<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: June 16, 1997
------------------------------------
(Date of the earliest event reported)
SYKES ENTERPRISES, INCORPORATED
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Florida 0-28274 56-1383460
- ---------------------- ----------- ----------------------
(State or other juris- (Commission (I.R.S. Employer
diction of incorporation) File Number) Identification Number)
100 North Tampa Street, Suite 3900
Tampa, Florida 33602-5089
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
813-274-1000
- --------------------------------------------------------------------------------
Registrant's telephone number, including area code
<PAGE> 2
ITEM 5. OTHER EVENTS
Sykes Enterprises, Incorporated ("Sykes" or the "Company") completed business
combinations with Info Systems of North Carolina, Inc. ("Info Systems") and
Telcare Gesellschaft fur Telekommunikations-Mehrwertdieste mbH ("Telcare") on
March 31, 1997 and June 16, 1997, respectively. These combinations were
accounted for utilizing the pooling-of-interests method of accounting. Sykes has
previously filed its Form 10-Q for the six months ended June 29, 1997 which
reflected the Info Systems and Telcare transactions on a restated basis.
Accordingly, the accompanying consolidated Selected Financial Data, Management's
Discussion and Analysis of Financial Condition and Results of Operations, and
Consolidated Financial Statements as of December 1995 and 1996 and for the year
ended July 31, 1994, the five months ended December 31, 1994, and for the years
ended December 31, 1995 and 1996 have been restated to give retroactive effect
to the combination with Info Systems and Telcare and include the combined
operations of Sykes, Info Systems and Telcare for all periods presented.
1
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial statements of business acquired.
Not applicable
(b) Pro Forma financial information
Not applicable
(c) Exhibits
2.1 Merger Agreement dated as of January 10, 1997 among Sykes Enterprises,
Incorporated, Info Systems of North Carolina, Inc. and ISNC Acquisition Co.
(filed as Exhibit 2.5 to the Registrant's Registration Statement on Form
S-4, Commission File No. 333-20465, and incorporated herein by reference.)
2.2 Acquisition Agreement, dated May 30, 1997, by and among the holders of all
of the capital interests of Telcare Gesellschaft fur
Telekommunikations-Mehrwertdiests mbH, Sykes Enterprises, GmbH, and Sykes
Enterprises, Incorporated. The schedules and exhibits to this document are
not being filed herewith. Sykes Enterprises, Incorporated agrees to
furnish supplementary copies of such schedules and exhibits to the
Securities and Exchange Commission upon request. (filed herewith)
27.1 Financial Data Schedule (for SEC use only).
2
<PAGE> 4
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SYKES ENTERPRISES, INCORPORATED
By:/s/ Scott J. Bendert
---------------------------
Scott J. Bendert
Vice President-Finance
and Treasurer
Date: October 20, 1997
3
<PAGE> 5
SYKES ENTERPRISES, INCORPORATED
INDEX TO RESTATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page Number
<S> <C>
Selected Financial Data.................................... 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 6
Report of Independent Accountants.......................... 12
Consolidated Financial Statements.......................... 13
Notes to Consolidated Financial Statements................. 17
</TABLE>
4
<PAGE> 6
SYKES ENTERPRISES, INCORPORATED
SELECTED FINANCIAL DATA
The following selected financial data has been derived from the Company's
consolidated financial statements. The information below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and the Company's Consolidated Financial Statements
and related notes.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended 5 Months Ended Year Ended Year Ended
July 31, July 31, July 31, December 31, December 31, December 31,
1992 1993 1994 1994 1995 1996
- ---------------------------------------------------------------------------------------------------------
(in thousands except per share amounts)
STATEMENT OF INCOME DATA:
<S> <C> <C> <C> <C> <C> <C>
Revenue $60,508 $72,151 $74,201 $38,954 $101,500 $148,620
Income from
operations 2,551 1,511 878 1,567 3,958 12,525
Net income(1) 1,381 22 70 563 1,430 8,003
Per Share Data:
Net income(1) $ 0.05 $ 0.00 $ 0.00 $ 0.02 $ 0.05 $ 0.25
</TABLE>
<TABLE>
<CAPTION>
July 31, July 31, July 31, December 31, December 31, December 31,
1992 1993 1994 1994 1995 1996
- --------------------------------------------------------------------------------------------------------
(in thousands except per share amounts)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C>
Working capital $ 7,172 $ 4,276 $ 4,115 $ 5,883 $ 27 $109,836
Total assets 22,310 21,965 28,257 36,892 53,832 173,437
Long term debt, less
current maturities 2,463 2,940 5,545 8,919 9,584 1,251
Shareholder's equity 6,704 6,726 8,035 8,941 11,458 135,915
</TABLE>
(1) 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.
5
<PAGE> 7
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. The Company completed business
combinations with Info Systems of North Carolina, Inc. ("Info Systems") and
Telcare Gesellschaft fur Telekomunications-Mehrwertdieste mbH ("Telcare") on
March 31, 1997 and June 16, 1997, respectively. These combinations were
accounted for utilizing the pooling-of-interests. Effective August 1, 1994, the
Company changed its fiscal year end from July 31 to December 31. The following
discussion compares the twelve months ended December 31, 1996 ("1996") to the
twelve months ended December 31, 1995 ("1995"), and 1995 to the twelve months
ended December 31, 1994 ("1994"). See Note 16 of Notes to Consolidated Financial
Statements for the corresponding selected consolidated financial data. The
following discussion and analysis 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 analysis.
OVERVIEW
The Company derives its revenues from providing information technology
("IT") support services and information technology development services and
solutions. Revenues from information technology support services provided
through the IT call centers and the sale of diagnostic software are recognized
as services are rendered. These services are billed on a fee per call, rate per
minute, time and material or unit 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. Software licensing fees are recognized as revenue when the related
software is delivered. 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 $72.0 million in 1994 to $148.2 million in
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 $5.0 million from 1994 to 1995 and decreased $4.1 million from 1995 to
1996. 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.
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, totaled $6.8 million and $11.7 million at December 31, 1995 and
1996, respectively.
The Company's effective tax rate for the periods presented 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 an Internal Revenue Service
examination currently being conducted. The Company believes its reserves for any
6
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liability that may result from this examination are adequate.
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,
- ---------------------- -----------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Direct salaries and related costs 66.2 64.1 61.0
General and administrative(1) 30.7 32.0 30.6
----- ----- -----
Income from operations 3.1 3.9 8.4
Interest and other income (expense) (0.6) (0.9) 0.2
----- ----- -----
Income before income taxes 2.4 3.0 8.6
Provision for income taxes(2) 1.3 1.4 3.2
----- ----- -----
Net income(1)(2) 1.1% 1.6% 5.4%
===== ===== =====
</TABLE>
(1) Includes non-cash compensation expense of 0.9% related to the grant of
stock options to an executive officer in 1995.
(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 15 of Notes
to Consolidated Financial Statements.
1996 COMPARED TO 1995
Revenues. Revenues increased $47.1 million, or 46.4%, to $148.6 million in
1996 from $101.5 million in 1995. These results reflect an increase in revenues
of $43.4 million from information technology support services provided through
IT call centers and an increase in revenues of $7.8 million from information
technology services and solutions, partially offset by a $4.1 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 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 1996, and opened three additional centers in 1996.
In addition, the Company has added 36 customers in its information technology
support services since the beginning of 1995, giving it 58 customers that
utilized these services as of December 31, 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.
Direct Salaries and Related Costs. Direct salaries and related costs
increased $25.5 million, or 39.2%, to $90.6 million in 1996 from $65.1 million
in 1995. As a percentage of revenues, however, direct salaries and related costs
decreased to 61.0% in 1996 from 64.1% in the comparable 1995 year. 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
40.2% to $45.5 million in 1996 from $32.4 million in 1995. As a percentage of
revenues, however, general and administrative expenses decreased to 30.6% in
1996
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from 32.0% in 1995. 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 and depreciation
expenses associated with facility and capital equipment expenditures incurred in
connection with the IT call centers.
Interest and Other Income. Interest and other income increased to $0.2
million during 1996 from interest and other expense of $0.9 million during 1995.
As a percentage of revenues, interest and other income was 0.1% in 1996 from
interest and other expense of 0.9% in 1995. The increase was primarily
attributable to an increase in the Company's cash position as a result of public
offerings completed during 1996. The Company repaid all amounts outstanding
under bank borrowing arrangements and invested the remaining net proceeds of the
offerings in short term investment grade securities and money market
instruments.
Income Taxes. Income taxes increased $3.1 million, or 186.1%, to $4.7
million during 1996 from $1.6 million during 1995, and increased as a percentage
of revenues to 3.2% from 1.6%, respectively. This increase was 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 36.9% during 1996 primarily as a result of
nondeductible expenses being a lower percentage of the larger income before
income taxes and tax-exempt interest income.
Net Income. As a result of the foregoing, net income increased to $8.0
million in 1996 from $1.4 million in 1995.
1995 COMPARED TO 1994
Revenues. Revenues increased $20.0 million, or 24.6%, to $101.5 million in
1995 from $81.5 million in 1994. These results reflect an increase in revenues
of $24.3 million from information technology support services provided through
IT call centers and an increase in revenues of $0.7 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 four
opened during 1994, all four 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 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 20.6% to $65.1 million in 1995 from $54.0 million in 1994. As a
percentage of revenues, however, direct salaries and related costs decreased to
64.1% in 1995 from 66.2% 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
29.9% to $32.4 million in 1995 from $25.0 million in 1994. As a percentage of
revenues, general and administrative expenses increased to 32.0% in 1995 from
30.7% 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 and depreciation expense associated
with facility and capital equipment expenditures incurred in connection with the
IT call centers. 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.
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Interest and Other Expense. Interest and other expense increased 71.7% to
$0.9 million in 1995 from $0.5 million 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 $13.6 million at December 31,
1995 from $11.0 million at December 31, 1994, primarily as a result of capital
expenditures required for the IT call centers.
Income Taxes. Income taxes increased $0.6 million, or 56.0%, to $1.6
million during 1995 from $1.0 million in 1994, and increased as a percentage of
revenues to 1.6% from 1.3%, respectively. This increase was attributable to the
significant increase in the amount of income before income taxes and in income
before income taxes as a percentage of revenues. In addition, the Company's
marginal tax rate increased to 53.5% in 1995 primarily as a result of
nondeductible expenses being a higher percentage of the larger income before
income taxes.
Net Income. As a result of the foregoing, net income increased to $1.4
million in 1995 from $934,000 in 1994.
QUARTERLY RESULTS
The following information presents unaudited quarterly operating results
for the Company for 1995 and 1996. The data has been prepared by the Company on
a basis consistent with the Consolidated Financial Statements included elsewhere
in this Form 10-K, 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 9/29/96 12/31/96
-------- -------- ------- -------- ------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 20,667 $ 23,868 $ 25,330 $ 31,635 $ 32,877 $ 33,847 $ 37,824 $ 44,072
Direct salaries
and related costs 13,905 15,806 15,218 20,163 19,486 20,351 23,381 27,371
General and
administrative(1) 6,513 7,258 8,082 10,597 10,602 10,565 10,822 13,517
-------- -------- -------- -------- -------- -------- -------- --------
Income from
operations 249 804 2,030 875 2,789 2,931 3,621 3,184
Interest and
other income
(expense) (78) (252) (260) (295) (353) 67 254 258
-------- -------- -------- -------- -------- -------- -------- --------
Income before
income taxes 171 552 1,770 580 2,436 2,998 3,875 3,442
Provision for
income taxes(2) 115 298 788 442 924 1,163 1,516 1,098
-------- -------- -------- -------- -------- -------- -------- --------
Net income(2) $ 56 $ 254 $ 982 $ 138 $ 1,511 $ 1,836 $ 2,359 $ 2,344
======== ======== ======== ======== ======== ======== ======== ========
Net income per
share(2) $ 0.00 $ 0.01 $ 0.04 $ 0.01 $ 0.05 $ 0.06 $ 0.07 $ 0.07
======== ======== ======== ======== ======== ======== ======== ========
Weighted average
shares outstanding 27,211 27,211 27,211 27,211 27,211 30,125 33,434 35,134
</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. 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 $1.8 million, $1.5 million and $0.7 million, respectively,
and net income per share would have been $0.03.
(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 15 of Notes
to Consolidated Financial Statements.
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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. In November
1996, the Company received proceeds, net of offering expenses, of $71.5 million
from the sale of approximately 2.4 million shares of common stock pursuant to a
secondary offering. The Company intends to utilize these proceeds and the
balance of the funds available from the initial public offering to make
additional capital expenditures associated primarily with its technical support
services as identified above, and for working capital and general corporate
purposes, including possible acquisitions. Pending any such use, the Company
will invest the balance of such funds in short-term, investment grade securities
or money market instruments.
In December 1995, the Company entered into a $20.0 million credit facility.
This facility consisted of a revolving line of credit of $12.0 million and an
$8.0 million term loan maturing in May 1997. In addition, in 1994 the Company
obtained a $1.3 million loan to construct one of the IT call centers. 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 bank borrowings are currently outstanding. Subsequent to
the 1996 year end, the Company entered into an agreement replacing its previous
credit line with an unsecured revolving $25 million facility. This new facility
accrues borrowings at tiered levels between 125 and 200 basis points above
listed Libor pursuant to a defined ratio calculation within the agreement. The
facility matures in June 1998, and contains certain covenants associated with
tangible net worth, debt and debt funding as defined by the agreement.
During 1996, a subsidiary of the Company entered into a $2.0 million and a
$1.25 million credit facility. These facilities consisted of a revolving line of
credit maturing in November 1997. Both of these credit facilities were canceled
subsequent to December 31, 1996.
During 1996, the Company generated approximately $0.7 million from
operating activities, resulting primarily from an increase in the Company's
accounts receivable associated with continued growth and resultant effects in
mix of business, and a decrease in accounts payable, primarily in the first
calendar quarter of 1996, from the payment of uncommonly large fourth quarter
1995 purchases. The Company has used a portion of its proceeds from its initial
public offering, together with $5.3 million received as incentive grants from
local and state governmental agencies, to fund $19.8 million of capital
expenditures in 1996 predominantly to construct and outfit three new IT call
centers. As a result of the Company's continued expansion, it is anticipated
that 1997 capital expenditures will be approximately $19.0 million, primarily
for completing additional IT call centers. Each IT call center requires
approximately $2.0 million to construct and approximately $5.0 million of
capital expenditures to complete the build-out and equip the center.
During 1996, the Company increased its European technical support presence
and acquired additional sophisticated information technology capabilities to
enhance its technical support services through the acquisitions of Datasvar
Support AB and Diagsoft, Inc. ("the acquisitions"). The purchase price for the
acquisitions was approximately 1,383,000 shares of the Company's common stock,
and were accounted for using the pooling-of-interests method of accounting.
Subsequent to December 31, 1996, the Company acquired Info Systems of North
Carolina, Inc. and Telcare Gesellschaft fur Telekommunikations-Mehrwertdieste
mbH. The purchase price for the acquisitions was approximately 1,900,000 shares
of the Company's common stock, and were accounted for using the
pooling-of-interests method of accounting.
During 1995, the Company generated $7.0 million in cash from operations.
The cash generated during 1995, together with $2.5 million in net borrowings and
$2.6 million received as incentive grants from local and state governmental
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<PAGE> 12
agencies in connection with additional IT call centers, was used to fund $15.0
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.
The Company believes that the net proceeds from its secondary offering,
combined with available amounts of cash, accessible funds under its credit
facilities and cash flows from operations, will be adequate to meet its capital
requirements for the foreseeable future.
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Sykes Enterprises, Incorporated
We have audited the accompanying consolidated balance sheets of Sykes
Enterprises, Incorporated and subsidiaries as of December 31, 1995 and December
31, 1996, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for the year ended July 31, 1994, the five
months ended December 31, 1994 and the years ended December 31, 1995 and 1996.
We have also audited the financial statement schedule on page 34 of this Form
8-K. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and the financial statement schedule 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 and subsidiaries as of December 31, 1995 and 1996 and the
consolidated results of their operations and their cash flows for the year ended
July 31, 1994, the five months ended December 31, 1994, and the years ended
December 31, 1995 and 1996, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information
required to be included therein.
Coopers & Lybrand L.L.P.
