Rule 424(b)(3)
Registration No. 333-20465
____________
INFO SYSTEMS OF NORTH CAROLINA, INC.
PROXY STATEMENT
____________
SYKES ENTERPRISES, INCORPORATED
PROSPECTUS
____________
This Proxy Statement/Prospectus is being furnished to holders of
common stock, $.01 par value ("Info Systems Common Stock"), of Info
Systems of North Carolina, Inc., a North Carolina corporation ("Info
Systems"), in connection with the solicitation of proxies by the Board of
Directors of Info Systems for use at a special meeting of shareholders of
Info Systems (the "Special Meeting") to be held on March 28, 1997, at Info
Systems' executive offices located at 7500 East Independence Boulevard,
Charlotte, North Carolina, commencing at 8:00 a.m., and at any adjournment
or postponement thereof.
This Proxy Statement/Prospectus also constitutes a prospectus of
Sykes Enterprises, Incorporated, a Florida corporation ("Sykes"), with
respect to the shares of common stock of Sykes, $.01 par value (the "Sykes
Common Stock"), to be issued in the Merger (as defined herein) in exchange
for outstanding shares of Info Systems Common Stock. Info Systems
shareholders should read this Proxy Statement/Prospectus carefully prior
to voting on the Merger. For a discussion of the number of shares of
Sykes Common Stock issuable in the Merger, see "The Merger Agreement-
-Manner and Basis of Converting Shares."
See "Risk Factors" beginning on page 13 of this Proxy Statement/
Prospectus for information Info Systems shareholders should consider prior
to voting on the Merger.
________________________________________
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY
STATEMENT/PROSPECTUS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
___________________________________
This Proxy Statement/Prospectus and the form of proxy included
herewith are first being mailed to shareholders of Info Systems on or
about March 18, 1997.
The date of this Proxy Statement/Prospectus is March 17, 1997.
AVAILABLE INFORMATION
Sykes is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith it files reports, proxy statements and other
information with the Securities and Exchange Commission (the
"Commission"). The reports, proxy statements and other information filed
by Sykes with the Commission may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's Regional Offices at
the Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and at 7 World Trade Center, 13th Floor, New York,
New York, 10048. Copies of such material also may be obtained from the
Public Reference Section of the Commission, Washington, D.C. 20549, at
prescribed rates. In addition, Sykes Common Stock is quoted on the Nasdaq
National Market of The Nasdaq Stock Market (the "Nasdaq National Market")
and reports, proxy statements and other information filed by Sykes with
the Nasdaq National Market may be inspected at the offices of The Nasdaq
Stock Market, 1735 K Street, N.W., Washington, D.C. 20006-1500.
In addition, the Commission maintains a web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of
such web site is http://www.sec.gov.
Sykes has filed with the Commission a Registration Statement on
Form S-4 (together with any amendments thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the securities to be issued pursuant to the Merger
Agreement (as defined herein). This Proxy Statement/Prospectus does not
contain all the information set forth in the Registration Statement. Such
additional information may be obtained from the Commission's principal
office in Washington, D.C.
No persons have been authorized to give any information or to
make any representation other than those contained in this Proxy
Statement/Prospectus in connection with the solicitations of proxies or
the offering of securities made hereby and, if given or made, such
information or representation must not be relied upon as having been
authorized by Sykes, Info Systems or any other person. This Proxy
Statement/Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, any securities, or the solicitation of a
proxy, in any jurisdiction to or from any person to whom it is not lawful
to make any such offer or solicitation in such jurisdiction. Neither the
delivery of this Proxy Statement/Prospectus nor any distribution of
securities made hereunder shall under any circumstances create an
implication that there has been no change in the affairs of Sykes or Info
Systems since the date hereof or that the information herein is correct as
of any time subsequent to its date.
TABLE OF CONTENTS
Page
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Introduction . . . . . . . . . . . . . . . . . . . . . . . 1
The Parties . . . . . . . . . . . . . . . . . . . . . . . 2
The Special Meeting . . . . . . . . . . . . . . . . . . . 3
The Merger . . . . . . . . . . . . . . . . . . . . . . . . 4
The Securities . . . . . . . . . . . . . . . . . . . . . . 6
Markets and Market Prices . . . . . . . . . . . . . . . . 7
Comparative Per Share Data . . . . . . . . . . . . . . . . 8
Summary Selected Financial Data . . . . . . . . . . . . . 9
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . 13
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . 17
COMPARATIVE MARKET PRICE DATA . . . . . . . . . . . . . . . . 18
Sykes Common Stock . . . . . . . . . . . . . . . . . . . 18
Info Systems Common Stock . . . . . . . . . . . . . . . 18
THE SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . 19
Time, Date, Place and Purpose of Special Meeting . . . . 19
Voting at Special Meeting; Record Date . . . . . . . . . 19
Proxies . . . . . . . . . . . . . . . . . . . . . . . . 19
Solicitation of Proxies . . . . . . . . . . . . . . . . 20
Voting of ESOP Shares . . . . . . . . . . . . . . . . . 20
SPECIAL FACTORS . . . . . . . . . . . . . . . . . . . . . . . 20
Background of the Merger . . . . . . . . . . . . . . . . 20
Financial Advisor to Info Systems and the
ESOP Trustees . . . . . . . . . . . . . . . . . . . . 21
Reasons for the Merger-Info Systems; Recommendation of the
Info Systems Board of Directors . . . . . . . . . . . 23
Reasons for the Merger-Sykes . . . . . . . . . . . . . . 24
Info Systems Business After the Merger . . . . . . . . . 24
Effects of the Merger . . . . . . . . . . . . . . . . . 25
Interests of Certain Persons in the Merger . . . . . . . 25
Accounting Treatment . . . . . . . . . . . . . . . . . . 27
Certain Federal Income Tax Consequences . . . . . . . . 27
Federal Securities Law Consequences . . . . . . . . . . 28
Quotation on the Nasdaq National Market . . . . . . . . 28
Rights of Info Systems Dissenting Shareholders . . . . . 28
Effect of Failure of Shareholders to Approve Merger . . 31
THE MERGER AGREEMENT . . . . . . . . . . . . . . . . . . . . 32
Effective Time of the Merger . . . . . . . . . . . . . . 32
Manner and Basis of Converting Shares . . . . . . . . . 32
Representations and Warranties . . . . . . . . . . . . . 33
No Solicitation of Acquisition Proposals . . . . . . . . 35
Certain Covenants . . . . . . . . . . . . . . . . . . . 35
Conditions . . . . . . . . . . . . . . . . . . . . . . . 36
Termination . . . . . . . . . . . . . . . . . . . . . . 37
Expenses and Termination Fees . . . . . . . . . . . . . 37
Amendment and Waiver . . . . . . . . . . . . . . . . . . 38
SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . 39
Sykes . . . . . . . . . . . . . . . . . . . . . . . . . 39
Info Systems . . . . . . . . . . . . . . . . . . . . . . 39
Sykes and Info Systems Combined . . . . . . . . . . . . 39
PRO FORMA COMBINED FINANCIAL INFORMATION . . . . . . . . . . 43
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION . . . . . . 46
ADDITIONAL CONSOLIDATED FINANCIAL INFORMATION . . . . . . . . 47
SYKES--MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . 48
INFO SYSTEMS--MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . 55
INFORMATION ABOUT SYKES . . . . . . . . . . . . . . . . . . . 59
General . . . . . . . . . . . . . . . . . . . . . . . . 59
Industry Background . . . . . . . . . . . . . . . . . . 59
Strategy . . . . . . . . . . . . . . . . . . . . . . . . 61
Services . . . . . . . . . . . . . . . . . . . . . . . . 62
Customers . . . . . . . . . . . . . . . . . . . . . . . 63
Sales and Marketing . . . . . . . . . . . . . . . . . . 63
Quality Assurance . . . . . . . . . . . . . . . . . . . 64
Operations . . . . . . . . . . . . . . . . . . . . . . . 65
Competition . . . . . . . . . . . . . . . . . . . . . . 66
Employees . . . . . . . . . . . . . . . . . . . . . . . 67
Intellectual Property . . . . . . . . . . . . . . . . . 67
Facilities . . . . . . . . . . . . . . . . . . . . . . . 67
Legal Proceedings . . . . . . . . . . . . . . . . . . . 68
Management . . . . . . . . . . . . . . . . . . . . . . . 68
Principal Shareholders . . . . . . . . . . . . . . . . . 75
INFORMATION ABOUT INFO SYSTEMS . . . . . . . . . . . . . . . . . 77
General . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Info Systems Products . . . . . . . . . . . . . . . . . . . 77
Marketing and Distribution . . . . . . . . . . . . . . . . . 77
Intellectual Property . . . . . . . . . . . . . . . . . . . 77
Employees . . . . . . . . . . . . . . . . . . . . . . . . . 77
Backlog . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Competition . . . . . . . . . . . . . . . . . . . . . . . . 78
Research and New Product Development . . . . . . . . . . . . 78
Facilities . . . . . . . . . . . . . . . . . . . . . . . . . 78
Management . . . . . . . . . . . . . . . . . . . . . . . . . 78
Aggregate Option Exercises in Last Fiscal Year and
Fiscal Year End Option Values . . . . . . . . . . . . . 80
Employment Contracts . . . . . . . . . . . . . . . . . . . . 80
Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 80
Export Sales . . . . . . . . . . . . . . . . . . . . . . . . 80
Stock Ownership . . . . . . . . . . . . . . . . . . . . . . 80
DESCRIPTION OF SYKES CAPITAL STOCK . . . . . . . . . . . . . . . 81
Sykes Common Stock . . . . . . . . . . . . . . . . . . . . . 82
Sykes Preferred Stock . . . . . . . . . . . . . . . . . . . 82
Certain Statutory and Other Provisions . . . . . . . . . . . 82
COMPARISON OF SHAREHOLDER RIGHTS . . . . . . . . . . . . . . . . 82
Authorized Stock . . . . . . . . . . . . . . . . . . . . . . 82
Cumulative Voting . . . . . . . . . . . . . . . . . . . . . 83
Removal of Directors . . . . . . . . . . . . . . . . . . . . 83
Special Meetings of Shareholders; Shareholders
Action by Written Consent . . . . . . . . . . . . . . . 84
Vacancies on the Board of Directors . . . . . . . . . . . . 84
Amendments to Articles of Incorporation . . . . . . . . . . 84
Amendment to By-laws . . . . . . . . . . . . . . . . . . . . 85
Dissenter's Rights . . . . . . . . . . . . . . . . . . . . . 86
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . 87
Liability of Directors; Indemnification . . . . . . . . . . 88
Takeover Statutes and Related Provisions . . . . . . . . . . 89
Other Defensive Measures . . . . . . . . . . . . . . . . . . 89
Inspection of Stockholder List . . . . . . . . . . . . . . . 90
Loans to Directors, Officers and Employees . . . . . . . . . 90
Dissolution . . . . . . . . . . . . . . . . . . . . . . . . 90
INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . . 90
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . 90
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . F-1
APPENDIX A -- Merger Agreement . . . . . . . . . . . . . . . . . A-1
APPENDIX B -- Article 13 of the North Carolina Business Corporation
Act -- Text of Chapter 55, Article 13 of the General Statutes of
North Carolina Concerning Rights of Dissenting Stockholders . . B-1
SUMMARY
The following is only a summary of certain information contained
elsewhere in this Proxy Statement/Prospectus. Reference is made to, and
this summary is qualified in its entirety by, the more detailed
information contained elsewhere in this Proxy Statement/Prospectus. As
used in this Proxy Statement/Prospectus, the terms "Sykes" and "Info
Systems" refer to such corporations, respectively, and, except where the
context otherwise requires, such entities and their respective
subsidiaries. All information concerning Sykes included in this Proxy
Statement/Prospectus has been furnished by Sykes, and all information
concerning Info Systems included in this Proxy Statement/Prospectus has
been furnished by Info Systems. Unless otherwise defined herein,
capitalized terms used in this summary have the respective meanings
ascribed to them elsewhere in this Proxy Statement/Prospectus.
Shareholders of Info Systems are urged to read this Proxy
Statement/Prospectus in its entirety.
Introduction
Merger Agreement . . . . . . Pursuant to the Merger Agreement (the
"Merger Agreement"), dated as of January
10, 1997, by and among Sykes Enterprises,
Incorporated ("Sykes" or the "Company"),
ISNC Acquisition Co., a North Carolina
corporation and wholly-owned subsidiary of
Sykes ("Acquisition Corp."), and Info Systems
of North Carolina, Inc. ("Info Systems"),
Acquisition Corp. will, subject to
certain conditions, be merged with and
into Info Systems (the "Merger").
Merger Consideration . . . . In the Merger, each outstanding share of
the common stock of Info Systems (the
"Info Systems Common Stock") (other than
shares for which holders have preserved
dissenter's rights) will be converted
into the right to receive $23,000,000 of
the common stock of Sykes (the "Sykes
Common Stock"). The actual number of shares
of Sykes Common Stock to be received by Info
Systems Shareholders participating in the
Merger will be calculated by dividing (i)
the quotient arrived at by dividing (A)
$23,000,000 by (B) the lesser of (I) the
average closing prices of Sykes Common
Stock reported on the Nasdaq National
Market for the ten consecutive trading
days prior to the consummation of the
Merger (the "Effective Time") or (II) the
closing price of Sykes Common Stock
reported on the Nasdaq National Market on
the last trading day prior to the Effective
Time by (ii) the aggregate number of issued
and outstanding shares of Info Systems
Common Stock at the Effective Time.
However, cash will be paid in lieu of
fractional shares of Sykes Common
Stock. Assuming the $34.00 per share
closing price of Sykes Common Stock on
March 12, 1997 (the latest practicable
date prior to the date of this Proxy
Statement/Prospectus) was used to calculate
the foregoing conversion formula, each
share of Info Systems Common Stock
participating in the Merger would be
converted into a right to receive
approximately .202 shares of Sykes Common
Stock (with cash being paid in lieu of
fractional shares of Sykes Common Stock).
Based on the preceding example, Info
Systems' shareholders would be issued
676,471 shares of Sykes Common Stock.
See "The Merger Agreement--Manner and
Basis for Converting Shares."
The Parties
Sykes . . . . . . . . . . . Sykes provides a wide array of
information technology outsourcing
services, including information
technology support services and
information technology development
services and solutions. The Company's
services are provided at various stages
during the life cycle of computer
hardware and software products. Through
its state-of-the-art technical support
call centers ("IT call centers"), the
Company provides information technology
support services (i) to leading computer
hardware and software companies by
providing technical product support
services to end users of their products
and (ii) to major companies by providing
help desk services to their employees.
Through its staff of technical
professionals, the Company also provides
information technology development
services and solutions to large
corporations, on a contract or temporary
staffing basis, including software
design, development, integration and
implementation; system support and
maintenance; and documentation, foreign
language translation and software
localization. The integration of these
services provides Sykes' customers the
opportunity to outsource a broad range of
their information technology services
needs to the Company. Current customers
of Sykes include Apple, CompuServe,
Digital Equipment, Disney, Hewlett
Packard, IBM, Monsanto and NationsBank.
The principal executive offices of Sykes
are located at 100 North Tampa Street,
Suite 3900, Tampa, Florida 33602, and
its telephone number is (813) 274-1000.
For additional information concerning
Sykes, see "Information About Sykes."
Acquisition Corp. . . . . . . Acquisition Corp. is a newly-formed North
Carolina corporation and a wholly-owned
subsidiary of Sykes. Acquisition Corp.
was organized for the sole purpose of
merging into Info Systems.
Info Systems . . . . . . . . Info Systems is in the business of
selling, installing, customizing and
supporting computer hardware and software
products, including its own proprietary
software and software products developed
by others. Info Systems also provides
technical services, including
programming, consulting, training,
systems design and systems integration.
It markets its products and services to
customers in three primary industries:
retail, manufacturing and distribution.
The principal executive offices of Info
Systems are located at 7500 East
Independence Boulevard, Charlotte, North
Carolina 28227, and its telephone number
is (704) 567-6089.
For additional information concerning
Info Systems, see "Information About Info
Systems."
The Special Meeting
Time, Date and Place . . . . The Special Meeting will be held on
March 28, 1997, at Info Systems' executive
offices located at 7500 East Independence
Boulevard, Charlotte, North Carolina,
commencing at 8:00 a.m.
Record Date; Shares Entitled
to Vote . . . . . . . . . . . Holders of record of shares of Info
Systems Common Stock at the close of
business on January 31, 1997 are entitled
to notice of the Special Meeting. On
such date, it is anticipated that there
will be approximately 3,353,741 shares of
Info Systems Common Stock outstanding,
each of which will be entitled to one
vote on the Merger and any other matters
which may properly come before the
Special Meeting.
Purpose of the Special
Meeting . . . . . . . . . . . The purpose of the Special Meeting is to
consider and vote upon (a) a proposal to
approve the Merger and (b) such other
matters as may properly come before the
Special Meeting.
Vote Required . . . . . . . . Pursuant to the Merger Agreement and the
NCBCA, the affirmative vote of the
holders of a majority of the outstanding
shares of Info Systems Common Stock will
be required to approve the consummation
of the Merger. Certain executive
officers of Info Systems beneficially
owning 16.28% of the outstanding shares
of Info Systems Common Stock have granted
irrevocable proxies to Sykes to vote such
shares in favor of the Merger. Certain
affiliates of Info Systems who control
the vote of approximately 48.76% of the
outstanding shares of Info Systems Common
Stock have agreed with Sykes to refrain
from exercising their respective
dissenter's rights. Furthermore, the
trustees of the Info Systems of North
Carolina, Inc. Employee Stock Ownership
Plan and Trust (the "ESOP") have agreed
with Sykes to vote in favor of the Merger
all shares of Info Systems Common Stock
held by the ESOP subject to the ESOP loan
and all shares held by the ESOP for which
voting directions are not received from
participants, subject only to the receipt
of a fairness opinion from
Interstate/Johnson Lane Corporation.
Approximately 31.57% of the outstanding
shares of Info Systems Common Stock is
held by the ESOP. Approximately 7.74%
of the outstanding shares of Info Systems
Common Stock is pledged to secure repay-
ment of loans payable by the ESOP. See
"The Special Meeting--Voting at Special
Meeting; Record Date."
Security Ownership of Management
and Certain Other Persons . . As of March 12, 1997, directors and
executive officers of Info Systems and
its affiliates beneficially owned
approximately 26.53% of the outstanding
shares of Info Systems Common Stock
entitled to vote on the approval of the
Merger including shares allocated to them
as ESOP participants. See "The Special
Meeting--Vote at Special Meeting; Record
Date."
The Merger
Exchange Procedure . . . . . For a discussion of the procedures to
follow in surrendering shares of Info
Systems Common Stock in exchange for
certificates representing shares of Sykes
Common Stock, see "The Merger Agreement--
Manner and Basis of Converting Shares."
Conditions to the Merger . . Consummation of the Merger is subject to
the satisfaction of a number of
conditions, including (i) obtaining
approval of the Merger by the affirmative
vote of a majority of the outstanding
shares of Info Systems Common Stock, with
holders of no more than 9.5% of
outstanding shares of Info Systems Common
Stock having (A) failed to vote in favor
of the Merger and (B) delivered to Info
Systems written notice of such holders'
intent to exercise dissenter's rights,
(ii) receipt by both Info Systems and
Sykes of legal opinions as to the tax-
free nature of the Merger and accounting
opinions as to the treatment of the
Merger as a pooling-of-interests, and
(iii) receipt by the trustees of the ESOP
of a "fairness opinion" from
Interstate/Johnson Lane Corporation. See
"The Merger Agreement - Conditions."
Consummation of the Merger is not subject
to a condition that Info Systems receive
a "fairness opinion" for its shareholders.
Based on the collective business experience
of the Info Systems directors, as well as
the substantial cost required to obtain such
an opinion, the Board of Directors of Info
Systems chose not to obtain an independent
"fairness opinion" for the Info Systems
shareholders. Other than the filing of
appropriate Articles of Merger under the
North Carolina Business Corporation Act
("NCBCA") and compliance with applicable
federal and state securities laws, no other
federal or state regulatory requirements
must be complied with or approval must be
obtained in connection with the Merger.
Reasons for the Merger . . . For a discussion of the reasons for the
Merger and other factors considered by
the Boards of Directors of Info Systems
and Sykes, see "Special Factors-- Reasons
for the Merger-Info Systems; Recommenda-
tion of the Info Systems Board of
Directors," and "--Reasons for the
Merger--Sykes."
Effective Time of the Merger It is anticipated that the Merger will
become effective as promptly as
practicable (within 5 days) after
the requisite approval of Info Systems
shareholders has been obtained and
all other conditions to the Merger have
been satisfied or waived (the
"Effective Time").
Termination of the Merger
Agreement . . . . . . . . . . The Merger Agreement is subject to
termination at the option of either Sykes
or Info Systems if the Merger is not
consummated on or before March 31, 1997,
and prior to such time upon the
occurrence of certain events. See "The
Merger Agreement--Termination."
Amendments to the Merger
Agreement and Waivers . . . . The Merger Agreement may be amended or
supplemented by the parties thereto at
any time. Subject to applicable
provisions of the NCBCA, any provision of
the Merger Agreement may be waived at any
time by the party which is entitled to
the benefits thereof. In the event of
any such amendment, supplement or waiver
by Info Systems, the Board of Directors
of Info Systems will make a determination
whether the approval of Info Systems
shareholders should be resolicited.
Accounting Treatment . . . . The Merger will be accounted for as a
pooling-of-interests by Sykes in
accordance with generally accepted
accounting principles.
Certain Federal Income
Tax Consequences . . . . . . The Merger is intended to qualify as a
reorganization under Section 368(a) of
the Internal Revenue Code of 1986, as
amended (the "Code"), and therefore,
should constitute a non-taxable
transaction for holders of Info Systems
Common Stock that do not exercise their
dissenter's rights, except to the extent
that cash received, if any, in lieu of
fractional shares of Sykes Common Stock
exceeds the tax basis allocated to such
fractional shares. For a discussion of
these and other federal income tax
considerations in connection with the
Merger, see "Special Factors--Certain
Federal Income Tax Consequences."
Rights of Dissenting
Shareholders . . . . . . . . Holders of Info Systems Common Stock are
entitled to dissenter's rights under the
NCBCA. See "Special Factors--Rights of
Dissenting Shareholders."
Failure to Approve Merger
Agreement . . . . . . . . . . In the event the shareholders of Info
Systems do not approve the Merger
Agreement, it is the intention of the
Board of Directors and the management of
Info Systems to continue to manage and
operate Info Systems as described herein.
See "Special Factors--Effect of Failure
of Shareholders to Approve Merger
Agreement."
Expenses and Termination Fees Under certain circumstances, Info Systems
is required to reimburse Sykes for its
expenses incurred in connection with the
Merger. Under other circumstances, Info
Systems is required to pay to Sykes a
termination fee as liquidated damages.
See "The Merger Agreement--Expenses and
Termination Fees."
The Securities
Sykes Common Stock . . . . . In connection with the Merger, Sykes will
issue shares of Sykes Common Stock in
exchange for outstanding shares of Info
Systems Common Stock. For a description
of the terms and relative rights of the
Sykes Common Stock, see "Description of
Sykes Capital Stock--Sykes Common Stock."
Markets and Market Prices
Sykes Common Stock is quoted on the Nasdaq National Market of The
Nasdaq Stock Market ("Nasdaq National Market"). Info Systems Common Stock
is not listed for trading on any securities exchange or quoted on The
Nasdaq Stock Market, and shares of Info Systems have only traded
sporadically. Due to the lack of trading activity of Info Systems Common
Stock, the amount used for the market values of Info Systems Common Stock
on December 18, 1996 and all subsequent dates in the following table is
the book value of Info Systems Common Stock as of September 30, 1996.
Market prices or quotations for Info Systems Common Stock are unavailable.
The book value per share of Info Systems Common Stock may bear little or no
relation to the actual market value of such shares on such date or any
subsequent date. The information presented in the table below represents
the last sale price per share on the Nasdaq National Market for Sykes
Common Stock on December 18, 1996, the last full trading day prior to the
public announcement that an agreement in principle with respect to the
Merger had been reached by the parties; on January 9, 1997, the last full
trading day prior to the execution of the Merger Agreement; and on March 12,
1997, the latest practicable date prior to the date of this Proxy Statement/
Prospectus.
Info Systems Info Systems
Sykes Common Common Equivalent Per
Date: Stock Stock Share Price*
December 18, 1996 . . . $40.25 $0.34 $7.08
January 9, 1997 . . . . $33.88 $0.34 $5.96
March 12, 1997. . . . . $34.00 $0.34 $6.86
*Assuming no change in the number of shares of Info Systems Common
Stock outstanding at the Effective Time, each outstanding share of Info
Systems Common Stock participating in the Merger would be converted into a
right to receive $6.858 of Sykes Common Stock (with cash being paid in
lieu of fractional shares of Sykes Common Stock). The actual number of
shares of Sykes Common Stock to be received by Info Systems shareholders
participating in the Merger will depend upon the application of the
conversion formula set forth in the Merger Agreement at the Effective
Time. Assuming the closing price per share of Sykes Common Stock on the
dates set forth in the foregoing table were used to calculate the
conversion formula, each share of Info Systems Common Stock participating
in the Merger would be converted into a right to receive approximately (i)
.170 shares of Sykes Common Stock valued at $40.25 per share; (ii) .202
shares of Sykes Common Stock valued at $33.88 per share; or (iii) .202
shares of Sykes Common Stock valued at $34.00 per share. See "The Merger
Agreement--Manner and Basis for Converting Shares."
For information relating to market prices of Sykes Common Stock, see
"Comparative Market Price Data--Sykes Common Stock." SHAREHOLDERS ARE
URGED TO OBTAIN CURRENT QUOTATIONS FOR SYKES COMMON STOCK.
Comparative Per Share Data
The following table sets forth selected unaudited comparative per
share data for Sykes Common Stock and Info Systems Common Stock on an
historical and pro forma combined basis and for Info Systems Common Stock
on a pro forma equivalent basis after giving effect to the Merger as a
pooling-of-interests in accordance with generally accepted accounting
principles and assuming that the exchange ratio in the Merger is 4.95771
shares of Info Systems Common Stock for one (1) share of Sykes Common
Stock. See "The Merger Agreement--Manner and Basis of Converting Shares."
The information is derived from the consolidated historical financial
statements of Sykes and of Info Systems, including the related notes
thereto, and the unaudited pro forma financial statements, including the
notes thereto, appearing elsewhere in this Proxy Statement/Prospectus.
This information should be read in conjunction with such historical and
pro forma financial statements and the related notes thereto. See "Index
to Financial Statements" and "Unaudited Pro Forma Consolidated Financial
Information." Neither Sykes nor Info Systems paid any dividends on shares
of its respective Common Stock during the periods presented.
The information is not necessarily indicative of the results of the
future operations of the combined entity or the actual results that would
have occurred had the Merger been consummated prior to the periods
indicated.
Sykes Common Stock Info Systems Common Stock
December 31, September 29, June 30, September 30,
1995 1996 1996 1996
Book value
per share
Historical $0.77 $2.79 $0.37 $0.34
Pro forma $0.80 $2.76 -- --
Equivalent pro
forma (a) -- -- -- $0.56
<TABLE>
<CAPTION>
Five Months
Ended Year Ended Nine Months Ended
Years Ended July 31, December 31, December 31, October 1, September 29,
1993 1994 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C> <C>
Sykes
Net income (loss) per
common share
Historical $0.04 $0.04 $(0.01) $0.13 $0.10 $0.32
Pro forma $0.03 $0.07 $ 0.02 $0.11 $0.08 $0.30
</TABLE>
Three Months Ended
Years Ended June 30, September 30,
Info Systems 1994 1995 1996 1995 1996
Net income (loss)
per common share
Historical $0.20 $0.03 $0.07 $0.05 $(0.05)
Equivalent pro
forma (a) $0.01 $0.01 $0.02 $0.02 $0.06
__________________
(a) The equivalent pro forma per share amounts for Info Systems Common
Stock are calculated by multiplying the Sykes pro forma amounts per
share by the exchange ratio (determined for the respective periods
presented by dividing the Sykes Common Stock assumed to be issued in
the Merger by the number of shares of Info Systems Common Stock
outstanding).
Summary Selected Financial Data
Sykes
The following historical financial data for the periods indicated
have been derived from the Consolidated Financial Statements of Sykes.
The Balance Sheet Data as of December 31, 1994 and 1995, and the Statement
of Operations Data for each of the years in the three year period ended
July 31, 1994, the five months ended December 31, 1994 and the year ended
December 31, 1995, have been derived from the Company's consolidated
financial statements for such years, which have been audited by Coopers &
Lybrand L.L.P., independent public accountants, and are included elsewhere
in this Proxy Statement/Prospectus. The Balance Sheet Data as of July 31,
1991, 1992, 1993 and 1994, and the Statement of Operations Data for the
years ended July 31, 1991 and 1992, have been derived from the Company's
consolidated financial statements, which are not included in this Proxy
Statement/Prospectus. The selected financial data for the nine months
ended September 30, 1995 and 1996 have been derived from unaudited
consolidated financial statements included elsewhere herein and, in the
opinion of management of Sykes, such data for these periods include all
adjustments, consisting of only normal recurring adjustments, to present
fairly the financial statements for such periods. Interim results are not
necessarily indicative of results which may be expected for any other
period or the full fiscal year. The information below should be read in
conjunction with "Sykes--Management's Discussion and Analysis of Financial
Condition and Results of Operations," and Sykes Consolidated Financial
Statements and related notes appearing elsewhere in this Proxy
Statement/Prospectus. See "Index to Financial Statements."
Info Systems
The following historical financial data for the periods indicated
have been derived from the Financial Statements of Info Systems. The
Balance Sheet Data as of June 30, 1995 and 1996, and the Statement of
Operations Data for each of the years in the three year period ended June
30, 1996 have been derived from Info Systems financial statements for such
years, which have been audited by KPMG Peat Marwick, LLP, independent
certified public accountants, and are included elsewhere in this Proxy
Statement/Prospectus. The Balance Sheet Data as of June 30, 1994, has
been derived from Info Systems financial statements, which have been
audited by KPMG Peat Marwick, LLP, independent certified public
accountants, and which are not included in this Proxy Statement/Prospectus.
The Balance Sheet Data as of June 30, 1992 and 1993, and the Statement of
Operations Data for each of the two years ended June 30, 1993 have been
derived from Info Systems' financial statements, which have been audited by
another accounting firm, and which are not included in this Proxy
Statement/Prospectus. The selected financial data for the three months
ended December 31, 1995 and 1996 have been derived from unaudited
financial statements included elsewhere herein and, in the opinion of
management of Info Systems, such data for these periods include all
adjustments, consisting of only normal recurring adjustments, to present
fairly the financial statements for such periods. Interim results are not
necessarily indicative of results which may be expected for any other
period or the full fiscal year. The information below should be read in
conjunction with "Info Systems--Management's Discussion and Analysis of
Financial Condition and Results of Operations," and Info Systems Financial
Statements and related notes appearing elsewhere in this Proxy
Statement/Prospectus. See "Index to Financial Statements."
Sykes and Info Systems Combined
The following pro forma financial data for the periods indicated have
been derived from the Consolidated Financial Statements of Sykes and the
financial statements of Info Systems which have been recasted to
correspond to Sykes' accounting periods, and reflect the consummation of
the Merger. The information below should be read in conjunction with "Pro
Forma Combined Financial Information," appearing elsewhere in this Proxy
Statement/Prospectus.
<TABLE>
SYKES
Summary Selected Consolidated Financial Data
(In thousands, except per share data)
<CAPTION>
Five Months
Years Ended July 31, Ended Year Ended Nine Months Ended
December 31, December 31, October 1, September 29,
1991 1992 1993 1994 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Revenues . . . . . $45,375 $ 47,189 $56,912 $55,589 $21,613 $74,595 $51,315 $81,008
Direct salaries and
related costs . . 26,763 27,345 36,487 35,362 14,157 44,592 31,036 45,536
General and
administrative(1) 15,773 17,434 18,553 18,786 7,243 25,232 16,683 25,413
-------- -------- ------- -------- -------- -------- -------- --------
Income from
operations . . . 2,839 2,410 1,872 1,441 213 4,771 3,596 10,059
Interest and other
expense (income) 278 205 164 250 276 728 509 (90)
-------- -------- ------- -------- -------- -------- -------- --------
Income (loss)
before income
taxes . . . . . 2,561 2,205 1,708 1,191 (63) 4,043 3,087 10,149
Provision for income
taxes(2) . . . . . 1,053 876 988 597 116 1,819 1,319 4,061
-------- -------- ------- -------- -------- -------- -------- --------
Income (loss)
before cumulative
effect of account
change . . . . . 1,508 1,329 720 594 (179) 2,224 1,768 6,088
Cumulative effect
of change in
accounting for
income taxes . . . -- 49 -- -- -- -- -- --
-------- -------- ------- -------- -------- -------- -------- --------
Net income
(loss)(2) . . . $ 1,508 $ 1,378 $ 720 $ 594 $ (179) $ 2,224 $ 1,768 $ 6,088
======== ======== ======= ======== ========= ======== ======== ========
Net income (loss)
per share(2) . . . $ 0.09 $ 0.08 $ 0.04 $ 0.04 $ (0.01) $ 0.13 $ 0.10 $ 0.32
======== ======== ======= ======== ========= ======== ======== ========
Weighted average
shares outstanding 16,627 16,874 16,874 16,874 16,874 16,874 16,874 19,180
<CAPTION>
July 31, December 31, October 1, September 29,
1991 1992 1993 1994 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital . . $ 4,944 $ 6,269 $ 4,463 $ 4,482 $ 5,022 $ 1,050 $ 6,762 $ 35,527
Total assets . . . 13,624 17,773 16,624 21,960 28,287 46,151 27,838 84,000
Total long-term
debt, less current
installments . . . 1,535 2,172 276 3,245 6,987 8,590 6,572 292
Total shareholders'
equity . . . . . . 6,231 7,787 8,678 9,297 8,277 10,864 10,230 55,892
__________________________
(1) Includes non-cash compensation expense of $949,960 related to the grant of stock options to an executive officer in
1995. See "Information About Sykes--Management--Executive Compensation." Excluding the effect of such expense, income
from operations, income before income taxes and net income in 1995 would have been $5.7 million, $5.0 million, and $2.8
million, respectively, and net income per share would have been $0.17.
(2) Adjusted as if an affiliate of the Company included in the consolidated financial statements, which was an S
corporation for federal income tax purposes, were subject to income taxes for all periods presented, based on the tax
laws in effect during the respective periods. See Note 13 of Notes to the Company's Consolidated Financial Statements.
</TABLE>
<TABLE>
INFO SYSTEMS
Summary Selected Financial Data
(In thousands, except per share data)
<CAPTION>
Six Months Ended
Years Ended June 30, December 31, December 31,
1992 1993 1994 1995 1996 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues . . . . . . . . . $ 13,292 $ 14,527 $ 17,139 $ 28,219 $ 24,455 $ 13,352 $ 14,037
Cost of hardware and
certain software sales . . 692 2,034 5,654 13,865 8,078 4,419 6,442
Salaries, commissions and
related benefits . . . . . 8,650 9,613 8,406 10,244 11,441 6,465 6,149
Selling, general and
administrative . . . . . . 2,700 2,481 2,413 2,966 3,830 1,780 3,184
-------- -------- -------- -------- -------- ------- ---------
Income (loss) from
operations . . . . . . . 1,250 399 666 1,144 1,106 688 (1,738)
Interest and other expense
(income) . . . . . . . . . 1,013 621 (221)(1) 945 687 321 1,318
-------- ------ ------- -------- -------- -------- --------
Income (loss) before
income taxes and
cumulative effect of
accounting change . . . 237 (222) 887 199 419 367 (3,056)
Provision for (benefit of)
income taxes . . . . . . . 103 77 343 90 192 137 (1,222)
-------- ------- ------- -------- ------- -------- ---------
Income (loss) before
cumulative effect of
accounting change . . . 134 (145) 544 109 227 230 (1,834)
Cumulative effect of change
in accounting for income
taxes . . . . . . . . . . -- -- 105 -- -- -- --
------- ------- -------- -------- -------- -------- ---------
Net income (loss) . . . . $ 134 $ (145) $ 649 $ 109 $ 227 $ 230 $ (1,834)
======= ======= ======== ======== ======== ======== =========
Net income (loss) per share $ 0.04 $ (0.05) $ 0.20 $ 0.03 $ 0.07 $ 0.07 $ (0.57)
======= ======= ======== ======== ======== ======== =========
Weighted average shares
outstanding . . . . . . . 3,045 3,190 3,190 3,214 3,176 3,178 3,228
======= ======= ======== ======== ======== ======== =========
<CAPTION>
June 30, December 31,
1992 1993 1994 1995 1996 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficit) . $ 878 $ 6 $ 662 $ 308 $ (309) $ (131) $ 253
Total assets . . . . . . . 4,692 4,280 4,998 7,313 8,351 6,820 9,085
Total long-term debt, less
current installments . . . 291 2,474 2,218 1,308 1,113 946 665
Total stockholders' equity 1,138 (1,735) (623) 417 1,179 910 1,286
======= ======= ======== ======== ======== ======== =========
(1) Includes a $1,000,000 gain for the year ended June 30, 1994 as a result of the asset purchase agreement entered into in
April 1993 with Worldwide Chain Store Systems, a subsidiary of IBM, whereby Info Systems sold certain equipment and
rights related to its automated warehouse business.
</TABLE>
<TABLE>
SYKES & INFO SYSTEMS COMBINED
Pro Forma Summary Selected Combined Financial Data
(In thousands, except share data)
<CAPTION>
Five Months
Years Ended July 31, Ended Year Ended Nine Months Ended
December 31, December 31, October 1, September 29,
1991 1992 1993 1994 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Income
Data:
Revenues . . . . . . $55,499 $60,508 $71,817 $74,252 $ 37,864 $ 97,902 $ 67,293 $ 100,040
Direct salaries and
related costs . . . 32,238 34,959 46,603 47,766 26,520 61,451 42,693 59,736
General and
administrative(1) . 19,861 22,998 23,299 23,909 10,090 31,935 21,408 30,256
-------- -------- ------- -------- ------- ------- ------- -------
Income from
operations . . . . 3,400 2,551 1,915 2,577 1,254 4,516 3,192 10,048
Interest and other
expense . . . . . . 310 206 431 531 355 857 598 123
-------- -------- -------- -------- ------- ------- ------- -------
Income before
income taxes . . . 3,090 2,345 1,484 2,046 899 3,659 2,594 9,925
Provision for income
taxes(2) . . . . . . 1,260 964 925 921 501 1,666 1,133 4,006
-------- -------- ------- -------- -------- -------- ------- --------
Income before
cumulative effect
of accounting
change(2). . . . . 1,830 1,381 559 1,125 398 1,993 1,461 5,919
======== ======= ======= ======== ======= ========= ======== =========
Income per share
before cumulative
effect of accounting
change . . . . . . . $ 0.11 $ 0.08 $ 0.03 $ 0.06 $ 0.02 $ 0.11 $ 0.08 $ 0.30
======== ======= ======= ======== ======= ========= ======== =========
Weighted average
shares outstanding . 17,211 17,456 17,456 17,456 17,456 17,456 17,456 19,763
<CAPTION>
July 31, December 31, October 1, September 29,
1991 1992 1993 1994 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital . . . $ 5,812 $ 7,172 $ 4,733 $ 5,202 $ 6,086 $ 987 $ 7,133 $ 35,343
Total assets . . . . 16,557 22,310 20,978 28,182 36,148 52,971 34,036 92,850
Total long-term debt,
less current
installments . . . . 1,834 2,463 2,940 5,545 8,919 9,584 7,760 1,248
Total shareholders'
equity . . . . . . . 7,174 8,948 6,984 8,977 8,740 11,774 10,987 56,976
__________________________
(1) Includes non-cash compensation expense of $949,960 related to the grant of stock options to an executive officer in
1995. See "Information About Sykes--Management--Executive Compensation." Excluding the effect of such expense, income
from operations, income before income taxes and net income in 1995 would have been $4.0 million, $4.6 million and $2.6
million, respectively, and net income per share would have been $0.15.
(2) Adjusted as if an affiliate of the Company included in the consolidated financial statements, which was an S
corporation for federal income tax purposes, were subject to income taxes for all periods presented, based on the tax
laws in effect during the respective periods. See Note 13 of Notes to the Company's Consolidated Financial Statements.
</TABLE>
RISK FACTORS
In addition to the other information contained in this Proxy
Statement/Prospectus, holders of Info Systems Common Stock should consider
carefully the following risk factors in evaluating the Merger. This Proxy
Statement/Prospectus contains certain forward-looking statements that
involve risks and uncertainties. Future events and actual results could
differ materially from the results reflected in these forward-looking
statements, as a result of the factors set forth below and elsewhere in
this Proxy Statement/Prospectus.
Dependence on Key Customers
Approximately 34%, 29%, 16% and 12% of Sykes' revenues in 1993, 1994,
1995 and the nine months ended September 30, 1996, respectively, were
attributable to IBM. During the first quarter of 1996, IBM instituted a
policy that certain information technology services be provided through
designated national vendors. Sykes has entered into an agreement with
such a vendor, Decision Consultants, Inc., under which certain services,
previously provided directly to IBM, are being provided indirectly to IBM
through this vendor. Although Sykes believes its relationship with IBM
will not be affected by the change in the method of providing its services
to IBM, there can be no assurance that Sykes will continue to provide such
services. In addition, 17% of Sykes' revenues in 1995 and 14% in the
first nine months of 1996 were attributable to Apple, which became a
customer during 1994. Sykes' largest ten customers accounted for
approximately 70% and 68% of Sykes' revenues in 1995 and the nine months
ended September 30, 1996, respectively. Generally, Sykes' contracts are
cancelable by each customer at any time or on short-term notice, and
customers may unilaterally reduce their use of Sykes' services under such
contracts without penalty. Sykes' loss of (or the failure to retain a
significant amount of business with) any of its key customers could have a
material adverse effect on it. See "Information About Sykes--Customers".
Ability to Manage Growth
Sykes has rapidly expanded its operations since it began providing
information technology support services through its IT call centers in
1993 and anticipates continued growth to be driven by industry trends
toward outsourcing of such services. This expansion has placed
significant demands on its operational, administrative and financial
resources. The continued growth of Sykes' customer base and expansion of
the scope of services offered by it can be expected to continue to place a
significant strain on its resources. These resources could be further
strained from the opening of new IT call centers and the necessity to
successfully attract and retain qualified management personnel to manage
the growth and operations of Sykes' business. There can be no assurance
that Sykes will have sufficient resources or otherwise be able to maintain
its historic rate of growth or to maintain the quality of its services.
See "Sykes--Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Information About Sykes--Management".
Recent Acquisitions and Implementation of Acquisition Strategy
Sykes has recently completed two acquisitions (excluding the proposed
Merger) and intends to pursue other acquisitions. There can be no
assurance that it will be able to successfully integrate the operations
and management of recent acquisitions. Similarly, there can be no
assurance that it will be able to consummate or, if consummated,
successfully integrate, the operations and management acquired in the
acquisition of Info Systems and future acquisitions. Acquisitions involve
significant risks which could have a material adverse effect on Sykes,
including: (i) the diversion of management's attention to the assimilation
of the businesses to be acquired; (ii) the risk that the acquired
businesses will fail to maintain the quality of services that Sykes has
historically provided; (iii) the need to implement financial and other
systems and add management resources; (iv) the risk that key employees of
the acquired business will leave after the acquisition; (v) potential
liabilities of the acquired business; (vi) unforeseen difficulties in the
acquired operations; (vii) adverse short-term effects on Sykes' operating
results; (viii) lack of success in assimilating or integrating the
operations of acquired businesses with those of Sykes; (ix) the dilutive
effect of the issuance of additional equity securities; (x) the incurrence
of additional debt; and (xi) the amortization of goodwill and other
intangible assets involved in any acquisitions that are accounted for
using the purchase method of accounting. There can be no assurance that
Sykes will successfully implement its acquisition strategy. Furthermore,
there can be no assurance any acquisition will achieve levels of revenue
and profitability or otherwise perform as expected, or be consummated on
acceptable terms to enhance shareholder value. Currently, Sykes has no
arrangements or understandings with any party with respect to any material
future acquisition. Sykes, however, continues to monitor acquisition
opportunities. See "Information About Sykes."
Rapid Technological Change
The market for information technology services is characterized by rapid
technological advances, frequent new product introductions and
enhancements, and changes in customer requirements. Sykes' future success
will depend in large part on its ability to service new products,
platforms and rapidly changing technology. These factors will require
Sykes to provide adequately trained personnel to address the increasingly
sophisticated, complex and evolving needs of its customers. Its ability
to capitalize on its acquisition of Info Systems will depend on its
ability to (i) continually enhance Info Systems' software and services and
(ii) adapt such software to new hardware and operating system
requirements. Any failure by Sykes to anticipate or respond rapidly to
technological advances, new products and enhancements, or changes in
customer requirements could have a material adverse effect on it. See
"Information About Sykes--Industry Background" and "--Operations."
Dependence on Qualified Personnel
Sykes' business is labor intensive and places significant importance on
its ability to recruit and retain qualified technical and professional
personnel. It generally experiences high turnover of its personnel and is
continuously required to recruit and train replacement personnel as a
result of a changing and expanding work force. Additionally, demand for
qualified professionals conversant with certain technologies is intense
and may outstrip supply as new and additional skills are required to keep
pace with evolving computer technology. There can be no assurance that
Sykes will be successful in attracting and retaining the personnel it
requires to conduct its operations successfully. Failure to attract and
retain such personnel could have a material adverse effect on Sykes. See
"Information About Sykes--Employees."
Reliance on Technology and Computer Systems
Sykes has invested significantly in sophisticated and specialized
telecommunications and computer technology, and has focused on the
application of this technology to meet its clients' needs. It anticipates
that it will be necessary to continue to invest in and develop new and
enhanced technology on a timely basis to maintain its competitiveness.
Significant capital expenditures may be required to keep its technology
up-to-date. Investments in technology, including Info Systems software
and future investments in upgrades and enhancements to such software, may
not necessarily maintain Sykes' competitiveness. Sykes' future success
will also depend in part on its ability to anticipate and develop
information technology solutions which keep pace with evolving industry
standards and changing client demands. In addition, Sykes' business is
highly dependent on its computer and telephone equipment and software
systems, and the temporary or permanent loss of such equipment or systems,
through casualty, operating malfunction or otherwise, could have a
material adverse effect on it. See "Information About Sykes--Operations"
and "Sykes--Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Dependence on Trend Toward Outsourcing
Sykes' business and growth depend in large part on the industry trend
toward outsourcing information technology services. There can be no
assurance that this trend will continue, as organizations may elect to
perform such services in-house. A significant change in the direction of
this trend could have a material adverse effect on Sykes. See
"Information About Sykes--Industry Background."
Risk of Emergency Interruption of IT Call Center Operations
Sykes' operations are dependent upon its ability to protect its IT call
centers and its information databases against damages that may be caused
by fire, power failure, telecommunications failures, unauthorized
intrusion, computer viruses and other emergencies. Sykes has taken
precautions to protect itself and its customers from events that could
interrupt delivery of its services. These precautions include off-site
storage of backup data, fire protection and physical security systems,
rerouting of telephone calls to one or more of its other IT call centers
in the event of an emergency, backup power generators and a disaster
recovery plan. Sykes also maintains business interruption insurance in
amounts it considers adequate. Notwithstanding such precautions, there
can be no assurance that a fire, natural disaster, human error, equipment
malfunction or inadequacy, or other event would not result in a prolonged
interruption in Sykes' ability to provide support services to its
customers. Such an event could have a material adverse effect on Sykes.
See "Information About Sykes--Operations."
Risk Associated with International Operations and Expansion
Sykes' acquisition of Datasvar Support AB, Sweden, has substantially
increased its European operations. Sykes now has two IT call centers in
Sweden in addition to its IT call center in Amsterdam and has customers in
a majority of European countries. Revenues from foreign operations for
the year ended December 31, 1995 and the nine months ended September 30,
1996 were 10.9% and 9.0% of consolidated revenues, respectively. Sykes
intends to continue its international expansion. There are a number of
risks inherent in conducting international business, including exposure to
currency fluctuations, longer payment cycles, political uncertainties,
foreign exchange restrictions that could limit the repatriation of
earnings, possible greater difficulties in accounts receivable collection
and potentially adverse tax consequences. There can be no assurance that
one or more of such factors or other factors relating to international
operations will not have a material adverse effect on Sykes' business,
results of operations or financial condition. See Note 11 to Sykes
Consolidated Financial Statements.
Competition
The industry in which Sykes competes is extremely competitive and highly
fragmented. While many companies provide information technology services,
Sykes believes no one company is dominant. There are numerous and varied
providers of such services, including firms specializing in call center
operations, temporary staffing and personnel placement companies, general
management consulting firms, divisions of large hardware and software
companies and niche providers of information technology services, many of
whom compete in only certain markets. Sykes' competitors include many
companies who may possess substantially greater resources, greater name
recognition and a more established customer base than it does. In
addition, the services offered by Sykes historically have been provided by
in-house personnel. There can be no assurance that Sykes will be able to
compete successfully against existing or potential new competitors as the
industry continues to evolve.
Many of Sykes' large customers purchase information technology services
primarily from a limited number of preferred vendors. Sykes has
experienced and continues to anticipate significant pricing pressure from
these customers in order to remain a preferred vendor. These companies
also require vendors to be able to provide services in multiple locations.
Although Sykes believes it can effectively meet its customers' demands,
there can be no assurance that it will be able to compete effectively with
other information technology service companies. See "Information About
Sykes--Competition."
Dependence on Senior Management
The success of Sykes is largely dependent upon the efforts, direction
and guidance of its senior management. Although it has entered into
employment and noncompetition agreements with its executive officers, its
continued growth and success also depends in part on its ability to
attract and retain qualified managers, and on the ability of its executive
officers and key employees to manage its operations successfully. The
loss of any of Sykes' senior management or key personnel, and in
particular John H. Sykes, Chairman of the Board, President and Chief
Executive Officer, or its inability to attract and retain key management
personnel in the future, could have a material adverse effect on it. See
"Information About Sykes--Management."
Control by Principal Shareholder; Anti-Takeover Considerations
John H. Sykes beneficially owns approximately 57.1% of the outstanding
Sykes Common Stock. After the merger, Mr. Sykes will beneficially own
55.6% of the outstanding Sykes Common Stock. As a result, Mr. Sykes will
be able to elect Sykes' directors and determine the outcome of other
matters requiring shareholder approval. The voting power of Mr. Sykes,
together with the staggered Board of Directors and the anti-takeover
effects of certain provisions contained in both the Florida Business
Corporation Act and in Sykes' Articles of Incorporation and Bylaws
(including, without limitation, the ability of the Board of Directors to
issue shares of Preferred Stock and to fix the rights and preferences
thereof), may have the effect of delaying, deferring or preventing an
unsolicited change in the control of Sykes, which may adversely affect the
market price of the Common Stock or the ability of shareholders to
participate in a transaction in which they might otherwise receive a
premium for their shares. See "Information About Sykes--Management," and
"--Principal Shareholders," and "Description of Sykes Capital Stock."
Volatility of Stock Price
The Sykes Common Stock has experienced significant volatility, as well
as a significant increase in market price, since the Company's initial
public offering in April 1996. The market for securities of technology
companies historically has been more volatile than the market for stocks
in general. The trading of the Sykes Common Stock may be subject to wide
fluctuations in response to quarter-to-quarter variations in operating
results, announcement of recent developments or new products by Sykes or
its competitors and other events or factors. In addition, the stock
market has from time to time experienced extreme price and volume
fluctuations that have particularly affected the market price for many
high technology companies and that often have been unrelated to the
operating performance of these companies. These broad market fluctuations
may adversely affect the market price of the Sykes Common Stock. See
"Comparative Market Data."
Restrictions on Transfer Associated with Pooling-of-Interests Method of
Accounting
The Merger of Info Systems into Acquisition Corp. will be accounted for
as a pooling-of-interests. Use of this accounting treatment is dependent,
among other factors, upon the absence of certain transfers or dispositions
of Sykes Common Stock for periods prior to and after consummation of the
Merger. No Director, Officer, Affiliate (10% or more stockholder) of
either Info Systems or Sykes may transfer Sykes Common Stock (or reduce
the risk of holding the same) for a period commencing thirty (30) days
prior to the consummation of the Merger and ending on the date of
publication of the thirty (30) day period of combined operations
subsequent to the Merger.
Similarly, although Directors, Officers and Affiliates (10% or more
shareholders) of both Info Systems and Sykes have agreed not to effect any
transfers which would jeopardize the availability of pooling-of-interests
accounting treatment, there can be no assurance that the agreement will
not be breached.
Sykes has undertaken not to close the Merger without an opinion from
Coopers & Lybrand L.L.P. and KPMG Peat Marwick, LLP that the Merger
qualifies for the pooling-of-interest accounting method.
While both Info Systems and Sykes believe that the combination qualifies
for pooling-of-interests method of accounting treatment, there can be no
assurance that such treatment will be available. If, notwithstanding the
receipt of such opinions, the pooling-of-interests method is not available
with respect to the Merger, the information contained herein regarding the
financial profile of the combined Company would be materially adversely
affected.
Dividend Policy
Sykes has never declared or paid any cash dividends on its Common Stock.
Sykes currently anticipates that all of its earnings will be retained for
development and expansion of the Company's business and does not
anticipate paying any cash dividends in the foreseeable future.
CAPITALIZATION
The following table sets forth the capitalization of Sykes and Info
Systems as of September 29, 1996, and September 30, 1996, respectively, on
a pro forma basis to give effect to the Merger, and pro forma as adjusted
to reflect (i) the issuance and sale of Sykes Common Stock pursuant to a
public offering in November 1996, (ii) the exercise of options to acquire
254,000 shares of Sykes Common Stock immediately prior to such public
offering, (iii) a final contribution to the Info Systems ESOP in December
1996, and (iv) the exercise of options to acquire 200,048 shares of Info
Systems Common Stock and repurchases of 4,266 shares of Info Systems
Common Stock subsequent to September 30, 1996.
<TABLE>
<CAPTION>
Historical Pro Forma
Sykes Info Systems
September 29, September 30, Merger After
1996 1996 Adjustments Merger As Adjusted
(In thousands)
<S> <C> <C> <C> <C> <C>
Notes payable . . . . . . . $ 315 $ 3,737 $ -- $ 4,052 $ 4,052
Current portion of long-term
obligations . . . . . . . 23 2,781 -- 2,804 2,804
--------- ---------- ---------- --------- -----------
$ 292 $ 956 $ -- $ 1,248 $ 1,248
========= ========== ========== ========= ===========
Long-term obligations, less
current portion . . . . . $ 292 $ 956 $ -- $ 1,248 $ 1,248
Shareholders' equity:
Info Systems Common Stock,
$.01 par value, authorized
10,000,000 shares, 3,257,488
issued, and 3,157,959
outstanding before the
Merger at September 30,
1996(a) . . . . . . . . . -- 32 (32) -- --
Sykes Common Stock, $.01 par
value, authorized
50,000,000 shares,
20,026,498 issued and
outstanding before the
Merger at September 29,
1996(a)(c) . . . . . . . . 200 -- 7 207 226
Additional paid-in capital 45,965 827 25 46,817 119,088
Retained earnings . . . . . 9,660 1,230 -- 10,890 10,337
Unearned ESOP contribution
(b) . . . . . . . . . . . -- (1,005) -- (1,005) --
Accumulated foreign currency
translation adjustments . 67 -- -- 67 67
--------- --------- -------- -------- ---------
Total shareholders' equity 55,892 1,084 -- 56,976 129,718
--------- ---------- --------- -------- ---------
Total capitalization . . . $ 56,184 $ 2,040 $ -- $ 58,224 $ 130,966
========= ========== ========= ======== ========
</TABLE>
(a) The capitalization table assumes an applicable conversion price of
$34.00 for Sykes Common Stock that, at the Effective Time, each
share of Info Systems Common Stock will be canceled and retired and
will be converted into the right to receive approximately .202
shares of Sykes Common Stock. See "The Merger Agreement--Manner and
Basis of Converting Shares."
(b) The unearned ESOP contribution represents the amount of Info
Systems' contributions not yet made to repay the ESOP loans. The
total contribution will be made prior to the Merger.
(c) The capitalization table further assumes the issuance and sale of
1,613,320 shares of Sykes Common Stock at $46 per share pursuant to
a public offering in November 1996 and also assumes both the
exercise of options to acquire 254,000 shares of Sykes Common Stock
at $4.53 per share immediately prior to such public offering and the
charge against income of Info Systems of approximately $2.6 million.
COMPARATIVE SHARE VALUE DATA
Sykes Common Stock
Sykes Common Stock has been quoted on the Nasdaq National Market under
the symbol SYKE since Sykes' initial public offering in April 1996. The
following table sets forth certain information as to the high and low sale
prices per share of Sykes Common Stock as quoted on the Nasdaq National
Market. Sykes' fiscal year ends on December 31st of each year. On
December 18, 1996, the last full trading day prior to the public
announcement that an agreement in principle with respect to the Merger had
been reached by the parties, the closing sale price per share of Sykes
Common Stock, as quoted on the Nasdaq National Market, was $40.25. On
January 9, 1997, the last full trading day prior to the execution of the
Merger Agreement, the closing price per share of Sykes Common Stock, as
quoted on the Nasdaq National Market, was $33.88. On March 12, 1997, the
latest practicable date prior to the date of this Proxy Statement/Prospectus,
the closing price per share of Sykes Common Stock, as quoted on the Nasdaq
National Market, was $34.00. Sykes has not paid any dividends on shares of
its Common Stock and does not anticipate paying any dividends in the
foreseeable future. SHAREHOLDERS ARE URGED TO OBTAIN CURRENT PRICE
QUOTATIONS FOR SYKES COMMON STOCK.
Year Ending Sales Price
December 31 High Low
1996
First Quarter N/A N/A
Second Quarter* $36 1/8 $20 1/2
(commencing April 30)
Third Quarter 48 3/4 25 1/8
Fourth Quarter 53 1/8 35 1/2
1997
First Quarter (through March 12,
1997) $ 41 1/2 $ 33 1/2
* as adjusted for a 3-for-2 stock split effected on July 28, 1996
Info Systems Common Stock
Due to the lack of trading activity of Info Systems Common Stock, the
amount used for the market values of Info Systems Common Stock on December
18, 1996 and all subsequent dates in the following table is the book value
of Info Systems Common Stock as of September 30, 1996. Market prices or
quotations for Info Systems Common Stock are unavailable. Book value may
not bear any relation to the actual market value on such date or any
subsequent date.
Date: Book Value Per Share
December 18, 1996 $0.34
January 9, 1997 $0.34
March 12, 1997 $0.34
THE SPECIAL MEETING
Time, Date, Place and Purpose of Special Meeting
This Proxy Statement/Prospectus is first being mailed to the holders
of Info Systems Common Stock on or about March 17, 1997 in connection
with the solicitation of proxies by the Board of Directors of Info Systems
for use at the Info Systems Special Meeting to be held on March 28, 1997
at Info Systems' executive offices located at 7500 East Independence
Boulevard, Charlotte, North Carolina, commencing at 8:00 a.m., and at any
adjournments or postponements thereof, for the purpose of approving and
adopting the Merger as required under the NCBCA.
Board of Directors Recommendation. The directors of Info Systems
have unanimously approved the Merger and have unanimously recommended a
vote FOR approval of the Merger by the holders of Info Systems Common
Stock.
Voting at Special Meeting; Record Date
The Board of Directors of Info Systems has fixed January 31, 1997, as
the record date for the determination of shareholders entitled to notice
of and to vote at the Special Meeting. Only holders of record of Info
Systems Common Stock at the close of business on such date are entitled to
vote at the Special Meeting. On January 31, 1997, Info Systems had
outstanding and entitled to vote 3,353,741 shares of Info Systems Common
Stock, each of which is entitled to one vote per share. On such date,
there were approximately 134 holders, of record, including the ESOP, of
Info Systems Common Stock.
The approval by Info Systems shareholders of the Merger will require
the affirmative vote of the holders of a majority of the outstanding
shares of Info Systems Common Stock. Any shares of Info Systems Common
Stock not voted at the Special Meeting, whether due to abstentions, broker
non-votes or otherwise, will have the effect of a vote against the Merger.
As of March 12, 1997, directors and executive officers of Info
Systems and their affiliates beneficially owned approximately 18.16% of
the outstanding shares of Info Systems Common Stock (including shares
allocated to them as ESOP participants with respect to which they may
direct the vote on the Merger). Each of such directors and executive
officers has advised Info Systems that he intends to vote or direct the
vote of all shares of Info Systems Common Stock over which he has voting
control for approval of the Merger. Executive officers William J. Gaughan
and James J. Kenney have each granted Sykes an irrevocable proxy to vote
their shares of Info Systems Common Stock, which total approximately
16.28% of the outstanding shares of Info Systems (including shares
allocated to them as ESOP participants with respect to which they may
direct the vote on the Merger), in favor of the Merger.
