<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 23, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------------
SYKES ENTERPRISES, INCORPORATED
(Exact name of registrant as specified in its charter)
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FLORIDA 737 56-1383460
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification No.)
incorporation or
organization)
</TABLE>
100 NORTH TAMPA STREET, SUITE 3900
TAMPA, FLORIDA 33602
(813) 274-1000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------
SCOTT J. BENDERT
VICE PRESIDENT-FINANCE, TREASURER AND CHIEF FINANCIAL OFFICER
SYKES ENTERPRISES, INCORPORATED
100 NORTH TAMPA STREET, SUITE 3900
TAMPA, FLORIDA 33602
(813) 274-1000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
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<S> <C>
MARTIN A. TRABER, ESQ. MICHAEL L. JAMIESON, ESQ.
FOLEY & LARDNER HOLLAND & KNIGHT
100 NORTH TAMPA STREET, SUITE 2700 400 NORTH ASHLEY DRIVE, SUITE 2300
TAMPA, FLORIDA 33602 TAMPA, FLORIDA 33602
(813) 229-2300 (813) 227-8500
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of this prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE(1)
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<S> <C> <C> <C> <C>
Common Stock $0.01 par value........ 2,990,000 shares $44.00 $131,560,000 $45,366
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(1) Includes 390,000 shares of Common Stock issuable upon exercise of an
over-allotment option granted to the Underwriters.
(2) Calculated pursuant to Rule 457(c) based on the average of the high and low
prices reported on September 16, 1996.
---------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE> 2
SYKES ENTERPRISES, INCORPORATED
CROSS REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
SHOWING THE LOCATION IN THE PROSPECTUS OF INFORMATION REQUIRED BY ITEMS IN FORM
S-1
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CAPTION OR LOCATION
PURSUANT TO ITEM NUMBER IN FORM S-1 IN PROSPECTUS
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<C> <S> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus.................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................ Inside Front Cover Page; Back Cover
Page
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges......................... Prospectus Summary; Risk Factors
4. Use of Proceeds................................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price................... Not Applicable
6. Dilution.......................................... Not Applicable
7. Selling Security Holders.......................... Principal and Selling Shareholders
8. Plan of Distribution.............................. Underwriting
9. Description of Securities to be Registered........ Description of Capital Stock
10. Interests of Named Experts and Counsel............ Not Applicable
11. Information With Respect to the Registrant........ Front Cover Page; Prospectus Summary;
Price Range of Common Stock; Dividend
Policy; Selected Consolidated
Financial Data; Additional
Consolidated Financial Information;
Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Business; Management;
Principal and Selling Shareholders;
Certain Transactions; Description of
Capital Stock; Shares Eligible for
Future Sale; Index to Consolidated
Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities.... Not Applicable
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i
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS SUBJECT TO COMPLETION, DATED SEPTEMBER 23, 1996
2,600,000 SHARES
(LOGO) SYKES ENTERPRISES INCORPORATED
COMMON STOCK
---------------------
Of the 2,600,000 shares of Common Stock offered hereby, 1,553,320 shares
are being offered by Sykes Enterprises, Incorporated and 1,046,680 shares are
being offered by Selling Shareholders. See "Principal and Selling Shareholders."
The Company will not receive any proceeds from the sale of Common Stock being
offered by the Selling Shareholders.
The Common Stock is traded on the Nasdaq National Market under the symbol
"SYKE." On September 20, 1996, the last reported sale price of the Common Stock
was $47 3/4 per share. Except as indicated to the contrary, all information in
this Prospectus has been restated to reflect a 3-for-2 stock split in the form
of a stock dividend effected on July 28, 1996. See "Price Range of Common
Stock."
---------------------
SEE "RISK FACTORS" ON PAGES 7 THROUGH 11 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
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PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
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<S> <C> <C> <C> <C>
Per Share............................ $ $ $ $
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Total(3)............................. $ $ $ $
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</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses, estimated at $500,000, all of which are payable
by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
390,000 additional shares of Common Stock on the same terms and conditions
as the Common Stock offered hereby, solely to cover over-allotments, if
any. If the option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions, and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
---------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
other conditions including the right of the Underwriters to withdraw, cancel,
modify or reject any order in whole or in part. It is expected that delivery of
the shares will be made on or about November , 1996 at the office of Raymond
James & Associates, Inc., St. Petersburg, Florida.
RAYMOND JAMES & ASSOCIATES, INC.
ROBERT W. BAIRD & CO.
INCORPORATED
OPPENHEIMER & CO., INC.
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE> 4
[INSERT MAP HERE]
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON NASDAQ IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED. SEE "UNDERWRITING."
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements (including the notes thereto)
contained elsewhere in this Prospectus. Unless otherwise noted, the information
in this Prospectus does not give effect to the exercise of the Underwriters'
over-allotment option, and gives retroactive effect to a 3-for-2 stock split in
the form of a stock dividend effected on July 28, 1996. Except where the context
otherwise requires, the terms "SEi" and the "Company" as used in this Prospectus
refer to Sykes Enterprises, Incorporated, a Florida corporation, and its
subsidiaries. Effective August 1, 1994, the Company changed its fiscal year end
from July 31 to December 31. This Prospectus contains forward-looking statements
that involve risks and uncertainties. Future events and the Company's actual
results could differ materially from the results reflected in these
forward-looking statements, as a result of certain of the factors set forth in
"Risk Factors" and elsewhere in this Prospectus.
THE COMPANY
Sykes Enterprises, Incorporated ("SEi" or the "Company") provides a wide
array of information technology outsourcing services, including information
technology support services and information technology development services and
solutions. The Company's services are provided at various stages during the life
cycle of computer hardware and software products. Through its state-of-the-art
technical support call centers ("IT call centers"), the Company provides
information technology support services (i) to leading computer hardware and
software companies by providing technical product support services to end users
of their products and (ii) to major companies by providing help desk services to
their employees. Through its staff of technical professionals, the Company also
provides information technology development services and solutions to large
corporations, on a contract or temporary staffing basis, including software
design, development, integration and implementation; systems support and
maintenance; and documentation, foreign language translation and software
localization. The integration of these services provides SEi's customers the
opportunity to outsource a broad range of their information technology services
needs to the Company. Current customers of SEi include Apple, Digital Equipment,
Disney, Gateway, Hewlett Packard, IBM, Monsanto and NationsBank.
In 1993, in an effort to capitalize on the trend toward outsourcing
information technology services, the Company focused its strategic direction
exclusively on the information technology services marketplace and broadened its
array of services. Pursuant to this strategy, SEi began providing information
technology support services by opening IT call centers and began phasing out its
non-information technology services, including administrative services provided
to a major customer. The phase-out was substantially completed in 1995.
Recently, revenues from information technology support services have grown
rapidly through the opening of three IT call centers in 1994 (including an IT
call center in Amsterdam, The Netherlands), two in late 1995 and one in 1996.
The Company expects continued growth from two additional IT call centers
currently under construction which are anticipated to open late in the third and
fourth quarters of 1996. SEi's domestic IT call centers are stand-alone
facilities, each modeled after the same prototype. The Company's strategy of
locating its domestic IT call centers in smaller communities, typically near a
college or university, has enabled the Company to benefit from a relatively low
cost structure and a technically proficient, stable work force. SEi estimates
that its existing IT call centers, including the two IT call centers in Sweden
acquired in the Company's July 1996 acquisition of Datasvar Support AB
("Datasvar"), have the capacity to process approximately 72,000 calls per day in
the aggregate, up from 7,000 calls per day in January 1994, from users of
hardware and software products seeking technical assistance. With the addition
of the two new IT call centers currently under construction, SEi expects to have
the capacity to process up to 90,000 calls per day by year-end 1996.
The Company is committed to providing its customers with the highest
quality services. To that end, the Company's IT call center in Sterling,
Colorado has received ISO 9002 certification, an international standard for
quality assurance and consistency in operating procedures. The Company
anticipates that many of its existing and potential customers will soon require
evidence of ISO 9002 certification prior to outsourcing their technical product
support or help desk functions. Consequently, the Company has modeled each IT
call center
3
<PAGE> 6
after ISO 9002 procedures to achieve consistency and quality. Additionally, the
Company received the 1995 STAR Award in the highest call volume category. This
award has been presented annually since 1988 by the Software Support
Professionals Association (SSPA) to the software support company that achieves
superior customer satisfaction and call metrics.
The Company believes that outsourcing by information technology companies
and companies with information technology needs will continue to grow as
businesses focus on their core competencies rather than non-revenue producing
activities. According to Dataquest Incorporated, an industry research firm, the
market for information technology services is expected to increase from $50.7
billion in 1995 to $79.0 billion in 1999 and, in particular, the market for
outsourced technical support services is expected to increase from $2.6 billion
to $7.2 billion for the same periods. Additionally, rapid technological changes,
significant capital requirements for state-of-the-art technology, and the need
to integrate and update complex information technology systems spanning multiple
generations of hardware and software components make it increasingly difficult
for businesses to maintain cost-effective, quality information technology
services in-house.
To capitalize on this trend toward outsourcing, the Company has developed a
strategy which includes the following key elements: (i) rapidly expand
information technology support services revenues through additional IT call
centers; (ii) market the Company's expanded array of services to existing
customers to position SEi as a preferred vendor of outsourced services; (iii)
establish a competitive advantage through the Company's proprietary,
sophisticated technological capabilities; and (iv) expand its customer base
through strategic alliances and selective acquisitions. As a result of the trend
toward outsourcing of information technology services and the Company's success
in implementing its strategy, the Company's revenues increased 39.9% from $45.1
million in 1994 to $63.1 million in 1995 and increased 63.9% from $27.7 million
in the first six months of 1995 to $45.4 million in the first six months of
1996. The majority of these increases came as a result of the Company's opening
of additional IT call centers. During 1993, 1994, 1995 and the first six months
of 1996, information technology support services provided through IT call
centers represented 4.1%, 17.1%, 42.4% and 59.1%, respectively, of the Company's
revenues, reflecting the Company's recent emphasis on its information technology
support services.
RECENT ACQUISITIONS
The Company has completed two acquisitions since its initial public
offering on April 29, 1996. On July 16, 1996, the Company expanded the
information technology support services it provides to the international
business community in Europe through its acquisition of Datasvar, which provides
technical product support throughout Sweden, Norway, Denmark and Finland from
its two IT call centers in Sweden. Datasvar had revenues of $5.3 million and
$3.1 million and net income of $1.0 million and $418,000 in 1995 and the six
months ended June 30, 1996, respectively. On August 30, 1996, the Company
expanded the range of its technical product support capabilities through the
acquisition of DiagSoft, Inc. ("DiagSoft"), which develops and markets
diagnostic software applications. The Company's strategy is to capitalize on the
integration of its IT call centers with DiagSoft's diagnostic software
applications by (i) providing quality control solutions to personal computer
manufacturers in manufacturing, assembly and product support to reduce warranty
claims, (ii) using the software to further enhance the efficiency and quality of
the Company's information technology support services, and (iii) enhancing the
software's diagnostic capabilities to achieve direct access to broader markets,
including the home and small business user. DiagSoft had revenues of $6.2
million and $3.9 million and net income (loss) of ($112,000) and $479,000 in
1995 and the six months ended June 30, 1996, respectively. After accounting for
the Datasvar and DiagSoft acquisitions (the "Acquisitions") under the
pooling-of-interests method of accounting, the Company had pro forma revenues of
$74.6 million and $52.5 million, pro forma net income of $2.2 million and $3.6
million, and pro forma net income per share (after giving effect to the 921,819
shares issued in the Acquisitions) of $0.13 and $0.20 in 1995 and the six months
ended June 30, 1996, respectively.
4
<PAGE> 7
THE OFFERING
Common Stock offered by the Company..... 1,553,320 shares
Common Stock offered by the Selling
Shareholders............................ 1,046,680 shares(1)
Common Stock to be outstanding after the
Offering................................ 21,833,818 shares(2)
Use of Proceeds......................... To open additional IT call centers,
make additional capital
expenditures, and for working
capital and general corporate
purposes, including possible
acquisitions. See "Use of
Proceeds."
Nasdaq National Market Symbol........... SYKE
- ---------------
(1) Includes 254,000 shares to be acquired upon the exercise of outstanding
options at an exercise price of $4.53 per share. See
"Management -- Executive Compensation" and "Principal and Selling
Shareholders."
(2) Excludes 508,000 shares of Common Stock issuable upon exercise of stock
options at an exercise price of $4.53 per share, and 2,050,000 shares of
Common Stock reserved for future issuance under the Company's stock option
plans, pursuant to which options to purchase 639,894 shares at exercise
prices ranging from $10.00 to $40.40 per share will be outstanding after
this offering. See "Management -- Executive Compensation."
5
<PAGE> 8
SUMMARY AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED
------------------------------------------------- ----------------------------------------
PRO PRO FORMA
FORMA JULY 2, JUNE 30, JUNE 30,
1993 1994 1995 1995(1) 1995 1996 1996(1)
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(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
STATEMENT OF INCOME DATA:
Revenues.................... $50,188 $45,115 $63,097 $74,595 $ 27,677 $45,433 $52,467
Direct salaries and related
costs..................... 34,975 30,636 40,845 44,592 18,452 27,000 29,441
General and
administrative(2)......... 12,820 11,851 16,187 22,274 7,078 11,541 14,437
Depreciation and
amortization.............. 1,190 1,747 2,824 2,958 754 2,225 2,272
------- ------- ------- ------- ------- ------- -------
Income from operations.... 1,203 881 3,241 4,771 1,393 4,667 6,317
Interest and other income
(expense)................. 66 (452) (639) (728) (246) (183) (181)
------- ------- ------- ------- ------- ------- -------
Income before income
taxes................... 1,269 429 2,602 4,043 1,147 4,484 6,136
Provision for income
taxes(3).................. 583 217 1,271 1,819 540 1,745 2,500
------- ------- ------- ------- ------- ------- -------
Net income(3)............. $ 686 $ 212 $ 1,331 $ 2,224 $ 607 $ 2,739 $ 3,636
======= ======= ======= ======= ======= ======= =======
Net income per share(3)..... $ 0.04 $ 0.01 $ 0.08 $ 0.13 $ 0.04 $ 0.16 $ 0.20
======= ======= ======= ======= ======= ======= =======
Weighted average shares
outstanding............... 15,952 15,952 15,952 16,874 15,952 17,385 18,307
REVENUE DATA:
Information technology
support services.......... $ 2,080 $ 7,719 $26,750 $38,248 $ 9,000 $26,838 $33,872
Information technology
services and solutions.... 33,480 27,941 31,873 31,873 15,714 18,265 18,265
Other services(4)........... 14,628 9,455 4,474 4,474 2,963 330 330
------- ------- ------- ------- ------- ------- -------
Revenues.................. $50,188 $45,115 $63,097 $74,595 $ 27,677 $45,433 $52,467
======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1996
--------------------------------
PRO AS
ACTUAL FORMA(1) ADJUSTED(5)
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BALANCE SHEET DATA:
Working capital....................................................... $34,001 $34,771 $ 106,256
Total assets.......................................................... 74,125 79,850 151,334
Total long-term debt, less current installments....................... -- 257 257
Total shareholders' equity............................................ 52,131 53,404 124,889
</TABLE>
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(1) Adjusted to account for the Acquisitions (which took place after June 30,
1996) under the pooling-of-interests method of accounting. See
"Business -- Recent Acquisitions."
(2) Includes non-cash compensation expense of $949,960 related to the grant of
stock options to an executive officer in 1995. See "Management -- Executive
Compensation." Excluding the effect of such expense, income from operations,
income before income taxes and net income in 1995 would have been $4.2
million, $3.6 million and $1.9 million, respectively, and net income per
share would have been $0.12; pro forma 1995 income from operations, income
before income taxes and net income would have been $5.7 million, $5.0
million and $2.9 million, respectively, and pro forma net income per share
would have been $0.17.
(3) Adjusted as if an affiliate of the Company included in the consolidated
financial statements, which was an S corporation for federal income tax
purposes, were subject to income taxes for all periods presented, based on
the tax laws in effect during the respective periods. See Note 13 of Notes
to the Company's Consolidated Financial Statements and Supplemental
Consolidated Financial Statements.
(4) The phase-out of these services began in 1993 and was substantially
completed in 1995. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview."
(5) Adjusted to reflect the sale of 1,553,320 shares of Common Stock being
offered by the Company at an assumed offering price of $47.75 per share and
the exercise by a Selling Shareholder of options to acquire 254,000 shares
of Common Stock at an exercise price of $4.53 per share. See
"Capitalization."
6
<PAGE> 9
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should consider carefully the following
risk factors, as well as the other information set forth in this Prospectus.
This Prospectus contains certain forward-looking statements that involve risks
and uncertainties. Future events and the Company's actual results could differ
materially from the results reflected in these forward-looking statements, as a
result of the factors set forth below and elsewhere in this Prospectus.
DEPENDENCE ON KEY CUSTOMERS
Approximately 34%, 29%, 16% and 12% of the Company's revenues in 1993,
1994, 1995 and the six months ended June 30, 1996, respectively, were
attributable to IBM. During the first quarter of 1996, IBM instituted a policy
that certain information technology services be provided through designated
national vendors. The Company has entered into an agreement with such a vendor,
Decision Consultants, Inc., under which certain services, previously provided
directly to IBM, are being provided indirectly to IBM through this vendor.
Although the Company believes its relationship with IBM will not be affected by
the change in the method of providing its services to IBM, there can be no
assurance that the Company will continue to provide such services. In addition,
17% of the Company's revenues in 1995 and 18% in the first six months of 1996
were attributable to Apple, which became a customer during 1994. The Company's
largest ten customers accounted for approximately 70% and 68% of the Company's
revenues in 1995 and the six months ended June 30, 1996, respectively.
Generally, the Company's contracts are cancelable by each customer at any time
or on short-term notice, and customers may unilaterally reduce their use of the
Company's services under such contracts without penalty. The Company's loss of
(or the failure to retain a significant amount of business with) any of its key
customers could have a material adverse effect on the Company. See "Business --
Customers."
ABILITY TO MANAGE GROWTH
The Company has rapidly expanded its operations since it began providing
information technology support services through its IT call centers in 1993 and
anticipates continued growth to be driven by industry trends toward outsourcing
of such services. This expansion has placed significant demands on its
operational, administrative and financial resources. The continued growth of the
Company's customer base and the expansion of the scope of services offered by
the Company can be expected to continue to place a significant strain on its
resources. These resources could be further strained from the opening of new IT
call centers and branch offices. The Company's future performance and
profitability will depend in part on its ability to successfully attract and
retain qualified management personnel to manage the growth and operations of the
Company's business. There can be no assurance that the Company will have
sufficient resources or otherwise be able to maintain its historic rate of
growth or to maintain the quality of its services. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Management."
RECENT ACQUISITIONS AND IMPLEMENTATION OF ACQUISITION STRATEGY
The Company has recently completed two acquisitions and intends to pursue
other acquisitions. There can be no assurance that the Company will be able to
successfully integrate the operations and management of recent acquisitions.
Similarly, there can be no assurance that the Company will be able to consummate
or, if consummated, successfully integrate the operations and management of
future acquisitions. Acquisitions involve significant risks which could have a
material adverse effect on the Company, including: (i) the diversion of
management's attention to the assimilation of the businesses to be acquired;
(ii) the risk that the acquired businesses will fail to maintain the quality of
services that the Company has historically provided; (iii) the need to implement
financial and other systems and add management resources; (iv) the risk that key
employees of the acquired business will leave after the acquisition; (v)
potential liabilities of the acquired business; (vi) unforeseen difficulties in
the acquired operations; (vii) adverse short-term effects on the Company's
operating results; (viii) lack of success in assimilating or integrating the
operations of acquired businesses with those of the Company; (ix) the dilutive
effect of the issuance of additional equity securities; (x) the incurrence of
additional debt; and (xi) the amortization of goodwill and other intangible
assets
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<PAGE> 10
involved in any acquisitions that are accounted for using the purchase method of
accounting. There can be no assurance that the Company will successfully
implement its acquisition strategy. Furthermore, there can be no assurance any
acquisition will achieve levels of revenue and profitability or otherwise
perform as expected, or be consummated on acceptable terms to enhance
shareholder value. Currently, the Company has no arrangements or understandings
with any party with respect to any future acquisition. The Company, however,
continues to monitor acquisition opportunities. See "Business -- Recent
Acquisitions."
RAPID TECHNOLOGICAL CHANGE
The market for information technology services is characterized by rapid
technological advances, frequent new product introductions and enhancements, and
changes in customer requirements. The Company's future success will depend in
large part on its ability to service new products, platforms and rapidly
changing technology. These factors will require the Company to provide
adequately trained personnel to address the increasingly sophisticated, complex
and evolving needs of its customers. The Company's ability to capitalize on its
acquisition of DiagSoft will depend on its ability to (i) continually enhance
DiagSoft's diagnostic software and successfully integrate such software into the
Company's technical product support services, (ii) adapt such software to new
hardware and operating system requirements, and (iii) develop new diagnostic
software products in an industry characterized by increasingly rapid product and
technological obsolescence. Any failure by the Company to anticipate or respond
rapidly to technological advances, new products and enhancements, or changes in
customer requirements could have a material adverse effect on the Company. See
"Business -- Industry Background" and "Business -- Operations."
DEPENDENCE ON QUALIFIED PERSONNEL
The Company's business is labor intensive and places significant importance
on its ability to recruit and retain qualified technical and professional
personnel. The Company generally experiences high turnover of its personnel and
is continuously required to recruit and train replacement personnel as a result
of a changing and expanding work force. Additionally, demand for qualified
professionals conversant with certain technologies is intense and may outstrip
supply as new and additional skills are required to keep pace with evolving
computer technology. There can be no assurance that the Company will be
successful in attracting and retaining the personnel it requires to conduct its
operations successfully. Failure to attract and retain such personnel could have
a material adverse effect on the Company. See "Business -- Employees."
RELIANCE ON TECHNOLOGY AND COMPUTER SYSTEMS
The Company has invested significantly in sophisticated and specialized
telecommunications and computer technology, and has focused on the application
of this technology to meet its clients' needs. The Company anticipates that it
will be necessary to continue to invest in and develop new and enhanced
technology on a timely basis to maintain its competitiveness. Significant
capital expenditures may be required to keep its technology up-to-date.
Investments in technology, including DiagSoft's diagnostic software and future
investments in upgrades and enhancements to such software, may not necessarily
maintain the Company's competitiveness. The Company's future success will also
depend in part on its ability to anticipate and develop information technology
solutions which keep pace with evolving industry standards and changing client
demands. In addition, the Company's business is highly dependent on its computer
and telephone equipment and software systems, and the temporary or permanent
loss of such equipment or systems, through casualty, operating malfunction or
otherwise, could have a material adverse effect on the Company. See
"Business -- Operations" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
DEPENDENCE ON TREND TOWARD OUTSOURCING
The Company's business and growth depend in large part on the industry
trend toward outsourcing information technology services. There can be no
assurance that this trend will continue, as organizations may elect to perform
such services in-house. A significant change in the direction of this trend
could have a material adverse effect on the Company. See "Business -- Industry
Background."
8
<PAGE> 11
RISK OF EMERGENCY INTERRUPTION OF IT CALL CENTER OPERATIONS
The Company's operations are dependent upon its ability to protect its IT
call centers and its information databases against damage that may be caused by
fire, power failure, telecommunications failures, unauthorized intrusion,
computer viruses and other emergencies. The Company has taken precautions to
protect itself and its customers from events that could interrupt delivery of
the Company's services. These precautions include off-site storage of backup
data, fire protection and physical security systems, rerouting of telephone
calls to one or more of the Company's other IT call centers in the event of an
emergency, backup power generators and a disaster recovery plan. The Company
also maintains business interruption insurance in amounts the Company considers
adequate. Notwithstanding such precautions, there can be no assurance that a
fire, natural disaster, human error, equipment malfunction or inadequacy, or
other event would not result in a prolonged interruption in the Company's
ability to provide support services to its customers. Such an event could have a
material adverse effect on the Company. See "Business -- Operations."
RISK ASSOCIATED WITH INTERNATIONAL OPERATIONS AND EXPANSION
The Company's recent acquisition of Datasvar has substantially increased
its European operations. The Company now has two IT call centers in Sweden in
addition to its IT call center in Amsterdam and has customers in the majority of
the European countries. Revenues from foreign operations for the year ended
December 31, 1995 and the six months ended June 30, 1996 were 4.4% and 4.0% of
revenues without giving effect to the Acquisitions and 10.9% and 9.4% of
revenues after giving effect to the Acquisitions. The Company intends to
continue its international expansion. There are a number of risks inherent in
conducting international business, including exposure to currency fluctuations,
longer payment cycles, political uncertainties, foreign exchange restrictions
that could limit the repatriation of earnings, possible greater difficulties in
accounts receivable collection, and potentially adverse tax consequences. There
can be no assurance that one or more of such factors or other factors relating
to international operations will not have a material adverse effect on the
Company's business, results of operations or financial condition. See Note 11 to
the Company's Supplemental Consolidated Financial Statements.
COMPETITION
The industry in which the Company competes is extremely competitive and
highly fragmented. While many companies provide information technology services,
management believes no one company is dominant. There are numerous and varied
providers of such services, including firms specializing in call center
operations, temporary staffing and personnel placement companies, general
management consulting firms, divisions of large hardware and software companies
and niche providers of information technology services, many of whom compete in
only certain markets. The Company's competitors include many companies who may
possess substantially greater resources, greater name recognition and a more
established customer base than the Company. In addition, the services offered by
the Company historically have been provided by in-house personnel. There can be
no assurance that the Company will be able to compete successfully against
existing or potential new competitors as the industry continues to evolve.
Many of the Company's larger customers purchase information technology
services primarily from a limited number of preferred vendors. The Company has
experienced and continues to anticipate significant pricing pressure from these
customers in order to remain a preferred vendor. These companies also require
vendors to be able to provide services in multiple locations. Although the
Company believes it can effectively meet its customers' demands, there can be no
assurance that the Company will be able to compete effectively with other
information technology service companies. See "Business -- Competition."
DEPENDENCE ON SENIOR MANAGEMENT
The success of the Company is largely dependent upon the efforts, direction
and guidance of its senior management. Although the Company has entered into
employment agreements with its executive officers, the Company's continued
growth and success also depends in part on its ability to attract and retain
qualified managers, and on the ability of its executive officers and key
employees to manage its operations successfully.
9
<PAGE> 12
Each of these employment agreements contains a non-competition agreement. The
loss of any of the Company's senior management or key personnel, and in
particular John H. Sykes, Chairman of the Board, President and Chief Executive
Officer, or its inability to attract and retain key management personnel in the
future, could have a material adverse effect on the Company. See "Management."
DISCRETION OF MANAGEMENT CONCERNING USE OF PROCEEDS
The net proceeds of this offering from the sale of the shares offered by
the Company will be added to working capital and made available for general
corporate purposes, including possible acquisitions. Accordingly, management
will have substantial discretion with respect to such net proceeds. Pending any
such use, the Company plans to invest such net proceeds in short-term,
investment grade securities or money market instruments. There can be no
assurance the Company will deploy such funds in a manner which enhances
shareholder value. See "Use of Proceeds."
CONTROL BY PRINCIPAL SHAREHOLDER; ANTI-TAKEOVER CONSIDERATIONS
Upon the conclusion of this offering, John H. Sykes will beneficially own
approximately 60.3% of the outstanding Common Stock (59.2% if the Underwriters'
over-allotment option is exercised in full). As a result, Mr. Sykes will be able
to elect the Company's directors and determine the outcome of other matters
requiring shareholder approval. The voting power of Mr. Sykes, together with the
staggered Board of Directors and the anti-takeover effects of certain provisions
contained in both the Florida Business Corporation Act and in the Company's
Articles of Incorporation and Bylaws (including, without limitation, the ability
of the Board of Directors of the Company to issue shares of Preferred Stock and
to fix the rights and preferences thereof), may have the effect of delaying,
deferring or preventing an unsolicited change in the control of the Company,
which may adversely affect the market price of the Common Stock or the ability
of shareholders to participate in a transaction in which they might otherwise
receive a premium for their shares. See "Management," "Principal and Selling
Shareholders" and "Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this offering, the Company will have 21,833,818
shares of Common Stock outstanding (22,223,818 shares if the Underwriters'
over-allotment option is exercised in full). Of these shares, 8,266,832 shares
(8,656,832 shares if the Underwriters' over-allotment option is exercised in
full), including the shares sold in this offering, will be freely tradeable by
persons other than affiliates of the Company, without restriction under the
Securities Act of 1933, as amended (the "Securities Act"). The remaining
13,566,986 shares will be "restricted" securities within the meaning of Rule 144
under the Securities Act of 1933, as amended (the "Securities Act"), and may not
be sold in the absence of registration under the Securities Act unless an
exemption from registration is available, including the exemptions contained in
Rule 144. Of this amount, 12,189,680 shares beneficially owned by persons who
are affiliates of the Company are eligible for public sale subject to the volume
and other limitations of Rule 144. However, the directors, executive officers
and principal shareholders of the Company have agreed not to sell, contract to
sell or otherwise dispose of any of these shares of Common Stock for a period of
180 days after the date of this Prospectus without the prior written consent of
Raymond James & Associates, Inc., Robert W. Baird & Co., Incorporated and
Oppenheimer & Co., Inc., as representatives of the several Underwriters (the
"Representatives"). See "Shares Eligible for Future Sale." The former
shareholders of Datasvar and DiagSoft have certain registration rights with
respect to 379,139 shares of Common Stock beneficially owned by them that
constitute restricted securities.
VOLATILITY OF STOCK PRICE
The Common Stock has experienced significant volatility, as well as a
significant increase in market price, since the Company's initial public
offering in April 1996. The market for securities of technology companies
historically has been more volatile than the market for stocks in general. The
trading of the Common Stock may be subject to wide fluctuations in response to
quarter-to-quarter variations in operating results, announcement of recent
developments or new products by the Company or its competitors and other events
or
10
<PAGE> 13
factors. In addition, the stock market has from time to time experienced extreme
price and volume fluctuations that have particularly affected the market price
for many high technology companies and that often have been unrelated to the
operating performance of these companies. These broad market fluctuations may
adversely affect the market price of the Common Stock. See "Price Range of
Common Stock."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on the Common
Stock. The Company currently anticipates that all of its earnings will be
retained for development and expansion of the Company's business and does not
anticipate paying any cash dividends in the foreseeable future. Additionally,
financial covenants in the Company's credit facility limit the payment of cash
dividends to 30% of the Company's net income for the preceding fiscal year.
USE OF PROCEEDS
The net proceeds to the Company from the sale of 1,553,320 shares of Common
Stock offered hereby at an assumed offering price of $47.75 per share, after
deducting the estimated underwriting discounts and commissions and offering
expenses payable by the Company, are estimated to be approximately $70.3 million
($88.1 million if the Underwriters' over-allotment option is exercised in full).
The Company will not receive any proceeds from the sale of shares of Common
Stock by the Selling Shareholders. See "Principal and Selling Shareholders." The
net proceeds of this offering will be used to open additional IT call centers,
make additional capital expenditures, and for working capital and general
corporate purposes, including possible acquisitions. Currently, the Company has
no arrangements or understandings with respect to any additional acquisitions,
although it continues to monitor acquisition opportunities.
As a result of the Company's continued expansion, it is anticipated that
1996 capital expenditures will be approximately $16.0 million (of which
approximately $8.3 million had been spent as of August 1, 1996), primarily for
completing the sixth IT call center and the construction of two additional IT
call centers in the United States. Each IT call center requires approximately
$2.0 million to construct and approximately $4.0 million of capital expenditures
to complete the build-out and equip the IT call center. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Business -- Facilities."
Pending any such uses, the Company plans to invest the net proceeds of this
offering in short-term, investment grade securities or money market instruments.
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the Nasdaq National Market under the symbol
"SYKE." The following table sets forth, for the quarters indicated, a summary of
the high and low sale prices for the Common Stock as reported by the National
Association of Securities Dealers, Inc. since April 30, 1996, when the Common
Stock was first offered for sale to the public at an initial public offering
price of $12 per share (after adjustment for the 3-for-2 stock split).
<TABLE>
<CAPTION>
1996: HIGH LOW
- ------------------------------------------------------------------------------- ---- ---
<S> <C> <C>
Second Quarter (from April 30, 1996)........................................... $ 36 1/8 $20 1/2
Third Quarter (through September 20, 1996)..................................... 48 3/8 25 1/8
</TABLE>
On September 20, 1996, the last sale price per share for the Common Stock
was $47.75 on the Nasdaq National Market, and there were approximately 48
holders of record of the Common Stock (excluding participants in security
position listings).
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on the Common
Stock. The Company currently anticipates that all of its earnings will be
retained for development and expansion of the Company's business and does not
anticipate paying any cash dividends in the foreseeable future. Additionally,
financial covenants in the Company's credit facility limit the payment of cash
dividends to 30% of the Company's net income for the preceding fiscal year.
11
<PAGE> 14
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
June 30, 1996, (ii) on a pro forma basis to account for the Acquisitions (which
took place after June 30, 1996) under the pooling-of-interests method of
accounting, and (iii) on a pro forma basis as adjusted to reflect the issuance
and sale by the Company of 1,553,320 shares of Common Stock in this offering at
an assumed offering price of $47.75 per share and the exercise by a Selling
Shareholder of options to acquire 254,000 shares at an exercise price of $4.53
per share. See "Principal and Selling Shareholders."
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------------
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current installments of long-term debt(1)...................... $ -- $ 59 $ 59
======= ======= ====
Long-term debt, less current installments(1)................... $ -- $ 257 $ 257
------- ------- ----
Shareholders' equity:
Preferred Stock, $0.01 par value, 10,000,000 shares
authorized; no shares issued and outstanding.............. -- -- --
Common Stock, $0.01 par value, 50,000,000 shares authorized;
19,104,679 shares issued and outstanding; 20,026,498
shares pro forma; 21,833,818 shares as adjusted(2)........ 191 200 218
Additional paid-in capital................................... 45,534 45,961 117,428
Retained earnings............................................ 6,407 7,207 7,207
Accumulated foreign currency translation adjustments......... (1) 36 36
------- ------- ----
Total shareholders' equity........................... 52,131 53,404 124,889
------- ------- ----
Total capitalization................................. $52,131 $53,661 $ 125,146
======= ======= ====
</TABLE>
- ---------------
(1) See Note 4 of Notes to DiagSoft's Consolidated Financial Statements.
(2) Excludes 1,162,894 shares of Common Stock (908,894 shares as adjusted for
this offering) issuable upon the exercise of nonexercisable stock options
outstanding at June 30, 1996.
12
<PAGE> 15
SELECTED CONSOLIDATED FINANCIAL DATA
The following table contains certain selected consolidated financial data
and is qualified by the more detailed Consolidated Financial Statements and
notes thereto included elsewhere in this Prospectus. The Balance Sheet Data as
of December 31, 1994 and 1995, and the Statement of Income Data for each of the
two years in the period ended July 31, 1994, the five months ended December 31,
1994 and the year ended December 31, 1995, have been derived from the Company's
consolidated financial statements for such years, which have been audited by
Coopers & Lybrand L.L.P., independent public accountants, and are included
elsewhere in this Prospectus. The Balance Sheet Data as of July 31, 1991, 1992,
1993 and 1994, and the Statement of Income Data for the years ended July 31,
1991 and 1992, have been derived from the Company's consolidated financial
statements, which have been audited by Coopers & Lybrand L.L.P, and which are
not included in this Prospectus. The data as of and for the six months ended
July 2, 1995 and June 30, 1996 have been derived from the Company's unaudited
financial statements and in the opinion of management include all adjustments
(consisting of only normal recurring accruals) necessary for a fair presentation
of such information. The results of operations for the six months ended June 30,
1996 are not necessarily indicative of the results for the full year. The data
set forth below should be read in conjunction with the Company's Consolidated
Financial Statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FIVE MONTHS -----------------
YEARS ENDED JULY 31, ENDED YEAR ENDED JUNE
------------------------------------- DECEMBER 31, DECEMBER 31, JULY 2, 30,
1991 1992 1993 1994 1994 1995 1995 1996
------- ------- ------- ------- ------------ ------------ ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues............................. $42,719 $43,631 $50,750 $47,662 $ 18,168 $ 63,097 $27,677 $45,433
Direct salaries and related costs.... 28,675 28,699 34,751 32,615 12,635 40,845 18,452 27,000
General and administrative(1)........ 10,538 11,812 13,242 12,769 4,270 16,187 7,078 11,541
Depreciation and amortization........ 826 776 999 1,348 894 2,824 754 2,225
------- ------- ------- ------- ------- ------- ------- -------
Income from operations............. 2,680 2,344 1,758 930 369 3,241 1,393 4,667
Interest and other expense........... 236 124 172 204 298 639 246 183
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes......... 2,444 2,220 1,586 726 71 2,602 1,147 4,484
Provision for income taxes(2)........ 1,037 892 828 256 60 1,271 540 1,745
------- ------- ------- ------- ------- ------- ------- -------
Income before cumulative effect of
accounting change(2)............. 1,407 1,328 758 470 11 1,331 607 2,739
Cumulative effect of change in
accounting for income taxes........ -- 49 -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Net income(2)...................... $ 1,407 $ 1,377 $ 758 $ 470 $ 11 $ 1,331 $ 607 $ 2,739
======= ======= ======= ======= ======= ======= ======= =======
Net income per share(2).............. $ 0.08 $ 0.08 $ 0.05 $ 0.03 -- $ 0.08 $ 0.04 $ 0.16
======= ======= ======= ======= ======= ======= ======= =======
Weighted average shares
outstanding........................ 15,952 15,952 15,952 15,952 15,952 15,952 15,952 17,385
</TABLE>
<TABLE>
<CAPTION>
JULY 31, DECEMBER 31, JUNE
------------------------------------- --------------------------- JULY 2, 30,
1991 1992 1993 1994 1994 1995 1995 1996
------- ------- ------- ------- ------------ ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital...................... $ 4,580 $ 5,345 $ 3,417 $ 4,181 $ 5,062 $ 493 $ 5,828 $34,001
Total assets......................... 11,891 14,721 13,232 19,092 24,271 41,342 26,327 74,125
Total long-term debt, less current
installments....................... 1,553 1,930 -- 2,930 6,214 8,181 6,774 --
Total shareholders' equity........... 5,641 7,019 7,777 8,553 8,584 10,116 9,191 52,131
</TABLE>
- ---------------
(1) Includes non-cash compensation expense of $949,960 related to the grant of
stock options to an executive officer in 1995. See "Management -- Executive
Compensation." Excluding the effect of such expense, income from operations,
income before income taxes and net income in 1995 would have been $4.2
million, $3.6 million, and $1.9 million, respectively, and net income per
share would have been $0.12.
(2) Adjusted as if an affiliate of the Company included in the consolidated
financial statements, which was an S corporation for federal income tax
purposes, were subject to income taxes for all periods presented, based on
the tax laws in effect during the respective periods. See Note 13 of Notes
to the Company's Consolidated Financial Statements and Supplemental
Consolidated Financial Statements.
13
<PAGE> 16
ADDITIONAL CONSOLIDATED FINANCIAL INFORMATION
Effective August 1, 1994, the Company changed its fiscal year end from July
31 to December 31. The following table contains selected Statement of Income
Data for the years ended December 31, 1993, 1994 and 1995 which have been
derived from Note 14 of Notes to the Company's Consolidated Financial
Statements. The data for the years ended December 31, 1993 and 1994 have not
been derived from the Company's audited consolidated financial statements. The
data for the year ended December 31, 1995 have been derived from the Company's
consolidated financial statements for such period, which have been audited by
Coopers & Lybrand L.L.P., independent public accountants, and are included
elsewhere in this Prospectus. The data as of and for the six months ended July
2, 1995 and June 30, 1996 have been derived from the Company's unaudited
financial statements and in the opinion of management include all adjustments
(consisting of only normal recurring accruals) necessary for a fair presentation
of such information. The results of operations for the six months ended June 30,
1996 are not necessarily indicative of the results for the full year. The pro
forma data for the year ended December 31, 1995 have been derived from the
Company's supplemental financial statements audited by Coopers & Lybrand L.L.P.,
independent public accountants, and are included elsewhere in this Prospectus.
The data set forth below should be read in conjunction with the financial
statements and notes thereto included in this Prospectus and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED
--------------------------------------- ------------------------------
PRO PRO FORMA
FORMA JULY 2, JUNE 30, JUNE 30,
1993 1994 1995 1995(1) 1995 1996 1996(1)
------- ------- ------- --------- ------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues............................... $50,188 $45,115 $63,097 $74,595 $27,677 $ 45,433 $52,467
Direct salaries and related costs...... 34,975 30,636 40,845 44,592 18,452 27,000 29,441
General and administrative(2).......... 12,820 11,851 16,187 22,274 7,078 11,541 14,437
Depreciation and amortization.......... 1,190 1,747 2,824 2,958 754 2,225 2,272
------- ------- ------- ------- ------- ------- -------
Income from operations............... 1,203 881 3,241 4,771 1,393 4,667 6,317
Interest and other income (expense).... 66 (452) (639) (728) (246) (183) (181)
------- ------- ------- ------- ------- ------- -------
Income before income taxes........... 1,269 429 2,602 4,043 1,147 4,484 6,136
Provision for income taxes(3).......... 583 217 1,271 1,819 540 1,745 2,500
------- ------- ------- ------- ------- ------- -------
Net income(3)........................ $ 686 $ 212 $ 1,331 $ 2,224 $ 607 $ 2,739 $ 3,636
======= ======= ======= ======= ======= ======= =======
Net income per share(3)................ $ 0.04 $ 0.01 $ 0.08 $ 0.13 $ 0.04 $ 0.16 $ 0.20
======= ======= ======= ======= ======= ======= =======
Weighted average shares outstanding.... 15,952 15,952 15,952 16,874 15,952 17,385 18,307
REVENUE DATA:
Information technology support
services............................. $ 2,080 $ 7,719 $26,750 $38,248 $ 9,000 $ 26,838 $33,872
Information technology services and
solutions............................ 33,480 27,941 31,873 31,873 15,714 18,265 18,265
Other services(4)...................... 14,628 9,455 4,474 4,474 2,963 330 330
------- ------- ------- ------- ------- ------- -------
Revenues........................ $50,188 $45,115 $63,097 $74,595 $27,677 $ 45,433 $52,467
======= ======= ======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) The pro forma data reflect the Company's acquisitions of Datasvar and
DiagSoft, which took place after June 30, 1996, the end of the most recent
accounting period reflected in the above table. As required by generally
accepted accounting principles, the Company's financial statements for all
periods prior to the Acquisitions will be restated under the
pooling-of-interests method of accounting after the end of the quarter in
which the Acquisitions occurred. In compliance with requirements of the
Securities and Exchange Commission, the Supplemental Consolidated Financial
Statements, consisting of restated financial information for periods
beginning August 1, 1992, have been included elsewhere herein.
(2) Includes non-cash compensation expense of $949,960 related to the grant of
stock options to an executive officer in 1995. See "Management -- Executive
Compensation." Excluding the effect of such expense, income from operations,
income before income taxes and net income in 1995 would have been $4.2
million, $3.6 million and $1.9 million, respectively, and net income per
share would have been $0.12; pro forma 1995 income from operations, income
before income taxes and net income would have been $5.7 million, $5.0
million and $2.9 million, respectively, and pro forma net income per share
would have been $0.17.
14
<PAGE> 17
(3) Adjusted as if an affiliate of the Company included in the consolidated
financial statements, which was an S corporation for federal income tax
purposes, were subject to income taxes for all periods presented, based on
the tax laws in effect during the respective periods. See Note 13 of Notes
to the Company's Consolidated Financial Statements and Supplemental
Consolidated Financial Statements.
(4) The phase-out of these services began in 1993 and was substantially
completed in 1995. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview."
15
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with the Consolidated Financial
Statements, including the notes thereto, and the Supplemental Consolidated
Financial Statements included elsewhere in this Prospectus. Effective August 1,
1994, the Company changed its fiscal year end from July 31 to December 31. The
following discussion compares the six months ended June 30, 1996 to the six
months ended July 2, 1995, the twelve months ended December 31, 1995 ("1995") to
the twelve months ended December 31, 1994 ("1994"), and 1994 to the twelve
months ended December 31, 1993 ("1993"). See Note 14 of Notes to Consolidated
Financial Statements for the corresponding selected consolidated financial data.
This Prospectus contains forward-looking statements that involve risks and
uncertainties. Future events and the Company's actual results could differ
materially from the results reflected in these forward-looking statements, as a
result of certain of the factors set forth below and elsewhere in this
Prospectus. On July 16, 1996 and August 30, 1996, respectively, the Company
acquired Datasvar and DiagSoft in transactions that are being accounted for
using the pooling-of-interests method of accounting. Because the Acquisitions
were consummated after the date of the Company's most recent statement of
financial condition included elsewhere herein, the Company's Consolidated
Financial Statements presented elsewhere herein have not been restated to
reflect the Acquisitions. As required by generally accepted accounting
principles, the Company's financial statements for all periods prior to the
Acquisitions will be restated under the pooling-of-interests method of
accounting after the end of the quarter in which the Acquisitions occurred.
Accordingly, except as specifically indicated otherwise, the following
discussion covers only the Company's financial condition and results of
operations, without giving effect to the Acquisitions. In compliance with
requirements of the Securities and Exchange Commission, the Supplemental
Consolidated Financial Statements, consisting of restated financial information
for periods beginning August 1, 1992, have been included elsewhere herein.
OVERVIEW
The Company derives its revenues from providing information technology
support services and information technology development services and solutions.
Revenues from information technology support services provided through the IT
call centers are recognized as services are rendered. These services are billed
on a fee per call, rate per minute, or time and material basis. Information
technology development services and solutions usually are billed on a time and
material basis, generally by the hour, and revenues generally are recognized as
the services are provided. Revenues from fixed price contracts, generally with
terms of less than one year, are recognized using the percentage-of-completion
method. Most of the Company's revenues are derived from non-fixed price
contracts. The Company has not experienced material losses due to fixed price
contracts and does not anticipate a significant increase in revenues derived
from such contracts in the future. Revenues from these information technology
services have increased significantly from $35.6 million in 1993 to $58.6
million in 1995, and from $24.7 million for the six months ended July 2, 1995 to
$45.1 million for the six months ended June 30, 1996.
