<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 24, 1998
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SITEL CORPORATION
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
MINNESOTA 7389 47-0684333
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Incorporation
incorporation or organization) or
Identification
Number)
</TABLE>
111 SOUTH CALVERT
SUITE 1910
BALTIMORE, MD 21202
(410) 659-5700
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Additional Registrants
are set forth on the following pages
------------------------
PHILLIP A. CLOUGH
PRESIDENT
111 SOUTH CALVERT, SUITE 1910
BALTIMORE, MD 21202
(410) 659-5700
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
W. KIMBALL GRIFFITH, ESQ.
EDWARD B. CROSLAND, ESQ.
ROGER D. BAILEY, ESQ.
KUTAK ROCK
1101 CONNECTICUT AVE., N. W.
SUITE 1000
WASHINGTON, D. C., 20036
(202) 828-2400
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
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<CAPTION>
TITLE OF SECURITIES AMOUNT TO PROPOSED MAXIMUM PROPOSED MAXIMUM REGISTRATION
TO BE REGISTERED BE REGISTERED OFFERING PRICE AGGREGATE PRICE OFFERING PRICE FEE(1)(2)
<S> <C> <C> <C> <C> <C>
9 1/4% Senior Subordinated Notes due 2006.... $100,000,000 $100,000,000 $100,000,000 100% $29,500
Guarantees of 9 1/4% Senior Subordinated
Notes due 2006.............................
</TABLE>
(1) Calculated in accordance with Rule 457(f)(2).
(2) No additional consideration for the Guarantees of the 9 1/4% Senior
Subordinated Notes will be furnished. Pursuant to Rule 457(n), no separate
fee is payable with respect to such Guarantees.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
ADDITIONAL REGISTRANTS
(Initial Guarantors of 9 1/4% Senior Subordinated Notes)
SITEL INTERNATIONAL, INC.
(Exact Name of Registrant as specified in its charter)
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<S> <C> <C>
NEBRASKA 7389 47-0795658
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
7727 WORLD COMMUNICATIONS DRIVE
OMAHA, NE 68122
402-963-2692
(Address, including zip code and telephone numbers,
including area code, of registrant's principal executive offices)
SITEL INSURANCE SERVICES, INC.
(Exact Name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NEBRASKA 7389 47-0776364
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
7727 WORLD COMMUNICATIONS DRIVE
OMAHA, NE 68122
402-963-2692
(Address, including zip code and telephone numbers,
including area code, of registrant's principal executive offices)
FINANCIAL INSURANCE SERVICES, INC.
(Exact Name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NEBRASKA 7389 47-0791671
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
7727 WORLD COMMUNICATIONS DRIVE
OMAHA, NE 68122
402-963-2692
(Address, including zip code and telephone numbers,
including area code, of registrant's principal executive offices)
SITEL SUPPORT SERVICES, INC.
(Exact Name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NEBRASKA 7389 91-1805799
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
7727 WORLD COMMUNICATIONS DRIVE
OMAHA, NE 68122
402-963-2692
(Address, including zip code and telephone numbers,
including area code, of registrant's principal executive offices)
<PAGE>
SITEL TECHNICAL SERVICES, INC.
(Exact Name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
WISCONSIN 7389 39-18769530
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
7727 WORLD COMMUNICATIONS DRIVE
OMAHA, NE 68122
402-963-2692
(Address, including zip code and telephone numbers,
including area code, of registrant's principal executive offices)
SITEL INSURANCE MARKETING SERVICES, INC.
(Exact Name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NEBRASKA 7389 91-1837850
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification Number)
incorporation or
organization)
</TABLE>
7727 WORLD COMMUNICATIONS DRIVE
OMAHA, NE 68122
402-963-2692
(Address, including zip code and telephone numbers,
including area code, of registrant's principal executive offices)
NATIONAL ACTION FINANCIAL SERVICES, INC.
(Exact Name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
GEORGIA 7389 58-2104843
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
7727 WORLD COMMUNICATIONS DRIVE
OMAHA, NE 68122
402-963-2692
(Address, including zip code and telephone numbers,
including area code, of registrant's principal executive offices)
SITEL INVESTMENTS, INC.
(Exact Name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NEBRASKA 7389 47-0712898
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification Number)
incorporation or
organization)
</TABLE>
7727 WORLD COMMUNICATIONS DRIVE
OMAHA, NE 68122
402-963-2692
(Address, including zip code and telephone numbers,
including area code, of registrant's principal executive offices)
<PAGE>
SITEL SOFTWARE, INC.
(Exact Name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NEBRASKA 7389 47-0705769
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification Number)
incorporation or
organization)
</TABLE>
7727 WORLD COMMUNICATIONS DRIVE
OMAHA, NE 68122
402-963-2692
(Address, including zip code and telephone numbers,
including area code, of registrant's principal executive offices)
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL , 1998
OFFER TO EXCHANGE
ALL OUTSTANDING
9 1/4% SENIOR SUBORDINATED NOTES DUE 2006
($100,000,000 PRINCIPAL AMOUNT OUTSTANDING)
OF SITEL CORPORATION
The Exchange Offer and withdrawal rights will expire at 5:00 p.m., New York
City time on , 1998 (as such date may be extended, the "Expiration
Date").
SITEL Corporation (the "Company") hereby offers (the "Exchange Offer"), upon
the terms and subject to the conditions set forth in this Prospectus and the
accompanying letter of transmittal (the "Letter of Transmittal"), to exchange
$1,000 in principal amount of its 9 1/4% Senior Subordinated Notes due 2006 (the
"Exchange Notes") for each $1,000 in principal amount of its outstanding 9 1/4%
Senior Subordinated Notes due 2006 (the "Old Notes" and together with the
Exchange Notes, the "Notes") held by Holders (as defined) of which an aggregate
principal amount of $100,000,000 is outstanding. See "The Exchange Offer." For
purposes of the Exchange Offer, a "Holder" shall mean the registered owner of
any Registrable Note. For purposes of the Exchange Offer, a "Registrable Note"
means each Old Note, each Exchange Note issued to the Holder that remains
restricted under federal and state securities laws, or each private exchange
note (a "Private Exchange Note") until the earliest to occur of (i) a
registration statement filed under the Securities Act of 1933, as amended (the
"Securities Act") covering such Note, Exchange Note or Private Exchange Note has
been made effective by the Securities and Exchange Commission (the "Commission")
and such Note, Exchange Note, or Private Exchange Note has been disposed of in
accordance with such effective registration statement, (ii) such Note, Exchange
Note, or Private Exchange Note may be sold in compliance with Rule 144(k)
promulgated under the Securities Act of 1933, as amended (the "Securities Act"),
(iii) such Old Note has been exchanged for an Exchange Note or Exchange Notes
pursuant to an Exchange Offer and is entitled to be resold without complying
with the prospectus delivery requirements of the Securities Act or (iv) such Old
Note, Exchange Note, or Private Exchange Note ceases to be outstanding under the
Indenture (as defined).
The Company will accept for exchange any and all Old Notes that are validly
tendered prior to 5:00 p.m., New York City time, on the Expiration Date. Tenders
of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City
time, on the Expiration Date. The Exchange Offer is not conditioned upon any
amount of the Old Notes being tendered for exchange. However, the Exchange Offer
is subject to certain conditions, which may be waived by the Company, and to the
terms and provisions of the Registration Rights Agreement dated as of March 10,
1998 among the Company, BT Alex. Brown Incorporated, Merrill Lynch, Pierce,
Fenner & Smith Incorporated and SBC Warburg Dillon Read Inc. (the "Initial
Purchasers") (the "Registration Rights Agreement"). See "The Exchange Offer."
The Old Notes were issued in a transaction (the "Offering") pursuant to
which the Company issued an aggregate of $100 million principal amount of the
Old Notes. The Old Notes were sold by the Company to the Initial Purchasers on
March 10, 1998 (the "Closing Date") pursuant to a Purchase Agreement, dated
March 5, 1998 (the "Purchase Agreement") among the Company and the Initial
Purchasers. The Initial Purchasers subsequently resold the Old Notes in reliance
on Rule 144A under the Securities Act. The Company and the Initial Purchasers
also entered into the Registration Rights Agreement, pursuant to which the
Company granted certain registration rights for the benefit of the holders of
the Old Notes. The Exchange Offer is intended to satisfy certain of the
Company's obligations under the Registration Rights Agreement with respect to
the Old Notes. See "The Exchange Offer--Purpose and Effect." Based on
interpretations by the staff of the Commission set forth in no-action letters
issued to third parties, the Company believes that the Exchange Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resole or otherwise transferred by any holder thereof (other than any
such holder that is an "affiliate" of the Company within the meaning of Rule 405
promulgated under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business,
such holder has no arrangement with any person to participate in the
distribution of such
<PAGE>
Exchange notes and neither such holder or any such other person is engaging in
or intends to engage in a distribution of such Exchange Notes. Notwithstanding
the foregoing, each broker-dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that is will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with any resale of Exchange Notes received in exchange for such Old Notes where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities (other than Old Notes acquired directly
from the Company). See "Plan of Distribution."
The Old Notes were, and the Exchange Notes will be, issued under the
Indenture, dated as of March 10, 1998 (the "Indenture"), among the Company,
certain subsidiaries of the Company that have agreed to guarantee the Notes
(collectively, the "Subsidiary Guarantors") and The First National Bank of
Maryland, as trustee (in such capacity, the "Trustee"). The form and terms of
the Exchange Notes will be identical in all material respects to the form and
terms of the Old Notes, except that (i) the Exchange Notes have been registered
under the terms of the Securities Act and, therefore, will not bear legends
restricting the transfer thereof and (ii) holders of Exchange Notes will not be
entitled to the additional interest otherwise payable under the terms of the
Registration Rights Agreement in respect of Old Notes tendered in accordance
with the terms of the Exchange Offer but not exchanged for Exchange Notes prior
to the 45th day after the Exchange Offer registration statement has been
declared effective or where a Shelf Registration Statement has been declared
effective and subsequently ceases to be effective at any time during the
effectiveness period and prior to the disposition of all Old Notes thereunder
(the "Additional Interest") and (iii) holders of Exchange Notes will not be, and
upon the consummation of the Exchange Offer, Holders of Old Notes will no longer
be, entitled to certain rights under the Registration Rights Agreement intended
for the holders of unregistered securities. The Exchange Offer shall be deemed
consummated upon the occurrence of the delivery by the Company to the registrar
under the Indenture of Exchange Notes in the same aggregate principal amount as
the aggregate principal amount of Old Notes that were tendered by holders
thereof pursuant to the Exchange Offer. See "The Exchange Offer--Termination of
Certain Rights", "--Procedures for Tendering Old Notes" and "Description of
Exchange Notes."
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN RISKS
THAT HOLDERS SHOULD CONSIDER IN EVALUATING THE EXCHANGE OFFER.
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS ANY SUCH COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE
The date of this Prospectus is April , 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Available Information...................................................................................... i
Incorporation of Certain Documents by Reference............................................................ ii
Summary.................................................................................................... 1
Prospectus................................................................................................. 1
Risk Factors............................................................................................... 14
The Exchange Offer......................................................................................... 19
Capitalization............................................................................................. 27
Selected Historical Financial Data......................................................................... 28
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 30
Business................................................................................................... 36
Management................................................................................................. 44
Principal Stockholders..................................................................................... 48
Description of Certain Indebtedness........................................................................ 49
Description of the Exchange Notes.......................................................................... 49
Book Entry; Delivery and Form.............................................................................. 79
Plan of Distribution....................................................................................... 80
Experts.................................................................................................... 81
Legal Matters.............................................................................................. 81
Index to Financial Statements.............................................................................. F-1
</TABLE>
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the information reporting 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 Commission. Such reports, proxy statements and other information filed by
the Company with the Commission may be inspected and copied at prescribed rates
at the Public Reference facilities maintained by the Commission at Judiciary
Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and the
following regional offices of the Commission: Seven World Trade Center, Suite
1300, New York, New York 10048 and Northwest Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. In addition, certain filings made
with the Commission through its Electronic Data Gathering, Analysis and
Retrieval system (EDGAR) are publicly available through the Commission's site on
the Internet at http://www.sec.gov.
The Company's stock is listed on the New York Stock Exchange under the
symbol "SWW." The Company was founded in 1985 and is a Minnesota corporation.
The address of the Company's executive offices is 111 South Calvert, Suite 1910,
Baltimore, Maryland 21202, telephone (410) 659-5700.
In addition, the Company has agreed that, whether or not it is required to
do so by the rules and regulations of the Commission, for so long as any Notes
remain outstanding, it will file with the Commission and furnish to the holders
of the Notes (i) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and 10-K,
including for each, a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual information
only, a report thereof by the Company's independent public accountants and (ii)
all reports filed on Form 8-K. In addition, for so long as any of the Notes
remain outstanding, the Company has agreed to make available to any prospective
purchaser of the Notes or beneficial owner of the Notes in connection with any
sale thereof, the information required by Rule 144(d)(4) under the Securities
Act.
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. Such
statements are identified by the use of forward-looking words or phrases
including, but not limited to, "intended," "will be positioned," "expects,"
"expected," "anticipates" and "anticipated." These forward-looking statements
are based on the Company's current expectations. All statements other than
statements of historical facts included in this Prospectus, including those
regarding the Company's financial position, business strategy, projected costs
and plans and objectives of management for future operations, are
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, there can be no
assurance that such expectations will prove to have been correct. Because
forward-looking statements involve risks and uncertainties, the Company's actual
results could differ materially. Important factors that could cause actual
results to differ materially from the Company's expectations ("Cautionary
Statements") are disclosed under "Risk Factors" and elsewhere in this Prospectus
including, without limitation, in conjunction with the forward-looking
statements included in this Prospectus. These forward-looking statements
represent the Company's judgment as of the date of this Prospectus. All
subsequent written and oral forward-looking statements attributable to the
Company or persons acting on behalf of the Company are expressly qualified in
their entirety by the Cautionary Statements. The Company disclaims, however, any
intent or obligation to update its forward-looking statements.
i
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company incorporates herein by reference, the following documents filed
with the Commission under the Exchange Act:
(a) The Company's Annual Report on Form 10-K for the year ended December
31, 1997;
(b) The description of the Company's Common Stock contained in the
Company's Form 8-A filed by the Company to register such securities under
the Exchange Act, including all amendments and reports filed for the purpose
of updating such description prior to the termination of the Exchange Offer;
(c) The information under the caption entitled "Certain Transactions"
contained within the Company's Proxy Statement dated March 31, 1998,
relating to its 1998 Annual Meeting of Stockholders;
(d) The Company's Current Reports on Form 8-K dated January 23, 1998 and
March 16, 1998; and
(e) All documents and reports subsequently filed by the Company pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of
this Prospectus and prior to termination of the Exchange Offer, shall be
deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the date of filing such documents or reports.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded, except as so modified or superseded, shall
not be deemed to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus has been delivered, on the oral or written request of such
person, a copy of any and all the documents incorporated herein by reference,
other than exhibits to such documents unless they are specifically incorporated
by reference into such documents. Requests for such copies should be directed
to: James K. Jacobson, Investor Communications, 111 South Calvert, Suite 1910,
Baltimore, Maryland 21202.
ii
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL DATA, INCLUDING
THE FINANCIAL STATEMENTS AND THE NOTES THERETO APPEARING ELSEWHERE IN THIS
PROSPECTUS. AS USED IN THIS PROSPECTUS, ALL REFERENCES TO THE "COMPANY" MEAN
SITEL CORPORATION AND ITS CONSOLIDATED SUBSIDIARIES, UNLESS THE CONTEXT
INDICATES OTHERWISE.
THE COMPANY
SITEL is a global leader in providing outsourced telephone and
Internet-based customer service and sales programs on behalf of large
corporations. The Company handles calls in over 25 languages and dialects from
more than 12,500 workstations in over 70 call centers located in North America,
Europe, Asia Pacific and Latin America. SITEL communicates directly with its
clients' customers primarily by responding to customer-initiated telephone calls
and electronic mail and by making Company-initiated calls. Approximately 60% of
the Company's revenues are currently generated by customer service programs,
including technical support activities, with the remainder generated primarily
by sales programs and, to a lesser extent, by consulting services. The Company
currently provides services to over 400 clients, principally in the insurance,
financial services, telecommunications, technology, media and entertainment,
utilities, consumer, automotive and travel and hospitality industries. The
Company has organized its business divisions to reflect the specific industries
in which its clients do business. For the year ended December 31, 1997, the
Company generated $491.5 million in revenues and $63.6 million in EBITDA (as
hereinafter defined).
Industry sources and the Company estimate that worldwide expenditures on
call center activity exceed $160 billion annually. These activities include
customer service programs such as technical support, responding to billing
inquiries, answering customer questions regarding product information and credit
card fraud protection as well as sale programs such as handling product orders,
activating credit cards and soliciting orders. These expenditures have grown
substantially with the proliferation of toll-free phone numbers and direct
marketing, the development of new database, networking and communications
technologies, the reduction in telecommunications costs and the development of
new modes of communication, such as the Internet. Much of the industry's recent
growth has resulted from higher consumer expectations for readily accessible
customer service and support. At the same time, companies have recognized the
benefit of communicating directly with their customers.
The outsourced portion of the overall teleservices market has grown
significantly since 1984, as a result of corporations' shifting their
teleservices operations from in-house operations to outsourced providers.
Although outsourced applications are increasing their share of the overall
teleservices market, the vast majority of call center activities are still
performed in-house. An industry analyst estimates that in 1999, the outsourced
portion of the U.S. teleservices industry will be approximately $20 billion, up
from $5.7 billion in 1995. Competition for this outsourced teleservicing
business is fragmented. Most independent providers of telephone-based services
are small, single facility operations that do not have the scale, expertise, or
technological resources necessary to serve effectively the sustained, and
increasingly complex, teleservicing needs of large corporations. Few of the
Company's competitors have significant international or multilingual
capabilities.
COMPANY STRENGTHS
The Company believes its market leadership is attributable primarily to the
following factors:
LONGSTANDING RELATIONSHIPS WITH LARGE CORPORATE CLIENTS. SITEL's client
base consists primarily of large corporations, including Allstate Insurance,
America Online, American Express, Banco Santander, British Gas, First USA, GTE,
General Motors Acceptance Corporation and Microsoft. These clients provide SITEL
with recurring revenues due to their ongoing customer service and sales
requirements. The Company's 20 largest clients in 1997 have utilized the
Company's services for an average of approximately
1
<PAGE>
five years. The Company's longstanding relationships with these clients often
lead to additional business opportunities as these corporations continue to
outsource more of their teleservicing activities worldwide. By emphasizing
long-term relationships, the Company seeks to improve its profitability and
service levels by (i) improving the predictability of its facility and labor
utilization, (ii) providing more in-depth employee training on specific client
programs and industry issues and (iii) continually developing technological and
process improvements to better serve clients.
DIVERSE CLIENT BASE. SITEL serves a large number of clients within a
diverse number of industries. In 1997, SITEL's largest client accounted for less
than 10% of the Company's revenues. The Company's more than 400 clients provide
significant opportunities to increase business from the existing client base.
The Company has historically generated most of its internal growth from existing
clients.
WORLDWIDE PRESENCE. SITEL believes it has the most extensive international
capabilities of any teleservices company, which provides it with a competitive
advantage as the Company's clients and other large multinational corporations
expand into new worldwide markets and outsource their call center activities to
global providers. The Company conducts teleservicing programs in over 25
languages and dialects in over 70 call centers in North America, Europe, Asia
Pacific and Latin America.
INDUSTRY SPECIALIZATION. SITEL organizes its activities along industry
lines. SITEL believes this industry-focused strategy is a competitive advantage
because it permits the Company's managers to better understand industry-specific
issues and to use that understanding in the design of solution-oriented
teleservicing programs. SITEL focuses its business development efforts on
leading companies in its targeted industries.
DECENTRALIZED OPERATIONS AND GLOBAL COORDINATION. SITEL employs a
decentralized operating structure in order to be more flexible and responsive to
each client's requirements and to aggressively seek new large corporate clients.
Each operating unit has its own management team and sales organization with
complete profit and loss responsibility, dedicated facilities and a full
complement of information technology, finance and human resources professionals.
In addition to shifting decision making closer to the client, this decentralized
structure enables SITEL's senior executives to focus on setting strategic
direction for the Company as a whole.
SOPHISTICATED CALL AND DATA MANAGEMENT TECHNOLOGY. SITEL makes extensive
use of sophisticated call management technology, including proprietary and
licensed computer software, automated call distributors, predictive dialers,
computer-integrated telephony, digital switches and the Internet. This
technology provides SITEL the capacity to handle calls and electronic messages
in many languages, to process vastly differing amounts of product and service
information and to distribute call volumes and data throughout the Company's
international network of call centers. The Company also has considerable in-
house information technology expertise, which allows it to integrate its call
centers directly with its clients' databases, including those contained in
legacy computer systems.
EMPLOYEE OWNERSHIP. As of January 31, 1998, approximately 2,700 SITEL
employees and managers worldwide owned Common Stock or options to acquire Common
Stock, representing approximately 56% of the fully-diluted Common Stock.
Management believes that this significant employee ownership and the Company's
incentive compensation plans, coupled with SITEL's decentralized operations,
promote quality client service, increased focus on achieving growth and
profitability goals, higher employee productivity and the successful integration
of acquired businesses.
2
<PAGE>
BUSINESS STRATEGY
SITEL believes there are significant opportunities to expand its business on
a worldwide basis as it takes advantage of the global trend toward the
outsourcing of call center activities. The key elements of the Company's
business strategy are:
INCREASE REVENUES WORLDWIDE FROM EXISTING CLIENTS. Historically, most of
the Company's internal growth has resulted from existing clients, and management
believes this remains SITEL's greatest growth opportunity, given the number and
diversity of premier corporations in SITEL's client base. The Company seeks to
increase revenues from existing clients by earning additional outsourcing
opportunities as they arise, by obtaining work from other business units of
clients on a worldwide basis and by developing new teleservicing applications
that clients can use to increase the value of their customer relationships. The
Company's global presence and multilingual capabilities enable its multinational
clients to consolidate their call center activities with SITEL.
OBTAIN NEW CLIENTS WITHIN TARGETED INDUSTRY SPECIALIZATIONS. Through its
industry specialization, the Company has developed considerable expertise in its
targeted industries. These industries are characterized by large, often
multinational corporations with significant customer bases, many of whom rely on
call centers for a substantial portion of their customer service and sales
needs. SITEL believes there are significant growth opportunities for each of its
business units as they target companies seeking to outsource their teleservicing
programs.
CREATE NEW VALUE-ADDED CALL CENTER APPLICATIONS. SITEL regularly seeks to
offer its clients new value-added call center services either as new offerings
to its client base or as a new application within a targeted industry. The
Company believes that creating new value-added services will increase the
average account size and, more importantly, strengthen the relationships between
SITEL and its clients. For example, in 1996, the Company first offered accounts
receivable management to its financial services clients and, in 1997, expanded
that service to telecommunications and utilities clients. In addition, the
Company and Lucent Technologies have jointly developed and are currently
demonstrating an Internet Call Center. This technology permits consumers and
call center agents to speak with one another and exchange data through a single
Internet connection.
CONTINUE REINVESTMENT IN THE BUSINESS. SITEL continues to reinvest in the
infrastructure required to manage a large global operation and to take advantage
of future opportunities. SITEL believes these investments are necessary to
support the Company's continued growth and to maintain its ability to provide
efficient and profitable worldwide call center services. SITEL is currently
establishing operations in several new markets, such as France and Colombia, to
service recently awarded contracts, to provide increasingly global service for
existing clients and to attract new clients. The Company expects to enter other
markets in 1998, including Brazil and Argentina. SITEL also funds efforts to
incubate potential new growth opportunities in industries not currently served
by the Company.
CONTINUE MAKING SELECTED ACQUISITIONS. Through selected strategic
acquisitions, SITEL seeks to expand its geographic coverage as well as add new
industry expertise and services. The Company targets companies with strong
senior management teams and considers the addition of talented management a
major benefit of making acquisitions. Other criteria used by the Company to
evaluate potential acquisitions include service quality, industry focus,
diversification of client base, operating characteristics, and geographic
coverage.
3
<PAGE>
The following chart shows the corporate structure of the Company:
[Organizational Chart of Company inserted here]
4
<PAGE>
ISSUANCE OF THE OLD NOTES
The outstanding 9 1/4% Senior Subordinated Notes due 2006 (the "Old Notes")
were sold by the Company to BT Alex. Brown Incorporated, Merrill Lynch, Pierce,
Fenner & Smith Incorporated and SBC Warburg Dillon Read Inc. (the "Initial
Purchasers"), on March 10, 1998 (the "Closing Date") pursuant to a Purchase
Agreement, dated March 5, 1998 (the "Purchase Agreement"), between the Company
and the Initial Purchasers. The Initial Purchasers subsequently resold the Old
Notes in reliance on Rule 144A under the Securities Act and other available
exemptions under the Securities Act. The Company and the Initial Purchasers also
entered into the Registration Rights Agreement, dated as of March 10, 1998 (the
"Registration Rights Agreement"), among the Company and the Initial Purchasers,
pursuant to which the Company granted certain registration rights for the
benefit of the holders of the Old Notes. The Exchange Offer (as defined) is
intended to satisfy certain of the Company's obligations under the Registration
Rights Agreement with respect to the Old Notes. See "The Exchange Offer--Purpose
and Effect." Capitalized terms used but not defined in this Prospectus Summary
are defined elsewhere in the Prospectus.
THE EXCHANGE OFFER
The Exchange Offer............ The Company is offering upon the terms and
subject to the conditions set forth herein to
exchange $1,000 in principal amount of its
9 1/4% Senior Subordinated Notes due 2006
(the "Exchange Notes") for each $1,000 in
principal amount of the outstanding Old Notes
(the Old Notes and the Exchange Notes are
collectively referred to herein as the
"Notes"). As of the date of this Prospectus,
$100 million in aggregate principal amount of
the Old Notes is outstanding. As of the
Record Date, there were two registered
holders of the Old Notes, which held the Old
Notes for thirty of its participants. See
"The Exchange Offer--Terms of the Exchange
Offer."
Expiration Date............... 5:00 p.m., New York City time, on ,
1998 as the same may be extended. See "The
Exchange Offer--Expiration Date; Extensions;
Amendments."
Conditions of the Exchange
Offer....................... The Exchange Offer is not conditioned upon
any minimum principal amount of Old Notes
being tendered for exchange. However, the
Exchange Offer is subject to certain
conditions, including that (i) the Exchange
Offer does not violate applicable law or any
applicable interpretation of the staff of the
Commission, (ii) no action or proceeding is
instituted or threatened that would be
reasonably likely to materially impair the
ability of the Company or Subsidiary
Guarantors to proceed with the Exchange Offer
and no material adverse developments shall
have occurred in any existing action or
proceeding with respect to the Company and
the Subsidiary Guarantors, and (iii) all
government approvals have been obtained. The
Company expects that the foregoing conditions
will be satisfied. All such conditions may be
waived by the Company. See "The Exchange
Offer--Conditions of the Exchange Offer."
5
<PAGE>
Termination of Certain
Rights...................... Pursuant to the Registration Rights Agreement
and the Old Notes, Holders (as defined) of
Old Notes (i) have rights to receive
Additional Interest (as defined) and (ii)
have certain rights intended for the holders
of unregistered securities. Holders of
Exchange Notes will not be and, upon
consummation of the Exchange Offer, Holders
of Old Notes will no longer be, entitled to
(i) the right to receive the Additional
Interest or (ii) certain other rights under
the Registration Rights Agreement intended
for holders of unregistered securities,
provided, however, that a Holder of Old Notes
who reasonably determines and notifies the
Company within 20 business days of the
consummation of the Exchange Offer that (a)
such Holder is prohibited by applicable law
or Commission policy from participating in
the Exchange Offer, or (b) that such Holder
may not resell the Exchange Notes acquired by
it in the Exchange Offer to the public
without delivering a prospectus and that this
Prospectus is not appropriate or available
for such resales by such Holder, or (c) that
such Holder is a broker-dealer registered
under the Exchange Act and holds the Old
Notes acquired directly from the Company or
of its affiliates subject to reasonable
verification by the Company shall have the
right to require the Company to file a shelf
registration statement pursuant to Rule 415
under the Securities Act solely for the
benefit of such Holder of Old Notes and will
be entitled to receive the Additional
Interest following the occurrence of defined
events of default in connection with such
shelf registration statement. The Exchange
Offer shall be deemed consummated upon the
occurrence of the delivery by the Company to
the Registrar under the Indenture of Exchange
Notes in the same aggregate principal amount
as the aggregate principal amount of Old
Notes that were tendered by holders thereof
pursuant to the Exchange Offer. "Holder"
means the registered owner of any Old Notes
that remain Transfer Restricted Securities as
reflected on the records of The First
National Bank of Maryland, as registrar for
the Old Notes (in such capacity, the
"Registrar"), or any person whose Old Notes
are held of record by the Depository (as
defined) as of the Record Date (as defined).
See "The Exchange Offer-- Termination of
Certain Rights" and "Procedures for Tendering
Old Notes."
6
<PAGE>
<TABLE>
<S> <C>
Shelf Registration............ The Company and Subsidiary Guarantors shall
be required to file a Shelf Registration
Statement pursuant to Rule 415 under the
Securities Act covering all of the
Registrable Notes if (i) because of a change
in law or in currently prevailing
interpretations of the Staff of the
Commission, the Company and Subsidiary
Guarantors are not permitted to effect an
Exchange Offer, (ii) the Exchange Offer is
not consummated within 180 days of March 10,
1998 (the "Issue Date"), (iii) the holder of
the Private Exchange Notes so requests within
60 days after the consummation of the Private
Exchange, or (iv) in the case of any Holder
that participates in the Exchange Offer, such
Holder does not receive Exchange Notes on the
date of the Exchange that may be sold without
restriction under state and federal
securities laws (other than due solely to the
status of such Holder as an affiliate of the
Company and the Subsidiary Guarantors within
the meaning of the Securities Act).
Accrued Interest on the Old
Notes....................... The Exchange Notes will bear interest at a
rate equal to 9 1/4% per annum from and
including their date of issuance. Holders
whose Old Notes are accepted for exchange
will have the right to receive interest
accrued thereon from the date of their
original issuance or the last Interest
Payment Date on which interest was paid, as
applicable, to, but not including, the date
of issuance of the Exchange Notes, such
interest to be payable with the first
interest payment on the Exchange Notes.
Interest on the Old Notes accepted for
exchange, which accrued at the rate of 9 1/4%
per annum, will cease to accrue on the day
prior to the issuance of the Exchange Notes.
Additional Interest........... Pursuant to the Registration Rights
Agreement, if (i) neither the Exchange Offer
nor Shelf Registration, if applicable, is
filed on or prior to the respective Filing
Date applicable thereto, or (ii) neither the
Exchange Offer nor Shelf Registration, if
applicable, is declared effective prior to
the respective Effectiveness Date applicable
thereto, or (iii) neither the Company nor the
Subsidiary Guarantors has exchanged Exchange
Notes for all Old Notes validly tendered in
accordance with the terms of the Exchange
Offer on or prior to the 45th day after the
date on which the Exchange Offer Registration
Statement has been declared effective or, if
applicable, a Shelf Registration ceases to be
effective at any time during the
Effectiveness Period and prior to the
disposition of all Old Notes thereunder,
additional interest shall accrue for the
period of any such failure or event on the
principal amount of the Old Notes at a rate
of .50% per annum for the first 90 days after
such failure or event and shall increase by
an additional .50% for each subsequent 90-day
period, provided, that such additional
interest shall not exceed in the aggregate
1.0% per annum ("Additional Interest").
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
Procedures for Tendering Old
Notes....................... Unless a tender of Old Notes is effected
pursuant to the procedures for book-entry
transfer as provided herein, each Holder
desiring to accept the Exchange Offer must
complete and sign the Letter of Transmittal,
have the signature thereon Guaranteed if
required by the Letter of Transmittal, and
mail or deliver the Letter of Transmittal,
together with the Old Notes or a Notice of
Guaranteed Delivery and any other required
documents (such as evidence of authority to
act, if the Letter of Transmittal is signed
by someone acting in a fiduciary or
representative capacity), to the Exchange
Agent (as defined) at the address set forth
on the back cover page of this Prospectus
prior to 5:00 p.m., New York City time, on
the Expiration Date. Any Beneficial Owner (as
defined) of the Old Notes whose Old Notes are
registered in the name of a nominee, such as
a broker, dealer, commercial bank or trust
company and who wishes to tender Old Notes in
the Exchange Offer, should instruct such
entity or person to promptly tender on such
Beneficial Owner's behalf. See "Exchange
Offer--Procedures for Tendering Old Notes."
Guaranteed Delivery
Procedures.................. Holders of Old Notes who wish to tender their
Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot
deliver their Old Notes or any other
documents required by the Letter of
Transmittal to the Exchange Agent prior to
the Expiration Date (or complete the
procedure for book-entry transfer on a timely
basis), may tender their Old Notes according
to the guaranteed delivery procedures set
forth in the Letter of Transmittal. See "The
Exchange Offer--Guaranteed Delivery
Procedures."
Acceptance of Old Notes and
Delivery of Exchange
Notes....................... Upon satisfaction or waiver of all conditions
of the Exchange Offer, the Company will
accept any and all Old Notes that are
properly tendered in the Exchange Offer prior
to 5:00 p.m., New York City time, on the
Expiration Date. The Exchange Notes issued
pursuant to the Exchange Offer will be
delivered promptly after acceptance of the
Old Notes. See "The Exchange
Offer--Acceptance of Old Notes for Exchange;
Delivery of Exchange Notes."
Withdrawal Rights............. Tenders of Old Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time,
on the Expiration Date. See "The Exchange
Offer--Withdrawal Rights."
The Exchange Agent............ The First National Bank of Maryland is the
exchange agent (in such capacity, the
"Exchange Agent"). The address and telephone
number of the Exchange Agent are set forth in
"The Exchange Offer--The Exchange Agent;
Assistance."
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Fees and Expenses............. All expenses incident to the Company's
consummation of the Exchange Offer and
compliance with the Registration Rights
Agreement will be borne by the Company or the
Subsidiary Guarantors. The Company will also
pay certain transfer taxes applicable to the
Exchange Offer. See "The Exchange Offer--
Fees and Expenses.
Resales of the New Notes...... Based on an interpretation by the staff of
the Commission set forth in no-action letters
issued to third parties, the Company believes
that Exchange Notes issued pursuant to the
Exchange Offer to a Holder in exchange for
Old Notes may be offered for resale, resold
and otherwise transferred by such Holder
(other than (i) a broker-dealer who purchased
Old Notes directly from the Company for
resale pursuant to Rule 144A under the
Securities Act or any other available
exemption under the Securities Act, or (ii) a
person that is an affiliate of the Company
within the meaning of Rule 405 under the
Securities Act), without compliance with the
registration and prospectus delivery
provisions of the Securities Act, provided
that the Holder is acquiring the Exchange
Notes in the ordinary course of business and
is not participating, and has no arrangement
or understanding with any person to
participate, in a distribution of the
Exchange Notes. Each broker-dealer that
receives Exchange Notes for its own account
in exchange for Old Notes, where such Old
Notes were acquired by such broker as a
result of market-making, or other trading,
activities, must acknowledge that it will
deliver a prospectus in connection with any
resale of such Exchange Notes. See "The
Exchange Offer--Resales of the Exchange
Notes" and "Plan of Distribution."
</TABLE>
DESCRIPTION OF EXCHANGE NOTES
The form and terms of the Exchange Notes will be identical in all material
respects to the form and terms of the Old Notes, except that (i) the Exchange
Notes have been registered under the Securities Act and, therefore, will not
bear legends restricting the transfer thereof, (ii) holders of the Exchange
Notes will not be entitled to Additional Interest and (iii) holders of the
Exchange Notes will not be, and upon consummation of the Exchange Offer, Holders
of the Old Notes will no longer be, entitled to certain rights under the
Registration Rights Agreement intended for the holders of unregistered
securities, except in certain limited circumstances. See "Exchange
Offer--Termination of Certain Rights." The Exchange Offer shall be deemed
consummated upon the occurrence of the delivery by the Company to the Registrar
under the Indenture of Exchange Notes in the same aggregate principal amount as
the aggregate principal amount of Old Notes that were tendered by holders
thereof pursuant to the Exchange Offer. See "The Exchange Offer--Termination of
Certain Rights" and "Procedures for Tendering Old Notes," and "Description of
Exchange Notes." "Transfer Restricted Securities" means each Old Note until the
earliest to occur of (i) the date on which such Old Note has been exchanged for
an Exchange Note in the Exchange Offer, (ii) the date on which such Old Note has
been effectively registered under the Securities Act, and disposed of in
accordance with a shelf registration statement, or (iii) the date on which such
Old Note is distributed to the public pursuant to Rule 144 under the Securities
Act or is saleable pursuant to Rule 144 under the Securities Act or (iv), such
Old Note, Exchange Note or Private Exchange Note ceases to be outstanding under
the Indenture.
9
<PAGE>
<TABLE>
<S> <C>
Securities Offered............ $100,000,000 aggregate principal amount of 9 1/4%
Senior Subordinated Notes due 2006.
Issuer........................ SITEL Corporation
Maturity Date................. March 15, 2006.
Interest Rate and Payment
Dates....................... The Notes will bear interest at a rate of 9 1/4%
per annum. Interest on the Notes will accrue from
the date of original issuance (the "Issue Date")
and will be payable semiannually on March 15 and
September 15 of each year, commencing September
15, 1998.
Subordination................. The Notes will be general unsecured obligations of
the Company and will be subordinated in right of
payment to all existing and future Senior Debt of
the Company. As of December 31, 1997 on a pro
forma basis after giving effect to the Offering
and the Amended Credit Facility (as defined), the
aggregate outstanding amount of Senior Debt of the
Company would have been approximately $49.4
million (excluding unused commitments expected to
be available for borrowing of $47.6 million). See
"Description of Notes--Subordination."
Optional Redemption........... Except as described below, the Company may not
redeem the Notes prior to March 15, 2002. On or
after such date, the Company may redeem the Notes,
in whole or in part, at the redemption prices set
forth herein, plus accrued interest to the date of
redemption. In addition, at any time on or prior
to March 15, 2001, the Company may, at its option,
redeem up to 35% of the aggregate principal amount
of the Notes originally issued in the Offering at
109.25% of the principal amount thereof, plus
accrued interest to the date of redemption, from
the net proceeds of one or more Public Equity
Offerings (as hereinafter defined); provided that
at least 65% of the aggregate original principal
amount of the Notes remains outstanding following
all such redemptions. See "Description of the
Notes--Optional Redemption.
Change of Control............. Upon a Change of Control (as defined), each holder
of the Notes will have the right to require the
Company to repurchase such holder's Notes at a
price equal to 101% of the principal amount
thereof, plus accrued interest to the date of
repurchase. See "Description of the Notes-- Change
of Control."
Guarantees.................... The Notes will be unconditionally guaranteed (the
"Guarantees") on a senior subordinated basis by
all of the Company's domestic subsidiaries (the
"Subsidiary Guarantors"). The Guarantees will rank
PARI PASSU with any future senior subordinated
obligations of the Subsidiary Guarantors.
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
Certain Covenants............. The Indenture governing the Notes will contain
certain covenants that limit the ability of the
Company and certain of its subsidiaries to, among
other things, incur additional indebtedness, pay
dividends or make certain other restricted
payments, consummate certain asset sales, enter
into certain transactions with affiliates, incur
indebtedness that is subordinate in right of
payment to any Senior Debt and senior in right of
payment to the Notes, incur liens, impose
restrictions on the ability of a subsidiary to pay
dividends or make certain payments to the Company
and certain of its subsidiaries, merge or
consolidate with any other person or sell, assign,
transfer, lease, convey or otherwise dispose of
all or substantially all of the assets of the
Company. See "Description of Notes--Certain
Covenants."
Absence of a Public Market for
the New Notes............... The Exchange Notes are a new issue of securities
with no established market. Accordingly, there can
be no assurance as to the development or liquidity
of any market for the Exchange Notes. The Initial
Purchasers have advised the Company that they
currently intend to make a market in the Exchange
Notes. However, none of the Initial Purchasers are
obligated to do so, and any market making with
respect to the Exchange Notes may be discontinued
at any time without notice. The Company does not
intend to apply for listing of the Exchange Notes
on a securities exchange.
Risk Factors.................. The Exchange Notes are subject to various Risk
Factors. Such Risk Factors include the effect of
leverage on the company, subordination of the
Notes, restrictions imposed by terms of
indebtedness and reliance on major clients. See
"Risk Factors."
</TABLE>
11
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth summary financial information of the Company.
The summary income statement data for the years ended December 31, 1995, 1996
and 1997 are derived from the consolidated financial statements of the Company,
which consolidated financial statements have been audited by KPMG Peat Marwick
LLP, independent certified public accountants. For additional information, see
the consolidated financial statements of the Company appearing elsewhere in this
Prospectus. The summary financial data should also be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1995 1996 1997
---------- ---------- ----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues................................................................... $ 187,215 $ 312,750 $ 491,474
Cost of services........................................................... 101,617 163,717 270,942
Selling, general and administrative expenses............................... 69,213 120,695 185,589
Special compensation expense (1)........................................... 34,585 -- --
Restructuring expenses (2)................................................. -- -- 15,681
---------- ---------- ----------
Operating income (loss).................................................... (18,200) 28,338 19,262
Transaction related expense (3)............................................ -- 6,988 --
Interest expense, net...................................................... 702 227 5,096
Other income (expense)..................................................... 118 32 126
---------- ---------- ----------
Income (loss) before taxes and minority interest........................... (18,784) 21,155 14,292
Income tax provision (benefit)............................................. (6,593) 10,221 11,306
Minority interest.......................................................... 1,262 77 174
---------- ---------- ----------
Net income (loss).......................................................... $ (13,453) $ 10,857 $ 2,812
---------- ---------- ----------
---------- ---------- ----------
OPERATING DATA (AT PERIOD END):
Number of workstations..................................................... 3,889 8,017 12,271
Number of countries (4).................................................... 3 7 17
OTHER FINANCIAL DATA:
EBITDA (5)................................................................. $ 23,975 $ 43,763 $ 63,630
Depreciation and amortization (6).......................................... 7,090 13,256 28,687
Capital expenditures....................................................... 13,279 39,954 69,437
Ratio of earnings to fixed charges (7)..................................... -- 6.91x 2.23x
PRO FORMA (8):
Interest expense................................................................................... $ 12,245
Ratio of earnings to fixed charges................................................................. 1.77x
EBITDA to interest expense......................................................................... 5.2x
Total debt......................................................................................... $ 149,391
Total debt to EBITDA............................................................................... 2.3x
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------
<S> <C> <C>
AS ADJUSTED
ACTUAL (8)
---------- --------------
BALANCE SHEET DATA:
Cash and cash equivalents.......................................................... $ 24,285 $ 24,285
Working capital.................................................................... 39,545 39,545
Total assets....................................................................... 385,880 389,680
Total debt......................................................................... 145,591 149,391
Shareholders' equity............................................................... 158,388 158,388
</TABLE>
- ------------------------
(1) Represents a non-recurring, non-cash compensation expense incurred in
February 1995 resulting from the grant of stock options with an exercise
price of $.0025 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. Without the special
compensation expense, operating income for the period would have been $16.4
million.
(2) Represents a non-recurring restructuring expense and a writedown of SITEL's
Telebusiness business unit of $5.2 million and $10.5 million, respectively,
for the year ended December 31, 1997.
(3) Represents a non-recurring expense resulting from the acquisitions of NAFS
(as hereinafter defined) and Mitre plc ("Mitre"), accounted for as pooling
of interests transactions.
(4) Represents countries in which SITEL operates or in which Mitre operated
prior to its merger with SITEL in 1996.
(5) EBITDA represents the sum of earnings (loss) from continuing operations
before non-recurring or extraordinary items, income taxes, interest expense,
interest income, depreciation and amortization. EBITDA is presented because
management believes it provides useful information regarding a company's
ability to incur and/or service debt and because EBITDA will be used to
determine compliance with certain bond covenants contained in the Indenture.
EBITDA should not be considered in isolation or as a substitute for
consolidated net income, cash flows, or other income or cash flow data
prepared in accordance with generally accepted accounting principles
("GAAP") or as a measure of a company's profitability or liquidity. Further,
EBITDA is not calculated consistently by all companies and, accordingly, the
presentation herein may not be comparable to other similarly titled measures
presented by other companies. Nonrecurring expenses excluded from the
calculation of EBITDA include $0.5 million for debt-forgiveness and $34.6
million for special compensation expense in 1995, $2.2 million for
compensation expenses and $7.0 million for transaction- related expenses in
1996, and $15.7 million of restructuring charges in 1997.
(6) Excludes amortization of deferred debt expense that is included in interest
expense.
(7) The Company had a deficiency of $20,046 to cover fixed charges in 1995.
(8) Adjusted to give effect to the issuance of the Old Notes and the Amended
Credit Facility described herein.
13
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS IN
ADDITION TO THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS BEFORE MAKING AN
INVESTMENT IN THE NOTES OFFERED HEREBY.
EFFECTS OF LEVERAGE
As of December 31, 1997, on a pro forma basis after giving effect to the Old
Notes, the application of the net proceeds therefrom and the Amended Credit
Facility (as hereinafter defined), the Company had total indebtedness of
approximately $149.4 million. In addition, subject to restrictions in the
Amended Credit Facility and the Indenture, the Company may incur up to $28.9
million of additional borrowings under the Amended Credit Facility. Moreover,
the Indenture under which the Notes will be issued permits the Company to incur
substantial additional indebtedness, all or a material portion of which is
expected to be senior to the Notes. See "Capitalization" and "Description of
Notes--Certain Covenants."
The Company's ability to pay principal and interest on the Notes and to
satisfy its other debt obligations will depend upon its future operating
performance, which performance will be affected by prevailing economic
conditions and financial, business and other factors, certain of which are
beyond the control of the Company. The Company's ability to pay principal and
interest on the Notes and to satisfy its other debt obligations will also depend
upon the future availability of revolving credit borrowings under the Amended
Credit Facility or any successor facility. Such availability is or may depend
on, among other things, the Company's meeting certain specified borrowing base
and financial ratios and maintenance tests. See "Description of Certain
Indebtedness--Amended Credit Facility." The Company expects that, based on
current and expected levels of operations, its operating cash flow, together
with borrowings under the Amended Credit Facility, should be sufficient to meet
its operating expenses, to make necessary capital expenditures and to service
its debt requirements as they become due. If the Company is unable to service
its indebtedness, it will be forced to take actions, such as reducing or
delaying acquisitions and/or capital expenditures, selling assets, restructuring
or refinancing its indebtedness (which could include the Notes) or seeking
additional equity capital. There is no assurance that any of these remedies can
be effected on satisfactory terms, if at all. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
SUBORDINATION OF NOTES
The payment of principal, premium (if any) and interest on, and any other
amounts owing in respect of, the Notes will be subordinated to the prior payment
in full of all existing and future Senior Debt. At December 31, 1997, on a pro
forma basis after giving effect to the Offering, the application of the net
proceeds therefrom and the Amended Credit Facility, the aggregate outstanding
amount of Senior Debt would have been approximately $49.4 million (excluding
unused commitments available for borrowing of $47.6 million). In the event of
the bankruptcy, liquidation, dissolution, reorganization or other winding up of
the Company, the assets of the Company will be available to pay obligations on
the Notes only after all Senior Debt has been paid in full, and there may not be
sufficient assets remaining to pay amounts due on any or all of the Notes. In
addition, the Amended Credit Facility is secured by the Company's stock holdings
in its domestic subsidiaries, a pledge of 65% of the held stock of certain
foreign subsidiaries held by domestic subsidiaries and a pledge of all of the
Company's eligible domestic accounts receivable. Each of the Subsidiary
Guarantees also is subordinated to the prior payment in full of all existing and
future senior debt of that subsidiary. See "Description of
Notes--Subordination."
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Indenture governing the terms of the Notes contain certain covenants
limiting, subject to certain exceptions, the incurrence of indebtedness, the
payment of dividends by a subsidiary, the redemption of capital stock, the
making of certain investments, the issuance of guarantees, transactions with
affiliates,
14
<PAGE>
asset sales and certain mergers and consolidations. A breach of any of these
covenants could result in an event of default under the Indenture. The Company's
ability to comply with such covenants may be affected by events beyond its
control. See "Description of Notes--Certain Covenants."