As of the date hereof, Sykes owns no shares of Info Systems Common
Stock.
Proxies
Shares of Info Systems Common Stock represented by proxies received
by Info Systems prior to or at the Special Meeting will be voted in
accordance with the instructions contained therein. Shares of Info
Systems Common Stock represented by proxies for which no instruction is
given will be voted FOR approval of the Merger.
To insure that their shares are voted, holders of Info Systems Common
Stock are requested to complete, sign, date and return promptly the
enclosed proxy card in the postage paid envelope provided for this
purpose. A proxy may be revoked at any time prior to the exercise of the
authority granted thereunder. Revocation may be accomplished by the
granting of a later proxy with respect to the same shares or by giving
notice thereof to Info Systems in writing or at an open meeting. Presence
at the Special Meeting of a shareholder who signed a proxy does not in
itself revoke the proxy.
The Board of Directors of Info Systems knows of no matters to be
presented at the Special Meeting other than that described in this Proxy
Statement/Prospectus. If other matters are properly brought before the
Special Meeting, it is the intention of the persons named in the proxies
to vote the shares to which such proxies relate in accordance with their
best judgment.
Solicitation of Proxies
Info Systems will bear the cost of the solicitation of proxies from
its shareholders. In addition to solicitation by mail, officers and
regular employees of Info Systems, who will receive no compensation in
excess of their regular salaries for their services, may solicit proxies
from Info Systems shareholders by telephone, telegram or otherwise. Info
Systems will also reimburse brokers and other nominees for their
reasonable expenses in communicating with the persons for whom they hold
Info Systems Common Stock.
Voting of ESOP Shares
With respect to the Merger, the ESOP permits participants to direct
the ESOP trustees as to the manner in which to vote the shares of Info
Systems' Common Stock attributable to the participants' accounts. With
respect to shares for which no direction from participants is received and
with respect to shares still subject to the ESOP loans, the trustees have
agreed to vote in favor of the Merger, subject only to receipt of a
fairness opinion.
SPECIAL FACTORS
Background of the Merger
In the latter half of 1992, a member of Info Systems' outside
accounting firm introduced John Sykes, Chairman of the Board of Directors
of Sykes, to William Gaughan, Chairman of the Board of Directors of Info
Systems. The purpose of this introduction was to allow Mr. Sykes, on
behalf of Sykes, to explore the possibility of purchasing Info Systems.
Mr. Gaughan permitted representatives of Sykes to examine Info Systems'
business, and Sykes eventually offered to purchase Info Systems for
approximately $3 million. Mr. Gaughan believed that this offer did not
reflect Info Systems' full value and rejected the offer. Mr. Gaughan and
Mr. Sykes remained in contact with each other after the initial purchase
proposal and became personal friends. In early 1995, at Mr. Gaughan's
invitation, Mr. Sykes agreed to serve on Info Systems' Board of Directors.
At an Info Systems' Board of Directors meeting in the summer of 1995,
the Board discussed long-range strategic options for the company and
concluded that Info Systems should begin to position itself to undertake
an initial public offering of its capital stock. Mr. Sykes privately
asked Mr. Gaughan to keep Sykes in mind as a potential purchaser as long
as Info Systems was considering its long-range options. Over the next
twelve months, the Board discussed long-range strategic options on a
number of occasions. In March 1996, Info Systems contacted a number of
investment banking firms to explore the possibility of obtaining
financing. At that time, Mr. Sykes reiterated Sykes' interest in
acquiring Info Systems. The possibility of a business combination with
Sykes was discussed at Info Systems' Board of Director meetings held on
May 4, 1996, and July 26, 1996. Although Mr. Sykes was present during the
foregoing meetings in which the potential of a business combination was
discussed, Mr. Sykes did not participate in such discussions.
With the approval of the Info Systems' Board of Directors, Info
Systems obtained an appraisal of the value of Info Systems from an
investment banking firm in September 1996. The valuation received by Info
Systems from its investment banking firm, Interstate/Johnson Lane Corpora-
tion ("Interstate/Johnson Lane"), which reported the value of Info Systems
to be between $20 million and $25 million, was considered acceptable to
the Board. In September 1996, Mr. Gaughan, James Kenney, Info Systems'
Chief Financial Officer, and representatives from Interstate/Johnson Lane
traveled to Sykes headquarters in Tampa, Florida to discuss with Sykes'
officers and investment banking representatives the possible acquisition
of Info Systems by Sykes. During the course of those discussions, Mr.
Gaughan suggested that the purchase price would have to be at least $23
million, plus the assumption of debt, and Mr. Sykes indicated that a deal
might be possible on those terms if Info Systems could meet certain net
profit levels.
After making what they understood to be the profit calculations Sykes
had requested, Messrs. Gaughan and Kenney concluded that Info Systems
could not meet those net profit numbers in the near term. Mr. Gaughan
thus informed the Info Systems Board of Directors, by letter dated
September 20, 1996, that no transaction between Info Systems and Sykes
could be concluded at that time. This conclusion was reiterated in a
second letter from Mr. Gaughan to the Info Systems Board of Directors
dated October 25, 1996.
Shortly thereafter, in late October or early November 1996, Mr. Sykes
contacted Messrs. Gaughan and Kenney to explain that they had
misunderstood Sykes' net profit requirement. Mr. Sykes and Sykes' Chief
Financial Officer, Scott Bendert, then traveled to Info Systems' offices
in Charlotte to review the calculations with Messrs. Gaughan and Kenney.
After a day-long meeting on November 22, the four concluded that Info
Systems could in fact meet Sykes' stated net profit requirement. Mr.
Sykes then advanced a proposal, on behalf of Sykes, to purchase Info
Systems for $23 million. Mr. Sykes also sent to Info Systems his letter
of resignation as a member of the Board of Directors of Info Systems.
On December 4, 1996, Sykes forwarded to Info Systems a proposed
letter of intent outlining the proposed transaction. On December 10,
1996, Mr. Gaughan and Mr. Sykes negotiated and signed the letter of intent
at a meeting in Charlotte, North Carolina. At a special meeting of the
Info Systems Board of Directors held on December 11, 1996, the Board
reviewed the terms of the proposed transaction and ratified the execution
by Info Systems of the letter of intent. Following execution of the
letter of intent, the parties proceeded to complete their due diligence
and negotiate a definitive agreement.
The Board of Directors of Sykes authorized the execution and delivery
of the Merger Agreement by Sykes and Acquisition Corp. on December 19,
1996. The Info Systems Board of Directors then met on January 7, 1997 to
consider the approval of the Merger Agreement that had been negotiated by
the parties. At the conclusion of the meeting on January 7, 1997, the
Info Systems Board unanimously authorized the execution and delivery of
the Merger Agreement and the consummation of the Merger. Trustees of the
ESOP were not involved, in their capacity as Trustees, in the negotiation
of the Merger. However, Messrs. Gaughan, Kenney, Ruff and McMillan, who
serve both as ESOP Trustees and as directors of Info Systems, participated
in the consideration of the Merger Agreement by the Info Systems Board.
In addition, Messrs. Gaughan and Kenney negotiated the Merger Agreement
on behalf of the Company. The Merger Agreement was executed by Info
Systems and Sykes on January 10, 1997.
Financial Advisor to Info Systems and the ESOP Trustees
Interstate/Johnson was retained by Info Systems on July 16, 1996 to
act as its financial advisor for the purpose of valuing Info Systems in
connection with the negotiation of a possible business combination with
Sykes. Pursuant to that engagement, after completing its analysis of the
company, Interstate/Johnson Lane advised Info Systems in September 1996
that the value of Info Systems was between approximately $20 and $25
million. At a meeting of the Info Systems Board of Directors on January 7,
1997, Interstate/Johnson Lane presented its analysis of the value of Info
Systems to the Board.
Interstate/Johnson Lane was also retained by the Trustees of the Info
Systems' ESOP to act as the Trustee's financial advisor in connection
with the proposed Merger. In particular, the Trustees retained
Interstate/Johnson Lane to determine whether the $23 million in stock
offered by Sykes as consideration in the Merger is fair, from a financial
point of view, to the ESOP participants. It is anticipated that
Interstate/Johnson Lane will deliver, just prior to the mailing of the
proxy materials to the ESOP participants, a written opinion that the
consideration is fair, from a financial point of view, to the ESOP
participants.
Info Systems did not retain an independent financial advisor to
provide an opinion that the consideration to be received in the Merger is
fair, from a financial point of view, to its shareholders. Based on the
collective business experience of the Info Systems directors, as well as
the substantial cost required to obtain such an opinion, the Board of
Directors of Info Systems chose not to obtain an independent "fairness
opinion" for the Info Systems shareholders. Furthermore, the Info Systems
shareholders were not represented by an independent financial advisor in
connection with the negotiation of the Merger Agreement.
Interstate/Johnson Lane is a nationally recognized investment banking
firm selected by Info Systems and the ESOP Trustees to advise them because
of the firm's reputation and experience in investment banking in general.
Info Systems reviewed the credentials of various investment banking
candidates and interviewed over a lengthy period of time some of those
candidates. Based on the results of their review of the credentials and
the interviews, Info Systems selected Interstate/Johnson Lane as its
financial advisor. Interstate/Johnson Lane, as part of its investment
banking business, is engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
and private placements and valuations for estate, corporate and other
purposes.
Interstate/Johnson Lane does not have a material financial interest
in Info Systems or Sykes. Mr. Edward Ruff, who is Senior Managing
Director, Chief Financial Officer and a Director of Interstate/Johnson
Lane, has been a director of Info Systems since September 1989 and has
been an ESOP Trustee since June 1992. Mr. Ruff receives $6,000 for
each year he serves as a director of Info Systems, $500 for each
directors' meeting, and options to purchase 10,000 shares of Info Systems
Common Stock pursuant to Info Systems' Director Stock Option Plan for each
fiscal year he serves as a director. As of the date of this Proxy
Statement/Prospectus, Mr. Ruff owned 30,000 shares of Info Systems
Common Stock. Mr. Ruff holds no options to acquire additional shares
of Info Systems Common Stock. In addition to the relationships
described above, Interstate/Johnson Lane was retained by Info Systems in
September 1996 (when the Info Systems Board did not believe a transaction
with Sykes was possible) to act as its exclusive financial advisor in
evaluating and consummating the possible sale of Info Systems.
Interstate/Johnson Lane has not had any other relationship with Info
Systems or Sykes within the last two years. No instructions were given
to, or limitations imposed upon, Interstate/Johnson Lane by the Info
Systems' Board of Directors or the ESOP Trustees regarding the scope of
its investigations or the procedures to be followed.
In connection with its appraisal of the value of Info Systems,
Interstate/Johnson Lane has done the following, among other things: (i)
met with officers and certain members of the management of Info Systems to
discuss Info Systems' business, financial condition, operating results and
future prospects; (ii) reviewed annual audited financial statements and
interim unaudited financial statements of Info Systems; (iii) performed an
analysis of public companies comparable in business to Info Systems; (iv)
performed an analysis of completed merger and acquisition transactions
including companies comparable in business to Info Systems; (v) reviewed
projected financial statements through 2001 for Info Systems as prepared
by Info Systems' management and performed a discounted cash flow analysis
based on these projections; and (vi) made such other financial studies,
analyses, and investigations with respect to Info Systems as it deemed
appropriate. In connection with rendering its fairness opinion to the
ESOP Trustees, it is anticipated that Interstate/Johnson Lane will
consider the same matters and will also review the executed Merger
Agreement.
In performing the comparable company analysis with respect to Info
Systems, Interstate/Johnson Lane identified nine publicly-held companies
similar to Info Systems in terms of business description and analyzed,
among other things, the operating results, growth rates, margin analysis,
capitalization, stock performance, and earnings estimates of those companies
in an attempt to determine how the public equity market would value Info
Systems. Interstate/Johnson Lane based its evaluation on a multiple
analysis in which it determined the average estimated price/earnings
multiples for the comparable companies over their next two fiscal years
and applied them to Info Systems' estimated earnings for the fiscal years
ending June 30, 1997 and June 30, 1998. They also adjusted the valuation
to reflect a 10% private company discount.
Interstate/Johnson Lane identified 17 acquisitions of companies
comparable to Info Systems in terms of business description and determined
the average multiples on these acquisitions on a latest 12 month price-to-
sales, price-to-EBIT, and price-to-net income multiple basis. Interstate/
Johnson Lane applied these multiples to Info Systems corresponding latest
12 month operating results in an attempt to value Info Systems on an
acquisition basis. Interstate/Johnson Lane adjusted the valuation to
reflect a 10% private company discount on the multiples paid to public
companies. Interstate/Johnson Lane also performed a discounted cash flow
analysis using Info Systems' five-year projected operating cash flows.
They applied terminal value multiples (based on the acquisition multiples
described above) to the last year of cash flow and discounted the series
of cash flows at various discount rates.
It is also anticipated that Interstate/Johnson Lane, in connection
with the delivery of its fairness opinion, will have done the following
with respect to Sykes, among other things: (i) met with officers and
certain members of the management of Sykes to discuss Sykes' business,
financial condition, operating results and future prospects; (ii) reviewed
annual audited financial statements and interim unaudited financial
statements for Sykes; (iii) reviewed various published research reports
for Sykes; (iv) reviewed publicly available information including recent
Securities and Exchange Commission filings for Sykes; (v) performed an
analysis of public companies comparable in business to Sykes; (vi)
analyzed the effect on estimated earnings to Sykes' shareholders resulting
from completion of the Merger; (vii) reviewed historical market price and
volume data for the common stock of Sykes on a stand-alone basis and in
comparison to both stock market indices and public companies comparable in
business to Sykes; and (viii) made such other financial studies, analyses,
and investigations with respect to Sykes as it deemed appropriate.
In performing the comparable company analysis with respect to Sykes,
Interstate/Johnson Lane identified eight publicly-held companies similar to
Sykes in terms of business description and analyzed, among other things,
the operating results, growth rates, margin analysis, capitalization, stock
performance, earnings estimates, and stock price multiples of those
companies in an attempt to determine a relative valuation. The most
significant aspect of this analysis was the comparison of Sykes' stock
price multiples to the stock price multiples of the comparable companies.
In addition, Interstate/Johnson Lane analyzed the projected operating
results of Sykes combined with the projected operating results for Info
Systems for the 12 month period ended June 30, 1997, to estimate the
potential accretive nature of the Merger on a pooling-of-interest basis.
In connection with the valuation of Info Systems and its fairness
opinion to the ESOP Trustees, Interstate/Johnson Lane has and will rely
without independent verification upon the accuracy and completeness of all
the financial and other information furnished or conveyed to it by or on
behalf of Info Systems and Sykes. Interstate/Johnson Lane has assumed and
will assume that all projections and financial forecasts were reasonable
and prepared in accordance with accepted practice on bases reflecting the
best currently available estimates and good faith judgment of Info
Systems' and Sykes' management. In addition, Interstate/Johnson Lane has
not and will not have made or obtained any independent evaluations or
appraisals of the assets or liabilities (contingent or otherwise) of Info
Systems, or been furnished with any such evaluation or appraisal.
Further, Interstate/Johnson Lane has not and will not express any opinion
about the range of prices in which Sykes' Common Stock will trade after
the Merger.
Interstate/Johnson Lane's opinion to the ESOP Trustees that the
consideration to be received in the Merger is fair from a financial point
of view to the ESOP participants will be distributed to the ESOP participants
with Info Systems' proxy materials relating to the Merger. As previously
disclosed in this Proxy Statement/Prospectus, Interstate/Johnson Lane was
engaged by the ESOP Trustees to deliver a fairness opinion with respect to
the Merger solely for the benefit of the ESOP participants. Info Systems
did not engage Interstate/Johnson Lane or any other financial advisor to
deliver a fairness opinion with respect to the Merger for the benefit of
the Info Systems Board of Directors or the Info Systems sharesholders.
Consequently, because Interstate/Johnson Lane was retained to deliver a
fairness opinion solely for the benefit of the ESOP participants, the
opinion, by its terms, will (i) be directed to the ESOP Trustees solely for
the benefit of the ESOP participants and (ii) disclaim any conferral of
rights or remedies upon any Info Systems shareholders who are not ESOP
participants or any other person or entity. Although the foregoing
limitations are intended to prohibit persons other than ESOP participants
from relying on the opinion rendered by Interstate/Johnson Lane, it is
uncertain whether such restrictions are enforceable under applicable state
law. As such, the enforceability of such limitations would be determined
by a court of competent jurisdiction. Resolution of the question of the
availability of such a defense will have no effect on the rights and
responsibilities of the Board of Directors of Info Systems under applicable
state law. The availability of such a state law defense to Interstate/
Johnson Lane would have no effect on the rights and responsibilities of
either Interstate/Johnson Lane or the Info Systems' Board of Directors
under the federal securities laws.
Reasons for the Merger-Info Systems; Recommendation of the Info Systems
Board of Directors
The Board of Directors of Info Systems has unanimously approved the
Merger Agreement and the transactions contemplated thereby and has
determined that such transactions are in the best interests of Info
Systems shareholders. The Board of Directors of Info Systems unanimously
recommends that shareholders vote FOR approval of the Merger.
In approving the Merger, the Info Systems Board of Directors
considered Info Systems' need for a strong financial partner to permit
Info Systems to maintain its competitive presence in the industries in
which it competes. Further, as others in the industry have considerably
greater financial resources than Info Systems, it is possible that one or
more of its competitors could impinge on Info Systems's existing customer
base.
In addition to the factors discussed above, the Info Systems Board of
Directors considered in connection with the Merger, among other matters,
the factors listed below:
(a) Although Info Systems has been considering a business
partner, a strategic acquisition and/or other merger
possibilities over the last several years, the synergy presented
by a transaction with Sykes and the terms thereof represented an
offer fair from a financial point of view to the shareholders of
Info Systems and consistent with the business and growth
strategies of Info Systems;
(b) The ability to expand the market served by gaining
access to additional technology;
(c) The financial condition, results of operations,
capital needs and availability, the quality of the business
operations, products and services and the future prospects of
both Info Systems and Sykes, standing alone and on a combined
basis;
(d) The anticipated costs savings which might be effected
by reason of consolidations in certain areas of administration
and operations following the Merger;
(e) The general structure of the transaction, the apparent
similar cultures of both corporations, the apparent
compatibility of the senior management personnel of Info Systems
and Sykes and the business philosophy of both corporations;
(f) The ability of Sykes IT call centers to support Info
Systems' software products;
(g) The ability to utilize the established infrastructure of
Sykes to expand geographic operations in the United States and
internationally;
(h) The tax-free nature of the Merger;
(i) The advice of Info Systems' financial advisor,
Interstate/Johnson Lane, with respect to the value of Info Systems;
(j) The opportunity for holders of Info Systems Common Stock to
receive, in exchange for their shares, shares of Sykes Common Stock
that will permit holders of Info Systems Common Stock to continue
their ownership in the combined and larger entity;
(k) The opportunity of holders of Info Systems Common Stock to
receive, in exchange for shares for which there is no public market,
shares that are traded on the Nasdaq National Market;
(l) The volatility of the market price of Sykes Common Stock and
the risk that the market price will decline following the Merger;
(m) The possibility that, by valuing Info Systems for purposes
of the Merger at an early stage of its growth cycle, the value of Info
Systems had been underestimated; and
(n) The consequence that consummation of the Merger would
preclude Info Systems from pursuing growth as an independent company
or conducting an initial public offering of Info Systems Common Stock.
In reaching its decision, the Board of Directors of Info Systems did
not assign any relative weight to the various factors identified above,
but instead considered them in their totality.
Reasons for the Merger-Sykes
The Board of Directors of Sykes believes that consummation of the
Merger is in the best interests of Sykes and its shareholders. The Sykes
Board of Directors believes that the acquisition of Info Systems will
enable Sykes (i) to enter additional markets, specifically the retail and
manufacturing segments, (ii) to capture market share from the continually
expanding market for information technology services, and (iii) to
increase the technical expertise that Sykes provides and additionally will
be able to provide in the future pursuant to the Merger. The Board of
Directors of Sykes believes that a number of market sectors will
experience a significant increase in the levels of information technology
services required on a going forward basis due to, among other things,
rapid changes in technology. Organizations in these sectors will be
unable to provide the expertise necessary with their in-house personnel.
As a matter of necessity, they will either choose or be forced to
outsource these requirements to firms like Sykes that have technological
proficiency across numerous service lines. In addition, the Board of
Directors believes the Merger positions Sykes to capitalize within the
sectors that Info Systems has a presence that heretofore, Sykes did not.
In addition, the Sykes Board considered the technological synergistic fit
of the organizations, the opportunity to augment the Sykes service lines,
the ability to integrate the Sykes IT call centers to support Info Systems
software and leverage the information technology expertise of Info Systems
personnel across Sykes service lines, to obtain additional industry proven
management capabilities, to capitalize on the anticipated cost savings of
consolidating the organizations, and to differentiate Sykes and increase
its competitive edge. There is no guarantee that Sykes will realize any
of such benefits.
In addition to the factors discussed above, the Sykes Board considered
in connection with the Merger, among other matters, the following potential
negative factors: (i) the risk that Sykes will be unsuccessful in
integrating the business and operations of Info Systems; (ii) the risk that
Info Systems will fail to achieve an adequate level of profitability so as
to provide Sykes with an acceptable return on its investment; and (iii) the
possibility that Sykes will be unable to utilize its management system and
economies of scale to increase the profitability of Info Systems.
Management of Sykes does not believe that the acquisition of Info
Systems will have a material impact on its liquidity or results of
operations. See "Unaudited Pro Forma Consolidated Financial Information."
Info Systems' Directors and Officers Following the Merger
Currently, Scott J. Bendert is the sole director of Acquisition
Corp., and the officers of Acquisition Corp. are Scott J. Bendert,
President and John L. Crites, Jr., Secretary. Messrs. Bendert and Crites
are both executive officers of Sykes. See "Information about Sykes--
Management." Immediately following the Merger, it is contemplated that
(i) Messrs. Scott J. Bendert, John J. Crites, Jr., H. Parks Elms, James
Kenny and William J. Gaughan, will constitute the Board of Directors of
Acquisition Corp., and (ii) the following officers of Acquisition Corp.
will be elected: Wiliam J. Gaughan, President; James J. Kenney, Senior
Vice President; Karen H. Elms, Secretary; and Melba S. Tarlton,
Treasurer.
Effects of the Merger
Pursuant to the Merger Agreement, among other things, Acquisition
Corp. will be merged with and into Info Systems, which will be the
surviving corporation in the Merger. Thus, in effect, Info Systems will
become a wholly-owned subsidiary of Sykes. In the Merger, each
outstanding share of Info Systems Common Stock (other than shares for
which holders have preserved dissenter's rights) will be converted into
the right to receive that number of shares of Sykes Common Stock
calculated by dividing (i) the quotient arrived at by dividing (A)
$23,000,000 by (B) the lesser of (I) the average closing prices of Sykes
Common Stock reported on the Nasdaq National Market for the ten
consecutive trading days prior to the consummation of the Merger (the
"Effective Time") or (II) the closing price of Sykes Common Stock reported
on the Nasdaq National Market on the last trading day prior to the
Effective Time by (ii) the aggregate number of issued and outstanding
shares of Info Systems Common Stock at the Effective Time. Assuming no
change in the number of shares of Info Systems Common Stock outstanding at
the Effective Time, each share of Info Systems Common Stock participating
in the Merger would be converted into a right to receive $6.858 of Sykes
Common Stock (with cash being paid in lieu of fractional shares of Sykes
Common Stock). The actual number of shares of Sykes Common Stock to be
received by Info Systems' shareholders participating in the Merger will
depend upon the application of the foregoing conversion formula at the
Effective Time. Assuming the $34.00 per share closing price of Sykes
Common Stock on March 12, 1997 (the latest practicable date prior to
the date of this Proxy Statement/Prospectus) was used to calculate the
foregoing conversion formula, each share of Info Systems Common Stock
participating in the Merger would be converted into a right to receive
approximately .202 shares of Sykes Common Stock. See "The Merger
Agreement--Manner and Basis of Converting Shares."
Based on the preceding example, and assuming the Merger was
consummated on March 12, 1997 and 676,471 shares of Sykes Common Stock
were issued in the Merger, former Info System shareholders would own, based
upon 22,570,289 shares of Sykes Common Stock then outstanding, approxi-
mately 3.0% of the issued and outstanding shares of Sykes Common Stock.
The Info Systems Board of Directors has approved the termination upon
the consummation of the Merger of all agreements between Info Systems and
its various shareholders entered into pursuant to its stock option plans.
Consequently, shareholders will no longer be subject to the transfer
restrictions imposed upon them by those agreements. See "Special Factors-
-Interests of Certain Persons in the Merger."
Info Systems' ESOP will be "frozen" at the time of the Merger,
meaning all participant accounts will be vested, no additional employees
of Info Systems will become eligible to participate in the ESOP and no
additional contributions will be made to the ESOP (other than
contributions which have been accrued so that the ESOP may pay off its
loans). Immediately following the receipt of a favorable determination
letter from the Internal Revenue Service, the ESOP will be terminated and
the Trustees will distribute the ESOP's assets to participants. The
receipt of such a letter is expected to take anywhere from six to eighteen
months following the Merger.
Interests of Certain Persons in the Merger
In considering the recommendation of the Info Systems Board of
Directors with respect to the Merger, shareholders should be aware that
members of the Board and certain members of management of Info Systems at
the time of the Merger Agreement had, and currently have, certain
interests which may present them with potential conflicts of interest in
connection with the Merger. The members of the Board were aware of these
potential conflicts and considered them as part of the Board's decision on
whether to recommend the Merger.
Employment Agreements. In connection with to the Merger, Info Systems has
entered into Employment Agreements with six executive and management
employees of Info Systems. In addition, Info Systems intends to enter
into Employment Agreements with seven other executive and management
employees of Info Systems on or prior to the Effective Time. The
effectiveness of each of these employment agreements is subject to the
consummation of the Merger. All of these employees will also enter into
Stock Options Agreements with Sykes.
The employment agreements signed by Messrs. Gaughan and Kenney
provide for three-year terms of employment with annual base salaries equal
to their current annual salaries. In addition, if Info Systems achieves
certain performance goals, Messrs. Gaughan and Kenney will be entitled to
receive annual performance bonuses in amounts up to approximately 138% of
their annual salaries. Each employee is prohibited, during the term of
employment and for a two-year period following the termination of
employment, from directly or indirectly competing with Info Systems in any
area in which Info Systems' business is conducted. Each agreement
provides that if the employee is terminated by Info Systems without cause
(as defined in the employment agreement), the employee is entitled to
receive (i) liquidated damages from Info Systems equal to the employee's
initial weekly base salary multiplied by the number of weeks remaining
from the date of termination to the end of the employee's term of
employment and (ii) non-compete payments equal to the employee's annual
base salary continuing for a period of two years or until the date Info
Systems elects to release the employee from his non-compete covenant, in
each case paid on a biweekly basis.
In addition, at the Effective Time, Mr. Gaughan will be granted stock
options under Sykes' employee stock option plan to purchase 15,000 shares
of Sykes Common Stock and Mr. Kenney will be granted options to purchase
5,000 shares of Sykes Common Stock, and each will be entitled to receive
options to purchase an additional 10,000 shares if Info Systems achieves
certain performance goals. The exercise price per share for such options
will be the fair market value of a share (as defined in the Plan) of Sykes
Common Stock as of the day of the closing of the Merger.
Messrs. Gaughan and Kenney also will be entitled to participate in
such bonus programs and other benefit plans as are generally made
available to Info Systems' executive officers.
Founders' health insurance. Info Systems had committed to provide
continuing health insurance coverage for its three founders (William J.
Gaughan, Eustace T. Little and Melba S. Tarlton) upon the termination of
their employment with the company and through age 65. In lieu of such
continuing coverage, the founders will receive from Info Systems lump sum
payments upon the consummation of the Merger in the following amounts:
William J. Gaughan, $68,100; Eustace T. Little, $30,600; and Melba S.
Tarlton, $77,400.
Consulting fees. Edward C. Ruff, a non-employee director of Info Systems
and a trustee of the ESOP, is the Chief Financial Officer, a Senior
Managing Director and member of the Board of Interstate/Johnson Lane
Corp., which has received or will receive fees for the following services
provided in connection with the Merger: the initial appraisal of Info
Systems, advice to Info Systems with respect to the Merger and a fairness
opinion to be rendered to the trustees of the ESOP.
Distribution of life insurance policies. Info Systems maintains life
insurance policies with respect to certain of its employees, including
management employees. Under the terms of the Merger Agreement, Info
Systems will transfer each such policy to the insured upon his or her
request in exchange for payment to Info Systems of the policy's cash
surrender value.
Loan repayments. On August 20, 1992, the ESOP executed a promissory notes
in the amount of $335,029 and $639,941, guaranteed by Info Systems, in
favor of Mr. Kenney and James Elder, respectively, in exchange for loans
to the ESOP. Pursuant to the Merger Agreement, Sykes shall cause each of
these loans to be repaid.
Releases. William Gaughan and Melba Tarlton, the Treasurer of Info
Systems, pledged personal property as collateral for certain promissory
notes executed by Info Systems in favor of First Union National Bank of
North Carolina on August 20, 1992 and November 21, 1996. In exchange for
the use of the collateral securing the November 21, 1996 note, Info
Systems pays $1,500 per month to each of Gaughan and Tarlton. The Merger
Agreement provides that Gaughan's and Tarlton's collateral will be
released at or prior to closing the Merger.
Accounting Treatment
The Merger will be accounted for as a pooling-of-interests in
accordance with generally accepted accounting principles. Use of this
accounting treatment is dependent, among other factors, upon the absence
of certain transfers or dispositions of Sykes Common Stock for periods
prior to and after consummation of the Merger. No Director, Officer,
Affiliate (10% or more stockholder) of either Info Systems or Sykes may
transfer Sykes Common Stock (or reduce the risk of holding the same) for a
period commencing thirty (30) days prior to the consummation of the Merger
and ending on the date of publication of at least a thirty (30) day period
of combined operations subsequent to the Merger.
Certain Federal Income Tax Consequences
The following discussion is intended only as a general summary of the
federal income tax consequences of the Merger and does not purport to be a
complete analysis or description of all potential tax consequences
relevant to a decision whether to vote in favor of the approval of the
Merger Agreement. The discussion contained herein assumes that the
holders of Info Systems Common Stock hold their shares as capital assets,
and does not address the federal income tax consequences that may be
relevant to particular holders that may be subject to special tax rules,
such as dealers in securities, foreign persons, mutual funds, insurance
companies, other financial institutions and tax-exempt entities.
Moreover, this discussion does not address any tax consequences of the
Merger arising under state, local or foreign income or other tax laws.
The following discussion, which includes a summary of the tax
opinions to be provided by counsel for Sykes and Info Systems, is based on
the existing provisions of the Code, the Treasury Regulations promulgated
and proposed thereunder, judicial decisions and published administrative
rulings and pronouncements of the Internal Revenue Service ("IRS") as in
effect on the date of this Proxy Statement/Prospectus. Changes in such
rules or new interpretations thereof may be applied retroactively and
could significantly affect the tax consequences described below.
INFO SYSTEMS SHAREHOLDERS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS
REGARDING THE SPECIFIC FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES
OF THE MERGER TO THEM, INCLUDING TAX RETURN REPORTING REQUIREMENTS.
Other than the determination letter that will be requested with
respect to the ESOP, no ruling from the IRS has been or will be requested
in connection with the Merger. It is anticipated that Sykes will receive
from its counsel, Parker, Poe, Adams & Bernstein L.L.P., an opinion dated
the closing date to the effect that the Merger will be treated for federal
income tax purposes as a reorganization within the meaning of Section 368(a)
of the Code and that Sykes, Acquisition Corp. and Info Systems will not
recognize any gain or loss as a result of the Merger. It is anticipated
that Info Systems will receive from its counsel, Robinson, Bradshaw &
Hinson, P.A., an opinion dated the closing date to the effect that the
Merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code and that shareholders of
Info Systems will not recognize any gain or loss as a result of the
exchange of their Info Systems stock in the Merger, except to the extent
that the cash received in lieu of fractional shares of Sykes Common Stock
exceeds the tax basis allocated to such fractional shares, as set forth in
paragraph (c) below. The tax opinions are subject to certain assumptions
and are based on certain representations of Sykes, Acquisition Corp., Info
Systems and the shareholders of Info Systems. Shareholders of Info Systems
should be aware that such opinions are not binding on the IRS, and no
assurance can be given that the IRS will not adopt a contrary position or
that the IRS position would not be sustained by a court.
It is anticipated that Parker, Poe, Adams & Bernstein, L.L.P. will
render an opinion dated the closing date that, with respect to the tax
consequences to Sykes, and Robinson, Bradshaw & Hinson, P.A. will render
an opinion dated the closing date that, with respect to the tax consequences
to Info Systems and its shareholders, that the following federal income tax
consequences will result from the Merger:
(a) the Merger will constitute a reorganization within the meaning
of Section 368(a) of the Code, and Sykes and Info Systems will each be a
party to the reorganization within the meaning of Section 368(b) of the
Code;
(b) no gain or loss will be recognized by Sykes or Info Systems in
the Merger;
(c) no gain or loss will be recognized by the shareholders of Info
Systems upon their receipt of Sykes Common Stock in exchange for their
Info Systems Common Stock, except that shareholders who receive cash
proceeds from the sale of fractional interests in Sykes Common Stock will
recognize gain or loss equal to the difference between such proceeds and
the tax basis allocated to their fractional share interest, and such gain
or loss will constitute capital gain or loss if their Info Systems Common
Stock is held as a capital asset at the Effective Time;
(d) the aggregate tax basis of the shares of Sykes Common Stock
received by the shareholders of Info Systems will be the same as the
aggregate tax basis of their Info Systems Common Stock exchanged therefor;
and
(e) the holding period of the Sykes Common Stock in the hands of
the Info Systems shareholders will include the holding period of their
Info Systems Common Stock exchanged therefor, provided such Info Systems
Common Stock is held as a capital asset at the Effective Time.
Federal Securities Law Consequences
All Shares of Sykes Common Stock received by shareholders of Info
Systems in connection with the Merger will be freely transferable under
the Federal securities laws, except that shares of Sykes Common Stock
received or held by persons who are deemed to be "Affiliates" (as such
term is defined under the Securities Act) of Info Systems prior to the
Merger may be resold by them only in transactions permitted by the resale
provisions of Rule 145 promulgated under the Securities Act or as
otherwise permitted under the Securities Act. Persons who may be deemed
to be affiliates of Info Systems generally include individuals or entities
that are controlled by, or are under common control with, such party and
may include certain officers and directors of such party as well as
principal shareholders of such party. DUE TO THE AFOREMENTIONED
RESTRICTIONS ON TRANSFER, EACH HOLDER OF INFO SYSTEMS COMMON STOCK SHOULD
CONSULT HIS OR HER OWN FINANCIAL, LEGAL AND TAX ADVISORS PRIOR TO VOTING
ON THE MERGER.
Quotation on the Nasdaq National Market
Sykes Common Stock is currently traded on the Nasdaq National
Market, and it is anticipated that such stock will continue to be traded
thereon following consummation of the Merger.
Rights of Info Systems Dissenting Shareholders
Shareholders of Info Systems who (i) object to the Merger, and (ii)
follow the procedures specified in Article 13 of the NCBCA ("Article 13")
(each such shareholder is referred to as a "Dissenting Shareholder") will
be entitled to receive payment of the "fair value" of their shares of Info
Systems Common Stock, as estimated by Info Systems, plus interest accrued
from the Effective Time to the date of payment. If a Dissenting
Shareholder is not satisfied with the offer made by Info Systems and no
agreement as to the "fair value" of his or her shares of Info Systems
Common Stock can be reached, the Dissenting Shareholder may petition a
North Carolina court to determine the fair value of such shares. The
procedures set forth in Article 13 must be strictly complied with in order
to preserve applicable dissenter's rights. Failure to follow any of such
procedures will result in a termination or waiver of dissenter's rights
under Article 13.
THE FOLLOWING DISCUSSION OF THE PROVISIONS OF ARTICLE 13 IS NOT
INTENDED TO BE A COMPLETE STATEMENT OF ITS PROVISIONS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THAT SECTION, A COPY OF
WHICH IS ATTACHED AS APPENDIX B HERETO.
Under Section 21 of Article 13, a shareholder of Info Systems
electing to exercise dissenter's rights must both:
(1) prior to the vote on the proposal relating to the Merger,
give Info Systems, and Info Systems must actually receive, notice of
intent to demand payment for his shares if the proposal relating to
the Merger is adopted (the "Written Notice"). The Written Notice
must be delivered to the Corporate Secretary, at Info Systems, 7500
East Independence Boulevard, Charlotte, North Carolina 28227; and
(2) not vote in favor of the proposal relating to the Merger.
The Written Notice must be made by or for the holder of record of
Info Systems Common Stock registered in his name. Accordingly, the
Written Notice should be executed by or for such shareholder of record,
fully and correctly, as such shareholder's name appears on the stock
transfer books of Info Systems. If the stock is owned of record in a
fiduciary capacity, such as by a trustee, guardian or custodian, execution
of the Written Notice should be made in such capacity, and if the stock is
owned of record by more than one person, as in a joint tenancy or tenancy
in common, such Written Notice should be executed by or for all joint
owners. An authorized agent, including one of two or more joint owners,
may execute the Written Notice for a shareholder of record. However, the
agent must identify the record owner or owners and expressly disclose the
fact that in executing the demand he is acting as agent for the record
owner. A beneficial owner of Info Systems Common Stock may submit a
Written Notice exercising dissenter's rights as to shares held in his
behalf if he dissents with respect to all shares of which he is the
beneficial owner and he submits to Info Systems the record shareholder's
written consent to the dissent no later than the time the beneficial owner
submits his Written Notice, provided that, with respect to shares of Info
Systems Common Stock held by the ESOP, the trustees of the ESOP will make
the determination as to whether and to what extent dissenter's rights are
exercised.
Within ten days after the approval of the Merger, Info Systems must
send, by registered or certified mail, return receipt requested, a written
dissenters' notice (the "Dissenters' Notice") to all holders of Info
Systems Common Stock who submit a Written Notice and do not vote in favor
of the Merger at the Special Meeting. The Dissenters' Notice will state
to what extent transfer of the shares will be restricted, where a demand
for payment must be sent, supply a form for demanding payment, set a date
by which Info Systems must receive the payment demand (which date may not
be fewer than thirty nor more than sixty days after the date the
Dissenters' Notice is mailed), and be accompanied by a copy of Article 13
of the NCBCA.
Upon the approval of the Merger or upon receipt of a Dissenter's
Notice, Info Systems will offer to pay (the "Offer of Payment") to each
Dissenting Shareholder who complied with the Dissenters' Notice an amount
estimated by Info Systems to be the fair value of the shares held by such
Dissenting Shareholder, plus interest accrued from the Effective Time to
the date of payment. The Offer of Payment will be accompanied by Info
Systems' Balance Sheet as of June 30, 1996, Statements of Income and Cash
Flows for the fiscal year ended June 30, 1996, the latest available
interim financial statements, a statement of Info Systems' estimate of the
fair value of the Info Systems Common Stock held by such Dissenting
Shareholder, an explanation of how the amount of accrued interest was
calculated, a statement of the Dissenting Shareholder's right to make a
Payment Demand (as defined and described below) and a copy of Article 13.
Info Systems will pay such offered amount to any Dissenting Shareholder
who agrees in writing to accept such payment in full satisfaction of his
demand.
A Dissenting Shareholder who believes that the amount offered by
Info Systems for his shares of Info Systems Common Stock is less than the
fair value of such shares or that the interest is incorrectly calculated
or a Dissenting Shareholder who accepted the Offer of Payment but did not
receive payment from Info Systems within 30 days after his or her written
acceptance of the offer of payment, may reject the Offer of Payment and
notify Info Systems in writing of his own estimate of the fair value of
his shares of Info Systems Common Stock plus the interest due, and demand
payment of his estimate (a "Payment Demand"). A Dissenting Shareholder
must notify Info Systems of a Payment Demand within 30 days after his or
her written acceptance of the offer of payment such Dissenting Shareholder
shall be deemed to have withdrawn the Written Notice and demand for
payment. If Info Systems fails to pay a Dissenting Shareholder who
accepts the Offer of Payment, then such Dissenting Shareholder must notify
Info Systems of a Payment Demand within thirty days after Info Systems
fails to make such payment or such Dissenting Shareholder shall be deemed
to have withdrawn the Written Notice and demand for payment.
If a Dissenting Shareholder notifies Info Systems of his Payment
Demand and Info Systems and the Dissenting Shareholder are unable to agree
on the fair value of the Info Systems Common Stock, the Dissenting
Shareholder may petition a court and commence a proceeding to determine
the fair value of the Info Systems Common Stock and accrued interest (a
"Valuation Proceeding"). Once Info Systems is served with a petition
relating to a Valuation Proceeding, Info Systems must pay the Dissenting
Shareholder the amount of the Offer of Payment. If the Dissenting
Shareholder does not commence a Valuation Proceeding within sixty days of
the Payment Demand, such Dissenting Shareholder has an additional thirty
days to accept in writing Info Systems' Offer of Payment or withdraw the
Written Notice and resume the status of a nondissenting shareholder. A
Dissenting Shareholder who takes no action within such thirty day period
shall be deemed to have withdrawn the Written Notice and demand for
payment.
If a Valuation Proceeding is commenced, the court has the discretion
to make all Dissenting Shareholders whose demands remain unsettled parties
to the Valuation Proceeding. The court may appoint one or more persons as
appraisers to receive evidence and recommend a decision on the question of
fair value.
The court, in a Valuation Proceeding, shall determine all costs of
the proceeding, including reasonable compensation and expenses of
appraisers appointed by the court and shall assess the costs as it finds
equitable. If the court finds that services of counsel for a Dissenting
Shareholder were of a substantial benefit to other similarly situated
Dissenting Shareholders, the court may, in its discretion, order that all
or a portion of the attorneys' fees be paid out of the amounts awarded to
the Dissenting Shareholders who were benefitted.
Although Info Systems believes that the consideration to be paid in
the Merger is fair, it cannot make any representation as to the outcome of
the appraisal of fair value as determined by a court of North Carolina,
and shareholders should recognize that such an appraisal could result in a
determination of a lower, higher or equivalent value.
Any shareholder of Info Systems who has duly demanded an appraisal
in compliance with Article 13 will not, after the Effective Time, be
entitled to vote his shares for any purpose nor be entitled to the payment
of any dividends or other distributions on his shares (other than those
payable to shareholders of record as of a date prior to the Effective
Time).
If a holder of shares of Info Systems Common Stock withdraws or is
deemed to have withdrawn the Written Notice and demand for payment or
otherwise waives his dissenter's rights, he is entitled to the
consideration with respect to such shares provided for in the Merger
Agreement.
In the event that holders of more than 9.5% of the outstanding
shares of Info Systems Common Stock (i) do not vote their shares in favor
of the Merger and (ii) each deliver the Written Notice to Info Systems
prior to the vote on the Merger at the Special Meeting of Info Systems
shareholders, the Merger will not be consummated despite the fact that the
Merger may have been otherwise approved by the Info Systems shareholders.
If the Merger is not consummated, the shareholders of Info Systems
(including all Dissenting Shareholders) will retain their shares of Info
Systems Common Stock, and the management of Info Systems will continue to
manage and operate the business of Info Systems as if the Merger had not
been approved by the shareholders of Info Systems. See "Effect of Failure
of Shareholders to Approve Merger Agreement."
Effect of Failure of Shareholders to Approve Merger
In the event the shareholders of Info Systems do not approve the
Merger at the Special Meeting of Info Systems shareholders, the management
of Info Systems, under the guidance of the corporation's Board of
Directors, will continue to manage and operate the business of Info
Systems in the best interests of the shareholders. Based upon its current
operations, Info Systems believes that it has adequate capital resources
to sustain operations. However, Info Systems cannot finance significant
operating losses that could occur as a result of lower revenues caused by
currently unforeseen factors such as a deterioration of the economic
environment or increased competitive forces. The Board of Directors will
resume its efforts to find another merger opportunity, one or more
investors who will provide additional capital or such other means as may
be available to enable Info Systems to preserve its business, either alone
or in combination with others. There is no assurance that any of such
results will be achieved. See "The Merger Agreement--Termination" and"--
Expenses and Termination Fees."
THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the
Merger Agreement, a copy of which appears at Appendix A hereto and is
incorporated by reference herein and as an exhibit to the Registration
Statement. Such summary is qualified in its entirety by reference to the
Merger Agreement.
Effective Time of the Merger
The Merger Agreement provides that, following the approval of the
Merger Agreement by the holders of Info Systems Common Stock and the
satisfaction or waiver of all other conditions precedent to the Merger,
Acquisition Corp. will be merged with and into Info Systems with Info
Systems continuing as the surviving corporation in the Merger. Pursuant
to the Merger Agreement, the name of Info Systems will remain "Info
Systems of North Carolina, Inc." Subject to the foregoing approval by the
shareholders of Info Systems and the satisfaction or waiver of the
conditions precedent to the Merger, the Effective Time will be on the date
on which duly executed Articles of Merger are filed by Info Systems with
the Secretary of State of the State of North Carolina.
Manner and Basis of Converting Shares
At the Effective Time, each issued and outstanding share of Info
Systems Common Stock (other than shares for which holders have preserved
dissenter's rights) will be converted into the right to receive that
number of shares of Sykes Common Stock calculated by dividing (i) the
quotient arrived at by dividing (A) $23,000,000 by (B) the lesser of (I)
the average closing prices of Sykes Common Stock reported on the Nasdaq
National Market for the ten consecutive trading days prior to the
consummation of the Merger (the "Effective Time") or (II) the closing
price of Sykes Common Stock reported on the Nasdaq National Market on the
last trading day prior to the Effective Time by (ii) the aggregate number
of issued and outstanding shares of Info Systems Common Stock at the
Effective Time. Assuming no change in the number of share of Info Systems
Common Stock outstanding at the Effective Time, each share of Info Systems
Common Stock participating in the Merger would be converted into a right
to receive $6.858 of Sykes Common Stock (with cash being paid in lieu of
fractional shares of Sykes Common Stock). The actual number of shares of
Sykes Common Stock to be received by Info Systems shareholders
participating in the Merger will depend upon the application of the
foregoing conversion formula at the Effective Time. Assuming the $34.00
closing price of Sykes Common Stock on March 12, 1997 (the latest
practicable date prior to the date of this Proxy Statement/Prospectus) were
used to calculate the foregoing conversion formula, each share of Info
Systems Common Stock participating in the Merger would be converted into a
right to receive approximately .202 shares of Sykes Common Stock. For a
discussion of the dissenter's rights applicable to the Merger, see
"Special Factors--Rights of Dissenting Shareholders."
Pursuant to an Exchange Agent Agreement to be entered into among
Sykes, Info Systems and the exchange agent, Firstar Trust Company (the
"Exchange Agent"), (a) the Exchange Agent will maintain a sufficient
number of certificates representing shares of Sykes Common Stock to
satisfy Sykes' obligations under the Merger Agreement and (b) Sykes will
deposit with the Exchange Agent, at or prior to the Effective Time, an
amount of cash sufficient to satisfy its obligations under the Merger
Agreement in respect of fractional shares.
As soon as practicable following the Effective Time, the Exchange
Agent will mail to each record holder of Info Systems Common Stock
immediately prior to the Effective Time (other than holders who have
preserved dissenter's rights) a letter of transmittal for use in
exchanging shares of Info Systems Common Stock for certificates
representing shares of Sykes Common Stock and cash in lieu of fractional
shares. After the Effective Time, there will be no further registration
of transfers on the stock transfer books of Info Systems of shares of Info
Systems Common Stock that were outstanding immediately prior to the
Effective Time. Any beneficial owner of shares of Info Systems Common
Stock, the transfer of which has not been registered on the stock transfer
books of Info Systems, may exchange such shares for certificates
representing shares of Sykes Common Stock and cash in lieu of fractional
shares in accordance with such letter of transmittal.
No fractional shares of Sykes Common Stock will be issued in the
Merger. Each shareholder of Info Systems entitled to a fractional share
will receive an amount in cash equal to the product of such fraction
multiplied by the lesser of (a) the average of the closing prices for
Sykes Common Stock on the Nasdaq National Market for the ten consecutive
trading days prior to the Effective Time of the Merger and (b) the closing
price for Sykes Common Stock on the Nasdaq National Market on the last
trading day prior to the Effective Time of the Merger. No interest will
be paid on any cash amounts received by Info Systems shareholders in the
Merger.
Upon the receipt by the Exchange Agent of a letter of transmittal
properly executed by an Info Systems shareholder, the Exchange Agent will
deliver to such shareholder (a) a certificate representing that number of
whole shares of Sykes Common Stock to which such shareholder is entitled
and (b) a check for the amount owed to such shareholder in lieu of
fractional shares.
Until exchanged, each share of Info Systems Common Stock will,
following the Effective Time, represent solely the right to receive Sykes
Common Stock and cash in lieu of fractional interests without interest.
No dividends or other distributions declared or made after the Effective
Time with respect to shares of Sykes Common Stock will be paid to a holder
of shares of Info Systems Common Stock unless and until such holder
exchanges such shares. Nevertheless, with respect to shares of Sykes
Common Stock issued in such an exchange, the record holder of such shares
will be paid the amount, without interest, of dividends and other
distributions payable with respect to such shares with a record date and
payment date after the Effective Time.
Representations and Warranties
Info Systems. The Merger Agreement contains various representations
and warranties of Info Systems, including, without limitation,
representations to the effect that: (a) Info Systems is a duly organized
and validly existing North Carolina corporation; (b) Info Systems has the
corporate authority subject to approval by the Info Systems shareholders
to enter into and perform the Merger Agreement, and the Merger Agreement
is a binding and enforceable agreement of Info Systems; (c) Info Systems'
authorized capital stock consists solely of common stock, $.01 par value,
of which 3,353,741 shares are validly issued and outstanding, and there
are no outstanding options or other securities in respect of Info Systems
Common Stock; (d) the information supplied by Info Systems for inclusion
in this Proxy Statement/Prospectus is not false or misleading in any
material respect; (e) Info Systems' execution and performance of the
Merger Agreement does not violate any laws or require any consents or
result in any default, except as disclosed to Sykes; (f) except as
disclosed to Sykes, Info Systems is in compliance with applicable laws and
regulations except to the extent that any noncompliance would not have a
material adverse effect on Info Systems; (g) except as disclosed to Sykes,
the financial statements of Info Systems furnished to Sykes have been
prepared in accordance with generally accepted accounting principles
consistently applied and fairly present in all material respects the
financial position, and the results of operations and the changes in
financial position, of Info Systems (interim financial statements being
subject to normal year-end adjustments and the absence of footnotes); (h)
except as disclosed to Sykes, the accounts receivable of Info Systems, net
of reserves, are collectible; (i) except as disclosed to Sykes, since June
30, 1996, there has not been any material adverse change in the financial
condition, business, assets, results of operations, liabilities or
properties of Info Systems; (j) there are no broker's or finder's fees
payable by Info Systems in connection with the Merger, except as disclosed
to Sykes; (k) except as disclosed to Sykes and other than liabilities
incurred in the ordinary course of business consistent with past practices
since November 30, 1996, there are no liabilities of Info Systems required
by generally accepted accounting principles to be reflected or reserved
against on an Info Systems balance sheet, except as reflected on interim
financial statements provided to Sykes or incurred in the ordinary course
of business since the date of such financial statements; (l) there is no
litigation pending or, to the knowledge of Info Systems, threatened
against Info Systems, except as disclosed to Sykes; (m) Info Systems has
paid all income and other tax liabilities and timely filed all tax
returns, except as disclosed to Sykes; (n) Info Systems has disclosed all
employee benefit plans to Sykes and, except as disclosed to Sykes is in
compliance in all material respects with the provisions of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), to the
extent ERISA is applicable to any of its employee benefits plans, and with
all other applicable laws and regulations; (o) Info Systems is in material
compliance with all environmental laws; (p) Info Systems has described to
Sykes certain of its material contracts and commitments, and except as
disclosed to Sykes, Info Systems is not in default under any material
contract or commitment; (q) Info Systems has disclosed to Sykes its 50
largest customers and five largest suppliers and does not anticipate any
adverse change in such relationships to result from the Merger; (r) Info
Systems has disclosed to Sykes its standard warranties for its products
and has disclosed warranty claims for the five years preceding the date of
the Merger Agreement; (s) Info Systems: (i) has disclosed to Sykes certain
trademarks, copyrights, patents and other intellectual property owned or
used by Info Systems in its business (the "Intellectual Property Rights");
(ii) owns or has the right to use the Intellectual Property Rights; (iii)
has used its best efforts to enforce a trade secret protection program;
and (iv) except as disclosed to Sykes, has no knowledge that its use of
the Intellectual Property Rights infringes or may infringe upon the
intellectual property rights of any other person or entity; (t) no claims
of misappropriation of intellectual property of any other person or entity
has been made against Info Systems nor, to the knowledge of Info Systems,
is there any basis for any such claims; (u) except as disclosed to Sykes
to the best of its knowledge of Info Systems, Info Systems is in
compliance in all material respects with all applicable employment laws
and has not experienced any material labor difficulty within the last
three years and, to the best of its knowledge, any adverse change in
relations with employees as a result of Merger announcements; (v) Info
Systems has not taken or agreed to take any action that can reasonably be
expected to prevent the Merger from qualifying as a reorganization under
Section 368(a) of the Code or to prevent Sykes from accounting for the
Merger as a pooling-of-interests; (w) except as disclosed to Sykes, Info
Systems has good and marketable title to all assets of Info Systems; (x)
all assets of Info Systems are in substantially good operating condition;
(y) Info Systems' insurance policies are in full force and effect without
any material default thereunder; (z) except as disclosed to Sykes, Info
Systems is not subject to any restriction which materially limits the
ability of Info Systems to conduct any business in any geographical area;
(aa) except as disclosed to Sykes, Info Systems does not have any
contractual relationship with its affiliates and shareholders or any
material interest in any competitor, customer, supplier or person with a
material relationship with Info Systems; (bb) Info Systems has a
contractual right to all assets and rights necessary for carrying on Info
Systems' business as currently conducted; and (cc) the Info Systems'
representations, taken as a whole, are not misleading in any material
respect.
Sykes and Acquisition Corp. The Merger Agreement contains various
representations and warranties of Sykes and Acquisition Corp. including,
without limitation, representations to the effect that: (a) Sykes and
Acquisition Corp. are duly organized and validly existing Florida and
North Carolina corporations, respectively; (b) Sykes and Acquisition Corp.
have the corporate authority to enter into and perform the Merger
Agreement, and the Merger Agreement is a binding and enforceable agreement
of Sykes and the Acquisition Corp.; (c) the authorized capital stock of
Sykes consists of 50,000,000 shares of Sykes Common Stock and 10,000,000
shares of preferred stock, par value $.01 per share ("Sykes Preferred
Stock") of which, as of December 31, 1996, 21,893,818 shares of Sykes
Common Stock were validly issued, fully paid, nonassessable and
outstanding and no shares of Sykes Preferred Stock were outstanding; (d)
the authorized capital stock of Acquisition Corp. consists of 100,000
shares of common stock, $.01 per value, all of which are issued,
outstanding and owned by Sykes; (e) the execution and performance of the
Merger Agreement by Sykes and Acquisition Corp. does not violate any laws
or require any consents, except as disclosed to Info Systems; (f) there is
no litigation pending or, to the knowledge of Sykes, threatened against
Sykes or Acquisition Corp. relating to the Merger; (g) there are no
broker's or finder's fees payable by Sykes in connection with the Merger;
(h) at the date of the Merger Agreement, the filings by Sykes with the
Commission are not false or misleading in any material respect; (i) the
information supplied by Sykes for inclusion in this Proxy
Statement/Prospectus is not false or misleading in any material respect;
(j) the financial statements of Sykes included in the filings made by
Sykes with the Commission have been prepared in accordance with generally
accepted accounting principles consistently applied and, except as
disclosed to Info Systems or in filings made by Sykes with the Commission
fairly present in all material respects the financial position, the
results of operations and the changes in financial position, of Sykes (the
unaudited financial statements being subject to normal year-end
adjustments and the absence of fully footnoted disclosures); (k) other
than liabilities incurred since September 29, 1996 in the ordinary course
of business consistent with past practices, there are no undisclosed
liabilities of Sykes required by generally accepted accounting principles
to be reflected or reserved against on a consolidated balance sheet of
Sykes, except as disclosed to Info Systems or in filings with the SEC or
to Info Systems, and except as reflected on interim financial statements
provided to Info Systems or incurred in the ordinary course of business
since the date of such financial statements; (l) since September 29, 1996,
there has not been any material adverse change in the financial condition,
business, assets, results of operations or prospects of Sykes except as
disclosed to Info Systems or in filings made by Sykes with the Commission;
(m) except as disclosed to Info Systems or filings made by Sykes with the
Commission, Sykes is in compliance with applicable laws and regulations
except to the extent that any noncompliance would not have a material
adverse effect on Sykes; (n) Sykes is in material compliance with
environmental laws; and (o) neither Sykes nor any of its affiliates has
taken or agreed to take any action that can reasonably be expected to
prevent the Merger from qualifying as a reorganization under Section
368(a) of the Code or to prevent Sykes from accounting for the Merger as a
pooling-of-interests.
No Solicitation of Acquisition Proposals
The Merger Agreement provides that during the period from January
10, 1997 to the Effective Time, Info Systems will not, and will not permit
any officer, director or employee or any agent, advisor or representative
of Info Systems to, solicit, initiate or participate in any negotiations
with any person or entity other than Sykes and the Acquisition Corp.
concerning any Alternative Transaction (as defined below), except to the
extent that the Info Systems' Board determines in good faith after
consultation with its legal and financial advisors that the failure to
engage in such activity would constitute a breach of the fiduciary duties
of such directors to the shareholders of Info Systems.
For purposes of the Merger Agreement, the term "Alternative
Transaction" means any merger, consolidation, sale of substantial assets,
sale of shares of capital stock or other equity securities or similar
transaction involving Info Systems other than the Merger. The Merger
Agreement provides that Info Systems will promptly advise Sykes in writing
of all of the relevant details relating to all inquiries and proposals
which it may receive relating to any Alternative Transaction.
Certain Covenants
Info Systems. Pursuant to the Merger Agreement, Info Systems also
has agreed that, during the period from the date of the Merger Agreement
until the earlier to occur of the Effective Time and termination of the
Merger Agreement, except as permitted or contemplated by the Merger
Agreement, or with the written consent of Sykes, it will: (a) operate its
business only in the ordinary course consistent with past practices; (b)
use its reasonable best efforts to preserve intact its business and
organization, retain the services of its officers and employees and
maintain its relationships with customers and suppliers, all in accordance
with past practices; (c) maintain and service its properties consistent
with past practices; (d) not incur any liabilities or guarantee any
obligations, whether directly or by way of guaranty, except for
liabilities incurred in the ordinary course of business; (e) not (i) grant
any increase in compensation to any employee, officer or agent, except in
the ordinary course of business; (ii) make any bonus payment to any
officer, employee or agent of Info Systems other than in the ordinary
course of business consistent with past practices; or (iii) increase the
benefits under or make any amendment or modification to any Info Systems
benefit or similar plan; (f) not declare or pay any dividend on, or make
any other distribution in respect of, its outstanding shares of capital
stock; (g) not redeem, purchase or otherwise acquire any shares of its
capital stock; (h) not sell, dispose of or encumber any assets, other than
in the ordinary course of its business; (i) not split, combine or
reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock; (j) not issue, deliver or
sell, or authorize or propose the issuance, delivery or sale of, any
shares of its capital stock of any class or any securities convertible
into, or any rights, warrants or options to acquire, any such shares; (k)
not adopt any amendments to its corporate charter or by-laws; (l) not take
any action or intentionally omit to take any reasonable action which would
result in a material breach of any of the representations and warranties
of Info Systems contained in the Merger Agreement; (m) use its reasonable
best efforts to satisfy or fulfill all of the conditions precedent to
Sykes' obligations to effect the Merger and to obtain all consents
required for the Merger; (n) advise Sykes and Acquisition Corp. of the
occurrence of any event which causes any representation or warranty of
Info Systems in the Merger Agreement to be incomplete or inaccurate in any
material respect; (o) not enter into any contract unless terminable on
less than thirty days notice without penalty which requires the payment to
Info Systems of $75,000 or more or requires the payment by Info Systems of
$25,000 or more; (p) not cause, authorize or encourage the ESOP to be
amended prior to the Merger; (q) not agree to do any of the foregoing
which is prohibited; (r) to duly call and hold a meeting of the Info
Systems shareholders to vote on the Merger; (s) to terminate all currently
outstanding shareholders agreements with Info Systems; (t) not grant to
any person or entity a power of attorney or similar authority to act for
Info Systems; and (u) to deliver to Sykes at the closing of the Merger a
complete and accurate list of the record holders of Info Systems Common
Stock.
