West Corporation
Asset Direct Mortgage, LLC (Form: 424B3, Received: 04/24/2007 16:48:49)
Table of Contents

Filed pursuant to Rule 424(b)(3)
Registration No. 333-141706

PROSPECTUS

LOGO

West Corporation

Offers to Exchange

$650,000,000 Principal Amount of our 9  1 / 2 % Senior Notes due October 15, 2014 and $450,000,000 Principal Amount of our 11% Senior Subordinated Notes due October 15, 2016, each of which has been registered under the Securities Act of 1933, as amended, for any and all of our outstanding 9  1 / 2 % Senior Notes due October 15, 2014 and any and all of our 11% Senior Subordinated Notes due October 15, 2016, respectively.

Exchange Offers

We are offering to exchange, upon the terms and subject to the conditions set forth in this prospectus and the accompanying letter of transmittal, our new 9  1 / 2 % Senior Notes due October 15, 2014 (the “exchange senior notes”) and our new 11% Senior Subordinated Notes due October 15, 2016 (the “exchange senior subordinated notes” and, collectively with the exchange senior notes, the “exchange notes”), for all of our outstanding 9  1 / 2 % Senior Notes due October 15, 2014 (the “outstanding senior notes”) and all of our outstanding 11% Senior Subordinated Notes due October 15, 2016 (the “outstanding senior subordinated notes” and, collectively with the outstanding senior notes, the “outstanding notes” and, collectively with the exchange notes, the “notes”), respectively. We are also offering the guarantees of the exchange notes, which are described in this prospectus. The terms of the exchange notes are identical to the terms of the outstanding notes except that the exchange notes will have been registered under the Securities Act of 1933, as amended (the “Securities Act”), and, therefore, are freely transferable. We will pay interest on the notes on April 15 and October 15 of each year. The outstanding senior notes and the exchange senior notes (collectively, the “senior notes”) will mature on October 15, 2014, and the outstanding senior subordinated notes and the exchange senior subordinated notes (collectively, the “senior subordinated notes”) will mature on October 15, 2016.

The principal features of the exchange offers are as follows:

 

   

The exchange offers expire at 5:00 p.m., New York City time, on May 23, 2007, unless extended. We do not currently intend to extend the expiration date.

 

   

We will exchange all outstanding notes that are validly tendered and not validly withdrawn prior to the expiration of the exchange offers for an equal principal amount of the applicable exchange notes that are freely transferable.

 

   

You may withdraw tenders of outstanding notes at any time prior to the expiration of the exchange offers.

 

   

The exchange of outstanding notes for exchange notes pursuant to the exchange offers will not be a taxable event for United States federal income tax purposes.

 

   

We will not receive any proceeds from the exchange offers.

Results of the Exchange Offers

The exchange notes may be sold in the over-the-counter market, in negotiated transactions or through a combination of such methods. We do not plan to list the notes on a national market. All untendered outstanding notes will continue to be subject to the restrictions on transfer set forth in the outstanding notes and in the applicable indenture related to the outstanding notes. In general, the outstanding notes may not be offered or sold unless registered under the Securities Act and applicable state securities laws or an exemption from such laws is applicable. Other than in connection with the exchange offers, we do not currently anticipate that we will register the outstanding notes under the Securities Act.

 


You should consider carefully the risk factors beginning on page 16 of this prospectus before participating in the exchange offers.

 


Neither the United States Securities and Exchange Commission nor any other federal or state agency has approved or disapproved of the securities to be distributed in the exchange offers, nor have any of these organizations determined that this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus is April 24, 2007


Table of Contents

TABLE OF CONTENTS

 

     Page

Prospectus Summary

   1

Risk Factors

   16

Industry and Market Data

   28

Cautionary Note Regarding Forward-Looking Statements

   28

The Exchange Offers

   30

The Recapitalization

   37

Use of Proceeds

   38

Capitalization

   38

Selected Historical Consolidated Financial and Other Data

   39

Unaudited Pro Forma Condensed Consolidated Financial Statements

   40

Management’s Discussion and Analysis of Financial Condition and Results of Operations

   44

Business

   68

Management

   81

Executive Compensation

   84

Security Ownership of Certain Beneficial Owners and Management

   103

Certain Relationships and Related Party Transactions

   106

Description of Certain Other Indebtedness

   107

Description of Exchange Notes

   110

Description of Senior Notes

   111

Description of Senior Subordinated Notes

   170

Book-Entry Settlement and Clearance

   232

Material United States Federal Income Tax Consequences

   234

Plan of Distribution

   242

Legal Matters

   243

Experts

   243

Available Information

   243

Index to Financial Information

   F-1

 


This prospectus contains summaries of the terms of several material documents. These summaries include the terms that we believe to be material, but we urge you to review these documents in their entirety. We will make copies of these documents available to you at your request.

All business and financial information incorporated but not included in this prospectus is available without charge to security holders and any requests for such information should be directed to David C. Mussman, West Corporation, 11808 Miracle Hills Drive, Omaha, Nebraska 68154 (Telephone: (402) 963-1200). You should request this information at least five days in advance of the date on which you expect to make your decision with respect to the exchange offers. In any event, you must request this information prior to May 18, 2007.

 

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PROSPECTUS SUMMARY

This summary contains basic information about West Corporation and the exchange offers. It likely does not contain all the information that may be important to you in making your investment decision. You should read the entire prospectus, including the financial data and related notes, before deciding to participate in the exchange offers. As used in this prospectus, and unless otherwise stated, references to “West Corporation,” “the Company,” “we,” “us” and “our” refer to West Corporation and its consolidated subsidiaries. In addition, unless otherwise noted, references to “EBITDA,” “pro forma” and other financial terms have the meanings set forth under “—Summary historical and unaudited pro forma consolidated financial and other data.”

Our Company

We are a premier provider of business process outsourcing services to many of the world’s largest companies, organizations and government agencies. Our services are focused on helping our clients communicate more effectively with their clients. We offer a comprehensive set of solutions under each of our three business segments: Communication Services, Conferencing Services and Receivables Management.

We compete in a broad business process outsourcing industry. We have targeted and will continue to selectively seek markets that meet our criteria for size, secular growth and profit potential. Our diverse markets include customer service, sales and marketing, emergency communication services, notification services, business-to-business sales support, conferencing and accounts receivable management outsourcing, among others. While we compete with a broad range of competitors in each discrete market, we do not believe that any of our competitors provides all of the services we provide in all of the markets we serve. We believe that our reputation for service quality, leading technology and shared services model provide us with significant competitive advantages in the markets we serve. Each of our segments, Communications Services, Conferencing Services and Receivables Management, addresses several markets within the broader business process outsourcing industry.

Each of our segments builds upon our core competencies of managing technology, telephony and human capital across a broad range of outsourced service offerings. Some of the nation’s leading enterprises use us to manage their most important communications. Our ability to efficiently and cost-effectively process high volume, complex, voice-related transactions for our clients helps them reduce operating costs, increase cash flow, improve customer satisfaction and facilitate effective communications. In 2006, our operations managed and processed:

 

   

More than 14.7 billion telephony minutes.

 

   

More than 21 million conference calls.

 

   

More than 200 million 9-1-1 calls.

Communication Services

Our Communication Services segment addresses the broadly-defined outsourced voice-related markets, including customer relationship management (“CRM”) and emergency communication services. The CRM market is driven by companies who wish to outsource their customer service functions and includes multi-channel customer care, acquisition, and retention. The emergency communication services market includes the provision of core 9-1-1 infrastructure management and emergency communications services to participants in the telecommunications network, including telecommunications carriers, public safety organizations and government agencies. Notification services include multi-channel automated delivery of communications and data to consumers and businesses.

 

 

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Service Offerings.  We are one of the largest providers of outsourced voice-related communications services in the United States. We provide our clients with a comprehensive portfolio of integrated voice-related services, including the following six primary services:

 

   

Dedicated Agent Services provide clients with customized customer contact services that are processed by agents who are trained to handle customer service and sales transactions.

 

   

Shared Agent Services combine multiple call center locations and a large pool of remote agents to handle customer sales or service transactions for multiple clients.

 

   

Automated Customer Contact Services use a proprietary platform of approximately 149,000 interactive voice response ports, which allow for the processing of telephone calls without the involvement of an agent.

 

   

Emergency Communication Services provide the core 9-1-1 infrastructure management and key services to communications service providers and public safety organizations.

 

   

Business-to-Business Services provide dedicated marketing and sales services for clients that target small and medium-sized businesses.

 

   

Notification Services provide clients with an automated multi-channel delivery system for transferring data and communicating with their customers.

We provide our services using a “best-shore” approach, which combines automated customer contact services with domestic, offshore and home agent platforms.

Conferencing Services

We believe we are the largest conferencing services provider in the world. In January 2007, Frost & Sullivan awarded us the North American Conferencing Service of the Year Award for our continued growth in market share, revenues, profitability, innovation in the market and commitment to customer satisfaction. The conferencing services industry consists of audio, web and video conferencing services that are marketed to businesses and individuals worldwide. Our Conferencing Services segment provides our clients with an integrated, global suite of collaboration tools including audio, web, and video conferencing.

Service Offerings. Our Conferencing Services segment provides four primary services globally:

 

   

Reservationless Services are on-demand automated conferencing services that allow clients to initiate an audio conference at anytime, without the need to make a reservation or rely on an operator.

 

   

Operator-Assisted Services , available for complex audio conferences and large events, are tailored to a client’s needs and provide a wide range of scalable features and enhancements, including the ability to record, broadcast, schedule and administer meetings.

 

   

Web Conferencing Services allow clients to make presentations and share applications and documents over the Internet.

 

   

Video Conferencing Services allow clients to experience real time video presentations and conferences.

Receivables Management

We are one of the leading providers of receivables management services in the United States. The accounts receivable management (“ARM”) market includes the collection of delinquent debt on a contingent basis (as an agent on behalf of clients) and on a principal basis (purchase of delinquent receivables from clients for subsequent collection by the Company for its own account). An increasing number of providers offer both

 

 

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contingent/agent and principal services for their clients. We were attracted to the receivables management business because of our ability to use our existing infrastructure to address the needs of a large and growing market and to sell these services to our existing clients.

Service Offerings.  Our Receivables Management segment consists of the following services:

 

   

Debt Purchasing Collections involves the purchase of portfolios of receivables from credit originators.

 

   

Contingent/Third-Party Collections involves collecting charged-off debt.

 

   

Government Collections involves collecting student loans on behalf of the United States Department of Education.

The Recapitalization

On October 24, 2006, we completed a recapitalization (the “Recapitalization”) of the Company in a transaction sponsored by an investor group led by Thomas H. Lee Partners, L.P. and Quadrangle Group LLC (the “Sponsors”) pursuant to an Agreement and Plan of Merger (the “Merger Agreement”), dated as of May 31, 2006, between the Company and Omaha Acquisition Corp., an entity formed by the Sponsors to effect the Recapitalization. Pursuant to the Recapitalization, our publicly traded securities were cancelled in exchange for cash. Immediately following the Recapitalization, the Sponsors owned approximately 72.1% of our outstanding Class A and Class L common stock, Gary L. and Mary E. West, the founders of the Company (the “Founders”), owned approximately 24.9% of our outstanding Class A and Class L common stock, and certain executive officers had beneficial ownership of the remaining approximately 3.0% of our outstanding Class A and Class L common stock. The Recapitalization has been accounted for as a leveraged recapitalization, whereby the historical bases of our assets and liabilities have been maintained.

We financed the Recapitalization with equity contributions from the Sponsors and the rollover of a portion of the equity interests in the Company held by the Founders and certain members of management, along with a new $2.1 billion senior secured term loan facility, a new senior secured revolving credit facility providing financing of up to $250.0 million (none of which was drawn at the closing of the Recapitalization) and the private placement of $650.0 million aggregate principal amount of 9.5% senior notes due October 15, 2014 and $450.0 million aggregate principal amount of 11% senior subordinated notes due October 15, 2016. To consummate the Recapitalization, Omaha Acquisition Corp. was merged with and into the Company, with the Company continuing as the surviving corporation. In connection with the closing of the Recapitalization, the Company terminated and paid off the outstanding balance of its existing $800.0 million unsecured revolving credit facility. As a result of the Recapitalization, our common stock is no longer publicly traded.

Our Sponsors

Thomas H. Lee Partners

Thomas H. Lee Partners is a leading private equity firm based in Boston, Massachusetts, that has raised committed capital of over $16 billion over its 30 year history. Founded in 1974, Thomas H. Lee Partners is focused on identifying and acquiring substantial ownership stakes in mid to large cap growth companies. Thomas H. Lee Partners invests in companies with leading market positions, proven and experienced management teams, recognized brand names and well-defined business plans, which include opportunities for growth and expansion in their core and related businesses. Notable transactions sponsored by the firm include Cott Corporation, Cumulus Media Partners, Dunkin’ Brands, Inc., Fidelity National Information Services, Inc., Fisher Scientific

 

 

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International Inc., Grupo Corporativo Ono, S.A., Houghton Mifflin Company, Michael Foods, Inc., National Waterworks, Inc., Nortek Inc., ProSiebenSat.1 Media AG, Simmons Company, Warner Chilcott Corporation and Warner Music Group.

Quadrangle

Quadrangle is a private investment firm based in New York City, with approximately $5 billion in assets under management. Quadrangle invests in media and communications companies through separate private and public investment strategies, and in the securities of financially troubled companies across all industries through a distressed debt investment program. All investment strategies seek to maximize value by leveraging the investment team’s extensive experience, knowledge and industry relationships. Some of the firm’s notable private equity transactions include NTELOS, Inc., ProSiebenSat.1 Media AG, Protection One, Inc., Grupo Corporativo Ono, S.A. and Dice Inc.

Recent Developments

On April 18, 2007, we announced our financial results for the three months ended March 31, 2007, which are set forth below and should be read in conjunction with our financial information and related notes thereto appearing elsewhere herein. For the three months ended March 31, 2007, our revenue was $508.6 million compared to $424.7 million for the three months ended March 31, 2006, an increase of 19.8 percent. Revenues from acquired entities accounted for $72.2 million of this increase. In addition, as of March 31, 2007 we had cash and cash equivalents totaling $275.6 million and working capital of $147.1 million. Stock purchase obligations of approximately $170.6 million related to the Recapitalization remain outstanding and are included in our current liabilities. For the three months ended March 31, 2007, we had depreciation expense of $25.1 million, amortization expense of $12.8 million, and our cash flow from operating activities was $81.9 million and was impacted by interest expense of $80.2 million. Our Adjusted EBITDA for the three months ended March 31, 2007 was $145.4 million, or 28.6 percent of revenue.

On April 18, 2007, we also announced that we had agreed to acquire Omnium Worldwide, Inc., a provider of revenue cycle management solutions to the insurance, financial services, communications and healthcare industries. We expect the acquisition to close during the second quarter of 2007.

 

 

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The Exchange Offers

On October 24, 2006, we issued $650.0 million aggregate principal amount of 9  1 / 2 % senior notes due October 15, 2014 and $450.0 million aggregate principal amount of 11% senior subordinated notes due October 15, 2016, which were exempt from registration under the Securities Act.

If we and the subsidiary guarantors are not able to effect the exchange offers contemplated by this prospectus, we and the subsidiary guarantors will use reasonable best efforts to file and cause to become effective a shelf registration statement relating to the resale of the outstanding notes. We may be required to pay additional interest on the notes in certain circumstances.

The following is a brief summary of the terms of the exchange offers. For a more complete description of the exchange offers, see “The Exchange Offers.”

 

Securities Offered

$650.0 million in aggregate principal amount of 9  1 / 2 % senior notes due October 15, 2014.

$450.0 million in aggregate principal amount of 11% senior subordinated notes due October 15, 2016.

 

Exchange Offers

The exchange notes are being offered in exchange for a like principal amount of outstanding notes. The exchange offers will remain in effect for a limited time. We will accept any and all outstanding notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on May 23, 2007. Holders may tender some or all of their outstanding notes pursuant to the exchange offers. However, outstanding notes may be tendered only in a denomination equal to $2,000 or in integral multiples of $1,000 in principal amount. The form and terms of the exchange notes are the same as the form and terms of the outstanding notes except that:

 

   

the exchange notes have been registered under the Securities Act and will not bear any legend restricting their transfer;

 

   

the exchange notes bear different CUSIP numbers than the outstanding notes; and

 

   

the holders of the exchange notes will not be entitled to certain rights under the senior notes registration rights agreement or the senior subordinated notes registration rights agreement (collectively, the “registration rights agreements”), as applicable, including the provisions for an increase in the interest rate on the outstanding notes in some circumstances relating to the timing of the exchange offers. See “The Exchange Offers.”

 

Resale

Based upon interpretations by the Staff of the Securities and Exchange Commission (the “Commission”) set forth in no-action letters issued to unrelated third-parties, we believe that the exchange notes may be offered for resale, resold or otherwise transferred by you without compliance with the registration and prospectus delivery requirements of the Securities Act, unless you:

 

   

are an “affiliate” of ours within the meaning of Rule 405 under the Securities Act;

 

 

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are a broker-dealer who purchased the notes directly from us for resale under Rule 144A, Regulation S or any other available exemption under the Securities Act;

 

   

acquired the exchange notes other than in the ordinary course of your business;

 

   

have an arrangement with any person to engage in the distribution of the exchange notes; or

 

   

Is prohibited by law or policy of the Commission from participating in the exchange offers.

However, we have not submitted a no-action letter, and there can be no assurance that the Commission will make a similar determination with respect to the exchange offers. Furthermore, in order to participate in the exchange offers, you must make the representations set forth in the letter of transmittal that we are sending you with this prospectus.

 

Expiration Date

The exchange offers will expire at 5:00 p.m., New York City time, on May 23, 2007 (the “expiration date”) unless we, in our sole discretion, extend it. We do not currently intend to extend the expiration date.

 

Conditions to the Exchange Offers

The exchange offers are subject to certain customary conditions, some of which may be waived by us. See “The Exchange Offers– Conditions to the Exchange Offers.”

 

Procedure for Tendering Outstanding Notes

If you wish to tender your outstanding notes for exchange pursuant to the exchange offers, you must transmit to The Bank of New York, as exchange agent, on or prior to the expiration date, either:

 

   

a properly completed and duly executed copy of the letter of transmittal accompanying this prospectus, or a facsimile of the letter of transmittal, together with your outstanding notes and any other documentation required by the letter of transmittal, at the address set forth on the cover page of the letter of transmittal; or

 

   

if you are effecting delivery by book-entry transfer, a computer-generated message transmitted by means of the Automated Tender Offer Program System of The Depository Trust Company (“DTC”) in which you acknowledge and agree to be bound by the terms of the letter of transmittal and which, when received by the exchange agent, forms a part of a confirmation of book-entry transfer.

In addition, you must deliver to the exchange agent on or prior to the expiration date, if you are effecting delivery by book-entry transfer, a timely confirmation of book-entry transfer of your outstanding notes into the account of the exchange agent at DTC pursuant to the procedures for book-entry transfers described in this prospectus under the heading “The Exchange Offers – Procedures for Tendering.”

 

 

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By executing and delivering the accompanying letter of transmittal or effecting delivery by book-entry transfer, you are representing to us that, among other things:

 

   

the person receiving the exchange notes pursuant to the exchange offers, whether or not this person is the holder, is receiving them in the ordinary course of business;

 

   

neither the holder nor any other person receiving the exchange notes pursuant to the exchange offers has an arrangement or understanding with any person to participate in the distribution of such exchange notes and that such holder is not engaged in, and does not intend to engage in, a distribution of the exchange notes;

 

   

neither the holder nor any other person receiving the exchange notes pursuant to the exchange offers is an “affiliate” of ours within the meaning of Rule 405 under the Securities Act; and

 

   

if you are a broker-dealer that will receive exchange notes for your own account in exchange for outstanding notes that were acquired as a result of market-making or other trading activities, then you will deliver a prospectus in connection with any resale of such exchange notes.

See “The Exchange Offers – Procedures for Tendering” and “Plan of Distribution.”

 

Special Procedure for Beneficial Owners

If you are the beneficial owner of outstanding notes and your name does not appear on a security listing of DTC as the holder of those notes or if you are a beneficial owner of notes that are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender those notes in the exchange offers, you should promptly contact the person in whose name your notes are registered and instruct that person to tender on your behalf. If you, as a beneficial holder, wish to tender on your own behalf you must, prior to completing and executing the letter of transmittal and delivering your notes, either make appropriate arrangements to register ownership of the notes in your name or obtain a properly completed bond power from the registered holder. The transfer of record ownership may take considerable time.

 

Guaranteed Delivery Procedures

If you wish to tender your outstanding notes and your outstanding notes are not immediately available or you cannot deliver your outstanding notes, the letter of transmittal or any other documents required by the letter of transmittal prior to the expiration date or you cannot comply with the procedures of the Automated Tender Offer Program System of DTC prior to the expiration date, you must tender your outstanding notes according to the guaranteed delivery procedures set forth in this prospectus under “The Exchange Offers – Guaranteed Delivery Procedures.”

 

 

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Withdrawal Rights

The tender of the outstanding notes pursuant to the exchange offers may be withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration date.

 

Acceptance of Outstanding Notes and Delivery of Exchange Notes

Subject to customary conditions, we will accept outstanding notes that are properly tendered in the exchange offers and not withdrawn prior to the expiration date. The exchange notes will be delivered as promptly as practicable following the expiration date.

 

Effect of Not Tendering in the Exchange Offers

Any outstanding notes that are not tendered or that are tendered but not accepted will remain subject to the restrictions on transfer. Since the outstanding notes have not been registered under the federal securities laws, they bear a legend restricting their transfer absent registration or the availability of a specific exemption from registration. Upon the completion of the exchange offers, we will have no further obligations, except under limited circumstances, to provide for registration of the outstanding notes under the federal securities laws. See “The Exchange Offers – Effect of Not Tendering.”

 

Interest on the Exchange Notes and the Outstanding Notes

The exchange notes will bear interest from the most recent interest payment date to which interest has been paid on the outstanding notes. Holders whose outstanding notes are accepted for exchange will be deemed to have waived the right to receive interest accrued on the outstanding notes.

 

Broker-Dealers

Each broker-dealer that receives exchange notes for its own account in exchange for outstanding notes, where such outstanding notes were acquired by such broker-dealer as a result of market-making activities 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.”

 

Material United States Federal Income Tax Consequences

The exchange of outstanding notes for exchange notes by tendering holders will not be a taxable exchange for United States federal income tax purposes, and such holders will not recognize any taxable gain or loss or any interest income for United States federal income tax purposes as a result of such exchange. See “Material United States Federal Income Tax Consequences.”

 

Exchange Agent

The Bank of New York, the trustee under the indentures governing the notes (the “indentures”), is serving as exchange agent in connection with the exchange offers.

 

Use of Proceeds

We will not receive any proceeds from the issuance of exchange notes pursuant to the exchange offers.

 

 

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The Exchange Notes

The following is a brief summary of the terms of the exchange notes. For a more complete description of the terms of the exchange notes, see “Description of Exchange Notes.”

 

Issuer

West Corporation.

 

Securities Offered

$650.0 million in aggregate principal amount of 9  1 / 2 % senior notes due October 15, 2014.

$450.0 million in aggregate principal amount of 11% senior subordinated notes due October 15, 2016.

 

Maturity Date

The exchange senior notes will mature on October 15, 2014.

The exchange senior subordinated notes will mature on October 15, 2016.

 

Interest Rate

The exchange senior notes will bear interest at a rate of 9  1 / 2 % per annum.

The exchange senior subordinated notes will bear interest at a rate of 11% per annum.

 

Interest Payment Dates    

April 15 and October 15 of each year, commencing October 15, 2007. Interest on the exchange notes will accrue from the last date on which interest was paid on the outstanding notes, or if no such interest has been paid, from the date of issuance of the outstanding notes.

 

Guarantees

Each of our domestic wholly owned subsidiaries that is a guarantor of our senior secured credit facilities will guarantee the exchange senior notes on an unsecured senior basis and the exchange senior subordinated notes on an unsecured senior subordinated basis. Any subsidiary that is released as a guarantor of our senior secured credit facilities will automatically be released as a guarantor of the exchange notes.

 

Ranking

The exchange senior notes will be our unsecured senior obligations and will:

 

   

rank senior in right of payment to all of our existing and future debt and other obligations that are, by their terms, expressly subordinated in right of payment to the exchange senior notes, including the exchange senior subordinated notes;

 

   

rank equally in right of payment to all of our existing and future senior debt and other obligations that are not, by their terms, expressly subordinated in right of payment to the exchange senior notes; and

 

   

be effectively subordinated in right of payment to all of our existing and future secured debt (including obligations under our

 

 

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senior secured credit facilities), to the extent of the value of the assets securing such debt, and be structurally subordinated to all obligations of each of our subsidiaries that is not a guarantor of the exchange senior notes.

Similarly, the exchange senior note guarantees will be unsecured senior obligations of the guarantors and will:

 

   

rank senior in right of payment to all of the applicable guarantor’s existing and future debt and other obligations that are, by their terms, expressly subordinated in right of payment to the exchange senior notes, including such guarantor’s guarantee under the exchange senior subordinated notes;

 

   

rank equally in right of payment to all of the applicable guarantor’s existing and future senior debt and other obligations that are not, by their terms, expressly subordinated in right of payment to the exchange senior notes; and

 

   

be effectively subordinated in right of payment to all of the applicable guarantor’s existing and future secured debt (including such guarantor’s guarantee under our senior secured credit facilities), to the extent of the value of the assets securing such debt, and be structurally subordinated to all obligations of any subsidiary of a guarantor that is not also a guarantor of the exchange senior notes.

The exchange senior subordinated notes will be our unsecured senior subordinated obligations and will:

 

   

be subordinated in right of payment to all of our existing and future senior debt, including our senior secured credit facilities and the exchange senior notes;

 

   

rank equally in right of payment to all of our existing and future senior subordinated debt;

 

   

be effectively subordinated in right of payment to all of our existing and future secured debt (including obligations under our senior secured credit facilities), to the extent of the value of the assets securing such debt, and be structurally subordinated to all obligations of each of our subsidiaries that is not a guarantor of the exchange senior subordinated notes; and

 

   

rank senior in right of payment to all of our existing and future debt and other obligations that are, by their terms, expressly subordinated in right of payment to the exchange senior subordinated notes.

Similarly, the exchange senior subordinated note guarantees will be unsecured senior subordinated obligations of the guarantors and will:

 

   

be subordinated in right of payment to all of the applicable guarantor’s existing and future senior debt, including such

 

 

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guarantor’s guarantees under our senior secured credit facilities and the exchange senior notes;

 

   

rank equally in right of payment to all of the applicable guarantor’s existing and future senior subordinated debt;

 

   

be effectively subordinated in right of payment to all of the applicable guarantor’s existing and future secured debt (including such guarantor’s guarantee under our senior secured credit facilities), to the extent of the value of the assets securing such debt, and be structurally subordinated to all obligations of any subsidiary of a guarantor that is not also a guarantor of the exchange senior subordinated notes; and

 

   

rank senior in right of payment to all of the applicable guarantor’s future debt and other obligations that are, by their terms, expressly subordinated in right of payment to the exchange senior subordinated notes.

As of December 31, 2006, (1) the outstanding notes and related guarantees ranked effectively junior to approximately $2,100.0 million of senior secured indebtedness, (2) the outstanding senior notes and related guarantees ranked senior to the $450.0 million of outstanding senior subordinated notes and (3) the outstanding senior subordinated notes and related guarantees ranked junior to approximately $2,750.0 million of senior indebtedness under the senior secured credit facilities and the outstanding senior notes.

 

Optional Redemption

We may redeem all or a portion of the exchange senior notes prior to October 15, 2010 at a price equal to 100% of their principal amount, plus a “make-whole” premium (as described in “Description of Senior Notes”). At any time on or after October 15, 2010, we may redeem the exchange senior notes, in whole or in part, at the redemption prices listed under “Description of Senior Notes – Optional Redemption.”

We may redeem all or a portion of the exchange senior subordinated notes prior to October 15, 2011 at a price equal to 100% of their principal amount, plus a “make-whole” premium (as described in “Description of Senior Subordinated Notes”). At any time on or after October 15, 2011, we may redeem the exchange senior subordinated notes, in whole or in part, at the redemption prices listed under “Description of Senior Subordinated Notes – Optional Redemption.”

 

Optional Redemption After Equity Offerings

At any time (which may be more than once) before October 15, 2009, we can choose to redeem up to 35% of the exchange senior notes and/or up to 35% of the exchange senior subordinated notes with money that we raise in one or more equity offerings, as long as:

 

   

we pay 109.50% of the face amount of the exchange senior notes and/or 111.00% of the face amount of the exchange senior subordinated notes, in each case, plus accrued and unpaid interest;

 

 

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we redeem the exchange notes within 90 days of completing the equity offering; and

 

   

at least 65% of the aggregate principal amount of the applicable series of notes issued remains outstanding afterwards.

 

Change of Control

If we experience a change in control, we must give holders of each series of exchange notes the opportunity to sell us their exchange notes at 101% of their face amount, plus accrued and unpaid interest.

We might not be able to pay you the required price for exchange notes you present to us at the time of a change of control, because:

 

   

we might not have enough funds at that time; or

 

   

the terms of our senior debt, including, in the case of the exchange senior subordinated notes, the indenture governing the exchange senior notes, may prevent us from paying.

 

Certain Covenants

The indentures governing the exchange notes limit our ability and the ability of our restricted subsidiaries to, among other things:

 

   

incur additional debt or issue certain preferred shares;

 

   

pay dividends on or make distributions in respect of our capital stock or make other restricted payments;

 

   

make certain investments;

 

   

sell certain assets;

 

   

create liens on certain assets to secure debt;

 

   

consolidate, merge, sell, or otherwise dispose of all or substantially all of our assets;

 

   

enter into certain transactions with our affiliates; and

 

   

designate our subsidiaries as unrestricted subsidiaries.

These covenants are subject to a number of important limitations and exceptions. See “Description of Senior Notes” and “Description of Senior Subordinated Notes.”

These covenants will cease to apply to a series of notes at all times after the applicable series of notes have investment grade ratings from both Moody’s Investors Service, Inc. and Standard & Poor’s Rating Services.

