, by and between the MARK GORDON FAMILY TRUST u/a/d March 1, 1990 (the "Gordon Family Trust") and PRECISION RESPONSE CORPORATION, a Florida corporation (the "Company"), whose address is 1505 N.W. 167 Street, Miami, Florida 33169. WHEREAS, the Gordon Family Trust desires to insure the lives of Mark J. Gordon (the "Husband") and his wife, Gail Gordon ("Wife") for the benefit and protection of the Husband's family under a policy or policies issued by Sun Life Assurance Company of Canada or such other life insurance companies selected by the Gordon Family Trust (the "Insurance Company"); WHEREAS, the Trustees will surrender certain insurance policies (the "Surrendered Policies") on the life of Husband and utilize, with the consent of the Company, the cash surrender value of the Surrendered Policies to acquire new insurance policy(ies) on the joint lives of Husband and Wife; WHEREAS, the Company desires to help the Gordon Family Trust provide insurance by contributing a portion of the premiums due on the policies on the Husband's and Wife's lives under a continuing "Split Dollar" arrangement; and WHEREAS, the Gordon Family Trust will be the owner of the insurance policies acquired pursuant to the terms of this Agreement and the policies will be collaterally assigned to the Company as security for the repayment of the amounts which the Company has contributed or will contribute as premiums due on the Surrendered Policies and the policies. NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, it is agreed between the parties to this Agreement as follows: ARTICLE 1 APPLICATION FOR INSURANCE The Gordon Family Trust has applied to the Insurance Company for a policy on the Grantor's life which the Insurance Company will issue to the Gordon Family Trust as owner thereof on the Husband's and Wife's joint lives in the total face amount of $5,000,000 (the "Policy"). The policy number, type of policy, face amount and plan of payments contained in the Policy are recorded on Schedule A attached hereto and the parties hereto agree that the Policy is held subject to the terms of this Agreement. 2 ARTICLE 2 OWNERSHIP OF INSURANCE The Gordon Family Trust is and shall continue to be the owner of the Policy and may exercise all rights of ownership with respect to the Policy, except as to the limited security interest in the Policy specifically granted to the Company herein. Subject to such security interest of the Company, the rights reserved to the Gordon Family Trust include specifically the right to change the beneficiaries of the Policy, the right to surrender the Policy, the right to assign the Policy or revoke such an assignment, and the right to pledge the Policy for a loan or to obtain a loan from the Insurance Company against the surrender value of the Policy. ARTICLE 3 PREMIUM When used in this Agreement the words "the Premium" shall mean and refer to the annual premium shown on Schedule A attached hereto, or such other annual amounts as the parties hereto may from time to time agree in writing to pay to the Insurance Company with respect to the Policy; provided, however, that in no event shall the Premium be less than the smallest annual payment necessary to keep the Policy in full force and effect. ARTICLE 4 PAYMENT OF PREMIUMS ON POLICY A. The Company shall pay either directly to the Insurance Company or by making the necessary funds therefor available to the Gordon Family Trust the Premium when due less the amounts due from the Gordon Family Trust pursuant to the provisions of Section B of this ARTICLE 4. The Premium may be paid under any payment method acceptable to the Company and the Insurance Company. B. The Gordon Family Trust shall pay that portion of each annual premium equal to the cost (calculated by application of the lower of the Internal Revenue Service's U.S. Life Table 38 rate or the Insurance Companies' annual term insurance rates on the lives of the Husband and Wife while they are both alive, and by application of the lower of the Internal Revenue Service's U.S. Life Table 58 rate or the Insurance Companies' annual term insurance rate on the life of the survivor of the Husband and Wife after the death of the first of them to die) for the insurance proceeds which the beneficiary or beneficiaries named by the Gordon Family Trust would be entitled to receive if the survivor of the Husband and Wife died -2- 3 during such policy year (before any reduction for any repayments to be made to the Company pursuant to this Agreement). ARTICLE 5 GORDON FAMILY TRUST'S OBLIGATION TO COMPANY The Gordon Family Trust must repay to the Company the aggregate amount paid by the Company under Section A of ARTICLE 4 of this Agreement, as premiums on the Policy (plus any payments made by the Company with respect to the Surrendered Policies) (such amount being hereinafter referred to as the "Net Payment Amount"). This repayment must be made in accordance with ARTICLES 7 and 10 of this Agreement. ARTICLE 6 ASSIGNMENT OF POLICY The Gordon Family Trust hereby collaterally assigns, and grants a security interest in, all of its right, title and interest in and to the Policy to the Company as security for repayment of the Net Payment Amount. Such collateral assignment shall not be altered or changed without the written consent of the Company. ARTICLE 7 DEATH CLAIMS A. When the survivor of the Husband and Wife dies, the Company shall be entitled to receive a portion of the death benefits provided under the Policy. The amount to which the Company shall be entitled shall be the Net Payment Amount less any repayments made by the Gordon Family Trust to the Company prior to the death of the survivor of the Husband and Wife; provided, however, that upon receipt of such amount by the Company, the Company shall release the collateral assignment of the Policy made by the Gordon Family Trust to the Company pursuant to ARTICLE 6 of this Agreement. The receipt of such amount by the Company shall constitute satisfaction of the Gordon Family Trust's obligation under ARTICLE 5 of this Agreement. To the extent, if any, the death benefits under the Policy are insufficient to pay in full the Net Payment Amount less any repayments made by the Gordon Family Trust to the Company prior to the death of the survivor of the Husband and Wife, the Gordon Family Trust shall be liable to the Company for the amount of such insufficiency. B. When the survivor of the Husband and Wife dies, the beneficiary or beneficiaries named by the Gordon Family Trust (or -3- 4 by its assignees) shall be entitled to receive the amount, if any, of the death benefits provided under the Policy in excess of the amount, if any, payable to the Company under Section A of this ARTICLE 7. Such amount shall be paid under the settlement option elected by the Gordon Family Trust (or by its assignees). C. If any interest is due upon the death benefits provided under the Policy, the Company and the beneficiary or beneficiaries named by the Gordon Family Trust (or by its assignees) shall share such interest in the same proportions as their respective shares of such death benefits (as provided in Sections A and B, respectively, of this ARTICLE 7) shall bear to the total death benefits provided under the Policy excluding such interest. D. If, upon the death of the survivor of the Husband and Wife, there is a refund of unearned premium under the Policy, then any such refund shall be divided between the Company and the beneficiary or beneficiaries named by the Gordon Family Trust (or by its assignees) in the same proportions as their respective shares of the last premium payment made by the Company and the Gordon Family Trust, respectively. ARTICLE 8 DIVISION OF THE NET CASH SURRENDER VALUE OF THE POLICY A. If the Policy is surrendered (which the then Trustees of the Gordon Family Trust, in their sole discretion, shall have the right to do at any time), the Company shall thereupon be entitled to receive the Net Payment Amount less any repayments made by the Gordon Family Trust to the Company prior to such surrender. To the extent, if any, the net cash surrender value of the Policy is insufficient to pay in full the Net Payment Amount less any repayments made by the Gordon Family Trust to the Company prior to such surrender, the Gordon Family Trust shall be liable to the Company for the amount of such insufficiency. B. The Gordon Family Trust (or its assignees) shall be entitled to receive any balance of the net cash surrender value of the Policy. ARTICLE 9 TERMINATION OF AGREEMENT This Agreement shall terminate when any of the following events occur: A. Termination of the Gordon Family Trust; B. Upon the election of the aggrieved party, if either the Company or the Gordon Family Trust shall fail for any reason to make payment of any portion of the Premium due on the Policy as -4- 5 required by ARTICLE 4 of this Agreement on or prior to the due date thereof; provided, however, that any election to terminate this Agreement under this Section B must be made within ninety (90) days after the failure to make the required payment occurs; and provided further, however, that the election to terminate this Agreement by the Gordon Family Trust shall be in addition to all of the other rights and remedies at law or in equity of the Gordon Family Trust against the Company for its failure to pay any portion of the Premium it was required to make; or C. Full repayment by the Gordon Family Trust of the Net Payment Amount; provided, however, that upon receipt of such repayment the Company shall release the collateral assignment of the Policy by the Gordon Family Trust pursuant to ARTICLE 6 hereof. ARTICLE 10 DISPOSITION OF POLICY ON TERMINATION OF AGREEMENT If the Policy is surrendered by the then Trustees of the Gordon Family Trust or this Agreement is terminated under Section A or Section B of ARTICLE 9 hereof, the Gordon Family Trust shall have one hundred twenty (120) days in which to repay to the Company the Net Payment Amount less any repayments made by the Gordon Family Trust to the Company prior to the termination of this Agreement. Upon receipt of such amount, the Company shall release the collateral assignment of the Policy made by the Gordon Family Trust to the Company pursuant to ARTICLE 6 of this Agreement. If the Gordon Family Trust does not repay such amount within such one hundred twenty (120) day period, the Company may enforce its rights against the Gordon Family Trust under this Agreement in any way it sees fit, subject, however, to the Gordon Family Trust's right to set off against any claim made by the Company any damages suffered by or claims of the Gordon Family Trust to the extent this Agreement was terminated by the Gordon Family Trust pursuant to Section B of ARTICLE 9 hereof. ARTICLE 11 INSURANCE COMPANY A PARTY The Insurance Company is a party to this Agreement and hereby acknowledges and agrees to be bound by the terms and provisions hereof, including without limitation the provisions of ARTICLE 5 and ARTICLE 6 hereof, and shall be fully discharged from any and all liability under the terms of any policy issued by it, which is subject to the terms of this Agreement, upon payment or other performance of its obligations in accordance with the terms and provisions of such policy and this Agreement. -5- 6 ARTICLE 12 ASSIGNMENT BY COMPANY The Company is prohibited from assigning its right, title or interest in and to the Policy (or any portion thereof) to anyone other than the Gordon Family Trust (or its assignees). ARTICLE 13 AMENDMENT OF AGREEMENT This Agreement shall not be modified or amended except by a written agreement signed by the Company and the Gordon Family Trust. This Agreement shall be binding upon the successors and assigns of each party hereto. ARTICLE 14 GOVERNING LAW This Agreement shall be deemed a contract made under the laws of, and executed and delivered in, the State of Florida, and for all purposes shall be construed and interpreted in accordance with the laws of such State without reference to conflicts of laws principles. ARTICLE 15 ATTORNEYS' FEES In the event that either party to this Agreement institutes suit against the other party to this Agreement to enforce or declare any of their respective rights or obligations hereunder, the prevailing party in such action shall be entitled to recover from the other party all reasonable costs thereof, including reasonable attorneys' and paralegals' fees and costs incurred before and at trial and at all tribunal levels, and whether or not suit or any other proceeding is instituted. ARTICLE 16 ENTIRE AGREEMENT This Agreement constitutes the entire final agreement among the parties with respect to, and supersedes any and all prior and contemporaneous agreements between or among the parties hereto both oral and written concerning, the subject matter hereof and may -6- 7 not be amended, modified or terminated except by a writing signed by the parties hereto. ARTICLE 17 COUNTERPARTS This Agreement may be executed in counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date first above written. /s/ DAVID L. EPSTEIN ------------------------------------ DAVID L. EPSTEIN, as Co-Trustee of the Gordon Family Trust /s/ RICHARD D. MONDRE ------------------------------------ RICHARD D. MONDRE, as Co-Trustee of the Gordon Family Trust PRECISION RESPONSE CORPORATION, a Florida corporation By: /s/ DAVID L. EPSTEIN -------------------------------- David L. Epstein, Chief Executive Officer This Split Dollar Agreement and Collateral Assignment relating to the Policy was recorded by Sun Life Assurance Company of Canada on February 11, 2000. SUN LIFE ASSURANCE COMPANY OF CANADA By: /s/ CAROL J. MACKAY -------------------------------- Name: Carol J. MacKay Title: Customer Service Administrator RECORDED FEB 11 2000 SUN LIFE OF CANADA -7- 8 SCHEDULE A INSURANCE POLICY ON THE JOINT LIVES OF MARK AND GAIL GORDON