In 1993, in an effort to capitalize on a trend toward the outsourcing of
information technology services, the Company began providing information
technology support services through the opening of IT call centers while phasing
out its non-information technology services. Revenues from these services
decreased $5.2 million from 1993 to 1994 and decreased $5.0 million from 1994 to
1995. The phase-out of these services was substantially completed in 1995.
Direct salaries and related costs includes direct personnel compensation,
statutory and other benefits associated with such personnel and other direct
costs associated with providing services to customers. General and
administrative expenses include administrative, sales and marketing, occupancy
and other indirect costs. General and administrative costs incurred in opening
new IT call centers are expensed when incurred. Interest and other income
(expense) consists primarily of interest expense and foreign currency
transaction gains and losses. Foreign currency transaction gains and losses
generally result from exchange rate fluctuations on intercompany transactions.
16
<PAGE> 19
Grants from local or state governments for the acquisition of property and
equipment are deferred and recognized as income over the corresponding useful
lives of the related property and equipment. The deferred grants, net of
amortization, totalled $6.3 million at December 31, 1995 and $7.9 million at
June 30, 1996.
The Company's effective tax rate reflects the effects of foreign taxes, net
of foreign income not taxed in the United States, nondeductible expenses for
income tax purposes and the provision of potential additional income tax
liability resulting from a pending Internal Revenue Service examination
currently being conducted. The Company believes its reserves for any liability
that may result from this examination are adequate. See Note 7 of Notes to
Consolidated Financial Statements.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
revenues represented by certain items reflected in the Company's statements of
income:
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
----------------------------------------------------------------
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED
------------------------------- ------------------------------
PRO PRO FORMA
FORMA JULY 2, JUNE 30, JUNE 30,
1993 1994 1995 1995(1) 1995 1996 1996(1)
----- ----- ----- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Direct salaries and related costs........ 69.7 67.9 64.7 59.8 66.7 59.4 56.1
General and administrative............... 25.5 26.3 25.7 29.9 25.6 25.4 27.5
Depreciation and amortization............ 2.4 3.8 4.5 3.9 2.7 4.9 4.4
----- ----- ----- ----- ----- ----- -----
Income from operations................. 2.4 2.0 5.1 6.4 5.0 10.3 12.0
Interest and other income (expense)...... 0.1 (1.0) (1.0) (1.0) (0.9) (0.4) (0.3)
----- ----- ----- ----- ----- ----- -----
Income before income taxes............. 2.5 1.0 4.1 5.4 4.1 9.9 11.7
Provision for income taxes(2)............ 1.1 0.5 2.0 2.4 1.9 3.9 4.8
----- ----- ----- ----- ----- ----- -----
Net income(2).......................... 1.4% 0.5% 2.1% 3.0% 2.2% 6.0% 6.9%
===== ===== ===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) Adjusted to account for the Acquisitions (which took place after June 30,
1996) under the pooling-of-interests method of accounting. See
"Business -- Recent Acquisitions."
(2) Adjusted as if an affiliate of the Company included in the consolidated
financial statements, which was an S corporation for federal income tax
purposes, were subject to income taxes for all periods presented, based on
the tax laws in effect during the respective periods. See Note 13 of Notes
to the Company's Consolidated Financial Statements and Supplemental
Consolidated Financial Statements.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JULY 2, 1995
Revenues. Revenues increased $17.8 million, or 64.2%, to $45.4 million in
the six months ended June 30, 1996 from $27.6 million in the comparable 1995
period. These results reflect an increase in revenues of $17.8 million from
information technology support services provided through IT call centers and an
increase in revenues of $2.6 million from information technology services and
solutions, partially offset by a $2.6 million reduction in revenues from
non-information technology services that were substantially phased out in 1995.
The increase in information technology support services revenues was
primarily attributable to an increase in the number of IT call centers providing
services throughout the period, the addition of several significant customers
since July 1995 and the resultant increase in call volumes from clients. During
the fourth quarter of 1995, the Company opened two new IT call centers which
were fully operational throughout the first six months of 1996, and opened an
additional center in February 1996. In addition, the Company has added 30
customers in its information technology support services since the beginning of
1995, giving it 52 customers that utilized these services as of June 30, 1996.
The increase in revenues for information technology services and solutions was
primarily attributable to the increase in hours billed to customers for
professional services when compared to the prior period.
17
<PAGE> 20
Direct Salaries and Related Costs. Direct salaries and related costs
increased $8.5 million, or 46.3%, to $27.0 million in the first six months of
1996 from $18.5 million in the first six months of 1995. As a percentage of
revenues, however, direct salaries and related costs decreased to 59.4% in the
six months ended June 30, 1996 from 66.7% in the comparable 1995 period. The
increase in the amount of direct salaries and related costs was attributable to
the addition of personnel to support revenue growth. The decrease as a
percentage of revenues resulted from economies of scale associated with
spreading costs over a larger revenue base and the continued change in the
Company's mix of business reflecting the growth of information technology
support services as a percentage of consolidated results.
General and Administrative. General and administrative expenses increased
63.1% to $11.5 million in the first six months of 1996 from $7.1 million in the
first six months of 1995. As a percentage of revenues, general and
administrative expenses decreased to 25.4% in the first six months of 1996 from
25.6% in the comparable 1995 period. The increase in the amount of general and
administrative expenses was primarily attributable to the addition of management
and administrative personnel to support the Company's growth.
Depreciation and Amortization. Depreciation and amortization expenses
increased 195.1% to $2.2 million in the first six months of 1996. As a
percentage of revenues, depreciation and amortization expenses increased to 4.9%
in the first six months of 1996 from 2.7% in the comparable 1995 period. The
increase in the amount of depreciation and amortization expenses was the result
of depreciation expenses associated with facility and capital equipment
expenditures incurred in connection with the IT call centers.
Interest and Other Expense. Interest and other expense decreased 25.3% to
$183,000 during the first six months of 1996 from $245,000 during the first six
months of 1995. As a percentage of revenues, interest and other expense
decreased to 0.4% during the first six months of 1996 from 0.9% during the first
six months of 1995. The decrease was primarily attributable to an increase in
the Company's cash position as a result of the Company's initial public offering
completed in April 1996. The Company repaid all amounts outstanding under bank
borrowing arrangements and invested the remaining net proceeds of the offering
in short term investment grade securities and money market instruments.
Income Taxes. Income taxes increased $1.2 million, or 223.1%, to $1.7
million during the first six months of 1996 from $540,000 during the comparable
period of 1995, and increased as a percentage of revenues to 3.9% from 1.9%.
This increase is attributable to the significant increase in the amount of
income before income taxes and in income before income taxes as a percentage of
revenues. However, the Company's marginal tax rate decreased to 38.9% during the
first six months of 1996 primarily as a result of (i) nondeductible expenses
being a lower percentage of the larger income before income taxes and (ii) tax-
exempt interest income.
Net Income. As a result of the foregoing, net income increased to $2.7
million in the first six months of 1996 from $607,000 in the comparable period
of 1995.
1995 COMPARED TO 1994
Revenues. Revenues increased $18.0 million, or 39.9%, to $63.1 million in
1995 from $45.1 million in 1994. These results reflect an increase in revenues
of $19.0 million from information technology support services provided through
IT call centers and an increase in revenues of $4.0 million from information
technology services and solutions. These increases were partially offset by a
$5.0 million reduction in revenues from the non-information technology services
that were substantially phased out in 1995.
The increase in information technology support services revenues was
primarily attributable to an increase in the number of IT call centers providing
services throughout the year, the addition of several significant customers and
the resultant increase in call volumes from clients. During the fourth quarter
of 1995, the Company opened two new IT call centers in addition to the three
opened during 1994, all three of which were fully operational throughout 1995.
In addition, the Company added 27 customers for its information technology
support services during 1995, giving it 49 customers that utilized these
services as of December 31, 1995. The increase in revenues for information
technology services and solutions was primarily
18
<PAGE> 21
attributable to the increase in hours billed to customers for professional
services when compared to the prior year.
Direct Salaries and Related Costs. Direct salaries and related costs
increased 33.3% to $40.8 million in 1995 from $30.6 million in 1994. As a
percentage of revenues, however, direct salaries and related costs decreased to
64.7% in 1995 from 67.9% in 1994. The increase in the amount of direct salaries
and related costs was attributable to the addition of personnel to support
revenue growth. The decrease as a percentage of revenues resulted from economies
of scale associated with spreading costs over a larger revenue base.
General and Administrative. General and administrative expenses increased
36.6% to $16.2 million in 1995 from $11.9 million in 1994. As a percentage of
revenues, general and administrative expenses decreased to 25.7% in 1995 from
26.3% in 1994. The increase in the amount of general and administrative expenses
was primarily attributable to the addition of management and administrative
personnel to support the Company's growth. The increase also was attributable to
a non-cash compensation expense of $949,960 related to the grant of stock
options to an executive officer in 1995. See "Management -- Executive
Compensation." The decrease as a percentage of revenues resulted from economies
of scale associated with spreading costs over a larger revenue base.
Depreciation and Amortization. Depreciation and amortization expenses
increased 61.6% to $2.8 million in 1995 from $1.7 million in 1994. As a
percentage of revenues, depreciation and amortization expenses increased to 4.5%
in 1995 from 3.8% in 1994. The increase in the amount of depreciation and
amortization expenses was the result of depreciation expense associated with
facility and capital equipment expenditures incurred in connection with the IT
call centers.
Interest and Other Expense. Interest and other expense increased 41.4% to
$639,000 in 1995 from $452,000 in 1994, but remained constant as a percentage of
revenues. The increase was primarily attributable to an increase in the
Company's borrowings and increased rates of interest on such borrowings during
1995. The Company's borrowings increased to $9.4 million at December 31, 1995
from $6.9 million at December 31, 1994, primarily as a result of capital
expenditures required for the IT call centers.
Income Taxes. Although the Company's marginal tax rate remained constant,
income taxes increased $1.1 million to $1.3 million in 1995 from $217,000 in
1994.
Net Income. As a result of the foregoing, net income increased to $1.3
million in 1995 from $212,000 in 1994.
1994 COMPARED TO 1993
Revenues. Revenues decreased $5.1 million, or 10.1%, to $45.1 million in
1994 from $50.2 million in 1993. These results reflect an increase in revenues
of $5.6 million from information technology support services provided through IT
call centers, a decrease in revenues of $5.5 million from information technology
development services and solutions, and a decrease in revenues of $5.2 million
from the non-information technology services that were phased out beginning in
1993.
The increase in information technology support services revenues was
primarily attributable to an increase in the number of IT call centers, the
addition of new customers and the resultant increase in call volumes from
clients. During 1994, the Company opened three new IT call centers, one of which
replaced a facility operated throughout 1993. In addition, the Company added 15
customers for its information technology support services during 1994, giving it
22 customers that utilized these services as of December 31, 1994. The decrease
in revenues from information technology development services and solutions was
primarily attributable to reduced demand from the Company's significant
customers during the period.
Direct Salaries and Related Costs. Direct salaries and related costs
decreased 12.4% to $30.6 million in 1994 from $35.0 million in 1993 and, as a
percentage of revenues, decreased to 67.9% from 69.7% for the same periods. The
decrease in direct salaries and related costs was attributable primarily to the
phasing out of the Company's non-information technology services.
19
<PAGE> 22
General and Administrative. General and administrative expenses decreased
7.6% to $11.9 million in 1994 from $12.8 million in 1993, but increased as a
percentage of revenues to 26.3% in 1994 from 25.5% in 1993. The decrease in the
amount of general and administrative expenses was primarily attributable to the
reduction of expenses associated with the Company's phasing out of
non-information technology services initiated in 1993, partially offset by
start-up and administrative support costs incurred in 1994 in connection with
new IT call centers. The increase in general and administrative expenses as a
percentage of revenues was primarily the result of decreased revenues in 1994.
Depreciation and Amortization. Depreciation and amortization expenses
increased 46.8% to $1.7 million in 1994 from $1.2 million in 1993. As a
percentage of revenues, depreciation and amortization expenses increased to 3.8%
in 1994 from 2.4% in 1993. The increase in the amount of depreciation and
amortization expenses was the result of depreciation expense associated with
facility and capital equipment expenditures incurred in connection with the
addition of IT call centers in 1994.
Interest and Other Expense. Interest and other expense increased $518,000
to $452,000 in 1994 from other income of $66,000 in 1993. The increase was
primarily attributable to an increase in the levels of borrowings during 1994,
increased rates of interest on such borrowings and the recognition of foreign
currency transaction losses in 1994. The Company's borrowings increased to $6.9
million at December 31, 1994 from $1.5 million at December 31, 1993, primarily
as a result of the funding required to support the addition of IT call centers
in 1994.
Income Taxes. Income taxes decreased $356,000 to $217,000 in 1994 from
$583,000 in 1993 as a result of the Company's decreased income before income
taxes and higher effective tax rate in 1993 due to the effects of state and
foreign taxes.
Net Income. As a result of the foregoing, net income decreased to $212,000
in 1994 from $686,000 in 1993.
PRO FORMA IMPACT OF ACQUISITIONS
The pro forma results of operations for 1995 and the six months ended June
30, 1996 reflect the Acquisitions under the pooling-of-interests method of
accounting. As restated, pro forma revenues were $74.6 million and $52.5 million
in 1995 and in the six months ended June 30, 1996, respectively. Gross margins
increased to 40.2% from 35.3% in 1995 and to 43.9% from 40.6% in the six months
ended June 30, 1996, primarily due to increased gross margins attributable to
DiagSoft. Restated net income was $2.2 million and $3.6 million in 1995 and in
the six months ended June 30, 1996, respectively, with net income per share
increasing to $0.13 from $0.08 in 1995 and to $0.20 from $0.16 in the six months
ended June 30, 1996 as a result of the Acquisitions. Net margins also increased
to 3.0% from 2.1% in 1995 and to 6.9% from 6.0% in the six months ended June 30,
1996, reflecting higher net margins of Datasvar in 1995 and both DiagSoft and
Datasvar in the six months ended June 30, 1996.
20
<PAGE> 23
QUARTERLY RESULTS
The following information presents unaudited quarterly operating results
for the Company for 1995 and the first two quarters of 1996. The data have been
prepared by the Company on a basis consistent with the Consolidated Financial
Statements included elsewhere in this Prospectus, and include all adjustments,
consisting of normal recurring accruals, that the Company considers necessary
for a fair presentation thereof. These operating results are not necessarily
indicative of the Company's future performance.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------
4/2/95 7/2/95 10/1/95 12/31/95 3/31/96 6/30/96
------- ------- -------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenues................................. $13,592 $14,085 $ 15,320 $20,100 $22,252 $23,181
Direct salaries and related costs........ 9,275 9,177 9,861 12,532 13,634 13,366
General and administrative(1)............ 3,556 3,522 3,535 5,574 5,727 5,814
Depreciation and amortization............ 253 501 696 1,374 972 1,253
------- ------- ------- ------- ------- -------
Income from operations.............. 508 885 1,228 620 1,919 2,748
Interest and other income (expense)...... (41) (205) (194) (199) (292) 109
------- ------- ------- ------- ------- -------
Income before income taxes.......... 467 680 1,034 421 1,627 2,857
Provision for income taxes(2)............ 220 320 488 243 683 1,062
------- ------- ------- ------- ------- -------
Net income(2)....................... $ 247 $ 360 $ 546 $ 178 $ 944 $ 1,795
======= ======= ======= ======= ======= =======
Net income per share(2).................. $ 0.02 $ 0.02 $ 0.03 $ 0.01 $ 0.06 $ 0.09
======= ======= ======= ======= ======= =======
Weighted average shares outstanding...... 15,952 15,952 15,952 15,952 15,952 18,817
</TABLE>
- ---------------
(1) Includes non-cash compensation expense of $949,960 related to the grant of
stock options to an executive officer in the quarter ended December 31,
1995. See "Management -- Executive Compensation." Excluding the effect of
such expense, income from operations, income before income taxes, and net
income for the quarter ended December 31, 1995 would have been $1.6 million,
$1.4 million and $753,000, respectively, and net income per share would have
been $0.05.
(2) Adjusted as if an affiliate of the Company included in the consolidated
financial statements, which was an S corporation for federal income tax
purposes were subject to income taxes for all periods presented, based on
the tax laws in effect during the respective periods. See Note 13 of Notes
to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are equity offerings, cash flows
from operations and available borrowings under its credit facility. The net
proceeds to the Company of $39.7 million from its April 1996 initial public
offering were used to repay debt and make capital expenditures, with the balance
held for general corporate and working capital purposes.
In December 1995, the Company entered into a $20.0 million credit facility.
This facility, consisting of a revolving line of credit of $12.0 million and an
$8.0 million term loan, matures in May 1997. Availability under the line of
credit is determined by a borrowing base of 85% of eligible accounts receivable.
The term loan is payable in 60 consecutive monthly installments of $133,000
each, commencing in April 1996, and all borrowings accrue interest at the
lender's prime rate (currently 8.25%). The credit facility is collateralized by
the Company's assets, excluding certain of the IT call centers, and contains
restrictive covenants as described in Note 6 of Notes to Consolidated Financial
Statements. In addition, in 1994 the Company obtained a $1.3 million loan to
construct one of the IT call centers. Interest on this loan accrues at 9.5%. The
Company used approximately $16.7 million of the net proceeds of its April 1996
initial public offering to repay all amounts outstanding under the Company's
bank borrowings, and no borrowings are currently outstanding.
During the first six months of 1996, the Company had negative cash flow
from operations of $900,000, primarily as the result of an increase in accounts
receivable and decrease in accounts payable, both occurring during the first
three months of 1996. For the second three months of 1996, the Company generated
$3.8 million in cash from operating activities. The Company has used a portion
of its proceeds from its initial public offering, together with $1.7 million
received as incentive grants from local and state governmental agencies, to fund
$5.4 million of capital expenditures for the six months ended June 30, 1996. As
a result of the Company's continued expansion, it is anticipated that 1996
capital expenditures will be approximately $16.0 million, primarily for
completing the sixth IT call center and the construction of two additional IT
call centers in the
21
<PAGE> 24
United States. Each IT call center requires approximately $2.0 million to
construct and approximately $4.0 million of capital expenditures to complete the
build-out and equip the IT call center.
During 1995, the Company generated $8.4 million in cash from operations.
The cash generated during 1995, together with $2.5 million in net borrowings and
$2.4 million received as incentive grants from local and state governmental
agencies in connection with additional IT call centers, was used to fund $12.9
million of capital expenditures during 1995. Capital expenditures, which
consisted primarily of construction of facilities, information technology,
telecommunications equipment and computer systems, and furniture and fixtures,
were made to support the continued growth and expansion of the IT call centers.
During 1995, the Company opened its fourth and fifth IT call centers and
commenced construction of its sixth IT call center, which was opened in January
1996.
The Company believes that the net proceeds from this offering, combined
with current amounts of cash, available funds under its credit facilities and
cash flows from operations, will be adequate to meet its capital requirements
for the foreseeable future.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock Based Compensation." With respect to stock options
granted to employees, SFAS No. 123 permits companies to continue using the
accounting method promulgated by the Accounting Principles Board Opinion No. 25
("APB No. 25"), "Accounting for Stock Issued to Employees," to measure
compensation or to adopt the fair value based method prescribed by SFAS No. 123.
If APB No. 25's method is continued, pro forma disclosures are required as if
SFAS No. 123 accounting provisions were followed. Management has determined not
to adopt SFAS No. 123's accounting recognition provisions. In the opinion of
management, SFAS No. 123 is not expected to have a material impact on the
Company's financial statements.
SFAS No. 121, "Accounting for the Impairment of Long Lived Assets and Long
Lived Assets to be Disposed Of," is effective for years beginning after December
15, 1995. This pronouncement requires that long-lived assets and certain
intangibles to be held and used by the Company be reviewed for impairment. This
pronouncement is not expected to have a material impact on the financial
statements of the Company.
22
<PAGE> 25
BUSINESS
GENERAL
SEi provides a wide array of information technology outsourcing services,
including information technology support services and information technology
development services and solutions. The Company's services are provided at
various stages during the life cycle of computer hardware and software products.
Through its state-of-the-art IT call centers, the Company provides information
technology support services (i) to leading computer hardware and software
companies by providing technical product support services to end users of their
products and (ii) to major companies by providing help desk services to their
employees. Through its staff of technical professionals, the Company also
provides information technology development services and solutions to large
corporations, on a contract or temporary staffing basis, including software
design, development, integration and implementation; systems support and
maintenance; and documentation, foreign language translation and software
localization. The integration of these services provides SEi's customers the
opportunity to outsource a broad range of their information technology services
needs to the Company. Significant customers of SEi include Apple, Digital
Equipment, Disney, Gateway, Hewlett Packard, IBM, Monsanto and NationsBank.
In 1993, in an effort to capitalize on the trend toward outsourcing
information technology services, the Company focused its strategic direction
exclusively on the information technology services marketplace and broadened its
array of services. Pursuant to this strategy, the Company began providing
information technology support services by opening IT call centers and began
phasing out its non-information technology services, including administrative
services provided to a major customer. The phase out was substantially completed
in 1995. Recently, revenues from information technology support services have
grown rapidly through the opening of three IT call centers in 1994 (including an
IT call center in Amsterdam, The Netherlands), two in late 1995 and one in 1996.
The Company expects continued growth from two additional IT call centers
currently under construction which are anticipated to open late in the third and
fourth quarters of 1996 and the Company's July 1996 acquisition of Datasvar,
which operates two IT call centers in Sweden. The domestic IT call centers are
stand-alone facilities, each modeled after the same prototype. The Company's
strategy of locating its domestic IT call centers in smaller communities,
typically near a college or university, has enabled the Company to benefit from
a relatively low cost structure and a technically proficient, stable work force.
The Company estimates that the IT call centers, including the two IT call
centers in Sweden acquired in the Company's acquisition of Datasvar, have the
capacity to process approximately 72,000 calls per day in the aggregate, up from
7,000 calls per day in January 1994, from users of hardware and software
products seeking technical assistance. With the addition of the two new IT call
centers currently under construction, the Company expects to have the capacity
to process up to 90,000 calls per day by year-end 1996.
The Company is committed to providing its customers with the highest
quality services. To that end, the Company's IT call center in Sterling,
Colorado has received ISO 9002 certification, an international standard for
quality assurance and consistency in operating procedures. The Company
anticipates that many of its existing and potential customers will soon require
evidence of ISO 9002 certification prior to outsourcing their technical product
support or help desk functions. Consequently, the Company has modeled each IT
call center after ISO 9002 procedures to achieve consistency and quality.
Additionally, the Company received the 1995 STAR Award in the highest call
volume category. This award has been presented annually since 1988 by the
Software Support Professionals Association (SSPA) to the software support
company that achieves superior customer satisfaction and call metrics.
SEi was founded in 1977 in North Carolina and moved its headquarters to
Florida in 1993. In March 1996, SEi changed its state of incorporation from
North Carolina to Florida. The Company's executive offices are located at 100
North Tampa Street, Suite 3900, Tampa, Florida 33602 and its telephone number is
(813) 274-1000.
23
<PAGE> 26
INDUSTRY BACKGROUND
In today's rapidly changing technological environment, consumers and
businesses require a variety of information technology services in order to
effectively use and manage their complex information technology systems,
including technical support, software development, and information systems
integration and management. Many companies' computer systems incorporate a
variety of hardware and software components which may span a number of
technology generations. For example, a company may use client/server systems or
mainframe or midrange hardware platforms running a variety of operating systems,
software applications and relational databases. Information technology services
have become much more important in this environment as information technology
departments strive to integrate a company's information processing capabilities
into a single system while providing the flexibility to change with
technological innovations.
These technological changes are making it increasingly difficult and
expensive for companies to maintain in-house the necessary personnel to handle
all of their information technology needs. Hardware and software companies, as
well as businesses utilizing their products, are increasingly turning to third
party vendors to perform specialized functions and services. Outsourcing of (i)
product support functions by leading hardware and software companies, (ii)
employee help desk functions by major companies, and (iii) other information
technology services such as software design and systems integration and
management, is growing rapidly because of the following factors:
- Increasing need for companies to focus on core competencies rather than
non-revenue producing activities;
- Rapid technological changes requiring personnel with specialized
technical expertise;
- Growing capital requirements for sophisticated technology necessary to
provide timely product support and help desk functions;
- Increasing need to integrate and continually update complex systems
incorporating a variety of hardware and software components spanning a
number of technology generations;
- Extensive and ongoing staff training and associated costs required to
maintain responsive, up-to-date in-house technical support and information
technology services; and
- Cost savings from converting fixed employee costs to flexible, variable
costs.
Dataquest reports that information technology services are expected to grow
from $50.7 billion in 1995 to $79.0 billion in 1999. Of this amount, Dataquest
estimates that technical support services, such as the services provided through
the Company's IT call centers, will increase from $20.6 billion in 1995 to $31.5
billion in 1999, with the amount of such services outsourced to third party
vendors increasing from $2.6 billion to $7.2 billion for the same periods. The
increasing cost to provide technical product support is especially evident, as
Dataquest now estimates that one in six employees of software companies performs
technical support functions, up from one in twelve employees in 1989, and that
the cost of technical support now amounts to approximately 4% and 8% of the
revenues of hardware and software companies, respectively.
In the face of rapid technological change, large corporations also find it
increasingly difficult and expensive to service all of their own information
technology needs through in-house personnel. Gartner Group, an information
technology advisory firm, predicts that more than 40% of companies with internal
help desks will outsource a portion of this function by 1998, compared with 15%
in 1995.
As the outsourcing of technical product support, help desk and other
information technology services has gained acceptance, many companies also are
seeking to consolidate the number of vendors which provide them with these
services. Accordingly, providers of information technology outsourcing services
must offer a wide array of services to maintain a preferred vendor relationship
with their customers. SEi believes its broad range of services will allow it to
capitalize on this trend.
24
<PAGE> 27
STRATEGY
The Company's objective is to continue its growth and to become a leading
provider of a wide variety of information technology outsourcing services by
being responsive to and providing skilled personnel for its clients' long-term
outsourcing needs. The Company's principal strategies for achieving this
objective are as follows:
Rapidly Expand Through Systematic Addition of IT Call Centers. The
Company intends to continue to rapidly expand information technology
support services revenues through its existing IT call centers and through
additional IT call centers. With the addition of three domestic IT call
centers between October 1995 and August 1996 and the two IT call centers
acquired through the Datasvar acquisition, the Company's IT call centers
currently have the capacity to handle up to approximately 18.7 million
calls per year. The Company will have the capacity to handle up to
approximately 23.4 million calls per year by year end 1996 following the
completion late in the third and fourth quarters of 1996 of its two new IT
call centers currently under construction. SEi has systematized the
establishment and ongoing operation of its domestic IT call centers by: (i)
locating the centers in smaller communities, near a college or university,
with a relatively low cost structure and a technically proficient, stable
work force; (ii) constructing the IT call centers modeled after the same
prototype; (iii) utilizing standardized procedures to hire and train
technicians; and (iv) maintaining consistently responsive, high quality
services through call monitoring and tracking technology and other quality
assurance procedures. The Company's systematic approach and procedures are
part of its strategy of providing responsive, high quality support at a
lower cost than the Company's competitors.
Position SEi as a Preferred Vendor. The Company intends to
cross-market its expanded array of information technology services to
existing customers and to continue to provide consistently high quality
services to new and existing customers in order to position the Company as
a preferred vendor of outsourced services. SEi believes that its ability to
work in partnership with its customers during the life cycle of their
information technology products and systems, from software design and
systems implementation, through technical documentation and foreign
language translation, to end user technical product support, gives it a
competitive advantage to become the provider of choice to its customers.
SEi has expanded the services it provides, such as help desk services,
through its existing relationships with Fortune 500 companies, particularly
those customers using the Company's services to satisfy all or part of
their information technology development services and solutions needs.
Capitalize on Sophisticated Technology. The Company seeks to
establish a competitive advantage by continuing to capitalize on its
sophisticated and specialized technological capabilities, including PBX
switches, automatic call distributors, call tracking software and
computer-telephone integration. These capabilities allow its IT call
centers to serve as the transparent extension of the Company's customers,
receive telephone calls and data directly from its customers' systems, and
report detailed information concerning the status and results of the
Company's services on a daily basis. The Company's sophisticated technology
and systems, which the Company is able to upgrade periodically because of
their open architecture, enable the Company to provide high response rates
at a low cost per transaction.
The Company's strategy is to develop or acquire other technologies
that complement its technical product support functions. For example, the
Company intends to integrate the capabilities of DiagSoft's diagnostic
software with SEi's IT call centers to further enhance the efficiency and
quality of the Company's information technology support services. In
addition, the Company believes that enhancements to DiagSoft's
sophisticated proprietary software will enable it to access and offer
information technology support services directly to the home and small
business markets.
Growth Through Strategic Alliances. The Company intends to expand its
customer base, geographic presence and the information technology services
SEi provides by forming strategic alliances with other information
technology service providers, particularly those who do not provide labor
intensive technical support. For example, information technology services
providers such as systems integrators increasingly are seeking partners to
whom they can outsource the help desk requirements of their
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customers. The Company is actively seeking help desk contracts with such
providers and recently was awarded such a contract.
Growth Through Selective Acquisitions. The Company intends to acquire
complementary businesses to increase market share, expand its services and
expand its geographic presence. The Company believes it can expand the
scope and quality of its information technology support services by
acquiring companies with IT call centers in Europe and other international
markets which provide quality technical support for leading computer
hardware and software companies, as well as companies which enhance its
ability to provide such services. The Company also believes that
opportunities exist to acquire companies which provide information
technology services, especially in geographic markets in which the Company
does not currently compete. The information technology services industry is
highly fragmented, with in excess of 1,000 firms providing software
services in 1995 in the United States, according to Dataquest. Many of
these small, local firms may be attractive acquisition candidates because
they would enable SEi to open new or expand existing branch offices.
Recently, the Company acquired Datasvar and DiagSoft. See
"Business -- Recent Acquisitions."
SERVICES
The Company provides a wide array of information technology outsourcing
services, including information technology support services and information
technology development services and solutions. The following is a description of
SEi's outsourcing services:
Technical Product Support. SEi provides technical product support
services by telephone (24 hours a day, 7 days a week) to end users of the
products of hardware and software companies through its five stand-alone IT
call centers in the United States, and three IT call centers in Europe.
Consumers of hardware or software products of SEi's customers dial a
technical support number listed in their product manuals and are
automatically connected to an IT call center technician who is specially
trained in the applicable product and acts as a transparent extension of
the hardware or software company in diagnosing problems and answering
technical questions. The IT call centers also provide technical product
support by electronic mail and electronic bulletin boards. The IT call
centers in Europe provide support in 14 languages to 22 European countries.
As a result of its recent acquisition of DiagSoft, the Company also
develops and markets proprietary diagnostic software for use by
manufacturers, professional service personnel and end users, which serves
as a tool for enhancing SEi's technical product support services.
Proprietary products developed and marketed by DiagSoft for use with a
variety of operating systems include software used by personal computer
manufacturers for quality assurance and pre-installed or bundled software
used by professional service personnel and end users for verifying
component functionality, troubleshooting, resolving hardware and software
conflicts, and hardware repairs.
Help Desk Services. The Company provides help desk services to major
companies, at their facilities or through the IT call centers, that have
outsourced technical support for their internal information technology
systems. Employees of SEi's customers telephone the help desk number
provided to them by their employer for technical assistance. Trained
technicians dedicated to a specific customer answer questions and diagnose
and resolve technical problems ranging from a simplistic error message to a
wide area network failure.
Software Design, Development, Integration and Implementation. SEi
professional personnel provide software application design services geared
toward the development of a functional and technical blueprint for a
client's desired software application. These professionals identify
applicable business processes supported by an application and its related
functions, determine end user requirements and prepare a comprehensive plan
for developing and implementing the application. They also develop custom
software necessary to operate a desired application, integrate the
application into the customer's existing information processing
architecture, test the functionality of the application, and assist the
customer in training its personnel to use the application.
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<PAGE> 29
Systems Specialization and Maintenance. SEi professional personnel
provide a variety of services designed to support and maintain
client/server systems, and mainframe and midrange platforms. These services
include systems administration, maintenance and management support,
applications enhancement and training services.
Documentation and Foreign Language Translation. SEi professional
personnel provide companies with technical writing and editing of product
information and technical manuals, and foreign language translation and
localization of software, technical manuals and product information in a
variety of sophisticated multimedia formats. They provide translation and
localization for 12 languages in 20 countries.
RECENT ACQUISITIONS
The Company has completed two acquisitions since its initial public
offering on April 29, 1996, which are described in greater detail below.
Datasvar. On July 16, 1996, the Company significantly expanded its
information technology support services to the international business community
in Europe through the acquisition of all the outstanding stock of Datasvar, in
exchange for 246,819 shares of Common Stock. Datasvar, with 90 employees,
operates two 50-seat IT call centers in Sweden that provide technical product
support throughout Scandinavia to various customers, including several of the
same customers currently served by the Company's IT call centers in the United
States and Amsterdam. Datasvar won the 1995 award of distinction from
Datavardlen, a Swedish information technologies magazine, as a result of its
rapid growth and innovative approach to information technology. Datasvar had
revenues of $5.3 million and $3.1 million and net income of $1.0 million and
$418,000 in 1995 and the six months ended June 30, 1996, respectively. Datasvar
significantly enhances the Company's ability to provide information technology
support to multi-national Fortune 500 corporations who seek access to global
support services 24 hours per day, 7 days per week.
DiagSoft. On August 30, 1996, the Company expanded the range of its
technical product support capabilities through the acquisition of all the
outstanding stock of DiagSoft, in exchange for 675,000 shares of Common Stock.
Management believes that the diagnostic software developed by DiagSoft and
marketed to hardware manufacturers will enhance the Company's ability to
efficiently diagnose and solve hardware, software and system problems directly
from its IT call centers. Proprietary products developed and marketed by
DiagSoft for use with a variety of operating systems include software used by
personal computer manufacturers for quality assurance and pre-installed or
bundled software used by professional service personnel and end users for
verifying component functionality, troubleshooting, resolving hardware and
software conflicts, and hardware repairs. DiagSoft had revenues of $6.2 million
and $3.9 million and net income (loss) of ($112,000) and $479,000 in 1995 and
the six months ended June 30, 1996, respectively. The Company's strategy is to
integrate and further develop the software's diagnostics capabilities in order
to (i) achieve direct access to broader markets, including home and small
business users, (ii) further enhance the efficiency and quality of SEi's
information technology support services to end users, and (iii) continue to
generate royalty income from the licensing of such software.
Pro Forma Results. Accounting for the Acquisitions under the
pooling-of-interests method of accounting, the Company had pro forma revenues of
$74.6 million and $52.5 million, pro forma net income of $2.2 million and $3.6
million, and pro forma net income per share (after giving effect to the 921,819
shares issued in the Acquisitions) of $0.13 and $0.20 in 1995 and the six months
ended June 30, 1996, respectively.
CUSTOMERS
The Company has customers in the United States, Canada and Europe. The
Company's customers include Fortune 500 corporations and leading hardware and
software companies. The Company believes its nationally recognized customer base
presents opportunities for further marketing of its services. Since SEi began
providing technical product support services in 1993 to computer hardware and
software companies, it has retained approximately 94% of customers utilizing
these services.
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Approximately 34%, 29%, 16% and 12% of the Company's revenues in 1993,
1994, 1995 and the six months ended June 30, 1996, respectively, were
attributable to one significant customer, IBM. During the first quarter of 1996,
IBM instituted a policy that certain information technology services be provided
through designated national vendors. The Company has entered into an agreement
with such a vendor, Decision Consultants, Inc., under which certain services,
previously provided directly to IBM, are being provided indirectly to IBM
through this vendor. Although the Company believes its relationship with IBM
will not be affected by the change in the method of providing its services to
IBM, there can be no assurance that the Company will continue to provide such
services. In addition, 17% of the Company's revenues in 1995 and 18% in the
first six months of 1996 were attributable to Apple, which became a customer
during 1994. The Company's largest ten customers accounted for approximately 70%
and 68%, respectively, of the Company's revenues in 1995 and the six months
ended June 30, 1996. Generally, the Company's contracts are cancelable by each
customer at any time or on short-term notice, and customers may unilaterally
reduce their use of the Company's services under such contracts without penalty.
SEi provided services to approximately 200 customers during 1995. The
following is a partial list of these customers.
Apple
Compuserve
Digital Equipment
Disney
First Union
Gateway
GTE
Hewlett Packard
IBM
Monsanto
NationsBank
Silicon Graphics
TCI Telecommunications
3Com
SALES AND MARKETING
The Company's marketing objective is to develop long-term relationships
with existing and potential clients to become the preferred vendor of their
information technology outsourcing services. SEi believes that its significant
client base provides excellent opportunities for further marketing of its broad
range of capabilities. In order to further enhance its marketing efforts, the
Company recently increased its direct sales force from 9 to 30 employees. The
Company markets its information technology services through a variety of
methods, including client referrals, personal sales calls, advertising in
industry publications, attending trade shows, direct mailings to targeted
customers, telemarketing and cross selling additional services to existing
clients.
As part of its marketing efforts, the Company invites potential and
existing customers to visit the IT call centers, where the Company demonstrates
its sophisticated telecommunications and call tracking technology, quality
procedures and the knowledge of its technicians. The Company also demonstrates
its ability to quickly accommodate a new customer or a significant increase in
business from an existing customer by emphasizing its systematic approach to
establishing and managing IT call centers.
DiagSoft products are marketed to hardware manufacturers by a direct sales
team of four individuals for use by manufacturers in the manufacturing and
quality control processes or for bundling as part of factory-installed software
for the end user.
The Company also emphasizes account development to strengthen its
relationships with its customers. Sales representatives and account executives
are assigned to a limited number of accounts in order to develop a complete
understanding of each customer's particular needs, to form strong customer
relationships and encourage cross selling of other services offered by the
Company. Account executives also receive incentives for cross selling the
Company's services.
Technical product support services provided through IT call centers
generally are billed to the client based on a fee per call, rate per minute or
time and material basis. As a result of the significant infrastructure costs
required for each IT call center, the Company has recently begun increasing its
efforts to obtain contracts requiring a minimum billing amount to facilitate
planning and capital needs. Help desk services
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usually are billed at a flat rate per employee per month, with the per employee
charge varying depending on the customer's total number of employees and the
complexity of its information systems.
Information technology development services and solutions engagements
generally are billed on a time and material basis. SEi is expanding its efforts
to obtain contracts with customers lasting six months or longer to increase
recurring revenues, maximize utilization of professional personnel and enhance
long-term relationships. The Company also is attempting to obtain contracts to
provide for the management of a customer's entire information technology
project, rather than providing professionals to staff a client-managed project,
with a view to enhancing profit margins through the provision of value-added
management services.
QUALITY ASSURANCE
The Company carefully trains, monitors and supervises its employees to
enhance efficiency and quality of its services. The training of new technicians
at the IT call centers is conducted in-house through certified trainers or by
professionals supplied by the Company's customers. The Company actively recruits
highly skilled professionals to staff specific assignment needs of its
information technology development services and solutions customers. Generally,
employees also receive ongoing training throughout the year to respond to
changes in technology.
An IT call center manager supervises project leaders, team leaders and
technicians dedicated to individual customer accounts. Each team leader at the
IT call centers monitors approximately ten technicians. A project leader
supervises a particular customer's account by monitoring calls and reviewing
quality standards. Using the Company's proprietary, sophisticated call tracking
software, the project leader monitors the number of calls each technician
handles, the duration of each call, time between calls, response time, number of
queries resolved after the first call, and other statistics important in
measuring and enhancing productivity and service levels. Remote and on-site call
monitoring systems and on-line performance tracking are used to enhance high
quality services. Customers have daily access to a variety of measures of
service performance tracked by the Company's technology and can monitor calls
directly through the Company's remote call monitoring systems.
The Company emphasizes a team approach in order to provide high quality,
customized solutions to meet its clients' information technology development
services and solutions needs. The central role in this team approach is provided
by the Company's account executives and recruiters who work together to achieve
a successful relationship between the client and the Company's professionals.
The team shares information on active and prospective clients, reviews the
availability of professionals and discusses general market conditions. Such
forums enable the teams to remain informed and knowledgeable on the latest
technologies and to identify business development opportunities as they emerge.
SEi is committed to providing its customers with the highest quality
services. To that end, the Company's IT call center in Sterling, Colorado has
received ISO 9002 certification, an international standard for quality assurance
and consistency in operating procedures. The Company anticipates that many of
its existing and potential customers will soon require evidence of ISO 9002
certification prior to outsourcing their technical product support or help desk
functions. Consequently, the Company has modeled each of its IT call centers
after ISO 9002 procedures to enhance consistency and quality. Additionally, the
Company received the 1995 STAR Award in the highest call volume category. This
award has been presented annually since 1988 by the Software Support
Professionals Association (SSPA) to the software support company that achieves
superior customer satisfaction and call metrics.
OPERATIONS
IT Call Centers. The Company's strategy in the United States is to locate
its IT call centers in smaller communities with similar demographic
characteristics, typically near a college or university. The Company believes
these characteristics tend to provide a well-educated, technically proficient
employee pool from which to attract qualified candidates. These locations also
tend to have lower labor and infrastructure costs than large metropolitan areas.
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New IT call centers are established to accommodate anticipated growth in
the Company's business or in response to a specific customer need. The Company
believes that additional IT call centers will be established in the United
States, and potentially in Europe and Asia.
A typical domestic IT call center is approximately 42,000 square feet, has
425 work stations, and can handle 12,000 calls per day. The IT call centers
employ current technology in PBX switches, call tracking software,
telephone-computer integration, interactive voice response, and relational
database management systems that are integrated into centrally managed local
area networks and wide area networks. The Company's sophisticated equipment and
technology enable it to serve as the transparent extension of its customers at a
low cost per transaction and provide its customers with immediate access to the
status and results of the Company's services. Due to its modular, open system
architecture, the Company's computer system allows timely system updates and
modifications. The Company utilizes sophisticated call tracking software and
systems to provide efficient scheduling of personnel to accommodate fluctuations
in call volume.
Automated call distributors and digital switches identify each call by the
number dialed and automatically route the call to a technician with the
applicable knowledge and training. The technical product support calls are
routed directly from the end user to the IT call center or are overflow calls
routed from the client's place of business. SEi's IT call center in Amsterdam
receives calls from the United Kingdom, Western Europe and parts of Eastern
Europe, and the newly acquired IT call centers in Sweden receive calls from
Sweden, Norway, Denmark and Finland.
IT call center systems capture and download to permanent databases a
variety of information concerning each call for reporting on a daily basis to
customers, including number and duration of calls (which are important for
billing purposes), response time and results of the call. Summary data and
complete databases are made available to the customer to enable it to monitor
the level of service provided by the Company, as well as to determine whether
end users of its products are encountering recurring problems that require
modification. The databases also provide SEi's customers with considerable
marketing information concerning end users, such as whether the user is a home
or business user, and regional differences in purchasing patterns or usage. The
Company maintains tape backups and offsite storage to assure the integrity of
its reporting systems and databases.
The IT call centers are protected by a fire extinguishing system and backup
generators and short-term battery backup in the event of a power outage, reduced
voltage or power surge. Rerouting of telephone calls to one of the other IT call
centers is also available in the event of a telecommunications failure, natural
disaster or other emergency. Security measures are imposed to prevent
unauthorized access. Software and related data files are backed up daily and
stored off site at multiple locations. The Company carries business interruption
insurance covering interruptions that might occur as a result of damage to its
business. In addition, the Company believes that it has adequate arrangements
with its equipment vendors pursuant to which damaged equipment can be replaced
promptly. However, there can be no assurance that a natural disaster or other
catastrophic event or other occurrence would not have a material adverse effect
on the Company.
Branch Offices. SEi's professional personnel are assigned to one of the
Company's ten branch offices, which are located in metropolitan areas throughout
the United States in order to be closer to their major customers. Each branch
office is responsible for staffing the professional personnel needs of customers
within its geographic region and customers referred from other branch offices
based on specialized needs. These offices give SEi the ability to (i) offer a
broad range of professional services on a local basis, and (ii) respond to
changing market demands in each geographical area served. The number of
professionals assigned to each branch office ranges from 14 to 130.
Each branch office is staffed with one or more account executives whose
goal is to become the client's partner in evaluating and meeting the client's
information technology needs. The account executive's primary responsibilities
include: client development; understanding and identifying clients' information
technology service needs; working closely with recruiters to staff assignments
appropriately; setting billing rates for each assignment; and monitoring ongoing
assignments. Each account executive is responsible for between four and ten
active corporate accounts, some of which may involve several projects with
multiple operating units of a
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particular company. The account executive cultivates and maintains relationships
with the client's chief information officer and numerous department and project
managers within the client's organization.
The account executive has responsibility for staffing an assignment on a
timely basis. Upon receiving a new assignment, the account executive prepares a
proposal with assignment specifications and distributes the proposal to a
recruiter who is familiar with the professionals who have the expertise required
for the assignment. The account executive reviews the recruiter's recommended
candidates, submits the resumes of qualified employees and other available
candidates to the client, and schedules client interviews of the candidates.
Typically, an assignment is staffed within five working days. For certain
clients with whom the Company has long-term relationships, account executives
are given sole responsibility for staffing assignments with little or no client
involvement in the decision.
COMPETITION
The industry in which the Company competes is extremely competitive and
highly fragmented. While many companies provide information technology services,
management believes no one company is dominant. There are numerous and varied
providers of such services, including firms specializing in call center
operations, temporary staffing and personnel placement companies, general
management consulting firms, major accounting firms, divisions of large hardware
and software companies, and niche providers of information technology services,
many of whom compete in only certain markets. The Company's competitors include
many companies who may possess substantially greater resources, greater name
recognition and a more established customer base than the Company. In addition,
the services offered by the Company historically have been provided by in-house
personnel. The Company's newly acquired DiagSoft subsidiary competes with other
developers of software diagnostic tools, many of which have significantly
greater financial, technical, marketing and other resources than the Company.
