<PAGE>
SCHEDULE 14A
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
SITEL CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
SITEL CORPORATION
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
Common Stock, par value $.001 per share
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
9,170,553 shares of Common Stock
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
$0.7246974 per share(1)
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
$6,645,876(2)
------------------------------------------------------------------------
5) Total fee paid:
$1,329.18(3)
------------------------------------------------------------------------
- ------------------------
(1) For purposes of calculating the filing fee, per unit price of the securities
to which the transaction applies represents the book value of the Mitre plc
ordinary shares to be acquired divided by 9,170,553 (the number of shares of
SITEL Common Stock to be transferred to Mitre plc security holders) in
accordance with Exchange Act Rule 0-11(c)(1)(i).
(2) For purposes of calculating the filing fee, the proposed maximum aggregate
value of the transaction represents the book value of 100% of the Mitre plc
ordinary shares (converted to US dollars at the exchange rate in effect as
of July 5, 1996, the latest practicable date prior to the filing of this
Proxy Statement).
(3) The fee paid herewith represents 1/50 of 1% of the proposed maximum
aggregate value of the transaction in accordance with Exchange Act Rule
0-11(c)(1).
/X/ Fee paid previously with preliminary materials
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
<PAGE>
SITEL CORPORATION
13215 BIRCH STREET
OMAHA, NEBRASKA 68164
JULY 29, 1996
Dear Stockholder:
You are invited to attend a Special Meeting of the Stockholders of SITEL
Corporation (the "Company") to be held at the Omaha Marriott, 10220 Regency
Circle, Omaha, Nebraska, at 10:00 a.m., Central Daylight Time, on August 28,
1996.
At the meeting, you will be asked to vote upon (i) a Share Purchase
Agreement between the Company and the shareholders of Mitre plc, (the "Mitre
Selling Shareholders") and the transactions contemplated thereby, including the
issuance by the Company of 9,170,553 shares of its Common Stock to the Mitre
Selling Shareholders, and (ii) the authorization of an additional 150,000,000
shares of undesignated capital stock, par value $0.001 per share, of the
Company.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE TWO
PROPOSALS AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THEIR APPROVAL.
THE BOARD OF DIRECTORS BELIEVES THAT THE PROPOSALS ARE IN THE BEST INTERESTS OF
THE COMPANY AND ITS STOCKHOLDERS.
In the following pages you will find information about the meeting and a
Proxy Statement. Please sign and mail promptly the enclosed Proxy, whether or
not you intend to be present in person at the Special Meeting. If you attend the
Special Meeting, you may vote your shares in person even if you have previously
submitted a Proxy. Your prompt return of the Proxy will help the Company avoid
additional solicitation costs. Your vote is important.
Only stockholders of record at the close of business on July 8, 1996 are
entitled to notice of and to vote at the meeting or any adjournment thereof.
Very truly yours,
[LOGO]
James F. Lynch
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
<PAGE>
SITEL CORPORATION
13215 BIRCH STREET
OMAHA, NEBRASKA 68164
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 28, 1996
------------------------
To the Stockholders of
SITEL CORPORATION
A Special Meeting of the stockholders of SITEL CORPORATION (the "Company")
will be held August 28, 1996 at the Omaha Marriott, 10220 Regency Circle, Omaha,
Nebraska at 10:00 o'clock a.m., Central Daylight Time, for the following
purposes:
1. To consider and vote upon a Share Purchase Agreement between the Company
and the shareholders of Mitre plc (the "Mitre Selling Shareholders") and the
transactions contemplated thereby, including the issuance by the Company of
9,170,553 shares of its Common Stock, $.001 par value per share, to the Mitre
Selling Shareholders.
2. To consider, and vote upon the authorization of an additional
150,000,000 shares of undesignated capital stock, par value $0.001 per share, of
the Company.
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The Board of Directors of the Company has fixed the close of business on
July 8, 1996, as the record date for determining the stockholders of the Company
entitled to notice of and to vote at the meeting.
Nancy C. Noack
Corporate Secretary
Omaha, Nebraska
July 29, 1996
PLEASE MARK, SIGN AND DATE THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN
THE ENCLOSED ENVELOPE. THE PROXY WILL NOT BE USED IF YOU ATTEND THE MEETING IN
PERSON AND SO REQUEST.
<PAGE>
SITEL CORPORATION
-------------
PROXY STATEMENT
---------------------
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 28, 1996
This Proxy Statement is being furnished by SITEL Corporation, a Minnesota
corporation ("SITEL" or the "Company") to holders of shares of its Common Stock,
par value $.001 per share (the "SITEL Common Stock"), in connection with the
solicitation of proxies by the Board of Directors of the Company for use at the
Special Meeting of Stockholders of the Company to be held on August 28, 1996 at
the Omaha Marriott, 10220 Regency Circle, Omaha, Nebraska, commencing at 10:00
a.m., Central Daylight Time, and at any adjournments or postponements thereof
(the "Special Meeting").
At the Special Meeting, holders of record of SITEL Common Stock as of the
close of business on July 8, 1996 the ("Record Date") will (i) consider and vote
upon the approval of a Share Purchase Agreement dated June 6, 1996, with such
amendments as the Company's Board of Directors shall approve (as amended, the
"Share Purchase Agreement"), between the Company and the holders of 100% of the
ordinary shares of Mitre plc, an English public limited company ("Mitre") and
the transactions contemplated thereby, including the issuance by the Company of
SITEL Common Stock in connection with such Share Purchase Agreement, (ii)
consider and vote upon the authorization of an additional 150,000,000 shares of
undesignated capital stock, par value $0.001 per share, of the Company and (iii)
transact such other business that may properly come before the Special Meeting.
Pursuant to the Share Purchase Agreement, the Company and its subsidiaries will
purchase 100% of the ordinary shares of Mitre in exchange for 9,170,553 shares
of SITEL Common Stock paid to the direct and indirect holders of the ordinary
shares of Mitre (the "Mitre Selling Shareholders"). See "THE SHARE PURCHASE
AGREEMENT".
A conformed copy of the Share Purchase Agreement is included as Appendix A
hereto. The summaries of portions of the Share Purchase Agreement set forth in
this Proxy Statement do not purport to be complete and are subject to, and
qualified in their entirety by reference to, the text of the Share Purchase
Agreement.
This Proxy Statement is first being mailed to stockholders of the Company on
or about July 29, 1996.
------------------------
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN CONNECTION
WITH THE SOLICITATION OF PROXIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY SITEL OR ANY OTHER PERSON. THIS PROXY STATEMENT DOES NOT CONSTITUTE A
SOLICITATION OF A PROXY IN ANY JURISDICTION FROM ANY PERSON TO WHOM IT IS NOT
LAWFUL TO MAKE ANY SUCH SOLICITATION IN SUCH JURISDICTION. THE DELIVERY OF THIS
PROXY STATEMENT SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF SITEL SINCE THE DATE OF THIS PROXY
STATEMENT OR THAT THE INFORMATION IS CORRECT AS OF ANY TIME SUBSEQUENT TO SUCH
DATE. ALL INFORMATION CONTAINED IN THIS PROXY STATEMENT RELATING TO SITEL HAS
BEEN SUPPLIED BY SITEL AND ALL INFORMATION CONTAINED IN THIS PROXY STATEMENT
RELATING TO MITRE HAS BEEN SUPPLIED BY MITRE.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY
OF THE INFORMATION CONTAINED IN THIS DOCUMENT.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------
THE DATE OF THIS PROXY STATEMENT IS JULY 29, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY............................................................................... 4
The Special Meeting................................................................. 4
The Companies....................................................................... 5
The Transaction..................................................................... 6
Historical Market Price and Dividend Data........................................... 7
Summary Pro Forma Financial Information............................................. 7
Comparative Historical and Per Share Data........................................... 9
THE SPECIAL MEETING................................................................... 10
General Information................................................................. 10
Matters to be Considered at the Special Meeting..................................... 10
Voting at the Special Meeting....................................................... 10
Revocation of Proxies............................................................... 11
Solicitation of Proxies............................................................. 11
THE TRANSACTION....................................................................... 11
General............................................................................. 11
Background of the Transaction....................................................... 11
Reasons for the Transaction; Board of Directors' Recommendation..................... 13
Opinion of Financial Advisor........................................................ 14
Principal Shareholders; Security Ownership of Management............................ 19
Certain Arrangements Regarding the Directors and Management of the Company Following
the Transaction.................................................................... 21
Accounting Treatment................................................................ 21
Certain Federal Income Tax Consequences............................................. 21
Regulatory Filings.................................................................. 21
Effect Upon Existing Securityholders................................................ 22
No Appraisal Rights................................................................. 22
THE SHARE PURCHASE AGREEMENT.......................................................... 23
The Purchase........................................................................ 23
Completion.......................................................................... 23
Escrow Account...................................................................... 23
Warranties.......................................................................... 23
Covenants........................................................................... 23
Conditions to Completion............................................................ 24
Survival and Indemnification........................................................ 24
Termination......................................................................... 25
Amendments and Waivers.............................................................. 25
Expenses............................................................................ 25
Governing Law....................................................................... 26
Seller Representative............................................................... 26
Registration Rights................................................................. 26
Tax Covenant........................................................................ 26
CERTAIN ANCILLARY AGREEMENTS AND DOCUMENTS............................................ 26
Registration Rights Agreement....................................................... 26
Escrow Agreement.................................................................... 27
Investor Letter..................................................................... 27
Tax Covenant........................................................................ 28
SITEL CORPORATION SELECTED CONSOLIDATED FINANCIAL DATA................................ 29
SITEL MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS........................................................................... 30
Overview............................................................................ 30
Results of Operations............................................................... 31
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
Nine Months Ended February 29, 1996 Compared to Nine Months Ended February 28,
1995............................................................................... 31
Fiscal 1995 Compared to Fiscal 1994................................................. 32
Fiscal 1994 Compared to Fiscal 1993................................................. 34
Quarterly Results and Seasonality................................................... 34
Liquidity and Capital Resources..................................................... 34
Inflation........................................................................... 36
THE COMPANY........................................................................... 36
Recent Acquisitions................................................................. 37
Facilities.......................................................................... 38
Legal Proceedings................................................................... 39
DESCRIPTION OF SITEL COMMON STOCK..................................................... 40
MARKET PRICE OF AND DIVIDENDS ON SITEL COMMON STOCK................................... 40
MITRE PLC SELECTED FINANCIAL DATA..................................................... 41
Selected Consolidated Financial Data................................................ 41
Selected Pro Forma Financial Data................................................... 43
MITRE PLC MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL RESULTS...... 44
Overview............................................................................ 44
Results of Operations............................................................... 45
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995..... 45
1995 Compared to 1994............................................................... 46
1994 Compared to 1993............................................................... 46
Quarterly Results and Seasonality................................................... 47
Liquidity and Capital Resources..................................................... 47
Inflation........................................................................... 48
Exchange Rate Fluctuations.......................................................... 48
MITRE PLC............................................................................. 49
Facilities.......................................................................... 51
Legal Proceedings................................................................... 51
CERTAIN INFORMATION CONCERNING THE ORDINARY SHARES OF MITRE........................... 51
APPROVAL OF CHARTER AMENDMENT TO INCREASE AUTHORIZED SHARES OF CAPITAL STOCK.......... 52
General............................................................................. 52
Reasons for and Effect of Proposed Amendment........................................ 52
Recommendation of Board of Directors................................................ 52
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... 52
AVAILABLE INFORMATION................................................................. 53
SHAREHOLDER PROPOSALS................................................................. 53
LEGAL MATTERS......................................................................... 53
RELATIONSHIPS WITH ACCOUNTANTS........................................................ 53
INDEX TO FINANCIAL STATEMENTS......................................................... F-1
APPENDIX A--AMENDED AND RESTATED SHARE PURCHASE AGREEMENT DATED JUNE 6, 1996
APPENDIX B--FAIRNESS OPINION OF ALEX. BROWN & SONS INCORPORATED
</TABLE>
3
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF INFORMATION CONTAINED ELSEWHERE IN THIS PROXY
STATEMENT AND DOES NOT PURPORT TO BE A FULL DESCRIPTION OF SUCH INFORMATION.
THIS SUMMARY HAS BEEN PREPARED TO ASSIST STOCKHOLDERS IN THEIR REVIEW OF THIS
PROXY STATEMENT. REFERENCE IS MADE TO, AND THIS SUMMARY IS QUALIFIED IN ITS
ENTIRETY BY, THE MORE DETAILED INFORMATION CONTAINED ELSEWHERE IN THIS PROXY
STATEMENT, THE APPENDICES HERETO AND THE DOCUMENTS INCORPORATED HEREIN BY
REFERENCE. UNLESS OTHERWISE DEFINED HEREIN, CAPITALIZED TERMS USED IN THIS
SUMMARY HAVE THE RESPECTIVE MEANINGS ASCRIBED TO THEM ELSEWHERE IN THIS PROXY
STATEMENT. STOCKHOLDERS ARE URGED TO READ CAREFULLY THIS PROXY STATEMENT
(INCLUDING THE INFORMATION INCORPORATED BY REFERENCE HEREIN) AND THE ATTACHED
APPENDICES IN THEIR ENTIRETY.
THE SPECIAL MEETING
DATE, TIME AND PLACE
The Special Meeting of the holders of Common Stock, par value $0.001 per
share (the "SITEL Common Stock") of SITEL Corporation ("SITEL" or the "Company")
will be held at 10:00 a.m., Central Daylight Time, on August 28, 1996, at the
Omaha Marriott, 10220 Regency Circle, Omaha, Nebraska (the "Special Meeting").
See "THE SPECIAL MEETING -- General Information".
PURPOSES OF THE SPECIAL MEETING
The purposes of the Special Meeting are to (i) consider and vote on a Share
Purchase Agreement, dated June 6, 1996, with such amendments as the Company's
Board of Directors shall approve (as amended, the "Share Purchase Agreement"),
between the Company and the holders of 100% of the ordinary shares of Mitre plc
("Mitre") and the transactions contemplated thereby, including the issuance by
the Company of 9,170,553 shares of SITEL Common Stock (representing
approximately 26.5% of the outstanding shares of SITEL Common Stock on a fully
diluted basis) to the direct and indirect holders of the ordinary shares of
Mitre (the "Mitre Selling Shareholders") in connection with such Share Purchase
Agreement, (ii) consider and vote on the authorization of an additional
150,000,000 shares of undesignated capital stock, par value $0.001, of the
Company, and (iii) transact such other business as may properly come before the
Special Meeting. Pursuant to the Share Purchase Agreement, the Company and its
subsidiaries will purchase 100% of the ordinary shares of Mitre in exchange for
9,170,553 shares of SITEL Common Stock paid to the Mitre Selling Shareholders.
The issuance of the 9,170,553 shares of SITEL Common Stock to the Mitre Selling
Shareholders and the other transactions contemplated by the Share Purchase
Agreement are referred to herein as the "Transaction." See "THE SPECIAL MEETING
- -- Matters to be Considered at the Special Meeting".
RECORD DATE; SHARES ENTITLED TO VOTE
Holders of record of shares of SITEL Common Stock outstanding at the close
of business on July 8, 1996 (the "Record Date"), are entitled to notice of and
to vote at the Special Meeting. As of the Record Date, there were 20,017,032
shares of SITEL Common Stock outstanding, each of which will be entitled to one
vote on each matter to be acted upon or which may properly come before the
Special Meeting. See "THE SPECIAL MEETING -- Voting at the Special Meeting".
VOTE REQUIRED
A majority of the votes entitled to be cast on matters to be considered at
the Special Meeting will constitute a quorum at the Special Meeting. If a share
is represented for any purpose at the meeting, it is deemed to be present for
all other matters. Abstentions and shares held of record by a broker or its
nominee ("broker shares") that are voted on any matter are included in
determining the number of votes present. Broker shares that are not voted on any
matter at the meeting will not be included in determining whether a quorum is
present. See "THE SPECIAL MEETING -- Voting at the Special Meeting".
The affirmative vote of the holders of a majority of all shares of SITEL
Common Stock present (whether in person or by proxy) at the Special Meeting is
required to approve (i) the Share Purchase Agreement and the Transaction and
(ii) the authorization of an additional 150,000,000 shares of undesignated
capital stock, par value $0.001 per share, of the Company. As a result,
abstentions, failures to vote and broker non-votes will have no effect on the
vote in respect of the Share Purchase Agreement and the Transaction or the
increase in authorized shares, except to the extent that they
4
<PAGE>
affect the quorum required for the Special Meeting and the shares present at the
Special Meeting. The approval of the Share Purchase Agreement and the
Transaction is required under the rules of the NASDAQ Stock Market, which are
applicable to SITEL because its securities are quoted thereon, and the approval
of the increase in authorized shares is required under the Minnesota Business
Corporation Act. See "THE SPECIAL MEETING -- Voting at the Special Meeting".
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN OTHER PERSONS
Directors and executive officers of the Company, certain principal
stockholders and their respective affiliates who beneficially owned
approximately 43.7% of the outstanding shares of SITEL Common Stock as of the
Record Date have advised the Company that they presently intend to vote or
direct the vote of all the outstanding shares of SITEL Common Stock over which
they have voting control FOR approval of the Share Purchase Agreement and the
Transaction, and FOR authorization of an additional 150,000,000 shares of
undesignated capital stock, par value $0.001, of the Company. See "THE SPECIAL
MEETING -- Voting at the Special Meeting".
THE COMPANIES
SITEL CORPORATION
SITEL is a leader in providing outsourced telephone-based customer service
and sales programs on behalf of large corporations in the United States, Canada
and Spain. In North America, SITEL operates primarily through divisions
specialized by industry to provide teleservices to the insurance,
telecommunications, financial services and publishing industries. The Company's
principal services include responding to customer service inquiries, direct
telephone sales, generating customer leads, managing customer retention
programs, taking customer orders, as well as updating customer data and
reporting program effectiveness. SITEL creates, manages and implements programs
on its clients' behalf primarily through the efforts of its telephone service
representatives and other SITEL employees who are dedicated exclusively to, and
thoroughly trained in, a specific client's programs. The Company also makes
extensive use of leading edge call management technology, including proprietary
computer software, automated call distributors, predictive dialers and digital
switches. The Company operates approximately 4,300 workstations in its 37 call
centers and employs approximately 9,100 people.
SITEL recently acquired a majority interest in a leading Spanish
teleservicing company, Teleaction, S.A., ("Teleaction") with headquarters in
Madrid, Spain, and a credit collections and accounts receivable management
company, National Action Financial Services, Inc. ("NAFS"), headquartered in
Atlanta, Georgia. Teleaction has over 100 clients, operates from eight call
centers in Spain and Portugal and for the fiscal year ended December 1995 had
revenues of approximately $30.5 million. NAFS services over 20 large
corporations in the United States (the "US") and for the year ended December 31,
1995 had revenues of $8.3 million.
The Company was founded in 1985 by James F. Lynch, its Chairman and Chief
Executive Officer. Mr. Lynch and the SITEL management team have over 150 years
of combined teleservicing industry expertise. As of December 31, 1995, more than
250 employees and managers other than Mr. Lynch owned SITEL Common Stock or
options to acquire SITEL Common Stock.
SITEL is a Minnesota corporation with its executive offices at 13215 Birch
Street, Omaha, Nebraska 68164, and its telephone number is (402) 498-6810. See
"THE COMPANY".
MITRE PLC
Mitre is a leader in providing outsourced telephone-based customer service
and sales programs on behalf of large corporations in Europe. Mitre operates
three call centers in the United Kingdom (the "UK") and a fourth call center in
Belgium that have the capability to handle calls and respond to electronic mail
via the Internet in over 20 languages and dialects. In May 1996, Mitre opened a
fifth call center in Tokyo, Japan. Mitre has approximately 1,430 operational
workstations in its five call centers and employs approximately 3,400 people.
See "MITRE PLC".
5
<PAGE>
THE TRANSACTION
BACKGROUND OF AND REASONS FOR THE TRANSACTION; RECOMMENDATION OF THE BOARD OF
DIRECTORS OF SITEL
SITEL routinely evaluates potential strategic combinations and acquisitions
of companies which offer teleservices complementary to those offered by SITEL
and consistent with its corporate mission. Acquisitions which provide SITEL with
new service capabilities and industry expertise, or which otherwise improve its
ability to serve clients, are important elements of SITEL's growth strategy. In
particular, SITEL believes that international capabilities will become
increasingly important since its large corporate clients often prefer to deal
with their outsourcing vendors on a global basis. As a result, SITEL management
asked Alex. Brown & Sons Incorporated ("Alex. Brown") in February 1996 to
conduct a preliminary search for potential partners in the UK. Alex. Brown
contacted Mitre in early March 1996, and the senior management of SITEL met with
the senior management of Mitre and representatives of Alex. Brown to discuss
areas of common interest in late March 1996. In early May 1996, SITEL and Mitre
began to discuss a possible business combination. Following consultation with
the Board of Directors of the Company, subsequent meetings with Mitre's
management, retention of legal counsel and financial and accounting advisors,
the performance of due diligence and receipt of a fairness opinion from Alex.
Brown, the Share Purchase Agreement was executed on June 6, 1996. On June 7,
1996, the Transaction was publicly announced.
The SITEL Board of Directors believes that the combination with Mitre will:
(i) allow SITEL to offer teleservices to its existing and prospective clients in
Europe and Asia; (ii) allow SITEL to cross-sell its services to existing Mitre
clients who are based in the US, but who do not yet have a relationship with
SITEL in the US; (iii) allow SITEL and Mitre to share expertise which will
permit each to cross-sell additional teleservicing applications to their
respective clients; (iv) expand SITEL's industry expertise to include the
automotive, utilities and technology industries based on the significant client
relationships Mitre brings in those industries; (v) increase the overall scale
of SITEL's operations (which is an important consideration for many large
corporate clients considering outsourcing relationships); and (vi) add
considerable management talent, including all of the Mitre Selling Shareholders
who will become management of SITEL and who will have significant equity
interests in SITEL following the consummation of the Transaction.
The Company's Board of Directors has unanimously approved the Share Purchase
Agreement and the Transaction, and recommends a vote in favor of approval of the
Share Purchase Agreement and the Transaction by the holders of SITEL Common
Stock. See "THE TRANSACTION -- Reasons for the Transaction; Board of Directors'
Recommendation".
OPINION OF FINANCIAL ADVISOR
Alex. Brown has delivered its written opinion to the SITEL Board of
Directors that, as of June 6, 1996, the Transaction as contemplated in the Share
Purchase Agreement is fair to SITEL from a financial point of view. For
information on the assumptions made, matters considered and limits of the review
made by Alex. Brown, see "THE TRANSACTION -- Opinion of Financial Advisor".
Stockholders are urged to read in its entirety the opinion of Alex. Brown,
attached as Appendix B to this Proxy Statement.
SHARE PURCHASE AGREEMENT; CONDITIONS TO THE TRANSACTION; TERMINATION OF THE
SHARE PURCHASE AGREEMENT
The Share Purchase Agreement contemplates, among other things, (i) the
issuance by the Company of 9,170,553 shares of SITEL Common Stock to the Mitre
Selling Shareholders in exchange for 100% of the ordinary shares of Mitre; (ii)
the nomination and solicitation of proxies for the election of Henk Kruithof,
Mitre's Chairman, to the Company's Board of Directors; (iii) stay bonus
arrangements with approximately 50 Mitre employees (none of whom are Mitre
shareholders) that call for payments of approximately $4.0 million over three
years; and (iv) certain registration rights granted to the Mitre Selling
Shareholders pursuant to a separate Registration Rights Agreement.
6
<PAGE>
The obligations of the Company and the Mitre Selling Shareholders to
consummate the Transaction ("Completion") are subject to the satisfaction of
certain conditions, including obtaining requisite stockholder and certain third
party approvals, and the receipt of accountants' letters stating that the
acquisition of the shares of Mitre will qualify as a pooling of interests
transaction for accounting purposes. See "THE SHARE PURCHASE AGREEMENT --
Conditions to Completion".
The consummation of the Transaction is subject to certain regulatory
matters, including expiration of the relevant waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"). A request for early termination of the waiting period under the HSR Act
was granted on July 23, 1996. A waiver from the Panel on Takeovers and Mergers
of the City Code on Takeovers and Mergers and the Rules Governing Substantial
Acquisitions of Shares was received on June 27, 1996. See "THE TRANSACTION --
Regulatory Filings".
The Share Purchase Agreement is subject to termination at the option of
either SITEL or the designated representative of the Mitre Selling Shareholders
if the Transaction is not consummated on or before December 31, 1996, and prior
to such time upon the occurrence of certain events. See "THE SHARE PURCHASE
AGREEMENT -- Termination".
ACCOUNTING TREATMENT
The Transaction is expected to qualify as a pooling of interests for
accounting and financial reporting purposes. Completion is conditioned upon
there being delivered, prior to Completion, letters from Coopers & Lybrand
L.L.P., certified public accountants for SITEL, and KPMG, chartered accountants
for Mitre, stating that the Transaction will qualify as a pooling of interests
transaction for financial accounting purposes. See "THE TRANSACTION --
Accounting Treatment".
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Company currently expects that the Transaction will be structured as a
tax-free reorganization under US tax law in which 100% of the Mitre ordinary
shares will be acquired by SITEL or an affiliate solely in exchange for voting
stock of SITEL. As a consequence, the Company currently expects that the basis
of the Mitre assets for US tax purposes will not be stepped up to fair market
value following Completion. After Completion, Mitre is expected to be a
controlled foreign corporation for US tax purposes.
HISTORICAL MARKET PRICE AND DIVIDEND DATA
SITEL Common Stock (symbol: SITL) is listed for trading on the NASDAQ Stock
Market. The last reported sales price per share of SITEL Common Stock on the
NASDAQ Stock Market on June 6, 1996, the last trading day before announcement of
the Transaction, was $25.00. The last reported sales price per share of SITEL
Common Stock on the NASDAQ Stock Market on July 24, 1996, the latest trading
date for which information was practicably available before the printing of this
Proxy Statement, was $32.25. Mitre has no publicly traded securities.
SITEL has not paid cash dividends since inception. It is anticipated that
SITEL will retain all earnings for use in the expansion of its business and
therefore SITEL does not anticipate paying any cash dividends in the foreseeable
future. Any future payment of dividends will be at the discretion of the SITEL
Board of Directors. Mitre has never paid cash dividends on its ordinary shares.
SUMMARY PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial data of SITEL, NAFS and Mitre
give effect to the Transaction by combining the results of operations of SITEL,
NAFS and Mitre on a pooling of interests basis as if SITEL, NAFS and Mitre had
been combined since inception. For purposes of this presentation, the results of
Mitre and Merit Communications NV ("Communications"), an entity under common
control with Mitre prior to its acquisition by Mitre on December 21, 1995, have
been combined since the inception of Communications in a manner similar to the
pooling of interests method of accounting as they will be accounted for under US
GAAP. Also on December 21, 1995, all of
7
<PAGE>
Mitre's subsidiaries, including Communications, became wholly owned subsidiaries
and, therefore, for the purposes of this pro forma presentation, the results of
Mitre for the periods presented do not separately disclose the net income (loss)
which would have been attributable to minority interests. This data excludes the
pro forma effects of the acquisition of CTC Canadian Telephone Corporation in
February 1996 and the acquisition of Teleaction in June 1996, both of which were
accounted for as purchase transactions for which the pro forma effects are
included in Note (d). For other information regarding the pro forma financial
data, see "SITEL CORPORATION, MITRE PLC AND NATIONAL ACTION FINANCIAL SERVICES,
INC. PRO FORMA STATEMENT OF OPERATIONS."
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED YEAR ENDED MAY ENDED FEBRUARY
MAY 31, 1994 31, 1995 29, 1996
------------ -------------- ----------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS DATA(a,d):
Revenues....................................................... $ 81,334 $ 142,760 $ 150,615
Special compensation expense................................... -- 34,585(b) --
Operating income (loss)........................................ 3,899 (23,025)(c) 14,850
Net income (loss).............................................. 3,945 (15,477)(c) 9,500
Earnings (loss) per common and common equivalent share......... $ 0.15 $ (0.56)(c) $ 0.30
Weighted average common and common equivalent shares
outstanding................................................... 27,742 27,742 31,646
UNAUDITED PRO FORMA BALANCE SHEET DATA(A):
Working capital.............................................................................. $ 58,855
Total assets................................................................................. 146,550
Long-term debt (including current portion)................................................... 6,592
Stockholders' equity......................................................................... 107,474
</TABLE>
- ------------------------
(a) Mitre's accounts have been restated to account for goodwill and the
consolidation of Communications according to US GAAP. Otherwise, Mitre
accounts are shown under UK GAAP.
(b) Represents a non-recurring, non-cash compensation expense of $34.6 million
incurred in February 1995 resulting from the grant of stock options with an
exercise price of $0.01 per share to 265 employees of the Company to replace
stock appreciation rights previously granted under the Company's Employee
Equity Benefit Plan and previously granted stock options.
(c) Excluding special compensation expense and a one-time forgiveness of
$528,000 owed by two stockholders, operating income, net income and net
income per share would have been $12.1 million, $7.5 million, and $0.27,
respectively, for the fiscal year ended May 31, 1995.
(d) The unaudited pro forma statement of operations excludes the pro forma
effects of the purchase acquisitions of Teleaction in June 1996 and CTC
Canadian Telephone Corporation in February 1996. If the acquisitions had
occurred on June 1, 1994, the pro forma results would have been as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED FEBRUARY 29,
MAY 31, 1995 1996
------------ ----------------
<S> <C> <C>
(IN THOUSANDS EXCEPT PER SHARE
DATA)
Unaudited Pro Forma Combined
Statement of Operations Data:
Revenues............................................. $ 174,163 $ 177,392
Net income (loss).................................... (14,712) 9,766
Earnings (loss) per common
and common equivalent share......................... (0.53) 0.31
</TABLE>
8
<PAGE>
COMPARATIVE HISTORICAL AND PER SHARE DATA
The following summary presents selected comparative per share information
for (i) SITEL on a historical basis in comparison with combined information
giving effect to the Transaction on a pooling of interests basis and (ii) Mitre
on a historical basis in comparison with Mitre's pro forma equivalent
information after giving effect to the Transaction, including the receipt of the
SITEL Common Stock for the Mitre ordinary shares in accordance with the Share
Purchase Agreement. On December 21, 1995, all of Mitre's subsidiaries, including
Communications, became wholly owned subsidiaries and, therefore, for the
purposes of this pro forma presentation, the results of Mitre for the periods
presented do not separately disclose the net income (loss) which would have been
attributable to minority interests. The combined financial information should be
read in conjunction with the historical financial statements of SITEL and Mitre
and the related notes thereto contained elsewhere herein, and in conjunction
with the unaudited combined financial information appearing elsewhere in this
Proxy Statement.
The following information is unaudited and is not necessarily indicative of
the combined results of operations or combined financial position that would
have resulted had the Transaction occurred at the beginning of the periods
indicated, nor is it necessarily indicative of the combined results of
operations in future periods or future combined financial position.
Neither the Company nor Mitre has paid cash dividends on its common or
ordinary shares.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED MAY YEAR ENDED MAY NINE MONTHS ENDED
MAY 31, 1993 31, 1994 31, 1995 FEBRUARY 29, 1996
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Earnings (loss) per common and common
equivalent share:
SITEL Historical(a).................... $0.07 $0.15 ($0.96) $ 0.31
SITEL and Mitre
Pro Forma(b).......................... 0.08 0.15 (0.56) 0.30
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED MAY NINE MONTHS ENDED
DECEMBER 31, 1992 DECEMBER 31, 1993 31, 1995 MARCH 31, 1996
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Mitre Historical (US GAAP)............. $1.23 $1.48 $ 3.12 $ 3.52
Mitre Pro Forma Equivalent(c).......... 0.10 0.12 0.25 0.28
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
MAY 31, 1995 FEBRUARY 29, 1996
----------------- -----------------
<S> <C> <C> <C> <C>
Stockholders' equity per common share:
SITEL Historical(a).................... $ 1.38 $ 4.54
SITEL and Mitre
Pro Forma(b).......................... 0.94 3.39
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996
----------------- -----------------
<S> <C> <C> <C> <C>
Shareholders' equity per ordinary share:
Mitre Historical (US GAAP)............. $ 13.42 $14.29
Mitre Pro Forma Equivalent(c).......... 1.07 1.14
</TABLE>
- ------------------------
(a) SITEL historical information includes the combined data of SITEL and NAFS
which was acquired on June 28, 1996 and is being accounted for as a pooling
of interests.
(b) Includes the combined data of SITEL and Mitre, as well as that of NAFS which
was acquired on June 28, 1996 and is being accounted for as a pooling of
interests.
(c) Mitre pro forma equivalent is calculated as if the number of Mitre ordinary
shares outstanding was 9,170,553, the same number as the number of shares of
SITEL Common Stock that will be exchanged if the Transaction is approved.
9
<PAGE>
THE SPECIAL MEETING
GENERAL INFORMATION
This Proxy Statement is furnished to the holders of SITEL Common Stock in
connection with the solicitation of proxies for use at the Special Meeting of
SITEL stockholders, pursuant to the accompanying Notice of Special Meeting of
Stockholders. A form of proxy for use at the meeting is also enclosed.
This Proxy Statement and the accompanying Proxy are first being sent to the
holders of SITEL Common Stock on or about July 29, 1996. The executive offices
of the Company are located at 13215 Birch Street, Omaha, Nebraska 68164.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
The Special Meeting has been called by the Board of Directors of the Company
for the purpose of voting on (i) the Share Purchase Agreement between the
Company and the holders of 100% of the ordinary shares of Mitre and the
transactions contemplated thereby, including the issuance by the Company of
9,170,553 shares of SITEL Common Stock to the Mitre Selling Shareholders
(together with the other transactions contemplated by the Share Purchase
Agreement, the "Transaction"), (ii) the authorization of an additional
150,000,000 shares of undesignated capital stock, par value $0.001 per share, of
the Company, and (iii) such other matters as may properly be brought before the
Special Meeting.
VOTING AT THE SPECIAL MEETING
The Board of Directors of the Company has fixed July 8, 1996 as the Record
Date for the determination of stockholders entitled to notice of and to vote at
the Special Meeting. The number of outstanding shares of SITEL Common Stock on
July 8, 1996 was 20,017,032. Only stockholders of record on the books of the
Company at the close of business on the Record Date will be entitled to vote at
the Special Meeting. Each holder of record of shares of SITEL Common Stock on
the Record Date is entitled to cast one vote per share.
A majority of the votes entitled to be cast on matters to be considered at
the Special Meeting will constitute a quorum. If a share is represented for any
purpose at the meeting, it is deemed to be present for all other matters.
Abstentions and shares held of record by a broker or its nominee ("broker
shares") that are voted on any matter are included in determining the number of
votes present. Broker shares that are not voted on any matter at the meeting
will not be included in determining whether a quorum is present. The affirmative
vote of the holders of a majority of all shares of SITEL Common Stock present
(whether in person or by proxy) at the Special Meeting is required to approve
(i) the Share Purchase Agreement and the Transaction and (ii) the authorization
of an additional 150,000,000 shares of undesignated shares of capital stock. As
a result, abstentions, failures to vote and broker non-votes will have no effect
on the vote in respect of the Share Purchase Agreement and the Transaction or
the increase in authorized shares, except to the extent that they affect the
quorum required for the Special Meeting and the shares present at the Special
Meeting. The approval of the Share Purchase Agreement and the Transaction is
required under the rules of the NASDAQ Stock Market, which are applicable to
SITEL because its securities are quoted thereon, and the approval of the
increase in authorized shares is required under the Minnesota Business
Corporation Act.
Directors and executive officers of the Company, certain principal
stockholders and their respective affiliates who beneficially owned
approximately 43.7% of the outstanding shares of SITEL Common Stock as of the
Record Date, have advised the Company that they presently intend to vote or
direct the vote of all shares of SITEL Common Stock over which they have voting
control FOR approval of the Share Purchase Agreement and Transaction, and FOR
authorization of an additional 150,000,000 shares of undesignated capital stock,
par value $0.001 per share, of the Company. Such directors, executive officers
and principal stockholders include James F. Lynch, who owned an aggregate of
4,010,000 shares (or approximately 20.0% of the outstanding shares of SITEL
Common Stock)
10
<PAGE>
and who has voting control over an additional 3,660,930 shares pursuant to a
Voting Agreement, as well as Michael W. Fletcher and Walter J. Berthiaume, the
founders of National Action Financial Services, Inc. ("NAFS"), who owned an
aggregate of 1,055,483 shares.
If the accompanying Proxy is properly signed and returned to the Company and
not revoked, the shares covered thereby will be voted in accordance with the
instructions contained therein. Proxies submitted without specification will be
voted FOR approval of the Share Purchase Agreement and the Transaction and FOR
authorization of an additional 150,000,000 shares of undesignated capital stock,
par value $0.001 per share, of the Company. Management is not aware at the date
hereof of any matters to be presented at the Special Meeting other than the
matters described herein, but, if any other matter is properly presented, the
persons named in the Proxy will vote thereon according to their best judgment.
Stockholders' proxies are received and counted by or under the direction of
the Company's Secretary.
REVOCATION OF PROXIES
The accompanying Proxy may be revoked by the person giving it at any time
prior to its being voted; such revocation may be accomplished by a letter, or by
a duly executed Proxy bearing a later date, filed with the Secretary of the
Company prior to the meeting. If a stockholder who has given a Proxy is present
at the meeting and wishes to vote in person, such stockholder may withdraw the
Proxy at that time. Presence at the Special Meeting does not of itself revoke
the Proxy. All shares represented by executed and unrevoked Proxies will be
voted in accordance with the specifications therein.
SOLICITATION OF PROXIES
Proxies for use at the Special Meeting are being solicited by the Board of
Directors of the Company. The cost of preparing, assembling and mailing the
proxy material is to be borne by the Company. It is not anticipated that any
compensation will be paid for soliciting proxies, and the Company does not
intend to employ specially engaged personnel in the solicitation of proxies. It
is contemplated that proxies will be solicited principally through the mail, but
directors, officers and employees of the Company may, without additional
compensation, solicit proxies, personally or by telephone, telegraph, special
letter or other means of communication.
THE TRANSACTION
GENERAL
The Share Purchase Agreement provides for the acquisition by SITEL or its
affiliate of 100% of the ordinary shares of Mitre in exchange for 9,170,553
shares of SITEL Common Stock issued to the Mitre Selling Shareholders. The
discussion in this Proxy Statement of the Transaction and the description of the
Transaction's principal terms are subject to and qualified in their entirety by
reference to the Share Purchase Agreement, a copy of which is attached to this
Proxy Statement as Appendix A and which is incorporated herein by reference. The
following is a brief discussion of the material features of the Transaction.
BACKGROUND OF THE TRANSACTION
SITEL routinely evaluates potential strategic combinations and acquisitions
of companies which offer teleservices complementary to those offered by SITEL
and consistent with its corporate mission. Acquisitions which provide SITEL with
new service capabilities and industry expertise or which otherwise improve its
ability to serve clients are important elements of SITEL's growth strategy. In
particular, SITEL believes that international capabilities will become
increasingly important since its large corporate clients often prefer to deal
with outsourcing vendors on a global basis.
Due to the inherently international nature of its business, the management
of SITEL began in 1995 to explore potential merger partners and acquisition
candidates outside the United States (the
11
<PAGE>
"US"). In February 1996, the management of SITEL asked Alex. Brown & Sons
Incorporated ("Alex. Brown") to conduct a preliminary search for potential
partners in the United Kingdom (the "UK"). Alex. Brown identified and arranged
meetings for SITEL with several potential candidates including Mitre. Michael
May (at that time Executive Vice President -- Corporate Development, currently
President) and Edward Taylor (Executive Vice President -- Sales and Marketing)
of SITEL made a trip to the UK for these meetings in March 1996. On March 29,
1996, Mr. May and Mr. Taylor of SITEL, along with representatives of Alex.
Brown, met with Martin Shields, a Director of Mitre, and Maggie Bilton, Deputy
Managing Director of Merit Direct Limited, a wholly-owned subsidiary company of
Mitre. They discussed areas of common interest, including SITEL's interest in
providing teleservicing solutions for its clients on a global basis. Mitre was
interested in SITEL's experience and reputation in the US teleservicing industry
given Mitre's significant number of large US-based clients. Mitre also was
interested in the organization of SITEL along industry-specific lines, a
direction in which Mitre envisaged its own business potentially developing.
At the time, Mitre was considering seeking a public listing for its stock on
the NASDAQ market. On May 1, 1996, Henk Kruithof, Chairman, along with Ray Pipe
and Peter Godfrey, Directors, of Mitre, met with representatives of Alex. Brown
in its London offices to discuss the procedures of obtaining a public listing in
the US. During that meeting, the possibility of a business combination between
SITEL and Mitre was discussed, and it was suggested that SITEL and Mitre arrange
meetings to learn more about each other's businesses.
The two companies signed a confidentiality agreement on May 5, 1996 and
exchanged due diligence request lists. On May 6, 1996, SITEL formalized its
engagement with Alex. Brown to act as SITEL's financial advisor with respect to
a possible business combination with Mitre and, if necessary, to render an
opinion as to the fairness to SITEL from a financial point of view of the
consideration to be paid by SITEL in a potential transaction.
On May 8 and 9, 1996, Mr. May and Barry Major (at that time Senior Vice
President -- Finance, currently Chief Financial Officer of SITEL) travelled to
the UK and, with representatives of Alex. Brown, attended detailed presentations
and facilities tours by Mitre. Messrs. May and Major, in meetings with the
senior management of Mitre and its subsidiaries, discussed the similar growth
strategies of SITEL and Mitre, the increasing globalization of the business and
the need for large corporate clients to be able to deal with teleservicing
companies which have adequate resources to fulfill their increasingly
sophisticated needs reliably and consistently. These meetings concluded with the
SITEL and Mitre representatives each agreeing to discuss with their respective
senior managements the continued evaluation of a possible business combination.
During the course of the aforementioned meetings, Mitre provided SITEL and
Alex. Brown with certain non-public financial information regarding Mitre and
its business and prospects. In return, SITEL provided Mitre with certain
non-public financial and operating information regarding the Company and Alex.
Brown provided Mitre with publicly available information regarding the Company.
On May 15, 1996 SITEL retained independent legal counsel (Davis Polk &
Wardwell ("Davis Polk") in the US and Freshfields in the UK) to assist it in
considering and evaluating the transaction.
On May 15, 1996, James Lynch (Chairman of SITEL) and Mr. May met with
Messrs. Kruithof, Pipe and Godfrey and an Alex. Brown representative in the New
York offices of Alex. Brown to discuss the possible terms of a potential
business combination. At that meeting, it was determined that, subject to
further detailed due diligence by each of the two companies, a business
combination would be advantageous to both companies. The principles for the
basis of a possible business combination were agreed (including the approximate
number of SITEL shares to be exchanged for all the Mitre shares); however,
several important issues were raised during that meeting which required further
clarification before any agreement could be reached, including the possibility
of achieving pooling of
12
<PAGE>
interests accounting treatment for any business combination. It was agreed that
selected members of SITEL's senior management would travel to the UK the
following week to conduct detailed due diligence on Mitre.
At a meeting of the SITEL Board of Directors on May 16, 1996, Messrs. Lynch
and May informed the Directors of SITEL about the continuing discussions with
Mitre. In addition, Mr. May distributed to the Directors preliminary financial
analyses as well as certain information about Mitre, including Mitre's audited
annual reports and other selected information including non-public management
accounts and reports prepared by Mitre management. The SITEL Board of Directors
authorized management to continue discussions with the management of Mitre and
to proceed with the evaluation of a possible business combination.
On May 21, 1996, Mr. Lynch and an Alex. Brown representative met with Mr.
Kruithof and the senior management of each of the three principal subsidiaries
of Mitre and toured three of Mitre's primary facilities. From May 21 to 24,
1996, other members of SITEL management and their advisors (Alex. Brown and
Coopers & Lybrand L.L.P.) participated in due diligence meetings with Mitre
management. The due diligence efforts included a review of operations,
technology, marketing programs, acquisition structure and strategy, accounting,
legal and financial areas.
From May 28 to 30, 1996, Mitre's senior management travelled to Omaha,
Nebraska and San Angelo, Texas to receive detailed due diligence presentations
from SITEL's management. During these meetings, senior management of the two
companies continued discussions regarding possible transaction terms.
On June 5 and 6, 1996, Messrs. Kruithof, Pipe and Godfrey of Mitre and Mr.
May of SITEL, along with representatives of Alex. Brown, Davis Polk, Taylor
Joynson Garrett (Mitre's UK legal counsel) and Freshfields met in Davis Polk's
New York offices to finalize terms and complete drafting of the Share Purchase
Agreement.
On June 6, 1996, SITEL's Board of Directors held a special meeting to
consider the proposed transaction with Mitre. Mr. May delivered a report on the
final terms of the proposed transaction and senior management delivered reports
regarding due diligence findings in their respective areas. This meeting was
also attended by Mr. Kruithof, Mitre's Chairman, and representatives of Coopers
& Lybrand L.L.P., Davis Polk and Alex. Brown. Alex. Brown delivered its opinion
as to the fairness to SITEL from a financial point of view of the consideration
to be paid by SITEL pursuant to the Transaction (the "Alex. Brown Opinion"). See
"THE TRANSACTION -- Opinion of Financial Advisor".
The Alex. Brown Opinion was presented orally to the SITEL Board of Directors
and subsequently confirmed in writing. Following a review of the Transaction and
the presentations of its advisors, the SITEL Board of Directors unanimously
voted to approve the Transaction and to recommend the approval of the
Transaction by SITEL stockholders.
On June 6, 1996, the Share Purchase Agreement was executed.
On June 7, 1996, the public announcement of the Transaction was made.
REASONS FOR THE TRANSACTION; BOARD OF DIRECTORS' RECOMMENDATION
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE SHARE
PURCHASE AGREEMENT AND THE TRANSACTION AND UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS VOTE TO APPROVE THE SHARE PURCHASE AGREEMENT AND THE TRANSACTION.
Based primarily on its consideration of the factors referred to below, the
Board believes that the consummation of the Transaction is in the best interests
of the Company and its stockholders.
The SITEL Board of Directors believes that the combination with Mitre will:
(i) allow SITEL to offer teleservices to its existing and prospective clients in
Europe and Asia; (ii) allow SITEL to cross-
13
<PAGE>
sell its services to existing Mitre clients who are based in the US, but who do
not yet have a relationship with SITEL in the US; (iii) allow SITEL and Mitre to
share expertise which will permit each to cross-sell additional teleservicing
applications to their respective clients; (iv) expand SITEL's industry expertise
to include the automotive, utilities and technology industries based on the
significant client relationships Mitre brings in those industries; (v) increase
the overall scale of SITEL's operations (which is an important consideration for
many large corporate clients considering establishing outsourcing
relationships); and (vi) add considerable management talent, including all of
the Mitre Selling Shareholders who will become management of SITEL and will have
significant equity interests in SITEL following the consummation of the
Transaction ("Completion").
In reaching the conclusions discussed above, the SITEL Board of Directors
considered, among other things: (i) the judgment, advice, and analyses of its
management; (ii) the financial advice and analyses provided by Alex. Brown,
including the Alex. Brown Opinion as to the fairness to SITEL of the Transaction
from a financial point of view; (iii) the financial condition, results of
operations and cash flows of SITEL and Mitre, both on a historical and a
prospective basis; (iv) the significant enhancement of the strategic and market
position of the combined enterprise; (v) the marketing synergies and operating
efficiencies that should become available to the combined enterprise as a result
of the Transaction; (vi) the terms and conditions of the Share Purchase
Agreement, which were viewed as providing an equitable basis for the Transaction
from the standpoint of SITEL; (vii) the historical market price and trading
information with respect to SITEL Common Stock; (viii) the tax effects of the
Transaction on SITEL; and (ix) the ability to consummate the Transaction as a
pooling of interests under US GAAP.
OPINION OF FINANCIAL ADVISOR
In connection with the Transaction, SITEL engaged Alex. Brown to act as
SITEL's financial advisor and to render its opinion as to the fairness to SITEL,
from a financial point of view, of the consideration to be paid by SITEL
pursuant to the Transaction. SITEL noted that Alex. Brown has provided extensive
investment banking services to SITEL and was therefore familiar with SITEL and
its strategy and also that Alex. Brown has published research reports about
SITEL and makes a market in its stock. At the June 6, 1996 meeting of the SITEL
Board of Directors, at which the Transaction was approved, Alex. Brown delivered
to the SITEL Board of Directors an oral opinion which was subsequently confirmed
in writing as of the same date that as of such date, and subject to the
assumptions made, matters considered and limitations set forth in such opinion
and summarized below, the consideration to be paid by SITEL in connection with
the Transaction is fair, from a financial point of view, to SITEL.
The full text of the Alex. Brown Opinion, which sets forth assumptions made,
procedures followed, matters considered and limits on the review undertaken, is
attached hereto as Appendix B to this Proxy Statement and is incorporated herein
by reference.
SITEL STOCKHOLDERS ARE URGED TO READ CAREFULLY THE ALEX. BROWN OPINION IN
ITS ENTIRETY FOR INFORMATION WITH RESPECT TO THE PROCEDURES FOLLOWED,
ASSUMPTIONS MADE AND MATTERS CONSIDERED BY ALEX. BROWN IN RENDERING THE ALEX.
BROWN OPINION.
The Alex. Brown Opinion is directed only to the fairness to SITEL, from a
financial point of view, of the consideration to be paid in the Transaction and
does not constitute a recommendation to any SITEL stockholder as to how such
stockholder should vote. The Alex. Brown Opinion was delivered to the SITEL
Board of Directors and was rendered to the SITEL Board of Directors for its
consideration in determining whether to approve the Transaction. The Alex. Brown
Opinion was limited to the fairness to SITEL, from a financial point of view, of
the consideration to be paid by SITEL in connection with the Transaction and its
opinion did not address SITEL's underlying business decision to proceed with the
Transaction. The summary of the Alex. Brown Opinion set forth herein is
qualified in its entirety by reference to the full text of the Alex. Brown
Opinion. In considering the
14
<PAGE>
Alex. Brown Opinion, stockholders may want to take into account Alex. Brown's
fee arrangements with respect to the Transaction, under which Alex. Brown's fees
are substantially greater if the Transaction is consummated.
The financial forecasts furnished to Alex. Brown were prepared by the
management of each of SITEL and Mitre. SITEL and Mitre do not publicly disclose
internal management financial projections of the type provided to Alex. Brown in
connection with Alex. Brown's review of the Transaction. Such forecasts were not
prepared with a view towards public disclosure. The forecasts were based on
numerous variables and assumptions which are inherently uncertain including,
without limitation, factors related to general economic and competitive
conditions. Accordingly, actual financial results could vary significantly from
those set forth in such projections.
It should be noted that, in performing the contribution analysis and other
financial analyses, certain adjustments to Mitre's financial information were
made in order to compare it reasonably to SITEL's financial information, to
other publicly traded teleservicing companies and to selected merger and
acquisition transactions. Included in these adjustments were average and spot
exchange rates between the US dollar and the British pound sterling ("British
pound") over various time periods, restatements and adjustments to Mitre's
audited financial reports to account for goodwill according to US GAAP and
adjustments to conform Mitre's results to SITEL's fiscal year end. It should be
noted that the adjustments themselves were not audited and may vary from the
audited results if the Transaction is consummated.
The Alex. Brown Opinion does not constitute an opinion as to the price at
any time at which SITEL Common Stock will trade. No restrictions or limitations
were imposed by the SITEL Board of Directors upon Alex. Brown with respect to
the investigations made or the procedures followed by Alex. Brown in rendering
its opinion.
In conducting its review and arriving at its opinion, Alex. Brown reviewed
the Share Purchase Agreement. Alex. Brown also reviewed certain financial and
other information that was publicly available or furnished to it by SITEL and
Mitre and held discussions with members of senior management of Mitre regarding
the business and prospects of Mitre.
In addition, Alex. Brown (i) reviewed reported price and trading activity
for the SITEL Common Stock, (ii) compared certain financial information for
Mitre with similar information for certain teleservicing companies whose
securities are publicly traded, (iii) reviewed the financial terms of certain
recent business combinations in the teleservicing industry and (iv) performed
such other studies and analyses and considered such factors as it deemed
appropriate.
In conducting its review and rendering its opinion, Alex. Brown relied upon
and assumed, without independent verification, the accuracy, completeness and
fairness of all of the financial and other information that was available to it
from public sources, that was provided to Alex. Brown by SITEL and Mitre or
their respective representatives, or that was otherwise reviewed by or discussed
with Alex. Brown. Alex. Brown did not attempt to account for any potential
operating synergies which may be achieved as a result of the Transaction. With
respect to the financial projections and other information supplied to Alex.
Brown, Alex. Brown assumed that such projections and other information were
reasonably prepared and reflected the best currently available estimates and
judgments of the managements of SITEL and Mitre as to the future operating and
financial performance of SITEL and Mitre. Alex. Brown did not assume any
responsibility for making and it was not provided with any independent
evaluation of Mitre's assets or liabilities.
The Alex. Brown Opinion was based on economic, market, financial and other
conditions as they existed and could be evaluated on June 6, 1996, the date of
the Alex. Brown Opinion.
The following is a summary of the material factors considered and principal
financial analyses performed by Alex. Brown to arrive at the Alex. Brown
Opinion. As used herein, the "Mitre Group"
15
<PAGE>
refers to Mitre and all of its subsidaries including Merit Communications NV
("Communications"), a company under the common control of Mitre, as if
Communications had been part of Mitre since the inception of Communications.
CONTRIBUTION ANALYSIS. Alex. Brown analyzed SITEL's and Mitre Group's
relative contributions with respect to revenues, earnings before interest,
taxes, depreciation and amortization ("EBITDA"), earnings before interest
and taxes ("EBIT") and net income. In conducting its analysis, Alex. Brown
relied upon financial projections provided by the managements of both SITEL
and Mitre, and upon Alex. Brown's published equity research reports which
include earnings forecasts for SITEL that are substantially similar to
earnings estimates published by other investment banking firms that publish
equity research on SITEL. Such analysis was considered in both absolute US
dollar terms and on a percentage basis and was made for the latest twelve
months ("LTM") ended May 31, 1996 (which included one month of projected
results for each company) and for prior periods. As a result of the
Transaction, the Mitre Selling Shareholders will own approximately 26.5% of
SITEL shares outstanding on a fully diluted basis (including shares issued
in connection with the acquisition of NAFS). In each case, without
accounting for the effect of any synergies that may be realized as a result
of the Transaction and non-recurring expenses related to the Transaction,
such ownership compares to the Mitre Group's contribution to SITEL's
historically reported results for the LTM period of 33.1 % of revenues,
30.9% of operating cash flow, 27.4% of EBIT and 24.8% of net income; and for
the projected fiscal year of 1997, the Mitre Group's contribution to SITEL's
pro forma results represented 32.0% of net income. The results of these
contribution analyses are not necessarily indicative of the contributions
that the respective businesses may have in the future.
Alex. Brown also analyzed the contributions of each of SITEL and Mitre
to certain balance sheet categories based on the most recently available
combined historical information, including total assets, current assets and
stockholders' equity. These percentages were then compared to the ownership
percentage of the Mitre Selling Shareholders in SITEL including shares
issued in connection with the acquisition of NAFS. Alex. Brown observed that
Mitre will contribute 25.0% of total assets, 19.1% of current assets and
11.4% of stockholders' equity compared to ownership of approximately 26.5%
by the Mitre Selling Shareholders on a fully diluted basis, including shares
issued in connection with the acquisition of NAFS.
COMPARATIVE PRICING ANALYSIS. Alex. Brown analyzed the implied price to
be paid to the Mitre Selling Shareholders compared to the current trading
multiples for the existing shares of SITEL. Such analysis was considered in
absolute terms and in terms of the relative premium or discount being
offered by SITEL to the Mitre Selling Shareholders. The then current trading
multiples of SITEL which were considered included: 4.6x market
capitalization of the common stock plus total debt less cash and equivalents
(the "Adjusted Value") to LTM revenues; 46.5x Adjusted Value to LTM EBIT;
69.3x LTM price to earnings ratio ("P/E"); 51.2x calendar 1996 P/E; 37.1x
calendar 1997 P/E; and 97.2% calendar 1997 P/E to estimated three year
compound earnings growth rate. For the Mitre Group, the multiples implied
under the Share Purchase Agreement were: 3.8x Adjusted Value to LTM
revenues; 50.4x Adjusted Value to LTM EBIT; 79.2x LTM P/E; 51.8x calendar
1996 P/E; 26.1x calendar 1997 P/E; and 52.3% calendar 1997 P/E to the
estimated three year compound earnings growth rate. The premium or
(discount) relative to SITEL's trading multiples offered to the Mitre
Selling Shareholders were (17.0%) Adjusted Value to LTM revenues; 8.5%
Adjusted Value to LTM EBIT; 14.4% LTM P/E; 1.3% calendar 1996 P/E; (29.5%)
calendar 1997 P/E; and (43.6%) calendar 1997 P/E to the estimated three year
compound earnings growth rate.
TRANSACTION ANALYSIS. Alex. Brown analyzed certain financial effects on
the earnings of SITEL resulting from the Transaction. Alex Brown analyzed
the pro forma financial effect on SITEL's earnings of combining SITEL and
Mitre. Such analysis indicated, among other things, that earnings per share
("EPS") for fiscal year 1996 would be diluted on a historical restated
basis, but that pro forma EPS for fiscal year 1997 would be accretive
without considering any
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<PAGE>
potential synergies which may result from the Transaction. Alex. Brown also
analyzed the pro forma change in quarterly EPS for the fiscal year 1997 and
advised that there may be variations from the published financial
projections of investment banking research analysts based primarily upon the
more seasonal nature of Mitre's business and certain recently started
operations which have not yet achieved full operating capacity. In addition,
Alex. Brown analyzed the potential impact on SITEL's EPS for fiscal year
1997 of variations in the exchange rate between the US dollar and the
British pound (assuming no hedging against the possible exchange rate
variations) and possible variations in Mitre's projected earnings for 1997
(adjusted to SITEL's fiscal year). Such analysis took into account adverse
changes of up to 10% in the exchange rate and 20% in Mitre's net income
(resulting in the Transaction being mildly dilutive to SITEL's EPS in 1997)
and beneficial changes of up to 10% in the exchange rate and 20% in Mitre's
net income (resulting in the Transaction being significantly accretive to
SITEL's EPS in 1997). The results of the pro forma Transaction analysis are
not necessarily indicative of future operating results or financial
position.
PUBLICLY TRADED COMPANIES ANALYSIS. To provide contextual data and
comparative market information, Alex. Brown compared the implied value to be
issued to the Mitre Selling Shareholders under the Transaction and selected
historical operating and financial ratios for the Mitre Group to
corresponding information of selected companies in the teleservicing
industry in the US whose securities are publicly traded. The selected
companies were: (i) SITEL Corporation; (ii) APAC Teleservices, Inc.; (iii)
ATC Communications Group, Inc.; and (iv) Sykes Enterprises Incorporated
(collectively, the "Selected Companies").
Alex. Brown's analysis included, among other things, (i) the analysis of
ratios of the market capitalization of the common stock (including the
effect of the options and warrants using the treasury stock method) plus
total debt (including minority interest and preferred stock) less cash and
equivalents (including investments in unconsolidated subsidiaries)
("Adjusted Market Capitalization") to LTM revenues, LTM EBITDA and LTM EBIT;
(ii) the analysis of ratios of the current stock price to LTM EPS and
projected EPS for the calendar years 1996 and 1997 (as estimated by research
analysts and compiled by Institutional Brokers Estimating Service); and
(iii) the analysis of the ratio of calendar 1997 P/E to the estimated three
year compound earnings growth rate. In the analysis of publicly traded
companies (including SITEL) LTM refers to the most recently reported
financial results, and for the Mitre Group, LTM refers to the LTM ended May
31, 1996 which included one month of projected results.
Although Alex. Brown compared the trading multiples of the Selected
Companies at the date of the Alex. Brown Opinion to the implied transaction
multiples for the Mitre Group, none of the Selected Companies is identical
to the Mitre Group. Such analysis of the Selected Companies resulted in a
range of 3.7x to 13.6x with an average of 7.7x for Adjusted Market
Capitalization to LTM revenues; 33.4x to 76.7x with an average of 55.7x for
Adjusted Market Capitalization to LTM EBITDA; and 48.0x to 129.1x with an
average of 82.6x for Adjusted Market Capitalization to LTM EBIT. In
contrast, the implied transaction multiples for the Mitre Group were 3.8x
for Aggregate Value (as hereinafter defined) to LTM revenues; 32.3x for
Aggregate Value to LTM EBITDA; and 50.4x for Aggregate Value to LTM EBIT.
Such analysis of the Selected Companies also resulted in a range of 51.2x to
101.1x with an average of 70.2x for calendar 1996 P/E, and 37.1x to 66.0x
with an average of 51.1x for calendar 1997 P/E. In contrast, the implied
transaction multiples for the Mitre Group were 51.8x for calendar 1996 P/E,
and 26.1x for calendar 1997 P/E. Such analysis of the Selected Companies
also resulted in a range of 92.7% to 143.8% with an average of 118.2% for
calendar 1997 P/E to estimated three year compound earnings growth rate. In
contrast, the implied transaction multiple for the Mitre Group was 52.3% for
calendar 1997 P/E to estimated three year compound earnings growth rate. In
every case, the implied transaction multiples for the Mitre Group are at a
discount to the corresponding average of the trading multiples of the
Selected Companies, ranging from a discount of 26.2% for calendar 1996 P/E
to a discount of 55.8% for calendar 1997 P/E to estimated three year
compound earnings growth rate.
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<PAGE>
RECENT MERGER AND ACQUISITION ANALYSIS. Alex. Brown performed an
analysis of the financial terms for selected recent merger or acquisition
transactions. The selected transactions were three transactions between
November 1995 and May 1996 in the teleservicing industry (the "Selected
Transactions"). The Selected Transactions comprised the acquisition of PRO
Direct Response Corp. by DiMark, Inc., the acquisition of Access 24 Service
Corporation Pty Limited by TeleTech Holdings, Inc., and the acquisition of
Teleaction, S.A. ("Teleaction") by SITEL. The Selected Transactions were not
intended to be representative of the entire range of possible transactions
to be used for this analysis.
Alex. Brown reviewed the consideration paid in the Selected Transactions
in terms of the price paid for the common stock ("Equity Value"), plus total
debt (including minority interest and preferred stock) less cash and
equivalents (including investments in unconsolidated subsidiaries)
("Aggregate Value"), of the Selected Transactions as a multiple of revenues,
EBITDA and EBIT for the LTM prior to the announcement of the Selected
Transactions. Additionally, Alex. Brown reviewed the consideration paid in
the Selected Transactions, in terms of the Equity Value of such transactions
as a multiple of LTM net income and stockholders' equity prior to the
announcement of the Selected Transactions.
Although Alex. Brown compared the transaction multiples of these
companies to the implied transaction multiples of the Mitre Group, none of
the companies involved in the Selected Transactions is identical to the
Mitre Group. In addition, the Aggregate Value of the three Selected
Transactions were in a range of $13.4 million to $36.9 million which is
substantially smaller than the proposed Aggregate Value of the Transaction
described herein. The analysis of the Selected Transactions resulted in 1.2x
(in all three transactions) for Aggregate Value to LTM revenues; and a range
of 5.5x to 5.9x for Aggregate Value to LTM EBITDA; 6.0x to 16.2x for
Aggregate Value to LTM EBIT; 6.6x to 10.3x for Equity Value to LTM net
income; and 4.4x to 7.5x for Equity Value to stockholders' equity. In
comparison, the implied transaction multiples for the Mitre Group were 3.8x
for Aggregate Value to LTM revenues, 32.3x for Aggregate Value to LTM
EBITDA; 50.4x for Aggregate Value to LTM EBIT; 79.2x for Equity Value to LTM
EPS; and 19.2x for Equity Value to stockholders' equity.
None of the Selected Transactions is identical to the Transaction.
Accordingly, an analysis of the results of the foregoing is not entirely
mathematical. Rather, such an analysis necessarily involves complex
considerations and judgments concerning differences in financial and
operating characteristics of SITEL and the Mitre Group, and other factors
that could affect the public trading values of the companies to which they
are being compared.
While the foregoing summary describes all of the analyses and factors that
Alex. Brown deemed material in its presentation to the SITEL Board of Directors,
it does not purport to be a complete description of the analyses performed by
Alex. Brown. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances.
Therefore, such an opinion is not readily susceptible to summary description.
The preparation of a fairness opinion does not involve a mathematical evaluation
or weighing of the results of the individual analyses performed, but requires
Alex. Brown to exercise its professional judgment based on its experience and
expertise in considering a wide variety of analyses taken as a whole. Each of
the analyses conducted by Alex. Brown was carried out in order to provide a
different perspective on the proposed transaction and add to the total mix of
information available. Alex. Brown did not form a conclusion as to whether any
individual analysis, considered in isolation, supported or failed to support an
opinion as to fairness. Rather, in reaching its conclusion, Alex. Brown
considered the results of the analyses in light of each other and ultimately
reached its opinion based on the results of all analyses taken as a whole. Alex.
Brown did not place particular reliance or weight on any individual analysis,
but instead concluded that its analyses, taken as a whole, supported its
determination. Accordingly, notwithstanding the separate factors summarized
above, Alex. Brown believes that its analyses must be considered as a whole and
that selecting portions of its analyses and the factors considered by it,
without considering all analyses and factors,
18
<PAGE>
may create an incomplete view of the evaluation process underlying the Alex.
Brown Opinion. In performing its analyses, Alex. Brown made numerous assumptions
with respect to industry performances, business and economic conditions and
other matters, many of which are beyond the control of SITEL and Mitre. The
analyses performed by Alex. Brown are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable than
suggested by such analyses. Accordingly, such analyses and estimates are
inherently subject to substantial uncertainty. Additionally, analyses relating
to the value of a business do not purport to be appraisals or to reflect the
prices at which the business actually may be sold.
The Board of Directors of SITEL retained Alex. Brown to act as its financial
advisor based upon Alex. Brown's previous provision of extensive investment
banking services to SITEL and based upon Alex. Brown's qualifications,
reputation, experience and expertise. Alex. Brown is a nationally recognized
investment bank that is involved regularly in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for estate, corporate and other
purposes. Alex. Brown has acted as lead manager of two public offerings of
SITEL's common stock and has acted as financial adviser to SITEL in connection
with other matters. Alex. Brown regularly publishes research reports regarding
the teleservicing industry and the businesses and securities of publicly owned
companies in that industry. In the ordinary course of its business, Alex. Brown
may actively trade the securities of SITEL for its own account and the account
of its customers and, accordingly, may at any time hold a long or short position
in securities of SITEL.
Pursuant to a letter agreement dated May 6, 1996 (the "Engagement Letter"),
SITEL engaged Alex. Brown to provide investment banking advice and services to
SITEL in connection with SITEL's review and analysis of a potential business
combination with Mitre. Alex. Brown will receive a fee upon consummation of the
Transaction of $2,000,000 (the "Completion Fee"). In addition, SITEL agreed to
pay Alex. Brown a fee of $400,000 in connection with the delivery of the Alex.
Brown Opinion (the "Opinion Fee"). The Opinion Fee will be credited against the
Completion Fee. SITEL also agreed to reimburse Alex. Brown for reasonable
out-of-pocket expenses, including fees and disbursements of counsel, incurred by
Alex. Brown in carrying out its duties under the Engagement Letter, and to
indemnify Alex. Brown and certain related persons for certain liabilities to
which it or they may be subjected in connection with Alex. Brown's engagement,
including liabilities under the federal securities laws.
PRINCIPAL SHAREHOLDERS; SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information as of June 28, 1996 with respect
to the beneficial ownership of the SITEL Common Stock (i) by each person who is
known by the Company to be the beneficial owner (as defined in Rule 13d-3 of the
Securities Exchange Act of 1934, as amended) of more than five percent (5%) of
the SITEL Common Stock, (ii) by each of the Company's executive officers and
directors, and (iii) by all executive officers and directors of the Company as a
group. The percentage figures set forth below do not give effect to the
Transaction. See "THE TRANSACTION -- Effect Upon Existing Securityholders".
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<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER (1) OWNERSHIP CLASS
- ------------------------------------------------------------------ ------------- ---------------
<S> <C> <C>
James F. Lynch (2)................................................ 7,670,930 38.3%
Pilgrim Baxter & Associates, Ltd. (3)............................. 1,879,000 9.4
Matthew H. Gates (4)(5)(6)........................................ 1,600,018 7.9
Edward R. Taylor (4)(5)........................................... 748,298 3.7
Michael P. May (4)(5)............................................. 269,774 1.3
Nancy C. Noack (4)(5)(6).......................................... 252,080 1.3
George J. Kubat (5)(7)............................................ 14,600 *
Kelvin C. Berens (5).............................................. 10,000 *
Vinod Gupta (5)................................................... 2,000 *
Bill L. Fairfield (5)............................................. 2,000 *
Barry S. Major.................................................... 300 *
All executive officers and directors as a group
(9 persons) (3)(5)............................................... 7,829,812 38.8%
* Less than 1%.
</TABLE>
- ------------------------
(1) The address of each executive officer and director is in care of the
Company, 13215 Birch Street, Omaha, Nebraska 68164. The address of Matthew
H. Gates, a former executive officer, is 15 Colleton River Drive, c/o
Colleton River Plantation, Bluffton, South Carolina 29910. The address of
Pilgrim Baxter & Associates, Ltd., an institutional holder, is 1255 Drummers
Lane, Suite 300, Wayne, Pennsylvania 19087.
(2) Includes 3,660,930 shares owned by other stockholders over which Mr. Lynch
exercises voting control pursuant to a Voting Agreement. The Voting
Agreement grants Mr. Lynch the right to vote all shares of Common Stock held
by the stockholders signatory thereto in the manner directed by Mr. Lynch
(except as to certain shares held by an institutional investor, representing
less than 1% of the outstanding shares, which may be voted by Mr. Lynch only
with respect to the election of directors). Mr. Lynch acquires voting
control over additional shares which are issued pursuant to the Company's
stock option plans until such shares are sold by the holders thereof into
the public market.
(3) Based on data available in 13F filings for the calendar quarter ended March
31, 1996.
(4) Except for shares which have been acquired by these persons in the public
market (representing in the aggregate less than 1% of the outstanding
shares), voting control over these shares is held by Mr. Lynch pursuant to a
Voting Agreement.
(5) Includes the following shares which may be acquired under stock options
which are exercisable currently or within 60 days: Mr. Gates -- 200,000; Mr.
Taylor -- 48,298; Mr. May -- 79,604; Ms. Noack -- 2,062; Mr. Kubat -- 2,000;
Mr. Berens -- 2,000; Mr. Gupta -- 2,000; and Mr. Fairfield -- 2,000.
(6) Includes 18 shares held by each of Ms. Noack and the spouse of Mr. Gates
through an investment club of which they are members. Mr. Gates disclaims
beneficial ownership of the shares owned by his spouse.
(7) Includes 3,000 shares owned by a partnership for members of Mr. Kubat's
immediate family. Mr. Kubat shares investment power but disclaims beneficial
ownership.
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CERTAIN ARRANGEMENTS REGARDING THE DIRECTORS AND MANAGEMENT OF THE COMPANY
FOLLOWING THE TRANSACTION
Pursuant to the Share Purchase Agreement, the Company's Board of Directors,
at its next annual meeting following Completion, must nominate Henk P. Kruithof
as a member of the Company's Board of Directors, and must use all reasonable
efforts to solicit proxies for the election of Mr. Kruithof to the Board of
Directors until such time as Mr. Kruithof, directly or indirectly, beneficially
owns, in the aggregate, less than 2.5 million of the outstanding shares of SITEL
Common Stock, subject to adjustment for any stock splits or other
reclassifications.
ACCOUNTING TREATMENT
The Transaction will be accounted for using the pooling of interests method
of accounting pursuant to APB 16. The pooling of interests method of accounting
assumes that the combining companies have been combined from inception, and the
historical financial statements for periods prior to consummation of the
Transaction are restated as though the companies had been combined from
inception. The restated financial statements are adjusted to conform to the
accounting policies of SITEL.
The obligations of the Company and the Mitre Selling Shareholders to
consummate the Transaction are conditioned on receipt of letters from the
principal accountants of each of the Company and Mitre, stating that the
acquisition of the ordinary shares of Mitre will qualify as a pooling of
interests transaction for accounting purposes.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Company currently expects that the Transaction will be structured as a
tax-free reorganization under US tax law in which 100% of the Mitre ordinary
shares will be acquired by SITEL or an affiliate solely in exchange for voting
stock of SITEL. As a consequence, the Company currently expects that the basis
of the Mitre assets for US tax purposes will not be stepped up to fair market
value following consummation of the Transaction. After consummation of the
Transaction, Mitre is expected to be a controlled foreign corporation for US tax
purposes.
REGULATORY FILINGS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the rules promulgated thereunder, consummation of the
Transaction is subject to the expiration or prior termination of a specified
waiting period. A request for early termination of the waiting period under the
HSR Act was granted on July 23, 1996. At any time before or after consummation
of the Transaction, the Federal Trade Commission or the Antitrust Division of
the Department of Justice or any third party could seek to delay, enjoin or
rescind the Transaction on antitrust or other grounds. The Company believes that
the Transaction would be in compliance with Federal antitrust laws, but there
can be no assurance that a challenge, if made, would be unsuccessful. If such a
challenge occurs or is threatened prior to consummation of the Transaction, such
event could relieve the Company and the Mitre Selling Shareholders of their
respective obligations to consummate the Transaction. See "THE SHARE PURCHASE
AGREEMENT -- Conditions To Completion".