 

No Public Market

The exchange notes will be freely transferable but will be new securities for which there will not initially be a market. Accordingly, we cannot assure you whether a market for the exchange notes will develop or as to the liquidity of any market. The initial purchasers in the private offering of the outstanding notes have advised us that they

 

 

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currently intend to make a market in the exchange notes. The initial purchasers are not obligated, however, to make a market in the exchange notes, and any such market-making may be discontinued by the initial purchasers in their discretion at any time without notice.

Risk Factors

Participating in the exchange offers, and therefore investing in the exchange notes, involves substantial risk. See the “Risk Factors” section of this prospectus for a description of material risks you should consider before investing in the exchange notes.

Corporate Information

West Corporation, a Delaware corporation, was founded in 1986 and is headquartered in Omaha, Nebraska. Our principal executive offices are located at 11808 Miracle Hills Drive, Omaha, Nebraska 68154. Our telephone number is (402) 963-1200. Our website address is www.west.com where our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports are available, without charge, as soon as reasonably practicable following the time they are filed with or furnished to the Commission. None of the information on our website or any other website identified herein is part of this report. All website addresses in this report are intended to be inactive textual references only.

 

 

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Summary Historical and Unaudited Pro Forma

Consolidated Financial and Other Data

The following table sets forth our summary historical and unaudited pro forma consolidated financial and other data as of the dates and for the periods indicated. The summary historical financial data for, and as of, the years ended December 31, 2004, 2005 and 2006 is derived from our audited consolidated financial statements. Historical results are not necessarily indicative of the results to be expected for future periods.

The unaudited pro forma financial data as of and for the year ended December 31, 2006 gives effect to the Recapitalization as if it had occurred on January 1, 2006 and the acquisitions described under “Unaudited Pro Forma Condensed Consolidated Financial Statements.” The pro forma adjustments are based upon available data and certain assumptions that we believe are reasonable. The summary unaudited pro forma condensed consolidated financial data is for informational purposes only and does not purport to represent what our results of operations or financial position would actually be if the Recapitalization occurred at any date, nor does such data purport to project the results of operations for any future period.

The summary historical and unaudited pro forma consolidated financial data and other data should be read in conjunction with “Selected Historical Consolidated Financial and Other Data,” “Unaudited Pro Forma Condensed Consolidated Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes thereto appearing elsewhere in this prospectus.

 

 

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Year Ended, or as of December 31,

    Pro Forma
Twelve Months Ended
December 31, 2006
 
   2006     2005     2004    
    

(Dollars in thousands)

 

Statement of Operations:

          

Revenue

   $ 1,856,038     $ 1,523,923     $ 1,217,383     $ 1,939,379  

Cost of services

     818,522       687,381       541,979       853,158  

Selling, general and administrative expenses

     800,301       569,865       487,513       743,399  
                                

Operating income

     237,215       266,677       187,891       342,822  

Other income (expense):

              

Interest income

     6,081       1,499       895       6,081  

Interest expense

     (94,804 )     (15,358 )     (9,381 )     (296,441 )

Other, net

     2,063       678       2,118       1,332  
                                

Other income (expense)

     (86,660 )     (13,181 )     (6,368 )     (289,028 )

Income before income tax expense and minority interest

     150,555       253,496       181,523       53,794  

Income tax expense

     65,505       87,736       65,762       14,218  
                                

Income before minority interest

     85,050       165,760       115,761       39,576  

Loss from discontinued operations, net of tax benefit

     —         —         —         7  

Minority interest in net income

     16,287       15,411       2,590       16,287  
                                

Net income

   $ 68,763     $ 150,349     $ 113,171     $ 23,282  
                                

Statement of Cash Flows Data:

          

Net cash flows from

          

Operating activities

   $ 196,638     $ 276,314     $ 217,376      

Investing activities

     (812,253 )     (297,154 )     (260,743 )    

Financing activities

     799,843       23,197       48,267      

Other Financial Data:

          

Capital expenditures

   $ 113,895     $ 76,855     $ 59,886      

Ratio of earnings to fixed charges (1)

     2.4x       11.5x       12.0x       1.2x  

Balance Sheet Data:

          

Cash and cash equivalents

   $ 214,932     $ 30,835     $ 28,330      

Total assets

     2,535,856       1,498,662       1,271,206      

Total long-term obligations,

     3,179,000       220,000       230,000      

Portfolio notes payable

     87,246       40,520       28,498      

Stockholders’ equity (deficit)

     (2,127,544 )     971,868       789,455      

Credit Statistics:

          

Total debt (2)

         $ 3,200,000  

Cash interest expense (3)

           282,097  

(1) For purposes of calculating the ratio of earnings to fixed charges, earnings consist of income before income taxes and minority interest plus fixed charges. Fixed charges include: interest expense, whether expensed or capitalized; amortization of debt issuance costs; and the portion of rental expense representative of the interest factor.
(2) Excludes $87.2 million of portfolio notes payables.
(3) Cash interest expense does not include any amortization of capitalized financing costs.

 

 

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RISK FACTORS

You should carefully consider the following risk factors and all other information contained in this prospectus before deciding to tender your outstanding notes in the exchange offers. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently deem immaterial, also may become important factors that affect us.

Risks Related to the Exchange Offers

There may be adverse consequences if you do not exchange your outstanding notes.

If you do not exchange your outstanding notes for exchange notes in the applicable exchange offer, you will continue to be subject to restrictions on transfer of your outstanding notes as set forth in the prospectus distributed in connection with the private offering of the outstanding notes. In general, the outstanding notes may not be offered or sold unless they are registered or exempt from registration under the Securities Act and applicable state securities laws. Except as required by the registration rights agreements, we do not intend to register resales of the outstanding notes under the Securities Act. You should refer to “Prospectus Summary—The Exchange Offers” and “The Exchange Offers” for information about how to tender your outstanding notes.

The tender of outstanding notes under the exchange offers will reduce the outstanding amount of each series of the outstanding notes, which may have an adverse effect upon, and increase the volatility of, the market prices of the outstanding notes due to a reduction in liquidity.

Risks Related to the Exchange Notes and Our Other Indebtedness

Our current or future indebtedness under our senior secured credit facilities and the notes could impair our financial condition and reduce the funds available to us for other purposes and our failure to comply with the covenants contained in our senior secured credit facilities documentation or the indentures that govern the notes could result in an event of default that could adversely affect our results of operations.

On October 24, 2006, we completed a recapitalization of the Company. We financed the Recapitalization in part along with a new $2.1 billion senior secured term loan facility, a new senior secured revolving credit facility providing financing of up to $250.0 million and the private placement of $650.0 million aggregate principal amount of 9.5% senior notes due 2014 and $450.0 million aggregate principal amount of 11% senior subordinated notes due 2016. In connection with the closing of the Recapitalization, we repaid our existing $800.0 million unsecured revolving credit facility.

Our current or future indebtedness could adversely affect our business, results of operations or financial condition, including the following:

 

   

our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, product development, general corporate purposes or other purposes may be impaired;

 

   

a significant portion of our cash flow from operations may be dedicated to the payment of interest and principal on our indebtedness, which will reduce the funds available to us for our operations, capital expenditures, future business opportunities or other purposes;

 

   

the debt services requirements of our other indebtedness could make it more difficult for us to satisfy our financial obligations, including those related to the exchange notes;

 

   

certain of our borrowings, including borrowings under our new senior secured credit facilities, are at variable rates of interest, exposing us to the risk of increased interest rates;

 

   

because we may be more leveraged than some of our competitors, our debt may place us at a competitive disadvantage;

 

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our leverage will increase our vulnerability to economic downturns and limit our ability to withstand adverse events in our business by limiting our financial alternatives; and

 

   

our ability to capitalize on significant business opportunities and to plan for, or respond to, competition and changes in our business may be limited.

Our debt agreements contain, and any agreements to refinance our debt likely will contain, financial and restrictive covenants that limit our ability to incur additional debt, including to finance future operations or other capital needs, and to engage in other activities that we may believe are in our long-term best interests, including to dispose of or acquire assets. Our failure to comply with these covenants may result in an event of default, which, if not cured or waived, could accelerate the maturity of our indebtedness. If our indebtedness is accelerated, we may not have sufficient cash resources to satisfy our debt obligations and we may not be able to continue our operations as planned.

We may not be able to generate sufficient cash to service all of our indebtedness, including the exchange senior notes and senior subordinated notes, and fund our other liquidity needs, and we may be forced to take other actions, which may not be successful, to satisfy our obligations under our indebtedness.

Our ability to make scheduled payments or to refinance our debt obligations and to fund our other liquidity needs depends on our financial and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We cannot ensure that we will maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness, including the exchange notes, and to fund our other liquidity needs.

If our cash flows and capital resources are insufficient to fund our debt service obligations and to fund our other liquidity needs, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness, including the exchange notes. We cannot ensure that we would be able to take any of these actions, that these actions would be successful and permit us to meet our scheduled debt service obligations or that these actions would be permitted under the terms of our existing or future debt agreements, including our new senior secured credit facilities or the indentures that will govern the exchange notes. Our new senior secured credit facilities documentation and the indentures that govern the notes restrict our ability to dispose of assets and use the proceeds from the disposition. As a result, we may not be able to consummate those dispositions or use the proceeds to meet our debt service or other obligations, and any proceeds that are available may not be adequate to meet any debt service or other obligations then due.

If we cannot make scheduled payments on our debt, we will be in default and, as a result:

 

   

our debt holders could declare all outstanding principal and interest to be due and payable;

 

   

the lenders under our new senior secured credit facilities could terminate their commitments to lend us money and foreclose against the assets securing our borrowings; and

 

   

we could be forced into bankruptcy or liquidation, which could result in a loss of your investment in the exchange notes.

The exchange notes and the guarantees will be effectively subordinated to all of our secured debt and if a default occurs, we may not have sufficient funds to fulfill our obligations under the exchange notes and the guarantees.

The exchange notes and the related guarantees will be our and the guarantors’ unsecured obligations, respectively, but our obligations under our new senior secured credit facilities and each guarantor’s obligations under its respective guarantee of our new senior secured credit facilities are secured by a security interest in substantially all of our tangible and intangible assets, including the stock of most of our wholly-owned

 

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U.S. subsidiaries and 65% of the stock of our material first-tier non-U.S. subsidiaries. The exchange notes and the guarantees will be effectively subordinated to all our and the guarantors’ secured indebtedness to the extent of the value of the assets securing that indebtedness. We are also permitted, subject to receipt of additional commitments from participating lenders and certain other conditions, to incur additional indebtedness under our new senior secured credit facilities in an aggregate amount of up to $500.0 million, plus the aggregate amount of principal payments previously made in respect of the term loan facility, which additional indebtedness has the same security and guarantees as the other indebtedness under our new senior secured credit facilities. In addition, the exchange notes will, subject to some limitations, permit us to incur additional secured indebtedness, and the exchange notes and any related guarantees will be effectively junior to any additional secured indebtedness we may incur.

In the event of our bankruptcy, liquidation, reorganization or other winding up, our assets that secure our secured indebtedness will be available to pay obligations on the exchange notes only after all secured indebtedness, together with accrued interest, has been repaid in full from our assets. Likewise, because our new senior secured credit facilities are secured obligations, our failure to comply with the terms of our new senior secured credit facilities would entitle those lenders to declare all the funds borrowed thereunder, together with accrued interest, immediately due and payable. If we were unable to repay such indebtedness, the lenders could foreclose on substantially all of our assets which serve as collateral. In this event, our secured lenders would be entitled to be repaid in full from the proceeds of the liquidation of those assets before those assets would be available for distribution to other creditors, including holders of the exchange notes. Furthermore, if the lenders foreclose and sell the pledged equity interests in any subsidiary guarantor under the exchange notes, then that guarantor will be released from its guarantee of the exchange notes automatically and immediately upon such sale. In any such event, because the exchange notes will not be secured by any of our assets or the equity interests in subsidiary guarantors, it is possible that there would be no assets remaining from which claims of the holders of the exchange notes could be satisfied or, if any assets remained, they might be insufficient to satisfy such claims fully.

The exchange notes will be structurally subordinated to all indebtedness of our existing or future subsidiaries that do not become guarantors of the exchange notes.

Holders of our exchange notes will not have any claim as a creditor against any of our existing subsidiaries that are not guarantors of the exchange notes or against any of our future subsidiaries that do not become guarantors of the notes. Indebtedness and other liabilities, including trade payables, whether secured or unsecured, of those subsidiaries will be effectively senior to claims of noteholders against those subsidiaries.

For the year ended December 31, 2006, our non-guarantor subsidiaries collectively represented approximately 14.9% of our revenues (approximately 8.0% not including the revenues of our non-guarantor receivables management subsidiary, Worldwide Asset Purchasing LLC (“WAP”)), approximately 40.9% of our operating income (13.5% not including WAP), approximately 25.3% of our Adjusted EBITDA (approximately 7.0% not including WAP) and approximately 23.0% of our cash flows from operating activities (approximately 6.6% not including WAP). At December 31, 2006, our non-guarantor subsidiaries collectively represented approximately 8.7% of our total assets (2.2% not including WAP) and had approximately $29.6 million of outstanding total liabilities, (approximately $25.5 million not including WAP) including trade payables, but excluding intercompany liabilities and non-recourse debt, all of which would have been structurally senior to the notes. While WAP is not a guarantor of the notes, it is contractually obligated to distribute its excess cash each month to us and its minority shareholder. Accordingly, we believe that presentation of the foregoing financial information of our non-guarantor subsidiaries, but excluding WAP, is helpful to noteholders in assessing the credit risk associated with the exchange notes.

In addition, the indentures that will govern the exchange notes, subject to some limitations, permit these subsidiaries to incur additional indebtedness and do not contain any limitation on the amount of other liabilities, such as trade payables, that may be incurred by these subsidiaries.

 

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If we default on our obligations to pay our indebtedness, we may not be able to make payments on the exchange notes.

Any default under the agreements governing our indebtedness, including a default under our new senior secured credit facilities that is not waived by the required lenders, and the remedies sought by the holders of such indebtedness, could make us unable to pay principal, premium, if any, and interest on the exchange notes and substantially decrease the market value of the exchange notes. If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest on our indebtedness, or if we otherwise fail to comply with the various covenants, including financial and operating covenants, in the agreements governing our indebtedness (including covenants in the indentures that will govern the exchange notes and our new senior secured credit facilities documentation), we could be in default under the terms of those agreements. In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest, the lenders under our new senior secured credit facilities could elect to terminate their commitments thereunder and cease making further loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation. If our operating performance declines, we may in the future need to obtain waivers from the required lenders under our new senior secured credit facilities to avoid being in default. If we breach our covenants under our new senior secured credit facilities and seek a waiver, we may not be able to obtain a waiver from the required lenders. If this occurs, we would be in default under our new senior secured credit facilities, the lenders could exercise their rights, as described above, and we could be forced into bankruptcy or liquidation. In addition, the interest rate on our new senior credit facilities may be impacted by our debt rating. Consequently, an adverse change in our debt rating may increase the interest payments due under our new senior secured credit facilities. In which case, we may be unable to generate the funds necessary to meet our payment obligations on our indebtedness. See “Description of Certain Other Indebtedness,” “Description of Senior Notes” and “Description of Senior Subordinated Notes.”

We may not be able to repurchase the exchange notes upon a change of control.

Upon the occurrence of specific kinds of change of control events, we will be required to offer to repurchase all outstanding exchange notes at 101% of their principal amount, plus accrued and unpaid interest. We may not be able to repurchase the exchange notes upon a change of control because we may not have sufficient funds. Further, we are contractually restricted under the terms of our new senior secured credit facilities, and may be restricted under the terms of other future senior indebtedness, from repurchasing all of the exchange notes tendered by holders upon a change of control. Accordingly, we may not be able to satisfy our obligations to repurchase exchange notes unless we are able to refinance or obtain waivers under our new senior secured credit facilities. In addition, the indenture that will govern the exchange senior notes does not permit us to repurchase the tendered exchange senior subordinated notes upon a change of control until all exchange senior notes tendered have been repurchased, which increases the possibility that we will not have the funds necessary to repurchase all tendered exchange senior subordinated notes. Our failure to repurchase the notes upon a change of control would cause a default under the indentures that will govern the exchange notes and a cross-default under our new senior secured credit facilities. Our new senior secured credit facilities documentation also provides that a change of control, as defined in such documentation, will be a default that permits lenders to accelerate the maturity of borrowings thereunder and, if such debt is not paid, to enforce security interests in the collateral securing such debt, thereby limiting our ability to raise cash to repurchase the exchange notes, and reducing the practical benefit of the offer-to-purchase provisions to the holders of the exchange notes. Any of our future debt agreements may contain similar provisions.

The lenders under our senior secured credit facilities have the discretion to release the guarantors under our senior secured credit facilities in a variety of circumstances, which will cause those guarantors to be released from their guarantees of the exchange notes.

If the lenders under our new senior secured credit facilities release a guarantor from its guarantee of obligations under our new senior secured credit facilities documentation and the guarantor is no longer a

 

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guarantor of obligations under our new senior secured credit facilities or any of our or any other guarantor’s other indebtedness, then the guarantee of the exchange notes by such guarantor will be released without action by, or consent of, any holder of the exchange notes or the trustee under the indentures that will govern the exchange notes. See “Description of Senior Notes” and “Description of Senior Subordinated Notes.” The lenders under our new senior secured credit facilities have the discretion to release the guarantees under our new senior secured credit facilities in a variety of circumstances. A holder of exchange notes will not have a claim as a creditor against any subsidiary that is no longer a guarantor of the exchange notes, and the indebtedness and other liabilities, including trade payables, whether secured or unsecured, of those subsidiaries will effectively be senior to claims of noteholders.

Federal and state fraudulent transfer laws permit a court to void the exchange notes and the guarantees, and, if that occurs, you may not receive any payments on the exchange notes.

The issuance of the exchange notes and the guarantees may be subject to review under federal and state fraudulent transfer and conveyance statutes. While the relevant laws may vary from state to state, under such laws the payment of consideration will be a fraudulent conveyance if (1) we paid the consideration with the intent of hindering, delaying or defrauding creditors or (2) we or any of the guarantors, as applicable, received less than reasonably equivalent value or fair consideration in return for issuing either the notes or a guarantee and, in the case of (2) only, one of the following is also true:

 

   

we or any of the guarantors were or was insolvent or rendered insolvent by reason of the incurrence of the indebtedness; or

 

   

payment of the consideration left us or any of the guarantors with an unreasonably small amount of capital to carry on the business; or

 

   

we or any of the guarantors intended to, or believed that we or such guarantor would, incur debts beyond our or such guarantor’s ability to pay as they mature.

If a court were to find that the issuance of the exchange notes or a guarantee was a fraudulent conveyance, the court could void the payment obligations under the exchange notes or such guarantee, or subordinate the exchange notes or such guarantee to presently existing and future indebtedness of ours or such guarantor, or require the holders of the exchange notes to repay any amounts received with respect to the exchange notes or such guarantee. In the event of a finding that a fraudulent conveyance occurred, you may not receive any repayment on the exchange notes. Further, the voidance of the exchange notes could result in an event of default with respect to our other debt and that of the guarantors that could result in acceleration of such debt.

Generally, an entity would be considered insolvent if, at the time it incurred indebtedness:

 

   

the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all its assets; or

 

   

the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts and liabilities, including contingent liabilities, as they become absolute and mature; or

 

   

it could not pay its debts as they become due.

We cannot be certain as to the standards a court would use to determine whether or not we or the guarantors were solvent at the relevant time, or regardless of the standard that a court uses, that the issuance of the exchange notes and the guarantees would not be subordinated to our or any guarantor’s other debt.

If the guarantees were legally challenged, any guarantee could also be subject to the claim that, since the guarantee was incurred for our benefit, and only indirectly for the benefit of the guarantor, the obligations of the applicable guarantor were incurred for less than fair consideration. A court could thus void the obligations under

 

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the guarantees, subordinate them to the applicable guarantor’s other debt, or take other action detrimental to the holders of the exchange notes.

If an active trading market does not develop for the exchange notes you may not be able to resell them; prices for the exchange notes may be volatile.

The exchange notes are new securities for which there is currently no market. Accordingly, the development or liquidity of any market for the exchange notes is uncertain. We do not intend to apply for a listing of the exchange notes on a securities exchange or on any automated dealer quotation system.

We cannot assure you as to the liquidity of markets that may develop for the exchange notes, your ability to sell the exchange notes or the price at which you would be able to sell the exchange notes. If such markets were to exist, the exchange notes could trade at prices that may be lower than their principal amount or purchase price depending on many factors, including prevailing interest rates, the market for similar notes, our financial and operating performance and other factors. Historically, the market for non-investment grade debt has been subject to disruptions that have caused substantial volatility in the prices of securities similar to the exchange notes. The market, if any, for the exchange notes may experience similar disruptions and any such disruptions may adversely affect the prices at which you may sell your notes.

Risks Related to Our Business

We may not be able to compete successfully in our highly competitive industries.

We face significant competition in the markets in which we do business and expect that this competition will intensify. The principal competitive factors in our three business segments are technological expertise, service quality, capacity, industry-specific experience, range of service offerings, the ability to develop and implement customized products and services and the cost of services. In addition, we believe there has been an industry trend to move agent-based operations towards offshore sites. We believe this trend will continue. This movement could result in excess capacity in the United States, where most of our current capacity exists. The trend towards international expansion by foreign and domestic competitors and continuous technological changes may bring new and different competitors into our markets and may erode profits because of reduced prices. Our competitors’ products and services and pricing practices, as well as the timing and circumstances of the entry of additional competitors into our markets, could adversely affect our business, results of operations and financial condition.

Our Communication Services segment’s business and growth depend in large part on the industry trend toward outsourcing. This trend may not continue, or may continue at a slower pace, as organizations may elect to perform these services themselves. In addition, our Communication Services segment faces risks from technological advances that we may not be able to successfully address.

Our Conferencing Services segment faces technological advances and consolidation which have contributed to pricing pressures. Competition in the web and video conferencing services arenas continues to develop as new vendors enter the marketplace and offer a broader range of conferencing solutions through new technologies, including, without limitation, voice-over-internet-protocol, on-premise solutions, private branch exchange (“PBX”) solutions and equipment and handset solutions.

Our Receivables Management segment competes with a wide range of purchasers of charged-off consumer receivables, third-party collection agencies, other financial service companies and credit originators and other owners of debt that fully manage their own charged-off consumer receivables. Some of these companies have substantially greater personnel and financial resources than we do. In addition, companies with greater financial resources than we have may elect in the future to enter the consumer debt collection business. Competitive

 

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pressures affect the availability and pricing of receivables portfolios as well as the availability and cost of qualified debt collectors.

There are services in each of our business segments that are experiencing pricing declines. If we are unable to offset pricing declines through increased transaction volume and greater efficiency, our business, results of operations and financial condition could be adversely affected.

We are subject to extensive regulation that could limit or restrict our activities and impose financial requirements or limitations on the conduct of our business.

The United States Congress, the Federal Communications Commission (“FCC”), various states and other foreign jurisdictions have promulgated and enacted rules and laws that govern the methods and processes of making and completing telephone solicitations, sales and collecting of consumer debt and the provision of emergency communication services. As a result, we may be subject to proceedings alleging violation of these rules and laws in the future. Additional rules and laws may require us to modify our operations or service offerings in order to meet our clients’ service requirements effectively, and these regulations may limit our activities or significantly increase the cost of regulatory compliance.

There are numerous state statutes and regulations governing telemarketing activities that do or may apply to us. For example, some states place restrictions on the methods and timing of telemarketing calls and require that certain mandatory disclosures be made during the course of a telemarketing call. Some states also require that telemarketers register in the state before conducting telemarketing business in the state. Such registration can be time consuming and costly. Many states have an exemption for companies who are publicly traded or have securities listed on a national securities exchange. While we believe that we can operate our business in compliance with the various states’ registration requirements, there can be no assurance that we will meet all states’ requirements in a timely manner or that compliance with all such requirements would not be costly or time consuming. Any failure on our part to comply with the registration requirements applicable to companies engaged in telemarketing activities could have an adverse impact on our business.

Pending and future litigation may divert management’s time and attention and result in substantial costs of defense, damages or settlement, which could adversely affect our business, results of operations and financial condition.

We face uncertainties relating to the pending litigation described in “Business—Legal Proceedings” and we may not ultimately prevail or otherwise be able to satisfactorily resolve this litigation. In addition, other material suits by individuals or certified classes, claims, or investigations relating to the same or similar matters as those described in the “Business” section herein or other aspects of our business, including our obligations to market additional products to our clients’ customers may arise in the future. Furthermore, we generally indemnify our customers against third-party claims asserting intellectual property violations, which may result in litigation. Regardless of the outcome of any of these lawsuits or any future actions, claims or investigations relating to the same or any other subject matter, we may incur substantial defense costs and these actions may cause a diversion of management’s time and attention. Also, we may be required to alter our business practices or pay substantial damages or settlement costs as a result of these proceedings, which could adversely affect our business, results of operations and financial condition. Finally, certain of the outcomes of such litigation may directly affect our business model, and thus profitability, including the potential for recharacterization of our independent contractors as employees and any ensuing reduction in such staff.

Our business, results of operations and financial condition could be adversely affected if we are unable to maximize the use of our contact centers.

Our profitability depends largely on how effectively we manage the use of our contact centers, which we refer to as capacity utilization. To the extent that we are not able to effectively utilize our contact centers, our business, results of operations and financial condition could be adversely affected.

 

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We also consider opening new contact centers in order to create the additional capacity necessary to accommodate new or expanded outsourcing projects. However, additional centers may result in idle capacity until any new or expanded program is fully implemented.

In addition, if we lose significant clients, if clients’ call volumes decline or if significant contracts are not implemented as anticipated, our operating results are likely to be harmed to the extent that we are not able to manage our call center capacity utilization by reducing expenses proportionally or successfully negotiating contracts with new clients to generate additional revenues at comparable levels. As a result, we may not be able to achieve or maintain optimal contact center capacity in the future.

If we are unable to integrate or achieve the objectives of our recent and future acquisitions, our overall business may suffer.

Our business strategy depends on successfully integrating the assets, operations and corporate functions of businesses we have acquired, including those acquired in the recent acquisitions of Raindance Communications Inc. (“Raindance”) and Intrado Inc. (“Intrado”), both of which we acquired in April 2006, and our acquisition of InPulse Response Group, Inc. (“InPulse”) in October 2006, and any additional businesses we may acquire in the future. The acquisition of additional businesses involves integration risks, including:

 

   

the diversion of management’s time and attention away from operating our business to acquisition and integration challenges;

 

   

the unanticipated loss of key employees of the acquired businesses;

 

   

the potential need to implement or remediate controls, procedures and policies appropriate for a larger company at businesses that prior to the acquisition lacked these controls, procedures and policies;

 

   

the need to integrate accounting, information management, human resources, contract and intellectual property management and other administrative systems at each business to permit effective management; and

 

   

our entry into markets or geographic areas where we may have limited or no experience.

We may be unable to effectively or efficiently integrate businesses we have acquired or may acquire in the future without encountering the difficulties described above. Failure to integrate these businesses effectively could adversely affect our business, results of operations and financial condition.

In addition to this integration risk, our business, results of operations and financial condition could be adversely affected if we are unable to achieve the planned objectives of an acquisition. The inability to achieve our planned objectives could result from:

 

   

the financial underperformance of these acquisitions;

 

   

the loss of key clients of the acquired business, which may drive financial underperformance; and

 

   

the occurrence of unanticipated liabilities or contingencies.

Our ability to recover charged-off consumer receivables may be limited under federal and state laws.

Federal and state consumer protection, privacy and related laws and regulations extensively regulate the relationship between debt collectors and debtors. Federal and state laws may limit our ability to recover on our charged-off consumer receivables regardless of any act or omission on our part. Some laws and regulations applicable to credit card issuers may preclude us from collecting on charged-off consumer receivables we purchase if the credit card issuer previously failed to comply with applicable laws in generating or servicing those receivables. Additional consumer protection and privacy protection laws may be enacted that would impose additional or more stringent requirements on the enforcement of and collection on consumer receivables.

Any new laws, rules or regulations as well as existing consumer protection and privacy protection laws may adversely affect our ability to collect on our charged-off consumer receivable portfolios and adversely affect our

 

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business, results of operations and financial condition. In addition, federal and state governments are considering, and may consider in the future, other legislative proposals that would further regulate the collection of consumer receivables. Any failure to comply with any current or future laws applicable to us could limit our ability to collect on our charged-off consumer receivable portfolios, which could adversely affect our business, results of operations and financial condition.

Increases in the cost of voice and data services or significant interruptions in these services could adversely affect our business, results of operations and financial condition.

We depend on voice and data services provided by various telecommunications providers. Because of this dependence, any change to the telecommunications market that would disrupt these services or limit our ability to obtain services at favorable rates could adversely affect our business, results of operations and financial condition. While we have entered into long-term contracts with many of our telecommunications providers, there is no obligation for these vendors to renew their contracts with us or to offer the same or lower rates in the future. In addition, these contracts are subject to termination or modification for various reasons outside of our control. An adverse change in the pricing of voice and data services that we are unable to recover through the price of our services, or any significant interruption in voice or data services, could adversely affect our business, results of operations and financial condition.

We depend on key personnel.

Our success depends on the experience and continuing efforts and abilities of our management team and on the management teams of our operating subsidiaries. The loss of the services of one or more of these key employees could adversely affect our business, results of operations and financial condition.

Our inability to continue to attract and retain a sufficient number of qualified employees could adversely affect our business, results of operations and financial condition.

A large portion of our operations require specially trained employees. From time to time, we must recruit and train qualified personnel at an accelerated rate in order to keep pace with our clients’ demands and our resulting need for specially trained employees. If we are unable to continue to hire, train and retain a sufficient labor force of qualified employees, our business, results of operations and financial condition could be adversely affected.

Increases in labor costs and turnover rates could adversely affect our business, results of operations and financial condition.

Our Communication Services and Receivables Management segments are very labor intensive and experience high personnel turnover. Significant increases in the employee turnover rate could increase recruiting and training costs and decrease operating effectiveness and productivity. Moreover, many of our employees are hired on a part-time basis, and a significant portion of our costs consists of wages to hourly workers. Increases in the minimum wage or labor regulation could increase our labor costs. Recently, there has been increased legislative activity at the state and federal level to increase the minimum wage. Increases in our labor costs, costs of employee benefits or employment taxes could adversely affect our business, results of operations and financial condition.

Because we have operations in countries outside of the United States, we may be subject to political, economic and other conditions affecting these countries that could result in increased operating expenses and regulation.