The Company believes that the most significant competitive factors in the
sale of its services include quality and reliability of services, flexibility in
tailoring services to customer needs, price, experience, reputation, and
comprehensive and integrated services. As a result of intense competition,
information technology development services and solutions engagements frequently
are subject to pricing pressure. Customers also require vendors to be able to
provide services in multiple locations. Competition for contracts for many of
SEi's services takes the form of competitive bidding in response to requests for
proposals.
EMPLOYEES
As of September 1, 1996, the Company had 2,923 full-time employees,
consisting of 30 in sales and marketing, 2,127 customer support technicians at
the IT call centers, 596 technical professionals, and 170 in management,
administration and finance.
The technical and service nature of the Company's business makes its
employees an important corporate asset. While the market for qualified personnel
is extremely competitive, the Company believes its relationship with its
employees is good. The Company's employees are not represented by any union.
The Company believes that it gains a competitive advantage by locating its
IT call centers in smaller communities in which they become an integral part of
the local economy and labor force. The Company believes that personnel located
in such communities can be employed at a lower overall cost than employees
located in a metropolitan setting. SEi's IT call centers are located in
communities near a college or university to provide a well-educated, technically
proficient work force. Applicants are interviewed for technical skills as well
as interpersonal skills.
The Company recruits its professional personnel through a continually
updated recruiting network. This network includes a seasoned team of technical
recruiters, a Company-wide candidate database, Internet/ newspaper advertising,
candidate referral programs and job fairs. Qualified individuals have generally
been available as major companies have increasingly begun downsizing and
outsourcing information technology services instead of relying on in-house MIS
personnel. However, demand for qualified professionals conversant with certain
technologies may outstrip supply as new skills are needed to keep pace with the
requirements of
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customer engagements. Competition for such personnel is intense and employee
turnover in this industry is high.
INTELLECTUAL PROPERTY
The Company relies upon a combination of contract provisions and trade
secret laws to protect the proprietary technology it uses at its IT call
centers. SEi relies on a combination of copyright, trademark and trade secret
laws to protect DiagSoft's proprietary software. The Company attempts to further
protect its trade secrets and other proprietary information through agreements
with employees and consultants. The Company does not hold any patents and does
not have any patent applications pending. There can be no assurance that the
steps taken by the Company to protect its proprietary technology will be
adequate to deter misappropriation of its proprietary rights or third party
development of similar proprietary software. SEi(R) is a registered servicemark
of the Company. DiagSoft holds a number of registered trademarks, including
DIAGSOFT(R), QAPLUS/WIN(R) and ETSC(R).
FACILITIES
The Company's principal executive offices are located in Tampa, Florida.
This facility currently serves as the headquarters for senior management, the
financial and administrative departments, and the Tampa branch office. The
following table sets forth additional information concerning the Company's
facilities:
<TABLE>
<CAPTION>
PROPERTIES(1) SQUARE FEET GENERAL USAGE LEASE EXPIRATION
------------------------------------------ ----------- ------------------------ ----------------
<S> <C> <C> <C>
Tampa, Florida............................ 18,000 Corporate headquarters December 2002
Greeley, Colorado......................... 42,000 IT call center N/A
Sterling, Colorado........................ 34,000 IT call center N/A
Hays, Kansas.............................. 42,000 IT call center(2) N/A
Bismarck, North Dakota.................... 42,000 IT call center N/A
Minot, North Dakota....................... 42,000 IT call center(3) N/A
Ponca City, Oklahoma...................... 42,000 IT call center N/A
Klamath Falls, Oregon..................... 42,000 IT call center N/A
Amsterdam, The Netherlands................ 23,200 IT call center November 1997
Jarvso, Sweden............................ 9,200 IT call center December 1997
Sveg, Sweden.............................. 6,600 IT call center June 1998
Boulder, Colorado......................... 13,000 Branch office March 1997
Boise, Idaho.............................. 2,400 Branch office January 1997
Overland Park, Kansas..................... 2,600 Branch office July 1999
Boston, Massachusetts..................... 26,000 Branch office September 2000
St. Louis, Missouri....................... 5,500 Branch office September 1998
Kingston, New York........................ 3,500 Branch office December 1996
Cary, North Carolina...................... 9,500 Branch office December 1996
Charlotte, North Carolina................. 2,200 Branch office March 1997
Irving, Texas............................. 5,500 Branch office June 1998
</TABLE>
- ---------------
(1) Excludes leased offices acquired in the DiagSoft acquisition in Scotts
Valley, California and Tampa, Florida, which the Company expects to close.
(2) To be completed in September 1996.
(3) To be completed in December 1996.
The Company owns each of its domestic IT call centers and anticipates that
additional IT call centers will be required due to growth and expansion.
Facilities formerly used as the Company's headquarters in Charlotte, North
Carolina are leased through October 2004, and are currently subleased to third
parties through June 1999. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Certain Transactions."
LEGAL PROCEEDINGS
The Company is not a party to any litigation, nor is it aware of any
threatened litigation, that is expected to have a material adverse effect on the
Company or its business.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's Board of Directors is divided into three classes with the
members of each class serving three-year terms expiring at the third annual
meeting of shareholders after their election. Currently, one vacancy exists on
the Board of Directors. The following table sets forth information, as of the
date of this Prospectus, regarding the directors and executive officers of the
Company.
<TABLE>
<CAPTION>
TERM AS
DIRECTOR
NAME AGE PRINCIPAL POSITION EXPIRES
- --------------------------------------- --- --------------------------------------- ---------
<S> <C> <C> <C>
John H. Sykes.......................... 60 Chairman of the Board, President and 1999
Chief Executive Officer and Director
David E. Garner........................ 38 Senior Vice President and Director 1998
John D. Gannett, Jr.................... 42 Senior Vice President and Director 1997
Scott J. Bendert....................... 40 Vice President -- Finance, Treasurer
and Chief Financial Officer
John L. Crites, Jr..................... 52 Vice President and General Counsel
Furman P. Bodenheimer, Jr.............. 66 Director 1999
H. Parks Helms......................... 60 Director 1997
Gordon H. Loetz........................ 46 Director 1998
Ernest J. Milani....................... 67 Director 1998
R. James Stroker....................... 50 Director 1999
</TABLE>
John H. Sykes has been Chairman of the Board of Directors, President and
Chief Executive Officer of the Company since its inception in 1977. Previously,
Mr. Sykes was Senior Vice President of CDI Corporation, a publicly-held
technical services firm. Mr. Sykes also serves on the Board of Directors of Info
Systems Inc. of North Carolina.
David E. Garner joined the Company in 1984 and, since 1994, has served as
Senior Vice President with responsibility for information technology support
services for both national and international operations. Prior to becoming
Senior Vice President, Mr. Garner held various technical and managerial
positions within the Company. In January 1996, Mr. Garner was elected to the
Board of Directors of the Company.
John D. Gannett, Jr. rejoined the Company in 1995 as Senior Vice President
with responsibility for information technology development services and
solutions. Prior to 1995, Mr. Gannett provided consulting services to the
Company under an agreement entered into in 1991. From 1979 to 1991, Mr. Gannett
held various management positions within the technical and documentation
services areas of the Company. Mr. Gannett has also served as a director of the
Company since December 1984.
Scott J. Bendert joined the Company in 1993 as Chief Financial Officer. In
1994, Mr. Bendert was named Treasurer, and in 1995 was appointed Vice
President -- Finance. From 1984 to 1993, Mr. Bendert held various management
positions with Reflectone, Inc., a publicly-held producer of complex computer
simulator trainers and devices, most recently as Corporate Controller.
John L. Crites, Jr. joined the Company as Vice President and General
Counsel on April 1, 1996. Prior thereto and since 1991, Mr. Crites served as
Executive Director of the Vivian L. Smith Foundation for Restorative Neurology
at Baylor College of Medicine in Houston, Texas.
Furman P. Bodenheimer, Jr. was elected to the Board of Directors of the
Company in 1991 and is a member of the Compensation Committee. Mr. Bodenheimer
has been President and Chief Executive Officer of Zickgraf Enterprises, Inc. and
Nantahala Lumber in Franklin, North Carolina since 1991. Prior thereto and until
1988, Mr. Bodenheimer was President of First Citizens Bank and Vice Chairman of
First Citizens
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Mortgage Company and First Title Insurance Company. From 1988 to 1991, Mr.
Bodenheimer was a consultant to financial institutions.
H. Parks Helms has served as a director since the Company's inception in
1977 and is a member of the Audit Committee. Mr. Helms is the Managing Partner
of the law firm of Helms, Cannon, Hamel & Henderson in Charlotte, North
Carolina. Mr. Helms has held numerous political appointments and elected
positions, including as a member of the North Carolina House of Representatives.
Gordon H. Loetz was elected to the Board of Directors of the Company in
1993 and is a member of the Audit Committee. In 1982, Mr. Loetz founded
Comprehensive Financial Services, a financial investment advisory company, and
serves as its President and Chairman of the Board.
Ernest J. Milani was elected to the Board of Directors of the Company on
April 19, 1996 and is a member of the Compensation Committee. From 1970 and
until 1996, Mr. Milani held various positions with CDI Corporation, a
publicly-held provider of engineering and technical services, most recently as
President of CDI Corporation Northeast and CDI Technical Services Ltd., both of
which are subsidiaries of CDI Corporation.
R. James Stroker has served as a director of the Company since 1990 and is
a member of the Compensation Committee. Mr. Stroker is Judge of the Ninth
Judicial Circuit of the State of Florida and has over 21 years of judicial
experience. Mr. Stroker also serves on the Board of Directors of the University
of Orlando Law School. Mr. Stroker is the son-in-law of Mr. Sykes.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
paid to or earned by the Company's President and Chief Executive Officer and
each of the Company's other most highly compensated executive officers who
earned more than $100,000 for the year ended December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------
------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) OPTIONS(2) COMPENSATION(3)
- --------------------------------- -------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
John H. Sykes.................... $165,000 $368,578 -- -- $ 24,573
President and Chief Executive
Officer
David E. Garner.................. 150,000 79,166 -- 762,000 9,321
Senior Vice President
John D. Gannett, Jr.............. 69,806 25,000 -- -- 175,000(3)
Senior Vice President(4)
Scott J. Bendert................. 89,716 20,000 -- -- 4,257
Vice President -- Finance,
Treasurer and Chief Financial
Officer
</TABLE>
- ---------------
(1) Does not include the value of the perquisites provided to certain of the
named executive officers which in the aggregate did not exceed the lesser
of $50,000 or 10% of such officer's salary and bonus.
(2) See "Management -- Stock Option Plans" for information concerning options
granted in 1996.
(3) Represents contributions to the Sykes Enterprises, Incorporated Employees'
Savings Plan and Trust and excess group term life insurance.
(4) Mr. Gannett rejoined the Company in July 1995. "All Other Compensation"
consists solely of payments for consulting services and pursuant to
severance agreements entered into with Mr. Gannett in 1991.
The following table sets forth information with respect to grants of
options to purchase shares of Common Stock during 1995 to the executive officers
named in the Summary Compensation Table. The amounts shown
34
<PAGE> 37
as potential realizable values on the options are based on assumed annualized
rates of appreciation in the price of the Common Stock of 0%, 5% and 10% over
the term of the options, as set forth in rules of the Securities and Exchange
Commission. Actual gains, if any, on stock option exercises are dependent on
future performance of the Common Stock. There can be no assurance that the
potential realizable values reflected in this table will be achieved.
STOCK OPTION GRANTS IN 1995
<TABLE>
<CAPTION>
MARKET
% OF TOTAL PRICE PER POTENTIAL REALIZABLE VALUE AT
NUMBER OF OPTIONS SHARE OF ASSUMED ANNUAL RATES OF STOCK
SECURITIES GRANTED TO UNDERLYING PRICE APPRECIATION FOR OPTION
UNDERLYING EMPLOYEES EXERCISE SECURITY ON TERM(2)
OPTIONS IN FISCAL PRICE DATE OF EXPIRATION ----------------------------------
NAME GRANTED(1) 1995 PER SHARE GRANT DATE 0% 5% 10%
- --------------------- --------- ---------- --------- ----------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David E. Garner...... 762,000(2) 100% $4.53 $5.78(3) 12/31/05 $949,960 $3,719,838 $7,969,376
</TABLE>
- ---------------
(1) See "Management -- Stock Option Plans" for information concerning options
granted in 1996.
(2) The options do not become exercisable until the third anniversary of the
date of grant except that up to one-third are exercisable to the extent
that the underlying shares are permitted to be included by the underwriters
in an underwritten public offering occurring prior thereto. See "Principal
and Selling Shareholders."
(3) The Company determined that the Common Stock had a fair market value of
$5.78 per share on the date of grant. The Company recorded compensation
expense of $949,960 in 1995 in connection with the grant of the options.
See Note 10 of Notes to Consolidated Financial Statements.
The following table sets forth information concerning the value of
unexercised options as of December 31, 1995 held by the Company's executive
officers. No options were exercised during 1995.
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED SECURITIES VALUE OF UNEXERCISED IN-THE-MONEY
UNDERLYING OPTIONS AT YEAR-END OPTIONS AT YEAR-END(1)
NAME EXERCISABLE(E)/UNEXERCISABLE(U) EXERCISABLE(E)/UNEXERCISABLE(U)
- --------------------------------------- -------------------------------- ---------------------------------
<S> <C> <C>
David E. Garner........................ 762,000(U) $ 949,960(U)
</TABLE>
- ---------------
(1) The Company determined that the Common Stock had a fair market value of
$5.78 per share on December 31, 1995.
EMPLOYMENT AGREEMENTS
John H. Sykes. On January 1, 1996, the Company entered into an employment
agreement with John H. Sykes, the Company's Chairman of the Board, President and
Chief Executive Officer. The employment agreement provides for an initial term
of five years with an annual base salary of $300,000. Thereafter, the agreement
automatically renews for successive two-year terms unless terminated by either
party, with the base salary increasing by at least 30% subsequent to the initial
term and at least 15% for any subsequent automatic renewal term. Mr. Sykes is
also entitled to a performance bonus up to 100% of his base salary based on the
Company's achievement of specified levels of income before income taxes as
determined by the Compensation Committee and to participate in such bonus
programs and other benefit plans as are generally made available to other
executive officers of the Company.
If the agreement is terminated by the Company for any reason other than Mr.
Sykes' death or disability or other than cause (as defined therein), the Company
shall pay Mr. Sykes a one-time severance payment equal to two times the total of
the full amount of Mr. Sykes' annual base salary in effect at the time of such
termination plus Mr. Sykes' average annual bonus and other compensation for the
prior three years (or such shorter period if the agreement is in effect for less
than three years). During the two year period following termination of
employment, Mr. Sykes shall not, in any area in which the Company's business is
then conducted, directly or indirectly compete with the Company.
35
<PAGE> 38
The agreement also provides for a one-time severance payment, in lieu of
any other severance payment, equal to three times the total of the full amount
of Mr. Sykes' annual base salary then in effect plus Mr. Sykes' average annual
bonus and other compensation for the prior five years (or such shorter period of
the employment agreement is in effect for less than five years) upon a "change
of control" of the Company if (i) Mr. Sykes is terminated from employment prior
to the end of the term of the agreement (except if terminated for cause) or (ii)
Mr. Sykes elects to terminate his employment with the Company under certain
circumstances. A "change of control" shall be deemed to have occurred if (i) any
person (other than Mr. Sykes) beneficially owns 20% or more of the outstanding
shares of voting capital stock, (ii) the sale or transfer of greater than 50% of
the book value of the Company's assets, (iii) the merger, consolidation, share
exchange or reorganization of the Company as a result of which the holders of
all of the shares of capital stock of the Company as a group would receive less
than 50% of the voting power of the capital stock of the surviving corporation,
(iv) the adoption of a plan of liquidation or the approval of the dissolution of
the Company, (v) the commencement of a tender offer which, if successful, would
result in a change of control, or (vi) a determination by the Board of Directors
in view of then current circumstances or impending events that a change of
control has occurred or is imminent.
David E. Garner. On March 1, 1996, the Company entered into a three-year
employment agreement with David E. Garner, providing for an annual base salary
of $150,000. The agreement automatically renews for successive one-year terms
unless terminated by either party, and provides that if the agreement is
terminated for any reason other than death or disability, the Company shall pay
Mr. Garner non-compete payments equal to $150,000 per year for three years,
payable in accordance with the Company's standard payment practice. Mr. Garner
is prohibited from directly or indirectly competing with the Company during such
three-year period in any area in which the Company's business is then conducted.
The agreement also requires the Company to purchase disability insurance that
will pay Mr. Garner $150,000 per year for three years in the event of his
disability and life insurance that will pay Mr. Garner's estate $450,000 in the
event of his death. Mr. Garner also is entitled to a performance bonus up to
100% of his base salary based upon the Company's achievement of specified levels
of income before income taxes and upon his achievement of specified goals as
determined by the Compensation Committee, and to participate in such bonus
programs and other benefit plans as are generally made available to other
executive officers of the Company.
John D. Gannett, Jr. On March 1, 1996, the Company also entered into a
three-year employment agreement with John D. Gannett, Jr. providing for an
annual base salary of $150,000. The agreement automatically renews for
successive one-year terms unless terminated by either party, and provides that
if the agreement is terminated by the Company for any reason other than cause
(as defined therein), the Company shall pay Mr. Gannett a non-compete payment
equal to $150,000 per year for two years, payable in accordance with the
Company's standard payment practices. Mr. Gannett is prohibited from directly or
indirectly competing with the Company during such two-year period in any area in
which the Company's business is then conducted. The agreement provides that if
it is terminated by the Company for cause, during a period of two years
following termination of employment, Mr. Gannett will not, in any area in which
the Company's business is then conducted, directly or indirectly compete with
the Company and the Company shall then be required to pay a severance payment of
$125,000. Mr. Gannett also is entitled to a performance bonus up to 100% of his
base salary based upon the Company's achievement of specified levels of income
before income taxes and upon his achievement of specified goals as determined by
the Compensation Committee, and to participate in such bonus programs and other
benefit plans as are generally made available to other executive officers of the
Company.
Scott J. Bendert. On March 1, 1996, the Company entered into a two-year
employment agreement with Scott J. Bendert, providing for an annual base salary
of $110,000. The agreement automatically renews for successive one-year terms
unless terminated by either party, and provides that if the agreement is
terminated for any reason other than death, disability, or cause (as defined
therein), the Company shall pay Mr. Bendert a severance payment equal to
$110,000, payable in accordance with the Company's standard payment practices,
in consideration of Mr. Bendert's agreement to refrain from competing directly
or indirectly with the Company for a period of one year in any area in which the
Company's business is then conducted. The agreement provides that if it is
terminated by the Company for cause or by Mr. Bendert, during a period of one
36
<PAGE> 39
year following termination of employment, Mr. Bendert will not, in any area in
which the Company's business is then conducted, directly or indirectly compete
with the Company and the Company shall not be required to pay the severance
payment. Mr. Bendert also is entitled to a performance bonus up to 35% of his
base salary based upon the Company's achievement of specified levels of income
before income taxes and upon his achievement of specified goals as determined by
the Compensation Committee, and to participate in such bonus programs and other
benefit plans as are generally made available to other executive officers of the
Company.
STOCK OPTION PLANS
The Company maintains two stock option plans to attract, motivate and
retain key employees and members of the Board of Directors who are not employees
of the Company. These stock option plans have been adopted by Board of Directors
and were approved by the shareholders of the Company on March 1, 1996.
1996 Employee Stock Option Plan. The Company's 1996 Employee Stock Option
Plan, as amended (the "Employee Plan"), provides for the grant of incentive or
nonqualified stock options to purchase up to 1,750,000 shares of Common Stock.
In April 1996, the executive officers named in the Summary Compensation Table
received options to purchase a total of 184,894 shares of Common Stock as
follows: John D. Gannett, Jr., 139,894 shares with an exercise price as follows:
(i) 33 1/3% of such shares at $12.00 per share, (ii) 33 1/3% at $11.33 per
share, and (iii) 33 1/3% at $10.00 per share; and Scott J. Bendert, 45,000
shares with an exercise price of $12.00 per share. Certain other officers and
employees of the Company hold options to purchase an additional 417,500 shares
of Common Stock at a range of $12.00 to $40.40 per share. All such options vest
ratably over the three-year period following the date of grant, except for
120,000 options granted to key employees of DiagSoft, all of which are
immediately exercisable.
1996 Non-Employee Director Stock Option Plan. The Company's 1996
Non-Employee Director Stock Option Plan (the "Non-Employee Plan") provides for
the grant of nonqualified stock options to purchase up to 300,000 shares of
Common Stock to members of the Board of Directors who are not employees of the
Company. Each outside director received options to purchase 7,500 shares of
Common Stock at an exercise price of $12.00 per share. Thereafter, on the date
on which a new outside director is first elected or appointed, he or she shall
automatically be granted options to purchase 5,000 shares of Common Stock. Each
outside director also shall be granted options to purchase 5,000 shares of
Common Stock annually on the day following the annual meeting of shareholders.
All options granted will have an exercise price equal to the then fair market
value of the Common Stock. Options shall become exercisable over a period of
three years in equal amounts until a director has completed his or her initial
term, whereupon all options granted prior to that time shall become exercisable,
and subsequent options shall become exercisable one year after the date of
grant. Options to purchase 37,500 shares of Common Stock at $12.00 per share are
outstanding under the Non-Employee Plan.
SPLIT DOLLAR PLAN
The Company's Split Dollar Plan (the "Split Dollar Plan") provides for
benefits to certain executive officers and key employees upon retirement or
death prior to retirement. For each calendar year, each participant contributes
at least 2% of his or her compensation during the year but not more than the
maximum amount allowable under Section 401(k) of the Internal Revenue Code of
1986, as amended (the "Code"). The Company contributes a percentage of each
participant's contribution as determined in the Company's discretion at the
beginning of each year plus an additional discretionary amount provided that the
total of the participant's and the Company's contributions does not exceed the
maximum amount allowable under Section 401(k) of the Code. Upon the
participant's retirement, the participant shall receive his or her contributions
to the Split Dollar Plan plus the vested portion of the Company's contributions.
Such contributions vest ratably over a ten year period commencing on the
participant's third year of service contingent upon the participant's agreement
not to divulge confidential information of the Company or compete with the
Company. Upon the death of the participant, the beneficiaries of the participant
shall receive the death benefit payable under the life insurance policy
purchased with the contributions made to the Split Dollar Plan.
37
<PAGE> 40
DIRECTOR COMPENSATION
Directors who are executive officers of the Company receive no compensation
as such for service as members of either the Board of Directors or committees
thereof. Directors who are not executive officers of the Company receive an
annual fee of $5,000, payable in cash or shares of Common Stock based on the
fair market value of the Common Stock on the date of payment at the election of
each director, plus $1,000 per Board and/or committee meetings attended. The
outside directors are also eligible to receive options to purchase Common Stock
under the Company's 1996 Non-Employee Director Stock Option Plan. See
"Management -- Stock Option Plans -- 1996 Non-Employee Director Stock Option
Plan."
Mr. Milani and the Company entered into a one-year consulting agreement on
April 1, 1996 providing for an annual fee of $100,000. The agreement requires
Mr. Milani to provide certain technical consulting services to the Company as
requested by the Company.
COMMITTEES OF THE BOARD
The Board of Directors has established committees whose responsibilities
are summarized as follows:
Audit Committee. The Audit Committee is comprised of Messrs. Helms and
Loetz and is responsible for reviewing the independence, qualifications and
activities of the Company's independent certified accountants and the Company's
financial policies, control procedures and accounting staff. The Audit Committee
recommends to the Board the appointment of the independent certified public
accountants and reviews and approves the Company's financial statements. The
Audit Committee is also responsible for the review of transactions between the
Company and any Company officer, director or entity in which a Company officer
or director has a material interest.
Compensation Committee. The Compensation Committee is comprised of Messrs.
Bodenheimer, Milani and Stroker and is responsible for establishing the
compensation of the Company's directors, officers and other managerial
personnel, including salaries, bonuses, termination arrangements, and other
executive officer benefits.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee was established in connection with the
Company's initial public offering in April 1996. The members of the Compensation
Committee are Messrs. Bodenheimer, Milani and Stroker. Except for Mr. Sykes, no
officer or employee of the Company has participated in deliberations of the
Board of Directors concerning executive officer compensation.
38
<PAGE> 41
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of September 1, 1996, and as adjusted to reflect
the sale of Common Stock offered hereby, with respect to: (i) each person known
by the Company to own beneficially more than 5% of the Common Stock; (ii) the
Selling Shareholders; (iii) each of the Company's directors and the executive
officers named in the Summary Compensation Table; and (iv) all directors and
officers of the Company as a group. Each of the shareholders listed below has
sole voting and investment power over the shares beneficially owned.
<TABLE>
<CAPTION>
PRIOR TO OFFERING AFTER OFFERING
------------------------------- SHARES -------------------------------
COMMON SHARES BEING COMMON SHARES
NAME BENEFICIALLY OWNED PERCENTAGE OFFERED BENEFICIALLY OWNED PERCENTAGE
- --------------------------------- ------------------ ---------- --------- ------------------ ----------
<S> <C> <C> <C> <C> <C>
John H. Sykes(1)................. 13,412,767 67.0% 250,000(2) 13,162,767 60.3%
David E. Garner(3)(4)............ 254,000 1.3 254,000 -- --
John D. Gannett, Jr.(5).......... 750 * -- 750 *
Scott J. Bendert(6).............. 2,100 * -- 2,100 *
Furman P. Bodenheimer, Jr.(7).... 4,500 * -- 4,500 *
H. Parks Helms(7)................ 3,000 * -- 3,000 *
Gordon H. Loetz(7)............... -- * -- -- --
Ernest J. Milani(7).............. 2,250 * -- 2,250 *
R. James Stroker(7).............. 450 * -- 450 *
Gordon H. Kraft(8)............... 675,000 3.4 337,000 338,000 1.6
Johan Holm(9).................... 82,273 * 68,560 13,713 *
Arne Weinz(9).................... 82,273 * 68,560 13,713 *
Norhold Invest AB(9)............. 82,273 * 68,560 13,713 *
All directors and officers as a
group (9 persons).............. 13,679,817 67.5 504,000 13,175,817 60.3
</TABLE>
- ---------------
* Less than 1.0%.
(1) Includes the following shares over which Mr. Sykes retains voting and
investment power as grantor: (i) 501,600 shares owned by various trusts for
the benefit of Mr. Sykes' children, (ii) 50,000 shares owned by a
charitable foundation, and (iii) 200,000 shares owned by a charitable
remainder unitrust. Excludes 7,500 shares owned by Mr. Sykes' wife, as to
which Mr. Sykes disclaims beneficial ownership. Mr. Sykes' business address
is 100 North Tampa Street, Suite 3900, Tampa, Florida 33602.
(2) Consists of 50,000 shares being offered by a charitable foundation
controlled by Mr. Sykes and 200,000 shares being offered by a charitable
remainder unitrust established by Mr. Sykes.
(3) Consists of shares issuable upon exercise of options that will be exercised
and sold in this offering.
(4) Excludes 508,000 shares issuable upon exercise of nonexercisable options.
See "Management -- Executive Compensation."
(5) Excludes 139,894 shares of Common Stock issuable upon the exercise of
nonexercisable stock options. See "Management -- Stock Option Plans."
(6) Excludes 45,000 shares of Common Stock issuable upon the exercise of
nonexercisable stock options. See "Management -- Stock Option Plans."
(7) Excludes 7,500 shares of Common Stock issuable upon the exercise of
nonexercisable stock options. See "Management -- Stock Option Plans."
(8) Consists of shares acquired in exchange for DiagSoft stock.
(9) Consists of shares acquired in exchange for Datasvar stock.
39
<PAGE> 42
CERTAIN TRANSACTIONS
In connection with the Company's initial public offering in April 1996,
John H. Sykes, the Company's Chairman of the Board, President and Chief
Executive Officer, received 1,830,000 shares of Common Stock in exchange for all
the outstanding capital stock of an S corporation, Sykes Realty, Inc.
("Realty"), pursuant to a reorganization (the "Real Estate Reorganization") in
which Realty became a wholly owned subsidiary of the Company. Realty owned five
domestic IT call centers prior to the Company's initial public offering, and its
results have been consolidated with those of the Company in the financial
statements appearing elsewhere herein. The number of shares issued to Mr. Sykes
was determined by the Company based on the then estimated value of Realty to the
Company as a going concern, including its effect on the Company's earnings and
the initial public offering price of the Common Stock. No current appraisals
were obtained for the IT call centers acquired by the Company in the Real Estate
Reorganization. Such IT call centers are recorded at Realty's historical cost of
$10.3 million, which consists of $7.8 million of land and monetary grants
received by Realty from various governmental agencies and $2.5 million of cash
expenditures made by Realty. These grants will be deferred by the Company and
recognized in income over the corresponding useful lives of the related assets.
See Note 2 of Notes to Consolidated Financial Statements.
During the three years ended December 31, 1995, the Company pledged certain
assets as collateral for mortgage loans made by financial institutions to Mr.
Sykes to finance Realty's acquisition of certain of its IT call centers. At the
time of the Company's initial public offering, these mortgage loans had an
aggregate principal balance of approximately $4.8 million. Mr. Sykes repaid
these loans in connection with the Real Estate Reorganization, and the Company
assumed and repaid out of the proceeds of its initial public offering $1.3
million of mortgage indebtedness encumbering one of the IT call centers acquired
as part of the Real Estate Reorganization.
Realty recently paid $507,888 to Mr. Sykes, representing Realty's
previously earned and undistributed S corporation earnings through the date of
the termination of Realty's S corporation status. In connection therewith, Mr.
Sykes and the Company entered into an agreement providing for indemnification by
Mr. Sykes to the Company and by the Company to Mr. Sykes, respectively,
concerning certain tax allocation matters arising out of Realty's S corporation
status and other matters relating to Realty's activities prior to the Real
Estate Reorganization.
The Company leases an office building in Charlotte, North Carolina from Mr.
Sykes, d/b/a Sykes Investments. The lease is a triple net lease and provides for
annual base lease payments of approximately $277,000. The term of the lease
expires in October 2004, subject to renewal for two additional five year terms
at the option of the Company, and is currently subleased to third parties
through June 1999. In the event such third parties default on the sublease, the
Company remains liable to Sykes Investments for the lease payments. The premises
formerly served as the Company's headquarters prior to the Company's relocation
to Florida in 1993. The Company believes the terms of the lease are no less
favorable to the Company than could be obtained from an unaffiliated third
party.
At various times, the Company has loaned various amounts to Mr. Sykes.
During each of the years ended December 31, 1993, 1994 and 1995, the largest
aggregate amount of such indebtedness outstanding at any one time was
approximately $351,000, $296,000, and $296,000, respectively. In March 1996, Mr.
Sykes repaid to the Company all outstanding amounts.
The Company leases an aircraft from a corporation owned by Mr. Sykes. The
lease has a term of ten years and is subject to renewal for an additional
one-year term at the option of the Company. Under the lease, the Company pays
monthly lease payments of approximately $48,100 plus applicable sales taxes and
all operating costs. The Company believes the terms of the aircraft lease are no
less favorable to the Company than could have been obtained from an unaffiliated
third party.
The Audit Committee of the Board of Directors is responsible for reviewing
all future transactions between the Company and any officer or director of the
Company or any entity in which an officer or director has a material interest.
Any such transactions must be on terms no less favorable than those that could
be obtained on an arms-length basis from independent third parties.
40
<PAGE> 43
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock, par value $0.01 per share, and 10,000,000 shares of Preferred
Stock, par value $0.01 per share. As of the date of this Prospectus, there were
issued and outstanding 20,026,498 shares of Common Stock. The following
description is qualified in its entirety by reference to the Company's Articles
of Incorporation and Bylaws, which are filed as exhibits to the Registration
Statement of which this Prospectus is a part.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of shareholders. Cumulative voting in
the election of directors is not permitted. Subject to preferences that may be
granted to holders of Preferred Stock, holders of Common Stock are entitled to
receive ratably such dividends as may be declared by the Board of Directors out
of funds legally available therefor. See "Dividend Policy." In the event of
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preference, if any, which may be granted to the
holders of Preferred Stock. Holders of Common Stock have no conversion,
preemptive or other rights to subscribe for additional shares or other
securities, and there are no redemption or sinking fund provisions with respect
to such shares. The issued and outstanding shares of Common Stock are, and the
shares offered hereby will be upon payment therefor, fully paid and
nonassessable.
PREFERRED STOCK
The Board of Directors has the authority to issue up to 10,000,000 shares
of Preferred Stock in one or more series and to fix the number of shares
constituting any such series and the rights and preferences thereof, including
dividend rates, terms of redemption (including sinking fund provisions),
redemption price or prices, voting rights, conversion rights and liquidation
preferences of the shares constituting such series, without any further vote or
action by the Company's shareholders. The issuance of Preferred Stock by the
Board of Directors could adversely affect the rights of holders of Common Stock.
For example, an issuance of Preferred Stock could result in a class of
securities outstanding that would have preferences over the Common Stock with
respect to dividends and liquidations, and that could (upon conversion or
otherwise) enjoy all of the rights appurtenant to Common Stock.
CERTAIN STATUTORY AND OTHER PROVISIONS
Statutory Provisions. The Company is subject to several anti-takeover
provisions under Florida law that apply to a public corporation organized under
Florida law unless the corporation has elected to opt out of such provisions in
its Articles of Incorporation or (depending on the provision in question) its
Bylaws. The Company has not elected to opt out of these provisions. The Florida
Business Corporation Act (the "Florida Act") contains a provision that prohibits
the voting of shares in a publicly held Florida corporation which are acquired
in a "control share acquisition" unless the board of directors approves the
control share acquisition or the holders of a majority of the corporation's
voting shares (exclusive of shares held by officers of the corporation, inside
directors or the acquiring party) approve the granting of voting rights as to
the shares acquired in the control share acquisition. A control share
acquisition is defined as an acquisition that immediately thereafter entitles
the acquiring party to vote in the election of directors within each of the
following ranges of voting power: (i) one-fifth or more but less than one-third
of such voting power, (ii) one-third or more but less than a majority of such
voting power and (iii) a majority or more of such voting power. This statutory
voting restriction is not applicable in certain circumstances set forth in the
Florida Act.
The Florida Act also contains an "affiliated transaction" provision that
prohibits a publicly-held Florida corporation from engaging in a broad range of
business combinations or other extraordinary corporate transactions with an
"interested shareholder" unless (i) the transaction is approved by a majority of
41
<PAGE> 44
disinterested directors before the person becomes an interested shareholder,
(ii) the interested shareholder has owned at least 80% of the Company's
outstanding voting shares for at least five years, or (iii) the transaction is
approved by the holders of two-thirds of the Company's voting shares other than
those owned by the interested shareholder. An interested shareholder is defined
as a person who, together with affiliates and associates, beneficially owns (as
defined in Section 607.0901(1)(e), Florida Statutes) more than 10% of the
Company's outstanding voting shares.
Classified Board of Directors. Under the Company's Articles of
Incorporation and Bylaws, the Board of Directors of the Company is divided into
three classes, with staggered terms of three years each. Each year the term of
one class expires. The Company's Articles of Incorporation provide that any
vacancies on the Board of Directors shall be filled only by the affirmative vote
of a majority of the directors then in office, even if less than a quorum. The
Articles of Incorporation of the Company also provide that any director may be
removed from office, but only for cause.
Special Voting Requirements. The Company's Articles of Incorporation
provide that all actions taken by the shareholders must be taken at an annual or
special meeting of the shareholders or by unanimous written consent. The
Articles of Incorporation provide that special meetings of the shareholders may
be called by only a majority of the members of the board of directors, the
Chairman of the Board or the holders of not less than 35% of the Company's
outstanding voting shares. Under the Company's Bylaws, shareholders will be
required to comply with advance notice provisions with respect to any proposal
submitted for shareholder vote, including nominations for elections to the Board
of Directors. The Articles of Incorporation and Bylaws of the Company contain
provisions requiring the affirmative vote of the holders of at least two-thirds
of the Common Stock to amend certain provisions thereof.
Indemnification and Limitation of Liability. The Florida Act authorizes
Florida corporations to indemnify any person who was or is a party to any
proceeding (other than an action by, or in the right of, the corporation), by
reason of the fact that he or she is or was a director, officer, employee, or
agent of the corporation or is or was serving at the request of the corporation
as a director, officer, employee, or agent of another corporation or other
entity, against liability incurred in connection with such proceeding, including
any appeal thereof, if he or she acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In the case of an
action by or on behalf of a corporation, indemnification may not be made if the
person seeking indemnification is adjudged liable, unless the court in which
such action was brought determines such person is fairly and reasonably entitled
to indemnification. The indemnification provisions of the Florida Act require
indemnification if a director or officer has been successful on the merits or
otherwise in defense of any action, suit or proceeding to which he or she was a
party by reason of the fact that he or she is or was a director or officer of
the corporation. The indemnification authorized under Florida law is not
exclusive and is in addition to any other rights granted to officers and
directors under the Articles of Incorporation or Bylaws of the corporation or
any agreement between officers and directors and the corporation. A corporation
may purchase and maintain insurance or furnish similar protection on behalf of
any officer or director against any liability asserted against the officer or
director and incurred by the officer or director in such capacity, or arising
out of the status, as an officer or director, whether or not the corporation
would have the power to indemnify him or her against such liability under the
Florida Act.
The Company's Articles of Incorporation provide for the indemnification of
directors and executive officers of the Company to the maximum extent permitted
by Florida law and for the advancement of expenses incurred in connection with
the defense of any action, suit or proceeding that the director or executive
officer was a party to by reason of the fact that he or she is or was a director
or executive officer of the Company upon the receipt of an undertaking to repay
such amount, unless it is ultimately determined that such person is not entitled
to indemnification.
Under the Florida Act, a director is not personally liable for monetary
damages to the Company or any other person for acts or omissions in his or her
capacity as a director except in certain limited circumstances such as certain
violations of criminal law and transactions in which the director derived an
improper person
42
<PAGE> 45
benefit. As a result, shareholders may be unable to recover monetary damages
against directors for actions taken by them which constitute negligence or gross
negligence or which are in violation of their fiduciary duties, although
injunctive or other equitable relief may be available.
The foregoing provisions of the Florida Act and the Company's Articles of
Incorporation and Bylaws could have the effect of preventing or delaying a
person from acquiring or seeking to acquire a substantial equity interest in, or
control of, the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Firstar Trust
Company, Milwaukee, Wisconsin.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this offering, the Company will have 21,833,818
shares of Common Stock outstanding (22,223,818 shares if the Underwriters'
over-allotment option is exercised in full). Of these shares, 8,266,832 shares
(8,656,832 shares if the Underwriters' over-allotment option is exercised in
full), including the shares sold in this offering, will be freely tradeable by
persons other than affiliates of the Company, without restriction under the
Securities Act of 1933, as amended (the "Securities Act"). The remaining
13,566,986 shares will be "restricted" securities within the meaning of Rule 144
under the Securities Act and may not be sold in the absence of registration
under the Securities Act unless an exemption from registration is available,
including the exemptions contained in Rule 144. Of this amount, 12,189,680
shares beneficially owned by persons who are affiliates of the Company are
eligible for public sale pursuant to Rule 144, subject to the volume
restrictions discussed below. However, the directors, executive officers and
principal shareholders of the Company have agreed not to sell, contract to sell
or otherwise dispose of any shares of Common Stock for a period of 180 days
after the date of this Prospectus without the prior written consent of the
Representatives. The former shareholders of Datasvar and DiagSoft have
registration rights with respect to a total of 379,139 shares of Common Stock
beneficially owned by them that constitute restricted securities.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate of the Company, who has
beneficially owned his or her shares for at least two years (including the prior
holding period of any prior owner other than an affiliate) is entitled to sell
within any three-month period that number of shares which does not exceed the
greater of 1% of the outstanding shares of the Common Stock, or the average
weekly trading volume during the four calendar weeks preceding each such sale.
Sales under Rule 144 also are subject to certain manner of sale provisions,
notice requirements and the availability of current public information about the
Company. A person (or persons whose shares are aggregated) who is not or has not
been deemed an "affiliate" of the Company for at least three months, and who has
beneficially owned shares for at least three years (including the holding period
of any prior owner other than an affiliate) would be entitled to sell such
shares under Rule 144 without regard to the limitations discussed above.
Sales of substantial amounts of Common Stock in the public market could
adversely affect prevailing market prices.
43
<PAGE> 46
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company and the Selling Shareholders have agreed to sell to each
of the Underwriters listed below, and the Underwriters, for whom Raymond James &
Associates, Inc., Robert W. Baird & Co. Incorporated, and Oppenheimer & Co.,
Inc., are acting as representatives (the "Representatives"), have severally
agreed to purchase, the respective number of shares of Common Stock set forth
opposite their names below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
--------------------------------------------------------------------- ----------------
<S> <C>
Raymond James & Associates, Inc......................................
Robert W. Baird & Co. Incorporated...................................
Oppenheimer & Co., Inc...............................................
----------------
Total...................................................... 2,600,000
=============
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
their counsel and to various other conditions. The Underwriters are obligated to
purchase all the shares of Common Stock offered hereby, excluding shares covered
by the over-allotment option granted to the Underwriters, if any are purchased.
The Company and the Selling Shareholders have been advised by the
Representatives that the Underwriters propose to offer the Common Stock to the
public at the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price, less a concession of not in
excess of $ per share, and that the Underwriters and such dealers may
reallow a concession of not in excess of $ per share to other dealers.
The public offering price and concessions and reallowances to dealers may be
changed by the Representatives after the initial public offering.
The Company has granted to the Underwriters an option, exercisable within
30 days after the date of the public offering, to purchase up to an additional
390,000 shares of Common Stock to cover over-allotments, at the same price per
share to be paid by the Underwriters for the other shares offered hereby. If the
Underwriters purchase any such additional shares pursuant to this option, each
of the Underwriters will be committed to purchase such additional shares in
approximately the same proportion as set forth in the above table. The
Underwriters may purchase such shares only to cover over-allotments, if any, in
connection with the offering.
The Company and the Underwriters have agreed to indemnify, or to contribute
to payments made by, each other against certain civil liabilities, including
certain civil liabilities under the Securities Act.
The Company has an oral agreement with Pamrae Capital Group Inc., a
financial consulting firm which has no affiliation with the Underwriters or the
Company, to pay up to $100,000 for the following services provided to the
Company: guidance regarding the registration process with the Securities and
Exchange Commission, assistance with the selection of managing underwriters,
management of professionals engaged in the registration process, assistance with
the Company's selection of a financial printer, and general assistance in
structuring the offering.
The Company and its directors and executive officers, and the Selling
Shareholders have agreed not to sell, contract to sell or otherwise dispose of
any shares of Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of the Representatives. See "Shares
Eligible for Future Sale."
44
<PAGE> 47
In connection with this offering, the Underwriters and selling group
members (if any) may engage in passive market making transactions in the Common
Stock on Nasdaq immediately prior to the commencement of sales in this offering,
in accordance with Rule 10b-6A under the Exchange Act. Passive market making
consists of displaying bids on Nasdaq limited by the bid prices of independent
market makers and purchases limited by such prices and effected in response to
order flow. Net purchases by a passive market maker on each day are limited to a
specific percentage of the passive market maker's average daily trading volume
in the Common Stock during a specified prior period and must be discontinued
when such limit is reached. Passive market making may stabilize the market price
of the Common Stock at a level above that which might otherwise prevail and, if
commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company and the Selling Shareholders by Foley &
Lardner, Tampa, Florida. Attorneys in the firm of Foley & Lardner representing
the Company in connection with this offering beneficially own approximately
1,000 shares of Common Stock. Certain legal matters in connection with the sale
of the Common Stock offered hereby will be passed upon for the Underwriters by
Holland & Knight (a partnership including professional corporations), Tampa,
Florida.
EXPERTS
The Consolidated Financial Statements and Supplemental Consolidated
Financial Statements of the Company at December 31, 1995 and 1994, and for the
year ended December 31, 1995, the five months ended December 31, 1994 and each
of the two years in the period ended July 31, 1994, appearing in this Prospectus
and in the Registration Statement, have been audited by Coopers & Lybrand
L.L.P., independent auditors, as set forth in their reports thereon appearing
elsewhere herein and in the Registration Statement, and are included herein in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing. The Consolidated Financial Statements of Datasvar at
December 31, 1995 and 1994, and for the three years ended December 31, 1995
appearing in this Prospectus and in the Registration Statement, have been
audited by Lindebergs Revisionsbyra AB, independent auditors, as set forth in
their report thereon appearing elsewhere herein and in the Registration
Statement, and are included herein in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing. The Consolidated
Financial Statements of DiagSoft at December 31, 1995 and 1994, and for the year
ended December 31, 1995, the five months ended December 31, 1994 and each of the
two years in the period ended July 31, 1994, appearing in this Prospectus and in
the Registration Statement, have been audited by Coopers & Lybrand L.L.P.,
independent auditors, as set forth in their report thereon appearing elsewhere
herein and in the Registration Statement, and are included herein in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus is a part)
under the Securities Act with respect to the securities offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the rules
and regulations of the Commission. Statements contained in the Prospectus as to
the contents of any contract or other document are not necessarily complete, and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference and the exhibits and schedules
thereto. For further information regarding the Company and the Common Stock
offered hereby, reference is hereby made to the Registration Statement and such
exhibits and schedules which may be obtained from the Commission at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission also maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants, including the Company, that file
electronically with the Commission. The address of such Web site is
http://www.sec.gov.
