| SITEL CORP Item 1A Risk Factors The Company has material weaknesses in internal control over financial reporting and cannot assure you that additional material weaknesses will not be identified in the future |
| Our failure to implement and maintain effective internal control over financial reporting could result in material misstatements in the financial statements |
| Management has identified material weaknesses in our internal control over financial reporting that resulted in the restatement of our previously issued financial statements for the fiscal years 2001 through 2004, including interim periods in 2004, and the first three quarters of 2005 |
| See “Item 9A Controls and Procedures” |
| We cannot assure you that additional material weaknesses in our internal control over financial reporting will not be identified in the future |
| Any failure to maintain or implement required new or improved controls, or any difficulties that may be encountered in their implementation, could result in additional significant deficiencies or material weaknesses, cause the Company to fail to meet its periodic reporting obligations or result in material misstatements in the Company’s financial statements |
| Any such failure could also adversely affect the results of periodic management evaluations and annual auditor reports regarding the effectiveness of the Company’s internal control over financial reporting required under Section 404 of the Sarbanes-Oxley Act of 2002 and the rules promulgated under Section 404 |
| The existence of material weaknesses could result in errors in our financial statements that could result in a restatement of financial statements |
| Our exploration of strategic alternatives may create uncertainties that could affect our business On November 23, 2005, we announced that we had retained Citigroup as our financial advisor and established a special committee of independent directors and James Lynch to evaluate various strategies to enhance long-term stockholder value, including but not limited to our potential sale |
| At this stage, we are uncertain as to what strategic alternatives may be available to us, whether we will elect to pursue any such strategic alternatives, or what impact any particular strategic alternative will have on our stock price if pursued |
| There are various uncertainties and risks relating to our exploration of strategic alternatives, including: · the exploration of strategic alternatives may distract management and disrupt operations, which could have a material adverse effect on our operating results; · we may not be able to successfully achieve the benefits of any strategic alternative undertaken by us; 11 ______________________________________________________________________ · the process of exploring strategic alternatives may be time consuming and expensive; and · perceived uncertainties as to our future direction may result in the loss of employees or business partners |
| We cannot predict the ultimate outcome of our ongoing discussions with the SEC regarding irregularities identified in our Brazilian subsidiary that raised the possibility of FCPA violations In connection with certain irregularities identified in our Brazil subsidiary that raised the possibility of FCPA violations, we contacted the Securities Exchange Commission Enforcement Division on March 1, 2006 |
| We’ve reported to the SEC on the results of the internal investigation into the irregularities |
| We cannot predict the ultimate outcome of the ongoing discussions with the SEC The outcome could include the institution of administrative or civil injunctive proceedings involving the Company and/or current or former Company employees, officers and/or directors, the imposition of fines and other penalties, remedies and/or sanctions and/or a referral to other governmental agencies |
| Our credit facilities contain restrictive covenants that may limit our ability to pursue or expand our business strategy, including the pay down of certain indebtedness |
| Our credit facilities with Wells Fargo Foothill, Inc |
| and Ableco Finance LLC as Agents limit, and in some circumstances prohibit, our ability to incur additional indebtedness, pay dividends, make investments or other restricted payments, sell or otherwise dispose of assets, effect a consolidation or merger, and engage in other activities |
| We are required under the credit facilities to maintain compliance with certain financial ratios and thresholds |
| Covenants in the credit facilities may impair our ability to pursue or expand our business strategies |
| Our ability to comply with these covenants and other provisions of the credit facilities may be affected by our operating and financial performance, changes in business conditions or results of operations, or other events beyond our control |
| In addition, if we do not comply with these covenants, the lenders under the credit facilities may accelerate our debt repayment under the credit facilities |
| We have pledged a substantial part of our consolidated assets and two-thirds of the stock of our first tier foreign subsidiaries to secure the debt under our credit facilities |
| Certain of our foreign subsidiaries have pledged substantially all of their assets to secure intercompany notes owed to borrowers under the credit facilities; the intercompany notes and pledges have been assigned to the Agents under the credit facilities |
| If the indebtedness under the credit facilities is accelerated, we cannot assure that our assets will be sufficient to repay all outstanding indebtedness in full |
| Our level of indebtedness, and the security provided for this indebtedness, could adversely affect our business and our ability to fulfill our obligations |
| At December 31, 2005, we had approximately dlra137dtta1 million of outstanding indebtedness on a consolidated basis, of which approximately dlra110dtta6 million was under our credit facilities with Wells Fargo Foothill, Inc |
| Outstanding borrowings under our credit facilities are secured by a pledge of a substantial part of our consolidated assets, including a pledge of two-thirds of the stock of our first tier foreign subsidiaries |