Sun Life Assurance Company of Annual Canada Planned Policy Number Type of Policy Face Amount Premium - ------------- -------------- ----------- ------- #020044604 Second-to-die $5,000,000 $25,832
EX-10.58 19 EMPLOY AGREE BETWEEN PRC & J.GILLIS 1 EXHIBIT 10.58 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, dated and effective as of November 15, 1999, by and between PRECISION RESPONSE CORPORATION, a corporation organized and existing under the laws of the State of Florida (hereinafter referred to as "Employer"), and JOSEPH E. GILLIS (hereinafter referred to as "Employee"). W I T N E S S E T H: WHEREAS, Employer is a Florida corporation engaged in interactive customer service and marketing through the integration of its teleservicing, Internet, database management and marketing and fulfillment capabilities; WHEREAS, Employer desires to continue to employ Employee upon the terms and conditions set forth below and Employee desires to accept such continued employment upon such terms and conditions; and WHEREAS, Employer and Employee desire to set forth in writing the terms and conditions of their agreements and understandings with respect to Employee's employment by Employer. NOW, THEREFORE, the parties agree as follows: 1. EMPLOYMENT Employer hereby employs Employee, and Employee hereby accepts employment by Employer, upon the terms and conditions set forth in this Employment Agreement. 2. TERM Subject to the provisions for earlier termination set forth in Section 9 hereof, this Employment Agreement shall commence on the date hereof and shall continue until 5:00, p.m., December 31, 2001 (the "Initial Employment Term"), with the Initial Employment Term to be automatically renewed and extended for consecutive additional one year periods unless, at least ninety (90) days prior to the expiration of the Initial Employment Term or any one year renewal period thereof, either party hereto delivers to the other party hereto written notice of such party's termination of this Agreement at the expiration of the Initial Employment Term or any one year renewal period thereof (as the case may be). The Initial Employment Term together with any or all one year renewal periods thereof are hereinafter collectively referred to as the "Employment Term". 2 3. EMPLOYEE'S REPRESENTATIONS AND WARRANTIES Employee represents and warrants to Employer that Employee is free to accept employment with Employer as contemplated herein and has no other written or oral obligations or commitments of any kind or nature which would in any way interfere with Employee's acceptance of employment pursuant to the terms hereof or the full performance of Employee's obligations hereunder or the exercise of Employee's best efforts in Employee's employment hereunder or which would otherwise pose any conflict of interest. 4. DUTIES AND EXTENT OF SERVICES A. DUTIES. Employee's duties and responsibilities hereunder shall be those reasonably assigned to Employee from time to time by Employer, consistent with the following: Employee shall, unless and until otherwise determined by Employer, serve as Employer's Vice President and Treasurer, subject to the direction of Employer's Chief Financial Officer. Employee shall report directly to Employer's Chief Financial Officer. Employee agrees to devote Employee's full and exclusive time, skill, attention and energy diligently and competently to perform the duties and responsibilities properly assigned to Employee hereunder, or pursuant hereto. B. RULES AND REGULATIONS. Employee agrees to abide by the rules and regulations of Employer promulgated by Employer from time to time with respect and applicable to Employer's similarly-situated employees generally, which are all hereby incorporated by reference and made a part of this Employment Agreement. 5. COMPENSATION A. BASE COMPENSATION. Subject to the provisions of Section 9 of this Employment Agreement, Employer shall pay salary to Employee ("Salary") based upon the rate of $ 140,000 per annum from the date hereof until April 1, 2000, at which time Employer's Chief Financial Officer shall review Employee's Salary. Employer may decide, in its sole discretion, to increase (but not to decrease) the Salary at that time or at any time during the Employment Term. Salary shall be payable in accordance with Employer's normal payroll practices for its employees and shall be subject to payroll deductions and tax withholdings in accordance with Employer's usual practices and as required by law. B. BONUS COMPENSATION. Employee shall receive an annual bonus, the amount of which shall be determined by Employer in its sole and absolute discretion in a manner consistent with Employer's then current bonus plan which may be amended from time to time (the "Bonus Amount"). Each annual Bonus Amount shall be paid on or before April 1st of each year of the Employment Term. The Bonus Amount payable on or before each April 1st shall be based upon Employee's performance during the calendar year immediately preceding such April 1st. Each Bonus Amount shall be subject to payroll deductions and tax withholdings in accordance with Employer's usual payroll practices and as required by law. 2 3 6. FRINGE BENEFITS AND EXPENSES A. EMPLOYEE BENEFITS. Employee shall be entitled to such benefits and fringe benefits (such as health, dental, life and disability insurance) as are made available by Employer from time to time, in Employer's sole discretion, to all other similarly-situated employees generally. B. EXPENSES. Employer shall reimburse Employee for Employee's reasonable out-of-pocket costs and expenses incurred in connection with the performance of Employee's duties and responsibilities hereunder, subject to Employee's presentation of appropriate documentation and, if requested, justification therefor, and provided that the types and amounts of expenses incurred are consistent with, in Employer's judgment, Employer's policies and practices. 7. VACATIONS Employee shall be entitled to 30 days of paid time off ("PTO") for vacation, personal and sick days each full year of the Employment Term, with full compensation (provided, however, that Employee shall not be entitled to be compensated for any unused PTO days upon termination of employment). The PTO days are exclusive of any Employer recognized holidays. The periods during which Employee shall be absent from work for vacation shall be at the reasonable discretion of Employer. 8. FACILITIES Employer shall provide and maintain (or cause to be provided and maintained) such facilities, equipment, supplies and personnel as it reasonably deems necessary for Employee's performance of Employee's duties and responsibilities under this Employment Agreement. 9. TERMINATION OF EMPLOYMENT A. TERMINATION EVENTS. Employee's employment under this Employment Agreement may be terminated by Employer only as follows: with or without Cause (as hereinafter defined), effective upon the delivery of written notice to Employee; upon Employee's death; or upon Employee becoming Disabled (as later defined) and receiving written notice of termination from Employer to that effect. Employee may terminate Employee's employment under this Employment Agreement without being in breach hereunder by giving written notification of Employee's resignation to Employer which shall specify a resignation date no earlier than thirty (30) days following the date of delivery of such notice of resignation. B. DEFINITIONS OF CAUSE AND DISABLED. For purposes of this Employment Agreement, "Cause" shall mean and include: (i) commission of a felony, or commission of acts of fraud, dishonesty, or the like; (ii) habitual drunkenness during business hours or at Employer's premises; (iii) illicit use of drugs during business hours or at Employer's premises; (iv) abandonment of employment duties; (v) gross negligence in the performance of employment duties; (vi) an act or omission on the part of Employee not directed by Employer which results in or contributes to 3 4 Employer being sanctioned or penalized by any governmental or quasi-governmental authority or body, or any stock exchange or body regulating or governing publicly-traded companies (including the NASD); (vii) insubordination; or (viii) breach by Employee of this Employment Agreement which, if curable, is not cured by Employee within thirty (30) days following Employee's receipt of written notice thereof. Employee shall be deemed "Disabled" for purposes of this Agreement (a) if, in the reasonable judgment of Employer, Employee is unable, due to physical, mental or emotional illness or injury, to perform substantially all of Employee's duties and responsibilities for Employer for a continuous period of ninety (90) days, or (b) if Employee is adjudicated as an incompetent or has a guardian appointed to handle Employee's affairs. C. EFFECT OF TERMINATION FOR CAUSE OR EMPLOYEE'S RESIGNATION. In the event that Employee's employment under this Employment Agreement is terminated by Employer with Cause, or because Employee resigns from or quits Employee's employment, Employer shall pay to Employee, within thirty (30) days following the date of such termination or resignation, subject to Employer's right to set off any damages resulting from Employee's termination with Cause or resignation effected without giving the required notice, the Salary, if any, accrued and unpaid through the date of termination, and shall pay and provide to Employee the amounts and items payable and to be provided under Section 6 through the date of such termination; and Employee shall not be entitled to any other compensation, remuneration or other sums provided for in this Employment Agreement or to which Employee might otherwise be entitled hereunder or at law or in equity, including, without limitation, any accrued or unpaid Bonus Amount. D. COMPENSATION UPON DEATH OR DISABILITY. Upon the death of Employee, or termination of employment because Employee is Disabled, Employer shall pay to Employee, Employee's legal guardian or the legal representative of Employee's estate (or heir as designated by the legal representative of Employee's estate at such time), within thirty (30) days following the date of Employee's death or termination, the Salary and declared Bonus Amount, if any, accrued and unpaid through the date of termination and shall pay and provide to Employee, Employee's legal guardian or the legal representative of Employee's estate the amounts and items payable and to be provided under Section 6 through the date of such termination; and Employee (or such legal guardian, legal representative or any heirs) shall not be entitled to any other compensation, remuneration or other sums provided for in this Employment Agreement or to which Employee might otherwise be entitled hereunder or at law or in equity. E. COMPENSATION UPON TERMINATION WITHOUT CAUSE AND RESIGNATION UPON SIGNIFICANT CHANGE IN SCOPE OF JOB RESPONSIBILITIES OR RELOCATION. Notwithstanding anything in subsection C. of this Section 9, in the event that Employer (or its successor) terminates Employee's employment under this Employment Agreement without Cause (including, without limitation, upon a Change in Control as hereinafter defined) or Employee resigns Employer's employment within ninety (90) days of either a significant change in the scope of Employee's job responsibilities or Employer's requiring Employee, without Employee's prior written consent, to relocate Employee's office to a location other than northern Miami-Dade County (i.e, not any further south in MiamiDade County than the location of Employer's executive offices as of the date of this Employment Agreement), Broward County or Palm Beach County, Florida, Employee's sole and exclusive compensation and remedy hereunder shall be to receive from Employer, and Employer shall pay and 4 5 provide, (i) the amount of Salary and declared Bonus Amount, if any, accrued and unpaid through the date of termination (provided, however, that, in the event that a Bonus Amount for the calendar year in which the date of termination has occurred and/or prior calendar year has not been declared prior to the date of termination, the Bonus Amount for such calendar year shall be determined on a pro-rata basis consistent with Employer's bonus plan for such calendar year and Employer's overall accrual for employee bonuses for the relevant calendar year(s) through the date of termination), and the amounts and items payable or to be provided under Section 6 through