45
<PAGE> 48
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SYKES ENTERPRISES, INCORPORATED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants..................................................... F-2
Consolidated Financial Statements
Consolidated Balance Sheets......................................................... F-3
Consolidated Statements of Income................................................... F-4
Consolidated Statements of Changes in Shareholders' Equity.......................... F-5
Consolidated Statements of Cash Flows............................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
DATASVAR SUPPORT AB CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants..................................................... F-17
Consolidated Financial Statements
Consolidated Balance Sheets......................................................... F-18
Consolidated Statements of Income................................................... F-19
Notes to Consolidated Financial Statements.......................................... F-20
DIAGSOFT, INC. CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants..................................................... F-24
Consolidated Financial Statements
Consolidated Balance Sheets......................................................... F-25
Consolidated Statements of Operations............................................... F-26
Consolidated Statements of Changes in Shareholders' Deficit......................... F-27
Consolidated Statements of Cash Flows............................................... F-28
Notes to Consolidated Financial Statements.......................................... F-29
SYKES ENTERPRISES, INCORPORATED SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants..................................................... F-35
Supplemental Consolidated Financial Statements
Supplemental Consolidated Balance Sheets............................................ F-36
Supplemental Consolidated Statements of Operations.................................. F-37
Supplemental Consolidated Statements of Changes in Shareholders' Equity............. F-38
Supplemental Consolidated Statements of Cash Flows.................................. F-39
Notes to Supplemental Consolidated Financial Statements............................. F-40
</TABLE>
F-1
<PAGE> 49
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Sykes Enterprises, Incorporated
We have audited the accompanying consolidated balance sheets of Sykes
Enterprises, Incorporated as of December 31, 1994 and 1995 and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for the years ended July 31, 1993 and 1994, the five months ended December
31, 1994, and the year ended December 31, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Sykes
Enterprises, Incorporated as of December 31, 1994 and 1995, and the consolidated
results of their operations and their cash flows for the years ended July 31,
1993 and 1994, the five months ended December 31, 1994, and the year ended
December 31, 1995, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Tampa, Florida
February 23, 1996, except as to certain information in Notes
13 and 15 for which the dates are March 1, 1996 and
August 30, 1996, respectively
F-2
<PAGE> 50
SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........................... $ 763,226 $ 1,232,836 $ 683,500
Temporary investments............................... -- -- 25,858,213
Receivables, including unbilled..................... 10,171,803 15,010,853 18,949,015
Refundable income taxes............................. 407,627 602,197 607,186
Prepaid expenses and other current assets........... 593,049 366,275 757,265
----------- ----------- -----------
Total current assets............................. 11,935,705 17,212,161 46,855,179
Property and equipment, net........................... 11,213,036 23,220,780 26,253,341
Deferred income taxes................................. -- 177,000 159,000
Deferred charges and other assets..................... 1,122,067 732,558 857,726
----------- ----------- -----------
Total assets................................ $24,270,808 $41,342,499 $74,125,246
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current installments of long-term debt.............. $ 641,165 $ 1,245,204 $ --
Accounts payable.................................... 1,364,754 5,345,980 3,283,688
Accrued employee compensation and benefits.......... 2,303,969 5,659,517 5,971,344
Income taxes payable................................ -- -- 2,250,267
Deferred income taxes............................... 1,974,000 3,366,000 283,080
Other accrued expenses and current liabilities...... 589,401 1,102,107 558,006
----------- ----------- -----------
Total current liabilities........................ 6,873,289 16,718,808 12,346,385
Long-term debt........................................ 6,213,835 8,180,916 --
Deferred income taxes................................. 255,000 -- 1,797,510
Deferred grants....................................... 2,344,250 6,326,341 7,850,477
Commitments and contingencies (Note 8)
Shareholders' equity
Preferred stock, $0.01 par value, 10,000,000 shares
authorized; no shares issued and outstanding..... -- -- --
Common stock, $0.01 par value, 50,000,000 shares
authorized; 13,200,000, 13,200,000 and 19,104,679
shares issued and outstanding.................... 132,000 132,000 191,047
Additional paid-in capital.......................... 219,000 219,000 45,533,470
Retained earnings................................... 8,295,370 9,798,316 6,407,080
Accumulated foreign currency translation
adjustments...................................... (61,936) (32,882) (723)
----------- ----------- -----------
Total shareholders' equity....................... 8,584,434 10,116,434 52,130,874
----------- ----------- -----------
Total liabilities and shareholders'
equity.................................... $24,270,808 $41,342,499 $74,125,246
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE> 51
SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FIVE MONTHS SIX MONTHS ENDED
YEARS ENDED JULY 31, ENDED YEAR ENDED -------------------------
------------------------- DECEMBER 31, DECEMBER 31, JULY 2, JUNE 30,
1993 1994 1994 1995 1995 1996
----------- ----------- ------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues...................... $50,749,987 $47,661,706 $ 18,167,860 $ 63,096,660 $27,676,757 $45,433,016
Operating expenses
Direct salaries and related
costs.................... 34,750,666 32,614,464 12,635,474 40,845,227 18,452,446 27,000,158
General and
administrative........... 14,240,792 14,116,896 5,163,488 19,010,865 7,831,974 13,766,316
----------- ----------- ----------- ----------- ----------- -----------
Total operating
expenses............... 48,991,458 46,731,360 17,798,962 59,856,092 26,284,420 40,766,474
----------- ----------- ----------- ----------- ----------- -----------
Income from operations........ 1,758,529 930,346 368,898 3,240,568 1,392,337 4,666,542
Other income (expense)
Interest.................... (127,679) (125,521) (220,807) (703,354) (315,560) (251,721)
Other....................... (44,680) (78,802) (76,656) 64,732 70,049 69,092
----------- ----------- ----------- ----------- ----------- -----------
Total other expense...... (172,359) (204,323) (297,463) (638,622) (245,511) (182,629)
----------- ----------- ----------- ----------- ----------- -----------
Income before income taxes.... 1,586,170 726,023 71,435 2,601,946 1,146,826 4,483,913
Provision for income taxes
Current..................... 1,148,000 (408,000) (4,000) 252,000 103,000 503,000
Deferred.................... (320,000) 649,000 41,000 847,000 373,000 1,175,000
----------- ----------- ----------- ----------- ----------- -----------
Total provision for
income taxes........... 828,000 241,000 37,000 1,099,000 476,000 1,678,000
----------- ----------- ----------- ----------- ----------- -----------
Net income.................... 758,170 485,023 34,435 1,502,946 670,826 2,805,913
Preferred stock dividends..... -- -- -- -- -- 47,343
----------- ----------- ----------- ----------- ----------- -----------
Net income applicable to
common shareholders......... $ 758,170 $ 485,023 $ 34,435 $ 1,502,946 $ 670,826 $ 2,758,570
=========== =========== =========== =========== =========== ===========
Pro forma income data
(unaudited):
Income before income taxes.... $ 1,586,170 $ 726,023 $ 71,435 $ 2,601,946 $ 1,146,826 $ 4,483,913
Pro forma provision for income
taxes relating to S
corporation................. -- 15,000 23,500 172,000 64,000 67,000
Actual provision for income
taxes....................... 828,000 241,000 37,000 1,099,000 476,000 1,678,000
----------- ----------- ----------- ----------- ----------- -----------
Total provision and pro
forma provision for
income taxes........... 828,000 256,000 60,500 1,271,000 540,000 1,745,000
----------- ----------- ----------- ----------- ----------- -----------
Pro forma net income.......... 758,170 470,023 10,935 1,330,946 606,826 2,738,913
Preferred stock dividends..... -- -- -- -- -- 47,343
----------- ----------- ----------- ----------- ----------- -----------
Pro forma net income
applicable to common
shareholders................ $ 758,170 $ 470,023 $ 10,935 $ 1,330,946 $ 606,826 $ 2,691,570
=========== =========== =========== =========== =========== ===========
Pro forma net income per
share....................... $ 0.05 $ 0.03 $ -- $ 0.08 $ 0.04 $ 0.15
=========== =========== =========== =========== =========== ===========
Pro forma weighted average
common and common equivalent
shares outstanding.......... 15,952,162 15,952,162 15,952,162 15,952,162 15,952,162 17,384,719
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 52
SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
FOREIGN
COMMON STOCK ADDITIONAL CURRENCY
--------------------- PAID-IN RETAINED TRANSLATION
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENTS
---------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at August 1, 1992..................... 13,200,000 $132,000 $ -- $ 6,886,742 $ --
Net income.................................. -- -- -- 758,170 --
---------- -------- ----------- ----------- --------
Balance at July 31, 1993...................... 13,200,000 132,000 -- 7,644,912 --
Contribution to capital..................... -- -- 219,000 131,000 --
Foreign currency translation
adjustment............................... -- -- -- -- (58,751)
Net income.................................. -- -- -- 485,023 --
---------- -------- ----------- ----------- --------
Balance at July 31, 1994...................... 13,200,000 132,000 219,000 8,260,935 (58,751)
Foreign currency translation adjustment..... -- -- -- -- (3,185)
Net income.................................. -- -- -- 34,435 --
---------- -------- ----------- ----------- --------
Balance at December 31, 1994.................. 13,200,000 132,000 219,000 8,295,370 (61,936)
Foreign currency translation adjustment..... -- -- -- -- 29,054
Net income.................................. -- -- -- 1,502,946 --
---------- -------- ----------- ----------- --------
Balance at December 31, 1995.................. 13,200,000 132,000 219,000 9,798,316 (32,882)
Merger with Sykes Realty, Inc.
(unaudited).............................. 1,220,000 12,200 253,366 (773,454) --
Conversion of redeemable preferred stock
(unaudited).............................. 298,686 2,987 5,373,365 (5,376,352) --
Issuance of common stock
(unaudited).............................. 2,417,768 24,178 39,707,421 -- --
Three-for-two stock split (unaudited)....... 1,968,225 19,682 (19,682) -- --
Foreign currency translation adjustment
(unaudited).............................. -- -- -- -- 32,159
Preferred stock dividends (unaudited)....... -- -- -- (47,343) --
Net income (unaudited)...................... -- -- -- 2,805,913 --
---------- -------- ----------- ----------- --------
Balance at June 30, 1996 (unaudited).......... 19,104,679 $191,047 $45,533,470 $ 6,407,080 $ (723)
========== ======== =========== =========== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 53
SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FIVE MONTHS SIX MONTHS ENDED
YEARS ENDED JULY 31, ENDED YEAR ENDED ----------------------------
---------------------------- DECEMBER 31, DECEMBER 31, JULY 2, JUNE 30,
1993 1994 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities
Net income....................... $ 758,170 $ 485,023 $ 34,435 $ 1,502,946 $ 670,826 $ 2,805,913
Depreciation and amortization.... 999,401 1,347,097 906,570 2,824,363 754,494 2,225,061
Deferred compensation............ -- -- -- 949,960 -- --
Deferred income taxes............ (320,000) 649,000 41,000 847,000 373,000 1,175,000
Loss (gain) on disposal of
property and equipment......... 18,047 109,877 36,497 (27,545) (27,846) (6,590)
Change in assets and liabilities:
Receivables, including
unbilled..................... 2,365,190 (315,782) (1,293,278 ) (4,725,050) (1,388,111) (3,938,162)
Refundable income taxes........ 33,028 (1,245,720) 561,093 (194,570) 33,810 (4,989)
Prepaid expenses and other
current assets............... 32,726 (327,190) (291,643 ) 226,774 (1,971) (390,990)
Deferred charges and other
assets....................... (466,058) (319,491) 141,044 50,208 401,243 (261,668)
Accounts payable............... (421,290) (152,627) 388,334 3,981,225 616,542 (2,705,729)
Accrued employee compensation
and benefits................. -- 521,930 (133,220 ) 2,404,588 550,064 625,368
Income taxes payable........... 97,171 (97,171) -- -- (458,472) (209,733)
Other accrued expenses and
current liabilities.......... 326,664 (25,111) 93,151 512,706 (137,090) (722,503)
------------ ------------ ----------- ------------ ------------ ------------
Net cash provided by (used
for) operating
activities............... 3,423,049 629,835 483,983 8,352,605 1,386,489 (1,409,022)
------------ ------------ ----------- ------------ ------------ ------------
Cash flows for investing activities
Capital expenditures............. (1,390,929) (4,632,252) (4,827,675 ) (12,933,105) (1,851,640) (5,444,651)
Acquisition of businesses........ (282,000) (104,000) -- -- -- --
Proceeds from sale of property
and
equipment...................... 365,502 67,181 209,670 79,936 73,568 146,590
------------ ------------ ----------- ------------ ------------ ------------
Net cash used for investing
activities............... (1,307,427) (4,669,071) (4,618,005 ) (12,853,169) (1,778,072) (5,298,061)
------------ ------------ ----------- ------------ ------------ ------------
Cash flows from financing
activities
Paydowns under revolving line of
credit agreements.............. (21,114,409) (18,563,000) (8,058,000 ) (32,023,539) (12,302,000) (19,871,569)
Borrowings under revolving line
of credit agreements........... 19,184,207 19,043,000 10,383,000 29,933,273 13,184,000 19,706,835
Proceeds from issuance of
stock.......................... -- -- -- -- -- 39,731,599
Proceeds from grants............. -- 708,000 1,250,000 2,370,000 -- 1,725,665
Proceeds from issuance of
long-term debt................. -- 3,000,000 1,300,000 5,000,000 -- --
Payment of long-term debt........ -- -- (250,000 ) (338,614) (320,263) (9,261,386)
Preferred stock dividends paid... -- -- -- -- -- (47,343)
------------ ------------ ----------- ------------ ------------ ------------
Net cash provided by (used
for) financing
activities............... (1,930,202) 4,188,000 4,625,000 4,941,120 561,737 31,983,801
------------ ------------ ----------- ------------ ------------ ------------
Adjustment for foreign currency
translation...................... -- (58,751) (3,185 ) 29,054 2,350 32,159
------------ ------------ ----------- ------------ ------------ ------------
Net increase in cash, cash
equivalents and temporary
investments...................... 185,420 90,013 487,793 469,610 172,504 25,308,877
Cash, cash equivalents and
temporary
investments -- beginning......... -- 185,420 275,433 763,226 763,226 1,232,836
------------ ------------ ----------- ------------ ------------ ------------
Cash, cash equivalents and
temporary
investments -- ending............ $ 185,420 $ 275,433 $ 763,226 $ 1,232,836 $ 935,730 $ 26,541,713
============ ============ =========== ============ ============ ============
Supplemental disclosures of cash
flow information
Cash paid during the year for:
Interest....................... $ 106,349 $ 103,494 $ 217,200 $ 747,081
Income taxes................... $ 1,114,191 $ 766,214 $ 1,082 $ 687,343
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE> 54
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- NATURE OF BUSINESS
Sykes Enterprises, Incorporated and consolidated subsidiaries (the
"Company") provide comprehensive information technology outsourcing services
including information technology support services, consisting of technical
product support and help desk services, and information technology development
services and solutions, consisting of software design, development, integration
and implementation and documentation, foreign language translation and
localization services. The Company's services are provided to a wide variety of
industries.
NOTE 2 -- SUMMARY OF ACCOUNTING POLICIES
Principles of Consolidation -- All significant intercompany transactions
and balances have been eliminated from these consolidated financial statements.
Change in Fiscal Year -- The Company changed its fiscal year end from July
31 to December 31 effective August 1, 1994. The consolidated statements of
income, changes in shareholders' equity, and cash flows for the years ended July
31, 1993 and 1994, the five months ended December 31, 1994 and the year ended
December 31, 1995 are presented in the accompanying consolidated financial
statements.
Interim Financial Statements -- The unaudited financial statements as of
June 30, 1996, and for the six months ended July 2, 1995 and June 30, 1996, in
the opinion of management include all adjustments (consisting of only normal
recurring accruals) necessary for a fair presentation of such information. The
results of operations for the six months ended June 30, 1996 are not necessarily
indicative of the results for the full year.
Recognition of Revenue -- The Company primarily recognizes its revenue for
information technology support services and information technology development
services and solutions as services are performed. Certain of these services are
performed under fixed price contracts and revenue is recognized using the
percentage-of-completion method of accounting. Adjustments to fixed price
contracts and related estimated losses, if any, are recorded in the period when
such adjustments or losses are known.
Cash and Cash Equivalents and Temporary Investments -- Cash and cash
equivalents and temporary investments consist of investments with original
maturities of three months or less.
Shareholder Receivable and Payable -- The Company has recorded a receivable
from its single shareholder of approximately $728,000 at December 31, 1994 and a
net payable due to its single shareholder of approximately $671,000 at December
31, 1995. These amounts have been included in receivables, including unbilled
and accounts payable at December 31, 1994 and 1995, respectively.
Property and Equipment -- Property and equipment is recorded at cost and
depreciated using the straight-line method over the estimated useful lives of
the respective assets. Improvements to leased premises are amortized over the
shorter of the related lease term or the useful lives of the improvements. Cost
and related accumulated depreciation on assets retired or disposed of are
removed from the accounts and any gains or losses resulting therefrom are
credited or charged to income. Depreciation expense was approximately $715,000,
$1,059,000, $709,000 and $2,697,000 for the years ended July 31, 1993 and 1994,
the five months ended December 31, 1994 and the year ended December 31, 1995,
respectively.
Land received from various governmental agencies under grants is recorded
at fair value (as determined by an independent appraiser) at date of grant.
During the five months ended December 31, 1994 and the year ended December 31,
1995, the Company recorded approximately $400,000 and $1,824,000, respectively,
in land acquisitions as a result of such grants. Accordingly, these non-cash
transactions have been excluded from the accompanying consolidated statements of
cash flows for the five months ended December 31, 1994 and the year ended
December 31, 1995.
F-7
<PAGE> 55
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SUMMARY OF ACCOUNTING POLICIES -- (CONTINUED)
Deferred Charges and Other Assets -- Deferred charges and other assets
consist primarily of long-term deposits, and goodwill and covenants not to
compete arising from business acquisitions. These intangible assets are being
amortized over periods ranging from two to ten years.
Income Taxes -- Deferred income taxes are recorded to reflect the tax
consequences on future years of differences between the tax basis of assets and
liabilities and their financial reporting amounts at each year end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income.
The Company and its consolidated affiliates are either taxed as C
corporations or have elected to be taxed as an S corporation under the
provisions of the Internal Revenue Code through the effective date of the
Company's initial public offering (see Note 15). The Company's affiliate which
elected to be taxed as an S corporation is not subject to federal and state
income taxes at the corporate level. Instead, the taxable income of the S
corporation is included in the individual income tax return of the Company's
single shareholder for federal income tax purposes.
Deferred Grants -- Grants for the acquisition of property and equipment are
deferred and recognized in income over the corresponding useful lives of the
related property and equipment. There are no significant contingencies
associated with the grants that would impact the Company's ability to utilize
assets received in connection with the grants.
Foreign Currency Translation -- The assets and liabilities of the Company's
foreign subsidiaries whose functional currency is other than the U.S. Dollar are
translated at the exchange rates in effect on the reporting date, and income and
expenses are translated at the weighted average exchange rate during the period.
The net effect of translation gains and losses are not included in determining
net income, but are accumulated as a separate component of shareholders' equity.
Foreign currency translation gains and losses are included in determining net
income. Such gains and losses were not material for any period presented.
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. Actual results could differ from those estimates;
however, management does not believe these differences would have a material
effect on operating results.
New Accounting Pronouncements -- In October 1995, the Financial Accounting
Standards Board issued SFAS No. 123, "Accounting for Stock Based Compensation."
With respect to stock options granted to employees, SFAS No. 123 permits
companies to continue using the accounting method promulgated by the Accounting
Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to
Employees," to measure compensation or to adopt the fair value based method
prescribed by SFAS No. 123. If APB No. 25's method is continued, pro forma
disclosures are required as if SFAS No. 123 accounting provisions were followed.
Management has determined not to adopt SFAS No. 123's accounting recognition
provisions. In the opinion of management, SFAS No. 123 is not expected to have a
material impact on the Company's financial statements.
SFAS No. 121, "Accounting for the Impairment of Long Lived Assets and for
Long Lived Assets to be Disposed Of," is effective for years beginning after
December 15, 1995. This statement requires that long-lived assets and certain
intangibles to be held and used by the Company be reviewed for impairment. This
pronouncement is not expected to have a material impact on the financial
statements of the company.
F-8
<PAGE> 56
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables. With the
exception of approximately $1.8 million of receivables from a significant
customer (See Note 12), the Company's credit concentrations are limited due to
the wide variety of customers and markets into which the Company's services are
sold.
NOTE 4 -- RECEIVABLES
Receivables consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
Trade accounts receivable................................. $ 8,368,688 $14,120,955
Unbilled accounts receivable.............................. 781,849 602,881
Notes receivable from officers and related parties........ 728,237 145,000
Other..................................................... 408,336 225,416
----------- -----------
10,287,110 15,094,252
Less allowance for doubtful accounts...................... 115,307 83,399
----------- -----------
$10,171,803 $15,010,853
=========== ===========
</TABLE>
NOTE 5 -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
Land...................................................... $ 455,000 $ 2,240,746
Buildings and leasehold improvements...................... 5,479,796 9,461,812
Equipment, furniture and fixtures......................... 8,931,629 16,037,577
Transportation equipment.................................. 668,561 524,480
Construction in progress.................................. -- 1,499,363
----------- -----------
15,534,986 29,763,978
Less accumulated depreciation............................. 4,321,950 6,543,198
----------- -----------
$11,213,036 $23,220,780
=========== ===========
</TABLE>
NOTE 6 -- LONG-TERM DEBT
The Company has a credit facility with NationsBank, N.A. comprised of a $12
million revolving line of credit and a term note issued in the original amount
of $8 million. Availability under the line of credit is based upon a maximum of
85% of eligible receivables. Borrowings accrue interest at prime (8.5% at
December 31, 1995), and a commitment fee of 1/4 of 1% per annum is payable
quarterly on the unused portion. The term note is payable in sixty consecutive
monthly installments of $133,333 beginning April 1, 1996, and accrues interest
on the outstanding principal balance at a floating rate equal to prime. The
credit facility is collateralized by substantially all of the Company's
(excluding Sykes Realty, Inc.) accounts receivable, property and equipment, and
intangible assets, and is guaranteed in an amount not to exceed $500,000 by the
Company's single shareholder. The agreement contains restrictive covenants
regarding, among other things, annual dividend payments (limited to 30% of
previous year net income), and the Company's maintenance of tangible net worth,
total liabilities and working capital. At December 31, 1995, the Company was in
compliance with,
F-9
<PAGE> 57
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- LONG-TERM DEBT -- (CONTINUED)
or had received waivers or amendments through December 31, 1996 regarding all
restrictive covenants. The loan agreement matures June 1, 1997, at which time if
the facility is not renewed, the interest rate associated with the Company's
line of credit increases to prime plus one percent, and all outstanding
borrowings, including the remaining balance of the term note, become due and
payable in twelve consecutive equal installments beginning July 1, 1997. The
Company had borrowings under the credit facility of approximately $5,555,000 and
$8,165,000 at December 31, 1994 and 1995, respectively.
During 1994, the Company entered into a loan agreement with a bank in the
principal amount of $1,300,000. Payments are due in monthly installments of
approximately $13,600. Borrowings accrue interest at 9.5% through December 1,
1997, at which time the interest rate is subject to change. At December 31, 1994
and 1995, outstanding amounts under the agreement was approximately $1,300,000
and $1,261,000, respectively.
See Note 15 -- Subsequent Events for use of proceeds pursuant to public
offering.
NOTE 7 -- INCOME TAXES
The components of income before income taxes are as follows:
<TABLE>
<CAPTION>
FIVE MONTHS
YEARS ENDED JULY 31, ENDED YEAR ENDED
----------------------- DECEMBER 31, DECEMBER 31,
1993 1994 1994 1995
----------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Domestic........................... $ 1,120,162 $770,779 $ 88,625 $2,370,365
Foreign............................ 466,008 (44,756) (17,190) 231,581
---------- -------- -------- ----------
Total income before income
taxes.................... $ 1,586,170 $726,023 $ 71,435 $2,601,946
========== ======== ======== ==========
</TABLE>
Provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FIVE MONTHS
YEARS ENDED JULY 31, ENDED YEAR ENDED
------------------------ DECEMBER 31, DECEMBER 31,
1993 1994 1994 1995
----------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Current:
Federal......................... $ 741,000 $(380,000) $(10,000) $ 151,000
State........................... 185,000 -- (2,000) 25,000
Foreign......................... 222,000 (28,000) 8,000 76,000
---------- --------- -------- ----------
Total current provision for
income taxes............ 1,148,000 (408,000) (4,000) 252,000
---------- --------- -------- ----------
Deferred:
Federal......................... (241,000) 703,000 34,000 731,000
State........................... (79,000) (54,000) 7,000 116,000
---------- --------- -------- ----------
Total deferred provision
for income taxes........ (320,000) 649,000 41,000 847,000
---------- --------- -------- ----------
Total provision for income
taxes................... $ 828,000 $ 241,000 $ 37,000 $1,099,000
========== ========= ======== ==========
</TABLE>
F-10
<PAGE> 58
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- INCOME TAXES -- (CONTINUED)
The components of the net deferred tax asset (liability) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
Current:
Deferred tax asset:
Accounts payable........................................ $ 190,000 $ 428,000
Accrued expenses........................................ 939,000 1,534,000
State operating loss carryforward....................... 18,000 1,000
Other................................................... 277,000 109,000
----------- -----------
Total current deferred tax asset..................... 1,424,000 2,072,000
----------- -----------
Deferred tax liability:
Receivables............................................. (3,356,000) (5,337,000)
State tax refunds....................................... (16,000) (57,000)
Property and equipment.................................. (26,000) (44,000)
----------- -----------
Total current deferred tax liability................. (3,398,000) (5,438,000)
----------- -----------
Net current deferred tax liability................. $(1,974,000) $(3,366,000)
=========== ===========
Non-current:
Deferred tax asset:
Deferred compensation................................... $ -- $ 360,000
State operating loss carryforward....................... 38,000 37,000
Other................................................... 4,000 28,000
----------- -----------
Total non-current deferred tax asset................. 42,000 425,000
----------- -----------
Deferred tax liability:
State tax refunds....................................... (60,000) --
Property and equipment.................................. (237,000) (248,000)
----------- -----------
Total non-current deferred tax liability............. (297,000) (248,000)
----------- -----------
Net non-current deferred tax asset (liability)..... $ (255,000) $ 177,000
=========== ===========
</TABLE>
Deferred income taxes applicable to undistributed earnings of foreign
subsidiaries that are indefinitely reinvested in foreign operations are
immaterial. The Company anticipates that no material tax cost will be incurred
on such earnings.
At December 31, 1995, the Company had state net operating loss
carryforwards of approximately $635,000 which expire in 2009.
In conjunction with the Company's initial public offering (See Note 15),
the Company changed its method of accounting for income taxes from the cash
basis to the accrual method. The corresponding adjustment will be included in
taxable income over a period not to exceed four years.
F-11
<PAGE> 59
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- INCOME TAXES -- (CONTINUED)
The following summarizes the principal differences between income taxes at
the federal statutory rate and the effective income tax amounts reflected in the
financial statements:
<TABLE>
<CAPTION>
FIVE MONTHS
YEARS ENDED JULY 31, ENDED YEAR ENDED
--------------------- DECEMBER 31, DECEMBER 31,
1993 1994 1994 1995
-------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Statutory tax......................... $539,000 $247,000 $ 25,000 $ 885,000
State income taxes, net of federal tax
benefit............................. 91,000 26,000 3,000 98,000
Effect of income not subject to
federal and state income tax........ -- (13,000) (21,000) (155,000)
Change in state tax rate.............. -- (67,000) -- --
Foreign taxes, net of foreign income
not taxed in U.S.................... 64,000 (11,000) 14,000 (11,000)
Permanent differences................. 59,000 77,000 36,000 123,000
Other................................. 75,000 (18,000) (20,000) 159,000
-------- -------- -------- ----------
Total provision for income
taxes..................... $828,000 $241,000 $ 37,000 $1,099,000
======== ======== ======== ==========
</TABLE>
The Company is currently under examination by the Internal Revenue Service
for tax years ended July 31, 1991, 1992, 1993 and 1994. The Company has reviewed
various matters that are under consideration and believes that it has adequately
provided for any liability that may result from this examination. In the opinion
of management, any liability that may arise from prior periods as a result of
the examination will not have a material effect on the Company's financial
condition or results of operations.
NOTE 8 -- COMMITMENTS AND CONTINGENCIES
The Company has pledged certain assets as collateral on mortgage loans made
to the Company's single shareholder. Total loans outstanding at December 31,
1995 was approximately $3,977,000. Subsequent to year-end, an additional
mortgage loan of $800,000, net of repayments, was made to the Company's single
shareholder.
The Company leases certain equipment and buildings under operating leases
having terms ranging from one to five years. The building leases contain up to
two five-year renewal options.
Rental expense under operating leases for the years ended July 31, 1993 and
1994, the five months ended December 31, 1994, and the year ended December 31,
1995 was approximately $1,713,000, $2,096,000, $532,000, and $1,124,000,
respectively. Rental expense related to an office building leased from the
Company's single shareholder, net of subleases, was approximately $277,000,
$277,000, $45,000 and $104,000 for the years ended July 31, 1993 and 1994, the
five months ended December 31, 1994 and the year ended December 31, 1995,
respectively. In December 1995, the Company signed a ten-year operating lease
agreement with the Company's single shareholder to lease a corporate aircraft.
The lease expense for 1995 was approximately $51,000.
The Company has a five year noncancelable sublease agreement with an
unrelated tenant for its Charlotte, North Carolina facility. The minimum
sublease rental amounts the Company is to receive are approximately $176,000,
$181,000, $187,000, and $94,000 for the years ended December 31, 1996 through
1999, respectively.
F-12
<PAGE> 60
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
The following is a schedule of future minimum rental payments (without
regard to the North Carolina sublease) under operating leases having a remaining
noncancelable term in excess of one year subsequent to December 31, 1995:
<TABLE>
<CAPTION>
RELATED NON-RELATED TOTAL
YEAR PARTY PARTY AMOUNT
-------------------------------------------------- ---------- ---------- -----------
<S> <C> <C> <C>
1996.............................................. $ 855,000 $1,929,000 $ 2,784,000
1997.............................................. 855,000 1,781,000 2,636,000
1998.............................................. 855,000 1,289,000 2,144,000
1999.............................................. 855,000 672,000 1,527,000
2000.............................................. 855,000 620,000 1,475,000
Thereafter........................................ 3,904,000 431,000 4,335,000
---------- ---------- -----------
Total minimum payments required......... $8,179,000 $6,722,000 $14,901,000
========== ========== ===========
</TABLE>
The Company from time to time is involved in legal actions arising in the
ordinary course of business. With respect to these matters, management believes
that it has adequate legal defenses and/or provided adequate accruals for
related costs such that the ultimate outcome will not have a material adverse
effect on the Company's future financial position.
NOTE 9 -- EMPLOYEE BENEFIT PLAN
The Company maintains a 401(k) plan covering defined employees who meet
established eligibility requirements. Under the plan provisions, the Company
matches 25% of participant contributions to a maximum matching amount of 1% of
participant compensation. Company contributions are funded on a bi-weekly basis.
The Company contribution was approximately $70,000, $81,000, $105,000 and
$95,000 for the years ended July 31, 1993 and 1994, the five months ended
December 31, 1994 and the year ended December 31, 1995, respectively.
NOTE 10 -- STOCK OPTIONS
In connection with an agreement entered into in 1995, the Company granted
options to purchase 762,000 shares of common stock at $4.53 per share to an
executive officer. The Company has determined the per share price was $1.25
below fair market value at the date of grant. As a result, the Company has
recognized compensation expense of $949,960, which is included in general and
administrative expenses in the accompanying consolidated statements of income
for the year ended December 31, 1995. The options granted in connection with the
agreement become exercisable three years from the date of grant, except that up
to one-third are exercisable to the extent that the underlying shares are
permitted to be included by the underwriters in an underwritten public offering
occurring prior thereto. Options expire if not exercised by the tenth
anniversary of their grant date.
F-13
<PAGE> 61
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 -- INTERNATIONAL OPERATIONS
During the year ended July 31, 1994, the Company opened a facility in The
Netherlands. During the year ended December 31, 1995, the Company closed its
office in Canada. The effects of these two offices reflect the international
operations of the Company for the periods presented. The revenue, income (loss)
before income taxes and total assets of the Company associated with
international operations are as follows:
<TABLE>
<CAPTION>
FIVE MONTHS
YEARS ENDED JULY 31, ENDED YEAR ENDED
------------------------- DECEMBER 31, DECEMBER 31,
1993 1994 1994 1995
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue.......................... $2,774,878 $1,120,358 $ 741,681 $2,785,473
Income (loss) before income
taxes.......................... 466,008 (44,756) (17,190) 231,581
Total assets..................... 566,576 1,004,700 1,274,043 2,495,440
</TABLE>
NOTE 12 -- SIGNIFICANT CUSTOMERS
Two customers comprise 33% of the Company's revenues for the year ended
December 31, 1995. Revenues from one customer amounted to 38%, 30%, 27% and 16%
of the Company's revenues for the years ended July 31, 1993 and 1994, the five
months ended December 31, 1994 and the year ended December 31, 1995,
respectively. Revenues from a new customer amounted to 17% of the Company's
revenues for the year ended December 31, 1995.
NOTE 13 -- PRO FORMA DISCLOSURES (UNAUDITED)
Pro Forma Income Taxes -- An affiliate of the Company had elected to be
treated as an S corporation for federal and state income tax purposes. As such,
the affiliate's taxable income was reported to and subject to tax to the
affiliate's shareholder. Prior to the Company's initial public offering (See
Note 15), the Company's affiliate terminated its S corporation election and
accordingly became subject to federal and state income taxes. The unaudited pro
forma provision for income taxes reported on the consolidated statements of
income shows approximate federal and state income taxes (by applying statutory
income tax rates) that would have been incurred if the affiliate had been
subject to tax as a C corporation. In addition, the Company changed its method
of accounting for income taxes from the cash basis to the accrual method in
connection with the offering. The corresponding adjustment will be included in
taxable income over a period not to exceed four years.
Pro Forma Net Income Per Share -- In March 1996, the Company was a North
Carolina corporation and amended its Articles of Incorporation to authorize the
issuance of up to 10,000 shares of $1,000 par value per share preferred stock.
At that time, the Company approved a 95-to-1 stock split of all outstanding
common stock. Subsequent to the amendment and stock split, the Company changed
its state of incorporation from North Carolina to Florida and changed the
authorized number of shares of common stock from 100,000 to 50,000,000. As part
of the change of state of incorporation, each share of common stock of the North
Carolina corporation was exchanged for 88 shares (132 shares as adjusted for a
three-for-two stock split, see Note 15 -- Subsequent Events) of common stock of
the Company. All applicable share and per share amounts in the accompanying
financial statements have been retroactively adjusted to reflect these events.
Weighted average common shares outstanding includes the common share
equivalents discussed in Note 10 applying the treasury stock method. In
addition, the calculation includes certain preferred stock issued subsequent to
year end that were converted to common stock immediately prior to the closing of
and sold in the Company's initial public offering. Such shares were deemed
outstanding for all periods presented.
In addition, the Company issued 1,830,000 shares of common stock as a
result of the merger involving Sykes Realty, Inc. immediately prior to the
offering, which shares were deemed outstanding for all periods presented.
F-14
<PAGE> 62
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14 -- SELECTED FINANCIAL DATA
Effective August 1, 1994, the Company changed its fiscal year end from July
31 to December 31. Accordingly, the financial statements for December 31, 1994
reflect the Company's results of operations for a five-month period.
Selected financial data for the twelve months ended December 31, 1993, 1994
and 1995 consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1993 1994 1995
----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues.................................... $50,187,986 $45,114,923 $63,096,660
Operating expenses
Direct salaries and related costs......... 34,974,625 30,635,862 40,845,227
General and administrative................ 14,010,168 13,598,163 19,010,865
----------- ----------- -----------
Total.................................. 48,984,793 44,234,025 59,856,092
----------- ----------- -----------
Income from operations...................... 1,203,193 880,898 3,240,568
Other income (expense)
Interest.................................. (106,919) (303,825) (703,354)
Other..................................... 172,463 (148,543) 64,732
----------- ----------- -----------
Total other income (expense)........... 65,544 (452,368) (638,622)
----------- ----------- -----------
Income before income taxes.................. 1,268,737 428,530 2,601,946
Provision for income taxes.................. 583,000 178,000 1,099,000
----------- ----------- -----------
Net income.................................. $ 685,737 $ 250,530 $ 1,502,946
=========== =========== ===========
Pro forma income data (unaudited)
Income before income taxes.................. $ 1,268,737 $ 428,530 $ 2,601,946
Pro forma provision for income taxes
relating to S corporation................. -- 39,000 172,000
Actual provision for income taxes........... 583,000 178,000 1,099,000
----------- ----------- -----------
Total provision and pro forma provision
for income taxes..................... 583,000 217,000 1,271,000
----------- ----------- -----------
Pro forma net income........................ $ 685,737 $ 211,530 $ 1,330,946
=========== =========== ===========
Pro forma net income per share.............. $ 0.04 $ 0.01 $ 0.08
=========== =========== ===========
Pro forma weighted average common and common
equivalent shares outstanding............. 15,952,162 15,952,162 15,952,162
</TABLE>
NOTE 15 -- SUBSEQUENT EVENTS
Preferred Stock -- In connection with an agreement entered into in February
1996, the Company's single shareholder transferred all the newly issued shares
of the Company's outstanding preferred stock and all of the outstanding
non-voting common stock to a related party. Effective immediately prior to the
Company's initial public offering (see below), the preferred stock and
non-voting common stock was automatically converted into shares of common stock.
These converted shares were sold in connection with such offering.
1996 Employee Stock Option Plan -- The Company's 1996 Employee Stock Option
Plan, as amended (the "Employee Plan"), provides for the grant of incentive or
nonqualified stock options to purchase up to 1,750,000 shares of common stock.
In April 1996, certain executive officers received options to purchase a
F-15
<PAGE> 63
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15 -- SUBSEQUENT EVENTS -- (CONTINUED)
total of 184,894 shares of common stock as follows: 139,894 shares with an
exercise price as follows: (i) 33 1/3% of such shares at $12.00 per share, (ii)
33 1/3% at $11.33 per share, and (iii) 33 1/3% at $10.00 per share; and 45,000
shares with an exercise price of $12.00 per share. Certain other officers and
employees of the Company hold options to purchase an additional 417,500 shares
of common stock at a range of $12.00 to $40.40 per share. All such options vest
ratably over the three-year period following the date of grant, except for
120,000 options granted to key employees of DiagSoft (see below), all of which
are immediately exercisable.
1996 Non-Employee Director Stock Option Plan -- The Company's 1996
Non-Employee Director Stock Option Plan (the "Non-Employee Plan") provides for
the grant of nonqualified stock options to purchase up to 300,000 shares of
common stock to members of the Board of Directors who are not employees of the
Company. Each outside director received options to purchase 7,500 shares of
common stock at an exercise price of $12.00 per share. Thereafter, on the date
on which a new outside director is first elected or appointed, he or she shall
automatically be granted options to purchase 5,000 shares of common stock. Each
outside director also shall be granted options to purchase 5,000 shares of
common stock annually on the day following the annual meeting of shareholders.
All options granted will have an exercise price equal to the then fair market
value of the common stock. Options shall become exercisable over a period of
three years in equal amounts until a director has completed his or her initial
term, whereupon all options granted prior to that time shall become exercisable,
and subsequent options shall become exercisable one year after the date of
grant. There are options outstanding to purchase 37,500 shares of Common Stock
at $12.00 per share under the Non-Employee Plan.
Public Offering -- In April 1996, the Company completed its initial public
offering for the sale of 3 million shares of common stock. Coincident with the
offering, the underwriters of the offering exercised their 15% over-allotment
option and accordingly an additional 626,652 shares of the Company's common
stock were sold by the Company. The Company received approximately $39.7 million
from the sale of the shares, net of underwriting discount and expenses
associated with the offering. The net proceeds were used to repay all
outstanding indebtedness and make capital expenditures, with the remaining
balance held for general corporate and working capital purposes. In addition,
the Company's previous single shareholder used a portion of the proceeds from
shares sold by the shareholder in connection with the offering to repay certain
amounts related to mortgage loans for which the Company pledged certain assets
as collateral (See Note 8).
Stock Split -- Effective July 28, 1996, the Company's Board of Directors
approved a three-for-two stock split of common stock. The par value of the
common stock remains unchanged. All share and per share amounts have been
restated to retroactively reflect the stock split.
Acquisitions -- On July 16, 1996, the Company acquired all of the stock of
Datasvar Support AB (Datasvar) in exchange for 246,819 shares of the Company's
common stock. Datasvar is a provider of technical product support throughout
Scandinavia. On August 30, 1996, the Company acquired all of the stock of
DiagSoft, Inc. (DiagSoft) in exchange for 675,000 shares of the Company's common
stock. DiagSoft develops and markets diagnostic software applications. The
acquisitions will be accounted for under the pooling-of-interests method of
accounting.
F-16
<PAGE> 64
DATASVAR SUPPORT AB
REPORT OF INDEPENDENT ACCOUNTANTS
To the shareholders and
Board of Directors of
Datasvar Support AB
We have audited the accompanying consolidated balance sheets of Datasvar
Support AB as of December 31, 1994 and 1995 and the related consolidated
statements of income and retained earnings for each of the three years in the
period ended December 31, 1995, all expressed in thousands of Swedish crowns
(SEK 000's). These financial statements are the responsibility of the Datasvar
Support AB Group management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosure in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Datasvar Support AB as of
December 31, 1994 and 1995, and the results of its operations for each of the
three years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
Accounting principles established to the Commercial Law of Sweden vary in
certain respects from accounting principles generally accepted in the United
States. The application of the latter would have affected the determination of
net income for each of the three years in the period ended December 31, 1995 and
shareholders' equity as of December 31, 1994 and 1995 to the extent summarized
in Note 11 to the financial statements.
Stockholm, Sweden
February 19, 1996
/s/ JORGEN SANDELL
- ---------------------------------------------------------
Jorgen Sandell
Authorized Public Accountant
F-17
<PAGE> 65
DATASVAR SUPPORT AB
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
ALL FIGURES IN SEK THOUSANDS
<S> <C> <C> <C>
ASSETS
Current assets
Cash and bank accounts...................................... 1,970 2,687 2,661
Short-term investments in securities (Note 5)............... 3,691 5,543 3,908
Accounts receivables........................................ 4,429 3,822 6,234
Prepaid expenses and accrued income......................... 3,595 4,216 2,508
Other current receivables................................... 289 9 --
------ ------ ------
13,974 16,277 15,311
Fixed assets
Shares in subsidiaries (Note 8)............................. -- -- --
Computer and telecom equipment (Note 2)..................... 1,296 884 1,144
Machinery and equipment (Note 3)............................ 1,319 1,377 1,227
Fixed assets under construction............................. -- 1,708 5,784
------ ------ ------
2,615 3,969 8,155
------ ------ ------
Total assets........................................ 16,589 20,246 23,466
====== ====== ======
LIABILITIES AND EQUITY
Current liabilities
Liabilities to subsidiaries................................. -- -- --
Accounts payable to suppliers............................... 3,994 2,142 3,538
Income tax liability........................................ 535 1,046 697
Accrued expenses and deferred income........................ 2,228 3,777 4,424
Other current liabilities................................... 893 1,270 183
------ ------ ------
7,650 8,235 8,842
Long-term liabilities
Loans (Note 7).............................................. 2,000 1,833 1,734
Development grant not yet recognized as revenue............. 4,031 2,776 1,725
Deferred tax................................................ 185 635 1,547
------ ------ ------
6,216 5,244 5,006
Untaxed reserves
Profit equalization reserve................................. -- -- --
Excess depreciation......................................... -- -- --
------ ------ ------
Equity (Note 9)
Restricted equity:
Share capital, 12,000 shares with a par value of SEK 100
each..................................................... 600 1,200 1,200
Restricted reserves/Legal reserve........................... 1,178 1,974 1,974
------ ------ ------
1,778 3,174 3,174
Nonrestricted equity:
Nonrestricted reserves/Retained earnings.................... (80) (250) 3,807
Net profit for the year..................................... 1,025 3,843 2,637
------ ------ ------
945 3,593 6,444
------ ------ ------
Total liabilities and equity........................ 16,589 20,246 23,466
====== ====== ======
Pledged assets:
Floating charges............................................ 12,000 12,000 12,000
Contingent liabilities:
Conditional liability for repayment of development grant.... 2,266 3,685 3,836
Loan guarantee for a subsidiary............................. -- -- --
</TABLE>
See accompanying notes to consolidated financial statements
F-18
<PAGE> 66
DATASVAR SUPPORT AB
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
------------------------------- ---------------------------
1993 1994 1995 JULY 2, JUNE 30,
------- ------- ------- 1995 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
ALL FIGURES IN SEK THOUSANDS
<S> <C> <C> <C> <C> <C>
Operating revenues
Sales.............................. 14,210 23,662 35,115 17,607 21,252
Other operating revenues (Note
1).............................. 2,568 4,212 6,183 2,934 2,309
------- ------- ------- ------- -------
16,778 27,874 41,298 20,541 23,561
Operating expenses................... (14,091) (24,737) (34,910) (16,473) (19,642)
------- ------- ------- ------- -------
Operating income before
depreciation.................. 2,687 3,137 6,388 4,068 3,919
Depreciation
Computer and telecom equipment
(Note 2)........................ (510) (794) (801) (478) (392)
Machinery and equipment (Note 3)... (522) (322) (424) (254) (208)
Capitalized expenses for
marketing....................... (405) -- -- -- --
------- ------- ------- ------- -------
(1,437) (1,116) (1,225) (732) (600)
------- ------- ------- ------- -------
Operating income after
depreciation.................. 1,250 2,021 5,163 3,336 3,319
Financial income and expenses
Interest income.................... 192 118 344 83 189
Interest expenses.................. (303) (161) (163) (89) (75)
Other financial income............. 9 -- 11 47 230
Other financial expenses........... (3) (399) -- (68) --
------- ------- ------- ------- -------
(105) (442) 192 (27) 344
------- ------- ------- ------- -------
Profit before appropriations and
taxes......................... 1,145 1,579 5,355 3,309 3,663
Appropriations (Note 4).............. -- -- -- -- --
------- ------- ------- ------- -------
Profit before taxes................ 1,145 1,579 5,355 3,309 3,663
Taxes (Note 5)....................... (174) (554) (1,512) (927) (1,026)
------- ------- ------- ------- -------
Net profit for the year.............. 971 1,025 3,843 2,382 2,637
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
F-19
<PAGE> 67
DATASVAR SUPPORT AB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unless otherwise specified, in the following notes, assets and liabilities
have been valued at acquisition price and all amounts in tables are in SEK
thousands.