| Most of the debt of our subsidiaries is pledged by certain or substantially all of the assets of those subsidiaries |
| This level of indebtedness and related security could have important consequences to us and our investors because it could: · Make it more difficult for us to satisfy our debt service and other obligations · Increase our vulnerability to general adverse economic and industry conditions · Require us to dedicate a substantial portion of our cash flow from operations to make payments on our indebtedness, thereby reducing the availability of our cash flow to fund other corporate purposes and grow our business · Limit our flexibility in planning for, or reacting to, changes in our business and the industry · Place us at a competitive disadvantage to our competitors that are not as highly leveraged · Limit, along with the financial and other restrictive covenants in our and our subsidiaries’ indebtedness, among other things, our ability to borrow additional funds as needed or take advantage of business opportunities as they arise |
| Further, our actual cash requirements in the future may be greater than expected |
| Accordingly, our cash flow from operations may not be sufficient to repay at maturity all of the outstanding debt as it becomes due and, in that event, we may not be able to borrow money, sell assets or otherwise raise funds on acceptable terms or at all to refinance our debt as it becomes due |
| 12 ______________________________________________________________________ We have had to obtain waivers and amendments under our existing credit facilities to avoid future defaults or cure past defaults |
| We may not be able to obtain future waivers and amendments without significant fees or at all, which could materially adversely affect our financial condition |
| In 2006 we sought and obtained waivers and amendments under our credit facilities with Wells Fargo Foothill, Inc |
| and Ableco Finance LLC as Agents to address defaults which related primarily to matters arising out of and related to our investigation of irregularities at our Brazilian subsidiary and technical errors in the filings of our US federal tax returns for fiscal years 2001-2003 |
| We paid amendment fees of dlra250cmam000 to the Agents in connection with these prior waivers and amendments |
| If future waivers or amendments are needed, we can expect to incur significant fees to obtain them |
| Our revenue is generated from a limited number of clients, and the loss of one or more of our significant clients or the reduction in margin due to a renegotiation or a substantial reduction of the amount of services performed by us for a significant client, could have a material adverse effect on our business |
| A significant portion of our revenue is derived from relatively few clients |
| Our top 20 clients accounted for 66dtta0prca, 67dtta0prca, and 71dtta2prca of our revenue for the years ended December 31, 2005, 2004, and 2003, respectively |
| Some of our top 20 clients include multiple independently managed business units within the clients’ affiliated group |
| General Motors Corporation (General Motors) business units were responsible for 11dtta3prca, 14dtta9prca, and 21dtta2 % of our total revenue for the years ended December 31, 2005, 2004 and 2003, respectively |
| On April 21, 2004, we announced the signing of a new contract with General Motors to continue to provide customer support services for their North American Vehicle Sales, Service, and Marketing Group through December 31, 2005 |
| An existing agreement under which we supported OnStar operations terminated effective June 22, 2004 |
| Our primary contract with General Motors expired in December 2005 |
| In addition, Hewlett-Packard Company business units were responsible for 11dtta6prca and 11dtta3prca of our revenue for the years ended December 31, 2005 and 2004, respectively |
| We did not have any other clients under common control that generated more than 10prca of our revenue for the years presented |
| We provide services to our clients pursuant to contracts, many of which may be terminated for convenience and most of which do not have minimum volume requirements |
| There can be no assurance that our clients will not terminate their contracts before their scheduled expiration date or that the volumes of their programs will not be reduced |
| In any of these events, there can be no assurance that we would be able to replace a client or program with any other client or program that would generate a comparable amount of revenue or profits |
| Consequently, the loss of one or more of our significant clients, or the substantial reduction of the amount of services performed by us for a significant client, could have a material adverse effect on our business, results of operations and financial condition |
| We incurred net losses in four of the last five fiscal years |
| If we incur future net losses we may need additional capital to meet our future cash requirements and execute our business strategy |
| We may not be able to sustain or increase the profitability we established in 2005 |
| If revenues grow slower than we anticipate or operating expenses exceed our expectations, our financial results may be materially impacted |
| Furthermore, the cash requirements of certain of our subsidiaries may continue to put pressure on our capital resources and liquidity, and we may not be able to continue to fund them if our operations are not profitable |
| Particularly in view of the restrictions imposed by our credit facilities, our ability to continue our operations could be jeopardized if we incur future net losses |
| Consolidation among our major clients could materially adversely affect our business |
| We serve clients in industries that have experienced a significant level of consolidation in recent years |
| We cannot assure that additional consolidations will not occur in which our clients acquire additional businesses or are acquired |
| Such consolidations may result in the termination of an existing client contract that would result in a decrease of our revenue |