Sykes and Acquisition Corp. Pursuant to the Merger Agreement, Sykes
and Acquisition Corp. have agreed that, during the period from the date of
the Merger Agreement until the earlier to occur of the Effective Time and
termination of the Merger Agreement, except as permitted or contemplated
by the Merger Agreement or with the written consent of Info Systems, they
will: (a) not take or intentionally omit to take any reasonable action
which would result in a material breach of any of their representations
and warranties contained in the Merger Agreement; (b) use their reasonable
best efforts to satisfy or fulfill all of the conditions precedent to Info
Systems' obligations to effect the Merger and to obtain all consents
required for the Merger; (c) advise Info Systems of the occurrence of any
event which causes any of their representations or warranties in the
Merger Agreement to be incomplete or inaccurate in any material respect;
(d) deliver to Info Systems any document filed by Sykes with the
Commission prior to the Closing Date; (e) satisfy, at or prior to the
consummation of the transactions contemplated by the Merger Agreement,
certain loans made to Info Systems or the ESOP by certain of its current
and former employees; and (f) use their reasonable best efforts to cause
the Registration Statement to be declared effective as promptly as
reasonably practicable.
In accordance with the Merger Agreement, Sykes and Info Systems have
agreed to: (a) provide each other with reasonable access and information
with respect to their respective businesses; (b) mutually agree with each
other regarding publicity concerning the Merger; (c) make all filings
required under applicable law in order to consummate the transactions
contemplated by the Merger Agreement; (d) use their respective reasonable
efforts to consummate the transactions contemplated by the Merger
Agreement; (e) not take, and to use their best efforts to cause their
respective affiliates not to take, any action or fail to take any required
action that could prevent the Merger from being accounted for as a
pooling-of-interest or that would adversely affect the treatment of the
Merger as a reorganization under Section 368(a) of the Code; (f) obtain,
at or prior to the consummation of the transactions contemplated by the
Merger Agreement, full releases of certain guarantees and securities
pledges made by certain employees or former employees of Info Systems with
respect to certain obligations of Info Systems; and (g) keep the
confidential information of the other party confidential. Additionally,
(a) if the closing of the Merger is postponed, Sykes will publish certain
interim financial statements under certain circumstances, (b) if a dispute
arises out of the Merger Agreement, the prevailing party will be entitled
to recover all reasonable expenses from the other party, and (c) the
Merger Agreement does not create any right or cause of action in any
person that is not a party to the Merger Agreement.
Conditions
The respective obligations of Sykes and Acquisition Corp., on the
one hand, and Info Systems, on the other hand, to effect the Merger are
subject to the following conditions, among others: (a) the Merger
Agreement shall have been approved by a majority of the outstanding shares
of Info Systems Common Stock, with holders of no more than 9.5% of the
Info Systems Common Stock having not voted in favor of the Merger and
delivered to Info Systems a written Notice of intent to exercise
dissenter's rights; (b) no order shall have been entered and not withdrawn
by any court of competent jurisdiction and no action shall have been
instituted or threatened before any court seeking to enjoin or modify, or
to obtain damages or a discovery order in respect of, the Merger; (c) the
performance in all material respects of all obligations of Info Systems,
on the one hand, and Sykes and Acquisition Corp., on the other hand,
required to be performed under the Merger Agreement prior to the
consummation of the transactions contemplated by the Merger Agreement; (d)
the accuracy in all material respects of the representations and
warranties of Info Systems, on the one hand, and Sykes and Acquisition
Corp., on the other hand, as set forth in the Merger Agreement; (e) the
receipt of a certificate of fulfillment of certain conditions executed by
an executive officer of Info Systems, on the one hand, and Sykes and
Acquisition Corp., on the other hand; (f) receipt of certain legal
opinions from the respective parties' attorneys, including certain
opinions as to the tax free nature of the Merger; (g) neither Info
Systems, on the one hand, nor Sykes, on the other hand, shall have
suffered or could reasonably be expected to suffer any material adverse
effect on its business, financial condition, assets, results of operations
or business prospects; (h) all necessary governmental consents and
filings, including pursuant to the HSR Act, will have been obtained or
made and the applicable waiting period under the HSR Act will have expired
or been terminated; (i) the Registration Statement will not be the subject
of any stop order or proceeding seeking a stop order; (j) the shares of
Sykes Common Stock to be issued in the Merger will have been authorized
for listing on the Nasdaq National Market; (k) the ESOP will have received
a written opinion from Interstate/Johnson Lane to the effect that the
consideration to be paid in the Merger to the ESOP is fair from a
financial point of view; and (l) each of the parties to the Merger
Agreement will have received from their respective accountants an opinion
dated the closing date to the effect that the Merger will be accounted for
as a pooling-of-interests.
In addition, the Merger Agreement provides that the obligations of
Sykes and Acquisition Corp. to consummate the Merger are further
conditioned on (a) the holders of no more than 9.5% of the shares of Info
Systems Common Stock shall have voted against the Merger and delivered,
prior to the vote on the Merger, written notice of such holders' intent to
exercise their dissenter's rights, and (b) each affiliate of Info Systems
shall have executed an affiliate agreement.
Termination
The Merger Agreement may be terminated at any time prior to the
Closing Date: (a) by mutual consent of Sykes, Acquisition Corp. and Info
Systems; (b) by either Sykes or Info Systems if the Merger is not
consummated on or prior to March 31, 1997 (the "Optional Termination
Provision"); (c) by either Sykes or Info Systems if there shall have been
a breach in any material respect of any representation, warranty, covenant
or agreement on the part of the non-terminating party, which breach is not
reasonably curable; (d) by Sykes or Info Systems, if the board of
directors of Info Systems has determined in good faith, after consultation
with its legal and financial advisors, that the consummation of the Merger
would constitute a breach of the fiduciary duties of the directors of Info
Systems to the shareholders of Info Systems (the "Alternative Transaction
Termination Provision"); or (e) by Sykes, if the board of directors of
Info Systems has determined in good faith, after consultation with its
legal and financial advisors, that the failure to pursue an Alternative
Transaction would constitute a breach of their fiduciary duties to the
shareholders of Info Systems.
Expenses and Termination Fees
Except as discussed below, whether or not the Merger is consummated,
all fees, costs and expenses incurred in connection with the Merger
Agreement and the transactions contemplated thereby will be paid by the
party incurring such costs and expenses.
In the event all of the following occur: (a) the Merger Agreement
is terminated by Sykes or Info Systems pursuant to the Optional
Termination Provision; (b) at the time of such termination, the Merger
shall not have been approved by shareholders of Info Systems with holders
of no more than 9.5% of the shares of Info Systems Common Stock having not
voted in favor of the Merger and having notified Info Systems in writing
that they intend to exercise their dissenter's rights; and (c) the
Registration Statement shall have been declared effective at least fifteen
(15) days prior to the date of such termination, then Info Systems is
required to reimburse Sykes for the Sykes Merger Expenses (as defined
below).
If Info Systems receives any bona fide offer or proposal for, or any
indication of interest in, any Alternative Transaction and thereafter
either (a) the Merger Agreement is terminated under circumstances in which
Sykes is entitled to reimbursement of the Sykes Merger Expenses as
described above or (b) Info Systems or Sykes terminates the Merger
Agreement in accordance with the Alternative Transaction Termination
Provision, then Info Systems will pay the Termination Fee (as defined
below) to Sykes.
The term "Sykes Merger Expenses" means all reasonable, out-of-pocket
expenses incurred by Sykes in connection with the Merger, including all
filing fees, provided that the Sykes Merger Expenses may not exceed
$400,000. The term "Termination Fee" means the greater of (a) 50% of the
amount by which the Alternative Transaction Value (as defined below)
exceeds $24,615,093 and (b) the aggregate (not to exceed, for purposes of
determining the Termination Fee, $1,500,000) of the Sykes Merger Expenses
plus 50% of the amount by which the Alternative Transaction Value exceeds
$24,615,093, provided that in no event may the Termination Fee be less
than $1,000,000 plus the Sykes Merger Expenses or greater than $2,000,000.
The term "Alternative Transaction Value" means, with respect to any
Alternative Transaction, the aggregate fair market value of all
consideration received or retained by any one or more of Info Systems, its
shareholders, affiliates and creditors in connection with such Alternative
Transaction.
Amendment and Waiver
The Merger Agreement may be amended at any time. Any provision of
the Merger Agreement may be waived at any time by the party which is
entitled to the benefits thereof.
SELECTED FINANCIAL DATA
Sykes
The following historical financial data for the periods indicated have
been derived from the Consolidated Financial Statements of Sykes. The
Balance Sheet Data as of December 31, 1994 and 1995, and the Statement of
Operations Data for each of the two years in the period ended July 31,
1994, the five months ended December 31, 1994 and the year ended December
31, 1995, have been derived from the Company's consolidated financial
statements for such years, which have been audited by Coopers & Lybrand
L.L.P., independent public accountants, and are included elsewhere in this
Proxy Statement/Prospectus. The Balance Sheet Data as of July 31, 1991,
1992, 1993 and 1994, and the Statement of Operations Data for the years
ended July 31, 1991 and 1992, have been derived from the Company's
consolidated financial statements, which are not included in this Proxy
Statement/Prospectus. The selected financial data for the nine months
ended September 30, 1995 and 1996 have been derived from unaudited
consolidated financial statements included elsewhere herein and, in the
opinion of management of Sykes, such data for these periods include all
adjustments, consisting of only normal recurring adjustments, to present
fairly the financial statements for such periods. Interim results are not
necessarily indicative of results which may be expected for any other
period or the full fiscal year. The information below should be read in
conjunction with "Sykes--Management's Discussion and Analysis of Financial
Condition and Results of Operations," and Sykes Consolidated Financial
Statements and related notes appearing elsewhere in this Proxy
Statement/Prospectus. See "Index to Financial Statements."
Info Systems
The following historical financial data for the periods indicated
have been derived from the Financial Statements of Info Systems. The
Balance Sheet Data as of June 30, 1995 and 1996, and the Statement of
Operations Data for each of the years in the three year period ended June
30, 1996 have been derived from Info Systems financial statements for such
years, which have been audited by KPMG Peat Marwick, LLP, independent
certified public accountants, and are included elsewhere in this Proxy
Statement/Prospectus. The Balance Sheet Data as of June 30, 1994, has
been derived from Info Systems financial statements, which have been
audited by KPMG Peat Marwick, LLP, independent public accountants, and
which are not included in this Proxy Statement/Prospectus. The Balance
Sheet Data as of June 30, 1992 and 1993, and the Statement of Operations
Data for each of the two years ended June 30, 1993 have been derived from
Info Systems' financial statements, which have been audited by another
accounting firm, and which are not included in this Proxy
Statement/Prospectus. The selected financial data for the three months
ended December 31, 1995 and 1996 have been derived from unaudited
financial statements included elsewhere herein and, in the opinion of
management of Info Systems, such data for these periods include all
adjustments, consisting of only normal recurring adjustments, to present
fairly the financial statements for such periods. Interim results are not
necessarily indicative of results which may be expected for any other
period or the full fiscal year. The information below should be read in
conjunction with "Info Systems--Management's Discussion and Analysis of
Financial Condition and Results of Operations," and Info Systems Financial
Statements and related notes appearing elsewhere in this Proxy
Statement/Prospectus. See "Index to Financial Statements."
Sykes and Info Systems Combined
The following pro forma financial data for the periods indicated
have been derived from the Consolidated Financial Statements of Sykes and
the financial statements of Info Systems which have been recasted to
correspond to Sykes' accounting periods, and reflect the consummation of
the Merger. The information below should read in conjunction with "Pro
Forma Combined Financial Information," appearing elsewhere in this Proxy
Statement/Prospectus.
<TABLE>
SYKES
Selected Consolidated Financial Data
(In thousands, except per share data)
<CAPTION>
Years Ended July 31, Five Months Year Ended Nine Months Ended
Ended
December 31, December 31, October 1, September 29,
1991 1992 1993 1994 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Revenues . . . . . . $45,375 $ 47,189 $56,912 $55,589 $ 21,613 $ 74,595 $ 51,315 $ 81,008
Direct salaries and
related costs . . . 26,763 27,345 36,487 35,362 14,157 44,592 31,036 45,536
General and
administrative(1) . 15,773 17,434 18,553 18,786 7,243 25,232 16,683 25,413
------- ------- ------- ------- -------- ------ ------- --------
Income from
operations . . . . 2,839 2,410 1,872 1,441 213 4,771 3,596 10,059
Interest and other
expense . . . . . . 278 205 164 250 276 728 509 (90)
------- ------- ------- ------ ------- ------- ------- --------
Income (loss) before
income taxes . . . 2,561 2,205 1,708 1,191 (63) 4,043 3,087 10,149
Provision for income
taxes(2) . . . . . . 1,053 876 988 597 116 1,819 1,319 4,061
------- ------- ------ ------- ------- ------- ------- --------
Income (loss) before
cumulative effect
of account change 1,508 1,329 720 594 (179) 2,224 1,768 6,088
Cumulative effect of
change in accounting
for income taxes . . -- 49 -- -- -- -- -- --
------- ------- ------- -------- -------- ------- -------- --------
Net income (loss)(2) $1,508 $ 1,378 $ 720 $ 594 $ (179) $ 2,224 $ 1,768 $ 6,088
======= ======= ======= ======== ======== ======== ======== ========
Net income (loss) per
share(2) . . . . . . $ 0.09 $ 0.08 $ 0.04 $ 0.04 $ (0.01) $ 0.13 $ 0.10 $ 0.32
====== ====== ====== ======== ======== ========= ======== ========
Weighted average
shares outstanding . 16,627 16,874 16,874 16,874 16,874 16,874 16,874 19,180
<CAPTION>
July 31, December 31, October 1, September 29,
1991 1992 1993 1994 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital . . . $ 4,944 $ 6,269 $ 4,463 $ 4,482 $ 5,022 $ 1,050 $ 6,762 $ 35,527
Total assets . . . . 13,624 17,773 16,624 21,960 28,287 46,151 27,838 84,000
Total long-term debt,
less current
installments . . . . 1,535 2,172 276 3,245 6,987 8,590 6,572 292
Total shareholders'
equity . . . . . . . 6,231 7,787 8,678 9,297 8,277 10,864 10,230 55,892
</TABLE>
__________________________
(1) Includes non-cash compensation expense of $949,960 related to the
grant of stock options to an executive officer in 1995. See
"Information About Sykes--Management--Executive Compensation."
Excluding the effect of such expense, income from operations,
income before income taxes and net income in 1995 would have been
$5.7 million, $5.0 million, and $2.8 million, respectively, and net
income per share would have been $0.17.
(2) Adjusted as if an affiliate of the Company included in the
consolidated financial statements, which was an S corporation for
federal income tax purposes, were subject to income taxes for all
periods presented, based on the tax laws in effect during the
respective periods. See Note 13 of Notes to the Company's
Consolidated Financial Statements.
<TABLE>
INFO SYSTEMS
Selected Financial Data
(In thousands, except per share data)
<CAPTION>
Six Months Ended
Years Ended June 30, December 31, December 31,
1995 1996
1992 1993 1994 1995 1996 (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues . . . . . . . $ 13,292 $ 14,527 $ 17,139 $ 28,219 $ 24,455 $ 13,352 $ 14,037
Cost of hardware and
certain software sales 692 2,034 5,654 13,865 8,078 4,419 6,442
Salaries, commissions
and related benefits . 8,650 9,613 8,406 10,244 11,441 6,465 6,149
Selling, general and
administrative . . . . 2,700 2,481 2,413 2,966 3,830 1,780 3,184
------- -------- -------- -------- ------- -------- --------
Income (loss) from
operations . . . . 1,250 399 666 1,144 1,106 688 (1,738)
Interest and other
expense (income) . . . 1,013 621 (221)(1) 945 687 321 1,318
------- ------- ------- -------- -------- -------- ---------
Income (loss) before
income taxes and
cumulative effect of
accounting change . 237 (222) 887 199 419 367 (3,056)
Provision for (benefit
of) income taxes . . . 103 77 343 90 192 137 (1,222)
------- -------- -------- -------- -------- -------- --------
Income (loss) before
cumulative effect of
accounting change . 134 (145) 544 109 227 230 (1,834)
Cumulative effect of
change in accounting
for income taxes . . . -- -- 105 -- -- -- --
------- --------- -------- ------- ------- -------- --------
Net income (loss) . . $ 134 $ (145) $ 649 109 $ 227 $ 230 $ (1,834)
======= ========= ======== ======= ======= ======== ========
Net income (loss) per
share . . . . . . . . $ 0.04 $ (0.05) $ 0.20 $ 0.03 $ 0.07 $ 0.07 $ (0.57)
======= ========= ======== ======= ======= ======== ========
Weighted average shares
outstanding . . . . . 3,045 3,190 3,190 3,214 3,176 3,178 3,228
======= ========= ======== ======= ======= ======== ========
<CAPTION>
June 30, December 31,
1995 1996
1992 1993 1994 1995 1996 (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital
(deficit) . . . . . . $ 878 $ 6 $ 662 $ 308 $ (309) $ (131) $ 253
Total assets . . . . . 4,692 4,280 4,998 7,313 8,351 6,820 9,085
Total long-term debt,
less current
installments . . . . . 291 2,474 2,218 1,308 1,113 946 665
Total stockholders'
equity . . . . . . . . 1,138 (1,735) (623) 417 1,179 910 1,286
======= ======= ======== ======== ======== ======== =========
(1) Includes a $1,000,000 gain for the year ended June 30, 1994 as a
result of the asset purchase agreement entered into in April 1993
with Worldwide Chain Store Systems, a subsidiary of IBM, whereby
Info Systems sold certain equipment and rights related to its
automated warehouse business.
</TABLE>
<TABLE>
SYKES & INFO SYSTEMS COMBINED
Pro Forma Selected Combined Financial Data
(In thousands, except share data)
<CAPTION>
Five Months
Years Ended July 31, Ended Year Ended Nine Months Ended
December 31, December 31, October 1, September 29,
1991 1992 1993 1994 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of
Income Data:
Revenues . . . . . . $55,499 $60,508 $71,817 $74,252 $ 37,864 $ 97,902 $ 67,293 $ 100,040
Direct salaries
and related
costs . . . . . . . 32,238 34,959 46,603 47,766 26,520 61,451 42,693 59,736
General and
administrative(1) . 19,861 22,998 23,299 23,909 10,090 31,935 21,408 30,256
------ ------- ------ ------ ------ ------ ------ -------
Income from
operations . . . . 3,400 2,551 1,915 2,577 1,254 4,516 3,192 10,048
Interest and other
expense . . . . . . 310 206 431 531 355 857 598 123
------ ------- ------- ------- ------- ------- ------- -------
Income before
income taxes . . . 3,090 2,345 1,484 2,046 899 3,659 2,594 9,925
Provision for
income taxes(2) . . 1,260 964 925 921 501 1,666 1,133 4,006
----- ------- ------- ------- -------- ------- ------- -------
Income (loss)
before cumulative
effect of account
change(2) . . . . 1,830 1,381 559 1,125 398 1,993 1,461 5,919
Net income per
share before
cumulative effect
of accounting
change . . . . . . . $ 0.11 $0.08 $0.03 $ 0.06 $ 0.02 $ 0.11 $ 0.08 $ 0.30
====== ======= ====== ====== ======= ======= ======= ========
Weighted average
shares outstanding . 17,211 17,456 17,456 17,456 17,456 17,456 17,456 19,763
<CAPTION>
July 31, December 31, October 1, September 29,
1991 1992 1993 1994 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital . . . $5,812 $7,172 $4,733 $ 5,202 $ 6,086 $ 987 $ 7,133 $ 35,343
Total assets . . . . 16,557 22,310 20,978 28,182 36,148 52,971 34,036 92,850
Total long-term debt,
less current
installments . . . . 1,834 2,463 2,940 5,545 8,919 9,584 7,760 1,248
Total shareholders'
equity . . . . . . . 7,174 8,948 6,984 8,977 8,740 11,774 10,987 56,976
__________________________
(1) Includes non-cash compensation expense of $949,960 related to the grant of stock options to an executive officer in
1995. See "Information About Sykes Management--Executive Compensation." Excluding the effect of such expense, income
from operations, income before income taxes and net income in 1995 would have been $4.0 million, $4.6 million and $2.6
million, respectively, and net income per share would have been $0.15.
(2) Adjusted as if an affiliate of the Company included in the consolidated financial statements, which was an S
corporation for federal income tax purposes, were subject to income taxes for all periods presented, based on the tax
laws in effect during the respective periods. See Note 13 of Notes to the Company's Consolidated Financial Statements.
</TABLE>
PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial information gives
effect to the combination of Sykes and Info Systems on a pooling-of-
interests basis. The pro forma combined statement of operations data
assume that the merger took place as of the beginning of each of the
periods presented and combine Sykes historical consolidated statement of
operations for each of the two years in the period ended July 31, 1994,
the five-months ended December 31, 1994, and the year ended December 31,
1995 with Info Systems unaudited statement of operations for each of the
two twelve-month periods in the period ending July 31, 1994, the five-
month period ended December 31, 1994, and the twelve-month period ended
December 31, 1995. The pro forma combined statement of operations data
also combine Sykes unaudited consolidated statement of operations for the
nine months ended October 1, 1995 and September 29, 1996 with the
unaudited statements of operations of Info Systems for the nine months
ended September 30, 1995 and 1996, respectively. The pro forma combined
balance sheet assumes the merger took place on September 29, 1996 and
combines Sykes unaudited consolidated balance sheet at that date with the
unaudited balance sheet of Info Systems at September 30, 1996.
The Pro Forma Consolidated Financial Statements should be read in
connection with the Consolidated Financial Statements of Sykes and the
Financial Statements of Info Systems and related notes appearing elsewhere
herein. See "Index to Financial Statements." The unaudited pro forma
financial information presented is for informational purposes only and
does not purport to represent what Sykes and Info Systems' financial
position or results of operations as of the dates presented would have
been had the Merger in fact occurred on such date or at the beginning of
the period indicated or to project Sykes and Info Systems' financial
position or results of operations for any future date or period.
PRO FORMA COMBINED BALANCE SHEET
(in thousands)
(Unaudited)
Pro Forma
September 30,
September 29, 1996
1996 Info Merger After
Sykes Systems Adjustments Merger
Current Assets
Cash and short-term
securities . . . $20,178 $ 8 $ - $20,186
Accounts receivable 29,422 4,817 - 34,239
Prepaid expenses,
deferred taxes and
other assets . . 2,006 405 - 2,411
------- ------- -------- -------
Total current
assets 51,606 5,230 - 56,836
Property and
equipment, net . 31,429 1,630 - 33,059
Other assets . . 965 1,990 - 2,955
------- ------- -------- -------
Total assets . . . $84,000 $8,850 - $92,850
======= ======= ======= ========
Current Liabilities
Accounts payable
and accrued
liabilities . . $16,057 $4,640 $ - $20,697
Current portion -
long-term debt . 22 868 - 890
------- ------- -------- -------
Total current
liabilities . . . 16,079 5,508 - 21,587
Deferred revenue
and other long-
term liabilities 9,940 696 - 10,636
Long term debt . 292 889 - 1,181
Deferred income
taxes . . . . . 1,797 673 - 2,470
Shareholders' equity
Common stock . . 200 32 (26) 206
Additional paid-in
capital . . . . 45,965 827 26 46,818
Retained earnings 9,660 1,230 - 10,890
Accumulated foreign
currency
translation
adjustments . . 67 __ - 67
Unearned ESOP
contributions . - (1,005) - (1,005)
------- ------- -------- -------
Total shareholders'
equity . . . . . 55,892 1,084 - 56,976
------- ------- -------- -------
Total liabilities
and shareholders'
equity . . . . . . $84,000 $8,850 $ - $92,850
======= ======= ======== =======
See Notes to Pro Forma Combined Financial Information
<PAGE>
<TABLE>
SYKES & INFO SYSTEMS COMBINED
Pro Forma Selected Combined Financial Information
(In thousands, except per share data)
<CAPTION>
Five Months
Year Ended Ended Year Ended Nine Months Ended
July 31, July 31, December 31, December 31, October 1, September 29,
1993 1994 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Revenues . . . . . . . . $71,817 $74,252 $ 37,864 $ 97,902 $ 67,293 $ 100,040
Direct salaries and
related costs . . . . . 46,603 47,766 26,520 61,451 42,693 59,736
General and
administrative . . . . . 23,299 23,909 10,090 31,935 21,408 30,256
-------- -------- -------- ------- -------- --------
Income from operations 1,915 2,577 1,254 4,516 3,192 10,048
Interest and other
expense . . . . . . . . 431 531 355 857 598 123
-------- -------- -------- ------- -------- --------
Income before income
taxes . . . . . . . . 1,484 2,046 899 3,659 2,594 9,925
Provision for income
taxes . . . . . . . . . 925 921 501 1,666 1,133 4,006
-------- -------- -------- ------- ------- ---------
Income before
cumulative effect of
accounting change. . . $ 559 $ 1,125 $ 398 $ 1,993 $ 1,461 $ 5,919
======== ======= ======= ======= ======= ========
Income per share before
cumulative effect of
accounting change . . . . $ 0.03 $ 0.06 $ 0.02 $ 0.11 $ 0.08 $ 0.30
======== ======== ======== ======== ========= ========
Weighted average shares
outstanding . . . . . . 17,456 17,456 17,456 17,456 17,456 19,763
</TABLE>
See Notes to Pro Forma Combined Financial Information
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION
1. The pro forma combined financial information reflects the issuance of
676,471 shares of Sykes Common Stock for an aggregate of 3,353,741
shares of Info Systems Common Stock in connection with the Merger
based upon a conversion factor of approximately .202 of a share of
Sykes Common Stock for each share of Info Systems Common Stock. The
actual number of shares Sykes Common Stock to be issued will be
determined at the Effective Time of the Merger.
2. On a combined basis there were no material transactions between Sykes
and Info Systems during any period presented.
3. The table below sets forth the composition of the unaudited pro forma
revenues, income (loss) from operations and net income (loss) for each
of the periods shown had the Merger taken place at the beginning of
the periods shown:
<TABLE>
<CAPTION>
Five Months
Years Ended July 31, Ended Year Ended Nine Months Ended
December 31, December 31, October 1, September 29,
1993 1994 1994 1995 1995 1996
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Sykes . . . . . . . $56,912 $55,589 $21,613 $74,595 $51,315 $ 81,008
Info Systems . . . 14,905 18,663 16,251 23,307 15,978 19,032
-------- ------- -------- ------- -------- --------
Combined . . . . . $71,817 $74,252 $37,864 $97,902 $67,293 $100,040
====== ======= ======= ======= ======= =======
Income (loss) from
operations:
Sykes . . . . . . . $ 1,872 $ 1,441 $ 213 $ 4,771 $ 3,596 $ 10,059
Info Systems . . . 43 1,136 1,041 (255) (404) (11)
-------- -------- -------- -------- -------- ---------
Combined . . . . . $ 1,915 $ 2,577 $ 1,254 $ 4,516 $ 3,192 $ 10,048
======= ======= ======== ======== ======= =======
Income (loss) before
cumulative effect of
accounting change:
Sykes . . . . . . . $ 720 $ 594 $ (179) $ 2,224 $ 1,768 $ 6,088
Info Systems . . . (161) 636 577 (231) (307) (169)
------- ------- -------- -------- -------- --------
Combined . . . . . $ 559 $ 1,230 $ 398 $ 1,993 $ 1,461 $ 5,919
======= ======== ======== ======= ======= =======
</TABLE>
ADDITIONAL CONSOLIDATED FINANCIAL INFORMATION
Effective August 1, 1994, the Company changed its fiscal year end from
July 31 to December 31. The following table contains selected Statement
of Income Data for the years ended December 31, 1993, 1994 and 1995, which
have been derived from Note 14 of Notes to the Company's Consolidated
Financial Statements. The data for the years ended December 31, 1993 and
1994 have not been derived from the Company's audited consolidated
financial statements. The data for the year ended December 31, 1995 have
been derived from the Company's consolidated financial statements for such
period, which have been audited by Coopers & Lybrand L.L.P., independent
public accountants, and are included elsewhere in this Proxy
Statement/Prospectus. The data as of and for the nine months ended
October 1, 1995 and September 29, 1996, respectively, have been derived
from the Company's unaudited financial statements and in the opinion of
management include all adjustments (consisting of only normal recurring
accruals) necessary for a fair presentation of such information. The data
set forth below should be read in conjunction with the financial
statements and notes thereto included in this Proxy Statement/Prospectus
and "Sykes--Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<TABLE>
<CAPTION>
Years Ended December 31, Nine Months Ended
October 1, September 29,
1993 1994 1995 1995 1996
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Revenues . . . . . . . . . $57,281 $53,185 $74,595 $51,315 $81,008
Direct salaries and related
costs . . . . . . . . . . 37,257 33,732 44,592 31,036 45,536
General and
administrative(1) . . . . 18,579 18,304 25,232 16,683 25,413
------- ------- ------- ------- --------
Income from operations . 1,445 1,149 4,771 3,596 10,059
Interest and other income
(expense) . . . . . . . . 52 (488) (728) (509) 90
------- ------- -------- -------- -------
Income before income taxes 1,497 661 4,043 3,087 10,149
Provision for income
taxes(2) . . . . . . . . . 809 506 1,819 1,319 4,061
------- ------- ------- -------- --------
Net income(2) . . . . . . $ 688 $ 155 $ 2,224 $ 1,768 $ 6,088
======= ======= ======== ======== ========
Net income per share(2) . . $ 0.04 $ 0.01 $ 0.13 $ 0.10 $ 0.32
======= ======= ======= ======= ========
Weighted average shares
outstanding . . . . . . . 16,874 16,874 16,874 16,874 19,180
(1) Includes non-cash compensation expense of $949,960 related to the grant of stock options to an executive officer in
1995. See "Information About Sykes--Management--Executive Compensation." Excluding the effect of such expense, income
from operations, income before income taxes and net income in 1995 would have been $5.7 million, $5.0 million and $2.8
million, respectively, and net income per share would have been $0.17.
(2) Adjusted as if an affiliate of the Company included in the consolidated financial statements, which was an S
corporation for federal income tax purposes, were subject to income taxes for all periods presented, based on the tax
laws in effect during the respective periods. See Note 13 of Notes to the Company's Consolidated Financial Statements.
</TABLE>
SYKES -- 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, included elsewhere in
this Proxy Statement/Prospectus. Effective August 1, 1994, the Company
changed its fiscal year end from July 31 to December 31. The following
discussion compares the nine months ended September 29, 1996 to the nine
months ended October 1, 1995, the twelve months ended December 31, 1995
("1995") to the twelve months ended December 31, 1994 ("1994"), and 1994
to the twelve months ended December 31, 1993 ("1993"). See Note 14 of
Notes to Consolidated Financial Statements for the corresponding selected
consolidated financial data. This Proxy Statement/Prospectus contains
forward-looking statements that involve risks and uncertainties. Future
events and the Company's actual results could differ materially from the
results reflected in these forward-looking statements, as a result of
certain of the factors set forth below and elsewhere in this Proxy
Statement/Prospectus. In compliance with requirements of the Securities
and Exchange Commission, the Pro Forma Combined Financial Statements,
consisting of restated financial information for periods beginning
August 1, 1992, have been included elsewhere herein.
Overview
The Company derives its revenues from providing information technology
support services and information technology development services and
solutions. Revenues from information technology support services provided
through the IT call centers 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. 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 $42.3 million in 1993 to $70.1 million in
1995, and from $47.6 million for the nine months ended October 1, 1995 to
$80.6 million for the nine months ended September 29, 1996.
In 1993, in an effort to capitalize on a trend toward the outsourcing of
information technology services, the Company began providing information
technology support services through the opening of IT call centers while
phasing out its non-information technology services. Revenues from these
services decreased $5.2 million from 1993 to 1994 and decreased $5.0
million from 1994 to 1995. The phase-out of these services was
substantially completed in 1995.
Direct salaries and related costs includes direct personnel
compensation, statutory and other benefits associated with such personnel
and other direct costs associated with providing services to customers.
General and administrative expenses include administrative, sales and
marketing, occupancy and other indirect costs. General and administrative
costs incurred in opening new IT call centers are expenses 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, totalled $6.8 million at December 31, 1995 and $9.9
million at September 29, 1996.
The Company's effective tax rate reflects the effects of foreign taxes,
net of foreign income not taxed in the United States, nondeductible
expenses for income tax purposes and the provision of potential additional
income tax liability resulting from a pending Internal Revenue Service
examination currently being conducted. The Company believes its reserves
for any liability that may result from this examination are adequate. See
Note 7 of Notes to Consolidated Financial Statements.
Results of Operations
The following table sets forth for the periods indicated the percentage
of revenues represented by certain items reflected in the Company's
statements of income:
<TABLE>
<CAPTION>
Percentage of Revenues
Years Ended December 31, Nine Months Ended
October 1, September 29,
1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0% 100.0%
Direct salaries and related
costs . . . . . . . . . . . . 65.1 63.4 59.8 60.5 56.2
General and administrative . . 32.4 34.4 33.8 32.5 31.4
---- ---- ---- ---- ----
Income from operations . . . . 2.5 2.2 6.4 7.0 12.4
Interest and other income
(expense) . . . . . . . . . . 0.1 (1.0) (1.0) (1.0) 0.1
---- ---- ---- ---- ----
Income before income taxes . . 2.6 1.2 5.4 6.0 12.5
Provision for income taxes (1) 1.4 0.9 2.4 2.6 5.0
---- ---- ---- ---- ----
Net income (1) . . . . . . . . 1.2% 0.3% 3.0% 3.4% 7.5%
==== ==== ==== ==== ====
(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. See Note 13 of Notes to the Company's Consolidated Financial Statements.
</TABLE>
Nine Months Ended September 29, 1996 Compared to Nine Months Ended October
1, 1995
Revenues. Revenues increased $29.7 million, or 57.9%, to $81.0 million
in the nine months ended September 29, 1996 from $51.3 million in the
comparable 1995 period. These results reflect an increase in revenues of
$29.1 million from information technology support services provided
through IT call centers and an increase in revenues of $3.8 million from
information technology services and solutions, partially offset by a $3.2
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 September 1995 and the resultant increase in
call volumes from clients. During the fourth quarter of 1995, the Company
opened two new IT call centers which were fully operational throughout the
first nine months of 1996, and opened additional centers in February and
September 1996. In addition, the Company has added 32 customers in its
information technology support services since the beginning of 1995,
giving it 54 customers that utilized these services as of September 29,
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 $14.5 million, or 46.7%, to $45.5 million in the first nine
months of 1996 from $31.0 million in the first nine months of 1995. As a
percentage of revenues, however, direct salaries and related costs
decreased to 56.2% in the nine months ended September 29, 1996 from 60.5%
in the comparable 1995 period. The increase in the amount of direct
salaries and related costs was attributable to the addition of personnel
to support revenue growth. The decrease as a percentage of revenues
resulted from economies of scale associated with spreading costs over a
larger revenue base and the continued change in the Company's mix of
business reflecting the growth of information technology support services
as a percentage of consolidated results.
General and Administrative. General and administrative expenses
increased 52.3% to $25.4 million in the first nine months of 1996 from
$16.7 million in the first nine months of 1995. As a percentage of
revenues, general and administrative expenses decreased to 31.4% in the
first nine months of 1996 from 32.5% in the comparable 1995 period. The
increase in the amount of general and administrative expenses was
primarily attributable to the addition of management and administrative
personnel to support the Company's growth 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
$90,000 during the first nine months of 1996 from interest and other
expense of $509,000 during the first nine months of 1995. As a percentage
of revenues, interest and other income increased to 0.1% during the first
nine months of 1996 from interest and other expense of 1.0% during the
first nine months of 1995. The increase was primarily attributable to an
increase in the Company's cash position as a result of the Company's
initial public offering completed in April 1996. The Company repaid all
amounts outstanding under bank borrowing arrangements and invested the
remaining net proceeds of the offering in short term investment grade
securities and money market instruments.
Income Taxes. Income taxes increased $2.8 million, or 207.9%, to $4.1
million during the first nine months of 1996 from $1.3 million during the
comparable period of 1995, and increased as a percentage of revenues to
5.0% from 2.6%. This increase is attributable to the significant increase
in the amount of income before income taxes and in income before income
taxes as a percentage of revenues. However, the Company's marginal tax
rate decreased to 40.0% during the first nine months of 1996 primarily as
a result of (i) nondeductible expenses being a lower percentage of the
larger income before income taxes and (ii) tax-exempt interest income.
Net Income. As a result of the foregoing, net income increased to $6.0
million in the first nine months of 1996 from $1.8 million in the
comparable period of 1995.
1995 Compared to 1994
Revenues. Revenues increased $21.4 million, or 40.3%, to $74.6 million
in 1995 from $53.2 million in 1994. These results reflect an increase in
revenues of $22.4 million from information technology support services
provided through IT call centers and an increase in revenues of $4.0
million from information technology services and solutions. These
increases were partially offset by a $5.0 million reduction in revenues
from the non-information technology services that were substantially
phased out in 1995.
The increase in information technology support services revenues was
primarily attributable to an increase in the number of IT call centers
providing services throughout the year, the addition of several
significant customers and the resultant increase in call volumes from
clients. During the fourth quarter of 1995, the Company opened two new IT
call centers in addition to the 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 32.2% to $44.6 million in 1995 from $33.7 million in 1994. As a
percentage of revenues, however, direct salaries and related costs
decreased to 59.8% in 1995 from 63.4% 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 37.8% to $25.2 million in 1995 from $18.3 million in 1994. As a
percentage of revenues, general and administrative expenses decreased to
33.8% in 1995 from 34.4% 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. See "Information About Sykes--Management--Executive Compensation."
The decrease as a percentage of revenues resulted from economies of scale
associated with spreading costs over a larger revenue base.
Interest and Other Expense. Interest and other expense increased 49.1%
to $728,000 in 1995 from $488,000 in 1994, but remained constant as a
percentage of revenues. The increase was primarily attributable to an
increase in the Company's borrowings and increased rates of interest on
such borrowings during 1995. The Company's borrowings increased to $10.2
million at December 31, 1995 from $7.7 million at December 31, 1994,
primarily as a result of capital expenditures required for the IT call
centers.
Income Taxes. Income taxes increased $1.3 million, or 259.5%, to $1.8
million during 1995 from $506,000 in 1994, and increased as a percentage
of revenues to 2.4% from 0.9%. This increase is attributable to the
significant increase in the amount of income before income taxes and in
income before income taxes as a percentage of revenues. However, the
Company's marginal tax rate decreased to 45.0% in 1995 primarily as a
result of nondeductible expenses being a lower percentage of the larger
income before income taxes.
Net Income. As a result of the foregoing, net income increased to $2.2
million in 1995 from $155,000 in 1994.
1994 Compared to 1993
Revenues. Revenues decreased $4.1 million, or 7.1%, to $53.2 million in
1994 from $57.3 million in 1993. These results reflect an increase in
revenues of $6.6 million from information technology support services
provided through IT call centers, a decrease in revenues of $5.5 million
from information technology development services and solutions, and a
decrease in revenues of $5.2 million from the non-information technology
services that were phased out beginning in 1993.
The increase in information technology support services revenues was
primarily attributable to an increase in the number of IT call centers,
the addition of new customers and the resultant increase in call volumes
from clients. During 1994, the Company opened four new IT call centers,
one of which replaced a facility operated throughout 1993. In addition,
the Company added 15 customers for its information technology support
services during 1994, giving it 22 customers that utilized these services
as of December 31, 1994. The decrease in revenues from information
technology development services and solutions was primarily attributable
to reduced demand from the Company's significant customers during the
period.
Direct Salaries and Related Costs. Direct salaries and related costs
decreased 9.5% to $33.7 million in 1994 from $37.3 million in 1993 and, as
a percentage of revenues, decreased to 63.4% from 65.1% for the same
periods. The decrease in direct salaries and related costs was
attributable primarily to the phasing out of the Company's non-information
technology services.
General and Administrative. General and administrative expenses
decreased 1.5% to $18.3 million in 1994 from $18.6 million in 1993, but
increased as a percentage of revenues to 34.4% in 1994 from 32.4% in 1993.
The decrease in the amount of general and administrative expenses was
primarily attributable to the reduction of expenses associated with the
Company's phasing out of non-information technology services initiated in
1993, partially offset by start-up expenses, administrative support costs
and depreciation expense associated with facility and capital equipment
expenditures incurred in 1994 in connection with new IT call centers. The
increase in general and administrative expenses as a percentage of
revenues was primarily the result of decreased revenues in 1994.
Interest and Other Expense. Interest and other expense increased
$540,000 to $488,000 in 1994 from other income of $52,000 in 1993. The
increase was primarily attributable to an increase in the levels of
borrowings during 1994, increased rates of interest on such borrowings and
the recognition of foreign currency transaction losses in 1994. The
Company's borrowings increased to $7.7 million at December 31, 1994 from
$1.8 million at December 31, 1993, primarily as a result of the funding
required to support the addition of IT call centers in 1994.
Income Taxes. Income taxes decreased $303,000 to $506,000 in 1994 from
$809,000 in 1993 as a result of the Company's decreased income before
income taxes and higher effective tax rate in 1993 due to the effects of
state and foreign taxes.
Net Income. As a result of the foregoing, net income decreased to
$155,000 in 1994 from $688,000 in 1993.
Quarterly Results
The following information presents unaudited quarterly operating results
for the Company for 1995 and the first three quarters of 1996. The data
have been prepared by the Company on a basis consistent with the
Consolidated Financial Statements included elsewhere in this Proxy
Statement/Prospectus, and include all adjustments, consisting of normal
recurring accruals, that the Company considers necessary for a fair
presentation thereof. These operating results are not necessarily
indicative of the Company's future performance.
<TABLE>
<CAPTION>
Quarter Ended
4/2/95 7/2/95 10/1/95 12/31/95 3/31/96 6/30/96 9/30/96
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . $16,243 $16,832 $18,240 $23,280 $25,955 $26,512 $28,541
Direct salaries and
related costs . . . . . . 10,202 10,112 10,644 13,787 14,797 14,491 16,095
General and
administrative (1) . . . . 5,368 5,586 5,807 8,316 8,248 8,615 8,704
------- ------- ------- ------ ------- ------- --------
Income from
operations . . . . . . . . 673 1,134 1,789 1,177 2,910 3,406 3,742
Interest and other
income (expense) . . . . . (70) (220) (220) (218) (291) 110 271
------- ------- ------- ------ ------- ------- -------
Income before
income taxes . . . . . . . 603 914 1,569 959 2,619 3,516 4,013
Provision for
income taxes (2) . . . . . 246 392 682 502 1,063 1,437 1,561
------- ------- ------- ------- ------- ------- -------
Net income (2) . . . . . . $ 357 $ 522 $ 887 $ 457 $ 1,556 $ 2,079 $ 2,452
======= ======= ======= ======= ======== ======= =======
Net income per
share (2) . . . . . . . . $ 0.02 $ 0.03 $ 0.05 $ 0.03 $ 0.09 $ 0.11 $ 0.12
======= ======= ======= ======= ======= ======= =======
Weighted average
shares outstanding . . . . 16,874 16,874 16,874 16,874 16,874 18,817 21,023
(1) Includes non-cash compensation expense of $949,960 related to the grant of stock options to an executive officer in the
quarter ended December 31, 1995. See "Information About Sykes--Management." 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 $2.1
million, $1.9 million and $1.0 million, respectively, and net income per share would have been $0.06.
(2) Adjusted as if an affiliate of the Company included in the consolidated financial statements, which was an S corporation for
federal income tax purposes were subject to income taxes for all periods presented, based on the tax laws in effect during
the respective periods. See Note 13 of Notes to Consolidated Financial Statements.
</TABLE>
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, in excess of $70 million from the sale of approximately
1.6 million shares of Sykes 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. In December 1996, the Company signed a
commitment letter to replace the $20 million credit facility 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 the first nine months of 1996, the Company had negative cash flow
from operations of $2.6 million. This was primarily the result of an
increase in the Company's accounts receivable (a significant portion of
which was collected immediately subsequent to the end of the quarter)
associated with organizational growth from increased revenues and the
establishment of new clients, and a decrease in accounts payable,
primarily in the second calendar quarter, from the payment of
significantly fourth quarter 1995 purchases. The Company has used a
portion of its proceeds from its initial public offering, together with
$1.7 million received as incentive grants from local and state
governmental agencies, to fund $11.2 million of capital expenditures for
the nine months ended September 29, 1996. As a result of the Company's
continued expansion, it is anticipated that 1996 capital expenditures will
total approximately $17.0 million, primarily the result of completing the
seventh IT call center (the Company's tenth IT call center) in the United
States. 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 the third quarter of 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 922,000 shares of the Sykes Common Stock (as adjusted for
the three-for-two stock split) and was accounted for using the pooling-of-
interests method of accounting.
During 1995, the Company generated $8.9 million in cash from operations.
The cash generated during 1995, together with $3.2 million in net
borrowings and $2.6 million received as incentive grants from local and
state governmental agencies in connection with additional IT call centers,
was used to fund $13.7 million of capital expenditures during 1995.
Capital expenditures, which consisted primarily of construction of
facilities, information technology, telecommunications equipment and
computer systems, and furniture and fixtures, were made to support the
continued growth and expansion of the IT call centers. During 1995, the
Company opened its sixth and seventh IT call centers and commenced
construction of its eighth IT call center, which was opened in
January 1996.
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.
Recent Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock Based Compensation." With respect to stock
options granted to employees, SFAS No.123 permits companies to continue
using the accounting method promulgated by the Accounting Principles Board
Opinion No. 25 ("APB No.25"), "Accounting for Stock Issued to Employees,"
to measure compensation or to adopt the fair value based method prescribed
by SFAS No. 123. If APB No.25's method is continued, pro forma
disclosures are required as if SFAS No.123 accounting provisions were
followed. Management has determined not to adopt SFAS No.123's accounting
recognition provisions. In the opinion of management, SFAS No.123 is not
expected to have a material impact on the Company's financial statements.
SFAS No.121, "Accounting for the Impairment of Long Lived Assets and
Long Lived Assets to be Disposed Of," is effective for years beginning
after December 15, 1995. This pronouncement requires that long-lived
assets and certain intangibles to be held and used by the Company be
reviewed for impairment. This pronouncement is not expected to have a
material impact on the financial statements of the Company.
INFO SYSTEMS -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Info Systems' cash balance as of June 30, 1995 was $1.25 million compared
to $6,500 as of June 30, 1996, a decrease of $1.24 million. Info Systems
expended $2.6 million in 1996 for capital equipment and software development
compared to $.8 million in 1995, an increase of $1.8 million. Cash flow
from operating activities was insufficient to finance this level of capital
expenditure and therefore Info Systems relied on term loans and credit lines
to finance the increased working capital requirements. Current credit
facilities provide up to $500,000 for the purchase of equipment, up to
$2,000,000 for working capital, and up to an additional $1,250,000, as
needed, to cover additional requirements. These credit facilities are in
addition to existing term loans used to finance Info Systems' ESOP,
computer equipment and vehicles.
Info Systems' cash balance as of December 31, 1996 was $447,865. Info
Systems expended $.2 million in the six months ending December 31, 1996
for capital equipment and software development compared to $1.0 million in
the comparable period in 1995, a decrease of $.8 million. Info Systems
repaid borrowings under lines of credit amounting to $2.2 million during the
six months ended December 31, 1996. Cash flow from operating activities,
provided from increased payables, was used to finance the requirements.
Although management of Info Systems believes that it has adequate
capital resources to sustain its current operations, greater access to
capital resources might allow Info Systems to enhance its growth
opportunities. In addition, Info Systems cannot finance significant
operating losses that could occur as a result of lower revenues caused by
currently unforeseen factors such as a deterioration of the economic
environment or increased competitive forces.
Under the terms of certain notes payable to a bank, Info Systems is
required to comply with certain covenants. Info Systems is not in
compliance with all covenants at December 31, 1996, but has obtained a
waiver letter from the bank waiving compliance with such covenants through
January 1, 1998. Info Systems has two working capital lines of credit
with First Union National Bank of North Carolina, one for up to $2,000,000
and one for up to $1,250,000. As of December 31, 1996, the $2,000,000
line had outstanding borrowings of $0 and the $1,250,000 line had
outstanding borrowings of $6,052. Info Systems also has an
inventory/equipment line of credit with IBM Credit Corporation for up to
$600,000, with an option to finance the purchase of equipment based upon
specific customer transactions, $1,410,744 was outstanding to IBM Credit
Corporation as of December 31, 1996.
Results of Operations
Six Months Ended December 31, 1996 Compared to Six Months Ended
December 31, 1995
Revenues. Revenues increased $.7 million, or 5.1% to $14.0 million in
the six months ending December 31, 1996 from $13.3 million in the
comparable period in 1995. These results reflect an increase in hardware
revenues of $3.3 million to $8.1 million in the six months ended December 31,
1996 from $4.8 million in the comparable 1995 period. This difference is
primarily due to increased sales to Info Systems' retail customers.
Services revenue decreased $1.7 million, or 37% to $3.0 million from
$4.7 million in the same period in 1995. The decrease in services revenue
is primarily due to the allocation of programming and consulting resources
to development and support of Info Systems' new products rather than
to billable projects. Revenues from software licensing fees and commissions
from the sale of software decreased $.9 million, or 28%, in the six
months ended December 31, 1996 to $2.2 million from $3.0 million in the
comparable 1995 period. The decrease was due primarily to technical
problems discovered after the release of FS PRO Marketplace, Info Systems'
newest software product, which delayed the schedule for marketing the
product. Revenues from maintenance agreements with customers in support
of Info Systems' software products were flat at $.51 million for the six
months ended December 31, 1996 compared to $.56 million for the comparable
1995 period.
Cost of Hardware and Certain Software Sales. Cost of revenues increased
by $2.0 million, to $6.4 million, in the six months ending December 31,
1996 compared to $4.4 million for the six months ending December 31, 1995.
This increase was due to additional hardware sales. The margins on
hardware increased from 16.7% for the six months ending December 31,
1995 to 20.8% for the comparable period ending December 31, 1996. The
increased margins were due to changes in the mix of products sold.
Salaries, Commissions and Related Benefits. Direct salaries and
related costs for the six months ending December 31, 1996 were $6.1
million, a decrease of $.3 million, or 4.9%, from $6.4 million in the
comparable six month period in 1995. The number of employees in Info
Systems' operating departments remained relatively flat during these
periods and the small decrease is due primarily to employee turnover.
Selling, General and Administrative Expenses. General and
administrative expenses were $3.1 million for the six months ending
December 31, 1996, an increase of $1.4 million from $1.8 million for the
six month period ending December 31, 1995. This change is due to increased
amortization of the development costs for Info Systems' products which
were previously capitalized, increased depreciation on equipment required
to support Info Systems' development efforts, writeoff of goodwill from
the purchase of assets which no longer have future value to Info Systems,
accruals for the accounting and legal expenses associated with the Merger,
additional accruals for bad debt to increase the reserve required for Info
Systems' accounts receivable, and increases in the costs for network
communications and marketing.
Interest and Employee Benefit Expense. Interest and employee benefit
expense was $1.3 million for the six months ending December 31, 1996, an
increase of $1.0 million, or 311%, from $.32 million for the comparable
period in 1995. This increase was due primarily to the accrual of the
remaining contribution to the ESOP and to interest on additional borrowings
required by Info Systems to fund its product development activities.
Income Taxes. Info Systems' operating loss before taxes for the six
month period ending December 31, 1996 was partially offset by a $1.2 million
credit for income taxes. This compares to an income tax expense of
$137,000 during the six month period ending December 31, 1995. Based on
projections of future taxable income, management believes that the tax
benefit recorded is recoverable.
Net Income. Info Systems experienced a loss of $1.8 million for the period
ending December 31, 1996 compared to net income of $230,000 for the
period ending December 31, 1995. This outcome is primarily the result of
the increased employee benefit contribution expense and increased selling,
general and administrative expenses.
Year Ended June 30, 1996 Compared to Year Ended June 30, 1995
Revenues. Revenues decreased $3.8 million, or 13.4%, to $24.5 million
in 1996 from $28.3 million in 1995. These results reflect a decrease in
hardware revenues of $7.1 million, or 43.3%, from $16.4 million in 1995 to
$9.3 million in 1996. This difference was due primarily to a large order
in 1995 from a single customer which was not duplicated in 1996. Services
revenue increased $1.9 million, or 27.3%, to $9.1 million from $7.1
million in 1995. This was due to both an increase in demand for technical
services from existing customers and the addition of new customers.
Revenues from software licensing fees and commissions from the sale of
software increased $1.2 million, or 26.2%, to $4.4 million from $3.2
million in 1995. The increase was due primarily to sales of the new
products developed by Info Systems and additional success in selling
products previously marketed by Info Systems. Revenues from maintenance
agreements with customers in support of Info Systems' software products
were $1.15 million for the year ending June 30, 1996, an increase of
12.2%, compared to $1.02 million for the year ending June 30, 1995.
Cost of Hardware and Center Software Sales. Cost of revenues
decreased by $5.8 million to $8.1 million in 1996 compared to $13.9
million in 1995. The decrease was due to a decrease in hardware sales.
The margins on hardware decreased to 13.3% in 1996 compared to 15.7% in
1995. The decreased margins were due to changes in this mix of products
sold.
Salaries, Commissions and Related Benefits. Salaries, commissions
and related benefits increased 11.7% to $11.4 million in 1996 from $10.2
million in 1995. The increase in salaries, commissions and related
benefits was attributable to the addition of personnel to support revenue
growth.
Selling, General and Administrative Expenses. Selling, general
administrative expenses increased $.8 million to $3.8 million in 1996 from
$3.0 million in 1995. $277,000, or 32% of the increase, was due to the
increases in amortizations of development costs for Info Systems' products
which were previously capitalized and depreciation on equipment required
to support Info Systems' development efforts. The remainder of the
increase was due primarily to the addition of management and
administrative personnel to support Info Systems' growth.
Interest and Employee Benefit Expense. Interest and employee benefit
expense decreased $.25 million to $.69 million in 1996 from $.95 million
in 1995. The decrease was attributable primarily to a $.3 million
additional ESOP contribution made in 1995 which was not made in 1996.
Income Taxes. Although Info Systems' effective tax rate remained
mostly constant, income taxes increased $101,600 to $192,200 in 1996 from
$90,600 in 1995 as a result of greater pretax income in 1996.
Net Income. As a result of the foregoing, net income increased to
$226,800 in 1996 from $108,700 in 1995.
Year Ended June 30, 1995 Compared to Year Ended June 30, 1994
Revenues. Revenues increased $11.1 million, or 64.7%, to $28.2
million in 1995 from $17.1 million in 1994. These results reflect an
increase in revenues of $9.9 million from hardware sales. The increase is
due to increased volume from the sale of products to Info Systems' retail
customers. Services revenue increased by $.9 million, or 14.8%, to $7.1
million from $6.2 million in 1995. The increase was due to strong demand
for Info Systems' technical services. Revenues from license fees and
commissions from the sale of software increased $.7 million, or 26.92%, to
$3.3 million from $2.6 million in 1995. Revenues from maintenance
agreements with customers in support of Info Systems' software products
remained flat at $1.0 million for the year ending June 30, 1996, compared
to $1.0 million for the year ending June 30, 1995.
Cost of hardware and certain software sales. Cost of revenues
increased by $8.2 million to $13.8 million in 1995 compared to $5.6
million in 1994. This increase is due to additional hardware sales. The
margins on hardware increased to 15.7% in 1995 from 12.9% in 1994. The
increased margins were due to changes in the mix of product sold and
additional discounts received from increased sales volume.
Salaries, Commissions and Related Benefits. Salaries, commissions
and related benefits increased 221.8% to $10.2 million in 1995 from $8.4
million in 1994. The increase in direct salaries and related costs was
attributable to increases in personnel to support Info Systems' growth.
Selling, General and Administrative Expenses. Selling general
administrative expenses increased $.6 million to $2.9 million in 1995 from
$2.4 million in 1994. $112,000, or 20% of the increase, was due to the
increases in amortization and depreciation. The remainder of the increase
was due primarily to the addition of management and administrative
personnel to support Info Systems' growth.
Interest and Employee Benefit Expense. Interest and employee benefit
expense increased by $1.2 million in 1995 to $.9 million from ($.2
million) in 1994. This result was due primarily to extraordinary revenue
from the sale of assets of Info Systems in 1994 which reduced interest
expense in that year and was also due to an additional contribution to the
ESOP in 1995 which was not made in 1994.
Income Taxes. Income taxes decreased $252,400 to $90,600 in 1995
from $343,000 in 1994 as a result of Info Systems' decreased income before
income taxes. Info Systems adopted Statement 109 as of July 1, 1993. The
cumulative effect of this change in accounting for income taxes of
$104,723 is determined as of July 1, 1993 and is reported separately in
the statement of income (loss) for the year ended June 30, 1994.
Net Income. As a result of the foregoing, net income decreased to
$108,700 in 1995 from $648,700 in 1994. This change was primarily due to
a non-recurring gain in 1994 of $1,000,000 from an Asset Sale of Info
Systems automated warehouse business to WCSS, a subsidiary of IBM.
New Accounting Pronouncements. In October 1995, the Financial
Accounting Standards Board issued SFAS No. 123, "Accounting for Stock
Based Compensation." With respect to stock options granted to employees,
SFAS No. 123 permits companies to continue using the accounting method
promulgated by the Accounting Principles Board Opinion No. 25 ("APB No.
25"), Accounting for Stock Issued to Employees," to measure compensation
or to adopt the fair value based method prescribed by SFAS No. 123. If
APB No. 25's method is continued, pro-forma disclosures are required as if
SFAS No. 123 accounting provisions were followed. Info Systems has
determined not to adopt SFAS No. 123's accounting recognition provisions.
In the opinion of the management, SFAS No. 123 is not expected to have a
material impact on the Info Systems' financial statements.
SFAS No. 121, "Accounting for the Impairment of Long Lived Assets and
Long Lived Assets to be Disposed Of," is effective for years beginning
after December 15, 1995. This pronouncement requires that long-lived
assets and certain intangibles to be held and used by Info Systems be
reviewed for impairment. This pronouncement is not expected to have a
material impact on the financial statements of the Info Systems
Subsequent Events. Subsequent to September 30, 1996, options for
170,048 shares were exercised under employee stock options and 30,000
shares were exercised under the directors' stock option plan. All shares
were issued at fair market value. Shareholders equity increased $872,209
as a result of the options.
On December 3, 1996, Info Systems consummated an Asset Purchase
Agreement with American MedCare Corporation for the sale of its Info/Cure
division. In exchange for cash of $150,000, a note for $1,575,000
(subject to offset or reduction under certain circumstances) and the
assumption of certain liabilities including the continuing support
obligations under agreements with its customers, American MedCare received
certain assets including accounts receivable, a customer list, fixed
assets, trademarks, and other intellectual property. The gain on the
sale is not expected to be material to Info Systems' operating results.
In December 1996, Info Systems recorded the remaining ESOP
contribution to participants as of the Effective Date. This resulted
in a change to income of approximately $1 million as of December 31, 1996.
INFORMATION ABOUT SYKES
General
Sykes provides a wide array of information technology outsourcing
services, including information technology support services and
information technology development services and solutions. The Company's
services are provided at various stages during the life cycle of computer
hardware and software products. Through its state-of-the-art IT call
centers, the Company provides information technology support services
(i) to leading computer hardware and software companies by providing
technical product support services to end users of their products and
(ii) to major companies by providing help desk services to their
employees. Through its staff of technical professionals, the Company also
provides information technology development services and solutions to
large corporations, on a contract or temporary staffing basis, including
software design, development, integration and implementation; systems
support and maintenance; and documentation, foreign language translation
and software localization. The integration of these services provides
Sykes customers the opportunity to outsource a broad range of their
information technology services needs to the Company. Significant
customers of Sykes include Apple, CompuServe, Digital Equipment, Disney,
Hewlett Packard, IBM, Monsanto and NationsBank.
In 1993, in an effort to capitalize on the trend toward outsourcing
information technology services, the Company focused its strategic
direction exclusively on the information technology services marketplace
and broadened its array of services. Pursuant to this strategy, the
Company began providing information technology support services by opening
IT call centers and began phasing out its non-information technology
services, including administrative services provided to a major customer.
The phase out was substantially completed in 1995. Recently, revenues
from information technology support services have grown rapidly through
the opening of four IT call centers in 1994, two in late 1995 and three in
1996. The domestic IT call centers are stand-alone facilities, each
modeled after the same prototype. The Company's strategy of locating its
domestic IT call centers in smaller communities, typically near a college
or university, has enabled the Company to benefit from a relatively low
cost structure and a technically proficient, stable work force. The
Company estimates that the IT call centers have the capacity to process
approximately 90,000 calls per day in the aggregate, up from 7,000 calls
per day in January 1994, from users of hardware and software products
seeking technical assistance.
