<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, D.C.

                                    FORM 10-K

     [X] Annual report pursuant to Section 13 or 15(d) of the
         Securities Exchange Act of 1934

                   For the fiscal year ended DECEMBER 31, 1999

     [ ] Transition report pursuant to Section 13 or 15(d) of the Securities
                              Exchange Act of 1934

                     For the transition period from to _____
                         Commission file number: 0-20941

                         PRECISION RESPONSE CORPORATION
             (Exact name of Registrant as specified in its charter)

                  FLORIDA                                59-2194806
      (State or other jurisdiction of       (I.R.S. Employer Identification No.)
       incorporation or organization)

                  1505 N.W. 167TH STREET, MIAMI, FLORIDA 33169
               (Address of principal executive offices)(Zip code)

                                 (305) 816-4600
              (Registrant's telephone number, including area code)

        Securities registered pursuant to Section 12(b) of the Act: NONE

          Securities registered pursuant to Section 12(g) of the Act:
                          COMMON STOCK, $0.01 PAR VALUE
                                (Title of class)

         Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

         ON FEBRUARY 15, 2000, THE REGISTRANT HAD 21,852,231 OUTSTANDING SHARES
OF COMMON STOCK, $0.01 PAR VALUE, AND BASED UPON THE CLOSING MARKET PRICE OF THE
REGISTRANT'S COMMON STOCK ON THE NASDAQ NATIONAL MARKET ON SUCH DATE, THE
AGGREGATE MARKET VALUE OF THE SHARES OF COMMON STOCK HELD BY NON-AFFILIATES OF
THE REGISTRANT WAS APPROXIMATELY $253,800,000.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None.

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                                      INDEX


                                    PART I.

<TABLE>
<CAPTION>
ITEM NO.                                                                                                      PAGE

<S>   <C>                                                                                                        <C>
      1.             Business.....................................................................................3

      2.             Properties..................................................................................13

      3.             Legal Proceedings...........................................................................14

      4.             Submission of Matters to a Vote of Security-Holders.........................................15

                                                   PART II.

      5.             Market for the Registrant's Common Equity and Related Stockholder Matters...................16

      6.             Selected Financial Data.....................................................................18

      7.             Management's Discussion and Analysis of Financial Condition and Results of
                     Operations..................................................................................21

      7A.            Quantitative and Qualitative Disclosures About Market Risk..................................33

      8.             Financial Statements and Supplementary Data.................................................34

      9.             Changes in and Disagreements With Accountants on Accounting and Financial Disclosure........34

                                                   PART III.

     10.             Directors and Executive Officers of the Registrant..........................................34

     11.             Executive Compensation......................................................................37

     12.             Security Ownership of Certain Beneficial Owners and Management..............................48

     13.             Certain Relationships and Related Transactions..............................................51

                                                   PART IV.

     14.             Exhibits, Financial Statement Schedules and Reports on Form 8-K.............................53



</TABLE>



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                                     PART I.

ITEM 1.       BUSINESS

GENERAL

         Precision Response Corporation ("PRC" or the "Company") was
incorporated in the state of Florida in 1982 as a fulfillment company and is
currently a leading full-service provider of outsourced customer care, utilizing
a fully-integrated mix of traditional call center and e-commerce customer care
solutions and services to large corporations and high-growth Internet-focused
companies. Through the integration of its teleservicing, e-commerce customer
care services, information technology, which includes database marketing and
management ("Information Technology"), and fulfillment capabilities, the Company
is able to offer a total customer relationship solution to meet its clients'
needs. The Company believes that its integrated approach, combined with its
sophisticated use of advanced technologies, provides a distinct competitive
advantage in attracting and retaining clients seeking cost-effective ways to
contact and service prospective and existing customers.

         During 1999, the Company continued its strategic initiatives to
capitalize on the extraordinary growth of Internet commerce by integrating
Internet technologies with current PRC products and services to, in effect,
create multimedia "customer interaction centers." These multimedia centers are
support facilities in which customer care associates interact with customers
over multiple communications channels including telephone, e-mail, web
collaboration and online chat/IP telephony. Internet customer care is a natural
extension of the Company's traditional products and services that enable a full
spectrum of Customer Relationship Management capabilities for PRC clients.
Customer Relationship Management is the practice of identifying, attracting and
retaining the best customers to generate profitable revenue growth. Utilizing
these capabilities in order to assist clients to improve the utility of
e-commerce applications is a significant business opportunity for the Company.
In February 1999, the Company launched prcnetcare.com, Inc. ("prcnetcare.com")
to capitalize on the expected customer service opportunities related to the
extraordinary growth of e-commerce.

         The Company is focused on attracting clients that have significant
customer service needs including database design and management and substantial
ongoing teleservicing and e-commerce customer care. The Company believes that
the long-term outlook for outsourced customer service and marketing is favorable
due to the expected steady growth in out-sourcing of traditional telephone-based
customer care. In addition, the Company believes that the opportunities
presented by the explosive growth of business over the Internet, and
particularly of e-commerce, present prcnetcare.com with significant prospects
for growth. Longer-term, the Company expects to drive revenue growth by
continuing to cross-sell PRC's traditional teleservices to prcnetcare.com's
Internet clients and providing additional services to e-commerce companies that
take advantage of PRC's existing capabilities.

RECENT DEVELOPMENTS

         On January 12, 2000, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") by and among the Company, USA Networks, Inc.
("USAi"), a Delaware corporation, and P Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of USAi ("Newco"), pursuant to which
Newco would be merged with and into the Company, with the Company remaining as
the surviving corporation in the merger. Upon and subject to consummation of the
merger, each share of PRC common stock would be converted into 1.08 shares of
USAi common stock (taking into account the two-for-one stock split of USAi
common stock to be effected on February 24, 2000 as to USAi common shareholders
as of February 10, 2000). Consummation of the Merger Agreement is subject to
certain terms, conditions and termination rights specified in the Merger



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Agreement. In particular, the Company may elect to terminate the Merger
Agreement if the volume-weighted average sales price per share of USAi common
stock on the twenty consecutive trading days ending on the second full trading
day prior to the Company's special meeting of shareholders (to be convened to
take action upon the Merger Agreement) is less than $18.52 (taking into account
the above-described USAi two-for-one stock split). If the Company makes such
election, USAi may, however, elect, in its sole discretion, to increase the
exchange ratio at that time so that PRC shareholders receive $20.00 worth of
USAi common stock for each share of PRC common stock, in which case the
Company's termination election will be deemed to be rescinded. In addition, the
merger is subject to approval or expiration or earlier termination of any
applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 and the approval of shareholders of the Company holding a majority of
outstanding shares of common stock, as well as other customary closing
conditions. See "Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K - Reports on Form 8-K."

         The merger is currently expected to be completed by June 2000. Upon
consummation of the merger, PRC would be integrated with USA Electronic Commerce
and Services ("ECS"), a USAi company that delivers integrated electronic
commerce solutions with a multi-platform business to business package including
teleservices, product fulfillment, customer care, systems development, database
marketing and integrated marketing products. The combined and centrally managed
teleservices operations of the Company and ECS, which includes the call center
operations of Home Shopping Network and Ticketmaster, is expected to have
approximately 10,000 workstations in approximately 40 call centers throughout
the world.

INDUSTRY OVERVIEW

         PRC believes that the long-term outlook for outsourced customer service
and marketing is favorable. The growth of the customer care industry is expected
to stem from: (i) steady growth in outsourcing of traditional telephone-based
customer care; (ii) strong growth in customer care needs across multiple
communication channels; and (iii) substantial growth in the demand for Internet
customer care.

         The Company expects that large companies increasingly will outsource
their customer care activities in order to focus internal resources on their
core competencies and to improve the quality and cost-effectiveness of their
customer service and marketing efforts. Timely and effective customer care
develops and strengthens customer loyalty which is critical for companies to
remain competitive. The Company also believes that organizations with superior
customer service and sophisticated advanced technology, such as PRC, will
particularly benefit from this outsourcing trend.

         The traditional telephone-based customer service and marketing industry
is quickly changing as multiple communication channels, such as fax, e-mail and
the Internet, become increasingly available. Today, customers of PRC's clients
are accessing information through these alternative methods as well as by the
telephone. As a result, large companies that outsource their customer care
activities are likely to demand an integrated customer care provider that can
deliver consistent support across multiple communication channels. In addition,
being able to provide an end-to-end solution is expected to be a key competitive
factor. An end-to-end solution includes the additional services of customer
relationship management, fulfillment and information technology consulting,
which research indicates is expected to potentially be a $60 billion market by
2003.

         In particular, the Internet has created a new market for customer care.
Research shows that 90% of on-line customers prefer human interaction. Research
also indicates that spending on Internet and e-commerce services, including
customer support services, is expected to grow to $22 billion by 2002. As
e-commerce grows, companies are seeing an increasing percentage of their revenue
becoming dependent on their ability to service customers over the Internet. PRC
believes Internet customer care represents a significant growth opportunity for
the Company.




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BUSINESS STRATEGY

         PRC's vision is to be the premier provider of interactive customer
communications to large corporations and high-growth Internet-focused companies.
The Company's strategy is to offer its clients high-quality, fully integrated
services that are customized to address each client's unique needs and to
improve the quality and cost-effectiveness of the client's customer service and
marketing operations. The Company seeks to implement this strategy through the
following:

      "ONE-STOP" SOLUTIONS THROUGH FULLY INTEGRATED SERVICES

         The Company's current integration of teleservices, Information
Technology, which includes database marketing and management, and fulfillment
services as part of a one-stop solution provides a cost-effective and efficient
method for its clients to manage their growing customer service and marketing
needs. In addition, the Company has integrated Internet communications as yet
another part of the one-stop solution. The Company is typically involved in all
stages of formulating, designing and implementing its clients' customer service
and marketing programs. PRC believes that this solution-oriented, value-added
approach to addressing its clients' needs distinguishes PRC from its competitors
and plays a vital role in the Company's ability to attract and retain clients.

      INFORMATION TECHNOLOGY CAPABILITIES

         Through the efforts of its Information Technology and Internet
applications groups, the Company is able to rapidly design, develop and
implement application software for each client's unique customer service and
marketing programs. PRC offers a wide array of services, including formulating,
designing and customizing teleservicing and electronic applications,
programming, and demographic and psychographic profiling. The Information
Technology group also integrates the Company's centrally managed wide area
network with the client's management information systems, thereby enabling
clients to access real-time program information and obtain comprehensive trend
analyses. As the needs of a client evolve, PRC's Information Technology
specialists work with the client to modify their programs.

      ADVANCED TECHNOLOGY

         The Company's sophisticated use of advanced technology enables it to
develop and deliver solutions to its clients' complex customer service and
marketing needs. PRC has developed a specialized component-based development
software strategy with related proprietary products for its traditional
teleservicing and fulfillment services. PRC has also developed InfiniteAccess,
Precision Resolution and other specialized software, which cost-effectively
utilize the Company's hardware and software capabilities. PRC's component-based
software approach allows the Company's Information Technology group to build and
to test customer interaction center applications much more quickly than with
conventional approaches. As a result, clients receive a customer interaction
center solution of superior quality.

      CAPITALIZE ON THE INTERNET OPPORTUNITY

         The Company believes that the opportunities presented by the explosive
growth of business over the Internet, and particularly of e-commerce, present
prcnetcare.com with outstanding prospects for growth. Longer-term, the Company
expects to drive revenue growth by continuing to cross-sell PRC's traditional
teleservice capabilities to prcnetcare.com's Internet clients and providing
additional services to e-commerce companies that take advantage of PRC's
existing capabilities.




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      LONG-TERM CLIENT RELATIONSHIPS

         The Company seeks to develop long-term client relationships by becoming
an integral part of its clients' overall customer service and marketing efforts.
Dedicated client commitment teams, headed by a general manager and comprised of
representatives of the teleservices, Internet applications, Information
Technology and fulfillment operating groups, are assigned to work closely with a
client to formulate, design, implement and operate the client's program.
Typically, a customer care associate is dedicated to one client, which
translates into customer loyalty and being an integral part of the client's
strategic team.

      STRONG COMMITMENT TO QUALITY

         PRC strives to achieve the highest quality standards in the industry.
Currently, approximately 98% of PRC's customer care associates are full-time,
which the Company believes results in greater stability and quality in its
workforce. The Company has a rigorous screening process for new hires. All new
associates participate in extensive classroom and on-the-job training programs
lasting up to six weeks. After training, each associate's performance is
monitored regularly through on-site supervision, remote and on-site call
monitoring, and on-line performance tracking. The Company's client commitment
team ensures that the Company fulfills its commitments in connection with each
client program in a timely manner. Because PRC's services involve direct contact
with its clients' customers, the Company's commitment to quality is critical to
its ability to attract and retain clients. PRC believes that the Company's
commitment to total quality continues to strengthen its ability to attract
quality clients and employees.

OPERATIONS OVERVIEW

         PRC's operations are organized to effectively provide one-stop
solutions for its clients' customer service and marketing needs.

         MANAGEMENT OF CLIENTS THROUGH GENERAL MANAGERS TEAMS. Each client
program is managed by a general manager who is dedicated to a single client or a
small group of clients and is the sole point of contact for all matters related
to the client's program. The general manager's responsibility includes full
operational, financial and client relations functions. The general manager
assembles a client commitment team consisting of members from the teleservices,
Internet applications, Information Technology and fulfillment operating groups,
which is assigned responsibility for that program. This team works with the
client to formulate and design a customer service or marketing program tailored
to achieve that client's objectives. In implementing the program, the team is
supported by the human resources department which carefully selects the customer
care associates for that particular program. In addition, the quality assurance
and client commitment teams monitor the program to ensure that it is carried out
in accordance with specifications. The Company believes that its integrated team
approach and solution-oriented focus provide PRC with a distinct competitive
advantage.

         PROGRAM FORMULATION AND DESIGN. PRC's client commitment teams work with
clients to formulate a customer service and marketing program suited to each
client's needs. The Information Technology group uses its substantial expertise
in rapid application development and systems integration to help clients more
effectively target marketing programs, resulting in higher response rates and
profitability, and to design customer service programs which capture information
useful in the client's customer retention programs and other marketing efforts.
PRC offers a wide array of services, including formulating, designing and
customizing database architecture, programming, demographic and psychographic
profiling and scripting.




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         PROGRAM IMPLEMENTATION. PRC's general manager teams work with the
teleservices, Internet applications, Information Technology and fulfillment
operating groups to implement the client's customer service and/or marketing
program.

         OPERATIONS. PRC's teleservicing operations allow clients to establish
and maintain direct communications with their customers. The Company can provide
a stand-alone teleservices application or support for an existing program. PRC
also specializes in business-to-consumer and business-to-business programs and
is experienced in a wide range of industries including telecommunications,
financial services, hospitality, transportation and e-commerce/Internet.
Teleservicing operations involve direct communication with the clients'
customers through inbound or outbound calls. In 1999, teleservicing activities
accounted for 89% of the Company's total revenues. Of this amount, 94% was from
inbound calls.

         In handling inbound calls, the Company's customer care associates
respond to a variety of customer requests, including inquiries, billing
questions, complaints, direct mail response and order processing and provide
technical support. The complexity of inbound calls ranges from simple one
dimensional data look-ups to more complex multi-system navigation and analysis
or sophisticated technical help and trouble shooting. PRC's automated call
distributors and digital telephony switches identify each inbound call by an
"800" number, then routes the call to a PRC customer care associate trained and
dedicated to that particular client's program.

         PRC's outbound services include conducting customer satisfaction and
preference surveys and cross-selling client products, as well as providing
proactive customer management with the goal of increased sales and enhanced
customer retention. Almost all outbound calls are in response to
customer-initiated inquiries or are made to a client's existing customers. The
Company's outbound call management system utilizes predictive dialers which
automatically dial the telephone numbers, determine if a live connection is made
and present connected calls to a customer care associate who has been trained
specifically for that client's program. The customer's name, along with other
information about the customer and the program script, simultaneously appear on
the customer care associate's computer screen. The associate then uses the
script to take an order for the client's product or service or to request
information to broaden the client's database.

         The Company's teleservicing operations are enhanced by the use of
universal workstation technology. Universal workstations allow the customer care
associate to handle either inbound or outbound calls as dictated by demand. From
the client's standpoint, universal workstations provide increased efficiencies
by allowing the customer care associate (for whose service the client generally
pays on an hourly basis) to be productive with either inbound or outbound calls.

         Information obtained during a customer call by the PRC customer care
associate is captured by the Company's database marketing and management
systems. This information is used by PRC to ensure high quality performance and
to provide fulfillment services, if necessary. PRC's database marketing and
management technology also enables the Company to seamlessly connect with its
clients' systems and thus deliver on-line, real-time program and customer
information.

         Fulfillment services include high-speed laser and electronic document
printing, lettershop, and automated mailing and pick and pack capabilities.
While fulfillment services represent a relatively small portion of the Company's
revenues, they enable the Company to support full-service customer care and
marketing programs by managing and fulfilling requests for literature, products
and other specialty items and by permitting the rapid distribution of client
marketing information and products. The fulfillment operation was upgraded in
1999 to include e-mail and web-based tracking and order-entry communications.




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         prcnetcare.com, a wholly owned subsidiary of PRC, is dedicated to
developing and providing a total customer care solution for companies conducting
business over the Internet. prcnetcare.com currently offers two lines of
products and services: InfiniteAccess and Precision Resolution.

         InfiniteAccess provides e-mail response and management services
("click-to-email"), live web-based customer care services ("click-to-talk",
"click-to-chat"), customer information and database management, fulfillment, and
hosting of Web application services to companies engaged in e-commerce and other
forms of Internet communications on a fully outsourced, turnkey basis. Such
products and services include:

         PRC SMART MAIL is an electronic messaging service which reduces the
cost and time of managing large volumes of e-mail by providing rapid and
appropriate responses to a client's customers.

         PRC WEB ON-LINE is a collaborative service that enables customer care
associates to simultaneously interact with clients' customers over the telephone
and the Web ("click-to-talk"). This product complements Web-based self-service
aids by providing live customer care associate assistance. This service also
provides "text chat" capabilities.

         PRC INTERNET FULFILLMENT SERVICE provides e-mail and Web-based
fulfillment processes to service e-commerce transactions or requests for
information.

         PRC HOST is a Web application hosting service and Web information
service which enables clients to conduct Web-based commerce without the
expenditure to establish and support Internet commerce technology infrastructure
and provides clients with Internet-related information and reports about their
business performance, including sales performance, customer feedback and market
analyses.

         InfiniteAccess is designed to change the growing customer care
challenges faced by companies into opportunities to capture and retain new
customers by providing the following solutions:

             REDUCE THE RATE OF ABANDONMENT OF ELECTRONIC SHOPPING CARTS AND
ENHANCE THE CONVERSION OF BROWSERS TO BUYERS. Confusion, unanswered questions
and rejected order forms cause customers to abandon shopping carts before
completing their on-line purchase. Live customer support from a customer care
associate via "click-to-talk" makes it easier for customers to have their
questions answered, which enhances the likelihood of shoppers completing the
on-line purchasing process.

           REDUCE THE AMOUNT OF TIME REQUIRED TO RESPOND TO E-MAIL. Companies
often take five or more days to respond to a customer's e-mail. The ability to
manage and process large volumes of e-mail, and therefore respond promptly,
increases the likelihood of a customer's repeat visit to a client's web-site.

             DATA CAPTURING. PRC has expertise and extensive experience in
capturing, analyzing and utilizing data from customer interactions.

             ENHANCES CUSTOMER RETENTION. Companies are committing large sums of
marketing dollars in order to attract customers who will return frequently and
become long-term sources of earnings. On-line customer service enhances the
on-line shopping experience, improves customer satisfaction and builds customer
loyalty.

             STREAMLINE FULFILLMENT PROCESSES. Fulfilling orders has proven
difficult and costly for many companies selling on the Web. PRC has a
sophisticated fulfillment operation that can be seamlessly integrated with
clients' Web stores.

         Precision Resolution is an error resolution and record standardization
system for information transferred electronically or over the Internet that
allows for the automated collection, resolution, monitoring and reporting of



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faulty records from highly transactional, relational databases on a real-time
basis. Precision Resolution provides solutions for several critical business
problems to both on-line and traditional companies. Some of these problems
include:

             REDUCING "ORDER FALLOUT." Many potential customers never purchase
products because errors or omission cause their on-line orders to be rejected by
the system. For example, missing or mismatched information can cause a whole
order to be rejected. Precision Resolution allows companies to capture these
order fallouts and to present these fallouts to a customer service
representative for resolution. This is valuable to clients since it enables them
to potentially capture revenues that would otherwise be lost.

             ERROR AND EXCEPTION PROCESSING AND RESOLUTION ON A TIMELY BASIS.
Precision Resolution's automated process systems help companies significantly
reduce the amount of time required to correct errors.

             MORE ACCURATE AND TIMELY INFORMATION FOR OUR CLIENTS' MANAGEMENT.
Data from the error resolution process is captured in a database and made
available for clients' management analysis by individual error types. By
compiling all the information in one database and automating summary outputs,
Precision Resolution allows clients' management to view summary information on
types of errors in order to efficiently correct overarching issues.

             LOWER OPERATING COSTS. Precision Resolution processes exceptions
and errors more cost effectively than companies can do on their own.

         QUALITY ASSURANCE. PRC maintains its strong commitment to quality
through its quality assurance and client commitment teams. Within each of PRC's
operating departments, the quality assurance teams monitor performance to ensure
that the Company's services are delivered at a level of quality that meets both
the Company's and the client's standards. The client commitment team functions
on a Company-wide basis to audit the achievement of the Company's commitments to
each client program.

         CLIENT REPORTING. Data derived from customer service and marketing
programs are a source of valuable information to PRC's clients in evaluating
ongoing programs and planning and designing future programs. PRC has developed
technologies and reporting procedures that effectively convert raw data gathered
during the course of the program into useful information upon which clients can
base strategic decisions and more effectively respond to customer needs and
inquiries. These technologies and reporting procedures allow clients to monitor
their teleservicing and Internet-based programs on-line, in real-time, to obtain
comprehensive trend analyses and modify program parameters as necessary. In
addition, PRC provides clients with customized reports in printed form,
electronic mail, computer-to-computer transmission, disk, tape and on-line.

TECHNOLOGY

         The Company's sophisticated use of advanced technology enables it to
develop and deliver customized solutions to meet its clients' complex customer
service and marketing needs across all media. PRC has developed a specialized
component-based software development strategy with related proprietary data
technology products for its traditional teleservicing and fulfillment services.
Component-based development refers to the tools and techniques employed by the
Information Technology group to assemble and/or modify software applications
from reusable software "parts" as opposed to building an application from
scratch. PRC has also developed InfiniteAccess, Precision Resolution and other
specialized software which cost-effectively utilize the Company's hardware
capabilities. PRC's component-based software approach allows the Company's
Information Technology group to build, test and rapidly deploy customer turnkey
solutions much more quickly than with conventional approaches. As a result,
clients receive a customer interaction center solution of superior quality.



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         The Company utilizes a UNIX-based open architecture system comprised of
multiple computer systems which, in conjunction with its rapid application tool
for user interface development, allows PRC to expand capacity from a PC-class
computer to a mainframe without rewriting software and provides flexibility in
designing applications tailored to the client's needs. In conjunction with the
Company's use of Oracle database applications and Windows NT applications, the
UNIX-based open architecture system permits the Company to seamlessly integrate
with many different types of traditional and e-commerce client systems and
allows an electronic link from each center's system to the Company's operational
headquarters, resulting in a centrally managed wide area network.

         The Company's multimedia centers are linked via advanced voice and data
communications systems. Each center utilizes telephony switches to route calls
and electronic inquiries directly to customer care associates located within the
network. Each desktop unit is equipped to handle any customer care function as
the computerized routing systems direct inquiries to a specific customer care
associate based on his/her individual expertise. This capability exists as a
result of a highly scalable, technically integrated platform that brings
together the resources of the premier providers of customer relationship
management technology.

         All PRC hardware is supported by an uninterruptable power supply
designed for protection against outages or any data loss due to power
variations, as well as a diesel generator to assure an uninterrupted power
source. The Company believes that the integrity of client information is
adequately protected by its data security system and its off-site disaster
back-up storage facilities.

MANAGEMENT INFORMATION SYSTEMS

         During 1999, PRC completed its implementation of an Enterprise Resource
Planning solution, which the Company designated as the PRISM Project. The PRISM
Project allows for all internal systems (including those related to billing,
payroll, client profitability management, human resource management, inventory
and purchasing management, and general ledger) to be fully integrated into a
common platform. The PRISM Project utilized both internal resources as well as
outside consultants to allow for a quick and efficient implementation. The PRISM
Project was implemented in phases over a two-year period with certain systems or
modules becoming functional at different points in the project timeframe. The
total cost of full implementation, including software, hardware, consulting fees
and internal resources, was approximately $12.8 million (see Note 5 - Property
and Equipment of the Notes to Consolidated Financial Statements).

PERSONNEL AND TRAINING

         PRC believes that its rigorous approach to hiring and training its
employees is a key component of its ability to provide high quality client and
customer service. The Company selects the locations for its multimedia centers
based on demographic studies in an attempt to ensure the availability of an
adequate and qualified pool of potential employees. Its hiring procedures are
designed to ensure that only the most qualified candidates are offered
employment. The Company offers extensive classroom and on-the-job training
programs for its personnel, including instruction on the businesses of PRC's
clients and proper customer service techniques. Each new customer care associate
receives up to six weeks of training, which provides the skills training he or
she needs to work on a specific, dedicated client program. The Company offers a
benefits package to full-time customer care associates after three to six months
of employment. The Company believes that its careful selection process and
development of its employees results in a high quality, dedicated work force.
The Company also provides a full array of management courses and materials
designed to ensure that its operations and administrative managers receive
continuous and up-to-date training using the latest trends and techniques.



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         As of December 31, 1999, the Company had approximately 6,550 full-time
and 95 part-time employees, of which approximately 5,200 of the full-time
employees and 90 of the part-time employees were customer care associates. The
Company believes that its percentage of full-time customer care associates is
high relative to that of its competitors, resulting in greater stability and
quality in its workforce. None of PRC's employees are subject to a collective
bargaining agreement. The Company considers its relations with its employees to
generally be good.

SALES AND MARKETING

         The Company's prcnetcare.com and traditional business sales teams are
supported by customer relationship management and e-commerce service
specialists, as well as the general managers and the Information Technology
organization. The account team approach - sales, general managers and
Information Technology specialists - allows the Company to focus on both new and
existing clients as part of its growth plan. The Company believes its reputation
for providing high quality, one-stop solutions has enabled it to obtain new
business through requests for proposals, client referrals and cross-selling
opportunities to existing clients. In addition, the Company's sales team
actively pursues new business opportunities by identifying companies and
industries that are in need of or currently utilize outsourced customer service.
Working with the Information Technology and Internet applications groups, the
sales and marketing team is able to demonstrate to prospective clients the
Company's rapid application development and effective systems integration
capabilities to meet a proposed program's objectives. After an initial request
for proposal is completed, the account team will perform a service and systems
need analysis to determine the feasibility of the opportunity and staffing
assignment. At the conclusion of a successful sales process, a service agreement
is executed between the Company and the client.

CLIENT RELATIONSHIPS

         The Company seeks to develop and maintain long-term relationships with
its clients. PRC targets those companies which have the potential for generating
recurring revenues due to the magnitude of their customer service departments or
marketing programs. The Company believes that its clients view PRC as a
strategic partner and a valuable resource in formulating, designing and
implementing their customer service and marketing programs. During 1999, the
Company provided its services to approximately 60 clients in industries such as
telecommunications, financial services, hospitality, transportation and
e-commerce/Internet. The Company's ongoing clients include several business
units of AT&T, American Express, British Airways, DIRECTV, Ryder TRS and
priceline.com's WebHouse Club. The Company's five largest clients accounted for
69% of its total gross revenues for 1999. Revenues generated by the various
business units of AT&T, the Company's largest client, accounted for 42% of gross
revenues for 1999. Besides AT&T, no other client accounted for 10% or more of
total gross revenues for 1999.

         Although the Company enters into written contracts with its clients,
generally either party retains the right to terminate on varying periods of
prior notice. The contracts do not assure the Company will generate a specific
level of revenue or designate the Company as the exclusive service provider.
Contracts typically encompass all aspects of the Company's relationship with the
client, together with all applicable charges. The Company's teleservicing
charges are primarily based on a fixed hourly fee for dedicated service. The
Company has also generated teleservicing revenues under incentive-based
compensation agreements whereby the amount of revenue earned correlated to the
achievement of established targets. However, at the end of the third quarter of
1998 the Company made a strategic decision to exit a large incentive-based
outbound teleservices program due to margin constraints and to focus its efforts
on more predictable and profitable programs going forward. This incentive-based
program ended in the fourth quarter of 1998 and PRC's relationship with such
client ended in March 1999.




                                       11
<PAGE>   12



         Charges for database marketing and management services are based on an
hourly rate or on the volume of information stored. Charges for fulfillment
services are typically assessed on a transaction basis, with an additional
charge for warehousing products for clients. The Company assesses separate
charges for program design, development and implementation, database design and
management, training or retraining of personnel, processing and access fees and
account services, where appropriate.

         Billing charges assessed by the Company for Internet customer care and
electronic message servicing are based on hourly rates and on a transaction
basis, respectively, or a combination of charges thereof.

COMPETITION

         The interactive customer communications industry in which PRC operates
is very competitive and highly fragmented. PRC's competitors range in size from
very small firms offering specialized applications and short-term projects, to
large independent and international firms and the in-house operations of many
clients and potential clients. In-house interactive customer communications
organizations comprise the largest segment of the industry. The market includes
non-captive interactive customer service operations such as APAC TeleServices,
Convergys Corporation, RMH Teleservices, SITEL Corporation, Sykes Enterprises,
TeleSpectrum Worldwide, TeleTech Holdings and West TeleServices. In addition,
some of PRC's services also compete with other forms of direct marketing such as
mailhouses, television, radio and on-line services. PRC believes that the
principal competitive factors in its industry are a reputation for quality,
sales and marketing results, price, technological expertise and application, and
the ability to promptly provide clients with customized and creative solutions
and approaches to their customer service and marketing needs. The Company
believes that it competes favorably with other companies with respect to the
foregoing factors for large-scale, ongoing customer service and marketing
programs where the principal competitive factor is quality. The Company has not
generally chosen to compete for high-volume outbound marketing programs where
the principal competitive factor is price. Certain competitors may have
capabilities and resources greater than the Company's which might competitively
disadvantage PRC in bidding for very large programs.

GOVERNMENT REGULATION

         Telephone sales practices are regulated at both the Federal and state
level. The rules of the Federal Communications Commission (the "FCC") under the
Federal Telephone Consumer Protection Act of 1991 (the "TCPA") prohibit the
initiation of telephone solicitations to residential subscribers before 8:00
a.m. or after 9:00 p.m., local time, and prohibit the use of automated telephone
dialing equipment to call certain telephone numbers. In addition, the FCC rules
require telemarketers to have procedures in place to maintain lists of
residential customers who do not want to receive telephone solicitations and to
avoid making calls to those customers. The FCC rules also prohibit the use of
pre-recorded or artificial voice calls to consumers (with limited exceptions)
and advertising via telephone facsimile machines. The FCC, private individuals
and state attorneys general may seek both injunctive and monetary relief for
violation of these FCC rules. Monetary damages may be awarded for the greater of
actual damages or $1,500 per offense for willful violation of these rules.

         The Federal Telemarketing and Consumer Fraud and Abuse Prevention Act
of 1994 (the "TCFAPA") broadly authorizes the Federal Trade Commission (the
"FTC") to issue regulations prohibiting misrepresentation in telephone sales. In
August 1995, the FTC issued rules under the TCFAPA. These rules set forth
disclosure requirements for telemarketers when placing calls, prohibit deceptive
telemarketing acts or practices during solicitation, provide guidelines on
collecting payments by check and credit cards, provide restrictions on abusive
telephone solicitation practices and promulgate certain record keeping
requirements. The FTC, private individuals and state attorneys general may seek
both injunctive and monetary damages for violation of these FTC rules. Penalties
may range up to $10,000 for each intentional violation of these rules.




                                       12
<PAGE>   13


         The Company believes that it is in compliance with the TCPA and FCC
rules thereunder and with the FTC's rules under the TCFAPA. The Company trains
its customer care associates to comply with the FTC and FCC rules and programs
its call management system to avoid telephone calls during restricted hours or
to individuals maintained on PRC's restricted "do-not-call" list.

         Most states have enacted or are considering legislation to regulate
telephone solicitations. For example, some states require telemarketers to be
licensed by state regulatory agencies prior to soliciting purchasers within that
state. Additionally, telephone sales in certain states cannot be final unless a
written contract is delivered to and signed by the buyer and may be canceled
within three business days. At least one state also prohibits telemarketers from
requiring credit card payment and several other states require certain
telemarketers to obtain licenses and post bonds. Penalties for violation of
these state telemarketing regulations vary from state to state and include civil
as well as criminal penalties. From time to time, bills are introduced in
Congress which, if enacted, would regulate the use of credit information. In
addition, legislation could be introduced in the future with respect to the use
of the Internet, including regulations relating to its use in connection with
customer care and service. The Company cannot predict whether any of these types
of legislation will be enacted and what effect, if any, it would have on the
Company or its industry.