the date of termination, payable within thirty (30) days following termination of employment, (ii) the Salary and the amounts and items payable or to be provided under Section 6.A. that Employee would have received during the one year period following the date of termination of Employee's employment, as and when it would have been payable or been provided if Employee had remained an employee of Employer for such additional one year period, provided, however, that with respect to any such benefits Employer shall have the right, if unable to provide to Employee or Employer otherwise elects, in its sole discretion, to pay Employee the monetary equivalent of any such benefits in lieu of providing same to Employee, and (iii) an amount equal to the average of the Bonus Amount (and/or annual bonus amount, as the case may be) paid to Employee during the last two years prior to the date of termination, which amount shall be payable in twelve equal consecutive monthly installments commencing one month from the date of termination. For purposes of this Subsection E., (x) a "Change in Control" means that (1) neither Mark Gordon (for these purposes, counting all common stock directly or indirectly beneficially owned by Mark Gordon's Affiliates) nor David Epstein (for these purposes, counting all common stock directly or indirectly beneficially owned by David Epstein's Affiliates) beneficially owns at least 10% of the issued and outstanding common stock of Employer or its successor, (2) neither Mark Gordon (for these purposes, counting all common stock directly or indirectly beneficially owned by Mark Gordon's Affiliates) nor David Epstein (for these purposes, counting all common stock directly or indirectly beneficially owned by David Epstein's Affiliates) is the stockholder beneficially owning the highest number of issued and outstanding shares of common stock of Employer or its successor, or (3) neither Mark Gordon nor David Epstein occupies the position of Chairman of the Board, Chief Executive Officer or President of Employer; (y) "Affiliate" means, with respect to Mark Gordon or David Epstein, an immediate family member of his, a trust principally for his benefit and/or the benefit of his family members and/or lineal descendants, or a family limited partnership or any other entity the direct or indirect beneficial or pecuniary owners of which are, principally, him, his immediate family members and/or trusts principally for the benefit of him, his family members and/or lineal descendants; and (z) "Immediate family members" mean, with respect to Mark Gordon or David Epstein, his spouse, children, parents, siblings or other lineal descendants. F. KEY-MAN INSURANCE. In the event that Employer has obtained or obtains a keyman insurance policy (the "Policy") on the life of Employee, Employer shall be the sole owner thereof and all proceeds payable in respect thereof shall be the property solely of Employer. In the event that Employee's employment terminates for any reason other than Employee's death, Employee may request that the Policy be assigned to Employee by giving written notice to Employer to that effect. Subject to obtaining any requisite consent from the insurer, Employer shall, if Employee has so requested, assign the Policy to Employee subject to Employee's reimbursement to Employer of any premiums paid by Employer which relate to any period following the date of termination of Employee's employment, and the cash value, if any, of the Policy. In the event that Employer desires 5 6 to obtain any such Policy, Employee shall fully cooperate in Employer's efforts, including submitting to medical exams and tests and executing and delivering applications and information statements. 10. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION A. CONFIDENTIAL INFORMATION. Employee acknowledges that Employee has been informed by Employer of Employer's policy to maintain as secret and confidential all information and materials relating to (i) the financial condition, operations, business and interests of Employer, (ii) the systems, technology, know-how, records, products, services, cost information, inventions, computer and Internet software, marketing and sales techniques and/or programs, methods, methodologies, manuals, lists and other trade secrets from time to time acquired, sold, developed, maintained and/or used by Employer, and (iii) the nature and terms of Employer's relationships with its clients, suppliers, lenders, underwriters, vendors, consultants, independent contractors, attorneys, accountants and employees (all such information and materials being hereinafter collectively referred to as "Confidential Information"). Employee further acknowledges that such Confidential Information is of great value to Employer and has been developed by Employer as a result of substantial effort and expense. Therefore, Employee understands that it is reasonably necessary to protect Employer's good will, trade secrets and business interests that Employee agree and, accordingly, Employee does hereby agree, that Employee will not directly or indirectly (except where authorized by the Board of Directors, Chairman of the Board, Chief Executive Officer or President of Employer for the benefit of Employer and/or as required in the course of employment) at any time hereafter divulge or disclose for any purpose to any persons, firms, corporations or other entities (hereinafter referred to collectively as "Third Parties"), or use or cause or authorize any Third Parties to use, any such Confidential Information, except as otherwise required by law. Any software, technology, know-how, trade secrets or intellectual property rights of any kind developed by Employee during the period of his employment with Employer which in any way relate or have application or value to Employer's business shall be the property, as between Employee and Employer, solely of Employer. B. EMPLOYER'S MATERIALS. In accordance with the foregoing, Employee furthermore agrees that (i) Employee will at no time retain or remove from the premises of Employer any products, prototypes, drawings, notebooks, software programs or discs, tapes or similar containers of software, manuals, data, books, records, materials or documents of any kind or description for any purpose unconnected with the strict performance of Employee's duties with Employer and (ii) upon the cessation or termination of Employee's employment with Employer for any reason, Employee shall forthwith deliver or cause to be delivered up to Employer any and all drawings, notebooks, software programs or discs, tapes or similar containers of software, manuals, data, books, records, materials and other documents and materials in Employee's possession or under Employee's control relating to any Confidential Information or any other material or thing which is the property of Employer. 11. COVENANT-NOT-TO-COMPETE In view of (a) the Confidential Information known to and to be obtained by or disclosed to Employee, and (b) the consideration payable to Employee under this Employment 6 7 Agreement, and as a material inducement to Employer to enter into this Employment Agreement and to continue to employ Employee, Employee covenants and agrees that, (i) for as long as Employee is employed by Employer and for a period of 24 months after the date Employee ceases for any reason to be employed by Employer, Employee shall not, directly or indirectly, (A) sell any products or services sold or offered by Employer to any person or entity who is or was a client of Employer at any time during Employee's employment with Employer and for or to whom Employer is performing services or selling products or for or to whom Employer has performed services or sold products at any time during the one-year period ending on Employee's termination of employment or (B) solicit the services of, or hire, directly or indirectly, whether on Employee's own behalf or on behalf of others, any managerial or executive employee, account manager, programmer, information services employee (including, without limitation, network or other information services or Internet operation employee), database management or marketing employee or financial or accounting personnel of Employer who was or is employed by Employer at any time during the two-year period ending on the date of termination of Employee's employment or the two-year period commencing on the date of termination of Employee's employment, or (ii) for as long as Employee is employed by Employer and for a period of 12 months after the date Employee ceases for any reason to be employed by Employer, Employee shall not, directly or indirectly, engage in any venture, enterprise, activity or business, passively or actively, as an owner, consultant, adviser, participant, employee, agent or in any other capacity, competitive with the business of Employer anywhere within the continental United States. Employee acknowledges that the business of Employer is national in scope, that one can effectively compete with such business from anywhere in the continental United States, and that, therefore, such geographical area of restriction is reasonable in the circumstances to protect Employer's trade secrets and other legitimate business interests. 12. EMPLOYER'S REMEDIES FOR BREACH OF SECTIONS 10 AND 11 Employee covenants and agrees that if Employee shall violate or breach any of Employee's covenants or agreements provided for in Section 10 or 11 hereof, Employer shall be entitled to an accounting and repayment of all profits, compensation, commissions, remunerations and benefits which Employee directly or indirectly has realized and realizes as a result of, growing out of or in connection with any such violation or breach. In addition, in the event of a breach or violation or threatened or imminent breach or violation of any provisions of Section 10 or 11 hereof, Employer shall be entitled to a temporary and permanent injunction or any other appropriate decree of specific performance or equitable relief from a court of competent jurisdiction in order to prevent, prohibit or restrain any such breach or violation or threatened or imminent breach or violation by Employee, by Employee's partners, agents, representatives, servants, employers or employees and/or by any Third Parties. Employer shall be entitled to such injunctive or other equitable relief in addition to any ascertainable damages which are suffered, together with reasonable attorneys' and paralegals' fees and costs and other costs incurred in connection with any such litigation, both before and at trial and at all tribunal levels. It is understood that resort by Employer to such injunctive or other equitable relief shall not be deemed to waive or to limit in any respect any other rights or remedies which Employer may have with respect to such breach or violation. 7 8 13. REASONABLENESS OF RESTRICTIONS A. REASONABLENESS. Employee acknowledges that any breach or violation of Section 10 or 11 hereof will cause irreparable injury and damage and incalculable harm to Employer and that it would be very difficult or impossible to measure all of the damages resulting from any such breach or violation. Employee further acknowledges that Employee has carefully read and considered the provisions of Sections 10, 11 and 12 hereof and, having done so, agrees that the restrictions and remedies set forth in such Sections (including, but not limited to, the time period, geographical and types of restrictions imposed) are fair and reasonable and are reasonably required for the protection of the business, trade secrets, interests and good will of Employer. B. SEVERABILITY. Employee understands and intends that each provision and restriction agreed to by Employee in Sections 10, 11 and 12 hereof shall be construed as separate and divisible from every other provision and restriction. In the event that any one of the provisions of, or restrictions in, Sections 10, 11 and/or 12 hereof shall be held to be invalid or unenforceable, and is not reformed by a court of competent jurisdiction (which a court, in lieu of striking a provision entirely, is urged by the parties to do), the remaining provisions thereof and restrictions therein shall nevertheless continue to be valid and enforceable as though the invalid or unenforceable provisions or restrictions had not been included. In the event that any such provision relating to time period, geographical and/or type of restriction shall be declared by a court of competent jurisdiction to exceed the maximum or permissible time period, geographical or type of restriction such court deems reasonable and enforceable, said time period, geographical and/or type of restriction shall be deemed to become and shall thereafter be the maximum time period or geographical area and/or type of restriction which such court deems reasonable and enforceable. C. SURVIVABILITY. The restrictions, acknowledgments, covenants and agreements of Employee set forth in Sections 10, 11, 12 and 13 of this Employment Agreement shall survive any termination of this Employment Agreement or of Employee's employment (for any reason, including expiration of the Employment Term). D. DEFINITION OF EMPLOYER. For purposes of Sections 10, 11, 12 and 13 of this Employment Agreement, the term "Employer" includes the Employer and any parent corporation of Employer and all direct and indirect subsidiaries of Employer and its parent corporation (if any). 