The Company is committed to providing its customers with the highest
quality services. To that end, the Company's IT call center in Sterling,
Colorado has received ISO 9002 certification, an international standard
for quality assurance and consistency in operating procedures. The
Company anticipates that many of its existing and potential customers will
soon require evidence of ISO 9002 certification prior to outsourcing their
technical product support or help desk functions. Consequently, the
Company has modeled each IT call center after ISO 9002 procedures to
achieve consistency and quality. Additionally, the Company received the
1995 STAR Award in the highest call volume category. This award has been
presented annually since 1988 by the Software Support Professionals
Association (SSPA) to the software support company that achieves superior
customer satisfaction and call metrics.
Sykes was founded in 1977 in North Carolina and moved its
headquarters to Florida in 1993. In March 1996, Sykes changed its state
of incorporation from North Carolina to Florida. The Company's executive
offices are located at 100 North Tampa Street, Suite 3900, Tampa, Florida
33602, and its telephone number is (813) 274-1000.
Industry Background
In today's rapidly changing technological environment, consumers and
businesses require a variety of information technology services in order
to effectively use and manage their complex information technology
systems, including technical support, software development and information
systems integration and management. Many companies' computer systems
incorporate a variety of hardware and software components which may span a
number of technology generations. For example, a company may use
client/server systems or mainframe or midrange hardware platforms running
a variety of operating systems, software applications and relational
databases. Information technology services have become much more
important in this environment as information technology departments strive
to integrate a company's information processing capabilities into a single
system while providing the flexibility to change with technological
innovations.
These technological changes are making it increasingly difficult and
expensive for companies to maintain in-house the necessary personnel to
handle all of their information technology needs. Hardware and software
companies, as well as businesses utilizing their products, are
increasingly turning to third party vendors to perform specialized
functions and services. Outsourcing of (i) product support functions by
leading hardware and software companies, (ii) employee help desk functions
by major companies, and (iii) other information technology services such
as software design and systems integration and management, is growing
rapidly because of the following factors:
- Increasing need for companies to focus on core competencies
rather than non-revenue producing activities;
- Rapid technological changes requiring personnel with specialized
technical expertise;
- Growing capital requirements for sophisticated technology
necessary to provide timely product support and help desk
functions;
- Increasing need to integrate and continually update complex
systems incorporating a variety of hardware and software
components spanning a number of technology generations;
- Extensive and ongoing staff training and associated costs
required to maintain responsive, up-to-date in-house technical
support and information technology services; and
- Cost savings from converting fixed employee costs to flexible,
variable costs.
Dataquest reports that information technology services are expected
to grow from $50.7 billion in 1995 to $79.0 billion in 1999. Of this
amount, Dataquest estimates that technical support services, such as the
services provided through the Company's IT call centers, will increase
from $20.6 billion in 1995 to $31.5 billion in 1999, with the amount of
such services outsourced to third party vendors increasing from $2.6
billion to $7.2 billion for the same periods. The increasing cost to
provide technical product support is especially evident, as Dataquest now
estimates that one in six employees of software companies performs
technical support functions, up from one in twelve employees in 1989, and
that the cost of technical support now amounts to approximately 4% and 8%
of the revenues of hardware and software companies, respectively.
In the face of rapid technological change, large corporations also
find it increasingly difficult and expensive to service all of their own
information technology needs through in-house personnel. Gartner Group,
an information technology advisory firm, predicts that more than 40% of
companies with internal help desks will outsource a portion of this
function by 1998, compared with 15% in 1995.
As the outsourcing of technical product support, help desk and other
information technology services has gained acceptance, many companies also
are seeking to consolidate the number of vendors which provide them with
these services. Accordingly, providers of information technology
outsourcing services must offer a wide array of services to maintain a
preferred vendor relationship with their customers. Sykes believes its
broad range of services will allow it to capitalize on this trend.
Strategy
The Company's objective is to continue its growth and to become a
leading provider of a wide variety of information technology outsourcing
services by being responsive to and providing skilled personnel for its
clients' long-term outsourcing needs. The Company's principal strategies
for achieving this objective are as follows:
Rapidly Expand Through Systematic Addition of IT Call Centers. The
Company intends to continue to rapidly expand information technology
support services revenues through its existing IT call centers and through
additional IT call centers. With the addition of three domestic IT call
centers between October 1995 and August 1996 and the two IT call centers
acquired through the Datasvar acquisition, the Company's IT call centers
currently have the capacity to handle up to approximately 18.7 million
calls per year. The Company will have the capacity to handle up to
approximately 23.4 million calls per year by year end 1996 following the
completion late in the third and fourth quarters of 1996 of its two new IT
call centers currently under construction. Sykes has systematized the
establishment and ongoing operation of its domestic IT call centers by:
(i) locating the centers in smaller communities, near a college or
university, with a relatively low cost structure and a technically
proficient, stable work force; (ii) constructing the IT call centers
modeled after the same prototype; (iii) utilizing standardized procedures
to hire and train technicians; and (iv) maintaining consistently
responsive, high quality services through call monitoring and tracking
technology and other quality assurance procedures. The Company's
systematic approach and procedures are part of its strategy of providing
responsive, high quality support at a lower cost than the Company's
competitors.
Position Sykes as a Preferred Vendor. The Company intends to
cross-market its expanded array of information technology services to
existing customers and to continue to provide consistently high quality
services to new and existing customers in order to position the Company as
a preferred vendor of outsourced services. Sykes believes that its
ability to work in partnership with its customers during the life cycle of
their information technology products and systems, from software design
and systems implementation, through technical documentation and foreign
language translation, to end user technical product support, gives it a
competitive advantage to become the provider of choice to its customers.
Sykes has expanded the services it provides, such as help desk services,
through its existing relationships with Fortune 500 companies,
particularly those customers using the Company's services to satisfy all
or part of their information technology development services and solutions
needs.
Capitalize on Sophisticated Technology. The Company seeks to
establish a competitive advantage by continuing to capitalize on its
sophisticated and specialized technological capabilities, including PBX
switches, automatic call distributors, call tracking software and
computer-telephone integration. These capabilities allow its IT call
centers to serve as the transparent extension of the Company's customers,
receive telephone calls and data directly from its customers' systems, and
report detailed information concerning the status and results of the
Company's services on a daily basis. The Company's sophisticated
technology and systems, which the Company is able to upgrade periodically
because of their open architecture, enable the Company to provide high
response rates at a low cost per transaction.
The Company's strategy is to develop or acquire other technologies
that complement its technical product support functions. For example, the
Company intends to integrate the capabilities of DiagSoft's diagnostic
software with Sykes IT call centers to further enhance the efficiency and
quality of the Company's information technology support services. In
addition, the Company believes that enhancements to DiagSoft's
sophisticated proprietary software will enable it to access and offer
information technology support services directly to the home and small
business markets.
Growth Through Strategic Alliances. The Company intends to expand
its customer base, geographic presence and the information technology
services Sykes provides by forming strategic alliances with other
information technology service providers, particularly those who do not
provide labor intensive technical support.
For example, information technology services providers such as systems
integrators increasingly are seeking partners to whom they can outsource
the help desk requirements of their customers. The Company is actively
seeking help desk contracts with such providers and recently was awarded
such a contract.
Growth Through Selective Acquisitions. The Company intends to
acquire complementary businesses to increase market share, expand its
services and expand its geographic presence. The Company believes it can
expand the scope and quality of its information technology support
services by acquiring companies with IT call centers in Europe and other
international markets which provide quality technical support for leading
computer hardware and software companies, as well as companies which
enhance its ability to provide such services. The Company also believes
that opportunities exist to acquire companies which provide information
technology services, especially in geographic markets in which the Company
does not currently compete. The information technology services industry
is highly fragmented, with in excess of 1,000 firms providing software
services in 1995 in the United States, according to Dataquest. Many of
these small, local firms may be attractive acquisition candidates because
they would enable Sykes to open new or expand existing branch offices.
Recently, the Company acquired Datasvar and DiagSoft. See "Information
About Sykes--Recent Acquisitions."
Services
The Company provides a wide array of information technology
outsourcing services, including information technology support services
and information technology development services and solutions. The
following is a description of Sykes' outsourcing services:
Technical Product Support. Sykes provides technical product support
services by telephone (24 hours a day, 7 days a week) to end users of the
products of hardware and software companies through its five stand-alone
IT call centers in the United States and three IT call centers in Europe.
Consumers of hardware or software products of Sykes customers dial a
technical support number listed in their product manuals and are
automatically connected to an IT call center technician who is specially
trained in the applicable product and acts as a transparent extension of
the hardware or software company in diagnosing problems and answering
technical questions. The IT call centers also provide technical product
support by electronic mail and electronic bulletin boards. The IT call
centers in Europe provide support in 14 languages to 22 European
countries.
As a result of its recent acquisition of DiagSoft, the Company also
develops and markets proprietary diagnostic software for use by
manufacturers, professional service personnel and end users, which serves
as a tool for enhancing Sykes' technical product support services.
Proprietary products developed and marketed by DiagSoft for use with a
variety of operating systems include software used by personal computer
manufacturers for quality assurance and pre-installed or bundled software
used by professional service personnel and end users for verifying
component functionality, troubleshooting, resolving hardware and software
conflicts and hardware repairs.
Help Desk Services. The Company provides help desk services to major
companies, at their facilities or through the IT call centers, that have
outsourced technical support for their internal information technology
systems. Employees of Sykes' customers telephone the help desk number
provided to them by their employer for technical assistance. Trained
technicians dedicated to a specific customer answer questions and diagnose
and resolve technical problems ranging from a simplistic error message to
a wide area network failure.
Software Design, Development, Integration and Implementation. Sykes'
professional personnel provide software application design services geared
toward the development of a functional and technical blueprint for a
client's desired software application. These professionals identify
applicable business processes supported by an application and its related
functions, determine end user requirements and prepare a comprehensive
plan for developing and implementing the application. They also develop
custom software necessary to operate a desired application, integrate the
application into the customer's existing information processing
architecture, test the functionality of the application and assist the
customer in training its personnel to use the application.
Systems Specialization and Maintenance. Sykes' professional
personnel provide a variety of services designed to support and maintain
client/server systems and mainframe and midrange platforms. These
services include systems administration, maintenance and management
support, applications enhancement and training services.
Documentation and Foreign Language Translation. Sykes' professional
personnel provide companies with technical writing and editing of product
information and technical manuals and foreign language translation and
localization of software, technical manuals and product information in a
variety of sophisticated multimedia formats. They provide translation and
localization for 12 languages in 20 countries.
Customers
The Company has customers in the United States, Canada and Europe.
The Company's customers include Fortune 500 corporations and leading
hardware and software companies. The Company believes its nationally
recognized customer base presents opportunities for further marketing of
its services. Since Sykes began providing technical product support
services in 1993 to computer hardware and software companies, it has
retained approximately 94% of customers utilizing these services.
Approximately 34%, 29%, 16% and 12% of the Company's revenues
in 1993, 1994, 1995 and the nine months ended September 29, 1996,
respectively, were attributable to one significant customer, IBM. The
percentage of the Company's revenues attributable to IBM decreased
significantly during the foregoing periods as a result of the combined
effect of reductions in revenues derived from IBM coupled with an overall
increase in the Company's revenues from all customers. Consequently, the
decrease in the Company's revenues attributable to IBM has been offset by
an increase in revenues attributable to new customers. As a result, the
Company has improved the diversity of its customer base and has decreased
its reliance on one significant customer.
During the first quarter of 1996, IBM instituted a policy that certain
information technology services be provided through designated national
vendors. The Company has entered into an agreement with such a vendor,
Decision Consultants, Inc., under which certain services, previously
provided directly to IBM, are being provided indirectly to IBM through
this vendor. Although the Company believes its relationship with IBM will
not be affected by the change in the method of providing its services to
IBM, there can be no assurance that the Company will continue to provide
such services. In addition, 17% of the Company's revenues in 1995 and 14%
in the first nine months of 1996 were attributable to Apple, which became
a customer during 1994. The Company's largest ten customers accounted for
approximately 70% and 68%, respectively, of the Company's revenues in 1995
and the nine months ended September 29, 1996. Generally, the Company's
contracts are cancelable by each customer at any time or on short-term
notice, and customers may unilaterally reduce their use of the Company's
services under such contracts without penalty.
Sykes provided services to approximately 215 customers during 1995.
The following is a partial list of these customers.
Apple IBM
CompuServe Monsanto
Digital Equipment NationsBank
Disney Silicon Graphics
First Union TCI Telecommunications
GTE 3Com
Hewlett Packard Visioneer
Sales and Marketing
The Company's marketing objective is to develop long-term
relationships with existing and potential clients to become the preferred
vendor of their information technology outsourcing services. Sykes
believes that its significant client base provides excellent opportunities
for further marketing of its broad range of capabilities. In order to
further enhance its marketing efforts, the Company recently increased its
direct sales force from 9 to 30 employees. The Company markets its
information technology services through a variety of methods, including
client referrals, personal sales calls, advertising in industry
publications, attending trade shows, direct mailings to targeted
customers, telemarketing and cross selling additional services to existing
clients.
As part of its marketing efforts, the Company invites potential and
existing customers to visit the IT call centers, where the Company
demonstrates its sophisticated telecommunications and call tracking
technology, quality procedures and the knowledge of its technicians. The
Company also demonstrates its ability to quickly accommodate a new
customer or a significant increase in business from an existing customer
by emphasizing its systematic approach to establishing and managing IT
call centers.
DiagSoft products are marketed to hardware manufacturers by a direct
sales team of four individuals for use by manufacturers in the
manufacturing and quality control processes or for bundling as part of
factory-installed software for the end user.
The Company also emphasizes account development to strengthen its
relationships with its customers. Sales representatives and account
executives are assigned to a limited number of accounts in order to
develop a complete understanding of each customer's particular needs, to
form strong customer relationships and encourage cross selling of other
services offered by the Company. Account executives also receive
incentives for cross selling the Company's services.
Technical product support services provided through IT call centers
generally are billed to the client based on a fee per call, rate per
minute or time and material basis. As a result of the significant
infrastructure costs required for each IT call center, the Company has
recently begun increasing its efforts to obtain contracts requiring a
minimum billing amount to facilitate planning and capital needs. Help
desk services usually are billed at a flat rate per employee per month,
with the per employee charge varying depending on the customer's total
number of employees and the complexity of its information systems.
Information technology development services and solutions engagements
generally are billed on a time and material basis. Sykes is expanding its
efforts to obtain contracts with customers lasting six months or longer to
increase recurring revenues, maximize utilization of professional
personnel and enhance long-term relationships. The Company also is
attempting to obtain contracts to provide for the management of a
customer's entire information technology project, rather than providing
professionals to staff a client-managed project, with a view to enhancing
profit margins through the provision of value-added management services.
Quality Assurance
The Company carefully trains, monitors and supervises its employees
to enhance efficiency and quality of its services. The training of new
technicians at the IT call centers is conducted in-house through certified
trainers or by professionals supplied by the Company's customers. The
Company actively recruits highly skilled professionals to staff specific
assignment needs of its information technology development services and
solutions customers. Generally, employees also receive ongoing training
throughout the year to respond to changes in technology.
An IT call center manager supervises project leaders, team leaders
and technicians dedicated to individual customer accounts. Each team
leader at the IT call centers monitors approximately ten technicians. A
project leader supervises a particular customer's account by monitoring
calls and reviewing quality standards. Using the Company's proprietary,
sophisticated call tracking software, the project leader monitors the
number of calls each technician handles, the duration of each call, time
between calls, response time, number of queries resolved after the first
call and other statistics important in measuring and enhancing
productivity and service levels. Remote and on-site call monitoring
systems and on-line performance tracking are used to enhance high quality
services. Customers have daily access to a variety of measures of service
performance tracked by the Company's technology and can monitor calls
directly through the Company's remote call monitoring systems.
The Company emphasizes a team approach in order to provide high
quality, customized solutions to meet its clients' information technology
development services and solutions needs. The central role in this team
approach is provided by the Company's account executives and recruiters
who work together to achieve a successful relationship between the client
and the Company's professionals. The team shares information on active
and prospective clients, reviews the availability of professionals and
discusses general market conditions. Such forums enable the teams to
remain informed and knowledgeable on the latest technologies and to
identify business development opportunities as they emerge.
Sykes is committed to providing its customers with the highest
quality services. To that end, the Company's IT call center in Sterling,
Colorado has received ISO 9002 certification, an international standard
for quality assurance and consistency in operating procedures. The
Company anticipates that many of its existing and potential customers will
soon require evidence of ISO 9002 certification prior to outsourcing their
technical product support or help desk functions. Consequently, the
Company has modeled each of its IT call centers after ISO 9002 procedures
to enhance consistency and quality. Additionally, the Company received
the 1995 STAR Award in the highest call volume category. This award has
been presented annually since 1988 by the Software Support Professionals
Association (SSPA) to the software support company that achieves superior
customer satisfaction and call metrics.
Operations
IT Call Centers. The Company's strategy in the United States is to
locate its IT call centers in smaller communities with similar demographic
characteristics, typically near a college or university. The Company
believes these characteristics tend to provide a well-educated,
technically proficient employee pool from which to attract qualified
candidates. These locations also tend to have lower labor and
infrastructure costs than large metropolitan areas.
New IT call centers are established to accommodate anticipated growth
in the Company's business or in response to a specific customer need. The
Company believes that additional IT call centers will be established in
the United States and potentially in Europe and Asia.
A typical domestic IT call center is approximately 42,000 square
feet, has 425 work stations and can handle 12,000 calls per day. The IT
call centers employ current technology in PBX switches, call tracking
software, telephone-computer integration, interactive voice response and
relational database management systems that are integrated into centrally
managed local area networks and wide area networks. The Company's
sophisticated equipment and technology enable it to serve as the
transparent extension of its customers at a low cost per transaction and
provide its customers with immediate access to the status and results of
the Company's services. Due to its modular, open system architecture, the
Company's computer system allows timely system updates and modifications.
The Company utilizes sophisticated call tracking software and systems to
provide efficient scheduling of personnel to accommodate fluctuations in
call volume.
Automated call distributors and digital switches identify each call
by the number dialed and automatically route the call to a technician with
the applicable knowledge and training. The technical product support
calls are routed directly from the end user to the IT call center or are
overflow calls routed from the client's place of business. Sykes IT call
center in Amsterdam receives calls from the United Kingdom, Western Europe
and parts of Eastern Europe, and the newly acquired IT call centers in
Sweden receive calls from Sweden, Norway, Denmark and Finland.
IT call center systems capture and download to permanent databases a
variety of information concerning each call for reporting on a daily basis
to customers, including number and duration of calls (which are important
for billing purposes), response time and results of the call. Summary
data and complete databases are made available to the customer to enable
it to monitor the level of service provided by the Company, as well as to
determine whether end users of its products are encountering recurring
problems that require modification. The databases also provide Sykes
customers with considerable marketing information concerning end users,
such as whether the user is a home or business user and regional
differences in purchasing patterns or usage. The Company maintains tape
backups and offsite storage to assure the integrity of its reporting
systems and databases.
The IT call centers are protected by a fire extinguishing system and
backup generators and short-term battery backup in the event of a power
outage, reduced voltage or power surge. Rerouting of telephone calls to
one of the other IT call centers is also available in the event of a
telecommunications failure, natural disaster or other emergency. Security
measures are imposed to prevent unauthorized access. Software and related
data files are backed up daily and stored off site at multiple locations.
The Company carries business interruption insurance covering interruptions
that might occur as a result of damage to its business. In addition, the
Company believes that it has adequate arrangements with its equipment
vendors pursuant to which damaged equipment can be replaced promptly.
However, there can be no assurance that a natural disaster or other
catastrophic event or other occurrence would not have a material adverse
effect on the Company.
Branch Offices. Sykes' professional personnel are assigned to one
of the Company's ten branch offices, which are located in metropolitan
areas throughout the United States in order to be closer to their major
customers. Each branch office is responsible for staffing the
professional personnel needs of customers within its geographic region and
customers referred from other branch offices based on specialized needs.
These offices give Sykes the ability to (i) offer a broad range of
professional services on a local basis, and (ii) respond to changing
market demands in each geographical area served. The number of
professionals assigned to each branch office ranges from 14 to 130.
Each branch office is staffed with one or more account executives
whose goal is to become the client's partner in evaluating and meeting the
client's information technology needs. The account executive's primary
responsibilities include: client development; understanding and
identifying clients' information technology service needs; working closely
with recruiters to staff assignments appropriately; setting billing rates
for each assignment; and monitoring ongoing assignments. Each account
executive is responsible for between four and ten active corporate
accounts, some of which may involve several projects with multiple
operating units of a particular company. The account executive cultivates
and maintains relationships with the client's chief information officer
and numerous department and project managers within the client's
organization.
The account executive has responsibility for staffing an assignment
on a timely basis. Upon receiving a new assignment, the account executive
prepares a proposal with assignment specifications and distributes the
proposal to a recruiter who is familiar with the professionals who have
the expertise required for the assignment. The account executive reviews
the recruiter's recommended candidates, submits the resumes of qualified
employees and other available candidates to the client and schedules
client interviews of the candidates. Typically, an assignment is staffed
within five working days. For certain clients with whom the Company has
long-term relationships, account executives are given sole responsibility
for staffing assignments with little or no client involvement in the
decision.
Competition
The industry in which the Company competes is extremely competitive
and highly fragmented. While many companies provide information
technology services, management believes no one company is dominant.
There are numerous and varied providers of such services, including firms
specializing in call center operations, temporary staffing and personnel
placement companies, general management consulting firms, major accounting
firms, divisions of large hardware and software companies and niche
providers of information technology services, many of whom compete in only
certain markets. The Company's competitors include many companies who may
possess substantially greater resources, greater name recognition and a
more established customer base than the Company. In addition, the
services offered by the Company historically have been provided by
in-house personnel. The Company's newly acquired DiagSoft subsidiary
competes with other developers of software diagnostic tools, many of which
have significantly greater financial, technical, marketing and other
resources than the Company.
The Company believes that the most significant competitive factors in
the sale of its services include quality and reliability of services,
flexibility in tailoring services to customer needs, price, experience,
reputation and comprehensive and integrated services. As a result of
intense competition, information technology development services and
solutions engagements frequently are subject to pricing pressure.
Customers also require vendors to be able to provide services in multiple
locations. Competition for contracts for many of Sykes' services takes
the form of competitive bidding in response to requests for proposals.
Employees
As of January 1, 1997, the Company had 3,394 full-time employees,
consisting of 30 in sales and marketing, 2,605 customer support
technicians at the IT call centers, 551 technical professionals and 208 in
management, administration and finance.
The technical and service nature of the Company's business makes its
employees an important corporate asset. While the market for qualified
personnel is extremely competitive, the Company believes its relationship
with its employees is good. The Company's employees are not represented
by any union.
The Company believes that it gains a competitive advantage by
locating its IT call centers in smaller communities in which they become
an integral part of the local economy and labor force. The Company
believes that personnel located in such communities can be employed at a
lower overall cost than employees located in a metropolitan setting.
Sykes IT call centers are located in communities near a college or
university to provide a well-educated, technically proficient work force.
Applicants are interviewed for technical skills as well as interpersonal
skills.
The Company recruits its professional personnel through a continually
updated recruiting network. This network includes a seasoned team of
technical recruiters, a Company-wide candidate database,
Internet/newspaper advertising, candidate referral programs and job fairs.
Qualified individuals have generally been available as major companies
have increasingly begun downsizing and outsourcing information technology
services instead of relying on in-house MIS personnel. However, demand
for qualified professionals conversant with certain technologies may
outstrip supply as new skills are needed to keep pace with the
requirements of customer engagements. Competition for such personnel is
intense and employee turnover in this industry is high.
Intellectual Property
The Company relies upon a combination of contract provisions and
trade secret laws to protect the proprietary technology it uses at its IT
call centers. Sykes relies on a combination of copyright, trademark and
trade secret laws to protect DiagSoft's proprietary software. The Company
attempts to further protect its trade secrets and other proprietary
information through agreements with employees and consultants. The
Company does not hold any patents and does not have any patent
applications pending. There can be no assurance that the steps taken by
the Company to protect its proprietary technology will be adequate to
deter misappropriation of its proprietary rights or third party
development of similar proprietary software. Sykes/R/ is a registered
servicemark of the Company. DiagSoft holds a number of registered
trademarks, including DIAGSOFT/R/, QAPLUS/WIN/R/ and ETSC/R/.
Facilities
The Company's principal executive offices are located in Tampa,
Florida. This facility currently serves as the headquarters for senior
management, the financial and administrative departments and the Tampa
branch office. The following table sets forth additional information
concerning the Company's facilities:
Lease
Properties Square Feet General Usage Expiration
Tampa, Florida 18,000 Corporate December 2002
headquarters
5,000 Development office September 1998
Greeley, Colorado 42,000 IT call center N/A
Sterling, Colorado 34,000 IT call center N/A
Hays, Kansas 42,000 IT call center N/A
Bismarck, North 42,000 IT call center N/A
Dakota
Minot, North Dakota 42,000 IT call center N/A
Ponca City, Oklahoma 42,000 IT call center N/A
Klamath Falls, 42,000 IT call center N/A
Oregon
Amsterdam, The 23,200 IT call center November 1997
Netherlands
Jarvso, Sweden 9,200 IT call center December 1997
Sveg, Sweden 6,600 IT call center June 1998
Boulder, Colorado 13,000 Branch office March 1997
Boise, Idaho 2,400 Branch office January 1997
Overland Park, 2,600 Branch office July 1999
Kansas
Boston, 26,000 Branch office September 2000
Massachusetts
St. Louis, Missouri 5,500 Branch office September 1998
Poughkeepsie, New 1,000 Branch office July 1997
York
Cary, North Carolina 9,500 Branch office December 1999
Charlotte, North 2,200 Branch office March 1997
Carolina
Irving, Texas 5,500 Branch office June 1998
The Company owns each of its domestic IT call centers and anticipates
that additional IT call centers will be required due to growth and
expansion. Facilities formerly used as the Company's headquarters in
Charlotte, North Carolina are leased through October 2004 and are
currently subleased to third parties through June 1999. See "Sykes--
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources".
Legal Proceedings
The Company is not a party to any litigation, nor is it aware of any
threatened litigation, that is expected to have a material adverse effect
on the Company or its business.
Management
Directors and Executive Officers. The Company's Board of Directors is
divided into three classes with the members of each class serving
three-year terms expiring at the third annual meeting of shareholders
after their election. Currently, one vacancy exists on the Board of
Directors. The following table sets forth information, as of the date of
this Prospectus, regarding the directors and executive officers of the
Company.
Term as
Name Age Principal Position Director
Expires
John H. Sykes 60 Chairman of the Board, President 1999
and Chief Executive Officer and
Director
David E. Garner 38 Senior Vice President and Director 1998
John D. Gannett, Jr. 42 Senior Vice President and Director 1997
Scott J. Bendert 40 Vice President-Finance, Treasurer
and Chief Financial Officer
John L. Crites, Jr. 52 Vice President and General Counsel
Furman P. 67 Director 1999
Bodenheimer, Jr.
H. Parks Helms 61 Director 1997
Gordon H. Loetz 47 Director 1998
Ernest J. Milani 67 Director 1998
R. James Stroker 50 Director 1999
John H. Sykes has been Chairman of the Board of Directors, President
and Chief Executive Officer of the Company since its inception in 1977.
Previously, Mr. Sykes was Senior Vice President of CDI Corporation, a
publicly-held technical services firm.
David E. Garner joined the Company in 1984 and, since 1994, has
served as Senior Vice President with responsibility for information
technology support services for both national and international
operations. Prior to becoming Senior Vice President, Mr. Garner held
various technical and managerial positions within the Company. In January
1996, Mr. Garner was elected to the Board of Directors of the Company.
John D. Gannett, Jr. rejoined the Company in 1995 as Senior Vice
President with responsibility for information technology development
services and solutions. Prior to 1995, Mr. Gannett provided consulting
services to the Company under an agreement entered into in 1991. From
1979 to 1991, Mr. Gannett held various management positions within the
technical and documentation services areas of the Company. Mr. Gannett
has also served as a director of the Company since December 1984.
Scott J. Bendert joined the Company in 1993 as Chief Financial
Officer. In 1994, Mr. Bendert was named Treasurer, and in 1995 was
appointed Vice President--Finance. From 1984 to 1993, Mr. Bendert held
various management positions with Reflectone, Inc., a publicly-held
producer of complex computer simulator trainers and devices, most recently
as Corporate Controller.
John L. Crites, Jr. joined the Company as Vice President and General
Counsel on April 1, 1996. Prior thereto and since 1991, Mr. Crites served
as Executive Director of the Vivian L. Smith Foundation for Restorative
Neurology at Baylor College of Medicine in Houston, Texas.
Furman P. Bodenheimer, Jr. was elected to the Board of Directors of
the Company in 1991 and is a member of the Compensation Committee.
Mr. Bodenheimer has been President and Chief Executive Officer of Zickgraf
Enterprises, Inc. and Nantahala Lumber in Franklin, North Carolina since
1991. Prior thereto and until 1988, Mr. Bodenheimer was President of
First Citizens Bank and Vice Chairman of First Citizens Mortgage Company
and First Title Insurance Company. From 1988 to 1991, Mr. Bodenheimer was
a consultant to financial institutions.
H. Parks Helms has served as a director since the Company's
inception in 1977 and is a member of the Audit Committee. Mr. Helms is
the Managing Partner of the law firm of Helms, Cannon, Hamel & Henderson
in Charlotte, North Carolina. Mr. Helms has held numerous political
appointments and elected positions, including as a member of the North
Carolina House of Representatives.
Gordon H. Loetz was elected to the Board of Directors of the Company
in 1993 and is a member of the Audit Committee. In 1982, Mr. Loetz
founded Comprehensive Financial Services, a financial investment advisory
company, and serves as its President and Chairman of the Board.
Ernest J. Milani was elected to the Board of Directors of the Company
on April 19, 1996 and is a member of the Compensation Committee. From
1970 and until 1996, Mr. Milani held various positions with CDI
Corporation, a publicly-held provider of engineering and technical
services, most recently as President of CDI Corporation Northeast and CDI
Technical Services Ltd., both of which are subsidiaries of CDI
Corporation.
R. James Stroker has served as a director of the Company since 1990
and is a member of the Compensation Committee. Mr. Stroker is Judge of
the Ninth Judicial Circuit of the State of Florida and has over 21 years
of judicial experience. Mr. Stroker also serves on the Board of Directors
of the University of Orlando Law School. Mr. Stroker is the son-in-law of
Mr. Sykes.
Executive Compensation. The following table sets forth certain
information concerning compensation paid to or earned by the Company's
President and Chief Executive Officer and each of the Company's other most
highly compensated executive officers who earned more than $100,000 for
the years ended December 31, 1995 and December 31, 1996.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long-Term Compensation
Securities
Other Annual Underlying All Other
Name and Principal Position Salary Bonus Compensation(1) Options(2) Compensation (3)
<S> <C> <C> <C> <C> <C>
John H. Sykes . . . . . . . 1996 $300,000 $150,000 - - $22,682
President and Chief 1995 165,000 368,578 - - 24,573
Executive Officer
David E. Garner . . . . . . 1996 150,000 86,600 - - 8,488
Senior Vice President 1995 150,000 79,166 - 762,000 9,321
John D. Gannett, Jr. . . . 1996 150,000 40,000 - 139,894 7,165
Senior Vice President(4) 1995 69,806 25,000 - - 175,000(3)
Scott J. Bendert . . . . . 1996 107,692 50,000 - 45,000 3,235
Vice President-Finance, 1995 89,716 20,000 - - 4,257
Treasurer and Chief
Financial Officer
John L. Crites, Jr. . . . . 1996 88,134 - - 45,000 719
Vice President and 1995 - - - - -
General Counsel(5)
____________________________________
(1) Does not include the value of the perquisites provided to certain of
the named executive officers which in the aggregate did not exceed
the lesser of $50,000 or 10% of such officer's salary and bonus.
(2) See "Information About Sykes--Management--Stock Option Plans" for
information concerning options granted in 1996.
(3) Represents contributions to the Sykes Enterprises, Incorporated
Employees' Savings Plan and Trust and excess group term life
insurance.
(4) Mr. Gannett rejoined the Company in July 1995. "All Other
Compensation" consists solely of payments for consulting services and
pursuant to severance agreements entered into with Mr. Gannett in
1991.
(5) The information presented for Mr. Crites includes his salary and all
other compensation since joining the Company during 1996.
</TABLE>
The following table sets forth information with respect to grants of
options to purchase shares of Sykes Common Stock during 1996 to the
executive officers named in the Summary Compensation Table. The amounts
shown as potential realizable values on the options are based on assumed
annualized rates of appreciation in the price of the Sykes Common Stock of
0%, 5% and 10% over the term of the options, as set forth in rules of the
Commission. Actual gains, if any, on stock option exercises are dependent
on future performance of the Sykes Common Stock. There can be no
assurance that the potential realizable values reflected in this table
will be achieved.
<TABLE>
Stock Option Grants in 1996
<CAPTION>
Market
% of Total Price per Potential Realizable
Number of Options Share of Value at Assumed Annual
Securities Granted Underlying Rates of Stock Price
Underlying to Employees Exercise Security on Appreciation for Option Term(1)
Options in Fiscal Price Date of Expiration
Name Granted 1996 per Share Grant Date 0% 5% 10%
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John D.
Gannett, Jr. 46,631 7.20% $12.00 $12.00 4/29/06 $ - 352,064 891,585
46,631 7.20% 11.33 12.00 4/29/06 31,243 383,307 922,827
46,631 7.20% 10.00 12.00 4/29/06 93,262 445,326 984,847
------- ---- ----- ----- ------- ------- --------- ---------
139,893 124,505 1,180,697 2,799,259
Scott J.
Bendert 45,000 6.90% 12.00 12.00 4/29/06 339,750 860,400
John L. Cites,
Jr. 45,000 6.90% 12.00 12.00 4/29/06 339,750 860,400
_________________________________
(1) The dollar amounts under these columns are the result of calculations
at the hypothetical 5% and 10% rates set by the SEC and therefore are
not intended to forecast possible future appreciation, if any, of the
Company's common stock price. The option term is ten years.
</TABLE>
The following table provides certain information concerning aggregate
stock option exercises in 1996 and stock option values as of December 31,
1996, for unexercised stock options held by each executive officer of the
Company. No stock appreciation rights are outstanding.
<TABLE>
AGGREGATE OPTION EXERCISES LAST YEAR AND YEAR-END OPTION VALUES
<CAPTION>
Value of Unexercised
Shares Number of Unexercised Options In-The-Money Options
Acquired Value at Year End (#) at Year End (1)
Name On Exercise (#) Realized Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
John H. Sykes - - - - - -
David E. Garner 254,000 $10,532,533 - 508,000 - $16,747,067
John D. Gannett, - - - 136,894 - 3,691,776
Scott J. Bendert - - - 45,000 - 1,147,500
John L. Cites, Jr. - - - 45,000 - 1,147,500
(1) Based upon the closing sale price of $37.50 per share of Sykes Common
Stock on December 31, 1996, as reported in the Nasdaq National Market.
</TABLE>
Employment Agreements.
John H. Sykes. On January 1, 1996, the Company entered into an
employment agreement with John H. Sykes, the Company's Chairman of the
Board, President and Chief Executive Officer. The employment agreement
provides for an initial term of five years with an annual base salary of
$300,000. Thereafter, the agreement automatically renews for successive
two-year terms unless terminated by either party, with the base salary
increasing by at least 30% subsequent to the initial term and at least 15%
for any subsequent automatic renewal term. Mr. Sykes is also entitled to
a performance bonus up to 100% of his base salary based on the Company's
achievement of specified levels of income before income taxes as
determined by the Compensation Committee and to participate in such bonus
programs and other benefit plans as are generally made available to other
executive officers of the Company.
If the agreement is terminated by the Company for any reason other
than Mr. Sykes' death or disability or other than cause (as defined
therein), the Company shall pay Mr. Sykes a one-time severance payment
equal to two times the total of the full amount of Mr. Sykes annual base
salary in effect at the time of such termination plus Mr. Sykes' average
annual bonus and other compensation for the prior three years (or such
shorter period if the agreement is in effect for less than three years).
During the two year period following termination of employment, Mr. Sykes
shall not, in any area in which the Company's business is then conducted,
directly or indirectly compete with the Company.
The agreement also provides for a one-time severance payment, in lieu
of any other severance payment, equal to three times the total of the full
amount of Mr. Sykes' annual base salary then in effect plus Mr. Sykes'
average annual bonus and other compensation for the prior five years (or
such shorter period of the employment agreement is in effect for less than
five years) upon a "change of control" of the Company if (i) Mr. Sykes is
terminated from employment prior to the end of the term of the agreement
(except if terminated for cause) or (ii) Mr. Sykes elects to terminate his
employment with the Company under certain circumstances. A "change of
control" shall be deemed to have occurred if (i) any person (other than
Mr. Sykes) beneficially owns 20% or more of the outstanding shares of
voting capital stock, (ii) the sale or transfer of greater than 50% of the
book value of the Company's assets, (iii) the merger, consolidation, share
exchange or reorganization of the Company as a result of which the holders
of all of the shares of capital stock of the Company as a group would
receive less than 50% of the voting power of the capital stock of the
surviving corporation, (iv) the adoption of a plan of liquidation or the
approval of the dissolution of the Company, (v) the commencement of a
tender offer which, if successful, would result in a change of control, or
(vi) a determination by the Board of Directors in view of then current
circumstances or impending events that a change of control has occurred or
is imminent.
David E. Garner. On March 1, 1996, the Company entered into a
three-year employment agreement with David E. Garner, providing for an
annual base salary of $150,000. The agreement automatically renews for
successive one-year terms unless terminated by either party and provides
that, if the agreement is terminated for any reason other than death or
disability, the Company shall pay Mr. Garner non-compete payments equal to
$150,000 per year for three years, payable in accordance with the
Company's standard payment practice. Mr. Garner is prohibited from
directly or indirectly competing with the Company during such three-year
period in any area in which the Company's business is then conducted. The
agreement also requires the Company to purchase disability insurance that
will pay Mr. Garner $150,000 per year for three years in the event of his
disability and life insurance that will pay Mr. Garner's estate $450,000
in the event of his death. Mr. Garner also is entitled to a performance
bonus up to 100% of his base salary based upon the Company's achievement
of specified levels of income before income taxes and upon his achievement
of specified goals as determined by the Compensation Committee, and to
participate in such bonus programs and other benefit plans as are
generally made available to other executive officers of the Company.
John D. Gannett, Jr. On March 1, 1996, the Company also entered into
a three-year employment agreement with John D. Gannett, Jr. providing for
an annual base salary of $150,000. The agreement automatically renews for
successive one-year terms unless terminated by either party and provides
that, if the agreement is terminated by the Company for any reason other
than cause (as defined therein), the Company shall pay Mr. Gannett a
non-compete payment equal to $150,000 per year for two years, payable in
accordance with the Company's standard payment practices. Mr. Gannett is
prohibited from directly or indirectly competing with the Company during
such two-year period in any area in which the Company's business is then
conducted. The agreement provides that if it is terminated by the Company
for cause, during a period of two years following termination of
employment, Mr. Gannett will not, in any area in which the Company's
business is then conducted, directly or indirectly compete with the
Company and the Company shall then be required to pay a severance payment
of $125,000. Mr. Gannett also is entitled to a performance bonus up to
100% of his base salary based upon the Company's achievement of specified
levels of income before income taxes and upon his achievement of specified
goals as determined by the Compensation Committee, and to participate in
such bonus programs and other benefit plans as are generally made
available to other executive officers of the Company.
Scott J. Bendert. On March 1, 1996, the Company entered into a
two-year employment agreement with Scott J. Bendert, providing for an
annual base salary of $110,000. The agreement automatically renews for
successive one-year terms unless terminated by either party, and provides
that if the agreement is terminated for any reason other than death,
disability or cause (as defined therein), the Company shall pay
Mr. Bendert a severance payment equal to $110,000, payable in accordance
with the Company's standard payment practices, in consideration of
Mr. Bendert's agreement to refrain from competing directly or indirectly
with the Company for a period of one year in any area in which the
Company's business is then conducted. The agreement provides that if it
is terminated by the Company for cause or by Mr. Bendert, during a period
of one year following termination of employment, Mr. Bendert will not, in
any area in which the Company's business is then conducted, directly or
indirectly compete with the Company and the Company shall not be required
to pay the severance payment. Mr. Bendert also is entitled to a
performance bonus up to 35% of his base salary based upon the Company's
achievement of specified levels of income before income taxes and upon his
achievement of specified goals as determined by the Compensation
Committee, and to participate in such bonus programs and other benefit
plans as are generally made available to other executive officers of the
Company.
Stock Option Plans. The Company maintains two stock option plans to
attract, motivate and retain key employees and members of the Board of
Directors who are not employees of the Company. These stock option plans
have been adopted by Board of Directors and were approved by the
shareholders of the Company on March 1, 1996.
1996 Employee Stock Option Plan. The Company's 1996 Employee Stock
Option Plan, as amended (the "Employee Plan"), provides for the grant of
incentive or nonqualified stock options to purchase up to 1,750,000 shares
of Sykes Common Stock. In April 1996, the executive officers named in the
Summary Compensation Table received options to purchase a total of 184,894
shares of Sykes Common Stock as follows: John D. Gannett, Jr., 139,894
shares with an exercise price as follows: (i) 33 1/3% of such shares at
$12.00 per share, (ii) 33 1/3% at $11.33 per share, and (iii) 33 1/3% at
$10.00 per share; and Scott J. Bendert, 45,000 shares with an exercise
price of $12.00 per share. Certain other officers and employees of the
Company hold options to purchase an additional 416,300 shares of Sykes
Common Stock at a range of $12.00 to $46.90 per share. All such options
vest ratably over the three-year period following the date of grant,
except for 120,000 options granted to key employees of DiagSoft, all of
which are immediately exercisable.
1996 Non-Employee Director Stock Option Plan. The Company's 1996
Non-Employee Director Stock Option Plan (the "Non-Employee Plan") provides
for the grant of nonqualified stock options to purchase up to 300,000
shares of Sykes 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 Sykes Common Stock at an exercise price of $12.00
per share. Thereafter, on the date on which a new outside director is
first elected or appointed, he or she shall automatically be granted
options to purchase 5,000 shares of Sykes Common Stock. Each outside
director also shall be granted options to purchase 5,000 shares of Sykes
Common Stock annually on the day following the annual meeting of
shareholders. All options granted will have an exercise price equal to
the then fair market value of the Sykes Common Stock. Options shall
become exercisable over a period of three years in equal amounts until a
director has completed his or her initial term, whereupon all options
granted prior to that time shall become exercisable, and subsequent
options shall become exercisable one year after the date of grant.
Options to purchase 37,500 shares of Sykes Common Stock at $12.00 per
share are outstanding under the Non-Employee Plan.
Split Dollar Plan. The Company's Split Dollar Plan (the "Split Dollar
Plan") provides for benefits to certain executive officers and key
employees upon retirement or death prior to retirement. For each calendar
year, each participant contributes at least 2% of his or her compensation
during the year but not more than the maximum amount allowable under
Section 401(k) of the Code. The Company contributes a percentage of each
participant's contribution as determined in the Company's discretion at
the beginning of each year plus an additional discretionary amount
provided that the total of the participant's and the Company's
contributions does not exceed the maximum amount allowable under
Section 401(k) of the Code. Upon the participant's retirement, the
participant shall receive his or her contributions to the Split Dollar
Plan plus the vested portion of the Company's contributions. Such
contributions vest ratably over a ten year period commencing on the
participant's third year of service contingent upon the participant's
agreement not to divulge confidential information of the Company or
compete with the Company. Upon the death of the participant, the
beneficiaries of the participant shall receive the death benefit payable
under the life insurance policy purchased with the contributions made to
the Split Dollar Plan.
Director Compensation. Directors who are executive officers of the
Company receive no compensation as such for service as members of either
the Board of Directors or committees thereof. Directors who are not
executive officers of the Company receive an annual fee of $5,000, payable
in cash or shares of Common Stock based on the fair market value of the
Common Stock on the date of payment at the election of each director, plus
$1,000 per Board and/or committee meetings attended. The outside
directors are also eligible to receive options to purchase Common Stock
under the Company's 1996 Non-Employee Director Stock Option Plan. See
"Information About Sykes--Management--Stock Option Plans--1996
Non-Employee Director Stock Option Plan."
Mr. Milani and the Company entered into a one-year consulting
agreement on April 1, 1996 providing for an annual fee of $100,000. The
agreement requires Mr. Milani to provide certain technical consulting
services to the Company as requested by the Company.
Committees of the Board. The Board of Directors has established
committees whose responsibilities are summarized as follows:
Audit Committee. The Audit Committee is comprised of Messrs. Helms
and Loetz and is responsible for reviewing the independence,
qualifications and activities of the Company's independent certified
accountants and the Company's financial policies, control procedures and
accounting staff. The Audit Committee recommends to the Board the
appointment of the independent certified public accountants and reviews
and approves the Company's financial statements. The Audit Committee is
also responsible for the review of transactions between the Company and
any Company officer, director or entity in which a Company officer or
director has a material interest.
Compensation Committee. The Compensation Committee is comprised of
Messrs. Bodenheimer, Milani and Stroker and is responsible for
establishing the compensation of the Company's directors, officers and
other managerial personnel, including salaries, bonuses, termination
arrangements and other executive officer benefits.
Compensation Committee Interlocks and Insider Participation. The
Company's Compensation Committee was established in connection with the
Company's initial public offering in April 1996. The members of the
Compensation Committee are Messrs. Bodenheimer, Milani and Stroker.
Except for Mr. Sykes, no officer or employee of the Company has
participated in deliberations of the Board of Directors concerning
executive officer compensation.
Mr. Milani and the Company entered into a one-year consulting
agreement on April 1, 1996 providing for an annual fee of $100,000. The
agreement requires Mr. Milani to provide certain technical consulting
services to the Company as requested by the Company.
Principal Shareholders
The following table sets forth certain information regarding the
beneficial ownership of Sykes Common Stock as of January 16, 1997, with
respect to: (i) each person known by the Company to own beneficially more
than 5% of the Sykes Common Stock; (ii) each of the Company's directors
and the executive officers named in the Summary Compensation Table; and
(iii) all directors and officers of the Company as a group. Except as
otherwise noted, each of the shareholders listed below has sole voting and
investment power over the shares beneficially owned.
Sykes Common
Shares Percentage Percentage
Beneficially Before After
Name Owned Merger Merger(1)
John H. Sykes(2) . . . . 12,507,767 57.1% 55.6%
David E. Garner(3) . . . __ __ __
John D. Gannett, Jr.(4) . 750 * *
Scott J. Bendert(5) . . . 2,100 * *
Furman P. Bodenheimer,
Jr.(6) . . . . . . . . . 4,500 * *
H. Parks Helms(6) . . . . 3,000 * *
Gordon H. Loetz(6) . . . __ __ --
Ernest J. Milani(6) . . . 900 * *
R. James Stroker(6) . . . 450 * *
All directors and
officers as a
group (9) persons . . . 12,519,467 57.2% 55.7%
* Less than 1.0%.
_________________________________________________
(1) Assumes the issuance of 676,471 shares of Sykes Common Stock in the
Merger by calculating the conversion formula set forth in the Merger
Agreement based on the $34.00 per share closing price of Sykes Common
Stock on March 12, 1997 (the latest practicable date prior to the
date of this Proxy Statement/Prospectus).
(2) Includes the following shares over which Mr. Sykes retains voting and
investment power: (i) 12,236,167 shares owned by Mr. Sykes through
Jopar Investments Limited Partnership, a North Carolina limited
partnership in which Mr. Sykes is the sole limited partner and the sole
shareholder of the limited partnership's sole general partner, and (ii)
271,600 shares owned by various trusts for the benefit of Mr. Sykes'
children. Excludes 5,300 shares owned by Mr. Sykes' wife, as to
which Mr. Sykes disclaims beneficial ownership. Mr. Sykes' business
address is 100 North Tampa Street, Suite 3900, Tampa, Florida 33602.
(3) Excludes 508,000 shares issuable upon exercise of nonexercisable
options.
(4) Excludes 139,894 shares of Sykes Common Stock issuable upon the
exercise of nonexercisable stock options.
(5) Excludes 45,000 shares of Sykes Common Stock issuable upon the
exercise of nonexercisable stock options.
(6) Excludes 7,500 shares of Sykes Common Stock issuable upon the
exercise of nonexercisable stock options.
INFORMATION ABOUT INFO SYSTEMS
General
Info Systems is in the business of selling, installing, customizing and
supporting customer hardware and software products, including its own
proprietary software and software products developed by others. Info
Systems also provides technical services, including programming,
consulting, training, systems design and systems integration. It markets
its products and services to customers in three primary industries:
manufacturing, distribution and retail.
Info Systems Products
Info Systems' trademarked FS PRO Marketplace software integrates the
point of sale and back office functions of high volume grocery and drug
store chains through personal computer technology and the latest client
server technology provided by Microsoft and its Windows NT operating
system. Info Systems' FS PRO ChainStore utilizes IBM AS/400 technology
and provides back office software for smaller drug chains, hardgoods,
apparel and specialty retailers. This system can be integrated into
several non-proprietary point of sale systems. Info Systems also provides
the IBM 4680/4690 SuperMarket and RADOS Applications as part of the
solution mix in the retail industry.
Info Systems also sells and supports non-proprietary software that
provides a complete turnkey manufacturing system for manufacturing
customers located mainly in the southeastern United States. This system
includes modules which automate production planning, scheduling, customer
service, forecasting and accounting. In addition, Info Systems provides
data collection, electronic data interchange and systems integration
software to manufacturing and distribution customers.
Marketing and Distribution
Info Systems has developed strategic relationships with hardware and
software vendors including IBM and Microsoft. Info Systems' products and
services are marketed through a direct sales force using tradeshows,
direct mail, print advertising, telemarketing and user conferences.
Intellectual Property
Info Systems owns the copyrights for two products that it has developed
for the retail industry, FS PRO Marketplace and FS PRO Chainstore. Info
Systems relies on a combination of copyright, trademark and trade secret
laws to protect its proprietary software.
Employees
As of December 31, 1996, Info Systems had a total of 205 full-time
employees and one part-time employee. The technical and service nature of
Info Systems' business makes its employees an important corporate asset.
The market for qualified personnel is extremely competitive and may serve
to limit Info Systems' opportunity to grow. Info Systems recruits its
employees through a variety of methods, including through the use of its
home page on the world wide web. Info Systems has one full-time
recruiter.
Info Systems believes its relationship with employees is good. Info
Systems employees are not represented by a union.
Backlog
Info Systems does not accumulate any significant backlog. Instead,
Info Systems sells projects as it has the capacity to devote resources to
completing them.
Competition
The industry in which Info Systems competes is extremely competitive
and highly fragmented. Info Systems' competitors include local and
national consulting firms and larger retail technology companies, many of
which possess substantially greater resources, greater name recognition
and a more established customer base than Info Systems. Two examples of
competitors of Info Systems are SASI and NCR.
Research and New Product Development
Info Systems continues to work to improve its proprietary software to
respond to the needs of the marketplace. The current focus of the
development resources of Info Systems is in improving its current products.
Facilities
Info Systems principal executive offices are located in Charlotte,
North Carolina. The following table sets forth additional information
concerning Info Systems' facilities:
Lease
Properties Square Feet General Usage Expiration
Charlotte, NC 45,178 Corp. Headquarters October 1998
Charlotte, NC 7,412 Office Space October 1998
San Diego, CA 2,500 Branch Office June 2001
Greenville, SC 4,348 Branch Office December 1999
Chattanooga, TN 1,194 Vacant January 1998
Chattanooga, TN 400 Sales Office month-to-month
Charlotte, NC 1,038 Corp. Apartment July 1997
The above facilities are adequate for the current needs of Info Systems
and are expected to be adequate to meet the future needs of Info Systems.
Management
Directors and Executive Officers. At the closing of the Merger, the
directors of Acquisition Corp. automatically will become the directors of
Info Systems. In addition, Messrs. Gaughan and Kenney will be elected as
directors. Information as of January 20, 1997, with respect to Messrs.
Gaughan and Kenney and Ms. Tarlton and Elms follows:
William J. Gaughan, age 45, was Chairman of the Board of Directors and
President of Info Systems from its inception in 1978 until March of 1987.
From March 1987 until April 1993 he also served as Chief Operating Officer
and a member of the Board of Directors. Since April 1993, he has served
as Chairman of the Board and President. In November 1995, he assumed the
additional responsibilities of Chief Executive Officer.
James J. Kenney, age 44, joined Info Systems in 1984, and, since 1992,
has been Chief Financial Officer. In 1995 he was named Senior Vice
President. Mr. Kenney has also served on the Board of Directors of Info
Systems since 1987.
Melba S. Tarlton, age 43, has served Info Systems since 1978 in an
accounting management capacity and is currently Director of Accounting.
Ms. Tarlton has also served as Secretary of Info Systems since its
inception until 1991 and has served as Treasurer from 1979 until present.
Karen H. Elms, age 41, joined Info Systems in 1986. From 1995 until
January 1997, she served as Vice President of Administration and is
currently the Group Executive for Administration. Ms. Elms has also
served as Secretary of Info Systems since 1991.
Executive Compensation. The following table sets forth certain
information concerning compensation paid to or earned by Messrs. Gaughan
and Kenney during Info Systems' fiscal year ending June 30, 1996.
Summary Compensation Table
Long-Term
Annual Compensation Compensation
Other All
Name and Annual Securities Other
Principal Compen- Underlying Compen-
Position Salary Bonus sation(1) Options(2) sation
William J.
Gaughan . . . .
President and
Chief Executive
Officer $195,000 $65,000 - -- --
James J. Kenney .
Senior Vice
President 130,000 43,250 - -- --
____________________________________
(1) Does not include the value of the perquisites provided to the named
executive officers which in the aggregate did not exceed the lesser
of $50,000 or 10% of such officer's salary and bonus.
(2) Stock Option Grants in 1996 Fiscal Year
The following table sets forth information with respect to grants of
options to purchase shares of Info Systems Common Stock during fiscal
year 1996 to the executive officers named in the Summary Compensation
Table. The amounts shown as potential realizable values on the options
are based on assumed annualized rates of appreciation in the price of
the Common Stock of 5% and 10% over the term of the options, as set
forth in rules of the Commission.
<TABLE>
Stock Option Grants in 1996 Fiscal Year
<CAPTION>
Potential Realizable
% of Total Value at Assumed Annual
Number of Options Rates of Stock Price
Securities Granted Exercise Appreciation for Option
Underlying to Employees Price Term
Options in Fiscal per Expiration
Granted 1996 Share Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
William J. Gaughan 1,000 .007% $4.25 8/31/95 $10.00 $20.00
1,000 .006% $4.25 3/29/96 $16.30 $32.60
James J. Kenney . . 1,000 .007% $4.25 8/31/95 $10.00 $20.00
1,000 .006% $4.25 3/29/96 $16.30 $32.60
Karen H. Elms . . . 1,000 .007% $4.25 8/31/95 $10.00 $20.00
1,000 .006% $4.25 3/29/96 $16.30 $32.60
Melba S. Tarlton . 1,000 .007% $4.25 8/31/95 $10.00 $20.00
1,000 .006% $4.25 3/29/96 $16.30 $32.60
</TABLE>
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
The following table sets forth certain information concerning option
holdings for the year ended June 30, 1996 with respect to each of Info
Systems' executive officers.
Shares Acquired to
Name Exercise Value Realized
William J. Gaughan 2,000 0
James J. Kenney 2,000 0
Melba s. Tarlton 2,000 0
Karen H. Elms 2,000 0
No unexercised options were held by Info Systems' executive officers as of
June 30, 1996.
Employment Contracts
Info Systems' executive officers have entered into employment agreements
with Info Systems that are effective upon the closing of the Merger. For a
description of the employment agreements, see "Special Factors - Interests
of Certain Persons in the Merger - Employment Agreements."
Certain Relationships and Related Transactions
William Gaughan and Melba Tarlton, the treasurer of Info Systems,
pledged personal property as collateral for certain promissory notes
executed by Info Systems in favor of First Union National Bank of North
Carolina on August 20, 1992 and November 21, 1996. In exchange for the
use of the collateral securing the November 21, 1996 note, Info Systems
pays $1,500 per month to each of Gaughan and Tarlton. The Merger
Agreement provides that Gaughan's and Tarlton's collateral will be
released at or prior to closing the Merger. Info Systems had committed
to provide continuing health insurance coverage for its three founders
(William J. Gaughan, Eustace T. Little and Melba S. Tarlton) upon the
termination of their employment with the company and through age 65. In
lieu of such continuing coverage, the founders will receive from Info
Systems lump sum payments upon the consummation of the Merger in the
following amounts: William J. Gaughan, $68,100; Eustace T. Little,
$30,600; and Melba S. Tarlton, $77,400.
Seasonal Fluctuations
Info Systems' business is not subject to any significant seasonal
fluctuations.
Working Capital Practices
Info Systems has two working capital lines of credit with First Union
National Bank of North Carolina, one for up to $2,000,000 and one for up
to $1,250,000. As of December 31, 1996, the $2,000,000 line had
outstanding borrowings of $0 and the $1,250,000 line had outstanding
borrowings of $6,051. Info Systems also has an inventory/equipment line
of credit with IBM Credit Corporation for up to $600,000, with an option
to finance purchases of equipment, based upon specific customer
transactions. $1,410,744 was outstanding to IBM Credit Corporation as of
December 31, 1996.
Litigation
Info Systems is not a party to any litigation, nor is it aware of any
threatened litigation, that is expected to have a material adverse effect
on Info Systems or its business.
Export Sales
Info Systems has marketed its services and software in Canada, but not
otherwise outside of the United States.
Stock Ownership
The following table sets forth certain information as of December 31,
1996 with respect to Info Systems Common Stock beneficially owned by each
director, by each person beneficially owning more than 5% of the
outstanding shares of Info Systems Common Stock and by all executive
officers and directors as a group.
Ownership
Shareholder Position Percentage
James L. Elder(1) Former Employee 6.94%
William J. Gaughan(2) Director, President, and CEO 11.42
James J. Kenney(3) Director, Senior Vice 4.86
President
J. Alex McMillan Director 0.39
James A. Moncure, II(4) Former Employee 12.02
Edward C. Ruff Director 0.89
John Singleton Director 0.60
Melba S. Tarlton(5) Treasurer 7.34
All Executive Officers and
Directors as a Group (6) 26.53%
(1) Includes 8,179.32 shares owned by the ESOP and allocated to Elder's
individual ESOP account, as to which Elder will have the power to
direct the vote on the Merger.
(2) Excludes 1,000 shares owned by Gaughan's wife and 828.2 shares
allocated to her individual ESOP account, as to which Gaughan
disclaims beneficial ownership. Includes 4,924.11 shares owned by
the ESOP and allocated to Gaughan's individual ESOP account, as to
which Gaughan will have the power to direct the vote on the Merger.
(3) Includes 17,321.67 shares owned by the ESOP and allocated to
Kenney's individual ESOP account, as to which Kenney will have the
power to direct the vote on the Merger.
(4) Includes 18,433.88 shares owned by the ESOP and allocated to
Moncure's individual ESOP account, as to which Moncure will have the
power to direct the vote on the Merger.
(5) Excludes 5,200 shares owned by Tarlton's husband, as to which
Tarlton disclaims beneficial ownership. Includes 2,660.03 shares
owned by the ESOP and allocated to Tarlton's individual ESOP
account, as to which Tarlton will have the power to direct the vote
on the Merger.
(6) Includes 6,676.13 shares owned by the ESOP and allocated to the
individual ESOP account of Ms. Karen H. Elms, as to which Ms. Elms
will have the power to direct the vote on the Merger. Also includes
the shares allocated to the ESOP accounts of Messrs. Gaughan and
Kenney and Ms. Tarlton.
DESCRIPTION OF SYKES CAPITAL STOCK
The authorized capital stock of Sykes consists of 50,000,000 shares of
Sykes Common Stock and 10,000,000 shares of Sykes Preferred Stock. As of
March 12, 1997, there were 21,893,818 shares of Sykes Common Stock
issued and outstanding. No shares of Sykes Preferred Stock are issued and
outstanding. As of March 12, 1997, there were approximately 54 holders
of record of Sykes Common Stock.
Sykes Common Stock
Holders of Sykes Common Stock are entitled to one vote for each share
of Sykes Common Stock held by them on all matters properly submitted to a
vote of shareholders, subject to Section 607.0721 of the Florida Business
Corporation Act (the "FBCA") (described below under "Comparison of
Shareholder Rights"). Shareholders have no cumulative voting rights,
which means that the holders of shares entitled to exercise more than 50%
of the voting power are able to elect all of the directors to be elected.