In addition, the Amended Credit Facility contains other restrictive
covenants which are more restrictive than those contained in the Indenture. A
breach of any of these covenants could result in a default under the Amended
Credit Facility. Upon the occurrence of an event of default under the Amended
Credit Facility, the lenders could elect to declare all amounts outstanding,
together with accrued interest, to be immediately due and payable. If the
lenders under the Amended Credit Facility accelerate the payment of such
indebtedness, there can be no assurance that the assets of the Company would be
sufficient to repay in full such indebtedness and the other indebtedness of the
Company, including the Notes. If the Company were unable to repay those amounts,
such lenders could proceed against the collateral granted to them to secure that
indebtedness. Under the terms of the Amended Credit Facility, there are a number
of conditions to obtaining additional funding under the facility. The suspension
or termination of the Company's ability to obtain funding through the facility
and the use of Company funds to repay borrowings under the facility would result
in additional demands on the Company's cash resources and jeopardize the
Company's ability to make principal and interest payments on the Notes.
RELIANCE ON MAJOR CLIENTS
A significant portion of SITEL's revenues is derived from relatively few
clients. Most of the Company's contracts with its clients are terminable upon
short notice. The Company's five and ten largest clients accounted for
approximately 32% and 42%, respectively, of the Company's revenues during 1997.
The loss of several of its major clients could have a materially adverse effect
on the Company. See "Business."
RISKS ASSOCIATED WITH MANAGING A GLOBAL BUSINESS
The Company has rapidly expanded its operations in the past several years
through internal growth and strategic acquisitions, all of which have placed
demands on the Company's administrative, operating, financial, and other
resources. The planned continued worldwide growth of the Company's client base
and services can be expected to continue to place a significant strain on all of
these resources. Further, the Company plans to expand into new geographic areas
where the teleservicing business is significantly less developed than in the
United States and Europe. As a result, the Company may experience lower profit
margins as it develops business in these new markets. The Company's future
performance and profitability will depend on its ability to retain its existing
management, attract and retain additional management personnel and successfully
implement enhancements to its telecommunications and computer technology and
management information systems and adapt those systems, as necessary, to respond
to changes in its worldwide business.
FLUCTUATIONS IN OPERATING RESULTS
The Company has experienced and expects to continue to experience quarterly
variations in its results of operations, principally due to 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. The Company typically incurs significant start-up costs
when it expands into a new region or obtains a significant new teleservices
contract. Since the Company cannot control the implementation date of its
clients' programs, there can be no assurance that the initial revenue derived
from a new call center will be sufficient to cover that center's costs of
start-up and initial operation. In addition, the Company's business tends to be
slower in the third quarter due to summer holidays in Europe and, to a lesser
degree, in the first quarter due to the changeover of client marketing
strategies which often occurs at the beginning of the year. The Company's
planned operating expenditures are based upon revenue forecasts, and if revenues
are below expectations in any given quarter, operating results would likely be
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materially affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
RELIANCE ON TELECOMMUNICATIONS AND COMPUTER TECHNOLOGY
SITEL's continued success will depend on its continuing investment in
sophisticated telecommunications and computer technology. There can be no
assurance that the Company will be successful in anticipating technological
changes or in selecting and developing new and enhanced technology (including
integration of a common set of service and reporting standards across its
business units) in time to remain competitive on a global basis. The Company's
business is highly dependent on its computer and telecommunications equipment
and software systems. The temporary or permanent loss of these systems, through
casualty or operating malfunction, could have a materially adverse effect on the
Company's business. See "Business--Information Technology."
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
For the past five years, a significant element of the Company's growth
strategy has been to pursue strategic acquisitions domestically and
internationally that either expand or complement the Company's business.
Although the Company intends to continue to pursue acquisitions on an
opportunistic basis, such acquisitions are no longer central to its plans to
expand globally. As a result, the Company does not expect to increase its
revenues through acquisitions as significantly as it has in the past.
Acquisitions involve a number of special risks, including the diversion of
management's attention to the assimilation of the operations and personnel of
the acquired companies, adverse short-term effects on the Company's operating
results, integration of financial reporting and other management systems, the
amortization of acquired intangible assets (goodwill) and the use of substantial
capital resources. The Company may require additional debt or equity financing
for future acquisitions, which may not be available on terms favorable to the
Company, if at all. There is also no assurance that the Company can successfully
integrate an acquired business into the Company's business or that any acquired
business can be operated profitably by the Company. Further international
expansion may involve additional integration risks, as well as risks relating to
currency exchange rates, different legal and regulatory requirements,
difficulties in staffing and managing foreign operations and other factors.
DEPENDENCE ON TELEPHONE SERVICE
The Company's business is materially dependent upon service provided
worldwide by various local and long distance telephone companies. Any
interruptions in service or the inability of telephone companies to provide
additional capacity to meet SITEL's needs would adversely affect the Company's
growth and could adversely affect its existing business. Further, SITEL
continues to expand to less developed areas of the world where telephone service
may be considerably less reliable than it is in developed areas. Also, rate
increases imposed by telephone companies will increase the Company's operating
expenses and could adversely affect its operating margins if SITEL were unable
to pass the increases through to its clients.
COMPETITIVE INDUSTRY
The worldwide teleservicing industry is extremely competitive and
fragmented, with low barriers to entry. Although SITEL is among the largest
independent teleservices companies in the world, there can be no assurance that
additional competitors with greater resources than the Company will not enter
the industry or that the Company's clients will not choose to conduct internally
more of their teleservicing activities. See "Business--Competition."
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DEPENDENCE ON LABOR FORCE
Teleservicing is very labor intensive. There can be no assurance that the
Company's labor costs will not increase or that it will be able to employ a
sufficient number of people to sustain its current volume of business or support
its planned growth. Some of the Company's teleservicing activities, particularly
insurance product sales and technical support activities, require highly trained
employees. The Company's worldwide presence also necessitates retaining
personnel fluent in languages and dialects spoken and written by customers of
the Company's clients. The Company must maintain separate human resource
departments in each region of the world it operates. As the Company expands its
operations into new countries, it must become familiar with local laws and
customs, which vary significantly around the world. There can be no assurance
that the Company will gain the expertise necessary to effectively manage its
human resources programs as it expands its business into new countries. See
"Business--Personnel and Training."
FOREIGN CURRENCY RISKS
Approximately one-half of the Company's revenues are currently received, and
an approximately equal percentage of its operating costs are incurred, in
foreign currencies. Because the Company's financial statements are presented in
U.S. dollars, any significant fluctuations in the currency exchange rates
between the U.S. dollar and the currencies of countries in which the Company
operates will affect the Company's results of operations and its financial
statements. Although the Company does engage in a limited amount of currency
hedging, it does so only to minimize exposure to quarterly fluctuations in the
value of local operating currencies. The Company's largest exposure to currency
risks is related to the British pound and the Spanish peseta.
EFFECTS OF BUSINESS REGULATION
The Company's business is subject to various governmental laws, regulations
and codes of practice. There can be no assurance that additional governmental
regulations in the United States or Europe, or new governmental regulations in
other areas of the world in which the Company conducts operations, would not
limit the activities of the Company or its clients or significantly increase the
cost of regulatory compliance.
Several of the industries in which the Company's clients operate are subject
to varying degrees of government regulation, particularly the insurance and
financial services industries. Generally, compliance with these regulations is
the responsibility of the Company's clients. However, the Company could be
subject to a variety of enforcement or private actions for its failure or the
failure of its clients to comply with such regulations. For example, in the
United States, company telephone representatives who sell certain insurance
products are required to be licensed by various state insurance commissions and
participate in regular continuing education programs, thus requiring the Company
to comply with the extensive regulations of these state commissions. As a
result, changes in these regulations or their implementation could materially
increase the Company's operating costs.
In addition, there is increasing concern among consumers, legislators and
regulators about "right of privacy" issues associated with data on consumers
which is obtained by, and used in, teleservices and other industries. These
industries include a number of the industries in which the Company's clients
operate. The Company cannot predict whether there will be enacted legislation or
regulations limiting the amount of consumer data that may be obtained or how
these data may be used. Any such legislation or regulation could have a
materially adverse effect on the Company's business. See "Business--Governmental
Regulation."
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DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on the efforts of its senior management
team. The loss of the services of several members of senior management could
have a materially adverse effect on the Company. As the Company continues to
grow, it will need to recruit and retain additional qualified management
personnel, particularly at the regional operating level.
CONTROL BY MANAGEMENT
At March 16, 1998, Messrs. James F. Lynch and Henk Kruithof beneficially own
(including through a voting agreement granting Mr. Lynch the right to vote
certain shares) approximately 36% of the Common Stock. As a result of such
voting concentration, if Messrs. Lynch and Kruithof vote in the same manner,
they likely will be able to exert significant influence over most matters
requiring approval by the Company's stockholders, including the election of
directors. Such voting concentration may have the effect of delaying or
preventing a change in control of the Company.
POTENTIAL FAILURE TO MAKE PAYMENT UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of the Notes has the
right to require the Company to repurchase all or a portion of such holder's
Notes at a purchase price of 101% of the principal amount of the Notes, together
with accrued and unpaid interest, if any, to the date of purchase. In such
circumstances, the Company will be required to repay all or a portion of the
outstanding principal of, and pay any accrued interest on, its Notes. If the
Company is unable to repay all of such indebtedness, the Company may be unable
to repurchase the Notes, which would constitute an Event of Default under the
Indenture. There can be no assurance that the Company will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of the Notes) as described above or that the Company
would be able to refinance its outstanding indebtedness in order to permit it to
repurchase the Notes or, if such refinancing were to occur, that such financing
would be on terms favorable to the Company. The events that constitute a Change
of Control under the Indenture relating to the Notes would constitute a default
under the Amended Credit Facility, which prohibits the purchase of the Notes by
the Company in the event of a Change of Control unless and until such time as
the Company's indebtedness under the Amended Credit Facility is repaid in full.
Further, the definition of "Change of Control" in the Indenture includes a sale,
lease, exchange or other transfer of "all or substantially all" of the assets of
the Company and its subsidiaries taken as a whole to a person or group of
persons. There is no clearly established meaning for the phrase "all or
substantially all" in the context of an indenture. See "Description of
Notes--Change of Control."
ABSENCE OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The Exchange Notes will be new securities for which there currently is no
established trading market. The Company does not intend to apply for listing of
the Exchange Notes on any national securities exchange or for quotation of the
Exchange Notes on any automated dealer quotation system. Although the Initial
Purchasers have informed the Company that they currently intend to make a market
in the Exchanged Notes, the Initial Purchasers are not obligated to do so, and
any such market-making may be discontinued at any time without notice. In
addition, such market-making activity with respect to the Exchange Notes will be
subject to the limits imposed by the Securities Act and the Exchange Act, and
may be limited during this Exchange Offer and the pendency of any Shelf
Registration Statement. The liquidity of any market for the Exchange Notes will
depend upon the number of holders of the Exchange Notes, the interest of
securities dealers in making a market for the Exchange Notes and other factors.
If an active trading market for the Exchange Notes does not develop, the market
price and liquidity of the Notes may be adversely affected. If the Exchange
Notes are traded, they may trade at a discount from their initial offering
price, depending upon prevailing interest rates, the market for similar
securities, the performance of the Company and various other factors. The
liquidity of, and trading in, the Notes may also be adversely
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affected by general declines in the market for non-investment grade debt
securities. Such declines may adversely affect the liquidity of, and trading
markets in, the Exchange Notes independent of the financial performance of, or
prospects for, the Company.
THE EXCHANGE OFFER
PURPOSE AND EFFECT
The Old Notes were sold by the Company to the Initial Purchasers on March
10, 1998 pursuant to the Purchase Agreement. The Initial Purchasers subsequently
resold the Old Notes in reliance on Rule 144A under the Securities Act. The
Company and the Initial Purchasers also entered into the Registration Rights
Agreement, pursuant to which the Company agreed, with respect to the Old Notes
and subject to the Company's determination that the Exchange Offer is permitted
under applicable law, to (i) cause to be filed, on or prior to April 24, 1998, a
registration statement with the Commission under the Securities Act concerning
the Exchange Offer, (ii) use their best efforts (a) to cause such registration
statement to be declared effective by the Commission on or before the 135th day
after March 10, 1998 and (b) to cause the Exchange Offer to remain open for a
period of not less than thirty (30) days after the date that notice of the
Exchange Offer is mailed to Holders. This Exchange Offer is intended to satisfy
the Company's exchange offer obligations under the Registration Rights
Agreement.
TERMS OF THE EXCHANGE OFFER
The Company hereby offers, upon the terms and subject to the conditions set
forth herein and in the accompanying Letter of Transmittal, to exchange $1,000
in principal amount of the Exchange Notes for each $1,000 in principal amount of
the outstanding Old Notes. The Company will accept for exchange any and all Old
Notes that are validly tendered on or prior to 5:00 p.m., New York City time, on
the Expiration Date. Tenders of the Old Notes may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the Expiration Date. The Exchange Offer is
not conditioned upon any minimum principal amount of Old Notes being tendered
for exchange. However, the Exchange Offer is subject to certain customary
conditions which may be waived by the Company, and to the terms and provisions
of the Registration Rights Agreement. See "--Conditions of the Exchange Offer."
Old Notes may be tendered only in multiples of $1,000. Subject to the
foregoing, Holders may tender less than the aggregate principal amount
represented by the Old Notes held by them, provided that they appropriately
indicate this fact on the Letter of Transmittal accompanying the tendered Old
Notes (or so indicate pursuant to the procedures for book-entry transfer).
As of the date of this Prospectus, $100 million in aggregate principal
amount of the Old Notes were outstanding. As of the Record Date, there were two
registered holders of the Old Notes, which held the Old Notes for its
participants. Solely for reasons of administration (and for no other purpose),
the Company has fixed the close of business on May , 1998, as the record
date (the "Record Date") for purposes of determining the persons to whom this
Prospectus and the Letter of Transmittal will be mailed initially. Only a Holder
of the Old Notes (or such Holder's legal representative or attorney-in-fact) may
participate in the Exchange Offer. There will be no fixed record date for
determining Holders of the Old Notes entitled to participate in the Exchange
Offer. The Company believes that as of the date of this Prospectus, no such
Holder is an affiliate (as defined in Rule 405 under the Securities Act) of the
Company.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering Holders
of Old Notes and for the purposes of receiving the Exchange Notes from the
Company.
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If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering Holder thereof as promptly as practicable
after the Expiration Date.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The Expiration Date shall be , 1998 at 5:00 p.m., New York City
time, unless the Company, in its sole discretion, extends the Exchange Offer, in
which case the Expiration Date shall be the latest date and time to which the
Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will make a public
announcement thereof, each prior to 10:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, (ii) to extend the Exchange Offer, (iii) if any of the
conditions set forth below under "Conditions of the Exchange Offer" shall not
have been satisfied, to terminate the Exchange Offer, by giving oral or written
notice of such delay, extension, or termination to the Exchange Agent, and (iv)
to amend the terms of the Exchange Offer in any manner. If the Exchange Offer is
amended in a manner determined by the Company to constitute a material change,
the Company will promptly disclose such amendments by means of a prospectus
supplement that will be distributed to the registered holders of the Old Notes.
CONDITIONS OF THE EXCHANGE OFFER
The Exchange Offer is not conditioned upon any minimum principal amount of
the Old Notes being tendered for exchange. However, notwithstanding any other
provisions of the Exchange Offer, the Company shall not be required to accept
for exchange, or to issue the Exchange Notes in exchange for, any Old Notes, if
any of the following events shall occur, which occurrence, in the sole judgment
of the Company and regardless of the circumstances (including any action by the
Company) giving rise to any such events, makes it inadvisable to proceed with
the Exchange Offer:
(i) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been issued
by, any court or governmental agency or other governmental regulatory or
administrative agency or commission (a) seeking to restrain or prohibit the
making or consummation of the Exchange Offer or any other transaction
contemplated by the Exchange Offer, or assessing or seeking damages as a
result thereof or (b) resulting in a material delay in the ability of the
Company to accept for exchange or exchange some or all of the Old Notes
pursuant to the Exchange Offer or which, in the judgment of the Company,
might result in the holders of the Exchange Notes having obligations with
respect to resales and transfers of Exchange Notes that are other than those
described in "--Resales of the Exchange Notes" or which would otherwise in
the judgment of the Company make it inadvisable to proceed with the Exchange
Offer; provided, however, that the Company will use reasonable efforts to
modify or amend the Exchange Offer or to take such other reasonable steps in
order to effectuate the Exchange Offer, (ii) any statute, rule, regulation,
order or injunction shall be sought, proposed, introduced, enacted,
promulgated or deemed applicable to the Exchange Offer or any of the
transactions contemplated by the Exchange Offer by any domestic or foreign
government or governmental authority, or any action shall have been taken,
proposed or threatened by any domestic or foreign government or governmental
authority that in the judgement of the Company, might directly or indirectly
result in any of the consequences referred to in clauses (i)(a) or (i)(b)
above or which, in the judgment of the Company, might result in the holders
of the Exchange Notes having obligations with respect to resales and
transfers of Exchange Notes that are greater than those described in
"--Resales of the Exchange Notes" or which would otherwise in the judgment
of the Company make it inadvisable to proceed with the Exchange
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Offer; provided, however, that the Company will use reasonable efforts to
modify, or amend the Exchange Offer or to take such other reasonable steps
in order to effectuate the Exchange Offer;
(ii) there shall have occurred (a) a declaration of a banking moratorium
or any suspension of payments in respect of banks in the United States or
any limitation by any governmental agency or authority which adversely
affects the extension of credit or (b) a commencement of wars, armed
hostilities or other similar international calamity directly or indirectly
involving the United States, or, in the event any of the foregoing exist at
the time of the commencement of the Exchange Offer, a material acceleration
or worsening thereof; or
(iii) any governmental approval has not been obtained, which approval
the Company shall, in its sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its sole discretion that any of the conditions
set forth above are not satisfied, the Company may (i) refuse to accept any Old
Notes and return all tendered Old Notes to the tendering holders, (ii) extend
the Exchange Offer and retain all Old Notes tendered prior to the Expiration
Date, subject however, to the rights of Holders to withdraw such Old Notes as
described in "--Withdrawal Rights," or (iii) waive such unsatisfied conditions
with respect to the Exchange Offer and accept all validly tendered Old Notes
which have not been withdrawn. If such waiver constitutes a material change to
the Exchange Offer, the Company will promptly disclose such waiver by means of a
public announcement and a prospectus supplement that will be distributed to the
registered holders.
The Company expects that the foregoing conditions will be satisfied. The
foregoing conditions are for the sole benefit of the Company and may be waived
by the Company in whole or in part at any time and from time to time in its sole
discretion. The failure by the Company at any time to exercise any of the
foregoing rights shall not be deemed a waiver of such rights and each such right
shall be deemed an ongoing right which may be asserted at any time and from time
to time. Any determination by the Company concerning the events described above
will be final and binding upon all parties.
TERMINATION OF CERTAIN RIGHTS
The Registration Rights Agreement provides that, subject to certain
expectations, in the event of a Registration Default (as defined below), Holders
of Old Notes are entitled to receive as liquidated damages, Additional Interest
of $.10 per week per $1,000 principal amount of Old Notes held by such Holders
for the first 90 days after such Registration Default and an additional .50% per
annum at the beginning of each subsequent 90-day period provided that such
Additional Interest shall not be greater than 1% per annum. A "Registration
Default" with respect to the Exchange Offer shall occur if (i) the registration
statement concerning the exchange offer (the "Registration Statement") has not
been filed with the Commission on or prior to April 24, 1998 or (ii) the
Exchange Offer is not consummated by September 8, 1998, or (iii) the shelf
registration statement required by the Registration Rights Agreement is filed
and declared effective but shall thereafter cease to be effective at any time
prior to the second anniversary of its effective date (other than after such
time as all Notes have been disposed of thereunder) without being succeeded
within 30 days by an additional registration statement filed and declared
effective under the Securities Act. Holders of Exchange Notes will not be and,
upon consummation of the Exchange Offer, Holders of Old Notes will no longer be,
entitled to (i) the right to receive the Additional Interest or (ii) certain
other rights under the Registration Rights Agreement intended for holders of
Transfer Restricted Securities. The Exchange Offer shall be deemed consummated
upon the occurrence of the delivery by the Company to the Registrar under the
Indenture of Exchange Notes in the same aggregate principal amount as the
aggregate principal amount of Old Notes that were tendered by holders thereof
pursuant to the Exchange Offer.
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ACCRUED INTEREST ON THE OLD NOTES
The Exchange Notes will bear interest at a rate equal to 9 1/4% per annum
from and including their date of issuance. Holders whose Old Notes are accepted
for exchange will have the right to receive interest accrued thereon from the
date of their original issuance or the last Interest Payment Date on which
interest was paid, as applicable, to, but not including, the date of issuance of
the Exchange Notes, such interest to be payable with the first interest payment
on the Exchange Notes. Interest on the Old Notes accepted for exchange, which
interest accrued at the rate of 9 1/4% per annum, will cease to accrue on the
day prior to the issuance of the Exchange Notes. See "Description of Exchange
Notes--Rate and Payment Dates."
PROCEDURES FOR TENDERING OLD NOTES
The tender of a Holder's Old Notes as set forth below and the acceptance
thereof by the Company will constitute a binding agreement between the tendering
Holder and the Company upon the terms and subject to the conditions set forth in
this Prospectus and in the accompanying Letter of Transmittal. Except as set
forth below, a Holder who wishes to tender Old Notes for exchange pursuant to
the Exchange Offer must transmit such Old Notes, together with a properly
completed and duly executed Letter of Transmittal, including all other documents
required by such Letter of Transmittal, to the Exchange Agent at the address set
forth on the back cover page of this Prospectus prior to 5:00 p.m., New York
City time, on the Expiration Date. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS
OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF
THE HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. INSTEAD OF DELIVERY BY
MAIL, IT IS RECOMMENDED THAT THE HOLDER USE AN OVERNIGHT OR HAND DELIVERY
SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY.
Any financial institution that is a participant in DTC's Book-Entry Transfer
Facility system may make book-entry delivery of the Old Notes by causing DTC to
transfer such Old Notes into the Exchange Agent's account in accordance with
DTC's procedures for such transfer. In connection with a book-entry transfer, a
Letter of Transmittal need not be transmitted to the Exchange Agent, provided
that the book-entry transfer procedure must be complied with prior to 5:00 p.m.,
New York City time, on the Expiration Date.
Each signature on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant hereto are tendered (i) by a registered holder of the Old Notes who has
not completed either the box entitled "Special Exchange Instructions" or the box
entitled "Special Delivery Instructions" in the Letter of Transmittal, or (ii)
by an Eligible Institution (as defined). In the event that a signature on a
Letter of Transmittal or a notice of withdrawal, as the case may be, is required
to be guaranteed, such guarantee must be by a firm which is a member of a
registered national securities exchange or the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or otherwise be an "eligible Guarantor
institution" within the meaning of Rule 17Ad-15 under the Exchange Act
(collectively, "Eligible Institutions"). If the Letter of Transmittal is signed
by a person other than the registered holder of the Old Notes, the Old Notes
surrendered for exchange must either (i) be endorsed by the registered holder,
with the signature thereon guaranteed by an Eligible Institution, or (ii) be
accompanied by a bond power, in satisfactory form as determined by the Company
in its sole discretion, duly executed by the registered holder, with the
signature thereon guaranteed by an Eligible Institution. The term "registered
holder" as used herein with respect to the Old Notes means any person in whose
name the Old Notes are registered on the books of the Registrar.
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All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of Old Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any and all
Old Notes not properly tendered and to reject any Old Notes the Company's
acceptance of which might, in the judgment of the Company, or its counsel, be
unlawful. The Company also reserves the absolute right to waive any defects or
irregularities or conditions of the Exchange Offer as to particular Old Notes
either before or after the Expiration Date (including the right to waive the
ineligibility of any holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange Offer
(including the Letter of Transmittal and the instructions thereto) by the
Company shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes for exchange must be
cured within such period of time as the Company shall determine. The Company
will use reasonable efforts to give notification of defects or irregularities
with respect to tenders of Old Notes for exchange but shall not incur any
liability for failure to give such notification. Tenders of the Old Notes will
not be deemed to have been made until such irregularities have been cured or
waived.
If any Letter of Transmittal, endorsement, bond power, power of attorney or
any other document required by the Letter of Transmittal is signed by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary or representative capacity, such person
should so indicate when signing, and, unless waived by the Company, proper
evidence satisfactory to the Company, in its sole discretion, of such person's
authority to so act must be submitted.
Any beneficial owner of the Old Notes (a "Beneficial Owner") whose Old Notes
are registered in the name of a broker-dealer, commercial bank, trust company or
other nominee and who wishes to tender Old Notes in the Exchange Offer should
contact such registered holder promptly and instruct such registered holder to
tender on such Beneficial Owner's behalf. If such Beneficial Owner wishes to
tender directly, such Beneficial Owner must, prior to completing and executing
the Letter of Transmittal and tendering Old Notes, make appropriate arrangements
to register ownership of the Old Notes in such Beneficial Owner's name.
Beneficial Owners should be aware that the transfer of registered ownership may
take considerable time.
By tendering, each registered holder will represent to the Company that,
among other things (i) the Exchange Notes to be acquired in connection with the
Exchange Offer by the Holder and each Beneficial Owner of the Old Notes are
being acquired by the Holder and each Beneficial Owner in the ordinary course of
business of the Holder and each Beneficial Owner, (ii) the Holder and each
Beneficial Owner are not participating, do not intend to participate, and have
no arrangement or understanding with any person to participate, in the
distribution of the Exchange Notes, (iii) the Holder and each Beneficial Owner
acknowledge and agree that any person participating in the Exchange Offer for
the purpose of distributing the Exchange Notes must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction of the Exchange Notes acquired by such person and
cannot rely on the position of the staff of the Commission set forth in
no-action letters that are discussed herein under "--Resales of Exchange Notes,"
(iv) that if the Holder is a broker-dealer that acquired Old Notes as a result
of market making or other trading activities, it will deliver a prospectus in
connection with any resale of Exchange Notes acquired in the Exchange Offer, (v)
the Holder and each Beneficial Owner understand that a secondary, resale
transaction described in clause (iii) above should be covered by an effective
registration statement containing the selling security holder information
required by Item 507 of Regulation S-K of the Commission, and (vi) neither the
Holder nor any Beneficial Owner is an "affiliate," as defined under Rule 405 of
the Securities Act, of the Company except as otherwise disclosed to the Company
in writing. In connection with a book-entry transfer, each participant will
confirm that it makes the representations and warranties contained in the Letter
of Transmittal.
23
<PAGE>
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes or any other
documents required by the Letter of Transmittal to the Exchange Agent prior to
the Expiration Date (or complete the procedure for book-entry transfer on a
timely basis), may tender their Old Notes according to the Guaranteed Delivery
procedures set forth in the Letter of Transmittal. Pursuant to such procedures:
(i) such tender must be made by or through an Eligible Institution and a Notice
of Guaranteed Delivery (as defined in the Letter of Transmittal) must be signed
by such Holder; (ii) on or prior to the Expiration Date, the Exchange Agent must
have received from the Holder and the Eligible Institution a properly completed
and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail
or hand delivery) setting forth the name and address of the Holder, the
certificate number or numbers of the tendered Old Notes, and the principal
amount of tendered Old Notes, stating that the tender is being made thereby and
guaranteeing that, within four (4) business days after the date of delivery of
the Notice of Guaranteed Delivery, the tendered Old Notes, a duly executed
Letter of Transmittal and any other required documents will be deposited by the
Eligible Institution with the Exchange Agent; and (iii) such properly completed
and executed documents required by the Letter of Transmittal and the tendered
Old Notes in proper form for transfer (or confirmation of a book-entry transfer
of such Old Notes into the Exchange Agent's account at DTC) must be received by
the Exchange Agent within four (4) business days after the Expiration Date. Any
Holder who wishes to tender Old Notes pursuant to the Guaranteed Delivery
procedures described above must ensure that the Exchange Agent receives the
Notice of Guaranteed Delivery and Letter of Transmittal, relating to such Old
Notes prior to 5:00 p.m., New York City time, on the Expiration Date.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all the conditions to the Exchange Offer, the
Company will accept any and all Old Notes that are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date.
The Exchange Notes issued pursuant to the Exchange Offer will be delivered
promptly Jafter acceptance of the Old Notes. For purposes of the Exchange Offer,
the Company shall be deemed to have accepted validly tendered Old Notes, when,
as, and if the Company has given oral or written notice thereof to the Exchange
Agent.
In all cases, issuances of Exchange Notes for Old Notes that are accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of such Old Notes, a properly completed and duly
executed Letter of Transmittal and all other required documents (or of
confirmation of a book-entry transfer of such Old Notes into the Exchange
Agent's account at DTC); provided, however, that the Company reserves the
absolute right to waive any defects or irregularities in the tender or
conditions of the Exchange Offer. If any tendered Old Notes are not accepted for
any reason, such unaccepted Old Notes will be returned without expense to the
tendering Holder thereof as promptly as practicable after the expiration or
termination of the Exchange Offer.
WITHDRAWAL RIGHTS
Tenders of the Old Notes may be withdrawn by delivery of a written notice to
the Exchange Agent at its address set forth on the back cover page of this
Prospectus, at any time prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Old Notes to be withdrawn (the "Depositor"), (ii)
identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes, as applicable), (iii) be signed
by the Holder in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered (including any required
signature guarantees) or be accompanied by a bond power in the name of the
person withdrawing the tender, in satisfactory form as determined by the Company
in its sole discretion, duly executed by the registered holder, with the
signature thereon Guaranteed by an Eligible Institution together with the other
documents required upon
24
<PAGE>
transfer by the Indenture, and (iv) specify the name in which such Old Notes are
to be re-registered, if different from the Depositor, pursuant to such documents
of transfer. All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Company, in its sole
discretion. The Old Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any Old Notes which
have been tendered for exchange but which are withdrawn will be returned to the
Holder thereof without cost to such Holder as soon as practicable after
withdrawal. Properly withdrawn Old Notes may be retendered by following one of
the procedures described under "--Procedures for Tendering Old Notes" at any
time on or prior to the Expiration Date.
THE EXCHANGE AGENT; ASSISTANCE
The First National Bank of Maryland is the Exchange Agent. All tendered Old
Notes, executed Letters of Transmittal and other related documents should be
directed to the Exchange Agent. Questions and requests for assistance and
requests for additional copies of the Prospectus, the Letter of Transmittal and
other related documents should be addressed to the Exchange Agent as follows:
By Hand, Registered or Certified Mail or Overnight Courier: The First
National Bank of Maryland
P.O. Box 1596
25 South Charles Street
Baltimore, Maryland 21203
Attention: Corporate Trust Administration
Confirm by Telephone (410) 244-3800
FEES AND EXPENSES
All fees and expenses incident to the performance of or compliance with the
Registration Rights Agreement by the Company will be borne by the Company or the
Subsidiary Guarantors whether or not the Exchange Offer or a Shelf Registration
is filed or becomes effective, including, without limitation, (i) all
registration and filing fees (including, without limitation, (A) fees with
respect to filings to be made with the National Association of Securities
Dealers, Inc. in connection with an underwritten offering and (B) fees and
expenses for compliance with state securities or Blue Sky laws, (including,
without limitation, the fees and disbursements of counsel in connection with
Blue Sky qualifications of the Registrable Notes or Exchange Notes and
determination of the eligibility of the Registrable Notes or Exchange Notes for
investment under the laws of such jurisdictions (x) where the holders of
Registrable Notes are located, in the case of Exchange Notes, or (y) where,
subject to certain limitations, the Holder or Participating Broker-Dealer may
reasonably request, in the case of Registrable Notes or Exchange Notes to be
sold by a broker-dealer that received Exchange Notes in the Exchange Offer
during the period not to exceed 180 days after the consummation of the Exchange
Offer)) (ii) printing expenses, including, without limitation, expenses of
printing certificates for Registrable Notes or Exchange Notes in a form eligible
for deposit with The Depository Trust Company and of printing prospectuses if
the printing of prospectuses is requested by the managing underwriter or
underwriters, if any or by the Holders of a majority in aggregate principal
amount of the Registrable Notes included in any Registration Statement or
Prospectus sold by any broker-dealer that received Exchange Notes in the
Exchange Offer during the period not to exceed 180 days after the consummation
of the Exchange Offer, as the case may be, (iii) messenger, telephone and
delivery expenses, (iv) fees and disbursements of counsel for the Company and
the Subsidiary Guarantors and, in the case of a Shelf Registration, fees and
disbursements of special counsel for the sellers of Registrable Notes, (v) fees
and disbursements of all independent certified public accountants required
(including, without limitation, the expenses of any special audit and "cold
comfort" letters required by or incident to such performance), (vi) rating
agency fees, if any, and any fees associated with making the Registrable Notes
or Exchange Notes eligible for trading through the Depository Trust Company,
(vii) Securities Act liability insurance, if the Company desires such insurance,
(viii) fees and expenses of all other persons retained by the Company or
Subsidiary Guarantors, (ix) internal expenses of the Company
25
<PAGE>
or Subsidiary Guarantors (including, without limitation, all salaries and
expenses of officers and employees of the Company or Subsidiary Guarantors
performing legal or accounting duties) (x) the expense of any annual audit, (xi)
the fees and expenses incurred in connection with the listing of the securities
to be registered on any securities exchange, if applicable, and (xii) the
expenses relating to printing, word processing and distributing of all
Registration Statements, underwriting agreements, securities sales agreements,
indentures and any other documents necessary to comply with the Registration
Rights Agreement.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptance of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, a transfer tax is
imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, as reflected in the Company's accounting records on the date of the
exchange. Accordingly, no gain or loss will be recognized by the Company for
accounting purposes. The expenses of the Exchange Offer will be amortized over
the term of the Exchange Notes.
RESALES OF THE EXCHANGE NOTES
Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that the
Exchange Notes issued pursuant to the Exchange Offer to a Holder in exchange for
Old Notes may be offere for resale, resold and otherwise transferred by such
Holder (other than (i) a broker-dealer who purchased Old Notes directly from the
Company for resale pursuant to Rule 144A under the Securities Act or any other
available exemption under the Securities Act, or (ii) a person that is an
affiliate of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that the Holder is acquiring the Exchange Notes
in the ordinary course of business and is not participating, and has no
arrangement or understanding with any person to participate, in the distribution
of the Exchange Notes. However, if any Holder acquires Exchange Notes in the
Exchange Offer for the purpose of distributing or participating in a
distribution of the Exchange Notes, such Holder must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction, unless an exemption for resale
is otherwise available. Each broker-dealer that receives Exchange Notes for its
own account in exchange for Old Notes, where such Old Notes were acquired by
such broker-dealer as a result of market-making or other trading activities,
must acknowledge that it will deliver a prospectus in connection with any resale
of such Exchange Notes. See "Plan of Distribution."
26
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of December 31, 1997, the sale of the 9 1/4% Senior Subordinated
Notes due 2006, application of the net proceeds thereof and the replacement of
the Existing Credit Facility with the Amended Credit Facility.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------
ACTUAL AS ADJUSTED(1)
---------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents............................................................. $ 24,285 $ 24,285
---------- --------------
---------- --------------
Long-term debt (including current maturities):
Existing Credit Facility(2)......................................................... $ 99,500 $ --
Amended Credit Facility(2).......................................................... -- 3,300
Other notes payable and capital lease obligations................................... 46,091 46,091
Notes offered hereby................................................................ -- 100,000
---------- --------------
Total debt...................................................................... 145,591 149,391
---------- --------------
Total stockholders' equity...................................................... 158,388 158,388
---------- --------------
Total capitalization........................................................ $ 303,979 $ 307,779
---------- --------------
---------- --------------
</TABLE>
- ------------------------
(1) Reflects: (i) the issuance of the Notes, (ii) the repayment of borrowings
outstanding pursuant to the Existing Credit Facility and (iii) the payment
of the financing costs attributable to the Notes and the Amended Credit
Facility.
(2) As of December 31, 1997, there was $99.5 million outstanding under the
Existing Credit Facility. On the day of the sale of the Old Notes, $96.2
million of the proceeds were used to repay the amounts outstanding under the
Existing Credit Facility resulting in a December 31, 1997 pro forma balance
of $3.3 million refinanced under the Amended Credit Facility.
27
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following table presents selected historical financial data for the
Company. The selected income statement data for the years ended December 31,
1994, 1995, 1996 and 1997 and the balance sheet data at December 31, 1995, 1996
and 1997 are derived from the consolidated financial statements of the Company,
which consolidated financial statements have been audited by KPMG Peat Marwick
LLP, independent certified public accountants. The selected income statement
data for the year ended December 31, 1993, and the selected balance sheet data
at December 31, 1993 and 1994, are derived from the unaudited consolidated
financial statements of the Company although such information has been prepared
on the same basis as the Company's audited financial statements and, in the
opinion of management, contain all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the financial
position and results of operations of the Company. The following information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and related notes thereto, included elsewhere in the Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997
--------- ---------- ---------- ---------- ----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues............................................ $ 76,772 $ 116,757 $ 187,215 $ 312,750 $ 491,474
Cost of services.................................... 42,098 63,268 101,617 163,717 270,942
Selling, general and administrative expenses........ 31,355 48,254 69,213 120,695 185,589
Special compensation expense(1)..................... -- -- 34,585 -- --
Restructuring expenses(2)........................... -- -- -- -- 15,681
--------- ---------- ---------- ---------- ----------
Operating income (loss)............................. 3,319 5,235 (18,200) 28,338 19,262
Transaction related expense(3)...................... -- -- -- 6,988 --
Interest expense, net............................... 937 834 702 227 5,096
Other income (expense).............................. 1,922 1,443 118 32 126
--------- ---------- ---------- ---------- ----------
Income (loss) before taxes and minority interest.... 4,304 5,844 (18,784) 21,155 14,292
Income tax expense (benefit)........................ 1,261 1,526 (6,593) 10,221 11,306
Minority interest................................... 278 383 1,262 77 174
--------- ---------- ---------- ---------- ----------
Net income (loss)................................... $ 2,765 $ 3,935 $ (13,453) $ 10,857 $ 2,812
--------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ----------
OPERATING DATA (AT PERIOD END):
Number of workstations.............................. N/A N/A 3,889 8,017 12,271
Number of countries (4)............................. 3 3 3 7 17
OTHER DATA:
EBITDA (5).......................................... $ 7,831 $ 10,576 $ 23,975 $ 43,763 $ 63,630
Depreciation and amortization (6)................... 4,512 5,341 7,090 13,256 28,687
Capital expenditures................................ 5,482 9,415 13,279 39,954 69,437
Ratio of earnings to fixed charges (7).............. 3.84x 3.96x -- 6.91x 2.23x
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents........................... $ 206 $ 762 $ 4,531 $ 25,710 $ 24,285
Working capital..................................... (151) 5,110 24,182 36,836 39,545
Total assets........................................ 29,044 48,177 100,960 211,684 385,880
Total debt.......................................... 8,107 14,456 8,957 12,290 145,591
Stockholders' equity................................ 8,105 12,702 65,380 126,725 158,388
</TABLE>
28
<PAGE>
- ------------------------
(1) Represents a non-recurring, non-cash compensation expense incurred in
February 1995 resulting from the grant of stock options with an exercise
price of $.0025 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. Without the special
compensation expense, operating income for the period would have been $16.4
million.
(2) Represents a non-recurring restructuring expense and a writedown of SITEL's
Telebusiness business unit of $5.2 million and $10.5 million, respectively,
for the year ended December 31, 1997.
(3) Represents a non-recurring expense resulting from the acquisitions of NAFS
and Mitre accounted for as pooling of interests transactions.
(4) Represents countries in which SITEL operates or in which Mitre operated
prior to its merger with SITEL in 1996.
(5) EBITDA represents the sum of earnings (loss) from continuing operations
before non-recurring or extraordinary items, income taxes, interest expense,
interest income, depreciation and amortization. EBITDA is presented because
management believes it provides useful information regarding a company's
ability to incur and/or service debt and because EBITDA will be used to
determine compliance with certain bond covenants contained in the Indenture.
EBITDA should not be considered in isolation or as a substitute for
consolidated net income, cash flows, or other income or cash flow data
prepared in accordance with generally accepted accounting principles
("GAAP") or as a measure of a company's profitability or liquidity. Further,
EBITDA is not calculated consistently by all companies and, accordingly, the
presentation herein may not be comparable to other similarly titled measures
presented by other companies. Nonrecurring expenses excluded from the
calculation of EBITDA include $0.5 million for debt-forgiveness and $34.6
million for special compensation expense in 1995, $2.2 million for
compensation expenses and $7.0 million for transaction-related expenses in
1996, and $15.7 million of restructuring charges in 1997.
(6) Excludes amortization of deferred debt expense that is included in interest
expense.
(7) The Company had a deficiency of $20,046 to cover fixed charges in 1995.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
SITEL was founded in 1985 by its current chairman, James F. Lynch, in Omaha,
Nebraska. SITEL completed its initial public offering of common stock in 1995,
and was the first major independent publicly-held company in the teleservices
industry. In 1996, the Company began its international expansion with
acquisitions in Canada and Spain (which also included operations in Portugal)
and, in particular, with the merger with Mitre plc (the "Mitre Merger") which
was completed in September 1996. At the time of the Mitre Merger, Mitre had
operations in the United Kingdom, Belgium and Japan and was in the final stages
of completing plans to enter Singapore, Hong Kong and Germany. In 1997, SITEL
entered Australia, New Zealand, Sweden and Ireland through acquisitions; entered
Mexico and Colombia through the joint venture with CIE; and entered France on
the basis of a client contract. In 1996 and 1997, the Company also completed
acquisitions that gave it the capability to offer accounts receivable
management, consulting and technical support services.
The Mitre Merger was accounted for as a pooling of interests, and
accordingly the financial results of the Company for 1995 and 1996 have been
restated as if SITEL and Mitre were operated as a single company throughout
these periods. The results for these periods have also been restated to reflect
the 1996 acquisition of National Action Financial Services, Inc. ("NAFS"), which
was also accounted for as a pooling of interests.
Following the Mitre Merger, SITEL implemented a strategy to coordinate its
operations on a global basis in order to better serve the needs of its
multinational clients. A key element of this strategy in 1997 was to implement a
matrix organization structure which includes: (i) senior management teams for
each of the operating regions (North America, Europe, Asia Pacific and Latin
America) to closely monitor the operation of the business units; (ii) a Global
Business Development organization to seek out large call center outsourcing
opportunities in the Company's targeted industries; (iii) industry sector teams
to transfer best practices and cross-sell clients of one SITEL region to
another; and (iv) an intranet to make SITEL's proprietary knowledge more readily
available to its employees. The costs to integrate and coordinate its global
operation are not reflected in the Company's pre-1997 financial results, as they
were first incurred in 1997 and will occur in the future. The Company believes
that, as of the end of 1997, most of the basic infrastructure needed to manage
and coordinate its global operation had been established although the Company
will regularly seek to add depth and talent to its management team as the
business expands.
The Company expects to enter fewer new markets in 1998 as a percentage of
total markets served than it did in 1997 and expects to consummate fewer
acquisitions in 1998 than it did in 1997, although management will continue to
be opportunistic.
30
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth statement of operations data as a percentage
of revenues for the periods indicated.
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues........................................................ 100.0% 100.0% 100.0%
Operating expenses:
Cost of services.............................................. 54.3 52.3 55.1
Selling, general and administrative expenses.................. 37.0 38.6 37.8
Special compensation expense.................................. 18.4(a) -- --
Restructuring expenses........................................ -- -- 3.2(d)
--------- --------- ---------
Operating income (loss)..................................... (9.7 (b) 9.1(c) 3.9(e)
Transaction related expenses.................................... -- 2.2 --
Interest expense, net........................................... 0.4 0.1 1.0
Other income.................................................... 0.1 -- --
--------- --------- ---------
Income (loss) before income taxes and minority interest..... (10.0) 6.8 2.9
Income tax expense (benefit).................................... (3.5) 3.3 2.3
Minority interest............................................... 0.7 -- --
--------- --------- ---------
Net income (loss)........................................... (7.2 (b) 3.5%(c) 0.6%(e)
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(a) Represents a non-recurring, non-cash compensation expense incurred in
February 1995, resulting from the grant of stock options with an exercise
price of $.0025 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. See Note 9 to
Consolidated Financial Statements.
(b) Excluding the special compensation expense and a one-time forgiveness of
debt of 0.3% ($0.5 million) owed by two stockholders, operating income and
net income would have been 9.0% and 5.2% respectively, for 1995.
(c) Includes non-recurring operating expenses in connection with the
acquisitions of Mitre and NAFS. Excluding those one-time operating expenses
and the transaction related expenses, operating income and net income would
have been 9.8% and 6.2%, respectively, for 1996.
(d) Represents non-recurring restructuring expenses of 1.1% ($5.2 million) and a
write down of the Company's investment in its Telebusiness business unit of
2.1% ($10.5 million).
(e) Excluding the restructuring expense of 3.2% and the related tax effects,
operating income and net income would have been 7.1% and 3.8% respectively,
for 1997.
1997 COMPARED TO 1996
REVENUES. Revenues increased $178.7 million, or 57.1%, to $491.5 million in
1997 from $312.8 million in 1996. Of this increase, $36.0 million was
attributable to services initiated for new clients, $101.5 million was
attributable to increased revenues from existing clients and $41.2 million was
attributable to revenues from businesses acquired after the start of 1997 under
the purchase method of accounting. The increase in revenues from existing
clients was primarily the result of higher calling volumes rather than higher
rates.
COST OF SERVICES. Cost of services represents primarily labor and telephone
expenses directly related to teleservicing activities. Cost of services
increased $107.2 million, or 65.5%, to $270.9 million in 1997
31
<PAGE>
from $163.7 million in 1996. As a percentage of revenues, cost of services
increased to 55.1% in 1997 from 52.3% in 1996. This increase was primarily due
to the start up operations in the Asia Pacific region and to the Company's
Spanish operations which implemented a new compensation plan in 1997. This plan
has the corresponding effect of decreasing selling, general and administrative
expenses in Spain.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses represent expenses incurred to directly support and
manage the operations, including costs of management, administration, facilities
expenses, depreciation and maintenance, amortization, sales and marketing
activities and client support services. Selling, general and administrative
expenses increased $64.9 million, or 53.8%, to $185.6 million in 1997 from
$120.7 million in 1996. This increase was primarily a result of the Company's
continued growth both internally and through acquisition, including additional
goodwill amortization expense of $1.8 million related to purchase acquisitions
in 1997, and also includes the Company's efforts to establish the matrix
organizational structure needed to manage a global business. As a percentage of
revenues, selling, general and administrative expenses decreased to 37.8% in
1997 from 38.6% in 1996. Excluding certain non-recurring operating expenses
incurred in 1996 related to an acquisition, these expenses decreased slightly as
a percentage of revenue in 1997 from 37.9% of revenues in 1996.
RESTRUCTURING EXPENSES. The Company recorded non-recurring restructuring
expenses and a write down of its investment in its Telebusiness business unit of
$5.2 million and $10.5 million, respectively, in 1997. The restructuring
expenses related to the closing of underperforming call centers and redundant
administrative buildings as well as severance and other costs associated with
reorganizations of business units primarily in Europe and North America. These
reorganizations will allow the Company to operate more efficiently as a global
business and will require the settlement of approximately $4.6 million of
liabilities in future periods, offset by estimated tax benefits of $1.6 million.
The write down of the investment in the Telebusiness business unit, which is
predominately a non-cash charge, relates to the Company's decision to pursue a
new joint-venture equity partner in the Asia Pacific region. The joint-venture
agreement with Lend Lease Corporation Limited of Sydney, Australia, which was
announced by the Company in January 1998, excludes the Telebusiness business
unit.
OPERATING INCOME. Operating income decreased $9.0 million, or 32.0%, to
$19.3 million in 1997 from $28.3 million in 1996. Excluding the restructuring
expenses in 1997 and the non-recurring operating expenses in 1996, operating
income increased $4.4 million or 14.5% to $34.9 million in 1997 from $30.5
million in 1996. The increase was primarily attributable to the increase in
revenues noted earlier, partially offset by the increased expenses attributable
to those revenues and the efforts to establish the matrix organization noted
above. As a percentage of revenue, operating income decreased to 7.1% in 1997
from 9.8% in 1996 excluding the restructuring expenses in 1997 and the
non-recurring operating expenses in 1996. This decrease was primarily due to the
higher cost of services as a percentage of revenues in 1997 compared to 1996, as
described above.
INTEREST EXPENSE, NET. Net interest expense increased to $5.1 million in
1997 from $0.2 million in 1996. This increase was primarily due to increased
borrowings utilized to support the Company's growth, including acquisitions.
INCOME TAX EXPENSE. Income tax expense increased to $11.3 million in 1997
from $10.2 million in 1996. The income tax expense as a percentage of income
before taxes and minority interest was 79.1% in 1997 and 48.3% in 1996 primarily
due to non-deductible restructuring expenses (primarily impairment losses on
goodwill) and write downs of state incentive tax credits in 1997 and
non-deductible transaction related expenses in 1996.
NET INCOME. Net income decreased $8.0 million to $2.8 million in 1997 from
$10.9 million in 1996. Excluding the restructuring expenses and related tax
effects in 1997 and the non-recurring operating expenses in 1996, net income
decreased $1.0 million to $18.5 million in 1997 from $19.5 million in 1996.