Tampa, Florida
September 24, 1997
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SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1995 1996
-------------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents .................................. $ 2,631,135 $ 89,651,848
Receivables, including unbilled ............................ 21,508,126 39,166,301
Prepaid expenses and other current assets .................. 1,925,739 2,241,213
------------- -------------
Total current assets ...................................... 26,065,000 131,059,362
Property and equipment, net ................................. 26,528,610 40,598,225
Deferred charges and other assets ........................... 1,237,948 1,779,223
------------- -------------
$ 53,831,558 $ 173,436,810
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current installments of long-term debt ..................... $ 3,982,472 $ 1,514,199
Accounts payable ........................................... 7,242,689 5,696,603
Accrued employee compensation and benefits ................. 7,265,507 9,523,951
Deferred income taxes ...................................... 3,460,450 --
Other accrued expenses and current liabilities ............. 4,086,972 4,488,417
------------- -------------
Total current liabilities ................................. 26,038,090 21,223,170
Long-term debt .............................................. 9,583,528 1,251,079
Deferred income taxes ....................................... -- 3,378,700
Deferred grants ............................................. 6,751,782 11,669,273
Commitments and contingencies (Notes 9 and 17) .............. -- --
Shareholders' equity
Preferred stock, $0.01 par value, 10,000,000 shares
authorized; no shares issued and outstanding .............. -- --
Common stock, $.01 par value; 200,000,000 shares authorized;
23,082,394 and 34,740,392 issued and outstanding .......... 230,824 347,404
Additional paid-in capital ................................. 3,240,194 124,829,417
Retained earnings .......................................... 9,210,189 10,769,679
Unearned compensation ...................................... (1,338,041) --
Accumulated foreign currency translation adjustments ....... 114,992 (31,912)
------------- -------------
Total shareholders' equity ................................ 11,458,158 135,914,588
------------- -------------
$ 53,831,558 $ 173,436,810
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements
13
<PAGE> 15
SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Five Months
Year Ended Ended Year Ended Year Ended
July 31, December 31, December 31, December 31,
1994 1994 1995 1996
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues ............................ $ 74,201,036 $ 38,954,095 $ 101,499,849 $ 148,620,206
------------ ------------- ------------- -------------
Operating expenses
Direct salaries and related costs .. 48,184,200 26,965,974 65,092,888 90,588,740
General and administrative ......... 25,139,116 10,420,626 32,449,047 45,506,253
------------ ------------- ------------- -------------
Total operating expenses .......... 73,323,316 37,386,600 97,541,935 136,094,993
------------ ------------- ------------- -------------
Income from operations .............. 877,720 1,567,495 3,957,914 12,525,213
Other income (expense)
Interest income .................... -- -- -- 945,411
Interest expense ................... (472,028) (287,698) (945,235) (747,063)
Other .............................. 407,552 (170,247) 60,279 27,958
------------ ------------- ------------- -------------
Total other income (expense) ...... (64,476) (457,945) (884,956) 226,306
------------ ------------- ------------- -------------
Income before income taxes .......... 813,244 1,109,550 3,072,958 12,751,519
Provision for income taxes
Current ............................ (54,439) 478,558 640,870 5,017,415
Deferred ........................... 758,954 28,821 830,254 (383,000)
------------ ------------- ------------- -------------
Total provision for income taxes .. 704,515 507,379 1,471,124 4,634,415
------------ ------------- ------------- -------------
Net income .......................... 108,729 602,171 1,601,834 8,117,104
Preferred stock dividends ........... -- -- -- (47,343)
------------ ------------- ------------- -------------
Net income applicable to
common shareholders ................ $ 108,729 $ 602,171 $ 1,601,834 $ 8,069,761
------------ ------------- ------------- -------------
Pro forma income data (unaudited)
Income before income taxes .......... $ 813,244 $ 1,109,550 $ 3,072,958 $ 12,751,519
Pro forma provision for income taxes
relating to S corporation .......... 39,000 39,000 172,000 67,000
Actual provision for income taxes ... 704,515 507,379 1,471,124 4,634,415
------------ ------------- ------------- -------------
Total provision and pro forma
provision for income taxes ....... 743,515 546,379 1,643,124 4,701,415
------------ ------------- ------------- -------------
Pro forma net income ................ 69,729 563,171 1,429,834 8,050,104
Preferred stock dividends ........... -- -- -- (47,343)
------------ ------------- ------------- -------------
Pro forma net income applicable
to common shareholders ............. $ 69,729 $ 563,171 $ 1,429,834 $ 8,002,761
------------ ------------- ------------- -------------
Pro forma net income per share ...... $ 0.00 $ 0.02 $ 0.05 $ 0.25
------------ ------------- ------------- -------------
Pro forma weighted average common and
common equivalent shares outstanding 27,210,638 27,210,638 27,210,638 31,836,442
------------ ------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements
14
<PAGE> 16
SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Foreign
Additional Currency
Common Stock Paid-In Retained Unearned Translation
Shares Amount Capital Earnings Compensation Adjustment
----------- --------- ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at August 1, 1993 ....... 23,349,914 $ 233,499 $ 2,320,467 $ 6,897,455 $(2,721,607) $ (3,414)
Contribution to capital ........ -- -- 350,000 -- -- --
Redemption of common stock ..... (545,193) (5,452) (94,548) -- -- --
Issuance of common stock ....... 92,556 926 590,333 -- -- --
Foreign currency translation
adjustment .................... -- -- -- -- -- (95,428)
Unearned employee
compensation from Employee
Stock Ownership Plan Trust .... -- -- -- -- 454,015 --
Net income ..................... -- -- -- 108,729 -- --
----------- --------- ------------- ------------ ----------- ---------
Balance at July 31, 1994 ........ 22,897,277 228,973 3,166,252 7,006,184 (2,267,592) (98,842)
Issuance of common stock ....... -- -- 61,825 -- -- --
Foreign currency translation
adjustment .................... -- -- -- -- -- 55,635
Unearned employee
compensation from Employee
Stock Ownership Plan Trust .... -- -- -- -- 185,981 --
Net income ..................... -- -- -- 602,171 -- --
----------- --------- ------------- ------------ ----------- ---------
Balance at December 31, 1994 .... 22,897,277 228,973 3,228,077 7,608,355 (2,081,611) (43,207)
Issuance of common stock ....... 62,013 620 102,476 -- -- --
Repurchase of common stock ..... -- -- (89,128) -- -- --
Stock dividend ................. 123,104 1,231 (1,231) -- -- --
Foreign currency translation
adjustment .................... -- -- -- -- -- 158,199
Unearned employee
compensation from Employee
Stock Ownership Plan Trust .... -- -- -- -- 743,570 --
Net income ..................... -- -- -- 1,601,834 -- --
----------- --------- ------------- ------------ ----------- ---------
Balance at December 31, 1995 .... 23,082,394 230,824 3,240,194 9,210,189 (1,338,041) 114,992
Merger with Sykes Realty, Inc. . 1,830,000 18,300 247,266 (827,554) -- --
Conversion of redeemable
preferred stock ............... 448,029 4,480 5,371,872 (5,376,352) -- --
Issuance of common stock ....... 6,427,632 64,277 112,275,824 -- -- --
Repurchase of common stock ..... -- -- (142,702) -- -- --
Three-for-two stock split ...... 2,952,337 29,523 (29,523) -- -- --
Distribution ................... -- -- -- (306,365) -- --
Tax effect of non-qualified
exercise of stock options ..... -- -- 3,866,486 -- -- --
Foreign currency translation
adjustment .................... -- -- -- -- -- (146,904)
Preferred stock dividends ...... -- -- -- (47,343) -- --
Unearned employee
compensation from Employee
Stock Ownership Plan Trust .... -- -- -- -- 1,338,041 --
Net income ..................... -- -- -- 8,117,104 -- --
----------- --------- ------------- ------------ ----------- ---------
Balance at December 31, 1996 .... 34,740,392 $ 347,404 $ 124,829,417 $ 10,769,679 $ -- $ (31,912)
=========== ========= ============= ============ =========== =========
</TABLE>
See accompanying notes to consolidated financial statements
15
<PAGE> 17
SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FIVE MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
JULY 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1994 1995 1996
------------ ------------ ----------- --------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ...................................... $ 108,729 $ 602,171 $ 1,601,83 $ 8,117,104
Depreciation and amortization ................... 2,261,354 1,179,293 3,755,346 6,152,948
Deferred compensation ........................... -- -- 949,960 --
Deferred income taxes ........................... 806,224 (439,959) 1,237,973 (81,750)
ESOP allocation
(unearned compensation) ........................ 454,015 185,981 743,570 1,338,041
Loss (gain) on disposal of property
and equipment .................................. 445,103 36,925 38,022 (54,717)
Changes in assets and liabilities
Receivables, including unbilled ................ (2,647,604) 5,731 (7,084,010) (17,375,876)
Prepaid expenses and other current
assets ........................................ (1,592,779) 606,509 (143,751) (315,474)
Deferred charges and other assets .............. (225,409) 961,867 70,967 (872,972)
Accounts payable ............................... 1,185,356 1,566,644 1,051,560 (2,165,672)
Accrued employee compensation and
benefits ...................................... 654,271 (155,034) 3,885,200 2,258,444
Other accrued expenses and current
liabilities ................................... (1,780,065) 310,699 890,468 3,705,944
------------ ------------ ----------- -------------
Net cash provided by (used for)
operating activities ........................ (330,805) 4,860,827 6,997,139 706,020
------------ ------------ ----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditure ............................. (5,743,477) (7,044,092) (15,078,089) (20,046,217)
Acquisition of business ......................... (104,000) -- -- --
Proceeds from sale of property and
equipment ...................................... 70,101 211,218 100,402 201,425
------------ ------------ ----------- -------------
Net cash used for investing
activities .................................. (5,777,376) (6,832,874) (14,977,687) (19,844,792)
------------ ------------ ----------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Paydowns under revolving line of
credit agreements .............................. (18,563,000) (8,123,000) (32,413,539) (20,771,718)
Borrowings under revolving line of
credit agreements .............................. 19,043,000 10,383,000 31,013,422 19,916,835
Proceeds from issuance of stock ................. 941,259 61,825 79,487 112,340,100
Proceeds from grants ............................ 700,987 2,567,830 2,603,485 5,263,420
Proceeds from issuance of long-term
debt ........................................... 3,694,338 2,082,101 6,145,018 1,033,514
Subsidiary stock redemption ..................... (100,000) -- (65,519) (142,702)
Payment of long-term debt ....................... (849,635) (554,721) (2,212,314) (10,979,352)
Dividends paid .................................. -- -- -- (353,708)
------------ ------------ ----------- -------------
Net cash provided by financing
activities .................................. 4,866,949 6,417,035 5,150,040 106,306,389
------------ ------------ ----------- -------------
Adjustment for foreign currency
translation ..................................... (95,428) 55,635 158,199 (146,904)
------------ ------------ ----------- -------------
Net increase (decrease) in cash
and cash equivalents ........................... (1,336,660) 4,500,623 (2,672,309) 87,020,713
CASH AND CASH EQUIVALENTS - BEGINNING ............ 2,139,481 802,821 5,303,444 2,631,135
------------ ------------ ----------- -------------
CASH AND CASH EQUIVALENTS - ENDING ............... $ 802,821 $ 5,303,444 $ 2,631,13 $ 89,651,848
------------ ------------ ----------- -------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ...................................... $ 475,295 $ 349,439 $ 1,056,47 $ 650,631
Income taxes .................................. $ 887,261 $ 5,040 $ 1,343,27 $ 3,223,564
</TABLE>
See accompanying notes to consolidated financial statements
16
<PAGE> 18
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sykes Enterprises, Incorporated and consolidated subsidiaries (the "Company" or
"Sykes") provide comprehensive information technology outsourcing services
including information technology support services, consisting of technical
product support, help desk services and diagnostic software tools, 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 is also
engaged in designing, programming, licensing, installing and supporting hardware
and software systems. The Company's services are provided to a wide variety of
industries.
The Company completed business combinations with Info Systems of North Carolina,
Inc. ("Info Systems") and Telcare Gesellschaft for
Telekomunications-Mehrwertdieste mbH ("Telcare") on March 31, 1997 and June 16,
1997, respectively. These combinations were accounted for utilizing the
pooling-of-interests method of accounting, and accordingly, the accompanying
financial statements have been restated to reflect these acquisitions for all
periods presented.
Unless otherwise noted, all information has been adjusted to retroactively
reflect three-for-two stock splits in the form of 50% stock dividends to
shareholders of record on July 18, 1996 and May 19, 1997, which was reflected on
the Nasdaq National Market on July 29, 1996 and May 29, 1997, respectively.
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements include the
accounts of Sykes Enterprises, Incorporated and its wholly owned subsidiaries.
All significant intercompany transactions and balances have been eliminated in
consolidation.
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 year ended July 31, 1994,
the five months ended December 31, 1994 and the years ended December 31, 1995
and 1996 are presented in the accompanying consolidated financial statements.
Recognition of Revenue - The Company primarily recognizes its revenue as
services are performed. Royalty revenue is recognized at the time royalties are
earned and the remaining revenue is recognized on fixed price contracts using
the percentage-of-completion method of accounting. Adjustments to fixed price
contracts and 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 - Cash and cash equivalents consist of highly liquid
short term investments classified as available for sale as defined under the
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." At December 31, 1996, cash in the
amount of approximately $79,975,000 was held in tax free interest bearing
investments, approximately $6,721,000 was held in taxable interest bearing
investments, both of which are classified as available for sale, and
17
<PAGE> 19
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES, continued
approximately $136,000 was held in an interest bearing account and pledged as
collateral with respect to office space leased in Amsterdam, The Netherlands. It
is the Company's intention to continue to maintain the Netherlands' investment
throughout the term of the lease.
Shareholder Payable - The Company recorded a net payable due to its majority
shareholder of approximately $645,000 which has been included in accounts
payable at December 31, 1995. There was no balance due to the shareholders at
December 31, 1996.
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
$2,169,000, $1,089,000, $3,961,00 and $6,766,000 for the year ended July 31,
1994, the five months ended December 31, 1994 and the years ended December 31,
1995 and 1996, respectively. Property and equipment includes approximately
$620,000 of additions included in accounts payable at December 31, 1996.
Accordingly, this non-cash transaction has been excluded from the accompanying
consolidated statement of cash flows for the year ended December 31, 1996.
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 years ended December 31, 1995 and 1996 the Company recorded approximately
$1,824,000 and $317,000, 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 years ended December
31, 1995 and 1996.
Deferred Charges and Other Assets - Deferred charges and other assets consist
primarily of a long-term note receivable, deposits, cash value of officers life
insurance, 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.
Impairment of Long-Lived Assets - The Company reviews long-lived assets and
certain identifiable intangibles for impairment and writes down to fair value
whenever events or changes in circumstances indicate that the carrying value may
not be recoverable. Since adoption, no impairment losses have been recognized.
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.
18
<PAGE> 20
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES, continued
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 terminated its S corporation election during the year ended
December 31, 1996 and accordingly became subject to federal and state income
taxes.
Deferred Grants - Grants for relocation and the acquisition of property and
equipment are deferred and recognized in income over the corresponding useful
lives of their 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 association 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 are 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.
NOTE 2 - ACQUISITIONS AND MERGERS
On July 16, 1996, the Company acquired Datasvar Support AB ("Datasvar") of
Stockholm, Sweden in exchange for 370,229 shares of the Company's common stock.
Datasvar operates two information technology call centers in Sweden serving the
Scandinavian region. Datasvar employs 97 employees and had 1995 revenues of
approximately $5.3 million and after-tax earnings of approximately $1.0 million.
On August 30, 1996, the Company acquired all of the stock of DiagSoft, Inc.
("DiagSoft") in exchange for 1,012,500 shares of the Company's common stock.
DiagSoft develops and markets diagnostic software applications which will
enhance the Company's technology support services. DiagSoft employs 24 employees
and had 1995 revenues of approximately $6.2 million and an after-tax loss of
approximately $112,000.
On March 31, 1997, the Company acquired Info Systems of North Carolina, Inc.
("Info Systems") in exchange for approximately 1.1 million shares of the
19
<PAGE> 21
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - ACQUISITIONS AND MERGERS, continued
Company's common stock. Info Systems is engaged in the design, development,
licensing and support of information management solutions to the retail,
manufacturing and distribution industries. Info Systems employs 160 employees
Company's common stock. Info Systems is engaged in the design, development,
licensing and support of information management solutions to the retail,
manufacturing and distribution industries. Info Systems employs 160 employees
and had 1995 revenues of approximately $23.3 million and an after-tax loss of
approximately $305,000.
On June 16, 1997 the Company acquired all of the stock of Telcare Gesellschaft
fur Telekommunikations-Mehrwertdieste mbH ("Telcare") of Wilhelmshaven, Germany,
in exchange for 750,000 shares of the Company's common stock. Telcare operates
an information technology call center and provides technical product support and
service to numerous industries in Germany, and expands the Company's presence in
Europe. Telcare employs 160 employees and had 1995 revenues of approximately
$3.6 million and after-tax loss of approximately $490,000.
The above transactions have been accounted for as pooling-of-interests and,
accordingly, the consolidated financial statements for the periods presented
have been restated to include the accounts of Datasvar, DiagSoft, Info Systems
and Telcare.
20
<PAGE> 22
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - ACQUISITIONS AND MERGERS, continued
Separate results of operations for the periods prior to the merger with
Datasvar, DiagSoft, Info Systems and Telcare are outlined below:
<TABLE>
<CAPTION>
Year Five Months
Ended Ended Year Ended
July 31, December 31, December 31,
1994 1994 1995
----------- ----------- ------------
<S> <C> <C> <C>
Net sales
Sykes......................... $47,661,706 $18,167,860 $ 63,096,660
Datasvar...................... 2,659,788 1,486,741 5,341,450
DiagSoft...................... 5,267,840 1,957,912 6,156,524
Info Systems.................. 17,763,005 16,251,585 23,317,923
Telcare....................... 848,697 1,089,997 3,587,292
----------- ----------- ------------
Combined....................... $74,201,036 $38,954,095 $101,499,849
----------- ----------- ------------
Net income
Sykes......................... $ 485,023 $ 34,435 $ 1,502,946
Datasvar...................... 203,992 (32,243) 1,005,548
DiagSoft...................... (79,424) (157,691) (112,409)
Info Systems.................. 250,662 619,337 (304,526)
Telcare....................... (751,524) 138,333 (489,725)
----------- ----------- ------------
Combined....................... $ 108,729 $ 602,171 $ 1,601,834
----------- ----------- ------------
Other changes in shareholders'
equity
Sykes......................... $ 291,249 $ (3,185) $ 29,054
Datasvar...................... (36,265) 6,987 161,721
DiagSoft...................... (100,000) - -
Info Systems.................. 736,637 207,654 678,051
Telcare....................... 308,225 91,985 46,911
----------- ----------- ------------
Combined....................... $ 1,199,846 $ 303,441 $ 915,737
=========== =========== ============
</TABLE>
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 $4.2 million of receivables from a significant customer (See Note
14), the Company's credit concentrations are limited due to the wide variety of
customers and markets into which the Company's services are sold.
21
<PAGE> 23
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - RECEIVABLES
Receivables consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Trade accounts receivable....................... $20,102,960 $31,782,225
Unbilled accounts receivable.................... 1,222,293 2,843,193
Notes from officers and related parties......... 190,927 -
Income tax refund receivable.................... - 1,399,165
Other........................................... 302,685 3,411,717
----------- -----------
21,818,865 39,436,300
Less allowance for doubtful accounts............ 310,739 269,999
----------- -----------
$21,508,126 $39,166,301
=========== ===========
</TABLE>
Note 5 - Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Land............................................ $ 2,240,746 $ 2,506,421
Buildings and leasehold improvements............ 9,551,526 15,555,635
Equipment, furniture and fixtures............... 22,685,648 37,461,554
Transportation equipment........................ 676,026 631,092
Construction in progress........................ 1,499,363 -
----------- -----------
36,653,309 56,154,702
Less accumulated depreciation................... 10,124,699 15,556,477
----------- -----------
$26,528,610 $40,598,225
=========== ===========
</TABLE>
NOTE 6 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1996
----------- ------------
<S> <C> <C>
Revolving term line of credit, $12.0 million
maximum, interest at prime, collateralized
by certain receivables, property and equipment
and intangible assets.......................... $ 414,734 $ -
Bank term note payable, due March 1, 2001,
interest at prime, collateralized by
certain receivables, property and equipment
and intangible assets.......................... 7,750,000 -
Notes payable and capital leases, principal and
interest payable in monthly installments
through December 1999, interest at varying
rates up to Prime plus 0.25 percent,
collateralized by certain receivables
and equipment.................................. 5,401,266 2,765,278
----------- -----------
13,566,000 2,765,278
Less current portion............................ 3,982,472 1,514,199
----------- -----------
$ 9,583,528 $ 1,251,079
=========== ===========
</TABLE>
22
<PAGE> 24
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - LONG-TERM DEBT, continued
Future principal maturities subsequent to December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997....................... $ 1,514,199
1998....................... 1,088,575
1999....................... 162,504
-----------
$ 2,765,278
===========
</TABLE>
Effective December 31, 1996, the Company entered into an agreement replacing
it's previous credit line with an unsecured revolving $25 million facility. This
new facility accrues borrowings at tiered levels between 125 and 200 basis
points above listed Libor pursuant to a defined ratio calculation within the
agreement. The facility matures in June 1998, and contains certain covenants
associated with tangible net worth, debt and debt funding as defined by the
agreement. The Company had no borrowings under this facility at December 31,
1996.
The Company had a credit facility comprised of $12 million revolving line of
credit and a term note issued in the original amount of $8 million. Borrowings
under the credit facility was approximately $8,165,000 at December 31, 1995. The
Company extinguished the debt with the proceeds from its initial public offering
and had no borrowings under either credit facility at December 31, 1996.
During 1996, a subsidiary of the Company entered into a $2.0 million and a $1.25
million credit facility. These facilities consisted of a revolving line of
credit maturing in November 1997. The Company had no borrowings under either
credit facility at December 31, 1996 and both of these credit facilities were
canceled subsequent to December 31, 1996.
NOTE 7 - INCOME TAXES
The components of income before income taxes are as follows:
<TABLE>
<CAPTION>
Year Five Months
Ended Ended Years Ended December 31,
July 31, December 31, ------------------------
1994 1994 1995 1996
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Domestic.................. $1,324,009 $ 1,025,388 $1,958,008 $11,337,945
Foreign................... (510,765) 84,162 1,114,950 1,422,304
---------- ----------- ---------- -----------
Total income before
income taxes............ $ 813,244 $ 1,109,550 $3,072,958 $12,760,249
========== =========== ========== ===========
</TABLE>
23
<PAGE> 25
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - INCOME TAXES, CONTINUED
Provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Five Months
Ended Ended Years Ended December 31,
July 31, December 31, --------------------------
1994 1994 1995 1996
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Current:
Federal .......................... $(177,723) $ 756,998 $ 174,520) $ 3,573,533
State ............................ 22,492 187,078 (35,875) 610,632
Foreign .......................... 53,522 3,262 443,546 532,000
--------- --------- ----------- -----------
Total current provision
for income taxes ............... (101,709) 947,338 233,151 4,716,165
--------- --------- ----------- -----------
Deferred:
Federal .......................... 808,048 (349,775) 1,054,967 (2,000)
State ............................ (1,824) (90,184) 183,006 56,250
Foreign .......................... -- -- -- (136,000)
--------- --------- ----------- -----------
Total deferred provision
for income taxes ............... 806,224 (439,959) 1,237,973 (81,750)
--------- --------- ----------- -----------
Total provision for
income taxes .................. $ 704,515 $ 507,379 $ 1,471,124 $ 4,634,415
========= ========= =========== ===========
</TABLE>
The components of the net deferred tax asset (liability) are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Current:
Deferred tax asset:
Accounts payable................................... $ 428,000 $ -
Accrued expenses................................... 1,534,000 686,000
State operating loss carryforward.................. 1,000 -
Bad debt reserve................................... - 15,000
Other.............................................. 14,550 53,000
----------- -----------
Total current deferred tax asset.................. $ 1,977,550 $ 754,000
----------- -----------
Deferred tax liability:
Receivables........................................ $(5,337,000) $ -
State tax refunds.................................. (57,000) -
Property and equipment............................. (44,000) (149,000)
Cash to accrual-Section 481 adjustment............. - (277,000)
----------- -----------
Total current deferred tax liability.............. (5,438,000) (426,000)
----------- -----------
Net current deferred tax asset (liability)....... $(3,460,450) $ 328,000
=========== ===========
</TABLE>
24
<PAGE> 26
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - INCOME TAXES, continued
<TABLE>
<CAPTION>
December
--------------------------
1995 1996
--------- -----------
<S> <C> <C>
Non-current:
Deferred tax asset:
Deferred compensation ........................... $ 360,000 $ 240,000
R & D credits ................................... 25,464 --
Bad debt reserve ................................ 48,566 --
Accrued expenses ................................ 87,258 3,000
State operating loss carryforward ............... 37,000 --
Other ........................................... 34,386 --
--------- -----------
Total non-current deferred tax asset ........... $ 592,674 $ 243,000
--------- -----------
Deferred tax liability:
Property and equipment .......................... $(344,705) $ (338,000)
Capitalized software development costs .......... (148,189) --
Untaxed reserves - foreign ...................... (97,318) (136,000)
Cash to accrual-Section 481 adjustment .......... -- (2,903,000)
Other ........................................... (228,885) (244,700)
--------- -----------
Total non-current deferred tax liability ....... (819,097) (3,621,000)
--------- -----------
Net non-current deferred tax liability ........ $(226,423) $(3,378,000)
========= ===========
</TABLE>
The corporation has not recorded deferred income taxes applicable to
undistributed earnings of foreign subsidiaries that are indefinitely reinvested
in foreign operations. Undistributed earnings amounted to approximately $2
million at December 31, 1996, excluding amounts which, if remitted, generally
would result in minimal additional U.S. income taxes because of available
foreign tax credits. If the earnings of such foreign subsidiaries were not
indefinitely reinvested, a deferred tax liability of approximately $300,000
would have been required.
In conjunction with the Company's initial public offering, 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.
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>
Year Five Months
Ended Ended Year Ended December 31,
July 31, December 31, ---------------------------
1994 1994 1995 1996
--------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Statutory tax .......................... $ 503,284 $ 311,116 $ 1,234,150 $ 4,246,532
State income taxes net of federal
tax benefit ........................... 61,479 80,007 66,934 315,883
Effect of income not subject to
federal and state income tax .......... (13,000) (21,000) (155,000) (284,000)
Change in state tax rate ............... (67,000) -- -- --
Foreign taxes, net of foreign income
not taxed in U.S. ..................... (26,533) 21,836 (110,306) (48,000)
Permanent differences .................. 321,551 178,427 366,555 153,000
Tax credits ............................ (57,246) (43,007) (90,209) --
Other .................................. (18,020) (20,000) 159,000 251,000
--------- --------- ----------- -----------
Total provision for income taxes ..... $ 704,515 $ 507,379 $ 1,471,124 $ 4,634,415
========= ========= =========== ===========
</TABLE>
25
<PAGE> 27
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - INCOME TAXES, continued
The Company is currently under examination by the Internal Revenue Service for
tax years ended July 31, 1991 through 1995. 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 - EARNINGS PER SHARE
Primary earnings per share are based on the weighted average number of common
shares and common share equivalents outstanding during the periods and assumes,
(i) that the redeemable preferred stock was converted at the beginning of each
period, or date of issuance, if later, and (ii) that earnings were increased for
preferred dividends that would not have been incurred had conversion taken
place. Common share equivalents include, when applicable, dilutive stock options
using the treasury stock method. Fully diluted earnings per share assumes, in
addition to the above, the additional dilutive effect of stock options.