Sykes Restated Articles of Incorporation and By-laws provide that the
Board of Directors shall be divided into three classes, with staggered
terms of three years each. Subject to the prior rights of the holders of
any shares of Sykes Preferred Stock that are outstanding, and any
contractual restrictions on the payment of dividends, the Board of
Directors of Sykes may in its discretion declare and pay dividends on the
Sykes Common Stock out of earnings or assets of Sykes legally available
for the payment thereof. Subject to the prior rights of the holders of
any shares of Sykes Preferred Stock that are outstanding, in the event
Sykes is liquidated, any amounts remaining after the discharge of
outstanding indebtedness will be paid pro rata to the holders of Sykes
Common Stock. The terms of the Sykes Common Stock are subject to
modification by the affirmative vote of holders of a majority of the
shares constituting a quorum at a meeting of shareholders. The
outstanding shares of Sykes Common Stock are, and the Sykes Common Stock
to be issued in the Merger will be, legally issued, fully paid and
nonassessable. Sykes Restated Articles of Incorporation provide that the
holders of Sykes Common Stock do not have preemptive rights to subscribe
for or purchase additional shares of Sykes Common Stock issued by Sykes.
The transfer agent for the Sykes Common Stock is Firstar Trust Company.
Sykes Preferred Stock
The Board of Directors of Sykes is authorized to issue from time to
time, without shareholder authorization, in one or more designated series,
shares of Sykes Preferred Stock with such voting, dividend, redemption,
conversion and exchange provisions as are provided in the particular
series. No dividends or other distributions are to be payable on the
Sykes Common Stock unless dividends are paid in full on the Sykes
Preferred Stock and all sinking fund obligations for the Sykes Preferred
Stock, if any, are fully funded. In the event of a liquidation or
dissolution of Sykes, the outstanding shares of Sykes Preferred Stock
would have priority over the Sykes Common Stock to receive the amount
specified in each particular series out of the remaining assets of Sykes.
Sykes has no current intent to issue shares of Sykes Preferred Stock.
Certain Statutory and Other Provisions
For a discussion of certain statutory and other provisions impacting
the rights of holders of Sykes capital stock, see "Comparison of
Shareholder Rights."
COMPARISON OF SHAREHOLDER RIGHTS
The following is a summary of the material differences between the
rights of holders of capital stock of Sykes and the rights of holders of
capital stock of Info Systems. These differences arise from the various
provisions of the Articles of Incorporation and By-laws of Sykes and the
Articles of Incorporation, as amended, and By-laws of Info Systems and the
relevant sections of the FBCA, which governs Sykes, and the NCBCA, which
governs Info Systems.
Authorized Stock
The Articles of Incorporation of Sykes authorize the Board of Directors
of Sykes to issue up to Fifty Million (50,000,000) shares of Sykes Common
Stock, and up to Ten Million (10,000,000) shares of Sykes Preferred Stock
in one or more series, and with such voting powers and designations,
preferences, limitations and relative rights as may be designated by the
Board of Directors of Sykes. As of March 12, 1997, 21,893,818 shares of
Sykes Common Stock and no shares of Sykes Preferred Stock were issued and
outstanding. The Articles of Incorporation of Info Systems authorizes the
Board of Directors of Info Systems to issue up to Ten Million (10,000,000)
shares of Info Systems Common Stock and no shares of Preferred Stock. As
of March 12, 1997, 3,353,741 shares of Info Systems Common Stock were
issued and outstanding.
Cumulative Voting
Although both the NCBCA and the FBCA permit a corporation to entitle
shareholders to "cumulate" their votes in electing directors, neither Info
Systems nor Sykes do so. The NCBCA also provides cumulative voting to
shareholders of a private corporation that was incorporated on or after
July 1, 1957 and before July 1, 1990, unless such right is denied or
limited by amendment to the articles of incorporation. While Info Systems
was incorporated during such period, its shareholders adopted an amendment
to its Articles of Incorporation denying the right to cumulative voting.
To "cumulate" means to multiply the number of votes that a shareholder is
entitled to cast by the number of directors to be elected and to allow the
shareholder to cast the product for a single candidate for election as a
director or distribute the product between two or more candidates.
Removal of Directors
The FBCA provides that shareholders may remove a director, with or
without cause unless the articles of incorporation provide that a director
may only be removed for cause. The FBCA further provides that a director
can be removed only if the votes cast to remove the director exceed the
votes cast not to remove him (or in the case of a director elected by a
voting group, of the votes within the voting group entitled to vote, the
votes cast to remove the director exceed the votes cast not to remove
him). In addition the FBCA requires that the notice of the meeting of the
shareholders to consider the removal of a director must state that the
purpose, or one of the purposes, of the meeting is to remove the director.
Section 4.2 of the Sykes' Articles of Incorporation and Section 4.5 of
Sykes' By-laws each provide that a Director may only be removed from
office for "cause" upon the affirmative vote of not less than sixty-six
and two-thirds percent (66 2/3%) of the authorized and outstanding voting
stock of Sykes at a special meeting of the shareholders called for that
purpose pursuant to a written notice sent at least thirty (30) days prior
to such meeting to the director or directors sought to be removed.
"Cause" is defined in both the Articles of Incorporation and By-laws as
(1) misconduct as a director of the Corporation or any subsidiary which
involves dishonesty with respect to a substantial or material corporate
activity or assets, or (2) conviction of an offense punishable by one or
more years of imprisonment (other than minor regulatory infractions and
traffic violations which do not materially and adversely affect the
Corporation). Any vacancy created by such a removal shall be filled by
majority vote of the directors then in office, even though less than a
quorum.
The NCBCA allows shareholders to remove one or more directors with or
without cause unless the articles of incorporation provide that removal
should occur only with cause. If a director is elected by a voting group
of shareholders under the NCBCA, only the shareholders of that voting
group may participate in the vote to remove such director. Info Systems'
articles of incorporation do not limit the reasons for removal of
directors by the stockholders. Removal of a director by the shareholders
under the NCBCA can only occur at a meeting if the notice for the meeting
states that the purpose, or one of the purposes, of the meeting is removal
of the director. Unless otherwise provided in the articles of
incorporation or a shareholder adopted bylaw, the NCBCA also provides that
the entire board of directors may be removed with or without cause by the
affirmative vote of a majority of votes entitled to be cast at any
election of directors. Article III of the Info Systems' By-laws provides
that a Director may be removed from office with or without cause by the
majority vote of the shareholders (or a voting group of the shareholders
if the director was elected by that voting group) at a meeting of the
shareholders called pursuant to an appropriate written notice which
identifies the removal of the director or directors as the purpose, or one
of the purposes, of the meeting. The shareholders may elect a new
director at the same meeting during which a director is removed. The
NCBCA further provides for the judicial removal of directors in an action
instituted by the corporation or by shareholders holding at least 10% of
the outstanding shares of any class, if the court finds that the director
engaged in fraudulent or dishonest conduct, or grossly abused his or her
authority or discretion, with respect to the corporation and that removal
would be in the best interests of the corporation.
Special Meetings of Shareholders; Shareholders Action by Written Consent
Except as discussed below, the shareholders of both Sykes and Info
Systems may take actions only at an annual meeting or at a special meeting
of the shareholders. A special meeting of the shareholders of Sykes may
only be called by the President, the Board of Directors, the Secretary or
the holders of not less than thirty-five percent (35%) of the shares
entitled to vote at such a meeting. A special meeting of the shareholders
of Info Systems may only be called by the President, the Board of
Directors, the Secretary or the holders of not less than ten percent (10%)
of the shares entitled to vote on any issue at such a meeting.
The FBCA permits shareholder action without a meeting if consents in
writing, setting forth the action so taken, are signed by the holders of
the number of outstanding shares necessary to authorize or take such
action at a meeting at which all shares were present and voted on the
action unless otherwise provided in the articles of incorporation. The
NCBCA permits shareholder action without a meeting if consents in writing,
setting forth the action so taken, are signed before or after such action
by all the shareholders entitled to vote on the action. The Articles of
Incorporation and By-laws for Sykes and the By-laws Info Systems provide
for action by unanimous written consent. Accordingly, action by the
shareholders of both Sykes and Info Systems may be taken only at an annual
meeting, at a special meeting (the requirements of which differ as
described in the preceding paragraph) or by unanimous written consent. In
addition, the By-laws of Sykes provide for certain procedures that must be
complied with in order to call a special meeting of shareholders. See
below,"Other Defensive Measures."
Vacancies on the Board of Directors
The FBCA and the NCBCA each provides that, unless otherwise provided by
the articles of incorporation, vacancies on the board may be filled by the
majority vote of either the remaining directors (even when less than a
quorum is present) or the shareholders. Whenever a voting group is
entitled to elect a director and that office becomes vacant, the FBCA and
the NCBCA each provides that the vacancy may be filled by the majority
vote of either the stockholders in that voting group or the remaining
directors elected by such voting group. Under the FBCA, If no director
elected by the voting group remains in office, such a vacancy may be
filled by the majority vote of the other directors, unless otherwise
provided in the articles of incorporation.
The Articles of Incorporation and By-laws of Sykes both provide that
all vacancies created on the Board of Sykes, including a vacancy resulting
from the removal of a director by shareholder vote, shall be filled only
by the affirmative vote of a majority of directors then in office, even
though less than a quorum. Any director so elected will serve until the
next election of the class for which such director is chosen and until his
successor is duly elected. Article III of Info Systems' By-laws addresses
vacancies on its Board of Directors and provides that the vacancy will be
filled by the first to act of either the majority of the remaining
directors (even though less than a quorum) or the shareholders. If the
vacant office was held by a director elected by a voting group of
shareholders, the By-laws of both Sykes and Info Systems provide that the
vacancy may only be filled by the majority vote of the voting group or the
remaining directors who were elected by that same voting group.
Amendments to Articles of Incorporation
Under the FBCA, a corporation's board may adopt certain minor
amendments to its articles of incorporation without the approval of the
shareholders. In order to materially amend the articles, however, the
FBCA requires a recommendation by the board of directors and, unless
either the articles of incorporation or the board of directors conditions
its recommendation on a greater vote, approval of the amendment must be by
each of (a) a majority of the votes entitled to be cast on the amendment
by each voting group with respect to which the amendment creates
dissenter's rights; and (b) a majority of the votes cast by every other
voting group entitled to vote on the amendment.
Section 7.1 of the Sykes Articles of Incorporation requires the
affirmative vote of sixty-six and two-thirds percent (66 2/3%) of the
issued and outstanding voting stock to amend or repeal any provision of
the Articles of Incorporation which is inconsistent with the purpose or
intent of certain specific provisions: Article 4 (classification/
election, removal, number and legal standard of conduct of Directors),
Article 5 (requirements for special meeting of shareholders, shareholder
action by unanimous written consent), Article 6 (indemnification of
Executive Officers and Directors) and Article 7 (amendment or repeal of
Articles of Incorporation or By-Laws). Additionally, any such proposed
amendment, repeal or adoption must be contained in the written notice of
the meeting at which it is to be considered.
Under the NCBCA, a corporation's board of directors may adopt certain
minor amendments to its articles of incorporation without the approval of
the shareholders. In order to materially amend the articles, however, the
NCBCA requires the recommendation of the board (unless the board of
directors determines that due to a conflict of interest or other special
circumstance, disclosed to shareholders, it should make no recommendation)
and, unless the articles, the bylaws or the board of directors require a
greater vote or a vote by voting groups, the approval by: (1) a majority
of the votes entitled to be cast on the amendment by any voting group with
respect to which the amendment would create dissenters' rights; and (2) a
majority of shares representing a quorum present at a meeting (or, if the
proposed amendment would alter a quorum or voting requirement, such
amendment can not be approved by less than the quorum or vote currently
prescribed in the articles) held by every other voting group entitled to
vote on the amendment.
Amendment to By-laws
Under the FBCA a corporation's by-laws may be amended or repealed by
its board of directors unless either the articles of incorporation
reserves that right (either generally or with respect to a particular by-
law) to the shareholders or the shareholders in amending or repealing a
particular by-law or the by-laws generally, have expressly provided that
the board of directors may not amend or repeal the particular by-law or
the by-laws in general. The FBCA provides that a corporation's by-laws
may be amended or repealed by its shareholders even if they may also be
amended or repealed by its board of directors.
Sykes' Articles of Incorporation do not reserve the right to amend or
repeal its By-laws to the shareholders. The Sykes' By-laws authorize the
shareholders and the Board of Directors to amend or repeal the By-laws
except when (1) the FBCA or a particular by-law reserves that right
exclusively to the shareholders, or (2) the shareholders in amending or
repealing a particular by-law or the by-laws generally, have expressly
provided that the board of directors may not amend or repeal the
particular by-law or the by-laws in general. Notwithstanding the
foregoing, Section 10 of the Sykes By-laws (which provides for
indemnification of the Directors and the Executive Officers) cannot be
amended or repealed if such an action would diminish the rights of
indemnification provided prior to such amendment or repeal. Further,
Section 4.5 of the Sykes By-laws (which requires the affirmative vote of
not less than 66 2/3% of the authorized and outstanding voting stock to
remove a Director) may be amended only by the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the
voting power of Sykes capital stock.
The FBCA and Sykes' Articles of Incorporation and By-laws each
authorize the shareholders to adopt or amend a by-law that fixes a greater
quorum or voting requirement for shareholders than otherwise required by
the FBCA so long as the adoption or amendment of a by-law that adds,
changes, or deletes a greater quorum or voting requirement for
shareholders meets the same quorum requirement and is adopted by the same
vote and voting groups required to take action under the quorum and voting
requirement then in effect or proposed to be adopted, whichever is
greater. The FBCA also provides that the board of directors may not
adopt, amend or repeal a by-law that fixes a greater quorum or voting
requirement for shareholders.
The FBCA provides that a by-law that fixes a greater quorum or voting
requirement for the board of directors may be amended or repealed by (1)
the shareholders if originally adopted by the shareholders or the board of
directors, or (2) by the board of directors only if the board of directors
originally adopted the by-law (such an action by the board, including the
adoption of such a by-law, must meet the same quorum and vote requirements
then in effect or proposed to be adopted, whichever is greater). The FBCA
also provides that if the shareholders adopt or amend a by-law that fixes
a greater quorum or voting requirement they can also provide that it can
only be amended or repealed by a specified vote of the shareholders or the
board of directors.
The Info Systems' By-laws state that, unless otherwise provided by its
Articles of Incorporation or By-laws, the By-laws may be amended or
repealed, and new By-laws may be adopted, by its Board of Directors. The
Info Systems' Articles of Incorporation do not address any aspect of its
By-laws including their amendment or repeal. Under the NCBCA a
corporation's by-laws may be amended or repealed by its board of
directors, except to the extent provided in the NCBCA or in the articles
of incorporation or a by-law adopted by the shareholders, and except that
a by-law adopted, amended or repealed by the shareholders may not be
readopted, amended or repealed by the board of directors if neither the
articles of incorporation nor a by-law adopted by the shareholders
authorizes the board of directors to adopt, amend or repeal that
particular by-law or the by-laws generally. The NCBCA provides that a
corporation's by-laws may be amended or repealed by its shareholders even
if such by-laws also may be amended or repealed by its board of directors.
The NCBCA also provides that a corporation's articles of incorporation
or a by-law adopted by the shareholders may provide for a greater quorum
or voting requirement for shareholders (or voting groups of shareholders)
than otherwise required by the NCBCA so long as any such by-law is
approved by a quorum and vote sufficient to amend the articles of
incorporation for that purpose. Any provision in the articles of
incorporation or bylaws prescribing the quorum or vote required for the
shareholders for any purpose may be amended only by complying with such
quorum or vote requirement.
The NCBCA authorizes the board of directors or shareholders of a
corporation to adopt a by-law fixing a greater quorum or voting
requirement for the board of directors than the requirement provided by
the NCBCA, subject to limitations on the ability of the board of directors
to readopt, amend or repeal a by-law adopted, amended or repealed by the
shareholder. The NCBCA also allows the shareholders to reduce the quorum
requirement, so long as such requirement is not less than one third of the
number of directors.
Dissenter's Rights
Under both the FBCA and NCBCA, a shareholder in certain circumstances
is entitled to receive payment of the fair value of the shareholder's
stock if such shareholder dissents from a proposed merger, consolidation
or sale of all or substantially all of a corporation's property and
certain other transactions on which such shareholders are entitled to
vote.
Under the NCBCA, dissenter's rights may be made applicable by:
(1) Consummation of a plan of merger to which the corporation (other
than a parent corporation merger with a 90% - 100% owned
subsidiary) is a party if such plan is subject to shareholder
approval and the dissenters' shares are not then redeemable at a
price less than the cash to be received from the corporation in
exchange;
(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired if such
shares are not then redeemable at a price less than the cash to be
received from the corporation in exchange;
(3) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation (other than in the ordinary course
of business or to a wholly owned subsidiary), but not a sale
pursuant to a court order or pursuant to a plan of sale in which
the net sale proceeds will be distributed in cash to the
shareholders within one year of the sale;
(4) An amendment to the articles of incorporation that materially and
adversely affects the rights in respect to a dissenter's shares
because it (i) alters or abolishes a preferential right of the
shares, (ii) creates, alters or abolishes a right in respect of
redemption of the shares, (iii) alters or abolishes a preemptive
right of the holder of the shares to acquire shares or other
securities, (iv) excludes or limits the right of shares to vote on
any matter, or to cumulate votes; (v) reduces the number of shares
owned by a shareholder to a fraction of a share if the fractional
share so created is to be acquired for cash; or (vi) changes the
corporation into a nonprofit or cooperative organization; and
(5) Any corporate action taken pursuant to a shareholder vote to the
extent the articles, bylaws or a resolution of the board provides
that voting or nonvoting shareholders are entitled to dissent and
obtain payment for their shares.
Neither Info Systems' articles of incorporation nor its bylaws contain
provisions on dissenter's rights.
The FBCA provides that, unless the corporation's articles of
incorporation otherwise provide, holders of shares that are either held of
record by at least two thousand (2,000) shareholders or registered on a
national securities exchange are not eligible for dissenter's rights with
respect to (1) a plan of merger or share exchange, or (2) a proposed sale
or exchange of property. Sykes' Articles of Incorporation do not provide
dissenter's rights under these circumstances. Accordingly the FBCA
provides dissenter's rights to Sykes' shareholders only with regard to (1)
the approval of a "control share" acquisition by the corporation (see
below, "Takeover Statutes and Related Provisions") and (2) an amendment to
the Articles of Incorporation, if the shareholder is entitled to vote on
the amendment and such amendment would adversely affect certain enumerated
rights associated with his shares (eg., preemptive rights; voting rights;
dividend preference; liquidation preference; making cumulative dividend
rights noncumulative; abolishing or altering rights to a sinking fund for
redemption; etc.).
Under the FBCA a shareholder seeking to assert his dissenter's rights
to a corporate action submitted to a voice vote must (1) deliver to the
corporation before the vote is taken a written notice of his intent to
demand payment for his shares if the proposed action is adopted, and (2)
not vote his shares in favor of the proposed action. Within twenty (20)
days after the corporation has given written notice (which must take place
within ten (10) days of the authorization) of the shareholder
authorization the dissenting shareholder must file with the corporation a
notice of such election, stating his name and address, the number, classes
and series of shares as to which he dissents and a demand for payment of
the fair value of his shares. Any shareholder failing to file such an
election to dissent within this time period will be bound by the terms of
the proposed corporate action. For additional information in respect of
dissenters' rights under the NCBCA "Special Factors--Rights of Dissenting
Shareholders."
Dividends
Under the NCBCA and the FBCA, subject to restrictions contained in a
corporation's articles of incorporation, the board of directors of a
corporation may authorize distributions and a corporation may make
distributions to its shareholders unless after such distribution the
corporation would not be able to pay its debts as they become due or, if
the distribution is to one class or series, its total assets after the
distribution will be less than the sum of its total liabilities, plus the
amount that would be needed if the corporation were to be dissolved at the
time of the distribution to satisfy the preferential rights upon
dissolution of shareholders whose preferential rights are superior to
those receiving the distribution. Under the Articles of Incorporation of
Sykes dividends may be declared on common shares, subject to the rights of
preferred shareholders. The Articles of Incorporation of Info Systems
provide for only a single class (voting common) of stock and accordingly
do not address dividends in terms of preferred shareholders.
Liability of Directors; Indemnification
Under the FBCA, a director must discharge his duties in good faith,
with the care of an ordinarily prudent person in a like position under
similar circumstances. As authorized by the FBCA, the Articles of
Incorporation of Sykes allow a director, in discharging his duties, to
consider factors that the director deems relevant, including the long-term
prospects and interests of the corporation and its shareholders, and the
social, economic, legal or other effects of any action on the employees,
suppliers, customers of the corporation or its subsidiaries, the
communities and society in which the corporation or its subsidiaries
operate, and the economy of the state and the nation. The FBCA also
provides that a director of Sykes is not liable to the corporation, its
shareholders or any person asserting rights on behalf of Sykes or its
shareholders for liabilities arising from a breach of, or failure to
perform, any duty resulting solely from his or her status as a director,
unless the person asserting liability proves that the breach or failure to
perform constitutes any of the circumstances under which indemnification
by Sykes would not be provided.
Sykes' Articles of Incorporation and By-laws as well as the FBCA
provide for indemnification by the corporation of its directors and
officers. Sykes' Articles of Incorporation and By-laws state that only
its Directors and "Executive Officers" (as defined in SEC Rule 3b-7
promulgated under the Securities Exchange Act of 1934, as amended) are
indemnified against liabilities which they (the "indemnified person")
incur in a proceeding in which the indemnified person was a party because
he or she was or is a director or officer. However indemnification will
not be required if liability was incurred because the director or officer
breached or failed to perform a duty that he or she owes or owed to the
corporation and the breach or failure constitutes a willful failure to
deal fairly with the corporation or its shareholders in connection with a
matter in which the director or officer has a material conflict of
interest, a violation of criminal law (unless the director or officer had
reasonable cause to believe that his or her conduct was lawful or no
reasonable cause to believe that his or her conduct was unlawful), a
transaction from which the director or officer derived an improper
personal benefit or willful misconduct. The FBCA also mandates
indemnification by the corporation of a director, officer, employee or
agent under certain circumstances, even when such indemnification is not
authorized by the corporation's articles of incorporation or by-laws.
In accordance with the NCBCA, Info Systems may indemnify a director
against liability in a proceeding if (1) the director conducted himself or
herself in good faith; (2) the director reasonably believed (i) in the
case of conduct in his or her official capacity with the corporation, that
his or her conduct was in its best interests, or (ii) in all other cases,
that his or her conduct was at least not opposed to its best interests
(or, if the conduct is in relation to an employee benefit plan, that his
or her conduct was in the best interests of the participants in and
beneficiaries of the plan); and (3) in the case of a criminal proceeding,
he or she had no reasonable cause to believe his or her conduct was
unlawful. Under the NCBCA, a corporation may not indemnify a director (1)
in connection with a proceeding in which the director is adjudged to be
liable to the corporation, or (2) in connection with any other proceeding
by or in the right of the corporation in which the director is adjudged
liable on the basis that personal benefit was improperly received by him
or her. The NCBCA also provides that, unless limited by its articles of
incorporation, a corporation must indemnify a director, for reasonable
expenses, who is wholly successful, on the merits or otherwise, in the
defense of any proceeding to which he or she is a party because he or she
is a director.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted with respect to directors, officers or
persons controlling the registrant pursuant to the foregoing provisions,
the registrant has been informed that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is therefore unenforceable.
In addition to the indemnification provisions of the NCBCA, the
articles of incorporation and by-laws of Info Systems provide for the
indemnification of directors to the fullest extent permitted by the NCBCA.
Takeover Statutes and Related Provisions
North Carolina: Info Systems, as a corporation whose securities are
not registered under Section 12 of the Securities Act of 1933, is not
subject to the anti-takeover provisions of the North Carolina Control
Share Acquisition Act or the North Carolina Shareholder Protection Act.
Florida: Sykes is subject to several anti-takeover provisions under
FBCA that apply to a publicly held corporation organized under Florida law
unless the corporation has elected to opt out of such provisions in its
Articles of Incorporation or (depending on the provision in question) its
Bylaws. Sykes has not elected to opt out of these provisions. The FBCA
contains a provision that confers voting rights to shares of a publicly
held Florida corporation which are acquired in a "control share
acquisition" only to the extent granted by the holders of a majority of
the corporation's voting shares (exclusive of shares held by officers of
the corporation, inside directors or the person or group acquiring the
control shares). A control share acquisition is defined as an acquisition
that immediately thereafter entitles the acquiring party to vote in the
election of directors within each of the following ranges of voting power:
(1) one-fifth (1/5) or more but less than one-third (1/3) of such voting
power; (2) one-third (1/3) or more but less than a majority of such voting
power; and (3) a majority or more of such voting power. In addition,
shareholders demanding a special meeting to determine "control share"
voting rights must deliver to Sykes a written agreement to pay the costs
incurred by Sykes in holding a special meeting, including the cost of
preparing and mailing the notice of meeting and the proxy materials for
the solicitation by Sykes of proxies for use at such meeting, in the event
such shareholders are unsuccessful in their proxy solicitation. These
statutory voting restrictions are not applicable to certain control share
acquisitions as set forth in the FBCA (eg., when the board of directors
approves the control share acquisition; when the acquisition is pursuant
to a gift, intestate succession or a testamentary transfer; etc.).
The FBCA also contains a provision that prohibits Sykes and other
publicly held Florida corporations from engaging in a broad range of
business combinations or other extraordinary corporate transactions
("Affiliated Transactions") with an "interested shareholder" unless (1)
the transaction is approved by a majority of disinterested directors
before the person becomes an interested shareholder, (2) the interested
shareholder has owned at least 80% of Sykes outstanding voting shares for
at least five (5) years, or (3) the transaction is approved by the holders
of two-thirds (2/3's) of Sykes voting shares other than those owned by the
interested shareholder. Subject to certain limited exceptions, an
"interested shareholder" is defined as a person who, together with
affiliates and associates, beneficially owns (as defined in FBCA Section
607.0901(1)(e)) more than 10% of the publicly held corporation's
outstanding voting shares.
Other Defensive Measures
Sykes' Board of Directors is divided into three (3) classes, with
staggered terms of three (3) years each. Each year the term of one class
expires. In addition, Section 3.2(b) of Sykes' By-laws establishes a
procedure which shareholders seeking to call a special meeting of
shareholders must satisfy. This procedure requires notice to Sykes, the
receipt by Sykes of written demands for a special meeting from owners of
thirty-five percent (35%) or more of the issued and outstanding shares of
Sykes Common Stock, a review of the validity of such demands by an
independent inspector appointed by the Board of Directors of Sykes and the
fixing of the record and meeting dates by the Board of Directors of Sykes.
The By-laws of Sykes also authorize the Board of Directors of Sykes, in
their discretion, to postpone shareholder meetings, including, within
certain limits, special meetings of shareholders. Additionally, the
President or the Board of Directors (acting by resolution) may adjourn a
shareholder meeting at any time prior to the transaction of business at
such meeting. The By-laws of Sykes also contain strict time deadlines and
procedures applicable to the shareholders seeking to nominate a person for
election as director or to otherwise seeking to bring business before any
meeting of the shareholders.
All provisions described in this subsection, particularly when combined
with the provisions in the Articles of Incorporation governing the removal
of directors, (see above, "Removal of Directors") may make it more
difficult for a dissident shareholder to gain control of the Sykes Board
of Directors and, therefore, may discourage the waging of proxy contests
for control.
The Articles of Incorporation and the By-laws of Info Systems do not
contain additional defensive provisions.
Inspection of Stockholder List
The FBCA allows any stockholder to inspect the stockholder list for a
purpose reasonably related to such person's interest as a stockholder.
The NCBCA allows any stockholder to inspect and copy the stockholder list
if (i) the stockholder's demand to inspect or copy is made in good faith
and for a proper purpose, spelled out with particularity, and (ii) the
stockholder list is directly related to such purpose.
Loans to Directors, Officers and Employees
Under the FBCA, a corporation may make loans to or guarantee
the obligations of its directors, officers or other employees and those of
its subsidiaries when such action, in the judgment of the directors, may
reasonably be expected to benefit the corporation. Under the NCBCA, a
corporation may lend money or credit to its officers, employees or agents.
Additionally, the NCBCA allows a corporation to lend money to, or
guarantee the obligations of, directors only if (i) approved by a majority
of votes of all outstanding shares entitled to vote (excluding shares
owned by the director) or (ii) if the board determines the loan or
guaranty is in the corporation's best interest and either approves the
specific loan or guarantee or a general plan authorizing loans and
guarantees.
Dissolution
While the FBCA allows a Florida corporation to include in its
certificate of incorporation a supermajority voting requirement in
connection with dissolutions, Sykes has not done so and therefore only the
approval of a majority of Sykes' stock entitled to vote thereon is
required to approve any proposed dissolution of the corporation.
While the NCBCA allows a North Carolina corporation to include in its
articles of incorporation, in a bylaw adopted by shareholders, or in the
board of directors' dissolution proposal a supermajority voting
requirement in connection with dissolutions, Info Systems has not done so
and therefore only the approval of a majority of Info Systems'
stockholders voting thereon (assuming the presence of a quorum and no
supermajority voting requirement in the directors' dissolution proposal)
is required to approve any proposed dissolution of the corporation.
INDEPENDENT AUDITORS
Representatives of KPMG Peat Marwick, LLP, Info Systems' independent
auditors, are expected to be present at the Special Meeting with the
opportunity to make a statement if they so desire. Such representatives
are also expected to be available to respond to appropriate questions.
LEGAL MATTERS
The validity of the securities to be issued in connection with the
Merger will be passed upon for Sykes by Foley & Lardner, 100 North Tampa
Street, Suite 2700, Tampa, Florida 33602.
EXPERTS
The Consolidated Financial Statements of Sykes Enterprises,
Incorporated at December 31, 1995 and 1994, and for the year ended
December 31, 1995, the five months ended December 31, 1994 and each of the
two years in the period ended July 31, 1994, appearing in this Proxy
Statement/Prospectus have been audited by Coopers & Lybrand L.L.P.,
independent auditors, as set forth in their reports thereon appearing
elsewhere herein and are included herein in reliance upon such reports
given upon the authority of such firm as experts in accounting and
auditing. The Financial Statements of Info Systems of North Carolina,
Inc. at June 30, 1995 and 1996, and for each of the years in the three year
period ended June 30, 1996, appearing in this Proxy Statement/Prospectus
have been audited by KPMG Peat Marwick LLP, independent certified
public accountants, as set forth in their report thereon appearing
elsewhere herein and are included herein in reliance upon such report
given upon the authority of such firm as experts in accounting and
auditing.
By Order of the Board of Directors of
INFO SYSTEMS OF NORTH CAROLINA, INC.
Secretary
March 17, 1997
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Sykes Enterprises, Incorporated Page
Report of Independent Accountants . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets . . . . . . . . . . . . . . . F-3
Consolidated Statements of Operations . . . . . . . . . . F-4
Consolidated Statements of Shareholders' Equity . . . . . F-5
Consolidated Statements of Cash Flows . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . F-7
Info Systems of North Carolina, Inc.
Independent Auditors' Report . . . . . . . . . . . . . . . . . . F-18
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . F-19
Statements of Operations . . . . . . . . . . . . . . . . . F-21
Statements of Stockholders' Equity . . . . . . . . . . . . F-22
Statements of Cash Flows . . . . . . . . . . . . . . . . . F-23
Notes to Financial Statements . . . . . . . . . . . . . . F-25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Sykes Enterprises, Incorporated
We have audited the accompanying consolidated balance sheets of Sykes
Enterprises, Incorporated as of December 31, 1994 and 1995 and the related
consolidated statements of operations, changes in shareholders' equity and
cash flows for the years ended July 31, 1993 and 1994, the five months
ended December 31, 1994, and the year ended December 31, 1995. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Sykes Enterprises, Incorporated as of December 31, 1994 and 1995, and the
consolidated results of their operations and their cash flows for the
years ended July 31, 1993 and 1994, the five months ended December 31,
1994, and the year ended December 31, 1995, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Tampa, Florida
September 16, 1996, except as to certain
information in Note 15 for which the
date is November 6, 1996
<PAGE>
SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED BALANCE SHEETS
December 31, September 29,
1994 1995 1996
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 1,594,398 $ 1,752,978 $ 2,140,885
Temporary investments . . 487,744 849,502 18,037,559
Receivables, including
unbilled . . . . . . . . 11,306,634 16,744,039 28,874,106
Refundable income taxes . 407,627 602,197 548,196
Prepaid expenses and
other current assets . . 1,194,890 1,047,955 2,004,851
---------- ---------- ----------
Total current assets . 14,991,293 20,996,671 51,605,597
Property and equipment, net 12,164,226 24,384,987 31,428,722
Deferred income taxes . . . -- 11,034 159,000
Deferred charges and other
assets . . . . . . . . . . 1,131,222 758,651 807,029
---------- ---------- ----------
Total assets . . $28,286,741 $46,151,343 $84,000,348
========== ========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities
Current installments of
long-term debt . . . . . $ 678,445 $ 1,566,645 $ 22,659
Accounts payable . . . . 2,652,265 6,221,965 4,402,452
Accrued employee
compensation and
benefits . . . . . . . . 2,395,148 5,849,096 7,045,296
Income taxes payable . . 70,697 186,221 2,087,842
Deferred income taxes . . 1,974,000 3,366,000 423,955
Other accrued expenses
and current liabilities 2,198,769 2,756,561 2,096,739
----------- ---------- ----------
Total current
liabilities . . . . . 9,969,324 19,946,488 16,078,943
Long-term debt . . . . . . 6,987,450 8,589,530 292,308
Deferred income taxes . . . 176,361 -- 1,797,510
Deferred grants . . . . . . 2,876,923 6,751,782 9,939,958
Commitments and
contingencies (Note 8)
Shareholders' equity
Common stock, $0.01 par
value, 50,000,000 shares
authorized; 13,998,408,
14,121,819 and
20,026,498 shares issued
and outstanding . . . . 139,984 141,218 200,265
Additional paid-in
capital . . . . . . . . 619,809 645,437 45,964,725
Retained earnings . . . . 7,611,930 10,008,015 9,659,448
Accumulated foreign
currency translation
adjustments . . . . . . (95,040) 68,873 67,191
---------- ---------- -----------
Total shareholders'
equity . . . . . . . 8,276,683 10,863,543 55,891,629
---------- ---------- ---------
Total liabilities
and shareholders'
equity . . . . . $28,286,741 $46,151,343 $84,000,348
========== ========== =========
See accompanying notes to consolidated financial statements
<PAGE>
<TABLE>
SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Five Months
Ended Year Ended
Years Ended July 31, December 31, December 31, Nine Months Ended
October 1, September 29,
1993 1994 1994 1995 1995 1996
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenues . . . . . . . $56,911,959 $55,589,334 $21,612,513 $74,594,634 $51,314,771 $81,008,314
Operating expenses
Direct salaries and
related costs . . . 36,487,194 35,362,219 14,157,479 44,592,380 31,036,531 45,535,823
General and
administrative . . . 18,552,525 18,785,692 7,242,028 25,231,077 16,682,626 25,413,533
---------- ---------- ---------- ---------- ---------- ----------
Total
operating
expenses . . . . 55,039,719 54,147,911 21,399,507 69,823,457 47,719,157 70,949,356
---------- ---------- ---------- ---------- ---------- ----------
Income from operations 1,872,240 1,441,423 213,006 4,771,177 3,595,614 10,058,958
Other income (expense)
Interest . . . . . . (83,516) (134,657) (192,170) (726,142) (470,709) 21,508
Other . . . . . . . . (80,372) (115,127) (83,662) (1,652) (38,418) 68,186
---------- ---------- ---------- ---------- ---------- -----------
Total other
income (expense) (163,888) (249,784) (275,832) (727,794) (509,127) 89,694
---------- ---------- ---------- ---------- ---------- -----------
Income (loss) before
income taxes . . . . . 1,708,352 1,191,639 (62,826) 4,043,383 3,086,487 10,148,652
Provision for income
taxes
Current . . . . . . . 1,258,248 (176,906) 63,852 817,044
Deferred . . . . . . (270,507) 758,954 28,821 830,254
---------- ----------- ----------- ---------- ----------- ----------
Total provision
for income taxes 987,741 582,048 92,673 1,647,298 1,195,969 3,993,705
---------- ----------- ----------- ---------- ----------- -----------
Net income
(loss) . . . . 720,611 609,591 (155,499) 2,396,085 1,890,518 6,154,947
Preferred stock
dividends . . . . . . -- -- -- -- -- 47,343
---------- --------- ----------- ---------- ---------- ----------
Net income (loss)
applicable to common
shareholders . . . . . $ 720,611 $ 609,591 $ (155,499) $ 2,396,085 $ 1,890,518 $ 6,107,604
========== ========== =========== ========== ========== ==========
Pro forma income data
(unaudited):
Income (loss) before
income taxes . . . . . $ 1,708,352 $ 1,191,639 $ (62,826) $ 4,043,383 $ 3,086,487 $10,148,652
Pro forma provision for
income taxes relating
to S corporation . . . -- 15,000 23,500 172,000 123,000 67,000
Actual provision for
income taxes . . . . . 987,741 582,048 92,673 1,647,298 1,195,969 3,993,705
---------- ---------- ---------- ---------- ---------- ----------
Total provision
and pro forma
provision for
income taxes . . 987,741 597,048 116,173 1,819,298 1,318,969 4,060,705
---------- ---------- ---------- ---------- ---------- ----------
Pro forma net income
(loss) . . . . . . . . 720,611 594,591 (178,999) 2,224,085 1,767,518 6,087,947
Preferred stock
dividends . . . . . . -- -- -- -- -- 47,343
---------- ---------- --------- ---------- ---------- ----------
Pro forma net income
(loss) applicable to
common shareholders . $ 720,611 $ 594,591 $ (178,999) $ 2,224,085 $ 1,767,518 $ 6,040,604
========== ========== =========== ========== ========== ==========
Pro forma net income
(loss) per share . . . $ 0.04 $ 0.04 $ (0.01) $ 0.13 $ 0.10 $ 0.32
========== ========== =========== ========== ========== ==========
Pro forma weighted
average common and
common equivalent
shares outstanding . . 16,873,981 16,873,981 16,873,981 16,873,981 16,873,981 19,180,394
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
<TABLE>
SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<CAPTION>
Accumulated
Foreign
Additional Currency
Common Stock Paid-In Retained Translation
Shares Amount Capital Earnings Adjustments
<S> <C> <C> <C> <C> <C>
Balance at August 1, 1992 . . . . 14,300,166 $143,001 $366,380 $6,437,227 $(3,414)
Net income . . . . . . . . . . - - - 720,611 -
Balance at July 31, 1993 . . . . 14,300,166 143,001 366,380 7,157,838 (3,414)
Contribution to capital . . . . - - 350,000 - -
Redemption of common stock . . (363,462) (3,634) (96,366) - -
Issuance of common stock . . . 61,704 617 (205) - -
Foreign currency translation
adjustment . . . . . . . . . . - - - - (95,428)
Net income . . . . . . . . . . - - - 609,591 -
---------- ----------- ----------- ---------- -----------
Balance at July 31, 1994 . . . . 13,998,408 139,984 619,809 7,767,429 (98,842)
Foreign currency translation
adjustment . . . . . . . . . . - - - - 3,802
Net income (loss) . . . . . . . - - - (155,499) -
---------- ----------- ----------- ---------- ----------
Balance at December 31, 1994 . . 13,998,408 139,984 619,809 7,611,930 (95,040)
Issuance of common stock . . . 41,342 413 26,449 - -
Stock dividend . . . . . . . . 82,069 821 (821) - -
Foreign currency translation
adjustment . . . . . . . . . . - - - - 163,913
Net income . . . . . . . . . . - - - 2,396,085 -
---------- ----------- ------------ ---------- ----------
Balance at December 31, 1995 . . 14,121,819 141,218 645,437 10,008,015 68,873
Merger with Sykes Realty, Inc.
(unaudited) . . . . . . . . . 1,220,000 12,200 253,366 (773,454) -
Conversion of redeemable
preferred stock (unaudited) . 298,686 2,987 5,373,365 (5,376,352) -
Issuance of common stock
(unaudited) . . . . . . . . . 2,417,768 24,178 39,712,239 - -
Three-for-two stock split
(unaudited) . . . . . . . . . 1,968,225 19,682 (19,682) - -
Distribution (unaudited) . . . - - - (306,365) -
Preferred stock dividends
(unaudited) . . . . . . . . . - - - (47,343) -
Foreign currency translation
adjustment (unaudited) . . . . - - - - (1,682)
Net income (unaudited) . . . . - - - 6,154,947 -
---------- ---------- ---------- --------- ----------
Balance at September 29, 1996
(unaudited) . . . . . . . . . . 20,026,498 $ 200,265 $ 45,964,725 $9,659,448 $ 67,191
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
<TABLE>
SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Five Months
Ended Year Ended
Years Ended July 31, December 31, December 31, Nine Months Ended
October 1, September 29,
1993 1994 1994 1995 1995 1996
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities
Net income (loss) . . . . $ 720,611 $ 609,591 $ (155,499) $ 2,396,085 $1,890,518 $ 6,154,947
Depreciation and
amortization . . . . . . 1,076,469 1,430,317 937,351 2,958,053 1,872,187 3,715,338
Deferred compensation . . -- -- -- 949,960 - -
Deferred income taxes . . (270,507) 758,954 28,821 830,254 332,698 1,151,891
Loss (gain) on disposal
of property and
equipment . . . . . . . 20,774 109,877 34,949 43,840 1,705 (4,826)
Change in assets and
liabilities:
Receivables, including
unbilled . . . . . . 2,111,667 (667,874) (1,272,499) (5,323,205) (1,991,900) (10,130,067)
Refundable income
taxes . . . . . . . . 33,028 (1,245,720) 561,093 (194,570) 278,550 54,001
Prepaid expenses and
other current assets (50,695) (294,377) (629,858) 146,935 (941,743) (956,896)
Deferred charges and
other assets . . . . (500,410) (275,518) 146,194 42,941 138,939 (279,905)
Accounts payable . . . (411,060) 145,015 930,878 3,569,699 375,060 (1,819,513)
Accrued employee
compensation and
benefits . . . . . . 5,462 664,662 (190,231) 2,502,987 859,671 1,196,200
Income taxes payable . 147,359 (23,567) 6,213 192,339 (109,076) (1,352,207)
Other accrued expenses
and current
liabilities . . . . . 742,762 559,081 587,350 742,127 204,907 (358,284)
---------- ---------- ----------- ---------- ---------- ----------
Net cash provided
by (used for)
operating
activities . . . 3,625,460 1,770,441 984,762 8,857,445 2,911,516 (2,629,321)
---------- ---------- ----------- ----------- ----------- -----------
Cash flows for investing
activities
Capital expenditures . . (1,683,594) (5,080,358) (5,293,027) (13,701,584) (4,289,299) (11,206,207)
Acquisition of businesses (282,000) (104,000) -- -- -- --
Proceeds from sale of
property and equipment . 365,502 67,181 211,218 79,936 73,568 168,435
---------- ---------- ----------- ----------- ----------- -----------
Net cash used for
investing
activities . . . (1,600,092) (5,117,177) (5,081,809) (13,621,648) (4,215,731) (11,037,772)
---------- ---------- ----------- ----------- ----------- -----------
Cash flows from financing
activities
Paydowns under revolving
line of credit
agreements . . . . . . . (21,114,409) (18,563,000) (8,058,000) (32,413,539) (18,953,000) (20,196,569)
Borrowings under
revolving line of credit
agreements . . . . . . . 19,184,207 19,043,000 10,383,000 30,573,273 20,660,005 19,781,835
Proceeds from grants . . 87,461 700,987 1,671,093 2,603,485 397,942 1,708,054
Proceeds from issuance of
stock . . . . . . . . . (44,479) 32,917 -- 26,861 26,861 39,731,599
Proceeds from issuance of
long-term debt . . . . . 42,503 3,023,056 1,630,056 5,000,000 -- --
Subsidiary stock
redemption . . . . . . . -- (100,000) -- -- -- --
Payment of long-term debt (6,134) (652,358) (258,698) (669,452) (709,412) (9,426,473)
Dividends paid . . . . . -- -- -- -- -- (353,707)
---------- ---------- ---------- ---------- ---------- ----------
Net cash provided
by (used for)
financing
activities . . . (1,850,851) 3,484,602 5,367,451 5,120,628 1,422,396 31,244,739
Adjustment for foreign
currency translation . . . -- (95,428) 3,802 163,913 164,514 (1,682)
---------- ----------- ---------- ---------- ---------- ----------
Net increase (decrease) in
cash, cash equivalents and
temporary investments . . 174,517 42,438 1,274,206 520,338 282,695 17,575,964
Cash, cash equivalents and
temporary investments -
beginning . . . . . . . . 590,981 765,498 807,936 2,082,142 2,082,142 2,602,480
---------- ----------- ---------- ---------- ---------- ----------
Cash, cash equivalents and
temporary investments -
ending . . . . . . . . . . $ 765,498 $ 807,936 $ 2,082,142 $ 2,602,480 $ 2,364,837 $ 20,178,444
========== =========== ========== ========== ========== ==========
Supplemental disclosures of
cash flow information:
Cash paid during the year
for:
Interest . . . . . . . $ 155,495 $ 127,606 $ 225,657 $ 772,368
Income taxes . . . . . $ 1,114,991 $ 767,535 $ 2,411 $ 816,090
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Nature of Business
Sykes Enterprises, Incorporated and consolidated subsidiaries (the
"Company") provide comprehensive information technology outsourcing
services including information technology support services, consisting of
technical product support and help desk services, and information
technology development services and solutions, consisting of software
design, development, integration and implementation and documentation,
foreign language translation and localization services. The Company's
services are provided to a wide variety of industries.
Note 2 - Summary of Accounting Policies
Basis of Presentation - On July 16, 1996, the Company acquired all of
the stock of Datasvar Support AB (Datasvar) in exchange for 246,819 shares
of the Company's voting common stock. In addition, on August 30, 1996,
the Company acquired all of the stock of DiagSoft, Inc. (DiagSoft) in
exchange for 675,000 shares of the Company's common stock. The
acquisitions were accounted for under the pooling-of-interests method of
accounting.
Principles of Consolidation - All significant intercompany
transactions and balances have been eliminated from these consolidated
financial statements.
Change in Fiscal Year - The Company changed its fiscal year end from
July 31 to December 31 effective August 1, 1994. The consolidated
statements of operations, changes in shareholders' equity, and cash flows
for the years ended July 31, 1993 and 1994, the five months ended December
31, 1994 and the year ended December 31, 1995 are presented in the
accompanying consolidated financial statements. In addition, the
historical information related to Datasvar and DiagSoft has been recast to
conform to the Company's reporting periods.
Interim Financial Statements - The unaudited financial statements as
of September 29, 1996, and for the nine months ended October 1, 1995 and
September 29, 1996, in the opinion of management include all adjustments
(consisting of only normal recurring accruals) necessary for a fair
presentation of such information. The results of operations for the nine
months ended September 29, 1996 are not necessarily indicative of the
results for the full year.
Recognition of Revenue - The Company primarily recognizes its revenue
for information technology support services and information technology
development services and solutions as services are performed. Certain of
these services are performed under fixed price contracts and revenue is
recognized using the percentage-of-completion method of accounting.
Adjustments to fixed price contracts and related estimated losses, if any,
are recorded in the period when such adjustments or losses are known.
Software sales are recognized upon shipment.
Cash and Cash Equivalents and Temporary Investments - Cash and cash
equivalents and temporary investments consist of investments with original
maturities of three months or less.
Shareholder Receivable and Payable - The Company has recorded a
receivable from its majority shareholder of approximately $728,000 at
December 31, 1994 and a net payable due to its majority shareholder of
approximately $671,000 at December 31, 1995. These amounts have been
included in receivables, including unbilled and accounts payable at
December 31, 1994 and 1995, respectively. A subsidiary of the Company has
recorded a loan payable to a shareholder of approximately $127,000 at
December 31, 1994 and a net receivable from the shareholder of
approximately $25,500 at December 31, 1995. These amounts have been
included in long-term debt and current assets at December 31, 1994 and
1995, respectively.
Property and Equipment - Property and equipment is recorded at cost
and depreciated using the straight-line and accelerated methods over the
estimated useful lives of the respective assets. Improvements to leased
premises are amortized over the shorter of the related lease term or the
useful lives of the improvements. Cost and related accumulated
depreciation on assets retired or disposed of are removed from the
accounts and any gains or losses resulting therefrom are credited or
charged to income. Depreciation expense was approximately $933,000,
$1,338,000, $847,000 and $3,171,000 for the years ended July 31, 1993 and
1994, the five months ended December 31, 1994 and the year ended December
31, 1995, respectively.
Land received from various governmental agencies under grants is
recorded at fair value (as determined by an independent appraiser) at date
of grant. During the five months ended December 31, 1994 and the year
ended December 31, 1995, the Company recorded approximately $400,000 and
$1,824,000, respectively, in land acquisitions as a result of such grants.
Accordingly, these non-cash transactions have been excluded from the
accompanying consolidated statements of cash flows for the five months
ended December 31, 1994 and the year ended December 31, 1995.
Deferred Charges and Other Assets - Deferred charges and other assets
consist primarily of long-term deposits, and goodwill and covenants not to
compete arising from business acquisitions. These intangible assets are
being amortized over periods ranging from two to ten years.
Income Taxes - Deferred income taxes are recorded to reflect the tax
consequences on future years of differences between the tax basis of
assets and liabilities and their financial reporting amounts at each year
end based on enacted tax laws and statutory tax rates applicable to the
periods in which the differences are expected to affect taxable income.
The Company and its consolidated subsidiaries are either taxed as C
corporations or have elected to be taxed as an S corporation under the
provisions of the Internal Revenue Code through the effective date of the
Company's initial public offering (see Note 15). The Company's affiliate
which elected to be taxed as an S corporation is not subject to federal
and state income taxes at the corporate level. Instead, the taxable income
of the S corporation is included in the individual income tax return of
the Company's majority shareholder for federal income tax purposes.
Deferred Grants - Grants for relocation and the acquisition of
property and equipment are deferred and recognized in income over the
corresponding useful lives of the related property and equipment. There
are no significant contingencies associated with the grants that would
impact the Company's ability to utilize assets received in connection with
the grants.
Foreign Currency Translation - The assets and liabilities of the
Company's foreign subsidiaries whose functional currency is other than the
U.S. Dollar are translated at the exchange rates in effect on the
reporting date, and income and expenses are translated at the weighted
average exchange rate during the period. The net effect of translation
gains and losses are not included in determining net income, but are
accumulated as a separate component of shareholders' equity. Foreign
currency translation gains and losses are included in determining net
income. Such gains and losses were not material for any period presented.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates; however, management does not
believe these differences would have a material effect on operating
results.
New Accounting Pronouncements - In October 1995, the Financial
Accounting Standards Board issued SFAS No. 123, "Accounting for Stock
Based Compensation." With respect to stock options granted to employees,
SFAS No. 123 permits companies to continue using the accounting method
promulgated by the Accounting Principles Board Opinion No. 25 ("APB No.
25"), "Accounting for Stock Issued to Employees," to measure compensation
or to adopt the fair value based method prescribed by SFAS No. 123. If APB
No. 25's method is continued, pro forma disclosures are required as if
SFAS No. 123 accounting provisions were followed. Management has
determined not to adopt SFAS No. 123's accounting recognition provisions.
In the opinion of management, SFAS No. 123 is not expected to have a
material impact on the Company's financial statements.
SFAS No. 121, "Accounting for the Impairment of Long Lived Assets and
for Long Lived Assets to be Disposed Of," is effective for years beginning
after December 15, 1995. This statement requires that long-lived assets
and certain intangibles to be held and used by the Company be reviewed for
impairment. This pronouncement is not expected to have a material impact
on the financial statements of the company.
Note 3 - Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables.
With the exception of approximately $1.8 million of receivables from a
significant customer (See Note 12), the Company's credit concentrations
are limited due to the wide variety of customers and markets into which
the Company's services are sold.
Note 4 - Receivables
Receivables consist of the following:
December 31,
1994 1995
Trade accounts receivable . . . $9,416,121 $15,532,420
Unbilled accounts receivable . 935,832 968,331
Notes receivable from officers
and related parties . . . . . 728,237 145,000
Other . . . . . . . . . . . . . 418,840 302,685
---------- ----------
11,499,030 16,948,436
Less allowance for doubtful
accounts . . . . . . . . . . . 192,396 204,397
---------- ----------
$11,306,634 $16,744,039
========== ==========
Note 5 - Property and Equipment
Property and equipment consist of the following:
December 31,
1994 1995
Land . . . . . . . . . . . . . . . . . $455,000 $2,240,746
Buildings and leasehold improvements . 5,483,208 9,461,812
Equipment, furniture and fixtures . . . 10,615,904 18,320,509
Transportation equipment . . . . . . . 746,149 538,011
Construction in progress . . . . . . . -- 1,499,363
---------- ----------
17,300,261 32,060,441
Less accumulated depreciation . . . . . 5,136,035 7,675,454
---------- ----------
$12,164,226 $24,384,987
========== ==========
Note 6 - Long-term Debt
The Company has a credit facility with NationsBank, N.A. comprised of
a $12 million revolving line of credit and a term note issued in the
original amount of $8 million. Availability under the line of credit is
based upon a maximum of 85% of eligible receivables. Borrowings accrue
interest at prime (8.5% at December 31, 1995), and a commitment fee of 1/4
of 1% per annum is payable quarterly on the unused portion. The term note
is payable in sixty consecutive monthly installments of $133,333 beginning
April 1, 1996, and accrues interest on the outstanding principal balance
at a floating rate equal to prime. The credit facility is collateralized
by substantially all of the Company's (excluding Sykes Realty, Inc.,
Datasvar and DiagSoft) accounts receivable, property and equipment, and
intangible assets, and is guaranteed in an amount not to exceed $500,000
by the Company's majority shareholder. The agreement contains restrictive
covenants regarding, among other things, annual dividend payments (limited
to 30% of previous year net income), and the Company's maintenance of
tangible net worth, total liabilities and working capital. At December 31,
1995, the Company was in compliance with, or had received waivers or
amendments through December 31, 1996 regarding, all restrictive covenants.
The loan agreement matures June 1, 1997, at which time if the facility is
not renewed, the interest rate associated with the Company's line of
credit increases to prime plus one percent, and all outstanding
borrowings, including the remaining balance of the term note, become due
and payable in twelve consecutive equal installments beginning July 1,
1997. The Company had borrowings under the credit facility of
approximately $5,555,000 and $8,165,000 at December 31, 1994 and 1995,
respectively.
During 1994, the Company entered into a loan agreement with a bank in
the principal amount of $1,300,000. Payments are due in monthly
installments of approximately $13,600. Borrowings accrue interest at 9.5%
through December 1, 1997, at which time the interest rate is subject to
change. At December 31, 1994 and 1995, outstanding amounts under the
agreement was approximately $1,300,000 and $1,261,000, respectively.
Other long-term debt structures consist of capital leases of an
automobile and various office equipment with lease periods expiring
through August 1997, at an interest rate of 21.95%. The balance of the
capital leases was approximately $397,000 and $174,000 at December 31,
1994 and 1995, respectively.
A bank credit agreement of one of the Company's subsidiaries had a
balance of $250,000 at December 31, 1995. There were no amounts
outstanding under the credit agreement at December 31, 1994. The credit
agreement requires that interest is payable monthly at an interest rate of
prime plus 2.0% and expires in 1996. At December 31, 1995, the prime rate
was 8.5%.
A foreign subsidiary of the Company had a bank loan with a balance of
approximately $154,000 and $153,000 at December 31, 1994 and 1995,
respectively. The loan agreement has an interest rate of the official
discount rate plus 5%. Principal and interest are payable semi-annually.
A foreign subsidiary of the Company had a loan with a governmental
economic agency with a balance of approximately $154,000 for both December
31, 1995 and December 31, 1994. The loan agreement has an interest rate
of the official discount rate plus 4.25%. Principal and interest are
payable semi-annually.
The following schedule approximates the payments required under the
Company's loan agreements reflecting the use of proceeds from the public
offering subsequent to year-end as discussed in Note 15:
Year Amount
1996 . . . . . . . . . . . . . . . . . . . . . . . $321,000
1997 . . . . . . . . . . . . . . . . . . . . . . . 199,000
1998 . . . . . . . . . . . . . . . . . . . . . . . 56,000
1999 . . . . . . . . . . . . . . . . . . . . . . . 56,000
2000 . . . . . . . . . . . . . . . . . . . . . . . 56,000
Thereafter . . . . . . . . . . . . . . . . . . . . 47,000
Note 7 - Income Taxes
The components of income (loss) before income taxes are as follows:
Five Months
Ended Year Ended
Years Ended July 31, December 31, December 31,
1993 1994 1994 1995
Domestic . . . . . $1,124,776 $950,880 $(8,655) $2,438,708
Foreign . . . . . . 583,576 240,759 (54,171) 1,604,675
--------- --------- -------- ---------
Total income (loss)
before income
taxes. . . . . . $1,708,352 $1,191,639 $(62,826) $4,043,383
========= ========= ======== =========
Provision for income taxes consists of the following:
Five Months
Ended Year Ended
Years Ended July 31, December 31, December 31,
1993 1994 1994 1995
Current:
Federal . . . . . $817,475 $(237,881) $50,209 $292,594
State . . . . . . 185,800 7,453 10,381 80,904
Foreign . . . . . 254,973 53,522 3,262 443,546
-------- -------- ------- --------
Total current
provision for
income taxes . . 1,258,248 (176,906) 63,852 817,044
--------- -------- ------- --------
Deferred:
Federal . . . . . (213,014) 770,232 25,249 728,792
State . . . . . . (57,493) (11,278) 3,572 101,462
Foreign . . . . . -- -- -- --
--------- --------- -------- ---------
Total deferred
provision for
income taxes . . (270,507) 758,954 28,821 830,254
--------- --------- --------- ---------
Total provision
for income taxes $987,741 $582,048 $92,673 $1,647,298
======== ======== ======== =========
The components of the net deferred tax asset (liability) are as follows:
December 31,
1994 1995
Current:
Deferred tax asset:
Accounts payable . . . . . . . . $190,000 $428,000
Accrued expenses . . . . . . . . 939,000 1,534,000
State operating loss carry forward 18,000 1,000
Other . . . . . . . . . . . . . . 277,000 109,000
--------- ---------
Total current deferred tax
asset . . . . . . . . . 1,424,000 2,072,000
--------- ---------
Deferred tax liability:
Receivables . . . . . . . . . . . (3,356,000) (5,337,000)
State tax refunds . . . . . . . . (16,000) (57,000)
Property and equipment . . . . . (26,000) (44,000)
---------- ----------
Total current deferred tax
liability . . . . . . . (3,398,000) (5,438,000)
---------- ----------
Net current deferred tax
liability . . . . . . $(1,974,000) $(3,366,000)
========== ==========
Non-current:
Deferred tax asset:
Deferred compensation . . . . . . $ -- $360,000
R & D credits . . . . . . . . . . 71,462 25,464
Bad debt reserve . . . . . . . . 30,942 48,566
Accrued expenses . . . . . . . . -- 87,258
State operating loss carryforward 38,000 37,000
Other . . . . . . . . . . . . . . 7,039 34,386
--------- ----------
Total non-current deferred
tax asset . . . . . . . 147,443 592,674
--------- ----------
Deferred tax liability:
State tax refunds . . . . . . . . (60,000) --
Property and equipment . . . . . (237,000) (344,705)
Untaxed reserves - foreign . . . (24,447) (97,318)
Other . . . . . . . . . . . . . . (2,357) (139,617)
-------- --------
Total non-current deferred
tax liability . . . . . (323,804) (581,640)
-------- --------
Net non-current deferred
tax asset (liability) $(176,361) $11,034
======== ========
Deferred income taxes applicable to undistributed earnings of foreign
subsidiaries that are indefinitely reinvested in foreign operations are
immaterial. The Company anticipates that no material tax cost will be
incurred on such earnings.
At December 31, 1995, the Company had state net operating loss
carryforwards of approximately $635,000 which expire in 2009.
In conjunction with the Company's initial public offering (See Note
15), the Company changed its method of accounting for income taxes from
the cash basis to the accrual method. The corresponding adjustment will be
included in taxable income over a period not to exceed four years.
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:
Five Months
Ended Year Ended
Years Ended July 31, December 31, December 31,
1993 1994 1994 1995
Statutory tax . . . . . $580,542 $405,310 $(20,649) $1,375,089
State income taxes,
net of federal tax
benefit . . . . . . . 91,281 36,986 (2,934) 102,169
Effect of income not
subject to federal
and state income tax . -- (13,000) (21,000) (155,000)
Change in state tax
rate . . . . . . . . . -- (67,000) -- --
Foreign taxes, net
of foreign income
not taxed in U.S . . . 57,000 (26,533) 21,836 (110,306)
Permanent differences . 234,759 321,551 178,427 366,555
Tax credits . . . . . . (50,841) (57,246) (43,007) (90,209)
Other . . . . . . . . . 75,000 (18,020) (20,000) 159,000
-------- -------- ------- ----------
Total provision
for income taxes . $987,741 $582,048 $92,673 $1,647,298
======== ======== ======= ==========
The Company is currently under examination by the Internal Revenue
Service for tax years ended July 31, 1991, 1992, 1993 and 1994. The
Company has reviewed various matters that are under consideration and
believes that it has adequately provided for any liability that may result
from this examination. In the opinion of management, any liability that
may arise from prior periods as a result of the examination will not have
a material effect on the Company's financial condition or results of
operations.