NOTE 1 -- OTHER OPERATING REVENUES
Refer to government grants recognized as revenue in 1995.
NOTE 2 -- COMPUTER AND TELECOM EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
------ ------
<S> <C> <C>
Acquisition value.................................................. 2,749 3,117
Less:
Accumulated depreciation......................................... (1,453) (2,233)
------ ------
1,296 884
====== ======
</TABLE>
Depreciation has been charged according to plan, which covers three years.
In this context, the year of acquisition is considered half of a year. At the
balance date, the Company leased equipment with an estimated acquisition value
of SEK 3,389,000. The annual cost of leasing totals SEK 1,765,000.
NOTE 3 -- MACHINERY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
------ ------
<S> <C> <C>
Acquisition value.................................................. 1,883 2,368
Less:
Accumulated depreciation......................................... (564) (991)
------ ------
1,319 1,377
====== ======
</TABLE>
Depreciation has been charged according to the plan, which covers five
years. In this context, the year of acquisition is considered half of a year.
NOTE 4 -- APPROPRIATIONS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
------ ------
<S> <C> <C>
Group contribution................................................. 180 --
Change in tax equalization reserve L............................... 605 --
Allocation to profit equalization reserve.......................... (621) (1,252)
Change in excess depreciation...................................... (18) (342)
------ ------
146 (1,594)
====== ======
</TABLE>
NOTE 5 -- TAXES
Of the Group's tax expense, SEK 450,000 represents the change in deferred
tax.
F-20
<PAGE> 68
DATASVAR SUPPORT AB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- SHORT-TERM INVESTMENTS IN SECURITIES
Securities are reported at the lower of acquisition or actual value.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
------ ------
<S> <C> <C>
Group and parent company:
Holdings in investment funds..................................... 1,691 1,701
Commercial paper................................................. -- 1,953
Treasury bills................................................... 2,000 1,889
------ ------
3,691 5,543
====== ======
</TABLE>
NOTE 7 -- LOANS
In addition, the Company has been granted a bank overdraft facility of SEK
500,000 which was not utilized at the balance due. The total facility granted
the Group is SEK 800,000.
NOTE 8 -- SHARES IN SUBSIDIARIES
Twinpoint AB, 2,000 shares with a par value of SEK 100 each.
NOTE 9 -- EQUITY
<TABLE>
<CAPTION>
SHARE RESTRICTED NON-RESTRICTED
CAPITAL RESERVES EQUITY
------- ---------- --------------
<S> <C> <C> <C>
Group:
At the beginning of the year..................... 600 1,178 945
New issue........................................ 201 -- --
Bonus issue...................................... 399 (399) --
Transfer to restricted equity.................... -- 39 (39)
Reallocation between restricted and
non-restricted
equity........................................ -- 1,156 (1,156)
Net income for the year.......................... -- -- 3,843
----- ----- -----
At year-end...................................... 1,200 1,974 3,593
===== ===== =====
</TABLE>
NOTE 10 -- LOCATION OF FULL-TIME EMPLOYEES
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
------ ------
<S> <C> <C>
Sveg............................................................... 40 49
Jarvso............................................................. 3 33
Stockholm.......................................................... 4 4
------ ------
47 86
====== ======
</TABLE>
F-21
<PAGE> 69
DATASVAR SUPPORT AB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 -- ADJUSTMENTS TO US GAAP
The present income statements and balance sheets have been established
according to the Commercial Law of Sweden. The significant differences from
generally accepted accounting principles in the United States are explained
below. No significant difference from generally accepted accounting principles
in the United States existed during the year ended December 31, 1993.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, ---------------------------
---------------- JULY 2, JUNE 30,
1994 1995 1995 1996
----- ------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Reconciliation of statements of income:
Net profit according to the Commercial Law of
Sweden....................................... 1,025 3,843 2,382 2,637
Adjustments:
Increase in sales for December 1995 sales
unbilled................................... -- 3,255 -- --
Increase in depreciation due to
reclassification for leased object of
capital lease.............................. (564) (1,129) (564) (564)
Reduction of operating expenses for write
back of lease payments for capitalized
equipment.................................. 750 1,756 878 878
Increase in depreciation for write back of
equipment recorded as costs................ -- (111) (56) (118)
Reduction of operating expenses for write
back of equipment recorded as costs........ -- 670 -- 65
Increase in interest expenses for accrual
accounting of
interest................................... (18) (37) (18) (18)
Change in deferred income taxes.............. 23 (1,233) (68) (68)
----- ----- ----- -----
Net income according to generally accepted
accounting principles in the United States... 1,216 7,014 2,554 2,812
===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1994 1995 1996
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Reconciliation of balance sheets:
Shareholders' equity established according to the Commercial
Law of Sweden............................................ 2,723 6,767 9,618
Adjustments:
On accounts receivables for December 1995 sales
unbilled............................................... -- 3,255 --
On computer and telecom equipment for reclassification of
leased object to capital lease and for equipment
recorded as costs...................................... 2,825 2,255 1,638
On accrued expenses for accrual accounting of interest... (18) (55) (73)
On long-term debt for liability to owner of capitalized
equipment.............................................. (2,639) (883) (5)
Change in deferred income taxes.......................... 23 (1,210) (367)
----- ------ -----
Shareholders' equity established according to generally
accepted accounting principles in the United States...... 2,914 10,129 10,811
===== ====== =====
</TABLE>
F-22
<PAGE> 70
DATASVAR SUPPORT AB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 -- STATEMENTS OF CASH FLOWS
Swedish GAAP does not require statements of cash flows in financial
statements. Listed below are summary statements of cash flows that would be
reported in a statement of cash flows prepared in accordance with accounting
principles generally accepted in the United States and expressed in SEK (000's).
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------- SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, ---------------------------
1993 1994 1995 JULY 2, JUNE 30,
------------ ------------ ------------ 1995 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income.................. 812 1,146 7,014 255 2,812
Net cash (used for) provided
by operating activities... 5,218 (919) 2,613 1,336 4,941
Net cash used for investing
activities................ (3,766) (3,281) (3,757) (1,500) (4,630)
Net cash provided by (used
for) financing
activities................ 1,749 6,660 3,713 1,067 (1,972)
Net increase (decrease) in
cash...................... 3,201 2,460 2,569 903 (1,661)
Cash and cash equivalents at
beginning of year......... -- 3,201 5,661 5,661 8,230
------- ------- ------- ------- -------
Cash and cash equivalents at
end of year............... 3,201 5,661 8,230 6,564 6,569
======= ======= ======= ======= =======
Supplemental disclosures of
cash flow information:
Cash paid during the year
for:
Interest............... 326 158 165
Income Tax............. 0 8 521
</TABLE>
F-23
<PAGE> 71
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of DiagSoft, Inc.
We have audited the accompanying consolidated balance sheets of DiagSoft,
Inc. as of December 31, 1994 and 1995, and the related consolidated statements
of operations, changes in shareholders' deficit, and cash flows for the years
ended July 31, 1993 and 1994, the five months ended December 31, 1994, and the
year ended December 31, 1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
DiagSoft, Inc. as of December 31, 1994 and 1995, and the consolidated results of
their operations and their cash flows for the years ended July 31, 1993 and
1994, the five months ended December 31, 1994, and the year ended December 31,
1995, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Tampa, Florida
August 2, 1996
F-24
<PAGE> 72
DIAGSOFT, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1994 1995 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 570,848 $ 108,341 $ 184,157
Receivables, including unbilled, net................. 549,565 648,588 938,463
Prepaid assets....................................... 88,594 8,693 60,254
Shareholder receivable............................... -- 25,478 479,990
---------- ---------- ----------
Total current assets......................... 1,209,007 791,100 1,662,864
Property and equipment, net............................ 232,327 210,337 229,183
Deferred tax asset, net................................ 100,047 116,793 90,438
Investments............................................ -- 9,671 9,671
Refundable income taxes................................ -- -- --
Other assets........................................... 9,155 16,422 18,616
---------- ---------- ----------
Total assets................................. $1,550,536 $1,144,323 $ 2,010,772
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable..................................... $ 759,728 $ 547,709 $ 376,291
Revolving credit note................................ -- 250,000 --
Current portion of long-term debt and capital
leases............................................ 15,344 30,675 32,059
Income taxes payable................................. -- 25,914 304,333
Deferred revenue..................................... 550,000 -- 158,000
Accrued expenses..................................... 757,683 1,087,711 1,466,266
---------- ---------- ----------
Total current liabilities.................... 2,082,755 1,942,009 2,336,949
Long-term debt and capital leases, net of current...... 33,186 7,541 --
Shareholder loan....................................... 127,413 -- --
---------- ---------- ----------
Total liabilities............................ 2,243,354 1,949,550 2,336,949
Commitments and contingencies (Notes 4 and 9)
Shareholders' deficit:
Capital stock -- 2,000,000 shares authorized, no par,
650,000 shares issued and outstanding............. 189,385 189,385 189,385
Accumulated deficit.................................. (882,203) (994,612) (515,562)
---------- ---------- ----------
Total shareholders' deficit.................. (692,818) (805,227) (326,177)
---------- ---------- ----------
Total liabilities and shareholders'
deficit.................................... $1,550,536 $1,144,323 $ 2,010,772
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-25
<PAGE> 73
DIAGSOFT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FIVE MONTHS
YEARS ENDED JULY 31, ENDED YEAR ENDED SIX MONTHS ENDED
------------------------ DECEMBER 31, DECEMBER 31, --------------------------
1993 1994 1994 1995 JULY 2, JUNE 30,
---------- ---------- ------------ ------------ 1995 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Software sales......................... $4,582,632 $3,806,215 $1,360,987 $3,685,864 $ 1,825,890 $ 1,808,207
Royalties.............................. 592,538 1,455,230 473,484 2,395,129 1,131,311 2,008,089
Other miscellaneous revenues........... 18,805 6,395 123,441 75,531 66,540 67,650
---------- ---------- ---------- ---------- ---------- ----------
Total revenues................ 5,193,975 5,267,840 1,957,912 6,156,524 3,023,741 3,883,946
---------- ---------- ---------- ---------- ---------- ----------
Cost of sales.......................... 689,043 488,063 129,453 318,898 221,669 131,266
Research and development costs......... 398,473 539,596 281,806 617,444 322,434 238,879
Marketing, selling, general and
administration....................... 4,119,118 4,065,210 1,674,908 5,036,057 2,550,548 2,429,830
---------- ---------- ---------- ---------- ---------- ----------
Total operating costs......... 5,206,634 5,092,869 2,086,167 5,972,399 3,094,651 2,799,975
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from
operations.................. (12,659) 174,971 (128,255) 184,125 (70,910) 1,083,971
---------- ---------- ---------- ---------- ---------- ----------
Other income........................... 20,000 5,000 -- -- -- --
Gain (loss) on asset disposal.......... (2,727) -- 1,548 (71,385) (15,672) --
Interest income (expense).............. -- 131 29,427 (44,397) (26,313) (12,639)
---------- ---------- ---------- ---------- ---------- ----------
Total other income
(expense)................... 17,273 5,131 30,975 (115,782) (41,985) (12,639)
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes/
(benefit)............................ 4,614 180,102 (97,280) 68,343 (112,895) 1,071,332
---------- ---------- ---------- ---------- ---------- ----------
Current provision for income taxes..... 77,275 149,572 72,590 197,498 9,857 591,391
Deferred provision (benefit) for income
taxes................................ 49,493 109,954 (12,179) (16,746) (28,848) 891
---------- ---------- ---------- ---------- ---------- ----------
Total tax provision
(benefit)................... 126,768 259,526 60,411 180,752 (18,991) 592,282
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)............. $ (122,154) $ (79,424) $ (157,691) $ (112,409) $ (93,904) $ 479,050
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-26
<PAGE> 74
DIAGSOFT, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
SHARES AMOUNT DEFICIT
--------- --------- -----------
<S> <C> <C> <C>
Balance, August 1, 1992..................................... 1,000,000 $ 289,385 $(522,934)
Net loss for the year ended July 31, 1993................... -- -- (122,154)
--------- --------- ---------
Balance, July 31, 1993...................................... 1,000,000 289,385 (645,088)
Stock redemption............................................ (350,000) (100,000) --
Net loss for the year ended July 31, 1994................... -- -- (79,424)
--------- --------- ---------
Balance, July 31, 1994...................................... 650,000 189,385 (724,512)
Net loss for the five months ended December 31, 1994........ -- -- (157,691)
--------- --------- ---------
Balance, December 31, 1994.................................. 650,000 189,385 (882,203)
Net loss for the year ended December 31, 1995............... -- -- (112,409)
--------- --------- ---------
Balance, December 31, 1995.................................. 650,000 189,385 (994,612)
Net income for the six months ended June 30, 1996
(unaudited)............................................... -- -- 479,050
--------- --------- ---------
Balance, June 30, 1996 (unaudited).......................... 650,000 $ 189,385 $(515,562)
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE> 75
DIAGSOFT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FIVE MONTHS
YEARS ENDED JULY 31, ENDED YEAR ENDED SIX MONTHS ENDED
--------------------- DECEMBER 31, DECEMBER 31, -------------------------
1993 1994 1994 1995 JULY 2, JUNE 30,
--------- --------- ------------ ------------ 1995 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................. $(122,154) $ (79,424) $ (157,691) $ (112,409) $ (93,904) $ 479,050
Depreciation and amortization................. 77,068 83,220 30,781 133,690 76,688 47,244
Deferred income taxes......................... 49,493 109,954 (12,179) (16,746) (28,848) 891
Provision for bad debts....................... 8,253 16,155 20,000 21,653 -- 11,550
(Gain) loss on disposal of property and
equipment................................... 2,727 -- (1,548) 71,385 -- --
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable................................ (40,832) 8,986 (78,015) (120,676) 168,823 (301,425)
(Increase) decrease in prepaid expenses..... (29,463) 32,275 (52,143) 79,901 57,089 (51,561)
Increase in shareholder receivable.......... -- -- -- (25,478) (25,478) (454,512)
Increase in income taxes receivable......... -- -- -- -- (27,905) --
(Increase) decrease in other assets......... (6,638) 150 5,150 (7,267) -- (2,194)
Increase (decrease) in accounts payable..... 31,543 247,300 144,966 (212,019) (30,445) (171,418)
Increase (decrease) in accrued expenses..... 274,832 365,412 40,012 330,028 (431,806) 404,019
Increase (decrease) in deferred revenue..... -- -- 550,000 (550,000) -- 158,000
Increase (decrease) in income taxes
payable................................... 14,191 -- -- 25,914 -- 278,419
--------- --------- --------- --------- --------- ---------
Net cash provided by (used for) operating
activities.................................... 259,020 784,028 489,333 (382,024) (335,786) 398,063
--------- --------- --------- --------- --------- ---------
Cash flows from investing activities:
Capital expenditures.......................... (111,920) (93,941) (31,805) (183,085) (103,808) (66,090)
Proceeds from sale of assets.................. -- -- 1,548 -- -- --
Purchase of investment........................ -- -- -- (9,671) (9,671) --
--------- --------- --------- --------- --------- ---------
Net cash used in investing activities........... (111,920) (93,941) (30,257) (192,756) (113,479) (66,090)
--------- --------- --------- --------- --------- ---------
Cash flows from financing activities:
Borrowings under revolving line of credit
agreement................................... -- -- -- 640,000 -- --
Paydowns under revolving line of credit
agreement................................... -- -- -- (390,000) -- (250,000)
Stock buyout.................................. -- (100,000) -- -- -- --
Payments on shareholder loan.................. -- (644,738) (5,000) (127,413) (89,295) --
Advances under shareholder loan............... -- -- 32,151 -- -- --
Principal payments on capital losses.......... (6,134) (7,620) (3,698) (10,314) (4,905) (6,157)
--------- --------- --------- --------- --------- ---------
Net cash provided by (used for) financing
activities.................................... (6,134) (752,358) 23,453 112,273 (94,200) (256,157)
--------- --------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents................................... 140,966 (62,271) 482,529 (462,507) (543,465) 75,816
Cash and cash equivalents, beginning............ 9,624 150,590 88,319 570,848 570,848 108,341
--------- --------- --------- --------- --------- ---------
Cash and cash equivalents, ending............... $ 150,590 $ 88,319 $ 570,848 $ 108,341 $ 27,383 $ 184,157
========= ========= ========= ========= ========= =========
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest.................................... $ -- $ -- $ -- $ --
Income taxes................................ $ 800 $ 800 $ 800 $ 48,900
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE> 76
DIAGSOFT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Company Operations -- DiagSoft, Inc. (DiagSoft) was organized on November
19, 1987 as a California corporation. It has purchased and developed proprietary
software products that perform analytical diagnostics on personal computers.
DiagSoft has pursued the further development and sale of the software to
various customers including personal computer manufacturers, large site licensed
users and single user retail customers. In addition, DiagSoft contracts on a fee
basis with various customers to provide custom services related to its software.
At December 31, 1995, the entities comprising the consolidated Company
include DiagSoft, Inc. and MAST, Inc., which is primarily engaged in the
development, design, manufacturing, and marketing of Neural Networks software
(collectively referred to as the Company).
Principles of Consolidation -- All significant intercompany transactions
and balances have been eliminated from these consolidated financial statements.
Interim Financial Statements -- The unaudited financial statements as of
June 30, 1996, and for the six months ended July 2, 1995 and June 30, 1996, in
the opinion of management include all adjustments (consisting of only normal
recurring accruals) necessary for a fair presentation of such information. The
results of operations for the six months ended June 30, 1996 are not necessarily
indicative of the results for the full year.
Changes in Fiscal Year -- The Company changed its fiscal year-end from July
31 to December 31 effective August 1, 1994. The consolidated statements of
income, changes in shareholder's equity, and cash flows for the years ended July
31, 1993 and 1994, the five months ended December 31, 1994 and the year ended
December 31, 1995 are presented in the accompanying consolidated financial
statements.
Cash and Cash Equivalents -- Cash and cash equivalents consist of
investments with original maturities of three months or less.
Property and Equipment -- Property and equipment is recorded at cost and
depreciation is computed using accelerated methods over the estimated useful
lives of the related assets. Improvements to leased premises are amortized over
the shorter of the related lease term or the useful lives of the improvements.
Cost and related accumulated depreciation on assets retired or disposed of are
removed from the accounts and any gains or losses resulting therefrom are
credited or charged to income. Depreciation expense was approximately $77,100,
$83,200, $30,800 and $133,700 for the years ended July 31, 1993 and 1994, the
five months ended December 31, 1994 and the year ended December 31, 1995,
respectively.
Software Development Costs and Acquired Product Rights -- The Company
reviews the cost of certain product rights acquired from others, internal
software development and major enhancements of existing software for
capitalization. Such capitalized software development costs are reviewed
annually for net realizable value. Costs of software development associated with
contracts are expensed as contract revenue is recognized. Costs of software
support and maintenance are expensed as incurred.
Revenue Recognition
Software sales -- Revenue from software sales is recognized upon shipment
of the software. Some sales are shipped on COD basis or sold on open account,
giving rise to accounts receivable. Costs associated with software sales are
recognized at the time of sale. Retail software products are often sold subject
to the right of return by the customer. A reasonable estimate of those returns
is provided in the allowance for doubtful accounts.
Customer services -- Revenues from customer services contracts are
recognized on the percentage of completion method as the work is completed.
Where customer services are provided in connection with a
F-29
<PAGE> 77
DIAGSOFT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
software sale, but not separately billed, costs associated with the software
development for those services are expensed when incurred. The related software
sales revenue recognition policy is discussed above.
Royalties -- Royalty income is recognized at the time that royalties are
earned. Prepaid royalties result form advanced payments of royalties for future
sales.
Cooperative Advertising -- The Company offers a cooperative advertising
program to one of its distributors whereby the Company's products receive
marketing visibility through ads, brochures and catalogs paid for by the
distributor in exchange for certain predetermined credits that can be deducted
by the distributor from amounts due to the Company. Cooperative advertising
costs are accrued at the maximum rates allowed under the respective distribution
agreements and are expensed as product sales are recognized in revenue.
Income Taxes -- Deferred income taxes are recorded to reflect the tax
consequences on future years of differences between the tax basis of assets and
liabilities and their financial reporting amounts at each year end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income.
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. Actual results could differ from those estimates;
however, management does not believe these differences would have a material
impact on operating results.
Future Accounting Requirements -- Statement of Financial Accounting
Standard (SFAS) No. 121, "Accounting for the Impairment of Long Lived Assets and
for Long Lived Assets To Be Disposed Of," is effective for years beginning after
December 15, 1995. This statement requires that long-lived assets and certain
intangibles to be held and used by the Company be reviewed for impairment. This
pronouncement is not expected to have a material impact on the financial
statements of the Company.
NOTE 2 -- RECEIVABLES
Receivables consist of the following at December 31, 1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Trade accounts receivable..................................... $462,167 $326,867
Unbilled accounts receivable.................................. 153,983 365,450
Other......................................................... 10,504 77,269
--------- --------
626,654 769,586
Less allowance for doubtful accounts..................... 77,089 120,998
--------- --------
$549,565 $648,588
========= ========
</TABLE>
F-30
<PAGE> 78
DIAGSOFT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31, 1994 and 1995 is as
follows:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Machinery and equipment...................................... $ 428,314 $ 316,673
Furniture and fixtures....................................... 30,598 36,110
Automobiles.................................................. 77,588 13,531
Software..................................................... 108,482 136,892
Leasehold improvements....................................... 3,412 --
--------- ---------
648,394 503,206
Less accumulated depreciation........................... (416,067) (292,869)
--------- ---------
$ 232,327 $ 210,337
========= =========
</TABLE>
NOTE 4 -- INDEBTEDNESS AND CAPITALIZED LEASES
A summary of long-term debt and current maturities at December 31, 1994 and
1995 consisted of the following:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Capital lease of automobile and office equipment with lease
periods expiring through August 1997, at interest rates of
21.95%...................................................... $ 43,530 $ 33,216
Other......................................................... 5,000 5,000
-------- --------
48,530 38,216
Less current portion..................................... (15,344) (30,675)
-------- --------
$ 33,186 $ 7,541
======== ========
</TABLE>
The Company conducts its operations in Scotts Valley, California from
facilities that are leased under a seven-year noncancelable operating lease
expiring in December 1996. Terms of the lease provide for initial monthly rental
of $7,073 with annual CPI adjustment to the monthly rent of between 4% and 8% on
each anniversary date. In May of 1991, an amendment was made to the lease
agreement to increase the amount of space leased by the Company and, therefore,
increased the monthly rental to $9,403 beginning June 1, 1991.
In October 1995, the Company entered into a three-year noncancelable
operating lease for office space in Tampa, Florida. The monthly base rent is
$4,000 per month for the first year, $6,000 per month for the second year, and
$8,000 per month for the third year.
Minimum annual payments for the five years subsequent to 1995 and in the
aggregate are:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31, LEASES LEASES
---------------------------------------------------------------- ------- ---------
<S> <C> <C>
1996.......................................................... $31,075 $ 219,300
1997.......................................................... 6,871 96,000
1998.......................................................... -- 72,000
1999.......................................................... -- --
2000.......................................................... -- --
Thereafter.................................................... -- --
------- --------
37,946 $ 387,300
========
Less amounts representing interest.............................. (4,730)
-------
Present value of net minimum lease values....................... $33,216
=======
</TABLE>
F-31
<PAGE> 79
DIAGSOFT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- INDEBTEDNESS AND CAPITALIZED LEASES -- (CONTINUED)
Amortization on leased assets charged to operations was approximately
$14,600, $14,600, $6,100, and $14,600 for the years ended July 31, 1993 and
1994, the five months ended December 31, 1994 and the year ended December 31,
1995, respectively. Rent expense for the years ended July 31, 1993 and 1994, the
five months ended December 31, 1994 and the year ended December 31, 1995 was
$218,200, $233,200, $110,100, and $311,500, respectively.
At December 31, 1995, the Company's bank credit agreement provided for
borrowings of up to $250,000 under a revolving credit note. The rate of interest
on borrowings under the revolving credit note is at the prime rate plus 2.0%
(prime was 8.5% at December 31, 1995). Interest is payable monthly. This
agreement expires in 1996, and may be extended on an annual basis subject to
mutual agreement. The loan agreement requires the Company to maintain certain
financial ratios among other things. Collateral includes inventory, accounts
receivable, equipment and general intangibles together with the personal
guarantee of the sole shareholder of the Company. At December 31, 1995, the
Company had no available credit under this agreement.
NOTE 5 -- INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary timing
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax liability and assets as of December 31,
1994 and 1995, respectively, are as follows:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Deferred tax assets:
R&D credits.................................................. $ 71,462 $ 25,464
Bad debt reserve............................................. 30,942 48,566
Accrued expenses............................................. -- 36,377
Other........................................................ -- 6,386
-------- --------
102,404 116,793
Deferred tax liabilities:
Other........................................................ (2,357) --
-------- --------
$100,047 $116,793
======== ========
</TABLE>
The income tax provision is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31, 1993 YEAR ENDED JULY 31, 1994
--------------------------------- ---------------------------------
FEDERAL STATE TOTAL FEDERAL STATE TOTAL
-------- ------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Current............ $ 76,475 $ 800 $ 77,275 $142,119 $ 7,453 $149,572
Deferred........... 27,986 21,507 49,493 67,232 42,722 109,954
-------- ------- -------- -------- ------- --------
$104,461 $22,307 $126,768 $209,351 $50,175 $259,526
======== ======= ======== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
FIVE MONTHS ENDED DECEMBER 31,
1994 YEAR ENDED DECEMBER 31, 1995
--------------------------------- ---------------------------------
FEDERAL STATE TOTAL FEDERAL STATE TOTAL
-------- ------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Current............ $ 60,209 $12,381 $ 72,590 $141,594 $55,904 $197,498
Deferred........... (8,751) (3,428) (12,179) (2,208) (14,538) (16,746)
-------- -------- -------- ------- ------- --------
$ 51,458 $ 8,953 $ 60,411 $139,386 $41,366 $180,752
======== ======== ======== ======= ======= ========
</TABLE>
F-32
<PAGE> 80
DIAGSOFT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- INCOME TAXES -- (CONTINUED)
The effective tax rate differs from statutory tax rates as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JULY 31, 1993 JULY 31, 1994
----------------- -----------------
<S> <C> <C>
Statutory federal tax rate......................... $ 1,569 $ 61,235
State income taxes, net of federal tax benefits.... 281 10,986
Permanent differences.............................. 175,759 244,551
Tax credits........................................ (50,841) (57,246)
-------- --------
$ 126,768 $ 259,526
======== ========
</TABLE>
<TABLE>
<CAPTION>
FIVE MONTHS ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Statutory federal tax rate......................... $ (33,075) $ 23,237
State income taxes, net of federal tax benefit..... (5,934) 4,169
Permanent differences.............................. 142,427 243,555
Tax credits........................................ (43,007) (90,209)
-------- --------
$ 60,411 $ 180,752
======== ========
</TABLE>
In the opinion of management, adequate provision has been made for all
income taxes and any related liabilities that may arise for prior periods as a
result of potential examination by various tax authorities.
NOTE 6 -- BUSINESS AND CREDIT CONCENTRATIONS
Accounts receivable potentially expose the Company to concentrations of
credit risk, as defined by Statement of Financial Accounting Standards No. 105,
"Disclosures of Information About Financial Instruments with Concentrations of
Credit Risk." The Company provides credit, in the normal course of business, to
computer hardware manufacturers, value-added distributors and retailers. The
Company's five largest customers accounted for approximately 50% of net sales in
1995 and approximately 73% of gross accounts receivable at December 31, 1995.
The Company performs on-going credit evaluations of its customers and maintains
allowances for potential credit losses.
NOTE 7 -- DEFINED CONTRIBUTION PLAN
Effective July 1, 1994, the Company established a 401(k) profit sharing
plan. All employees who meet the minimum age requirement of 20 1/2 and have
completed 1,000 hours of service are eligible to participate. The Company has
the option of making a discretionary contribution at the end of the plan year.
Such amount, if any, will be allocated proportionately based on total
compensation of all eligible participants. All deferral contributions will be
immediately 100% vested. The discretionary contribution, if any, will be vested
at 20% after 2 years, 40% after 3 years, 60% after 4 years, 80% after 5 years,
and 100% after 6 or more years of credited service. The Company made no
contributions during 1994 or 1995.
NOTE 8 -- MINORITY INTEREST REPURCHASE
During March 1994, the Company redeemed 350,000 shares of capital stock
held by the minority shareholder, Intel Corporation. In addition, a $750,000
note was paid, in part, in the amount of $400,000 and the remaining $350,000
balance was assigned by Intel Corporation to the remaining sole shareholder as
part of the settlement agreement.
F-33
<PAGE> 81
DIAGSOFT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
The Company is subject to various investigations, claims and legal
procedures covering a wide range of matters that arise in the ordinary course of
its business activities. These matters are subject to various uncertainties and
some of these matters may be resolved unfavorably to the Company. The Company
has established amounts for such matters. Management believes that any liability
that may ultimately result from these matters in excess of amounts provided will
not have a material adverse effect on the financial position of the Company.
F-34
<PAGE> 82
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Sykes Enterprises, Incorporated
We have audited the accompanying supplemental consolidated balance sheets
of Sykes Enterprises, Incorporated as of December 31, 1994 and 1995 and the
related supplemental consolidated statements of operations, changes in
shareholders' equity and cash flows for the years ended July 31, 1993 and 1994,
the five months ended December 31, 1994, and the year ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The supplemental financial statements give retroactive effect to the merger
of Sykes Enterprises, Incorporated with Datasvar Support AB and DiagSoft, Inc.
on July 16, 1996 and August 30, 1996, respectively, which have been accounted
for as a pooling of interests as described in Note 2 to the supplemental
consolidated financial statements. Generally accepted accounting principles
proscribe giving effect to a consummated business combination accounted for
under the pooling-of-interests method of accounting in financial statements that
do not include the date of consummation. These financial statements do not
extend through the date of consummation; however, they will become the
historical consolidated financial statements of Sykes Enterprises, Incorporated
after the financial statements covering the date of consummation of the business
combination are issued.
In our opinion, the supplemental financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Sykes Enterprises, Incorporated as of December 31, 1994 and 1995, and the
consolidated results of their operations and their cash flows for the years
ended July 31, 1993 and 1994, the five months ended December 31, 1994, and the
year ended December 31, 1995, in conformity with generally accepted accounting
principles applicable after financial statements are issued for a period which
includes the date of consummation of the business combination.
COOPERS & LYBRAND L.L.P.
Tampa, Florida
September 16, 1996
F-35
<PAGE> 83
SYKES ENTERPRISES, INCORPORATED
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- JUNE 30,
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents......................... $ 1,594,398 $ 1,752,978 $ 1,261,296
Temporary investments............................. 487,744 849,502 26,436,320
Receivables, including unbilled................... 11,306,634 16,744,039 20,809,667
Refundable income taxes........................... 407,627 602,197 607,186
Prepaid expenses and other current assets......... 1,194,890 1,047,955 1,668,515
----------- ----------- -----------
Total current assets........................... 14,991,293 20,996,671 50,782,984
Property and equipment, net......................... 12,164,226 24,384,987 27,931,192
Deferred income taxes............................... -- 11,034 249,438
Deferred charges and other assets................... 1,131,222 758,651 886,013
----------- ----------- -----------
Total assets.............................. $28,286,741 $46,151,343 $79,849,627
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current installments of long-term debt............ $ 678,445 $ 1,566,645 $ 59,130
Accounts payable.................................. 2,652,265 6,221,965 4,183,352
Accrued employee compensation and benefits........ 2,395,148 5,849,096 6,169,569
Income taxes payable.............................. 70,697 186,221 2,667,766
Deferred income taxes............................. 1,974,000 3,366,000 283,080
Other accrued expenses and current liabilities.... 2,198,769 2,756,561 2,649,284
----------- ----------- -----------
Total current liabilities...................... 9,969,324 19,946,488 16,012,181
Long-term debt...................................... 6,987,450 8,589,530 257,249
Deferred income taxes............................... 176,361 -- 2,070,587
Deferred grants..................................... 2,876,923 6,751,782 8,105,654
Commitments and contingencies (Note 8)
Shareholders' equity
Preferred stock, $0.01 par value, 10,000,000
shares authorized; no shares issued and
outstanding.................................... -- -- --
Common stock, $0.01 par value, 50,000,000 shares
authorized; 13,998,408, 14,121,819 and
20,026,498 shares issued and outstanding....... 93,323 94,145 200,265
Additional paid-in capital........................ 666,470 692,510 45,959,907
Retained earnings................................. 7,611,930 10,008,015 7,207,344
Accumulated foreign currency translation
adjustments.................................... (95,040) 68,873 36,440
----------- ----------- -----------
Total shareholders' equity..................... 8,276,683 10,863,543 53,403,956
----------- ----------- -----------
Total liabilities and shareholders'
equity.................................. $28,286,741 $46,151,343 $79,849,627
=========== =========== ===========
</TABLE>
See accompanying notes to supplemental consolidated financial statements
F-36
<PAGE> 84
SYKES ENTERPRISES, INCORPORATED
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FIVE MONTHS SIX MONTHS ENDED
YEARS ENDED JULY 31, ENDED YEAR ENDED -------------------------
------------------------- DECEMBER 31, DECEMBER 31, JULY 2, 1996
1993 1994 1994 1995 1995 JUNE 30,
----------- ----------- ------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues......................... $56,911,959 $55,589,334 $ 21,612,513 $ 74,594,634 $33,075,273 $52,467,150
Operating expenses
Direct salaries and related
costs....................... 36,487,194 35,362,219 14,157,479 44,592,380 20,315,628 29,440,832
General and administrative..... 18,552,525 18,785,692 7,242,028 25,231,077 10,953,087 16,709,580
----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses.... 55,039,719 54,147,911 21,399,507 69,823,457 31,268,715 46,150,412
----------- ----------- ----------- ----------- ----------- -----------
Income from operations........... 1,872,240 1,441,423 213,006 4,771,177 1,806,558 6,316,738
Other income (expense)
Interest....................... (83,516) (134,657) (192,170) (726,142) (344,203) (250,282)
Other.......................... (80,372) (115,127) (83,662) (1,652) 54,675 69,092
----------- ----------- ----------- ----------- ----------- -----------
Total other expense......... (163,888) (249,784) (275,832) (727,794) (289,528) (181,190)
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes.......................... 1,708,352 1,191,639 (62,826) 4,043,383 1,517,030 6,135,548
Provision for income taxes
Current........................ 1,258,248 (176,906) 63,852 817,044 229,413 1,280,814
Deferred....................... (270,507) 758,954 28,821 830,254 344,152 1,151,891
----------- ----------- ----------- ----------- ----------- -----------
Total provision for income
taxes..................... 987,741 582,048 92,673 1,647,298 573,565 2,432,705
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)................ 720,611 609,591 (155,499) 2,396,085 943,465 3,702,843
Preferred stock dividends........ -- -- -- -- -- 47,343
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) applicable to
common shareholders............ $ 720,611 $ 609,591 $ (155,499) $ 2,396,085 $ 943,465 $ 3,655,500
=========== =========== =========== =========== =========== ===========
Pro forma income data
(unaudited):...................
Income (loss) before income
taxes.......................... $ 1,708,352 $ 1,191,639 $ (62,826) $ 4,043,383 $ 1,517,030 $ 6,135,548
Pro forma provision for
income taxes relating to
S corporation.................. -- 15,000 23,500 172,000 64,000 67,000
Actual provision for income
taxes.......................... 987,741 582,048 92,673 1,647,298 573,565 2,432,705
----------- ----------- ----------- ----------- ----------- -----------
Total provision and pro
forma provision for income
(loss) taxes.............. 987,741 597,048 116,173 1,819,298 637,565 2,499,705
----------- ----------- ----------- ----------- ----------- -----------
Pro forma net income (loss)...... 720,611 594,592 (178,999) 2,224,085 879,465 3,635,843
Preferred stock dividends........ -- -- -- -- -- 47,343
----------- ----------- ----------- ----------- ----------- -----------
Pro forma net income (loss)
applicable to common
shareholders................... $ 720,611 $ 594,592 $ (178,999) $ 2,224,085 $ 879,465 $ 3,588,500
=========== =========== =========== =========== =========== ===========
Pro forma net income (loss)
per share...................... $ 0.04 $ 0.04 $ (0.01) $ 0.13 $ 0.05 $ 0.20
=========== =========== =========== =========== =========== ===========
Pro forma weighted average common
and common equivalent shares
outstanding.................... 16,873,981 16,873,981 16,873,981 16,873,981 16,873,981 18,306,538
</TABLE>
See accompanying notes to supplemental consolidated financial statements
F-37
<PAGE> 85
SYKES ENTERPRISES, INCORPORATED
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
FOREIGN
COMMON STOCK ADDITIONAL CURRENCY
--------------------- PAID-IN RETAINED TRANSLATION
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENTS
---------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at August 1, 1992..................... 14,300,166 $143,001 $ 365,558 $ 6,437,227 $ (3,414)
Net income.................................. -- -- -- 720,611 --
---------- -------- ----------- ---------- --------
Balance at July 31, 1993...................... 14,300,166 143,001 365,558 7,157,838 (3,414)
Contribution to capital..................... -- -- 350,000 -- --
Redemption of common stock.................. (363,462) (3,634) (96,366) -- --
Issuance of common stock.................... 61,704 617 (205) -- --
Foreign currency translation adjustment..... -- -- -- -- (95,428)
Net income.................................. -- -- -- 609,591 --
---------- -------- ----------- ---------- --------
Balance at July 31, 1994...................... 13,998,408 139,984 618,987 7,767,429 (98,842)
Foreign currency translation adjustment..... -- -- -- -- 3,802
Net income.................................. -- -- -- (155,499) --
---------- -------- ----------- ---------- --------
Balance at December 31, 1994.................. 13,998,408 139,984 618,987 7,611,930 (95,040)
Issuance of common stock.................... 41,342 413 27,271 -- --
Stock dividend.............................. 82,069 821 (821)
Foreign currency translation adjustment..... -- -- -- -- 163,913
Net income.................................. -- -- -- 2,396,085 --
---------- -------- ----------- ---------- --------
Balance at December 31, 1995.................. 14,121,819 141,218 645,437 10,008,015 68,873
Merger with Sykes Realty, Inc.
(unaudited).............................. 1,220,000 12,200 253,366 (773,454) --
Conversion of redeemable preferred stock
(unaudited).............................. 298,686 2,987 5,373,365 (5,376,352) --
Issuance of common stock (unaudited)........ 2,417,768 24,178 39,707,421 -- --
Three-for-two stock split (unaudited)....... 1,968,225 19,682 (19,682) -- --
Distribution (unaudited).................... -- -- -- (306,365) --
Foreign currency translation adjustment
(unaudited).............................. -- -- -- -- (32,433)
Preferred stock dividends (unaudited)....... -- -- -- (47,343) --
Net income (unaudited)...................... -- -- -- 3,702,843 --
---------- -------- ----------- ---------- --------
Balance at June 30, 1996 (unaudited).......... 20,026,498 $200,265 $45,959,907 $ 7,207,344 $ 36,440
========== ======== =========== ========== ========
</TABLE>
See accompanying notes to supplemental consolidated financial statements
F-38
<PAGE> 86
SYKES ENTERPRISES, INCORPORATED
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FIVE MONTHS
YEARS ENDED JULY 31, ENDED YEAR ENDED SIX MONTHS ENDED
--------------------------- DECEMBER 31, DECEMBER 31, ---------------------------
1993 1994 1994 1995 JULY 2, JUNE 30,
------------ ------------ ------------ ------------ 1995 1996
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss)..................... $ 720,611 $ 609,591 $ (155,499 ) $ 2,396,085 $ 943,465 $ 3,702,843
Depreciation and amortization......... 1,076,469 1,430,317 937,351 2,958,053 831,182 2,272,305
Deferred compensation................. -- -- -- 949,960 (6,162) --
Deferred income taxes................. (270,507) 758,954 28,821 830,254 344,152 1,151,891
Loss (gain) on disposal of property
and equipment....................... 20,774 109,877 34,949 43,840 (27,846) (6,590)
Change in assets and liabilities:
Receivables, including unbilled..... 2,111,667 (667,874) (1,272,499 ) (5,323,205) (1,174,776) (4,065,629)
Refundable income taxes............. 33,028 (1,245,720) 561,093 (194,570) 33,810 (4,989)
Prepaid expenses and other current
assets............................ (50,695) (294,377) (629,858 ) 146,935 (218,945) (442,551)
Deferred charges and other assets... (500,410) (275,518) 146,194 42,941 401,243 (281,862)
Accounts payable.................... (411,060) 145,015 930,878 3,569,699 447,979 (2,682,050)
Accrued employee compensation and
benefits.......................... 5,462 664,662 (190,231 ) 2,502,987 626,299 634,014
Income taxes payable................ 147,359 (23,567) 6,213 192,339 (252,227) 329,957
Other accrued expenses and current
liabilities....................... 742,762 559,081 587,350 742,127 (479,751) (714,319)
----------- ----------- ---------- ----------- ----------- -----------
Net cash provided by operating
activities.................... 3,625,460 1,770,441 984,762 8,857,445 1,468,423 (106,980)
----------- ----------- ---------- ----------- ----------- -----------
Cash flows for investing activities
Capital expenditures.................. (1,683,594) (5,080,358) (5,293,027 ) (13,701,584) (2,245,341) (6,195,692)
Acquisition of businesses............. (282,000) (104,000) -- -- -- --
Proceeds from sale of property and
equipment........................... 365,502 67,181 211,218 79,936 73,568 146,590
----------- ----------- ---------- ----------- ----------- -----------
Net cash used for investing
activities.................... (1,600,092) (5,117,177) (5,081,809 ) (13,621,648) (2,171,773) (6,049,102)
----------- ----------- ---------- ----------- ----------- -----------
Cash flows from financing activities
Paydowns under revolving line of
credit agreements................... (21,114,409) (18,563,000) (8,058,000 ) (32,413,539) (12,302,000) (20,121,569)
Borrowings under revolving line of
credit agreements................... 19,184,207 19,043,000 10,383,000 30,573,273 13,184,000 19,706,835
Proceeds from issuance of stock....... (44,479) 32,917 -- 26,861 26,861 39,731,599
Proceeds from grants.................. 87,461 700,987 1,671,093 2,603,485 43,827 1,745,554
Proceeds from issuance of long-term
debt................................ 42,503 3,023,056 1,630,056 5,000,000 -- --
Subsidiary stock redemption........... -- (100,000) -- -- -- --
Payment of long-term debt............. (6,134) (652,358) (258,698 ) (669,452) (542,629) (9,425,061)
Dividends paid........................ -- -- -- -- -- (353,707)
----------- ----------- ---------- ----------- ----------- -----------
Net cash provided by (used for)
financing activities.......... (1,850,851) 3,484,602 5,367,451 5,120,628 410,059 31,283,651
----------- ----------- ---------- ----------- ----------- -----------
Adjustment for foreign currency
translation........................... 0 (95,428) 3,802 163,913 5,138 (32,433)
----------- ----------- ---------- ----------- ----------- -----------
Net increase (decrease) in cash, cash
equivalents and temporary
investments........................... 174,517 42,438 1,274,206 520,338 (288,153) 25,095,136
Cash, cash equivalents and temporary
investments -- beginning.............. 590,981 765,498 807,936 2,082,142 2,082,142 2,602,480
----------- ----------- ---------- ----------- ----------- -----------
Cash, cash equivalents and temporary
investments -- ending................. $ 765,498 $ 807,936 $ 2,082,142 $ 2,602,480 $ 1,793,989 $ 27,697,616
=========== =========== ========== =========== =========== ===========
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest............................ $ 155,495 $ 127,606 $ 225,657 $ 772,368
Income taxes........................ $ 1,114,991 $ 767,535 $ 2,411 $ 816,090
</TABLE>
See accompanying notes to supplemental consolidated financial statements
F-39
<PAGE> 87
SYKES ENTERPRISES, INCORPORATED
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- NATURE OF BUSINESS
Sykes Enterprises, Incorporated and consolidated subsidiaries (the
"Company") provide comprehensive information technology outsourcing services
including information technology support services, consisting of technical
product support and help desk services, and information technology development
services and solutions, consisting of software design, development, integration
and implementation and documentation, foreign language translation and
localization services. The Company's services are provided to a wide variety of
industries.
NOTE 2 -- SUMMARY OF ACCOUNTING POLICIES
Basis of Presentation -- On July 16, 1996, the Company acquired all of the
stock of Datasvar Support AB (Datasvar) in exchange for 246,819 shares of the
Company's voting common stock. In addition, on August 30, 1996, the Company
acquired all of the stock of DiagSoft, Inc. (DiagSoft) in exchange for 675,000
shares of the Company's common stock. The acquisitions will be accounted for
under the pooling-of-interests method of accounting. The supplemental
consolidated financial statements of the Company have been prepared to give
retroactive effect to the mergers. Generally accepted accounting principles
proscribe giving effect to a consummated business combination accounted for
under the pooling-of-interests method of accounting in financial statements that
do not include the date of consummation. These financial statements do not
extend through the date of consummation; however, they will become the
historical consolidated financial statements of the Company after financial
statements covering the date of consummation of the business combinations are
issued.
Principles of Consolidation -- All significant intercompany transactions
and balances have been eliminated from these consolidated financial statements.
Change in Fiscal Year -- The Company changed its fiscal year end from July
31 to December 31 effective August 1, 1994. The consolidated statements of
operations, changes in shareholders' equity, and cash flows for the years ended
July 31, 1993 and 1994, the five months ended December 31, 1994 and the year
ended December 31, 1995 are presented in the accompanying consolidated financial
statements. In addition, the historical information related to Datasvar and
DiagSoft has been recast to conform to the Company's reporting periods.
Interim Financial Statements -- The unaudited financial statements as of
June 30, 1996, and for the six months ended July 2, 1995 and June 30, 1996, in
the opinion of management include all adjustments (consisting of only normal
recurring accruals) necessary for a fair presentation of such information. The
results of operations for the six months ended June 30, 1996 are not necessarily
indicative of the results for the full year.