         The industries served by the Company are also subject to varying
degrees of government regulation. The Company works closely with its clients and
their advisors to develop the scripts to be used by PRC in connection with
making customer contacts. The Company generally requires its clients to
indemnify PRC against claims and expenses arising with respect to the Company's
services performed on its clients' behalf. The Company has never been held
responsible for regulatory noncompliance by a client.

ITEM 2.       PROPERTIES

         During 1999 the Company completed the transition of its traditional
call centers into customer interaction centers with multimedia capabilities. The
Company had eight such centers in operation as of December 31, 1999. One new
multimedia center was opened during 1999. Additionally, in connection with its
1998 restructuring and performance-enhancing initiatives plan, the Company, as
of December 31, 1999, had relocated all of the ongoing teleservicing programs
from one center (Margate-Coconut Creek) and maintained reduced workstation
capacity in another center (Jacksonville). As of December 31, 1999, the Company
leased and operated the following multimedia centers, all of which are located
in the state of Florida:

                                                   APPROXIMATE NUMBER OF
                                                       WORKSTATIONS
     LOCATION               DATE OPENED            AT DECEMBER 31, 1999
-------------------     --------------------     --------------------

    Miami (1)                July 1992                     360
   Miami Lakes             January 1996                    495
     Kendall                April 1996                     413
     Orlando                 June 1996                     629
     Margate              September 1996                   644
 Miami-Glades (2)          December 1996                 1,543
   Jacksonville            February 1997                   600
   East Kendall             August 1999                    166
                                                 --------------------
                                                         4,850
                                                  ===================



                                       13
<PAGE>   14


----------
(1)  The Company's principal executive offices are also currently
     located in this facility.
(2)  Certain administrative and operational departments are also
     located in this facility.

         The leases for these facilities would generally expire between 2004 and
2022 assuming the Company's exercise of all renewal options (see Note 7 - Lease
Commitments of the Notes to Consolidated Financial Statements). However, as a
result of the 1998 restructuring plan, as mentioned above, the Company will
terminate the Jacksonville facility lease agreement no later than the lease
option date in May 2002 (see Note 6 Credit Facilities and Long-Term Debt of the
Notes to Consolidated Financial Statements). The Company will also terminate the
Margate-Coconut Creek facility lease agreement no later than the lease option
date in May 2002. As noted above, the Margate-Coconut Creek facility was no
longer part of the Company's ongoing operations as of December 31, 1999 as the
Company had relocated all of the ongoing teleservicing programs from this center
in connection with the 1998 restructuring plan.

         As a result of growth beyond that which could be serviced from existing
sites, the Company will open two new multimedia centers during the first quarter
of 2000. One center is located in Sunrise, Florida, for which the Company
secured a mortgage during the second quarter of 1998 (see Note 6 - Credit
Facilities and Long-Term Debt of the Notes to Consolidated Financial
Statements). The second center, located in Cutler Ridge (Perrine), Florida, is a
subleased facility for which the lease agreement expires in 2007, with two
5-year renewal options. As of January 2000, the Sunrise facility was in
operation and the Cutler Ridge (Perrine) facility is currently expected to
commence operations in March 2000.

         On July 20, 1999, the Company executed a ten-year lease agreement with
Crossroads Business Park Associates, which includes options to extend the
initial term of the lease for an additional 15 years. The premises, located in
Plantation, Florida, will be the site of the Company's new principal corporate
offices. Certain terms of the new lease were amended on October 29, 1999, to
provide for additional space. The Company currently expects to fully occupy the
premises by the end of the first quarter of 2000. See Note 7 Lease Commitments
of the Notes to Consolidated Financial Statements.

         The Company's fulfillment operations are located in a separate leased
facility in Miami, Florida, consisting of 47,577 square feet, the lease for
which expires in 2001, with a 5-year renewal option. The Company also leases
additional facilities and certain other real property incidental to its
operations. The Company believes that its existing facilities and other real
property are suitable and adequate for its current operations, but additional
facilities may be required to support growth. The Company further believes that
suitable space will be available as needed to expand its business on
commercially reasonable terms.

ITEM 3.       LEGAL PROCEEDINGS

         On or about August 26, 1998 a lawsuit was filed in Connecticut,
captioned HENRY E. FREEMAN AND FREEMAN INDUSTRIAL ENTERPRISES CORPORATION v.
PRECISION RESPONSE CORPORATION, MARK J. GORDON AND DAVID L. EPSTEIN (Case No.
3:98-CV-1895-AVC (D. Conn.)). It is currently pending in the United States
District Court for the District of Connecticut. This lawsuit alleges that the
Company breached its contracts with the plaintiffs by allegedly failing to pay
all commissions relating to certain clients whom the plaintiffs allegedly claim
they procured for the Company. The Amended Complaint also contains claims of
breach of fiduciary duty, breach of covenant of good faith and fair dealing,
civil conspiracy, fraud/fraud in the inducement, intentional infliction of
emotional distress, negligent misrepresentation and violations of the
Connecticut Unfair Trade Practices Act. The plaintiffs seek actual, compensatory
and punitive damages, declaratory judgement that certain contracts are invalid
due to undue influence exercised upon plaintiffs, recission of such contracts,
an accounting and interest, costs and attorneys' fees. The Company has filed a
motion to dismiss the Amended Complaint for failure to state a cause of action,
which is currently pending before the Court.




                                       14
<PAGE>   15


         The case is currently in the discovery stage. The Company believes that
the plaintiffs' allegations are totally without merit and intends to defend the
lawsuit vigorously.

         On or about November 5, 1999 a lawsuit, captioned JOSEPH P. RIANO v.
PRECISION RESPONSE CORPORATION; PRCNETCARE.COM, INC.; MARK J. GORDON; AND DAVID
L. EPSTEIN (Case No. 99-25774 CA 10), was filed in the Circuit Court of the
Eleventh Judicial Circuit in and for Miami Dade-County, Florida. This lawsuit
alleges that the Company misappropriated the plaintiff's alleged trade secret.
The plaintiff asserts a statutory claim against all defendants under the Florida
Uniform Trade Secrets Act, Chapter 688, Florida Statutes. The plaintiff also
asserts a claim against PRC that it breached a contract entered into with the
plaintiff to keep certain information confidential. In addition, the plaintiff
asserts claims for conversion against all of the defendants and for conspiracy
to commit conversion against the individual defendants. The plaintiff also
asserts a claim for unjust enrichment against PRC and prcnetcare.com. The
plaintiff's complaint seeks an unspecified amount of compensatory damages,
including all profits earned by the defendants as a result of their conduct,
exemplary damages, attorneys' fees, interests and costs. The plaintiff also
seeks an accounting and entry of an injunction preventing PRC and prcnetcare.com
from continuing to misappropriate the plaintiff's alleged trade secret.

         On January 28, 2000, the court entered an order denying the defendants'
motion to dismiss, with the exception of conspiracy claims against the corporate
defendants, which were dismissed by agreement of counsel. An answer and
affirmative defenses have been filed on behalf of all defendants. The Company
believes that the plaintiff's allegations are totally without merit and intends
to defend the lawsuit vigorously.

ITEM 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS

         There were no matters submitted to a vote of the Company's
security-holders during the quarter ended December 31, 1999.



                                       15
<PAGE>   16


                                    PART II.

ITEM 5.       MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
              STOCKHOLDER MATTERS

COMMON STOCK INFORMATION

         Since the Company's initial public offering declared effective July 16,
1996 (the "Initial Public Offering"), the common stock of the Company has been
traded on The Nasdaq National Market under the symbol "PRRC." The following
table sets forth, for the calendar quarters indicated, the high and low closing
sale prices of the common stock as reported on The Nasdaq National Market during
such period:

                                                   HIGH            LOW
1999
    First quarter.............................   $  9-5/16       $  3-5/32
    Second quarter............................      7-3/4           3-1/4
    Third quarter.............................     14-5/8           5-7/16
    Fourth quarter............................     29-3/8          11-3/4

1998
    First quarter.............................   $ 11            $  7-5/8
    Second quarter............................      9-3/4           5-7/16
    Third quarter.............................      8-9/16          3-3/4
    Fourth quarter............................      8-7/8           4-1/4


As of February 15, 2000, there were 21,852,231 shares of the Company's common
stock outstanding held by approximately 56 holders of record. The Company
estimates, based upon information provided by the Company's transfer agent, that
it has approximately 2,500 beneficial owners of its common stock as of February
15, 2000.


DIVIDEND POLICY

         The Company currently intends to retain future earnings to finance its
growth and development and therefore does not anticipate paying any cash
dividends in the foreseeable future. In addition, the Company's revolving credit
facility prohibits the payment of cash dividends by the Company. Payment of any
future dividends will depend upon the future earnings and capital requirements
of the Company and other factors which the Company's Board of Directors
considers appropriate.

         Prior to the consummation of the Initial Public Offering, the Company's
Board of Directors declared a cash dividend (the "Dividend") to the then current
stockholders of the Company of approximately $5,243,000. The Dividend was equal
to the Company's estimate of its cumulative taxable income prior to the
Company's conversion from an S corporation to a C corporation immediately prior
to the consummation of the Initial Public Offering, to the extent such taxable
income had not previously been distributed. The Dividend was subject to
adjustment based upon actual cumulative taxable income as finally determined
based on the Company's final tax return as an S corporation. During the second
quarter of 1997, the Company's final tax return as an S corporation was
completed and filed. As a result, an additional $174,000 was paid to the
Company's existing shareholders prior to the Initial Public Offering as a final
distribution of the Company's accumulated taxable income prior to conversion to
C corporation status. No cash dividends were paid to the shareholders in 1998 or
1999. See Note 11 - Capital Stock of the Notes to Consolidated Financial
Statements.



                                       16
<PAGE>   17




RECENT SALES OF UNREGISTERED SECURITIES

         The Company did not issue or sell any unregistered securities during
the quarter ended December 31, 1999, although the Company granted the stock
options described below pursuant to the Company's Amended and Restated 1996
Incentive Stock Plan, as amended (the "Incentive Stock Plan"):

(i)            The Company granted options to purchase 93,500 shares of Common
               Stock to 50 employees at an exercise price of $12.59 per share.
               These options have a term of seven years and vest at the rate of
               20% on each of the first five anniversaries from the date of
               grant (November 3, 1999).

(ii)           The Company granted options to purchase 2,500 shares of Common
               Stock to an employee at an exercise price of $12.47 per share.
               These options have a term of seven years and vest at the rate of
               20% on each of the first five anniversaries from the date of
               grant (November 16, 1999).

(iii)          The Company granted options to purchase 25,000 shares of Common
               Stock to an independent contractor at an exercise price of $12.47
               per share. These options have a term of seven years and vest at
               the rate of 33%, 33% and 34%, respectively, on each of the first
               three anniversaries from the date of grant (November 16, 1999).

(iv)           The Company granted options to purchase 47,975 shares of Common
               Stock to each of two executive officers and 52,772 shares of
               Common Stock to another executive officer at an exercise price of
               $24.72 per share. These options have a term of seven years and
               vest at the rate of 33%, 33% and 34%, respectively, on each of
               the first three anniversaries from the date of grant (December
               31, 1999).

         The foregoing stock options were granted by the Company in reliance
upon the exemption from registration available under Section 4(2) of the
Securities Act of 1933, as amended.



                                       17
<PAGE>   18


ITEM 6.   SELECTED FINANCIAL DATA

         The following Selected Financial Data of the Company as of and for the
years-ended 1995 through 1999 has been derived (except for Other Data) from the
audited consolidated financial statements of the Company. Such data is qualified
by reference to and should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations," the Consolidated
Financial Statements (the "Financial Statements") and the Notes to Consolidated
Financial Statements included elsewhere in this report. See also Note 16 -
Unaudited Quarterly Financial Data of the Notes to Consolidated Financial
Statements for certain financial information presented on a quarterly basis for
1999 and 1998.

<TABLE>
<CAPTION>
                                                                      YEAR ENDED DECEMBER 31,
                                           ----------------------------------------------------------------------------
                                               1999           1998(7)         1997(7)           1996            1995
                                           -------------    ------------    -------------    ------------    ----------
                                                           (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                         <C>            <C>             <C>             <C>            <C>
SUMMARY OF OPERATIONS:
(FOR THE FISCAL YEAR):
REVENUES ................................   $    215,920   $    175,173    $    143,584    $     97,637   $     30,204
                                            ------------   ------------    ------------    ------------   ------------
OPERATING EXPENSES:
    Cost of services ...................         177,668        153,638         128,177          71,345         21,212
    Selling, general and
        administrative expenses ........          23,249         23,290          25,874          14,727          7,164
    Restructuring and asset
        impairment charges .............            --           13,583          11,591            --             --
                                            ------------   ------------    ------------    ------------   ------------
        Total operating expenses .......         200,917        190,511         165,642          86,072         28,376
                                            ============   ============    ============    ============   ============
        Operating income (loss) ........    $     15,003   $    (15,338)   $    (22,058)   $     11,565   $      1,828
                                            ============   ============    ============    ============   ============

NET INCOME (LOSS)(1) ...................    $      8,291   $    (10,189)   $    (13,066)   $      7,850   $      1,456
                                            ============   ============    ============    ============   ============

PROFORMA DATA (UNAUDITED)(1):
    Income before proforma
        income taxes ...................                                                   $     10,877   $      1,456
    Proforma provision for income
        taxes relating to corporation                                                             4,358            619
                                                                                           ------------   ------------
PROFORMA NET INCOME ....................                                                   $      6,519   $        837
                                                                                           ============   ============

COMMON STOCK DATA(2):
   Net income (loss) per common
        share(diluted) ..................   $       0.37   $      (0.47)   $      (0.61)

   Proforma net income per common
        share (diluted)(1)(3)(4)(5) .....                                                  $       0.36   $       0.05
   Book value per share(5) ..............   $       4.14   $       3.68    $       4.15    $       2.65   $       0.17
   Number of shares outstanding
        (at year-end)(5) ................     21,794,400     21,549,000      21,542,000      20,000,000     16,400,000
   Weighted average number of common
        shares outstanding (diluted)(3)..     22,445,156     21,547,981      21,392,814      18,171,000     16,527,061

FINANCIAL POSITION(2):
(AT YEAR-END):
    Working capital .....................   $     21,288   $     22,019    $     23,521    $     11,849   $      1,365
    Current ratio .......................           1.63X          1.65x           1.68x           1.40x          1.23x
    Property and equipment, net .........   $     88,109   $     71,414    $     63,301    $     42,034   $      5,284
    Total assets ........................   $    149,363   $    133,446    $    127,413    $     88,415   $     12,713
    Long-term obligations, less
        current maturities(6) ...........   $     23,425   $     16,916    $      3,493    $      4,190   $      3,924
    Shareholders' equity ................   $     90,283   $     79,359    $     89,440    $     52,950   $      2,816

OTHER DATA:
(AT YEAR-END):
    Number of workstations ..............          4,850          4,500           4,500           3,220            550
    Number of call renters ..............              8              8               8               8              2


</TABLE>




                                       18
<PAGE>   19

----------

(1)  Prior to the Company's Initial Public Offering on July 16, 1996, the
     Company was an S corporation and not subject to Federal and state corporate
     income taxes. On July 16, 1996, the Company revoked its S election and
     changed its tax status from an S corporation to a C corporation, recorded
     deferred income taxes totaling $90,000 and began providing for Federal and
     state corporate income taxes from and including that date. The summary of
     operations data reflects a proforma provision for income taxes as if the
     Company were subject to Federal and state corporate income taxes for all
     years. This proforma provision for income taxes is computed using a
     combined Federal and state tax rate of 37.6%.

(2)  Effective January 29, 1997 (the actual closing date was February 4, 1997),
     the Company and certain selling shareholders completed a second equity
     offering of 4,740,000 shares of common stock at an offering price of
     $35.125 per share (the "Second Equity Offering"). Of the 4,740,000 shares,
     1,500,000 shares were sold by the Company. See Note 2 - Public Offerings of
     the Notes to Consolidated Financial Statements.

(3)  The actual weighted average number of common shares outstanding for the
     years ended December 31, 1996 and 1995 were 18,013,115 and 16,400,000,
     respectively, after giving effect to the stock splits effected by way of
     share dividends discussed in note (5) below. However, as required by
     generally accepted accounting principles, the weighted average number of
     common shares outstanding has been increased by 127,061 shares (weighted
     for the applicable period), which shares are not actually outstanding. This
     number is equal to the number of shares which, when multiplied by $14.50
     per share (the price in the Initial Public Offering), would have been
     sufficient to replace the amount of the Dividend in excess of proforma
     earnings for the 12 months ended June 30, 1996.

(4)  Supplemental proforma net income per common share would have been $0.36 per
     share and $0.06 per share for the years ended December 31, 1996 and 1995,
     respectively, giving effect to the use of a portion of the net proceeds of
     the Initial Public Offering to repay the Company's bank borrowings at
     January 1, 1995, and assuming an increase in the weighted average number of
     common shares outstanding to 18,285,311 and 16,729,131, respectively (based
     on the price in the Initial Public Offering of $14.50 per share).

(5)  Includes a retroactive adjustment for stock splits effected by way of share
     dividends. On May 31, 1996, the Company declared a share dividend of an
     aggregate of 12,734,900 shares of common stock, $0.01 par value,
     immediately payable to its shareholders of record in order to effect the
     equivalent of a 127,350-for-1 stock split to increase the number of shares
     of common stock outstanding from 100 shares to 12,735,000 shares. On June
     20, 1996, the Company declared a share dividend of an aggregate total of
     3,665,000 shares of common stock, $0.01 par value, immediately payable to
     its shareholders of record in order to effect the equivalent of a
     1.287789556-for-1 stock split to increase the number of shares of common
     stock outstanding from 12,735,000 shares to 16,400,000 shares.

(6)  Long-term obligations for 1999 and 1998 consist of the outstanding balance
     of the Company's revolving credit facility as of that year then ended,
     mortgage loan payable to the lender on the revolving credit facility,
     capital lease obligations and other long-term obligations, all of which are
     described more fully in Note 6 - Credit Facilities and Long-Term Debt of
     the Notes to Consolidated Financial Statements. Long-term obligations for
     1997 and 1996 consist only of capital lease obligations. For the year-ended
     1995, long-term obligations consist of capital lease obligations, a note
     payable to a bank, certain installment loans and the outstanding balance of
     the Company's revolving credit loan as of that year then ended.



                                       19
<PAGE>   20



(7)  Includes special charges of $22.1 million and $26.2 million before taxes in
     1998 and 1997, respectively, described more fully in "Management's
     Discussion and Analysis of Financial Condition and Results of Operations -
     Overview and Basis of Presentation" and Note 3 - Restructuring and Other
     Non-Recurring Special Charges of the Notes to Consolidated Financial
     Statements.





                                       20
<PAGE>   21


ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

         The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with "Selected Financial
Data," the Financial Statements and the Notes to Consolidated Financial
Statements.

OVERVIEW AND BASIS OF PRESENTATION

         The Company is a full-service provider of outsourced customer care,
utilizing a fully-integrated mix of traditional call center and e-commerce
customer care solutions and services to large corporations and high-growth
Internet-focused companies. Through the integration of its teleservicing,
e-commerce customer care services, Information Technology, which includes
database marketing and management, and fulfillment capabilities, the Company is
able to offer a total customer relationship solution to meet its clients' needs.

         The Company's primary source of revenue is teleservicing activities
which are comprised of both inbound (customer-initiated) and outbound calls. The
majority of teleservicing revenues are derived from inbound calls, which
represented 94% of teleservicing revenues and 83% of total revenues in 1999 and
86% of teleservicing revenues and 68% of total revenues in 1998. Inbound
teleservicing consists of longer-term customer care and customer service
programs that tend to be more predictable than other teleservicing revenues.
Outbound teleservicing, as performed by the Company, is generally in response to
customer-initiated inquiries or a follow-up to an inbound call. Outbound
teleservicing may be driven by marketing programs, which change frequently
relative to inbound programs. As such, outbound teleservicing is subject to
greater variation in operating results (see "Fluctuations in Quarterly Results"
below).

         During 1999, the Company continued its strategic initiatives to
capitalize on the extraordinary growth of Internet commerce by integrating
Internet technologies with current PRC products and services to, in effect,
create multimedia customer interaction centers. In 1999, the Company continued
to make advances in the development and marketing of the Internet-based and
e-commerce services offered by PRCNETCARE.COM(SM), its Internet-based customer
service subsidiary. PRCNETCARE.COM is dedicated to developing and providing a
total customer care solution for companies conducting business over the
Internet. During 1999, its first year of operation, PRCNETCARE.COM generated
revenues of approximately $6.7 million. PRCNETCARE.COM currently offers two
lines of products and services: InfiniteAccess and Precision Resolution.

         The InfiniteAccess suite of products and services enable the Company to
integrate clients' Internet-based customer care and e-commerce activities with
the Company's existing teleservices, database marketing and management, and
fulfillment services. InfiniteAccess's current base of offerings includes: PRC
SmartMail, an automated electronic messaging response service; PRC Web On-Line,
a collaborative service enabling the Company's customer care associates to
simultaneously interact with clients' customers live over the telephone and the
Web; PRC Internet Fulfillment Service, an e-mail and Web-based fulfillment
process that supports e-commerce transactions or information requests; and PRC
Host, a Web application hosting service and Web information service that enables
clients to conduct e-commerce activities while limiting their technology
investments. The Company is currently committed to investing in and expanding
its Internet-based and e-commerce services and continues to make strategic
infrastructure and software investments as it seeks to leverage its existing
technological capabilities into a leading position in the emerging market for
interactive customer care services.

         Precision Resolution is an error resolution and record standardization
system for information transferred electronically or over the Internet that
allows for the automated collection, resolution, monitoring and reporting of
faulty records from highly transactional, relational databases on a real-time
basis. Precision Resolution provides solutions for several critical business
problems to both on-line and traditional companies.



                                       21
<PAGE>   22


         The Company offers a wide variety of Information Technology services
including formulating, designing and customizing teleservicing and electronic
applications, programming, and demographic and psychographic profiling. The
Company employs Information Technology specialists who design, develop and
manage applications for each client's unique customer service and marketing
programs.

         Fulfillment services include high-speed laser and electronic document
printing, lettershop and automated mailing and pick and pack capabilities. While
fulfillment services represent a relatively small portion of the Company's total
revenues, they enable the Company's to support full-service customer care and
marketing programs by managing and fulfilling requests for literature, products
and other specialty items and by permitting the rapid distribution of client
marketing information and products. The fulfillment operation was upgraded in
1999 to include e-mail and Web-based tracking and order-entry communications.

RESULTS OF OPERATIONS

         The following table sets forth certain statements of operations data,
as a percentage of revenues, for the years indicated (and includes the impact of
restructuring and non-recurring special charges during 1998 and 1997 as
discussed below):
<TABLE>
<CAPTION>

                                                                        1999            1998           1997
                                                                    -------------    -----------    -----------
<S>                                                                    <C>              <C>            <C>
SELECTED OPERATING RESULTS:
    Revenues.....................................................      100.0%           100.0%         100.0%
    Cost of services.............................................       82.3             87.7           89.3
                                                                    -------------    -----------    -----------
        Gross margin.............................................       17.7             12.3           10.7
    Selling, general and administrative expenses.................       10.8             13.3           18.0
    Restructuring and asset impairment charges...................        --               7.8            8.1
                                                                    -------------    -----------    -----------
        Operating income (loss)..................................        6.9%            (8.8)%        (15.4)%
                                                                    =============    ===========    ===========
</TABLE>

         During the third quarter of 1998, the Company performed an extensive
review of its operations and existing available workstation capacity. As a
result of this review, the Company initiated a restructuring and performance
enhancing initiatives plan, which centered on exiting the incentive-based
outbound teleservicing program, consolidating and making adjustments to certain
call centers' workstation capacity and replacing certain existing software
programs utilized in its call center operations with new customer interaction
software reflective of advances in customer care technology. In connection with
the Company's decision to exit the incentive-based outbound teleservicing
program and to make call center capacity adjustments, certain reductions in
overhead and administrative headcount were also made resulting in the
termination of nine employees. In adopting this plan, the Company recorded
non-recurring restructuring and other special charges of approximately $22.1
million in the third quarter of 1998 with an after-tax impact of $13.8 million.
The charges to earnings are included in the following categories in the
accompanying Consolidated Statements of Operations for the year ended December
31, 1998:

<TABLE>
<CAPTION>
                                                                                             AFTER-TAX PER
                                                                      PRE-TAX DOLLAR             SHARE
                                                                          AMOUNT               (DILUTED)
                                                                      (IN MILLIONS)              AMOUNT
                                                                    -------------------    ------------------
<S>                                                                         <C>                 <C>
 Restructuring and asset impairment charges...................            $ 13.6                 $ (0.39)
 Cost of services.............................................               2.3                   (0.07)
 Selling, general and administrative expenses.................               6.2                   (0.18)
                                                                    -------------------    ------------------
           Total..............................................            $ 22.1                 $ (0.64)
                                                                    ===================    ==================
</TABLE>



                                       22
<PAGE>   23

         During the third quarter of 1997, the Company initiated an extensive
and systematic review of its operations and cost structure in response to
inefficiencies primarily resulting from the addition of capacity and
infrastructure to accommodate a contract for its largest client that had been
delayed indefinitely and an across-the-board price reduction imposed by this
client. As a result of this review, the Company announced a major restructuring
and cost reduction plan designed to reduce its cost structure and adjust its
infrastructure to significantly improve operating efficiencies and performance
as the Company sought to shift its customer base to a more diversified
portfolio. In adopting this plan, the Company recorded non-recurring
restructuring and other special charges of approximately $26.2 million in the
third quarter of 1997 with an after-tax impact of $15.7 million. The charges to
earnings are included in the following categories in the accompanying
Consolidated Statements of Operations for the year ended December 31, 1997:

<TABLE>
<CAPTION>
                                                                                             AFTER-TAX PER
                                                                      PRE-TAX DOLLAR             SHARE
                                                                          AMOUNT                (DILUTED)
                                                                      (IN MILLIONS)              AMOUNT
                                                                    -------------------    ------------------
<S>                                                                        <C>                 <C>
 Restructuring and asset impairment charges...................            $ 11.6                $ (0.32)
 Cost of services.............................................               7.8                  (0.22)
 Selling, general and administrative expenses.................               6.8                  (0.19)
                                                                    -------------------    ------------------
           Total..............................................            $ 26.2                $ (0.73)
                                                                    ===================    ==================
</TABLE>

         See Note 3 - Restructuring and Other Non-Recurring Special Charges of
the Notes to Consolidated Financial Statements for further discussion of the
non-recurring special charges in 1998 and 1997.

1999 vs. 1998

REVENUES

         During 1999, revenues increased by $40.7 million to $215.9 million, or
23.3%, in comparison to the prior year. The principal components of revenues are
teleservicing activities (representing 88.8% of revenues in 1999), Information
Technology services (representing 8.3% of revenues in 1999) and fulfillment
services (representing 2.9% of revenues in 1999).

         The Company had eight multimedia customer interaction centers and
approximately 4,850 workstations in operation as of December 31, 1999, and eight
centers and approximately 4,500 workstations in operation as of December 31,
1998. In connection with its 1998 restructuring and performance-enhancing
initiatives plan, the Company, as of December 31, 1999, had relocated all of the
ongoing teleservicing programs from one center and maintained reduced
workstation capacity in another center. This relocation and elimination was
offset during 1999 by the expansion of workstations and capacity in existing
centers and the opening of a small multimedia customer interaction center. The
Company is continuing to expand workstation capacity in its existing sites to
meet current capacity needs. However, due to continued growth, the Company
opened an additional center in January 2000 at the facility that the Company
owns in Sunrise, Florida and expects to open one more center in March 2000. As
of December 31, 1999, the Company's workstation utilization rate was
approximately 91%.

         During 1999, the Company generated revenue from several new clients,
including several new business units of its largest client, a telecommunications
company, as well as a company that markets, distributes and produces bottled and
canned liquid nonalcoholic refreshments, a leader in the deployment of enhanced
telecommunications and interactive information systems, a major national
wireless service provider, and a financial services company. In addition, during
1999, PRCNETCARE.COM introduced new clients in the e-commerce/Internet industry,
including one of the nations largest Internet e-commerce companies. Overall, new
client business accounted for $23.0 million, or 10.6%, of revenues for 1999.


                                       23
<PAGE>   24



         Teleservicing activities accounted for the majority of the revenue
growth during 1999. Revenues from teleservicing activities in 1999 were $191.8
million, representing an increase of $51.5 million, or 36.7%, over the prior
year. Major factors contributing to the increase in teleservicing revenues were
the addition of several new programs for existing clients as well as the
addition of new clients as described above. Revenues from the Company's largest
client accounted for 42% of total revenues for 1999, down from 45% for 1998.
Besides the Company's largest client, no other client accounted for 10% or more
of total revenues in 1999. Generally, teleservicing revenues are earned on a
rate-per-hour basis. However, during 1998, approximately 10% of total revenues
were earned under an incentive-based compensation arrangement. As discussed
above, the Company made a strategic decision to exit this incentive-based
outbound teleservices program at the end of the third quarter of 1998 and ceased
earning revenues under such program during the fourth quarter of 1998.

         Revenues from Information Technology services for 1999 were $17.8
million, representing an increase of $1.7 million, or 10.6%, from 1998. The
increase was primarily attributable to Information Technology services provided
as a result of the addition of new clients and growth in the Company's
relationships with existing clients, partially offset by Information Technology
services provided to a certain client during the second quarter of 1998 compared
to no such services provided to this client in 1999.

         Revenues from Internet-based customer care services for 1999, in
connection with PRCNETCARE.COM'S first year of operations, were approximately
$6.7 million, and are included in revenues from teleservicing and Information
Technology services noted above. PRCNETCARE.COM continues to develop client
relationships with existing clients, as well as new Internet-focused companies.

         Revenues from fulfillment services for 1999 were $6.3 million,
representing a decrease of $12.5 million, or 66.5%, from the prior year.
Revenues from fulfillment services for 1998 included fulfillment services
provided in connection with the incentive-based outbound teleservices program
discussed above, which also included several fulfillment services.

COST OF SERVICES

         Cost of services generally include all direct and some indirect costs
incurred in connection with the Company's revenue-producing departments,
including, but not limited to, labor, telephone expenses directly related to
revenue-generating activities, equipment under operating leases used in the
customer interaction centers and fulfillment facility, direct overhead for all
such operational facilities, such as rent, security and insurance, and
depreciation and amortization of property and equipment used in operations. Cost
of services for the year ended December 31, 1999 were $177.7 million. Excluding
the impact of the restructuring and non-recurring special charges during 1998,
this represented an increase of $26.4 million, or 17.4%, over 1998, principally
as a result of the growth in operations. In addition, included in these amounts
are the cost of services related to PRCNETCARE.COM, which were approximately
$6.9 million for the year ended December 31, 1999.

         Excluding the impact of restructuring and non-recurring special
charges, the decrease in cost of services, as a percentage of revenues, from
86.4% in 1998 to 82.3% for 1999 is primarily attributable to the Company's
continued focus on increasing cost efficiencies and operating leverage during
1999, as well as the Company's continued improvement in the utilization of
workstation capacity. The decrease is also attributable to the Company's less
than satisfactory operating results generated by the incentive-based outbound
teleservices program in 1998. As described above, the Company exited the
incentive-based outbound teleservices program in the fourth quarter of 1998.



                                       24
<PAGE>   25


SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

         Selling, general and administrative expenses ("SG&A") generally include
the costs of central services the Company provides to support and manage its
operations, including senior management, sales and marketing, human resources,
finance and management information systems functions. SG&A for the year ended
December 31, 1999 were $23.2 million. Excluding the impact of restructuring and
non-recurring special charges during 1998, this represented an increase of $6.2
million, or 36.1%, over 1998. A portion of this increase is due to the Company's
continued investment in the development, sales and marketing of PRCNETCARE.COM,
resulting in SG&A of approximately $2.8 million during 1999. The remainder of
the increase is principally due to the Company's growth in operations, including
an increase in commissions, as well as the addition of certain management
positions during 1999 and annual salary increases.

         Excluding the impact of restructuring and non-recurring special charges
during 1998, SG&A, as a percentage of revenues, increased from 9.8% for 1998 to
10.8% for 1999. This increase is principally a result of the development, sales
and marketing of PRCNETCARE.COM, as well as an increase in commissions and the
addition of certain management positions during 1999.

INTEREST, NET

         Interest expense, net of interest income and capitalized interest, was
$1.1 million for 1999 compared to $789,000 for 1998. The increase in net
interest expense is a result of increased borrowings under the Company's
revolving credit facility in 1999, partially offset by the capitalization of
certain interest costs that were incurred as a result of borrowings used to
partially fund the Company's PRISM Project and the development of internal use
software. (See Note 5 - Property and Equipment of the Notes to Consolidated
Financial Statements.)

INCOME TAXES

         The Company had a net deferred tax asset of $7.5 million at December
31, 1999 and $12.4 million at December 31, 1998. The net deferred tax asset in
the amount of $7.5 million at December 31, 1999 is based upon expected
utilization of net operating loss carryforwards and reversal of certain
temporary differences. Although realization is not assured, the Company believes
it is more likely than not that all of the net deferred tax asset will be
realized. The amount of the deferred tax asset considered realizable, however,
could be reduced in the near term if estimates of future taxable income during
the carryforward period are reduced. The Company will continue to review the
assumptions used on a quarterly basis and make adjustments as appropriate.