32
<PAGE>
The decrease was primarily due to increased interest and tax expense offset
partially by an increase in operating income.
1996 COMPARED TO 1995
REVENUES. Revenues increased $125.6 million, or 67.1%, to $312.8 million in
1996 from $187.2 million in 1995. Of this increase, $35.4 million was
attributable to services initiated for new clients, $56.8 million was
attributable to higher revenues from existing clients and $33.4 million
attributable to revenues from businesses acquired under the purchase method of
accounting. Excluding revenues from Teleaction, revenues in 1996 increased
52.3%. Revenues from existing clients increased 30.3% primarily as a result of
higher calling volumes.
COST OF SERVICES. Cost of services increased $62.1 million, or 61.1%, to
$163.7 million in 1996 from $101.6 million in 1995. As a percentage of revenues,
cost of services decreased to 52.3% in 1996 from 54.3% in 1995. This decrease
was primarily attributable to higher capacity utilization of the Company's call
centers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general, and
administrative expenses increased $51.5 million, or 74.4%, to $120.7 million in
1996 from $69.2 million in 1995 primarily as a result of increased expenses
attributable to new Company-operated facilities, additional staff to support the
Company's higher calling volumes in 1996, and certain non-recurring acquisition
related operating expenses. Excluding the non-recurring expenses, as a
percentage of revenues, these expenses increased to 37.9% in 1996 from 37.0% in
1995. This percentage increase was primarily attributable to the Company's
investment in new industry efforts and additional resources being required to
further develop international expansion.
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 $.0025 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 (LOSS). Operating income was $28.3 million in 1996.
Primarily as a result of the non-recurring, special compensation expense, the
Company reported an operating loss of $18.2 million in 1995. Excluding
non-recurring acquisition related operating expenses, operating income would
have increased $13.6 million, or 80.5%, to $30.5 million in 1996 from $16.9
million in 1995 and, as a percentage of revenues, would have increased to 9.8%
in 1996 from 9.0% in 1995 due to the factors discussed above.
TRANSACTION RELATED EXPENSES. Transaction related expenses include legal,
accounting, and other non-recurring expenses associated with acquisitions
accounted for as poolings of interest. During 1996, the Company incurred $7.0
million of these expenses to consummate the NAFS and Mitre acquisitions.
INTEREST EXPENSE, NET. Net interest expense decreased to $0.2 million of
interest expense, or 0.1% of revenues, in 1996 from $0.7 million of interest
expense, or 0.4% of revenues, in 1995 due to increased investment income.
INCOME TAX EXPENSE (BENEFIT). The income tax expense (benefit) as a
percentage of income (loss) before income taxes and minority interest increased
to 48.3% in 1996 from 35.1% in 1995. This increase is primarily due to
non-deductible transaction related expenses.
NET INCOME (LOSS). Net income was $10.9 million in 1996. Primarily as a
result of the non-cash, non-recurring special compensation expenses and the
one-time forgiveness of debt of $0.5 million owed by two stockholders, the
Company reported a net loss of $13.5 million in 1995. Excluding the transaction
related expenses and non-recurring acquisition related operating expenses, net
income would have increased $9.8 million, or 101.0%, to $19.5 million in 1996
from $9.7 million in 1995 (excluding the special compensation
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expense and the amount forgiven) and, as a percentage of revenues, would have
increased to 6.2% of revenues from 5.2%.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $19.0 million in 1997. The
Company recorded net income of $2.8 million (including a non-cash tax charge of
$5.6 million), depreciation and amortization of $28.7 million and primarily
non-cash restructuring expenses of $15.5 million. This cash flow was offset by
$33.6 million of cash used in operating activities primarily as a result of an
increase in accounts receivable needed to support growth. The Company
anticipates that accounts receivable balances will continue to grow as the
Company grows. Net cash used in investing activities was $131.4 million for
1997. Of this total, $69.4 million was used for capital expenditures (primarily
call and data management equipment and facilities) and $61.0 million was used
for acquisitions, including the settlement of the Teleaction purchase price
payable. Net cash provided by financing activities during 1997 was $113.7
million, primarily attributable to borrowings on the Company's available credit
lines and other notes payable.
Net cash provided by operating activities was $35.8 million during 1996.
This was the result of $26.4 million of net income before depreciation and
amortization and other non-cash charges increased by $9.4 million of changes in
operating assets and liabilities. Cash used by investing activities for 1996 was
$55.0 million. Of this total, $40.0 million was used for capital expenditures
(primarily call and data management equipment) and $23.7 million was used for
the acquisition of Teleaction, offset partially by sales of marketable
securities. Cash provided by financing activities for 1996 of $39.6 million
resulted primarily from a public equity offering, net borrowings from a bank
line of credit, and term debt.
Net cash provided by operating activities was $15.3 million in 1995. This
was the result of $16.6 million of net income before depreciation and
amortization and other non-cash charges offset by $1.3 million of changes in
operating assets and liabilities. Cash used by investing activities for 1995 was
$26.5 million. Of this total, $13.3 million was used for capital expenditures
(primarily call and data management equipment) and the remainder related
primarily to net purchases of marketable securities. Cash provided by financing
activities of $15.1 million resulted primarily from the Company's initial public
offering offset by principal repayments on the Company's term debt and bank line
of credit. 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 was available to reduce future income taxes.
In July, 1997, the Company reached agreement with a syndicate of commercial
banks for the $150.0 million Existing Credit Facility. The commitment of the
banks under this facility expires on July 24, 2002. The obligations of the
Company under the facility have been guaranteed by the Company's domestic
subsidiaries and are secured by a pledge of the Company's shares in such
subsidiaries and 65% of the Company's shares in certain other subsidiaries. The
facility contains certain financial covenants and certain restrictions on, among
other things, the Company's ability to incur additional debt, make certain
investments, and sell assets or merge with another company. The facility also
prohibits the payment of cash dividends on Common Stock without the bank's
consent. The facility becomes due and payable upon a change of control of the
Company as defined in the facility agreement. As of December 31, 1997, the
Company had $99.5 million outstanding under its Existing Credit Facility.
As discussed in Note 15 of the financial statements, on March 10, 1998, the
Company completed a private placement of $100 million of 9.25% Senior
Subordinated Notes due 2006 (the "Notes"). The proceeds from the offering were
used to repay borrowings outstanding under the Company's Credit Facility which
was also amended on that date.
The Notes, which include interest payable semiannually, are general
unsecured obligations of the Company and will be debt of the Company. The Notes
are guaranteed by certain of the Company's subsidiaries and contain certain
covenants that limit the ability of the company and certain of its subsidiaries
to, among other things, incur additional indebtedness, pay dividends or make
certain other
34
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restricted payments, consummate certain asset sales, enter into certain
transactions with affiliates, incur liens, merge or consolidate with another
company and sell or otherwise dispose of all or substantially all of the assets
of the Company.
The Company also reached an agreement with a syndicate of commercial banks
to amend the Company's existing Credit Facility to limit borrowings under the
Credit Facility to an amount based upon a percentage of the Company's eligible
domestic accounts receivable, as defined, up to $75 million. Certain of the
financial covenants and restrictions were amended and the Company's eligible
domestic accounts receivable were pledged as security.
With the actions taken by the Company above, on a pro forma basis, the
Company has unused lines of credit totaling approximately $47.6 million at
December 31, 1997. The Company believes that funds generated from operations,
existing cash, the amended Credit Facility and net proceeds of the Notes will be
sufficient to finance its current operations, planned capital expenditure
requirements and internal growth for the next several years. Future
acquisitions, if any, may require additional debt or equity financing.
YEAR 2000 ISSUE
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Specifically, computational
errors are a known risk with respect to dates after December 31, 1999. SITEL has
made a preliminary assessment of its Year 2000 compliance issues, but has not
developed a general plan to address such issues. Although the Company has not
yet estimated the total costs needed for Year 2000 compliance, the Company
believes it will be able to upgrade and maintain its computer systems to
recognize years beginning with 2000 and that the cost to do so will not be
material to its financial position or liquidity. Such costs may, however, be
material to the Company's results of operations, particularly on a short-term
basis.
QUARTERLY RESULTS AND SEASONALITY
The Company has experienced and expects to continue to experience quarterly
variations in its results of operations principally due to 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. The Company experiences periodic fluctuations related
to both the start-up costs associated with expansion into a new region and the
implementation of clients' teleservicing activities. In addition, the Company's
business tends to be slower in the third quarter due to summer holidays in
Europe and, to a lesser degree, in the first quarter due to the changeover of
client marketing strategies which often occurs at the beginning of the year.
EFFECTS OF INFLATION
Inflation has not had a significant effect on the Company's operations.
However, there can be no assurance that inflation will not have a material
effect on the Company's operations in the future.
ACCOUNTING PRONOUNCEMENTS
Statements of Financial Accounting Standards ("SFAS") 130, Reporting
Comprehensive Income, and SFAS 131, Disclosures about Segments of an Enterprise
and Related Information, were issued in June, 1997. SFAS 130 establishes
standards for the reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. SFAS 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also established standards
for related disclosures about products and services, geographic areas and major
customers. Both SFAS 130 and SFAS 131 are effective for periods beginning after
December 15, 1997. The Company anticipates adopting these accounting
pronouncements in 1998; however, management believes that they will not have a
significant impact on the Company's consolidated financial statements.
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BUSINESS
GENERAL
SITEL is a global leader in providing outsourced telephone and
Internet-based customer service and sales programs on behalf of large
corporations. The Company handles calls in over 25 languages and dialects from
more than 12,500 workstations in over 70 call centers located in North America,
Europe, Asia Pacific and Latin America. SITEL communicates directly with its
clients' customers primarily by responding to customer-initiated telephone calls
and electronic mail and by making Company-initiated calls. Approximately 60% of
the Company's revenues are currently generated by customer service programs,
including technical support activities, with the remainder generated primarily
by sales programs and, to a lesser extent, by consulting services. The Company
currently provides services to over 400 clients, principally in the insurance,
financial services, telecommunications, technology, media and entertainment,
utilities, consumer, automotive and travel and hospitality industries. The
Company has organized its business divisions to reflect the specific industries
in which its clients do business. For the year ended December 31, 1997, the
Company generated $491.5 million in revenues and $63.6 million in EBITDA (as
hereinafter defined).
INDUSTRY OVERVIEW
Industry sources and the Company estimate that worldwide expenditures on
call center activity exceed $160 billion annually. These activities include
customer service programs such as technical support, responding to billing
inquiries, answering customer questions regarding product information and credit
card fraud protection as well as sale programs such as handling product orders,
activating credit cards and soliciting orders. These expenditures have grown
substantially with the proliferation of toll-free phone numbers and direct
marketing, the development of new database, networking and communications
technologies, the reduction in telecommunications costs and the development of
new modes of communication, such as the Internet. Much of the industry's recent
growth has resulted from higher consumer expectations for readily accessible
customer service and support. At the same time, companies have recognized the
benefit of communicating directly with their customers.
The outsourced portion of the overall teleservices market has grown
significantly since 1984, as a result of corporations' shifting their
teleservices operations from in-house operations to outsourced providers.
Although outsourced applications are increasing their share of the overall
teleservices market, the vast majority of call center activities are still
performed in-house. An industry analyst estimates that in 1999, the outsourced
portion of the U.S. teleservices industry will be approximately $20 billion, up
from $5.7 billion in 1995. Competition for this outsourced teleservicing
business is fragmented. Most independent providers of telephone-based services
are small, single facility operations that do not have the scale, expertise, or
technological resources necessary to serve effectively the sustained, and
increasingly complex, teleservicing needs of large corporations. Few of the
Company's competitors have significant international or multilingual
capabilities.
The advantages of teleservicing include low cost per call, direct
interaction with customers and on-line access to detailed customer or product
information to immediately respond to customer inquiries. Significantly, even
when a customer chooses not to make a purchase, a customer conversation with a
teleservices agent often permits the client to learn more about the customer's
decision-making process and to update customer information in the client's
database. As a result of these advantages, teleservicing has become one of the
fastest growing forms of direct marketing and customer service.
COMPANY STRENGTHS
The Company believes its market leadership is attributable primarily to the
following factors:
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LONGSTANDING RELATIONSHIPS WITH LARGE CORPORATE CLIENTS. SITEL's client
base consists primarily of large corporations, including Allstate Insurance,
America Online, American Express, Banco Santander, British Gas, First USA, GTE,
General Motors Acceptance Corporation and Microsoft. These clients provide SITEL
with recurring revenues due to their ongoing customer service and sales
requirements. The Company's 20 largest clients in 1997 have utilized the
Company's services for an average of approximately five years. The Company's
longstanding relationships with these clients often lead to additional business
opportunities as these corporations continue to outsource more of their
teleservicing activities worldwide. By emphasizing long-term relationships, the
Company seeks to improve its profitability and service levels by (i) improving
the predictability of its facility and labor utilization, (ii) providing more
in-depth employee training on specific client programs and industry issues and
(iii) continually developing technological and process improvements to better
serve clients.
DIVERSE CLIENT BASE. SITEL serves a large number of clients within a
diverse number of industries. In 1997, SITEL's largest client accounted for less
than 10% of the Company's revenues. The Company's more than 400 clients provide
significant opportunities to increase business from the existing client base.
The Company has historically generated most of its internal growth from existing
clients.
WORLDWIDE PRESENCE. SITEL believes it has the most extensive international
capabilities of any teleservices company, which provides it with a competitive
advantage as the Company's clients and other large multinational corporations
expand into new worldwide markets and outsource their call center activities to
global providers. The Company conducts teleservicing programs in over 25
languages and dialects in over 70 call centers in North America, Europe, Asia
Pacific and Latin America.
INDUSTRY SPECIALIZATION. SITEL organizes its activities along industry
lines. SITEL believes this industry-focused strategy is a competitive advantage
because it permits the Company's managers to better understand industry-specific
issues and to use that understanding in the design of solution-oriented
teleservicing programs. SITEL focuses its business development efforts on
leading companies in its targeted industries.
DECENTRALIZED OPERATIONS AND GLOBAL COORDINATION. SITEL employs a
decentralized operating structure in order to be more flexible and responsive to
each client's requirements and to aggressively seek new large corporate clients.
Each operating unit has its own management team and sales organization with
complete profit and loss responsibility, dedicated facilities and a full
complement of information technology, finance and human resources professionals.
In addition to shifting decision making closer to the client, this decentralized
structure enables SITEL's senior executives to focus on setting strategic
direction for the Company as a whole.
SOPHISTICATED CALL AND DATA MANAGEMENT TECHNOLOGY. SITEL makes extensive
use of sophisticated call management technology, including proprietary and
licensed computer software, automated call distributors, predictive dialers,
computer-integrated telephony, digital switches and the Internet. This
technology provides SITEL the capacity to handle calls and electronic messages
in many languages, to process vastly differing amounts of product and service
information and to distribute call volumes and data throughout the Company's
international network of call centers. The Company also has considerable in-
house information technology expertise, which allows it to integrate its call
centers directly with its clients' databases, including those contained in
legacy computer systems.
EMPLOYEE OWNERSHIP. As of January 31, 1998, approximately 2,700 SITEL
employees and managers worldwide owned Common Stock or options to acquire Common
Stock, representing approximately 56% of the fully-diluted Common Stock.
Management believes that this significant employee ownership and the Company's
incentive compensation plans, coupled with SITEL's decentralized operations,
promote quality client service, increased focus on achieving growth and
profitability goals, higher employee productivity and the successful integration
of acquired businesses.
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BUSINESS STRATEGY
SITEL believes there are significant opportunities to expand its business on
a worldwide basis as it takes advantage of the global trend toward the
outsourcing of call center activities. The key elements of the Company's
business strategy are:
INCREASE REVENUES WORLDWIDE FROM EXISTING CLIENTS. Historically, most of
the Company's internal growth has resulted from existing clients, and management
believes this remains SITEL's greatest growth opportunity, given the number and
diversity of premier corporations in SITEL's client base. The Company seeks to
increase revenues from existing clients by earning additional outsourcing
opportunities as they arise, by obtaining work from other business units of
clients on a worldwide basis and by developing new teleservicing applications
that clients can use to increase the value of their customer relationships. The
Company's global presence and multilingual capabilities enable its multinational
clients to consolidate their call center activities with SITEL.
OBTAIN NEW CLIENTS WITHIN TARGETED INDUSTRY SPECIALIZATIONS. Through its
industry specialization, the Company has developed considerable expertise in its
targeted industries. These industries are characterized by large, often
multinational corporations with significant customer bases, many of whom rely on
call centers for a substantial portion of their customer service and sales
needs. SITEL believes there are significant growth opportunities for each of its
business units as they target companies seeking to outsource their teleservicing
programs.
CREATE NEW VALUE-ADDED CALL CENTER APPLICATIONS. SITEL regularly seeks to
offer its clients new value-added call center services either as new offerings
to its client base or as a new application within a targeted industry. The
Company believes that creating new value-added services will increase the
average account size and, more importantly, strengthen the relationships between
SITEL and its clients. For example, in 1996, the Company first offered accounts
receivable management to its financial services clients and, in 1997, expanded
that service to telecommunications and utilities clients. In addition, the
Company and Lucent Technologies have jointly developed and are currently
demonstrating an Internet Call Center. This technology permits consumers and
call center agents to speak with one another and exchange data through a single
Internet connection.
CONTINUE REINVESTMENT IN THE BUSINESS. SITEL continues to reinvest in the
infrastructure required to manage a large global operation and to take advantage
of future opportunities. SITEL believes these investments are necessary to
support the Company's continued growth and to maintain its ability to provide
efficient and profitable worldwide call center services. SITEL is currently
establishing operations in several new markets, such as France and Colombia, to
service recently awarded contracts, to provide increasingly global service for
existing clients and to attract new clients. The Company expects to enter other
markets in 1998, including Brazil and Argentina. SITEL also funds efforts to
incubate potential new growth opportunities in industries not currently served
by the Company.
CONTINUE MAKING SELECTED ACQUISITIONS. Through selected strategic
acquisitions, SITEL seeks to expand its geographic coverage as well as add new
industry expertise and services. The Company targets companies with strong
senior management teams and considers the addition of talented management a
major benefit of making acquisitions. Other criteria used by the Company to
evaluate potential acquisitions include service quality, industry focus,
diversification of client base, operating characteristics, and geographic
coverage.
CLIENT SERVICE AND INDUSTRY SPECIALIZATION
SITEL seeks to provide its clients appropriate programs to satisfy their
teleservicing needs. Accordingly, the Company provides a complete range of
services from customer acquisition (sales calls, handling requests for
information and order taking) to customer loyalty and retention programs
(customer service,
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technical support and credit card fraud detection). The Company integrates
various services to create teleservicing solutions tailored to its clients'
needs:
CUSTOMER SERVICE PROGRAMS
- providing technical help desk, product or service support
- responding to billing and other account inquiries
- dispatching service technicians
- activating product or service upgrades
- updating customer address, telephone, and other data
- registering warranty information
- contacting delinquent accounts
- providing after-hours customer service
- responding to electronic mail inquiries
- verifying credit card charges to detect possible fraud
SALES PROGRAMS
- providing consumer sales and marketing
- conducting business-to-business sales and marketing
- conducting lead generation
- processing and providing information requests
- direct response marketing
- activating credit cards
- capturing inbound orders
Descriptions of representative services provided to clients by industry
include:
INSURANCE. The Company provides a broad range of services to the insurance
industry, from direct marketing of non-underwritten insurance products such as
hospital accident protection, hospital indemnity protection, health care
discount plans, mechanical breakdown and credit protection. SITEL provides
customer service activities such as sales support, after hours agent support,
emergency road-side assistance, claims processing and full back-office support.
The Company also offers sales and service activities for fully underwritten
products such as term life, automobile and homeowners' insurance as well as
tax-deferred annuities.
FINANCIAL SERVICES. The Company works primarily with major banks, leasing
companies, credit card issuers, mutual fund companies, brokerage firms, mortgage
companies and other financial institutions. SITEL provides customer service
activities such as answering questions regarding lease terms, handling service
requests, arranging credit card balance transfers, taking and processing loan
applications, and making accounts receivable management and fraud prevention
calls. SITEL also conducts sales activities on behalf of clients such as
merchant and customer acquisition, account retention and renewal, lead
generation and appointment scheduling. These sales and customer service
activities are increasingly becoming integrated. Recently, the Company entered
into a large multi-year contract to handle virtually all call center activity in
Latin America for a major international bank.
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TELECOMMUNICATIONS. The Company works primarily with domestic and
international long distance providers, local exchange carriers and cellular and
PCS providers. SITEL provides a full range of sales and customer service
activities, including account management, fulfillment, facilities management,
new product launch and database management. The Company provides these services
for product lines such as access lines, vertical services, Internet access, long
distance, cellular, PCS and ISDN data services.
TECHNOLOGY. The Company works primarily with computer hardware
manufacturers, software publishers, Internet service providers and large
corporations supporting their in-house or external technical support
requirements. SITEL provides technical sales, technical support and customer
support services including, product launches, complete sales and account
management programs, strategic product support, corporate help desk, warranty or
post-warranty support and sunset product support. The Company provides these
support services through traditional call handling as well as alternative
electronic methods such as e-mail, advanced integrated voice response, automated
self-help tools and computer telephony integration.
MEDIA AND ENTERTAINMENT. The Company provides sales and customer service to
"new media" markets, such as online service providers, satellite television
service providers and CD-ROM and video providers. The Company's clients also
include traditional media, such as newspaper publishers, major magazine
publishers, book clubs and music clubs. Services include subscription renewal,
customer acquisition, subscription reactivation and customer service.
UTILITIES. The Company provides telephone and Internet-based services to
public and private energy companies, including electric power, natural gas,
water and integrated energy providers. SITEL provides customer acquisition,
customer service, direct sale and cross-sale activities, brand development,
loyalty campaigns, database management and development and call center
consulting services.
CONSUMER. SITEL works with leading consumer products companies and
retailers worldwide in responding to customer inquiries, developing and
launching new product and sales campaigns, managing product recalls, performing
quality surveys and market analyses.
AUTOMOTIVE. The Company's clients include major automobile manufacturers,
for which SITEL answers inquiries generated by media and advertising, conducts
customer satisfaction surveys and provides lead generation and qualification.
Increasingly, these activities are linked to other industry sectors, such as
insurance. For example, the Company offers automobile insurance to purchasers of
new and used vehicles.
TRAVEL AND HOSPITALITY. The Company works with major airline and hotel
companies in handling reservation and customer service calls.
In addition to integrating various services, the Company provides consulting
services to its clients to enable them to improve the productivity of their
internal call centers.
INFORMATION TECHNOLOGY
SITEL is introducing a common set of services across its
industry-specialized business units so that the Company can better perform
global work for its clients and access its worldwide customer contacts more
readily. SITEL uses industry-standard software from Microsoft and Oracle across
its business units. Within industry sectors, SITEL uses industry-specific call
processing application systems. SITEL has designed and implemented client (or
industry) specific applications to provide highly customized solutions to
clients' specific requirements. SITEL also utilizes a state-of-the-art
technology platform (UNIX and NT architecture) with Windows 95 and NT-based
Compaq and IBM workstations, predictive dialers and automated call distributors.
SITEL representatives have the tools to initiate and receive effectively and
efficiently millions of service transactions per month.
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PERSONNEL AND TRAINING
Management believes one of its core competencies is managing its diverse,
worldwide workforce. SITEL places great emphasis on recruiting, training and
retaining its employees. The Company seeks to locate call centers in communities
and cities with favorable workforce demographics and populations with necessary
language skills.
The Company offers extensive in-house classroom and on-the-job training
programs for its personnel, including instruction on the industries which SITEL
serves and on proper call center techniques. For example in the United States,
the Insurance Division offers on-site, state approved insurance licensing and
continuing education classes for SITEL insurance agents. The amount of classroom
and on-the-job training before an employee can qualify to take the insurance
agent licensing examination is approximately 150 hours. The Company encourages
employee self-development and usually promotes individuals from within the
organization.
As of December 31, 1997, SITEL had over 18,000 employees, of which over
14,000 were service representatives. None of SITEL's employees in the North
American, Asia-Pacific or Latin American regions is represented by a labor
union. In the Company's European region, employees in Belgium and Spain are
represented by government-sponsored collective bargaining contracts. SITEL
considers its relations with its employees to be good.
COMPETITION
SITEL is one of the largest global teleservices companies in the world.
Other large teleservices companies include APAC TeleServices Inc., MATRIXX
Marketing Inc., Stream International Holdings Inc., Sykes Enterprises Inc.,
Teleperformance International Group, TeleTech Holdings, Inc. and West
TeleServices Corporation. The teleservices industry is extremely competitive and
fragmented, and most independent teleservicers are small, single facility
operations. The Company also competes with in-house teleservices departments
throughout the world. In-house departments providing direct sales and customer
service functions continue to comprise by far the largest segment of the
teleservices industry. Additional competitors with greater resources than the
Company may enter the teleservices industry. The Company also competes with
direct mail, television, radio and other advertising media.
GOVERNMENT REGULATION
In the United States, the Federal Trade Commission (the "FTC") and many
states regulate teleservices. The European Union (the "EU") has yet to enact a
detailed regulatory framework for this industry.
In the United States, the federal Telephone Consumer Protection Act of 1991
(the "TCPA") prohibits teleservices firms from initiating telephone
solicitations to residential telephone subscribers during certain times, and
prohibits the use of automated telephone dialing equipment to call certain
telephone numbers. In addition, the TCPA requires telemarketing firms to
maintain a "do not call" list of residential customers. The federal
Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994 broadly
authorized the FTC to issue regulations prohibiting misrepresentation in
telemarketing sales. The FTC issued telemarketing sales rules which became
effective December 31, 1995. Generally, these rules prohibit misrepresentation
regarding the cost, terms, restrictions, performance or duration of products or
services offered by telephone solicitation and specifically address other
perceived telemarketing abuses in the offering of prizes and the sale of
business opportunities or investments. The Company believes that it is in
compliance with the TCPA and the FTC's rules. The Company trains its telephone
service representatives to comply with the TCPA and programs its call management
system to avoid telephone calls during restricted hours or to individuals
maintained on SITEL's "do-not-call" list.
The industries served by the Company's divisions are also subject to varying
degrees of government regulation. Generally, the Company relies on its clients
and their advisors to develop the scripts to be used
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by SITEL in making consumer solicitations. The Company generally requires its
clients to indemnify SITEL against claims and expenses arising with respect to
the Company's services performed on its clients' behalf. The Company has never
been held responsible for regulatory noncompliance by a client. SITEL employees
who complete the sale of certain U.S. insurance products are required to be
licensed by various state insurance commissions and participate in regular
continuing education programs, which are currently provided in-house by the
Company.
The teleservices industry, consumer groups and regulatory and legislative
bodies are increasingly concerned about "right of privacy" issues as
technological advances have dramatically increased the availability of
information about consumers. It is possible that laws or regulations may be
enacted which would, among other things, limit the amount of consumer data that
may be obtained or how this data may be used in other teleservice activities.
The Company is unable to predict whether or when any such laws or regulations
will be enacted or, if they are, in what countries they will be enacted. It is
possible that laws or regulations would require the teleservices industry,
including the Company, to modify its methods of consumer data collection and
use.
FACILITIES
The Company's executive offices are located in Baltimore, Maryland.
As of December 31, 1997, the Company operated call centers in various leased
facilities and on client premises and utilized the services of remote operations
sites in various locations as follows:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
FACILITY LOCATION FACILITIES WORKSTATIONS
- ----------------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Australia................................................................................ 2 231
Belgium.................................................................................. 2 400
Canada................................................................................... 3 268
Colombia................................................................................. 1 100
France................................................................................... 1 30
Germany.................................................................................. 1 425
Hong Kong................................................................................ 1 19
Ireland.................................................................................. 1 70
Japan.................................................................................... 1 72
Mexico................................................................................... 2 600
Portugal................................................................................. 1 60
Singapore................................................................................ 1 45
Spain.................................................................................... 7 2,176
Sweden................................................................................... 1 100
United Kingdom........................................................................... 6 1,630
United States............................................................................ 38 5,708
United States--ROPS...................................................................... 13 337
--- ------
Totals:............................................................................ 82 12,271
--- ------
--- ------
</TABLE>
SITEL contracts with a number of remote operations sites ("ROPS") which are
owned and operated by independent third parties and are used by SITEL to meet a
portion of its teleservicing needs.
The Company believes its current facilities are suitable and adequate for
its current operations, but additional facilities will be required to support
growth. SITEL believes suitable additional or alternative space will be
available as needed on commercially reasonable terms. The Company's policy is to
rent call center space although it has from time to time built or purchased
facilities and subsequently sold them in sale-leaseback transactions.
42
<PAGE>
INSURANCE
The Company carries property damage, errors and omissions liability,
directors' and officers' liability and workers' compensation insurance coverage
in amounts management considers sufficient to protect the Company.
LITIGATION
From time to time, the Company is involved in litigation incidental to its
business. In the opinion of management, no litigation to which the Company is
currently a party is likely to have a materially adverse effect on the Company's
results of operations or financial condition, if decided adversely to the
Company.
43
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are:
<TABLE>
<CAPTION>
NAME AGE(1) POSITION
- ---------------------------------------------------- ----------- ----------------------------------------------------
<S> <C> <C>
James F. Lynch...................................... 48 Chairman of the Board and Director
Henk P. Kruithof.................................... 61 Executive Vice Chairman and Director
Michael P. May...................................... 48 Chief Executive Officer and Director
Phillip A. Clough................................... 36 President
Barry S. Major...................................... 41 Executive Vice President--Finance, Chief Financial
Officer and President--SITEL North America
Kelvin C. Berens.................................... 46 Director
George J. Kubat..................................... 52 Director
Bill L. Fairfield................................... 51 Director
</TABLE>
- ------------------------
(1) As of March 16, 1998
MR. LYNCH founded SITEL in 1985 and has served as Chairman and a director
since its inception. From SITEL's inception to January 1997, Mr. Lynch served as
Chief Executive Officer. Prior to founding SITEL, he served as President of
HQ800, Inc., a subsidiary of United Technologies that provided telemarketing
services to third parties. SITEL was formed when Mr. Lynch negotiated the
purchase of the assets of HQ800 from United Technologies. From 1980 to 1984, Mr.
Lynch served as Director of Sales and Marketing for WATTS Marketing of America,
a former subsidiary of First Data Resources, a credit card processing firm.
WATTS is now part of MATRIXX Marketing Inc., a provider of telemarketing
services.
MR. KRUITHOF has served as Executive Vice Chairman and a director since
October 1996. Mr. Kruithof is also the Chairman of SITEL Europe plc (formerly
Mitre plc, which merged with SITEL in September 1996). Mr. Kruithof co-founded
Mitre plc in 1992 and its predecessor Merit Direct Limited in 1985, and served
as their Chairman since inception. Prior to founding Mitre plc and Merit Direct
Limited, Mr. Kruithof started a number of businesses in various industry sectors
and has extensive experience in managing international businesses.
MR. MAY has served as Chief Executive Officer of SITEL since January 1997
and as a director since June 1997. Mr. May previously served as President of
SITEL since June 1996 and as an Executive Vice President since October 1992,
when SITEL acquired May Telemarketing, Inc., which Mr. May founded in 1985.
Prior to founding May Telemarketing, he was a director, executive officer and
treasurer between 1976 and 1982 of Applied Communications, Inc., a
publicly-traded software products company, now known as Transaction Systems
Architects, Inc.
MR. CLOUGH became President of SITEL in January 1997. Between 1990 and
January 1997, Mr. Clough served as an investment banker with Alex. Brown & Sons
Incorporated, most recently as Principal, focusing on a variety of consumer and
business services companies, including teleservices companies.
MR. MAJOR has served as Executive Vice President-Finance and Chief Financial
Officer since June 1996 and prior thereto as Senior Vice President-Finance since
October 1995. Between 1985 and 1995, Mr. Major served in various executive
positions with American National Corporation, a bank holding company, most
recently as President. In August, 1997, he became President--SITEL North America
and remains Chief Financial Officer pending the appointment of a new Chief
Financial Officer.
MR. BERENS has been a director of the Company since July 1995 and previously
served as a director from shortly after the Company's inception until April
1995. Since 1985, Mr. Berens has been the
44
<PAGE>
Managing Partner of Berens & Tate, P.C., a labor and employment law firm based
in Omaha. Berens & Tate, P.C. provides legal services to the Company in the
areas of labor and employment law.
MR. KUBAT has been a director since July 1995. Since 1992, Mr. Kubat has
been the Chief Executive Officer and President of Phillips Manufacturing Co., a
metal fabricating company based in Omaha.
MR. FAIRFIELD has been a director since July 1995. Since 1985, Mr. Fairfield
has been the Chief Executive Officer, President and a director of Inacom Corp.,
a marketer and distributor of information technology products and services. Mr.
Fairfield is also a director of The Buckle, Inc.
DIRECTOR COMPENSATION
For their service on the Board during 1997, non-employee directors were paid
$3,000 per quarterly meeting and $500 per special meeting of the Board of
Directors or committee thereof attended. Directors also are reimbursed for
expenses incurred in connection with attendance at Board of Directors and
committee meetings.
Upon election or re-election to a three year term on the Board of Directors,
each non-employee director receives options to purchase 18,000 shares of Common
Stock, exercisable at the market price of the Common Stock as of the date of
grant. The number of options is prorated upon election or re-election to a term
of less than three years. These options are granted under the Amended and
Restated SITEL Non-Employee Directors Stock Option Plan, vest in three equal
annual installments commencing one year after grant, and expire 10 years after
issuance.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION; CERTAIN
TRANSACTIONS
The Compensation Committee is composed of Messrs. Fairfield (Chairman) and
Kubat, both of whom are non-employee directors.
SITEL has purchased products and services from Inacom Corp., a company with
which Mr. Fairfield is associated in various capacities, but such purchases
during fiscal 1997 were not sufficiently significant to be reportable.
Management believes these transactions during fiscal 1997 were on terms that
were reasonable and competitive. Additional transactions of this kind can be
expected to take place in the ordinary course of business in the future.
Mr. Berens is the Managing Partner and owner of more than 10% of the voting
stock in the Berens & Tate, P.C. law firm. The Company engaged the Berens &
Tate, P.C. law firm to provide legal services in the areas of labor and
employment law during fiscal 1997 and expects to continue to engage the firm for
such services.
As of December 31, 1997, the Company had advanced $230,162 to James F. Lynch
to enable Mr. Lynch to pay expenses incurred by him on behalf of the Company.
This advance accrues interest at a rate equal to 9% per annum. Upon Mr. Lynch's
subsequent itemization of expenses, the amount of this advance will be settled.
The advance is otherwise due and payable on May 31, 1998. Such advances can be
expected to take place in the ordinary course of business in the future in order
to enable Mr. Lynch to pay expenses incurred by him on behalf of the Company.
45
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information regarding annual and long-term
compensation for the chief executive officer and the other four most highly
compensated executive officers of the Company as of December 31, 1997.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION STOCK OPTIONS
---------------------- OTHER ANNUAL NUMBER OF ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS(1) COMPENSATION SHARES (2) COMPENSATION(3)
- ------------------------------------- ------------- ---------- ---------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
James F. Lynch,...................... 1997 $ 250,000 $ -- $ -- -- $ 136,147
Chairman 1996 220,385 555,000 -- 38,350 130,542
1995 195,000 467,856 -- -- 134,277
Henk P. Kruithof,.................... 1997 $ 163,600 $ -- $ -- -- $ --
Executive Vice Chairman 1996 54,354 -- -- -- --
1995 -- -- -- -- --
Michael P. May,...................... 1997 $ 235,577 $ -- $ -- -- $ 16,352
Chief Executive Officer 1996 173,077 400,000 -- 175,000 20,620
1995 124,616 50,250 -- 796,040 492,815
Phillip A. Clough,................... 1997 $ 221,154 $ -- $ -- 400,000 $ --
President 1996 -- -- -- -- --
1995 -- -- -- -- --
Barry S. Major,...................... 1997 $ 163,462 $ -- $ -- -- $ 11,042
Executive Vice President, Finance 1996 129,616 50,000 -- 110,000 6,733
1995 19,320 -- -- 600,000 --
</TABLE>
- ------------------------
(1) Represents bonus payments made to each named executive officer on account of
the Company's performance during such fiscal year.
(2) The 1997 options were granted to Phillip A. Clough in January 1997 for the
purchase of shares of Common Stock of the Company at an exercise price of
$16.875 per share pursuant to the Amended and Restated SITEL Corporation
1995 Employee Stock Option Plan (the "Employee Plan"). Options for 290,000
of these shares become vested and exercisable in five equal annual
installments (subject to accelerated vesting and exercise in the event of a
dissolution, merger, consolidation, sale or lease of all or substantially
all of the Company's business assets, or a change in control of the
Company). Options for the 110,000 remaining shares become vested and
exercisable on May 12, 2006 and expire on November 11, 2006; these options
are subject to accelerated vesting and to earlier exercise at the rate of
20% per year if certain goals are met by SITEL before May 12, 2006. The 1996
stock options, other than those granted to James F. Lynch, were granted in
December 1996 for the purchase of shares of Common Stock of the Company at
an exercise price of $15.50 per share. The 1996 options to James F. Lynch
were granted in June 1996 in accordance with Mr. Lynch's employment
agreement for the purchase of shares of Common Stock of the Company at
exercise prices of $14.71 and $13.38 per share pursuant to the Employee
Plan. The 1995 stock options, other than those granted to Barry S. Major,
were granted in February 1995 for the purchase of shares of Common Stock of
the Company at an exercise price of $.0025 per share, in replacement of
stock appreciation rights previously granted under the Company's Employee
Equity Benefit Plan and previously granted stock options. The 1995 stock
options to Barry S. Major were granted in October 1995 for the purchase of
shares of Common Stock of the Company at an exercise price of $5.92 pursuant
to the Employee Plan and become vested in five equal annual installments
(subject to accelerated vesting and exercise in the event of a
46
<PAGE>
dissolution, merger, consolidation, sale or lease of all or substantially
all of the Company's business assets, or a change in control of the
Company).
(3) Represents interest accrued in 1996 and 1997 on amounts accumulated by
Messrs. Lynch, Major and May under the Company's Executive Wealth
Accumulation Plan, under which plan any Company matching contributions begin
to vest after five years of service with the Company pursuant to a vesting
schedule (subject to accelerated vesting in the event of a change of control
of the Company); $70,908, $64,385, and $64,745 for Mr. Lynch for 1997, 1996
and 1995, respectively, pursuant to split-dollar life insurance
interest-free loans; and forgiveness in the amount of $479,188 related to a
note of Mr. May.
Mr. Kruithof became Executive Vice Chairman and a director of the Company in
October 1996, following the consummation of the acquisition of Mitre plc on
September 3, 1996. Compensation paid by the Company to Mr. Kruithof for services
rendered to Mitre plc prior to such acquisition date is not included in the
table.
STOCK OPTION PLANS
The Company has four stock option plans, all approved by shareholders in
1995. The four plans are described as follows:
STOCK OPTION PLAN FOR REPLACEMENT OF EXISTING OPTIONS ("REPLACEMENT
PLAN"). Under this plan, options for 4,541,780 shares were granted in 1995,
with an option price of $.0025 per share, as replacements for 3,110,000 options
outstanding at February 28, 1995.
STOCK OPTION PLAN ("EEB REPLACEMENT PLAN"). Under this plan, options for
7,381,720 shares were granted in 1995, with an option price of $.0025 per share,
as replacements for the Company's employee equity benefit plan ("EEB Plan"). The
EEB Plan had 12,655,000 units outstanding with base values ranging from $.85 to
$1.71.
With respect to both the Replacement Plan and the EEB Replacement Plan, the
following applies: Options are exercisable in five equal annual installments
from January 1996 to May 2000. The Company recorded these options at the
estimated fair value at date of grant ($2.91), with a corresponding charge to
special compensation expense totaling $34.6 million. All options granted were
vested as of the date of grant. No further options will be granted under these
plans.
1995 EMPLOYEE STOCK OPTION PLAN ("EMPLOYEE PLAN"). The Employee Plan
provides for the granting of various types of incentive awards (including
incentive stock options, nonqualified options, stock appreciation rights,
restricted shares, and performance shares or units) for the issuance of up to an
aggregate of 9,800,000 shares of Common Stock to employees and independent
consultants of the Company and its subsidiaries. Vesting terms vary with each
grant, and option terms may not exceed ten years. Option prices, set by the
Compensation Committee of the Board of Directors, may not be less than the fair
market value at date of grant for incentive stock options or less than par value
for nonqualified stock options. At December 31, 1997, there were approximately
2.5 million shares available for issuance pursuant to future grants under the
Employee Plan.
1995 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN ("DIRECTORS PLAN"). The
Directors Plan provides for automatic, formula grants of nonqualified options to
each independent director of the Company. Each independent director is granted
options to purchase 18,000 shares of Common Stock upon election or re-election
to a three-year term on the Board of Directors. Option prices equal the fair
market value of the Common Stock on the date of grant. Options vest and become
exercisable in three equal annual installments commencing one year after grant.
The Directors Plan is administered by the Board members who are not eligible to
participate in the plan.
All four plans require optionees to enter into a ten-year Voting Agreement
in favor of James F. Lynch at the time of exercise of the options and to comply
with a right of first refusal granted to the Company
47
<PAGE>
under the plans in connection with transfer of shares acquired upon exercise.
Under the Voting Agreement, each optionee (and his successors in interest)
agrees to vote all of the shares of Common Stock acquired upon his exercise of
options in the manner directed by Mr. Lynch. Mr. Lynch is required to release
shares covered by the Voting Agreement if a stockholder intends to sell such
shares in the public market, completes the sale within 90 days of the release
and, in the case of employees of the Company, the stockholder is not then
competing against the Company. The right of first refusal requires optionees,
before publicly or privately selling any shares underlying options, to provide
the Company with written notice of the sale and the right to elect to purchase
such shares within ten days at the market price or the privately negotiated
sales price, as the case may be. This right of first refusal terminates as to
shares sold into the public market.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of March 16, 1998 with
respect to the beneficial ownership of the Company's Common Stock (i) by each
person or group who, to the knowledge of the Company, was the beneficial owner
(as defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of
more than 5% of the 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. Unless otherwise noted, each person or group identified has
sole voting and investment power with respect to the shares shown.
<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)(3)(4)................................................................. 14,490,018 22.9%
Henk P. Kruithof........................................................................ 8,012,356 12.7%
Matthew H. Gates(4)(5).................................................................. 3,258,398 5.1%
The Capital Group Companies, Inc.(6).................................................... 3,250,000 5.1%
Michael P. May(4)(5).................................................................... 857,964 1.4%
Barry S. Major(4)....................................................................... 240,600 *
Phillip A. Clough(4).................................................................... 69,500 *
George J. Kubat(4)(7)................................................................... 47,500 *
Kelvin C. Berens(4)..................................................................... 24,100 *
Bill L. Fairfield(4).................................................................... 8,000 *
All executive officers and directors as a group (8 persons)(2)(3)(4)(5)................. 23,051,282 36.1%
</TABLE>
- ------------------------
* Less than 1%
(1) The addresses of Messrs. Lynch and Kruithof are c/o the Company. 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 The Capital Group Companies, Inc., an institutional holder, is 333 South
Hope Street, Los Angeles, California 90071.
(2) Includes 6,474,678 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.
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) Includes 280,750 shares held by two 501(c)(3) organizations established by
Mr. Lynch. Mr. Lynch has shared voting and/or investment power with respect
to these 280,750 shares but disclaims beneficial ownership thereof.
48
<PAGE>
(4) Includes the following shares which may be acquired under stock options
which are exercisable currently or within 60 days: Mr. Lynch--15,340; Mr.
Gates--627,000; Mr. May--159,208; Mr. Major-- 240,000; Mr. Clough--58,000;
Mr. Kubat--8,000; Mr. Berens--8,000; and Mr. Fairfield--8,000. Upon
exercise, voting control over such shares will be held by Mr. Lynch pursuant
to a Voting Agreement.
(5) 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.
(6) Based on data available in Schedule 13G filings for the year ended December
31, 1997. The Schedule 13G filing by The Capital Group Companies, Inc., and
its investment management subsidiary, Capital Research and Management
Company, disclaims beneficial ownership pursuant to Rule 13d-4.
(7) Includes 15,000 shares owned by a partnership for members of Mr. Kubat's
immediate family. Mr. Kubat shares investment power but disclaims beneficial
ownership.
DESCRIPTION OF CERTAIN INDEBTEDNESS
AMENDED CREDIT FACILITY
It was a condition of the closing of the Offering that the Company amend its
existing revolving credit facility (the "Amended Credit Facility"). The
following is a summary description of the principal terms of the Amended Credit
Facility and is subject to, and qualified in its entirety by reference to, the
definitive Amended Credit Facility, copies of which will be made available upon
request to the Company.
The Amended Credit Facility provides for, subject to certain terms and
conditions, a $75.0 million revolving credit facility with a final scheduled
maturity date of July 24, 2002. The Amended Credit Facility will under certain
circumstances, require the Company to make mandatory prepayments and commitment
reductions. Borrowings under the Amended Credit Facility will accrue interest,
at the option of the Company, at either the Agent's base rate or an Eurodollar
rate plus an applicable margin of up to 1.0%.
The Amended Credit Facility contains certain covenants that, among other
things, restricts the ability of the Company and its subsidiaries to dispose of
assets, incur additional indebtedness, incur guarantee obligations, repay
indebtedness or amend debt instruments, pay dividends, create liens on assets,
make investments, make acquisitions, engage in mergers or consolidations, make
capital expenditures or engage in certain transactions with subsidiaries and
affiliates and otherwise restrict corporate activities. The Amended Credit
Facility is secured by a pledge of all of the Capital Stock of the Company's
domestic subsidiaries, 65% of the Capital Stock of the Company's first tier
foreign subsidiaries, all intercompany notes and a percentage of all eligible
domestic accounts receivable. In addition, the Amended Credit Facility requires
the Company to comply with certain financial ratios and maintenance tests.
CERTAIN OTHER INDEBTEDNESS
A number of the Company's non-domestic subsidiaries have available various
revolving credit facilities. In addition, those subsidiaries and the Company
also have miscellaneous debt, including capitalized leases. As of December 31,
1997, the Company's non-domestic subsidiaries had unutilized lines of credit for
revolving credit facilities aggregating approximately $18.7 million. These
credit facilities are not secured by domestic assets of the Company. The
outstanding domestic capitalized leases and installment loans totalled $4.9
million and the outstanding non-domestic capitalized leases, installment loans
and credit facilities totalled $41.2 million as of December 31, 1997.
DESCRIPTION OF THE EXCHANGE NOTES
The Exchange Notes will be issued under an indenture (the "Indenture"),
dated March 10, 1998 by and among the Company, the Subsidiary Guarantors named
therein and The First National Bank of
49
<PAGE>
Maryland, as Trustee (the "Trustee"). The following summary of certain
provisions of the Indenture does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, the Trust Indenture Act of
1939, as amended (the "TIA"), and to all of the provisions of the Indenture,
including the definitions of certain terms therein and those terms made a part
of the Indenture by reference to the TIA as in effect on the date of the
Indenture. A copy of the Indenture may be obtained from the Company or the
Initial Purchasers. The definitions of certain capitalized terms used in the
following summary are set forth below under "Certain Definitions." For purposes
of this section, references to the "Company" include only the Company and not
its Subsidiaries.
The Exchange Notes will be general unsecured obligations of the Company,
ranking subordinate in right of payment to all Senior Debt of the Company. The
Exchange Notes will be unconditionally guaranteed on a senior subordinated basis
by the Subsidiary Guarantors.
The Exchange Notes will be issued in fully registered form only, without
coupons, in denominations of $1,000 and integral multiples thereof. Initially,
the Trustee will act as Paying Agent and Registrar for the Exchange Notes. The
Exchange Notes may be presented for registration or transfer and exchange at the
offices of the Registrar, which initially will be the Trustee's corporate trust
office. The Company may change any Paying Agent and Registrar without notice to
holders of the Exchange Notes (the "Holders"). The Company will pay principal
(and premium, if any) on the Exchange Notes at the Trustee's corporate office in
Baltimore, Maryland. At the Company's option, interest may be paid at the
Trustee's corporate trust office or by check mailed to the registered address of
Holders. Any Old Notes that remain outstanding after the completion of the
Exchange Offer, together with the Exchange Notes issued in connection with the
Exchange Offer, will be treated as a single class of securities under the
Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Exchange Notes are limited in aggregate principal amount to
$200,000,000, of which $100,000,000 will be issued in the Offering, and will
mature on March 15, 2006. Additional amounts may be issued in one or more series
from time to time, subject to the limitations set forth under
"--Covenants-Limitation on Indebtedness" and restrictions contained in the
Amended Credit Facility. Interest on the Exchange Notes will accrue at the rate
of 9 1/4% per annum and will be payable semiannually in cash on each March 15
and September 15, commencing on September 15, 1998, to the persons who are
registered Holders at the close of business on the March 1 and September 1
immediately preceding the applicable interest payment date.
