UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: September 26, 1997
(Date of the earliest event reported)
SYKES ENTERPRISES, INCORPORATED
(Exact name of Registrant as specified in its charter)
Florida 0-28274 56-1383460
(State or other juris- (Commission (I.R.S. Employer
diction of incorporation) File Number) Identification Number)
100 North Tampa Street, Suite 3900
Tampa, Florida 33602-5089
(Address of principal executive offices) (Zip Code)
813-274-1000
Registrant's telephone number, including area code
<PAGE> 1
ITEM 5. OTHER EVENTS
On September 26, 1997, Sykes Enterprises, Incorporated ("Sykes" or the
"Company") acquired, through its wholly owned German subsidiary Sykes
Enterprises GmbH ("Sykes Germany"), all of the outstanding equity
interests of TAS Telemarketing Gesellschaft Fur Kommunikation und Dialog
mbH, a limited liability company organized under the laws of the Federal
Republic of Germany ("TAS I"), pursuant to an Acquisition Agreement dated
September 19, 1997 among the Company, Sykes Germany and Alfons Bromkamp
and Christian Frohlich, the shareholders of TAS I (collectively, the "TAS
I Sellers"). In exchange for their shares of TAS I, the Sellers received
a total of 400,000 unregistered shares of the Company's common stock, $.01
par value per share ("Common Stock").
Also on September 26, 1997, the Company acquired, through Sykes Germany,
all of the outstanding equity interests of TAS Hedi Fabinyi GmbH
Telemarketing und Kommunikationskonzepte, a limited company organized
under the laws of the Federal Republic of Germany ("TAS II"), pursuant to
an Acquisition Agreement dated September 25, 1997 among the Company, Sykes
Germany and Hedi Fabinyi, the sole shareholder of TAS II (the "TAS II
Seller" and, collectively with the TAS I Sellers, the "Sellers"). In
exchange for her TAS II shares, the TAS II Seller received 180,000
unregistered shares of Common Stock.
The amount of consideration paid to the Sellers was determined through
arms length negotiations with the Sellers on the basis of TAS I and TAS II
as going concerns, and by strategic considerations. As part of the
transactions, the Sellers received certain registration rights with
respect to fifty percent of their Common Stock.
TAS I and TAS II are based in Bochum, Germany and Stuttgart, Germany,
respectively. The companies provide technical call center support and
customer care services, database development, consulting and training
services on a "for hire" basis to customers in Germany and surrounding
countries. TAS I and TAS II will continue their present operations as
operating subsidiaries of Sykes Germany.
These combinations were accounted for utilizing the pooling-of-interests
method of accounting. Sykes has previously filed its Form 10-Q for the
nine months ended September 28, 1997 which reflected the TAS I and TAS II
transactions on a restated basis. Accordingly, the accompanying
consolidated Selected Financial Data, Management's Discussion and Analysis
of Financial Condition and Results of Operations, and Consolidated
Financial Statements as of December 1995 and 1996 and for the year ended
July 31, 1994, the five months ended December 31, 1994, and for the years
ended December 31, 1995 and 1996 have been restated to give retroactive
effect to the combination with TAS I and TAS II and include the combined
operations of Sykes, TAS I and TAS II for all periods presented.
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial statements of business acquired.
Not applicable
(b) Pro Forma financial information
Not applicable
(c) Exhibits
2.1 Acquisition Agreement, dated September 19, 1997, by and among the
holders of all of the capital interests of TAS Telemarketing
Gesellschaft Fur Kommunikation und Dialog mbH, Sykes Enterprises,
GmbH, and Sykes Enterprises, Incorporated. The schedules and
exhibits to this document are not being filed herewith. Sykes
Enterprises, Incorporated agrees to furnish supplementary copies of
such schedules and exhibits to the Securities and Exchange Commission
upon request. (filed herewith)
2.2 Acquisition Agreement, dated September 25, 1997, by and among the
holders of all of the capital interests of TAS Hedi Fabinyi GmbH,
Sykes Enterprises, GmbH, and Sykes Enterprises, Incorporated. The
schedules and exhibits to this document are not being filed herewith.
Sykes Enterprises, Incorporated agrees to furnish supplementary
copies of such schedules and exhibits to the Securities and Exchange
Commission upon request. (filed herewith)
23.1 Consent of Coopers & Lybrand L.L.P.
27.1 Financial Data Schedule (for SEC use only).
<PAGE> 3
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SYKES ENTERPRISES, INCORPORATED
By:/s/ Scott J. Bendert
Scott J. Bendert
Senior Vice President-Finance
and Treasurer
Date: February 11, 1998
<PAGE> 4
SYKES ENTERPRISES, INCORPORATED
INDEX TO RESTATED FINANCIAL STATEMENTS
Page Number
Selected Financial Data.................................... 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 6
Report of Independent Accountants.......................... 12
Consolidated Financial Statements.......................... 13
Notes to Consolidated Financial Statements................. 17
<PAGE> 5
SYKES ENTERPRISES, INCORPORATED
Selected Financial Data
The following selected financial data has been derived from the Company's
consolidated financial statements. The information below should be read
in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the Company's Consolidated
Financial Statements and related notes.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended 5 Months Ended Year Ended Year Ended
July 31, July 31, July 31, December 31, December 31, December 31,
1992 1993 1994 1994 1995 1996
----------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
Statement of Income Data:
<S> <C> <C> <C> <C> <C> <C>
Revenue $62,814 $76,379 $79,752 $41,420 $107,894 $160,011
Income from
operations 2,563 1,865 1,518 1,624 4,593 13,325
Net income(1) 1,515 339 428 510 1,821 8,563
Per Share Data:
Net income(1) $0.05 $0.00 $0.02 $0.02 $0.07 $0.26
July 31, July 31, July 31, December 31, December 31, December 31,
1992 1993 1994 1994 1995 1996
----------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
Balance Sheet Data:
Working capital $ 7,570 $ 4,611 $ 4,655 $ 6,442 $ 271 $110,333
Total assets 22,971 23,251 30,001 38,643 56,577 178,526
Long term debt, less
current maturities 2,517 2,967 5,546 8,920 9,584 1,567
Shareholder's equity 7,302 7,257 8,964 9,760 12,375 137,087
</TABLE>
________________
(1) Adjusted as if an affiliate of the Company included in the
consolidated financial statements, which was an S corporation for
federal income tax purposes, were subject to income taxes for all
periods presented, based on the tax laws in effect during the
respective periods.
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following should be read in conjunction with the Consolidated
Financial Statements, including the notes thereto. The Company completed
business combinations with TAS Telemarketing Gesellschaft fur
Kommunications mbH ("TAS I") and TAS Hedi Fabinyi GmbH on September 26,
1997. These combinations were accounted for utilizing the pooling-of-
interests method of accounting. Effective August 1, 1994, the Company
changed its fiscal year end from July 31 to December 31. The following
discussion compares the twelve months ended December 31, 1996 ("1996") to
the twelve months ended December 31, 1995 ("1995"), and 1995 to the twelve
months ended December 31, 1994 ("1994"). See Note 16 of Notes to
Consolidated Financial Statements for the corresponding selected
consolidated financial data. The following discussion and analysis
contains forward-looking statements that involve risks and uncertainties.
Future events and the Company's actual results could differ materially
from the results reflected in these forward-looking statements, as a
result of certain of the factors set forth below and elsewhere in this
analysis.
Overview
The Company derives its revenues from providing information
technology ("IT") support services and information technology development
services and solutions. Revenues from information technology support
services provided through the IT call centers and the sale of diagnostic
software are recognized as services are rendered. These services are
billed on a fee per call, rate per minute, time and material or unit
basis. Information technology development services and solutions usually
are billed on a time and material basis, generally by the hour, and
revenues generally are recognized as the services are provided. Software
licensing fees are recognized as revenue when the related software is
delivered. Revenues from fixed price contracts, generally with terms of
less than one year, are recognized using the percentage-of-completion
method. Most of the Company's revenues are derived from non-fixed price
contracts. The Company has not experienced material losses due to fixed
price contracts and does not anticipate a significant increase in revenues
derived from such contracts in the future. Revenues from these
information technology services have increased significantly from $77.9
million in 1994 to $159.6 million in 1996.
In 1993, in an effort to capitalize on a trend toward the outsourcing
of information technology services, the Company began providing
information technology support services through the opening of IT call
centers while phasing out its non-information technology services.
Revenues from these services decreased $5.0 million from 1994 to 1995 and
decreased $4.1 million from 1995 to 1996. The phase-out of these services
was substantially completed in 1995.
Direct salaries and related costs includes direct personnel
compensation, statutory and other benefits associated with such personnel
and other direct costs associated with providing services to customers.
General and administrative expenses include administrative, sales and
marketing, occupancy and other indirect costs. General and administrative
costs incurred in opening new IT call centers are expensed when incurred.
Interest and other income (expense) consists primarily of interest expense
and foreign currency transaction gains and losses. Foreign currency
transaction gains and losses generally result from exchange rate
fluctuations on intercompany transactions.
Grants from local or state governments for the acquisition of
property and equipment are deferred and recognized as income over the
<PAGE> 7
corresponding useful lives of the related property and equipment. The
deferred grants, net of amortization, totaled $6.8 million and $11.7
million at December 31, 1995 and 1996, respectively.
The Company's effective tax rate for the periods presented reflects
the effects of foreign taxes, net of foreign income not taxed in the
United States, nondeductible expenses for income tax purposes and the
provision of potential additional income tax liability resulting from an
Internal Revenue Service examination currently being conducted. The
Company believes its reserves for any liability that may result from this
examination are adequate.
Results of Operations
The following table sets forth for the periods indicated the
percentage of revenues represented by certain items reflected in the
Company's statements of income:
<TABLE>
<CAPTION>
Percentage of Revenues Years Ended December 31,
---------------------- ------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Direct salaries and related costs 65.1 62.6 59.3
General and administrative(1) 31.4 33.2 32.4
----- ----- -----
Income from operations 3.5 4.3 8.3
Interest and other income (expense) (0.5) (0.8) 0.4
----- ----- -----
Income before income taxes 3.0 3.5 8.7
Provision for income taxes(2) 1.5 1.8 3.3
----- ----- -----
Net income(1)(2) 1.5% 1.7% 5.4%
===== ===== =====
</TABLE>
________________
(1) Includes non-cash compensation expense of 0.9% related to the grant
of stock options to an executive officer in 1995.
(2) Adjusted as if an affiliate of the Company included in the
consolidated financial statements, which was an S corporation for
federal income tax purposes, were subject to income taxes for all
periods presented, based on the tax laws in effect during the
respective periods. See Note 15 of Notes to Consolidated Financial
Statements.
1996 Compared to 1995
Revenues. Revenues increased $52.1 million, or 48.3%, to
$160.0 million in 1996 from $107.9 million in 1995. These results reflect
an increase in revenues of $48.4 million from information technology
support services provided through IT call centers and an increase in
revenues of $7.8 million from information technology services and
solutions, partially offset by a $4.1 million reduction in revenues from
non-information technology services that were substantially phased out in
1995.
The increase in information technology support services revenues was
primarily attributable to an increase in the number of IT call centers
providing services throughout the period, the addition of several
significant customers since 1995 and the resultant increase in call
volumes from clients. During the fourth quarter of 1995, the Company
opened two new IT call centers which were fully operational throughout
1996, and opened three additional centers in 1996. In addition, the
Company has added 36 customers in its information technology support
services since the beginning of 1995, giving it 58 customers that utilized
<PAGE> 8
these services as of December 31, 1996. The increase in revenues for
information technology services and solutions was primarily attributable
to the increase in hours billed to customers for professional services
when compared to the prior period.
Direct Salaries and Related Costs. Direct salaries and related costs
increased $27.3 million, or 40.4%, to $94.8 million in 1996 from $67.5
million in 1995. As a percentage of revenues, however, direct salaries
and related costs decreased to 59.3% in 1996 from 62.6% in the comparable
1995 year. The increase in the amount of direct salaries and related
costs was attributable to the addition of personnel to support revenue
growth. The decrease as a percentage of revenues resulted from economies
of scale associated with spreading costs over a larger revenue base and
the continued change in the Company's mix of business reflecting the
growth of information technology support services as a percentage of
consolidated results.
General and Administrative. General and administrative expenses
increased 45.0% to $51.9 million in 1996 from $35.8 million in 1995. As a
percentage of revenues, however, general and administrative expenses
decreased to 32.4% in 1996 from 33.2% in 1995. The increase in the amount
of general and administrative expenses was primarily attributable to the
addition of management and administrative personnel to support the
Company's growth and depreciation expenses associated with facility and
capital equipment expenditures incurred in connection with the IT call
centers.
Interest and Other Income. Interest and other income increased to
$649,000 during 1996 from interest and other expense of $786,000 during
1995. As a percentage of revenues, interest and other income was 0.4% in
1996 from interest and other expense of 0.8% in 1995. The increase was
primarily attributable to an increase in the Company's cash position as a
result of public offerings completed during 1996. The Company repaid all
amounts outstanding under bank borrowing arrangements and invested the
remaining net proceeds of the offerings in short term investment grade
securities and money market instruments.
Income Taxes. Income taxes increased $3.4 million, or 170.0%, to
$5.4 million during 1996 from $2.0 million during 1995, and increased as a
percentage of revenues to 3.3% from 1.8%, respectively. This increase was
attributable to the significant increase in the amount of income before
income taxes and in income before income taxes as a percentage of
revenues. However, the Company's marginal tax rate decreased to 38.4%
during 1996 primarily as a result of nondeductible expenses being a lower
percentage of the larger income before income taxes and tax-exempt
interest income.
Net Income. As a result of the foregoing, net income increased to
$8.6 million in 1996 from $1.8 million in 1995.
1995 Compared to 1994
Revenues. Revenues increased $20.5 million, or 23.4%, to $107.9
million in 1995 from $87.4 million in 1994. These results reflect an
increase in revenues of $24.8 million from information technology support
services provided through IT call centers and an increase in revenues of
$0.7 million from information technology services and solutions. These
increases were partially offset by a $5.0 million reduction in revenues
from the non-information technology services that were substantially
phased out in 1995.
The increase in information technology support services revenues was
primarily attributable to an increase in the number of IT call centers
providing services throughout the year, the addition of several
significant customers and the resultant increase in call volumes from
<PAGE> 9
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 18.5% to $67.5 million in 1995 from $56.9 million in 1994. As a
percentage of revenues, however, direct salaries and related costs
decreased to 62.6% in 1995 from 65.1% 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 30.4% to $35.8 million in 1995 from $27.5 million in 1994. As a
percentage of revenues, general and administrative expenses increased to
33.2% in 1995 from 31.4% 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.
Interest and Other Expense. Interest and other expense increased
94.8% to $786,000 in 1995 from $403,000 in 1994, and increased as a
percentage of revenues to 0.7% from 0.5% respectively. The increase was
primarily attributable to an increase in the Company's borrowings and
increased rates of interest on such borrowings during 1995. The Company's
borrowings increased to $13.7 million at December 31, 1995 from $11.1
million at December 31, 1994, primarily as a result of capital
expenditures required for the IT call centers.
Income Taxes. Income taxes increased $0.7 million, or 49.3%, to $2.0
million during 1995 from $1.3 million in 1994, and increased as a
percentage of revenues to 1.8% from 1.5%, respectively. This increase was
attributable to the significant increase in the amount of income before
income taxes and in income before income taxes as a percentage of
revenues. In addition, the Company's marginal tax rate increased to 52.2%
in 1995 primarily as a result of nondeductible expenses being a higher
percentage of the larger income before income taxes.
Net Income. As a result of the foregoing, net income increased to
$1.8 million in 1995 from $1.3 million in 1994.
Quarterly Results
The following information presents unaudited quarterly operating
results for the Company for 1995 and 1996. The data has been prepared by
the Company on a basis consistent with the Consolidated Financial
Statements included elsewhere in this Form 10-K, and include all
adjustments, consisting of normal recurring accruals, that the Company
considers necessary for a fair presentation thereof. These operating
results are not necessarily indicative of the Company's future
performance.
<PAGE> 10
<TABLE>
<CAPTION>
Quarter Ended
-------------
4/2/95 7/2/95 10/1/95 12/31/95 3/31/96 6/30/96 9/29/96 12/31/96
------ ------ ------- -------- ------- ------- ------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $22,273 $25,271 $26,696 $33,654 $34,716 $36,228 $40,656 $48,411
Direct salaries
and related costs 14,556 16,383 15,769 20,784 20,006 21,337 24,437 29,050
General and
administrative(1) 7,242 7,993 8,845 11,728 11,636 11,675 12,452 16,093
Income from
operations 475 895 2,082 1,142 3,074 3,216 3,767 3,268
Interest and
other income
(expense) (113) (248) (255) (170) (312) 100 282 579
Income before
income taxes 362 647 1,827 972 2,762 3,316 4,049 3,847
Provision for
income taxes(2) 189 371 850 577 945 1,428 1,494 1,497
------ ------ ------ ------ ------ ------ ------ ------
Net income(2) $ 173 $ 276 $ 977 $ 395 $ 1,817 $ 1,888 $ 2,555 $ 2,350
====== ====== ====== ====== ====== ====== ====== ======
Net income per
share(2) $ 0.01 $ 0.01 $ 0.04 $ 0.01 $ 0.07 $ 0.06 $ 0.08 $ 0.07
====== ====== ====== ====== ====== ====== ====== ======
Weighted average
shares outstanding 27,791 27,791 27,791 27,791 27,791 30,705 34,014 35,714
</TABLE>
________________
(1) Includes non-cash compensation expense of $949,960 related to the
grant of stock options to an executive officer in the quarter ended
December 31, 1995. Excluding the effect of such expense, income from
operations, income before income taxes, and net income for the
quarter ended December 31, 1995 would have been $2.1 million, $1.9
million and $0.9 million, respectively, and net income per share
would have been $0.03.
(2) Adjusted as if an affiliate of the Company included in the
consolidated financial statements, which was an S corporation for
federal income tax purposes, were subject to income taxes for all
periods presented, based on the tax laws in effect during the
respective periods. See Note 15 of Notes to Consolidated Financial
Statements.
Liquidity and Capital Resources
The Company's primary sources of liquidity are equity offerings, cash
flows from operations and available borrowings under its credit facility.
The net proceeds to the Company of $39.7 million from its April 1996
initial public offering were used to repay debt and make capital
expenditures. In November 1996, the Company received proceeds, net of
offering expenses, of $71.5 million from the sale of approximately 2.4
million shares of common stock pursuant to a secondary offering. The
Company intends to utilize these proceeds and the balance of the funds
available from the initial public offering to make additional capital
expenditures associated primarily with its technical support services as
identified above, and for working capital and general corporate purposes,
including possible acquisitions. Pending any such use, the Company will
invest the balance of such funds in short-term, investment grade
securities or money market instruments.
In December 1995, the Company entered into a $20.0 million credit
facility. This facility consisted of a revolving line of credit of $12.0
million and an $8.0 million term loan maturing in May 1997. In addition,
in 1994 the Company obtained a $1.3 million loan to construct one of the
IT call centers. The Company used approximately $16.7 million of the net
proceeds of its April 1996 initial public offering to repay all amounts
outstanding under the Company's bank borrowings, and no bank borrowings
are currently outstanding. Subsequent to the 1996 year end, the Company
entered into an agreement replacing its previous credit line with an
unsecured revolving $25.0 million facility. This new facility accrues
<PAGE> 11
borrowings at tiered levels between 125 and 200 basis points above listed
Libor pursuant to a defined ratio calculation within the agreement. The
facility matures in June 1998, and contains certain covenants associated
with tangible net worth, debt and debt funding as defined by the
agreement.
During 1996, a subsidiary of the Company entered into a $2.0 million
and a $1.25 million credit facility. These facilities consisted of a
revolving line of credit maturing in November 1997. Both of these credit
facilities were canceled subsequent to December 31, 1996.
During 1996, the Company generated approximately $1.3 million from
operating activities, resulting primarily from an increase in the
Company's accounts receivable associated with continued growth and
resultant effects in mix of business, and a decrease in accounts payable,
primarily in the first calendar quarter of 1996, from the payment of
uncommonly large fourth quarter 1995 purchases. The Company has used a
portion of its proceeds from its initial public offering, together with
$5.3 million received as incentive grants from local and state
governmental agencies, to fund $20.9 million of capital expenditures in
1996 predominantly to construct and outfit three new IT call centers. As
a result of the Company's continued expansion, it is anticipated that 1997
capital expenditures will be approximately $19.0 million, primarily for
completing additional IT call centers. Each IT call center requires
approximately $2.0 million to construct and approximately $5.0 million of
capital expenditures to complete the build-out and equip the center.
During 1996, the Company increased its European technical support
presence and acquired additional sophisticated information technology
capabilities to enhance its technical support services through the
acquisitions of Datasvar Support AB and Diagsoft, Inc. ("the
acquisitions"). The purchase price for the acquisitions was approximately
1,383,000 shares of the Company's common stock, and were accounted for
using the pooling-of-interests method of accounting.
Subsequent to December 31, 1996, the Company acquired Info Systems of
North Carolina, Inc. and Telcare Gesellschaft fur Telekommunikations-
Mehrwertdieste mbH, TAS Telemarketing Gesellschaft fur Kommunikations und
Dialog mbH and TAS Hedi Fabinyi GmbH. The aggregate purchase price for
these acquisitions was approximately 2,480,000 shares of the Company's
common stock, and were accounted for using the pooling-of-interests method
of accounting.
During 1995, the Company generated $7.5 million in cash from
operations. The cash generated during 1995, together with $2.5 million in
net borrowings and $2.6 million received as incentive grants from local
and state governmental agencies in connection with additional IT call
centers, was used to fund $15.5 million of capital expenditures during
1995. Capital expenditures, which consisted primarily of construction of
facilities, information technology, telecommunications equipment and
computer systems, and furniture and fixtures, were made to support the
continued growth and expansion of the IT call centers.
The Company believes that the net proceeds from its secondary
offering, combined with available amounts of cash, accessible funds under
its credit facilities and cash flows from operations, will be adequate to
meet its capital requirements for the foreseeable future.
<PAGE> 12
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Sykes Enterprises, Incorporated
We have audited the accompanying consolidated balance sheets of Sykes
Enterprises, Incorporated and subsidiaries as of December 31, 1995 and
December 31, 1996, and the related consolidated statements of income,
changes in shareholders' equity and cash flows for the year ended July 31,
1994, the five months ended December 31, 1994 and the years ended December
31, 1995 and 1996. We have also audited the financial statement schedule
on page 34 of this Form 8-K. These financial statements and financial
statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Sykes
Enterprises, Incorporated and subsidiaries as of December 31, 1995 and
1996 and the consolidated results of their operations and their cash flows
for the year ended July 31, 1994, the five months ended December 31, 1994,
and the years ended December 31, 1995 and 1996, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in
relation to the basic financial statements taken as a whole, presents
fairly, in all material respects, the information required to be included
therein.
Coopers & Lybrand L.L.P.
Tampa, Florida
February 11, 1998
<PAGE> 13
SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................... $ 2,972,008 $ 89,995,036
Receivables, including unbilled............................. 23,240,139 42,747,997
Prepaid expenses and other current assets................... 1,925,739 2,328,943
----------- -----------
Total current assets....................................... 28,137,886 135,071,976
Property and equipment, net.................................. 26,824,638 41,428,511
Deferred charges and other assets............................ 1,614,005 2,025,759
----------- -----------
$ 56,576,529 $178,526,246
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current installments of long-term debt...................... $ 4,071,207 $ 1,776,724
Accounts payable............................................ 8,261,179 7,943,990
Accrued employee compensation and benefits.................. 7,349,467 9,633,846
Deferred income taxes....................................... 3,478,230 -
Other accrued expenses and current liabilities.............. 4,706,375 5,384,268
----------- ------------
Total current liabilities.................................. 27,866,458 24,738,828
Long-term debt............................................... 9,583,528 1,566,706
Deferred income taxes........................................ - 3,464,045
Deferred grants.............................................. 6,751,782 11,669,273
Commitments and contingencies (Notes 2, 9 and 17) - -
Shareholders' equity
Preferred stock, $0.01 par value, 10,000,000 shares
authorized; no shares issued and outstanding............... - -
Common stock, $.01 par value; 200,000,000 shares authorized;
23,662,394 and 35,320,392 issued and outstanding........... 236,624 353,204
Additional paid-in capital.................................. 3,326,689 124,915,912
Retained earnings........................................... 9,991,759 11,827,138
Unearned compensation....................................... (1,338,041) -
Accumulated foreign currency translation adjustments........ 157,730 (8,860)
----------- ------------
Total shareholders' equity................................. 12,374,761 137,087,394
----------- ------------
$ 56,576,529 $ 178,526,246
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 13
SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Five Months
Year Ended Ended Year Ended Year Ended
July 31, December 31, December 31, December 31,
1994 1994 1995 1996
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues................................... $ 79,752,122 $ 41,420,242 $ 107,894,184 $ 160,010,501
------------ ------------ ------------- -------------
Operating expenses
Direct salaries and related costs......... 50,832,245 28,300,900 67,492,462 94,829,595
General and administrative................ 27,402,222 11,494,882 35,808,360 51,856,353
------------ ------------ ------------- -------------
Total operating expenses................. 78,234,467 39,795,782 103,300,822 146,685,948
------------ ------------ ------------- -------------
Income from operations..................... 1,517,655 1,624,460 4,593,362 13,324,553
Other income (expense)
Interest income........................... - - - 945,411
Interest expense.......................... (491,474) (292,932) (963,356) (789,057)
Other..................................... 505,344 (70,094) 177,347 492,533
------------ ------------ ------------- -------------
Total other income (expense)............. 13,870 (363,026) (786,009) 648,887
------------ ------------ ------------- -------------
Income before income taxes................. 1,531,525 1,261,434 3,807,353 13,973,440
Provision for income taxes
Current................................... 258,277 1,152,320 558,757 5,310,665
Deferred.................................. 806,224 (439,959) 1,255,753 (14,185)
------------ ------------ ------------- -------------
Total provision for income taxes......... 1,064,501 712,361 1,814,510 5,296,480
------------ ------------ ------------- -------------
Net income................................. 467,024 549,073 1,992,843 8,676,960
Preferred stock dividends.................. - - - (47,343)
------------ ------------ ------------- -------------
Net income applicable to
common shareholders....................... $ 467,024 $ 549,073 $ 1,992,843 $ 8,629,617
============ ============ ============= =============
Pro forma income data (unaudited)
Income before income taxes................. $ 1,531,525 $ 1,261,434 $ 3,807,353 $ 13,973,440
Pro forma provision for income taxes
relating to S corporation................. 39,000 39,000 172,000 67,000
Actual provision for income taxes.......... 1,064,501 712,361 1,814,510 5,296,480
------------ ------------ ------------- -------------
Total provision and pro forma
provision for income taxes.............. 1,103,501 751,361 1,986,510 5,363,480
------------ ------------ ------------- -------------
Pro forma net income....................... 428,024 510,073 1,820,843 8,609,960
Preferred stock dividends.................. - - - (47,343)
------------ ------------ ------------- -------------
Pro forma net income applicable
to common shareholders.................... $ 428,024 $ 510,073 $ 1,820,843 $ 8,562,617
============ ============ ============= =============
Pro forma net income per share............. $ 0.02 $ 0.02 $ 0.07 $ 0.26
============ ============ ============= =============
Pro forma weighted average common and
common equivalent shares outstanding...... 27,790,638 27,790,638 27,790,638 32,416,442
============ ============ ============= =============
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 15
SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Foreign
Additional Currency
Common Stock Paid-In Retained Unearned Translation
Shares Amount Capital Earnings Compensation Adjustment
------ ------ ---------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at August 1, 1993......... 23,929,914 $ 239,299 $ 2,374,722 $ 7,367,051 $ (2,721,607) $ (2,413)
Contribution to capital.......... - - 350,000 - - -
Redemption of common stock....... (545,193) (5,452) (94,549) - - -
Issuance of common stock......... 92,556 926 590,333 - - -
Foreign currency translation
adjustment...................... - - - (21,402) - (34,355)
Distribution..................... - - - - - -
Unearned employee
compensation from Employee
Stock Ownership Plan Trust...... - - - - 454,015 -
Net income....................... - - - 467,024 - -
---------- -------- ------------- ---------- ----------- --------
Balance at July 31, 1994.......... 23,477,277 234,773 3,220,506 7,812,673 (2,267,592) (36,768)
Issuance of common stock......... - - 94,065 - - -
Foreign currency translation
adjustment...................... - - - - - 18,689
Distribution..................... - - - (51,378) - -
Unearned employee
compensation from Employee
Stock Ownership Plan Trust...... - - - - 185,981 -
Net income....................... - - - 549,073 - -
---------- -------- ------------- ---------- ----------- --------
Balance at December 31, 1994...... 23,477,277 234,773 3,314,571 8,310,368 (2,081,611) (18,079)
Issuance of common stock......... 62,013 620 102,477 - - -
Repurchase of common stock....... - - (89,128) - - -
Stock dividend................... 123,104 1,231 (1,231) - - -
Foreign currency translation
adjustment...................... - - - - - 175,809
Distribution..................... - - - (311,452) - -
Unearned employee
compensation from Employee
Stock Ownership Plan Trust...... - - - - 743,570 -
Net income....................... - - - 1,992,843 - -
---------- -------- ------------- ---------- ----------- --------
Balance at December 31, 1995...... 23,662,394 236,624 3,326,689 9,991,759 (1,338,041) 157,730
Merger with Sykes Realty, Inc.... 1,830,000 18,300 247,266 (827,554) - -
Conversion of redeemable
preferred stock................. 448,029 4,480 5,371,872 (5,376,352) - -
Issuance of common stock......... 6,427,632 64,277 112,275,824 - - -
Repurchase of common stock....... - - (142,702) - - -
Three-for-two stock split........ 2,952,337 29,523 (29,523) - - -
Distribution..................... - - - (590,332) - -
Tax effect of non-qualified
exercise of stock options....... - - 3,866,486 - - -
Foreign currency translation
adjustment...................... - - - - - (166,590)
Preferred stock dividends........ - - - (47,343) - -
Unearned employee
compensation from Employee
Stock Ownership Plan Trust...... - - - - 1,338,041 -
Net income....................... - - - 8,676,960 - -
---------- --------- ------------- ---------- ----------- --------
Balance at December 31, 1996...... 35,320,392 $ 353,204 $ 124,915,912 $11,827,138 $ - $ (8,860)
========== ========= ============= ========== =========== ========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 16
SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Five Months
Year Ended Ended Year Ended Year Ended
July 31, December 31, December 31, December 31,
1994 1994 1995 1996
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income.................................. $ 467,024 $ 549,073 $ 1,992,843 $ 8,676,960
Depreciation and amortization............... 2,373,735 1,215,551 4,000,338 6,492,336
Deferred compensation....................... - - 949,960 -
Deferred income taxes....................... 806,224 (439,959) 1,255,753 (14,185)
ESOP allocation
(unearned compensation).................... 454,015 185,981 743,570 1,338,041
Loss (gain) on disposal of property
and equipment.............................. 445,303 36,925 38,022 (54,717)
Changes in assets and liabilities
Receivables, including unbilled............ (2,646,851) (174,304) (7,939,794) (19,225,559)
Prepaid expenses and other current
assets.................................... (1,593,032) 522,426 (56,832) (403,204)
Deferred charges and other assets.......... (374,467) 1,068,916 (203,357) (743,451)
Accounts payable........................... 1,327,646 1,887,035 1,481,045 (936,775)
Accrued employee compensation and
benefits.................................. 681,818 (159,138) 3,907,546 2,284,379
Other accrued expenses and current
liabilities............................... (1,854,763) 182,394 1,303,489 3,982,392
----------- ----------- ------------ ------------
Net cash provided by
operating activities.................... 86,652 4,874,900 7,472,583 1,396,217
----------- ----------- ------------ ------------
Cash flows from investing activities
Capital expenditure......................... (5,872,247) (7,059,237) (15,460,780) (20,919,863)
Acquisition of business..................... (104,000) - - -
Proceeds from sale of property and
equipment.................................. 70,101 211,218 100,402 201,425
----------- ----------- ------------ ------------
Net cash used for investing
activities.............................. (5,906,146) (6,848,019) (15,360,378) (20,718,438)
----------- ----------- ------------ ------------
Cash flows from financing activities
Paydowns under revolving line of
credit agreements.......................... (18,563,000) (8,123,000) (32,413,539) (20,771,718)
Borrowings under revolving line of
credit agreements.......................... 19,043,000 10,383,000 31,013,422 19,916,835
Proceeds from issuance of stock............. 941,259 94,064 79,487 112,340,100
Proceeds from grants........................ 700,987 2,567,830 2,603,485 5,263,420
Proceeds from issuance of long-term
debt....................................... 3,735,566 2,157,249 6,233,753 1,611,666
Subsidiary stock redemption................. (100,000) - (65,519) (142,702)
Payment of long-term debt................... (926,220) (700,735) (2,287,462) (11,068,087)
Dividends paid.............................. (21,402) (51,378) (311,452) (637,675)
----------- ----------- ------------ ------------
Net cash provided by financing
activities.............................. 4,810,190 6,327,030 4,852,175 106,511,839
----------- ----------- ------------ ------------
Adjustment for foreign currency
translation................................. (34,355) 18,689 175,809 (166,590)
----------- ----------- ------------ ------------
Net increase (decrease) in cash
and cash equivalents....................... (1,043,659) 4,372,600 (2,859,811) 87,023,028
Cash and cash equivalents - beginning........ 2,502,878 1,459,219 5,831,819 2,972,008
----------- ----------- ------------ ------------
Cash and cash equivalents - ending........... $ 1,459,219 $ 5,831,819 $ 2,972,008 $ 89,995,036
=========== =========== ============ ============
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest.................................. $ 494,741 $ 361,613 $ 1,074,593 $ 692,625
Income taxes.............................. $ 1,247,247 $ 210,022 $ 1,686,658 $ 3,885,629
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 17
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sykes Enterprises, Incorporated and consolidated subsidiaries (the
"Company" or "Sykes") provide comprehensive information technology
outsourcing services including information technology support services,
consisting of technical product support, help desk services and diagnostic
software tools, and information technology development services and
solutions, consisting of software design, development, integration and
implementation and documentation, foreign language translation and
localization services. The Company is also engaged in designing,
programming, licensing, installing and supporting hardware and software
systems. The Company's services are provided to a wide variety of
industries.
The Company completed business combinations with TAS Telemarketing
Gesellschaft fur Kommunikation und Dialog mbH ("TAS I") and TAS Hedi
Fabinyi GmbH ("TAS II") on September 26, 1997. These combinations were
accounted for utilizing the pooling-of-interests method of accounting, and
accordingly the accompanying financial statements have been restated to
reflect these acquisitions for all periods presented.
Unless otherwise noted, all information has been adjusted to retroactively
reflect three-for-two stock splits in the form of 50% stock dividends to
shareholders of record on July 18, 1996 and May 19, 1997, which was
reflected on the Nasdaq National Market on July 29, 1996 and May 29, 1997,
respectively.