Consummation of the Transaction is also subject to receipt of an
unconditional waiver by the Panel on Take-overs and Mergers of the application
of the City Code on Takeovers and Mergers and the Rules Governing Substantial
Acquisitions of Shares to the Transaction. The waiver was received on June 28,
1996 and has not been withdrawn. If such waiver is revoked or is in any way not
in full force and effect, the Company and the Mitre Selling Shareholders may be
relieved of their respective obligations to consummate the Transaction. See "THE
SHARE PURCHASE AGREEMENT -- Conditions To Completion".
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<PAGE>
EFFECT UPON EXISTING SECURITYHOLDERS
The Transaction will result in a substantial increase in the number of
shares of SITEL Common Stock outstanding. As a result, the voting power and
percentage ownership interest in the Company of each of the Company's current
stockholders will be immediately diluted upon consummation of the Transaction.
Upon acquisition of the 9,170,553 shares of SITEL Common Stock to be issued
pursuant to the Share Purchase Agreement, the Mitre Selling Shareholders, in the
aggregate, will own approximately 26.5% of the outstanding shares of the SITEL
Common Stock on a fully diluted basis (assuming exercise of all granted options
and including shares issued as part of the NAFS acquisition and the shares
issued to the Mitre Selling Shareholders). Mr. Kruithof will own, directly or
indirectly, 5,267,167 shares, or approximately 15.2% of the outstanding shares
of SITEL Common Stock on a fully diluted basis after the Transaction, and will
be the Company's largest single stockholder. The Share Purchase Agreement also
provides that the Company will nominate Mr. Kruithof to SITEL's Board of
Directors at the next annual meeting and in the future so long as Mr. Kruithof
holds, directly or indirectly, at least 2,500,000 shares of SITEL Common Stock.
As a result of the Transaction, Mr. Kruithof individually and the Mitre Selling
Shareholders collectively will be able to exert significant influence over the
determination of the Company's corporate actions.
As of July 8, 1996, Mr. Lynch beneficially owned (directly or through a
voting agreement granting him the right to vote the affected shares) 7,670,930
shares, or approximately 38% of the outstanding SITEL Common Stock. As a result
of such voting concentration, Mr. Lynch has had the ability to effectively
control most matters requiring approval by the Company's stockholders, including
the election of directors. The Transaction, if completed, will result in an
immediate dilution of Mr. Lynch's voting control to approximately 26%. While Mr.
Lynch will continue to be able to exert significant influence over the
determination of the Company's corporate actions, the voting concentration which
the Mitre Selling Shareholders will have if the Transaction is completed means
that Mr. Lynch individually will no longer be able to effectively control most
matters requiring stockholder approval. If, however, the Mitre Selling
Shareholders, or Mr. Kruithof in particular, were to vote with Mr. Lynch on
certain stockholder matters, then they collectively should be able to control
such matters, which may have the effect of delaying or preventing a change in
control of the Company.
NO APPRAISAL RIGHTS
Section 302A.471 of the Minnesota Business Corporation Act (the "MBCA")
generally provides that a shareholder of a corporation is entitled to dissent
from, and to obtain payment for the fair value of the shareholder's shares in
the event of, an amendment to the articles of incorporation of the corporation
that materially and adversely affects the rights or preferences of the shares of
the dissenting shareholder, a sale, lease, transfer, or other disposition of all
or substantially all of the property and assets of the corporation, certain
plans of merger or exchange, or any other corporate action taken pursuant to a
shareholder vote with respect to which the articles of incorporation, bylaws, or
a corporate board resolution directs that dissenting shareholders may obtain
payment for their shares. Because the Transaction will not involve any of the
foregoing corporate events, shareholders of the Company will not be entitled to
exercise any dissenters' rights under the MBCA with respect to the Transaction.
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<PAGE>
THE SHARE PURCHASE AGREEMENT
THE FOLLOWING DESCRIPTION OF THE SHARE PURCHASE AGREEMENT DOES NOT PURPORT
TO BE COMPLETE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE TEXT OF THE
SHARE PURCHASE AGREEMENT, WHICH IS ATTACHED TO THIS PROXY STATEMENT AS APPENDIX
A AND INCORPORATED HEREIN BY REFERENCE. ALL STOCKHOLDERS ARE URGED TO READ THE
SHARE PURCHASE AGREEMENT IN ITS ENTIRETY.
THE PURCHASE
The Share Purchase Agreement provides that, subject to the approval of the
Share Purchase Agreement by the stockholders of the Company and the satisfaction
or waiver of certain other conditions to Completion, the Company has agreed to
issue 9,170,553 shares of SITEL Common Stock to the Mitre Selling Shareholders
in exchange for 100% of the ordinary shares of Mitre.
COMPLETION
It is currently anticipated that Completion will occur as soon as
practicable after satisfaction or waiver of all conditions to Completion
contemplated by the Share Purchase Agreement, including the condition that the
stockholders of the Company approve the Share Purchase Agreement and the
Transaction. Completion is expected to occur on the date of the Special Meeting,
or as soon thereafter as practicable. See "THE SHARE PURCHASE AGREEMENT --
Conditions to Completion".
ESCROW ACCOUNT
The Share Purchase Agreement provides that, at Completion, 10% of the shares
of the SITEL Common Stock to be issued to the Mitre Selling Shareholders will be
delivered by the Company to an escrow agent for deposit in accordance with the
terms of the Escrow Agreement (as defined below). See "CERTAIN ANCILLARY
AGREEMENTS AND DOCUMENTS -- Escrow Agreement".
WARRANTIES
The Share Purchase Agreement includes various warranties of the Company and
the Mitre Selling Shareholders. The warranties of the Mitre Selling Shareholders
relate to, among other things: (i) due organization and good standing of Mitre,
(ii) authority of the Mitre Selling Shareholders to enter into the Share
Purchase Agreement, (iii) enforceability of the Share Purchase Agreement, (iv)
governmental authorization, (v) non-contravention, (vi) capitalization of Mitre,
(vii) beneficial ownership of the Mitre shares, (viii) due organization of the
subsidiaries of Mitre, (ix) accuracy of financial statements and management
accounts, (x) absence of certain changes, (xi) absence of undisclosed material
liabilities, (xii) related party transactions, (xiii) contracts with clients and
other material contracts, (xiv) absence of litigation, (xv) compliance with laws
and other instruments, (xvi) properties, (xvii) intellectual property, (xviii)
insurance coverage, (xix) licenses and permits, (xx) absence of finders' fees,
(xxi) certain environmental matters, (xxii) investment intent,
(xxiii) competition and fair trading laws, (xxiv) records and software and
business contracts, and (xxv) certain director, employee and pension matters.
The warranties of the Company relate to, among other things: (i) due
organization and good standing of the Company, (ii) corporate power and
authority, (iii) enforceability of the Share Purchase Agreement, (iv)
governmental authorization, (v) non-contravention, (vi) finders' fees, (vii)
authorization and issuance of SITEL Common Stock, and (viii) filings with the
Securities and Exchange Commission.
COVENANTS
The Share Purchase Agreement contains additional covenants and agreements of
both SITEL and the Mitre Selling Shareholders. During the period from the date
of the Share Purchase Agreement until the date of Completion, the Company will,
among other things, (i) permit the Mitre Selling Shareholders reasonable access
to the Company's records; and (ii) cause Mr. Kruithof to be nominated as a
member of the Company's Board of Directors, and use all reasonable efforts to
solicit proxies for Mr. Kruithof's election.
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<PAGE>
Additionally, each of the Company and the Mitre Selling Shareholders will,
among other things, (i) use their best efforts to consummate the Transaction as
promptly as practicable; (ii) cooperate with one another in obtaining any
government action, filing or approval required in connection with consummation
of the Transaction; and (iii) make any required filing under the HSR Act as
promptly as practicable.
During the period from the date of the Share Purchase Agreement until the
date of Completion, the Mitre Selling Shareholders will procure that Mitre and
each of its subsidiaries shall, among other things, conduct their respective
businesses in the ordinary and usual course, and that none of Mitre or its
subsidiaries will, without the written consent of SITEL, take certain actions
which (i) impact the value of the Mitre ordinary shares, (ii) are outside the
ordinary course of business, or (iii) are inconsistent with the Share Purchase
Agreement. Additionally, the Mitre Selling Shareholders will, among other
things, (i) refrain from granting proxies or entering into agreements with
respect to the voting of Mitre ordinary shares; (ii) redeem all outstanding
preferred shares of Mitre and certain of its subsidiaries; (iii) cause to be
terminated any shareholder agreements other than employment and consultancy
arrangements in the ordinary course of business; (iv) enter into stay bonus
arrangements with approximately 50 Mitre employees (none of whom are Mitre
shareholders) that call for payment of approximately $4.0 million over three
years; and (v) enter into employment agreements with certain management
employees of Mitre.
CONDITIONS TO COMPLETION
Pursuant to the Share Purchase Agreement, the obligations of the Company and
Mitre Selling Shareholders to consummate the Transaction are subject to the
approval of the Company's stockholders and the satisfaction of certain other
conditions, including, but not limited to: (i) execution of the Registration
Rights Agreement (as defined below); (ii) execution of the Tax Covenant (as
defined below); (iii) the receipt of accountants' letters stating that the
Transaction may be accounted for as a pooling of interests; (iv) expiration of
the waiting period under the HSR Act; (v) the Mitre Selling Shareholders'
receipt of unconditional clearance from the Board of the Inland Revenue in
respect of the application pursuant to Section 138 Taxation of Chargeable Gains
Act 1992; and (vi) the Company receiving an unconditional waiver from the Panel
on Takeovers and Mergers.
The obligation of the Company to consummate the Transaction is subject to
the satisfaction of further conditions, including, but not limited to: (i) the
Mitre Selling Shareholders' performance of their covenants; (ii) the absence of
a breach of the warranties of the Mitre Selling Shareholders; (iii) execution of
the Investor Letter (as defined below); (iv) the receipt of all consents and
approvals relating to client contracts; (v) absence of certain legal
proceedings; (vi) the receipt of requested documents; and (vii) the receipt of
the written consent of General Motors Acceptance Corporation ("GMAC"), a
significant client of Mitre, to the Transaction.
The obligation of the Mitre Selling Shareholders to consummate the
Transaction is subject to the satisfaction of further conditions, including, but
not limited to, the Company performing its covenants, and the absence of a
breach of the Company's warranties.
SURVIVAL AND INDEMNIFICATION
The Share Purchase Agreement provides that, in order to enforce its rights
under the warranties, the Company must give notice of a breach of any warranty
within two years after Completion and that the Company must commence proceedings
based upon any such breach within 30 months after Completion. Notice must be
given of any breach of the Tax Covenant within six years after Completion.
The Mitre Selling Shareholders will be liable in respect of any claim under
the warranties or the Tax Covenant only to the extent that their aggregate
cumulative liability exceeds L1 million up to a total aggregate amount of $25
million with certain limitations applying to liability under the Tax Covenant.
The Company may not make any claim under the warranties or the Tax Covenant
unless the sum claimed exceeds L1,000, and claims for sums less than L1,000 will
not be counted towards the
24
<PAGE>
L1 million. Each Mitre Selling Shareholder's liability for breach of the
warranties or under the Tax Covenant is limited to the proportion which the
Mitre ordinary shares to be sold by such Mitre Selling Shareholder bears to the
total number of Mitre ordinary shares to be sold under the Share Purchase
Agreement. The liability of the Mitre Selling Shareholders shall be reduced by
the value of certain recoveries actually received by the Company. The Company,
Mitre or any subsidiary must reimburse the Mitre Selling Shareholders for any
such recoveries following indemnification. The Mitre Selling Shareholders'
liability will be adjusted appropriately for changes in legislation or if
payment of a claim reduces tax liability.
The Mitre Selling Shareholders are not subject to liability under the
warranties in respect of any matter disclosed in the disclosure letter which
refers to the Share Purchase Agreement (the "Disclosure Letter") unless
otherwise indicated in the Disclosure Letter.
TERMINATION
The Share Purchase Agreement may be terminated at any time prior to the
Completion: (i) by mutual written agreement of the Company and the Seller
Representative (as defined below); (ii) by either the Company or the Seller
Representative if the Completion shall not have been consummated on or before
December 31, 1996; (iii) by either the Company or the Seller Representative if
there shall be any law or regulation that makes consummation of the transactions
contemplated thereby illegal or otherwise prohibited or if consummation of the
transactions contemplated thereby would violate any nonappealable final order,
decree or judgment of any court or governmental body having competent
jurisdiction; or (iv) by either the Company or the Seller Representative if the
Company shall not have received an unconditional waiver to the Transaction from
the Panel on Takeovers and Mergers of the application of the City Code on
Mergers.
If the Share Purchase Agreement is terminated as permitted by its terms,
termination will be without liability of any party (or any stockholder,
director, officer, employee, agent, consultant or representative of such party)
to any other party to the Share Purchase Agreement; provided that (i) if such
termination results from any Mitre Selling Shareholder's willful failure to
fulfill a condition to Completion, failure to perform a covenant or breach of
any warranty, the Mitre Selling Shareholders will be jointly and severally
liable (in the appropriate proportions) for any and all damages incurred or
suffered by the Company (except to the extent that such termination results from
such Mitre Selling Shareholder's willful breach of the warranties, in which case
such Mitre Selling Shareholder will be fully and severally liable for any and
all damages incurred or suffered by the Company as a result of such breach); and
(ii) if such termination results from the willful failure of the Company to
fulfill a condition to Completion, failure to perform a covenant or breach of
any warranty, the Company will be fully liable for any and all damages incurred
or suffered by Mitre Selling Shareholders.
AMENDMENTS AND WAIVERS
Any provision of the Share Purchase Agreement may be amended or waived prior
to Completion if such amendment or waiver is in writing and signed. No failure
or delay by any party in exercising any right, power or privilege in the Share
Purchase Agreement will operate as a waiver thereof nor will any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.
EXPENSES
Except as otherwise provided in the Share Purchase Agreement, all costs and
expenses incurred in connection with the Share Purchase Agreement, including
legal and accountancy costs and the cost of filing pursuant to the HSR Act, will
be paid by the Company; provided, however, that if the Share Purchase Agreement
is terminated for any reason prior to Completion, such costs and expenses will
be paid by the party incurring such cost or expense, except as otherwise
provided in the Share Purchase Agreement.
25
<PAGE>
GOVERNING LAW
The Share Purchase Agreement is to be governed by and construed in
accordance with the laws of England and Wales, and the parties to the Share
Purchase Agreement have submitted to the exclusive jurisdiction of the English
courts.
SELLER REPRESENTATIVE
The Mitre Selling Shareholders have agreed to the designation of a
representative (the "Seller Representative") whose determinations and actions
pursuant to the Share Purchase Agreement will be conclusive and binding on each
Mitre Selling Shareholder. There will be only one Seller Representative at any
given time, and the conclusive and binding nature of the determinations or
actions of a Seller Representative will not be affected by the determinations or
actions of any subsequent Seller Representative. The Seller Representative will
be Mr. Kruithof or any other Mitre Selling Shareholder who is designated and
identified to the Company pursuant to the terms of the Share Purchase Agreement.
REGISTRATION RIGHTS
The shares of SITEL Common Stock to be issued to the Mitre Selling
Shareholders will not be registered with the Securities and Exchange Commission;
however, the Company has agreed that, upon the request of the Mitre Selling
Shareholders, the Company will register for public sale under the Securities Act
of 1933 a part not to exceed, with respect to any individual Mitre Selling
Shareholder, 30% of the SITEL Common Stock beneficially owned by such Mitre
Selling Shareholder pursuant to the Share Purchase Agreement. See "CERTAIN
ANCILLARY AGREEMENTS AND DOCUMENTS -- Registration Rights Agreement".
TAX COVENANT
Pursuant to the Share Purchase Agreement, the Mitre Selling Shareholders
have agreed to enter into a deed of covenant with the Company (the "Tax
Covenant"), whereby the Mitre Selling Shareholders jointly and severally
covenant to indemnify the Company for certain tax liabilities arising prior to
consummation of the Transaction. The rights of the Company in respect of breach
or non-fulfillment of the Tax Covenant will survive for six years from the date
of Completion. Execution of the Tax Covenant is a condition to the obligations
of the Company and the Mitre Selling Shareholders to consummate the Transaction.
See "CERTAIN ANCILLARY AGREEMENTS AND DOCUMENTS -- Tax Covenant".
CERTAIN ANCILLARY AGREEMENTS AND DOCUMENTS
REGISTRATION RIGHTS AGREEMENT
The Company and the Mitre Selling Shareholders have agreed, pursuant to the
Share Purchase Agreement, to enter into a separate Registration Rights Agreement
(the "Registration Rights Agreement") prior to the Completion. Execution of the
Registration Rights Agreement is a condition to the obligations of the Company
and the Mitre Selling Shareholders to consummate the Transaction.
Pursuant to the Registration Rights Agreement, the Company will, upon the
request of the Mitre Selling Shareholders, register for public sale under the
Securities Act of 1933 a part not to exceed, with respect to any individual
Mitre Selling Shareholder, 30% of the SITEL Common Stock beneficially owned by
such Mitre Selling Shareholder pursuant to the Share Purchase Agreement.
The Company is only obligated to effect one such registration and has no
obligation to effect any such registration until after six months from the
Completion. If the Company determines to register any of its securities either
for its own account or the account of other securityholders, the Company is
required, under certain circumstances, to include in such registration such
shares of SITEL Common Stock as the Mitre Selling Shareholders shall request.
The Company is obligated to bear all expenses incurred by it in connection
with any registration effected pursuant to the terms of the Registration Rights
Agreement, except underwriting fees,
26
<PAGE>
discounts and commissions applicable to the sale of securities by the Mitre
Selling Shareholders and certain of the Mitre Selling Shareholders'
out-of-pocket expenses, including legal fees and expenses and any fees and
expenses of underwriters' counsel to the extent not paid for by underwriters.
The Registration Rights Agreement contains certain provisions requiring, under
certain circumstances, the Company to indemnify the Mitre Selling Shareholders
and certain persons affiliated with the Mitre Selling Shareholders, and the
Mitre Selling Shareholders to indemnify the Company and certain persons
affiliated with the Company, against certain liabilities arising out of or
incident to a registration effected pursuant to the terms of the Registration
Rights Agreement.
ESCROW AGREEMENT
The Company and the Mitre Selling Shareholders have agreed, pursuant to the
Share Purchase Agreement, to enter into a separate Escrow Agreement in
substantially the form attached as Exhibit B to the Share Purchase Agreement
(the "Escrow Agreement") prior to the Completion. Execution of the Escrow
Agreement is a condition to the obligations of the Company and the Mitre Selling
Shareholders to consummate the Transaction.
Pursuant to the Escrow Agreement, the Company will hold back and deposit
into an account (the "Escrow Account") with an escrow agent a certain number of
the shares of SITEL Common Stock payable to each Mitre Selling Shareholder as
the purchase consideration for the Transaction (the "Escrow Shares"). The amount
of the holdback purchase consideration will be, with respect to each Mitre
Selling Stockholder, that number of shares of SITEL Common Stock representing
10% of the number of shares of SITEL Common Stock payable to such Mitre Selling
Shareholder as purchase consideration pursuant to the Share Purchase Agreement.
The Mitre Selling Shareholders will be the owners of the Escrow Shares for
tax purposes, and all dividends paid with respect to the Escrow Shares will be
beneficially owned by, and distributed currently to, the Mitre Selling
Shareholders. The Mitre Selling Shareholders will have the right to vote, and to
give consents, ratifications and waivers with respect to, the Escrow Shares.
In the event that the Company has a claim against the Mitre Selling
Stockholders for any breach of warranties, covenants or other agreements,
including the Tax Covenant, pursuant to the Share Purchase Agreement, the
Company may initially seek recovery against the Mitre Selling Shareholders.
Additionally, the Company may seek recovery from the Escrow Account pursuant to
the Escrow Agreement.
In accordance with the terms of the Escrow Agreement, the Escrow Account
will expire on the earlier of (i) the first anniversary of Completion, and (ii)
completion of the first combined audit of the Company and Mitre.
INVESTOR LETTER
Prior to Completion, as a condition to the Company's obligation to
consummate the Transaction, each Mitre Selling Shareholder must execute an
Investor Letter in substantially the form attached as Exhibit C to the Share
Purchase Agreement (the "Investor Letter"). Pursuant to the Investor Letter,
each Mitre Selling Shareholder will, among other things, (i) acknowledge receipt
of such information necessary to his investment decision in respect of the
Transaction; (ii) represent that he is purchasing the shares of SITEL Common
Stock in a private placement for his own account and for investment purposes;
(iii) represent himself to have sufficient knowledge and experience in business
matters to evaluate the risks of investing in the SITEL Common Stock; and (iv)
agree not to transfer the shares of SITEL Common Stock acquired pursuant to the
Transaction within three years after such acquisition, except (x) in compliance
with the Registration Rights Agreement, or (y) in a transaction (A) which does
not require registration of the shares of SITEL Common Stock under the
Securities Act of 1933 or any applicable US state laws and regulations governing
the offer and sale of securities, and (B) in respect of which the Mitre Selling
Shareholder has furnished a legal opinion to the effect that no such
registration is necessary.
27
<PAGE>
TAX COVENANT
Pursuant to the Share Purchase Agreement, the Mitre Selling Shareholders
have agreed to enter a Tax Covenant with the Company, whereby the Mitre Selling
Shareholders jointly and severally covenant to indemnify the Company for certain
tax liabilities of Mitre and its subsidiaries arising prior to consummation of
the Transaction, including liabilities arising in respect of income, profits or
gains earned on or before Completion. Specifically excluded from the Tax
Covenant are (i) tax liabilities for which provision or reserve has been made in
Mitre's financial statements or management accounts and (ii) tax liabilities
arising in the ordinary course of business of Mitre or the relevant subsidiary
of Mitre.
The Company's right to recover under both the Share Purchase Agreement
warranties and the Tax Covenant is limited to $25 million in the aggregate,
provided that the Company may not recover under the Tax Covenant during the
period commencing three years from the date of Completion and ending six years
after the date of Completion any sum in excess of $2 million in the aggregate.
The rights of the Company in respect of breach or non-fulfillment of the Tax
Covenant will survive for six years from the date of Completion. Execution of
the Tax Covenant is a condition to the obligations of the Company and the Mitre
Selling Shareholders to consummate the Transaction.
28
<PAGE>
SITEL CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of the Company are
qualified by reference to and should be read in conjunction with "SITEL
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and with the Company's consolidated financial statements and notes
thereto included elsewhere in this Proxy Statement. The selected financial data
presented below as of and for each of the years in the five-year period ended
May 31, 1995 are derived from the Company's financial statements which have been
audited by Coopers & Lybrand L.L.P. The selected financial data as of and for
the nine months ended February 28, 1995 and February 29, 1996 are derived from
the Company's unaudited financial statements and include, in the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the financial position and results of
operations for such periods.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEARS ENDED MAY 31, ---------------------------
----------------------------------------------------- FEBRUARY 28, FEBRUARY 29,
1991 1992 1993 1994 1995 1995 1996
------- ------- ----------- ------- ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.................... $29,422 $31,824 $55,498 $68,855 $101,378 $72,185 $98,861
Operating expenses..........
Cost of services.......... 17,328 17,849 31,553 37,052 55,054 39,630 52,951
Division selling, general
and administrative
expenses................. 8,693 9,942 17,847 23,810 32,979 23,287 31,485
Corporate general and
administrative
expenses................. 2,225 3,064 3,664 5,567 6,160 4,663 5,170
Special compensation
expense.................. -- -- -- -- 34,585(a) 34,585 --
------- ------- ----------- ------- ------------ ------------ ------------
Operating income (loss)... 1,176 969 2,434 2,426 (27,400)(b) (29,980)(b) 9,255
Interest income (expense),
net....................... (182) (256) (757) (538) (702) (504) 473
Other income................ 18 279 106 1,371 399 292 60
------- ------- ----------- ------- ------------ ------------ ------------
Income (loss) before
income taxes and
cumulative effect of
accounting change........ 1,012 992 1,783 3,259 (27,703) (30,192) 9,788
Income tax expense
(benefit)................... 306 258 575 391 (9,603) (10,484) 3,466
Cumulative effect of
accounting change(c)...... -- 354 -- -- -- -- --
------- ------- ----------- ------- ------------ ------------ ------------
Net income (loss)......... $ 706 $ 1,088 $ 1,208 $ 2,868 ($18,100)(b) ($19,708)(b) $ 6,322
------- ------- ----------- ------- ------------ ------------ ------------
------- ------- ----------- ------- ------------ ------------ ------------
Per common share:
Earnings (loss) per common
and common equivalent
share.................... $ 0.05 $ 0.07 $ 0.07 $ 0.17 ($1.05)(b) ($1.15)(b) $ 0.30
------- ------- ----------- ------- ------------ ------------ ------------
------- ------- ----------- ------- ------------ ------------ ------------
Weighted average common
and common equivalent
shares outstanding....... 15,262 15,264 16,600 17,207 17,207 17,207 21,111
BALANCE SHEET DATA:
Working capital (deficit)... $ 2,097 $ 1,011 ($2) $ 2,485 $ 4,644 $ 3,506 $ 66,855
Total assets................ 9,141 9,840 23,457 24,283 45,967 42,374 115,087
Long-term debt, net of
current portion(d)........ 1,357 1,387 3,650 3,364 2,885 4,108 129
Stockholders' equity........ 1,978 3,068 5,859 8,510 24,843 23,297 101,114
</TABLE>
- ------------------------------
(a) Represents a non-recurring, non-cash compensation expense of $34.6 million
incurred in February 1995 resulting from the grant of stock options with an
exercise price of $0.01 per share to 265 employees of the Company to replace
stock appreciation rights previously granted under the Company's Employee
Equity Benefit Plan and previously granted stock options.
(b) Excluding the special compensation expense and a one-time forgiveness of
$528,000 owed by two stockholders, operating income, net income and net
income per share would have been $7.6 million, $5.2 million and $0.30,
respectively, for the year ended May 31, 1995 and operating income, net
income and net income per share would have been $5.1 million, $3.5 million
and $0.20, respectively, for the nine months ended February 28, 1995.
(c) During fiscal 1992, the Company changed its method of accounting for income
taxes.
(d) Includes note payable to related party.
29
<PAGE>
SITEL MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
SITEL was founded in 1985 by its Chief Executive Officer, James F. Lynch.
From its inception, the Company has focused on clients in the insurance and
financial services industries. In October 1992, SITEL acquired May
Telemarketing, Inc., which primarily served companies in the telecommunications
and publishing industries. The Company formed its first industry group in fiscal
1992 when it separated its insurance activities into a separate division. After
realizing the important competitive advantages created by this divisional
structure, the Company decided to organize its other operations into four
additional divisions. Each division operates autonomously and has its own
management team and call and data management systems.
Four of these divisions focus on specific industries. To take advantage of
economies of scale, the fifth division historically handled the Company's
inbound teleservicing activities. In recent years as the amount of revenues from
inbound customer service applications has increased, these inbound activities
have been moved into the appropriate industry-focused division. Today, the fifth
division, called Client Services, handles those activities which do not fit in
one of the industry groups, including new initiatives the Company is seeking to
develop into additional industry groups.
As a result of this divisional structure, the Company has made significant
investments in divisional management personnel, systems and facilities. While
the Company was first implementing this structure in fiscal 1994, operating
income as a percentage of revenues declined as a result of these additional
expenses. Having fully implemented its divisional reorganization during fiscal
1994, the Company increased its operating margin for fiscal 1995 to 7.6% of
revenues (excluding the non-recurring, non-cash special compensation expense and
the one-time forgiveness of amounts owed by two stockholders incurred in
February 1995) from 3.5% of revenues in fiscal 1994. Operating margins in the
first nine months of fiscal 1996 increased to 9.4% of revenues from 7.1% of
revenues (excluding the non-recurring non-cash special compensation expense and
the one-time forgiveness of amounts owed by two stockholders incurred in
February 1995) in the first nine months of fiscal 1995. The increase in
operating margins is primarily due to the Company's ability to increase revenues
without a commensurate percentage increase in divisional or corporate overhead.
Remote operation sites ("ROPS") are third-party operated facilities that
service a portion of SITEL's outbound teleservicing activities. The Company has
used ROPS as a method of temporarily expanding capacity without increasing fixed
costs. In fiscal 1993, SITEL decided to focus on expanding its workstation
capacity through Company-operated facilities. As a result, the percentage of
revenues from teleservicing conducted by ROPS has steadily declined since fiscal
1993. This decline has been a factor in decreasing SITEL's cost of services as a
percentage of revenues from fiscal 1993 levels since ROPS typically provide
services at a higher cost than the Company would incur through its own
facilities.
The Company has experienced and expects to continue to experience quarterly
variations in revenues from its largest clients. These variations relate
primarily to the timing and duration of clients' telephone-based customer
service programs and to the addition of new clients.
In fiscal 1995, the Company incurred a non-recurring, non-cash special
compensation expense of $34.6 million resulting from the grant of stock options
with an exercise price of $.01 per share to 265 employees of the Company to
replace stock appreciation rights previously granted under the Company's
Employee Equity Benefit Plan and previously granted stock options. This
compensation expense also resulted in a deferred tax benefit of $11.8 million to
the Company which will be available to reduce future income taxes.
Through fiscal 1994, the Company's effective income tax rate was less than
the 34% statutory US rate primarily as the result of state income tax credits
earned in Nebraska under a job creation and
30
<PAGE>
investment incentive program. In fiscal 1995 and in the first nine months of
fiscal 1996, the effective tax rate was 35%. As the Company has opened new
facilities in states or countries without job or investment tax credits or in
states or countries with corporate income taxes, its effective tax rate will
continue to increase.
The Company expects to account for the Transaction and the acquisition of
NAFS as a pooling of interests and the acquisition of Teleaction as a purchase
for financial reporting purposes. The resulting goodwill arising from the
acquisition of Teleaction, estimated to be $23.5 million, will be amortized on a
straightline basis over 25 years. However, goodwill will be increased by the
amount of any future contingent payment made if certain profitability targets
are achieved by Teleaction during the two years following the closing. The
Company consummated the acquisition of Teleaction on June 12, 1996.
RESULTS OF OPERATIONS
The following table sets forth statement of operations data as a percentage
of revenues for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEARS ENDED MAY 31, ----------------------------
------------------------------------- FEBRUARY 28, FEBRUARY 29,
1993 1994 1995 1995 1996
----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues............................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Cost of services................................... 56.9 53.8 54.3 54.9 53.6
Division selling, general and administrative
expenses.......................................... 32.2 34.6 32.5 32.3 31.8
Corporate general and administrative expenses...... 6.5 8.1 6.1 6.5 5.2
Special compensation expense....................... -- -- 34.1 47.8 --
----- ----- ----- ----- -----
Operating income (loss).......................... 4.4 3.5 (27.0) (41.5) 9.4
Interest (expense), net.............................. (1.4) (0.8) (0.7) (0.7) 0.5
Other income......................................... 0.2 2.0 0.4 0.4 --
----- ----- ----- ----- -----
Income (loss) before income taxes................ 3.2 4.7 (27.3) (41.8) 9.9
Income tax expense (benefit)......................... 1.0 0.5 (9.5) (14.5) 3.5
----- ----- ----- ----- -----
Net income (loss)................................ 2.2% 4.2% (17.8)% (27.3)% 6.4%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
NINE MONTHS ENDED FEBRUARY 29, 1996 COMPARED TO NINE MONTHS ENDED FEBRUARY 28,
1995
REVENUES. Revenues increased $26.7 million, or 37.0%, to $98.9 million in
the first nine months of fiscal 1996 from $72.2 million in the comparable period
of fiscal 1995. Of this increase, $8.3 million was attributable to services
initiated for new clients and $18.4 million to higher revenues from existing
clients. Revenues from existing clients increased 25.5% in the first nine months
of fiscal 1996 over the comparable period of fiscal 1995 primarily as a result
of higher calling volumes rather than higher rates.
COST OF SERVICES. Cost of services represents labor and telephone expenses
directly related to teleservicing activities. As a percentage of revenues, cost
of services decreased to 53.6% in the first nine months of fiscal 1996 from
54.9% in the comparable period of fiscal 1995. The majority of this decrease
related to lower direct labor costs for service representatives hired for new
operations outside of the Omaha labor market with lower prevailing hourly wage
rates. In addition to the decreased labor costs, the Company received a one-time
set-up fee reimbursement from a client during the third quarter of fiscal 1996.
DIVISION SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Division selling,
general and administrative expenses include all expenses which directly support
divisional operations such as management salaries, facilities expenses,
equipment depreciation, marketing activities and client support
31
<PAGE>
services. These expenses increased $8.2 million, or 35.2%, to $31.5 million in
the first nine months of fiscal 1996 from $23.3 million in the comparable period
of fiscal 1995. This increase was primarily the result of the addition of
administrative staff, system and facilities expenses for new operations opened
during the first nine months of fiscal 1996 to support the Company's higher
calling volumes. As a percentage of revenues, these expenses decreased to 31.8%
in the first nine months of 1996 from 32.3% for the comparable period of fiscal
1995 because the Company did not require a commensurate increase in overhead to
support its increased volume of business.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES. Corporate general and
administrative expenses represent the cost of central services the Company
provides to support and manage its divisional activities. These expenses include
senior corporate management, accounting and payroll, general administration,
human resources management and legal services. Corporate general and
administrative expenses increased $507,000, or 10.9%, to $5.2 million in the
first nine months of fiscal 1996 from $4.7 million in the comparable period of
fiscal 1995. As a percentage of revenues, these expenses decreased to 5.2% in
the first nine months of fiscal 1996 from 6.5% in the comparable period of
fiscal 1995. This decrease was attributable to an increase in revenues without a
commensurate increase in corporate overhead.
SPECIAL COMPENSATION EXPENSE. In February 1995, the Company incurred a
non-recurring, non-cash compensation expense of $34.6 million. This resulted
from the grant of stock options with an exercise price of $0.01 per share to 265
employees of the Company to replace stock appreciation rights previously granted
under the Company's Employee Equity Benefit Plan and previously granted stock
options.
OPERATING INCOME. Excluding the non-recurring, special compensation expense
and the one-time forgiveness of $528,040 owed by two stockholders, operating
income increased $4.1 million, or 80.3%, to $9.3 million in the first nine
months of fiscal 1996 from $5.1 million in the comparable period of fiscal 1995.
As a percentage of revenues, operating income (excluding the non-recurring
special compensation expense and the amount forgiven) increased to 9.4% in the
first nine months of fiscal 1996 from 7.1% in the comparable period of fiscal
1995 primarily due to an increase in revenues without a commensurate increase in
divisional or corporate overhead. Primarily as a result of the non-recurring,
special compensation expense, the Company reported an operating loss of $30.0
million in the first nine months of fiscal 1995.
OTHER INCOME AND EXPENSE. Other income and expense includes interest
income, interest expense and other items of income and expense that cannot be
attributed to a particular division. Other income and expense increased by
$745,000 to $533,000 in the third quarter of fiscal 1996 from a $212,000 expense
in the comparable period of fiscal 1995. The primary reason for the change
related to interest income. From the proceeds of the public offerings, debt was
paid, and the remainder was invested; thus interest expense has been reduced and
interest income has increased.
NET INCOME. Primarily as a result of the non-recurring, special
compensation expense and the one-time forgiveness of $528,040 owed by two
stockholders, the Company reported a net loss of $19.7 million in the first nine
months of fiscal 1995 compared to net income of $6.3 million in the comparable
period of fiscal 1996. Excluding the non-recurring, special compensation expense
and the amount forgiven, net income increased $2.8 million, or 82.3%, to $6.3
million in the first nine months of fiscal 1996 from $3.5 million in the
comparable period of fiscal 1995 and increased to 6.4% of revenues from 5.1% of
revenues.
FISCAL 1995 COMPARED TO FISCAL 1994
REVENUES. Revenues increased $32.5 million, or 47.2%, to $101.4 million in
fiscal 1995 from $68.9 million in fiscal 1994. Of this increase, $20.2 million
was attributable to services initiated for new clients and $12.3 million to
higher revenues from existing clients. Revenues from existing clients increased
17.9% in fiscal 1995 over fiscal 1994 primarily as a result of higher calling
volumes rather than higher rates.
32
<PAGE>
COST OF SERVICES. As a percentage of revenues, cost of services increased
to 54.3% in fiscal 1995 from 53.8% in fiscal 1994. This increase was primarily
attributable to certain higher margin programs that represented a higher
percentage of total revenues in fiscal 1994 than in fiscal 1995 and, to a lesser
extent, higher direct labor costs for service representatives in Omaha hired to
support the Company's overall increased calling volumes. As the Company expands
its calling volumes, it expects to continue to locate new operations outside of
Omaha in order to take advantage of lower prevailing hourly wage rates for
service representatives.
DIVISION SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Division selling,
general and administrative expenses increased $9.2 million, or 38.5%, to $33.0
million in fiscal 1995 from $23.8 million in fiscal 1994 primarily as a result
of increased expenses attributable to new facilities as well as additional staff
to support the Company's higher calling volumes in fiscal 1995. As a percentage
of revenues, however, these expenses decreased to 32.5% in fiscal 1995 from
34.6% in fiscal 1994. This percentage decrease was directly attributable to
increased revenues in all divisions without a commensurate increase in
divisional expenses.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES. Corporate general and
administrative expenses increased $592,000, or 10.6%, to $6.2 million in fiscal
1995 from $5.6 million in fiscal 1994. Of this increase, $528,000 was due to a
one-time forgiveness of amounts due by two stockholders. As a percentage of
revenues, however, these expenses decreased to 6.1% in fiscal 1995 from 8.1% in
fiscal 1994 because the Company did not require a commensurate level of
corporate overhead to support its increased volume of business.
SPECIAL COMPENSATION EXPENSE. In February 1995, the Company incurred a
non-recurring, non-cash compensation expense of $34.6 million. This resulted
from the grant of stock options with an exercise price of $0.01 per share to 265
employees of the Company to replace stock appreciation rights previously granted
under the Company's Employee Equity Benefit Plan and previously granted stock
options.
OPERATING INCOME. Excluding the non-recurring, special compensation expense
and the one-time forgiveness of $528,000 owed by two stockholders, operating
income would have increased $5.2 million, or 216.7%, to $7.6 million in fiscal
1995 from $2.4 million in fiscal 1994. As a percentage of revenues, operating
income (excluding the non-recurring special compensation expense and the amount
forgiven) would have increased to 7.6% in fiscal 1995 from 3.5% in fiscal 1994
primarily due to an increase in revenues without a commensurate increase in
divisional or corporate overhead. Primarily as a result of the non-recurring,
special compensation expense, the Company reported an operating loss of $27.4
million in fiscal 1995.
INTEREST EXPENSE, NET. Net interest expense increased slightly to $702,000
or 0.7% of revenues, in fiscal 1995 from $538,000, or 0.8% of revenues, in
fiscal 1994.
OTHER INCOME. Other income decreased to $399,000, or 0.4% of revenues, in
fiscal 1995 from $1.4 million, or 2.0% of revenues, in fiscal 1994. This
decrease was primarily attributable to a one-time $985,000 payment in fiscal
1994 from a client in connection with the client's decision to perform its
teleservicing services internally.
NET INCOME. Primarily as a result of the non-recurring, non-cash special
compensation expense and the one-time forgiveness of $528,000 owed by two
stockholders, the Company reported a net loss of $18.1 million in fiscal 1995
compared to net income of $2.9 million in fiscal 1994. Excluding the special
compensation expense and the amount forgiven, net income would have increased
$2.3 million, or 80%, to $5.2 million in fiscal 1995 from $2.9 million in fiscal
1994 and would have increased to 5.1% of revenues from 4.2% of revenues.
33
<PAGE>
FISCAL 1994 COMPARED TO FISCAL 1993
REVENUES. Revenues increased $13.4 million, or 24.1%, to $68.9 million in
fiscal 1994 from $55.5 million in fiscal 1993. This increase included $8.1
million from services to new clients and $5.3 million from services to existing
clients. Revenues from existing clients increased 9.5% in fiscal 1994 over
fiscal 1993 primarily due to increased calling volumes.
COST OF SERVICES. As a percentage of revenues, cost of services decreased
to 53.8% in fiscal 1994 from 56.9% in fiscal 1993. This decrease was primarily
attributable to a shift in the program mix to higher margin services and, to a
lesser extent, because a higher percentage of total revenues was generated by
Company-operated facilities.
DIVISION SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Division selling,
general and administrative expenses increased $6.0 million, or 33.4%, to $23.8
million in fiscal 1994 from $17.8 million in fiscal 1993. As a percentage of
revenues, these expenses increased to 34.6% in fiscal 1994 from 32.2% in fiscal
1993. This increase was primarily attributable to increases in administrative
staff, as well as systems and facilities necessary to support the Company's
industry-focused divisional structure which was fully implemented in fiscal
1994.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES. Corporate general and
administrative expenses increased $1.9 million, or 52.0%, to $5.6 million in
fiscal 1994 from $3.7 million in fiscal 1993. As a percentage of revenues, these
expenses increased to 8.1% in fiscal 1994 from 6.5% in fiscal 1993. The increase
was principally attributable to higher incentive bonuses paid for performance in
excess of the Company's budget for fiscal 1994 and, to a lesser extent, a
Nebraska court decision which eliminated property taxes for a portion of fiscal
1993.
OPERATING INCOME. Operating income remained constant at $2.4 million, but
decreased as a percentage of revenues to 3.5% in fiscal 1994 from 4.4% in fiscal
1993 primarily due to the Company's reorganization into industry-focused
divisions.
INTEREST EXPENSE, NET. Net interest expense decreased to $538,000 in fiscal
1994 from $757,000 in fiscal 1993. This decrease was attributable to lower
outstanding balances on the Company's working capital line of credit and to
lower prevailing interest rates.
OTHER INCOME. Other income increased to $1.4 million in fiscal 1994 from
$106,000 in fiscal 1993. This increase was primarily attributable to a one-time
$985,000 payment in fiscal 1994 from a client in connection with the client's
decision to perform its teleservicing services internally.
NET INCOME. Net income increased 137.4% to $2.9 million, or 4.2% of
revenues, in fiscal 1994 from $1.2 million, or 2.2% of revenues, in fiscal 1993.
QUARTERLY RESULTS AND SEASONALITY
The Company has experienced and expects to continue to experience quarterly
variations in operating and net income principally as a result of the timing of
clients' teleservicing campaigns and the commencement of new contracts, revenue
mix and the timing of additional selling, general and administrative expenses to
support new business. While the effects of seasonality on SITEL's business often
are obscured by the addition of new clients or new programs for existing
clients, the Company's business tends to be slower in the fiscal quarters ending
in February and August. The February quarter often is affected by reduced
teleservicing activities during the December holidays and by client transitions
to new marketing programs at the beginning of the calendar year. These
transitions may be accompanied by delays in introducing the new programs. The
August quarter is affected by reduced marketing activities during the summer. As
a result, SITEL may experience lower operating margins during these fiscal
quarters than during the other fiscal quarters.
LIQUIDITY AND CAPITAL RESOURCES
Historically, SITEL's primary source of liquidity has been cash flow from
operations, supplemented by borrowing under its revolving bank line of credit.
In June 1995, a portion of the net
34
<PAGE>
proceeds of the initial public offering was used to repay the revolving bank
line of credit and term debt. The Company renewed its $6 million revolving line
of credit when it expired in September 1995. At renewal, the rate was adjusted
to 0.5% below the bank's national prime rate and the maturity was extended
through November 1, 1996. This line is collateralized by accounts receivable,
equipment and other assets of the Company. As of February 29, 1996, the Company
had a $700,000 balance outstanding.
The deferred tax assets (which resulted primarily from the non-recurring,
non-cash special compensation expense incurred in February 1995) were 12.1% and
13.7% of total assets and stockholders' equity, respectively, at February 29,
1996. The Company will be required to generate approximately $69 million of
taxable income to fully utilize the deferred tax assets. Based on the current
level of taxable income, management believes it is more likely than not that
future taxable income will be sufficient to fully utilize all deferred tax
assets recorded.
Cash provided by operating activities was $8.3 million during the first nine
months of fiscal 1996. This was the result of $10.2 million of net income before
depreciation and amortization and other non-cash charges and offset by a $1.9
million change in operating assets and liabilities. Cash used by investing
activities for the first nine months of fiscal 1996 was $60.2 million, primarily
related to the purchase of marketable securities. Cash provided by financing
activities for the first nine months of fiscal 1996 of $57.0 million primarily
related to the common stock offerings.
Cash provided by operating activities was $4.4 million in fiscal 1995. This
was the result of $9.3 million of net income before depreciation and
amortization and other non-cash charges offset by $4.9 million of changes in
operating assets and liabilities. Cash used by investing activities for fiscal
1995 was $7.3 million, primarily related to the purchase of call and data
management equipment. Cash provided by financing activities for fiscal 1995 of
$3.4 million resulted primarily from net borrowings from a bank line of credit
and term debt. The $34.6 million non-recurring, non-cash compensation expense
incurred in February 1995 resulted in a deferred tax benefit of $11.8 million
which will be available to reduce future income taxes.
Cash provided by operating activities was $5.3 million in fiscal 1994. This
was the result of $6.5 million of net income before depreciation and
amortization and other non-cash charges offset by $1.2 million of changes in
operating assets and liabilities. Cash used by investing activities for fiscal
1994 was $3.0 million, primarily related to the purchase of call and data
management equipment. Cash used in financing activities of $2.3 million resulted
primarily from principal repayments on the Company's term debt and bank line of
credit.
Capital expenditures were $6.8 million and $3.5 million in fiscal 1995 and
1994, respectively. The Company expects to spend approximately $12 million on
capital expenditures in fiscal 1996, $9.2 million of which was spent during the
first nine months. Historically, capital expenditures have been, and future
expenditures are anticipated to be, primarily for facilities and equipment to
support expansion of the Company's operations, additions to the Company's call
and data management systems and management information systems. In December
1995, the Company purchased a 60,000 square foot office building in San Angelo,
Texas from one of its telecommunications clients for $865,000. The Company
converted this building into a call center at a cost of approximately $6.7
million.
The Company believes that funds generated from operations, together with
existing cash and available credit under its revolving bank facility, will be
sufficient to finance its current operations and planned capital expenditure
requirements and internal growth at least through fiscal 1997. However, if the
Company were to make any significant acquisitions for cash, it may be necessary
for the Company to obtain additional debt or equity financing. With the
exception of the obligation to acquire the remaining 30.8% of the Teleaction
shares in 1998 for not less than 1.4 billion pesetas (approximately $10.8
million at current exchange rates) and the obligation to pay certain stay
bonuses in connection with the acquisition of NAFS, the Company has no current
commitments with respect to any other acquisitions, and there can be no
assurance that any other acquisitions will be consummated.
35
<PAGE>
INFLATION
The Company does not believe that inflation has had a material effect on its
results of operations in recent years. However, there can be no assurance that
the Company's business will not be affected by inflation in the future.
THE COMPANY
SITEL is a leader in providing outsourced telephone-based customer service
and sales programs on behalf of large corporations in the US, Canada and Spain.
In North America, SITEL operates primarily through divisions specialized by
industry to provide teleservices to the insurance, telecommunications, financial
services and publishing industries. The Company's principal services include
responding to customer service inquiries, direct telephone sales, generating
customer leads, managing customer retention programs, taking customer orders, as
well as updating customer data and reporting program effectiveness. SITEL
creates, manages and implements programs on its clients' behalf primarily
through the efforts of its telephone service representatives and other SITEL
employees who are dedicated exclusively to, and thoroughly trained in, a
specific client's programs. The Company also makes extensive use of leading edge
call management technology, including proprietary computer software, automated
call distributors, predictive dialers and digital switches. The Company operates
approximately 4,300 workstations in its 37 call centers and employs
approximately 9,100 people.
The Company has developed substantial expertise in providing
solution-oriented teleservices in each of the following focus industries.
INSURANCE. In addition to the direct sale on behalf of its clients of
insurance products such as accidental death and disability, credit life and
supplemental health insurance, SITEL's Insurance Division provides a variety of
support services specifically designed to enhance the identification, service
and retention of insurance customers. The division employs over 400 licensed
agents, which the Company believes to be the most of any independent
teleservicing company.
TELECOMMUNICATIONS. SITEL's Telecommunications Division works primarily
with major telephone companies, long distance carriers, cellular telephone
service providers and telecommunications equipment suppliers. This division
creates and manages dedicated customer service and direct sales programs dealing
with various products and services such as long distance, cellular and caller ID
as well as other customer service issues such as line installation, billing
discrepancies and rate changes.
FINANCIAL SERVICES. SITEL's Financial Services Division works primarily
with the nation's largest credit card issuers to provide customer acquisition,
retention and renewal, as well as customer services such as arranging credit
card balance transfers, accepting account applications, providing account
information and making overdue balance reminder calls. The division also
provides teleservices for financial institutions regarding other products such
as mortgage refinancings, auto loans and home equity line of credit programs.
PUBLISHING. SITEL's Publishing Division works primarily with major magazine
and newspaper publishers and book clubs to sell and renew subscriptions and
memberships, cross-sell other client publications and reinstate expired
subscriptions or memberships. The division recently has begun to provide its
services to new media publishers such as on-line service providers and software
publishers.
Industry sources estimate that expenditures on telephone-based customer
service and sales programs in the U.S. were $77 billion in 1995 and that these
expenditures have grown substantially in recent years with the proliferation of
toll-free "800" phone numbers and direct marketing. The vast majority of these
expenditures is made by in-house operations, but increasingly, large
corporations are outsourcing their telephone-based activities as part of an
overall effort to focus internal resources on their core competencies while
improving operating efficiencies and reducing costs. Competition for this
outsourcing business is highly fragmented, although most independent providers
of telephone-
36
<PAGE>
based services are small, single facility operations that do not have the scale,
expertise or technological resources necessary to effectively serve the
sustained, and increasingly complex, teleservicing needs of large corporations.
Even fewer of the Company's competitors have international capabilities.
SITEL seeks clients with large customer bases that can generate recurring
revenues because of their ongoing customer service and sales requirements. SITEL
also seeks to increase revenues from existing clients by assuming teleservicing
programs that previously were performed internally and by identifying or
offering new teleservices that traditionally have not been part of its clients'
customer service or direct sales efforts. Although, SITEL has recently begun to
enter into multi-year agreements with its clients, the Company generally
operates under month-to-month contracts. That notwithstanding, SITEL has
provided an average of approximately five years of service to its 20 largest
clients, which generated 85.3% of the Company's revenues in fiscal 1995. The
Company is typically paid by its clients based on a negotiated hourly rate.
Because SITEL service representatives deal directly with clients' customers, the
quality and effectiveness of SITEL's services are critical to its clients and
positively affect the rates the Company can charge. Therefore, SITEL emphasizes
employee selection, training and management as well as the use of sophisticated
call and data management technology. Management believes that the effectiveness
of SITEL's services to its clients can be measured by higher sales productivity
and lower cost per transaction.
SITEL believes there are significant opportunities to expand its business.
The Company's growth strategy has five key elements; (i) increase revenues from
existing clients through cross-selling of existing services, (ii) expand its
client base within existing industry specializations, (iii) add new industry
specializations, (iv) create new value-added teleservicing applications and (v)
continue to explore strategic acquisitions domestically and internationally.
The Company was founded in 1985 by James F. Lynch, its Chief Executive
Officer. With the NAFS and Teleaction Acquisitions, Mr. Lynch and the senior
SITEL management team have over 150 years of combined industry expertise. As of
December 31, 1995, more than 250 employees and managers other than Mr. Lynch
owned SITEL Common Stock or options to acquire SITEL Common Stock.
RECENT ACQUISITIONS
On June 12, 1996, SITEL completed the acquisition of a 69.2% interest in
Teleaction, a leading Spanish teleservicing company with headquarters in Madrid,
Spain. SITEL paid $24.2 million in cash for the 69.2% interest and will acquire
the remaining 30.8% of Teleaction in 1998 for a minimum purchase price of $10.8
million and a potentially higher purchase price based upon Teleaction's
profitability in 1996 and 1997 (the "Teleaction Acquisition"). Founded in 1985,
Teleaction has over 100 active clients including many leading Spanish
corporations and government agencies as well as a number of major international
corporations. Teleaction operates from eight call centers, as well as from
certain of its clients' facilities, in Spain and Portugal, primarily answering
inbound customer service calls on behalf of its clients. The managers of
Teleaction, including the founders Don Vincente Lopez and Don Antonio Diaz, are
expected to continue in their current positions. The Teleaction Acquisition will
enable the Company to offer Teleaction's services in Spain and Portugal to
SITEL's existing clients. In addition, Teleaction's clients include many
US-based corporations which were not SITEL clients at the time of the Teleaction
Acquisition. For the fiscal year ended December 31, 1995, Teleaction had
revenues of approximately $30.5 million.
On June 28, 1996, SITEL completed the acquisition of NAFS, a credit
collections and accounts receivable management company with headquarters in
Atlanta, Georgia. SITEL issued 1,371,226 common shares in exchange for all of
the outstanding NAFS common stock in a merger through which NAFS became a
wholly-owned subsidiary of the Company (the "NAFS Acquisition"). The NAFS
Acquisition will be accounted for as a pooling of interests. Founded in 1994,
NAFS provides telephone-based accounts receivable management services,
collections, and unique customer services applications for over 20 large
corporations in the US. NAFS has more than 350 employees and staffs
approximately 270 sales and service positions in its two call centers in
Atlanta, Georgia and Buffalo, New York. The managers of NAFS, including founders
Michael W. Fletcher and Walter J. Berthiaume, are expected to continue in their
current positions. Additionally, SITEL has committed to pay certain
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<PAGE>
stay bonuses in connection with the NAFS Acquisition. Management believes the
NAFS Acquisition is an important strategic business extension for SITEL,
enabling the Company to add significant client relationships to its business
base and broaden its total service capability. For the fiscal year ended
December 31, 1995, NAFS had revenues of $8.3 million.
FACILITIES
SITEL's corporate headquarters are located in Omaha, Nebraska in leased
facilities consisting of approximately 13,560 square feet of office space. The
initial term of this lease expires in October 1998, and there are two five-year
renewal options. The Company also leases the following facilities for its call
centers:
<TABLE>
<CAPTION>
NUMBER OF
OPERATING UNIT FACILITY LOCATION WORKSTATIONS
- ------------------------- ------------------------------ -------------
<S> <C> <C>
Insurance Omaha, Nebraska 442
McCook, Nebraska 58
North Platte, Nebraska 79
Fort Collins, Colorado 74
Atlantic, Iowa 84
Carroll, Iowa 73
Laramie, Wyoming 87
Beatrice Nebraska 76
Financial Services Omaha, Nebraska 271
Hastings, Nebraska 108
LaGrange, Georgia 84
Brookings, South Dakota 112
Rome, Georgia 72
Telecommunications Omaha, Nebraska 96
Aurora, Colorado 72
San Angelo, Texas 297
San Antonio, Texas 128
Toronto, Ontario 78
Montreal, Quebec 36
Calgary, Alberta 36
Vancouver, B.C. 39
Publishing Omaha, Nebraska 64
Norfolk, Nebraska 80
Amarillo, Texas 80
Client Services Omaha, Nebraska 324
Spain(a) Madrid 500
Barcelona 225
Sevilla 90
Valencia 70
Bilbao 62
Oviedo 30
Lisbon, Portugal 70
La Coruna 55
Credit Services Buffalo, New York 99
Atlanta, Georgia 174
-----
Total workstations 4,325
-----
-----
</TABLE>
- ------------------------
(a) Includes workstations staffed by employees located on certain clients'
premises.
38
<PAGE>
The leases of these facilities generally expire between July 1996 and
October 2001, and most leases contain renewal options. The Company believes that
its current facilities are suitable and adequate for its current operations, but
additional facilities will be required to support growth. In May 1996, the
Company's Insurance Division signed a lease for a call center facility in
Savannah, Georgia. This facility is expected to include up to 250 workstations
and began limited operations in June 1996. SITEL believes that suitable
additional or alternative space will be available as needed on commercially
reasonable terms.
In addition to its own call centers, SITEL has contracts with eleven
additional remote operation sites ("ROPS") which contain an aggregate of 483
workstations. These ROPS are owned and operated by independent third parties and
are used by SITEL to meet a portion of its outbound teleservicing needs. A
number of the ROPS are affiliated with local telephone companies. SITEL actively
monitors the quality and performance of each ROPS facility. The owner-operator
of each ROPS is responsible for all costs associated with maintaining and
staffing the facility and is generally compensated at negotiated hourly rates.
LEGAL PROCEEDINGS
Other than ordinary routine litigation incidental to its business, there are
no material legal proceedings pending against SITEL or any of its subsidiaries,
or to which any of the properties of SITEL or its subsidiaries is subject.
39
<PAGE>
DESCRIPTION OF SITEL COMMON STOCK
SITEL is authorized to issue 50,000,000 shares, par value $0.001 per share,
of undesignated capital stock. Until otherwise designated by the Board of
Directors of SITEL, all authorized shares are deemed to be common stock. Subject
to the prior rights of any outstanding preferred stock, each outstanding share
of SITEL Common Stock is entitled to participate equally in any distribution of
net assets made to the shareholders in liquidation of SITEL and is entitled to
participate equally in dividends as and when declared by the Board of Directors.
There are no redemption, sinking fund, conversion, or preemptive rights with
respect to the shares of SITEL Common Stock. All outstanding shares of SITEL
Common Stock are fully paid and non-assessable.
The Board of Directors of the Company generally has the power to issue
shares of capital stock without shareholder approval. The Board of Directors is
authorized to establish the rights, preferences and limitations of this
undesignated stock and to divide such shares into classes, with or without
voting rights. The ability of the Board of Directors to issue additional shares
could impede or deter an unsolicited tender offer or takeover proposal regarding
the Company. Shares of undesignated stock could be issued with terms, provisions
and rights which would make more difficult and, therefore, less likely, a
takeover of the Company not approved by the Board of Directors. The rights of
the holders of the Common Stock could be adversely affected by the future
issuance of undesignated stock.
SITEL intends to amend its articles of incorporation to authorize an
additional 150,000,000 shares, par value $0.001 per share, of undesignated
capital stock in the event that its stockholders approve such increase in the
authorized shares at the Special Meeting.
MARKET PRICE OF AND DIVIDENDS ON SITEL COMMON STOCK
SITEL completed the initial public offering of its Common Stock on June 8,
1995. Since that date, the Common Stock has been traded in the over-the-counter
market on the NASDAQ Stock Market under the symbol "SITL". The following table
sets forth, for the periods indicated, the high and low closing prices for the
Common Stock, as reported on the NASDAQ Stock Market since June 8, 1995 (the
closing prices reflect a two for one stock split on May 13, 1996).
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL 1996
First Quarter (from June 8, 1995).............................. $ 11.31 $ 7.44
Second Quarter................................................. 13.50 9.88
Third Quarter.................................................. 19.56 12.88
Fourth Quarter................................................. 28.94 19.88
FISCAL 1997
First Quarter (to July 24, 1996)............................... $ 41.38 $ 24.75
</TABLE>
From June 8, 1995 until June 6, 1996, the last trading day preceding public
announcement of the Transaction, the high and low sales prices of the SITEL
Common Stock (adjusted for the stock split in May 1996) were $28.94 and $7.44,
respectively. On June 6, 1996, the last trading day preceding public
announcement of the Transaction, the last reported sales price of the SITEL
Common Stock on the NASDAQ Stock Market was $25.00.
On July 24, 1996, the latest trading day for which information was
practicably available before the printing of this Proxy Statement, the last
reported sale price of the SITEL Common Stock on the NASDAQ Stock Market was
$32.25.
Holders of SITEL Common Stock are entitled to receive dividends out of the
funds legally available when and if declared by the Board of Directors. SITEL
has not paid dividends in the past. SITEL believes that it is in the best
interest of its stockholders to use future earnings principally to support
operations and to finance the growth of the business. It is unlikely that SITEL
will pay dividends in the foreseeable future.
40
<PAGE>
MITRE PLC
SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
The following Selected Consolidated Financial Data includes the results of
operations of Mitre from Mitre's incorporation on October 12, 1992 including the
results of operations of Merit Direct Limited, The Decisions Group Limited and
Merit Communications NV following the dates of their respective acquisitions.
The income statement data for the years ended December 31, 1993, 1994 and 1995
and the balance sheet data as of December 31, 1993, 1994 and 1995 have been
derived from the Consolidated Financial Statements of Mitre which were audited
by KPMG. The income statement data for the years ended December 31, 1991 and
1992 and the balance sheet data as of December 31, 1991 and 1992 have been
derived from the audited financial statements of Merit Direct Limited, Mitre's
predecessor company. The financial statements of Merit Direct Limited for the
years 1991 and 1992 were audited by KPMG.
Merit Communications NV was acquired on December 21, 1995 and consequently,
under UK GAAP, its income has only been included in the Mitre results from that
date. Also on December 21, 1995, all of Mitre's subsidiaries, including Merit
Communications NV, became wholly owned subsidiaries and, therefore, for the
purposes of this selected financial data, the results of Mitre for the periods
presented do not separately disclose the net income (loss) which would have been
attributable to minority interests.
The Selected Financial Data for the three months ended March 31, 1995 and
1996 are unaudited and reflect, in Mitre's opinion, all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of the
results of operations for those interim periods. The results for the three
months ended March 31, 1996 are not necessarily indicative of the results to be
expected for the full year. The Selected Consolidated Financial Data provided
below should be read in conjunction with the accompanying Consolidated Financial
Statements of Mitre and the related notes thereto appearing elsewhere in this
Proxy Statement.
Mitre's financial statements have been prepared on the basis of UK GAAP and
are presented in British pounds. See Note 25 to Mitre's Consolidated Financial
Statements included elsewhere in this Proxy Statement for a discussion of
certain differences between UK and US GAAP.
The amounts shown for the period ended December 31, 1993 represent the
64-week period from incorporation on October 12, 1992 to December 31, 1993. The
amounts comprise the results of Merit Direct Limited since November 20, 1992,
the date of its acquisition, The Decisions Group Limited since November 4, 1993,
the date of the acquisition of Mitre's controlling interest in The Decisions
Group Limited, together with the results of the parent company for the period
from October 12, 1992 to December 31, 1993. As a result, the income of Merit
Direct Limited from November 20, 1992 to December 31, 1992 is included in the
income statement data for the periods ended December 31, 1992 and 1993. In the
opinion of management, the use of the 64-week period does not have a significant
effect on the amounts.
41
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
64 WEEKS UNAUDITED
YEARS ENDED ENDED DEC. THREE MONTHS ENDED MARCH 31,
DECEMBER 31, 31, YEARS ENDED DECEMBER 31,
-------------------- ----------- ------------------------------- -------------------------------
1991 1992 1993(a) 1994 1995 1995(b) 1995 1996 1996(c)
--------- --------- ----------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:
Turnover........... L3,564 L5,912 L9,513 L16,686 L28,492 $44,989 L5,998 L12,094 $18,528
Cost of sales...... (2,058) (3,244) (5,189 ) (9,159) (18,068) (28,529) (3,395) (7,567) (11,593)
--------- --------- ----------- --------- --------- --------- --------- --------- ---------
Gross profit....... 1,506 2,668 4,324 7,527 10,424 16,460 2,603 4,527 6,935
Administrative
expenses.......... (1,563) (2,068) (3,320 ) (5,801) (7,309) (11,541) (1,560) (3,562) (5,457)
--------- --------- ----------- --------- --------- --------- --------- --------- ---------
Operating
profit/(loss)..... (57) 600 1,004 1,726 3,115 4,919 1,043 965 1,478
Associated
undertakings...... -- -- 21 20 -- -- -- -- --
Interest receivable
and similar
income............ 3 4 3 5 6 9 -- -- --
Interest payable
and similar
charges........... (88) (95) (79 ) (131) (313) (494) (53) (105) (161)
--------- --------- ----------- --------- --------- --------- --------- --------- ---------
Profit/(loss)
before taxation... (142) 509 949 1,620 2,808 4,434 990 860 1,317
Tax on
profit/(loss) of
ordinary
activities........ -- (1) (209 ) (528) (998) (1,576) (327) (284) (435)
--------- --------- ----------- --------- --------- --------- --------- --------- ---------
Profit/(loss) after
taxation.......... (L142) L508 L740 L1,092 L1,810 $ 2,858 L663 L576 $ 882
--------- --------- ----------- --------- --------- --------- --------- --------- ---------
--------- --------- ----------- --------- --------- --------- --------- --------- ---------
BALANCE SHEET DATA AT
PERIOD END:
Working capital/
(deficiency)...... (L241) L121 (L419 ) (L208) (L459) ($711) L57 (L406) ($620)
Property and
equipment, net.... 325 397 1,726 4,088 7,588 11,758 4,590 8,133 12,419
Total assets....... 1,236 2,210 4,646 8,996 17,892 27,725 10,599 20,608 31,468
Long-term
obligations, net
of current
maturities........ 686 345 410 1,078 2,365 3,665 1,222 2,387 3,645
Stockholders'
equity/
(deficiency)...... (896) (121) 189 793 3,326 5,154 1,260 3,902 5,958
</TABLE>
- ------------------------
(a) The figures shown for the period ended December 31, 1993 represent the
64-week period from incorporation on October 12, 1992 to December 31, 1993.
The figures comprise the results of the subsidiary undertakings from the
dates of acquisition, being November 20, 1992 for Merit Direct Limited and
November 4, 1993 for The Decisions Group Limited, together with the results
of the parent company for the period from October 12, 1992 to December 31,
1993.
(b) Income statement data translated into US dollars at the average daily
exchange rate for the year ended December 31, 1995 of $1.5790=L1.00. Balance
sheet data translated at the December 31, 1995 ending exchange rate of
$1.5496=L1.00.
(c) Income statement data translated into US dollars at the average daily
exchange rate for the three months ended March 31, 1996 of $1.5320 = L1.00.
Balance sheet data translated at the March 31, 1996 ending exchange rate of
$1.5270 = L1.00.
42
<PAGE>
SELECTED PRO FORMA FINANCIAL DATA
The following Selected Pro Forma Financial Data is unaudited and includes
the results of Merit Communications NV, an entity under common control with
Mitre, which was founded in April 1993 and acquired by Mitre on December 21,
1995. Under UK GAAP, this acquisition was accounted for as a purchase. Under US
GAAP this acquisition will be accounted for in a manner similar to a pooling of
interests. The following selected pro forma financial data has been derived by
combining the consolidated financial statements of Mitre and Merit
Communications NV as if Merit Communications NV had been part of Mitre since its
inception (the "Mitre Group"). In all other respects the Selected Pro Forma
Financial Data is on the basis of UK GAAP and is presented in British pounds.
The financial statements for the years ended December 31, 1993, 1994 and 1995 of
Mitre and Merit Communications NV have been audited by KPMG. The Selected Pro
Forma Financial Data for the three months ended March 31, 1995 and 1996 of Mitre
and Merit Communications NV are unaudited. Normal consolidating adjustments have
been made.
The unaudited pro forma financial information presented is for informational
purposes only and is not necessarily indicative of the financial position or
results of operations of the entity or the actual results that would have been
achieved had the Transaction been consummated prior to the periods indicated.
The data presented below should be read in conjunction with these accompanying
financial statements and the related notes thereto as well as "MITRE
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL RESULTS."
<TABLE>
<CAPTION>
64 WEEKS
ENDED DEC. THREE MONTHS ENDED
31, YEARS ENDED DECEMBER 31, MARCH 31,
------------- ------------------------------- -------------------------------
1993(a) 1994 1995 1995(b) 1995 1996 1996(c)
------------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA INCOME STATEMENT DATA:
Turnover......................... L10,183 L19,518 L37,009 $ 58,437 L7,338 L12,094 $ 18,528
Cost of sales.................... (5,658) (10,990) (23,924) (37,776) (4,491) (7,567) (11,593)
------------- --------- --------- --------- --------- --------- ---------
Gross profit..................... 4,525 8,528 13,085 20,661 2,847 4,527 6,935
Administrative expenses.......... (3,596) (7,427) (9,468) (14,950) (1,964) (3,562) (5,457)
------------- --------- --------- --------- --------- --------- ---------
Operating profit................. 929 1,101 3,617 5,711 883 965 1,478
Associated undertakings.......... 21 20 -- -- -- -- --
Interest receivable and similar
income.......................... 8 24 85 134 -- -- --
Interest payable and similar
charges......................... (97) (196) (480) (758) (59) (105) (161)
------------- --------- --------- --------- --------- --------- ---------
Profit before taxation........... 861 949 3,222 5,087 824 860 1,317
Tax on profit on ordinary
activities...................... (209) (528) (1,116) (1,762) (279) (284) (435)
------------- --------- --------- --------- --------- --------- ---------
Profit after taxation............ L652 L421 L2,106 $ 3,325 L545 L576 $ 882
------------- --------- --------- --------- --------- --------- ---------
------------- --------- --------- --------- --------- --------- ---------
BALANCE SHEET DATA:
Working capital/(deficiency)..... (L474) L105 (L459) ($711) L252 (L406) ($620)
Property and equipment, net...... 1,965 5,212 7,588 11,758 5,714 8,133 12,419
Total assets..................... 5,326 12,091 17,892 27,725 13,694 20,608 31,468
Long-term obligations, net of
current maturities.............. 344 76 2,365 3,665 220 2,387 3,645
Stockholders' equity............. 308 791 3,326 5,154 1,140 3,902 5,958
</TABLE>
- ------------------------
(a) The figures included for Mitre for the period ended December 31, 1993
represent the 64-week period from incorporation on October 12, 1992 to
December 31, 1993. On December 21, 1995, all of Mitre's subsidiaries,
including Merit Communications NV, became wholly owned subsidiaries and,
therefore, for the purposes of this pro forma financial data, the results of
Mitre for the periods presented do not separately disclose the net income
(loss) which would have been attributable to minority interests. The figures
comprise the results of the subsidiary undertakings from the dates of
acquisition, being November 20, 1992 for Merit Direct Limited and November
4, 1993 for The Decisions Group Limited, together with the results of the
parent company for the period from October 12, 1992 to December 31, 1993.
The figures included for Merit Communications NV for the period ended
December 31, 1993 represent the period from incorporation in April 1993 to
December 31, 1993.
(b) Income statement data translated into US dollars at the average daily
exchange rate for the year ended December 31, 1995 of $1.5790 = L1.00.
Balance sheet data translated at the December 31, 1995 ending exchange rate
of $1.5496 = L1.00.
(c) Income statement data translated into US dollars at the average daily
exchange rate for the three months ended March 31, 1996 of $1.5320 = L1.00.
Balance sheet data translated at the March 31, 1996 ending exchange rate of
$1.5270 = L1.00.
43
<PAGE>
MITRE PLC MANAGEMENT'S DISCUSSION AND
ANALYSIS OF CONSOLIDATED FINANCIAL RESULTS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE SELECTED PRO
FORMA FINANCIAL DATA AND THE CONSOLIDATED FINANCIAL STATEMENTS OF MITRE AND THE
RELATED NOTES THERETO APPEARING ELSEWHERE IN THIS PROXY STATEMENT.
OVERVIEW
Mitre was founded in October 1992 by its Chairman, Henk Kruithof, along with
two of its directors, Ray Pipe and Peter Godfrey, to serve as the parent company
for Merit Direct Limited ("Merit Direct"), the predecessor company which was
founded in 1985. The formation of Mitre facilitated the acquisition and start-up
of other teleservicing businesses, including most significantly The Decisions
Group Limited ("Decisions") and Merit Communications NV ("Communications").
In November 1992, Mitre acquired a controlling interest in Merit Direct and
a 40% interest in Decisions, a primary competitor to Merit Direct in the UK. In
November 1993, Mitre increased its total interest in Decisions to 53% and began
to consolidate the results of Decisions with the results of Mitre. In April
1993, Mitre invested in the formation of Communications, a Belgian company,
through the purchase of a 15% interest (Henk Kruithof and the Communications
management owned the remaining 85%). In 1992 and 1993, Mitre entered into
agreements with the other shareholders of Merit Direct, Decisions and
Communications which provided for a formula by which these shareholders could
exchange their shares for Mitre stock based on the financial results of the
companies through 1995. These exchanges were agreed by a share for share
reorganization agreement signed in December 1995 and were subsequently effected
in 1996, when each of Merit Direct, Decisions and Communications became
wholly-owned subsidiaries of Mitre.
Under UK GAAP Merit Direct has been accounted for as a purchase since
November 1992, and Communications has been accounted for as a purchase since
December 1995. Since these companies were entities under common control, under
US GAAP these acquisitions will be accounted for as pooling of interests.
Therefore the Selected Pro Forma Financial Data has been prepared by combining
the reported results of Mitre and Communications as if Communications had been
part of Mitre since its incorporation in April 1993. The resultant entity and
its Selected Pro Forma Financial Data is referred to hereafter as "Mitre Group",
and the following discussion and analysis is based thereon.
Mitre Group has experienced substantial growth in turnover (i.e., revenues)
since 1992. This has resulted from the acquisition of a controlling interest in
Merit Direct in 1992 and in Decisions in November 1993, internal growth at Merit
Direct and Decisions, the opening of a new call center as part of the founding
of Communications in 1993, and the opening of a third UK call center ("The Call
Centre Limited") in June 1995. The establishment of new businesses
(specifically, Communications and the opening of a new Tokyo call center in May
1996) and the addition of new call centers which typically open at less than
full capacity utilization have had an impact on the company's operating margins
as start-up revenues may not initially cover the additional fixed costs
incurred.
Over recent years, Mitre Group has begun to focus increasingly on providing
large-scale dedicated customer service programs and less on its traditional
teleservicing business (smaller scale programs which do not require dedicated
staffing). These large-scale, typically inbound, dedicated teleservicing
programs generally have lower gross margins and lower administrative expenses
than Mitre Group's traditional business. Mitre Group believes that because of
its changing mix of business, the most comparable measure of profitability from
period to period is operating profit measured as a percentage of turnover. The
increasing focus on large-scale programs also causes Mitre Group to experience
variations in its results based on the timing of the introduction of new
programs, which is often outside of Mitre Group's control.