NET INCOME (LOSS) AND NET INCOME (LOSS) PER SHARE

         For the fiscal year ended December 31, 1999, net income was $8.3
million compared to net income of $3.6 million, excluding the impact of
restructuring and non-recurring special charges, for the comparable period of
1998. Net income per common share for 1999 was $0.37, compared to net income per
common share of $0.17, excluding the impact of restructuring and non-recurring
special charges, for 1998. After giving effect to the impact of restructuring
and non-recurring special charges, net loss for 1998 was $10.2 million and net
loss per share for 1998 was $(0.47).



                                       25
<PAGE>   26





1998 vs. 1997

REVENUES

         During 1998, revenues increased by $31.6 million to $175.1 million, or
22%, in comparison to the prior year. The principal components of revenues are
teleservicing activities (representing 80% of revenues in 1998) and fulfillment
services (representing 11% of revenues in 1998), with the remaining 9% of 1998
revenues primarily represented by Information Technology services. The Company
had approximately 4,500 workstations in operation as of both December 31, 1998
and 1997. As of December 31, 1998 and 1997, the Company was operating at
approximately 78% and 55%, respectively, of full utilization of these
workstations.

         During 1998, the Company generated several new client opportunities.
The Company commenced both customer care services and use of its proprietary,
automated error resolution system, Precision Resolution, for a large east
coast-based utility company. The Company also began a database, telemarketing
and fulfillment services program targeting information technology professionals
for an international manufacturer and provider of computer products and
services.

         Teleservicing activities accounted for the majority of the revenue
growth during 1998 with an increase of $34.6 million, or 33%, to $140.3 million
in 1998. Major factors contributing to the increase in teleservicing revenues
were the addition of several new programs for existing clients as well as the
addition of new clients, principally in the utility, computer products and
services and financial services industries. Overall, new client business
accounted for $16.7 million, or 10%, of total revenues for 1998, while revenues
from the Company's largest client accounted for 45% of total revenues, up from
38% for 1997. Generally, teleservicing revenues are earned on a rate-per-hour
basis. However, during 1998 and 1997, approximately 10% of total revenues were
earned under incentive-based compensation agreements.

         Revenues from fulfillment services for 1998 were $18.8 million, an
increase of $4.1 million, or 28%, from the prior year. The increase is
reflective of fulfillment services provided in connection with the
incentive-based outbound teleservices program which was exited in the fourth
quarter of 1998.

         Revenues from Information Technology services for 1998 were $16.1
million, a decrease of $7.2 million, or 31%, from 1997. The decrease was
primarily attributable to the transfers of teleservicing-based application
software totaling $9.8 million in 1997, compared with no such transfers in 1998,
offset by an increase in traditional Information Technology services revenues in
1998. Transfers of teleservicing-based application software produce
substantially higher margins than other Information Technology services (which
involve the development of unique, individual customer-based applications). Due
to the substantially higher margins on these transfers, the Company's operating
results can be significantly impacted based upon the Company effecting these
transactions in any period.

COST OF SERVICES

         Cost of services, excluding the impact of restructuring and
non-recurring special charges, increased by $30.9 million, or 25.7%, to $151.3
million in 1998, principally as a result of the growth in operations. Including
the impact of the restructuring and non-recurring special charges of $2.3
million in 1998 and $7.8 million in 1997, cost of services increased by $25.5
million, or 19.9%, to $153.6 million in 1998.

         Excluding the impact of restructuring and non-recurring special
charges, the increase in cost of services, as a percentage of revenues, from
83.8% in 1997 to 86.4% in 1998 is primarily attributable to the Company's
expansion of its infrastructure in 1997 and the resultant excess capacity
together with lower than expected yield on incentive-based programs and higher



                                       26
<PAGE>   27


wage rates paid in call centers in strained labor markets in 1998. Approximately
1,280 workstations were added in two call centers opened during the first six
months of 1997. The opening of these new call centers, and the related increase
in workstation capacity, was carried out primarily in anticipation of providing
increased services to the Company's largest client. This increase in services
did not materialize leaving the Company with excess capacity and a higher than
desired fixed cost structure. Additionally, the Company's largest client
instituted an across-the-board price reduction in the third quarter of 1997.
Cost of services, as a percentage of revenues, including the impact of
restructuring and non-recurring special charges, decreased from 89.3% in 1997 to
87.7% in 1998.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

         SG&A, excluding the impact of restructuring and non-recurring special
charges, decreased $2.0 million, or 10.4%, to $17.1 million in 1998. The
decrease is indicative of the Company's successful implementation of its
cost-cutting initiatives associated with the restructuring plans announced in
the third quarters of 1997 and 1998 along with management's efforts to postpone,
or temporarily reduce, non-revenue-producing expenditures, whenever possible.
Including the impact of restructuring and non-recurring special charges of $6.2
million in 1998 and $6.8 million in 1997, SG&A decreased by $2.6 million, or
10.0%, to $23.3 million in 1998.

         As a percentage of revenues, excluding the impact of restructuring and
non-recurring special charges, SG&A decreased from 13.3% in 1997 to 9.8% in
1998. This decrease is a result of increased revenues during 1998 coupled with
the cost-cutting initiatives and the postponement or reduction of expenditures.
SG&A, as a percentage of revenues, including the impact of restructuring and
non-recurring special charges, decreased from 18.0% in 1997 to 13.3% in 1998.

INTEREST, NET

         Interest expense, net of interest income and capitalized interest, was
$789,000 for 1998 compared to net interest income of $282,000 for 1997. During
1997, the Company generated interest income from the investment of a portion of
the net proceeds from the Second Equity Offering and had an absence of
borrowings under its revolving credit facility, while during 1998 the Company
incurred interest charges from borrowings on its revolving credit facility.

INCOME TAXES

         The Company had a deferred tax asset of $12.4 million at December 31,
1998 and $6.4 million at December 31, 1997. The net deferred tax asset at
December 31, 1998 is based upon expected utilization of net operating loss
carryforwards and reversal of certain temporary differences. Although
realization is not assured, the Company believes it is more likely than not that
all of the net deferred tax asset will be realized.

NET LOSS AND NET LOSS PER SHARE

         For the fiscal year ended December 31, 1998, the net loss was $10.2
million compared to the net loss of $13.1 million for the comparable period of
1997, including the impact of restructuring and non-recurring special charges as
set forth in the next paragraph. The net loss per share for 1998 was $0.47,
compared to the net loss per share of $0.61 in 1997, including the impact of
restructuring and non-recurring special charges as set forth in the next
paragraph.

         The net loss and net loss per share amounts associated with the
restructuring and non-recurring special charges were $13.8 million and $0.64,
respectively, for the fiscal year ended December 31, 1998, and $15.7 million and
$0.73, respectively, for the fiscal year ended December 31, 1997. See Note
3-Restructuring and Other Non-Recurring Special Charges of the Notes to
Consolidated Financial Statements for further discussion of the restructuring
and non-recurring special charges.




                                       27
<PAGE>   28


         For the fiscal year ended December 31, 1998, excluding the impact of
restructuring and non-recurring special charges, net income was $3.6 million
compared to net income of $2.6 million for the comparable period of 1997.
Excluding the impact of restructuring and non-recurring special charges, net
income per share for 1998 was $0.17 compared to net income per share of $0.12
for 1997.

LIQUIDITY AND CAPITAL RESOURCES

         During 1999 and 1998, the Company funded its operations and capital
expenditures primarily through cash flows from operations and bank borrowings.

         On March 2, 1998, the Company entered into a three-year, $25.0 million
revolving credit facility, replacing its then existing $15.0 million revolving
credit facility. Effective June 30, 1999, the $25.0 million revolving credit
facility was amended to increase the amount available under the credit facility
to $35.0 million through January 31, 2000. The $25.0 million revolving credit
facility was further amended effective December 31, 1999 (the "Credit Facility")
to extend the $35.0 million amount available through February 29, 2000. In
addition, the amount available under the Credit Facility will be increased to
$50.0 million for the period of time between March 1, 2000 and June 30, 2000,
subject to certain limitations (including a borrowing base limitation) and
satisfactory completion of the lender's audit of the Company's books and records
and operations. Effective as of July 1, 2000, the amount available under the
Credit Facility reverts back to $25.0 million. The December 31, 1999 amendment
also extended the maturity date of the Credit Facility to June 30, 2001. For a
further discussion of the terms of the Credit Facility, see Note 6 - Credit
Facility and Long-Term Debt of the Notes to Consolidated Financial Statements.

         The Company also has secured a mortgage, as amended effective December
31, 1999, with the lender on its Credit Facility in connection with the
acquisition of a property (land and existing building) located in Sunrise,
Florida, which in January 2000 was opened as a customer interaction center by
the Company. The mortgage loan is for $5.1 million, of which $4.0 million was
advanced at closing in 1998. The remaining $1.1 million available under the loan
is subject to the Company's completion of interior improvements to the property
by March 2, 2000. For a further discussion of the terms of the amended mortgage
loan, see Note 6 Credit Facility and Long-Term Debt of the Notes to Consolidated
Financial Statements.

         At December 31, 1999, the Company had cash and cash equivalents of $2.1
million and total long-term obligations (including current maturities thereof)
of $25.1 million. Net cash provided by operating activities was $26.6 million
for 1999, while $3.0 million of net cash was provided by operating activities in
1998 and $8.7 million of net cash was used in operating activities in 1997. The
increase in net cash provided by operating activities between 1999 and 1998 was
primarily attributable to the increase in net income in 1999 before non-cash
charges, a significantly lower change in accounts receivable balances in 1999 as
compared to 1998 as a result of increased collection efforts and the
implementation of an integrated billing system, and improved capacity
utilization, partially offset by the Company's receipt of income tax refunds in
1998. The decrease in cash used in operating activities from 1997 to 1998 was
primarily attributable to the Company's receipt of income tax refunds and the
increase in net income after non-cash charges (depreciation and amortization,
provision for bad debts and sales allowances, restructuring and asset impairment
charges, and deferred income taxes) in 1998 partially offset by the Company's
investment in working capital.

         The Company's working capital as of December 31, 1999 and 1998 was
$21.3 million and $22.0 million, respectively. The slight decrease in 1999 from
1998 was primarily due to higher deferred current tax assets in 1998 compared to
1999 generated by the Company's net loss position for 1998 offset by increases
in accounts receivable in 1999 due to the Company's growth in operations.




                                       28
<PAGE>   29


         Net cash used in investing activities in the amounts of $33.8 million,
$24.9 million and $34.1 million in 1999, 1998 and 1997, respectively, was
principally for capital expenditures. Additionally, in 1999, investing
activities included an investment in Global Reservation Systems, Inc. ("GRS"), a
West Coast firm specializing in Internet-based travel products and service
systems, at an aggregate cost of $1.6 million which is described in further
detail in Note 4 - Investment in Unconsolidated Affiliate of the Notes to
Consolidated Financial Statements.

         Capital expenditures, including the capitalized value of property and
equipment, were $32.1 million, $24.9 million and $35.9 million for 1999, 1998
and 1997, respectively. Capital expenditures for 1999 relate primarily to costs
incurred for the expansion of workstations in existing facilities as well as new
customer interaction centers to accommodate the award of new and existing client
programs. The Company opened one new center during 1999, an additional center in
January 2000 and will open another additional center in March 2000. Capital
expenditures in 1999 also include costs incurred for the PRISM Project, IMA
Advantage/Edge, Advanced Communications Network ("ACN"), and PRCNETCARE.COM
product and service offerings, all of which are discussed below. Capital
expenditure for 1998 were primarily for the completion of the relocation and
consolidation of administrative office space into unused space in an existing
facility, costs incurred for the Company's internal financial and operating
system enhancements (the PRISM Project) and the purchase of land and a building
located in Sunrise, Florida. Capital expenditures for 1997 were primarily for
telecommunications and computer equipment principally attributable to the large
increase in the Company's total workstation capacity and leasehold improvements
for the new call centers to house the additional workstations. In 1997, the
Company opened one new call center in both the first and second quarters of
1997, while one small call center was converted into administrative offices in
the first quarter of 1997 and another call center was closed during the third
quarter of 1997 as part of the Company's restructuring plan. As a result,
workstation capacity increased from approximately 3,200 workstations as of
December 31, 1996 to approximately 4,500 workstations as of December 31, 1997.

         During the first quarter of 1998, the Company began its implementation
of an Enterprise Resource Planning ("ERP") solution, which allows for all
internal systems (including those related to billing, payroll, client
profitability management, human resource management, inventory and purchasing
management, and general ledger) to be fully integrated into a common platform.
The Company designated its ERP implementation as the PRISM Project. The PRISM
Project utilized both internal resources as well as outside consultants to allow
for a quick and efficient implementation. As of December 31, 1999, all modules
of the PRISM Project had been placed in service. The cost of full
implementation, including software, hardware, consulting fees and internal
resources, was approximately $12.8 million and has been capitalized in
accordance with the provisions of AICPA Statement of Financial Position 98-1,
ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL
USE ("SOP 98-1"). See Note 1 - Operations and Significant Accounting Policies
and Note 5 - Property and Equipment of the Notes to Consolidated Financial
Statements.




                                       29
<PAGE>   30


         During the fourth quarter of 1999, the Company completed the
implementation of IMA Advantage/Edge, a third party customer interaction
software product that utilizes advanced customer care technology, during the
fourth quarter of 1999. The cost of full implementation, including software,
hardware, consulting fees and internal resources, was approximately $7.7 million
and has been capitalized in accordance with SOP 98-1. Additionally, the Company
is developing technology that will enhance its virtual call center capabilities.
This project, ACN, will allow integration of multiple centers via private voice
line connections. This configuration will allow the Company to move customer
programs from one location to another and will provide redundancy and disaster
recovery solutions for clients. As of December 31, 1999, the Company had
invested approximately $3.0 million in ACN, primarily consisting of the purchase
of a third party software. Full implementation of this project, including third
party's software and internal development and resources, is currently estimated
to cost approximately $5.0 million and is expected to take place during the
third quarter of 2000. See Note 5 - Property and Equipment of the Notes to
Consolidated Financial Statements.

         In connection with PRCNETCARE.COM, the Company expects through 2000 to
continue its investment in developing and enhancing software products and
technology infrastructure to accommodate Internet-based interactive customer
communications.

         Net cash provided by financing activities was $7.6 million, $12.5
million and $46.6 million in 1999, 1998 and 1997, respectively. Financing
activities for 1999 and 1998 are principally comprised of net borrowings under
the Company's Credit Facility. In addition, included in net cash provided by
financing activities in 1998 are the proceeds from the mortgage loan for the
land and building located in Sunrise, Florida. In 1997, the Company raised
additional capital from the Second Equity Offering and used a portion of the net
proceeds provided by such offering principally to fund anticipated workstation
capacity growth

         The Company believes that funds generated from operations, available
borrowings under the Credit Facility (assuming that the amount available under
the Credit Facility would remain at the $50.0 million level throughout 2000 and
not revert to $25.0 million on July 1, 2000 as currently provided under the
Credit Facility) and capital lease financings will be sufficient to finance its
planned capital expenditures at least through 2000. The Company's long-term
capital requirements will depend on many factors, including, but not limited to,
the rate at which the Company expands its business and the level of future
capital expenditures required to develop and/or enhance software products and
technology infrastructure to accommodate Internet-based interactive customer
communications. To the extent that the available borrowings under the Credit
Facility would revert to $25.0 million or funds generated from the sources
described above are otherwise insufficient to fund the Company's activities in
the short or long-term, the Company would need to raise additional funds through
public or private financing. No assurance can be given that additional financing
will be available or that, if available, it will be on terms favorable to the
Company.

YEAR 2000 ISSUE

         The Year 2000 issue affects the Company's installed computer systems,
network elements, software applications and other business systems that have
time-sensitive programs, including those with embedded microprocessors, that may
not properly reflect or recognize the year 2000 and years thereafter. Because
many computers and computer applications define dates by the last two digits of
the year, "00" or other two-digit dates after the year 2000 may not be properly
identified as the year 2000 or the appropriate later year, but rather the year
1900 or a year between 1901 and 1999 (as the case may be). This error could
result in system and equipment failures or malfunctions causing disruption of
operations, including, among others, a temporary inability to process calls,
transactions and information, or engage in similar normal business activities.

         During 1998 and continuing in 1999, the Company evaluated its installed
computer systems, network elements, software applications and other business
systems that have time-sensitive programs and developed a plan to ensure their
Year 2000 compliance. The Company established a Year 2000 Compliance Team that
monitored the progress and status of the Company's Year 2000 plan. The Company's
Year 2000 plan was divided into seven major sections: Internal Systems and



                                       30
<PAGE>   31


Equipment (business applications for accounting, administration, human resources
and other Company-wide applications and office equipment, including
non-information technology infrastructure in which non-compliant software or
embedded microprocessors might exist); Hardware (Company-wide information
technology architecture); Software Packages (standard personal computer and
individual software packages, such as electronic spreadsheet and word processing
software); Application Tools and Products (products utilized by information
technology development organizations to develop and implement automated business
applications); Client Applications; Client Interfaces; and Third Party
Suppliers. In order to address the Year 2000 issue and the seven major sections
stated above, the Company's Year 2000 plan involved five phases: Planning and
Awareness Phase (developing a budget and project plan); Inventory and Assessment
Phase (identify systems and applications, assess risks and prioritize efforts);
Remediation Phase (repair, replace or retire non-compliant systems or
processes); Validation Phase (perform testing of systems and processes); and
Implementation Phase.

         As of the end of the third quarter of 1999, the Company had completed
all phases of its Year 2000 plan and the Company continued to monitor its Year
2000 plan throughout the remainder of 1999. Through December 31, 1999, the
Company had spent approximately $1.5 million on the Year 2000 issue. As the
Company did not, nor does it expect to, experience significant systems or other
Year 2000 problems at or after the turn of the millennium, the Company does not
currently expect to incur any significant additional costs related to its Year
2000 efforts. All incremental costs associated with the Year 2000 issue have
been expensed as incurred.

         Since the Year 2000 issue may also affect the systems and applications
of the Company's customers or suppliers, the Company initiated formal
communications with its customers and suppliers during 1998 and 1999 to
determine their overall Year 2000 readiness and the extent to which the
Company's interface systems were vulnerable to those third parties' failure to
remediate their own Year 2000 issues. The Company did not experience any
material adverse impact on its operations during the beginning of 2000 as a
result of Year 2000 issues of its customers or suppliers. However, as not all
Year 2000 issues will necessarily surface during the beginning of 2000, no
assurance can be given that one or more of its major suppliers or customers will
not encounter future Year 2000 problems which could have a material adverse
impact on its operations.

         The extent of the Company's future Year 2000 exposure is based on
management's knowledge to date. Although the Company does not expect any Year
2000 issues to surface in the future, there is no guarantee that this will be
achieved. Specific factors that give rise to this uncertainty include, but are
not limited to, availability and cost of personnel, failure to identify and
correct all Year 2000 susceptible systems and applications, future Year 2000
problems encountered by customers, suppliers and other third parties whose
systems and operations impact the Company, and other similar uncertainties.

         The Company has not developed post-2000 contingency plans in the
unlikely event that the uncertainties described above do in fact occur as
management currently believes that the probability of such an event and the
magnitude of its impact on operations is insignificant. The Company will,
however, continue to assess the need for a formal post-2000 contingency plan and
make a determination as to the nature and scope of its post-2000 contingency
plan, if required, based on the occurrence of Year 2000 issues in the future (if
any).

IMPACT OF INFLATION

         Inflation has not had a material impact upon operating results, and the
Company does not expect it to have such an impact in the future. To the extent
the Company experiences cost increases and is not able to increase its billing
rates to offset the costs, such cost increases must be recovered through
operating efficiencies and improved gross profit margins. However, there can be
no assurance that the Company's business will not be so affected by inflation or
that it will be able to absorb cost increases through operating efficiencies or
through billing rate adjustments to customers and remain competitive.

FLUCTUATIONS IN QUARTERLY RESULTS

         The Company experiences quarterly variations in revenues, operating
margins and operating income principally as a result of the timing of clients'
customer service programs, the commencement of new contracts, changes in the
Company's revenue mix among its various services offered to clients, including
the percentage (if any) of services provided under incentive-based compensation
agreements, and the timing of additional operating and capital expenses to



                                       31
<PAGE>   32


acquire and support new business and/or in connection with new products and
services. In addition, the completion or termination of a large customer service
program or the loss or delay in the implementation of a large customer service
program or in a transfer of teleservicing-based application software could cause
the Company to experience such quarterly variations. See Note 16 - Unaudited
Quarterly Financial Data of the Notes to Consolidated Financial Statements.

FORWARD-LOOKING STATEMENTS

         This report contains forward-looking statements (within the meaning of
Section 21E. of the Securities Exchange Act of 1934, as amended), representing
the Company's current expectations and/or beliefs concerning future events and
goals. If and when used in this report, the words "believes," "feels,"
"estimates," "plans," "expects," "intends," "projects," "anticipates," "sees,"
"contemplates," "may," "would," "could" and similar expressions as they relate
to the Company or its management are intended to identify forward-looking
statements. The Company can give no assurance that such expectations and beliefs
will prove to be correct. Accordingly, the actual results of the Company could
differ materially from those indicated by the forward-looking statements because
of various risks and uncertainties related to and including, without limitation,
the failure of the acquisition of the Company by USAi to be consummated at all
or on a timely basis, the Company's effective and timely initiation, development
and implementation of new client relationships and programs (especially with
respect to its Internet clients), the maintenance of existing client
relationships and programs (particularly since the Company's agreements with its
clients generally do not assure the Company will generate a specific level of
revenue, do not designate the Company as the exclusive service provider and are
terminable on short notice), the effective completion of the implementation of
the Company's restructuring plan and performance-enhancing initiatives, the
achievement of satisfactory levels of both gross and operating profits and
margins, the opening of new customer interaction centers in accordance with
strategic plans and in a timely and economic manner consistent with existing
capacity requirements, the ability of the Company to hire, train and retain a
sufficient labor force of qualified personnel at competitive wage rates, the
development and continued enhancement of telecommunication, Internet, computer
and information technologies and infrastructures and operational and financial
systems, the effective and timely marketing to, and level of acceptance and
increased utilization by, existing and new clients of the Company of Precision
Resolution, InfiniteAccess and other Internet products and services, technical
difficulties or errors, problems or excessive costs incurred by the Company in
connection with the completion of the development, implementation and/or future
enhancement of InfiniteAccess, Precision Resolution, IMA Advantage/Edge, ACN
and/or the integration of Internet technologies with the Company's current
products and services to create customer interaction centers and the success and
acceptance by the Company's clients thereof, the failure of the Company to
cost-effectively develop new Internet services and products or to maintain or
enter into new strategic or key business relationships in connection with the
development and/or enhancement of its Internet offerings, the over-estimation by
the Company of the level of need and demand for customer support and service
through the use of the Internet, the ability of the Company to hire, train and
retain qualified technology and other personnel in connection with its
development, implementation and/or enhancement efforts and the operations of
PRCNETCARE.COM, the compatibility of InfiniteAccess, Precision Resolution and
other Internet products and services with existing systems of the Company's
clients and the extent of the technical problems arising with respect to
obtaining such compatibility, the realization by the Company of the expected
direct and indirect benefits and returns (including operational and marketing
benefits) from its investment in GRS, the introduction of new competitive
Internet and other products and services in the Company's industry by other
companies and, in connection therewith, the ability of the Company to maintain a
leadership role in both traditional and Internet-based customer care products
and services, the achievement by the Company and its suppliers and customers of
Year 2000 compliance, the anticipated growth in industry trends towards
outsourcing and cosourcing of telephone and Internet based marketing and
customer service operations (particularly in the telecommunications services and
equipment, transportation, financial services, utility, consumer products, food
and beverage, and travel industries), changes in competition and the forms of
direct sales and marketing techniques, consumer interest in, and use of, the


                                       32
<PAGE>   33


Company's clients' products and services, general economic conditions, costs of
telephone services, financing and leasing of equipment, the level of costs
associated with the expansion of PRCNETCARE.COM's business and operations, the
adequacy of cash flows from operations and available financing (including,
without limitation, under the Credit Facility) to fund capital needs and future
growth, changes in and additions to governmental rules and regulations
applicable to the Company, the realization of the Company's net deferred tax
asset and other risks set forth in this report, in the Company's other filings
with the SEC and in the Company's press releases. These risks and uncertainties
are beyond the ability of the Company to control; in many cases, the Company
cannot predict the risks and uncertainties that could cause actual results to
differ materially from those indicated by the forward-looking statements and the
Company undertakes no obligation to revise or update any forward-looking
statements in order to reflect events or circumstances that may arise after the
date of this report.

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Interest Rate Risk: The Company's exposure to market risk for changes
in interest rates relates primarily to its long-term debt. The Company's Credit
Facility and mortgage loan with the lender for the Credit Facility bear interest
at variable rates, as discussed in Note 6 - Credit Facility and Long-Term Debt
of the Notes to Consolidated Financial Statements. The Company mitigates
interest rate risk by continually monitoring the interest rates.

         The table below presents outstanding principal amounts and the related
fair values (in thousands), together with maturity dates as of December 31,
1999, and the weighted average interest rates for the Company's long-term debt
(including current maturities thereof) subject to variable rates for the year
then ended:

<TABLE>
<CAPTION>
                                                                                             WEIGHTED
                                                           OUTSTANDING                        AVERAGE
                                                            PRINCIPAL           FAIR         INTEREST           MATURITY
                                                              AMOUNT           VALUE           RATE               DATE
                                                          ---------------    -----------    ------------    ------------------
<S>                                                         <C>              <C>               <C>                <C> <C>
Credit Facility (prime)..................................   $   5,000        $  5,000          7.98%         June 30, 2001
Credit Facility (LIBOR)..................................      14,000          14,000          6.74%         June 30, 2001
Mortgage loan............................................       4,000           4,000          6.69%         June 1, 2005
                                                          ---------------    -----------
  Total long-term debt subject to variable rates.........   $  23,000        $ 23,000
                                                          ===============    ===========
</TABLE>

         Based on the borrowing rates available to the Company for debt with
similar terms and average maturities, the fair value of the Company's debt
approximates carrying value.





                                       33
<PAGE>   34





ITEM 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         Information called for by this item is set forth in the Company's
Consolidated Financial Statements contained in this report. The Consolidated
Financial Statements can be found at the pages in this report listed in the
following index:

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

                                                                                                     PAGE
<S>                                                                                                      <C>
         Report of Independent Certified Public Accountants -
               PricewaterhouseCoopers LLP..............................................................F-1

         Consolidated Balance Sheets as of December 31, 1999 and 1998..................................F-2

         For the years ended December 31, 1999, 1998 and 1997:
                  Consolidated Statements of Operations................................................F-3
                  Consolidated Statements of Shareholders' Equity......................................F-4
                  Consolidated Statements of Cash Flows................................................F-5

         Notes to Consolidated Financial Statements....................................................F-6


</TABLE>

ITEM 9.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
              FINANCIAL DISCLOSURE

         Not applicable.

                                   PART III.

ITEM 10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

  Set forth below is a list (as of February 15, 2000) of the names of the
directors and executive officers of the Company, their respective ages and their
respective positions with the Company. The terms of the directors expire
annually upon the holding of the annual meeting of shareholders of the Company.
The Company's executive officers serve at the discretion of the Board of
Directors, although all of the executive officers have employment agreements.
See "Item 11. Executive Compensation - Employment Agreements."
<TABLE>
<CAPTION>

             NAME                  AGE                                         POSITION
 ------------------------------   -------   -------------------------------------------------------------------------------
<S>                                 <C>     <C>
 Mark J. Gordon                     52      Chairman of the Board
 David L. Epstein                   35      Director and Chief Executive Officer
 Wesley T. O'Brien                  44      President and Chief Operating Officer
 Richard D. Mondre                  54      Director, Executive Vice President, General Counsel and Secretary
 Richard N. Ferry, Jr.              47      Executive Vice President - Business Development
 Paul M. O'Hara                     53      Executive Vice President - Finance and Chief Financial Officer
 James R. Weber                     52      Senior Vice President - Business Operations
 Frank Modrak                       44      Senior Vice President - Sales
 Michael P. Miller                  39      Senior Vice President and Chief Technology Officer
 Robert K. Tenzer                   39      Senior Vice President - Human Resources
 Thomas F. Jennings, Jr.            40      Vice President and Controller
 Joseph E. Gillis                   42      Vice President and Treasurer
 Bernard J. Kosar, Jr.              36      Senior Advisor and Director
 Neil A. Natkow                     52      Director
 Richard N. Krinzman                52      Director
 Christian Mustad                   61      Director


</TABLE>

                                       34
<PAGE>   35


The following sets forth the background of each of the Company's directors and
executive officers, including the principal occupation of those individuals for
at least the past five years:

MARK J. GORDON joined the Company in 1984 and became a director at that time.
Mr. Gordon served as the Company's Chief Executive Officer from 1985 to November
1998. Since April 1996 to date, Mr. Gordon has served as Chairman of the Board.

DAVID L. EPSTEIN joined the Company in 1982 and was named Executive Vice
President in 1984, President in 1985 and Chief Executive Officer in November
1998. Mr. Epstein became a director of the Company in April 1996.

WESLEY T. O'BRIEN became President and Chief Operating Officer of the Company in
November 1998. From October 1995 until joining the Company, Mr. O'Brien was the
Chief Executive Officer and President of Trescom International Communications
Corporation, an international and long distance communications company. Prior to
that position, Mr. O'Brien was employed for approximately twelve years with MCI
Communications Corporation, a long distance telecommunications company, where he
served in various executive capacities.

RICHARD D. MONDRE joined the Company in March 1996 as Executive Vice President,
General Counsel and Secretary. He became a director of the Company in May 1996.
From January 1983 to March 1996, Mr. Mondre was a partner at the law firm of
Rubin Baum Levin Constant Friedman & Bilzin ("Rubin Baum"), which served as the
Company's regular outside counsel until January 31, 1998. As of February 1,
1998, the successor firm to Rubin Baum, Bilzin Sumberg Dunn Price & Axelrod LLP
("BSDPA"), commenced serving as the Company's regular outside counsel. After
joining the Company, Mr. Mondre remained "Of Counsel" to Rubin Baum and is
currently "Of Counsel" to BSDPA.

RICHARD N. FERRY, JR. joined the Company in November 1994 as Vice President -
Business Development, was appointed Senior Vice President in that position in
May 1996 and was appointed Executive Vice President in that position in November
1997. Additionally, Mr. Ferry was appointed as President of prcnetcare.com,
Inc., a subsidiary of the Company, in February 1999. From November 1993 to
November 1994, Mr. Ferry was a principal of Virtual Marketing International,
providing consulting services to a number of companies, including many of the
Company's competitors in the teleservicing and direct marketing industries. From
November 1991 to November 1993, Mr. Ferry was the Director of Marketing Services
at Century Telecommunications, a provider of telephone services, and from
September 1984 until November 1991, Mr. Ferry was the Vice President of
Operations for Advanced Telemarketing Corp., a provider of teleservices.

PAUL M. O'HARA joined the Company in August 1996 as Senior Vice President -
Finance and Chief Financial Officer. Mr. O'Hara was appointed as Executive Vice
President - Finance in November 1998. From March 1994 until joining the Company,
Mr. O'Hara was Executive Vice President and Chief Financial Officer of Sunbeam
Corp., a consumer products company. From April 1988 to March 1994, Mr. O'Hara
was Executive Vice President and Chief Financial Officer of Fruit of the Loom,
Inc., an apparel manufacturer.

JAMES R. WEBER joined the Company in June 1996 as Senior Vice President -
Telemarketing Operations and was formally appointed as an executive officer in
November 1996. Mr. Weber was appointed Senior Vice President Business Operations
in October 1998. From August 1994 until joining the Company, Mr. Weber was
Senior Vice President - Operations for SafeCard Services, Inc., a credit card
protection company. From June 1992 to August 1994, Mr. Weber worked with MCI
Telecommunications, a telecommunications company, initially as a Center Director
and then as Regional Director for the western region. From March 1985 to May
1992, Mr. Weber held a number of positions with American Express Company, a
financial services company, including that of Director for its telephone service
center and card issuance division.



                                       35
<PAGE>   36


FRANK MODRAK joined the Company in January 1996 as Vice President - Sales. Mr.
Modrak was appointed Senior Vice President - Sales in November 1998. From 1987
until joining the Company, Mr. Modrak was the National Director of Customer
Service and Sales for Cox Communications, a cable communications company.

MICHAEL P. MILLER joined the Company in April 1999 as Senior Vice President and
Chief Technology Officer. From July 1997 until December 1998, Mr. Miller was the
Senior Vice President and Chief Technology Officer for IQI, Inc., a
telemarketing company located in Los Angeles, California, which has merged with
ATC Communications to form Aegis Communications Group, Inc. From August 1995
until March 1997, Mr. Miller was the Chief Information Officer for Softbank
Exposition and Conference Company, a trade show production and management
company and a division of Softbank, Inc. of Tokyo, Japan, and from January 1992
until July 1995, Mr. Miller was employed by The Gap, Inc., an apparel retailer
and manufacturer, where he served as the Senior Director of Management
Information Systems and, prior to that position, as Director of Network Design
and Engineering. Mr. Miller also has managed a consulting firm that he
originally founded in 1986, initially providing custom software to the medical,
dental and legal professions and later information technology services to a wide
variety of clients in the retail, banking and manufacturing sectors.