Note 1 - Summary of Accounting Policies
Principles of Consolidation - The consolidated financial statements
include the accounts of Sykes Enterprises, Incorporated and its wholly
owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
Change in Fiscal Year - The Company changed its fiscal year end from July
31 to December 31 effective August 1, 1994. The consolidated statements of
income, changes in shareholders' equity and cash flows for the year ended
July 31, 1994, the five months ended December 31, 1994 and the years ended
December 31, 1995 and 1996 are presented in the accompanying consolidated
financial statements.
Recognition of Revenue - The Company primarily recognizes its revenue as
services are performed. Royalty revenue is recognized at the time
royalties are earned and the remaining revenue is recognized on fixed
price contracts using the percentage-of-completion method of accounting.
Adjustments to fixed price contracts and estimated losses, if any, are
recorded in the period when such adjustments or losses are known.
Software sales are recognized upon shipment.
Cash and Cash Equivalents - Cash and cash equivalents consist of highly
liquid short term investments classified as available for sale as defined
under the Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." At December 31,
1996, cash in the amount of approximately $79,975,000 was held in tax free
interest bearing investments, approximately $6,721,000 was held in taxable
<PAGE> 18
interest bearing investments, both of which are classified as available for
sale, and approximately $136,000 was held in an interest bearing account
and pledged as collateral with respect to office space leased in Amsterdam,
The Netherlands. It is the Company's intention to continue to maintain the
Netherlands' investment throughout the term of the lease.
Shareholder Payable - The Company recorded a net payable due to its
majority shareholder of approximately $645,000 which has been included in
accounts payable at December 31, 1995. There was no balance due to the
shareholders at December 31, 1996.
Property and Equipment - Property and equipment is recorded at cost and
depreciated using the straight-line method over the estimated useful lives
of the respective assets. Improvements to leased premises are amortized
over the shorter of the related lease term or the useful lives of the
improvements. Cost and related accumulated depreciation on assets retired
or disposed of are removed from the accounts and any gains or losses
resulting therefrom are credited or charged to income. Depreciation
expense was approximately $2,282,000, $1,125,000, $4,000,000 and
$7,106,000 for the year ended July 31, 1994, the five months ended
December 31, 1994 and the years ended December 31, 1995 and 1996,
respectively. Property and equipment includes approximately $620,000 of
additions included in accounts payable at December 31, 1996. Accordingly,
this non-cash transaction has been excluded from the accompanying
consolidated statement of cash flows for the year ended December 31, 1996.
Land received from various governmental agencies under grants is recorded
at fair value (as determined by an independent appraiser) at date of
grant. During the years ended December 31, 1995 and 1996 the Company
recorded approximately $1,824,000 and $317,000, respectively, in land
acquisitions as a result of such grants. Accordingly, these non-cash
transactions have been excluded from the accompanying consolidated
statements of cash flows for the years ended December 31, 1995 and 1996.
Deferred Charges and Other Assets - Deferred charges and other assets
consist primarily of a long-term note receivable, deposits, cash value of
officers life insurance, and goodwill and covenants not to compete arising
from business acquisitions. These intangible assets are being amortized
over periods ranging from two to ten years.
Impairment of Long-Lived Assets - The Company reviews long-lived assets
and certain identifiable intangibles for impairment and writes down to
fair value whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Since adoption, no impairment
losses have been recognized.
Income Taxes - Deferred income taxes are recorded to reflect the tax
consequences on future years of differences between the tax basis of
assets and liabilities and their financial reporting amounts at each year
end based on enacted tax laws and statutory tax rates applicable to the
periods in which the differences are expected to affect taxable income.
<PAGE>19
The Company and its consolidated subsidiaries are either taxed as C
corporations or have elected to be taxed as an S corporation under the
provisions of the Internal Revenue Code through the effective date of the
Company's initial public offering (See Note 15). The Company's affiliate
which elected to be taxed as an S corporation terminated its S corporation
election during the year ended December 31, 1996 and accordingly became
subject to federal and state income taxes.
Deferred Grants - Grants for relocation and the acquisition of property
and equipment are deferred and recognized in income over the corresponding
useful lives of their related property and equipment. There are no
significant contingencies associated with the grants that would impact the
Company's ability to utilize assets received in association with the
grants.
Foreign Currency Translation - The assets and liabilities of the Company's
foreign subsidiaries whose functional currency is other than the U.S.
Dollar are translated at the exchange rates in effect on the reporting
date, and income and expenses are translated at the weighted average
exchange rate during the period. The net effect of translation gains and
losses are not included in determining net income, but are accumulated as
a separate component of shareholders' equity. Foreign currency translation
gains and losses are included in determining net income. Such gains and
losses are not material for any period presented.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates; however, management does not believe these differences
would have a material effect on operating results.
Note 2 - Acquisitions and Mergers
On July 16, 1996, the Company acquired Datasvar Support AB ("Datasvar") of
Stockholm, Sweden in exchange for 370,229 shares of the Company's common
stock. Datasvar operates two information technology call centers in
Sweden serving the Scandinavian region.
On August 30, 1996, the Company acquired all of the stock of DiagSoft,
Inc. ("DiagSoft") in exchange for 1,012,500 shares of the Company's common
stock. DiagSoft develops and markets diagnostic software applications
which will enhance the Company's technology support services.
On March 31, 1997, the Company acquired Info Systems of North Carolina,
Inc. ("Info Systems") in exchange for approximately 1.1 million shares of
<PAGE> 20
the Company's common stock. Info Systems is engaged in the design,
development, licensing and support of information management solutions to
the retail, manufacturing and distribution industries.
On June 16, 1997 the Company acquired all of the stock of Telcare
Gesellschaft fur Telekommunikations-Mehrwertdieste mbH ("Telcare") of
Wilhelmshaven, Germany, in exchange for 750,000 shares of the Company's
common stock. Telcare operates an information technology call center and
provides technical product support and service to numerous industries in
Germany, and expands the Company's presence in Europe.
On September 26, 1997, the Company acquired all of the stock of TAS
Telemarketing Gesellschaft fur Kommunikation und Dialog mbH ("TAS I") of
Bochum, Germany in exchange for 400,000 shares of the Company's common
stock. The Company accounted for the acquisition utilizing the pooling-
of-interests method of accounting.
On September 26, 1997 the Company acquired all of the stock of TAS Hedi
Fabinyi GmbH ("TAS II") of Stuttgart, Germany, in exchange for 180,000
shares of the Company's common stock. The Company accounted for the
acquisition utilizing the pooling-of-interest method of accounting.
The above transactions have been accounted for as pooling-of-interests
and, accordingly, the consolidated financial statements for the periods
presented have been restated to include the accounts of Datasvar,
DiagSoft, Info Systems, Telcare, TAS I and TAS II.
<PAGE> 21
Separate results of operations for the periods prior to the merger with
Datasvar, DiagSoft, Info Systems, Telcare, TAS I and TAS II are outlined
below:
<TABLE>
<CAPTION>
Year Five Months
Ended Ended Year Ended
July 31, December 31, December 31,
1994 1994 1995
-------- ------------ ------------
<S> <C> <C> <C>
Revenue:
Sykes......................... $47,661,706 $18,167,860 $ 63,096,660
Datasvar...................... 2,659,788 1,486,741 5,341,450
DiagSoft...................... 5,267,840 1,957,912 6,156,524
Info Systems.................. 17,763,005 16,251,585 23,317,923
Telcare....................... 848,697 1,089,997 3,587,292
TAS I......................... 4,356,030 1,897,665 4,318,972
TAS II........................ 1,195,056 568,482 2,075,363
---------- ---------- ------------
Combined....................... $79,752,122 $41,420,242 $ 107,894,184
========== ========== ============
Net income:
Sykes......................... $ 485,023 $ 34,435 $ 1,502,946
Datasvar...................... 203,993 (32,243) 1,005,548
DiagSoft...................... (79,424) (157,691) (112,409)
Info Systems.................. 250,662 619,337 (304,526)
Telcare....................... (751,524) 138,333 (489,725)
TAS I......................... 266,453 (56,200) 337,453
TAS II........................ 91,841 3,102 53,556
---------- ---------- ------------
Combined....................... $ 467,024 $ 549,073 $ 1,992,843
========== ========== ============
Other changes in shareholders'
equity:
Sykes......................... $ 291,249 $ (3,185) $ 29,054
Datasvar...................... (36,266) 6,987 161,721
DiagSoft...................... (100,000) - -
Info Systems.................. 736,637 207,654 678,051
Telcare....................... 308,225 91,985 46,912
TAS I......................... 38,031 (56,358) (275,691)
TAS II........................ 1,640 274 (18,151)
---------- ---------- ------------
Combined....................... $ 1,239,516 $ 247,357 $ 621,896
========== ========== ============
</TABLE>
Note 3 - Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables.
With the exception of approximately $4.2 million of receivables from a
significant customer (See Note 14), the Company's credit concentrations
are limited due to the wide variety of customers and markets into which
the Company's services are sold.
<PAGE> 22
Note 4 - Receivables
<TABLE>
<CAPTION>
Receivables consist of the following:
December 31,
1995 1996
---- ----
<S> <C> <C>
Trade accounts receivable....................... $ 21,834,973 $ 35,363,921
Unbilled accounts receivable.................... 1,222,293 2,843,193
Notes from officers and related parties......... 190,927 -
Income tax refund receivable.................... - 1,399,165
Other........................................... 302,685 3,411,717
----------- -----------
23,550,878 43,017,996
Less allowance for doubtful accounts............ 310,739 269,999
----------- -----------
$ 23,240,139 $ 42,747,997
=========== ===========
Note 5 - Property and Equipment
Property and equipment consist of the following:
December 31,
1995 1996
---- ----
Land............................................ $ 2,240,746 $ 2,506,421
Buildings and leasehold improvements............ 9,551,526 15,555,635
Equipment, furniture and fixtures............... 23,439,209 39,088,761
Transportation equipment........................ 676,026 631,092
Construction in progress........................ 1,499,363 -
----------- -----------
37,406,870 57,781,909
Less accumulated depreciation................... 10,582,232 16,353,398
----------- -----------
$ 26,824,638 $ 41,428,511
=========== ===========
Note 6 - Long-term Debt
Long-term debt consists of the following:
December 31,
1995 1996
---- ----
Revolving term line of credit, $12.0 million
maximum, interest at prime, collateralized
by certain receivables, property and equipment
and intangible assets.......................... $ 414,734 $ -
Bank term note payable, due March 1, 2001,
interest at prime, collateralized by certain
receivables, property and equipment
and intangible assets.......................... 7,750,000 -
Notes payable and capital leases, principal and
interest payable in monthly installments
through December 1999, interest at varying
rates up to prime plus 0.25 percent,
collateralized by certain receivables
and equipment.................................. 5,490,001 3,343,430
----------- -----------
13,654,735 3,343,430
Less current portion............................ 4,071,207 1,776,724
----------- -----------
$ 9,583,528 $ 1,566,706
=========== ===========
<PAGE> 23
Future principal maturities subsequent to December 31, 1996 are as
follows:
1997........................$ 1,776,724
1998........................ 1,404,202
1999........................ 162,504
----------
$ 3,343,430
==========
</TABLE>
Effective December 31, 1996, the Company entered into an agreement
replacing it's previous credit line with an unsecured revolving $25.0
million facility. This new facility accrues borrowings at tiered levels
between 125 and 200 basis points above listed Libor pursuant to a defined
ratio calculation within the agreement. The facility matures in June
1998, and contains certain covenants associated with tangible net worth,
debt and debt funding as defined by the agreement. The Company had no
borrowings under this facility at December 31, 1996.
The Company had a credit facility comprised of $12.0 million revolving
line of credit and a term note issued in the original amount of $8.0
million. Borrowings under the credit facility was approximately $8,165,000
at December 31, 1995. The Company extinguished the debt with the proceeds
from its initial public offering and had no borrowings under either credit
facility at December 31, 1996.
During 1996, a subsidiary of the Company entered into a $2.0 million and a
$1.25 million credit facility. These facilities consisted of a revolving
line of credit maturing in November 1997. The Company had no borrowings
under either credit facility at December 31, 1996 and both of these credit
facilities were canceled subsequent to December 31, 1996.
Note 7 - Income Taxes
The components of income before income taxes are as follows:
<TABLE>
<CAPTION>
Year Five Months
Ended Ended
July 31, December 31, Years Ended December 31,
1994 1994 1995 1996
-------- ------------ ---- ----
<S> <C> <C> <C> <C>
Domestic.................. $ 1,324,009 $ 1,025,388 $ 1,958,008 $ 11,337,945
Foreign................... 207,516 236,046 1,849,345 2,635,495
---------- ---------- ---------- -----------
Total income before
income taxes............ $ 1,531,525 $ 1,261,434 $ 3,807,353 $ 13,973,440
========== ========== ========== ===========
</TABLE>
<PAGE> 24
Provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Five Months
Ended Ended
July 31, December 31, Years Ended December 31,
1994 1994 1995 1996
-------- ------------ ---- ----
<S> <C> <C> <C> <C>
Current:
Federal................... $ (177,723) $ 756,998 $ (174,520) $ 3,573,533
State..................... 22,492 187,078 (35,875) 610,632
Foreign................... 413,508 208,244 769,152 1,126,500
Total current provision
for income taxes........ 258,277 1,152,320 558,757 5,310,665
Deferred:
Federal................... 808,048 (349,775) 1,054,967 (2,000)
State..................... (1,824) (90,184) 183,006 56,250
Foreign................... - - 17,780 (68,435)
Total deferred provision
for income taxes........ 806,224 (439,959) 1,255,753 (14,185)
Total provision for
income taxes........... $ 1,064,501 $ 712,361 $ 1,814,510 $ 5,296,480
The components of the net deferred tax asset (liability) are as follows:
December 31,
1995 1996
---- ----
Current:
Deferred tax asset:
Accounts payable................................... $ 428,000 $ -
Accrued expenses................................... 1,534,000 686,000
State operating loss carryforward.................. 1,000 -
Bad debt reserve................................... - 15,000
Other.............................................. (3,230) 53,000
----------- ----------
Total current deferred tax asset.................. $ 1,959,770 $ 754,000
----------- ----------
Deferred tax liability:
Receivables........................................ $ (5,337,000) $ -
State tax refunds.................................. (57,000) -
Property and equipment............................. (44,000) (149,000)
Cash to accrual-Section 481 adjustment............. - (277,000)
----------- ----------
Total current deferred tax liability.............. (5,438,000) (426,000)
----------- ----------
Net current deferred tax asset (liability)....... $ (3,478,230) $ 328,000
=========== ==========
<PAGE> 25
December 31,
1995 1996
Non-current:
Deferred tax asset:
Deferred compensation.............................. $ 360,000 $ 240,000
R & D credits...................................... 25,464 -
Bad debt reserve................................... 48,566 -
Accrued expenses................................... 87,258 3,000
State operating loss carryforward.................. 37,000 -
Other.............................................. 34,386 -
Total non-current deferred tax asset.............. $ 592,674 $ 243,000
Deferred tax liability:
Property and equipment............................. $ (344,705) $ (338,000)
Capitalized software development costs............. (148,189) -
Untaxed reserves - foreign......................... (97,318) (136,000)
Cash to accrual-Section 481 adjustment............. - (2,903,000)
Other.............................................. (246,665) (330,045)
Total non-current deferred tax liability.......... (836,877) (3,707,045)
Net non-current deferred tax liability........... $ (244,203) $(3,464,045)
</TABLE>
The corporation has not recorded deferred income taxes applicable to
undistributed earnings of foreign subsidiaries that are indefinitely
reinvested in foreign operations. Undistributed earnings amounted to
approximately $2.0 million at December 31, 1996, excluding amounts which,
if remitted, generally would result in minimal additional U.S. income
taxes because of available foreign tax credits. If the earnings of such
foreign subsidiaries were not indefinitely reinvested, a deferred tax
liability of approximately $300,000 would have been required.
In conjunction with the Company's initial public offering, the Company
changed its method of accounting for income taxes from the cash basis to
the accrual method. The corresponding adjustment will be included in
taxable income over a period not to exceed four years.
The following summarizes the principal differences between income taxes at
the federal statutory rate and the effective income tax amounts reflected
in the financial statements:
<TABLE>
<CAPTION>
Year Five Months
Ended Ended
July 31, December 31, Years Ended December 31,
1994 1994 1995 1996
-------- ------------ ---- ----
<S> <C> <C> <C> <C>
Statutory tax........................ $ 503,284 $ 311,116 $ 1,234,150 $ 4,246,532
State income taxes net of federal
tax benefit......................... 61,479 80,007 66,934 315,883
Effect of income not subject to
federal and state income tax........ (13,000) (21,000) (155,000) (284,000)
Change in state tax rate......... (67,000) - - -
Foreign taxes, net of foreign income
not taxed in U.S. .................. 333,453 226,818 233,080 614,065
Permanent differences................ 321,551 178,427 366,555 153,000
Tax credits.......................... (57,246) (43,007) (90,209) -
Other................................ (18,020) (20,000) 159,000 251,000
---------- ----------- ----------- -----------
Total provision for income taxes... $ 1,064,501 $ 712,361 $ 1,814,510 $ 5,296,480
========== =========== =========== ===========
</TABLE>
The Company is currently under examination by the Internal Revenue Service
for tax years ended July 31, 1991 through 1995. The Company has reviewed
various matters that are under consideration and believes that it has
adequately provided for any liability that may result from this
examination. In the opinion of management, any liability that may arise
from prior periods as a result of the examination will not have a material
effect on the Company's financial condition or results of operations.
Note 8 - Earnings Per Share
Primary earnings per share are based on the weighted average number of
common shares and common share equivalents outstanding during the periods
and assumes, (i) that the redeemable preferred stock was converted at the
beginning of each period, or date of issuance, if later, and (ii) that
earnings were increased for preferred dividends that would not have been
incurred had conversion taken place. Common share equivalents include,
when applicable, dilutive stock options using the treasury stock method.
Fully diluted earnings per share assumes, in addition to the above, the
additional dilutive effect of stock options.
The numbers of shares used in the earnings per share computation are as
follows:
<TABLE>
<CAPTION>
Five Months
Year Ended Ended
July 31, December 31, Years Ended December 31,
1994 1994 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary
Weighted average
common outstanding....... 26,407,393 26,407,393 26,407,393 30,873,384
Conversion of
preferred stock.......... 672,044 672,044 672,044 227,151
Stock options............. 711,201 711,201 711,201 1,265,688
---------- ---------- ---------- ----------
Total primary........... 27,790,638 27,790,638 27,790,638 32,366,223
Fully Diluted
Additional dilution
of stock options......... - - - 50,219
---------- ---------- ---------- ----------
Total fully diluted..... 27,790,638 27,790,638 27,790,638 32,416,442
========== ========== ========== ==========
</TABLE>
Note 9 - Commitments and Contingencies
The Company leases certain equipment and buildings under operating leases
having terms ranging from one to ten years. The building leases contain up
to two five year renewal options.
Rental expense under operating leases for the year ended July 31, 1994,
the five months ended December 31, 1994 and the years ended December 31,
1995 and 1996 was approximately $3,174,000, $1,057,000, $2,275,000 and
$5,137,000, respectively. Rental expense for an office building leased
from the Company's major shareholder, net of subleases was approximately
<PAGE> 27
$277,000, $45,000, $104,000 and $104,000 for the year ended July 31, 1994,
the five months ended December 31, 1994 and the years ended December 31,
1995 and 1996, respectively. The Company has a ten-year operating lease
agreement, signed in 1995, with the Company's majority shareholder for
its corporate aircraft. The lease expense for 1995 and 1996 was
approximately $51,000 and $615,000, respectively.
The Company has a five year noncancelable sublease agreement with an
unrelated tenant for its Charlotte, N.C. facility. The minimum sublease
rental amounts the Company is to receive are approximately $181,000,
$187,000, and $94,000 for the years ended December 31, 1997 through 1999,
respectively.
The following is a schedule of future minimum rental payments (without
regard to the Charlotte, N.C. sublease) under operating leases having a
remaining noncancelable term in excess of one year subsequent to December
31, 1996:
<TABLE>
<CAPTION>
Related Non-Related Total
Year Party Party Amount
---- ------- ----------- ------
<C> <C> <C> <C>
1997.............................. $ 896,000 $ 2,975,000 $ 3,871,000
1998.............................. 896,000 2,336,000 3,232,000
1999.............................. 896,000 1,481,000 2,377,000
2000.............................. 896,000 1,257,000 2,153,000
2001.............................. 896,000 1,000,000 1,896,000
Thereafter........................ 3,207,000 - 3,207,000
---------- ---------- -----------
Total minimum payments required.. $ 7,687,000 $ 9,049,000 $ 16,736,000
========== ========== ===========
</TABLE>
The Company from time to time is involved in legal actions arising in the
ordinary course of business. With respect to these matters, management
believes that it has adequate legal defenses and/or provided adequate
accruals for related costs such that the ultimate outcome will not have a
material adverse effect on the Company's future financial position.
Note 10 - Employee Benefit Plans
The Company maintains a 401(k) plan covering defined employees who meet
established eligibility requirements. Under the plan provisions, the
Company matches 25% of participant contributions to a maximum matching
amount of 1% of participant compensation. Company contributions are funded
on a bi-weekly basis. The Company contribution was approximately
$129,000, $125,000, $143,000 and $170,000 for the year ended July 31,
1994, the five months ended December 31, 1994 and the years ended December
31, 1995 and 1996, respectively. In addition, one of the Company's
subsidiaries maintains a separate 401(k) plan. There were no Company
contributions made to this plan during the periods presented.
In June 1992, one of the Company's subsidiaries established an Employee
Stock Ownership Plan ("ESOP") for the benefit of its employees. In August
1992, the ESOP purchased 249,350 shares of the subsidiary's common stock.
In connection with the stock purchase, the subsidiary made a cash
contribution of $1.0 million to the ESOP and entered into a note payable
<PAGE> 28
of $3,105,000. As the debt was repaid, shares were released from
collateral and allocated to active employees, based on the proportion
of debt service paid in the current year.
Note 11 - Public Offerings
In April 1996, the Company completed its initial public offering for the
sale of 4,500,000 shares of common stock. Coincident with such offering,
the underwriters of the offering exercised their 15% over-allotment and
accordingly an additional 939,978 shares of the Company's common stock
were sold by the Company. The Company received approximately $39.7 million
from the sale of the shares, net of underwriting discounts and expenses
associated with such offering. The proceeds were used to repay all
outstanding indebtedness and make capital expenditures, with the remaining
balance held for general corporate and working capital purposes.
In November 1996, the Company completed a secondary offering for the sale
of 2,419,980 shares of common stock, inclusive of the underwriters over-
allotment option. The Company received approximately $71.5 million from the
offering, net of underwriting discounts and expenses. The net proceeds
were held for general corporate and working capital purposes.
Note 12 - Stock Options
In 1995, the Company granted options to an executive officer to purchase
1,143,000 shares of common stock at $3.02 per share. The Company
determined that the price was approximately $0.83 below fair market value
at the date of the grant and recognized $949,960 as compensation expense
for the year ended December 31, 1995. The options become exercisable three
years from the date of grant, except that one-third were exercisable to
the extent that the underlying shares were permitted to be included by the
underwriters in an underwritten public offering. In November, 1996 the
Company completed its secondary public offering and 381,000 of the options
granted to the executive officer were exercised and sold in the offering.
The remaining 762,000 options expire if not exercised by the tenth
anniversary of their grant date.
Another executive officer was granted options under the Company's 1996
Employee Stock Option Plan to purchase 209,841 shares of the Company's
common stock with an exercisable price of (i) 33 1/3% of such shares at
$8.00 per share, (ii) 33 1/3% at $7.55 per share, and (iii) 33 1/3% at
$6.67 per share. Compensation expense 0of $27,634 is recognized in the
general and administrative expenses in the accompanying consolidated
statements of operations for the year ended December 31, 1996.
1996 Employee Stock Option Plan - The Company's 1996 Employee Stock Option
Plan (the "Employee Plan") permits the granting of incentive or
nonqualified stock options to purchase up to 2,625,000 shares of the
Company's common stock at not less than the fair value at the time the
options are granted. Certain other officers and employees hold options to
<PAGE> 29
purchase additional shares of common stock at a range of $6.67 to $31.27
per share and vest ratably over the three-year period following the date
of grant, except for 180,000 options granted to key employees of DiagSoft,
all of which are immediately exercisable. All options granted under the
Employee Plan expire if not exercised by the tenth anniversary of their
grant date.
Transactions related to the 1996 Employee Stock Option Plan are summarized
as follows:
<TABLE>
<CAPTION>
Shares Option Price
------ ------------
<S> <C> <C>
Outstanding at December 31, 1995............ -
Granted.................................... 973,605 $ 6.67 to $ 31.27
Exercised.................................. -
Expired or terminated...................... (71,813) $ 8.00
-------
Outstanding at December 31, 1996............ 901,792 $ 6.67 to $ 31.27
=======
</TABLE>
1996 Non-Employee Director Stock Option Plan - The Company's 1996 Non-
Employee Director Stock Option Plan (the "Non-Employee Plan") permits the
granting of nonqualified stock options to purchase up to 300,000 shares of
the Company's common stock to members of the Board of Directors who are
not employees of the Company. Each outside director received options to
purchase 7,500 shares of common stock at an exercise price of $12.00 per
share and will receive options to purchase 5,000 shares on the day
following the annual meeting of shareholders. Thereafter, on the date on
which a new outside director is first elected or appointed, he or she will
automatically be granted options to purchase 5,000 shares of common stock.
All options granted will have an exercise price equal to the then fair
market value of the common stock. At December 31, 1996 no options
granted were exercisable. All options granted under the Non-Employee
Plan expire if not exercised by the tenth anniversary of their grant date.
Transactions related to the 1996 Non-Employee Director Stock Option Plan
are summarized as follows:
<TABLE>
<CAPTION>
Shares Option Price
<S> <C> <C>
Outstanding at December 31, 1995............ -
Granted.................................... 56,250 $ 8.00
Exercised.................................. -
Expired or terminated...................... -
------
Outstanding at December 31, 1996............ 56,250 $ 8.00
======
</TABLE>
The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation", but applies Accounting Principles Board Opinion No. 25 and
related interpretations in accounting for its plans. Therefore, no
compensation expense has been recognized for stock options granted under
its plans. If the Company had elected to recognize compensation expense
for stock options based on the fair value at grant date, consistent with
<PAGE> 30
the method prescribed by SFAS No. 123, net income and earnings per share
would have been reduced to the pro forma amounts as follows:
<TABLE>
<CAPTION>
Year Five Months
Ended Ended Years Ended
July 31, December 31, December 31,
1994 1994 1995 1996
-------- ------------ ---- ----
($ in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Pro forma net income
as reported $ 428 $ 510 $ 1,821 $ 8,610
Pro forma net income
as prescribed by SFAS 123 $ 428 $ 510 $ 624 $ 7,231
Pro forma net income
per share as reported $ 0.02 $ 0.02 $ 0.07 $ 0.27
Pro forma net income
as prescribed by SFAS 123 $ 0.02 $ 0.02 $ 0.02 $ 0.22
</TABLE>
The pro forma amounts were determined using the Black-Scholes valuation
model with the following key assumptions: (i) a discount rate of 6.0% for
1995 and 1996; (ii) a volatility factor initially based upon the average
trading price since the Company's common stock has traded on the Nasdaq
National Market; (iii) no dividend yield; and (iv) an average expected
option life of approximately 3.5 years.
Note 13 - International Operations
The Company's international operations are conducted from offices located
in Amsterdam, The Netherlands; Wilhelmshaven, Bochum and Stuttgart
Germany; and Sveg, Jarvso, and Stockholm, Sweden. With the exception of
the Stockholm office, each facility provides technical support services
for regions throughout Europe. The revenue, income before income taxes
and total assets of the Company associated with its international
operations are as follows:
<TABLE>
<CAPTION>
Year Five Months
Ended Ended
July 31, December 31, Years Ended December 31,
1994 1994 1995 1996
-------- ------------ ---- ----
<S> <C> <C> <C> <C>
Revenue................... $ 10,179,929 $ 5,784,566 $ 18,108,550 $ 29,356,835
Income before
income taxes............ 207,515 236,046 1,849,345 2,644,225
Total assets.............. 5,418,729 7,120,705 11,056,242 14,477,412
</TABLE>
<PAGE> 31
Note 14 - Significant Customers
Significant customers of the Company comprised 19%, 23%, 22% and 27% of
the Company's consolidated revenues for the year ended July 31, 1994, the
five months ended December 31, 1994 and the years ended December 31, 1995
and 1996 respectively. Two customers comprised 22% and 19% of the
Company's revenues for the years ended December 31, 1995 and 1996,
respectively. Revenues from one customer amounted to 19%, 13%, 11% and 8%
for the year ended July 31, 1994 the five months ended December 31, 1994
and the years ended December 31, 1995 and 1996, respectively.
Note 15 - Pro Forma Disclosures
Preferred Stock - In connection with an agreement entered into in February
1996, the Company's majority shareholder transferred all the newly issued
shares of the Company's outstanding preferred stock and all of the
outstanding non-voting common stock to a related party. Effective
immediately prior to the Company's initial public offering, the preferred
stock and non-voting common stock was automatically converted into shares
of common stock. These shares were sold in connection with such offering.
Pro Forma Income Taxes - An affiliate of the Company had elected to be
treated as an S corporation for federal and state income tax purposes. As
such, the affiliate's taxable income was reported to and subject to tax to
the affiliate's shareholder. Prior to the Company's initial public
offering, the Company's affiliate terminated its S corporation election
and accordingly became subject to federal and state income taxes. The pro
forma provision for income taxes reported on the consolidated statements
of operations presents federal and state income taxes that would have been
incurred if the affiliate had been subject to tax as a C corporation. In
addition, the Company changed its method of accounting for income taxes
from the cash basis to the accrual method in connection with the offering.
The corresponding adjustment will be included in taxable income over a
period not to exceed four years.
Pro Forma Net Income Per Share - In March 1996, the Company was a North
Carolina corporation and amended its Articles of Incorporation to
authorize the issuance of up to 10,000 shares of $1,000 par value per
share preferred stock. At that time, the Company approved a 95-to-1 stock
split of all outstanding common stock. Subsequent to the amendment and
stock split, the Company changed its state of incorporation from North
Carolina to Florida and changed the authorized number of shares of common
stock from 100,000 to 50,000,000. As part of the change of state of
incorporation, each share of common stock of the North Carolina
corporation was exchanged for 88 shares (198 shares as adjusted for a
three-for-two stock split during 1996 and for a three-for-two stock split
during 1997) of common stock of the Company. All applicable share and per
share amounts in the accompanying financial statements have been
retroactively adjusted to reflect these events.
Weighted average common shares outstanding includes the common share
equivalents discussed in Note 8 applying the treasury stock method. In
addition, the calculation includes certain preferred stock issued during
the year that was converted to common stock immediately prior to the
<PAGE> 32
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 2,745,000 shares of common stock as a
result of the merger involving Sykes Realty, Inc. immediately prior to the
offering, which shares were deemed outstanding for all periods presented.
Note 16 - Selected Financial Data
Effective August 1, 1994, the Company changed its fiscal year end from
July 31 to December 31. Accordingly, the financial statements for December
31, 1994 reflect the Company's results of income for a five month period.
Selected financial data for the twelve months ended December 31, 1994,
1995 and 1996 consists of:
<TABLE>
<CAPTION>
Years Ended December 31,
1994 1995 1996
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Revenues..................................... $ 87,426,317 $ 107,894,184 $ 160,010,501
----------- ------------ ------------
Operating expenses:
Direct salaries and related costs........... 56,943,293 67,492,462 94,829,595
General and administrative.................. 27,450,703 35,808,360 51,856,353
----------- ------------ ------------
Total operating expense.................... 84,393,996 103,300,822 146,685,948
----------- ------------ ------------
Income from operations....................... 3,032,321 4,593,362 13,324,553
Other income (expense)
Interest.................................... (556,483) (963,356) 156,354
Other....................................... 153,084 177,347 492,533
----------- ------------ ------------
Total other income (expense)............... (403,399) (786,009) 648,887
----------- ------------ ------------
Income before income taxes................... 2,628,922 3,807,353 13,973,440
Provision for income taxes................... 1,291,478 1,814,510 5,296,480
----------- ------------ ------------
Net income................................... 1,337,444 1,992,843 8,676,960
Preferred stock dividends.................... - - 47,343
----------- ------------ ------------
Net income applicable to common shareholders. $ 1,337,444 $ 1,992,843 $ 8,629,617
=========== ============ ============
Pro forma income data (unaudited)
Income before income taxes................... $ 2,628,922 $ 3,807,353 $ 13,973,440
Pro forma provision for income taxes
relating to S corporation................... 39,000 172,000 67,000
Actual provision for income taxes............ 1,291,478 1,814,510 5,296,480
----------- ------------ ------------
Total provision and pro forma provision
for income taxes........................... 1,330,478 1,986,510 5,363,480
----------- ------------ ------------
Pro forma net income......................... 1,298,444 1,820,843 8,609,960
Preferred stock dividends.................... - - (47,343)
----------- ------------ ------------
Pro forma net income applicable to common
shareholders................................ $ 1,298,444 $ 1,820,843 $ 8,562,617
=========== ============ ============
Pro forma net income per share............... $ 0.05 $ 0.07 $ 0.26
=========== ============ ============
Pro forma weighted average common and common
equivalent shares outstanding............... 27,790,638 27,790,638 32,416,442
=========== ============ ============
</TABLE>
<PAGE> 33
Note 17 - Subsequent Events
Effective January 1, 1997, the Company acquired all of the common stock of
Traffic, N.V. of Brussels, Belgium, and certain other assets, for $1.8
million in cash. The transaction will be accounted for under the purchase
method of accounting and has been approved by the boards of directors of
both companies. Traffic, N.V. specializes in foreign language translation
and multi-media documentation development. Pro forma information is not
presented, as the operating results are not material to the Company's
consolidated results.
On December 31, 1997, the Company acquired all of the issued and
outstanding stock of McQueen International Limited ("McQueen") in exchange
for approximately 3.54 million shares of the Company's common stock.
Under the terms of the agreement, the transaction is to be accounted for
utilizing the pooling-of-interests method of accounting. McQueen, a
corporation organized and existing under the laws of Scotland, provides
inbound call center support and customer service, software fulfillment and
foreign language translation and localization services.