Interest on the Exchange Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from and
including the date of issuance.
The Exchange Notes will not be entitled to the benefit of any mandatory
sinking fund.
REDEMPTION
OPTIONAL REDEMPTION. The Exchange Notes will be redeemable, at the
Company's option, in whole at any time or in part from time to time, on and
after March 15, 2002, upon not less than 30 nor more than 60 days' notice, at
the following redemption prices (expressed as percentages of the principal
amount thereof) if redeemed during the twelve-month period commencing on March
15 of the year set forth below, plus, in each case, accrued and unpaid interest
thereon, if any, to the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- -------------------------------------------------------------------------------------- -----------
<S> <C>
2002.................................................................................. 104.625%
2003.................................................................................. 103.083%
2004.................................................................................. 101.542%
2005 and thereafter................................................................... 100.000%
</TABLE>
50
<PAGE>
OPTIONAL REDEMPTION UPON PUBLIC EQUITY OFFERINGS. At any time, or from time
to time, on or prior to March 15, 2001, the Company may, at its option, use the
net cash proceeds of one or more Public Equity Offerings (as defined below) to
redeem up to 35% of the aggregate principal amount of Exchange Notes originally
issued at a redemption price equal to 109.250% of the principal amount thereof
plus accrued and unpaid interest thereon, if any, to the date of redemption;
PROVIDED that at least 65% of the principal amount of Exchange Notes originally
issued remains outstanding immediately after any such redemption. In order to
effect the foregoing redemption with the proceeds of any Public Equity Offering,
the Company shall make such redemption not more than 90 days after the receipt
of proceeds of any such Public Equity Offering.
As used in the preceding paragraph, "Public Equity Offering" means an
underwritten public offering of Qualified Capital Stock of the Company pursuant
to a registration statement filed with the Commission in accordance with the
Securities Act.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Exchange Notes are to be redeemed at
any time, selection of such Exchange Notes for redemption will be made by the
Trustee in compliance with the requirements of the principal national securities
exchange, if any, on which such Exchange Notes are listed or, if such Exchange
Notes are not then listed on a national securities exchange, on a PRO RATA
basis, by lot or by such method as the Trustee shall deem fair and appropriate;
PROVIDED, HOWEVER, that no Exchange Notes of a principal amount of $1,000 or
less shall be redeemed in part; PROVIDED, FURTHER, that if a partial redemption
is made with the proceeds of a Public Equity Offering, selection of the Exchange
Notes or portions thereof for redemption shall be made by the Trustee only on a
PRO RATA basis or on as nearly a PRO RATA basis as is practicable (subject to
DTC procedures), unless such method is otherwise prohibited. Notice of
redemption shall be mailed by first-class mail at least 30 but not more than 60
days before the redemption date to each Holder of Exchange Notes to be redeemed
at its registered address. If any Note is to be redeemed in part only, the
notice of redemption that relates to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in a principal amount equal
to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Note. On and after the redemption
date, interest will cease to accrue on Exchange Notes or portions thereof called
for redemption as long as the Company has deposited with the Paying Agent funds
in satisfaction of the applicable redemption price pursuant to the Indenture.
51
<PAGE>
SUBORDINATION
The payment of all Obligations on the Exchange Notes is subordinated in
right of payment to the prior payment in full in cash or Cash Equivalents of all
Obligations on Senior Debt whether outstanding on the Issue Date or thereafter
incurred, including without limitation the Company's Obligations under the
Amended Credit Facility. Upon any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
creditors upon any total or partial liquidation, dissolution, winding up,
reorganization, assignment for the benefit of creditors or marshaling of assets
of the Company or in a bankruptcy, reorganization, insolvency, receivership or
other similar proceeding relating to the Company or its property, whether
voluntary or involuntary, all Obligations due or to become due upon all Senior
Debt shall first be paid in full in cash or Cash Equivalents, or such payment
duly provided for to the satisfaction of the holders of such Senior Debt, before
any payment or distribution of any kind or character is made on account of any
Obligations on the Exchange Notes, or for the acquisition of any of the Exchange
Notes for cash or property or otherwise. If any default occurs and is continuing
in the payment when due, whether at stated maturity, upon any redemption, by
declaration or otherwise, of any principal of, interest on, unpaid drawings for
letters of credit issued in respect of, or regularly accruing fees with respect
to, any Senior Debt, no payment of any kind or character shall be made by or on
behalf of the Company or any other Person on its or their behalf with respect to
any Obligations on the Exchange Notes or to acquire any of the Notes for cash or
property or otherwise.
In addition, if any other event of default occurs and is continuing with
respect to any Designated Senior Debt, as such event of default is defined in
the instrument creating or evidencing such Designated Senior Debt, permitting
the holders of such Designated Senior Debt then outstanding to accelerate the
maturity thereof and if the Representative for the respective issue of
Designated Senior Debt gives written notice of the event of default to the
Trustee (a "Default Notice"), then, unless and until all events of default have
been cured or waived or have ceased to exist or the Trustee receives notice from
the Representative for the respective issue of Designated Senior Debt
terminating the Blockage Period (as defined below), during the 180 days after
the delivery of such Default Notice (the "Blockage Period"), neither the Company
nor any other Person on its behalf shall (x) make any payment of any kind or
character with respect to any Obligations on the Exchange Notes or (y) acquire
any of the Exchange Notes for cash or property or otherwise. Notwithstanding
anything herein to the contrary, in no event will a Blockage Period extend
beyond 180 days from the date the payment on the Exchange Notes was due and only
one such Blockage Period may be commenced within any 360 consecutive days. No
event of default which existed or was continuing on the date of the commencement
of any Blockage Period with respect to the Designated Senior Debt shall be, or
be made, the basis for commencement of a second Blockage Period by the
Representative of such Designated Senior Debt whether or not within a period of
360 consecutive days, unless such event of default shall have been cured or
waived for a period of not less than 90 consecutive days (it being acknowledged
that any subsequent action, or any breach of any financial covenants for a
period commencing after the date of commencement of such Blockage Period that,
in either case, would give rise to an event of default pursuant to any
provisions under which an event of default previously existed or was continuing
shall constitute a new event of default for this purpose).
By reason of such subordination, in the event of the insolvency of the
Company, creditors of the Company who are not holders of Senior Debt, including
the Holders of the Exchange Notes, may recover less, ratably, than holders of
Senior Debt.
On a pro forma basis, after giving effect to the Offering, the application
of a portion of the proceeds therefrom and the Amended Credit Facility, the
aggregate amount of Senior Debt would have been approximately $49.4 million as
of December 31, 1997.
GUARANTEES
Each Subsidiary Guarantor unconditionally guarantees, on a senior
subordinated basis, jointly and severally, to each Holder and the Trustee, the
full and prompt performance of the Company's obligations
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under the Indenture and the Exchange Notes, including the payment of principal
of and interest on the Exchange Notes. The Guarantees will be subordinated to
Guarantor Senior Debt on the same basis as the Exchange Notes are subordinated
to Senior Debt. The obligations of each Subsidiary Guarantor are limited to the
maximum amount which, after giving effect to all other contingent and fixed
liabilities of such Subsidiary Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
its Guarantee or pursuant to its contribution obligations under the Indenture,
will result in the obligations of such Subsidiary Guarantor under the Guarantee
not constituting a fraudulent conveyance or fraudulent transfer under federal or
state law. Each Subsidiary Guarantor that makes a payment or distribution of
more than its proportionate share under a Guarantee shall be entitled to a
contribution from each other Subsidiary Guarantor in an amount PRO RATA, based
on the net assets of each Subsidiary Guarantor, determined in accordance with
GAAP.
Each Subsidiary Guarantor may consolidate with or merge into or sell its
assets to the Company or another Subsidiary Guarantor that is a Wholly Owned
Restricted Subsidiary of the Company without limitation, or with other Persons
upon the terms and conditions set forth in the Indenture. See "Certain
Covenants." In the event all of the Capital Stock of a Subsidiary Guarantor is
sold by the Company and the Company complies with the provisions set forth in
"Certain Covenants-Limitation on Asset Sales," the Subsidiary Guarantor's
Guarantee will be released.
Separate financial statements of the Subsidiary Guarantors are not included
herein because such Subsidiary Guarantors are jointly and severally liable with
respect to the Company's obligations pursuant to the Notes, and the aggregate
net assets, earnings and equity of the Subsidiary Guarantors and the Company are
substantially equivalent to the net assets, earnings and equity of the Company
on a consolidated basis.
CHANGE OF CONTROL
The Indenture will provide that upon the occurrence of a Change of Control,
each Holder will have the right to require that the Company purchase all or a
portion of such Holder's Exchange Notes pursuant to the offer described below
(the "Change of Control Offer"), at a purchase price equal to 101% of the
principal amount thereof plus accrued interest to the date of purchase. Neither
the Board of Directors of the Company nor the Trustee may waive the covenant
relating to a Holder's right to repurchase upon a Change of Control.
The Indenture will provide that, prior to the mailing of the notice referred
to below, but in any event within 30 days following any Change of Control, the
Company covenants to (i) repay in full and terminate all commitments under the
Amended Credit Facility and all other Senior Debt the terms of which require
repayment upon a Change of Control or offer to repay in full and terminate all
commitments under the Amended Credit Facility and all other such Senior Debt and
to repay the Indebtedness owed to each lender which has accepted such offer or
(ii) obtain the requisite consents under the Amended Credit Facility and all
other Senior Debt to permit the repurchase of the Exchange Notes as provided
below. The Company shall first comply with the covenant in the immediately
preceding sentence before it shall be required to repurchase Exchange Notes
pursuant to the provisions described below. The Company's failure to comply with
the covenant described in the immediately preceding sentence shall constitute an
Event of Default described in clause (iii) and not in clause (ii) under
"--Events of Default" below.
Within 30 days following the date upon which the Change of Control occurred,
the Company is required to send, by first class mail, a notice to each Holder,
with a copy to the Trustee, which notice shall govern the terms of the Change of
Control Offer. Such notice shall state, among other things, the purchase date,
which must be no earlier than 30 days nor later than 45 days from the date such
notice is mailed, other than as may be required by law (the "Change of Control
Payment Date"). Holders electing to have a Note purchased pursuant to a Change
of Control Offer will be required to surrender the Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Note completed, to
the Paying
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Agent at the address specified in the notice prior to the close of business on
the third business day prior to the Change of Control Payment Date.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
purchase price for all the Exchange Notes that might be delivered by Holders
seeking to accept the Change of Control Offer. In the event the Company is
required to purchase outstanding Exchange Notes pursuant to a Change of Control
Offer, the Company expects that it would seek third party financing to the
extent it does not have available funds to meet its purchase obligations.
However, there can be no assurance that the Company would be able to obtain such
financing.
Restrictions in the Indenture described herein on the ability of the Company
and its Restricted Subsidiaries to incur additional Indebtedness, to grant Liens
on their properties, to make Restricted Payments and to make Asset Sales may
also make more difficult or discourage a takeover of the Company, whether
favored or opposed by the Board of Directors of the Company. Consummation of any
such transaction in certain circumstances may require redemption or repurchase
of the Exchange Notes, and there can be no assurance that the Company or the
acquiring party will have sufficient financial resources to effect such
redemption or repurchase. Such restrictions and the restrictions on transactions
with Affiliates may, in certain circumstances, make more difficult or discourage
any leveraged buyout of the Company or any of its Restricted Subsidiaries by the
management of the Company. While such restrictions cover a wide variety of
arrangements which have traditionally been used to effect highly leveraged
transactions, the Indenture may not afford the Holders of Exchange Notes
protection in all circumstances from the adverse aspects of a highly leveraged
transaction, reorganization, restructuring, merger or similar transaction.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Exchange Notes pursuant to a Change of Control Offer. To the
extent that the provisions of any securities laws or regulations conflict with
the "Change of Control" provisions of the Indenture, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
The Amended Credit Facility prohibits the Company from purchasing any
Exchange Notes upon a Change of Control prior to repayment in full of all
obligations thereunder and the termination of all commitments to loan thereunder
and also provides that certain change of control events with respect to the
Company would constitute a default thereunder. Any future credit agreements or
other agreements relating to Senior Debt to which the Company becomes a party
may contain similar restrictions and provisions. In the event a Change of
Control occurs at a time when the Company is prohibited from purchasing Exchange
Notes, the Company could seek the consent of its lenders with respect to Senior
Debt for the purchase of Exchange Notes or could attempt to refinance the
borrowings that contain such prohibition. If the Company does not obtain such
consents or repay such borrowings, the Company will remain prohibited from
purchasing Exchange Notes. In such case, the Company's failure to purchase
tendered Exchange Notes would constitute an Event of Default under the
Indenture, which would, in turn, constitute a default under the Amended Credit
Facility. In such circumstances, the subordination provisions in the Indenture
would likely restrict payments to the Holders of Exchange Notes.
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CERTAIN COVENANTS
The Indenture will contain, among others, the following covenants:
LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS. The Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible for
payment of (collectively, "incur") any Indebtedness (other than Permitted
Indebtedness); PROVIDED, HOWEVER, that if no Default or Event of Default shall
have occurred and be continuing at the time of or as a consequence of the
incurrence of any such Indebtedness, the Company and its Restricted Subsidiaries
may incur Indebtedness (including, without limitation, Acquired Indebtedness),
in each case if on the date of the incurrence of such Indebtedness, after giving
effect to the incurrence thereof and the application of the proceeds therefrom,
the Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.0
to 1.0 if such incurrence is on or prior to March 15, 2000 or greater than 2.25
to 1.0 if such incurrence occurs thereafter.
LIMITATION ON RESTRICTED PAYMENTS. The Company will not, and will not cause
or permit any of its Restricted Subsidiaries to, directly or indirectly, (a) on
or in respect of shares of the Company's Capital Stock to holders of such
Capital Stock, declare or pay any dividend or make any distribution (other than
dividends or distributions payable in Qualified Capital Stock of the Company),
(b) purchase, redeem or otherwise acquire or retire for value any Capital Stock
of the Company or any warrants, rights or options to purchase or acquire shares
of any class of such Capital Stock (other than the exchange of such Capital
Stock or warrants, rights or options to purchase or acquire shares of any class
of Capital Stock of the Company for Qualified Capital Stock of the Company), (c)
make any principal payment on, purchase, defease, redeem, prepay, decrease or
otherwise acquire or retire for value, prior to any scheduled final maturity,
scheduled repayment or scheduled sinking fund payment, any Indebtedness of the
Company that is subordinate or junior in right of payment to the Notes or (d)
make any Investment (other than Permitted Investments) (each of the foregoing
actions set forth in clauses (a), (b), (c) and (d) being referred to as a
"Restricted Payment"), if at the time of such Restricted Payment or immediately
after giving effect thereto, (i) a Default or an Event of Default shall have
occurred and be continuing or (ii) the Company is not able to incur at least
$1.00 of additional Indebtedness (other than Permitted Indebtedness) in
compliance with the "Limitation on Incurrence of Additional Indebtedness"
covenant or (iii) the aggregate amount of Restricted Payments (including such
proposed Restricted Payment) made subsequent to the Issue Date (the amount
expended for such purposes, if other than in cash, being the fair market value
of such property as determined reasonably and in good faith by the Board of
Directors of the Company) shall exceed the sum of: (v) 50% of the cumulative
Consolidated Net Income (or if cumulative Consolidated Net Income shall be a
loss, minus 100% of such loss) of the Company earned subsequent to the Issue
Date and on or prior to the date the Restricted Payment occurs (the "Reference
Date") (treating such period as a single accounting period); plus (w) 100% of
the aggregate net cash proceeds received by the Company from any Person (other
than a Subsidiary of the Company) from the issuance and sale subsequent to the
Issue Date and on or prior to the Reference Date of Qualified Capital Stock of
the Company; plus (x) without duplication of any amounts included in clause
(iii) (w) above, 100% of the aggregate net cash proceeds of any equity
contribution received by the Company from a holder of the Company's Capital
Stock (excluding, in the case of clauses (iii) (w) and (x), any net cash
proceeds from a Public Equity Offering to the extent used to redeem the Notes);
plus (y) an amount equal to the net reduction in Investments in Unrestricted
Subsidiaries resulting from dividends, interest payments, repayments of loans or
advances, or other transfers of cash, in each case, to the Company or to any
Wholly Owned Restricted Subsidiary of the Company from Unrestricted Subsidiaries
(but without duplication of any such amount included in Consolidated Net Income
of the Company), or from redesignations of Unrestricted Subsidiaries as
Restricted Subsidiaries (in each case valued as provided in the definition of
"Investment"), not to exceed, in the case of an Unrestricted Subsidiary, the
amount of Investments previously made by the Company or
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any Restricted Subsidiary of the Company in such Unrestricted Subsidiary and
which were treated as a Restricted Payment under the Indenture; plus (z) $10.0
million.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit: (1) the payment of any dividend or the
consummation of any irrevocable redemption within 60 days after the date of
declaration of such dividend or the giving of such irrevocable redemption notice
if the dividend or redemption would have been permitted on the date of
declaration or the giving of such irrevocable redemption notice; (2) if no
Default or Event of Default shall have occurred and be continuing, the
acquisition of any shares of Capital Stock of the Company, either (i) solely in
exchange for shares of Qualified Capital Stock of the Company or (ii) through
the application of net proceeds of a substantially concurrent sale for cash
(other than to a Subsidiary of the Company) of shares of Qualified Capital Stock
of the Company; (3) if no Default or Event of Default shall have occurred and be
continuing, the acquisition of any Indebtedness of the Company that is
subordinate or junior in right of payment to the Notes either (i) solely in
exchange for shares of Qualified Capital Stock of the Company, or (ii) through
the application of net proceeds of a substantially concurrent sale for cash
(other than to a Subsidiary of the Company) of (A) shares of Qualified Capital
Stock of the Company or (B) Refinancing Indebtedness; and (4) if no Default or
Event of Default shall have occurred and be continuing, repurchases by the
Company of Common Stock of the Company from officers, directors and employees of
the Company or any of its Subsidiaries or their authorized representatives upon
the death, disability or termination of employment of such officers, directors
and employees, in an aggregate amount not to exceed $300,000 in any calendar
year plus the aggregate cash proceeds from any reissuance during such calendar
year of Common Stock by the Company to employees, officers or directors of the
Company and its Subsidiaries plus the aggregate cash proceeds from any payments
on life insurance policies with respect to any employees, officers or directors
of the Company and its Subsidiaries which proceeds are used to purchase the
Common Stock of the Company held by any such employees, officers or directors.
In determining the aggregate amount of Restricted Payments made subsequent to
the Issue Date in accordance with clause (iii) of the immediately preceding
paragraph, amounts expended pursuant to clauses (1), (2) (ii) and (4) shall be
included in such calculation.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an officers' certificate stating that such Restricted
Payment complies with the Indenture and setting forth in reasonable detail the
basis upon which the required calculations were computed, which calculations may
be based upon the Company's latest available internal quarterly financial
statements.
LIMITATION ON ASSET SALES. The Company will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company
or the applicable Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets sold or otherwise disposed of (as determined in good faith
by the Company's Board of Directors), (ii) at least 85% of the consideration
(other than indebtedness assumed by the purchaser in connection with such Asset
Sale and as to which there is no further recourse against the Company or the
Restricted Subsidiaries) received by the Company or the Restricted Subsidiary,
as the case may be, from such Asset Sale shall be in the form of cash or Cash
Equivalents and is received at the time of such disposition; and (iii) upon the
consummation of an Asset Sale, the Company shall apply, or cause such Restricted
Subsidiary to apply, the Net Cash Proceeds relating to such Asset Sale within
270 days of receipt thereof either (A) to prepay any Senior Debt or Guarantor
Senior Debt and, in the case of any Senior Debt or Guarantor Senior Debt under
any revolving credit facility, effect a permanent reduction in the availability
under such revolving credit facility, (B) to make an investment in properties
and assets that replace the properties and assets that were the subject of such
Asset Sale or in properties and assets that will be used in the business of the
Company and its Subsidiaries as existing on the Issue Date or any reasonable
extensions or expansions thereof or any business ancillary thereto or supportive
thereof (including investments in 100% of the equity interest in a Person that
owns such properties and assets) ("Replacement Assets"), or (C) a combination of
prepayment and investment permitted by the foregoing clauses (iii) (A) and (iii)
(B). Pending final application, the Company or the applicable Restricted
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Subsidiary may temporarily reduce Indebtedness under any revolving credit
facility or invest in cash or Cash Equivalents. On the 271st day after an Asset
Sale or such earlier date, if any, as the Board of Directors of the Company or
of such Restricted Subsidiary determines not to apply the Net Cash Proceeds
relating to such Asset Sale as set forth in clauses (iii) (A), (iii) (B) and
(iii) (C) of the next preceding sentence (each, a "Net Proceeds Offer Trigger
Date"), such aggregate amount of Net Cash Proceeds which have not been applied
on or before such Net Proceeds Offer Trigger Date as permitted in clauses (iii)
(A), (iii) (B) and (iii) (C) of the next preceding sentence (each a "Net
Proceeds Offer Amount") shall be applied by the Company or such Restricted
Subsidiary to make an offer to purchase (the "Net Proceeds Offer") on a date
(the "Net Proceeds Offer Payment Date") not less than 30 nor more than 45 days
following the applicable Net Proceeds Offer Trigger Date, from all Holders on a
PRO RATA basis, that amount of Notes equal to the Net Proceeds Offer Amount at a
price equal to 100% of the principal amount of the Notes to be purchased, plus
accrued and unpaid interest thereon, if any, to the date of purchase; PROVIDED,
HOWEVER, that if at any time any non-cash consideration received by the Company
or any Restricted Subsidiary of the Company, as the case may be, in connection
with any Asset Sale is converted into or sold or otherwise disposed of for cash
(other than interest received with respect to any such non-cash consideration),
then such conversion or disposition shall be deemed to constitute an Asset Sale
hereunder and the Net Cash Proceeds thereof shall be applied in accordance with
this covenant. The Company may defer the Net Proceeds Offer until there is an
aggregate unutilized Net Proceeds Offer Amount equal to or in excess of
$5,000,000 resulting from one or more Asset Sales (at which time, the entire
unutilized Net Proceeds Offer Amount, and not just the amount in excess of
$5,000,000, shall be applied as required pursuant to this paragraph).
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under "--Merger, Consolidation
and Sale of Assets," the successor corporation shall be deemed to have sold the
properties and assets of the Company and its Restricted Subsidiaries not so
transferred for purposes of this covenant, and shall comply with the provisions
of this covenant with respect to such deemed sale as if it were an Asset Sale.
In addition, the fair market value of such properties and assets of the Company
or its Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash
Proceeds for purposes of this covenant.
Notwithstanding the two immediately preceding paragraphs, the Company and
its Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent (i) at least 85% of the
consideration for such Asset Sale constitutes Replacement Assets and (ii) such
Asset Sale is for fair market value; PROVIDED that any consideration not
constituting Replacement Assets received by the Company or any of its Restricted
Subsidiaries in connection with any Asset Sale permitted to be consummated under
this paragraph shall constitute Net Cash Proceeds subject to the provisions of
the two preceding paragraphs.
Each Net Proceeds Offer will be mailed to the record Holders as shown on the
register of Holders within 25 days following the Net Proceeds Offer Trigger
Date, with a copy to the Trustee, and shall comply with the procedures set forth
in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may
elect to tender their Exchange Notes in whole or in part in integral multiples
of $1,000 in exchange for cash. To the extent Holders properly tender Exchange
Notes in an amount exceeding the Net Proceeds Offer Amount, Exchange Notes of
tendering Holders will be purchased on a PRO RATA basis (based on amounts
tendered). A Net Proceeds Offer shall remain open for a period of 20 business
days or such longer period as may be required by law. To the extent the
aggregate amount of the Exchange Notes tendered pursuant to the Net Proceeds
Offer is less than the Net Proceeds Offer Amount, the Company may use such
deficiency for general corporate purposes. Upon completion of such offer to
purchase, the Net Proceeds Offer Amount shall be reset at zero.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in
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connection with the repurchase of Exchange Notes pursuant to a Net Proceeds
Offer. To the extent that the provisions of any securities laws or regulations
conflict with the "Asset Sale" provisions of the Indenture, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under the "Asset Sale" provisions of the
Indenture by virtue thereof. The agreements governing certain outstanding Senior
Debt of the Company or Guarantor Senior Debt of a Subsidiary Guarantor will
require that the Company and its Subsidiaries apply all proceeds from asset
sales to repay in full outstanding obligations under such Senior Debt or
Guarantor Senior Debt prior to the application of such proceeds to repurchase
outstanding Notes.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING THE COMPANY
AND RESTRICTED SUBSIDIARIES. The Company will not, and will not cause or permit
any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or permit to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary of the Company to (a)
pay dividends or make any other distributions on or in respect of its Capital
Stock; (b) make loans or advances or to pay any Indebtedness or other obligation
owed to the Company or any other Restricted Subsidiary of the Company; or (c)
transfer any of its property or assets to the Company or any other Restricted
Subsidiary of the Company, except for such encumbrances or restrictions existing
under or by reason of: (1) applicable law; (2) the Indenture; (3) customary
nonassignment provisions of any contract or any lease governing a leasehold
interest of the Company or any Restricted Subsidiary of the Company; (4) any
instrument governing Acquired Indebtedness, which encumbrance or restriction is
not applicable to any Person, or the properties or assets of any Person, other
than the Person or the properties or assets of the Person so acquired; (5) the
Amended Credit Facility; (6) agreements existing on the Issue Date to the extent
and in the manner such agreements are in effect on the Issue Date; (7)
restrictions on the transfer of assets subject to any Lien permitted under the
Indenture imposed by the holder of such Lien; (8) restrictions imposed by any
agreement to sell assets permitted under the Indenture to any Person pending the
closing of such sale; (9) any agreement or instrument governing Capital Stock of
any Person that is acquired; or (10) an agreement governing Indebtedness
incurred to Refinance the Indebtedness issued, assumed or incurred pursuant to
an agreement referred to in clause (2), (4), (5) or (6) above; provided,
however, that the provisions relating to such encumbrance or restriction
contained in any such Indebtedness are no less favorable to the Company in any
material respect as determined by the Board of Directors of the Company in their
reasonable and good faith judgment than the provisions relating to such
encumbrance or restriction contained in the agreement referred to in such clause
(2), (4), (5) or (6), respectively.
LIMITATION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES. The Company will
not permit any of its Restricted Subsidiaries to issue any Preferred Stock
(other than to the Company or to a Wholly Owned Restricted Subsidiary of the
Company) or permit any Person (other than the Company or a Wholly Owned
Restricted Subsidiary of the Company) to own any Preferred Stock of any
Restricted Subsidiary of the Company.
LIMITATION ON LIENS. The Company will not, and will not cause or permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or permit or suffer to exist any Liens of any kind against or upon any property
or assets of the Company or any of its Restricted Subsidiaries whether owned on
the Issue Date or acquired after the Issue Date, or any proceeds therefrom, or
assign or otherwise convey any right to receive income or profits therefrom
unless (i) in the case of Liens securing Indebtedness that is expressly
subordinate or junior in right of payment to the Exchange Notes or any
Guarantee, the Exchange Notes and such Guarantee are secured by a Lien on such
property, assets or proceeds that is senior in priority to such Liens and (ii)
in all other cases, the Exchange Notes are equally and ratably secured, except
for (A) Liens existing as of the Issue Date to the extent and in the manner such
Liens are in effect on the Issue Date; (B) Liens securing Senior Debt and Liens
securing Guarantor Senior Debt; (C) Liens securing the Exchange Notes and the
Guarantees; (D) Liens of the Company or a Wholly Owned Restricted Subsidiary of
the Company on assets of any Subsidiary of the Company; (E) Liens securing
Refinancing Indebtedness which is incurred to Refinance any Indebtedness which
has been
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secured by a Lien permitted under the Indenture and which has been incurred in
accordance with the provisions of the Indenture; PROVIDED, HOWEVER, that such
Liens (A) are no less favorable to the Holders and are not more favorable to the
lienholders with respect to such Liens than the Liens in respect of the
Indebtedness being Refinanced and (B) do not extend to or cover any property or
assets of the Company or any of its Restricted Subsidiaries not securing the
Indebtedness so Refinanced; and (F) Permitted Liens.
PROHIBITION ON INCURRENCE OF SENIOR SUBORDINATED INDEBTEDNESS. The Company
will not, and will not permit any Subsidiary Guarantor to, incur or suffer to
exist Indebtedness that is expressly by its terms senior in right of payment to
the Exchange Notes or such Subsidiary Guarantor's Guarantee and subordinate in
right of payment to any other Indebtedness of the Company or such Subsidiary
Guarantor, as the case may be.
MERGER, CONSOLIDATION AND SALE OF ASSETS. The Company will not, in a single
transaction or series of related transactions, consolidate or merge with or into
any Person, or sell, assign, transfer, lease, convey or otherwise dispose of (or
cause or permit any Restricted Subsidiary of the Company to sell, assign,
transfer, lease, convey or otherwise dispose of) all or substantially all of the
Company's assets (determined on a consolidated basis for the Company and the
Company's Restricted Subsidiaries) whether as an entirety or substantially as an
entirety to any Person unless: (i) either (1) the Company shall be the surviving
or continuing corporation or (2) the Person (if other than the Company) formed
by such consolidation or into which the Company is merged or the Person which
acquires by sale, assignment, transfer, lease, conveyance or other disposition
the properties and assets of the Company and of the Company's Restricted
Subsidiaries substantially as an entirety (the "Surviving Entity") (x) shall be
a corporation organized and validly existing under the laws of the United States
or any State thereof or the District of Columbia and (y) shall expressly assume,
by supplemental indenture (in form and substance satisfactory to the Trustee),
executed and delivered to the Trustee, the due and punctual payment of the
principal of, and premium, if any, and interest on all of the Exchange Notes and
the performance of every covenant of the Exchange Notes, the Indenture and the
Registration Rights Agreement on the part of the Company to be performed or
observed; (ii) immediately after giving effect to such transaction and the
assumption contemplated by clause (i) (2) (y) above (including giving effect to
any Indebtedness and Acquired Indebtedness incurred or anticipated to be
incurred in connection with or in respect of such transaction), the Company or
such Surviving Entity, as the case may be, (1) shall have a Consolidated Net
Worth equal to or greater than the Consolidated Net Worth of the Company
immediately prior to such transaction and (2) shall be able to incur at least
$1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to
the "-- Limitation on Incurrence of Additional Indebtedness" covenant; (iii)
immediately before and immediately after giving effect to such transaction and
the assumption contemplated by clause (i) (2) (y) above (including, without
limitation, giving effect to any Indebtedness and Acquired Indebtedness incurred
or anticipated to be incurred and any Lien granted in connection with or in
respect of the transaction), no Default or Event of Default shall have occurred
or be continuing; and (iv) the Company or the Surviving Entity shall have
delivered to the Trustee an officers' certificate and an opinion of counsel,
each stating that such consolidation, merger, sale, assignment, transfer, lease,
conveyance or other disposition and, if a supplemental indenture is required in
connection with such transaction, such supplemental indenture comply with the
applicable provisions of the Indenture and that all conditions precedent in the
Indenture relating to such transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
The Indenture will provide that upon any consolidation, combination or
merger or any transfer of all or substantially all of the assets of the Company
in accordance with the foregoing, in which the Company is not the continuing
corporation, the successor Person formed by such consolidation or into which the
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Company is merged or to which such conveyance, lease or transfer is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture and the Exchange Notes with the same effect as
if such surviving entity had been named as such.
Each Subsidiary Guarantor (other than any Subsidiary Guarantor whose
Guarantee is to be released in accordance with the terms of the Guarantee and
the Indenture in connection with any transaction complying with the provisions
of "--Limitation on Asset Sales") will not, and the Company will not cause or
permit any Subsidiary Guarantor to, consolidate with or merge with or into any
Person other than the Company or any other Subsidiary Guarantor unless: (i) the
entity formed by or surviving any such consolidation or merger (if other than
the Subsidiary Guarantor) or to which such sale, lease, conveyance or other
disposition shall have been made is a corporation organized and existing under
the laws of the United States or any State thereof or the District of Columbia;
(ii) such entity assumes by supplemental indenture all of the obligations of the
Subsidiary Guarantor on the Guarantee; (iii) immediately after giving effect to
such transaction, no Default or Event of Default shall have occurred and be
continuing; and (iv) immediately after giving effect to such transaction and the
use of any net proceeds therefrom on a PRO FORMA basis, the Company could
satisfy the provisions of clause (ii) of the first paragraph of this covenant.
Any merger or consolidation of a Subsidiary Guarantor with and into the Company
(with the Company being the surviving entity) or another Subsidiary Guarantor
that is a Wholly Owned Restricted Subsidiary of the Company need only comply
with clause (iv) of the first paragraph of this covenant.
LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. (a) The Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
enter into or permit to exist any transaction or series of related transactions
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with, or for the benefit of, any of
its Affiliates (each an "Affiliate Transaction"), other than (x) Affiliate
Transactions permitted under paragraph (b) below and (y) Affiliate Transactions
on terms that are no less favorable than those that might reasonably have been
obtained in a comparable transaction at such time on an arm's-length basis from
a Person that is not an Affiliate of the Company or such Restricted Subsidiary.
All Affiliate Transactions (and each series of related Affiliate Transactions
which are similar or part of a common plan) involving aggregate payments or
other property with a fair market value in excess of $1,000,000 shall be
approved by the Board of Directors of the Company or such Restricted Subsidiary,
as the case may be, such approval to be evidenced by a Board Resolution stating
that such Board of Directors has determined that such transaction complies with
the foregoing provisions. If the Company or any Restricted Subsidiary of the
Company enters into an Affiliate Transaction (or a series of related Affiliate
Transactions related to a common plan) that involves an aggregate fair market
value of more than $5,000,000, the Company or such Restricted Subsidiary, as the
case may be, shall, prior to the consummation thereof, obtain a favorable
opinion as to the fairness of such transaction or series of related transactions
to the Company or the relevant Restricted Subsidiary, as the case may be, from a
financial point of view, from an Independent Financial Advisor and file the same
with the Trustee.
(b) The restrictions set forth in clause (a) above shall not apply to (i)
reasonable fees and compensation paid to and indemnity provided on behalf of,
officers, directors, employees or consultants of the Company or any Restricted
Subsidiary of the Company as determined in good faith by the Company's Board of
Directors or senior management; (ii) transactions exclusively between or among
the Company and any of its Restricted Subsidiaries or exclusively between or
among such Restricted Subsidiaries, provided such transactions are not otherwise
prohibited by the Indenture; (iii) transactions exclusively between or among the
Company and any of its Restricted Subsidiaries on the one hand and any Permitted
Joint Venture on the other hand, so long as no portion of the remaining interest
in the Permitted Joint Venture is owned by a Person who is an Affiliate of the
Company (other than another Restricted Subsidiary of the Company); (iv) any
agreement as in effect as of the Issue Date or any amendment thereto or any
transaction contemplated thereby (including pursuant to any amendment thereto)
in any replacement agreement thereto so long as any such amendment or
replacement agreement is not more disadvantageous to the Holders in any material
respect than the original agreement as in effect on the
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Issue Date; (v) advances or loans to employees, officers and directors of the
Company and its Restricted Subsidiaries permitted by clauses (iv) and (v) of the
definition of Permitted Investments; and (vi) Restricted Payments permitted by
the Indenture.
ADDITIONAL SUBSIDIARY GUARANTEES. If the Company or any of its Subsidiary
Guarantors transfers or causes to be transferred, in one transaction or a series
of related transactions, any property in a transaction or a series of
transactions which has a value in excess of $250,000 to any Restricted
Subsidiary that is not a Subsidiary Guarantor, or if the Company or any of its
Restricted Subsidiaries shall organize, acquire or otherwise invest in another
Wholly Owned Restricted Subsidiary organized under the laws of the United States
or any State thereof or in the District of Columbia and having total assets with
a book value in excess of $500,000, then such transferee or acquired or other
Restricted Subsidiary shall (i) execute and deliver to the Trustee a
supplemental indenture in form reasonably satisfactory to the Trustee pursuant
to which such Restricted Subsidiary shall unconditionally guarantee all of the
Company's obligations under the Exchange Notes and the Indenture on the terms
set forth in the Indenture and (ii) deliver to the Trustee an opinion of counsel
that such supplemental indenture has been duly authorized, executed and
delivered by such Restricted Subsidiary and constitutes a legal, valid, binding
and enforceable obligation of such Restricted Subsidiary; PROVIDED, HOWEVER,
that any Restricted Subsidiary acquired on or after the Issue Date which is
prohibited from entering into a guarantee pursuant to restrictions contained in
any debt instrument or other agreement in existence at the time such Restricted
Subsidiary was so acquired which was not entered into in anticipation or
contemplation of such acquisition shall not be required to become a Subsidiary
Guarantor so long as any such restriction is in existence and to the extent of
such restriction. Thereafter, such Restricted Subsidiary shall be a Subsidiary
Guarantor for all purposes of the Indenture.
CONDUCT OF BUSINESS. The Company and its Restricted Subsidiaries will not
engage in any businesses which are not the same, similar, reasonably related or
necessary to the businesses in which the Company and its Restricted Subsidiaries
are engaged on the Issue Date or any reasonable extensions or expansions thereof
or any business ancillary thereto or supportive thereof.
REPORTS TO HOLDERS. The Indenture will provide that the Company will
deliver to the Trustee within 15 days after the filing of the same with the
Commission, copies of the quarterly and annual reports and of the information,
documents and other reports, if any, which the Company is required to file with
the Commission pursuant to Section 13 or 15(d) of the Exchange Act. The
Indenture further provides that, notwithstanding that the Company may not be
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company will file with the Commission, to the extent permitted, and
provide the Trustee and Holders with such annual reports and such information,
documents and other reports specified in Sections 13 and 15(d) of the Exchange
Act. The Company will also comply with the other provisions of TIA
Section314(a).
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest on any Exchange Notes when the same
becomes due and payable and the default continues for a period of 30 days
(whether or not such payment shall be prohibited by the subordination
provisions of the Indenture);
(ii) the failure to pay the principal on any Exchange Notes, when such
principal becomes due and payable, at maturity, upon redemption or otherwise
(including the failure to make a payment to purchase Exchange Notes tendered
pursuant to a Change of Control Offer or a Net Proceeds Offer) (whether or
not such payment shall be prohibited by the subordination provisions of the
Indenture);
(iii) a default in the observance or performance of any other covenant or
agreement contained in the Indenture which default continues for a period of
30 days after the Company receives written notice specifying the default
(and demanding that such default be remedied) from the Trustee or the
Holders of at least 25% of the outstanding principal amount of the Notes
(except in the case of a
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default with respect to the "Merger, Consolidation and Sale of Assets"
covenant, which will constitute an Event of Default with such notice
requirement but without such passage of time requirement);
(iv) the failure to pay at final maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal amount of
any Indebtedness of the Company or any Restricted Subsidiary of the Company
and such failure continues for a period of 20 days or more, or the
acceleration of the final stated maturity of any such Indebtedness (which
acceleration is not rescinded, annulled or otherwise cured within 20 days of
receipt by the Company or such Restricted Subsidiary of notice of any such
acceleration) if the aggregate principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness in default
for failure to pay principal at final maturity or which has been
accelerated, aggregates $5,000,000 or more at any time;
(v) one or more judgments in an aggregate amount in excess of $5,000,000
(to the extent not covered by third-party insurance as to which the
insurance company has acknowledged coverage) shall have been rendered
against the Company or any of its Significant Subsidiaries and such
judgments remain undischarged, unpaid or unstayed for a period of 60 days
after such judgment or judgments become final and non-appealable;
(vi) certain events of bankruptcy affecting the Company or any of its
Significant Subsidiaries; or
(vii) any of the Guarantees of a Subsidiary Guarantor that is a
Significant Subsidiary ceases to be in full force and effect or any such
Guarantee is declared to be null and void and unenforceable or any such
Guarantee is found to be invalid, in each case by a court of competent
jurisdiction in a final non-appealable judgment or any such Subsidiary
Guarantor denies its liability under its Guarantee (other than by reason of
release of such Subsidiary Guarantor in accordance with the terms of the
Indenture).
If an Event of Default (other than an Event of Default specified in clause
(vi) above with respect to the Company) shall occur and be continuing, the
Trustee or the Holders of at least 25% in principal amount of outstanding
Exchange Notes may declare the principal of and accrued interest on all the
Exchange Notes to be due and payable by notice in writing to the Company and the
Trustee specifying the respective Event of Default and that it is a "notice of
acceleration" (the "Acceleration Notice"), and the same (i) shall become
immediately due and payable or (ii) if there are any amounts outstanding under
the Amended Credit Facility, shall become immediately due and payable upon the
first to occur of an acceleration under the Amended Credit Facility or 5
business days after receipt by the Company and the Representative under the
Amended Credit Facility of such Acceleration Notice but only if such Event of
Default is then continuing. In the event of a declaration of acceleration
because of an Event of Default described in clause (iv) above has occurred and
is continuing, such declaration of acceleration shall be automatically annulled
if such payment default is cured or waived or the holders of the Indebtedness
which is the subject of such event of default have rescinded their declaration
of acceleration in respect of such Indebtedness within 60 days thereof and the
Trustee has received written notice of such cure, waiver or rescission and no
other Event of Default described in clause (iv) above has occurred that has not
been cured or waived within 60 days of the declaration of such acceleration in
respect thereof and if (i) the repayment of Indebtedness or annulment of such
acceleration, as the case may be, would not conflict with any judgment or decree
of a court of competent jurisdiction and (ii) all existing Events of Default,
except non-payment of principal or interest which have become due solely due to
such acceleration, have been cured or waived. If an Event of Default specified
in clause (vi) above with respect to the Company occurs and is continuing, then
all unpaid principal of, and premium, if any, and accrued and unpaid interest on
all of the outstanding Exchange Notes shall IPSO FACTO become and be immediately
due and payable without any declaration or other act on the part of the Trustee
or any Holder.
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The Indenture will provide that, at any time after a declaration of
acceleration with respect to the Exchange Notes as described in the preceding
paragraph, the Holders of a majority in principal amount of the Exchange Notes
may rescind and cancel such declaration and its consequences (i) if the
rescission would not conflict with any judgment or decree, (ii) if all existing
Events of Default have been cured or waived except nonpayment of principal or
interest that has become due solely because of the acceleration, (iii) to the
extent the payment of such interest is lawful, interest on overdue installments
of interest and overdue principal, which has become due otherwise than by such
declaration of acceleration, has been paid, (iv) if the Company has paid the
Trustee its reasonable compensation and reimbursed the Trustee for its expenses,
disbursements and advances and (v) in the event of the cure or waiver of an
Event of Default of the type described in clause (vi) of the description above
of Events of Default, the Trustee shall have received an officers' certificate
and an opinion of counsel that such Event of Default has been cured or waived.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto.
The Holders of a majority in principal amount of the Exchange Notes may
waive any existing Default or Event of Default under the Indenture, and its
consequences, except a default in the payment of the principal of or interest on
any Exchange Notes.
Holders of the Exchange Notes may not enforce the Indenture or the Exchange
Notes except as provided in the Indenture and under the TIA. Subject to the
provisions of the Indenture relating to the duties of the Trustee, the Trustee
is under no obligation to exercise any of its rights or powers under the
Indenture at the request, order or direction of any of the Holders, unless such
Holders have offered to the Trustee reasonable indemnity. Subject to all
provisions of the Indenture and applicable law, the Holders of a majority in
aggregate principal amount of the then outstanding Notes have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee.
Under the Indenture, the Company is required to provide an officers'
certificate to the Trustee promptly upon any such officer obtaining knowledge of
any Default or Event of Default (provided that such officers shall provide such
certification at least annually whether or not they know of any Default or Event
of Default) that has occurred and, if applicable, describe such Default or Event
of Default and the status thereof.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations and the obligations of the Subsidiary Guarantors discharged with
respect to the outstanding Exchange Notes ("Legal Defeasance"). Such Legal
Defeasance means that the Company shall be deemed to have paid and discharged
the entire indebtedness represented by the outstanding Exchange Notes, except
for (i) the rights of Holders to receive payments in respect of the principal
of, premium, if any, and interest on the Exchange Notes when such payments are
due, (ii) the Company's obligations with respect to the Exchange Notes
concerning issuing temporary Exchange Notes, registration of Exchange Notes,
mutilated, destroyed, lost or stolen Exchange Notes and the maintenance of an
office or agency for payments, (iii) the rights, powers, trust, duties and
immunities of the Trustee and the Company's obligations in connection therewith
and (iv) the Legal Defeasance provisions of the Indenture. In addition, the
Company may, at its option and at any time, elect to have the obligations of the
Company released with respect to certain covenants that are described in the
Indenture ("Covenant Defeasance") and thereafter any omission to comply with
such obligations shall not constitute a Default or Event of Default with respect
to the Exchange Notes. In the event Covenant Defeasance occurs, certain events
(not including non-payment, bankruptcy, receivership, reorganization and
insolvency events) described under "Events of Default" will no longer constitute
an Event of Default with respect to the Exchange Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders cash in U.S. dollars,
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noncallable U.S. government obligations, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any, and
interest on the Exchange Notes on the stated date for payment thereof or on the
applicable redemption date, as the case may be; (ii) in the case of Legal
Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that (A) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date of the Indenture, there
has been a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such opinion of counsel shall confirm that,
the Holders will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred; (iii) in the
case of Covenant Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be continuing on the
date of such deposit (other than a Default or Event of Default resulting from
the incurrence of Indebtedness, all or a portion of the proceeds of which will
be used to defease the Exchange Notes) or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period ending
on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant
Defeasance shall not result in a breach or violation of, or constitute a default
under the Indenture or any other material agreement or instrument to which the
Company or any of its Restrictive Subsidiaries is a party or by which the
Company or any of its Restrictive Subsidiaries is bound; (vi) the Company shall
have delivered to the Trustee an officers' certificate stating that the deposit
was not made by the Company with the intent of preferring the Holders over any
other creditors of the Company or with the intent of defeating, hindering,
delaying or defrauding any other creditors of the Company or others; (vii) the
Company shall have delivered to the Trustee an officers' certificate and an
opinion of counsel, each stating that all conditions precedent provided for or
relating to the Legal Defeasance or the Covenant Defeasance have been complied
with; (viii) the Company shall have delivered to the Trustee an opinion of
counsel to the effect that (A) the trust funds will not be subject to any rights
of holders of Senior Debt, including, without limitation, those arising under
the Indenture and (B) after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; and (ix)
certain other customary conditions precedent are satisfied.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Exchange Notes, as expressly provided for in the Indenture) as to all
outstanding Exchange Notes when (i) either (a) all the Exchange Notes
theretofore authenticated and delivered (except lost, stolen or destroyed
Exchange Notes which have been replaced or paid and Exchange Notes for whose
payment money has theretofore been deposited in trust or segregated and held in
trust by the Company and thereafter repaid to the Company or discharged from
such trust) have been delivered to the Trustee for cancellation or (b) all
Exchange Notes not theretofore delivered to the Trustee for cancellation have
become due and payable and the Company has irrevocably deposited or caused to be
deposited with the Trustee funds in an amount sufficient to pay and discharge
the entire Indebtedness on the Exchange Notes not theretofore delivered to the
Trustee for cancellation, for principal of, premium, if any, and interest on the
Exchange Notes to the date of deposit together with irrevocable instructions
from the Company directing the Trustee to apply such funds to the payment
thereof at maturity or redemption, as the case may be; (ii) the Company has paid
all other sums payable under the Indenture by the Company; and (iii) the Company
has delivered to the Trustee an officers' certificate and an opinion of counsel
stating
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that all conditions precedent under the Indenture relating to the satisfaction
and discharge of the Indenture have been complied with.