ROBERT K. TENZER joined the Company in September 1994 as Director of Human
Resources. Mr. Tenzer was appointed Vice President of Human Resources in May
1997 and Senior Vice President in September 1997. From September 1984 until
joining the Company, Mr. Tenzer was a Director of Human Resources and Store
Operations for Neiman Marcus, a clothing and specialty items retailer. Mr.
Tenzer has a Masters of Science in Human Resources Management.

THOMAS F. JENNINGS, JR. joined the Company in March 1997 as Controller and was
formally appointed Vice President, Controller and Principal Accounting Officer
in May 1997. From July 1994 until joining the Company, Mr. Jennings was Vice
President and Chief Financial Officer for the Music Division of Blockbuster
Entertainment. From March 1993 to July 1994 , Mr. Jennings was Controller for
the Domestic Consumer Division of Blockbuster Entertainment. From September 1981
to joining Blockbuster Entertainment, Mr. Jennings was employed by the public
accounting firm of PricewaterhouseCoopers LLP (formerly Coopers & Lybrand LLP).
Mr. Jennings is a Certified Public Accountant.

JOSEPH E. GILLIS joined the Company in November 1994 as Chief Financial Officer
and Treasurer, continues to serve as Treasurer and was appointed a Vice
President in May 1997. From October 1993 until joining the Company, Mr. Gillis
was Chief Financial Officer of William Schneider, Inc., a jewelry manufacturer.
From June 1989 to October 1993, Mr. Gillis was Vice President of Finance for the
Vertical Blinds Division of Hunter Douglas, Inc., a manufacturer of window
coverings, or its predecessor, Profile Corp. Mr. Gillis is a Certified Public
Accountant.

BERNARD J. KOSAR, JR. was appointed a director of the Company in October 1996.
Mr. Kosar is currently employed by the Company as a Senior Advisor, in which,
among other functions, he advises executives of the Company on general sales and
client matters and participates in client relations. Mr. Kosar served as Senior
Vice President - Client Relations for the Company from January 1997 to September
1998. From January 1995 until joining the Company, Mr. Kosar had served as a
consultant to the Company. Since July 1985 until his retirement in 1997, Mr.
Kosar had been a quarterback in the National Football League and most recently
with the Miami Dolphins. Mr. Kosar is also a director and majority owner of
Tidewater Management Group, Inc., a franchisee for a national food chain, and
Bernie Kosar Greeting Card Company, a distributor of greeting cards.



                                       36
<PAGE>   37



NEIL A. NATKOW was appointed a director of the Company in October 1996. Dr.
Natkow served as Senior Vice President - Health Care for the Company from
February 1997 to October 1997. Upon leaving the Company, Dr. Natkow became
President and Chief Executive Officer of NAN II, Inc., a Florida corporation
which is the general partner of PhyTrust, Ltd., a Florida management services
organization. From December 1993 until his retirement in October 1995, Dr.
Natkow served as an executive officer of PCA Health Plans of Florida, a health
maintenance organization, most recently as its Chief Executive Officer. From
August 1992 to December 1993, Dr. Natkow was the President and Chief Executive
Officer of Family Health Plan, a health maintenance organization, and, from June
1987 to July 1992, Dr. Natkow was the Vice President for Professional Affairs at
Southeastern University for Health Sciences. Dr. Natkow is also a director of
Sheridan Healthcare, Inc., a publicly traded company. Dr. Natkow is a member of
the Audit and Compensation Committees of the Board.

RICHARD N. KRINZMAN was appointed a director of the Company in February 1997.
Mr. Krinzman is a shareholder and director of the law firm of Holtzman,
Krinzman, Equels & Furia, P.A., a position he has held since 1979. Mr. Krinzman
has practiced law in Dade County, Florida, for over 25 years with concentration
on transactional matters in the areas of real property, banking and commercial
law. Mr. Krinzman is a member of the Audit Committee of the Board.

CHRISTIAN MUSTAD was appointed a director of the Company in October 1996. For
the past 25 years, Mr. Mustad has been a managing director of The Mustad Group,
which owns and/or manages approximately 35 companies throughout the world. The
Mustad Group businesses and activities range from manufacturing of horseshoes
and horseshoe nails, level gauging for the shipping industry, precision parts,
paper cores, machinery for the cardboard industry and fasteners to oil
recycling. Mr. Mustad is a member of the Audit and Compensation Committees of
the Board.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), requires the Company's executive officers and directors, and persons who
own more than ten percent of a registered class of the Company's equity
securities, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission (the "Commission") and the National
Association of Securities Dealers, Inc. Executive officers, directors and
greater than ten percent shareholders are required by the Exchange Act to
furnish the Company with copies of all Section 16(a) forms they file.

Based solely on a review of the copies of such forms furnished to the Company
and written representations that no Forms 5 were required, the Company believes
that, during 1999, its directors, executive officers and greater than ten
percent beneficial owners complied with all applicable Section 16(a) filing
requirements.

ITEM 11.      EXECUTIVE COMPENSATION

The following table sets forth information with respect to all compensation paid
or earned for services rendered to the Company in 1999, 1998 and 1997 by the
chairman of the board of the Company, the chief executive officer of the Company
and the Company's four other most highly compensated executive officers whose
aggregate annual compensation exceeded $100,000 and who were executive officers
of the Company at December 31, 1999 (all of the individuals named in the
following table are collectively defined as the "Named Executive Officers"). The
Company does not have a pension plan or a long-term incentive plan, has not
issued any restricted stock awards and has not granted any stock appreciation
rights as of this date. The Company has granted stock options. See "Option
Grants and Holdings" and "Employee Stock Plan and Director Stock Plan." The
value of all other annual compensation (perquisites and other personal benefits)
received by each Named Executive Officer in each respective year did not exceed
the lesser of $50,000 or 10% of the Named Executive Officer's total annual
salary and bonus reported for such Named Executive Officer.



                                       37
<PAGE>   38


                           SUMMARY COMPENSATION TABLE


<TABLE>
<CAPTION>
                                                                                       LONG-TERM
                                                                                      COMPENSATION
                                                                                         AWARDS
                                                             ANNUAL                  ----------------
                                                          COMPENSATION                 SECURITIES
                                       FISCAL    --------------------------------      UNDERLYING          ALL OTHER
   NAME AND PRINCIPAL POSITION          YEAR      SALARY (1)           BONUS         OPTIONS(#) (2)       COMPENSATION
-----------------------------------    -------   --------------    --------------    ---------------     ---------------

<S>                                    <C>       <C>                    <C>              <C>                <C>
David L. Epstein                       1999      $  442,325              -               52,772             $ 34,251(3)
    Chief Executive Officer            1998         418,841              -                 -                   -
                                       1997         388,187              -                 -                   -

Richard D. Mondre                      1999         428,355              -               47,975                -
    Executive Vice President,          1998         406,588              -                 -                   -
    General Counsel and Secretary      1997         372,270              -                 -                   -

Mark J. Gordon                         1999         388,460              -                 -                   25,559(4)
    Chairman of the Board              1998         408,226              -                 -                   29,712(4)
                                       1997         403,269              -                 -                   10,703(4)

Paul M. O'Hara                         1999         398,589              -                 -                   -
    Executive Vice President-          1998         374,639          $  50,000          200,000                -
    Finance and Chief Financial        1997         298,215             50,000          350,000(5)             -
    Officer

Wesley T. O'Brien                      1999         369,500              -                 -                   19,076(6)
    President and Chief Operating      1998          71,058(7)           -              350,000                 9,788(6)
     Officer                           1997            -                 -                 -                   -

Richard N. Ferry, Jr.                  1999         311,442              -               47,975                -
    Executive Vice President-          1998         331,870              -              200,000                -
    Business Development               1997         196,738             73,514          336,000 (8)            -

</TABLE>

-----------
(1)   Includes compensation in connection with payment of auto allowance.
(2)   See "Option Grants and Holdings" below for a description of such executive
      officers' options.
(3)   Consists of premiums paid for three split-dollar life insurance policies
      for the benefit of Mr. Epstein's family. See "Item 13. Certain
      Relationships and Related Transactions."
(4)   Consists of premiums paid for up to three split-dollar life insurance
      policies for the benefit of the Mark Gordon Family Trust. See "Item 13.
      Certain Relationships and Related Transactions."
(5)   The option for 200,000 of these shares was granted in connection with
      cancellation of option to purchase same number of shares of Common Stock
      granted in 1996.
(6)   Consists of premiums paid for a life insurance policy for the benefit of
      Mr. O'Brien.
(7)   Mr. O'Brien joined the Company in November 1998. His base annual salary
      for 1998 was $350,000.
(8)   The option for 136,000 of these shares was granted in connection with
      cancellation of option to purchase same number of shares of Common Stock
      granted in 1996.




                                       38
<PAGE>   39




OPTION GRANTS AND HOLDINGS

1999 OPTION GRANTS TABLE

The following table summarizes the options which were granted during 1999 to the
Named Executive Officers:


<TABLE>
<CAPTION>

                                                               Individual Grants
                                    --------------------------------------------------------------
                                           % of                                                            Potential Realizable
                                          Total                                            Value            Value at Assumed
                                         Options                 Closing                     at               Annual Rates
                           Number of    Granted                   Market                  Grant-Date         of Stock Price
                           Securities      to                    Price On                  Market              Appreciation
                           Underlying   Employees   Exercise     Date of                   Price            for Option Term(1)
                            Options     In Fiscal    Price         Grant     Expiration    ---------   ---------------------------
          Name             Granted(#)     Year       ($/Sh)     ($/Share)(2)   Date        0%($)(2)      5%($)          10%($)
   --------------------    ----------   ----------   --------   ----------   ----------    ---------   ----------     ------------

<S>                         <C>           <C>         <C>         <C>        <C>   <C>       <C>        <C>            <C>
  David L. Epstein          52,772        4.96        24.72       24.25      12/31/06         -         496,172        1,189,290
  Richard D. Mondre         47,975        4.51        24.72       24.25      12/31/06         -         451,070        1,081,183
  Mark J. Gordon               -            -           -           -            -            -            -               -
  Paul M. O'Hara               -            -           -           -            -            -            -               -
  Wesley T. O'Brien            -            -           -           -            -            -            -               -
  Richard N. Ferry, Jr.     47,975        4.51        24.72       24.25      12/31/06         -         451,070        1,081,183
</TABLE>

----------
(1)  Potential realizable value is based on the assumption that the Company's
     Common Stock price appreciates at the annual rate shown (compounded
     annually) from the date of grant until the end of the option term. The
     amounts have been calculated based on the requirements promulgated by the
     Commission. The actual value, if any, a Named Executive Officer may realize
     will depend on the excess of the stock price over the exercise price on the
     date the option is exercised (if the executive officer were to sell the
     shares on the date of exercise). Accordingly, there is no assurance that
     the value realized will be at or near the potential realizable value as
     calculated in this table.

(2)  For purposes of and as provided under the 1996 Incentive Stock Plan (as
     amended to date, the "Employee Stock Plan"), "fair market value" on the
     date of grant of any option is the average of the high and low sales prices
     of a share of Common Stock on The Nasdaq National Market on the trading day
     immediately preceding such date of grant. The Compensation Committee of the
     Company believes this calculation more accurately reflects "fair market
     value" of the Company's Common Stock on any given day as compared to simply
     using the closing market price on the date of grant. As a result, the
     closing market price on the date of grant at times may be different than
     the exercise price per share.

AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE

  The following table provides information regarding the value of all options
exercised during 1999 and unexercised options held at December 31, 1999 by the
Named Executive Officers.

<TABLE>
<CAPTION>
                            SHARES                              NUMBER OF
                           ACQUIRED                       SECURITIES UNDERLYING               VALUE OF UNEXERCISED
                              ON          VALUE           UNEXERCISED OPTIONS AT           "IN-THE-MONEY" OPTIONS AT
        NAME               EXERCISE     REALIZED            DECEMBER 31, 1999                DECEMBER 31, 1999 (1)
---------------------     ----------    ----------    -------------------------------    -------------------------------
                                                      UNEXERCISABLE      EXERCISABLE     UNEXERCISABLE      EXERCISABLE
                                                      ---------------    ------------    ---------------    ------------
<S>                          <C>           <C>            <C>                <C>             <C>                <C>
David L. Epstein              -             -             52,772              -                -                 -
Richard D. Mondre             -             -             47,975              -                -                 -
Mark J. Gordon                -             -               -                 -                -                 -
Paul M. O'Hara                -             -            192,834           357,166       $  3,341,824         $6,201,426
Wesley T. O'Brien             -             -            115,500           234,500          2,165,625          4,396,875
Richard N. Ferry, Jr.         -             -            238,429           352,546          3,300,472          6,169,208

</TABLE>


----------

(1)  Based on a per share price of $24.25 on December 31, 1999, which was the
     closing market price of the Company's Common Stock on the last day of the
     Company's 1999 fiscal year.


                                       39
<PAGE>   40





COMPENSATION OF DIRECTORS

  Directors who are not employees or officers of the Company receive a quarterly
retainer of $2,500 and receive $1,000 for attendance at each meeting of the
Board of Directors (the "Board") or committee thereof. Such directors also
receive an option to purchase shares of Common Stock upon initial election and
upon each re-election. See "Employee Stock Plan and Director Stock Plan" below.
Directors may also be reimbursed for certain expenses in connection with
attendance at Board and Board committee meetings. Other than with respect to
reimbursement of expenses, directors who are employees or officers of the
Company do not receive additional compensation for service as a director.

EMPLOYEE STOCK PLAN AND DIRECTOR STOCK PLAN

  On May 31, 1996, the Company adopted the Employee Stock Plan and the 1996
Non-employee Director Stock Option Plan (the "Director Stock Plan"). Officers,
key employees and non-employee consultants may be granted incentive stock
options ("ISOs"), nonqualified stock options ("NSOs"), stock appreciation rights
("SARs"), stock awards, performance shares and performance units under the
Employee Stock Plan. The Compensation Committee of the Board administers the
Employee Stock Plan. The Compensation Committee has final authority to interpret
any provision of the Employee Stock Plan, any grant made under the Employee
Stock Plan or any provision of any agreement evidencing such grant. The
Compensation Committee determines the term of each option and the time or times,
and conditions (such as a change in control) under which, each option vests and
may be exercised. However, the term of an ISO may not exceed ten years from the
date of grant and the term of an NSO may not exceed fifteen years from the date
of grant. The Compensation Committee also determines the option exercise price.
However, the exercise price of an ISO may not be less than the fair market value
of Common Stock on the date of grant. Under certain circumstances (relating to
ownership of more than 10% of the total combined voting power of all classes of
stock of the Company), the exercise price of an ISO may not be less than 110% of
the fair market value on the date of grant and the term of such ISO may not
exceed five years from the date of grant. The exercise price for an NSO may not
be less than 85% of the fair market value on the date of grant, except for a
maximum of 50,000 shares of Common Stock which may be granted at an exercise
price as low as $0.01 per share. The aggregate fair market value (determined at
the time the option is granted) of the Common Stock with respect to which ISOs
are exercisable for the first time by a participant during any calendar year
(under all options of the Company) shall not exceed $100,000 and, to the extent
in excess of such $100,000, such excess options shall be treated as NSOs. If an
optionee terminates his or her employment or consulting relationship for any
reason, such optionee's options may be exercised to the extent they have vested
or vest and were exercisable at the date of such termination for a period of
time determined by the Compensation Committee at the time the option is granted.
The Company currently has reserved 4,750,000 shares of the Common Stock for
issuance under the Employee Stock Plan. The Employee Stock Plan will expire by
its own terms on May 30, 2006. The Board has the power to amend the Employee
Stock Plan from time to time. Shareholder approval of an amendment is only
required to the extent necessary to maintain the Employee Stock Plan's status as
a protected plan under applicable securities laws or as a qualified plan under
applicable tax laws.

  The Director Stock Plan provides for annual grants of non-qualified stock
options to each non-employee director of the Company. At the Company's annual
meeting of shareholders on June 21, 1999, the Director Stock Plan was amended
and restated in its entirety (the "Restated Director Stock Plan"). The Restated
Director Stock Plan increased the number of nonqualified stock options
automatically awarded to each non-employee director upon re-election from 2,500
shares to 5,000 shares of common stock at an exercise price equal to the fair
market value of the common stock on the date of grant. However, the Restated
Director Stock Plan provided for the award of 15,000 nonqualified stock options
to each non-employee director re-elected at the June 21, 1999 meeting in lieu of
the 5,000 annual grant. The purpose of the exception was to retroactively adjust
the aggregate number of options previously awarded to the existing non-employee
directors to be more consistent with the initial and annual awards under the
Restated Director Stock Plan. In addition, the Restated Director Stock


                                       40
<PAGE>   41


authorized the Board, in its sole discretion, to grant to a non-employee
director at the time of his or her initial election as a director of the Company
nonqualified stock options in excess of the 5,000 shares of common stock
automatically granted on initial election to the Board of Directors up to and
not exceeding 50,000 shares at an exercise price equal to fair market value of
the common stock on the date of grant. The options granted to each non-employee
director will have a term of ten years and vest, in the case of options granted
under the Director Stock Plan, in equal installments over three years and, in
the case of options granted under the Restated Director Stock Plan, in full
after the first anniversary of the date the option is granted. The Company
currently has reserved 300,000 shares of Common Stock for issuance under the
Director Stock Plan.

  Including the option of Richard N. Ferry, Jr., the Company's Executive Vice
President-Business Development, to purchase the balance of 7,000 shares at an
exercise price of $0.01 per share, the options to purchase 4,277,372 shares
granted under the Employee Stock Plan and the Director Stock Plan outstanding as
of December 31, 1999, have a weighted average exercise price of $7.60. As of
December 31, 1999, the Company had not granted any SARs, stock awards,
performance shares or performance units under the Employee Stock Plan. See Note
12 - Stock-Based Compensation Plans of the Notes to Consolidated Financial
Statements.

RETIREMENT PLANS

  The Company maintains a profit sharing and 401(k) savings plan (as amended,
the "Profit Sharing/401(k) Plan"). Under the provisions of the Profit
Sharing/401(k) Plan, employees meeting certain eligibility requirements may
contribute a maximum of 15% of pre-tax gross wages, subject to certain
restrictions imposed pursuant to the Internal Revenue Code of 1986, as amended
(the "Code"). Company contributions are at the discretion of its Board. Vesting
occurs over a six-year period at the rate of 20% per year, beginning after the
second year of service. The Company accrued a contribution to the Profit
Sharing/401(k) Plan of approximately $100,000 in 1999, which is expected to be
paid during the first quarter of 2000, $85,000 in 1998, which was paid in April
1999, and $45,000 in 1997, which was paid in 1998.

EMPLOYMENT AGREEMENTS

  MARK J. GORDON AND DAVID L. EPSTEIN. Each of Mr. Gordon and Mr. Epstein
entered into an employment agreement with the Company in May 1996, the terms of
which are substantially similar except to the extent the terms of Mr. Epstein's
agreement have been modified as hereinafter indicated pursuant to amendments to
his agreement effective as of April 1, 1999, September 1, 1999 and January 12,
2000 (individually an "Epstein Amendment"). The initial employment term is the
period from July 1, 1996 to June 30, 2001, subject to an Epstein Amendment
extending Mr. Epstein's initial term to March 31, 2002, but is thereafter
subject to automatic annual renewal, absent notice from either party of its
desire not to renew. However, the employee may terminate the agreement at any
time upon 30 days' notice. Each of Messrs. Gordon's and Epstein's agreements
provide for a minimum base salary of $425,000 per annum (adjusted for inflation)
subject to increase by the Compensation Committee; provided, however, that
Mr. Gordon's base salary was recently decreased to $200,000 per annum with the
agreement of Mr. Gordon. An annual bonus is payable based on criteria to be
agreed upon by the Compensation Committee and the employee at the beginning of
each year. No such criteria have yet been established, except that an Epstein
Amendment now gives the Compensation Committee authority to determine the annual
bonus in its sole discretion based upon the operating results of the Company and
Mr. Epstein's performance during the year. Each agreement provides for the
annual grant of stock options in a number to be determined by the Compensation
Committee, but for no fewer than 5% of the aggregate number of shares for which
options were granted under the Stock Plans during the year. The




                                       41
<PAGE>   42


vesting of any options granted pursuant to the agreements will accelerate in
certain events including a change in control (as defined therein). Each of Mr.
Gordon and Mr. Epstein has waived both their annual bonus and stock option
grants with respect to the years ended December 31, 1996, 1997 and 1998. With
respect to the year ended December 31, 1999, Mr. Gordon has waived both his
annual bonus and stock option grants and Mr. Epstein has waived his annual
bonus. Each of Mr. Gordon and Mr. Epstein has certain piggyback and demand
registration rights. If either Mr. Gordon's or Mr. Epstein's employment is
terminated by death, disability or voluntary resignation, the employee is
entitled to severance equal to 18 months' salary, bonus and benefits, and if
employment is terminated by the Company without cause or constructive
termination (as defined in the agreements), the terminated individual is
entitled to severance equal to salary, bonus and benefits for the balance of the
contract term or three years, whichever is longer. An Epstein Amendment also
added nonrenewal of Mr. Epstein's agreement to events in which the foregoing
three-year severance would be paid and amended Mr. Epstein's agreement to
include funding by the Company of a portion of the premiums due on three
split-dollar life insurance policies. Mr. Gordon's agreement also provides for
funding by the Company of a portion of the premiums due on a split-dollar life
insurance policy. See "Item 13. Certain Relationships and Related Transactions"
for discussion of such split-dollar life insurance arrangements. In connection
with the Company entering into the Merger Agreement with USAi, Mr. Epstein
entered into an Epstein Amendment dated January 12, 2000, which would amend Mr.
Epstein's employment agreement effective only on and after the completion of the
merger between the Company and USAi (the "Effective Time") and which provides,
among other things, that (i) Mr. Epstein's agreement would no longer provide for
an annual grant of options, (ii) Mr. Epstein would no longer be entitled to
voluntarily terminate his employment without being in breach of his employment
agreement (except upon constructive termination), (iii) Mr. Epstein would no
longer be entitled to severance benefits if his employment agreement is not
renewed at the end of its initial term and (iv), if Mr. Epstein is employed by
the Company at or immediately following the Effective Time, he would be granted
a non-qualified option to purchase 75,000 shares of USAi common stock on
standard terms and conditions for option grants by USAi to its employees. In
addition, on January 12, 2000 in connection with the Company entering into the
Merger Agreement, Mr. Gordon agreed to terminate his employment and service as
chairman of the Company's Board as of the Effective Time.

  RICHARD D. MONDRE. Effective April 1, 1999, Mr. Mondre entered into a new
employment agreement with the Company replacing his former employment agreement
that had expired as of March 31, 1999. Mr. Mondre's new employment agreement
extends to March 31, 2002, with automatic renewal of such employment agreement
for successive one-year terms unless either party notifies the other in writing
of nonrenewal at least 60 days prior to expiration of the initial term or any
renewal term. The employment agreement provides for, among other things, an
annual salary of $400,000, an annual bonus determined by the Compensation
Committee in its sole discretion based upon the operating results of the Company
and Mr. Mondre's performance, and the annual grant of stock options in a number
to be determined by the Compensation Committee, but no fewer than 5% of the
aggregate number of shares for which options were granted under the Stock Plans
during the year (other than stock options awarded to certain executive officers
pursuant to a provision in their respective employment agreements with the
Company substantially the same as the stock option grant provision in Mr.
Mondre's employment agreement). The vesting of any options granted to Mr. Mondre
as described in the previous sentence will accelerate in certain events
including a Change in Control (as hereinafter defined). If Mr. Mondre's
employment is terminated by the Company without cause or as the result of
constructive termination (as defined) other than in connection with a Change in
Control, he will be entitled to the sum of the salary that he would have
received during the greater of (i) the one year period following the date of
such termination and (ii) the remainder of the initial term (if such termination


                                       42
<PAGE>   43


occurs during the initial term) and $200,000. If Mr. Mondre's employment is not
renewed by the Company at the end of the initial term or any one-year renewal
term other than in connection with a Change of Control, he will be entitled to
one year's salary, subject, however, to the modification of this provision
included in an amendment to his agreement entered into on January 12, 2000 and
discussed below (the "Mondre Amendment"). If Mr. Mondre's employment is
terminated without cause or as a result of constructive termination or
nonrenewal (subject, however, to the Mondre Amendment) by the Company (or its
successor) within generally 180 days before or after a Change in Control, he
will be entitled to a lump sum severance payment equal to 2.99 times an amount
equal to the average of the sum of the annual salary and bonus amount paid to
him each year during the employment term. A "Change in Control" generally means
that neither Mr. Gordon nor Mr. Epstein control the Company nor is occupying the
positions of Chairman of the Board and/or Chief Executive Officer of the
Company. Accordingly, a Change in Control would occur upon the consummation of
the Company's acquisition by USAi. Mr. Mondre has also been granted certain
demand and piggyback registration rights (subject, however, to the Mondre
Amendment). Mr. Mondre is authorized to remain "Of Counsel" to BSDPA as long as
his duties in that capacity do not interfere with his performance under the
employment agreement with the Company. In connection with the Company entering
into the Merger Agreement with USAi, Mr. Mondre entered into the Mondre
Amendment, which would amend Mr. Mondre's employment agreement effective only on
and after the Effective Time and which provides, among other things, that (i)
Mr. Mondre's employment agreement would no longer provide for an annual grant of
options, (ii) Mr. Mondre would no longer be entitled to voluntarily terminate
his employment without being in breach of his employment agreement (except upon
constructive termination or if Mr. Epstein is no longer chief executive
officer), (iii) Mr. Mondre would no longer be entitled to severance benefits if
his employment agreement is not renewed at the end of its initial term and (iv),
if Mr. Mondre is employed by the Company at or immediately following the
Effective Time, he would be granted a non-qualified option to purchase 25,000
shares of USAi common stock on standard terms and conditions for option grants
by USAi to its employees.

  WESLEY T. O'BRIEN. Mr. O'Brien's employment agreement extends to December 31,
2001, with automatic renewal of such employment agreement for successive
one-year terms unless either party notifies the other in writing of nonrenewal
at least 60 days prior to expiration of the initial term or any renewal term.
The employment agreement provides for, among other things, an annual salary of
$350,000, an annual bonus determined by the Compensation Committee in its sole
discretion based upon the operating results of the Company and Mr. O'Brien's
performance in an amount not to exceed 75% of Mr. O'Brien's annual salary, and
stock options to acquire 350,000 shares of Common Stock at an exercise price of
$5.50 per share (the fair market value on the date of grant) vesting 50% six
months from the date of grant (October 20, 1998), 17% on each of the first and
second anniversaries from the date of grant and 16% on the third anniversary
from the date of grant. The vesting of Mr. O'Brien's options accelerate in
certain events including a Change in Control. If Mr. O'Brien's employment is
terminated by the Company without cause or as a result of constructive
termination (as defined) other than in connection with a Change in Control, he
will be entitled to the sum of the salary that he would have received during the
greater of (i) the one year period following the date of such termination and
(ii) the remainder of the initial term (if such termination occurs during the
initial term) and $175,000. If Mr. O'Brien's employment is not renewed by the
Company at the end of the initial term or any one-year renewal term other than
in connection with a Change in Control, he will be entitled to one year's salary
unless the Company waives his covenant-not-to-compete. If Mr. O'Brien's
employment is terminated without cause or as a result of constructive
termination or nonrenewal by the Company (or its successor) within 180 days
after a Change in Control, he will be entitled to a lump sum severance payment
equal to 2.99 times an amount equal to the average of the sum of the annual
salary and bonus amount paid to him each year during the employment term. Any
cash payable to Mr. O'Brien, however, would be reduced to the extent necessary
to prevent Mr. O'Brien from being in receipt of an "excess parachute payment."

  RICHARD N. FERRY, JR. Effective April 1, 1999, Mr. Ferry entered into a new
employment agreement with the Company replacing his employment agreement that
was to expire on June 30, 1999. Mr. Ferry's new employment agreement extends to
March 31, 2002, with automatic renewal of such employment agreement for
successive one-year terms unless either party notifies the other in writing of
nonrenewal at least 60 days prior to expiration of the initial term or any
renewal term. The employment agreement provides for, among other things, an
annual salary of $300,000, an annual bonus determined by the Compensation
Committee in its sole discretion based upon the operating results of the Company
and Mr. Ferry's performance, and the annual grant of stock options in a number
to be determined by the Compensation Committee, but no fewer than 5% of the
aggregate number of shares for which options were granted under the Stock Plans
during the year (other than stock options awarded to certain executive officers
pursuant to a provision in their respective employment agreements with the
Company substantially the same as the stock option grant provision in Mr.
Ferry's employment agreement). The vesting of any options granted to Mr. Ferry
as described in the previous sentence will accelerate in certain events
including a Change in Control. If Mr. Ferry's employment is terminated by the
Company without cause or as the result of constructive termination (as defined
and to be modified at the Effective Time by an amendment to his employment




                                       43
<PAGE>   44


agreement entered into on January 12, 2000 in connection with the Company
entering into the Merger Agreement) other than in connection with a Change in
Control, he will be entitled to the sum of the salary that he would have
received during the greater of (i) the one-year period following the date of
such termination and (ii) the remainder of the initial term (if such termination
occurs during the initial term) and $150,000. If Mr. Ferry's employment is not
renewed by the Company at the end of the initial term or any one-year renewal
term other than in connection with a Change of Control, he will be entitled to
one year's salary. If Mr. Ferry's employment is terminated without cause or as a
result of constructive termination or nonrenewal by the Company (or its
successor) within generally 180 days before or after a Change in Control, he
will be entitled to a lump sum severance payment equal to 2.99 times an amount
equal to the average of the sum of the annual salary and bonus amount paid to
him each year during the employment term. Upon a Change in Control the vesting
of all of the options presently held by Mr. Ferry accelerates.

  PAUL M. O'HARA. Effective August 9, 1999, Mr. O'Hara entered into a new
employment agreement with the Company replacing his former employment agreement
that had expired as of August 8, 1999. Mr. O'Hara's new employment agreement
extends to August 8, 2002, with automatic renewal of such employment agreement
for successive one-year terms unless either party notifies the other in writing
of nonrenewal at least 60 days prior to expiration of the initial term or any
renewal term. The employment agreement provides for, among other things, an
annual salary of $400,000 and an annual bonus determined by the Compensation
Committee in its sole discretion based upon the operating results of the Company
and Mr. O'Hara's performance. If Mr. O'Hara's employment is terminated by the
Company without cause or as the result of constructive termination (as defined
and to be modified at the Effective Time by an amendment to his employment
agreement entered into on January 12, 2000 in connection with the Company
entering into the Merger Agreement) other than in connection with a Change in
Control, he will be entitled to the amount of salary, bonus and benefits, if
any, accrued and unpaid through the date of termination and a lump sum payment
of $600,000. If Mr. O'Hara's employment is terminated without cause or as a
result of constructive termination within 180 days before or one year after a
Change in Control or as a result of nonrenewal by the Company (or its successor)
within 120 days before or one year after a Change in Control, he will be
entitled to a lump sum severance payment equal to 2.99 times an amount equal to
the average of the sum of the annual salary and bonus amount paid to him each
calendar year during up to the last five years of his employment by the Company
preceding the calendar year in which the Change in Control occurred. Upon a
Change in Control the vesting of all of the option presently owned by Mr. O'Hara
accelerates.

  JAMES R. WEBER. Mr. Weber's employment agreement extends to March 31, 2001,
with an automatic renewal of such employment agreement for successive one-year
terms unless either party notifies the other in writing of nonrenewal at least
60 days prior to expiration of the initial term or any renewal term. The
employment agreement provides for, among other things, a base annual salary of
$225,000 through March 31, 1999, $250,000 through March 31, 2000 and $275,000
thereafter, and an annual bonus based on Mr. Weber's performance and consistent
with the Company's then current bonus plan. In connection with the employment
agreement, (i) the Company granted Mr. Weber stock options to acquire 85,000
shares of Common Stock at an exercise price of $5.09 per share vesting 50% on
the date of grant (October 6, 1998) and an additional 25% on each of the first
and second anniversaries from the date of grant and (ii) the Company amended Mr.
Weber's existing stock options to purchase an aggregate of 115,000 shares of
Common Stock at an exercise price of $7.875 per share to provide for a new
vesting schedule (with 50% of such options immediately vesting and an additional
25% of such options vesting on each of April 1, 1999 and April 1, 2000) and for


                                       44
<PAGE>   45


accelerating vesting upon a Change in Control, which accelerated vesting on a
Change in Control is also provided with respect to the new options covering
85,000 shares described above. If Mr. Weber's employment is terminated by the
Company without cause (including, without limitation, upon a Change in Control),
he will be entitled to (i) the salary and certain benefits that he would have
received during the one-year period following the date of termination of his
employment as and when they would have been payable or provided if he had
remained an employee for such additional one-year period and (ii) an amount
equal to the average of the annual bonus paid to him during the employment term,
which amount will be paid in twelve equal consecutive monthly installments
thereafter. However, Mr. Weber will not be entitled to the foregoing severance
to the extent that he receives or is entitled to receive compensation or
benefits for new employment with respect to employment services rendered during
such period.