<PAGE> 34
SYKES ENTERPRISES, INCORPORATED
SCHEDULE II - VALUATION AND QUALIFIYING ACCOUNTS
Allowance for Doubtful Accounts
<TABLE>
<CAPTION>
Additional
Beginning Charge to Cost Ending
Balance and Expenses Deductions(1) Balance
--------- -------------- ------------- -------
<S> <C> <C> <C> <C>
Year ended July 31, 1994...................... $ 225,667 $ 24,776 $ - $ 250,453
Five months ended December 31, 1994........... 250,453 36,871 94,928 192,396
Year ended December 31, 1995.................. 192,396 251,200 132,857 310,739
Year ended December 31, 1996.................. 310,739 89,681 130,421 269,999
</TABLE>
________________
(1) Write-off and recoveries
EXHIBIT 2.1
ACQUISITION AGREEMENT
BY AND AMONG
THE
SHAREHOLDERS
OF
TAS TELEMARKETING GESELLSCHAFT FUR
KOMMUNIKATION UND DIALOG MBH,
SYKES ENTERPRISES, INCORPORATED,
AND
SYKES ENTERPRISES GMBH
Dated September 19, 1997
<PAGE> i
TABLE OF CONTENTS
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1. Definitions. . . . . . . . . . . . . . . . . . . . 2
ARTICLE II - PURCHASE, SALE AND ASSIGNMENT OF SHARES . . . . . . . . . 5
Section 2.1. Purchase and Sale of Shares . . . . . . . . . . . . 5
Section 2.2. Assignment of Shares . . . . . . . . . . . . . . . . 6
ARTICLE III - DELIVERY OF PURCHASE PRICE SHARES . . . . . . . . . . . . 6
Section 3.1. Delivery of Purchase Price Shares . . . . . . . . . 6
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF THE SELLERS (GARANTIEN) 7
Section 4.1. Corporate Organization . . . . . . . . . . . . . . 7
Section 4.2. Capitalization . . . . . . . . . . . . . . . . . . 8
Section 4.3. Authority; Binding Effect . . . . . . . . . . . . . 9
Section 4.4. Ownership of Share Capital; Title . . . . . . . . . 9
Section 4.5. The Sellers' Consents and Approvals; No Violations 10
Section 4.6. Consents and Approvals; No Violations . . . . . . . 10
Section 4.7. Financial Statements . . . . . . . . . . . . . . . 11
Section 4.8. Undisclosed Liabilities . . . . . . . . . . . . . . 11
Section 4.9. Taxes . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.10. Title to Properties . . . . . . . . . . . . . . . . 13
Section 4.11. Absence of Changes . . . . . . . . . . . . . . . . 13
Section 4.12. Intellectual Property . . . . . . . . . . . . . . . 15
Section 4.13. Leases . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.14. Bank Accounts; Investments; Powers of Attorney . . 17
Section 4.15. Material Contracts and Customers . . . . . . . . . 17
Section 4.16. Related Transactions . . . . . . . . . . . . . . . 20
Section 4.17. Insurance . . . . . . . . . . . . . . . . . . . . . 20
Section 4.18. Labor Matters . . . . . . . . . . . . . . . . . . . 21
Section 4.19. Employee Benefit Plans . . . . . . . . . . . . . . 22
Section 4.20. Litigation . . . . . . . . . . . . . . . . . . . . 22
Section 4.21. Compliance with Laws . . . . . . . . . . . . . . . 23
Section 4.22. Books and Records . . . . . . . . . . . . . . . . . 23
Section 4.23. Copies of Documents . . . . . . . . . . . . . . . . 23
Section 4.24. Adequacy of Assets . . . . . . . . . . . . . . . . 23
Section 4.25. Grants . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.26. Accounts Receivable . . . . . . . . . . . . . . . . 24
Section 4.27. Brokers and Finders . . . . . . . . . . . . . . . . 24
Section 4.28. Investment Intent; Information Disclosures . . . . 24
Section 4.29 Pooling of Interests . . . . . . . . . . . . . . . 26
Section 4.30 Restrictive Covenants . . . . . . . . . . . . . . . 27
Section 4.31 Product Liabilities and Warranties . . . . . . . . 27
Section 4.32 Disclosure . . . . . . . . . . . . . . . . . . . . 27
<PAGE> ii
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF SEI AND BUYER (GARANTIEN) 28
Section 5.1. Corporate Organization . . . . . . . . . . . . . . 28
Section 5.2. Capitalization of SEi . . . . . . . . . . . . . . . 28
Section 5.3. Authority . . . . . . . . . . . . . . . . . . . . . 28
Section 5.4. SEi's Consents and Approvals; No Violations . . . . 28
Section 5.5. Litigation . . . . . . . . . . . . . . . . . . . . 29
Section 5.6. Brokers and Finders . . . . . . . . . . . . . . . . 29
Section 5.7. SEi Information . . . . . . . . . . . . . . . . . . 29
Section 5.8 No Material Adverse Change . . . . . . . . . . . . 29
Section 5.9. Undisclosed Liabilities . . . . . . . . . . . . . . 29
Section 5.10. Compliance with Laws . . . . . . . . . . . . . . . 29
ARTICLE VI - FURTHER COVENANTS AND AGREEMENTS . . . . . . . . . . . . . 30
Section 6.1. Covenants of the Sellers Pending the Closing . . . 30
Section 6.2. Covenants of Buyer and SEi Pending the Closing . . 31
Section 6.3. Filings . . . . . . . . . . . . . . . . . . . . . . 32
Section 6.4. Effective Time of Closing and Transfer . . . . . . 32
Section 6.5. Announcements . . . . . . . . . . . . . . . . . . . 32
Section 6.6. Costs and Expenses . . . . . . . . . . . . . . . . 33
Section 6.7. Further Assurances . . . . . . . . . . . . . . . . 32
Section 6.8. Certain Agreements . . . . . . . . . . . . . . . . 33
Section 6.9. Non-Disclosure; Covenant Not to Compete . . . . . . 34
Section 6.10. Pooling of Interests . . . . . . . . . . . . . . . 35
Section 6.11. Exclusive Dealing. . . . . . . . . . . . . . . . . 35
Section 6.12. Release of Bromkamp Guarantee . . . . . . . . . . . 35
Section 6.13. Purchase of Coplon Investment . . . . . . . . . . . 35
ARTICLE VII - TERMINATION . . . . . . . . . . . . . . . . . . . . . . . 35
Section 7.1. Termination . . . . . . . . . . . . . . . . . . . . 35
Section 7.2. Procedure and Effect of Termination . . . . . . . . 36
ARTICLE VIII - CONDITIONS TO BUYER'S AND SEI'S OBLIGATIONS . . . . . . 37
Section 8.1 The Sellers' Closing Deliveries . . . . . . . . . . 37
Section 8.2. Representations and Warranties True . . . . . . . . 37
Section 8.3. Performance . . . . . . . . . . . . . . . . . . . . 37
Section 8.4. Governmental Consents and Approvals . . . . . . . . 37
Section 8.5. No Injunction or Proceeding . . . . . . . . . . . . 38
Section 8.6. Continued Employment of Management . . . . . . . . 38
ARTICLE IX - CONDITIONS TO THE SELLERS' OBLIGATIONS . . . . . . . . . . 38
Section 9.1. Delivery of Purchase Price Shares . . . . . . . . . 38
Section 9.2. Buyer's and SEi's Closing Deliveries . . . . . . . 38
Section 9.3. Representations and Warranties True . . . . . . . . 38
Section 9.4. Performance . . . . . . . . . . . . . . . . . . . . 39
Section 9.6. Governmental Consents and Approvals . . . . . . . . 39
Section 9.7. No Injunction or Proceeding . . . . . . . . . . . . 39
<PAGE> iii
ARTICLE X - INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . 39
Section 10.1. Indemnification by the Sellers . . . . . . . . . . 39
Section 10.2. Indemnification by Buyer and SEi . . . . . . . . . 40
Section 10.3. Survival of Representations . . . . . . . . . . . . 40
Section 10.4. Indemnification Claims Procedures . . . . . . . . . 40
Section 10.5. Right of Set-Off . . . . . . . . . . . . . . . . . 42
Section 10.6. Limitation of Liability . . . . . . . . . . . . . . 42
ARTICLE XI - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . 43
Section 11.1. Governing Law . . . . . . . . . . . . . . . . . . . 43
Section 11.2. Entire Understanding, Waiver, Etc . . . . . . . . . 43
Section 11.3. Severability; Gaps . . . . . . . . . . . . . . . . 43
Section 11.4. Captions . . . . . . . . . . . . . . . . . . . . . 43
Section 11.5. Notices . . . . . . . . . . . . . . . . . . . . . . 44
Section 11.6. Successors and Assigns . . . . . . . . . . . . . . 45
Section 11.7. Parties in Interest . . . . . . . . . . . . . . . . 45
Section 11.8. Counterparts . . . . . . . . . . . . . . . . . . . 45
Section 11.9. Construction of Terms . . . . . . . . . . . . . . . 45
Section 11.10. SEi Guarantee. . . . . . . . . . . . . . . . . . . 45
EXHIBITS
Exhibit A Form of Pledge and Escrow Agreement
Exhibit B Form of Registration Rights Agreement
Exhibit C Form of Employment Agreement
DISCLOSURE SCHEDULE
Section 4.1(a) Corporate Organization of the Company
Section 4.1(b) Corporate Organization of the Subsidiaries and the
Investments
Section 4.2(a) Capitalization of the Company
Section 4.2(b) Capitalization of the Subsidiaries and the Investments
Section 4.4(a) Ownership of Quotas
Section 4.4(b) Ownership of Share Capital of the Subsidiaries and the
Investments
Section 4.5 Sellers' Consents and Approvals; No Violations
Section 4.6 Consents and Approvals; No Violations
Section 4.7(a) Financial Statements
Section 4.7(b) Financial Statements Exceptions
Section 4.8 Undisclosed Liabilities
Section 4.9 Taxes
Section 4.10(a) List of Material Fixed Assets
Section 4.10(b) Title to Properties Exceptions
Section 4.10(c) Possession and Condition of Assets
Section 4.11 Absence of Changes
Section 4.12(a) List of Intellectual Property
Section 4.12(b) Fees and Royalties
Section 4.12(c) Registrations; Exclusive Rights
Section 4.12(d) Trade Secrets
Section 4.12(e) Intellectual Property Claims
<PAGE> iv
Section 4.13 Leases
Section 4.14(a) List of Accounts
Section 4.14(b) Investments
Section 4.14(c) Ownership of SEi Stock
Section 4.15(a) List of Material Contracts
Section 4.15(c) Customers and Suppliers
Section 4.16 Related Transactions
Section 4.17(a) List of Insurance Policies
Section 4.17(b) Insurance Policy Terminations
Section 4.17(c) Insurance Policy Claims
Section 4.17(d) Unpaid Insurance Claims
Section 4.18(a) Labor Matters
Section 4.18(b) List of Employees
Section 4.19 Employee Benefit Plans
Section 4.20 Litigation
Section 4.21 Compliance with Laws
Section 4.24 Adequacy of Assets
Section 4.26 Accounts Receivable
Section 4.30 Restrictive Covenants
Section 4.31 Product Liabilities and Warranties
<PAGE> 1
ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT is made and entered into as of September
19, 1997, by and among the undersigned persons (collectively, the
"Sellers"), being the holders of all the outstanding capital interests of
TAS Telemarketing Gesellschaft fur Kommunikation und Dialog mbH, a limited
liability company organized under the laws of the Federal Republic of
Germany (the "Company"), each such Seller being an individual residing in,
and a citizen of, the Federal Republic of Germany, Sykes Enterprises GmbH,
a limited liability company organized and existing under the laws of the
Federal Republic of Germany ("Buyer"), and SYKES ENTERPRISES,
INCORPORATED, a corporation organized and existing under the laws of
Florida ("SEi").
RECITALS
WHEREAS, the Sellers own all of the issued capital interests of the
Company (the "Company Quotas");
WHEREAS, the Company owns sixty-four percent (64%) of the issued
capital interests of TST Teleservice Team Gesellschaft fur Dienstleistung
und Vertrieb mbH ("TST"), fifty percent (50%) of the issued capital
interests of TOP Teleshopping GmbH ("TOP") and fifty percent (50%) of the
issued capital interests of HCD Human Call Centre Design
Planungsgesellschaft mbH, each a limited liability company organized and
existing under the laws of the Federal Republic of Germany (collectively,
the "Subsidiaries," and together with the Company, the "Companies");
WHEREAS, the Company owns forty-nine percent (49%) of the issued
capital interests of KEP Call Gesellschaft fur Mehrwertdienste im
Telekommunikationsbereich mbH ("KEP") and twenty-two percent (22%) of the
issued capital interests of TAS Telemarketing Gesellschaft fur
Kommunikation, Dialog und Kooperation GmbH, each a limited liability
company organized and existing under the laws of the Federal Republic of
Germany (collectively, the "Investments");
WHEREAS, it is intended that seventeen percent (17%) of the issued
capital interest of TOP will be transferred to the Company by Alfons
Bromkamp, one of the Sellers ("Bromkamp"), in contemplation of the
transactions herein provided for;
WHEREAS, SEi owns all of the issued capital interests of Buyer;
WHEREAS, the Sellers desire to sell the Company Quotas in exchange
for shares of SEi's common stock, and SEi is willing to cause the Buyer to
purchase the Company Quotas from the Sellers in exchange for shares of
SEi's common stock, on the terms and subject to the conditions hereinafter
set forth; and
WHEREAS, SEi intends to treat the acquisition by the Buyer of the
Company Quotas as a "pooling of interests" for financial accounting
purposes.
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements hereinafter set
forth and for other good and valuable considerations, the receipt and
sufficiency of which are hereby expressly acknowledged by the Sellers,
the Buyer and SEi, and intending to be legally bound, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. The terms defined in this Article shall
have the following respective meanings for all purposes of this Agreement:
"Affiliate" means, with respect to any Person, an officer,
director or beneficial owner of five percent (5%) or more of the issued
and outstanding shares of any class of capital stock or other equity of
such Person, a family member of such Person, if an individual, and any
other Person controlling, controlled by or under common control with such
Person.
"Alternative Transaction" means any merger, consolidation, sale
of substantial assets, sale of capital interests or securities or similar
transaction involving the Company or any Subsidiary, other than the
transactions contemplated by this Agreement.
"Business" means the businesses conducted by the Company, the
Subsidiaries and the Investments, or by any of them, as of the date of
this Agreement or as of the Closing Date, in each case as the context
permits or implies, which consist of providing the following services on a
"for hire" basis:
(i) call center services;
(ii) telemarketing and teleselling services;
(iii) fulfillment services for telemarketing and call center
customers;
(iv) database development services for telemarketing and call
center customers; and
(v) consulting and training services related to the above
service categories.]
"Business Day" means any day on which banks are open for
business in New York, New York.
"Closing" means the consummation and effectuation of the
transactions contemplated herein pursuant to the terms and conditions of
this Agreement, which shall be held on the 26th day of September, 1997, at
10:00 AM in the offices of Schon Nolte Finkelnburg & Clemm in Hamburg,
Federal Republic of Germany, or on such other date or at such other time
or place as is mutually agreed by the parties hereto.
<PAGE> 3
"Closing Date" means the date on which the Closing actually
occurs.
"Code" means the Internal Revenue Code of 1986, as amended.
"Customers" shall have the meaning set forth in Section 4.15.
"Disclosure Schedule" means the disclosure schedule document
executed by Sellers as of the date hereof and previously delivered to the
Buyer and SEi, without any amendment thereto subsequent to the date
hereof.
"Employee Benefit Plan" means any pension, retirement, profit
sharing, savings, thrift, stock bonus, stock option, stock purchase,
restricted stock purchase, stock ownership, stock appreciation right,
phantom stock, deferred compensation, supplemental retirement, deferred
bonus, severance, change of control, parachute, health, medical, dental,
vision, prescription drugs, fitness, dependent care, educational
assistance, group legal services, life insurance, accidental death,
accidental dismemberment, sick pay, short-term or long-term disability,
supplemental unemployment income, training, apprenticeship, scholarship,
tuition reimbursement, employee assistance, employee discount, subsidized
cafeteria, fringe benefit, vacation, holiday, employer-sponsored
recreational facility, or other employee pension benefit or welfare
benefit plan, policy, contract, or arrangement, or other similar fringe or
employee benefit plan, program, policy, contract, or arrangement, written
or oral, qualified or nonqualified, funded or unfunded, foreign or
domestic.
"Escrow Agent" means Firstar Trust Company of Milwaukee,
Wisconsin, or such other person as SEi and the Sellers shall mutually
agree upon, in its capacity as escrow agent.
"Financial Statements" has the meaning set forth in Section 4.7.
"Form 10-Q Balance Sheet" means the unaudited balance sheet
dated June 30, 1997 (and any related notes thereto), found in the
quarterly report filed on Form 10-Q filed with the Securities and Exchange
Commission for the quarterly period ended June 30, 1997, a copy of which
is included as part of the SEi Filings.
"GGAAP" means generally accepted accounting principles as in
effect in the Federal Republic of Germany on December 31, 1996.
"Grants" means governmental grants, subsidies, guarantees and/or
loans provided to or for the benefit of a Person.
"Intellectual Property" means all intellectual property and
intellectual property rights, whether arising under the laws of the
Federal Republic of Germany or any other jurisdiction including, without
limitation, (i) all patents, patent applications, continuations in part,
divisions, reissues and patent disclosures, (ii) all copyrights, whether
registered or unregistered, and pending applications to register the same,
(iii) anything recognizable as a trademark, service mark or trade dress at
common law or under the laws of any country, whether registered or not,
which is used to identify the source and quality of goods or services or
to distinguish them from those of others, and all registrations and
applications for registration, including intent-to-use registrations and
applications for registration, (iv) all licenses, sublicenses and rights
to use any Intellectual Property of any other Person, (v) all names used
<PAGE> 4
to identify a particular company, business, subsidiary or division
thereof, (vi) all confidential and proprietary ideas, trade secrets, know
how, concepts, methods, processes, formulae, reports, data, customer
lists, mailing lists, business plans or other proprietary information,
including, without limitation, with respect to any Person, any formulae,
pattern, device or compilation of information which is used in such
Person's business and which derives independent commercial value from not
being generally known or readily ascertainable through independent
development or reverse engineering by other Persons who can obtain
economic value from its disclosure or use, and (vii) all other forms of
proprietary information.
"Interim Balance Sheets" means the unaudited consolidated
balance sheet of the Company and the Subsidiaries, and the unaudited
balance sheets of each of the Investments, in each case dated as of the
Interim Balance Sheet Date (and any related notes thereto), a copy of
which is included as part of the Financial Statements.
"Interim Balance Sheet Date" means July 31, 1997.
"Leased Real Property" means all real property and premises
currently leased to the Company, the Subsidiaries and the Investments.
"Material Adverse Effect" means, with respect to any Person, a
material adverse effect on the financial condition, results of operations
or business prospects of such Person.
"NASDAQ" means The Nasdaq National Stock Market, Inc.'s National
Market.
"Person" means an individual, partnership, limited liability
company, corporation, trust, unincorporated organization, association or
joint venture or a government, agency, political subdivision or
instrumentality thereof.
"Purchase Price Shares" means the 400,000 shares of SEi Stock to
be issued to the Sellers in consideration of the transfer and assignment
of the Company Quotas.
"Related Agreements" means the agreements described in Section
6.8.
<PAGE> 5
"SEC" means the United States Securities and Exchange
Commission.
"SEi Filings" means the following filings made by SEi with the
SEC: the annual report on Form 10-K for the annual period ending December
31, 1996, the quarterly reports on Form 10-Q for the quarterly periods
ending March 30, 1997, and June 30, 1997, and the Annual Report to
Stockholders and related proxy statement filed on Schedule 14A with
respect to an annual meeting of SEi's shareholders held on May 8, 1997.
"SEi Stock" means SEi's common stock, $.01 par value per share.
"Seller's Shares" means, with respect to any Seller, a number of
shares of SEi Stock equal to the product (rounded to the nearest whole
share) of (A) the Purchase Price Shares, multiplied by (B) such Seller's
percentage ownership (expressed as a decimal) in the Company as shown in
Section 2.1.
"Taxes" means all taxes, assessments, and charges imposed by any
national, federal, state, provincial, local, or foreign taxing authority,
including social security, insurance and other state-sponsored pension
funds and all interest, penalties and additions thereto.
"Transfer Agent" means Firstar Trust Company of Milwaukee,
Wisconsin, in its capacity as transfer agent for SEi Stock.
"USGAAP" means generally accepted accounting principles as in
effect in the United States on December 31, 1996.
ARTICLE II
PURCHASE, SALE AND ASSIGNMENT OF SHARES
Section 2.1. Purchase and Sale of Shares. Upon the terms and
subject to the conditions hereof, each of the Sellers hereby sells to
Buyer and Buyer hereby buys from each of the Sellers, all of such Seller's
right, title and interest in and to the Company Quotas set forth below
opposite the name of such Seller together with the right to receive
dividends with respect to such Company Quotas as of January 1, 1997, and
the applicable capital reserve, in each case in consideration for the
delivery of the Purchase Price Shares as provided in Article III below.
<PAGE> 6
Company Quotas
--------------
Share Percentage
Name Capital Interest
---- ------- ----------
Alfons Bromkamp DM64,400 87%
Christian Frohlich DM 9,600 13%
-------- ---
Total DM74,000 100%
======== ====
Section 2.2. Assignment of Shares. Each of the Sellers hereby
assigns and transfers such Seller's Company Quotas, as specified in
Section 2.1 together with the right to receive dividends on the such
Company Quotas as of January 1, 1997, to Buyer at the Closing and Buyer
hereby accepts such assignments. All such assignments are subject to:
(a) the delivery of the Purchase Price Shares in accordance
with Article III hereof;
(b) the non-occurrence of a termination of this Agreement in
accordance with Section 7.1 prior to the Closing; and
(c) the fulfillment or waiver of all of the conditions
precedent specified in Article VIII and Article IX.
Each of the Sellers hereby consents to the sales and transfers
effected herein and waives any preemptive rights or rights of first
refusal he may have under the Articles of Association of the Company.
ARTICLE III
DELIVERY OF PURCHASE PRICE SHARES
Section 3.1. Delivery of Purchase Price Shares. Upon the
terms and subject to the conditions hereof, SEi shall issue, and Buyer
shall deliver, the Purchase Price Shares as follows:
(a) to the Escrow Agent promptly following the Closing, a
certificate or certificates issued in the name of each Seller, each such
certificate bearing the legend provided for in Section 4.28(g) and
evidencing a number of shares equal to twenty percent (20%) of the
<PAGE> 7
applicable Seller's Shares, rounded down to the nearest whole share, to be
held in accordance with a Pledge and Escrow Agreement dated as of the
Closing Date by and among SEi, Buyer, the Sellers and the Escrow Agent
substantially in the form of Exhibit A (the "Pledge and Escrow
Agreement"); and
(b) to each of the Sellers at the Closing, a certificate
or certificates or, at SEi's option, an original or a facsimile copy of an
irrevocable letter of instructions (accompanied by an original or
facsimile of a letter from the Transfer Agent acknowledging receipt of
such letter of instructions) to the Transfer Agent for the issue and
delivery of a certificate or certificates, issued in such Seller's name,
each such certificate bearing or to bear the legend provided for in
Section 4.28(g) and evidencing or to evidence a number of shares equal to
the applicable Seller's Shares remaining after delivery of Seller's Shares
for the account of such Seller in accordance with Section 3.1(a) above.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLERS (GARANTIEN)
The Sellers hereby represent and warrant to SEi and Buyer as follows,
the representations and warranties in Sections 4.3 through 4.5 relating to
individual Sellers and their respective Company Quotas being made
severally by each such Seller, and all other representations and
warranties in this Article IV being made jointly and severally by the
Sellers:
Section 4.1. Corporate Organization.
(a) The Company is a limited liability company duly
organized and validly existing under the laws of the Federal Republic of
Germany and has the full right, power and authority to own, lease and
operate all of its properties and assets and to carry out the Business as
it is presently conducted by the Company. The Company is duly licensed or
qualified to do business and is in good standing in each jurisdiction in
which the ownership of property or the conduct of its Business requires
such qualification or license. Except for the Subsidiaries, the
Investments and as set forth in Section 4.1(a) of the Disclosure Schedule,
there are no corporations, joint ventures, partnerships or other entities
or arrangements in which the Company, directly or indirectly, owns any
capital stock or any equity interest.
<PAGE> 8
(b) Each of the Subsidiaries and, to the knowledge of the
Sellers, the Investments is a limited liability company duly organized and
validly existing under the laws of the Federal Republic of Germany with
the full right, power and authority to own, lease and operate all of its
respective properties and assets and to carry out the Business as it is
presently conducted by such Subsidiary or Investment. Each of the
Subsidiaries and, to the knowledge of the Sellers, the Investments is duly
licensed or qualified to do business and is in good standing in each
jurisdiction in which the ownership of property or the conduct of its
Business requires such qualification or license. Except as set forth in
Section 4.1(b) of the Disclosure Schedule, there are no corporations,
joint ventures, partnerships or other entities or arrangements in which
any Subsidiary or, to the knowledge of the Sellers, any Investment
directly or indirectly, owns any capital stock or any equity interest.
Section 4.2. Capitalization.
(a) The aggregate stated share capital of the Company
consists of DM100,000. The Company Quotas, which represent all issued
share capital of the Company, have been duly authorized and validly
issued, are fully paid and nonassessable, were issued without violation of
any preemptive rights, and can be transferred to Buyer as provided herein
free of any preemptive rights. The Company has not repaid any stated
share capital to any of the Sellers, or to any prior holder of the
Company's share capital, or paid out any other equity capital in a manner
which would adversely affect the Company's ability to pay dividends in a
situation in which the Company would otherwise be permitted to pay
dividends according to German law. The redemption of the issued share
capital in the nominal amount of DM26,000 held by Pilz & Partner on
September 17, 1997 has been duly and validly effected in accordance with
German law and the Company's Articles of Association. Without intending to
limit the foregoing, Section 4.2(a)(i) of the Disclosed Schedule sets
forth a true, complete and correct in all material respects computation of
the Company's capital in excess of stated share capital as of September
17, 1997. Except for this Agreement and as set forth in Section
4.2(a)(ii) of the Disclosure Schedule, there are no options, warrants or
other rights, nor any agreements, commitments or arrangements of any kind,
relating to the subscription for or the issuance, voting, acquisition,
sale, repurchase, transfer or disposition of (i) any share capital of the
Company or securities convertible into or exchangeable for share capital
of the Company, or (ii) any options, warrants or subscription rights
relating to any such share capital or other securities of the Company.
<PAGE> 9
(b) The aggregate stated share capital of the Subsidiaries
and the Investments, and the percentage and monetary amount of such share
capital owned by the Company, are set forth in Section 4.2(b) of the
Disclosure Schedule. The issued share capital set forth in Section 4.2(b)
of the Disclosure Schedule with respect to each of the Subsidiaries and,
to the knowledge of the Sellers, the Investments has been duly authorized
and validly issued, is fully paid and nonassessable, and was issued
without violation of any preemptive rights. The Subsidiaries and, to the
knowledge of the Sellers, the Investments have not repaid any stated share
capital to any holder of their respective share capital, or to any prior
holder of such share capital, or paid out any other equity capital in a
manner which would adversely affect the such Subsidiary's or Investment's
ability to pay dividends in a situation in which such Subsidiary or
Investment would otherwise be permitted to pay dividends according to
German law. Except for this Agreement and as set forth in Section 4.2(b)
of the Disclosure Schedule, there are no options, warrants or other
rights, nor any agreements, commitments or arrangements of any kind,
relating to the subscription for or the issuance, voting, acquisition,
sale, repurchase, transfer or disposition of (i) any share capital of, or
securities convertible into or exchangeable for share capital of, the
Subsidiaries or, to the knowledge of the Sellers, the Investments, or (ii)
any options, warrants or subscription rights relating to any such share
capital or other securities of the Subsidiaries or, to the knowledge of
the Sellers, the Investments.
Section 4.3. Authority; Binding Effect. Each of the Sellers
has all requisite right, power and authority to execute, deliver and
perform this Agreement and the Related Agreements to which such Seller is
a party. This Agreement and the Related Agreements to which the Sellers
are parties have been duly and validly executed and delivered by the
Sellers and constitute the legal, valid and binding obligations of each of
the Sellers, enforceable against each of the Sellers in accordance with
their respective terms.
Section 4.4. Ownership of Share Capital; Title.
(a) Except as disclosed in Section 4.4(a) of the
Disclosure Schedule, each of the Sellers owns of record and beneficially
the Company Quotas set forth beside such Seller's name in Section 2.1.
All issued share capital of the Company have been owned of record and
beneficially at all times exclusively by individual citizens of, or other
Persons organized and existing under the laws of, the Federal Republic of
Germany. Each of the Sellers has and will have, on the Closing Date,
<PAGE> 10
good, marketable and valid title to the Company Quotas to be sold by such
Seller hereunder, free and clear of all liens, pledges, encumbrances,
claims, security interests, charges, voting trusts, voting agreements,
other agreements, rights, options, warrants or other restrictions of any
kind, nature or description, other than those referenced in Section
4.2(a)(ii) of the Disclosure Schedule. The execution, delivery,
notarization and performance of this Agreement will convey to Buyer at the
Closing good title to the Company Quotas free and clear of all claims,
liens, encumbrances, security interests, charges or restrictions on
transfer of any nature whatsoever, other than those contained in the
Company's or TOP's respective Articles of Association. No Seller is
involved in any proceedings by or against such Seller under any bankruptcy
laws or under any other insolvency or debtor's relief act.
(b) Except as disclosed in Section 4.4(b) of the
Disclosure Schedule, the Company owns of record and beneficially the share
capital in the Subsidiaries and the Investments set forth in Section
4.2(b) of the Disclosure Schedule. All issued share capital of the
Subsidiaries and, to the knowledge of the Sellers, the Investments has
been owned of record and beneficially at all times exclusively by
individual citizens of, or other Persons organized and existing under the
laws of, the Federal Republic of Germany. The Company has and will have,
on the Closing Date, good, marketable and valid title to such share
capital, free and clear of all liens, pledges, encumbrances, claims,
security interests, charges, voting trusts, voting agreements, other
agreements, rights, options, warrants or other restrictions of any kind,
nature or description, other than those referenced in Section 4.4(b) of
the Disclosure Schedule.
Section 4.5. The Sellers' Consents and Approvals; No
Violations. Except as set forth in Section 4.5 of the Disclosure
Schedule, the execution, delivery and performance by each of the Sellers
of this Agreement and the Related Agreements to which he is a party will
not (with or without the giving of notice or the passage of time, or both)
(a) violate any applicable provision of law or any rule or regulation of
any national, federal, state, provincial or local administrative agency or
governmental authority applicable to the Sellers, or any order, writ,
injunction, judgment or decree of any court, administrative agency or
governmental authority applicable to the Sellers, (b) violate or require
any consent, waiver or approval under (except for the matters
<PAGE> 11
referenced in Section 4.5 of the Disclosure Schedule), result in a
breach, modification or termination of any provisions of, constitute a
default under, affect the rights under or enforceability of, or result in
the imposition of any pledge, security interest or other encumbrance upon
any of the Company Quotas or the share capital of the Subsidiaries or the
Investments pursuant to, any agreement, indenture, mortgage, deed of
trust, lease, license, or other instrument to which any Seller is a party
or by which any of them is bound, or any license, permit or certificate
held by any of them including, without limitation, those listed on the
Disclosure Schedule, or (c) based upon the information provided to Sellers
with respect to Buyer, require any consent or approval by, notice to or
registration with any governmental authority or other Person which is
applicable to any Seller.
Section 4.6. Consents and Approvals; No Violations. Except as
set forth in Section 4.6 of the Disclosure Schedule, the execution,
delivery and performance by each of the Sellers of this Agreement and the
Related Agreements to which he is a party will not (with or without the
giving of notice or the passage of time, or both) (a) violate any
provision of law or any rule or regulation of any national, federal,
state, provincial or local administrative agency or governmental authority
applicable to the Company, the Subsidiaries or, to the knowledge of the
Sellers, the Investments, or any order, writ, injunction, judgment or
decree of any court, administrative agency or governmental authority
applicable to the Company, the Subsidiaries or, to the knowledge of the
Sellers, the Investments, (b) violate the organizational documents of the
Company, the Subsidiaries or the Investments, (c) violate or require any
consent, waiver or approval under, result in a breach, modification or
termination of any provisions of, constitute a default under, affect the
rights under or enforceability of, result in the imposition of any pledge,
security interest or other encumbrance pursuant to, or give any Person the
right to terminate, modify or renegotiate any provision of, any agreement,
indenture, mortgage, deed of trust, lease, license, or other instrument to
which the Company, the Subsidiaries or, to the knowledge of the Sellers,
the Investments is a party or by which the Company, the Subsidiaries or,
to the knowledge of the Sellers, the Investments is bound, or any license,
permit or certificate held by the Company, the Subsidiaries or, to the
knowledge of the Sellers, the Investments including, without limitation,
those listed on the Disclosure Schedule, (d) based upon the information
provided to Sellers with respect to Buyer, require any consent or approval
by, notice to or registration with any governmental authority or other
Person which is applicable to the Company, the Subsidiaries or, to the
knowledge of the Sellers, the Investments, or (e) result in the creation
<PAGE> 12
of any lien, claim, encumbrance or charge upon any property or assets of
the Company, the Subsidiaries or, to the knowledge of the Sellers, the
Investments.
Section 4.7. Financial Statements.
(a) Section 4.7(a) of the Disclosure Schedule contains (i)
the audited consolidated balance sheet and the related audited
consolidated income statement (including any related notes thereto) of the
Company and the Subsidiaries, and the audited balance sheet and the
related audited income statement (including any related notes thereto) of
each of the Investments, in each case as of and for the fiscal years ended
December 31, 1994, December 31, 1995 and December 31, 1996, and (ii) the
Interim Balance Sheets and the related unaudited consolidated income
statements of the Company and the Subsidiaries, and the Interim Balance
Sheets and the related unaudited income statements of each of the
Investments, in each case as of and for the seven-month period ending as
of the Interim Balance Sheet Date (including any related notes thereto)
(collectively, the "Financial Statements").
(b) Except as set forth on Section 4.7(b) of the
Disclosure Schedule and to the knowledge of the Sellers with respect to
Financial Statements relating to the Investments, the Financial Statements
(i) are true, correct and complete in all material respects; (ii) are in
accordance with the books and records of the Company, the Subsidiaries and
each of the Investments; (iii) have been prepared in accordance with
principles of orderly bookkeeping and GGAAP applied on a consistent basis
throughout the periods involved, respecting principles of prudence and
continuity; (iv) fairly present, in the case of each year-end balance
sheet and the Interim Balance Sheet, the financial positions of the
Company and the Subsidiaries, and of each of the Investments, as of the
respective dates thereof and, in the case of the related income
statements, the results of operations and earnings of the Company and the
Subsidiaries, and of each of the Investments, for the respective periods
indicated; and (v) in the case of the Interim Balance Sheets, were
prepared in accordance with principles applicable to a year-end balance
sheet and present information comparable to other balance sheets included
in the Financial Statements.
Section 4.8. Undisclosed Liabilities. Except as set forth on
Section 4.8 of the Disclosure Schedule, neither the Company, nor any the
Subsidiaries nor, to the knowledge the Sellers, any of the Investments has
any liabilities (absolute, accrued, contingent or otherwise) which are
<PAGE> 13
required to be reflected in a balance sheet or in the notes thereto under
GGAAP, except (a) liabilities reflected or reserved against in the Interim
Balance Sheets, and (b) liabilities incurred since the Interim Balance
Sheet Date in the ordinary course of business, or which, in the aggregate,
do not exceed DM10,000 with respect to such Person.