MODIFICATION OF THE INDENTURE
From time to time, the Company, the Subsidiary Guarantors and the Trustee,
without the consent of the Holders, may amend the Indenture for certain
specified purposes, including curing ambiguities, defects or inconsistencies, so
long as such change does not, in the opinion of the Trustee, adversely affect
the rights of any of the Holders in any material respect. In formulating its
opinion on such matters, the Trustee will be entitled to rely on such evidence
as it deems appropriate, including, without limitation, solely on an opinion of
counsel. Other modifications and amendments of the Indenture may be made with
the consent of the Holders of a majority in principal amount of the then
outstanding Exchange Notes issued under the Indenture, except that, without the
consent of each Holder affected thereby, no amendment may: (i) reduce the amount
of Exchange Notes whose Holders must consent to an amendment; (ii) reduce the
rate of or change or have the effect of changing the time for payment of
interest, including defaulted interest, on any Exchange Notes; (iii) reduce the
principal of or change or have the effect of changing the fixed maturity of any
Exchange Notes, or change the date on which any Exchange Notes may be subject to
redemption or repurchase, or reduce the redemption or repurchase price therefor;
(iv) make any Exchange Notes payable in money other than that stated in the
Exchange Notes; (v) make any change in provisions of the Indenture protecting
the right of each Holder to receive payment of principal of and interest on such
Note on or after the due date thereof or to bring suit to enforce such payment,
or permitting Holders of a majority in principal amount of Exchange Notes to
waive Defaults or Events of Default; (vi) amend, change or modify in any
material respect the obligation of the Company to make and consummate a Change
of Control Offer in the event of a Change of Control or make and consummate a
Net Proceeds Offer with respect to any Asset Sale that has been consummated or
modify any of the provisions or definitions with respect thereto; (vii) modify
or change any provision of the Indenture or the related definitions affecting
the subordination or ranking of the Exchange Notes or any Guarantee in a manner
which adversely affects the Holders in any material respect; or (viii) release
any Subsidiary Guarantor from any of its obligations under its Guarantee or the
Indenture otherwise than in accordance with the terms of the Indenture.
GOVERNING LAW
The Indenture will provide that it, the Exchange Notes and the Guarantees
will be governed by, and construed in accordance with, the laws of the State of
New York but without giving effect to applicable principles of conflicts of law
to the extent that the application of the law of another jurisdiction would be
required thereby.
THE TRUSTEE
The Indenture will provide that, except during the continuance of an Event
of Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of Default, the Trustee
will exercise such rights and powers vested in it by the Indenture, and use the
same degree of care and skill in its exercise as a prudent man would exercise or
use under the circumstances in the conduct of his own affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, to obtain
payments of claims in certain cases or to realize on certain property received
in respect of any such claim as security or otherwise. Subject to the TIA, the
Trustee will be permitted to engage in other transactions; PROVIDED that if the
Trustee acquires any conflicting interest as described in the TIA, it must
eliminate such conflict or resign.
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CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of
the Company or at the time it merges or consolidates with the Company or any of
its Restricted Subsidiaries or assumed in connection with the acquisition of
assets from such Person and in each case not incurred by such Person in
connection with, or in anticipation or contemplation of, such Person becoming a
Restricted Subsidiary of the Company or such acquisition, merger or
consolidation.
"AFFILIATE" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the foregoing.
"AMENDED CREDIT FACILITY" means the Amended and Restated Credit Agreement
dated as of March 10, 1998, among the Company, the lenders party thereto in
their capacities as lenders thereunder and Bankers Trust Company, as agent,
together with the related documents thereto (including, without limitation, any
promissory notes, letters of credit, guarantee agreements and security
documents), in each case as such agreements may be amended (including any
amendment and restatement thereof), supplemented or otherwise modified from time
to time, including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring (including increasing the amount of
available borrowings thereunder or adding Restricted Subsidiaries of the Company
as additional borrowers or guarantors thereunder) all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement and
whether by the same or any other agent or agents, lender or group of lenders.
"ASSET ACQUISITION" means (a) an Investment by the Company or any Restricted
Subsidiary of the Company in any other Person pursuant to which such Person
shall become a Restricted Subsidiary of the Company or any Restricted Subsidiary
of the Company, or shall be merged with or into the Company or any Restricted
Subsidiary of the Company, or (b) the acquisition by the Company or any
Restricted Subsidiary of the Company of the assets of any Person (other than a
Restricted Subsidiary of the Company) which constitute all or substantially all
of the assets of such Person or comprises any division or line of business of
such Person or any other properties or assets of such Person other than in the
ordinary course of business.
"ASSET SALE" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any of
its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to
any Person other than the Company or a Wholly Owned Restricted Subsidiary of the
Company of (a) any Capital Stock of any Restricted Subsidiary of the Company; or
(b) any other property or assets of the Company or any Restricted Subsidiary of
the Company other than in the ordinary course of business; PROVIDED, HOWEVER,
that Asset Sales shall not include (i) a transaction or series of related
transactions for which the Company or its Restricted Subsidiaries receive
consideration of less than $500,000 for such transaction or series of
transactions, (ii) the sale, lease, conveyance, disposition or other transfer of
all or substantially all of the assets of the Company as permitted under
"Merger, Consolidation and Sale of Assets," (iii) disposals or replacements of
obsolete or outdated equipment in the ordinary course of business, (iv) the sale
or discount, in each case without recourse (other than recourse for a breach of
a representation or warranty), of accounts receivable arising in the ordinary
course of business, but only in connection with the compromise or collection
thereof in the ordinary course of business and not as part of
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a financing transaction, and (v) a transaction involving the transfer of assets
to an Unrestricted Subsidiary, if made pursuant to and permitted under the
"Limitation on Restricted Payments" covenant.
"BOARD OF DIRECTORS" means, as to any Person, the board of directors of such
Person or any duly authorized committee thereof.
"BOARD RESOLUTION" means, with respect to any Person, a copy of a resolution
certified by the Secretary or an Assistant Secretary of such Person to have been
duly adopted by the Board of Directors of such Person and to be in full force
and effect on the date of such certification, and delivered to the Trustee.
"CAPITALIZED LEASE OBLIGATION" means, as to any Person, the Obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such Obligations at any date shall be the capitalized amount of
such Obligations at such date, determined in accordance with GAAP.
"CAPITAL STOCK" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person and (ii) with respect to any
Person that is not a corporation, any and all partnership or other equity
interests of such Person.
"CASH EQUIVALENTS" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv)
certificates of deposit or bankers' acceptances maturing within one year from
the date of acquisition thereof issued by any bank organized under the laws of
the United States of America or any state thereof or the District of Columbia or
any U.S. branch of a foreign bank having at the date of acquisition thereof
combined capital and surplus of not less than $250,000,000; (v) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (iv) above; and (vi) investments in money
market funds which invest substantially all their assets in securities of the
types described in clauses (i) through (v) above.
"CHANGE OF CONTROL" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of the
Company to any Person or group of related Persons for purposes of Section 13(d)
of the Exchange Act (a "Group"), together with any Affiliates thereof (whether
or not otherwise in compliance with the provisions of the Indenture); (ii) the
approval by the holders of Capital Stock of the Company of any plan or proposal
for the liquidation or dissolution of the Company (whether or not otherwise in
compliance with the provisions of the Indenture); (iii) any Person or Group
(other than the Permitted Holders) shall become the owner, directly or
indirectly, beneficially or of record, of shares representing more than 50% of
the aggregate ordinary voting power represented by the issued and outstanding
Capital Stock of the Company; or (iv) the replacement of a majority of the Board
of Directors of the Company over a two-year period from the directors who
constituted the Board of Directors of the Company at the beginning of such
period, and such replacement shall not have been approved by a vote of at least
a majority of the Board of Directors of the Company then still in office who
either were members of such Board of Directors at the beginning of such period
or whose election as a member of such Board of Directors was previously so
approved.
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"COMMON STOCK" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"CONSOLIDATED EBITDA" means, with respect to any Person, for any period, the
sum (without duplication) of (i) Consolidated Net Income and (ii) to the extent
Consolidated Net Income has been reduced thereby, (A) all income taxes of such
Person and its Restricted Subsidiaries paid or accrued in accordance with GAAP
for such period (other than income taxes attributable to extraordinary, unusual
or nonrecurring gains or losses or taxes attributable to sales or dispositions
outside the ordinary course of business), (B) Consolidated Interest Expense and
(C) Consolidated Non-cash Charges less any non-cash items increasing
Consolidated Net Income for such period, all as determined on a consolidated
basis for such Person and its Restricted Subsidiaries in accordance with GAAP.
"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of
such Person for the Four Quarter Period. In addition to and without limitation
of the foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a PRO
FORMA basis for the period of such calculation to (i) the incurrence of any
Indebtedness of such Person or any of its Restricted Subsidiaries (and the
application of the proceeds thereof) giving rise to the need to make such
calculation and any incurrence of other Indebtedness (and the application of the
proceeds thereof), other than the incurrence of Indebtedness in the ordinary
course of business for working capital purposes pursuant to working capital
facilities, occurring during the Four Quarter Period or at any time subsequent
to the last day of the Four Quarter Period and on or prior to the Transaction
Date, as if such incurrence (and the application of the proceeds thereof)
occurred on the first day of the Four Quarter Period and (ii) any Asset Sales or
Asset Acquisitions (including, without limitation, any Asset Acquisition giving
rise to the need to make such calculation as a result of such Person or one of
its Restricted Subsidiaries (including any Person who becomes a Restricted
Subsidiary as a result of the Asset Acquisition) incurring, assuming or
otherwise being liable for Acquired Indebtedness and also including any
Consolidated EBITDA (including any pro forma expenses and cost reductions
calculated on a basis consistent with Regulation S-X under the Securities Act as
in effect on the Issue Date) (provided that such Consolidated EBITDA shall be
included only to the extent includable pursuant to the definition of
"Consolidated Net Income") attributable to the assets which are the subject of
the Asset Acquisition or Asset Sale during the Four Quarter Period) occurring
during the Four Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date, as if such Asset
Sale or Asset Acquisition (including the incurrence, assumption or liability for
any such Acquired Indebtedness) occurred on the first day of the Four Quarter
Period. If such Person or any of its Restricted Subsidiaries directly or
indirectly guarantees Indebtedness of a third Person, the preceding sentence
shall give effect to the incurrence of such guaranteed Indebtedness as if such
Person or any Restricted Subsidiary of such Person had directly incurred or
otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating
"Consolidated Fixed Charges" for purposes of determining the denominator (but
not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1)
interest on outstanding Indebtedness determined on a fluctuating basis as of the
Transaction Date and which will continue to be so determined thereafter shall be
deemed to have accrued at a fixed rate per annum equal to the rate of interest
on such Indebtedness in effect on the Transaction Date; (2) if interest on any
Indebtedness actually incurred on the Transaction Date may optionally be
determined at an interest rate based upon a factor of a prime or similar rate,
an eurocurrency interbank offered rate, or other rates, then the interest rate
in effect on the Transaction Date will be deemed to have been in effect during
the Four Quarter Period; and (3) notwithstanding clause (1) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Swap Obligations, shall be deemed to
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accrue at the rate per annum resulting after giving effect to the operation of
such agreements. Any Indebtedness repaid out of the proceeds of Indebtedness
properly incurred under the Indenture during any Four Quarter Period shall be
deemed to have been repaid on the first day of such Four Quarter Period.
"CONSOLIDATED FIXED CHARGES" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense, plus
(ii) the product of (x) the amount of all dividend payments on any series of
Preferred Stock of such Person (other than dividends paid in Qualified Capital
Stock) paid, accrued or scheduled to be paid or accrued during such period times
(y) a fraction, the numerator of which is one and the denominator of which is
one minus the then current effective consolidated federal, state and local
income tax rate of such Person, expressed as a decimal.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for any
period, the sum of, without duplication: (i) the aggregate of the interest
expense of such Person and its Restricted Subsidiaries and its Permitted Joint
Ventures which are not Restricted Subsidiaries for such period determined on a
consolidated basis in accordance with GAAP, including without limitation, (a)
any amortization of debt discount and amortization or write-off of deferred
financing costs, (b) the net costs under Interest Swap Obligations, (c) all
capitalized interest and (d) the interest portion of any deferred payment
obligation; and (ii) the interest component of Capitalized Lease Obligations
paid, accrued and/or scheduled to be paid or accrued by such Person and its
Restricted Subsidiaries and its Permitted Joint Ventures which are not
Restricted Subsidiaries during such period as determined on a consolidated basis
in accordance with GAAP; PROVIDED, that amounts to be included in clauses (i)
and (ii) with respect to a Permitted Joint Venture not constituting a Restricted
Subsidiary shall be the product of the amounts computed in accordance with GAAP
and the percentage of the total outstanding shares of Capital Stock of such
Permitted Joint Venture held by the Company or any Restricted Subsidiary of the
Company.
"CONSOLIDATED NET INCOME" means, with respect to any Person, for any period,
the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; PROVIDED that there shall be excluded therefrom (a) after-tax gains
or losses from Asset Sales or abandonments or reserves relating thereto, (b)
after-tax items classified as extraordinary or nonrecurring gains, (c) the net
income or loss of any Person acquired in a "pooling of interests" transaction
accrued prior to the date it becomes a Restricted Subsidiary of the referent
Person or is merged or consolidated with the referent Person or any Restricted
Subsidiary of the referent Person, (d) the net income (but not loss) of any
Restricted Subsidiary of the referent Person to the extent that the declaration
of dividends or similar distributions by that Restricted Subsidiary of that
income is restricted by a contract, operation of law or otherwise, (e) the net
income of any Person, other than a Restricted Subsidiary of the referent Person,
(except in the case of (d) and (e) to the extent of cash dividends or
distributions paid to the referent Person or to a Restricted Subsidiary of the
referent Person by such Person), (f) any restoration to income of any
contingency reserve, except to the extent that provision for such reserve was
made out of Consolidated Net Income accrued at any time following the Issue
Date, (g) income or loss attributable to discontinued operations (including,
without limitation, operations disposed of during such period whether or not
such operations were classified as discontinued), and (h) in the case of a
successor to the referent Person by consolidation or merger or as a transferee
of the referent Person's assets, any earnings of the successor corporation prior
to such consolidation, merger or transfer of assets.
"CONSOLIDATED NET WORTH" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less (without duplication) amounts attributable to Disqualified Capital
Stock of such Person.
"CONSOLIDATED NON-CASH CHARGES" means, with respect to any Person, for any
period, the aggregate depreciation, amortization and other non-cash expenses of
such Person and its Restricted Subsidiaries reducing Consolidated Net Income of
such Person and its Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP (excluding any such charges
constituting an extraordinary item or loss or any such charge which requires an
accrual of or a reserve for cash charges for any future period).
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"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"DEFAULT" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"DESIGNATED SENIOR DEBT" means (i) Indebtedness under or in respect of the
Amended Credit Facility and (ii) any other Indebtedness constituting Senior Debt
or Guarantor Senior Debt which, at the time of determination, has an aggregate
principal amount of at least $25.0 million and is specifically designated in the
instrument evidencing such Senior Debt as "Designated Senior Debt" by the
Company or "Guarantor Senior Debt" by a Subsidiary Guarantor, as the case may
be.
"DISQUALIFIED CAPITAL STOCK" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event (other than
upon the sale (by merger or otherwise) of all of the Common Stock of the
Company), matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the sole option of the holder
thereof on or prior to the final maturity date of the Notes.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or any
successor statute or statutes thereto.
"FAIR MARKET VALUE" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair market value
shall be determined by the Board of Directors of the Person making such
determination acting reasonably and in good faith and shall be evidenced by a
Board Resolution of the Board of Directors of such Person delivered to the
Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"GUARANTOR SENIOR DEBT" means with respect to any Subsidiary Guarantor, (i)
the principal of, premium, if any, and interest (including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for in
the documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law) on any Indebtedness of a Subsidiary
Guarantor, whether outstanding on the Issue Date or thereafter created, incurred
or assumed, unless, in the case of any particular Indebtedness, the instrument
creating or evidencing the same or pursuant to which the same is outstanding
expressly provides that such Indebtedness shall not be senior in right of
payment to the Guarantee of such Subsidiary Guarantor. Without limiting the
generality of the foregoing, "Guarantor Senior Debt" shall also include the
principal of, premium, if any, interest (including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for in
the documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law) on, and all other amounts owing in respect
of, (x) all monetary obligations of every nature of a Subsidiary Guarantor under
the Amended Credit Facility, including, without limitation, obligations to pay
principal and interest, reimbursement obligations under letters of credit, fees,
expenses and indemnities, (y) all Interest Swap Obligations and (z) all
obligations under Currency Agreements, in each case whether outstanding on the
Issue Date or thereafter incurred. Notwithstanding the foregoing, "Guarantor
Senior Debt" shall not include (i) any Indebtedness of such Subsidiary Guarantor
to a Restricted Subsidiary of such Subsidiary Guarantor or any Affiliate of such
Subsidiary Guarantor or any of such Affiliate's Subsidiaries, (ii) Indebtedness
to, or guaranteed on behalf of, any shareholder, director, officer or employee
of such
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Subsidiary Guarantor or any Restricted Subsidiary of such Subsidiary Guarantor
(including, without limitation, amounts owed for compensation), (iii)
Indebtedness to trade creditors and other amounts incurred in connection with
obtaining goods, materials or services, (iv) Indebtedness represented by
Disqualified Capital Stock, (v) any liability for federal, state, local or other
taxes owed or owing by such Subsidiary Guarantor, (vi) that portion of any
Indebtedness incurred in violation of the Indenture provisions set forth under
"Limitation on Incurrence of Additional Indebtedness" (but, as to any such
obligation, no such violation shall be deemed to exist for purposes of this
clause (vi) if the holder(s) of such obligation or their representative and the
Trustee shall have received an officers' certificate of the Company to the
effect that the incurrence of such Indebtedness does not (or, in the case of
revolving credit Indebtedness, that the incurrence of the entire committed
amount thereof at the date on which the initial borrowing thereunder is made
would not) violate such provisions of the Indenture), (vii) that portion of any
Indebtedness which, when incurred and without respect to any election under
Section 1111(b) of Title 11, United States Code, is without recourse to the
Company and (viii) that portion of any Indebtedness which is, by its express
terms, subordinated in right of payment to any other Indebtedness of such
Subsidiary Guarantor.
"INDEBTEDNESS" means with respect to any Person, without duplication, (i)
all Obligations of such Person for borrowed money, (ii) all Obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all Capitalized Lease Obligations of such Person, (iv) all Obligations of such
Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all Obligations of such Person under any title
retention agreement (but excluding federal, state or local taxes owed by such
Person and trade accounts payable and other accrued liabilities arising in the
ordinary course of business), (v) all Obligations of such Person for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction, (vi) guarantees and other contingent Obligations of
such Person in respect of Indebtedness referred to in clauses (i) through (v)
above and clause (viii) below, (vii) all Obligations of any other Person of the
type referred to in clauses (i) through (vi) which are secured by any lien on
any property or asset of such Person, the amount of such Obligation being deemed
to be the lesser of the fair market value of such property or asset or the
amount of the Obligation so secured, (viii) all Obligations of such Person under
Currency Agreements and in respect of Interest Swap Obligations and (ix) all
Disqualified Capital Stock issued by such Person with the amount of Indebtedness
represented by such Disqualified Capital Stock being equal to the book value of
such Disqualified Capital Stock. For purposes hereof, the amount outstanding at
any time of any Indebtedness with original issue discount is the face amount of
such Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness at such time as determined in conformity with
GAAP.
"INDEPENDENT FINANCIAL ADVISOR" means a firm (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
"INTEREST SWAP OBLIGATIONS" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
"INVESTMENT" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any Person. "Investment" shall exclude extensions of trade credit by
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the Company and its Restricted Subsidiaries on commercially reasonable terms in
the ordinary course of business. For the purposes of the "Limitation on
Restricted Payments" covenant, (i) "Investment" shall include and be valued at
the fair market value of the net assets of any Restricted Subsidiary at the time
that such Restricted Subsidiary is designated an Unrestricted Subsidiary and
shall exclude the fair market value of the net assets of any Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is designated a
Restricted Subsidiary and (ii) the amount of any Investment shall be the
original cost of such Investment plus the cost of all additional Investments by
the Company or any of its Restricted Subsidiaries, without any adjustments for
increases or decreases in value, or write-ups, write-downs or write-offs with
respect to such Investment, reduced by the payment of dividends or distributions
in connection with such Investment or any other amounts received in respect of
such Investment; PROVIDED, that no such payment of dividends or distributions or
receipt of any such other amounts shall reduce the amount of any Investment if
such payment of dividends or distributions or receipt of any such amounts would
be included in Consolidated Net Income. If the Company or any Restricted
Subsidiary of the Company sells or otherwise disposes of any Common Stock of any
direct or indirect Restricted Subsidiary of the Company such that, after giving
effect to any such sale or disposition, the Company no longer owns, directly or
indirectly, greater than 50% of the outstanding Common Stock of such Restricted
Subsidiary, the Company shall be deemed to have made an Investment on the date
of any such sale or disposition equal to the fair market value of the Common
Stock of such Restricted Subsidiary not sold or disposed of.
"ISSUE DATE" means the date of original issuance of the Exchange Notes.
"LIEN" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest).
"NET CASH PROCEEDS" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents (other
than the portion of any such deferred payment constituting interest) received by
the Company or any of its Restricted Subsidiaries from such Asset Sale net of
(a) cash expenses and fees relating to such Asset Sale (including, without
limitation, legal, accounting and investment banking fees and sales
commissions), (b) taxes paid or payable after taking into account any reduction
in consolidated tax liability due to available tax credits or deductions and any
tax sharing arrangements, (c) repayment of Indebtedness that is required to be
repaid in connection with such Asset Sale and (d) appropriate amounts to be
provided by the Company or any Restricted Subsidiary, as the case may be, as a
reserve, in accordance with GAAP, against any liabilities associated with such
Asset Sale and retained by the Company or any Restricted Subsidiary, as the case
may be, after such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale.
"NON-DOMESTIC RESTRICTED SUBSIDIARY" means any Restricted Subsidiary not
organized under the laws of the United States or any State thereof or the
District of Columbia that conducts its business primarily outside the United
States.
"OBLIGATIONS" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"PERMITTED HOLDER" means James F. Lynch.
"PERMITTED INDEBTEDNESS" means, without duplication, each of the following:
(i) Indebtedness incurred on the Issue Date under the Exchange Notes,
the Indenture and the Guarantees, and Indebtedness and Guarantees of such
Indebtedness under the Indenture properly incurred in accordance with the
"Certain Covenants--Limitation on Incurrence of Additional Indebtedness"
covenant;
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(ii) Indebtedness incurred pursuant to the Amended Credit Facility in an
aggregate principal amount at any time outstanding not to exceed of $75.0
million;
(iii) Other Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the Issue Date reduced by the amount of any scheduled
amortization payments or mandatory prepayments when actually paid or
permanent reductions thereon;
(iv) Interest Swap Obligations of the Company or any Restricted
Subsidiary of the Company covering Indebtedness of the Company or any of its
Restricted Subsidiaries; PROVIDED, HOWEVER, that such Interest Swap
Obligations are entered into to protect the Company and its Restricted
Subsidiaries from fluctuations in interest rates on Indebtedness incurred in
accordance with the Indenture to the extent the notional principal amount of
such Interest Swap Obligation does not exceed the principal amount of the
Indebtedness to which such Interest Swap Obligation relates;
(v) Indebtedness under Currency Agreements; PROVIDED that in the case of
Currency Agreements which relate to Indebtedness, such Currency Agreements
do not increase the Indebtedness of the Company and its Restricted
Subsidiaries outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and compensation
payable thereunder;
(vi) Indebtedness of a Wholly Owned Restricted Subsidiary of the Company
to the Company or to a Wholly Owned Restricted Subsidiary of the Company for
so long as such Indebtedness is held by the Company, a Wholly Owned
Restricted Subsidiary of the Company or the lenders or collateral agent
under the Amended Credit Facility, in each case subject to no Lien held by a
Person other than the Company, a Wholly Owned Restricted Subsidiary of the
Company or the lenders or collateral agent under the Amended Credit
Facility; PROVIDED that if as of any date any Person other than the Company,
a Wholly Owned Restricted Subsidiary of the Company or the lenders or
collateral agent under the Amended Credit Facility owns or holds any such
Indebtedness or holds a Lien in respect of such Indebtedness, such date
shall be deemed the incurrence of Indebtedness not constituting Permitted
Indebtedness by the issuer of such Indebtedness;
(vii) Indebtedness of the Company to a Wholly Owned Restricted
Subsidiary of the Company for so long as such Indebtedness is held by a
Wholly Owned Restricted Subsidiary of the Company or the lenders or
collateral agent under the Amended Credit Facility, subject to no Lien other
than a lien held by the lenders or collateral agent under the Amended Credit
Facility; PROVIDED that (a) any Indebtedness of the Company to any Wholly
Owned Restricted Subsidiary of the Company is unsecured and subordinated,
pursuant to a written agreement, to the Company's obligations under the
Indenture and the Notes and (b) if as of any date any Person other than a
Wholly Owned Restricted Subsidiary of the Company or the lenders or
collateral agent under the Amended Credit Facility owns or holds any such
Indebtedness or any Person holds a Lien in respect of such Indebtedness,
such date shall be deemed the incurrence of Indebtedness not constituting
Permitted Indebtedness by the Company;
(viii) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient funds
in the ordinary course of business; PROVIDED, HOWEVER, that such
Indebtedness is extinguished within five business days of incurrence;
(ix) Indebtedness of the Company or any of its Restricted Subsidiaries
represented by letters of credit for the account of the Company or such
Restricted Subsidiary, as the case may be, in order to provide security for
workers' compensation claims, payment obligations in connection, with self-
insurance or similar requirements in the ordinary course of business;
(x) Refinancing Indebtedness;
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(xi) Capitalized Lease Obligations and Purchase Money Indebtedness of
the Company and its Restricted Subsidiaries incurred in the ordinary course
of business not to exceed $20.0 million at any one time outstanding;
(xii) Indebtedness incurred by a Non-Domestic Restricted Subsidiary in
an aggregate principal amount at any time outstanding not to exceed $20.0
million;
(xiii) Investments permitted by clause (x) of the definition of
"Permitted Investments";
(xiv) Guarantees of Indebtedness otherwise permitted under the
Indenture; and
(xv) Additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount not to exceed $15.0 million at
any one time outstanding.
"PERMITTED INVESTMENTS" means (i) Investments by the Company or any
Restricted Subsidiary of the Company in any Person that is or will become
immediately after such Investment a Wholly Owned Restricted Subsidiary of the
Company or that will merge or consolidate into the Company or a Wholly Owned
Restricted Subsidiary of the Company, (ii) Investments in the Company by any
Restricted Subsidiary of the Company; PROVIDED that any Indebtedness evidencing
such Investment is unsecured and subordinated, pursuant to a written agreement,
to the Company's obligations under the Notes and the Indenture; (iii)
investments in cash and Cash Equivalents; (iv) loans and advances to employees,
officers and directors of the Company and its Restricted Subsidiaries in the
ordinary course of business for bona fide business purposes not in excess of
$2,000,000 at any one time outstanding; (v) Investments in Permitted Joint
Ventures including Permitted Joint Ventures which are also Restricted
Subsidiaries; (vi) Currency Agreements and Interest Swap Obligations entered
into in the ordinary course of the Company's or its Restricted Subsidiaries'
businesses and otherwise in compliance with the Indenture; (vii) Investments in
securities of trade creditors or customers received pursuant to any plan of
reorganization or similar arrangement upon the bankruptcy or insolvency of such
trade creditors or customers or in good faith settlement of delinquent
obligations of such trade creditors or customers; (viii) Investments made by the
Company or its Restricted Subsidiaries as a result of consideration received in
connection with an Asset Sale made in compliance with the "Limitation on Asset
Sales" covenant; (ix) obligations of one or more officers or other employees of
the Company or any of its Restricted Subsidiaries in connection with such
officers' or employees' acquisition of shares of Common Stock of the Company so
long as no cash is paid by the Company or any of its Restricted Subsidiaries to
such officers or employees in connection with the acquisition of any such
obligations; (x) guarantees of Indebtedness otherwise permitted under the
Indenture; and (xi) additional Investments not to exceed $15.0 million at any
one time outstanding.
"PERMITTED JOINT VENTURE" means any joint venture arrangement (which may be
structured as a corporation, partnership, trust, limited liability company or
any other Person) if (a) no Affiliate of the Company or a Restricted Subsidiary
(other than another Restricted Subsidiary of the Company) has an investment in
such Person, (b) such Person is engaged in the same or a similar line of
business as the Company and its Subsidiaries were engaged in on the date of the
Indenture (or any reasonable extensions or expansions thereof or any business
ancillary thereto or supportive thereof), (c) the Company and/or any of its
Restricted Subsidiaries at all times owns at least 45% of the total outstanding
shares of Capital Stock of such Person entitled to participate in distributions
in respect of the earnings, sale or liquidation of such Person, (d) immediately
after giving effect to such Investment on a pro forma basis (to give effect to
the contribution of any property or assets to such Person or Indebtedness
incurred to fund such Investment or otherwise), the Company could incur at least
$1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to
the "Limitation on Incurrence of Additional Indebtedness" covenant, and (e) no
default with respect to any Indebtedness of such Person or any Subsidiary of
such Person (including any right which the holders thereof may have to take
enforcement action against such Person) would permit (upon notice, lapse of time
or both) any holder of any Indebtedness of the Company or its Restricted
Subsidiaries to declare a default on such Indebtedness or cause the payment
thereof to be
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<PAGE>
accelerated or payable prior to its final scheduled maturity. If, at any time, a
Permitted Joint Venture fails to comply with clauses (a) through (e) above, such
Permitted Joint Venture shall constitute an Investment and must comply with the
"Limitation on Restricted Payments" covenants (but only with respect to the
Company's percentage ownership in such Permitted Joint Venture).
"PERMITTED LIENS" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries shall
have set aside on its books such reserves as may be required pursuant to
GAAP;
(ii) Statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practice in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money);
(iv) Judgment Liens not giving rise to an Event of Default;
(v) Easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company or
any of its Restricted Subsidiaries;
(vi) Any interest or title of a lessor under any Capitalized Lease
Obligation; PROVIDED that such Liens do not extend to any property or assets
which is not leased property subject to such Capitalized Lease Obligation;
(vii) Liens incurred to secure Purchase Money Indebtedness to finance
property or assets of the Company or any Restricted Subsidiary of the
Company acquired in the ordinary course of business; PROVIDED, HOWEVER, that
(A) the related Purchase Money Indebtedness shall not exceed the cost of
such property or assets and shall not be secured by any property or assets
of the Company or any Restricted Subsidiary of the Company other than the
property and assets so acquired and (B) the Lien securing such Indebtedness
shall be created within 90 days of such acquisition;
(viii) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or other
goods;
(ix) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;
(x) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company
or any of its Restricted Subsidiaries, including rights of offset and
set-off;
(xi) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(xii) Liens securing Indebtedness under Currency Agreements;
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<PAGE>
(xiii) Liens placed upon any assets of a Non-Domestic Restricted
Subsidiary of the Company to secure Indebtedness permitted to be incurred by
such Non-Domestic Restricted Subsidiary under the Indenture;
(xiv) Any lease or sublease to a third party not interfering in any
material respect with the business of the Company and its Restricted
Subsidiaries; and
(xv) Liens securing Acquired Indebtedness incurred in accordance with
the "Limitation on Incurrence of Additional Indebtedness" covenant; PROVIDED
that (A) such Liens secured such Acquired Indebtedness at the time of and
prior to the incurrence of such Acquired Indebtedness by the Company or a
Restricted Subsidiary of the Company and were not granted in connection
with, or in anticipation of, the incurrence of such Acquired Indebtedness by
the Company or a Restricted Subsidiary of the Company and (B) such Liens do
not extend to or cover any property or assets of the Company or of any of
its Restricted Subsidiaries other than the property or assets that secured
the Acquired Indebtedness prior to the time such Indebtedness became
Acquired Indebtedness of the Company or a Restricted Subsidiary of the
Company and are no more favorable to the lienholders than those securing the
Acquired Indebtedness prior to the incurrence of such Acquired Indebtedness
by the Company or a Restricted Subsidiary of the Company.
"PERSON" means an individual, partnership, corporation, limited liability
company, unincorporated organization, trust or joint venture, or a governmental
agency or political subdivision thereof.
"PREFERRED STOCK" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"PURCHASE MONEY INDEBTEDNESS" means Indebtedness of the Company and its
Restricted Subsidiaries incurred in the normal course of business for the
purpose of financing all or any part of the purchase price, or the cost of
installation, construction or improvement, of property.
"QUALIFIED CAPITAL STOCK" means any Capital Stock that is not Disqualified
Capital Stock.
"REFINANCE" means, in respect of any security or Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a
security or Indebtedness in exchange or replacement for, such security or
Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have
correlative meanings.
"REFINANCING INDEBTEDNESS" means any Refinancing by the Company or any
Restricted Subsidiary of the Company of Indebtedness incurred in accordance with
the "Limitation on Incurrence of Additional Indebtedness" covenant (other than
pursuant to clause (ii), (iv), (v), (vi), (vii), (viii), (ix) or (xi) of the
definition of "Permitted Indebtedness of such Person as of the date of such
proposed Refinancing (plus the amount of any interest and premium required to be
paid under the terms of the instrument governing such Indebtedness and plus the
amount of reasonable fees and expenses incurred by the Company or such
Restricted Subsidiaries, as the case may be, in connection with such
Refinancing) except to the extent that any such increase in Indebtedness is
otherwise permitted by the Indenture or (2) create Indebtedness with (A) a
Weighted Average Life to Maturity that is less than the Weighted Average Life to
Maturity of the Indebtedness being Refinanced or (B) a final maturity earlier
than the final maturity of the Indebtedness being Refinanced; provided that (x)
if such Indebtedness being Refinanced is Indebtedness of the Company, then such
Refinancing Indebtedness shall be Indebtedness solely of the Company and (y) if
such Indebtedness being Refinanced is subordinate or junior to the Exchange
Notes, then such Refinancing Indebtedness shall be subordinate to the Exchange
Notes at least to the same extent and in the same manner as the Indebtedness
being Refinanced.
"REPRESENTATIVE" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Debt; provided that if, and
for so long as, any Designated Senior Debt lacks such a representative, then the
Representative for such Designated Senior Debt shall at all times constitute the
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<PAGE>
holders of a majority in outstanding principal amount of such Designated Senior
Debt in respect of any Designated Senior Debt or such lesser percentage as shall
be permitted to act on behalf of the holders of such Designated Senior Debt
pursuant to the instrument governing such Designated Senior Debt.
"RESTRICTED SUBSIDIARY" of any Person means any Subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary; PROVIDED
that each Permitted Joint Venture which is a Subsidiary shall be treated as a
Restricted Subsidiary.
"SALE AND LEASEBACK TRANSACTION" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Restricted Subsidiary of any property, whether owned
by the Company or any Restricted Subsidiary at the Issue Date or later acquired,
which has been or is to be sold or transferred by the Company or such Restricted
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such property.
"SENIOR DEBT" means the principal of, premium, if any, and interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on any
Indebtedness of the Company, whether outstanding on the Issue Date or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Notes. Without limiting the generality
of the foregoing, "Senior Debt" shall also include the principal of, premium, if
any, interest (including any interest accruing subsequent to the filing of a
petition of bankruptcy at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other amounts owing in respect of, (x) all monetary
obligations of every nature of the Company under the Amended Credit Facility,
including, without limitation, obligations to pay principal and interest,
reimbursement obligations under letters of credit, fees, expenses and
indemnities, (y) all Interest Swap Obligations and (z) all obligations under
Currency Agreements, in each case whether outstanding on the Issue Date or
thereafter incurred. Notwithstanding the foregoing, "Senior Debt" shall not
include (i) any Indebtedness of the Company to a Subsidiary of the Company or
any Affiliate of the Company or any of such Affiliate's Subsidiaries, (ii)
Indebtedness to, or guaranteed on behalf of, any shareholder, director, officer
or employee of the Company or any Subsidiary of the Company (including, without
limitation, amounts owed for compensation), (iii) Indebtedness to trade
creditors and other amounts incurred in connection with obtaining goods,
materials or services, (iv) Indebtedness represented by Disqualified Capital
Stock, (v) any liability for federal, state, local or other taxes owed or owing
by the Company, (vi) that portion of any Indebtedness incurred in violation of
the Indenture provisions set forth under "Limitation on Incurrence of Additional
Indebtedness" (but, as to any such obligation, no such violation shall be deemed
to exist for purposes of this clause (vi) if the holder(s) of such obligation or
their representative and the Trustee shall have received an officers'
certificate of the Company to the effect that the incurrence of such
Indebtedness does not (or, in the case of revolving credit Indebtedness, that
the incurrence of the entire committed amount thereof at the date on which the
initial borrowing thereunder is made would not) violate such provisions of the
Indenture), (vii) that portion of any Indebtedness which, when incurred and
without respect to any election under Section 1111(b) of Title 11, United States
Code, is without recourse to the Company and (viii) that portion of any
Indebtedness which is, by its express terms, subordinated in right of payment to
any other Indebtedness of the Company.
"SIGNIFICANT SUBSIDIARY" shall have the meaning set forth in Rule 1.02(w) of
Regulation S-X under the Securities Act.
"SUBSIDIARY", with respect to any Person, means (i) any corporation of which
the outstanding Capital Stock having at least a majority of the votes entitled
to be cast in the election of directors under ordinary circumstances shall at
the time be owned, directly or indirectly, by such Person or (ii) any other
Person of
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which at least a majority of the voting interest under ordinary circumstances is
at the time, directly or indirectly, owned by such Person.
"SUBSIDIARY GUARANTOR" means (i) each of the Company's Wholly Owned
Restricted Subsidiaries (other than Non-Domestic Restricted Subsidiaries) as of
the Issue Date and (ii) each of the Company's Restricted Subsidiaries that in
the future executes a supplemental indenture in which such Restricted Subsidiary
agrees to be bound by the terms of the Indenture as a Subsidiary Guarantor;
PROVIDED, HOWEVER, that any Subsidiary acquired after the Issue Date which is
prohibited from entering into a Guarantee pursuant to restrictions contained in
any debt instrument or other agreement in existence at the time such Subsidiary
was so acquired and not entered into in anticipation or contemplation of such
acquisition shall not be required to become a Subsidiary Guarantor so long as
any such restriction is in existence and to the extent of any such restriction;
PROVIDED, FURTHER, that if any Subsidiary Guarantor is released from its
guarantee of the outstanding Indebtedness of the Company under the Amended
Credit Facility and the pledge by it, directly or indirectly, of any of its
assets as security for such Indebtedness at a time when no Default or Event of
Default has occurred and is continuing such Subsidiary Guarantor shall be
automatically released from its obligations as a Subsidiary Guarantor and, from
and after such date, such Subsidiary Guarantor shall cease to constitute a
Subsidiary Guarantor; PROVIDED, FURTHER, that any Person constituting a
Subsidiary Guarantor as described above shall cease to constitute a Subsidiary
Guarantor when its respective Guarantee is released in accordance with the terms
of the Indenture.
"UNRESTRICTED SUBSIDIARY" of any Person means (i) any Subsidiary of such
Person that at the time of determination shall be or continue to be designated
an Unrestricted Subsidiary by the Board of Directors of such Person in the
manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The
Board of Directors of such Person may designate any Subsidiary other than a
Subsidiary which constitutes a Permitted Joint Venture (including any newly
acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless
such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any
property of, the Company or any other Subsidiary of the Company that is not a
Subsidiary of the Subsidiary to be so designated; PROVIDED that (x) the Company
certifies to the Trustee that such designation complies with the "Limitation on
Restricted Payments" covenant and (y) each Subsidiary to be so designated and
each of its Subsidiaries has not at the time of designation, and does not
thereafter, create, incur, issue, assume, guarantee or otherwise become directly
or indirectly liable with respect to any Indebtedness pursuant to which the
lender has recourse to any of the assets of the Company or any of its Restricted
Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary only if (x) immediately after giving effect to
such designation, the Company is able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with the
"Limitation on Incurrence of Additional Indebtedness" covenant and (y)
immediately before and immediately after giving effect to such designation, no
Default or Event of Default shall have occurred and be continuing. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the Board Resolution giving effect to
such designation and an officers' certificate certifying that such designation
complied with the foregoing provisions.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total of
the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means any Restricted
Subsidiary of such Person of which all the outstanding voting securities (other
than in the case of a foreign Restricted Subsidiary, directors' qualifying
shares or an immaterial amount of shares required to be owned by other Persons
pursuant to applicable law) are owned by such Person or any Wholly Owned
Restricted Subsidiary of such Person.
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<PAGE>
BOOK-ENTRY; DELIVERY AND FORM
Except as described in the next paragraph, the Exchange Notes initially will
be represented by one or more permanent global certificates in definitive, fully
registered form (the "Global Exchange Notes"). The Global Exchange Notes will be
deposited on the Issue Date with, or on behalf of, The Depository Trust Company,
New York, New York ("DTC") and registered in the name of a nominee of DTC.
Notes (i) originally purchased by or transferred to "foreign purchasers" or
Accredited Investors who are not QIBs or (ii) held by QIBs who elect to take
physical delivery of their certificates instead of holding their interests
through the Global Exchange Notes (and which are thus ineligible to trade
through DTC) (collectively referred to herein as the "Non-Global Purchasers")
will be issued in registered form (the "Certificated Security"). Upon the
transfer to a QIB of any Certificated Security initially issued to a Non-Global
Purchaser, such Certificated Security will, unless the transferee requests
otherwise or the Global Exchange Notes have previously been exchanged in whole
for Certificated Securities, be exchanged for an interest in the Global Exchange
Notes.
THE GLOBAL EXCHANGE NOTES. The Company expects that pursuant to procedures
established by DTC (i) upon the issuance of the Global Exchange Notes, DTC or
its custodian will credit, on its internal system, the principal amount of
Exchange Notes or the individual beneficial interests represented by such Global
Exchange Notes to the respective accounts of persons who have accounts with such
depository and (ii) ownership of beneficial interests in the Global Exchange
Notes will be shown on, and the transfer of such ownership will be effected only
through, records maintained by DTC or its nominee (with respect to interests of
Participants (as defined herein)) and the records of Participants (with respect
to interests of persons other than Participants). Such accounts initially will
be designated by or on behalf of the Initial Purchasers and ownership of
beneficial interests in the Global Exchange Notes will be limited to persons who
have accounts with DTC ("Participants") or persons who hold interests through
Participants. QIBs may hold their interests in the Global Exchange Notes
directly through DTC, if they are participants in such system, or indirectly
through organizations which are Participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of the
Notes, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Notes represented by such Global Exchange Notes for all
purposes under the Indenture. No beneficial owner of an interest in the Global
Exchange Notes will be able to transfer that interest except in accordance with
DTC's procedures, in addition to those provided for under the Indenture with
respect to the Notes.
Payments of the principal of, premium (if any), and interest (including
Additional Interest) on, the Global Exchange Notes will be made to DTC or its
nominee, as the case may be, as the registered owner thereof. None of the
Company, the Trustee or any Paying Agent will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the Global Exchange Notes or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, interest (including Additional Interest) on the
Global Exchange Notes, will credit Participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the principal
amount of the Global Exchange Notes as shown on the records of DTC or its
nominee. The Company also expects that payments by Participants to owners of
beneficial interests in the Global Exchange Notes held through such Participants
will be governed by standing instructions and customary practice, as is now the
case with securities held for the accounts of customers registered in the names
of nominees for such customers. Such payments will be the responsibility of such
Participants.
Transfers between Participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in same-day funds. If a holder requires physical delivery of a
Certificated Security for any reason, including to sell Exchange Notes to
persons in
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states which require physical delivery of the Exchange Notes, or to pledge such
securities, such holder must transfer its interest in the Global Exchange Notes,
in accordance with the normal procedures of DTC and with the procedures set
forth in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Exchange Notes (including the presentation of Notes for
exchange as described below) only at the direction of one or more Participants
to whose account the DTC interests in the Global Exchange Notes are credited and
only in respect of such portion of the aggregate principal amount of Exchange
Notes as to which such Participant or Participants has or have given such
direction. However, if there is an Event of Default under the Indenture, DTC
will exchange the Global Exchange Notes for Certificated Securities, which it
will distribute to its Participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entry
changes in accounts of its Participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
("Indirect Participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Exchange Notes among Participants of DTC,
it is under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its Participants or Indirect
Participants of their respective obligations under the rules and procedures
governing their operations.
CERTIFICATED SECURITIES. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Exchange Notes and a successor
depositary is not appointed by the Company within 90 days, Certificated
Securities will be issued in exchange for the Global Exchange Notes.
PLAN OF DISTRIBUTION
Each broker-dealer that holds Old Notes that were acquired for its own
account as a result of market-making or other trading (other than Old Notes
acquired directly from the Company), may exchange Old Notes for Exchange Notes
in the Exchange Offer. However, any such broker-dealer may be deemed to be an
"underwriter" within the meaning of such term under the Securities Act and must,
therefore, acknowledge that it will deliver a prospectus in connection with any
resale of Exchange Notes received in the Exchange Offer. This prospectus
delivery requirement may be satisfied by the delivery by such broker-dealer of
this Prospectus, as it may be amended or supplemented from time to time. The
Company has agreed that, for a period of 180 days after the consummation of the
Exchange Offer, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such sale. The
Company will not receive any proceeds from any sales of Exchange Notes by
broker-dealers. Any resales of Exchange Notes by broker-dealers may be made
directly to a purchaser or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on such
resales of Exchange Notes and any commissions or concessions received by such
persons may be deemed to be underwriting compensation under the Securities Act.
The Company has agreed to pay all expenses incident to the
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Exchange Offer other that commissions or concessions of any brokers or dealers
and will indemnify Holders (including broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
EXPERTS
The consolidated financial statements and schedule of SITEL Corporation and
subsidiaries as of December 31, 1996 and 1997, and for each of the years in the
three-year period ended December 31, 1997, have been included herein and
incorporated by reference in the registration statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
included herein and incorporated by reference therein, and upon the authority of
said firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the issuance of securities offered hereby will be passed
upon for the Company by Kutak Rock, Omaha, Nebraska and Washington, D.C. At the
time of filing, certain members of Kutak Rock own, in the aggregate, more than
$50,000 worth of the Company's Securities.