The numbers of shares used in the earnings per share computation are as follows:
<TABLE>
<CAPTION>
Five Months
Year Ended Ended Years Ended December 31,
July 31, December 31, -------------------------
1994 1994 1995 1996
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Primary
Weighted average
common outstanding ................... 25,827,393 25,827,393 25,827,393 30,293,384
Conversion of
preferred stock ...................... 672,044 672,044 672,044 227,151
Stock options ......................... 711,201 711,201 711,201 1,265,688
---------- ---------- ---------- ----------
Total primary ....................... 27,210,638 27,210,638 27,210,638 31,786,223
Fully Diluted
Additional dilution
of stock options ..................... -- -- -- 50,219
---------- ---------- ---------- ----------
Total fully diluted ................. 27,210,638 27,210,638 27,210,638 31,836,442
========== ========== ========== ==========
</TABLE>
NOTE 9 - COMMITMENTS AND CONTINGENCIES
The Company leases certain equipment and buildings under operating leases having
terms ranging from one to ten years. The building leases contain up to two five
year renewal options.
Rental expense under operating leases for the year ended July 31, 1994, the five
months ended December 31, 1994 and the years ended December 31, 1995 and 1996
was approximately $2,927,000, $928,000, $2,200,000 and $4,908,000, respectively.
Rental expense for an office building leased from the Company's major
shareholder, net of subleases was approximately $277,000, $45,000,
26
<PAGE> 28
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - Commitments and Contingencies, continued
$104,000 and $104,000 for the year ended July 31, 1994, the five months ended
December 31, 1994 and the years ended December 31, 1995 and 1996, respectively.
The Company has a ten-year operating lease agreement, signed in 1995, with the
Company's majority shareholder for its corporate aircraft. The lease expense for
1995 and 1996 was approximately $51,000 and $615,000, respectively.
The Company has a five year noncancelable sublease agreement with an unrelated
tenant for its Charlotte, N.C. facility. The minimum sublease rental amounts the
Company is to receive are approximately $181,000, $187,000, and $94,000 for the
years ended December 31, 1997 through 1999, respectively.
The following is a schedule of future minimum rental payments (without regard to
the Charlotte, N.C. sublease) under operating leases having a remaining
noncancelable term in excess of one year subsequent to December 31, 1996:
<TABLE>
<CAPTION>
Related Non-Related Total
Year Party Party Amount
- ---- ---------- ----------- -----------
<C> <C> <C> <C>
1997.............................. $ 896,000 $ 2,975,000 $ 3,871,000
1998.............................. 896,000 2,336,000 3,232,000
1999.............................. 896,000 1,481,000 2,377,000
2000.............................. 896,000 1,257,000 2,153,000
2001.............................. 896,000 1,000,000 1,896,000
Thereafter........................ 3,207,000 - 3,207,000
---------- ----------- -----------
Total minimum payments required.. $7,687,000 $ 9,049,000 $16,736,000
========== =========== ===========
</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 10 - Employee Benefit Plans
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 $129,000, $125,000, $143,000 and
$170,000 for the year ended July 31, 1994, the five months ended December 31,
1994 and the years ended December 31, 1995 and 1996, respectively. In addition,
one of the Company's subsidiaries maintains a separate 401(k) plan. There were
no Company contributions made to this plan during the periods presented.
In June 1992, one of the Company's subsidiaries established an Employee Stock
Ownership Plan ("ESOP") for the benefit of its employees. In August 1992, the
ESOP purchased 249,350 shares of the subsidiary's common stock. In connection
with the stock purchase, the subsidiary made a cash contribution of $1.0 million
to the ESOP and entered into a note payable of $3,105,000. As the
27
<PAGE> 29
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - EMPLOYEE BENEFIT PLANS, continued
debt was repaid, shares were released from collateral and allocated to active
employees, based on the proportion of debt service paid in the current year.
NOTE 11 - PUBLIC OFFERINGS
In April 1996, the Company completed its initial public offering for the sale of
4,500,000 shares of common stock. Coincident with such offering, the
underwriters of the offering exercised their 15% over-allotment and accordingly
an additional 939,978 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 discounts and expenses associated with such
offering. The 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 November 1996, the Company completed a secondary offering for the sale of
2,419,980 shares of common stock, inclusive of the underwriters over-allotment
option. The Company received approximately $71.5 million from the offering, net
of underwriting discounts and expenses. The net proceeds were held for general
corporate and working capital purposes.
NOTE 12 - STOCK OPTIONS
In 1995, the Company granted options to an executive officer to purchase
1,143,000 shares of common stock at $3.02 per share. The Company determined that
the price was approximately $0.83 below fair market value at the date of the
grant and recognized $949,960 as compensation expense for the year ended
December 31, 1995. The options become exercisable three years from the date of
grant, except that one-third were exercisable to the extent that the underlying
shares were permitted to be included by the underwriters in an underwritten
public offering. In November, 1996 the Company completed its secondary public
offering and 381,000 of the options granted to the executive officer were
exercised and sold in the offering. The remaining 762,000 options expire if not
exercised by the tenth anniversary of their grant date.
Another executive officer was granted options under the Company's 1996 Employee
Stock Option Plan to purchase 209,841 shares of the Company's common stock with
an exercisable price of (i) 33 1/3% of such shares at $8.00 per share, (ii) 33
1/3% at $7.55 per share, and (iii) 33 1/3% at $6.67 per share. Compensation
expense of $27,634 is recognized in the general and administrative expenses in
the accompanying consolidated statements of operations for the year ended
December 31, 1996.
1996 Employee Stock Option Plan - The Company's 1996 Employee Stock Option Plan
(the "Employee Plan") permits the granting of incentive or nonqualified stock
options to purchase up to 2,625,000 shares of the Company's common stock at not
less than the fair value at the time the options are granted. Certain other
officers and employees hold options to purchase additional shares of
28
<PAGE> 30
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - STOCK OPTIONS, continued
common stock at a range of $6.67 to $31.27 per share and vest ratably over the
three-year period following the date of grant, except for 180,000 options
granted to key employees of DiagSoft, all of which are immediately exercisable.
All options granted under the Employee Plan expire if not exercised by the tenth
anniversary of their grant date.
Transactions related to the 1996 Employee Stock Option Plan are summarized as
follows:
<TABLE>
<CAPTION>
Shares Option Price
------- ----------------
<S> <C> <C>
Outstanding at December 31, 1995 ................. --
Granted ......................................... 973,605 $ 6.67 to $31.27
Exercised ....................................... --
Expired or terminated ........................... (71,813) $ 8.00
Outstanding at December 31, 1996 .............. 901,792 $ 6.67 to $31.27
</TABLE>
1996 Non-Employee Director Stock Option Plan - The Company's 1996 Non-Employee
Director Stock Option Plan (the "Non-Employee Plan") permits the granting of
nonqualified stock options to purchase up to 300,000 shares of the Company's
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 and will receive options
to purchase 5,000 shares on the day following the annual meeting of
shareholders. Thereafter, on the date on which a new outside director is first
elected or appointed, he or she will automatically be granted options to
purchase 5,000 shares of common stock. All options granted will have an exercise
price equal to the then fair market value of the common stock. At December 31,
1996 no options granted were exercisable. All options granted
under the Non-Employee Plan expire if not exercised by the tenth anniversary of
their grant date.
Transactions related to the 1996 Non-Employee Director Stock Option Plan are
summarized as follows:
<TABLE>
<CAPTION>
Shares Option Price
------- ------------
<S> <C> <C>
Outstanding at December 31, 1995............ -
Granted.................................... 56,250 $ 8.00
Exercised.................................. -
Expired or terminated...................... -
-------
Outstanding at December 31, 1996............ 56,250 $ 8.00
------
</TABLE>
The Company has adopted the disclosure only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation", but
applies Accounting Principles Board Opinion No. 25 and related interpretations
in accounting for its plans. Therefore, no compensation expense has been
recognized for stock options granted under its plans. If the Company had elected
to recognize compensation expense for stock options based on the fair value at
grant date, consistent with the method
29
<PAGE> 31
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - STOCK OPTIONS, continued
prescribed by SFAS No. 123, net income and earnings per share would have been
reduced to the pro forma amounts as follows:
<TABLE>
<CAPTION>
Year Five Months Years Ended
Ended Ended December 31,
July 31, December 31, -------------------
1994 1994 1995 1996
--------- ------------ ----- ----
<S> <C> <C> <C> <C>
($ in thousands, except per share amounts)
Pro forma net income
as reported ...................... $ 70 $ 563 $1,430 $ 8,050
Pro forma net income
as prescribed by SFAS 123 ........ $ 70 $ 563 $ 233 $ 6,671
Pro forma net income (loss)
per share as reported ............ $0.00 $ 0.02 $ 0.05 $ 0.25
Pro forma net income (loss)
as prescribed by SFAS 123 ........ $0.00 $ 0.02 $ 0.01 $ 0.21
</TABLE>
The pro forma amounts were determined using the Black-Scholes valuation model
with the following key assumptions: (i) a discount rate of 6.0% for 1995 and
1996; (ii) a volatility factor initially based upon the average trading price
since the Company's common stock has traded on the Nasdaq National Market; (iii)
no dividend yield; and (iv) an average expected option life of approximately 3.5
years.
NOTE 13 - INTERNATIONAL OPERATIONS
The Company's international operations are conducted from offices located in
Amsterdam, The Netherlands, Wilhelmshaven, Germany, and Sveg, Jarvso, and
Stockholm, Sweden. With the exception of the Stockholm office, each facility
provides technical support services for regions throughout Europe. The revenue,
income (loss) before income taxes and total assets of the Company associated
with its international operations are as follows:
<TABLE>
<CAPTION>
Year Five Months
Ended Ended Years Ended December 31,
July 31, December 31, ---------------------------
1994 1994 1995 1996
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Revenue ...................... $ 4,628,843 $3,318,419 $11,714,215 $17,966,540
Income (loss) before
income taxes ............... (510,765) 84,162 1,114,950 1,422,304
Total assets ................. 3,675,077 5,369,120 14,753,991 16,785,282
</TABLE>
30
<PAGE> 32
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - SIGNIFICANT CUSTOMERS
Significant customers of the Company comprised 21%, 24%, 24% and 29% of the
Company's consolidated revenues for the year ended July 31, 1994, the five
months ended December 31, 1994 and the years ended December 31, 1995 and 1996
respectively. Two customers comprised 24% and 21% of the Company's revenues for
the years ended December 31, 1995 and 1996, respectively. Revenues from one
customer amounted to 21%, 14%, 12% and 9% for the year ended July 31, 1994 the
five months ended December 31, 1994 and the years ended December 31, 1995 and
1996, respectively.
NOTE 15 - PRO FORMA DISCLOSURES
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 was
automatically converted into shares of common stock. These shares were sold in
connection with such offering.
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, the Company's
affiliate terminated its S corporation election and accordingly became subject
to federal and state income taxes. The pro forma provision for income taxes
reported on the consolidated statements of operations presents federal and state
income taxes 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 (198 shares as adjusted for a
three-for-two stock split during 1996 and for a three-for-two stock split during
1997) 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 8 applying the treasury stock method. In addition, the
calculation includes certain preferred stock issued during the year that was
converted to common stock immediately prior to the closing of
31
<PAGE> 33
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - PRO FORMA DISCLOSURES, continued
and sold in the Company's initial public offering. Such shares were deemed
outstanding for all periods presented.
In addition, the Company issued 2,745,000 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 16 - 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 income for a five month period.
Selected financial data for the twelve months ended December 31, 1994, 1995 and
1996, as shown on the following page, consists of:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------
1994 1995 1996
------------ ------------- -------------
(Unaudited)
<S> <C> <C> <C>
Revenues ...................................... $ 81,492,587 $ 101,499,849 $ 148,620,206
------------ ------------- -------------
Operating expenses:
Direct salaries and related costs ............ 53,974,386 65,092,888 90,588,740
General and administrative ................... 25,016,000 32,449,047 45,506,253
------------ ------------- -------------
Total operating expense ..................... 78,990,386 97,541,935 136,094,993
------------ ------------- -------------
Income from operations ........................ 2,502,201 3,957,914 12,525,213
Other income (expense)
Interest ..................................... (552,760) (945,235) 198,348
Other ........................................ 37,483 60,279 27,958
------------ ------------- -------------
Total other income (expense) ................ (515,277) (884,956) 226,306
------------ ------------- -------------
Income before income taxes .................... 1,986,924 3,072,958 12,751,519
Provision for income taxes .................... 1,014,365 1,471,124 4,634,415
------------ ------------- -------------
Net income .................................... 972,559 1,601,834 8,117,104
Preferred stock dividends ..................... -- -- 47,343
------------ ------------- -------------
Net income applicable to common shareholders... $ 972,559 $ 1,601,834 $ 8,069,761
============ ============= =============
Pro forma income data (unaudited)
Income before income taxes .................... $ 1,986,924 $ 3,072,958 $ 12,751,519
Pro forma provision for income taxes
relating to S corporation .................... 39,000 172,000 67,000
Actual provision for income taxes ............. 1,014,365 1,471,124 4,634,415
------------ ------------- -------------
Total provision and pro forma provision
for income taxes ............................ 1,053,365 1,643,124 4,701,415
------------ ------------- -------------
Pro forma net income .......................... 933,559 1,429,834 8,050,104
Preferred stock dividends ..................... -- -- (47,343)
------------ ------------- -------------
Pro forma net income applicable to common
shareholders ................................. $ 933,559 $ 1,429,834 $ 8,002,761
============ ============= =============
Pro forma net income per share ................ $ 0.03 $ 0.05 $ 0.25
============ ============= =============
Pro forma weighted average common and common
equivalent shares outstanding ................ 27,210,638 27,210,638 31,836,442
============ ============= =============
</TABLE>
32
<PAGE> 34
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - SUBSEQUENT EVENTS
Effective January 1, 1997, the Company acquired all of the common stock of
Traffic, N.V. of Brussels, Belgium, and certain other assets, for $1.8 million
in cash. The transaction will be accounted for under the purchase method of
accounting and has been approved by the boards of directors of both companies.
Traffic, N.V. specializes in foreign language translation and multi-media
documentation development. Pro forma information is not presented, as the
operating results are not material to the Company's consolidated results.
33
<PAGE> 35
SYKES ENTERPRISES, INCORPORATED
SCHEDULE II - VALUATION AND QUALIFIYING ACCOUNTS
Allowance for Doubtful Accounts
<TABLE>
<CAPTION>
Additional
Beginning Charge to Cost Ending
Balance and Expenses Deductions(1) Balance
<S> <C> <C> <C> <C>
Year ended July 31, 1994...................... $225,667 $ 24,776 $ - $250,453
Five months ended December 31, 1994........... 250,453 36,871 94,928 192,396
Year ended December 31, 1995.................. 192,396 251,200 132,857 310,739
Year ended December 31, 1996.................. 310,739 89,681 130,421 269,999
</TABLE>
(1) Write-off and recoveries
34
<PAGE> 1
EXHIBIT 2.2
Dr. Klaus Rollin
Dr. Henning Voscherau Roll of Documents No. 849/1997 P
Dr. Reiner Stadler File: 67/P/97/or
Dr. Klaas Hinrich Pfluger
Dr. Rolf-Hermann Henniges
Dr. Wolfgang Engelhardt
Notare
Notar Dr. Voscherau Zur Zeit Beurlaust
Counterpart
NOTARIAL DEED
Negotiated in the Free and Hanseatic City of Hamburg
on Friday, 30th (thirtieth) of May, 1997
(nineteen hundred and ninety seven).
I, the Hamburg Notary Public
DR. KLASS HINRICH PFLUGER,
ALSTGERTOR 14, 20095 HAMBURG,
today by request went into the office of the attorneys-at-law Schon Nolte
Finkelnburg & Clemm, Warburgstrasse 50, 20354 Hamburg, where I found present:
1. Mr. Scott James Bendert,
businessman,
born on 17th August, 1956,
address: 100 North Tampa Street, Suite 3900, FL. USA, 33602,
identified by US passport No. 043630847,
declaring to act not for himself, but
a) as Financial Director and by virtue of a Power of Attorney
dated 28th May, 1997, a telefax copy of which has been
<PAGE> 2
presented at the notarization and a certified copy of which
will be attached to this Deed, for the Company under the laws
of Florida with the style
Sykes Enterprises, Incorporated,
address: 100 North Tampa Street, Suite 3900, FL. USA, 33602,
b) as Managing Director, with sole Power of Representation, for
the Limited Liability Company under the laws of the Federal
Republic of Germany with the style
RAGNA Siebte Vermogensverwaltungsgesellschaft mbH, (by
Shareholders' Resolution dated 30th May, 1997, Documentation
No. 847/1997 P of the officiating Notary Public changed to
Sykes Enterprises GmbH),
2. Mr. Rolf-Christof Alfred Dienst,
businessman,
born on 13th March, 1946,
address: Pacellistrasse 14, 80330 Munchen,
identified by German identity card No. 8084002501,
declaring to act for
a) himself,
b) Mr. Ralf Halbherr,
address: Taunusstrasse 8 b, 61449 Steinbach
c) Mrs. Ruth Ricker,
address: Grafenweg 4, 71803 Herrenberg,
d) Mr. Wolfgang Rucker,
address: Grafenweg 4, 71803 Herrenberg,
e) Mr. Joachim Schoss,
address: Freiheer-vom-Stein-Str. 51, 60323 Frankfurt,
f) Mr. Gunter Greff,
address: Stadlander Weg 11, 26441 Jever,
g) Mr. Thomas Klawitter,
address: Kosteverloren 3 a, 26441 Jever,
sub. b) - g) pursuant to Powers of Attorney, which will be attached to
this deed.
Pursuant to par. 13 a of the Notarization Act of the Federal Republic of
Germany, reference is made to notarial supplementary Deeds ("Reference
Documents") dated 30th May, 1997, i.e.:
a) Roll-of-Documents No. 841/1997 P of the officiating Notary
Public
("Reference Document I")
b) Roll-of-Documents No. 720/1997/ R of the Notary Public Dr.
<PAGE> 3
Klaus Rollin
("Reference Document II")
and the Exhibits attached thereto, i.e.:
(i) Pledge and Escrow Agreement
(Exhibit l of Reference Document I,
hereinafter referred to as "Exhibit A")
(ii) Registration Rights Agreement
(Exhibit 2 of Reference Document I,
hereinafter referred to as "Exhibit B")
(iii) Disclosure Schedule
(Exhibit of Reference Document II,
hereinafter referred to as "Disclosure Schedule"),
certified copies of said supplementary Deeds (counterparts of which were
available in the course of the notarization) will be attached to this Deed for
documentary purposes, not as exhibits a set forth in par. 9(l) of the
Notarization Act of the Federal Republic of Germany. The contents of these Deeds
are known to the parties and shall be part and subject matter of this Deed and
the following Agreement; the reading of said Deeds was waived.