Section 4.9. Taxes. Except as set forth in Section 4.9 of the
Disclosure Schedule, each of the Company, the Subsidiaries and, to the
knowledge of the Sellers, the Investments has timely filed all returns,
declarations, reports, information returns and statements required to be
filed by it (the"Returns") in respect of any Taxes and has paid all Taxes
currently due and payable by it. Except as set forth in Section 4.9 of
the Disclosure Schedule and to the knowledge of the Sellers with respect
to Returns relating exclusively to the Investments, the Returns accurately
and completely reflect the facts regarding the income, properties,
operations and status of any entity required to be shown thereon, and no
notice of any proposed deficiency, assessment or levy in respect of Taxes
has been received by the Company, the Subsidiaries or, to the knowledge of
the Sellers, the Investments. Except as set forth in Section 4.9 of the
Disclosure Schedule, neither the Company, nor any of the Subsidiaries,
nor, to the knowledge of the Sellers, any of the Investments is currently
or, during the past three years, has been the subject of an audit or in
receipt of a notice that it is being or will be audited by a relevant
Taxing authority, or has agreed to any extension of time of any applicable
statute of limitations period, and each of the Company, the Subsidiaries
and, to the knowledge of the Sellers, the Investments has duly withheld
from each payment from which such withholding is required by law, the
amount of all Taxes required to be withheld therefrom and has paid the
same (to the extent due) together with the employer's share of the same,
if any, to the proper Tax receiving officers. Except as set forth in
Section 4.9 of the Disclosure Schedule, the charges, accruals, and
reserves for Taxes due, or accrued but not yet due, relating to the
income, properties or operations of each of the Company, the Subsidiaries
and, to the knowledge of the Sellers, the Investments for any period prior
to or including the Closing Date as reflected on the books of each of the
Company, the Subsidiaries and, to the knowledge of the Sellers, the
Investments are adequate in all material respects to cover such Taxes, all
Tax deficiencies which have been proposed or asserted against the Company,
any Subsidiary or, to the knowledge of the Sellers, any Investment 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, neither the Company, nor any of the Subsidiaries,
<PAGE> 14
nor, to the knowledge of the Sellers, any of the Investments has received
any Tax incentive, abatement or other credit with respect to its assets,
the Business it conducts, its employees or otherwise which contains
provisions for the repayment of any Tax benefit, and each of the Company,
the Subsidiaries and, to the knowledge of the Sellers, the Investments has
incurred liabilities for Taxes only in the ordinary course of the
Business. Neither the Company, nor any of the Subsidiaries, nor, to the
knowledge of the Sellers, any of the Investments has ever conducted
business in the United States, has ever had any assets, employees or
shareholders located or resident in the United States, or has ever made
any election with the United States Internal Revenue Service regarding
Taxes in the United States.
Section 4.10. Title to Properties.
(a) Neither the Company, nor any of the Subsidiaries, nor,
to the knowledge of the Sellers, any of the Investments owns or has ever
owned, in whole or in part, any interest in any real property. Section
4.10(a) of the Disclosure Schedule sets forth a complete and accurate list
(subdivided by Person) of all fixed assets owned by the Company, the
Subsidiaries and the Investments and used in the Business as of the
Interim Balance Sheet Date.
(b) Except for the normal reservation of title of
suppliers to the extent not paid and as set forth in Section 4.10(b) of
the Disclosure Schedule, each of the Company, the Subsidiaries and, to the
knowledge of the Sellers, the Investments has good and marketable title to
all the personal property and assets (tangible and intangible) reflected
as owned by it on the Interim Balance Sheets or acquired since the Interim
Balance Sheet Date (except for properties and assets disposed of since
such date in the ordinary course of business and consistent with past
practice), free and clear of all liens, charges, security interests or
other encumbrances of any nature whatsoever.
(c) Except as set forth on Section 4.10(c) of the
Disclosure Schedule and to the knowledge of the Sellers with respect to
the Investments, all such assets (i) are now in the possession of the
Company, the Subsidiaries or the Investments, (ii) are not subject to
claims by any other Person with a right to possession of all or any part
of such assets, (iii) are in good operating condition (ordinary wear and
tear excepted), (iv) are not, individually or in the aggregate, in need of
any repairs which individually or in the aggregate could cost in excess of
DM10,000, and (v) are located on the Leased Real Property.
<PAGE> 15
Section 4.11. Absence of Changes. Except as set forth in
Section 4.11 of the Disclosure Schedule, since December 31, 1996, each of
the Company, the Subsidiaries and, to the knowledge of the Sellers, the
Investments has operated only in the ordinary course of the Business in
all material respects and there has not been with respect to the such
Person:
(a) any change or changes in the Business, financial
condition, properties, results of operations or assets or liabilities, or
any development or event involving a prospective change, other than
changes in the ordinary course of the Business and other than changes
which singularly or in the aggregate, have not had and will not have a
Material Adverse Effect;
(b) any material damage or destruction, loss or
other casualty, however arising and whether or not covered by insurance;
(c) any labor dispute or any other similar event or
condition of any character involving employees of such Person;
(d) any indebtedness incurred for borrowed money
(except by endorsement for collection or for deposit of negotiable
instruments received in the ordinary course of the Business it conducts);
(e) any change in the accounting methods,
procedures or practices or any change in depreciation or amortization
policies or rates theretofore adopted;
(f) any amendment or termination of any contract,
agreement, lease, franchise or license;
(g) any amendment of its organizational documents;
(h) any mortgage, pledge or other encumbering of any
property or assets;
(i) any material liability or obligation incurred,
except current liabilities incurred in the ordinary course of the Business
it conducts, or any cancellation or compromise of any material debt or
claim, or any waiver or release of any right of substantial value to the
Business it conducts;
<PAGE> 16
(j) any sale, transfer, lease, abandonment or other
disposal of any machinery, equipment or real property with a fair market
value in excess of DM10,000 or, except in the ordinary course of the
Business it conducts, any sale, transfer, lease, abandonment or other
disposal of any portion of any other properties or assets (real, personal
or mixed, tangible or intangible);
(k) any transfer, disposal or grant of any rights
under any Intellectual Property owned by such Person, or any disposal of
or disclosure to any other Person other than representatives of Buyer or
SEi of any material trade secret, formula, process or know-how not
theretofore a matter of public knowledge; except, in each case, in the
ordinary course of the Business it conducts;
(l) any bonus or other increase in the compensation
of its officers, employees or directors, or any agreement entered into
with any officer, employee or director, except, in each case, in the
ordinary course of the Business it conducts and consistent with past
practice;
(m) any single capital expenditure made, or any
commitment to make any capital expenditure, in excess of DM10,000 for any
tangible or intangible capital assets, additions or improvements, except
in the ordinary course of the Business it conducts;
(n) any declaration, payment or reservation for
payment of any dividend or other distribution in respect of the share
capital of such Person or any other securities, or any redemption,
purchase or other acquisition, directly or indirectly, of any share
capital or other securities of such Person;
(o) any grant or extension of any power-of-attorney
or guaranty in respect of the obligation of any other Person;
(p) any forward purchase commitments involving more
than DM10,000 in the aggregate or any other purchase commitments that are
not in the ordinary course of the Business it conducts;
(q) the adoption of any ruling, law, ordinance,
statute, rule, regulation, code, or other requirement of any governmental
authority which adversely affects such Person or the Business it conducts;
or
<PAGE> 17
(r) any entry into any binding agreement, whether in
writing or otherwise, to take any action described in this Section 4.11.
Section 4.12. Intellectual Property.
(a) Section 4.12(a) of the Disclosure Schedule contains a
list and description (including information with respect to registration)
of all Intellectual Property owned or used by the Company, any Subsidiary
or, to the knowledge of the Sellers, any Investment, subdivided by Person
and type of Intellectual Property. Each of the Company, the Subsidiaries
and, to the knowledge of the Sellers, the Investments owns or has the
right to use all Intellectual Property used by it in the conduct of the
Business as presently conducted by it. Except for the rights and licenses
granted to the Company, the Subsidiaries or the Investments under software
contracts, the Company, a Subsidiary or, to the knowledge of the Sellers,
an Investment, as indicated in Section 4.12(a) of the Disclosure Schedule,
owns all right, title and interest in the Intellectual Property required
to be identified on Section 4.12(a) of the Disclosure Schedule, free and
clear of any encumbrance. Neither the Company, nor any of the
Subsidiaries nor, to the knowledge of the Sellers, any of the Investments
has granted, transferred, or assigned any right or interest in its
Intellectual Property to any other Person.
(b) Except as disclosed in Section 4.12(b) of the
Disclosure Schedule, no fees or royalties are payable or will be payable
under any software contracts listed in Section 4.12(a) of the Disclosure
Schedule as a result of the continued use of licensed software by the
Person indicated as licensing such software in Section 4.12(a) of the
Disclosure Schedule in the ordinary course of the Business conducted by
such Person, other than fees or royalties due for upgrades and fees or
royalties that do not exceed DM20,000 per year in the aggregate.
(c) Except as disclosed in Section 4.12(c) of the
Disclosure Schedule and to the knowledge of the Sellers with respect to
the Investments, (i) all registrations for Intellectual Property required
to be identified in Section 4.12(a) of the Disclosure Schedule as being
owned by the Company, a Subsidiary or an Investment are valid and in force
and applications to register any unregistered Intellectual Property so
identified are pending and in good standing, all without challenge of any
kind and to the best knowledge of the Sellers, there is no basis for any
such challenge; and (ii) the Company, a Subsidiary or an Investment has
the exclusive right to bring actions for infringement or unauthorized use
of the Intellectual Property identified as being owned by such Person, and
<PAGE> 18
there is, to the best knowledge of the Sellers, no basis for any such
action.
(d) Except as disclosed in Section 4.12(d) of the
Disclosure Schedule, all trade secrets of each of the Company, the
Subsidiaries and, to the knowledge of the Sellers, the Investments (i)
have at all times been maintained in confidence, and (ii) have not been
disclosed to employees, consultants or other third parties except on a
"need to know" basis in connection with their respective performance of
duties to the Company, a Subsidiary or an Investment, as applicable.
(e) Except as disclosed in Section 4.12(e) of the
Disclosure Schedule, no claims have been asserted by any Person against
the Company, any Subsidiary or, to the knowledge of the Sellers, any
Investment claiming ownership of or right to use any of the Intellectual
Property required to be disclosed on Section 4.12(a) of the Disclosure
Schedule (other than ownership of Intellectual Property licensed to the
Company, a Subsidiary or an Investment under the software contracts listed
on Section 4.12(a) of the Disclosure Schedule) nor, to the best knowledge
of the Sellers, is there any basis for any such claim. The use of the
Intellectual Property by each the Company, the Subsidiaries and, to the
knowledge of the Sellers, the Investments has not infringed on the rights
of any Person and, except as disclosed in Section 4.12(e) of the
Disclosure Schedule, no claim of infringement or any misuse or
misappropriation of any the Intellectual Property of any other Person has
been made or asserted against the Company, any Subsidiary or, to the
knowledge of the Sellers, any Investment in respect of the Business
conducted by it, nor is there, to the best knowledge of the Sellers, any
basis for any such claim.
Section 4.13. Leases. Section 4.13 of the Disclosure Schedule
contains an accurate and complete list of all leases pursuant to which the
Company, a Subsidiary or, to the knowledge of the Sellers, an Investment
leases real or personal property. Except as set forth in Section 4.13 of
the Disclosure Schedule, all such leases are in full force and effect and
are valid, binding and enforceable in accordance with their terms; there
are no existing defaults or events which, with the giving of notice or the
lapse of time or both, would constitute a default thereunder by the
Company, the Subsidiary or, to the knowledge of the Sellers, the
Investment, as applicable, or any other parties thereto. Except as set
forth in Section 4.13 of the Disclosure Schedule, all leased items of
personalty are in good operating condition, are in a state of good
maintenance and repair and are adequate and suitable for the purpose for
<PAGE> 19
which they are presently being used. Each such lease contains terms and
conditions obtained from independent third parties and negotiated in good
faith at arms-length. None of the rights of the Company, the Subsidiary
or, to the knowledge of the Sellers, the Investment, as applicable, under
each such lease is subject to termination or modification as a result of
the transactions contemplated hereby.
Section 4.14. Bank Accounts; Investments; Powers of Attorney.
(a) Section 4.14(a) of the Disclosure Schedule sets
forth the names and locations of all banks, trust companies, savings and
loan associations and other financial institutions at which the Company, a
Subsidiary or, to the knowledge of the Sellers, an Investment maintains
safe deposit boxes or accounts of any nature and the names (and limits, if
any) of all persons authorized to draw thereon, make withdrawals therefrom
or have access thereto.
(b) Section 4.14(b) of the Disclosure Schedule sets forth
a list (subdivided by Person) and description (including interest rates
and other significant terms) of all funds, securities and other
instruments in which excess cash of the Company, the Subsidiaries and, to
the knowledge of the Sellers, the Investments 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 and to the knowledge of the Sellers with respect to
the Investments and Affiliates exclusively of the Investments, neither the
Company, nor any of the Subsidiaries, nor any of the Investments, nor any
of their respective Affiliates beneficially or of record owns any shares
of SEi Stock.
(d) Neither the Company nor any of the Subsidiaries nor,
to the knowledge of the Sellers, any of the Investments has granted or
extended to any Person, or is otherwise subject to or bound by, any power
of attorney which remains in effect, except for the authorizations set
forth in Section 4.14(a) of the Disclosure Schedule.
Section 4.15. Material Contracts and Customers.
(a) To the knowledge of the Sellers with respect to the
Investments, Section 4.15(a) of the Disclosure Schedule contains a true
<PAGE> 20
and correct list (subdivided by Person) of all material contracts,
agreements or other understandings or arrangements, written or oral, or
commitments therefor, relating to the Business, assets or liabilities of
Company, the Subsidiaries, or, to the Sellers' knowledge the Investments,
(collectively, the "Contracts"). Except as set forth in Section 4.15(a)
of the Disclosure Schedule, neither the Company, nor any of the
Subsidiaries, nor, to the knowledge of the Sellers, any of the
Investments, is a party to, or otherwise bound by, any written or oral,
formal or informal:
(i) purchase orders and other contracts, in each case
for the sale of goods or services, in excess of DM40,000 (net of value
added taxes) individually or, for any group of related purchase orders and
contracts, in the aggregate;
(ii) contracts, agreements or commitments for the
purchase of materials or services which are not required by such Person in
the current operation of the Business in the ordinary course, or any
agreements or commitments for the sale of goods or services which are
inadequate to recover current costs of such Person;
(iii) contracts involving the expenditure for the
purchase of material, supplies, equipment or services of more than
DM40,000 per contract;
(iv) contracts not otherwise referenced involving the
expenditure of more than DM40,000 (per contract) which are not cancelable
within thirty (30) days without penalty;
(v) contracts relating to the leasing (as lessor or
lessee) or the conditional purchase or sale by such Person of any
property, whether real, personal or mixed;
(vi) contracts to which such Person is a party or by
which any of its assets are bound and that require consent by any other
Person in connection with the transaction contemplated hereby, either to
prevent a breach or continue the effectiveness thereof;
(vii) contracts or arrangements with any
governmental body, agency or authority;
(viii) indentures, mortgages, promissory notes,
loan agreements, capital leases, security agreements or other agreements
<PAGE> 21
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 such
Person;
(ix) guarantees of the obligations of third parties
or agreements to indemnify third parties (other than indemnification
provisions provided in the ordinary course to or for the benefit of the
customers of such Person);
(x) agreements which restrict such Person from doing
business in any geographic location;
(xi) policies of insurance in force and effect with
respect to such Person, the Business it conducts or its assets;
(xii) contracts or agreements not otherwise referenced
with any of the Sellers or their Affiliates;
(xiii) license agreements (as licensee or licensor)
with third parties;
(xiv) employment or consulting agreements which
vary materially from the model employment referenced in Section 4.18(b) or
which involve the payment of DM50,000 or more during any twelve-month
period;
(xv) distributor, dealer, sales, advertising, agency,
manufacturer's representative, franchise or similar contracts or any
contract relating to the payment of a commission;
(xvi) collective bargaining or other agreements
with labor unions;
(xvii) contracts or agreements for charitable
contributions by such Person;
(xviii) any contract or agreement which could
reasonably be expected to have a Material Adverse Effect on such Person;
or
(xix) other contracts outside the ordinary course
of the Business such Person conducts which are not otherwise described in
this Subsection.
<PAGE> 22
(b) True and complete copies of each of the Contracts have
been made available to Buyer and SEi by the Sellers. Each of the
Contracts is in 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 the Company, a Subsidiary or an
Investment, as applicable, or, to the knowledge of the Sellers, by any
other party thereto. Except as referenced in Section 4.6 of the
Disclosure Schedule, none of the rights of the Company, a Subsidiary or to
the Sellers' knowledge an Investment, as applicable, under any of the
Contracts is subject to termination or modification as a result of the
transactions contemplated hereby. No notice of termination or nonrenewal
has been given under any Contract. All Contracts contain terms and
conditions not less favorable to the Company, the Subsidiary or to the
Sellers' knowledge the Investment, as applicable, than those that would be
obtained from independent third parties and have been negotiated in good
faith at arms-length. None of the Contracts with suppliers of goods or
services to the Company, a Subsidiary or to the Sellers' knowledge an
Investment, as applicable, requires the payment of any commission,
royalty, fee, brokerage fee or other similar charge. For the purposes of
Section 4.15(a), "material" contracts means contracts described in Section
4.15(a)(i) through (xix). The amounts set forth in this Section 4.15 with
respect to the Contracts shall not be deemed to represent any standard of
"materiality" with respect to the Contracts or otherwise for any other
purpose and shall have no application to any other Section of this
Agreement.
(c) Section 4.15(c) of the Disclosure Schedule contains a
list (subdivided by Person) of the name and location of the five (5)
largest customers (the "Customers") and the five (5) largest suppliers, in
each case measured by revenues generated or amounts paid, of each of the
Company, the Subsidiaries and, to the knowledge of the Sellers, the
Investments as of the Interim Balance Sheet Date. The relationships of
each of the Company, the Subsidiaries and, to the knowledge of the
Sellers, the Investments with its respective Customers are good, and no
Seller is aware of any intention of any such Customers or suppliers to
terminate or modify any of such relationships. Neither the Company, nor
any of the Subsidiaries nor, to the knowledge of the Sellers, any of the
Investments is generally required to provide bonding or any other security
arrangements in connection with any transactions with its customers or
suppliers.
<PAGE> 23
Section 4.16. Related Transactions.
(a) Except as set forth in Section 4.16 of the Disclosure
Schedule, neither the Company, the Subsidiaries nor, to the knowledge of
the Sellers, the Investments has any contractual relationship with, or any
obligation or liability owed to, any of its Affiliates, any Affiliate of
the Sellers, or any entity of which one or more Sellers is an Affiliate.
All such contractual relationships are on terms that are no less favorable
to the Company than would be the case with a non-affiliated party.
(b) Except as set forth in Section 4.16 of the Disclosure
Schedule, neither the Sellers nor any director or officer of the Company,
nor any director or officer of any of the Subsidiaries nor, to the
knowledge of the Sellers, any director or officer of any of the
Investments, nor any Affiliate of any of them has any interest, direct or
indirect, in any Person which (i) is a competitor, customer, subcontractor
of supplier of the Company, any of the Subsidiaries or any of the
Investments, or (ii) has an existing relationship with, or an interest in,
the Company, any of the Subsidiaries or any of the Investments, including
but not limited to lessors of real or personal property and Persons
against which rights or options are exercisable by the Company, any of the
Subsidiaries or any of the Investments.
Section 4.17. Insurance. Section 4.17(a) of the Disclosure
Schedule contains an accurate and complete list (subdivided by Person) of
all policies of insurance presently maintained with respect to the
Company, a Subsidiary or, to the knowledge of the Sellers, an Investment
including, without limitation, "key man" insurance with respect to any
employee. Such list includes a description of coverage, the amount of
coverage and the name of the insurer or an indication that the Company,
the Subsidiary or the Investment, as the case may be, has self-insured any
particular aspect of the Business. All such policies are in full force
and effect and no notice of cancellation or termination has been received
with respect to any such policy and there is, and has been, no default by
the Company, the Subsidiary, or, to the knowledge of the Sellers, the
Investment, as applicable, with respect to its obligations under any such
policy. Except as set forth in Section 4.17(b) of the Disclosure
Schedule, the Sellers, the Company, the Subsidiaries and, to the knowledge
of the Sellers, the Investments have not received during the past two (2)
years any written notice or other written communication from any insurance
company declining to write insurance with respect to the Business, or
canceling or amending any of the Company's, a Subsidiary's or an
Investment's insurance policies or proposing to do so. Section 4.17(c) of
<PAGE> 24
the Disclosure Schedule sets forth a summary of information (subdivided by
Person) pertaining to property damage, personal injury and products
liability claims filed by the Company, the Subsidiaries and, to the
knowledge of the Sellers, the Investments during the past five (5) years
which exceed DM2,000 in any instance, all of which have been paid or are
being defended by the Company's, a Subsidiary's, or an Investment's
insurance carriers and involve no exposure to the Company, the
Subsidiaries or the Investments. Section 4.17(d) of the Disclosure
Schedule sets forth a complete list of any claims that the Company, a
Subsidiary or, to the knowledge of the Sellers, an Investment has under
any of its insurance policies which have not been fully paid.
Section 4.18. Labor Matters.
(a) Except to the extent set forth in Section 4.18(a) of
the Disclosure Schedule, (i) each of the Company, the Subsidiaries and, to
the knowledge of the Sellers, the Investments is in compliance with all
rulings, laws, ordinances, statutes, rules, regulations, codes, and other
requirements of any governmental authority with respect to employment and
employment practices, (ii) there is no unfair labor practice charge or
complaint against the Company, a Subsidiary or, to the knowledge of the
Sellers, an Investment pending before or, to the best knowledge of the
Sellers, threatened to be brought before any labor grievance board,
authority or tribunal, nor has any such charge or complaint been, to the
best knowledge of the Sellers, threatened against the Company, a
Subsidiary or an Investment; (iii) there is no labor strike, dispute,
slowdown, or stoppage pending against or affecting the Company, a
Subsidiary or, to the knowledge of the Sellers, an Investment; (iv)
neither the Company, nor any of the Subsidiaries, nor, to the knowledge of
the Sellers, any of the Investments is a party to any collective
bargaining agreement or contract with any labor union and no works council
exists with respect to employees of the Company, a Subsidiary or, to the
knowledge of the Sellers, an Investment; (v) neither the Company, nor any
of the Subsidiaries, nor, to the knowledge of the Sellers, any of the
Investments has experienced any labor difficulty during the last three (3)
years; and (vi) there are no other controversies pending between the
Company, any of the Subsidiaries or, to the knowledge of the Sellers, any
of the Investments and any of their respective employees, including,
without limitation, claims arising under any labor laws. There has not
been any adverse change in relations with employees of the Company, any
Subsidiary or, to the knowledge of the Sellers, any of the Investments as
a result of any announcement or other disclosure of the transactions
contemplated by this Agreement.
<PAGE> 25
(b) Section 4.18(b) of the Disclosure Schedule sets forth
a list (subdivided by Person) of the names of all employees, consultants,
officers and directors of the Company, the Subsidiaries and, to the
knowledge of the Sellers, the Investments as of the date hereof, including
length of employment and date of birth. Except as indicated on Section
4.18(b) of the Disclosure Schedule, all employees have executed one of the
Company's, a Subsidiary's or, to the knowledge of the Sellers, an
Investment's model employment agreements, as appropriate, or an agreement
which does not vary materially from the appropriate model agreement. The
Sellers have delivered to SEi (i) copies of the model employment
agreements of each of the Company and the Subsidiaries, (ii) copies of all
written employment agreements to which the Company, a Subsidiary or, to
the knowledge of the Sellers, an Investment is a party with any of their
respective employees identified in Section 4.18(b) of the Disclosure
Schedule as having agreements which vary materially from the applicable
model employment agreements, (iii) written summaries of the terms of all
oral employment agreements that are other than at-will and which vary
materially from the applicable model employment agreements, and (iv) a
schedule (subdivided by Person) of compensation for all employees.
Section 4.19. Employee Benefit Plans.
(a) Set forth in Section 4.19 of the Disclosure Schedule
is an accurate and complete list (subdivided by Person) of each Employee
Benefit Plan (other than Employee Benefit Plans provided by statute)
maintained or contributed to by the Company, the Subsidiaries or, to the
knowledge of the Sellers, the Investments.
(b) Except as set forth in Section 4.19 of the Disclosure
Schedule, all amounts that the Company, a Subsidiary or, to the knowledge
of the Sellers, an Investment are required to have contributed to any
Employee Benefit Plan have been contributed within the time prescribed by
applicable law and all benefits, expenses, and other amounts due and
payable and all transfers or payments required to be made with respect to
any Employee Benefit Plan have been paid within the time prescribed by the
applicable documents and governing law.
(c) Except as set forth in Section 4.19 of the Disclosure
Schedule and to the knowledge of the Sellers with respect to Employee
Benefit Plans relating exclusively to the Investments, there are no claims
(other than routine claims for benefits) or lawsuits pending with respect
to any Employee Benefit Plan.
<PAGE> 26
(d) Except as set forth in Section 4.19 of the Disclosure
Schedule and to the knowledge of the Sellers with respect to Employee
Benefit Plans relating exclusively to the Investments, the Sellers have
previously delivered or made available to Buyer and SEi true and complete
copies of the plan documents for each Employee Benefit Plan identified in
Section 4.19 of the Disclosure Schedule.
Section 4.20. Litigation. Except as set forth in Section 4.20
of the Disclosure Schedule, there are no claims, actions, suits, or
proceedings pending or, to the best knowledge of the Sellers, threatened
against the Company, any Subsidiary or, to the knowledge of the Sellers,
any Investment relating to this Agreement or the transactions contemplated
hereby or to the Business or the properties of any of them at law or in
equity or before or by any national, federal, state, provincial, 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. Neither the Company, nor any of the Subsidiaries nor, to the
knowledge of the Sellers, any of the Investments is subject to any adverse
judgment, order, writ, injunction or decree of any court or governmental
body.
Section 4.21. Compliance with Laws. Except as set forth in
Section 4.21 of the Disclosure Schedule, each of the Company, the
Subsidiaries and, to the knowledge of the Sellers, the Investments has
conducted the Business conducted by it so as to comply with in all
material respects, and is not in material violation of, nor has it
received any written notice claiming it is in material violation of any
order, law, ordinance, statute, rule or regulation applicable to it, or to
the Business conducted by it or any of the property or assets of it
including, without limitation, any environmental or worker safety and
protection laws and regulations. Each of the Company, the Subsidiaries
and, to the knowledge of the Sellers, the Investments has all material
licenses, permits, certificates of occupancy and authorizations necessary
to conduct the Business conducted by it.
Section 4.22. Books and Records. The books, accounts and
records of each of the Company, the Subsidiaries and, to the knowledge of
the Sellers, the Investments (a) are located at their respective
headquarters located at the addresses set forth in Section 4.22 of the
Disclosure Schedule, (b) are correct and complete in all material
respects, (c) have been maintained in accordance with law and good
business practice, and (d) constitute all the books, accounts and records
<PAGE> 27
necessary to carry on the Business conducted by it in the manner in which
it is currently being conducted and has over the preceding twelve (12)
months been carried on. The copies of the organizational documents and of
the minutes of all Quota holder and director meetings of the Company, the
Subsidiaries and, to the knowledge of the Sellers, the Investments hereto
delivered by the Sellers to Buyer and SEi are complete and correct.
Section 4.23. Copies of Documents. Each of the Sellers, the
Company and the Subsidiaries has delivered or specifically made available
to Buyer, SEi and their advisors true, complete and correct copies of all
documents referred to in this Agreement or in any Section of the
Disclosure Schedule with the understanding and intention that Buyer and
SEi may and will rely upon the completeness and accuracy thereof.
Section 4.24. Adequacy of Assets. Except as set forth in
Section 4.24 of the Disclosure Schedule, the assets of each of the
Company, the Subsidiaries and, to the knowledge of the Sellers, the
Investments, and the facilities, assets and services to which each of the
Company, the Subsidiaries or, to the knowledge of the Sellers, the
Investments has a contractual right of use include all rights, properties,
assets, facilities and services necessary or appropriate for the carrying
on of the Business it conducts in the manner in which it is currently
being and has over the immediately preceding twelve (12) months been
carried on, and neither the Company, nor any of the Subsidiaries nor, to
the knowledge of the Sellers, any of the Investments depend in any respect
upon the use of assets owned by, or facilities or services provided by,
any of the Sellers or any Affiliate of any of them.
Section 4.25. Grants. The Company, the Subsidiaries and, to
the knowledge of the Sellers, the Investments have never received any
Grants.
Section 4.26. Accounts Receivable. Section 4.26 of the
Disclosure Schedule sets forth a true and correct list (subdivided by
Person) and aging of all unpaid accounts receivable owing to the Company,
the Subsidiaries or, to the knowledge of the Sellers, the Investments as
of the Interim Balance Sheet Date. The accounts receivable of the
Company, the Subsidiaries and, to the knowledge of the Sellers, the
Investments including, without limitation, those reflected in Section 4.26
of the Disclosure Schedule, constitute or will constitute as of the
respective dates thereof, legal, valid, binding and enforceable claims
arising from bona fide transactions in the ordinary course of the Business
and, except to the extent reserved against on the Interim Balance Sheet,
<PAGE> 28
are or will be as of the respective dates thereof collectible in the
ordinary course of the Business and are not subject to any known
counterclaims or set-offs. The reserves for doubtful accounts and
allowances with respect to the accounts receivables generated after the
Interim Balance Sheet Date and prior to the Closing will be established on
the basis of evaluation of specific accounts and age classifications in
accordance with GGAAP.
Section 4.27. Brokers and Finders. No agent, broker,
investment banker, person or firm acting on behalf of the Company, the
Subsidiaries, the Sellers or any Affiliate of any of them, or to the
knowledge of the Sellers, on behalf of the Investments or any Affiliate of
any of them, is or will be entitled to any brokers' or finders' fee or any
other commission or similar fee directly or indirectly from any of the
parties hereto in connection with the transactions contemplated hereby.
Section 4.28. Investment Intent; Information Disclosures.
(a) Each of the Sellers acknowledges that the SEi Stock to
be received by such Seller will be acquired for such Seller's own account
and without any view to the distribution of any part thereof without
registration under applicable federal and state securities laws, or the
delivery to SEi of an opinion of counsel that registration is not required
in accordance with Section 4.28(e) hereof. Each Seller represents that
such Seller does not have any agreements or arrangements to sell, transfer
or grant a participation with respect to the Purchase Price Shares.
(b) Each Seller understands that the shares of SEi Stock
constituting the Purchase Price Shares are not registered under the United
States federal or state securities laws in part on the grounds that the
transactions contemplated hereby are exempt from registration under the
Securities Act of 1933 (the "1933 Act") pursuant to Section 4(2) thereof,
and that Buyer's and SEi's reliance on such exemption is predicated on
each Seller's representations set forth herein.
(c) Each Seller represents that such Seller has such
knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of its investment in the
Purchase Price Shares, and has the ability to bear the economic risks of
such investment. Each Seller further represents that such Seller has had
(i) access, prior to the Closing Date, to the SEi Filings (ii) the
opportunity to ask questions of, and receive answers from, SEi concerning
SEi and the Purchase Price Shares, and (iii) the opportunity to obtain
<PAGE> 29
additional information (to the extent SEi possessed such information or
could acquire it without unreasonable expense) necessary to verify the
accuracy of any information received or to which such Seller had access.
(d) Each Seller understands and agrees that the Purchase
Price Shares may not be sold, transferred or otherwise disposed of without
registration under the 1933 Act and applicable state laws, unless
exemptions from registration requirements are available, and that in the
absence of an effective registration statement covering the Purchase Price
Shares or an available exemption from applicable registration
requirements, the Purchase Price Shares must be held indefinitely. In
particular, the Purchase Price Shares may not be sold pursuant to Rule 144
promulgated under the 1933 Act unless all of the conditions of such rule
are met.
(e) Each Seller agrees that such Seller will not offer,
sell, mortgage, pledge or otherwise dispose of any of the Purchase Price
Shares (other than pursuant to an effective registration statement under
the 1933 Act) unless and until such Seller delivers an opinion of counsel
satisfactory to SEi, or SEi delivers to the Sellers an opinion of counsel,
that registration under applicable federal or state securities laws is not
required.
(f) In addition, each Seller agrees that such Seller shall
not sell, assign, pledge, encumber or otherwise transfer any of the
Purchase Price Shares (or any interest therein) unless:
(i) such transfer occurs after financial results
reflecting at least thirty days of post-Closing combined operations of the
Company and SEi have been prepared and published within the meaning of
Section 201.01 of the SEC's Codification of Financial Reporting Policies;
and
(ii) either (A) such transfer occurs after the first
anniversary of the Closing, or (B) after giving effect to the transfer,
such Seller will continue to own at least fifty percent (50%) of the
Purchase Price Shares issued to him at the Closing (adjusted to account
for any additional shares issued in respect of such shares by way of stock
splits, stock dividends or otherwise).
(g) Each Seller agrees that all certificates for Purchase Price
Shares shall bear a legend in substantially the following form:
<PAGE> 30
The securities represented by this certificate have not been registered,
qualified, recommended, approved or disapproved under United States
federal securities law or state securities laws. The shares represented
by this certificate may not be sold, transferred or otherwise disposed of
by an investor without (i) registration under federal and state securities
laws, or (ii) delivery of an opinion of counsel satisfactory to the
corporation that neither the sale nor the proposed transfer constitutes a
violation of any United States federal or state securities law.
The securities represented by this certificate are
subject to certain transfer restrictions set forth in
an Acquisition Agreement dated as of September 19th,
1997 (a copy of which may be obtained from the Company
at its principal executive office), and may not be
sold, assigned, pledged, encumbered or otherwise
transferred except in compliance with the terms and
conditions of such agreement.
Section 4.29 Pooling of Interests. The Sellers acknowledge that SEi
intends to account for the acquisition of the Company Quotas as a pooling
of interests, and that qualifying for such accounting treatment is
dependent in part upon actions taken, or not taken, by the Company and the
Sellers both before and after the date hereof. In this regard, and with
the understanding that SEi is relying thereon in making its commitment to
enter into this transaction, the Sellers warrant that the Sellers, the
Company and their respective Affiliates have not, directly or indirectly,
taken any of the following actions, which Sellers acknowledge could
prevent SEi from obtaining such pooling accounting treatment:
(a) acquired or sold, assigned, transferred or otherwise
disposed of, or reduced any risk relative to, any Company Quotas or SEi
Stock in contemplation of the transactions provided for herein;
(b) paid or received any dividends or other distributions with
respect to the capital interests of the Company, other than distributions
in the ordinary course of the Company's Business and not in contemplation
of the transactions provided for herein;
(c) altered the relative ownership interests of the Sellers in
the Company in contemplation of the transactions provided for herein;
<PAGE> 31
(d) disposed of any part of the assets of the Company within
the nine months preceding the date hereof or in contemplation of the
transactions provided for herein;
(e) become a party to any contract, document, instrument or any
written or oral agreement regarding the sale, assignment or transfer of,
or allowed to be created any rights or obligations for the sale,
assignment or transfer of, or explicitly or impliedly agreed to sell,
assign or transfer any of the Company Quotas held by any of the Sellers to
any other Seller or any Affiliate of any other Seller; or
(f) entered into any agreement to do any of the forgoing,
including without limitation, any agreement to distribute or dispose of
any part of the assets of the Company upon the consummation of the
transactions provided for herein.