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SITEL CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets at December 31, 1996 and 1997............................. F-3
Consolidated Statements of Income (Loss) For the Years Ended December 31, 1995, 1996
and 1997............................................................................ F-4
Consolidated Statements of Stockholders' Equity For the Years Ended December 31, 1995,
1996 and 1997....................................................................... F-5
Consolidated Statements of Cash Flows For the Years Ended December 31, 1995, 1996, and
1997................................................................................ F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
SITEL Corporation:
We have audited the accompanying consolidated balance sheets of SITEL
Corporation and subsidiaries as of December 31, 1996 and 1997, and the related
consolidated statements of income (loss), stockholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of SITEL
Corporation and subsidiaries as of December 31, 1996 and 1997, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Omaha, Nebraska
February 17, 1998,
except Note 15 which is as of
March 10, 1998
F-2
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1996 1997
---------- ----------
<CAPTION>
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 25,710 $ 24,285
Trade accounts receivable (net of allowance for doubtful accounts of $3,188 and
$5,099, in 1996 and 1997, respectively).......................................... 65,477 107,697
Marketable securities.............................................................. 1,740 159
Prepaid expenses................................................................... 3,007 3,916
Other assets....................................................................... 2,907 9,548
Deferred income taxes.............................................................. 512 3,153
---------- ----------
Total current assets............................................................. 99,353 148,758
---------- ----------
Property and equipment, net.......................................................... 59,109 120,600
Deferred income taxes................................................................ 11,187 11,114
Goodwill, net........................................................................ 40,110 94,381
Other assets......................................................................... 1,925 11,027
---------- ----------
Total assets..................................................................... $ 211,684 $ 385,880
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable...................................................................... $ 3,638 $ 14,376
Current portion of long-term debt.................................................. 759 10,793
Current portion of capitalized lease obligations................................... 3,032 4,934
Trade accounts payable............................................................. 18,775 27,322
Income taxes payable............................................................... 3,815 8,398
Accrued wages, salaries and bonuses................................................ 14,812 14,120
Accrued operating expenses......................................................... 9,026 22,984
Deferred revenue and other......................................................... 8,660 6,286
---------- ----------
Total current liabilities........................................................ 62,517 109,213
---------- ----------
Long-term debt, excluding current portion............................................ 1,720 102,505
Capitalized lease obligations, excluding current portion............................. 3,141 12,983
Purchase price payable............................................................... 15,928 --
Deferred compensation................................................................ 1,461 1,407
Minority interest.................................................................... 192 1,384
Commitments and contingencies
Stockholders' equity:
Common stock, voting, $.001 par value 200,000,000 shares authorized, 58,875,660 and
63,099,597 shares issued and outstanding in 1996 and 1997, respectively.......... 59 63
Paid-in capital.................................................................... 117,736 155,326
Currency exchange adjustment....................................................... 1,311 (6,487)
Unrealized gain on marketable securities, net of taxes............................. 1,017 72
Retained earnings.................................................................. 6,602 9,414
---------- ----------
Total stockholders' equity....................................................... 126,725 158,388
---------- ----------
Total liabilities and stockholders' equity....................................... $ 211,684 $ 385,880
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1995 1996 1997
---------- ---------- ----------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Revenues..................................................................... $ 187,215 $ 312,750 $ 491,474
---------- ---------- ----------
Operating expenses:
Cost of services........................................................... 101,617 163,717 270,942
Selling, general and administrative expenses............................... 69,213 120,695 185,589
Special compensation expense............................................... 34,585 -- --
Restructuring expenses..................................................... -- -- 15,681
---------- ---------- ----------
Total operating expenses............................................... 205,415 284,412 472,212
---------- ---------- ----------
Operating income (loss)................................................ (18,200) 28,338 19,262
---------- ---------- ----------
Other income (expense):
Transaction related expenses............................................... -- (6,988) --
Interest income............................................................ 613 1,108 561
Interest expense........................................................... (1,315) (1,335) (5,657)
Other income............................................................... 118 32 126
---------- ---------- ----------
Total other income (expense)........................................... (584) (7,183) (4,970)
---------- ---------- ----------
Income (loss) before income taxes and minority interest...................... (18,784) 21,155 14,292
Income tax expense (benefit)................................................. (6,593) 10,221 11,306
Minority interest............................................................ 1,262 77 174
---------- ---------- ----------
Net income (loss)...................................................... $ (13,453) $ 10,857 $ 2,812
---------- ---------- ----------
---------- ---------- ----------
Income (loss) per common share:
Basic...................................................................... $ (0.33) $ 0.19 $ 0.05
Diluted.................................................................... (0.29) 0.16 0.04
Weighted average common shares outstanding:
Basic...................................................................... 40,565 57,793 61,764
Diluted.................................................................... 46,477 65,929 68,811
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
<TABLE>
<CAPTION>
OPTIONS
CLASS A CLASS B CLASS C LESS
COMMON COMMON COMMON COMMON DEFERRED PAID-IN
STOCK STOCK STOCK STOCK COMPENSATION CAPITAL
------------- ------------- ------------- ------------- ----------------- ---------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
BALANCE, DECEMBER 31, 1994................ $ 20 $ 11 $ 1 $ -- $ 82 $ 3,285
Issuance of 100,592 shares of Class C
common stock less 80,472 shares subject
to put option........................... -- -- -- -- -- 59
Special compensation--option issues....... -- -- -- -- (82) 34,707
Accretion of put option................... -- -- -- -- -- --
Conversion of 20,263,458 shares of Class
A, 10,660,000 shares of Class B, and
739,652 shares of Class C common into a
single class of common stock due to
reincorporation......................... (20) (11) (1) 32 -- --
Issuance of 7,600,000 shares of common
stock, net of offering expenses......... -- -- -- 8 -- 23,163
Cancellation of the put option on
3,070,584 shares........................ -- -- -- 3 -- 2,797
Transaction by pooled companies:
Issuance of 8,507,904 shares of common
stock................................... -- -- -- 8 -- 5,519
Currency exchange adjustment.............. -- -- -- -- -- --
Net loss.................................. -- -- -- -- -- --
--- --- --- --- --- ---------
BALANCE, DECEMBER 31, 1995................ -- -- -- 51 -- 69,530
Issuance of 5,982,220 shares of common
stock, net of offering expenses......... -- -- -- 6 -- 42,239
Issuance of 1,719,642 shares of common
stock for options exercised............. -- -- -- 2 -- 92
Tax benefit of stock options exercised.... -- -- -- -- -- 5,040
Transactions by pooled companies:
Issuance of 332,196 shares of common
stock................................... -- -- -- -- -- 835
Currency exchange adjustment.............. -- -- -- -- -- --
Change in unrealized gain, net of taxes... -- -- -- -- -- --
Net income................................ -- -- -- -- -- --
--- --- --- --- --- ---------
BALANCE, DECEMBER 31, 1996................ -- -- -- 59 -- 117,736
Issuance of 1,891,562 shares of common
stock for options exercised............. -- -- -- 2 -- 226
Tax benefit of stock options exercised.... -- -- -- -- -- 7,685
Issuance of 2,332,375 shares of common
stock for acquisitions.................. -- -- -- 2 -- 29,679
Currency exchange adjustment.............. -- -- -- -- -- --
Change in unrealized gain, net of taxes... -- -- -- -- -- --
Net income................................ -- -- -- -- -- --
--- --- --- --- --- ---------
BALANCE, DECEMBER 31, 1997................ $ -- $ -- $ -- $ 63 $ -- $ 155,326
--- --- --- --- --- ---------
--- --- --- --- --- ---------
<CAPTION>
UNREALIZED TOTAL
CURRENCY GAIN ON RETAINED STOCK-
EXCHANGE MARKETABLE EARNINGS HOLDERS'
ADJUSTMENT SECURITIES (DEFICIT) EQUITY
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994................ $ 42 $ -- $ 9,411 $ 12,852
Issuance of 100,592 shares of Class C
common stock less 80,472 shares subject
to put option........................... -- -- -- 59
Special compensation--option issues....... -- -- -- 34,625
Accretion of put option................... -- -- (213) (213)
Conversion of 20,263,458 shares of Class
A, 10,660,000 shares of Class B, and
739,652 shares of Class C common into a
single class of common stock due to
reincorporation......................... -- -- -- --
Issuance of 7,600,000 shares of common
stock, net of offering expenses......... -- -- -- 23,171
Cancellation of the put option on
3,070,584 shares........................ -- -- -- 2,800
Transaction by pooled companies:
Issuance of 8,507,904 shares of common
stock................................... -- -- -- 5,527
Currency exchange adjustment.............. 12 -- -- 12
Net loss.................................. -- -- (13,453) (13,453)
----------- ----------- --------- ---------
BALANCE, DECEMBER 31, 1995................ 54 -- (4,255) 65,380
Issuance of 5,982,220 shares of common
stock, net of offering expenses......... -- -- -- 42,245
Issuance of 1,719,642 shares of common
stock for options exercised............. -- -- -- 94
Tax benefit of stock options exercised.... -- -- -- 5,040
Transactions by pooled companies:
Issuance of 332,196 shares of common
stock................................... -- -- -- 835
Currency exchange adjustment.............. 1,257 -- -- 1,257
Change in unrealized gain, net of taxes... -- 1,017 -- 1,017
Net income................................ -- -- 10,857 10,857
----------- ----------- --------- ---------
BALANCE, DECEMBER 31, 1996................ 1,311 1,017 6,602 126,725
Issuance of 1,891,562 shares of common
stock for options exercised............. -- -- -- 228
Tax benefit of stock options exercised.... -- -- -- 7,685
Issuance of 2,332,375 shares of common
stock for acquisitions.................. -- -- -- 29,681
Currency exchange adjustment.............. (7,798) -- -- (7,798)
Change in unrealized gain, net of taxes... -- (945) -- (945)
Net income................................ -- -- 2,812 2,812
----------- ----------- --------- ---------
BALANCE, DECEMBER 31, 1997................ $ (6,487) $ 72 $ 9,414 $ 158,388
----------- ----------- --------- ---------
----------- ----------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
-------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................................... $ (13,453) $ 10,857 $ 2,812
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Special compensation expense...................................................... 34,585 -- --
Restructuring provision........................................................... -- -- 15,513
Depreciation and amortization..................................................... 7,090 13,256 28,687
Provision for deferred income taxes............................................... (12,219) 1,823 (1,498)
Deferred compensation............................................................. 70 557 (53)
Gain on sale of marketable securities............................................. -- -- (407)
Forgiveness of loans receivable from related parties.............................. 449 -- --
Change in assets and liabilities:
Trade accounts receivable....................................................... (9,408) (17,083) (36,977)
Other assets.................................................................... (716) 4,060 (7,677)
Trade accounts payable.......................................................... 4,302 6,662 5,694
Other liabilities............................................................... 4,573 15,711 12,920
--------- --------- ---------
Net cash provided by operating activities..................................... 15,273 35,843 19,014
--------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment............................................... (13,279) (39,954) (69,437)
Proceeds from sales of property and equipment..................................... 126 199 2,711
Acquisitions, net of cash acquired................................................ -- (27,936) (47,023)
Settlement of purchase price payable.............................................. -- -- (13,934)
Investments in marketable securities.............................................. (22,196) (63,793) --
Sale of marketable securities..................................................... 9,150 76,840 558
Changes in other assets........................................................... (349) (380) (4,228)
--------- --------- ---------
Net cash used in investing activities......................................... (26,548) (55,024) (131,353)
--------- --------- ---------
Cash flows from financing activities:
Borrowings on notes payable....................................................... 21,929 17,169 83,307
Repayments of notes payable....................................................... (21,429) (16,026) (68,440)
Borrowings on long-term debt...................................................... 7,319 500 360,398
Repayment of long-term debt....................................................... (13,237) (2,048) (260,499)
Repayment of note payable to related party........................................ (492) -- --
Repayment of redeemable preference shares......................................... (464) (2,075) --
Common stock issued, net of expenses.............................................. 23,171 42,339 228
Payments on capital lease obligations............................................. (2,449) (259) (2,211)
Other............................................................................. 800 -- 900
--------- --------- ---------
Net cash provided by financing activities..................................... 15,148 39,600 113,683
--------- --------- ---------
Effect of exchange rates on cash.................................................... (104) 760 (2,769)
--------- --------- ---------
Net increase (decrease) in cash............................................... 3,769 21,179 (1,425)
Cash and cash equivalents, beginning of year........................................ 762 4,531 25,710
--------- --------- ---------
Cash and cash equivalents, end of year.............................................. $ 4,531 $ 25,710 $ 24,285
--------- --------- ---------
--------- --------- ---------
Supplemental disclosures of cash flow information:
Interest paid..................................................................... $ 1,212 $ 846 $ 4,712
Income taxes paid................................................................. $ 4,170 $ 4,311 $ 7,859
</TABLE>
Supplemental disclosures of non-cash investing and financing activities:
In 1995, upon completion of the IPO, the put option on common stock was
canceled causing a reclassification of $2,800 to stockholders' equity.
The tax benefit of stock options exercised was $5,040 and $7,685 in 1996 and
1997, respectively.
The Company incurred capitalized leases of $2,960, $2,101, and $13,225 in
1995, 1996 and 1997, respectively.
The Company issued stock in connection with the acquisition of businesses
with a value of $28, $5,498, and $29,681 in 1995, 1996, and 1997 respectively.
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES:
(a) DESCRIPTION OF BUSINESS. SITEL Corporation ("SITEL") and subsidiaries
(collectively, the "Company") provide outsourced telephone and interactive
customer service and sales programs on behalf of its clients in North America,
Europe, Asia Pacific and Latin America. The Company provides services to clients
principally in the insurance, financial services, telecommunications,
technology, media and entertainment, utilities, consumer, automotive and travel
and hospitality industries.
(b) PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the financial statements of SITEL Corporation and its subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
During 1996, the Company acquired all of the outstanding common stock of
National Action Financial Services, Inc. ("NAFS") by issuing 2,742,452 shares of
its common stock and all of the outstanding common stock of Mitre plc ("Mitre")
by issuing 18,341,106 shares of its common stock in two separate business
combinations accounted for using the pooling-of-interests method of accounting.
Accordingly, the consolidated financial statements for periods prior to each
business combination have been restated to include the accounts and results of
operations of NAFS and Mitre. No significant adjustments were required to
conform the accounting policies of the combining enterprises.
The results of operations previously reported by the separate enterprises
and the combined amounts presented in the accompanying consolidated financial
statements are summarized below:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Revenues:
SITEL............................................................. $ 120,617 $ 196,279
NAFS.............................................................. 8,258 15,685
Mitre............................................................. 58,340 100,786
---------- ----------
Combined........................................................ $ 187,215 $ 312,750
---------- ----------
---------- ----------
Net income (loss):
SITEL............................................................. $ (16,349) $ 6,016
NAFS.............................................................. 773 (1,132)
Mitre............................................................. 2,123 5,973
---------- ----------
Combined........................................................ $ (13,453) $ 10,857
---------- ----------
---------- ----------
</TABLE>
Transaction related expenses of approximately $0.7 million and $6.3 million
for the combinations with NAFS and Mitre, respectively, were expensed during
1996 at the closing of each transaction.
(c) TRANSLATION OF FOREIGN CURRENCIES. The translation of the applicable
foreign currencies into U.S. dollars is performed for balance sheet accounts
using current exchange rates in effect at the balance sheet date. Revenue and
expense accounts are translated using average exchange rates prevailing during
the year. Gains or losses resulting from currency translation are included in
stockholders' equity.
(d) REVENUE RECOGNITION. The Company recognizes revenues as services are
performed for its clients. Certain contracts allow for the provision of services
whereby the Company is able to invoice and receive payment for its services in
advance of the performance of those services. Such advance payments are recorded
as deferred revenue until such time as the services are performed.
F-7
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES: (CONTINUED)
(e) CASH EQUIVALENTS. Cash equivalents generally consist of highly liquid
debt instruments purchased with an original maturity of three months or less.
(f) PROPERTY AND EQUIPMENT. Property and equipment are stated at cost.
Equipment under capital leases is stated at the present value of minimum lease
payments. Depreciation is calculated on the straight-line method over the
estimated useful lives of the assets which range from 3 to 20 years. Assets
recorded for leasehold improvements and under capital leases are amortized on a
straight-line basis over the shorter of the lease term or estimated useful life
of the asset.
(g) INVESTMENTS IN MARKETABLE SECURITIES. All marketable securities held by
the Company at December 31, 1996 and 1997, were classified as available-for-sale
and recorded at fair value. Unrealized holding gains and losses, net of the
related tax effect, on available-for-sale securities are excluded from income
and are reported as a separate component of stockholders' equity until realized.
Realized gains and losses from the sale of available-for-sale securities are
determined on a specific identification basis. Fair values are estimated based
upon quoted market values.
(h) INCOME TAXES. Income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. Valuation allowances, if any, are established when
necessary to reduce deferred tax assets to the amount that is more likely than
not to be realized. Income taxes are not accrued for unremitted earnings of
international operations that have been, or are intended to be, reinvested
indefinitely.
(i) GOODWILL. Goodwill consists of the difference between the purchase price
incurred in acquisitions using the purchase method of accounting and the fair
value of net assets acquired and is being amortized using the straight-line
method over 25 years. Accumulated amortization of goodwill at December 31, 1996
and 1997 was $1.4 million and $5.0 million, respectively. The Company monitors
events and changes in circumstances which may require a review of the carrying
value of goodwill at each consolidated balance sheet date to assess
recoverability based on estimated undiscounted future operating cash flows.
Impairments are recognized in operating results when a permanent diminution in
value occurs based on fair value. The assessment of the recoverability of
goodwill will be impacted if estimated future operating cash flows are not
achieved.
(j) INCOME (LOSS) PER SHARE. The Company has adopted SFAS 128 "Earnings Per
Share" ("SFAS 128"), which has changed the method for calculating income per
share. SFAS 128 requires the presentation of "basic" and "diluted" income per
share on the face of the income statement. Prior period income per share data
has been restated in accordance with SFAS 128. Income per common share is
computed by dividing net income by the weighted average number of common shares
and common equivalent shares outstanding during each period, after giving
retroactive effect to the stock splits (see also Note 6) and business
combinations accounted for using the pooling-of-interests method of accounting.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 98,
options to purchase common stock for nominal consideration are included in the
calculation of diluted income or loss per share, as if they were outstanding for
all of the pre-initial public offering periods.
F-8
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES: (CONTINUED)
The difference in shares utilized in calculating basic and diluted income
per share represents the number of shares issued under the Company's stock
option plans less shares assumed to be purchased with proceeds from the exercise
of the stock options. Due to the net loss in 1995, the anti-dilutive effect of
the Company's stock option plans is not included in the calculation of diluted
earnings per share except as noted above in relation to the Company's initial
public offering. There are no reconciling items between the Company's reported
net income or loss and net income or loss used in the computation of basic and
diluted income per share.
(k) USE OF ESTIMATES. The preparation of the consolidated 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 disclosures of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
(l) STOCK COMPENSATION. The Company recognizes stock-based compensation
expense using the intrinsic value method. Under that method, no compensation
expense is recorded if the exercise price of the employee stock options equals
or exceeds the market price of the underlying stock on the date of grant. For
disclosure purposes, pro forma net income and income (loss) per share are
provided as if the fair value method had been applied.
(m) FINANCIAL INSTRUMENTS. Fair values of cash and cash equivalents,
receivables, accounts payable, marketable securities, long term debt (primarily
with variable interest rates), capital leases and notes payable are estimated to
approximate carrying values due to the short maturities or other characteristics
of these financial instruments.
During 1997, the Company also entered into forward contracts designed to
manage the Company's exposure to fluctuations in the value of currencies of
certain foreign countries in which the Company has significant operations. These
contracts are marked to market with gains or losses recognized in the Company's
statements of income (loss) as other income (expense). The Company had no
unsettled forward contracts at December 31, 1997.
(n) RECLASSIFICATION. Certain amounts in 1996 have been reclassified to
conform with the current year presentation.
2. ACQUISITIONS:
In December 1995, the Company acquired all stock held by minority
stockholders in three subsidiaries of Mitre by issuing Mitre stock with a value
of approximately $5.5 million. The acquisition of the minority holdings was
accounted for using the purchase method of accounting. Accordingly, the purchase
price was allocated based on estimated fair values at the date of acquisition.
The excess of purchase price over the fair value of the net assets acquired was
approximately $4.8 million.
In February 1996, the Company acquired the teleservicing businesses of
C.T.C. Canadian Telephone Corporation and 2965496 Canada, Inc. (collectively,
"CTC") through purchases of certain assets and the assumption of certain
liabilities of each business for a purchase price of approximately $4.2 million,
including acquisition costs. The acquisition of CTC has been accounted for as a
purchase. Accordingly, the purchase price has been allocated to the assets and
liabilities acquired based upon their fair values at the date of acquisition and
the results of operations of CTC have been included in the consolidated results
of
F-9
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS: (CONTINUED)
operations since the date of acquisition. Goodwill of approximately $4.2 million
was recorded for the excess of purchase price over the fair value of net assets
acquired. Prior to the acquisition date, the results of operations of CTC were
not significant.
In June 1996, the Company acquired Teleaction S.A. ("Teleaction"), a Spanish
teleservicing company, through the payment of approximately $25 million for
69.2% of the capital stock, and, an unconditional commitment (the "purchase
price payable") to close the purchase of the remaining 30.8% in June 1998. The
purchase price payable in 1996 includes an unconditional commitment to pay a
minimum of 1.4 billion Spanish pesetas (approximately US $10.8 million at
acquisition) plus additional amounts of contingent consideration based upon the
attainment of specified levels of earnings before interest, depreciation, and
income taxes as defined in the acquisition agreement. The Company accounted for
the transaction as an acquisition of all of the outstanding capital stock of
Teleaction because it acquired the risks and rewards of ownership except for the
contingent consideration, which has been accounted for as additional purchase
price paid. In the fourth quarter of 1997, the Company completed the acquisition
of the remaining 30.8% for approximately $14 million, a valuation consistent
with the terms of the original agreement. The Company accounted for the
acquisition as a purchase. Accordingly, the purchase price has been allocated to
assets and liabilities acquired based on their estimated fair values at the date
of acquisition and the results of operations of Teleaction have been included in
the consolidated results of operations since the date of acquisition. As of
December 31, 1997, the Company has recorded goodwill of approximately $28.7
million for the excess of purchase price over net assets acquired, including the
additional payments made in the settlement of the remaining purchase price
payable during 1997.
In January 1997, the Company acquired all of the outstanding capital stock
of Telebusiness Holdings, a systems integration company based in Australia and
New Zealand. In February 1997, the Company acquired substantially all of the
assets of Exton Technology Group, a teleservicing technical support company
based in Madison, Wisconsin. In March 1997, the Company acquired all of the
outstanding stock of Levita Group Pty Ltd., an Australian based teleservicing
company, and all of the outstanding stock of L&R Group Limited, a United Kingdom
based teleservicing consulting firm. In May 1997, the Company acquired all of
the outstanding stock of Support Systems Developers, Inc., a teleservices
technical support company based in Vienna, Virginia. In July 1997, the Company
acquired all of the outstanding stock of Svanberg & Co. Intressenter AB, a
teleservices firm based in Sweden. In September 1997, the Company acquired all
of the outstanding stock of Telephone Marketing Services (Ireland), Ltd., a
teleservices firm based in Ireland. In November 1997, the Company acquired a 49%
equity interest in Grupo de Comercializacion Integrada S.A. de C.V. ("GCI"), a
teleservicing subsidiary of Corporacion Interamericana de Entretenimiento, S.A.
de C.V. ("CIE"), an event promotion and management company in Latin America. The
terms of the acquisition provide for the Company's effective control of GCI
through the Company's ability to elect a majority of the board of directors and
through responsibility of the board for the day-to-day operations of GCI.
Therefore, the Company has accounted for the transaction as an acquisition of a
subsidiary and consolidated the results of operations of GCI since the date of
acquisition. Under the terms of the acquisition, the other shareholder of GCI is
also provided certain protective rights which, in the opinion of management, do
not impair the Company's ability to effectively exercise its control over GCI.
Those protective rights include the ability of the other shareholder to veto
actions of the subsidiary resulting in its dissolution or reorganization, its
filing of bankruptcy or insolvency, sale of a significant portion of its assets,
amendment to its by-laws, issuance of additional capital stock or significant
reacquisition of its capital stock, and its contracting with related parties
among other rights.
F-10
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS: (CONTINUED)
The total cost of the Company's 1997 acquisitions was approximately $76.7
million, subject to certain adjustments and excluding transaction costs and
liabilities assumed. Included in the total cost was the issuance of
approximately 2.3 million shares of the Company's common stock valued at
approximately $29.7 million.
These 1997 acquisitions have been accounted for as purchases and
accordingly, the acquired assets and liabilities have been recorded at their
estimated fair values at the dates of acquisition, and the results of operations
have been included in the accompanying consolidated financial statements since
the dates of acquisition. The total purchase price in excess of the fair market
value of the net assets acquired was recorded as goodwill ($65.6 million).
The following pro forma information shows the results of the Company as
though the acquisitions described earlier for 1996 and 1997 occurred as of
January 1, 1996. These results include certain adjustments consistent with the
Company's policy related to amortization of intangible assets. These results are
not necessarily indicative of the results that actually would have been obtained
if the acquisitions had been in effect at the beginning of each period or which
may be attained in the future.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------
1996 1997
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
(UNAUDITED)
<S> <C> <C>
Revenue............................................................... $ 373,602 $ 510,553
Net income............................................................ $ 9,348 $ 1,814
Income per common share:
Basic............................................................. $ 0.16 $ 0.03
Diluted........................................................... $ 0.14 $ 0.03
</TABLE>
3. INVESTMENTS IN MARKETABLE SECURITIES:
The amortized cost, gross unrealized holding gains and fair value for
available-for-sale securities at December 31, 1996 and 1997 were as follows:
<TABLE>
<CAPTION>
GROSS
UNREALIZED
AMORTIZED HOLDING FAIR
COST GAINS VALUE
----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
December 31, 1996
Equity securities......................................... $ 200 $ 1,540 $ 1,740
----- ----------- ---------
December 31, 1997
Equity securities......................................... $ 49 $ 110 $ 159
----- ----------- ---------
----- ----------- ---------
</TABLE>
Proceeds from the sale of marketable securities available-for-sale were $9.2
million, $76.8 million, and $0.6 million in 1995, 1996, and 1997, respectively.
Gross realized gains of $0.4 million were realized in 1997. No gross realized
losses were realized in 1997 and no gross realized gains or losses were realized
in 1995 and 1996.
F-11
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 1996 and 1997 consisted of the
following:
<TABLE>
<CAPTION>
1996 1997
--------- ----------
(IN THOUSANDS)
<S> <C> <C>
Telecommunications equipment........................................... $ 53,821 $ 89,067
Furniture, equipment, and other........................................ 25,343 43,985
Leasehold improvements................................................. 10,241 18,707
Buildings.............................................................. 4,063 19,591
Other.................................................................. 426 1,080
--------- ----------
93,894 172,430
Less accumulated depreciation.......................................... 34,785 51,830
--------- ----------
$ 59,109 $ 120,600
--------- ----------
--------- ----------
</TABLE>
5. LONG-TERM DEBT:
Long-term debt at December 31, 1996 and 1997, consisted of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------
1996 1997
--------- ----------
(IN THOUSANDS)
<S> <C> <C>
Long-term revolving credit facility at variable interest rates (6.52% at
December 31, 1997) due in July, 2002.................................. $ -- $ 99,500
Various notes payable acquired at acquisition of GCI, with variable
interest rates (22.0% at December 31, 1997)........................... -- 3,859
8% note payable in monthly installments, including interest, secured by
property.............................................................. 1,270 --
Other notes payable with weighted-average interest rates of 6.4% and
6.6% in 1996 and 1997, respectively; secured by property and equipment
and non domestic accounts receivable.................................. 1,209 9,939
--------- ----------
2,479 113,298
Less current portion.................................................... 759 10,793
--------- ----------
Total............................................................. $ 1,720 $ 102,505
--------- ----------
--------- ----------
</TABLE>
In July 1997, the Company reached agreement with a syndicate of commercial
banks for the long-term $150 million revolving credit facility noted above. The
facility provides for interest payable quarterly and a variable commitment fee
on any unused balances. The obligations of the Company under the facility have
been guaranteed by the Company's domestic subsidiaries and are secured by a
pledge of the Company's shares in such subsidiaries and certain other foreign
subsidiaries. The facility contains certain financial covenants and certain
restrictions on, among other things, the Company's ability to incur additional
debt, make certain investments, and sell assets or merge with another company.
The facility also prohibits the payment of cash dividends on common stock
without the banks' consent. The facility becomes due and payable upon a change
of control of the Company as defined in the facility agreement. At December 31,
1997, the Company was in compliance or has obtained waivers for all of these
covenants and restrictions.
F-12
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT: (CONTINUED)
Additionally, several international lines of credit are available to fund
local working capital requirements. The maximum borrowings under these
facilities are approximately $33.1 million. At December 31, 1997, the total
amount of notes payable outstanding under these facilities approximated $14.4
million with a weighted-average interest rate of 7.3%.
Including unused lines of credit in Europe, the Company had unused lines of
credit totaling approximately $69.2 million at December 31, 1997.
The aggregate maturities of long-term debt for each of the five years
following December 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------------------------------------------------------------ MATURITIES OF
LONG-TERM DEBT
--------------
(IN THOUSANDS)
<S> <C>
1998.......................................................................... $ 10,793
1999.......................................................................... 1,926
2000.......................................................................... 518
2001.......................................................................... 165
2002 and thereafter........................................................... 99,896
</TABLE>
Redeemable preference shares were issued by Mitre and certain subsidiaries
of Mitre prior to the acquisition by the Company. The shares were generally
redeemable at par in equal installments at the option of the holder, and paid
cumulative dividends of 7.5% to 10%. As a result of the acquisition of Mitre,
substantially all of the shares were redeemed.
6. COMMON STOCK:
On May 13, 1996, the Company effected a two-for-one stock split to
shareholders of record on May 3, 1996. On October 21, 1996, the Company effected
a second two-for-one stock split to shareholders of record on October 14, 1996.
Both of these stock splits have been given retroactive effect in the
accompanying consolidated financial statements.
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 2.5 shares of new $.001 par
value common stock.
During June 1995, the Company completed an initial public offering ("IPO")
of its common stock. In that IPO, the Company issued 7,600,000 shares at a price
of $3.38 per share, as adjusted for subsequent stock splits. Net proceeds of
approximately $23.2 million were realized by the Company after deducting the
underwriting discount and offering costs.
Prior to its IPO, the Company's outstanding capital stock included 3,070,584
shares of Class C common stock that was issued with a put option in connection
with a previous acquisition of a business. The put option entitled the
shareholder to put those shares back to the Company between July 1, 1997 and
November 30, 1997 in exchange for a note payable of $4.5 million less the amount
of certain expenditures made by the stockholder relating to obligations not
assumed by the Company in that previous acquisition. The value of the put option
was being accreted by charges to retained earnings over the life of the put
option until its cancellation, which occurred concurrently with the Company's
IPO.
F-13
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. COMMON STOCK: (CONTINUED)
The Company completed an additional public offering of common stock in
February 1996. The Company sold 5,982,220 shares at a price of $7.50 per share,
as adjusted for the stock splits. Net proceeds of $42.3 million were realized by
the Company after deducting the underwriting discount and offering expenses.
7. INCOME TAXES:
For financial reporting purposes, income (loss) from continuing operations
before income taxes and minority interest includes the following components:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Pretax income (loss):
United States............................................. $ (23,834) $ 8,653 $ 15,005
Foreign................................................... 5,050 12,502 (713)
---------- --------- ---------
Total................................................. $ (18,784) $ 21,155 $ 14,292
---------- --------- ---------
---------- --------- ---------
</TABLE>
The components of the provision for income tax expense (benefit) consists
of:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal................................................... $ 3,804 $ 3,929 $ 5,805
Foreign................................................... 1,681 4,529 7,112
State..................................................... 141 (60) (113)
---------- --------- ---------
5,626 8,398 12,804
---------- --------- ---------
---------- --------- ---------
Deferred:
Federal................................................... (12,203) 1,521 1,237
Foreign................................................... (16) 302 (2,735)
State..................................................... -- -- --
---------- --------- ---------
(12,219) 1,823 (1,498)
---------- --------- ---------
Provision for income tax expense (benefit)................ $ (6,593) $ 10,221 $ 11,306
---------- --------- ---------
---------- --------- ---------
</TABLE>
Certain of the income tax benefits related to the exercise of stock options
reduce taxes currently payable and are credited to paid-in capital. The amount
credited was approximately $5,040 and $7,685 in 1996 and 1997, respectively.
F-14
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES: (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------
1996 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Accrued compensation and other liabilities............................ $ 11,198 $ 10,362
Net operating loss and other credit carryforwards..................... 2,558 1,846
Deferred tax items related to international operations................ 320 2,433
Other................................................................. 297 346
--------- ---------
Total deferred tax assets......................................... 14,373 14,987
--------- ---------
Deferred tax liabilities:
Deferred tax items related to international operations................ 1,137 --
Leased assets and depreciation........................................ 640 319
Unrealized gain on marketable securities.............................. 523 37
Other................................................................. 374 364
--------- ---------
Total deferred tax liabilities.................................... 2,674 720
--------- ---------
Net deferred tax assets........................................... $ 11,699 $ 14,267
--------- ---------
--------- ---------
</TABLE>
Based upon the Company's current and historical pretax earnings, adjusted
for significant deductions available from the exercise of nonqualified stock
options, management believes that it is more likely than not that the Company
will generate sufficient taxable income to fully realize the benefits of its
recorded deferred tax assets.
Undistributed earnings of international consolidated subsidiaries for which
no deferred income tax provision has been made for possible future remittances
totaled approximately $5.6 million at December 31, 1997. Substantially all of
this amount represents earnings reinvested as part of the Company's ongoing
business. It is not practical to estimate the amount of U.S. taxes that might be
payable on the eventual remittance of such earnings. On remittance, certain
countries impose withholding taxes that, subject to certain limitations, are
then available for use as tax credits against a U.S. tax liability, if any. The
Company estimates withholding taxes of approximately $0.5 million would be
payable upon remittance of those earnings. At December 31, 1997, the Company had
U.S. Federal net operating loss carryforwards of approximately $1.3 million,
which will expire in 2004. At December 31, 1997, the Company had alternative
minimum tax credit carryforwards of approximately $1.4 million.
F-15
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES: (CONTINUED)
The difference between the Company's income tax expense (benefit) as
reported in the accompanying consolidated financial statements and that which
would be calculated applying the U.S. Federal income tax rate of 34% on pretax
income, less minority interest, is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
-------------------------------
1995 1996 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Expected Federal income taxes............................. $ (6,816) $ 7,166 $ 4,859
State taxes, net of Federal effects....................... 93 (40) (74)
Amortization of goodwill.................................. 18 266 159
Impact of foreign operations.............................. 4 438 1,278
Merger related costs...................................... -- 2,257 --
State incentive tax credits (See note 14)................. -- -- 1,446
Impairment losses on intangible assets.................... -- -- 3,400
Other..................................................... 108 134 238
--------- --------- ---------
Total............................................... $ (6,593) $ 10,221 $ 11,306
--------- --------- ---------
--------- --------- ---------
</TABLE>
8. LEASE OBLIGATIONS:
The Company is obligated under various capital leases for property and
certain equipment that expire at various dates through 2015. Capitalized leased
equipment included in property and equipment was approximately $7.3 million and
$17.8 million at December 31, 1996 and 1997, respectively, net of accumulated
amortization.
The Company also leases property and certain equipment under noncancelable
operating lease arrangements which expire at various dates through 2015. Rent
expense was approximately $3.8 million, $6.7 million, and $15.4 million for the
years ended December 31, 1995, 1996 and 1997, respectively. Certain leases of
real property provide options to extend the lease terms.
Future minimum lease payments under noncancelable operating leases and
future minimum capital lease payments as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Year ending December 31,
1998.................................................................. $ 6,406 $ 17,737
1999.................................................................. 4,116 16,008
2000.................................................................. 1,604 14,464
2001.................................................................. 934 12,991
2002 and thereafter................................................... 9,625 10,586
--------- -----------
22,685 $ 71,786
-----------
-----------
Less amount representing interest....................................... 4,768
---------
Present value of net minimum lease obligations.......................... $ 17,917
---------
---------
</TABLE>
F-16
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. STOCK-BASED COMPENSATION:
The Company has four stock option plans described as follows:
STOCK PLAN FOR REPLACEMENT OF EXISTING OPTIONS ("REPLACEMENT PLAN"). Under
this plan, options for 4,541,780 shares were granted in 1995, with an option
price of $.0025 per share, as replacements for 3,110,000 options outstanding at
February 28, 1995.
STOCK OPTION PLAN ("EEB REPLACEMENT PLAN"). Under this plan, options for
7,381,720 shares were granted in 1995, with an option price of $.0025 per share,
as replacements for the Company's employee equity benefit plan ("EEB Plan"). The
EEB Plan had 12,655,000 units outstanding with base values ranging from $.85 to
$1.71. With respect to both the Replacement Plan and the EEB Replacement Plan,
the following applies: Options are exercisable in five equal annual installments
from January 1996 to May 2000. The Company recorded these option grants to 265
employees at the estimated fair value at date of grant ($2.91), with a
corresponding charge to special compensation expense totaling $34.6 million in
1995. All options granted were vested as of the date of grant. No further
options will be granted under these plans.
1995 EMPLOYEE STOCK OPTION PLAN ("EMPLOYEE PLAN"). The Employee Plan
provides for the granting of various types of incentive awards (including
incentive stock options, nonqualified options, stock appreciation rights,
restricted shares, and performance shares or units) for the issuance of up to an
aggregate of 9,800,000 shares of common stock to employees and independent
consultants of the Company and its subsidiaries. Vesting terms vary with each
grant, and option terms may not exceed ten years. Option prices, set by the
Compensation Committee of the Board of Directors, may not be less than the fair
market value at date of grant for incentive stock options or less than par value
for nonqualified stock options. At December 31, 1997, there were approximately
2.5 million shares available for issuance pursuant to future grants under the
Employee Plan.
1995 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN ("DIRECTORS PLAN"). The
Directors Plan provides for automatic formula grants of nonqualified options to
each independent director of the Company. Each independent director is granted
options to purchase 18,000 shares of common stock upon election or re-election
to a three-year term on the Board of Directors. Option prices equal the fair
market value of the common stock on the date of grant. Options vest and become
exercisable in three equal annual installments commencing one year after grant.
The Directors Plan is administered by the Board members who are not eligible to
participate in the plan. At December 31, 1997, there were 224,000 shares
available for issuance pursuant to future grants under the Directors Plan.
All four plans require optionees to enter into certain voting and resale
agreements which place certain restrictions on actions of the optionee.
F-17
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK-BASED COMPENSATION: (CONTINUED)
Additional information as to shares subject to options is as follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
EXERCISE
NUMBER OF PRICE
OPTIONS PER OPTION
------------ -----------------
<S> <C> <C>
Balance, January 1, 1995...................................... -- --
Granted....................................................... 12,539,500 $ .29
Exercised..................................................... -- --
Canceled...................................................... -- --
------------ -----
Balance, December 31, 1995.................................... 12,539,500 .29
Granted....................................................... 5,608,462 15.39
Exercised..................................................... (1,719,642) .05
Canceled...................................................... (50,908) 15.75
------------ -----
Balance, December 31, 1996.................................... 16,377,412 .44
Granted....................................................... 6,478,211 13.08
Exercised..................................................... (1,891,562) .12
Canceled...................................................... (5,343,144) 15.69
------------ -----
Balance, December 31, 1997.................................... 15,620,917 $ 5.78
------------ -----
------------ -----
Exercisable at December 31, 1997.............................. 1,614,601 $ 2.38
------------ -----
------------ -----
</TABLE>
The number of options granted and canceled in 1997 includes the effect of an
amendment to the terms of pre-existing option agreements for 4,222,405 options
issued under the 1995 Plan. The amendment to the terms of the options lowered
the exercise prices to prevailing market values of the common stock and altered
the conditions for accelerated vesting of the options.
The following table summarizes information about stock options outstanding
at December 31, 1997.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
WEIGHTED
WEIGHTED-AVERAGE EXERCISABLE AVERAGE
RANGE OF NUMBER OUTSTANDING REMAINING WEIGHTED-AVERAGE AT EXERCISE
EXERCISE PRICES AT 12/31/97 CONTRACTUAL LIFE EXERCISE PRICE 12/31/97 PRICE
- ------------------ ------------------- ------------------- ----------------- ------------- -------------
$.0025............ 8,343,496 2.41 $ .0025 1,188,522 $ .0025
$4.39 to $12.38... 1,517,458 6.09 $ 8.84 262,200 $ 6.04
$12.50............ 4,197,797 8.21 $ 12.50 113,419 $ 12.50
$12.75 to $15.75.. 1,098,926 8.07 $ 15.10 38,460 $ 15.54
$16.50 to $20.50.. 463,240 9.01 $ 16.94 12,000 $ 19.50
</TABLE>
The per share weighted-average fair value of stock options granted during
1995, 1996, and 1997, was $2.16, $7.84, and $7.72, respectively, on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions: expected dividend yield 0.0%, expected volatility
factor 30.0%, risk-free interest rate of 5.82%, 6.48%, and 6.31% in 1995, 1996,
and 1997, respectively, and an expected life of 5 years, 8.62 years, and 9.04
years in 1995, 1996, and 1997, respectively.
F-18
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK-BASED COMPENSATION: (CONTINUED)
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net income
(loss) and income (loss) per share would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1995 1996 1997
---------- --------- ---------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net income (loss):
As Reported................................................ $ (13,453) $ 10,857 $ 2,812
Pro Forma.................................................. (13,493) 10,186 (1,473)
Income (loss) per share:
As Reported
Basic.................................................... $ (0.33) $ 0.19 $ 0.05
Diluted.................................................. (0.29) 0.16 0.04
Pro Forma
Basic.................................................... $ (0.33) $ 0.18 $ (0.02)
Diluted.................................................. (0.29) 0.15 (0.02)
</TABLE>
In June 1995, NAFS entered into an agreement with one employee whereby the
Company committed to grant options amounting to 2% of the common stock of NAFS
to the employee in connection with his initial employment contract. In May 1996,
NAFS fulfilled this commitment by issuing the options and recording compensation
expense, which has been classified as selling, general, and administrative
expense, of approximately $0.6 million.
10. RELATED PARTY TRANSACTIONS:
For the period of December 1994 to June 30, 1996, a common shareholder of
NAFS held 30,000 shares of Series A redeemable preference shares in the amount
of $0.3 million and earning dividends at a rate of 10% per annum, payable
quarterly. Each share of preference stock was convertible into shares of NAFS
common stock and was converted to common stock prior to the merger of SITEL and
NAFS. The same NAFS common shareholder held an installment note payable of $0.5
million, bearing interest at 10%, and secured by the assets subordinate to the
bank debt for the period of December 1994 to June 30, 1996. The debt included
contingent warrants that allowed for the issuance of stock to purchase a
percentage of the Company's outstanding common stock contingent upon the number
of months required to repay the note payable. In connection with the merger of
SITEL and NAFS, the note payable was repaid and the contingent warrants were
canceled.
11. BENEFIT PLANS:
The Company's 401(k) plan, formed in January 1994, covers substantially all
domestic employees who are 18 years of age with 60 days or more of service.
Participants may elect to contribute 1% to 17% of compensation. The Company may
elect to make a year end contribution to the 401(k) plan. Company contributions
to the plan were $50,000 in 1996. No contributions were made in 1995 and 1997.
Effective May 15, 1994, the Company adopted a deferred compensation plan for
certain executive employees, who elect to contribute to the plan. The Company
may voluntarily match all or a portion of the
F-19
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. BENEFIT PLANS: (CONTINUED)
participants' contributions. Participants are 100% vested in their contributions
and the Company's contributions vest over a 15-year period. No contributions
were made to the plan in 1995, 1996, and 1997.
12. SEGMENT DATA:
The Company's operations are primarily conducted in one business segment. A
summary of the Company's operations by geographic area follows.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1995 1996 1997
---------- ---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUE:
- -North America........................................... $ 128,875 $ 184,366 $ 261,240
- -Europe.................................................. 58,340 128,384 200,291
- -Other................................................... -- -- 29,943
---------- ---------- ----------
$ 187,215 $ 312,750 $ 491,474
---------- ---------- ----------
---------- ---------- ----------
OPERATING INCOME (LOSS):
- -North America........................................... $ (23,872) $ 14,455 $ 18,412
- -Europe.................................................. 5,672 13,883 15,499
- -Other................................................... -- -- (14,649)
---------- ---------- ----------
$ (18,200) $ 28,338 $ 19,262
---------- ---------- ----------
---------- ---------- ----------
IDENTIFIABLE ASSETS:
- -North America........................................... $ 96,440 $ 179,951
- -Europe.................................................. 115,244 157,806
- -Other................................................... -- 48,123
---------- ----------
$ 211,684 $ 385,880
---------- ----------
---------- ----------
</TABLE>
13. CONTINGENCIES:
From time to time, the Company is involved in litigation incidental to its
business. In the opinion of management, no litigation to which the Company is
currently a party is likely to have a materially adverse effect on the Company's
results of operations, financial condition, or cash flows, if decided adversely
to the Company.
14. RESTRUCTURING AND IMPAIRMENT OF ASSETS:
In the fourth quarter of 1997, the Company recorded provisions of $15.7
million for restructuring expenses. Included in this charge are impairment
losses on long-lived assets of $11.0 million, severance and other costs of $3.6
million, and costs related to losses on contractual obligations of $1.1 million.
The Company's restructuring plan commitments in 1997, which are expected to be
fully completed in 1998, included the following initiatives:
- Concurrent with the decision to pursue a new joint-venture equity partner
in the Asia Pacific region, management committed to pursue strategic
alternatives for certain other operations in 1998. The
F-20
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. RESTRUCTURING AND IMPAIRMENT OF ASSETS: (CONTINUED)
carrying value of related assets was reduced to fair value based upon
estimates of selling values less costs of disposal. The resulting
impairment loss of approximately $10.0 million was recorded in the fourth
quarter of 1997. The Company also accrued certain other costs of $0.5
million related to this initiative. Revenues and operating loss of these
operations were approximately $3.5 million and $1.2 million, before the
effects of these charges, in 1997.
- Management committed to plans to relocate the Company's corporate
headquarters and to close or consolidate certain under-performing call
centers. Costs incurred as a result of these plans consist principally of
commitments related to abandoned or excess space for leased facilities of
approximately $1.1 million and impairment losses of $1.0 million which
were recorded by the Company for obsolete technology to record these
assets at their estimated fair value, less costs of disposal. The Company
also incurred severance and other costs of $0.2 million related to this
plan.
The plan to close under-performing call centers also affected management's
assessment of the carrying value of certain deferred tax assets of $1.4
million originating from state incentive tax credits related to employment
incentives. These deferred tax assets were expensed in the fourth quarter
of 1997 because management believes that it is more likely than not that
these benefits will ultimately not be utilized. (See note 7.)
- Management committed to a plan to reorganize its corporate management in
Europe. The substantial majority of costs related to this plan are
severance costs of $2.8 million, which are accrued and unpaid at December
31, 1997. The Company also incurred other costs of $0.1 million related to
this plan.
After income taxes, these actions reduced fiscal year 1997 earnings by $15.7
million or $0.23 per diluted share.
15. SUBSEQUENT EVENTS:
On March 10, 1998, the Company completed the private placement of $100
million of 9.25% Senior Subordinated Notes due 2006 (the "Notes"). The proceeds
from the offering were used to repay borrowings outstanding under the Company's
long term revolving credit facility (the "Credit Facility"--see Note 5), which
was also amended on that date. No significant gain or loss was recognized as a
result of this refunding.
The Notes, which include interest payable semiannually, are general
unsecured obligations of the Company and will be subordinated in right of
payment to all existing and future senior debt of the Company. The Notes are
guaranteed by certain of the Company's subsidiaries and contain certain
covenants that limit the ability of the Company and certain of its subsidiaries
to, among other things, incur additional indebtedness, pay dividends or make
certain other restricted payments, consummate certain asset sales, enter into
certain transactions with affiliates, incur liens, merge or consolidate with
another company and sell or otherwise dispose of all or substantially all of the
assets of the Company.
The Notes are redeemable, at the Company's option, in whole or in part from
time to time on or after March 15, 2002. If redeemed during the twelve-month
period commencing on March 15 of the year set
F-21
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. SUBSEQUENT EVENTS: (CONTINUED)
forth below, the redemption prices are as follows, plus in each case, accrued
and unpaid interest thereon, if any, to the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
<S> <C>
2002.............................................................................. 104.625%
2003.............................................................................. 103.083%
2004.............................................................................. 101.542%
2005 and thereafter............................................................... 100.000%
</TABLE>
In addition, the Company may redeem up to 35% of the aggregate principal
amount of the Notes at any time on or prior to March 15, 2001 at 109.25% of the
principal amount thereof, plus accrued interest to the date of redemption, from
the net proceeds of one or more public equity offerings, as defined. Also, upon
a change of control of the Company, as defined, the Company may be required to
repurchase the Notes at a price equal to 101% of the principal amount thereof,
plus accrued interest to the date of repurchase.
The Company also reached an agreement with a syndicate of commercial banks
to amend the Company's existing Credit Facility to limit borrowings under the
Credit Facility to an amount based upon a percentage of the Company's eligible
domestic accounts receivable, as defined, up to $75 million. Certain of the
financial covenants and restrictions were amended and the Company's eligible
domestic accounts receivable were pledged as security.
16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION:
The Notes are guaranteed, on a joint and several basis, by all domestic
subsidiaries of the Company. Separate financial statements of the guarantor
subsidiaries are not presented because management has determined that they would
not be material to investors. However, the following condensed consolidating
information presents:
(1) Condensed consolidating financial statements as of, and for the
year, ended December 31, 1997 of (a) SITEL Corporation, the parent, (b) the
guarantor subsidiaries, (c) the nonguarantor subsidiaries and (d) SITEL
Corporation on a consolidated basis,
(2) SITEL Corporation, the parent, with the investments in all
subsidiaries accounted for on the equity method, and the guarantor
subsidiaries with the nonguarantor subsidiaries accounted for on the equity
method (one of the guarantor subsidiaries is the parent of the nonguarantor
subsidiaries), and
(3) Elimination entries necessary to consolidate SITEL Corporation, the
parent, with all subsidiaries.