44
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth pro forma income statement data for the Mitre
Group (including Communications since its formation in 1993) as a percentage of
turnover for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED
64 WEEKS MARCH 31,
ENDED DEC. 31, ------------------------ ------------------------
1993 1994 1995 1995 1996
--------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PRO FORMA INCOME STATEMENT DATA:
Turnover.............................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales......................................... 55.6 56.3 64.6 61.2 62.6
----- ----- ----- ----- -----
Gross profit........................................ 44.4 43.7 35.4 38.8 37.4
Administrative expenses............................... 35.3 38.1 25.6 26.8 29.4
----- ----- ----- ----- -----
Operating profit.................................... 9.1 5.6 9.8 12.0 8.0
Associated undertakings............................... 0.2 0.1 -- -- --
Interest receivable and similar income................ 0.1 0.1 0.2 -- --
Interest payable and similar charges.................. (0.9) (0.9) (1.3) (0.8) (0.9)
----- ----- ----- ----- -----
Profit before taxation.............................. 8.5% 4.9% 8.7% 11.2% 7.1%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
TURNOVER. Turnover increased L4.8 million, or 64.8 %, to L12.1 million in
the first three months of 1996 from L7.3 million in the comparable period of
1995. This increase resulted from the addition of new clients as well as
increased business from existing clients. This includes L900,000 of turnover in
the 1996 period from The Call Centre which was not operational in the 1995
period.
COST OF SALES. Cost of sales represents labor (including all account
management and operational supervisory management salaries) and telephone
expenses directly related to teleservicing activities. As a percentage of
turnover, cost of sales increased marginally to 62.6% in the first three months
of 1996 from 61.2% in the comparable period of 1995. This increase resulted from
a greater percentage of turnover being derived from customer care applications,
which generally have a higher cost of sales than the company's traditional
telemarketing business. While these new applications have higher costs of sales,
management believes that they require lower administrative expenses than its
traditional telemarketing operations.
ADMINISTRATIVE EXPENSES. Administrative expenses include all expenses which
directly support operations such as each subsidiary company's management, senior
corporate management, human resources management, advertising and exhibition
expenses, facilities expenses (including rent, utilities and taxes), equipment
depreciation and maintenance expenses, sales and marketing activities, client
support services, accounting and legal services. These expenses increased L1.6
million, or 81.4%, to L3.6 million in the first three months of 1996 from L2.0
million in the comparable period of 1995. As a percentage of turnover, these
expenses increased to 29.4% in the first three months of 1996 from 26.8% in the
comparable period of 1995. This increase was primarily a result of additional
resources being introduced to the Mitre parent company to further develop
overseas expansion. Administrative overhead associated with the Company's entry
into Tokyo in 1996 has been expensed as incurred.
OPERATING PROFIT. Operating profit increased L82,000, or 9.3%, to L965,000
in the first three months of 1996 from L883,000 in the comparable period of
1995. As a percentage of turnover, operating profit decreased to 8.0% in the
first three months of 1996 from 12% in the comparable period of 1995 primarily
due to the opening of The Call Centre Limited in June 1995 which experienced
start-up losses, an increased percentage of revenues generated by Communications
(which is less mature than Merit Direct and Decisions and therefore operated at
lower margins) and, to a lesser extent, start-up costs associated with the
company's entry into Tokyo.
45
<PAGE>
INTEREST EXPENSE, NET. Net interest expense was L105,000 in the first three
months of 1996 compared to net interest expense of L59,000 in the comparable
period of 1995, as a result of increased borrowings.
PROFIT AFTER TAXATION. As a result of the foregoing factors, profit after
taxation increased L31,000, or 5.7% to L576,000 or 4.8% of turnover in the first
three months of 1996 compared to profit after taxation of L545,000 or 7.4% of
turnover in the comparable period of 1995.
1995 COMPARED TO 1994
TURNOVER. Turnover increased L17.5 million, or 89.6%, to L37.0 million in
1995 from L19.5 million in 1994. This increase resulted from the addition of new
clients as well as increased business from existing clients. All of the
operating companies experienced significant organic growth.
COST OF SALES. As a percentage of turnover, cost of sales increased to
64.6% in 1995 from 56.3% of turnover in 1994. This increase was primarily
attributable to additional costs associated with The Call Centre, which in 1995
was in its start-up phase. In addition, Decisions increased its percentage of
turnover from dedicated customer care applications in 1995 which has a higher
cost of sales than the company's traditional telemarketing operations.
ADMINISTRATIVE EXPENSES. Administrative expenses increased L2.0 million, or
27.5%, to L9.5 million in 1995 from L7.4 million in 1994. As a percentage of
turnover, administrative expenses decreased significantly to 25.6% in 1995 from
38.1% in 1994. Administrative expenses tend to increase in incremental amounts
largely associated with the addition of new facilities capacity. As facilities
achieve higher capacity utilization (as they did in 1995), administrative
expenses reduce as a percentage of turnover.
OPERATING PROFIT. Operating profit increased L2.5 million, or 228.5%, to
L3.6 million in 1995 from L1.1 million in 1994. As a percentage of turnover,
operating profit increased to 9.8% in 1995 from 5.6% in 1994 primarily due to
the significant increase in turnover without a commensurate increase in
expenses.
INTEREST EXPENSE, NET. Net interest expense was L395,000 in 1995 compared
to net interest expense of L172,000 in 1994 due to increased borrowings.
PROFIT AFTER TAXATION. As a result of the foregoing factors, profit after
taxation increased L1.7 million, or 400.2%, to L2.1 million or 5.7% of turnover
in 1995 compared to L421,000 or 2.2% of turnover in 1994. In addition to the
factors described above, this change also results from a higher than usual tax
charge in 1994 arising from losses at Communications which may not be offset
against taxable UK profits.
1994 COMPARED TO 1993
The figures included for Mitre for the period ended December 31, 1993
represent the 64-week period from incorporation on October 12, 1992 to December
31, 1993. The figures comprise the results of the subsidiary undertakings from
the dates of acquisition, being November 20, 1992 for Merit Direct and November
4, 1993 for Decisions, together with the results of the parent company for the
period from October 12, 1992 to December 31, 1993. The figures included for
Communications for the period ended December 31, 1993 represent the period from
incorporation in April 1993 to December 31, 1993. The figures for 1994 include a
full years operations for all of Mitre Group.
TURNOVER. Turnover increased L9.3 million, or 91.7%, to L19.5 million in
1994 from L10.2 million in 1993. Of this increase L6.5 million was attributable
to turnover from Decisions which was consolidated only from November 1993. L0.7
million of the increase was attributable to turnover from Communications which
was founded only in April 1993. The remaining increase resulted from the
addition of new clients and increased business from existing clients. On a
stand-alone basis, Decisions experienced an increase in turnover of L3.0
million, or 68.2%, to L7.4 million in 1994 from L4.4 million in 1993.
46
<PAGE>
COST OF SALES. As a percentage of turnover, cost of sales increased to
56.3% in 1994 from 55.6% of turnover in 1993 as a result of the company's
efforts to focus on providing dedicated customer care solutions which have
higher costs of sales as a percentage of turnover than the company's traditional
telemarketing business.
ADMINISTRATIVE EXPENSES. Administrative expenses increased L3.8 million, or
106.5%, to L7.4 million in 1994 from L3.6 million in 1993 as a result of the
formation of Communications in April 1993 and the inclusion of Decisions for a
full year in 1994. As a percentage of turnover, administrative expenses
increased to 38.1% in 1994 from 35.3% in 1993 resulting primarily from higher
administrative expenses associated with Communications in its first full year of
operations.
OPERATING PROFIT. Operating profit increased L172,000, or 18.5%, to L1.1
million in 1994 from L929,000 in 1993. As a percentage of turnover, operating
profit decreased to 5.6% in 1994 from 9.1% in 1993 primarily due to larger
start-up losses incurred at Communications in 1994.
INTEREST EXPENSE, NET. Net interest expense was L172,000 in 1994 compared
to net interest expense of L89,000 in 1993 due to increased borrowings.
PROFIT AFTER TAXATION. In addition to the factors mentioned above, profit
after taxation decreased L231,000, or 35.4%, to L421,000 or 2.2% of turnover in
1994 compared to L652,000 or 6.4% of turnover in 1993 as a result of a higher
than usual tax charge in 1994 (55.6% of profit before tax in 1994 as compared to
24.3% in 1993). This tax charge results from the fact that full tax was paid on
UK - sourced profits without any offset for losses incurred by Communications
during its first full year of operations. It is anticipated that as
Communications reaches full capacity and profitability the tax charge will be
between 33% and 40% under UK GAAP.
QUARTERLY RESULTS AND SEASONALITY
The Mitre Group has experienced and expects to continue to experience
quarterly variations in operating and net income principally as a result of the
timing of clients' telephone-based customer services and sales programs and the
commencement of new contracts, revenue mix and the timing of additional
administrative expenses to support new business. While the effects of
seasonality on Mitre Group's business often are obscured by the addition of new
clients or new programs for existing clients, Mitre Group's business tends to be
slower in the months of July, August and December. The December quarter is
affected by reduced activities during the December holidays. The September
quarter is affected by reduced marketing activities during the summer. As a
result, Mitre Group may experience lower operating margins during these quarters
than during the other quarters.
LIQUIDITY AND CAPITAL RESOURCES
Mitre Group's primary source of liquidity has been cash flow from
operations, supplemented by borrowings under its revolving bank line of credit.
Mitre Group has a L5.4 million revolving line of credit which includes a bank
loan secured by a mortgage and bank facilities associated with Communications.
The revolving credit lines are currently continuing under agreements signed for
the twelve months ended May 31, 1996 on the same terms as confirmed by Mitre
Group's lending banks. The rate paid, based upon the current agreement, is 1.5%
over the bank's prime rate. The revolving credit line is collateralized by
accounts receivable, equipment and other assets of Mitre Group. As of March 31,
1996, the outstanding balance under the bank line of credit was L4.8 million.
In addition to its bank borrowings, Mitre Group has raised capital through
the issuance of redeemable preference shares ("RPS"). Three series of RPS remain
outstanding: L700,000 in Merit Direct, L350,000 in Mitre and approximately
L263,000 in Communications. The Merit Direct and Mitre RPS are redeemable in two
equal tranches on December 31, 1996 and December 31, 1997. The Communications
RPS are redeemable at Mitre's option out of distributable reserves. Dividends
are paid on the RPS semi-annually on April 30 and October 31 at a coupon rate of
8.0% with respect to the RPS of Merit Direct and Mitre, and 7.5% with respect to
the Communications RPS. In 1994 and 1995, L150,000 and L294,000, respectively
were redeemed from a previous series of RPS. The total amount
47
<PAGE>
of RPS outstanding as of March 31, 1996 was L1.3 million. The Share Purchase
Agreement requires that these RPS (L1,264,000 of which are held by Mr. Kruithof
and the remainder of which are held by Messrs. Pipe and Godfrey) be redeemed
prior to Completion.
PLEASE NOTE THAT THE FOLLOWING DESCRIPTION OF MITRE GROUP'S CASH FLOW IS
BASED UPON THE FINANCIAL STATEMENTS OF MITRE AND DOES NOT INCLUDE THE RESULTS OF
COMMUNICATIONS PRIOR TO JANUARY 1, 1996.
Cash utilized by operating activities was L730,000 in the first three months
of 1996. This was the result of L1.5 million of operating profit and non-cash
charges (depreciation) offset by L2.3 million of changes in operating assets and
liabilities, primarily resulting from an increase in trade debtors which
resulted from timing differences between billing and payment on large contracts.
Cash utilized in investments and servicing of finance (comprised primarily of
bank interest and finance lease interest paid) net of corporation tax repaid was
L70,000 in the first three months of 1996. Cash used in investing activities for
the first three months of 1996 was L974,000, related to [the purchase of call
and data management equipment]. Cash utilized in financing activities for the
first three months of 1996 of L384,000 resulted primarily from the repayment of
finance leases and bank loans.
Cash provided by operating activities was L3.4 million in 1995. This was the
result of L4.2 million of operating profit and non-cash charges (depreciation)
offset by L800,000 of changes in operating assets and liabilities. Cash utilized
in investments, servicing of finance (comprised primarily of bank interest,
finance lease interest and preference dividends paid) and corporation tax paid
was L1.0 million in 1995. Cash used in investing activities for 1995 was L1.5
million, primarily related to the purchase of call and data management
equipment. Cash utilized in financing activities for 1995 of L1.1 million
resulted primarily from the redemption of share capital, and repayment of
finance leases and bank loans.
Cash provided by operating activities was L241,000 in 1994. This was the
result of L2.3 million of operating profit and non-cash charges (depreciation)
offset by L2.1 million of changes in operating assets and liabilities. Cash
utilized in investments, servicing of finance (comprised primarily of bank
interest and finance lease interest paid) and corporation tax paid was L234,000
in 1994. Cash used in investing activities for 1994 was L2.2 million, primarily
related to the purchase of call and data management equipment. Cash provided by
financing activities for 1994 of L1.3 million resulted primarily from net
borrowings from a bank line of credit, the net issuance of share capital and
repayment of finance leases, parent and bank loans.
Gross capital expenditures were L3.0 million in both 1995 and 1994. Mitre
Group expects to spend approximately L2.5 million on capital expenditures in
1996, L974,000 of which was spent during the first three months. Historically,
capital expenditures have been, and future expenditures are anticipated to be,
primarily for facilities and equipment to support expansion of Mitre Group's
operations, and additions to Mitre Group's call and data management systems and
management information systems.
Mitre Group believes that funds generated from operations, together with
existing cash, and available credit from its historical banking relationships,
will be sufficient to finance its current operations and planned capital
expenditure requirements and internal growth at least through May 1997. If the
Transaction is consummated, Mitre Group would anticipate that the financial
resources of the combined entity with SITEL would be sufficient for all of its
financing needs for the foreseeable future.
INFLATION
Mitre Group does not believe that inflation has had a material effect on its
results of operations in recent years. However, there can be no assurance that
Mitre Group's business will not be affected by inflation in the future.
EXCHANGE RATE FLUCTUATIONS
Foreign currency translation arises from the value of the British pound
rising and falling from day to day on foreign currency exchanges. Mitre Group
maintains its financial statements in British
48
<PAGE>
pounds. The British pound is the functional currency for Mitre Group and its UK
operations. However, Mitre Group has operating subsidiaries and affiliates in
foreign countries that use local currency as their functional currency.
Accordingly, Mitre Group receives income in currency other than British pounds.
Thus, as the value of the British pound rises and falls against these other
currencies, Mitre Group's financial position and results of operations are
impacted.
Prior to December 1995, Mitre had no operating subsidiaries outside the UK.
Mitre's foreign currency exposure was limited to trading transactions with
overseas companies which arise in the normal course of business on a short term
basis. Consequently, Mitre did not hedge its exposure although management
monitored the position to ensure that the risk was not significant.
The net assets of Mitre's foreign subsidiaries are translated into British
pounds using current exchange rates -- that is, the rates in effect at the end
of the fiscal period. The British pound gains or losses that arise from
translating the net assets of these subsidiaries at changing rates are recorded
in the foreign currency translations account in the shareholders' funds section
of the balance sheet.
The revenue and expense accounts of foreign operations are translated into
British pounds at period average exchange rates. Therefore the British pound
value of these items on the income statement fluctuates from period to period
depending on the value of the British pound against foreign currencies. With the
increasing importance of overseas operations Mitre is actively reviewing its
foreign currency exposures.
Upon consummation of the Transaction, Mitre's results of operations will be
translated into US dollars. The following table sets forth in US dollars for the
periods and dates indicated the average, high, low, and end of period Noon
Buying Rates for British pounds:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD
DECEMBER 31, AVERAGE (1) HIGH LOW END
- -------------------------------------------------------------------------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C>
1991...................................................................... 1.765 1.967 1.622 1.871
1992...................................................................... 1.756 1.988 1.511 1.511
1993...................................................................... 1.497 1.574 1.426 1.478
1994...................................................................... 1.539 1.636 1.484 1.565
1995...................................................................... 1.581 1.622 1.534 1.550
3 mos. to 3/31/95......................................................... 1.595 1.622 1.580 1.622
3 mos. to 3/31/96......................................................... 1.524 1.532 1.514 1.527
</TABLE>
- ------------------------
(1) The average of the exchange rates on the last day of each month during the
period. These are not necessarily the rates at which Mitre's results would
be translated into US dollars on a historical or prospective basis.
MITRE PLC
Mitre is a leader in providing outsourced telephone-based customer service
and sales programs on behalf of large corporations in Europe. Mitre operates
three call centers in the UK and a fourth call center in Belgium that have the
capability to handle calls and respond to electronic mail via the Internet in
over 20 languages and dialects. In May 1996, Mitre opened a fifth call center in
Tokyo, Japan. Mitre has approximately 1,430 operational workstations in its five
call centers and employs approximately 3,400 people.
Mitre communicates directly with its clients' customers primarily by
responding to customer-initiated (inbound) telephone calls, electronic mail or
facsimile transmissions. Mitre also makes outbound telephone calls to its
clients' customers. Mitre's teleservicing applications include pre-sales support
(information requests), post-sales (help desk) support, problem resolution,
general customer service, order-taking, program enrollment, appointment setting,
lead generation and qualification, direct marketing, customer surveys, reminder
calls and many other programs. Approximately 80% of Mitre's revenues in 1995 was
generated from these teleservicing applications. Mitre also provides value added
fulfillment for its teleservicing clients which, among other services, allow
Mitre to promptly mail out product information on the day it is requested by the
customer. Mitre's other
49
<PAGE>
services include software development (for teleservicing applications), database
structuring and updating, program reporting, and consulting with the in-house
call center operations of large corporations.
Mitre seeks to establish strategic relationships with its large corporate
clients by becoming an integral part of their customer service and customer
acquisition programs. Mitre has over 300 clients. The company's largest 50
clients accounted for approximately 87% of its 1995 revenues, while the largest
three clients, American Express (13.6%), British Gas (11.1%) and Microsoft
(9.9%), accounted for 34.6% of revenues in the same period. Mitre's clients are
concentrated primarily in the following industries: financial services (e.g.,
American Express and GMAC), technology (e.g., Microsoft and Texas Instruments),
telecommunications (e.g., Belgacom and Mercury Communications), utilities (e.g.,
British Gas), automotive (e.g., Rover and Audi), consumer (e.g. EuroDisney and
Sony) and industrial (e.g., Dupont and Shell). Although Mitre still generally
operates under short-term agreements, these client relationships are
increasingly becoming formalized through multi-year contracts as Mitre focuses
on providing dedicated staffing and other resources to its clients' programs.
Mitre is paid by its clients, depending on the type of application, either based
on a negotiated hourly rate, on a per call basis, or based on the amount of time
the agent spends talking to customers.
The markets for outsourced telephone-based customer service and sales
programs in Europe and Asia are large, growing and fragmented. Mitre's
management believes that, similar to trends in the US, the increased use of
teleservicing programs by large corporations in Europe and Asia is the result of
an increased focus on achieving customer loyalty through improved customer
service. Large corporations are increasingly outsourcing these activities as
part of an overall effort to focus internal resources on their core competencies
while improving operating efficiencies and reducing costs. American-based
international corporations in particular appear to be attempting to replicate
their US domestic strategies with respect to the teleservicing of their
customers in Europe and Asia. While several independent American teleservicing
companies have small operations in Europe, Mitre's management believes that
Mitre is among the largest teleservicing companies in Europe based upon revenues
generated in that market. While Mitre is aware of several relatively large
teleservicing companies in Asia, Mitre believes that many international
corporations based in Western countries would prefer to work with Western-based
teleservicing vendors, and ideally with vendors with whom they have
relationships elsewhere in the world.
Key elements of Mitre's business strategy include decentralized operations,
the extensive use of leading edge technology and providing clients with one-stop
shopping for interactive marketing services.
DECENTRALIZED OPERATIONS. Mitre operates on a decentralized basis
primarily through four wholly-owned subsidiaries. Two of these subsidiaries,
Merit Direct and Decisions, together are the largest independent
teleservicing organization in the UK. Brussels-based Communications,
previously an affiliated company of Mitre which was acquired by Mitre in
December 1995, is recognized as a leader in providing international call
center solutions for clients serving customers throughout Europe. The Call
Centre Limited was formed in 1995 in the UK to focus primarily on customer
service applications. Mitre believes this decentralized structure allows it
to be more flexible and responsive to each individual client's service
requirements. Mitre's senior executives are responsible to set the strategic
direction for Mitre as a whole.
LEADING EDGE TECHNOLOGY. Mitre uses reliable leading edge call and data
management technology to differentiate its capabilities from those of its
competitors. Mitre makes use of proprietary computer software, automated
call distributors, automated voice recording (allowing the mixing of
automated speech with personal services to maximize operator efficiency),
and computer integrated telephony (allowing integration of processors to
digital switches) to handle in multiple languages inbound and outbound calls
requiring vastly differing amounts of product and service information. Mitre
also has considerable in-house database expertise allowing it to
50
<PAGE>
connect its call systems directly to clients' computer systems. Mitre is
presently making arrangements with international carriers to provide
international call networking facilities to its clients at advantageous
rates and believes it is a pioneer in providing outsourced customer service
programs on behalf of its clients using electronic mail via the Internet.
ONE-STOP SHOPPING. In an effort to become a true strategic partner with
its clients, Mitre offers the complete range of services which it believes
are required to meet the interactive customer service and marketing needs of
its clients. This includes primarily the ability to handle inbound and
outbound calls, electronic mail and facsimile transmissions, but also
includes the ability to develop software, manage databases, design customer
service processes, fulfill product information requests and provide
consulting as well as other services. Mitre plans to develop expertise in
new methods of interactive customer service and marketing as they are
developed.
Mitre plans to continue growing rapidly by increasing revenues from existing
clients, establishing new client relationships, developing new teleservicing
applications and exploring strategic acquisitions. Additionally, Mitre plans to
enter new European and Asian markets to meet the requirements of existing and
new clients in those markets.
FACILITIES
Mitre's corporate headquarters are accommodated at the premises of The Call
Centre Limited. Mitre's operations are based at each operating subsidiary
company and division premises. Details are shown below.
<TABLE>
<CAPTION>
NUMBER OF
COMPANY/DIVISION FACILITY LOCATION SQ. FT. WORKSTATIONS
- ------------------------------------------------------------ --------------------------- --------- -------------
<S> <C> <C> <C>
The Decisions Group Limited Kingston upon Thames 40,000 350
Surrey, UK
Merit Direct Limited Stratford upon Avon 37,000 350
Warwickshire, UK
The Call Centre Limited Rickmansworth 35,000 400
Hertfordshire, UK
Merit Communications NV Brussels, Belgium 59,000 220
Mitre Japan Tokyo, Japan 8,000 110
-----
1,430
-----
-----
</TABLE>
All the premises above are held under lease. The lease of Merit House,
Stratford upon Avon is held on a 125 year lease with 121 years remaining. All
other properties in the UK are held on leases with remaining terms varying
between 10 and 20 years. The lease on the Belgian facility has seven years
remaining. The lease in Japan has a three-year term remaining.
LEGAL PROCEEDINGS
Other than ordinary routine litigation incidental to its business, there are
no material legal proceedings pending against Mitre or any of its subsidiaries,
or to which any of the properties of Mitre or its subsidiaries is subject.
CERTAIN INFORMATION CONCERNING
THE ORDINARY SHARES OF MITRE
Mitre is a privately-held English public limited company. There is no
established public trading market for the ordinary shares of Mitre.
Holders of Mitre ordinary shares are entitled to receive dividends out of
the funds legally available when and if declared by the Board of Directors.
Mitre has not paid ordinary dividends in the past.
51
<PAGE>
APPROVAL OF CHARTER AMENDMENT TO INCREASE AUTHORIZED SHARES
OF CAPITAL STOCK
GENERAL
The Board of Directors has unanimously approved, and recommends that the
Company's stockholders approve, a resolution to amend the SITEL articles of
incorporation to authorize an additional 150,000,000 shares, par value $0.001
per share, of undesignated capital stock. If this proposal is approved by the
stockholders, Section 4.1 of the SITEL articles of incorporation will be amended
to provide as follows:
4.1 NUMBER OF SHARES. The aggregate number of shares of stock which the
corporation shall have the authority to issue is 200,000,000 shares of
stock, having a par value of $.001 each.
REASONS FOR AND EFFECT OF PROPOSED AMENDMENT
SITEL's primary purpose in having additional shares available for issuance
is to allow greater flexibility with respect to future financings or
acquisitions and in carrying out other corporate purposes.
The amendment would increase the authorized shares from 50,000,000 to
200,000,000. The amendment would not effect any other change in the rights,
preferences or privileges of the SITEL Common Stock. The rights of the holders
of Common Stock could, however, be affected by the future issuance of
undersignated stock. Also, the ability of the Company's Board of Directors to
issue additional shares could impede or deter an unsolicited tender offer or
takeover proposal regarding the Company. See "DESCRIPTION OF SITEL COMMON
STOCK".
RECOMMENDATION OF BOARD OF DIRECTORS
The Board of Directors has unanimously approved this amendment of the
Company's articles of incorporation and unanimously recommends that stockholders
vote FOR the amendment.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Securities and Exchange
Commission are hereby incorporated by reference in this Proxy Statement: (i)
SITEL's Annual Report on Form 10-K for the fiscal year ended May 31, 1995; (ii)
SITEL's Quarterly Report on Form 10-Q for the quarter ended August 31, 1995;
(iii) SITEL's Quarterly Report on Form 10-Q for the quarter ended November 30,
1995; (iv) SITEL's Quarterly Report on Form 10-Q for the quarter ended February
29, 1996; (v) SITEL's Current Reports on Form 8-K filed on February 23, 1996 (as
amended by a filing on April 24, 1996), April 26, 1996, June 21, 1996 and June
27, 1996 and (vi) all documents filed by SITEL pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended,
subsequent to the date of this Proxy Statement and prior to the date of the
Special Meeting of the stockholders of SITEL shall be deemed to be incorporated
by reference in this Proxy Statement and to be a part hereof from the dates of
filing such documents.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein or in any other subsequently filed document which is also incorporated or
deemed to be incorporated herein modifies or supersedes such statement. Any such
statement so modified or so superseded shall not be deemed, except as so
modified or so superseded, to constitute a part of this Proxy Statement.
This Proxy Statement incorporates documents by reference which are not
presented herein or delivered herewith. These documents (other than certain
exhibits to documents unless such exhibits are specifically incorporated by
reference) are available without charge to any person to whom a copy of this
Proxy Statement has been delivered upon written or oral request to SITEL
Corporation, 13215 Birch Street, Suite 100, Omaha, Nebraska 68164, Attention:
Nancy C. Noack, Corporate Secretary, telephone number (402) 498-6810. In order
to ensure timely delivery of the documents any request should be made five
business days prior to the date of the Special Meeting.
52
<PAGE>
AVAILABLE INFORMATION
SITEL is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements, and other information with the
Securities and Exchange Commission. Such reports, proxy statements and other
information may be inspected and copied at the offices of the Securities and
Exchange Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and the Regional Offices of the Commission: Northwest
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and
7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such
materials may be obtained from the Public Reference Section of the Securities
and Exchange Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates. Futhermore, SITEL's securities are listed on the
NASDAQ Stock Market.
Statements made in this Proxy Statement as to the contents of any contract,
agreement, or other document referred to are not necessarily complete: with
respect to each such contract, agreement or other document filed as an exhibit
to this Proxy Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be qualified
in its entirety by such reference. This Proxy Statement and any amendments
thereto, including exhibits filed as part thereof, are available for inspection
and copying at the Securities and Exchange Commission's offices as described
above.
Certain information regarding SITEL in this Proxy Statement has been
adjusted to reflect a two-for-one stock split effective on May 13, 1996.
SHAREHOLDER PROPOSALS
Shareholder proposals for presentation at SITEL's next annual meeting should
have been received by SITEL at its principal executive offices for inclusion in
its proxy statement and form of proxy relating to that meeting no later than May
21, 1996. SITEL's bylaws contain certain procedures which must be followed in
connection with shareholder proposals.
LEGAL MATTERS
The validity of the shares of SITEL Common Stock to be issued in the
Transaction will be passed upon for SITEL by Parsinen Bowman Kaplan & Levy, P.A.
RELATIONSHIPS WITH ACCOUNTANTS
Representatives of Coopers & Lybrand L.L.P., SITEL's certified public
accountants, are expected to be present at the Special Meeting, will have an
opportunity to make a statement if they desire to do so and are expected to be
available to respond to appropriate questions.
Representatives of KPMG, Mitre's auditors, are not expected to be present at
the Special Meeting.
ALL SHAREHOLDERS ARE URGED TO FILL IN, SIGN AND SEND IN THEIR PROXIES
WITHOUT DELAY TO AMERICAN STOCK TRANSFER & TRUST COMPANY IN THE ENCLOSED
ENVELOPE. PROMPT RESPONSE IS HELPFUL AND YOUR COOPERATION WILL BE APPRECIATED.
Nancy C. Noack
Corporate Secretary
July 29, 1996
53
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
UNAUDITED PRO FORMA AND PRO FORMA COMBINED FINANCIAL INFORMATION
Unaudited Pro Forma and Pro Forma Combined Financial Information.................. F-3
SITEL Corporation and Mitre plc Pro Forma Combined Balance Sheet as of February
29, 1996........................................................................ F-4
SITEL Corporation and Mitre plc Pro Forma Combined Statements of Operations for
the Year Ended May 31, 1995..................................................... F-6
SITEL Corporation and Mitre plc Pro Forma Combined Statements of Operations for
the Nine Months Ended February 29, 1996......................................... F-8
SITEL Corporation, Mitre plc and National Action Financial Services, Inc. Pro
Forma Statement of Operations................................................... F-9
SITEL Corporation and National Action Financial Services, Inc. Pro Forma Statement
of Operations................................................................... F-10
SITEL CORPORATION
Report of Independent Accountants................................................. F-11
Consolidated Balance Sheets....................................................... F-12
Consolidated Statements of Income (Loss).......................................... F-13
Consolidated Statements of Cash Flows............................................. F-14
Consolidated Statements of Changes in Stockholders' Equity........................ F-15
Notes to Consolidated Financial Statements........................................ F-16
MITRE PLC
Independent Auditors' Report...................................................... F-27
Group Profit and Loss Account..................................................... F-28
Group Balance Sheet............................................................... F-29
Group Cash Flow Statement......................................................... F-30
Accounting Policies............................................................... F-31
Notes to the Financial Statements................................................. F-33
Notes to Unaudited Condensed Group Financial Statements........................... F-50
Unaudited Condensed Group Profit and Loss Account................................. F-50
Unaudited Condensed Group Balance Sheet........................................... F-51
Unaudited Condensed Group Cash Flow Statement..................................... F-52
TELEACTION, S.A.
Auditors' Report on Financial Statements.......................................... F-53
Balance Sheets.................................................................... F-54
Statements of Income.............................................................. F-56
Statements of Cash Flows.......................................................... F-57
Statements of Changes in Shareholders' Equity..................................... F-59
Notes to Financial Statements..................................................... F-60
Notes to Unaudited Financial Statements........................................... F-79
Unaudited Statements of Income.................................................... F-79
Unaudited Balance Sheet........................................................... F-80
Unaudited Statements of Cash Flows................................................ F-81
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
NATIONAL ACTION FINANCIAL SERVICES, INC.
Report of Independent Public Accountants.......................................... F-82
Balance Sheets.................................................................... F-83
Statements of Operations.......................................................... F-84
Statements of Stockholders' Equity................................................ F-85
Statements of Cash Flows.......................................................... F-86
Notes to Financial Statements..................................................... F-87
CTC CANADIAN TELEPHONE CORPORATION
Auditors' Report.................................................................. F-95
Balance Sheet..................................................................... F-96
Statement of Operations and Retained Earnings..................................... F-97
Statement of Changes in Financial Position........................................ F-98
Notes to Financial Statements..................................................... F-99
2965496 CANADA INC.
Auditors' Report.................................................................. F-103
Balance Sheet..................................................................... F-104
Statement of Operations and Retained Earnings..................................... F-105
Statement of Changes in Financial Position........................................ F-106
Notes to Financial Statements..................................................... F-107
</TABLE>
F-2
<PAGE>
UNAUDITED PRO FORMA AND PRO FORMA COMBINED FINANCIAL INFORMATION
The unaudited Pro Forma Statements of Operations are based upon the
historical consolidated financial statements and unaudited monthly management
information of SITEL, Mitre, and NAFS, which are included in this Proxy
Statement and should be read in conjunction with those consolidated financial
statements and related notes. The unaudited Pro Forma Statements of Operations
give effect to the Transaction and the NAFS Acquisition by combining results of
operations of SITEL for the years ended May 31, 1993, May 31, 1994 and May 31,
1995, and for the nine months ended February 28, 1995 and February 29, 1996,
with Mitre or its predecessor company Merit Direct, for the twelve months ended
May 31, 1995, and for the years ended December 31, 1992 and December 31, 1993,
and for the nine months ended February 28, 1995 and February 29, 1996 and with
NAFS for the twelve months ended June 30, 1995, and for the nine months ended
March 31, 1995 and March 31, 1996 as if the transactions had occurred at the
beginning of the periods presented. NAFS was established in April 1994 and the
results of operations from that time through June 30, 1994 are not material.
The unaudited Pro Forma Combined Statements of Operations include the
results of operations of the entities listed above and also include the results
of operations of CTC Canadian Telephone Corporation and 2965496 Canada Inc. for
the year ended April 30, 1995 and for the nine months ended January 31, 1996,
and of Teleaction for the year ended June 30, 1995 and for the nine months ended
March 31, 1996. The historical audited financial statements of CTC Canadian
Telephone Corporation, 2965496 Canada Inc. and Teleaction are included in this
Proxy Statement and should be read in conjunction with the unaudited Pro Forma
Combined Statements of Operations. The unaudited Pro Forma Combined Statements
of Operations do not include the results of operations of Telepromotion, Action
Data Base and Action Servicios De Publicidade (subsidiaries of Teleaction), as
they are immaterial.
The following pro forma results of Mitre include the results of Merit
Communications NV which was acquired by Mitre on December 21, 1995. Under US
GAAP, this acquisition will be accounted for in a manner similar to a pooling of
interests because Mitre and Merit Communications NV were entities under common
control. The results of Merit Communications NV were derived from financial
statements audited by KPMG and unaudited monthly management information. Merit
Communications NV was established in April 1993.
The following pro forma results reflect Mitre and Teleaction adjusted to
conform to US GAAP and the SITEL financial statement presentation. The
historical results have been converted into US dollars at the exchange rates for
the relevant periods.
The unaudited Pro Forma Combined Balance Sheet reflects the combined
financial position of SITEL and Mitre as of February 29, 1996 and NAFS and
Teleaction as of March 31, 1996. The unaudited Pro Forma Combined Balance Sheet
is prepared assuming the transactions occurred on the balance sheet date. The
unaudited Pro Forma Combined Balance Sheet does not reflect the financial
position of Telepromotion, Action Data Base and Action Servicios De Publicidade
(subsidiaries of Teleaction), as they are immaterial.
The unaudited pro forma and pro forma combined financial statements and
accompanying notes reflect the application of the pooling of interests method of
accounting for the Transaction and the NAFS Acquisition. Under this method of
accounting, the recorded assets, liabilities, shareholders' equity, income and
expenses are combined and recorded at their historical amounts. The Teleaction
Acquisition is reflected using the purchase method of accounting. Under this
method of accounting, the purchase price will be allocated to assets acquired
and liabilities assumed based on their fair value estimates at the closing of
the acquisition. The amount of the purchase accounting adjustments included are
preliminary estimates and may differ from actual amounts.
The unaudited pro forma and pro forma financial information presented is for
informational purposes only and is not necessarily indicative of the financial
position or results of operations of the entity or the actual results that would
have been achieved had the Transaction been consummated prior to the periods
indicated.
F-3
<PAGE>
SITEL CORPORATION AND MITRE PLC
PRO FORMA COMBINED BALANCE SHEET
FEBRUARY 29, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA SITEL
SITEL(a) TELEACTION(B,C) NAFS(b) ADJUSTMENTS COMBINED
-------- --------------- ------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 6,325 $ 1,075 $ 906 $ 8,306
Trade accounts receivable, net........ 23,036 11,712 1,810 36,558
Marketable securities................. 47,175 -- $(25,720)(e,f) $ 21,455
Prepaid expenses...................... 735 57 105 897
Other................................. 1,597 161 -- 1,758
Income taxes receivable............... 629 75 -- 704
Deferred income taxes................. 476 174 -- 650
-------- --------------- ------- -------------- ----------
Total current assets.............. 79,973 13,254 2,821 (25,720) 70,328
-------- --------------- ------- -------------- ----------
Property and equipment, net............. 14,791 1,273 1,412 17,476
Deposits and other assets............... 558 292 86 936
Loans receivable from related parties... 340 318 -- 658
Goodwill, net........................... 5,958 1,082 44 23,544(e) 30,628
Deferred income taxes................... 13,467 -- -- 13,467
-------- --------------- ------- -------------- ----------
Total assets...................... $115,087 $16,219 $4,363 $ (2,176) $ 133,493
-------- --------------- ------- -------------- ----------
-------- --------------- ------- -------------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable -- bank.................. $ 700 $ 331 $ 353 $ 1,384
Current portion of long-term
obligations.......................... 20 -- 77 97
Trade accounts payable................ 5,163 1,153 503 6,819
Accrued wages, salaries and bonuses... 6,070 193 619 6,882
Other accrued expenses................ 737 2,580 274 3,591
Customer deposits and other........... 429 -- 45 474
-------- --------------- ------- -------------- ----------
Total current liabilities......... 13,119 4,257 1,871 -- 19,247
-------- --------------- ------- -------------- ----------
Long-term debt obligations, net......... 129 642 1,025 8,909(e) 10,705
Other liabilities....................... 726 735 29 1,490
Redeemable preference shares............ -- -- -- --
Stockholders' equity:
Preferred stock....................... -- -- 285 (285)(i) --
Common stock.......................... 9 404 285 (688)(e,i) 10
Paid-in capital....................... 106,511 -- -- 569(i) 107,080
Currency exchange adjustment.......... 20 -- -- 20
Retained earnings (deficit)........... (5,427 ) 10,181 868 (10,681)(e) (5,059)
-------- --------------- ------- -------------- ----------
Total stockholders' equity........ 101,113 10,585 1,438 (11,085) 102,051
-------- --------------- ------- -------------- ----------
Total liabilities and
stockholders' equity............. $115,087 $16,219 $4,363 $ (2,176) $ 133,493
-------- --------------- ------- -------------- ----------
-------- --------------- ------- -------------- ----------
<CAPTION>
PRO FORMA PRO FORMA
MITRE(d) ADJUSTMENTS COMBINED
-------- ------------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 142 $ 8,448
Trade accounts receivable, net........ 14,328 50,886
Marketable securities................. -- $(7,011)(g,h) 14,444
Prepaid expenses...................... 1,546 2,443
Other................................. 919 2,677
Income taxes receivable............... -- 704
Deferred income taxes................. -- 650
-------- ------------- ---------
Total current assets.............. 16,935 (7,011) 80,252
-------- ------------- ---------
Property and equipment, net............. 11,940 29,416
Deposits and other assets............... 1,065 2,001
Loans receivable from related parties... -- 658
Goodwill, net........................... 4,464 35,092
Deferred income taxes................... 207 13,674
-------- ------------- ---------
Total assets...................... $34,611 $(7,011) $161,093
-------- ------------- ---------
-------- ------------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable -- bank.................. $ 4,629 $ 6,013
Current portion of long-term
obligations.......................... 1,970 2,067
Trade accounts payable................ 3,774 10,593
Accrued wages, salaries and bonuses... -- 6,882
Other accrued expenses................ 7,977 11,568
Customer deposits and other........... 23 497
-------- ------------- ---------
Total current liabilities......... 18,373 -- 37,620
-------- ------------- ---------
Long-term debt obligations, net......... 3,371 14,076
Other liabilities....................... 433 1,923
Redeemable preference shares............ 2,011 (2,011)(g) --
Stockholders' equity:
Preferred stock....................... -- --
Common stock.......................... 2,082 (2,073)(i) 19
Paid-in capital....................... 4,870 2,073(i) 114,023
Currency exchange adjustment.......... (14) 6
Retained earnings (deficit)........... 3,485 (5,000)(h) (6,574)
-------- ------------- ---------
Total stockholders' equity........ 10,423 (5,000) 107,474
-------- ------------- ---------
Total liabilities and
stockholders' equity............. $34,611 $(7,011) $161,093
-------- ------------- ---------
-------- ------------- ---------
</TABLE>
(SEE NOTES ON FOLLOWING PAGE)
F-4
<PAGE>
- ------------------------------
(a) The combined balance sheet of CTC has not been presented separately on this
statement as it was included in the consolidated historical statements of
SITEL as of February 29, 1996.
(b) The balance sheets of Teleaction and NAFS are as of March 31, 1996.
(c) The financial position of Teleaction has been translated from Spanish
pesetas to US dollars at the exchange rate in effect at the balance sheet
date (123.89 pesetas per dollar).
(d) The financial position of Mitre has been translated from British pounds to
US dollars at the exchange rate in effect at the balance sheet date (1.5318
dollars per pound) and has been presented in accordance with US GAAP. The
significant adjustments necessary to convert to US GAAP were (i) to
reclassify acquisition goodwill from stockholders' equity to intangible
assets and to recognize the corresponding amortization over a 25 year
period, and (ii) to account for Merit Communications NV as a pooling of
interests from its incorporation in April 1993.
(e) The Teleaction acquisition is reflected using the purchase method of
accounting and is based upon an initial purchase price of $24,220,000 a
deferred guaranteed payment of $10,780,000 and acquisition expenses of
$1,000,000. The deferred guaranteed payment will be paid in 1998 and has
been discounted to its present value ($8,909,000). In addition, a future
contingent payment will be paid based on Teleaction's profitability for 1996
and 1997. Goodwill of $23,544,000 was created by this acquisition.
(f) Transaction costs related to the NAFS Acquisition are estimated at $500,000.
(g) The Share Purchase Agreement requires that Mitre repay the face amount of
$2,011,000 of the redeemable preference shares.
(h) Transaction costs related to the Transaction are estimated at $5,000,000.
(i) The unaudited proforma combined financial statements reflect the application
of the pooling of interests method of accounting for the Mitre and NAFS
acquisitions. Under this method of accounting, it is necessary to reclassify
common stock to paid-in capital to reflect the par value of SITEL's common
stock which is lower than the par value of Mitre ordinary shares and NAFS
capital stock.
F-5
<PAGE>
SITEL CORPORATION AND MITRE PLC
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED MAY 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA SITEL PRO FORMA
SITEL CTC(a) TELEACTION(b,c) NAFS(B,D) ADJUSTMENTS COMBINED MITRE(D,E) COMBINED
------------ ------- -------------- --------- ----------- ------------- ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.......... $ 101,378 $6,342 $25,061 $3,767 $ $136,548 $37,615 $174,163
Operating
expenses:
Cost of
services........ 55,054 3,788 14,017 1,788 74,647 21,331 95,978
Divisional
selling,
general and
administrative
expenses....... 32,979 1,173 6,852 1,126 42,130 10,468 52,598
Corporate
general and
administrative
expenses....... 6,160 758 -- 314 1,453(f) 8,685 1,980 10,665
Special
compensation
expense........ 34,585(g) -- -- -- 34,585(g) -- 34,585(g)
------------ ------- -------------- --------- ----------- ------------- ---------- -----------
Operating income
(loss)........... (27,400)(h) 623 4,192 539 (1,453) (23,499)(h) 3,836 (19,663)(h)
Other income
(expenses)....... (303) 5 (250) (47) (1,541)(i) (2,136) (285) (2,421)
------------ ------- -------------- --------- ----------- ------------- ---------- -----------
Income (loss)
before income
taxes............ (27,703) 628 3,942 492 (2,994) (25,635) 3,551 (22,084)
Income tax expense
(benefit)........ (9,603) 190 1,430 149 (809)(i) (8,643) 1,271 (7,372)
------------ ------- -------------- --------- ----------- ------------- ---------- -----------
Net income
(loss)........... $ (18,100)(h) $ 438 $ 2,512 $ 343 $(2,185) $(16,992)(h) $ 2,280 $(14,712)(h)
------------ ------- -------------- --------- ----------- ------------- ---------- -----------
------------ ------- -------------- --------- ----------- ------------- ---------- -----------
Earnings (loss)
per common and
common equivalent
share............ ($ 1.05)(h) ($ 0.91)(h) ($ 0.53)(h)
------------ ------------- -----------
------------ ------------- -----------
Weighted average
common and common
equivalent shares
outstanding...... 17,207 18,571(j) 27,742(k)
------------ ------------- -----------
------------ ------------- -----------
</TABLE>
(SEE NOTES ON FOLLOWING PAGE)
F-6
<PAGE>
- ------------------------------
(a) The combined results of operations of CTC are for the year ended April 30,
1995 and have been translated from Canadian dollars to US dollars at the
average exchange rate for the period.
(b) The results of operations of Teleaction and NAFS are for the twelve months
ended June 30, 1995.
(c) The results of operations of Teleaction have been translated from Spanish
pesetas to US dollars at the average exchange rate for the period.
(d) The results of operations reflect the application of the pooling of
interests method of accounting for the Mitre and NAFS acquisitions.
(e) The results of operations of Mitre have been translated from British pounds
to US dollars at the average exchange rate for the period and have been
presented in accordance with US GAAP. The significant adjustments necessary
to convert to US GAAP were (i) to reclassify acquisition goodwill from
stockholders' equity to intangible assets and to recognize the corresponding
amortization over a 25 year period, and (ii) to account for Merit
Communications NV as a pooling of interests from its incorporation in April
1993. On December 21, 1995, all of Mitre's subsidiaries, including Merit
Communications NV, became wholly owned subsidiaries and, therefore, for the
purposes of this pro forma presentation, the results of Mitre for the
periods presented do not separately disclose the net income (loss) which
would have been attributable to minority interests.
(f) Represents the amortization of goodwill resulting from the CTC and
Teleaction acquisitions, which will be amortized on a straight-line basis
over a period of 25 years, and an adjustment to reduce expenses for fees
paid to a management employee of CTC which will not be paid after the
acquisition.
(g) Represents a non-recurring, non-cash compensation expense of $34.6 million
incurred by SITEL in 1995 resulting from the grant of stock options with an
exercise price of $0.01 per share to 265 employees of the Company to replace
stock appreciation rights previously granted under the Company's Employee
Equity Benefit Plan and previously granted stock options.
(h) Excluding the special compensation expense and a one-time forgiveness of
$528,000 owed by two stockholders, operating income, net income and net
income per share would have been $7.6 million, $5.2 million and $0.30 for
SITEL, $11.6 million, $6.1 million and $0.33 for SITEL combined and $15.5
million, $8.3 million and $0.30 respectively for the Pro Forma Combined
entity, respectively.
(i) Represents an assumed increase in interest expense and the related tax
effect which would have occurred had the payment of the CTC and Teleaction
purchase price occurred as of the beginning of the period.
(j) Consists of SITEL's historical weighted average common and common
equivalent shares outstanding and the shares of SITEL Common Stock issued
for the NAFS Acquisition.
(k) Consists of SITEL's historical weighted average common and common equivalent
shares outstanding and the shares of SITEL Common Stock issued for the NAFS
Acquisition and to be issued for the Transaction.
F-7
<PAGE>
SITEL CORPORATION AND MITRE PLC
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED FEBRUARY 29, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA SITEL PRO FORMA
SITEL CTC(a) TELEACTION(B,C) NAFS(B,D) ADJUSTMENTS COMBINED MITRE(D,E) COMBINED
------- ------- --------------- --------- ----------- --------- ---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues...................... $98,861 $4,054 $23,156 $8,638 $ (433)(f) $134,276 $ 43,116 $177,392
Operating expenses:
Cost of services............ 52,951 2,880 14,301 4,464 (215)(f) 74,381 25,589 99,970
Divisional selling, general
and administrative
expenses................... 31,485 1,279 5,618 2,574 (227)(f) 40,729 11,373 52,102
Corporate general and
administrative expenses.... 5,170 301 -- 448 831(g) 6,750 1,711 8,461
------- ------- --------------- --------- ----------- --------- ---------- ---------
Operating income (loss)....... 9,255 (406) 3,237 1,152 (822) 12,416 4,443 16,859
Other income (expense)........ 533 32 (257) (76) (1,156)(h) (924) (548) (1,472)
------- ------- --------------- --------- ----------- --------- ---------- ---------
Income (loss) before income
taxes........................ 9,788 (374) 2,980 1,076 (1,978) 11,492 3,895 15,387
Income tax expense
(benefit).................... 3,466 (134) 1,012 471 (516)(h) 4,299 1,322 5,621
------- ------- --------------- --------- ----------- --------- ---------- ---------
Net income (loss)............. $ 6,322 $ (240) $ 1,968 $ 605 $(1,462) $ 7,193 $ 2,573 $ 9,766
------- ------- --------------- --------- ----------- --------- ---------- ---------
------- ------- --------------- --------- ----------- --------- ---------- ---------
Earnings per common and common
equivalent share............. $ 0.30 $ 0.32 $ 0.31
------- --------- ---------
------- --------- ---------
Weighted average common and
common equivalent shares
outstanding.................. 21,111 22,475(i) 31,646(j)
------- --------- ---------
------- --------- ---------
</TABLE>
- ------------------------------
(a) The combined results of operations of CTC are for the nine months ended
January 31, 1996 and have been translated from Canadian dollars to US
dollars at the average exchange rate for the period.
(b) The results of operations of Teleaction and NAFS are for the nine months
ended March 31, 1996.
(c) The results of operations of Teleaction have been translated from Spanish
pesetas to US dollars at the average exchange rate for the period.
(d) The results of operations reflect the application of the pooling of
interests method of accounting for the Mitre and NAFS acquisitions.
(e) The results of operations of Mitre have been translated from Pounds Sterling
to US dollars at the average exchange rate for the period and have been
presented in accordance with US GAAP. The significant adjustments necessary
to convert to US GAAP were (i) to reclassify acquisition goodwill from
stockholders' equity to intangible assets and to recognize the corresponding
amortization over a 25-year period, and (ii) to account for Merit
Communications NV as a pooling of interests from its incorporation in April
1993. On December 21, 1995, all of Mitre's subsidiaries, including Merit
Communications NV, became wholly owned subsidiaries and, therefore, for the
purposes of this pro forma presentation, the results of Mitre for the
periods presented do not separately disclose the net income (loss) which
would have been attributable to minority interests.
(f) SITEL's consolidated results of operations for the nine months ended
February 29, 1996 include one month of CTC's operations. Since CTC's results
of operations presented are for the nine months ended January 31, 1996, the
results of CTC operations for the month of February 1996 are being removed
to avoid the inclusion of 10 months of activity.
(g) Represents the amortization of goodwill resulting from the CTC and
Teleaction acquisitions, which will be amortized on a straight-line basis
over a period of 25 years.
(h) Represents an assumed reduction of interest income and the related tax
effect which would have occurred had the payment of the CTC and Teleaction
purchase price occurred as of the beginning of the period.
(i) Consists of SITEL's historical weighted average common and common equivalent
shares outstanding and the shares of SITEL Common Stock issued for the NAFS
Acquisition.
(j) Consists of SITEL's historical weighted average common and common
equivalent shares outstanding and the shares of SITEL Common Stock issued
for the NAFS Acquisition and to be issued for the Transaction.
F-8
<PAGE>
SITEL CORPORATION, MITRE PLC AND
NATIONAL ACTION FINANCIAL SERVICES, INC.
PRO FORMA STATEMENT OF OPERATIONS (A,B)
(UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED NINE MONTHS ENDED
------------------------------------- ----------------------------
MAY 31, MAY 31, MAY 31, FEBRUARY 28, FEBRUARY 29,
1993 (c) 1994 (c) 1995 (d) 1995 (d) 1996 (d)
--------- --------- --------------- -------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues.................................. $ 65,010 $ 81,334 $ 142,760 $ 98,406 $ 150,615
Operating expenses:
Cost of services........................ 36,356 43,032 78,173 54,218 83,004
Divisional selling, general and
administrative expenses................ 20,618 27,835 44,573 31,238 45,432
Corporate general and administrative
expenses............................... 4,543 6,568 8,454 6,304 7,329
Special compensation expense............ -- -- 34,585(e) 34,585(e) --
--------- --------- --------------- -------------- ------------
Operating income (loss)............... 3,493 3,899 (23,025)(f) (27,939)(f) 14,850
Interest expense, net..................... (918) (652) (1,065) (709) (151)
Other income (expense).................... 106 1,403 430 323 60
--------- --------- --------------- -------------- ------------
Income (loss) before income taxes..... 2,681 4,650 (23,660) (28,325) 14,759
Income tax expense (benefit).............. 577 705 (8,183) (9,735) 5,259
--------- --------- --------------- -------------- ------------
Net income (loss)..................... $ 2,104 $ 3,945 $ (15,477)(f) $ (18,590)(f) $ 9,500
--------- --------- --------------- -------------- ------------
--------- --------- --------------- -------------- ------------
Earnings (loss) per common and common
equivalent share......................... $ 0.08 $ 0.15 $ (0.56)(f) $ (0.67)(f) $ 0.30
--------- --------- --------------- -------------- ------------
--------- --------- --------------- -------------- ------------
Weighted average common and common
equivalent shares outstanding (g)........ 27,135 27,742 27,742 27,742 31,646
--------- --------- --------------- -------------- ------------
--------- --------- --------------- -------------- ------------
</TABLE>
- ------------------------------
(a) The results of operations reflect the application of the pooling of
interests method of accounting for the Mitre and NAFS acquisitions.
(b) The results of operations of Mitre have been translated from British pounds
to US dollars at the average exchange rate for the applicable period and
have been presented in accordance with US GAAP. The significant adjustments
necessary to convert to US GAAP were (i) to reclassify acquisition goodwill
from stockholders' equity to intangible assets and to recognize the
corresponding amortization over a 25 year period, and (ii) to account for
Merit Communications NV as a pooling of interests from its incorporation in
April 1993. On December 21, 1995, all of Mitre's subsidiaries, including
Merit Communications NV, became wholly owned subsidiaries and, therefore,
for the purposes of this pro forma presentation, the results of Mitre for
the periods presented do not separately disclose the net income (loss) which
would have been attributable to minority interests.
(c) The results of operations of Mitre that have been included in the combined
statements as of May 31, 1993 and May 31, 1994 are the results of the
predecessor company Merit Direct for the year ended December 31, 1992 and
Mitre for the period ended December 31, 1993.
(d) The results of operations of NAFS that have been included in the combined
statements for the year ended May 31, 1995, and the nine months ended
February 28, 1995 and February 29, 1996 are for the year ended June 30, 1995
and the nine months ended March 31, 1995 and March 31, 1996, respectively.
(e) Represents a non-recurring, non-cash compensation expense of $34.6 million
incurred by SITEL in 1995 resulting from the grant of stock options with an
exercise price of $0.01 per share to 265 employees of the Company to replace
stock appreciation rights previously granted under the Company's Employee
Equity Benefit Plan and previously granted stock options.
(f) Excluding the special compensation expense and a one-time forgiveness of
$528,000 owed by two stockholders, operating income, net income and net
income per share would have been $12.1 million, $7.5 million and $0.27 for
the fiscal year ended May 31, 1995 and $7.2 million, $4.5 million and $0.16
for the nine months ended February 28, 1995, respectively.
(g) Consists of SITEL's historical weighted average common and common equivalent
shares outstanding and the shares of SITEL Common Stock issued for the NAFS
Acquisition and to be issued for the Transaction.
F-9
<PAGE>
SITEL CORPORATION AND
NATIONAL ACTION FINANCIAL SERVICES, INC.
PRO FORMA STATEMENT OF OPERATIONS (A)
(UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED NINE MONTHS ENDED
------------------------------ ---------------------------
MAY 31, MAY 31, MAY 31, FEBRUARY 28, FEBRUARY 29,
1993 1994 1995 (B) 1995 (B) 1996 (B)
------- ------- ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues..................................... $55,498 $68,855 $105,145 $ 73,879 $107,498
Operating expenses:
Cost of services........................... 31,553 37,052 56,842 40,599 57,415
Divisional selling, general and
administrative expenses................... 17,847 23,810 34,104 23,837 34,058
Corporate general and administrative
expenses.................................. 3,664 5,567 6,474 4,844 5,618
Special compensation expense............... -- -- 34,585(c) 34,585(c) --
------- ------- ------------ ------------ ------------
Operating income (loss).................. 2,434 2,426 (26,860)(d) (29,986)(d) 10,407
Interest expense, net........................ (757) (538) (750) (530) 398
Other income (expense)....................... 106 1,371 399 292 60
------- ------- ------------ ------------ ------------
Income (loss) before income taxes........ 1,783 3,259 (27,211) (30,224) 10,865
Income tax expense (benefit)................. 575 391 (9,454) (10,484) 3,937
------- ------- ------------ ------------ ------------
Net income (loss)........................ 1,208 2,868 (17,757)(d) (19,740)(d) 6,928
------- ------- ------------ ------------ ------------
------- ------- ------------ ------------ ------------
Earnings (loss) per common and common
equivalent share............................ $ 0.07 $ 0.15 $ (0.96)(d) $ (1.06)(d) $ 0.31
------- ------- ------------ ------------ ------------
------- ------- ------------ ------------ ------------
Weighted average common and common equivalent
shares outstanding (e)...................... 17,964 18,571 18,571 18,571 22,475
------- ------- ------------ ------------ ------------
------- ------- ------------ ------------ ------------
</TABLE>
- ------------------------------
(a) The results of operations reflect the application of the pooling of
interests method of accounting for the NAFS acquisition.
(b) The results of operations of NAFS that have been included in the combined
statements for the year ended May 31, 1995, and the nine months ended
February 28, 1995 and February 29, 1996 are for the year ended June 30, 1995
and the nine months ended March 31, 1995 and March 31, 1996, respectively.
(c) Represents a non-recurring, non-cash compensation expense of $34.6 million
incurred by SITEL in 1995 resulting from the grant of stock options with an
exercise price of $0.01 per share to 265 employees of the Company to replace
stock appreciation rights previously granted under the Company's Employee
Equity Benefit Plan and previously granted stock options.
(d) Excluding the special compensation expense and a one-time forgiveness of
$528,000 owed by two stockholders, operating income, net income and net
income per share would have been $8.3 million, $5.4 million and $0.29 for
the fiscal year ended May 31, 1995 and $5.1 million, $3.4 million, and $0.18
for the nine months ended February 28, 1995, respectively.
(e) Consists of SITEL's historical weighted average common and common equivalent
shares outstanding and the shares of SITEL Common Stock issued for the NAFS
Acquisition.
F-10
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
SITEL Corporation and Subsidiaries
We have audited the consolidated balance sheets of SITEL Corporation and
Subsidiaries (the Company) as of May 31, 1994 and 1995 and the related
consolidated statements of income (loss), changes in stockholders' equity and
cash flows for each of the three years ended May 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of SITEL
Corporation and Subsidiaries as of May 31, 1994 and 1995 and the consolidated
results of their operations and their cash flows for each of the three years
ended May 31, 1995 in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Omaha, Nebraska
August 4, 1995, except for
Note 21 as to which
the date is May 13, 1996
F-11
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MAY 31, 1994 AND 1995 AND FEBRUARY 29, 1996
ASSETS
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 29,
------------------------- -------------
1994 1995 1996
----------- ------------ -------------
<S> <C> <C> <C>
(UNAUDITED)
Current assets:
Cash and cash equivalents............................................ $ 615,859 $ 1,191,577 $ 6,324,635
Trade accounts receivable (net of allowance for doubtful accounts of
$260,343, $390,624, and $591,481, respectively)..................... 10,440,409 15,898,239 23,036,143
Marketable securities................................................ -- -- 47,175,119
Prepaid expenses..................................................... 189,846 1,371,791 735,214
Recoverable income taxes............................................. -- 21,435 628,657
Other................................................................ 426,749 628,557 1,596,988
Deferred income taxes................................................ 266,000 386,848 476,447
----------- ------------ -------------
Total current assets............................................. 11,938,863 19,498,447 79,973,203
----------- ------------ -------------
Property and equipment, net............................................ 6,896,438 9,305,043 14,791,276
Deposits............................................................... 589,862 125,998 558,478
Other assets........................................................... 227,475 589,789 --
Loans receivable from related parties.................................. 561,093 231,520 339,963
Goodwill............................................................... 1,658,086 1,860,487 5,957,677
Deferred income taxes.................................................. 2,411,206 14,356,540 13,466,553
----------- ------------ -------------
Total assets..................................................... $24,283,023 $ 45,967,824 $ 115,087,150
----------- ------------ -------------
----------- ------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable -- bank................................................. $ 920,000 $ 3,126,000 $ 700,000
Current portion of long-term debt.................................... 2,129,504 4,045,531 20,128
Current portion of capitalized lease obligations..................... 312,500 83,884 --
Trade accounts payable............................................... 2,887,819 3,393,659 5,162,526
Income taxes payable................................................. 85,000 -- --
Accrued wages, salaries and bonuses.................................. 2,283,342 3,816,118 6,069,896
Other accrued expenses............................................... 751,357 342,510 737,159
Customer deposits and other.......................................... 84,779 46,294 428,877
----------- ------------ -------------
Total current liabilities........................................ 9,454,301 14,853,996 13,118,586
----------- ------------ -------------
Long-term debt, net of current portion................................. 2,781,598 2,392,456 128,622
Capitalized lease obligations, net of current portion.................. 90,027 -- --
Note payable to related party.......................................... 492,388 492,388 --
Deferred revenue....................................................... 70,802 -- --
Deferred compensation and other liabilities............................ 568,844 586,660 725,662
Common stock, subject to put option -- 1,495,060, 1,535,296 and 0
shares, respectively.................................................. 2,315,475 2,799,708 --
Commitments and contingencies
(Notes, 2, 12, 13 and 14)
Stockholders' equity
Capital stock:
Class A common stock, voting, $.001 par value, 5,000,000 shares
authorized, 4,010,000, 0 and 0 shares issued and outstanding,
respectively...................................................... 4,010 -- --
Class B common stock, nonvoting $.001 par value, 5,000,000 shares
authorized, 5,330,000, 0 and 0 shares issued and outstanding,
respectively...................................................... 5,330 -- --
Class C common stock, voting, $.001 par value 1,250,000 shares
authorized, 359,766, 0 and 0 shares issued and outstanding
respectively...................................................... 360 -- --
Common stock, voting, $.001 par value 50,000,000 shares authorized,
0, 9,709,826 and 18,524,492 shares issued and outstanding,
respectively...................................................... -- 9,710 18,524
Common stock options............................................... 556,852 -- --
Less: Deferred compensation...................................... (474,512) -- --
Paid-in capital........................................................ 1,816,718 36,581,874 106,502,222
Currency exchange adjustment........................................... -- -- 20,100
Retained earnings (deficit)............................................ $ 6,600,830 (11,748,968) $ (5,426,566)
----------- ------------ -------------
Total stockholders' equity..................................... $ 8,509,588 24,842,616 101,114,280
----------- ------------ -------------
Total liabilities and stockholders' equity..................... $24,283,023 $ 45,967,824 $ 115,087,150
----------- ------------ -------------
----------- ------------ -------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-12
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED MAY 31, 1993, 1994 AND 1995 AND THE
NINE MONTHS ENDED FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FOR THE YEARS ENDED MAY 31 ---------------------------
----------------------------------------- FEBRUARY 28 FEBRUARY 29
1993 1994 1995 1995 1996
------------ ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues......................................... $ 55,498,016 68,855,377 $ 101,377,450 $ 72,185,117 $ 98,860,581
------------ ------------ ------------- ------------- ------------
Operating expenses:
Cost of services............................... 31,552,773 37,051,508 55,053,712 39,630,178 52,950,817
Division selling, general and administrative
expenses...................................... 17,847,462 23,809,893 32,978,848 23,286,846 31,484,322
Corporate general and administrative
expenses...................................... 3,663,990 5,568,077 6,160,069 4,663,190 5,170,133
Special compensation expense................... -- -- 34,585,062 34,585,062 --
------------ ------------ ------------- ------------- ------------
Total operating expenses................... 53,064,225 66,429,478 128,777,691 102,165,276 89,605,272
------------ ------------ ------------- ------------- ------------
Operating income (loss).................... 2,433,791 2,425,899 (27,400,241) (29,980,159) 9,255,309
------------ ------------ ------------- ------------- ------------
Other income (expense):
Interest income................................ 14,553 11,301 115,892 99,541 557,847
Interest expense............................... (771,185) (549,371) (818,368) (604,052) (85,063)
Other income................................... 106,244 1,371,365 399,349 292,137 59,836
------------ ------------ ------------- ------------- ------------
Total other income (expense)............... (650,388) 833,295 (303,127) (212,374) 532,620
------------ ------------ ------------- ------------- ------------
Income (loss) before income taxes.......... 1,783,403 3,259,194 (27,703,368) (30,192,533) 9,787,929
------------ ------------ ------------- ------------- ------------
Income tax expense (benefit):
Current........................................ 970,000 1,184,150 2,462,569 1,694,765 4,265,915
Deferred....................................... (394,380) (793,000) (12,066,182) (12,179,128) (800,388)
------------ ------------ ------------- ------------- ------------
Total income tax expense (benefit)......... 575,620 391,150 (9,603,613) (10,484,363) 3,465,527
------------ ------------ ------------- ------------- ------------
Net income (loss)................................ $ 1,207,783 $ 2,868,044 $ (18,099,755) $ (19,708,170) $ 6,322,402
------------ ------------ ------------- ------------- ------------
------------ ------------ ------------- ------------- ------------
Per share amounts:
Earnings (loss) per common and common
equivalent share.............................. $ 0.07 $ 0.17 $ (1.05) $ (1.15) $ 0.30
------------ ------------ ------------- ------------- ------------
------------ ------------ ------------- ------------- ------------
Weighted average common and common equivalent
shares outstanding.............................. 16,600,330 17,206,906 17,206,906 17,206,906 21,111,080
------------ ------------ ------------- ------------- ------------
------------ ------------ ------------- ------------- ------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-13
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 31, 1993, 1994 AND 1995 AND THE
NINE MONTHS ENDED FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FOR THE YEARS ENDED MAY 31 ----------------------------
----------------------------------------- FEBRUARY 28 FEBRUARY 29
1993 1994 1995 1995 1996
------------ ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash flow from operating activities:
Net Income (loss)............................... $ 1,207,783 $ 2,868,044 $ (18,099,755) $ (19,708,170) $ 6,322,402
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Special compensation expenses................. -- -- 34,585,062 34,585,062 --
Depreciation and amortization................. 3,041,305 3,762,850 4,404,976 3,233,363 4,275,157
Provision for deferred income taxes........... (394,380) (793,000) (12,066,182) (12,179,128) 800,388
Deferred compensation......................... 44,614 606,567 56,648 (316,817) (360,999)
Loss on sale of property and equipment........ -- 65,180 56,441 8,501 --
Forgiveness of loans receivable from related
parties...................................... -- -- 449,396 449,396 --
Change in assets and liabilities net of
effects from 1993 merger with May
Telemarketing:
Trade accounts receivable................... (3,864,579) (1,263,279) (5,457,830) (2,962,704) (7,137,903)
Refundable income taxes..................... 177,424 -- (21,435) -- (607,222)
Prepaid expenses............................ 199,441 125,760 (1,181,945) 30,359 636,576
Other current assets........................ (843,248) 685,981 (201,808) (227,332) (208,627)
Deposits.................................... (205,521) (355,765) 463,864 217,155 137,825
Trade accounts payable...................... 1,585,482 (503,235) 505,840 173,526 1,768,867
Accrued wages, salaries and bonuses......... 281,882 1,045,603 1,532,776 929,735 2,253,778
Other accrued expenses...................... (307,695) 9,166 (447,332) 282,532 394,647
Income taxes payable........................ 542,276 (457,276) (85,000) 127,750 --
Deferred revenue............................ (834,909) (488,096) (70,802) (70,802) --
------------ ------------ ------------- ------------- -------------
Net cash provided by operating
activities............................... 629,875 5,308,500 4,422,914 4,572,426 8,274,889
------------ ------------ ------------- ------------- -------------
Cash flows from investing activities:
Purchases of property and equipment............. (4,203,718) (3,549,721) (6,779,302) (5,944,836) (9,159,262)
Proceeds from sales of property and equipment... -- 602,420 -- -- --
Acquisition of Canadian subsidiary.............. -- -- -- -- (4,184,080)
Investments in marketable securities............ -- -- -- -- (60,025,119)
Sales of marketable securities.................. -- -- -- -- 12,850,000
Advances on loans receivable from related
parties........................................ (10,700) (111,697) (119,823) (109,563) (108,443)
Payments received on loans receivable from
related parties................................ 45,500 21,862 -- -- --
Changes in other assets......................... (6,307) 62,546 (362,314) (10,387) 402,069
------------ ------------ ------------- ------------- -------------
Net cash used in investing activities..... (4,175,225) (2,974,570) (7,261,439) (6,064,786) (60,224,835)
------------ ------------ ------------- ------------- -------------
Cash flows from financing activities:
Borrowings on note payable -- bank.............. 18,300,000 44,339,210 47,147,500 33,161,500 9,650,000
Repayments on note payable -- bank.............. (15,707,511) (47,006,200) (44,941,500) (33,481,500) (12,076,000)
Borrowings on long-term debt.................... 4,034,416 4,995,000 4,157,500 4,157,500 --
Repayment of long-term debt..................... (2,406,649) (4,288,120) (2,630,614) (1,763,846) (6,373,122)
Borrowings of note payable to related party..... 245,000 247,388 -- -- --
Repayment of note payable to related party...... -- -- -- -- (492,388)
State incentive credit received................. -- -- -- -- 800,000
Common stock issued............................. 19,500 -- -- -- 65,574,514
Payments on capital lease obligations........... (303,998) (541,750) (318,643) (240,613) --
Cash overdraft.................................. (98,987) -- -- -- --
------------ ------------ ------------- ------------- -------------
Net cash provided by (used in) investing
activities................................. 4,081,771 (2,254,472) 3,414,243 1,833,041 57,083,004
------------ ------------ ------------- ------------- -------------
Net increase in cash........................ 536,421 79,438 575,718, 340,681 5,133,058
Cash and cash equivalents, beginning of period.... -- 536,421 615,859 615,859 1,191,577
------------ ------------ ------------- ------------- -------------
Cash and cash equivalents, end of period.......... $ 536,421 $ 615,859 $ 1,191,577 $ 956,540 $ 6,324,635
------------ ------------ ------------- ------------- -------------
------------ ------------ ------------- ------------- -------------
Supplemental statements of cash flow information
Interest paid................................... $ 782,166 $ 511,217 $ 807,298 $ 593,795 $ 82,075
Income taxes paid............................... 250,300 1,639,357 2,569,004 1,100,000 1,722,500
</TABLE>
Supplemental Schedule of Noncash Investing and Financing activities:
During 1993 the Company issued 1,854,826 shares of Class C Common stock with a
fair value of $3,579,812 for the purchase of May Telemarketing, Inc. (See
Note 2).
Additions to property and equipment of $817,134 in 1993 were financed through
capital issue obligations:
In 1993, an investment in Common Stock of $200,000 was received in exchange
for securities.
In 1995, 50,296 shares of Class C Common Stock were issued (see Note 2).
The accompanying notes are an integral part of the consolidated financial
statements.