Section 4.30 Restrictive Covenants. Except as disclosed in Section
4.30 of the Disclosure Schedule, neither the Company, nor any of the
Subsidiaries nor, to the knowledge of the Sellers, any of the Investments
is 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 adversely affects its Business practices, operations or
condition or any of its assets or properties, which restricts its ability
to acquire any property or conduct its Business in any area or which would
prevent consummation of the transactions contemplated by this Agreement,
compliance by it with the terms, conditions and provisions hereof or the
operation of its Business by it after the date hereof on substantially the
same basis as heretofore operated by it.
Section 4.31 Product Liabilities and Warranties. There are no
express or implied warranties applicable to products or services sold or
provided by the Company, the Subsidiaries or, to the knowledge of the
Sellers, the Investments except as provided by statute or disclosed on
Section 4.31 of the Disclosure Schedule. Except as set forth in Section
4.31 of the Disclosure Schedule, there is no action, suit, proceeding or
claim pending or, to the best knowledge of the Sellers, threatened against
the Company, a Subsidiary or, to the knowledge of the Sellers, an
Investment under any warranty, express or implied, and there is no basis
upon which any claim could be made. Section 4.31 of the Disclosure
Schedule also summarizes all product liability claims that have been
asserted against the Company, the Subsidiaries and, to the knowledge of
<PAGE> 32
the Sellers, the Investments during the five (5) years preceding the date
of this Agreement.
Section 4.32 Disclosure. None of the representations or warranties
by the Sellers herein, no statement contained in any certificate, list or
other writing furnished to Buyer or SEi pursuant hereto and no statement
contained in any Section of the Disclosure Schedule, taken as a whole,
contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein
or therein, in light of the circumstances in which they were made, not
misleading. There is no fact known to the Sellers which materially and
adversely affects the Business, the Company, the Subsidiaries or, to the
knowledge of the Sellers, the Investments, or the prospects or financial
condition of the Company, the Subsidiaries or, to the knowledge of the
Sellers, the Investments, which has not been set forth in this Agreement
or in a Section of the Disclosure Schedule.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF SEI AND BUYER (GARANTIEN)
SEi and Buyer, jointly and severally, hereby represent and warrant to
the Sellers as follows:
Section 5.1. Corporate Organization. Each of Buyer and SEi is
a corporation or limited liability company, as the case may be, duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization and has the full right, power and authority
to own, lease and operate all of its properties and assets and to carry
out its business as it is presently conducted.
Section 5.2. Capitalization of SEi. All issued and
outstanding shares of SEi Stock have been, and upon issuance the Purchase
Price Shares will be, duly authorized and validly issued, fully paid and
nonassessable. The issuance of the Purchase Price Shares is not subject to
any preemptive right or right of first refusal that has not or will not be
satisfied or waived.
Section 5.3. Authority. Each of Buyer and SEi has all
requisite right, power and authority to execute, deliver and perform this
<PAGE> 33
Agreement. The execution, delivery and performance of this Agreement and
the Related Agreements by Buyer and SEi have been duly and validly
authorized and approved by all necessary corporate action. This Agreement
has been duly and validly executed and delivered by Buyer and SEi and,
assuming this Agreement has been duly authorized, executed and delivered
by the Sellers, constitutes the legal, valid and binding obligation of
Buyer and SEi, enforceable against each of them in accordance with its
terms.
Section 5.4. SEi's Consents and Approvals; No Violations. The
execution, delivery and performance of this Agreement by Buyer and SEi
will not (with or without the giving of notice or the passage of time, or
both), (a) violate in any material respect any applicable provision of law
or any rule or regulation of any administrative agency or governmental
authority applicable to Buyer or SEi, or any order, writ, injunction,
judgment or decree of any court, administrative agency or governmental
authority applicable to Buyer or SEi, (b) violate the organizational
documents of Buyer or the Articles of Incorporation or Bylaws of SEi, (c)
violate or require any consent, waiver or approval under, result in a
breach, modification or termination of any of any provisions of,
constitute a default under, affect the rights under or enforceability of,
result in the imposition of any pledge, security interest or other
encumbrance pursuant to, give any Person the right to terminate, modify or
renegotiate any provision of, any material agreement, indenture, mortgage,
deed of trust, lease, license, or other instrument to which Buyer or SEi
is a party or by which Buyer or SEi is bound, or any material license,
permit or certificate held by Buyer or SEi (other than any consents which
will have been obtained on or prior to the Closing Date), or (d) based
upon the information provided to Buyer with respect to Sellers, require
any material consent or approval by, notice to, or registration with any
governmental authority.
Section 5.5. Litigation. There are no claims, actions, suits,
or proceedings pending or, to the best knowledge of Buyer and SEi,
threatened, against Buyer or SEi relating to this Agreement or the
transactions contemplated hereby or to the business or property of Buyer
or SEi, at law or in equity or before or by any national, federal, state,
provincial, local, or foreign court or other governmental department,
commission, board, agency, instrumentality or authority, or any
arbitration proceeding, in each case which are likely to have a Material
Adverse Effect. Neither Buyer nor SEi is subject to any judgment, order,
writ, injunction or decree of any court or governmental body.
<PAGE> 34
Section 5.6. Brokers and Finders. No agent, broker,
investment banker, Person or firm acting on behalf of Buyer, SEi or any
Affiliate of either of them is or will be entitled to any brokers' or
finders' fee or any other commission or similar fee directly or indirectly
from any of the parties hereto in connection with the transactions
contemplated hereby.
Section 5.7. SEi Information. SEi has delivered to the
Sellers true and complete copies of the SEi Filings. At the date hereof,
the SEi Filings, taken as a whole, do not contain any untrue statement of
a material fact or omit any material fact necessary to make the statements
contained herein, in light of the circumstances in which they were made,
not misleading.
Section 5.8 No Material Adverse Change. Since June 30, 1997,
SEi has not suffered any Material Adverse Effect.
Section 5.9. Undisclosed Liabilities. SEi has no liabilities
(absolute, accrued, contingent or otherwise) required by USGAAP to be
reflected or reserved against in the consolidated statement of assets and
liabilities of SEi except (a) liabilities reflected or reserved against in
the Form 10-Q Balance Sheet, and (b) liabilities incurred since March 30,
1997 in the ordinary course of business, and which, in the aggregate, do
not have a Material Adverse Effect.
Section 5.10. Compliance with Laws. Each of Buyer and SEi has
conducted its business so as to comply with, and is not in violation of,
nor has it received any written notice claiming it is in violation of, any
order, law, ordinance, statute, rule or regulation applicable to it, or to
its business or any of its property or assets including, without
limitation, any environmental or worker safety and protection laws and
regulations, except to the extent that such non-compliance would not have
a Material Adverse Effect. Each of Buyer and SEi has all material
licenses, permits, certificates of occupancy and authorizations necessary
to conduct its business.
<PAGE> 35
ARTICLE VI
FURTHER COVENANTS AND AGREEMENTS
Section 6.1. Covenants of the Sellers Pending the Closing.
The Sellers covenant and agree that, pending the Closing and prior to the
termination of this Agreement, and except as otherwise agreed to in
writing by Buyer and SEi, the Sellers shall or, as appropriate shall cause
the Company or the Subsidiaries to, or use its best efforts to cause the
Investments to:
(a) conduct the Business solely in the ordinary course and
consistent with the past practices of the Company, the Subsidiaries and
the Investments;
(b) not take or intentionally omit to take any action
which would result in a breach of any of the Sellers' representations and
warranties hereunder in any material respect;
(c) continue to maintain and service the physical assets
used by the Company, the Subsidiaries and the Investments in the conduct
of the Business consistent with past practices;
(d) use its reasonable efforts to preserve the Business
and organization of the Company, the Subsidiaries and the Investments, to
keep available the services of the Company's, the Subsidiaries' and the
Investments' present employees and agents and to maintain the relations
and goodwill with the suppliers, customers (including the Customers),
distributors and any others having business relations with the Company, a
Subsidiary or an Investment in connection with the Business;
(e) use its and their reasonable efforts to cause all of
the conditions to the obligations of Buyer and SEi under this Agreement to
be satisfied on or prior to the Closing Date and to obtain, prior to the
Closing, all consents of all third parties and governmental authorities
necessary for the consummation by the Sellers, the Company, the
Subsidiaries and the Investments of the transactions contemplated hereby.
All such consents will be in writing and executed counterparts will be
delivered to Buyer and SEi at or prior to the Closing.
<PAGE> 36
(f) cooperate with Buyer and SEi in making arrangements to
obtain licenses, permits and certificates required to conduct the Business
or own the Company Quotas at Closing;
(g) provide Buyer's and SEi's officers, employees,
counsel, accountants and other representatives with full access to, during
normal business hours, all of the books and records of the Company, the
Subsidiaries and the Investments, make available to representatives of
Buyer and SEi, knowledgeable employees of the Company, the Subsidiaries
and the Investments, for reasonable periods of time to answer inquiries of
such representatives with respect to Buyer's and SEi's investigation of
the Company, the Subsidiaries and the Investments and permit such
representatives of Buyer and SEi to consult with the officers, employees,
accountants and counsel of the Sellers; provided, that no such activities
unreasonably interfere with the operation of the Business;
(h) not grant to any Person a power of attorney or similar
authority to act for the Company, a Subsidiary or any Investment;
(i) not enter into any guarantee of the obligations of any
Person to the extent such guarantee shall survive the Closing;
(j) not amend the charter, Articles of Association or
other organizational documents of the Company, any Subsidiary or any
Investment;
(k) make no change in the amount of issued share capital
of the Company, any Subsidiary or any Investment or issue or create any
option, warrant or any other security of the Company, any Subsidiary or
any Investment;
(l) not increase the compensation payable or to become
payable to any officer, employee or agent of the Company, any Subsidiary
or any Investment other than in the ordinary course of the Business, nor
make any bonus payment or arrangement to or with any officer, employee or
agent of the Company, any Subsidiary or any Investment other than in the
ordinary course of the Business;
(m) not make any dividends or other distributions in
respect of the Company Quotas;
<PAGE> 37
(n) not sell, transfer, lease, abandon or otherwise
dispose of (or commit to do so) any fixed assets of the Company, any
Subsidiary or any Investment; and
(o) not enter into any contract or commitment calling for
payment to or by the Company, any Subsidiary or any Investment of an
aggregate amount of more than DM10,000, which is not terminable by such
Person on less than thirty (30) days' notice without penalty.
Section 6.2. Covenants of Buyer and SEi Pending the Closing.
Buyer and SEi covenant and agree that, pending the Closing and prior to
the termination of this Agreement, and except as otherwise agreed to in
writing by the Sellers, each of Buyer and SEi:
(a) shall not take or intentionally omit to take any
action which would result in a breach of any of its representations and
warranties hereunder in any material respect.
(b) shall use its reasonable efforts to cause all of the
conditions to the obligations of the Sellers under this Agreement to be
satisfied on or prior to the Closing Date and to obtain prior to the
Closing, all consents of all third parties and governmental authorities
necessary for the consummation by it of the transactions contemplated
hereby. All such consents will be in writing and executed counterparts
thereof will be delivered to the Sellers at or prior to the Closing.
(c) shall promptly disclose to the Sellers any information
relating to its representations and warranties hereunder which, because of
an event occurring after the date hereof, is incomplete or is no longer
correct in any material respect.
Section 6.3. Filings. Promptly after the execution of this
Agreement, each of the parties hereto shall prepare and make or cause to
be made any required filings, submissions and notifications under the laws
of any domestic or foreign jurisdictions to the extent that such filings
are necessary to consummate the transactions contemplated hereby and will
use its reasonable efforts to take all other actions necessary to
consummate the transactions contemplated hereby in a manner consistent
with applicable law. Each of the parties hereto will furnish to the other
party such necessary information and reasonable assistance as such other
party may reasonably request in connection with the foregoing.
<PAGE> 38
Section 6.4. Effective Time of Closing and Transfer. The
Closing shall be effective for all purposes as of the close of business on
the Closing Date.
Section 6.5. Announcements. Except as expressly contemplated
by this Agreement, the parties will mutually agree as to the time, form
and content before issuing any press releases or otherwise making any
public statements or statements to third parties with respect to
transactions contemplated hereby and shall not issue any press release or,
except as necessary to perform their respective obligations hereunder,
discuss the transactions contemplated hereby with any third party prior to
reaching mutual agreement with respect thereto, except as may be required
by law. Notwithstanding the foregoing, in the event prior to the Closing
any party hereto is required by law or the rules of any stock exchange on
which such party's securities are traded to make a statement with respect
to the transactions contemplated herein, such party shall notify in
writing the other party hereto as to the time, form and content of such
statement.
Section 6.6. Costs and Expenses. Whether or not the
transactions contemplated by this Agreement are consummated, each party
hereto shall pay its own costs and expenses (including legal fees and
expenses) incurred in connection with due diligence reviews, the
preparation, negotiation and execution of this Agreement and all other
agreements, certificates, instruments and documents delivered hereunder,
and all other matters relating to the transactions contemplated hereby.
All German transfer and intangible Taxes, if any, arising in connection
with the sale and assignment of the Company Quotas hereunder shall be paid
by the Sellers. All transfer and intangible Taxes, if any, in connection
with the sale and delivery of the Purchase Price Shares hereunder shall be
paid by SEi. All fees and charges arising from notary requirements
applicable to the sale and assignment of Company Quotas shall be paid by
the Buyer.
Section 6.7. Further Assurances.
(a) Subject to the terms and conditions herein provided,
each of the parties hereto agrees to use its reasonable efforts to take,
or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and
regulations 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
<PAGE> 39
Agreement, the parties hereto shall take or cause to be taken all
necessary action including, without limitation, the execution and delivery
of such further instruments and documents as may be reasonably requested
by the other party for such purposes or otherwise to consummate and give
effect to the transactions contemplated hereby. If any consent or
approval required for the consummation of the transactions contemplated
hereby is waived by the parties, at the request of the Buyer the Sellers
shall cooperate with SEi, and attempt in good faith, to obtain such
consent or approval during the one year period immediately following the
Closing.
(b) From and after the Closing Date, the Buyer and/or SEi
agree to promptly inform the Sellers of any Tax audit of the Company, a
Subsidiary or, if known by the Buyer and/or SEi, an Investment by a Tax
authority and to give or, with respect to an Investment, use their best
efforts to give, the Sellers the opportunity to participate in such a Tax
audit. Furthermore, the Sellers shall be entitled to request the Buyer,
SEi, the Company, a Subsidiary or an Investment to duly and timely file
the appropriate recourse against any Tax assessment resulting in a higher
Tax burden for any period prior to the Closing Date. If such request is
not honored, the Buyer shall cause the Company, or the Subsidiary, or
shall use it best efforts to the Investment, as appropriate, upon request
by one or more of the Sellers, to file such recourse nonetheless, provided
that in this case the Sellers who have made such request shall be liable
to reimburse the Company, such Subsidiary or such Investment, as
applicable, for all fees and expense incurred in the recourse proceedings
to the extent such fees and expenses are not borne by third parties.
Section 6.8. Certain Agreements. On or before the Closing
Date, Buyer, SEi, and the Sellers will execute the Pledge and Escrow
Agreement in the form of Exhibit A, the Sellers and SEi will execute the
Registration Rights Agreement in the form of Exhibit B, and the Sellers
will execute, or cause to be executed, an employment agreement between the
Company and each of Alfons Bromkamp and Werner Bromkamp in the form of
Exhibit C, in each case to be effective upon the Closing Date.
Section 6.9. Non-Disclosure; Covenant Not to Compete.
(a) The parties hereto acknowledge that (i) the covenants
contained in this Section 6.9 are a material inducement to the
consummation by Buyer and SEi of the transactions contemplated by this
Agreement and (ii) Buyer and SEi would not have entered into or performed
this Agreement but for the covenants herein contained.
<PAGE> 40
(b) Each of the Sellers agrees that, unless acting with
the prior consent of Buyer and SEi, it will not, either alone or in
conjunction with any other Person, or directly or indirectly through any
entity that it now or in the future controls, for a period of three years
from the Closing Date: (i) employ or solicit the employment of any Person
who within the month preceding the Closing Date had been an employee of
the Company, a Subsidiary or an Investment; (ii) directly or indirectly
engage or participate, whether as officer, employee, director, agent,
consultant, shareholder, partner, or otherwise, in the ownership,
management, marketing or operation of any enterprise which is engaged in
any part of the Business within Europe (other than solely through the
ownership of equity securities or equivalent interests of any entity at a
level which does not create the ability to influence or control management
of the entity); or (iii) conduct any part of the Business with any Person
that is a Customer of the Company, a Subsidiary or an Investment as of the
Closing Date.
(c) It is stipulated and agreed that the Sellers have
become acquainted with confidential and privileged information of the
Company, the Subsidiaries and the Investments relating to customer files,
customer lists, special customer matters, sales methods and techniques,
merchandising concepts and plans, new site locations, business plans,
sources of supply and vendors, special business relationships with
vendors, agents and brokers, promotional materials and information,
financial matters, mergers, acquisitions, selective personnel matters and
confidential processes, designs, formulas, ideas, plans, devices or
materials and other similar matters which are confidential (any and all
such information being referred to herein as the "Confidential
Information"); and that the use of the Confidential Information against
the Company would seriously damage the Business. As a consequence of the
above, each of the Sellers agrees that, unless acting with the prior
written consent of Buyer, such Seller shall, whether acting alone, in
conjunction with any other Person, or directly or indirectly through any
entity that such Seller now or in the future controls: not use, divulge,
publish or otherwise reveal or allow to be revealed any aspect of the
Confidential Information to any Person; refrain from any action or conduct
which might reasonably or foreseeably be expected to compromise the
confidentiality or proprietary nature of the Confidential Information; and
shall have no right to apply for or to obtain any patent, copyright, or
other form of Intellectual Property protection with regard to the
Confidential Information.
<PAGE> 41
(d) The parties hereto acknowledge and agree that any
remedy at law for any breach of the provisions of this Section 6.9 would
be inadequate and the Sellers hereby consent to the granting by any court
of competent jurisdiction of an injunction or other suitable relief and
without the posting of any bond or the necessity of actual monetary loss
being proved, in order that such breach may be effectively restrained.
Section 6.10. Pooling of Interests. The Sellers shall not, and
shall not permit the Company, to take, any of the following actions, each
of which could result in the transfer of the Company Quotas not qualifying
to be accounted for as a pooling of interests: (a) acquiring or
transferring any capital interests of the Company or any SEi Stock during
the thirty (30) days prior to the Closing Date, and (b) selling, assigning
or transferring, or agreeing or allowing to be created any rights or
obligation for the sale, assignment or transfer of, any of the Purchase
Price Shares or any other SEi Stock in violation of the restrictions set
forth in Section 4.28(f)(i).
Section 6.11. Exclusive Dealing. During the period from the
date of this Agreement through and including the Closing Date, the Sellers
shall not, and shall not permit the Company, the Subsidiaries, the
Investments or any of their respective directors, officers, employees,
representatives or agents to, directly or indirectly, solicit, initiate or
participate in any negotiations with any Person other than SEi and the
Buyer and their respective representatives, agents and Affiliates,
concerning any Alternative Transaction. The Sellers shall immediately
notify SEi and Buyer of any proposal or offer received by, any information
requested from, or any discussions or negotiations sought to be initiated
or continued with, the Sellers, the Company, the Subsidiaries or the
Investments in respect of an Alternative Transaction and shall, in any
such notice to SEi and Buyer, indicate the terms and conditions of any
proposals or offers or the nature of any requests, discussions or
negotiations.
Section 6.12. Release of Bromkamp Guarantee. No later than
October 31, 1997, the Sellers, Buyer and SEi shall arrange for the release
of the personal guarantee of Bromkamp of obligations of the Company in the
amount of DM1,000,000 to Volksbank Essen.
Section 6.13. Purchase of Coplon Investment. On or prior to
May 31, 1998, or, if earlier the date of any sale by Bromkamp of any of
his Seller's Shares, Bromkamp will purchase from the Company, and the
Company will transfer to Bromkamp, the Coplon investment shown on the
<PAGE> 42
Interim Balance Sheet, for a purchase price equal to the difference
between DM200,000 and any payments received by the Company subsequent to
Closing in respect of the Coplon investment.
ARTICLE VII
TERMINATION
Section 7.1. Termination. This Agreement may be terminated at
any time prior to the Closing:
(a) by mutual written agreement executed by the Sellers,
Buyer and SEi;
(b) by the Sellers, Buyer or SEi at any time after
September 26, 1997 if, through no fault of the party seeking termination,
the Closing shall not have occurred;
(c) by the Sellers, Buyer or SEi, if any governmental or
regulatory authority, agency or commission, including courts of competent
jurisdiction, domestic or foreign, shall have issued an order, decree, or
ruling or taken other action, restraining, enjoining or otherwise
prohibiting the transactions contemplated hereby and such order, decree,
ruling or other action shall have become final and nonappealable;
(d) by Buyer or SEi, if there has been a material
violation or breach by the Sellers of any agreement or any representation
or warranty contained in this Agreement which (i) is not curable, (ii) has
rendered the satisfaction of any condition to the obligations of Buyer and
SEi impossible, and (iii) has not been waived by Buyer and SEi; or
(e) by the Sellers, if there has been a material violation
or breach by Buyer or SEi of any agreement, representation or warranty
contained in this Agreement which (i) is not curable, (ii) has rendered
the satisfaction of any condition to the obligations of the Sellers
impossible, and (iii) has not been waived by the Sellers.
Section 7.2. Procedure and Effect of Termination. In the
event of termination of this Agreement pursuant to Section 7.1 hereof,
written notice thereof shall forthwith be given to the other parties
hereto and this Agreement (other than Section 6.6 hereof and as provided
in paragraph (b) below) shall terminate and the transactions contemplated
<PAGE> 43
hereby shall be abandoned without further action by the parties hereto.
If this Agreement is terminated as provided herein:
(a) all information with respect to the Business, the
Company, the Subsidiaries or the Investments received by and in the
possession of Buyer, SEi or any Person that directly, or indirectly
through one or more intermediaries, controls, is controlled by, or is
under common control with Buyer or SEi shall be returned to the Sellers or
destroyed by Buyer or SEi;
(b) any termination pursuant to subparagraph (b), (c),
(d), or (e) of Section 7.1 shall not be deemed a waiver of any rights or
remedies otherwise available under this Agreement, by operation of law or
otherwise; and
(c) all filings, applications and other submissions made
pursuant to Section 6.3 hereof or prior to the execution of this Agreement
in contemplation thereof shall, to the extent practicable, be withdrawn
from the agency or other Person to which made.
ARTICLE VIII
CONDITIONS TO BUYER'S AND SEI'S OBLIGATIONS
Each and every obligation of Buyer and SEi to consummate the
transactions described in this Agreement shall be subject to the
fulfillment, or the waiver by Buyer and SEi on or before the Closing Date,
of the following conditions precedent:
Section 8.1 The Sellers' Closing Deliveries. The Sellers
shall have delivered, or caused to be delivered, to Buyer and SEi at or
prior to the Closing, unless specifically waived by Buyer and SEi in their
sole discretion, each of the following:
(a) the Registration Rights Agreement and the Pledge and
Escrow Agreement referenced in Section 6.8, in each case executed by the
Sellers and, in the case of the Pledge and Escrow Agreement, by the Escrow
Agent;
(b) the employment agreements referenced in Section 6.8
executed by the Company and each of Alfons Bromkamp and Werner Bromkamp;
<PAGE> 44
(c) valid and binding consents of all Persons whose
consent or approval is required to be set forth in Sections 4.5 and 4.6 of
the Disclosure Schedule;
(d) with respect to each Seller, three separate guaranteed
stock powers duly endorsed in blank and a Certificate of Foreign Status on
Form W-8;
(e) the certificates referenced in Sections 8.2 and 8.3;
(f) the declaration of Werner Bromkamp waiving any
possible claims against the Company based upon his sub-participation
agreement with Bromkamp; and
(g) evidence satisfactory to SEi that the Company is the
record owner of sixty-seven percent (67%) of the issued capital interest
of TOP.
Section 8.2. Representations and Warranties True. The
representations and warranties of the Sellers contained in this Agreement,
as modified by the Disclosure Schedule, shall have been true on the date
hereof in all material respects, and shall be true on the Closing Date in
all material respects with the same effect as though such representations
and warranties were made on and as of such date and the Sellers shall have
delivered to Buyer and SEi on the Closing Date a certificate, dated as of
the Closing Date, to such effect.
Section 8.3. Performance. The Sellers shall have, in all
material respects, performed and complied with all covenants required by
this Agreement to be performed or complied with by them prior to or at the
Closing and the Sellers shall have delivered to Buyer and SEi on the
Closing Date a certificate, dated as of the Closing Date, to such effect.
Section 8.4. Governmental Consents and Approvals. All
necessary and appropriate governmental consents, approvals and filings
shall have been obtained or made and all applicable waiting periods
(including any extensions thereof) relating thereto shall have expired or
otherwise terminated.
Section 8.5. No Injunction or Proceeding. No governmental or
regulatory authority, agency or commission, including courts of competent
jurisdiction, domestic or foreign, shall have issued an order, decree, or
ruling or taken other action, restraining, enjoining or otherwise
<PAGE> 45
prohibiting the transactions contemplated hereby, which order, decree,
ruling or other action remains in effect.
ARTICLE IX
CONDITIONS TO THE SELLERS' OBLIGATIONS
Each and every obligation of the Sellers to consummate the
transactions described in this Agreement shall be subject to the
fulfillment, or the waiver by the Sellers, on or before the Closing Date,
of the following conditions precedent:
Section 9.1. Delivery of Purchase Price Shares. Buyer and SEi
shall have delivered or caused to be delivered the Purchase Price Shares
in accordance with Article III hereof.
Section 9.2. Buyer's and SEi's Closing Deliveries. Buyer and
SEi shall deliver, or cause to be delivered, to the Sellers at the
Closing, unless specifically waived by the Sellers in their sole
discretion, each of the following:
(a) the Registration Rights Agreement and the Pledge and
Escrow Agreement referenced in Section 6.8, executed by SEi and, in the
case of the Pledge and Escrow Agreement, the Buyer and the Escrow Agent;
(b) a certified copy of the resolutions of the Board of
Directors of SEi authorizing the execution, delivery and performance of
this Agreement and the Related Agreements and the consummation of
transactions contemplated hereby and thereby; and
(c) the certificates referenced in Sections 9.3 and 9.4
hereof.
Section 9.3. Representations and Warranties True. The
representations and warranties of Buyer and SEi contained in this
Agreement, as modified by the Disclosure Schedule, shall have been true on
the date hereof in all material respects and shall be true on the Closing
Date in all material respects, with the same effect as though such
representations and warranties were made on and as of such date, and Buyer
and SEi shall have delivered to the Sellers on the Closing Date a
certificate, dated as of the Closing Date, to such effect.
<PAGE> 46
Section 9.4. Performance. Buyer and SEi shall have, in all
material respects, performed and complied with all covenants required by
this Agreement to be performed or complied with by them prior to or at the
Closing and Buyer and SEi shall have delivered to the Sellers on the
Closing Date a certificate, dated as of the Closing Date, to such effect.
Section 9.6. Governmental Consents and Approvals. All
necessary and appropriate governmental consents, approvals and filings
shall have been obtained or made and all applicable waiting periods
(including any extensions thereof) relating thereto shall have expired or
otherwise terminated.
Section 9.7. No Injunction or Proceeding. No governmental or
regulatory authority, agency or commission, including courts of competent
jurisdiction, domestic or foreign, shall have issued an order, decree, or
ruling or taken other action, restraining, enjoining or otherwise
prohibiting the transactions contemplated hereby, which order, decree,
ruling or other action remains in effect.
ARTICLE X
INDEMNIFICATION
Section 10.1. Indemnification by the Sellers.
(a) The Sellers severally agree, pro-rata in proportion
to the Purchase Price Shares they receive, to reimburse, indemnify and
hold SEi, the Buyer, the Company, the Subsidiaries, the Investments and
their respective officers, directors, shareholders, employees and agents
harmless from and against any and all demands, claims, actions, suits,
liabilities, damages, losses, judgments, costs and expenses (including,
without limitation, reasonable attorneys' fees) but excluding any claims
for punitive damages or consequential damages relating to, resulting from
or arising out of:
(i) any breach or inaccuracy of the representations or
warranties made hereunder by the Sellers;
(ii) any breach or violation of any covenant or
agreement made hereunder by the Sellers;
(iii) the redemption described in Section 4.2(a);
<PAGE> 47
(iv) matters referred to in Section 4.8 of the
Disclosure Schedule in respect of Taxes payable for any period ending
prior to Closing and from the Closing until such date as TST no longer
provides services to the Company;
(v) allegations by or in right of Norbert Bromkamp or
Iris Weismuller, as shareholders or employees of TST, in respect of the
arrangements between the Company and TST prior to Closing and from the
Closing until such date as TST no longer provides services to the Company;
(vi) obligations existing or alleged to exist as of
the Closing Date under any pension promise for any employee of the
Company, a Subsidiary or an Investment other than Alfons Bromkamp and
Werner Bromkamp, or
(vii) any termination of the contracts between TOP
and QVC as a result of the consummation of the transactions contemplated
by this Agreement.
Section 10.2. Indemnification by Buyer and SEi.
(a) Buyer and SEi jointly and severally agree to
reimburse, indemnify and hold each of the Sellers harmless from and
against any and all demands, claims, actions, suits, liabilities, damages,
losses, judgments, costs and expenses (including, without limitation,
reasonable attorneys' fees but excluding any claims for punitive damages
or consequential damages) relating to, resulting from or arising out of:
(i) any breach or inaccuracy of the representations or
warranties made hereunder by Buyer and SEi; or
(ii) any breach or violation of any covenant or
agreement made hereunder by Buyer and SEi.
Section 10.3. Survival of Representations
. Except for the representations and warranties contained in Sections
4.1, 4.2, 4.4 and 4.9, the representations and warranties made pursuant to
this Agreement including, without limitation, all representations and
warranties made in any exhibit or schedule or certificate delivered
thereunder, shall survive until and through the second anniversary of the
Closing Date at which time such representations and warranties shall
expire. The representations and warranties set forth in Sections 4.1 and
4.2 of this Agreement shall survive until and through the tenth
<PAGE> 48
anniversary of the Closing Date. The representations and warranties set
forth in Section 4.4 of this Agreement shall survive indefinitely. The
representations and warranties set forth in Section 4.9 of this Agreement
shall survive until and through six months after all amounts for Taxes
applicable to the Company, the Subsidiaries or the Investments, their
respective employees and the transactions contemplated by this Agreement,
in the case of Section 4.9 become final and non-appealable for all periods
through or including the Closing Date, at which time such representations
and warranties shall expire.
Section 10.4. Indemnification Claims Procedures. All claims
for indemnification by any party seeking indemnification (the "Indemnified
Party") from another party (the "Indemnifying Party") under Sections 10.1
and 10.2 shall be asserted and resolved as follows:
(a) In the event that any claim or demand for which the
Indemnifying Party would be liable to any Indemnified Party hereunder is
asserted against or sought to be collected from any Indemnified Party by a
third party, the Indemnified Party shall promptly notify the Indemnifying
Party (and any known pertinent insurance carrier) in reasonable detail of
such claim or demand and the amount or the estimated amount thereof to the
extent then feasible (which estimate shall not be conclusive of the final
amount of such claim and demand) (the "Claim Notice"). The Indemnifying
Party shall have thirty (30) days from the personal delivery or mailing of
the Claim Notice (the "Notice Period") to notify the Indemnified Party
whether or not the Indemnifying Party desires to defend the Indemnified
Party against such claim or demand. All costs and expenses incurred by
the Indemnifying Party in defending such claim or demand shall be a
liability of, and shall be paid by, the Indemnifying Party. In the event
that the Indemnifying Party notifies the Indemnified Party within the
Notice Period that it desires to defend the Indemnified Party against such
claim or demand and except as hereinafter provided, the Indemnifying Party
shall have the right to defend the Indemnified Party by counsel of the
Indemnifying Party's own choosing, either in the Indemnifying Party's
name, or the Indemnified Party's name by appropriate proceedings. If any
Indemnified Party desires to participate in, but not control, any such
defense or settlement it may do so at its sole cost and expense and, in
any event, the Indemnified Party shall cooperate with the Indemnifying
Party and such counsel. To the extent the Indemnifying Party shall
control or participate in the defense or settlement of any third party
claim or demand, the Indemnified Party shall give to the Indemnifying
Party and its counsel access to, during normal business hours, the
relevant business records and other documents, and shall permit them to
<PAGE> 49
consult with the employees and counsel of the Indemnified Party to the
extent consistent with the application of relevant evidentiary privileges.
The Indemnifying Party shall keep the Indemnified Party reasonably
apprised of the course of any negotiations or proceedings and the
Indemnifying Party shall not settle any claim or demand without the
consent of the affected Indemnified Party, which consent shall not be
unreasonably withheld or unduly delayed. As soon as reasonably
practicable after the Indemnifying Party has reached a final decision as
to whether or not all or any portion of the obligations related to such
claim or demand are obligations for which the Indemnifying Party is
required to indemnify such Indemnified Party hereunder and, in any event,
prior to entering into any such settlement or other final resolution of
any claim or demand, the Indemnifying Party shall notify the Indemnified
Party in writing of its position as to whether or not all or any portion
of the obligations related to such claim or demand are obligations for
which the Indemnifying Party is required to indemnify such Indemnified
Party in accordance with this Article X.
(b) If the Indemnifying Party elects or is deemed to have
elected not to take over the defense of any such claim or demand, the
Indemnified Party shall have the right to defend, compromise and settle
such claim or demand on such terms as the Indemnified Party in his, her or
its discretion may determine, subject to the prior consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or
unduly delayed, and the Indemnifying Party shall continue to be bound to
indemnify the Indemnified Party in accordance with and to the extent
provided under the terms of this Article X. The Indemnified Party shall
or shall direct in writing its counsel to deliver to the Indemnifying
Party copies of all correspondence and other matters relating to such
claim or demand. Notwithstanding the foregoing, to the extent that the
claim or demand involves or could result in claims against, or potential
liability of, the Indemnifying Party the extent or nature of which were
not known by the Indemnifying Party as of the date the Indemnifying Party
elects or is deemed to have elected not to take over the defense of such
claim or demand, the Indemnifying Party shall, by written notice to the
Indemnified Party, be entitled to take over the defense of such claim or
demand.
(c) In the event an Indemnified Party should have a claim
against the Indemnifying Party hereunder which does not involve a claim or
demand being asserted against or sought to be collected from it by a third
party, the Indemnified Party shall promptly send a Claim Notice with
respect to such claim to the Indemnifying Party.
<PAGE> 50
(d) The Indemnified Party's failure to give reasonably
prompt notice to the Indemnifying Party of any actual, threatened or
possible claim or demand which may give rise to a right of indemnification
hereunder shall not relieve the Indemnifying Party of any liability which
it may have to an Indemnified Party except to the extent the failure to
give such notice prejudiced the Indemnifying Party.