  FRANK MODRAK. Mr. Modrak's employment agreement with the Company, effective
October 1, 1999, extends to December 31, 2000. The employment agreement provides
for, among other things, a base annual salary of $175,000. The Company may
decide, in its sole discretion, to increase (but not decrease) the base annual
salary at any time during the employment term. The employment agreement also
provides for quarterly bonuses pursuant to a bonus plan based upon new revenue
acquired by the Company during each quarter during the employment term. If Mr.
Modrak's employment is terminated by the Company without cause or Mr. Modrak
resigns his employment with the Company within 90 days of a significant change
in the scope of his job responsibilities or within 90 days after a Change in
Control, he will be entitled to the salary that he would have received during
the one-year period following the date of termination of his employment as and
when it would have been payable if he had remained an employee for such
additional one-year period. However, Mr. Modrak will not be entitled to the
foregoing severance to the extent that he receives or is entitled to receive
compensation for new employment with respect to employment services rendered
during such period.

  MICHAEL P. MILLER. Mr. Miller's employment agreement, which commenced on April
26, 1999, extends to April 25, 2001, with an automatic extension for an
additional one-year period unless, prior to January 25, 2001, either Mr. Miller
or the Company notifies the other in writing of nonrenewal. The employment
agreement provides for, among other things, a base annual salary of $185,000, an
annual bonus, based on Mr. Miller's performance and consistent with the
Company's then current bonus plan, of up to 40% of his base annual salary, and
reimbursement of up to a maximum amount of $65,000 for expenses incurred by Mr.
Miller in connection with the relocation of himself and his family from Pacific
Palisades, California to South Florida. If Mr. Miller is not employed by the
Company continuously for at least the one-year period commencing April 26, 1999
other than if he is terminated without cause, he shall repay the Company all
amounts received for relocation expenses. The employment agreement also provides
for stock options to acquire 60,000 shares of Common Stock at an exercise price
of $4.38 per share (the fair market value of the Common Stock on the date he
commenced employment) vesting 33-1/3% on each of the first, second and third
anniversaries from the date of grant (April 26, 1999). If Mr. Miller's
employment is terminated by the Company without cause (including, without
limitation, upon a Change in Control), he will be entitled to the salary that he
would have received from the date of termination through the 180 day period
following the date of termination or the expiration of the term of the
employment agreement, whichever is less. However, Mr. Miller will not be
entitled to the foregoing severance to the extent that he receives or is
entitled to receive compensation or benefits from new employment with respect to
employment services rendered during such period. Effective November 24, 1999,
Mr. Miller's existing stock option agreement was amended to provide for
accelerated vesting of his options upon the occurrence of a Change in Control
and the Company's (or its successor's) termination of Mr. Miller without cause
within the earlier to occur of (i) 180 days after the occurrence of a Change in
Control or (ii) the expiration date of the employment term of his employment
agreement. Effective as of January 12, 2000, Mr. Miller's employment agreement
(as well as the employment agreements of each of Robert Tenzer, Thomas F.
Jennings, Jr. and Joseph Gillis, each of which is discussed below) was amended
to provide that, if any of the payments or benefits to be received in connection
with a Change in Control would result in an "excess parachute payment," payments
and/or benefits made pursuant to the employment agreement would be reduced to
the extent necessary to prevent receipt of an "excess parachute payment," if
such reduction would provide such executive officer with a better after tax
result.



                                       45
<PAGE>   46


  ROBERT TENZER. Mr. Tenzer's employment agreement extends to December 31, 2000,
with no renewal options. The employment agreement provides for, among other
things, a base annual salary of $125,000 until October 1, 1998, at which time
the Company's then President was to review the base annual salary. As a result
of such review, the base annual salary was increased to $150,000. In addition,
Mr. Tenzer's base annual salary was further increased to $180,000 in October
1999. The employment agreement also provides for an annual bonus based on Mr.
Tenzer's performance and consistent with the Company's then current bonus plan.
In connection with the employment agreement, (i) the Company granted Mr. Tenzer
stock options to acquire 70,000 shares of Common Stock at an exercise price of
$4.69 per share vesting 33%, 34% and 33% on each of the first, second and third
anniversaries from the date of grant (September 14, 1998) and (ii) the Company
amended Mr. Tenzer's existing stock options to purchase an aggregate of 70,000
shares of Common Stock at an exercise price of $7.875 per share to provide for a
new vesting schedule (with options for 10,000 shares immediately vesting and
options for 60,000 shares vesting in 20% annual increments on each of December
5, 1998, 1999, 2000, 2001 and 2002) and for accelerating vesting upon a Change
in Control, which accelerated vesting on a Change in Control is also provided
with respect to the new options covering 70,000 shares described above. If Mr.
Tenzer's employment is terminated by the Company without cause (including,
without limitation, upon a Change in Control) or Mr. Tenzer resigns his
employment with the Company within 90 days of a significant change in the scope
of his job responsibilities or within 90 days of a Change in Control, he will be
entitled to the salary that he would have received during the one-year period
following the date of termination of his employment as and when it would have
been payable if he had remained an employee for such additional one-year period.
However, Mr. Tenzer will not be entitled to the foregoing severance to the
extent that he receives or is entitled to receive compensation for new
employment with respect to employment services rendered during such period.

  THOMAS F. JENNINGS, JR. Mr. Jennings' employment agreement with the Company,
effective November 15, 1999, extends to December 31, 2001, with automatic
renewal of such employment agreement for successive one-year terms unless either
party notifies the other in writing of nonrenewal at least 90 days prior to
expiration of the initial term or any renewal term. The employment agreement
provides for, among other things, a base annual salary of $175,000 until April
1, 2000, at which time the Company's then Chief Financial Officer shall review
the base annual salary. The Company may decide at this time, in its sole
discretion, to increase (but not decrease) the base annual salary or at any time
during the employment term. The employment agreement also provides for an annual
bonus, the amount of which will be determined by the Company in its sole
discretion in a manner consistent with the Company's then current bonus plan. If
Mr. Jennings' employment is terminated by the Company without cause (including,
without limitation, upon a Change in Control) or Mr. Jennings resigns his
employment with the Company within 90 days of either a significant change in the
scope of his job responsibilities or the Company requiring him, without his
prior written consent, to relocate his office to a location other than northern
Miami-Dade County, Broward County or Palm Beach County, Florida, he will be
entitled to (i) the salary and general employee benefits that he would have
received during the one-year period following the date of termination of his
employment as and when it would have been payable if he had remained an employee
for such additional one-year period and (ii) an amount equal to the average of
the bonuses paid to him during the last two years prior to the date of
termination, which amount shall be payable in twelve equal consecutive monthly
installments commencing one month from the date of termination. Effective
September 1, 1999, Mr. Jennings's existing stock option agreements were amended
to provide for accelerated vesting of his options to purchase an aggregate of
75,000 shares of the Company's common stock upon the occurrence of a Change in
Control.

  JOSEPH E. GILLIS. Mr. Gillis' employment agreement with the Company, effective
November 15, 1999, extends to December 31, 2001, with automatic renewal of such
employment agreement for successive one-year terms unless either party notifies
the other in writing of nonrenewal at least 90 days prior to expiration of the
initial term or any renewal term. The employment agreement provides for, among
other things, a base annual salary of $140,000 until April 1, 2000, at which
time the Company's then Chief Financial Officer shall review the base annual
salary. The Company may decide at this time, in its sole discretion, to increase
(but not decrease) the base annual salary or at any time during the employment




                                       46
<PAGE>   47


term. The employment agreement also provides for an annual bonus, the amount of
which will be determined by the Company in its sole discretion in a manner
consistent with the Company's then current bonus plan. If Mr. Gillis' employment
is terminated by the Company without cause (including, without limitation, upon
a Change in Control) or Mr. Gillis resigns his employment with the Company
within 90 days of either a significant change in the scope of his job
responsibilities or the Company requiring him, without his prior written
consent, to relocate his office to a location other than northern Miami-Dade
County, Broward County or Palm Beach County, Florida, he will be entitled to (i)
the salary and general employee benefits that he would have received during the
one-year period following the date of termination of his employment as and when
it would have been payable if he had remained an employee for such additional
one-year period and (ii) an amount equal to the average of the bonuses paid to
him during the last two years prior to the date of termination, which amount
shall be payable in twelve equal consecutive monthly installments commencing one
month from the date of termination. Effective September 1, 1999, Mr. Gillis'
existing stock option agreements were amended to provide for accelerated vesting
of his options to purchase an aggregate of 65,000 shares of the Company's common
stock upon the occurrence of a Change in Control.

  BERNARD J. KOSAR, JR. On January 2, 1997, Mr. Kosar agreed to join the Company
as an executive officer. Mr. Kosar initially entered into a one-year employment
agreement with the Company providing for a base annual salary of $150,000 and a
discretionary bonus. In October 1997, the Company and Mr. Kosar entered into an
amendment to such employment agreement which provided, among other things, for
automatic renewal of such employment agreement for successive one-year terms
unless either party notified the other in writing not to renew at least 60 days
prior to expiration of the initial term or any renewal term, an increase in the
base annual salary to $275,000, quarterly bonuses in amounts and based upon the
Company's actual revenues equaling or exceeding forecasted revenues on a
quarterly basis and the percentage by which forecasted revenues were exceeded in
any quarter and severance equal to his compensation (salary and bonuses) for one
year in the event Mr. Kosar was terminated without cause within 180 days of a
Change in Control. In connection with such amendment to his employment
agreement, Mr. Kosar was granted options to purchase 165,000 shares at an
exercise price of $7.41 per share vesting 50% on the date of grant (October 1,
1997) and 25% on each of the first and second anniversaries from the date of
grant. Additionally, Mr. Kosar's then existing options to purchase 310,000
shares were repriced to $7.41 per share (of which options to purchase 250,000
shares were also modified to provide for a more accelerated vesting schedule
than when originally granted to him) and the vesting of all his options now
accelerates on a Change in Control. Effective October 1, 1998, the Company and
Mr. Kosar entered into a new employment agreement that supersedes and replaces
in its entirety the above mentioned employment agreement, as amended. The new
employment agreement extends to March 31, 2000, and provides, among other
things, for an annual salary of $75,000 and commissions, payable to Mr. Kosar at
the rate of 1-1/2% of Adjusted Gross Sales (as defined) collected by the Company
from a customer as a result of Mr. Kosar's material facilitative efforts in
procuring that customer for the Company. Such commissions for each such customer
are payable up to a period of one year or the termination of employment other
than with cause, whichever is less. In connection with the cancellation of the
former employment agreement, as amended, Mr. Kosar received a cancellation
payment in the aggregate amount of $400,000. All stock option agreements between
the Company and Mr. Kosar remain unchanged. Mr. Kosar also resigned as an
executive officer of the Company effective October 1, 1998 and, pursuant to his
new employment agreement, is acting as a Senior Advisor to the Company.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

  The Company's Compensation Committee was comprised of two non-employee
directors during 1999, Christian Mustad and Neil A. Natkow. The Compensation
Committee determines executive officers' salaries and bonuses and administers



                                       47
<PAGE>   48


the Company's Stock Plans. In 1999, neither of the members of the Compensation
Committee had any relationship with the Company requiring disclosure under Item
404 of Regulation S-K.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

  The Company's articles of incorporation (the "Articles") contain a provision
eliminating the personal liability of its directors for monetary damages
resulting from breaches of their fiduciary duty to the extent permitted by the
Florida Business Corporation Act. This provision in the Articles does not
eliminate the duty of care and, in appropriate circumstances, equitable remedies
such as an injunction or other forms of non-monetary relief would remain
available under Florida law. Each director will continue to be subject to
liability for breach of a director's duty of loyalty to the Company or its
shareholders, for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, or for any transaction from which the
director derived an improper personal benefit. This provision also does not
affect a director's responsibilities under any other laws, such as the Federal
securities laws or state or Federal environmental laws.

  The Articles and bylaws of the Company (the "Bylaws") provide that the Company
will indemnify its directors and officers, and may indemnify its employees and
other agents, to the fullest extent permitted by law. The Company's Bylaws also
permit it to secure insurance on behalf of any person it is required or
permitted to indemnify for any liability arising out of his or her actions in
such capacity, regardless of whether the Articles and Bylaws would permit
indemnification. The Company maintains liability insurance for its directors and
officers.

  In addition to the indemnification provided for in the Company's Articles and
Bylaws, the Company has entered into agreements to indemnify its directors and
its executive officers. These agreements, among other things, indemnify the
Company's directors and executive officers for all direct and indirect expenses
and costs (including, without limitation, all reasonable attorneys' fees and
related disbursements, other out of pocket costs and reasonable compensation for
time spent by such persons for which they are not otherwise compensated by the
Company or any third person) and liabilities of any type whatsoever (including,
but not limited to, judgments, fines and amounts paid in settlement) actually
and reasonably incurred by such person in connection with either the
investigation, defense, settlement or appeal of any threatened, pending or
completed action, suit or other proceeding, including any action by or in the
right of the corporation, arising out of such person's services as a director,
officer, employee or other agent of the Company, any subsidiary of the Company
or any other company or enterprise to which the person provides services at the
request of the Company. The Company believes that these provisions and
agreements are necessary to attract and retain talented and experienced
directors and officers.

  At present, there are two pending lawsuits against the Company involving
certain of its directors and officers where indemnification may be required or
permitted. See "Item 3. Legal Proceedings" for a discussion of HENRY E. FREEMAN
AND FREEMAN INDUSTRIAL ENTERPRISES CORPORATION v. PRECISION RESPONSE
CORPORATION, MARK J. GORDON AND DAVID L. EPSTEIN (Case No. 3:98-CV-1895-AVC (D.
Conn.)) and JOSEPH P. RIANO v. PRECISION RESPONSE CORPORATION; PRCNETCARE.COM,
INC.; MARK J. GORDON; AND DAVID L. EPSTEIN (Case No. 99-25774 CA 10).

ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

  The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of February 15, 2000 by (i) each shareholder of the
Company who beneficially owns more than 5% of the Company's Common Stock; (ii)
each director of the Company; (iii) each Named Executive Officer; and (iv) all
directors and executive officers of the Company as a group. Except as otherwise
indicated, the Company believes that the beneficial owners of Common Stock
listed below, based on information provided by such owners, have sole investment


                                       48
<PAGE>   49



and voting power with respect to such shares. The address of each person who
beneficially owns more than 5% of Common Stock is the Company's principal
executive office.

<TABLE>
<CAPTION>
                                                                     SHARES BENEFICIALLY OWNED
                                                              -----------------------------------------
                         NAME                                        NUMBER              PERCENT (1)
--------------------------------------------------------      ---------------------    ----------------

<S>            <C>                                                <C>                        <C>
Mark J. Gordon (2)                                                6,365,313 (3)              29.1%
David L. Epstein (2)                                              4,653,017 (4)              21.3
Richard D. Mondre                                                 4,413,283 (5)              20.2
Stacy Lynn Gordon PRC Trust                                       1,435,000 (6)               6.6
Jason Howard Gordon PRC Trust                                     1,435,000 (7)               6.6
Bernard J. Kosar, Jr.                                               900,300 (8)               4.0
Paul M. O'Hara (2)                                                  557,166 (9)               2.5
Richard N. Ferry, Jr. (2)                                           552,546 (10)              2.5
Wesley T. O'Brien                                                   234,500 (11)              1.1
Christian Mustad                                                    156,899 (12)               *
Neil A. Natkow                                                       43,533 (13)               *
Richard N. Krinzman                                                  12,999 (14)               *
All directors and executive officers as a group
(16 persons)                                                     14,561,323 (15)             61.4%

</TABLE>


----------
*Less than 1%.

(1)  Percentage of beneficial ownership is based on 21,852,231 shares of Common
     Stock outstanding as of February 15, 2000, except that, in the case of
     Messrs. Kosar, O'Hara, Ferry, O'Brien, Mustad, Natkow and Krinzman and all
     directors and executive officers as a group, the number of options held by
     Messrs. Kosar, O'Hara, Ferry, O'Brien, Mustad, Natkow and Krinzman and all
     directors and executive officers as a group which are exercisable within 60
     days of February 15, 2000 are also included in such calculations, as
     applicable.

(2)  Mr. Gordon and Mr. Epstein each has certain rights to acquire shares owned
     by each of Mr. O'Hara and Mr. Ferry pursuant to stock purchase and pledge
     agreements. For a more detailed description of these rights, see
     "Shareholder Agreements."

(3)  Includes 50,000 shares owned directly by Mr. Gordon and 4,959,500 shares
     held by a Texas limited partnership in which Mr. Gordon is a 80.3562156%
     limited partner, two grantor retained annuity trusts are limited partners
     having an aggregate 17.28089% interest, a trust for the benefit of Mr.
     Gordon's grandchildren is a limited partner having a 0.3628944% interest,
     Mr. Gordon's wife is a 1% limited partner and a Texas corporation, which is
     wholly owned by Mr. Gordon, is a 1% general partner. The grantor retained
     annuity trusts each provides an annuity to Mr. Gordon for five years, and
     thereafter Mr. Gordon's wife and his lineal descendants have a principal
     and/or income interest in the remainder. Also includes (i) 607,500 shares
     held by a Texas limited partnership in which Mr. Gordon is a 98% limited
     partner, Mr. Gordon's wife is a 1% limited partner and a Texas corporation,
     which is wholly owned by Mr. Gordon, is a 1% general partner; (ii) 100,030
     shares by the Gail and Mark Gordon Foundation, an Internal Revenue Code
     Section 501 (c)(3) exempt corporation as to which Mr. Gordon and his spouse
     are the sole directors; and (iii) 648,283 shares beneficially owned by the
     David Epstein 1995 Grantor Trust (held as described below) as to which Mr.
     Gordon shares the voting and dispositive duties with respect to the shares
     as co-trustee under this trust, which was created by Mr. Epstein for the
     benefit of his children. The shares beneficially owned by the David Epstein
     1995 Grantor Trust are held of record by two Texas limited partnerships in
     which each trust is a 98% limited partner, Mr. Epstein's wife is a 1%
     limited partner and a Texas corporation, which is wholly owned by the
     trust, is the 1% general partner. Messrs. Gordon and Mondre share the
     voting and dispositive duties with respect to these shares as co-trustees
     under the trust, which was created by Mr. Epstein for the benefit of his
     children, and as the directors of the Texas corporation which is the
     general partner of each Texas limited partnership.

(4)  Includes 1,180,917 shares held by a Texas limited partnership in which Mr.
     Epstein is a 78.65071% limited partner, a grantor retained annuity trust is
     a 4.83439% limited partner, a trust for the benefit of Mr. Epstein's
     children is a 14.5149% limited partner, Mr. Epstein's wife is a 1% limited
     partner and a Texas corporation, which is wholly owned by Mr. Epstein, is
     the 1% general partner. The grantor retained annuity trust provides an
     annuity to Mr. Epstein for five years, and his wife, his parents and their
     lineal descendants and others have principal and/or income interests in the
     remainder. Also includes (i) 537,500 shares held by a Texas limited
     partnership in which Mr. Epstein is a 98% limited partner, Mr. Epstein's
     wife is a 1% limited partner and a Texas corporation, which is wholly owned
     by Mr. Epstein, is the 1% general partner; (ii) 1,435,000 shares
     beneficially owned by the Jason Howard Gordon PRC Trust (held as described
     in footnote (7) below) and 1,435,000 shares beneficially owned by the Stacy
     Lynn Gordon PRC Trust (held as described in footnote (6) below), as to
     which Mr. Epstein shares the voting and dispositive duties as co-trustee
     under these trusts which were created by Mr. Gordon for the benefit of his
     children; and (iii) 64,600 shares owned by an Ohio corporation owned 50% by
     Messrs. Epstein and Kosar.



                                       49
<PAGE>   50


(5)  Includes 845,000 shares in the aggregate held by two Texas limited
     partnerships in each of which Mr. Mondre is a 98% limited partner, Mr.
     Mondre's wife is a 1% limited partner and a Texas corporation, which is
     wholly owned by Mr. Mondre, is the 1% general partner. Also includes (i)
     1,435,000, 1,435,000 and 648,283 shares as to which Mr. Mondre shares the
     voting and dispositive duties as co-trustee under the Jason Howard Gordon
     PRC Trust, the Stacy Lynn Gordon PRC Trust and the David Epstein 1995
     Grantor Trust, respectively (see footnotes (3) and (4) above and (6) and
     (7) below); and (ii) 50,000 shares held by a Texas limited partnership in
     which a Texas corporation, which is wholly owned by Mr. Mondre, is the 1%
     general partner and Mr. Mondre's son is a 99% limited partner. See
     "Shareholder Agreements" for a description regarding from whom Mr. Mondre
     acquired, and to whom are pledged, 895,000 shares beneficially and
     pecuniarily owned by Mr. Mondre and his family.

(6)   All of these shares are held by two Texas limited partnerships in each of
      which the trust is a 98% limited partner, Stacy Lynn Gordon is a 1%
      limited partner and a Texas limited liability company is the 1% general
      partner. The general partner is owned by the trust as a 99% member and by
      a Texas corporation, which is wholly owned by the trust, as a 1% managing
      member. Messrs. Epstein and Mondre share the voting and dispositive duties
      with respect to these shares as co-trustees under this trust, which was
      created by Mr. Gordon for the benefit of his daughter, Stacy Lynn Gordon,
      and as directors of the Texas corporation.

(7)  All of these shares are held by two Texas limited partnerships in each of
     which the trust is a 98% limited partner, Jason Howard Gordon is a 1%
     limited partner and a Texas limited liability company is the 1% general
     partner. The general partner is owned by the trust as a 99% member and by a
     Texas corporation, which is wholly owned by the trust, as a 1% managing
     member. Messrs. Epstein and Mondre share the voting and dispositive duties
     with respect to these shares as co-trustees under this trust, which was
     created by Mr. Gordon for the benefit of his son, Jason Howard Gordon, and
     as directors of the Texas corporation.

(8)  Includes (i) 64,600 shares of Common Stock owned by an Ohio corporation
     owned 50% by Messrs. Kosar and Epstein; and (ii) 651,600 shares of Common
     Stock issuable upon the exercise of options within 60 days of February 15,
     2000.

(9)  Includes (i) 200,000 shares of Common Stock owned by a grantor trust in
     which Mr. O'Hara's daughter is trustee and Mr. O'Hara and his spouse are
     the beneficiaries; and (ii) 357,166 shares of Common Stock issuable upon
     the exercise of options within 60 days of February 15, 2000.

(10) Includes 352,546 shares of Common Stock issuable upon the exercise of
     options within 60 days of February 15, 2000.

(11) Includes 216,319 shares of Common Stock issuable upon the exercise of
     options within 60 days of February 15, 2000.

(12) Includes 4,999 shares of Common Stock issuable upon the exercise of options
     within 60 days of February 15, 2000.

(13) Includes (i) 400 shares of Common Stock held in trust for one of Dr.
     Natkow's sons; and (ii) 3,333 shares of Common Stock issuable upon the
     exercise of options within 60 days of February 15, 2000.

(14) Includes (i) 1,000 shares held on behalf of Mr. Krinzman's mother; (ii)
     1,000 shares held on behalf of Mr. Krinzman's mother-in-law; and (iii)
     4,999 shares of Common Stock issuable upon the exercise of options within
     60 days of February 15, 2000.

(15) See other footnotes above. Does not include options held by officers and
     directors which are not exercisable within 60 days of February 15, 2000.

SHAREHOLDER AGREEMENTS

  Mr. Mondre acquired 595,000 of the shares of Common Stock beneficially and
pecuniarily owned by Mr. Mondre and his family 75% from Mr. Gordon and 25% from
Mr. Epstein in February 1996 (the "1996 Acquisition") and 300,000 of his shares
of Common Stock from an affiliate of Mr. Gordon in October 1998. The purchase
prices for such shares are evidenced by long-term promissory notes guaranteed by
Mr. Mondre's spouse and are secured by a pledge of the shares sold and, in the
case of the shares purchased in the 1996 Acquisition, other securities owned by
Mr. Mondre's spouse pursuant to separate pledge agreements.

  Each of Mr. O'Hara and Mr. Ferry acquired his shares of Common Stock 62.5%
from an affiliate of Mr. Gordon and 37.5% from an affiliate of Mr. Epstein in
September 1998. The purchase prices for such shares are evidenced by long-term


                                       50
<PAGE>   51


promissory notes guaranteed by the spouses of each of Mr. O'Hara and Mr. Ferry
and are secured by a pledge of the shares sold pursuant to stock purchase and
pledge agreements. In connection with these purchases, each of Mr. O'Hara and
Mr. Ferry agreed to significant restrictions on their respective rights to sell,
alienate or otherwise dispose of the shares of Common Stock acquired by them
from the affiliates of Mr. Gordon and Mr. Epstein, respectively, as well as to
rights on the part of such affiliates to purchase those shares under certain
circumstances. Generally, each of Mr. O'Hara and Mr. Ferry may not sell,
alienate or otherwise dispose of their shares of Common Stock prior to September
2, 2001, without the consent of the affiliates of Mr. Gordon and Mr. Epstein,
subject to certain exceptions including a Change in Control, termination of
employment by the Company other than for cause, a sale of the Company and death.
Such shares owned by Mr. O'Hara and Mr. Ferry are subject to repurchase rights
of the affiliates of Mr. Gordon and Mr. Epstein, respectively, at the
acquisition price if the respective individual's employment with the Company
terminates prior to September 2, 2001, as a result of termination by the Company
of his employment for cause or his resignation from employment with the Company
other than after a Change in Control. All of the repurchase rights terminate
upon the occurrence of a Change in Control, termination by the Company of the
respective individual's employment other than for cause or a sale of the
Company.

ITEM 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  During 1999 the Company leased two facilities, currently used for warehouse
space, located at 4250 N.W. 135th Street, Miami, and 13180 N.W. 43rd Avenue,
Miami, from a corporation of which Mark J. Gordon, the Chairman of the Board of
the Company, is the sole shareholder. Prior to May 1, 1996, these two facilities
were leased to the Company on a month-to-month basis. In May 1996, the Company
entered into written leases for such facilities. The leases commenced on May 1,
1996 for a term of five years, with a five-year renewal option. During 1999 the
aggregate monthly rent for these two properties was approximately $24,000. Total
rent expense for these facilities was approximately $284,000 in 1999. The
Company believes that the rents payable under these leases are no less favorable
to it than could be obtained from unaffiliated parties.

  The Company subleases its facility at 11975 S.W. 140th Terrace, Miami, from a
partnership jointly owned by Mr. Gordon and David L. Epstein, the Chief
Executive Officer of the Company. The term of this sublease expires in January
2004 and the current monthly rental obligation is approximately $16,600. In
addition, the Company is obligated to remit an annual payment for applicable
property taxes. The property is subleased to the Company on the same terms as
the primary lease with an unaffiliated party. The affiliated partnership holds
an option to purchase the property. The Company also subleases a parking
facility adjacent to the 11975 S.W. 140th Terrace facility from the same
affiliated partnership. This sublease expires in January 2002 and the monthly
rental obligation is approximately $2,500 plus one-twelfth of the applicable
real estate taxes. This property is also subleased to the Company on the same
terms as the primary lease. The Company was originally the lessee under both
primary leases, but assigned its interest to the partnership in May 1996 for
nominal consideration. Effective June 1996, the Company entered into a net lease
with the aforementioned partnership for an additional parking area. The term of
the lease expires five years from June 1996 and the monthly rental obligation is
approximately $2,800 plus one-twelfth of the applicable real estate taxes. The
aggregate rental expenses with respect to the aforementioned subleases and the
lease of the additional parking area were approximately $250,000 in 1999, not
including applicable property and real estate taxes. The Company believes that
the rents paid and that are payable under these subleases and the net lease are
no less favorable than could be obtained from unaffiliated parties.

  The Company funds a portion of the life insurance premiums payable with
respect to up to three split-dollar life insurance policies owned by the Mark
Gordon Family Trust. The amounts paid by the Company are reimbursable to the
Company without interest upon the death of Mr. Gordon, the surrender of the
policies or the termination of the arrangement. This obligation is secured by


                                       51
<PAGE>   52


the benefits payable under the insurance policies. The aggregate amount
outstanding for these premiums as of December 31, 1999 was approximately
$167,000.

  The Company also funds a portion of the life insurance premiums payable with
respect to three split-dollar life insurance policies owned by three separate
trusts for the benefit of Mr. Epstein's family. The amounts paid by the Company
are reimbursable to the Company without interest upon, under one policy, the
death of Mr. Epstein, and under the other two policies, the death of the last to
die of Mr. Epstein and his spouse, the surrender of the policies or the
termination of the arrangement; provided, however, that, in the event that prior
to such time Mr. Epstein's employment with the Company is terminated in certain
circumstances (including, without limitation, as a result of his disability,
without cause or constructive termination), the amounts paid by the Company will
not be reimbursed. This obligation is secured by the benefits payable under the
insurance policies. The aggregate amount outstanding for these premiums as of
December 31, 1999 was approximately $34,000.

  Richard D. Mondre, the Company's Executive Vice President, General Counsel and
Secretary and a director, was a partner of Rubin Baum until immediately prior to
joining the Company in March 1996 and remains "Of Counsel" to BSDPA, the
successor firm to Rubin Baum. Prior to February 1, 1998, Rubin Baum had acted as
the Company's regular outside legal counsel and since then BSDPA has acted as
the Company's regular outside counsel. The total fees and costs paid by the
Company to BSDPA and Rubin Baum in 1999 were approximately $558,000 and $44,000,
respectively. The Company believes that the fees paid to Rubin Baum and BSDPA
are no less favorable than could be obtained from other comparable law firms in
the area.

   During 1999, the Company paid approximately $385,000 in fees to charter an
aircraft in connection with business travel for the Company's personnel. The
aircraft is owned by an entity of which Mr. Gordon is the sole shareholder. The
Company believes that the fees paid to Mr. Gordon's affiliate were no less
favorable to it than would have been obtained from unaffiliated parties.

  Richard N. Krinzman, a director of the Company, is a shareholder and director
of the law firm of Holtzman, Krinzman, Equels & Furia, P.A., located in Miami,
Florida. In July 1998, such law firm was engaged by the Company to represent it
in connection with governmental relations matters. Pursuant to such engagement,
such law firm received a retainer of $25,000 and is payable $2,500 per month.
Such law firm received legal fees from the Company in the amount of $30,000 in
1999. The engagement is terminable at any time by either party. The Company
believes that this engagement and the fees payable to such law firm in
connection therewith are no less favorable than could be obtained from other
comparable law firms in the area.

  In November 1999, the Company entered into a put/call agreement with
Presidential Suites, Ltd., a Florida limited partnership directly and indirectly
owned by Mr. Gordon ("Presidential"). Pursuant to such agreement, the Company
was granted the right to cause Presidential to assign (and, in connection with
such assignment, the Company would assume Presidential's obligations accruing
after such assignment with respect to), and Presidential was granted the right
to cause the Company to assume Presidential's obligations accruing after such
assumption with respect to (and, in connection with such assumption,
Presidential would assign), Presidential's interest in a certain lease agreement
for leased space consisting of approximately 3,388 rentable square feet
("Presidential Premises") and adjacent to the Company's new leased premises
located in Plantation, Florida, which will be the site of the Company's new
principal corporate offices (see "Item 2. Properties"). In the event of the
exercise of the Company or Presidential of this put/call right, the Company
would also purchase, and Presidential would convey, Presidential's furniture,
fixtures and equipment kept on the Presidential Premises ("FF&E"). In connection
with the assignment and assumption of the aforesaid lease for the Presidential
Premises and the conveyance of the FF&E, the Company would, among other things,
(i) pay to Presidential the unamortized portion (which is amortizable over the


                                       52
<PAGE>   53



initial term of the lease for the Presidential Premises) of the sum of (a) the
cost of the tenant improvements constructed on the Presidential Premises in
excess of the landlord's contribution in cash (and not in the form of a rent
credit) and (b) the cost of the FF&E, and (ii) provide a substitute letter of
credit to replace the then outstanding amount of Presidential's letter of credit
delivered to the landlord (the initial amount of Presidential's letter of credit
was $67,760). The base rental payable by Presidential under the lease for the
Presidential Premises is $49,126 per annum (increasing by 3% per annum during
the term) and the initial term of such lease is ten years.

                                    PART IV.

ITEM 14.      EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)    Documents filed as part of this report:

       1.     Financial Statements

                  See Index to Consolidated Financial Statements located in Item
                  8 of this report.