| If our clients are not successful, the amount of business that they outsource and the prices that they are willing to pay for such services may be diminished and could result in reduced revenue for us |
| Our revenue is dependent on the success of our clients |
| If our clients are not successful, the amount of business that they outsource may be diminished |
| Thus, although we have signed contracts with our clients, particularly if there are no minimum volume requirements, there can be no assurance that the level of revenue to be received from such contracts will meet expectations |
| In addition, several clients, particularly in the communications and technology industries, have experienced substantial price competition |
| As a result, we may face increasing price pressure from such clients, which could negatively affect our operating performance |
| Furthermore, a general economic downturn can produce a slowdown in the growth rate at which certain billing and customer management services are outsourced, and such a slowdown can have an adverse effect on the growth of our business and our revenue |
| 13 ______________________________________________________________________ Our growth and financial results are largely dependent on continued demand for our services from clients in the industries we serve |
| We generate a majority of our revenue from clients in the automotive, consumer, financial services, insurance, technology, telecommunications and ISP, and utilities industries |
| These industries accounted for approximately 9dtta3prca, 11dtta2prca, 17dtta0prca, 5dtta9prca, 24dtta4prca, 19dtta3prca, and 7dtta4prca, respectively, of our 2005 revenue |
| Sales in other industries, including media services, travel, healthcare, government and various others, accounted for 5dtta5prca of 2005 revenue |
| Our growth and financial results are largely dependent on continued demand for our services from clients in these industries and current trends in such industries to outsource certain customer management services |
| A general economic downturn in any of these industries or a slowdown or reversal of the trend in any of these industries to outsource certain customer management services could have a material adverse effect on our business, results of operations and financial condition |
| We are susceptible to business and political risks from international operations that could result in reduced revenue or earnings |
| We operate businesses in many countries outside the United States, which are located throughout North America, Europe, Asia Pacific, Latin America, and North Africa |
| Expansion of our existing international operations and entry into additional countries would require management attention and financial resources |
| In addition, there are certain risks inherent in conducting business internationally including: exposure to currency fluctuations, longer payment cycles, greater difficulties in accounts receivable collection, difficulties in complying with a variety of foreign laws, unexpected changes in regulatory requirements, difficulties in staffing and managing foreign operations, political instability and potentially adverse tax consequences |
| To the extent that we do not manage our international operations successfully, our business could be adversely affected and our revenue and earnings could be reduced |
| Our operating results fluctuate quarterly depending, among other things, the timing of clients’ marketing campaigns and customer service initiatives and commencement of new contracts |
| We have experienced and expect to continue to experience quarterly variations in our results of operations, principally due to the timing of clients’ marketing campaigns and customer service initiatives and the commencement of new contracts, revenue mix and the timing of additional selling, general and administrative expenses to support new business |
| We typically incur significant start-up costs when we expand into a new region or obtain a significant new customer support services contract |
| Since we cannot control the implementation date of our 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, our business tends to be slower in the third quarter due to summer holidays in Europe |
| Our planned operating expenditures are based upon revenue forecasts, and if revenue is below expectations in any given quarter, operating results would likely be materially affected |
| Our failure to keep our telecommunications and computer technology up-to-date may prevent us from remaining competitive |
| Our continued success will depend on our continuing investment in sophisticated telecommunications and computer technology |
| There can be no assurance that we 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 our business units) in time to remain competitive on a global basis |
| Our business is highly dependent on our computer and telecommunications equipment and software systems |
| The temporary or permanent loss of these systems, through casualty or operating malfunction, could have a material adverse effect on our business, results of operations and financial condition |
| See “Business - Information Technology” in this Form 10-K Any interruptions in service or the inability of telephone companies to provide additional capacity to meet our needs would adversely affect our growth and could adversely affect our existing business |
| Our 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 our needs would adversely affect our growth and could adversely affect our existing business |
| Further, we continue 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 our operating expenses and could adversely affect our operating margins if we were unable to pass the increases through to our clients |
| The markets for our services are highly competitive, subject to rapid change, and highly fragmented |
| The worldwide-outsourced customer support service industry is extremely competitive and fragmented, with low barriers to entry |
| Although we are a leading global provider of these services, there can be no assurance that additional 14 ______________________________________________________________________ competitors with greater resources than us will not enter the industry or that our clients will not choose to conduct internally more of these activities |