The parties declared for recording:
ACQUISITION AGREEMENT
BY AND AMONG
THE
SHAREHOLDERS
OF
TELCARE GESELLSCHAFT FUR
TELEKOMMUNIKATIONS - MEHRWERTDIENSTE MBH,
SYKES ENTERPRISES, INCORPORATED,
AND
SYKES ENTERPRISES GMBH
DATED MAY 30, 1997
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
RECITALS ....................................................................................1
ARTICLE I
DEFINITIONS.........................................................................1
Section 1.1.........................................................................1
ARTICLE II
PURCHASE, SALE AND ASSIGNMENT OF SHARES.............................................5
Section 2.1. Purchase and Sale of Shares...........................................5
Section 2.2. Assignment of Shares..................................................6
ARTICLE III
DELIVERY OF PURCHASE PRICE SHARES...................................................7
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLERS...........................................7
Section 4.1. Corporate Organization............................................7
Section 4.2. Capitalization....................................................7
Section 4.3. Authority; Binding Effect.........................................8
Section 4.4. Ownership of Quotas; Title........................................8
Section 4.5. Sellers' Consents and Approvals; No Violations....................8
Section 4.6. The Company's Consents and Approvals; No Violations...............9
Section 4.7. Financial Statements..............................................9
Section 4.8. Undisclosed Liabilities..........................................10
Section 4.9. Taxes............................................................10
Section 4.10. Title to Properties..............................................11
Section 4.11. Absence of Changes...............................................11
Section 4.12. Intellectual Property............................................13
Section 4.13. Leases...........................................................14
Section 4.14. Bank Accounts; Investments; Powers of Attorney...................15
Section 4.15. Material Contracts and Customers.................................15
Section 4.16. Related Transactions.............................................18
<PAGE> 5
Section 4.17. Insurance........................................................18
Section 4.18. Labor Matters....................................................18
Section 4.19. Employee Benefit Plans...........................................19
Section 4.20. Litigation.......................................................20
Section 4.21. Compliance with Laws.............................................20
Section 4.22. Books and Records................................................20
Section 4.23. Copies of Documents..............................................20
Section 4.24. Adequacy of Assets...............................................20
Section 4.25. Grants...........................................................21
Section 4.26. Accounts Receivable..............................................21
Section 4.27. Brokers and Finders..............................................21
Section 4.28. Investment Intent; Information Disclosures.......................21
Section 4.29 Pooling of Interests.............................................23
Section 4.30 Restrictive Covenants............................................24
Section 4.31 Product Liabilities and Warranties...............................24
Section 4.32 Disclosure.......................................................24
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SEI AND BUYER....................................25
Section 5.1. Corporate Organization...........................................25
Section 5.2. Capitalization of SEi............................................25
Section 5.3. Authority........................................................25
Section 5.4. SEi's Consents and Approvals; No Violations......................25
Section 5.5. Litigation.......................................................26
Section 5.6. Brokers and Finders..............................................26
Section 5.7. SEi Information..................................................26
Section 5.8 No Material Adverse Change.......................................26
Section 5.9. Undisclosed Liabilities..........................................26
Section 5.10. Compliance with Laws.............................................27
ARTICLE VI
FURTHER COVENANTS AND AGREEMENTS...................................................27
Section 6.1. Covenants of Sellers Pending the Closing.........................27
Section 6.2. Covenants of Buyer and SEi Pending the Closing...................28
Section 6.3. Filings..........................................................29
Section 6.4. Effective Time of Closing and Transfer...........................29
Section 6.5. Announcements....................................................29
<PAGE> 6
Section 6.6. Costs and Expenses...............................................29
Section 6.7. Further Assurances...............................................30
Section 6.8. Certain Agreements...............................................30
Section 6.9. Non-Disclosure; Covenant Not to Compete..........................30
Section 6.10. Pooling of interests.............................................32
Section 6.11. Exclusive Dealing................................................32
Section 6.12. Post-Closing Arrangements........................................32
ARTICLE VII
TERMINATION........................................................................33
Section 7.1. Termination......................................................33
Section 7.2. Procedure and Effect of Termination..............................33
ARTICLE VIII
CONDITIONS TO BUYER'S AND SEI'S OBLIGATIONS........................................34
Section 8.1 Sellers' Closing Deliveries......................................34
Section 8.2. Representations and Warranties True..............................34
Section 8.3. Performance......................................................34
Section 8.4. Governmental Consents and Approvals..............................35
Section 8.5. No Injunction or Proceeding......................................35
Section 8.6. Due Diligence....................................................35
Section 8.7. Continued Employment of Klawitter and Schaffer...................35
ARTICLE IX
CONDITIONS TO SELLERS' OBLIGATIONS.................................................35
Section 9.1. Delivery of Purchase Price Shares................................35
Section 9.2. Buyer's and SEi's Closing Deliveries.............................35
Section 9.3. Representations and Warranties True..............................36
Section 9.4. Performance......................................................36
Section 9.6. Governmental Consents and Approvals..............................36
Section 9.7. No Injunction or Proceeding......................................36
ARTICLE X
INDEMNIFICATION....................................................................36
Section 10.1. Indemnification by Sellers.......................................36
Section 10.2. Indemnification by Buyer and SEi.................................37
Section 10.3. Survival of Representations......................................37
Section 10.4. Indemnification Claims Procedures................................37
Section 10.5. Right of Set-Off.................................................39
Section 10.6. Limitation of Liability..........................................39
<PAGE> 7
MISCELLANEOUS......................................................................40
Section 11.1. Governing Law....................................................40
Section 11.2. Entire Understanding, Waiver, Etc................................40
Section 11.3. Severability; Gaps...............................................40
Section 11.4. Captions.........................................................40
Section 11.5. Notices..........................................................40
Section 11.6. Successors and Assigns...........................................42
Section 11.7. Parties in Interest..............................................42
Section 11.8. Counterparts.....................................................43
Section 11.9. Construction of Terms............................................43
Section 11.10. SEi Guarantee....................................................43
Section 11.11. Beneficial Owners of Quotas. ...................................43
</TABLE>
EXHIBITS
<TABLE>
<S> <C>
Exhibit A Form of Pledge and Escrow Agreement
Exhibit B Form of Registration Rights Agreement
</TABLE>
DISCLOSURE SCHEDULE
<TABLE>
<S> <C>
Section 4.1 Corporate Organization
Section 4.2 Capitalization
Section 4.4 Ownership of Quotas; Title
Section 4.5 Sellers' Consents and Approvals; No Violations
Section 4.6 The Company's Consents and Approvals; No Violations
Section 4.7(a) Financial Statements
Section 4.7(b) Financial Statements Exceptions
Section 4.8 Undisclosed Liabilities
Section 4.9 Taxes
Section 4.10(a) List of Material Fixed Assets
Section 4.10(b) Title to Properties Exceptions
Section 4.10(c) Possession and Condition of Assets
Section 4.11 Absence of Changes
<PAGE> 8
Section 4.12(a) List of Intellectual Property
Section 4.12(b) Fees and Royalties
Section 4.12(c) Registrations; Exclusive Rights
Section 4.12(d) Trade Secrets
Section 4.12(e) Intellectual Property Claims
Section 4.13 Leases
Section 4.14(a) List of Accounts
Section 4.14(b) Investments
Section 4.14(c) Ownership of SEi Stock
Section 4.15(a) List of Material Contracts
Section 4.15(b) Material Contracts Exceptions
Section 4.15(c) Customers and Suppliers
Section 4.16 Related Transactions
Section 4.17(a) List of Insurance Policies
Section 4.17(b) Insurance Policy Terminations
Section 4.17(c) Insurance Policy Claims
Section 4.17(d) Unpaid Insurance Claims
Section 4.18(a) Labor Matters
Section 4.18(b) List of Employees
Section 4.19 Employee Benefit Plans
Section 4.20 Litigation
Section 4.21 Compliance with Laws
Section 4.24 Adequacy of Assets
Section 4.25(a) Grants
Section 4.25(b) Grants Exceptions
Section 4.26 Accounts Receivable
Section 4.30 Restrictive Covenants
Section 4.31 Product Liabilities and Warranties
</TABLE>
<PAGE> 9
ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT is made and entered into as of May 30, 1997,
by and among the undersigned persons (collectively, the "Sellers"), being the
holders of all the outstanding capital interests of Telcare Gesellschaft fur
Telekommunikations - Mehrwertdienste mbH, a limited liability company organized
under the laws of the Federal Republic of Germany (the "Company"), each such
Seller being an individual residing in, and a citizen of, the Federal Republic
of Germany, SYKES ENTERPRISES GMBH, a limited liability company organized and
existing under the laws of the Federal Republic of Germany ("Buyer"), and SYKES
ENTERPRISES, INCORPORATED, a corporation organized and existing under the laws
of Florida ("SEi").
RECITALS
WHEREAS, the Sellers own all of the issued capital interests of the
Company (the "Quotas");
WHEREAS, SEi owns all of the issued capital interests of the Buyer;
WHEREAS, the Sellers desire to sell the Quotas in exchange for shares
of SEi's common stock, and SEi is willing to cause the Buyer to purchase the
Quotas from Sellers in exchange for shares of SEi's common stock, on the terms
and subject to the conditions hereinafter set forth; and
WHEREAS, SEi intends to treat the acquisition by the Buyer of the
Quotas as a "pooling of interests" for financial accounting purposes.
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements hereinafter set forth and
for other good and valuable considerations, the receipt and sufficiency of which
are hereby expressly acknowledged by the Sellers, the Buyer and SEi, and
intending to be legally bound, the parties hereto agree as follows:
1
<PAGE> 10
ARTICLE I
DEFINITIONS
SECTION 1.1. The terms defined in this Article shall have the following
respective meanings for all purposes of this Agreement:
"Affiliate" means, with respect to any Person, an officer,
director or beneficial owner of five percent (5%) or more of the issued and
outstanding shares of any class of capital stock or other equity of such Person.
"Alternative Transaction" means any merger, consolidation,
sale of substantial assets, sale of capital interests or securities or similar
transaction involving the Company, other than the transactions contemplated by
this Agreement.
"Business" means the business conducted as of the date of this
Agreement or as of the Closing Date, as the context permits or implies, by the
Company, which consists of providing the following services on a "for hire"
basis:
(i) call center services;
(ii) telemarketing and teleselling services;
(iii) fulfillment services for telemarketing and call
center customers; and
(iv) database development services for telemarketing and
call center customers.
"Business Day" means any day on which banks are open for
business in New York, New York.
"Closing" means the consummation and effectuation of the
transactions contemplated herein pursuant to the terms and conditions of this
Agreement, which shall be held on the 16th day of June, 1997, at 10:00 AM in
2
<PAGE> 11
the offices of Schon Nolte Finkelnburg & Clemm in Hamburg, Federal Republic of
Germany, or on such other date or at such other time or place as is mutually
agreed by the parties hereto.
"Closing Date" means the date on which the Closing actually
occurs.
"Code" means the Internal Revenue Code of 1986, as amended.
"Customers" shall have the meaning set forth in Section 4.15.
"Disclosure Schedule" means the disclosure schedule document
executed by Sellers as of the date hereof and previously delivered to the Buyer
and SEi, without any amendment thereto subsequent to the date hereof.
"Employee Benefit Plan" means any pension, retirement, profit
sharing, savings, thrift, stock bonus, stock option, stock purchase, restricted
stock purchase, stock ownership, stock appreciation right, phantom stock,
deferred compensation, supplemental retirement, deferred bonus, severance,
change of control, parachute, health, medical, dental, vision, prescription
drugs, fitness, dependent care, educational assistance, group legal services,
life insurance, accidental death, accidental dismemberment, sick pay, short-term
or long-term disability, supplemental unemployment income, training,
apprenticeship, scholarship, tuition reimbursement, employee assistance,
employee discount, subsidized cafeteria, fringe benefit, vacation, holiday,
employer-sponsored recreational facility, or other employee pension benefit or
welfare benefit plan, policy, contract, or arrangement, or other similar fringe
or employee benefit plan, program, policy, contract, or arrangement, written or
oral, qualified or nonqualified, funded or unfunded, foreign or domestic.
"Escrow Agent" means Firstar Trust Company of Milwaukee,
Wisconsin, or such other person as SEi and the Sellers shall mutually agree
upon, in its capacity as escrow agent.
"Financial Statements" has the meaning set forth in Section
4.7.
3
<PAGE> 12
"Form 10-Q Balance Sheet" means the unaudited balance sheet
dated March 30, 1997 (and any related notes thereto), found in the quarterly
report filed on Form 10-Q filed with the Securities and Exchange Commission for
the quarterly period ended March 30, 1997, a copy of which is included as part
of the SEi Filings.
"GGAAP" means generally accepted accounting principles as in
effect in the Federal Republic of Germany on December 31, 1996.
"Grants" means the governmental and other grants, subsidies,
guarantees and/or loans provided to or for the benefit of the Company.
"Intellectual Property" means all intellectual property and
intellectual property rights, whether arising under the laws of the Federal
Republic of Germany or any other jurisdiction including, without limitation, (i)
all patents, patent applications, continuations in part, divisions, reissues and
patent disclosures, (ii) all copyrights, whether registered or unregistered, and
pending applications to register the same, (iii) anything recognizable as a
trademark, service mark or trade dress at common law, under the Lanham Act or
under the corresponding laws of any foreign country, whether registered or not,
which is used to identify the source and quality of goods or services or to
distinguish them from those of others, and all registrations and applications
for registration, including intent-to-use registrations and applications for
registration, (iv) all licenses, sublicenses and rights to use any Intellectual
Property of any other Person, (v) all names used to identify a particular
company, business, subsidiary or division thereof, (vi) all confidential and
proprietary ideas, trade secrets, know how, concepts, methods, processes,
formulae, reports, data, customer lists, mailing lists, business plans or other
proprietary information, including, without limitation, with respect to any
Person, any formulae, pattern, device or compilation of information which is
used in such Person's business and which derives independent commercial value
from not being generally known or readily ascertainable through independent
development or reverse engineering by other Persons who can obtain economic
value from its disclosure or use, and (vii) all other forms of proprietary
information.
4
<PAGE> 13
"Interim Balance Sheet" means the unaudited balance sheet
dated as of the Interim Balance Sheet Date (and any related notes thereto), a
copy of which is included as part of the Financial Statements.
"Interim Balance Sheet Date" means April 30, 1997.
"Leased Real Property" means all real property and premises
currently leased to the Company.
"Material Adverse Effect" means, with respect to any Person, a
material adverse effect on the financial condition, results of operations or
business prospects of such Person.
"NASDAQ" means The Nasdaq National Stock Market, Inc.'s
National Market.
"Person" means an individual, partnership, limited liability
company, corporation, trust, unincorporated organization, association or joint
venture or a government, agency, political subdivision or instrumentality
thereof.
"Purchase Price Shares" means the shares of SEi Stock to be
issued to the Sellers in consideration of the transfer and assignment of the
Quotas pursuant to this Agreement, which shall consist of:
(i) 750,000 shares of SEi Stock, in the event the SEi
Stock Closing Price is greater than or equal to $20 per share, and less than or
equal to $25.33 per share;
(ii) in the event the SEi Stock Closing Price is less than
$20 per share, a number of shares of SEi Stock equal to $15,000,000 divided by
the SEi Stock Closing Price; or
(iii) in the event the SEi Stock Closing Price is greater
than $25.33 per share, a number of shares equal to $19,000,000 divided by the
SEi Stock Closing Price.
5
<PAGE> 14
"Related Agreements" means the agreements described in Section
6.8.
"SEC" means the United States Securities and Exchange
Commission.
"SEi Filings" means the following filings made by SEi with the
SEC: the annual report on Form 10-K for the annual period ending December 31,
1996, the quarterly report on Form 10-Q for the quarterly period ending March
30, 1997, and the Annual Report to Stockholders and related proxy statement
filed on Schedule 14A with respect to an annual meeting of SEi's shareholders
held on May 8, 1997.
"SEi Stock" means SEi's common stock, $.01 par value per
share.
"SEi Stock Closing Price" means the average of the closing
prices for SEi Stock as reported on NASDAQ (as published in the Wall Street
Journal or, if not reported therein, in another mutually agreed upon
authoritative source) for the five (5) consecutive full trading days in which
such shares are traded on NASDAQ, ending on the last such trading day prior to
the Closing Date.
"Seller's Shares" means, with respect to any Seller, a number
of shares of SEi Stock equal to the Purchase Price Shares multiplied by such
Seller's percentage ownership in the Company as shown in Section 2.1.
"Taxes" means all taxes, assessments, and charges imposed by
any federal, state, local, or foreign taxing authority, including social
security, insurance and other state-sponsored pension funds and all interest,
penalties and additions thereto.
"Transfer Agent" means Firstar Trust Company of Milwaukee,
Wisconsin, in its capacity as transfer agent for SEi Stock.
"USGAAP" means generally accepted accounting principles as in
effect in the United States on December 31, 1996.
6
<PAGE> 15
ARTICLE II
PURCHASE, SALE AND ASSIGNMENT OF SHARES
SECTION 2.1. PURCHASE AND SALE OF SHARES. Upon the terms and subject to
the conditions hereof, each of the Sellers hereby sells to Buyer and Buyer
hereby buys from each of the Sellers, all of such Sellers' right, title and
interest in and to the Quotas set forth below opposite the name of such Seller,
together with the right to receive dividends with respect to such Quotas as of
January 1, 1997, and the capital reserve, in consideration for the delivery of
the Purchase Price Shares as provided in Article III below.
7
<PAGE> 16
<TABLE>
<CAPTION>
Name Share Capital Percentage Interest
---- ------------- -------------------
<S> <C> <C>
Rolf Christof Dienst DM12,500
DM59,500
DM11,400
*DM12,500
*DM66,100
---------
Total *DM54,000 36%
---------
DM216,000
Gunter Greff DM12,500
DM113,500
---------
Total DM18,000 24%
---------
DM144,000
Joachim Schoss DM12,500
DM113,500
---------
Total DM18,000 24%
---------
DM144,000
Thomas Klawitter DM48,000 8%
Ralf Halbherr 8%
--------- ---
DM48,000
---------
Grand Total DM600,000 100%
</TABLE>
* all or a portion of these shares (totalling
DM104,850) are held in trust for Ruth Rucker or
Wolfgang Rucker; an aggregate of 17.475% of the
Quotas are held by Mr. Dienst in this manner.
SECTION 2.2. ASSIGNMENT OF SHARES. Each of the Sellers hereby assigns
and transfers such Seller's Quota as specified in Section 2.1, together with the
right to receive dividends on the such Quota as of January 1, 1997, to Buyer at
8
<PAGE> 17
the Closing and Buyer hereby accepts such assignments. All such assignments are
subject to:
(a) the delivery of the Purchase Price Shares in accordance
with Article III hereof;
(b) the non-occurrence of a termination of this Agreement in
accordance with Section 7.1 prior to the Closing; and
(c) the fulfillment of all of the conditions precedent
specified in Article VIII and Article IX.
Each of the Sellers hereby consents to the sales and transfers effected
herein and waives any preemptive rights or rights of first refusal he may have
under the Articles of Association.
9
<PAGE> 18
ARTICLE III
DELIVERY OF PURCHASE PRICE SHARES
Upon the terms and subject to the conditions hereof, SEi shall issue,
and Buyer shall deliver, the Purchase Price Shares as follows:
(i) to each of the Sellers at the Closing, a
certificate or certificates or, at SEi's option, an irrevocable letter of
instructions to the Transfer Agent for the issue and delivery of a certificate
or certificates, issued in the Seller's name, each such certificate bearing the
legend provided for in Section 4.28(g) and evidencing a number of shares of SEi
Stock equal to nine tenths of such Seller's Shares, rounded down to the nearest
whole share;
(ii) to the Escrow Agent promptly following the
Closing, a certificate or certificates issued in the name of each Seller, each
such certificate bearing the legend provided for in Section 4.28(g) and
evidencing a number of shares equal to one tenth of the applicable Seller's
Shares, rounded down to the nearest whole share, to be held in accordance with a
Pledge and Escrow Agreement dated as of the Closing Date by and among SEi,
Buyer, the Sellers and the Escrow Agent substantially in the form of Exhibit A
(the "Pledge and Escrow Agreement").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLERS (GARANTIEN)
The Sellers hereby represent and warrant to SEi and Buyer as follows,
the representations and warranties in Sections 4.3 through 4.5 being made
severally by the Sellers and all other representations and warranties in this
Article IV being made jointly and severally by the Sellers:
SECTION 4.1. CORPORATE ORGANIZATION. The Company is a limited
liability company duly organized and validly existing under the laws of the
Federal Republic of Germany and has the full right, power and authority to own,
lease and operate all of its properties and assets and to carry out the
10
<PAGE> 19
Business as it is presently conducted. The Company is duly licensed or qualified
to do business and is in good standing in each jurisdiction in which the
ownership of property or the conduct of its business requires such qualification
or license. Except as set forth in Section 4.1 of the Disclosure Schedule, there
are no corporations, joint ventures, partnerships or other entities or
arrangements in which the Company, directly or indirectly, owns any capital
stock or any equity interest.
SECTION 4.2. CAPITALIZATION. The aggregate stated share
capital of the Company consists of DM600,000. The Quotas, which represent all
issued share capital of the Company, have been duly authorized and validly
issued, are fully paid and nonassessable, were issued without violation of any
preemptive rights, and can be transferred to Buyer as provided herein free of
any preemptive rights. The Company has not repaid any stated share capital to
any of the Sellers, or to any prior holder of the Company's share capital, or
paid out any other equity capital in a manner which would adversely affect the
Company's ability to pay dividends in a situation in which the Company would
otherwise be permitted to pay dividends according to German law. Except for this
Agreement and as set forth in Section 4.2 of the Disclosure Schedule, there are
no options, warrants or other rights, nor any agreements, commitments or
arrangements of any kind, relating to the subscription for or the issuance,
voting, acquisition, sale, repurchase, transfer or disposition of (i) any share
capital of the Company or securities convertible into or exchangeable for share
capital of the Company, or (ii) any options, warrants or subscription rights
relating to any such share capital or other securities of the Company.
SECTION 4.3. AUTHORITY; BINDING EFFECT. Each of the Sellers
has all requisite right, power and authority to execute, deliver and perform
this Agreement and the Related Agreements to which such Seller is a party. This
Agreement and the Related Agreements to which the Sellers are parties have been
duly and validly executed and delivered by the Sellers and constitute the legal,
valid and binding obligations of each of the Sellers, enforceable against each
of the Sellers in accordance with their respective terms.
SECTION 4.4. OWNERSHIP OF QUOTAS; TITLE. Except as disclosed
in Section 4.4 of the Disclosure Schedule, each of the Sellers owns of record
and beneficially the Quotas set forth beside such Seller's name in Section
11
<PAGE> 20
2.1. All issued share capital of the Company has been owned of record and
beneficially at all times exclusively by individual citizens of, or other
Persons organized and existing under the laws of, the Federal Republic of
Germany. Each of the Sellers has and will have, on the Closing Date, good,
marketable and valid title to the Quotas to be sold by such Seller hereunder,
free and clear of all liens, pledges, encumbrances, claims, security interests,
charges, voting trusts, voting agreements, other agreements, rights, options,
warrants or other restrictions of any kind, nature or description, other than
those referenced in Section 4.2 of the Disclosure Schedule. The execution,
delivery, notarization and performance of this Agreement will convey to Buyer at
the Closing good title to the Quotas free and clear of all claims, liens,
encumbrances, security interests, charges or restrictions on transfer of any
nature whatsoever, other than those contained in the Company's Articles of
Association. No Seller is involved in any proceedings by or against such Seller
under any bankruptcy laws or under any other insolvency or debtor's relief act.
SECTION 4.5. SELLERS' CONSENTS AND APPROVALS; NO VIOLATIONS.
Except as set forth in Section 4.5 of the Disclosure Schedule, the execution,
delivery and performance by each of the Sellers of this Agreement and the
Related Agreements to which he or she is a party will not (with or without the
giving of notice or the passage of time, or both) (a) violate any applicable
provision of law or any rule or regulation of any federal, state or local
administrative agency or governmental authority applicable to Sellers, or any
order, writ, injunction, judgment or decree of any court, administrative agency
or governmental authority applicable to Sellers, (b) violate or require any
consent, waiver or approval under (except for the matters referenced in Section
4.5 of the Disclosure Schedule), result in a breach, modification or termination
of any provisions of, constitute a default under, affect the rights under or
enforceability of, or result in the imposition of any pledge, security interest
or other encumbrance upon any of the Quotas pursuant to, any agreement,
indenture, mortgage, deed of trust, lease, license, or other instrument to which
any Seller is a party or by which any of them is bound, or any material license,
permit or certificate held by any of them including, without limitation, those
listed on the Disclosure Schedule, or (c) require any material consent or
approval by, notice to or registration with any governmental authority or other
Person which is applicable to any Seller.