Recognition of Revenue -- The Company primarily recognizes its revenue for
information technology support services and information technology development
services and solutions as services are performed. Certain of these services are
performed under fixed price contracts and revenue is recognized using the
percentage-of-completion method of accounting. Adjustments to fixed price
contracts and related estimated losses, if any, are recorded in the period when
such adjustments or losses are known. Software sales are recognized upon
shipment.
Cash and Cash Equivalents and Temporary Investments -- Cash and cash
equivalents and temporary investments consist of investments with original
maturities of three months or less.
Shareholder Receivable and Payable -- The Company has recorded a receivable
from its majority shareholder of approximately $728,000 at December 31, 1994 and
a net payable due to its majority shareholder of approximately $671,000 at
December 31, 1995. These amounts have been included in receivables, including
unbilled and accounts payable at December 31, 1994 and 1995, respectively. A
subsidiary of the Company has recorded a loan payable to a shareholder of
approximately $127,000 at December 31, 1994 and a net receivable from the
shareholder of approximately $25,500 at December 31,
F-40
<PAGE> 88
SYKES ENTERPRISES, INCORPORATED
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SUMMARY OF ACCOUNTING POLICIES -- (CONTINUED)
1995. These amounts have been included in long-term debt and current assets at
December 31, 1994 and 1995, respectively.
Property and Equipment -- Property and equipment is recorded at cost and
depreciated using the straight-line and accelerated methods over the estimated
useful lives of the respective assets. Improvements to leased premises are
amortized over the shorter of the related lease term or the useful lives of the
improvements. Cost and related accumulated depreciation on assets retired or
disposed of are removed from the accounts and any gains or losses resulting
therefrom are credited or charged to income. Depreciation expense was
approximately $933,000, $1,338,000, $847,000 and $3,171,000 for the years ended
July 31, 1993 and 1994, the five months ended December 31, 1994 and the year
ended December 31, 1995, respectively.
Land received from various governmental agencies under grants is recorded
at fair value (as determined by an independent appraiser) at date of grant.
During the five months ended December 31, 1994 and the year ended December 31,
1995, the Company recorded approximately $400,000 and $1,824,000, respectively,
in land acquisitions as a result of such grants. Accordingly, these non-cash
transactions have been excluded from the accompanying consolidated statements of
cash flows for the five months ended December 31, 1994 and the year ended
December 31, 1995.
Deferred Charges and Other Assets -- Deferred charges and other assets
consist primarily of long-term deposits, and goodwill and covenants not to
compete arising from business acquisitions. These intangible assets are being
amortized over periods ranging from two to ten years.
Income Taxes -- Deferred income taxes are recorded to reflect the tax
consequences on future years of differences between the tax basis of assets and
liabilities and their financial reporting amounts at each year end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income.
The Company and its consolidated subsidiaries are either taxed as C
corporations or have elected to be taxed as an S corporation under the
provisions of the Internal Revenue Code through the effective date of the
Company's initial public offering (See Note 15). The Company's affiliate which
elected to be taxed as an S corporation is not subject to federal and state
income taxes at the corporate level. Instead, the taxable income of the S
corporation is included in the individual income tax return of the Company's
majority shareholder for federal income tax purposes.
Deferred Grants -- Grants for relocation and the acquisition of property
and equipment are deferred and recognized in income over the corresponding
useful lives of the related property and equipment. There are no significant
contingencies associated with the grants that would impact the Company's ability
to utilize assets received in connection with the grants.
Foreign Currency Translation -- The assets and liabilities of the Company's
foreign subsidiaries whose functional currency is other than the U.S. Dollar are
translated at the exchange rates in effect on the reporting date, and income and
expenses are translated at the weighted average exchange rate during the period.
The net effect of translation gains and losses are not included in determining
net income, but are accumulated as a separate component of shareholders' equity.
Foreign currency translation and losses are included in determining net income.
Such gains and losses were not material for any period presented.
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. Actual results could differ from those estimates;
however, management does not believe these differences would have a material
effect on operating results.
F-41
<PAGE> 89
SYKES ENTERPRISES, INCORPORATED
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SUMMARY OF ACCOUNTING POLICIES -- (CONTINUED)
New Accounting Pronouncements -- In October 1995, the Financial Accounting
Standards Board issued SFAS No. 123, "Accounting for Stock Based Compensation."
With respect to stock options granted to employees, SFAS No. 123 permits
companies to continue using the accounting method promulgated by the Accounting
Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to
Employees," to measure compensation or to adopt the fair value based method
prescribed by SFAS No. 123. If APB No. 25's method is continued, pro forma
disclosures are required as if SFAS No. 123 accounting provisions were followed.
Management has determined not to adopt SFAS No. 123's accounting recognition
provisions. In the opinion of management, SFAS No. 123 is not expected to have a
material impact on the Company's financial statements.
SFAS No. 121, "Accounting for the Impairment of Long Lived Assets and for
Long Lived Assets to be Disposed Of," is effective for years beginning after
December 15, 1995. This statement requires that long-lived assets and certain
intangibles to be held and used by the Company be reviewed for impairment. This
pronouncement is not expected to have a material impact on the financial
statements of the company.
NOTE 3 -- CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables. With the
exception of approximately $1.8 million of receivables from a significant
customer (See Note 12), the Company's credit concentrations are limited due to
the wide variety of customers and markets into which the Company's services are
sold.
NOTE 4 -- RECEIVABLES
Receivables consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1994 1995
------------ ------------
<S> <C> <C>
Trade accounts receivable................................. $ 9,416,121 $ 15,532,420
Unbilled accounts receivable.............................. 935,832 968,331
Notes receivable from officers and related parties........ 728,237 145,000
Other..................................................... 418,840 302,685
----------- -----------
11,499,030 16,948,436
Less allowance for doubtful accounts...................... 192,396 204,397
----------- -----------
$ 11,306,634 $ 16,744,039
=========== ===========
</TABLE>
F-42
<PAGE> 90
SYKES ENTERPRISES, INCORPORATED
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1994 1995
------------ ------------
<S> <C> <C>
Land...................................................... $ 455,000 $ 2,240,746
Buildings and leasehold improvements...................... 5,483,208 9,461,812
Equipment, furniture and fixtures......................... 10,615,904 18,320,509
Transportation equipment.................................. 746,149 538,011
Construction in progress.................................. -- 1,499,363
----------- -----------
17,300,261 32,060,441
Less accumulated depreciation............................. 5,136,035 7,675,454
----------- -----------
$ 12,164,226 $ 24,384,987
=========== ===========
</TABLE>
NOTE 6 -- LONG-TERM DEBT
The Company has a credit facility with NationsBank, N.A. comprised of a $12
million revolving line of credit and a term note issued in the original amount
of $8 million. Availability under the line of credit is based upon a maximum of
85% of eligible receivables. Borrowings accrue interest at prime (8.5% at
December 31, 1995), and a commitment fee of 1/4 of 1% per annum is payable
quarterly on the unused portion. The term note is payable in sixty consecutive
monthly installments of $133,333 beginning April 1, 1996, and accrues interest
on the outstanding principal balance at a floating rate equal to prime. The
credit facility is collateralized by substantially all of the Company's
(excluding Sykes Realty, Inc., Datasvar and DiagSoft) accounts receivable,
property and equipment, and intangible assets, and is guaranteed in an amount
not to exceed $500,000 by the Company's majority shareholder. The agreement
contains restrictive covenants regarding, among other things, annual dividend
payments (limited to 30% of previous year net income), and the Company's
maintenance of tangible net worth, total liabilities and working capital. At
December 31, 1995, the Company was in compliance with, or had received waivers
or amendments through December 31, 1996 regarding all restrictive covenants. The
loan agreement matures June 1, 1997, at which time if the facility is not
renewed, the interest rate associated with the Company's line of credit
increases to prime plus one percent, and all outstanding borrowings, including
the remaining balance of the term note, become due and payable in twelve
consecutive equal installments beginning July 1, 1997. The Company had
borrowings under the credit facility of approximately $5,555,000 and $8,165,000
at December 31, 1994 and 1995, respectively.
During 1994, the Company entered into a loan agreement with a bank in the
principal amount of $1,300,000. Payments are due in monthly installments of
approximately $13,600. Borrowings accrue interest at 9.5% through December 1,
1997, at which time the interest rate is subject to change. At December 31, 1994
and 1995, outstanding amounts under the agreement was approximately $1,300,000
and $1,261,000, respectively.
Other long-term debt structures consist of capital leases of an automobile
and various office equipment with lease periods expiring through August 1997, at
an interest rate of 21.95%. The balance of the capital leases was approximately
$397,000 and $174,000 at December 31, 1994 and 1995, respectively.
A bank credit agreement of one of the Company's subsidiaries had a balance
of $250,000 at December 31, 1995. There were no amounts outstanding under the
credit agreement at December 31, 1994. The credit agreement requires that
interest is payable monthly at an interest rate of prime plus 2.0% and expires
in 1996. At December 31, 1995, the prime rate was 8.5%.
F-43
<PAGE> 91
SYKES ENTERPRISES, INCORPORATED
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- LONG-TERM DEBT -- (CONTINUED)
A foreign subsidiary of the Company had a bank loan with a balance of
approximately $154,000 and $153,000 at December 31, 1994 and 1995, respectively.
The loan agreement has an interest rate of the official discount rate plus 5%.
Principal and interest are payable semi-annually.
A foreign subsidiary of the Company had a loan with a governmental economic
agency with a balance of approximately $154,000 for both December 31, 1995 and
December 31, 1994. The loan agreement has an interest rate of the official
discount rate plus 4.25%. Principal and interest are payable semi-annually.
The following schedule approximates the payments required under the
Company's loan agreements reflecting the use of proceeds from the public
offering subsequent to year-end as discussed in Note 15:
<TABLE>
<CAPTION>
YEAR AMOUNT
------------------------------------------------------------------ --------
<S> <C>
1996.............................................................. $321,000
1997.............................................................. 199,000
1998.............................................................. 56,000
1999.............................................................. 56,000
2000.............................................................. 56,000
Thereafter........................................................ 47,000
</TABLE>
NOTE 7 -- INCOME TAXES
The components of income (loss) before income taxes are as follows:
<TABLE>
<CAPTION>
FIVE MONTHS
ENDED YEAR ENDED
YEARS ENDED JULY 31, DECEMBER 31, DECEMBER 31,
----------------------- ------------ ------------
1993 1994 1994 1995
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Domestic............................... $1,124,776 $ 950,880 $ (8,655) $ 2,438,708
Foreign................................ 583,576 240,759 (54,171) 1,604,675
---------- ---------- -------- ----------
Total income (loss) before income
taxes............................. $1,708,352 $1,191,639 $ (62,826) $ 4,043,383
========== ========== ======== ==========
</TABLE>
Provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FIVE MONTHS
ENDED YEAR ENDED
YEARS ENDED JULY 31, DECEMBER 31, DECEMBER 31,
----------------------- ------------ ------------
1993 1994 1994 1995
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Current:
Federal.............................. $ 817,475 $ (237,881) $ 50,209 $ 292,594
State................................ 185,800 7,453 10,381 80,904
Foreign.............................. 254,973 53,522 3,262 443,546
---------- ---------- -------- ----------
Total current provision for income
taxes........................... 1,258,248 (176,906) 63,852 817,044
---------- ---------- -------- ----------
Deferred:
Federal.............................. (213,014) 770,232 25,249 728,792
State................................ (57,493) (11,278) 3,572 101,462
Foreign.............................. -- -- -- --
---------- ---------- -------- ----------
Total deferred provision for
income taxes.................... (270,507) 758,954 28,821 830,254
---------- ---------- -------- ----------
Total provision for income
taxes........................... $ 987,741 $ 582,048 $ 92,673 $ 1,647,298
========== ========== ======== ==========
</TABLE>
F-44
<PAGE> 92
SYKES ENTERPRISES, INCORPORATED
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- INCOME TAXES -- (CONTINUED)
The components of the net deferred tax asset (liability) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
Current:
Deferred tax asset:
Accounts payable........................................ $ 190,000 $ 428,000
Accrued expenses........................................ 939,000 1,534,000
State operating loss carryforward....................... 18,000 1,000
Other................................................... 277,000 109,000
----------- -----------
Total current deferred tax asset..................... 1,424,000 2,072,000
----------- -----------
Deferred tax liability:
Receivables............................................. (3,356,000) (5,337,000)
State tax refunds....................................... (16,000) (57,000)
Property and equipment.................................. (26,000) (44,000)
----------- -----------
Total current deferred tax liability................. (3,398,000) (5,438,000)
----------- -----------
Net current deferred tax liability................... $(1,974,000) $(3,366,000)
=========== ===========
Non-current:
Deferred tax asset:
Deferred compensation................................... $ -- $ 360,000
R & D credits........................................... 71,462 25,464
Bad debt reserve........................................ 30,942 48,566
Accrued expenses........................................ -- 87,258
State operating loss carryforward....................... 38,000 37,000
Other................................................... 7,039 34,386
----------- -----------
Total non-current deferred tax asset................. 147,443 592,674
----------- -----------
Deferred tax liability:
State tax refunds....................................... (60,000) --
Property and equipment.................................. (237,000) (344,705)
Untaxed reserves -- foreign............................. (24,447) (97,318)
Other................................................... (2,357) (139,617)
----------- -----------
Total non-current deferred tax liability............. (323,804) (581,640)
----------- -----------
Net non-current deferred tax asset (liability)....... $ (176,361) $ 11,034
=========== ===========
</TABLE>
Deferred income taxes applicable to undistributed earnings of foreign
subsidiaries that are indefinitely reinvested in foreign operations are
immaterial. The Company anticipates that no material tax cost will be incurred
on such earnings.
At December 31, 1995, the Company had state net operating loss
carryforwards of approximately $635,000 which expire in 2009.
In conjunction with the Company's initial public offering (See Note 15),
the Company changed its method of accounting for income taxes from the cash
basis to the accrual method. The corresponding adjustment will be included in
taxable income over a period not to exceed four years.
F-45
<PAGE> 93
SYKES ENTERPRISES, INCORPORATED
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- INCOME TAXES -- (CONTINUED)
The following summarizes the principal differences between income taxes at
the federal statutory rate and the effective income tax amounts reflected in the
financial statements:
<TABLE>
<CAPTION>
YEARS ENDED JULY FIVE MONTHS
31, ENDED YEAR ENDED
------------------- DECEMBER 31, DECEMBER 31,
1993 1994 1994 1995
-------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Statutory tax............................. $580,542 $405,310 $ (20,649) $ 1,375,089
State income taxes, net of federal tax
benefit................................. 91,281 36,986 (2,934) 102,169
Effect of income not subject to federal
and state income tax.................... -- (13,000) (21,000) (155,000)
Change in state tax rate.................. -- (67,000) -- --
Foreign taxes, net of foreign income not
taxed in U.S............................ 57,000 (26,533) 21,836 (110,306)
Permanent differences..................... 234,759 321,551 178,427 366,555
Tax credits............................... (50,841) (57,246) (43,007) (90,209)
Other..................................... 75,000 (18,020) (20,000) 159,000
-------- -------- -------- ----------
Total provision for income
taxes......................... $987,741 $582,048 $ 92,673 $ 1,647,298
======== ======== ======== ==========
</TABLE>
The Company is currently under examination by the Internal Revenue Service
for tax years ended July 31, 1991, 1992, 1993 and 1994. The Company has reviewed
various matters that are under consideration and believes that it has adequately
provided for any liability that may result from this examination. In the opinion
of management, any liability that may arise from prior periods as a result of
the examination will not have a material effect on the Company's financial
condition or results of operations.
NOTE 8 -- COMMITMENTS AND CONTINGENCIES
The Company has pledged certain assets as collateral on mortgage loans made
to the Company's majority shareholder. Total loans outstanding at December 31,
1995 was approximately $3,977,000. Subsequent to year-end, an additional
mortgage loan of $800,000, net of repayments, was made to the Company's majority
shareholder.
The Company leases certain equipment and buildings under operating leases
having terms ranging from one to five years. The building leases contain up to
two five year renewal options.
Rental expense under operating leases for the years ended July 31, 1993 and
1994, the five months ended December 31, 1994, and the year ended December 31,
1995 was approximately $1,991,000, $2,411,000, $716,000, and $1,667,000,
respectively. Rental expense related to an office building leased from the
Company's majority shareholder, net of subleases, was approximately $277,000,
$277,000, $45,000 and $104,000 for the years ended July 31, 1993 and 1994, the
five months ended December 31, 1994 and the year ended December 31, 1995,
respectively. In December 1995, the Company signed a ten-year operating lease
agreement with the Company's majority shareholder to lease a corporate aircraft.
The lease expense for 1995 was approximately $51,000.
The Company has a five year noncancelable sublease agreement with an
unrelated tenant for its Charlotte, North Carolina facility. The minimum
sublease rental amounts the Company is to receive are approximately $176,000,
$181,000, $187,000, and $94,000 for the years ended December 31, 1996 through
1999, respectively.
F-46
<PAGE> 94
SYKES ENTERPRISES, INCORPORATED
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
The following is a schedule of future minimum rental payments (without
regard to the North Carolina sublease) under operating leases having a remaining
noncancelable term in excess of one year subsequent to December 31, 1995:
<TABLE>
<CAPTION>
RELATED NON-RELATED TOTAL
YEAR PARTY PARTY AMOUNT
---------------------------------------------- ---------- ---------- -----------
<S> <C> <C> <C>
1996.......................................... $ 855,000 $2,430,000 $ 3,285,000
1997.......................................... 855,000 2,112,000 2,967,000
1998.......................................... 855,000 1,419,000 2,274,000
1999.......................................... 855,000 672,000 1,527,000
2000.......................................... 855,000 620,000 1,475,000
Thereafter.................................... 3,904,000 431,000 4,335,000
---------- ---------- -----------
Total minimum payments required..... $8,179,000 $7,684,000 $15,863,000
========== ========== ===========
</TABLE>
The Company from time to time is involved in legal actions arising in the
ordinary course of business. With respect to these matters, management believes
that it has adequate legal defenses and/or provided adequate accruals for
related costs such that the ultimate outcome will not have a material adverse
effect on the Company's future financial position.
NOTE 9 -- EMPLOYEE BENEFIT PLAN
The Company maintains a 401(k) plan covering defined employees who meet
established eligibility requirements. Under the plan provisions, the Company
matches 25% of participant contributions to a maximum matching amount of 1% of
participant compensation. Company contributions are funded on a bi-weekly basis.
The Company contribution was approximately $70,000, $81,000, $105,000 and
$95,000 for the years ended July 31, 1993 and 1994, the five months ended
December 31, 1994 and the year ended December 31, 1995, respectively. One of the
Company's subsidiary maintains a separate 401(k) plan. There have been no
contributions made to the plan.
NOTE 10 -- STOCK OPTIONS
In connection with an agreement entered into in 1995, the Company granted
options to purchase 762,000 shares of common stock at $4.53 per share to an
executive officer. The Company has determined the per share price was $1.25
below fair market value at the date of grant. As a result, the Company has
recognized compensation expense of $949,960, which is included in general and
administrative expenses in the accompanying consolidated statements of income
for the year ended December 31, 1995. The options granted in connection with the
agreement become exercisable three years from the date of grant, except that up
to one-third are exercisable to the extent that the underlying shares are
permitted to be included by the underwriters in an underwritten public offering
occurring prior thereto. Options expire if not exercised by the tenth
anniversary of their grant date.
F-47
<PAGE> 95
SYKES ENTERPRISES, INCORPORATED
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 -- INTERNATIONAL OPERATIONS
During the year ended July 31, 1994, the Company opened a facility in The
Netherlands. During the year ended December 31, 1995, the Company closed its
office in Canada. During July of 1996, the Company acquired the stock of a
company which has three facilities in Sweden. The acquisition is accounted for
under the pooling of interests method. The effects of these five offices reflect
the international operations of the Company for the periods presented. The
revenue, income (loss) before income taxes and total assets of the Company
associated with international operations are as follows:
<TABLE>
<CAPTION>
FIVE MONTHS
YEARS ENDED JULY 31, ENDED YEAR ENDED
----------------------- DECEMBER 31, DECEMBER 31,
1993 1994 1994 1995
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue................................ $3,742,875 $3,780,146 $2,228,422 $8,126,923
Income (loss) before income taxes...... 583,576 240,759 (54,171) 1,604,675
Total assets........................... 1,788,419 2,743,116 3,839,487 6,442,720
</TABLE>
NOTE 12 -- SIGNIFICANT CUSTOMERS
Two customers comprise 33% of the Company's revenues for the year ended
December 31, 1995. Revenues from one customer amounted to 38%, 30%, 27% and 16%
of the Company's revenues for the years ended July 31, 1993 and 1994, the five
months ended December 31, 1994 and the year ended December 31, 1995,
respectively. Revenues from a new customer amounted to 17% of the Company's
revenues for the year ended December 31, 1995.
NOTE 13 -- PRO FORMA DISCLOSURES (UNAUDITED)
Pro Forma Income Taxes -- An affiliate of the Company had elected to be
treated as an S corporation for federal and state income tax purposes. As such,
the affiliate's taxable income was reported to and subject to tax to the
affiliate's shareholder. Prior to the Company's initial public offering (See
Note 15), the Company's affiliate terminated its S corporation election and
accordingly became subject to federal and state income taxes. The unaudited pro
forma provision for income taxes reported on the consolidated statements of
operations shows approximate federal and state income taxes (by applying
statutory income tax rates) that would have been incurred if the affiliate had
been subject to tax as a C corporation. In addition, the Company changed its
method of accounting for income taxes from the cash basis to the accrual method
in connection with the offering. The corresponding adjustment will be included
in taxable income over a period not to exceed four years.
Pro Forma Net Income Per Share -- In March 1996, the Company was a North
Carolina corporation and amended its Articles of Incorporation to authorize the
issuance of up to 10,000 shares of $1,000 par value per share preferred stock.
At that time, the Company approved a 95-to-1 stock split of all outstanding
common stock. Subsequent to the amendment and stock split, the Company changed
its state of incorporation from North Carolina to Florida and changed the
authorized number of shares of common stock from 100,000 to 50,000,000. As part
of the change of state of incorporation, each share of common stock of the North
Carolina corporation was exchanged for 88 shares (132 shares as adjusted for a
three-for-two stock split, See Note 15 -- Subsequent Events) of common stock of
the Company. All applicable share and per share amounts in the accompanying
financial statements have been retroactively adjusted to reflect these events.
Weighted average common shares outstanding includes the common share
equivalents discussed in Note 10 applying the treasury stock method. In
addition, the calculation includes certain preferred stock issued subsequent to
year end that was converted to common stock immediately prior to the closing of
and sold in the Company's initial public offering. Such shares were deemed
outstanding for all periods presented.
F-48
<PAGE> 96
SYKES ENTERPRISES, INCORPORATED
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 -- PRO FORMA DISCLOSURES (UNAUDITED) -- (CONTINUED)
In addition, the Company issued 1,830,000 shares of common stock as a
result of the merger involving Sykes Realty, Inc. immediately prior to the
offering, which shares were deemed outstanding for all periods presented.
NOTE 14 -- SELECTED FINANCIAL DATA
Effective August 1, 1994, the Company changed its fiscal year end from July
31 to December 31. Accordingly, the financial statements for December 31, 1994
reflect the Company's results of operations for a five-month period.
Selected financial data for the twelve months ended December 31, 1993, 1994
and 1995 consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1993 1994 1995
----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues.................................... $57,281,442 $53,185,255 $74,594,634
Operating expenses
Direct salaries and related costs......... 37,257,184 33,731,677 44,592,380
General and administrative................ 18,578,986 18,304,452 25,231,077
----------- ----------- -----------
Total.................................. 55,836,170 52,036,129 69,823,457
----------- ----------- -----------
Income from operations...................... 1,445,272 1,149,126 4,771,177
Other Income (expense)
Interest.................................. (133,506) (292,943) (726,142)
Other..................................... 185,411 (195,332) (1,652)
----------- ----------- -----------
Total other income (expense)........... 51,905 (488,275) (727,794)
----------- ----------- -----------
Income before income taxes.................. 1,497,177 660,851 4,043,383
Provision for income taxes.................. 809,007 467,131 1,647,298
----------- ----------- -----------
Net income.................................. $ 688,170 $ 193,720 $ 2,396,085
=========== =========== ===========
Pro forma income data (unaudited)
Income before income taxes.................. 1,497,177 660,851 4,043,383
Pro forma provision for income taxes
relating to S corporation................. -- 39,000 172,000
Actual provision for income taxes........... 809,007 467,131 1,647,298
----------- ----------- -----------
Total provision and pro forma provision
for income taxes..................... 809,007 506,131 1,819,298
----------- ----------- -----------
Pro forma net income........................ 688,170 154,720 2,224,085
=========== =========== ===========
Pro forma net income per share.............. $ 0.04 $ 0.01 $ 0.13
=========== =========== ===========
Pro forma weighted average common and common
equivalent shares outstanding............. 16,873,981 16,873,981 16,873,981
</TABLE>
F-49
<PAGE> 97
SYKES ENTERPRISES, INCORPORATED
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15 -- SUBSEQUENT EVENTS
Preferred Stock -- In connection with an agreement entered into in February
1996, the Company's majority shareholder transferred all the newly issued shares
of the Company's outstanding preferred stock and all of the outstanding
non-voting common stock to a related party. Effective immediately prior to the
Company's initial public offering, the preferred stock and non-voting common
stock were automatically converted into shares of common stock. These converted
shares were included in the shares sold in connection with such offering.
1996 Employee Stock Option Plan -- The Company's 1996 Employee Stock Option
Plan, as amended (the "Employee Plan"), provides for the grant of incentive or
nonqualified stock options to purchase up to 1,750,000 shares of common stock.
In April 1996, certain executive officers received options to purchase a total
of 184,894 shares of common stock as follows: 139,894 shares with an exercise
price as follows: (i) 33 1/3% of such shares at $12.00 per share, (ii) 33 1/3%
at $11.33 per share, and (iii) 33 1/3% at $10.00 per share; and 45,000 shares
with an exercise price of $12.00 per share. Certain other officers and employees
of the Company hold options to purchase an additional 417,500 shares of common
stock at a range of $12.00 to $40.40 per share. All such options vest ratably
over the three-year period following the date of grant, except for 120,000
options granted to key employees of DiagSoft, all of which are immediately
exercisable.
1996 Non-Employee Director Stock Option Plan -- The Company's 1996
Non-Employee Director Stock Option Plan (the "Non-Employee Plan") provides for
the grant of nonqualified stock options to purchase up to 300,000 shares of
common stock to members of the Board of Directors who are not employees of the
Company. Each outside director received options to purchase 7,500 shares of
common stock at an exercise price of $12.00 per share. Thereafter, on the date
on which a new outside director is first elected or appointed, he or she shall
automatically be granted options to purchase 5,000 shares of common stock. Each
outside director also shall be granted options to purchase 5,000 shares of
common stock annually on the day following the annual meeting of shareholders.
All options granted will have an exercise price equal to the then fair market
value of the common stock. Options shall become exercisable over a period of
three years in equal amounts until a director has completed his or her initial
term, whereupon all options granted prior to that time shall become exercisable,
and subsequent options shall become exercisable one year after the date of
grant. There are options outstanding to purchase 37,500 shares of Common Stock
at $12.00 per share under the Non-Employee Plan.
Public Offering -- In April, 1996, the Company completed its initial public
offering for the sale of 3 million shares of common stock. Coincident with such
offering, the underwriters of the offering exercised their 15% over-allotment
option and accordingly an additional 626,652 shares of the Company's common
stock were sold by the Company. The Company received approximately $39.7 million
from the sale of the shares, net of underwriting discount and expenses
associated with such offering. The net proceeds were used to repay all
outstanding indebtedness and make capital expenditures, with the remaining
balance held for general corporate and working capital purposes. In addition,
the Company's previous single shareholder used a portion of the proceeds from
shares sold by the shareholder in connection with the offering to repay certain
amounts related to mortgage loans for which the Company pledged certain assets
as collateral (See Note 8).
Stock Split -- Effective July 28, 1996, the Company's Board of Directors
approved a three-for-two stock split of common stock. The par value of the
Common Stock remains unchanged. All share and per share amounts have been
restated to retroactively reflect the stock split.
F-50
<PAGE> 98
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 11
Price Range of Common Stock........... 11
Dividend Policy....................... 11
Capitalization........................ 12
Selected Consolidated Financial
Data................................ 13
Additional Consolidated Financial
Information......................... 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
Business.............................. 23
Management............................ 33
Principal and Selling Shareholders.... 39
Certain Transactions.................. 40
Description of Capital Stock.......... 41
Shares Eligible for Future Sale....... 43
Underwriting.......................... 44
Legal Matters......................... 45
Experts............................... 45
Available Information................. 45
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
2,600,000 SHARES
[SYKES ENTERPRISES INCORPORATED LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
RAYMOND JAMES &
ASSOCIATES, INC.
ROBERT W. BAIRD & CO.
INCORPORATED
OPPENHEIMER & CO., INC.
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 99
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF INSURANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee..................................... $ 45,366
NASD filing fee................................................................... 13,656
Nasdaq listing fee................................................................ 17,500
Printing and engraving............................................................ 80,000
Accountants' fees and expenses.................................................... 80,000
Legal fees and expenses........................................................... 100,000
Consultants' fees and expenses.................................................... 100,000
Miscellaneous..................................................................... 63,478
--------
Total................................................................... $500,000
========
</TABLE>
- ---------------
* All of the above fees, costs and expenses will be paid by the Company. Other
than the SEC filing fee and NASD filing fee, all fees and expenses are
estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Florida Business Corporation Act (the "Florida Act") permits a Florida
corporation to indemnify a present or former director or officer of the
corporation (and certain other persons serving at the request of the corporation
in related capacities) for liabilities, including legal expenses, arising by
reason of service in such capacity if such person shall have acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and in any criminal proceeding if such person had
no reasonable cause to believe his conduct was unlawful. However, in the case of
actions brought by or in the right of the corporation, no indemnification may be
made with respect to any matter as to which such director or officer shall have
been adjudged liable, except in certain limited circumstances.
The Company's Articles of Incorporation and Bylaws provide that the Company
shall indemnify directors and executive officers to the fullest extent now or
hereafter permitted by the Florida Act. In addition, the Company has entered
into Indemnification Agreements with its directors and executive officers in
which the Registrant has agreed to indemnify such persons to the fullest extent
now or hereafter permitted by the Florida Act.
The indemnification provided by the Florida Business Corporation Act and
the Company's Bylaws is not exclusive of any other rights to which a director or
officer may be entitled. The general effect of the foregoing provisions may be
to reduce the circumstances which an officer or director may be required to bear
the economic burden of the foregoing liabilities and expense.
The Company may obtain a liability insurance policy for its directors and
officers as permitted by the Florida Act which may extend to, among other
things, liability arising under the Securities Act of 1933, as amended (the
"Securities Act").
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Company was incorporated under the laws of the State of Florida
effective March 1, 1996. On March 4, 1996, pursuant to a plan of merger,
9,580,000 shares of Common Stock of the Company, 440,000 shares of non-voting
Common Stock and 3,600 shares of Preferred Stock (representing all of the
outstanding capital stock of the Company prior to its initial public offering)
were issued to the former stockholders of Sykes Enterprises, Incorporated, a
North Carolina corporation ("Former Sykes"), in exchange for all of the
outstanding common stock of Former Sykes (the foregoing numbers do not give
effect to the 3-for-2 stock split effected on July 28, 1996). In connection with
this reorganization, Former Sykes was merged with and
II-1
<PAGE> 100
into the Company. No commission or other remuneration was paid or given directly
or indirectly in connection with this reorganization.
Pursuant to an agreement entered into on February 26, 1996, by the Company,
John H. Sykes, the Company's Chairman of the Board, President and Chief
Executive Officer, and Sybil M. Sykes, the Company issued to John H. Sykes, who
thereupon immediately transferred to Sybil M. Sykes, 3,600 shares of Preferred
Stock and 440,000 shares of non-voting Common Stock. No commission or other
remuneration was paid or given directly or indirectly in connection with this
transaction, except for Sybil M. Sykes relinquishment of her possible marital
interest in the Company.
Immediately prior to the completion of the Company's initial public
offering, the Company issued 1,830,000 shares (adjusted to reflect the 3-for-2
stock split effected on July 28, 1996) of Common Stock to John H. Sykes pursuant
to a plan of merger and reorganization in exchange for all the outstanding stock
of Sykes Realty, Inc.
On July 16, 1996, pursuant to a Stock Purchase Agreement dated July 1,
1996, the Company issued a total of 246,819 shares of Common Stock (adjusted to
reflect the 3-for-2 stock split effected on July 28, 1996) to the following
persons (82,273 shares each), each of whom is a resident of Sweden, in exchange
for all their stock in Datasvar Support AB: Johan Holm; Arne Weinz; and Norhold
Invest AB.
On August 30, 1996, pursuant to a Stock Purchase Agreement dated August 30,
1996, the Company issued 675,000 shares of Common Stock to Gordon H. Kraft in
exchange for all his stock in DiagSoft, Inc.
These transactions are claimed to be exempt from registration under the
Securities Act pursuant to Section 4(2) of the Securities Act. In addition, (1)
the reorganization is claimed to be exempt from registration under the
Securities Act as a transaction effected to change the domicile of the issuer
from North Carolina to Florida, and (2) the sale to the former shareholders of
Datasvar Support AB is claimed to be exempt pursuant to Regulation S.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ ----------------------------------------------------------------------------------
<C> <C> <S>
1.1 -- Proposed Form of Underwriting Agreement.
2.1 -- Articles of Merger between Sykes Enterprises, Incorporated, a North Carolina
corporation, and Sykes Enterprises, Incorporated, a Florida corporation, dated
March 1, 1996.(1)
2.2 -- Articles of Merger between Sykes Enterprises, Incorporated and Sykes Realty,
Inc.(1)
2.3 -- Stock Purchase Agreement dated July 1, 1996 among Sykes Enterprises, Incorporated
and Johan Holm, Arne Weinz and Norhold Invest AB.(2)
2.4 -- Stock Purchase Agreement dated August 30, 1996 among Sykes Enterprises,
Incorporated and Gordon H. Kraft.(3)
3.1 -- Articles of Incorporation of Sykes Enterprises, Incorporated.(1)
3.2 -- Bylaws of Sykes Enterprises, Incorporated, as amended.(1)
4.1 -- Specimen certificate for the Common Stock of Sykes Enterprises, Incorporated.(1)
5.1 -- Opinion of Foley & Lardner.
10.1 -- Loan Agreement between NationsBank, N.A. and Sykes Enterprises, Incorporated dated
December 29, 1995.(1)
10.2 -- Employment Agreement dated as of January 1, 1996 between John H. Sykes and Sykes
Enterprises, Incorporated.(1)
10.3 -- Form of Employment Agreement between executive officers and Sykes Enterprises,
Incorporated.(1)
</TABLE>
II-2
<PAGE> 101
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ ----------------------------------------------------------------------------------
<C> <C> <S>
10.4 -- Stock Option Agreement between Sykes Enterprises, Incorporated and David E. Garner
dated as of December 31, 1995.(1)
10.5 -- 1996 Employee Stock Option Plan.(1)
10.6 -- 1996 Non-Employee Director Stock Option Plan.(1)
10.7 -- 1996 Non-Employee Directors' Fee Plan.(1)
10.8 -- Form of Split Dollar Plan Documents.(1)
10.9 -- Form of Split Dollar Agreement.(1)
10.10 -- Form of Indemnity Agreement between directors and executive officers and Sykes
Enterprises, Incorporated.(1)
10.11 -- Aircraft Lease Agreement between JHS Leasing of Tampa, Inc. as lessor and Sykes
Enterprises, Incorporated as lessee, dated December 1, 1995.(1)
10.12 -- Single Tenant Property Lease Agreement between Sykes Investments as landlord and
Sykes Enterprises, Incorporated as tenant dated October 31, 1989, for building in
Charlotte, North Carolina.(1)
10.13 -- [Omitted]
10.14 -- Tax Indemnification Agreement between Sykes Enterprises, Incorporated and John H.
Sykes.(1)
10.15 -- Consultant Agreement between Sykes Enterprises, Incorporated and E.J. Milani
Consulting Corp. dated April 1, 1996.(1)
10.16 -- Registration Rights Agreement among Sykes Enterprises, Incorporated and Johan
Holm, Arne Weinz and Norhold Invest AB dated July 16, 1996.(2)
10.17 -- Registration Rights Agreement between Sykes Enterprises, Incorporated and Gordon
H. Kraft dated August 30, 1996.(3)
11.1 -- Statement re computation of per share earnings.
21.1 -- List of subsidiaries of Sykes Enterprises, Incorporated.
23.1 -- Consent of Foley & Lardner (included in Exhibit (5.1)).
23.2 -- Consent of Coopers & Lybrand L.L.P.
23.3 -- Consent of Lindebergs Revisionsbyra AB.
24.1 -- Power of Attorney relating to subsequent amendments (included on the signature
page of this Registration Statement).
27.1 -- Financial Data Schedule (for SEC use only).(4)
</TABLE>
- ---------------
(1) Filed as the same numbered Exhibit to Registration No. 333-2324 and
incorporated herein by reference.
(2) Filed as an Exhibit to the Registrant's Form 8-K dated July 31, 1996 and
incorporated herein by reference.
(3) Filed as an Exhibit to the Registrant's Form 8-K dated September 16, 1996
and incorporated herein by reference.
(4) This restated Financial Data Schedule restates the Financial Data Schedule
filed as an exhibit to the Form 10-Q of Sykes Enterprises, Incorporated
(the "Registrant") for the quarter ended June 30, 1996. That Financial Data
Schedule is the only Financial Data Schedule previously required to be
filed by the Registrant. The Form S-1 Registration Statement to which this
Financial Data Schedule is an exhibit includes Supplemental Consolidated
Financial Statements of the Registrant that have been restated to reflect
the Registrant's acquisitions on July 16, 1996 and August 30, 1996,
respectively, of Datasvar Support AB and DiagSoft, Inc. (collectively, the
Acquisitions"). The Acquisitions are being accounted for under the
pooling-of-interests method of accounting. This Financial Data Schedule
sets forth information for the six months ended June 30, 1996 which has
been restated to reflect the Acquisitions.
II-3
<PAGE> 102
(b) Financial Statement Schedules.
Report of Independent Auditors
Schedule II -- Valuation and Qualifying Accounts.
All other financial statement schedules have been omitted either because
they are not applicable or because the information that would be included in
such schedules is included elsewhere in this Registration Statement.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 103
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Tampa, and State of
Florida, on this 20th day of September, 1996.
SYKES ENTERPRISES, INCORPORATED
By: /s/ JOHN H. SYKES
------------------------------------
John H. Sykes
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
constitutes and appoints John H. Sykes and Scott J. Bendert, and each of them
individually, his or her true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him or her and in his or her name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, including
any amendment or registration statement filed pursuant to Rule 462, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------------------- -------------------
<C> <S> <C>
/s/ JOHN H. SYKES Chairman of the Board, September 20, 1996
- --------------------------------------------- President and Chief
John H. Sykes Executive Officer and
Director (Principal
Executive Officer)
/s/ SCOTT J. BENDERT Vice President -- Finance September 20, 1996
- --------------------------------------------- and Treasurer (Principal
Scott J. Bendert Financial and Accounting
Officer)
/s/ JOHN D. GANNETT, JR. Senior Vice President and September 20, 1996
- --------------------------------------------- Director
John D. Gannett, Jr.
/s/ DAVID E. GARNER Senior Vice President and September 20, 1996
- --------------------------------------------- Director
David E. Garner
/s/ FURMAN P. BODENHEIMER, JR. Director September 20, 1996
- ---------------------------------------------
Furman P. Bodenheimer, Jr.
/s/ H. PARKS HELMS Director September 20, 1996
- ---------------------------------------------
H. Parks Helms
/s/ GORDON H. LOETZ Director September 20, 1996
- ---------------------------------------------
Gordon H. Loetz
</TABLE>
II-5
<PAGE> 104
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------------------- -------------------
<C> <S> <C>
/s/ ERNEST J. MILANI Director September 20, 1996
- ---------------------------------------------
Ernest J. Milani
/s/ R. JAMES STROKER Director September 20, 1996
- ---------------------------------------------
R. James Stroker
</TABLE>
II-6
<PAGE> 105
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Sykes Enterprises, Incorporated
In connection with our audits of the consolidated financial statements of
Sykes Enterprises, Incorporated, the supplemental consolidated financial
statements of Sykes Enterprises, Incorporated, and the consolidated financial
statements of DiagSoft, Inc. as of December 31, 1994 and 1995 and for the years
ended July 31, 1993 and 1994, the five months ended December 31, 1994, and the
year ended December 31, 1995, which consolidated financial statements are
included in the Form S-1 Registration Statement, we have also audited the
financial statement schedule listed in Item 16 herein.
In our opinion, these consolidated financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Tampa, Florida
September 16, 1996
S-1
<PAGE> 106
SYKES ENTERPRISES, INCORPORATED
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JULY 31, 1993 AND 1994,
THE FIVE MONTHS ENDED DECEMBER 31, 1994, AND THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
ADDITIONAL
BEGINNING CHARGED TO COST ENDING
BALANCE AND EXPENSES DEDUCTIONS(1) BALANCE
--------- --------------- ------------- --------
<S> <C> <C> <C> <C>
SYKES ENTERPRISES, INCORPORATED
Year ended July 31, 1993
Allowance for doubtful accounts.............. $ 168,097 $ 125,590 $ 108,944 $184,743
Year ended July 31, 1994
Allowance for doubtful accounts.............. 184,743 8,621 -- 193,364
Five months ended December 31, 1994
Allowance for doubtful accounts.............. 193,364 16,871 94,928 115,307
Year ended December 31, 1995
Allowance for doubtful accounts.............. 115,307 86,923 118,831 83,399
DIAGSOFT, INC.
Year ended July 31, 1993
Allowance for doubtful accounts.............. $ 68,683 $ 8,253 $ 36,002 $ 40,934
Year ended July 31, 1994
Allowance for doubtful accounts.............. 40,934 16,155 -- 57,089
Five months ended December 31, 1994
Allowance for doubtful accounts.............. 57,089 20,000 -- 77,089
Year ended December 31, 1995
Allowance for doubtful accounts.............. 77,089 45,649 1,740 120,998
SYKES ENTERPRISES, INCORPORATED SUPPLEMENTAL(2)
Year ended July 31, 1993
Allowance for doubtful accounts.............. $ 236,780 $ 133,843 $ 144,946 $225,677
Year ended July 31, 1994
Allowance for doubtful accounts.............. 225,677 24,776 -- 250,453
Five months ended December 31, 1994
Allowance for doubtful accounts.............. 250,453 36,871 94,928 192,396
Year ended December 31, 1995
Allowance for doubtful accounts.............. 192,396 132,572 120,571 204,397
</TABLE>
- ---------------
(1) Write-offs and recoveries
(2) Includes Sykes Enterprises, Incorporated and DiagSoft, Inc. accounted for
under the pooling-of-interests method of accounting.
S-2
<PAGE> 107
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER EXHIBIT DESCRIPTION NUMBER
- ------ -------------------------------------------------------------------------- ----------
<C> <C> <S> <C>
1.1 -- Proposed Form of Underwriting Agreement...................................
2.1 -- Articles of Merger between Sykes Enterprises, Incorporated, a North
Carolina corporation, and Sykes Enterprises, Incorporated, a Florida
corporation, dated March 1, 1996.(1)......................................
2.2 -- Articles of Merger between Sykes Enterprises, Incorporated and Sykes
Realty, Inc.(1)...........................................................
2.3 -- Stock Purchase Agreement dated July 1, 1996 among Sykes Enterprises,
Incorporated and Johan Holm, Arne Weinz and Norhold Invest AB.(2).........
2.4 -- Stock Purchase Agreement dated August 30, 1996 among Sykes Enterprises,
Incorporated and Gordon H. Kraft.(3)......................................
3.1 -- Articles of Incorporation of Sykes Enterprises, Incorporated.(1)..........
3.2 -- Bylaws of Sykes Enterprises, Incorporated, as amended.(1).................
4.1 -- Specimen certificate for the Common Stock of Sykes Enterprises,
Incorporated.(1)..........................................................
5.1 -- Opinion of Foley & Lardner................................................
10.1 -- Loan Agreement between NationsBank, N.A. and Sykes Enterprises,
Incorporated dated December 29, 1995.(1)..................................
10.2 -- Employment Agreement dated as of January 1, 1996 between John H. Sykes and
Sykes Enterprises, Incorporated.(1).......................................
10.3 -- Form of Employment Agreement for executive officers and Sykes Enterprises,
Incorporated.(1)..........................................................
10.4 -- Stock Option Agreement between Sykes Enterprises, Incorporated and David
E. Garner dated as of December 31, 1995.(1)...............................
10.5 -- 1996 Employee Stock Option Plan.(1).......................................
10.6 -- 1996 Non-Employee Director Stock Option Plan.(1)..........................
10.7 -- 1996 Non-Employee Directors' Fee Plan.(1).................................
10.8 -- Form of Split Dollar Plan Documents.(1)...................................
10.9 -- Form of Split Dollar Agreement.(1)........................................
10.10 -- Form of Indemnity Agreement between directors and executive officers and
Sykes Enterprises, Incorporated.(1).......................................
10.11 -- Aircraft Lease Agreement between JHS Leasing of Tampa, Inc. as lessor and
Sykes Enterprises, Incorporated as lessee, dated December 1, 1995.(1).....
10.12 -- Single Tenant Property Lease Agreement between Sykes Investments as
landlord and Sykes Enterprises, Incorporated as tenant dated October 31,
1989, for building in Charlotte, North Carolina.(1).......................
10.13 -- [Omitted].................................................................
10.14 -- Tax Indemnification Agreement between Sykes Enterprises, Incorporated and
John H. Sykes.(1)......................................................... ......
10.15 -- Consultant Agreement between Sykes Enterprises, Incorporated and E.J.
Milani Consulting Corp. dated April 1, 1996.(1)........................... ......
10.16 -- Registration Rights Agreement among Sykes Enterprises, Incorporated and
Johan Holm, Arne Weinz and Norhold Invest AB dated July 16, 1996.(2)......