F-14
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MAY 31, 1993, 1994, 1995 AND THE NINE MONTHS ENDED FEBRUARY
29, 1996
<TABLE>
<CAPTION>
OPTIONS LESS
CLASS A CLASS B CLASS C COMMON DEFERRED
COMMON COMMON COMMON STOCK COMPENSATION
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, May 31, 1992....................................... $ 3,500 $ 5,742 $ -- -- $ --
Issuance of 97,500 shares of Class B Common stock......... -- 98 -- -- --
Exchange of 510,000 shares of Class B common stock for
Class A common stock..................................... 510 (510) -- -- --
Common stock options, less deferred compensation.......... -- -- -- -- 27,114
Issuance at 1,854,826 shares of Class C common stock less
1,495,660 shares subject to put option................... -- -- 360 -- --
Accretion of put option................................... -- -- -- -- --
Net income................................................ -- -- -- -- --
----------- ----------- ----------- ----------- -------------
Balance, May 31, 1993....................................... 4,010 5,330 360 -- 27,114
Common stock options less deferred compensation........... -- -- -- -- 55,226
Accretion of put option................................... -- -- -- -- --
Net income................................................ -- -- -- -- --
----------- ----------- ----------- ----------- -------------
Balance, May 31, 1994....................................... 4,010 5,330 360 -- 82,340
Issuance of 50,296 shares of Class Common stock, less
40,236 shares subject to put option...................... -- -- 10 -- --
Special compensation -- options issued.................... -- -- -- -- (82,340)
Accretion of put option................................... -- -- -- -- --
Conversion 4,010,000 shares of Class A, 5,330,000 shares
of Class B, and 369,826 shares of Class C common into a
single class of common stock due to reincorporation (4,010) (5,330) (370) 9,710 --
Net loss.................................................. -- -- -- -- --
----------- ----------- ----------- ----------- -------------
Balance May 31, 1995........................................ -- -- -- 9,710 --
Issuance of 3,800,000 shares of common stock net of
offering expenses........................................ -- -- -- 3,800 --
Cancellation of the put option............................ -- -- -- 1,536 --
Issuance of 2,991,110 shares of common stock net of
offering expenses........................................ -- -- -- 2,992 --
Stock issued for option exercises......................... -- -- -- 486 --
Tax benefit of stock options exercised.................... -- -- -- -- --
Currency exchange adjustment.............................. -- -- -- -- --
Net income................................................ -- -- -- -- --
----------- ----------- ----------- ----------- -------------
Balance, February 29, 1996 (unaudited)...................... $ -- -- -- $ 18,524 $ --
----------- ----------- ----------- ----------- -------------
----------- ----------- ----------- ----------- -------------
<CAPTION>
CURRENCY RETAINED TOTAL
EXCHANGE PAID-IN EARNINGS STOCKHOLDERS'
ADJUSTMENT CAPITAL (DEFICIT) EQUITY
----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance, May 31, 1992....................................... $ -- $ 68,334 $ 2,990,008 $ 3,067,584
Issuance of 97,500 shares of Class B Common stock......... -- 19,402 -- 19,500
Exchange of 510,000 shares of Class B common stock for
Class A common stock..................................... -- -- -- --
Common stock options, less deferred compensation.......... -- -- -- 27,114
Issuance at 1,854,826 shares of Class C common stock less
1,495,660 shares subject to put option................... -- 1,728,982 -- 1,729,342
Accretion of put option................................... -- -- (192,097) (192,097)
Net income................................................ -- -- 1,207,783 1,207,783
----------- ------------- ------------- -------------
Balance, May 31, 1993....................................... -- 1,816,718 4,005,694 5,859,226
Common stock options less deferred compensation........... -- -- -- 55,226
Accretion of put option................................... -- -- (272,908) (272,908)
Net income................................................ -- -- 2,868,044 2,868,044
----------- ------------- ------------- -------------
Balance, May 31, 1994....................................... -- 1,816,718 6,600,830 8,509,588
Issuance of 50,296 shares of Class Common stock, less
40,236 shares subject to put option...................... -- 58,539 -- 58,549
Special compensation -- options issued.................... -- 34,706,617 -- 34,624,277
Accretion of put option................................... -- -- (250,043) (250,043)
Conversion 4,010,000 shares of Class A, 5,330,000 shares
of Class B, and 369,826 shares of Class C common into a
single class of common stock due to reincorporation -- -- -- --
Net loss.................................................. -- -- (18,099,755) (18,099,755)
----------- ------------- ------------- -------------
Balance May 31, 1995........................................ -- 36,581,874 (11,748,968) 24,842,616
Issuance of 3,800,000 shares of common stock net of
offering expenses........................................ -- 23,167,230 -- 23,171,030
Cancellation of the put option............................ -- 2,798,172 -- 2,799,708
Issuance of 2,991,110 shares of common stock net of
offering expenses........................................ -- 42,397,461 -- 42,400,453
Stock issued for option exercises......................... -- 2,545 -- 3,031
Tax benefit of stock options exercised.................... -- 1,554,940 -- 1,554,940
Currency exchange adjustment.............................. 20,100 -- -- 20,100
Net income................................................ -- -- 6,322,402 6,322,402
----------- ------------- ------------- -------------
Balance, February 29, 1996 (unaudited)...................... $ 20,100 $ 106,502,222 $ (5,426,566) $ 101,114,280
----------- ------------- ------------- -------------
----------- ------------- ------------- -------------
</TABLE>
F-15
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES:
The consolidated financial statements at February 29, 1996 and for the nine
months then ended are unaudited and reflect all normal and recurring adjustments
which are, in the opinion of management, necessary for a fair presentation of
the financial position, operating results, and cash flows for the interim
periods. The results of operations for the nine months ended February 29, 1996
are not necessarily indicative of the results for the entire fiscal year ending
May 31, 1996.
The following is a summary of significant accounting policies followed in
the preparation of these financial statements.
(a) PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the accounts of SITEL Corporation and its subsidiaries ("the Company").
All significant intercompany accounts and transactions have been eliminated.
(b) INDUSTRY INFORMATION. The Company is engaged in inbound, outbound and
interactive teleservices, operating primarily in the Midwest.
(c) REVENUE RECOGNITION. The Company recognizes teleservicing revenues as
services are performed for its customers.
As part of the merger described in Note 2, the Company entered into several
marketing agreements under which the Company subcontracts teleservices for which
the Company is the primary contracting party. Under these arrangements, the
Company also provides teleservicing consulting and sells computer hardware and
software to the subcontractors for a specified fee. Consultation fees are
recognized as revenue upon completion and certification by the customer. Revenue
generated from hardware and software sales is recognized at delivery.
Deferred revenue relates to a subsidiary's sales of magazine subscriptions,
which are recognized as the subscriptions are delivered.
(d) CASH EQUIVALENTS. Cash equivalents generally consist of highly liquid
debt instruments purchased with an original maturity of three months or less.
(e) PROPERTY AND EQUIPMENT. Property and equipment are stated at cost less
accumulated depreciation. Major renewals and improvements are capitalized and
charged to expense through depreciation. Repairs and maintenance are charged to
expense as incurred. Depreciation is determined using the straight-line method
over the estimated useful lives of the respective assets. Equipment recorded
under capital leases is amortized on a straight-line basis over the shorter of
the estimated useful life of the assets or the lease term. Estimated useful
lives are as follows:
<TABLE>
<CAPTION>
YEARS
---------
<S> <C>
Telecommunications equipment........................................................... 3-5
Furniture and equipment................................................................ 5-7
Leasehold improvements................................................................. 3-14
Automobiles............................................................................ 3
</TABLE>
Upon sale or retirement, the related cost and accumulated depreciation are
removed from the accounts, and any gain or loss is recognized in the statement
of income.
(f) INCOME TAXES. Deferred tax assets and liabilities are determined based
on the differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates and laws applicable to the years in which
the differences are expected to reverse. Valuation allowances, if any,
F-16
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ACCOUNTING POLICIES: (CONTINUED)
are established when necessary to reduce deferred tax assets to the amount that
is more likely than not to be realized. Income tax expense is the tax payable
for the period and the change during the period in deferred tax assets and
liabilities.
(g) GOODWILL. Goodwill consists of the difference between the fair value
of net assets acquired and the fair value of common shares issued as a result of
the acquisitions described in Note 2, and is being amortized using the
straight-line method over 25 years. Accumulated amortization of goodwill at May
31, 1993, 1994 and 1995 was $109,241, $277,481 and $367,802, respectively. The
Company reviews the carrying value of goodwill at each balance sheet date to
assess recoverability based on estimated undiscounted future operating cash
flows. Impairments would be recognized in operating results if a permanent
diminution in value were to occur based on discounted cash flows.
(h) EARNINGS PER SHARE. Earnings per share attributable to common
shareholders has been computed using the weighted average number of common and
common equivalent shares outstanding (see Note 13).
<TABLE>
<CAPTION>
MAY 31 NINE MONTHS ENDED
------------------------------------------- ----------------------------
1993 1994 1995 2/29/96 2/28/95
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Common stock.......................... 10,638,546 11,245,122 11,245,122 15,628,954 11,245,122
Common stock equivalents stock
options.............................. 5,961,784 5,961,784 5,961,784 5,482,126 5,961,784
------------- ------------- ------------- ------------- -------------
16,600,330 17,206,906 17,206,906 21,111,080 17,206,906
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83,
options to purchase common stock granted with exercise prices below the assumed
initial public offering price per share during the 12 months preceding the date
of the initial filing of the Registration Statement are included in the
calculation of common equivalent shares, using the treasury stock method, as if
they were outstanding for all periods presented.
(i) RECLASSIFICATION. Certain amounts in the prior year financial
statements have been reclassified to conform with the current year presentation.
2. ACQUISITIONS:
Effective September 28, 1992, the Company entered into an agreement with
plan of merger with May Telemarketing, Inc. ("May"), which has been accounted
for by the purchase method of accounting. The Company issued 1,854,826 shares of
Class C common stock with a fair value of $3,579,812 to the existing preferred
and common shareholders of May. The operating results of this acquisition are
included in the Company's consolidated results of operations from the date of
the merger. If certain stock options of the Company outstanding at the time of
merger were exercised, additional shares would be issued to the former
shareholders of May to maintain their ownership percentage. In February 1995,
50,296 shares of Class C common stock were issued to comply with this provision
(40,236 shares subject to put option).
The issuance was recorded by increasing goodwill by the estimated fair value
of the stock issued ($2.33) per share.
F-17
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS: (CONTINUED)
If the acquisition had occurred on June 1, 1992, management estimates that
on an unaudited pro forma basis, revenues, net income and earnings per common
and common equivalent share would have been as follows for the year ended May
31, 1993:
<TABLE>
<S> <C>
Revenue............................................................... $58,617,279
Net income............................................................ 909,608
Earnings per common and common equivalent share....................... 0.05
</TABLE>
These estimates were prepared based on assumptions that management deems
appropriate, but results are not necessarily indicative of those that might have
occurred had the acquisition taken place on June 1, 1992.
On February 1, 1996, the Company acquired substantially all the net assets
of CTC Canadian Telephone Corporation and 2965496 Canada Inc., which were
privately held telemarketing service agencies operating four teleservicing call
centers in Canada. The purchase price, including acquisition expenses, was
approximately $4.2 million plus assumption and payment of approximately $1.6
million in liabilities. As of February 29, 1996, $759,803 of the amount which
the Company paid into escrow to pay the assumed liabilities remained
undisbursed. This amount was classified as an other current asset and the
associated liabilities are classified as accounts payable. Results of operations
prior to acquisition were not significant.
3. PUBLIC OFFERINGS:
The Company completed an initial public offering ("IPO") of common stock in
June 1995. The Company sold 3,800,000 shares of common stock at an initial
public offering price of $6.75 per share resulting in net proceeds to the
Company of $23,171,030 after deducting the underwriting discount and offering
expenses.
Upon completion of the IPO, the put option on common stock was eliminated.
The Company completed an additional public offering of common stock in
February, 1996. The Company sold 2,991,110 shares of common stock at a public
offering price of $15.00 per share resulting in net proceeds to the Company of
$42,400,453, after deducting the underwriting discount and offering expenses.
A portion of the Company's net proceeds from the IPO was used to retire all
bank notes payable and the note payable to a related party. The remaining net
proceeds from both offerings are being used for general working capital purposes
and to support the Company's growth, which may include purchases of capital
equipment and the acquisition of companies engaged in teleservicing or related
businesses.
F-18
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. MARKETABLE SECURITIES:
The Company has invested the proceeds from the stock offerings pursuant to
the investment policy adopted by the Board of Directors. The marketable
securities are classified as available for sale and the amortized cost basis
approximates fair value. At February 29, 1996, the maturities of the securities
are as follows:
<TABLE>
<CAPTION>
CARRYING VALUE
--------------
<S> <C>
U.S. debt securities
over 10 years............................................................... $ 4,500,000
1 to 5 years................................................................ 1,000,000
less than 1 year............................................................ 1,014,380
Municipal debt securities:
over 10 years............................................................... 7,698,430
5 to 10 years............................................................... 752,477
less than 1 year............................................................ 4,523,050
Foreign debt securities:
less than 1 year............................................................ 1,000,000
Mutual Muni Fund:
less than 1 year............................................................ 17,875,000
Money Market Fund:
less than 1 year............................................................ 5,811,782
Corporate debt securities:
less than 1 year............................................................ 3,000,000
--------------
Total....................................................................... $ 47,175,119
--------------
--------------
</TABLE>
5. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
MAY 31,
------------------------------
1994 1995
-------------- --------------
<S> <C> <C>
Telecommunications equipment........................................... $ 11,960,190 17,239,426
Furniture and equipment................................................ 3,606,177 4,667,408
Leasehold improvements................................................. 1,072,806 1,348,750
Automobiles............................................................ 151,120 50,513
-------------- --------------
16,790,293 23,306,097
Less accumulated depreciation........................................ 9,893,855 14,001,054
-------------- --------------
$ 6,896,438 $ 9,305,043
-------------- --------------
-------------- --------------
</TABLE>
6. NOTE PAYABLE -- BANK:
The Company has a revolving line of credit with a bank which provides for
maximum borrowings of $6,000,000, with principal due on November 1, 1996. At
February 29, 1996, the unused portion of the line of credit was $5,300,000.
Interest, payable monthly, accrues on borrowings under the revolving line of
credit at 1/2% under the bank's national prime lending rate (7.75% at February
29, 1996).
The agreement provides that the Bank will review the revolving line of
credit on an annual basis and will consider renewal based on the Company's
audited financial statements. In the event the Bank chooses not to renew the
agreement, the Company will be allowed to extend the term of the note for sixty
days from the date of maturity, provided the Company is in compliance with all
covenants.
F-19
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. NOTE PAYABLE -- BANK: (CONTINUED)
This line is collateralized by accounts receivable, equipment and other
assets of the Company.
The agreement contains restrictive covenants which, among other things,
restrict the declaration of dividends to 50% of net income, require the
maintenance of certain financial ratios, limit capital expenditures, executive
compensation, bonuses, and restrict future indebtedness. The Company obtained a
waiver from the lender to permit capital expenditures in 1995 in excess of the
amount permitted under the agreement.
As described in Note 3, the balance of the outstanding Note Payable -- Bank
at the time of the offering was paid using a portion of the net proceeds from
the initial public offering.
7. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MAY 31,
----------------------------
1994 1995
------------- -------------
<S> <C> <C>
Bank note payable, interest at 7.75%. Due in monthly installments of $85,250 with
final principal due September 1, 1995. This note is collateralized by accounts
receivable, equipment and other assets of the Company.............................. $ 2,129,232 $ 1,243,061
Bank note payable, interest at 7%. Due in monthly installments of $55,656 including
interest through September 1995. The note is collateralized by certain equipment... 781,870 142,614
Bank note payable, interest at 8%. Due in monthly installments of $62,680 including
interest through April 1996. A final balloon payment is due May 1996. This note is
collateralized by accounts receivable, equipment and other assets of the Company... 2,000,000 1,387,319
Bank note payable interest at 9.5%. Due in monthly installments of $128,158
including interest through November 1996. A final balloon payment is due December
1996. This note is collateralized by accounts receivable, equipment and other
assets of the Company.............................................................. -- 3,511,060
Note payable to a state's department of economic development, interest at 2%. Due in
monthly installments of $1,449 including interest, with final principal due
February 2000. This note is collateralized by an irrevocable letter of credit
issued by regional bank............................................................ -- 153,933
------------- -------------
4,911,102 6,437,987
Less current portion............................................................ 2,129,504 4,045,531
------------- -------------
$ 2,781,598 $ 2,392,456
------------- -------------
------------- -------------
</TABLE>
Future principal payments at May 31, 1995 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR END MAY 31,
- -----------------------------------------------------------------------------------------
<S> <C>
1996..................................................................................... $ 4,045,531
1997..................................................................................... 2,267,697
1998..................................................................................... 15,030
1999..................................................................................... 15,333
2000..................................................................................... 94,396
-------------
$ 6,437,987
-------------
-------------
</TABLE>
F-20
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LONG-TERM DEBT: (CONTINUED)
Bank notes payable with an outstanding balance of $6,141,440 at May 31, 1995
are included in the debt agreement discussed in Note 6 and subject to the same
restrictive covenants associated with the revolving line of credit.
As described in Note 3, all bank notes payable were retired using a portion
of the Company's net proceeds from the initial public offering.
8. CAPITAL LEASE OBLIGATIONS:
The Company leases equipment under lease agreements which have been
capitalized using the interest rates appropriate at the inception of the lease.
Capitalized leased equipment included in fixed assets was $996,716 and
$854,669 at May 31, 1994 and 1995, respectively. Accumulated depreciation on
this equipment was $433,326 and $478,630 at May 31, 1994 and 1995, respectively.
Future lease payments under these leases at May 31, 1995 are as follows:
<TABLE>
<S> <C>
Fiscal year end May 31, 1996...................................... $ 85,242
Less amount representing interest................................. 1,358
---------
Present value of net minimum obligations.......................... $ 83,884
---------
---------
</TABLE>
9. NOTE PAYABLE TO RELATED PARTY:
Note payable to related party bears interest at a variable rate of 1% over a
national prime lending rate (10% at May 31, 1995). Principal is due on September
1, 1997 and is subordinate to certain bank notes. Interest expense related to
this note was $5,826, $12,700 and $47,178 in the years ended May 31, 1993, 1994
and 1995, respectively.
As described in Note 3, the note payable to related party was retired using
a portion of the net Company's proceeds from the initial public offering.
10. INCOME TAXES:
The components of the net deferred tax assets as of May 31, 1994 and 1995
were as follows:
<TABLE>
<CAPTION>
MAY 31,
-----------------------------
1994 1995
------------- --------------
<S> <C> <C>
Deferred tax assets:
Current:
Allowance for doubtful accounts...................................... $ 89,000 $ 132,812
Accrued vacation..................................................... 177,000 254,036
------------- --------------
266,000 386,848
------------- --------------
------------- --------------
Noncurrent:
Net operating loss carryforwards..................................... 728,770 652,943
State income tax credit carryforwards................................ 1,118,278 1,446,490
Special compensation................................................. -- 11,758,921
Deferred compensation................................................ 133,795 80,605
Excess book over tax depreciation.................................... 430,363 417,581
------------- --------------
2,411,206 14,356,540
------------- --------------
Total deferred tax assets........................................ $ 2,677,206 $ 14,743,388
------------- --------------
------------- --------------
</TABLE>
F-21
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES: (CONTINUED)
At May 31, 1995, the Company had May pre-acquisition net operating loss
carryforwards of approximately $1,920,000 which will expire in 2004. Current tax
expense was reduced from the use of net operating loss carryforwards for the
years ended May 31, 1993, 1994 and 1995, by approximately $50,000, $75,000 and
$75,000, respectively. The Company has qualified for state income tax credits
and sales tax credits under Nebraska statute LB 775. These credits were used to
offset state taxable income for the years ended May 31, 1993, 1994 and 1995 and
approximately $2,207,000 of tax credits can be carried forward through 2005. The
Company can continue to earn additional credits through May 31, 1997 under
Nebraska statute LB 775.
The Company will need to generate approximately $69 million of taxable
income through future operations to fully utilize the deferred tax assets. Based
on the current level of approximately $9.0 million of taxable income, management
believes it is more likely than not that future taxable income will be
sufficient to fully utilize all deferred tax assets recorded.
The difference between the Company's income tax expense as reported in the
accompanying financial statements and that which would be calculated using the
statutory income tax rate of 34% on income is as follows:
<TABLE>
<CAPTION>
MAY 31,
------------------------------------------
1993 1994 1995
----------- ------------- --------------
<S> <C> <C> <C>
Tax at statutory rate....................................... $ 606,357 $ 1,108,126 $ (9,419,145)
Amortization of goodwill.................................... 37,142 57,202 30,761
Officers' life insurance.................................... 9,312 8,560 28,016
State tax credits, net of state taxes and federal tax
benefits................................................... (141,121) (428,775) (261,882)
Jobs credits................................................ (26,400) (101,337) (184,517)
Nondeductible expenses...................................... 10,115 16,609 52,534
Prior year tax adjustments.................................. -- (185,000) 106,197
Other....................................................... $ 80,215 (84,235) 44,423
----------- ------------- --------------
$ 575,620 391,150 $ (9,603,613)
----------- ------------- --------------
----------- ------------- --------------
</TABLE>
11. OPERATING LEASE OBLIGATIONS:
The Company leases property and certain equipment under noncancellable
arrangements which are defined as operating leases. These lease obligations
expire at various dates through 1999. Rent expense was $1,206,931, $1,515,993,
$1,868,302 for the years ended May 31, 1993, 1994 and 1995, respectively.
Certain leases of real property provide options to extend the lease term. These
commitments are included in the following future minimum rental commitments
under noncancellable operating leases.
<TABLE>
<CAPTION>
FISCAL YEAR END MAY 31
- -----------------------------------------------------------------------------------------
<S> <C>
1996..................................................................................... $ 2,231,806
1997..................................................................................... 2,060,767
1998..................................................................................... 1,800,463
1999..................................................................................... 1,382,426
2000..................................................................................... 517,872
</TABLE>
The Company leases certain property from related parties. Total rent
payments to related parties were $577,299, $641,433 and $605,534 in the years
ended May 31, 1993, 1994 and 1995, respectively.
F-22
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. CLASS C COMMON STOCK, SUBJECT TO PUT OPTION:
A stockholder (prior stockholder in May) with 1,535,292 shares of Class C
common stock has the right to exercise a put option from July 1, 1997 to
November 30, 1997. If the put option is exercised, the Company will issue a note
equal to the difference between $4,500,000 and the amount of certain
expenditures made by the stockholder relating to obligations not assumed by the
Company in the May merger. Such amounts were $1,346,048 and $1,416,496 at May
31, 1994 and 1995, respectively. Principal payments are due in four equal annual
installments. The note will bear interest at 7%, payable in equal quarterly
installments over five years.
If the fair market value of all of the put option shares is less than the
face amount of the note, all of the put option shares will be redeemed by the
issuance of the note. If the fair market value of all of the put option shares
is greater than the face amount of the note, the put option shares not redeemed
by the issuance of the note, shall be retired and Class B nonvoting common stock
will be issued on a one-for-one basis. If the option expires, all put option
shares shall be retired and Class B nonvoting common stock will be issued on a
one-for-one basis.
If the Company sells substantially all of its assets or the principal
stockholders sell in excess of 50% of their stock within one year of the notice
to exercise the put option, the Company is required to reimburse the shareholder
for the additional amount, if any, it would have received for its Class C shares
had it continued to own the shares as of such event.
The value of the put option is being accreted by charges to retained
earnings over the life of the put option.
As described in Note 3, the put option was eliminated upon completion of the
initial public offering.
13. STOCK OPTIONS AND OTHER STOCK AND COMPENSATION ARRANGEMENTS:
During the years ended May 31, 1993, 1994 and 1995, the Company granted
stock options to key employees for the purchase of up to 1,737,500 shares of
Class B common stock at prices ranging from $0.20 to $2.31 per share. For the
shares of stock issued under this plan, the Company has the option to repurchase
the shares when the employees cease employment. During the year ended May 31,
1993, 97,500 options were exercised at $0.20 per share. During the year ended
May 31, 1995, 85,000 options were terminated. The 1,555,000 options remaining
under the plan were replaced with new options in February 1995, as discussed
below.
In February 1987, the Company granted an option to a key employee of
1,000,000 shares of Class B common stock at par value ($.001). These options
were replaced with new options in February 1995, as discussed below.
In February 1995, the Board of Directors and stockholders of the Company
adopted the SITEL Corporation Stock Plan for Replacement of Existing Options
(the "Replacement Plan"). Pursuant to this plan, the Company granted new options
for an aggregate of 2,270,926 shares of the Company's common stock as
replacement for existing options described above. No further options will be
granted under this plan. New options were granted based upon the amount by which
estimated fair value per share ($2.33) exceeded the exercise price of options
being exchanged.
Options granted pursuant to the Replacement Plan have exercise prices equal
to $0.005 per share. The options are exercisable in five equal annual
installments, beginning at the earlier of January 1, 1996 or six months after
completion of the initial public offering referred to in Note 3, and expire in
May 2000. The Company recorded these options at the estimated fair value of the
stock on the date of the grant ($2.33 a share), with a corresponding charge to
special compensation expense.
F-23
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. STOCK OPTIONS AND OTHER STOCK AND COMPENSATION ARRANGEMENTS: (CONTINUED)
The Company had an employee equity benefit plan (EEB Plan) whereby all
qualified exempt personnel would receive the increase in the value of the
employee's units from the date the employee was awarded the units to the date of
certain events, including the employee's death or retirement or the sale of the
Company.
The employee forfeited such benefits upon termination of employment. The
value per unit was determined annually by the Board of Directors.
The EEB Plan was terminated in February 1995, concurrent with adoption of
the SITEL Corporation Stock Option Plan (EEB Replacement Plan), and the
6,327,750 units outstanding at May 31, 1995, with base values per unit ranging
from $1.70 to $3.42, were replaced as described below. Each unit was exchanged
for the appropriate number of new options based upon the amount by which
estimated fair value per share ($2.33) exceeded the base value of each unit.
The EEB Replacement Plan was adopted in February 1995, pursuant to which the
Company granted nonqualified options to personnel who owned units under the EEB
Plan, to purchase up to 3,690,860 shares of the Company's common stock. Options
granted pursuant to the EEB Replacement Plan have an exercise price equal to
$0.005 per share. The options are exercisable in five equal installments,
beginning January 1, 1996 and expire in May 2000. The Company recorded these
options at the estimated fair value of the stock on the date of the grant ($2.33
per share), with a corresponding charge to special compensation expense. No
further options will be granted under the EEB Replacement Plan.
At May 31, 1995, 5,961,784 options were outstanding with an exercise price
of $0.005. None of the options issued have been exercised or are exercisable.
In April 1995, the Board of Directors and the stockholders of the Company
adopted the SITEL Corporation 1995 Employee Stock Option Plan and the 1995
Non-Employee Directors Stock Option Plan (the "New Stock Option Plans"). The New
Stock Option Plans provide for the granting of options to purchase up to an
aggregate of 1,460,000 shares of Common Stock to employees and directors.
Options granted under the New Stock Option Plan may be either "Incentive
Options" or "Non-qualified Options."
Incentive Options may not be granted at exercise prices less than the fair
market value of the Common Stock on the date of grant (or, for an option granted
to a person holding more than 10% of the Company's voting stock, at less than
110% of fair market value) and Non-qualified Options may not be granted at an
exercise price less than 85% of fair market value on the date of grant.
The New Stock Option Plans also provide for automatic grants of
Non-qualified Options to each independent director of the Company. Each
independent director will be granted Non-qualified Options to purchase 2,000
shares of Common Stock upon first being elected to the Board of Directors and on
each anniversary thereof. The exercise price for all Non-qualified Options will
equal the fair market value of the Common Stock on the date of grant.
Effective May 15, 1994, the Company adopted a benefit plan for certain
executive employees, who elect to contribute to the plan. The Company may
voluntarily match all or a portion of the participants' contribution.
Participants are 100% vested in their contributions and the Company's
contributions vest over a 15-year period. The Company accrued contributions to
the plan of $257,665 and $0 for the years ended May 31, 1994 and 1995,
respectively. The Company's contributions are recognized as expense as the
benefits vest.
F-24
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. CONTINGENCIES
Various lawsuits have arisen in the ordinary course of the Company's
business. The Company believes its defenses are meritorious and the eventual
outcome of those lawsuits will not have a material effect on the Company's
financial position, results of operations or cash flows.
In April 1995, virtually all stockholders of the Company entered into an
agreement to provide the Company with advance written notice of any intended
sale of such stockholder's shares and to afford the Company the opportunity to
purchase the shares (the "Right of First Refusal"). The Right of First Refusal
only applies to shares held by stockholders as of the date of the Agreement. In
the event the Company determines to exercise the Right of First Refusal, it is
required to purchase the shares within thirty days thereafter, in the case of a
proposed open market sale, at a price equal to a recent closing price for stock,
or, in the case of a proposed private sale, at the price and the other terms of
the private sale. If the Company determines not to exercise the Right of First
Refusal, the stockholder must complete the transaction within 90 days thereafter
or the Right of First Refusal will once again apply. The Right of First Refusal
does not apply to any transferee of the shares after a sale into the public
market. Approximately 4 million shares remain subject to the Right of First
Refusal.
15. SIGNIFICANT CLIENTS:
During the years ended May 31, 1993, 1994 and 1995, the following clients
individually accounted for more than 10% of the Company's revenue:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-------------------------------
CLIENT 1993 1994 1995
- ------------------------------------------------------------------------------------- --------- --------- ---------
(% OF TOTAL REVENUE)
<S> <C> <C> <C>
Philip Morris, U.S.A. ............................................................... * 10.9% *
J.C. Penney Life Insurance Co. ...................................................... 11.5% 10.0% 10.1%
Allstate MCFD........................................................................ 16.9% 11.4% 12.2%
Household Credit..................................................................... 30.2% * *
</TABLE>
- ------------------------
* Accounted for less than 10% of total revenues for the period indicated.
In addition, a substantial portion of the Company's revenue is from clients
in the insurance and financial services industries. As of May 31, 1995,
approximately 30% of the Company's accounts receivable were from three clients.
The Company's policy does not require significant collateral or other security
to support such receivables.
16. OTHER INCOME:
Included in other income for the period ending May 31, 1994 is a gain of
approximately $985,000 relating to a service contract with a customer which was
terminated by mutual agreement.
17. SUPPLEMENTAL CASH FLOW INFORMATION:
In 1993, the Company accepted common stock, representing approximately a 2%
interest in a customer as partial consideration for services provided. At the
date of the exchange, the fair value of the stock was estimated to approximate
$200,000 based on recent sales of stock to other investors by the customer. This
investment does not have a readily determinable fair value under SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," and is
therefore carried at cost and is included in other assets. Management
periodically assesses the carrying amount of the investment to determine whether
an other than temporary impairment has occurred based on an analysis of the
operating results.
F-25
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. RELATED PARTY TRANSACTIONS:
In addition to rent and interest expense paid to related parties in Notes 9
and 11, respectively, the Company pays premiums on certain life insurance
policies on behalf of three employees. These premium payments will be reimbursed
upon the death or termination of such employees. The Company is not the
beneficiary, however it has a security interest in the policies. Approximately
$111,697 and $231,520 of such payments are included in non-interest bearing
loans receivable from related parties at May 31, 1994 and 1995, respectively.
In February 1995, the Company forgave $528,040 of loans receivable and
accrued interest from two stockholders. This charge has been included in
corporate general and administrative expenses.
19. REINCORPORATION:
In May, 1995 the Company was reincorporated in the State of Minnesota. As
part of the reincorporation, each outstanding share of Class A, Class B and
Class C common stock was converted automatically to one share of new $.001 par
value common stock.
20. BENEFIT PLAN:
The Company's 401(k) plan, formed in January, 1994, covers substantially all
employees who are 18 years of age with 60 days or more of service. Participants
may elect to contribute 1% to 15%. The Company may elect to make a year end
contribution to the 401(k) plan. Company contributions to the plan were $50,000
in 1994 and 0 in 1995.
21. STOCK SPLIT
On May 13, 1996, the Company effected a 2 for 1 split of its common stock to
stockholders of record on May 3, 1996. All share and per share amounts presented
have been restated to give effect to the split.
22. SUBSEQUENT EVENTS (UNAUDITED)
On June 12, 1996, the Company completed the acquisition of a 69.2% interest
in Teleaction, S.A. ("Teleaction"), a Spanish teleservicing company. The Company
paid approximately $24 million in cash for the 69.2% interest and will acquire
the remaining 30.8% of Teleaction in 1998 for a minimum purchase price of $11
million and a contingent purchase amount based upon Teleaction's profitability
in 1996 and 1997. The Company will account for the acquisition as a purchase.
On June 28, 1996, the Company completed the acquisition of National Action
Financial Services, Inc. ("NAFS"), a credit collections and accounts receivable
management company. The Company issued approximately 1.4 million common shares
in exchange for all of the outstanding NAFS common stock. The transaction will
be accounted for as a pooling of interests.
F-26
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Mitre plc
We have audited the accompanying group balance sheets of Mitre plc and
subsidiaries as of 31 December 1995 and 31 December 1994 and the related group
profit and loss accounts and cash flow statements for the years ended 31
December 1995 and 1994 and for the 64-week period ended 31 December 1993. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the group financial statements referred to above present
fairly, in all material respects, the financial position of Mitre plc and
subsidiaries at 31 December 1995 and 31 December 1994 and the results of their
operations and their cash flows for the years ended 31 December 1995 and 1994
and for the 64-week period ended 31 December 1993 in conformity with generally
accepted accounting principles in the United Kingdom.
Generally accepted accounting principles in the United Kingdom vary in
certain significant respects from generally accepted accounting principles in
the United States. Application of generally accepted accounting principles in
the United States would have affected the results of their operations for the
years ended 31 December 1995 and 31 December 1994 and shareholders' equity at 31
December 1995 and 31 December 1994 to the extent summarised in note 25 to the
consolidated financial statements.
KPMG
Chartered Accountants
Registered Auditors
Birmingham, England
29 March 1996
F-27
<PAGE>
MITRE PLC
GROUP PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
NOTE
--------- YEARS ENDED PERIOD ENDED
31 DECEMBER 31 DECEMBER
-------------------- 1993
1995 1994 (64 WEEKS)
--------- --------- -------------
(NOTE 24)
L000 L000 -------------
L000
<S> <C> <C> <C> <C>
TURNOVER............................................................... (1) 28,492 16,686 9,513
Cost of sales.......................................................... (18,068) (9,159) (5,189)
--------- --------- ------
GROSS PROFIT........................................................... 10,424 7,527 4,324
Administrative expenses................................................ (7,309) (5,801) (3,320)
--------- --------- ------
OPERATING PROFIT....................................................... 3,115 1,726 1,004
Income from interests in associated undertakings....................... -- -- 21
Profit on disposal of interest in associated
undertakings.......................................................... -- 20 --
Interest receivable and similar income................................. 6 5 3
Interest payable and similar charges................................... (2) (313) (131) (79)
--------- --------- ------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION.......................... (3) 2,808 1,620 949
Tax on profit on ordinary activities................................... (6) (998) (528) (209)
--------- --------- ------
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION........................... 1,810 1,092 740
Minority interests..................................................... (16) (662) (407) (215)
--------- --------- ------
PROFIT FOR THE FINANCIAL YEAR.......................................... 1,148 685 525
Non equity dividends................................................... (7) (43) (81) --
--------- --------- ------
RETAINED PROFIT FOR THE FINANCIAL YEAR................................. (15) 1,105 604 525
--------- --------- ------
--------- --------- ------
</TABLE>
A statement of movement in reserves is given in note 15. In all three
financial periods all turnover and operating profit relates to continuing
operations. In all three financial periods, there was no material difference
between the profit reported in the profit and loss account and the profit on an
historical cost basis. There were no recognised gains or losses in any of the
three financial periods other than those disclosed in the profit and loss
account.
F-28
<PAGE>
MITRE PLC
GROUP BALANCE SHEET
AT 31 DECEMBER
<TABLE>
<CAPTION>
NOTE
---------
--------- 1995 1994
--------- ---------
L000 L000
<S> <C> <C> <C>
FIXED ASSETS
Tangible assets....................................................................... (8) 7,588 4,088
Investments........................................................................... (9) 11 31
--------- ---------
7,599 4,119
--------- ---------
CURRENT ASSETS
Debtors
-- amounts receivable after more than one year...................................... (10) 728 --
-- amounts receivable within one year............................................... (10) 9,273 4,864
Cash at bank and in hand.............................................................. 292 13
--------- ---------
10,293 4,877
CREDITORS: AMOUNT FALLING DUE WITHIN ONE YEAR......................................... (11) (10,752) (5,085)
--------- ---------
NET CURRENT LIABILITIES............................................................... (459) (208)
--------- ---------
TOTAL ASSETS LESS CURRENT LIABILITIES................................................. 7,140 3,911
Creditors: amounts falling due after more than one year............................... (12) (2,365) (1,078)
PROVISION FOR LIABILITIES AND CHARGES................................................. (13) (136) (59)
--------- ---------
NET ASSETS............................................................................ 4,639 2,774
--------- ---------
--------- ---------
CAPITAL AND RESERVES
Called up share capital............................................................... (14) 1,080 1,374
Share capital to be issued............................................................ (14) 629 --
Other reserves........................................................................ (15) 177 (916)
Profit and loss account............................................................... (15) 1,790 979
--------- ---------
SHAREHOLDERS' FUNDS................................................................... 3,676 1,437
Minority interests.................................................................... (16) 963 1,337
--------- ---------
4,639 2,774
--------- ---------
--------- ---------
Shareholders' funds -- Equity......................................................... 3,326 793
-- Non equity....................................................... 350 644
--------- ---------
(17) 3,676 1,437
--------- ---------
--------- ---------
Minority interests -- Equity.......................................................... -- 637
-- Non equity......................................................... 963 700
--------- ---------
963 1,337
--------- ---------
--------- ---------
</TABLE>
F-29
<PAGE>
MITRE PLC
GROUP CASH FLOW STATEMENT
<TABLE>
<CAPTION>
PERIOD
ENDED
31
DECEMBER
1993
YEARS ENDED (64
31 DECEMBER WEEKS)
------------------------------------------ ---------
1995 1994 (NOTE 24)
-------------------- -------------------- ---------
NOTE L000 L000 L000 L000 L000
---------
---------
<S> <C> <C> <C> <C> <C> <C>
NET CASH INFLOW FROM
OPERATING ACTIVITIES...................................... (18) 3,419 241
RETURNS ON INVESTMENTS AND
SERVICING OF FINANCE
Interest received.......................................... 6 5 3
Interest paid.............................................. (190) (94) (79)
Finance lease interest..................................... (120) (33) --
Preference dividends paid.................................. (117) -- --
Dividends paid to minority interest........................ (83) -- --
--------- --------- ---------
NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING
OF FINANCE................................................ (504) (122)
CORPORATION TAX PAID....................................... (496) (112)
INVESTING ACTIVITIES.......................................
Purchase of tangible fixed assets.......................... (1,875) (2,233) (982)
Cash received on acquisition of subsidiary................. (20) 274 -- --
Purchase of fixed asset investments........................ (10) -- (30)
Sale of tangible fixed assets.............................. 80 28 15
Sale of associated undertaking............................. -- 20 --
Purchase of subsidiary undertakings........................ (20) -- -- (1,609)
--------- --------- ---------
NET CASH OUTFLOW FROM INVESTING ACTIVITIES................. (1,531) (2,185)
--------- ---------
NET CASH INFLOW/(OUTFLOW) BEFORE FINANCING................. 888 (2,178)
FINANCING..................................................
New bank loan.............................................. -- 1,000 --
Issue of share capital..................................... -- 350 1,174
Redemption of share capital................................ (294) (150) --
Repayment of finance leases................................ (715) (264) (73)
Repayment of bank loans.................................... (100) (59) --
Repayment to parent undertaking............................ -- (321) --
Share issue in subsidiary undertaking -- minority.......... -- 700 --
--------- --------- ---------
NET CASH (OUTFLOW)/INFLOW FROM FINANCING................... (1,109) 1,256
--------- ---------
(DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS........... (20) (221) (922)
--------- ---------
--------- ---------
<CAPTION>
L000
<S> <C>
NET CASH INFLOW FROM
OPERATING ACTIVITIES...................................... 1,700
RETURNS ON INVESTMENTS AND
SERVICING OF FINANCE
Interest received..........................................
Interest paid..............................................
Finance lease interest.....................................
Preference dividends paid..................................
Dividends paid to minority interest........................
NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING
OF FINANCE................................................ (76)
CORPORATION TAX PAID....................................... --
INVESTING ACTIVITIES.......................................
Purchase of tangible fixed assets..........................
Cash received on acquisition of subsidiary.................
Purchase of fixed asset investments........................
Sale of tangible fixed assets..............................
Sale of associated undertaking.............................
Purchase of subsidiary undertakings........................
NET CASH OUTFLOW FROM INVESTING ACTIVITIES................. (2,606)
---------
NET CASH INFLOW/(OUTFLOW) BEFORE FINANCING................. (982)
FINANCING..................................................
New bank loan..............................................
Issue of share capital.....................................
Redemption of share capital................................
Repayment of finance leases................................
Repayment of bank loans....................................
Repayment to parent undertaking............................
Share issue in subsidiary undertaking -- minority..........
NET CASH (OUTFLOW)/INFLOW FROM FINANCING................... 1,101
---------
(DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS........... 119
---------
---------
</TABLE>
F-30
<PAGE>
MITRE PLC
ACCOUNTING POLICIES
The following accounting policies have been applied consistently in dealing
with items which are considered material in relation to the financial
statements:
BASIS OF PREPARATION
These financial statements have been prepared under the historical cost
accounting rules and in accordance with applicable UK accounting standards and
are presented in British (L) sterling.
BASIS OF CONSOLIDATION
The group financial statements consolidate the financial statements of Mitre
plc and all of its subsidiary undertakings. All of the financial statements of
the company and its subsidiary undertakings are made up to 31 December.
The acquisition method of accounting has been adopted. Under this method the
results of subsidiary and associated undertakings acquired or disposed of are
included in the consolidated profit and loss account from the date of
acquisition or up to the date of disposal.
Goodwill arising on consolidation, representing the excess of the fair value
of the consideration given over the fair value of the separable net assets
acquired is written off against a separate goodwill write-off reserve. Where the
merger relief provisions of the Companies Act 1985 apply the premium arising on
shares issued is credited to the merger reserve and is available for the write
off of goodwill.
In the company's financial statements, investments in subsidiary
undertakings are stated at cost or the nominal value of the shares issued as
appropriate. As permitted by Section 230 Companies Act 1985, the profit and loss
account of the parent company is not presented as part of these financial
statements.
TURNOVER
Turnover represents the net invoiced value of goods and services supplied to
customers after deduction of trade discounts and excluding value added tax.
DEPRECIATION
Depreciation is provided so as to write off the cost less the estimated
residual value of tangible fixed assets by equal instalments over their
estimated useful economic lives as follows:
<TABLE>
<S> <C>
Period of
Long leasehold land and buildings................................... lease
Improvements to leaseholds.......................................... 7 years
Computers........................................................... 4 Years
Motor vehicles...................................................... 4 years
Fixtures and equipment.............................................. 4 to 7 years
</TABLE>
TAXATION
The charge for taxation is based on the result for the year and takes into
account taxation deferred because of timing differences between the treatment of
certain items for taxation and accounting purposes. Provision is made for
deferred taxation only to the extent that it is probable that an actual
liability will crystallise.
RESEARCH AND DEVELOPMENT
Research and development expenditure is written off against revenue in the
year in which it is incurred.
CONTRACT SET UP COSTS RECOVERABLE
Specific set up costs incurred in respect of major long-term contracts to
provide services to customers are carried forward against the future income
relating to those costs.
F-31
<PAGE>
MITRE PLC
ACCOUNTING POLICIES (CONTINUED)
LEASES
Where a company enters into a lease which entails taking substantially all
the risks and rewards of ownership of an asset, the lease is treated as a
"finance lease". The asset is recorded in the balance sheet as a tangible fixed
asset and is depreciated over its estimated useful life, or the term of the
lease, whichever is shorter. Future instalments under such leases, net of
finance charges, are included in creditors. Rentals payable are applied between
the finance element, which is charged to the profit and loss account, and the
capital element which reduces the outstanding obligation for future instalments.
Rentals paid under operating leases are charged to the profit and loss
account as they fall due.
FOREIGN CURRENCY
Transactions denominated in foreign currency are translated into sterling
and recorded at the rate of exchange ruling at the date of transaction. Assets
and liabilities denominated in foreign currencies and the balance sheets of
overseas subsidiary undertakings are translated into sterling at the exchange
rate ruling at the balance sheet date. Exchange differences arising on trading
transactions are included in the profit and loss account. The profit and loss
accounts of overseas subsidiary undertakings are translated at the average
exchange rates for the year. Gains or losses on the translation of the opening
net assets of subsidiary undertakings are taken to reserves.
GOVERNMENT GRANTS
Grants that relate to specific capital expenditure on specific projects are
treated as deferred income which is then credited to the profit and loss account
over the related assets useful life, or the duration of the project. Other
grants are credited to the profit and loss account when received.
F-32
<PAGE>
MITRE PLC
NOTES TO THE FINANCIAL STATEMENTS
(1) TURNOVER
All of the group's activities arise from the provision of teleservicing,
call centre services and related ancillary services. In the opinion of the
directors there are no separate businesses or geographical segments.
(2) INTEREST PAYABLE AND SIMILAR CHARGES
<TABLE>
<CAPTION>
1995 1994 NOTE 24
--------- --------- 1993
L000 L000 -------------
L000
<S> <C> <C> <C>
Interest payable on bank loans and overdrafts whenever repayable and other loans
wholly repayable within five years:
Bank loans and overdrafts........................................................ 107 85 30
Ultimate parent company.......................................................... -- 13 44
Finance lease interest........................................................... 129 33 5
Other............................................................................ 4 -- --
Interest on loans repayable after more than five years........................... 73 -- --
--
--- ---
313 131 79
--
--
--- ---
--- ---
</TABLE>
(3) PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
Profit on ordinary activities before taxation is stated after
charging/(crediting):
<TABLE>
<CAPTION>
1995 1994 NOTE 24
--------- --------- 1993
L000 L000 -----------
L000
<S> <C> <C> <C>
Depreciation
-- owned assets................................................................ 733 435 239
-- assets held under finance leases............................................ 346 153 28
Software upgrade costs........................................................... -- 361 61
Profit on disposal of tangible fixed assets...................................... (14) (3) --
Operating lease rentals
-- plant and machinery......................................................... 135 178 104
-- other....................................................................... 270 107 282
Government grants................................................................ (45) -- --
Auditors' remuneration
-- audit services.............................................................. 31 25 18
-- non audit services.......................................................... 53 34 15
--- --- ---
--- --- ---
</TABLE>
An additional sum of L29,000 (1994: nil; 1993: L16,000) in respect of
non-audit services, has been paid to the auditors and been capitalised on the
acquisition of subsidiary undertakings
(4) DIRECTORS' REMUNERATION
<TABLE>
<CAPTION>
1995 1994 NOTE 24
--------- --------- 1993
L000 L000 -----------
L000
<S> <C> <C> <C>
Emoluments including payments for management services under the agreements set
out below....................................................................... 428 389 386
Pension contributions............................................................ 10 3 4
--- --- ---
438 392 390
--- --- ---
--- --- ---
</TABLE>
F-33
<PAGE>
MITRE PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(4) DIRECTORS' REMUNERATION (CONTINUED)
The company has an agreement with SA Merit Consult NV for the provision of
services of Mr HP Kruithof and with GPA Limited for the provision of services of
Messrs RF Pipe and PLR Godfrey, as directors of the company and its
subsidiaries. No remuneration or pension contributions were payable directly to
any of these directors. L42,000 (1994: L74,000, 1993: L86,000) was payable to SA
Merit Consult NV during the year in respect of Mr Kruithof's services as
Chairman.
<TABLE>
<CAPTION>
1995 1994 NOTE 24
--------- --------- 1993
L000 L000 -----------
L000
<S> <C> <C> <C>
The emoluments of the highest paid director during the period were:
Emoluments....................................................................... 117 101 165
Pension contributions............................................................ 5 3 4
--- --- ---
122 104 169
--- --- ---
--- --- ---
</TABLE>
In 1993 the highest paid director waived a bonus of L45,000. No amount was
charged in the profit and loss account since no payment was made and no
liability exists.
The emoluments, including payments for management services of the directors
excluding pension contributions during the year, fell within the following
ranges:
<TABLE>
<CAPTION>
NUMBER OF DIRECTORS
NOTE 24
1995 1994 1993
----- ----- -------------
<S> <C> <C> <C>
L0--L5,000....................................................................... -- -- 2
L10,001--L15,000................................................................. -- -- 1
L40,001--L45,000................................................................. 1 -- --
L60,001--L65,000................................................................. -- 2 2
L70,001--L75,000................................................................. -- 1 --
L85,001--L90,000................................................................. 3 -- 1
L90,001--L95,000................................................................. -- 1 --
L100,001--L105,000............................................................... -- 1 --
L115,001--L120,000............................................................... 1 -- --
L165,001--L170,000............................................................... -- -- 1
-- -- --
-- -- --
</TABLE>
(5) STAFF COSTS
<TABLE>
<CAPTION>
1995 1994 NOTE 24
--------- --------- 1993
L000 L000 -----------
L000
<S> <C> <C> <C>
The average number of full time employees including directors, during the
year was:
Operations................................................................. 910 603 435
Administration............................................................. 114 83 65
--------- --------- -----
1,024 686 500
--------- --------- -----
--------- --------- -----
</TABLE>
F-34
<PAGE>
MITRE PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(5) STAFF COSTS (CONTINUED)
Part time employees are included above based upon the equivalent hours
worked by a full time employee
<TABLE>
<CAPTION>
1995 1994 NOTE 24
--------- --------- 1993
L000 L000 -----------
L000
<S> <C> <C> <C>
Staff costs during the year amounted to:
Wages and salaries......................................................... 12,463 7,583 4,267
Social security costs...................................................... 1,010 602 247
Other pension costs........................................................ 48 18 5
--------- --------- -----
13,521 8,203 4,519
--------- --------- -----
--------- --------- -----
</TABLE>
(6) TAX ON PROFIT ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
1995 1994 NOTE 24
--------- --------- 1993
L000 L000 -----------
L000
<S> <C> <C> <C>
UK corporation tax at 33%.................................................. 996 469 176
Deferred taxation at 33%................................................... 50 59 29
Share of associated undertaking's tax...................................... -- -- 4
Over provision in respect of previous year's corporation tax arising from
settlement of earlier tax years........................................... (48) -- --
--------- --------- -----
998 528 209
--------- --------- -----
--------- --------- -----
</TABLE>
Corporation tax is based on the UK statutory rate of 33%. Income before tax
is adjusted for permanent timing differences and in 1993 for the utilisation of
tax losses of subsidiaries available from earlier years.
(7) DIVIDENDS
<TABLE>
<CAPTION>
1995 1994 NOTE 24
--------- --------- 1993
L000 L000 -----------
L000
<S> <C> <C> <C>
Non-equity:
8%, L1 cumulative redeemable preference (1992) shares
-- paid.................................................................. 13 -- --
-- proposed.............................................................. 2 63 --
8%, L1 cumulative redeemable preference (1994) shares
-- paid.................................................................. 23 -- --
-- proposed.............................................................. 5 18 --
--------- --------- -----
43 81 --
--------- --------- -----
--------- --------- -----
</TABLE>
F-35
<PAGE>
MITRE PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(8) TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
LONG LEASEHOLD IMPROVEMENTS COMPUTERS MOTOR VEHICLES TOTAL
LAND & BUILDINGS TO LEASEHOLDS ----------- FIXTURES & ---------
----------------- ----------------- EQUIPMENT
L000 L000 L000 --------------- L000
L000
<S> <C> <C> <C> <C> <C>
Cost
At 1 January 1995............... 1,723 288 1,881 1,044 4,936
Additions....................... -- 598 1,332 1,136 3,066
Disposals....................... -- -- (141) (115) (256)
Subsidiary undertakings
acquired....................... -- 26 622 931 1,579
----- --- ----- ----- ---------
At 31 December 1995........... 1,723 912 3,694 2,996 9,325
----- --- ----- ----- ---------
----- --- ----- ----- ---------
Depreciation
At 1 January 1995............... 10 44 462 332 848
Charge for year................. 17 88 638 336 1,079
Disposals....................... -- -- (96) (94) (190)
----- --- ----- ----- ---------
At 31 December 1995........... 27 132 1,004 574 1,737
----- --- ----- ----- ---------
----- --- ----- ----- ---------
Net book value
At 31 December 1995........... 1,696 780 2,690 2,422 7,588
----- --- ----- ----- ---------
----- --- ----- ----- ---------
At 31 December 1994........... 1,713 244 1,419 712 4,088
----- --- ----- ----- ---------
----- --- ----- ----- ---------
</TABLE>
Included in the net book value of fixed assets are assets held under finance
lease agreements with a net book value of L1,404,000 (1994: L845,000). The
depreciation charge in respect of these assets amounted to L346,000 (1994:
L153,000).
(9) FIXED ASSET INVESTMENTS
<TABLE>
<CAPTION>
OTHER
INVESTMENTS
---------------
L000
<S> <C>
Cost
At 1 January 1995........................................................................ 31
Transfer................................................................................. (30)
Additions................................................................................ 10
--
At 31 December 1995.................................................................... 11
--
--
Net book value
At 31 December 1995.................................................................... 11
--
--
At 31 December 1994.................................................................... 31
--
--
</TABLE>
F-36
<PAGE>
MITRE PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(9) FIXED ASSET INVESTMENTS (CONTINUED)
Details of the principal investments are as follows:
Subsidiary undertakings:
<TABLE>
<CAPTION>
COUNTRY OF PERCENTAGE OF
REGISTRATION SHARES
COMPANY & OPERATION DESCRIPTION OF SHARES HELD
- ------------------------------------------- --------------------- --------------------- ---------------
<S> <C> <C> <C>
The Call Centre Limited.................... England & Wales L1 ordinary 100%
The Decisions Group Limited................ England & Wales 10p ordinary 100%
Merit Communications NV.................... Belgium BF1,000 ordinary 100%
Merit Direct Limited....................... England & Wales L1 ordinary 100%
</TABLE>
The companies are engaged in teleservicing, call centre services and the
provision of related ancillary services.
On 21 December 1995 the company completed an agreement to acquire the
ordinary shareholdings in Merit Direct Limited, The Decisions Group Limited and
Merit Communications NV not already held by the company in exchange for its L1
ordinary shares. The number of shares to be issued to the relevant shareholders
was conditional upon the profits of the various companies which have now been
determined. Consequently, the following shareholdings have been acquired and are
to be satisfied by the issue with effect from 31 December 1995 of the following
ordinary shares:
<TABLE>
<CAPTION>
ORDINARY L1 ORDINARY
SHAREHOLDINGS SHAREHOLDING SHARES
ACQUIRED ACQUIRED % TO BE ISSUED
-------------------- ----------------- -----------------
<S> <C> <C> <C>
The Decisions Group Limited..................... 23,374 10 pence 47 268,332
ordinary shares
Merit Communications NV......................... 36,500 BF1,000 96 208,936
ordinary shares
Merit Direct Limited............................ 156,120 L1 ordinary 27 152,038
shares
--------
629,306
--------
--------
</TABLE>
As of 27 March 1996 the ordinary L1 shares were subdivided into 10 pence
ordinary shares with a consequent increase in the number of shares to be issued
to the vendors.
Each of the acquisitions has been accounted for by the acquisition method of
accounting.
The results of Merit Direct Limited and The Decisions Group Limited have
been consolidated for the year, with an appropriate elimination of minority
interest for the period to 21 December 1995. The group profit and loss account
for the year ended 31 December 1995 does not include any results for Merit
Communications NV since the directors do not consider these to be material
during the period from 21 December to 31 December 1995. The net assets of Merit
Communications NV are consolidated in the group balance sheet at 31 December
1995.
The shares issued on the acquisitions are included at nominal value of
L629,306. The premium arising on the acquisition has been taken to a merger
reserve in accordance with section 131(2) of the Companies Act 1985.
F-37
<PAGE>
MITRE PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(9) FIXED ASSET INVESTMENTS (CONTINUED)
A summary of the net assets acquired and their fair values to the group for
each material acquisition is shown below.
MERIT DIRECT LIMITED AND THE DECISIONS GROUP LIMITED:
<TABLE>
<CAPTION>
BOOK VALUE ON ACQUISITION
AND
FAIR VALUE TO THE GROUP
----------------------------
THE DECISIONS
MERIT GROUP LIMITED
DIRECT ---------------
LIMITED
----------- L000
L000
<S> <C> <C>
Tangible fixed assets..................................................... 3,438 1,906
Net current assets........................................................ 1,155 335
Creditors due after more than one year.................................... (582) (298)
Bank overdraft............................................................ (884) (198)
Bank loans................................................................ (841) --
----------- ------
Net assets................................................................ 2,286 1,745
Net assets already held by group.......................................... (1,163) (925)
Minority preference shares................................................ (700) --
----------- ------
Minority interest acquired................................................ 423 820
Goodwill arising on acquisition........................................... 772 1,289
----------- ------
Fair value of consideration satisfied by issue of 152,038 and 268,332 L1
ordinary shares respectively............................................. 1,195 2,109
----------- ------
----------- ------
</TABLE>
MERIT COMMUNICATIONS NV:
<TABLE>
<CAPTION>
BOOK VALUE ACCOUNTING FAIR VALUE TO
----------- POLICY ALIGNMENT THE
----------------- GROUP
L000 L000 ---------------
L000
<S> <C> <C> <C>
Intangible fixed assets................................. 204 (204) --
Tangible fixed assets................................... 1,579 -- 1,579
Net current assets...................................... 444 (118) 326
Creditors due after more than one year.................. (346) (147) (493)
Cash at bank............................................ 290 -- 290
Bank overdraft.......................................... (16) -- (16)
Bank loans.............................................. (1,158) -- (1,158)
----------- --- ------
Net assets acquired..................................... 997 (469) 528
----------- ---
Minority interests...................................... (263)
Costs associated with acquisition....................... (50)
Existing shareholding................................... (30)
Goodwill arising on acquisition......................... 1,457
------
Fair value of consideration satisfied by issue of
208,936 L1 ordinary shares............................. 1,642
------
------
</TABLE>
The accounting policy alignments arising in respect of Merit Communications
NV relate to differences between Belgian and UK accounting standards principally
in respect of the accounting for government grants, favourable lease terms and
the recognition of losses on long term contractual arrangements.
F-38
<PAGE>
MITRE PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(9) FIXED ASSET INVESTMENTS (CONTINUED)
Goodwill arising on the acquisitions of L3,518,000 in aggregate has been set
off against the merger reserve.
The profit/(loss) after taxation of the acquired companies for the current
and preceding periods are summarised as follows:
<TABLE>
<CAPTION>
PROFIT/(LOSS) AFTER TAXATION
----------------------------------
YEAR ENDED 31 YEAR ENDED 31
DECEMBER 1995 DECEMBER 1994
--------------- -----------------
L000 L000
<S> <C> <C>
Merit Direct Limited.................................................... 942 667
The Decisions Group Limited............................................. 1,058 428
Merit Communications NV................................................. 296 (671)
</TABLE>
The acquisitions of Merit Direct Limited and The Decisions Group Limited
have had no material impact on the results for the year since the results are
already included under the acquisition method of accounting, with an appropriate
elimination of minority interests.
The group holds 49% interest in the L1 ordinary shares of KMM Merit Limited,
a company registered in England and Wales. This undertaking ceased to trade in
1995 and so the investment has been written off. In the opinion of the directors
the group did not exercise a significant influence over the operating and
financial policies of this company and consequently this holding was shown as
other investments.
The group and company hold a 50% interest in the L1 ordinary shares of WWAV
Rapp Collins Telebusiness Consultancy Limited, a company registered and
operating in England and Wales. In the opinion of the directors the group does
not exercise a significant influence over the operating and financial policies
of the company and consequently this shareholding is regarded as an other
investment. In the opinion of the directors the net assets and profit after tax
of the company for the period are not material and are therefore not included in
these financial statements.
(10) DEBTORS
<TABLE>
<CAPTION>
1995 1994
--------- ---------
L000 L000
<S> <C> <C>
Amounts receivable within one year:
Trade debtors...................................................................... 7,490 4,378
Net investment in finance leases................................................... 288 --
Amounts owed by subsidiary undertakings............................................ -- --
Other debtors...................................................................... 414 73
Advance corporation tax recoverable................................................ -- --
Prepayments........................................................................ 906 228
Contract set up costs recoverable.................................................. 175 185
--------- ---------
9,273 4,864
--------- ---------
Amounts receivable after more than one year:
Net investment in finance leases................................................... 399 --
Other debtors...................................................................... 329 --
Amounts owed by subsidiary undertakings............................................ -- --
--------- ---------
728 --
--------- ---------
Total debtors.................................................................... 10,001 4,864
--------- ---------
--------- ---------
</TABLE>
F-39
<PAGE>
MITRE PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(10) DEBTORS (CONTINUED)
The cost of the assets acquired for the purpose of letting under finance
lease was L593,000 (1994: Nil). All of the finance leases are held by Merit
Communications NV.
(11) CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1995 1994
--------- ---------
L000 L000
<S> <C> <C>
Bank loans (secured)................................................................. 496 100
Bank overdraft (secured)............................................................. 1,316 816
Obligations under finance leases..................................................... 971 398
Trade creditors...................................................................... 2,835 1,358
Amounts owed to ultimate parent and fellow subsidiary undertakings................... -- 15
Amounts owed to subsidiary undertakings.............................................. -- --
Corporation tax...................................................................... 971 533
Advance corporation tax.............................................................. 16 29
Other taxation and social security................................................... 1,339 878
Other creditors...................................................................... 161 96
Accruals and deferred income......................................................... 2,631 745
Proposed dividends................................................................... 7 81
Proposed dividends to minority interests............................................. 9 36
--------- ---------
10,752 5,085
--------- ---------
--------- ---------
</TABLE>
The bank overdrafts are secured by way of a fixed and floating charge on the
assets of the company and subsidiary undertakings. Bank loans are secured by
mortgages on the long leasehold land and buildings of a subsidiary undertaking
and charges over the assets of subsidiary undertakings.
(12) CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
1995 1994
--------- ---------
L000 L000
<S> <C> <C>
Bank loans (secured -- note 11)...................................................... 1,503 841
Obligations under finance leases falling due in two to five years.................... 715 237
Accruals and deferred income......................................................... 147 --
--------- ---------
2,365 1,078
--------- ---------
--------- ---------
</TABLE>
Bank loans of L741,000 (1994: L841,000) are repayable by equal monthly
instalments and bear interest at 1.5% over London Interbank Offer Rate. At 31
December 1995 L340,000 (1994: L440,000) falls due after more than five years.
Other bank loans of L762,000 (1994: Nil) are repayable within five years.
(13) PROVISION FOR LIABILITIES AND CHARGES
DEFERRED TAXATION
<TABLE>
<CAPTION>
1995 1994
--------- ---------
L000 L000
<S> <C> <C>
At beginning of year................................................................. 59 29
Charge in the profit and loss account................................................ 50 59
Advance corporation tax.............................................................. 27 (29)
--------- ---------
At end of year....................................................................... 136 59
--------- ---------
--------- ---------
</TABLE>
F-40
<PAGE>
MITRE PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(13) PROVISION FOR LIABILITIES AND CHARGES (CONTINUED)
The amount provided for deferred taxation represents the full liability,
calculated at the current rate of corporation tax, arising as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
L000 L000
<S> <C> <C>
Accelerated capital allowances....................................................... 138 88
Advance corporation tax recoverable.................................................. (2) (29)
--------- ---------
136 59
--------- ---------
--------- ---------
</TABLE>
F-41
<PAGE>
MITRE PLC
NOTES TO THE FINANCIAL STATEMENTS (Continued)
(14) CALLED UP SHARE CAPITAL
<TABLE>
<CAPTION>
1994 1993
1995 --------- ---------
--------- L000 L000
L000
<S> <C> <C> <C>
Authorised:
1,500,000 (1994 and 1993: 730,208), ordinary shares of L1 each............. 1,500 730 730
444,000, 8% cumulative redeemable preference (1992) shares of L1 each...... 444 444 444
350,000 8% cumulative redeemable preference (1994) shares of L1 each....... 350 350 --
--------- --------- ---------
2,294 1,524 1,174
--------- --------- ---------
--------- --------- ---------
Allotted, called up and fully paid:
730,208, ordinary shares of L1 each........................................ 730 730 730
Nil, (1994: 294,000; 1993: 444,000) 8% cumulative redeemable preference
(1992) shares of L1 each.................................................. -- 294 444
350,000 8% cumulative redeemable preference (1994) shares of L1 each....... 350 350 --
--------- --------- ---------
1,080 1,374 1,174
--------- --------- ---------
--------- --------- ---------
Share capital to be issued:
629,306 ordinary shares of L1 each....................................... 629 -- --
--------- --------- ---------
--------- --------- ---------
</TABLE>
On 21 December 1995 the authorised share capital was increased by L769,792
to L2,294,000 by the creation of an additional 769,792 ordinary shares of L1
each ranking pari passu with the existing ordinary shares.
Under an agreement dated 21 December 1995, Mitre plc agreed to acquire the
shareholdings in Merit Direct Limited, The Decisions Group Limited, and Merit
Communications NV not already held by the company, in exchange for its L1
ordinary shares. The number of shares to be issued was conditional upon the
profits of Merit Direct Limited, The Decisions Group Limited and Merit
Communications NV in the year ended 31 December 1995, which have now been
determined. Consequently 629,306 L1 ordinary shares are to be issued to the
former shareholders of Merit Direct Limited, The Decisions Group Limited, and
Merit Communications NV which are shown on the balance sheet as share capital to
be issued.
As of 27 March 1996 the L1 ordinary shares were sub-divided into 10 pence
ordinary shares with a consequent increase in the number of shares to be held by
shareholders.
During the year the company has received L144,000 (1994: L150,000) by way of
redemption of its holding of L1 preference shares in Merit Direct Limited and
L150,000 (1994: LNil) by way of redemption of its holding of L1 preference
shares in The Decisions Group Limited. Consequently the company has redeemed
L294,000 (1994: L150,000) of the cumulative redeemable preference (1992) shares
for cash at par. Accordingly a transfer of L294,000 (1994: L150,000) has been
made from retained profit and loss account reserves to a capital redemption
reserve.
The cumulative redeemable preference (1994) shares are redeemable, at par,
in equal instalments on 31 December 1996 and 31 December 1997. Alternatively,
the shares are redeemable at any time at the option of the company on 28 days
notice.
Dividends on the 1994 preference shares are payable on 30 April and 31
October. On a winding up the holders are entitled to all arrears of dividend and
a sum equal to the capital paid up. The 1994 preference shareholders have no
voting rights.
F-42
<PAGE>
MITRE PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(15) RESERVES
RESERVES 1995
<TABLE>
<CAPTION>
GOODWILL MERGER TOTAL PROFIT &
WRITE-OFF RESERVE OTHER LOSS
RESERVE --------- RESERVES ACCOUNT
CAPITAL ----------- --------- -----------
REDEMPTION L000
RESERVE L000 L000 L000
-------------
L000
<S> <C> <C> <C> <C> <C>
At 1 January 1995.................................. 150 (1,066) -- (916) 979
Premium arising on the issue of 629,306 L1 ordinary
shares for acquisitions........................... -- -- 4,317 4,317 --
Goodwill arising on acquisitions................... -- -- (3,518) (3,518) --
Retained profit for the financial year............. -- -- -- -- 1,105
Transfer on redemption of preference shares........ 294 -- -- 294 (294)
--- ----------- --------- --------- -----
At 31 December 1995............................ 444 (1,066) 799 177 1,790
--- ----------- --------- --------- -----
--- ----------- --------- --------- -----
</TABLE>
The cumulative amount of goodwill resulting from acquisitions which has been
written off is L4,584,000 of which L3,518,000 results from acquisitions in the
current year and L1,066,000 from acquisitions in earlier financial years.
RESERVES 1994
<TABLE>
<CAPTION>
GOODWILL PROFIT &
WRITE-OFF LOSS
RESERVE ACCOUNT
CAPITAL ----------- -----------
REDEMPTION
RESERVE L000 L000
-------------
L000
<S> <C> <C> <C>
At 1 January 1994...................................................... -- (1,066) 525
Retained profit for the financial year................................. -- -- 604
Transfer on redemption of preference shares............................ 150 -- (150)
--- ----------- ---
At 31 December 1994................................................ 150 (1,066) 979
--- ----------- ---
--- ----------- ---
</TABLE>
The cumulative amount of goodwill resulting from acquisitions in the
preceding period which has been written off is L1,066,000 (1993: L1,066,000).
RESERVES 1993
<TABLE>
<CAPTION>
PROFIT &
LOSS
ACCOUNT
GOODWILL -----------
WRITE-OFF
RESERVE L000
-----------
L000
<S> <C> <C>
Retained profit/(loss) for the period.............................................. -- 525
Goodwill arising on acquisitions................................................... (1,066) --
----------- ---
At 31 December 1993............................................................ (1,066) 525
----------- ---
----------- ---
</TABLE>
The cumulative amount of goodwill resulting from acquisitions in the current
financial period which has been written off is L1,066,000.
F-43
<PAGE>
MITRE PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(16) MINORITY INTERESTS
<TABLE>
<CAPTION>
1994 1993
1995 --------- ---------
--------- L000 L000
L000
<S> <C> <C> <C>
At beginning of year.......................................................... 1,337 266 --
Acquisition of subsidiary undertakings........................................ 263 -- 51
Share issue in subsidiary undertaking -- non equity........................... -- 700 --
Share of profit for the year
-- equity................................................................... 606 371 215
-- non equity............................................................... 56 36 --
Dividends to minority interests............................................... (56) (36) --
Purchase of minority interests -- see Note 9.................................. (1,243) -- --
--------- --------- ---
At end of year............................................................ 963 1,337 266
--------- --------- ---
--------- --------- ---
</TABLE>
Minority interests include 700,000 L1 8% cumulative redeemable preference
shares in Merit Direct Limited and 12,000 BF1,000 7.5% non-voting cumulative
redeemable preference shares in Merit Communications NV.
The Merit Direct Limited preference shares are redeemable at par in equal
instalments on 31 December 1996 and 1997; dividends are payable on 30 April and
31 October each year. On a winding up the holders would be entitled to all
arrears of dividend and a sum equal to the capital paid up. The holders would be
entitled to vote if their dividends were in arrears and at such time would have
votes equivalent to three-fourths of the total number of votes capable of being
cast on any resolution.
The Merit Communications NV preference shares are redeemable at par at the
option of the company. Dividends are payable on 30 April and 31 October each
year. On a winding up the holders would be entitled to all arrears of dividend
and a sum equal to the capital paid up. The shares do not carry voting rights.
(17) RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1994 1993
1995 --------- ---------
--------- L000 L000
L000
<S> <C> <C> <C>
Profit/(loss) for the financial year....................................... 1,148 685 525
Dividends.................................................................. (43) (81) --
--------- --------- ---------
1,105 604 525
Share capital to be issued................................................. 629 -- --
Share premium on shares to be issued....................................... 4,317 -- --
Goodwill arising on acquisitions........................................... (3,518) -- (1,066)
New share capital subscribed............................................... -- 350 1,174
Share capital redeemed..................................................... (294) (150) --
--------- --------- ---------
Net additions to shareholders' funds..................................... 2,239 804 633
Opening shareholders' funds................................................ 1,437 633 --
--------- --------- ---------
Closing shareholders' funds................................................ 3,676 1,437 633
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-44
<PAGE>
MITRE PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(18) RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATING
ACTIVITIES
<TABLE>
<CAPTION>
1994 1993
1995 --------- ---------
--------- L000 L000
L000
<S> <C> <C> <C>
Operating profit........................................................... 3,115 1,726 1,004
Depreciation charge........................................................ 1,079 588 267
Profit on disposal of tangible fixed assets................................ (14) (3) --
Increase in debtors........................................................ (2,348) (2,124) (1)
Increase in creditors...................................................... 1,587 54 430
--------- --------- ---------
Net cash inflow from operating activities.............................. 3,419 241 1,700
--------- --------- ---------
--------- --------- ---------
</TABLE>
(19) PURCHASE OF SUBSIDIARY UNDERTAKINGS
On 21 December 1995 the company purchased the minority ordinary shares in
Merit Direct Limited and The Decisions Group Limited as more fully detailed in
note 9. The cash flows of these subsidiary undertakings have been consolidated
in the 1995 and 1994 group cash flow statements.
The effect of the acquisition of Merit Communications NV on 21 December 1995
on the group cash flow statement for the year ended 31 December 1995 is detailed
in note 9.
(20) ANALYSIS OF CHANGES IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
OVERDRAFT NET
CASH ----------- ---------
--------- L000 L000
L000
<S> <C> <C> <C>
Balance at 12 October 1992................................................. -- -- --
Net cash inflow/(outflow)................................................ 139 (20) 119
--- ----------- ---------
Balance at 31 December 1993................................................ 139 (20) 119
Net cash outflow......................................................... (126) (796) (922)
--- ----------- ---------
Balance at 31 December 1994................................................ 13 (816) (803)
Net cash inflow/(outflow)................................................ 279 (500) (221)
--- ----------- ---------
Balance at 31 December 1995................................................ 292 (1,316) (1,024)
--- ----------- ---------
--- ----------- ---------
</TABLE>
Analysis of net inflow/(outflow) of cash and cash equivalents in respect of
purchase of subsidiary undertakings:
<TABLE>
<CAPTION>
1994 1993
1995 ----- ---------
--------- L000 L000
L000
<S> <C> <C> <C>
Cash consideration.............................................................. -- -- (1,244)
Cash at bank acquired........................................................... 290 -- 76
Bank overdrafts acquired........................................................ (16) -- (441)
--
--- ---------
Net inflow/(outflow) of cash and cash equivalents........................... 274 -- (1,609)
--
--
--- ---------
--- ---------
</TABLE>
There was no cash consideration in respect of the purchase of subsidiary
undertakings in the year ended 31 December 1995.
F-45
<PAGE>
MITRE PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(21) ANALYSIS OF CHANGES IN FINANCING DURING THE PERIOD
<TABLE>
<CAPTION>
LOANS &
FINANCE
LEASES
SHARE -------------
CAPITAL
--------- L000
L000
<S> <C> <C>
Balance at 12 October 1992...................................................... -- --
Subsidiary undertakings acquired.............................................. -- 385
Share capital issued.......................................................... 1,174 --
Inception of finance leases................................................... -- 166
Repayment of finance leases................................................... -- (73)
--------- -----
Balance at 31 December 1993..................................................... 1,174 478
Share capital issued.......................................................... 350 --
Share capital redeemed........................................................ (150) --
New bank loans................................................................ -- 1,000
Bank loan repayments.......................................................... -- (59)
Repayments to parent undertaking.............................................. -- (321)
Inception of finance leases................................................... -- 742
Repayment of finance leases................................................... -- (264)
--------- -----
Balance at 31 December 1994..................................................... 1,374 1,576
Share capital redeemed........................................................ (294) --
Acquisition of Merit Communications NV:
-- Bank loans............................................................... -- 1,158
-- Finance leases........................................................... -- 575
Bank loan repayments.......................................................... -- (100)
Inception of finance leases................................................... -- 1,191
Repayment of finance leases................................................... -- (715)
--------- -----
Balance at 31 December 1995..................................................... 1,080 3,685
--------- -----
--------- -----
</TABLE>
(22) COMMITMENTS
Capital commitments at the end of the financial year and for which no
provision has been made:
<TABLE>
<CAPTION>
1994
1995 ---------
--------- L000
L000
<S> <C> <C>
Contracted.......................................................................... -- --
Authorised but not contracted....................................................... 1,446 558
--------- ---------
1,446 558
--------- ---------
--------- ---------
</TABLE>
Annual commitments under non-cancellable operating leases are as follows:
<TABLE>
<CAPTION>
1994
1995 ------------------------
------------------------ LAND &
OTHER BUILDINGS OTHER
----------- ----------- -----------
LAND & L000 L000 L000
BUILDINGS
-----------
L000
<S> <C> <C> <C> <C>
Operating leases which expire within one year................... 9 33 -- 6
In the second to fifth years inclusive.......................... 480 89 -- 72
Over five years................................................. 597 -- 173 --
--
----- --- ---
1,086 122 173 78
--
--
----- --- ---
----- --- ---
</TABLE>
(23) DIRECTORS' MATERIAL INTERESTS IN CONTRACTS
Mr. HP Kruithof is the beneficial owner of the whole of the share capital of
Burmel Holding NV.