We operate or rely upon businesses in numerous countries outside the United States. We may expand into additional countries and regions. There are risks inherent in conducting business internationally, including:

 

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political and economic conditions, exposure to currency fluctuations, greater difficulties in accounts receivable collection, difficulties in staffing and managing foreign operations and potential adverse tax consequences.

If we cannot manage our international operations successfully, our business, results of operations and financial condition could be adversely affected.

A large portion of our revenues are generated from a limited number of clients, and the loss of one or more key clients would result in the loss of net revenues.

Our 100 largest clients represented approximately 61% of our total revenue for the year ended December 31, 2006 with one client, AT&T (formerly AT&T, Bell South, Cingular and SBC Communications), accounting for approximately 17% of our total revenue. Subject to advance notice requirements and a specified wind down of purchases, AT&T may terminate its contracts with us with or without cause at any time. If we fail to retain a significant amount of business from AT&T or any of our other significant clients, our business, results of operations and financial condition could be adversely affected.

We serve clients and industries that have experienced a significant level of consolidation in recent years. Additional consolidation could occur in which our clients could be acquired by companies that do not use our services. The loss of any significant client would result in a decrease in our revenues and could adversely affect our business, results of operations and financial condition.

The financial results of our Receivables Management segment depend on our ability to purchase charged-off receivable portfolios on acceptable terms and in sufficient amounts. If we are unable to do so, our business, results of operations and financial condition could be adversely affected.

If we are unable to purchase charged-off consumer receivables from credit originators and other debt sellers on acceptable terms and in sufficient amounts, our business, results of operations and financial condition could be adversely affected. The availability of portfolios that generate an appropriate return on our investment depends on a number of factors both within and beyond our control, including:

 

   

competition from other buyers of consumer receivable portfolios;

 

   

continued sales of charged-off consumer receivable portfolios by credit originators;

 

   

continued growth in the number of industries selling charged-off consumer receivable portfolios; and

 

   

our ability to collect upon a sufficient percentage of accounts to satisfy our contractual obligations.

Because of the length of time involved in collecting charged-off consumer receivables on acquired portfolios and the volatility in the timing of our collections, we may not be able to identify trends and make changes in our purchasing strategies in a timely manner.

In our Receivables Management segment, we entered into a number of forward-flow contracts during 2006. These contracts commit a third party to sell to us regularly, and commit us to purchase regularly, charged-off receivable portfolios for a fixed percentage of their face amount. Consequently, our business, results of operations and financial condition could be adversely affected if the fixed percentage price is higher than the market price we would have paid absent the forward-flow commitment. We plan to enter into similar contracts in the future, depending on market conditions. To the extent new or existing competitors enter into similar forward-flow arrangements, the pool of portfolios available for purchase may be diminished.

Security and privacy breaches of the systems we use to protect personal data could adversely affect our business, results of operations and financial condition.

Our databases contain personal data of our clients’ customers, including credit card and healthcare information. Any security or privacy breach of these databases could expose us to liability, increase our expenses

 

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relating to the resolution of these breaches and deter our clients from selecting our services. Our data security procedures may not effectively counter evolving security risks, address the security and privacy concerns of existing or potential clients or be compliant with federal, state, and local laws and regulations in all respects. Any failures in our security and privacy measures could adversely affect our business, financial condition and results of operations.

Our contracts are generally not exclusive and typically do not provide for revenue commitments.

We seek to sign multi-year contracts with our clients. However, our contracts generally enable the clients to unilaterally terminate the contract or reduce transaction volumes upon written notice and without penalty, oftentimes based on our failure to attain certain service performance levels. The terms of these contracts are often also subject to renegotiation at any time. In addition, most of our contracts are not exclusive and do not ensure that we will generate a minimum level of revenue. Many of our clients also retain multiple service providers with whom we must compete. As a result, the profitability of each client program may fluctuate, sometimes significantly, throughout the various stages of a program.

Our data and contact centers are exposed to interruption.

Our outsourcing operations depend on our ability to protect our data and contact centers against damage that may be caused by fire, natural disasters, power failure, telecommunications failures, computer viruses, failures of our software, acts of sabotage or terror and other emergencies. In the past, natural disasters such as hurricanes have provided significant employee dislocation and turnover in the areas impacted. If we experience temporary or permanent employee dislocation or interruption at one or more of our data or contact centers through casualty, operating malfunction or other acts, we may be unable to provide the services we are contractually obligated to deliver. As a result, we may experience a reduction in revenue or be required to pay contractual damages to some clients or allow some clients to terminate or renegotiate their contracts. Any interruptions of this type could result in a prolonged interruption in our ability to provide our services to our clients, and our business interruption and property insurance may not adequately compensate us for any losses we may incur. These interruptions could adversely affect our business, financial condition and results of operations.

Acts of terrorism or war could adversely affect our business, results of operations and financial condition.

Acts of terrorism or war could disrupt our operations. For example, our agent-based business may experience significant reductions in call volume during and following any significant terrorist event. These disruptions could also cause service interruptions or reduce the quality level of the services we provide, resulting in a reduction in our revenues. In addition, an economic downturn as a result of these activities could negatively impact the financial condition of our clients, which may cause our clients to delay or defer decisions to use our services or decide to use fewer of our services. As a result, war and terrorist attacks and any resulting economic downturn could adversely affect our business, results of operations and financial condition.

We may not be able to adequately protect our proprietary information or technology.

Our success is dependent upon our proprietary information and technology. We rely on a combination of copyright, trade secret and contract protection to establish and protect our proprietary rights in our information and technology. Third parties may infringe or misappropriate our patents, trademarks, trade names, trade secrets or other intellectual property rights, which could adversely affect our business, results of operations and financial condition, and litigation may be necessary to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of the proprietary rights of others. The steps we have taken to deter misappropriation of our proprietary information and technology or client data may be insufficient to protect us, and we may be unable to prevent infringement of our intellectual property rights or misappropriation of our proprietary information. Any infringement or misappropriation could harm any competitive advantage we currently derive or may derive from our proprietary rights. In addition, because we operate in many foreign

 

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jurisdictions, we may not be able to protect our intellectual property in the foreign jurisdictions in which we operate or others.

Our technology and services may infringe upon the intellectual property rights of others.

Third parties have asserted in the past and may, in the future, assert claims against us alleging that we are violating or infringing upon their intellectual property rights. Any claims and any resulting litigation could subject us to significant liability for damages. An adverse determination in any litigation of this type could require us to design around a third party’s patent, license alternative technology from another party or reduce or modify our product and service offerings. In addition, litigation is time-consuming and expensive to defend and could result in the diversion of our time and resources. Any claims from third parties may also result in limitations on our ability to use the intellectual property subject to these claims.

Our business depends on our ability to keep pace with our clients’ needs for rapid technological change and systems availability.

Technology is a critical component of our business. We have invested in sophisticated and specialized computer and telephone technology and we anticipate that it will be necessary for us to continue to select, invest in and develop new and enhanced technology on a timely basis in the future in order to remain competitive. Our future success depends in part on our ability to continue to develop technology solutions that keep pace with evolving industry standards and changing client demands.

If we are unable to complete future acquisitions, our business strategy and earnings may be negatively affected.

Our ability to identify and take advantage of attractive acquisition or other business development opportunities is an important component in implementing our overall business strategy. We may be unable to identify, finance or complete acquisitions or to do so at attractive valuations.

 

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INDUSTRY AND MARKET DATA

Market and industry data throughout this prospectus was obtained from a combination of our own research, the good faith estimates of management and various trade associations. While we believe our research, third party information, estimates of management and data from trade associations are reliable, we have not verified this data with any independent sources. Accordingly, we do not make any representations as to the accuracy or completeness of that data.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus includes “forward-looking statements.” Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future sales or performance, capital expenditures, financing needs, plans, intentions or expected cost savings relating to acquisitions, business trends and other information that is not historical information and, in particular, appear under the headings “Prospectus Summary,” “Unaudited Pro Forma Condensed Consolidated Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business.” Words such as “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “forecasts,” and variations of such words or similar expressions that predict or indicate future events or trends, or that do not relate to historical matters, identify forward-looking statements. Our expectations, beliefs and projections are expressed in good faith, and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs, and projections will result or be achieved. Investors should not rely on forward-looking statements because they are subject to a variety of risks, uncertainties and other factors that could cause actual results to differ materially from our expectations. These factors include, but are not limited to:

 

   

an inability to integrate or achieve the objectives or expected cost savings of our recent and future acquisitions;

 

   

an inability to purchase charged-off receivable portfolios on acceptable terms and in sufficient amounts;

 

   

significant technological advances and consolidation in the conferencing industry, which have contributed to pricing pressures;

 

   

competition from other companies in our industries;

 

   

changes within federal, state or regulatory schemes;

 

   

the loss of senior executives or employees;

 

   

disruptions in international markets;

 

   

the loss of one or more key clients;

 

   

protection of and litigation over intellectual property rights;

 

   

an inability to deliver new and innovative products and services;

 

   

protection of and litigation regarding the personal confidential information of our clients’ customers;

 

   

litigation with or regarding our employees and independent contractors; and

 

   

the other factors described in this prospectus under the heading “Risk Factors.”

On October 24, 2006, we completed our Recapitalization. As a result of closing the Recapitalization, our common stock is no longer publicly traded. In addition to the factors noted above, we believe that the following factors with respect to the Recapitalization could cause actual results to differ materially from those discussed in the forward-looking statements:

 

   

our substantial indebtedness incurred in connection with the Recapitalization;

 

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the difficulty in retaining employees as a result of the Recapitalization;

 

   

the risk of unforeseen material adverse changes to the business or operations; and

 

   

the disruption of current plans, operations, and technology and product development efforts caused by the Recapitalization.

The foregoing factors are not exhaustive and new factors may emerge or changes to the foregoing factors may occur that could impact our business. Except to the extent required by law, we undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise. You should review carefully the section captioned “Risk Factors” in this prospectus for a more complete discussion of the risks of an investment in the notes. There may be other factors not presently known to us or which we currently consider to be immaterial that may cause our actual results to differ materially from the forward-looking statements. All forward-looking statements attributable to us or persons acting on our behalf apply only as of the date of this prospectus and are expressly qualified in their entirety by the cautionary statements included in this prospectus.

 

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THE EXCHANGE OFFERS

Purpose and Effect

Concurrently with the consummation of the Recapitalization, we entered into registration rights agreements with the initial purchasers of the outstanding notes, which require us to file a registration statement under the Securities Act with respect to the exchange notes and, upon the effectiveness of the registration statement, offer to the holders of the outstanding notes the opportunity to exchange their outstanding notes for a like principal amount of exchange notes. The exchange notes will be issued without a restrictive legend and generally may be reoffered and resold without registration under the Securities Act. The registration rights agreements further provide that if we do not consummate the exchange offers within 315 days after the issuance of the outstanding notes, the interest rate on the notes will increase until the exchange offer is consummated.

Except as described below, upon the completion of the exchange offers, our obligations with respect to the registration of the outstanding notes and the exchange notes will terminate. A copy of each registration rights agreements has been filed as an exhibit to the registration statement of which this prospectus is a part, and this summary of the material provisions of the registration rights agreements does not purport to be complete and is qualified in its entirety by reference to the complete registration rights agreements. As a result of the timely filing and the effectiveness of the registration statement, we will not have to pay certain liquidated damages on the outstanding notes provided in the registration rights agreements. Following the completion of the exchange offers, holders of outstanding notes not tendered will not have any further registration rights other than as set forth in the paragraphs below, and the outstanding notes will continue to be subject to certain restrictions on transfer. Additionally, the liquidity of the market for the outstanding notes could be adversely affected upon consummation of the exchange offers.

In order to participate in the exchange offers, a holder must represent to us, among other things, that:

 

   

the exchange notes acquired pursuant to the exchange offers are being obtained in the ordinary course of business;

 

   

the holder does not have an arrangement or understanding with any person to participate in the distribution of the exchange notes and is not engaged in and does not intend to engage in, a distribution of the exchange notes;

 

   

the holder is not an “affiliate,” as defined under Rule 405 under the Securities Act, of West Corporation or any subsidiary guarantor; and

 

   

if the holder is a broker-dealer that will receive exchange notes for its own account in exchange for outstanding notes that were acquired a result of market-making or other trading activities, then the holder will deliver a prospectus in connection with any resale of such exchange notes.

Under certain circumstances specified in the registration rights agreements, we may be required to file a “shelf” registration statement for a continuous offer in connection with the outstanding notes pursuant to Rule 415 under the Securities Act.

Based on an interpretation by the Staff of the Commission set forth in no-action letters issued to third-parties unrelated to us, we believe that, with the exceptions set forth below, exchange notes issued in the exchange offers may be offered for resale, resold and otherwise transferred by the holder of exchange notes without compliance with the registration and prospectus delivery requirements of the Securities Act, unless the holder:

 

   

is an “affiliate,” within the meaning of Rule 405 under the Securities Act, of West Corporation or any subsidiary guarantor;

 

   

is a broker-dealer who purchased outstanding notes directly from us for resale under Rule 144A or Regulation S or any other available exemption under the Securities Act;

 

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acquired the exchange notes other than in the ordinary course of the holder’s business;

 

   

has an arrangement with any person to engage in the distribution of the exchange notes; or

 

   

is prohibited by any law or policy of the Commission from participating in the exchange offers.

Any holder who tenders in the exchange offers for the purpose of participating in a distribution of the exchange notes cannot rely on this interpretation by the Staff of the Commission and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. Each broker-dealer that receives exchange notes for its own account in exchange for outstanding notes, where such outstanding notes were acquired by such broker-dealer as a result of market making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such exchange note. See “Plan of Distribution.” Broker-dealers who acquired outstanding notes directly from us and not as a result of market making activities or other trading activities may not rely on the Staff’s interpretations discussed above or participate in the exchange offers, and must comply with the prospectus delivery requirements of the Securities Act in order to sell the outstanding notes.

Terms of the Exchange Offers

Upon the terms and subject to the conditions set forth in this prospectus and in the accompanying letter of transmittal, we will accept any and all outstanding notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on May 23, 2007, or such date and time to which we extend the offers. We will issue $2,000 in principal amount of exchange notes in exchange for $2,000 in principal amount of outstanding notes accepted in the exchange offers and in integral multiples of $1,000 thereafter. Holders may tender some or all of their outstanding notes pursuant to the exchange offers. However, outstanding notes may be tendered only in integral multiples of $1,000 in principal amount.

The exchange notes will evidence the same debt as the outstanding notes and will be issued under the terms of, and entitled to the benefits of, the indentures relating to the outstanding notes.

Each broker-dealer that receives the exchange notes for its own account pursuant to the exchange offers must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. The letter of transmittal delivered with this prospectus 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 resales of exchange notes received in exchange for outstanding notes where such outstanding notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. We have agreed that, for a period of up to 180 days after the effective date of the exchange offers, we will make this prospectus available to any broker-dealer for use in connection with any such resale. See “Plan of Distribution.”

We have not authorized any dealer, salesman or other person to give any information or to make any representation other than those contained or incorporated by reference in this prospectus. You must not rely upon any information or representation not contained or incorporated by reference in this prospectus as if we had authorized it. The exchange offers are not being made to, and we will not accept surrenders for exchange from, holders of the outstanding notes in any jurisdiction in which the exchange offers or its acceptance would not comply with the securities or blue sky laws of that jurisdiction.

As of the date of this prospectus, $650.00 million in aggregate principal amount of the senior notes due 2014 and $450.0 million in aggregate principal amount of the senior subordinated notes due 2016 were outstanding, and there was one registered holder, a nominee of DTC. This prospectus, together with the letter of transmittal, is being sent to the registered holder and to others believed to have beneficial interests in the outstanding notes. We intend to conduct the exchange offers in accordance with the applicable requirements of

 

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the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations of the Commission promulgated under the Exchange Act.

We will be deemed to have accepted validly tendered outstanding notes when we have given oral or written notice thereof to The Bank of New York, the exchange agent. The exchange agent will act as agent for the tendering holders for the purpose of receiving the exchange notes from us. If any tendered outstanding notes are not accepted for exchange because of an invalid tender or the occurrence of certain other events set forth under the heading “—Conditions to the Exchange Offers,” certificates for any such unaccepted outstanding notes will be returned, without expense, to the tendering holder of those outstanding notes as promptly as practicable after the expiration date, as may be extended.

Holders who tender outstanding notes in the exchange offers will not be required to pay brokerage commissions or fees or, subject to the instructions in the letter of transmittal, transfer taxes with respect to the exchange of outstanding notes in the exchange offers. We will pay all charges and expenses, other than certain applicable taxes, applicable to the exchange offers. See “—Fees and Expenses.”

Expiration Date; Extensions; Amendments

The expiration date shall be 5:00 p.m., New York City time, on May 23, 2007, unless we, in our sole discretion, extend the exchange offers, in which case the expiration date shall be the latest date and time to which the exchange offers are extended. In order to extend the exchange offers, we will notify the exchange agent and each registered holder of any extension by oral or written notice prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date and will also disseminate notice of any extension by press release or other public announcement prior to 9:00 a.m., New York City time, on such date. Such announcement will also disclose the approximate number of outstanding notes tendered at such time. We reserve the right, in our sole discretion:

 

   

to delay accepting any outstanding notes, to extend the exchange offers or, if any of the conditions set forth under “—Conditions to the Exchange Offers” shall not have been satisfied, to terminate the exchange offers, by giving oral or written notice of that delay, extension or termination to the exchange agent; or

 

   

to amend the terms of the exchange offers in any manner.

In the event that we make a fundamental change to the terms of the exchange offers, we will file a post-effective amendment to the registration statement. In the event that we make a material change in the exchange offers, including the waiver of a material condition, we will extend the expiration date of the exchange offers so that at least five business days remain in the exchange offers following notice of the material change.

Procedures for Tendering

Only a registered holder of outstanding notes may tender such outstanding notes in the exchange offers. To effectively tender in the exchange offers, a holder must complete, sign and date a copy or facsimile of the letter of transmittal, have the signatures thereon guaranteed if required by the letter of transmittal, and mail or otherwise deliver such letter of transmittal or such facsimile, together with the outstanding notes and any other required documents, to the exchange agent at the address set forth below under “—Exchange Agent” for receipt on or prior to the expiration date. Delivery of the notes also may be made by book-entry transfer in accordance with the procedures described below. If you are effecting delivery by book-entry transfer,

 

   

confirmation of such book-entry transfer must be received by the exchange agent prior to the expiration date; and

 

   

you must transmit to the exchange agent on or prior to the expiration date a computer-generated message transmitted by means of the Automated Tender Offer Program System of DTC in which you

 

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acknowledge and agree to be bound by the terms of the letter of transmittal and which, when received by the exchange agent, forms a part of the confirmation of book-entry transfer.

By executing the letter of transmittal or effecting delivery by book-entry transfer, each holder is making to us those representations set forth under the heading “—Purpose and Effect.”

The tender by a holder of outstanding notes will constitute an agreement between such holder and us in accordance with the terms and subject to the conditions set forth herein and in the letter of transmittal.

The method of delivery of the outstanding notes and the letter of transmittal and all other required documents to the exchange agent is at the election and sole risk of the holder. As an alternative to delivery by mail, holders may wish to consider overnight or hand delivery service. In all cases, sufficient time should be allowed to ensure delivery to the exchange agent on or prior to the expiration date. You should not send any letters of transmittal or outstanding notes to us. Holders may request that their respective brokers, dealers, commercial banks, trust companies or nominees effect the above transaction for such holders.

The term “holder” with respect to the exchange offers means any person in whose name outstanding notes are registered on our books or any other person who has obtained a properly completed bond power from the registered holder, or any person whose outstanding notes are held of record by DTC who desires to deliver such notes by book-entry transfer at DTC.

If your outstanding notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender, you should promptly contact the person in whose name the notes are registered and instruct such registered holder to tender on your behalf. If a beneficial owner wishes to tender on his or her own behalf, the holder must, prior to completing and executing the letter of transmittal and delivering the outstanding notes, either make appropriate arrangements to register ownership of the notes in his or her name or to obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time. Signatures on a letter of transmittal or a notice of withdrawal, as the case may be, must be guaranteed by an Eligible Guarantor Institution (defined below) unless the outstanding notes are tendered:

 

   

by a registered holder who has not completed the box entitled “Special Issuance Instructions” or “Special Delivery Instructions” on the letter of transmittal; or

 

   

for the account of an Eligible Guarantor Institution.

If signatures on a letter of transmittal or a notice of withdrawal, as the case may be, must be guaranteed, such guarantee must be by a participant in a recognized signature guarantee medallion program within the meaning of Rule 17Ad-15 under the Exchange Act, an “Eligible Guarantor Institution.”

If the letter of transmittal is signed by a person other than the registered holder of any outstanding notes listed therein, such outstanding notes must be endorsed or accompanied by properly completed bond powers, signed by such registered holder as such registered holder’s name appears on such notes with the signature thereon guaranteed by an Eligible Guarantor Institution. If the letter of transmittal or any outstanding notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and submit with the letter of transmittal evidence satisfactory to so act.

We understand that the exchange agent will make a request, promptly after the date of this prospectus, to establish accounts with respect to the outstanding notes at the book-entry transfer facility of DTC for the purpose of facilitating the exchange offers, and subject to the establishment of these accounts, any financial institution that is a participant in the book-entry transfer facility system may make book-entry delivery of notes by causing the transfer of such notes into the exchange agent’s account with respect to the outstanding notes in accordance

 

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with DTC’s procedures for such transfer. Although delivery of the outstanding notes may be effected through book-entry transfer into the exchange agent’s account at the book-entry transfer facility, unless the holder complies with the procedures described in the following paragraph or the guaranteed delivery procedures described below, an appropriate letter of transmittal properly completed and duly executed with any required signature guarantee and all other required documents must in each case be transmitted to and received or confirmed by the exchange agent at its address set forth below before the expiration date. The delivery of documents to the book-entry transfer facility does not constitute delivery to the exchange agent.

The exchange agent and DTC have confirmed that the exchange offers are eligible for the Automated Tender Offer Program (“ATOP”) of DTC. Accordingly, DTC participants may electronically transmit their acceptance of the exchange offers by causing DTC to transfer outstanding notes to the exchange agent in accordance with the procedures for transfer established under ATOP. DTC will then send an Agent’s Message to the exchange agent. The term “Agent’s Message” means a message transmitted by DTC that, when received by the exchange agent, forms part of the formation of a book-entry transfer and that states that DTC has received an express acknowledgement from the DTC participant that such participant has received and agrees to be bound by the terms of the letter of transmittal and that we may enforce such agreement against such participant. In the case of an Agent’s Message relating to guaranteed delivery, the term means a message transmitted by DTC and received by the exchange agent that states that DTC has received an express acknowledgement from the DTC participant that such participant has received and agrees to be bound by the notice of guaranteed delivery.

We will determine all questions as to the validity, form eligibility (including time of receipt), acceptance and withdrawal of the tendered outstanding notes in our sole discretion, and our determination will be final and binding. We reserve the absolute right to reject any and all outstanding notes not validly tendered or any outstanding notes the acceptance of which would, in the opinion of our counsel, be unlawful. We also reserve the absolute right to waive any defects, irregularities or conditions of tender as to particular outstanding notes. Our interpretation of the terms and conditions of the exchange offers, including the instructions in the letter of transmittal, will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of outstanding notes must be cured within such time as we shall determine. Although we intend to notify holders of defects or irregularities with respect to the tender of outstanding notes, neither we, the exchange agent nor any other person shall incur any liability for failure to give such notification. Tenders of outstanding notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any outstanding notes received by the exchange agent that are not validly tendered and as to which the defects or irregularities have not been cured or waived, or if outstanding notes are submitted in a principal amount greater than the principal amount of outstanding notes being tendered by such tendering holder, such unaccepted or non-exchanged notes will be returned by the exchange agent to the tendering holders (or, in the case of outstanding notes tendered by book-entry transfer into the exchange agent’s account at the book-entry transfer facility pursuant to the book-entry transfer procedures described above, such unaccepted or non-exchanged notes will be credited to an account maintained with such book-entry transfer facility), unless otherwise provided in the letter of transmittal accompanying such notes, promptly following the expiration date.

Guaranteed Delivery Procedures

If a registered holder of the outstanding notes desires to tender outstanding notes and the outstanding notes are not immediately available, or time will not permit that holder’s outstanding notes or other required documents to reach the exchange agent before the expiration date, or the procedures for book-entry transfer cannot be completed on a timely basis, a tender may be effected if:

 

   

the tender is made through an Eligible Guarantor Institution;

 

   

prior to the expiration date, the exchange agent receives from that Eligible Guarantor Institution a properly completed and duly executed letter of transmittal or facsimile of a duly executed letter of transmittal and notice of guaranteed delivery, substantially in the form provided by us, by fax transmission, mail or hand delivery, setting forth the name and address of the holder of outstanding

 

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notes and the amount of outstanding notes tendered and stating that the tender is being made by guaranteed delivery and guaranteeing that within three New York Stock Exchange (“NYSE”) trading days after the date of execution of the notice of guaranteed delivery, the certificates for all physically tendered outstanding notes, in proper form for transfer, or book-entry confirmation, as the case may be, will be deposited by the Eligible Guarantor Institution with the exchange agent; and

 

   

the certificates for all physically tendered outstanding notes, in proper form for transfer, or a book-entry confirmation, as the case may be, are received by the exchange agent within three NYSE trading days after the date of execution of the notice of guaranteed delivery.

Withdrawal Rights

Tenders of outstanding notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration date.

For a withdrawal of a tender of outstanding notes to be effective, a written or, for DTC participants, electronic ATOP transmission, notice of withdrawal, must be received by the exchange agent at its address set forth under “—Exchange Agent” prior to 5:00 p.m., New York City time, on the expiration date. Any such notice of withdrawal must:

 

   

specify the name of the person having deposited the outstanding notes to be withdrawn, whom we refer to as the depositor;

 

   

identify the outstanding notes to be withdrawn, including the certificate number or numbers and principal amount of such outstanding notes or, in the case of outstanding notes transferred by book-entry transfer, the name and number of the account at DTC to be credited;

 

   

be signed by the holder in the same manner as the original signature on the letter of transmittal by which such outstanding notes were tendered, including any required signature guarantees, or be accompanied by documents of transfer sufficient to have the trustee register the transfer of such outstanding notes into the name of the person withdrawing the tender; and

 

   

specify the name in which any such outstanding notes are to be registered, if different from that of the depositor.

All questions as to the validity, form, eligibility and time of receipt of such notices will be determined by us, whose determination shall be final and binding on all parties. Any outstanding notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the exchange offers. Any outstanding notes which have been tendered for exchange, but which are not exchanged for any reason, will be returned to the holder of those outstanding notes without cost to that holder promptly after withdrawal, rejection of tender, or termination of the exchange offers. Properly withdrawn outstanding notes may be retendered by following one of the procedures under “—Procedures for Tendering” at any time on or prior to the expiration date.

Conditions to the Exchange Offers

Notwithstanding any other provision of the exchange offers, we will not be required to accept for exchange, or to issue exchange notes in exchange for, any outstanding notes and may terminate or amend the exchange offers if at any time before the expiration of the exchange offers, we determine that the exchange offers violate applicable law, any applicable interpretation of the Staff of the Commission or any order of any governmental agency or court of competent jurisdiction.

The foregoing conditions are for our sole benefit and may be asserted by us regardless of the circumstances giving rise to any such condition or may be waived by us in whole or in part at any time and from time to time, prior to the expiration of the exchange offers. The failure by us at any time to exercise any of the foregoing rights shall not be deemed a waiver of any of those rights and each of those rights shall be deemed an ongoing right which may be asserted at any time and from time to time.

 

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In addition, we will not accept for exchange any outstanding notes tendered, and no exchange notes will be issued in exchange for those outstanding notes, if at such time any stop order shall be threatened or in effect with respect to the registration statement of which this prospectus constitutes a part or the qualification of the indentures under the Trust Indenture Act of 1939. In any of those events we are required to use every reasonable effort to obtain the withdrawal of any stop order at the earliest possible time.

Effect of Not Tendering

Holders of outstanding notes who do not exchange their outstanding notes for exchange notes in the exchange offers will remain subject to the restrictions on transfer of such outstanding notes:

 

   

as set forth in the legend printed on the outstanding notes as a consequence of the issuance of the outstanding notes pursuant to the exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws; and

 

   

otherwise set forth in the prospectus distributed in connection with the private offering of the outstanding notes.

Exchange Agent

All executed letters of transmittal should be directed to the exchange agent. The Bank of New York has been appointed as exchange agent for the exchange offers. Questions, requests for assistance and requests for additional copies of this prospectus or of the letter of transmittal should be directed to the exchange agent addressed as follows:

By Registered or Certified Mail; Hand Delivery or Overnight Courier:

The Bank of New York

Corporate Trust Operations Reorganization Unit

101 Barclay Street–7 East

New York, New York 10286

Attn: Mr. David A. Mauer

By Facsimile (Eligible Institutions Only):

212-298-1915

For Information or Confirmation by Telephone:

212-815-3687

Originals of all documents sent by facsimile should be sent promptly by registered or certified mail, by hand or by overnight delivery service.

Fees and Expenses

We will not make any payments to brokers, dealers or others soliciting acceptances of the exchange offers. The principal solicitation is being made by mail; however, additional solicitations may be made in person or by telephone by our officers, employees, agents or representatives. The estimated cash expenses to be incurred in connection with the exchange offers will be paid by us and will include fees and expenses of the exchange agent, accounting, legal, printing and related fees and expenses.

Transfer Taxes

Holders who tender their outstanding notes for exchange will not be obligated to pay any transfer taxes in connection with that tender or exchange, except that holders who instruct us to register exchange notes in the name of, or request that outstanding notes not tendered or not accepted in the exchange offers be returned to, a person other than the registered tendering holder will be responsible for the payment of any applicable transfer tax on those outstanding notes.

 

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THE RECAPITALIZATION

On May 31, 2006, West Corporation entered into the Merger Agreement with Omaha Acquisition Corp., which was a Delaware corporation formed by private equity funds sponsored by the Sponsors for the purpose of recapitalizing West Corporation. The Recapitalization was approved at a special meeting of our former stockholders held on October 23, 2006 and was consummated on October 24, 2006.