Section 10.5. Right of Set-Off. In addition to any other
remedy available in equity or at law, the Indemnified Party shall be
entitled to set off the amount of any obligation for which it is entitled
to be indemnified under this Article X against any amounts payable to the
Indemnifying Party hereunder or under any other agreement contemplated
hereby.
Section 10.6. Limitation of Liability.
(a) Notwithstanding any other provision of this Agreement,
neither the aggregate liability hereunder of the Buyer and SEi on the one
hand, nor the aggregate liability hereunder of the Sellers on the other
hand, shall exceed DM21,000,000, and the aggregate liability of each
Seller shall not exceed his pro rata share of such amount based upon the
ratio of his Seller's Shares to the Purchase Price Shares.
(b) In addition to the limitation set forth above in Section
10.6(a), the aggregate liability of the Sellers hereunder for claims for
indemnity under Section 10.1(a)(iii) shall be limited as follows:
(i) Sellers shall be responsible for all such claims
until the aggregate amount exceeds DM520,500;
(ii) Sellers shall have no responsibility for any additional
such claims until the aggregate amount (including amounts for which
Sellers are responsible) exceeds DM 1,041,000; and
(iii) Seller shall be responsible for fifty percent (50%) of
any claims in excess of DM 1,041,000.
(c) In addition to the limitation set forth above in Section
10.6(a), the aggregate liability of the Sellers hereunder for claims for
indemnity under Section 10.1(a)(vii) shall be limited to the sum of
anticipated profits on the contract from the termination date to the end
of the "initial period" under the contract.
<PAGE> 51
(d) The Sellers shall be liable to indemnify the Buyer for
claims on account of Taxes only to the extent additional Taxes resulting
from field audits are not compensated by lowered Tax burdens in following
years resulting from such additional Taxes. To the extent additional
capitalization of items originally treated as expenses entail additional
depreciations in future years, the liability of the Sellers on account of
additional Taxes shall be reduced by the discounted cash value of the
additional depreciation, discounted at a rate of 5% per year.
ARTICLE XI
MISCELLANEOUS
Section 11.1. Governing Law. This Agreement and the rights and
obligations of the parties hereunder shall be governed by and construed in
accordance with the laws of the Federal Republic of Germany. Any disputes
arising under this Agreement shall be resolved in accordance with the
provisions of the separate Arbitration Agreement which has been executed
by the parties as of the date hereof.
Section 11.2. Entire Understanding, Waiver, Etc. This
Agreement sets forth the entire understanding of the parties and
supersedes any and all prior or contemporaneous agreements, arrangements
and understandings relating to the subject matter hereof, and the
provisions hereof may not be changed, modified, waived or altered except
by an agreement in writing signed by the party entitled to the benefit of
the provision(s) to be waived hereto. A waiver by any party of any of the
terms or conditions of this Agreement, or of any breach thereof, shall not
be deemed a waiver of such term or condition for the future, or of any
other term or condition hereof, or of any subsequent breach thereof.
Section 11.3. Severability; Gaps. If any provision of this
Agreement or the application of such provision shall be held by a court of
competent jurisdiction to be unenforceable, or otherwise be or become
invalid or unenforceable, the remaining provisions of this Agreement shall
remain in full force and effect. In addition, any gap or omission in the
terms of this Agreement shall not prejudice its validity, and the
remaining provisions of this Agreement shall remain in full force and
effect. Any gap in the terms of this Agreement, whether caused by the
invalidity or unenforceability of any provision, or by an omission or
otherwise, shall be filled by a provision which legally and economically
most closely matches the intent of the parties hereto with respect to the
<PAGE> 52
gap. The parties hereto undertake to enter from time to time into such
amendments as are necessary or appropriate to document the provisions
filling such gaps.
Section 11.4. Captions. The captions herein are for
convenience only and shall not be considered a part of this Agreement for
any purpose, including, without limitation, the constructions or
interpretation of any provision hereof.
Section 11.5. Notices. All notices, requests, demands and
other communications (collectively, "Notices") that are required or may be
given under this Agreement shall be in writing. All Notices shall be
deemed to have been duly given or made: if by hand, immediately upon
delivery; if by telecopier or similar device, immediately upon sending,
provided notice is sent on a Business Day during the hours of 9:00 a.m.
and 6:00 p.m. at the location of the party receiving the Notice, but if
not, then immediately upon the beginning of the first Business Day after
being sent; if by FedEx, Express Mail or any other reputable overnight
delivery service, three Business Days after being placed in the exclusive
custody and control of said courier; and if mailed by certified mail,
return receipt requested, ten Business Days after mailing.
Notwithstanding the foregoing, with respect to any Notice given or made by
telecopier or similar device, such Notice shall not be effective unless
and until (i) the telecopier or similar advice being used prints a written
confirmation of the successful completion of such communication by the
party sending the Notice, and (ii) a copy of such Notice is deposited in
first class mail to the appropriate address for the party to whom the
Notice is sent. In addition, notwithstanding the foregoing, a Notice of a
change of address by a party hereto shall not be effective until received
by the party to whom such Notice of a change of address is sent. All
Notices are to be given or made to the parties at the following addresses
(or to such other address as either party may designate by Notice in
accordance with the provisions of this Section):
(a) If to the Sellers:
Alfons Bromkamp
Am alten Bahnhof 64
46244 Bottrop
Federal Republic of Germany
Facsimile: 011 49 20 458 50 14
<PAGE> 53
Christian Frohlich
Droste Hulshoff Strabe 3
51519 Odenthal
Federal Republic of Germany
Facsimile: 011 49 21 74 41 652
(b) If to SEi:
Sykes Enterprises, Incorporated
100 North Tampa Street
Suite 3900
Tampa, Florida 33602
Attention: Scott J. Bendert
Vice President-Finance
Telephone: 001 (813) 274-1000
Facsimile: 001 (813) 273 0148
(c) If to Buyer:
Sykes Enterprises GmbH
c/o Sykes Enterprises, Incorporated
100 North Tampa Street
Suite 3900
Tampa, Florida 33602
Attention: Scott J. Bendert,
Vice President-Finance
Telephone: 001 (813) 274-1000
Facsimile: 001 (813) 273 0148
Section 11.6. Successors and Assigns. Neither this Agreement
nor any of the rights or obligations arising hereunder shall be assignable
by any party without the prior written consent of the other parties
hereto; provided, however, that notwithstanding the foregoing SEi may
assign its rights and obligations under this Agreement to any wholly owned
subsidiary of SEi which agrees in writing to be bound by and to perform
fully all of SEi's obligations hereunder and, provided that in the event
of any such assignment by SEi, SEi shall remain liable hereunder for the
performance of SEi's obligations hereunder notwithstanding such
assignment.
Section 11.7. Parties in Interest. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and
their respective successors and permitted assigns. Nothing in this
Agreement, express or implied, shall confer upon any Person, other than
<PAGE> 54
the parties hereto, and their successors and permitted assigns, any rights
or remedies under or by reason of this Agreement.
Section 11.8. Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but
all of which, together, shall constitute one and the same instrument.
Section 11.9. Construction of Terms. Any reference herein to
the masculine or neuter shall include the masculine, the feminine and the
neuter, and any reference herein to the singular or plural shall include
the opposite thereof. The parties to this Agreement acknowledge that each
party and counsel to each party has participated in the drafting of this
Agreement and agree that this Agreement shall not be interpreted against
one party or the other based upon who drafted it.
Section 11.10. SEi Guarantee. SEi hereby guarantees for the
benefit of the Sellers the full and prompt performance by the Buyer of all
of its obligations toward the Sellers under this Agreement.
<PAGE> 55
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the day and year first above written.
SELLERS:
/s/ Alfons Brokamp
Alfons Bromkamp
/s/ Christian Frohlich
Christian Frohlich
SEI:
SYKES ENTERPRISES, INCORPORATED
/s/ Scott J. Bendert
Scott J. Bendert, Vice President - Finance
BUYER:
SYKES ENTERPRISES GMBH
/s/ Scott J. Bendert
Scott J. Bendert, Director
EXHIBIT 2.2
ACQUISITION AGREEMENT
BY AND AMONG
THE
SHAREHOLDER
OF
TAS HEDI FABINYI GMBH TELEMARKETING
UND KOMMUNIKATIONSKONZEPTE,
SYKES ENTERPRISES, INCORPORATED,
AND
SYKES ENTERPRISES GMBH
Dated September 25, 1997
<PAGE> i
TABLE OF CONTENTS
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. Definitions. . . . . . . . . . . . . . . . . . . . 1
ARTICLE II PURCHASE, SALE AND ASSIGNMENT OF SHARES . . . . . . . . . . 5
Section 2.1. Purchase and Sale of Shares . . . . . . . . . . . . 5
Section 2.2. Assignment of Shares . . . . . . . . . . . . . . . . 5
ARTICLE III DELIVERY OF PURCHASE PRICE SHARES. . . . . . . . . . . . . 6
Section 3.1. Delivery of Purchase Price Shares . . . . . . . . . 6
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SELLER (GARANTIEN). . 6
Section 4.1. Corporate Organization . . . . . . . . . . . . . . 6
Section 4.2. Capitalization . . . . . . . . . . . . . . . . . . 7
Section 4.3. Authority; Binding Effect . . . . . . . . . . . . . 7
Section 4.4. Ownership of Share Capital; Title . . . . . . . . . 7
Section 4.5. The Seller's Consents and Approvals; No Violations 7
Section 4.6. Consents and Approvals; No Violations . . . . . . . 8
Section 4.7. Financial Statements . . . . . . . . . . . . . . . 8
Section 4.8. Undisclosed Liabilities . . . . . . . . . . . . . . 9
Section 4.9. Taxes . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.10. Title to Properties . . . . . . . . . . . . . . . . 10
Section 4.11. Absence of Changes . . . . . . . . . . . . . . . . 10
Section 4.12. Intellectual Property . . . . . . . . . . . . . . . 12
Section 4.13. Leases . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.14. Bank Accounts; Investments; Powers of Attorney . . 13
Section 4.15. Material Contracts and Customers . . . . . . . . . 14
Section 4.16. Related Transactions . . . . . . . . . . . . . . . 16
Section 4.17. Insurance . . . . . . . . . . . . . . . . . . . . . 16
Section 4.18. Labor Matters . . . . . . . . . . . . . . . . . . . 17
Section 4.19. Employee Benefit Plans . . . . . . . . . . . . . . 18
Section 4.20. Litigation . . . . . . . . . . . . . . . . . . . . 18
Section 4.21. Compliance with Laws . . . . . . . . . . . . . . . 18
Section 4.22. Books and Records . . . . . . . . . . . . . . . . . 18
Section 4.23. Copies of Documents . . . . . . . . . . . . . . . . 19
Section 4.24. Adequacy of Assets . . . . . . . . . . . . . . . . 19
Section 4.25. Grants . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.26. Accounts Receivable . . . . . . . . . . . . . . . . 19
Section 4.27. Brokers and Finders . . . . . . . . . . . . . . . . 20
<PAGE> ii
Section 4.28. Investment Intent; Information Disclosures . . . . 20
Section 4.29 Pooling of Interests . . . . . . . . . . . . . . . 21
Section 4.30 Restrictive Covenants . . . . . . . . . . . . . . . 22
Section 4.31 Product Liabilities and Warranties . . . . . . . . 22
Section 4.32 Disclosure . . . . . . . . . . . . . . . . . . . . 23
ARTICLE V REPRESENTATIONS AND WARRANTIESOF SEI AND BUYER (GARANTIEN) . 23
Section 5.1. Corporate Organization . . . . . . . . . . . . . . 23
Section 5.2. Capitalization of SEi . . . . . . . . . . . . . . . 23
Section 5.3. Authority . . . . . . . . . . . . . . . . . . . . . 23
Section 5.4. SEi's Consents and Approvals; No Violations . . . . 24
Section 5.5. Litigation . . . . . . . . . . . . . . . . . . . . 24
Section 5.6. Brokers and Finders . . . . . . . . . . . . . . . . 24
Section 5.7. SEi Information . . . . . . . . . . . . . . . . . . 24
Section 5.8 No Material Adverse Change . . . . . . . . . . . . 24
Section 5.9. Undisclosed Liabilities . . . . . . . . . . . . . . 24
Section 5.10. Compliance with Laws . . . . . . . . . . . . . . . 25
ARTICLE VI FURTHER COVENANTS AND AGREEMENTS. . . . . . . . . . . . . . 25
Section 6.1. Covenants of the Seller Pending the Closing . . . . 25
Section 6.2. Covenants of Buyer and SEi Pending the Closing . . 26
Section 6.3. Filings . . . . . . . . . . . . . . . . . . . . . . 27
Section 6.4. Effective Time of Closing and Transfer . . . . . . 27
Section 6.5. Announcements . . . . . . . . . . . . . . . . . . . 27
Section 6.6. Costs and Expenses . . . . . . . . . . . . . . . . 27
Section 6.7. Further Assurances . . . . . . . . . . . . . . . . 28
Section 6.8. Certain Agreements . . . . . . . . . . . . . . . . 28
Section 6.9. Non-Disclosure; Covenant Not to Compete . . . . . . 28
Section 6.10. Pooling of Interests . . . . . . . . . . . . . . . 29
Section 6.11. Exclusive Dealing. . . . . . . . . . . . . . . . . 30
Section 6.12. Release of Collateral. . . . . . . . . . . . . . . 30
Section 6.13. Use of the Seller's Name. . . . . . . . . . . . . . 30
ARTICLE VII TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . 30
Section 7.1. Termination . . . . . . . . . . . . . . . . . . . . 30
Section 7.2. Procedure and Effect of Termination . . . . . . . . 31
ARTICLE VIII CONDITIONS TO BUYER'S AND SEI'S OBLIGATIONS . . . . . . . 31
Section 8.1 The Seller' Closing Deliveries . . . . . . . . . . 32
Section 8.2. Representations and Warranties True . . . . . . . . 32
Section 8.3. Performance . . . . . . . . . . . . . . . . . . . . 32
Section 8.4. Governmental Consents and Approvals . . . . . . . . 32
Section 8.5. No Injunction or Proceeding . . . . . . . . . . . . 32
<PAGE> iii
ARTICLE IX CONDITIONS TO THE SELLER'S OBLIGATIONS. . . . . . . . . . . 33
Section 9.1. Delivery of Purchase Price Shares . . . . . . . . . 33
Section 9.2. Buyer's and SEi's Closing Deliveries . . . . . . . 33
Section 9.3. Representations and Warranties True . . . . . . . . 33
Section 9.4. Performance . . . . . . . . . . . . . . . . . . . . 33
Section 9.6. Governmental Consents and Approvals . . . . . . . . 33
Section 9.7. No Injunction or Proceeding . . . . . . . . . . . . 34
ARTICLE X INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . 34
Section 10.1. Indemnification by the Seller . . . . . . . . . . . 34
Section 10.2. Indemnification by Buyer and SEi . . . . . . . . . 34
Section 10.3. Survival of Representations . . . . . . . . . . . . 34
Section 10.4. Indemnification Claims Procedures . . . . . . . . . 35
Section 10.5. Right of Set-Off . . . . . . . . . . . . . . . . . 36
Section 10.6. Limitation of Liability . . . . . . . . . . . . . . 36
ARTICLE XI MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 37
Section 11.1. Governing Law . . . . . . . . . . . . . . . . . . . 37
Section 11.2. Entire Understanding, Waiver, Etc . . . . . . . . . 37
Section 11.3. Severability; Gaps . . . . . . . . . . . . . . . . 37
Section 11.4. Captions . . . . . . . . . . . . . . . . . . . . . 37
Section 11.5. Notices . . . . . . . . . . . . . . . . . . . . . . 38
Section 11.6. Successors and Assigns . . . . . . . . . . . . . . 39
Section 11.7. Parties in Interest . . . . . . . . . . . . . . . . 39
Section 11.8. Counterparts . . . . . . . . . . . . . . . . . . . 39
Section 11.9. Construction of Terms . . . . . . . . . . . . . . . 39
Section 11.10. SEi Guarantee. . . . . . . . . . . . . . . . . . . 39
EXHIBITS
Exhibit A Form of Pledge and Escrow Agreement
Exhibit B Form of Registration Rights Agreement
Exhibit C Form of Employment Agreement
DISCLOSURE SCHEDULE
Section 4.1 Corporate Organization
Section 4.2 Capitalization
Section 4.4 Ownership of Quotas
Section 4.5 Sellers' Consents and Approvals; No Violations
Section 4.6 Consents and Approvals; No Violations
Section 4.7(a) Financial Statements
<PAGE> iv
Section 4.7(b) Financial Statements Exceptions
Section 4.8 Undisclosed Liabilities
Section 4.9 Taxes
Section 4.10(a) List of Material Fixed Assets
Section 4.10(b) Title to Properties Exceptions
Section 4.10(c) Possession and Condition of Assets
Section 4.11 Absence of Changes
Section 4.12(a) List of Intellectual Property
Section 4.12(b) Fees and Royalties
Section 4.12(c) Registrations; Exclusive Rights
Section 4.12(d) Trade Secrets
Section 4.12(e) Intellectual Property Claims
Section 4.13 Leases
Section 4.14(a) List of Accounts
Section 4.14(b) Investments
Section 4.14(c) Ownership of SEi Stock
Section 4.15(a) List of Material Contracts
Section 4.15(c) Customers and Suppliers
Section 4.16 Related Transactions
Section 4.17(a) List of Insurance Policies
Section 4.17(b) Insurance Policy Terminations
Section 4.17(c) Insurance Policy Claims
Section 4.17(d) Unpaid Insurance Claims
Section 4.18(a) Labor Matters
Section 4.18(b) List of Employees
Section 4.19 Employee Benefit Plans
Section 4.20 Litigation
Section 4.21 Compliance with Laws
Section 4.24 Adequacy of Assets
Section 4.25(a) Grants
Section 4.25(b) Grants Exceptions
Section 4.26 Accounts Receivable
Section 4.30 Restrictive Covenants
Section 4.31 Product Liabilities and Warranties
<PAGE> 1
ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT is made and entered into as of September
25, 1997, by and among the undersigned person (the "Seller"), being the
holder of all the outstanding capital interests of TAS Hedi Fabinyi GmbH
Telemarketing und Kommunikationskonzepte, a limited liability company
organized under the laws of the Federal Republic of Germany (the
"Company"), such Seller being an individual residing in, and a citizen of,
the Federal Republic of Germany, Sykes Enterprises GmbH, a limited
liability company organized and existing under the laws of the Federal
Republic of Germany ("Buyer"), and SYKES ENTERPRISES, INCORPORATED, a
corporation organized and existing under the laws of Florida ("SEi").
RECITALS
WHEREAS, the Seller owns all of the issued capital interests,
consisting of one share in the nominal amount of DM50,000, of the Company
(the "Quotas");
WHEREAS, SEi owns all of the issued capital interests of Buyer;
WHEREAS, the Seller desires to sell the Quotas in exchange for shares
of SEi's common stock, and SEi is willing to cause the Buyer to purchase
the Quotas from the Seller in exchange for shares of SEi's common stock,
on the terms and subject to the conditions hereinafter set forth; and
WHEREAS, SEi intends to treat the acquisition by the Buyer of the
Quotas as a "pooling of interests" for financial accounting purposes.
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements hereinafter set
forth and for other good and valuable considerations, the receipt and
sufficiency of which are hereby expressly acknowledged by the Seller, the
Buyer and SEi, and intending to be legally bound, the parties hereto agree
as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. The terms defined in this Article shall
have the following respective meanings for all purposes of this Agreement:
"Affiliate" means, with respect to any Person, an officer,
director or beneficial owner of five percent (5%) or more of the issued
<PAGE> 2
and outstanding shares of any class of capital stock or other equity of
such Person, a family member of such Person, if an individual, and any
other Person controlling, controlled by or under common control with such
Person.
"Alternative Transaction" means any merger, consolidation, sale
of substantial assets, sale of capital interests or securities or similar
transaction involving the Company, other than the transactions
contemplated by this Agreement.
"Business" means the business conducted as of the date of this
Agreement or as of the Closing Date, as the context permits or implies, by
the Company, which consists of providing the following services on a "for
hire" basis:
(i) call center services;
(ii) telemarketing and teleselling services;
(iii) fulfillment services for telemarketing and call center
customers;
(iv) database development services for telemarketing and call
center customers; and
(v) consulting and training services related to the above
service categories.
"Business Day" means any day on which banks are open for
business in New York, New York.
"Closing" means the consummation and effectuation of the
transactions contemplated herein pursuant to the terms and conditions of
this Agreement, which shall be held on the 26th day of September, 1997, at
10:00 AM in the offices of Schon Nolte Finkelnburg & Clemm in Hamburg,
Federal Republic of Germany, or on such other date or at such other time
or place as is mutually agreed by the parties hereto.
"Closing Date" means the date on which the Closing actually
occurs.
"Code" means the Internal Revenue Code of 1986, as amended.
"Customers" shall have the meaning set forth in Section 4.15.
"Disclosure Schedule" means the disclosure schedule document
executed by the Seller as of the date hereof and previously delivered to
the Buyer and SEi, without any amendment thereto subsequent to the date
hereof.
"Employee Benefit Plan" means any pension, retirement, profit
sharing, savings, thrift, stock bonus, stock option, stock purchase,
<PAGE> 3
restricted stock purchase, stock ownership, stock appreciation right,
phantom stock, deferred compensation, supplemental retirement, deferred
bonus, severance, change of control, parachute, health, medical, dental,
vision, prescription drugs, fitness, dependent care, educational
assistance, group legal services, life insurance, accidental death,
accidental dismemberment, sick pay, short-term or long-term disability,
supplemental unemployment income, training, apprenticeship, scholarship,
tuition reimbursement, employee assistance, employee discount, subsidized
cafeteria, fringe benefit, vacation, holiday, employer-sponsored
recreational facility, or other employee pension benefit or welfare
benefit plan, policy, contract, or arrangement, or other similar fringe or
employee benefit plan, program, policy, contract, or arrangement, written
or oral, qualified or nonqualified, funded or unfunded, foreign or
domestic.
"Escrow Agent" means Firstar Trust Company of Milwaukee,
Wisconsin, or such other person as SEi and the Seller shall mutually agree
upon, in its capacity as escrow agent.
"Financial Statements" has the meaning set forth in Section 4.7.
"Form 10-Q Balance Sheet" means the unaudited balance sheet
dated June 30, 1997 (and any related notes thereto), found in the
quarterly report filed on Form 10-Q filed with the Securities and Exchange
Commission for the quarterly period ended June 30, 1997, a copy of which
is included as part of the SEi Filings.
"GGAAP" means generally accepted accounting principles as in
effect in the Federal Republic of Germany on December 31, 1996.
"Grants" means governmental grants, subsidies, guarantees and/or
loans provided to or for the benefit of a Person.
"Intellectual Property" means all intellectual property and
intellectual property rights, whether arising under the laws of the
Federal Republic of Germany or any other jurisdiction including, without
limitation, (i) all patents, patent applications, continuations in part,
divisions, reissues and patent disclosures, (ii) all copyrights, whether
registered or unregistered, and pending applications to register the same,
(iii) anything recognizable as a trademark, service mark or trade dress at
common law or under the laws of any country, whether registered or not,
which is used to identify the source and quality of goods or services or
to distinguish them from those of others, and all registrations and
applications for registration, including intent-to-use registrations and
applications for registration, (iv) all licenses, sublicenses and rights
to use any Intellectual Property of any other Person, (v) all names used
to identify a particular company, business, subsidiary or division
thereof, (vi) all confidential and proprietary ideas, trade secrets, know
how, concepts, methods, processes, formulae, reports, data, customer
lists, mailing lists, business plans or other proprietary information,
including, without limitation, with respect to any Person, any formulae,
pattern, device or compilation of information which is used in such
Person's business and which derives independent commercial value from not
being generally known or readily ascertainable through independent
<PAGE> 4
development or reverse engineering by other Persons who can obtain
economic value from its disclosure or use, and (vii) all other forms of
proprietary information.
"Interim Balance Sheets" means the unaudited balance sheet of
the Company dated as of the Interim Balance Sheet Date (and any related
notes thereto), a copy of which is included as part of the Financial
Statements.
"Interim Balance Sheet Date" means July 31, 1997.
"Leased Real Property" means all real property and premises
currently leased to the Company.
"Material Adverse Effect" means, with respect to any Person, a
material adverse effect on the financial condition, results of operations
or business prospects of such Person.
"NASDAQ" means The Nasdaq National Stock Market, Inc.'s National
Market.
"Person" means an individual, partnership, limited liability
company, corporation, trust, unincorporated organization, association or
joint venture or a government, agency, political subdivision or
instrumentality thereof.
"Purchase Price Shares" means the 180,000 shares of SEi Stock to
be issued to the Seller in consideration of the transfer and assignment of
the Quotas pursuant to this Agreement.
"Related Agreements" means the agreements described in Section
6.8.
"SEC" means the United States Securities and Exchange
Commission.
"SEi Filings" means the following filings made by SEi with the
SEC: the annual report on Form 10-K for the annual period ending December
31, 1996, the quarterly reports on Form 10-Q for the quarterly periods
ending March 30, 1997, and June 30, 1997, and the Annual Report to
Stockholders and related proxy statement filed on Schedule 14A with
respect to an annual meeting of SEi's shareholders held on May 8, 1997.
"SEi Stock" means SEi's common stock, $.01 par value per share.
"Taxes" means all taxes, assessments, and charges imposed by any
national, federal, state, provincial, local, or foreign taxing authority,
including social security, insurance and other state-sponsored pension
funds and all interest, penalties and additions thereto.
<PAGE> 5
"Transfer Agent" means Firstar Trust Company of Milwaukee,
Wisconsin, in its capacity as transfer agent for SEi Stock.
"USGAAP" means generally accepted accounting principles as in
effect in the United States on December 31, 1996.
ARTICLE II
PURCHASE, SALE AND ASSIGNMENT OF SHARES
Section 2.1. Purchase and Sale of Shares. Upon the terms and
subject to the conditions hereof, the Seller hereby sells to Buyer and
Buyer hereby buys from the Seller, all of the Seller's right, title and
interest in and to the Quotas, together with the right to receive
dividends with respect to the Quotas as of January 1, 1997, and the
applicable capital reserve, in each case in consideration for the delivery
of the Purchase Price Shares as provided in Article III below.
Section 2.2. Assignment of Shares. The Seller hereby assigns and
transfers the Quotas as specified in Section 2.1, together with the right
to receive dividends on the Quotas as of January 1, 1997, to Buyer at the
Closing and Buyer hereby accepts such assignments. All such assignments
are subject to:
(a) the delivery of the Purchase Price Shares in accordance
with Article III hereof;
(b) the non-occurrence of a termination of this Agreement in
accordance with Section 7.1 prior to the Closing; and
(c) the fulfillment or waiver of all of the conditions
precedent specified in Article VIII and Article IX.
The Seller hereby consents to the sale and transfer effected herein
and waives any preemptive rights or rights of first refusal she may have
under the Articles of Association of the Company.
ARTICLE III
DELIVERY OF PURCHASE PRICE SHARES
Section 3.1. Delivery of Purchase Price Shares. Upon the
terms and subject to the conditions hereof, SEi shall issue, and Buyer
shall deliver, the Purchase Price Shares as follows:
<PAGE> 6
(a) to the Escrow Agent promptly following the Closing, a
certificate or certificates issued in the name of the Seller, each such
certificate bearing the legend provided for in Section 4.28(g) and
evidencing a number of shares equal to ten percent (10%) of the Purchase
Price Shares, rounded down to the nearest whole share, to be held in
accordance with a Pledge and Escrow Agreement dated as of the Closing Date
by and among SEi, Buyer, the Seller and the Escrow Agent substantially in
the form of Exhibit A (the "Pledge and Escrow Agreement"); and
(b) to the Seller at the Closing, a certificate or
certificates or, at SEi's option, an original or a facsimile copy of an
irrevocable letter of instructions (accompanied in case of a facsimile
copy by an original or facsimile of a letter from the Transfer Agent
acknowledging receipt of such letter of instructions) to the Transfer
Agent for the issue and delivery of a certificate or certificates, issued
in the Seller's name, each such certificate bearing or to bear the legend
provided for in Section 4.28(g) and evidencing or to evidence a number of
shares equal to the Purchase Price Shares remaining after delivery of
Purchase Price Shares for the account of the Seller in accordance with
Section 3.1(a) above.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLER (GARANTIEN)
The Seller hereby represents and warrants to SEi and Buyer as
follows:
Section 4.1. Corporate Organization. The Company is a limited
liability company duly organized and validly existing under the laws of
the Federal Republic of Germany and has the full right, power and
authority to own, lease and operate all of its properties and assets and
to carry out the Business as it is presently conducted by the Company.
The Company is duly licensed or qualified to do business and is in good
standing in each jurisdiction in which the ownership of property or the
conduct of its Business requires such qualification or license. Except as
set forth in Section 4.1 of the Disclosure Schedule, there are no
corporations, joint ventures, partnerships or other entities or
arrangements in which the Company, directly or indirectly, owns any
capital stock or any equity interest.
Section 4.2. Capitalization. The aggregate stated share
capital of the Company consists of DM50,000. The Quotas, which represent
all issued share capital of the Company, have been duly authorized and
validly issued, are fully paid and nonassessable, were issued without
violation of any preemptive rights, and can be transferred to Buyer as
provided herein free of any preemptive rights. The Company has not repaid
any stated share capital to the Seller, or to any prior holder of the
Company's share capital, or paid out any other equity capital in a manner
which would adversely affect the Company's ability to pay dividends in a
situation in which the Company would otherwise be permitted to pay
dividends according to German law. Except for this Agreement and as set
forth in Section 4.2 of the Disclosure Schedule, there are no options,
warrants or other rights, nor any agreements, commitments or arrangements
of any kind, relating to the subscription for or the issuance, voting,
<PAGE> 7
acquisition, sale, repurchase, transfer or disposition of (i) any share
capital of the Company or securities convertible into or exchangeable for
share capital of the Company, or (ii) any options, warrants or
subscription rights relating to any such share capital or other securities
of the Company.
Section 4.3. Authority; Binding Effect. The Seller has all
requisite right, power and authority to execute, deliver and perform this
Agreement and the Related Agreements to which the Seller is a party. This
Agreement and the Related Agreements to which the Seller is a party have
been duly and validly executed and delivered by the Seller and constitute
the legal, valid and binding obligations of the Seller, enforceable
against the Seller in accordance with their respective terms.
Section 4.4. Ownership of Share Capital; Title. Except as
disclosed in Section 4.4 of the Disclosure Schedule, the Seller owns of
record and beneficially all of the Quotas. All issued share capital of
the Company has been owned of record and beneficially at all times
exclusively by individual citizens of, or other Persons organized and
existing under the laws of, the Federal Republic of Germany. The Seller
has and will have, on the Closing Date, good, marketable and valid title
to the Quotas, free and clear of all liens, pledges, encumbrances, claims,
security interests, charges, voting trusts, voting agreements, other
agreements, rights, options, warrants or other restrictions of any kind,
nature or description, other than those referenced in Section 4.4 of the
Disclosure Schedule. The execution, delivery, notarization and
performance of this Agreement will convey to Buyer at the Closing good
title to the Quotas free and clear of all claims, liens, encumbrances,
security interests, charges or restrictions on transfer of any nature
whatsoever, other than those contained in the Company's Articles of
Association. The Seller is not involved in any proceedings by or against
the Seller under any bankruptcy laws or under any other insolvency or
debtor's relief act.
Section 4.5. The Seller's Consents and Approvals; No
Violations. Except as set forth in Section 4.5 of the Disclosure
Schedule, the execution, delivery and performance by the Seller of this
Agreement and the Related Agreements to which she is a party will not
(with or without the giving of notice or the passage of time, or both) (a)
violate any applicable provision of law or any rule or regulation of any
national, federal, state, provincial or local administrative agency or
governmental authority applicable to the Seller, or any order, writ,
injunction, judgment or decree of any court, administrative agency or
governmental authority applicable to the Seller, (b) violate or require
any consent, waiver or approval under (except for the matters referenced
in Section 4.5 of the Disclosure Schedule), result in a breach,
modification or termination of any provisions of, constitute a default
under, affect the rights under or enforceability of, or result in the
imposition of any pledge, security interest or other encumbrance upon any
of the Quotas pursuant to, any agreement, indenture, mortgage, deed of
trust, lease, license, or other instrument to which the Seller is a party
or by which she is bound, or any license, permit or certificate held by
her including, without limitation, those listed on the Disclosure
Schedule, or (c) based upon the information provided to the Seller with
respect to Buyer, require any consent or approval by, notice to or
<PAGE> 8
registration with any governmental authority or other Person which is
applicable to the Seller.
Section 4.6. Consents and Approvals; No Violations. Except as
set forth in Section 4.6 of the Disclosure Schedule, the execution,
delivery and performance by the Seller of this Agreement and the Related
Agreements to which she is a party will not (with or without the giving of
notice or the passage of time, or both) (a) violate any provision of law
or any rule or regulation of any national, federal, state, provincial or
local administrative agency or governmental authority applicable to the
Company or any order, writ, injunction, judgment or decree of any court,
administrative agency or governmental authority applicable to the Company,
(b) violate the organizational documents of the Company, (c) violate or
require any consent, waiver or approval under, result in a breach,
modification or termination of any provisions of, constitute a default
under, affect the rights under or enforceability of, result in the
imposition of any pledge, security interest or other encumbrance pursuant
to, or give any Person the right to terminate, modify or renegotiate any
provision of, any agreement, indenture, mortgage, deed of trust, lease,
license, or other instrument to which the Company is a party or by which
the Company is bound, or any license, permit or certificate held by the
Company including, without limitation, those listed on the Disclosure
Schedule, (d) based upon the information provided to the Seller with
respect to Buyer, require any consent or approval by, notice to or
registration with any governmental authority or other Person which is
applicable to the Company, or (e) result in the creation of any lien,
claim, encumbrance or charge upon any property or assets of the Company.
Section 4.7. Financial Statements.
(a) Section 4.7(a) of the Disclosure Schedule contains (i)
the audited balance sheet and the related audited income statement
(including any related notes thereto) of the Company as of and for the
fiscal years ended December 31, 1994, December 31, 1995 and December 31,
1996, and (ii) the Interim Balance Sheet and the related unaudited income
statements of the Company as of and for the seven-month period ending as
of the Interim Balance Sheet Date (including any related notes thereto)
(collectively, the "Financial Statements").
(b) Except as set forth on Section 4.7(b) of the
Disclosure Schedule, the Financial Statements (i) are true, correct and
complete in all material respects; (ii) are in accordance with the books
and records of the Company; (iii) have been prepared in accordance with
principles of orderly bookkeeping and GGAAP applied on a consistent basis
throughout the periods involved, respecting principles of prudence and
continuity; (iv) fairly present, in the case of each year-end balance
sheet and the Interim Balance Sheet, the financial position of the Company
as of the respective dates thereof and, in the case of the related income
statements, the results of operations and earnings of the Company for the
respective periods indicated; and (v) in the case of the Interim Balance
Sheet, were prepared in accordance with principles applicable to a year-
end balance sheet and present information comparable to other balance
sheets included in the Financial Statements.