F-46
<PAGE>
MITRE PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(23) DIRECTORS' MATERIAL INTERESTS IN CONTRACTS (CONTINUED)
During the year Burmel Holding NV was paid L294,000 (1994: L150,000) by way
of redemption, at par, of its holding of the 8% cumulative redeemable preference
(1992) shares.
Messrs PLR Godfrey and RF Pipe are the owners of GPA Limited which in
addition to charges made for management services referred to in note 4 made
charges for services and personnel provided to Mitre plc and its subsidiary
undertakings during the year at a cost of L51,000. By way of a consultancy
agreement GPA Limited has agreed to provide a minimum level of services to Mitre
plc and its subsidiary undertakings. This agreement is terminable with six
months notice from either party.
Messrs MJ Shields, AJ Tillard and HP Kruithof are party to the agreement
dated 21 December 1995, whereby their shareholdings in Merit Direct Limited, The
Decisions Group Limited and Merit Communications NV, referred to in note 9, have
been acquired for shares in Mitre plc, based on the results of those companies.
(24) PERIODS
The 1993 period represents the period from incorporation on 12 October 1992
to 31 December 1993. The figures are the results of the subsidiary undertakings
from the date of acquisition, being 20 November 1992 for Merit Direct Limited
and 4 November 1993 for The Decisions Group Limited, together with the results
of the parent company for the period from 12 October 1992 to 31 December 1993.
The 1994 and 1995 periods represent the years ended 31 December 1994 and 1995
respectively.
(25) SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
The company's financial statements are prepared in accordance with generally
accepted accounting principles in the United Kingdom ("UK GAAP") which differ in
certain significant respects from generally accepted accounting principles in
the United States ("US GAAP"). These differences relate principally to the
following items and the approximate effect of the necessary adjustments on net
income and shareholders' equity is shown in the following tables.
GOODWILL
Under UK GAAP, goodwill arising on consolidation representing the excess of
the fair value of the consideration given over the fair value of the separable
net assets acquired is written off against a separate goodwill write-off
reserve. Where the merger relief provisions of the Companies Act 1985 apply, the
premium arising on the shares issued is credited to the merger reserve and is
available for the write-off of goodwill.
Under US GAAP, goodwill consists of the difference between the fair value of
net assets acquired and the fair value of shares issued or cash paid as
consideration except insofar as acquisitions are from companies under common
control when assets are recorded at their historical cost. Goodwill is
capitalised and amortised using the straight line method over 25 years. The
carrying value of goodwill at each balance sheet date is reviewed to assess
recoverability.
Under US GAAP the premium arising on the shares issued is credited to paid
in capital.
ACQUISITION OF MERIT COMMUNICATIONS NV
Under UK GAAP, the acquisition of Merit Communications NV has been accounted
for as a purchase, effective 21 December 1995. The assets of Merit
Communications NV were included at fair value and the related goodwill written
off to the merger reserve.
Under US GAAP, the acquisition of an entity under common control is
accounted for in a manner similar to a pooling of interests. Therefore, to the
extent that shares in Merit Communications NV were acquired from Mr. Kruithof
and companies under his control, the related income statements and
F-47
<PAGE>
MITRE PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(25) SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (CONTINUED)
balance sheets of Merit Communications NV would be combined with Mitre plc based
upon the historical financial statements of Merit Communications NV from
incorporation. To the extent that shares in Merit Communications NV were
acquired from unrelated third parties, goodwill is capitalized and amortised
straight line over 25 years.
ACQUISITION OF MERIT DIRECT LIMITED
Under UK GAAP, the acquisition of Merit Direct Limited in 1992 was accounted
for as a purchase, effective 20 November 1992. The assets of Merit Direct
Limited were included at fair value and the related goodwill written off to a
separate goodwill write-off reserve.
Under US GAAP, the acquisition of an entity under common control is
accounted for in a manner similar to a pooling of interests. Therefore to the
extent that shares in Merit Direct Limited were acquired in November 1992 from
Mr. Kruithof and companies under his control, the related income statements of
Merit Direct Limited would be combined with Mitre plc based upon the historical
financial statements of Merit Direct Limited. There is no significant impact on
the income statement of Mitre plc since the results of Merit Direct Limited have
been consolidated in Mitre plc's accounts.
CASH FLOWS
Under UK GAAP, Mitre plc complies with Financial Reporting Standard No. 1 --
"Cash flow statements" (FRS 1). Its objectives and principles are similar to
those set out in SFAS No. 95 "Statement of Cash Flows". The principal difference
between the standards is in respect of classification. Under FRS 1, Mitre plc
presents its cash flows for (a) operating activities; (b) returns on investments
and servicing of finance; (c) taxation; (d) investing activities; and (e)
financing activities. SFAS No. 95 requires only three categories of cash flow
activity (a) operating; (b) investing; and (c) financing.
Cash flows arising from taxation and returns on investments and servicing of
finance under FRS 1, would with the exception of dividends paid, be included as
operating activities under SFAS No. 95; dividend payments would be included as a
financing activity under SFAS No. 95. In addition, under FRS 1, cash and cash
equivalents include short term borrowings with original maturities of less than
90 days. SFAS No. 95 requires movements of such short term borrowings to be
included in financing activities.
CURRENT ASSETS
Current assets under UK GAAP include amounts which fall due after more than
one year. Under US GAAP, such assets would be reclassified as non-current
assets. Consequently, at 31 December 1995 L728,000 (1994: Nil) of debtors would
be reclassified under US GAAP from current assets to non-current assets.
GOVERNMENT GRANTS
Under UK GAAP, grants that relate to specific capital expenditure on
specific projects are treated as deferred income which is credited to the profit
and loss account over the related asset's useful life.
Under US GAAP, such grants are deducted from the capital cost of the asset
and the annual depreciation charge reduced accordingly.
Consequently, at 31 December 1995, L147,000 (1994: Nil) of deferred income
included in creditors falling due after more than one year and L145,000 (1994:
Nil) of deferred income included in creditors falling due within one year would
be deducted from fixed assets.
F-48
<PAGE>
MITRE PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(25) SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (CONTINUED)
DEFERRED TAXATION
Under UK GAAP, deferred tax assets should only be recognised when they are
expected to be recoverable without replacement by equivalent balances.
Under US GAAP, deferred tax assets are determined based on the differences
between the financial statement and tax bases of assets and liabilities using
tax rates and laws applicable in the years in which the differences are expected
to reverse.
MANDATORILY REDEEMABLE PREFERENCE SHARES (MRPS)
Under UK GAAP, MRPs are included in shareholders' funds. Under US GAAP, MRPs
would not form part of shareholders' equity.
APPROXIMATE EFFECT ON NET INCOME OF DIFFERENCES BETWEEN UK GAAP AND US GAAP.
<TABLE>
<CAPTION>
YEAR ENDED 31
DECEMBER
--------------------
1995 1994
L'000 L'000
--------- ---------
<S> <C> <C>
Profit for the financial year under UK GAAP......................................... 1,148 685
Goodwill amortisation............................................................... (22) (22)
Net income/(loss) of Merit Communications NV........................................ 296 (671)
Deferred taxes...................................................................... 60 75
--------- ---------
Net income under US GAAP............................................................ 1,482 67
--------- ---------
--------- ---------
</TABLE>
APPROXIMATE CUMULATIVE EFFECT ON SHAREHOLDERS' EQUITY OF DIFFERENCES BETWEEN
UK GAAP AND US GAAP.
<TABLE>
<CAPTION>
YEAR ENDED 31 DECEMBER
------------------------------------------
1995 1994
L'000 L'000 L'000 L'000
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Shareholders' funds under UK GAAP............................................ 3,676 1,437
Less mandatorily redeemable preference shares................................ (350) (644)
Goodwill written off under UK GAAP from acquisitions in November 1992 and
November 1993............................................................... 1,066 1,066
Less goodwill attributable to Merit Direct Limited........................... (519) (519)
--------- ---------
Goodwill capitalised under US GAAP........................................... 547 547
Goodwill written off under UK GAAP from acquisitions in December 1995........ 3,518
Less goodwill attributable to Merit Communications NV........................ (1,063)
---------
Goodwill capitalised under US GAAP........................................... 2,455
Amortisation of goodwill..................................................... (68) (46)
As if pooling of interests in respect of Merit Communications NV............. -- (111)
Deferred taxes............................................................... 135 75
--------- ---------
Shareholders' equity under US GAAP........................................... 6,395 1,258
--------- ---------
</TABLE>
F-49
<PAGE>
MITRE PLC
NOTES TO UNAUDITED CONDENSED GROUP FINANCIAL STATEMENTS
The condensed group financial statements are unaudited, and have been
prepared under the historical cost accounting rules and in accordance with
applicable UK accounting standards. The financial statements are presented in UK
pounds sterling (L) and reflect all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation of the results for the interim period.
The condensed financial statements should be read in conjunction with the
Group financial statements and notes included elsewhere in this Proxy Statement.
The results for the three months ended March 31, 1996 are not necessarily
indicative of the results to be expected for the full year.
MITRE PLC
UNAUDITED CONDENSED GROUP PROFIT AND LOSS ACCOUNT
FOR THE THREE MONTHS ENDED 31 MARCH 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------- -------------
L000 L000
<S> <C> <C>
TURNOVER................................................... 12,094 5,998
Cost of sales.............................................. (7,567) (3,395)
------------- -------------
GROSS PROFIT............................................... 4,527 2,603
Administrative expenses.................................... (3,562) (1,560)
------------- -------------
OPERATING PROFIT........................................... 965 1,043
Interest payable and similar charges....................... (105) (53)
------------- -------------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION.............. 860 990
Tax on profit on ordinary activities....................... (284) (327)
------------- -------------
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION............... 576 663
Minority interests......................................... -- (197)
------------- -------------
PROFIT FOR THE FINANCIAL PERIOD............................ 576 466
Non equity dividends....................................... -- --
------------- -------------
RETAINED PROFIT FOR THE FINANCIAL PERIOD................... 576 466
------------- -------------
------------- -------------
</TABLE>
F-50
<PAGE>
MITRE PLC
UNAUDITED CONDENSED GROUP BALANCE SHEET
AT 31 MARCH 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
--------- ---------
L000 L000
<S> <C> <C>
FIXED ASSETS
Tangible assets..................................................... 8,133 4,549
Investments......................................................... 11 41
--------- ---------
8,144 4,590
--------- ---------
CURRENT ASSETS
Debtors
-- amounts receivable after more than one year.................... 703 --
-- amounts receivable within one year............................. 11,857 6,009
Cash at bank and in hand............................................ 177 --
--------- ---------
12,737 6,009
CREDITORS: AMOUNT FALLING DUE WITHIN ONE YEAR....................... (13,143) (5,956)
--------- ---------
NET CURRENT LIABILITIES............................................. (406) 53
--------- ---------
TOTAL ASSETS LESS CURRENT LIABILITIES............................... 7,738 4,643
Creditors: amounts falling due after more than one year............. (2,387) (1,222)
PROVISION FOR LIABILITIES AND CHARGES............................... (136) (59)
--------- ---------
NET ASSETS.......................................................... 5,215 3,362
--------- ---------
--------- ---------
CAPITAL AND RESERVES
Called up share capital............................................. 1,080 1,299
Share capital to be issued.......................................... 629 --
Other reserves...................................................... 177 (841)
Profit and loss account............................................. 2,366 1,370
--------- ---------
SHAREHOLDERS' FUNDS................................................. 4,252 1,828
Minority interests.................................................. 963 1,534
--------- ---------
5,215 3,362
--------- ---------
--------- ---------
Shareholders' funds -- Equity....................................... 3,902 1,259
-- Non equity..................................... 350 569
--------- ---------
4,252 1,828
--------- ---------
--------- ---------
Minority interests -- Equity........................................ -- 834
-- Non equity....................................... 963 700
--------- ---------
963 1,534
--------- ---------
--------- ---------
</TABLE>
F-51
<PAGE>
MITRE PLC
UNAUDITED CONDENSED GROUP CASH FLOW STATEMENT
FOR THE THREE MONTHS ENDED 31 MARCH 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------- -------------
L000 L000
<S> <C> <C>
NET CASH INFLOW/(OUTFLOW) FROM
OPERATING ACTIVITIES.......................................... (730) 333
------------- -------------
RETURNS ON INVESTMENTS AND
SERVICING OF FINANCE
Interest paid.................................................. (62) (38)
Finance lease interest......................................... (43) (15)
------------- -------------
NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF
FINANCE....................................................... (105) (53)
------------- -------------
CORPORATION TAX REPAID......................................... 35 --
------------- -------------
INVESTING ACTIVITIES...........................................
Purchase of tangible fixed assets.............................. (974) (307)
------------- -------------
NET CASH OUTFLOW FROM INVESTING ACTIVITIES..................... (974) (307)
------------- -------------
NET CASH OUTFLOW BEFORE FINANCING.............................. (1,774) (27)
FINANCING......................................................
Redemption of share capital.................................... -- (75)
Repayment of finance leases.................................... (251) (99)
Repayment of bank loans........................................ (133) (25)
------------- -------------
NET CASH OUTFLOW FROM FINANCING................................ (384) (199)
------------- -------------
DECREASE IN CASH AND CASH EQUIVALENTS.......................... (2,158) (226)
------------- -------------
------------- -------------
</TABLE>
F-52
<PAGE>
AUDITORS' REPORT ON FINANCIAL STATEMENTS
To the Stockholders and the Board of
Directors of Teleaction, S.A.:
We have audited the balance sheets of TELEACTION, S.A. as of December 31,
1994 and 1995, and the related statements of income, cash flows and changes in
shareholders' equity for each of the three years in the period ended December
31, 1995, all expressed in Spanish pesetas. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and perfom
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, based on our audit, the financial statements referred to
above present fairly, in all material respects, the financial position of
Teleaction, S.A. as of December 31, 1994 and 1995, and of the results of its
operations and cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles
in Spain.
Accounting practices used by the company in preparing the accompanying
financial statements conform with generally accepted accounting principles in
Spain, but do not conform with accounting principles generally accepted in the
United States. A description of these differences and a complete reconciliation
of net income and shareholders' equity for 1994 and 1995 to U.S. generally
accepted accounting principles is set forth in Note 16.
ARTHUR ANDERSEN
Madrid, Spain
June 24, 1996
F-53
<PAGE>
TELEACTION, S.A.
BALANCE SHEETS AS OF DECEMBER 31, 1994 AND 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PESETAS US DOLLARS
------------------------ -----------
<S> <C> <C> <C>
DECEMBER 31 DECEMBER
------------------------ -----------
<CAPTION>
1994 1995 1995
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
FIXED AND OTHER NONCURRENT ASSETS:
START-UP EXPENSES......................................................... 619 434 4
INTANGIBLE ASSETS (NOTE 5)-............................................... 71,547 123,341 1,016
Cost...................................................................... 99,255 164,061 1,351
Accumulated depreciation.................................................. (27,708) (40,720) (335)
TANGIBLE FIXED ASSETS (NOTE 6)-........................................... 139,733 147,877 1,218
Cost...................................................................... 207,256 264,419 2,178
Accumulated depreciation.................................................. (67,523) (116,542) (960)
LONG-TERM FINANCIAL INVESTMENTS (NOTE 7)-................................. 47,342 56,584 466
Holdings in group companies............................................... 58,141 62,406 514
Long-term deposits and guarantees......................................... 11,343 16,320 134
Provisions................................................................ (22,142) (22,142) (182)
DEFERRED EXPENSES (NOTE 4-B).............................................. 5,255 13,849 114
----------- ----------- -----------
Total fixed and other noncurrent assets................................. 264,496 342,085 2,818
CURRENT ASSETS:
ACCOUNTS RECEIVABLE-...................................................... 1,055,928 1,519,257 12,514
Customer receivables...................................................... 1,048,791 1,515,577 12,484
Doubtful customer receivables............................................. 28,749 33,729 278
Sundry accounts receivable................................................ 5,408 3,680 30
Less - Allowance for bad debts............................................ (27,020) (33,729) (278)
RECEIVABLES FROM GROUP COMPANIES (NOTE 8)................................. 20,709 39,333 324
NONTRADE RECEIVABLES-..................................................... 25,774 47,353 390
Other receivables......................................................... 17,374 16,828 139
Tax receivables (Note 11)................................................. 8,400 30,525 251
CASH...................................................................... 110,894 74,714 616
PREPAID EXPENSES.......................................................... 2,877 2,905 24
----------- ----------- -----------
Total current assets.................................................... 1,216,182 1,683,562 13,868
----------- ----------- -----------
TOTAL ASSETS............................................................ 1,480,678 2,025,647 16,686
----------- ----------- -----------
----------- ----------- -----------
SHAREHOLDERS' EQUITY AND LIABILITIES
SHAREHOLDERS'EQUITY (Note 9):
SUBSCRIBED CAPITAL STOCK.................................................. 50,000 50,000 412
RESERVES-................................................................. 602,655 789,976 6,507
Legal reserve............................................................. 10,000 10,000 82
Voluntary reserve......................................................... 592,655 779,976 6,425
INCOME FOR THE YEAR....................................................... 269,892 379,564 3,126
----------- ----------- -----------
Total shareholder's equity.......................................... 922,547 1,219,540 10,045
DEFERRED REVENUES (NOTE 4-H).............................................. 24,000 27,000 223
PROVISIONS FOR CONTINGENCIES AND EXPENSES (NOTE 4-E)...................... 70,000 136,215 1,122
LONG-TERM DEBT:
PAYABLE TO CREDIT ENTITIES (NOTE 10)...................................... 26,427 60,263 497
PAYABLE TO GROUP COMPANIES (NOTE 7)....................................... 11,920 4,421 36
----------- ----------- -----------
Total long-term debt.................................................... 38,347 64,684 533
</TABLE>
F-54
<PAGE>
TELEACTION, S.A.
BALANCE SHEETS AS OF DECEMBER 31, 1994 AND 1995 (CONTINUED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C>
CURRENT LIABILITIES:
PAYABLE TO CREDIT ENTITIES (NOTE 10 )..................................... 31,322 64,268 530
TRADE ACCOUNTS PAYABLE.................................................... 113,896 162,664 1,340
PAYABLE TO GROUP COMPANIES-............................................... -- 9,999 82
Payment outstanding (Note 7).............................................. -- 9,999 82
OTHER NONTRADE PAYABLES-.................................................. 276,685 311,257 2,564
Accrued taxes payable (Note 11)........................................... 212,415 292,473 2,409
Compensation payable...................................................... 22,533 18,784 155
Other payables............................................................ 41,737 -- --
ACCRUED EXPENSES.......................................................... 3,881 30,020 247
----------- ----------- -----------
Total current liabilities............................................... 425,784 578,208 4,763
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES.............................. 1,480,678 2,025,647 16,686
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying Notes 1 to 16 are an integral part of
these financial statements.
F-55
<PAGE>
TELEACTION, S.A.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PESETAS US DOLLARS
------------------------------------- -----------
1993 1994 1995 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
STATEMENTS OF INCOME
REVENUES:
Net sales (Note 12)......................................... 2,410,125 2,986,596 3,704,611 30,516
Other....................................................... 1,533 - - -
----------- ----------- ----------- -----------
2,411,658 2,986,596 3,704,611 30,516
EXPENSES:
Purchases................................................... 226,336 195,602 291,280 2,399
Personnel expenses (Note 12)................................ 1,119,204 1,613,210 1,916,952 15,791
Depreciation and amortization............................... 25,463 49,145 62,216 513
Variation in operating provisions........................... 4,169 22,851 6,709 55
Other operating expenses.................................... 515,095 636,984 792,659 6,529
----------- ----------- ----------- -----------
1,890,267 2,517,792 3,069,816 25,287
----------- ----------- ----------- -----------
Operating income............................................ 521,391 468,804 634,795 5,229
INTEREST REVENUES:
Other interest and similar revenues......................... 5,852 18,779 26,472 218
----------- ----------- ----------- -----------
5,852 18,779 26,472 218
INTEREST EXPENSES:
Other financial and similar expenses........................ 18,077 14,972 14,224 117
----------- ----------- ----------- -----------
18,077 14,972 14,224 117
----------- ----------- ----------- -----------
Financial income (loss)..................................... (12,225) 3,807 12,248 101
EXTRAORDINARY REVENUES:
Gains on disposal of intangible assets and tangible fixed
assets..................................................... - 1,805 - -
Extraordinary revenues (Note 12)............................ 87 9,904 10,750 88
----------- ----------- ----------- -----------
87 11,709 10,750 88
EXTRAORDINARY EXPENSES:
Variation in provisions for investments in non-consolidated
subsidiaries (Note 7)...................................... 14,265 2,430 26,117 215
Losses on disposal of intangible assets and tangible fixed
assets..................................................... 9,904 494 - -
Extraordinary expenses (Note 12)............................ 25,843 46,143 50,778 418
----------- ----------- ----------- -----------
50,012 49,067 76,895 633
----------- ----------- ----------- -----------
Extraordinary income (loss)................................. (49,925) (37,358) (66,145) (545)
----------- ----------- ----------- -----------
Income before taxes......................................... 459,241 435,253 580,898 4,785
----------- ----------- ----------- -----------
Income taxes (Note 11 )..................................... 166,955 165,361 201,334 1,659
Net income for the year..................................... 292,286 269,892 379,564 3,126
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income per share (Note 4-g)............................. 58 54 76 0.6
</TABLE>
The accompanying Notes 1 to 16 are an integral part
of these financial statements.
F-56
<PAGE>
TELEACTION, S.A.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PESETAS US DOLLARS
---------------------------------- -----------
1993 1994 1995 1995
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities (a):
Net income..................................................... 292,286 269,892 379,564 3,126
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................ 25,463 49,145 62,216 513
Provision for contingencies and expenses..................... 25,000 45,000 40,098 330
Variation in provision for financial investments............. 14,265 2,430 26,117 215
Interest of lease obligations................................ 5,392 5,661 7,408 61
Deferred revenues............................................ -- (10,000) (17,000) (140)
Losses on disposals............................................ 9,904 494 -- --
Gains on disposals............................................. -- (1,805) -- --
---------- ---------- ---------- -----------
372,310 360,817 498,403 4,105
---------- ---------- ---------- -----------
Changes in operating assets and liabilities:
Accounts receivable.......................................... (388,256) 48,379 (503,532) (4,148)
Payable to credit entities................................... 123,586 (80,670) 14,852 122
Other current liabilities.................................... 66,782 (59,967) 150,765 1,242
Prepaid expenses (4,787) 1,910 (28) --
---------- ---------- ---------- -----------
169,635 270,469 160,460 1,321
---------- ---------- ---------- -----------
Cash flows from investing activities (b):
Purchases of tangible fixed assets........................... (52,692) (52,349) (37,652) (310)
Purchases of intangible assets............................... (2,781) (3,399) (4,482) (37)
Investments in holdings in group companies................... (21,000) -- (1,765) (15)
Start-up expenses............................................ (926) -- -- --
Disposal of tangible fixed assets............................ 4,070 7,732 1,525 13
Long-term deposits........................................... (7,054) (1,733) (5,601) (46)
Proceeds from long-term deposits............................. 4,902 841 624 5
---------- ---------- ---------- -----------
(75,481) (48,908) (47,351) (390)
---------- ---------- ---------- -----------
Cash flows from financing activities:
Dividends paid............................................... (64,842) (92,284) (123,857) (1,020)
Repayment of lease obligations............................... (30,907) (49,794) (41,794) (342)
Loan proceeds................................................ -- 5,401 -- --
Repayment of loans and other debts........................... (9,601) (1,463) (3,938) (32)
Changes in deferred revenues................................. 20,000 14,000 20,000 165
---------- ---------- ---------- -----------
(85,350) (124,140) (149,289) (1,229)
---------- ---------- ---------- -----------
Net change in cash and cash equivalents........................ 8,804 97,421 (36,180) (298)
Cash and cash equivalents at the beginning of the year (c)..... 4,669 13,473 110,894 913
Cash and cash equivalents at the end of the year (c)........... 13,473 110,894 74,714 615
</TABLE>
The accompanying Notes 1 to 16 are an integral part of these financial
statements.
F-57
<PAGE>
TELEACTION, S.A.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(AMOUNTS IN THOUSANDS)
(a) The interest and income tax payments made in 1993, 1994 and 1995 were as
follows:
<TABLE>
<CAPTION>
US
PESETAS DOLLARS
------------------------------- -----------
1993 1994 1995 1995
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
Interest......................................... 18,077 14,972 13,355 110
Income taxes..................................... 119,383 189,016 166,221 1,369
</TABLE>
(b) In 1995 certain investing activities occurred without resulting in cash
payments. Teleaction, S.A. acquired a shareholding in group companies
through the assumption of directly related liabilities amounting to Ptas.
2,500,000. At December 31, 1995, those debts had not been paid.
(c) For the purpose of the statement of cash flows, Teleaction, S.A. treats as
cash and cash equivalents the balance of the "Cash" caption.
The accompanying Notes 1 to 16 are an integral part of these financial
statements.
F-58
<PAGE>
TELEACTION, S.A.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
US DOLLARS
PESETAS -----------
--------------------------------- DECEMBER
1993 1994 1995 1995
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at beginning of year.................................... 493,939 735,227 922,547 7,599
Net income for the period....................................... 292,286 269,892 379,564 3,126
Dividends....................................................... (50,998) (82,572) (82,571) (680)
Balance at end of year.......................................... 735,227 922,547 1,219,540 10,045
</TABLE>
The accompanying Notes 1 to 16 are an integral part of
these financial statements.
F-59
<PAGE>
TELEACTION, S.A.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
(1) COMPANY DESCRIPTION
Teleaction, S.A. was incorporated on February 26, 1986. Its corporate
purpose, per its bylaws, is as follows:
1. To carry out teleservicing activities and, in general, any other
advertising or direct marketing-related activities.
2. To give and design courses and seminars for professionals and
executives to provide them with training in the various business management
areas and, particularly, in marketing techniques.
3. To prepare and sell didactic material for the purposes described in
paragraph b above.
4. To provide study, design and counseling services to companies in all
planning, organizational, control and management areas.
5. To provide civil telecommunications services provided that the
required administrative authorizations or licenses are obtained, excluding,
in particular, the services referred to in Articles 11, 12, 13 and 14 of
Telecommunications Law 31/1987, and in general, the services legally
reserved for the public sector and any services calling for certain
circumstances which do not arise at the Company or certain conditions or
requirements which the Company does not meet.
The business activities composing the corporate purpose can be carried out,
totally or partially, indirectly through the ownership of shares or holdings in
companies with identical or similar corporate purposes.
(2) BASIS OF PRESENTATION OF THE FINANCIAL STATEMENTS
The accompanying financial statements were prepared in accordance with
generally accepted accounting principles in Spain (Spanish GAAP). The statements
of cash flows and shareholders' equity were prepared broadly in accordance with
the U.S. format, but also in accordance with the Spanish GAAP referred to
before.
The differences between Spanish GAAP and U.S. GAAP and their effect on the
1994 and 1995 statements of income and on the statements of stockholders' equity
as of December 31, 1994 and 1995, are described in Note 16.
The 1993, 1994 and 1995 financial statements, which were presented in the
format required by Spanish corporate legislation, were prepared by the Company's
Board of Directors. The accompanying financial statements were prepared by
Company management and have been adapted to the format generally required by the
SEC and also include some adjustments and reclassifications.
F-60
<PAGE>
TELEACTION, S.A.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
(2) BASIS OF PRESENTATION OF THE FINANCIAL STATEMENTS (CONTINUED)
The adjustments made to the Spanish financial statements are as follows:
1. Recording of implicit interest for the balances receivable from
certain State-owned entities of assured creditworthiness but with uncertain
collection periods.
<TABLE>
<CAPTION>
THOUSANDS OF PESETAS
-------------------------------
VARIATION
-------------------------------
INCREASE (DECREASE)
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Net sales................................................... (20,000) (14,000) (20,000)
Other interest and similar revenues......................... -- 10,000 17,000
Deferred revenues........................................... 20,000 4,000 3,000
Deferred tax assets......................................... 7,000 1,400 1,050
Income taxes................................................ (7,000) (1,400) (1,050)
Effect on net income for the period......................... (13,000) (2,600) (1,950)
</TABLE>
2. Recording in the 1993 statement of income of a provision for
contingencies and expenses recorded under reserves.
<TABLE>
<CAPTION>
THOUSAND OF
PESETAS
-----------
VARIATION
-----------
INCREASE
(DECREASE)
-----------
1993
-----------
<S> <C>
Voluntary reserves................................................................ 25,000
Extraordinary expenses............................................................ 25,000
Effect on net income for the period............................................... (25,000)
</TABLE>
3. Recording in the 1995 statement of income of an additional provision
for contingencies and expenses related to potential losses in Action
Servicios de Publicidade, S.A.
<TABLE>
<CAPTION>
THOUSAND OF
PESETAS
-----------
VARIATION
-----------
INCREASE
(DECREASE)
-----------
1995
-----------
<S> <C>
Extraordinary expenses............................................................ 34,098
Provision for contingencies and expenses.......................................... 34,098
Deferred taxes assets............................................................. 11,934
Income taxes...................................................................... (11,934)
Effect on net income for the period............................................... (22,164)
</TABLE>
F-61
<PAGE>
TELEACTION, S.A.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
(2) BASIS OF PRESENTATION OF THE FINANCIAL STATEMENTS (CONTINUED)
Following is a summary of the effects of the above mentioned adjustments:
<TABLE>
<CAPTION>
THOUSANDS OF PESETAS
----------------------------------------------------------------
NET INCOME SHAREHOLDERS' EQUITY
------------------------------- -------------------------------
FOR THE YEAR ENDED AS OF
DECEMBER 31 DECEMBER 31
------------------------------- -------------------------------
1993 1994 1995 1993 1994 1995
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Amounts per previous financial
statements............................... 330,286 272,492 403,678 748,227 938,147 1,259,254
Increase (Decrease) due to net effect of
the above mentioned adjustments.......... (38,000) (2,600) (24,114) (13,000) (15,600) (39,714)
Amounts per accompanying financial
statements (Spanish GAAP)................ 292,286 269,892 379,564 735,227 922,547 1,219,540
</TABLE>
The most significant presentation changes made to the Spanish financial
statements are as follows:
a) Different format of income statement and inclusion of 1993 statement
of income.
b) Inclusion of statements of cash flows and shareholders' equity.
c) Exclusion of the Spanish version of the statement of changes in
financial position, which was replaced by the statements of cash flows.
d) Inclusion of notes for the balance sheet as of December 31, 1994 and
for the 1994 and 1993 statements of income.
e) Additional disclosures in the accompanying financial statements
including notes relating to subsequent events and the reconciliation of
Spanish GAAP to U.S. GAAP.
The financial information expressed in U.S. dollars is presented for the
convenience of the readers and is translated from Spanish pesetas at the noon
buying rate in New York City for cable transfers in pesetas as certified for
customs purposes by the Federal Reserve Bank of New York on December 29, 1995,
which was Spanish Ptas. 121.400 per U.S. dollar.
(3) APPROPRIATION OF INCOME
The Company's directors proposed the appropriation of 1995 income to
voluntary reserve (see additionally Note 15).
(4) VALUATION STANDARDS
The main valuation methods applied by the Company in preparing its financial
statements, in accordance with Spanish Generally Accepted Accounting Principles,
were as follows:
A) START-UP EXPENSES-
Start-up expenses, which consist of the expenses incurred as a result of the
relocation of the Company's offices in Madrid in 1993, are being systematically
amortized over five years.
B) INTANGIBLE ASSETS-
Computer applications are valued at cost and are amortized on a
straight-line basis over their estimated useful life, which is four years.
Leased assets are recorded as intangible assets at the cost of the related
assets, excluding interest expenses, and are amortized by the same method as
that used to depreciate tangible fixed assets. The total debt for lease payments
plus the amount of the purchase option are recorded as a liability. The
F-62
<PAGE>
TELEACTION, S.A.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
(4) VALUATION STANDARDS (CONTINUED)
difference between the two amounts, which represents the interest expenses on
the transaction, is recorded under the "Deferred Charges" caption in the
accompanying balance sheets and is allocated to income each year by the interest
method.
As from 1994, the Company changed the residual years of estimated useful
life of the assets, with no retroactive effect, as set forth in Note 4-c below.
The effect of this change was an increase of Ptas. 5,480,581 in the 1994
amortization expense.
C) TANGIBLE FIXED ASSETS-
Tangible fixed assets are carried at cost and are depreciated using the
straight-line method at annual rates based on the following years of estimated
useful life:
<TABLE>
<CAPTION>
YEARS OF
ESTIMATED
USEFUL LIFE
------------
<S> <C>
Technical installations and machinery........................................... 8.33
Other installations, tools and furniture........................................ 8.33 to 10
Other tangible fixed assets..................................................... 4 to 6.25
</TABLE>
The costs of expansion, modernization or improvements leading to increased
productivity, capacity or efficiency or to a lengthening of the useful lives of
the assets are capitalized.
Upkeep and maintenance expenses are expensed currently.
As from 1994 the Company changed the residual years of estimated useful life
of its assets, with no retroactive effect, as follows:
<TABLE>
<CAPTION>
YEARS OF
ESTIMATED USEFUL LIFE
-------------------------
1994 AND
SUBSEQUENT
YEARS 1993
------------ -----------
<S> <C> <C>
Technical installations and machinery.............................. 8.33 9.5 to 10
Other installations, tools and furniture........................... 8.33 to 10 10 to 16
Other tangible fixed assets........................................ 4 to 6.25 6 to 8
</TABLE>
The estimated useful lives of the assets were changed because the Company
considers that the resulting useful lives better reflect the technical and
economic obsolescence of the assets and are within the limits sets by the new
depreciation tables approved by a Ministry of Economy and Finance Order dated
May 20, 1993.
The effect of this change in the estimated useful lives gave rise to an
increase of Ptas. 14,348,967 in the 1994 depreciation expense.
D) FINANCIAL INVESTMENTS-
The Company records its holdings in the capital stock of other companies at
cost, net, where appropriate, of the related provisions for depreciation if cost
was higher than the underlying book value of the investee at year-end, adjusted
by the unrealized gains existing at the time of acquisition and still persisting
at year-end.
Had these holdings been consolidated, the effect on the Company's financial
statements would not have been material.
F-63
<PAGE>
TELEACTION, S.A.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
(4) VALUATION STANDARDS (CONTINUED)
E) PROVISION FOR CONTINGENCIES AND EXPENSES-
The Company has recorded a provision for contingencies and expenses to cover
the potential risks arising from the Company's and the subsidiaries' operations
and the losses incurred at the investees which exceed the cost of the related
investment (see Note 7).
F) INCOME TAXES-
The expense for corporate income tax of each year is calculated on the basis
of book income before taxes, increased or decreased, as appropriate, by the
permanent differences from taxable income, net of tax relief and tax credits.
G) NET INCOME PER SHARE-
Net income per share has been calculated on the basis of Teleaction, S.A.'s
5,000 shares of capital stock for all periods (see Note 9).
H) RECOGNITION OF REVENUES AND EXPENSES-
Revenues and expenses are recognized on an accrual basis, i.e. when the
actual flow of the related goods and services occurs, regardless of when the
resulting monetary or financial flow arises.
However, in accordance with the accounting principle of prudence, the
Company only records realized income at year-end, whereas foreseeable
contingencies and losses, including possible losses, are recorded as soon as
they become known.
The accompanying financial statements include provisions for the balances
receivable from certain State-owned entities of assured creditworthiness with
unusually long payment periods. The portion of the receivables from an entity of
this kind at a term which will foreseeably exceed one year are deducted
therefrom and treated as deferred interest, since such interest are deemed to be
implicitly included in the consideration for the services rendered. This
implicit interest, calculated considering that the situation as of December 31,
1995, 1994 and 1993, would be maintained, would amount, at these dates, to
approximately Ptas. 20,000,000, Ptas. 14,000,000 and Ptas. 20,000,000,
respectively.
I) TERMINATION INDEMNITIES-
Under current labor regulations, the Company is required to make indemnity
payments to employees terminated under certain conditions. The accompanying
balance sheets do not include any provision in this connection since it is
considered that no terminations will take place in the future which might have a
significant net worth effect.
F-64
<PAGE>
TELEACTION, S.A.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
(5) INTANGIBLE ASSETS
The variations in 1995 and 1994 in intangible asset accounts and in the
related accumulated amortization were as follows:
<TABLE>
<CAPTION>
THOUSANDS OF PESETAS
--------------------------------------------------------------------------------------------------------------
TRANSFERS TO TRANSFERS TO
BALANCE AS TANGIBLE BALANCE AS TANGIBLE
OF 01/01/94 ADDITIONS FIXED ASSETS RETIREMENTS OF 12/31/94 ADDITIONS FIXED ASSETS RETIREMENTS
----------- ----------- ------------- ------------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Computer
applications... 14,116 3,399 -- (1,220) 16,295 4,482 -- --
Leased assets... 85,767 35,842 (38,649) -- 82,960 81,915 (21,036) (555)
----------- ----------- ------------- ------------- ----------- ----------- ------------- -------------
99,883 39,241 (38,649) (1,220) 99,255 86,397 (21,036) (555)
----------- ----------- ------------- ------------- ----------- ----------- ------------- -------------
Accumulated
amortization:
Computer
applications... 6,356 3,856 -- (793) 9,419 4,138 -- --
Leased assets... 18,840 14,822 (15,373) -- 18,289 21,266 (12,392) --
----------- ----------- ------------- ------------- ----------- ----------- ------------- -------------
25,196 18,678 (15,753) (793) 27,708 25,404 (12,392) --
----------- ----------- ------------- ------------- ----------- ----------- ------------- -------------
<CAPTION>
BALANCE
AS OF
12/31/95
---------
<S> <C>
Computer
applications... 20,777
Leased assets... 143,284
---------
164,061
---------
Accumulated
amortization:
Computer
applications... 13,557
Leased assets... 27,163
---------
40,720
---------
</TABLE>
The 1995 and 1994 transfers to tangible fixed assets arose from the exercise
of the purchase option on certain leased assets, which had been classified until
then as intangible assets.
F-65
<PAGE>
TELEACTION, S.A.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
(5) INTANGIBLE ASSETS (CONTINUED)
The Company's leased assets as of December 31, 1995 and 1994, were as
follows:
DECEMBER 31, 1995-
<TABLE>
<CAPTION>
THOUSANDS OF PESETAS
-----------------------------------------------------------
ORIGINAL LEASE PAYMENTS PAID
COST ----------------------
INCLUDING IN THE LEASE VALUE OF
PERIOD PURCHASE CURRENT IN PRIOR PAYMENTS PURCHASE
DESCRIPTION CONTRACT TERM ELAPSED OPTION YEAR YEARS OUTSTANDING OPTION
- ------------------- ------------- ------------- --------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Computer hardware.. 36 months 31 months 3,322 1,331 2,108 555 111
Furniture.......... 36 months 30 months 8,825 3,479 5,218 1,739 290
Computer hardware.. 36 months 29 months 2,264 888 1,258 518 74
Computer hardware.. 36 months 27 months 2,135 826 964 617 69
Vehicles........... 36 months 27 months 5,305 1,496 1,870 2,125 125
Computer hardware.. 36 months 25 months 2,023 780 845 715 65
Computer hardware.. 36 months 24 months 2,164 825 825 825 69
Computer hardware.. 36 months 21 months 4,086 1,552 1,154 1,941 129
Vehicles........... 36 months 21 months 2,140 694 453 1,159 50
Computer hardware.. 36 months 21 months 3,540 1,345 1,009 1,681 112
Furniture.......... 24 months 21 months 8,669 4,567 3,939 1,142 380
Vehicles........... 48 months 21 months 4,992 1,248 832 3,646 90
Vehicles........... 36 months 20 months 3,458 1,325 672 1,757 96
Vehicles........... 36 months 19 months 3,278 1,093 637 1,829 79
Computer hardware.. 24 months 13 months 5,168 2,584 248 2,701 215
Technical
installations...... 36 months 12 months 6,486 2,548 -- 4,884 212
Computer hardware.. 60 months 11 months 9,969 2,415 -- 10,758 219
Technical
installations...... 36 months 8 months 6,979 1,868 -- 6,537 233
Technical
installations...... 36 months 8 months 4,016 1,075 -- 3,762 134
Computer hardware.. 36 months 7 months 3,412 773 -- 3,203 110
Furniture.......... 36 months 7 months 1,241 291 -- 1,204 41
Computer hardware.. 36 months 4 months 18,433 2,335 -- 18,681 584
Computer hardware.. 36 months 3 months 3,275 312 -- 3,533 104
Computer hardware.. 36 months 3 months 14,056 1,308 -- 14,385 436
Computer hardware.. 36 months 2 months 14,048 892 -- 15,161 446
--------- ----------- -----------
143,284 105,058 4,473
--------- ----------- -----------
</TABLE>
Of the total purchase option values and lease payments outstanding, Ptas.
60,263,000 mature at long term and Ptas. 49,268,000 at short term and are
recorded under the "Long-Term Debt -- Payable to Credit Entities" and "Current
Liabilities -- Payable to Credit Entities" captions, respectively, in the
accompanying balance sheet as of December 31, 1995 (see Note 10).
F-66
<PAGE>
TELEACTION, S.A.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
(5) INTANGIBLE ASSETS (CONTINUED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
THOUSANDS OF PESETAS
---------------------------------------------------------------
LEASE PAYMENTS PAID
ORIGINAL
COST ----------------------
INCLUDING IN THE IN VALUE OF
CONTRACT PERIOD PURCHASE CURRENT PRIOR LESS PAYMENTS PURCHASE
DESCRIPTION TERM ELAPSED OPTION YEAR YEARS OUTSTANDING OPTION
- ----------------------------------- ---------- ---------- ----------- ----------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Vehicles........................... 36 months 31 months 8,431 3,335 5,281 1,390 278
Computer hardware.................. 36 months 26 months 13,161 6,252 7,122 5,211 521
Computer hardware.................. 36 months 19 months 3,321 1,331 777 1,886 111
Furniture.......................... 36 months 18 months 8,825 3,479 1,739 5,218 290
Computer hardware.................. 36 months 17 months 2,264 888 370 1,406 74
Computer hardware.................. 36 months 15 months 2,135 826 138 1,446 69
Vehicles........................... 36 months 15 months 5,305 1,496 374 2,618 125
Computer hardware.................. 36 months 13 months 2,023 780 65 1,496 65
Computer hardware.................. 36 months 12 months 2,164 825 -- 1,650 69
Computer hardware.................. 36 months 9 months 4,086 1,154 -- 3,492 129
Vehicles........................... 36 months 9 months 2,140 453 -- 1,358 50
Computer hardware.................. 36 months 9 months 3,540 1,009 -- 3,026 112
Furniture.......................... 24 months 9 months 8,669 3,939 -- 6,565 438
Vehicles........................... 36 months 8 months 4,992 832 -- 2,912 104
Vehicles........................... 36 months 7 months 3,458 672 -- 2,785 96
Vehicles........................... 36 months 7 months 3,278 637 -- 2,639 91
Computer hardware.................. 18 months 1 month 5,168 248 -- 5,695 248
----------- ------------- -----
82,960 50,793 2,870
----------- ------------- -----
----------- ------------- -----
</TABLE>
Of the total purchase option values and lease payments outstanding, Ptas.
22,489,000 mature at long term and Ptas. 31,174,000 at short term and are
recorded under the "Long-Term Debt -- Payable to Credit Entities" and "Current
Liabilities -- Payable to Credit Entities" captions, respectively, in the
accompanying balance sheet as of December 31, 1994 (see Note 10).
F-67
<PAGE>
TELEACTION, S.A.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
(6) TANGIBLE FIXED ASSETS
The variations in 1995 and 1994 in tangible fixed asset accounts and in the
related accumulated depreciation were as follows:
<TABLE>
<CAPTION>
THOUSANDS OF PESETAS
---------------------------------------------------------------------------------------
TRANSFERS TRANSFERS
BALANCE FROM BALANCE FROM
AS OF INTANGIBLE AS OF INTANGIBLE
01/01/94 ADDITIONS ASSETS RETIREMENTS 12/31/94 ADDITIONS ASSETS
----------- ----------- ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
COST:
Technical installations and
machinery...................... 38,353 26,116 -- -- 64,469 12,458 --
Other installations, tools and
furniture...................... 45,832 10,292 -- (925) 55,199 11,106 --
Other tangible fixed assets..... 45,793 15,941 38,649 (12,795) 87,588 14,088 21,036
----------- ----------- ----------- ----------- --------- ----------- -----------
129,978 52,349 38,649 (13,720) 207,256 37,652 21,036
----------- ----------- ----------- ----------- --------- ----------- -----------
ACCUMULATED DEPRECIATION:
Technical installations and
machinery...................... 6,048 6,522 -- -- 12,570 7,755 --
Other installations, tools and
furniture...................... 11,499 5,145 -- (339) 16,305 6,043 --
Other tangible fixed assets..... 12,048 18,614 15,373 (7,387) 38,648 22,829 12,392
----------- ----------- ----------- ----------- --------- ----------- -----------
29,595 30,281 15,373 (7,726) 67,523 36,627 12,392
----------- ----------- ----------- ----------- --------- ----------- -----------
----------- ----------- ----------- ----------- --------- ----------- -----------
<CAPTION>
BALANCE
AS OF
RETIREMENTS 12/31/93
------------- ---------
<S> <C> <C>
COST:
Technical installations and
machinery...................... (1,525) 75,402
Other installations, tools and
furniture...................... -- 66,305
Other tangible fixed assets..... -- 122,712
------ ---------
(1,525) 264,419
------ ---------
ACCUMULATED DEPRECIATION:
Technical installations and
machinery...................... -- 20,325
Other installations, tools and
furniture...................... -- 22,348
Other tangible fixed assets..... -- 73,869
------ ---------
-- 116,542
------ ---------
------ ---------
</TABLE>
(7) FINANCIAL INVESTMENTS AND PAYMENTS OUTSTANDING
The variations in 1995 and 1994 in financial investments and payments
outstanding accounts were as follows (see Note 4-d):
<TABLE>
<CAPTION>
THOUSANDS OF PESETAS
--------------------------------------------------------------
SHAREHOLDINGS PAYMENTS OUTSTANDING DEPOSITS AND
---------------------- ------------------------ GUARANTEES
COST PROVISIONS LONG TERM SHORT TERM PROVIDED
--------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance as of December 31, 1993..................... 58,141 (19,712) 11,920 -- 10,451
Additions or provisions............................. -- (8,440) -- -- 1,733
Transfers........................................... -- -- -- -- --
Retirements......................................... -- 6,010 -- -- (841)
--------- ----------- ----------- ----- ------------
Balance as of December 31, 1994..................... 58,141 (22,142) 11,920 -- 11,343
Additions or provisions............................. 4,265 -- -- 2,500 5,601
Transfers........................................... -- -- (7,499) 7,499 --
Retirements......................................... -- -- -- -- (624)
--------- ----------- ----------- ----- ------------
Balance as of December 31, 1995..................... 62,406 (22,142) 4,421 9,999 16,320
--------- ----------- ----------- ----- ------------
--------- ----------- ----------- ----- ------------
</TABLE>
F-68
<PAGE>
TELEACTION, S.A.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
(7) FINANCIAL INVESTMENTS AND PAYMENTS OUTSTANDING (CONTINUED)
The data on group companies as of December 31, 1995, obtained from their
respective unaudited financial statements, is as follows:
<TABLE>
<CAPTION>
HOLDING
THOUSANDS OF PESETAS
---------------------------------------
--------------------------------------------------------------------------------
UNCALLED
LINE OF % OF PAYMENTS CAPITAL
BUSINESS ADDRESS BOOK VALUE PROVISION OWNERSHIP OUTSTANDING STOCK RESERVES
------------- ------------ ----------- ----------- ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Action Data Base, Computer c/ Narciso 19,264 -- 99.99 (9,999) 20,000 471
S.A. consulting Serra, 14
Madrid
Action Servicos Teleservicing Rua Augusto 22,142(1) (22,142)(3) 99.99 (4,421) 22,142(2) --
de Publicidade, dos Santos,
S.A. 2 Lisbon
(Portugal)
Telepromotion, Teleservicing c/ Simon 21,000 -- 70.00 -- 13,350 19,124
S.A. Bolivar, 27
Bilbao
----------- -----------
62,406 (22,142)
----------- -----------
----------- -----------
<CAPTION>
PRIOR YEARS' 1995 INCOME
INCOME (LOSS) (LOSS)
------------- ------------
<S> <C> <C>
Action Data Base, 3,545 (4,436)
S.A.
Action Servicos (32,569)(2) (15,690)(2)
de Publicidade,
S.A.
Telepromotion, (1,883) 32,171
S.A.
</TABLE>
- ------------------------
(1) Shares denominated in Portuguese escudos. Value in thousands of pesetas
translated at the exchange rate ruling at the transaction date.
(2) Data per the unaudited balance sheet as of December 31, 1995, using the
monetary-nonmonetary translation method.
(3) The "Provisions for Contingencies and Expenses" caption on the liability
side of the accompanying balance sheet as of December 31, 1995, includes an
additional provision for Ptas. 60,215,000. An amount of Ptas. 26,117,000 of
this provision relates to the losses incurred by this company which exceed
the cost of the investment.
(8) RECEIVABLES FROM GROUP COMPANIES
The detail of the balances with group companies as of December 31, 1995 and
1994, is as follows:
<TABLE>
<CAPTION>
THOUSANDS OF PESETAS
--------------------
12/31/95 12/31/94
--------- ---------
<S> <C> <C>
Action Servcios de Publicidade, S.A...................................... 34,098 20,709
Telepromotion, S.A....................................................... 5,235 --
--------- ---------
39,333 20,709
--------- ---------
--------- ---------
</TABLE>
F-69
<PAGE>
TELEACTION, S.A.
NOTES TO FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 1995
(9) SHAREHOLDERS' EQUITY
The variations in 1995 and 1994 in equity accounts were as follows:
<TABLE>
<CAPTION>
THOUSANDS OF PESETAS
------------------------------------------------------------
SUSCRIBED INCOME
CAPITAL LEGAL VOLUNTARY FOR THE SHAREHOLDERS'
STOCK RESERVE RESERVES YEAR EQUITY
----------- --------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance as of December 31, 1993...................... 50,000 10,000 382,941 292,286 735,227
Distribution of 1993 income --
Voluntary reserves................................. -- -- 209,714 (209,714) --
Dividends.......................................... -- -- -- (82,572) (82,572)
1994 income.......................................... -- -- -- 269,892 269,892
----------- --------- --------- ---------- -------------
Balance as of December 31, 1994...................... 50,000 10,000 592,655 269,892 922,547
Distribution of 1994 income --
Voluntary reserves................................. -- -- 187,321 (187,321) --
Dividends.......................................... -- -- -- (82,571) (82,571)
1995 income.......................................... -- -- -- 379,564 379,564
----------- --------- --------- ---------- -------------
Balance as of December 31, 1995...................... 50,000 10,000 779,976 379,564 1,219,540
----------- --------- --------- ---------- -------------
----------- --------- --------- ---------- -------------
</TABLE>
The above mentioned variations in equity accounts relating to the voluntary
reserves and income for the year have been prepared including the effects of the
adjustments made on the previous Spanish financial statements described in Note
2.
CAPITAL STOCK --
The Company's capital stock consists of 5,000 fully subscribed and paid
registered shares of Ptas. 10,000 par value each.
The Company's stockholders with an ownership interest exceeding 10% as of
December 31, 1994 and 1995, were as follows:
<TABLE>
<CAPTION>
PERCENTAGE
OF OWNERSHIP
-----------------
<S> <C>
Triana 24, S.A.................................... 61%
Pallas Union Investment Company, B.V.............. 35%
</TABLE>
LEGAL RESERVE --
Under the revised Corporations Law, 10% of income for each year must be
transferred to the legal reserve until the balance of this reserve reaches at
least 20% of capital stock.
The legal reserve can be used to increase capital provided that the
remaining reserve balance does not fall below 10% of the increased capital stock
amount.
Except as mentioned above, until the legal reserve exceeds 20% of capital
stock, it can only be used to offset losses, provided that sufficient other
reserves are not available for this purpose.
F-70
<PAGE>
TELEACTION, S.A.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
(10) PAYABLE TO CREDIT ENTITIES
The breakdown of the balances of this caption in the accompanying balance
sheets as of December 31, 1995 and 1994, is as follows:
<TABLE>
<CAPTION>
THOUSANDS OF PESETAS
------------------------------------------
LONG-TERM SHORT-TERM
-------------------- --------------------
12-31-95 12-31-94 12-31-95 12-31-94
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Bank loans.................................................... -- 3,938 -- --
Balance drawn down against credit lines....................... -- -- 15,000 148
Lease payments outstanding (see Note 5)....................... 60,263 22,489 49,268 31,174
--------- --------- --------- ---------
60,263 26,427 64,268 31,322
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The limits, amounts drawn down and maturity dates of the credit lines
granted to the Company as of December 31, 1995 and 1994, are as follows:
DECEMBER 31, 1995 --
<TABLE>
<CAPTION>
THOUSANDS OF PESETAS
-----------------------
INTEREST AMOUNT
BANK MATURITY RATE LIMIT DRAWN DOWN
- ------------------------------------- ----------------------- --------------- --------- ------------
<S> <C> <C> <C> <C>
Bankinter, S.A....................... May 10, 1996 10.11% 30,000 15,000
--------- ------------
30,000 15,000
--------- ------------
--------- ------------
</TABLE>
DECEMBER 31, 1994 --
<TABLE>
<CAPTION>
THOUSANDS OF PESETAS
--------------------------
INTEREST AMOUNT
BANK MATURITY RATE LIMIT DRAWN DOWN
- ------------------------------------ ----------------------- --------------- --------- ---------------
<S> <C> <C> <C> <C>
Bankinter, S.A...................... March 25, 1995 MIBOR+1% 27,000 54
Barclays Bank, S.A.................. December 10, 1995 MIBOR+1% 75,000 94
Banco Pastor, S.A................... June 3, 1995 MIBOR+2% 30,000 --
--------- ---
132,000 148
--------- ---
--------- ---
</TABLE>
(11) TAX MATTERS
Corporate income tax is calculated on the basis of income per books, which
does not necessarily coincide with taxable income.
F-71
<PAGE>
TELEACTION, S.A.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
(11) TAX MATTERS (CONTINUED)
The reconciliation of the income for 1995, 1994 and 1993 per books to the
taxable income for corporate income tax purposes is as follows:
<TABLE>
<CAPTION>
THOUSANDS OF PESETAS
----------------------------------------------------------------
1995 1994 1993
-------------------- -------------------- --------------------
TAXABLE TAX TAXABLE TAX TAXABLE TAX
INCOME CHARGE INCOME CHARGE INCOME CHARGE
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income per books before taxes......................... 580,898 203,315 435,253 152,338 459,241 160,735
Permanent differences:
- -- Arising in the year................................ 7,838 2,743 45,000 15,750 -- --
- -- Adjustments........................................ -- -- -- -- 25,000 8,750
Tax deductions and credits............................ -- (4,724) (7,791) (2,727) (7,229) (2,530)
--------- --------- --------- --------- --------- ---------
Corporate income tax expense.......................... 201,334 165,361 166,955
Timing differences:
- -- Arising in prior years............................. 28,081 9,828 7,309 2,558 -- --
- -- Arising in the year:
-- Lease payments................................... (44,743) (15,660) (9,763) (3,417) (13,921) (4,872)
-- Period provisions................................ 26,117 9,141 -- -- -- --
-- Adjustments...................................... 37,098 12,984 4,000 1,400 20,000 7,000
--------- --------- --------- --------- --------- ---------
Net tax charge........................................ 217,627 165,902 169,083
Withholdings and prepayments.......................... (65,257) (63,774) (42,361)
--------- --------- ---------
Net tax payable....................................... 152,370 102,128 126,722
--------- --------- ---------
--------- --------- ---------
</TABLE>
The timing differences arising in prior years relate to the difference in
the recognition of lease payments for accounting and tax purposes (see Note 5).
The timing differences arising in the year relate to the aforementioned matter
and to the recording of provisions which are not deductible for tax purposes in
the current year (see Note 7). The permanent and timing differences mentioned as
adjustments related to the adjustments made on the previous Spanish financial
statements described in Note 2 before.
The Company has the last five years open for review for all the taxes
applicable to it. No significant additional liabilities are expected to arise in
the event of a tax audit by the tax inspection authorities.
F-72
<PAGE>
TELEACTION, S.A.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
(11) TAX MATTERS (CONTINUED)
The detail of the "Tax Receivables" and "Accrued Taxes Payable" captions as
of December 31, 1995 and 1994, is as follows:
<TABLE>
<CAPTION>
THOUSANDS OF PESETAS
--------------------
12/31/95 12/31/94
--------- ---------
<S> <C> <C>
BALANCES RECEIVABLE --
Prepaid corporate income tax..................................................... 30,525 8,400
--------- ---------
30,525 8,400
--------- ---------
BALANCES PAYABLE --
Valued Added Tax................................................................. 43,400 56,722
Canary Islands general indirect tax.............................................. 2,587 --
Personal income tax.............................................................. 18,523 8,174
Social security taxes............................................................ 59,267 34,897
Corporate income tax............................................................. 152,370 102,128
Deferred corporate income tax.................................................... 16,326 10,494
--------- ---------
292,473 212,415
--------- ---------
--------- ---------
</TABLE>
The detail of deferred taxes as of December 31, 1994 and 1995, and of the
variation in these captions for the periods then ended, are as follows:
<TABLE>
<CAPTION>
THOUSANDS OF PESETAS
----------------------
ASSETS LIABILITIES
--------- -----------
<S> <C> <C>
Balance as of December 31, 1993................................................... 7,000 9,635
Decrease during the period........................................................ (3,500) (2,558)
Increase during the period........................................................ 4,900 3,417
--------- -----------
Balance as of December 31, 1994................................................... 8,400 10,494
Decrease during the period........................................................ (5,950) --
Increase during the period........................................................ 28,075 5,832
--------- -----------
BALANCE AS OF DECEMBER 31, 1995................................................... 30,525 16,326
--------- -----------
--------- -----------
</TABLE>
The deferred tax assets and liabilities arose from:
<TABLE>
<CAPTION>
THOUSANDS OF PESETAS
--------------------
1994 1995
--------- ---------
<S> <C> <C>
ASSETS:
Provision for contingencies and expenses (Note 2 and 4-e).......................... -- 21,075
Account receivables discounted (Note 2)............................................ 8,400 9,450
--------- ---------
8,400 30,525
LIABILITIES:
Tax basis for lease operations..................................................... 10,494 16,326
</TABLE>
F-73
<PAGE>
TELEACTION, S.A.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
(12) REVENUES AND EXPENSES
(A) NET SALES --
The breakdown of the Company's net ordinary sales for the years ended at
December 31, 1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
THOUSANDS OF PESETAS
-------------------------------------
BY GEOGRAPHICAL MARKET 1995 1994 1993
- --------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Madrid......................................................... 2,319,999 1,966,986 1,623,930
Barcelona...................................................... 522,503 349,578 227,069
Bilbao......................................................... 128,853 121,057 162,082
Sevilla........................................................ 357,543 148,844 130,161
Valencia....................................................... 208,166 144,455 145,885
La Corua....................................................... 147,012 257,626 140,414
Oviedo......................................................... 40,535 12,050 584
Implicit interest adjustment (see Note 2)...................... (20,000) (14,000) (20,000)
----------- ----------- -----------
3,704,611 2,986,596 2,410,125
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
THOUSANDS OF PESETAS
-------------------------------------
BY ACTIVITY 1995 1994 1993
- --------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Teleservicing.................................................. 3,226,118 2,575,066 2,142,182
Task force..................................................... 388,333 425,530 287,943
Presence attendance............................................ 110,160 -- --
Implicit interest adjustment (see Note 2)...................... (20,000) (14,000) (20,000)
----------- ----------- -----------
3,704,611 2,986,596 2,410,125
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
B) TRANSACTIONS WITH GROUP COMPANIES --
The transactions with group companies in 1995, 1994 and 1993 were as
follows:
<TABLE>
<CAPTION>
THOUSANDS OF PESETAS
----------------------------------------------------------------------------
1995 1994 1993
------------------------ ------------------------ ------------------------
SERVICES SERVICES SERVICES SERVICES SERVICES SERVICES
RECEIVED PROVIDED RECEIVED PROVIDED RECEIVED PROVIDED
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Action Data Base, S.A.................... -- 1,283 -- 1,856 3,421 1,213
Telepromotion, S.A....................... 74,914 60,263 74,195 61,528 86,650 74,394
----------- ----------- ----------- ----------- ----------- -----------
74,914 61,546 74,195 63,384 90,071 75,607
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
C) PERSONNEL EXPENSES --
The breakdown of the balance of the "Personnel Expenses" caption in the
accompanying statements of income for 1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
THOUSANDS OF PESETAS
-------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Wages and salaries............................................. 1,369,466 1,127,539 779,709
Social security charges........................................ 433,567 365,189 241,805
Other expenses................................................. 102,080 115,085 90,162
Indemnity payments............................................. 11,839 5,397 7,528
----------- ----------- -----------
1,916,952 1,613,210 1,119,204
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-74
<PAGE>
TELEACTION, S.A.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
(12) REVENUES AND EXPENSES (CONTINUED)
The average number of permanent employees in 1995, 1994 and 1993, by
department, was as follows:
<TABLE>
<CAPTION>
AVERAGE NUMBER OF EMPLOYEES
-------------------------------
DEPARTMENT 1995 1994 1993
- ----------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Administration..................................................................... 16 17 17
Personnel.......................................................................... 8 6 5
Training........................................................................... 8 9 9
Information systems................................................................ 6 6 6
Technical.......................................................................... 46 44 44
Sales.............................................................................. 28 26 25
--- --- ---
112 108 106
--- --- ---
--- --- ---
</TABLE>
Additionally, the Company hires a large number of employees for specific
campaigns. The average number of temporary employees hired in 1995, 1994 and
1993 was 1,206, 956 and 745, respectively.
D) EXTRAORDINARY REVENUES --
The breakdown of the balance of the "Extraordinary Revenues" caption in the
accompanying statements for 1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
THOUSANDS OF PESETAS
---------------------------------
1995 1994 1993
--------- --------- -----
<S> <C> <C> <C>
Prior years' revenues......................................................... 7,208 6,118 --
Extraordinary revenues........................................................ 3,542 3,786 87
--
--------- ---------
10,750 9,904 87
--
--
--------- ---------
--------- ---------
</TABLE>
E) EXTRAORDINARY EXPENSES --
The breakdown of the balance of the "Extraordinary Expenses" caption in the
accompanying statements of income for 1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
THOUSANDS OF PESETAS
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Prior years' expenses.................................................... 10,680 1,143 --
Extraordinary expenses................................................... -- -- 843
Provision for contingencies and expenses................................. 40,098 45,000 25,000
--------- --------- ---------
50,778 46,143 25,843
--------- --------- ---------
--------- --------- ---------
</TABLE>
(13) GUARANTEES AND CONTINGENT LIABILITIES
As of December 31, 1995, the Company had provided guarantees amounting to
Ptas. 56,456,000 to State agencies to which it provides its services, as
security for the proper supply of the services. Also, at that date the Company
had provided additional guarantees amounting to Ptas. 14,852,000 to cover
possible risks arising from a labor claim.
Additionally, the Company has provided guarantees of up to Ptas. 8,779,000
to banks for the subsidiary Action-Meydis ACE for the amounts payable on leased
assets.
The Company's directors consider that no material liabilities will arise
from these guarantees.
F-75
<PAGE>
TELEACTION, S.A.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
(14) DIRECTORS' REMUNERATION AND OTHER BENEFITS
The Board members earned salaries amounting to Ptas. 9,645,984 in 1995,
Ptas. 9,055,221 in 1994 and Ptas. 8,646,060 in 1993. The Company has granted no
advances or loans to its directors and has no pension or life insurance
commitments to them.
Additionally, Triana 24, S.A., the main shareholder invoiced Ptas.
17,375,000, Ptas. 16,342,000 and Ptas. 16,875,000 in 1995, 1994 and 1993,
respectively for the services rendered to the Company by two of its employees
who are also in the Board of Directors.
(15) SUBSEQUENT EVENTS
On June 12, 1996, the Annual Stockholders' Meeting resolved to distribute
Ptas. 1,199,000,000 out of voluntary reserves as of December 31, 1995.
Subsequently, on the same day, Sitel Hispanica, S.A. acquired 69.20% of the
shares of the Company from some of its former stockholders and agreed to a
commitment to buy the rest of the shares of the Company, 30.80%, within 15 days
following the second anniversary of the closing date of the first acquisition.
Since that date, the Company's stockholders with ownership interests
exceeding 10% have been as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
OWNERSHIP
-------------
<S> <C>
Sitel Hispanica, S.A............................................................ 69.20%
Triana 24, S.A.................................................................. 20.80%
Pallas Union Investment Company, B.V............................................ 10.00%
</TABLE>
Additionally, on the same date, June 12, 1996, Sitel Hispanica, S.A. lent
Ptas. 1,199,000,000 to Teleaction, S.A. This loan bears interest at MIBOR
(Madrid Interbank Offer Rate), payable quarterly and has a single due date, June
12, 1999. Nevertheless, the borrower can repay it, either total or partially, at
any time before that date.
The change in the stockholder structure did not give rise to any significant
change in the Company's operations.
(16) DIFFERENCES BETWEEN SPANISH AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
The accompanying financial statements of Teleaction, S.A. were prepared in
accordance with generally accepted accounting principles in Spain ("Spanish
GAAP"), which differ in some respects from generally accepted accounting
principles in the United States ("U.S. GAAP"). A reconciliation of net income
and shareholders' equity from Spanish GAAP to U.S. GAAP is provided under Item
5. The most significant differences were as follows:
1. START-UP EXPENSES.
Under Spanish GAAP, the company capitalized certain relocation costs as
assets and amortizes them over five years. Under U.S. GAAP, those costs would be
recorded in the statement of income as incurred.
F-76
<PAGE>
TELEACTION, S.A.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
(16) DIFFERENCES BETWEEN SPANISH AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (CONTINUED)
The effect on the financial statements of the above mentioned difference is
as follows:
<TABLE>
<CAPTION>
THOUSANDS OF PESETAS
----------------------------------------------------------
INCREASE (DECREASE)
----------------------------------------------------------
PERIOD INCOME BALANCE AS OF
----------------------------------------- DECEMBER 31
START-UP ---------------
EXPENSES INCOME NET SHAREHOLDERS'
AMORTIZATION TAXES INCOME EQUITY
--------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
1994.................................................... (186) 65 121 (402)
1995.................................................... (185) 65 120 (282)
</TABLE>
2. PRIOR YEARS' REVENUES (EXPENSES).
Under Spanish GAAP, the company records certain revenues (expenses), that
originated in prior years, as extraordinary revenues (expenses) in the statement
of income. Under U.S. GAAP, those revenues (expenses) would be recorded as
incurred, adjusting prior years' statements of income.
The effect on the financial statements of the above mentioned incurred
criteria is as follows:
<TABLE>
<CAPTION>
THOUSANDS OF PESETAS
-----------------------------------------------------------
INCREASE (DECREASE)
-----------------------------------------------------------
PRIOR YEARS REVENUES/ PERIOD INCOME BALANCE AS OF
EXPENSES -------------------- DECEMBER 31
---------------------- NET -------------
RECORDED IN RECORDED INCOME INCOME SHAREHOLDERS'
1994 IN 1995 TAXES (LOSS) EQUITY
----------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
1994:
Revenues................................................. (6,118) 7,208 382 708 4,685
Expenses................................................. (1,143) 10,680 (3,338) (6,199) (6,942)
----------- --------- --------- --------- ------
Net Income (Loss)........................................ (4,975) (3,472) (2,956) (5,491) (2,257)
----------- --------- --------- --------- ------
----------- --------- --------- --------- ------
1995:
Revenues................................................. -- (7,208) (2,523) (4,685) --
Expenses................................................. -- (10,680) 3,738 6,942 --
----------- --------- --------- --------- ------
Net Income (Loss)........................................ -- 3,472 1,215 2,257 --
----------- --------- --------- --------- ------
----------- --------- --------- --------- ------
</TABLE>
3. INCOME TAXES.
For U.S. financial reporting purposes, the Company has decided to adopt,
with effect from January 1, 1994, the tax accounting requirements contained in
SFAS No. 109.
The accounting rules that are applicable under Spanish GAAP to the recording
of income taxes differ from those under U.S. GAAP with respect to when deferred
tax assets and liabilities are recognized and to the disclosures required.
However, there were no significant differences between the Company's
accounting policy for deferred tax accounting and U.S. GAAP (SFAS No. 109) for
the periods covered by these financial statements, so assets and liabilities
recorded for deferred taxes are the same under Spanish and U.S. GAAP, except for
the tax effect of the adjustment described in the captions 1 to 3 above.
F-77
<PAGE>
(16) DIFFERENCES BETWEEN SPANISH AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (CONTINUED)
4. SUMMARY OF ADJUSTMENTS.
Following is a summary of the adjustments to net income and shareholders'
equity that would have been required had U.S. GAAP been applied instead of
Spanish GAAP.
<TABLE>
<CAPTION>
AMOUNT IN THOUSANDS
--------------------------------------------------------------------
NET INCOME
--------------------------------- SHAREHOLDERS' EQUITY
---------------------------------
PESETAS
-------------------- PESETAS
----------------------
FOR THE YEAR ENDED
DECEMBER 31 U.S. AT DECEMBER 31 U.S.
-------------------- DOLLARS ---------------------- DOLLARS
1994 1995 1995 1994 1995 1995
--------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Amounts per accompanying financial
statements.................................. 269,892 379,564 3,127 922,547 1,219,540 10,045
Increase (Decrease) due to
Start-up expenses.......................... 121 120 1 (402) (282) (2)
Prior years' revenues and expenses......... (5,491) 2,257 19 (2,257) -- --
Approximate amounts under U.S. GAAP.......... 264,522 381,941 3,164 919,888 1,219,258 10,043
Net income per share in accordance with U.S.
GAAP........................................ 53 76 0.6
</TABLE>
Additionally, the reconciliation of shareholders' equity under U.S. GAAP as
of December 31, 1994 to shareholders' equity under U.S. GAAP as of December 31,
1995, is as follows:
<TABLE>
<CAPTION>
THOUSANDS
OF PESETAS
-----------
<S> <C>
Shareholders' equity under U.S. GAAP as of December 31, 1994............................... 919,888
Net income for the year.................................................................... 381,941
Dividends.................................................................................. (82,571)
Shareholders' equity under U.S. GAAP as of December 31, 1995............................... 1,219,258
</TABLE>
F-78
<PAGE>
TELEACTION, S.A.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
The following financial statements at March 31, 1996 and for the three
months then ended are unaudited and reflect all normal and recurring adjustments
which are, in the opinion of management, necessary for a fair presentation of
the financial position, operating results, and cash flows for the interim
periods.
The results of operations for the three months ended March 31, 1996 are not
necessarily indicative of full year results.
TELEACTION, S.A.
UNAUDITED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND MARCH 31, 1995
<TABLE>
<CAPTION>
THOUSANDS OF PESETAS
------------------------------
MARCH 31, 1996 MARCH 31, 1995
-------------- --------------
<S> <C> <C>
STATEMENTS OF INCOME
REVENUES:
Net Sales........................................................................ 1,012,054 917,521
EXPENSES:
Purchases........................................................................ 88,091 134,504
Personnel expenses............................................................... 586,141 420,281
Depreciation and amortization.................................................... 20,118 14,088
Variation in operating provisions -- 23,174
Other operating expenses 170,788 135,510
-------------- --------------
865,138 727,557
-------------- --------------
Operating income................................................................. 146,916 189,964
INTEREST REVENUES:
Other interest and similar revenues.............................................. 1,906 1,541
INTEREST EXPENSES:
Other financial and similar expenses............................................. 4,378 3,680
-------------- --------------
Financial income (loss).......................................................... (2,472) (2,139)
EXTRAORDINARY REVENUES:
Extraordinary revenues........................................................... -- 6
EXTRAORDINARY EXPENSES:
Extraordinary expenses........................................................... (2,851) --
Income before taxes.............................................................. 141,593 187,831
Income Taxes..................................................................... (49,558) (67,491)
-------------- --------------
Net income for the period........................................................ 92,035 120,340
-------------- --------------
-------------- --------------
</TABLE>
F-79
<PAGE>
TELEACTION, S.A.