12
<PAGE> 21
SECTION 4.6. THE COMPANY'S CONSENTS AND APPROVALS; NO
VIOLATIONS. Except as set forth on Section 4.6 of the Disclosure Schedule, the
execution, delivery and performance by each of the Sellers of this Agreement and
the Related Agreements to which he or she is a party will not (with or without
the giving of notice or the passage of time, or both) (a) violate any applicable
provision of law or any rule or regulation of any federal, state or local
administrative agency or governmental authority applicable to the Company, or
any order, writ, injunction, judgment or decree of any court, administrative
agency or governmental authority applicable to the Company, (b) violate the
organizational documents of the Company, (c) violate or require any consent,
waiver or approval under, result in a breach, modification or termination of any
provisions of, constitute a default under, affect the rights under or
enforceability of, result in the imposition of any pledge, security interest or
other encumbrance pursuant to, or give any Person the right to terminate, modify
or renegotiate any provision of, any agreement, indenture, mortgage, deed of
trust, lease, license, or other instrument to which the Company is a party or by
which it is bound, or any material license, permit or certificate held by it
including, without limitation, those listed on the Disclosure Schedule, (d)
require any material consent or approval by, notice to or registration with any
governmental authority or other Person which is applicable to the Company, or
(e) result in the creation of any lien, claim, encumbrance or charge upon any
property or assets of the Company.
SECTION 4.7. FINANCIAL STATEMENTS.
(a) Section 4.7(a) of the Disclosure Schedule contains (i) the
unaudited balance sheet and the related unaudited income statement (including
any related notes thereto) of the Company as of and for the fiscal years ended
December 31, 1994, December 31, 1995 and December 31, 1996, and (ii) the Interim
Balance Sheet and the related unaudited income statement for the four month
period ending as of the Interim Balance Sheet Date (including any related notes
thereto) (collectively, the "Financial Statements").
(b) Except as set forth on Section 4.7(b) of the Disclosure
Schedule, the Financial Statements (i) are true, correct and complete in all
material respects; (ii) are in accordance with the books and records of the
Company; (iii) have been prepared in accordance with principles of orderly
bookkeeping and GGAAP applied on a consistent basis throughout the periods
13
<PAGE> 22
involved, respecting principles of prudence and continuity; (iv) fairly present,
in the case of each year-end balance sheet and the Interim Balance Sheet, the
financial position of the Company as of the respective dates thereof and, in the
case of the related income statements, the results of operations and earnings of
the Company for the respective periods indicated; and (v) in the case of the
Interim Balance Sheet, were prepared in accordance with principles applicable to
a year-end balance sheet and present information comparable to other balance
sheets included in the Financial Statements.
SECTION 4.8. UNDISCLOSED LIABILITIES. Except as set forth on
Section 4.8 of the Disclosure Schedule, the Company has no liabilities
(absolute, accrued, contingent or otherwise) which are required to be reflected
in a balance sheet or in the notes thereto under GGAAP, except (a) liabilities
reflected or reserved against in the Interim Balance Sheet, and (b) liabilities
incurred since the Interim Balance Sheet Date in the ordinary course of
business, and which, in the aggregate, do not and will not have a Material
Adverse Effect.
SECTION 4.9. TAXES. Except as set forth in Section 4.9 of the
Disclosure Schedule, the Company has timely filed all material returns,
declarations, reports, information returns and statements required to be filed
by it (the"Returns") in respect of any Taxes and has paid all Taxes currently
due and payable by it. Except as set forth in Section 4.9 of the Disclosure
Schedule, the Returns accurately and completely reflect the facts regarding the
income, properties, operations and status of any entity required to be shown
thereon, no notice of any material proposed deficiency, assessment or levy in
respect of Taxes has been received by the Company, the Company is not currently
nor, during the past three years, has been the subject of an audit or in receipt
of a notice that it is being or will be audited by a relevant taxing authority,
or has agreed to any extension of time of any applicable statute of limitations
period, and the Company has duly withheld from each payment from which such
withholding is required by law, the amount of all Taxes required to be withheld
therefrom and has paid the same (to the extent due) together with the employer's
share of the same, if any, to the proper tax receiving officers. Except as set
forth in Section 4.9 of the Disclosure Schedule, the charges, accruals, and
reserves for Taxes due, or accrued but not yet due, relating to the income,
properties or operations of the Company for any period prior to or including the
Closing Date as reflected on the books of the Company are adequate in all
material respects to
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cover such Taxes, all Tax deficiencies which have been proposed or asserted
against the Company have been fully paid or finally settled, and no issue has
been raised in any examination which, by application of similar principles, can
be expected to result in the proposal or assertion of a Tax deficiency for any
other year not so examined, the Company has not received any Tax incentive,
abatement or other credit with respect to its assets, the Business, employees or
otherwise which contains provisions for the repayment of any Tax benefit, and
the Company has incurred liabilities for Taxes only in the ordinary course of
the Business. The Company has never conducted business in the United States, has
never had any assets, employees or shareholders located or resident in the
United States, and has never made any election with the United States Internal
Revenue Service regarding Taxes in the United States. All subsidies received
from the State of Niedersachsen have been assessed for tax purposes in
accordance with German law.
SECTION 4.10. TITLE TO PROPERTIES.
(a) The Company does not own and never has owned, in
whole or in part, any interest in any real property. Section 4.10(a) of the
Disclosure Schedule sets forth a complete and accurate list of all material
fixed assets owned by the Company and used in the Business as of the Interim
Balance Sheet Date.
(b) Except for the encumbrances in favor of
Commerzbank referenced in Section 4.15(a) of the Disclosure Schedule, and the
normal reservation of title of suppliers to the extent not paid, the Company has
good and marketable title to all the personal property and assets (tangible and
intangible) reflected as owned by it on the Interim Balance Sheet or acquired
since the Interim Balance Sheet Date (except for properties and assets disposed
of since such date in the ordinary course of business and consistent with past
practice), free and clear of all liens, charges, security interests or other
encumbrances of any nature whatsoever.
(c) Except as set forth on Section 4.10(c) of the
Disclosure Schedule, all such assets (i) are now in the possession of the
Company, (ii) are not subject to claims by any other Person with a right to
possession of all or any part of such assets, (iii) are in good operating
condition (ordinary wear and tear
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excepted), (iv) are not, individually or in the aggregate, in need of any
repairs which individually or in the aggregate are reasonably likely to cost in
excess of DM10,000, and (v) are located on the Leased Real Property.
SECTION 4.11. ABSENCE OF CHANGES. Except as set forth in
Section 4.11 of the Disclosure Schedule, since December 31, 1996, the Company
has operated only in the ordinary course of the Business in all material
respects and there has not been with respect to the Company:
(a) any change or changes in the Business, financial
condition, properties, results of operations or assets or liabilities, or any
development or event involving a prospective change, other than changes in the
ordinary course of the Business and other changes which singularly or in the
aggregate, have not had and will not have a Material Adverse Effect;
(b) any damage or destruction, loss or other
casualty, however arising and whether or not covered by insurance, which,
singularly or in the aggregate, has had or will have a Material Adverse Effect;
(c) any labor dispute or any other event or condition
of any character which, singularly or in the aggregate, has had or will have a
Material Adverse Effect;
(d) any indebtedness incurred for borrowed money
(except by endorsement for collection or for deposit of negotiable instruments
received in the ordinary course of the Business or borrowings under the
Company's existing credit lines which do not exceed DM400,000 in any single
drawing or are otherwise in the ordinary course of business);
(e) any change in the accounting methods or material
change in the practices or any change in depreciation or amortization policies
or rates theretofore adopted;
(f) any amendment or termination of any material
contract, agreement, lease, franchise or license;
(g) any amendment of the organizational documents;
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(h) any mortgage, pledge or other encumbering of any
material property or assets;
(i) any material liability or obligation incurred,
except current liabilities incurred in the ordinary course of the Business, or
any cancellation or compromise of any material debt or claim, or any waiver or
release of any right of substantial value to the Business;
(j) any sale, transfer, lease, abandonment or other
disposal of any machinery, equipment or real property with a fair market value
in excess of DM10,000 or, except in the ordinary course of the Business, any
sale, transfer, lease, abandonment or other disposal of any material portion of
any other properties or assets (real, personal or mixed, tangible or
intangible);
(k) any transfer, disposal or grant of any rights
under any Intellectual Property owned by the Company, or any disposal of or
disclosure to any Person other than representatives of Buyer or SEi of any
material trade secret, formula, process or know-how not theretofore a matter of
public knowledge; except, in each case, in the ordinary course of the Business;
(l) any bonus or other increase in the compensation
of its officers, employees or directors, or any agreement entered into with any
officer, employee or director, except, in each case, in the ordinary course of
the Business and consistent with past practice;
(m) any single capital expenditure made, or any
commitment to make any capital expenditure, in excess of DM10,000 for any
tangible or intangible capital assets, additions or improvements, except in the
ordinary course of the Business;
(n) any declaration, payment or reservation for
payment of any dividend or other distribution in respect of the Quotas or any
other securities, or any redemption, purchase or other acquisition, directly or
indirectly, of any Quotas or other securities;
(o) any grant or extension of any power-of-attorney
or guaranty in respect of the obligation of any Person;
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(p) any forward purchase commitments involving more
than DM10,000 in the aggregate or any other purchase commitments that are not in
the ordinary course of the Business;
(q) the adoption of any ruling, law, ordinance,
statute, rule, regulation, code, or other requirement of any governmental
authority which materially adversely affects the Company or the Business; or
(r) any entry into any binding agreement, whether in
writing or otherwise, to take any action described in this Section 4.11.
SECTION 4.12. INTELLECTUAL PROPERTY.
(a) Section 4.12(a) of the Disclosure Schedule contains a
list and description (including information with respect to registration) of all
Intellectual Property owned or used by the Company, subdivided by type of
Intellectual Property. The Company owns or has the right to use all Intellectual
Property used by it in the conduct of the Business as presently conducted.
Except for the rights and licenses granted to the Company under software
contracts, the Company owns all rights, title and interest in the Intellectual
Property required to be identified on Section 4.12(a) of the Disclosure
Schedule, free and clear of any encumbrance. The Company has not granted,
transferred, or assigned any right or interest in its Intellectual Property to
any Person.
(b) Except as disclosed in Section 4.12(b) of the Disclosure
Schedule, no fees or royalties are payable or will be payable under any software
contracts listed in Section 4.12(a) of the Disclosure Schedule as a result of
the continued use of licensed software by the Company in the ordinary course of
the Business, other than fees or royalties due for upgrades and fees or
royalties that do not exceed DM20,000 per year in the aggregate.
(c) Except as disclosed in Section 4.12(c) of the Disclosure
Schedule, (i) all registrations for Intellectual Property required to be
identified in Section 4.12(a) of the Disclosure Schedule as being owned by the
Company are valid and in force and applications to register any unregistered
Intellectual Property so identified are pending and in good standing, all
without challenge of any kind and to the best knowledge of the Sellers, there is
no reasonable basis for
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any such challenge; and (ii) the Company has the exclusive right to bring
actions for infringement or unauthorized use of the Intellectual Property
identified as being owned by the Company, and there is, to the best knowledge of
the Sellers, no reasonable basis for any such action.
(d) The Company has promulgated and used its best efforts to
enforce a trade secret protection program. To the best knowledge of the Sellers,
there has been no material violation of such program by any Person. Except as
disclosed in Section 4.12(d) of the Disclosure Schedule, all material trade
secrets of the Company (i) have at all times been maintained in confidence, and
(ii) have not been disclosed to employees, consultants or other third parties
except on a "need to know" basis in connection with their respective performance
of duties to the Company.
(e) Except as disclosed in Section 4.12(e) of the Disclosure
Schedule, no claims have been asserted by any Person against the Company
claiming ownership of or right to use any of the Intellectual Property required
to be disclosed on Section 4.12(a) of the Disclosure Schedule (other than
ownership of Intellectual Property licensed to the Company under the software
contracts listed on Section 4.12(a) of the Disclosure Schedule) nor, to the best
knowledge of the Sellers, is there any reasonable basis for any such claim. The
use of the Intellectual Property by the Company has not infringed on the rights
of any Person; and, except as disclosed in Section 4.12(e) of the Disclosure
Schedule, no claim of infringement or any misuse or misappropriation of any the
Intellectual Property of any other Person has been made or asserted against the
Company in respect of the Business, nor is there, to the best knowledge of the
Sellers, any reasonable basis for any such claim.
SECTION 4.13. LEASES. Section 4.13 of the Disclosure Schedule
contains an accurate and complete list of all leases pursuant to which the
Company leases real or personal property. Except as set forth in Section 4.13 of
the Disclosure Schedule, all such leases are in full force and effect and are
valid, binding and enforceable in accordance with their terms; there are no
existing defaults or events which, with the giving of notice or the lapse of
time or both, would constitute a default thereunder by the Company or any other
parties thereto. All leased items of personalty are in good operating condition,
are in a state of good maintenance and repair and are adequate and suitable for
the
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purpose for which they are presently being used. Each such lease contains terms
and conditions obtained from independent third parties and negotiated in good
faith at arms-length. None of the rights of the Company under each such lease is
subject to termination or modification as a result of the transactions
contemplated hereby.
SECTION 4.14. BANK ACCOUNTS; INVESTMENTS; POWERS OF ATTORNEY.
(a) Section 4.14(a) of the Disclosure Schedule sets forth
the names and locations of all banks, trust companies, savings and loan
associations and other financial institutions at which the Company maintains
safe deposit boxes or accounts of any nature and the names (and limits, if any)
of all persons authorized to draw thereon, make withdrawals therefrom or have
access thereto.
(b) Section 4.14(b) of the Disclosure Schedule sets forth a
list and description (including interest rates and other significant terms) of
all funds, securities and other instruments in which excess cash of the Company
was invested as of the Interim Balance Sheet Date (the "Investments"). All such
Investments are investment grade and can be liquidated within one business day
without being discounted.
(c) Except as set forth in Section 4.14(c) of the Disclosure
Schedule, neither the Company nor any of its Affiliates beneficially or of
record owns any shares of SEi Stock.
(d) The Company has not granted or extended to any Person,
nor is the Company otherwise subject to or bound by, any power of attorney which
remains in effect.
SECTION 4.15. MATERIAL CONTRACTS AND CUSTOMERS.
(a) Section 4.15(a) of the Disclosure Schedule contains a
true and correct list of all material contracts, agreements or other
understandings or arrangements, written or oral, or commitments therefor,
relating to the Company, the Business or the assets or liabilities of the
Company (collectively, the "Contracts"). Except as set forth in Section 4.15(a)
of the Disclosure
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Schedule, the Company is not party to, or otherwise bound by, any material
written or oral, formal or informal:
(i) purchase orders and other contracts, in each
case for the sale of goods or services, in excess of DM40,000 individually or,
for any group of related purchase orders and contracts, in the aggregate;
(ii) contracts, agreements or commitments for the
purchase of materials or services which are not required by the Company in the
current operation of the Business in the ordinary course, or any agreements or
commitments for the sale of goods or services which are inadequate to recover
current costs of the Company;
(iii) contracts involving the expenditure for the
purchase of material, supplies, equipment or services of more than DM40,000 per
contract;
(iv) contracts not otherwise referenced involving
the expenditure of more than DM40,000 (per contract) which are not cancelable
within thirty (30) days without penalty;
(v) contracts relating to the leasing (as lessor
or lessee) or the conditional purchase or sale by the Company of any property,
whether real, personal or mixed;
(vi) contracts to which the Company is a party or
by which any of its assets are bound and that require consent by any other
Person in connection with the transaction contemplated hereby, either to prevent
a breach or continue the effectiveness thereof;
(vii) contracts or arrangements with any
governmental body, agency or authority;
(viii) indentures, mortgages, promissory notes,
loan agreements, capital leases, security agreements or other agreements or
commitments for the borrowing of money, or the deferred purchase price of
assets, or which create a lien or encumbrance on any assets of the Company;
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(ix) guarantees of the obligations of third
parties or agreements to indemnify third parties (other than indemnification
provisions provided in the ordinary course to or for the benefit of the
customers the Company);
(x) agreements which restrict the Company from
doing business in any geographic location;
(xi) policies of insurance in force and effect
with respect to the Company, the Business or its assets;
(xii) contracts or agreements not otherwise
referenced with any of the Sellers, their family members or their Affiliates;
(xiii) license agreements (as licensee or licensor)
with third parties;
(xiv) employment or consulting agreements;
(xv) distributor, dealer, sales, advertising,
agency, manufacturer's representative, franchise or similar contracts or any
contract relating to the payment of a commission;
(xvi) collective bargaining or other agreements
with labor unions;
(xvii) contracts or agreements for charitable
contributions by the Company;
(xviii) any contract or agreement which could
reasonably be expected to have a Material Adverse Effect on the Company; or
(xix) other contracts outside the ordinary course
of the Business not otherwise described in this Subsection.
(b) True and complete copies of each of the Contracts have
been made available to Buyer and SEi by the Sellers. Each of the Contracts is in
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full force and effect and there exists no default or event which, with the
giving of notice or lapse of time or both, would constitute a material default
thereunder by the Company or by any other party thereto. The Company has not
violated any of the terms or conditions of any Contract in any material respect,
and all of the covenants to be performed by any other party thereto have been
fully performed in all material respects. Except as referenced in Section 4.6 of
the Disclosure Schedule, none of the rights of the Company under the Contracts
is subject to termination or modification as a result of the transactions
contemplated hereby. No written notice of termination or nonrenewal has been
given under any Contract. All Contracts contain terms and conditions not less
favorable to the Company than those that would be obtained from independent
third parties and have been negotiated in good faith at arms-length. None of the
Contracts with suppliers of goods or services to the Company requires the
payment of any commission, royalty, fee, brokerage fee or other similar charge.
For the purposes of Section 4.15(a), "material" contracts means contracts
described in Section 4.15(a)(i) through (xix). The amounts set forth in this
Section 4.15 with respect to the Contracts shall not be deemed to represent any
standard of "materiality" with respect to the Contracts or otherwise for any
other purpose and shall have no application to any other Section of this
Agreement.
(c) Section 4.15(c) of the Disclosure Schedule identifies the
name and location of the five (5) largest customers (the "Customers") and the
five (5) largest suppliers, in each case measured by revenues generated or
amounts paid, of the Business as of the Interim Balance Sheet Date. The
relationships of the Company with the Customers are good, and no Seller is aware
of any intention of any such Customers or suppliers to terminate or modify any
of such relationships. The Company is not generally required to provide bonding
or any other security arrangements in connection with any transactions with its
customers or suppliers.
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SECTION 4.16. RELATED TRANSACTIONS.
(a) Except as set forth in Section 4.16 of the Disclosure
Schedule, the Company has no contractual relationship with, or any obligation or
liability owed to, the Sellers, their family members or any entity of which one
or more Sellers is an Affiliate. All such contractual relationships are on terms
that are no less favorable to the Company than would be the case with a
non-affiliated party.
(b) Except as set forth in Section 4.16 of the Disclosure
Schedule, neither the Sellers nor any director or officer of the Company nor any
Affiliate of any of them has any material interest, direct or indirect, in any
Person which (i) is a material competitor, customer, subcontractor of supplier
of the Company, or (ii) has an existing material relationship with, or a
material interest in, the Company, including but not limited to lessors of real
or personal property and Persons against which rights or options are exercisable
by the Company.
SECTION 4.17. INSURANCE. Section 4.17(a) of the Disclosure
Schedule contains an accurate and complete list of all policies of insurance
presently maintained with respect to the Company including, without limitation,
"key man" insurance with respect to any employee. Such list includes a
description of coverage, the amount of coverage and the name of the insurer or
an indication that the Company has self-insured any particular aspect of the
Business. All such policies are in full force and effect and no notice of
cancellation or termination has been received with respect to any such policy
and there is, and has been, no material default by the Company with respect to
its obligations under any such policy. Except as set forth in Section 4.17(b) of
the Disclosure Schedule, Sellers and the Company have not received during the
past two (2) years any written notice or other written communication from any
insurance company declining to write insurance with respect to the Business, or
canceling or materially amending any of the Company's insurance policies or
proposing to do so. Section 4.17(c) of the Disclosure Schedule sets forth a
summary of information pertaining to property damage, personal injury and
products liability claims filed by the Company during the past five (5) years
which exceed DM2,000 in any instance, all of which have been paid or are being
defended by the Company's insurance carriers and involve no exposure to the
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Company. Section 4.17(d) of the Disclosure Schedule sets forth a complete list
of any claims that the Company has under any of its insurance policies which
have not been fully paid to the Company.
SECTION 4.18. LABOR MATTERS.
(a) Except to the extent set forth in Section 4.18(a) of the
Disclosure Schedule, (i) the Company is in compliance with all rulings, laws,
ordinances, statutes, rules, regulations, codes, and other requirements of any
governmental authority with respect to employment and employment practices, (ii)
there is no unfair labor practice charge or complaint against the Company
pending before or, to the best knowledge of Sellers, threatened to be brought
before any labor grievance board, authority or tribunal, nor has any such charge
or complaint been, to the best knowledge of the Sellers, threatened against the
Company; (iii) there is no labor strike, dispute, slowdown, or stoppage pending
against or affecting the Company; (iv) the Company is not a party to any
collective bargaining agreement or contract with any labor union and no works
council exists with respect to employees of the Company; (v) the Company has not
experienced any material labor difficulty during the last three (3) years; and
(vi) there are no other controversies pending between the Company and any of its
employees, including, without limitation, claims arising under any labor laws,
which controversies have had or may have a Material Adverse Effect. There has
not been any adverse change in relations with employees of the Company as a
result of any announcement or other disclosure of the transactions contemplated
by this Agreement.
(b) Section 4.18(b) of the Disclosure Schedule sets forth
the names of all employees, consultants, officers and directors of the Company
as of the date hereof, including length of employment and date of birth. Except
as indicated on Section 4.18(b) of the Disclosure Schedule, all employees have
executed the Company's model employment agreement. The Sellers have delivered to
SEi (i) copies of its model employment agreement, (ii) copies of all written
employment agreements to which the Company is a party with any of its employees
identified in Section 4.18(b) of the Disclosure Schedule as having agreements
which vary from those of the model employment agreement, (iii) written summaries
of the terms of all oral employment agreements that are other than at-will, and
(iv) a schedule of compensation for all employees.