Note 8 - Commitments and Contingencies
The Company has pledged certain assets as collateral on mortgage
loans made to the Company's majority shareholder. Total loans outstanding
at December 31, 1995 was approximately $3,977,000. Subsequent to year-end,
an additional mortgage loan of $800,000, net of repayments, was made to
the Company's majority shareholder.
The Company leases certain equipment and buildings under operating
leases having terms ranging from one to five years. The building leases
contain up to two five year renewal options.
Rental expense under operating leases for the years ended July 31,
1993 and 1994, the five months ended December 31, 1994, and the year ended
December 31, 1995 was approximately $1,991,000, $2,411,000, $716,000, and
$1,667,000, respectively. Rental expense related to an office building
leased from the Company's majority shareholder, net of subleases, was
approximately $277,000, $277,000, $45,000 and $104,000 for the years ended
July 31, 1993 and 1994, the five months ended December 31, 1994 and the
year ended December 31, 1995, respectively. In December 1995, the Company
signed a ten year operating lease agreement with the Company's majority
shareholder to lease a corporate aircraft. The lease expense for 1995 was
approximately $51,000.
The Company has a five year noncancelable sublease agreement with an
unrelated tenant for its Charlotte, North Carolina facility. The minimum
sublease rental amounts the Company is to receive are approximately
$176,000, $181,000, $187,000, and $94,000 for the years ended December 31,
1996 through 1999, respectively.
The following is a schedule of future minimum rental payments
(without regard to the North Carolina sublease) under operating leases
having a remaining noncancelable term in excess of one year subsequent to
December 31, 1995:
Related Non-Related Total
Year Party Party Amount
1996 . . . . . . . . . . . $ 855,000 $2,430,000 $ 3,285,000
1997 . . . . . . . . . . . 855,000 2,112,000 2,967,000
1998 . . . . . . . . . . . 855,000 1,419,000 2,274,000
1999 . . . . . . . . . . . 855,000 672,000 1,527,000
2000 . . . . . . . . . . . 855,000 620,000 1,475,000
Thereafter . . . . . . . . 3,904,000 431,000 4,335,000
---------- ---------- ----------
Minimum payments required . $8,179,000 $7,684,000 $15,863,000
========= ========== ==========
The Company from time to time is involved in legal actions arising in
the ordinary course of business. With respect to these matters, management
believes that it has adequate legal defenses and/or provided adequate
accruals for related costs such that the ultimate outcome will not have a
material adverse effect on the Company's future financial position.
Note 9 - Employee Benefit Plan
The Company maintains a 401(k) plan covering defined employees who
meet established eligibility requirements. Under the plan provisions, the
Company matches 25% of participant contributions to a maximum matching
amount of 1% of participant compensation. Company contributions are funded
on a bi-weekly basis. The Company contribution was approximately $70,000,
$81,000, $105,000 and $95,000 for the years ended July 31, 1993 and 1994,
the five months ended December 31, 1994 and the year ended December 31,
1995, respectively. One of the Company's subsidiary maintains a separate
401(k) plan. There have been no contributions made to the plan.
Note 10 - Stock Options
In connection with an agreement entered into in 1995, the Company
granted options to purchase 762,000 shares of common stock at $4.53 per
share to an executive officer. The Company has determined the per share
price was $1.25 below fair market value at the date of grant, except that
up to one-third are exercisable to the extent that the underlying shares
are permitted to be included by the underwriters in an underwritten public
offering occurring prior thereto. As a result, the Company has recognized
compensation expense of $949,960, which is included in general and
administrative expenses in the accompanying consolidated statements of
income for the year ended December 31, 1995. The options granted in
connection with the agreement become exercisable three years from the date
of grant. Options expire if not exercised by the tenth anniversary of
their grant date.
Note 11 - International Operations
During the year ended July 31, 1994, the Company opened a facility in
The Netherlands. During the year ended December 31, 1995, the Company
closed its office in Canada. During July of 1996, the Company acquired
the stock of a company which has three facilities in Sweden. The
acquisition is accounted for under the pooling- of-interests method. The
effects of these five offices reflect the international operations of the
Company for the periods presented. The revenue, income (loss) before
income taxes and total assets of the Company associated with international
operations are as follows:
Five Months
Ended Year Ended
Years Ended July 31, December 31, December 31,
1993 1994 1994 1995
Revenue . . . . . . $3,742,875 $3,780,146 $2,228,422 $8,126,923
Income (loss)
before income
taxes . . . . . . 583,576 240,759 (54,171) 1,604,675
Total assets . . . 1,788,419 2,743,116 3,839,487 6,442,720
Note 12 - Significant Customers
Two customers comprise 33% of the Company's revenues for the year
ended December 31, 1995. Revenues from one customer amounted to 38%, 30%,
27% and 16% of the Company's revenues for the years ended July 31, 1993
and 1994, the five months ended December 31, 1994 and the year ended
December 31, 1995, respectively. Revenues from a new customer amounted to
17% of the Company's revenues for the year ended December 31, 1995.
Note 13 - Pro Forma Disclosures (Unaudited)
Pro Forma Income Taxes - An affiliate of the Company had elected to
be treated as an S corporation for federal and state income tax purposes.
As such, the affiliate's taxable income was reported to and subject to tax
to the affiliate's shareholder. Prior to the Company's initial public
offering (See Note 15), the Company's affiliate terminated its S
corporation election and accordingly became subject to federal and state
income taxes. The unaudited pro forma provision for income taxes reported
on the consolidated statements of operations shows approximate federal and
state income taxes (by applying statutory income tax rates) that would
have been incurred if the affiliate had been subject to tax as a C
corporation. In addition, the Company will change its method of
accounting for income taxes from the cash basis to the accrual method in
connection with the offering. The corresponding adjustment will be
included in taxable income over a period not to exceed four years.
Pro Forma Net Income Per Share - In March 1996, the Company was a
North Carolina corporation and amended its Articles of Incorporation to
authorize the issuance of up to 10,000 shares of $1,000 par value per
share preferred stock. At that time, the Company approved a 95-to-1 stock
split of all outstanding common stock. Subsequent to the amendment and
stock split, the Company changed its state of incorporation from North
Carolina to Florida and changed the authorized number of shares of common
stock from 100,000 to 50,000,000. As part of the change of state of
incorporation, each share of common stock of the North Carolina
corporation was exchanged for 88 shares (132 shares as adjusted for a
three-for-two stock split, See Note 15 - Subsequent Events) of common
stock of the Company. All applicable share and per share amounts in the
accompanying financial statements have been retroactively adjusted to
reflect these events.
Weighted average common shares outstanding includes the common share
equivalents discussed in Note 10 applying the treasury stock method. In
addition, the calculation includes certain preferred stock issued
subsequent to year-end that was converted to common stock immediately
prior to the closing of and sold in the Company's initial public offering.
Such shares were deemed outstanding for all periods presented.
In addition, the Company issued 1,830,000 shares of common stock as a
result of the merger involving Sykes Realty, Inc. immediately prior to the
offering, which shares were deemed outstanding for all periods presented.
Note 14 - Selected Financial Data
Effective August 1, 1994, the Company changed its fiscal year end
from July 31 to December 31. Accordingly, the financial statements for
December 31, 1994 reflect the Company's results of operations for a five-
month period.
Selected financial data for the twelve months ended December 31,
1993, 1994 and 1995 consists of the following:
Years Ended December 31,
1993 1994 1995
(Unaudited) (Unaudited)
Revenues . . . . . . . $57,281,442 $53,185,255 $ 74,594,634
Operating expenses
Direct salaries and
related costs . . . 37,257,184 33,731,677 44,592,380
General and
administrative . . . 18,578,986 18,304,452 25,231,077
---------- ---------- ----------
Total . . . . . . . 55,836,170 52,036,129 69,823,457
---------- ---------- ----------
Income from operations 1,445,272 1,149,126 4,771,177
Other income (expense)
Interest . . . . . . (133,506) (292,943) (726,142)
Other . . . . . . . . 185,411 (195,332) (1,652)
---------- ---------- ----------
Total other income
(expense) . . . . 51,905 (488,275) (727,794)
---------- --------- ----------
Income before income
taxes . . . . . . . . 1,497,177 660,851 4,043,383
Provision for income
taxes . . . . . . . . 809,007 467,131 1,647,298
---------- --------- ----------
Net income . . . . . . $ 688,170 $ 193,720 $ 2,396,085
========== ========= ==========
Pro forma income data
(unaudited)
Income before income
taxes . . . . . . . . 1,497,177 660,851 4,043,383
Pro forma provision for
income taxes relating
to S corporation . . . -- 39,000 172,000
Actual provision for
income taxes . . . . . 809,007 467,131 1,647,298
---------- ---------- ----------
Total provision and
pro forma provision
for income taxes . . 809,007 506,131 1,819,298
---------- ---------- ----------
Pro forma net income . 688,170 154,720 2,224,085
========== ========== ==========
Pro forma net income
per share . . . . . . $ .04 $ .01 $ 0.13
========== ========== ==========
Pro forma weighted
average common and
common equivalent
shares outstanding . . 16,873,981 16,873,981 16,873,981
Note 15 - Subsequent Events (Unaudited)
Preferred Stock - In connection with an agreement entered into in
February 1996, the Company's majority shareholder transferred all the
newly issued shares of the Company's outstanding preferred stock and all
of the outstanding non-voting common stock to a related party. Effective
immediately prior to the Company's initial public offering, the preferred
stock and non-voting common stock were automatically converted into shares
of common stock. These converted shares were included in the shares to be
sold in connection with such offering.
1996 Employee Stock Option Plan - The Company's 1996 Employee Stock
Option Plan, as amended, provides for the grant of incentive or
nonqualified stock options to purchase up to 1,750,000 shares of common
stock. Since April 1996, certain officers and employees of the Company
hold options to purchase a total of 601,194 shares of common stock at a
range of $10.00 to $46.90 per share. All such options vest ratably over
the three-year period following the date of grant, except for 120,000
options granted to key employees of Diagsoft, all of which are immediately
exercisable.
Non-Employee Director Stock Option Plan - The Company's 1996 Non-
Employee Director Stock Option Plan provides for the grant of nonqualified
stock options to purchase up to 300,000 shares of common stock with an
exercise price equal to the fair market value of the Common Stock on the
date of grant to members of the Board of Directors who are not employees
of the Company. Each outside director was granted options to purchase
7,500 shares of common stock upon at an exercise price of $12.00 per
share. Thereafter, on the date on which a new outside director is first
elected or appointed, he or she shall automatically be granted options to
purchase 5,000 shares of common stock. Each outside director also shall be
granted options to purchase 5,000 shares of common stock annually on the
day following the annual meeting of shareholders. Options shall become
exercisable over a period of three years in equal amounts until a director
has completed his or her initial term, whereupon all options granted prior
to that time shall become exercisable, and subsequent options shall become
exercisable one year after the date of grant. There are options
outstanding to purchase 37,500 shares of Common Stock at $12.00 per share
under the Non-Employee Director Stock Option Plan.
Public Offerings - In April 1996, the Company completed its initial
public offering for the sale of 3,000,000 shares of common stock.
Coincident with such offering, the underwriters of the offering exercised
their 15% over-allotment option and accordingly an additional 626,652
shares of the Company's common stock were sold by the Company. The
Company received approximately $39.7 million from the sale of the shares,
net of underwriting discount and expenses associated with such offering.
The net proceeds were used to repay all outstanding indebtedness and make
capital expenditures, with the remaining balance held for general
corporate and working capital purposes.
In November 1996, the Company completed a secondary offering for the
sale of 1,613,320 shares of common stock, inclusive of the underwriters
over-allotment option. The Company received approximately $70.3 million
from the sale of the shares, net of underwriting discount and expenses
associated with the offering. The net proceeds were held for general
corporate and working capital purposes.
Stock Split - Effective July 28, 1996, the Company's Board of
Directors approved a three-for-two stock split of common stock. The par
value of the Common Stock remains unchanged. All share and per share
amounts have been restated to retroactively reflect the stock split.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
of Info Systems of North Carolina, Inc.
We have audited the accompanying balance sheets of Info Systems of
North Carolina, Inc. as of June 30, 1995 and 1996, and the related
statements of operations, stockholders' equity and cash flows for each
of the years in the three year period ended June 30, 1996. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Info Systems
of North Carolina, Inc. as of June 30, 1995 and 1996, and the results of
its operations and its cash flows for each of the years in the three year
period ended June 30, 1996, in conformity with generally accepted
accounting principles.
As discussed in notes 2 and 7 to the financial statements, effective
July 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes", on a prospective basis.
KPMG PEAT MARWICK LLP
Charlotte, North Carolina
July 26, 1996
<PAGE>
INFO SYSTEMS OF NORTH CAROLINA, INC.
BALANCE SHEETS
June 30, December 31,
1995 1996 1996
ASSETS (NOTE 5) (Unaudited)
Current assets
Cash and cash equivalents . . . $1,248,377 6,404 442,865
Accounts receivable, less
reserve for uncollectible
accounts of $75,000, $75,000
and $149,999 at June 30, 1995
and 1996 and December 31,
1996, respectively (Note 3) . 3,162,529 2,751,223 3,715,958
Work in progress . . . . . . . 453,378 976,720 333,247
Prepaid expenses . . . . . . . 122,850 150,407 92,156
Income taxes receivable . . . . -- 464,805 256,903
Deferred income taxes (Note 7) 87,055 52,940 1,275,416
Inventory . . . . . . . . . . . 26,951 100,058 38,267
--------- --------- ---------
Total current assets . . . . 5,101,140 4,502,557 6,154,812
--------- --------- ---------
Property and equipment, at cost
(note 3) . . . . . . . . . . . . 3,209,072 3,600,909 3,326,496
Accumulated depreciation and
amortization . . . . . . . . . (1,885,257) (1,882,145) (1,825,773)
--------- --------- ---------
Property and equipment, net . 1,323,815 1,718,764 1,500,723
--------- --------- ---------
Capitalized software development
costs, net of accumulated
amortization of $433,221,
$677,878 and $526,095 at
June 30, 1995 and 1996 and
December 31, 1996, respectively 384,480 1,745,887 1,310,883
Goodwill, net of accumulated
amortization of $117,749,
$224,961 and $0 at
June 30, 1995 and 1996 and
December 31, 1996, respectively 358,270 244,949 -
Other assets, net of accumulated
amortization of $222,564,
$47,717 and $0 at
June 30, 1995 and 1996 and
December 31, 1996, respectively 145,753 139,385 118,613
--------- -------- --------
$7,313,458 8,351,542 9,085,031
========= ======== ========
See accompanying notes to financial statements.
<PAGE>
INFO SYSTEMS OF NORTH CAROLINA, INC.
BALANCE SHEETS
June 30, December 31,
LIABILITIES AND STOCKHOLDERS' 1996
EQUITY 1995 1996 (Unaudited)
Current liabilities:
Lines of credit (Notes 3 and
5) . . . . . . . . . . . . . $1,664,834 2,183,192 1,416,796
Current installments of long-
term debt (Note 5) . . . . . 740,840 839,973 896,181
Current installments of
obligations under capital
leases (Note 4) . . . . . . 93,170 71,384 66,500
Account payable and accrued
liabilities (Note 9) . . . . 1,905,256 1,705,910 3,506,028
Income taxes payable
(receivable) . . . . . . . . 348,014 -- --
Customer deposits . . . . . . 40,536 10,774 16,500
--------- -------- ---------
Total current liabilities 4,792,650 4,811,233 5,902,005
--------- --------- ---------
Long-term debt, excluding
current installments (Note 5) 1,307,741 1,112,767 665,212
Deferred maintenance fees . . . 474,205 518,832 499,803
Obligations under capital
leases, excluding current
installments (note 4) . . . . 84,435 55,704 58,036
Deferred income taxes (Note 7) 237,457 673,733 673,733
--------- -------- --------
Total liabilities . . . . 6,896,488 7,172,269 7,798,789
--------- -------- ---------
Commitments and contingencies
(Notes 4 and 10)
Stockholders' equity (Notes 6
and 9):
Common stock - $0.01 par
value, authorized 10,000,000
shares; issued 3,293,160,
3,257,488 and 3,457,536
shares at June 30, 1995
and 1996 and December 31,
1996 respectively;
outstanding 3,173,904,
3,172,390 and 3,353,741
shares at June 30, 1995 and
1996 and December 31, 1996,
respectively . . . . . . . . 7,935 31,724 33,537
Additional paid-in capital . 775,681 867,602 1,690,216
Retained earnings . . . . . . 1,193,179 1,396,204 (437,511)
Unearned ESOP contribution . (1,559,825) (1,116,257) --
--------- --------- ---------
Total stockholders' equity 416,970 1,179,273 1,286,242
--------- --------- ---------
$ 7,313,458 8,351,542 9,085,031
========= ========= =========
See accompanying notes to financial statements.
<PAGE>
<TABLE>
INFO SYSTEMS OF NORTH CAROLINA, INC.
STATEMENTS OF OPERATIONS
<CAPTION>
Six Months Ended
Year Ended June 30, December 31,
1994 1995 1996 1995 1996
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Hardware sales . . . . . $ 6,492,708 16,441,140 9,319,488 4,829,722 8,137,064
Professional services . . 6,211,002 7,130,818 9,058,650 4,712,286 2,969,396
Software licensing fees . 1,841,540 2,434,586 3,010,656 2,256,140 1,797,620
Maintenance fees . . . . 1,006,202 1,027,641 1,153,760 568,785 507,428
Commissions . . . . . . . 750,210 817,206 1,395,366 773,667 377,623
Other . . . . . . . . . . 837,349 367,390 517,065 211,969 247,599
---------- ---------- ---------- ---------- ----------
17,139,011 28,218,781 24,454,985 13,352,589 14,036,730
---------- ---------- ---------- ---------- ----------
Cost of hardware and certain
software sales . . . . . . 5,654,094 13,865,442 8,077,661 4,419,364 6,442,283
Salaries, commissions and
related benefits . . . . . 8,405,476 10,243,202 11,441,761 6,465,267 6,148,572
Selling, general and
administrative expenses . 2,413,020 2,966,332 3,829,279 1,779,769 3,183,679
---------- ---------- ---------- ---------- ----------
16,472,590 27,074,976 23,348,701 12,664,400 15,774,534
---------- ---------- ---------- ---------- ----------
Operating income (loss) . 666,421 1,143,805 1,106,284 688,189 (1,737,804)
Employee benefit
contribution expense . . . (506,420) (798,769) (506,161) (248,625) (1,179,471)
Interest expense, net . . . (273,022) (145,731) (181,044) (72,392) (138,918)
Gain on sale of automated
warehouse operations
(Note 1) . . . . . . . . . 1,000,000 - - - -
---------- --------- ---------- ---------- ----------
Income (loss) before
income taxes and
cumulative effect of
change in accounting
principle . . . . . . . . 886,979 199,305 419,079 367,172 (3,056,193)
Income taxes (benefit) . . 343,000 90,631 192,265 136,869 (1,222,476)
---------- ---------- ---------- ---------- ----------
Income (loss) before
cumulative effect of
change in accounting
principle . . . . . . . . 543,979 108,674 226,814 230,303 (1,833,715)
Cumulative effect at July 1,
1993 of change in method of
accounting for income taxes
(Notes 2 and 7). . . . . . 104,723 - - - -
---------- ---------- ---------- ---------- ----------
Net income (loss) . . . . $ 648,702 108,674 226,814 230,303 (1,833,715)
========== ========== ========== ========== ==========
Net income (loss) per
share. . . . . . . . . . 0.20 0.03 0.07 0.07 (0.57)
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
INFO SYSTEMS OF NORTH CAROLINA, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended June 30, 1994, 1995 and 1996 and Six Months ended December 31, 1996
<CAPTION>
Notes
Additional Receivables Unearned
Common Paid-in from Retained ESOP
Stock Capital Stockholder Earnings Contribution
<S> <C> <C> <C> <C> <C>
Balance at July 1, 1993 . . $ 7,975 577,846 (10,000) 435,803 (2,746,965)
Issuance of common stock 8 12,530 -- -- --
Repurchase of common stock (10) (2,550) -- -- --
Receipt for notes
receivable . . . . . . . -- -- 10,000 -- --
Earned contribution . . . -- -- -- -- 443,570
Net income . . . . . . . -- -- -- 648,702 --
---------- ----------- --------- --------- ---------
Balance at June 30, 1994 . $ 7,973 587,826 -- 1,084,505 (2,303,395)
Issuance of common stock 205 316,663 -- -- --
Repurchase of common stock (208) (68,180) -- -- --
Receipt of common stock . (35) (60,628) -- -- --
Earned contribution . . . -- -- -- -- 743,570
Net income . . . . . . . -- -- -- 108,674 --
---------- ----------- --------- ---------- ---------
Balance at June 30, 1995 . $ 7,935 775,681 -- 1,193,179 (1,559,825)
Issuance of common stock 533 225,992 -- -- --
Repurchase of common stock (533) (134,071) -- -- --
Stock split . . . . . . . 23,789 -- -- (23,789) --
Earned contribution . . . -- -- -- -- 443,568
Net income . . . . . . . -- -- -- 226,814 --
---------- ---------- -------- ---------- ----------
Balance June 30, 1996 . . . $ 31,724 867,602 -- 1,396,204 (1,116,257)
Issuance of common stock
(Unaudited) . . . . . . 2,000 870,208 -- -- --
Repurchase of common stock
(Unaudited) . . . . . . (187) (47,594) -- -- --
Earned contribution
(Unaudited) . . . . . . -- -- -- -- 1,116,257
Net loss (Unaudited). . . -- -- -- (1,833,115) --
--------- --------- ---------- --------- ----------
Balance December 31, 1996
(Unaudited) . . . . . . . $ 33,537 1,690,216 -- (437,511) --
========= ========= ========== ========= ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
INFO SYSTEMS OF NORTH CAROLINA, INC.
STATEMENTS OF CASH FLOWS
<CAPTION>
Six Months Ended
Years Ended June 30, December 31,
1994 1995 1996 1995 1996
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss). . . . . . . . . $ 648,702 108,674 226,814 230,303 (1,833,715)
Adjustments to reconcile net
income (loss) to net cash provided
by operating activities:
Depreciation and amortization . . 643,207 755,266 1,032,160 423,310 1,065,837
Notes receivable . . . . . . . . (850,000) 850,000 -- - --
(Gain) loss on sale of property
and equipment . . . . . . . 4,538 (6,886) 9,215 11,041 84,804
Decrease (increase) in:
Accounts receivable . . . . . . 565,961 (1,255,913) 411,306 (390,114) (964,735)
Work in progress . . . . . . . . (203,626) (234,857) (523,342) 199,416 643,473
Income taxes receivable . . . . 161,774 31,726 (464,805) -- 207,902
Prepaid expenses and other
assets . . . . . . . . . . . . . (88,055) (81,179) (88,187) (60,146) 174,242
Increase (decrease) in:
Accounts payable and accrued
liabilities . . . . . . . . . . 516,914 150,466 (199,346) 1,031,063 3,210,862
Income taxes payable . . . . . . -- 348,014 (348,014) (354,925) --
Deferred income taxes . . . . . 178,571 (295,549) 470,391 -- (1,222,476)
Deferred maintenance fees and
customer deposits . . . . . . . (132,059) (29,729) 14,865 2,198 (13,303)
--------- --------- --------- --------- ---------
Net cash provided by (used in)
operating activities . . . . . . 1,445,927 340,033 541,057 1,092,146 1,352,891
--------- --------- --------- --------- ---------
Cash flows from investing
activities:
Purchase of property and equipment (329,648) (721,897) (957,857) (472,516) (213,053)
Proceeds from sale of property and
equipment . . . . . . . . . . . . 2,920 20,466 21,272 -- --
Capitalized software development
costs . . . . . . . . . . . . . . (271,641) (57,552) (1,706,054) (438,098) (37,393)
---------- ----------- ----------- ----------- -----------
Net cash used in investing
activities . . . . . . . . . . (598,369) (758,983) (2,642,639) (910,614) (250,446)
---------- ----------- ----------- ----------- -----------
Cash flows from financing
activities:
Proceeds from (repayments of)
lines of credit, net . . . . . . . (733,116) 1,664,151 518,358 (1,224,685) (2,177,140)
Repayment of obligations under
capital leases . . . . . . . . . . (119,155) (89,037) (98,401) (59,394) (38,181)
Proceeds from long-term debt . . . 604,000 279,152 950,000 -- --
Repayment of long-term debt . . . (816,827) (1,122,071) (1,045,837) (380,225) (391,347)
Proceeds from issuance of common
stock . . . . . . . . . . . . . . -- -- 226,525 80,538 872,208
Proceeds from notes receivable
from shareholders . . . . . . . . 10,000 -- --
Repurchase of common stock . . . . (2,560) (68,388) (134,604) (39,684) (47,781)
ESOP allocation (unearned
compensation) . . . . . . . . . . 443,570 743,570 443,568 221,784 1,116,257
---------- ----------- ---------- --------- ----------
Net cash provided by (used in)
financing activities . . . . . (614,088) 1,407,377 859,609 (1,401,666) (665,984)
---------- ---------- ---------- --------- ----------
Net increase (decrease) in cash . . 233,470 988,427 (1,241,973) (1,220,134) 436,461
Cash and cash equivalents,
beginning of period . . . . . . . . 26,480 259,950 1,248,377 1,248,377 6,404
--------- ---------- ---------- --------- ----------
Cash and cash equivalents, end of
period. . . . . . . . . . . . . . . $ 259,950 1,248,377 6,404 28,243 442,865
========= ========== ========== ========= ==========
Supplemental disclosures of cash
flow information:
Interest paid . . . . . . . . . . $ 291,125 226,418 212,753 99,299 141,610
Income taxes paid . . . . . . . . $ 119,726 28,810 534,694 498,372 250
</TABLE>
See accompanying notes to financial statements.
<PAGE>
INFO SYSTEMS OF NORTH CAROLINA, INC.
Statements of Cash Flows, Continued
June 30, 1994, 1995 and 1996 and
Unaudited Six Months Ended December 31, 1995 and 1996
Supplemental disclosures of non-cash investing and financing activities:
Capital lease obligations of $47,884 were incurred during fiscal year
1996 to upgrade computer equipment.
During fiscal 1996 the Company distributed a dividend of three shares of
common stock to all shareholders of common stock of record at August 5,
1995. This transaction resulted in an increase to common stock and a
reduction in retained earnings of $23,789.
During fiscal 1995, the Company acquired the majority of the net
liabilities, $13,766, of a personal computer network installation and
servicing company for 72,000 shares of common stock valued at $275,220.
Due to certain indemnification clauses contained in the related purchase
agreement, 8,132 shares of common stock at a value of $34,406 were
returned to the Company. Additionally, certain acquired and other
employee receivables were repaid to the Company with 6,204 shares of
common stock at a value of $26,257. As a result of the acquisition, the
Company recognized a deferred tax liability of $102,751 and goodwill of
$364,205.
During 1994, the Company acquired certain assets and assumed certain
liabilities of a computer hardware and software sales and service company
for $100,151. The Company paid $6,494 in cash and 820 shares of
common stock valued at $12,538 and had a remaining contract payable of
$81,119. The Company recognized goodwill of $107,780.
<PAGE>
INFO SYSTEMS OF NORTH CAROLINA, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1994, 1995 and 1996
(1) Organization and Business
Info Systems of North Carolina, Inc. (the Company), a Microsoft
Solution Provider and an IBM Business Partner, is engaged in designing,
programming, licensing, installing and supporting hardware and
software systems to the retail, distribution, manufacturing and
medical industries throughout the United States. The Company has
long-term marketing rights to and ownership of licensed software in
various industry segments.
In April 1994, the Company entered into an asset purchase agreement,
whereby the Company purchased certain assets and assumed certain
liabilities of a computer hardware and software sales and service
company. The transaction was accounted for under the purchase method
effective April 1, 1994. The purchase price of $100,151 was payable
in cash and common stock of the Company. Goodwill recorded as a
result of the asset purchase was as follows:
Purchase Price $ 100,151
Fixed Assets acquired (17,960)
Liabilities assumed 25,589
----------
Goodwill $ 107,780
==========
In May 1994, the Company consummated the asset purchase agreement
entered into in April 1993 with Worldwide Chain Store Systems (WCSS),
a subsidiary of IBM, whereby the Company sold certain equipment and
rights related to its automated warehouse business operations. The
sales price was $1,000,000 of which the remaining amount payable of
$850,000 was paid in fiscal 1995.
During fiscal 1994, the Company received a monthly fee under the
April 1993 asset purchase agreement amounting to $525,000 for the
year ended June 30, 1994. During fiscal 1994, WCSS also rented
office space from the Company and paid a monthly administrative fee
to the Company for accounting support and various expenses incurred
on behalf of WCSS by the Company. Such amounts were insignificant
for the year ended June 30, 1994.
(2) Summary of Significant Accounting Policies
The unaudited financial statements as of December 31, 1995 and 1996
and for the six months then ended, in the opinion of management
include all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of such information. The
results of operations for the six months ended December 31, 1995
and 1996 are not necessarily indicative of the results for the full
year.
(a) Revenue Recognition
Professional services revenues represents fees for designing,
programming, consulting and other installation services and is
recognized as revenue as the related services are performed, or
under the percentage of completion method for fixed price
contracts. While the Company has a limited number of fixed price
contracts, revenue from the sale and installation of software
where significant enhancements are required is recognized on the
percentage of completion method based on the labor hours incurred
to date to total labor hours. Changes in job performance, job
conditions, estimated profitability and final contract settlements
which may result in revisions to costs and income are recognized
in the period in which the revisions are determined.
Software licensing fees represents revenues under licensing
agreements that provide customers with the right to use the
Company's software products. Certain agreements also provide
for professional services such as installation of the software
and customer training. Software licensing fees are recognized
as revenue when the related software is delivered. Revenue from
the software upgrades is recognized when the upgrade is shipped
and billed to the customer. Product warranty is provided for a
period of 90 days on software products. Such warranty costs are
not significant.
Under the terms of business partner and remarketing arrangements
with International Business Machines (IBM) and other hardware
and software vendors, the Company earns commissions for selling
and installing hardware and software, as well as for providing
other professional services to customers. The Company
recognizes revenue when the hardware is shipped by the vendor to
the customer and as the related services are performed.
(b) Costs of Hardware and Certain Software Sales
Costs of hardware and certain software sales include those costs
incurred related to software licensing fees (primarily royalty
and referral expenses) and amounts paid for the purchase of
hardware from IBM and other vendors under the Company's
remarketing arrangements.
(c) Capitalized Software Development Costs
Certain costs incurred in the internal development of computer
software and costs of purchased computer software acquired
directly and through business acquisitions, which is to be
licensed, are capitalized and are amortized on a straight-line
basis over the expected useful life of the individual software
products (generally 3 to 5 years). All other internal software
research and development costs are expensed in the period in
which they are incurred.
Amortization of capitalized software costs for the years ended
June 30, 1994, 1995 and 1996 was $101,434, $211,003 and
$344,648, respectively.
(d) Goodwill
Goodwill, which represents the excess of the purchase price over
the fair market value of net assets required, is amortized on a
straight-line basis over three to five years. In December of 1996,
Goodwill in the amount of $190,911 was written off to reflect
management's assessment that the asset has no future value to the
Company.
(e) Customer Deposits
Customer deposits represent amounts received on licensing
agreements and hardware sales agreements prior to delivery of
the software and hardware and the portion of licensing fee
revenues relating to installations and customer training that
has not been completed as of year-end.
(f) Deferred Maintenance Fees
Maintenance fees for ongoing customer support are deferred and
recognized on a straight-line basis over the maintenance period
(primarily 12 months).
(g) Cash and Cash Equivalents
For the purpose of reporting cash flows, the Company considers
all cash and temporary investments (primarily overnight
investments) with original maturities of less than three months
to be cash and cash equivalents.
(h) Inventory
Inventory consists principally of purchased products held for
resale and is valued at the lower of cost (which is based on
average cost) or fair value.
(i) Property and Equipment
Property and equipment are stated at cost and depreciated over
their estimated useful lives using the straight-line method for
financial reporting purposes and accelerated methods for tax
reporting purposes. Maintenance and repairs are expensed as
incurred. The Company's cost of property and equipment and
useful lives at June 30, 1995 and 1996 are as follow:
Estimated
June 30, June 30, Useful
1995 1996 Life
Computer equipment $2,045,435 2,424,842 5 years
Equipment under capital
leases 411,909 396,823 5 years
Furniture and fixtures 560,939 479,618 5 years
Vehicles 138,015 138,015 5 years
Leasehold improvements 52,774 161,611 5-7 years
--------- ---------
$3,209,072 3,600,909
========= =========
(j) Income Taxes
Effective July 1, 1993 the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Statement 109 requires a change from the
deferred method of accounting for income taxes of APB Opinion 11
to the asset and liability method of accounting for income
taxes. Under the asset and liability method of Statement 109,
deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rate is recognized in
income in the period that includes the enactment date.
(k) Use of Estimates
Management has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those
estimates.
(l) Reclassification
Certain amounts in the prior year's financial statements have
been reclassified to conform to the fiscal 1996 presentation.
(3) Lines of Credit
(a) The Company has a $1,500,000 line of credit with a bank that is
secured by equipment and various assets and is intended to be
used for general working capital purposes and to replace IBM
line of credit borrowings over 30 days outstanding. Interest is
payable monthly at either the bank's prime rate or LIBOR plus
0.225%, at the Company's option. The line of credit expires
November 30, 1996. The outstanding balance at June 30, 1994, 1995
and 1996 was $0, $0 and $1,541,462, respectively. The average
borrowings under the line of credit for the years ended June 30,
1994, 1995, and 1996 was $122,665, $22,083 and $793,760,
respectively. The highest borrowings for the years ended June 30,
1994, 1995, and 1996 was $202,992, $150,000 and $1,500,000,
respectively. The average interest rate for the years ended June
30, 1995 and 1996 was 8.65%, 8% and 8%, respectively.
(b) The Company has a $600,000 line of credit with IBM for equipment
financing under its remarketing agreement that is due on demand
and secured by certain accounts receivable. IBM may approve
borrowings above the $600,000 limit. Interest is not accrued
for the first 30 days; the rate varies from 1.75% to 3.25%
thereafter. The outstanding balances at June 30, 1994, 1995, and
1996 were $683, $1,664,834, and $641,730, respectively.
The average borrowings under the line of credit for the years
ended June 30, 1994, 1995 and 1996 was $451,555, $2,100,474 and
$449,203, respectively. The highest borrowings for the years
ended June 30, 1994, 1995 and 1996 was $1,186,955, $7,808,175
and $848,138, respectively. The average interest rate for the
years ended June 30, 1994, 1995 and 1996 was 8.4%, 8.27% and
8.56%, respectively.
(4) Leases
The Company is obligated under various capital leases for certain
computer, telephone and office equipment. Future payments under such
capital leases are as follows:
Fiscal Year Amount
1997 $ 83,368
1998 39,307
1999 22,390
----------
145,065
Less executory costs and interest
(at rates ranging from 7.50% to
12.22%) 17,977
----------
Obligations under capital leases 127,088
Less - current installments 71,384
----------
Obligations under capital leases
excluding current installments $ 55,704
==========
The Company also has several leases for office space and equipment at
various locations under one to seven year leases that are accounted
for as operating leases. Certain of the leases allow for early
termination of the lease at the Company's option on specified dates.
Future minimum rental payments, excluding the cancelable portion of
the leases, under operating leases are as follows:
Fiscal Year Amount
1997 $ 855,978
1998 816,202
1999 279,522
2000 198,160
2001 181,663
Thereafter 202,799
---------
$2,534,324
=========
Rent expense under operating leases amounted to approximately
$517,000, $491,000 and $651,000 in fiscal years 1994, 1995 and 1996,
respectively.
(5) Long-term Debt
Long-term debt at June 30, 1995 and 1996 consists of the following:
June 30, June 30,
1995 1996
Note payable to a bank, secured by all
Company assets and trust accounts held by
certain shareholders, due in monthly
payments of $25,358, plus interest at
7.45%, through August 1998 (ESOP debt; see
note 9) $ 967,875 663,585
Notes payable to a bank, secured by
equipment and various assets; interest
payable monthly at LIBOR plus 2.25% (5.5%
at June 30, 1996); monthly principal
payments of $5,000 due through December
31, 1996; principal payments of $35,000
due from January 31, 1997 through June 30,
1998 -- 645,000
Notes payable to shareholders, unsecured,
due in quarterly installments of $34,820,
plus interest payable monthly at 8.45%,
through August 1999 (ESOP debt; see note
9) 591,950 452,672
Note payable to a bank, secured by various
accounts receivable, due in monthly
payments of $13,360 including interest at
the bank's prime rate (8.25% at June 30,
1996) plus 0.375%, through December 1996 240,520 80,200
Note payable to a bank, secured by various
accounts receivable and equipment;
interest payable monthly at the bank's
prime rate (8.25% at June 30, 1996) plus
0.25%; due in monthly principal payments
of $7,208 through December 1996 129,750 43,250
Notes payable to a bank, secured by
vehicles, due in monthly payments totaling
$3,143, including interest ranging from
7.75% to 9.00%; maturing at various dates
from June 1997 to June 1999 97,628 68,033
Note payable to a corporation, unsecured,
due in monthly payments of $2,083
through March 1995 plus a final payment of
$25,000, including interest at 4%, due
September 1996, and quarterly common stock
payments of 820 shares, valued at $16.93
per share in 1995 through March 1995 20,858 --
---------- ----------
Total long-term debt 2,048,581 1,952,740
Less current installments (740,840) (839,973)
---------- ----------
Long-term debt, excluding current
installments $ 1,307,741 1,112,767
========== ==========
Scheduled principal repayments on notes payable at June 30, 1996 are
as follows:
Fiscal Year Amount
1997 $ 839,973
1998 874,425
1999 202,490
2000 35,852
----------
$ 1,952,740
==========
Under the terms of the notes payable to a bank expiring in December
1996, June 1998 and August 1998 and the line of credit with a bank
expiring in November 1996, the Company is required to comply with
certain covenants, the most restrictive of which require the Company
to maintain certain financial and operating ratios, maintain a
minimum level of tangible net worth (as defined), limit the Company's
annual capital expenditures and prohibit the Company from incurring
additional indebtedness. The Company is not in compliance with all
covenants at June 30, 1996 but has obtained a waiver letter from the
bank. The Company also is not in compliance with all covenants at
December 31, 1996 but has obtained a waiver letter from the bank
waiving compliance with such covenants through January 1, 1998.
(6) Common Stock and Related Commitments
Effective July 8, 1995, the Shareholders adopted an amendment to the
Articles of Incorporation to increase the authorized number of shares
of common stock to 10,000,000.
On August 5, 1995, the Board of Directors approved a four for one
stock split effected in the form of a dividend to shareholders of
common stock of record at August 5, 1995. As a result of the split,
2,378,898 additional shares were issued and $23,789 was transferred
from retained earnings to common stock. All references in the
financial statements to number of shares prior to the stock dividend
have been retroactively restated to reflect the increased number of
common shares outstanding.
The Company has a stock option plan which allows qualified employees
to purchase common stock at a formula value as established by the
Board of Directors. As of June 30, 1996, there were no shares under
option. During 1996, options to purchase 6,000 shares at $3.00 per
share and 40,000 shares at $4.85 per share expired. No options were
granted during 1994, 1995 or 1996. During 1995, options to purchase
2,250 shares at $2.90 per share and 750 shares at $3.20 per share
expired. During 1994, options to purchase 3,250 shares at $2.90 per
share and 750 shares at $3.20 per share were forfeited or expired.
In fiscal year 1996, the Company adopted a Nonqualified Stock
Purchase and Option Plan, which replaces the plan described above,
and a Directors Purchase and Option Plan. Under the terms of these
plans, the offering price per share shall not be less than the
current fair value of the stock as determined by the Board of
Directors based on an annual valuation performed by a third party for
the purpose of valuing shares in the Company's ESOP. During 1996,
367,000 options at $4.25 per share were granted; 53,300 options were
exercised and 313,700 options were forfeited.
(7) Income Taxes
As discussed in note 2, the Company adopted Statement 109 as of July
1, 1993. The cumulative effect of this change in accounting for
income taxes of $104,723 is determined as of July 1, 1993 and is
reported separately in the statement of operations for the year
ended June 30, 1994.
Components of income tax expense (benefit) are as follows:
Years ended June 30,
1994 1995 1996
Current:
Federal $ 70,000 307,528 (221,490)
State 18,000 78,652 (56,636)
-------- -------- --------
88,000 386,180 (278,126)
-------- -------- --------
Deferred:
Federal 203,000 (235,386) 374,636
State 52,000 (60,163) 95,755
-------- -------- --------
255,000 (295,549) 470,391
-------- -------- --------
Total $ 343,000 90,631 192,265
======== ========= =========
Income taxes differed from the amounts computed by applying the U.S.
Federal income tax statutory rate of 34% to pretax income as a result
of the following:
Years ended June 30,
1994 1995 1996
Computed "expected"
tax expense $ 301,573 67,764 142,487
Increase decrease in
income taxes
resulting from:
State income taxes,
net of federal
income tax benefit 46,200 12,203 25,819
Goodwill amortization -- 6,987 6,987
Meals and
entertainment -- 12,259 21,771
Other, net (4,773) (8,582) (4,799)
------- -------- -------
$ 343,000 90,631 192,265
======= ======== =======
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
June 30, 1995 and 1996 are presented below.
1995 1996
Deferred tax assets:
Accounts receivable, principally due
to reserve for uncollectible accounts $ 29,475 29,475
Insurance claims reserve, principally
due to accrual for financial statement
reporting in excess of amount for tax
purposes 24,348 19,231
Customer deposits, principally, due to
accrual for financial reporting
purposes in excess of amount for tax
purposes 15,931 4,234
Other 17,301 --
------- --------
Total gross deferred tax assets 87,055 52,940
Less valuation allowance - -
------- --------
Net deferred tax assets 87,055 52,940
Deferred tax liabilities:
Capitalized software development
costs, principally due to differences
in capitalization for financial
reporting purposes and tax purposes 148,189 531,307
Intangible assets, principally due to
differences in capitalization for
financial reporting purposes and tax
purposes 71,476 45,246
Fixed assets, principally due to
differences in depreciation for
financial reporting purposes and tax
purposes 12,082 97,180
Other 5,710
-------- --------
Total gross deferred tax
liabilities 237,457 673,733
-------- --------
Net deferred tax liability $ 150,402 620,793
======== ========
A valuation allowance has not been recorded against the deferred tax
assets as the Company anticipates the reversal of existing temporary
differences will provide sufficient taxable income to realize the
deferred tax assets. There has been no change in the valuation
allowance since the beginning of the year, in either 1995 or 1996.
(8) Disclosures about Fair Value of Financial Instruments
The Company is required under SFAS No. 107, Disclosures about Fair
Value of Financial Instruments, to disclose in its financial
statements the fair value of all financial instruments, including
assets and liabilities both on - and off - balance sheet, for which
it is practicable to estimate such fair value. Fair value methods,
assumptions, and estimates for the Company are set forth below:
- Cash and cash equivalents, accounts receivable, accounts payable
and accrued liabilities: The carrying amount approximates fair
value because of the short maturity of these instruments.
- Capital lease obligations and long term debt: Fair value is
estimated based on discounting future cash flows of each
instrument at current interest rates for similar instruments of
comparable maturities.
Based on the methods and assumptions noted above, the estimated fair
values of those financial instruments for which carrying value does
not approximate fair value at June 30, 1995 and 1996 are as follows:
1995 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
Capital lease
obligations 177,605 177,857 127,088 126,263
Long-term debt 2,048,581 2,022,928 1,952,740 1,966,739
(9) Employee Benefit Plans
All eligible employees, based on age and length of service
requirements, are covered under a 401(K) profit sharing plan. The
plan provides for certain Company contributions to be made at the
discretion of the Board of Directors. Company contributions accrued
for at June 30, 1995 and 1996 were approximately $48,000 and $50,000,
respectively.
Effective June 30, 1992, the Company established an Employee Stock
Ownership Plan (ESOP) which will invest primarily in common stock of
the Company. Full time employees who have completed 6 months of
service and have reached age 20-1/2 are eligible for participation. The
participants' ESOP accounts vest beginning after completion of two
years of service at a rate of 20% per year of service. In August
1992, the ESOP purchased 249,350 shares of the Company's common
stock. In connection with the stock purchase, the Company made a
cash contribution of $1,000,00 to the ESOP and entered into notes
payable (ESOP debt) of $3,105,000. The Company is obligated to make
annual contributions to the ESOP sufficient to enable the ESOP to
service the ESOP debt. The unearned compensation recorded for future
contributions required by the Company is reflected in the
accompanying balance sheet under the caption unearned ESOP
contribution. See note 5 for payment terms of the ESOP debt. The
ESOP debt is secured by unallocated shares held by the ESOP trustees.
As the ESOP debt is repaid, common stock is allocated to the ESOP
based on the proportion of the loan repayment to total principal and
interest payments required over the remaining loan term. Company
contributions used for debt service were $443,570, $743,570 and
$443,568 for the years ended June 30, 1994, 1995 and 1996,
respectively. These Company contributions and funding of the ESOP
debt resulted in an allocation to the ESOP of 107,773, 180,668 and
107,773 shares for the years ended June 30, 1994, 1995 and 1996,
respectively. Interest incurred by the Company on these loans was
$193,393, $154,678 and $107,856 for the years ended June 30, 1994,
1995 and 1996, respectively. Additional costs related to the ESOP
were $17,850, $13,113 and $13,016 for the years ended June 30, 1994,
1995 and 1996, respectively.
In December of 1996, the Board of Directors authorized a contribution
of $1,116,257 to be paid in March 1997. Accordingly, the Company
recorded a contribution expense for this amount.
(10) Commitments and Contingencies
The Company markets, licenses and supports two software packages
under license and distributorship agreements. Both agreements
require the Company to pay agreed-upon royalties on each sale of a
software package as well as certain minimum royalties over various
terms of the agreements. Royalty expenses amounted to approximately
$84,000, $270,000 and $24,000 in fiscal 1994, 1995 and 1996,
respectively.
The Company is involved in various lawsuits arising in the normal
course of business. Management believes that such matters will not
have a material effect on the financial condition of the Company
<PAGE>
APPENDIX A
MERGER AGREEMENT DATED AS OF JANUARY 10, 1997 AMONG SYKES ENTERPRISES,
INCORPORATED, INFO SYSTEMS OF NORTH CAROLINA, INC. AND ISNC ACQUISITION
CORP.
MERGER AGREEMENT
Dated as of January 10, 1997
By and Among
SYKES ENTERPRISES, INCORPORATED,
INFO SYSTEMS OF NORTH CAROLINA, INC.
and
ISNC ACQUISITION CO.
TABLE OF CONTENTS
Page
ARTICLE I - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Other Defined Terms . . . . . . . . . . . . . . . . . . . 8
1.3 Definition of "Ordinary Course". . . . . . . . . . . . . 8
ARTICLE II - THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . 9
2.1 Merger and Surviving Corporation . . . . . . . . . . . . . 9
2.2 Articles of Incorporation . . . . . . . . . . . . . . . . 9
2.3 Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.4 Directors . . . . . . . . . . . . . . . . . . . . . . . . 9
2.5 Officers . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.6 Effective Time . . . . . . . . . . . . . . . . . . . . . . 9
2.7 Effect of Merger . . . . . . . . . . . . . . . . . . . . . 9
2.8 Further Assistance . . . . . . . . . . . . . . . . . . . . 10
2.9 Closing . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE III - CONVERSION OF SHARES . . . . . . . . . . . . . . . . . . 10
3.1 ISI Common Stock . . . . . . . . . . . . . . . . . . . . . 10
3.2 Newco Common Stock . . . . . . . . . . . . . . . . . . . . 10
3.3 Dissenting Shares . . . . . . . . . . . . . . . . . . . . 11
3.4 Exchange of Certificates . . . . . . . . . . . . . . . . . 11
3.5 Fractional Shares and Dividends . . . . . . . . . . . . . 13
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF ISI . . . . . . . . . . 13
4.1 Corporate Organization. . . . . . . . . . . . . . . . . 14
4.2 Capitalization. . . . . . . . . . . . . . . . . . . . . 14
4.3 Authority . . . . . . . . . . . . . . . . . . . . . . . . 14
4.4 ISI Affiliates . . . . . . . . . . . . . . . . . . . . . . 14
4.5 ISI's Consents and Approvals; No Violations. . . . . . . 15
4.6 Work in Progress . . . . . . . . . . . . . . . . . . . . . 15
4.7 Financial Statements. . . . . . . . . . . . . . . . . . 15
4.8 Undisclosed Liabilities. . . . . . . . . . . . . . . . . 16
4.9 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.10 Real and Personal Property. . . . . . . . . . . . . . . 16
4.11 Absence of Changes. . . . . . . . . . . . . . . . . . . 17
4.12 Intellectual Property. . . . . . . . . . . . . . . . . . . 19
4.13 Leases. . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.14 Bank Accounts; Investments; Powers of Attorney. . . . . . 23
4.15 Material Contracts and Customers. . . . . . . . . . . . . 23
4.16 Related Transactions. . . . . . . . . . . . . . . . . . . 25
4.17 Insurance . . . . . . . . . . . . . . . . . . . . . . . . 26
4.18 Labor Matters. . . . . . . . . . . . . . . . . . . . . . . 26
4.19 Employee Benefit Plans. . . . . . . . . . . . . . . . . . 27
4.20 Litigation. . . . . . . . . . . . . . . . . . . . . . . 29
4.21 Compliance with Laws. . . . . . . . . . . . . . . . . . 29
4.22 Environmental Matters. . . . . . . . . . . . . . . . . . 29
4.23 Books and Records. . . . . . . . . . . . . . . . . . . . 30
4.24 Copies of Documents. . . . . . . . . . . . . . . . . . . 30
4.25 Adequacy of Assets. . . . . . . . . . . . . . . . . . . 30
4.26 Pooling-of-Interests; Tax Free Reorganization. . . . . . . 31
4.27 Accounts Receivable. . . . . . . . . . . . . . . . . . . 31
4.28 Brokers and Finders. . . . . . . . . . . . . . . . . . . 31
4.29 Restrictive Covenants. . . . . . . . . . . . . . . . . . 31
4.30 Product Liabilities and Warranties. . . . . . . . . . . 31
4.31 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF SEi AND NEWCO . . . . . . 32
5. Representations and Warranties of SEi and Newco . . . . . 32
5.1 Corporate Organization. . . . . . . . . . . . . . . . . 32
5.2 Capitalization of SEi and Newco. . . . . . . . . . . . . 32
5.3 Authority . . . . . . . . . . . . . . . . . . . . . . . . 33
5.4 SEi's Consents and Approvals of SEi and Newco;
No Violations . . . . . . . . . . . . . . . . . . . . . . 33
5.5 Litigation. . . . . . . . . . . . . . . . . . . . . . . 33
5.6 Brokers and Finders. . . . . . . . . . . . . . . . . . . 34
5.7 SEi Information. . . . . . . . . . . . . . . . . . . . . 34
5.8 Pooling-of-Interests; Tax Free Reorganization. . . . . . 34
5.9 Disclosure. . . . . . . . . . . . . . . . . . . . . . . 34
5.10 Financial Statements . . . . . . . . . . . . . . . . . . . 34
5.11 Undisclosed Liabilities. . . . . . . . . . . . . . . . . 35
5.12 Absence of Changes . . . . . . . . . . . . . . . . . . . . 35
5.13 Compliance with Laws . . . . . . . . . . . . . . . . . . . 35
5.14 Environmental Matters. . . . . . . . . . . . . . . . . . 35
ARTICLE VI - COVENANTS PENDING THE CLOSING . . . . . . . . . . . . . . 36
6.1 Certain Covenants of ISI Pending the Closing. . . . . . 36
6.2 Certain Covenants of SEi and Newco Pending the Closing. 38
ARTICLE VII - OTHER COVENANTS . . . . . . . . . . . . . . . . . . . . . 39
7.1 Filings. . . . . . . . . . . . . . . . . . . . . . . . . 39
7.2 Announcements. . . . . . . . . . . . . . . . . . . . . . 39
7.3. Costs and Expenses; Termination Fee. . . . . . . . . . . 39
7.4. Further Assurances. . . . . . . . . . . . . . . . . . . 40
7.5 Exclusive Dealing . . . . . . . . . . . . . . . . . . . . 40
7.6 Accounting Matters; Publication of Financials . . . . . . 41
7.7 Registration of ISI Merger Shares. . . . . . . . . . . . . 41
7.8 Affiliate Agreements. . . . . . . . . . . . . . . . . . 42
7.9 Shareholders Meeting. . . . . . . . . . . . . . . . . . . 42
7.10 Employment Agreements. . . . . . . . . . . . . . . . . . . 43
7.11 Releases. . . . . . . . . . . . . . . . . . . . . . . . . 43
7.12 Opinion of Accountants. . . . . . . . . . . . . . . . . . 43
7.13 ISI Record Holders . . . . . . . . . . . . . . . . . . . . 43
7.14 Confidentiality . . . . . . . . . . . . . . . . . . . . . 43
7.15 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . 44
7.16 Life Insurance . . . . . . . . . . . . . . . . . . . . . . 45
7.17 Termination of Shareholders' Agreements . . . . . . . . . 45
ARTICLE VIII - CONDITIONS TO THE OBLIGATION OF SEi AND NEWCO . . . . . 45
8. Conditions to the Obligation of SEi and Newco . . . . . . 45
8.1 Truth of Representations and Warranties . . . . . . . . . 45
8.2 Performance . . . . . . . . . . . . . . . . . . . . . . . 45
8.3 No Material Adverse Effect . . . . . . . . . . . . . . . . 45
8.4 Closing Deliveries . . . . . . . . . . . . . . . . . . . . 45
8.5 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . 46
8.6 Absence of Litigation . . . . . . . . . . . . . . . . . . 46
8.7 Governmental Approvals . . . . . . . . . . . . . . . . . . 46
8.8 ISI Shareholder Approval; Dissenting Shareholders. . . . 47
8.9 Opinion of Accountants. . . . . . . . . . . . . . . . . 47
8.10 Registration Statement; Listing. . . . . . . . . . . . . 47
8.11 Affiliate Agreements. . . . . . . . . . . . . . . . . . 47
8.12 Tax Free Reorganization. . . . . . . . . . . . . . . . . . 47
8.13 Fairness Opinion. . . . . . . . . . . . . . . . . . . . 47
ARTICLE IX - CONDITIONS TO THE OBLIGATION OF ISI . . . . . . . . . . . 47
9. Conditions to the Obligation . . . . . . . . . . . . . . . 47
9.1 Truth of Representations and Warranties . . . . . . . . . 48
9.2 Performance . . . . . . . . . . . . . . . . . . . . . . . 48
9.3 Closing Deliveries . . . . . . . . . . . . . . . . . . . . 48
9.4 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . 48
9.5 Absence of Litigation . . . . . . . . . . . . . . . . . . 49
9.6 Governmental Approvals . . . . . . . . . . . . . . . . . . 49
9.7 ISI Shareholder Approval . . . . . . . . . . . . . . . . . 49
9.8 Opinion of Accountants. . . . . . . . . . . . . . . . . 49
9.9 Registration Statement; Listing. . . . . . . . . . . . . 49
9.10 Tax Free Reorganization. . . . . . . . . . . . . . . . . 49
9.11 Fairness Opinion . . . . . . . . . . . . . . . . . . . . . 49
9.12 No Material Adverse Effect . . . . . . . . . . . . . . . . 49
ARTICLE X - TERMINATION AND ABANDONMENT . . . . . . . . . . . . . . . . 50
10.1 Termination . . . . . . . . . . . . . . . . . . . . . . . 50
10.2 Procedure and Effect of Termination . . . . . . . . . . . 50
ARTICLE XI - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . 51
11.1 Prevailing Party . . . . . . . . . . . . . . . . . . . . . 51
11.2 Knowledge . . . . . . . . . . . . . . . . . . . . . . . . 51
11.3 Governing Law . . . . . . . . . . . . . . . . . . . . . . 51
11.4 Captions . . . . . . . . . . . . . . . . . . . . . . . . . 51
11.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . 51
11.6 Counterparts . . . . . . . . . . . . . . . . . . . . . . . 52
11.7 Entire Agreement . . . . . . . . . . . . . . . . . . . . . 52
11.8 Severability . . . . . . . . . . . . . . . . . . . . . . . 52
11.9 No Third Party Beneficiaries . . . . . . . . . . . . . . . 53
11.10 Assignment . . . . . . . . . . . . . . . . . . . . . . . . 53
11.11 Amendment and Modification . . . . . . . . . . . . . . . . 53
11.12 Waiver of Compliance . . . . . . . . . . . . . . . . . . . 53
11.13 No Survival of Representations and Warranties . . . . . . 53
EXHIBITS TO MERGER AGREEMENT
Exhibit A Articles of Merger
Exhibit B Exchange Agent Agreement
Exhibit C Letter of Transmittal
Exhibit D Affiliate Agreement
Exhibit E Opinion of ISI Counsel
Exhibit F Opinion of SEi Counsel
MERGER AGREEMENT
THIS MERGER AGREEMENT (this "Agreement") is made and entered into as
of the 10th day of January, 1997 by and among SYKES ENTERPRISES,
INCORPORATED, a Florida corporation ("SEi"), INFO SYSTEMS OF NORTH
CAROLINA, INC., a North Carolina corporation ("ISI"), and ISNC ACQUISITION
CO., a North Carolina corporation ("Newco").
WITNESSETH
A. The board of directors of each of SEi, ISI and Newco deem it
advisable and in the best interests of their respective shareholders to
effect the Merger (as defined below), upon the terms and subject to the
conditions set forth herein.
B. For federal income tax purposes, the parties intend that the
Merger shall qualify as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
C. For accounting purposes, the parties intend that the Merger
shall be accounted for as a "pooling-of-interests."
NOW, THEREFORE, in consideration of the covenants, agreements,
representations and warranties set forth herein, and intending to be
legally bound, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms. The terms defined in this Article I shall have
the following respective meanings for all purposes of this Agreement
(including in the Disclosure Schedule), with the definitions being equally
applicable to both the singular and plural forms of the terms defined:
"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 of such Person.
"Alternative Transaction" means any merger, consolidation, sale of
substantial assets, sale of shares of capital stock or other equity
securities or similar transaction involving ISI, other than the Merger.
"Alternative Transaction Excess" means, with respect to any
Alternative Transaction, the excess of (i) the Alternative Transaction
Value over (ii) Twenty-four Million Six Hundred Fifteen Thousand Ninety-
three Dollars ($24,615,093).
"Alternative Transaction Value" means, with respect to any
Alternative Transaction, the aggregate fair market value (as of the date
of consummation of such Alternative Transaction) of all consideration,
including, without limitation, cash, securities, property, the assumption
or discharge of any liability or obligation of ISI and any other form of
consideration (whether absolute or contingent), received or retained, or
to be received or retained, by one or more of ISI, ISI shareholders, ISI
Affiliates and creditors of ISI in connection with such Alternative
Transaction.
"Articles of Merger" means the articles of merger in the form
attached hereto as Exhibit A which will be executed and filed with the
Secretary of State of the State of North Carolina in accordance with
applicable provisions of the NCBCA to effectuate the Merger as provided
for in this Agreement.
"Average Closing Price" means the average of the closing prices for
SEi Common 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 ten (10) consecutive full trading days in
which such shares are traded on NASDAQ, ending on the last such trading
day prior to the Closing Date.
"Business Day" means any day on which banks are open for business in
Charlotte, North Carolina.
"Closing Date" means the date on which the Closing actually occurs.
"Closing Price" means the closing price for SEi Common Stock as
reported on NASDAQ (as published in the Wall Street Journal or, if not
reported therein, in another mutually agreed upon authoritative source) on
the last full trading day prior to the Closing Date in which such shares
are traded on NASDAQ.
"Contamination" means the uncontained, illegal or improper presence
of Hazardous Substances at the Leased Real Property, at any level which
requires remediation under any applicable Environmental, Health and Safety
Laws.
"Copyrights" means United States and foreign copyrights, whether
registered or unregistered and pending applications to register the same.
"Disclosure Schedule" means the disclosure schedule executed by the
parties hereto as of the date hereof, without any amendment thereto after
the date hereof.
"Effective Time" means the date and time when the Merger shall become
effective pursuant to the provisions of Section 2.6 hereof.