14. LAW APPLICABLE This Employment Agreement shall be governed by and construed pursuant to the laws of the State of Florida. 15. NOTICES Any notices required or permitted to be given pursuant to this Employment Agreement shall be sufficient if in writing, and delivered personally, by commercial courier service or sent by certified mail, return receipt requested, and sent to Employer's executive offices, to the 8 9 attention of the President, if sent to Employer, and to Employee's then current residence, if sent to Employee. 16. SUCCESSION This Employment Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective legal representatives, heirs, assignees and/or successors in interest of any kind whatever; PROVIDED, HOWEVER, that Employee acknowledges and agrees that Employee cannot assign or delegate any of Employee's rights, duties, responsibilities or obligations hereunder to any other person or entity. Employer shall have the right to assign its rights and delegate its duties under this Employment Agreement. 17. ENTIRE AGREEMENT This Employment Agreement constitutes the entire final agreement between the parties with respect to, and supersedes any and all prior and contemporaneous agreements between the parties hereto both oral and written concerning, the subject matter hereof and may not be amended, modified or terminated except by a writing signed by the parties hereto. 18. SEVERABILITY If any provision of this Employment Agreement shall be held to be invalid or unenforceable, and is not reformed by a court of competent jurisdiction, such invalidity or unenforceability shall attach only to such provision and shall not in any way affect or render invalid or unenforceable any other provision of this Employment Agreement, and this Employment Agreement shall be carried out as if such invalid or unenforceable provision were not herein contained. 19. NO WAIVER A waiver of any breach or violation of any term, provision or covenant herein contained shall not be deemed a continuing waiver or a waiver of any future or past breach or violation. No oral waiver shall be binding. 20. ATTORNEYS' FEES In the event that either of the parties to this Employment Agreement institutes suit against the other party to this Employment Agreement to enforce or declare any of their respective rights hereunder, the prevailing party in such action shall be entitled to recover from the other party all reasonable costs thereof, including reasonable attorneys' and paralegals' fees and costs incurred before and at trial and at all tribunal levels, and whether or not suit or any other proceeding is instituted. 9 10 21. COUNTERPARTS This Employment Agreement may be executed in counterparts, each of which shall be an original, but both of which together shall constitute one and the same instrument. 22. INDEPENDENT COUNSEL EMPLOYER STRONGLY RECOMMENDS TO EMPLOYEE THAT EMPLOYEE RETAIN INDEPENDENT LEGAL COUNSEL TO ADVISE EMPLOYEE WITH RESPECT TO THIS EMPLOYMENT AGREEMENT BEFORE EMPLOYEE SIGNS IT. IN WITNESS WHEREOF, the undersigned have hereunto set their hands on the day and year first above written. EMPLOYER: PRECISION RESPONSE CORPORATION, a Florida corporation By: /s/ DAVID EPSTEIN ---------------------------------------- David Epstein, Chief Executive Officer EMPLOYEE: /s/ JOSEPH E. GILLIS ------------------------------------- JOSEPH E. GILLIS 10 11 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT This Amendment to Employment Agreement (this "Amendment") dated and effective as of JANUARY 13, 2000, by and between Precision Response Corporation, a corporation organized and existing under the laws of the State of Florida (hereinafter referred to as "Employer"), and Joseph E. Gillis hereinafter referred to as ("Employee"). W I T N E S S E T H WHEREAS, Employer currently employs Employee pursuant to an Employment Agreement dated November 15, 1999 by and between Employer and Employee; and WHEREAS, Employer and Employee desire to amend the Employment Agreement as set forth herein. NOW THEREFORE, the parties agree that the Employment Agreement shall be amended as of and after the date hereof as follows: Section 9 is hereby amended by the addition of the following Subsection G: G. EXCISE TAX TREATMENT. If any of the payments or benefits to be received by Employee in connection with a Change in Control (as defined in Subsection 9E.) pursuant to the terms of this agreement or any other plan, arrangement or agreement (such payments or benefits the "Total Payments") will be subject to any excise tax imposed by Section 4999 of the Internal Revenue of 1986, as amended (the "Code"), then, after taking into account any reduction in the Total Payments provided by Section 280G of the Code in such other plan, arrangement or agreement, the payments made pursuant to Subsection 9E. of this Employment Agreement shall be reduced to the extent necessary so that no portion of the Total Payments is subject to the excise tax but only if (i) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state and local income taxes on such reduced Total Payments) is greater than or equal to (ii) the net amount of such Total Payments without such reduction (but after subtracting the net amount of federal, state and local income taxes on such Total Payments and the amount of excise tax to which the Employee would be subject in respect of such unreduced Total Payments). 12 IN WITNESS WHEREOF, the undersigned have caused this Amendment to be duly executed as of the day and year first above written. PRECISION RESPONSE CORPORATION BY: /s/ RICHARD D. MONDRE -------------------------------------- Exec. Vice Pres. /S/ JOSEPH E. GILLIS -------------------------------------- Joseph E. Gillis 2 EX-10.59 20 EMPLOY AGREE BETWEEN PRC & T.JENNINGS JR. 1 EXHIBIT 10.59 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, dated and effective as of November 15, 1999, by and between PRECISION RESPONSE CORPORATION, a corporation organized and existing under the laws of the State of Florida (hereinafter referred to as "Employer"), and THOMAS F. JENNINGS, JR. (hereinafter referred to as "Employee"). W I T N E S S E T H: WHEREAS, Employer is a Florida corporation engaged in interactive customer service and marketing through the integration of its teleservicing, Internet, database management and marketing and fulfillment capabilities; WHEREAS, Employer desires to continue to employ Employee upon the terms and conditions set forth below and Employee desires to accept such continued employment upon such terms and conditions; and WHEREAS, Employer and Employee desire to set forth in writing the terms and conditions of their agreements and understandings with respect to Employee's employment by Employer. NOW, THEREFORE, the parties agree as follows: 1. EMPLOYMENT Employer hereby employs Employee, and Employee hereby accepts employment by Employer, upon the terms and conditions set forth in this Employment Agreement. 2. TERM Subject to the provisions for earlier termination set forth in Section 9 hereof, this Employment Agreement shall commence on the date hereof and shall continue until 5:00, p.m., December 31, 2001 (the "Initial Employment Term"), with the Initial Employment Term to be automatically renewed and extended for consecutive additional one year periods unless, at least ninety (90) days prior to the expiration of the Initial Employment Term or any one year renewal period thereof, either party hereto delivers to the other party hereto written notice of such party's termination of this Agreement at the expiration of the Initial Employment Term or any one year renewal period thereof (as the case may be). The Initial Employment Term together with any or all one year renewal periods thereof are hereinafter collectively referred to as the "Employment Term". 2 3. EMPLOYEE'S REPRESENTATIONS AND WARRANTIES Employee represents and warrants to Employer that Employee is free to accept employment with Employer as contemplated herein and has no other written or oral obligations or commitments of any kind or nature which would in any way interfere with Employee's acceptance of employment pursuant to the terms hereof or the full performance of Employee's obligations hereunder or the exercise of Employee's best efforts in Employee's employment hereunder or which would otherwise pose any conflict of interest. 4. DUTIES AND EXTENT OF SERVICES A. DUTIES. Employee's duties and responsibilities hereunder shall be those reasonably assigned to Employee from time to time by Employer, consistent with the following: Employee shall, unless and until otherwise determined by Employer, serve as Employer's Vice President and Controller, subject to the direction of Employer's Chief Financial Officer. Employee shall report directly to Employer's Chief Financial Officer. Employee agrees to devote Employee's full and exclusive time, skill, attention and energy diligently and competently to perform the duties and responsibilities properly assigned to Employee hereunder, or pursuant hereto. B. RULES AND REGULATIONS. Employee agrees to abide by the rules and regulations of Employer promulgated by Employer from time to time with respect and applicable to Employer's similarly-situated employees generally, which are all hereby incorporated by reference and made a part of this Employment Agreement. 5. COMPENSATION A. BASE COMPENSATION. Subject to the provisions of Section 9 of this Employment Agreement, Employer shall pay salary to Employee ("Salary") based upon the rate of $175,000 per annum from the date hereof until April 1, 2000, at which time Employer's Chief Financial Officer shall review Employee's Salary. Employer may decide, in its sole discretion, to increase (but not to decrease) the Salary at that time or at any time during the Employment Term. Salary shall be payable in accordance with Employer's normal payroll practices for its employees and shall be subject to payroll deductions and tax withholdings in accordance with Employer's usual practices and as required by law. B. BONUS COMPENSATION. Employee shall receive an annual bonus, the amount of which shall be determined by Employer in its sole and absolute discretion in a manner consistent with Employer's then current bonus plan which may be amended from time to time (the "Bonus Amount"). Each annual Bonus Amount shall be paid on or before April 1st of each year of the Employment Term. The Bonus Amount payable on or before each April 1st shall be based upon Employee's performance during the calendar year immediately preceding such April 1st. Each Bonus Amount shall be subject to payroll deductions and tax withholdings in accordance with Employer's usual payroll practices and as required by law. 2 3 6. FRINGE BENEFITS AND EXPENSES A. EMPLOYEE BENEFITS. Employee shall be entitled to such benefits and fringe benefits (such as health, dental, life and disability insurance) as are made available by Employer from time to time, in Employer's sole discretion, to all other similarly-situated employees generally. B. EXPENSES. Employer shall reimburse Employee for Employee's reasonable out-of-pocket costs and expenses incurred in connection with the performance of Employee's duties and responsibilities hereunder, subject to Employee's presentation of appropriate documentation and, if requested, justification therefor, and provided that the types and amounts of expenses incurred are consistent with, in Employer's judgment, Employer's policies and practices. 7. VACATIONS Employee shall be entitled to 30 days of paid time off ("PTO") for vacation, personal and sick days each full year of the Employment Term, with full compensation (provided, however, that Employee shall not be entitled to be compensated for any unused PTO days upon termination of employment). The PTO days are exclusive of any Employer recognized holidays. The periods during which Employee shall be absent from work for vacation shall be at the reasonable discretion of Employer. 8. FACILITIES Employer shall provide and maintain (or cause to be provided and maintained) such facilities, equipment, supplies and personnel as it reasonably deems necessary for Employee's performance of Employee's duties and responsibilities under this Employment Agreement. 