Upon the satisfaction of the conditions set forth in the Merger Agreement, Omaha Acquisition Corp. was merged with and into West Corporation, with West Corporation continuing as the surviving corporation. At the effective time of the Recapitalization, each issued and outstanding share of our pre-merger common stock, other than shares held by Gary L. West and Mary E. West, shares of pre-merger common stock rolled over into an equity interest in the surviving corporation and shares as to which a stockholder properly exercised appraisal rights under Delaware law, was converted into the right to receive cash in an amount equal to $48.75 per share in cash, without interest, and private equity funds sponsored by the Sponsors became our new controlling shareholders through their ownership of approximately 63.7% of our outstanding capital stock. Gary L. West and Mary E. West converted approximately 85.0% of their pre-merger common stock, or approximately 33.8 million shares, into the right to receive $42.83 per share in cash, without interest, and approximately 15.0% of their pre-merger common stock, or approximately 5.8 million shares, into shares of the surviving corporation representing approximately 22.0% of our equity. Concurrent with the Recapitalization, certain members of our senior management rolled over approximately $30.0 million in pre-merger equity in an amount equal to approximately 3.2% of our equity.

The Recapitalization was financed by:

 

   

an equity investment in the Company of $725.8 million by private equity funds sponsored by or co-investors with the Sponsors;

 

   

$30.0 million of rollover equity from certain members of our senior management;

 

   

$250.0 million of rollover equity from Gary L. West and Mary E. West;

 

   

borrowings of $2,350.0 under our senior secured credit facility, $2,100.0 of which was drawn on the closing date of the Recapitalization under the term loan facility; and

 

   

the issuance of $1,100.0 million in aggregate principal amount of the outstanding notes.

In connection with the closing of the Recapitalization, we terminated and paid off the outstanding balance of our existing $800.0 million unsecured revolving credit facility. As a result of the closing of the Recapitalization, our common stock is no longer publicly traded.

 

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USE OF PROCEEDS

The outstanding notes were issued and sold on October 24, 2006. The proceeds from the offering of the outstanding notes, borrowings under our senior secured credit facilities and the proceeds of equity investments by private equity funds sponsored by and co-investors with the Sponsors were used to finance the Recapitalization and pay related fees and expenses.

The exchange offers are intended to satisfy our obligations under the registration rights agreements, each dated October 24, 2006, by and among us, the subsidiary guarantors party thereto and the initial purchasers of the outstanding notes. We will not receive any proceeds from the issuance of the exchange notes in the exchange offers. Instead, we will receive in exchange outstanding notes in like principal amount. We will retire or cancel all of the outstanding notes tendered in the exchange offers.

CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of December 31, 2006. You should read this table along with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical consolidated financial statements and related notes appearing elsewhere in this prospectus.

 

    

As of December 31,

2006

 
     (Dollars in millions)  

Cash and cash equivalents

   $ 214.9  
        

Debt:

  

Senior secured credit facilities:

  

Revolving credit facility

     —    

Term loan

     2,100.0  

Outstanding senior notes

     650.0  

Outstanding senior subordinated notes

     450.0  

Portfolio notes payable

     87.2  
        

Total debt

     3,287.2  

Total stockholders’ deficit

   $ (2,127.6 )
        

Total capitalization

   $ 1,159.6  
        

 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA

The following table sets forth our selected historical consolidated financial data as of the dates and for the periods indicated. The selected historical financial data for, and as of, the years ended December 31, 2002, 2003, 2004, 2005 and 2006 is derived from our audited consolidated financial statements. Historical results are not necessarily indicative of the results to be expected for future periods. The selected historical consolidated financial and other data should be read in conjunction with our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes thereto appearing elsewhere in this prospectus.

 

   

Year Ended, or as of December 31,

   

Pro Forma
Twelve Months Ended

December 31, 2006

 
    2006     2005     2004     2003     2002    

Statement of Operations:

             

Revenue

  $ 1,856,038     $ 1,523,923     $ 1,217,383     $ 988,341     $ 820,665     $ 1,939,379  

Cost of services

    818,522       687,381       541,979       440,260       399,276       853,158  

Selling, general and administrative expenses

    800,301       569,865       487,513       404,972       314,886       743,399  
                                               

Operating income

    237,215       266,677       187,891       143,109       106,503       342,822  

Other income (expense):

                 

Interest income

    6,081       1,499       895       721       2,828       6,081  

Interest expense

    (94,804 )     (15,358 )     (9,381 )     (5,503 )     (2,419 )     (296,441 )

Other, net

    2,063       678       2,118       1,493       1,736       1,332  
                                               

Other income (expense)

    (86,660 )     (13,181 )     (6,368 )     (3,289 )     2,145       (289,028 )

Income before income tax expense and minority interest

    150,555       253,496       181,523       139,820       108,648       53,794  

Income tax expense

    65,505       87,736       65,762       51,779       39,706       14,218  
                                               

Income before minority interest

    85,050       165,760       115,761       88,041       68,942       39,576  

Loss from discontinued operations, net of tax benefit

    —         —         —         —         —         7  

Minority interest in net income

    16,287       15,411       2,590       165       300       16,287  
                                               

Net income

  $ 68,763     $ 150,349     $ 113,171     $ 87,876     $ 68,642     $ 23,282  
                                               

Balance Sheet Data:

             

Cash and cash equivalents

  $ 214,932     $ 30,835     $ 28,330     $ 23,955     $ 137,927      

Total assets

    2,535,856       1,498,662       1,271,206       1,015,863       670,822      

Long-term obligations

    3,200,000       220,000       230,000       192,000       29,647      

Portfolio notes payable

    87,246       40,520       28,498       —         —        

Stockholders’ equity (deficit)

    (2,127,554 )     971,868       789,455       656,238       549,592      

Statement of Cash Flows Data:

             

Net cash flows from:

             

Operating activities

  $ 196,638     $ 276,314     $ 217,376     $ 199,725     $ 121,218      

Investing activities

    (812,253 )     (297,154 )     (260,743 )     (479,881 )     (122,685 )    

Financing activities

    799,843       23,197       48,267       166,744       (12,126 )    

Other Financial Data:

             

Capital expenditures

    113,895       76,855       59,886       46,252       60,049      

Ratio of earnings to fixed charges (1)

    2.4x       11.5x       12.0x       13.4x       17.7x       1.2x  

(1) For purposes of calculating the ratio of earnings to fixed charges, earnings consist of income before income taxes and minority interest plus fixed charges. Fixed charges include: interest expense, whether expensed or capitalized; amortization of debt issuance costs; and the portion of rental expense representative of the interest factor.

 

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following unaudited pro forma financial information gives effect to the following:

 

   

The merger of West Corporation and Omaha Acquisition Corp. applying recapitalization accounting. On October 24, 2006, West Corporation consummated the Recapitalization by the merger of Omaha Acquisition Corp., a newly-formed Delaware corporation owned by private equity funds sponsored by Thomas H. Lee Partners and Quadrangle, with and into the Company. The transaction valued the Company at approximately $4.1 billion, including debt as of the date of the definitive agreement. The results of the Recapitalization have been included in our consolidated financial statements since April 1, 2006. West Corporation accounted for the merger as a leveraged recapitalization, whereby the historical book value of the assets and liabilities of West Corporation was maintained. The debt associated with this transaction, assuming a January 1, 2006 effective date, has been included in the accompanying pro forma financial statements.

 

   

The acquisition of Intrado, by West Corporation through a merger of a wholly-owned subsidiary of West Corporation with and into Intrado, with Intrado as the surviving entity on April 4, 2006 using the purchase method of accounting, after giving effect to the pro forma adjustments described in the accompanying notes. On April 4, 2006, West Corporation acquired all of the issued and outstanding shares of common stock of Intrado for cash consideration of $538.6 million, including estimated transaction costs. The assets acquired and liabilities assumed have been assigned a portion of the purchase price equal to their respective fair market values at April 4, 2006. The results of Intrado’s operations have been included in our consolidated financial statements since April 1, 2006.

 

   

The acquisition of Raindance, by West Corporation through a merger of a wholly-owned subsidiary of West Corporation with and into Raindance, with Raindance as the surviving entity on April 6, 2006 using the purchase method of accounting, after giving effect to the pro forma adjustments described in the accompanying notes. On April 6, 2006, West Corporation acquired all of the issued and outstanding shares of common stock of Raindance for cash consideration of $157.8 million, including estimated transaction costs. The assets acquired and liabilities assumed have been assigned a portion of the purchase price equal to their respective fair market values at April 6, 2006. The results of Raindance’s operations have been included in our consolidated financial statements since April 1, 2006.

 

   

The acquisition of InPulse through the purchase of all outstanding stock of InPulse by West Telemarketing, LP on October 2, 2006, for an aggregate purchase price of approximately $45.8 million, including estimated transaction costs, using the purchase method of accounting, after giving effect to the pro forma adjustments described in the accompanying notes. The assets acquired and liabilities assumed have been assigned a portion of the purchase price equal to their respective fair market values at October 2, 2006. The results of InPulse’s operations have been included in our consolidated financial statements since October 1, 2006.

The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the audited historical consolidated financial statements and notes of West Corporation, included herein.

The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2006 gives effect to the above acquisitions and Recapitalization as if these transactions had occurred at the beginning of the period presented. The unaudited pro forma adjustments described in the accompanying notes are based upon estimates and assumptions that management of West Corporation believes are reasonable. The pro forma adjustments are based on the information and assumptions available at the time of the mergers. The unaudited pro forma condensed consolidated financial statements are presented for illustrative purposes only and do not purport to be indicative of the operating results that would have actually occurred if the above mergers had been in effect on the dates indicated, nor is it necessarily indicative of future operating results of the merged companies. The unaudited pro forma condensed consolidated financial statements do not give effect to any potential cost savings or other operating efficiencies that may result from the transactions.

 

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WEST CORPORATION

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2006

(Dollars in thousands)

 

                                  Pro Forma  
    Historical (1)     Intrado (2)     Raindance (3)     InPulse (4)     Adjustments
for
Acquisitions (5)
    As Adjusted
for
Acquisitions
    Adjustments for
Recapitalization (6)
    As Further
Adjusted for
Recapitalization
 

Revenue

  $ 1,856,038     $ 35,936     $ 20,557     $ 26,848     $ —       $ 1,939,379       —       $ 1,939,379  

Cost of services

    818,522       10,744       8,954       14,938       —         853,158       —         853,158  

Selling, general and admin-istrative expenses

    800,301       79,332       23,287       9,275       (66,062 )(a)     846,133       (102,734 )(a)     743,399  
                                                               

Operating income

    237,215       (54,140 )     (11,684 )     2,635       66,062       240,088       102,734       342,822  

Other income (expense)

               

Interest income

    6,081       595       420         (1,015 )(b)     6,081       —         6,081  

Interest expense

    (94,804 )     (99 )       (228 )     327 (c)     (94,804 )     (201,637 )(b)     (296,441 )

Other, net

    2,063       (726 )     (5 )       —         1,332       —         1,332  
                                                               

Other expense, net

    (86,660 )     (230 )     415       (228 )     (688 )     (87,391 )     (201,637 )     (289,028 )
                                                               

Income from contin-uing oper-tions before income tax expense and minority interest

    150,555       (54,370 )     (11,269 )     2,407       65,374       152,697       (98,903 )     53,794  

Income tax expense (benefit)

    65,505       (17,386 )     7       1,090       16,291 (d)     65,507       (51,289 )(c)     14,218  
                                                               

Income before discontinued oper-ations and minority interest

    85,050       (36,984 )     (11,276 )     1,317       49,083       87,190       (47,614 )     39,576  

Loss from discontinued operations, net of tax benefit

    —         7       —         —         —         7       —         7  

Minority interest in net income

    16,287         —         —         —         16,287       —         16,287  
                                                               

Net income (loss)

  $ 68,763     $ (36,991 )   $ (11,276 )   $ 1,317     $ 49,083     $ 70,896     $ (47,614 )   $ 23,282  
                                                               

The accompanying notes are an integral part of these pro forma financial statements.

 

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WEST CORPORATION

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED

STATEMENTS OF OPERATIONS

 

1) Reflects the consolidated historical statements of operations of West Corporation for the year ended December 31, 2006, including the effects of the acquisitions of Intrado, Raindance and InPulse from the date of acquisition.

 

2) Reflects the historical (pre-acquisition) statements of operations of Intrado for the period of January 1, 2006 to March 31, 2006.

 

3) Reflects the historical (pre-acquisition) statements of operations of Raindance for the period of January 1, 2006 to March 31, 2006.

 

4) Reflects the historical (pre-acquisition) statements of operations of InPulse for the period of January 1, 2006 to September 30, 2006.

 

5) The pro forma adjustments to the statements of operations to reflect the acquisitions of Intrado, Raindance and InPulse are as follows:

 

  a) Adjustments to selling, general and administrative expenses are as follows:

 

  i) Additional intangible asset amortization of $5.3 million for the year ended December 31, 2006, based on the allocation of a portion of the purchase price to intangible assets, including customer relationships, trade names, non-competition agreements, patents technology and software. Estimated useful lives for intangible assets were based on historical experience and our intended future use of the intangible asset. Intangible assets are being amortized using the straight-line method, considering the pattern in which the economic benefits of the intangible assets are consumed.

 

  ii) The elimination of $55.1 million for the year ended December 31, 2006 of non-recurring stock based compensation expense associated with the acquisitions. Based on the acquisition of Intrado and Raindance’s common stock by West Corporation and the accelerated vesting of all outstanding stock options, restricted stock units and long-term incentive plan stock shares due to a change in control, Intrado and Raindance recognized expense of $55.1 million for the period January 1, 2006 to March 31, 2006 based on the actual shares and sales price per share.

 

  iii) The elimination of $16.3 million for the year ended December 31, 2006 of non-recurring acquisition related transaction costs.

 

  b) The elimination of $1.0 million of interest income of Intrado and Raindance.

 

  c) Adjustment to interest expense of ($0.3 million) for the year ended December 31, 2006.

 

  d) Change in income tax expense/benefit as a result of pro forma adjustments which affect taxable income.

 

6) The pro forma adjustments to the statements of operations to reflect the Recapitalization are as follows:

 

  a) Adjustments to selling, general and administrative expenses are as follows:

 

  i) Adjustment of ($0.4 million) for the year ended December 31, 2006 to eliminate synthetic lease expense and replace with depreciation expense for a building previously accounted for under a synthetic lease that was acquired simultaneous with the merger.

 

  ii) Adjustment to eliminate $74.8 million of non-recurring recapitalization related costs (approximately $40.0 million of which is not deductible for tax purposes) for the year ended December 31, 2006.

 

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  iii) Adjustment of $27.5 million for the elimination of non-recurring share-based compensation expense under the old stock option plan for the year ended December 31, 2006 and the inclusion of a full year of share-based compensation under the new Executive Incentive Plan.

 

  b) A net increase in interest expense associated with new debt incurred, net of interest expense associated with existing debt being repaid (excluding capital leases and non-recourse debt for accounts receivable portfolios) as follows (dollars in thousands):

INTEREST EXPENSE

(Amount in thousands)

 

     Principal
Amount
   Rate    

Pro Forma Adjustment
Year Ended

December 31,

2006

 

Senior secured term loan

   $ 2,100,000    7.83 %   $ 164,465  

$800 MM cash flow hedge impact

          (560 )

Commitment fee on unused line of credit

      0.50 %     1,250  

Senior notes

     650,000    9.50 %     61,750  

Senior subordinated notes

     450,000    11.0 %     49,500  

Historical interest expense

          (89,111 )

Full year of debt amortization

          14,343  
                 

Total

   $ 3,200,000      $ 201,637  
                 

Borrowings under our outstanding senior notes and our outstanding senior subordinated notes bear interest at a weighted average fixed rate of 10.1% per annum. Borrowings under the senior secured term loan facility accrue interest at variable rates equal to selected one, two, three or six month LIBOR plus 2.75%. Each one-eighth of a percentage change in the interest rates would result in a $4.0 million change in annual interest expense on the senior secured term loan facility. See “Description of Certain Other Indebtedness” for further description of the 2006 senior secured credit facilities.

 

  c) Change in income tax expense/benefit as a result of pro forma adjustments which affect taxable income.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

On May 31, 2006, West Corporation entered into the Merger Agreement with Omaha Acquisition Corp., a Delaware corporation formed by private equity funds sponsored by the Sponsors for the purpose of recapitalizing West Corporation. Upon satisfaction of the conditions set forth in the Merger Agreement, Omaha Acquisition Corp. was merged with and into West Corporation, with West Corporation continuing as the surviving corporation. The Recapitalization is described more fully in “Prospectus Summary–The Recapitalization.”

You should read the following discussion of our financial condition and results of operations with “Selected Historical Consolidated Financial and Other Data,” “Unaudited Pro Forma Condensed Consolidated Financial Statements” and the audited historical consolidated financial statements and related notes included elsewhere in this prospectus. In this section, the terms “we,” “our,” “ours,” “us” and “West Corporation” refer collectively to West Corporation and its consolidated subsidiaries. This discussion contains forward-looking statements about our markets, the demand for our products and services and our future results. We based these statements on assumptions that we consider reasonable. Actual results may differ materially from those suggested by our forward-looking statements for various reasons including those discussed in the “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” sections of this prospectus. Those sections expressly qualify all subsequent oral and written forward-looking statements attributable to us or persons acting on our behalf. We do not have any intention or obligation to update forward-looking statements included in this prospectus.

Business Overview

We provide business process outsourcing services focused on helping our clients communicate more effectively with their clients. We help our clients maximize the value of their customer relationships and derive greater value from each transaction that we process. We deliver our services through three segments:

 

   

Communication Services, including dedicated agent, shared agent, automated, and B-to-B services. With the acquisition of Intrado, communication services also supports the nation’s 9-1-1 network and delivers solutions to communications service providers and public safety organizations, including data management, network transactions, wireless data services and notification services;

 

   

Conferencing Services, including reservationless, operator-assisted, web and video conferencing; and

 

   

Receivables Management, including debt purchasing and collections, contingent/third-party collections, government collections, first-party collections and commercial collections.

Each of these services builds upon our core competencies of managing technology, telephony and human capital. Many of the nation’s leading enterprises trust us to manage their customer contacts and communications. These enterprises choose us based on our service quality and our ability to efficiently and cost-effectively process high volume, complex voice-related transactions.

Overview of 2006 Results

The following overview highlights the areas we believe are important in understanding our results of operations for the year ended December 31, 2006. This summary is not intended as a substitute for the detail provided elsewhere herein, our consolidated financial statements or our condensed consolidated financial statements and notes thereto included elsewhere in herein.

 

   

On October 24, 2006, we completed the Recapitalization of the Company in a transaction sponsored by an investor group led by the Sponsors pursuant to the Merger Agreement, dated as of May 31, 2006, between West Corporation and Omaha Acquisition Corp., a Delaware corporation formed by the Sponsors for the purpose of effecting the Recapitalization. Omaha Acquisition Corp. was merged with

 

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and into West Corporation, with West Corporation continuing as the surviving corporation. Pursuant to such recapitalization, our publicly traded securities were cancelled in exchange for cash. As a result of and immediately following the Recapitalization, the Sponsors owned approximately 72.1% of our outstanding Class A and Class L common stock, the Founders owned approximately 24.9% of our outstanding Class A and Class L common stock and certain executive officers of the Company had beneficial ownership of the remaining approximately 3.0% of our outstanding Class A and Class L common stock. The Recapitalization was accounted for as a leveraged recapitalization, whereby the historical bases of our assets and liabilities have been maintained. We financed the Recapitalization with equity contributions from the Sponsors and the rollover of a portion of the equity interests in the Company held by the Founders, and certain members of management, along with a new $2.1 billion senior secured term loan facility, a new senior secured revolving credit facility providing financing of up to $250.0 million (none of which was drawn at the closing of the Recapitalization) and the private placement of $650.0 million aggregate principal amount of 9.5% senior notes due 2014 and $450.0 million aggregate principal amount of 11% senior subordinated notes due 2016. In connection with the closing of the Recapitalization, the Company terminated and paid off the outstanding balance of its existing $800.0 million unsecured revolving credit facility. As a result of the Recapitalization, our common stock is no longer publicly traded.

 

   

On October 2, 2006, we completed our acquisition of InPulse. The purchase price and estimated transaction costs were approximately $46 million in cash, excluding cash received. We funded the acquisition with a combination of cash on hand and borrowings under our previous bank revolving credit facility.

 

   

On April 6, 2006, we completed our acquisition of Raindance pursuant to an Agreement and Plan of Merger dated as of February 6, 2006. The purchase price and estimated transaction costs were approximately $157 million in cash, excluding cash received. We funded the acquisition with a combination of cash on hand and borrowings under our previous bank revolving credit facility.

 

   

On April 4, 2006, we completed our acquisition of Intrado pursuant to an Agreement and Plan of Merger, dated as of January 29, 2006. The purchase price and estimated transaction costs were approximately $539 million in cash, excluding cash received. We funded the acquisition with a combination of cash on hand, a portion of Intrado’s cash on hand and borrowings under our previous bank revolving credit facility.

 

   

Revenues increased $332.1 million or 21.8% in 2006 as compared to the prior year. $235.2 million of this increase was derived from acquisitions completed in 2005 and 2006 and $96.9 million was attributable to organic growth.

 

   

Operating income decreased 11.0% in 2006 compared to the prior year. This decrease was attributable to recapitalization costs and share based compensation costs aggregating approximately $107.6 million.

 

   

Our adjusted EBITDA increased to $501.9 million in 2006, compared to $381.6 million in 2005, an increase of 31.5% due to the growth of our business.

Outlook

On January 31, 2007, we announced our 2007 financial outlook. In that announcement, we stated that our revenue expectation is $2.05 billion to $2.13 billion, expected adjusted EBITDA is $540 million to $560 million and expected capital expenditures are $90 million to $110 million. This guidance included the expected results of CenterPost Communications, Inc. (now known as West Notifications Group, Inc.) and TeleVox Software, Incorporated acquisitions which were also announced January 31, 2007.

 

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The following table sets forth our Consolidated Statement of Operations Data as a percentage of revenue for the periods indicated:

 

     Year Ended December 31,  
   2006     2005     2004  

Revenue

   100.0 %   100.0 %   100.0 %

Cost of services

   44.1     45.1     44.6  

Selling, general and administrative expenses (“SG&A”):

      

SG&A before recapitalization and share based compensation expense

   37.4     37.4     40.0  

Recapitalization expense

   4.2     —       —    

Share based compensation

   1.5     —       —    
                  

Total SG&A

   43.1     37.4     40.0  
                  

Operating income

   12.8     17.5     15.4  

Other expense

   4.7     0.9     0.5  
                  

Income before income tax expense and minority interest

   8.1     16.6     14.9  

Income tax expense

   3.5     5.7     5.4  

Minority interest

   0.9     1.0     0.2  
                  

Net Income

   3.7 %   9.9 %   9.3 %
                  

Years Ended December 31, 2006 and 2005

Revenue:  Revenue increased $332.1 million, or 21.8%, to $1,856.0 million in 2006 from $1,523.9 million in 2005. $235.2 million of this increase was derived from the acquisitions of Sprint’s conferencing assets, Intrado, Raindance and InPulse which closed for accounting purposes on June 3, 2005, April 1, 2006, April 1, 2006 and October 1, 2006, respectively.

During 2006 and 2005, revenue from our 100 largest customers, included $15.0 million and $37.5 million, respectively, of revenue derived from new clients.

During the year ended December 31, 2006, our largest 100 clients represented approximately 61% of revenues compared to 63% for the year ended December 31, 2005. This reduced concentration was due to our strategic acquisitions in 2006 and 2005 and to organic growth. Late in 2006, AT&T, Cingular, SBC and Bell South were merged. The aggregate revenue provided by these clients as a percentage of our total revenue in 2006 and 2005 were approximately 17% and 19%, respectively. No other client accounted for more than 10% of our total 2006 revenue. In 2005 Cingular accounted for 12% of total revenue.

Revenue by business segment:

 

     For the Year Ended, December 31,        
   2006    

% of Total

Revenue

    2005    

% of Total

Revenue

    Change     %
Change
 

Revenue in thousands:

            

Communication Services

   $ 1,020,242     55.0 %   $ 873,975     57.4 %   $ 146,267     16.7 %

Conferencing Services

     607,506     32.7 %     438,613     28.8 %     168,893     38.5 %

Receivables Management

     234,521     12.6 %     216,191     14.2 %     18,330     8.5 %

Intersegment eliminations

     (6,231 )   (0.3 )%     (4,856 )   (0.3 )%     (1,375 )   28.3 %
                                          

Total

   $ 1,856,038     100.0 %   $ 1,523,923     100.0 %   $ 332,115     21.8 %
                                          

Communication Services revenue increased $146.3 million, or 16.7%, to $1,020.2 million in 2006. The increase included $128.0 million from the acquisitions of Intrado and InPulse on April 1, 2006 and October 1,

 

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2006, respectively. Organic growth in our inbound dedicated agent business during 2006 was offset by an anticipated reduction of $42.2 million in our consumer outbound business.

Conferencing Services revenue increased $168.9 million, or 38.5%, to $607.5 million in 2006. The increase in revenue included $107.2 million from the acquisition of Sprint’s conferencing assets on June 3, 2005 and Raindance on April 1, 2006. The remaining $61.7 million increase was attributable to organic growth. Since we entered the conferencing services business, the average rate per minute that we charge has declined while total minutes sold has increased. This is consistent with the industry trend which is expected to continue for the foreseeable future.

Receivables Management revenue increased $18.3 million to $234.5 million in 2006. Sales of receivable portfolios in 2006 and 2005 resulted in revenue of $19.9 million and $13.5 million, respectively. The Receivables Management revenue growth was all organic.

Cost of Services:  Cost of services represents direct labor, variable telephone expense, commissions and other costs directly related to providing services to clients. Cost of services increased $131.1 million, or 19.1%, to $818.5 million in 2006, from $687.4 million for the comparable period of 2005. The increase in cost of services included $67.9 million in costs associated with services offered resulting from the acquisitions of Sprint, Intrado, Raindance and InPulse. As a percentage of revenue, cost of services decreased to 44.1% for 2006, compared to 45.1% in 2005.

Cost of Services by business segment:

 

     For the Year Ended, December 31,                    
   2006    

% of

Revenue

    2005     % of Revenue     Change     %
Change
 

Cost of services in thousands:

            

Communication Services

   $ 488,955     47.9 %   $ 430,170     49.2 %   $ 58,785     13.7 %

Conferencing Services

     210,842     34.7 %     151,282     34.5 %     59,560     39.4 %

Receivables Management

     123,999     52.9 %     110,104     50.9 %     13,895     12.6 %

Intersegment eliminations

     (5,274 )       (4,175 )       (1,099 )   26.3 %
                                          

Total

   $ 818,522     44.1 %   $ 687,381     45.1 %   $ 131,141     19.1 %
                                          

Communication Services cost of services increased $58.8 million, or 13.7%, in 2006 to $489.0 million. The increase in cost of services included $33.8 million in costs associated with services offered resulting from the acquisitions of Intrado and InPulse. The remaining increase is associated with the organic increase in revenue. As a percentage of this segment’s revenue, Communication Services cost of services decreased to 47.9% in 2006, compared to 49.2% in 2005. The decrease as a percentage of revenue in 2006 was due to the acquisition of Intrado, which historically had a lower percentage of direct costs to revenue than our Communication Services segment results.

Conferencing Services cost of services increased $59.6 million, or 39.4%, in 2006 to $210.8 million. The increase in cost of services included $34.1 million in costs associated with services offered resulting from the acquisitions of Sprint’s conferencing assets and Raindance. As a percentage of this segment’s revenue, Conferencing Services cost of services increased to 34.7% in 2006, compared to 34.5% for the comparable period in 2005.

Receivables Management cost of services increased $13.9 million, or 12.6%, in 2006 to $124.0 million. As a percentage of this segment’s revenue, Receivables Management cost of services increased to 52.9% in 2006, compared to 50.9%, for the comparable period in 2005.

Selling, General and Administrative Expenses:  SG&A expenses increased $230.4 million, or 40.4%, to $800.3 million in 2006 from $569.9 million for 2005. The acquisitions of Sprint, Intrado, Raindance and InPulse

 

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increased SG&A expense by $122.3 million. Total share based compensation expense (“SBC”) recognized from the adoption of Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”) during 2006 was $28.7 million compared to $0.5 million in 2005. We also recognized $78.8 million in expenses associated with our recapitalization in 2006. As a percentage of revenue, SG&A expenses increased to 43.1% in 2006, compared to 37.4% in 2005.

As set forth below, base selling, general and administrative expense, by business segment, excludes recapitalization expense and SBC and is a non-GAAP measure. Management believes these measures provide an alternative presentation of results that more accurately reflects on-going operations, without the distorting effects of the Recapitalization expense and SBC items. The following table includes reconciliations for 2006 selling, general and administrative expense, by business segment, excluding the Recapitalization expense and SBC, to reported selling, general and administrative expense.

Selling, general and administrative expenses by business segment:

 

     For the Year Ended, December 31,  
    

Base

SG&A

   

Recap.

Expense

   SBC   

Reported

2006

   

% of

Revenue

   

Reported

2005

   

% of

Revenue

    Change    

%

Change

 

SG&A (in thousands)

                    

Communication Services

   $ 388,760     $ 36,337    $ 17,125    $ 442,222     43.3 %   $ 321,729     36.8 %   $ 120,493     37.5 %

Conferencing Services

     236,378       34,003      6,847      277,228     45.6 %     181,538     41.4 %     95,690     52.7 %

Receivables Management

     68,547       8,495      4,766      81,808     34.9 %     67,279     31.1 %     14,529     21.6 %

Intersegment eliminations

     (957 )     —        —        (957 )       (681 )       (276 )   NM  
                                                                

Total

   $ 692,728     $ 78,835    $ 28,738    $ 800,301     43.1 %   $ 569,865     37.4 %   $ 230,436     40.4 %
                                                                

NM — Not meaningful

Operating Income:  Operating income in 2006 decreased by $29.5 million, or 11.0%, to $237.2 million from $266.7 million in 2005. As a percentage of revenue, operating income decreased to 12.8% in 2006 compared to 17.5% in 2005 due to the factors discussed above for revenue, cost of services and SG&A expenses.

As set forth below, base operating income, by business segment, excludes recapitalization expense and SBC and is a non-GAAP measure. Management believes these measures provide an alternative presentation of results that more accurately reflects on-going operations, without the distorting effects of the Recapitalization expense and SBC items. The following table includes reconciliations for 2006 operating income, by business segment, excluding the Recapitalization expense and SBC, to reported operating income.