UNAUDITED BALANCE SHEET
AS OF MARCH 31, 1996
ASSETS
<TABLE>
<CAPTION>
THOUSANDS OF
PESETAS
-------------------
MARCH 31, 1996
-------------------
<S> <C>
FIXED AND OTHER NON-CURRENT ASSETS
INTANGIBLE ASSETS............................................................................ 134,017
Cost....................................................................................... 183,303
Accumulated depreciation................................................................... (49,286)
TANGIBLE FIXED ASSETS........................................................................ 157,731
Cost....................................................................................... 285,778
Accumulated depreciation................................................................... (128,047)
LONG TERM FINANCIAL INVESTMENTS.............................................................. 21,857
Holding in group companies................................................................. 52,407
Long term deposits and guarantees.......................................................... 17,709
Provisions................................................................................. (48,259)
DEFERRED EXPENSES............................................................................ 35,824
----------
TOTAL FIXED AND OTHER NON-CURRENT ASSETS..................................................... 349,429
----------
CURRENT ASSETS
ACCOUNTS RECEIVABLE.......................................................................... 1,485,084
Customer receivables....................................................................... 1,422,641
Sundry accounts receivable................................................................. 96,172
Less: Allowance for bad debts.............................................................. (33,729)
RECEIVABLE FROM GROUP COMPANIES.............................................................. 5,281
NON-TRADE RECEIVABLES........................................................................ 29,118
Other receivables.......................................................................... 19,771
Tax receivables............................................................................ 9,347
TEMPORARY CASH INVESTMENTS................................................................... 59,954
CASH......................................................................................... 73,210
PREPAID EXPENSES............................................................................. 7,120
----------
TOTAL CURRENT ASSETS......................................................................... 1,659,767
----------
TOTAL ASSETS............................................................................... 2,009,196
----------
----------
SHAREHOLDERS' EQUITY AND LIABILITIES
SHAREHOLDERS' EQUITY
SUBSCRIBED CAPITAL STOCK..................................................................... 50,000
RESERVES..................................................................................... 1,169,287
Legal reserve.............................................................................. 10,000
Voluntary reserve.......................................................................... 1,159,287
INCOME FOR THE YEAR.......................................................................... 92,035
----------
TOTAL SHAREHOLDERS' EQUITY................................................................... 1,311,322
----------
PROVISIONS FOR CONTINGENCIES AND EXPENSES.................................................... 91,000
----------
LONG TERM DEBT
PAYABLE TO CREDIT ENTITIES................................................................... 75,102
PAYABLE TO GROUP COMPANIES................................................................... 4,421
TOTAL LONG TERM DEBT......................................................................... 79,523
CURRENT LIABILITIES
PAYABLE TO CREDIT ENTITIES................................................................... 40,956
TRADE ACCOUNTS PAYABLE....................................................................... 142,891
PAYABLE TO GROUP COMPANIES................................................................... 0
OTHER NON-TRADE PAYABLES..................................................................... 343,504
Accrued taxes payable...................................................................... 319,122
Compensation payable....................................................................... 23,852
Other payables............................................................................. 0
Accrued expenses........................................................................... 530
----------
TOTAL CURRENT LIABILITIES.................................................................... 527,351
----------
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES................................................... 2,009,196
----------
----------
</TABLE>
F-80
<PAGE>
TELEACTION, S.A.
UNAUDITED STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED MARCH 31, 1996 AND MARCH 31, 1995
<TABLE>
<CAPTION>
THOUSANDS OF PESETAS
------------------------------
FOR THE THREE MONTHS ENDED
------------------------------
MARCH 31, 1996 MARCH 31, 1995
-------------- --------------
<S> <C> <C>
CASHFLOWS FROM OPERATING ACTIVITIES:
Net income....................................................................... 187,831 141,593
Adjustments to reconcile net income to net cash provided by operating activities:
Period depreciation and amortization........................................... 14,088 20,118
Provision for contingencies.................................................... 0 (11,117)
Variation on provision for financial investment................................ 0 26,117
Losses on disposals............................................................ 0 0
Gains on disposals............................................................. 0 0
-------------- --------------
14,088 35,118
-------------- --------------
Changes in operating assets and liabilities
Accounts receivable ........................................................... (293,488) 3,524
Payable to credit entities..................................................... 4,103 (23,312)
Rest of current liabilities.................................................... 90,049 (67,107)
Prepaid expenses............................................................... 1,612 (4,215)
-------------- --------------
(197,724) (91,110)
-------------- --------------
CASHFLOWS FROM INVESTING ACTIVITIES:
Purchases of tangible fixed assets............................................. (5,245) (21,359)
Purchases of intangible fixed assets........................................... (18,380) (19,242)
Investments in holding of group companies...................................... 0 0
Start up expenses.............................................................. 0 0
Disposal of tangible fixed assets.............................................. 0 0
Long term deposits............................................................. (300) (1,551)
-------------- --------------
Received from long term deposits............................................... 570 162
-------------- --------------
(23,355) (41,990)
CASHFLOWS FROM FINANCING ACTIVITIES:
Dividends paid................................................................. 0 0
Payments relating to lease obligations......................................... 0 0
Loan proceeds.................................................................. 7,010 14,839
-------------- --------------
Repayment of loans............................................................. 0 0
7,010 14,839
-------------- --------------
Net change in cash and cash equivalents.......................................... (12,150) 58,450
Cash and cash equivalents at the beginning of period............................. 110,894 74,714
Cash and cash equivalents at the end of period................................... 98,744 133,164
</TABLE>
F-81
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
National Action Financial Services, Inc.:
We have audited the accompanying balance sheet of NATIONAL ACTION FINANCIAL
SERVICES, INC. (a Georgia corporation) as of December 31, 1995 and the related
statements of operations, stockholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements of National Action
Financial Services, Inc. as of December 31, 1994 were audited by other auditors
whose report dated January 20, 1995 expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of National Action Financial
Services, Inc. as of December 31, 1995 and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
Arthur Andersen, L.L.P.
Atlanta, Georgia
April 1, 1996
(except with respect to the matters
discussed in Notes 11 and 12, as to
which the date is June 28, 1996)
F-82
<PAGE>
NATIONAL ACTION FINANCIAL SERVICES, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY AT
DECEMBER 31,
1995 1994 1995
----------- ------------ ------------ MARCH 31, 1996 PRO FORMA
-------------- STOCKHOLDERS'
EQUITY AT
(UNAUDITED) MARCH 31,
1996
------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents...................... $ 566,000 $ 783,000 $ 1,000
Short-term investments......................... -- 50,000 --
Collection trust cash.......................... 68,000 -- 905,000
Accounts receivable............................ 1,222,000 188,000 1,810,000
Prepaid expenses and other current assets...... 82,000 14,000 105,000
----------- ------------ --------------
Total current assets....................... 1,938,000 1,035,000 2,821,000
PROPERTY AND EQUIPMENT, net...................... 1,455,000 368,000 1,412,000
OTHER ASSETS, net................................ 148,000 84,000 130,000
----------- ------------ --------------
Total assets............................... $ 3,541,000 $ 1,487,000 $ 4,363,000
----------- ------------ --------------
----------- ------------ --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to related parties............... $ 165,000 $ -- $ 120,000
Current maturities of capital lease
obligations................................... 77,000 47,000 77,000
Current maturities of long-term debt........... 287,000 115,000 353,000
Accounts payable............................... 493,000 123,000 407,000
Accounts payable -- collection trust........... 68,000 -- 96,000
Accrued liabilities............................ 131,000 76,000 417,000
Accrued salaries and wages..................... 202,000 6,000 125,000
Deferred compensation to officers.............. 215,000 -- 276,000
----------- ------------ --------------
Total current liabilities.................. 1,638,000 367,000 1,871,000
DEFERRED INCOME TAXES............................ 29,000 -- 29,000
CAPITAL LEASE OBLIGATIONS, less current
maturities...................................... 323,000 147,000 301,000
LONG-TERM DEBT, less current maturities.......... 443,000 539,000 724,000
----------- ------------ --------------
Total liabilities.......................... 2,433,000 1,053,000 2,925,000
----------- ------------ --------------
COMMITMENTS AND CONTINGENCIES (Notes 3, 9, and
11)
REDEEMABLE PREFERRED STOCK, Series A, $10 par
value; 60,000 shares authorized, 30,000 shares
issued and outstanding at December 31, 1995 and
1994............................................ 285,000 285,000 $ -- 285,000 $ --
----------- ------------ ------------ -------------- ------------
STOCKHOLDERS' EQUITY:
Common stock, no par value; 250,000 shares
authorized, 125,936 shares and 118,940 shares
issued and outstanding at December 31, 1995
and 1994, respectively........................ 385,000 385,000 670,000 385,000 670,000
Treasury stock, at cost; 5,947 shares and 0
shares at December 31, 1995 and 1994,
respectively.................................. (100,000) -- (100,000) (100,000) (100,000)
Retained earnings (deficit).................... 538,000 (236,000) 538,000 868,000 868,000
----------- ------------ ------------ -------------- ------------
Total stockholders' equity................. 823,000 149,000 $1,108,000 $ 1,153,000 $1,438,000
----------- ------------ ------------ -------------- ------------
------------ ------------
Total liabilities and stockholders'
equity.................................... $ 3,541,000 $ 1,487,000 $ 4,363,000
----------- ------------ --------------
----------- ------------ --------------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-83
<PAGE>
NATIONAL ACTION FINANCIAL SERVICES, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
AND FOR THE PERIOD FROM INCEPTION (MARCH 31, 1994)
THROUGH DECEMBER 31, 1994
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
------------------------------
1995 1994 MARCH 31, 1995 MARCH 31, 1996
----------- ----------- -------------- --------------
UNAUDITED
<S> <C> <C> <C> <C>
REVENUES.............................................. $ 8,258,000 $ 593,000 $ 1,142,000 $ 3,595,000
----------- ----------- -------------- --------------
COST OF REVENUES:
Salaries, wages, and benefits....................... 4,924,000 455,000 700,000 2,160,000
Telephone and data processing....................... 801,000 111,000 102,000 325,000
Postage and collection expenses..................... 353,000 38,000 51,000 189,000
Occupancy........................................... 310,000 56,000 35,000 125,000
Selling expenses.................................... 133,000 46,000 22,000 48,000
Other operating expenses............................ 452,000 110,000 58,000 159,000
----------- ----------- -------------- --------------
Total cost of revenues.......................... 6,973,000 816,000 968,000 3,006,000
----------- ----------- -------------- --------------
OPERATING INCOME (LOSS)............................... 1,285,000 (223,000) 174,000 589,000
INTEREST EXPENSE...................................... 81,000 13,000 13,000 30,000
----------- ----------- -------------- --------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES....... 1,204,000 (236,000) 161,000 559,000
PROVISION FOR INCOME TAXES............................ 400,000 -- -- 221,000
----------- ----------- -------------- --------------
NET INCOME (LOSS)..................................... $ 804,000 $ (236,000) 161,000 338,000
----------- ----------- -------------- --------------
----------- ----------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-84
<PAGE>
NATIONAL ACTION FINANCIAL SERVICES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995
AND FOR THE PERIOD FROM INCEPTION (MARCH 31, 1994)
THROUGH DECEMBER 31, 1994
<TABLE>
<CAPTION>
TREASURY STOCK COMMON STOCK RETAINED
------------------------ --------------------- (DEFICIT)
SHARES AMOUNT SHARES AMOUNT EARNINGS TOTAL
----------- ----------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, March 31, 1994................. -- $ -- -- $ -- $ -- $ --
Initial capital contribution.......... -- -- 88,000 300,000 -- 300,000
Issuance of common stock.............. -- -- 30,940 85,000 -- 85,000
Net loss.............................. -- -- -- -- (236,000) (236,000)
----------- ----------- --------- ---------- ----------- ------------
BALANCE, December 31, 1994.............. -- -- 118,940 385,000 (236,000) 149,000
Exercise of warrants.................. -- -- 6,996 -- -- --
Purchase of treasury stock............ 5,947 (100,000) -- -- -- (100,000)
Preferred stock dividends............. -- -- -- -- (30,000) (30,000)
Net income............................ -- -- -- -- 804,000 804,000
----------- ----------- --------- ---------- ----------- ------------
BALANCE, December 31, 1995.............. 5,947 $ (100,000) 125,936 $ 385,000 $ 538,000 $ 823,000
Preferred stock dividends............. -- -- -- -- (8,000) (8,000)
Net income............................ -- -- -- -- 338,000 338,000
----------- ----------- --------- ---------- ----------- ------------
BALANCE, March 31, 1996 (unaudited)..... 5,947 $ (100,000) 125,936 $ 385,000 $ 868,000 $ 1,153,000
----------- ----------- --------- ---------- ----------- ------------
----------- ----------- --------- ---------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-85
<PAGE>
NATIONAL ACTION FINANCIAL SERVICES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
AND FOR THE PERIOD FROM INCEPTION (MARCH 31, 1994)
THROUGH DECEMBER 31, 1994
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
------------------------------
1995 1994 MARCH 31, 1995 MARCH 31, 1996
---------- ---------- -------------- --------------
UNAUDITED
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $ 804,000 $ (236,000) $ 161,000 $ 338,000
---------- ---------- -------------- --------------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................. 224,000 43,000 29,000 126,000
Compensatory stock expense................................ -- 16,000 -- --
Change in deferred income taxes........................... 29,000 -- -- --
Changes in current assets and liabilities, net of effects
from business acquired:
Accounts receivable..................................... (1,034,000) (188,000) (496,000) (588,000)
Prepaid expenses and other current assets............... (68,000) (14,000) (31,000) (23,000)
Accounts payable........................................ 370,000 101,000 30,000 (86,000)
Accounts payable--collection trust...................... 68,000 -- -- 28,000
Deferred compensation to officers....................... 215,000 -- 45,000 61,000
Accrued salaries and wages.............................. 196,000 6,000 81,000 (77,000)
Accrued liabilities..................................... 55,000 76,000 37,000 286,000
---------- ---------- -------------- --------------
Total adjustments..................................... 55,000 40,000 (305,000) (273,000)
---------- ---------- -------------- --------------
Net cash provided by (used in) operating activities... 859,000 (196,000) (144,000) 65,000
---------- ---------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................ (1,038,000) (160,000) (248,000) (65,000)
Purchase of business, net of cash acquired.................. -- (48,000) -- --
Increase in other assets.................................... (80,000) (36,000) (101,000) --
---------- ---------- -------------- --------------
Net cash used in investing activities................. (1,118,000) (244,000) (349,000) (65,000)
---------- ---------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable to related parties.............. 100,000 -- -- --
Repayments of notes payable to related parties.............. (35,000) -- -- (45,000)
Net increase in line of credit.............................. 91,000 100,000 (100,000) (11,000)
Proceeds from issuance of long-term debt.................... -- 562,000 -- 500,000
Repayments of long-term debt................................ (15,000) (8,000) (4,000) (142,000)
Principal payments under capital lease obligations.......... (51,000) (23,000) 36,000 (22,000)
Proceeds from issuance of preferred stock, net.............. -- 285,000 -- --
Proceeds from issuance of common stock...................... -- 357,000 -- --
Preferred stock dividends paid.............................. (30,000) -- (8,000) (8,000)
---------- ---------- -------------- --------------
Net cash provided by financing activities............. 60,000 1,273,000 (76,000) 272,000
---------- ---------- -------------- --------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS,
SHORT-TERM INVESTMENTS, AND COLLECTION TRUST CASH............ (199,000) 833,000 (569,000) 272,000
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS,
beginning of period.......................................... 833,000 -- 833,000 634,000
---------- ---------- -------------- --------------
CASH AND CASH EQUIVALENTS AND COLLECTION TRUST CASH, end of
period....................................................... $ 634,000 $ 833,000 $ 264,000 $ 906,000
---------- ---------- -------------- --------------
---------- ---------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-86
<PAGE>
NATIONAL ACTION FINANCIAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
1. ORGANIZATION AND BASIS OF PRESENTATION
National Action Financial Services, Inc. (the "Company") was incorporated on
March 31, 1994 to provide a broad range of credit support and receivables
management services primarily to financial institutions and other credit
grantors. These services include precharge-off portfolio management and
consulting, marketing and back office support for credit card issuers, and loss
recovery management for past-due receivables on both contract and full-outsource
bases.
In April 1994, the Company acquired the assets and assumed certain
liabilities of National Action, Inc. for $50,000, plus 5,000 shares of common
stock. The acquisition was accounted for using the purchase method of
accounting. The operating results of National Action, Inc. are included in the
Company's results of operations from the date of acquisition. As part of this
transaction, the Company assumed approximately $22,000 in liabilities from
National Action, Inc.
2. SUMMARY OF ACCOUNTING POLICIES
The financial statements at March 31, 1996 and March 31, 1995 and for the
three months then ended are unaudited and reflect all normal and recurring
adjustments which are, in the opinion of management, necessary for a fair
presentation of the financial position, operating results, and cash flows for
the interim periods. The results of operations for the three months ended March
31, 1996 and March 31, 1995 are not necessarily indicative of future results.
Following is a summary of significant accounting policies followed in the
preparation of these financial statements:
REVENUE RECOGNITION
Revenues are recognized based on monthly calculations of fees earned in
relation to cash collections or based on the performance of collection services.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Maintenance and repairs are
charged to expense as incurred. Major additions, renewals, and improvements are
capitalized. Depreciation is computed over the estimated useful lives of the
assets using the straight-line method for financial reporting purposes.
The detail of property and equipment at December 31, 1995 and 1994 is as
follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 USEFUL LIVES
--------- --------- ---------------------
<S> <C> <C> <C>
Office and computer equipment.......................... $ 1,446 $ 311 Three to five years
Furniture and fixtures................................. 240 97 Five years
Leasehold improvements................................. 18 -- Five years
--------- ---------
1,704 408
Less accumulated depreciation and amortization......... 249 40
--------- ---------
$ 1,455 $ 368
--------- ---------
--------- ---------
</TABLE>
Office and computer equipment included amounts related to capital leases of
approximately $474,000 and $217,000, net, at December 31, 1995 and 1994,
respectively.
OTHER ASSETS
Other assets include goodwill related to the acquisition by the Company of
the assets and certain liabilities of National Action, Inc. in April 1994 (Note
1). The purchase price exceeded the fair value of the net assets acquired by
approximately $52,000, which is being amortized on a straight-line basis over
ten years. Amortization (included in other operating expenses) for the year
ended December 31, 1995 and for the period
F-87
<PAGE>
NATIONAL ACTION FINANCIAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994
2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
from inception (March 31, 1994) through December 31, 1994 amounted to
approximately $5,000 and $3,000, respectively. Accumulated amortization was
approximately $8,000 and $3,000 at December 31, 1995 and 1994, respectively.
Other assets also include organization and loan origination fees, which
total approximately $31,000 and $26,000 at December 31, 1995 and 1994,
respectively, and which are being amortized over periods from 2.5 years to 5
years. Amortization (included in other operating expenses) for the year ended
December 31, 1995 and for the period from inception (March 31, 1994) through
December 31, 1994 amounted to approximately $11,000 and $0, respectively.
Accumulated amortization was approximately $11,000 and $0 at December 31, 1995
and 1994, respectively.
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 the
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 ("SFAS No. 107"),
"Disclosures About Fair Value of Financial Instruments," requires disclosure of
the following information about the fair value of certain financial instruments
for which it is practicable to estimate that value. For purposes of the
following disclosure, the fair value of a financial instrument is the amount at
which the instrument could be exchanged in a current transaction between willing
parties other than in a forced sale or liquidation. The amounts disclosed
represent management's best estimates of fair value. In accordance with SFAS No.
107, the Company has excluded certain financial instruments and all other assets
and liabilities from its disclosure. Accordingly, the aggregate fair value
amounts presented are not intended to, and do not, represent the underlying fair
value of the Company.
The methods and assumptions used to estimate fair value are as follows:
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value due to the relatively short
period to maturity of these instruments.
NOTES PAYABLE TO RELATED PARTIES (NOTE 4)
The carrying amount approximates fair value due to the short period to
maturity of these notes.
LONG-TERM DEBT (NOTE 5)
The carrying amount approximates fair value based on the borrowing rates
currently available to the Company for bank loans with similar terms and
average maturities.
PUT OPTION (NOTE 3)
The carrying amount is considered to approximate fair value based on the
length of time before this option is exercisable and recent stock
transactions of the Company.
PREFERRED STOCK (NOTE 3)
The par value is considered to approximate fair value based on the
rights and privileges related to this stock.
F-88
<PAGE>
NATIONAL ACTION FINANCIAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994
2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
The asset and liability amounts recorded in the balance sheet and the
estimated fair values of financial instruments at December 31, 1995 consisted of
the following (in thousands):
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
----------- ---------
<S> <C> <C>
Cash and cash equivalents............................................................ $ 634 $ 634
Notes payable to related parties..................................................... (165) (165)
Long-term debt....................................................................... (730) (730)
Put agreements....................................................................... -- --
Preferred stock...................................................................... (285) (300)
</TABLE>
Supplemental disclosures of cash flow information at December 31, 1995 and
1994 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Cash paid during year for interest....................................................... $ 86 $ 13
Cash paid during year for income taxes................................................... 407 --
Liabilities assumed in connection with business acquired................................. -- 22
Issuance of stock in connection with business acquired................................... -- 12
Issuance of common stock to employees as compensation for services....................... -- 16
Capital lease obligations incurred....................................................... 257 217
Purchase of treasury stock............................................................... 100 --
</TABLE>
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform with the
current period presentation.
3. REDEEMABLE PREFERRED STOCK
In December 1994, the Company issued 30,000 shares of Series A redeemable
preferred stock (the "Preferred Stock") for $285,000, net of issuance costs of
$15,000. The Preferred Stock has a par value of $10 per share and earns
dividends of 10% per annum, payable quarterly. Each share of Preferred Stock is
convertible at the option of the holder into .4664334 shares of common stock,
subject to adjustments to ensure that the holder of the Preferred Stock shall
hold 10% of the outstanding stock of the Company immediately after such
conversion. The holder of the Preferred Stock is entitled to vote on all matters
submitted to a vote of stockholders and is entitled to the number of votes equal
to the largest number of whole shares of common stock into which the holder's
shares of Preferred Stock could be converted.
The preferred stock agreement contains certain provisions which allow the
holder to require the Company to redeem the shares (put option), once converted,
at their current fair market value beginning December 1999. As the estimated
fair value on conversion (based on recent capital transactions of the Company)
is less than the face amount of the Preferred Stock, no accretion related to the
Preferred Stock was required at December 31, 1995 or 1994. The preferred stock
agreement also contains a provision which restricts the Company from paying
dividends on any other outstanding stock as long as the Preferred Stock remains
outstanding.
4. STOCKHOLDERS' EQUITY
STOCK DIVIDEND
In December 1994, the board of directors declared a 100-for-1 stock split
effected in the form of a stock dividend to stockholders of record at that date.
All references in the financial statements to the number of shares and per share
amounts of the Company's common stock have been retroactively restated to
reflect the increased number of common shares outstanding.
F-89
<PAGE>
NATIONAL ACTION FINANCIAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994
4. STOCKHOLDERS' EQUITY (CONTINUED)
COMMON STOCK
In February 1995, the Company issued 6,996 shares of common stock, which can
be put back to the Company beginning December 1999 for fair market value, as
agreed by the investor and the Company, at the time of the exercise of the put
option.
5. NOTES PAYABLE TO RELATED PARTIES
NOTE PAYABLE TO OFFICER
At December 31, 1995, the Company has a noninterest-bearing note payable to
an officer in the amount of $100,000. This note matures in April 1996.
NOTE PAYABLE TO EMPLOYEE
In November 1995, the Company repurchased 5,947 shares of common stock from
an employee in exchange for a $100,000 note payable to the employee. The note is
payable in three installments, matures in May 1996, and is noninterest-bearing.
The balance of the note payable at December 31, 1995 is $65,000.
6. LONG-TERM DEBT
Long-term debt consisted of the following as of December 31, 1995 and 1994
(in thousands):
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Line-of-credit agreements................................................................ $ 191 $ 100
Installment note payable to a bank with interest at prime plus 1.5% (10% at December 31,
1995), secured by equipment, furniture and fixtures, and guarantees of officers, with
monthly principal payments of $1 plus interest through June 1999, the maturity date..... 39 54
Installment note payable to preferred stockholder (the "Stockholder Note") with interest
at 10%, secured by all assets subordinate to the bank debt; principal and interest
payments of $32 are due quarterly commencing March 1996 through December 1999, the
maturity date........................................................................... $ 500 $ 500
--------- ---------
730 654
Less current maturities.................................................................. 287 115
--------- ---------
$ 443 $ 539
--------- ---------
--------- ---------
</TABLE>
The Company has a $350,000 line-of-credit agreement with a bank which
expires in April 1996 and a $150,000 line-of-credit agreement with a bank which
expires in January 1996 (the "Agreements"). Borrowings under the Agreements
amount to $191,000 as of December 31, 1995 and bear interest at the bank's prime
rate plus 1.5% (10% at December 31, 1995). Borrowings under the Agreements are
secured by accounts receivable and personal guarantees of the officers.
Available borrowings at December 31, 1995 were $309,000.
The Agreements and the Stockholder Note contain restrictive covenants which,
among other things, limit indebtedness, require certain current and
debt-to-equity ratios, and require a minimum net worth. These covenants also
restrict the Company from paying any dividends on outstanding stock, with the
exception of dividends due on the Preferred Stock.
F-90
<PAGE>
NATIONAL ACTION FINANCIAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994
6. LONG-TERM DEBT (CONTINUED)
Future maturities of long-term debt as of December 31, 1995 are as follows
(in thousands):
<TABLE>
<S> <C>
1996.......................................................................... $ 287
1997.......................................................................... 121
1998.......................................................................... 114
1999.......................................................................... 208
---------
Total..................................................................... $ 730
---------
---------
</TABLE>
In January 1996, the Company obtained a $500,000 installment loan from a
bank. The note bears interest at 9%, requires monthly principal payments of
approximately $14,000 plus interest beginning in February 1996, and matures in
January 1999.
7. CAPITAL LEASE OBLIGATIONS
Future minimum lease payments required under capital leases at December 31,
1995 are as follows (in thousands):
<TABLE>
<S> <C>
1996.......................................................................... $ 123
1997.......................................................................... 119
1998.......................................................................... 119
1999.......................................................................... 97
2000.......................................................................... 71
---------
Total minimum lease payments.............................................. 529
Less amount representing interest............................................. 129
---------
Present value of net minimum lease payments................................... 400
Less current portion.......................................................... 77
---------
Total long-term obligations............................................... $ 323
---------
---------
</TABLE>
8. INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." This statement
requires the use of the asset and liability approach for financial accounting
and reporting for income taxes.
The components of the income tax provision for the year ended December 31,
1995 and for the period from inception (March 31, 1994) to December 31, 1994 are
as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Federal:
Current....................................................................... $ 329 $ --
Deferred...................................................................... 27 --
Other:
Current....................................................................... 42 --
Deferred...................................................................... 2 --
--------- ---------
$ 400 $ --
--------- ---------
--------- ---------
</TABLE>
F-91
<PAGE>
NATIONAL ACTION FINANCIAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994
8. INCOME TAXES (CONTINUED)
The following is a reconciliation of income taxes at the federal statutory
rate with income taxes recorded by the Company for the year ended December 31,
1995 and for the period from inception (March 31, 1994) to December 31, 1994 (in
thousands):
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Income tax computed at the federal statutory rate............................... $ 409 $ (80)
State income taxes, net of federal income tax benefit........................... 45 (10)
Change in valuation reserve for net operating loss carryforwards................ (77) 77
Other, net...................................................................... 23 13
--------- ---------
$ 400 $ --
--------- ---------
--------- ---------
</TABLE>
The tax effects of significant temporary differences representing deferred
tax assets (liabilities) at December 31, 1995 and 1994 are as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Operating versus capitalized lease treatment..................................... $ (37) $ (12)
Accelerated depreciation......................................................... (16) 8
Other, net....................................................................... 24 4
--- ---------
$ (29) $ --
--- ---------
--- ---------
</TABLE>
As the Company experienced book and tax losses in 1994, no provision was
recorded on the financial statements. Due to the Company being in a start-up
position, net operating loss carryforwards were fully reserved at December 31,
1994.
9. OPERATING LEASES
The Company leases its office space under noncancelable operating lease
agreements expiring in 1999 and 2000. Future minimum lease payments at December
31, 1995 are as follows (in thousands):
<TABLE>
<S> <C>
1996........................................................................ $ 345
1997........................................................................ 345
1998........................................................................ 345
1999........................................................................ 256
2000........................................................................ 64
---------
$ 1,355
---------
---------
</TABLE>
Rental expense amounted to approximately $208,000 and $37,000 for the year
ended December 31, 1995 and for the period from inception (March 31, 1994) to
December 31, 1994, respectively.
10. MAJOR CUSTOMERS
In 1995, the Company had four customers who individually represented greater
than 10% and in total represented approximately 75% of revenues. In 1994, the
Company had three customers who individually represented greater than 10% and in
total represented approximately 56% of revenues.
F-92
<PAGE>
NATIONAL ACTION FINANCIAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994
11. COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENTS
The Company has employment agreements with certain employees, including two
significant stockholders, which have initial terms that expire in December 1999.
The employment agreements may be extended indefinitely beyond the initial terms
upon mutual consent of all parties. The agreements call for base salaries,
performance-based bonuses, and other benefits.
The Company entered into an agreement in June 1995 with one employee whereby
the Company committed to grant options amounting to 2% of the common stock of
the Company to the employee in connection with his initial employment contract.
In addition, this employee's contract provides for a defined formula cash bonus
which will be triggered upon certain events, including any sale or change of
control of the Company. As of December 31, 1995, these options had not yet been
issued. Subsequent to year-end, the Company issued the options due under this
agreement (Note 12).
CONTINGENT WARRANT AGREEMENT
The Company entered into a contingent warrant agreement that calls for the
issuance of stock purchase warrants to purchase a percentage of the Company's
outstanding common stock contingent upon the number of months required to repay
the Stockholder Note (Note 5). The percentage of the Company's outstanding
common stock to be issued in the form of stock purchase warrants begins at 1%,
if the Stockholder Note has not been repaid within 24 months, and increases with
the number of months required to repay the note.
STOCK REDEMPTION AGREEMENTS
The Company has agreements with certain stockholders that call for the
redemption by the Company of each stockholder's outstanding common stock upon
the occurrence of the stockholder's death, disability, bankruptcy, or
termination. The agreements call for redemption, at the option of the Company or
stockholder, at an amount equal to or less than the fair market value (as
defined in the agreements) of the common stock at the redemption date. Fair
market value is defined as the book value of the Company for the first two years
of the agreement. Thereafter, fair market value is based on the greater of gross
revenues for the previous 12-month period or five times the earnings of the
Company, as defined, for the previous 12-month period. Under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
certain of these agreements require variable plan accounting such that the
difference between the book value of the stock and the fair market value is
accrued over the period of the agreement. At December 31, 1995 and 1994, the
difference between the book value of the stock and the fair market value was not
material to the financial statements; therefore, no expense has been recorded
through December 31, 1995.
12. SUBSEQUENT EVENTS
Subsequent to year-end, the Company fulfilled a standing agreement to issue
options for 2,735 shares in the Company (approximately 2% of the outstanding
stock) to an employee. The Company recorded approximately $551,000 in
compensation expense related to these options (Note 11).
In addition, the Company entered into an agreement and plan of
reorganization with SITEL Corportion ("SITEL"); SC Acquisition Corp. (the
"Merger Sub"), a subsidiary of SITEL; and Michael W. Fletcher (the primary
stockholder of the Company and stockholders' representative), whereby the
Company merged with the Merger Sub in a transaction to be accounted for as a
pooling of interests in accordance with Accounting Principles Board Opinion No.
16 (the "Pooling").
F-93
<PAGE>
NATIONAL ACTION FINANCIAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1994
12. SUBSEQUENT EVENTS (CONTINUED)
In connection with the Pooling, the following transactions occurred:
- The holder of the Preferred Stock exercised its conversion option, and
the Preferred Stock was converted into 13,993 shares of common stock
of the Company. The balance sheets reflect the conversion of the
preferred stock on a pro forma basis as of December 31, 1995 (Note 3).
In addition, the preferred stock agreement was terminated.
- Treasury stock of the Company was canceled.
- The Company recorded approximately $1.2 million for contractual
bonuses to an employee. (Note 11).
- The Company incurred approximately $120,000 in expenses related to
this transaction.
- Each share of outstanding common stock and each of the common stock
options of the Company was traded for approximately 10.084 shares of
SITEL. In addition, outstanding stock options were traded for common
stock of SITEL.
- The Stockholder Note was repaid (Note 6). In addition, the outstanding
contingent warrants related to the Stockholder Note were terminated.
- The employee stock redemption agreements (Note 11) were terminated.
- Outstanding employment agreements of the Company were terminated.
Officers and certain employees of the Company signed confidentiality
and noncompete agreements and employment agreements with SITEL. The
new employment agreements call for base salaries, performance-based
bonuses, stay bonuses, and other benefits.
F-94
<PAGE>
AUDITORS' REPORT
To the Shareholder of
CTC Canadian Telephone Corporation
We have audited the balance sheet of CTC Canadian Telephone Corporation as
at January 31, 1996 and the statements of operations and retained earnings, and
changes in financial position for the nine month period then ended. These
financial statements are the responsibility of the corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the corporation as at January 31, 1996 and
the results of its operations and the changes in its financial position for the
nine month period then ended in accordance with generally accepted accounting
principles.
Fuller Landau
Chartered Accountants
Montreal, Quebec
May 16, 1996
F-95
<PAGE>
CTC CANADIAN TELEPHONE CORPORATION
(INCORPORATED UNDER THE LAWS OF CANADA)
BALANCE SHEET AS AT JANUARY 31, 1996
ASSETS
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
1996 1995
------------- -------------
<S> <C> <C>
Current
Accounts receivable (Note 3)...................................................... $ 534,111 $ 478,971
Term deposits..................................................................... -- 1,687,080
Marketable securities (approximates market)....................................... 3,740 78,750
Income taxes receivable........................................................... 306,655 --
Prepaid expenses and deposits..................................................... 26,572 23,637
------------- -------------
871,078 2,268,438
Fixed and equipment under capital lease (Note 4).................................... 165,336 143,060
Investment (Note 5)................................................................. 53,835 56,031
------------- -------------
$ 1,090,249 $ 2,467,529
------------- -------------
------------- -------------
LIABILITIES
Current
Bank indebtedness (Note 6)........................................................ $ 445,250 $ 186,390
Accounts payable and sundry liabilities........................................... 409,745 1,095,964
Loans payable -- related corporations (Note 7).................................... 69,904 379,543
Income taxes payable.............................................................. -- 224,715
Current portion of long-term debt................................................. 23,521 23,521
Current portion of obligation under capital lease................................. 3,711 3,711
------------- -------------
952,131 1,913,844
------------- -------------
Long-term debt (Note 8)............................................................. 25,093 42,734
------------- -------------
Obligation under capital lease (Note 9)............................................. 6,485 8,117
------------- -------------
Loan payable -- shareholder......................................................... -- 69,797
SHAREHOLDER'S EQUITY
Capital stock (Note 10)............................................................. 2 2
Retained earnings................................................................... 106,538 433,035
------------- -------------
106,540 433,037
------------- -------------
$ 1,090,249 $ 2,467,529
------------- -------------
------------- -------------
Contingency (Note 11)
</TABLE>
On behalf of the Board:
________________________ Director
________________________ Director
F-96
<PAGE>
CTC CANADIAN TELEPHONE CORPORATION
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE NINE MONTH PERIOD ENDED JANUARY 31, 1996
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
1996 1995
------------- -------------
(9 MONTHS) (12 MONTHS)
<S> <C> <C>
Sales............................................................................... $ 3,882,525 $ 5,852,065
------------- -------------
Direct cost
Employee benefits................................................................. 103,909 140,146
Recruiting fees................................................................... 118,274 93,249
Selling salaries.................................................................. 1,562,045 1,988,627
Telephone......................................................................... 552,360 500,985
Verification...................................................................... 585,823 953,578
------------- -------------
2,922,411 3,676,585
------------- -------------
Gross profit........................................................................ 960,114 2,175,480
------------- -------------
Expenses
Selling........................................................................... 200,486 440,666
Administrative.................................................................... 1,262,614 1,128,638
Financial......................................................................... 47,163 48,356
Interest income................................................................... (44,477) (58,519)
------------- -------------
1,465,786 1,559,141
------------- -------------
Earnings (loss) before income taxes................................................. (505,672) 616,339
Income taxes (recovered)............................................................ (181,370) 224,715
------------- -------------
Earnings (loss) before undernoted item.............................................. (324,302) 391,624
Equity in (net loss) earnings of corporation subject to significant influence....... (2,195) 56,030
------------- -------------
Net earnings (loss)................................................................. (326,497) 447,654
Retained earnings (deficit) at beginning of period.................................. 433,035 (14,619)
------------- -------------
Retained earnings at end of period.................................................. $ 106,538 $ 433,035
------------- -------------
------------- -------------
</TABLE>
F-97
<PAGE>
CTC CANADIAN TELEPHONE CORPORATION
STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE NINE MONTH PERIOD ENDED JANUARY 31, 1996
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
1996 1995
-------------- -------------
(9 MONTHS) (12 MONTHS)
<S> <C> <C>
Operating activities
Net earnings (loss).............................................................. $ (326,497) $ 447,654
Items not affecting the cash position:
Depreciation and amortization.................................................. 33,375 27,717
Equity in net earnings (loss) of corporation subject to significant
influence..................................................................... 2,195 (56,030)
-------------- -------------
(290,927) 419,341
Net change in non-cash operating working capital................................. (1,200,653) 1,013,688
-------------- -------------
Cash provided by (used in) operating activities.................................. (1,491,580) 1,433,029
-------------- -------------
Investing activities
Purchase of fixed assets, cash used in investing activities...................... (55,651) (114,011)
-------------- -------------
Financing activities
Loan payable -- related corporations............................................. (309,639) --
Loan payable -- shareholder...................................................... (69,797) (30,203)
Proceeds from long-term debt..................................................... -- 40,000
Repayment of long-term debt...................................................... (17,641) (19,578)
Repayment of obligation under capital lease...................................... (1,632) (2,110)
-------------- -------------
Cash used in financing activities................................................ (398,709) (11,891)
-------------- -------------
Increase (decrease) in cash........................................................ (1,945,940) 1,307,127
Cash position at beginning of period............................................... 1,500,690 193,563
-------------- -------------
Cash position (bank indebtedness) at end of period................................. $ (445,250) $ 1,500,690
-------------- -------------
-------------- -------------
Cash (bank indebtedness) consists of:
Term deposits.................................................................... $ -- $ 1,687,080
Bank indebtedness................................................................ (445,250) (186,390)
-------------- -------------
$ (445,250) $ 1,500,690
-------------- -------------
-------------- -------------
</TABLE>
F-98
<PAGE>
CTC CANADIAN TELEPHONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1996
NOTE 1 -- NATURE OF ACTIVITIES
The Corporation operates as a long-distance communications reseller.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
FIXED ASSETS AND DEPRECIATION
Fixed assets are stated at acquisition cost. Depreciation is computed at
rates based upon the estimated useful lives of the assets using the following
rates and methods as follows:
<TABLE>
<S> <C>
Furniture and fixtures............................... 20% declining balance
Computer equipment................................... 30% declining balance
Leasehold improvements............................... 5 years straight-line
</TABLE>
EQUIPMENT UNDER CAPITAL LEASE
Equipment that is acquired under leases that transfer substantially all of
the risks and benefits incidental to their ownership are capitalized and
amortized on a basis consistent with similar assets. The equipment is valued at
the lower of the present value of the total minimum lease payments, excluding
the portion thereof relating to executory costs, or fair value. The related
capital lease obligations are classified as long-term debt.
NOTE 3 -- ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
1996 1995
----------- -----------
<S> <C> <C>
Trade accounts................................................................ $ 499,111 $ 438,093
Loans employees............................................................... 35,000 31,000
Accrued interest.............................................................. -- 9,878
----------- -----------
$ 534,111 $ 478,971
----------- -----------
----------- -----------
</TABLE>
NOTE 4 -- FIXED ASSETS AND EQUIPMENT UNDER CAPITAL LEASE
<TABLE>
<CAPTION>
JANUARY 31,
ACCUMULATED 1996 APRIL 30, 1995
DEPRECIATION AND -------------- --------------
COST AMORTIZATION NET BOOK VALUE NET BOOK VALUE
----------- ---------------- -------------- --------------
<S> <C> <C> <C> <C>
Furniture and fixtures.................. $ 65,542 $ 18,090 $ 47,452 $ 52,965
Computer equipment...................... 129,826 38,151 91,675 70,901
Leasehold improvements.................. 11,640 1,746 9,894 -
----------- ---------------- -------------- --------------
207,008 57,987 149,021 123,866
Equipment under capital lease
Office equipment...................... 26,659 10,344 16,315 19,194
----------- ---------------- -------------- --------------
$ 233,667 $ 68,331 $ 165,336 $ 143,060
----------- ---------------- -------------- --------------
----------- ---------------- -------------- --------------
</TABLE>
Depreciation and amortization charged to the accounts of the Corporation
amounted to $33,375 (April 30, 1995 -- $27,717).
F-99
<PAGE>
CTC CANADIAN TELEPHONE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1996
NOTE 5 -- INVESTMENT
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
1996 1995
----------- ---------
<S> <C> <C>
Corporation subject to significant influence, at equity
2965 496 Canada Inc., 50%-owned
75 class A common shares................................................... $ 53,835 $ 56,031
----------- ---------
----------- ---------
</TABLE>
NOTE 6 -- BANK INDEBTEDNESS
As security for bank indebtedness, the Corporation has a registered general
assignment of book debts in Quebec. Bank indebtedness is represented by:
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
1996 1995
----------- ------------
<S> <C> <C>
Bank overdraft (cash)........................................................ $ 379,384 $ (206,645)
Cheques in transit........................................................... 65,866 393,035
----------- ------------
$ 445,250 $ 186,390
----------- ------------
----------- ------------
</TABLE>
NOTE 7 -- LOANS PAYABLE -- RELATED CORPORATIONS
The loans payable are non-interest bearing and have no specific terms of
repayment.
NOTE 8 -- LONG-TERM DEBT
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
1996 1995
----------- ---------
<S> <C> <C>
Bank of Montreal
-- term loan payable in equal monthly instalments of $833 principal plus $ 28,333 $ 35,833
interest at the rate of prime with the balance due December 1998............
-- term loan payable in equal monthly instalments of $1,127 principal plus 20,281 30,422
interest at the rate of prime plus 1.75% with the balance due July 1997.....
----------- ---------
48,614 66,255
Less: portion included in current liabilities.................................. 23,521 23,521
----------- ---------
$ 25,093 $ 42,734
----------- ---------
----------- ---------
</TABLE>
As security for the term loans, the Corporation has a registered general
assignment of book debts in Quebec, Ontario and British Columbia. They are also
secured by a chattel mortgage and a commercial pledge of $50,000.
Minimum principal repayments for each of the next three years, are as
follows:
<TABLE>
<S> <C>
1997...................................................................... $ 23,521
1998...................................................................... 16,760
1999...................................................................... 8,333
---------
$ 48,614
---------
---------
</TABLE>
Interest on long-term debt charged to the accounts of the Corporation
amounted to $5,422 (April 30, 1995 -- $5,961).
F-100
<PAGE>
CTC CANADIAN TELEPHONE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1996
NOTE 9 -- OBLIGATION UNDER CAPITAL LEASE
The capital lease is recorded at an amount equal to the present value of the
lease payments using the interest rate implicit in the lease. The implicit
interest rate of the obligation is 13.8% and its expiry date is July 1998.
Future net minimum lease payments under the capital lease, are as follows:
<TABLE>
<S> <C>
1997...................................................................... $ 3,711
1998...................................................................... 3,711
1999...................................................................... 2,774
---------
Future net minimum lease payments......................................... 10,196
Less: portion included in current liabilities............................. 3,711
---------
Long-term obligation under capital lease.................................. $ 6,485
---------
---------
</TABLE>
Interest charged to the accounts of the Corporation amounted to $1,151
(April 30, 1995 -- $1,780).
NOTE 10 -- CAPITAL STOCK
AUTHORIZED
Unlimited number of no par value shares, as follows:
<TABLE>
<S> <C>
Class A common -- voting, participating
Class B common -- non-voting, non-participating
Class C preferred -- 1% per month non-cumulative, non-voting, non-participating,
redeemable and retractable at the amount paid
Class D preferred -- 1% per month non-cumulative, non-voting, non-participating,
redeemable at the amount paid and retractable in whole or in part
pursuant to tenders received
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
1996 1995
--------------- -------------
<S> <C> <C>
Issued
2 class A common shares.......................................................... $ 2 $ 2
-- --
-- --
</TABLE>
NOTE 11 -- CONTINGENCY
Legal actions claiming approximately $35,000 have been instituted against
the Corporation. These proceedings are being contested and it is not possible at
the time to predict their ultimate outcome. Accordingly, no provision for
liability, if any, has been made in the financial statements. Settlement, if
any, that may be made with respect to these actions, is expected to be charged
to the current year when settlement is made.
NOTE 12 -- RELATED PARTY TRANSACTION
The Corporation is related to a corporation by virtue of its 50% investment
in it. Transactions with this related corporation are as follows:
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
1996 1995
----------- -----------
<S> <C> <C>
Management fees -- earned..................................................... $ 71,250 $ 158,333
----------- -----------
----------- -----------
Other related party charges are:
Consulting fees............................................................... $ -- $ 238,000
----------- -----------
----------- -----------
Commissions................................................................... $ -- $ 228,000
----------- -----------
----------- -----------
</TABLE>
F-101
<PAGE>
CTC CANADIAN TELEPHONE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1996
NOTE 13 -- SUBSEQUENT EVENT
On February 9, 1996, CTC Canadian Telephone Corporation and 2965496 Canada
Inc. were amalgamated. The amalgamated corporation is now known as 3227383
Canada Inc. After the amalgamation, 3227383 Canada Inc. entered into an
agreement with Sitel Teleservices Canada Inc. wherein its business and assets
were sold with adjustments as of January 31, 1996.
NOTE 14 -- ECONOMIC DEPENDENCE
Approximately 92% of the Corporation's revenues for the period ended January
31, 1996 were derived from one customer, pursuant to a long-term contract (April
30, 1995 -- 98%).
NOTE 15 -- COMMITMENTS
The Corporation and 2965496 Canada Inc. have agreed to purchase $1.7 million
of automated call management systems. The acquisition will be financed by two
five-year leases. The Corporation and its affiliate are required to maintain
certain financial ratios under the terms of the leases.
F-102
<PAGE>
AUDITORS' REPORT
To the Shareholders of
2965 496 Canada Inc.
We have audited the balance sheet of 2965 496 Canada Inc. as at January 31,
1996 and the statements of operations and retained earnings, and changes in
financial position for the nine month period then ended. These financial
statements are the responsibility of the corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the corporation as at January 31, 1996 and
the results of its operations and the changes in its financial position for the
nine month period then ended in accordance with generally accepted accounting
principles.
Fuller Landau
Chartered Accountants
Montreal, Quebec
May 17, 1996
F-103
<PAGE>
2965 496 CANADA INC.
(INCORPORATED UNDER THE LAWS OF CANADA)
BALANCE SHEET AS AT JANUARY 31, 1996
ASSETS
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
1996 1995
----------- -----------
<S> <C> <C>
Current
Accounts receivable................................................................... $ 381,848 $ 134,623
Income taxes receivable............................................................... 19,789 --
Loans receivable (Note 3)............................................................. 47,922 321,595
Prepaid expenses...................................................................... -- 4,040
----------- -----------
449,559 460,258
Fixed (Note 4).......................................................................... 38,482 36,576
----------- -----------
$ 488,041 $ 496,834
----------- -----------
----------- -----------
LIABILITIES
Current
Bank indebtedness (Note 5)............................................................ $ 36,537 $ 20,992
Accounts payable and sundry liabilities (Note 6)...................................... 195,753 248,166
Income taxes payable.................................................................. -- 33,316
Current portion of long-term debt..................................................... 24,351 --
----------- -----------
256,641 302,474
----------- -----------
Loan payable -- related company (Note 7)................................................ -- 82,300
----------- -----------
Long-term debt (Note 8)................................................................. 123,731 --
----------- -----------
SHAREHOLDER'S EQUITY
Capital stock (Note 9).................................................................. 150 150
Retained earnings....................................................................... 107,519 111,910
----------- -----------
107,669 112,060
----------- -----------
$ 488,041 $ 496,834
----------- -----------
----------- -----------
</TABLE>
F-104
<PAGE>
2965 496 CANADA INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE NINE MONTH PERIOD ENDED JANUARY 31, 1996
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
1996 1995
--------------- -------------
(9 MONTHS) (12 MONTHS)
<S> <C> <C>
Sales............................................................................ $ 1,686,270 $ 2,747,396
--------------- -------------
Direct cost
Employee benefits.............................................................. 42,342 76,459
Recruiting fees................................................................ 53,613 110,438
Selling salaries............................................................... 609,557 1,197,093
Telephone...................................................................... 219,626 201,576
Verification................................................................... 165,503 285,610
--------------- -------------
1,090,641 1,871,176
--------------- -------------
Gross profit..................................................................... 595,629 876,220
--------------- -------------
Expenses
Selling........................................................................ 96,350 140,435
Administrative................................................................. 495,325 497,194
Financial...................................................................... 11,450 3,500
--------------- -------------
603,125 641,129
--------------- -------------
Earnings (loss) before income taxes.............................................. (7,496) 235,091
Income taxes (recovered)......................................................... (3,105) 33,316
--------------- -------------
Net earnings (loss).............................................................. (4,391) 201,775
Retained earnings (deficit) at beginning of period............................... 111,910 (89,865)
--------------- -------------
Retained earnings at end of period............................................... $ 107,519 $ 111,910
--------------- -------------
--------------- -------------
</TABLE>
F-105
<PAGE>
2965 496 CANADA INC.
STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE NINE MONTH PERIOD ENDED JANUARY 31, 1996
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
1996 1995
----------- ------------
(9 MONTHS) (12 MONTHS)
<S> <C> <C>
Operating activities
Net earnings (loss).................................................................. $ (4,391) $ 201,775
Item not affecting the cash position:
Depreciation and amortization.................................................... 8,631 6,061
----------- ------------
4,240 207,836
Net change in non-cash operating working capital..................................... (348,703) (109,954)
----------- ------------
Cash provided by (used in) operating activities...................................... (344,463) 97,882
----------- ------------
Investing activities
Purchase of fixed assets, cash used in investing activities.......................... (10,537) (38,048)
----------- ------------
Financing activities
Loan payable -- related corporation.................................................. -- (17,700)
Loans receivable -- related corporation.............................................. 191,373 (189,526)
Long-term debt....................................................................... 150,000 --
Repayment of long-term debt...................................................... (1,918) --
----------- ------------
Cash provided by (used in) financing activities...................................... 339,455 (207,226)
----------- ------------
Decrease in cash....................................................................... (15,545) (147,392)
Cash position (bank indebtedness) at beginning of period............................... (20,992) 126,400
----------- ------------
Bank indebtedness at end of period..................................................... $ (36,537) $ (20,992)
----------- ------------
----------- ------------
</TABLE>
F-106
<PAGE>
2965 496 CANADA INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1996
NOTE 1 -- NATURE OF ACTIVITIES
The Corporation operates as a long-distance communications reseller.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICY
FIXED ASSETS AND DEPRECIATION
Fixed assets are stated at acquisition cost. Depreciation is recorded using
the declining balance method using the following rates:
<TABLE>
<S> <C>
Furniture and fixtures..................................... 20%
Computer equipment......................................... 30%
Leasehold improvements..................................... 5 years
</TABLE>
NOTE 3 -- LOANS RECEIVABLE
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
1996 1995
----------- -----------
<S> <C> <C>
Shareholder..................................................................... $ 73,544 $ 295,095
Related corporations (net)...................................................... (25,622) 26,500
----------- -----------
$ 47,922 $ 321,595
----------- -----------
----------- -----------
</TABLE>
The loan receivable are unsecured, non-interest bearing and have no specific
terms of repayment.
The loans receivable from the shareholder is subrogated for $105,000
assigned by the Corporation to the bank.
NOTE 4 -- FIXED ASSETS
<TABLE>
<CAPTION>
JANUARY 31,
ACCUMULATED 1996 NET BOOK APRIL 30, 1995
COST DEPRECIATION VALUE NET BOOK VALUE
--------- ------------ -------------- --------------
<S> <C> <C> <C> <C>
Furniture and fixtures......................... $ 18,086 $ 4,705 $ 13,381 $ 15,543
Computer equipment............................. 25,359 9,058 16,301 21,033
Leasehold improvements......................... 10,353 1,553 8,800 --
--------- ------------ -------------- --------------
$ 53,798 $ 15,316 $ 38,482 $ 36,576
--------- ------------ -------------- --------------
--------- ------------ -------------- --------------
</TABLE>
Depreciation and amortization charged to the accounts of the Corporation
amounted to $8,631 (April 30, 1995 -- $6,061).
NOTE 5 -- BANK INDEBTEDNESS
As security for bank indebtedness, the Corporation has registered a general
assignment of book debts in Quebec and Ontario.
NOTE 6 -- ACCOUNTS PAYABLE AND SUNDRY LIABILITIES
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
1996 1995
--------------- -------------
<S> <C> <C>
Trade accounts......................................................... $ 155,964 $ 184,682
Salaries............................................................... 33,935 --
Sales taxes............................................................ 5,854 63,484
--------------- -------------
$ 195,753 $ 248,166
--------------- -------------
--------------- -------------
</TABLE>
F-107
<PAGE>
2965 496 CANADA INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1996
NOTE 7 -- LOAN PAYABLE -- RELATED COMPANY
The loan payable -- related company is unsecured, non-interest bearing and
has no specific terms of repayment.
NOTE 8 -- LONG-TERM DEBT
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
1996 1995
--------------- -------------
<S> <C> <C>
Ontario Development Corporation
-- 10.6% loan payable in equal monthly instalments of $3,215
principal and interest, maturing in December 2000................... 148,082 $ --
Less: portion included in current liabilities........................ 24,351 --
--------------- -------------
$ 123,731 $ --
--------------- -------------
--------------- -------------
</TABLE>
Minimum principal repayments for each of the next five years are as follows:
<TABLE>
<S> <C>
1997..................................................... $ 24,351
1998..................................................... 27,001
1999..................................................... 29,939
2000..................................................... 33,197
2001..................................................... 33,594
---------
$ 148,082
---------
---------
</TABLE>
Interest on long-term debt charged to the accounts of the Corporation
amounted to $2,342.
NOTE 9 -- CAPITAL STOCK
AUTHORIZED
Unlimited number of no par value shares, as follows:
<TABLE>
<S> <C>
Class A common -- voting, participating
Class B common -- non-voting, non-participating
Class A preferred -- non-voting, non-cumulative, redeemable at the consideration
for which the shares were issued
Class B preferred -- non-voting, non-cumulative, redeemable at the consideration
for which the shares were issued
Class C preferred -- non-voting, non-cumulative, retractable at the consideration
for which the shares were issued
Class D -- non-voting, non-cumulative, redeemable at the consideration for which
the shares were issued
Class E -- voting, non-cumulative, redeemable at the consideration for which the
shares were issued
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
1996 1995
------------- -----------
<S> <C> <C>
Issued
150 class A common shares.............................................. $ 150 $ 150
----- -----
----- -----
</TABLE>
F-108
<PAGE>
2965 496 CANADA INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1996
NOTE 10 -- RELATED PARTY TRANSACTION
The Corporation is related to other corporations by virtue of ownership that
the corporation has in them. Transactions with these related corporations are as
follows:
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
1996 1995
----------- -----------
<S> <C> <C>
Management fees..................................................... $ 71,250 $ 158,333
----------- -----------
----------- -----------
Commissions......................................................... $ 71,250 $ 86,704
----------- -----------
----------- -----------
</TABLE>
NOTE 11 -- SUBSEQUENT EVENT
On February 9, 1996, CTC Canadian Telephone Corporation and 2965496 Canada
Inc. were amalgamated. The amalgamated corporation formed was 3227383 Canada
Inc. After the amalgamation, 3227383 Canada Inc. entered into a sales agreement
with Sitel Teleservices Canada Inc. wherein its business and assets were sold
with adjustments as of January 31, 1996.
NOTE 12 -- ECONOMIC DEPENDENCE
Approximately 75% of the Corporation's revenues for the period ended January
31, 1996 were derived from one customer, pursuant to a long-term contract. For
the year ended April 30, 1995 the percentage was 78%.
NOTE 13 -- COMMITMENTS
The Corporation and CTC Canadian Telephone Corporation have agreed to
purchase $1.7 million of automated call management systems. The acquisition will
be financed by two five-year leases. The Corporation and its affiliate are
required to maintain certain financial ratios under the terms of the leases.
F-109
<PAGE>
APPENDIX A
CONFORMED COPY
(INCLUDING ALL
AMENDMENTS THROUGH
JULY 26, 1996)
AMENDED AND RESTATED
SHARE PURCHASE AGREEMENT
DATED
JUNE 6, 1996
AMONG
SITEL CORPORATION
AND
THE SHAREHOLDERS OF MITRE PLC
RELATING TO THE PURCHASE AND SALE
OF
100% OF THE ORDINARY SHARES OF
MITRE PLC
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<C> <S> <C>
ARTICLE 1
DEFINITIONS
1.1 Definitions....................................................................................... 1
ARTICLE 2
PURCHASE AND SALE
2.1 Purchase and Sale................................................................................. 4
2.2 Completion........................................................................................ 4
2.3 Legending of Securities........................................................................... 5
2.4 Escrow Account.................................................................................... 5
ARTICLE 3
WARRANTIES OF THE SELLERS
3.1 Corporate Existence and Power..................................................................... 5
3.2 Authorization..................................................................................... 5
3.3 Governmental Authorization........................................................................ 5
3.4 Non-Contravention................................................................................. 6
3.5 Capitalization.................................................................................... 6
3.6 Ownership of Shares............................................................................... 6
3.7 Subsidiaries and Joint Ventures................................................................... 6
3.8 Financial Statements.............................................................................. 6
3.9 Absence of Certain Changes........................................................................ 7
3.10 No Undisclosed Material Liabilities............................................................... 8
3.11 Related Party Transactions........................................................................ 8
3.12 Contracts with Clients............................................................................ 8
3.13 Other Material Contracts.......................................................................... 8
3.14 Litigation........................................................................................ 9
3.15 Compliance with Laws and Court Orders; No Defaults................................................ 9
3.16 Properties........................................................................................ 9
3.17 Intellectual Property............................................................................. 11
3.18 Insurance Coverage................................................................................ 11
3.19 Licenses and Permits.............................................................................. 12
3.20 Finders' Fees..................................................................................... 12
3.21 Environmental Matters............................................................................. 12
3.22 Compliance with Environmental Permits and Environmental Laws...................................... 12
3.23 Environmental Audit............................................................................... 13
3.24 Sellers' Investment Purposes...................................................................... 13
3.25 Competition and Fair Trading Laws................................................................. 13
3.26 Records and Software.............................................................................. 14
3.27 Business Contracts................................................................................ 14
ARTICLE 4
WARRANTIES OF BUYER
4.1 Corporate Existence and Power..................................................................... 14
4.2 Corporate Authorization........................................................................... 14
4.3 Governmental Authorization........................................................................ 14
4.4 Non-Contravention................................................................................. 14
4.5 Buyer Stock....................................................................................... 14
4.6 Buyer's SEC Reports............................................................................... 14
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
4.7 Finders' Fees..................................................................................... 15
ARTICLE 5
COVENANTS OF SELLERS
5.1 Conduct of the Company............................................................................ 15
5.2 Contracts......................................................................................... 16
5.3 Access to Information............................................................................. 16
5.4 Notices of Certain Events......................................................................... 17
5.5 Certain Actions................................................................................... 17
5.6 Cooperation in Preparing Buyer Proxy Statement.................................................... 17
5.7 Preferred Shares.................................................................................. 17
5.8 Reconciliation of Financial Statements............................................................ 18
5.9 Required Consents of Accountants.................................................................. 18
5.10 Termination of Shareholder Agreements............................................................. 18
5.11 Stay Bonus Arrangements........................................................................... 18
5.12 Restrictions on Sale.............................................................................. 18
5.13 Assignment of Lease............................................................................... 18
5.14 Translation of Documents.......................................................................... 18
ARTICLE 6
COVENANTS OF BUYER
6.1 Stockholder Meeting; Proxy Material............................................................... 18
6.2 Access To Records................................................................................. 18
6.3 Designation of Director........................................................................... 19
6.4 Auditors of the Group............................................................................. 19
ARTICLE 7
COVENANTS OF BUYER AND SELLERS
7.1 Best Efforts...................................................................................... 19
7.2 Certain Filings................................................................................... 19
7.3 Public Announcements.............................................................................. 19
7.4 Restrictions on Sellers........................................................................... 19
7.5 HSR Act........................................................................................... 20
ARTICLE 8
DIRECTORS, EMPLOYEES AND PENSIONS
8.1 Directors, Employees and Pensions................................................................. 20
ARTICLE 9
CONDITIONS TO COMPLETION
9.1 Conditions to Obligations of Buyer and Sellers.................................................... 22
9.2 Conditions to Obligation of Buyer................................................................. 22
9.3 Conditions to Obligation of Sellers............................................................... 23
9.4 Reasonable Efforts to Fulfill Conditions to Completion............................................ 23
ARTICLE 10
SURVIVAL; INDEMNIFICATION
10.1 Limitations....................................................................................... 23
10.2 Sellers' Liability................................................................................ 26
10.3 Procedures; Remedies Cumulative................................................................... 26
</TABLE>
ii
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE 11
TERMINATION
11.1 Grounds for Termination........................................................................... 27
11.2 Effect of Termination............................................................................. 27
ARTICLE 12
MISCELLANEOUS
12.1 Notices........................................................................................... 27
12.2 Amendments and Waivers............................................................................ 29
12.3 Expenses.......................................................................................... 29
12.4 Successors and Assigns............................................................................ 29
12.5 Governing Law..................................................................................... 29
12.6 Counterparts; Third Party Beneficiaries........................................................... 29
12.7 Entire Agreement.................................................................................. 29
12.8 Restrictive Trade Practices Act................................................................... 29
12.9 Seller Representative............................................................................. 30
12.10 Interpretation.................................................................................... 30
EXHIBITS
Exhibit A Form of Registration Rights Agreement
Exhibit B Form of Escrow Agreement
Exhibit C Form of Investor Letter
Exhibit D Form of Tax Covenant
SCHEDULES
Schedule 2.1 Sellers
Schedule 3.7 Subsidiaries
Schedule 3.16 Properties
</TABLE>
iii
<PAGE>
AMENDED AND RESTATED
SHARE PURCHASE AGREEMENT
Amended and Restated Share Purchase Agreement (the "Agreement") dated June
6, 1996 among Sitel Corporation, a Minnesota corporation ("Buyer"), and the
shareholders of Mitre plc, an English public limited company (the "Company")
whose names and addresses are set out in Schedule 2.1 hereto (the "Sellers").
The parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. (a) The following terms, as used herein, have the
following meanings:
"AFFILIATE" means, with respect to any Person, any other Person directly or
indirectly Controlling, Controlled by, or under common Control with such Person.
"BALANCE SHEET" means the audited balance sheet of the Company and the
Subsidiaries as of December 31, 1995.
"BALANCE SHEET DATE" means December 31, 1995.
"BUSINESS DAY" means any day other than a Saturday, Sunday or other day on
which commercial banks in London are authorized by law to close.
"BUYER PROXY STATEMENT" means the proxy or information statement required to
be filed by Buyer with the SEC in connection with the purchase of the Shares and
the issuance of Buyer Stock.
"BUYER STOCK" means the common stock, par value $.001 per share, of Buyer.
"COMPANY PREFERRED SHARES" means the 350,000 redeemable preference shares of
L1 each in the capital of the Company.
"COMPLETION DATE" means the date of the Completion.
"COMPANIES ACT" means the Companies Act 1985 as amended by the Companies Act
1989.
"COMPANY SHARES" means the ordinary shares of the Company.
"CONTROL" shall have the same meaning as in Section 840 Taxes Act.
"DISCLOSURE LETTER" means the letter of today's date from the Seller
Representative on behalf of the Sellers to the Buyer.
"ENVIRONMENTAL LAWS" means the following:
(a) all European Union, national, state or local statutes, codes, guidelines
or other laws or legislation concerning health, safety or Environmental
Matters which are applicable to the business of any Group Company or to
the Properties and all rules, regulations, ordinances, orders, notices
and directives made thereunder having the force of law;
(b) judicial interpretation and administrative interpretation having the
force of law of each of the foregoing.
"ENVIRONMENTAL MATTERS" means in relation to the business of any Group
Company and the Properties all matters related to pollution or protection of the
environment including though not limited to noise, emissions, discharges and
releases of any substances or energy into air, water (including underground
water and the sea), sewage systems and land (or a combination of these); the
environmental aspects of the manufacture, processing, distribution, use,
treatment, storage, disposal, transport and handling of any substances or form
of energy; and matters related to the health and safety of the employees of the
Group Company or any other person.
1
<PAGE>
"ENVIRONMENTAL PERMITS" means the permits, consents, licenses, certificates
and other authorizations and approvals required under the Environmental Laws to
be obtained in connection with the use of the Properties or the conduct of the
business of each Group Company.
"ESCROW AGENT" shall have the meaning given to it in the Escrow Agreement.
"ESCROW AGREEMENT" means the Escrow Agreement to be executed by the Buyer
and the Sellers, in substantially the form attached as Exhibit B hereto.
"EXPIRATION DATE" shall have the meaning given to it in the Escrow
Agreement.
"FINANCIAL STATEMENTS" means the consolidated audited accounts of the
Company and the Subsidiaries for the financial year ended on the Balance Sheet
Date including the auditors' and directors' reports, the consolidated balance
sheet, the consolidated profit and loss account and the notes to them.
"GROUP" means the Company and the Subsidiaries.
"GROUP COMPANY" means the Company or any other member of the Group.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
"INTELLECTUAL PROPERTY RIGHT" means any trademark, service mark, trade name,
invention, patent, trade secret, copyright, know-how (including any
registrations or applications for registration of any of the foregoing) or any
other similar type of proprietary intellectual property right.
"INVESTOR LETTER" means the Investor Letter to be executed by each Seller
and delivered to Buyer, in substantially the form attached as Exhibit C hereto.
"LIEN" means, with respect to any property or asset, any mortgage, lien,
pledge, charge, security interest, encumbrance or other adverse claim of any
kind in respect of such property or asset. For the purposes of this Agreement, a
Person shall be deemed to own subject to a Lien any property or asset which it
has acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such property or asset.
"MANAGEMENT ACCOUNTS" means the unaudited management accounts of the Company
and its principal trading Subsidiaries for the period from January 1, 1996 to
April 30, 1996.
"MATERIAL ADVERSE EFFECT" means, with respect to any Person, a material
adverse effect on the condition (financial or otherwise), business, assets,
results of operations or prospects of such Person and its subsidiaries, if any,
taken as a whole.
"MERIT PREFERENCE SHARES" means the 700,000 Cumulative Redeemable 8%
Preference Shares of L1 each in the capital of Merit Direct Limited and any and
all preference shares in the capital of Merit Communications NV.
"1933 ACT" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
"1934 ACT" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
"PERMITTED TRANSFEREE" has the meaning given to it in the Registration
Rights Agreement.
"PERSON" means an individual, corporation, limited liability company,
partnership, association, trust or other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"PROPERTIES" means the real property and all interests therein held by any
Group Company brief details of which are set out at Schedule 3.16 and any part
thereof.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement to
be dated as of the Completion Date between Buyer and Sellers, in substantially
the form attached as Exhibit A hereto.
2
<PAGE>
"SEC" means the Securities and Exchange Commission.
"SELLER REPRESENTATIVE" means Henk Kruithof, or any other Seller (i) who is
designated by Sellers holding a majority in value of the Buyer Stock as of the
date of such designation and (ii) who is identified to Buyer in a written notice
signed by all Sellers as being the new Seller Representative.
"SHARES" means ordinary 10p shares in the capital of the Company.
"SUBSIDIARIES" means the companies details of which are set out in Part a of
Schedule 3.7.
"SUBSIDIARY" and "SUBSIDIARIES" shall be construed in accordance with
sections 736 and 736A of the Companies Act.
"SUBSIDIARY UNDERTAKING" shall be construed in accordance with section 258
of the Companies Act.
"TAX" and "TAX AUTHORITY" have the meanings given to them in the Tax
Covenant.
"TAX COVENANT" means the Tax Covenant to be executed by the Covenantors (as
defined therein) and the Buyer, in substantially the form attached as Exhibit D
hereto.
"TAXES ACT" means the Income and Corporation Taxes Act 1988.
"WARRANTIES" means the representations and warranties on the part of Sellers
set out in Articles 3 and 8.
(b) Each of the following terms is defined in the Section set forth opposite
such term:
<TABLE>
<CAPTION>
TERM SECTION
- ----------------------------------------------------------------------- -----------
<S> <C>
Act 12.8
Actual Knowledge 9.2
Agreement Preamble
Buyer Preamble
Buyer's SEC Documents 4.6
Buyer Stockholder Approvals 6.1
Buyer Stockholder Meeting 6.1
Client Contract 3.12
Company Preamble
Company Intellectual Property Rights 3.17(b)
Company Securities 3.5(b)
Competing Business 7.4
Completion 2.2
ERISA 8.1(h)
Escrow Agent 2.2(d)
Escrow Agreement 2.2(d)
Indemnified Party 10.3
Indemnifying Party 10.3
Pension Scheme 8.1(h)
Planning Legislation 3.16(l)
Permits 3.19
RTPA Agreement 12.8
Sellers Preamble
Subsidiary Securities 3.7(b)
</TABLE>
(c) Any reference to a document "in the agreed form" is to the form of the
relevant document agreed between the parties and for the purposes of
identification initialled by each of them or on their behalf (in each case with
such amendments as may be agreed by or on behalf of the parties.)
3
<PAGE>
ARTICLE 2
PURCHASE AND SALE
2.1 PURCHASE AND SALE. Upon the terms and subject to the conditions of
this Agreement, (a) each Seller agrees to sell to Buyer with full title
guarantee and Buyer agrees to purchase from such Seller, the number of Shares
set forth opposite such Seller's name on Schedule 2.1 under the heading "Number
of Company Shares" in exchange for the number of shares of Buyer Stock set forth
opposite such Seller's name on Schedule 2.1 under the heading "Purchase
Consideration".
2.2 COMPLETION. (a) The completion (the "Completion") of the purchase and
sale shall take place at the offices of Davis Polk & Wardwell, 1 Frederick's
Place, London, England as soon as possible, but in no event later than 10
Business Days, after satisfaction of the conditions set forth in Article 9
hereof, or at such other time or place as Buyer and the Seller Representative
may agree. The events contained in the following provisions of this Article 2
shall take place at the Completion:
(b) The Sellers shall deliver (or cause to be delivered) to the Buyer:
(i) in respect of each of the Sellers, a duly executed transfer into the
name of the Buyer or its nominee in respect of the number of Shares set out
opposite that Seller's name in Schedule 2.1, together with the relative
share certificates therefor;
(ii) share certificates in respect of all the issued shares in the
capital of each of the Subsidiaries, together with duly executed transfers
into the name of the Buyer or its nominee in respect of any shares in such
Subsidiaries not held in the name of a Group Company;
(iii) an original of the Tax Covenant duly executed by the Sellers;
(iv) the Certificates of Incorporation, Common Seal, Share Register and
Share Certificate Book (with any unissued share certificates) and all minute
books and other statutory books (which shall be written-up to but not
including Completion) of the Company and of each Group Company; and
(v) all such other documents (including any necessary waivers of
pre-emption rights or other consents) as may be required to enable the Buyer
and/or its nominees to be registered as the holder(s) of the Shares.
(c) The Sellers shall procure that resolutions of the boards of directors of
each Group Company are passed by which the following business is transacted:
(i) the registration (subject to their being duly stamped) of the
transfers in respect of the Shares referred to in clause (b) of this Section
2.2 is approved; and
(ii) such persons as are nominated by the Buyer are appointed as
directors and/or secretary of each Group Company.
(d) The Buyer shall:
(i) deliver to each Seller one or more certificates for the shares of
Buyer Stock to be issued to such Seller subject to clause (ii) of this
Section 2.2(d) in accordance with Article 2.1, registered in the name of
such Seller;
(ii) deliver to the Escrow Agent one or more certificates for such
number of shares of Buyer Stock, with respect to each Seller, as represents
10% of the number of shares of Buyer Stock set forth opposite such Seller's
name on Schedule 2.1, for deposit pursuant to an Escrow Agreement in
substantially the form attached as Exhibit B hereto (the "Escrow
Agreement").
(iii) deliver to the Sellers an original of the Tax Covenant duly
executed as a deed by the Buyer;
4
<PAGE>
(e) If the Sellers or any of them fail or are unable to perform any material
obligation required to be performed by the Sellers or any of them pursuant to
Article 2.2 by November 30, 1996, the Buyer shall not be obliged to complete the
sale and purchase of the Shares and may, in its absolute discretion, by written
notice to the Sellers:
(i) rescind this Agreement without liability on the part of the Buyer;
or
(ii) elect to proceed with the Completion on that date, to the extent
that the Sellers are ready, able and willing to do so, and specify a later
date on which the Sellers shall be obliged to complete the outstanding
obligations of the Sellers PROVIDED THAT in such event the Sellers shall not
incur any liability to the Buyer if Sellers shall perform their obligations
by the said later date; or
(iii) elect to defer the Completion by not more than thirty (30) Business
Days to such other date as it may specify in such notice, in which event the
provisions of this Section 2.2 shall apply, mutatis mutandis, if the Sellers
fail or are unable to perform any such obligations on such other date, but
the Sellers shall not incur any further liability to the Buyer as a result
thereof.
2.3 LEGENDING OF SECURITIES. Each certificate representing shares of Buyer
Stock to be issued pursuant to this Agreement shall bear the legend set forth in
paragraph (5) of Exhibit C.
2.4 ESCROW ACCOUNT. Sellers agree that, notwithstanding any investigation
of the business of the Company made by or on behalf of Buyer, at the Completion
10% of the shares of Buyer Stock shall be delivered by Buyer to the Escrow Agent
for deposit in accordance with the terms of the Escrow Agreement. All shares of
Buyer Stock deposited with the Escrow Agent shall be applied by the Escrow Agent
in accordance with the terms of the Escrow Agreement to pay to Buyer any amounts
owing to Buyer under this Agreement. Any shares of Buyer Stock remaining on
deposit with the Escrow Agent on the Expiration Date shall be distributed by the
Escrow Agent to Sellers, except as otherwise provided in the Escrow Agreement.