F-22
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION: (CONTINUED)
CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 11,514 $ 2,075 $ 10,696 $ -- $ 24,285
Trade accounts receivable, net............. 21,832 22,167 65,313 (1,615) 107,697
Marketable securities...................... 159 -- -- -- 159
Prepaid expenses and other current
assets................................... 6,523 264 9,830 -- 16,617
---------- ----------- ------------- ------------ ------------
Total current assets..................... 40,028 24,506 85,839 (1,615) 148,758
---------- ----------- ------------- ------------ ------------
Property and equipment, net................ 37,585 24,251 58,764 -- 120,600
Deferred income taxes...................... 11,070 -- 44 -- 11,114
Goodwill, net.............................. 1,627 21,926 70,828 -- 94,381
Other assets............................... 7,532 121 3,374 -- 11,027
Investments in subsidiaries................ 180,112 94,999 -- (275,111) --
Notes receivable, intercompany............. -- 22,203 -- (22,203) --
---------- ----------- ------------- ------------ ------------
Total assets............................. $ 277,954 $ 188,006 $ 218,849 $ (298,929) $ 385,880
---------- ----------- ------------- ------------ ------------
---------- ----------- ------------- ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable.............................. $ -- $ -- $ 14,376 $ -- $ 14,376
Current portion of long-term debt.......... 2,026 -- 8,767 -- 10,793
Current portion of capitalized lease
obligations.............................. 308 98 4,528 -- 4,934
Trade accounts payable..................... 2,841 1,202 24,894 (1,615) 27,322
Accrued expenses and other current
liabilities.............................. 11,168 6,210 34,410 -- 51,788
---------- ----------- ------------- ------------ ------------
Total current liabilities................ 16,343 7,510 86,975 (1,615) 109,213
---------- ----------- ------------- ------------ ------------
Long-term debt, excluding current
portion.................................. 101,488 -- 1,017 -- 102,505
Capitalized lease obligations, excluding
current portion.......................... 328 140 12,515 -- 12,983
Notes payable, intercompany and other...... -- 244 21,959 (22,203) --
Deferred compensation...................... 1,407 -- -- -- 1,407
Minority interest.......................... -- -- 1,384 -- 1,384
Stockholders' equity....................... 158,388 180,112 94,999 (275,111) 158,388
---------- ----------- ------------- ------------ ------------
Total liabilities and stockholders'
equity................................. $ 277,954 $ 188,006 $ 218,849 $ (298,929) $ 385,880
---------- ----------- ------------- ------------ ------------
---------- ----------- ------------- ------------ ------------
</TABLE>
F-23
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION: (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ----------- ------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues..................................... $ 117,118 $ 133,042 $ 241,314 $ -- $ 491,474
Operating expenses:
Cost of services........................... 60,391 71,703 138,848 -- 270,942
Selling, general and administrative
expenses................................. 52,950 47,634 85,005 -- 185,589
Restructuring expenses..................... 2,148 -- 13,533 -- 15,681
---------- ----------- ------------- ----- ------------
Total operating expenses................. 115,489 119,337 237,386 -- 472,212
---------- ----------- ------------- ----- ------------
Operating income......................... 1,629 13,705 3,928 -- 19,262
---------- ----------- ------------- ----- ------------
Other income (expense):
Equity in earnings (losses) of
subsidiaries, net of tax................. 4,390 (4,958) -- 568 --
Intercompany charges....................... 673 1,877 (2,550) -- --
Interest income............................ 213 -- 348 -- 561
Interest expense........................... (2,632) (889) (2,136) -- (5,657)
Other income............................... 178 (55) 3 -- 126
---------- ----------- ------------- ----- ------------
Total other income (expense)............. 2,822 (4,025) (4,335) 568 (4,970)
---------- ----------- ------------- ----- ------------
Income (loss) before income taxes and
minority interest.......................... 4,451 9,680 (407) 568 14,292
Income tax expense........................... 1,639 5,290 4,377 -- 11,306
Minority interest............................ -- -- 174 -- 174
---------- ----------- ------------- ----- ------------
Net income (loss)........................ $ 2,812 $ 4,390 $ (4,958) $ 568 $ 2,812
---------- ----------- ------------- ----- ------------
---------- ----------- ------------- ----- ------------
</TABLE>
F-24
<PAGE>
SITEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION: (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by operating activities.... $ 7,156 $ 8,466 $ 3,392 $ -- $ 19,014
---------- ----------- ------------- ------------ ------------
Cash flows from investing activities:
Investments in subsidiaries................ (61,787) (42,917) -- 104,704 --
Purchases of property and equipment........ (29,569) (14,463) (25,405) -- (69,437)
Proceeds from sales of property and
equipment................................ 2,196 -- 515 -- 2,711
Acquisitions, net of cash acquired......... (19,722) (12,207) (15,094) -- (47,023)
Settlement of purchase price payable....... -- -- (13,934) -- (13,934)
Sale of marketable securities.............. 558 -- -- -- 558
Changes in other assets.................... (1,925) -- (2,303) -- (4,228)
---------- ----------- ------------- ------------ ------------
Net cash used in investing activities........ (110,249) (69,587) (56,221) 104,704 (131,353)
---------- ----------- ------------- ------------ ------------
Cash flows from financing activities:
Borrowings on notes payable................ 68,291 -- 15,016 -- 83,307
Repayments of notes payable................ (68,291) -- (149) -- (68,440)
Borrowings on long-term debt............... 360,124 -- 274 -- 360,398
Repayment of long-term debt................ (259,948) -- (551) -- (260,499)
Net capital contribution from parent....... -- 61,787 42,917 (104,704) --
Common stock issued, net of expenses....... 228 -- -- -- 228
Payments on capital lease obligations...... -- (450) (1,761) -- (2,211)
Other...................................... 900 -- -- -- 900
---------- ----------- ------------- ------------ ------------
Net cash provided by financing activities.... 101,304 61,337 55,746 (104,704) 113,683
---------- ----------- ------------- ------------ ------------
Effect of exchange rates on cash............. -- -- (2,769) -- (2,769)
---------- ----------- ------------- ------------ ------------
Net increase (decrease) in cash.............. (1,789) 216 148 -- (1,425)
Cash and cash equivalents, beginning of
year....................................... 13,302 1,859 10,549 -- 25,710
---------- ----------- ------------- ------------ ------------
Cash and equivalents, end of year............ $ 11,513 $ 2,075 $ 10,697 $ -- $ 24,285
---------- ----------- ------------- ------------ ------------
---------- ----------- ------------- ------------ ------------
</TABLE>
F-25
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation require it to indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed proceeding by reason of the fact that he is or was a
director or officer of the Company or any other person designated by the Board
of Directors (which may include any person serving at the request of the Company
as a director, officer, employee, agent, fiduciary or trustee of another
corporation, partnership, joint venture, trust, employee benefit plan or other
entity or enterprise), in each case, against certain liabilities (including,
damages, judgments, amounts paid in settlement, fines, penalties and expenses
(including attorneys' fees and disbursements)), except where such
indemnification is expressly prohibited by applicable law, where such person has
engaged in willful misconduct or recklessness or where such indemnification has
been determined to be unlawful. Minnesota law permits the Company to provide
similar indemnification to employees and agents who are not directors or
officers. The determination of whether an individual meets the applicable
standard of conduct may be made by the disinterested directors, independent
legal counsel or the stockholders. Minnesota law also permits indemnification in
connection with a proceeding brought by or in the right of the Company to
procure a judgment in its favor. Insofar as indemnification for liabilities
arising under the Securities Act of 1933, as amended (the "Act") may be
permitted to directors, officers, or persons controlling the Company pursuant to
the foregoing provisions, the Company has been informed that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in that Act and is therefore unenforceable. The Company also
provides each Director with director's insurance.
The Company has also entered into an indemnification agreement with each
Director.
ITEM 21. EXHIBITS
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
----------- -----------------------------------------------------------------------------------------------------
<C> <C> <S>
(1) 4.1 Indenture.
(2) 4.3 Registration Rights Agreement.
(2) 5 Opinion of Kutak Rock regarding validity of the Exchange Notes.
(1) 10.11 Amended Credit Facility dated as of March 10, 1998 among the Company, certain lenders and Bankers
Trust as Agent.
(2) 12.1 Computation of Ratios.
(2) 23.1 Consent of Kutak Rock (included in Exhibit 5).
(2) 23.2 Consent of KPMG Peat Marwick LLP.
(2) 24.1 Powers of Attorney (included in signature pages hereof).
(2) 25 Trustee Statement T-1.
</TABLE>
- ------------------------
(1) Previously filed as an exhibit to the Company's Form 8-K filed on March 16,
1998.
(2) Filed herewith.
II-1
<PAGE>
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provision, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply
if the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the
registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemend to be an underwriter within the meaining of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicalbe
II-2
<PAGE>
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
The registrant undertakes that every prospectus: (i) that is filed pursuant
to paragraph (1) immediately preceding, or (ii) that purports ot meet the
requirements of Section 10(a)(3) of the Act and is unsed in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of thsi registration statement in reliance upon Rule 430A and contained in a
form of prospectus file dby the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contain a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and teh offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering thereof.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally rpompt means. This includes information contained in documents
filed subsequent ot the effective dae of the registration statement through the
dae of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in the
registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Baltimore, Maryland on April 24, 1998.
SITEL CORPORATION
BY: /S/ JAMES F. LYNCH
-----------------------------------------
James F. Lynch
CHAIRMAN OF THE BOARD
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James F. Lynch and Phillip A. Clough his true and
lawful attorneys-in-fact and agents, with power to act and full power of
substitution, in any and all capacities, to sign any and all Registration
Statements filed by SITEL Corporation, a Minnesota corporation, in which the
undersigned holds offices, and any amendments to the Registration Statement,
including all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents or any of them full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons as of the date
first above written in the capacities indicated.
<TABLE>
<S> <C>
/s/ JAMES F. LYNCH /s/ MICHAEL P. MAY
- -------------------------------------------- --------------------------------------------
James F. Lynch, Michael P. May
CHAIRMAN OF THE BOARD CHIEF EXECUTIVE OFFICER AND DIRECTOR
(PRINCIPAL EXECUTIVE OFFICER)
/s/ HENK P. KRUITHOF /s/ KELVIN C. BERENS
- -------------------------------------------- --------------------------------------------
Henk P. Kruithof Kelvin C. Berens
EXECUTIVE VICE CHAIRMAN AND DIRECTOR DIRECTOR
/s/ GEORGE KUBAT /s/ BILL L. FAIRFIELD
- -------------------------------------------- --------------------------------------------
GEORGE KUBAT Bill L. Fairfield
DIRECTOR DIRECTOR
/s/ BARRY S. MAJOR /s/ ALAN G. SIEMEK
- -------------------------------------------- --------------------------------------------
Barry S. Major Alan G. Siemek
CHIEF FINANCIAL OFFICER AND DIRECTOR CORPORATE CONTROLLER (PRINCIPAL ACCOUNTING
(PRINCIPAL FINANCIAL OFFICER) OFFICER)
</TABLE>
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements on the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this registration
statements to be signed on its behalf by the undersigned, thereunto duly
authorized, in Baltimore, Maryland on April 24, 1998.
SITEL INTERNATIONAL, INC.
BY: /S/ MICHAEL P. MAY
-----------------------------------------
Michael P. May,
PRESIDENT
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Michael P. May his true and lawful
attorney-in-fact and agent, with power to act and full power of substitution, in
any and all capacities, to sign any and all Registration Statements filed by
SITEL International, Inc. a Nebraska corporation, in which the undersigned holds
office, and any amendments to the Registration Statement, including all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent, or his substitute, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons as of the date
first above written in the capacities indicated.
<TABLE>
<S> <C>
/s/ JAMES F. LYNCH /s/ MICHAEL P. MAY
- -------------------------------------------- --------------------------------------------
James F. Lynch Michael P. May
DIRECTOR PRESIDENT
(PRINCIPAL EXECUTIVE OFFICER)
/s/ HENK P. KRUITHOF /s/ PHILLIP A. CLOUGH
- -------------------------------------------- --------------------------------------------
Henk P. Kruithof Phillip A. Clough
VICE PRESIDENT AND DIRECTOR VICE PRESIDENT AND DIRECTOR
/s/ BARRY S. MAJOR /s/ ALAN G. SIEMEK
- -------------------------------------------- --------------------------------------------
Barry S. Major Alan G. Siemek
VICE PRESIDENT SECRETARY/TREASURER
(PRINCIPAL FINANCIAL OFFICER) (PRINCIPAL ACCOUNTING OFFICER)
</TABLE>
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Baltimore, Maryland on April 24, 1998.
FINANCIAL INSURANCE SERVICES, INC.
BY: /S/ BARRY S. MAJOR
-----------------------------------------
Barry S. Major
PRESIDENT
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Barry S. Major his true and lawful
attorney-in-fact and agent, with power to act and full power of substitution, in
any and all capacities, to sign any and all Registration Statements filed by
Financial Insurance Services, Inc., a Nebraska corporation, in which the
undersigned holds office, and any amendments to the Registration Statement,
including all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons as of the date
first above written in the capacities indicated.
<TABLE>
<S> <C>
/s/ PHILLIP A. CLOUGH /s/ MICHAEL P. MAY
- -------------------------------------------- --------------------------------------------
Phillip A. Clough Michael P. May
DIRECTOR DIRECTOR
/s/ BARRY S. MAJOR /s/ ALAN G. SIEMEK
- -------------------------------------------- --------------------------------------------
Barry S. Major Alan G. Siemek
PRESIDENT AND DIRECTOR SECRETARY/TREASURER
(PRINCIPAL EXECUTIVE OFFICER) (PRINCIPAL ACCOUNTING OFFICER)
(PRINCIPAL FINANCIAL OFFICER)
</TABLE>
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements on the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this registration
statements to be signed on its behalf by the undersigned, thereunto duly
authorized, in Baltimore, Maryland on April 24, 1998.
SITEL SUPPORT SERVICES, INC.
BY: /S/ BARRY S. MAJOR
-----------------------------------------
Barry S. Major,
PRESIDENT
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Barry S. Major his true and lawful
attorney-in-fact and agent, with power to act and full power of substitution, in
any and all capacities, to sign any and all Registration Statements filed by
SITEL Support Services, Inc., a Nebraska corporation, in which the undersigned
holds office, and any amendments to the Registration Statement, including all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons as of the date
first above written in the capacities indicated.
<TABLE>
<S> <C>
/s/ PHILLIP A. CLOUGH /s/ MICHAEL P. MAY
- -------------------------------------------- --------------------------------------------
Philip A. Clough Michael P. May
DIRECTOR DIRECTOR
/s/ BARRY S. MAJOR /s/ ALAN G. SIEMEK
- -------------------------------------------- --------------------------------------------
Barry S. Major Alan G. Siemek
PRESIDENT AND DIRECTOR SECRETARY/TREASURER (PRINCIPAL ACCOUNTING
(PRINCIPAL EXECUTIVE OFFICER) OFFICER) (PRINCIPAL FINANCIAL OFFICER)
</TABLE>
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Baltimore, Maryland on April 24, 1998.
SITEL TECHNICAL SERVICES, INC.
BY: /S/ BARRY S. MAJOR
-----------------------------------------
Barry S. Major,
PRESIDENT
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Barry S. Major his true and lawful
attorney-in-fact and agent, with power to act and full power of substitution, in
any and all capacities, to sign any and all Registration Statements filed by
SITEL Technical Services, Inc., a Wisconsin corporation, in which the
undersigned holds office, and any amendments to the Registration Statement,
including all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons as of the date
first above written in the capacities indicated.
<TABLE>
<S> <C>
/s/ PHILLIP A. CLOUGH /s/ MICHAEL P. MAY
- -------------------------------------------- --------------------------------------------
Phillip A. Clough Michael P. May
DIRECTOR DIRECTOR
/s/ BARRY S. MAJOR /s/ ALAN G. SIEMEK
- -------------------------------------------- --------------------------------------------
Barry S. Major Alan G. Siemek
PRESIDENT AND DIRECTOR SECRETARY/TREASURER
(PRINCIPAL EXECUTIVE OFFICER) (PRINCIPAL ACCOUNTING OFFICER)
(PRINCIPAL FINANCIAL OFFICER)
</TABLE>
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Baltimore, Maryland on April 24, 1998.
SITEL INSURANCE SERVICES, INC.
BY: /S/ BARRY S. MAJOR
-----------------------------------------
Barry S. Major,
PRESIDENT
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Barry S. Major his true and lawful
attorney-in-fact and agent, with power to act and full power of substitution, in
any and all capacities, to sign any and all Registration Statements filed by
SITEL Insurance Services, Inc., a Nebraska corporation, in which the undersigned
holds office, and any amendments to the Registration Statement, including all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons as of the date
first above written in the capacities indicated.
<TABLE>
<S> <C>
/s/ PHILLIP A. CLOUGH /s/ MICHAEL P. MAY
- -------------------------------------------- --------------------------------------------
Philip A. Clough Michael P. May
DIRECTOR DIRECTOR
/s/ BARRY S. MAJOR /s/ ALAN G. SIEMEK
- -------------------------------------------- --------------------------------------------
Barry S. Major Alan G. Siemek
PRESIDENT AND DIRECTOR SECRETARY/TREASURER
(PRINCIPAL EXECUTIVE OFFICER) (PRINCIPAL ACCOUNTING OFFICER)
(PRINCIPAL FINANCIAL OFFICER)
</TABLE>
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Baltimore, Maryland on April 24, 1998.
NATIONAL ACTION FINANCIAL SERVICES, INC.
BY: /S/ MICHAEL W. FLETCHER
-----------------------------------------
Michael W. Fletcher,
CHIEF EXECUTIVE OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Michael W. Fletcher his true and lawful
attorney-in-fact and agent, with power to act and full power of substitution, in
any and all capacities, to sign any and all Registration Statements filed by
National Action Financial Services, a Georgia corporation, in which the
undersigned holds office, and any amendments to the Registration Statement,
including all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons as of the date
first above written in the capacities indicated.
<TABLE>
<S> <C>
/s/ PHILLIP A. CLOUGH /s/ MICHAEL P. MAY
- -------------------------------------------- --------------------------------------------
Phillip A. Clough Michael P. May
DIRECTOR DIRECTOR
/s/ BARRY S. MAJOR /s/ ALAN G. SIEMEK
- -------------------------------------------- --------------------------------------------
Barry S. Major Alan G. Siemek
DIRECTOR SECRETARY/TREASURER
(PRINCIPAL ACCOUNTING OFFICER)
(PRINCIPAL FINANCIAL OFFICER)
/s/ MICHAEL W. FLETCHER
- --------------------------------------------
Michael W. Fletcher
CHIEF EXECUTIVE OFFICER AND DIRECTOR
(PRINCIPAL EXECUTIVE OFFICER)
</TABLE>
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Baltimore, Maryland on April 24, 1998.
SITEL INSURANCE MARKETING SERVICES, INC.
BY: /S/ BARRY S. MAJOR
-----------------------------------------
Barry S. Major,
PRESIDENT
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Barry S. Major his true and lawful
attorney-in-fact and agent, with power to act and full power of substitution, in
any and all capacities, to sign any and all Registration Statements filed by
SITEL Insurance Marketing Services, Inc., a Nebraska corporation, in which the
undersigned holds office, and any amendments to the Registration Statement,
including all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons as of the date
first above written in the capacities indicated.
<TABLE>
<S> <C>
/s/ PHILLIP A. CLOUGH /s/ MICHAEL P. MAY
- -------------------------------------------- --------------------------------------------
Philip A. Clough Michael P. May
DIRECTOR DIRECTOR
/s/ BARRY S. MAJOR /s/ ALAN G. SIEMEK
- -------------------------------------------- --------------------------------------------
Barry S. Major Alan G. Siemek
PRESIDENT AND DIRECTOR SECRETARY/TREASURER
(PRINCIPAL EXECUTIVE OFFICER) (PRINCIPAL ACCOUNTING OFFICER)
(PRINCIPAL FINANCIAL OFFICER)
</TABLE>
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Baltimore, Maryland on April 24, 1998.
SITEL INVESTMENTS, INC.
BY: /S/ BARRY S. MAJOR
-----------------------------------------
Barry S. Major,
PRESIDENT
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Barry S. Major his true and lawful
attorney-in-fact and agent, with power to act and full power of substitution, in
any and all capacities, to sign any and all Registration Statements filed by
SITEL Investments, Inc., a Nebraska corporation, in which the undersigned holds
office, and any amendments to the Registration Statement, including all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent, or his substitute, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons as of the date
first above written in the capacities indicated.
<TABLE>
<S> <C>
/s/ PHILLIP A. CLOUGH /s/ MICHAEL P. MAY
- -------------------------------------------- --------------------------------------------
Phillip A. Clough Michael P. May
DIRECTOR DIRECTOR
/s/ BARRY S. MAJOR /s/ ALAN G. SIEMEK
- -------------------------------------------- --------------------------------------------
Barry S. Major Alan G. Siemek
PRESIDENT AND DIRECTOR SECRETARY/TREASURER
(PRINCIPAL EXECUTIVE OFFICER) (PRINCIPAL ACCOUNTING OFFICER)
(PRINCIPAL FINANCIAL OFFICER)
</TABLE>
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Baltimore, Maryland on April 24, 1998.
SITEL SOFTWARE, INC.
BY: /S/ BARRY S. MAJOR
-----------------------------------------
Barry S. Major, PRESIDENT
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Barry S. Major his true and lawful
attorney-in-fact and agent, with power to act and full power of substitution, in
any and all capacities, to sign any and all Registration Statements filed by
SITEL Software, Inc., a Nebraska corporation, in which the undersigned holds
office, and any amendments to the Registration Statement, including all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent, or his substitute, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons as of the date
first above written in the capacities indicated.
<TABLE>
<S> <C>
/s/ PHILLIP A. CLOUGH /s/ MICHAEL P. MAY
- -------------------------------------------- --------------------------------------------
Phillip A. Clough Michael P. May
DIRECTOR DIRECTOR
/s/ BARRY S. MAJOR /s/ ALAN G. SIEMEK
- -------------------------------------------- --------------------------------------------
Barry S. Major Alan G. Siemek
PRESIDENT AND DIRECTOR SECRETARY/TREASURER
(PRINCIPAL EXECUTIVE OFFICER) (PRINCIPAL ACCOUNTING OFFICER)
(PRINCIPAL FINANCIAL OFFICER
</TABLE>
II-13
<PAGE>
REGISTRATION RIGHTS AGREEMENT
Dated as of March 10, 1998
Among
SITEL CORPORATION, as Company,
each of the Subsidiary Guarantors (as hereinafter defined),
and
BT ALEX. BROWN INCORPORATED,
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
and
SBC WARBURG DILLON READ INC.,
as Initial Purchasers
9 1/4% Senior Subordinated Notes due 2006
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Definitions............................................................1
2. Exchange Offer.........................................................4
3. Shelf Registration.....................................................8
4. Additional Interest....................................................9
5. Registration Procedures...............................................10
6. Registration Expenses.................................................18
7. Indemnification.......................................................19
8. Rules 144 and 144A....................................................22
9. Underwritten Registrations............................................23
10. Miscellaneous.........................................................23
(a) No Inconsistent Agreements........................................23
(b) Adjustments Affecting Registrable Notes...........................23
(c) Amendments and Waivers............................................24
(d) Notices...........................................................24
(e) Successors and Assigns............................................24
(f) Counterparts......................................................25
(g) Headings..........................................................25
(h) GoverningLaw......................................................25
(i) Severability......................................................25
(j) Securities Held by the Company or Its Affiliates..................25
(k) Third-Party Beneficiaries.........................................25
(l) Entire Agreement..................................................25
(m) Subsidiary Guarantor a Party......................................26
</TABLE>
i
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is dated as of
March 10, 1998, among SITEL Corporation, a Minnesota corporation, as Company
(the "Company") and the Subsidiary Guarantors (as hereinafter defined), on
the one hand, and BT ALEX. BROWN INCORPORATED, MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED, and SBC WARBURG DILLON READ INC., as initial purchasers
(the "Initial Purchasers"), on the other hand.
This Agreement is entered into in connection with the Purchase
Agreement, dated as of March 5, 1998, among the Company and the Subsidiary
Guarantors, on the one hand, and the Initial Purchasers, on the other hand
(the "Purchase Agreement"), which provides for the sale by the Company to the
Initial Purchasers of $100,000,000 aggregate principal amount of the
Company's 9 1/4% Senior Subordinated Notes due 2006 (the "Notes"). In order
to induce the Initial Purchasers to enter into the Purchase Agreement, the
Company and the Subsidiary Guarantors have agreed to provide the registration
rights set forth in this Agreement for the benefit of the Initial Purchasers
and any subsequent holder or holders of the Notes. The execution and delivery
of this Agreement is a condition to the Initial Purchasers' obligation to
purchase the Notes under the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
As used in this Agreement, the following terms shall have the
following meanings:
Additional Interest: See Section 4 hereof.
Advice: See the last paragraph of Section 5 hereof.
Agreement: See the introductory paragraphs hereto.
Applicable Period: See Section 2 hereof.
Effectiveness Date: The 135th day after the Issue Date; provided,
however, that with respect to any Shelf Registration, the Effectiveness Date
shall be the 60th day after the Filing Date with respect thereto.
Effectiveness Period: See Section 3 hereof.
Event Date: See Section 4 hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.
Exchange Notes: See Section 2 hereof.
<PAGE>
Exchange Offer: See Section 2 hereof.
Exchange Offer Registration Statement: See Section 2 hereof.
Filing Date: (A) If no Registration Statement has been filed by the
Company and the Subsidiary Guarantors pursuant to this Agreement, the 45th
day after the Issue Date, and (B) in each other case (which may be applicable
notwithstanding the consummation of the Exchange Offer), the 30th day after
the delivery of a Shelf Notice.
Holder: Any holder of a Registrable Note or Registrable Notes.
Indemnified Person: See Section 7(c) hereof.
Indemnifying Person: See Section 7(c) hereof.
Indenture: The Indenture, dated as of March 10, 1998 by and between
the Company, the Subsidiary Guarantors and The First National Bank of
Maryland, as Trustee, pursuant to which the Notes are being issued, as the
same may be amended or supplemented from time to time in accordance with the
terms thereof.
Initial Purchasers: See the introductory paragraphs hereto.
Initial Shelf Registration: See Section 3(a) hereof.
Inspectors: See Section 5(n) hereof.
Issue Date: March 10, 1998, the date of original issuance of the
Notes.
Company: See the introductory paragraphs hereto.
NASD: See Section 5(s) hereof.
Participant: See Section 7(a) hereof.
Participating Broker-Dealer: See Section 2 hereof.
Person: An individual, trustee, corporation, partnership, joint
stock company, trust, unincorporated association, union, business
association, firm or other legal entity.
Private Exchange: See Section 2 hereof.
Private Exchange Notes: See Section 2 hereof.
Prospectus: The prospectus included in any Registration Statement
(including, without limitation, any prospectus subject to completion and a
prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule
430A promulgated under the Securities Act and any term sheet filed pursuant
to Rule 434 under the Securities Act), as amended or supplemented by any
prospectus supplement, and all other amendments and supplements to the
Prospectus, including
2
<PAGE>
post-effective amendments, and all material incorporated by reference or
deemed to be incorporated by reference in such Prospectus.
Purchase Agreement: See the introductory paragraphs hereof.
Records: See Section 5(n) hereof.
Registrable Notes: Each Note upon its original issuance and at all
times subsequent thereto, each Exchange Note as to which Section 2(c)(iv)
hereof is applicable upon original issuance and at all times subsequent
thereto and each Private Exchange Note upon original issuance thereof and at
all times subsequent thereto, until (i) a Registration Statement (other than,
with respect to any Exchange Note as to which Section 2(c)(iv) hereof is
applicable, the Exchange Offer Registration Statement) covering such Note,
Exchange Note or Private Exchange Note has been declared effective by the SEC
and such Note, Exchange Note or such Private Exchange Note, as the case may
be, has been disposed of in accordance with such effective Registration
Statement, (ii) such Note has been exchanged pursuant to the Exchange Offer
for an Exchange Note or Exchange Notes that may be resold without restriction
under state and federal securities laws, (iii) such Note, Exchange Note or
Private Exchange Note, as the case may be, ceases to be outstanding for
purposes of the Indenture or (iv) such Note, Exchange Note or Private
Exchange Note, as the case may be, may be resold without restriction or has
been resold pursuant to Rule 144 under the Securities Act.
Registration Statement: Any registration statement of the Company
and the Subsidiary Guarantors that covers any of the Notes, the Exchange
Notes or the Private Exchange Notes filed with the SEC under the Securities
Act, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits,
and all material incorporated by reference or deemed to be incorporated by
reference in such registration statement.
Rule 144: Rule 144 promulgated under the Securities Act, as such
Rule may be amended from time to time, or any similar rule (other than Rule
144A) or regulation hereafter adopted by the SEC providing for offers and
sales of securities made in compliance therewith resulting in offers and
sales by subsequent holders that are not affiliates of the Company and the
Subsidiary Guarantors of such securities being free of the registration and
prospectus delivery requirements of the Securities Act.
Rule 144A: Rule 144A promulgated under the Securities Act, as such
Rule may be amended from time to time, or any similar rule (other than Rule
144) or regulation hereafter adopted by the SEC.
Rule 415: Rule 415 promulgated 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.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
3
<PAGE>
Shelf Notice: See Section 2 hereof.
Shelf Registration: See Section 3(b) hereof.
Subsequent Shelf Registration: See Section 3(b) hereof.
Subsidiary Guarantors. As defined in the Indenture
TIA: The Trust Indenture Act of 1939, as amended.
Trustee: The trustee under the Indenture and the trustee (if
any) under any indenture governing the Exchange Notes and Private Exchange
Notes.
Underwritten registration or underwritten offering: A registration
in which securities of the Company or the Subsidiary Guarantors are sold to
an underwriter for reoffering to the public.
2. Exchange Offer
(a) The Company and the Subsidiary Guarantors shall file with the
SEC, no later than the Filing Date, a Registration Statement (the "Exchange
Offer Registration Statement") on an appropriate registration form with
respect to a registered offer (the "Exchange Offer") to exchange any and all
of the Registrable Notes for a like aggregate principal amount of notes of
the Company, guaranteed by the Subsidiary Guarantors, that are identical in
all material respects to the Notes (the "Exchange Notes"), except that the
Exchange Notes shall contain no restrictive legend thereon, and which are
entitled to the benefits of the Indenture or a trust indenture which is
identical in all material respects to the Indenture (other than such changes
to the Indenture or any such identical trust indenture as are necessary to
comply with the TIA) and which, in either case, has been qualified under the
TIA. Interest on each Exchange Note will accrue (A) from the later of (i) the
last interest payment date on which interest was paid on the Note surrendered
in exchange therefor or (ii) if the Note is surrendered for exchange on a
date in a period which includes the record date for an interest payment date
to occur on or after the date of the Exchange Offer and as to which interest
will be paid, the date of such interest payment date or (B) if no interest
has been paid on the Notes, from the Issue Date. The Exchange Offer shall
comply with all applicable tender offer rules and regulations under the
Exchange Act and other applicable law (provided, however, that the Company
and the Subsidiary Guarantors shall not be obligated to file in any
jurisdiction in which they are not qualified or take any action that would
subject them to general service of process or taxation in any jurisdiction
where they are not so subject). The Company and the Subsidiary Guarantors
shall use their best efforts to (x) cause the Exchange Offer Registration
Statement to be declared effective under the Securities Act on or before the
Effectiveness Date; (y) keep the Exchange Offer open for at least 30 days (or
longer if required by applicable law) after the date that notice of the
Exchange Offer is mailed to Holders; and (z) consummate the Exchange Offer on
or prior to the 165th day following the date on which the Exchange Offer
Registration Statement is declared effective by the SEC.
Each Holder that participates in the Exchange Offer will be
required, as a condition to its participation in the Exchange Offer, to
represent to the Company and the Subsidiary Guarantors in writing (which may
be contained in the applicable letter of transmittal)
4
<PAGE>
that any Exchange Notes to be received by it will be acquired in the
ordinary course of its business, that at the time of the consummation of the
Exchange Offer such Holder will have no arrangement or understanding with any
Person to participate in the distribution (within the meaning of the
Securities Act) of the Exchange Notes in violation of the provisions of the
Securities Act, that such Holder is not an affiliate of the Company and the
Subsidiary Guarantors within the meaning of the Securities Act, that if such
holder is not a broker-dealer, that it is not engaged in, and does not intend
to engage in, the distribution of Exchange Notes, and that if such Holder is
a Participating Broker-Dealer (as hereinafter defined) that will receive
Exchange Notes for its own account in exchange for Notes that were acquired
as a result of market-making or other trading activities, that it will
deliver a prospectus in connection with any resale of such Exchange Notes.
Upon consummation of the Exchange Offer in accordance with this
Section 2, the provisions of this Agreement shall continue to apply, mutatis
mutandis, solely with respect to Registrable Notes that are Private Exchange
Notes, Exchange Notes as to which Section 2(c)(iv) is applicable and Exchange
Notes held by Participating Broker-Dealers (as hereinafter defined), and the
Company and the Subsidiary Guarantors shall have no further obligation to
register Registrable Notes (other than Private Exchange Notes and other than
in respect of any Exchange Notes as to which clause 2(c)(iv) hereof applies)
pursuant to Section 3 hereof.
No securities other than the Exchange Notes shall be included in the
Exchange Offer Registration Statement; provided, that the Company and the
Subsidiary Guarantors may include in the Exchange Offer Registration
Statement additional notes issued pursuant to the Indenture.
The Company and the Subsidiary Guarantors shall include within the
Prospectus contained in the Exchange Offer Registration Statement a section
entitled "Plan of Distribution," reasonably acceptable to the Holders, which
shall contain a summary statement of the positions taken or policies made by
the staff of the SEC with respect to the potential "underwriter" status of
any broker-dealer that is the beneficial owner (as defined in Rule 13d-3
under the Exchange Act) of Exchange Notes received by such broker-dealer in
the Exchange Offer (a "Participating Broker-Dealer"), whether such positions
or policies have been publicly disseminated by the staff of the SEC or such
positions or policies represent the prevailing views of the staff of the SEC.
Such "Plan of Distribution" section shall also expressly permit, to the
extent permitted by applicable policies and regulations of the SEC, the use
of the Prospectus by all Persons subject to the prospectus delivery
requirements of the Securities Act, including, to the extent permitted by
applicable policies and regulations of the SEC, all Participating
Broker-Dealers, and include a statement describing the means by which
Participating Broker-Dealers may resell the Exchange Notes in compliance with
the Securities Act.
The Company and the Subsidiary Guarantors shall use their best
efforts to keep the Exchange Offer Registration Statement effective and to
amend and supplement the Prospectus contained therein in order to permit such
Prospectus to be lawfully delivered by all Persons subject to the prospectus
delivery requirements of the Securities Act for such period of time as is
necessary to comply with applicable law in connection with any resale of the
Exchange Notes covered thereby; provided, however, that such period shall not
exceed 60 days after such
5
<PAGE>
Exchange Offer Registration Statement is declared effective (or such longer
period if extended pursuant to the last paragraph of Section 5 hereof) (the
"Applicable Period").
If, prior to consummation of the Exchange Offer, any of the Initial
Purchasers holds any Notes acquired by it that have, or that are reasonably
likely to be determined to have, the status of an unsold allotment in an
initial distribution, the Company and the Subsidiary Guarantors upon the
request of any such Holder shall simultaneously with the delivery of the
Exchange Notes in the Exchange Offer, issue and deliver to any such Holder,
in exchange (the "Private Exchange") for such Notes held by any such Holder,
a like principal amount of notes (the "Private Exchange Notes") of the
Company that are identical in all material respects to the Exchange Notes
except for the placement of a restrictive legend on such Private Exchange
Notes. The Private Exchange Notes shall be issued pursuant to the same
indenture as the Exchange Notes and, if possible, bear the same CUSIP number
as the Exchange Notes.
(b) In connection with the Exchange Offer, the Company and the
Subsidiary Guarantors shall:
(1) mail, or cause to be mailed, to each Holder
entitled to participate in the Exchange Offer a copy of the Prospectus
forming part of the Exchange Offer Registration Statement, together
with an appropriate letter of transmittal and related documents;
(2) keep the Exchange Offer open for not less than 30
days after the date that notice of the Exchange Offer is mailed to
Holders (or longer if required by applicable law);
(3) utilize the services of a depository for the
Exchange Offer with an address in (i) the Borough of Manhattan, The
City of New York or (ii) The City of Baltimore;
(4) permit Holders to withdraw tendered Notes at any
time prior to the close of business, New York time, on the last
business day on which the Exchange Offer shall remain open; and
(5) otherwise comply in all material respects with
all applicable laws, rules and regulations.
As soon as practicable after the close of the Exchange Offer and the
Private Exchange, if any, the Company and the Subsidiary Guarantors shall:
(a) accept for exchange all Registrable Notes validly
tendered and not validly withdrawn pursuant to the Exchange Offer and
the Private Exchange, if any;
(b) deliver to the Trustee for cancellation all
Registrable Notes so accepted for exchange; and
6
<PAGE>
(c) cause the Trustee to authenticate and deliver
promptly to each Holder of Notes, Exchange Notes or Private Exchange
Notes, as the case may be, equal in principal amount to the Notes of
such Holder so accepted for exchange.
The Exchange Offer and the Private Exchange shall not be subject to
any conditions, other than that (i) the Exchange Offer or Private Exchange,
as the case may be, does not violate applicable law or any applicable
interpretation of the staff of the SEC, (ii) no action or proceeding shall
have been instituted or threatened in any court or by any governmental agency
which might materially impair the ability of the Company and the Subsidiary
Guarantors to proceed with the Exchange Offer or the Private Exchange, and no
material adverse development shall have occurred in any existing action or
proceeding with respect to the Company and the Subsidiary Guarantors and
(iii) all governmental approvals shall have been obtained, which approvals
the Company and the Subsidiary Guarantors deem necessary for the consummation
of the Exchange Offer or Private Exchange.
The Exchange Notes and the Private Exchange Notes shall be issued
under (i) the Indenture or (ii) an indenture identical in all material
respects to the Indenture and which, in either case, has been qualified under
the TIA or is exempt from such qualification and shall provide that the
Exchange Notes shall not be subject to the transfer restrictions set forth in
the Indenture. The Indenture or such indenture shall provide that the
Exchange Notes, the Private Exchange Notes and the Notes shall vote and
consent together on all matters as one class and that none of the Exchange
Notes, the Private Exchange Notes or the Notes will have the right to vote or
consent as a separate class on any matter.
(c) If, (i) because of any change in law or in currently prevailing
interpretations of the staff of the SEC, the Company and the Subsidiary
Guarantors are not permitted to effect an Exchange Offer, (ii) the Exchange
Offer is not consummated within 180 days of the Issue Date, (iii) any holder
of Private Exchange Notes so requests in writing to the Company within 60
days after the consummation of the Exchange Offer, or (iv) in the case of any
Holder that participates in the Exchange Offer, such Holder does not receive
Exchange Notes on the date of the exchange that may be sold without
restriction under state and federal securities laws (other than due solely to
the status of such Holder as an affiliate of the Company and the Subsidiary
Guarantors within the meaning of the Securities Act), then in the case of
each of clauses (i) to and including (iv) of this sentence, the Company and
the Subsidiary Guarantors shall promptly deliver to the Holders and the
Trustee written notice thereof (the "Shelf Notice") and shall file a Shelf
Registration pursuant to Section 3 hereof.
3. Shelf Registration
If at any time a Shelf Notice is delivered as contemplated by
Section 2(c) hereof, then:
(a) Shelf Registration. The Company and the Subsidiary Guarantors
shall file with the SEC a Registration Statement for an offering to be made
on a continuous basis pursuant to Rule 415 covering all of the Registrable
Notes not exchanged in the Exchange Offer, Private Exchange Notes and
Exchange Notes as to which Section 2(c)(iv) is applicable (the "Initial Shelf
Registration"). The Company and the Subsidiary Guarantors shall use their
best efforts to file
7
<PAGE>
with the SEC the Initial Shelf Registration on or before the applicable
Filing Date. The Initial Shelf Registration shall be on Form S-1 or another
appropriate form permitting registration of such Registrable Notes for resale
by Holders in the manner or manners designated by them (including, without
limitation, one or more underwritten offerings). The Company and the
Subsidiary Guarantors shall not permit any securities other than the
Registrable Notes to be included in the Initial Shelf Registration or any
Subsequent Shelf Registration (as defined below).
The Company and the Subsidiary Guarantors shall use their best
efforts to cause the Initial Shelf Registration to be declared effective
under the Securities Act on or prior to the Effectiveness Date and to keep
the Initial Shelf Registration continuously effective under the Securities
Act until the date which is two years from the Issue Date (the "Effectiveness
Period"), or such shorter period ending when (i) all Registrable Notes
covered by the Initial Shelf Registration have been sold in the manner set
forth and as contemplated in the Initial Shelf Registration or (ii) a
Subsequent Shelf Registration covering all of the Registrable Notes covered
by and not sold under the Initial Shelf Registration or an earlier Subsequent
Shelf Registration has been declared effective under the Securities Act;
provided, however, that the Effectiveness Period in respect of the Initial
Shelf Registration shall be extended to the extent required to permit dealers
to comply with the applicable prospectus delivery requirements of Rule 174
under the Securities Act and as otherwise provided herein.
(b) Subsequent Shelf Registrations. If the Initial Shelf
Registration or any Subsequent Shelf Registration ceases to be effective for
any reason at any time during the Effectiveness Period (other than because of
the sale of all of the securities registered thereunder), the Company and the
Subsidiary Guarantors shall use their best efforts to obtain the prompt
withdrawal of any order suspending the effectiveness thereof, and in any
event shall within 30 days of such cessation of effectiveness amend the
Initial Shelf Registration in a manner to obtain the withdrawal of the order
suspending the effectiveness thereof, or file an additional "shelf"
Registration Statement pursuant to Rule 415 covering all of the Registrable
Notes covered by and not sold under the Initial Shelf Registration or an
earlier Subsequent Shelf Registration (each, a "Subsequent Shelf
Registration"). If a Subsequent Shelf Registration is filed, the Company and
the Subsidiary Guarantors shall use their best efforts to cause the
Subsequent Shelf Registration to be declared effective under the Securities
Act as soon as practicable after such filing and to keep such Subsequent
Shelf Registration continuously effective for a period equal to the number of
days in the Effectiveness Period less the aggregate number of days during
which the Initial Shelf Registration or any Subsequent Shelf Registration was
previously continuously effective. As used herein the term "Shelf
Registration" means the Initial Shelf Registration and any Subsequent Shelf
Registration.
(c) Supplements and Amendments. The Company and the Subsidiary
Guarantors shall promptly supplement and amend any Shelf Registration if
required by the rules, regulations or instructions applicable to the
registration form used for such Shelf Registration, if required by the
Securities Act, or if reasonably requested by the Holders of a majority in
aggregate principal amount of the Registrable Notes covered by such
Registration Statement or by any underwriter of such Registrable Notes.
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4. Additional Interest
The Company and the Initial Purchasers agree that the Holders will
suffer damages if the Company and the Subsidiary Guarantors fail to fulfill
their obligations under Section 2 or Section 3 hereof and that it would not
be feasible to ascertain the extent of such damages with precision.
Accordingly, the Company agrees to pay, as liquidated damages, additional
interest (the "Additional Interest") in respect of the Notes under the
circumstances and to the extent set forth below (each of which shall be given
independent effect):
(i) if (A) neither the Exchange Offer Registration Statement
nor the Initial Shelf Registration has been filed on or prior
to the applicable Filing Date or (B) notwithstanding that the
Company and the Subsidiary Guarantors have consummated or will
consummate the Exchange Offer, the Company and the Subsidiary
Guarantors are required to file a Shelf Registration and such
Shelf Registration is not filed on or prior to the Filing Date
applicable thereto, then, commencing on the day after any such
Filing Date, Additional Interest shall accrue on the principal
amount of the Notes at a rate of 0.50% per annum for the first
90 days immediately following each such Filing Date, and such
Additional Interest rate shall increase by an additional 0.50%
per annum at the beginning of each subsequent 90-day period;
or
(ii) if (A) neither the Exchange Offer Registration Statement
nor the Initial Shelf Registration is declared effective by
the SEC on or prior to 135 days after the Issue Date (with
respect to the Exchange Offer Registration Statement) or 60
days after the applicable Filing Date (with respect to the
Initial Shelf Registration Statement) or (B) notwithstanding
that the Company and the Subsidiary Guarantors have
consummated or will consummate the Exchange Offer, the Company
and the Subsidiary Guarantors are required to file a Shelf
Registration and such Shelf Registration is not declared
effective by the SEC on or prior to the Effectiveness Date in
respect of such Shelf Registration, then, commencing on the
day after such Effectiveness Date, Additional Interest shall
accrue on the principal amount of the Notes at a rate of 0.50%
per annum for the first 90 days immediately following the day
after such Effectiveness Date, and such Additional Interest
rate shall increase by an additional 0.50% per annum at the
beginning of each subsequent 90-day period; or
(iii) if (A) the Company and the Subsidiary Guarantors have
not exchanged Exchange Notes for all Notes validly tendered in
accordance with the terms of the Exchange Offer on or prior to
the 45th day after the date on which the Exchange Offer
Registration Statement relating thereto was declared effective
or (B) if applicable, a Shelf Registration has been declared
effective and such Shelf Registration ceases to be effective
at any time during the Effectiveness Period, then Additional
Interest shall accrue on the principal amount of the Notes at
a rate of 0.50% per annum for the first 90 days commencing on
(x) the 46th day after such effective date, in the case of (A)
above, or (y) the day such Shelf Registration ceases to be
effective in the case of (B) above, such Additional Interest
rate
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<PAGE>
increasing by an additional 0.50% per annum at the beginning
of each such subsequent 90-day period;
provided, however, that the Additional Interest rate on the Notes may not
exceed at any one time in the aggregate 1.00% per annum; provided, further,
however, that (1) upon the filing of the applicable Exchange Offer
Registration Statement or the applicable Shelf Registration as required
hereunder (in the case of clause (i) above of this Section 4), (2) upon the
effectiveness of the Exchange Offer Registration Statement or the applicable
Shelf Registration Statement as required hereunder (in the case of clause
(ii) of this Section 4), or (3) upon the exchange of the applicable Exchange
Notes for all Notes tendered (in the case of clause (iii)(A) of this Section
4), or upon the effectiveness of the applicable Shelf Registration Statement
which had ceased to remain effective (in the case of (iii)(B) of this Section
4), Additional Interest on the Notes in respect of which such events relate
as a result of such clause (or the relevant subclause thereof), as the case
may be, shall cease to accrue.
The Company shall notify the Trustee within three business days
after each and every date on which an event occurs in respect of which
Additional Interest is required to be paid (an "Event Date"). Any amounts of
Additional Interest due pursuant to (a)(i), (a)(ii) or (a)(iii) of this
Section 4 will be payable in cash semiannually on each March 15 and September
15 (to the holders of record on the March 1 and September 1 immediately
preceding such dates), commencing with the first such date occurring after
any such Additional Interest commences to accrue. The amount of Additional
Interest will be determined by multiplying the applicable Additional Interest
rate by the principal amount of the Registrable Notes, multiplied by a
fraction, the numerator of which is the number of days such Additional
Interest rate was applicable during such period (determined on the basis of a
360-day year comprised of twelve 30-day months and, in the case of a partial
month, the actual number of days elapsed), and the denominator of which is
360.
5. Registration Procedures
In connection with the filing of any Registration Statement pursuant
to Sections 2 or 3 hereof, the Company and the Subsidiary Guarantors shall
effect such registrations to permit the sale of the securities covered
thereby in accordance with the intended method or methods of disposition
thereof, and pursuant thereto and in connection with any Registration
Statement filed by the Company and the Subsidiary Guarantors hereunder the
Company and the Subsidiary Guarantors shall:
(a) Prepare and file with the SEC prior to the applicable Filing
Date, a Registration Statement or Registration Statements as prescribed by
Sections 2 or 3 hereof, and use their best efforts to cause each such
Registration Statement to become effective and remain effective as provided
herein; provided, however, that, if (1) such filing is pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered
under the Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period relating thereto to the extent
reasonably practicable, before filing any Registration Statement or
Prospectus or any amendments or supplements thereto, the Company and the
Subsidiary Guarantors shall furnish to and afford the Holders of the
Registrable Notes covered by such Registration Statement or each
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such Participating Broker-Dealer, as the case may be, their counsel and the
managing underwriters, if any, up to three business days to review copies of
all such documents (including copies of any documents to be incorporated by
reference therein and all exhibits thereto) proposed to be filed (in each
case at least five days prior to such filing, or such later date as is
reasonable under the circumstances). The Company and the Subsidiary
Guarantors shall not file any Registration Statement or Prospectus or any
amendments or supplements thereto if the Holders of a majority in aggregate
principal amount of the Registrable Notes covered by such Registration
Statement, or any such Participating Broker-Dealer, as the case may be, their
counsel, or the managing underwriters, if any, shall reasonably object;
provided, however, such objection shall not be due to adverse market
conditions.
(b) Prepare and file with the SEC such amendments and post-effective
amendments to each Shelf Registration Statement or Exchange Offer
Registration Statement, as the case may be, as may be necessary to keep such
Registration Statement continuously effective for the Effectiveness Period or
the Applicable Period, as the case may be; cause the related Prospectus to be
supplemented by any Prospectus supplement required by applicable law, and as
so supplemented to be filed pursuant to Rule 424 (or any similar provisions
then in force) promulgated under the Securities Act; and comply with the
provisions of the Securities Act and the Exchange Act applicable to each of
them with respect to the disposition of all securities covered by such
Registration Statement as so amended or in such Prospectus as so supplemented
and with respect to the subsequent resale of any securities being sold by a
Participating Broker-Dealer covered by any such Prospectus.