<PAGE> 9
Section 4.8. Undisclosed Liabilities. Except as set forth on
Section 4.8 of the Disclosure Schedule, the Company has no liabilities
(absolute, accrued, contingent or otherwise) which are required to be
reflected in a balance sheet or in the notes thereto under GGAAP, except
(a) liabilities reflected or reserved against in the Interim Balance
Sheet, and (b) liabilities incurred since the Interim Balance Sheet Date
in the ordinary course of business, or which, in the aggregate, do not
exceed DM10,000 with respect to the Company.
Section 4.9. Taxes. Except as set forth in Section 4.9 of the
Disclosure Schedule, the Company has timely filed all returns,
declarations, reports, information returns and statements required to be
filed by it (the"Returns") in respect of any Taxes and has paid all Taxes
currently due and payable by it. Except as set forth in Section 4.9 of
the Disclosure Schedule, the Returns accurately and completely reflect the
facts regarding the income, properties, operations and status of any
entity required to be shown thereon, and no notice of any proposed
deficiency, assessment or levy in respect of Taxes has been received by
the Company. Except as set forth in Section 4.9 of the Disclosure
Schedule, the Company is not currently nor, during the past three years,
has been the subject of an audit or in receipt of a notice that it is
being or will be audited by a relevant Taxing authority, or has agreed to
any extension of time of any applicable statute of limitations period, and
the Company has duly withheld from each payment from which such
withholding is required by law, the amount of all Taxes required to be
withheld therefrom and has paid the same (to the extent due) together with
the employer's share of the same, if any, to the proper Tax receiving
officers. Except as set forth in Section 4.9 of the Disclosure Schedule,
the charges, accruals, and reserves for Taxes due, or accrued but not yet
due, relating to the income, properties or operations of the Company for
any period prior to or including the Closing Date as reflected on the
books of the Company are adequate in all material respects to cover such
Taxes, all Tax deficiencies which have been proposed or asserted against
the Company have been fully paid or finally settled, and no issue has been
raised in any examination which, by application of similar principles, can
be expected to result in the proposal or assertion of a Tax deficiency for
any other year not so examined, the Company has not received any Tax
incentive, abatement or other credit with respect to its assets, the
Business, its employees or otherwise which contains provisions for the
repayment of any Tax benefit, and the Company has incurred liabilities for
Taxes only in the ordinary course of the Business. The Company has never
conducted business in the United States, has never had any assets,
employees or shareholders located or resident in the United States, and
has never made any election with the United States Internal Revenue
Service regarding Taxes in the United States.
Section 4.10. Title to Properties.
(a) The Company does not own and never has owned, in whole
or in part, any interest in any real property. Section 4.10(a) of the
Disclosure Schedule sets forth a complete and accurate list of all fixed
assets owned by the Company and used in the Business as of the Interim
Balance Sheet Date.
<PAGE> 10
(b) Except for the normal reservation of title of
suppliers to the extent not paid and as set forth in Section 4.10(b) of
the Disclosure Schedule, the Company has good and marketable title to all
the personal property and assets (tangible and intangible) reflected as
owned by it on the Interim Balance Sheet or acquired since the Interim
Balance Sheet Date (except for properties and assets disposed of since
such date in the ordinary course of business and consistent with past
practice), free and clear of all liens, charges, security interests or
other encumbrances of any nature whatsoever.
(c) Except as set forth on Section 4.10(c) of the
Disclosure Schedule, all such assets (i) are now in the possession of the
Company, (ii) are not subject to claims by any other Person with a right
to possession of all or any part of such assets, (iii) are in good
operating condition (ordinary wear and tear excepted), (iv) are not,
individually or in the aggregate, in need of any repairs which
individually or in the aggregate could cost in excess of DM10,000, and (v)
are located on the Leased Real Property.
Section 4.11. Absence of Changes. Except as set forth in
Section 4.11 of the Disclosure Schedule, since December 31, 1996, the
Company has operated only in the ordinary course of the Business in all
material respects and there has not been with respect to the Company:
(a) any change or changes in the Business, financial
condition, properties, results of operations or assets or liabilities, or
any development or event involving a prospective change, other than
changes in the ordinary course of the Business and other than changes
which singularly or in the aggregate, have not had and will not have a
Material Adverse Effect;
(b) any material damage or destruction, loss or other
casualty, however arising and whether or not covered by insurance;
(c) any labor dispute or any other similar event or
condition of any character involving employees of the Company;
(d) any indebtedness incurred for borrowed money
(except by endorsement for collection or for deposit of negotiable
instruments received in the ordinary course of the Business);
(e) any change in the accounting methods, procedures
or practices or any change in depreciation or amortization policies or
rates theretofore adopted;
(f) any amendment or termination of any contract,
agreement, lease, franchise or license;
(g) any amendment of its organizational documents;
<PAGE> 11
(h) any mortgage, pledge or other encumbering of any
property or assets;
(i) any material liability or obligation incurred,
except current liabilities incurred in the ordinary course of the
Business, or any cancellation or compromise of any material debt or claim,
or any waiver or release of any right of substantial value to the
Business;
(j) any sale, transfer, lease, abandonment or other
disposal of any machinery, equipment or real property with a fair market
value in excess of DM10,000 or, except in the ordinary course of the
Business, any sale, transfer, lease, abandonment or other disposal of any
portion of any other properties or assets (real, personal or mixed,
tangible or intangible);
(k) any transfer, disposal or grant of any rights
under any Intellectual Property owned by the Company, or any disposal of
or disclosure to any other Person other than representatives of Buyer or
SEi of any material trade secret, formula, process or know-how not
theretofore a matter of public knowledge; except, in each case, in the
ordinary course of the Business;
(l) any bonus or other increase in the compensation
of its officers, employees or directors, or any agreement entered into
with any officer, employee or director, except, in each case, in the
ordinary course of the Business and consistent with past practice;
(m) any single capital expenditure made, or any
commitment to make any capital expenditure, in excess of DM10,000 for any
tangible or intangible capital assets, additions or improvements, except
in the ordinary course of the Business;
(n) any declaration, payment or reservation for
payment of any dividend or other distribution in respect of the Quotas or
any other securities, or any redemption, purchase or other acquisition,
directly or indirectly, of any Quotas or other securities of the Company;
(o) any grant or extension of any power-of-attorney
or guaranty in respect of the obligation of any other Person;
(p) any forward purchase commitments involving more
than DM10,000 in the aggregate or any other purchase commitments that are
not in the ordinary course of the Business;
(q) the adoption of any ruling, law, ordinance,
statute, rule, regulation, code, or other requirement of any governmental
authority which adversely affects the Company or the Business; or
<PAGE> 12
(r) any entry into any binding agreement, whether in
writing or otherwise, to take any action described in this Section 4.11.
Section 4.12. Intellectual Property.
(a) Section 4.12(a) of the Disclosure Schedule contains a
list and description (including information with respect to registration)
of all Intellectual Property owned or used by the Company, subdivided by
type of Intellectual Property. The Company owns or has the right to use
all Intellectual Property used by it in the conduct of the Business as
presently conducted by it. Except for the rights and licenses granted to
the Company under software contracts, the Company owns all right, title
and interest in the Intellectual Property required to be identified on
Section 4.12(a) of the Disclosure Schedule, free and clear of any
encumbrance. The Company has not granted, transferred, or assigned any
right or interest in its Intellectual Property to any other Person.
(b) Except as disclosed in Section 4.12(b) of the
Disclosure Schedule, no fees or royalties are payable or will be payable
under any software contracts listed in Section 4.12(a) of the Disclosure
Schedule as a result of the continued use of licensed software by the
Company in the ordinary course of the Business, other than fees or
royalties due for upgrades and fees or royalties that do not exceed
DM20,000 per year in the aggregate.
(c) Except as disclosed in Section 4.12(c) of the
Disclosure Schedule, (i) all registrations for Intellectual Property
required to be identified in Section 4.12(a) of the Disclosure Schedule as
being owned by the Company are valid and in force and applications to
register any unregistered Intellectual Property so identified are pending
and in good standing, all without challenge of any kind and to the best
knowledge of the Seller, there is no basis for any such challenge; and
(ii) the Company has the exclusive right to bring actions for infringement
or unauthorized use of the Intellectual Property identified as being owned
by the Company, and there is, to the best knowledge of the Seller, no
basis for any such action.
(d) The Company has promulgated and used its best efforts
to enforce a trade secret protection program. To the best knowledge of
the Seller, there has been no violation of any such program by any Person.
Except as disclosed in Section 4.12(d) of the Disclosure Schedule, all
trade secrets of the Company (i) have at all times been maintained in
confidence, and (ii) have not been disclosed to employees, consultants or
other third parties except on a "need to know" basis in connection with
their respective performance of duties to the Company.
(e) Except as disclosed in Section 4.12(e) of the
Disclosure Schedule, no claims have been asserted by any Person against
the Company claiming ownership of or right to use any of the Intellectual
Property required to be disclosed on Section 4.12(a) of the Disclosure
<PAGE> 13
Schedule (other than ownership of Intellectual Property licensed to the
Company under the software contracts listed on Section 4.12(a) of the
Disclosure Schedule) nor, to the best knowledge of the Seller, is there
any basis for any such claim. The use of the Intellectual Property by the
Company has not infringed on the rights of any Person and, except as
disclosed in Section 4.12(e) of the Disclosure Schedule, no claim of
infringement or any misuse or misappropriation of any of the Intellectual
Property of any other Person has been made or asserted against the Company
in respect of the Business, nor is there, to the best knowledge of the
Seller, any basis for any such claim.
Section 4.13. Leases. Section 4.13 of the Disclosure Schedule
contains an accurate and complete list of all leases pursuant to which the
Company leases real or personal property. Except as set forth in Section
4.13 of the Disclosure Schedule, all such leases are in full force and
effect and are valid, binding and enforceable in accordance with their
terms; there are no existing defaults or events which, with the giving of
notice or the lapse of time or both, would constitute a default thereunder
by the Company or any other parties thereto. Except as set forth in
Section 4.13 of the Disclosure Schedule, all leased items of personalty
are in good operating condition, are in a state of good maintenance and
repair and are adequate and suitable for the purpose for which they are
presently being used. Each such lease contains terms and conditions
obtained from independent third parties and negotiated in good faith at
arms-length. None of the rights of the Company under each such lease is
subject to termination or modification as a result of the transactions
contemplated hereby.
Section 4.14. Bank Accounts; Investments; Powers of Attorney.
(a) Section 4.14(a) of the Disclosure Schedule sets
forth the names and locations of all banks, trust companies, savings and
loan associations and other financial institutions at which the Company
maintains safe deposit boxes or accounts of any nature and the names (and
limits, if any) of all persons authorized to draw thereon, make
withdrawals therefrom or have access thereto.
(b) Section 4.14(b) of the Disclosure Schedule sets forth
a list and description (including interest rates and other significant
terms) of all funds, securities and other instruments in which excess cash
of the Company was invested as of the Interim Balance Sheet Date (the
"Investments"). All such Investments are investment grade and can be
liquidated within one business day without being discounted.
(c) Except as set forth in Section 4.14(c) of the
Disclosure Schedule, neither the Company nor any of its Affiliates
beneficially or of record owns any shares of SEi Stock.
(d) The Company has not granted or extended to any Person,
nor is the Company otherwise subject to or bound by, any power of attorney
which remains in effect, except for the authorizations set forth in
Section 4.14(a) of the Disclosure Schedule.
<PAGE> 14
Section 4.15. Material Contracts and Customers.
(a) Section 4.15(a) of the Disclosure Schedule contains a
true and correct list of all material contracts, agreements or other
understandings or arrangements, written or oral, or commitments therefor,
relating to the Company, the Business, or the assets or liabilities of
Company (collectively, the "Contracts"). Except as set forth in Section
4.15(a) of the Disclosure Schedule, the Company is not a party to, or
otherwise bound by, any written or oral, formal or informal:
(i) purchase orders and other contracts, in each case
for the sale of goods or services, in excess of DM40,000 (net of value
added taxes) individually or, for any group of related purchase orders and
contracts, in the aggregate;
(ii) contracts, agreements or commitments for the
purchase of materials or services which are not required by the Company in
the current operation of the Business in the ordinary course, or any
agreements or commitments for the sale of goods or services which are
inadequate to recover current costs of the Company;
(iii) contracts involving the expenditure for the
purchase of material, supplies, equipment or services of more than
DM40,000 per contract;
(iv) contracts not otherwise referenced involving the
expenditure of more than DM40,000 (per contract) which are not cancelable
within thirty (30) days without penalty;
(v) contracts relating to the leasing (as lessor or
lessee) or the conditional purchase or sale by the Company of any
property, whether real, personal or mixed;
(vi) contracts to which the Company is a party or by
which any of its assets are bound and that require consent by any other
Person in connection with the transaction contemplated hereby, either to
prevent a breach or continue the effectiveness thereof;
(vii) contracts or arrangements with any
governmental body, agency or authority;
(viii) indentures, mortgages, promissory notes,
loan agreements, capital leases, security agreements or other agreements
or commitments for the borrowing of money, or the deferred purchase price
of assets, or which create a lien or encumbrance on any assets of the
Company;
(ix) guarantees of the obligations of third parties or
agreements to indemnify third parties (other than indemnification
provisions provided in the ordinary course to or for the benefit of the
customers of the Company);
<PAGE> 15
(x) agreements which restrict the Company from doing
business in any geographic location;
(xi) policies of insurance in force and effect with
respect to the Company, the Business or its assets;
(xii) contracts or agreements not otherwise
referenced with the Seller or her Affiliates;
(xiii) license agreements (as licensee or licensor)
with third parties;
(xiv) employment or consulting agreements which
vary materially from the model employment agreements referenced in Section
4.18(b) or which involve the payment of DM50,000 or more during any twelve
month period;
(xv) distributor, dealer, sales, advertising, agency,
manufacturer's representative, franchise or similar contracts or any
contract relating to the payment of a commission;
(xvi) collective bargaining or other agreements
with labor unions;
(xvii) contracts or agreements for charitable
contributions by the Company;
(xviii) any contract or agreement which could
reasonably be expected to have a Material Adverse Effect on the Company;
or
(xix) other contracts outside the ordinary course
of the Business which are not otherwise described in this Subsection.
(b) True and complete copies of each of the Contracts have
been made available to Buyer and SEi by the Seller. 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 the Company or, to the knowledge of the Seller, by
any other party thereto. Except as referenced in Section 4.6 of the
Disclosure Schedule, none of the rights of the Company under any of the
Contracts is subject to termination or modification as a result of the
transactions contemplated hereby. No notice of termination or nonrenewal
has been given under any Contract. All Contracts contain terms and
conditions not less favorable to the Company than those that would be
obtained from independent third parties and have been negotiated in good
faith at arms-length. None of the Contracts with suppliers of goods or
services to the Company requires the payment of any commission, royalty,
fee, brokerage fee or other similar charge. For the purposes of Section
4.15(a), "material" contracts means contracts described in Section
4.15(a)(i) through (xix). The amounts set forth in this Section 4.15 with
<PAGE> 16
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 contains a
list of the name and location of the five (5) largest customers (the
"Customers") and the five (5) largest suppliers, in each case measured by
revenues generated or amounts paid, of the Business as of the Interim
Balance Sheet Date. The relationships of each of the Company with the
Customers are good, and the Seller is not aware of any intention of any
such Customers or suppliers to terminate or modify any of such
relationships. The Company is not generally required to provide bonding
or any other security arrangements in connection with any transactions
with its customers or suppliers.
Section 4.16. Related Transactions.
(a) Except as set forth in Section 4.16 of the Disclosure
Schedule, the Company has no contractual relationship with, or any
obligation or liability owed to, any of its Affiliates, any Affiliate of
the Seller, or any entity of which the Seller is an Affiliate. All such
contractual relationships are on terms that are no less favorable to the
Company than would be the case with a non-affiliated party.
(b) Except as set forth in Section 4.16 of the Disclosure
Schedule, neither the Seller nor any director or officer of the Company,
nor any Affiliate of any of them has any interest, direct or indirect, in
any Person which (i) is a competitor, customer, subcontractor of supplier
of the Company, or (ii) has an existing relationship with, or an interest
in, the Company including but not limited to lessors of real or personal
property and Persons against which rights or options are exercisable by
the Company.
Section 4.17. Insurance. Section 4.17(a) of the Disclosure
Schedule contains an accurate and complete list of all policies of
insurance presently maintained with respect to the Company including,
without limitation, "key man" insurance with respect to any employee.
Such list includes a description of coverage, the amount of coverage and
the name of the insurer or an indication that the Company has self-insured
any particular aspect of the Business. All such policies are in full
force and effect and no notice of cancellation or termination has been
received with respect to any such policy and there is, and has been, no
default by the Company with respect to its obligations under any such
policy. Except as set forth in Section 4.17(b) of the Disclosure
Schedule, the Seller and the Company have not received during the past two
(2) years any written notice or other written communication from any
insurance company declining to write insurance with respect to the
Business, or canceling or amending any of the Company's insurance policies
or proposing to do so. Section 4.17(c) of the Disclosure Schedule sets
forth a summary of information pertaining to property damage, personal
injury and products liability claims filed by the Company during the past
five (5) years which exceed DM2,000 in any instance, all of which have
been paid or are being defended by the Company's insurance carriers and
<PAGE> 17
involve no exposure to the Company. Section 4.17(d) of the Disclosure
Schedule sets forth a complete list of any claims that the Company has
under any of its insurance policies which have not been fully paid to the
Company.
Section 4.18. Labor Matters.
(a) Except to the extent set forth in Section 4.18(a) of
the Disclosure Schedule, (i) the Company is in compliance with all
rulings, laws, ordinances, statutes, rules, regulations, codes, and other
requirements of any governmental authority with respect to employment and
employment practices, (ii) there is no unfair labor practice charge or
complaint against the Company pending before or, to the best knowledge of
the Seller, threatened to be brought before any labor grievance board,
authority or tribunal, nor has any such charge or complaint been, to the
best knowledge of the Seller, threatened against the Company; (iii) there
is no labor strike, dispute, slowdown, or stoppage pending against or
affecting the Company; (iv) the Company is not a party to any collective
bargaining agreement or contract with any labor union and no works council
exists with respect to employees of the Company; (v) the Company has not
experienced any labor difficulty during the last three (3) years; and (vi)
there are no other controversies pending between the Company and any of
its employees including, without limitation, claims arising under any
labor laws. There has not been any adverse change in relations with
employees of the Company as a result of any announcement or other
disclosure of the transactions contemplated by this Agreement.
(b) Section 4.18(b) of the Disclosure Schedule sets forth
a list of the names of all employees, consultants, officers and directors
of the Company as of the date hereof, including length of employment and
date of birth. Except as indicated on Section 4.18(b) of the Disclosure
Schedule, all employees have executed one of the Company's model
employment agreements. The Seller has delivered to SEi (i) copies of the
Company's model employment agreements, (ii) copies of all written
employment agreements to which the Company is a party with any of its
employees identified in Section 4.18(b) of the Disclosure Schedule as
having agreements which vary materially from the model employment
agreements, (iii) written summaries of the terms of all oral employment
agreements that are other than at-will and which vary materially from the
applicable model employment agreements, and (iv) a schedule of
compensation for all employees.
Section 4.19. Employee Benefit Plans.
(a) Set forth in Section 4.19 of the Disclosure Schedule
is an accurate and complete list of each Employee Benefit Plan (other than
Employee Benefit Plans provided by statute) maintained or contributed to
by the Company.
(b) Except as set forth in Section 4.19 of the Disclosure
Schedule, all amounts that the Company is required to have contributed to
<PAGE> 18
any Employee Benefit Plan have been contributed within the time prescribed
by applicable law and all benefits, expenses, and other amounts due and
payable and all transfers or payments required to be made with respect to
any Employee Benefit Plan have been paid within the time prescribed by the
applicable documents and governing law.
(c) Except as set forth in Section 4.19 of the Disclosure
Schedule, there are no claims (other than routine claims for benefits) or
lawsuits pending with respect to any Employee Benefit Plan.
(d) Except as set forth in Section 4.19 of the Disclosure
Schedule, the Seller has previously delivered or made available to Buyer
and SEi true and complete copies of the plan documents for each Employee
Benefit Plan identified in Section 4.19 of the Disclosure Schedule.
Section 4.20. Litigation. Except as set forth in Section 4.20
of the Disclosure Schedule, there are no claims, actions, suits, or
proceedings pending or, to the best knowledge of the Seller, threatened
against the Company relating to this Agreement or the transactions
contemplated hereby or to the Business or the properties of the Company at
law or in equity or before or by any national, federal, state, provincial,
local, or foreign court or other governmental department, commission,
board, agency, instrumentality or authority, nor any arbitration
proceeding, in each case including, without limitation, any claims
relating to environmental matters. The Company is not subject to any
adverse judgment, order, writ, injunction or decree of any court or
governmental body.
Section 4.21. Compliance with Laws. Except as set forth in
Section 4.21 of the Disclosure Schedule, the Company has conducted the
Business so as to comply with in all material respects, and is not in
material violation of, nor has it received any written notice claiming it
is in material violation of any order, law, ordinance, statute, rule or
regulation applicable to it, or to the Business or any of the property or
assets of it including, without limitation, any environmental or worker
safety and protection laws and regulations. The Company has all material
licenses, permits, certificates of occupancy and authorizations necessary
to conduct the Business.
Section 4.22. Books and Records. The books, accounts and
records of the Company (a) are located at its headquarters at, Reutlinger
Strabe 46, 73728 Esslingen, Federal Republic of Germany, (b) are correct
and complete in all material respects, (c) have been maintained in
accordance with law and good business practice, and (d) constitute all the
books, accounts and records necessary to carry on the Business in the
manner in which it is currently being conducted and has over the preceding
twelve (12) months been carried on. The copies of the organizational
documents and of the minutes of all Quota holder and director meetings of
the Company hereto delivered by the Seller to Buyer and SEi are complete
and correct.
<PAGE> 19
Section 4.23. Copies of Documents. Each of the Seller and the
Company has delivered or specifically made available to Buyer, SEi and
their advisors true, complete and correct copies of all documents referred
to in this Agreement or in any Section of the Disclosure Schedule with the
understanding and intention that Buyer and SEi may and will rely upon the
completeness and accuracy thereof.
Section 4.24. Adequacy of Assets. Except as set forth in
Section 4.24 of the Disclosure Schedule, the assets of the Company and the
facilities, assets and services to which the Company has a contractual
right of use include all rights, properties, assets, facilities and
services necessary or appropriate for the carrying on of the Business in
the manner in which it is currently being and has over the immediately
preceding twelve (12) months been carried on, and the Company does not
depend in any respect upon the use of assets owned by, or facilities or
services provided by, the Seller or any of her Affiliates.
Section 4.25. Grants.
(a) Section 4.25(a) of the Disclosure Schedule sets forth
a true, correct and complete description of all Grants received by the
Company during the past five years, including (i) all amounts paid to the
Company to date, and (ii) all conditions to the receipt of payments by the
Company with respect to such Grants.
(b) The consummation of the transactions contemplated
hereby will not affect the right of the Company to retain the Grants.
Except as set forth in Section 4.25(b) of the Disclosure Schedule, no
facts or circumstances exist that could, directly or indirectly, (i) cause
or contribute to the revocation of any of the Grants, (ii) cause or
contribute to an obligation of the Company to repay any Grants or (iii)
otherwise cause or contribute to the failure of the Company to receive the
full amounts of the Grants.
Section 4.26. Accounts Receivable. Section 4.26 of the
Disclosure Schedule sets forth a true and correct list and aging of all
unpaid accounts receivable owing to the Company as of the Interim Balance
Sheet Date. The accounts receivable of the Company including, without
limitation, those reflected in Section 4.26 of the Disclosure Schedule,
constitute or will constitute as of the respective dates thereof, legal,
valid, binding and enforceable claims arising from bona fide transactions
in the ordinary course of the Business and, except to the extent reserved
against on the Interim Balance Sheet, are or will be as of the respective
dates thereof collectible in the ordinary course of the Business and are
not subject to any known counterclaims or set-offs. The reserves for
doubtful accounts and allowances with respect to the accounts receivables
generated after the Interim Balance Sheet Date and prior to the Closing
will be established on the basis of evaluation of specific accounts and
age classifications in accordance with GGAAP.
Section 4.27. Brokers and Finders. The Seller has not entered
into any arrangement with any agent, broker, investment banker, person or
firm acting on behalf of the Company, the Seller or any Affiliate of any
of them pursuant to which any Person is or will be entitled to any
<PAGE> 20
brokers' or finders' fee or any other commission or similar fee directly
or indirectly from the Company, the Buyer or SEi in connection with the
transactions contemplated hereby.
Section 4.28. Investment Intent; Information Disclosures.
(a) The Seller acknowledges that the SEi Stock to be
received by the Seller will be acquired for the Seller's own account and
without any view to the distribution of any part thereof without
registration under applicable federal and state securities laws, or the
delivery to SEi of an opinion of counsel that registration is not required
in accordance with Section 4.28(e) hereof. The Seller represents that the
Seller does not have any agreements or arrangements to sell, transfer or
grant a participation with respect to the Purchase Price Shares.
(b) The Seller understands that the shares of SEi Stock
constituting the Purchase Price Shares are not registered under the United
States federal or state securities laws in part on the grounds that the
transactions contemplated hereby are exempt from registration under the
Securities Act of 1933 (the "1933 Act") pursuant to Section 4(2) thereof,
and that Buyer's and SEi's reliance on such exemption is predicated on the
Seller's representations set forth herein.
(c) The Seller represents that the Seller has such
knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of its investment in the
Purchase Price Shares, and has the ability to bear the economic risks of
such investment. The Seller further represents that the Seller has had
(i) access, prior to the Closing Date, to the SEi Filings (ii) the
opportunity to ask questions of, and receive answers from, SEi concerning
SEi and the Purchase Price Shares, and (iii) the opportunity to obtain
additional information (to the extent SEi possessed such information or
could acquire it without unreasonable expense) necessary to verify the
accuracy of any information received or to which the Seller had access.
(d) The Seller understands and agrees that the Purchase
Price Shares may not be sold, transferred or otherwise disposed of without
registration under the 1933 Act and applicable state laws, unless
exemptions from registration requirements are available, and that in the
absence of an effective registration statement covering the Purchase Price
Shares or an available exemption from applicable registration
requirements, the Purchase Price Shares must be held indefinitely. In
particular, the Purchase Price Shares may not be sold pursuant to Rule 144
promulgated under the 1933 Act unless all of the conditions of such rule
are met.
(e) The Seller agrees that the Seller will not offer,
sell, mortgage, pledge or otherwise dispose of any of the Purchase Price
Shares (other than pursuant to an effective registration statement under
the 1933 Act) unless and until the Seller delivers an opinion of counsel
satisfactory to SEi, or SEi delivers to the Seller an opinion of counsel,
that registration under applicable federal or state securities laws is not
required.
<PAGE> 21
(f) In addition, the Seller agrees that the Seller shall
not sell, assign, pledge, encumber or otherwise transfer any of the
Purchase Price Shares (or any interest therein) unless:
(i) such transfer occurs after financial results
reflecting at least thirty days of post-Closing combined operations of the
Company and SEi have been prepared and published within the meaning of
Section 201.01 of the SEC's Codification of Financial Reporting Policies;
and
(ii) either (A) such transfer occurs after the first
anniversary of the Closing, or (B) after giving effect to the transfer,
the Seller will continue to own at least fifty percent (50%) of the
Purchase Price Shares issued to her at the Closing (adjusted to account
for any additional shares issued in respect of such shares by way of stock
splits, stock dividends or otherwise).
(g) The Seller agrees that all certificates for Purchase Price
Shares shall bear a legend in substantially the following form:
The securities represented by this certificate have not been
registered, qualified, recommended, approved or disapproved
under United States federal securities law or state securities
laws. The shares represented by this certificate may not be
sold, transferred or otherwise disposed of by an investor without
(i) registration under federal and state securities laws, or
(ii) delivery of an opinion of counsel satisfactory to the
corporation that neither the sale nor the proposed transfer
constitutes a violation of any United States federal or state
securities law.
The securities represented by this certificate are subject to
certain transfer restrictions set forth in an Acquisition
Agreement dated as of September 25, 1997 (a copy of which may
be obtained from the Company at its principal executive
office), and may not be sold, assigned, pledged, encumbered or
otherwise transferred except in compliance with the terms and
conditions of such agreement.
Section 4.29 Pooling of Interests. The Seller acknowledges that SEi
intends to account for the acquisition of the Quotas as a pooling of
interests, and that qualifying for such accounting treatment is dependent
in part upon actions taken, or not taken, by the Company and the Seller
both before and after the date hereof. In this regard, and with the
understanding that SEi is relying thereon in making its commitment to
enter into this transaction, the Seller warrants that the Seller, the
Company and their respective Affiliates have not, directly or indirectly,
taken any of the following actions, which Seller acknowledges could
prevent SEi from obtaining such pooling accounting treatment:
<PAGE> 22
(a) acquired or sold, assigned, transferred or otherwise
disposed of, or reduced any risk relative to, any Quotas or SEi Stock in
contemplation of the transactions provided for herein;
(b) paid or received any dividends or other distributions with
respect to the capital interests of the Company, other than distributions
in the ordinary course of the Company's Business and not in contemplation
of the transactions provided for herein;
(c) altered the relative ownership interests of the Seller in
the Company in contemplation of the transactions provided for herein;
(d) disposed of any part of the assets of the Company within
the nine months preceding the date hereof or in contemplation of the
transactions provided for herein;
(e) become a party to any contract, document, instrument or any
written or oral agreement regarding the sale, assignment or transfer of,
or allowed to be created any rights or obligations for the sale,
assignment or transfer of, or explicitly or impliedly agreed to sell,
assign or transfer any of the Quotas held by the Seller; or
(f) entered into any agreement to do any of the forgoing,
including without limitation, any agreement to distribute or dispose of
any part of the assets of the Company upon the consummation of the
transactions provided for herein.
Section 4.30 Restrictive Covenants. Except as disclosed in Section
4.30 of the Disclosure Schedule, the Company is not subject to, or a party
to, any mortgage, lien, lease, license, permit, agreement, contract,
instrument, law, rule, ordinance, regulation, order, judgment or decree,
or any other restriction of any kind or character, which materially
adversely affects its Business practices, operations or condition or any
of its assets or properties, which restricts its ability to acquire any
property or conduct its Business in any area or which would prevent
consummation of the transactions contemplated by this Agreement,
compliance by it with the terms, conditions and provisions hereof or the
operation of its Business by it after the date hereof on substantially the
same basis as heretofore operated by it.
Section 4.31 Product Liabilities and Warranties. There are no
express or implied warranties applicable to products or services sold or
provided by the Company except as provided by statute or disclosed on
Section 4.31 of the Disclosure Schedule. Except as set forth in Section
4.31 of the Disclosure Schedule, there is no action, suit, proceeding or
claim pending or, to the best knowledge of the Seller, threatened against
the Company under any warranty, express or implied, and there is no basis
upon which any claim could be made. Section 4.31 of the Disclosure
Schedule also summarizes all product liability claims that have been
asserted against the Company during the five (5) years preceding the date
of this Agreement.
<PAGE> 23
Section 4.32 Disclosure. None of the representations or warranties
by the Seller herein, no statement contained in any certificate, list or
other writing furnished to Buyer or SEi pursuant hereto and no statement
contained in any Section of the Disclosure Schedule, taken as a whole,
contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein
or therein, in light of the circumstances in which they were made, not
misleading. There is no fact known to the Seller which materially and
adversely affects the Business, the Company, or the prospects or financial
condition of the Company, which has not been set forth in this Agreement
or in a Section of the Disclosure Schedule.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF SEI AND BUYER (GARANTIEN)
SEi and Buyer, jointly and severally, hereby represent and warrant to
the Seller as follows:
Section 5.1. Corporate Organization. Each of Buyer and SEi is
a corporation or limited liability company, as the case may be, duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization and has the full right, power and authority
to own, lease and operate all of its properties and assets and to carry
out its business as it is presently conducted.
Section 5.2. Capitalization of SEi. All issued and
outstanding shares of SEi Stock have been, and upon issuance the Purchase
Price Shares will be, duly authorized and validly issued, fully paid and
nonassessable. The issuance of the Purchase Price Shares is not subject to
any preemptive right or right of first refusal that has not or will not be
satisfied or waived.
Section 5.3. Authority. Each of Buyer and SEi has all
requisite right, power and authority to execute, deliver and perform this
Agreement. The execution, delivery and performance of this Agreement and
the Related Agreements by Buyer and SEi have been duly and validly
authorized and approved by all necessary corporate action. This Agreement
has been duly and validly executed and delivered by Buyer and SEi and,
assuming this Agreement has been duly authorized, executed and delivered
by the Seller, constitutes the legal, valid and binding obligation of
Buyer and SEi, enforceable against each of them in accordance with its
terms.
Section 5.4. SEi's Consents and Approvals; No Violations. The
execution, delivery and performance of this Agreement by Buyer and SEi
will not (with or without the giving of notice or the passage of time, or
<PAGE> 24
both), (a) violate in any material respect any applicable provision of law
or any rule or regulation of any administrative agency or governmental
authority applicable to Buyer or SEi, or any order, writ, injunction,
judgment or decree of any court, administrative agency or governmental
authority applicable to Buyer or SEi, (b) violate the organizational
documents of Buyer or the Articles of Incorporation or Bylaws of SEi, (c)
violate or require any consent, waiver or approval under, result in a
breach, modification or termination of any of any provisions of,
constitute a default under, affect the rights under or enforceability of,
result in the imposition of any pledge, security interest or other
encumbrance pursuant to, give any Person the right to terminate, modify or
renegotiate any provision of, any material agreement, indenture, mortgage,
deed of trust, lease, license, or other instrument to which Buyer or SEi
is a party or by which Buyer or SEi is bound, or any material license,
permit or certificate held by Buyer or SEi (other than any consents which
will have been obtained on or prior to the Closing Date), or (d) based
upon the information provided to the Buyer with respect to the Seller,
require any material consent or approval by, notice to, or registration
with any governmental authority.
Section 5.5. Litigation. There are no claims, actions, suits,
or proceedings pending or, to the best knowledge of Buyer and SEi,
threatened, against Buyer or SEi relating to this Agreement or the
transactions contemplated hereby or to the business or property of Buyer
or SEi, at law or in equity or before or by any national, federal, state,
provincial, local, or foreign court or other governmental department,
commission, board, agency, instrumentality or authority, or any
arbitration proceeding, in each case which are likely to have a Material
Adverse Effect. Neither Buyer nor SEi is subject to any judgment, order,
writ, injunction or decree of any court or governmental body.
Section 5.6. Brokers and Finders. Neither SEi nor the Buyer
has entered into any arrangement with any agent, broker, investment
banker, Person or firm acting on behalf of Buyer, SEi or any Affiliate of
either of them pursuant to which any Person is or will be entitled to any
brokers' or finders' fee or any other commission or similar fee directly
or indirectly from the Seller in connection with the transactions
contemplated hereby.