ARTICLE 3
WARRANTIES OF THE SELLERS
Subject to the provisions of Article 10 of this Agreement, each Seller
warrants to Buyer as to itself and as to the Company, as of the date hereof and
as at the Completion Date that:
3.1 CORPORATE EXISTENCE AND POWER. The Company is a public limited company
validly existing under the laws of England and Wales and has all corporate
powers and all governmental licenses, authorizations, permits, consents and
approvals required to carry on its business as now conducted. The Company is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction where such qualification is necessary, except where the
failure to be so qualified has not had, and would not reasonably be expected to
have, a Material Adverse Effect on the Company. There are attached to the
Disclosure Letter true and complete copies of the memorandum and articles of
association of the Company as currently in effect.
3.2 AUTHORIZATION. As to each Seller, (i) the execution, delivery and
performance by such Seller of this Agreement are within such Seller's power,
authority and legal right and (ii) this Agreement constitutes a valid and
binding agreement of such Seller enforceable in accordance with its terms,
except as (A) the enforceability hereof may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (B) the availability of equitable remedies may
be limited by equitable principles of general applicability.
3.3 GOVERNMENTAL AUTHORIZATION. The execution, delivery and performance by
the Company and Sellers of this Agreement require no action by or in respect of,
or filing with, any governmental body, agency or official other than compliance
with any applicable requirements of the HSR Act and the waiver by the Panel on
Takeovers and Mergers of the City Code on Takeovers and Mergers.
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3.4 NON-CONTRAVENTION. The execution, delivery and performance of this
Agreement by the Company and Sellers do not and will not (A) violate the
memorandum and articles of association of the Company, (B) assuming compliance
with the matters referred to in Section 3.3, violate any applicable law, rule,
regulation, judgment, injunction, order or decree, (C) require any consent or
other action by any Person under, constitute a default under, or give rise to
any right of termination, cancellation or acceleration of any right or
obligation of the Company or any Seller or to a loss of any benefit to which the
Company or any Seller is entitled under, any agreement or other instrument
binding upon the Company or any Seller or any license, franchise, permit or
other similar authorization held by the Company or any Seller or (D) result in
the creation or imposition of any Lien on any asset of the Company or any
Seller.
3.5 CAPITALIZATION. (a) The authorized capital of the Company consists of
15,000,000 Shares, of which 13,595,140 Shares are issued and 350,000 Company
Preferred Shares, of which 350,000 Company Preferred Shares are issued and
444,000 Redeemable Preference Shares of L1 each all of which have been redeemed.
The name of each Seller and the number of Shares owned by such Seller are set
forth on Schedule 2.1.
(b) All issued shares of the Company have been duly issued and are fully
paid. Except as disclosed in Schedule 2.1, there are no issued (A) shares or
other voting securities of the Company, (B) securities of the Company
convertible into or exchangeable for shares or voting securities of the Company
or (C) options or other rights to acquire from the Company or other obligation
of the Company to issue, any shares, voting securities or securities convertible
into or exchangeable for shares or voting securities of the Company (the items
in clauses (A), (B) and (C) being referred to collectively as the "Company
Securities"). There are no outstanding obligations of the Company to issue,
repurchase, redeem or otherwise acquire, or make any payment in respect of, any
Company Securities.
3.6 OWNERSHIP OF SHARES. Each Seller is the sole legal and beneficial
owner of the number of Shares set forth opposite such Seller's name on Schedule
2.1, free and clear of any Lien and any other limitation or restriction
(including any restriction on the right to vote, sell or otherwise dispose of
such Shares), and will transfer and deliver to Buyer at the Completion valid
title to such Shares free and clear of any Lien and any such limitation or
restriction.
3.7 SUBSIDIARIES AND JOINT VENTURES. (a) All subsidiaries of the Company
are listed on Schedule 3.7. Each Subsidiary is duly incorporated under the laws
of its jurisdiction of incorporation, has all corporate or other powers and all
governmental licenses, authorizations, permits, consents and approvals required
to carry on its business as now conducted, is duly qualified to do business as a
foreign corporation or other entity in each jurisdiction where such
qualification is necessary.
(b) All of the issued shares of, or other voting securities in, each
Subsidiary, are owned by the Company, directly or indirectly, free and clear of
any Lien and free of any other limitation or restriction (including any
restriction on the right to vote, sell or otherwise dispose of such shares or
other voting securities). There are no issued (i) securities of the Company or
any Subsidiary convertible into or exchangeable for shares or other voting
securities in any Subsidiary or (ii) options or other rights to acquire from the
Company or any Subsidiary, or other obligation of the Company or any Subsidiary
to issue, any shares or other voting securities in, or any securities
convertible into or exchangeable for any shares or other voting securities in,
any Subsidiary (the items in clauses (i) and (ii) being referred to collectively
as the "Subsidiary Securities"). Save in respect of the Merit Preference Shares,
there are no outstanding obligations of the Company or any Subsidiary to
repurchase, redeem or otherwise acquire any shares in any Subsidiary.
3.8 FINANCIAL STATEMENTS. (a) The Financial Statements present fairly, in
all material respects, the consolidated financial position of the Company and
the Subsidiaries as of the Balance Sheet Date thereof and their consolidated
results of operations and changes in consolidated financial position for the
periods then ended in conformity with generally accepted accounting principles
("GAAP") applied on a consistent basis.
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(b) MANAGEMENT ACCOUNTS. The Management Accounts are unaudited but have
been prepared in good faith, and are not materially inaccurate in the context of
the Group as a whole.
3.9 ABSENCE OF CERTAIN CHANGES. Except as set forth in the Disclosure
Letter and except as contemplated by this Agreement, since the Balance Sheet
Date, the business of the Company and its Subsidiaries has been conducted in the
ordinary course consistent with past practices and since that date there has not
been:
(i) as far as the Sellers are aware, any event, occurrence, development
or state of circumstances or facts which has had or could reasonably be
expected to have a Material Adverse Effect on the Company;
(ii) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company, or
any repurchase, redemption or other acquisition by the Company or any
Subsidiary of any outstanding shares or other securities of, the Company or
any Subsidiary;
(iii) any amendment of any term of any outstanding security of the
Company or any Subsidiary;
(iv) any incurrence, assumption or guarantee by the Company or any
Subsidiary of any indebtedness for borrowed money other than in the ordinary
course of business consistent with past practices;
(v) any creation or assumption by the Company or any Subsidiary of any
Lien on any material asset other than in the ordinary course of business
consistent with past practices;
(vi) any making of any loan, advance or capital contributions to or
investment in any Person, other than loans, advances or capital
contributions to or investments in wholly-owned Subsidiaries made in the
ordinary course of business consistent with past practices;
(vii) any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business or assets of the Company which,
individually or in the aggregate, has had or could reasonably be expected to
have a Material Adverse Effect on the Company;
(viii) any transaction or commitment made, or any contract or agreement
entered into, by the Company or any Subsidiary relating to its assets or
business or any relinquishment by the Company or any Subsidiary of any
contract or other right, in either case, material to the Company and the
Subsidiaries, taken as a whole, other than transactions and commitments in
the ordinary course of business consistent with past practices and those
contemplated by this Agreement;
(ix) any change in any method of accounting or accounting practice by the
Company or any Subsidiary;
(x) any (A) employment, deferred compensation, severance, retirement or
other similar agreement entered into with any director, officer or employee
of the Company or any Subsidiary (or any amendment to any such existing
agreement), (B) grant of any severance or termination pay to any director,
officer or employee of the Company or any Subsidiary or (C) change in
compensation or other benefits payable to any director, officer or employee
of the Company or any Subsidiary pursuant to any severance or retirement
plans or policies thereof, in any case having a value in excess of L30,000;
or
(xi) any labor dispute, other than routine individual grievances and
disputes not affecting a material number or category of employees, or any
activity or proceeding by a trade union or representative thereof to
organize any employees of the Company or any Subsidiary, which employees
were not subject to a collective bargaining agreement at the Balance Sheet
Date, or any lockouts, strikes, slowdowns, work stoppages or threats thereof
by or with respect to any employees of the Company or any Subsidiary.
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3.10 NO UNDISCLOSED MATERIAL LIABILITIES. There are no liabilities of the
Company or any Subsidiary of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, and there is no existing
condition, situation or set of circumstances which could reasonably be expected
to result in such a liability, other than:
(i) liabilities provided for in the Balance Sheet or disclosed in the
notes thereto;
(ii) liabilities provided for or disclosed in the Management Accounts;
(iii) liabilities disclosed in the Disclosure Letter; and
(iv) other undisclosed liabilities which, individually or in the
aggregate, are not material to the Company and the Subsidiaries, taken as a
whole.
3.11 RELATED PARTY TRANSACTIONS. The Disclosure Letter contains a complete
list of all amounts greater than L20,000 owed by or to the Company on the
Balance Sheet Date in respect of any contract, arrangement or transaction
between (a) a Seller and the Company or (b) any Affiliate of such Seller, any
relative of such Seller or any known Affiliate of any relative of such Seller
and the Company. Since the Balance Sheet Date, there has not been any accrual of
liability in an amount greater than L20,000 by the Company to such Seller, any
of its Affiliates, any relative of such Seller or any Affiliate of any relative
of such Seller or other transaction between the Company and such Seller and any
of such Seller's Affiliates, any relative of such Seller or any Affiliate of any
relative of such Seller.
3.12 CONTRACTS WITH CLIENTS. The Company has previously delivered to the
Chief Financial Officer of Buyer a schedule setting forth each contract or
agreement, and all amendments thereto, and the fee arrangements thereunder
(whether payable on a retainer basis, based on performance or otherwise), in
effect on the date hereof relating to the Company's rendering of services to its
clients or customers in respect of which the Sellers believe (but do not
warrant) that the total amount invoiced to the client or customer by the Company
and/or the Subsidiaries in the calendar year 1996 will be in excess of L1
million exclusive of Value Added Tax (the "Client Contracts"). The Company and
the Subsidiaries are in material compliance with the terms of each Client
Contract, and each Client Contract is in full force and effect with respect to
the applicable client or customer. Neither the Company nor any Subsidiary nor
any Seller has received any notice (whether formal or informal) that any client
or customer desires to terminate or not renew any Client Contract, and neither
the Company nor any Subsidiary nor any Seller has any reason to believe that any
client or customer will seek to terminate any Client Contract. There are no
other terms, oral or otherwise, that modify the terms of any Client Contract in
any way that could materially and adversely affect the value to Buyer of such
Client Contract. No Client Contract requires consent, notification or other
action to remain in full force and effect following completion.
3.13 OTHER MATERIAL CONTRACTS. (a) Except as set forth in the Disclosure
Letter or Schedule 3.16 and except for the contracts and agreements referred to
in Section 3.12, neither the Company nor any Subsidiary, nor, in the case of
clause (vii) of this Section 3.13(a), any Seller is a party to or bound by:
(i) any lease of real or personal property providing for annual rentals
of L50,000 or more;
(ii) any agreement for the purchase of materials, supplies, goods,
services, equipment or other assets that provides for either (A) annual
payments by the Company and the Subsidiaries of L50,000 or more or (B)
aggregate payments by the Company and the Subsidiaries of L100,000 or more;
(iii) any partnership, joint venture or other similar agreement or
arrangement;
(iv) any agreement in respect of which any obligation of the Company or
any Subsidiary remains outstanding relating to the acquisition or
disposition of any business (whether by merger, sale of stock, sale of
assets or otherwise);
(v) any agreement relating to indebtedness for borrowed money or the
deferred purchase price of property (in either case, whether incurred,
assumed, guaranteed or secured by any asset),
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except any such agreement (A) with an aggregate outstanding principal amount
not exceeding L100,000 and which may be prepaid on not more than 30 days
notice without the payment of any penalty and (B) entered into subsequent to
the date of this Agreement as permitted by Section 3.9(iv);
(vi) any license, franchise or similar agreement other than software
licences entered into in the ordinary course of business;
(vii) any agreement that limits the freedom of the Company, any
Subsidiary or any Seller to compete in any line of business or with any
Person or in any area or which would so limit the freedom of the Company,
any Subsidiary or any Seller after the Completion Date; or
(viii) any other agreement, commitment, arrangement or plan not made in
the ordinary course of business that is material to the Company and the
Subsidiaries, taken as a whole.
(b) Each agreement, commitment, arrangement or plan disclosed in any
Schedule to this Agreement or required to be disclosed pursuant to this Section
3.13 is a valid and binding agreement of the Company, a Subsidiary or a Seller,
as the case may be, and is in full force and effect, and neither the Company nor
any Subsidiary, nor so far as the Sellers are aware any other party thereto, is
in default or breach in any material respect under the terms of any such
agreement, contract, plan, lease, arrangement or commitments as to have a
Material Adverse Effect on the Company or the Group, taken as a whole.
3.14 LITIGATION. (a) There is no action, suit, investigation or
proceeding pending against, or to the knowledge of any Seller threatened against
or affecting, such Seller or any of such Seller's property before any court or
arbitrator or any governmental body, agency or official which, if determined or
resolved adversely to any Seller in accordance with the plaintiffs' demands,
would reasonably be expected to have a Material Adverse Effect on Buyer, the
Company or any Subsidiary, or which in any manner challenges or seeks to
prevent, enjoin, alter or materially delay the transactions contemplated hereby.
(b) There is no action, suit, investigation or proceeding pending against,
or to the knowledge of any Seller threatened against or affecting, the Company
or any Subsidiary or any of the Properties before any court or arbitrator or any
governmental body, agency or official.
3.15 COMPLIANCE WITH LAWS AND COURT ORDERS; NO DEFAULTS. (a) Neither the
Company nor any Subsidiary is in material violation of, and has not since
December 31, 1992 violated in any manner, any applicable law, rule, regulation,
judgment, injunction, order or decree such as would have a Material Adverse
Effect on the Company or the Group, taken as a whole.
(b) Neither the Company nor any Subsidiary is in default under, and no
condition exists that with notice or lapse of time or both would constitute a
default under, any agreement or other instrument binding upon the Company or any
Subsidiary or any Permit, other than a default that would not reasonably be
expected to have a Material Adverse Effect on the Company or the Group taken as
a whole.
3.16 PROPERTIES. (a) The Properties comprise all the land and buildings
owned, occupied or used by the Company and any of its Subsidiaries or in which
the Company and any of its Subsidiaries has any right, interest or liability
whether actual or contingent and whether as an owner or original contracting
party or as a guarantor of any party or by other contractual relationship.
(b) The information in respect of the Properties set out in Schedule 3.16 is
true, complete and accurate and not misleading in any respect.
(c) The Company or one of its Subsidiaries is in possession of the whole of
each of the Properties, none of which is vacant, and no other person is in or
entitled to occupation of any of the Properties.
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(d) The Company or a wholly-owned subsidiary of it has good and marketable
title to each of the Properties, which has, where necessary, been registered
with the relevant authorities, and all relevant deeds and documents are in its
possession or under its control.
(e) No person has or claims a Lien over any of the Properties or any
relevant deeds or documents.
(f) The Company or one of its Subsidiaries is the sole legal and beneficial
owner of and otherwise absolutely entitled to each of the Properties and such of
the fixtures, plant and equipment at the Properties which are owned by the
tenants of the Properties are owned absolutely by the Company or one of its
Subsidiaries free from any encumbrance.
(g) Except as specified in Schedule 3.16, the Company's or relevant
Subsidiary's title to each of the Properties is not subject (or likely to become
subject) to any matter which might adversely affect:
(i) the Company's or relevant Subsidiary's ability to continue to carry
on its existing business from the relevant Property at the same cost; or
(ii) the value of the relevant Property
and neither the Company nor any of its Subsidiaries is, or is alleged to be in
breach of any covenant, restriction or other obligation (whether statutory or
otherwise) affecting any of the Properties or the conduct of the existing
business at or from the Properties.
(h) Each Property benefits from all rights, easements and other facilities
(if any) necessary or desirable, and on reasonable terms, for the continued use,
enjoyment and maintenance of the relevant Property by the Company for the
purpose of its existing business carried on at or from the relevant Property and
for the compliance with any obligations relating to the relevant Property
(whether statutory or otherwise).
(i) The Properties are not subject to the payment of any outgoings, nor is
the Company or any of its Subsidiaries actually or contingently liable to pay
any sums in relation to a Property other than the usual rates and taxes and, in
the case of leaseholds, the rent and other outgoings (if any) specified in
Schedule 3.16.
(j) There is no outstanding liability for any rent, rates or taxes in
respect of any of the Properties.
(k) So far as the Sellers are aware, there are no current, contingent or
anticipated notices, actions, disputes, complaints, liabilities, claims or
demands relating to or in respect of the Properties or their use, nor are there
any circumstances rendering any of the foregoing likely.
(l) So far as the Sellers are aware, the Properties and all uses of and
developments on the Properties comply with all planning legislation and any
legislation intended to control or regulate the construction, demolition,
alteration or use of land or buildings or to preserve or protect the national
heritage and any orders, regulations, consents or permissions made or granted
under any of the same ("Planning Legislation").
(m) So far as the Sellers are aware, no planning permission or land use
authorization in respect of any of the Properties is for a limited period or
personal, and there are no other unusual or onerous planning conditions.
(n) So far as the Sellers are aware, all Planning Legislation and planning
conditions in respect of any of the Properties have been complied with to date,
and there is no reason why the same should not continue to be complied with.
(o) Neither the Company nor any of its Subsidiaries is for any reason
anticipating the expenditure of any material sum of money in respect of any of
the Properties.
(p) So far as the Sellers are aware, there is no resolution or proposal for
the compulsory acquisition of the Properties or any means of access thereto or
egress therefrom.
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(q) The buildings and other structures on the Properties, none of which has
been erected or materially altered within the last six (6) years, are in good
and substantial repair and fit for the purposes for which they are presently
used.
(r) In relation to such of the Properties as are leasehold:
(i) all covenants, conditions and agreements contained in the relevant
leases, on the part of the landlord and the tenant, have been complied with;
(ii) there has been no complaint alleging any breach or any refusal to
accept rent;
(iii) no rent is or should be currently under review;
(iv) there are no current notices given by the landlord or the tenant or
proceedings pursuant to the Landlord and Tenant Act 1954 or otherwise;
(v) the security of tenure provisions of Part II of the Landlord and
Tenant Act 1954 are not excluded;
(vi) none of the leases, other than leases at a full rack rent, contains
any provisions for forfeiture on insolvency or liquidation or any
prohibition against or requirement to obtain landlord's consent for charging
or assignment;
(vii) none of the leases requires the tenant to offer to surrender the
same before or as a pre-condition of an assignment or under-letting or
contains requirements to be satisfied on a change of ownership of the share
capital or control of the tenant;
(viii) So far as Sellers are aware any consents required for the granting
of any of the leases were duly obtained.
3.17 INTELLECTUAL PROPERTY. (a) The Company and the Subsidiaries are the
owners or licensees of all the Intellectual Property Rights reasonably required
by them for the purposes of their respective businesses.
(b) (i) Since December 31, 1992, neither the Company nor any Subsidiary has
been a defendant in any action, suit, investigation or proceeding relating to,
or otherwise has been notified of, any alleged claim or infringement of any
Intellectual Property Rights, and Sellers have no knowledge of any such
infringement by the Company, and (ii) Sellers have no knowledge of any
continuing infringement by any other Person of any Intellectual Property Rights
held for use by the Company or any Subsidiary ("Company Intellectual Property
Rights"). No Company Intellectual Property Right is subject to any outstanding
judgment, injunction, order, decree or agreement restricting the use thereof by
the Company or restricting the licensing thereof by the Company to any Person.
The Company has not entered into any agreement to indemnify any other Person
against any charge of infringement of any Intellectual Property Right.
3.18 INSURANCE COVERAGE. The Company has furnished to Buyer a list of all
insurance relating to the assets, Properties, business, operations, employees,
officers or directors of the Company or any Subsidiary. There is no claim by the
Company or any Subsidiary pending under any of such policies or bonds relating
to such insurance as to which coverage has been questioned, denied or disputed
by the underwriters of such policies or bonds or in respect of which such
underwriters have reserved their rights. All premiums payable under all such
policies and bonds have been paid timely and the Company and its Subsidiaries
and any other person having an interest in such policies and bonds have
otherwise complied fully with the terms and conditions of all such policies and
bonds. Such policies of insurance and bonds (or other policies and bonds
providing substantially similar insurance coverage) remain in full force and
effect. Such policies and bonds are of the type and in amounts customarily
carried by Persons conducting businesses similar to those of the Company or any
Subsidiary. The Company does not know of any threatened termination of, premium
increase with respect to, or
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material alteration of coverage under, any of such policies or bonds. After the
Completion, the Company and its Subsidiaries and Affiliates shall continue to
have coverage under such policies and bonds with respect to events occurring
prior to the Completion.
3.19 LICENSES AND PERMITS. Each material license (excluding software
licences entered into in the ordinary course of business), franchise, permit or
other similar authorization of the Company affecting, or relating in any way to,
the assets, the Properties or business of the Company and its Subsidiaries (the
"Permits") is valid and in full force and effect and none of the Permits will be
terminated or impaired or become terminable, in whole or in part, as a result of
the transactions contemplated hereby.
3.20 FINDERS' FEES. There is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of the
Company, any Subsidiary or any Seller and which might be entitled to any fee or
commission in connection with the transactions contemplated by this Agreement.
3.21 ENVIRONMENTAL MATTERS. Other than such as would not have a Material
Adverse Effect on the Company or any Subsidiary:
(a) Each Group Company has all Environmental Permits required.
(b) Each such Environmental Permit is in full force and effect.
(c) No proceeding or other action of whatever nature is pending, or so
far as the Sellers are aware is either threatened or under consideration
seeking the suspension, revocation, variation, limitation of or otherwise
relating to any Environmental Permit or seeking to impose any penalty under
any Environmental Permit or Environmental Laws.
(d) There are no facts or circumstances which will or are likely to
result in any Environmental Permit being suspended, revoked, varied or
limited or which may prejudice its renewal.
(e) No appeals are pending or being contemplated in respect of the
refusal of or conditions contained in any Environmental Permit or any action
taken in respect of any Environmental Permit.
(f) No Environmental Permit requires consent, notification or other
action to remain in full force and effect following Completion.
(g) The Sellers do not have reason to believe that those Environmental
Permits which have not yet been granted and are pending will not be granted
within a reasonable period of time.
3.22 COMPLIANCE WITH ENVIRONMENTAL PERMITS AND ENVIRONMENTAL
LAWS. (a) Each Group Company is and, so far as the Sellers are aware, always
has been in full compliance with the Environmental Permits and Environmental
Laws and, so far as the Sellers are aware, the existence and use of all the
Properties and the machinery and other property employed in the conduct of the
business of the Group Company is and, so far as the Sellers are aware, has been
in accordance with the Environmental Permits and Environmental Laws.
(b) No notice, notification, demand, request for information, citation,
summons, complaint or order has been issued, no complaint has been made, no
penalty has been assessed and, so far as the Sellers are aware, no investigation
or review is either pending or threatened, by any governmental entity or other
person with respect to:
(i) any alleged violation by any Group Company of any Environmental Law
including the failure by any Group Company to report to the proper
governmental entity the occurrence of any event which is required to be so
reported by any Environmental Law; or
(ii) any alleged failure by any Group Company to have or to operate in
compliance with any Environmental Permit; or
(iii) any of the Properties.
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(c) There are in relation to the business of any Group Company and the
Properties no past or present events, conditions, circumstances, activities,
practices, incidents, actions or proposals which or which may interfere with or
prevent compliance with any Environmental Law or Environmental Permit, or which
or which may give rise to any common law or legal liability or otherwise form
the basis of any claim, action, suit, proceeding, hearing or investigation
related to Environmental Matters.
(d) There is not currently and there has not been on, into or from any of
the Properties any spill, leakage, discharge, release, emission, injection,
escape or deposit of any kind (whether to air, water (including underground
water and the sea), sewage systems and land or a combination of these) of any
substance, fluid, gas, vapor or form of energy which may cause harm to humans,
flora or fauna or which may give rise to any third party liability or which may
inhibit or restrict or make materially more costly any redevelopment of any of
the Properties or any part thereof by reason of contamination or otherwise.
(e) So far as the Sellers are aware none of the Properties have been used at
any time by any person for any of the potentially contaminative use.
(f) There are no underground storage tanks or vessels (whether used or
disused) located on any of the Properties.
(g) At Completion, no Group Company will have any indebtedness, obligation
or liability, absolute or contingent with respect to the storage, treatment,
clean-up, disposal, containment or other remediation of any land or substance
(including, without limitation, any such indebtedness, obligation or liability
in respect of any Environmental Law regarding such storage, treatment, clean-up,
disposal, containment or other remediation or any changes in such Environmental
Law adopted but not yet effective).
3.23 ENVIRONMENTAL AUDIT. Neither the business of any Group Company nor,
so far as the Sellers are aware, any of the Properties has been the subject of
any environmental audit or review.
3.24 SELLERS' INVESTMENT PURPOSES. Each Seller agrees to deliver by
Completion a letter to Buyer in the form of Exhibit C hereto with regard to each
Seller's investment purposes.
3.25 COMPETITION AND FAIR TRADING LAWS. (a) No Group Company is a party
to (or is concerned in) any agreement, arrangement, concerted practice or course
of conduct which (i) is registrable under the provisions of the Restrictive
Trade Practices Act 1976 (as amended); or (ii) contravenes the provisions of the
Resale Prices Act 1976; or (iii) falls within Article 85 and/or Article 86 of
the Treaty of Rome; or (iv) falls within Article 53 and/or Article 54 of the
Agreement on the European Economic Area; or (v) otherwise infringes the
competition legislation or practice of any other jurisdiction.
(b) No Group Company has received any process, notice or other communication
(formal or informal) by or on behalf of the Office of Fair Trading (whether
under the Fair Trading Act 1973, the Competition Act 1980 or otherwise), the
Monopolies and Mergers Commission, the Secretary of State for Trade and Industry
or the Commission of the European Communities, the EFTA Surveillance Authority
or any other authority having jurisdiction in competition matters in relation to
any aspect of the business of any Group Company or any agreement, arrangement,
concerted practice or course of conduct to which any Group Company is, or is
alleged to be, a party.
(c) No Group Company is involved in any practice or agreement as a result of
which it is likely to receive any such process, notice or communication as is
referred to in paragraph (b).
(d) No Group Company is subject to any order or judgment given by any court
or governmental or regulatory authority, or party to any undertaking or
assurance given to any such court or authority, in relation to competition
matter which is still in force.
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3.26 RECORDS AND SOFTWARE. (a) All the accounting records and systems
(including but not limited to computerized accounting systems) of the Group are
recorded, stored, maintained or operated or otherwise held by a Group Company
and are not wholly or partly dependent on any facilities or systems which are
not under the exclusive ownership or control of a Group Company.
(b) Each Group Company is licensed to use all software necessary to enable
it to continue to use its computerized records for the foreseeable future in the
same manner in which they have been used prior to the date of this Agreement and
does not, so far as the Sellers are aware, share any user rights in respect of
such software with any other person.
3.27 BUSINESS CONTRACTS. The matters and information contained in Item K
(Business Files Volume II) and Item O paragraphs 1, 2, 5, 7, 9, 10, 11 and 13
(Material Contracts) of Appendix A of the Disclosure Letter consist of contracts
entered into by the relevant Group Company and do not contain any unusual or
materially restrictive provisions, were entered into by the relevant Group
Company in the ordinary and usual course of business consistent with past
practices and all liabilities thereunder have been fully and properly disclosed
in the Financial Statements and the Management Accounts as the case may be.
ARTICLE 4
WARRANTIES OF BUYER
Buyer warrants to Sellers as of the date hereof that:
4.1 CORPORATE EXISTENCE AND POWER. Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Minnesota and has all corporate powers and all material governmental
licenses, authorizations, permits, consents and approvals required to carry on
its business as now conducted.
4.2 CORPORATE AUTHORIZATION. The execution, delivery and performance by
Buyer of this Agreement are within the corporate powers of Buyer and have been
duly authorized by all necessary corporate action on the part of Buyer. This
Agreement constitutes a valid and binding agreement of Buyer enforceable in
accordance with its terms, except as (i) the enforceability hereof may be
limited by bankruptcy, insolvency, moratorium or other similar laws affecting
the enforcement of creditors' rights generally and (ii) the availability of
equitable remedies may be limited by equitable principles of general
applicability.
4.3 GOVERNMENTAL AUTHORIZATION. The execution, delivery and performance by
Buyer of this Agreement require no action by or in respect of, or filing with,
any governmental body, agency or official other than compliance with any
applicable requirements of the HSR Act.
4.4 NON-CONTRAVENTION. The execution, delivery and performance by Buyer of
this Agreement do not and will not (i) violate the certificate and articles of
incorporation or bylaws of Buyer or (ii) assuming compliance with the matters
referred to in Sections 4.2 and 4.3, violate any applicable material law, rule,
regulation, judgment, injunction, order or decree requiring any consent or other
action by any Person.
4.5 BUYER STOCK. At the time of the Completion, the Buyer Stock to be
issued to each Seller hereunder will have been duly authorized and, when issued
and delivered to such Seller pursuant to the Agreement, will have been validly
issued, will be fully paid and nonassessable, and will be free from and clear of
any Lien and any other limitation or restriction (including any restriction on
the right to vote, sell or otherwise dispose of such Buyer Stock) other than
restrictions imposed by the United States securities laws. The issuance of such
Buyer Stock will not give rise to any preemptive or similar rights.
4.6 BUYER'S SEC REPORTS. Buyer has heretofore delivered to Sellers true
and complete copies of (i) its annual report on Form 10-K for its fiscal year
ended May 31, 1995, (ii) its quarterly report on Form 10-Q for its fiscal
quarter ended February 29, 1996 and (iii) its proxy statements or information
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statements relating to meetings of, or actions taken without a meeting by,
Buyer's stockholders held since June 6, 1995 (collectively, "Buyer's SEC
Documents"). As of its filing date, each of Buyer's SEC Documents complied in
all material respects with the requirements of the 1933 Act or the 1934 Act, as
the case may be, and the applicable rules and regulations of the SEC promulgated
thereunder, and did not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading, except that information as of a later date shall be deemed to modify
information as of an earlier date.
4.7 FINDERS' FEES. Except for Alex. Brown & Sons, whose fees will be paid
by Buyer, there is no investment bank, broker, finder or other intermediary
which has been retained by or is authorized to act on behalf of Buyer who might
be entitled to any fee or commission in connection with the transactions
contemplated by this Agreement.
ARTICLE 5
COVENANTS OF SELLERS
The Sellers agree that they will procure that:
5.1 CONDUCT OF THE COMPANY. (a) From the date hereof until the Completion
Date, that each Group Company shall conduct its business in the ordinary and
usual course consistent with past practices and use its reasonable efforts to
preserve intact the Group Company's business organizations and relationships
with third parties and to keep available the services of the Group Company's
present officers and senior management. Without limiting the generality of the
foregoing, from the date hereof until the Completion Date without the written
consent of Buyer, the Sellers shall procure that:
(i) no Group Company will save as required by this Agreement adopt or
propose any change in its memorandum and articles of association or bylaws;
(ii) no Group Company will merge or consolidate with any other Person or
acquire a material amount of assets of any other Person;
(iii) no Group Company will sell, lease, license or otherwise dispose of
any material assets or property except (A) pursuant to existing contracts or
commitments or (B) in the ordinary course of business consistent with past
practices;
(iv) no Group Company will exercise any option to determine contained in
any of the leases of the Properties;
(v) all transactions between any Group Company and any Seller, any
Affiliate of such Seller, any relative of such Seller or any Affiliate of
any relative of such Seller shall be on arm's length terms;
(vi) save in respect of the Company Preferred Shares and the Merit
Preference Shares no dividend or other distribution (within the meaning of
Section 209 of the Taxes Act), shall be declared, paid or made by any Group
Company;
(vii) no Group Company will set aside or pay any amount to any Seller,
any Affiliate of such Seller, any relative of such Seller or any Affiliate
of any relative of such Seller, other than any amount paid to such Persons
in the ordinary course in their capacity as directors or employees, or paid
in connection with the redemption of the Company Preferred Shares and the
Merit Preference Shares pursuant to Section 5.7;
(viii) no shares or loan capital shall be allotted or issued, or agreed to
be allotted or issued, by any Group Company;
(ix) no Group Company will split, consolidate or reclassify, or take any
other similar action with respect to, any of its capital shares;
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(x) no change shall be made in terms of employment, including pension
fund commitments, by any Group Company (other than those required by law)
which could increase the total staff costs of the Group by more than an
aggregate of 10% per annum or the remuneration of any one director or
employee by more than 10% per annum;
(xi) save in the ordinary course of business and consistent with past
practices, the amount of indebtedness owed by any Group Company to any
Person as at the date hereof shall not be increased and save as aforesaid no
new indebtedness owed by any Group Company to another Person shall be
entered into by any Group Company;
(xii) save in the ordinary course of business and consistent with past
practices, the amount of any indebtedness owed by any Group Company to any
other Group Company as at the date hereof shall not be increased and save as
aforesaid no new indebtedness owed by any Group Company to another Group
Company shall be entered into by any Group Company;
(xiii) save in the ordinary course of business and consistent with past
practices, the liability of any Group Company under any guarantees given by
itself on behalf of another Group Company existing at the date hereof shall
not be increased or extended and save as aforesaid no new guarantees given
by any Group Company on behalf of another Group Company shall be entered
into by any Group Company;
(xiv) no action shall be taken by any member of the Group which is
inconsistent with the provisions of this Agreement or the consummation of
the transactions contemplated by this Agreement; and
(xv) the Company and Sellers will not agree or commit to do any of the
foregoing.
(b) Prior to or as of the Completion Date, the memorandum and articles of
association of the Company shall be amended so as to eliminate any special
rights in favor of current shareholders of the Company which are not granted to
all the current shareholders of the Company.
The Company and Sellers will not do, allow or procure any action or omission
which would constitute or give rise to a breach of Warranty if the Warranties
were to be repeated on or at any time before the Completion Date by reference to
the facts and circumstances then existing.
5.2 CONTRACTS. From the date hereof until the Completion Date, the Sellers
shall ensure that the Company consults fully with the Buyer in relation to any
matters which may have a material effect upon the Group and that, without the
prior consent of the Buyer, no Group Company shall:
(a) enter into any contract or commitment (or make a bid or offer which
may lead to a contract or commitment) other than in the ordinary course of
business and consistent with past practices, or enter into any contract or
commitment which is of a long term or unusual nature or which could involve
an obligation of a material nature or which may result in any material
change in the nature or scope of the operations of the Group;
(b) agree to any variation of any existing contract to which that Group
Company is a party and which may have a material effect upon the nature or
scope of the operations of the Group; or
(c) (whether in the ordinary and usual course of business or otherwise)
acquire or dispose of, or agree to acquire or dispose of, any business or
any asset having a value in excess of L100,000.
5.3 ACCESS TO INFORMATION. From the date hereof until the Completion Date,
the Company and Sellers will (i) give Buyer, its counsel, financial advisors,
auditors and other authorized representatives full access to the offices,
properties, personnel, books and records of the Company and its Subsidiaries and
to the books and records of any Seller relating to the business or operations of
the Company and its Subsidiaries (including, without limitation, all statutory
books, leases, contracts, supplier lists and customer lists) together with the
right to take copies, (ii) furnish to Buyer, its counsel, financial advisors,
auditors and other authorized representatives such financial and operating data
and other information relating to the Company and its Subsidiaries as such
Persons may
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reasonably request and (iii) instruct the employees, counsel and financial
advisors of the Company and its Subsidiaries or any Seller to cooperate with
Buyer, at Buyer's cost, in its investigation of the business of the Company or
any Subsidiary. No investigation by Buyer or other information received by Buyer
shall operate as a waiver or otherwise affect any representation, warranty or
agreement given or made by the Company or any Seller hereunder.
5.4 NOTICES OF CERTAIN EVENTS. The Sellers shall promptly notify Buyer of:
(i) all relevant information which comes to the notice of the Company
and the Sellers in relation to any fact or matter (whether existing on or
before the date hereof or arising afterwards) which may constitute a
material breach of any Warranty if the Warranties were to be repeated on or
at any time before the Completion Date by reference to the facts and
circumstances then existing;
(ii) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
(iii) any notice or other communications from any client or customer
seeking to terminate any contract or agreement with the Company relating to
the rendering of services to such client or customer;
(iv) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement; and
(v) any actions, suits, claims, investigations or proceedings commenced
or, to the knowledge of the Company or any Seller threatened against,
relating to or involving or otherwise affecting the Company or any Seller
that, if pending on the date of this Agreement, would have been required to
have been disclosed pursuant to Section 3.14 or that relate to the
consummation of the transactions contemplated by this Agreement.
5.5 CERTAIN ACTIONS. From the date hereof to the earlier of the
termination of this Agreement and the Completion Date, neither the Company nor
any Seller shall, and each of them shall cause their respective representatives
not to, directly or indirectly:
(i) grant any proxies with respect to any Shares to any Person or enter
into any other arrangement or agreement with respect to the voting thereof;
(ii) in the case of each Seller, sell, transfer or otherwise dispose of
any of such Seller's shares, or permit any Lien to exist on such Shares;
PROVIDED HOWEVER THAT Merit Direct NV may transfer the Shares held by Merit
Direct NV at the date of this Agreement to the current shareholders of Merit
Direct NV, subject to the said shareholders each agreeing to be bound by the
terms of this Agreement in relation to the Shares transferred to them and
their assuming an appropriate proportion of the liability of Merit Group NV
having regard to the proportion of Shares transferred to them.
5.6 COOPERATION IN PREPARING BUYER PROXY STATEMENT. From the date hereof
until the Completion Date, the Company and Sellers will, at Buyer's cost, use
their best efforts to (i) assist Buyer in the preparation of pro forma financial
statements (ii) prepare and deliver as promptly as practicable an audited
reconciliation from UK GAAP to US GAAP relating to any financial statements of
the Company provided to Buyer; and (iii) furnish to Buyer, its counsel,
financial advisors, auditors and other authorized representatives such financial
statements, financial and operating data and other information, all as
reasonably requested by Buyer in connection with the preparation of the Buyer
Proxy Statement.
5.7 PREFERRED SHARES. Prior to or as of the Completion Date, the Company
will redeem all outstanding Company Preferred Shares and all Merit Preference
Shares.
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5.8 RECONCILIATION OF FINANCIAL STATEMENTS. Sellers shall prepare and
deliver, or cause to be prepared and delivered, as promptly as practicable an
audited reconciliation of the Financial Statements from UK GAAP to US GAAP.
5.9 REQUIRED CONSENTS OF ACCOUNTANTS. Sellers shall use their best efforts
to cause KPMG Peat Marwick, independent public accountants, to provide to Buyer
any consents that may be necessary in connection with the inclusion of audited
financial statements and reconciliations prepared by KPMG Peat Marwick in the
Buyer Proxy Statement.
5.10 TERMINATION OF SHAREHOLDER AGREEMENTS. Prior to the Completion Date,
the Sellers shall cause to be terminated any and all agreements among all or any
of the shareholders of the Company or any Subsidiary (including all outstanding
rights and obligations thereunder) relating to the Shares, the Company or any
Subsidiary other than employment and consultancy arrangements in the ordinary
course of business, and shall provide all waivers and approvals that may be
required in connection therewith in order to consummate the transactions
contemplated by this Agreement.
5.11 STAY BONUS ARRANGEMENTS. Prior to Completion, the Company shall offer
employment agreements to the individuals listed on Schedule A in a form
satisfactory to Buyer and Seller Representative, which employment agreements
will contain stay bonuses in the amounts set forth on Schedule C.
5.12 RESTRICTIONS ON SALE. No Seller who is an Affiliate of Buyer shall
sell any shares of Buyer Stock prior to public release of the results of the
first 30 days of combined operations of Buyer and the Company.
5.13 ASSIGNMENT OF LEASE. Sellers shall procure the assignment by Merit
Training Limited to Merit Direct Limited of the lease of Suite 4 Conrad House
Birmingham Road Stratford upon Avon dated 2 January 1985 and made between Conrad
Construction Limited (1) and Merit Consultants Limited (2) together with
obtaining all necessary consents to such assignment pursuant to the said lease;
5.14 TRANSLATION OF DOCUMENTS. At Buyer's requests and expense Sellers
shall procure the translation into English of the documents contained in item K
(Business Files Volumes II) and item O paragraphs 1, 2, 5, 7, 9, 10, 11 and 13
(Material Contracts) of Appendix A of the Disclosure Letter and shall provide
any further information in relation to such documents or the matters and
information contained therein as the Buyer shall reasonably require.
ARTICLE 6
COVENANTS OF BUYER
Buyer agrees that:
6.1 STOCKHOLDER MEETING; PROXY MATERIAL. Buyer shall cause a meeting of
its stockholders (the "Buyer Stockholder Meeting") to be duly called and held as
soon as reasonably practicable for the purpose of approving the purchase of the
Shares and the issuance of Buyer Stock in connection therewith (the "Buyer
Stockholder Approvals"). The Directors of Buyer shall, subject to their
fiduciary duties as advised by counsel, recommend such approvals. In connection
with the Buyer Stockholder Meeting, Buyer (a) will as promptly as reasonably
practicable prepare and file with the SEC, will use its reasonable best efforts
to have cleared by the SEC and will thereafter mail to its stockholders as
promptly as practicable the Buyer Proxy Statement and all other proxy materials
for such meeting, (b) will use its reasonable efforts to obtain the Buyer
Stockholder Approvals and (c) will otherwise comply with all legal requirements
applicable to such meeting.
6.2 ACCESS TO RECORDS. Following the Completion, Buyer shall permit any
Seller reasonable access to such records of the Company or any Subsidiary
relating to the operations of the Company or
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such Subsidiary prior to the Completion as any Seller may reasonably request for
purposes of responding to tax audits, litigation, or similar situations where
such Seller has a reasonable need for access to such records. Such Seller will
use his or her best efforts to protect the confidentiality of records of the
Company or any Subsidiary made available to him or her.
6.3 DESIGNATION OF DIRECTOR. (a) Buyer shall procure Mr. Henk P. Kruithof
to be nominated at the next annual meeting of Buyer following Completion as a
member of the Board of Directors of Buyer, and shall use all reasonable efforts
to solicit proxies for the election of Mr. Henk P. Kruithof to the Board of
Directors, or in the event of Mr. Kruithof's incapacity, such other person as
Seller Representative shall designate, subject to approval of such designee by
the Board of Directors of Buyer, which approval shall not be unreasonably
withheld.
(b) Buyer's obligations set forth in Section 6.3(a) shall terminate at such
time as Mr. Henk Kruithof shall beneficially own, in the aggregate, less than
2.5 million shares of the outstanding shares of Buyer Stock, subject to
adjustment for any stock splits or other reclassifications.
6.4 AUDITORS OF THE GROUP. Buyer shall procure that the current auditors
of the Group shall prepare the audited accounts of the Group for the financial
years ending December 31, 1996 and December 31, 1997, unless the Seller
Representative otherwise consents in writing.
ARTICLE 7
COVENANTS OF BUYER AND SELLERS
Buyer and Sellers agree that:
7.1 BEST EFFORTS. Subject to the terms and conditions of this Agreement,
Buyer and Sellers will take, or cause to be taken, all actions and to do, or
cause to be done, all things reasonably requested by any other party to
consummate as promptly as practicable the transactions contemplated by this
Agreement. Sellers and Buyer agree, and Sellers, prior to the Completion, and
Buyer, after the Completion, agree to cause the Company and each Subsidiary, to
execute and deliver such other documents, certificates, agreements and other
writings and to take such other actions as may be necessary or desirable in
order to consummate or implement expeditiously the transactions contemplated by
this Agreement.
7.2 CERTAIN FILINGS. Buyer and Sellers shall cooperate with one another
(i) in determining whether any action by or in respect of, or filing with, any
governmental body, agency, official or authority is required, or any actions,
consents, approvals or waivers are required to be obtained from parties to any
material contracts or agreements, in connection with the consummation of the
transactions contemplated by this Agreement and (ii) in taking such actions or
making any such filings, furnishing information required in connection therewith
and seeking timely to obtain any such actions, consents, approvals or waivers.
7.3 PUBLIC ANNOUNCEMENTS. Each party hereto agrees not to issue any press
release or make any public statement with respect to this Agreement or the
transactions contemplated hereby without the prior written consent of (i) Buyer,
in the case of any release issued or public statement by any Seller or, prior to
the Completion, the Company, or (ii) the Seller Representative, in the case of
any release issued or public statement by Buyer or, from and after the
Completion, the Company, in each case, which consent shall not be unreasonably
withheld, except as may be required by applicable law or any listing rules of
any securities exchange.
7.4 RESTRICTIONS ON SELLERS. (a) None of the Sellers shall, and each of
the Sellers shall procure that none of its Affiliates shall, (whether alone or
jointly with another and whether directly or indirectly) carry on or be engaged
or (except as the owner for investment of securities dealt in on a stock
exchange and not exceed 5 per cent in nominal value of the securities of that
class) interested in any Competing Business during a period of three years after
Completion. For this purpose, "Competing Business" means:
(i) any business carried on by any Group Company as at Completion; and
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(ii) which is carried on within the area in which any Group Company
carries on business as at Completion.
(b) None of the Sellers shall (and each of the Sellers shall procure that
none of its Affiliates shall) within a period of 3 years after Completion,
directly or indirectly, solicit or endeavor to entice away from any Group
Company, offer employment to or employ, or offer or conclude any contract for
services with, any person who was employed by any Group Company in skilled or
managerial work at any time during the 1 year prior to Closing.
(c) Except so far as may be required by law and in the circumstances only
after prior consultation with the Buyer, none of the Sellers shall (and each of
the Sellers shall procure that none of its Affiliates shall) at any time
disclose to any person or use to the detriment of any Group Company any trade
secret or other confidential information of a technical character which it holds
in relation to any Group Company or its affairs.
(d) Each Seller acknowledges and agrees that each of Sections 7.4(a), (b),
(c) and (d) constitutes an entirely separate and independent restriction and
that the duration, extent and application of each restriction are no greater
than is reasonable and necessary for the protection of the interests of the
Buyer but that, if any such restriction shall be adjudged by any court or
authority of competent jurisdiction to be void or unenforceable but would be
valid if part of the wording thereof were to be deleted and/or the period
thereof were to be reduced and/or the area dealt with thereby were to be
reduced, the said restriction shall apply within the jurisdiction of that court
or competent authority with such modifications as are necessary to make it valid
and effective.
7.5 HSR ACT. Buyer and Sellers will make any required filing under the HSR
Act as promptly as practicable.
ARTICLE 8
DIRECTORS, EMPLOYEES AND PENSIONS
Each Seller warrants to Buyer as to itself and as to the Company, as of the
date hereof and as of the Completion Date that:
8.1 DIRECTORS, EMPLOYEES AND PENSIONS. (a) The Disclosure Letter
discloses] a true and complete list of (i) the names, titles, ages, length of
service, notice period, annual salaries and other compensation and benefits of
all directors and officers of the Company and its Subsidiaries and all other
employees of the Company and its Subsidiaries whose 1995 annual compensation
exceeded L30,000 and (ii) the payroll printout for all other employees of the
Company and its Subsidiaries as at May 1, 1996.
(b) The Disclosure Letter also discloses the existence of all share
incentive schemes, share option schemes or profit sharing, bonus or other
incentive schemes applicable to any of the directors or employees of the Company
or its Subsidiaries.
(c) There are no current recognition, procedural or other agreements between
the Company or any Subsidiary and any trade union or other body representing its
employees or any of them.
(d) None of the persons described in clause (a)(i) has indicated to any
Seller or the Company that he or she intends to resign or retire as a result of
the transactions contemplated by this Agreement or otherwise within one year
after the Closing Date and there is no provision in any contract of employment
or otherwise giving a right or an increased right to any employee of any Company
and its Subsidiaries which may arise on the acquisition of the Shares by the
Buyer under this Agreement or which is contingent on a change of control or
ownership of any Company and its Subsidiaries.
(e) The Company and its Subsidiaries are in compliance with all currently
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours and health and safety at work, and
is not engaged in any unfair working practice, failure to comply with which or
engagement in which, as the case may be, would reasonably be expected to have
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a Material Adverse Effect on the Company. There is no complaint, enquiry,
investigation or other proceeding pending or, to the knowledge of the Company or
any Seller, threatened against the Company or any Subsidiary by or before the
Industrial Tribunal, the Equal Opportunities Commission, the Commission for
Racial Equality, the Health and Safety Executive or any other court or authority
in relation to any employees of the Company or its Subsidiaries and there are no
matters which could give rise to any such complaint, enquiry, investigation or
proceeding.
(f) All contracts of employment (written or unwritten) with any director or
employee of the Company and its Subsidiaries can be terminated by three months'
notice or less without giving rise to any claim for damages, severance pay, or
compensation (other than a statutory payment or statutory compensation for
unfair dismissal).
(g) Save as disclosed in the Disclosure Letter neither the Company nor any
Subsidiary has established or become a party to, or has or may have any
liability (actual or contingent, present or future), under or in connection with
any occupational scheme (as defined in section 1 of the Pension Schemes Act
1993) or other scheme, agreement, arrangement or understanding (whether
contractual or otherwise) for the provision or funding of any relevant benefits
(as defined in section 612 (1) of the Income and Corporation Taxes Act 1988 but
as if the exception contained in that section were omitted) for any past or
present officer or employee, or for any dependant of any such person, or any
other person, or has any obligation or liability (actual or contingent, present
or future) to contribute to any personal pension scheme (as defined in section
630 of the Taxes Act) in respect of any person.
(h) Neither the Company nor any Subsidiary sponsors or contributes to or has
at any time sponsored or contributed to, or is obligated or has at any time been
obligated to contribute to, any "employee benefit plan" (within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) other than an employee benefit plan described in Section 4(b)(4) of
ERISA.
(i) The Scottish Widows group personal pension scheme in which Merit Direct
Limited participates (the "Pension Scheme") is an approved scheme within the
meaning of Chapter IV of Part XIV of the Income and Corporation Taxes Act 1988;
so far as the Sellers are aware, it has at all times complied with and been duly
administered in accordance with all applicable legislation, regulations and
requirements (including, without limitation, the requirements of the Pension
Schemes Office of the Inland Revenue and the Occupational Pensions Board); and
Merit Direct Limited does not and is not required to hold a contracting-out
certificate (within the meaning of section 7 of the Pension Schemes Act 1993) in
respect of the Pension Scheme and nothing has been done or omitted to be done
which will or may result in the Pension Scheme ceasing to be an approved scheme.
(j) Merit Direct Limited has duly complied with all of its obligations and
duties (including statutory obligations) under and in respect of the Pension
Scheme; all amounts due from Merit Direct Limited to the trustees of the Pension
Scheme and to any insurance company in connection with the Pension Scheme have
been paid; and there are no material actions, suits or claims pending or
threatened in respect of the Pension Scheme (other than routine claims for
benefits).
(k) All lump sum benefits (other than a refund of contributions with
interest where appropriate) payable under the Pension Scheme on the death of a
member are fully insured.
(l) Merit Direct Limited is liable to contribute to the Pension Scheme only
to the extent set out in the Disclosure Letter and the Pension Scheme does not
provide any benefits other than money purchase benefits (as defined in section
181 of the Pension Schemes Act 1993) and the lump sum life assurance benefits
described in the Disclosure Letter.
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ARTICLE 9
CONDITIONS TO COMPLETION
9.1 CONDITIONS TO OBLIGATIONS OF BUYER AND SELLERS. The obligations of
Buyer and Sellers to consummate the Completion are subject to the satisfaction
of the following conditions at or as of the Completion Date:
(i) No provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit the consummation of the
Completion;
(ii) the Buyer Stockholder Approvals shall have been obtained;
(iii) the Registration Rights Agreement shall have been executed by
Buyer and Sellers;
(iv) the Tax Covenant shall have been executed by Buyer and the
Sellers;
(v) Buyer and Seller Representative shall have received letters from
each of Coopers & Lybrand, LLP, certified public accountants, and KPMG Peat
Marwick, independent public accountants, stating that the purchase of the
Shares will qualify as a pooling of interests transaction for financial
accounting purposes;
(vi) any applicable waiting period under the HSR Act relating to the
issuance of Buyer Stock to any Seller shall have expired;
(vii) Sellers shall have received unconditional clearance from the
Board of the Inland Revenue in respect of the application pursuant to
Section 138 Taxation of Chargeable Gains Act 1992, which has been submitted
to the Board of Inland Revenue prior to the date hereof; and
(viii) the Buyer shall have received an unconditional waiver by the
Panel on Take-overs and Mergers of the application of the City Code on
Take-overs and Mergers to the transactions contemplated by this Agreement,
which waiver shall not have been withdrawn and shall be in full force and
effect at the time of Completion. This condition precedent shall not be
waivable by either party.
9.2 CONDITIONS TO OBLIGATION OF BUYER. The obligation of Buyer to
consummate the Completion is subject to the satisfaction of the following
further conditions:
(i) Sellers shall have performed in all material respects all of their
respective obligations required to be performed by them at or prior to the
Completion Date;
(ii) Subject as provided in this Agreement, the Warranties of Sellers
contained in this Agreement shall have been true when made and (except for
Warranties which specifically speak as of an earlier date) shall be true at
and as the Completion Date, as if made at and as of the Completion Date;
(iii) There shall have been no event occurrence, development or state
of circumstances or facts which has had, or will have, a Material Adverse
Effect on the Company;
(iv) the Investor Letter shall have been executed by each Seller and
delivered to Buyer;
(v) Buyer shall have received or be reasonably satisfied that it will
receive all consents and approvals necessary in order that all Client
Contracts remain in full force and effect following Completion.
(vi) No proceeding challenging this Agreement or the transactions
contemplated hereby or seeking to prohibit, alter, prevent or materially
delay the Completion shall have been instituted by any Person before any
court, arbitrator or governmental body, agency or official and be pending;
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(vii) Buyer shall have received all documents it may reasonably request
relating to the existence of the Company and the authority of Sellers for
this Agreement, all in form and substance reasonably satisfactory to Buyer;
(viii) Sellers shall have complied with Section 5.10 hereof, and
Sellers shall have provided all required waivers and approvals in connection
therewith;
(ix) Buyer shall have received or be satisfied that it will receive all
necessary consents of KPMG Peat Marwick, independent public accountants,
with respect to the audited financial statements and reconciliations to be
used in the Buyer Proxy Statement; and
(x) Sellers shall have procured the written consent of GMAC to the
transaction contemplated by this Agreement, to the extent that such consent
is required.
PROVIDED that Buyer shall be entitled in its absolute discretion, by written
notice to Sellers, to waive any or all of the conditions set forth in this
Section 10.2, BUT PROVIDED FURTHER that, if following the date hereof, and
prior to the Completion Date, Sellers notify Buyer in writing of the
existence of a breach of Warranty (a "Notified Breach") such as would give
rise to Buyer's right pursuant to Sections 2.2(e)(i) and 9.2(ii) herein to
rescind the Agreement, and following receipt of such notice, Buyer waives
such right of rescission, Sellers shall have no liability to the Buyers in
respect of such Notified Breach, unless the Sellers were in willful breach
of such Warranty in which case Section 11 shall apply.
9.3 CONDITIONS TO OBLIGATION OF SELLERS. The obligation of Sellers to
consummate the Completion is subject to the satisfaction of the following
further conditions:
(i) (A) Buyer shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the
Completion Date, and (B) the warranties of Buyer contained in this Agreement
shall have been true when made and (except to the extent such warranties
speak as of an earlier date) shall be true at and as of the Completion Date,
as if made at and as of the Completion Date;
(ii) The Seller Representative shall have received all documents he or
she may reasonably request relating to the existence of Buyer and the
authority of Buyer for this Agreement, all in form and substance reasonably
satisfactory to the Seller Representative; and
(iii) There shall have been no event occurrence, development or state
of circumstances or facts which has had, or could reasonably be expected to
have, a Material Adverse Effect on Buyer.
9.4 REASONABLE EFFORTS TO FULFILL CONDITIONS TO COMPLETION. Each of the
Sellers and Buyer undertakes to use all reasonable efforts to ensure that the
conditions to Completion are fulfilled to the satisfaction of Buyer as soon as
reasonably practicable. Buyer shall notify the Seller Representative in writing
within two (2) Business Days after all such conditions have been fulfilled to
the satisfaction of Buyer.
ARTICLE 10
SURVIVAL; INDEMNIFICATION
10.1 LIMITATIONS. (a) Buyer Reliance. Buyer acknowledges that save for the
Warranties and the other covenants and representations contained in this
Agreement and the Tax Covenant the Buyer has not relied in relation to the
purchase of the Shares, and was not induced to purchase the Shares, on or by any
warranties, representations, undertakings, indemnities or covenants of any
description, howsoever or whatsoever and whether express or implied.
In addition, the Buyer irrevocably and unconditionally waives any right
which it may have or might have had to claim damages and/or to rescind this
Agreement for any misrepresentation not
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contained in this Agreement (or any of the other documents referred to in this
Agreement) or for breach of any express or implied warranties not specifically
set out in this Agreement unless such misrepresentation or warranty was made
fraudulently.
(b) SELLERS' RELIANCE. Sellers acknowledge that save for the warranties and
the covenants contained in this Agreement the Sellers have not relied in
relation to the sale of the Shares in exchange for Buyer Stock, and were not
induced to sell the Shares in exchange for Buyer Stock, on or by any warranties,
representations, undertakings, indemnities or covenants of any description on
the part of Buyer, howsoever or whatsoever and whether express or implied.
In addition, Sellers irrevocably and unconditionally waive any right which
they may have or might have had to claim damages and/or to rescind this
Agreement for any misrepresentation on the part of Buyer not contained in this
Agreement (or any of the other documents referred to in this Agreement) or for
breach of any express or implied warranties on the part of Buyer not
specifically set out in this Agreement unless such misrepresentation or warranty
was made fraudulently.
(c) TIME LIMITS. (i) The rights of the Buyer in respect of any breach or
non-fulfillment of any of the Warranties shall only be enforceable if notice in
writing (giving in so far as may then be practicable the amount and details of
the claim) shall be given to the Sellers on or before the expiry of a period of
two years from Completion and where the relevant claim has not been settled,
withdrawn or agreed, if proceedings shall have been commenced (or the claim made
in existing proceedings) and served upon the Sellers and not discontinued in
respect of the claim on or before the expiry of a period of twenty-four calendar
months from Completion.
(ii) The rights of the Buyer in respect of any breach or
non-fulfillment of any of the terms of the Tax Covenant shall only be
enforceable if notice in writing (giving in so far as may then be
practicable the amount and details of the claim) shall be given to the
Sellers on or before the expiry of a period of six years from Completion and
where the relevant claim has not been settled, withdrawn or agreed, if
proceedings shall have been commenced (or the claim made in existing
proceedings) and served upon the Sellers and not discontinued in respect of
the claim on or before the expiry of a period of six years and six calendar
months from the Completion.
(d) DE MINIMIS CLAIMS. (i) The Buyer shall not be entitled to make any claim
or claims (however many in number) under the Warranties or the Tax Covenant
where the sum claimed is less than L1,000, and any such claim or claims of less
than L1,000 shall be disregarded in computing the figure of L1 million referred
to in sub-clause 10.1(d)(ii).
(ii) The Sellers shall not be liable in respect of any claim under the
Warranties or under the Tax Covenant unless and to the extent that the
aggregate cumulative liability of the Vendors in respect of all such claims
exceeds L1 million, and in such event the Sellers shall only be liable in
respect of the excess of such claims over L1 million.
(e) MAXIMUM CLAIMS. The Buyer shall not be entitled to recover under the
Warranties and the Tax Covenant any sum in excess of $25 million in the
aggregate; PROVIDED, FURTHER, however that Buyer shall not be entitled to
recover pursuant to any claim made under the Tax Covenant during the period
commencing 3 years following the Completion Date and ending 6 years after the
Completion Date any sum in excess of $2 million in the aggregate. Any payment
made in respect of a claim under the Warranties may be made in cash or Buyer
Stock, at the election of the Seller making the payment. If such payment is made
in Buyer Stock, the value of the Buyer Stock shall be calculated as the average
of the closing prices on the NASDAQ during the 10 trading days prior to the date
on which such payment is made. Each Seller shall only be liable for his
Appropriate Proportion of any claim made by the Buyer in respect of any breach
of the Warranties or under the Tax Covenant and, in this Article, the expression
"Appropriate Proportion" means the proportion which the Shares to be sold by the
Seller hereunder bear to the total Shares to be sold under this Agreement.
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(f) RECOVERIES. (i) The liability of the Sellers for breach of any Warranty
or for a claim under the Tax Covenant shall be reduced by the value of any
recoveries which have been, or subsequently are, actually received or obtained
by the Buyer or the Company or any Subsidiary:
(A) from any third party responsible for the act, manner or circumstances
giving rise to such breach or claim; or
(B) from any related insurance monies received and in respect thereof.
(ii) If the Sellers pay at any time to the Buyer or to the Company or to any
Subsidiary a sum pursuant to a claim in respect of the Warranties or under the
Tax Covenant and the Buyer or the Company or any Subsidiary subsequently becomes
entitled to recover from some other person any sum in respect of any matter
giving rise to such claim, the Buyer shall, and shall procure that the Company
and/or any relevant Subsidiary shall, at the entire cost of the Sellers, take
all necessary steps to enforce such recovery, and, once such recovery has been
made, shall immediately repay to the Sellers (without interest) so much of the
sum paid by the Sellers to the Buyer or the Company and/or any relevant
Subsidiary as does not exceed the sum recovered from such other person (less any
costs, charges and expenses, incurred by the Buyer and/or the Company and/or any
relevant Subsidiary in recovering that sum from such other person, which have
not previously been reimbursed by the Sellers.
(g) DOUBLE CLAIMS. If the Sellers are liable both in respect of a breach of
Warranty or under the Tax Covenant, the Buyer shall be entitled to claim in
respect of either or both. The Buyer (which shall for this purpose include the
Company and each Subsidiary) shall not however be entitled to recover from the
Sellers under the Warranties or the Tax Covenant more than once in respect of
the same damage suffered, and accordingly the Sellers shall not be liable in
respect of any breach of the Warranties if and to the extent that the loss is or
has been included in a claim under the Tax Covenant which has been satisfied,
nor shall the Sellers be liable in respect of a claim under the Tax Covenant if
and to the extent that the loss is or has been included in a claim for breach of
the Warranties which has been satisfied.
(h) CONTINGENT LIABILITIES. The Sellers shall not be liable for breach of
any Warranty or under the Tax Covenant in respect of any claim based upon a
liability which is contingent unless and until such contingent liability becomes
an actual liability and is due and payable; provided that this sub-clause shall
not operate to avoid a claim in respect of a contingent liability made before
the expiry of the periods specified in sub-clause 10.1(c) if reasonable details
of such claim have been delivered before the expiry of such period even if such
liability shall not become an actual liability until after the expiry of the
relevant period.
(i) CHANGES IN LEGISLATION. The Sellers' liability in respect of any breach
of any of the Warranties or under the Tax Covenant:
(i) shall be reduced by the extent that such liability arises or is
increased as a result of any legislation not in force at today's date or of
any change or changes in legislation or the withdrawal after today's date of
any extra-statutory concession previously made by the Inland Revenue or any
other fiscal authority whether or not such change or changes or withdrawal
purport to be effective retrospectively in whole or in part;
(ii) shall be reduced by the extent that such liability arises or is
increased as a result of any change in the basis or method of calculation
of, or of any increase in the rates of taxation in either case made or
imposed by legislation after Completion with retrospective effect to any
period ending before Completion.
(iii) shall be reduced if and to the extent that such liability is
attributable to any act, omission, transaction or arrangement of the Buyer
or the Company or any Subsidiary after Completion voluntarily effected
otherwise than in the ordinary course of business or pursuant to a legally
binding obligation entered into before Completion.
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(j) TAX REDUCTIONS. If the Sellers shall have made payment to the Buyer in
respect of any claim for breach of Warranties or a claim under the Tax Covenant
in circumstances where the subject matter of the claim results in a reduction in
the taxation actually paid by the Company or Subsidiary (and in circumstances
where such reduction in taxation does not give rise to a consequential or
resulting increase in taxation liability of the Company or Subsidiary) then the
Buyer shall refund to the Sellers an amount equal to the lesser of the amounts
originally paid by the Sellers and the amount of the reduction in taxation so
obtained.
(k) REMEDIABLE BREACHES. A breach of the Warranties which is remediable
shall not entitle the Buyer to compensation in accordance with the provisions of
this agreement unless the Vendors are given written notice of any alleged breach
and the breach is not remedied in a reasonable fashion by the Vendors without
cost to or obligation upon the Purchaser, the Company or any Subsidiary within
60 days after the date of receipt of such notice.
(l) DISCLOSURE LETTER. Sellers shall be under no liability under the
Warranties in respect of any matter disclosed in the Disclosure Letter save that
this provision shall not apply to any document referred to in or attached to,
but expressly excluded from disclosure in, the Disclosure Letter.
10.2 SELLERS' LIABILITY. Subject to the provisions in Section 10.1 herein,
Sellers shall be jointly and severally liable for any damages incurred or
suffered by Buyer arising out of, or in connection with, (i) any breach of
Warranties of Sellers (except in the event that a Seller breaches the Warranty
set forth in Section 3.6 hereof, in which case such Seller shall be fully and
severally liable for any and all damages suffered or incurred by the Buyer as a
result of such breach or (ii) any breach of covenant or agreement, including the
Tax Covenant, made or to be performed by Sellers, in each case, pursuant to this
Agreement.
10.3 PROCEDURES; REMEDIES CUMULATIVE. (a) The party seeking
indemnification in respect of the Warranties and for the Tax Covenant (the
"Indemnified Party") agrees to give prompt notice (and in any event within 14
days of the date on which the Indemnified Party becomes aware of the matter in
respect of which it seeks to be indemnified) to the party against whom indemnity
is sought (the "Indemnifying Party") of the assertion of any claim, or the
commencement of any suit, action or proceeding in respect of which indemnity may
be sought under such Section 10.2. The Indemnifying Party may, and at the
request of the Indemnified Party shall, participate in the defense of any such
suit, action or proceeding at its own expense, provided that, in the case of any
claim, suit, action or proceeding under the Tax Covenant, the Indemnified Party
shall not be required by the Indemnifying Party to take any action if, in the
Indemnified Party's reasonable opinion the action is likely to affect adversely
and materially the future liability to tax of the Indemnified Party or would
otherwise affect adversely and materially the business or financial interests of
the Indemnified Party or any person connected with the Indemnified Party. The
Indemnifying Party shall not be liable under this Agreement or the Tax Covenant
for any settlement effected without its consent of any claim, litigation or
proceeding in respect of which indemnity may be sought hereunder, such consent
not to be unreasonably withheld or delayed, and provided that if, in the case of
any claim, suit, action or proceeding under the Tax Covenant, the Indemnifying
Party does not confirm to the Indemnified Party that it wishes to take any
appropriate action within twenty-one days of being requested to do so by service
of notice in writing by the Indemnified Party to the Indemnifying Party, the
Indemnified Party concerned shall be free to satisfy or settle the relevant tax
liability on such terms as it may in its reasonable discretion think fit.
(b) The parties agree that the rights and remedies provided for in this
Article 10 shall be in addition to, and not exclusive of, any rights and
remedies available to any party at law or in equity. Without limiting the
foregoing, each party agrees that, in the event of any breach by such party of
the provisions of this Agreement, the non-breaching parties shall be entitled to
equitable relief, including injunctions and orders for specific performance in
addition to all other remedies available to such non-breaching parties at law or
in equity.
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ARTICLE 11
TERMINATION
11.1 GROUNDS FOR TERMINATION. This Agreement may be terminated at any time
prior to the Completion:
(i) by mutual written agreement of Buyer and the Seller
Representative;
(ii) by either Buyer or the Seller Representative if the Completion
shall not have been consummated on or before December 31, 1996;
(iii) by either Buyer or the Seller Representative if there shall be
any law or regulation that makes consummation of the transactions
contemplated hereby illegal or otherwise prohibited or if consummation of
the transactions contemplated hereby would violate any nonappealable final
order, decree or judgment of any court or governmental body having competent
jurisdiction; or
(iv) by either Buyer or the Seller Representative if the Buyer shall
not have received an unconditional waiver by the Panel on Take-overs and
Mergers of the application of the City Code on Take-overs and Mergers to the
transaction contemplated by this Agreement.
The party desiring to terminate this Agreement shall give notice of such
termination to the other parties.
11.2 EFFECT OF TERMINATION. If this Agreement is terminated as permitted
by Section 11.1, termination shall be without liability of any party (or any
stockholder, director, officer, employee, agent, consultant or representative of
such party) to any other party to this Agreement; PROVIDED that (i) if such
termination shall result from any Seller's willful failure to fulfill a
condition to the performance of the obligations of Buyer, failure to perform a
covenant of this Agreement or breach of any Warranty or agreement contained
herein, the Sellers shall be jointly and severally liable (in the appropriate
proportions) for any and all damages incurred or suffered by Buyer as a result
of such failure or breach (except to the extent that such termination results
from such Seller's willful breach of the Warranties set forth in Section 3.6, in
which case such Seller shall be fully and severally liable for any and all
damages incurred or suffered by the Buyer as a result of such breach); and (ii)
if such termination shall result from the willful failure of Buyer to fulfill a
condition to the performance of the obligations of Sellers, failure to perform a
covenant to this agreement or breach of any warranty or agreement herein, Buyer
shall be fully liable for any and all damages incurred or suffered by Sellers as
a result of such failure or breach. The provisions of Sections 12.3 and 12.5
shall survive any termination hereof pursuant to Section 11.1.
ARTICLE 12
MISCELLANEOUS
12.1 NOTICES. All notices, requests and other communications to any party
hereunder shall be in writing (including facsimile transmission) and shall be
given,
if to Buyer to:
Sitel Corporation
13215 Birch Street
Suite 100
Omaha, NE 68164
Attention: Barry Majors, Chief Financial Officer
Fax: (402) 498-2699
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with a copy (provided that failure to give or receive any such copy shall
not affect the validity of the principal notice) to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: William L. Rosoff
Fax: (212) 450-4800
and
Freshfields
Whitefriars
65 Fleet Street
London EC4Y 1HS
England
Attention: Lois Moore
Fax: 44-171-832-7001
if to the Company or any Seller, to:
Mr. Henk Kruithof
Vivier Hanquet 10
1390 Grez Doiceau
Belgium
Fax: 32-10-84-10-00
with copies (provided that failure to give or receive any such copy shall
not affect the validity of the principal notice) to:
The Call Centre Limited
Mitre House
Wolsey Business Estate
Moor Park
Rickmansworth
Herts
Attention: Ray F. Pipe
Fax: 44-1923-835475
and
Taylor Joynson Garrett
Carmelite
50 Victoria Embankment
Blackfriars
London EC4Y 0DX
Attention: Gordon Jackson
Fax: 44-171-936-2666
28
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All such notices, requests and other communications shall be deemed received
on the date of receipt by the recipient thereof if received prior to 5 p.m. in
the place of receipt and such day is a business day in the place of receipt.
Otherwise, any such notice, request or communication shall be deemed not to have
been received until the next succeeding business day in the place of receipt.
12.2 AMENDMENTS AND WAIVERS. (a) Subject to the provisions of Section
9.1(viii) any provision of this Agreement may be amended or waived prior to the
Completion Date if, but only if, such amendment or waiver is in writing and is
signed, in the case of an amendment, by each party to this Agreement, or in the
case of a waiver, by the party against whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
12.3 EXPENSES. Except as otherwise provided herein, all costs and expenses
incurred in connection with this Agreement, including, without limitation, legal
and accountancy costs and the cost of filing pursuant to the HSR Act, shall be
paid by Buyer; PROVIDED, HOWEVER, that if this Agreement is terminated for any
reason prior to Completion, such costs and expenses shall be paid by the party
incurring such cost or expense, subject to the provisions of Section 11.2.
12.4 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, successors, legal representatives and permitted assigns; PROVIDED that
save as provided in Section 5.5, no party may assign, delegate or otherwise
transfer any of its rights or obligations under this Agreement without the
consent of each other party hereto except that Buyer, at the Completion, may
transfer or assign, in whole or in part, to one or more of its Affiliates, any
of its rights or obligations hereunder, but no such transfer or assignment will
relieve Buyer of its obligations hereunder, and in the event that such Affiliate
ceases to be an Affiliate of Buyer, all obligations and liabilities of each of
the Sellers shall cease.
12.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of England and Wales and each of the parties hereto
submits to the exclusive jurisdiction of the English Courts.
12.6 COUNTERPARTS; THIRD PARTY BENEFICIARIES. This Agreement may be signed
in any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument. No
provision of this Agreement is intended to confer upon any Person other than the
parties hereto and their respective heirs, successors, legal representatives and
permitted assigns any rights or remedies hereunder.
12.7 ENTIRE AGREEMENT. This Agreement, the Registration Rights Agreement,
the Escrow Agreement and the Tax Indemnity together constitute the entire
agreement and understanding between the parties in connection with the sale and
purchase of the Shares. This Agreement supersedes any confidentiality
undertaking executed in anticipation of the transactions contemplated by this
Agreement which shall cease to have any further force or effect and no party has
entered into this Agreement in reliance upon any representation, warranty or
undertaking which is not set out or referred to in this Agreement.
12.8 RESTRICTIVE TRADE PRACTICES ACT. Notwithstanding any other provisions
of this Agreement (or any other agreement which, together with this Agreement,
may form part of an agreement for the purposes of the Restrictive Trade
Practices Act 1976 (the "Act") (together the "RTPA Agreement")) each party
hereto declares that it will not give effect, and will procure that none of its
subsidiaries shall give effect, to any restriction or restrictions contained in
the RTPA Agreement which cause the RTPA Agreement to be registrable under the
Act until one day after particulars of the RTPA Agreement shall have been
furnished to the Director General of Fair Trading.