       2.     Financial Statement Schedule                                PAGE

                  Schedule II - Valuation and Qualifying Accounts.........S-1

       3.     Exhibits

<TABLE>
<CAPTION>
EXHIBIT NUMBER                                              DESCRIPTION OF EXHIBIT
---------------     ------------------------------------------------------------------------------------------------------

<S>                 <C>
    3.1             Articles of Incorporation of Precision Response Corporation (Exhibit 3.1 to Form S-1)*

    3.2             Amended and Restated Bylaws of Precision Response Corporation (filed herewith)

   10.1             Precision Response Corporation Amended and Restated 1996 Incentive Stock Plan as amended through May
                    15, 1997 (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q
                    for the quarter ended June 30, 1997, File No. 0-20941)+

   10.2             Precision Response Corporation Amended and Restated 1996 Incentive Stock Plan (as amended through
                    June 12, 1998) (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form
                    10-Q for the quarter ended June 30, 1998, File No. 0-20941)+

   10.3             Precision Response Corporation Amended and Restated 1996 Incentive Stock Plan (as amended through
                    June 21, 1999) (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form
                    10-Q for the quarter ended June 30, 1999, File No. 0-20941)+

   10.4             Precision Response Corporation 1996 Non-employee Director Stock Option Plan (Exhibit 10.2 to Form
                    S-1) *+

   10.5             Precision Response Corporation Amended and Restated 1996 Non-employee Director Stock Option Plan
                    (incorporated by reference to Exhibit "A" to the Company's Proxy Statement dated April 30, 1999,
                    File No. 0-20941)+

   10.6             Precision Response Corporation Profit Sharing Plan (Exhibit 10.3 to Form S-1) *+

   10.7             Employment Agreement with Mark Gordon (Exhibit 10.4 to Form S-1*), as amended by letter agreement
                    dated January 12, 2000 between the Company and Mark J. Gordon (filed herewith) +


</TABLE>


                                       53
<PAGE>   54
<TABLE>
<CAPTION>
EXHIBIT NUMBER                                              DESCRIPTION OF EXHIBIT
---------------     ------------------------------------------------------------------------------------------------------

<S>                 <C>

   10.8             Employment Agreement with David Epstein (Exhibit 10.5 to Form S-1*), as amended by Amendment to
                    Employment Agreement dated as of April 1, 1999 between the Company and David L. Epstein
                    (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
                    quarter ended March 31, 1999, File No. 0-20941), as further amended by Second Amendment to
                    Employment Agreement dated as of September 1, 1999 between the Company and David L. Epstein (filed
                    herewith) and as further amended by Third Amendment to Employment Agreement dated as of January 12,
                    2000 between the Company and David L. Epstein (filed herewith) +

   10.9             Stock Purchase and Shareholder Agreement, dated February 16, 1996, between Richard Mondre and Mark
                    Gordon, as amended effective as of February 16, 1996 (Exhibit 10.8 to Form S-1) *

   10.10            Stock Purchase and Shareholder Agreement, dated February 16, 1996, between Richard Mondre and David
                    Epstein, as amended effective as of February 16, 1996 (Exhibit 10.9 to Form S-1) *

   10.11            Agreement, dated February 16, 1996, among Richard Mondre, Mark Gordon and David Epstein (Exhibit
                    10.10 to Form S-1) *

   10.12            Stockholder Agreement, dated May 10, 1996, between Mark Gordon and David Epstein (Exhibits 10.14 to
                    Form S-1*), as terminated by letter dated January 12, 2000 from David L. Epstein to and accepted by
                    Mark J. Gordon (filed herewith)

   10.13            S Corporation Tax Allocation and Indemnification Agreement (Exhibit 10.15 to Form S-1) *

   10.14            Form of Indemnification Agreement (Exhibit 10.17 to Form S-1) *

   10.15            Net Lease, dated May 1, 1996, between MJG Properties, Inc. and Precision Response Corporation (13180
                    N.W. 43rd Avenue lease) (Exhibit 10.18 to Form S-1) *

   10.16            Net Lease, dated May 1, 1996, between MJG Properties, Inc. and Precision Response Corporation (4250
                    N.W. 135th Street lease) (Exhibit 10.19 to Form S-1) *

   10.17            Lease Agreement and Option to Purchase Real Property, dated January 23, 1996, between Burger King
                    Corporation and Precision Response Corporation (without schedules) (Exhibit 10.21 to Form S-1) *

   10.18            Assignment of Lease, dated as of April 18, 1996, between Precision Response Corporation and Deerwood
                    Realty Partners, Ltd (Exhibit 10. 22 to Form S-1) *

   10.19            Sublease, dated May 1, 1996, between Precision Response Corporation and Deerwood Realty Partners,
                    Ltd. (Exhibit 10.23 to Form S-1) *

   10.20            Lease, dated January 25, 1996, between Donald V. Mariutto and Eugene L. Mariutto, and Precision
                    Response Corporation (Exhibit 10.24 to Form S-1) *

   10.21            Assignment of Lease, dated April 30, 1996, between Precision Response Corporation and Deerwood
                    Realty Partners, Ltd. (Exhibit 10.25 to Form S-1) *
</TABLE>

                                       54
<PAGE>   55
<TABLE>
<CAPTION>
EXHIBIT NUMBER                                              DESCRIPTION OF EXHIBIT
---------------     ------------------------------------------------------------------------------------------------------

<S>                 <C>
   10.22            Sublease, dated May 1, 1996, between Precision Response Corporation and Deerwood Realty Partners,
                    Ltd. (Exhibit 10.26 to Form S-1) *

   10.23            Net Lease, dated May 1, 1996, between Deerwood Realty Partners, Ltd. and Precision Response
                    Corporation (Exhibit 10.30 to Form S-1) *

   10.24            Registration Rights Agreement, dated May 15, 1996, between Precision Response Corporation and Mark
                    Gordon (Exhibit 10.27 to Form S-1) *

   10.25            Registration Rights Agreement, dated May 15, 1996, between Precision Response Corporation and David
                    Epstein (Exhibit 10.28 to Form S-1) *

   10.26            Credit Agreement (with exhibits but without schedules) dated as of March 2, 1998 among the Company,
                    as the Borrower, NationsBank, N.A. and the other lenders that become signatories thereto, as the
                    Banks, and NationsBank, N.A., as the Agent (incorporated by reference to Exhibit 10.38 to the
                    Company's Annual Report on Form 10-K for the year ended December 31, 1997, File No. 0-20941)

   10.27            First Amendment to Credit Agreement effective as of June 30, 1998 between the Company and
                    NationsBank, N.A. (incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on
                    Form 10-Q for the quarter ended June 30, 1998, File No. 0-20941)

   10.28            Second Amendment to Revolving Credit Agreement effective as of September 30, 1998 between the
                    Company and NationsBank, N.A. (incorporated by reference to Exhibit 10.3 to the Company's Quarterly
                    Report on Form 10-Q for the quarter ended September 30, 1998, File No. 0-20941)

   10.29            Confirmation letter dated December 1, 1998 from NationsBank, N.A. to the Company regarding
                    definition of "fixed charge coverage ratio " (incorporated by reference to Exhibit 10.37 to the
                    Company's Annual Report on Form 10-K for the year ended December 31, 1998, File No. 0-20941)

   10.30            Third Amendment to Revolving Credit Agreement effective as of June 30, 1999 between the Company and
                    Bank of America, N.A., d/b/a NationsBank, N.A., successor to NationsBank, N.A. ("NationsBank")
                    (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the
                    quarter ended June 30, 1999, File No. 0-20941)

   10.31            Fourth Amendment to Revolving Credit Agreement effective as of December 31, 1999 between the Company
                    and NationsBank (filed herewith)

   10.32            Consolidated Renewal Promissory Note dated as of May 29, 1998 from the Company payable to the order
                    of NationsBank, N.A. (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on
                    Form 10-Q for the quarter ended June 30, 1998, File No. 0-20941)

   10.33            First Amendment to Consolidated Renewal Promissory Note effective as of June 30, 1999 between the
                    Company and NationsBank (incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report
                    on Form 10-Q for the quarter ended June 30, 1999, File No. 0-20941)
</TABLE>




                                       55
<PAGE>   56
<TABLE>
<CAPTION>
EXHIBIT NUMBER                                              DESCRIPTION OF EXHIBIT
---------------     ------------------------------------------------------------------------------------------------------

<S>                 <C>
   10.34            Revolving Promissory Note effective as of December 31, 1999 between the Company and NationsBank
                    (filed herewith)

   10.35            Mortgage Loan Agreement dated as of May 29, 1998 between the Company and NationsBank, N.A.
                    (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the
                    quarter ended June 30, 1998, File No. 0-20941)

   10.36            First Amendment to Mortgage Loan Agreement effective as of June 30, 1998 between the Company and
                    NationsBank, N.A. (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on
                    Form 10-Q for the quarter ended June 30, 1998, File No. 0-20941)

   10.37            Second Amendment to Mortgage Loan Agreement effective as of September 30, 1998 between the Company
                    and NationsBank, N.A. (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report
                    on Form 10-Q for the quarter ended September 30, 1998, File No. 0-20941)

   10.38            Third Amendment to Mortgage Loan Agreement effective as of June 30, 1999 between the Company and
                    NationsBank (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form
                    10-Q for the quarter ended June 30, 1999, File No. 0-20941)

   10.39            Fourth Amendment to Mortgage Loan Agreement effective as of December 31, 1999 between the Company
                    and NationsBank (filed herewith)

   10.40            Employment Agreement dated as of August 4, 1998 between the Company and Robert Tenzer (incorporated
                    by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended
                    September 30, 1998, File No. 0-20941), as amended by First Amendment to Employment Agreement dated
                    as of January 13, 2000 between the Company and Robert Tenzer (filed herewith)+

   10.41            Employment Agreement dated as of October 6, 1998 between the Company and James R. Weber
                    (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the
                    quarter ended September 30, 1998, File No. 0-20941)+

   10.42            Employment Agreement effective as of October 20, 1998 between the Company and Wesley T. O'Brien
                    (incorporated by reference to Exhibit 10.40 to the Company's Annual Report on Form 10-K for the year
                    ended December 31, 1998, File No. 0-20941)+

   10.43            Letter agreement effective as of October 1, 1998 from the Company to and accepted by Bernard J.
                    Kosar, Jr. (incorporated by reference to Exhibit 10.41 to the Company's Annual Report on Form 10-K
                    for the year ended December 31, 1998, File No. 0-20941)+

   10.44            Employment Agreement dated as of April 1, 1999 between the Company and Richard D. Mondre together
                    with Registration Rights Agreement dated as of April 1, 1999 between the Company and Richard D.
                    Mondre annexed as Exhibit "A" thereto (incorporated by reference to Exhibit 10.2 to the Company's
                    Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, File No. 0-20941), as amended by
                    First Amendment to Employment Agreement dated as of January 12, 2000 between the Company and Richard
                    D. Mondre (filed herewith)+


</TABLE>

                                       56
<PAGE>   57
<TABLE>
<CAPTION>
EXHIBIT NUMBER                                              DESCRIPTION OF EXHIBIT
---------------     ------------------------------------------------------------------------------------------------------

<S>                 <C>
   10.45            Employment Agreement dated as of April 1, 1999 between the Company and Richard N. Ferry, Jr.
                    (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the
                    quarter ended March 31, 1999, File No. 0-20941), as amended by First Amendment to Employment
                    Agreement dated as of January 12, 2000 between the Company and Richard N. Ferry, Jr. (filed
                    herewith)+

   10.46            Employment Agreement dated as of April 14, 1999 between the Company and Michael P. Miller
                    (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the
                    quarter ended March 31, 1999, File No. 0-20941), as amended by First Amendment to Employment
                    Agreement dated as of January 13, 2000 between the Company and Michael P. Miller (filed herewith)+

   10.47            Securities Purchase Agreement dated as of June 15, 1999 between the Company and Global Reservation
                    Systems, Inc. ("GRS") (without exhibits or schedules) (incorporated by reference to Exhibit 10.6 to
                    the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, File No. 0-20941)

   10.48            Common Stock Purchase Warrant dated June 15, 1999 from GRS in favor of the Company (incorporated by
                    reference to Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for the quarter ended June
                    30, 1999, File No. 0-20941)

   10.49            Shareholders' Rights Agreement dated as of June 15, 1999 among the Company, GRS and certain
                    shareholders of GRS (incorporated by reference to Exhibit 10.8 to the Company's Quarterly Report on
                    Form 10-Q for the quarter ended June 30, 1999, File No. 0-20941)

   10.50            Registration Rights Agreement dated as of June 15, 1999 between the Company and GRS (incorporated by
                    reference to Exhibit 10.9 to the Company's Quarterly Report on Form 10-Q for the quarter ended June
                    30, 1999, File No. 0-20941)

   10.51            Lease Agreement effective as of July 20, 1999 between Crossroads Business Park Associates, as
                    landlord, and the Company, as tenant, as amended by Lease Amendment No. 1 dated and effective as of
                    October 29, 1999 between Crossroads Business Park Associates, as landlord, and the Company, as
                    tenant (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
                    the quarter ended September 30, 1999, File No. 0-20941)

   10.52            Put/Call Agreement dated November 17, 1999 between the Company and Presidential Suites, Ltd. (filed
                    herewith)

   10.53            Employment Agreement effective as of August 9, 1999 between the Company and Paul M. O'Hara
                    (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the
                    quarter ended September 30, 1999, File No. 0-20941), as amended by First Amendment to Employment
                    Agreement dated as of January 12, 2000 between the Company and Paul M. O'Hara (filed herewith)+

   10.54            Tri-Party Split Dollar Agreement and Collateral Assignment effective as of September 1, 1999 between
                    the David Epstein 1995 Grantor Trust u/a/d December 28, 1995 and the Epstein 1997 Family Trust u/a/d
                    June 19, 1997 and the Company (filed herewith)+


</TABLE>

                                       57
<PAGE>   58
<TABLE>
<CAPTION>
EXHIBIT NUMBER                                              DESCRIPTION OF EXHIBIT
---------------     ------------------------------------------------------------------------------------------------------

<S>                 <C>
   10.55            Amended and Restated Split Dollar Agreement and Collateral Assignment effective as of September 1,
                    1999 between the David Epstein 1995 Irrevocable Life Insurance Trust u/a/d August 2, 1995 and the
                    Company (filed herewith)+

   10.56            Amended and Restated Split Dollar Agreement and Collateral Assignment effective as of September 1,
                    1999 between the Epstein 1995 Family Trust u/a/d August 2, 1995 and the Company (filed herewith)+

   10.57            Split Dollar Agreement and Collateral Assignment effective April 1998 between the Mark Gordon Family
                    Trust u/a/d March 1, 1990 and the Company (filed herewith)+

   10.58            Employment Agreement dated as of November 15, 1999 between the Company and Joseph E. Gillis, as
                    amended by First Amendment to Employment Agreement dated as of January 13, 2000 between the Company
                    and Joseph E. Gillis (filed herewith)+

   10.59            Employment Agreement dated as of November 15, 1999 between the Company and Thomas F. Jennings, Jr.,
                    as amended by First Amendment to Employment Agreement dated as of January 13, 2000 between the
                    Company and Thomas F. Jennings, Jr. (filed herewith)+

   10.60            Employment Agreement executed as of October 1, 1999 between the Company and Frank Modrak (filed
                    herewith)+

   10.61            Agreement and Plan of Merger, dated as of January 12, 2000, among the Company, USA Networks, Inc.
                    and P Acquisition Corp. (incorporated by reference to Exhibit 2.1 to the Company's Current Report on
                    Form 8-K filed on January 13, 2000, File No. 0-20941)

   10.62            Stockholders Agreement, dated as of January 12, 2000, by and among USA Networks, Inc. and each of
                    the stockholders listed on Schedule I thereto (incorporated by reference to Exhibit 2.2 to the
                    Company's Current Report on Form 8-K filed on January 13, 2000, File No. 0-20941)

   23.1             Consent of PricewaterhouseCoopers LLP (filed herewith)

   27.1             Financial Data Schedule (filed herewith)

</TABLE>

----------

*  Previously filed and incorporated by reference to exhibit in the Company's
   Registration Statement on Form S-1, as amended (File No. 333-03209),
   initially filed on May 6, 1996 ("Form S-1"), as set forth after such
   agreement or document.

+  Indicates a management contract or compensatory plan or arrangement.


                                       58
<PAGE>   59










(b)    Reports on Form 8-K

       No reports on Form 8-K were filed by the Company during the quarter ended
       December 31, 1999. However, the Company has filed (i) a Current Report on
       Form 8-K dated January 13, 2000, reporting in Item 5 thereof, among other
       things, the entering into the Merger Agreement with USAi on January 12,
       2000 and in Item 7 thereof the filing of a copy of the Merger Agreement,
       Stockholders Agreement dated as of January 12, 2000 among USAi and each
       of the stockholders listed on Schedule I thereto and a press release of
       the Company and USAi dated January 12, 2000, and (ii) a Current Report on
       Form 8-K dated January 27, 2000, reporting in Item 5 thereof the
       Company's issuance on January 26, 2000 of a press release announcing its
       revenues and earnings for the fourth quarter and year ended December 31,
       1999 and in Item 7 thereof the filing of a copy of such press release of
       the Company dated January 26, 2000.





                                       59
<PAGE>   60


                                   SIGNATURES


         Pursuant to the requirement of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


                                     PRECISION RESPONSE CORPORATION
                                             (Registrant)

                                     By: /s/ PAUL M. O'HARA
                                         -----------------------------------
                                         Paul M. O'Hara
                                         Executive Vice President - Finance
                                         and Chief Financial Officer
                                         (Principal Financial Officer)

Dated:  February 18, 2000

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE                                            TITLE                                       DATE

<S>                                                  <C>                                     <C>
/s/ MARK J. GORDON                                   Chairman of the Board                     February 18, 2000
-------------------------------------------
Mark J. Gordon

/s/ DAVID L. EPSTEIN                                 Chief Executive Officer and               February 18, 2000
-------------------------------------------          Director
David L. Epstein                                     (Principal Executive Officer)

/S/ RICHARD D. MONDRE                                Executive Vice President,                 February 18, 2000
-------------------------------------------          General Counsel, Secretary
Richard D. Mondre                                    and Director

/s/ PAUL M. O'HARA                                   Executive Vice President - Finance        February 18, 2000
-------------------------------------------          and Chief Financial Officer
Paul M. O'Hara

/s/ THOMAS F. JENNINGS, JR.                          Vice President and Controller             February 18, 2000
-------------------------------------------          (Principal Accounting Officer)
Thomas F. Jennings, Jr.

                                                     Director                                             , 2000
-------------------------------------------
Bernard J. Kosar, Jr.

/s/ RICHARD N. KRINZMAN                              Director                                  February 18, 2000
-------------------------------------------
Richard N. Krinzman

/s/ CHRISTIAN MUSTAD                                 Director                                  February 18, 2000
-------------------------------------------
Christian Mustad

/s/ NEIL A. NATKOW                                   Director                                  February 18, 2000
-------------------------------------------
Neil A. Natkow


</TABLE>



                                       60
<PAGE>   61
               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



To the Board of Directors and Shareholders
of Precision Response Corporation:

In our opinion, the consolidated financial statements listed in the index
appearing under Item 8 on page 34 and Item 14(a)(1) on page 53 present fairly,
in all material respects, the financial position of Precision Response
Corporation and subsidiaries at December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. In addition, in our opinion the financial
statement schedule listed in the index appearing under Item 14 (a)(2) on page 53
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.



/s/ PRICEWATERHOUSECOOPERS LLP


Miami, Florida
January 26, 2000



                                      F-1
<PAGE>   62


                PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)


<TABLE>
<CAPTION>
                                                                                         DECEMBER 31,
                                                                               ---------------------------------
                                                                                   1999               1998
                                                                               --------------    ---------------
<S>                                                                                  <C>          <C>
ASSETS
Current assets:
    Cash and cash equivalents ....................................................   $   2,067    $   1,656
    Accounts receivable, net of allowances of $2,411 and $8,225, in 1999 and 1998,
        respectively .............................................................      46,173       42,771
    Income taxes receivable ......................................................         199          215
    Deferred income taxes ........................................................       3,823        6,906
    Prepaid expenses and other current assets ....................................       2,714        4,186
                                                                                     ---------    ---------
            Total current assets .................................................      54,976       55,734
Property and equipment, net ......................................................      88,109       71,414
Deferred income taxes ............................................................       3,713        5,516
Other assets .....................................................................       2,565          782
                                                                                     ---------    ---------
            Total assets .........................................................   $ 149,363    $ 133,446
                                                                                     =========    =========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
    Current maturities of long-term obligations ..................................   $   1,691    $   2,510
    Accounts payable .............................................................      18,472       16,571
    Restructuring accrual ........................................................       1,280        3,244
    Accrued compensation expenses ................................................       4,632        3,108
    Other accrued expenses .......................................................       7,236        7,174
    Customer deposits ............................................................         377        1,108
                                                                                     ---------    ---------
            Total current liabilities ............................................      33,688       33,715
Long-term obligations, less current maturities ...................................      23,425       16,916
Restructuring accrual ............................................................       1,967        3,456
                                                                                     ---------    ---------
            Total liabilities ....................................................      59,080       54,087
                                                                                     ---------    ---------

Commitments and contingencies (see Notes 7 and 15) ...............................        --           --

Shareholders' equity:
    Common stock, $0.01 par value; 100,000,000 shares authorized;
        21,794,400 and 21,549,000 issued and outstanding, respectively ...........         218          215
    Additional paid-in capital ...................................................     100,218       97,179
    Accumulated deficit ..........................................................      (9,744)     (18,035)
    Unearned compensation ........................................................        (409)        --
                                                                                     ---------    ---------
            Total shareholders' equity ...........................................      90,283       79,359
                                                                                     ---------    ---------
            Total liabilities and shareholders' equity ...........................   $ 149,363    $ 133,446
                                                                                     =========    =========
</TABLE>






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





                                      F-2
<PAGE>   63


                 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)



<TABLE>
<CAPTION>
                                                           FOR THE YEAR ENDED DECEMBER 31,
                                                         ----------------------------------
                                                           1999        1998        1997
                                                         -------      -------      -------

<S>                                                     <C>          <C>          <C>
Revenues ............................................   $ 215,920    $ 175,173    $ 143,584
                                                        ---------    ---------    ---------
Operating expenses:
    Cost of services ................................     177,668      153,638      128,177
    Selling, general and administrative expenses ....      23,249       23,290       25,874
    Restructuring and asset impairment charges ......        --         13,583       11,591
                                                        ---------    ---------    ---------
            Total operating expenses ................     200,917      190,511      165,642
                                                        ---------    ---------    ---------
            Operating income (loss) .................      15,003      (15,338)     (22,058)
Other income (expense):
    Interest income .................................          74          261          984
    Interest expense ................................      (1,195)      (1,050)        (702)
                                                        ---------    ---------    ---------
            Income (loss) before income tax
              provision (benefit) ...................      13,882      (16,127)     (21,776)
Income tax provision (benefit) ......................       5,591       (5,938)      (8,710)
                                                        ---------    ---------    ---------
            Net income (loss) .......................   $   8,291    $ (10,189)   $ (13,066)
                                                        =========    =========    =========

Net income (loss) per common share:
  Basic .............................................   $    0.38    $   (0.47)   $   (0.61)
                                                        =========    =========    =========
  Diluted ...........................................   $    0.37    $   (0.47)   $   (0.61)
                                                        =========    =========    =========

Weighted average number of common shares outstanding:
  Basic .............................................      21,587       21,548       21,393
                                                        =========    =========    =========
  Diluted ...........................................      22,445       21,548       21,393
                                                        =========    =========    =========

</TABLE>






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



                                      F-3
<PAGE>   64


                 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                 (IN THOUSANDS)



<TABLE>
<CAPTION>
                                                 COMMON STOCK        ADDITIONAL      RETAINED
                                             ----------------------   PAID-IN         EARNINGS        UNEARNED
                                              SHARES       AMOUNT     CAPITAL        (DEFICIT)      COMPENSATION    TOTAL
                                             ---------    ---------  ----------     -----------    --------------  ---------

<S>                                             <C>       <C>          <C>           <C>           <C>           <C>
Balance at December 31, 1996 ............       20,000    $     200    $  47,808     $   5,394     $    (452)    $  52,950
    Net loss ............................         --           --           --         (13,066)         --         (13,066)
    Payment of dividend .................         --           --           --            (174)         --            (174)
    Issuance of common stock ............        1,500           15       49,149          --            --          49,164
    Exercise of employee stock options ..           42         --            222          --            --             222
    Amortization of unearned compensation         --           --           --            --             344           344
                                             ---------    ---------    ---------     ---------     ---------     ---------
Balance at December 31, 1997 ............       21,542          215       97,179        (7,846)         (108)       89,440
    Net loss ............................         --           --           --         (10,189)         --         (10,189)
    Exercise of employee stock options ..            7         --           --            --            --            --
    Amortization of unearned compensation         --           --           --            --             108           108
                                             ---------    ---------    ---------     ---------     ---------     ---------
Balance at December 31, 1998 ............       21,549          215       97,179       (18,035)         --          79,359
    Net income ..........................         --           --           --           8,291          --           8,291
    Stock option grants .................         --           --            486          --            (486)         --
    Exercise of employee stock options ..          246            3        1,862          --            --           1,865
    Tax effect on exercise of employee
         stock options ..................         --           --            691          --            --             691
    Amortization of unearned compensation         --           --           --            --              77            77
                                             ---------    ---------    ---------     ---------     ---------     ---------
Balance at December 31, 1999 ............       21,795    $     218    $ 100,218     $  (9,744)    $    (409)    $  90,283
                                             =========    =========    =========     =========     =========     =========
</TABLE>






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


                                      F-4
<PAGE>   65

                 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                     FOR THE YEAR ENDED DECEMBER 31,
                                                                                 ----------------------------------------
                                                                                      1999           1998         1997
                                                                                 -------------    ----------  -----------
<S>                                                                                 <C>          <C>           <C>
OPERATING ACTIVITIES:
    Net income (loss) ..........................................................    $  8,291     $(10,189)     (13,066)
    Adjustments to reconcile net income (loss) to net cash provided by (used in)
        operating activities:
        Depreciation and amortization ..........................................      15,440       12,822       11,506
        Provision for bad debts and sales allowances ...........................       2,393       14,534        5,895
        Amortization of unearned compensation ..................................          77          108          344
        Restructuring and asset impairment charges .............................        --          6,458        6,832
        Other asset write-offs .................................................        --          5,392         --
        Deferred income taxes ..................................................       5,577       (6,037)      (4,905)
    Changes in operating assets and liabilities, excluding effects of
        acquisition:
        Accounts receivable ....................................................      (5,795)     (30,165)      (7,205)
        Income taxes receivable ................................................          16        6,755       (6,970)
        Prepaid expenses and other current assets ..............................       1,472         (448)      (4,048)
        Other assets ...........................................................        (143)        (247)         787
        Accounts payable .......................................................       1,901        3,549       (3,761)
        Restructuring accrual ..................................................      (3,453)       4,497        2,863
        Accrued compensation expenses ..........................................       1,524       (1,993)       1,023
        Income taxes payable ...................................................        --           --         (3,297)
        Other accrued expenses .................................................          62          815        3,748
        Customer deposits ......................................................        (731)      (2,846)       1,534
                                                                                    --------     --------     --------
            Net cash provided by (used in) operating
               activities ......................................................      26,631        3,005       (8,720)
                                                                                    --------     --------     --------

INVESTING ACTIVITIES:
    Purchases of property and equipment ........................................     (32,135)     (24,883)     (34,251)
    Investment in unconsolidated affiliate .....................................      (1,640)        --           --
    Cash acquired in acquisition, net of cash paid .............................        --           --            192
                                                                                    --------     --------     --------
            Net cash used in investing activities ..............................     (33,775)     (24,883)     (34,059)
                                                                                    --------     --------     --------

FINANCING ACTIVITIES:
    Net proceeds from revolving credit loan ....................................       8,000       11,000         --
    Payments on long-term obligations ..........................................      (2,310)      (2,546)      (2,615)
    Proceeds from long-term obligations ........................................        --          4,000         --
    Net proceeds from issuance of common stock .................................        --           --         49,386
    Dividend paid ..............................................................        --           --           (174)
    Proceeds from exercise of stock options ....................................       1,865         --           --
                                                                                    --------     --------     --------
            Net cash provided by financing activities ..........................       7,555       12,454       46,597
                                                                                    --------     --------     --------

Net increase (decrease) in cash and cash equivalents ...........................         411       (9,424)       3,818
Cash and cash equivalents at beginning of year .................................       1,656       11,080        7,262
                                                                                    --------     --------     --------
Cash and cash equivalents at end of year .......................................    $  2,067     $  1,656     $ 11,080
                                                                                    ========     ========     ========

Supplemental cash flow information:
    Cash paid for interest, including capital leases, net of
       amounts capitalized .....................................................    $    877     $    893     $    724
                                                                                    ========     ========     ========
    Cash paid for income taxes .................................................    $   --       $    215     $  3,330
                                                                                    ========     ========     ========
Supplemental schedule of non-cash investing and financing activities:
        Installment loans and capital lease obligations ........................    $   --       $   --       $  1,687
                                                                                    ========     ========     ========
</TABLE>

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


                                      F-5
<PAGE>   66


                 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.   OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

         Precision Response Corporation and subsidiaries (the "Company") is a
full-service provider of outsourced customer care, utilizing a fully-integrated
mix of traditional call center and e-commerce customer care solutions and
services, to large corporations and high-growth Internet-focused companies.
Through the integration of its teleservicing, e-commerce customer care services,
information technology, which includes database marketing and management, and
fulfillment capabilities, the Company is able to offer a total customer
relationship solution to meet its clients' needs.

PRINCIPLES OF CONSOLIDATION

         The consolidated financial statements include the accounts of the
Company and all wholly-owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.

USE OF ESTIMATES

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Such estimates consist primarily of the allowance for doubtful
accounts and sales allowances, the valuation allowance on net deferred tax
assets, the useful lives of property and equipment, and accrued expenses. Actual
results could differ from those estimates.

CASH AND CASH EQUIVALENTS

         Highly liquid investments with a maturity of three months or less on
their acquisition date are considered cash equivalents. The Company places its
temporary cash investments with high credit quality financial institutions. At
times, such investments may be in excess of the federally-insured limits.

PROPERTY AND EQUIPMENT

         Property and equipment, including expenditures for major improvements,
is stated at cost less accumulated depreciation and amortization. Repairs and
maintenance are expensed as incurred. Depreciation and amortization is
determined using the straight-line method over the estimated useful lives of the
respective assets or, in relation to leasehold improvements and property under
capital leases, over the lesser of the asset's estimated useful life or the
lease term (see Note 5 - Property and Equipment).

         Upon the sale, retirement or other disposition of assets, the related
cost and accumulated depreciation or amortization is eliminated from the
accounts. Any resulting gains or losses from disposals are included in the
Consolidated Statements of Operations.

LONG-LIVED ASSETS

         The Company evaluates long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable in accordance with Statement of Financial Accounting
Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF (see Note 3 - Restructuring and Other
Non-Recurring Special Charges).



                                      F-6
<PAGE>   67

                 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


CAPITALIZED INTEREST

         The Company capitalizes certain interest costs recognized on borrowings
as part of the historical cost of acquiring or producing certain assets in
accordance with Statement of Financial Accounting Standards No. 34,
CAPITALIZATION OF INTEREST COST. The amount capitalized is an allocation of the
interest cost incurred during the period required to complete the asset. During
1999 and 1998, certain borrowings under the Company's revolving credit facility
(see Note 6- Credit Facilities and Long-Term Debt) were used to partially fund
the Company's PRISM Project (see Note 5- Property and Equipment) and other
internally developed or modified software, and the resulting interest costs
incurred have been capitalized. Total interest cost incurred during 1999 was
$1.8 million, of which $1.2 million was expensed and is included in the
accompanying 1999 Consolidated Statements of Operations, and the remaining $0.6
million was capitalized and is included in Property and equipment, net in the
accompanying Consolidated Balance Sheets. Total interest cost incurred during
1998 was $1.3 million, of which $1.1 million was expensed and is included in the
accompanying 1998 Consolidated Statements of Operations, and the remaining $0.2
million was capitalized and is included in Property and equipment, net in the
accompanying Consolidated Balance Sheets. As each module of the PRISM Project
became operational or as other internally developed or modified software is
available for use, all associated capitalized costs, including capitalized
interest, is, or will begin to be, amortized on a straight-line basis over the
module's or software's estimated useful life.

REVENUE RECOGNITION

         The Company recognizes revenues as services are performed.
Teleservicing charges are primarily based on a fixed hourly fee for dedicated
service. Internet customer care and electronic message servicing are based on
hourly rates and on a transaction basis, respectively, or a combination of
charges thereof. Beginning in the third quarter of 1997, the Company also
generated teleservicing revenues under incentive-based compensation agreements
whereby the amount of revenue earned correlates to the achievement of
established targets. The Company exited the incentive-based teleservicing
program during 1998. Charges for database marketing and management services are
based on an hourly rate or on the volume of information stored. Charges for
fulfillment services are typically assessed on a transaction basis, with an
additional charge for warehousing products for customers.

         Revenues earned from the transfers of software by the Company are
generally recognized when the software has been shipped, payment is due within
one year, collectibility is probable and there are no significant obligations
remaining. No such revenues were recognized in 1999 or 1998.

SOFTWARE DEVELOPMENT COSTS

         The Company capitalized costs related to the development of certain
software products integral to the Company's teleservicing programs and recent
business process reengineering, which were either for internal use or with an
objective of being marketed externally. Capitalized software development costs
were reported at the lower of unamortized cost or net realizable value based
upon future use on a product-by-product basis. In accordance with Statement of
Financial Accounting Standards No. 86, ACCOUNTING FOR THE COSTS OF COMPUTER
SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE MARKETED, ("SFAS No. 86")
capitalization of these software development costs began when technological
feasibility had been established and ended when the product was available for
general use in the Company's teleservicing programs. The establishment of
technological feasibility and the ongoing assessment of recoverability of
capitalized software development costs require considerable judgment by
management with respect to certain external factors, including, but not limited
to, anticipated future demands of teleservicing programs, estimated economic
life and changes in software and hardware technologies.