Section 5.7. SEi Information. SEi has delivered to the Seller
true and complete copies of the SEi Filings. At the date hereof, the SEi
Filings, taken as a whole, do not contain any untrue statement of a
material fact or omit any material fact necessary to make the statements
contained herein, in light of the circumstances in which they were made,
not misleading.
Section 5.8 No Material Adverse Change. Since June 30, 1997,
SEi has not suffered any Material Adverse Effect.
Section 5.9. Undisclosed Liabilities. SEi has no liabilities
(absolute, accrued, contingent or otherwise) required by USGAAP to be
reflected or reserved against in the consolidated statement of assets and
liabilities of SEi except (a) liabilities reflected or reserved against in
<PAGE> 25
the Form 10-Q Balance Sheet, and (b) liabilities incurred since March 30,
1997 in the ordinary course of business, and which, in the aggregate, do
not have a Material Adverse Effect.
Section 5.10. Compliance with Laws. Each of Buyer and SEi has
conducted its business so as to comply with, and is not in violation of,
nor has it received any written notice claiming it is in violation of, any
order, law, ordinance, statute, rule or regulation applicable to it, or to
its business or any of its property or assets including, without
limitation, any environmental or worker safety and protection laws and
regulations, except to the extent that such non-compliance would not have
a Material Adverse Effect. Each of Buyer and SEi has all material
licenses, permits, certificates of occupancy and authorizations necessary
to conduct its business.
ARTICLE VI
FURTHER COVENANTS AND AGREEMENTS
Section 6.1. Covenants of the Seller Pending the Closing. The
Seller covenants and agrees that, pending the Closing and prior to the
termination of this Agreement, and except as otherwise agreed to in
writing by Buyer and SEi, the Seller shall or, as appropriate shall cause
the Company to:
(a) conduct the Business solely in the ordinary course and
consistent with the past practices of the Company;
(b) not take or intentionally omit to take any action
which would result in a breach of any of the Seller's representations and
warranties hereunder in any material respect;
(c) continue to maintain and service the physical assets
used by the Company in the conduct of the Business consistent with past
practices;
(d) use its reasonable efforts to preserve the Business
and organization of the Company, to keep available the services of the
Company's present employees and agents and to maintain the relations and
goodwill with the suppliers, customers (including the Customers),
distributors and any others having business relations with the Company in
connection with the Business;
(e) use its and their reasonable efforts to cause all of
the conditions to the obligations of Buyer and SEi under this Agreement to
be satisfied on or prior to the Closing Date and to obtain, prior to the
Closing, all consents of all third parties and governmental authorities
<PAGE> 26
necessary for the consummation by the Seller and the Company of the
transactions contemplated hereby. All such consents will be in writing
and executed counterparts will be delivered to Buyer and SEi at or prior
to the Closing.
(f) cooperate with Buyer and SEi in making arrangements to
obtain licenses, permits and certificates required to conduct the Business
or own the Quotas at Closing;
(g) provide Buyer's and SEi's officers, employees,
counsel, accountants and other representatives with full access to, during
normal business hours, all of the books and records of the Company, make
available to representatives of Buyer and SEi, knowledgeable employees of
the Company for reasonable periods of time to answer inquiries of such
representatives with respect to Buyer's and SEi's investigation of the
Company and permit such representatives of Buyer and SEi to consult with
the officers, employees, accountants and counsel of the Seller; provided,
that no such activities unreasonably interfere with the operation of the
Business;
(h) not grant to any Person a power of attorney or similar
authority to act for the Company;
(i) not enter into any guarantee of the obligations of any
Person to the extent such guarantee shall survive the Closing;
(j) not amend the charter, Articles of Association or
other organizational documents of the Company;
(k) make no change in the amount of issued share capital
of the Company or issue or create any option, warrant or any other
security of the Company;
(l) not increase the compensation payable or to become
payable to any officer, employee or agent of the Company other than in the
ordinary course of the Business, nor make any bonus payment or arrangement
to or with any officer, employee or agent of the Company other than in the
ordinary course of the Business;
(m) not make any dividends or other distributions in
respect of the Quotas;
(n) not sell, transfer, lease, abandon or otherwise
dispose of (or commit to do so) any fixed assets of the Company; and
(o) not enter into any contract or commitment calling for
payment to or by the Company of an aggregate amount of more than DM10,000,
which is not terminable by the Company on less than thirty (30) days'
notice without penalty.
<PAGE> 27
Section 6.2. Covenants of Buyer and SEi Pending the Closing.
Buyer and SEi covenant and agree that, pending the Closing and prior to
the termination of this Agreement, and except as otherwise agreed to in
writing by the Seller, each of Buyer and SEi:
(a) shall not take or intentionally omit to take any
action which would result in a breach of any of its representations and
warranties hereunder in any material respect.
(b) shall use its reasonable efforts to cause all of the
conditions to the obligations of the Seller under this Agreement to be
satisfied on or prior to the Closing Date and to obtain prior to the
Closing, all consents of all third parties and governmental authorities
necessary for the consummation by it of the transactions contemplated
hereby. All such consents will be in writing and executed counterparts
thereof will be delivered to the Seller at or prior to the Closing.
(c) shall promptly disclose to the Seller any information
relating to its representations and warranties hereunder which, because of
an event occurring after the date hereof, is incomplete or is no longer
correct in any material respect.
Section 6.3. Filings. Promptly after the execution of this
Agreement, each of the parties hereto shall prepare and make or cause to
be made any required filings, submissions and notifications under the laws
of any domestic or foreign jurisdictions to the extent that such filings
are necessary to consummate the transactions contemplated hereby and will
use its reasonable efforts to take all other actions necessary to
consummate the transactions contemplated hereby in a manner consistent
with applicable law. Each of the parties hereto will furnish to the other
party such necessary information and reasonable assistance as such other
party may reasonably request in connection with the foregoing.
Section 6.4. Effective Time of Closing and Transfer. The
Closing shall be effective for all purposes as of the close of business on
the Closing Date.
Section 6.5. Announcements. Except as expressly contemplated
by this Agreement, the parties will mutually agree as to the time, form
and content before issuing any press releases or otherwise making any
public statements or statements to third parties with respect to
transactions contemplated hereby and shall not issue any press release or,
except as necessary to perform their respective obligations hereunder,
discuss the transactions contemplated hereby with any third party prior to
reaching mutual agreement with respect thereto, except as may be required
by law. Notwithstanding the foregoing, in the event prior to the Closing
any party hereto is required by law or the rules of any stock exchange on
which such party's securities are traded to make a statement with respect
to the transactions contemplated herein, such party shall notify in
writing the other party hereto as to the time, form and content of such
statement.
<PAGE> 28
Section 6.6. Costs and Expenses. Whether or not the
transactions contemplated by this Agreement are consummated, each party
hereto shall pay its own costs and expenses (including legal fees and
expenses) incurred in connection with due diligence reviews, the
preparation, negotiation and execution of this Agreement and all other
agreements, certificates, instruments and documents delivered hereunder,
and all other matters relating to the transactions contemplated hereby.
All German transfer and intangible Taxes, if any, arising in connection
with the sale and assignment of the Quotas hereunder shall be paid by the
Seller. All transfer and intangible Taxes, if any, in connection with the
sale and delivery of the Purchase Price Shares hereunder shall be paid by
SEi. All fees and charges arising from notary requirements applicable to
the sale and assignment of the Quotas shall be paid by the Buyer.
Section 6.7. Further Assurances.
(a) Subject to the terms and conditions herein provided,
each of the parties hereto agrees to use its reasonable efforts to take,
or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and
regulations 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 the other party for such purposes or otherwise to consummate and give
effect to the transactions contemplated hereby. If any consent or
approval required for the consummation of the transactions contemplated
hereby is waived by the parties prior to Closing, at the request of Buyer
the Seller shall cooperate with SEi, and attempt in good faith, to obtain
such consent or approval during the one year period immediately following
the Closing.
(b) From and after the Closing Date, the Buyer and/or SEi
agree to promptly inform the Seller of any Tax audit of the Company by a
Tax authority and to give the Seller the opportunity to participate in
such a Tax audit. Furthermore, the Seller shall be entitled to request
the Buyer, SEi and/or the Company to duly and timely file the appropriate
recourse against any Tax assessment resulting in a higher Tax burden for
any period prior to the Closing Date. If such request is not honored, the
Buyer shall cause the Company, upon request by the Seller, to file such
recourse nonetheless, provided that in this case the Seller shall be
liable to reimburse the Company for all fees and expense incurred in the
recourse proceedings to the extent such fees and expenses are not borne by
third parties.
Section 6.8. Certain Agreements. On or before the Closing
Date, Buyer, SEi, and the Seller will execute the Pledge and Escrow
Agreement in the form of Exhibit A, the Seller and SEi will execute the
Registration Rights Agreement in the form of Exhibit B, and the Seller
will execute, or cause to be executed, an employment agreement between the
Company and the Seller in the form of Exhibit C, in each case to be
effective upon the Closing Date.
<PAGE> 29
Section 6.9. Non-Disclosure; Covenant Not to Compete.
(a) The parties hereto acknowledge that (i) the covenants
contained in this Section 6.9 are a material inducement to the
consummation by Buyer and SEi of the transactions contemplated by this
Agreement and (ii) Buyer and SEi would not have entered into or performed
this Agreement but for the covenants herein contained.
(b) The Seller agrees that, unless acting with the prior
consent of Buyer and SEi, it will not, either alone or in conjunction with
any other Person, or directly or indirectly through any entity that it now
or in the future controls, for a period of three years from the Closing
Date: (i) employ or solicit the employment of any Person who within the
month preceding the Closing Date had been an employee of the Company; (ii)
directly or indirectly engage or participate, whether as officer,
employee, director, agent, consultant, shareholder, partner, or otherwise,
in the ownership, management, marketing or operation of any enterprise
which is engaged in any part of the Business within Europe (other than
solely through the ownership of equity securities or equivalent interests
of any entity at a level which does not create the ability to influence or
control management of the entity); or (iii) conduct any part of the
Business with any Person that is a Customer of the Company as of the
Closing Date.
(c) It is stipulated and agreed that the Seller has become
acquainted with confidential and privileged information of the Company
relating to customer files, customer lists, special customer matters,
sales methods and techniques, merchandising concepts and plans, new site
locations, business plans, sources of supply and vendors, special business
relationships with vendors, agents and brokers, promotional materials and
information, financial matters, mergers, acquisitions, selective personnel
matters and confidential processes, designs, formulas, ideas, plans,
devices or materials and other similar matters which are confidential (any
and all such information being referred to herein as the "Confidential
Information"); and that the use of the Confidential Information against
the Company would seriously damage the Business. As a consequence of the
above, the Seller agrees that, unless acting with the prior written
consent of Buyer, the Seller shall, whether acting alone, in conjunction
with any other Person, or directly or indirectly through any entity that
the Seller now or in the future controls: not use, divulge, publish or
otherwise reveal or allow to be revealed any aspect of the Confidential
Information to any Person; refrain from any action or conduct which might
reasonably or foreseeably be expected to compromise the confidentiality or
proprietary nature of the Confidential Information; and shall have no
right to apply for or to obtain any patent, copyright, or other form of
Intellectual Property protection with regard to the Confidential
Information.
(d) The parties hereto acknowledge and agree that any
remedy at law for any breach of the provisions of this Section 6.9 would
be inadequate and the Seller hereby consents to the granting by any court
of competent jurisdiction of an injunction or other suitable relief and
without the posting of any bond or the necessity of actual monetary loss
being proved, in order that such breach may be effectively restrained.
<PAGE> 30
Section 6.10. Pooling of Interests. The Seller shall not, and
shall not permit the Company, to take, any of the following actions, each
of which could result in the transfer of the Quotas not qualifying to be
accounted for as a pooling of interests: (a) acquiring or transferring any
capital interests of the Company or any SEi Stock during the thirty (30)
days prior to the Closing Date, and (b) selling, assigning or
transferring, or agreeing or allowing to be created any rights or
obligation for the sale, assignment or transfer of, any of the Purchase
Price Shares or any other SEi Stock in violation of the restrictions set
forth in Section 4.28(f)(i).
Section 6.11. Exclusive Dealing. During the period from the
date of this Agreement through and including the Closing Date, the Seller
shall not, and shall not permit the Company or any of their respective
directors, officers, employees, representatives or agents to, directly or
indirectly, solicit, initiate or participate in any negotiations with any
Person other than SEi and the Buyer and their respective representatives,
agents and Affiliates, concerning any Alternative Transaction. The Seller
shall immediately notify SEi and Buyer of any proposal or offer received
by, any information requested from, or any discussions or negotiations
sought to be initiated or continued with, the Seller or the Company in
respect of an Alternative Transaction and shall, in any such notice to SEi
and Buyer, indicate the terms and conditions of any proposals or offers or
the nature of any requests, discussions or negotiations.
Section 6.12. Release of Collateral. No later than October 31,
1997, the Seller, Buyer and SEi shall arrange for the release of the
following collateral granted to Deutsche Bank AG by the Seller as
collateral for the Company's obligations:
(a) a capital life insurance policy;
(b) a risk life insurance policy;
(c) an insurance policy at the Sparkassenversicherung; and
(d) a personal guarantee in the amount of DM430,000.
Section 6.13. Use of the Seller's Name. The Seller agrees
that, so long as and only so long as the Company is owned by SEi, the
Company has and will continue to have the right to use "Hedi Fabinyi" as a
part of its name.
<PAGE> 31
ARTICLE VII
TERMINATION
Section 7.1. Termination. This Agreement may be terminated at
any time prior to the Closing:
(a) by mutual written agreement executed by the Seller,
Buyer and SEi;
(b) by the Seller, Buyer or SEi at any time after
September 26, 1997 if, through no fault of the party seeking termination,
the Closing shall not have occurred;
(c) by the Seller, Buyer or SEi, if any governmental or
regulatory authority, agency or commission, including courts of competent
jurisdiction, domestic or foreign, shall have issued an order, decree, or
ruling or taken other action, restraining, enjoining or otherwise
prohibiting the transactions contemplated hereby and such order, decree,
ruling or other action shall have become final and nonappealable;
(d) by Buyer or SEi, if there has been a material
violation or breach by the Seller of any agreement or any representation
or warranty contained in this Agreement which (i) is not curable, (ii) has
rendered the satisfaction of any condition to the obligations of Buyer and
SEi impossible, and (iii) has not been waived by Buyer and SEi; or
(e) by the Seller, if there has been a material violation
or breach by Buyer or SEi of any agreement, representation or warranty
contained in this Agreement which (i) is not curable, (ii) has rendered
the satisfaction of any condition to the obligations of the Seller
impossible, and (iii) has not been waived by the Seller.
Section 7.2. Procedure and Effect of Termination. In the
event of termination of this Agreement pursuant to Section 7.1 hereof,
written notice thereof shall forthwith be given to the other parties
hereto and this Agreement (other than Section 6.6 hereof and as provided
in paragraph (b) below) shall terminate and the transactions contemplated
hereby shall be abandoned without further action by the parties hereto.
If this Agreement is terminated as provided herein:
(a) all information with respect to the Business or the
Company received by and in the possession of Buyer, SEi or any Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with Buyer or SEi shall be
returned to the Seller or destroyed by Buyer or SEi;
(b) any termination pursuant to subparagraph (b), (c),
(d), or (e) of Section 7.1 shall not be deemed a waiver of any rights or
remedies otherwise available under this Agreement, by operation of law or
otherwise; and
<PAGE> 32
(c) all filings, applications and other submissions made
pursuant to Section 6.3 hereof or prior to the execution of this Agreement
in contemplation thereof shall, to the extent practicable, be withdrawn
from the agency or other Person to which made.
ARTICLE VIII
CONDITIONS TO BUYER'S AND SEI'S OBLIGATIONS
Each and every obligation of Buyer and SEi to consummate the
transactions described in this Agreement shall be subject to the
fulfillment, or the waiver by Buyer and SEi on or before the Closing Date,
of the following conditions precedent:
Section 8.1 The Seller's Closing Deliveries. The Seller
shall have delivered, or caused to be delivered, to Buyer and SEi at or
prior to the Closing, unless specifically waived by Buyer and SEi in their
sole discretion, each of the following:
(a) the Registration Rights Agreement and the Pledge and
Escrow Agreement referenced in Section 6.8, in each case executed by the
Seller and, in the case of the Pledge and Escrow Agreement, by the Escrow
Agent;
(b) the employment agreements referenced in Section 6.8
executed by the Company and the Seller;
(c) valid and binding consents of all Persons whose
consent or approval is required to be set forth in Sections 4.5 and 4.6 of
the Disclosure Schedule;
(d) three separate guaranteed stock powers duly endorsed
in blank and a Certificate of Foreign Status on Form W-8; and
(e) the certificates referenced in Section 8.2 and 8.3.
Section 8.2. Representations and Warranties True. The
representations and warranties of the Seller contained in this Agreement,
as modified by the Disclosure Schedule, shall have been true on the date
hereof in all material respects, and shall be true on the Closing Date in
all material respects with the same effect as though such representations
and warranties were made on and as of such date and the Seller shall have
delivered to Buyer and SEi on the Closing Date a certificate, dated as of
the Closing Date, to such effect.
Section 8.3. Performance. The Seller shall have, in all
material respects, performed and complied with all covenants required by
this Agreement to be performed or complied with by them prior to or at the
Closing and the Seller shall have delivered to Buyer and SEi on the
Closing Date a certificate, dated as of the Closing Date, to such effect.
<PAGE> 33
Section 8.4. Governmental Consents and Approvals. All
necessary and appropriate governmental consents, approvals and filings
shall have been obtained or made and all applicable waiting periods
(including any extensions thereof) relating thereto shall have expired or
otherwise terminated.
Section 8.5. No Injunction or Proceeding. No governmental or
regulatory authority, agency or commission, including courts of competent
jurisdiction, domestic or foreign, shall have issued an order, decree, or
ruling or taken other action, restraining, enjoining or otherwise
prohibiting the transactions contemplated hereby, which order, decree,
ruling or other action remains in effect.
ARTICLE IX
CONDITIONS TO THE SELLER'S OBLIGATIONS
Each and every obligation of the Seller to consummate the
transactions described in this Agreement shall be subject to the
fulfillment, or the waiver by the Seller, on or before the Closing Date,
of the following conditions precedent:
Section 9.1. Delivery of Purchase Price Shares. Buyer and SEi
shall have delivered or caused to be delivered the Purchase Price Shares
in accordance with Article III hereof.
Section 9.2. Buyer's and SEi's Closing Deliveries. Buyer and
SEi shall deliver, or cause to be delivered, to the Seller at the Closing,
unless specifically waived by the Seller in her sole discretion, each of
the following:
(a) the Registration Rights Agreement and the Pledge and
Escrow Agreement referenced in Section 6.8, executed by SEi and, in the
case of the Pledge and Escrow Agreement, the Buyer and the Escrow Agent;
(b) a certified copy of the resolutions of the Board of
Directors of SEi authorizing the execution, delivery and performance of
this Agreement and the Related Agreements and the consummation of
transactions contemplated hereby and thereby; and
(c) the certificates referenced in Sections 9.3 and 9.4
hereof.
Section 9.3. Representations and Warranties True. The
representations and warranties of Buyer and SEi contained in this
Agreement, as modified by the Disclosure Schedule, shall have been true on
the date hereof in all material respects and shall be true on the Closing
Date in all material respects, with the same effect as though such
representations and warranties were made on and as of such date, and Buyer
and SEi shall have delivered to the Seller on the Closing Date a
certificate, dated as of the Closing Date, to such effect.
<PAGE> 34
Section 9.4. Performance. Buyer and SEi shall have, in all
material respects, performed and complied with all covenants required by
this Agreement to be performed or complied with by them prior to or at the
Closing and Buyer and SEi shall have delivered to the Seller on the
Closing Date a certificate, dated as of the Closing Date, to such effect.
Section 9.6. Governmental Consents and Approvals. All
necessary and appropriate governmental consents, approvals and filings
shall have been obtained or made and all applicable waiting periods
(including any extensions thereof) relating thereto shall have expired or
otherwise terminated.
Section 9.7. No Injunction or Proceeding. No governmental or
regulatory authority, agency or commission, including courts of competent
jurisdiction, domestic or foreign, shall have issued an order, decree, or
ruling or taken other action, restraining, enjoining or otherwise
prohibiting the transactions contemplated hereby, which order, decree,
ruling or other action remains in effect.
ARTICLE X
INDEMNIFICATION
Section 10.1. Indemnification by the Seller.
(a) The Seller agrees to reimburse, indemnify and hold
SEi, the Buyer, the Company, and their respective officers, directors,
shareholders, employees and agents harmless from and against any and all
demands, claims, actions, suits, liabilities, damages, losses, judgments,
costs and expenses (including, without limitation, reasonable attorneys'
fees but excluding any claims for punitive damages or consequential
damages) relating to, resulting from or arising out of:
(i) any breach or inaccuracy of the representations or
warranties made hereunder by the Seller;
(ii) any breach or violation of any covenant or
agreement made hereunder by the Seller.
Section 10.2. Indemnification by Buyer and SEi.
(a) Buyer and SEi jointly and severally agree to
reimburse, indemnify and hold the Seller harmless from and against any and
all demands, claims, actions, suits, liabilities, damages, losses,
judgments, costs and expenses (including, without limitation, reasonable
attorneys' fees but excluding any claims for punitive damages or
consequential damages) relating to, resulting from or arising out of:
<PAGE> 35
(i) any breach or inaccuracy of the representations or
warranties made hereunder by Buyer and SEi; or
(ii) any breach or violation of any covenant or
agreement made hereunder by Buyer and SEi.
Section 10.3. Survival of Representations. Except for the
representations and warranties contained in Sections 4.1, 4.2, 4.4, 4.9
and 4.25, the representations and warranties made pursuant to this
Agreement including, without limitation, all representations and
warranties made in any exhibit or schedule or certificate delivered
thereunder, shall survive until and through the second anniversary of the
Closing Date at which time such representations and warranties shall
expire. The representations and warranties set forth in Sections 4.1 and
4.2 of this Agreement shall survive until and through the tenth
anniversary of the Closing Date. The representations and warranties set
forth in Section 4.4 of this Agreement shall survive indefinitely. The
representations and warranties set forth in Sections 4.9 and 4.25 of this
Agreement shall survive until and through six months after all amounts for
Taxes applicable to the Company, their respective employees and the
transactions contemplated by this Agreement, in the case of Section 4.9,
and all amounts for Grants from the government in the case of Section
4.25, become final and non-appealable for all periods through or including
the Closing Date, at which time such representations and warranties shall
expire.
Section 10.4. Indemnification Claims Procedures. All claims
for indemnification by any party seeking indemnification (the "Indemnified
Party") from another party (the "Indemnifying Party") under Sections 10.1
and 10.2 shall be asserted and resolved as follows:
(a) In the event that any claim or demand for which the
Indemnifying Party would be liable to any Indemnified Party hereunder is
asserted against or sought to be collected from any Indemnified Party by a
third party, the Indemnified Party shall promptly notify the Indemnifying
Party (and any known pertinent insurance carrier) in reasonable detail of
such claim or demand and the amount or the estimated amount thereof to the
extent then feasible (which estimate shall not be conclusive of the final
amount of such claim and demand) (the "Claim Notice"). The Indemnifying
Party shall have thirty (30) days from the personal delivery or mailing of
the Claim Notice (the "Notice Period") to notify the Indemnified Party
whether or not the Indemnifying Party desires to defend the Indemnified
Party against such claim or demand. All costs and expenses incurred by
the Indemnifying Party in defending such claim or demand shall be a
liability of, and shall be paid by, the Indemnifying Party. In the event
that the Indemnifying Party notifies the Indemnified Party within the
Notice Period that it desires to defend the Indemnified Party against such
claim or demand and except as hereinafter provided, the Indemnifying Party
shall have the right to defend the Indemnified Party by counsel of the
Indemnifying Party's own choosing, either in the Indemnifying Party's
name, or the Indemnified Party's name by appropriate proceedings. If any
Indemnified Party desires to participate in, but not control, any such
defense or settlement it may do so at its sole cost and expense and, in
any event, the Indemnified Party shall cooperate with the Indemnifying
Party and such counsel. To the extent the Indemnifying Party shall
control or participate in the defense or settlement of any third party
claim or demand, the Indemnified Party shall give to the Indemnifying
Party and its counsel access to, during normal business hours, the
<PAGE> 36
relevant business records and other documents, and shall permit them to
consult with the employees and counsel of the Indemnified Party to the
extent consistent with the application of relevant evidentiary privileges.
The Indemnifying Party shall keep the Indemnified Party reasonably
apprised of the course of any negotiations or proceedings and the
Indemnifying Party shall not settle any claim or demand without the
consent of the affected Indemnified Party, which consent shall not be
unreasonably withheld or unduly delayed. As soon as reasonably
practicable after the Indemnifying Party has reached a final decision as
to whether or not all or any portion of the obligations related to such
claim or demand are obligations for which the Indemnifying Party is
required to indemnify such Indemnified Party hereunder and, in any event,
prior to entering into any such settlement or other final resolution of
any claim or demand, the Indemnifying Party shall notify the Indemnified
Party in writing of its position as to whether or not all or any portion
of the obligations related to such claim or demand are obligations for
which the Indemnifying Party is required to indemnify such Indemnified
Party in accordance with this Article X.
(b) If the Indemnifying Party elects or is deemed to have
elected not to take over the defense of any such claim or demand, the
Indemnified Party shall have the right to defend, compromise and settle
such claim or demand on such terms as the Indemnified Party in his, her or
its discretion may determine, subject to the prior consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or
unduly delayed, and the Indemnifying Party shall continue to be bound to
indemnify the Indemnified Party in accordance with and to the extent
provided under the terms of this Article X. The Indemnified Party shall
or shall direct in writing its counsel to deliver to the Indemnifying
Party copies of all correspondence and other matters relating to such
claim or demand. Notwithstanding the foregoing, to the extent that the
claim or demand involves or could result in claims against, or potential
liability of, the Indemnifying Party the extent or nature of which were
not known by the Indemnifying Party as of the date the Indemnifying Party
elects or is deemed to have elected not to take over the defense of such
claim or demand, the Indemnifying Party shall, by written notice to the
Indemnified Party, be entitled to take over the defense of such claim or
demand.
(c) In the event an Indemnified Party should have a claim
against the Indemnifying Party hereunder which does not involve a claim or
demand being asserted against or sought to be collected from it by a third
<PAGE> 37
party, the Indemnified Party shall promptly send a Claim Notice with
respect to such claim to the Indemnifying Party.
(d) The Indemnified Party's failure to give reasonably
prompt notice to the Indemnifying Party of any actual, threatened or
possible claim or demand which may give rise to a right of indemnification
hereunder shall not relieve the Indemnifying Party of any liability which
it may have to an Indemnified Party except to the extent the failure to
give such notice prejudiced the Indemnifying Party.
Section 10.5. Right of Set-Off. In addition to any other
remedy available in equity or at law, the Indemnified Party shall be
entitled to set off the amount of any obligation for which it is entitled
to be indemnified under this Article X against any amounts payable to the
Indemnifying Party hereunder or under any other agreement contemplated
hereby.
Section 10.6. Limitation of Liability. (a) Notwithstanding
any other provision of this Agreement, neither the aggregate liability
hereunder of the Buyer and SEi on the one hand, nor the aggregate
liability hereunder of the Seller on the other hand, shall exceed
DM9,200,000.
(b) The Seller shall be liable to indemnify the Buyer for
claims on account of Taxes only to the extent additional Taxes resulting
from field audits are not compensated by lowered Tax burdens in following
years resulting from such additional Taxes. To the extent additional
capitalization of items originally treated as expenses entail additional
depreciations in future years, the liability of the Seller on account of
additional Taxes shall be reduced by the discounted cash value of the
additional depreciation, discounted at a rate of 5% per year.
ARTICLE XI
MISCELLANEOUS
Section 11.1. Governing Law. This Agreement and the rights and
obligations of the parties hereunder shall be governed by and construed in
accordance with the laws of the Federal Republic of Germany. Any disputes
arising under this Agreement shall be resolved in accordance with the
provisions of the separate Arbitration Agreement which has been executed
by the parties as of the date hereof.
Section 11.2. Entire Understanding, Waiver, Etc. This
Agreement sets forth the entire understanding of the parties and
supersedes any and all prior or contemporaneous agreements, arrangements
and understandings relating to the subject matter hereof, and the
provisions hereof may not be changed, modified, waived or altered except
by an agreement in writing signed by the party entitled to the benefit of
the provision(s) to be waived hereto. A waiver by any party of any of the
terms or conditions of this Agreement, or of any breach thereof, shall not
be deemed a waiver of such term or condition for the future, or of any
other term or condition hereof, or of any subsequent breach thereof.
Section 11.3. Severability; Gaps. If any provision of this
Agreement or the application of such provision shall be held by a court of
<PAGE> 38
competent jurisdiction to be unenforceable, or otherwise be or become
invalid or unenforceable, the remaining provisions of this Agreement shall
remain in full force and effect. In addition, any gap or omission in the
terms of this Agreement shall not prejudice its validity, and the
remaining provisions of this Agreement shall remain in full force and
effect. Any gap in the terms of this Agreement, whether caused by the
invalidity or unenforceability of any provision, or by an omission or
otherwise, shall be filled by a provision which legally and economically
most closely matches the intent of the parties hereto with respect to the
gap. The parties hereto undertake to enter from time to time into such
amendments as are necessary or appropriate to document the provisions
filling such gaps.
Section 11.4. Captions. The captions herein are for
convenience only and shall not be considered a part of this Agreement for
any purpose, including, without limitation, the constructions or
interpretation of any provision hereof.
Section 11.5. Notices. All notices, requests, demands and
other communications (collectively, "Notices") that are required or may be
given under this Agreement shall be in writing. All Notices shall be
deemed to have been duly given or made: if by hand, immediately upon
delivery; if by telecopier or similar device, immediately upon sending,
provided notice is sent on a Business Day during the hours of 9:00 a.m.
and 6:00 p.m. at the location of the party receiving the Notice, but if
not, then immediately upon the beginning of the first Business Day after
being sent; if by FedEx, Express Mail or any other reputable overnight
delivery service, three Business Days after being placed in the exclusive
custody and control of said courier; and if mailed by certified mail,
return receipt requested, ten Business Days after mailing.
Notwithstanding the foregoing, with respect to any Notice given or made by
telecopier or similar device, such Notice shall not be effective unless
and until (i) the telecopier or similar advice being used prints a written
confirmation of the successful completion of such communication by the
party sending the Notice, and (ii) a copy of such Notice is deposited in
first class mail to the appropriate address for the party to whom the
Notice is sent. In addition, notwithstanding the foregoing, a Notice of a
change of address by a party hereto shall not be effective until received
by the party to whom such Notice of a change of address is sent. All
Notices are to be given or made to the parties at the following addresses
(or to such other address as either party may designate by Notice in
accordance with the provisions of this Section):
(a) If to the Seller:
Ms. Hedi Fabinyi
Lerchenbergstr. 49
73733 Esslingen
Federal Republic of Germany
Telephone: 011 49 711 32 47 63
Facsimile: 011 49 711 93 97 95 91
<PAGE> 39
(b) If to SEi:
Sykes Enterprises, Incorporated
100 North Tampa Street
Suite 3900
Tampa, Florida 33602
Attention: Scott J. Bendert,
Vice President-Finance
Telephone: 001 (813) 274-1000
Facsimile: 001 (813) 273 0148
(c) If to Buyer:
Sykes Enterprises GmbH
c/o Sykes Enterprises, Incorporated
100 North Tampa Street
Suite 3900
Tampa, Florida 33602
Attention: Scott J. Bendert,
Vice President-Finance
Telephone: 001 (813) 274-1000
Facsimile: 001 (813) 273 0148
Section 11.6. Successors and Assigns. Neither this Agreement
nor any of the rights or obligations arising hereunder shall be assignable
by any party without the prior written consent of the other parties
hereto; provided, however, that notwithstanding the foregoing SEi may
assign its rights and obligations under this Agreement to any wholly owned
subsidiary of SEi which agrees in writing to be bound by and to perform
fully all of SEi's obligations hereunder and, provided that in the event
of any such assignment by SEi, SEi shall remain liable hereunder for the
performance of SEi's obligations hereunder notwithstanding such
assignment.
Section 11.7. Parties in Interest. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and
their respective successors and permitted assigns. Nothing in this
Agreement, express or implied, shall confer upon any Person, other than
the parties hereto, and their successors and permitted assigns, any rights
or remedies under or by reason of this Agreement.
Section 11.8. Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but
all of which, together, shall constitute one and the same instrument.
Section 11.9. Construction of Terms. Any reference herein to
the masculine or neuter shall include the masculine, the feminine and the
neuter, and any reference herein to the singular or plural shall include
the opposite thereof. The parties to this Agreement acknowledge that each
<PAGE> 40
party and counsel to each party has participated in the drafting of this
Agreement and agree that this Agreement shall not be interpreted against
one party or the other based upon who drafted it.
Section 11.10. SEi Guarantee. SEi hereby guarantees for the
benefit of the Seller the full and prompt performance by the Buyer of all
of its obligations toward the Seller under this Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the day and year first above written.
SELLER:
/s/ Hedi Fabinyi
Hedi Fabinyi
SEI:
SYKES ENTERPRISES, INCORPORATED
/s/ Scott J. Bendert
Scott J. Bendert, Vice President - Finance
BUYER:
SYKES ENTERPRISES GMBH
/s/ Scott J. Bendert
Scott J. Bendert, Director
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement of Sykes Enterprises, Incorporated on Form S-3 (File No.
333-38513) and the registration statement of Sykes Enterprises,
Incorporated on Form S-8 (File No. 333-23681) of our report dated
February 11, 1998, on our audits of the consolidated financial state-
ments and financial statement schedules of Sykes Enterprises,
Incorporated and subsidiaries as of December 31, 1995 and 1996, and
for the year ended July 31, 1994, the five months ended December 31,
1994, and the year ended December 31, 1995 and 1996, which report is
included in this Current Report on Form 8-k.
Tampa, Florida
February 12, 1998 COOPERS & LYBRAND L.L.P.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary consolidated financial information extracted from
Form 10-K for the year ended December 31, 1996 and is qualified in its entirety
by reference to such Form 10-K.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,298,888
<SECURITIES> 86,696,148
<RECEIVABLES> 43,017,996
<ALLOWANCES> 269,999
<INVENTORY> 0
<CURRENT-ASSETS> 135,071,976
<PP&E> 57,781,909
<DEPRECIATION> 16,353,398
<TOTAL-ASSETS> 178,526,246
<CURRENT-LIABILITIES> 24,738,828
<BONDS> 0
0
0
<COMMON> 353,204
<OTHER-SE> 136,734,190
<TOTAL-LIABILITY-AND-EQUITY> 178,526,246
<SALES> 0
<TOTAL-REVENUES> 160,010,501
<CGS> 0
<TOTAL-COSTS> 94,829,595
<OTHER-EXPENSES> 51,856,353
<LOSS-PROVISION> (492,533)
<INTEREST-EXPENSE> (156,354)
<INCOME-PRETAX> 13,973,440
<INCOME-TAX> 5,296,480
<INCOME-CONTINUING> 8,676,960
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,676,960
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>