9. TERMINATION OF EMPLOYMENT A. TERMINATION EVENTS. Employee's employment under this Employment Agreement may be terminated by Employer only as follows: with or without Cause (as hereinafter defined), effective upon the delivery of written notice to Employee; upon Employee's death; or upon Employee becoming Disabled (as later defined) and receiving written notice of termination from Employer to that effect. Employee may terminate Employee's employment under this Employment Agreement without being in breach hereunder by giving written notification of Employee's resignation to Employer which shall specify a resignation date no earlier than thirty (30) days following the date of delivery of such notice of resignation. B. DEFINITIONS OF CAUSE AND DISABLED. For purposes of this Employment Agreement, "Cause" shall mean and include: (i) commission of a felony, or commission of acts of fraud, dishonesty, or the like; (ii) habitual drunkenness during business hours or at Employer's premises; (iii) illicit use of drugs during business hours or at Employer's premises; (iv) abandonment of employment duties; (v) gross negligence in the performance of employment duties; (vi) an act or omission on the part of Employee not directed by Employer which results in or contributes to 3 4 Employer being sanctioned or penalized by any governmental or quasi-governmental authority or body, or any stock exchange or body regulating or governing publicly-traded companies (including the NASD); (vii) insubordination; or (viii) breach by Employee of this Employment Agreement which, if curable, is not cured by Employee within thirty (30) days following Employee's receipt of written notice thereof. Employee shall be deemed "Disabled" for purposes of this Agreement (a) if, in the reasonable judgment of Employer, Employee is unable, due to physical, mental or emotional illness or injury, to perform substantially all of Employee's duties and responsibilities for Employer for a continuous period of ninety (90) days, or (b) if Employee is adjudicated as an incompetent or has a guardian appointed to handle Employee's affairs. C. EFFECT OF TERMINATION FOR CAUSE OR EMPLOYEE'S RESIGNATION. In the event that Employee's employment under this Employment Agreement is terminated by Employer with Cause, or because Employee resigns from or quits Employee's employment, Employer shall pay to Employee, within thirty (30) days following the date of such termination or resignation, subject to Employer's right to set off any damages resulting from Employee's termination with Cause or resignation effected without giving the required notice, the Salary, if any, accrued and unpaid through the date of termination, and shall pay and provide to Employee the amounts and items payable and to be provided under Section 6 through the date of such termination; and Employee shall not be entitled to any other compensation, remuneration or other sums provided for in this Employment Agreement or to which Employee might otherwise be entitled hereunder or at law or in equity, including, without limitation, any accrued or unpaid Bonus Amount. D. COMPENSATION UPON DEATH OR DISABILITY. Upon the death of Employee, or termination of employment because Employee is Disabled, Employer shall pay to Employee, Employee's legal guardian or the legal representative of Employee's estate (or heir as designated by the legal representative of Employee's estate at such time), within thirty (30) days following the date of Employee's death or termination, the Salary and declared Bonus Amount, if any, accrued and unpaid through the date of termination and shall pay and provide to Employee, Employee's legal guardian or the legal representative of Employee's estate the amounts and items payable and to be provided under Section 6 through the date of such termination; and Employee (or such legal guardian, legal representative or any heirs) shall not be entitled to any other compensation, remuneration or other sums provided for in this Employment Agreement or to which Employee might otherwise be entitled hereunder or at law or in equity. E. COMPENSATION UPON TERMINATION WITHOUT CAUSE AND RESIGNATION UPON SIGNIFICANT CHANGE IN SCOPE OF JOB RESPONSIBILITIES OR RELOCATION. Notwithstanding anything in subsection C. of this Section 9, in the event that Employer (or its successor) terminates Employee's employment under this Employment Agreement without Cause (including, without limitation, upon a Change in Control as hereinafter defined) or Employee resigns Employer's employment within ninety (90) days of either a significant change in the scope of Employee's job responsibilities or Employer's requiring Employee, without Employee's prior written consent, to relocate Employee's office to a location other than northern Miami-Dade County (i.e., not any further south in Miami- Dade County than the location of Employer's executive offices as of the date of this Employment Agreement), Broward County or Palm Beach County, Florida, Employee's sole and exclusive compensation and remedy hereunder shall be to receive from Employer, and Employer shall pay and 4 5 provide, (i) the amount of Salary and declared Bonus Amount, if any, accrued and unpaid through the date of termination, (provided, however, that, in the event that a Bonus Amount for the calendar year in which the date of termination has occurred and/or the prior calendar year has not been declared prior to the date of termination, the Bonus Amount for such calendar year shall be determined on a pro-rata basis consistent with Employer's bonus plan for such calendar year and Employer's overall accrual for employee bonuses for the relevant calendar year(s) through the date of termination), and the amounts and items payable or to be provided under Section 6 through the date of termination, payable within thirty (30) days following termination of employment, (ii) the Salary and the amounts and items payable or to be provided under Section 6.A. that Employee would have received during the one year period following the date of termination of Employee's employment, as and when it would have been payable or been provided if Employee had remained an employee of Employer for such additional one year period, provided, however, that with respect to any such benefits Employer shall have the right, if unable to provide to Employee or Employer otherwise elects, in its sole discretion, to pay Employee the monetary equivalent of any such benefits in lieu of providing same to Employee, and (iii) an amount equal to the average of the Bonus Amount (and/or annual bonus amount, as the case may be) paid to Employee during the last two years prior to the date of termination which amount shall be payable in twelve equal consecutive monthly installments commencing one month from the date of termination. For purposes of this Subsection E., (x) a "Change in Control" means that (1) neither Mark Gordon (for these purposes, counting all common stock directly or indirectly beneficially owned by Mark Gordon's Affiliates) nor David Epstein (for these purposes, counting all common stock directly or indirectly beneficially owned by David Epstein's Affiliates) beneficially owns at least 10% of the issued and outstanding common stock of Employer or its successor, (2) neither Mark Gordon (for these purposes, counting all common stock directly or indirectly beneficially owned by Mark Gordon's Affiliates) nor David Epstein (for these purposes, counting all common stock directly or indirectly beneficially owned by David Epstein's Affiliates) is the stockholder beneficially owning the highest number of issued and outstanding shares of common stock of Employer or its successor, or (3) neither Mark Gordon nor David Epstein occupies the position of Chairman of the Board, Chief Executive Officer or President of Employer; (y) "Affiliate" means, with respect to Mark Gordon or David Epstein, an immediate family member of his, a trust principally for his benefit and/or the benefit of his family members and/or lineal descendants, or a family limited partnership or any other entity the direct or indirect beneficial or pecuniary owners of which are, principally, him, his immediate family members and/or trusts principally for the benefit of him, his family members and/or lineal descendants; and (z) "Immediate family members" mean, with respect to Mark Gordon or David Epstein, his spouse, children, parents, siblings or other lineal descendants. F. KEY-MAN INSURANCE. In the event that Employer has obtained or obtains a key-man insurance policy (the "Policy") on the life of Employee, Employer shall be the sole owner thereof and all proceeds payable in respect thereof shall be the property solely of Employer. In the event that Employee's employment terminates for any reason other than Employee's death, Employee may request that the Policy be assigned to Employee by giving written notice to Employer to that effect. Subject to obtaining any requisite consent from the insurer, Employer shall, if Employee has so requested, assign the Policy to Employee subject to Employee's reimbursement to Employer of any premiums paid by Employer which relate to any period following the date of termination of Employee's employment, and the cash value, if any, of the Policy. In the event that Employer desires 5 6 to obtain any such Policy, Employee shall fully cooperate in Employer's efforts, including submitting to medical exams and tests and executing and delivering applications and information statements. 10. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION A. CONFIDENTIAL INFORMATION. Employee acknowledges that Employee has been informed by Employer of Employer's policy to maintain as secret and confidential all information and materials relating to (i) the financial condition, operations, business and interests of Employer, (ii) the systems, technology, know-how, records, products, services, cost information, inventions, computer and Internet software, marketing and sales techniques and/or programs, methods, methodologies, manuals, lists and other trade secrets from time to time acquired, sold, developed, maintained and/or used by Employer, and (iii) the nature and terms of Employer's relationships with its clients, suppliers, lenders, underwriters, vendors, consultants, independent contractors, attorneys, accountants and employees (all such information and materials being hereinafter collectively referred to as "Confidential Information"). Employee further acknowledges that such Confidential Information is of great value to Employer and has been developed by Employer as a result of substantial effort and expense. Therefore, Employee understands that it is reasonably necessary to protect Employer's good will, trade secrets and business interests that Employee agree and, accordingly, Employee does hereby agree, that Employee will not directly or indirectly (except where authorized by the Board of Directors, Chairman of the Board, Chief Executive Officer or President of Employer for the benefit of Employer and/or as required in the course of employment) at any time hereafter divulge or disclose for any purpose to any persons, firms, corporations or other entities (hereinafter referred to collectively as "Third Parties"), or use or cause or authorize any Third Parties to use, any such Confidential Information, except as otherwise required by law. Any software, technology, know-how, trade secrets or intellectual property rights of any kind developed by Employee during the period of his employment with Employer which in any way relate or have application or value to Employer's business shall be the property, as between Employee and Employer, solely of Employer. B. EMPLOYER'S MATERIALS. In accordance with the foregoing, Employee furthermore agrees that (i) Employee will at no time retain or remove from the premises of Employer any products, prototypes, drawings, notebooks, software programs or discs, tapes or similar containers of software, manuals, data, books, records, materials or documents of any kind or description for any purpose unconnected with the strict performance of Employee's duties with Employer and (ii) upon the cessation or termination of Employee's employment with Employer for any reason, Employee shall forthwith deliver or cause to be delivered up to Employer any and all drawings, notebooks, software programs or discs, tapes or similar containers of software, manuals, data, books, records, materials and other documents and materials in Employee's possession or under Employee's control relating to any Confidential Information or any other material or thing which is the property of Employer. 