                                      F-7
<PAGE>   68
                 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



         Commencing upon initial product release, capitalized software costs
were amortized on an individual product basis using the straight-line method
over the estimated economic life of the product or three years. The amount of
externally marketed software development costs capitalized in 1997 was
$1,660,000. No software development costs were incurred during 1999 or 1998 in
accordance with the provisions of SFAS No. 86. Amortization expense related to
externally marketed software development costs was $744,000 and $1,368,000 in
1998 and 1997, respectively. No amortization expense related to externally
marketed software development costs was recorded in 1999. In conjunction with
the Company's restructuring plan during the third quarter of 1998, the remaining
unamortized balance of software development costs in the amount of $1,243,000
was written off (see Note 3 - Restructuring and Other Non-Recurring Special
Charges).

         In accordance with Statement of Position 98-1, ACCOUNTING FOR THE COSTS
OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE ("SOP 98-1"), the
Company capitalizes acquired and internally developed or modified software
solely to meet the Company's internal needs integral to the Company's
teleservicing or Internet-based programs. The Company capitalizes certain
internal and external costs directly associated with developing or modifying the
internal use software, which begins with the application development stage and
ends when the project is substantially complete and ready for its intended use.
The amount of costs capitalized in 1999 and 1998 relating to internal use
software in process was $3.1 million and $4.9 million, respectively, consisting
principally of software purchased from external vendors, and is included in
Property and equipment, net in the accompanying Consolidated Balance Sheets. In
addition, $10.1 million of software developed or modified for internal purposes
was available for use as of December 31, 1999 and is included in Property and
equipment, net in the accompanying Consolidated Balance Sheets (see Note 5-
Property and Equipment). As of December 31, 1998, no internal use software
development projects were ready for their intended uses with the exception of
the PRISM Project which is discussed in the following paragraph. The
establishment of technological feasibility and the ongoing assessment of
recoverability of capitalized software development costs require considerable
judgment by management with respect to certain external factors, including, but
not limited to, anticipated future teleservicing program or Internet-based
program demand, estimated economic life and changes in software and hardware
technologies.

         In addition, in accordance with Emerging Issues Task Force 97-13,
ACCOUNTING FOR COSTS INCURRED IN CONNECTION WITH A CONSULTING CONTRACT OR AN
INTERNAL PROJECT THAT COMBINES BUSINESS PROCESS REENGINEERING AND INFORMATION
TECHNOLOGY TRANSFORMATION, and the provisions of SOP 98-1, the Company
capitalized certain costs incurred in the enhancement of internal financial and
operating systems associated with its initiative to implement an Enterprise
Resource Planning solution, which the Company designated the PRISM Project.
Capitalized costs incurred on the PRISM Project, consisting principally of
software purchased from Oracle Corporation, outside consultant fees and, to a
lesser extent, payroll and payroll-related costs for employees directly
associated with the PRISM Project, were $12.8 million and $8.6 million as of
December 31, 1999 and 1998, respectively, and are included in Property and
equipment, net in the accompanying Consolidated Balance Sheets (see Note 5-
Property and Equipment). The PRISM Project has been implemented in phases with
certain systems or modules becoming functional at different points in the
project timeframe. As each module of the PRISM Project was implemented, all
associated capitalized costs began to be amortized on a straight-line basis over
the module's estimated useful life. As of December 31, 1999, all modules of the
PRISM Project had been placed in service. Amortization expense relating to the
modules placed in service was approximately $1.3 million and $100,000 in 1999
and 1998, respectively.

STOCK-BASED COMPENSATION

         Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, ("SFAS No. 123") encourages, but does not require,
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has chosen to continue to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES. Accordingly, compensation expense for qualified and non-qualified
stock options granted under the Company's stock option plans is generally
measured as the difference between the quoted market price of the Company's



                                      F-8
<PAGE>   69
                 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


stock at the date of grant and the amount an employee must pay to acquire the
stock. For options granted to other than employees in exchange for goods or
services, compensation cost is measured at fair value in accordance with SFAS
123 (see Note 12- Stock-Based Compensation Plans).

ADVERTISING EXPENSES

         Advertising expenses are charged to operations as incurred. During
1999, 1998 and 1997, advertising expenses were $477,000, $418,000 and $341,000,
respectively.

INCOME TAXES

         The Company provides for deferred income taxes under the asset and
liability method for financial accounting and reporting for income taxes.
Deferred tax assets and liabilities are determined based on the differences
between the financial statements carrying amounts and the tax bases of existing
assets and liabilities using the enacted statutory tax rates in effect for the
year in which the differences are expected to reverse.

EARNINGS PER COMMON SHARE

         During 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, EARNINGS PER SHARE ("SFAS No. 128"), which supersedes
Accounting Principles Board Opinion No. 15, EARNINGS PER SHARE. Basic earnings
per common share calculations are determined by dividing earnings available to
common shareholders by the weighted average number of shares of common stock
outstanding during the year. Diluted earnings per common share calculations are
determined by dividing earnings available to common shareholders by the weighted
average number of shares of common stock and dilutive common stock equivalents
outstanding during the year (all related to outstanding stock options discussed
in Note 12- Stock-Based Compensation Plans).

2.   PUBLIC OFFERINGS

         Effective January 29, 1997 (the actual closing date was February 4,
1997), the Company and certain selling shareholders completed a second equity
offering of 4,740,000 shares of common stock at an offering price of $35.125 per
share (the "Second Equity Offering"). Of the 4,740,000 shares, 1,500,000 shares
were sold by the Company. Net proceeds to the Company from the Second Equity
Offering in the amount of $49.2 million, after deducting $3.5 million in costs
associated with the offering, have been used for call center expansion, other
capital expenditures necessary to support the Company's growth, working capital
and other general corporate purposes.

3.   RESTRUCTURING AND OTHER NON-RECURRING SPECIAL CHARGES

         During the third quarter of 1998, the Company performed an extensive
review of its operations and existing available workstation capacity. Such
review focused on determining the needed workstation capacity appropriate and
desirable in light of several factors. These factors included the requirements
for servicing the Company's current, recently attained, and anticipated new
clients; the Company's less than satisfactory operating results relative to a
large incentive-based, outbound teleservices program; and, the Company's
inability to recruit, train and maintain an employee base relative to available
workstations in certain strained labor markets without paying premium wage rates
not able to be supported by the operating margins being generated.




                                      F-9
<PAGE>   70

                 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



         As a result of this review, the Company initiated a restructuring and
performance enhancing initiatives plan, which centered on exiting the
incentive-based outbound teleservicing program, consolidating and making
adjustments to certain call centers' workstation capacity and replacing certain
existing software programs utilized in its call center operations with new
customer interaction software reflective of advances in customer care
technology. In connection with the Company's decision to exit the
incentive-based outbound teleservicing program and to make call center capacity
adjustments, certain reductions in overhead and administrative headcount were
also made resulting in the termination of nine employees.

         In adopting this plan, the Company recorded restructuring and other
non-recurring special charges of $22.1 million before taxes with an after-tax
impact of $13.8 million. This pre-tax amount is allocated as follows in the
Consolidated Statements of Operations for the year ended December 31, 1998:
$13.6 million to Restructuring and asset impairment charges (as further
described in the next paragraph); $2.3 million to Cost of services (of which
$700,000 represents cash items and $1.6 million represents non-cash items)
related principally to the write-off of teleservicing software that the Company
decided to replace with new customer interaction software reflective of advances
in customer care technology; and $6.2 million to Selling, general and
administrative expenses (of which $2.1 million represents cash items and $4.1
million represents non-cash items) principally for asset impairments of $4.1
million related to the plan to exit an incentive-based outbound teleservicing
program, $1.5 million related to increases in the provisions for certain accrued
liabilities, and $600,000 related to severance and other employee costs incurred
during the development of the performance enhancing initiatives plan. Of the
total $8.5 million in Cost of services and Selling, general and administrative
expenses described above, approximately $704,000 and $1.0 million was accrued at
December 31, 1999 and 1998, respectively, and is included in Other accrued
expenses in the accompanying Consolidated Balance Sheets.

         Amounts included in Restructuring and asset impairment charges in the
Consolidated Statements of Operations for the year ended December 31, 1998
include cash items such as severance and other employee-related costs of $1.0
million and lease and other facility exit costs associated with the reduction of
workstation capacity of $6.1 million. Of the total $7.1 million, approximately
$3.2 million and $6.2 million is accrued as of December 31, 1999 and 1998,
respectively, as part of the restructuring accrual. Non-cash restructuring and
asset impairment charges of $6.5 million are primarily related to the write-off
of leasehold improvements and telephone and computer equipment associated with
the reduction in workstation capacity.

         As of December 31, 1999, the Company had substantially completed its
restructuring and performance enhancing initiatives. During the fourth quarter
of 1998, the Company's exit of the incentive-based outbound teleservicing
program was completed and during the first quarter of 1999, the Company
completed its termination of certain designated employees. As of the end of the
fourth quarter of 1999, the Company had relocated all of the ongoing
teleservicing programs from one center and maintained reduced workstation
capacity in another center. Additionally, the Company implemented new customer
interaction software reflective of advances in customer care technology.

         During the third quarter of 1997, the Company initiated an extensive
and systematic review of its operations and cost structure in response to
inefficiencies primarily resulting from the addition of capacity and
infrastructure to accommodate a contract for its largest client that had been
delayed indefinitely and an across-the-board price reduction imposed by this
client. The review of the Company's operations focused primarily on operational
and organization structures and systems, client profitability and facilities
rationalization.

         As a result of this review, the Company announced a major restructuring
and cost reduction plan designed to reduce its cost structure and adjust its
infrastructure to significantly improve operating efficiencies and performance
as the Company sought to shift its customer base to a more diversified
portfolio. The Company initiated a plan to consolidate three administrative
locations into unused space in an existing facility, to reduce overhead and
administrative headcount by 10%, to consolidate and reorganize various




                                      F-10
<PAGE>   71
                 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


functional departments and to integrate and enhance its financial and operating
systems. The headcount reductions resulted in the termination of approximately
150 employees primarily in the areas of teleservicing, information services and
administration. Payment of substantially all termination benefits took place
during the fourth quarter of 1997 during which time actual employee terminations
occurred.

         In adopting this plan, the Company recorded a non-recurring special
charge of $26.2 million before taxes with an after-tax impact of $15.7 million.
This amount is allocated as follows in the Consolidated Statements of Operations
for the year ended December 31, 1997: $11.6 million to Restructuring and asset
impairment charges (as further described in the next paragraph); $7.8 million to
Cost of services (of which $6.6 million represented cash items and $1.2 million
represented non-cash items) related principally to significant,
non-capitalizable start-up and other costs incurred in expanding and improving
the Company's ability to provide certain types of teleservicing and fulfillment
services which it had previously been providing only on a limited basis (these
costs primarily related to development of systems applications and training
modules as well as actual employee training); and $6.8 million to Selling,
general and administrative expenses (of which $6.7 million represented cash
items and $100,000 represented non-cash items) principally for non-recurring
operating expenses including $4.8 million of costs associated with the
development of the Company's restructuring and cost reduction initiatives,
increases in the provisions for certain accrued liabilities totaling $1.9
million and various balance sheet write-offs totaling $100,000. As of December
31, 1999, all accruals relating to Cost of services and Selling, general and
administrative expenses described above were fully utilized.

         Amounts included in Restructuring and asset impairment charges in the
Consolidated Statements of Operations for the year ended December 31, 1997
include cash items such as severance and other employee costs of $2.1 million
and lease obligations and other exit costs associated with the consolidation of
three administrative locations into an existing facility and the closing of one
small, unused call center of $2.6 million. Non-cash restructuring and asset
impairment charges of $6.9 million are primarily related to the write-off of
leasehold improvements associated with the administrative facility consolidation
and closing along with the cost to fully amortize redundant systems that are not
deemed recoverable in light of the aforementioned changes with the Company's
largest client. At December 31, 1999, $57,000 is included in Restructuring
accrual in the Consolidated Balance Sheets, relating to facility consolidation
costs associated with the 1997 restructuring plan.

         The Company initiated the restructuring and cost savings initiatives
during the third quarter of 1997 and during the fourth quarter of 1997 and
during 1998, the Company terminated designated employees and reorganized its
operational and administrative management structure in connection with the
restructuring and cost savings plan. The Company also completed the relocation
and consolidation of administrative office space into unused space at an
existing facility. Additionally, the Company continued its attempts to divest
unused facilities. This included termination in February 1998, of a lease for an
unused facility whose landlord is a corporation that is wholly owned by the
Company's Chairman of the Board. In consideration of a termination payment of
approximately $82,000, the landlord relieved the Company of its future lease
commitments totaling approximately $161,000. The Company believes that the
amount of the termination payment was no less favorable to it than could have
been negotiated from an unaffiliated party. The Company's implementation
throughout 1998 was substantially completed prior to the Company's initiation of
additional restructuring and performance enhancing initiatives described above.



                                      F-11
<PAGE>   72

                 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


         The following table sets forth the details and the cumulative activity
in the restructuring accrual during the year ended December 31, 1999 (in
thousands):

<TABLE>
<CAPTION>
                                                               ACCRUAL                                   ACCRUAL
                                                              BALANCE AT                               BALANCE AT
                                                            DECEMBER 31,                              DECEMBER 31,
                                                                 1998             EXPENDITURES            1999
                                                           -----------------    -----------------    ----------------

<S>                                                            <C>                  <C>                  <C>
Severance and other employee costs...................          $    697             $     (697)          $    --
Closure and consolidation of facilities and related
    exit costs.......................................             6,003                 (2,756)             3,247
                                                           -----------------    -----------------    ----------------
            Total restructuring accrual..............             6,700             $   (3,453)             3,247
                                                                                =================
            Less current portion.....................            (3,244)                                   (1,280)
                                                           -----------------                         ----------------
            Total restructuring accrual, long-term...          $  3,456                                   $ 1,967
                                                           =================                         ================
</TABLE>


4.       INVESTMENT IN UNCONSOLIDATED AFFILIATE

         On June 15, 1999, the Company acquired 6,000,000 shares of common stock
of Global Reservation Systems, Inc. ("GRS"), currently representing an
approximate 16% ownership interest in GRS's successor (see below), for an
aggregate cost of $1.6 million. GRS (and its successor), a California
corporation, specializes in developing Internet-based travel products and
service systems. This equity investment in GRS has been accounted for using the
cost method and is included in Other assets in the accompanying Consolidated
Balance Sheet as of December 31, 1999.

         In conjunction with this transaction, the Company also was issued a
warrant to purchase an aggregate of 3,000,000 shares of GRS common stock at an
exercise price equivalent to the lesser of (i) the lowest per share price of any
sales or issuances of GRS common stock (other than the sales or issuances
related to outstanding GRS options to purchase 6,065,391 shares or an additional
2,900,000 shares reserved by GRS for future issuances of options) that take
place up to the time of exercise or (ii) $0.85 per share, which exercise price
currently is $0.60 per share. The exercise price and/or number of shares
issuable upon exercising the warrant will be proportionately adjusted if
effected after any future stock dividends, stock splits, combinations of stocks
or issuance of stock in a reclassification as defined in the agreement. The
right to exercise the warrant, in whole or in part, expires on June 15, 2002. In
addition, the Company's decision to exercise this warrant currently would
require the consent of the lender on its revolving credit facility and existing
mortgage loan (see Note 6 - Credit Facilities and Long-Term Debt).

         In January 2000, GRS reorganized itself by transferring all of its
assets and substantially all of its liabilities to a newly-formed California
corporation which retained the Global Reservation Systems name. All existing
shareholders, including the Company, retained the same relative interests in
this new corporation as they had in the predecessor corporation.

5.   PROPERTY AND EQUIPMENT

         Property and equipment is comprised of both owned property and property
under capital leases, the details of which are set forth below (in thousands):




                                      F-12
<PAGE>   73

                 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                              DECEMBER 31, 1999                     DECEMBER 31, 1998
                                      ----------------------------------    -----------------------------------
                                                                                                                   ESTIMATED
                                                                                                                   USEFUL
                                       OWNED       LEASED       TOTAL        OWNED       LEASED        TOTAL         LIVES
                                      ---------    --------    ---------    ---------    --------     ---------    ----------

<S>                                   <C>          <C>          <C>          <C>          <C>          <C>          <C>
Land ...........................      $   1,057    $    --      $   1,057    $   1,057    $    --      $   1,057    N/A
Buildings and improvements .....          5,140         --          5,140        4,878         --          4,878    25 years
Telecommunications equipment and
    software ...................         25,681        4,406       30,087       20,946        4,432       25,378    3-7 years
Computer equipment and software          63,538        5,429       68,967       33,768        5,523       39,291    3-5 years
Leasehold improvements .........         14,064         --         14,064       11,167         --         11,167    *
Furniture and fixtures .........          8,683          242        8,925        8,044          242        8,286    5-7 years
Vehicles .......................            111         --            111          111         --            111    3 years
                                      ---------    ---------    ---------    ---------    ---------    ---------
                                        118,274       10,077      128,351       79,971       10,197       90,168
Development in process .........          5,360         --          5,360       11,408         --         11,408    N/A
                                      ---------    ---------    ---------    ---------    ---------    ---------
                                        123,634       10,077      133,711       91,379       10,197      101,576
Less: accumulated depreciation
  and amortization .............        (39,640)      (5,962)     (45,602)     (25,943)      (4,219)     (30,162)
                                      ---------    ---------    ---------    ---------    ---------    ---------
                                      $  83,994    $   4,115    $  88,109    $  65,436    $   5,978    $  71,414
                                      =========    =========    =========    =========    =========    =========
</TABLE>

* The lesser of the asset's estimated useful life or the lease term (see also
  Note 7- Lease Commitments).

         Depreciation and amortization expense amounted to $15,440,000,
$12,078,000 and $10,138,000 for 1999, 1998 and 1997, respectively.

         As discussed in Note 1 - Operations and Significant Accounting
Policies, the Company capitalizes certain costs in connection with its PRISM
Project and software developed or modified for internal purposes, which will be
amortized when the project modules are implemented or software is available for
use. As of December 31, 1999, all modules of the PRISM Project had been placed
in service and are included within Computer equipment and software in the above
table in the amount of $12.8 million. Also included within Computer equipment
and software in the above table is $10.1 million of software developed or
modified for internal purposes, including IMA Advantage/Edge, that was available
for use as of December 31, 1999. Additionally, as of December 31, 1999, $3.1
million of internal use software in process, including the Company's Advanced
Communications Network project, is included within Development in process in the
above table.

         During 1998, the Company acquired a property (land and existing
building) in Sunrise, Florida. See also Note 6- Credit Facilities and Long-Term
Debt below. The building and related building improvements of $5.1 million as of
December 31, 1999 were not depreciated in 1999 or 1998 due to the fact that the
building was not occupied or utilized during this time. The property, beginning
in January 2000, is occupied and being utilized as a new customer interaction
center.

6.       CREDIT FACILITIES AND LONG-TERM DEBT

         On March 2, 1998, the Company entered into a three-year, $25.0 million
revolving credit facility, replacing its then existing $15.0 million revolving
credit facility. Effective June 30, 1999, the $25.0 million revolving credit
facility was amended to increase the amount available under the credit facility
to $35.0 million through January 31, 2000. The $25.0 million revolving credit
facility was further amended effective December 31, 1999 (the "Credit Facility")
to extend the $35.0 million amount available through February 29, 2000. In
addition, the amount available under the Credit Facility will be increased to
$50.0 million for the period of time between March 1, 2000 and June 30, 2000,
subject to certain limitations, as described below, and satisfactory completion
of the lender's audit of the Company's books and records and operations.
Effective as of July 1, 2000, the amount available under the Credit Facility
reverts back to $25.0 million. The December 31, 1999 amendment also extended the
maturity date of the Credit Facility to June 30, 2001. In accordance with the



                                      F-13
<PAGE>   74
                 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



terms of the amendment effective December 31, 1999, the Company paid the lender
on its Credit Facility a modification fee in the amount of $200,000 in January
2000, which will be amortized over the remaining life of the Credit Facility.
The terms of the amendment also require the Company to pay the lender on its
Credit Facility an additional fee in the amount of $250,000 on July 1, 2000, in
the event that USA Networks, Inc. has not completed its acquisition of the
Company by June 30, 2000. See Note 17 - Subsequent Event for a further
discussion of USA Network Inc.'s acquisition of the Company.

         The Credit Facility is collateralized by all of the Company's owned and
hereafter acquired assets. The Company may borrow up to 80% of eligible accounts
receivable. The Credit Facility accrues interest at the Company's option at (i)
the greater of the prime rate or the Federal funds rate plus 0.50% or (ii) the
LIBOR rate plus a specified percentage (1.25% to 1.75%) based upon the ratio of
funded debt to earnings before interest, taxes, depreciation and amortization
("EBITDA"). Prior to December 31, 1999, the Company paid a fee of between
0.1875% and 0.25% per annum on unused commitments under the Credit Facility
based upon the ratio of funded debt to EBITDA, of which the rate was 0.1875% per
annum at December 31, 1999. Effective December 31, 1999, the future fee on
unused commitments was increased to between 0.25% and 0.375% per annum. The
Company is required, under the terms of the Credit Facility, to maintain certain
financial covenants and ratios, including minimum tangible net worth and funded
debt to EBITDA and funded debt to capitalization ratios, to limit capital
expenditures and additional indebtedness and is restricted, among other things,
with respect to the declaration and payment of dividends, redemptions,
investments and acquisitions. At December 31, 1999, the outstanding balance of
the Credit Facility was $19.0 million ($5.0 million at 8.50% per annum, $5.2
million at 7.48% per annum, $4.0 million at 7.73% per annum, $2.5 million at
7.46% per annum and $2.3 million at 7.32% per annum) and is included in
Long-term obligations, less current maturities in the accompanying Consolidated
Balance Sheets. At December 31, 1999, the available balance under the terms of
the Credit Facility was $15.2 million. As of December 31, 1999, the Company was
in compliance with all financial debt covenants.

         The Company also has secured a mortgage, as amended effective December
31, 1999, with the lender on its Credit Facility in connection with the
acquisition of a property (land and existing building) located in Sunrise,
Florida, which in January 2000 was opened as a customer interaction center by
the Company. The mortgage loan is for $5.1 million, of which $4.0 million was
advanced at closing in 1998. The remaining $1.1 million available under the loan
is subject to the Company's completion of interior improvements to the property
by March 2, 2000. The amended mortgage note accrues interest payable quarterly
at the LIBOR rate plus 1.50% per annum, of which the interest rate was 7.33% per
annum at December 31, 1999. Principal payments are due quarterly, commencing on
January 31, 2000, based upon a 20-year amortization schedule, with a balloon
payment due at maturity on June 1, 2005. The amended mortgage loan is
cross-defaulted with and has terms substantially similar to the Credit Facility.

         Effective May 1997, the Company entered into a ten-year agreement to
lease its operating facility located in Jacksonville, Florida. The terms of the
lease included a construction allowance payment of approximately $1.0 million
made by the lessor to the Company on commencement of the lease and in return the
Company was obligated to make improvements to the facility. The lease agreement
also specifies that if the Company terminates the lease agreement prior to its
full term, it is required to refund the lessor the $1.0 million on a pro-rata
basis. In connection with the restructuring plan adopted in the third quarter of
1998 (see Note 3 - Restructuring and Other Non-Recurring Special Charges), the
Company reconfigured the workstation capacity and utilized space of the
Jacksonville facility during 1999 and, therefore, will terminate the
Jacksonville lease agreement at the lease option date in May 2002, which will
represent only five years of the specified ten year lease term. As such, the
Company will be obligated to refund the lessor 50% of the $1.0 million
construction allowance, or $500,000, upon termination of the lease. The $500,000
was accrued at December 31, 1999 and is included in Long-term obligations, less
current maturities in the accompanying Consolidated Balance Sheets.


                                      F-14
<PAGE>   75
                 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


         Long-term obligations as of December 31, 1999 and 1998 consisted of the
following (in thousands):

<TABLE>
<CAPTION>
                                                                       1999                1998
                                                                   --------------     ---------------

<S>                                                                <C>                <C>
Credit Facility...............................................     $    19,000        $    11,000
Mortgage loan.................................................           4,000              4,000
Capital lease obligations.....................................           1,616              3,926
Other long-term obligations...................................             500                500
                                                                   ---------------    ---------------
                                                                        25,116             19,426
Less: current maturities......................................           1,691              2,510
                                                                   ---------------    ---------------

Long-term obligations, less current maturities................     $    23,425        $    16,916
                                                                   ===============    ===============
</TABLE>

         Based on the borrowing rates available to the Company for debt with
similar terms and average maturities, the fair value of the Company's debt
approximates carrying value.

7.   LEASE COMMITMENTS

         The Company's operations are conducted in leased facilities which have
initial terms generally ranging from two to ten years. The leases for these
facilities would generally expire between 2004 and 2022 assuming the Company's
exercise of all renewal options. However, as a result of the 1998 restructuring
plan and continual assessment of the capacity requirements in Jacksonville and
Margate-Coconut Creek, the Company will terminate the lease agreements relating
to these locations no later than the lease option dates in May 2002. However, as
of December 31, 1999, the Company had relocated all of the ongoing teleservicing
programs from the Margate-Coconut Creek facility and maintained reduced
workstation capacity in the Jacksonville center.

         The Company also has certain equipment leases which have terms of up to
five years, of which the latest expiration date occurs in 2001. Rent expense
under operating leases was $6,224,000, $6,542,000 and $5,867,000 for 1999, 1998
and 1997, respectively.

         On July 20, 1999, the Company executed a ten-year lease agreement with
Crossroads Business Park Associates (the "Landlord"), which includes options to
extend the initial term of the lease for an additional 15 years. The premises,
located in Plantation, Florida, will be the site of the Company's new principal
corporate offices. Certain terms of the new lease were amended on October 29,
1999, to provide for additional administrative space. The monthly base rent, as
amended, payable commencing on the earlier of (i) the fifteenth business day
immediately following the date that a certificate of occupancy or its equivalent
is issued permitting the Company to occupy the premises or (ii) March 15, 2000
for the initial space and April 15, 2000 for the additional space, will
initially be $54,775 per month, subject to 3% annual increases. The Company will
also pay its proportionate share of customary operating expenses of the office
building in which the Company's premises are located. Pursuant to the lease
agreement, as amended, the Landlord will pay the Company an improvement
allowance in the amount of $1.8 million. The Company has delivered a letter of
credit in the amount of $750,000 to the Landlord as security for the performance
of the Company's obligations under the lease agreement. The amount of such
letter of credit will decrease annually by $150,000.

         In November 1999, the Company entered into a put/call agreement with
Presidential Suites, Ltd., a Florida limited partnership directly and indirectly
owned by the Company's chairman of the board ("Presidential"). Pursuant to such
agreement, the Company was granted the right to cause Presidential to assign
(and, in connection with such assignment, the Company would assume



                                      F-15
<PAGE>   76
                 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Presidential's obligations accruing after such assignment with respect to), and
Presidential was granted the right to cause the Company to assume Presidential's
obligations accruing after such assumption with respect to (and, in connection
with such assumption, Presidential would assign), Presidential's interest in a
certain lease agreement for leased space consisting of approximately 3,388
rentable square feet ("Presidential Premises") and adjacent to the Company's new
leased premises located in Plantation, Florida, as discussed above. In the event
of the exercise of the Company or Presidential of this put/call right, the
Company would also purchase, and Presidential would convey, Presidential's
furniture, fixtures and equipment kept on the Presidential Premises ("FF&E"). In
connection with the assignment and assumption of the aforesaid lease for the
Presidential Premises and the conveyance of the FF&E, the Company would, among
other things, (i) pay to Presidential the unamortized portion (which is
amortizable over the initial term of the lease for the Presidential Premises) of
the sum of (a) the cost of the tenant improvements constructed on the
Presidential Premises in excess of the landlord's contribution in cash (and not
in the form of a rent credit), and (b) the cost of the FF&E, and (ii) provide a
substitute letter of credit to replace the then outstanding amount of
Presidential's letter of credit delivered to the landlord (the initial amount of
Presidential's letter of credit was $67,760). The base rental payable by
Presidential under the lease for the Presidential Premises is $49,126 per annum
(increasing by 3% per annum during the term) and the initial term of such lease
is ten years.

         Future minimum lease payments under capital and operating leases,
including all renewal periods, and the annual rentals due on the related party
leases discussed in Note 9 - Related Party Transactions, at December 31, 1999
are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                            CAPITAL        OPERATING
YEAR ENDING DECEMBER 31,                                                                    LEASES           LEASES
------------------------                                                                  -----------     -------------

<S>        <C>                                                                            <C>             <C>
           2000.........................................................................  $   1,575       $ 5,602
           2001.........................................................................        127         4,753
           2002.........................................................................       --           3,919
           2003.........................................................................       --           3,264
           2004.........................................................................       --           3,226
           Thereafter...................................................................       --          48,624
                                                                                          -----------     --------
           Total minimum lease payments.................................................      1,702      $ 69,388
                                                                                                          ========
 Less: amount representing interest.....................................................         86
                                                                                          -----------
 Present value of net minimum lease payments under capital leases.......................      1,616
 Less: current maturities...............................................................      1,491
                                                                                          -----------
 Long-term obligations..................................................................  $     125
                                                                                          ===========

</TABLE>


8.   INFORMATION ABOUT SERVICES AND SIGNIFICANT CLIENTS

         The Company has one reportable operating segment; developing and
delivering solutions to its clients' customer service and marketing needs
utilizing teleservices, e-mail and the Internet, database marketing and
management, information technology, electronic data processing and fulfillment
services.

         A significant portion of the Company's business is dependent upon
several large clients. For the years ended December 31, 1999, 1998 and 1997, the
Company's five largest clients accounted for approximately 69%, 76% and 64% of
gross revenues, respectively. As of December 31, 1999, 1998 and 1997,
approximately 64%, 68% and 68%, respectively, of the Company's accounts
receivable were from the five largest clients. Accounts receivable represents
the Company's greatest concentration of credit risk and is subject to the
financial condition of its largest clients. The Company does not require
collateral or other security to support clients' receivables. The Company
conducts periodic reviews of its clients' financial condition and vendor payment
practices to minimize collection risks on trade accounts receivable.


                                      F-16
<PAGE>   77


                 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



         During 1999, 1998 and 1997, certain clients individually accounted for
more than 10% of the Company's total gross revenues. The clients and their
related percentage and amount of total gross revenues (in thousands) were as
follows:

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                        --------------------------------------------------------------------------
                                                1999                      1998                      1997
                                        ----------------------    ----------------------    ----------------------
                                          %          Amount         %          Amount         %          Amount
                                        ------     -----------    -------    -----------    -------    -----------
<S>                                      <C>       <C>              <C>      <C>            <C>        <C>
   Company A.........................     42%      $ 90,793         45%      $ 80,559       38%        $ 55,022
   Company B.........................      *              *         12%      $ 20,882       11%        $ 15,139
</TABLE>

----------

*Accounted for less than 10% of total gross revenues for the year indicated.

9.   RELATED PARTY TRANSACTIONS

         During 1996, but prior to the completion of the Company's Initial
Public Offering, the Company entered into various lease agreements for certain
real property with a corporation that is wholly-owned by the Company's Chairman
of the Board providing for aggregate annual rentals of approximately $288,000.
The primary lease term is five years with a renewal option for an additional
five-year period. In accordance with the Company's 1997 restructuring plan, the
Company terminated one of the lease agreements and a termination payment of
approximately $82,000 was made in February 1998. Rent expense under these leases
was $284,000, $287,000 and $275,000 for 1999, 1998 and 1997, respectively. The
Company also subleases another facility and a parking lot and leases an
additional parking lot from a partnership jointly owned by certain of its
shareholders. The sublease on the facility expires in January 2004, the sublease
on the parking lot expires in January 2002 and the additional parking lot lease
expires in June 2001, with combined annual rentals aggregating approximately
$250,000.

         The Company paid approximately $385,000, $198,000 and $200,000 in 1999,
1998 and 1997, respectively, in fees to charter an aircraft in connection with
business travel for the Company's personnel. The aircraft is owned by an entity
of which the Company's Chairman of the Board is the sole shareholder.

         During 1999 and 1998 the Company funded a portion of the life insurance
premiums payable with respect to up to three split-dollar life insurance
policies owned by the Mark Gordon Family Trust. The amounts paid by the Company
are reimbursable to the Company without interest upon the death of the Company's
Chairman of the Board, the surrender of the policies or the termination of the
arrangement. This obligation is secured by the benefits payable under the
insurance policies. The aggregate amount outstanding for these premiums as of
December 31, 1999 and 1998 was approximately $167,000 and $140,000,
respectively, and is included in Other Assets in the accompanying Consolidated
Balance Sheets.