</TABLE>
<PAGE> 108
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER EXHIBIT DESCRIPTION NUMBER
- ------ -------------------------------------------------------------------------- ----------
<C> <C> <S> <C>
10.17 -- Registration Rights Agreement between Sykes Enterprises, Incorporated and
Gordon H. Kraft dated August 30, 1996.(3).................................
11.1 -- Statement re computation of per share earnings............................
21.1 -- List of subsidiaries of Sykes Enterprises, Incorporated...................
23.1 -- Consent of Foley & Lardner (included in Exhibit (5.1))....................
23.2 -- Consent of Coopers & Lybrand L.L.P........................................
23.3 -- Consent of Lindebergs Revisionbyra AB.....................................
24.1 -- Power of Attorney relating to subsequent amendments (included on the
signature page of this Registration Statement)............................
27.1 -- Financial Data Schedule (for SEC use only)................................
</TABLE>
- ---------------
(1) Filed as the same numbered Exhibit to Registration No. 333-2324 and
incorporated herein by reference.
(2) Filed as an Exhibit to the Registrant's form 8-K dated July 31, 1996 and
incorporated herein by reference.
(3) Filed as an Exhibit to the Registrant's form 8-K dated September 16, 1996
and incorporated herein by reference.
<PAGE> 1
EXHIBIT 1.1
SYKES ENTERPRISES, INCORPORATED
COMMON STOCK
UNDERWRITING AGREEMENT
October __, 1996
RAYMOND JAMES & ASSOCIATES, INC.,
ROBERT W. BAIRD & CO. INCORPORATED
OPPENHEIMER & CO., INC.
as representatives of the several
underwriters (the "Representatives"),
c/o Raymond James & Associates, Inc.
880 Carillon Parkway
St. Petersburg, Florida 33716
Dear Sirs:
Subject to the terms and conditions stated herein (i) SYKES
ENTERPRISES, INCORPORATED, a Florida corporation (the "Company") proposes to
issue and sell to the Underwriters named in SCHEDULE I (the "Underwriters") an
aggregate of 1,553,320 shares (the "Company Firm Shares") of the Company's
authorized common stock, par value $.01 per share ("Common Stock"), and (ii)
certain shareholders of the Company named in SCHEDULE II hereto (the "Selling
Shareholders") propose to sell to the Underwriters an aggregate of 1,046,680
shares of Common Stock in the respective amounts set forth opposite their names
in SCHEDULE II hereto ("Shareholder Firm Shares" and together with the Company
Firm Shares the "Firm Shares"). Furthermore, at the election of the
Underwriters and subject to the terms and conditions stated herein, the Company
proposes to sell to the Underwriters an aggregate of 390,000 shares of Common
Stock (the "Optional Shares"). The Firm Shares and the Optional Shares that
the Underwriters elect to purchase pursuant to Section 2 hereof are
collectively called the "Shares.
1. REPRESENTATIONS AND WARRANTIES
(a) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
PRINCIPAL SHAREHOLDER. The Company and John H. Sykes, the Principal Shareholder
(as hereinafter defined) hereby jointly and severally represent and warrant to,
and agree with, each of the Underwriters that:
(i) A registration statement on Form S-1 (File
No. 333-_____) with respect to the Shares, including a
prospectus subject to completion, has been filed by the
Company with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended
(the Act"), and one or more amendments to such registration
statement may have been so filed. After the execution of this
Agreement, the Company will file with the Commission either
(A) if such registration statement, as it may have been
amended, has become effective under the Act and information
has been omitted therefrom in accordance with Rule 430A under
the Act, a prospectus in the form most recently included in an
amendment to such registration statement (or, if no such
amendment shall have been filed, in such registration
statement) with such changes or insertions as are required by
Rule 430A or permitted by Rule 424(b) under the Act and as
have been provided to and approved by the Underwriters, or (B)
if such registration statement, as it may have been amended,
has not become effective under the Act, an amendment to such
registration statement, including a form of prospectus, a copy
of which amendment has been provided to and approved by the
Underwriters prior to the execution of this Agreement. As used
in this Agreement, the term "Registration Statement" means
such registration statement, as amended at the time when it
was or is declared effective, together with any registration
statement
<PAGE> 2
filed by the Company pursuant to Rule 462(b) of the Act,
including all financial statement schedules and exhibits
thereto and including any information omitted therefrom
pursuant to Rule 430A under the Act and included in the
Prospectus (as hereinafter defined); the term "Preliminary
Prospectus" means each prospectus subject to completion
included in such registration statement or any amendment or
post-effective amendment thereto (including the prospectus
subject to completion, if any, included in the Registration
Statement at the time it was or is declared effective); and
the term "Prospectus" means the prospectus first filed with
the Commission pursuant to Rule 424(b) under the Act or, if no
prospectus is required to be so filed, such term means the
prospectus included in the Registration Statement. For
purposes of the following representations and warranties, to
the extent reference is made to the Prospectus and at the
relevant time the Prospectus is not yet in existence, such
reference shall be deemed to be to the most recent Preliminary
Prospectus.
(ii) No order preventing or suspending the use of
any Preliminary Prospectus has been issued and no proceeding
for that purpose has been instituted or threatened by the
Commission or the securities authority of any state or other
jurisdiction. If the Registration Statement has become
effective under the Act, no stop order suspending the
effectiveness of the Registration Statement or any part
thereof has been issued and no proceeding for that purpose has
been instituted or, to the knowledge of the Company or the
Selling Shareholders, threatened or contemplated by the
Commission or the securities authority of any state or other
jurisdiction.
(iii) When any Preliminary Prospectus was filed
with the Commission it (A) contained all statements required
to be stated therein in accordance with, and complied in all
material respects with the requirements of, the Act and the
rules and regulations of the Commission thereunder, and (B)
did not include any untrue statement of a material fact or
omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under
which they were made, not misleading. When the Registration
Statement or any amendment thereto was or is declared
effective, and at each Time of Delivery (as hereinafter
defined), it (A) contained or will contain all statements
required to be stated therein in accordance with, and complied
or will comply in all material respects with the requirements
of, the Act and the rules and regulations of the Commission
thereunder, and (B) did not or will not include any untrue
statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading.
When the Prospectus or any amendment or supplement thereto is
filed with the Commission pursuant to Rule 424(b) (or, if the
Prospectus or such amendment or supplement is not required to
be so filed, when the Registration Statement or the amendment
thereto containing such amendment or supplement to the
Prospectus was or is declared effective) and at each Time of
Delivery, the Prospectus, as amended or supplemented at any
such time, (A) contained or will contain all statements
required to be stated therein in accordance with, and complied
or will comply in all material respects with the requirements
of, the Act and the rules and regulations of the Commission
thereunder, and (B) did not or will not include any untrue
statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading. The foregoing provisions of this paragraph (iii)
do not apply to statements or omissions made in any
Preliminary Prospectus, the Registration Statement or any
amendment thereto or the Prospectus or any amendment or
supplement thereto in reliance upon and in conformity with
written information furnished to the Company by any of the
Underwriters specifically for use therein.
(iv) The descriptions in the Registration
Statement and the Prospectus of statutes, legal and
governmental proceedings or contracts and other documents are
accurate and fairly present the information required to be
shown; and there are no statutes or legal or governmental
proceedings required to be described in the Registration
Statement or the Prospectus that are not
2
<PAGE> 3
described as required and no contracts or documents of a
character that are required to be described in the
Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described
and filed as required.
(v) The Company and each of its subsidiaries has
been duly incorporated or organized, as the case may be, is
validly existing as a corporation or other legal entity, is in
good standing under the laws of its jurisdiction of
incorporation or organization and has full power and authority
(corporate and other) to own or lease its properties and
conduct its business as described in the Prospectus. The
Company has full power and authority (corporate and other) to
enter into this Agreement and to perform its obligations
hereunder. The Company and each of its subsidiaries is duly
qualified to transact business as a foreign corporation or
other legal entity and is in good standing under the laws of
each other jurisdiction in which it owns or leases properties,
or conducts any business, so as to require such qualification,
except where the failure, to so qualify would not have a
material adverse effect on the financial position, results of
operations or business of the Company (a "Material Adverse
Effect").
(vi) The Company's authorized, issued and
outstanding capital stock is as set forth in the Prospectus
under the caption "Capitalization." All of the issued shares
of capital stock of the Company and each of its subsidiaries
which is a corporation and all of the Company's ownership
interests of every subsidiary which is not a corporation have
been duly authorized and validly issued, are fully paid for
and are not subject to any claim for payment by the issuing
corporation or other such entity. The Common Stock conforms
to the description of the Common Stock contained in the
Prospectus. None of the issued shares of capital stock of the
Company and each of its subsidiaries that is a corporation has
been issued or is owned or held in violation of any preemptive
rights of shareholders, and no person or entity has any
preemptive or other rights to subscribe for any of the Shares.
(vii) The Company does not own, directly or
indirectly, any capital stock or other equity securities of
any other corporation or any ownership interest in any
partnership, joint venture or other entity or association
other than those listed on Exhibit 21 to the Registration
Statement. The Company owns 100% of the issued and outstanding
capital stock of each of its subsidiaries listed on such
Exhibit 21.
(viii) Except as disclosed in the Prospectus, there
are no outstanding (A) securities or obligations of the
Company convertible into or exchangeable for any capital stock
of the Company, (B) warrants, rights or options to subscribe
for or purchase from the Company any such capital stock or any
such convertible or exchangeable securities or obligations, or
(C) obligations of the Company to issue any shares of capital
stock, any such convertible or exchangeable securities or
obligations, or any such warrants, rights or options.
(ix) Since the date of the most recent audited
financial statements included in the Prospectus, neither the
Company nor any of its subsidiaries has sustained any material
loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance,
or from any labor dispute or court or governmental action,
order or decree, otherwise than as disclosed in or
contemplated by the Prospectus.
(x) Since the respective dates as of which
information is given in the Registration Statement and the
Prospectus, (A) the Company has not incurred any liabilities
or obligations, direct or contingent, or entered into any
transactions, not in the ordinary course of business, that are
material to the Company, (B) the Company has not purchased any
of its outstanding capital stock or declared, paid or
otherwise made any dividend or distribution of any kind on its
capital stock, (C) there has not been any change in the
capital stock, or any material increase or decrease
3
<PAGE> 4
in the long-term debt or short-term debt of the Company, and
(D) there has not been any material adverse change, or any
development involving a prospective material adverse change,
in or affecting the financial position, results of operations
or business of the Company, in each case other than as
disclosed in or contemplated by the Prospectus.
(xi) The Shares to be issued and sold by the
Company have been duly authorized and, when issued and
delivered against payment therefor as provided herein, will be
validly issued and fully paid and nonassessable and will
conform to the description of the Common Stock contained in
the Prospectus and the certificates evidencing the Shares will
comply with all applicable requirements of Florida law.
(xii) Except as disclosed in the Prospectus, there
are no contracts, agreements or understandings between the
Company and any person granting such person the right to
require the Company to file a registration statement under the
Act with respect to any securities of the Company owned or to
be owned by such person or to require the Company to include
such securities in the securities registered pursuant to the
Registration Statement (unless any such right has been
exercised or effectively waived) or any securities being
registered pursuant to any other registration statement filed
by the Company under the Act.
(xiii) All offers and sales of the Company's capital
stock prior to the date hereof were at all relevant times duly
registered under the Act or exempt from the registration
requirements of the Act and were duly registered or the
subject of an available exemption from the registration
requirements of the applicable state securities or blue sky
laws, and the Company has taken all actions reasonably
necessary for it to assure that such exemptions from
registration would continue to be operative during all
applicable periods of time required by law.
(xiv) The Company and each of its subsidiaries is
not, nor with the giving of notice or passage of time or both
would be, in violation of its Articles of Incorporation or
other organic document or Bylaws or other self-regulatory
rules or in default under any indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument
to which the Company or any of its subsidiaries is a party or
to which any of their respective properties or assets is
subject, which default would have a Material Adverse Effect.
(xv) The issue and sale of the Shares to be issued
and sold by the Company and the performance of this Agreement
and the consummation of the transactions herein contemplated
will not conflict with, or (with or without the giving of
notice or the passage of time or both) result in a breach or
violation of any of the terms or provisions of, or constitute
a default under, any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which the
Company or any of its subsidiaries is a party or to which its
properties or assets is subject, nor will such action conflict
with or violate any provision of the Articles of Incorporation
or Bylaws of the Company or any statute, rule or regulation or
any order, judgment or decree of any court or governmental
agency or body having jurisdiction over the Company or any of
its properties or assets.
(xvi) The Company and each of its subsidiaries has
good title to all personal property owned by it free and clear
of all liens, security interests, pledges, charges,
encumbrances, mortgages and defects, except such as are
disclosed in the Prospectus or such as do not materially and
adversely affect the value of such property and do not
interfere with the use made or proposed to be made of such
property by the Company and its subsidiaries; and any real
property and buildings held under lease by the Company is held
under valid, subsisting and enforceable leases, with such
exceptions as are disclosed in the Prospectus or are not
material and do not interfere
4
<PAGE> 5
with the use made or proposed to be made of such property and
buildings by the Company. The Company does not own any real
property, except as described in the Prospectus.
(xvii) No consent, approval, authorization, order or
declaration of or from, or registration, qualification or
filing with, any court or governmental agency or body is
required for the sale of the Shares or the consummation of the
transactions contemplated by this Agreement, except the
registration of the Shares under the Act (which, if the
Registration Statement is not effective as of the time of
execution hereof, shall be obtained as provided in this
Agreement) and such as may be required under state securities
or blue sky laws in connection with the offer, sale and
distribution of the Shares by the Underwriters.
(xviii) Other than as disclosed in the Prospectus,
there is no litigation, arbitration, claim, proceeding (formal
or informal) or investigation pending or, to the knowledge of
the Company or the Selling Shareholders, threatened (or any
basis therefor) in which the Company is a party or of which
any of its properties or assets is the subject which, if
determined adversely to the Company, would individually or in
the aggregate have a Material Adverse Effect. The Company is
not in violation of, or in default with respect to, any
statute, rule, regulation, order, judgment or decree, except
as described in the Prospectus or such as do not and will not
individually or in the aggregate have a Material Adverse
Effect, and the Company is not required to take any action in
order to avoid any such violation or default.
(xix) Coopers & Lybrand, LLP, which has expressed
its opinion with respect to the combined financial statements
and schedules filed with the Commission and included as part
of the Registration Statement, the Prospectus or any
Preliminary Prospectus, are independent public accountants as
required by the Act and the rules and regulations of the
Commission thereunder.
(xx) The financial statements and schedules
(including the related notes) of the Company included in the
Registration Statement, the Prospectus or any Preliminary
Prospectus were prepared in accordance with generally accepted
accounting principles consistently applied (or, if not
consistently applied, as applied on the basis stated in such
financial statements and schedules or the related notes
thereto) throughout the periods involved and fairly present
the financial position and results of operations of the
Company, at the dates and for the periods presented. The
selected financial data set forth under the caption "Selected
Consolidated Financial Data" in the Prospectus fairly present,
on the basis stated in the Prospectus, the information
included therein.
(xxi) This Agreement has been duly authorized,
executed and delivered by the Company and the Selling
Shareholders.
(xxii) None of the Company, any of its subsidiaries,
any of the Selling Shareholders or, to the knowledge of the
Company or the Principal Selling Shareholders, their
respective officers, directors or Affiliates, as that term is
defined under the Act and the Rules and Regulations of the
Commission promulgated thereunder (the "Rules and
Regulations") has (A) taken, directly or indirectly, any
action designed to cause or result in, or that has constituted
or might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Shares or
(B) since the filing of the Registration Statement (1) sold,
bid for, purchased or paid anyone any compensation for
soliciting purchases of, the Shares or (2) paid or agreed to
pay to any person any compensation for soliciting another to
purchase any other securities of the Company.
(xxiii) The Company has obtained for the benefit of
the Company and the Underwriters from each of its directors,
executive officers, and all Selling Shareholders a written
agreement (a
5
<PAGE> 6
"Lockup Letter") that for a period of 180 days from the date
of the Prospectus, directors, executive officers, and Selling
Shareholders, will not, without the prior written consent of
Raymond James & Associates, Inc., on behalf of the
Underwriters, offer, pledge, sell, contract to sell, grant any
option for the sale of, or otherwise dispose of (or announce
any offer, pledge, sale, grant of an option to purchase or
other disposition), directly or indirectly, any shares of
Common Stock or securities convertible into, or exercisable or
exchangeable for, shares of Common Stock.
(xxiv) Neither the Company nor any of its
subsidiaries, nor, to the knowledge of the Company or any of
its subsidiaries, any other director, officer, agent,
employee, Affiliate or other person associated with or acting
on behalf of the Company or any of its subsidiaries has,
directly or indirectly, used any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses
relating to political activity, or established or maintained
any unlawful or unrecorded funds in violation of Section 30A
of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"); made any unlawful payment to foreign or
domestic government officials or employees or to foreign or
domestic political parties or campaigns from corporate funds;
violated any provision of the Foreign Corrupt Practices Act of
1977, as amended; or made any bribe, rebate, payoff, influence
payment kickback or other payment unlawful under the laws of
the United States or any foreign jurisdiction.
(xxv) The Company and each of its subsidiaries are
in compliance in all material respects with all foreign,
federal, state, and local laws, treaties, ordinances, rules,
and regulations and Executive Orders (collectively, "Laws"),
and the Company and each of its subsidiaries has all licenses,
permits and authorizations necessary to operate under all
Laws, except where the failure to have such license, permit or
authorization would not (individually or in the aggregate with
respect to all such failures) have a Material Adverse Effect
and are in compliance in all material respects with all terms
and conditions of such licenses, permits and authorizations;
neither the Company nor any of its subsidiaries has
authorized, conducted or has knowledge of the generation,
transportation, storage, use, treatment, disposal or release
of any hazardous substance, hazardous waste, hazardous
material, hazardous constituent, toxic substance, pollutant,
contaminant, petroleum product, natural gas, liquefied gas or
synthetic gas defined or regulated under any environmental
law; and there is no pending or, to the knowledge of the
Company and each of its subsidiaries, threatened claim,
litigation or any administrative agency proceeding, nor has
the Company or any of its subsidiaries received any written or
oral notice from any governmental entity or third party, that
without limiting the generality of the foregoing: (A) alleges
a violation of any Laws by the Company or any of its
subsidiaries; (B) alleges the Company or any of its
subsidiaries is a liable party under the Comprehensive
Environmental Response, Compensation, and Liability Act, 42
U.S.C. Section 9602 et seq. or any state superfund law; (C)
alleges possible contamination of the environment by the
Company or any of its subsidiaries; or (D) alleges any
violation of any export control Laws or Executive Orders
issued pursuant to such Laws by the Company or any of its
subsidiaries.
(xxvi) The Company owns or has the right to use all
patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights,
franchises, trade secrets, proprietary or other confidential
information and intangible properties and assets
(collectively, "Intellectual Property Rights") necessary to
conduct its business as presently conducted and as described
in the Prospectus, and as the Prospectus indicates the Company
proposes to conduct as business, except where the failure to
own or have such rights would not have a Material Adverse
Effect; and to the knowledge of the Company, the Company has
not infringed and is not infringing, and the Company has not
received notice of infringement with respect to, asserted
Intellectual Property Rights of others and there is no
infringement by others
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<PAGE> 7
of Intellectual Property Rights of the Company, in either case
which might result in a Material Adverse Effect.
(xxvii) The Company is insured by insurers of
recognized financial responsibility against such losses and
risks and in such amounts as management of the Company deems
prudent and in the best interests of the Company and its
shareholders; and the Company has no reason to believe that it
will not be able to renew its existing insurance coverage as
and when such coverage expires or to obtain similar coverage
from similar insurers as may be necessary to continue its
business at a comparable cost, except as disclosed in the
Prospectus.
(xxvii) The Company and each of its subsidiaries
makes and keeps accurate books and records reflecting its
assets and maintains internal accounting controls that provide
reasonable assurance that (A) transactions are executed in
accordance with management's authorization, (B) transactions
are recorded as necessary to permit preparation of the
Company's financial statements in accordance with generally
accepted accounting principles and to maintain accountability
for the assets of the Company, (C) access to the assets of the
Company is permitted only in accordance with management's
authorization, and (D) the recorded accountability for assets
of the Company is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any
differences.
(xxix) The Company and each of its subsidiaries has
filed all foreign, federal, state and local tax returns that
are required to be filed by it and has paid all taxes shown as
due on such returns as well as all other taxes, assessments
and governmental charges that are due and payable; and no
deficiency with respect to any such return has been assessed
or, to the knowledge of the Company, proposed which might
result in a Material Adverse Effect.
(xxx) The Company is not, will not become as a
result of the transactions contemplated hereby, and does not
intend to conduct its business in a manner that would cause it
to become, an "investment company" or a company "controlled"
by an "investment company" within the meaning of the
Investment Company Act of 1940.
(xxxi) The Company and each of its affiliates, as
that term is defined in Section 517.021(l), Florida Statutes,
has complied with all provisions of Section 517.075, Florida
Statutes, relating to doing business with the Government of
Cuba and certain other persons and entities.
(xxxii) All employee benefit plans (as defined in
Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") established, maintained or
contributed to by the Company comply in all material respects
with the requirements of ERISA and no employee pension benefit
plan (as defined in Section 3(2) of ERISA) has incurred or
assumed an "accumulated funding deficiency" within the meaning
of Section 302 of ERISA or has incurred or assumed any
material liability (other than for the payment of premiums) to
the Pension Benefit Guaranty Corporation;
(xxxiii) The Shares have been duly included for
trading, subject to notice of issuance, on the Nasdaq National
Market;
(xxxiv) Except where such failures to comply or
violations would not in the aggregate have a Material Adverse
Effect on the Company, (i) the Company has complied with the
Immigration Reform and Control Act of 1986 and all Regulations
promulgated thereunder ("IRCA") with respect to the completion
and maintenance of Forms I-9, Employment Eligibility
Verification Forms, for all of its current employees and
reverification of the employment status of any and all
employees whose employment authorization documents indicated a
limited period
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<PAGE> 8
of employment authorization; (ii) with respect to all former
employees who left the Company's employment within three years
prior to the date hereof, the Company has complied with IRCA
with respect to the maintenance of Forms I-9 for at least
three years or for one year beyond the date of termination,
whichever is later; (iii) the Company has had no immigration
violations and has employed only individuals authorized to
work in the United States and has never been the subject of
any inspection or investigation relating to its compliance
with or violation of IRCA; and (iv) it has not been warned,
fined or otherwise penalized by reason of any failure to
comply with IRCA, and no such proceeding is pending or
threatened.
(b) REPRESENTATIONS AND WARRANTIES OF THE SELLING
SHAREHOLDERS. Each Selling Shareholder severally and not
jointly represents and warrants to, and agrees with, each of
the several Underwriters and the Company that:
(i) Such Selling Shareholder has full right,
power and authority to enter into this Agreement, the Custody
Agreement and Power of Attorney (as hereinafter defined) and
to sell, assign, transfer and deliver to the Underwriters the
Shares to be sold by such Selling Shareholder hereunder, as
the case may be; and the execution and delivery of this
Agreement and Custody Agreement and Power of Attorney have
been duly authorized by all necessary action of such Selling
Shareholder.
(ii) Such Selling Shareholder has duly executed
and delivered this Agreement, the Custody Agreement and Power
of Attorney.
(iii) No consent, approval, authorization, order or
declaration of or from, or registration, qualification or
filing with, any court or governmental agency or body is
required for the sale of the Shares to be sold by such Selling
Shareholder or the consummation of the transactions
contemplated by this Agreement, the Power of Attorney or the
Custody Agreement, except the registration of such Shares
under the Act (which, if the Registration Statement is not
effective as of the time of execution hereof, shall be
obtained as provided in this Agreement) and such as may be
required under state securities or blue sky laws in connection
with the offer, sale and distribution of such Shares by the
Underwriters.
(iv) The sale of the Shareholder Firm Shares to be
sold by such Selling Shareholder and the performance of this
Agreement, and the Custody Agreement and Power of Attorney and
the consummation of the transactions herein and therein
contemplated will not conflict with, or (with or without the
giving of notice or the passage of time or both) result in a
breach of violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument
to which such Selling Shareholder is a party or to which any
of their respective properties or assets is subject, or any
statute, rule or regulation or any order, judgment or decree
of any court or governmental agency or body having
jurisdiction over such Selling Shareholder or any of such
Selling Shareholder's properties or assets.
(v) Such Selling Shareholder has, and immediately
prior to each Time of Delivery (as defined in Section 4
hereof), such Selling Shareholder will have, good and valid
title to the Shares to be sold by such Selling Shareholder
hereunder, as the case may be, free and clear of all liens,
security interests, pledges, charges, encumbrances, defects,
shareholders' agreements, voting trusts, equities or claims of
any nature whatsoever; and, upon delivery of such Shares
against payment therefor as provided herein, good and valid
title to such Shares, as the case may be, free and clear of
all liens, security interests, pledges, charges, encumbrances,
defects,
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<PAGE> 9
shareholders' agreements, voting trusts, equities or claims of
any nature whatsoever arising under or through such selling
Shareholder, will pass to the several Underwriters.
(vi) Such Selling Shareholder has not (A) taken,
directly or indirectly any action designed to cause or result
in, or that has constituted or might reasonably be expected to
constitute, the stabilization or manipulation of the price of
any security of the Company to facilitate the sale or resale
of the Firm Shares or (B) since the filing of the Registration
Statement (1) sold, bid for, purchased or paid anyone any
compensation for soliciting purchases of, the Firm Shares or
(2) paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the
Company.
(vii) To the extent any statements or omissions
have been made in any Preliminary Prospectus, the Registration
Statement or any amendments thereto or the Prospectus or any
amendments or supplement thereto in reliance upon and in
conformity with written information furnished to the Company
by the Selling Shareholder specifically for use therein, such
statements or omissions conform in all material respects to
the requirements of the Act and the Rules and Regulations of
the Commission promulgated thereunder and did not include any
untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements
therein, in light of the circumstances under which they are
made, not misleading.
(viii) Certificates in negotiable form representing
all of the Shareholder Firm Shares to be sold by each Selling
Shareholder have been placed in custody under a Custody
Agreement and Power of Attorney, in the form heretofore
approved by the Underwriters, duly executed and delivered by
such Selling Shareholder to Firstar Trust Company, as
custodian (the "Custodian"), and that pursuant to such Custody
Agreement and Power of Attorney such Selling Shareholder has
duly appointed John H. Sykes and Scott J. Bendert as such
Selling Shareholder's attorneys-in-fact (the
"Attorneys-in-Fact") with authority to execute and deliver
this Agreement on behalf of such Selling Shareholder, to
determine the purchase price to be paid by the Underwriters to
the Selling Shareholders as provided in Section 2 hereof, to
authorize the delivery of the Shareholder Firm Shares to be
sold by such Selling Shareholder hereunder, as the case may
be, and otherwise to act on behalf of such Selling Shareholder
in connection with the transactions contemplated by this
Agreement and the Custody Agreement and Power of Attorney.
(ix) The Shareholder Firm Shares held in custody
for such Selling Shareholder by the Custodian are subject to
the interests of the Underwriters hereunder, and the
arrangements made by such Selling Shareholder for such
custody, and the appointment by such Selling Shareholder of
the Attorneys-in-Fact, are irrevocable; the obligations of
such Selling Shareholder hereunder shall not be terminated by
operation of law, whether by the death or incapacity of any
individual Selling Shareholder.
2. PURCHASE AND SALE OF SHARES. Subject to the terms and
conditions herein set forth, (a) the Company agrees to sell to each of the
Underwriters, and each of the Underwriters agrees, severally and not jointly,
to purchase from the Company, at a purchase price of $______ per share, the
number of the Company Firm Shares set forth opposite the name of each
Underwriter on SCHEDULE I, (b) the Selling Shareholders severally and not
jointly, agree to sell to the Underwriters, and each of the Underwriters
agrees, severally and not jointly, to purchase from the Selling Shareholders,
at the purchase price per share set forth in clause (a) of this Section 2, the
number of Shareholder Firm Shares set forth opposite the names of each
Underwriter on SCHEDULE I hereto.
The Company hereby grants to the Underwriters the right to purchase at
their election in whole or in part up to 390,000 Optional Shares at the
purchase price per share set forth in clause (a) in the paragraph above for the
sole purpose of covering over-allotments in the sale of Firm Shares. If the
option granted hereby is exercised in
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<PAGE> 10
part, then the respective number of Optional Shares to be purchased by each of
the Underwriters shall be determined by multiplying the total number of
Optional Shares as to which such election shall have been exercised by the
Underwriters by a fraction, the numerator of which is the maximum number of
Optional Shares such Underwriter is entitled to purchase as set forth opposite
the name of such Underwriter in SCHEDULE I hereto and the denominator of which
is the maximum number of Optional Shares that all Underwriters are entitled to
purchase hereunder (with the resulting number to be adjusted by the
Underwriters so as to eliminate fractional shares). Any such election to
purchase Optional Shares may be exercised by written notice from the
Underwriters to the Company, given within a period of 30 calendar days after
the date of this Agreement and setting forth the aggregate number of Optional
Shares to be purchased and the date on which such Optional Shares are to be
delivered, as determined by the Underwriters but in no event earlier than the
First Time of Delivery or, unless the Underwriters and the Company
otherwise agree, to furnish or cause to be furnished to the Underwriters the
certificates, letters and opinions, and to satisfy all conditions, set forth in
Section 7 hereof at the Subsequent Time of Delivery.
3. OFFERING BY THE UNDERWRITERS. Upon the authorization by the
Underwriters of the release of the Shares, the several Underwriters propose to
offer the Shares for sale upon the terms and conditions disclosed in the
Prospectus.
4. DELIVERY OF SHARES; CLOSING. Certificates in definitive form
for the Shares to be purchased by each Underwriter hereunder, and in such
denominations and registered in such names as Raymond James & Associates, Inc.
may request upon at least 48 hours prior notice to the Company, shall be
delivered by or on behalf of the Company and the Selling Shareholders to the
Underwriters for the account of such Underwriter, against payment by such
Underwriter on its behalf as provided herein. Payment shall be made (i) with
respect to the purchase price for the Company Firm Shares and any Optional
Shares purchased from the Company if any Optional Shares are purchased
hereunder, to the Company by wire transfer or official bank check or checks
payable to the order of the Company, in next day available funds against
delivery of the certificates for the Company Firm Shares or Optional Shares
purchased from the Company, as the case may be, and (ii) with respect to the
purchase price for Shareholder Firm Shares to the Custodian by wire transfer or
official bank check or checks payable to the order of the Custodian, in next
day available funds against delivery of the certificates for the Shareholder
Firm Shares purchased from Selling Shareholders. The closing of the sale and
purchase of the Shares shall be held at the offices of Raymond James &
Associates, Inc., 880 Carillon Parkway, St. Petersburg, Florida 33716 (the
"Representative's Office"), or at such location in Tampa, Florida as the
Representatives may designate, except that physical delivery of certificates
for the Shares shall be made at the direction of the Underwriters either at the
Representative's Office or at the office of Firstar Trust Company,
(the "Firstar Office"), or shall be made to The Depository Trust Company
("DTC"), 55 Water Street, New York, New York 10041, for the account of the
Underwriters or for such other accounts as the Underwriters shall specify to
DTC. The time and date of such delivery and payment shall be, with respect to
the Firm Shares, at 10:00 a.m., Eastern time, on the third full business day
after this Agreement is executed or at such other time and date as the
Underwriters and the Company and the Attorneys-in-Fact, on behalf of the
Selling Shareholders, may agree upon in writing, and, with respect to the
Optional Shares, 10:00 a.m., Eastern time, on the date specified by the
Underwriters in the written notice given by the Underwriters of the
Underwriters' election to purchase all or part of such Optional Shares, or at
such other time and date as the Underwriters, the Company and the
Attorneys-in-Fact, on behalf of the Selling Shareholders, may agree upon in
writing. Such time and date for delivery of the Firm Shares is herein called
the "First Time of Delivery," and such time and date for delivery of any
Optional Shares, if not the First Time of Delivery, is herein called a
"Subsequent Time of Delivery," and each such time and date for delivery is
herein called a "Time of Delivery." The Company will make certificates for the
Shares available for checking and packaging at least 24 hours
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<PAGE> 11
prior to each Time of Delivery at the Firstar Office or the office of DTC in
New York, New York or at such other location in New York, New York specified by
the Underwriters in writing at least 48 hours prior to such Time of Delivery.
5. COVENANTS.
(a) COVENANTS OF THE COMPANY. The Company covenants and agrees with each
of the Underwriters:
(i) If the Registration Statement has been
declared effective prior to the execution and delivery of this
Agreement, the Company will file the Prospectus with the
Commission pursuant to and in accordance with subparagraph (1)
(or, if applicable and if consented to by the Underwriters,
subparagraph (4)) of Rule 424(b) not later than the earlier of
(A) the second business day following the execution and
delivery of this Agreement or (B) the fifth business day after
the date on which the Registration Statement is declared
effective. The Company will advise the Underwriters promptly
of any such filing pursuant to Rule 424(b).
(ii) The Company will not file with the Commission
the Prospectus or the amendment referred to in the second
sentence of Section 1(a)(i) hereof, any amendment or
supplement to the Prospectus or any amendment to the
Registration Statement unless the Underwriters have received a
reasonable period of time to review any such proposed
amendment or supplement and consented to the filing thereof,
such consent not to be unreasonably delayed or withheld. The
Company will use its best efforts to cause any such amendment
to the Registration Statement to be declared effective as
promptly as possible. Upon the reasonable request of the
Underwriters or counsel for the Underwriters, the Company will
promptly prepare and file with the Commission, in accordance
with the rules and regulations of the Commission, any
amendments to the Registration Statement or amendments or
supplements to the Prospectus that may be necessary or
advisable in connection with the distribution of the Shares by
the several Underwriters and will use its best efforts to
cause any such amendment to the Registration Statement to be
declared effective as promptly as possible. If required, the
Company will file any amendment or supplement to the
Prospectus with the Commission in the manner and within the
time period required by Rule 424(b) under the Act. The Company
will advise the Underwriters, promptly after receiving notice
thereof, of the time when the Registration Statement or any
amendment thereto has been filed or declared effective or the
Prospectus or any amendment or supplement thereto has been
filed and will provide evidence to the Underwriters of each
such filing or effectiveness.
(iii) The Company will advise the Underwriters
promptly after receiving notice or obtaining knowledge of (A)
the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement or any part
thereof or any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, (B) the suspension of the qualification of
the Shares for offer or sale in any jurisdiction or of the
initiation or threatening of any proceeding for any such
purpose, or (C) any request made by the Commission or any
securities authority of any other jurisdiction for amending
the Registration Statement, for amending or supplementing the
Prospectus or for additional information. The Company will use
its best efforts to prevent the issuance of any such stop
order and, if any such stop order is issued, to obtain the
withdrawal thereof as promptly as possible.
(iv) If the delivery of a prospectus relating to
the Shares is required under the Act at any time prior to the
expiration of nine months after the date of the Prospectus and
if at such time any events have occurred as a result of which
the Prospectus as then amended or
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<PAGE> 12
supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary in order to
make the statements therein, in light of the circumstances
under which they were made, not misleading, or if for any
reason it is necessary during such same period to amend or
supplement the Prospectus to comply with the Act or the rules
and regulations thereunder, the Company will promptly notify
the Underwriters and upon their request (but at the Company's
expense) prepare and file with the Commission an amendment or
supplement to the Prospectus that corrects such statement or
omission or effects such compliance and will furnish without
charge to each Underwriter and to any dealer in securities as
many copies of such amended or supplemented Prospectus as the
Underwriters may from time to time reasonably request. If the
delivery of a prospectus relating to the Shares is required
under the Act at any time nine months or more after the date
of the Prospectus, upon request of the Underwriters but at the
expense of the Underwriters, the Company will prepare and
deliver to the Underwriters as many copies as the Underwriters
may request of an amended or supplemented Prospectus complying
with Section 10(a)(3) of the Act. Neither the Underwriters'
consent to, nor the Underwriters' delivery of, any such
amendment or supplement shall constitute a waiver of any of
the conditions set forth in Section 7.
(v) The Company promptly from time to time will
take such action as the Underwriters may reasonably request to
qualify the Shares for offering and sale under the securities
or blue sky laws of such jurisdictions as the Underwriters may
request and will continue such qualification in effect for as
long as may be necessary to complete the distribution of the
Shares, provided that in connection therewith the Company
shall not be required to qualify as a foreign corporation or
to file a general consent to service of process in any
jurisdiction.
(vi) The Company will promptly provide the
Representatives, without charge, (A) two manually executed
copies of the Registration Statement as originally filed with
the Commission and of each amendment thereto, (B) for each
other Underwriter a conformed copy of the Registration
Statement as originally filed and of each amendment thereto,
without exhibits, and (C) so long as a prospectus relating to
the Shares is required to be delivered under the Act, as many
copies of each Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto as the Underwriters may
reasonably request.
(vii) As soon as practicable, but in any event not
later than the last day of the fifteenth month after the
effective date of the Registration Statement, the Company will
make generally available to its security holders an earnings
statement of the Company covering a period of at least 12
months beginning after the effective date of the Registration
Statement (which need not be audited) conforming with Section
11(a) of the Act and Rule 158 thereunder.
(viii) During the period beginning from the date
hereof and continuing to and including the date 180 days after
the date of the Prospectus, the Company will not, without the
prior written consent of the Underwriters, offer, pledge,
issue, sell, contract to sell, grant any option for the sale
of, or otherwise dispose of (or announce any offer, pledge,
sale, grant of an option to purchase or other disposition),
directly or indirectly, any shares of Common Stock or
securities convertible into, exercisable or exchangeable for,
shares of Common Stock, except (a) as provided in Sections 2
and 11 hereof and except for the issuance of Common Stock upon
the exercise of stock options or warrants outstanding on the
date of this Agreement to the extent that such stock options
or warrants were issued pursuant to plans or agreements which
are disclosed in the Prospectus, (b) the grant of options to
employees or directors under existing stock option plans, (c)
shares of Common Stock, securities convertible into,
exercisable or exchangeable for, or any
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<PAGE> 13
other rights to receive shares of Common Stock issued as full
or partial consideration for the acquisition of interests in
business entities in connection with the expansion of the
Company's business, or (d) as otherwise disclosed or
contemplated by the Prospectus.
(ix) During a period of five years from the
effective date of the Registration Statement, the Company will
furnish to the Underwriters, without charge, (A) copies of all
reports or other communications (financial or other) furnished
to shareholders generally, (B) as soon as they are available,
copies of any reports and financial statements furnished to or
filed with the Commission or the National Association of
Securities Dealers, Inc. or any national securities exchange
or quotation service upon which trading in shares of the
Common Stock is listed or reported, and (C) such additional
information concerning the business and financial condition of
the Company as the Underwriters may reasonably request subject
to appropriate confidentiality provisions with respect to
material non-public information.
(x) The Company will not (A) take, directly or
indirectly, prior to the termination of the underwriting
syndicate contemplated by this Agreement, any action designed
to cause or to result in, or that might reasonably be expected
to constitute, the stabilization or manipulation of the price
of any security of the Company to facilitate the sale or
resale of any of the Shares, (B) sell, bid for, purchase or
pay anyone any compensation for soliciting purchases of, the
Shares, or (C) pay or agree to pay to any person any
compensation for soliciting another to purchase any other
securities of the Company.
(xi) The Company will apply the net proceeds from
the offering in the manner set forth under "Use of Proceeds"
in the Prospectus.
(xii) The Company will cause the Shares to be duly
included for trading on the Nasdaq National Market at each
Time of Delivery and maintain such status on the Nasdaq
National Market or be listed on a national securities
exchange, on a continuous basis for at least three years from
the date hereof.
(xiii) If at any time during the period beginning on
the date the Registration Statement becomes effective and
ending on the later of (A) the date 25 days after such
effective date (or if the Underwriter's option granted
pursuant to Section 2 hereof has not been exercised by such
date, then 30 days after such effective date) or (B) the date
that is the earlier of (1) the date on which the Company first
files with the Commission a Quarterly Report on Form 10-Q
after such effective date and (2) the date on which the
Company first issues a quarterly financial report to
shareholders after such effective date, any rumor, publication
or event relating to or affecting the Company shall occur as a
result of which in the reasonable opinion of the Underwriters
the market price of the Common Stock has been or is likely to
be materially affected (regardless of whether such rumor,
publication or event necessitates an amendment of or
supplement to the Prospectus), the Company will, after written
notice from the Underwriters advising the Company to the
effect set forth above, forthwith prepare, consult with the
Underwriters concerning the substance of, and consult with
Company counsel to determine whether or not it is advisable,
under the circumstances, to disseminate a press release or
other public statement, reasonably satisfactory to the
Underwriters, responding to or commenting on such rumor,
publication or event.
(b) COVENANTS OF THE SELLING SHAREHOLDERS. Each Selling
Shareholder severally covenants and agrees with each of the Underwriters and
the Company that:
(i) During the period beginning from the date
hereof and continuing to and including the date 180 days after
the date of the Prospectus, such Selling Shareholder will not,
without the
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<PAGE> 14
prior written consent of the Underwriters, offer, pledge,
issue, sell, contract to sell, grant any option for the sale.
of, or otherwise dispose of (or announce any offer, pledge,
sale, grant of an option to purchase or other disposition),
directly or indirectly, any shares of Common Stock or
securities convertible into, exercisable or exchangeable for,
shares of Common Stock.
(ii) Such Selling Shareholder will not (A) take,
directly or indirectly, prior to the termination of the
underwriting syndicate contemplated by this Agreement, any
action designed to cause or to result in, or that might
reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to
facilitate the sale or resale of any of the Shares, (B) sell,
bid for, purchase or pay anyone any compensation for
soliciting purchases of, the Shares or (C) pay to or agree to
pay any person any compensation for soliciting another to
purchase any other securities of the Company.
(iii) In order to document the Underwriters'
compliance with the reporting and withholding provisions of
the Internal Revenue Code of 1986, as amended, with respect to
the transactions herein contemplated, each of the Selling
Shareholders agrees to deliver to the Underwriters prior to or
at the First Time of Delivery a properly completed and
executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department
regulations in lieu thereof).
6. EXPENSES. The Company and each of the Selling Shareholders
will pay all costs and expenses incident to the performance of their respective
obligations under this Agreement, (in such proportion as may have been or may
be agreed upon among them or, in the absence of such agreement, in proportion
to the number of Firm Shares sold by each of them) whether or not the
transactions contemplated hereby are consummated or this Agreement is
terminated pursuant to Section 10 hereof, including, without limitation, all
costs and expenses incident to (i) the fees, disbursements and expenses of the
Company's counsel and accountants in connection with the registration of the
Shares under the Act and all other expenses in connection with the preparation,
printing and, if applicable, filing of the Registration Statement (including
all amendments thereto), any Preliminary Prospectus, the Prospectus and any
amendments and supplements thereto, and any blue sky memoranda; (ii) the
delivery of copies of the foregoing documents and this Agreement to the
Underwriters; (iii) the filing fees of the Commission and the National
Association of Securities Dealers, Inc. relating to the Shares; (iv) the
preparation, issuance and delivery to the Underwriters of any certificates
evidencing the Shares, including transfer agent's and registrar's fees; (v) the
qualification of the Shares for offering and sale under state securities and
blue sky laws, including filing fees and the reasonable fees and disbursements
of counsel for the Underwriters relating thereto; (vi) any listing of the
Shares on the Nasdaq National Market and (vii) any expenses for travel, lodging
and meals incurred by the Company and any of its officers, directors and
employees in connection with any meetings with prospective investors in the
Shares. In addition, each Selling Shareholder will pay (unless the Company
agrees to make such payment) all costs and expenses incident to (i) the fees,
disbursements and expenses of any special counsel retained by such Selling
Shareholder, (ii) such Selling Shareholder's pro rata share of the fees and
expenses of the Attorneys-in-Fact and the Custodian, and (iii) the sale and
delivery of the Shares to be sold by such Selling Shareholder to the
Underwriters hereunder. It is understood, however, that, except as provided in
this Section, Section 8 and Section 10 hereof, the Underwriters will pay all of
their own costs and expenses, including the fees of their counsel, stock
transfer taxes on resale of any of the Shares by them, and any advertising
expenses relating to the offer and sale of the Shares.
7. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The several
obligations of the Underwriters hereunder to purchase and pay for the Shares to
be delivered at each Time of Delivery shall be subject, in their discretion, to
the accuracy of the representations and warranties of the Company and the
Selling Shareholders contained herein as of the date hereof and as of such Time
of Delivery, to the accuracy of the statements of Company officers made
pursuant to the provisions hereof, to the performance by the Company and the
Selling
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<PAGE> 15
Shareholders of their respective covenants and agreements hereunder, and to the
following additional conditions precedent:
(a) If the registration statement as amended to date has
not become effective prior to the execution of this Agreement, such
registration statement shall have been declared effective not later than 11:00
a.m., Eastern time, on the date of this Agreement or such later date and time
as shall have been consented to by the Underwriters in writing. If required,
the Prospectus and any amendment or supplement thereto shall have been filed
with the Commission pursuant to Rule 424(b) within the applicable time period
prescribed for such filing and in accordance with Section 5(a) of this
Agreement; no stop order suspending the effectiveness of the Registration
Statement or any part thereof shall have been issued and no proceedings for
that purpose shall have been instituted, threatened or, to the knowledge of the
Company and the Underwriters, contemplated by the Commission; and all requests
for additional information on the part of the Commission shall have been
complied with to the reasonable satisfaction of the Underwriters.
(b) Holland & Knight, counsel for the Underwriters, shall
have furnished to the Underwriters such opinion or opinions, dated such Time of
Delivery, with respect to the incorporation of the Company, the validity of the
Firm Shares or Optional Shares, as the case may be, being delivered at such
Time of Delivery, the Registration Statement, the Prospectus, and other related
matters as the Underwriters may reasonably request which opinion the
Underwriters shall use their best efforts to cause said firm to furnish, and
the Company shall have furnished to such counsel such documents as such counsel
or the Underwriters request prior to such Time of Delivery for the purpose of
enabling them to pass upon such matters.