11. COVENANT-NOT-TO-COMPETE In view of (a) the Confidential Information known to and to be obtained by or disclosed to Employee, and (b) the consideration payable to Employee under this Employment 6 7 Agreement, and as a material inducement to Employer to enter into this Employment Agreement and to continue to employ Employee, Employee covenants and agrees that, (i) for as long as Employee is employed by Employer and for a period of 24 months after the date Employee ceases for any reason to be employed by Employer, Employee shall not, directly or indirectly, (A) sell any products or services sold or offered by Employer to any person or entity who is or was a client of Employer at any time during Employee's employment with Employer and for or to whom Employer is performing services or selling products or for or to whom Employer has performed services or sold products at any time during the one-year period ending on Employee's termination of employment or (B) solicit the services of, or hire, directly or indirectly, whether on Employee's own behalf or on behalf of others, any managerial or executive employee, account manager, programmer, information services employee (including, without limitation, network or other information services or Internet operation employee), database management or marketing employee or financial or accounting personnel of Employer who was or is employed by Employer at any time during the two-year period ending on the date of termination of Employee's employment or the two-year period commencing on the date of termination of Employee's employment, or (ii) for as long as Employee is employed by Employer and for a period of 12 months after the date Employee ceases for any reason to be employed by Employer, Employee shall not, directly or indirectly, engage in any venture, enterprise, activity or business, passively or actively, as an owner, consultant, adviser, participant, employee, agent or in any other capacity, competitive with the business of Employer anywhere within the continental United States. Employee acknowledges that the business of Employer is national in scope, that one can effectively compete with such business from anywhere in the continental United States, and that, therefore, such geographical area of restriction is reasonable in the circumstances to protect Employer's trade secrets and other legitimate business interests. 12. EMPLOYER'S REMEDIES FOR BREACH OF SECTIONS 10 AND 11 Employee covenants and agrees that if Employee shall violate or breach any of Employee's covenants or agreements provided for in Section 10 or 11 hereof, Employer shall be entitled to an accounting and repayment of all profits, compensation, commissions, remunerations and benefits which Employee directly or indirectly has realized and realizes as a result of, growing out of or in connection with any such violation or breach. In addition, in the event of a breach or violation or threatened or imminent breach or violation of any provisions of Section 10 or 11 hereof, Employer shall be entitled to a temporary and permanent injunction or any other appropriate decree of specific performance or equitable relief from a court of competent jurisdiction in order to prevent, prohibit or restrain any such breach or violation or threatened or imminent breach or violation by Employee, by Employee's partners, agents, representatives, servants, employers or employees and/or by any Third Parties. Employer shall be entitled to such injunctive or other equitable relief in addition to any ascertainable damages which are suffered, together with reasonable attorneys' and paralegals' fees and costs and other costs incurred in connection with any such litigation, both before and at trial and at all tribunal levels. It is understood that resort by Employer to such injunctive or other equitable relief shall not be deemed to waive or to limit in any respect any other rights or remedies which Employer may have with respect to such breach or violation. 7 8 13. REASONABLENESS OF RESTRICTIONS A. REASONABLENESS. Employee acknowledges that any breach or violation of Section 10 or 11 hereof will cause irreparable injury and damage and incalculable harm to Employer and that it would be very difficult or impossible to measure all of the damages resulting from any such breach or violation. Employee further acknowledges that Employee has carefully read and considered the provisions of Sections 10, 11 and 12 hereof and, having done so, agrees that the restrictions and remedies set forth in such Sections (including, but not limited to, the time period, geographical and types of restrictions imposed) are fair and reasonable and are reasonably required for the protection of the business, trade secrets, interests and good will of Employer. B. SEVERABILITY. Employee understands and intends that each provision and restriction agreed to by Employee in Sections 10, 11 and 12 hereof shall be construed as separate and divisible from every other provision and restriction. In the event that any one of the provisions of, or restrictions in, Sections 10, 11 and/or 12 hereof shall be held to be invalid or unenforceable, and is not reformed by a court of competent jurisdiction (which a court, in lieu of striking a provision entirely, is urged by the parties to do), the remaining provisions thereof and restrictions therein shall nevertheless continue to be valid and enforceable as though the invalid or unenforceable provisions or restrictions had not been included. In the event that any such provision relating to time period, geographical and/or type of restriction shall be declared by a court of competent jurisdiction to exceed the maximum or permissible time period, geographical or type of restriction such court deems reasonable and enforceable, said time period, geographical and/or type of restriction shall be deemed to become and shall thereafter be the maximum time period or geographical area and/or type of restriction which such court deems reasonable and enforceable. C. SURVIVABILITY. The restrictions, acknowledgments, covenants and agreements of Employee set forth in Sections 10, 11, 12 and 13 of this Employment Agreement shall survive any termination of this Employment Agreement or of Employee's employment (for any reason, including expiration of the Employment Term). D. DEFINITION OF EMPLOYER. For purposes of Sections 10, 11, 12 and 13 of this Employment Agreement, the term "Employer" includes the Employer and any parent corporation of Employer and all direct and indirect subsidiaries of Employer and its parent corporation (if any). 14. LAW APPLICABLE This Employment Agreement shall be governed by and construed pursuant to the laws of the State of Florida. 15. NOTICES Any notices required or permitted to be given pursuant to this Employment Agreement shall be sufficient if in writing, and delivered personally, by commercial courier service or sent by certified mail, return receipt requested, and sent to Employer's executive offices, to the 8 9 attention of the President, if sent to Employer, and to Employee's then current residence, if sent to Employee. 16. SUCCESSION This Employment Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective legal representatives, heirs, assignees and/or successors in interest of any kind whatever; PROVIDED, HOWEVER, that Employee acknowledges and agrees that Employee cannot assign or delegate any of Employee's rights, duties, responsibilities or obligations hereunder to any other person or entity. Employer shall have the right to assign its rights and delegate its duties under this Employment Agreement. 17. ENTIRE AGREEMENT This Employment Agreement constitutes the entire final agreement between the parties with respect to, and supersedes any and all prior and contemporaneous agreements between the parties hereto both oral and written concerning, the subject matter hereof and may not be amended, modified or terminated except by a writing signed by the parties hereto. 18. SEVERABILITY If any provision of this Employment Agreement shall be held to be invalid or unenforceable, and is not reformed by a court of competent jurisdiction, such invalidity or unenforceability shall attach only to such provision and shall not in any way affect or render invalid or unenforceable any other provision of this Employment Agreement, and this Employment Agreement shall be carried out as if such invalid or unenforceable provision were not herein contained. 19. NO WAIVER A waiver of any breach or violation of any term, provision or covenant herein contained shall not be deemed a continuing waiver or a waiver of any future or past breach or violation. No oral waiver shall be binding. 20. ATTORNEYS' FEES In the event that either of the parties to this Employment Agreement institutes suit against the other party to this Employment Agreement to enforce or declare any of their respective rights hereunder, the prevailing party in such action shall be entitled to recover from the other party all reasonable costs thereof, including reasonable attorneys' and paralegals' fees and costs incurred before and at trial and at all tribunal levels, and whether or not suit or any other proceeding is instituted. 9 10 21. COUNTERPARTS This Employment Agreement may be executed in counterparts, each of which shall be an original, but both of which together shall constitute one and the same instrument. 22. INDEPENDENT COUNSEL EMPLOYER STRONGLY RECOMMENDS TO EMPLOYEE THAT EMPLOYEE RETAIN INDEPENDENT LEGAL COUNSEL TO ADVISE EMPLOYEE WITH RESPECT TO THIS EMPLOYMENT AGREEMENT BEFORE EMPLOYEE SIGNS IT. IN WITNESS WHEREOF, the undersigned have hereunto set their hands on the day and year first above written. EMPLOYER: PRECISION RESPONSE CORPORATION, a Florida corporation By: /s/ DAVID EPSTEIN -------------------------------------- David Epstein, Chief Executive Officer EMPLOYEE: /s/ THOMAS F. JENNINGS, JR. ------------------------------------------ THOMAS F. JENNINGS, JR. 10 11 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT This Amendment to Employment Agreement (this "Amendment") dated and effective as of JANUARY 13, 2000, by and between Precision Response Corporation, a corporation organized and existing under the laws of the State of Florida (hereinafter referred to as "Employer"), and Thomas F. Jennings, Jr. hereinafter referred to as ("Employee"). W I T N E S S E T H WHEREAS, Employer currently employs Employee pursuant to an Employment Agreement dated November 15, 1999 by and between Employer and Employee; and WHEREAS, Employer and Employee desire to amend the Employment Agreement as set forth herein. NOW THEREFORE, the parties agree that the Employment Agreement shall be amended as of and after the date hereof as follows: Section 9 is hereby amended by the addition of the following Subsection G: G. EXCISE TAX TREATMENT. If any of the payments or benefits to be received by Employee in connection with a Change in Control (as defined in Subsection 9E.) pursuant to the terms of this agreement or any other plan, arrangement or agreement (such payments or benefits the "Total Payments") will be subject to any excise tax imposed by Section 4999 of the Internal Revenue of 1986, as amended (the "Code"), then, after taking into account any reduction in the Total Payments provided by Section 280G of the Code in such other plan, arrangement or agreement, the payments made pursuant to Subsection 9E. of this Employment Agreement shall be reduced to the extent necessary so that no portion of the Total Payments is subject to the excise tax but only if (i) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state and local income taxes on such reduced Total Payments) is greater than or equal to (ii) the net amount of such Total Payments without such reduction (but after subtracting the net amount of federal, state and local income taxes on such Total Payments and the amount of excise tax to which the Employee would be subject in respect of such unreduced Total Payments). 12 IN WITNESS WHEREOF, the undersigned have caused this Amendment to be duly executed as of the day and year first above written. PRECISION RESPONSE CORPORATION BY: /s/ RICHARD D. MONDRE -------------------------------- Exec. Vice Pres. /s/ THOMAS F. JENNINGS, JR. -------------------------------- Thomas F. Jennings, Jr. 2 EX-10.60 21 EMPLOY AGREE BETWEEN PRC & F.MODRAK. 1 EXHIBIT 10.60 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, executed as of October 1, 1999, by and between PRECISION RESPONSE CORPORATION, a corporation organized and existing under the laws of the State of Florida (hereinafter referred to as "Employer"), and FRANK MODRAK (hereinafter referred to as "Employee"). W I T N E S S E T H: WHEREAS, Employer is a Florida corporation engaged in interactive customer care, service and marketing through the integration of its teleservicing, Internet, database management and marketing and fulfillment business; WHEREAS, Employer desires to continue to employ Employee upon the terms and conditions set forth below and Employee desires to accept such continued employment upon such terms and conditions; and WHEREAS, Employer and Employee desire to set forth in writing the terms and conditions of their agreements and understandings with respect to Employee's employment by Employer. NOW, THEREFORE, the parties agree as follows: 1. EMPLOYMENT Employer hereby employs Employee, and Employee hereby accepts employment by Employer, upon the terms and conditions set forth in this Employment Agreement. 2. TERM Subject to the provisions for earlier termination set forth in Section 9 hereof, this Employment Agreement shall commence on the date hereof and shall continue until 5:00, p.m., December 31, 2000 (the "Employment Term"). 3. EMPLOYEE'S REPRESENTATIONS AND WARRANTIES Employee represents and warrants to Employer that Employee is free to accept employment with Employer as contemplated herein and has no other written or oral obligations or commitments of any kind or nature which would in any way interfere with Employee's acceptance of employment pursuant to the terms hereof or the full performance of Employee's obligations hereunder or the exercise of Employee's best efforts in Employee's employment hereunder or which would otherwise pose any conflict of interest. 