           During 1999 the Company also funded a portion of the life insurance
premiums payable with respect to three split-dollar life insurance policies
owned by three separate trusts for the benefit of the family of the Company's
chief executive officer. The amounts paid by the Company are reimbursable to the
Company without interest upon, under one policy, the death of the chief
executive officer, and under the other two policies, the death of the last to
die of the chief executive officer and his spouse, the surrender of the policies
or the termination of the arrangement; provided, however, that, in the event
that prior to such time the chief executive officer's employment with the
Company is terminated in certain circumstances (including, without limitation,
as a result of his disability, without cause or constructive termination), the
amounts paid by the Company will not be reimbursed. This obligation is secured



                                      F-17
<PAGE>   78
                 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



by the benefits payable under the insurance policies. The aggregate amount
outstanding for these premiums as of December 31, 1999 was approximately $34,000
and is included in Other Assets in the accompanying Consolidated Balance Sheet.

         The Company's executive vice president, general counsel and secretary
(and who is also a director of the Company) was a partner of a certain law firm
until immediately prior to joining the Company in March 1996, and remained "Of
Counsel" to such law firm after joining the Company. Prior to February 1, 1998,
such law firm had acted as the Company's regular outside legal counsel. As of
February 1, 1998, a successor law firm commenced serving as the Company's
regular outside counsel. The Company's executive vice president, general counsel
and secretary is currently "Of Counsel" to such successor law firm. The total
fees and costs paid by the Company to the aforementioned law firm and the
successor law firm in 1999 were approximately $44,000 and $558,000,
respectively, and in 1998 were approximately $98,000 and $468,000, respectively.
The Company believes that the fees paid to these law firms are no less favorable
than could be obtained from other comparable law firms in the area.

          In July 1998 the Company engaged a law firm to represent it in
connection with governmental relations matters. A director of the Company is a
shareholder and director of such law firm. Pursuant to such engagement, such law
firm received a retainer of $25,000 in 1998 and received legal fees from the
Company in the amount of $30,000 and $12,500 in 1999 and 1998, respectively. The
engagement is terminable at any time by either party.

10.  INCOME TAXES

         As described in Note 1 - Operations and Significant Accounting
Policies, the Company provides for deferred income taxes under the asset and
liability method for financial accounting and reporting for income taxes.

         The components of the income tax provision (benefit) for the years
ended December 31, 1999, 1998 and 1997 are as follows (in thousands):

                1999          1998          1997
              --------      --------     ---------
Current:
Federal .      $    14       $  --         $(3,805)
State ...         --            --            --
               -------       -------       -------
                    14          --          (3,805)
               -------       -------       -------
Deferred:
Federal .        4,760        (5,068)       (3,632)
State ...          817          (870)       (1,273)
               -------       -------       -------
                 5,577        (5,938)       (4,905)
               -------       -------       -------
               $ 5,591       $(5,938)      $(8,710)
               =======       =======       =======

         A reconciliation of the difference between the actual income tax
provision and income taxes computed at the U.S. Federal statutory tax rate for
the years ended December 31, 1999, 1998 and 1997 are as follows (in thousands):

                                              1999        1998        1997
                                            --------    --------   ---------

U.S. Federal statutory tax rate applied to
    pre-tax income (loss) ................   $ 4,859   $(5,644)   $(7,622)
State income taxes, net of Federal
  benefit.................................       539      (577)      (790)
Nondeductible expenses and other,
  net ....................................       193       283       (298)
                                             -------   -------    -------
      Income tax provision (benefit) .....   $ 5,591   $(5,938)   $(8,710)
                                             =======   =======    =======



                                      F-18
<PAGE>   79

                 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



         The significant components of the net deferred tax asset as of December
31, 1999 and 1998 are as follows (in thousands):

                                                        1999     1998
                                                      -------   -------
Deferred tax assets:
    Allowances and reserves .......................   $ 8,059   $ 9,898
    Net operating loss and tax credit carryforwards     9,177    10,043
    Other .........................................       143       174
                                                      -------   -------
                                                       17,379    20,115
Deferred tax liability:
    Property and equipment ........................     9,843     7,693
                                                      -------   -------
          Net deferred tax assets .................   $ 7,536   $12,422
                                                      =======   =======

         The net deferred tax asset in the amount of $7.5 million as of December
31, 1999 is based upon expected utilization of net operating loss ("NOL")
carryforwards and reversal of certain temporary differences. Although
realization is not assured, the Company believes it is more likely than not that
all of the net deferred tax asset will be realized in the future. The amount of
the deferred tax asset considered realizable, however, could be reduced in the
near term if estimates of future taxable income during the carryforward period
are reduced. The Company will continue to review the assumptions used on a
quarterly basis and make adjustments as appropriate.

         The Company has a Federal NOL carryforward of approximately $18.6
million and a state NOL carryforward of approximately $31.6 million, both of
which will begin to expire in 2012.

11.  CAPITAL STOCK

         The Company has authorized 100 million shares, par value $0.01, of
common stock. The Company has also authorized 25 million shares, par value
$0.01, of preferred stock, the terms of which have not yet been determined. The
Company has no present plans to issue any preferred stock.

         Prior to the consummation of the Company's Initial Public Offering, the
Company's Board of Directors declared a dividend payable in cash to the then
current shareholders of the Company of approximately $5,243,000 (the
"Dividend"). The Dividend was equal to the Company's then estimate of its
cumulative taxable income prior to the conversion to a C corporation to the
extent such taxable income had not previously been distributed. During the
second quarter of 1997, the Company's final tax return as an S corporation was
completed and filed. As a result, an additional $174,000 was paid to the
Company's existing shareholders prior to the Initial Public Offering as a final
distribution of the Company's accumulated taxable income prior to conversion to
C corporation status.

12.  STOCK-BASED COMPENSATION PLANS

         On May 31, 1996, the Company adopted the 1996 Incentive Stock Plan (the
"Employee Stock Plan") and the 1996 Non-employee Director Stock Option Plan (the
"Director Stock Plan"; together with the Employee Stock Plan, the "Stock
Plans"). Officers, key employees and certain non-employee consultants may be
granted stock options, stock appreciation rights, stock awards, performance
shares and performance units under the Employee Stock Plan. Participation in the
Director Stock Plan is limited to members of the Company's Board of Directors
who are not salaried officers or employees of the Company. The Company
originally reserved 1,931,684 shares of common stock for issuance under the
Employee Stock Plan and 96,584 shares of common stock for issuance under the
Director Stock Plan, after giving effect to the previously described stock
splits by way of share dividends, and subject in each case to further
anti-dilution adjustments. At the Company's annual meeting of shareholders on


                                      F-19
<PAGE>   80
                 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



May 15, 1997, June 12, 1998, and June 21, 1999, the total number of shares
reserved for issuance under the Employee Stock Plan was increased to 3,000,000,
4,000,000 and 4,750,000, respectively. In addition, at the Company's annual
meeting of shareholders on June 21, 1999, the total number of shares reserved
under the Director Stock Plan was increased to 300,000.

         Prior to the establishment of a compensation committee (the
"Committee") of the Board of Directors, the Employee Stock Plan was administered
by the Board of Directors of the Company. The Board of Directors or the
Committee are authorized to determine, among other things, the key employees to
whom, and the times at which, options and other benefits are to be granted, the
number of shares subject to each option, the applicable vesting schedule and the
exercise price. The Board of Directors or the Committee also determines the
treatment to be afforded to a participant in the Employee Stock Plan in the
event of termination of employment for any reason, including death, disability,
retirement or change in control. Under the Employee Stock Plan, the maximum term
of an incentive stock option is 10 years and the maximum term of a non-qualified
stock option is 15 years. Incentive stock options under the Employee Stock Plan
are required to be granted at an exercise price equal to that of 100% of the
fair market value at the date of grant. Non-qualified options under the Employee
Stock Plan are required to be granted at an exercise price not less than 85% of
the fair market value at the date of grant, except for options covering up to
50,000 shares which may be granted at an exercise price equal to or in excess of
par value (or $0.01 per share) (the "$0.01 Options"). With the exception of the
$0.01 Options covering 21,000 shares and options to purchase an aggregate of
500,000 shares which were granted at an exercise price of approximately 94% of
the fair market value at the date of grant, non-qualified options granted under
the Employee Stock Plan through December 31, 1999 have been granted at an
exercise price not less than 100% of the fair market value at the date of grant.

         The Director Stock Plan provides for annual grants of non-qualified
stock options to each non-employee director of the Company. At the Company's
annual meeting of shareholders on June 21, 1999, the Director Stock Plan was
amended and restated in its entirety (the "Restated Director Stock Plan"). The
Restated Director Stock Plan increased the number of nonqualified stock options
automatically awarded to each non-employee director upon re-election from 2,500
shares to 5,000 shares of common stock at an exercise price equal to the fair
market value of the common stock on the date of grant. However, the Restated
Director Stock Plan provided for the award of 15,000 nonqualified stock options
to each non-employee director re-elected at the June 21, 1999 meeting in lieu of
the 5,000 annual grant. The purpose of the exception was to retroactively adjust
the aggregate number of options previously awarded to the existing non-employee
directors to be more consistent with the initial and annual awards under the
Restated Director Stock Plan. In addition, the Restated Director Stock Plan
authorized the Board, in its sole discretion, to grant to a non-employee
director at the time of his or her initial election as a director of the Company
nonqualified stock options in excess of the 5,000 shares of common stock
automatically granted on initial election to the Board of Directors up to and
not exceeding 50,000 shares. The options granted to each non-employee director
will have a term of ten years and vest, in the case of options granted under the
Director Stock Plan, in equal installments over three years and, in the case of
options granted under the Restated Director Stock Plan, in full after the first
anniversary of the date the option is granted. Stock options to purchase 45,000
shares at an exercise price of $5.53 per share were granted under the Restated
Director Stock Plan during 1999. Stock options to purchase 7,500 shares at an
exercise price of $6.32 per share during 1998 and 7,500 shares at exercise
prices ranging between $21.125 and $33.75 per share during 1997 were granted
under the Director Stock Plan.

         On July 16, 1996, an executive officer of the Company was granted a
non-qualified stock option to purchase 21,000 shares of common stock at an
exercise price of $0.01 per share under the Employee Stock Plan. In accordance
with APB 25, the difference between the fair market value of the common stock
and the exercise price, which amounted to $304,290, was recorded as unearned
compensation (a separate component of shareholders' equity) and was recognized
over the related vesting period. Amortization of the unearned compensation
recorded in the accompanying Consolidated Financial Statements in accordance
with APB 25 resulted in compensation expense of $41,000 and $111,000 for 1998
and 1997, respectively. As of December 31, 1998, the related unearned
compensation was fully amortized.



                                      F-20
<PAGE>   81
                 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



         During 1996, two then non-employee consultants were granted options
under the Employee Stock Plan to purchase an aggregate total of 85,000 shares of
common stock at various exercise prices equal to 100% of the fair market values
at the dates of grant. Pursuant to the application of SFAS 123 in accounting for
these non-employee stock options, the Company recorded $387,000 in unearned
compensation, which was amortized ratably over the related vesting periods.
Amortization of the unearned compensation recorded in the accompanying
Consolidated Financial Statements in accordance with SFAS 123 resulted in
compensation expense of $67,000 and $233,000 for 1998 and 1997, respectively. As
of December 31, 1998, the related unearned compensation was fully amortized.

         In late November 1997, the Company offered each employee, who had
previously been granted options to purchase the Company's stock, the opportunity
to change the option price, date of grant and vesting period effective December
5, 1997 (the "Repricing"). Under the terms of the Repricing, all previously
granted stock options would be cancelled, including any vested options, and the
employee would be granted the same number of options at the fair market value of
the Company's common stock on December 5, 1997, which was $7.875 per share. The
new grants would generally vest on a straight-line basis on each of the first
five anniversaries from the new date of grant. At the time of the offer, the
Company had approximately 170 employees who had been granted options to purchase
the Company's common stock since the Company's Initial Public Offering with
option prices ranging from $14.50 to $43.00. The Repricing plan was accepted by
approximately 125 eligible Company employees with respect to 925,000 outstanding
stock options.

         Additionally, during the fourth quarter of 1997, three executive
officers of the Company had certain of their existing stock options repriced.
Options covering a total of 646,000 shares of common stock were repriced, with
310,000 shares having a new exercise price of $7.41 per share and 336,000 shares
having a new exercise price of $6.88 per share. As part of the repricing,
certain of these stock options provided for a new vesting schedule. Options
covering 254,000 shares now vest 50% on the original date of grant of the
options with an additional 25% vesting on each of the first two anniversaries
from the original date of grant, and options covering 336,000 shares now vest
50% six months from the repricing date of grant with an additional approximately
16-2/3% vesting on each of the first three anniversaries from the repricing date
of grant.

         During the second quarter of 1998, the Company repriced options to
purchase 100,000 shares of common stock previously issued to an employee. The
exercise price of the options was reduced from $17.625 per share to $8.00 per
share, the fair market value of the Company's common stock on the date of
repricing. The repriced options were fully vested on the date of repricing.
These options were cancelled during 1999 as a result of this employees voluntary
termination.

         During 1999, a non-employee consultant was granted options on two
occasions under the Employee Stock Plan to purchase an aggregate total of 50,000
shares of common stock at exercise prices equal to 100% of the fair market
values at the dates of grant. Pursuant to the application of SFAS 123 in
accounting for these non-employee stock options, the Company recorded $329,000
in unearned compensation, which is being amortized ratably over the related
vesting periods. Amortization of the unearned compensation recorded in the
accompanying Consolidated Financial Statements in accordance with SFAS 123
resulted in compensation expense of $50,000 for 1999.

         Also during 1999, two employees of the Company were each granted
non-qualified stock options to purchase 250,000 shares of common stock at an
exercise price of $5.1875 per share, which represented 94% of the fair market
value at the date of grant, under the Employee Stock Plan. In accordance with
APB 25, the difference between the fair market value of the common stock and the
exercise price, which amounted to $157,000, was recorded as unearned
compensation (a separate component of shareholders' equity) and is being
recognized over the related vesting period. Amortization of the unearned
compensation recorded in the accompanying Consolidated Financial Statements in
accordance with APB 25 resulted in compensation expense of $27,000 for 1999.




                                      F-21
<PAGE>   82


         The fair value of each option grant under the Company's Stock Plans is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions used for grants in 1999, 1998 and
1997:


<TABLE>
<CAPTION>

                                                            1999                     1998                    1997
                                                      ------------------      --------------------     ------------------

<S>                                                          <C>                     <C>                      <C>
       Expected volatility..........................         76.7%                   73.0%                    78.3%
       Risk-free interest rate......................     4.6% -6.6%               4.1% -5.9%             5.92% - 6.81%
       Dividend yield...............................          0.0%                    0.0%                     0.0%
       Expected life................................      4-10 years              1-10 years                  7 years
</TABLE>

         A summary of the status of the Company's Stock Plans as of December 31,
1999, 1998 and 1997 and changes during the years then ended is presented below:

<TABLE>
<CAPTION>
                                                                                                  WEIGHTED-AVERAGE
                                                                       NUMBER OF                   EXERCISE PRICE
                                                                        OPTIONS                      PER OPTION
                                                                    -----------------           ---------------------
<S>                                                                       <C>                            <C>
   Outstanding at January 1, 1997.....................................    904,750                      $  26.63
      Granted.........................................................  3,667,750   (1)                   12.40
      Exercised.......................................................    (42,000)                         7.02
      Forfeited....................................................... (1,865,117)  (1)                   25.34
                                                                    ---------------

   Outstanding at December 31, 1997                                     2,665,383                          8.26
      Granted.........................................................  1,663,750   (2)                    6.60
      Exercised.......................................................     (7,000)                         0.01
      Forfeited.......................................................   (481,483)  (2)                   10.06
                                                                    ---------------

   Outstanding at December 31, 1998                                     3,840,650                          7.39
      Granted.........................................................  1,108,222                          8.99
      Exercised.......................................................   (245,400)                         7.60
      Forfeited.......................................................   (426,100)                         9.59
                                                                    ---------------

   Outstanding at December 31, 1999...................................  4,277,372                      $   7.60
                                                                    ===============
</TABLE>
 ----------

(1)  Includes 925,000 shares cancelled and then subsequently re-granted as part
     of the Repricing and 646,000 shares cancelled and then subsequently
     re-granted in the fourth quarter of 1997 as part of a repricing of three
     executive officers' stock options at exercise prices ranging between $6.88
     and $7.41 per share.

(2)  Includes 100,000 shares cancelled and, then, subsequently re-granted in the
     second quarter of 1998 as part of a repricing of an employee's stock
     options at an exercise price of $8.00 per share.

         The number of options exercisable at December 31, 1999, 1998 and 1997
was 2,021,921, 1,243,759 and 225,464, respectively. The per share
weighted-average fair value of stock options granted during 1999, 1998 and 1997
was $6.77, $4.30 and $9.53, respectively.



                                      F-22
<PAGE>   83
                 PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



     The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>

                                                 OPTIONS OUTSTANDING                           OPTIONS EXERCISABLE
                                  ---------------------------------------------------    --------------------------------
                                                       WEIGHTED-AVERAGE
                                       NUMBER           REMAINING        WEIGHTED-AVERAGE    NUMBER          WEIGHTED-AVERAGE
                                   OUTSTANDING AT      CONTRACTUAL        EXERCISE       EXERCISABLE AT       EXERCISE
  RANGE OF EXERCISE PRICES        DCEMBER 31, 1999      LIFE (YEARS)         PRICE       DECEMBER 31, 1999       PRICE
------------------------------    -----------------    -------------     ------------    ----------------    ------------

<S>                                      <C>                  <C>         <C>                  <C>         <C>
$0.01 (1)                                7,000                3.54        $   0.01             7,000       $      0.01
$4.06 to $6.32                       1,190,500                6.30            5.21           388,849              5.35
$6.875 to $6.94                      1,377,800                4.91            6.91           745,775              6.89
$7.41 to $7.7188                       426,600                4.70            7.43           401,600              7.41
$7.875 (2)                             606,250                5.41            7.88           275,249              7.88
$8.0313 to $16.00                      508,000                5.93            9.34           193,450              8.24
$21.125 to $43.00                      161,222                7.01           25.32             9,998             34.17
                                  -----------------                                      ----------------
$0.01 to $43.00                      4,277,372                5.54            7.60         2,021,921              7.07
                                  =================                                      ================

</TABLE>

----------

(1)  As noted herein, the Employee Stock Plan provides for options covering up
     to 50,000 shares which may be granted at an exercise price equal to or in
     excess of par value (or $0.01 per share).

(2) Represents the exercise price under the Repricing plan.

         Had compensation cost for the Company's Stock Plans been determined
based on the fair value at the grant dates for awards under the Stock Plans
consistent with the method prescribed by SFAS 123, the Company's net income
(loss) and net income (loss) per share (diluted) in 1999, 1998 and 1997 would
have been reduced to the proforma amounts indicated below (in thousands, except
per share data):

<TABLE>
<CAPTION>
                                                                1999               1998              1997
                                                            --------------    ---------------    -------------
<S>                                                            <C>              <C>               <C>
Net income (loss):
    As reported....................................            $  8,291         $ (10,189)       $   (13,066)
    Proforma.......................................               4,835           (14,733)           (18,474)
Diluted net income (loss) per common share:
    As reported....................................            $   0.37         $   (0.47)       $     (0.61)
Proforma..........................................                 0.22             (0.68)             (0.86)
</TABLE>

         The effects of applying SFAS 123 in this proforma disclosure are not
indicative of future amounts. The Company anticipates that additional awards
will be granted in future years.

13.  EARNINGS PER SHARE

         The following reconciles the numerators and denominators of the basic
and diluted earnings per share ("EPS") computations (in thousands, except per
share data):

                                      F-23
<PAGE>   84
                PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




<TABLE>
<CAPTION>

                                                               FOR THE YEAR ENDED DECEMBER 31,
                             ------------------------------------------------------------------------------------------------
                                           1999                           1998                              1997
                             ------------------------------  --------------------------------  ------------------------------
                                 NET                   PER         NET                  PER       NET                   PER
                               INCOME    SHARES       SHARE       LOSS     SHARES      SHARE     LOSS      SHARES      SHARE
                               ------    ------       -----       ----     ------      -----     ----      ------      -----

<S>                           <C>          <C>      <C>         <C>           <C>      <C>       <C>        <C>      <C>
BASIC EPS:
  Income (loss) available
   to common shareholders..   $  8,291     21,587   $   0.38    $(10,189)     21,548   $(0.47)  $(13,066)   21,393   $  (0.61)
EFFECT OF DILUTIVE
SECURITIES:
  Stock options(1) ........       --          858      (0.01)       --          --        --         --       --          --
                              --------     ------   --------    --------      ------   ------    --------   ------   --------
DILUTED EPS:
  Income (loss) available
    to common shareholders
    and assumed exercises...  $  8,291     22,445   $   0.37    $(10,189)     21,548   $(0.47)  $(13,066)   21,393   $  (0.61)
                              ========     ======   ========    ========      ======   ======    ========   ======   ========

</TABLE>

-------------

(1)  The effect of 71,679 and 178,684 shares of potential common stock were
     anti-dilutive in 1998 and 1997, respectively.

14.  RETIREMENT PLANS

         The Company has adopted a profit sharing plan (the "Profit Sharing
Plan") which covers substantially all employees who have been employed with the
Company for at least two years and are at least 21 years of age. Under the terms
of the Profit Sharing Plan, the Company makes elective contributions to the
Profit Sharing Plan, the allocation of which to employees is based on relative
salary.

         Effective January 1, 1997, the Company amended the Profit Sharing Plan
to include certain 401(k) savings plan features (as amended, the "Profit
Sharing/401(k) Plan"). Under the provisions of the Profit Sharing/401(k) Plan,
employees meeting certain eligibility requirements may contribute a maximum of
15% of pre-tax gross wages, subject to certain restrictions imposed pursuant to
the Internal Revenue Code. Company contributions are at the discretion of its
Board of Directors. Vesting occurs over a six-year period at the rate of 20% per
year, beginning after the second year of service. The Company accrued a
contribution of $100,000, $85,000 and $45,000 to the Profit Sharing/401(k) Plan
during 1999, 1998 and 1997, respectively.

15. CONTINGENCIES

         On or about August 26, 1998 a lawsuit was filed in Connecticut,
captioned HENRY E. FREEMAN AND FREEMAN INDUSTRIAL ENTERPRISES CORPORATION v.
PRECISION RESPONSE CORPORATION, MARK J. GORDON AND DAVID L. EPSTEIN (Case No.
3:98-CV-1895-AVC (D. Conn.)). It is currently pending in the United States
District Court for the District of Connecticut. This lawsuit alleges that the
Company breached its contracts with the plaintiffs by allegedly failing to pay
all commissions relating to certain clients whom the plaintiffs allegedly claim
they procured for the Company. The Amended Complaint also contains claims of
breach of fiduciary duty, breach of covenant of good faith and fair dealing,
civil conspiracy, fraud/fraud in the inducement, intentional infliction of
emotional distress, negligent misrepresentation and violations of the
Connecticut Unfair Trade Practices Act. The plaintiffs seek actual, compensatory
and punitive damages, declaratory judgement that certain contracts are invalid
due to undue influence exercised upon plaintiffs, recission of such contracts,
an accounting and interest, costs and attorneys' fees. The Company has filed a
motion to dismiss the Amended Complaint for failure to state a cause of action,
which is currently pending before the Court.

         The case is currently in the discovery stage. The Company believes that
the plaintiffs' allegations are totally without merit and intends to defend the
lawsuit vigorously. A provision for legal defense costs has been accrued and is
included in Other accrued expenses in the accompanying Consolidated Balance
Sheets which management believes is adequate based on available information. No
other provisions have been reflected since management is unable, at this time,
to predict the ultimate outcome of this matter.




                                      F-24
<PAGE>   85

                PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


         On or about November 5, 1999 a lawsuit, captioned JOSEPH P. RIANO v.
PRECISION RESPONSE CORPORATION; PRCNETCARE.COM, INC.; MARK J. GORDON; AND DAVID
L. EPSTEIN (Case No. 99-25774 CA 10), was filed in the Circuit Court of the
Eleventh Judicial Circuit in and for Miami Dade-County, Florida. This lawsuit
alleges that PRC misappropriated the plaintiff's alleged trade secret. The
plaintiff asserts a statutory claim against all defendants under the Florida
Uniform Trade Secrets Act, Chapter 688, Florida Statutes. The plaintiff also
asserts a claim against Precision Response Corporation ("PRC") that it breached
a contract entered into with the plaintiff to keep certain information
confidential. In addition, the plaintiff asserts claims for conversion against
all of the defendants and for conspiracy to commit conversion against the
individual defendants. The plaintiff also asserts a claim for unjust enrichment
against PRC and prcnetcare.com, Inc. ("prcnetcare.com"). The plaintiff's
complaint seeks an unspecified amount of compensatory damages, including all
profits earned by the defendants as a result of their conduct, exemplary
damages, attorneys' fees, interests and costs. The plaintiff also seeks an
accounting and entry of an injunction preventing PRC and prcnetcare.com from
continuing to misappropriate the plaintiff's alleged trade secret.

         On January 28, 2000, the court entered an order denying the defendants'
motion to dismiss, with the exception of conspiracy claims against the corporate
defendants, which were dismissed by agreement of counsel. An answer and
affirmative defenses have been filed on behalf of all defendants. The Company
believes that the plaintiff's allegations are totally without merit and intends
to defend the lawsuit vigorously.

16. UNAUDITED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>

                                                                                  FISCAL 1999
                                                        -----------------------------------------------------------------
                                                           FIRST           SECOND           THIRD              FOURTH
                                                          QUARTER          QUARTER         QUARTER             QUARTER
                                                        ------------     ------------    ------------        ------------
                                                                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<S>                                                       <C>                <C>             <C>                <C>
Revenues........................................       $   46,248         $ 50,090         $ 57,006            $ 62,576
Gross profit....................................            7,317            8,655           10,431              11,849
Operating income................................            2,447            2,984            4,283               5,289
Net income......................................            1,238            1,696            2,392               2,965
Basic earnings per common share.................             0.06             0.08             0.11                0.14
Diluted earnings per common share...............             0.06             0.08             0.11                0.13

</TABLE>

<TABLE>
<CAPTION>
                                                                                  FISCAL 1998
                                                        -----------------------------------------------------------------
                                                           FIRST           SECOND           THIRD              FOURTH
                                                          QUARTER          QUARTER         QUARTER             QUARTER
                                                        ------------     ------------    ------------        ------------
                                                                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<S>                                                       <C>              <C>             <C>                 <C>
Revenues.......................................           $   40,535       $ 43,379        $ 44,978            $ 46,281
Gross profit...................................                4,025          6,157           4,437               6,916
Operating income (loss)........................                  705          1,727         (19,880)  (1)         2,110
Net income (loss)..............................                  373            829         (12,604)              1,213
Basic earnings (loss) per common share.........                 0.02           0.04           (0.58)               0.06
Diluted earnings (loss) per common share.......                 0.02           0.04           (0.58)               0.06

</TABLE>

----------

(1)  Includes non-recurring special charges of $22.1 million before taxes in
     1998 as part of the Company's restructuring and cost reduction initiatives
     (see Note 3 - Restructuring and Other Non-Recurring Special Charges).


                                      F-25
<PAGE>   86

                PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




17.   SUBSEQUENT EVENT

         On January 12, 2000, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") by and among the Company, USA Networks, Inc.
("USAi"), a Delaware corporation, and P Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of USAi ("Newco"), pursuant to which
Newco would be merged with and into the Company, with the Company remaining as
the surviving corporation in the merger. Upon and subject to consummation of the
merger, each share of the Company's common stock would be converted into 1.08
shares of USAi common stock (taking into account the two-for-one stock split of
USAi common stock to be effected on February 24, 2000 as to USAi common
shareholders as of February 10, 2000). Consummation of the Merger Agreement is
subject to certain terms, conditions and termination rights specified in the
Merger Agreement. In particular, the Company may elect to terminate the Merger
Agreement if the volume-weighted average sales price per share of USAi common
stock on the twenty consecutive trading days ending on the second full trading
day prior to the Company's special meeting of shareholders (to be convened to
take action upon the Merger Agreement) is less than $18.52 (taking into account
the above-described USAi two-for-one stock split). If the Company makes such
election, USAi may, however, elect, in its sole discretion, to increase the
exchange ratio at that time so that the Company's shareholders receive $20.00
worth of USAi common stock for each share of the Company's common stock, in
which case the Company's termination election will be deemed to be rescinded. In
addition, the merger is subject to approval or expiration or earlier termination
of any applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 and the approval of shareholders of the Company holding
a majority of outstanding shares of common stock, as well as other customary
closing conditions. The merger is currently expected to close by June 2000.







                                      F-26
<PAGE>   87


                         PRECISION RESPONSE CORPORATION

                SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                  YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                     ADDITIONS
                                                                     CHARGED TO
                                                  BEGINNING          COSTS AND                                  ENDING
               DESCRIPTION                         BALANCE          EXPENSES (1)         DEDUCTIONS (2)        BALANCE
-------------------------------------------     --------------    -----------------    -------------------    -----------
<S>                                             <C>                <C>                  <C>                   <C>
Year ended December 31, 1999:
    Allowance for doubtful accounts
        and sales allowances............        $    8,225         $    2,393           $     8,207           $   2,411
Year ended December 31, 1998:
    Allowance for doubtful accounts
        and sales allowances............             2,864             14,534                 9,173               8,225
Year ended December 31, 1997:
    Allowance for doubtful accounts
        and sales allowances............             2,650              5,895                 5,681               2,864

</TABLE>

------------

(1)  Amounts charged to bad debt expense and sales credits were $50 and $2,343
     in 1999, respectively, $4,314 and $10,220 in 1998, respectively, and $448
     and $5,447 in 1997, respectively.

(2)  Deductions represent customer accounts written-off and sales credit


                                      S-1
<PAGE>   88



                         PRECISION RESPONSE CORPORATION
                        INDEX TO EXHIBITS FILED HEREWITH
<TABLE>
<CAPTION>

   EXHIBIT
    NUMBER                                                 DESCRIPTION OF EXHIBIT
---------------       --------------------------------------------------------------------------------------------------

<S>                   <C>
    3.2               Amended and Restated Bylaws of Precision Response Corporation

   10.7               Letter agreement dated January 12, 2000 between the Company and Mark J. Gordon

   10.8               Second Amendment to Employment Agreement dated as of September 1, 1999 between the Company and
                      David L. Epstein and Third Amendment to Employment Agreement dated as of January 12, 2000 between
                      the Company and David L. Epstein

   10.12              Letter dated January 12, 2000 from David L. Epstein to and accepted by Mark J. Gordon terminating
                      Stockholder Agreement dated May 10, 1996 between Messrs. Gordon and Epstein

   10.31              Fourth Amendment to Revolving Credit Agreement effective as of December 31, 1999 between the
                      Company and NationsBank

   10.34              Revolving Promissory Note effective as of December 31, 1999 between the Company and NationsBank

   10.39              Fourth Amendment to Mortgage Loan Agreement effective as of December 31, 1999 between the Company
                      and NationsBank

   10.40              First Amendment to Employment Agreement dated as of January 13, 2000 between the Company and
                      Robert Tenzer

   10.44              First Amendment to Employment Agreement dated as of January 12, 2000 between the Company and
                      Richard D. Mondre

   10.45              First Amendment to Employment Agreement dated as of January 12, 2000 between the Company and
                      Richard N. Ferry, Jr.

   10.46              First Amendment to Employment Agreement dated as of January 13, 2000 between the Company and
                      Michael P. Miller

   10.52              Put/Call Agreement dated November 17, 1999 between the Company and Presidential Suites, Ltd.

   10.53              First Amendment to Employment Agreement dated as of January 12, 2000 between the Company and Paul
                      M. O'Hara

   10.54              Tri-Party Split Dollar Agreement and Collateral Assignment effective as of September 1, 1999
                      between the David Epstein 1995 Grantor Trust u/a/d December 28, 1995 and the Epstein 1997 Family
                      Trust u/a/d June 19, 1997 and the Company

   10.55              Amended and Restated Split Dollar Agreement and Collateral Assignment effective as of September 1,
                      1999 between the David Epstein 1995 Irrevocable Life Insurance Trust u/a/d August 2, 1995 and the
                      Company

   10.56              Amended and Restated Split Dollar Agreement and Collateral Assignment effective as of September 1,
                      1999 between the Epstein 1995 Family Trust u/a/d August 2, 1995 and the Company
</TABLE>


                                      (i)
<PAGE>   89

<TABLE>
<CAPTION>


EXHIBIT NUMBER        DESCRIPTION OF EXHIBIT
---------------       --------------------------------------------------------------------------------------------------

<S>                  <C>
   10.57              Split Dollar Agreement and Collateral Assignment effective April 1998 between the Mark Gordon
                      Family Trust u/a/d March 1, 1990 and the Company

   10.58              Employment Agreement dated as of November 15, 1999 between the Company and Joseph E. Gillis, as
                      amended by First Amendment to Employment Agreement dated as of January 13, 2000 between the
                      Company and Joseph E. Gillis

   10.59              Employment Agreement dated as of November 15, 1999 between the Company and Thomas F. Jennings,
                      Jr., as amended by First Amendment to Employment Agreement dated as of January 13, 2000 between
                      the Company and Thomas F. Jennings, Jr.

   10.60              Employment Agreement executed as of October 1, 1999 between the Company and Frank Modrak

   23.1               Consent of PricewaterhouseCoopers LLP

   27.1               Financial Data Schedule

</TABLE>


                                      (ii)