"Employee Plan" means any plan described in Section 3(3) of ERISA and
also shall mean 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, Code Section 125 or other
cafeteria plan, 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 or
retiree 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, covering employees
or former employees of ISI.
"Environmental, Health and Safety Laws" means, with respect to any
Person, all applicable Legal Requirements relating to the generation,
storage, handling, release, discharge, emission, transportation, treatment
or disposal of Hazardous Substances or wastes or to the protection of
human health and the environment, including, but not limited to, the
Comprehensive Environmental Response, Compensation and Liability Act, the
Superfund Amendments and Reauthorization Act of 1986, the Resource
Conservation and Recovery Act, the Clean Water Act, the Federal Water
Pollution Control Act, the Safe Drinking Water Act, the Toxic Substances
Control Act, the Occupational Safety and Health Act, and the Hazardous
Material Transportation Act, in each case as amended, and the regulations
implementing such acts, and the state and local equivalents of such acts
and regulations, and common law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ESOP" means The Info Systems of North Carolina, Inc. Employee Stock
Ownership Plan.
"ESOP Trustees" means William J. Gaughan, James J. Kenney, Edward C.
Ruff and Alex McMillan in their capacity as trustees for the ESOP.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Agent" means Firstar Trust Company of Milwaukee, Wisconsin
or if it is unable or unwilling to serve as Exchange Agent, such other
bank or trust company upon which SEi and ISI may mutually agree.
"GAAP" means the United States generally accepted accounting
principles promulgated or adopted by the Financial Accounting Standards
Board and its predecessors as in effect from time to time.
"Hazardous Substances" means any radioactive materials, asbestos,
ureaformaldehyde, hazardous wastes, toxic substances, petroleum, petroleum
byproducts or other substance defined or regulated as hazardous or toxic,
or as a "pollutant" or "contaminant," in any applicable Legal
Requirements.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"Intellectual Property" means all intellectual property and
intellectual property rights, including all Patent Rights, Copyrights,
Trademarks, Licenses, Trade Names, Trade Secrets and all other forms of
proprietary information.
"Interim Balance Sheet" means the unaudited balance sheet of ISI
dated November 30, 1996 (and any related notes thereto).
"Interim Balance Sheet Date" means the date of the Interim Balance
Sheet.
"ISI Common Stock" means the $.01 par value common stock of ISI.
"ISI Merger Shares" means the shares of SEi Common Stock issuable
pursuant to Section 3.1 hereof in exchange for the outstanding shares of
ISI Common Stock
"Leased Real Property" means all real property and premises currently
leased to ISI.
"Legal Requirements" means all judgments, decrees, injunctions,
orders, writs, rulings, laws, ordinances, statutes, rules, regulations,
codes and other requirements of all foreign, federal, state and local
governmental, administrative and judicial bodies and authorities.
"Licensed Product" means any product of Intellectual Property which
is the subject of a License.
"Licenses" means all licenses, sublicenses and rights to use any
Intellectual Property of another Person.
"Material Adverse Effect" means, with respect to any Person, a
material adverse effect on the business, the financial condition, assets,
results of operations or business prospects of such Person.
"Merger" means the merger of Newco with and into ISI upon the terms
set forth in this Agreement.
"NASDAQ" means The Nasdaq National Stock Market, Inc.'s National
Market.
"NCBCA" means the North Carolina Business Corporation Act.
"Newco Common Stock" means the $.01 par value common stock of Newco.
"Optional Termination Date" means March 31, 1997.
"Participating Corporations" means ISI and Newco.
"Patent Rights" means all United States and foreign patents, patent
applications, continuations, continuations in part, divisions, reissues
and patent disclosures.
"Permitted Encumbrances" means (i) liens for current taxes,
assessments or governmental charges which are not delinquent, and (ii)
carrier's, warehousemens', landlord's, mechanic's and materialmen's liens
arising in the ordinary course of business for sums not yet due and
payable.
"Person" means any individual, partnership, corporation, limited
liability company, limited liability partnership, trust, unincorporated
organization, association, joint venture or other entity or any foreign,
federal, state or local government, agency, political subdivision,
instrumentality or division thereof.
"Return" means all Tax returns, declarations, reports, estimates,
information returns and statements of any nature required to be filed by
ISI with any Person including, without limitation, Internal Revenue
Service Forms 1120, W-2, W-3, 940 and 941 and equivalent state forms with
respect to any Tax period ending on or before the Closing Date and, with
respect to any Tax period that includes but does not end on the Closing
Date, that portion of such Tax period ending on the Closing Date.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"SEi Common Stock" means the $.01 par value common stock of SEi.
"SEi Filings" means all filings made with the SEC by SEi on or prior
to the date hereof, including all exhibits to any such filings.
"SEi Merger Expenses" means the aggregate amount of all reasonable
out-of-pocket fees, costs and expenses (including, without limitation,
reasonable legal and accounting fees and expenses) incurred by SEi or
Newco or on their behalf in connection with the transactions contemplated
hereby, including, without limitation, the Securities Expenses and all
reasonable out-of-pocket fees, costs and expenses relating to any of the
following: due diligence reviews of ISI and its business, the preparation,
negotiation and execution of certain employment agreements and of this
Agreement (and all agreements, certificates, instruments and documents
delivered pursuant hereto), the organization of Newco, the Closing and any
filing required under the HSR Act; provided that for purposes of this
Agreement, in no event shall the SEi Merger Expenses exceed Four Hundred
Thousand Dollars ($400,000).
"Software" means computer program code in whatever language or
format, including but not limited to object code and source code.
"Software Contracts" means all contracts, agreements, Licenses and
other commitments and arrangements, oral or written, with any Person
respecting the ownership, license, acquisition, design, development,
distribution, marketing, use or maintenance of computer program code or
related technical or user documentation and databases.
"Surviving Corporation" means ISI as it shall exist immediately after
the Merger.
"Surviving Corporation Common Stock" means the $.01 par value common
stock of the Surviving Corporation.
"Taxes" means all income, gross receipts, profits, franchise,
license, transfer, sales, use, ad valorem, customs, payroll, withholding,
Social Security, Federal Insurance Contributions Act (FICA), Old Age,
Survivors and Disability Insurance (OASDI), employment, unemployment,
occupation, property (real or personal), excise and other taxes,
withholdings, fees, duties, assessments and charges imposed by any
federal, state, local, or foreign taxing authority, including without
limitation taxes required to be withheld from employees' and officers'
compensation and paid over to taxing authorities, including any interest,
additions or penalties (including without limitation the penalties for
fraud and for substantial understatement of tax liability).
"Technical Documentation" means all technical and descriptive
materials relating to the acquisition, design, development, use or
maintenance of computer code and program documentation including, but not
limited to, all user manuals, flow charts, algorithms, programmer's
annotations, data dictionaries and databases relating to computer program
code whether or not development of such computer code and program
documentation is complete.
"Termination Fee" means the greatest of:
(a) One Million Dollars ($1,000,000) plus the SEi Merger
Expenses;
(b) the sum of (i) fifty percent (50%) of the Alternative
Transaction Excess plus (ii) the SEi Merger Expenses; provided, however,
that the amount determined pursuant to this paragraph (b) shall in no
event exceed One Million Five Hundred Thousand Dollars ($1,500,000); and
(c) fifty percent (50%) of the Alternative Transaction Excess;
provided, however, that the Termination Fee shall in no event exceed Two
Million Dollars ($2,000,000).
"Trade Names" means all names used to identify a particular company,
business, subsidiary or division thereof.
"Trade Secrets" means 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.
"Trademarks" means 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.
1.2 Other Defined Terms. Each of the following terms shall have the
meaning indicated in the section set forth below opposite such term, with
the definitions being equally applicable to both the singular and plural
forms of the term defined:
Term Section
Affiliate Agreement 7.8
Agreement Initial Paragraph
Audited SEi Financial Statements 5.10
Closing 2.9
CERCLA 4.22(d)
COBRA 4.19(f)
Code Recital B
Confidential Information 7.14(c)
Contracts 4.15(a)
Controlled Group 4.19(d)(ii)
Customers 4.15(c)
Dissenting Shares 3.3
Exchange Agent Agreement 3.4(a)
Exchange Fund 3.4(a)
Financial Statements 4.7
ISI Initial Paragraph
Interim Financial Statements 4.7
Investments 4.14(b)
Letter of Transmittal 3.4(b)
New Certificates 3.4(a)
Newco Initial Paragraph
Notices 12.5
Permits 4.22(e)
Preferred Stock 5.2
Registration Statement 7.7(a)
Proxy Statement 7.9(b)
Securities Expenses 7.7(a)
SEi Initial Paragraph
SEi Interim Balance Sheet 5.10
Unaudited SEi Financial Statements 5.10
1.3 Definition of "Ordinary Course". For purposes of this
Agreement, an activity is deemed to be in the "ordinary course" of a
Person's business if such activity is in accordance with such Person's
historical and customary practice with respect to such activity.
ARTICLE II
THE MERGER
2.1 Merger and Surviving Corporation. Upon the terms and subject to
the conditions of this Agreement and in accordance with the provisions of
the NCBCA, as of the Effective Time, Newco shall be merged with and into
ISI, and ISI shall be the surviving corporation and shall continue its
corporate existence under the laws of the State of North Carolina. After
the Merger, the name of the Surviving Corporation shall be "Info Systems
of North Carolina, Inc." As of the Effective Time, the separate existence
of Newco shall cease.
2.2 Articles of Incorporation. The articles of incorporation of ISI
immediately prior to the Effective Time shall be the articles of
incorporation of the Surviving Corporation.
2.3 Bylaws. The bylaws of Newco in effect immediately prior to the
Effective Time shall be the bylaws of the Surviving Corporation.
2.4 Directors. The directors of Newco immediately prior to the
Effective Time shall be the directors of the Surviving Corporation and
shall hold office from the Effective Time until their respective
successors are duly elected and qualified, or until their earlier
resignation or removal, or as otherwise provided by law.
2.5 Officers. The officers of Newco immediately prior to the
Effective Time shall be the officers of the Surviving Corporation and
shall hold office from the Effective Time until their respective
successors are duly elected and qualified, or until their earlier
resignation or removal, or as otherwise provided by law.
2.6 Effective Time. The Merger shall become effective as of the
time and date of the filing of the Articles of Merger with the Secretary
of State of the State of North Carolina in accordance with the provisions
of Section 55-10-05 of the NCBCA, or at the time specified in the Articles
of Merger, if later than the time of filing. Newco and ISI shall, as soon
as practicable after the Closing, cause the Articles of Merger to be filed
in accordance with the provisions of Section 55-10-05 of the NCBCA and
shall take any and all lawful actions and do any and all things necessary
to cause the Merger to become effective. Notwithstanding the foregoing,
for accounting purposes the Merger shall be deemed to have occurred at the
close of business on the date of the Effective Time.
2.7 Effect of Merger. As of the Effective Time, the Surviving
Corporation shall possess all the rights, privileges, powers and
franchises of a public as well as of a private nature, and be subject to
all the restrictions, disabilities and duties, of each of the
Participating Corporations; and all and singular rights, privileges,
powers and franchises of each of the Participating Corporations, and all
property, real, personal and mixed, and all debts due to either of the
Participating Corporations on whatever account, shall be vested in the
Surviving Corporation; and all property, rights, privileges, powers and
franchises, and all and every other interest, including leasehold
interests, shall be thereafter as effectively the property of the
Surviving Corporation as they were of the Participating Corporations, and
the title to any real estate vested by deed or by otherwise, in either of
the Participating Corporations, shall not revert or be in any way
impaired; but all rights of creditors and all liens upon any property of
either of the Participating Corporations shall be preserved unimpaired,
and all debts, liabilities and duties of the Participating Corporations
shall thenceforth attach to the Surviving Corporation, and may be enforced
against it to the same extent as if said debts, liabilities and duties had
been incurred or contracted by it.
2.8 Further Assistance. After the Effective Time, the Surviving
Corporation may execute and deliver any deed or assignment or other
document or certificate which the Surviving Corporation finds reasonably
necessary or desirable to carry out the purposes of this Agreement, and
ISI and Newco agree that the appropriate officers and directors of the
Surviving Corporation are fully authorized in the name of ISI or Newco to
execute such documents or certificates.
2.9 Closing. Subject to the provisions of Articles VIII, IX and XI
hereof, the closing of the Merger (the "Closing") shall take place at the
offices of Parker, Poe, Adams and Bernstein L.L.P. at 2500 Charlotte Plaza
in Charlotte, North Carolina 28244 at 10:00 a.m. local time, on February
28, 1997, or at such other time, date or place as the parties hereto shall
mutually agree in writing; provided, however, that the Closing shall be
postponed to the Optional Termination Date if (i) such postponement is
reasonably necessary in connection with the effort by SEi to account for
the Merger as a "pooling-of-interests" or (ii) the Registration Statement
is not declared effective by not later than February 14, 1996 or is
subject to any stop order or proceeding seeking a stop order
ARTICLE III
CONVERSION OF SHARES
3.1 ISI Common Stock. As of the Effective Time, each share of ISI
Common Stock issued and outstanding immediately prior to the Effective
Time, and all rights to payment of dividends declared with respect to such
ISI Common Stock, shall, solely by virtue of the Merger and without any
action by the holder thereof, be converted into that number of shares of
SEi Common Stock equal to the quotient arrived at by dividing (i) the
quotient arrived at by dividing (A) Twenty-three Million Dollars
($23,000,000) by (B) the lesser of the Average Closing Price or the
Closing Price by (ii) the aggregate number of issued and outstanding
shares of ISI Common Stock as of the Effective Time. Notwithstanding this
conversion, fractional shares shall be treated as provided in Section 3.5
hereof.
3.2 Newco Common Stock. Each share of Newco Common Stock issued and
outstanding immediately prior to the Effective Time shall, by virtue of
the Merger and without any action on the part of the holder thereof, be
converted into one fully paid and nonassessable share of Surviving
Corporation Common Stock. From and after the Effective Time, each
outstanding certificate theretofore representing shares of Newco Common
Stock shall be deemed for all purposes to evidence ownership of and to
represent the number of shares of Surviving Corporation Common Stock into
which such shares of Newco Common Stock shall have been converted.
Promptly after the Effective Time, the Surviving Corporation shall issue
to SEi, as the sole shareholder of Newco, a stock certificate representing
shares of Surviving Corporation Common Stock to evidence the conversion
into Surviving Corporation Common Stock of the certificates which formerly
represented shares of Newco Common Stock.
3.3 Dissenting Shares. Notwithstanding anything in this Agreement
to the contrary, shares of ISI Common Stock which are issued and
outstanding immediately prior to the Effective Date and which are held by
shareholders of ISI who (i) shall not have voted their shares in favor of
the Merger; (ii) shall deliver to ISI, prior to the vote on the Merger at
the meeting of ISI shareholders at which the proposal of the Merger is
submitted to a vote, written notice of their intent to demand payment for
their shares if the Merger is effectuated; and (iii) made written demand
upon ISI for payment of the value of their shares in the manner and within
the time limitations provided in Sections 55-13-21 and 55-13-23 of the
NCBCA (the "Dissenting Shares"), shall not be converted into the right to
receive the consideration described in Section 3.1 hereof. Instead, the
holders' Dissenting Shares shall, as of the Effective Time, be converted
into and represent only a right to obtain payment of the fair value of
their shares in accordance with the provisions of the NCBCA; provided,
however, that if any holder of Dissenting Shares fails to file a petition
seeking an appraisal of such shares within the time provided in Section
55-13-28 of the NCBCA, or otherwise fails to establish his entitlement to
payment as provided in Sections 55-13-21, 55-13-23 and 55-13-28 of the
NCBCA, such holder or holders (as the case may be) shall forfeit the right
to appraisal of such shares, and such shares shall thereupon be deemed to
have been converted into and have become exchangeable for, as of the
Effective Time, the right to receive the consideration described in
Section 3.1 hereof.
3.4 Exchange of Certificates.
(a) At or prior to the Effective Time, SEi shall deposit or
shall cause to be deposited in trust with the Exchange Agent , pursuant to
an Exchange Agent Agreement in substantially the form attached hereto as
Exhibit B (the "Exchange Agent Agreement"), an aggregate amount of cash
sufficient to satisfy its obligations under Section 3.5 hereof and
certificates representing all shares of SEi Common Stock issuable pursuant
to Section 3.1 hereof in exchange for outstanding shares of ISI Common
Stock (such certificates are hereinafter referred to as the "New
Certificates" and the New Certificates and such cash, including any cash
deposited pursuant to Section 3.5(c) hereof, are hereinafter referred to
as the "Exchange Fund").
(b) As soon as practicable after the Closing, the Exchange
Agent shall mail to each holder of record of shares of ISI Common Stock
(other than holders who have satisfied the requirements of Section 55-13-
21 of the NCBCA) (i) a letter of transmittal substantially in the form of
Exhibit C attached hereto (the "Letter of Transmittal") and (ii)
instructions for use in effecting the exchange for New Certificates. Upon
delivery of the Letter of Transmittal, duly executed, to the Exchange
Agent, the record holder of ISI Common Stock shall be entitled to receive
in exchange therefor a New Certificate representing that number of whole
shares of SEi Common Stock which such holder has the right to receive
pursuant to the provisions of Section 3.1 hereof (and an amount in cash in
lieu of any fractional share of SEi Common Stock in accordance with
Section 3.5 hereof). In the event of a transfer of ownership of ISI
Common Stock which is not registered in the transfer records of ISI, a New
Certificate representing the proper number of shares of SEi Common Stock
may be issued to a transferee if a valid instruction with respect to such
ISI Common Stock duly executed by the record holder of such ISI Common
Stock is presented to the Exchange Agent accompanied by any and all other
documents required to evidence and effect such transfer and by evidence
that all related stock transfer taxes have been paid or are not
applicable. Until surrendered as contemplated by this Section 3.4(b),
each share of ISI Common Stock shall be deemed at any time after the
Effective Time to represent only the right to receive, upon delivery of
the Letter of Transmittal, the New Certificate representing shares of SEi
Common Stock, as contemplated by this Section 3.4(b), and cash in lieu of
any fractional shares of SEi Common Stock as contemplated by Section 3.5
hereof, without interest.
(c) All shares of SEi Common Stock issued in exchange for
shares of ISI Common Stock in accordance with the terms hereof shall be
deemed to have been issued in full satisfaction of all rights pertaining
to such shares of ISI Common Stock, and there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation or its transfer agent of the shares of ISI Company Stock which
were outstanding immediately prior to the Effective Time. If, at any time
after the Effective Time, instructions or Letters of Transmittal with
respect to ISI Common Stock are presented to the Surviving Corporation,
such instructions and Letters of Transmittal shall be processed as
provided in this Article III.
(d) Pending the exchange for New Certificates pursuant to this
Section 3.4, the Exchange Agent shall, at the written request of an
authorized officer of the Surviving Corporation, invest the cash portion
of the Exchange Fund in money market obligations consisting of U.S.
government and U.S. government agency securities, certificates of deposit
and bankers acceptances issued by banks having deposits of $100,000,000 or
more which are members of the Federal Reserve System, and/or commercial
paper rated at the time of purchase Prime-1 by Moody's Investor's Service,
Inc. or A-1 by Standard & Poor's Corporation, such obligations to have
maturities no longer than the period for which it is reasonably
anticipated by the Surviving Corporation that the funds will not be needed
to make payments pursuant to Section 3.5 hereof. The Exchange Agent shall
remit to the Surviving Corporation from time to time the net investment
income earned as a result of the investments made pursuant to the
preceding sentence, provided that the first remittance shall be made not
earlier than 30 days after the Effective Time. Any portion of the
consideration in the Exchange Fund, including New Certificates, which
remains unclaimed by the record holders of ISI Common Stock for six months
after the date of its deposit with the Exchange Agent shall be returned to
the Surviving Corporation upon demand. Any record holder of ISI Common
Stock who has not complied with Section 3.4(b) hereof within such time
period shall look only to the Surviving Corporation for the satisfaction
of his or her claim for the consideration described in Section 3.1 hereof.
3.5 Fractional Shares and Dividends.
(a) No certificate representing fractional shares of SEi Common
Stock shall be issued as New Certificates, and such fractional share
interests will not entitle the owner thereof to vote or to enjoy any other
rights of a shareholder of SEi. In lieu thereof, each holder of shares of
ISI Common Stock who would otherwise be entitled to a fraction of a share
of SEi Common Stock (after aggregating all fractional shares of SEi Common
Stock to be received by such holder) shall be entitled to receive from SEi
an amount of cash (rounded to the nearest whole cent) equal to the product
of (i) such fraction multiplied by (ii) the lesser of the Average Closing
Price and the Closing Price. No interest will accrue or be paid on the
cash payable pursuant to this Section 3.5.
(b) No cash payment in lieu of fractional shares shall be made
pursuant to this Section 3.5(b), and no dividends or other distributions
declared or made after the Effective Time with respect to SEi Common Stock
with a record date after the Effective Time shall be paid, to a record
holder of ISI Common Stock with respect to the shares of SEi Common Stock
represented thereby, until the holder of record of such ISI Common Stock
shall deliver a duly executed Letter of Transmittal. Subject to the
effect of applicable Legal Requirements, following delivery of such duly
executed Letter of Transmittal, there shall be paid to the record holder
of the New Certificates representing whole shares of SEi Common Stock
issued in exchange therefor, without interest, (i) the amount, if any, of
cash payable in lieu of a fractional share of SEi Common Stock to which
such holder is entitled pursuant to Section 3.5(a) hereof and (ii) the
amount, if any, of dividends or other distributions payable with respect
to such whole shares of SEi Common Stock having a record date and a
payment date which are after the Effective Time but prior to delivery of
such Letter of Transmittal.
(c) SEi shall deposit in the Exchange Fund such additional
amount of cash as is necessary to satisfy its obligations under this
Section 3.5 with respect to any dividends or distributions declared with
respect to SEi Common Stock after the Effective Time but prior to the
return to SEi of the consideration contained in the Exchange Fund, with
such deposit to occur on or before the payment date of such dividend or
distribution.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ISI
4. ISI hereby represents and warrants to SEi and Newco as follows:
4.1 Corporate Organization. ISI is a corporation duly organized,
validly existing and in good standing under the laws of the State of North
Carolina. ISI has the full corporate 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, and ISI is duly licensed or
qualified to do business as a foreign corporation 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 and in which the
failure to be so qualified or licensed could have a Material Adverse
Effect on ISI. Section 4.1 of the Disclosure Schedule sets forth a list
of all jurisdictions in which ISI is licensed or qualified to do business
as a foreign corporation. ISI does not own, of record or beneficially,
any capital stock or other equity, ownership or proprietary interest in
any Person.
4.2 Capitalization. The authorized capital stock of ISI consists
solely of ISI Common Stock, of which 3,353,741 shares are issued and
outstanding. As of the date hereof, each Person listed on Section 4.2 of
the Disclosure Schedule is the record owner of the number of shares of ISI
Common Stock listed opposite such Person's name on Section 4.2 of the
Disclosure Schedule. Section 4.2 of the Disclosure Schedule sets forth
whether, according to the records of ISI, each such Person owns such
shares of record or beneficially or both. Section 4.2 of the Disclosure
Schedule identifies all pledgees and other beneficial owners of shares of
ISI to the extent reflected on the records of ISI. No shares of ISI
Common Stock are held as treasury shares. All issued and outstanding
shares of capital stock of ISI have been duly authorized and validly
issued, are fully paid and nonassessable, were issued without violation of
any preemptive rights and are free of any preemptive rights. Except for
this Agreement, as of the date hereof there are, and as of the Closing
Date there will be, no options, warrants or other rights, nor any
agreements, commitments or arrangements of any kind to which ISI is a
party or by which it is bound, relating to the subscription for or the
issuance, voting, acquisition, sale, repurchase, transfer or disposition
of (i) any capital stock of ISI or securities convertible into or
exchangeable for capital stock of ISI, or (ii) any options, warrants or
subscription rights relating to any such capital stock or securities of
ISI.
4.3 Authority. ISI has all requisite corporate right, power and
authority to execute and deliver this Agreement and (except for requisite
approval by the shareholders of ISI) to perform this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery
and performance of this Agreement by ISI, and the consummation of the
transactions contemplated hereby, have been duly and validly authorized
and approved by the board of directors of ISI. No other corporate action
or proceeding on the part of ISI is necessary to authorize the execution
and delivery of this Agreement by ISI. Other than the approval by the
shareholders of ISI of the transactions contemplated hereby, no other
corporate action or proceeding on the part of ISI is necessary to approve
the performance by ISI of this Agreement or the consummation of the
transactions contemplated hereby. This Agreement has been duly and
validly executed and delivered by ISI and constitutes the legal, valid and
binding obligation of ISI, enforceable against ISI in accordance with its
terms.
4.4 ISI Affiliates. Each Person who is an Affiliate of ISI is
listed in Section 4.4 of the Disclosure Schedule.
4.5 ISI's Consents and Approvals; No Violations. Except as set
forth in Section 4.5 of the Disclosure Schedule and except for the
requisite approval of the Agreement and the Merger by ISI's shareholders,
the execution, delivery and performance by ISI of this Agreement, and the
consummation of the transactions contemplated hereby, does not and will
not (with or without the giving of notice, the passage of time or both)
(i) violate or require any consent or approval under ISI's Articles of
Incorporation or Bylaws, each as amended, (ii) violate any Legal
Requirements applicable to ISI or the ESOP, (iii) 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 on ISI assets pursuant to, give any
Person the right to terminate, modify or renegotiate any provision of, or
result in the acceleration of the performance of any provision of, any
agreement, indenture, mortgage, deed of trust, lease, license or other
instrument to which ISI or the ESOP is party or by which ISI or the ESOP
is bound including, without limitation, the contracts and leases required
to be described in Sections 4.12(a), 4.13(a), 4.13(b) and 4.15(a) of the
Disclosure Schedule, or any material license, permit or certificate held
by it, or (iv) require any consent or approval by, notice to, or
registration with any Person or any group of Persons under any Legal
Requirements applicable to ISI or the ESOP.
4.6 Work in Progress. The work in progress shown on the books and
records of ISI is valued with respect to each category of work in progress
consistent with the past practices of ISI and in compliance with GAAP
applied on a consistent basis.
4.7 Financial Statements. Section 4.7 of the Disclosure Schedule
contains (i) the audited balance sheets and the related audited income
statements, statements of changes in stockholder equity and statements of
cash flows (including any related notes thereto) of ISI as of and for the
twelve (12) month periods ending June 30, 1994, June 30, 1995 and June 30,
1996, respectively (collectively, the "Financial Statements"), and (ii)
the Interim Balance Sheet and the related unaudited income statement and
statement of cash flows for the five (5) month period ending on the
Interim Balance Sheet Date (including any related notes thereto)
(collectively, the "Interim Financial Statements"). Except as set forth
on Section 4.7 of the Disclosure Schedule, the Financial Statements (i)
are in accordance with the books and records of ISI in all material
respects, (ii) have been prepared in accordance with GAAP consistently
applied throughout the periods indicated, and (iii) fairly present in all
material respects the financial position of ISI as of the respective dates
indicated and the results of operations and the changes in financial
position of ISI for the respective periods indicated. Except as set forth
on Section 4.7 of the Disclosure Schedule, the Interim Financial
Statements (i) are in accordance with the books and records of ISI in all
material respects, (ii) subject to normal year-end adjustments and the
absence of footnotes, have been prepared in accordance with GAAP
consistently applied throughout the periods indicated, and (iii) subject
to normal year-end adjustments, fairly present in all material respects
the financial position of ISI as of the Interim Balance Sheet Date and the
results of operations and the changes in financial position of ISI for the
five (5) month period ending on the Interim Balance Sheet Date.
4.8 Undisclosed Liabilities. Except as set forth in Section 4.8 of
the Disclosure Schedule, ISI is not subject to any liability or obligation
of any kind or nature whatsoever, whether known, unknown, asserted,
unasserted, absolute, accrued, contingent or otherwise, required by GAAP
to be reflected or reserved against in a balance sheet of ISI, except (i)
liabilities reflected or reserved against in the Interim Balance Sheet,
and (ii) liabilities incurred since the Interim Balance Sheet Date in the
ordinary course of business.
4.9 Taxes. Except as set forth in Section 4.9 of the Disclosure
Schedule, ISI has timely filed all Returns required to be filed by it with
respect to any Taxes and has timely paid all Taxes required to be paid by
ISI, whether or not shown on any Return. Except as set forth in Section
4.9 of the Disclosure Schedule: (i) except for liabilities which do not
in the aggregate exceed Five Thousand Dollars ($5,000), all liabilities
for Taxes of ISI are accurately reflected on the Returns for the periods
covered thereby and accurately and completely reflect the facts regarding
the income, properties, operations and status of any entity required to be
shown thereon; (ii) no Taxing authority is asserting or, to the best
knowledge of ISI, threatening to assert any deficiency, assessment or levy
with respect to any Taxes and no examinations, audits or, to the best
knowledge of ISI, investigations are pending or have occurred during the
past five years with respect to any Taxes; (iii) ISI is not currently the
subject of an audit or in receipt of a notice that it is being or will be
audited by a relevant Taxing authority; (iv) ISI has not agreed to any
extension of time of any applicable statute of limitations period with
respect to any Tax; (v) ISI has duly withheld from each payment or
expenditure the amount of all Taxes required to be withheld therefrom and
has timely paid the same together with the employer's share of the same,
if any, to the proper tax receiving officers; (vi) there is no, and will
not be any, agreement or consent made under Section 341(f) of the Code
affecting ISI; (vii) except for Permitted Encumbrances, there are no liens
for any Tax on any of the assets of ISI; (viii) there are no tax sharing
agreements or similar arrangements to which ISI is now or ever has been a
party; (ix) the charges, accruals, and reserves for Taxes due, or accrued
but not yet due, relating to the income, properties or operations of ISI
for any period prior to or including the Closing Date as reflected on the
books of ISI are adequate in all material respects to cover such Taxes;
(x) all Tax deficiencies which have been proposed or asserted against ISI
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; (xi) ISI has not received any Tax
incentive, abatement or other credit with respect to its assets, ISI's
business, its employees or otherwise which contains provisions for the
repayment of any Tax benefit; and (xii) ISI has incurred liabilities for
Taxes only in the ordinary course of business. Neither ISI nor any of its
Affiliates is a foreign person within the meaning of Section 1445(b)(2) of
the Code.
4.10 Real and Personal Property. Except for leasehold interests in
the Leased Real Property and as set forth in Section 4.10(a) of the
Disclosure Schedule, ISI does not lease any real property, and ISI does
not own, and has never owned, in whole or in part, any real property.
Section 4.10(b) of the Disclosure Schedule contains a complete and
accurate list of all material fixed assets owned by ISI and used in its
business as of November 30, 1996. Except for Permitted Encumbrances and
as set forth in Section 4.10(c) of the Disclosure Schedule, ISI 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),
free and clear of all liens, charges, security interests or other
encumbrances of any nature whatsoever. Except as set forth on Section
4.10(c) of the Disclosure Schedule, all such assets (i) are now in the
possession of ISI, (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
substantially good operating condition (ordinary wear and tear excepted),
(iv) are not, individually or in the aggregate, in need of any repairs
which are reasonably likely to cost in any aggregate amount in excess of
$25,000, and (v) are located on the Leased Real Property or are currently
subject to a valid lease agreement.
4.11 Absence of Changes. Except as set forth in Section 4.11 of the
Disclosure Schedule, since June 30, 1996, ISI has operated only in the
ordinary course of business in all material respects and, except as
expressly required or permitted by this Agreement, there has not been with
respect to ISI:
(i) any change or changes in the business, financial
condition, properties, results of operations or assets or liabilities of
ISI, other than changes in the ordinary course of business and other than
changes which, singularly and in the aggregate, have not had and cannot
reasonably be expected to have a Material Adverse Effect on ISI;
(ii) any damage, destruction, loss or other casualty,
however arising and whether or not covered by insurance, which, singularly
or in the aggregate, has had or could reasonably be expected to have a
Material Adverse Effect on ISI;
(iii) any labor dispute or any other event or condition
of any similar character which, singularly or in the aggregate, has had or
could reasonably be expected to have a Material Adverse Effect on ISI;
(iv) any indebtedness incurred by ISI for borrowed money
(except by endorsement for collection or for deposit of negotiable
instruments received in the ordinary course of business), or any agreement
to incur any such indebtedness;
(v) any change in the accounting methods or material
change in the practices of ISI or any change in depreciation or
amortization policies or rates theretofore adopted;
(vi) any amendment or termination of any material contract,
agreement, lease, franchise or license to which ISI is or was a party or
subject to;
(vii) any amendment of the Articles of Incorporation or
Bylaws of ISI;
(viii) except for Permitted Encumbrances, any mortgage,
pledge or other encumbering of any material property or assets of ISI;
(ix) any material liability or obligation incurred by ISI
(except current liabilities incurred in the ordinary course of business)
or any cancellation or compromise by ISI of any material debt or claim, or
any termination, waiver or release by ISI of any material right;
(x) any sale, transfer, lease, abandonment or other
disposal of any machinery, equipment or real property with a fair market
value in excess of $10,000 or, except in the ordinary course of business,
any sale, transfer, lease, abandonment or other disposal of any material
portion of any other properties or assets of ISI (real, personal or mixed,
tangible or intangible).
(xi) any transfer, disposal or grant of any rights under
any Intellectual Property, invention or Licensed Product owned by ISI, or
any disposal of or disclosure to any Person other than representatives of
SEi of any Trade Secret owned by ISI not theretofore a matter of public
knowledge; except, in each case, in the ordinary course of business;
(xii) any bonuses or other increases in the
compensation of any of ISI's officers, employees, representative, agent or
directors; or any agreement by ISI entered into with any officer,
employee, representative, agent or director; or any increase or change in
benefits under any Employee Plan; except, in each case, in the ordinary
course of business;
(xiii) any single capital expenditure in excess of
$10,000 made or committed for by ISI for any tangible or intangible
capital assets, additions or improvements, except in the ordinary course
of business;
(xiv) any declaration, payment or reservation for
payment of any dividend or other distribution in respect of the capital
stock or other securities of ISI, or any redemption, purchase or other
acquisition, directly or indirectly, of any shares of capital stock or
other securities of ISI;
(xv) any grant or extension of any power-of-attorney or
guaranty in respect of the obligation of any Person;
(xvi) to the best knowledge of ISI, the adoption of any
applicable Legal Requirement which materially adversely affects ISI or its
business;
(xvii) any forward purchase commitments involving more
than $50,000 in the aggregate or any other material commitments by ISI or
any purchase commitments that are not in the ordinary course of business;
or
(xviii) any entry by ISI into any binding agreement,
whether in writing or otherwise, to take any action described in this
Section 4.11.
4.12 Intellectual Property.
(a) Except as otherwise disclosed on Section 4.12(a) of the
Disclosure Schedule, Section 4.12(a) of the Disclosure Schedule contains a
list and description of Software Contracts (other than those whose term
has expired and other than Licenses and sublicenses to others) to which
ISI is a party or to which ISI or any of the assets owned, used or held
for use by ISI is subject, subdivided under the following categories:
(i) all Licenses from third parties (development and/or
marketing);
(ii) all Licenses from third parties (internal use only)
other than Licenses that are (A) available directly to consumers through
retail stores or other outlets and (B) are subject to "shrink-wrap"
license agreements;
(iii) all development contracts, work-for-hire
agreements and consulting and employment agreements;
(iv) all distributorships, dealerships, franchises and
commercial sales representation contracts; and
(v) all maintenance, support or enhancement agreements.
Except as disclosed in Section 4.12(a) of the Disclosure Schedule, no
fees or royalties are payable or will be payable under the Software
Contracts described in subparagraphs (i) and (ii) as a result of ISI's use
of the licensed Software in the ordinary course of its business, other
than fees or royalties due for upgrades.
(b) ISI owns or has the right to use all Intellectual Property
used by it in the conduct of its business, as presently conducted.
Section 4.12(b) of the Disclosure Schedule contains a list and description
of certain Intellectual Property owned or used by, or licensed to, ISI in
the conduct of its business, subdivided under the following categories:
(i) All Copyright registrations owned by, licensed to or
used by ISI, showing in each case, the owner, licensor, if any, and, where
registered, the country of registration, registration number, title and
date of issuance.
(ii) All Software covered by any Software Contract listed
under subsections (i) or (ii) of Section 4.12(a) of the Disclosure
Schedule, showing in each case, a brief description of the Licensed
Product's function and whether the License will remain in effect upon the
consummation of the transactions contemplated by this Agreement.
(iii) All Software owned by ISI that is currently being
used or marketed by ISI, showing in each case, the name of the product,
the current release number of the product, the release numbers of all
prior releases within the last three (3) years and the date of such
releases and the registration number, if any, of all registered Copyrights
in such product.
(iv) All Trademarks and Trade Names adopted and used by ISI
within the two (2) year period immediately preceding the date of this
Agreement, showing in each case, the Trademark or Trade Name, its U.S. and
foreign registration numbers, if any, the countries of such registration,
whether it is registered on the United States Principal or Supplemental
Register, its date of registration and the date of its most recent renewal
or affidavit of continued use, if any.
(v) All Patent Rights owned or used by ISI in its business
within the two year period immediately preceding the date of this
Agreement, showing in each case the country of registration, the
registration number, the title and date of issue.
(c) Except for the rights and Licenses granted to or by ISI
under Software Contracts and as otherwise disclosed in Section 4.12(c) of
the Disclosure Schedule, ISI owns all rights, title and interest in the
Intellectual Property required to be identified on Section 4.12(b) of the
Disclosure Schedule, free and clear of any encumbrance.
(d) Except as disclosed in Section 4.12(d) of the Disclosure
Schedule, (i) all registrations for Copyrights, Patent Rights and
Trademarks required to be identified in Section 4.12(b) of the Disclosure
Schedule as being owned by ISI are valid and in force and applications to
register any unregistered Copyrights, Patent Rights and Trademarks so
identified are pending and in good standing, all without challenge of any
kind and, to the best knowledge of ISI, there is no reasonable basis for
any such challenge; and (ii) ISI has the exclusive right to bring actions
for infringement or unauthorized use of the Intellectual Property and, to
the best knowledge of ISI, there is no reasonable basis for any such
action.
(e) Except as disclosed in Section 4.12(e) of the Disclosure
Schedule, ISI owns the Copyright in all Software required to be disclosed
on Section 4.12(b)(iii) of the Disclosure Schedule in each country in
which such Software is currently being marketed or used. In no instance
has the eligibility of any such Software for protection under applicable
copyright law been forfeited to the public domain.
(f) ISI has promulgated and used its best efforts to enforce a
Trade Secret protection program. Except as disclosed in Section 4.12(f)
of the Disclosure Schedule, to the best knowledge of ISI, there has been
no material violation of such program by any Person. Except as disclosed
in Section 4.12(f) of the Disclosure Schedule, the source code and other
material proprietary information relating to the Software and all other
material Trade Secrets of ISI (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 ISI.
(g) Except as disclosed in Section 4.12(g) of the Disclosure
Schedule, all personnel, including employees, agents, consultants and
contractors, who have contributed to or participated in the conception and
development of the Software listed on Section 4.12(b)(iii) of the
Disclosure Schedule and the Technical Documentation related thereto on
behalf of ISI (i) have been employees of ISI at the time they performed
such work, (ii) have been party to a "work-for-hire" arrangement or
agreement that had the effect of ISI becoming the owner of the Copyright
in any tangible materials (A) created by any such parties and delivered to
ISI or (B) created by any such parties within the scope of such work and
in any Trade Secrets or Patent Rights arising out of such work; or (iii)
have executed appropriate instruments of assignment in favor of ISI as
assignee that have conveyed to ISI all of such parties' right, title and
interest in the Copyright in any tangible materials created by any such
parties within the scope of such work or delivered to ISI and in any Trade
Secrets or Patent Rights arising out of such work.
(h) Except as disclosed in Section 4.12(h) of the Disclosure
Schedule, all personnel contributing to or participating in the conception
and development of the Software required to be listed on
Section 4.12(b)(iii) of the Disclosure Schedule have been either: (i)
employees of ISI in the context of United States Copyright law thereby
conferring in ISI the status of sole statutory author and owner of the
Copyright in such Software, or (ii) non-employees, consultants,
contractors or agents who have executed appropriate instruments of
assignment in favor of ISI as assignee that have conveyed to ISI all of
such parties' right, title and interest in the Copyright in such Software.
(i) Except as disclosed in Section 4.12(i) of the Disclosure
Schedule, no claims have been asserted by any Person against ISI claiming
the ownership of or right to use any of the Intellectual Property required
to be disclosed on Section 4.12(b) of the Disclosure Schedule (other than
the right to use such Intellectual Property in the manner permitted by
Software Contracts listed on Section 4.12(a) to the Disclosure Schedule)
nor, to the best knowledge of ISI, is there any reasonable basis for any
such claim. To the best knowledge of ISI, the use of such Intellectual
Property by ISI has not infringed on the rights of any Person; and, except
as disclosed in Section 4.12(i) of the Disclosure Schedule, no claim of
infringement or any misuse or misappropriation of any such Intellectual
Property of any other Person has been made or asserted against ISI in
respect of ISI's business, nor, to the best knowledge of ISI, is there any
reasonable basis for any such claim.
(j) Except as disclosed in Section 4.12(j) of the Disclosure
Schedule, the Technical Documentation of ISI that is (i) maintained for
its own use, and (ii) in respect of proprietary Software which it has
developed and owns, includes the system documentation, statements of
principles of operation, flow charts, algorithms and schematics for all
Software required to be disclosed on Section 4.12(b)(iii) of the
Disclosure Schedule, as well as any pertinent commentary or explanation
that may be necessary to render such materials understandable and usable
by a computer programmer of ordinary skill. The Technical Documentation
also includes any program (including compilers), "work benches," tools,
and higher level (or "proprietary") languages used for the development,
maintenance and implementation of such Software.
(k) Except as disclosed in Section 4.12(k) of the Disclosure
Schedule, ISI has the right and license to use, copy, modify and
distribute the third party programming and materials contained in the
Software and related Technical Documentation required to be disclosed on
Section 4.12(b)(ii) of the Disclosure Schedule, in the manner in which it
is currently using, copying, modifying and distributing such Software and
related Technical Documentation, pursuant to the Software Contracts
identified as "Licenses from third parties (development and/or marketing)"
or "Licenses from third parties (internal use only)" in Section 4.12(a) of
the Disclosure Schedule and the continued operation by ISI of its business
in the ordinary course will not violate or breach any such Software
Contracts.
(l) ISI has not granted, transferred, or assigned any right or
interest in its Software, Technical Documentation or Intellectual Property
to any Person, except pursuant to the Software Contracts identified as
"distributorships, dealerships, franchises, and commercial sales
representation agreements" or "Licenses and sublicenses to others" in
Section 4.12(a)(iv) and of the Disclosure Schedule. Except as set forth
in Section 4.12(l) of the Disclosure Schedule, all Software Contracts
identified as "Licenses and sublicenses to others" in Section 4.12(a)(v)
of the Disclosure Schedule constitute only end-user agreements, each of
which grants the end-user thereunder only the nonexclusive right and
license to use identified software products and related user
documentation, for internal purposes only. There are no contracts,
agreements, Licenses or other commitments and arrangements in effect with
respect to the marketing, distribution, licensing or promotion of the
Software or any Intellectual Property by any independent sales person,
distributor, sublicensor or other remarketer or sales organization, except
for the Software Contracts identified as "distributorships, dealerships,
franchises, and commercial sales representation agreements" in Section
4.12(a) of the Disclosure Schedule.
4.13 Leases.
(a) Section 4.13(a) of the Disclosure Schedule contains an
accurate and complete list and description of each lease of Leased Real
Property.
(b) Section 4.13(b) of the Disclosure Schedule contains an
accurate and complete list and description of the terms of all leases of
personalty to which ISI is a party (as lessee or lessor). Such items of
personalty are in good operating condition, are in a state of good
maintenance and repair and are adequate and suitable for the purpose for
which they are presently being used.
(c) Each lease required to be set forth in Section 4.13(a) or
Section 4.13(b) of the Disclosure Schedule is in full force and effect and
is binding and enforceable against ISI in accordance with its terms and,
to the best knowledge of ISI, is binding and enforceable against each of
the other parties thereto in accordance with its terms ; all rents due to
date on each such lease have been paid; in each case, the lessee has been
in peaceable possession since the commencement of the original term of
such lease and no waiver, indulgence or postponement of any party's
obligations thereunder has been granted by another party thereto; each
such lease contains terms and conditions obtained from independent third
parties and negotiated in good faith at arms-length; there exists no event
of default or event, omission or condition (including the consummation of
the transactions contemplated hereby) which, with the giving of notice,
the lapse of time or both, would become a default by ISI or, to the best
knowledge of ISI, of any other party thereto under each such lease; none
of the rights of ISI under each such lease is subject to termination or
modification as a result of the transactions contemplated hereby; ISI is
in compliance with the terms and conditions of each such lease in all
respects; and all of the covenants to be performed by any other party
under each such lease have been fully performed.
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 ISI 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 set forth a
description (including applicable interest rates) of all funds, securities
and other instruments in which ISI's excess cash 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 ISI nor, to the best knowledge of ISI, any of its
Affiliates beneficially or of record owns any shares of SEi Common Stock.
(d) ISI has not granted or extended to any Person, nor is ISI
otherwise subject to or bound by, any power of attorney which remains in
effect.
4.15 Material Contracts and Customers.
(a) Section 4.15(a) of the Disclosure Schedule contains a true,
complete and correct list of all of the following contracts, agreements or
other understandings or arrangements, written or oral, or commitments
therefor, to which ISI is a party or bound by or to which ISI or any of
the assets owned, used or held for use by ISI is subject (collectively,
the "Contracts"):
(i) outstanding purchase orders, and other contracts for
the sale of goods or services, with respect to which the value of goods
that have not yet been delivered or the value of services that have not
yet been performed exceeds $50,000;
(ii) contracts which have not been fully performed
involving the expenditure of more than $50,000 in any instance for the
purchase or sale of material, supplies, equipment or services;
(iii) contracts which have not been fully performed
involving the expenditure of more than $25,000 in any year or more than
$100,000 over the remaining term thereof, in each case which are not
cancelable without penalty within thirty (30) days;
(iv) contracts relating to the leasing (as lessor or
lessee) or the conditional purchase or sale by ISI of any property,
whether real, personal or mixed;
(v) contracts to which ISI is a party or by which any of
its assets are bound that require consent by any other Person in
connection with the transactions contemplated hereby, either to prevent a
breach or continue the effectiveness thereof;
(vi) contracts or arrangements with any governmental body,
agency or authority;
(vii) 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 ISI;
(viii) 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
customers);
(ix) agreements which restrict ISI from doing business in
any geographic location;
(x) contracts or agreements with any of ISI's shareholders
or Affiliates;
(xi) license agreements (as licensee or licensor) with
third parties, other than Software Contracts;
(xii) employment or consulting agreements;
(xiii) agreements or contracts with ISI in which another
party or parties to the contract or agreement is a distributor, dealer,
agent, manufacturer's representative, franchisee or similar representative
or, other than with respect to ISI employees, any contract relating to the
payment of a commission;
(xiv) any contract or agreement for charitable
contributions by ISI;
(xv) collective bargaining or other agreements with labor
unions;
(xvi) any other contract or agreement which could
reasonably be expected to have a Material Adverse Effect on ISI; or
(xvii) any other contract outside the ordinary course of
business not otherwise described in this Subsection.
(b) True and complete copies of each of the Contracts have been
made available to SEi by ISI. Except as set forth on Section 4.15(b) of
the Disclosure Schedule, each of the Contracts is in 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 default thereunder by ISI or, to
the best knowledge of ISI, by any other party thereto. ISI has not
violated any of the terms or conditions of any Contract in any material
respect, and, to the best knowledge of ISI, all of the covenants to be
performed by any other party thereto have been fully performed in all
material respects. Except as set forth in Section 4.15(b) of the
Disclosure Schedule, none of the rights of ISI under the Contracts is
subject to termination or modification as a result of the transactions
contemplated hereby. Except as set forth in Section 4.15(b) of the
Disclosure Schedule, no written notice of termination or nonrenewal has
been given under any Contract. All Contracts contain terms and conditions
obtained from independent third parties and negotiated in good faith at
arms-length. None of the Contracts with suppliers of goods or services to
ISI requires the payment of any commission, royalty, fee, brokerage fee or
other similar charge except as disclosed on Section 4.15(b) of the
Disclosure Schedule. The dollar 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 fifty (50) largest customers (the "Customers")
and the five (5) largest suppliers, in each case measured by volume of
dollars generated or paid, of ISI's business for the twelve months ended
November 30, 1996. ISI reasonably considers its relationship with each of
the Customers and suppliers to be good, and ISI is not aware of any
intention of any such Customers or suppliers to terminate or modify any of
such relationships, and does not anticipate any adverse change in such
relationships to result from the consummation of the transactions
contemplated by this Agreement. ISI is not generally required to provide
bonding or any other security arrangements in connection with any
transactions with its customers or suppliers.
4.16 Related Transactions.
(a) Except as set forth in Section 4.16(a) of the Disclosure
Schedule, ISI does not have any contractual relationship with, or any
obligation or liability owed to or by, any of its shareholders or
Affiliates. All such contractual relationships are on terms that are no
less favorable to ISI than would be the case with a non-affiliated party.
(b) Except as set forth in Section 4.16(b) of the Disclosure
Schedule, neither ISI nor, to the best knowledge of ISI, any director or
officer of ISI has any material interest, direct or indirect, in any
Person which (i) is a competitor, customer, subcontractor or supplier of
ISI or (ii) has an existing material relationship with, or a material
interest in, ISI including, without limitation, lessors of real or
personal property and Persons against which rights or options are
exercisable by ISI.
4.17 Insurance. Section 4.17 of the Disclosure Schedule contains an
accurate and complete summary (including policy limits, termination dates
and premium amounts) of all policies of insurance presently maintained
with respect to ISI 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 ISI has self-insured any particular aspect of ISI's
business. All such policies are in full force and effect. 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 ISI with respect
to its obligations under any such policy. Except as set forth in Section
4.17 of the Disclosure Schedule, ISI has not received during the past
three (3) years any written notice or other written communication from any
insurance company declining to write insurance with respect to ISI's
business, or canceling or materially amending any of ISI's insurance
policies or proposing to do so. Section 4.17 of the Disclosure Schedule
sets forth a summary of information pertaining to property damage,
personal injury and products liability claims against ISI during the past
five (5) years, all of which are being defended by ISI's insurance
carriers and involve no exposure to ISI. Section 4.17 of the Disclosure
Schedule sets forth a complete list of any claims that ISI has under any
of its insurance policies which have not been fully paid to ISI.
4.18 Labor Matters.
(a) Except to the extent set forth in Section 4.18(a) of the
Disclosure Schedule, (i) to the best knowledge of ISI, ISI is in
compliance in all material respects with all Legal Requirements applicable
to ISI or respecting employment and employment practices, terms and
conditions of employment wages and hours, and has not and is not engaged
in any unfair labor practice; (ii) there is no unfair labor practice
charge or complaint against ISI pending before the National Labor
Relations Board or any other labor grievance board, authority or tribunal
nor, to the best knowledge of ISI, has any such charge or complaint been
threatened against ISI; (iii) there is no labor strike, dispute, slowdown,
or stoppage pending against or affecting ISI; (iv) ISI is not a party to
any collective bargaining agreement or contract with any labor union and
no union representation question exists respecting the employees of ISI;
(v) no grievance nor any arbitration proceeding arising out of or under
collective bargaining agreements is pending; (vi) no event has occurred,
and ISI will not take any action prior to the Closing, which would require
notification to employees under the Worker Adjustment and Retraining
Notification Act of 1988 and the regulations promulgated thereunder; (vii)
ISI has not experienced any material labor difficulty during the last
three (3) years; (viii) to the best knowledge of ISI, no discussions have
occurred with ISI employees regarding unionization of such employees or
any collective bargaining activity on behalf of such employees; and (ix)
there are no other controversies pending between ISI 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
on ISI. To the best knowledge of ISI, there has not been any adverse
change in relations with employees of ISI as a result of any announcement
of the transactions contemplated by this Agreement.
(b) ISI has delivered to SEi pursuant to this Agreement a list
setting forth the names of all employees, consultants, officers and
directors of ISI, their length of employment, compensation level and other
material terms of employment. ISI has delivered to SEi copies of all
currently effective written employment agreements, and written summaries
of all verbal employment arrangements that are other than at will, to
which ISI is a party with any of its employees.
4.19 Employee Benefit Plans.
(a) Set forth in Section 4.19(a) of the Disclosure Schedule is
an accurate and complete list of all Employee Plans maintained or
contributed to by ISI.
(b) Except as required by Chapter 6 of Title 1 of ERISA and any
applicable state continuation or conversion laws and except as set forth
in Section 4.19(b) of the Disclosure Schedule, no such Employee Plan that
is a welfare plan provides any health or life insurance coverage to any
individual for events occurring, or expenses incurred, after termination
of employment and no promise has been made nor any liability incurred by
ISI for post-retirement and/or post-termination health or life insurance
or other benefits.
(c) Except as set forth in Section 4.19(c) of the Disclosure
Schedule, each such Employee Plan is, with respect to form, operation, and
administration, in compliance in all material respects with its terms,
ERISA, the Code and any other Legal Requirements applicable to ISI and
neither ISI nor any such Employee Plan is liable for any fine, excise tax,
or loss of income tax deduction with respect to the operation of any such
Employee Plan. Except as set forth in Section 4.19(c) of the Disclosure
Schedule, each such Employee Plan that is intended to be qualified under
Section 401(a) of the Code has been determined by the Internal Revenue
Service to be so qualified and each trust maintained in connection with
such Employee Plan has been determined by the Internal Revenue Service to
be tax-exempt under Section 501(a) of the Code, and, to the best knowledge
of ISI, no circumstances exist which would cause any Employee Plan to be
subject to disqualification or a related trust to lose its tax-exempt
status.
(d) Except as set forth in Section 4.19(d) of the Disclosure
Schedule, there has occurred:
(i) no prohibited transaction, as defined in Sections 406
and 407 of ERISA or Section 4975 of the Code, and
(ii) no breach of any duty imposed by Title I of ERISA, by
ISI, any entity related to ISI (within the meaning of Sections 414(b),
(c), (m), or (o) of the Code) (the "Controlled Group"), or any director,
officer, or employee of ISI or any entity in the Controlled Group, that
could have a Material Adverse Effect on ISI.
(e) All amounts that ISI is required to have contributed to any
Employee 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 Plan have been paid within the time prescribed by the
applicable documents and governing law. Except as set forth in Section
4.19(e) of the Disclosure Schedule, no increase in benefits under or other
modifications or amendments to any Employee Plan have been made subsequent
to the date on which documents or disclosures have been provided or made
available to SEi.
(f) All required reports and descriptions (including, but not
limited to, Form 5500 annual reports, summary annual reports, and summary
plan descriptions) with respect to each Employee Plan have been properly
filed with the appropriate governmental authority and distributed to
participants substantially as required by law, and ISI has substantially
performed its obligations under Section 4980B of the Code and Part 6 of
Title I of ERISA ("COBRA"). As soon as practicable after the execution of
this Agreement, ISI shall provide to SEi a list of qualified beneficiaries
receiving (or eligible to elect to receive to the extent the plan
administrator has been informed) COBRA continuation coverage and the date
and type of their qualifying events; provided, however, that such list
shall be delivered to SEi on a blind basis with all names and other
clearly identifying criteria eliminated. As soon as practicable after
Closing, ISI shall provide to SEi an updated list of all qualified
beneficiaries receiving (or eligible to elect to receive) COBRA
continuation coverage and the date and type of their qualifying events
effective as of the Closing Date.
(g) ISI has not incurred and does not expect to incur any
liability to the PBGC (as defined under Title IV of ERISA), the Internal
Revenue Service, the Department of Labor of the United States, or
otherwise with respect to any Employee Plan currently or previously
maintained or contributed to by ISI or by members of the Controlled Group
that has not been satisfied in full, and no condition exists that presents
a material risk to ISI or the Controlled Group of incurring such a
liability, other than liability for premiums due to the PBGC.
(h) Except as set forth in Section 4.19(h) of the Disclosure
Schedule, neither ISI nor any member of the Controlled Group has at any
time sponsored, participated in or contributed to an Employee Plan that is
a multiemployer plan (as defined in Section 3(37) or 4001(a)(3) of ERISA)
or a defined benefit plan (as defined in Section 3(35) of ERISA) or any
other plan covered under Title IV of ERISA.
(i) Except as set forth in Section 4.19(i) of the Disclosure
Schedule, there are no material claims (other than routine claims for
benefits) or lawsuits pending with respect to any Employee Plan.
(j) Except as set forth in Section 4.19(j) of the Disclosure
Schedule, there are no leased employees within the meaning of Sections
414(n) or (o) of the Code, or the regulations thereunder, who perform
services for ISI.
(k) Except as set forth in Section 4.19(k) of the Disclosure
Schedule, ISI has previously delivered or made available to SEi true and
complete copies of: (i) the plan documents for each Employee Plan
identified in Section 4.19(a) of the Disclosure Schedule together with all
amendments thereto, including all amendments to be effective at a later
date, and (ii) to the extent applicable for each such Employee Plan, the
most recent Internal Revenue Service determination letter, summary plan
description, annual report (Form 5500 series) and accompanying schedules
(or such alternate reports in lieu thereof).
(l) On or before December 31, 1996, ISI accrued a contribution
to the ESOP in the amount of $931,437, which amount is sufficient to
retire and discharge the outstanding principal and accrued interest of all
of the ESOP's loans from ISI, James L. Elder and James J. Kenney and to
release any shares of ISI Common Stock held by the ESOP which are pledged
in respect of such loans.
(m) The Merger does not constitute a "prohibited transaction"
under ERISA for which no exemption is available.
4.20 Litigation. Except as set forth in Section 4.20 of the
Disclosure Schedule, there are no claims, actions, suits, or proceedings
pending or, to the best knowledge of ISI, threatened against ISI relating
to this Agreement or the transactions contemplated hereby or to the
business or properties of ISI, 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. ISI is not subject to any
adverse judgment, order, writ, injunction or decree of any court or
governmental body.
4.21 Compliance with Laws. Except as set forth in Section 4.21 of
the Disclosure Schedule, ISI 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 Legal Requirements applicable to ISI,
or to its business or any of the property or assets of ISI, except to the
extent that such non-compliance or violation has not and could not
reasonably be expected to have a Material Adverse Effect on ISI. ISI has
all material licenses, permits, certificates of occupancy and
authorizations necessary to conduct its business.
4.22 Environmental Matters. Except as set forth in Section 4.22 of
the Disclosure Schedule:
(a) the conduct of its business materially complies with, and
ISI is not in violation in any material respect of, any applicable
Environmental, Health and Safety Laws;
(b) ISI has not received notification from any governmental
authority of any violations of any Environmental, Health and Safety Laws
nor are there any judicial or administrative writs, injunctions, decrees,
orders or judgments outstanding or any lawsuits, claims, proceedings or,
to the best knowledge of ISI, investigations pending or, to the best
knowledge of ISI, any lawsuits, claims, proceedings or investigations
threatened relating to the ownership, use, maintenance or operation of the
conduct of ISI's business;
(c) there are no and have been no environmental conditions
(including, without limitation, the release or threatened release of
Hazardous Substances) at any location which would give rise to any
liability of ISI under any Environmental, Health and Safety Law;
(d) without limiting the generality of the foregoing, ISI has
not (i) received notification from the United States Environmental
Protection Agency, or any state or local agency which serves a similar
function, that it is a Potentially Responsible Party under the
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") or any analogous state or local law or theory for "removal,"
"remedial" or similar action at any site or (ii) received notification
that it is liable for contribution for costs incurred by another Person in
taking "removal," "remedial" or similar action at any site; and
(e) Section 4.22(d) of the Disclosure Schedule sets forth all
of the licenses, permits and approvals held by ISI and required by
Environmental, Health and Safety Laws for the conduct of ISI's business
as now conducted ("Permits"), which constitute all material permits
required of ISI by the Environmental, Health and Safety Laws for the
conduct of ISI's business. ISI is not presently in material violation of
any Permit and there is no proceeding pending or threatened with respect
to the revocation or limitation of any Permit.
4.23 Books and Records. The books, accounts and records of ISI (i)
are located at ISI's headquarters at 7500 East Independence Boulevard,
Charlotte, North Carolina 28227, (ii) are correct and complete in all
material respects, (iii) have been maintained in accordance with good
business practice and (iv) constitute all the books, accounts and records
necessary to carry on ISI's business in the manner in which it is
currently being conducted and has over the preceding twelve (12) months
been carried on. Copies of the Certificate or Articles of Incorporation,
including all amendments thereto, the Bylaws and the minutes of all
shareholder and director meetings of ISI, hereto delivered by ISI to SEi,
are complete and correct.