Operating income by business segment:

 

     For the Year Ended, December 31,  
    

Base

Operating

Income

  

Recap

Expense

   SBC   

Reported

2006

  

% of

Revenue

   

Reported

2005

  

% of

Revenue

    Change    

%

Change

 

Operating income in thousands

                       

Communication Services

   $ 142,527    $ 36,337    $ 17,125    $ 89,065    8.7 %   $ 122,076    14.0 %   $ (33,011 )   (27.0 )%

Conferencing Services

     160,287      34,003      6,847      119,437    19.7 %     105,793    24.1 %     13,644     12.9 %

Receivables Management

     41,975      8,496      4,766      28,713    12.2 %     38,808    18.0 %     (10,095 )   (26.0 )%
                                                             

Total

   $ 344,789    $ 78,836    $ 28,738    $ 237,215    12.8 %   $ 266,677    17.5 %   $ (29,462 )   (11.0 )%
                                                             

Communication Services SG&A expenses increased $120.5 million, or 37.5%, to $442.2 million in 2006. The acquisitions of Intrado and InPulse increased SG&A expense by $79.8 million. Total SBC recognized during 2006 was $17.1 million compared to $0.2 million in 2005. We also recognized $36.3 million in expenses

 

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associated with our recapitalization in 2006. As a percentage of this segment’s revenue, Communication Services SG&A expenses increased to 43.3% in 2006 compared to 36.8% in 2005. SG&A before recapitalization expense and SBC was $388.8 million or 38.1% of this segment’s revenue in 2006.

Conferencing Services SG&A expenses increased $95.7 million, or 52.7%, to $277.2 million in 2006. The increase in SG&A included $42.5 million from the acquisition of Sprint’s conferencing assets on June 3, 2005 and Raindance on April 1, 2006. Total SBC recognized during 2006 was $6.8 million compared to $0.1 million in 2005. We also recognized $34.0 million in expenses associated with our recapitalization in 2006. As a percentage of this segment’s revenue, Conferencing Services SG&A expenses increased to 45.6% in 2006 compared to 41.4% in 2005. SG&A before recapitalization expense and SBC was $236.4 million or 38.9% of this segment’s revenue in 2006.

Receivables Management SG&A expenses increased $14.5 million, or 21.6%, to $81.8 million in 2006. Total SBC recognized during 2006 was $4.8 million compared to $0.3 million in 2005. We also recognized $8.5 million in expenses associated with our recapitalization in 2006. As a percentage of this segment’s revenue, Receivables Management SG&A increased to 34.9% in 2006, compared to 31.1% in 2005. SG&A before recapitalization expense and SBC was $68.5 million or 29.2% of this segment’s revenue in 2006.

Communication Services operating income in 2006 decreased by $33.0 million, or 27.0%, to $89.1 million. The decrease in operating income was due primarily to recapitalization expenses and SBC, previously discussed. This decrease was partially offset by acquisitions of Intrado and Inpulse which in the aggregate added $14.3 million to operating income. As a percentage of this segment’s revenue, Communication Services operating income decreased to 8.7% in 2006 compared to 14.0% in 2005. Operating income before recapitalization expense and SBC was $142.5 million or 14.0% of this segment’s revenue in 2006.

Conferencing Services operating income in 2006 increased by $13.6 million, or 12.9%, to $119.4 million. The increase in operating income included $30.6 million from the acquisitions of Sprint’s conferencing assets and Raindance. This increase was partially reduced by recapitalization expenses and SBC, previously discussed. As a percentage of this segment’s revenue, Conferencing Services operating income decreased to 19.7% in 2006, compared to 24.1% in 2005. Operating income before recapitalization expense and SBC was $160.3 million or 26.4% of this segment’s revenue in 2006.

Receivables Management operating income in 2006 decreased by $11.1 million, or 26.0% to $28.7 million. The decrease in operating income was due primarily to recapitalization expenses and SBC, previously discussed. As a percentage of this segment’s revenue, Receivables Management operating income decreased to 12.2% in 2006, compared to 18.0% in 2005. Operating income before recapitalization expense and SBC was $42.0 million or 18.0% of this segment’s revenue in 2006.

Other Income (Expense):  Other income (expense) includes sub-lease rental income, interest income from short-term investments and interest expense from short-term and long-term borrowings under credit facilities and portfolio notes payable. Other expense in 2006 was $86.7 million compared to $13.2 million in 2005. The change in other expense in 2006 was primarily due to interest expense on increased outstanding debt incurred in connection with our recapitalization and higher interest rates in 2006 than we experienced in 2005. We also experienced higher interest rates on outstanding indebtedness than rates under our previous credit facility.

Minority Interest:  Effective September 30, 2004, our portfolio receivable lenders, CFSC Capital Corp. XXXIV, (“Cargill”) exchanged its rights to share profits in certain receivables portfolios under its revolving financing facility with us for a 30% minority interest in one of our subsidiaries, WAP. Effective January 1, 2006, and in connection with the renegotiation of the revolving financing facility, we acquired 5% of additional interest in WAP in exchange for an exclusivity agreement with Cargill, which reduced their minority interest to 25%. The minority interest in the earnings of WAP for 2006 was $17.1 million compared to $16.1 million for 2005.

Net Income:  Net income decreased $81.6 million, or 54.3%, to $68.8 million in 2006 compared to $150.4 million in 2005. The decrease in net income was due to the factors discussed above for revenues, cost of

 

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services, SG&A expense and other income (expense) as well as an increase in our effective tax rate. Net income includes a provision for income tax expense at an effective rate of approximately 48.8% for 2006 compared to 36.9% in 2005. The 2006 effective income tax rate was impacted by approximately $40.0 million of recapitalization transaction costs which we expect to be non-deductible for income tax purposes.

Years Ended December 31, 2005 and 2004

Revenue:  Revenue increased $306.6 million, or 25.2%, to $1,523.9 million in 2005 from $1,217.3 million in 2004. $195.5 million of this increase was derived from the acquisitions of Worldwide, ECI and Sprint’s conferencing assets which closed on August 1, 2004, December 1, 2004 and June 3, 2005, respectively. During 2005 and 2004, revenue from our largest 100 customers, included $37.5 million and $28.5 million, respectively, of revenue derived from new clients.

During the year ended December 31, 2005, our largest 100 clients represented 63% of revenues compared to 69% for the year ended December 31, 2004. This reduced concentration is due to our strategic acquisitions in 2005 and 2004 and organic growth. In 2005 and 2004, we had one customer, Cingular, which accounted for 12% and 9%, respectively, of total revenue.

Revenue by business segment:

 

     For the Year Ended, December 31,                    
     2005    

% of Total

Revenue

    2004    

% of
Total

Revenue

    Change     % Change  

Revenue in thousands:

            

Communication Services

   $ 873,975     57.4 %   $ 817,718     67.2 %   $ 56,257     6.9 %

Conferencing Services

     438,613     28.8 %     302,469     24.8 %     136,144     45.0 %

Receivables Management

     216,191     14.2 %     99,411     8.2 %     116,780     117.5 %

Intersegment eliminations

     (4,856 )   (0.3 )%     (2,215 )   (0.2 )%     (2,641 )   119.2 %
                                          

Total

   $ 1,523,923     100.0 %   $ 1,217,383     100.0 %   $ 306,540     25.2 %
                                          

Communication Services revenue increased $56.3 million, or 6.9%, to $874.0 million in 2005. This revenue increase was offset by a decline in outbound consumer revenue of $18.9 million due to the anticipated reduction in outbound consumer calling. The increase in revenue is primarily due to growth in our dedicated and shared agent business and a short term customer engagement of $17.0 million in outbound consumer revenue.

Conferencing Services revenue increased $136.1 million, or 45.0%, to $438.6 million in 2005. The increase in revenue included $98.3 million from the acquisition of Sprint’s conferencing assets on June 3, 2005 and the full year impact of the ECI acquisition, which occurred on December 1, 2004. Since we entered the conferencing services business, the average rate per minute that we charge has declined while total minutes sold has increased. This is consistent with the industry trend which is expected to continue for the foreseeable future.

Receivables Management revenue increased $116.8 million, or 117.5%, to $216.2 million in 2005. The increase in revenue includes $97.2 million from the full year impact of Worldwide, which we acquired on August 1, 2004. Sales of portfolio receivables during the year ended December 31, 2005 and the five months ended December 31, 2004 resulted in revenue of $13.5 million and $2.4 million, respectively.

Cost of Services:  Cost of services represents direct labor, variable telephone expense, commissions and other costs directly related to providing services to clients. Cost of services increased $145.4 million, or 26.8%, to $687.4 million in 2005, from $542.0 million for the comparable period of 2004. As a percentage of revenue, cost of services increased to 45.1% for 2005, compared to 44.6% in 2004.

 

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Cost of Services by business segment:

 

     For the Year Ended, December 31,                    
     2005     % of
Revenue
    2004     % of
Revenue
    Change     %
Change
 

Cost of services in thousands:

            

Communication Services

   $ 430,170     49.2 %   $ 396,979     48.5 %   $ 33,191     8.4 %

Conferencing Services

     151,282     34.5 %     96,100     31.8 %     55,182     57.4 %

Receivables Management

     110,104     50.9 %     50,649     50.9 %     59,455     117.4 %

Intersegment eliminations

     (4,175 )       (1,749 )       (2,426 )   138.7 %
                                          

Total

   $ 687,381     45.1 %   $ 541,979     44.6 %   $ 145,402     26.8 %
                                          

Communication Services cost of services increased $33.2 million, or 8.4%, in 2005 to $430.2 million. The increase is primarily due to higher labor costs associated with the increase in revenue. As a percentage of this segment’s revenue, Communication Services cost of services increased to 49.2% in 2005, compared to 48.5% in 2004. This increase is partially attributed to the growth in our inbound dedicated agent business, which has a higher cost of services as a percentage of revenues as compared to our other Communication Service offerings.

Conferencing Services cost of services increased $55.2 million, or 57.4%, in 2005 to $151.3 million. The increase in cost of services included $33.8 million in costs associated with services offered resulting from the acquisitions of ECI and Sprint’s conferencing assets, which we acquired on December 1, 2004 and June 3, 2005, respectively. As a percentage of this segment’s revenue, Conferencing Services cost of services increased to 34.5% in 2005, compared to 31.8%, for the comparable period in 2004.

Receivables Management cost of services increased $59.5 million, or 117.4%, in 2005 to $110.1 million. The cost of services includes costs attributable to Worldwide since our acquisition of the business on August 1, 2004. As a percentage of this segment’s revenue, Receivables Management cost of services remained at 50.9% in 2005, compared to 50.9%, for the comparable period in 2004.

Selling, General and Administrative Expenses: SG&A expenses increased $82.4 million, or 16.9%, to $569.9 million in 2005 from $487.5 million for the comparable period of 2004. The acquisitions of Worldwide, ECI and Sprint increased SG&A expense by $62.8 million. As a percentage of revenue, SG&A expenses decreased to 37.4% in 2005, compared to 40.0% in 2004.

Selling, general and administrative expenses by business segment:

 

     For the Year Ended, December 31,                    
     2005     % of Revenue     2004     % of Revenue     Change     % Change  

Selling, general and administrative expenses in thousands Communication Services

   $ 321,729     36.8 %   $ 315,101     38.5 %   $ 6,628     2.1 %

Conferencing Services

     181,538     41.4 %     139,105     46.0 %     42,433     30.5 %

Receivables Management

     67,279     31.1 %     33,773     34.0 %     33,506     99.2 %

Intersegment eliminations

     (681 )       (466 )       (215 )   NM  
                                          

Total

   $ 569,865     37.4 %   $ 487,513     40.0 %   $ 82,352     16.9 %
                                          

NM — Not meaningful

Communication Services SG&A expenses increased $6.6 million, or 2.1%, to $321.7 million in 2005. During 2005, site expansion activities took place in four domestic contact centers and two international contact centers and we opened a new domestic contact center which contributed to increases in SG&A and capital

 

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expenditures. As a percentage of this segment’s revenue, Communication Services SG&A expenses decreased to 36.8% in 2005 compared to 38.5% in 2004. Our ability to support increased revenues with a relatively low corresponding increase in SG&A expenses and a reduction in depreciation expense of $3.3 million were the primary reasons for the lower SG&A as a percentage of revenue.

Conferencing Services SG&A expenses increased $42.4 million, or 30.5%, to $181.5 million in 2005. The increase in SG&A included $35.9 million from the acquisitions of ECI and Sprint’s conferencing assets on December 1, 2004 and June 3, 2005, respectively. As a percentage of this segment’s revenue, Conferencing Services SG&A expenses decreased to 41.4% in 2005 compared to 46.0% in 2004. The decline in SG&A as a percentage of revenue is partially due to synergies achieved with the acquisitions of ECI and Sprint’s conferencing assets as well as the spreading of fixed costs over a larger revenue base. For example, depreciation expense increased to $23.1 million in 2005 from $18.3 million in 2004, as a percent of revenue depreciation declined to 5.3% from 6.1%.

Receivables Management SG&A expenses increased $33.5 million, or 99.2%, to $67.3 million in 2005. The increase in SG&A included $26.9 million for the full year affect of the acquisition of Worldwide, which we acquired on August 1, 2004. As a percentage of this segment’s revenue, Receivables Management SG&A decreased to 31.1% in 2005, compared to 34.0% in 2004. This decline is due to a business mix change related to the addition of debt purchasing as a result of the Worldwide acquisition.

Operating Income: Operating income in 2005 increased by $78.8 million, or 41.9%, to $266.7 million from $187.9 million in 2004. As a percentage of revenue, operating income increased to 17.5% in 2005 compared to 15.4% in 2004 due to the factors discussed above for revenue, cost of services and SG&A expenses.

Operating income by business segment:

 

     For the Year Ended, December 31,                  
     2005    % of Revenue     2004    % of Revenue     Change    % Change  

Operating income in thousands

               

Communication Services

   $ 122,076    14.0 %   $ 105,638    12.9 %   $ 16,438    15.6 %

Conferencing Services

     105,793    24.1 %     67,264    22.2 %     38,529    57.3 %

Receivables Management

     38,808    18.0 %     14,989    15.1 %     23,819    158.9 %
                                       

Total

   $ 266,677    17.5 %   $ 187,891    15.4 %   $ 78,786    41.9 %
                                       

Communication Services operating income in 2005 increased by $16.4 million, or 15.6%, to $122.1 million. As a percentage of this segment’s revenue, Communication Services operating income increased to 14.0% in 2005 compared to 12.9% in 2004. The improved operating income as a percentage of this segment’s revenue resulted from increased revenue, a reduction in SG&A expense as a percentage of revenue, additional operating income of approximately $4.0 million in the second quarter related to settlement of a contractual relationship and the impact of the short term customer engagement mentioned in the revenue section previously.

Conferencing Services operating income in 2005 increased by $38.5 million, or 57.3%, to $105.8 million. The increase in operating income included $28.6 million from the acquisitions of ECI and Sprint’s conferencing assets. As a percentage of this segment’s revenue, Conferencing Services operating income increased to 24.1% in 2005, compared to 22.2% in 2004.

Receivables Management operating income in 2005 increased by $23.8 million, or 158.9% to $38.8 million. The increase in operating income included $22.1 million from the acquisition of Worldwide on August 1, 2004. As a percentage of this segment’s revenue, Receivables Management operating income increased to 18.0% in 2005, compared to 15.1% in 2004.

Other Income (Expense): Other income (expense) includes sub-lease rental income, interest income from short-term investments and interest expense from short-term and long-term borrowings under credit facilities and

 

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portfolio notes payable. Other expense in 2005 was $13.2 million compared to $6.4 million in 2004. The change in other expense in 2005 is primarily due to interest expense on increased outstanding debt incurred for acquisitions, interest expense on portfolio notes payable and rising interest rates.

Minority Interest: Effective September 30, 2004, one of our portfolio receivable lenders, Cargill, exchanged its rights to share profits in certain portfolio receivables for a minority interest of approximately 30% in one of our subsidiaries, WAP. We became a party to the Cargill relationship as a result of the Worldwide acquisition. The minority interest in the earnings of WAP for 2005 was $16.1 million compared to $2.6 million for 2004.

Net Income: Net income increased $37.1 million, or 32.9%, to $150.3 million in 2005 compared to $113.2 million in 2004. The increase in net income was due to the factors discussed above for revenues, cost of services and SG&A expense.

Net income includes a provision for income tax expense at an effective rate of approximately 36.9% for 2005 compared to 36.8% in 2004.

Liquidity and Capital Resources

We have historically financed our operations and capital expenditures primarily through cash flows from operations, supplemented by borrowings under our bank credit facilities and specialized credit facilities established for the purchase of receivable portfolios.

Our current and anticipated uses of our cash, cash equivalents and marketable securities are to fund operating expenses, acquisitions, capital expenditures, purchase of portfolio receivables, minority interest distributions, interest payments, tax payments and the repayment of principal on debt.

We financed the Recapitalization with equity contributions from the Sponsors, and the rollover of a portion of the equity interests in the Company held by the Founders, and certain members of management, along with a new $2.1 billion senior secured term loan facility, a new senior secured revolving credit facility providing financing of up to $250.0 million (none of which was drawn at the closing of the Recapitalization) and the private placement of $650.0 million aggregate principal amount of 9.5% senior notes due 2014 and $450.0 million aggregate principal amount of 11% senior subordinated notes due 2016. In connection with the closing of the Recapitalization, the Company terminated and paid off the outstanding balance of its existing $800.0 million unsecured revolving credit facility.

The following table summarizes our cash flows by category for the periods presented (in thousands):

 

     For the Years Ended
December 31,
             
     2006     2005     Change     % Change  

Net cash provided by operating activities

   $ 196,638     $ 276,314     $ (79,676 )   (28.8 )%

Net cash used in investing activities

   $ (812,253 )   $ (297,154 )   $ (515,099 )   173.3 %

Net cash flows from financing activities

   $ 799,843     $ 23,197     $ 776,646     3348.0 %

Net cash flow from operating activities in 2006 decreased $79.7 million, or 28.8%, to $196.6 million, compared to net cash flows from operating activities of $276.3 million in 2005. The decrease in net cash flows from operating activities is primarily due to the Recapitalization expenses and interest paid on additional indebtedness incurred in connection with the Recapitalization resulting in a decrease in net income, increases in accounts receivable and other assets. Increases in depreciation and amortization expense, share based compensation, deferred tax expense and accrued expenses partially offset the decrease in operating cash flows. Days sales outstanding, a key performance indicator that we utilize to monitor the accounts receivable average

 

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collection period and assess overall collection risks was 51 days at December 31, 2006, and ranged from 49 to 51 days during the year. At December 31, 2005, the days sales outstanding was 49 days and ranged from 48 to 49 days during the year.

Net cash used in investing activities in 2006 increased $515.1 million, or 173.3%, to $812.3 million, compared to net cash used in investing activities of $297.2 million in 2005. The increase in cash used in investing activities was due to $643.7 million of acquisition costs incurred in 2006 for the acquisitions of Intrado, Raindance and InPulse compared to $209.6 million of acquisition costs incurred in 2005 for the acquisition of Sprints conferencing assets. We invested $113.9 million in capital expenditures during 2006 compared to $76.9 million invested in 2005. The increase in capital expenditures was primarily due to the purchase of a building for $30.5 million which we previously leased under a synthetic lease arrangement. Investing activities in 2006 also included the purchase of receivable portfolios for $114.6 million and cash proceeds applied to amortization of receivable portfolios of $59.4 million compared to $75.3 million and $64.4 million, respectively, in 2005. $16.5 million of the increase in the purchase of receivable portfolios was due to the termination of the Sallie Mae facility which resulted in dissolution of a non-consolidated qualified special purpose entity (“QSPE”). The portfolios of the QSPE were purchased by us with funding pursuant to the Cargill facility. The Sallie Mae facility purchases were accounted for under an off balance sheet arrangement.

Net cash flow from financing activities in 2006 increased $776.6 million, to $799.8 million, compared to net cash flow from financing activities of $23.2 million for 2005. The primary sources of financing in 2006 were $3.2 billion of proceeds from the new debt and bonds, $725.8 million in equity proceeds from the sponsors and proceeds and related tax benefits of $69.3 million from our stock-based employee benefit programs in connection with our recapitalization. $2,910.5 million of the Recapitalization transaction proceeds were used to acquire the common stock and stock options in the Recapitalization. The proceeds were also used to pay off the $663.3 million balance of our previous revolving credit facility, including accrued interest. Debt acquisition costs incurred in 2006 were $109.6 million. Also, during 2006, net cash from financing activities was partially offset by payments on portfolio notes payable of $51.1 million compared to $54.7 million in 2005. Proceeds from issuance of portfolio notes payable in 2006 were $97.9 million compared to $66.8 million in 2005.

The indebtedness incurred in connection with the Recapitalization consists of $2.1 billion under a senior secured term loan facility which will be subject to scheduled amortization of $21.0 million per year with variable interest at 2.75% over the selected LIBOR; a new senior secured revolving credit facility providing financing of up to $250.0 million (none of which was drawn during 2006); and the private placement of $650.0 million aggregate principal amount of 9.5% senior notes due 2014 and $450.0 million aggregate principal amount of 11% senior subordinated notes due 2016. Interest on the notes is payable semiannually in arrears on April 15 and October 15 of each year, commencing on April 15, 2007.

Senior Secured Term Loan Facility and Senior Secured Revolving Credit Facility.

The $2.1 billion senior secured term loan facility and new $250.0 million senior secured revolving credit facility bear interest at a variable rate. Amounts borrowed by the Company under these senior secured credit facilities initially bear interest at a rate equal to an applicable margin plus, at the Company’s option, either (a) a base rate determined by reference to the higher of (1) the prime lending rate as set forth on the British Banking Association Telerate Page 5 and (2) the federal funds effective rate from time to time plus 0.50% or (b) a LIBOR rate determined by reference to the costs of funds for deposits for the interest period relevant to such borrowing, adjusted for certain costs. Initially, the applicable margin percentage is a percentage per annum equal to, (x) for term loans, 1.75% for base rate loans and 2.75% for LIBOR rate loans and (y) for revolving credit loans, 1.50% for base rate loans and 2.50% for LIBOR rate loans. The applicable margin percentage with respect to borrowings under the revolving credit facility will be subject to adjustments based upon the Company’s leverage ratio. Overdue amounts (after giving effect to any applicable grace periods) bear interest at a rate per annum equal to the then applicable interest rate plus 2.00% per annum. Initially, the Company is required to pay each

 

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lender a commitment fee of 0.50% in respect of any unused commitments under the revolving credit facility. The commitment fee in respect of unused commitments under the revolving credit facility will be subject to adjustment based upon the Company’s leverage ratio. The Company is required to comply, on a quarterly basis, with a maximum leverage ratio covenant and a minimum interest coverage ratio covenant. The consolidated leverage ratio of funded debt to adjusted earnings before interest expense, stock-based compensation, taxes, depreciation and amortization, recapitalization costs, certain acquisition costs, synthetic lease costs, acquisition synergies and a minority interest adjustment (“adjusted EBITDA”) may not exceed 7.75 to 1.0, and the consolidated fixed charge coverage ratio of adjusted EBITDA to the sum of consolidated interest expense must exceed 1.25 to 1.0. Both ratios are measured on a rolling four-quarter basis. We were in compliance with the financial covenants at December 31, 2006. These financial covenants will become more restrictive over time. The senior secured credit facilities also contain various negative covenants, including limitations on indebtedness; liens; mergers and consolidations; asset sales; dividends and distributions or repurchases of the Company’s capital stock; investments, loans and advances; capital expenditures; payment of other debt, including the senior subordinated notes; transactions with affiliates; amendments to material agreements governing the Company’s subordinated indebtedness, including the senior subordinated notes; and changes in the Company’s lines of business. The effective annual interest rate, inclusive of debt amortization costs, on the senior secured term loan facility from October 24, 2006 through December 31, 2006 was 8.86%. The commitment fee on the unused senior secured revolving credit facility at December 31, 2006 was 0.50%.

The senior secured credit facilities include certain customary representations and warranties, affirmative covenants, and events of default, including payment defaults, breach of representations and warranties, covenant defaults, cross-defaults to certain indebtedness, certain events of bankruptcy, certain events under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), material judgments, the invalidity of material provisions of the documentation with respect to the senior secured credit facilities, the failure of collateral under the security documents for the senior secured credit facilities, the failure of the senior secured credit facilities to be senior debt under the subordination provisions of certain of the Company’s subordinated debt and a change of control of the Company. If an event of default occurs, the lenders under the senior secured credit facilities will be entitled to take certain actions, including the acceleration of all amounts due under the senior secured credit facilities and all actions permitted to be taken by a secured creditor.

The Company may request additional tranches of term loans or increases to the revolving credit facility in an aggregate amount not to exceed $500.0 million plus the aggregate amount of principal payments previously made in respect of the term loan facility. Availability of such additional tranches of term loans or increases to the revolving credit facility is subject to the absence of any default pro forma compliance with financial covenants and, among other things, the receipt of commitments by existing or additional financial institutions.

Subsequent to December 31, 2006, we refinanced the senior secured term loan facility. The general terms of the refinancing included a repricing, an expansion of the facility by $165.0 million and a soft call option. The repricing calls for a pricing grid based on our debt rating ranging from 2.75% to 2.125% for LIBOR rate loans, currently priced at 2.375%, and ranging from 1.75% to 1.125% for base rate loans, currently priced at 1.375%. After the expansion of the senior secured term loan facility, the aggregate facility is $2.265 billion. The soft call option provides for a premium equal to 1.0% of the amount of the repricing payment in the event that prior to the first anniversary of the refinancing we elect another refinancing amendment.

Senior Notes

The senior notes consist of $650.0 million aggregate principal amount of 9.5% senior notes due 2014. Interest is payable semiannually. The senior notes contain covenants limiting, among other things, the Company’s ability and the ability of the Company’s restricted subsidiaries to: incur additional debt or issue certain preferred shares; pay dividends on or make distributions in respect of the Company’s capital stock or make other restricted payments; make certain investments; sell certain assets; create liens on certain assets to secure debt; consolidate, merge, sell, or otherwise dispose of all or substantially all of the Company’s assets;

 

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enter into certain transactions with the Company’s affiliates; and designate the Company’s subsidiaries as unrestricted subsidiaries.

At any time prior to October 15, 2010, the Company may redeem all or a part of the senior notes, at a redemption price equal to 100% of the principal amount of senior notes redeemed plus the applicable premium and accrued and unpaid interest and all additional interest then owing pursuant to the applicable registration rights agreement, if any, to the date of redemption, subject to the rights of holders of senior notes on the relevant record date to receive interest due on the relevant interest payment date.

On and after October 15, 2010, the Company may redeem the senior notes, in whole or in part, at the redemption prices (expressed as percentages of principal amount of the senior notes to be redeemed) set forth below, plus accrued and unpaid interest thereon to the applicable date of redemption, subject to the right of holders of senior notes of record on the relevant record date to receive interest due on the relevant interest payment date, if redeemed during the twelve-month period beginning on October 15 of each of the years indicated below:

 

Year

   Percentage

2010

   104.750

2011

   102.375

2012 and thereafter

   100.000

In addition, until October 15, 2009, the Company may, at its option, on one or more occasions redeem up to 35% of the aggregate principal amount of senior notes issued by it at a redemption price equal to 109.50% of the aggregate principal amount thereof, plus accrued and unpaid interest thereon to the applicable date of redemption, subject to the right of holders of senior notes of record on the relevant record date to receive interest due on the relevant interest payment date, with the net cash proceeds of one or more equity offerings; provided that at least 65% of the sum of the aggregate principal amount of senior notes originally issued under the senior indenture issued under the senior indenture after the issue date remains outstanding immediately after the occurrence of each such redemption; provided further that each such redemption occurs within 90 days of the date of closing of each such equity offering.

Senior Subordinated Notes

The senior subordinated notes consist of $450.0 million aggregate principal amount of 11% senior subordinated notes due 2016. Interest is payable semiannually. The senior subordinated indenture contains covenants limiting, among other things, the Company’s ability and the ability of the Company’s restricted subsidiaries to: incur additional debt or issue certain preferred shares; pay dividends on or make distributions in respect of the Company’s capital stock or make other restricted payments; make certain investments; sell certain assets; create liens on certain assets to secure debt; consolidate, merge, sell, or otherwise dispose of all or substantially all of the Company’s assets; enter into certain transactions with the Company’s affiliates; and designate the Company’s subsidiaries as unrestricted subsidiaries.

At any time prior to October 15, 2011, the Company may redeem all or a part of the senior subordinated notes at a redemption price equal to 100% of the principal amount of senior subordinated notes redeemed plus the applicable premium and accrued and unpaid interest to the date of redemption, subject to the rights of holders of senior subordinated notes on the relevant record date to receive interest due on the relevant interest payment date.

On and after October 15, 2011, the Company may redeem the senior subordinated notes in whole or in part, at the redemption prices (expressed as percentages of principal amount of the senior subordinated notes to be redeemed) set forth below, plus accrued and unpaid interest thereon to the applicable date of redemption, subject to the right of holders of senior subordinated notes of record on the relevant record date to receive interest due on

 

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the relevant interest payment date, if redeemed during the twelve-month period beginning on October 15 of each of the years indicated below:

 

Year

   Percentage

2011

   105.500

2012

   103.667

2013

   101.833

2014 and thereafter

   100.000

In addition, until October 15, 2009, the Company may, at its option, on one or more occasions redeem up to 35% of the aggregate principal amount of senior subordinated notes issued by it at a redemption price equal to 111% of the aggregate principal amount thereof, plus accrued and unpaid interest thereon to the applicable date of redemption, subject to the right of holders of senior subordinated notes of record on the relevant record date to receive interest due on the relevant interest payment date, with the net cash proceeds of one or more equity offerings (as defined in the senior subordinated indenture); provided that at least 65% of the sum of the aggregate principal amount of senior subordinated notes originally issued under the senior subordinated indenture issued under the senior subordinated indenture after the issue date remains outstanding immediately after the occurrence of each such redemption; provided further that each such redemption occurs within 90 days of the date of closing of each such equity offering.