| There are numerous and varied providers of our services, including firms specializing in call center operations, temporary staffing and personnel placement companies, general management consulting firms, divisions of large hardware and software companies and niche providers of outsourced customer contact management services, many of whom compete in only certain markets |
| Our competitors include many companies who may possess substantially greater resources, greater name recognition and a more established customer base than we do |
| In addition to our competitors, many companies who might utilize our services or the services of one of our competitors may utilize in-house personnel to perform such services |
| Increased competition, our failure to compete successfully, pricing pressures, loss of market share and loss of clients could have a material adverse effect on our business, results of operations and financial condition |
| We have experienced and continue to anticipate significant pricing pressure from these clients in order to remain a preferred vendor |
| These companies also require vendors to be able to provide services in multiple locations |
| Although we believe we can effectively meet our clients’ demands, there can be no assurance that we will be able to compete effectively with other outsourced customer support services companies |
| We believe that the most significant competitive factors in the sale of our services include quality, advanced technology capabilities, global coverage, reliability, scalability, security, industry experience, price and tailored service offerings |
| Management and operation of large-scale contact center solutions is a highly people intensive business |
| Outsourced customer support services are very labor intensive |
| There can be no assurance that our labor costs will not increase or that we will be able to employ a sufficient number of people to sustain our current volume of business or support our planned growth |
| Some of our customer support services activities, particularly insurance product sales and technical support activities, require highly trained employees |
| Our worldwide presence also necessitates retaining personnel fluent in languages and dialects spoken and written by customers of our clients |
| We must maintain separate human resource departments in each region of the world we operate |
| As we expand our operations into new countries, we must become familiar with local laws and customs, which vary significantly around the world |
| There can be no assurance that we will gain the expertise necessary to effectively manage our human resources programs as we expand our business into new countries |
| See “Business - - Human Resource Management” in this Form 10-K We have operations in many parts of the world and therefore our results of operations can be impacted by foreign exchange fluctuations |
| We are exposed to market risks associated primarily with changes in foreign currency exchange rates |
| We have operations in many parts of the world |
| Revenue and expenses of those operations are typically denominated in the currency of the country of operations |
| Because our financial statements are presented in US dollars, any significant fluctuations in the currency exchange rates between the US dollar and the currencies of countries in which we operate will affect our results of operations and our financial statements |
| Our largest exposure to currency risks is related to the British pound and the Euro |
| We are subject to the risk of litigation and regulatory proceedings or actions in connection with the restatement of prior period financial statements |
| We have restated our previously issued financial statements for the fiscal years 2001 through 2004, including interim periods in 2004, and the first three quarters of 2005 |
| We may in the future be subject to class action suits, other litigation or regulatory proceedings or actions arising in relation to the restatement of our prior period financial statements |
| Any expenses incurred in connection with this potential litigation or regulatory proceeding or action not covered by available insurance or any adverse resolution of this potential litigation or regulatory proceeding or action could have a material adverse effect on our business, results of operations, cash flows and financial condition |
| Further, any litigation or regulatory proceeding or action may be time consuming, and it may distract our management from the conduct of our business |
| 15 ______________________________________________________________________ The nature of our business makes us subject to various laws and regulations |
| Our business is subject to various governmental laws, regulations and codes of practice |
| There can be no assurance that additional governmental regulation in the United States or Europe, or new governmental regulations in other areas of the world in which we conduct operations, would not limit the activities of our clients, or us or significantly increase the cost of regulatory compliance |
| Several of the industries in which our 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 our clients |
| However, we could be subject to a variety of enforcement or private actions for our failure or the failure of our clients to comply with such regulations |
| For example, in the United States, customer service 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 us to comply with the extensive regulations of these state commissions |
| As a result, changes in these regulations or their interpretations could materially increase our operating costs |
| In addition, there is increasing concern among consumers, legislators and regulators about “right of privacy” issues associated with data on consumers that is obtained by, and used in, customer support services and other industries |
| During 2003, both the FTC and FCC substantially broadened their respective regulations governing telephone sales practices |