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SECTION 4.19. EMPLOYEE BENEFIT PLANS.
(a) Set forth in Section 4.19 of the Disclosure Schedule is
an accurate and complete list of each material Employee Benefit Plan maintained
or contributed to by the Company.
(b) Except as set forth in Section 4.19 of the Disclosure
Schedule, to the extent material, all amounts that the Company are required to
have contributed to any Employee Benefit Plan have been contributed within the
time prescribed by applicable law and all benefits, expenses, and other amounts
due and payable and all transfers or payments required to be made with respect
to any Employee Benefit Plan have been paid within the time prescribed by the
applicable documents and governing law.
(c) Except as set forth in Section 4.19 of the Disclosure
Schedule, there are no material claims (other than routine claims for benefits)
or lawsuits pending with respect to any Employee Benefit Plan.
(d) Except as set forth in Section 4.19 of the Disclosure
Schedule, Sellers have previously delivered or made available to Buyer and SEi
true and complete copies of the plan documents for each Employee Benefit Plan
identified in Section 4.19 of the Disclosure Schedule.
SECTION 4.20. LITIGATION. Except as set forth in Section 4.20
of the Disclosure Schedule, there are no material claims, actions, suits, or
proceedings pending or, to the best knowledge of Sellers, threatened against the
Company relating to this Agreement or the transactions contemplated hereby or to
the Business or the properties of the Company at law or in equity or before or
by any federal, state, local, or foreign court or other governmental department,
commission, board, agency, instrumentality or authority, nor any arbitration
proceeding, in each case including, without limitation, any claims relating to
environmental matters. The Company is not subject to any adverse judgment,
order, writ, injunction or decree of any court or governmental body.
SECTION 4.21. COMPLIANCE WITH LAWS. Except as set forth in
Section 4.21 of the Disclosure Schedule, the Company has conducted the Business
so as to comply with, and is not in violation of, nor has it received any
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written notice claiming it is in violation of any order, law, ordinance,
statute, rule or regulation applicable to it, or to the Business or any of the
property or assets of the Company including, without limitation, any
environmental or worker safety and protection laws and regulations, except to
the extent that such non-compliance would not have a Material Adverse Effect.
The Company has all material licenses, permits, certificates of occupancy and
authorizations necessary to conduct the Business.
SECTION 4.22. BOOKS AND RECORDS. The books, accounts and
records of the Company (a) are located at the headquarters of the Company at
Technologie Centrum Nordwest, Olympicstrasse 1, D-26419 Schortens-Roffhausen,
Federal Republic of Germany, (b) are correct and complete in all material
respects, (c) have been maintained in accordance with law and good business
practice, and (d) constitute all the books, accounts and records necessary to
carry on the Business in the manner in which it is currently being conducted and
has over the preceding twelve (12) months been carried on. The copies of the
organizational documents and of the minutes of all quota holder and director
meetings of the Company hereto delivered by the Sellers to Buyer and SEi are
complete and correct.
SECTION 4.23. COPIES OF DOCUMENTS. The Company has delivered
or specifically made available to Buyer, SEi and their advisors true, complete
and correct copies of all documents referred to in this Agreement or in any
Section of the Disclosure Schedule with the understanding and intention that
Buyer and SEi may and will rely upon the completeness and accuracy thereof.
SECTION 4.24. ADEQUACY OF ASSETS. Except as set forth in
Section 4.24 of the Disclosure Schedule, the assets of the Company and the
facilities, assets and services to which the Company has a contractual right of
use include all rights, properties, assets, facilities and services necessary
for the carrying on of the Business in a manner in which it is currently being
and has over the immediately preceding twelve (12) months been carried on, and
the Company do not depend in any material respect upon the use of assets owned
by, or facilities or services provided by, Sellers, or any family member or
Affiliate of the Sellers.
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SECTION 4.25. GRANTS.
(a) Section 4.25(a) of the Disclosure Schedule sets forth a
true, correct and complete description of all Grants received by the Company
during the past five years, including (i) all amounts paid to the Company to
date, (ii) all amounts to be paid to the Company by AEG in accordance with the
terms of its Grant during the next five years, and (iii) all conditions to the
receipt of payments by the Company with respect to such Grants.
(b) The consummation of the transactions contemplated hereby
will not affect the Company's right to retain the Grants. Except as set forth in
Section 4.25(b) of the Disclosure Schedule, no Seller is aware of any facts or
circumstances that could, directly or indirectly, (i) cause or contribute to the
revocation of any of the Grants, (ii) cause or contribute to an obligation by
the Company to repay any Grants or (iii) otherwise cause or contribute to the
failure of the Company to receive the full amounts of the Grants.
SECTION 4.26. ACCOUNTS RECEIVABLE. Section 4.26 of the
Disclosure Schedule sets forth a true and correct in all material respects list
and aging of all unpaid accounts receivable owing to the Company as of April 30,
1997. The accounts receivable of the Company including, without limitation,
those reflected in Section 4.26 of the Disclosure Schedule, constitute or will
constitute as of the respective dates thereof, legal, valid, binding and
enforceable claims arising from bona fide transactions in the ordinary course of
the Business and, except to the extent reserved against on the Interim Balance
Sheet, are or will be as of the respective dates thereof collectible in the
ordinary course of the Business and are not subject to any known counterclaims
or set-offs, other than the account of Mr. Sahini in the amount of DM37,000
(approximately) referenced in Section 4.26 of the Disclosure Schedule, the
payment of which on or before December 31, 1997 is hereby guaranteed by the
Sellers. The reserves for doubtful accounts and allowances with respect to the
accounts receivables generated after the Interim Balance Sheet Date and prior to
the Closing will be established on the basis of evaluation of specific accounts
and age classifications in accordance with GGAAP.
SECTION 4.27. BROKERS AND FINDERS. No agent, broker,
investment banker, person or firm acting on behalf of the Company, the Sellers
or any Affiliate of any of them is or will be entitled to any brokers' or
finders'
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fee or any other commission or similar fee directly or indirectly from any of
the parties hereto in connection with the transactions contemplated hereby.
SECTION 4.28. INVESTMENT INTENT; INFORMATION DISCLOSURES.
(a) Each of the Sellers acknowledges that the SEi Stock to
be received by such Seller will be acquired for such Seller's own account and
without any view to the distribution of any part thereof without registration
under applicable federal and state securities laws, or the delivery to SEi of an
opinion of counsel that registration is not required in accordance with Section
4.28(e) hereof. Each Seller represents that such Seller does not have any
agreements or arrangements to sell, transfer or grant participation with respect
to the Purchase Price Shares.
(b) Each Seller understands that the shares of SEi Stock
constituting the Purchase Price Shares are not registered under the United
States federal or state securities laws in part on the grounds that the
transactions contemplated hereby are exempt from registration under the
Securities Act of 1933 (the "1933 Act") pursuant to Section 4(2) thereof, and
that Buyer's and SEi's reliance on such exemption is predicated on each Seller's
representations set forth herein.
(c) Each Seller represents that such Seller has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of its investment in the Purchase Price Shares,
and has the ability to bear the economic risks of such investment. Each Seller
further represents that such Seller has had (i) access, prior to the Closing
Date, to the SEi Filings (ii) the opportunity to ask questions of, and receive
answers from, SEi concerning SEi and the Purchase Price Shares, and (iii) the
opportunity to obtain additional information (to the extent SEi possessed such
information or could acquire it without unreasonable expense) necessary to
verify the accuracy of any information received or to which such Seller had
access.
(d) Each Seller understands and agrees that the Purchase
Price Shares may not be sold, transferred or otherwise disposed of without
registration under the 1933 Act and applicable state laws, unless exemptions
from registration requirements are available, and that in the absence of an
effective
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registration statement covering the Purchase Price Shares or an available
exemption from applicable registration requirements, the Purchase Price Shares
must be held indefinitely. In particular, the Purchase Price Shares may not be
sold pursuant to Rule 144 promulgated under the 1933 Act unless all of the
conditions of such rule are met.
(e) Each Seller agrees that such Seller will not offer,
sell, mortgage, pledge or otherwise dispose of any of the Purchase Price Shares
(other than pursuant to an effective registration statement under the 1933 Act)
unless and until such Seller delivers an opinion of counsel satisfactory to SEi,
or SEi delivers to Sellers an opinion of counsel, that registration under
applicable federal or state securities laws is not required.
(f) In addition, each Seller agrees that such Seller shall
not sell, assign, pledge, encumber or otherwise transfer any of the Purchase
Price Shares (or any interest therein) unless:
(i) such transfer occurs after financial results
reflecting at least thirty days of post-Closing combined operations of the
Company and SEi have been prepared and published within the meaning of Section
201.01 of the SEC's Codification of Financial Reporting Policies; and
(ii) either (A) such transfer occurs after the
first anniversary of the Closing, or (B) after giving effect to the transfer,
such Seller will continue to own at least fifty percent (50%) of the Purchase
Price Shares issued to him at the Closing (adjusted to account for any
additional shares issued in respect of such shares by way of stock splits, stock
dividends or otherwise).
(g) Each Seller agrees that all certificates for Purchase
Price Shares shall bear a legend in substantially the following form:
The securities represented by this certificate have not been
registered, qualified, recommended, approved or disapproved
under United States federal securities law or state securities
laws. The shares represented by this certificate may not be
sold, transferred or otherwise disposed of by an investor
without (i) registration under
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federal and state securities laws, or (ii) delivery of an
opinion of counsel satisfactory to the corporation that
neither the sale nor the proposed transfer constitutes a
violation of any United States federal or state securities
law.
The securities represented by this certificate are subject
to certain transfer restrictions set forth in an Acquisition
Agreement dated as of May 30, 1997 (a copy of which may be
obtained from the Company at its principal executive
office), and may not be sold, assigned, pledged, encumbered
or otherwise transferred except in compliance with the terms
and conditions of such agreement.
SECTION 4.29 POOLING OF INTERESTS. The Sellers acknowledge that SEi
intends to account for the transaction as a pooling of interests, and that
qualifying for such accounting treatment is dependent in part upon actions
taken, or not taken, by the Company and the Sellers both before and after the
date hereof. In this regard, and with the understanding that SEi is relying
thereon in making its commitment to enter into this transaction, the Sellers
warrant that the Sellers, the Company and their respective Affiliates have not,
directly or indirectly, taken any of the following actions, which Sellers
acknowledge could prevent SEi from obtaining such pooling accounting treatment:
(a) acquired or sold, assigned, transferred or otherwise
disposed of, or reduced any risk relative to, any Quotas or SEi Stock in
contemplation of the transactions provided for herein;
(b) paid or received any dividends or other distributions
with respect to the capital interests of the Company, other than distributions
in the ordinary course of the Company's business and not in contemplation of the
transactions provided for herein;
(c) altered the relative ownership interests of the Sellers
in the Company in contemplation of the transactions provided for herein;
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(d) disposed of any significant part of the assets of the
Company within the nine months preceding the date hereof or in contemplation of
the transactions provided for herein;
(e) become a party to any contract, document, instrument or
any written or oral agreement regarding the sale, assignment or transfer of, or
allowed to be created any rights or obligations for the sale, assignment or
transfer of, or explicitly or impliedly agreed to sell, assign or transfer any
of the Quotas held by any of the Sellers to any other Seller or any Affiliate or
family member of any other Seller; or
(f) entered into any agreement to do any of the forgoing,
including without limitation, any agreement to distribute or dispose of any
significant part of the assets of the Company upon the consummation of the
transactions provided for herein.
SECTION 4.30 RESTRICTIVE COVENANTS. Except as disclosed in Section 4.30
of the Disclosure Schedule, the Company is not subject to, or a party to, any
mortgage, lien, lease, license, permit, agreement, contract, instrument, law,
rule, ordinance, regulation, order, judgment or decree, or any other restriction
of any kind or character, which materially and adversely affects the business
practices, operations or condition of the Company or any of its assets or
properties, which restricts the ability of the Company to acquire any property
or conduct the Business in any area or which would prevent consummation of the
transactions contemplated by this Agreement, compliance by the Company with the
terms, conditions and provisions hereof or the operation of the Business by the
Company after the date hereof on substantially the same basis as heretofore
operated by the Company.
SECTION 4.31 PRODUCT LIABILITIES AND WARRANTIES. There are no express
or implied warranties applicable to products or services sold or provided by the
Company, except as provided by statute or disclosed on Section 4.31 of the
Disclosure Schedule. Except as disclosed on Section 4.31 of the Disclosure
Schedule, there is no action, suit, proceeding or claim pending or, to the best
knowledge of the Sellers, threatened against the Company under any warranty,
express or implied, and there is no reasonable basis upon which any claim could
be made. Section 4.31 of the Disclosure Schedule also summarizes all product
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liability claims that have been asserted against the Company during the five (5)
years preceding the date of this Agreement.
SECTION 4.32 DISCLOSURE. None of the representations or warranties by
the Sellers herein, no statement contained in any certificate, list or other
writing furnished to Buyer or SEi pursuant hereto and no statement contained in
any Section of the Disclosure Schedule, taken as a whole, contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein or therein, in light of the
circumstances in which they were made, not misleading. There is no fact known to
the Sellers which materially and adversely affects the Company, the Business, or
the prospects or financial condition of the Company, which has not been set
forth in this Agreement or in a Section of the Disclosure Schedule.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SEI AND BUYER
(GARANTIEN)
SEi and Buyer, jointly and severally, hereby represent and warrant to
the Sellers as follows:
SECTION 5.1. CORPORATE ORGANIZATION. Each of Buyer and SEi is
a corporation or limited liability company, as the case may be, duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization and has the full right, power and authority to own, lease and
operate all of its properties and assets and to carry out its business as it is
presently conducted.
SECTION 5.2. CAPITALIZATION OF SEI. All issued and outstanding
shares of SEi Stock have been, and upon issuance the Purchase Price Shares, will
be duly authorized and validly issued, fully paid and nonassessable. The
issuance of the Purchase Price Shares is not subject to any preemptive right or
right of first refusal that has not or will not be satisfied or waived.
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SECTION 5.3. AUTHORITY. Each of Buyer and SEi has all
requisite right, power and authority to execute, deliver and perform this
Agreement. The execution, delivery and performance of this Agreement and the
Related Agreements by Buyer and SEi have been duly and validly authorized and
approved by all necessary corporate action. This Agreement has been duly and
validly executed and delivered by Buyer and SEi and, assuming this Agreement has
been duly authorized, executed and delivered by Sellers, constitutes the legal,
valid and binding obligation of Buyer and SEi, enforceable against them in
accordance with its terms.
SECTION 5.4. SEI'S CONSENTS AND APPROVALS; NO VIOLATIONS. The
execution, delivery and performance of this Agreement by Buyer and SEi will not
(with or without the giving of notice or the passage of time, or both), (a)
violate in any material respect any applicable provision of law or any rule or
regulation of any administrative agency or governmental authority applicable to
Buyer or SEi, or any order, writ, injunction, judgment or decree of any court,
administrative agency or governmental authority applicable to Buyer or SEi, (b)
violate the organizational documents of Buyer or the Articles of Incorporation
or Bylaws of SEi, (c) violate or require any consent, waiver or approval under,
result in a breach, modification or termination of any of any provisions of,
constitute a default under, affect the rights under or enforceability of, result
in the imposition of any pledge, security interest or other encumbrance pursuant
to, give any Person the right to terminate, modify or renegotiate any provision
of, any material agreement, indenture, mortgage, deed of trust, lease, license,
or other instrument to which Buyer or SEi is a party or by which Buyer or SEi is
bound, or any material license, permit or certificate held by Buyer or SEi
(other than any consents which will have been obtained on or prior to the
Closing Date), or (d) require any material consent or approval by, notice to, or
registration with any governmental authority.
SECTION 5.5. LITIGATION. There are no claims, actions, suits,
or proceedings pending or, to the best knowledge of Buyer and SEi, threatened,
against Buyer or SEi relating to this Agreement or the transactions contemplated
hereby or to the business or property of Buyer or SEi, at law or in equity or
before or by any federal, state, local, or foreign court or other governmental
department, commission, board, agency, instrumentality or authority, or any
arbitration proceeding, in each case which are likely to have a Material Adverse
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Effect. Neither Buyer nor SEi is subject to any judgment, order, writ,
injunction or decree of any court or governmental body.
SECTION 5.6. BROKERS AND FINDERS. No agent, broker, investment
banker, Person or firm acting on behalf of Buyer, SEi or any entity affiliated
with either of them is or will be entitled to any brokers' or finders' fee or
any other commission or similar fee directly or indirectly from any of the
parties hereto in connection with the transactions contemplated hereby.
SECTION 5.7. SEI INFORMATION. SEi has delivered to Sellers
true and complete copies of the SEi Filings. At the date hereof, the SEi
Filings, taken as a whole, do not contain any untrue statement of a material
fact or omit any material fact necessary to make the statements contained
herein, in light of the circumstances in which they were made, not misleading.
SECTION 5.8 NO MATERIAL ADVERSE CHANGE. Since March 30, 1997,
SEi has not suffered any Material Adverse Effect.
SECTION 5.9. UNDISCLOSED LIABILITIES. SEi has no liabilities
(absolute, accrued, contingent or otherwise) required by USGAAP to be reflected
or reserved against in the consolidated statement of assets and liabilities of
SEi except (a) liabilities reflected or reserved against in the Form 10-Q
Balance Sheet, and (b) liabilities incurred since March 30, 1997 in the ordinary
course of business, and which, in the aggregate, do not have a Material Adverse
Effect.
SECTION 5.10. COMPLIANCE WITH LAWS. Each of Buyer and SEi has
conducted its business so as to comply with, and is not in violation of, nor has
it received any written notice claiming it is in violation of, any order, law,
ordinance, statute, rule or regulation applicable to it, or to its business or
any of its property or assets including, without limitation, any environmental
or worker safety and protection laws and regulations, except to the extent that
such non-compliance would not have a Material Adverse Effect. Each of Buyer and
SEi has all material licenses, permits, certificates of occupancy and
authorizations necessary to conduct its business.
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ARTICLE VI
FURTHER COVENANTS AND AGREEMENTS
SECTION 6.1. COVENANTS OF SELLERS PENDING THE CLOSING. Sellers
covenant and agree that, pending the Closing and prior to the termination of
this Agreement, and except as otherwise agreed to in writing by Buyer and SEi,
Sellers shall or, as appropriate shall cause the Company to:
(a) conduct the Business solely in the ordinary course and
consistent with the past practices of the Company;
(b) not take or intentionally omit to take any action which
would result in a breach of any of Sellers' representations and warranties
hereunder in any material respect;
(c) continue to maintain and service the physical assets
used by the Company in the conduct of the Business consistent with past
practices;
(d) use its reasonable efforts to preserve the Business and
organization of the Company, to keep available the services of the Company's
present employees and agents and to maintain the relations and goodwill with the
suppliers, customers (including the Customers), distributors and any others
having business relations with the Company in connection with the Business;
(e) use its and their reasonable efforts to cause all of the
conditions to the obligations of Buyer and SEi under this Agreement to be
satisfied on or prior to the Closing Date and to obtain, prior to the Closing,
all consents of all third parties and governmental authorities necessary for the
consummation by Sellers and the Company of the transactions contemplated hereby.
All such consents will be in writing and executed counterparts will be delivered
to Buyer and SEi at or prior to the Closing.
(f) cooperate with Buyer and SEi in making arrangements to
obtain licenses, permits and certificates required to conduct the Business or
own the Quotas at Closing;
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(g) provide Buyer's and SEi's officers, employees, counsel,
accountants and other representatives with full access to, during normal
business hours, all of the books and records of the Company, make available to
representatives of Buyer and SEi, knowledgeable employees of the Company for
reasonable periods of time to answer inquiries of such representatives with
respect to Buyer's and SEi's investigation of the Company and permit such
representatives of Buyer and SEi to consult with the officers, employees,
accountants and counsel of Sellers; provided that no such activities
unreasonably interfere with the operation of the Business;
(h) not grant to any Person a power of attorney or similar
authority to act for the Company;
(i) not enter into any guarantee of the obligations of any
Person to the extent such guarantee shall survive the Closing;
(j) not amend the charter, Articles of Association or other
organizational documents of the Company;
(k) make no change in the amount of issued share capital of
the Company or issue or create any option, warrant or any other security of the
Company;
(l) not increase the compensation payable or to become payable
to any officer, employee or agent of the Company other than in the ordinary
course of the Business, nor make any bonus payment or arrangement to or with any
officer, employee or agent of the Company other than in the ordinary course of
the Business;
(m) not make any dividends or other distributions in respect
of the Quotas;
(n) not sell, transfer, lease, abandon or otherwise dispose of
(or commit to do so) any fixed assets; and
(o) not enter into any contract or commitment calling for
payment to or by the Company of an aggregate amount of more than DM10,000,
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which is not terminable by the Company on less than thirty (30) days' notice
without penalty.
SECTION 6.2. COVENANTS OF BUYER AND SEI PENDING THE CLOSING.
Buyer and SEi covenant and agree that, pending the Closing and prior to the
termination of this Agreement, and except as otherwise agreed to in writing by
Sellers, each of Buyer and SEi:
(a) shall not take or intentionally omit to take any action
which would result in a breach of any of its representations and warranties
hereunder in any material respect.
(b) shall use its reasonable efforts to cause all of the
conditions to the obligations of Sellers under this Agreement to be satisfied on
or prior to the Closing Date and to obtain prior to the Closing, all consents of
all third parties and governmental authorities necessary for the consummation by
it of the transactions contemplated hereby. All such consents will be in writing
and executed counterparts thereof will be delivered to Sellers at or prior to
the Closing.
(c) shall promptly disclose to Sellers any information
relating to its representations and warranties hereunder which, because of an
event occurring after the date hereof, is incomplete or is no longer correct in
any material respect.