(c) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered
under the Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period relating thereto from whom the
Company has received written notice that it will be a Participating dDealer
in the Exchange Offer, notify the selling Holders of Registrable Notes, or
each such Participating Broker-Dealer, as the case may be, their counsel and
the managing underwriters, if any, promptly, and confirm such notice in
writing, (i) when a Prospectus or any Prospectus supplement or post-effective
amendment has been filed, and, with respect to a Registration Statement or
any post-effective amendment, when the same has become effective under the
Securities Act (including in such notice a written statement that any Holder
may, upon request, obtain, at the sole expense of the Company and the
Subsidiary Guarantors, one conformed copy of such Registration Statement or
post-effective amendment including financial statements and schedules,
documents incorporated or deemed to be incorporated by reference and
exhibits), (ii) of the issuance by the SEC of any stop order suspending the
effectiveness of a Registration Statement or of any order preventing or
suspending the use of any preliminary prospectus or the initiation of any
proceedings for that purpose, (iii) if at any time when a prospectus is
required by the Securities Act to be delivered in connection with sales of
the Registrable Notes or resales of Exchange Notes by Participating
Broker-Dealers the representations and warranties of the Company contained in
any agreement (including any underwriting agreement) contemplated by Section
5(m) hereof cease to be true and correct in all material respects, (iv) of
the receipt by the Company and the Subsidiary Guarantors of any notification
with respect to the suspension of the qualification or exemption from
qualification of a Registration Statement or any of the Registrable Notes or
the Exchange Notes to be sold by any Participating Broker-Dealer for offer
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<PAGE>
or sale in any jurisdiction, or the initiation or threatening of any proceeding
for such purpose, (v) of the happening of any event, the existence of any
condition or any information becoming known that makes any statement made in
such Registration Statement or related Prospectus or any document incorporated
or deemed to be incorporated therein by reference untrue in any material respect
or that requires the making of any changes in or amendments or supplements to
such Registration Statement, Prospectus or documents so that, in the case of the
Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case of
the Prospectus, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and (vi) of the Company's and the Subsidiary Guarantors'
determination that a post-effective amendment to a Registration Statement would
be appropriate.
(d) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered
under the Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, use their reasonable best
efforts to prevent the issuance of any order suspending the effectiveness of
a Registration Statement or of any order preventing or suspending the use of
a Prospectus or suspending the qualification (or exemption from
qualification) of any of the Registrable Notes or the Exchange Notes to be
sold by any Participating Broker-Dealer, for sale in any jurisdiction, and,
if any such order is issued, to use its reasonable best efforts to obtain the
withdrawal of any such order at the earliest possible moment.
(e) If a Shelf Registration is filed pursuant to Section 3 and if
reasonably requested by the managing underwriter or underwriters (if any),
the Holders of a majority in aggregate principal amount of the Registrable
Notes being sold in connection with an underwritten offering or any
Participating Broker-Dealer, (i) as promptly as practicable incorporate in a
prospectus supplement or post-effective amendment such information as the
managing underwriter or underwriters (if any), such Holders, any
Participating Broker-Dealer or counsel for any of them reasonably request to
be included therein, (ii) make all required filings of such prospectus
supplement or such post-effective amendment as soon as legally required after
the Company and the Subsidiary Guarantors have received notification of the
matters to be incorporated in such prospectus supplement or post-effective
amendment.
(f) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered
under the Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, furnish to each selling Holder
of Registrable Notes and to each such Participating Broker-Dealer who so
requests and to their respective counsel and each managing underwriter, if
any, at the sole expense of the Company, one conformed copy of the
Registration Statement or Registration Statements and each post-effective
amendment thereto, including financial statements and schedules, and, if
requested, all documents incorporated or deemed to be incorporated therein by
reference and all exhibits.
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<PAGE>
(g) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered
under the Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, deliver to each selling Holder
of Registrable Notes, or each such Participating Broker-Dealer, as the case
may be, their respective counsel, and the underwriters, if any, at the sole
expense of the Company and the Subsidiary Guarantors, as many copies of the
Prospectus or Prospectuses (including each form of preliminary prospectus)
and each amendment or supplement thereto and any documents incorporated by
reference therein as such Persons may reasonably request; and, subject to the
last paragraph of this Section 5, the Company and the Subsidiary Guarantors
hereby consent to the use of such Prospectus and each amendment or supplement
thereto by each of the selling Holders of Registrable Notes or each such
Participating Broker-Dealer, as the case may be, and the underwriters or
agents, if any, and dealers (if any), in connection with the offering and
sale of the Registrable Notes covered by, or the sale by Participating
Broker-Dealers of the Exchange Notes pursuant to, such Prospectus and any
amendment or supplement thereto.
(h) Prior to any public offering of Registrable Notes or any
delivery of a Prospectus contained in the Exchange Offer Registration
Statement by any Participating Broker-Dealer who seeks to sell Exchange Notes
during the Applicable Period, use their best efforts to register or qualify,
and to cooperate with the selling Holders of Registrable Notes or each such
Participating Broker-Dealer, as the case may be, the managing underwriter or
underwriters, if any, and their respective counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Notes for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any selling Holder, Participating Broker-Dealer, or the managing underwriter
or underwriters reasonably request in writing; provided, however, that where
Exchange Notes held by Participating Broker-Dealers or Registrable Notes are
offered other than through an underwritten offering, the Company and the
Subsidiary Guarantors agree to cause their counsel to perform Blue Sky
investigations and file registrations and qualifications required to be filed
pursuant to this Section 5(h), keep each such registration or qualification
(or exemption therefrom) effective during the period such Registration
Statement is required to be kept effective and do any and all other acts or
things reasonably necessary or advisable to enable the disposition in such
jurisdictions of the Exchange Notes held by Participating Broker-Dealers or
the Registrable Notes covered by the applicable Registration Statement;
provided, however, that the Company and the Subsidiary Guarantors shall not
be required to (A) qualify generally to do business in any jurisdiction where
they are not then so qualified, (B) take any action that would subject them
to general service of process in any such jurisdiction where they are not
then so subject or (C) subject themselves to taxation in excess of a nominal
dollar amount in any such jurisdiction where they are not then so subject.
(i) If a Shelf Registration is filed pursuant to Section 3 hereof,
cooperate with the selling Holders of Registrable Notes and the managing
underwriter or underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Notes to be sold, which
certificates shall not bear any restrictive legends and shall be in a form
eligible for deposit with The Depository Trust Company; and enable such
Registrable Notes to be in such denominations and registered in such names as
the managing underwriter or underwriters, if any, or Holders may request.
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(j) Subject to the proviso in (h) above, use their best efforts to
cause the Registrable Notes covered by the Registration Statement to be
registered with or approved by such other governmental agencies or
authorities as may be reasonably necessary to enable the seller or sellers
thereof or the underwriter or underwriters, if any, to consummate the
disposition of such Registrable Notes, except as may be required solely as a
consequence of the nature of such selling Holder's business, in which case
the Company and the Subsidiary Guarantors will cooperate in all reasonable
respects with the filing of such Registration Statement and the granting of
such approvals.
(k) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered
under the Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, upon the occurrence of any event
contemplated by paragraph 5(c)(v) or 5(c)(vi) hereof, as promptly as
practicable prepare and (subject to Section 5(a) hereof) file with the SEC,
at the sole expense of the Company and the Subsidiary Guarantors, a
supplement or post-effective amendment to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed
to be incorporated therein by reference, or file any other required document
so that, as thereafter delivered to the purchasers of the Registrable Notes
being sold thereunder or to the purchasers of the Exchange Notes to whom such
Prospectus will be delivered by a Participating Broker-Dealer, any such
Prospectus will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(l) Prior to the effective date of the first Registration Statement
relating to the Registrable Notes, (i) provide the Trustee with certificates
for the Registrable Notes in a form eligible for deposit with The Depository
Trust Company and (ii) provide a CUSIP number for the Registrable Notes.
(m) In connection with any underwritten offering of Registrable
Notes pursuant to a Shelf Registration, use their best efforts to enter into
an underwriting agreement as is customary in underwritten offerings of debt
securities similar to the Notes in form and substance reasonably satisfactory
to the Company and the Subsidiary Guarantors and take all such other actions
as are reasonably requested by the managing underwriter or underwriters in
order to expedite or facilitate the registration or the disposition of such
Registrable Notes, provided, however, that the Company and the Subsidiary
Guarantors shall have no liability for any compensation or reimbursement of
expenses due to any underwriter or other party assisting in the disposition
of such Registrable Notes or other expenses incurred by the Holder thereof in
connection with such disposition other than agreed upon expenses, and in such
connection, whether or not an underwriting agreement is entered into and
whether or not the registration is an underwritten offering and, in such
connection, (i) to the extent possible make such representations and
warranties to, and covenants with, the underwriters with respect to the
business of the Company, the Subsidiary Guarantors and the other subsidiaries
of the Company (including any acquired business, properties or entity, if
applicable) and the Registration Statement, Prospectus and documents, if any,
incorporated or deemed to be incorporated by reference therein, in each case,
as are customarily made by the Company and the Subsidiary Guarantors to
underwriters in underwritten offerings of debt securities similar to the
Notes, and
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confirm the same in writing if and when reasonably requested; (ii) obtain the
written opinions of counsel to the Company and the Subsidiary Guarantors and
written updates thereof in form, scope and substance reasonably satisfactory
to the managing underwriter or underwriters, addressed to the underwriters
covering the matters customarily covered in opinions reasonably requested in
underwritten offerings; (iii) to the extent permitted by the professional
standards governing the accounting profession at the time, use its best
efforts to obtain "cold comfort" letters and updates thereof in form, scope
and substance reasonably satisfactory to the managing underwriter or
underwriters from the independent public accountants of the Company and the
Subsidiary Guarantors (and, if necessary, any other independent public
accountants of the Company, any subsidiary of the Company or of any business
acquired by the Company for which financial statements and financial data
are, or are required to be, included or incorporated by reference in the
Registration Statement), addressed to each of the underwriters, such letters
to be in customary form and covering matters of the type customarily covered
in "cold comfort" letters in connection with underwritten offerings of debt
securities similar to the Notes as permitted by the Statement on Auditing
Standards No. 72; and (iv) if an underwriting agreement is entered into, the
same shall contain indemnification provisions and procedures comparable to
those set forth in Section 7 hereof (or such other provisions and procedures
acceptable to Holders of a majority in aggregate principal amount of
Registrable Notes covered by such Registration Statement and the managing
underwriter or underwriters or agents, if any). The above shall be done at
each closing under such underwriting agreement, or as and to the extent
required thereunder.
(n) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered
under the Securities Act by any Participating Broker-Dealer who seeks to sell
Exchange Notes during the Applicable Period, make available for inspection by
any selling Holder of such Registrable Notes being sold, or each such
Participating Broker-Dealer, as the case may be, any underwriter
participating in any such disposition of Registrable Notes, if any, and any
attorney, accountant or other agent retained by any such selling Holder or
each such Participating Broker-Dealer, as the case may be, or underwriter
(collectively, the "Inspectors"), at the offices where normally kept, during
reasonable business hours, all financial and other records, pertinent
corporate documents and instruments of the Company, the Subsidiary Guarantors
and any other subsidiaries of the Company (collectively, the "Records") as
shall be reasonably necessary to enable them to exercise any applicable due
diligence responsibilities, and cause the officers, directors and employees
of the Company, the Subsidiary Guarantors and any of the other subsidiaries
of the Company to supply all information reasonably requested by any such
Inspector in connection with such Registration Statement and Prospectus. Each
Inspector shall agree in writing that it will keep the Records confidential
and that it will not disclose any of the Records that the Company and the
Subsidiary Guarantors determine, in good faith, to be confidential and notify
the Inspectors in writing are confidential and that it will use such
information obtained pursuant to this provision only in connection with the
transaction for which the information was obtained unless (i) the release of
such Records is ordered pursuant to a subpoena or other order from a court of
competent jurisdiction, or (ii) the information in such Records has been made
generally available to the public; provided, however, that prior notice shall
be provided as soon as practicable to the Company and the Subsidiary
Guarantors of the potential disclosure of any information by such Inspector
pursuant to clause (i) of this sentence to permit the Company and the
Subsidiary Guarantors to obtain a protective
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order (or waive the provisions of this paragraph (n)) and that such Inspector
shall take such actions as are reasonably necessary to protect the
confidentiality of such information (if practicable).
(o) Provide an indenture trustee for the Registrable Notes or the
Exchange Notes, as the case may be, and cause the Indenture or the trust
indenture provided for in Section 2(a) hereof, as the case may be, to be
qualified under the TIA not later than the effective date of the first
Registration Statement relating to the Registrable Notes; and in connection
therewith, cooperate with the trustee under any such indenture and the
Holders of the Registrable Notes, to effect such changes to such indenture as
may be required for such indenture to be so qualified in accordance with the
terms of the TIA; and execute, and use their best efforts to cause such
trustee to execute, all documents as may be required to effect such changes,
and all other forms and documents required to be filed with the SEC to enable
such indenture to be so qualified in a timely manner.
(p) Use their best efforts to comply with all applicable rules and
regulations of the SEC and make generally available to their security holders
earnings statements satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder (or any similar rule promulgated under
the Securities Act) no later than 60 days after the end of any fiscal quarter
(or 120 days after the end of any 12-month period if such period is a fiscal
year) (i) commencing at the end of any fiscal quarter in which Registrable
Notes are sold to underwriters in a firm commitment or best efforts
underwritten offering and (ii) if not sold to underwriters in such an
offering, commencing on the first day of the first fiscal quarter of the
Company and the Subsidiary Guarantors after the effective date of a
Registration Statement, which statements shall cover said 12-month periods.
(q) Upon consummation of the Exchange Offer or a Private Exchange,
obtain an opinion of counsel to the Company and the Subsidiary Guarantors, in
a form customary for underwritten transactions, addressed to the Trustee for
the benefit of all Holders of Registrable Notes participating in the Exchange
Offer or the Private Exchange, as the case may be, that the Exchange Notes or
Private Exchange Notes, as the case may be, and the related indenture
constitute legal, valid and binding obligations of the Company and the
Subsidiary Guarantors, enforceable against it in accordance with their
respective terms, subject to customary exceptions and qualifications.
(r) If the Exchange Offer or a Private Exchange is to be
consummated, upon delivery of the Registrable Notes by Holders to the Company
and the Subsidiary Guarantors (or to such other Person as directed by the
Company and the Subsidiary Guarantors) in exchange for the Exchange Notes or
the Private Exchange Notes, as the case may be, the Company shall mark, or
cause to be marked, on such Registrable Notes that such Registrable Notes are
being canceled in exchange for the Exchange Notes or the Private Exchange
Notes, as the case may be; in no event shall such Registrable Notes be marked
as paid or otherwise satisfied.
(s) Cooperate with each seller of Registrable Notes covered by any
Registration Statement and each underwriter, if any, participating in the
disposition of such Registrable Notes and their respective counsel in
connection with any filings required to be made with the National Association
of Securities Dealers, Inc. (the "NASD").
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(t) Use their best efforts to take all other steps reasonably
necessary to effect the registration of the Exchange Notes and/or Registrable
Notes covered by a Registration Statement contemplated hereby.
The Company and the Subsidiary Guarantors may require each seller of
Registrable Notes as to which any registration is being effected to furnish
to the Company and the Subsidiary Guarantors such information regarding such
seller and the distribution of such Registrable Notes as the Company and the
Subsidiary Guarantors may, from time to time, reasonably request. The Company
and the Subsidiary Guarantors may exclude from such registration the
Registrable Notes of any seller so long as such seller fails to furnish such
information within a reasonable time after receiving such request. Each
seller as to which any Shelf Registration is being effected agrees to furnish
promptly to the Company and the Subsidiary Guarantors all information
required to be disclosed in order to make the information previously
furnished to the Company and the Subsidiary Guarantors by such seller not
materially misleading.
If any such Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company and the Subsidiary
Guarantors, then such Holder shall have the right to require (i) the
insertion therein of language, in form and substance reasonably satisfactory
to such Holder, to the effect that the holding by such Holder of such
securities is not to be construed as a recommendation by such Holder of the
investment quality of the securities covered thereby and that such holding
does not imply that such Holder will assist in meeting any future financial
requirements of the Company and the Subsidiary Guarantors, or (ii) in the
event that such reference to such Holder by name or otherwise is not required
by the Securities Act or any similar federal statute then in force, the
deletion of the reference to such Holder in any amendment or supplement to
the Registration Statement filed or prepared subsequent to the time that such
reference ceases to be required.
Each Holder of Registrable Notes and each Participating
Broker-Dealer agrees by its acquisition of such Registrable Notes or Exchange
Notes to be sold by such Participating Broker-Dealer, as the case may be,
that, upon actual receipt of any notice from the Company and the Subsidiary
Guarantors of the happening of any event of the kind described in Section
5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi) hereof, such Holder will forthwith
discontinue disposition of such Registrable Notes covered by such
Registration Statement or Prospectus or Exchange Notes to be sold by such
Holder or Participating Broker-Dealer, as the case may be, until such
Holder's or Participating Broker-Dealer's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 5(k) hereof, or
until it is advised in writing (the "Advice") by the Company and the
Subsidiary Guarantors that the use of the applicable Prospectus may be
resumed, and has received copies of any amendments or supplements thereto. In
the event that the Company and the Subsidiary Guarantors shall give any such
notice, the Applicable Period shall be extended by the number of days during
such periods from and including the date of the giving of such notice to and
including the date when each seller of Registrable Notes covered by such
Registration Statement or Exchange Notes to be sold by such Participating
Broker-Dealer, as the case may be, shall have received (x) the copies of the
supplemented or amended Prospectus contemplated by Section 5(k) hereof or (y)
the Advice.
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6. Registration Expenses
All fees and expenses incident to the performance of or compliance
with this Agreement by the Company and the Subsidiary Guarantors (other than
any underwriting discounts or commissions and fees and expenses of any legal
counsel for underwriters) shall be borne by the Company and the Subsidiary
Guarantors whether or not the Exchange Offer Registration Statement or any
Shelf Registration is filed or becomes effective or the Exchange Offer is
consummated, including, without limitation, (i) all registration and filing
fees (including, without limitation, (A) fees with respect to filings
required to be made with the NASD in connection with an underwritten offering
and (B) fees and expenses of compliance with state securities or Blue Sky
laws (including, without limitation, fees and disbursements of counsel in
connection with Blue Sky qualifications of the Registrable Notes or Exchange
Notes and determination of the eligibility of the Registrable Notes or
Exchange Notes for investment under the laws of such jurisdictions (x) where
the holders of Registrable Notes are located, in the case of the Exchange
Notes, or (y) as provided in Section 5(h) hereof, in the case of Registrable
Notes or Exchange Notes to be sold by a Participating Broker-Dealer during
the Applicable Period)), (ii) printing expenses, including, without
limitation, expenses of printing certificates for Registrable Notes or
Exchange Notes in a form eligible for deposit with The Depository Trust
Company and of printing prospectuses if the printing of prospectuses is
requested by the managing underwriter or underwriters, if any, by the Holders
of a majority in aggregate principal amount of the Registrable Notes included
in any Registration Statement or in respect of Registrable Notes or Exchange
Notes to be sold by any Participating Broker-Dealer during the Applicable
Period, as the case may be, (iii) messenger, telephone and delivery expenses,
(iv) fees and disbursements of counsel for the Company and the Subsidiary
Guarantors and reasonable fees and disbursements of one special counsel
satisfactory to the Company and the Subsidiary Guarantors for all of the
sellers of Registrable Notes (exclusive of any counsel retained pursuant to
Section 7 hereof) (provided, that such fees for special counsel shall not
exceed $10,000 in the aggregate for the Exchange Offer and $10,000 in the
aggregate for the Shelf Registration Statements in the aggregate), (v) fees
and disbursements of all independent certified public accountants referred to
in Section 5(m)(iii) hereof (including, without limitation, the expenses of
any special audit and "cold comfort" letters required by or incident to such
performance), (vi) Securities Act liability insurance, if the Company and the
Subsidiary Guarantors desire such insurance, (vii) fees and expenses of all
other Persons retained by the Company and the Subsidiary Guarantors, (viii)
internal expenses of the Company and the Subsidiary Guarantors (including,
without limitation, all salaries and expenses of officers and employees of
the Company and the Subsidiary Guarantors performing legal or accounting
duties), (ix) the expense of any annual audit, (x) any fees and expenses
incurred in connection with the listing of the securities to be registered on
any securities exchange, and the obtaining of a rating of the securities, in
each case, if applicable, and (xi) the expenses relating to printing, word
processing and distributing all Registration Statements, underwriting
agreements, indentures and any other documents necessary in order to comply
with this Agreement. Notwithstanding anything in this Section 6 to the
contrary, the Company and the Subsidiary Guarantors shall not be required to
pay (a) the fees and expenses of any Underwriter or of legal counsel for any
Underwriter, other than a "qualified independent underwriter" (acting solely
in such capacity) or (b) any underwriting discounts and commissions and
transfer taxes, if any, relating to the sale or disposition of such
Registrable Notes.
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<PAGE>
7. Indemnification
The Company and the Subsidiary Guarantors agree to indemnify and
hold harmless each Holder of Registrable Notes and each Participating
Broker-Dealer selling Exchange Notes during the Applicable Period, the
affiliates, officers, directors, representatives, employees and agents of
each such Person, and each Person, if any, who controls any such Person
within the meaning of either Section 15 of the Securities Act or Section 20
of the Exchange Act (each, a "Participant"), from and against any and all
losses, claims, damages, judgments, liabilities and expenses (including,
without limitation, the reasonable legal fees and other expenses actually
incurred in connection with any suit, action or proceeding or any claim
asserted) caused by, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement (or any amendment thereto) or Prospectus (as amended or
supplemented if the Company and the Subsidiary Guarantors shall have
furnished any amendments or supplements thereto) or any preliminary
prospectus, or caused by, arising out of or based upon any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in the case of the
Prospectus in light of the circumstances under which they were made, not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with information relating to
any Participant furnished to the Company in writing by such Participant
expressly for use therein.
Each Participant agrees, severally and not jointly, to indemnify and
hold harmless the Company and the Subsidiary Guarantors, their affiliates,
officers, directors, representatives, employees and agents of the Company and
the Subsidiary Guarantors and each Person who controls the Company and the
Subsidiary Guarantors within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act to the same extent (but on a several, and
not joint, basis) as the foregoing indemnity from the Company and the
Subsidiary Guarantors to each Participant, but only with reference to
information relating to such Participant furnished to the Company and the
Subsidiary Guarantors in writing by such Participant expressly for use in any
Registration Statement or Prospectus, any amendment or supplement thereto, or
any preliminary prospectus. The liability of any Participant under this
paragraph shall in no event exceed the proceeds received by such Participant
from sales of Registrable Notes or Exchange Notes giving rise to such
obligations.
If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted
against any Person in respect of which indemnity may be sought pursuant to
either of the two preceding paragraphs, such Person (the "Indemnified
Person") shall promptly notify the Persons against whom such indemnity may be
sought (the "Indemnifying Persons") in writing, and the Indemnifying Persons,
upon request of the Indemnified Person, shall retain counsel reasonably
satisfactory to the Indemnified Person to represent the Indemnified Person
and any others the Indemnifying Persons may reasonably designate in such
proceeding and shall pay the fees and expenses actually incurred by such
counsel related to such proceeding; provided, however, that the failure to so
notify the Indemnifying Persons will not relieve it from any liability under
paragraph (a) or (b) above unless and to the extent such failure results in
the loss or compromise by the indemnifying party of substantial rights and
defenses. In any such proceeding, any Indemnified Person shall have
19
<PAGE>
the right to retain its own counsel, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Person unless (i) the
Indemnifying Persons and the Indemnified Person shall have mutually agreed to
the contrary, (ii) the Indemnifying Persons shall have failed within a
reasonable period of time to retain counsel reasonably satisfactory to the
Indemnified Person or (iii) the named parties in any such proceeding
(including any impleaded parties) include both any Indemnifying Person and
the Indemnified Person or any affiliate thereof and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the Indemnifying
Persons shall not, in connection with such proceeding or separate but
substantially similar related proceeding in the same jurisdiction arising out
of the same general allegations, be liable for the fees and expenses of more
than one separate firm (in addition to any local counsel) for all Indemnified
Persons, and that all such fees and expenses shall be reimbursed as they are
incurred. Any such separate firm for the Participants and such control
Persons of Participants shall be designated in writing by Participants who
sold a majority in interest of Registrable Notes and Exchange Notes sold by
all such Participants and shall be reasonably acceptable to the Company and
the Subsidiary Guarantors, and any such separate firm for the Company and the
Subsidiary Guarantors, their affiliates, officers, directors,
representatives, employees and agents and such control Persons of the Company
and the Subsidiary Guarantors shall be designated in writing by the Company
and the Subsidiary Guarantors and shall be reasonably acceptable to the
Indemnified Persons.
The Indemnifying Persons shall not be liable for any settlement of
any proceeding effected without its prior written consent, but if settled
with such consent or if there be a final non-appealable judgment for the
plaintiff for which the Indemnified Person is entitled to indemnification
pursuant to this Agreement, each of the Indemnifying Persons agrees to
indemnify and hold harmless each Indemnified Person from and against any loss
or liability by reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time an Indemnified Person shall have requested
an Indemnifying Person to reimburse the Indemnified Person for reasonable
fees and expenses incurred by counsel as contemplated by the third sentence
of the preceding paragraph, the Indemnifying Person agrees that it shall be
liable for any settlement of any proceeding effected without its written
consent if (i) such settlement is entered into more than 45 days after
receipt by such Indemnifying Person of the aforesaid request and (ii) such
Indemnifying Person shall not have reimbursed the Indemnified Person in
accordance with such request prior to the date of such settlement; provided,
however, that the Indemnifying Person shall not be liable for any settlement
effected without its consent pursuant to this sentence if the Indemnifying
Party is contesting such request for reimbursement.
No Indemnifying Person shall, without the prior written consent of
the Indemnified Persons (which consent shall not be unreasonably withheld or
delayed), effect any settlement or compromise of any pending or threatened
proceeding in respect of which any Indemnified Person is or could have been a
party, or indemnity could have been sought hereunder by such Indemnified
Person, unless such settlement (A) includes an unconditional written release
of such Indemnified Person, in form and substance reasonably satisfactory to
such Indemnified Person, from all liability on claims that are the subject
matter of such proceeding and (B) does not include any statement as to an
admission of fault, culpability or failure to act by or on behalf of such
Indemnified Person.
20
<PAGE>
If the indemnification provided for in the first and second
paragraphs of this Section 7 is for any reason unavailable to, or
insufficient to hold harmless, an Indemnified Person in respect of any
losses, claims, damages or liabilities referred to therein, then each
Indemnifying Person under such paragraphs, in lieu of indemnifying such
Indemnified Person thereunder and in order to provide for just and equitable
contribution, shall contribute to the amount paid or payable by such
Indemnified Person as a result of such losses, claims, damages or liabilities
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Person or Persons on the one hand and the Indemnified Person or
Persons on the other in connection with the statements or omissions or
alleged statements or omissions that resulted in such losses, claims, damages
or liabilities (or actions in respect thereof) as well as any other relevant
equitable considerations. The relative fault of the parties shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Company and the
Subsidiary Guarantors on the one hand or such Participant or such other
Indemnified Person, as the case may be, on the other, the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission, and any other equitable considerations
appropriate in the circumstances.
The parties agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Participants 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 Person as a result of
the losses, claims, damages, judgments, liabilities and expenses referred to
in the immediately preceding paragraph shall be deemed to include, subject to
the limitations set forth above, any reasonable legal or other expenses
actually incurred by such Indemnified Person in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 7, in no event shall a Participant be required to contribute any
amount in excess of the amount by which proceeds received by such Participant
from sales of Registrable Notes or Exchange Notes, as the case may be,
exceeds the amount of any damages that such Participant has otherwise been
required to pay or has paid by reason of such untrue or alleged untrue
statement 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.
Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 7 shall be paid by the Indemnifying Party to the Indemnified Party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 7 and the
representations and warranties of the Company and the Subsidiary Guarantors
set forth in this Agreement shall remain operative and in full force and
effect, regardless of (i) any investigation made by or on behalf of any
Holder or any person who controls a Holder, the Company and the Subsidiary
Guarantors, their directors, officers, employees or agents or any person
controlling the Company and the Subsidiary Guarantors, and (ii) any
termination of this Agreement.
21
<PAGE>
The indemnity and contribution agreements contained in this Section
7 will be in addition to any liability which the Indemnifying Persons may
otherwise have to the Indemnified Persons referred to above.
8. Rules 144 and 144A
The Company and the Subsidiary Guarantors covenant and agree that so
long as any Registrable Notes remain outstanding they will file the reports
required to be filed by them (if required) under the Securities Act and the
Exchange Act and the rules and regulations adopted by the SEC thereunder in a
timely manner in accordance with the requirements of the Securities Act and
the Exchange Act and, if at any time the Company and the Subsidiary
Guarantors are not required to file such reports, the Company and the
Subsidiary Guarantors will, upon the request of any Holder or beneficial
owner of Registrable Notes, make available such information necessary to
permit sales pursuant to Rule 144A under the Securities Act. The Company and
the Subsidiary Guarantors further covenant and agree, for so long as any
Registrable Notes remain outstanding that they will take such further action
as any Holder of Registrable Notes may reasonably request, all to the extent
required from time to time to enable such holder to sell Registrable Notes
without registration under the Securities Act within the limitation of the
exemptions provided by (a) Rule 144(k) and Rule 144A under the Securities
Act, as such Rules may be amended from time to time, or (b) any similar rule
or regulation hereafter adopted by the SEC.
9. Underwritten Registrations
If any of the Registrable Notes covered by any Shelf Registration
are to be sold in an underwritten offering, the investment banker or
investment bankers and manager or managers that will manage the offering will
be selected by the Holders of a majority in aggregate principal amount of
such Registrable Notes included in such offering and shall be reasonably
acceptable to the Company and the Subsidiary Guarantors.
No Holder of Registrable Notes may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Notes 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 required under the
terms of such underwriting arrangements.
10. Miscellaneous
(a) No Inconsistent Agreements. The Company and the Subsidiary
Guarantors have not, as of the date hereof, and the Company and the
Subsidiary Guarantors shall not, after the date of this Agreement, enter into
any agreement with respect to any of their securities that is inconsistent
with the rights granted to the Holders of Registrable Notes in this Agreement
or otherwise conflicts with the provisions hereof. The rights granted to the
Holders hereunder do not in any way conflict with and are not inconsistent
with the rights granted to the holders of the Company's and the Subsidiary
Guarantors' other issued and outstanding securities under any such
agreements. The Company and the Subsidiary Guarantors will not enter into any
22
<PAGE>
agreement with respect to any of their securities which will grant to any
Person piggy-back registration rights with respect to any Registration
Statement.
(b) Adjustments Affecting Registrable Notes. The Company and the
Subsidiary Guarantors shall not, directly or indirectly, take any action with
respect to the Registrable Notes as a class that would adversely affect the
ability of the Holders of Registrable Notes to include such Registrable Notes
in a registration undertaken pursuant to this Agreement.
(c) Amendments and Waivers. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to departures
from the provisions hereof may not be given, otherwise than with the prior
written consent of (I) the Company and the Subsidiary Guarantors and (II)(A)
the Holders of not less than a majority in aggregate principal amount of the
then outstanding Registrable Notes and (B) in circumstances that would
adversely affect the Participating Broker-Dealers, the Participating
Broker-Dealers holding not less than a majority in aggregate principal amount
of the Exchange Notes held by all Participating Broker-Dealers.
Notwithstanding the foregoing, a waiver or consent to depart from the
provisions hereof with respect to a matter that relates exclusively to the
rights of Holders of Registrable Notes whose securities are being sold
pursuant to a Registration Statement and that does not directly or indirectly
affect, impair, limit or compromise the rights of other Holders of
Registrable Notes may be given by Holders of at least a majority in aggregate
principal amount of the Registrable Notes being sold pursuant to such
Registration Statement.
(d) Notices. All notices and other communications (including,
without limitation, any notices or other communications to the Trustee)
provided for or permitted hereunder shall be made in writing by
hand-delivery, registered first-class mail, next-day air courier or facsimile:
(i) if to a Holder of the Registrable Notes or any
Participating Broker-Dealer, at the most current address of
such Holder or Participating Broker-Dealer, as the case may
be, set forth on the records of the registrar under the
Indenture.
(ii) if to the Company and the Subsidiary Guarantors, at the
address as follows:
SITEL Corporation
300 East Lombard Street, Suite 850
Baltimore, Maryland
Facsimile No.: (410) 659-5754
Attention: Phillip A. Clough
All such notices and communications shall be deemed to have been
duly given (i) when delivered by hand, if personally delivered; (ii) five
business days after being deposited in the mail, postage prepaid, if mailed;
(iii) one business day after being timely delivered to a next-day air
courier; and (iv) when receipt is acknowledged by the addressee, if sent by
facsimile.
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<PAGE>
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address and in the manner specified in such Indenture.
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties hereto, the Holders and the Participating Broker-Dealers.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT
TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(i) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the
parties hereto shall use their best efforts to find and employ an alternative
means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would
have executed the remaining terms, provisions, covenants and restrictions
without including any of such that may be hereafter declared invalid,
illegal, void or unenforceable.
(j) Securities Held by the Company or Its Affiliates. Whenever the
consent or approval of Holders of a specified percentage of Registrable Notes
is required hereunder, Registrable Notes held by the Company or its
affiliates (as such term is defined in Rule 405 under the Securities Act)
shall not be counted in determining whether such consent or approval was
given by the Holders of such required percentage.
(k) Third-Party Beneficiaries. Holders of Registrable Notes and
Participating Broker-Dealers are intended third-party beneficiaries of this
Agreement, and this Agreement may be enforced by such Persons.
(l) Entire Agreement. This Agreement, together with the Purchase
Agreement and the Indenture, is intended by the parties as a final and
exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained
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<PAGE>
herein and therein and any and all prior oral or written agreements,
representations, or warranties, contracts, understandings, correspondence,
conversations and memoranda between the Holders on the one hand and the
Company and the Subsidiary Guarantors on the other, or between or among any
agents, representatives, parents, subsidiaries, affiliates, predecessors in
interest or successors in interest with respect to the subject matter hereof
and thereof are merged herein and replaced hereby.
(m) Subsidiary Guarantor a Party. Immediately upon any subsidiary of
the Company becoming a Guarantor (as defined in the Indenture) the Company
shall cause such subsidiary to become a party hereto as a guarantor with
respect to the obligations of the Company hereunder by executing and
delivering to the Initial Purchasers a counterpart hereof.
25
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
SITEL CORPORATION
By:
-------------------------------------
Philip A. Clough
President
SITEL International, Inc., as
Subsidiary Guarantor
By:
-------------------------------------
Philip A. Clough
Vice President
SITEL Insurance Services, Inc., as
Subsidiary Guarantor
By:
-------------------------------------
Philip A. Clough
Vice President
Financial Insurance Services, Inc., as
Subsidiary Guarantor
By:
-------------------------------------
Philip A. Clough
Vice President
SITEL Support Services, Inc., as
Subsidiary Guarantor
By:
-------------------------------------
Philip A. Clough
Vice President
26
<PAGE>
SITEL Investments, Inc., as
Subsidiary Guarantor
By:
-------------------------------------
Philip A. Clough
Vice President
SITEL Software, Inc., as
Subsidiary Guarantor
By:
-------------------------------------
Philip A. Clough
Vice President
National Action Financial Services, Inc.,
as Subsidiary Guarantor
By:
-------------------------------------
Philip A. Clough
Vice President
SITEL Technical Services, Inc., as
Subsidiary Guarantor
By:
-------------------------------------
Philip A. Clough
Vice President
SITEL Insurance Marketing Services, Inc.,
as Subsidiary Guarantor
By:
-------------------------------------
Philip A. Clough
Vice President
27
<PAGE>
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
BT ALEX. BROWN INCORPORATED
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
SBC WARBURG DILLON READ INC.
as Initial Purchasers
By: BT Alex. Brown Incorporated
By:
-------------------------------
Name:
Title:
28
<PAGE>
April 24, 1998
SITEL Corporation
and the Subsidiary Guarantors listed below
7727 World Communications Drive
Omaha, Nebraska 68122
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
In connection with the Registration Statement filed on Form S-4 (the
"Registration Statement") filed by SITEL Corporation, a Minnesota corporation,
(the "Company"), SITEL International, Inc., SITEL Insurance Services, Inc.,
Financial Insurance Services, Inc., SITEL Support Services, Inc., SITEL
Insurance Marketing Services, Inc., SITEL Investments, Inc. and SITEL Software,
Inc., each a Nebraska corporation, National Action Financial Services, Inc., a
Georgia corporation, and SITEL Technical Services, Inc., a Wisconsin corporation
(collectively, the "Subsidiary Guarantors"), with the Securities and Exchange
Commission (the "SEC") on the date hereof, pursuant to the Securities Act of
1933, as amended (the "Act"), and the rules and regulations promulgated
thereunder, we have been asked as special counsel to render our opinion as the
legality of the securities being registered thereunder. The Registration
Statement relates to the registration under the Act of the Company's 9 1/4%
Senior Subordinated Notes due 2006 (the "New Notes") and the guarantees of the
New Notes by the Subsidiary Guarantors (the "Subsidiary Guarantees"). The New
Notes are to be offered in exchange for the 9 1/4% Senior Subordinated Notes due
2006 (the "Existing Notes") issued and sold by the Company on March 10, 1998 in
an offering exempt from registration under the Act. The New Notes will be issued
by the Company pursuant to the terms of the Indenture (the "Indenture"), dated
as of March 10, 1998, among the Company, the Subsidiary Guarantors and The First
National Bank of Maryland, as trustee (the "Trustee"). Capitalized terms used
herein and not otherwise defined herein shall have the respective meanings
ascribed thereto in the Registration Statement.
This opinion letter is being delivered in accordance with the
requirements of Item 601(b)(5) of Regulation S-K under the Act.
<PAGE>
SITEL Corporation
April 24, 1998
Page 2
In connection with this opinion, we have examined originals, conformed
copies or photocopies, certified or otherwise identified to our satisfaction, of
the following documents:
(i) the Registration Statement (including the exhibits
thereto);
(ii) the Indenture (including the Subsidiary Guarantees set
forth therein); and
(iii) the form of the New Notes.
In addition, we have examined: (i) such corporate records of the
Company and the Subsidiary Guarantors as we have considered appropriate,
including copies of their certificates of incorporation, as amended, and
by-laws, as amended, in each case, as in effect on the date hereof, and
certified copies of resolutions of the boards of directors of the Company and
the Subsidiary Guarantors; and (ii) such other certificates, agreements and
documents as we deemed relevant and necessary as a basis for the opinions
hereinafter expressed.
In our examination of the aforesaid documents, we have assumed, without
independent investigation, the genuineness of all signatures, the enforceability
of the documents against each party thereto other than the Company and the
Subsidiary Guarantors, the authenticity of all documents submitted to us as
originals, the conformity to the original documents of all documents submitted
to us as certified, photostatic, reproduced or conformed copies of validly
existing agreements or other documents, the authenticity of all such latter
documents and the legal capacity of all individuals who have executed any of the
documents which we examined. In expressing the opinions set forth herein, we
have relied upon the factual matters contained in the representations and
warranties of the Company and the Subsidiary Guarantors made in such documents
and upon certificates of public officials and officers of the Company and the
Subsidiary Guarantors.
Based on the foregoing, and subject to the assumptions, exceptions and
qualifications set forth herein, we are of the opinion that:
1. The Indenture (including the Subsidiary Guarantees set
forth therein) represents a valid and binding obligation of the Company
and each of the Subsidiary Guarantors enforceable against the Company
and each of the Subsidiary Guarantors in accordance with its terms,
except as such enforceability may be subject to (a) bankruptcy,
insolvency, fraudulent conveyance or transfer, reorganization,
moratorium or other similar laws affecting creditors' rights generally
and (b) general principles of equity (regardless of whether such
enforcement is considered in a proceeding in equity or at law).
<PAGE>
SITEL Corporation
April 24, 1998
Page 3
2. The New Notes will be legal, valid and binding obligations
of the Company enforceable against the Company in accordance with their
terms, except as such enforceability may be limited by (a) bankruptcy,
insolvency, fraudulent conveyance or transfer, reorganization,
moratorium and other similar laws affecting creditors' rights generally
and (b) general principles of equity (regardless of whether such
enforcement is considered in a proceeding in equity or at law) when (i)
the Registration Statement, as finally amended (including all necessary
post-effective amendments), shall have become effective under the Act;
(ii) the New Notes are duly executed and authenticated in accordance
with the terms of the Indenture; and (iii) the New Notes shall have
been issued and delivered in exchange for the Existing Notes pursuant
to the terms set forth in the Registration Statement.
Our opinions expressed above are limited to the laws of the State of
New York and the federal laws of the United States. Our opinions are rendered
only with respect to the laws, and the rules, regulations and orders thereunder,
that are currently in effect.
We hereby consent to the use of our name in the Registration Statement
and in the prospectus therein as the same appears in the caption "Legal Matters"
and to the use of this opinion as an exhibit to the Registration Statement. In
giving this consent, we do not thereby admit that we come within the category of
persons whose consent is required by the Act or by the rules and regulations
promulgated thereunder.
Very truly yours,
/s/ Kutak Rock
-----------------
Kutak Rock
<PAGE>
Exhibit 12.1
SITEL Corporation and Subsidiaries
Comparison of Ratio of Earnings to Fixed Charges
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
Pro Forma
1993 1994 1995 1996 1997 1997
---------- --------- ----------- --------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Pre-tax income (loss) from
continuing operations....... $ 4,026 $ 5,461 $ (20,046) $ 21,078 $ 14,118 $ 14,118
Fixed charges............... 1,418 1,848 2,582 3,568 10,790 17,378
---------- --------- ----------- --------- ---------- --------------
Earnings as adjusted (A)... $ 5,444 $ 7,309 $ (17,464) $ 24,646 $ 24,908 $ 31,496
---------- --------- ----------- --------- ---------- --------------
---------- --------- ----------- --------- ---------- --------------
Fixed charges:
Interest expense........... $ 820 $ 881 $ 1,315 $ 1,335 $ 5,657 $ 12,245
Capitalized interest....... 0 0 0 0 374 374
Rents under leases
representative of an interest
factor (1)................. 598 967 1,267 2,233 5,133 5,133
---------- --------- ----------- --------- ---------- --------------
Fixed charges as adjusted (B).. $ 1,418 $ 1,848 $ 2,582 $ 3,568 $ 11,164 $ 17,752
---------- --------- ----------- --------- ---------- --------------
---------- --------- ----------- --------- ---------- --------------
Ratio of earnings to fixed charges
(A) divided by (B)......... 3.84 3.96 -- 6.91 2.23 1.77
Deficiency of earnings to fixed
charges.................... -- -- $ 20,046 -- -- --
</TABLE>
- ---------
(1) Management of SITEL Corporation believes approximately one-third of rental
and lease expense is representative of the interest component of rent expense.
<PAGE>
EXHIBIT 23.2
ACCOUNTANTS' CONSENT
The Board of Directors
SITEL Corporation:
We consent to the use of our reports incorporated included herein and
incorporated by reference and to reference to our firm under the headings
"Summary Historical Consolidated Financial Data," "Selected Historical Financial
Data," and "Experts" in the registration statement on Form S-4.
KPMG Peat Marwick LLP
Omaha, Nebraska
April 20, 1998
<PAGE>
EXHIBIT 25
Registration No. 333-_________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST
INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
--------------------
THE FIRST NATIONAL BANK OF MARYLAND
(Exact name of trustee as specified in its charter)
United States 52-0312840
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or formation)
25 South Charles Street
Baltimore, Maryland 21201
(Address of principal (Zip code)
executive offices
Gregory K. Thoreson, General Counsel
The First National Bank of Maryland
25 South Charles Street
Baltimore, Maryland 21201
(410) 244-3800
(Name, address and telephone number of agent
for service of process)
SITEL CORPORATION
(Exact name of obligor as specified in its charter)
Minnesota 47-0684333
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or formation)
7277 World Communications Drive
Omaha, Nebraska 68122
(Address of principal (Zip code)
executive offices)
9 1/4% SENIOR SUBORDINATED NOTES DUE 2006
(Title of the indenture securities)
<PAGE>
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Comptroller of the Currency, Washington, D.C. 20219.
Federal Reserve Bank of Richmond, Richmond, Virginia 23261.
Federal Deposit Insurance Corporation,
Washington, D.C. 20429.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
(Because responses from the obligor and the underwriters have not yet
been received, Item 2 is at the date hereof based upon incomplete
information but is believed to be correct and may be considered to be
complete unless modified by an amendment to this Form T-1).
Item 16. List of Exhibits.
List below all exhibits filed as a part of this statement of
eligibility.
<TABLE>
<CAPTION>
Exhibit
- --------
<S> <C>
1 A copy of the articles of association of the trustee as now in effect is
incorporated herein by refererence to Exhibit 1 to Form T-1 (Exhibit 25
to the Registration Statement on Form S-3, Registration No. 333-27305)
2 A copy of the certificate of authority of the trustee to commence
business is incorporated herein by reference to Exhibit T1-2 to Form T-1
(Exhibit 26 to the Registration Statement on Form S-2, Registration No.
2-98697)
3 A copy of the authorization of the trustee to exercise corporate trust
powers is incorporated herein by reference to Exhibit T1-3 of Amendment
No. 1 to Form T-1 (Exhibit 26 to the Registration Statement on Form S-3,
Registration No. 33-18373)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
- --------
<S> <C>
4 A copy of the existing bylaws of the trustee is incorporated herein by
refererence to Exhibit 4 to Form T-1 (Exhibit 25 to the Registration
Statement on Form S-3, Registration No. 333-27305)
5 Not applicable
6 The consent of the trustee required by Section 321(b) of the Act
7 A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority
8 Not applicable
9 Not applicable
</TABLE>
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, The First National Bank of Maryland, a corporation organized and
existing under the laws of the United States of America, has duly caused this
statement of eligibility to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Baltimore and State of Maryland,
on April 20, 1998.
THE FIRST NATIONAL BANK OF MARYLAND
By: /s/ Robert D. Brown
--------------------------------
Robert D. Brown
Assistant Vice President
<PAGE>
Exhibit 6
Consent of Trustee
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, in connection with the issuance by SITEL Corporation 9 1/4% Senior
Subordinated Notes due 2006, we hereby consent that reports of examination by
Federal, state, territorial or district authorities may be furnished by such
authorities to the Securities and Exchange Commission upon request therefor.
THE FIRST NATIONAL BANK OF MARYLAND
By: /s/ Robert D. Brown
--------------------------------
Robert D. Brown
Assistant Vice President
<PAGE>
Exhibit 7
Report of Condition Consolidating Domestic and Foreign Subsidiaries of The
First National Bank of Maryland, Baltimore, Maryland at the close of business
on December 31, 1997 published in response to call made by Comptroller of the
Currency, under Title 12, United States Code, Section 161, Charter No. 04822,
Comptroller of the Currency, Richmond District.
CONSOLIDATED REPORT OF CONDITION
(Dollars in Thousands)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances
and currency and coin...................... $ 881,915
Interest-bearing balances.................... 1,061
Securities:
Held-to-maturity securities......................... -0-
Available-for-sale securities....................... 2,195,182
Federal funds sold and securities purchased
under agreements to resell.......................... 565,780
Loans and lease financing receivables:
Loans and leases, net of unearned income............ 5,907,801
LESS: Allowance for loan and lease losses........... 100,347
LESS: Allocated transfer risk reserve............... 3,800
Loans and leases, net of unearned income,
allowance, and reserve....................... 5,803,654
Trading assets........................................ 65,893
Premises and fixed assets (including
capitalized leases)................................. 77,843
Other real estate owned............................... 10,990
Investments in unconsolidated subsidiaries
and associated companies............................ 1,961
Customers' liability to this bank
on acceptances outstanding.......................... 11,627
Intangible assets..................................... 50,088
Other assets.......................................... 372,428
TOTAL ASSETS................................. 10,038,422
--------------
--------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES
<S> <C>
Deposits:
In domestic offices................................. $ 6,770,232
Noninterest-bearing.......................... 2,488,946
Interest-bearing............................. 4,281,286
In foreign offices, Edge and Agreement
subsidiaries, and IBFs............................ 337,709
Noninterest-bearing.......................... 0
Interest-bearing............................. 337,709
Federal funds purchased and securities
sold under agreements to repurchase................. 1,571,987
Demand notes issued to the U.S. Treasury.............. 5,568
Trading liabilities................................... 61,464
Other borrowed money:
With a remaining maturity of one year or less....... 120,000
With a remaining maturity of more than one year
through three years............................... -0-
With a remaining maturity of more than three
years............................................. -0-
Bank's liability on acceptances
executed and outstanding............................ 11,627
Subordinated notes and debentures..................... 174,000
Other liabilities..................................... 294,695
TOTAL LIABILITIES............................ $ 9,347,282
------------
EQUITY CAPITAL
Perpetual preferred stock and related surplus......... -0-
Common Stock.......................................... 18,448
Surplus............................................... 244,106
Undivided profits and capital reserves................ 410,477
Net unrealized holding gains (losses)
on available-for-sale securities.................... 18,109
Cumulative foreign currency transalation
adjustments......................................... -0-
TOTAL EQUITY CAPITAL......................... $ 691,140
------------
TOTAL LIABILITIES AND EQUITY CAPITAL......... $ 10,038,422
------------
------------
</TABLE>