Registration Rights

On October 24, 2006, the Company entered into registration rights agreements with respect to the outstanding senior notes and the outstanding senior subordinated notes. Pursuant to the registration rights agreements, the Company has agreed that it will use its reasonable best efforts to register the exchange notes with the Commission. The Company is required to use its reasonable best efforts to cause each exchange offer to be completed or, if required, to have one or more shelf registration statements declared effective, within 315 days after the issue date of each of the outstanding senior notes and the outstanding senior subordinated notes. If the Company fails to meet this target the annual interest rate on the applicable series of notes will increase by 0.25%. The annual interest rate on the applicable series of outstanding notes will increase by an additional 0.25% for each subsequent 90-day period during which the registration default continues, up to a maximum additional interest rate of 0.5% per year over the applicable interest rate described above. If the registration default is corrected, the applicable interest rate on the applicable series of notes will revert to the original level.

Bank Revolving Credit Facility

At December 31, 2005, we maintained a bank revolving credit facility of $400 million which was to mature November 15, 2009. The facility bore interest at a variable rate over a selected LIBOR based on our leverage. At December 31, 2005, $220.0 million was outstanding on the revolving credit facility. The highest balance outstanding on the credit facility during 2005 was $365.0 million. The average daily outstanding balance of the revolving credit facility during 2005 was $257.9 million. The effective annual interest rate, inclusive of debt amortization costs, on the revolving credit facility for the year ended December 31, 2005 was 4.53%. The commitment fee on the unused revolving credit facility at December 31, 2005 was 0.175%.

We amended and restated our bank revolving credit facility on March 30, 2006. The Amended and Restated Credit Agreement included the following features: increased the revolving credit available from $400 million to $800 million; included an uncommitted add-on facility allowing an additional increase in the revolving credit available from $800 million to $1.2 billion; increased the letter of credit commitment amount from $20 million to $50 million; increased the swingline loan commitment amount from $10 million to $25 million; reduced the required Consolidated Leverage Ratio from “2.5 to 1.0” to “3.0 to 1.0”; reduced the minimum commitment fee from 15 basis points to 8 basis points; reduced the maximum commitment fee from 25 basis points to 17.5 basis points; reduced the maximum interest rate over the alternative base rate from 25 basis points to 0 basis points;

 

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reduced the minimum interest rate over LIBOR from 75 basis points to 40 basis points; and reduced the maximum interest rate over LIBOR from 125 basis points to 87.5 basis points. The average daily outstanding balance of the revolving credit facility from January 1, 2006 through October 23, 2006 was $540.3 million. The effective annual interest rate, inclusive of debt amortization costs, on the revolving credit facility from January 1, 2006 through October 23, 2006 was 6.05%. The commitment fee on the unused revolving credit facility at October 23, 2006 was 0.15%. At October 24, 2006, the outstanding balance, including accrued interest, due under the bank revolving credit facility of approximately $663.3 million, was paid in full in connection with the consummation of the Recapitalization. We also charged to interest expense $3.9 million of unamortized debt issuance costs related to the paid off bank revolving credit facility.

Cargill Facility. We maintain, through majority-owned subsidiaries, revolving financing facilities with a third-party specialty lender, Cargill. The lender is also a minority interest holder in the majority-owned subsidiaries which are parties to such revolving credit facilities. Pursuant to these arrangements, we will borrow 80% to 85% of the purchase price of each receivables portfolio purchase from Cargill and we will fund the remaining purchase price. Interest accrues on the outstanding debt at a variable rate of 2% over prime. The debt is non-recourse and is collateralized by all receivable portfolios within a loan series. Each loan series contains a group of portfolio asset pools that have an aggregate original principal amount of approximately $20 million. Payments are due monthly for two years from the date of origination. At December 31, 2006, we had $87.2 million of non-recourse portfolio notes payable outstanding under these facilities compared to $40.5 million outstanding at December 31, 2005. The increase in the purchase of receivable portfolios was primarily due to the Sallie Mae facility which was terminated in September 2006. The obligations under that off-balance sheet arrangement were purchased by the Company through financing from Cargill and merged with the obligations under the Cargill facilities. Effective January 1, 2006, one such facility was renegotiated reducing Cargill’s percentage interest from approximately 30% to 25% in return for an exclusivity agreement, under which Cargill has the sole right to finance certain customer obligations acquired. The renegotiated agreement also includes a commitment to finance $150.0 million of accounts receivable purchases over three years.

EBITDA and Adjusted EBITDA

The common definition of EBITDA is “Earnings Before Interest Expense, Taxes, Depreciation and Amortization.” In evaluating liquidity, we use earnings before interest expense, share based compensation, taxes, depreciation and amortization, minority interest, transaction costs and after acquisition synergies and excluding unrestricted subsidiaries or “Adjusted EBITDA.” EBITDA and Adjusted EBITDA are not measures of financial performance or liquidity under GAAP. EBITDA and Adjusted EBITDA should not be considered in isolation or as a substitution for net income, cash flow from operations or other income or cash flow data prepared in accordance with GAAP. Adjusted EBITDA, as presented, may not be comparable to similarly titled measures of other companies. Adjusted EBITDA is presented as we understand certain investors use it as one measure of our historical ability to service debt. We use EBITDA and Adjusted EBITDA for debt covenant compliance as these are viewed as measures of liquidity.

 

     Year Ended, or as of December 31,    

Pro Forma Twelve

Months Ended

or as of

December 31, 2006

 
   2004     2005     2006    
     (Dollars in thousands)  

Adjusted EBITDA

   $ 291,003     $ 381,623     $ 501,942     $ 527,943  

Adjusted EBITDA margin (1)

     23.9 %     25.0 %     27.0 %     27.2 %

(1) Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of revenue. Adjusted EBITDA margin is not a measure of financial performance or liquidity under GAAP and should not be considered in isolation or as a substitution for other GAAP measures.

 

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Set forth below is a reconciliation of EBITDA and Adjusted EBITDA to cash flow from operations.

 

    

Year Ended December 31,

    

Pro Forma Twelve

Months Ended
or as of

December 31, 2006

 
     2006     2005     2004     

Cash flow from operating activities

   $ 196,638     $ 276,314     $ 217,376      $ 177,870  

Income tax expense (benefit)

     65,505       87,736       65,762        14,218  

Deferred income tax (expense) benefit

     (9,300 )     2,645       (6,177 )      (9,300 )

Interest expense

     94,804       15,358       9,381        296,441  

Minority interest in earnings, net of distributions

     2,814       (1,721 )     (1,406 )      2,814  

Share based compensation

     (28,738 )     (538 )     —          (1,241 )

Excess tax benefit from stock options exercised

     50,794       —         —          —    

Other

     (4,287 )     (1,557 )     (1,264 )      (4,287 )

Changes in operating assets and liabilities, net of business acquisitions

     (2,180 )     (15,313 )     3,611        9,723  
                                 

EBITDA

     366,050       362,924       287,283        486,238  

Minority interest (a)

     16,287       15,411       2,590        16,287  

Provision for share based compensation (b)

     28,738       538       —          1,241  

Total transaction cost adjustments (c)

     78,835       —         —          4,000  

Synthetic lease interest (d)

     1,305       1,385       1,130        —    

Acquisition synergies (e)

     7,000       —         —          16,450  

Vertical Alliance, Inc. adjustment (f)

     3,727       1,365       —          3,727  
                                 

Adjusted EBITDA

   $ 501,942     $ 381,623     $ 291,003      $ 527,943  
                                 
 
(a) Represents the minority interest in the earnings of two majority owned consolidated subsidiaries.
(b) Represents total share based non-cash compensation expense determined at fair value in accordance with SFAS 123(R) adopted January 1, 2006.
(c) Represents transaction cost incurred with the Recapitalization.
(d) Represents interest incurred on a synthetic building lease, which building was acquired in September 2006.
(e) Represents pro forma synergies, as used in our senior secured term loan facility and revolving credit facility documentation, and synergies realized for the Raindance, Intrado and InPulse acquisitions, consisting primarily of headcount reductions and telephony-related savings.
(f) Represents the exclusion of the negative EBITDA in Vertical Alliance, Inc., which is an unrestricted subsidiary under the indentures governing the notes.
(g) Represents the exclusion of the negative.

Contractual Obligations

We have contractual obligations that may affect our financial condition. However, based on management’s assessment of the underlying provisions and circumstances of our material contractual obligations, there is no known trend, demand, commitment, event or uncertainty that is reasonably likely to occur which would have a material effect on our financial condition or results of operations.

 

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The following table summarizes our contractual obligations at December 31, 2006 (dollars in thousands):

 

    Payment Due by Period

Contractual Obligations

  Total  

Less Than

1 Year

  1 - 3 Years   4 - 5 Years  

After 5

Years

Senior Secured Term Loan Facility, due 2013

  $ 2,100,000   $ 21,000   $ 42,000   $ 42,000   $ 1,995,000

9.5% Senior Notes, due 2014

    650,000     —       —       —       650,000

11% Senior Subordinated Notes, due 2016

    450,000     —       —       —       450,000

Interest payments on fixed rate debt

    989,000     111,250     222,500     222,500     432,750

Estimated interest payments on variable rate debt

    1,226,402     174,341     353,984     350,687     347,390

Operating leases

    306,408     28,019     46,425     23,871     208,093

Contractual minimums under telephony agreements*

    296,194     91,894     171,467     32,833     —  

Purchase obligations**

    45,226     39,961     5,265     —       —  

Acquisition earn out commitments

    10,850     10,850     —       —       —  

Portfolio notes payable

    87,246     59,656     27,590     —       —  

Commitments under forward flow agreements***

    52,629     52,629     —       —       —  
                             

Total contractual cash obligations

  $ 6,213,955   $ 589,600   $ 869,231   $ 671,891   $ 4,083,233
                             

* Based on projected telephony minutes through 2010. The contractual minimum is usage based and could vary based on actual usage.
** Represents future obligations for capital and expense projects that are in progress or are committed.
*** Up to 85% of this obligation could be funded by non-recourse financing.

The table above excludes amounts paid for taxes and long term obligations under our Nonqualified Executive Retirement Savings Plan and Nonqualified Executive Deferred Compensation Plan.

Capital Expenditures

Our operations continue to require significant capital expenditures for technology, capacity expansion and upgrades. Capital expenditures were $113.9 million for the year ended December 31, 2006, which were funded through cash from operations and the use of our various credit facilities. Capital expenditures were $76.9 million for the year ended December 31, 2005. Capital expenditures for the year ended December 31, 2006 consisted primarily of equipment purchases, the purchase for approximately $30.5 million of a building previously leased by us under a synthetic lease, the cost of new call centers in the Philippines, Texas, Oregon, New York and Wisconsin as well as upgrades at existing facilities. We currently project our capital expenditures for 2007 to be approximately $90.0 million to $110.0 million primarily for capacity expansion and upgrades at existing facilities.

Our senior secured term loan facility, discussed above, includes covenants which allow us the flexibility to issue additional indebtedness that is pari passu with or subordinated to our debt under our existing credit facilities in an aggregate principal amount not to exceed $500.0 million plus the aggregate amount of principal payments made in respect of the senior secured term loan, incur capital lease indebtedness financing the acquisition, construction, repair, replacement or improvement of fixed or capital assets, incur accounts receivable securitization indebtedness and non-recourse indebtedness provided we are in pro forma compliance with our total leverage ratio and interest coverage ratio financial covenants. We, or any of our affiliates, may be required to guarantee any existing or additional credit facilities.

Off-Balance Sheet Arrangements

During September 2006, the Sallie Mae purchased paper financing facility was terminated which resulted in dissolution of a non-consolidated qualified special purpose entity (“QSPE”) established in December 2003 solely to hold defaulted accounts receivable portfolios and related funding debt secured through the Sallie Mae facility.

 

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The portfolios of the QSPE were purchased by us with funding pursuant to the Cargill agreement. Termination of the agreement removed all remaining Sallie Mae related funding commitments and profit sharing requirements.

During September 2006, we purchased for approximately $30.5 million the building previously leased by us under a synthetic lease, dated May 9, 2003, between Wachovia Development Corporation and West Facilities Corporation.

At December 31, 2006, we did not participate in any off-balance sheet arrangements.

Inflation

We do not believe that inflation has had a material effect on our results of operations. However, there can be no assurance that our business will not be affected by inflation in the future.

Critical Accounting Policies

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires the use of estimates and assumptions on the part of management. The estimates and assumptions used by management are based on our historical experiences combined with management’s understanding of current facts and circumstances. Certain of our accounting policies are considered critical as they are both important to the portrayal of our financial condition and results of operations and require significant or complex judgment on the part of management. We believe the following represent our critical accounting policies as contemplated by the Securities and Exchange Commission Financial Reporting Release No. 60, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies.”

Revenue Recognition.  The Communication Services segment recognizes revenue for agent-based services including order processing, customer acquisition, customer retention and customer care in the month that calls are processed by an agent, based on the number of calls and/or time processed on behalf of clients or on a success rate or commission basis. Automated services revenue is recognized in the month that calls are received or sent by automated voice response units and is billed based on call duration or per call. Our 9-1-1 emergency services revenue is generated primarily from monthly database management and service fees which are recognized over the service period.

The Conferencing Services segment revenue is recognized when services are provided and generally consists of per-minute charges. Revenues are reported net of any volume or special discounts.

The Receivables Management segment recognizes revenue for contingent/third party collection services and government collection services in the month collection payments are received based upon a percentage of cash collected or other agreed upon contractual parameters. First party collection services on pre-charged off receivables are recognized on an hourly rate basis.

We believe that the amounts and timing of cash collections for our purchased receivables can be reasonably estimated; therefore, we utilize the level-yield method of accounting for our purchased receivables. We follow American Institute of Certified Public Accountants Statement of Position 03-3, “Accounting for Loans or Certain Securities Acquired in a Transfer” (“SOP 03-3”). SOP 03-3 states that if the collection estimates established when acquiring a portfolio are subsequently lowered, an allowance for impairment and a corresponding expense are established in the current period for the amount required to maintain the internal rate of return, or “IRR”, expectations. If collection estimates are raised, increases are first used to recover any previously recorded allowances and the remainder is recognized prospectively through an increase in the IRR. This updated IRR must be used for subsequent impairment testing. Portfolios acquired prior to December 31, 2004 will continue to be governed by Accounting Standards Executive Committee Practice Bulletin 6, as amended by SOP 03-3, which set the IRR at December 31, 2004 as the IRR to be used for impairment testing in the future. Because any reductions in expectations are recognized as an expense in the current period and any increases in expectations

 

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are recognized over the remaining life of the portfolio, SOP 03-3 increases the probability that we will incur impairments in the future, and these impairments could be material. During 2006, no impairment allowances were required. Periodically the Receivables Management segment will sell all or a portion of a receivables pool to third parties. The gain or loss on these sales is recognized to the extent the proceeds exceed or, in the case of a loss, are less than the cost of the underlying receivables.

The agreements to purchase receivables typically include customary representations and warranties from the sellers covering account status, which permit us to return non-conforming accounts to the seller. Purchases are pooled based on similar risk characteristics and the time period when the pools are purchased, typically quarterly. The receivables portfolios are purchased at a substantial discount from their face amounts and are initially recorded at our cost to acquire the portfolio. Returns are applied against the carrying value of the receivables pool.

Allowance for Doubtful Accounts and Notes Receivable.  Our allowance for doubtful accounts and notes receivable represents reserves for receivables which reduce accounts receivables and notes receivable to amounts expected to be collected. Management uses significant judgment in estimating uncollectible amounts. In estimating uncollectible amounts, management considers factors such as overall economic conditions, industry- specific economic conditions, historical customer performance and anticipated customer performance. While management believes our processes effectively address our exposure to doubtful accounts, changes in the economy, industry or specific customer conditions may require adjustments to the allowance for doubtful accounts recorded.

Goodwill and Other Intangible Assets.  As a result of acquisitions made from 2002 through 2006, our recorded goodwill as of December 31, 2006 was $1,186.4 million and the recorded value of other intangible assets as of December 31, 2006 was $195.4 million. Management is required to exercise significant judgment in valuing the acquisitions in connection with the initial purchase price allocation and the ongoing evaluation of goodwill and other intangible assets for impairment. In connection with these acquisitions, a third-party valuation was performed to assist management in determining purchase price allocation between goodwill and other intangible assets. The purchase price allocation process requires estimates and judgments as to certain expectations and business strategies. If the actual results differ from the assumptions and judgments made, the amounts recorded in the consolidated financial statements could result in a possible impairment of the intangible assets and goodwill or require acceleration in amortization expense. In addition, SFAS No. 142 Goodwill and Other Intangible Assets , requires that goodwill be tested annually using a two-step process. The first step is to identify any potential impairment of the goodwill or intangible assets. The second step measures the amount of impairment loss, if any. Any changes in key assumptions about the businesses and their prospects, or changes in market conditions or other externalities, could result in an impairment charge and such a charge could have a material adverse effect on our financial condition and results of operations.

Income Taxes.  We account for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. We recognize current tax liabilities and assets based on an estimate of taxes payable or refundable in the current year for each of the jurisdictions in which we transact business. As part of the determination of our current tax liability, we exercise considerable judgment in evaluating positions we have taken in our tax returns. We have established reserves for probable tax exposures. These reserves, included in current tax liabilities, represent our estimate of amounts expected to be paid, which we adjust over time as more information becomes available. We also recognize deferred tax assets and liabilities for the estimated future tax effects attributable to temporary differences (e.g., book depreciation versus tax depreciation). The calculation of current and deferred tax assets and liabilities requires management to apply significant judgment relating to the application of complex tax laws, changes in tax laws or related interpretations, uncertainties related to the outcomes of tax audits and changes in our operations or other facts and circumstances. Further, we must continually monitor changes in these factors. Changes in such factors may result in changes to management estimates and could require us to adjust our tax assets and liabilities and record additional income tax expense or benefits.

 

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Recent Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 (“FIN 48”), which clarifies the accounting for uncertainty in tax positions. FIN 48 requires that we recognize in our financial statements, the impact of a tax position, if that position is not more likely than not to be sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective as of the beginning of our 2007 fiscal year, with the cumulative effect of the change in accounting principle recorded as an adjustment to beginning of the year retained earnings. We are currently evaluating the impact FIN 48 will have on our financial statements.

In September 2006, the FASB issued SFAS No. 157 Fair Value Measurements , (“SFAS 157”) which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of SFAS 157 are effective as of the beginning of our 2008 fiscal year. We are currently evaluating the impact, if any, SFAS 157 will have on our financial statements.

Quantitative and Qualitative Disclosures About Market Risk

Market Risk Management

Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and changes in the market value of investments.

Interest Rate Risk

As of December 31, 2006, we had $2.1 billion outstanding under our senior secured term loan facility, $0 outstanding under our senior secured revolving credit facility, $650.0 million outstanding under our 9.5% senior notes, $450.0 million outstanding under our 11% senior subordinated notes and $87.3 million outstanding under the Cargill facility.

Senior Secured Term Loan Facility and Senior Secured Revolving Credit Facility.

The $2.1 billion senior secured term loan facility and new $250.0 million senior secured revolving credit facility bear interest at a variable rate. Amounts borrowed by the Company under these senior secured credit facilities initially bear interest at a rate equal to an applicable margin plus, at the Company’s option, either (a) a base rate determined by reference to the higher of (1) the prime lending rate as set forth on the British Banking Association Telerate Page 5 and (2) the federal funds effective rate from time to time plus 0.50% or (b) a LIBOR rate determined by reference to the costs of funds for deposits for the interest period relevant to such borrowing, adjusted for certain costs. Initially, the applicable margin percentage is a percentage per annum equal to, (x) for term loans, 1.75% for base rate loans and 2.75% for LIBOR rate loans and (y) for revolving credit loans, 1.50% for base rate loans and 2.50% for LIBOR rate loans. The applicable margin percentage with respect to borrowings under the revolving credit facility will be subject to adjustments based upon the Company’s leverage ratio. Overdue amounts (after giving effect to any applicable grace periods) bear interest at a rate per annum equal to the then applicable interest rate plus 2.00% per annum. Initially, the Company is required to pay each lender a commitment fee of 0.50% in respect of any unused commitments under the revolving credit facility. The commitment fee in respect of unused commitments under the revolving credit facility will be subject to adjustment based upon the Company’s leverage ratio. The Company is required to comply, on a quarterly basis, with a maximum leverage ratio covenant and a minimum interest coverage ratio covenant. The consolidated leverage ratio of funded debt to adjusted EBITDA may not exceed 7.75 to 1.0, and the consolidated fixed charge coverage ratio of adjusted EBITDA to the sum of consolidated interest expense must exceed 1.25 to 1.0. Both ratios are measured on a rolling four-quarter basis. We were in compliance with the financial covenants at December 31, 2006. These financial covenants will become more restrictive over time. The senior secured credit facilities also contain various negative covenants, including limitations on indebtedness; liens; mergers and

 

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consolidations; asset sales; dividends and distributions or repurchases of the Company’s capital stock; investments, loans and advances; capital expenditures; payment of other debt, including the senior subordinated notes; transactions with affiliates; amendments to material agreements governing the Company’s subordinated indebtedness, including the senior subordinated notes; and changes in the Company’s lines of business. The effective annual interest rate, inclusive of debt amortization costs, on the senior secured term loan facility from October 24, 2006 through December 31, 2006 was 8.86%. The commitment fee on the unused senior secured revolving credit facility at December 31, 2006 was 0.50%.

The senior secured credit facilities include certain customary representations and warranties, affirmative covenants, and events of default, including payment defaults, breach of representations and warranties, covenant defaults, cross-defaults to certain indebtedness, certain events of bankruptcy, certain events under ERISA, material judgments, the invalidity of material provisions of the documentation with respect to the senior secured credit facilities, the failure of collateral under the security documents for the senior secured credit facilities, the failure of the senior secured credit facilities to be senior debt under the subordination provisions of certain of our subordinated debt and our experiencing a a change of control. If an event of default occurs, the lenders under the senior secured credit facilities will be entitled to take certain actions, including the acceleration of all amounts due under the senior secured credit facilities and all actions permitted to be taken by a secured creditor.

We may request additional tranches of term loans or increases to the revolving credit facility in an aggregate amount not to exceed $500.0 million plus the aggregate amount of principal payments previously made in respect of the term loan facility. Availability of such additional tranches of term loans or increases to the revolving credit facility is subject to the absence of any default pro forma compliance with financial covenants and, among other things, the receipt of commitments by existing or additional financial institutions.

Subsequent to December 31, 2006, we refinanced the senior secured term loan facility. The general terms of the refinancing included a repricing, an expansion of the facility by $165.0 million and a soft call option. The repricing calls for a pricing grid based on our debt rating ranging from 2.75% to 2.125% for LIBOR rate loans, currently priced at 2.375%, and ranging from 1.75% to 1.125% for base rate loans, currently priced at 1.375%. After the expansion of the senior secured term loan facility, the aggregate facility is $2.265 billion. The soft call option provides for a premium equal to 1.0% of the amount of the repricing payment in the event that prior to the first anniversary of the refinancing we elect another refinancing amendment.

In October 2006, we entered into a three year interest rate swap (cash flow hedge) agreement to convert variable long-term debt to fixed rate debt. We hedged $800.0 million, $680.0 million and $600.0 million, respectively, for the three years ending October 23, 2007, 2008 and 2009 of the $2.1 billion senior secured term loan facility. We hold and issue these swaps only for the purpose of hedging interest rate risk, not for speculation. In accordance with SFAS 133, Accounting for Derivative Instruments and Hedging Activities, these cash flow hedges are reported on the balance sheet at fair value. The critical terms of the interest rate swap agreements and the interest-bearing debt associated with the swap agreements must be the same to qualify for the change in variable cash flow method of accounting. Changes in the effective portion of the fair value of the interest rate swap agreement are recognized in other comprehensive income, net of tax effects, until the hedged item is recognized into earnings. All the hedges were highly effective, therefore the gain, which is included in interest expense, is attributable to the portion of the change in fair value of the derivative hedging instruments excluded from the assessment of the effectiveness of the hedges and is recognized in the same period in which the hedged transaction affects earnings.

Based on our unhedged obligation under the senior secured term loan facility at December 31, 2006, a 50 basis point change in interest rates would increase or decrease our annual interest expense by approximately $6.5 million annually.

Cargill Facility.  We maintain revolving financing facilities with a third-party specialty lender, Cargill. The lender is also a minority interest holder in the majority-owned subsidiaries which are parties to such revolving credit facilities. Pursuant to these arrangements, we will borrow 80% to 85% of the purchase price of each

 

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receivables portfolio purchase from Cargill and we will fund the remaining purchase price. Interest accrues on the outstanding debt at a variable rate of 2% over prime. The debt is non-recourse and is collateralized by all receivable portfolios within a loan series. Each loan series contains a group of portfolio asset pools that have an aggregate original principal amount of approximately $20 million. Payments are due monthly for two years from the date of origination. At December 31, 2006, we had $87.2 million of non-recourse portfolio notes payable outstanding under these facilities. Based on our obligation under these facilities a 50 basis point change in interest rates would increase or decrease our annual interest expense by approximately $0.4 million annually.

Foreign Currency Risk

On December 31, 2006, the Communication Services segment had no material revenue or assets outside the United States. During 2006 the Communication Services segment contract for workstation capacity in India expired and was not renewed. The facilities in Canada, Jamaica and the Philippines operate under revenue contracts denominated in U.S. dollars. These contact centers receive calls only from customers in North America under contracts denominated in U.S. dollars.

In addition to the United States, the Conferencing Services segment operates facilities in the United Kingdom, Canada, Singapore, Australia, Hong Kong, Japan, New Zealand, China, Mexico and India. Revenues and expenses from these foreign operations are typically denominated in local currency, thereby creating exposure to changes in exchange rates. Changes in exchange rates may positively or negatively affect our revenues and net income attributed to these subsidiaries.

At December 31, 2006, our Receivables Management segment operated facilities in the United States only.

For the year ended December 31, 2005, revenues and assets from non-U.S. countries were less than 10% of consolidated revenues and assets. We do not believe that changes in future exchange rates would have a material effect on our financial position, results of operations, or cash flows. We have not entered into forward exchange or option contracts for transactions denominated in foreign currency to hedge against foreign currency risk.

Investment Risk

In October 2006, we entered into a three-year interest rate swap to hedge the cash flows from our variable rate debt, which effectively converted the hedged portion to fixed rate debt. The initial and ongoing assessments of hedge effectiveness as well as the periodic measurements of hedge ineffectiveness are performed using the change in variable cash flows method. These agreements hedge notional amounts of $800.0 million, $680.0 million and $600.0 million for the years ending October 23, 2007, 2008 and 2009, respectively, of our $2.1 billion senior secured term loan facility. In accordance with SFAS 133, Accounting for Derivative Instruments and Hedging Activities, these cash flow hedges are recorded at fair value with a corresponding entry, net of taxes, recorded in other comprehensive income until earnings are affected by the hedged item.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control — Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2006.

Our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2006 has been audited by an independent registered public accounting firm, as stated in their report which is included herein.

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

West Corporation

Omaha, Nebraska

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that West Corporation and subsidiaries (the “Company”) maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

 

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We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2006 of the Company and our report dated February 26, 2007 expressed an unqualified opinion on those consolidated financial statements and financial statement schedule and included an explanatory paragraph regarding the change in method of accounting for stock-based compensation expense in 2006.

 

/s/    D ELOITTE  & T OUCHE LLP

Omaha, Nebraska

February 26, 2007

 

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BUSINESS

Overview

West is a premier provider of business process outsourcing services to many of the world’s largest companies, organizations and government agencies. Our services are focused on helping our clients communicate more effectively with their clients. We offer a comprehensive set of solutions under each of our three business segments: Communication Services, Conferencing Services and Receivables Management.

We compete in a broad business process outsourcing industry. We have targeted and will continue to selectively seek markets that meet our criteria for size, secular growth and profit potential. Our diverse markets include customer service, sales and marketing, emergency communication services, business-to-business sales support, conferencing and accounts receivable management outsourcing, among others. While we compete with a broad range of competitors in each discrete market, we do not believe that any of our competitors provides all of the services we provide in all of the markets we serve. We believe that our reputation for service quality, leading technology and shared services model provide us with significant competitive advantages in the markets we serve. Each of our segments, Communications Services, Conferencing Services and Receivables Management, addresses several markets within the broader business process outsourcing industry.

Each of our segments builds upon our core competencies of managing technology, telephony and human capital across a broad range of outsourced service offerings. Some of the nation’s leading enterprises use us to manage their most important communications. Our ability to efficiently and cost-effectively process high volume, complex, voice-related transactions for our clients helps them reduce operating costs, increase cash flow, improve customer satisfaction and facilitate effective communications. In 2006, our operations managed and processed:

 

   

More than 14.7 billion telephony minutes.

 

   

More than 21 million conference calls.

 

   

More than 200 million 9-1-1 calls.

We have developed a robust shared services infrastructure, which provides us with the ability to deploy assets and resources across business segments and services. This shared infrastructure also provides us with a highly flexible and capital-efficient operating model, which has been a critical factor in driving our profitability and cash flow.

West Corporation, a Delaware corporation, was founded in 1986 and is headquartered in Omaha, Nebraska. Our principal executive offices are located at 11808 Miracle Hills Drive, Omaha, Nebraska 68154. Our telephone number is (402) 963-1200. Our website address is www.west.com where our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports are available, without charge, as soon as reasonably practicable following the time they are filed with or furnished to the Commission. None of the information on our website or any other website identified herein is part of this report. All website addresses in this report are intended to be inactive textual references only.

Recapitalization

On October 24, 2006, we completed the Recapitalization of the Company in a transaction sponsored by an investor group led by the Sponsors pursuant to the Merger Agreement, dated as of May 31, 2006, between the Company and Omaha Acquisition Corp., an entity formed by the Sponsors to effect the Recapitalization. Pursuant to the Recapitalization, our publicly traded securities were cancelled in exchange for cash. Immediately following the Recapitalization, the Sponsors owned approximately 72.1% of our outstanding Class A and Class L common stock, the Founders, owned approximately 24.9% of our outstanding Class A and Class L common stock, and certain executive officers had beneficial ownership of the remaining approximately 3.0% of our

 

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outstanding Class A and Class L common stock. The Recapitalization has been accounted for as a leveraged recapitalization, whereby the historical bases of our assets and liabilities have been maintained.

We financed the Recapitalization with equity contributions from the Sponsors and the rollover of a portion of the equity interests in the Company held by the Founders and certain members of management, along with a new $2.1 billion senior secured term loan facility, a new senior secured revolving credit facility providing financing of up to $250.0 million (none of which was drawn at the closing of the Recapitalization) and the private placement of $650.0 million aggregate principal amount of 9.5% senior notes due 2014 and $450.0 million aggregate principal amount of 11% senior subordinated notes due 2016. To consummate the Recapitalization, Omaha Acquisition Corp. was merged with and into the Company, with the Company continuing as the surviving corporation. In connection with the closing of the Recapitalization, the Company terminated and paid off the outstanding balance of its existing $800.0 million unsecured revolving credit facility. As a result of the Recapitalization, our common stock is no longer publicly traded.