SECTION 6.3. FILINGS. Promptly after the execution of this
Agreement, each of the parties hereto shall prepare and make or cause to be made
any required filings, submissions and notifications under the laws of any
domestic or foreign jurisdictions to the extent that such filings are necessary
to consummate the transactions contemplated hereby and will use its reasonable
efforts to take all other actions necessary to consummate the transactions
contemplated hereby in a manner consistent with applicable law. Each of the
parties hereto will furnish to the other party such necessary information and
reasonable assistance as such other party may reasonably request in connection
with the foregoing.
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SECTION 6.4. EFFECTIVE TIME OF CLOSING AND TRANSFER. The
Closing shall be effective for all purposes as of the close of business on the
Closing Date.
SECTION 6.5. ANNOUNCEMENTS. Except as expressly contemplated
by this Agreement, the parties will mutually agree as to the time, form and
content before issuing any press releases or otherwise making any public
statements or statements to third parties with respect to transactions
contemplated hereby and shall not issue any press release or, except as
necessary to perform their respective obligations hereunder, discuss the
transactions contemplated hereby with any third party prior to reaching mutual
agreement with respect thereto, except as may be required by law.
Notwithstanding the foregoing, in the event prior to the Closing any party
hereto is required by law or the rules of any stock exchange on which such
party's securities are traded to make a statement with respect to the
transactions contemplated herein, such party shall notify in writing the other
party hereto as to the time, form and content of such statement.
SECTION 6.6. COSTS AND EXPENSES. Whether or not the
transactions contemplated by this Agreement are consummated, each party hereto
shall pay its own costs and expenses (including legal fees and expenses)
incurred in connection with due diligence reviews, the preparation, negotiation
and execution of this Agreement and all other agreements, certificates,
instruments and documents delivered hereunder, and all other matters relating to
the transactions contemplated hereby. All German transfer and intangible taxes,
if any, arising in connection with the sale and assignment of the Quotas
hereunder shall be paid by the Sellers. All transfer and intangible taxes, if
any, in connection with the sale and delivery of the Purchase Price Shares
hereunder shall be paid by SEi. All fees and charges arising from notary
requirements applicable to the sale and assignment of Quotas shall be paid by
the Buyer.
SECTION 6.7. FURTHER ASSURANCES.
(a) Subject to the terms and conditions herein provided,
each of the parties hereto agrees to use its reasonable efforts to take, or
cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make
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effective the transactions contemplated by this Agreement. If at any time after
the Closing Date any further action is necessary or desirable to carry out the
purposes of this Agreement, the parties hereto shall take or cause to be taken
all necessary action, including, without limitation, the execution and delivery
of such further instruments and documents as may be reasonably requested by the
other party for such purposes or otherwise to consummate and give effect to the
transactions contemplated hereby. If any consent or approval required for the
consummation of the transactions contemplated hereby is not obtained prior to
Closing, Sellers shall cooperate with SEi, and attempt in good faith, to obtain
such consent or approval during the one year period immediately following the
Closing.
(b) From and after the Closing Date, the Buyer and/or SEi
agree to promptly inform the Sellers of any tax audit of the Company by the tax
authority and to give the Sellers the opportunity to participate in such a tax
audit. Furthermore, the Sellers shall be entitled to request the Buyer, SEi
and/or the Company to duly and timely file the appropriate recourse against any
tax assessment resulting in a higher tax burden for any period prior to the
Closing Date. If the Company refuses to follow such request, then the Buyer
shall cause the Company, upon request by one or more of the Sellers, to file
such recourse nonetheless, provided that in this case the Sellers who have made
such request shall be liable to reimburse the Company for all fees and expense
incurred in the recourse proceedings to the extent such fees and expenses are
not borne by third parties.
SECTION 6.8. CERTAIN AGREEMENTS. On or before the Closing Date
the Sellers and SEi will execute the Registration Rights Agreement in the form
of EXHIBIT B, and Buyer, SEi, and the Sellers will execute the Pledge and Escrow
Agreement in the form of EXHIBIT A, in each case to be effective upon the
Closing Date.
SECTION 6.9. NON-DISCLOSURE; COVENANT NOT TO COMPETE.
(a) The parties hereto acknowledge that (i) the covenants
contained in this Section 6.9 are a material inducement to the consummation by
Buyer and SEi of the transactions contemplated by this Agreement and (ii) Buyer
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and SEi would not have entered into or performed this Agreement but for the
covenants herein contained.
(b) Each of the Sellers agrees that, unless acting with the
prior consent of Buyer and SEi, it will not, either alone or in conjunction with
any other Person, or directly or indirectly through any entity that it now or in
the future controls, for a period of three years from the Closing Date: (i)
employ or solicit the employment of any Person who within the month preceding
the Closing Date had been an employee of the Company; (ii) directly or
indirectly engage or participate, whether as officer, employee, director, agent,
consultant, shareholder, partner, or otherwise, in the ownership, management,
marketing or operation of any enterprise which is engaged in any part of the
Business within Europe (other than solely through the ownership of equity
securities or equivalent interests of any entity at a level which does not
create the ability to influence or control management of the entity); or (iii)
conduct any part of the Business with any Person that is a Customer of the
Company as of the Closing Date. Notwithstanding the foregoing, it is agreed
that:
(i) Joachim Schoss and Ralf Halbherr may,
through TellSell Consulting GmbH or any successor enterprise, provide consulting
services in the areas of telemarketing, database marketing and call-center
conception to customers or potential customers of the Company and to other
Persons and Companies that are not engaged, and do not intend to become engaged,
directly in any part of the Business of the Company in Europe;
(ii) Wolfgang Rucker may continue to serve as a
director of Telecom;
(iii) Gunter Greff may continue to own a 24%
interest in Prisma GmbH and a 50% interest in Mind Media GmbH, and a 24%
interest in Vista GmbH; provided that he does not actively participate or advise
these businesses in the conduct of any part of the Business, and may continue to
provide his consulting services and conference businesses in the area of
telecommunications; and
(iv) Rolf Christof Dienst may, after the first
anniversary of the Closing, invest in, and provide financial advisory and other
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services in the ordinary course of his venture capital business to any
enterprise so long as it is not engaged in the provision of call center services
for hire to technology-oriented support service customers.
(c) It is stipulated and agreed that the Sellers have become
acquainted with confidential and privileged information of the Company relating
to customer files, customer lists, special customer matters, sales methods and
techniques, merchandising concepts and plans, new site locations, business
plans, sources of supply and vendors, special business relationships with
vendors, agents and brokers, promotional materials and information, financial
matters, mergers, acquisitions, selective personnel matters and confidential
processes, designs, formulas, ideas, plans, devices or materials and other
similar matters which are confidential (any and all such information being
referred to herein as the "Confidential Information"); and that the use of the
Confidential Information against the Company would seriously damage the
Business. As a consequence of the above, each of the Sellers agrees that, unless
acting with the prior written consent of Buyer, such Seller shall, whether
acting alone, in conjunction with any other Person, or directly or indirectly
through any entity that such Seller now or in the future controls: not use,
divulge, publish or otherwise reveal or allow to be revealed any aspect of the
Confidential Information to any Person; refrain from any action or conduct which
might reasonably or foreseeably be expected to compromise the confidentiality or
proprietary nature of the Confidential Information; and shall have no right to
apply for or to obtain any patent, copyright, or other form of intellectual
property protection with regard to the Confidential Information.
(d) The parties hereto acknowledge and agree that any remedy
at law for any breach of the provisions of this Section 6.9 would be inadequate
and Sellers hereby consent to the granting by any court of competent
jurisdiction of an injunction or other suitable relief and without the posting
of any bond or the necessity of actual monetary loss being proved, in order that
such breach may be effectively restrained.
SECTION 6.10. POOLING OF INTERESTS. The Sellers shall not, and
shall not permit the Company to take, any of the following actions, each of
which could result in the transfer of the Quotas not qualifying to be accounted
for as a pooling of interests: (a) acquiring or transferring any capital
interests of the
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Company or any SEi Stock during the thirty (30) days prior to the Closing Date,
and (b) selling, assigning or transferring, or agreeing or allowing to be
created any rights or obligation for the sale, assignment or transfer of, any of
the Purchase Price Shares or any other SEi Stock in violation of the
restrictions set forth in Section 4.28(f)(i).
SECTION 6.11. EXCLUSIVE DEALING. During the period from the
date of this Agreement through and including the Closing Date, Sellers shall
not, and shall not permit the Company or any of its directors, officers,
employees, representatives or agents to, directly or indirectly, solicit,
initiate or participate in any negotiations with any Person other than SEi and
the Buyer and their respective representatives, agents and Affiliates,
concerning any Alternative Transaction. Sellers shall immediately notify SEi and
Buyer of any proposal or offer received by, any information requested from, or
any discussions or negotiations sought to be initiated or continued with,
Sellers or the Company in respect of an Alternative Transaction and shall, in
any such notice to SEi and Buyer, indicate the terms and conditions of any
proposals or offers or the nature of any requests, discussions or negotiations.
SECTION 6.12. POST-CLOSING ARRANGEMENTS. Sellers, Buyer and
SEi agree to negotiate in good faith mutually acceptable arrangements whereby
the Sellers and the Company may continue to enjoy the mutual benefits of their
current association after the Closing, such arrangements to include continued
access to the expertise of Sellers and preferred referral arrangements between
the Company and certain entities controlled by the Sellers (including TellSell
GmbH).
ARTICLE VII
TERMINATION
Section 7.1. Termination. This Agreement may be terminated at
any time prior to the Closing:
(a) by mutual written agreement executed by Sellers, Buyer
and SEi;
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(b) by Sellers, Buyer or SEi at any time after June 29, 1997
if, through no fault of the party seeking termination, the Closing shall not
have occurred;
(c) by Sellers, Buyer or SEi, if any governmental or
regulatory authority, agency or commission, including courts of competent
jurisdiction, domestic or foreign, shall have issued an order, decree, or ruling
or taken other action, restraining, enjoining or otherwise prohibiting the
transactions contemplated hereby and such order, decree, ruling or other action
shall have become final and nonappealable;
(d) by Buyer or SEi, if there has been a material violation
or breach by Sellers of any agreement or any representation or warranty
contained in this Agreement which (i) is not curable, (ii) has rendered the
satisfaction of any condition to the obligations of Buyer and SEi impossible,
and (iii) has not been waived by Buyer and SEi; or
(e) by Sellers, if there has been a material violation or
breach by Buyer or SEi of any agreement, representation or warranty contained in
this Agreement which (i) is not curable, (ii) has rendered the satisfaction of
any condition to the obligations of Sellers impossible, and (iii) has not been
waived by Sellers.
SECTION 7.2. PROCEDURE AND EFFECT OF TERMINATION. In the event
of termination of this Agreement pursuant to Section 7.1 hereof, written notice
thereof shall forthwith be given to the other parties hereto and this Agreement
(other than Section 6.6 hereof and as provided in paragraph (b) below) shall
terminate and the transactions contemplated hereby shall be abandoned without
further action by the parties hereto. If this Agreement is terminated as
provided herein:
(a) all information with respect to the Business or the
Company received by and in the possession of Buyer, SEi or any Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with Buyer or SEi shall be returned to
the Sellers or destroyed by Buyer or SEi;
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(b) any termination pursuant to subparagraph (b), (c), (d),
or (e) of Section 7.1 shall not be deemed a waiver of any rights or remedies
otherwise available under this Agreement, by operation of law or otherwise; and
(c) all filings, applications and other submissions made
pursuant to Section 6.3 hereof or prior to the execution of this Agreement in
contemplation thereof shall, to the extent practicable, be withdrawn from the
agency or other Person to which made.
ARTICLE VIII
CONDITIONS TO BUYER'S AND SEI'S OBLIGATIONS
Each and every obligation of Buyer and SEi to consummate the
transactions described in this Agreement shall be subject to the fulfillment, or
the waiver by Buyer and SEi on or before the Closing Date, of the following
conditions precedent:
SECTION 8.1 SELLERS' CLOSING DELIVERIES. Sellers shall have
delivered, or caused to be delivered, to Buyer and SEi at or prior to the
Closing, unless specifically waived by Buyer and SEi in their sole discretion,
each of the following:
(a) the Registration Rights Agreement and the Pledge and
Escrow Agreement referenced in Section 6.8, in each case executed by the Sellers
and, in the case of the Pledge and Escrow Agreement, by the Escrow Agent;
(b) valid and binding consents of all Persons whose consent
or approval is required to be set forth in Sections 4.5 and 4.6 of the
Disclosure Schedule;
(c) with respect to each Seller, three separate guaranteed
stock powers duly endorsed in blank; and
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(d) the certificates referenced in Section 8.2 and 8.3.
SECTION 8.2. REPRESENTATIONS AND WARRANTIES TRUE. The
representations and warranties of the Sellers contained in this Agreement, as
modified by the Disclosure Schedule, shall have been true on the date hereof in
all material respects, and shall be true on the Closing Date in all material
respects with the same effect as though such representations and warranties were
made as of such date and the Sellers shall have delivered to Buyer and SEi on
the Closing Date a certificate, dated as of the Closing Date, to such effect.
SECTION 8.3. PERFORMANCE. Sellers shall have, in all material
respects, performed and complied with all covenants required by this Agreement
to be performed or complied with by them prior to or at the Closing and the
Sellers shall have delivered to Buyer and SEi on the Closing Date a certificate,
dated the Closing Date, to such effect.
SECTION 8.4. GOVERNMENTAL CONSENTS AND APPROVALS. All
necessary and appropriate governmental consents, approvals and filings shall
have been obtained or made and all applicable waiting periods (including any
extensions thereof) relating thereto shall have expired or otherwise terminated.
SECTION 8.5. NO INJUNCTION OR PROCEEDING. No governmental or
regulatory authority, agency or commission, including courts of competent
jurisdiction, domestic or foreign, shall have issued an order, decree, or ruling
or taken other action, restraining, enjoining or otherwise prohibiting the
transactions contemplated hereby, which order, decree, ruling or other action
remains in effect.
SECTION 8.6. CONTINUED EMPLOYMENT OF KLAWITTER AND SCHAFFER.
Thomas Klawitter and Christian Schaffer shall remain employed by the Company
under the terms of the employment agreements referenced in Section 4.15 of the
Disclosure Schedule.
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<PAGE> 55
ARTICLE IX
CONDITIONS TO SELLERS' OBLIGATIONS
Each and every obligation of Sellers to consummate the transactions
described in this Agreement shall be subject to the fulfillment, or the waiver
by the Sellers, on or before the Closing Date, of the following conditions
precedent:
SECTION 9.1. DELIVERY OF PURCHASE PRICE SHARES. Buyer and SEi
shall have delivered or caused to be delivered the Purchase Price Shares in
accordance with Article III hereof.
SECTION 9.2. BUYER'S AND SEI'S CLOSING DELIVERIES. Buyer and
SEi shall deliver, or cause to be delivered, to the Sellers at the Closing,
unless specifically waived by the Sellers in their sole discretion, each of the
following:
(a) the Registration Rights Agreement and the Pledge and
Escrow Agreement referenced in Section 6.8, executed by SEi and, in the case of
the Pledge and Escrow Agreement, the Buyer and the Escrow Agent;
(b) a certified copy of the resolutions of the Board of
Directors of SEi authorizing the execution, delivery and performance of this
Agreement and the Related Agreements and the consummation of transactions
contemplated hereby and thereby; and
(c) the certificates referenced in Sections 9.3 and 9.4
hereof.
SECTION 9.3. REPRESENTATIONS AND WARRANTIES TRUE. The
representations and warranties of Buyer and SEi contained in this Agreement, as
modified by the Disclosure Schedule, shall have been true on the date hereof in
all material respects and shall be true on the Closing Date in all material
respects, with the same effect as though such representations and warranties
were made as of such date, and Buyer and SEi shall have delivered to the Sellers
on the Closing Date a certificate, dated as of the Closing Date, to such effect.
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<PAGE> 56
SECTION 9.4. PERFORMANCE. Buyer and SEi shall have, in all
material respects, performed and complied with all covenants required by this
Agreement to be performed or complied with by them prior to or at the Closing
and Buyer and SEi shall have delivered to the Sellers on the Closing Date a
certificate, dated as of the Closing Date, to such effect.
SECTION 9.6. GOVERNMENTAL CONSENTS AND APPROVALS. All
necessary and appropriate governmental consents, approvals and filings shall
have been obtained or made and all applicable waiting periods (including any
extensions thereof) relating thereto shall have expired or otherwise terminated.
SECTION 9.7. NO INJUNCTION OR PROCEEDING. No governmental or
regulatory authority, agency or commission, including courts of competent
jurisdiction, domestic or foreign, shall have issued an order, decree, or ruling
or taken other action, restraining, enjoining or otherwise prohibiting the
transactions contemplated hereby, which order, decree, ruling or other action
remains in effect.
ARTICLE X
INDEMNIFICATION
SECTION 10.1. INDEMNIFICATION BY SELLERS.
(a) Sellers severally agree, pro rata in proportion to their
Quotas, to reimburse, indemnify and hold SEi, the Buyer, the Company and their
respective officers, directors, shareholders, employees and agents harmless from
and against any and all demands, claims, actions, suits, liabilities, damages,
losses, judgments, costs and expenses (including, without limitation, reasonable
attorneys' fees) but excluding any claims for punitive damages or consequential
damages relating to, resulting from or arising out of:
(i) any breach or inaccuracy of the
representations or warranties made hereunder by Sellers;
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<PAGE> 57
(ii) any breach or violation of any covenant or
agreement made hereunder by Sellers;
(iii) any claim (including a claim for
reimbursement) arising out of any Grants paid to the Company prior to the
Closing; or
(iv) any Taxes assessed against the Company, the
Buyer and/or SEi as a result of the distribution of DM400,000 to Sellers in May
of 1997.
SECTION 10.2. INDEMNIFICATION BY BUYER AND SEI.
(a) Buyer and SEi shall reimburse, indemnify and hold each
of the Sellers harmless from and against any and all demands, claims, actions,
suits, liabilities, damages, losses, judgments, costs and expenses (including,
without limitation, reasonable attorneys' fees) but excluding any claims for
punitive damages or consequential damages relating to, resulting from or arising
out of:
(i) any breach or inaccuracy of the
representations or warranties made hereunder by Buyer and SEi; or
(ii) any breach or violation of any covenant or
agreement made hereunder by Buyer and SEi.
SECTION 10.3. SURVIVAL OF REPRESENTATIONS. Except for the
representations and warranties contained in Sections 4.4, 4.9 and 4.25, the
representations and warranties made pursuant to this Agreement including,
without limitation, all representations and warranties made in any exhibit or
schedule or certificate delivered thereunder, shall survive until and through
the second anniversary of the Closing Date at which time such representations
and warranties shall expire. The representations and warranties set forth in
Section 4.4 of this Agreement shall survive indefinitely. The representations
and warranties set forth in Sections 4.9 and 4.25 of this Agreement shall
survive until and through six months after all amounts for Taxes applicable to
the Company and the transactions contemplated by this Agreement, in the case of
Section 4.9, and all amounts for Grants from the government in the case of
Section 4.25,
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become final and non-appealable for all periods through or including the Closing
Date, at which time such representations and warranties shall expire.
SECTION 10.4. INDEMNIFICATION CLAIMS PROCEDURES. All claims
for indemnification by any party seeking indemnification (the "Indemnified
Party") from another party (the "Indemnifying Party") under Sections 10.1 and
10.2 shall be asserted and resolved as follows:
(a) In the event that any claim or demand for which the
Indemnifying Party would be liable to any Indemnified Party hereunder is
asserted against or sought to be collected from any Indemnified Party by a third
party, the Indemnified Party shall promptly notify the Indemnifying Party (and
any pertinent insurance carrier) in reasonable detail of such claim or demand
and the amount or the estimated amount thereof to the extent then feasible
(which estimate shall not be conclusive of the final amount of such claim and
demand) (the "Claim Notice"). The Indemnifying Party shall have thirty (30) days
from the personal delivery or mailing of the Claim Notice (the "Notice Period")
to notify the Indemnified Party whether or not the Indemnifying Party desires to
defend the Indemnified Party against such claim or demand. All costs and
expenses incurred by the Indemnifying Party in defending such claim or demand
shall be a liability of, and shall be paid by, the Indemnifying Party. In the
event that the Indemnifying Party notifies the Indemnified Party within the
Notice Period that it desires to defend the Indemnified Party against such claim
or demand and except as hereinafter provided, the Indemnifying Party shall have
the right to defend the Indemnified Party by counsel of the Indemnifying Party's
own choosing, either in the Indemnifying Party's name, or the Indemnified
Party's name by appropriate proceedings. If any Indemnified Party desires to
participate in, but not control, any such defense or settlement it may do so at
its sole cost and expense and, in any event, the Indemnified Party shall
cooperate with the Indemnifying Party and such counsel. To the extent the
Indemnifying Party shall control or participate in the defense or settlement of
any third party claim or demand, the Indemnified Party shall give to the
Indemnifying Party and its counsel access to, during normal business hours, the
relevant business records and other documents, and shall permit them to consult
with the employees and counsel of the Indemnified Party, to the extent
consistent with the application of relevant evidentiary privileges. The
Indemnifying Party shall keep the Indemnified Party reasonably apprised of the
course of any negotiations or
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proceedings and the Indemnifying Party shall not settle any claim or demand
without the consent of the affected Indemnified Party, which consent shall not
be unreasonably withheld or unduly delayed. As soon as reasonably practicable
after the Indemnifying Party has reached a final decision as to whether or not
all or any portion of the obligations related to such claim or demand are
obligations for which the Indemnifying Party is required to indemnify such
Indemnified Party hereunder and, in any event, prior to entering into any such
settlement or other final resolution of any claim or demand, the Indemnifying
Party shall notify the Indemnified Party in writing of its position as to
whether or not all or any portion of the obligations related to such claim or
demand are obligations for which the Indemnifying Party is required to indemnify
such Indemnified Party in accordance with this Article X.