2 4. DUTIES AND EXTENT OF SERVICES A. DUTIES. Employee's duties and responsibilities hereunder shall be those reasonably assigned to Employee from time to time by Employer, consistent with the following: Employee shall, unless and until otherwise determined by Employer, serve as Employer's Senior Vice President - Sales, and shall, subject to the direction of Employer's President, have responsibility to oversee and supervise all activities relating to Employer's sales department. Employee shall report directly to either Employer's Chief Executive Officer or President. Employee agrees to devote Employee's full and exclusive time, skill, attention and energy diligently and competently to perform the duties and responsibilities properly assigned to Employee hereunder, or pursuant hereto. B. RULES AND REGULATIONS. Employee agrees to abide by the rules and regulations of Employer promulgated by Employer from time to time with respect and applicable to Employer's similarly-situated employees generally, which are all hereby incorporated by reference and made a part of this Employment Agreement, provided such rules and regulations do not abrogate any of the terms and condition contained within this Employment Agreement. 5. COMPENSATION A. BASE COMPENSATION. Subject to the provisions of Section 9 of this Employment Agreement, Employer shall pay salary to Employee ("Salary") based upon the rate of $175,000 per annum from the date hereof until December 31, 1999, at which time Employer's President shall review Employee's Salary. Employer may decide, in its sole discretion, to increase (but not to decrease) the Salary at that time or at any time during the Employment Term. Salary shall be payable in accordance with Employer's normal payroll practices for its employees and shall be subject to payroll deductions and tax withholdings in accordance with Employer's usual practices and as required by law. B. BONUS COMPENSATION. Employee shall receive bonus compensation in amounts consistent with the terms and conditions of that certain memorandum dated April 21, 1999, from Employee to the President of Employer and agreed to by Employee and Employer's President (individually a "Bonus Amount"). The Bonus Amount, if any, earned in any calendar quarter shall be paid to Employee within thirty (30) days after Employer files its Quarterly Report on Form 10-Q with the Securities and Exchange Commission for such quarter during which the Bonus Amount was earned. Each Bonus Amount shall be subject to payroll deductions and tax withholdings 2 3 in accordance with Employer's usual payroll practices and as required by law. 6. FRINGE BENEFITS AND EXPENSES A. EMPLOYEE BENEFITS. Employee shall be entitled to such benefits and fringe benefits (such as health, dental, life and disability insurance) as are made available by Employer from time to time, in Employer's sole discretion, to all other similarly-situated employees generally. B. EXPENSES. Employer shall reimburse Employee for Employee's reasonable out-of-pocket costs and expenses incurred in connection with the performance of Employee's duties and responsibilities hereunder, subject to Employee's presentation of appropriate documentation and, if requested, justification therefor, and provided that the types and amounts of expenses incurred are consistent with, in Employer's judgment, Employer's policies and practices. C. AUTOMOBILE. Employer shall provide to Employee an automobile allowance of $500 per month during the Employment Term in order to defray Employee's automobile expenses incurred in the performance of Employee's duties, but shall not be obligated to provide Employee with an automobile. 7. VACATION, PERSONAL AND SICK DAYS Employee shall be entitled to 30 days of paid time off ("PTO") for vacation, personal and sick days each full calendar year of the Employment Term (prorated for any partial calendar year), with full compensation (provided, however, that Employee shall not be entitled to be compensated for any unused PTO days upon termination of employment). The PTO days are exclusive of any Employer recognized holidays. The periods during which Employee shall be absent from work for vacation shall be at the reasonable discretion of Employer. 8. FACILITIES Employer shall provide and maintain (or cause to be provided and maintained) such facilities, equipment, supplies and personnel as it reasonably deems necessary for Employee's performance of Employee's duties and responsibilities under this Employment Agreement. 3 4 9. TERMINATION OF EMPLOYMENT A. TERMINATION EVENTS. Employee's employment under this Employment Agreement may be terminated by Employer only as follows: with or without Cause (as hereinafter defined), effective upon the delivery of written notice to Employee; upon Employee's death; or upon Employee becoming Disabled (as hereinafter defined) and receiving written notice of termination from Employer to that effect. Employee may terminate Employee's employment under this Employment Agreement without being in breach hereunder by giving written notification of Employee's resignation to Employer which shall specify a resignation date no earlier than forty-five (45) days following the date of delivery of such notice of resignation. B. DEFINITIONS OF CAUSE AND DISABLED. For purposes of this Employment Agreement, "Cause" shall mean and include: (i) commission of a felony, or commission of acts of fraud, dishonesty, or the like; (ii) habitual drunkenness during business hours or at Employer's premises; (iii) illicit use of drugs during business hours or at Employer's premises; (iv) abandonment of employment duties; (v) gross negligence in the performance of employment duties; (vi) an act or omission on the part of Employee not directed by Employer which results in or contributes to Employer being sanctioned or penalized by any governmental or quasi-governmental authority or body, or any stock exchange or body regulating or governing publicly-traded companies (including the NASD); (vii) insubordination (after at least two (2) prior notices of such conduct; or (viii) breach by Employee of this Employment Agreement which, if curable, is not cured by Employee within thirty (30) days following Employee's receipt of written notice thereof. Employee shall be deemed "Disabled" for purposes of this Agreement (a) if, in the reasonable judgment of Employer, Employee is unable, due to physical, mental or emotional illness or injury, to perform substantially all of Employee's duties and responsibilities for Employer for a continuous period of ninety (90) days, or (b) if Employee is adjudicated as an incompetent or has a guardian appointed to handle Employee's affairs. C. EFFECT OF TERMINATION FOR CAUSE OR EMPLOYEE'S RESIGNATION. In the event that Employee's employment under this Employment Agreement is terminated by Employer with Cause, or because Employee resigns from or quits Employee's employment, Employer shall pay to Employee, within thirty (30) days following the date of such termination or resignation, subject to Employer's right to set off any damages resulting from Employee's termination with Cause or resignation effected without giving the required notice, the Salary, if any, accrued and unpaid through the date of termination, and shall pay and provide to Employee the amounts and items payable and to be provided under Section 6 through the date 4 5 of such termination; and Employee shall not be entitled to any other compensation, remuneration or other sums provided for in this Employment Agreement or to which Employee might otherwise be entitled hereunder or at law or in equity, including, without limitation, any accrued or unpaid Bonus Amount. D. COMPENSATION UPON DEATH OR DISABILITY. Upon the death of Employee, or termination of employment because Employee is Disabled, Employer shall pay to Employee, Employee's legal guardian or the legal representative of Employee's estate (or heir as designated by the legal representative of Employee's estate at such time), within thirty (30) days following the date of Employee's death or termination, the Salary accrued and unpaid through the date of termination and Bonus Amount(if any) earned, accrued and unpaid for any calendar quarter ending prior to the date of termination and shall pay and provide to Employee, Employee's legal guardian or the legal representative of Employee's estate the amounts and items payable and to be provided under Section 6 through the date of such termination; and Employee (or such legal guardian, legal representative or any heirs) shall not be entitled to any other compensation, remuneration or other sums provided for in this Employment Agreement or to which Employee might otherwise be entitled hereunder or at law or in equity. E. COMPENSATION UPON ANY TERMINATION WITHOUT CAUSE, SIGNIFICANT CHANGE IN SCOPE OF JOB RESPONSIBILITIES OR RESIGNATION AFTER A CHANGE IN CONTROL. Notwithstanding anything in Subsection C. of this Section 9 to the contrary, in the event that Employer terminates Employee's employment under this Employment Agreement without Cause at any time or Employee resigns or quits Employer's employment within ninety (90) days of a significant change in the scope of Employee's job responsibilities or Employee resigns or quits Employer's employment within ninety (90) days after a Change of Control (as hereinafter defined), Employee's sole and exclusive compensation and remedy hereunder shall be to receive from Employer, and Employer shall pay and/or provide, (i) the amount of Salary accrued and unpaid through the date of termination or resignation and Bonus Amount, if any, earned, accrued and unpaid for any calendar quarter ending prior to the date of termination or resignation and the amounts and items payable or to be provided under Section 6 through the date of termination or resignation, payable within thirty (30) days following termination or resignation of employment, and (ii) the Salary that Employee would have received during the one year period following the date of termination or resignation of Employee's employment, as and when it would have been payable if Employee had remained an employee of Employer for such additional one year period. Employee shall not be entitled to the foregoing severance to the extent that Employee receives or is entitled to receive compensation and/or benefits 5 6 from new employment with respect to employment services rendered during such one year period. For purposes of this Subsection E., a "Change in Control" means that (1) neither Mark Gordon (for these purposes, counting all common stock directly or indirectly beneficially owned by Mark Gordon's Affiliates) nor David Epstein (for these purposes, counting all common stock directly or indirectly beneficially owned by David Epstein's Affiliates) beneficially owns at least 10% of the issued and outstanding common stock of Employer or its successor, (2) neither Mark Gordon (for these purposes, counting all common stock directly or indirectly beneficially owned by Mark Gordon's Affiliates) nor David Epstein (for these purposes, counting all common stock directly or indirectly beneficially owned by David Epstein's Affiliates) is the stockholder beneficially owning the highest number of issued and outstanding shares of common stock of Employer or its successor, or (3) neither Mark Gordon nor David Epstein occupies the position of Chairman of the Board, Chief Executive Officer or President of Employer. "Affiliate" means, for these purposes, with respect to Mark Gordon or David Epstein, an immediate family member of his, a trust principally for his benefit and/or the benefit of his family members and/or lineal descendants, or a family limited partnership or any other entity the direct or indirect beneficial or pecuniary owners of which are principally him, his immediate family members and/or trusts or other entities principally for the benefit of him, his family members and/or lineal descendants. "Immediate family members" mean for these purposes, with respect to Mark Gordon or David Epstein, his spouse, children, parents, siblings or other lineal descendants." F. KEY-MAN INSURANCE. In the event that Employer has obtained or obtains a key-man insurance policy (the "Policy") on the life of Employee, Employer shall be the sole owner thereof and all proceeds payable in respect thereof shall be the property solely of Employer. In the event that Employee's employment terminates for any reason other than Employee's death, Employee may request that the Policy be assigned to Employee by giving written notice to Employer to that effect. Subject to obtaining any requisite consent from the insurer, Employer shall, if Employee has so requested, assign the Policy to Employee subject to Employee's reimbursement to Employer of any premiums paid by Employer which relate to any period following the date of termination of Employee's employment, and the cash value, if any, of the Policy. In the event that Employer desires to obtain any such Policy, Employee shall fully cooperate in Employer's efforts, including submitting to medical exams and tests and executing and delivering applications and information statements. 6 7 10. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION A. CONFIDENTIAL INFORMATION. Employee acknowledges that Employee has been informed by Employer of Employer's policy to maintain as secret and confidential all information and materials relating to (i) the financial condition, operations, business and interests of Employer, (ii) the systems, know-how, records, products, services, cost information, inventions, computer and Internet software, marketing and sales techniques and/or programs, methods, methodologies, manuals, lists and other trade secrets from time to time acquired, sold, developed, maintained and/or used by Employer, and (iii) the nature and terms of Employer's relationships with its clients, suppliers, lenders, underwriters, vendors, consultants, independent contractors, attorneys, accountants and employees (all such information and materials being hereinafter collectively referred to as "Confidential Information"). Employee further acknowledges that such Confidential Information is of great value to Employer and has been developed by Employer as a result of substantial effort and expense. Therefore, Employee understands that it is reasonably necessary to protect Employer's good will, trade secrets and business interests that Employee agree and, accordingly, Employee does hereby agree, that Employee will not directly or indirectly (except where authorized by the Board of Directors, Chairman of the Board, Chief Executive Officer or President of Employer for the benefit of Employer and/or as required in the course of employment) at any time hereafter divulge or disclose for any purpose to any persons, firms, corporations or other entities (hereinafter referred to collectively as "Third Parties"), or use or cause or authorize any Third Parties to use, any such Confidential Information, except as otherwise required by law. B. EMPLOYER'S MATERIALS. In accordance with the foregoing, Employee furthermore agrees that (i) Employee will at no time retain or remove from the premises of Employer any products, prototypes, drawings, notebooks, computer or Internet software or discs, tapes or similar containers of software, manuals, data, books, records, materials or documents of any kind or description for any purpose unconnected with the strict performance of Employee's duties with Employer and (ii) upon the cessation or termination of Employee's employment with Employer for any reason, Employee shall forthwith deliver or cause to be delivered up to Employer any and all drawings, notebooks, software programs or discs, tapes or similar containers of software, manuals, data, books, records, materials and other documents and materials in Employee's possession or under Employee's control relating to any Confidential Information or any other material or thing which is the property of Employer. 7 8 11. COVENANT-NOT-TO-COMPETE In view of (a) the Confidential Information known to and to be obtained by or disclosed to Employee, and (b) the consideration payable to Employee under this Employment Agreement, and as a material inducement to Employer to enter into this Employment Agreement, Employee covenants and agrees that, (i) for as long as Employee is employed by Employer and for a period of 24 months after the date Employee ceases for any reason to be employed by Employer, Employee shall not, directly or indirectly, (A) sell any products or services sold or offered by Employer to any person or entity who is or was a client of Employer at any time during Employee's employment with Employer and for or to whom Employer is performing services or selling products or for or to whom Employer has performed services or sold products at any time during the one-year period ending on Employee's termination of employment, or (B) solicit the services of, or hire, directly or indirectly, whether on Employee's own behalf or on behalf of others, any managerial or executive employee, account manager or marketing or sales personnel, programmer, information services employee (including, without limitation, network or other information services or Internet operation employee) or database management employee of Employer who was or is employed by Employer at any time during the two-year period ending on the date of termination of Employee's employment or the two-year period commencing on the date of termination of Employee's employment, or (ii) for as long as Employee is employed by Employer and for a period of 12 months after the date Employee ceases for any reason to be employed by Employer, Employee shall not, directly or indirectly, engage in any venture, enterprise, activity or business, passively or actively, as an owner, consultant, adviser, participant, employee or agent or in any other capacity, competitive with the business of Employer anywhere within the continental United States. Employee acknowledges that the business of Employer is national in scope, that one can effectively compete with such business from anywhere in the continental United States, and that, therefore, such geographical area of restriction is reasonable in the circumstances to protect Employer's trade secrets and other legitimate business interests. 12. EMPLOYER'S REMEDIES FOR BREACH OF SECTIONS 10 AND 11 Employee covenants and agrees that if Employee shall violate or breach any of Employee's covenants or agreements provided for in Section 10 or 11 hereof, Employer shall be entitled to an accounting and repayment of all profits, compensation, commissions, remunerations and benefits which Employee directly or indirectly has realized and realizes as a result of, growing out of or in connection with any such violation or breach. In addition, 8 9 in the event of a breach or violation or threatened or imminent breach or violation of any provisions of Section 10 or 11 hereof, Employer shall be entitled to a temporary and permanent injunction or any other appropriate decree of specific performance or equitable relief from a court of competent jurisdiction, applying the laws of the State of Florida, in order to prevent, prohibit or restrain any such breach or violation or threatened or imminent breach or violation by Employee, by Employee's partners, agents, representatives, servants, employers or employees and/or by any Third Parties. Employer shall be entitled to such injunctive or other equitable relief in addition to any ascertainable damages which are suffered, together with reasonable attorneys' and paralegals' fees and costs and other costs incurred in connection with any such litigation, both before and at trial and at all tribunal levels. It is understood that resort by Employer to such injunctive or other equitable relief shall not be deemed to waive or to limit in any respect any other rights or remedies which Employer may have with respect to such breach or violation. 13. REASONABLENESS OF RESTRICTIONS A. REASONABLENESS. Employee acknowledges that any breach or violation of Section 10 or 11 hereof will cause irreparable injury and damage and incalculable harm to Employer and that it would be very difficult or impossible to measure all of the damages resulting from any such breach or violation. Employee further acknowledges that Employee has carefully read and considered the provisions of Sections 10, 11 and 12 hereof and, having done so, agrees that the restrictions and remedies set forth in such Sections (including, but not limited to, the time period, geographical and types of restrictions imposed) are fair and reasonable and are reasonably required for the protection of the business, trade secrets, interests and good will of Employer. B. SEVERABILITY. Employee understands and intends that each provision and restriction agreed to by Employee in Sections 10, 11 and 12 hereof shall be construed as separate and divisible from every other provision and restriction. In the event that any one of the provisions of, or restrictions in, Sections 10, 11 and/or 12 hereof shall be held to be invalid or unenforceable, and is not reformed by a court of competent jurisdiction (which a court, in lieu of striking a provision entirely, is urged by the parties to do), the remaining provisions thereof and restrictions therein shall nevertheless continue to be valid and enforceable as though the invalid or unenforceable provisions or restrictions had not been included. In the event that any such provision relating to time period, geographical and/or type of restriction shall be declared by a court of competent jurisdiction to exceed the maximum or permissible time period, geographical or type of restriction 9 10 such court deems reasonable and enforceable, said time period, geographical and/or type of restriction shall be deemed to become and shall thereafter be the maximum time period or geographical area and/or type of restriction which such court deems reasonable and enforceable. C. SURVIVABILITY. The restrictions, acknowledgments, covenants and agreements of Employee set forth in Sections 10, 11, 12 and 13 of this Employment Agreement shall survive any termination of this Employment Agreement or of Employee's employment (for any reason, including expiration of the Employment Term). 14. LAW APPLICABLE This Employment Agreement shall be governed by and construed pursuant to the laws of the State of Florida. 15. NOTICES Any notices required or permitted to be given pursuant to this Employment Agreement shall be sufficient if in writing, and delivered personally, by commercial courier service or sent by certified mail, return receipt requested, and sent to Employer's executive offices, to the attention of the President, to Employer, and to Employee's then current residence, if to Employee. 16. SUCCESSION This Employment Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective legal representatives, heirs, assignees and/or successors in interest of any kind whatever; PROVIDED, HOWEVER, that Employee acknowledges and agrees that Employee cannot assign or delegate any of Employee's rights, duties, responsibilities or obligations hereunder to any other person or entity. Employer shall have the right to assign its rights and delegate its duties under this Employment Agreement, provided that, in the event of any such assignment, Employer shall remain liable for all of its obligations hereunder. 17. ENTIRE AGREEMENT This Employment Agreement constitutes the entire final agreement between the parties with respect to, and supersedes any and all prior and contemporaneous agreements between the parties hereto both oral and written concerning, the subject matter hereof and may not be amended, modified or terminated except by a writing signed by the parties hereto. 10 11 18. SEVERABILITY If any provision of this Employment Agreement shall be held to be invalid or unenforceable, and is not reformed by a court of competent jurisdiction, such invalidity or unenforceability shall attach only to such provision and shall not in any way affect or render invalid or unenforceable any other provision of this Employment Agreement, and this Employment Agreement shall be carried out as if such invalid or unenforceable provision were not herein contained. 19. NO WAIVER A waiver of any breach or violation of any term, provision or covenant herein contained shall not be deemed a continuing waiver or a waiver of any future or past breach or violation. No oral waiver shall be binding. 20. ATTORNEYS' FEES In the event that either of the parties to this Employment Agreement institutes suit against the other party to this Employment Agreement to enforce or declare any of their respective rights hereunder, the prevailing party in such action shall be entitled to recover from the other party all reasonable costs thereof, including reasonable attorneys' and paralegals' fees and costs incurred before and at trial and at all tribunal levels, and whether or not suit or any other proceeding is instituted. 21. COUNTERPARTS This Employment Agreement may be executed in counterparts, each of which shall be an original, but both of which together shall constitute one and the same instrument. 22. INDEPENDENT COUNSEL EMPLOYER STRONGLY RECOMMENDS TO EMPLOYEE THAT EMPLOYEE RETAIN INDEPENDENT LEGAL COUNSEL TO ADVISE EMPLOYEE WITH RESPECT TO THIS EMPLOYMENT AGREEMENT BEFORE EMPLOYEE SIGNS IT. 11 12 IN WITNESS WHEREOF, the undersigned have hereunto set their hands on the day and year first above written. EMPLOYER: PRECISION RESPONSE CORPORATION, a Florida corporation By: /s/ DAVID EPSTEIN ----------------------------------- David Epstein Chief Executive Officer EMPLOYEE: /s/ FRANK MODRAK 11/17/99 ----------------------------------- FRANK MODRAK 12 EX-23.1 22 CONSENT OF PRICEWATERHOUSECOOPERS LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (File No. 333-19651) of Precision Response Corporation of our report dated January 26, 2000 relating to the financial statements and financial statement schedule, which appears in this Form 10-K. /s/ PRICEWATERHOUSECOOPERS LLP Miami, Florida February 18, 2000 EX-27.1 23 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 2,067 0 48,584 2,411 0 54,976 133,711 45,602 149,363 33,688 23,425 0 0 218 90,065 149,363 0 215,920 0 177,668 20,856 2,393 1,121 13,882 5,591 0 0 0 0 8,291 0.38 0.37
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