Businesses

Communication Services

Our Communication Services segment addresses the broadly-defined outsourced voice-related markets, including CRM and emergency communication services. The CRM market includes multi-channel customer care, acquisition, and retention. The emergency communication services market includes the provision of core 9-1-1 infrastructure management and emergency communications services to participants in the telecommunications network, including telecommunications carriers, public safety organizations and government agencies.

Customer Relationship Management Services.  The CRM market is driven by companies who wish to outsource their customer service functions and achieve the following objectives:

 

   

Create a competitive advantage through high-quality services.

 

   

Reduce fixed and overall customer contact costs.

 

   

Focus on core competencies.

 

   

Improve flexibility to handle seasonality and variability in call volume and service levels.

 

   

Have access to advanced technology and scalable systems without incurring major capital investments.

To capture the benefits of lower labor costs and the availability of skilled labor, a number of providers have expanded offshore to varying degrees. Some providers, including us, have opted to provide a “best-shore” approach, strategically combining onshore and offshore initiatives on the basis of optimizing cost structure while seeking to maintain or exceed clients’ service level expectations.

Emergency Communications Services.  The emergency communication services market is characterized by a recurring stream of data management and call transport transactions. Because the services we provide are supportive of regulatory compliance and public safety, funding for this market is not dependent upon economic conditions. Long-term contracts are typical, providing visibility to future revenue streams. The growth of the emergency communication services market is driven by the following factors:

 

   

Complexity arising from new methods of communications, such as wireless and voice-over-internet protocol.

 

   

Challenges surrounding competing telecom carriers and their ability to provide in-house or collaborative solutions.

 

   

New data applications to improve the quality of response from public safety organizations.

 

   

Addition of new public safety services.

 

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Changes in the regulatory environment related to emergency communications services.

 

   

Carriers fund their 9-1-1 obligations in part by a monthly charge on users’ local access bills.

Service Offerings.  We are one of the largest providers of outsourced voice-related communications services in the United States. We provide our clients with a comprehensive portfolio of integrated voice-related services, including the following five primary services:

 

   

Dedicated Agent Services provide clients with customized customer contact services that are processed by agents who are trained to handle customer service and sales transactions. Examples of dedicated agent services include traditional customer care and sales. We generally are paid for these services on a per agent hour or minute basis.

 

   

Shared Agent Services combine multiple call center locations and a large pool of remote agents to handle customer sales or service transactions for multiple clients. Our shared agents are trained on our proprietary and some third-party call handling systems, and multiple client-specific applications that are generally less complicated than dedicated agent applications. We gain efficiencies through the sharing of agents across many different client programs. Examples of these services include order processing, lead generation and credit card application processing. We generally are paid for these services on a per minute basis.

 

   

Automated Customer Contact Services use a proprietary platform of approximately 149,000 interactive voice response ports. These ports allow for the processing of telephone calls without the involvement of an agent. These services are highly customized and frequently combined with other service offerings. Examples of these services include front-end customer service applications, prepaid calling card services, credit card activation, automated product information requests, answers to frequently asked questions, utility power outage reporting, call routing, customer surveys, automated notifications and call transfer services. We generally are paid for these services on a per minute basis.

 

   

Emergency Communication Services provide the core 9-1-1 infrastructure management and key services to communications service providers and public safety organizations. We entered this market through the acquisition of Intrado in April 2006.

 

   

Business-to-Business Services provide dedicated marketing and sales services for clients that target small and medium-sized businesses. These services help clients that cannot cost-effectively serve a diverse and small customer base in-house with the appropriate level of attention. Examples of these services include sales, sales support, order management and technical support. We generally are paid for these services on a per agent hour basis or a commission basis.

Substantially all of our contacts are inbound, or initiated by the end-user, with the exception of our business-to-business transactions.

We provide our services using a “best-shore” approach, which combines automated customer contact services with domestic, offshore and home agent platforms. Our Communication Services segment operates contact centers throughout the United States and in Canada, Jamaica and the Philippines.

Our proprietary home agent service is a remote call handling model that uses individuals who work out of their homes or other remote offices. This service offers a number of distinct advantages, including a higher quality of service resulting from our ability to attract a highly educated agent pool and an extremely efficient model which improves variable labor costs, significantly lowers capital requirements and provides a midpoint price option between domestic agent service and offshore solutions. Frost & Sullivan selected us as the recipient of its 2006 Product Differentiation Innovation Award in the North American Outsourced Contact Center Market, principally as a result of our home agent service offering.

Call Management Systems.  We specialize in processing large and recurring transaction volumes. We work closely with our clients to accurately project future transaction volumes and meet the needs of our clients.

 

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Sales and Marketing.  We target growth-oriented clients with large volume programs and selectively pursue those clients with whom and services with which we have the greatest opportunity for success. We maintain approximately 50 sales and marketing personnel dedicated to our Communication Services segment. Their goal is to both maximize our current client relationships and to expand our existing client base. To accomplish these goals, we attempt to sell additional services to existing clients and to develop new long-term client relationships. We generally pay commissions to sales professionals on both new sales and incremental revenues generated from new and existing clients.

Competition.  Our Communication Services segment addresses the broadly-defined outsourced voice-related markets, including CRM and emergency communication services. Many clients retain multiple communication services providers, which expose us to continuous competition in order to remain a preferred vendor. We also compete with the in-house operations of many of our existing clients and potential clients. The principal competitive factors in our Communication Services segment include, among others, quality of service, range of service offerings, flexibility and speed of implementing customized solutions to meet clients’ needs, capacity, industry-specific experience, technological expertise and price.

Competitors in the CRM industry include call center specialists such as Convergys Corporation, TeleTech Holdings, Inc. and ClientLogic Corporation; prime contractors such as IBM Corporation and Accenture Ltd.; and international outsourcers such as Infosys Technologies Limited.

The market for wireline and wireless emergency communications solutions is also competitive, predominantly affected by the effectiveness of existing infrastructure, scalability, reliability, ease of use, price, technical features, scope of product offerings, customer service and support, ease of technical migration, useful life of new technology and wireless support. Competitors in the wireless market include TeleCommunications Systems, Inc. for the provision of emergency communications data management services to wireless carriers. Competitors in the incumbent local exchange carrier and competitive local exchange carrier markets include internally developed solutions of major carriers.

Quality Assurance.  We believe we differentiate the quality of our services through our ability to understand our clients’ needs and expectations and our ability to meet or exceed them. We maintain quality functions throughout our agent-based and automated service offering organizations.

Conferencing Services

Conferencing Industry.  The conferencing services industry consists of audio, web and video conferencing services that are marketed to businesses and individuals worldwide. Demand has been driven by a number of key factors:

 

   

Ease of use and increased reliability of products.

 

   

Difficulties related to business travel and greater pressure on companies to reduce administrative costs.

 

   

An increasingly dispersed and virtual workforce.

 

   

Global expansion of business.

 

   

More affordable service pricing.

 

   

The technological complexity of maintaining in-house systems.

 

   

An increase in telecommuting.

 

   

The acceptance of conferencing as a means to help increase productivity.

We were attracted to the conferencing services business because it gives us the ability to use our existing technology and assets to manage additional transactions for a large and growing market.

 

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Service Offerings.  We believe we are the largest conferencing services provider in the world. In January 2007, Frost & Sullivan awarded us the North American Conferencing Service of the Year Award for our continued growth in market share, revenues, profitability, innovation in the market and commitment to customer satisfaction. Our Conferencing Services segment provides our clients with an integrated, global suite of collaboration tools including audio, web, and video conferencing. We expanded our presence within this segment through the acquisitions of the conferencing-related assets of Sprint and Raindance in June 2005 and April 2006, respectively. The segment provides four primary services globally:

 

   

Reservationless Services are on-demand automated conferencing services that allow clients to initiate an audio conference at anytime, without the need to make a reservation or rely on an operator. We are generally paid for these services on a per participant minute basis.

 

   

Operator-Assisted Services are available for complex audio conferences and large events. Attended, or operator-assisted, services are tailored to a client’s needs and provide a wide range of scalable features and enhancements, including the ability to record, broadcast, schedule and administer meetings. We are generally paid for these services on a per participant minute basis.

 

   

Web Conferencing Services allow clients to make presentations and share applications and documents over the Internet. These services are offered through our proprietary products, Mshow ® and Raindance Meeting Edition ® , as well as through the resale of WebEx Communications, Inc. and Microsoft Corporation products. Web conferencing services are customized to each client’s individual needs and offer the ability to reach a wide audience. We are generally paid for these services on a per participant minute or per seat license basis.

 

   

Video Conferencing Services allow clients to experience real time video presentations and conferences. These services are offered through our proprietary product, InView ® . Video conferencing services can be used for a wide variety of events, including training seminars, sales presentations, product launches and financial reporting calls. We are generally paid for these services on a per participant minute basis.

Sales and Marketing.  We maintain a sales force of approximately 500 personnel that is focused exclusively on understanding our clients’ needs and delivering conferencing solutions. We generally pay commissions to sales professionals on both new sales and incremental revenues generated from new and existing clients.

Our Conferencing Services segment manages sales and marketing through five dedicated channels:

 

   

National Accounts: Our national accounts meeting consultants sell our services to Fortune 500 companies.

 

   

Direct Sales: Our direct sales meeting consultants sell our services to accounts other than Fortune 500 companies.

 

   

International Sales: Our international meeting consultants sell our services internationally.

 

   

Internet: We sell our conferencing services on the Internet through the trade name ConferenceCall.com. ConferenceCall.com acquires clients using Internet-based search engines to identify potential purchasers of conferencing services through placement of paid advertisements on search pages of major Internet search engine sites. The strength of ConferenceCall.com’s marketing program lies in its ability to automatically monitor ad placement on all of the major search engines and ensure optimal positioning on each of these search sites.

 

   

Wholesale Sales: We have relationships with traditional resellers, local exchange carriers, inter-exchange carriers and systems integrators to sell our conferencing services.

In connection with the acquisition of the assets of the conferencing business of Sprint, we entered into a sales and marketing agreement whereby we are the exclusive provider of conferencing services for Sprint and its customers. Under this agreement, we have agreed to jointly market and sell conferencing services with Sprint.

 

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We train our meeting consultants to assist clients in using conference calls as a replacement for face-to-face meetings. We believe this service-intensive effort differentiates our conferencing services business from that of our competitors.

Competition.  Our Conferencing Services segment addresses the audio, web and video conferencing markets. These markets are highly competitive. The principal competitive factors in our Conferencing Services segment include, among others, range of service offerings, global offerings, price and quality of service. Competitors in this industry range from integrated telecommunications providers, such as AT&T Inc., Verizon Inc. and Global Crossing Ltd., to independent providers, such as WebEx Communications, Inc., Premiere Global Services, Inc. and Genesys Conferencing, Inc.

Receivables Management

Receivables Management Industry.  The ARM market includes the collection of delinquent debt on a contingent basis (as an agent on behalf of clients) and on a principal basis (purchase of delinquent receivables from clients for subsequent collection by the buyer for its own account). An increasing number of providers offer both contingent/agent and principal services for their clients. The growth in the ARM market is driven by a number of factors:

 

   

Increasing consumer and commercial credit.

 

   

Macro economic trends affecting the level of debt delinquencies, including interest rates, minimum payment levels on credit cards, health care and energy costs, and ability to refinance debt that would otherwise be delinquent (residential real estate prices, home equity loan environment, etc.).

 

   

Development and improvement in recovery strategies.

We were attracted to the receivables management business because of our ability to use our existing infrastructure to address the needs of a large and growing market and to sell these services to our existing clients.

Service Offerings.  We are one of the leading providers of receivables management services in the United States. The Receivables Management segment consists of the following services:

 

   

Debt Purchasing Collections involves the purchase of portfolios of receivables from credit originators. We use proprietary analytical tools to identify and evaluate portfolios of receivables and develop custom recovery strategies for each portfolio. We have an established relationship with Cargill to evaluate and finance the purchase of receivables. We have also entered into forward-flow contracts that commit a third party to sell to us regularly, and commit us to purchase regularly, charged-off receivable portfolios for a fixed percentage of the face amount.

 

   

Contingent/Third-Party Collections involves collecting charged-off debt. We are focused on specific industries, such as healthcare, credit card, telecommunications and vehicle financing. Our recovery strategy is primarily determined by the age of receivables and the extent of previous collection efforts. We generally are paid for these services based on a percentage of the amounts that we recover.

 

   

Government Collections involves collecting student loans on behalf of the United States Department of Education. We also offer a student loan default prevention program used at more than 100 campus locations. We generally are paid for these services based on a percentage of the amounts that we recover or on a per hour basis.

Competition.  The ARM market includes the collection of delinquent debt on a contingent basis (as an agent on behalf of clients) and on a principal basis (purchase of delinquent receivables from clients for subsequent collection by the buyer for its own account). This market is highly competitive and fragmented. Significant competitors in our Receivables Management market include large collectors and debt purchasers such as Portfolio Recovery Associates, Inc., Asset Acceptance Capital Corporation, NCO Group, Inc., and GC Services,

 

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LP and a host of smaller players throughout the United States. Many clients retain multiple receivables management providers, which expose us to continuous competition in order to remain a preferred vendor. We believe that the primary competitive factor in obtaining and retaining clients is the percentage of the receivables that are collected and returned to the client.

Financing of Portfolio Purchases.  We work with a portfolio lender, Cargill, to finance the purchase of portfolios. The lender advances 80% to 85% of the purchase price of each portfolio and we fund the remaining 15% to 20%. The debt from the lender accrues interest at a variable rate, with the lender also sharing in the profits of the portfolio after collection expenses and the repayment of principal and interest. The debt from the lender is non-recourse and is collateralized by all receivable portfolios within a loan series.

For further discussion of the results of operations of each of our business segments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

The remainder of this section applies to our entire enterprise.

Our Clients

Our clients operate in a wide range of industries, including telecommunications, banking, retail, financial services, technology and health care. We derive a significant portion of our revenue from relatively few clients. During the year ended December 31, 2006, our 100 largest clients represented approximately 61% of our revenues, with one client, AT&T (formerly AT&T, Bell South, Cingular and SBC Communications), representing approximately 17% of our revenues.

Revenue in our three segments is not significantly seasonal.

Our Personnel and Training

As of December 31, 2006, we had approximately 29,200 total employees, of which approximately 24,400 were employed in the Communication Services segment, 2,500 were employed in the Conferencing Services segment, 1,700 were employed in the Receivables Management segment and approximately 600 were employed in corporate support functions. Of these employees, approximately 6,200 were employed in management, staff and administrative positions. In addition, we rely on approximately 14,000 independent contractors who provide services out of their homes.

We believe that the quality of our employees is a key component of our success. As a large scale service provider, we continually refine our approach to recruiting, training and managing our employees. We have established procedures for the efficient weekly hiring, scheduling and training of hundreds of qualified personnel. These procedures enable us to provide flexible scheduling and staffing solutions to meet client needs.

We offer extensive classroom and on-the-job training programs for personnel, including instruction regarding call-processing procedures, direct sales techniques, customer service guidelines and telephone etiquette. Operators receive professional training lasting from four to 35 days, depending on the client program and the services being provided. In addition to training designed to enhance job performance, employees are also informed about our organizational structure, standard operating procedures and business philosophies. Independent contractors are required to possess the skills necessary to perform the work without training or instruction by employees of the Company.

We consider our relations with our employees to be good. None of our employees is represented by a labor union.

Our Technology and Systems Development

Our software and hardware systems, as well as our network infrastructure, are designed to offer high-quality and integrated solutions. We have made significant investments in reliable hardware systems and integrate

 

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commercially available software when appropriate. Because our technology is client focused, we often rely on proprietary software systems developed in-house to customize our services.

Our Facilities and Service Reliability

We recognize the importance of providing uninterrupted service for our clients. We have invested significant resources to develop, install and maintain facilities and systems that are designed to be highly reliable. Our facilities and systems are designed to maximize system in-service time and minimize the possibility of a telecommunications outage, a commercial power loss or an equipment failure.

Our Network Operations Center

Our Network Operations Center, based in Omaha, Nebraska, operates 24 hours a day, seven days a week and uses both internal and external systems to effectively operate our equipment, people and sites. We interface directly with long distance carriers and have the ability to immediately allocate call volumes. The Network Operations Center monitors the status of all elements of our network on a real-time basis. We monitor for unexpected events such as weather-related situations or high volume calling and we can react appropriately to maintain expected performance. A back-up facility is available, if needed, and is capable of sustaining all the critical functionality of the primary Network Operations Center. Personnel are regularly scheduled to work from the back-up facility to ensure the viability of the Network Operations Centers business continuity plan.

Our International Operations

As of December 31, 2006, our total revenue and assets outside the United States were less than 10% of our consolidated revenue and assets.

Our Communication Services segment operates facilities in Canada, Philippines and Jamaica.

Our Conferencing Services segment has international sales offices or sales agents in Canada, Australia, Hong Kong, Ireland, the United Kingdom, Singapore, Germany, Japan, France, New Zealand and India. Our Conferencing Services segment operates out of facilities in the United States, the United Kingdom, Canada, Mexico, Singapore, Australia, Hong Kong, New Zealand, and India.

Our Receivables Management segment does not operate in any international locations.

For additional information regarding our domestic and international revenues, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Financial Statements included herewith.

Intellectual Property

We rely on a combination of copyright, patent, trademark and trade secret laws, as well as on confidentiality procedures and non-compete agreements, to establish and protect our proprietary rights in each of our segments. We currently own 61 registered patents, including several that we obtained as part of our past acquisitions. Further, we have 248 pending patent applications pertaining to technology relating to intelligent upselling, transaction processing, call center and agent management, data collection, reporting and verification, conferencing and credit card processing.

Government Regulation

The Receivables Management and Communications Services segments provide services to healthcare clients that, as providers of healthcare services, are considered “covered entities” under the Health Insurance Portability

 

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and Accountability Act of 1996 (“HIPAA”). As covered entities, our clients must comply with standards for privacy, transaction and code sets, and data security. Under HIPAA, we are sometimes considered a “business associate,” which requires that we protect the security and privacy of “protected health information” provided to us by our clients. We have implemented HIPAA compliance training and awareness programs for our healthcare services employees. We also have undertaken an ongoing process to test data security at all relevant levels. In addition, we have reviewed physical security at all healthcare operation centers and have implemented systems to control access to all work areas.

Our wholly-owned subsidiary, Intrado Communications, Inc., is also subject to various regulations as a result of its status as a regulated competitive local exchange carrier or an inter-exchange carrier. These include regulations adopted under the Telecommunications Act of 1996. This market may also be influenced by legislation, regulation, and judicial or administrative determinations to open local telephone markets, including 9-1-1 service as a part of local exchange service, to competition; responsibilities of local exchange carriers to provide subscriber records to emergency service providers under the Wireless Communications and Public Safety Act of 1999; and various federal and state regulations on wireless carriers that provide Enhanced 9-1-1, or E9-1-1, services, including, but not limited to, regulations imposed by the FCC in C.C. Docket No. 94-102.

Any changes to these legal requirements, including those caused by the adoption of new laws and regulations or by legal challenges, could have a material adverse effect upon the market for our services and products. In particular, additional delays in implementation of the regulatory requirements imposed by the FCC on voice-over-internet protocol services could have a material adverse effect on our business, financial condition and results of operation.

The accounts receivable management business is regulated both at the federal and state level. The Federal Trade Commission (“FTC”) has the authority to investigate consumer complaints against debt collectors and to recommend enforcement actions and seek monetary penalties. The Federal Fair Debt Collection Practices Act (“FDCPA”) establishes specific guidelines and procedures that debt collectors must follow in communicating with consumer debtors, including:

 

   

Time, place and manner of communications;

 

   

Prohibition of harassment or abuse by debt collectors;

 

   

Restrictions on communications with third parties and specific procedures to be followed when communicating with third parties to obtain a consumer debtor’s location information;

 

   

Notice and disclosure requirements; and

 

   

Prohibition of unfair or misleading representations by debt collectors.

The accounts receivable management and collection business is also subject to the Fair Credit Reporting Act (“FCRA”), which regulates the consumer credit reporting industry. Under the FCRA, liability may be imposed on furnishers of data to credit reporting agencies to the extent that adverse credit information reported is false or inaccurate.

The accounts receivable management business is also subject to state regulations. Some states require debt collectors be licensed or registered, hold a certificate of authority and/or be bonded. Failure to comply may subject the debt collector to penalties and/or fines. In addition, state licensing authorities, as well as state consumer protection agencies, in many cases, have the authority to investigate debtor complaints against debt collectors and to recommend enforcement actions and seek monetary penalties against debt collectors for violations of state or federal laws.

Many states have enacted privacy legislation requiring notification to consumers in the event of a security breach in or at our systems if the consumers’ personal information may have been compromised as a result of the

 

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breach. We have implemented processes and procedures to reduce the risk of security breaches, but we believe we are ready to comply with these notification rules should a breach occur.

Teleservices sales practices are regulated at both the federal and state level. The Telephone Consumer Protection Act (“TCPA”), enacted in 1991, authorized and directed the FCC to regulate the telemarketing industry. The FCC set forth rules to implement the TCPA, which have been amended over time. These rules currently place restrictions on the methods and timing of telemarketing sales calls, including:

 

   

Restrictions on calls placed by automatic dialing and announcing devices;

 

   

Limitations on the use of predictive dialers for outbound calls;

 

   

Institution of a National “Do-Not-Call” Registry in conjunction with the FTC;

 

   

Guidelines on maintaining an internal “Do-Not-Call” list and honoring “Do-Not-Call” requests;

 

   

Requirements for transmitting caller identification information; and

 

   

Restrictions on facsimile advertising.

The Federal Telemarketing Consumer Fraud and Abuse Act of 1994 authorized the FTC to issue regulations designed to prevent deceptive and abusive telemarketing acts and practices. The FTC’s Telemarketing Sales Rule (“TSR”) became effective in January 1996 and has been amended over time. The TSR applies to most outbound telemarketing calls and portions of some inbound telemarketing calls. The TSR generally prohibits a variety of deceptive, unfair or abusive practices in telemarketing sales, including:

 

   

Subjecting a portion of inbound calls to additional disclosure requirements;

 

   

Prohibiting the disclosure or receipt, for consideration, of unencrypted consumer account numbers for use in telemarketing;

 

   

Application of the TSR to charitable solicitations;

 

   

Additional disclosure statements relating to certain products or services, and certain types of offers, especially those involving negative option features;

 

   

Additional authorization requirements for payment methods that do not have consumer protections comparable to those available under the Electronic Funds Transfer Act or the Truth in Lending Act, or for telemarketing transactions involving pre-acquired account information and free-to-pay conversion offers;

 

   

Institution of a National “Do-Not-Call” Registry;

 

   

Guidelines on maintaining an internal “Do-Not-Call” list and honoring “Do-Not-Call” requests; and

 

   

Limitations on the use of predictive dialers for outbound calls.

In addition to the federal regulations, there are numerous state statutes and regulations governing telemarketing activities. These include restrictions on the methods and timing of telemarketing calls as well as disclosures required to be made during telemarketing calls. Some states also require that telemarketers register in the state before conducting telemarketing business in the state. Such registration can be time consuming and costly. Many states have an exemption for companies who are publicly traded or have securities listed on a national securities exchange. As a result of the Recapitalization and our securities being no longer publicly traded or listed on a national securities exchange, we will not be able to avail ourselves of the exemption from state telemarketer registration requirements applicable to companies with securities listed on a national securities exchange. While we believe that we can operate our business in compliance with the various states’ registration requirements, there can be no assurance that we will meet all states’ requirements in a timely manner or that compliance with all such requirements would not be costly or time consuming. Any failure on our part to comply

 

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with the registration requirements applicable to companies engaged in telemarketing activities could have an adverse impact on our business.

Several states also continue to operate their own state “Do-Not-Call” registries. Employees who are involved in certain types of sales activity, such as activity regarding insurance or mortgage loans, are required to be licensed by various state commissions or regulatory bodies and to comply with regulations enacted by those bodies.

We specifically train our marketing representatives to handle calls in an approved manner and believe we are in compliance in all material respects with all federal and state telemarketing regulations.

The industries that we serve are also subject to varying degrees of government regulation, including laws and regulations relating to contracting with the government and data security. We are subject to some of the laws and regulations associated with government contracting as a result of our contracts with our clients and also as a result of contracting directly with the United States government and its agencies. With respect to marketing scripts, we rely on our clients and their advisors to develop the scripts to be used by us in making consumer solicitation on behalf of our clients. We generally require our clients to indemnify us against claims and expenses arising with respect to the scripts and products provided by our clients.

Properties

Our corporate headquarters is located in Omaha, Nebraska. Our owned headquarters facility encompasses approximately 134,000 square feet of office space. We also own two facilities in Omaha, Nebraska totaling approximately 161,800 square feet, which is used primarily for administrative activities.

In our Communication Services segment, we own six contact centers located in San Antonio, Texas, El Paso, Texas and Pensacola, Florida, totaling approximately 216,000 square feet.

In our Communication Services segment, we lease contact centers and automated voice and data processing centers totaling approximately 1,306,000 square feet in 15 states and three foreign countries: Saanichton, Victoria, British Columbia, Canada; Mandaluyong City and Makati City, Philippines; and Portmore, Jamaica.

In our Conferencing Services segment, we own two operator-assisted conferencing centers totaling approximately 42,000 square feet and lease two others totaling approximately 79,000 square feet in the United States. Our Conferencing Services segment leases two operator-assisted conferencing centers in the United Kingdom and Australia totaling approximately 20,000 square feet, as well as approximately 225,000 square feet of office space for sales and administrative offices in 15 states and six foreign countries. Our Conferencing Services segment also owns two facilities in West Point, Georgia and Valley, Alabama totaling approximately 75,000 square feet used for administrative activities.

In our Receivables Management segment, we lease 17 contact centers totaling approximately 321,000 square feet in 11 states. Our Receivables Management segment also leases approximately 40,000 square feet of office space for administrative activities.

We believe that our facilities are adequate for our current requirements and that additional space will be available as required. See Note 6 of the Notes to Consolidated Financial Statements included elsewhere in this report for information regarding our lease obligations.

Legal Proceedings

From time to time, West and certain of our subsidiaries are subject to lawsuits and claims which arise out of our operations in the normal course of our business, some of which involve claims for damages that are

 

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substantial in amount. We believe, except for the items discussed below for which we are currently unable to predict the outcome, the disposition of claims currently pending will not have a material adverse effect on our financial position, results of operations or cash flows.

Sanford v. West Corporation et al ., No. GIC 805541, was filed February 13, 2003 in the San Diego County, California Superior Court. The original complaint alleged violations of the California Consumer Legal Remedies Act, Cal. Civ. Code §§ 1750 et seq., unlawful, fraudulent and unfair business practices in violation of Cal. Bus. & Prof. Code §§ 17200 et seq., untrue or misleading advertising in violation of Cal. Bus. & Prof. Code §§ 17500 et seq., and common law claims for conversion, unjust enrichment, fraud and deceit, and negligent misrepresentation, and sought monetary damages, including punitive damages, as well as restitution, injunctive relief and attorneys fees and costs. The complaint was brought on behalf of a purported class of persons in California who were sent a Memberworks, Inc. (“MWI”) membership kit in the mail, were charged for an MWI membership program, and were allegedly either customers of what the complaint contended was a joint venture between MWI and West Corporation or West Telemarketing Corporation (“WTC”) or wholesale customers of West Corporation or WTC. WTC and West Corporation filed a demurrer in the trial court on July 7, 2004. The court sustained the demurrer as to all causes of action in plaintiff’s complaint, with leave to amend. WTC and West Corporation received an amended complaint and filed a renewed demurrer. On January 24, 2005, the Court entered an order sustaining West Corporation and WTC’s demurrer with respect to five of the seven causes of action. On February 14, 2005, WTC and West Corporation filed a motion for judgment on the pleadings seeking a judgment as to the remaining claims. On April 26, 2005 the Court granted the motion without leave to amend. The Court also denied a motion to intervene filed on behalf of Lisa Blankenship and Vicky Berryman. The Court entered judgment in West Corporation’s and WTC’s favor on May 5, 2005. The plaintiff and proposed intervenors appealed the judgment and the order denying intervention. On June 30, 2006, the Fourth Appellate District Court of Appeals affirmed the entry of judgment against the original plaintiff, Patricia Sanford, but reversed the denial of the motion to intervene and remanded the case for the trial court to determine whether Berryman and Blankenship should be added as plaintiffs through intervention or amendment of the complaint.

On December 1, 2006, the trial court permitted Berryman and Blankenship to join the action pursuant to a second amended complaint which contained the same claims as Sanford’s original complaint. West Corporation and WTC filed a demurrer to the second amended complaint. The Court overruled that the demurrer, with one exception, on December 4, 2006. On February 16, 2007, after receiving briefing and hearing argument on class certification, the trial court certified a class consisting of “All persons in California, who, after calling defendants West Corporation and West Telemarketing Corporation (collectively “West” or “defendants”) to inquire about or purchase another product between September 1, 1998 through July 2, 2001, were; (a) sent a membership kit in the mail; (b) charged for a MWI membership program; and (c) customers of a joint venture between MWI and West or were wholesale customers of West (the “Class”). Not included in the Class are defendants and their officers, directors, employees, agents and/or affiliates.” West and WTC filed a Petition for Writ of Mandate and Request for Stay with the Fourth Appellate District Court of Appeals on March 19, 2007. Discovery in the case is ongoing. The trial court has indicated that it will schedule a trial in or around March 2008.