(b) If the Indemnifying Party elects or is deemed to have
elected not to take over the defense of any such claim or demand, the
Indemnified Party shall have the right to defend, compromise and settle such
claim or demand on such terms as the Indemnified Party in their discretion may
determine, subject to the prior consent of the Indemnifying Party, which consent
shall not be unreasonably withheld or unduly delayed, and the Indemnifying Party
shall continue to be bound to indemnify the Indemnified Party in accordance with
and to the extent provided under the terms of this Article X. The Indemnified
Party shall or shall direct in writing its counsel to deliver to the
Indemnifying Party copies of all correspondence and other matters relating to
such claim or demand. Notwithstanding the foregoing, to the extent that the
claim or demand involves or could result in claims against, or potential
liability of, the Indemnifying Party the extent or nature of which were not
known by the Indemnifying Party as of the date the Indemnifying Party elects or
is deemed to have elected not to take over the defense of such claim or demand,
the Indemnifying Party shall, by written notice to the Indemnified Party, be
entitled to take over the defense of such claim or demand.
(c) In the event an Indemnified Party should have a claim
against the Indemnifying Party hereunder which does not involve a claim or
demand being asserted against or sought to be collected from it by a third
party, the Indemnified Party shall promptly send a Claim Notice with respect to
such claim to the Indemnifying Party.
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<PAGE> 60
(d) the Indemnified Party's failure to give reasonably
prompt notice to the Indemnifying Party of any actual, threatened or possible
claim or demand which may give rise to a right of indemnification hereunder
shall not relieve the Indemnifying Party of any liability which it may have to
an Indemnified Party except to the extent the failure to give such notice
prejudiced the Indemnifying Party.
SECTION 10.5. RIGHT OF SET-OFF. In addition to any other
remedy available in equity or at law, the Indemnified Party shall be entitled to
set off the amount of any obligation for which it is entitled to be indemnified
under this Article X against any amounts payable to the Indemnifying Party
hereunder or under any other agreement contemplated hereby.
SECTION 10.6. LIMITATION OF LIABILITY. (a) Notwithstanding any
other provision of this Agreement, neither the aggregate liability hereunder of
the Buyer and SEi on the one hand, nor the aggregate liability hereunder of the
Sellers on the other hand, shall exceed DM28,000,000, and the aggregate
liability of each Seller shall not exceed his pro rata share of such amount
based upon his percentage interest in the Company.
(b) The Sellers shall be liable to indemnify the Buyer for
claims on account of taxes only to the extent additional Taxes resulting from
field audits are not compensated by lowered tax burdens in following years
resulting from such additional Taxes. To the extent additional capitalization of
items originally treated as expenses entail additional depreciations in future
years, the liability of the Sellers on account of additional Taxes shall be
reduced by the discounted cash value of the additional depreciation, discounted
at a rate of 5% per year.
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ARTICLE XI
MISCELLANEOUS
SECTION 11.1. GOVERNING LAW. This Agreement and the rights and
obligations of the parties hereunder shall be governed by and construed in
accordance with the laws of the Federal Republic of Germany. Any disputes
arising under this Agreement shall be resolved in accordance with the provisions
of the separate Arbitration Agreement which has been executed by the parties as
of the date hereof.
SECTION 11.2. ENTIRE UNDERSTANDING, WAIVER, ETC. This
Agreement sets forth the entire understanding of the parties and supersedes any
and all prior or contemporaneous agreements, arrangements and understandings
relating to the subject matter hereof, and the provisions hereof may not be
changed, modified, waived or altered except by an agreement in writing signed by
the party entitled to the benefit of the provision(s) to be waived hereto. A
waiver by any party of any of the terms or conditions of this Agreement, or of
any breach thereof, shall not be deemed a waiver of such term or condition for
the future, or of any other term or condition hereof, or of any subsequent
breach thereof.
SECTION 11.3. SEVERABILITY; GAPS. If any provision of this
Agreement or the application of such provision shall be held by a court of
competent jurisdiction to be unenforceable, or otherwise be or become invalid or
unenforceable, the remaining provisions of this Agreement shall remain in full
force and effect. In addition, any gap or omission in the terms of this
Agreement shall not prejudice its validity, and the remaining provisions of this
Agreement shall remain in full force and effect. Any gap in the terms of this
Agreement, whether caused by the invalidity or unenforceability of any
provision, or by an omission or otherwise, shall be filled by a provision which
legally and economically most closely matches the intent of the parties hereto
with respect to the gap. The parties hereto undertake to enter from time to time
into such amendments as are necessary or appropriate to document the provisions
filling such gaps.
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SECTION 11.4. CAPTIONS. The captions herein are for
convenience only and shall not be considered a part of this Agreement for any
purpose, including, without limitation, the constructions or interpretation of
any provision hereof.
SECTION 11.5. NOTICES. All notices, requests, demands and
other communications (collectively, "Notices") that are required or may be given
under this Agreement shall be in writing. All Notices shall be deemed to have
been duly given or made: if by hand, immediately upon delivery; if by telecopier
or similar device, immediately upon sending, provided notice is sent on a
Business Day during the hours of 9:00 a.m. and 6:00 p.m. at the location of the
party receiving the Notice, but if not, then immediately upon the beginning of
the first Business Day after being sent; if by FedEx, Express Mail or any other
reputable overnight delivery service, two Business Days after being placed in
the exclusive custody and control of said courier; and if mailed by certified
mail, return receipt requested, five Business Days after mailing.
Notwithstanding the foregoing, with respect to any Notice given or made by
telecopier or similar device, such Notice shall not be effective unless and
until (i) the telecopier or similar advice being used prints a written
confirmation of the successful completion of such communication by the party
sending the Notice, and (ii) a copy of such Notice is deposited in first class
mail to the appropriate address for the party to whom the Notice is sent. In
addition, notwithstanding the foregoing, a notice of a change of address by a
party hereto shall not be effective until received by the party to whom such
notice of a change of address is sent. All notices are to be given or made to
the parties at the following addresses (or to such other address as either party
may designate by notice in accordance with the provisions of this Section):
(a) If to Sellers:
Rolf Christof Dienst
Pacellistr. 14
80333 Munchen
Telephone: 011 49 (89) 2199410
Facsimile: 011 49(89) 21994198
Gunter Greff
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<PAGE> 63
Stadlander Weg 11
26441 Jever
Telephone: 011 49 4461-912180
Facsimile: 011 49 4461-3840
Joachim Schoss
Freiherr-Vom-Stern-Str. 51
60323 Frankfurt
Home Telephone: 011 49 69-172550
Office Telephone: 011 49 69-23852010
Office Facsimile: 011 49 69-23852025
Thomas Klawitter
Kostverloren 3A
26441 Jever
Home Telephone: 011 49 4461-74112
Office Telephone: 011 49 44 21 9730
Office Facsimile: 011 49 44 21 973 1020
Ralf Halbherr
Taunusstr. 8B
61449 Steinbach
Office Telephone: 011 49 69-23852010
Office Facsimile: 011 49 69-23852025
Wolfgang and Ruth Rucker
Grafenweg 4
71803 Herrenberg
Telephone: 011 49 7031-26435
Office: 011 49 228-1815200
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(b) If to SEi:
Sykes Enterprises, Incorporated
100 North Tampa Street
Suite 3900
Tampa, Florida 33602
Attention: Scott J. Bendert,
Vice President-Finance
Telephone: 001 (813) 274-1000
Facsimile: 001 (813) 273 0148
(c) If to Buyer:
Sykes Enterprises GmbH
c/o Sykes Enterprises, Incorporated
100 North Tampa Street
Suite 3900
Tampa, Florida 33602
Attention: Scott J. Bendert,
Vice President-Finance
Telephone: 001 (813) 274-1000
Facsimile: 001 (813) 273 0148
SECTION 11.6. SUCCESSORS AND ASSIGNS. Neither this Agreement
nor any of the rights or obligations arising hereunder shall be assignable
without the prior written consent of the parties hereto; provided, however, that
notwithstanding the foregoing SEi may assign its rights and obligations under
this Agreement to any wholly owned subsidiary of SEi which agrees in writing to
be bound by and to perform fully all of SEi's obligations hereunder and,
provided that in the event of any such assignment by SEi, SEi shall remain
liable hereunder for the performance of SEi's obligations hereunder
notwithstanding such assignment.
SECTION 11.7. PARTIES IN INTEREST. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Nothing in this Agreement, express
or implied, shall confer upon any Person, other than the parties hereto, and
their
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<PAGE> 65
successors and permitted assigns, any rights or remedies under or by reason of
this Agreement.
SECTION 11.8. COUNTERPARTS. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which, together, shall constitute one and the same instrument.
SECTION 11.9. CONSTRUCTION OF TERMS. Any reference herein to
the masculine or neuter shall include the masculine, the feminine and the
neuter, and any reference herein to the singular or plural shall include the
opposite thereof. The parties to this Agreement acknowledge that each party and
counsel to each party has participated in the drafting of this Agreement and
agree that this Agreement shall not be interpreted against one party or the
other based upon who drafted it.
SECTION 11.10. SEI GUARANTEE. SEi hereby guarantees for the
benefit of the Sellers the full and prompt performance by the Buyer of all of
its obligations toward the Sellers under this Agreement. SEi agrees to cause the
Sellers to be released, on or before July 31, 1997, from their liabilities to
Commerzbank referenced in Section 4.15(a)(viii) of the Disclosure Schedule and
to hold Sellers harmless against any loss, liability or expense incurred by them
after the Closing.
SECTION 11.11. BENEFICIAL OWNERS OF QUOTAS. Wolfgang and Ruth
Rucker hereby consent, in their capacities as beneficial owners of the capital
interests referenced in Section 4.4 of the Disclosure Schedule, to all
transactions contemplated hereby. They hereby join in this Agreement and jointly
assume the rights and obligations of a Seller hereunder with respect to the
Quotas of which either of them is the beneficial owner. They hereby agree that
the portion of the Purchase Price Shares to be issued in respect of their Quotas
shall be issued in the name of Ruth Rucker.
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IN WITNESS WHEREOF, the parties have duly executed this
Agreement on the day and year first above written.
SELLERS:
/s/ Rolf Christof Dienst
--------------------------------------------
Rolf Christof Dienst
/s/ Gunter Greff
--------------------------------------------
Gunter Greff
/s/ Joachim Schoss
--------------------------------------------
Joachim Schoss
/s/ Thomas Klawitter
--------------------------------------------
Thomas Klawitter
/s/ Ralf Halbherr
--------------------------------------------
Ralf Halbherr
/s/ Wolfgang Rucker
--------------------------------------------
Wolfgang Rucker
/s/ Ruth Rucker
--------------------------------------------
Ruth Rucker
SEI:
SYKES ENTERPRISES, INCORPORATED
/s/ Scott J. Bendert
--------------------------------------------
Scott J. Bendert, Vice President - Finance
BUYER:
SYKES ENTERPRISES GMBH
By: /s/ Scott J. Bendert
-----------------------------------------
Its:
----------------------------------------
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<PAGE> 67
STATE OF FLORIDA
DEPARTMENT OF STATE
BUREAU OF NOTARIES PUBLIC
APOSTILLE
(CONVENTION DE LA HAYE DU 5 OCTOBRE 1961)
1. Country: United States of America
2. This public document has been signed by Conway W. Jensen
3. acting in the capacity of Notary Public
4. bears the seal/stamp of Conway W. Jensen, Notary
Public,
State of Florida
CERTIFIED
5. at Tallahassee, Florida
6. the Thirteenth day of May, A.D., 1997
7. by Secretary of State, State of Florida
8. No. 1997-5639
9. Seal/Stamp 10. Signature:
/s/ Sandra B. Mastham
Secretary of State
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AUTHORIZATION
POWER OF ATTORNEY
The undersigned, Sykes Enterprises, Incorporated, Tampa, Florida, U.S.A., hereby
confirms that Mr. Scott J. Bendert has been appointed as a Financial Director of
the undersigned by a Board Resolution dated May 28, 1997 and has acted since
then in this capacity for the undersigned. In this capacity, Mr. Bendert is
authorized to legally bind the undersigned. He is in particular authorized to
negotiate a purchase agreement with the shareholders of TELCARE GmbH and to sign
an acquisition agreement on behalf of the undersigned. He is furthermore
authorized to acquire on behalf of the undersigned 100% of the shares of a newly
established limited liability company in Germany which has not been engaged in
any business operations, to represent the undersigned in shareholders' meetings
which resolve on the modifications of the Articles of Association of all kinds
and on the revocation and appointment of Geschaftsfuhrer (managers) of the new
GmbH.
Mr. Bendert is authorized to grant sub-powers of attorney and is exempted from
the restrictions of Section 181 BGB.
Date: May 28, 1997.
SYKES ENTERPRISES, INCORPORATED
/s/ John L. Crites, Jr.
- ---------------------------------------
by: John L. Crites, Jr.
Vice President & General Counsel
I, the undersigned Margery Bass, confirm in my capacity as Secretary of Sykes
Enterprises, Incorporated that the above is true and correct.
/s/ Margery Bass
- ---------------------------------------
Margery Bass, Corporate Secretary
May 28, 1997
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STATE OF FLORIDA
COUNTY OF HILLSBOROUGH
The foregoing document was acknowledged before me this 28th day of May, 1997 by
John L. Crites, Jr. who is personally known to me.
/s/ Conway W. Jensen
------------------------------
STATE OF FLORIDA
COUNTY OF HILLSBOROUGH
The foregoing document was acknowledged before me this 28th day of May, 1997 by
Margery Bass who is personally known to me.
/s/ Conway W. Jensen
------------------------------
May 28, 1997
- ------------------
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VOLLMACHT
Hiermit bevollmachtige ich, Raf Halbherr, TaunusstraBe 8b, 61449 Steinbach,
Herrn Rolf Christof Dienst - "Bevollmachtigter" - in meinem Namen meine
Geschaftsanteile von DM 48.000 an der TELCARE Gesellschaft fur
Telekommunikation-Mehrwertdienste GmbH mit Sitz in Wilhelmshaven an Sykes
Enterprises, Inc., Tampa, Florida USA im Wege des Verkaufes zu den vom
Bevollmachtigten festzusetzenden Konditionen zu ubertragen und in disem
Zusammenhang Beschlusse zu fassen und hierbei auch fur andere Gesellschafter zu
handein.
Steinbach, den 26/5/97
/s/ Ralf Halbherr
- ----------------------------------
Ralf Halbherr
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VOLLMACHT
Hiermit bevollmachtige ich, Ruth Rucker, Grafenweg 4, 71803 Herrenberg, Herrn
Rolf Christof Dienst - "Bevollmachtigter" - in meinem Namen meine
Geschaftsanteile von DM 104.850 an der TELCARE Gesellschaft fur
Telekommunikation-Mehrwertdienste GmbH mit Sitz in Wilhelmshaven an Sykes
Enterprises, Inc., Tampa, Florida USA im Wege des Verkaufes zu den vom
Bevollmachtigten festzusetzenden Konditionen zu ubertragen und in disem
Zusammenhang Beschlusse zu fassen und hierbei auch fur andere Gesellschafter zu
handein.
Herrenberg, den 25/5/97
/s/ Ruth Rucker
- ----------------------------------
Ruth Rucker
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<PAGE> 72
VOLLMACHT
Hiermit bevollmachtige ich, Wolfgang Rucker, Grafenweg 4, 71803 Herrenberg,
Herrn Rolf Christof Dienst - "Bevollmachtigter" - in meinem Namen meine
Geschaftsanteile von DM 104.850 an der TELCARE Gesellschaft fur
Telekommunikation-Mehrwertdienste GmbH mit Sitz in Wilhelmshaven an Sykes
Enterprises, Inc., Tampa, Florida USA im Wege des Verkaufes zu den vom
Bevollmachtigten festzusetzenden Konditionen zu ubertragen und in disem
Zusammenhang Beschlusse zu fassen und hierbei auch fur andere Gesellschafter zu
handein.
Gleichzeitig erteile ich hiermit die Bevollmachtigung, die Beteiligung durch den
Treuhander, Rolf Christof Dienst, zu verkaufen.
Herrenberg, den 25/5/97
/s/ Wolfgang Rucker
- ----------------------------------
Wolfgang Rucker
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VOLLMACHT
Hiermit bevollmachtige ich, Joachim Schoss, Freiherr-vom-stein-str. 51, 60323
Frankfurt, Herrn Rolf Christof Dienst - "Bevollmachtigter" - in meinem Namen
meine Geschaftsanteile von DM 144.000 an der TELCARE Gesellschaft fur
Telekommunikation-Mehrwertdienste GmbH mit Sitz in Wilhelmshaven an Sykes
Enterprises, Inc., Tampa, Florida USA im Wege des Verkaufes zu den vom
Bevollmachtigten festzusetzenden Konditionen zu ubertragen und in disem
Zusammenhang Beschlusse zu fassen und hierbei auch fur andere Gesellschafter zu
handein.
Frankfurt, den 23/5/97
/s/ Joachim Schoss
- ----------------------------------
Joachim Schoss
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<PAGE> 74
VOLLMACHT
Hiermit bevollmachtige ich, Gunter Greff, Stadlander Weg 11, 26441 Jever, Herrn
Rolf Christof Dienst - "Bevollmachtigter" - in meinem Namen meine
Geschaftsanteile von DM 144.000 an der TELCARE Gesellschaft fur
Telekommunikation-Mehrwertdienste GmbH mit Sitz in Wilhelmshaven an Sykes
Enterprises, Inc., Tampa, Florida USA im Wege des Verkaufes zu den vom
Bevollmachtigten festzusetzenden Konditionen zu ubertragen und in disem
Zusammenhang Beschlusse zu fassen und hierbei auch fur andere Gesellschafter zu
handein.
Jever, den 29/05/97
/s/ Gunter Greff
- ----------------------------------
Gunter Greff
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<PAGE> 75
VOLLMACHT
Hiermit bevollmachtige ich, Thomas Klawitter, Kostverloren 3A, 26441 Jever,
Herrn Rolf Christof Dienst - "Bevollmachtigter" - in meinem Namen meine
Geschaftsanteile von DM 48.000 an der TELCARE Gesellschaft fur
Telekommunikation-Mehrwertdienste GmbH mit Sitz in Wilhelmshaven an Sykes
Enterprises, Inc., Tampa, Florida USA im Wege des Verkaufes zu den vom
Bevollmachtigten festzusetzenden Konditionen zu ubertragen und in disem
Zusammenhang Beschlusse zu fassen und hierbei auch fur andere Gesellschafter zu
handein.
Jever, den 28/5/97
/s/ Thomas Klawitter
- ----------------------------------
Thomas Klawitter
67
<PAGE> 76
VOLLMACHT
Hiermit bevollmachtige ich, Thomas Klawitter, Kostverloren 3A, 26441 Jever,
Herrn Rolf Christof Dienst - "Bevollmachtigter" - in meinem Namen meine
Geschaftsanteile von DM 48.000 an der TELCARE Gesellschaft fur
Telekommunikation-Mehrwertdienste GmbH mit Sitz in Wilhelmshaven an Sykes
Enterprises, Inc., Tampa, Florida USA im Wege des Verkaufes zu den vom
Bevollmachtigten festzusetzenden Konditionen zu ubertragen und in disem
Zusammenhang Beschlusse zu fassen und hierbei auch fur andere Gesellschafter zu
handein.
Jever, den 28/5/97
/s/ Thomas Klawitter
- ----------------------------------
Thomas Klawitter
68
<PAGE> 77
CONSENT OF SPOUSE PURSUANT TO SECTION 1365 CIVIL CODE
By Notarial Deed dated May 30, 1997, Rule of Documents No. 849/1997 P of the
Hamburg Notary Public Dr. Klass Hinrich Pfluger, my husband,
Ralf Halbherr
TaunusstraBe 8 B, 61449 Steinbach,
has sold all his shares in TELCARE Gesellschaft fur
Telekommunikations-Mehrwertdienste GmbH in Wilhelmshaven, Germany, in the
nominal amount of DM 48,000.00 to Sykes Enterprises GmbH.
I hereby consent to all declarations contained in the aforementioned Deed
pursuant to Section 1365 Civil Code.
Steinbach, 16.6.1997 /s/ Anja Halbherr
------------------------ -----------------------------------
Anja Halbherr
69
<PAGE> 78
CONSENT OF SPOUSE PURSUANT TO SECTION 1365 CIVIL CODE
By Notarial Deed dated May 30, 1997, Roll of Documents No. 849/1997 P of the
Hamburg Notary Public Dr. Klass Hinrich Pfluger, my husband,
Mr. Thomas Klawitter,
resident at: Kostverloren 3 a, 26441 Jever,
has sold all his shares in TELCARE Gesellschaft fur
Telekommunikations-Mehrwertdienste GmbH in Wilhelmshaven/FRG in the nominal
amount of DM 48,000,-- to Sykes Enterprises GmbH.
I hereby consent to all declarations contained in the aforementioned Deed
pursuant to par, 1365 Civil Code.
Jever, this 16 June 1997
-----------------------
/s/ S. Klawitter
- ----------------------------------
S. Klawitter
70
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY CONSOLIDATED FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FORM 10-K.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,955,700
<SECURITIES> 86,696,148
<RECEIVABLES> 40,782,908
<ALLOWANCES> 269,999
<INVENTORY> 0
<CURRENT-ASSETS> 132,440,662
<PP&E> 56,154,702
<DEPRECIATION> 15,556,477
<TOTAL-ASSETS> 173,968,110
<CURRENT-LIABILITIES> 21,223,170
<BONDS> 0
0
0
<COMMON> 347,704
<OTHER-SE> 135,567,184
<TOTAL-LIABILITY-AND-EQUITY> 173,968,110
<SALES> 0
<TOTAL-REVENUES> 148,620,206
<CGS> 0
<TOTAL-COSTS> 90,588,740
<OTHER-EXPENSES> 45,506,253
<LOSS-PROVISION> 40,411
<INTEREST-EXPENSE> (198,348)
<INCOME-PRETAX> 12,760,249
<INCOME-TAX> 4,567,416
<INCOME-CONTINUING> 8,192,833
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (47,343)
<NET-INCOME> 8,145,490
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