| See “Business - Government Regulation” in this Form 10-K We are highly dependent on the efforts of our senior management team |
| We are highly dependent on the efforts of our senior management team |
| The loss of the services of several members of senior management could have a material adverse effect on us |
| A decline in the trend toward outsourcing or in the trend toward migration offshore or difficulties in our offshore operations could materially adversely impact our business |
| Our business and growth depend in large part on the industry trend toward outsourced customer support management services |
| Outsourcing means that an entity contracts with a third party, such as us, to provide customer support services rather than perform such services in-house |
| There has been an increasing amount of political discussion and debate related to worldwide outsourcing, particularly from the United States to offshore locations |
| There is federal and state legislation currently pending related to this issue |
| A change in the political environment in the United States or the adoption and enforcement of legislation and regulations curbing the use of offshore customer contact management solutions and services could effectively have a material adverse effect on our business, results of operations, and financial condition |
| There can be no assurance that the outsourcing trend will continue, as organizations may elect to perform such services themselves |
| A significant change in this trend could have a material adverse effect on our business, results of operations, and financial condition |
| Furthermore, while we now have operated in offshore markets for more than five years, there can be no assurance that we will be able to successfully conduct and expand such operations, and a failure to do so could also have a material adverse effect |
| The continued expansion offshore to meet the demand of new clients and the needs of certain of our clients that are migrating call volumes to offshore operations could result in additional excess capacity in the countries that they are migrating from (particularly the US and UK) |
| As a result of this migration offshore, we have experienced and expect that we will continue to experience duplicative operating costs and site closure costs related to the ramp-down of certain contact centers, particularly in the US and UK To date we have closed several centers and expect to close additional centers as a result of this shift offshore |
| The success of our offshore operations will be subject to numerous contingencies, some of which are beyond our control, including general and regional economic conditions, prices for our services, competition, changes in regulation and other risks |
| In addition, as with all of our operations outside of the United States, we are subject to various additional political, economic, and market uncertainties in offshore locations |
| Continued war and terrorist attacks or other civil disturbances could lead to economic weakness and could disrupt our operations resulting in a decrease of our revenue and earnings |
| In March 2003, the United States went to war against Iraq and, in September 2001, the United States was a target of unprecedented terrorist attacks |
| In March 2004, Spain, the location of one of our largest business units, was a target of a terrorist attack |
| These attacks have caused uncertainty in the global financial markets and in the United States economy |
| The war and any additional terrorists attacks may lead to continued armed hostilities or further acts of terrorism and civil disturbances in the United States or elsewhere, which may contribute to economic instability in the United States and 16 ______________________________________________________________________ disrupt our operations |
| Such disruptions could cause service interruptions or reduce the quality level of the services that we provide, resulting in a reduction of our revenue |
| In addition, these activities may cause our clients to delay or defer decisions regarding their use of our services which would delay our receipt of additional revenue |
| Service fees we charge may not cover our costs |
| Some of our contracts allow us to increase our service fees if and to the extent certain cost or price indices increase; however, many of our significant contracts do not contain such provisions and some contracts require us to decrease our service fees if, among other things, we do not achieve certain performance objectives |
| Increases in our service fees that are based upon increases in cost or price indices may not fully compensate us for increases in labor and other costs incurred in providing services |
| If we do not effectively manage our capacity, our results of operations could be adversely affected |
| Our profitability is influenced significantly by the capacity use of our contact centers |
| We attempt to maximize the use of our contact centers; however, because most of our business is inbound, we have significantly higher use during peak (weekday) periods than during off-peak (night and weekend) periods |
| We have experienced periods of excess capacity, particularly in our shared contact centers, and occasionally have accepted short-term assignments to use the excess capacity |
| In addition, we have experienced, and in the future may experience, at least short-term, excess peak period capacity when we open a new contact center or terminate or complete a large client program |
| There can be no assurance that we will be able to achieve or maintain optimal contact center capacity use |
| We generally incur the same operating costs regardless of the level of use of our contact centers |
| A significant uninsured loss or a loss in excess of our insurance coverage could materially adversely affect our financial condition |
| Our operations are dependent upon our ability to protect our contact centers, computer and telecommunications equipment and software systems against damage from fire, power loss, telecommunications interruption or failure, natural disaster and other similar events |