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12.9 SELLER REPRESENTATIVE. Each Seller agrees that (i) all determinations
made, or actions taken, by the Seller Representative in the manner contemplated
hereunder shall be conclusive and binding on such Seller, (ii) the conclusive
and binding nature of any determination made, or action taken, by a Seller
Representative will not be affected by any determination made, or action taken,
by any subsequent Seller Representative and (iii) there may be only one Seller
Representative at any given time.
12.10 INTERPRETATION. In this Agreement any statement qualified by the
expression "to the best of the Sellers' knowledge" or "so far as the Sellers are
aware" or any similar expression shall be deemed to include an additional
statement that it has been made after due and careful inquiry of the officers of
the Company and the Subsidiaries.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
SITEL CORPORATION
By: /s/ MICHAEL P. MAY
---------------------------------------
Name: Michael P. May
Title: Executive Vice President
MERIT GROUP NV
By: /s/ HENK P. KRUITHOF
---------------------------------------
Name: Henk P. Kruithof
Title:
BURMEL HOLDINGS NV
By: /s/ HENK P. KRUITHOF
---------------------------------------
Name: Henk P. Kruithof
Title:
/s/ RAY F. PIPE, by his attorney, PLR
GODFREY
------------------------------------------
Ray F. Pipe
/s/ P.L.R. GODFREY
------------------------------------------
Peter L.R. Godfrey
/s/ AJ TILLARD, by his attorney, PLR
GODFREY
------------------------------------------
Andrew J. Tillard
/s/ MJ SHIELDS, by his attorney, PLR
GODFREY
------------------------------------------
Martin J. Shields
/s/ MEO BILTON, by her attorney, PLR
GODFREY
------------------------------------------
M.E.O. Bilton
/s/ KM MATHER, by her attorney, PLR
GODFREY
------------------------------------------
K.M. Mather
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/s/ JC WHITE, by his attorney, PLR
GODFREY
------------------------------------------
J.C. White
/s/ G HURLEY, by his attorney, PLR
GODFREY
------------------------------------------
G. Hurley
/s/ T.A. FITZHERBERT, by his attorney, PLR
GODFREY
------------------------------------------
The Hon. T.A. Fitzherbert
31
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EXHIBIT A
FORM OF
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated as of [Completion Date] __, 1996
among SITEL Corporation, a Minnesota corporation ("SITEL") and certain
stockholders of SITEL listed on the signature pages hereto (each, a "SELLER").
W I T N E S E T H:
WHEREAS, SITEL and Sellers have entered into a Share Purchase
Agreement dated June ___, 1996 (the "SHARE PURCHASE AGREEMENT"), pursuant to
which SITEL has agreed to purchase, and Sellers have agreed to sell, 100% of the
ordinary shares of Mitre plc (the "SALE"); and
WHEREAS, the consideration to be paid to Sellers in the Sale consists
of _________ shares of SITEL's common stock, $0.001 par value (the "Common
Stock").
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1. DEFINITIONS. (a) Capitalized terms used but not separately
defined herein shall have the meanings assigned to such terms in the Share
Purchase Agreement.
(b) The following terms, as used herein, have the following meanings:
"DEMAND REGISTRATION" means a Demand Registration as defined in
Section 2.1.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
or any similar federal statute then in effect, and a reference to a particular
section thereof shall be deemed to include a reference to the comparable
section, if any, of any such similar federal statute.
<PAGE>
"INDEMNIFIED PARTY" has the meaning set forth in Section 4.3.
"INDEMNIFYING PARTY" has the meaning set forth in Section 4.3.
"PERMITTED TRANSFEREE" means with respect to any Shareholder (A) any
general or limited partner or shareholder of such Shareholder, and any
corporation, partnership or other entity that is an Affiliate of such
Shareholder (collectively, "SHAREHOLDER AFFILIATES"), (B) any spouse, lineal
descendant, sibling, parent, heir, executor, administrator, testamentary
trustee, legatee or beneficiary of any of any Shareholder and (C) any trust, the
beneficiaries of which, or any corporation, limited liability company or
partnership, stockholders, members or general or limited partners of which
include only such Shareholder or Shareholder Associates, or (E) any institution
qualified as tax-exempt under Section 501(c)(3) of the Internal Revenue Code of
1986, as amended; PROVIDED that no Person shall be a Permitted Transferee unless
(i) such Person shall have agreed in writing to be bound by the terms of this
Agreement, (ii) the transferor shall have transferred to such Person Registrable
Securities and (iii) the transfer to such Permitted Transferee of Registrable
Securities is not in violation of applicable federal or state securities laws.
"PIGGYBACK REGISTRATION" means a Piggyback Registration as defined in
Section 2.2.
"REGISTRABLE SECURITIES" means, with respect to any Shareholder, the
shares of the Common Stock acquired by such Shareholder or its Affiliates
pursuant to the Share Purchase Agreement, and any securities into which such
securities may be subdivided, split, combined, consolidated, merged or
reclassified until (i) such securities shall have been sold pursuant to a
registration statement with respect to the sale by such Shareholder of such
securities which shall have become effective under the Securities Act, (ii) such
securities shall be eligible for distribution to the public under Rule 144 (or
any successor provision) under the Securities Act without regard to volume
limitations, (iii) such securities shall have been otherwise transferred, new
certificates for such securities not bearing a legend restricting further
transfer shall have been delivered by SITEL and, in the written opinion of
counsel to SITEL, subsequent disposition of such securities shall not require
registration or qualification of them under the Securities Act or (iv) such
securities shall cease to be outstanding.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or
any similar federal statute then in effect, and a reference to a particular
section thereof shall be deemed to include a reference to the comparable
section, if any, of any such similar federal statute.
"SHAREHOLDER" means any Seller or any Permitted Transferee.
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"UNDERWRITER" means a securities dealer who purchases any Registrable
Securities as principal and not as part of such dealer's market-making
activities.
ARTICLE II
REGISTRATION RIGHTS
2.1. DEMAND REGISTRATION. (a) If SITEL shall receive a written
request by one or more of the Shareholders (each, a "REQUESTING SHAREHOLDER"),
that SITEL effect the registration under the Securities Act of all or part of
such Selling Shareholder's Registrable Securities and specifying the intended
method of disposition thereof, at any time following the date six months after
the Completion Date, then SITEL shall promptly give written notice of such
requested registration (a "DEMAND REGISTRATION") at least 30 days prior to the
anticipated filing date of the registration statement relating to such Demand
Registration to the other Shareholders and thereupon will use its best efforts
to effect, as expeditiously as possible, the registration, subject to the
limitations set forth in Section 2.4 hereof, under the Securities Act of the
Registrable Securities which SITEL has been so requested to register by the
Requesting Shareholders, then held by the Requesting Shareholders, and all other
Registrable Securities which any other Shareholder (all such Shareholders,
together with the Requesting Shareholders, the "SELLING SHAREHOLDERS") has
requested SITEL to register by written request received by SITEL within 15 days
after the receipt by Selling Shareholders of such written notice given by SITEL,
all to the extent necessary to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Securities so to be
registered; PROVIDED that SITEL shall not be obligated to effect more than one
such Demand Registration, and PROVIDED FURTHER that SITEL shall not be obligated
to effect a Demand Registration unless the aggregate number of Registrable
Securities requested to be included in such Demand Registration shall equal at
least the Minimum Number of Shares, as defined in the succeeding sentence. For
purposes of a Demand Registration, the "Minimum Number of Shares" means (i)
until the date 12 months after the Completion Date, 1,000,000 shares of Common
Stock; and (ii) from the date 12 months after the Completion Date until the date
24 months after the Completion Date, 1,000,000 shares of Common Stock, EXCEPT
that the Minimum Number of Shares shall be 500,000 shares of Common Stock in the
event that, in the first 12 months following the Completion Date, no opportunity
for a Piggyback Registration has occurred in which at least 500,000 shares of
Common Stock of Sellers are sold, UNLESS the failure to sell at least 500,000
shares of Common Stock results from the failure of the Shareholders to request
that shares be included in such offering. SITEL shall not be obligated to
effect a Demand Registration within 180 days after the effective date of any
Piggyback Registration.
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Promptly after the expiration of the 15-day period referred to in
Section 2.1(a) hereof, SITEL will notify all the Selling Shareholders to be
included in the Demand Registration of the other Selling Shareholders and the
number of shares of Registrable Securities requested to be included therein.
The Selling Shareholders requesting a registration under this Section 2.1(a)
may, at any time prior to the effective date of the registration statement
relating to such registration, revoke such request, without liability to any of
the other Selling Shareholders, by providing a written notice to SITEL revoking
such request, in which case, if as a result of such revocation, the offering
does not proceed, such request, so revoked, shall be considered a Demand
Registration unless (i) such revocation arose out of the fault of SITEL, or (ii)
unless the participating Shareholders reimburse SITEL for all costs incurred by
SITEL in connection with such registration, in either of which cases such
request shall not be considered a Demand Registration.
(b) The offering of such Registrable Securities pursuant to such
Demand Registration shall be in the form of an underwritten offering. SITEL
shall select the managing Underwriter(s) and any additional underwriters,
syndicate members and firms to be used in connection with such an underwritten
offering; PROVIDED that such managing Underwriter(s) shall be reasonably
satisfactory to the holders of a majority of the Registrable Securities
requested to be included in such offering.
(c) Upon written notice to each Selling Shareholder, SITEL may
postpone effecting a registration pursuant to this Section 2.1 on one occasion
during any period of six consecutive months for a reasonable time specified in
the notice but not exceeding 90 days (which period may not be extended or
renewed), if (1) an investment banking firm of recognized national standing
shall advise SITEL and the Selling Shareholders in writing that effecting the
registration would materially and adversely affect an offering of securities of
such Company the preparation of which had then been commenced or (2) SITEL is in
possession of material non-public information the disclosure of which during the
period specified in such notice SITEL believes would not be in the best
interests of SITEL.
(d) SITEL shall not sell in a public offering common stock for a 90-
day period following the effective date of the Demand Registration.
(e) In the event that an offering of Registrable Securities pursuant
to a request for Demand Registration results in the sale of 250,000 or fewer
shares of Common Stock, such request shall not be considered a Demand
Registration, and the Shareholders shall retain the right to request a Demand
Registration subject to the Minimum Number of Shares requirement set forth in
Section 2.1(a) hereof, EXCEPT that Sitel shall not be obligated to effect such
Demand Registration within 6 months of the effective date of the offering of
Registrable Securities pursuant to the initial request for Demand Registration.
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2.2. PIGGYBACK REGISTRATION. If SITEL proposes to file a
registration statement under the Securities Act with respect to an offering of
Common Stock (i) for SITEL's own account (other than a registration (x) on Form
S-4 or S-8 (or any substitute form that may be adopted by the SEC) or (y)
relating to securities issuable upon exercise of employee stock options or in
connection with any employee benefit or similar plan of SITEL) or (ii) for the
account of any Stockholder of SITEL, then SITEL shall give written notice of
such proposed filing, to each of the Shareholders as soon as practicable (but in
no event less than 10 days before the anticipated filing date of such
registration statement), and such notice shall offer each Shareholder the
opportunity to include in such registration statement such number of shares of
Registrable Securities as such Shareholder may request (a "PIGGYBACK
REGISTRATION"). Upon the written request made within 10 days after the receipt
of notice from SITEL (which request shall specify the number of Registrable
Securities intended to be disposed of by Shareholders), SITEL will use its
reasonable efforts to effect the registration under the Securities Act of all
such Registrable Securities (subject to the limitations set forth in Section 2.4
hereof); PROVIDED that, (i) if such registration involves an underwritten public
offering, all such Shareholders requesting to be included in SITEL's
registration must sell their Registrable Securities to the underwriters on the
same terms and conditions as apply to SITEL or the Selling Shareholder, as
applicable, and (ii) at any time after giving written notice of its intention to
register any securities pursuant to this Section 2.2 and prior to the effective
date of the registration statement filed in connection with such registration,
SITEL shall determine for any reason not to register such stock, SITEL shall
give written notice to Shareholders and, thereupon, shall be relieved of its
obligation to register any Registrable Securities in connection with such
registration. No registration effected under this Section 2.2 shall relieve
SITEL of its obligations to effect a Demand Registration to the extent required
by Section 2.1.
2.3. REDUCTION OF OFFERING. Notwithstanding anything contained
herein, if the managing Underwriter of an offering described in Section 2.1 or
2.2 delivers a written opinion to SITEL that the size of the offering that
Shareholders, SITEL and any other Persons intend to make are such as to be
likely to have a material adverse effect on the success of the offering, then
the amount of Registrable Securities to be offered for the account of the
Shareholders shall be reduced to the extent necessary to reduce the total amount
of securities to be included in such offering to the amount recommended by such
managing Underwriter (allocated, if necessary, pro rata among the Shareholders
on the basis of the relative number of Registrable Securities requested by the
Shareholders to be included in such registration); PROVIDED that (x) in the case
of a Demand Registration, the amount of Registrable Securities to be offered for
the account of the Shareholders shall be reduced only after the amount of
securities to be offered for the account of SITEL has been reduced to zero and
(y) in the case of a Piggyback Registration, the amount of such Registrable
Securities intended to be offered for the account of the Shareholders shall be
reduced (allocated, if necessary, pro rata among the Shareholders and such
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other Persons participating in such registration on the basis of the relative
number of Registrable Securities and common stock requested by the Shareholders
and such other Persons, respectively, to be included in such registration) to
zero, if necessary, before the amount of securities offered for the account of
SITEL is reduced, PROVIDED that the amount of securities to be offered for the
account of any other Person in such offering shall have been reduced, to zero,
if necessary, prior to any reduction in the amount of Registrable Securities to
be offered for the account of the Shareholders.
2.4. MAXIMUM NUMBER OF SHARES REGISTERED. Notwithstanding any other
provision of this Agreement, but subject to Section 2.5, SITEL shall not be
required to effect a registration, on behalf of any Shareholder, for a number
shares of Registrable Securities in excess of 30% of Registrable Securities
beneficially owned by such Shareholder as of the Completion Date (the "CAP").
For the purpose of calculating the Cap with respect to any Shareholder, the
number of shares of Registrable Securities sold by such Shareholder in all
Demand Registration and Piggyback Registrations shall be aggregated.
2.5. FURTHER REGISTRATIONS. If, following the date on which the
Registrable Securities cease to be "Registrable Securities" [but prior to the
fifth anniversary of the Completion Date], SITEL shall offer any of its
[executive officers] the opportunity to include any of the shares of Common
Stock owned by such [executive officers] in any registration statement proposed
to be filed by SITEL (other than registrations of the types described in clauses
(x) and (z) of the first parenthetical clause of Section 2.2), then SITEL shall
also offer each of the Shareholders the opportunity to include any shares of
Common Stock then beneficially owned by such Shareholder in any such
registration statement on the same terms and conditions offered by SITEL to any
such [executive officers].
ARTICLE III
REGISTRATION PROCEDURES
3.1. FILINGS; INFORMATION. Whenever any Shareholder requests that
any Registrable Securities be registered pursuant to Section 2.1 or 2.2 hereof,
SITEL will, subject to the provisions of Article II, use its reasonable best
efforts to effect the registration and sale of such Registrable Securities as
promptly as is practicable, and in connection with any such request:
(a) SITEL will as expeditiously as possible prepare and file with the
SEC a registration statement on any form for which SITEL then qualifies and
which counsel for SITEL shall deem appropriate and available for the sale
of the Registrable Securities to be registered thereunder in accordance
with the intended method of distribution thereof, and use its reasonable
efforts to cause such filed registration statement to become and remain
effective for a period of
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not less than 120 days (or such shorter period in which all of the
Registrable Securities of the Shareholders included in such registration
statement shall have actually been sold thereunder).
(b) The Company will, if requested, prior to filing such registration
statement or any amendment or supplement thereto, furnish to each
Shareholder and each managing Underwriter, if any, copies thereof, and
thereafter furnish to each Shareholder and each such Underwriter, if any,
such number of copies of such registration statement, each amendment and
supplement thereto (in each case including all exhibits thereto and
documents incorporated by reference therein) and the prospectus included in
such registration statement (including each preliminary prospectus) as such
Shareholder or each such Underwriter may reasonably request in order to
facilitate the sale of the Registrable Securities owned by such
Shareholder.
(c) After the filing of the registration statement, SITEL will
promptly notify each Shareholder of any stop order issued or, to SITEL's
knowledge, threatened to be issued by the SEC and take all reasonable
actions required to prevent the entry of such stop order or to remove it if
entered.
(d) The Company will endeavor to register or qualify the Registrable
Securities for offer and sale under such other securities or blue sky laws
of such jurisdictions in the United States as any Shareholder reasonably
requests; PROVIDED that the Company will not be required to (i) qualify
generally to do business in any jurisdiction where it would not otherwise
be required to qualify but for this paragraph (d), (ii) subject itself to
taxation in any such jurisdiction or (iii) consent to general service of
process in any such jurisdiction.
(e) SITEL will as promptly as is practicable notify each Shareholder,
at any time when a prospectus relating to the sale of the Registrable
Securities is required by law to be delivered in connection with sales by
an Underwriter or dealer, of the occurrence of any event requiring the
preparation of a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading and promptly make available to each
Shareholder and to the Underwriters any and file with the SEC such
supplement or amendment. Each Shareholder agrees that, upon receipt of any
notice from SITEL of the occurrence of any event of the kind described in
the preceding sentence, such Shareholder will forthwith discontinue the
offer and sale of Registrable Securities pursuant to the registration
statement covering such Registrable Securities until receipt by such
Shareholder and the Underwriters of the copies of such supplemented or
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amended prospectus and, if so directed by SITEL, each Shareholder will
deliver to the Company all copies, other than permanent file copies then in
such Shareholder's possession, of the most recent prospectus covering such
Registrable Securities at the time of receipt of such notice. In the event
SITEL shall give such notice, SITEL shall extend the period during which
such registration statement shall be maintained effective as provided in
Section 3.1(a) hereof by the number of days during the period from and
including the date of the giving of such notice to the date when SITEL
shall make available to each Shareholder such supplemented or amended
prospectus.
(f) SITEL will enter into customary agreements (including an
underwriting agreement in customary form) and take such other actions as
are reasonably required in order to expedite or facilitate the sale of such
Registrable Securities.
(g) SITEL will furnish to each Shareholder and to each Underwriter a
signed counterpart, addressed to such Shareholder or such Underwriter, of
(i) an opinion or opinions of counsel to SITEL and (ii) a comfort letter or
comfort letters from SITEL's independent public accountants, each in
customary form and covering such matters of the type customarily covered by
opinions or comfort letters, as the case may be, as the majority of such
Shareholders or the managing Underwriter reasonably requests.
(h) SITEL will make generally available to its security holders, as
soon as reasonably practicable, an earnings statement covering a period of
12 months, beginning within three months after the effective date of the
registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and the rules and
regulations of the SEC thereunder.
(i) SITEL will use its reasonable efforts to cause all such
Registrable Securities to be listed on each securities exchange on which
similar securities issued by SITEL are then listed.
SITEL may require any Shareholder promptly to furnish in writing to
SITEL such information regarding such Shareholder, the plan of distribution of
the Registrable Securities and other information as SITEL may from time to time
reasonably request or as may be legally required in connection with such
registration.
3.2. REGISTRATION EXPENSES. In connection with any Demand
Registration or any Piggyback Registration, SITEL shall pay, the following
expenses incurred in connection with such registration: (i) registration and
filing fees, (ii) fees and expenses of compliance with securities or blue sky
laws (including reasonable fees and disbursements of counsel in connection with
blue sky qualifications of the
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Registrable Securities), (iii) printing expenses, (iv) fees and expenses
incurred in connection with the listing of the Registrable Securities, (v)
reasonable fees and expenses of counsel and customary fees and expenses for
independent certified public accountants for SITEL (including the expenses of
any comfort letters pursuant to Section 3.1(g)), (vi) the reasonable fees and
expenses of any additional experts retained by SITEL in connection with such
registration. Each of the Shareholders shall pay, in connection with any Demand
Registration or Piggyback Registration, any underwriting fees, discounts or
commissions attributable to the sale of Registrable Securities and any
out-of-pocket expenses of such Shareholder, including each such Shareholder's
counsel's fees and expenses, and in connection with any Demand Registration,
fees and expenses of underwriters' counsel to the extent not paid for by
underwriters.
3.3. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may
participate in any underwritten registered offering contemplated hereunder
unless such Person (a) agrees to sell its securities on the basis provided in
any underwriting arrangements approved by the Persons entitled hereunder to
approve such arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements and this
Agreement.
3.4. HOLDBACK AGREEMENTS. Each Shareholder agrees not to offer,
sell, contract to sell or otherwise dispose of any Registrable Securities, or
any securities convertible into or exchangeable or exercisable for such
securities, during the 14 days prior to, and during the 180-day period beginning
on, the effective date of such registration statement, other than the
Registrable Securities to be sold pursuant to such registration statement.
3.5. ADDITIONAL RESTRICTIONS ON SALE. Each Shareholder agrees not to
offer, sell, contract to sell or otherwise dispose of any Registrable
Securities, or any securities convertible into or exchangeable or exercisable
for such securities, prior to the public release of the results of the first 30
days of combined operations of SITEL and Mitre, plc.
3.6. RULE 144. SITEL covenants that it will file any reports
required to be filed by it under the Securities Act and the Exchange Act and
that it will take such further action as any Shareholder may reasonably request
to the extent required from time to time to enable such Shareholder to sell
Registrable Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144 under the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC. Upon the request of any Shareholder, SITEL will
deliver to such Shareholder a written statement as to whether it has complied
with such requirements.
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ARTICLE IV
INDEMNIFICATION AND CONTRIBUTION
4.1. INDEMNIFICATION BY SITEL. SITEL agrees to indemnify and hold
harmless each Shareholder and each Person, if any, who controls such Shareholder
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act from and against any and all losses, claims, damages and
liabilities caused by any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or prospectus relating to
the Registrable Securities (as amended or supplemented if SITEL shall have
furnished any amendments or supplements thereto) or any preliminary prospectus,
or caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any such untrue statement or omission or alleged untrue statement or
omission made in strict conformity with information furnished in writing to
SITEL by or on behalf of such Shareholder expressly for use therein; PROVIDED
that the foregoing indemnity agreement with respect to any preliminary
prospectus shall not inure to the benefit of Shareholders if a copy of the most
current prospectus or amendment or supplement to the prospectus at the time of
the delivery of the Registrable Securities was not provided by the Shareholder
to the Person asserting such loss, claim, damage, liability or expense and such
current prospectus or amendment or supplement to the prospectus would have cured
the defect giving rise to such loss, claim, damage or liability. SITEL also
agrees to indemnify any Underwriters of the Registrable Securities, their
officers and directors and each person who controls such Underwriters on
substantially the same basis as that of the indemnification of Shareholders
provided in this Section 4.1.
4.2. INDEMNIFICATION BY SHAREHOLDERS. Each Shareholder agrees,
severally and not jointly, to indemnify and hold harmless SITEL, its officers,
directors and agents, and each Person, if any, who controls SITEL within the
meaning of either Section 15 of the Securities Act or Section 20 of the Exchange
Act to the same extent as the foregoing indemnity from SITEL to such
Shareholder, but only with respect to information furnished in writing by such
Shareholder or on such Shareholder's behalf expressly for use in any
registration statement or prospectus relating to the Registrable Securities, or
any amendment or supplement thereto, or any preliminary prospectus or (ii) to
the extent that any loss, claim, damage, liability or expense described in
Section 4.2 results from the fact that a current copy of the prospectus (or, in
the case of a prospectus, the prospectus as amended or supplemented) was not
sent or given to the Person asserting any such loss, claim, damage, liability or
expense at or prior to the written confirmation of the sale of the Registrable
Securities concerned to such Person if it is determined that it was the
responsibility of such Shareholder to provide such Person with a current copy of
the prospectus (or such amended or supplemented prospectus, as the case may be)
and such current copy of the prospectus (or such amended or supplemented
prospectus, as
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the case may be) would have cured the defect giving rise to such loss, claim,
damage, liability or expense. Shareholders also agree to indemnify and hold
harmless any Underwriters of the Registrable Securities, their officers and
directors and each person who controls such Underwriters on substantially the
same basis as that of the indemnification of SITEL provided in this Section
4.2. As a condition to including Registrable Securities in any registration
statement filed in accordance with Article II hereof, SITEL may require that
it shall have received an undertaking reasonably satisfactory to it from any
underwriter to indemnify and hold it harmless to the extent customarily
provided by underwriters with respect to similar securities.
4.3. CONDUCT OF INDEMNIFICATION PROCEEDINGS. In case any proceeding
(including any governmental investigation) shall be instituted involving any
Person in respect of which indemnity may be sought pursuant to Section 4.1 or
4.2, such Person (the "INDEMNIFIED PARTY") shall promptly notify the Person
against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing
and the Indemnifying Party, upon the request of the Indemnified Party, shall
retain counsel reasonably satisfactory to such Indemnified Party to represent
such Indemnified Party and any others the Indemnifying Party may designate in
such proceeding and shall pay the fees and disbursements of such counsel related
to such proceeding. In any such proceeding, any Indemnified Party shall have
the right to retain its own counsel, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless (i) the Indemnifying
Party and the Indemnified Party shall have mutually agreed to the retention of
such counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the Indemnified Party and the Indemnifying Party
and representation of both parties by the same counsel would, in the reasonable
judgment of such Indemnified Party, be inappropriate due to actual or potential
differing interests between them. It is understood that the Indemnifying Party
shall not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the fees and expenses of more than one separate firm
of attorneys (in addition to any local counsel) at any time for all such
Indemnified Parties, and that all such fees and expenses shall be reimbursed as
they are incurred. In the case of any such separate firm for the Indemnified
Parties, such firm shall be designated in writing by Indemnified Parties. The
Indemnifying Party shall not be liable for any settlement of any proceeding
effected without its written consent, but, if settled with such consent, or if
there be a final judgment for the plaintiff, the Indemnifying Party shall
indemnify and hold harmless such Indemnified Parties from and against any loss
or liability (to the extent stated above) by reason of such settlement or
judgment. No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any pending or threatened proceeding
in respect of which any Indemnified Party is or could have been a party and
indemnity could have been sought hereunder by such Indemnified Party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability arising out of such proceeding.
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4.4. CONTRIBUTION. If the indemnification provided for in this
Article IV is unavailable to an Indemnified Party in respect of any losses,
claims, damages or liabilities referred to herein, then each such Indemnifying
Party, in lieu of indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such losses,
claims, damages or liabilities (i) in such proportion as is appropriate to
reflect the relative benefits received by SITEL, Shareholders and the
Underwriters from the offering of the securities, or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of SITEL, the Shareholders
and the Underwriters in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative benefits received by SITEL, the
Shareholders and the Underwriters shall be deemed to be in the same respective
proportions as the total proceeds from the offering (net of underwriting
discounts and commissions but before deducting expenses) received by each of
SITEL and the Shareholders and the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the table on the
cover page of the prospectus, bear to the aggregate public offering price of the
securities. The relative fault of SITEL, the Shareholders and the Underwriters
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by such party and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
SITEL and the Shareholders agree that it would not be just and
equitable if contribution pursuant to this Section 4.4 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages or liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such Indemnified Party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Article IV, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, and no Shareholder
shall be required to contribute any amount in excess of the amount by which the
net proceeds of the offering (before deducting expenses) received by such
Shareholder exceeds the amount of any damages which such Shareholder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement
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or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation. Each Shareholder's obligation to contribute
pursuant to this Section 4.4 is several in the proportion that the proceeds of
the offering received by such Shareholder bears to the total proceeds of the
offering received by all such Shareholders and not joint.
ARTICLE V
MISCELLANEOUS
5.1. NOTICES. All notices, requests and other communications to any
party hereunder shall be in writing (including facsimile transmission) and shall
be given,
if to any Shareholder, to:
Mitre plc
Merit House
Timothy's Bridge
Stratford-upon-Avon
Warwickshire CV37 9HY
Attention:
Fax:
with a copy to:
Taylor Joynson & Garrett
Carmelite
50 Victoria Embankment
Blackfriars
London EC4Y 0DX
Attention: Gordon Jackson
Fax:
if to SITEL, to:
SITEL Corporation
13215 Birch Street
Suite 100
Omaha, NE 68164
Attention: Chief Financial Officer
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Fax: (402) 498-2699
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: William L. Rosoff, Esq.
Fax: (212) 450-4800
All such notices, requests and other communications shall be deemed received on
the date of receipt by the recipient thereof if received prior to 5 p.m. in the
place of receipt and such day is a business day in the place of receipt.
Otherwise, any such notice, request or communication shall be deemed not to have
been received until the next succeeding business day in the place of receipt.
Failure of copies of notices to be received by the parties to whom such copies
are required to be sent shall not affect the deemed receipt of the notice.
5.2. AMENDMENTS AND WAIVERS. (a) Any provision of this Agreement
may be amended or waived, but only if such amendment or waiver is in writing and
is signed, in the case of an amendment, by each party to this Agreement, or in
the case of a waiver, by the party against whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
5.3. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, successors, legal representatives and permitted assigns;
PROVIDED that no Shareholder may assign, delegate or otherwise transfer any of
its rights or obligations under this Agreement other than to a Permitted
Transferee.
5.4. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the law of New York, without reference to its
conflicts of laws rules.
5.5. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
14
<PAGE>
5.6. CONSENT TO JURISDICTION; EXPENSES. (a) Any suit, action or
proceeding seeking to enforce any provision of, or based on any matter arising
out of or in connection with, this Agreement or the transactions contemplated
hereby shall be brought in any Federal Court sitting in New York, New York, or
any New York State Court sitting in New York, New York, and each of the parties
hereby consents to the exclusive jurisdiction of such courts (and of the
appropriate appellate courts therefrom) in any such suit, action or proceeding
and irrevocably waives, to the fullest extent permitted by law, any objection
which it may now or hereafter have to the laying of the venue of any such suit,
action or proceeding in any such court or that any such suit, action or
proceeding which is brought in any such court has been brought in an
inconvenient form. Process in any such suit, action or proceeding may be served
on any party anywhere in the world, whether within or without the jurisdiction
of any such court. Each of the Shareholders hereby appoints [CT Corporation] as
its authorized agent upon whom process may be served in any suit, action or
proceeding referred to herein. Without limiting the foregoing, each party
agrees that service of process on such party by any method provided in Section
5.1 shall be deemed effective service of process on such party and consents to
the personal jurisdiction of any Federal Court sitting in New York, New York,
or any New York State Court sitting in New York, New York.
(b) In any dispute arising under this Agreement among any of the
parties hereto, the costs and expenses (including, without limitation, the
reasonable fees and expenses of counsel) incurred by the prevailing party shall
be paid by the party that does not prevail.
5.7. SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable to any extent under applicable law, such provision
shall be interpreted as if it were written so as to be enforceable to the
maximum possible extent so as to effectuate the parties' intent to the maximum
possible extent, and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms to the maximum extent permitted by law.
5.8. COUNTERPARTS; THIRD PARTY BENEFICIARIES. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. No provision of this Agreement is intended to confer upon any
Person other than the parties hereto any rights or remedies hereunder.
5.9. ENTIRE AGREEMENT. This Agreement and the Share Purchase
Agreement [and the Investor Letter] constitute the entire agreement between the
parties with respect to the subject matter of this Agreement and supersede all
prior agreements and understandings, both oral and written, between the parties
with respect to the subject matter of this Agreement.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
SITEL CORPORATION
By: --------------------------
Name:
Title:
MERIT GROUP NV
By: --------------------------
Name:
Title:
BURMEL HOLDINGS NV
By: --------------------------
Name:
Title:
------------------------------
Ray F. Pipe
------------------------------
Peter L.R. Godfrey
------------------------------
Andrew J. Tillard
------------------------------
Martin J. Shields
------------------------------
M.E.O. Bilton
------------------------------
K.M. Mather
16
<PAGE>
------------------------------
J.C. White
------------------------------
G. Hurley
------------------------------
The Hon. T.A. Fitzherbert
17
<PAGE>
EXHIBIT B
FORM OF ESCROW AGREEMENT
AGREEMENT dated as of , 1996 among SITEL Corporation, a
Minnesota corporation ("Buyer"), Merit Group NV, Burmel Holdings NV, Ray F.
Pipe, Peter L.B. Godfrey, Andrew J. Tillard, Martin J. Shields, M.E.O. Bilton,
K.M. Mather, J.C. White, G. Hurley, The Hon. T.A. Fitzherbert, ("Sellers"), and
[ ], as Escrow Agent ("Escrow Agent").
W I T N E S S E T H:
WHEREAS, Buyer and Sellers have entered into a Share Purchase Agreement
dated June [ ], 1996 (as amended, the "Share Purchase Agreement") pursuant to
which Buyer has agreed to purchase from Sellers and Sellers have agreed to sell
to Buyer 100% of the ordinary shares of Mitre, plc, an English public limited
company (the "Company Shares").
WHEREAS, pursuant to Section 10.2 of the Share Purchase Agreement, Sellers
may be obligated to make certain payments to Buyer;
WHEREAS, Buyer and Sellers have agreed that Buyer shall deposit the Escrow
Shares (as defined herein) with the Escrow Agent to be held and applied by the
Escrow Agent as provided in this Agreement,
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. DEFINITIONS. (a) Capitalized terms used but not otherwise
defined herein shall have the meanings ascribed to them in the Share Purchase
Agreement.
(b) As used in this Agreement, the following terms shall have the following
meanings:
"Buyer Stock" means the common stock, par value $.001 per share, of
Buyer.
"Escrow Shares" means the aggregate of the Seller Escrow Shares of all
the Sellers.
"Expiration Date" shall have the meaning set forth in Section 4(d)
hereof.
"Seller Escrow Shares" means, with respect to each Seller, that number
of shares of Buyer Stock representing 10% of the number of shares of Buyer
Stock set forth opposite such Seller's name on Schedule 2.1 to the Share
Purchase Agreement under the heading "Purchase Consideration".
Section 2. APPOINTMENT OF ESCROW AGENT. Buyer and Sellers hereby appoint
the Escrow Agent to act as escrow agent on the terms and conditions set forth
herein and in the Share Purchase Agreement, and the Escrow Agent hereby accepts
such appointment on such terms and conditions.
Section 3. DEPOSIT OF ESCROW SHARES. In accordance with Section 2.2(d) of
the Share Purchase Agreement, on the Completion Date, Buyer shall deliver to the
Escrow Agent the Escrow Shares in the form of one or more certificates for
[917,055] shares of Buyer Stock to be held and disbursed by the Escrow Agent as
provided herein. All certificates representing Escrow Shares shall be delivered
to the Escrow Agent endorsed to the order of the Escrow Agent and shall be in
suitable form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in blank, with signatures appropriately
guaranteed, all in form and substance satisfactory to the Escrow Agent. The
Escrow Agent shall deposit, upon receipt, the Escrow Shares into a separate
account (the "Escrow Account") established for such purpose.
Section 4. RELEASE OF ESCROW SHARES. (a) If the Escrow Agent receives a
certificate (or any number of counterparts thereof) signed by Sellers and an
officer of Buyer and directing the Escrow Agent as to distribution of all or any
part of the Escrow Shares, the Escrow Agent shall immediately distribute such
shares from the Escrow Account as directed in such certificate.
(b) In the event that Buyer has a claim against Sellers for payment pursuant
to Section 10.2 of the Share Purchase Agreement, Buyer may deliver to Sellers
and to the Escrow Agent a certificate signed by an officer of Buyer (an "Escrow
Account Payment Claim") (i) stating that Sellers are
<PAGE>
obligated to make a payment to Buyer (a "Sellers' Payment") and (ii) specifying
the amount of such Sellers' Payment. Any Escrow Account Payment Claim must be
received by the Escrow Agent no later than 40 days before the Expiration Date
(as defined herein).
(c) On the twentieth business day after receipt by the Escrow Agent of an
Escrow Account Payment Claim or, if sooner, the Expiration Date (as defined
herein), the Escrow Agent shall, subject to the provisions of Section 7 hereof,
distribute to Buyer from the shares then held in the Escrow Account shares
having a value (determined pursuant to Section 5 hereof) equal to the amount of
the Sellers' Payment as stated in such Escrow Account Payment Claim.
(d) Subject to Sections 4(c) and 7(c) hereof, if any shares remain on
deposit with the Escrow Agent hereunder on the earlier of (i) the first
anniversary of the Completion Date, and (ii) completion of the first combined
audit of Buyer and Mitre, plc (the "Expiration Date"), the Escrow Agent shall on
that date deliver such shares to the Sellers with each Seller receiving the
portion of such shares that is equal to the Seller Escrow Shares of such Seller
divided by the Escrow Shares.
(e) Each Seller shall have the option, in respect of any Sellers' Payment
which is the subject of any Escrow Account Payment Claim, to pay such amounts in
cash.
Section 5. VALUATION OF ESCROW SHARES. For purposes of any delivery of
Escrow Shares pursuant to this Agreement, the Escrow Shares shall be valued at
the average of the closing prices of the Buyer Stock on the NASDAQ on the
Completion Date.
Section 6. CASH PAYMENTS. At such time as any Seller makes a cash payment
pursuant to Section 4(e) or 7(c) hereof (a "Cash Payment"), the Escrow Agent
shall release to such Seller that number of Escrow Shares having a value
(determined pursuant to Section 5 hereof) equal to the amount of such Cash
Payment.
Section 7. DISPUTES. (a) Buyer shall deliver to Sellers a copy of each
Escrow Account Payment Claim simultaneously with its delivery to the Escrow
Agent. If Sellers object to Buyer's claim for any Sellers' Payment in any Escrow
Account Payment Claim, they shall notify (a "Notice of Dispute") Buyer and the
Escrow Agent before the sooner of (i) the twentieth business day after receipt
of such Escrow Account Payment Claim and (ii) 30 days before the Expiration
Date. If Sellers fail to deliver a Notice of Dispute to Buyer and the Escrow
Agent before such twentieth business day or 30 days before the Expiration Date,
the number of shares included in such Escrow Account Payment Claim shall be
conclusive and binding on all of the parties hereto whereupon the Escrow Agent
shall distribute to the Buyer from the Escrow Account the number of shares
stated in such Escrow Account Payment Claim. Any Notice of Dispute shall set
forth Sellers' calculation of such Sellers' Payment and the Escrow Agent shall
be entitled to rely thereon.
(b) If Buyer and the Escrow Agent receive a Notice of Dispute before the
earlier of such twentieth business day and 30 days before the Expiration Date,
Buyer and Sellers shall negotiate in good faith and use all reasonable efforts
to agree upon the rights of the respective parties with respect to such Sellers'
Payment. If Buyer and Sellers shall so agree, a certificate setting forth such
agreement shall be furnished to the Escrow Agent. The Escrow Agent shall be
entitled to rely upon any such certificate and shall make distribution to Buyer
or Sellers, as the case may be, from the Escrow Account in accordance with the
terms thereof as provided in Section 4(a).
(c) If after 10 days following receipt by Buyer and the Escrow Agent of any
Notice of Dispute, no final agreement has been reached between Buyer and
Sellers, Buyer shall appoint one arbitrator, Sellers OR Seller Representative
shall appoint one arbitrator, and the two arbitrators so appointed shall select
a third arbitrator. In the event such arbitrators cannot agree upon a third
arbitrator, a third arbitrator shall be selected in accordance with the rules as
then in effect of the American Arbitration Association. The decision of two of
the three arbitrators so appointed (the "Decision") shall be conclusive and
binding upon the parties to this Agreement and, notwithstanding anything to the
contrary contained herein, the Escrow Agent shall be entitled to rely on such
Decision and shall act in accordance with such Decision and make distribution
out of the Escrow Account in accordance
2
<PAGE>
therewith on the sooner of (i) the 11th day after such Decision (or as soon
thereafter as practicable) and (ii) the Expiration Date, PROVIDED that if within
10 days after such Decision and prior to the Expiration Date, any Seller makes a
Cash Payment with respect to his portion of the claim, the provisions of Section
6 shall apply to such Seller. If the arbitrators fail to reach a Decision with
respect to any Escrow Account Payment Claim before the Expiration Date, the
Escrow Agent shall (i) distribute to the Buyer from the Escrow Account shares
having a value (determined pursuant to Section 5 hereof) equal to 50% of the
amount of the Sellers' Payment as stated in such Escrow Account Payment Claim,
and (ii) distribute to Seller Representative from the Escrow Account shares
having a value (determined pursuant to Section 5 hereof) equal to 50% of the
amount of the Sellers' Payment as stated in such Escrow Account Payment Claim.
Any such arbitration shall be held in New York, New York under the rules to be
mutually agreed upon by the arbitrator selected by Buyer and the arbitrator
selected by Sellers OR Seller Representative or, if no such agreement can be
reached, under the rules as then in effect of the American Arbitration
Association. Each party to any such arbitration shall pay its own expenses;
however, the fees, costs and expenses of the third arbitrator shall be borne by
Sellers if the difference between the amount as calculated by the Buyer and the
amount as finally determined is less than or equal to the difference between the
amount as calculated by the Sellers and the amount as finally determined;
otherwise, such fees, costs and expenses shall be borne by Buyer.
Section 8. RIGHT TO VOTE ESCROW SHARES. Sellers shall have the right, from
time to time, to vote and to give consents, ratifications and waivers with
respect to the Escrow Shares, and the Escrow Agent shall, upon receiving a
written request from Sellers, deliver to Sellers or as specified in such request
such proxies, powers of attorney, consents, ratifications and waivers in respect
of any Escrow Shares registered in the name of the Escrow Agent or its nominee
as shall be specified in such request and be in form and substance satisfactory
to the Escrow Agent.
Section 9. INTERNAL REVENUE SERVICE FORMS; TAX OWNERSHIP. (a) Within 90
days after receipt of a request therefor from the Escrow Agent, each Seller
shall provide the Escrow Agent with the appropriate form prescribed by the
Internal Revenue Service certifying that such Seller is entitled to benefits
under an income tax treaty to which the United States is a party that exempts
such Seller from United States withholding tax or reduces the rate of
withholding tax on payments of dividends on the Escrow Shares or certifying that
dividends on the Escrow Shares are effectively connected with the conduct of a
trade or business in the United States.
(b) Buyer and each Seller agree (i) that the Sellers are the owners of the
Escrow Shares for tax purposes and (ii) any and all dividends paid with respect
to the Escrow Shares shall be beneficially owned by Sellers and distributed
currently to Sellers.
Section 10. TERMINATION OF ESCROW ACCOUNT. This Agreement shall terminate
when the Escrow Agent shall have released from the Escrow Account all shares
pursuant to Section 4 hereof.
Section 11. ESCROW AGENT. The Escrow Agent shall have no duty or
obligation hereunder other than to take such specific actions as are required of
it from time to time under the provisions hereof, and it shall incur no
liability hereunder or in connection herewith for anything whatsoever other than
as a result of its own gross negligence or willful misconduct. Sellers (jointly
and severally) and Buyer each agree to indemnify, hold harmless and defend the
Escrow Agent as to 50% each from and against any and all losses, claims,
liabilities and reasonable expenses, including the reasonable fees of its
counsel, which it may suffer or incur hereunder, or in connection herewith,
except such as shall result solely and directly from its own gross negligence or
willful misconduct. The Escrow Agent shall not be bound in any way by any
agreement or contract between Buyer and Sellers (whether or not the Escrow Agent
has knowledge thereof) and the only duties and responsibilities of the Escrow
Agent shall be to hold the Escrow Shares received hereunder and to release such
Escrow Shares in accordance with the terms of this Escrow Agreement and the
Share Purchase Agreement. The Escrow Agent's fees and expenses for acting as
Escrow Agent hereunder are set forth in Schedule I hereto. Buyer on the one
hand, and Sellers on the other hand, shall each pay 50% of such fees and
expenses.
3
<PAGE>
Section 12. MISCELLANEOUS
(a) NOTICES. All notices or other communications to either party hereunder
shall be in writing (including telex, telecopy or similar writing) and shall be
given,
if to any Seller, to:
Mitre plc
Merit House
Timothy's Bridge
Stratford-upon-Avon
Warwickshire, CV37 9HY
Attention:
Fax:
with a copy to:
Taylor Joynson Garrett
Carmelite
50 Victoria Embankment
Blackfriars
London EC4Y ODX
Attention: Gordon Jackson
Fax: 0171-936-2666
if to Buyer, to:
Sitel Corporation
13215 Birch Street
Suite 100
Omaha, NE 68164
Attention: Barry Majors, Chief Financial Officer
Fax: (402) 498-2699
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: William L. Rosoff, Esq.
Fax: (212) 450-4800
if to the Escrow Agent, to:
[Name]
[Address]
[Fax:]
(b) SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties and their respective heirs,
legal representatives, successors and assigns.
(c) GOVERNING LAW. This Agreement shall be construed in accordance with and
governed by the law of the State of New York, without regard to the conflicts of
law rules of such state.
(d) AMENDMENTS. Any provision of this Agreement may be amended or waived
if, and only if, such amendment or waiver is in writing and is signed, in the
case of an amendment, by each party hereto, or in the case of a waiver, by the
party against whom the waiver is to be effective.
4
<PAGE>
(e) COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in any number
of counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument. This Agreement
shall become effective when each party hereto shall have received a counterpart
hereof signed by the other party hereto.
(f) CAPTIONS. The captions herein are included for convenience of reference
only and shall be ignored in the construction or interpretation hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
SITEL CORPORATION
By:
--------------------------------------
Title:
MERIT GROUP NV
By:
--------------------------------------
Title:
BURMEL HOLDINGS NV
By:
--------------------------------------
Title:
RAY F. PIPE
--------------------------------------
PETER L.R. GODFREY
--------------------------------------
ANDREW J. TILLARD
--------------------------------------
MARTIN J. SHIELDS
--------------------------------------
M.E.O. BILTON
--------------------------------------
K.M. MATHER
--------------------------------------
J.C. WHITE
--------------------------------------
G. HURLEY
--------------------------------------
5
<PAGE>
THE HON. T.A. FITZHERBERT
--------------------------------------
[ ]
--------------------------------------
as Escrow Agent
By:
--------------------------------------
Title:
6
<PAGE>
SCHEDULE I
ESCROW AGENT'S FEES AND EXPENSES
<PAGE>
Exhibit C
FORM OF INVESTOR LETTER
[ ], 1996
SITEL Corporation
13215 Birch Street
Suite 100
Omaha, NE 68164
Re: Shares of SITEL Corporation
(the "Issuer")
------------------------------
Dear Sirs,
In connection with our acquisition of [ ]1 ordinary shares of the
Issuer (the "Shares") on the date hereof, I confirm that:
(1) I have received such information as I deem necessary in order to
make my investment decision with respect to the Shares.
(2) As a purchaser of the Shares in a private placement not
registered under the U.S. Securities Act of 1933 (the "Securities Act"), I
represent that I am purchasing such Shares for my own account, for investment
and not with a view to, or for sale in connection with, any distribution or
resale, directly or indirectly, in the United States or otherwise in violation
of the securities laws of the United States.
(3) I have such knowledge and experience in financial and business
matters that I am capable of evaluating the merits and risks of an investment in
the Shares and [I further represent that I am an "accredited
- ---------------------------
1 Not less than $500,000 or the equivalent.
<PAGE>
SITEL Corporation 2 [ ], 1996
investor" within the meaning of Regulation D under the Securities Act] and I am
able to bear the economic risks of investment in the Shares.
(4) I agree that if, prior to three years after the acquisition of
the Shares referred to above, I should decide to transfer any Shares acquired by
me, such Shares will not be offered, sold or delivered, directly or indirectly,
unless the transaction complies with the Registration Rights Agreement or, if
not registered under the Securities Act and applicable U.S. state laws and
regulations, the transaction (i) does not require registration of the Shares
under the Securities Act or any applicable U.S. state laws and regulations
governing the offer and sale of securities, and (ii) I therefore have furnished
to you an opinion of counsel (of recognized standing satisfactory to you and
experienced in giving opinions with respect to questions relating to the
securities laws of the United States) to such effect.
(5) I agree that the Shares shall bear the following legend:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933 AND ACCORDINGLY MAY NOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS SUCH OFFER OR SALE IS REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OF THE UNITED STATES AND THE SECURITIES REGULATORY
AUTHORITIES OF APPLICABLE STATES OR UNLESS AN EXEMPTION FROM REGISTRATION
IS AVAILABLE. THE TRANSFER OF THIS SECURITY IS SUBJECT TO CERTAIN
RESTRICTIONS SET FORTH IN AN INVESTMENT LETTER FROM THE HOLDER TO THE
ISSUER."
(6) Upon the earlier of the registration of the Shares under the
Securities Act and the first transfer of Shares pursuant to paragraph 4, the
legend referred to above will be removed in respect of those Shares, provided
that, in the case of Shares transferred pursuant to paragraph 4, the opinion of
counsel is to the further effect that neither such legend nor the restrictions
on transfer are required in order to ensure compliance with or exemption from
the provisions of the Securities Act.
(7) I request that the Shares that I have acquired as aforesaid be
registered in my name and that such
<PAGE>
SITEL Corporation 3 [ ], 1996
Shares be delivered to [insert address] by registered mail, which delivery shall
be for my sole risk and expense.
(8) I acknowledge that the Issuer will rely on the accuracy and truth
of the foregoing representations and my compliance with the foregoing agreement,
and I agree that any action or proceeding arising out of these representations
or agreements, which shall be construed in accordance with the internal laws of
the State of New York, may be brought against any of the parties in the courts
of the State of New York, or, if it has or can acquire jurisdiction, in the
United States District Court for the Southern District of New York, and each of
the parties hereby consents to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives any
obligation to such action or proceeding and waives any obligation to venue laid
therein. Process in any such action or proceeding may be served on any party
anywhere in the world, whether within or without the State of New York.
Very truly yours,
By
---------------------
Name:
Title:
<PAGE>
Exhibit D
JUNE 1996
THE COVENANTORS
SITEL CORPORATION
---------------------------
TAX COVENANT
---------------------------
FRESHFIELDS
<PAGE>
DEED OF COVENANT
A DEED made on the June 1996
BETWEEN:
THE PERSONS whose names are listed in Schedule 1 of this Deed (each a COVENANTOR
and together THE COVENANTORS); and
SITEL CORPORATION whose registered office is at 13215 Birch Street, Suite 100,
Omaha, NE 68164 (THE PURCHASER);
WHEREAS:
(A) By an agreement (THE ACQUISITION AGREEMENT) dated June 1996 and made
between the Covenantors and the Purchaser, the Purchaser agreed to purchase the
Shares (as therein defined).
(B) Article 2 of the Acquisition Agreement provides that the Covenantors will
deliver at Completion (as therein defined) a duly executed deed of covenant in
the form of this Deed.
THIS DEED WITNESSES as follows:
INTERPRETATION
1.1 Words and expressions defined in or for the purposes of the Acquisition
Agreement and the Schedules thereto shall, except where expressly defined in
this Clause 1 or otherwise herein or where the context otherwise requires, have
the same meanings in this Deed.
1.2 The following definitions shall have the following meanings:
EVENT includes (without limitation) the death or the winding up or dissolution
of any person, and any act, transaction or omission whatsoever, and any
reference to an event occurring on or before a particular date shall include
events which for tax purposes are deemed to have, or are treated or regarded as
having, occurred on or before that date;
RELIEF includes, unless the context otherwise requires, any allowance, credit,
deduction, exemption or set-off in respect of any tax or relevant to the
computation of any income, profits or gains for the purposes of any tax, or any
other saving of tax, and:
(a) any reference to the USE or SET OFF of relief shall be construed
accordingly and shall include use or set off in part; and
<PAGE>
(b) any reference to the LOSS of a relief shall include the absence or
non-existence of any such relief, or to such relief being available
only in a reduced amount;
REPAYMENT OF TAX includes any repayment supplement or interest in respect of
tax, and any reference to LOSS of a right to repayment of tax includes its
non-existence, reduction or cancellation and to SET OFF shall include a set off
in part;
TAX includes (without limitation) corporation tax, advance corporation tax,
income tax (including income tax or amounts on account of income tax required to
be deducted or withheld from or accounted for in respect of any payment),
capital gains tax, inheritance tax, value added tax, national insurance
contributions, stamp duty, stamp duty reserve tax, duties of customs and excise,
petroleum revenue tax, rates, all taxes, duties or charges replaced by or
replacing any of them, and all other taxes on gross or net income, profits or
gains, distributions, receipts, sales, franchise, value added, and personal
property, and all levies, imposts, duties, charges or withholdings of any nature
whatsoever chargeable by any tax authority, and any payment whatsoever which the
Company or any Subsidiary may be or become bound to make to any person as a
result of the discharge by that person of any tax which the Company or any
Subsidiary has failed to discharge, together with all penalties, charges and
interest relating to any of the foregoing or to any late or incorrect return in
respect of any of them, and regardless of whether any such taxes, levies,
duties, imposts, charges, withholdings, penalties and interest are chargeable
directly or primarily against or attributable directly or primarily to the
Company, any Subsidiary or any other person and of whether any amount in respect
of any of them is recoverable from any other person;
TAX AUTHORITY means any taxing or other authority (whether within or outside the
United Kingdom) competent to impose any tax liability;
TAX CLAIM means the issue of any notice, demand, assessment, letter or other
document by or on behalf of any tax authority or the imposition (or any document
referring to the possible imposition) of any withholding of or on account of
tax, from which it appears that a tax liability will be imposed on the Company
or any Subsidiary;
TAX LIABILITY means both a liability of the Company or any Subsidiary to make or
suffer an actual payment of tax (or an amount in respect of tax) and also:
(a) the loss, or the use or set off against income, profits or gains
earned, accrued or received on or before Completion Date, of any relief
which arises or would but for such loss have arisen in respect of an
event occurring or period ending on or before Completion which would
(were it not for the said loss, use or set off) have been available to
the Company or any Subsidiary following Completion and which was taken
into
Page II
<PAGE>
account in computing the provision for deferred tax in the Financial
Statements or in eliminating such provision, or was taken into account
as an asset in the Financial Statements;
(b) the use or set off of any relief which arises in respect of an event
occurring after Completion Date in circumstances where, but for such
use or set off, the Company or any Subsidiary would have had an actual
tax liability in respect of which it would have been able to make a
claim against the Covenantors under this Deed; and
(c) the loss by the Company or any Subsidiary of a right to repayment of
tax which right was taken into account as an asset in preparing the
Financial Statements, or the set off of any right to repayment of tax
against any actual tax liability in respect of which the Company or any
Subsidiary would, but for that set off, have been able to make a claim
against the Covenantors under this Deed;
and, in any case falling within any of paragraphs (a), (b) and (c) above, the
amount that is to be treated for the purposes of this Deed as a tax liability of
the Company or the Subsidiary shall be determined as follows:
(i) in a case which falls within paragraph (a) or (b) above and where the
relief that is the subject of the loss or which is used or set off as
mentioned in those paragraphs is a deduction from or offset against
tax, the tax liability shall be the amount of that relief so lost, used
or set off;
(ii) in a case which falls within paragraph (a) or (b) above and where the
relief that is the subject of the loss or which is used or set off as
mentioned in those paragraphs is a deduction from or offset against
income, profits or gains, the tax liability shall be, in the case of
a relief which is used or set off, the amount of tax saved thereby and,
in the case of a relief which is lost, the amount of tax which but for
such loss would have been saved by virtue of the relief so lost,
ignoring for this purpose the effect of reliefs (other than deductions
in computing profits for the purpose of tax) arising in respect of an
event occurring or period ending after Completion; and
(iii)in a case which falls within paragraph (c) above, the tax liability
shall be the amount of the repayment that would have been obtained but
for the loss or setting off mentioned in that sub-paragraph;
1.3 Any reference to income, profits or gains EARNED, ACCRUED OR RECEIVED on or
before a particular date or in respect of a particular period shall include
income, profits or gains which for tax purposes are deemed to have been or are
treated or regarded as earned, accrued or received on or before that date or in
respect of that period.
Page III
<PAGE>
1.4 Any reference to something occurring (including a tax liability arising) in
THE ORDINARY COURSE OF BUSINESS shall, without prejudice to the generality
thereof, be deemed not to include:
(a) anything which involves, or leads directly or indirectly to, the
receipt by the Company or any Subsidiary of a tax claim in respect of
any liability to tax of, or properly attributable to, another person,
firm or company (other than the Company or any Subsidiary);
(b) anything which relates to or involves the acquisition or disposal of an
asset or the supply of services (including the lending of money, or the
hiring or licensing of tangible or intangible property) in a
transaction which is not entered into on arm's length terms; or
(c) anything which relates to or involves the making of a distribution for
tax purposes, the creation, cancellation or re-organization of share
or loan capital, the creation, cancellation or repayment of any
intra-group debt or any company becoming or ceasing or being treated
as ceasing to be a member of a group of companies or as becoming or
ceasing to be associated or connected with any other company for any
tax purposes.
1.5 Any reference to an EVENT OCCURRING ON OR BEFORE THE COMPLETION DATE shall
be deemed to include a series or combination of events provided the first event
shall have occurred on or before Completion and any other events shall arise
directly from the first event and would not otherwise have so arisen.
1.6 Persons shall be treated as CONNECTED for the purposes of this Deed if they
are connected within the meaning of section 839 of the Taxes Act.
1.7 The rule known as the ejusdem generis rule shall not apply and accordingly:
(a) general words shall not be given a restrictive meaning by reason of the
fact that they are preceded by words indicating a particular class of acts,
matters or things; and
(b) general words shall not be given a restrictive meaning by reason of the
fact that they are followed by particular examples intended to be embraced
by the general words.
1.8 The headings in this Deed shall not affect its interpretation.
COVENANT
2. Subject to clause 3 below, the Covenantors hereby jointly and severally
covenant with the Purchaser (for itself and as trustee for its successors in
title) to pay to the Purchaser an amount equivalent to):
Page IV
<PAGE>
2.1 any tax liability arising in respect of, by reference to or in consequence
of:
(a) any income, profits or gains earned, accrued or received on or before
Completion;
(b) any event which occurs or occurred on or before Completion; and
2.3 any tax liability which the Company or any Subsidiary is or becomes
required to discharge by virtue of its relationship at any time before
Completion with any person (other than the Company or any Subsidiary) and for
which that other person is primarily liable.
EXCLUSIONS
3.1 The covenant contained in clause 2 shall not cover any tax liability to the
extent that:
(a) provision or reserve in respect of that tax liability has been made in the
Financial Statements (or the tax liability has been noted therein) or in
the Management Accounts; or
(b) the tax liability arises in respect of or by reference to any income,
profits or gains earned in respect of the period, or any event occurring,
between the Balance Sheet Date and Completion and which arises in the
ordinary course of business of the Company or the Subsidiary to which the
tax liability relates.
3.2 The provisions of Article 10 of the Acquisition Agreement shall apply to
limit the liability of the Covenantors to the Purchaser under this Deed and
shall be deemed incorporated herein.
COSTS AND EXPENSES
4. The covenant contained in this Deed shall extend to all costs and expenses
incurred by the Purchaser in connection with a claim under this Deed or in
connection with the subject matter of any such claim.
WITHOLDINGS
5. All sums payable by the Covenantors under this Deed shall be paid free and
clear of all deductions or withholdings unless the deduction or withholding is
required by law, in which event the Covenantors shall pay such additional amount
as shall be required to ensure that the net amount received by the Purchaser,
the Company or the Subsidiary concerned under this Deed will equal the full
amount which would have been received by it had no such deduction or withholding
been required to be made.
Page V
<PAGE>
TAX ON COVENANT PAYMENTS
6. If any tax authority brings into charge to tax any sum paid to the
Purchaser under this Deed (including in circumstances where any relief is
available in respect of such charge to tax), then the Covenantors shall pay such
additional amount as shall be required to ensure that the total amount paid,
less the tax chargeable on such amount (or that would be so chargeable but for
such relief), is equal to the amount that would otherwise be payable under this
Deed.
DUE DATE OF PAYMENT AND INTEREST
7.1 Where a claim under this Deed relates to a liability to make or suffer an
actual payment or increased payment of tax or an amount in respect thereof
(including, without limitation, any case where a payment under this Deed itself
results in further tax becoming due), the Covenantors shall pay to the Purchaser
the amount claimed under this Deed in respect of that tax claim on or before
the date which is the later of the date ten Business Days after demand is made
therefor by or on behalf of the claimant and the fifth Business Day prior to the
first date on which the tax in question becomes recoverable by the tax authority
or person demanding the same. Provided that, if the date on which the tax can
be recovered is deferred following application to the appropriate authority and
the Covenantors indemnify and secure the Purchaser to its reasonable
satisfaction in respect of the tax that is so deferred, the date for payment by
the Covenantors shall be the earlier of the date on which the tax becomes
recoverable by the relevant tax authority (notwithstanding any initial deferral)
and such date when the amount of tax is finally and conclusively determined.
For this purpose, an amount of tax shall be deemed to be finally determined
when, in respect of such amount, an agreement under section 54 of the Taxes
Management Act 1970 or any legislative provision corresponding to that section
is made or a decision of a court or tribunal is given from which either no
appeal lies or in respect of which no appeal is made within the prescribed time
limit.
7.2 Where a claim under this Deed relates to the loss or set off of a right to
a repayment of tax, the Covenantors shall pay to the Purchaser the amount
claimed under this Deed in respect of that tax claim on or before the date which
is the later of the date ten Business Days after demand is made therefor by or
on behalf of the claimant and the date when such repayment would have been due
were it not for such loss or setting off.
7.3 Where a claim under this Deed relates to the loss, use or set off of any
relief, the Covenantors shall pay to the Purchaser the amount claimed under this
Deed in respect of that tax claim on or before the date which is the later of
the date ten Business Days after demand is made therefor by or on behalf of the
claimant, and (a) in the case of a relief which is used or set off, the date on
which the tax saved thereby would otherwise have become recoverable by the
relevant tax authority, or (b) in the case of a relief which is lost, the date
on which the tax which but for such loss would have been saved by virtue of such
Page VI
<PAGE>
relief becomes recoverable by the relevant tax authority, or would have become
so recoverable if the effect of reliefs (other than deductions in computing
profits for the purposes of tax) arising in respect of an event occurring or
period ending after Completion were ignored.
7.4 Any sum not paid by the Covenantors or to the Covenantors on the due date
for payment specified under this Deed shall bear interest (which shall accrue
from day to day after as well as before any judgment for the same) at the rate
of 2 per cent. per annum over the base rate of Barclays Bank plc (or in the
absence of such rate at such similar rate as the Purchaser, or the Covenantors
(as the case may be) shall select) from the due date to and including the day of
actual payment of such sum, compounded quarterly. Such interest shall be paid
on the demand of the Purchaser or the Covenantors (as the case may be).
ILLEGALITY
8. If at any time any provision of this Deed is or becomes illegal, invalid or
unenforceable in any respect under the law of any jurisdiction, neither the
legality, validity or enforceability of the remaining provisions hereof nor the
legality, validity or enforceability of such provision under the law of any
other jurisdiction shall in any way be affected or impaired thereby.
WAIVER
9. No delay or omission of the Purchaser in exercising any right or power
hereunder shall impair such right or power or be construed as a waiver thereof
and any single or partial exercise of any such right or power shall not preclude
the further exercise of any right or power. The rights and remedies of the
Purchaser provided in this Deed are cumulative and not exclusive of any rights
and remedies provided by law.
ASSIGNMENT
10. The whole or any part of the benefit of this Deed may be assigned by the
Purchaser to the intent that the covenant given under this Deed shall enure for
the benefit of their successors and assigns.
NOTICES
11.1 Any notice under this Deed shall be in writing and signed by or on
behalf of the party giving it and may be served by leaving it or sending it by
telex, facsimile, prepaid recorded delivery or registered post to the address
and attention of the relevant party set out in clause 11.2 (or as otherwise
notified from time to time hereunder or pursuant to the Acquisition Agreement).
Any notice so served shall be deemed to have been received:
(a) in the case of telex or facsimile, twelve (12) hours after the time of
despatch;
Page VII
<PAGE>
(b) in the case of recorded delivery or registered post, forty eight (48)
hours from the date of posting.
11.2 The addresses of the parties for the purposes of clause 11.1 are as
follows:
THE COVENANTORS:
Address Vivier Hanquet 10
1390 Grez Doiceau
Belgium
For the attention of: Mr Henk Kruithof
Facsimile: 32 10 84 10 00
THE PURCHASER: Sitel Corporation
Address 13215 Birch Street
Suite 100
Omaha, NE 68164
For the attention of: Barry Majors, Chief Financial Officer
Facsimile: (402) 498 2699
GOVERNING LAW
12.1 This Deed shall be governed by and construed in accordance with the
laws of England.
12.2 Each of the parties hereto irrevocably submits, for the benefit of the
others, to the non-exclusive jurisdiction of the courts of England.
COUNTERPARTS
13. This Deed may be executed in any number of counterparts and by the parties
to it on separate counterparts, each of which, when executed and delivered,
shall be an original, but all the counterparts shall together constitute one and
the same instrument.
IN WITNESS whereof this Deed has been executed the day and year first before
written.
Page VIII
<PAGE>
SCHEDULE 1
(the Covenantors)
Merit Group NV
Burmel Holdings NV
Ray F Pipe
Peter L R Godfrey
Andrew J Tillard
Martin J Shields
M E O Bilton
K M Mather
J C White
G Hurley
The Hon T A Fitzherbert
T Vanparys
J Braem
E Van de Poel
L Bollaerts
D Frans
M Vanbaelen
<PAGE>
EXECUTED and DELIVERED )
as a DEED under the COMMON )
SEAL of SITEL CORPORATION )
in the presence of: )
Director
Secretary
EXECUTED and DELIVERED )
as a DEED under the COMMON )
SEAL of MERIT GROUP NV )
in the presence of: )
Director
Secretary
EXECUTED and DELIVERED )
as a DEED under the COMMON )
SEAL of BURMEL HOLDINGS NV )
in the presence of: )
Director
Secretary
SIGNED AS A DEED AND )
DELIVERED BY RAY F PIPE )
IN THE PRESENCE OF: )
Witness - Signature:
Name:
Address:
Page X
<PAGE>
SIGNED AS A DEED AND )
DELIVERED BY )
PETER L R GODFREY )
IN THE PRESENCE OF: )
Witness - Signature:
Name:
Address:
SIGNED AS A DEED AND )
DELIVERED BY )
ANDREW J TILLARD )
IN THE PRESENCE OF: )
Witness - Signature:
Name:
Address:
SIGNED AS A DEED AND )
DELIVERED BY )
MARTIN J SHIELDS )
IN THE PRESENCE OF: )
Witness - Signature:
Name:
Address:
Page XI
<PAGE>
SIGNED AS A DEED AND )
DELIVERED BY )
M E O BILTON )
IN THE PRESENCE OF: )
Witness - Signature:
Name:
Address:
SIGNED AS A DEED AND )
DELIVERED BY K M MATHER )
IN THE PRESENCE OF: )
Witness - Signature:
Name:
Address:
SIGNED AS A DEED AND )
DELIVERED BY J C WHITE )
IN THE PRESENCE OF: )
Witness - Signature:
Name:
Address:
Page XII
<PAGE>
SIGNED AS A DEED AND )
DELIVERED BY G HURLEY )
IN THE PRESENCE OF: )
Witness - Signature:
Name:
Address:
SIGNED AS A DEED AND )
DELIVERED BY )
THE HON T A FITZHERBERT )
IN THE PRESENCE OF: )
Witness - Signature:
Name:
Address:
SIGNED AS A DEED AND )
DELIVERED BY )
T VANPARYS )
IN THE PRESENCE OF: )
Witness - Signature:
Name:
Address:
Page XIII
<PAGE>
SIGNED AS A DEED AND )
DELIVERED BY )
J BRAEM IN THE PRESENCE OF: )
Witness - Signature:
Name:
Address:
SIGNED AS A DEED AND )
DELIVERED BY )
E VAN DE POEL )
IN THE PRESENCE OF: )
Witness - Signature:
Name:
Address:
SIGNED AS A DEED AND )
DELIVERED BY )
L BOLLAERTS )
IN THE PRESENCE OF: )
Witness - Signature:
Name:
Address:
Page XIV
<PAGE>
SIGNED AS A DEED AND )
DELIVERED BY )
D FRANS )
IN THE PRESENCE OF: )
Witness - Signature:
Name:
Address:
SIGNED AS A DEED AND )
DELIVERED BY )
M VANBAELEN )
IN THE PRESENCE OF: )
Witness - Signature:
Name:
Address:
Page XV
<PAGE>
ALEX. BROWN & SONS
INCORPORATED
ESTABLISHED 1800 - AMERICA'S OLDEST INVESTMENT BANKING FIRM
MEMBERS: NEW YORK STOCK EXCHANGE, INC. AND OTHER LEADING EXCHANGES
APPENDIX B
June 6, 1996
The Board of Directors
SITEL Corporation
13215 Birch Street, Suite 100
Omaha, NE 68164
Dear Sirs:
SITEL Corporation ("SITEL") intends to enter into a purchase agreement dated
as of today (the "Agreement") with the shareholders of Mitre plc ("Mitre")
whereby SITEL would acquire 100% of the Mitre ordinary shares in exchange for
9,170,553 newly issued shares of SITEL common stock, $.001 par value per share
(the "Common Stock"), in a stock purchase transaction (the "Transaction"). We
have assumed, with your consent, that the Transaction will qualify for a pooling
of interests accounting treatment. You have requested our opinion as to whether
the consideration to be paid by SITEL pursuant to the Transaction as
contemplated in the Agreement is fair, from a financial point of view, to SITEL.
Alex. Brown & Sons Incorporated ("Alex. Brown"), as a customary part of its
investment banking business, is engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for estate, corporate and other
purposes. We have acted as financial advisor to SITEL in connection with the
Transaction and will receive a fee for our services which is partially
contingent upon the consummation of the Transaction. We have also acted recently
as lead manager of two public offerings of SITEL's common stock and acted as
financial advisor to SITEL in connection with other matters. Alex. Brown
maintains a market in the Common Stock and regularly publishes research reports
regarding SITEL.
In connection with our opinion, we have reviewed certain financial and other
information concerning Mitre furnished to us by Mitre. We have also held
discussions with members of the senior management of Mitre regarding the
business and prospects of Mitre. In addition, we have (i) reviewed the reported
price and trading activity for the Common Stock, (ii) compared certain financial
information for Mitre with similar information for certain telemarketing
companies whose securities are publicly traded, iii) reviewed the financial
terms of certain recent business combinations in the telemarketing industry and
(iv) performed such other studies and analyses and considered such other factors
as we deemed appropriate.
We have not independently verified the information described above and for
purposes of this opinion have assumed the accuracy, completeness and fairness
thereof. With respect to information relating to the prospects of Mitre, we have
assumed that such information reflects the best currently available estimates
and judgments of the management of Mitre as to the likely future financial
performance of Mitre. In addition, we have not made an independent evaluation or
appraisal of the assets of Mitre, nor have we been furnished with any such
evaluation or appraisal. Our opinion is based on market, economic and other
conditions as they exist and can be evaluated as of the date of this letter.
Our advisory services and the opinion expressed herein are for the
information of the Board of Directors of SITEL only and do not constitute a
recommendation as to whether the Directors and the holders of the Common Stock
should vote in favor of the Transaction. Our opinion may not be used for any
other purpose without our prior written consent. We hereby consent, however, to
the inclusion of this opinion as an exhibit to any filing made with the
Securities and Exchange Commission and to any proxy to be mailed to the holders
of the Common Stock in connection with the Transaction.
1290 AVENUE OF THE AMERICAS, 10TH FLOOR, NEW YORK, NEW YORK 10104 - TELEPHONE:
212-237-2000 - TELEX: 198186
<PAGE>
SITEL Corporation
June 6, 1996
Page 2
ALEX. BROWN & SONS
INCORPORATED
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter, the consideration to be paid by SITEL pursuant to the
Transaction as contemplated in the Agreement is fair, from a financial point of
view, to SITEL.
Very truly yours,
/s/ Phil C. Clough, Principal
-----------------------------
ALEX. BROWN & SONS INCORPORATED
<PAGE>
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SITEL CORPORATION
13215 BIRCH STREET
OMAHA, NEBRASKA 68164
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints James F. Lynch and Michael P. May, as
Proxies, each with the power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated on the Proxy Ballot, all of the
shares of common stock of SITEL Corporation held of record by the undersigned
on July 8, 1996 at the Special Meeting of Stockholders to be held on August 28,
1996 and any and all adjournments thereof.
This proxy when properly executed will be voted in the manner directed on the
Proxy Ballot by the undersigned stockholder. If no direction is made, the proxy
will be voted FOR the approval and adoption of the Share Purchase Agreement and
the transactions contemplated thereby, and FOR authorization of an additional
150,000,000 shares of undesignated capital stock, par value $.001 per share, of
the Company.
---------------------------------------------
PLEASE VOTE, DATE AND SIGN ON OTHER SIDE AND
RETURN PROMPTLY IN ENCLOSED ENVELOPE.
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Please sign exactly as your name appears on the reverse side
of this proxy. For joint accounts, all tenants should sign.
If signing for an estate, trust, corporation, partnership or
other entity, title or capacity should be stated.
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<PAGE>
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Please mark
your votes as /X/
in this
example
For Against Abstain
1.) APPROVAL OF THE SHARE / / / / / /
PURCHASE AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED
THEREBY.
RECORD DATE SHARES:
For Against Abstain
2.) AUTHORIZATION OF AN ADDITIONAL / / / / / /
150,000,000 SHARES OF
UNDESIGNATED CAPITAL STOCK,
PAR VALUE $.001 PER SHARE.
3.) In their discretion, the Proxies
are authorized to vote upon such
other business incidental to
Proposals 1-2 as may properly come
before the meeting.
Mark box at right if comments or address change have
been noted on the reverse side of this card. / /
HAS YOUR ADDRESS CHANGED?
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NOTE: PLEASE BE SURE TO SIGN AND DATE THIS PROXY. DATE
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SHAREHOLDER SIGN HERE CO-OWNER SIGN HERE
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DETACH CARD