Patricia Sanford, the original plaintiff in the litigation described above, had previously filed a complaint on March 28, 2002 in the United States District Court for the Southern District of California, No. 02-cv-0601-H, against WTC and West Corporation and MWI alleging, among other things, claims under 39 U.S.C. § 3009. The federal court dismissed the federal claims against WTC and West Corporation and declined to exercise supplemental jurisdiction over the remaining state law claims. Plaintiff proceeded to arbitrate her claims with MWI and refiled her claims as to WTC and West Corporation in the Superior Court of San Diego County, California as described above. Plaintiff has contended that the order of dismissal in federal court was not a final order and that the federal case is still pending against West Corporation and WTC. The District Court on December 30, 2004 confirmed the arbitration award in the arbitration between plaintiff and MWI. Plaintiff filed a Notice of Appeal on January 28, 2005. Preston Smith and Rita Smith, whose motion to intervene was denied by the District Court, have also sought to appeal. WTC and West Corporation moved to dismiss the appeal and joined in a motion to dismiss the appeal filed by MWI. The motions to dismiss have been referred to the merits

 

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panel, and the case has been fully briefed in the Ninth Circuit Court of Appeals. On February 9, 2007, the Ninth Circuit heard oral argument on the appeal. WTC and West Corporation are currently unable to predict the outcome or reasonably estimate the possible loss, if any, or range of losses associated with the claims in the state and federal actions described above.

Brandy L. Ritt, et al. v. Billy Blanks Enterprises, et al. was filed in January 2001 in the Court of Common Pleas in Cuyahoga County, Ohio, against two of our clients. The suit, a purported class action, was amended for the third time in July 2001 and West Corporation was added as a defendant at that time. The suit, which seeks statutory, compensatory, and punitive damages as well as injunctive and other relief, alleges violations of various provisions of Ohio’s consumer protection laws, negligent misrepresentation, fraud, breach of contract, unjust enrichment and civil conspiracy in connection with the marketing of certain membership programs offered by our clients. On February 6, 2002, the court denied the plaintiffs’ motion for class certification. On July 21, 2003, the Ohio Court of Appeals reversed and remanded the case to the trial court for further proceedings. The plaintiffs filed a Fourth Amended Complaint naming West Telemarketing Corporation as an additional defendant and a renewed motion for class certification. One of the defendants, NCP Marketing Group (“NCP”), filed for bankruptcy and on July 12, 2004 removed the case to federal court. Plaintiffs filed a motion to remand the case back to state court. On August 30, 2005, the U.S. Bankruptcy Court for the District of Nevada remanded the case back to the state court in Cuyahoga County, Ohio. The Bankruptcy Court also approved a settlement between the named plaintiffs and NCP and two other defendants, Shape The Future International LLP and Integrity Global Marketing LLC. West Corporation and West Telemarketing Corporation filed motions for judgment on the pleadings and a motion for summary judgment. On March 28, 2006, the state court certified a class of Ohio residents. West and WTC have a notice of appeal from that decision, and plaintiffs cross-appealed. The appeal was briefed and was then argued on February 26, 2007. On April 12, 2007, the Court of Appeal affirmed in part and reversed in part the trial court’s Order. The Court of Appeal ordered certification of a class of: “All residents of Ohio who, from September 1, 1998 through July 2, 2001 (a) called a toll-free number, marketed by West and MWI, to purchase any Tae-Bo product, (b) purchased a Tae-Bo product; (c) subsequently were enrolled in an MWI membership program; and (d) were charged for the MWI membership on their credit/debit card. Not included in the class are defendants, and their officers, directors, employees, agents, and/or affiliates.” West and WTC intend to seek review of this ruling by the Ohio Supreme Court. On April 20, 2006, the trial court denied West and WTC’s motion for judgment on the pleadings. West and WTC’s summary judgment motion remains pending. The trial court has stayed all further action in the case pending resolution of the appeal. West Corporation and West Telemarketing Corporation are currently unable to predict the outcome or reasonably estimate the possible loss, if any, or range of losses associated with this claim.

Polygon Litigation. On July 31, 2006, Polygon Global Opportunity Master Fund (“Polygon”) commenced an action against West Corporation, captioned Polygon Global Opportunity Master Fund v. West Corporation, in the Court of Chancery of the State of Delaware, New Castle County. The complaint alleged, among other things, that Polygon had complied with the statutory demand requirements of Section 220, and that Polygon’s purposes for the inspection sought included: (i) valuing its West Corporation stock, (ii) evaluating whether members of West Corporation’s special committee or board breached their fiduciary duties in approving the Merger Agreement, in connection with our Recapitalization and (iii) communicating with other West Corporation stockholders regarding the vote on the Merger Agreement. The complaint sought an order compelling West to permit the inspection sought and an award of Polygon’s costs and expenses. A hearing was held on September 21, 2006. On October 12, 2006, the Court of Chancery of the State of Delaware dismissed the complaint and entered judgment in favor of West Corporation. On October 19, 2006, Polygon notified the Company that it was asserting appraisal rights with respect to 3,500,000 shares of the Company’s common stock outstanding prior to the Recapitalization. On February 9, 2007, Polygon filed a petition for appraisal in the Court of Chancery of the State of Delaware, New Castle County, seeking to have the Court determine the fair value of its shares and a monetary award of the fair value, along with interest and attorney’s fees and costs. Included in our accrued expenses at December 31, 2006, is a stock purchase obligation for approximately $170.6 million for this stock purchase obligation. We do not believe that any difference between this accrual and the final settlement will have a material effect on our financial position, results of operations or cash flows.

 

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MANAGEMENT

All of our directors serve until a successor is duly elected and qualified or until the earlier of his death, resignation or removal. Our executive officers are appointed and serve at the discretion of our board of directors. There are no family relationships between any of our directors or executive officers.

Board of Directors

Following the consummation of the Recapitalization, our board of directors is composed of five directors. Each director is elected to a term of three years. The following table sets forth information regarding the directors:

 

Name

   Age   

Position

Thomas B. Barker

   52    Chief Executive Officer and Director

Anthony J. DiNovi

   44    Director

Soren L. Oberg

   36    Director

Joshua L. Steiner

   41    Director

Jeff T. Swenson

   31    Director

The following biographies describe the business experience of each director:

Thomas B. Barker is the Chief Executive Officer of West Corporation. Mr. Barker joined West Corporation in 1991 as Executive Vice President of West Interactive Corporation. He was promoted to President and Chief Operating Officer of West Corporation in March 1995. He was promoted to President and Chief Executive Officer of the Company in September of 1998 and served as our President until January 2004. Mr. Barker has been a director of the Company since 1997.

Anthony J. DiNovi is a Co-President of Thomas H. Lee Partners. Mr. DiNovi joined Thomas H. Lee Partners in 1988. From 1984 to 1986, Mr. DiNovi worked at Wertheim Schroder & Co., Inc. in the Corporate Finance Department. Mr. DiNovi is a director of American Media Operations, Inc., Dunkin’ Brands, Inc., Michael Foods, Inc., Nortek, Inc., and Vertis, Inc. Mr. DiNovi has been a director of the Company since 2006.

Soren L. Oberg is a Managing Director of Thomas H. Lee Partners. Mr. Oberg worked at Thomas H. Lee Partners from 1993 to 1996 and rejoined in 1998. From 1992 to 1993, Mr. Oberg worked at Morgan Stanley & Co. Incorporated in the Merchant Banking Division. Mr. Oberg is a director of American Media Operations, Inc., Cumulus Media Partners, LLC, Grupo Corporativo Ono, S.A. and Vertis, Inc. Mr. Oberg has been a director of the Company since 2006.

Joshua L. Steiner is a Managing Principal of Quadrangle Group LLC. Prior to forming Quadrangle Group LLC in March 2000, Mr. Steiner was a Managing Director at Lazard Frères & Co. LLC, where he was a member of the firm’s Media and Communications Group. Prior to joining Lazard, Mr. Steiner was the Chief of Staff for the United States Department of the Treasury. Mr. Steiner is a director of Datanet Communications, Grupo Corporative, Pathfire, Inc., Prosiebenstat. 1 Media AG, Vizigar Holdings, Newsouth Communications, 375 Events LLC and numerous Quadrangle Group LLC affiliates. Mr. Steiner has been a director of the Company since 2006.

Jeff T. Swenson is a Vice President of Thomas H. Lee Partners. Mr. Swenson joined Thomas H. Lee Partners in 2004 after attending graduate business school. From 2000 to 2002, Mr. Swenson worked in the private equity group at Bain Capital, LLC. From 1998 to 2000, Mr. Swenson worked at Bain & Company. Mr. Swenson has been a director of the Company since 2006.

The members of the board of directors will not be separately compensated for their services as directors, other than reimbursement for out-of-pocket expenses incurred in connection with rendering such services.

 

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Executive Officers

Our executive officers are as follows:

 

Name

   Age   

Position

Thomas B. Barker

   52    Chief Executive Officer and Director

Nancee R. Berger

   46    President and Chief Operating Officer

J. Scott Etzler

   54    President — InterCall, Inc.

Jon R. Hanson

   40   

Executive Vice President — Administrative Services and Chief Administrative Officer

Robert E. Johnson

   42    Executive Vice President — Strategic Business Development

Michael E. Mazour

   47    President — West Asset Management, Inc.

Paul M. Mendlik

   53   

Executive Vice President — Finance, Chief Financial Officer and Treasurer

David C. Mussman

   46    Executive Vice President, General Counsel and Secretary

Steven M. Stangl

   48    President — Communication Services

Michael M. Sturgeon

   45    Executive Vice President — Sales and Marketing

Thomas B. Barker is the Chief Executive Officer of West Corporation. Mr. Barker joined West Corporation in 1991 as Executive Vice President of West Interactive Corporation. He was promoted to President and Chief Operating Officer of West Corporation in March 1995. He was promoted to President and Chief Executive Officer of the Company in September of 1998 and served as our President until January 2004.

Nancee R. Berger joined West Interactive Corporation in 1989 as Manager of Client Services. Ms. Berger was promoted to Vice President of West Interactive Corporation in May 1994. She was promoted to Executive Vice President of West Interactive Corporation in March 1995 and to President of West Interactive Corporation in October 1996. She was promoted to Chief Operating Officer in September 1998 and to President and Chief Operating Officer in January 2004.

J. Scott Etzler joined InterCall in June 1998 as President and Chief Operating Officer and was Chief Executive Officer from March 1999 until InterCall was acquired by us in May, 2003. Mr. Etzler has served as President of InterCall since the acquisition in May 2003.

Jon R. (Skip) Hanson joined us in 1991 as a Business Analyst. In October 1999, he was promoted to Chief Administrative Officer and Executive Vice President of Corporate Services.

Robert L. Johnson joined West Corporation in 2000 as Executive Vice President, Strategic Business Development. Prior to joining West he was a Vice President for first Data Corporation working in Corporate Development.

Michael E. Mazour joined West Telemarketing Corporation in 1987 as Director — Data Processing Operations. Mr. Mazour was promoted to Vice President, Information Services of West Telemarketing Corporation Outbound in 1990, to Senior Vice President, Client Operations in 1995, to Executive Vice President in 1997 and to President in January 2004. He was named President of West Business Services, LP in November 2004. In January 2006 he was named President of West Asset Management, Inc.

Paul M. Mendlik joined us in 2002 as Executive Vice President, Chief Financial Officer & Treasurer. Prior to joining us, he was a partner in the accounting firm of Deloitte & Touche LLP from 1984 to 2002.

David C. Mussman joined West Corporation in January 1999 as Vice President and General Counsel and was promoted to Executive Vice President in 2001. Prior to joining us he was a partner at the law firm of Erickson & Sederstrom.

 

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Steven M. Stangl joined West Interactive Corporation in 1993 as Controller. In 1998, Mr. Stangl was promoted to President of West Interactive Corporation. In January 2004, Mr. Stangl was promoted to President, Communication Services.

Michael M. Sturgeon joined us in 1991 as a National Account Manager for West Interactive Corporation. In September 1994, Mr. Sturgeon was promoted to Vice President of Sales and Marketing. In March 1997, Mr. Sturgeon was promoted to Executive Vice President, Sales and Marketing for the Company.

 

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EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

Recapitalization

On May 31, 2006, the Company entered into a merger agreement with Omaha Acquisition Corp., which was a Delaware corporation formed by private equity funds sponsored by the Sponsors, for the purpose of recapitalizing the Company. On October 24, 2006, the Recapitalization was completed whereupon Omaha Acquisition Corp. was merged with and into the Company, with the Company continuing as the surviving corporation. As of October 24, 2006, each share of our common stock issued and outstanding immediately prior to the effective time of the merger, other than shares held by Gary L. West and Mary E. West, certain shares held by certain members of management who elected to invest in the surviving corporation and those shares owned by stockholders who properly exercised appraisal rights, were canceled and automatically converted into the right to receive $48.75 per share in cash. Gary L. West and Mary E. West converted approximately 85% of their pre-merger common stock, or 33.8 million shares, into the right to receive $42.83 per share in cash, and approximately 15% of their pre-merger common stock, or approximately 5.8 million shares, into shares of the surviving corporation. Additionally, certain members of our senior management elected to invest in the surviving corporation by retaining approximately $30 million in pre-merger equity interests in the Company that were converted into equity interests in the surviving corporation following the consummation of the Recapitalization. Immediately following the Recapitalization, private equity funds sponsored by Thomas H. Lee Partners and Quadrangle owned approximately 72%, Gary L. West and Mary E. West owned approximately 25%, and those members of management who elected to retain equity interests in the Company owned approximately 3%, respectively.

In connection with the Recapitalization, certain executive officers were permitted to convert shares of our common stock, notional share units credited under our executive deferred compensation plan and certain vested options which they held prior to the Recapitalization into equity of the surviving corporation upon the consummation of the Recapitalization. The total aggregate equity participation by all of the executive officers was approximately $30 million, representing approximately 3.0% of our total equity. Of this amount, approximately $24.0 million was attributable to stock options held by the executive officers, approximately $2.0 million was attributable to owned equity and approximately $4.0 million was attributable to notional shares credited under the executive deferred compensation plan.

In exchange for each share of pre-merger common stock, the management participant received an equity strip, consisting of eight shares of Class A common stock and one share of Class L common stock (an “Equity Strip”). Further, executives who elected to rollover their vested pre-merger options received fully vested options exercisable for Equity Strips, subject to substantially the same terms and conditions of exercise governing the pre-merger option (the “Substitute Options”). The management participant may not exercise the Substitute Options separately with respect to the individual classes of shares represented in the Equity Strip. The number and exercise price of the Substitute Options differ based upon whether the pre-merger option was a non-qualified stock option or an incentive stock option. Only those pre-merger options that had vested prior to the Recapitalization and that had an expiration date after December 31, 2008 were eligible to be rolled over in connection with the Recapitalization.

Prior to the Recapitalization, the board of directors retained an independent executive compensation consultant to determine the appropriate compensation for executives and the appropriate mechanisms for retention of executives through the change in control resulting from the Recapitalization of the Company. The board determined that the success of the Recapitalization was dependent on the Company’s ability to motivate the senior management team to maintain and increase enterprise value during the transition period and ensure a smooth transition. The board also determined that much of the perceived value of the Company was linked to retaining the senior management team during the transition period and beyond the transition. In 2005, an independent third party conducted a comprehensive review of market practices for change in control policies and

 

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programs. Based upon that review the independent third party recommended three types of compensation programs: change in control agreements, transaction bonuses and retention bonuses. Based on the recommendations of the third-party consultant, the compensation committee approved such compensation arrangements.

At the time of the Recapitalization the Company entered into change in control agreements (“CIC Agreements”) with executive officers. The purpose of the CIC Agreements was to provide certainty to executives with respect to their positions with the Company following a change in control and to assure the Company and its shareholders that they have the continued dedication and full attention of these key employees after the Recapitalization. Under the CIC Agreements, if the participant’s employment with us terminates during the two-year period following the consummation of the Recapitalization for any reason other than cause, resignation without good reason, death or disability (as such terms are defined in the CIC Agreements), then the participant is entitled to his or her unpaid base salary and bonus, a prorated target bonus for the year in which the termination occurs, certain lump sum payments of up to three times the executive’s salary and bonus in effect immediately prior to the change in control, continued benefit coverage for the participant and his or her dependents for a period of time not to exceed three years, accelerated vesting of any long-term incentive award held by the participant, with any applicable performance goals deemed satisfied at the target level, and outplacement assistance for a period of time not to exceed twelve months. The severance benefits under the CIC Agreements are in lieu of any other severance otherwise payable under our existing severance plans or policies and any consulting compensation paid under the employee’s existing employment agreement, but such employment agreement, including the confidentiality, noncompetition and developments covenants therein, otherwise remains in effect. Please see 2006 Potential Payments Upon Termination or Change in Control for further details on the amounts to be received by the Company’s named executive officers under the CIC Agreements. In addition, if the payments of any amounts under the CIC Agreements would cause the executive to be subject to certain parachute tax penalties imposed by the Internal Revenue Code, the Company has agreed to either reduce the amount of those payments to a level at which the tax penalties no longer apply or, if that reduction would equal more than 10% of the after-tax amounts payable to the executive under the CIC Agreement, to provide the executive with a gross-up payment in an amount equal to the tax penalty and any taxes on the gross-up payment.

Certain of our executive officers and other key employees earned a transaction incentive bonus if the participant continued in employment through the consummation of the Recapitalization. The transaction bonuses paid to the Company’s named executive officers are set forth in the 2006 All Other Compensation Table.

Certain of our executive officers, including all those covered by the CIC Agreements described above, were offered retention bonuses in connection with the consummation of the Recapitalization. If a participant continues employment through the one-year anniversary of the consummation of the Recapitalization, the participant will be eligible for a retention bonus in an amount generally equal to 100% of the participant’s annual cash compensation (2005 base salary and target bonus). Fifty percent of such retention bonus will be paid within three business days after the six-month anniversary of the consummation of the Recapitalization and the remainder will be paid within three business days after the one-year anniversary of the consummation of the Recapitalization. If the participant’s employment is terminated by us without cause prior to the payment of the full amount of the retention bonus, then the employee will receive the unpaid portion of the retention bonus in a lump sum cash payment.

Objectives

The objectives of the Company’s compensation plans (“Plans”) for executives and staff are: 1) recruit and retain the most talented individuals available to meet or exceed the Company’s business objectives and 2) provide compensation and benefits that motivate talented individuals to perform at the level necessary to meet or exceed the Company’s business objectives.

 

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The Plans are designed to reward individuals for achievement of objective financial goals related to the executives’ scope of responsibility that, in the aggregate, comprise the Company’s business objectives. The objective financial goals vary among reporting segments and among departments within those segments as well as the corporate functions. The purpose of the Plans is to tailor the reward of the Plans to the particular objective financial goals that the individual can most control and those goals that, if achieved, will have the greatest positive impact on the Company’s business objectives.

Each year objective financial goals are recommended by executive management to the board of directors. Based upon the goals and objectives of the Company, approved by the board of directors, the compensation committee approves objective financial goals for the executives and approves corresponding compensation elements designed to meet objective financial goals over three periods of time — short-term (quarterly), medium-term (annual) and long-term (one year or longer).

The Company determines annual cash salary and bonuses of executives based upon the recommendations by the executive management team, which considers, among other factors, the Company’s ability to replace the individual in the event of the executive’s departure, the size of the organization including number of employees, revenue and profitability under the executive’s control, the amount received by others in relatively similar positions, title, and with respect to the Chief Executive Officer comparable compensation of other CEOs based upon public filings. The companies whose data we relied upon for comparing compensation of other CEOs included: Axciom Corporation, Advo, Inc., Alliance Data Systems Corporation, BEA Systems, Inc., Bisys Group, Inc., Catalina Marketing Corporation, Ceridian Corporation, Certegy Inc., ChoicePoint Inc., Compuware Corporation, Convergys Corporation, CSG Systems International, Inc., Equifax Inc., Fair Isaac Corporation, Harte-Hanks, Inc., Iron Mountain Incorporated, MPS Group, Inc., NCOG Group Inc., Perot Systems Corporation, Premiere Global Services Inc, Reynolds & Reynolds Co., Valassis Communications, Inc. and Viad Corp. Prior to the Recapitalization on October 24, 2006, the CEO made recommendations to the compensation committee based on the recommendations of the executive management team. Following the Recapitalization, the CEO will continue to rely upon the recommendation of the executive management team and will be a member of the compensation committee along with at least one other board member.

Compensation Elements

Short-Term

The Company primarily relies upon cash compensation to achieve quarterly objective financial goals. The Company believes that a market competitive annual salary, supplemented with performance-based cash bonuses, provides the basis for recruiting and retaining talented individuals that have the ability and motivation to achieve the Company’s stated short-term objective financial goals. In addition, the Company provides health and benefits plans and reimburses employees for approved business related expenses. Executives receive a portion of projected annual cash bonuses quarterly based upon meeting or exceeding objective financial goals for the quarter. The methodology for determining bonuses is set forth in the medium-term section of this report.

Neither the performance of the executive nor the executive’s achievement of performance goals in the prior year is considered in determining annual salary. Rather, annual salary is designed to provide adequate compensation to recruit and retain talented individuals that have the ability and desire to achieve the objective financial goals that ultimately determine medium and long-term compensation.

The Company provides discretionary perquisites from time to time for purpose of motivating employees, creating goodwill with employees and rewarding employees for achievements that may not be measurable financial objectives. The Company does not believe perquisites should be a significant element of any compensation plan. In 2006 aggregate perquisites for all named executives was limited to $7,200.

 

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Medium-Term

The Company primarily relies upon cash bonuses, paid quarterly and annually based upon annual objective financial goals, to compensate employees for medium-term performance. The Company has designed its cash bonuses to represent a significant portion of the targeted total annual cash compensation of its named executive officers. The Company pays performance-based bonuses only upon the achievement of pre-determined objective financial goals. The Company pays a portion of the projected annual cash bonuses on a quarterly basis to executives provided the pre-determined objective financial goals were met for that quarter. It is the Company’s intent to reward the early achievement of the pro-rata portion of the annual objective financial goals. For corporate based plans, the Company retains 25% of quarterly bonuses, and pays such holdback in February of the following year provided the year-end objective financial goals are met. In the event the annual objective financial goals are not met and the Company paid a portion of the bonus, the Company retains the option to offset any quarterly bonus paid against future earned bonuses.

The objective financial goals are tailored to the business objectives of the business unit or units managed by the executive. The board approves the Company’s objective financial goals and then approves compensation packages with performance-based financial measurements that the board believes will adequately motivate the executives to meet those objectives. Objective financial measurements used by the Company include, but are not limited to, adjusted net income, pre-tax net income, net income, net operating income, Adjusted EBITDA, revenue, expenses, and days sales outstanding (“DSOs”). The specific incentive-based targets for the named executive officers are set forth below. The board approved the exclusion of recapitalization expenses, incremental interest expense incurred as a result of the debt to finance the Recapitalization and the inclusion of the post-acquisition operating results of acquired entities in determining whether the financial measurements have been satisfied.

Barker

Mr. Barker earned a performance bonus based on consolidated adjusted net income growth for the Company. Net income for each quarter was compared to the same quarter in the previous year. Non-cash expenses resulting from expensing options as a result of any amendments to FAS 123R were excluded from this calculation to determine Adjusted Net Income (“ANI”). Each one million dollar increase of ANI over 2005 ANI resulted in a $71,000 bonus. In the event ANI exceeded $169,000,000 for the year, Mr. Barker received $88,750 for every $1,000,000 of ANI above that threshold.

Berger

Ms. Berger earned a performance bonus based on consolidated adjusted net income growth for the Company. Net income for each quarter was compared to the same quarter in the previous year. Non-cash expenses resulting from expensing options as a result of any amendments to FASB 123R were excluded from this calculation to determine ANI. Each one million dollar increase of ANI over 2005 ANI resulted in a $57,000 bonus. In the event ANI exceeded $169,000,000 for the year, Ms. Berger received $71,250 for every $1,000,000 of ANI above that threshold.

Mendlik

Mr. Mendlik earned a performance bonus based on consolidated adjusted net income growth for the Company. Net income for each quarter was compared to the same quarter in the previous year. Non-cash expenses resulting from expensing options as a result of any amendments to FASB 123R were excluded from this calculation to determine ANI. Each one million dollar increase of ANI over 2005 ANI resulted in a $20,000 bonus. In the event ANI exceeded $169,000,000 for the year, Mr. Mendlik received $25,000 for every $1,000,000 of ANI above that threshold.

 

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Stangl

Mr. Stangl earned a performance bonus of up to $350,000 for achieving the pre-tax net income bonus objective for the Communication Services segment. The percent of bonus objective achieved was applied to the total bonus objective of $350,000 to determine the amount of the bonus. In addition Mr. Stangl was eligible to earn an additional bonus for net income in excess of the Communication Services segment objective. The bonus was calculated by multiplying the excess net income after corporate allocations times .02. Mr. Stangl also was eligible to earn an additional one-time bonus of $100,000 if the Company achieved its 2006 net income objective.

Etzler

Mr. Etzler earned a bonus based upon the following:

1) The Target Company Profitability Bonus was $350,000.

2) Each cumulative quarter’s net operating income (“Plan Year InterCall NOI”) for InterCall compared to the cumulative budgeted net operating income for InterCall for the same period (“InterCall NOI Budget”).

3) The percentage by which the cumulative Plan Year InterCall NOI exceeded (i.e., a positive percentage) or was less than (i.e., a negative percentage) the cumulative InterCall NOI Budget was the “InterCall Profit Variance Percentage.”

4) Each quarter’s cumulative revenue for InterCall (“Plan Year InterCall Revenue”) was compared to the cumulative budgeted revenue for InterCall for the same period (“InterCall Revenue Budget”).

5) The percentage by which the cumulative Plan Year InterCall Revenue exceeded (i.e., a positive percentage) or was less than (i.e., a negative percentage) the cumulative InterCall Revenue Budget was the “InterCall Revenue Variance Percentage.”

6) The sum of one hundred percentage points (100%), plus the product of (i) the average of InterCall Profit Variance Percentage and the InterCall Revenue Variance Percentage, multiplied by (ii) three (3), was the “InterCall Bonus Factor.”

7) The bonus amount paid was the product of the InterCall Bonus Factor and the Target InterCall Profitability Bonus.

8) The InterCall profitability bonus was capped at $550,000.

Mr. Etzler was also eligible to earn a one-time $25,000 bonus in the initial quarter in which end-of-quarter reported DSOs were 53 days or less. Mr. Etzler was also eligible to earn a one-time $25,000 bonus in the initial quarter in which end-of-quarter reported DSOs were 50 days or less. Mr. Etzler was also eligible to earn a one-time bonus of $100,000 if West Corporation achieved its 2006 Net Income objective.

Periodically executives earn discretionary bonuses to recognize results or significant efforts that may not be reflected in the financial measurements set forth above. In 2006, for example, the compensation committee approved bonuses for each of the named executive officers who were instrumental in carrying out the Recapitalization of the Company. The Company believes these discretionary bonuses are necessary when important events in the Company require significant time and effort by the executive in addition to the time and effort needed for meeting the Company’s target financial objectives. The Company does not believe discretionary bonuses should be a routine part of executive compensation.

Long-Term

The Company primarily relies upon equity-based plans to recruit talented individuals and to motivate them to meet or exceed the Company’s long-term business objectives. Prior to the consummation of the

 

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Recapitalization on October 24, 2006, the Company used stock options and, occasionally, restricted stock grants made pursuant to the Company’s 2006 Stock Incentive Plan (the “Old Plan”) for long-term compensation.

Equity Based Compensation Plans

Options and restricted stock granted under the Old Plan vested ratably over a four-year and five year period, respectively. In addition, such options and restricted stock vested upon a change in control. As a result of the Recapitalization on October 24, 2006, all grants under the Old Plan vested. The purpose of this vesting acceleration was twofold. First, the Company believed the equity grants were a valuable long-term retention tool and a strong incentive tool for increasing shareholder value. Second, the vesting upon a change in control was designed to reduce uncertainty and retain the executive team during a change in control process.

The Company allocated approximately 15% of the registered shares to long-term equity plans at the time of its initial public offering in December 1996. The Company increased that allocation with the approval of the public shareholders by an additional 7% over the next ten years. The compensation committee approved grants proposed by the CEO in December of the prior year. The grants were made in four equal installments on or about the first trading day of each quarter at the average of the high and low market price on that day. The total annual grants were targeted at 1-1.5% of the outstanding equity.

The grants were made in four equal installments for three reasons. First, the Company’s stock price had significant volatility. Issuing four equal grants on or about the first trading day of each quarter reduced market price risk and better reflected the value of the Company in the year of the grants. Second, vesting was spread over a longer period of time. After the first year, some grants vested each quarter. The Company believed the prospect of continually vesting shares was a significant tool for long-term retention. Third, the Company did not believe it was in the best interest of the public shareholders to have large portions of equity held by insiders vest and potentially be sold in the market on one day.

The Company determined the size of grants based upon the CEO’s determination of the overall value of the executive to the Company, including the following factors: 1) the executive’s expected impact on the Company’s financial objectives; 2) recommendations of other senior management; 3) the Company’s ability to replace the executive in the event of the executive’s departure; 4) the size of the organization including number of employees, revenue and income under the executive’s control; 5) the amount received by others in relatively similar positions; and 6) title. The Company has not based, and does not expect to base, future grants on the value of prior grants.

The Old Plan was not intended to be a substitute for, or element of, regular annual compensation. The Company believed and continues to believe it is in the best interest of the shareholders to rely upon equity-based compensation plans to reward achievement of long-term shareholder objectives. The shareholders’ interests, in the form of share price, are directly tied to the executives’ interests through these plans.

Following the Recapitalization of the Company on October 24, 2006, the board of directors adopted the West Corporation 2006 Executive Incentive Plan (the “New Plan”). The New Plan is substantially similar to the Old Plan in that it provides for a variety of equity-based grants. The Company has allocated approximately 8% of the outstanding common stock for restricted stock grants and 3% of the outstanding common stock for option grants. The purposes of the New Plan are substantially similar to the Old Plan. The Old Plan was terminated on October 30, 2006. The Company continues to believe that the long-term business objectives of the Company and its shareholders are best achieved through the use of equity-based grants. Because there is no longer a public market for the Company’s equity, and thus no public price, the grants will no longer be made on a quarterly basis.

The Company also determined that senior executives will receive restricted stock grants rather than options. The Company’s decision to make a greater use of restricted stock as a long-term compensation mechanism was

 

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based, in part, by the ability of executives to file so-called “Section 83(b) elections” in connection with each restricted stock grant. A Section 83(b) election allows executives to pay federal income taxes on the value of the restricted stock grant at the time he or she receives that grant, rather than paying taxes when the restricted stock grant vests based on the then value of the stock. The election also allows the executive to begin the holding period for capital gains treatment at the time of grant rather than at the time of vesting. In addition, under the New Plan, the Company pays each executive who makes a Section 83(b) election a special bonus to cover, on an after tax basis, the federal income taxes that result from that election.

The Company will determine the size of the restricted stock grants under the New Plan based upon the CEO’s determination of the