4.24 Copies of Documents. ISI has delivered or specifically made
available to SEi and its 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 SEi may and
will rely upon the completeness and accuracy thereof.
4.25 Adequacy of Assets. Except as set forth in Section 4.25 of the
Disclosure Schedule, the assets of ISI and the facilities, assets and
services to which ISI has a contractual right of use include all rights,
properties, assets, facilities and services necessary for the carrying on
of ISI's business in the manner in which it is currently being, and has
over the immediately preceding twelve (12) months been, carried on, and
ISI does not depend in any material respect upon the use of assets owned
by, or facilities or services provided by, any shareholder or Affiliate of
ISI.
4.26 Pooling-of-Interests; Tax Free Reorganization. ISI has not
taken, or agreed to take, any action that (without giving effect to this
Agreement, the transactions contemplated hereby, or any action taken or
agreed to be taken by SEi) can reasonably be expected to prevent the
Merger from qualifying as a reorganization under Section 368(a) of the
Code or prevent SEi from accounting for the business combination to be
effected by the Merger as a "pooling-of-interests." To the best knowledge
of ISI, none of ISI's Affiliates has taken, or agreed to take, any action
that (without giving effect to this Agreement, the transactions
contemplated hereby, or any action taken or agreed to be taken by SEi) can
reasonably be expected to prevent the Merger from qualifying as a
reorganization under Section 368(a) of the Code or prevent SEi from
accounting from the business combination to be effected by the Merger as a
"pooling-of-interest."
4.27 Accounts Receivable. Section 4.27 of the Disclosure Schedule
sets forth a true and correct in all material respects list and aging of
all unpaid accounts receivable owing to ISI as of the Interim Balance
Sheet Date. Except as disclosed in Section 4.27 of the Disclosure
Schedule, the accounts receivable of ISI including, without limitation,
those reflected in Section 4.27 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 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 business and are not subject to any
known counterclaims or set-offs. The reserves for doubtful accounts and
allowances with respect to the accounts receivable 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 GAAP.
4.28 Brokers and Finders. Except as identified in Section 4.28 of
the Disclosure Schedule, no agent, broker, investment banker, Person or
firm acting on behalf of ISI or any Affiliate of ISI 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.
4.29 Restrictive Covenants. Except as disclosed in Section 4.29 of
the Disclosure Schedule, ISI 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 ISI or any of
its assets or properties, which restricts the ability of ISI to acquire
any property or conduct ISI's business in any area or which would prevent
consummation of the transactions contemplated by this Agreement,
compliance by ISI with the terms, conditions and provisions hereof or the
operation of ISI's business by ISI after the date hereof or the Surviving
Corporation after the Closing Date on substantially the same basis as
heretofore operated by ISI.
4.30 Product Liabilities and Warranties. There are no express or
implied warranties applicable to products or services sold or provided by
ISI, except as disclosed on Section 4.30 of the Disclosure Schedule.
Except as disclosed on Section 4.30 of the Disclosure Schedule, there is
no action, suit, proceeding or claim pending or, to the best knowledge of
ISI, threatened against ISI under any warranty, express or implied, and
there is no reasonable basis upon which any claim could be made. Section
4.30 of the Disclosure Schedule also summarizes all product liability
claims that have been asserted against ISI during the five (5) years
preceding the date of this Agreement.
4.31 Disclosure. None of the representations or warranties by ISI
herein, no statement contained in any certificate, list or other writing
furnished to 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 ISI which materially and adversely affects ISI, its
business, or the prospects or financial condition of ISI, which has not
been set forth in this Agreement or in a Section of the Disclosure
Schedule. None of the information supplied by ISI for inclusion in the
Registration Statement, taken as a whole, contains any untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SEi AND NEWCO
5. Representations and Warranties of SEi and Newco. SEi and Newco
jointly and severally represent and warrant to ISI as follows:
5.1 Corporate Organization. SEi is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Florida and has all requisite corporate 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. Newco is a corporation duly
organized, validly existing and in good standing under the laws of the
State of North Carolina and has all requisite corporate 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. Since its date of
incorporation, Newco has not engaged in any activities of any nature
except in connection with or as contemplated by this Agreement.
5.2 Capitalization of SEi and Newco. As of the date hereof, the
authorized capital stock of SEi consists of 50,000,000 shares of SEi
Common Stock and 10,000,000 shares of preferred stock, par value $.01 per
share ("Preferred Stock"). As of the close of business on December 31,
1996, 21,893,818 shares of SEi Common Stock were outstanding and no shares
of Preferred Stock were outstanding. All issued and outstanding shares of
SEi Common Stock have been, and upon issuance the ISI Merger Shares will
be, duly authorized and validly issued, fully paid and nonassessable and
free of any preemptive rights with respect thereto. The authorized
capital stock of Newco consists of 100,000 shares of common stock, par
value $.01 per share, all of which are validly issued, fully paid and
nonassessable, free of any preemptive rights and are owned beneficially
and of record by SEi.
5.3 Authority.
(a) SEi has all requisite corporate right, power and authority
to execute, deliver and perform this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance
of this Agreement by SEi, and the consummation of the transactions
contemplated hereby, have been duly and validly authorized and approved by
the board of directors of SEi. No other corporate action or proceeding on
the part of SEi is necessary to authorize the execution and delivery of
this Agreement or to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by SEi and
constitutes the legal, valid and binding obligation of SEi, enforceable
against SEi in accordance with its terms.
(b) Newco has all requisite corporate right, power and
authority to execute, deliver and perform this Agreement and to consummate
the transactions contemplated hereby. The execution, delivery and
performance of this Agreement by Newco, and the consummation of the
transactions contemplated hereby, have been duly and validly authorized
and approved by the board of directors and sole shareholder. No other
corporate action or proceeding on the part of Newco is necessary to
authorize the execution and delivery of this Agreement or to consummate
the transactions contemplated hereby. This Agreement has been duly and
validly executed and delivered by Newco and constitutes the legal, valid
and binding obligation of Newco, enforceable against Newco in accordance
with its terms.
5.4 SEi's Consents and Approvals of SEi and Newco; No Violations.
Except as set forth on Section 5.4 of the Disclosure Schedule, the
execution, delivery and performance of this Agreement by SEi and Newco,
and the consummation of the transactions contemplated hereby, does not and
will not (with or without the giving of notice, the passage of time or
both) (i) violate any Legal Requirements applicable to SEi or Newco, (ii)
violate or require any consent or approval under the Articles of
Incorporation or Bylaws of SEi or Newco, (iii) violate or require any
consent, waiver or approval under, result in a breach, modification or
termination of any of the 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 on assets of SEi or
Newco pursuant to, give any Person the right to terminate, modify or
renegotiate any provision of, or result in the acceleration of the
performance of any provision of, any agreement, indenture, mortgage, deed
of trust, lease, license or other instrument to which SEi or Newco is a
party or by which SEi or Newco is bound, or any material license, permit
or certificate held by SEi or Newco or (iv) require any consent or
approval by, notice to or registration with any Person or any group of
Persons under any Legal Requirements applicable to SEi or Newco.
5.5 Litigation. Except as set forth in Section 5.5 of the
Disclosure Schedule, there are no claims, actions, suits, or proceedings
pending or, to the best knowledge of SEi and Newco, threatened against SEi
or Newco relating to this Agreement or the transactions contemplated
hereby, 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
including, without limitation, any claims relating to environmental
matters. Neither SEi nor Newco is subject to any judgment, order, writ,
injunction or decree of any court or governmental body.
5.6 Brokers and Finders. No agent, broker, investment banker,
Person or firm acting on behalf of SEi or Newco or any Affiliate of SEi or
Newco 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.
5.7 SEi Information. SEi has delivered to ISI true and complete
copies of the SEi Filings. At the date hereof, the SEi Filings, taken as
a whole and considered in the context of the other SEi Filings, do not
contain any untrue statement of a material fact or omit any material fact
necessary to make the statements contained therein, in light of the
circumstances in which they were made, not misleading.
5.8 Pooling-of-Interests; Tax Free Reorganization. Neither SEi nor
any of its Affiliates has taken or agreed to take any action that (without
giving effect to this Agreement, the transactions contemplated hereby, or
any action taken or agreed to be taken by one or more of ISI) can
reasonably be expected to prevent the Merger from qualifying as a
reorganization under Section 368(a) of the Code or prevent SEi from
accounting for the business combination to be effected by the Merger as a
"pooling-of-interests."
5.9 Disclosure. None of the information supplied by SEi or Newco
for inclusion in the Proxy Statement, taken as a whole, at the time of
mailing the Proxy Statement to shareholders of ISI and at the time of the
meeting of ISI shareholders referred to in Section 7.9 hereof, contains
any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are
made, not misleading.
5.10 Financial Statements. The SEi Filings contain (i) the audited
consolidated balance sheets of SEi as of December 31, 1994 and December
31, 1995 and the related audited consolidated statements of operations,
changes in shareholders' equity and cash flows (including the notes
thereto) of SEi for the twelve (12) month periods ending July 31, 1993,
July 31, 1994 and December 31, 1995, respectively, and for the five (5)
month period ending December 31, 1994 (collectively, the "Audited SEi
Financial Statements"), and (ii) the unaudited balance sheet of SEi dated
September 29, 1996 (the "SEi Interim Balance Sheet") and the related
unaudited consolidated statements of income and cash flows (including the
notes thereto) of SEi for the nine (9) month period ending September 29,
1996 (collectively, the "Unaudited SEi Financial Statements"). Except as
disclosed in SEi Filings, the Audited SEi Financial Statements (i) are in
accordance with the books and records of SEi in all material respects,
(ii) have been prepared in accordance with GAAP consistently applied
throughout the periods indicated, and (iii) fairly present in all material
respects the financial position of SEi as of the respective dates
indicated and the results of operations and the changes in financial
position of SEi for the respective periods indicated. Except as disclosed
in SEi Filings, the Unaudited SEi Financial Statements (i) are in
accordance with the books and records of SEi in all material respects,
(ii) subject to normal year end adjustments and the absence of fully
footnoted disclosures, have been prepared in accordance with GAAP
consistently applied throughout the period indicated, and (iii) subject to
normal year end adjustments, fairly present in all material respects the
financial position of SEi as of the date indicated and the results of
operations and the changes in financial position of SEi for the period
indicated.
5.11 Undisclosed Liabilities. Except as disclosed in SEi Filings and
except as set forth in Section 5.11 of the Disclosure Schedule, SEi is not
subject to any liability or obligation of any kind or nature whatsoever,
whether known, unknown, asserted, unasserted, absolute, accrued,
contingent or otherwise, required by GAAP to be reflected or reserved
against in a consolidated balance sheet of SEi, except (i) liabilities
reflected or reserved against in the SEi Interim Balance Sheet, and (ii)
liabilities incurred since September 29, 1996 in the ordinary course of
business.
5.12 Absence of Changes. Except as disclosed in the SEi Filings and
except as disclosed in Section 5.12 of the Disclosure Schedule, since
September 29, 1996, SEi has not suffered any Material Adverse Effect on
SEi.
5.13 Compliance with Laws. Except as disclosed in SEi Filings and
except as set forth in Section 5.13 of the Disclosure Schedule, 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
Legal Requirements applicable to SEi, or to its business or any of the
property or assets of SEi, except to the extent that such non-compliance
or violation has not and could not reasonably be expected to have a
Material Adverse Effect on SEi. SEi has all material licenses, permits,
certificates of occupancy and authorizations necessary to conduct its
business.
5.14 Environmental Matters. Except as disclosed in SEi Filings and
except as set forth in Section 5.14 of the Disclosure Schedule:
(a) the conduct of its business materially complies with, and
SEi is not in violation in any material respect of, any applicable
Environmental, Health and Safety Laws;
(b) SEi has not received notification from any governmental
authority of any violations of any Environmental, Health and Safety Laws
nor are there any judicial or administrative writs, injunctions, decrees,
orders or judgments outstanding or any lawsuits, claims, proceedings or,
to the best knowledge of SEi, investigations pending or, to the best
knowledge of SEi, any lawsuits, claims, proceedings or investigations
threatened relating to the ownership, use, maintenance or operation of the
conduct of SEi's business;
(c) there are no and have been no environmental conditions
(including, without limitation, the release or threatened release of
Hazardous Substances) at any location which would give rise to any
liability of SEi under any Environmental, Health and Safety Law which has
had or could reasonably be expected to have a Material Adverse Effect on
SEi;
(d) without limiting the generality of the foregoing, SEi has
not (i) received notification from the United States Environmental
Protection Agency, or any state or local agency which serves a similar
function, that it is a Potentially Responsible Party under the CERCLA or
any analogous state or local law or theory for "removal," "remedial" or
similar action at any site or (ii) received notification that it is
liable for contribution for costs incurred by another Person in taking
"removal," "remedial" or similar action at any site; and
(e) SEi is not presently in material violation of any material
permit required to be held by SEi by the Environmental, Health and Safety
Laws for the conduct of SEi's business, and there is no proceeding pending
or, to the best knowledge of SEi, threatened with respect to the
revocation or limitation of any such permit.
ARTICLE VI
COVENANTS PENDING THE CLOSING
6.1 Certain Covenants of ISI Pending the Closing. Except as
disclosed in Section 6.1 of the Disclosure Schedule, ISI covenants and
agrees that, pending the Closing and prior to the termination of this
Agreement, and except as otherwise agreed to herein or in writing by SEi
and Newco:
(a) ISI shall conduct its business solely in the ordinary
course;
(b) ISI shall not take any action, or intentionally omit to
take any reasonable action, which would result in a breach of any of the
representations and warranties of ISI hereunder in any material respect;
(c) ISI shall continue to maintain and service the physical
assets used by ISI in the conduct of its business consistent with past
practices;
(d) ISI shall use its reasonable best efforts to preserve the
businesses and organization of ISI, to keep available the services of
ISI's present employees and agents and to maintain the relations and
goodwill with the suppliers, customers, distributors and any others having
business relations in connection with ISI's business, all in accordance
with past practices;
(e) ISI shall use its reasonable best efforts to cause all of
the conditions precedent to the Merger set forth in Article VIII hereof to
be satisfied at or prior to the Closing and to obtain, prior to the
Closing, all consents of all Persons necessary for the consummation of the
transactions contemplated hereby;
(f) ISI shall promptly disclose to SEi and Newco any
information relating to the representations and warranties of ISI which,
because of an event occurring after the date hereof, is incomplete or is
no longer correct in any material respect;
(g) ISI shall provide SEi's authorized officers, employees,
counsel, accountants and other representatives with full access to, during
normal business hours, all of the books and records of ISI, make available
to representatives of SEi knowledgeable employees of ISI for reasonable
periods of time to answer inquiries of such representatives with respect
to SEi's investigation of ISI and permit such representatives of SEi to
consult with the officers, employees, accountants, counsel and other
representatives of ISI, provided that no such activities unreasonably
interfere with the operation of ISI's business, and further provided that
interviews with ISI employees shall be after notice thereof to Bill
Gaughan or Jim Kenney;
(h) ISI shall not grant to any Person a power of attorney or
similar authority to act for ISI;
(i) ISI shall not enter into any guarantee of the obligations
of any Person;
(j) ISI shall not amend its Articles or Certificate of
Incorporation or Bylaws;
(k) ISI shall not issue, deliver or sell (or authorize or
propose the issuance, delivery or sale of) any shares of its capital stock
of any class, or any securities convertible into, or any rights, warrants
or options to acquire, any such shares;
(l) ISI shall not (i) declare or pay any dividends on or make
other distributions in respect of any of its capital stock, (ii) split,
combine or reclassify any of its capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock or (iii) repurchase or
otherwise acquire any shares of its capital stock;
(m) ISI shall not increase the compensation payable or to
become payable to any officer, employee or agent of ISI other than in the
ordinary course of ISI's business, nor make any bonus payment or
arrangement to or with any officer, employee or agent of ISI other than in
the ordinary course of ISI's business nor increase the benefits under nor
make any amendment or modification to any Employee Benefit Plan;
(n) ISI shall not sell, transfer, lease, abandon or otherwise
dispose of (or commit to do so) or initiate or solicit any discussions
concerning the sale, lease or other disposal of, any assets of ISI, except
in the ordinary course of its business;
(o) ISI shall not, without the consent of an officer of SEi,
which consent shall not unreasonably be withheld, enter into any contract
or commitment calling for payment to ISI of an aggregate amount of more
than $75,000 which is not terminable by ISI on less than thirty (30) days'
notice without penalty;
(p) ISI shall not, without consent of an officer of SEi, which
consent shall not unreasonably be withheld, enter into any contract or
commitment calling for payment by ISI of an aggregate amount of more than
$25,000 which is not terminable by ISI on less than thirty (30) days'
notice without penalty;
(q) ISI shall not incur any liabilities or subject its assets
to any lien, security interest or other encumbrance, except in the
ordinary course of its business;
(r) ISI shall not cause, authorize or encourage the ESOP, or
its related documentation (including any rules or procedures of the ESOP,
ESOP Trustees or the ESOP's plan administrator), to be amended or in any
way modified prior to Closing without the express written consent of SEi;
and
(s) ISI shall not enter into any agreement to do any of the
actions prohibited in this Section.
6.2 Certain Covenants of SEi and Newco Pending the Closing. SEi and
Newco covenant and agree that, pending the Closing and prior to the
termination of this Agreement, and except as otherwise agreed to in
writing by ISI:
(a) SEi and Newco shall not take or intentionally omit to take
any action which would result in a breach of any of their representations
and warranties hereunder in any material respect;
(b) SEi and Newco shall use their reasonable best efforts to
cause all of the conditions precedent to the Merger set forth in Article
IX hereof to be satisfied at or prior to the Closing and to obtain, prior
to the Closing, all consents of all Persons necessary for the consummation
of the transactions contemplated hereby;
(c) SEi and Newco shall promptly disclose to ISI any
information relating to the representations and warranties of SEi and
Newco hereunder which, because of an event occurring after the date
hereof, is incomplete or is no longer correct in any material respect;
(d) SEi and Newco shall provide ISI's officers, employees,
counsel, accountants and other representatives with reasonable access to,
during normal business hours, the books and records of SEi, make
available to representatives of ISI knowledgeable employees of SEi for
reasonable periods of time to answer inquiries of such representatives
with respect to ISI's investigation of SEi and permit such representatives
of ISI to consult with the officers, employees, accountants, counsel and
other representatives of SEi, provided that no such activities
unreasonably interfere with the operation of SEi's business; and
(e) SEi will deliver to ISI true and complete copies of any and
all other documents filed by SEi with the SEC after the date hereof and on
or prior to the Closing Date (other than exhibits which SEi will make
available upon request). At the date of filing with the SEC of any such
other filed document, such document, taken as a whole and considered in
the context of the SEi Filings and any other SEi filings with the SEC,
will not contain any untrue statement of a material fact or omit any
material fact necessary to make the statements contained therein, in light
of the circumstances in which they were made, not misleading.
ARTICLE VII
OTHER COVENANTS
7.1 Filings. Promptly after the execution of this Agreement, each
of the parties hereto shall prepare and make or cause to be made, in
accordance with all Legal Requirements applicable to such party, all
required filings, submissions and notifications required by such Legal
Requirements as 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 accordance
with applicable Legal Requirements. Each of the parties hereto will
furnish to the other parties such necessary information and reasonable
assistance as such other parties may reasonably request in connection with
the foregoing. Each party's filings with the relevant taxing authorities
shall be consistent with the treatment of the Merger as a tax free
reorganization under Section 368(a) of the Code.
7.2 Announcements. Except as expressly otherwise provided in 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
applicable Legal Requirements. Notwithstanding the foregoing, in the
event prior to the Closing any party hereto is required by applicable
Legal Requirements 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 may make such statement and
shall notify in writing the other parties hereto as to the time, form and
content of such statement.
7.3. Costs and Expenses; Termination Fee.
(a) Except as otherwise provided in this Section 7.3, 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.
(b) In the event (i) this Agreement is terminated by SEi or ISI
in accordance with Section 10.1(b) hereof and (ii) at the time of such
termination, the conditions set forth in Section 8.8 hereof are not
satisfied, then ISI shall reimburse SEi and Newco, promptly upon demand
therefor, for the SEi Merger Expenses. Such reimbursement shall be in
addition to, and not in lieu of, any other rights or remedies available to
SEi and Newco. Notwithstanding the foregoing, SEi shall not be entitled
to reimbursement of expenses pursuant to this paragraph (b) if (i) this
Agreement is terminated by SEi or ISI in accordance with Section 10.1(b)
hereof, and (ii) the Registration Statement shall not have been declared
effective at least fifteen (15) days prior to the date of such termination
by SEi or ISI.
(c) In the event ISI receives any bona fide offer or proposal
for, or any indication of interest in, an Alternative Transaction and
thereafter either of the following occurs:
(i) This Agreement is terminated under circumstances in
which SEi is entitled to reimbursement of expenses pursuant to Section
7.3(b) hereof; or
(ii) ISI or SEi elects to terminate this Agreement in
accordance with Section 10.1(d) hereof, then, in either case, ISI shall
pay to SEi, promptly upon demand therefor, the Termination Fee. If this
Agreement is terminated in the circumstances provided in this Section
7.3(c), then the Termination Fee will be liquidated damages to SEi for
loss of its bargain hereunder and, notwithstanding Section 7.3(b) hereof,
shall be SEi's sole and exclusive remedy in such event.
7.4. Further Assurances. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its reasonable best
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 Legal
Requirements to consummate and make 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 a party hereto 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, the parties hereto shall
cooperate and attempt in good faith to obtain such consent or approval.
7.5 Exclusive Dealing. During the period from the date of this
Agreement to the Effective Time and except as expressly contemplated by
this Section, ISI will not, nor will ISI permit 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 Newco, and their respective representatives, agents and
Affiliates, concerning any Alternative Transaction. ISI shall immediately
notify SEi and Newco of any proposal or offer received by, any information
requested from, or any discussions or negotiations sought to be initiated
or continued with, ISI in respect of an Alternative Transaction and shall,
in any such notice to SEi and Newco, indicate the terms and conditions of
any proposals or offers or the nature of any requests, discussions or
negotiations. Notwithstanding the foregoing, ISI shall not be obligated
to perform its obligations set forth in the first sentence of this Section
7.5 to the extent that the board of directors of ISI determines in good
faith, after consultation with its legal and financial advisors, that the
failure to engage in such activity would constitute a breach of the
fiduciary duties of the directors, in their capacities as such, to the
shareholders of ISI under applicable Legal Requirements.
7.6 Accounting Matters; Publication of Financials.
(a) The parties hereto agree that SEi intends to treat the
Merger as a "pooling- of-interests" for financial accounting purposes as
permitted under Accounting Principles Board (APB) Opinion No. 16. Each
party hereto shall not take, and shall use its best efforts to cause its
Affiliates not to take, from the date hereof through the Closing or at any
time after the Closing, any action, or fail to take any required action,
that would prevent the Merger from being properly accounted for as a
"pooling-of-interests" in accordance with GAAP and all published rules,
regulations and policies of the SEC.
(b) The parties hereto agree that they intend for the
transactions contemplated by this Agreement to constitute a tax-free
reorganization under Section 368(a) of the Code. Each of the parties
hereto shall not take, and shall use its best efforts to cause their
respective Affiliates not to take, before or after the Closing, any
action, or fail to take any required action, that would adversely affect
the treatment of the Merger as a reorganization under Section 368(a) of
the Code.
(c) In the event that the Closing is postponed pursuant to
Section 2.9 hereof, SEi shall publish results covering at least 30 days of
post-Merger combined operations of SEi and ISI as soon as reasonably
practicable; provided, however, that SEi shall not be obligated to publish
such results if the postponement (i) related to SEi's effort to account
for the Merger as a "pooling-of-interest" and is as a result of any action
by ISI or any of its Affiliates; or (ii) relates to the Registration
Statement and is a result of any failure of ISI to comply with Section 7.7
hereof, or otherwise to use its best efforts to have the Registration
Statement declared effective by February 13, 1997.
7.7 Registration of ISI Merger Shares.
(a) SEi shall promptly prepare and file with the SEC a
registration statement under the Securities Act on the appropriate form
with respect to the ISI Merger Shares (the "Registration Statement") and
shall use its reasonable best efforts to cause the Registration Statement
to be declared effective as promptly as reasonably practicable. SEi shall
take any reasonable action required to be taken to comply with applicable
state securities or "blue sky" laws in connection with the issuance of the
ISI Merger Shares in the Merger. SEi shall also use its reasonable best
efforts to cause the ISI Merger Shares to be approved for listing on
NASDAQ, upon official notice of issuance, prior to the Closing Date. SEi
shall pay all fees, disbursements and expenses in connection with the
Registration Statement including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel for SEi
and expenses of complying with applicable securities or "blue sky" laws
and listing of the shares on NASDAQ (collectively, "Securities Expenses").
(b) ISI shall supply to SEi or Newco for inclusion in the
Registration Statement such information as may be reasonably requested in
connection with the preparation and filing of the Registration Statement.
ISI shall not supply any information to SEi or Newco for inclusion in the
Registration Statement that will, taken as a whole, at the time the
Registration Statement becomes effective under the Securities Act, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
7.8 Affiliate Agreements. ISI shall use its best efforts to cause
each Person who is an Affiliate of ISI as of the Closing Date, including
each Person listed on Section 4.4 of the Disclosure Schedule, to execute
and deliver to SEi an Affiliate Agreement in the form attached hereto as
Exhibit D (an "Affiliate Agreement") as soon as practicable and in any
event at or prior to the Closing.
7.9 Shareholders Meeting.
(a) ISI shall cause a meeting of the ISI shareholders to be
duly called and held as soon as reasonably practicable following the
effectiveness of the Registration Statement for the purpose of voting on
the approval and adoption of this Agreement and the transactions
contemplated hereby, including the Merger and ISI's board of directors
shall recommend approval and adoption of this Agreement, and the
transactions contemplated hereby, including the Merger, by ISI's
shareholders and shall not refrain from making such recommendation, or
otherwise revoke, modify or qualify such recommendation, except and unless
where the board of directors of ISI determines in good faith, after
consultation with its legal and financial advisors, that to perform its
obligations under this sentence would constitute a breach of the fiduciary
duties of the directors, in their capacities as such, to the shareholders
of ISI under applicable Legal Requirements. ISI shall otherwise comply
with all Legal Requirements applicable to calling, holding and conducting
such shareholders' meeting.
(b) ISI shall promptly prepare a proxy statement (the "Proxy
Statement") for such meeting in accordance with all applicable Legal
Requirements. Except as otherwise mutually agreed, Proxy Statement shall
be prepared in substantial compliance with the informational requirements
of Schedule 14A of the Exchange Act and the rules and regulations
promulgated thereunder to the same extent as if ISI were an Exchange Act
reporting company. ISI shall not include in the Proxy Statement any
information that, at the time of mailing the Proxy Statement to
shareholders of ISI and at the time of such meeting of ISI shareholders,
taken as a whole, contains any untrue statement of a material fact or
omits to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
(c) Neither SEi nor Newco shall supply any information to ISI
for inclusion in the Proxy Statement that, taken as a whole, at the time
of mailing the Proxy Statement to shareholders of ISI and at the time of
such meeting of ISI shareholders, contains any untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The Proxy
Statement shall be, in form and substance, reasonably satisfactory to SEi
and Newco.
(d) ISI shall, as soon as reasonably practical following the
effectiveness of the Registration Statement, mail the Proxy Statement to
its shareholders and shall use its best efforts to solicit proxies from
its shareholders.
7.10 Employment Agreements. ISI has entered into employment
agreements with each of the Persons identified in Section 7.10 of the
Disclosure Schedule and has delivered true and complete copies of each
such employment agreement to SEi and Newco.
7.11 Releases. At or before the Closing, SEi and ISI shall obtain a
full release of the guarantees and the pledges of securities made by the
employees or former employees of ISI listed in Section 7.11 of the
Disclosure Schedule.
7.12 Opinion of Accountants. ISI has received an opinion from its
accountants, a copy of which has been delivered to SEi, to the effect that
the business combination to be effected by the Merger would be properly
accounted for as a "pooling-of-interests" in accordance with GAAP and all
published rules, regulation and policies of the SEC. ISI shall use its
reasonable best efforts to have such opinion updated and rendered on the
Closing Date in a form reasonably acceptable to ISI and SEi.
7.13 ISI Record Holders. ISI shall deliver to SEi at the Closing a
complete and accurate list of the names and mailing address of each record
holder of ISI Common Stock as of the Closing Date.
7.14 Confidentiality.
(a) The parties hereto acknowledge and agree that in connection
with the negotiation, execution and performance of this Agreement and the
Letter of Intent between SEi and ISI dated December 10, 1996, each of SEi
and ISI has been or will be in a position to become acquainted with the
other party's Confidential Information (as defined below). ISI and SEi
agree that the Confidential Information of the other party is an integral
and key part of its assets and that the unauthorized use or disclosure of
such Confidential Information would seriously damage such party in its
business.
(b) Each of SEi and ISI agree that, unless acting with the
prior written consent of the other party, it shall (i) keep the other
party's Confidential Information confidential, (ii) refrain from any
action or conduct which might reasonably or foreseeably be expected to
compromise the confidential nature of the other party's Confidential
Information, (iii) not, directly or indirectly, use the Confidential
Information of the other party for any reason or purpose other than
evaluating the transactions contemplated hereby, negotiating the terms of
this Agreement and performing its obligations hereunder and (iv) not,
directly or indirectly, disclose, publish or otherwise reveal any aspect
of the other party's Confidential Information to any Person except as
required by law or pursuant to a court order; provided, however, that,
prior to any such compelled disclosure, the party whose obligation it is
to keep such information confidential shall have given the other party
notice of the circumstances relating to such compelled disclosure and an
opportunity to seek an appropriate protective order with respect thereto.
Notwithstanding the foregoing, each of SEi and ISI may disclose the other
party's Confidential Information to their respective officers, directors,
employees and advisors who agree to act with respect to such Confidential
Information in a manner consistent with this Section and who require such
material for the purpose of evaluating the transactions contemplated
hereby, negotiating the terms of this Agreement or performing its
obligations hereunder.
(c) As used herein, the term "Confidential Information" means,
with respect to any Person, such Person's confidential, proprietary and
privileged information relating to customer files, customer lists, price
lists, sales methods and techniques, merchandising concepts and plans,
business plans, sources of supply and vendors, business relationships with
vendors, agents and brokers, promotional materials and information,
financial matters, business combinations, personnel matters and processes,
computer software and programs, database technologies and systems,
designs, know how, inventions, formulas, ideas, plans, devices or
materials and other similar matters which are confidential, proprietary or
privileged. The parties agree that any information (i) which is or
becomes available to the public through no act, omission or fault of, and
absent any breach of a covenant or obligation hereunder by, the party
whose obligation it is to keep such information confidential or (ii) which
the party whose obligation it is to keep such information confidential may
have received lawfully from any third party without restrictions as to
disclosure thereof shall not constitute "Confidential Information."
(d) For purposes of this Section only, the term "SEi" shall
include all of its Affiliates, and the term "ISI" shall include all of its
Affiliates.
7.15 Loans. At the Closing, SEi shall pay, or shall cause the
payment of, each of the loans to ISI identified in Section 7.15 of the
Disclosure Schedule.
7.16 Life Insurance. ISI maintains life insurance policies with
respect to certain of its employees. ISI shall, upon the receipt by ISI
on or before the Closing Date of a written request by any such employee,
transfer to such employee all of ISI's right, title and interest in and to
the life insurance policy maintained with respect to such employee,
provided that, in consideration therefor, such employee pays to ISI, no
later than the thirtieth (30th) day after the Closing Date, an aggregate
amount equal to the cash surrender value of such policy as of the date of
transfer to the employee.
7.17 Termination of Shareholders' Agreements. On or prior to the
Closing Date, ISI shall take all necessary and appropriate actions to
terminate each and all of the currently outstanding shareholders'
agreements between ISI, on the one hand, and one or more of the ISI
shareholders, on the other hand, such that as of the Effective Time, ISI
shall have no contractual obligations to any of its shareholders in
respect of or relating to ISI Common Stock, other than the distribution of
the Exchange Fund in connection with the Merger.
ARTICLE VIII
CONDITIONS TO THE OBLIGATION OF SEi AND NEWCO
8. Conditions to the Obligation of SEi and Newco. The obligation
of SEi and Newco to effect the Merger shall be subject to the
satisfaction, at or before the Closing, of each of the following
conditions:
8.1 Truth of Representations and Warranties. The representations
and warranties of ISI contained in this Agreement shall be true and
correct on the date of this Agreement and, in all material respects, shall
be true and correct on the Closing Date with the same effect as though
such representations and warranties were made on and at such dates, except
for changes expressly permitted or contemplated by this Agreement, and ISI
shall have delivered to SEi and Newco on the Closing Date a certificate,
dated the Closing Date, to such effect.
8.2 Performance. Each and all of the agreements, obligations or
conditions required by this Agreement to be performed or complied with by
ISI at or before the Closing pursuant to the terms hereof shall have been
duly performed or complied with in all material respects at or prior to
the Closing, and ISI shall have delivered to SEi and Newco a certificate,
dated the Closing Date, to such effect.
8.3 No Material Adverse Effect. Except as disclosed in Section 4.11
of the Disclosure Schedule, since June 30, 1996, ISI has not suffered, and
cannot reasonably be expected to suffer, any Material Adverse Effect.
8.4 Closing Deliveries. ISI shall have furnished to SEi and Newco
on the Closing Date the following:
(a) a copy of the Articles of Incorporation and all amendments
thereto and all foreign domestication documents of ISI, certified by the
Secretary of State or other appropriate authority in each jurisdiction,
together with certificates of existence or good standing, as the case may
be, dated not more than fifteen (15) days prior to the Closing, for ISI in
each applicable domestic and foreign jurisdiction;
(b) a copy of the Bylaws of ISI, certified to be true, complete
and in effect as of the Closing Date by the Secretary or Assistant
Secretary of ISI;
(c) a copy of the resolutions duly adopted by the board of
directors authorizing the consummation of the transactions contemplated by
this Agreement, certified to be true, complete and in effect as of the
Closing Date by the Secretary or Assistant Secretary of ISI;
(d) a copy of the resolutions duly adopted by the shareholders
of ISI, authorizing the consummation of the transactions contemplated by
this Agreement, certified to be true, complete and in effect as of the
Closing Date by the Secretary or Assistant Secretary of ISI;
(e) all requisite consents and approvals, in writing and in
form and substance reasonably satisfactory to SEi and Newco, required to
be set forth on Section 4.5 of the Disclosure Schedule;
(f) the list, as of the Closing Date, of the names and mailing
address of the record holders of ISI Common Stock; and
(g) such opinions, assurances, certificates and documents
relating to the consummation of the transactions herein contemplated as
may be reasonably requested by SEi or Newco.
8.5 Opinion of Counsel. SEi and Newco shall have received the legal
opinion of Robinson, Bradshaw and Hinson, P.A. addressed to SEi and Newco
and dated the Closing Date, substantially in the form attached hereto as
Exhibit E.
8.6 Absence of Litigation. No order of any court of competent
jurisdiction shall have been entered and not withdrawn prohibiting
consummation of the Merger, and no action or proceeding shall have been
instituted or threatened before any court, governmental agency or
regulatory body seeking to enjoin or modify or to obtain damages or a
discovery order in respect of the Merger or any other transaction
contemplated by this Agreement.
8.7 Governmental Approvals. All necessary and appropriate
governmental consents, approvals and filings, including those pursuant to
the HSR Act shall have been obtained or made and all applicable waiting
periods (including any extensions hereof) relating thereto shall have
expired or otherwise terminated.
8.8 ISI Shareholder Approval; Dissenting Shareholders. The Merger
and the transactions contemplated by this Agreement shall have been duly
approved by the shareholders of ISI in accordance with the NCBCA, with
holders of no more than nine and one-half percent (9-1/2%) of the ISI Common
Stock having (i) not voted their shares in favor of the Merger and (ii)
delivered to ISI, prior to the vote on the Merger at the shareholders'
meeting referred to in Section 7.9 hereof, written notice of such holders'
intent to demand payment for their shares if the Merger is effectuated.
8.9 Opinion of Accountants. SEi and Newco shall have received an
opinion dated the Closing Date from their accountants in form reasonably
satisfactory to SEi and Newco to the effect that the business combination
to be effected by the Merger would be properly accounted for as a
"pooling-of-interests" in accordance with GAAP and all published rules,
regulations and policies of the SEC, and such opinion shall not have been
withdrawn or modified in any material respect.
8.10 Registration Statement; Listing. The Registration Statement
shall have been declared effective and shall not be the subject of any
stop order or proceeding seeking a stop order, and the ISI Merger Shares
shall have been authorized for listing on the NASDAQ, upon official notice
of issuance.
8.11 Affiliate Agreements. Each Person who on the Closing Date is an
Affiliate of ISI, including the Persons listed in Section 4.4 of the
Disclosure Schedule, shall have executed and delivered an Affiliate
Agreement to SEi, and all such Affiliate Agreements shall be in full force
and effect.
8.12 Tax Free Reorganization. SEi shall have received a legal
opinion of reputable legal counsel addressed to SEi and dated the Closing
Date to the effect that the Merger will constitute a reorganization within
the meaning of Section 368(a) of the Code, together with such
certifications by shareholders and officers of ISI as may be reasonably
required by such counsel in connection with its opinion.
8.13 Fairness Opinion. The ESOP Trustees shall have received the
written opinion of Interstate/Johnson Lane to the effect that the
consideration to be paid in the Merger to the ESOP as a shareholder of ISI
in exchange for the ISI Common Stock of the ESOP is fair, from a financial
point of view, to the ESOP as an ISI shareholder and such opinion shall
not have been withdrawn or modified in any material respect.
ARTICLE IX
CONDITIONS TO THE OBLIGATION OF ISI
9. Conditions to the Obligation. The obligation of ISI to effect
the Merger shall be subject to the satisfaction, at or before the Closing,
of each of the following conditions:
9.1 Truth of Representations and Warranties. The representations
and warranties of SEi and Newco contained in this Agreement shall be true
and correct on the date of this Agreement and, in all material respects,
shall be true and correct on the Closing Date with the same effect as
though such representations and warranties were made on and at such dates,
except for changes permitted or contemplated by this Agreement, and SEi
and Newco shall deliver to ISI on the Closing Date a certificate, dated
the Closing Date, to such effect.
9.2 Performance. Each and all of the agreements, obligations or
conditions required by this Agreement to be performed or complied with by
SEi or Newco at or before the Closing pursuant to the terms hereof shall
have been duly performed or complied with in all material respects at or
prior to the Closing, and SEi and Newco shall have delivered to ISI on the
Closing Date a certificate, dated the Closing Date, to such effect.
9.3 Closing Deliveries. SEi and Newco shall furnish ISI on the
Closing Date the following documents:
(a) a copy of the Articles of Incorporation of Newco, certified
by the Secretary of State of the State of North Carolina, together with a
certificate of existence dated not more than fifteen (15) days prior to
the Closing for Newco issued by the Secretary of State of the State of
North Carolina;
(b) a copy of the Articles of Incorporation of SEi, certified
by the Secretary of State of the State of Florida, together with a
certificate of good standing dated not more than fifteen (15) days prior
to the Closing Date for SEi issued by the Secretary of State of the State
of Florida.
(c) a copy of the Bylaws of each of SEi and Newco certified to
be true, complete and in effect as of the Closing Date by the Secretary or
Assistant Secretary of SEi and Newco, respectively;
(d) a copy of the resolutions duly adopted by the board of
directors and sole shareholder of Newco, respectively, authorizing the
consummation of the transactions contemplated by this Agreement, certified
to be true, complete and in effect as of the Closing Date by the Secretary
or Assistant Secretary of Newco; and
(e) a copy of the resolutions duly adopted by the board of
directors of SEi authorizing the consummation of the transactions
contemplated by this Agreement, certified to be true, complete and in
effect as of the Closing Date by the Secretary or Assistant Secretary of
SEi.
9.4 Opinion of Counsel. ISI shall have received the legal opinion
of one or more legal counsel of SEi addressed to ISI and dated the Closing
Date, in the aggregate covering the legal opinions substantially in the
form of opinion attached hereto as Exhibit F.
9.5 Absence of Litigation. No order of any court of competent
jurisdiction shall have been entered and not withdrawn prohibiting
consummation of the Merger, and no action or proceeding shall have been
instituted or threatened before any court, governmental agency or
regulatory body seeking to enjoin or modify or to obtain damages or a
discovery order in respect of the Merger or any other transaction
contemplated by this Agreement.
9.6 Governmental Approvals. All necessary and appropriate
governmental consents, approvals and filings, including those pursuant to
the HSR Act shall have been obtained or made and applicable waiting
periods (including any extensions hereof) relating thereto shall have
expired or otherwise terminated.
9.7 ISI Shareholder Approval. The Merger and the transactions
contemplated by this Agreement shall have been duly approved by the
shareholders of ISI in accordance with the NCBCA.
9.8 Opinion of Accountants. ISI shall have received an opinion
dated the Closing Date from ISI's accountants in form reasonably
satisfactory to ISI and SEi the effect that the business combination to be
effected by the Merger would be properly accounted for as a "pooling-of-
interests" in accordance with GAAP and all published rules, regulations
and policies of the SEC, and such opinion shall not have been withdrawn or
modified in any material respect.
9.9 Registration Statement; Listing. The Registration Statement
shall have been declared effective and shall not be the subject of any
stop order or proceeding seeking a stop order, and the ISI Merger Shares
shall have been authorized for listing on the NASDAQ.
9.10 Tax Free Reorganization. ISI shall have received a legal
opinion of reputable legal counsel addressed to ISI and dated the Closing
Date to the effect that the Merger will constitute a reorganization within
the meaning of Section 368(a) of the Code, together with such
certifications by shareholders and officers of ISI as may be reasonably
required by such counsel in connection with its opinion.
9.11 Fairness Opinion. The ESOP Trustees shall have received the
written opinion of Interstate/Johnson Lane to the effect that the
consideration to be paid in the Merger to the ESOP as a shareholder of ISI
in exchange for the ISI Common Stock of the ESOP is fair, from a financial
point of view, to the ESOP as an ISI shareholder and such opinion shall
not have been withdrawn or modified in any material respects.
9.12 No Material Adverse Effect. Since September 29, 1996, SEi has
not suffered, and cannot reasonably be expected to suffer, any Material
Adverse Effect.
ARTICLE X
TERMINATION AND ABANDONMENT
10.1 Termination. Notwithstanding any other provision herein
contained to the contrary, this Agreement may be terminated and the Merger
abandoned at any time prior to the Closing Date:
(a) By written consent of the parties hereto;
(b) By SEi or ISI if the Merger shall not have been consummated
on or before the Optional Termination Date;
(c) By SEi or ISI if there shall have been a material breach by
a non-terminating party of any of the non-terminating party's
representations, warranties, covenants or agreements contained herein
which is not reasonably curable;
(d) By SEi or ISI if the board of directors of ISI shall have
determined in good faith, after consultation with its legal and financial
advisors, that the consummation of the transactions contemplated hereby
would constitute a breach of the duties of the ISI directors, in their
capacities as such, to the shareholders of ISI under applicable Legal
Requirements; or
(e) By SEi if the board of directors of ISI shall have
determined in good faith, after consultation with its legal and financial
advisors, that the failure to pursue an Alternative Transaction would
constitute a breach of the duties of the ISI directors, in their
capacities as such, to the shareholders of ISI under applicable Legal
Requirements.
10.2 Procedure and Effect of Termination. In the event of
termination and abandonment of the Merger pursuant to Section 10.1 hereof,
written notice thereof shall forthwith be given to the other parties
hereto, and this Agreement shall be terminated and the Merger shall be
abandoned without further action; provided, however, that Section 7.3 and
Section 7.14 hereof shall survive such termination and abandonment
indefinitely and any termination pursuant to Section 10.1 hereof shall not
be deemed a waiver of any rights or remedies otherwise available under
this Agreement, by operation of law or otherwise. In addition, in the
event of any such termination or abandonment, (a) all filings,
applications and other submissions made pursuant to Section 7.1 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, and (b) all Confidential Information of any party hereto, and
all copies thereof or notes taken in respect thereto, in the possession of
another party or its representatives shall be returned to such other party
or destroyed and a certificate of such return or destruction shall be
delivered to the party whose Confidential Information has been so returned
or destroyed.
ARTICLE XI
MISCELLANEOUS
11.1 Prevailing Party. In the event of any dispute arising out of
this Agreement, the prevailing party shall be entitled to recover all
costs and expenses, including reasonable attorneys' fees at trial and all
appellate levels.
11.2 Knowledge. Where any representation or warranty contained in
this Agreement is expressly qualified by reference to the best knowledge
of ISI or SEi, ISI and SEi each confirms that it has made reasonable
inquiry under the circumstances as to the matters that are the subject of
its representations and warranties.
11.3 Governing Law. The interpretation and construction of this
Agreement, and all matters relating hereto, shall be governed by the laws
of the State of North Carolina.
11.4 Captions. The Article and Section captions used herein are for
reference purposes only, and shall not in any way affect the meaning or
interpretation of this Agreement.
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 5:00 p.m. E.S.T.,
or E.D.T., as the case may be, 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, one day after
being placed in the exclusive custody and control of said courier; and if
mailed by certified mail, return receipt requested, five (5) 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 device 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 any party may
designate by notice in accordance with the provisions of this section):
If to SEi and Newco: Sykes Enterprises, Incorporated
100 N. Tampa Street
Suite 3900
Tampa, Florida 33602-5089
Fax #: (813) 273-0148
Attn: Scott Bendert
with a copy to: Parker Poe Adams & Bernstein L.L.P.
2600 Charlotte Plaza
Charlotte, North Carolina 28244
Fax #: (704) 334-4706
Attn: Roy L. Smart, Esq.
If to ISI: Info Systems of North Carolina, Inc.
7500 E. Independence Boulevard
Charlotte, North Carolina 28227
Fax #: (704) 567-8958
Attn: William J. Gaughan
with a copy to: Robinson, Bradshaw and Hinson, P.A.
1900 Independence Center
101 North Tryon Street
Charlotte, North Carolina 28246
Fax #: (704) 373-3912
Attn: Kent J. McCready, Esq.
11.6 Counterparts. This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one instrument.
11.7 Entire Agreement. This Agreement, including the Disclosure
Schedule (which is hereby incorporated herein by reference) and the other
documents referred to herein, contains the entire understanding of the
parties hereto with respect to the subject matter contained herein and
therein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter,
including, without limitation, the Letter of Intent dated December 10,
1997 between ISI and SEi.
11.8 Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
11.9 No Third Party Beneficiaries. Each party hereto intends that
this Agreement shall not benefit or create any right or cause of action in
or on behalf of any Person other than the parties hereto.
11.10 Assignment. This Agreement and all the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and
their respective heirs, executors, administrators, successors and
permitted assigns, but neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto without the prior written consent of the other parties.
11.11 Amendment and Modification. This Agreement may be amended,
modified or supplemented only by written agreement of the parties hereto,
at any time prior to the Effective Time with respect to any of the terms
contained herein.
11.12 Waiver of Compliance. Any term or provision of this
Agreement may be waived, or the time for its performance may be extended
by the party or parties entitled to the benefit thereof. Any such waiver
shall be validly and sufficiently authorized for the purposes of this
Agreement, if, as to any party, it is duly authorized in writing by such
party. The failure of any party hereto to enforce at any time any
provision of this Agreement shall not be construed to be a waiver of such
provision, nor in any way to affect the validity of this Agreement or any
part hereof or the right of any party thereafter to enforce each and every
such provision. No waiver of any breach of this Agreement shall be held
to constitute a waiver of any other such breach.
11.13 No Survival of Representations and Warranties. All of the
representations and warranties made herein shall lapse and terminate at
the Effective Time.
IN WITNESS WHEREOF, each of the undersigned has executed this
Agreement, or caused this Agreement to be executed in its name by its duly
authorized officer, all as of the day and year first above written.
SYKES ENTERPRISES, INCORPORATED
By:
Title:
ISNC ACQUISITION CO.
By:
Title:
INFO SYSTEMS OF NORTH CAROLINA, INC.
By:
Title:
DISCLOSURE SCHEDULES
4.1 Foreign Qualifications
4.2 Shareholders
4.4 Affiliates
4.5 Consents and Approvals
4.7 Financial Statements
4.8 Undisclosed Liabilities
4.9 Taxes
4.10(a) Leased Real Property
4.10(b) Material Fixed Assets
4.10(c) Encumbrances; Condition of Assets
4.11 Absence of Changes
4.12(a) Software Contracts
4.12(b) Intellectual Property
4.12(c) Intellectual Property Encumbrances
4.12(d) Intellectual Property Registrations
4.12(e) Software Copyrights
4.12(f) Violations of Trade Secret Program
4.12(g) Protection of Software and Technical Documentation
4.12(h) Protection of Software
4.12(i) Intellectual Property Claims
4.12(j) Technical Documentation
4.12(k) Software and Technical Documentation Rights
4.12(l) Software Contracts - End User Agreements
4.13(a) Leased Real Property
4.13(b) Leases of Personalty
4.14(a) Bank Accounts
4.14(b) Investments
4.14(c) Ownership of SEi Common Stock
4.15(a) Contracts
4.15(b) Defaults Under Contracts
4.15(c) Customer List
4.16(a) Related Transactions
4.16(b) Business Relationships
4.17 Insurance
4.18(a) Compliance With Employment Laws
4.19(a) Employee Plans
4.19(b) Welfare Plans
4.19(c) Compliance with Laws
4.19(d) No Violations
4.19(e) Employee Benefit Plan Modifications
4.19(h) Multiemployer Plans
4.19(i) Claims
4.19(j) Leased Employees
4.19(k) Employee Plan Copies
4.20 Litigation
4.21 Compliance with Laws
4.22 Environmental Matters
4.22(d) Environmental Permits
4.25 Adequacy of Assets
4.27 Accounts Receivable
4.28 Brokers and Finders
4.29 Restrictive Covenants
4.30 Product Liabilities and Warranties
5.4 Consents and Approvals
5.5 Litigation
5.11 Undisclosed Liabilities
5.12 Absence of Changes
5.13 Compliance with Laws
5.14 Environmental Matters
6.1 Conduct of ISI Business
7.10 Employment Agreements
7.11 Releases
7.15 Loans by Shareholders
<PAGE>
APPENDIX B
TEXT OF CHAPTER 55, ARTICLE 13 OF
THE GENERAL STATUTES OF NORTH CAROLINA
CONCERNING RIGHTS OF DISSENTING SHAREHOLDERS
Section 55-13-01. Definitions
In this Article:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under G.S. 55-13-02 and who exercises that right when and
in the manner required by G.S. 55-13-20 through 55-13-28.
(3) "Fair value", with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the corporate
action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action unless exclusion
would be inequitable.
(4) "Interest" means interest from the effective date of the
corporate action until the date of payment, at a rate that is fair and
equitable under all the circumstances, giving due consideration to the
rate currently paid by the corporation on its principal bank loans, if
any, but not less than the rate provided in G.S. 24-1.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on
file with a corporation.
(6) "Beneficial shareholder" means the person who is a beneficial
owner of shares held in a voting trust or by a nominee as the record
shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
Section 55-13-02. Right to dissent.
(a) In addition to any rights granted under Article 9, a shareholder
is entitled to dissent from, and obtain payment of the fair value of his
shares in the event of, any of the following corporate actions:
(1) Consummation of a plan of merger to which the corporation
(other than a parent corporation in a merger under G.S. 55-11-
04) is a party unless (i) approval by the shareholders of that
corporation is not required under G.S. 55-11-03(g) or (ii)
such shares are then redeemable by the corporation at a price
not greater than the cash to be received in exchange for such
shares;
(2) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be
acquired, unless such shares are then redeemable by the
corporation at a price not greater than the cash to be
received in exchange for such shares.;
(3) Consummation of a sale or exchange of all, or substantially
all, of the property of the corporation other than as
permitted by G.S. 55-12-01, including a sale in dissolution,
but not including a sale pursuant to court order or a sale
pursuant to a plan by which all or substantially all of the
net proceeds of the sale will be distributed in cash to the
shareholders within one year after the date of sale;
(4) An amendment of the articles of incorporation that materially
and adversely affects rights in respect of a dissenter's
shares because it (i) alters or abolishes a preferential right
of the shares; (ii) creates, alters, or abolishes a right in
respect of redemption, including a provision respecting a
sinking fund for the redemption or repurchase, of the shares;
(iii) alters or abolishes a preemptive right of the holder of
the shares to acquire shares or other securities; (iv)
excludes or limits the right of the shares to vote on any
matter, or to cumulate votes; (v) reduces the number of shares
owned by the shareholder to a fraction of a share if the
fractional share so created is to be acquired for cash under
G.S. 55-6-04; or (vi) changes the corporation into a nonprofit
corporation or cooperative organization;
(5) Any corporate action taken pursuant to a shareholder vote to
the extent the articles of incorporation, bylaws, or a
resolution of the board of directors provides that voting or
nonvoting shareholders are entitled to dissent and obtain
payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for his
shares under this Article may not challenge the corporate action creating
his entitlement, including without limitation a merger solely or partly in
exchange for cash or other property, unless the action is unlawful or
fraudulent with respect to the shareholder or the corporation.
Section 55-13-03. Dissent by nominees and beneficial owners.
(a) A record shareholder may assert dissenter's rights as to fewer
than all the shares registered in his name only if he dissents with
respect to all shares beneficially owned by any one person and notifies
the corporation in writing of the name and address of each person on whose
behalf he asserts dissenter's rights. The rights of a partial dissenter
under this subsection are determined as if the shares as to which he
dissents and his other shares were registered in the names of different
shareholders.
(b) A beneficial shareholder may assert dissenter's rights as to
shares held on his behalf only if:
(1) He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial
shareholder asserts dissenter's rights; and
(2) He does so with respect to all shares of which he is the
beneficial shareholder.
Section 55-13-20. Notice of dissenter's rights.
(a) If proposed corporate action creating dissenter's rights under
G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, the
meeting notice must state that shareholders are or may be entitled to
assert dissenter's rights under this Article and be accompanied by a copy
of this Article.
(b) If corporate action creating dissenter's rights under G.S. 55-
13-02 is taken without a vote of shareholders, the corporation shall no
later than 10 days thereafter notify in writing all shareholders entitled
to assert dissenter's rights that the action was taken and send them the
dissenters' notice described in G.S. 55-13-22.
(c) If a corporation fails to comply with the requirements of this
section, such failure shall not invalidate any corporate action taken; but
any shareholder may recover from the corporation any damage which he
suffered from such failure in a civil action brought in his own name
within three years after the taking of the corporate action creating
dissenter's rights under G.S. 55-13-02 unless he voted for such corporate
action.
Section 55-13-21. Notice of intent to demand payment.
(a) If proposed corporate action creating dissenter's rights under
G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, a
shareholder who wishes to assert dissenter's rights:
(1) Must give to the corporation, and the corporation must
actually receive, before the vote is taken written notice of
his intent to demand payment for his shares if the proposed
action is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of
subsection (a) is not entitled to payment for his shares under this
Article.
Section 55-13-22. Dissenters' notice.
(a) If proposed corporate action creating dissenter's rights under
G.S. 55-13-02 is authorized at a shareholders' meeting, the corporation
shall mail by registered or certified mail, return receipt requested, a
written dissenters' notice to all shareholders who satisfied the
requirements of G.S. 55-13-21.
(b) The dissenters' notice must be sent no later than 10 days after
the corporate action was taken, and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment
demand is received;
(3) Supply a form for demanding payment;
(4) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than 30 nor more than 60
days after the date the subsection (a) notice is mailed; and
(5) Be accompanied by a copy of this Article.
Section 55-13-23. Duty to demand payment.
(a) A shareholder sent a dissenters' notice described in G.S. 55-13-
22 must demand payment and deposit his share certificates in accordance
with the terms of the notice.
(b) The shareholder who demands payment and deposits his share
certificates under subsection (a) retains all other rights of a
shareholder until these rights are canceled or modified by the taking of
the proposed corporate action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for his shares under this Article.
Section 55-13-24. Share restrictions.
(a) The corporation may restrict the transfer of uncertificated
shares from the date the demand for their payment is received until the
proposed corporate action is taken or the restrictions released under G.S.
55-13-26.
(b) The person for whom dissenter's rights are asserted as to
uncertificated shares retains all other rights of a shareholder until
these rights are cancelled or modified by the taking of the proposed
corporate action.
Section 55-13-25. Offer of payment.
(a) As soon as the proposed corporate action is taken, or upon
receipt of a payment demand, the corporation shall offer to pay each
dissenter who complied with G.S. 55-13-23 the amount the corporation
estimates to be the fair value of his shares, plus interest accrued to the
date of payment, and shall pay this amount to each dissenter who agrees in
writing to accept it in full satisfaction of his demand.
(b) The offer of payment must be accompanied by:
(1) The corporation's most recent available balance sheet as of
the end of a fiscal year ending not more than 16 months before
the date of offer of payment, an income statement for that
year, a statement of cash flows for that year, and the latest
available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair value of
the shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under
G.S. 55-13-28; and
(5) A copy of this Article.
Section 55-13-26. Failure to take action.
(a) If the corporation does not take the proposed action within 60
days after the date set for demanding payment and depositing share
certificates, the corporation shall return the deposited certificates and
release the transfer restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a
new dissenters' notice under G.S. 55-13-22 and repeat the payment demand
procedure.
Section 55-13-27: Reserved for future codification purposes.
Section 55-13-28. Procedure if shareholder dissatisfied with
corporation's offer or failure to perform.
(a) A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and amount of interest due, and
demand payment of his estimate or reject the corporation's offer under
G.S. 55-13-25 and demand payment of the fair value of his shares and
interest due, if:
(1) The dissenter believes that the amount offered under G.S. 55-
13-25 is less than the fair value of his shares or that the
interest due is incorrectly calculated;
(2) The corporation fails to make payment to a dissenter who
accepts the corporation's offer under G.S. 55-13-25 within 30
days after the dissenter's acceptance; or
(3) The corporation, having failed to take the proposed action,
does not return the deposited certificates or release the
transfer restrictions imposed on uncertificated shares within
60 days after the date set for demanding payment.
(b) A dissenter waives his right to demand payment under this
section unless he notifies the corporation of his demand in writing (i)
under subdivision (a)(1) within 30 days after the corporation offered
payment for his shares or (ii) under subdivisions (a)(2) and (a)(3) within
30 days after the corporation has failed to perform timely. A dissenter
who fails to notify the corporation of his demand under subsection (a)
within such 30-day period shall be deemed to have withdrawn his dissent
and demand for payment.
Section 55-13-30. Court action.
(a) If a demand for payment under G.S. 55-13-28 remains unsettled,
the dissenter may commence a proceeding within 60 days after the date of
his payment demand under G.S. 55-13-28 and petition the court to determine
the fair value of the shares and accrued interest. Upon service upon it
of the petition filed with the court, the corporation shall pay to the
dissenter the amount offered by the corporation under G.S. 55-13-25.
(a) If the dissenter does not commence the proceeding within the 60-
day period, the dissenter shall have an additional 30 days to either (i)
accept in writing the amount offered by the corporation under G.S. 55-13-
25, upon which the corporation shall pay such amount to the dissenter in
full satisfaction of his demand, or (ii) withdraw his demand for payment
and resume the status of a nondissenting shareholder. A dissenter who
takes no action within such 30-day period shall be deemed to have
withdrawn his dissent and demand for payment.
(b) Reserved for future codification purposes.
(c) The court shall have the discretion to make all dissenters
(whether or not residents of this State) whose demands remain unsettled
parties to the proceeding as in action against their shares and all
parties must be served with a copy of the petition. Nonresidents may be
served by registered or certified mail or by publication as provided by
law.
(d) The jurisdiction of the court in which the proceeding is
commenced under subsection (b) is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and
recommend decision on the question of fair value. The appraisers have the
powers described in the order appointing them, or in any amendment to it.
The parties are entitled to the same discovery rights as parties in other
civil proceedings. However, in a proceeding by a dissenter in a public
corporation, there is no right to a trial by jury.
(e) Each dissenter made a party to the proceeding is entitled to
judgment for the amount, if any, by which the court finds the fair value
of his shares, plus interest, exceeds the amount paid by the corporation.
Section 55-13-31. Court costs and counsel fees.
(a) The court in an appraisal proceeding commenced under G.S. 55-13-
30 shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court, and shall
assess the costs as it finds equitable.
(b) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters
if the court finds the corporation did not substantially
comply with the requirements of G.S. 55-13-20 through 55-13-
28; or
(2) Against either the corporation or a dissenter, in favor of
either or any other party, if the court finds that the party
against whom the fees and expenses are assessed acted
arbitrarily, vexatiously, or not in good faith with respect to
the rights provided by this Article.
(c) If the court finds that the services of counsel for any
dissenter were of substantial benefit to other dissenters similarly
situated, and that the fees for those services should not be assessed
against the corporation, the court may award to these counsel reasonable
fees to be paid out of the amounts awarded the dissenters who were
benefitted.