(c) The Underwriters shall have received an opinion,
dated at each Time of Delivery, of Foley & Lardner, to the effect that:
(i) The Company and each of its subsidiaries has
been duly organized, is validly existing under the laws of its
jurisdiction of organization and has the power and authority
to own or lease its properties and conduct its business as
described in the Registration Statement and the Prospectus and
the Company has the power and authority to enter into this
Agreement and perform its obligations hereunder. The Company
and each of its subsidiaries is duly qualified to transact
business under the laws of each jurisdiction in which it owns
or leases property, or conducts any business, so as to require
such qualification, except where the failure to so qualify
would not have a Material Adverse Effect.
(ii) The Company's authorized, issued and
outstanding capital stock is set forth in the Prospectus. All
of the issued shares of Common Stock of the Company (including
the Shares to be sold by the Selling Shareholders) have been
duly authorized and validly issued, are fully paid and
nonassessable and conform to the description of the Common
Stock contained in the Prospectus. None of the issued shares
of capital stock of the Company has been issued or is owned or
held in violation of any preemptive rights of shareholders,
and no person or entity (including any holder of outstanding
shares of capital stock of the Company) has any statutory
preemptive or, to the knowledge of such counsel, other rights
to subscribe for any of the Shares.
(iii) The Company has no subsidiaries other than
those listed on Exhibit 21 to the Registration Statement and,
to the knowledge of such counsel, does not have any ownership
interest in any partnership, joint venture or other entity or
association. The Company owns 100% of the issued and
outstanding capital stock of each of its subsidiaries listed
on such Exhibit 21.
(iv) Except as disclosed in the Prospectus, to the
knowledge of such counsel there are no outstanding (A)
securities or obligations of the Company convertible into or
exchangeable for any capital stock of the Company, (B)
warrants, rights or options to subscribe for or purchase from
the Company any such capital stock or any such convertible or
exchangeable securities or obligations, or (C) obligations of
the Company to issue any shares of capital stock, any such
convertible or exchangeable securities or
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<PAGE> 16
obligations, or any such warrants, rights or options.
(v) The Shares to be issued and sold by the
Company have been duly authorized and, when issued and
delivered against payment therefor as provided herein, will be
validly issued and fully paid and nonassessable and will
conform to the description of the Common Stock contained in
the Prospectus, and the certificates evidencing the Shares
will comply with all applicable requirements of Florida law.
(vi) Except as disclosed in the Prospectus, to the
knowledge of such counsel there are no contracts, agreements
or understandings between the Company and any person granting
such person the right to require the Company to file a
registration statement under the Act with respect to any
securities of the Company owned or to be owned by such person
or to require the Company to include such securities in the
securities registered pursuant to the Registration Statement
(or any such right has been effectively exercised or waived)
or in any securities being registered pursuant to any other
registration statement filed by the Company under the Act.
(vii) All offers and sales of the Company's capital
stock prior to the date hereof were at all relevant times duly
registered under the Act or exempt from the registration
requirements of the Act and were duly registered or qualified
or were the subject of an available exemption from the
registration or qualification requirements of the applicable
state securities or blue sky laws (or are not required to be
so registered or qualified because such requirement to
register or qualify is barred by an applicable statute of
limitations with respect to any failure to so register or
qualify).
(viii) The Company is not, nor with the giving of
notice or passage of time or both, will it be in violation of
its Articles of Incorporation or Bylaws or in default under
any material indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument known to
such counsel to which the Company is a party or to which any
of its properties or assets is subject.
(ix) The issue and sale of the Shares being issued
at such Time of Delivery and the performance of this Agreement
and the consummation of the transactions herein contemplated
will not conflict with, or (with or without the giving of
notice or the passage of time or both) result in a breach or
violation of any of the terms or provisions of, or constitute
a default under, any material indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument
known to such counsel to which the Company is party or to
which any of its properties or assets is subject, nor will
such action conflict with or violate any provision of the
Articles of Incorporation or Bylaws of the Company or any
statute, rule or regulation or, to the extent known to such
counsel, any order, judgment or decree of any court or
governmental agency or body known having jurisdiction over the
Company or any of its properties or assets.
(x) No consent, approval, authorization, order or
declaration of or from, or registration, qualification or
filing with, any court or governmental agency or body is
required for the issue and sale of the Shares or the
consummation of the transactions contemplated by this
Agreement, except the registration of the Shares under the Act
and such as may be required under state securities or blue sky
laws in connection with the offer, sale and distribution of
the Shares by the Underwriters.
(xi) To such counsel's knowledge, and other than
as disclosed in or contemplated by the Prospectus, (A) there
is no litigation, arbitration, claim, proceeding (formal or
informal) or
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<PAGE> 17
investigation pending or threatened (or any basis therefor) in
which the Company or any of its subsidiaries is a party or of
which any of its properties or assets is the subject which, if
determined adversely to the Company or any of its subsidiaries
would individually or in the aggregate have a Material Adverse
Effect; and (B) neither the Company nor any of its
subsidiaries is in violation of, or in default with respect
to, any foreign or domestic statute, rule, regulation, order,
judgment or decree, including, without limitation, the Foreign
Corrupt Practices Act of 1977, as amended, or any export
control Laws or Executive Orders issued pursuant to those Laws
nor is the Company or any of its subsidiaries required to take
any action in order to avoid any such violation or default in
any case where such violations or defaults would individually
or in the aggregate have a Material Adverse Effect.
(xii) This Agreement has been duly authorized,
executed and delivered by the Company.
(xiii) The Registration Statement and the Prospectus
and each amendment or supplement thereto (other than the
financial statements and related schedules therein, as to
which such counsel need express no opinion), as of their
respective effective or issue dates, complied as to form in
all material respects with the requirements of the Act and the
Rules and Regulations thereunder. The descriptions in the
Registration Statement and the Prospectus of statutes and
legal and governmental proceedings or contracts and other
documents are accurate and fairly present the information
required to be shown; and such counsel does not know of any
statutes or legal or governmental proceedings required to be
described in the Registration Statement or Prospectus that are
not described as required or of any contracts or documents of
a character required to be described in the Registration
Statement or Prospectus or to be filed as exhibits to the
Registration Statement which are not described and filed as
required.
(xiv) The Registration Statement is effective under
the Act, any required filing of the Prospectus pursuant to
Rule 424(b) has been made in the manner and within the time
period required by Rule 424(b); and no stop order suspending
the effectiveness of the Registration Statement or any part
thereof has been issued and, to such counsel's knowledge, no
proceedings for that purpose have been instituted or
threatened or are contemplated by the Commission.
(xv) The Company is not, and will not be as a
result of the consummation of the transactions contemplated by
this Agreement, an "investment company," or a company
"controlled" by an "investment company," within the meaning of
the Investment Company Act of 1940.
In rendering any such opinion, such counsel may rely, as to
matters of fact, to the extent such counsel deems proper, on warranties,
representations and certificates of responsible officers of the Company and
public officials and, as to matters involving the application of laws of any
jurisdiction other than Florida or the United States, to the extent
satisfactory in form and scope to counsel for the Underwriters, upon the
opinion of local counsel reasonably satisfactory to counsel for the
Underwriters, provided that such counsel states such counsel believes that the
Underwriters are justified in relying upon such opinion and copies of such
opinion are delivered to the Underwriters and counsel for the Underwriters.
In addition, such counsel shall state that (i) based solely
upon a letter from The Nasdaq Stock Market Inc. to the Company attached to such
counsel's opinion, the Firm Shares, the outstanding shares, and the Optional
Shares have been duly included for trading on the Nasdaq National Market upon
issuance of the Shares and (ii) such counsel has participated in conferences
with officers and other representatives of the Company and the Underwriters and
their counsel during which the contents of the Registration Statement and the
Prospectus and related matters were discussed and reviewed, and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration
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<PAGE> 18
Statement or the Prospectus, on the basis of the information that such counsel
developed in the course of the performance of the services referred to above,
considered in the light of such counsel's understanding of the applicable law,
that nothing came to their attention that caused them to believe that the
Registration Statement or the Prospectus (other than the financial statements
and schedules and the other financial and statistical data therein, as to which
such counsel need express no belief), on such effective date, contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading.
(d) The Underwriters shall have received an opinion,
dated such Time of Delivery of Foley & Lardner, counsel to the Selling
Shareholders, such opinion to be in form and substance reasonably satisfactory
to the Underwriters and to counsel to the Underwriters, to the effect:
(i) A Custody Agreement and Power of Attorney has
been duly executed and delivered by each Selling Shareholder,
which is irrevocable and enforceable against such Selling
Shareholder in accordance with its terms subject, as to
enforcement, to applicable bankruptcy, insolvency,
reorganization and moratorium laws and other laws relating to
or affecting the enforcement of creditors' rights generally
and to general equitable principles and except as the
enforceability of rights to indemnity and contribution under
this Agreement may be limited under applicable securities laws
or the public policy underlying such laws.
(ii) This Agreement has been duly executed and
delivered by or on behalf of such Selling Shareholder; the
sale of the Shares to be sold by such Selling Shareholder at
such Time of Delivery and the performance of this Agreement,
the Custody Agreement and Power of Attorney and the
consummation of the transactions herein and therein
contemplated will not, if applicable, result in the violation
of any provisions of the Articles of Incorporation, By-laws,
or other governing documents of such Selling Shareholder, or
conflict with, or (with or without the giving of notice or the
passage of time or both) result in a breach or violation of
any of the terms or provisions of any law or regulation, or
constitute a default under, any material indenture, mortgage,
deed of trust, loan agreement, lease or other amendment or
instrument known to such counsel to which such Selling
Shareholder is a party or to which any of its properties or
assets is subject, nor will such action conflict with or
violate any provision of any statute, rule or regulation or
any order, judgment or decree of any court or governmental
agency or body known to such counsel having jurisdiction over
such Selling Shareholder or any of such Selling Shareholder's
properties or assets.
(iii) No consent, approval, authorization, order or
declaration of or from, or registration, qualification or
filing with, any court or governmental agency or body is
required for the issue and sale of the Shares being sold by
such Selling Shareholder or the consummation of the
transactions contemplated by this Agreement, the Custody
Agreement and Power of Attorney, except the registration of
such Shares under the Act and such as may be required under
state securities or blue sky laws in connection with the
offer, sale and distribution of such Shares by the
Underwriters.
(iv) Delivery of certificates for the Shares by
such Selling Shareholders pursuant to the terms hereof will
pass valid and marketable title thereto to each Underwriter
that purchased Shares for value in good faith and without
notice of any adverse claim with respect thereto within the
meaning of the Uniform Commercial Code as in effect in
Florida, free and clear of all liens,
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<PAGE> 19
security interests, pledges, charges, encumbrances, defects,
stockholders' agreements, voting trusts, equities or claims of
any nature whatsoever arising under or through the Selling
Shareholder.
(v) To such counsel's knowledge, the information
concerning the Selling Shareholders contained in the
Prospectus under the caption "Principal and Selling
Shareholders" complies in all material respects with the Act.
(e) The Underwriters shall have received from Coopers &
Lybrand, LLP, a letter dated the date hereof (or, if the Registration Statement
has been declared effective prior to the execution and delivery of this
Agreement, dated such effective date and the date of this Agreement) and each
Time of Delivery, in form and substance satisfactory to the Underwriters, to
the effect set forth in Annex I hereto. In the event that the letters referred
to in this Section 7(e) set forth any changes, decreases or increases in the
items specified in clause (iii) of Annex I, it shall be a further condition to
the obligations of the Underwriters that (i) such letters shall be accompanied
by a written explanation by the Company as to the significance thereof, unless
the Underwriters deem such explanation unnecessary, and (ii) such changes,
decreases or increases do not, in the sole business judgment of the
Underwriters, make it impracticable or inadvisable to proceed with the
purchase, sale and delivery of the Shares being delivered at such Time of
Delivery as contemplated by the Registration Statement, as amended as of the
date of such letter.
(f) Since the date of the latest audited financial
statements included in the Prospectus, the Company shall not have sustained (i)
any loss or interference with its business from fire, explosion, flood,
hurricane or other calamity, whether or not covered by insurance, or from any
labor dispute or court or governmental action, order or decree, otherwise than
as disclosed in or contemplated by the Prospectus, or (ii) any change, or any
development involving a prospective change (including without limitation a
change in management or control of the Company), in or affecting the position
(financial or otherwise), results of operations, net worth or business
prospects of the Company, otherwise than as disclosed in or contemplated by the
Prospectus, the effect of which, in either such case, is in the sole business
judgment of the Underwriters so material and adverse as to make it
impracticable or inadvisable to proceed with the purchase, sale and delivery of
the Shares being delivered at such Time of Delivery as contemplated by the
Registration Statement, as amended as of the date hereof.
(g) Subsequent to the date hereof there shall not have
occurred any of the following: (i) any suspension or limitation in trading in
securities generally on the New York or American Stock Exchanges, or The Nasdaq
National Market or any setting of minimum prices for trading on such exchanges
or Market or trading in the Common Stock shall have been suspended by the
Commission or The Nasdaq Stock Market; (ii) a moratorium on commercial banking
activities in New York or Florida declared by either federal or state
authorities; or (iii) any outbreak or escalation of hostilities involving the
United States, declaration by the United States of a national emergency or war
or any other national or international calamity, emergency, crisis or change in
political, financial or economic condition or other material event, if the
effect of any such event specified in this clause (iii) in the sole business
judgment of the Underwriters makes it impractical or inadvisable to proceed
with the purchase, sale and delivery of the Shares to be delivered at such Time
of Delivery as contemplated by the Registration Statement, as amended as of the
date hereof, and this Agreement.
(h) The Company shall have furnished to the Underwriters
at such Time of Delivery certificates of officers of the Company and
certificates of the Attorney-in-Fact for the Selling Shareholders, reasonably
satisfactory to the Underwriters, as to the accuracy in all material respects
of the representations and warranties of the Company and such Selling
Shareholders herein at and as of such Time of Delivery, as to the performance
by the Company and such Selling Shareholders of all of their respective
obligations hereunder to be performed at or prior to such Time of Delivery, and
as to such other matters as the Underwriters may reasonably
19
<PAGE> 20
request, and the Company shall have furnished or caused to be furnished
certificates as to the matters set forth in subsections (a) and (f) of this
Section 7, and as to such other matters as the Underwriters may reasonably
request.
(i) The Shares shall have been approved for trading upon
notice of issuance on The Nasdaq National Market.
(j) The Lockup Letters shall have been delivered to the
Underwriters and the Company shall have noted the restrictions contained in
such Lockup Letters on the books and records of the Company relating to stock
transfers and on any certificates representing shares of Common Stock held by
such persons.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company and the Principal Shareholder jointly and
severally agree to indemnify and hold harmless each Underwriter against any
losses, claims, damages or liabilities, joint or several, to which such
Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon: (i) any untrue statement or alleged untrue statement
made by the Company and the Principal Shareholder in Section 1(a) of this
Agreement; (ii) any untrue statement or alleged untrue statement of any
material fact contained in (A) the Registration Statement or any amendment
thereto, any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or (B) any application or other document, or any amendment
or supplement thereto, executed by the Company or based upon written
information furnished by or on behalf of the Company filed in any jurisdiction
in order to qualify the Shares under the securities or blue sky laws thereof or
filed with the Commission or any securities association or securities exchange
(each an "Application"); or (iii) the omission or alleged omission to state in
the Registration Statement or any amendment thereto, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto, or any
Application a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse each Underwriter for
any legal or other expenses reasonably incurred by such Underwriter in
connection with investigating, defending against or appearing as a third-party
witness in connection with any such loss, claim, damage, liability or action;
provided, however, that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage, liability or action arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement or any Amendment thereto,
any Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto or any Application in reliance upon and in conformity with written
information furnished to the Company by any Underwriter expressly for use
therein. The obligations of the Company and the Principal Shareholder to
indemnify the Underwriters (and any controlling person of each Underwriter)
pursuant to this Agreement is subject to the condition that, insofar as such
losses, claims, damages, liabilities or expenses relate to any such untrue
statement, alleged untrue statement, omission or alleged omission made in a
Preliminary Prospectus that is corrected in the Prospectus, such indemnity
agreement shall not inure to the benefit of any Underwriter from whom the
person asserting such losses, liabilities, claims, damages or expenses
purchased the Shares in the Offering, if (i) such Underwriter failed to deliver
a copy of the Prospectus to such person at or prior to the time delivery of the
Prospectus is required by the Act, unless such failure was due to the failure
by the Company to provide copies of the Prospectus to such Underwriter; and
(ii) the delivery of such Prospectus to such person would have constituted a
complete defense to the losses, claims, damages, liabilities or expenses
asserted by such person. Neither the Company nor the Principal Shareholder will
without the prior written consent of each Underwriter, settle or compromise or
consent to the entry of any judgment in any pending or threatened claim,
action, suit or proceeding (or related cause of action or portion thereof) in
respect of which indemnification may be sought hereunder (whether or not such
Underwriter is a party to such claim, action, suit or proceeding), unless such
settlement, compromise or consent includes an unconditional release of such
Underwriter from all liability arising out of such claim, action, suit or
proceeding (or related cause of action or portion thereof). Notwithstanding the
foregoing provisions of this Section 8(a), the Underwriters shall not be
entitled to indemnity or contribution from the Principal Shareholder in excess
of the net proceeds of the offering (before deducting expenses) received by
such Principal Shareholder, unless any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in the Registration Statement or any
amendment or supplement
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<PAGE> 21
thereto, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto or any Application in reliance upon and conformity with
written information furnished to the Company by the Principal Shareholder
expressly for use therein, in which case such limitation of liability of such
Principal Shareholder shall not apply.
(b) Each Selling Shareholder, severally but not jointly,
agrees to indemnify and hold harmless the Company and each Underwriter against
any losses, claims, damages or liabilities, joint or several, to which the
Company or such Underwriter may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon: (i) any untrue statement or alleged
untrue statement made by such Selling Shareholder in Section 1(b) of this
Agreement; or (ii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment thereto,
any Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto, or any Application or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
each Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating, defending against or appearing as
a third-party witness in connection with any such loss, claim, damage,
liability or action; provided, however, that such Selling Shareholder shall be
liable in any such case only to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement or any amendment thereto, any Preliminary Prospectus,
the Prospectus or any amendment or supplement thereto or any Application, in
reliance upon and in conformity with written information furnished to the
Company by such Selling Shareholder expressly for use therein. The obligations
of the Selling Shareholders to indemnify the Underwriters (or any controlling
person of such Underwriter) pursuant to this indemnity agreement is subject to
the condition that, insofar as such losses, claims, damages, liabilities or
expenses relate to any such untrue statement, alleged untrue statement,
omission or alleged omission made in a Preliminary Prospectus that is corrected
in the Prospectus, such indemnity agreement shall not inure to the benefit of
any Underwriter from whom the person asserting such losses, liabilities,
claims, damages or expenses purchased the Shares in the Offering, if (i) such
Underwriter failed to deliver a copy of the Prospectus to such person at or
prior to the time delivery of the Prospectus is required by the Act, unless
such failure was due to the failure by the Company to provide copies of the
Prospectus to such Underwriter; and (ii) the delivery of such Prospectus to
such person would have constituted a complete defense to the losses, claims,
damages, liabilities or expenses asserted by such person. The Selling
Shareholders will not, without the prior written consent of each Underwriter,
settle or compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding (or related cause of action or
portion thereof) in respect of which indemnification may be sought hereunder
(whether or not such Underwriter is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of such Underwriter from all liability arising out of
such claim, action, suit or proceeding (or related cause of action or portion
thereof). Notwithstanding the foregoing provisions of this Section 8(b), the
Underwriters shall not be entitled to indemnity or contribution from any
Selling Shareholder in excess of the net proceeds of the offering (before
deducting expenses) received by such Selling Shareholder, unless any such loss,
claim, damage or liability arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in the
Registration Statement or any amendment or supplement thereto, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto or any
Application in reliance upon and in conformity with written information
furnished to the Company by such Selling Shareholder expressly for use therein,
in which case such limitation of liability of such Selling Shareholders shall
not apply.
(c) Each Underwriter, severally but not jointly, agrees
to indemnify and hold harmless the Company and each Selling Shareholder and
their directors and officers who sign the Registration Statement and any person
who controls the Company within the meaning of Section 15 of the Act or Section
20 of the Exchange Act, against any losses, claims, damages or liabilities to
which the Company or any Selling Shareholder may become subject under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the Registration
Statement or any amendment thereto, any Preliminary Prospectus, the Prospectus
or any amendment or supplement thereto, or any Application or arise out of or
are based upon the omission or alleged
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<PAGE> 22
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such
Underwriter expressly for use therein; and will reimburse the Company and each
Selling Shareholder and their directors and officers who sign the Registration
Statement and any person who controls the Company within the meaning of Section
15 of the Act or Section 20 of the Exchange Act, for any legal or other
expenses reasonably incurred by the Company or such Selling Shareholder and
their directors and officers who sign the Registration Statement and any person
who controls the Company within the meaning of Section 15 of the Act or Section
20 of the Exchange Act, in connection with investigating or defending any such
loss, claim, damage, liability or action.
(d) Promptly after receipt by an indemnified party under
subsection (a), (b) or (c) above of notice of the commencement of any action,
such indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under such subsection, notify the indemnifying
party in writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the
indemnifying party); provided, however, that if the defendants in any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded based upon written advice of
counsel that there may be one or more legal defenses available to it or other
indemnified parties that are different from or additional to those available to
the indemnifying party, the indemnifying party shall not have the right to
assume the defense of such action on behalf of such indemnified party and such
indemnified party shall have the right to select separate counsel to defend
such action on behalf of such indemnified party, provided, further, however,
that the Company shall be liable for the fees and expenses of only one separate
firm of attorneys (in addition to local counsel) for all indemnified parties at
any time in connection with any action, suit or proceeding or in a series of
separate but substantially similar or related actions, suits or proceedings
arising out of the same general allegations and circumstances. After such
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof and approval by such indemnified party of counsel
appointed to defend such action, the indemnifying party will not be liable to
such indemnified party under this Section 8 for any legal or other expenses,
other than reasonable costs of investigation, subsequently incurred by such
indemnified party in connection with the defense thereof, unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence or (ii) the indemnifying party has
authorized the employment of counsel for the indemnified party at the expense
of the indemnifying party. Nothing in this Section 8(d) shall preclude an
indemnified party from participating at its own expense in the defense of any
such action so assumed by the indemnifying party.
(e) If the indemnification provided for in this Section 8
is unavailable to or insufficient to hold harmless an indemnified party under
subsection (a), (b), (c) or (d) above in respect of any losses, claims, damages
or liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Company and the Selling Shareholders on
the one hand and the Underwriters on the other from the offering of the Shares.
If, however, the allocation provided by the immediately preceding sentence is
not permitted by applicable law, then each indemnifying party shall contribute
to such amount paid or payable by such indemnified party in such proportion as
is appropriate to reflect not only such relative benefits but also the relative
fault of the Company and the Selling Shareholders on the one hand and the
Underwriters on the other in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Shareholders on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses)
received by the Company and the Selling Shareholders bear
22
<PAGE> 23
to the total underwriting discounts and commissions received by the
Underwriters. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company or the Selling Shareholders on the one hand
or the Underwriters on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company, the Selling Shareholders and the Underwriters agree that
it would not be just and equitable if contributions pursuant to this subsection
(e) were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above
in this subsection (e). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this subsection (e) shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (e), (i) no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission, (ii) no Selling Shareholder shall be
required to contribute any amount in excess of the amount by which the net
proceeds received by such Selling Shareholder from the sale of Shares exceeds
the damages which such Selling Shareholder has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission, and (iii) no person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations in this subsection (e) to contribute are several in
proportion to their respective underwriting obligations and not joint.
(f) The obligations of the Company and the Selling
Shareholders under this Section 8 shall be in addition to any liability which
the Company or such Selling Shareholders may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company and any
Selling Shareholder and to each person, if any, who controls the Company or any
Selling Shareholder within the meaning of the Act.
9. DEFAULT OF UNDERWRITER.
(a) If any Underwriter defaults in its obligation to
purchase Shares that it has agreed to purchase at a Time of Delivery, the other
Underwriters, in their discretion, may arrange for their purchase of, or for
another party or other parties to purchase, such Shares on the terms contained
herein. If within thirty-six (36) hours after such default by any Underwriter
the Underwriters do not arrange for the purchase of such Shares, the Company
and the Selling Shareholders shall be entitled to a further period of
thirty-six hours within which to procure another party or other parties
satisfactory to the Underwriters to purchase such Shares on such terms. In the
event that, within the respective prescribed periods, the Underwriters notify
the Company and the Selling Shareholders that they have so arranged for the
purchase of such Shares, or the Company and the Selling Shareholders notify the
Underwriters that they have so arranged for the purchase of such Shares, the
Underwriters or the Company and the Selling Shareholders shall have the right
to postpone a Time of Delivery for a period of not more than seven days in
order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus that in the opinion of the
Underwriters may thereby be made necessary. The cost of preparing, printing and
filing any such amendments shall be paid for by the Underwriters. The term
"Underwriter" as used in this Agreement shall include any person substituted
under this Section with like effect as if such person had originally been a
party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the
purchase of the Shares of a defaulting Underwriter or Underwriters by the
Underwriters and the Company and the Selling Shareholders as provided in
23
<PAGE> 24
subsection (a) above, the aggregate number of such Shares which remains
unpurchased does not exceed one-eleventh of the aggregate number of Shares to
be purchased at such Time of Delivery, then the Company and the Selling
Shareholders shall have the right to require each non-defaulting Underwriter to
purchase the number of Shares which such Underwriter agreed to purchase
hereunder at such Time of Delivery and, in addition, to require each
non-defaulting Underwriter to purchase its pro rata share (based on the number
of Shares which such Underwriter agreed to purchase hereunder) of the Shares of
such defaulting Underwriter or Underwriters for which such arrangements have
not been made, but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
10. TERMINATION.
(a) This Agreement may be terminated with respect to the
(i) the Firm Shares or (ii) any Optional Shares, in the sole discretion of the
Underwriters, by notice to the Company given prior to the First Time of
Delivery or any Subsequent Time of Delivery, respectively, in the event that
(i) any condition to the obligations of the Underwriters set forth in Section 7
hereof has not been satisfied, or (ii) the Company or the Selling Shareholders
shall have failed, refused or been unable to deliver the Shares or to perform
all obligations and satisfy all conditions on their respective parts to be
performed or satisfied hereunder at or prior to such Time of Delivery, in
either case other than by reason of a default by any of the Underwriters. If
this Agreement is terminated pursuant to this Section 10(a), the Company will
reimburse the Underwriters severally upon demand for all out-of-pocket expenses
(including reasonable counsel fees and disbursements) that shall have been
reasonably incurred by them in connection with the proposed purchase and sale
of the Shares. Neither the Company nor any Selling Shareholder shall in any
event be liable to any of the Underwriters for the loss of anticipated profits
from the transactions covered by this Agreement.
(b) If, after giving effect to any arrangements for the
purchase of the Shares of a defaulting Underwriter by the Underwriters and the
Company and the Selling Shareholders as provided in Section 9(a), the aggregate
number of such Shares that remains unpurchased exceeds one-eleventh of the
aggregate number of Shares to be purchased at such Time of Delivery, or if the
Company and the Selling Shareholders shall not exercise the right described in
Section 9(b) to require non-defaulting Underwriters to purchase Shares of a
defaulting Underwriter or Underwriters, then this Agreement (or, with respect
to a Subsequent Time of Delivery, the obligations of the Underwriters to
purchase and of the Company to sell the Optional Shares) shall thereupon
terminate, without liability on the part of any non-defaulting Underwriter, the
Company or the Selling Shareholders, except for the expenses to be borne by the
Company, the Selling Shareholders and the Underwriters as provided in Section 6
hereof and the indemnity and contribution agreements in Section 8 hereof; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default,
11. SURVIVAL. The respective indemnities, agreements,
representations, warranties and other statements of the Company, its officers,
the Selling Shareholders and the several Underwriters, as set forth in this
Agreement or made by or on behalf of them, respectively, pursuant to this
Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person referred to in Section 8(f) or the
Company, any Selling Shareholder or any officer or director or controlling
person of the Company or any Selling Shareholder referred to in Section 8(f),
and shall survive delivery of and payment for the Shares. The respective
agreements, covenants, indemnities and other statements set forth in Sections 6
and 8 hereof shall remain in full force and effect, regardless of any
termination or cancellation of this Agreement.
12. NOTICES. All communications hereunder shall be in writing and,
if sent to any of the Underwriters, shall be mailed, delivered by courier or
faxed and confirmed in writing to the Underwriters in care of Raymond James &
Associates, Inc., 880 Carillon Parkway, St. Petersburg, Florida 33716,
Attention: John H. Hill, Jr., with a copy to Holland & Knight, 400 North Ashley
Drive, Suite 2300, Tampa, Florida 33602, Attention Michael L. Jamieson, Esq.;
and if sent to the Company or any Selling Shareholder, shall be mailed,
delivered by courier or faxed and confirmed in writing to the Company at 100
North Tampa Street, Suite 3900, Tampa, Florida 33602, with
24
<PAGE> 25
a copy to Foley & Lardner, 100 North Tampa Street, Suite 2700, Tampa, Florida
33602, Attention Martin A. Traber, Esq. Notices sent by mail shall be
effective three days after mailing, but notices otherwise transmitted shall be
effective upon receipt.
13. ACTION BY THE UNDERWRITERS. Any action under this Agreement
taken by Raymond James & Associates, Inc. will be binding upon the
Underwriters.
14. BINDING EFFECT. This Agreement shall be binding upon, and
inure solely to the benefit of, the Underwriters, the Company and the Selling
Shareholders and to the extent provided in Sections 8 and 10 hereof, the
officers and directors and controlling persons referred to therein and their
respective heirs, executors, administrators, successors and assigns, and no
other person shall acquire or have any right under or by virtue of this
Agreement. No purchaser of any of the Shares from any Underwriter shall be
deemed a successor or assign by reason merely of such purchase.
15. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida without giving
effect to any provisions regarding conflicts of laws.
16. COUNTERPARTS. This Agreement may be executed by any one or
more of the parties hereto in any number of counterparts, each of which shall
be deemed to be an original, but all such counterparts shall together
constitute one and the same instrument.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us one of the counterparts hereof, and
upon the acceptance hereof by Raymond James & Associates, Inc., on behalf of
each of the Underwriters, this letter will constitute a binding agreement among
the Underwriters, the Company and the Selling Shareholders. It is understood
that your acceptance of this letter on behalf of each of the Underwriters is
pursuant to the authority set forth in the Master Agreement among Underwriters,
a copy of which shall be submitted to the Company and the Selling Shareholders
for examination, upon request, but without warranty on the part of the
Underwriters as to the authority of the signers thereof.
Very truly yours,
SYKES ENTERPRISES, INCORPORATED
By:
-----------------------------
Title:
--------------------------
SELLING SHAREHOLDERS LISTED ON
Schedule II
By:
-----------------------------
Attorney-in-Fact
25
<PAGE> 26
The foregoing Agreement is hereby confirmed and
accepted as of the date first written above,
October __, 1996.
RAYMOND JAMES & ASSOCIATES, INC.
By: Raymond James & Associates, Inc.
By:__________________________________________
As Representative and on behalf of each
of the Underwriters
26
<PAGE> 27
SCHEDULE I
<TABLE>
<CAPTION> NUMBER OF
NUMBER OF SELLING MAXIMUM NUMBER
COMPANY FIRM SHAREHOLDER FIRM TOTAL NUMBER OF OF OPTIONAL
SHARES TO BE SHARES TO BE FIRM SHARES TO SHARES TO BE
UNDERWRITER PURCHASED PURCHASED BE PURCHASED PURCHASED
----------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C>
</TABLE>
27
<PAGE> 28
SCHEDULE II
<TABLE>
<CAPTION>
Number of Optional
Total Shares to be Sold
Number of Firm (Maximum) if Over-
Shares to be allotment Option is
Company Sold Exercised
------- ---- ---------
<S> <C> <C>
Sykes Enterprises, Incorporated 1,553,320 390,000
Selling Shareholders (1):
John H. Sykes 250,000
David E. Garner 254,000
Gordon H. Kraft 337,000
Johan Holm 68,560
Arne Weinz 68,560
Norhold Invest AB 68,560
</TABLE>
(1) Each of the Selling Shareholders has executed and delivered a Custody
Agreement and Power of Attorney appointing John H. Sykes and Scott J.
Bendert as Attorneys-in-Fact.
28
<PAGE> 29
ANNEX I
Pursuant to Section 7(e) of the Underwriting Agreement, Coopers &
Lybrand, LLP, shall furnish a letter to the Underwriters to the effect that:
(i) they are independent public accountants with respect
to the Company within the meaning the Act and the applicable published
rules and regulations thereunder;
(ii) in their opinion, the financial statements and
schedules audited by them and included in the Prospectus and the
Registration Statement comply as to form in all material respects with
the applicable accounting requirements of the Act and the related
published rules and regulations thereunder;
(iii) On the basis of limited procedures, not constituting
an audit in accordance with generally accepted auditing standards,
consisting of a reading of the latest available interim financial
statements of the Company, inspection of the minute books of the
Company since the date of the latest audited financial statements
included in the Prospectus, inquiries of officials of the Company
responsible for financial accounting matters and such other inquiries
and procedures as may be specified in such letter, nothing came to
their attention that caused them to believe that:
(A) the unaudited financial statements of the
Company included in the Registration Statement and the
Prospectus do not comply in form in all material respects with
the applicable accounting requirements of the Act and the
related published rules and regulations thereunder or are not
in conformity with generally accepted principles applied on
the basis substantially consistent with that of the audited
financial statements included in the Registration Statement
and the Prospectus;
(B) the unaudited amounts for sales, net revenues
and total and per share amounts of net income included in the
Registration Statement and the Prospectus do not agree with
the amounts set forth in the unaudited financial statements
for those same periods or are not in conformity with generally
accepted accounting principles applied on a basis
substantially consistent with that of the corresponding
amounts in the audited financial statements included in the
Registration Statement and the Prospectus;
(C) as of a specified date not more than five
days prior to the date of such letter, there were any changes
in the capital stock (other than the issuance of capital stock
upon exercise of options that were outstanding on the date of
the latest balance sheet included in the Prospectus) or any
increase in inventories or the long-term debt or short-term
debt of the Company, or any decreases in net current assets or
net assets or other items specified by the Underwriters, or
any increases in any items specified by the Underwriters, in
each case as compared with amounts shown in the latest balance
sheet included in the Prospectus, except in each case for
changes, increases or decreases which the Prospectus discloses
have occurred or may occur or which are described in such
letter;
(D) for the period from the date of the latest
financial statements included in the Prospectus to the
specified date referred to in Clause (A) there were any
decreases in net sales or operating income or the total or per
share amounts of net income or other items specified by the
Underwriters, or any increases in any items specified by the
Underwriters, in each case as compared with the comparable
period of the preceding year and with any other period of
29
<PAGE> 30
corresponding length specified by the Underwriters, except in
each case for increases or decreases which the Prospectus
discloses have occurred or may occur which are described in
such letter; and
(iv) In addition to the audit referred to in their
report(s) included in the Prospectus and the limited procedures, inspection of
minute books, inquiries and other procedures referred to in paragraph (iii)
above, they have carried out certain specified procedures, not constituting an
audit in accordance with generally accepted auditing standards, with respect to
certain amounts, percentages and financial information specified by the
Underwriters which are derived from the general accounting records of the
Company, included in the Registration Statement and the Prospectus, or which
appear in Part II of, or in exhibits and schedules to, the Registration
Statement specified by the Underwriters, and have compared certain of such
amounts, percentages and financial information with the accounting records of
the Company and have found them to be in agreement.
References to the Registration Statement and the Prospectus in this
Annex I shall include any amendment or supplement thereto at the date of such
letter.
Pursuant to Section 7(e) of the Underwriting Agreement, Coopers &
Lybrand, LLP, shall furnish a letter to the Underwriters to the effect that:
(i) they are independent public accountants with
respect to the Company within the meaning the Act and the
applicable published rules and regulations thereunder;
(ii) in their opinion, the financial statements
and schedules audited by them and included in the Prospectus
and the Registration Statement comply as to form in all
material respects with the applicable accounting requirements
of the Act and the related published rules and regulations
thereunder.
30
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD] FOLEY & LARDNER
POST OFFICE BOX 240
JACKSONVILLE, FLORIDA 32201-0240
THE GREENLEAF BUILDING
200 LAURA STREET 32202-3527
TELEPHONE (904) 359 2000
FACSIMILE (904) 359-8700
September 20, 1996
Sykes Enterprises, Incorporated
100 N. Tampa Street, Suite 3900
Tampa, Florida 33602
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
This opinion is being furnished in connection with the Registration
Statement on Form S-1 (the "Registration Statement") of Sykes Enterprises,
Incorporated (the "Company"), under the Securities Act of 1933, as amended, for
the registration of 2,990,000 shares of common stock, par value $0.01 (the
"Shares").
We have examined and are familiar with the following:
(a) Articles of Incorporation of the Company as filed in the
Office of the Secretary of State of the State of Florida;
(b) Bylaws of the Company;
(c) The proceedings of the Board of Directors of the Company in
connection with or with respect to the issuance and sale of 1,553,320 of the
Shares (as well as the 390,000 Shares subject to the over-allotment option
described in the Registration Statement) to be sold by the Company to certain
underwriters pursuant to an underwriting agreement by and between
<PAGE> 2
Sykes Enterprises, Incorporated
September 20, 1996
Page 2
the Company, the Selling Stockholders (as defined therein) and the underwriters
named in the Registration Statement (the "Underwriting Agreement");
(d) The proceedings of the Board of Directors of the Company in
connection with or with respect to the execution of that certain Stock Option
Agreement by and between the Company and David E. Garner dated as of December
31, 1995 (the "Stock Option Agreement"); and
(e) Such other documents, Company records, and matters of law
as we deemed to be pertinent.
Based upon our examination of such documents and our familiarity with
such proceedings, it is our opinion that:
1. The Company has been duly incorporated and is validly
existing and in good standing under the laws of the State of Florida.
2. The 1,553,320 Shares covered by the Registration Statement
(as well as the 390,000 Shares subject to the over-allotment option described in
the Registration Statement) to be sold by the Company are duly authorized and
will, when the price therefor is duly approved by the Board of Directors of the
Company (or is duly approved on behalf thereof by the pricing committee approved
by the Board of Directors), and when issued and delivered to the underwriters
pursuant to the Underwriting Agreement against payment of the consideration
therefor specified therein, be duly and validly issued, fully paid and
nonassessable.
3. The 792,680 Shares covered by the Registration Statement
which are presently outstanding are to be sold by John H. Sykes, Gordon H.
Kraft, Johan Holm, Arne Weinz and Norhold Invest AB, as Selling Shareholders,
are duly authorized, legally issued, fully paid, and non-assessable.
<PAGE> 3
Sykes Enterprises, Incorporated
September 20, 1996
Page 3
4. The 254,000 Shares covered by the Registration Statement
which are to be acquired by David E. Garner pursuant to the exercise of opinions
granted under the Stock Option Agreement, and subsequently sold by such Selling
Shareholder, are duly authorized and will, when issued in accordance with the
terms of the Stock Option Agreement, be duly and validly issued, fully paid and
non-assessable.
We hereby consent to the inclusion of this opinion as Exhibit 5 in said
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus. In giving this consent, we do not thereby
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules or
regulations of the Securities Exchange Commission promulgated thereunder.
FOLEY & LARDNER
By: /s/ Linda Y. Kelso
-------------------------------------
Linda Y. Kelso
GRD:dkm
<PAGE> 1
EXHIBIT 11.1
Consolidated Financial Statements
Sykes Enterprises, Incorporated
Computation of Pro Forma Net Income Per Share
<TABLE>
<CAPTION>
Five months Six months ended
Years ended July 31, ended Year ended ----------------
-------------------- December 31, December 31, July 2, June 30,
1993 1994 1994 1995 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Pro forma net income $758,170 $470,023 $10,935 $ 1,330,946 $606,826 $2,624,570
=========== =========== =========== =========== =========== ===========
PRIMARY:
Common Shares 15,030,000 15,030,000 15,030,000 15,030,000 15,030,000 16,653,064
Convertible prefered shares 448,029 448,029 448,029 448,029 448,029 0
Stock option plans:
Shares under option at year end 762,000 762,000 762,000 762,000 762,000 978,160
Treasury Shares which could be purchased (287,867) (287,867) (287,867) (287,867) (287,867) (294,168)
----------- ----------- ----------- ----------- ----------- -----------
Pro forma weighted average common and common
equivalent shares outstanding 15,952,162 15,952,162 15,952,162 15,952,162 15,952,162 17,337,056
=========== =========== =========== =========== =========== ===========
Pro forma net income per share $0.05 $0.03 $0.00 $0.08 $0.04 $0.15
=========== =========== =========== =========== =========== ===========
FULLY DILUTED:
Common Shares 15,030,000 15,030,000 15,030,000 15,030,000 15,030,000 16,653,064
Convertible prefered shares 448,029 448,029 448,029 448,029 448,029 0
Stock option plans: 47,664
Shares under option at year end 762,000 762,000 762,000 762,000 762,000 978,160
Treasury Shares which could be purchased (287,867) (287,867) (287,867) (287,867) (287,867) (294,168)
----------- ----------- ----------- ----------- ----------- -----------
Pro forma weighted average common and common
equivalent shares outstanding 15,952,162 15,952,162 15,952,162 15,952,162 15,952,162 17,384,720
=========== =========== =========== =========== =========== ===========
Pro forma net income per share $0.05 $0.03 $0.00 $0.08 $0.04 $0.15
=========== =========== =========== =========== =========== ===========
</TABLE>
Supplemental Consolidated Financial Statements
Sykes Enterprises, Incorporated
Computation of Pro Forma Net Income Per Share
<TABLE>
<CAPTION>
Five months Six months ended
Years ended July 31, ended Year ended ----------------
-------------------- December 31, December 31, July 2, June 30,
1993 1994 1994 1995 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Pro forma net income $720,611 $594,592 ($178,999) $2,224,085 $879,465 $3,588,500
=========== =========== =========== =========== =========== ===========
PRIMARY:
Common Shares 15,951,819 15,951,819 15,951,819 15,951,819 15,951,819 17,574,882
Convertible prefered shares 448,029 448,029 448,029 448,029 448,029 0
Stock option plans:
Shares under option at year end 762,000 762,000 762,000 762,000 762,000 978,160
Treasury Shares which could be purchased (287,867) (287,867) (287,867) (287,867) (287,867) (294,168)
----------- ----------- ----------- ----------- ----------- -----------
Pro forma weighted average common and common
equivalent shares outstanding 16,873,981 16,873,981 16,873,981 16,873,981 16,873,981 18,258,874
=========== =========== =========== =========== =========== ===========
Pro forma net income per share $0.04 $0.04 $(0.01) $0.13 $0.05 $0.20
=========== =========== =========== =========== =========== ===========
FULLY DILUTED:
Common Shares 15,951,819 15,951,819 15,951,819 15,951,819 15,951,819 17,574,882
Convertible prefered shares 448,029 448,029 448,029 448,029 448,029 0
Stock option plans:
Shares under option at year end 762,000 762,000 762,000 762,000 762,000 978,160
Treasury Shares which could be purchased (287,867) (287,867) (287,867) (287,867) (287,867) (246,504)
----------- ----------- ----------- ----------- ----------- -----------
Pro forma weighted average common and common
equivalent shares outstanding 16,873,981 16,873,981 16,873,981 16,873,981 16,873,981 18,306,538
=========== =========== =========== =========== =========== ===========
Pro forma net income per share $0.04 $0.04 $(0.01) $0.13 $0.05 $0.20
=========== =========== =========== =========== =========== ===========
</TABLE>
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of Sykes Enterprises, Incorporated
Sykes Enterprises Incorporated Holdings B.V.
Sykes Incorporated of Canada
Sykes Realty, Inc.
DiagSoft, Inc.
and its wholly-owned subsidiary,
Maui Analysis and Synthesis Technologies, Inc.
Datasvar AB
and its wholly-owned subsidiary,
Twinpoint AB
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
reports dated February 23, 1996, except as to certain information in Notes 13
and 15 for which the dates are March 1, 1996 and August 30, 1996,
respectively, and our report dated September 16, 1996 on our audits of the
consolidated financial statements of Sykes Enterprises, Incorporated, and the
supplemental consolidated financial statements of Sykes Enterprises,
Incorporated, respectively. Additionally, we consent to the incorporation by
reference of our report dated August 2, 1996 on our audits of the consolidated
financial statements of DiagSoft, Inc. We also consent to the reference to our
firm under the captions "Experts," "Selected Consolidated Financial Data," and
"Additional Consolidated Financial Information."
/s/ Coopers & Lybrand L.L.P.
Tampa, Florida
September 20, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated February 19, 1996 on our audits of the Consolidated Financial
Statements of Datasvar Support AB. We also consent to the reference to our
firm under the caption "Experts".
Stockholm, Sweden
February 19, 1996
/s/ Jorgen Sandell
- ------------------
Jorgen Sandell
Authorized Public Accountant
Lindebergs Revisionbyra AB
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS OF SYKES ENTERPRISES FOR THE
PERIOD ENDED JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,261,296
<SECURITIES> 26,436,320
<RECEIVABLES> 21,103,404
<ALLOWANCES> 293,737
<INVENTORY> 0
<CURRENT-ASSETS> 50,782,984
<PP&E> 38,165,625
<DEPRECIATION> 10,234,432
<TOTAL-ASSETS> 79,849,627
<CURRENT-LIABILITIES> 16,032,231
<BONDS> 0
0
0
<COMMON> 200,265
<OTHER-SE> 53,203,691
<TOTAL-LIABILITY-AND-EQUITY> 79,849,627
<SALES> 1,808,207
<TOTAL-REVENUES> 52,467,150
<CGS> 0
<TOTAL-COSTS> 29,440,832
<OTHER-EXPENSES> 16,709,580
<LOSS-PROVISION> 69,092
<INTEREST-EXPENSE> 250,282
<INCOME-PRETAX> 6,135,548
<INCOME-TAX> 2,499,705
<INCOME-CONTINUING> 3,635,843
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 47,343
<NET-INCOME> 3,588,500
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
</TABLE>