| In the event we experience a temporary or permanent interruption at one or more of our contact centers, through casualty, operating malfunction or otherwise, our business could be materially adversely affected and we may be required to pay contractual damages to some clients or allow some clients to terminate or renegotiate their contracts with us |
| We maintain property and business interruption insurance; however, such insurance may not adequately compensate us for any losses we may incur |
| Our forecasts and other forward-looking statements are based upon various assumptions that are subject to significant uncertainties that may result in our failure to achieve our forecasted results |
| From time to time in press releases, conference calls and otherwise, we may publish or make forecasts or other forward-looking statements regarding our future results, including estimated revenues, earnings per share and other operating and financial metrics |
| Our forecasts are based upon various assumptions that are subject to significant uncertainties and any number of them may prove incorrect |
| Further, our achievement of any forecasts depends upon numerous factors, many of which are beyond our control |
| Consequently, we cannot assure you that our performance will be consistent with management forecasts |
| Variations from forecasts and other forward-looking statements may be material and adverse |
| The trading price of our common stock is subject to significant fluctuations |
| The trading price of our common stock fluctuates |
| Factors such as fluctuations in our financial performance and that of our competitors, as well as general market conditions, could have a significant impact on the future trading prices of our common stock |
| The trading prices also may be affected by changes in interest rates and other factors beyond our control |
| We have the ability to issue additional equity securities, which would lead to dilution of our issued and outstanding common stock |
| The issuance of additional equity securities or securities convertible into equity securities would result in dilution of then-existing stockholders’ equity interests in us |
| Our board of directors has the authority to issue, without shareholder approval, up to 200cmam000cmam000 shares of common stock, of which approximately 74cmam507cmam364 shares were outstanding as of August 31, 2006 |
| We have the ability to issue preferred shares without shareholder approval |
| Our common stock may be subordinate to classes of preferred shares issued in the future in the payment of dividends and other distributions made with respect to the common stock, including distributions upon liquidation or dissolution |
| Our board of directors is authorized to issue preferred shares without first obtaining shareholder approval |
| We have 17 ______________________________________________________________________ previously designated for use in connection with our rights plan a series of 200cmam000 shares of preferred stock |
| If we issue preferred shares, it will create additional securities that may have dividend or liquidation preferences senior to the common stock |
| If we issue convertible preferred shares, a subsequent conversion may dilute the current common shareholders’ interest |
| Certain provisions of our charter and Minnesota law may make it difficult for a third party to acquire us, even in situations that may be viewed as desirable by our shareholders |
| The Business Corporation Act of the State of Minnesota contains provisions that may delay or prevent an attempt by a third party to acquire control of our company |
| Our charter and bylaws contain provisions that authorize the issuance of preferred shares, and establish advance notice requirements for director nominations and actions to be taken at shareholder meetings |
| These provisions could also discourage or impede a tender offer, proxy contest or other similar transaction involving control of us, even if viewed favorably by shareholders |
| Our rights and the rights of our shareholders to take action against our directors and officers are limited, which could limit shareholder recourse in the event of actions not in shareholder best interests |
| Minnesota law provides that a director has no liability in that capacity if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in our best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances |
| Our charter authorizes and requires us to indemnify our directors and officers for actions taken by them in those capacities to the extent permitted by Minnesota law |
| In addition, our charter limits the liability of our directors and officers for money damages, except for: · liability based on a breach of the duty of loyalty to the corporation or the stockholders; · liability for acts or omissions not in good faith or that involved intentional misconduct or a knowing violation of law; · liability based on an improper distribution under Minnesota Statutes Section 302A559 or on violations of state securities laws under Minnesota Statutes Section 80A23; · liability for any transaction from which the director derived an improper personal benefit; or · liability for any act or omission occurring prior to the date Article VI of our charter became effective |
| As a result, our shareholders and we may have more limited rights against our directors and officers than might otherwise exist |
| Minnesota law may discourage a third party from acquiring us |
| The Minnesota Business Corporation Act contains provisions that may delay or prevent an attempt by a third party to acquire control of our company |
| These provisions include (i) prohibiting us from engaging in a “business combination” with an “interested shareholder” for a period of four years after the date of the transaction in which the person became an interested shareholder unless certain requirements are met and (ii) requiring disinterested shareholder approval for certain “control share acquisitions |
| ” These provisions could also discourage or impede a tender offer, proxy contest or other similar transaction involving control of us, even if viewed favorably by shareholders |